EU 2008 budget cuts farm subsidies, boosts competitiveness, energy and rural development

The European Parliament today approved the EU's budget for 2008 and, for the first time ever, the largest share will go on measures to boost economic growth and greater cohesion in the EU-27 and no longer on farm subsidies. This in itself is a break with tradition, even though agriculture will continue to receive over 40% of all EU cash. Transport and (renewable) energy, rural development, the environment and the knowledge based economy (R&D and education) are big winners.

With the largest share going to competitiveness, the 2008 budget is a concrete result of the Union's determination to put long-term economic development at the heart of the EU spending. This determination was echoed in the constructive way Parliament, Council and Commission reached an agreement. As EU leaders sign the new Treaty in Lisbon today, we can be satisfied that next year's budget will go where Europe's biggest challenges lie. - Dalia Grybauskaitė, Commissioner for Financial Programming and Budget

The adopted budget amounts to €129.1 billion in commitment appropriations (legal commitments), a moderate but steady increase of 2.2% compared to 2007. It corresponds to 1.03% of the EU Gross National Income (GNI). The payment appropriations (actual payments) will amount to €120.3 billion, or an increase of 5.7% in nominal terms. This represents a level of only 0.96% of EU-27 GNI.

Spending on economic development will grow almost three times more than the budget itself in 2008. The shift in spending on economic progress in 2008 will see over €11 billion for competitiveness. There will be record investment in research which is set to receive €6.1 billion - a 11.0% rise on 2007. Also, investment in energy and transport networks will increase by around 93% with almost €2 billion to co-finance energy and transport projects in the EU (schematic, click to enlarge; and overview of the entire budget, here).

Farm subsidies
Despite the decrease (3.4% less than 2007) in money for 'market related expenditure' and 'direct payments' (that is: all kinds of subsidies), spending on agriculture will remain stable in 2008, absorbing the bulk of the EU's budget: €40.9 billion. There is however a gradual shift within this policy area with funds being directed towards tackling environmental challenges and fostering development in rural areas. Both of these areas will see a rise in spending of 12% and 4.5% respectively, notably through the LIFE+ environmental protection programme which will increase by 11%. Life+ includes many bioenergy and climate change related projects.

The cut in direct subsidies is in line with the reform of the Common Agricultural Policy (CAP) (previous post for more on the policy as it relates to bioenergy). Biopact readers know that the ideal of a 'bioenergy pact' with the poorer countries of the South hinges on reduced farm subsidies in the EU. Besides trade reform, CAP reform is an absolute sine qua non for the establishment of such a 'win-win' relationship with developing country farmers.

Rural development
The reduction of direct farm subsidies is however partly compensated by the budget shift towards rural development. Rural development policy remains the second biggest post of the entire budget, receiving €12.9 billion (4.5% more than in 2007). Let's have a closer look at this policy as it relates to the bioenergy sector:
biomass :: bioenergy :: agriculture :: rural development :: R&D :: subsidies :: energy :: competitiveness :: European Union ::

With over 60 % of the population in the 27 member states of the European Union living in rural areas, which cover 90 % of the territory, rural development is a vitally important policy area. Farming and forestry remain crucial for land use and the management of natural resources in the EU's rural areas, and as a platform for economic diversification in rural communities. The strengthening of EU rural development policy has, therefore, become an overall EU priority.

Agriculture and forestry represent 77 % of land use in the EU. The combined agricultural sector forms an important part of the EU economy, accounting for 15 million jobs (8,3 % of total employment) and 4,4 % of GDP. The EU is the world’s largest producer of food and beverages, with combined production estimated at €675 billion. However, the sector remains highly polarised and fragmented in terms of size, with significant opportunities and threats for firms. Forestry and related industries employ around 3,4 million people with a turnover of €350 billion, but only 60% of annual forest growth is currently exploited.

The EU's Rural Development Policy is aimed at boosting competitiveness, job creation and innovation in rural areas and improved governance in the delivery of programmes. It focuses on forward-looking investments in people, know-how and capital in the farm and forestry sectors, on new ways of delivering win-win environmental services and on creating more and better jobs through diversification, particularly for women and young people.

The EU Strategic Guidelines for Rural Development (2007-2013), show that policy is built around four axes, namely, (1) improving the competitiveness of the agricultural and forestry sector; (2) improving the environment and the countryside; (3) improving the quality of life in rural areas and enhancing the diversification of the rural economy; and (4) stimulating governance through locally based, bottom-up approaches to rural development.

