European Commission initiates 'health check' of Common Agricultural Policy - implications for bioenergy

The European Commission today unveiled its blueprint for streamlining and further modernising the European Union's Common Agricultural Policy (CAP). The so-called 'Health Check' of the CAP, presented by Agriculture Commissioner Mariann Fischer Boel, will build on the approach which began with the 2003 reforms, improve the way the policy operates based on the experience gathered since 2003 and make it fit for the new challenges and opportunities in an EU of 27 Member States in 2007. The CAP determines, amongst many other things, the amount of subsidies European farmers receive for biofuel feedstock production and how much land will be set-aside.

CAP reform is one of the major causes for political dispute amongst EU member states that are large recipients of farm aid (France, Spain, Germany), and those that aren't. Likewise, given that support has mainly benefited large farmers, their smaller collegues have been advocating a review of the policy.

The previous reforms have modernised the CAP, but the Health Check represents the opportunity to take the policy review further. It will ask three main questions:

1. how to make the direct aid system more effective and simpler
2. how to make market support instruments, originally conceived for a Community of Six, relevant in the world we live in now
3. and how to confront new challenges, from climate change, to biofuels, water management and the protection of biodiversity

Today's communication is designed to kick off a wide-ranging six-month consultation. Next spring, the Commission will return with legislative proposals, which it hopes will be adopted by agriculture ministers by the end of 2008 and could come into effect immediately. During 2007 and 2008 the Commission will develop its approach to the budgetary review 2008/2009. The Health Check constitutes a preparatory action within this framework, without prejudging the outcome of this review. It fine-tunes the 2003 reforms and contributes to the discussion on future priorities in the field of agriculture.

Does the fact that we are conducting a Health Check imply that the patient is sick? Certainly not: but it's quite normal for perfectly healthy people to visit their doctor to see whether they need to do anything different to ensure they stay in good shape. In the same way, we need to look at whether we need to adjust the CAP for an EU of 27 and a rapidly changing world. The changes I propose will make a real difference for farmers, consumers and taxpayers. - Mariann Fischer Boel, Commissioner for Agriculture and Rural Development

A key reform measure is to simplify the Single Payment Scheme which was introduced in 2003, with the aim to replace the subsidies linked to the amount of food a farmer produced, a change described as "decoupling". The Commission now suggests further measures for simplication of the payment system:

• moving away from payments based on historical receipts towards a "flatter rate" system
• increasing the rate of "decoupling" in those countries which opted in a number of farm sectors to maintain the link between subsidy and production, although coupled support may still play a role in regions where production is small-scale but of particular economic or environmental importance.
• gradually reducing the support level as overall payments to big farmers increase, starting from a level of, for example, €100,000 per year. This would have to differentiate between multiple-owner farms with many workers and single-owner farms with just a few.
• increasing the amount of land a farmer has to own before he qualifies for EU support from the current level of 0.3 hectares.
• reviewing the Cross Compliance standards which farmers are obliged to respect to receive their support from Brussels. This could mean stripping out unnecessary obligations, but also adding new ones to deal with new challenges like improving water management and mitigating climate change.

Concretely, the direct payment received by farmers would be capped according to the amount of aid they receive, in the following way:

• up to 100,000 euros - unaffected
• 100-200,000 euros -10% cap
• 200-300,000 euros - 25% cap
• above 300,000 euros - 45% cap

Such a system would naturally target the larger landowners and the commissioner says it would have to differentiate between multiple-owner farms with many workers and single-owner farms with just a few. At the other end of the scale, a minimum level of payments could be set before aid kicks in, although the commissioner says it would not affect "real farmers" (as opposed to mere landowners):
energy :: sustainability :: biomass :: bioenergy :: biofuels :: energy crops :: biodiversity :: subsidies :: Common Agricultural Policy :: EU ::

Another major goal of the reform effort is to adjust market support instruments to make them relevant for an EU of 27 in our modern day and age. The Communication asks critical questions:

• should intervention revert to its original purpose as a real safety net – particularly as market prices today are in such good shape?
• could intervention for most cereals be set at zero while maintaining intervention for a single cereal (bread-making wheat)?
• should set-aside not be abolished, while finding new ways of preserving the environmental benefits it has brought?
• milk quotas are already programmed to disappear in 2015, but should there not be a gradual increase in quotas between now and then to allow a 'soft landing' for the sector? This must look at possible measures to help dairy farmers in those regions of the EU – like mountain areas – which depend heavily on dairy production.

Agriculture Commissioner Fischer-Boel recently announced her intention to submit to the Commission a proposal to set at 0% the obligatory set-aside rate for autumn 2007 and spring 2008 sowings, in response to the increasingly tight situation on the cereals market, which is a development related to biofuels production (previous post).

New challenges
Finally, the Commission wants reform so that European agriculture can responding to new challenges. These include: managing risk, fighting climate change, managing water more effectively, making the most of the opportunities offered by bioenergy and preserving biodiversity.

Climate change and water management objectives could be met through Cross Compliance, There should be incentives to improve action in these areas but this will cost money, the communication says. The best way to finance the necessary new measures is through Rural Development policy.

The communication therefor proposes increasing the rate of 'modulation', i.e. the reduction of direct payments to all farms receiving more than €5,000 per year and the transfer of the money into the Rural Development budget. This would be increased gradually from 5 percent now to 13 percent in 2013.

Finally, the Commission states that it must also be examined whether the energy crop premium is still necessary given new incentives for biofuel production such as the compulsory bioenergy targets and high prices.

Fischer Boel recently announced that she will proppose a scale back of the special aid scheme aimed at developing Europe's energy crop sector, after it emerged that farmers have already massively shifted production towards biofuels, overshooting a two million hectare target. The amount of land for which farmers up to now received a subsidy of €45 per hectare (US$26/acre) in exchange for planting energy crops (such as rapeseed or sugar beet that can be processed into biofuels for cars or biomass for heating or electricity) will thus be reduced after the scheme proved too popular (previous post).

More information:
European Commission: Agriculture: Health Check to streamline Common Agricultural Policy and address new challenges - November 20, 2007.

European Commission, Agriculture and Rural Development: CAP Health Check.

Biopact: EU to free up set-aside land to ease cereal prices - July 30, 2007

Biopact: EU cuts back on energy crop subsidies - October 18, 2007