Reformed CAP even less irregularity proof

Further on the topic of a previous post, it seems that the EU’s Common Agricultural Policy (CAP) is being reformed in exactly the wrong way. At least if you agree (as any sensible person would do) with the EU’s Court of Auditors that public money should only be spent according to criteria that can be checked. But there could be an alternative: giving local voters a direct say on agricultural policy.

When the old CAP was devised, the central idea was to safeguard Europe’s food production. We are talking about the 1950s, just after two world wars and a deep economic crisis, and before the invention of the common market, globalisation and intensive farming. At that time, a continuous and sufficient supply of food did not seem as obvious as it is today in the industrialised world. As we know now, the CAP’s system of production and export subsidies and border tarrifs, stimulated intensive farming methods and high production levels all right. But they also discouraged diversification of the agricultural sector and prevented the disappearance of inefficient farms, to the detriment of innovation within the EU and of more cost-effective producers outside the EU – most notably those in development countries.

Many negative effects are attributed to the CAP, but I take a nuanced position there. Had there been no CAP and had agriculture been left to the market, I doubt that the pressure on farmers to intensify their production levels had been weaker, and that the state of the environment and of animal welfare would have been better today. Similarly, many of the examples used to underpin claims that CAP export subsidies damage the third world are not as clear cut as they are often presented. For instance, the biggest beneficiaries of the EU reducing its subsidies for sugar exports and its tariffs on banana imports are not the small farmers from the poorest countries. They benefited from preferential trading schemes allowing them to sell large shares of their production to the EU against internal EU prices that are considerably higher than on the world market – an advantage they are now set to lose. As EU market prices lower and imports are liberalised, they will probably lose their market position to large companies in much wealthier countries like New Zealand, Brazil and the United States – not without reason the strongest forces behind the WTO pressure to reform.

Where I do think the CAP is bad, is in the efficiency department. If it has not done much good (if any at all), then it has been a tremendous waste of tax and consumer money. Not to mention the way its subsidy structure has held up reform and innovation, both inside the EU and outside it. There is something inherently repulsive about a scheme that caters so obviously to sectoral interests that it ends up directing 80% of its support to the upper 20% of farms and companies, and that constructs trade tariffs and subsidies in such a way that it prevents development countries from actually developing and shifting their exports from low to higher added value.

Fortunately, thanks to WTO pressure, increased EU-scepsis among voters and the accession of new member states, it is slowly dawning on government leaders that they have to reform the CAP. The problem is that they disagree how to reform, with views ranging from the sovkhoz-like model favoured by France to the hands-off model favoured by the WTO, Europe’s state-sponsered competitors in the US and, at least to an extent, by the UK. Therefore the gradual steps Europe is taking towards CAP reform are more and more in the direction of a compromise that allows the continued state-sponsoring of farmers but in ways that the WTO, oddly enough (or would it have something to do with US and EU dominance in that organisation?), does not consider market-distorting. So instead of the old production subsidies, which coupled the amount of support directly to for instance the numbers of hectares occupied by a certain crop, we now get a mixture of direct income support to the farmer’s bank account (with no link to his production) and so-called agri-environmental schemes, under which the farmer gets paid for the costs of certain contributions to environmental goals (like landscape maintenance, or biological farming).

Sounds good then, at least the agri-environmental bit? Yes, I think so too – that is, provided there is a reliable way to quantify those environmental contributions and their costs or value. But that now is the problem. In paragraph 4.46 of its annual report on the spending of the 2004 budget, the European Court of Auditors writes:

EAGGF-Guarantee rural development expenditure amounted to 5 395 million euro in 2004 (28) (12% of CAP spending). This covers spending on agri-environmental schemes, compensatory amounts for farming in less-favoured areas, forestry, investments, support for young and for retiring farmers. Schemes of this kind frequently have relatively complex eligibility conditions which are difficult and costly to check and which therefore present a high risk of irregularity.

Therefore (par 4.48):

Most entitlements to rural development support are dependent on respect of commitments entered into by the beneficiaries, such as respect of good farming practices, and are calculated on the basis of the number of hectares used, number of animals etc. The Court’s Special report on agri-environment measures (see paragraphs 4.98 and 4.99), the largest type of expenditure in the rural development area, concludes that the verification of such expenditure poses particular problems and that verification can rarely lead to reasonable assurance of the legality and regularity of expenditure at a reasonable cost.

And in indent VII of the summary of aforementioned Special Report number 3/2005 on agri-environment spending:

The Commission, Council and Parliament should consider, for the new programming period commencing in 2007, how to take into account the principle that if a measure cannot be adequately checked, it should not be the subject of public payment.

What this means is that one of the main elements of the reformed agricultural policy should disappear if the Court is ever to deliver a positive judgment on the EU’s budget spending. And this when, ironically, the same report also concludes that irregularities in the traditional, production related CAP subsidy schemes are rapidly becoming a thing of the past, thanks to a new control system called IACS (Integrated Administration and Control System).

So is there no other solution than leaving agriculture to the market, which in Europe’s case means it will largely disappear and that its landscapes and population patterns will change dramatically (and not for the good)? I think there could be, if the idea of agri-environmental spending is taken to a much lower level of government. At the national, or better still regional level the results of environmental contributions by farmers, and their value, can be assessed directly by those who benefit from them: local voters who can express their wishes and appreciation through the ballot box. But that requires two things: 1. that the EU’s CAP is abolished (but leaving environmental legislation and market regulation (to prevent state aid!) at the EU level) and agricultural policy moved to the regions; and 2. that voters can actually express themselves directly on agri-environmental policy – that is through (budget) referendums (because old-fashioned representative democracy is just as vulnerable to the farmer’s lobby as the EU has proven to be).

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