CAP: does more payment redistribution really mean greater fairness?
Difficult tripartite negotiations of a complex policy with a massive budget
The CAP trilogues between EU Council of Agriculture Ministers, the European Parliament and the EU Commission, which involve the detailed negotiations of three extremely complex separate legal draft texts, ‘collapsed’ at the end of May. At around 31% of the total EU budget, the CAP will spend over seven years €336.4 billion. The livelihoods of seven million farmers across 27 member states depend on it. Those farmers produce a bewildering array of animal and vegetable produce in vastly different sectors, climates, geological conditions, social and economic realities. No wonder, then, that it is not easy to come to an agreement.
While farmers often refer to CAP payments as ‘their’ money, they are in reality funded from the contributions of EU taxpayers, who legitimately expect that CAP would be fairly distributed among farmers to support improved sustainability in food production. The European Parliament in particular have carried those views into the trilogues, and so have demanded both greater redistribution and greater environmental ambition.
Significant redistribution of payments through several mechanisms
But how fair can a one-size-fits-all redistribution of payments truly be? Some farmers claim small per hectare payments on relatively large amounts of poor land, and vice versa. Is it therefore fair or accurate to conflate relatively large payments with large farms? And does the erosion of payments and incomes which is being proposed risk eroding farmers’ ability to take some of the costly actions urgently required to better protect the environment?
The CAP proposals include several mechanisms which either have as their main purpose or side-effect a significant redistribution of payments. Most of those remain very sticky in the ongoing negotiations and have a way to go to being agreed or resolved.
They include continued internal convergence; capping of payments beyond €60-100,000; front-loaded redistributive payments to small and medium farms and deductions to fund eco-schemes.
Internal convergence
External and internal convergences were first introduced in 2009 with the aim to redistribute funds respectively between countries (from established member states towards newer, poorer member states) and between farmers within countries (from farmers with higher per hectare payments to farmers with lower per hectare payments). The general aim was to achieve greater equity by progressing all payments towards the national or regional per hectare average, though different member states took different options (see graph below).
Of the 27 member states, only 10 are not currently practising full internal convergence – i.e. paying the same amount for every hectare of eligible land within the country or region.
The new 2023 CAP Reform proposes that these 10 states should continue to progress towards the point where every payment is closer to (75-85%) or equal to (100%) the national or regional average per hectare payment – again, the precise details are the subject of ongoing tripartite negotiations.
Capping and degressivity – it’s simple maths
The capping proposals target not the per hectare payment, but the absolute payment. Current proposals are that farmers would not receive payments higher than €100,000, with payments between €60,000 and €100,000 being progressively reduced (this element is called degressivity). The funds saved through this process can also be used by member states to fund the CRISS front loaded top up (see below).
While this is one of the sticking points in the ongoing negotiations, it is proposed that between 50% and 100% of labour costs would be netted prior to the application of capping/degressivity.
This measure is unlikely to generate much redistributable funds, because of simple maths. Limiting payments to a relatively small number of large recipients will only generate a relatively small pool of funds.
Research published in 2018 by the Oireachtas Budget Office found that 199 farmers were in receipt of €100,000 or more in direct payments. Capping at that level – without allowing for labour costs – would cost them an average of €33,211 or around €6.6m per annum, according to the research.
Around 124,000 farmers claimed direct payments in 2018. Distributing those €6.6m to even only one third of all recipients would yield just under €160 per farmer, per annum.
This does not mean it should not be done – many would see as fair the curtailment of CAP payments to big agribusinesses or stud farm magnates – but it means the scope for delivering real payment redistribution through capping and degressivity is limited.
CRISS – The front-loaded payment top up
The Complementary Redistributive Income Support for Sustainability or CRISS was part of the June 2018 CAP Reform proposals and existed as an option in the previous CAP. However, it was proposed to remain optional, and while the topic is not yet settled, negotiations now may make it mandatory, which has brought it back to the fore.