The promotion of bioenergy and biofuels is taken up under all four axes:

1. The Community Strategic guideline on improving the competitiveness of the agricultural and forestry sector focuses on the priorities of knowledge transfer, modernisation, innovation and quality, and on priority sectors for investment in physical and human capital. One key action under this axis consists of:

Developing new outlets for agricultural and forestry products. New outlets can offer higher value added, in particular for quality products. Support for investment and training in the field of non-food production under rural development can complement measures taken under the first pillar by creating innovative new outlets for production or helping the development of renewable energy materials, biofuels and processing capacity.

The guideline also aims to facilitate innovation and access to research and development (R & D). Innovation is increasingly important for Europe’s farming, agrifood, bioenergy and forestry sectors. The introduction of new products and processes could significantly contribute to the performance of smaller processors and farm businesses. In particular, new forms of cooperation could facilitate access to R & D, innovation and actions undertaken under the Seventh Framework Programme (FP7).

Recently, the EU made available €1.75 billion for new research under FP7, with bioenergy and biofuels taking a major share (previous post).

2. The guideline on improving the environment and the countryside is aimed at contributing to three EU-level priority areas: biodiversity and the preservation and development of high nature value farming and forestry systems and traditional agricultural landscapes; water; and climate change. The key action regarding bioenergy falls under the heating 'combating climate change':

Agriculture and forestry are at the forefront of the development of renewable energy and material sources for bioenergy installations. Appropriate agricultural and forestry practices can contribute to the reduction in greenhouse gas emissions and preservation of the carbon sink effect and organic matter in soil composition, and can also help in adapting to the impacts of climate change.

3. The Community Strategic Guideline on improving the quality of life in rural areas and encouraging diversification of the rural economy should promote capacity building, skills acquisition and organisation for local strategy development and also help ensure that rural areas remain attractive for future generations. The key actions for bioenergy are described as follows:

Developing the provision and innovative use of renewable energy sources, which can contribute to creating new outlets for agricultural and forestry products, the provision of local services and the diversification of the rural economy.

4. Finally, building local capacity for employment and diversification is the subject of another guideline that should contribute to the priorities outlined in the previous three axes, but also plays an important role in the horizontal priority of improving governance and mobilising the endogenous development potential of rural areas. Key actions relating to bioenergy include:

Building local partnership capacity, animation and promoting skills acquisition, which can help mobilise local potential; promoting private-public partnerships; promoting cooperation and innovation, and improving local governance. These actions will foster innovative approaches to linking agriculture, forestry and the local economy, thereby helping to diversify the economic base and strengthen the socioeconomic fabric of rural areas.

Biopact welcomes the shift away from farm subsidies and towards rural development. CAP reform and the reduction in handouts to Europe's already well protected farmers is crucial for those who strive towards helping developing country farmers participate in the global market. By stimulating rural development policy in the EU - and the R&D, innovation and diversification this entails - the European farming and forestry sector will have a chance to help develop bioenergy technologies and concepts that could end up later in the South as part of tech transfers.

This is a much better development than simply continuing the policy of handing out billions to Europe's farmers and distorting the market. It will take years before the EU's CAP reform will be felt by farmers in the South, but taking away money from the subsidy schemes is a first good step.


Two other noteworthy and controversial budget posts are the financing of Galileo (the European satellite navigation system, which will be independent of the American, Russian and Chinese systems) and the European Institute of Technology (EIT): both projects will be funded entirely by the European Community, without jeopardising the necessary financial means of the Lisbon Agenda multiannual programmes such as Lifelong Learning and Trans-European Networks. Globally, €3.7bn are foreseen for Galileo and EIT within the multi-annual financial framework until 2013.

References:
Europa: EU budget 2008: biggest share to go on boosting economic growth - December 13, 2007.

European Parliament: Final EU 2008 Budget: €120.3bn, 5.7 % increase in 2007, go ahead for Galileo and the European Institute of Technology - December 13, 2007.

European Council: Council Decision of 20 February 2006 on Community strategic guidelines for rural development (programming period 2007 to 2013), Official Journal L 055 , 25/02/2006 P. 0020 - 0029.

European Commission, DG Financial Programming and Budget: EU Budget 2008 in figures, brochure [*.pdf].

European Commission, DG Environment: LIFE+.

Biopact: EU makes available €1.75 billion for new research under 7th Framework Programme - emphasis on bioenergy and biofuels - November 30, 2007

Biopact: European Commission initiates 'health check' of Common Agricultural Policy - implications for bioenergy - November 20, 2007