WHAT FUTURE FOR DIRECT PAYMENTS AFTER 2020?

Alan MatthewsTrinity College Dublin, IrelandAlan.matthews@tcd.ieRoundtable on the CAP, European Parliament16 September 2015

Legacy of the 2013 CAP reformDP element CommentsBasic payment scheme 55% EU-28 DP envelope; SAPS maintained, 6 MS

fully regionalisedRedistributive 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

EU farming – addicted to support?

Two options next time

Fine-tune the 2013 direct payments structure

OR

Radical re-think of role and usefulness of direct paymentsPrevious EP reports by Tangermann (2011) and Swinbank (2012)

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?

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

Distribution of direct payments

Source: DG AGRI

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

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?

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