2020 CAP or policy post-Brexit: some proposals for discussion

20Jan2016

Summary

Simon Ward argues that to make UK farming globally competitive support should be separated from food production and targeted instead at the efficient delivery of public goods, farm diversification and re-training and R&D in areas not supplied commercially. Rural populations should be maintained by making rural areas attractive to more incomers thereby providing newer opportunities and services. Adequate rural broadband is a key component.

Simon Ward of consultants Increment Ltd and publisher of Inside Track has been thinking about how farm support should look either after the 2020 update of CAP or after a UK exit from the EU. He would be happy to receive your views at: simon.ward@increment.co.uk

Objectives 

  1. Food security 
  2. Food safety 
  3. Globally competitive agriculture through optimum resource allocation, investment in innovation and an efficient supply chain 
  4. Assistance towards reasonable rural income commensurate with other sectors 
  5. Efficient delivery of public goods such as environmental protection and greenhouse gas reduction that are not provided through market mechanisms 
  6. Cohesion 
  7. Appropriate contribution to global food security 
  8. A fair and reasonable transition allowing producers to adapt to new measures. 

Principles

  1. Consumers should communicate their preferences through the market. Market efficiency is a policy issue and includes labelling, contract enforcement and awareness of product availability. 
  2. Rural income should be maintained through developing efficient farming mechanisms and improving resource allocation (including labour) via efficient market operation (paragraph 1). 
  3. Environmental management should be delegated to national governments who are best placed to recognise environment targets but with top level targets for diversity and greenhouse gas reduction stated at EU level. Additional focus is required to maximise return on environmental expenditure. The prevention of environmental degradation should be statutory and imposed at EU level to ensure fair competition between producers. 
  4. Environmental measures should not be compulsory but encouraged by offering a competitive reward commiserate with any alternative options such as provided by Agricultural Environmental Stewardship mechanisms. 
  5. Rural populations should be maintained not through inflexibility but by making rural areas attractive to incomers from urban areas thereby providing newer opportunities and services in rural areas. 
  6. Rural growth should be encouraged through 3 and 5 with the increased disposable income making new rural businesses viable. 
  7. Policy should be neutral as far as farm size, sector and national boundaries. 
  8. The rural sector has the confidence to manage its own interests and, for example, develop appropriate risk management structures. 

Proposed mechanisms

The proposal builds on the current mechanisms in place for the 2015 CAP reform.

  1. The 30% greening payment should be transferred to pillar 2. This would substantially increase the funding available in pillar 2 changing the focus from current income provision to investment in long term farm profitability and sustained income improvement. 
  2. The remaining direct payments in Pillar 1 should be phased out in equal steps over the life of the reform.  
  3. Pillar 2 should be more clearly defined to provide: 

     a. environmental measures to maintain diversity and combat climate change

     b. retraining and farm diversification with the specific intention of reducing the number of those directly              employed in agriculture and to increase farm size.

     c. marketing of specialist products and improving the efficiency of the supply chain

     d. research and development to maintain competiveness in the global market

Prioritisation and percentage of the budget allocated to each measure should be determined by the member state to reflect national priorities but with a minimum of 25% used for environmental measures.

For items b, c and d payments may be in the form of grant, preferential loan interest rate, equity share or a profit shares. The objective is to provide a greater stake in the provision of funding and generate capital available for subsequent projects.

4. Pillar 2 funding

The EU should continue to adopt common safety standards but recognise that where a measure may be considered subjective (e.g. the dangers from unpasteurised cheese or GM crops) the consumer should be permitted to determine whether to consume the product through accurate labelling. There should be no national bans or restrictions on trade within the EU. Welfare standards are subjective and additional measures (e.g. production of foie gras) should be determined by the consumer. However, there should be a common terminology (e.g. barn egg production is used to describe very different systems).

Pesticide and antibiotic approval should include measures designed to maintain their efficacy and where products are used prophylactically, encourage development of predictive systems. Pesticide use is an important and safe element of European farming and important to maintaining international competitiveness.

Pillar 1 While Pillar 1 remains there should be no discrimination on the basis of scale of operation and payment in all countries should be equalised at the start of the reform period. However, where payment is creased the additional funding should automatically be transferred into pillar 2. There should be no discrimination based on other activity but only on the actual land use. Where a land parcel is not used to produce an agricultural product for two or more years it should no longer be eligible for Pillar 1 support.

