June 9, 2009
The second pillar of the CAP, called rural development, works toward the reinforcement of the “health check” concluded under the French presidency in November 2008. It is considered by some actors as the desirable future of CAP after 2013. Thus, the transfer of a portion of direct aid from the first pillar of the CAP (agricultural production) towards the second pillar of the PAC (rural development) should grow to 10% in 2013. Nevertheless, this evolution is not taken within the Council of ministers, all the more because of the mediatization of the 2008 food crisis which might have consolidated the CAP in its productive and food-related dimensions in the eyes of a number of member states.
Three Sensitive Issues
The health check launched in November 2007 could only exacerbate the differences between stakeholders in the future of the CAP. In the background, three major sources of tension regularly lead the debate over the course of CAP reforms.
1) The Organization of agricultural markets rests on the objectives of the CAP defined in the Treaty of Rome, but has been strongly questioned since the 1992 reform. The liberalization announced by the European Commission and desired by certain countries (United Kingdom, the Netherlands, Denmark, Sweden) clashed with the reality of markets. The latter have shown that they are not self-regulating but much the opposite, as witnessed in the price boom in primary materials since 2008. A number of states have scaled down their attachment to a CAP which stabilizes markets by fighting against the wild price volatility that benefits neither producers nor consumers. The pace of the increase in dairy quotas until 2015 is an emblematic example. Finally, and after long discussions, the quotas will increase by 1% per year and 5% per year for Italy who chronically exceeds its quota. In spite of this, will still not be enough to cover the national demand for milk products. After the echo of the food crisis in spring 2008, the current economic and financial crisis amplified the need for regulation. The French presidency wanted this regulation in order to maintain instruments of intervention in grains and is demonstrating the greatest prudence in the milk sector. Nevertheless, one cannot but notice that the boundaries of regulation are eroding: in addition to the end of quotas, intervention on grains is restricted and limited to bread wheat.
2) Direct Aid makes up a crucial source of tension. Per hectare aids benefit the biggest or most intensive farms above all else. Their justification is so contested today that the aids have nearly lost their legitimacy in the eyes of public opinion. Certain states like Germany or the UK have included them since 2005. They chose a support model that orients them towards a unique sum independent of production levels. This policy could be applied by 2014 but France and other member states refused it, turning their backs on the goal of redistributing aid towards the most disadvantaged sectors. It is the question of targeting aid money that is being raised and needs to be resolved by 2013.
3) Financing the second pillar of the CAP, rural development, is equally subject to tensions. This policy, instituted by the 1999 reform, is fed by the transfer of a portion of direct aids from the first pillar. But a majority of states refuse to co-finance the full 50% demanded by the regulation. Moreover, agricultural organizations reject all transfers that are supplementary to these aids and consider the second pillar as their exclusive domain. On the other hand, the project being brought forward by the European Commission of making this the heart of the CAP, supported by organizations of ecologists and rural development, is stumbling over poor expenditure control over measures denounced by them as well as the administrative complexity of the mechanism. Finally, a more important transfer from the first to the second pillar of the CAP was acquired after growing to 10% in 2013 (instead of the 13% initially proposed by the European Commission) against 5% today.
But this architecture is not safe from new fissures: the second pillar will be solicited by farmers to compensate for the deregulation of markets of the first pillar unless the objectives of measures taken in favour of sustainable development are clarified.
The Second Pillar of the CAP is not up to the challenges
The “new challenges” allow the Directorate-General for Agriculture and Rural Development to integrate emerging problems that have an impact on the agricultural sector. The themes of climate change, renewable energy, biodiversity, water systems management and innovation make up a first list that the Council of ministers added milk to on November 20, 2008.
These “new challenges” listed by the commission are not new themselves. Climate change, energy autonomy, biodiversity, water management and innovation are key elements in the functioning of ecosystems and agriculture. But these challenges constitute an opportunity to orient European agriculture towards a “sun-food agenda”: agriculture that works foremost with photosynthesis and depends as little as possible on petrol. This is agriculture in synergy with regional food systems and agriculture that reconciles itself with its ecosystem.
However, we have the right to question the pertinence of the responses coming from the health check. Rural development oriented by the European Agricultural Fund for Rural Development (EAFRD) remains on the margins compared to other funds of the first CAP pillar. Is this an appropriate response? Would it not be much better to use Article 68 on the inside of the first pillar – which is a way of driving second pillar actions without the constraint of co-financing – to generate a lever effect towards rural development on practices. Article 68 allows for the support of types of agriculture that are important to environmental protection and biodiversity, more energy efficient and capable of limiting the effects of climate change. Examples include organic agriculture, pasture raising or harvesting of proteins that the French government decided to increase support for in February 2009 through a partial reorientation of state aid.
