The Health Check of the CAP: Is this a real Reform? Seminar presented to

1. The Health Check of the CAP: Is this a real Reform? Seminar presented to The Belgian Association of Agricultural Economists 06 February, 2008byDr Andreas Schneider

2. The Structure of the Seminar Why a Health Check The Communication by the European Commission The Response by the European Parliament The Timetable of the Health Check

3. Why a Health Check? The patient is still breathing – so why a health check? Aim to address 3 questions: how to make the Single Payment Scheme more effective, efficient and simple? how to render market support instruments, originally for an EU-6, still relevant in a more globalised world an EU-27 how to master new challenges, from climate change to growth in biofuels, water Mgt and ongoing such as biodiversity by adapting to new risk and opportunities To finish the MTR – i.e. decoupling Make the CAP fit for post-2013

4. The path of EU expenditure

5. Shares of CAP budget A future direction for the CAP: A better balance? 100 SN CMO 90 80 DDPs 70 Decoupling 60 50 AES DPs 40 Fund switching 30 20 RD 10 AES RD 2000 2020 Key:Pillar 1 blue Pillar 2 green CMO Commodity Market Organisation SN Safety net DPs Direct Payments DDPs Decoupled Direct Payments AES Agri-Environment Schemes RD Rural Development

6. Main issues of the Health Check Direct Payments Simplification of CAP/ Cross-Compliance/CMO Degression/Capping/Modulation Milk Safety Net Other issues

7. Commission’s Communication/Parliament’s Opinion Direct Payments Keep Direct Payments DPs serve as a basic income guarantee, especially at times of market failure Compensation for environmental, animal welfare and social standards Decoupling is needed Further decoupling, especially for plant production (100%) Stimulates greater autonomy in decision-making Did not lead to structural breaks BUT, keep coupling for animal production, because: intensive farming mountainous and disadvantage regions Review of entitlement payments Historical vs basic model – flat rate Article 69?

8. Commission’s Communication/Parliament’s Opinion Simplification/Cross-Compliance/CMO Simplification of the Payment System Integration of smaller CMO (hemp, flax, dry feed) into Single Area Payment Scheme (SAPS) – high administration Abolishing of the energy crop premium (€69/ha) has no recognisable energy policy advantages Abolishing of set-aside a volume control instrument that lost its significance Cross-Compliance DPs without CC are no longer justified No expansion and overload of CC Abolishing of export subsidies Under proposal in DDA from 2013

9. Commission’s Communication/Parliament’s Opinion Safety Net Anticipated increase in environmental and climate changes, risks of epidemics and price fluctuations in agricultural markets calls for risk prevention – important safety net Intervention should be set to “0”, maybe exempt wheat Intervention should be transformed into a Safety net and only be triggered in crisis situation Many 3rd countries have such a measure in place A common EU wide system is needed Can be funded through 2nd Pillar or Article 69

10. Commission’s Communication/Parliament’s Opinion Modulation/Capping Capping – Commission proposes: > €100 000 – 10% Reduction > €200 000 – 20% Reduction > €300 000 – 45% Reduction Parliament rejects idea, as this is arbitrary and could lead to structural breaks, reduction of employment and to 1/3 reduction in payments (in some regions) Maybe a capping if employment can be made count and deducted from capping Modulation – Commission proposes: > yearly 2% increase from 2010, i.e. 8% in 2013 = total of 13% Parliament proposes: €10 000 - €100 000 1% (2010-2013) €100 000 - € 200 000 2% (2010-2013) € 200 000 - € 300 000 3% (2010-2013) > € 300 000 4% (2010-2013) = total of 9% PLUS inc to €10 000 Increase of lower limit to 1 ha or € 250

11. Commission’s Communication/Parliament’s Opinion Milk Abolition of milk quota by 2015 Clear signal is needed for ending milk quota and achieve soft-landing Substantial increase of milk quota in 2008 (maybe 2.5%) EP rejects idea – maybe voluntarily - wait for Council Lowering of the Super levy from 2009 (maybe 20-25%) EU wide balancing mechanism Specific accompanying measures to prevent the dairy industry in mountainous regions and other disadvantaged areas – extensive grazing needs protection Support scheme has to be made available for soft-landing, maybe Article 69

12. Commission’s Communication/Parliament’s Opinion Others Future funding of 1st and 2nd Pillar after 2013 Explore Article 69 and maybe inflate it to 15-20% Promote and strengthen producer organisations, export promotion, quality assurance schemes, and supply chain Mgt Future support for disadvantaged region Pursue of supplying renewable energy EU farmers contribute to climate protection (biogas) 2nd generation of biofuels

13. Shares of CAP budget A future direction for the CAP: A better balance? 100 SN CMO 90 80 DDPs 70 Decoupling 60 50 AES DPs 40 Fund switching 30 20 RD 10 AES RD 2000 2020 Key:Pillar 1 blue Pillar 2 green CMO Commodity Market Organisation SN Safety net DPs Direct Payments DDPs Decoupled Direct Payments AES Agri-Environment Schemes RD Rural Development

14. Where should the CAP move to? • Keep money in the 1st Pillar • Pay 2nd Pillar measures through 1st Pillar funds • Strengthen 2nd Pillar • Ensure that CAP supports production – especially in certain areas, but also delivers quality food • Renationalising of CAP is not a way forward • Funding of CAP and the relationship between Pillar 1 + 2 • What is the added value of EU expenditure

15. Timetable of Health Check • 20 Nov 07 European Commission Communication • 27 Nov 07 European Parliament working paper • 12 Jan 08 European Parliament report • 22 Jan 08 Committee in Agriculture Debate in EP • 18 Feb 08 Vote in Committee • 16 Mar 08 Vote in Plenary • 22 May 08 Legislative Proposal from European Commission • 2nd Half of 08 Adoption of Health Check in Council

16. Thank you for your attention Dr Andreas Schneider andreasschneider@skynet.be