What are the possible directions for reform of EU direct payments to farmers after 2020?

1. WHAT FUTURE FOR DIRECT
PAYMENTS AFTER 2020?
Alan Matthews
Trinity College Dublin, Ireland
Alan.matthews@tcd.ie
Roundtable on the CAP, European Parliament
16 September 2015

2. Legacy of the 2013 CAP reform
DP element Comments
Basic payment scheme 55% EU-28 DP envelope; SAPS maintained, 6 MS
fully regionalised
Redistributive
payment/capping
9 MS capping (100% reduction) at amounts between
€150-300K; 15 MS applying min 5% deduction above
€150K: 8 MS using redistributive payment
Green payment 30% DP envelope
Young farmer scheme Compulsory
Natural constraint support Only 1 MS (DK) using
Coupled payment support 10% DP envelope, all MS exc DE using
[Small farm scheme] 15 MS using
Flexibility between Pillars Net €3bn transferred from P1 to P2
Crisis reserve Funded under Financial Mechanism
Cross compliance Simplified list, WFD and SUP obligations to be added

3. EU farming – addicted to support?

4. Two options next time
Fine-tune the 2013 direct payments structure
OR
Radical re-think of role and usefulness of direct payments
Previous EP reports by Tangermann (2011) and Swinbank (2012)

5. Fine-tuning 2013 outcome for DPs
• Where might changes be made?
• Push further/complete external convergence
• Complete move to regionalised basic payment in those MS which
chose partial convergence
• Integrate SAPS countries into the entitlement system
• Adapt (strengthen?) obligations for green payment
• Re-examine role of coupled payments
• Continue move of ANC payments from P2 to P1
• Revisit capping/redistributive payment
• Rethink funding of crisis reserve
• Permit further voluntary transfers between P1 and P2
• Simplification (remaining after the expected Hogan package)
• Budget available?

6. Are DPs fit for purpose?
• Defenders argue:
• Provide necessary income support to farmers
• But partly capitalised into land values and rents, severely restricts
generational renewal, most support goes to farms with high incomes
• Help to stabilise farm incomes
• But encourage specialisation (monoculture) and crowd out private
alternatives for risk management
• Help to ensure supply of public goods (prevent farmland
abandonment, cross compliance, now green payment)
• But payments bear no relationship to costs farmers incur
• Compensate for high production costs due to stricter EU
regulations e.g. food safety, animal welfare
• But all countries face specific cost disadvantages and other industries
are regulated without compensation

7. Distribution of direct payments
Source: DG AGRI

8. What CAP needs to do
• Improve competitiveness of EU agriculture and contribute
to growth and jobs
• DPs may indirectly help through improving creditworthiness of
farmers
• Help agriculture mitigate and adapt to climate change
• DPs may make situation more difficult
• Improve sustainability and provision of public goods
• DPs may contribute marginally through cross-compliance and
green payment
• Help to manage crisis situations
• Function of market management measures rather than DPs which
do not vary in response to market conditions
• Ensure food security
• Depends more on a robust trading system

9. A radical alternative for EU farm payments
• Emphasise a results-based approach
• Environment, climate change require location-specific measures on
contractual basis, with local engagement
• Payments should be provided not per hectare but per unit of public
good provided
• Not just decoupled but targeted payments
• Can this be achieved within Pillar 1? In my view, no.
• What needs to be done to make transfer of funds to
Pillar 2 politically more acceptable?
• Address top-heavy programming requirements which contribute to
long delays in approval?
• Address co-financing imbalance?
• Address administrative requirements which result in incomplete
take-up?

10. Political economy of further reform
• All reforms made difficult by political need to avoid
redistribution among member states
• Further external convergence unlikely
• Needs budget redistribution agreement securing pattern of net
receipts and contributions to allow ‘disinterested’ review of sectoral
policies
• Huge political reform ‘fatigue’ – but may be unavoidable if
greening turns out to be totally ineffective
• The political timetable (EP elections and new Commission
in 2019) plays into fine-tuning camp
• Will be influenced by economic context of the sector in
second half of this decade