Milk among new challenges
In the final negotiation of the health check, milk became the fifth element on the list of “new challenges,” behind four other priorities for the future of European agricultural cited above. Why milk? Germany, the primary milk producer of the EU, accepted that milk quotas would be raised but in return they fought to obtain a milk fund in the agreement of November 20, 2008. This milk fund allows for the financing of “measures accompanying the restructuring of the milk sector” via the pillar of rural development.
Concretely, the milk fund will offer investment aid to improve the competitiveness of farms and cooperatives in the face of the reduction of quotas in 2015. These actions will be financed with money coming from the “progressive” transfer of 4% of the CAP budget from the first pillar to the second. This modulation targets farms earning more than 300 000 euros. It will occur alongside an addition to the obligatory transfer that will pass from 7% in 2009 to 10% in 2010. From now on, how can we know that rural development is being better financed? According to the European Commission, this will procure an additional 3.241 billion euros between 2010 and 2013. These measures are 75% financed by the European Union (90% in the most disadvantaged regions).
In reality, each member state is free to rank its “new challenges,” for example to concentrate all of their means on milk and ignore the others. According to German ecological organizations, the Bundeslander, who are the competent authorities for rural development programmes in Germany, have the intention of devoting the biggest portion of this money to the construction of new dairy barns in the milk sector. This measure will intensify production while accepting a lower milk price with less producers and less pastures in the offing.
What future for Rural Development?
In 2009, rural development remains mostly the business of farmers and, in a lesser sense, that of foresters and food-processing businesses. This sector is still finding itself between farming, forestry, rural and urban. However, with EAFRD, rural development policy remains the instrument chosen to respond to new CAP challenges. The post-2013 financial commitment is an opportunity to redefine the priorities covered by the second pillar of the CAP. Currently, it is considered more as a catalogue of measures without clear strategic direction because, according to Mariann Fischer-Boel, the Commissioner responsible for agriculture, even the mountain could become a strategic axis for EAFDR. Thus, according to the regions in the west of France who hope to reap the benefits of CAP in the future, “the true second pillar of CAP, realized by EAFDR, operates a dangerous confusion between agricultural policy and rural development policy. It seems to consist of two very distinct policies that would both benefit from being clearly identified. Do we need to implement a strict separation between agricultural policy and rural development policy?” Regarding the conference of peripheral maritime regions, it “proposes to integrate the rural development policy, currently constituted by axes 3 and 4 of EAFDR, into a refounded territorial development policy independent of the PAC.”
Otherwise, in the short term, the financial crisis will not spare the CAP and rural development. The capacities of co-financing of certain member states are weakest, particularly in central Europe. Thus, we are awaiting a reduction of more than 40% of Hungarian complimentary national direct payments – the famous “top ups.” This decision would be taken under the framework of an emergency budget measure. As well, strong rumours announcing the reduction of Estonian and Lithuanian top ops on the order of 10% due to state subsidies for agriculture were reduced by 50% in 2009. Finally, the Irish government announced the reduction of public spending on agriculture in 2009, notably via the suspension of pension schemes, subsidies for young farmers, to disadvantaged zones and the suckler cow premium. From now on, the debates about the co-financing of CAP, including the first pillar, should intensify.
With the addition of milk, an umpteenth deregulated economic sector in the first pillar, among the “new challenges” finance-able by the 2nd pillar, the compromise of November 20, 2008 shows that it is time to find a more integrated and less schizophrenic policy between these two pillars. To do this, it will be necessary to:
– Reinforce the objective of stabilizing agricultural prices within the European Union and rethink the European strategy in favour of food security by authorizing the constitution of strategic stocks for principal grains. This calls for a discussion on tariff and non-tariff barriers notably vis-à-vis agricultural and food products where the modes of production would not be sustainable on the ecological, energy and social map. This supposes a prior renegotiation of the agricultural agreement at the WTO.
– Turn the CAP into a real food policy that fights and food shortages and diseases linked to over-consumption. This policy would propose solutions for disadvantaged fractions of the European population without access to a stable and healthy diet. It would promote health education oriented towards quality and would reconcile itself with European food cultures.
– Inscribe the environment into the CAP sustainably by considering it as an asset, a factor of production for green growth and not as an administrative constraint. There are a number of fundamental alternative lanes that the CAP should support better. Three examples include: the economies of inputs (fertilizer, pesticides, fuel) and therefore energy, biodiversity as an auxiliary of production to reduce pesticides, and systems of high natural value based on the functioning of ecosystems.
– Break the limits on action toward the second pillar of the CAP which, currently, is not rural development. This second pillar is more a catalogue of measures without a clear strategic direction. In addition, the second pillar is no longer the solely the farmers’ turf. It is therefore necessary to set criteria of sustainability applicable to current EAFDR programmes (notably axes 1 and 2) in order not to invest public money in actions contrary to sustainable development.Author : Challenge for Europe