Differences in subsidy are no longer justified since payment does not relate to any particular aspect of the business other than land area. However, as part of the phasing process member states may decide to introduce regional differences in payment. Coupled payments should be phased out through Pillar 1 although they may be maintained for environmental reasons through Pillar 2. Energy crops should be excluded from Pillar 1 from the start of the reform.

Pillar 2. Environmental measures While notoriously difficult, targets need to be identified and costs applied for environmental goals. Costing would be defined nationally, to reflect differing national priorities, albeit approved by the Commission. Measures should be applied regionally with farmers bidding for adoption or through the provision of tradable obligations so that those who can most effectively supply the environment measure do so and those with highly productive businesses are not significantly encumbered. Environmental delivery options such as pollen and nectar effectively become treated as an additional crop choice.

We already have an effective price for carbon as defined by the EU ETS. This value should be applied to agricultural land use change so the penalty for destroying grassland or woodland should be based on the value of the carbon each year from the change in use (i.e. not the total loss over the life of the change as used for woodland off-sets at present). The obligation may also be traded between farmers in order to allow some flexibility to respond to changes in profitability. Land use change may over the period be included in the EU ETS creating both buyers and sellers.

Environmental offset arrangements should be encouraged where appropriate so that developers of land have to pay farmers to create enhanced habitat elsewhere.

Areas with natural constraints where production is to be maintained for environmental reasons or to prevent depopulation (where new residents cannot be attracted to the area) may also be made from this allocation provided an unfair productive advantage is not established.

Pillar 2. Retraining and diversification One of the greatest social stresses is caused where farming activity is maintained in the short-term, while in the longer term, the business becomes economically unviable. Farmers are in some regions relatively isolated with little or no experience of economic activity outside of farming making change slower than in other sectors making change difficult.

Training and diversification is a high priority to assist with economic independence and alternative employment.

The emphasis on retraining is also to allow neighbouring businesses to expand in order to become economically more sustainable while providing income assistance through the rent to the farmer making the change. In some areas incentives may be applied by the national governments to encourage expansion through provision of reduced taxation on the letting of rural land. A strong rental sector and employment provided by larger commercial farming businesses actively encourages entrepreneurial new entrants.

In order to maintain rural population rural broadband and internet based business becomes key components particularly where other forms of communication are poor. It is not essential that the rural population remains fixed but free flow from and into urban areas should be encouraged. Thus as broadband develops a large number of professions may be attracted from more urban areas to work in quality rural environments and help maintain the rural population and incomes.

Pillar 2. Marketing and supply chain efficiency  There is concern that there could be a loss of local unique products and/or loss of producers in areas where the supply chain is inefficient. In addition, to ensure that producers are able to compete globally even efficient supply chains should be encouraged to develop further.

Producers with a unique product should be encouraged to promote awareness. There should be an EU sponsored web-based marketing portal to promote awareness of unique EU products to consumers and retailers and to provide the consumer with confidence in the supplier. Subsequent funding should be via a commission on sales made.

Investment in infrastructure should be encouraged. There should be no discrimination between farmer groups and commercial organisations taking goods from farmer producers providing there is a reasonable mechanism to ensure that any additional value is shared and there is clear and material improvement.

Longer term contracts with longer periods of notice should be encouraged. Where retailers can identify opportunities to gain value from the consumer through an attribute provided by the farmer intermediaries should be encouraged to become toll processors. Long-term contracts based on share of the processors realised value should be encouraged to promote long term contract arrangements and mutual dependence (it is key that both parties would wish to cease production at the same economic point) (See Queensland Sugar Contract). These measures are currently available through the quality designations: Protected Designation of Origin (PDO), Protected Geographical Indication (PGI) and Traditional Speciality Guaranteed (TSG). Web-based supply management and buying to reduce the cost of distribution and enable farmers to bulk orders should be encouraged.

Pillar 2. Research and Development This should be focussed on technical development that is not supplied commercially such as predictive systems to refine occasions for application or improve infield targeting of application.

However, funding should also be available for other production related developments and to commercial companies to reduce development risk.

Funding should not be restricted to developments shared throughout the industry but also include funding to farmer groups to enable them to gain competitive advantage and promote competition.

Simon Ward, 20 January 2016