Funding CRISS would require a linear reduction on all basic payments, with a current figure of 10% being discussed, to generate a fund which would pay a flat per hectare payment on the first X hectares (figure also to be agreed). The sole purpose of CRISS is income redistribution, and the front-loaded payment to the first few hectares of any recipient is intended to ensure it benefits smaller farmers most. Hence, many farmers may lose more of their income support payment to fund this scheme than they will gain from it.
Eco-Schemes – more redistribution, but what about the environment?
The logic of eco-scheme is good: it is to engage farmers into more environmental action under Pillar 1, as the intermediary step between basic conditionality (regulatory and environmental requirements to receive any basic payment) and the more ambitious Agri-Ecological schemes in Pillar 2.
However, funding for the schemes will also erode income supports, as it requires a linear reduction in every farmer’s basic payment of anything between 20% and 30% (a hot topic in the ongoing trilogues).
Proposals presented by the Department of Agriculture suggest that, to receive an eco-scheme payment, farmers will have to undertake a number of actions scored through a points system. Farmers will have to accumulate a certain level of points to qualify for a flat per hectare payment which may not allow them to recoup the initial cut in their basic payment. It is also unclear whether the payment would cover the costs of the environmental actions farmers undertake – never mind providing an incentive to do so.
While all farmers will lose 20% to 30% of their basic payment to fund the schemes, they are not obliged to participate. Should a significant number of farmers opt out, low levels of participation may be misread as a sign that farmers do not care about the environment, which is untrue and unfair. Also, any unspent funds, in the current proposals, would have to be returned to Brussels. This is being hotly debated in the trilogues: at the very minimum, the unspent funds should remain in the national CAP envelope to be used to either boost the per hectare eco-scheme payment, or top up funds for Pillar 2 agri-environmental schemes.
The concept of eco-schemes proposed in the draft CAP text and the EU Commission’s list appears high on necessary and laudable ambition, but poorly thought out and under-resourced, as it relies on farmers doing more for less money. Also, the schemes are intended to be funded annually, while most environmental measures require long term commitment to be impactful.
Does redistribution equal greater fairness?
We are frequently reminded that 80% of CAP payments go to 20% of recipients, but while this is the average of the EU, there are big differences between member states. As the graph below shows, Ireland is at the more equitable end of the scale, with 56% of payments going to 20% of recipients.
Reducing the concept of “fairness” to everyone getting the same payment level is overly simplistic. Many farmers are substantially economically dependent on what basic payment and other direct supports.
The National Farm Survey carried out by Teagasc for 2019 shows that direct payments (basic payment + pillar 2 payments) make up between 31% and 162% of Irish farmers’ income, depending on sector. Those payments are clearly essential to the very viability of cattle and sheep farms, which in effect produce at a loss, and would have a negative income without them, but even with them remain economically vulnerable.
Even the sectors with relatively lower dependence on CAP payments have seen those integrated by financial institutions into their businesses’ borrowing and investment capacity.
This dependence on direct payments to support incomes is not unique to Irish farmers. An analysis of the EU Commission’s 2018 Farm Accountancy Data Network (FADN) – directly comparable to the NFS table above – shows that, for cattle specialist producers in France, direct payments amounted to 220% of family farm income, 117% in the Netherlands, 57% in Spain and 45% in Italy.
Direct payments have become intrinsic to farm economics since their introduction because they compensate for the market’s failure to return the kind of prices which would allow farmers cover their production costs and make a reasonable profit. It is useful to remember that income supports for farmers were introduced to ensure that consumers can rely on affordable, plentiful, quality food. In more recent years, conditions to payments have been added to ensure consumers can also be confident that their affordable food is produced in good sanitary, animal welfare and environmental conditions.
The erosion of payments by redistribution may leave many already economically vulnerable farmers worse off while delivering too little in viability improvement for low-income farmers and in environmental dividend.
CAP needs to allow for more national flexibility in redistribution, and accompany it with adequate supports to incentivise and cover the cost to farmers to further improve their sustainability through new farming practices and the adoption of new technology. It also needs to ensure farmers receive more of their income from the marketplace, by providing for a better share-out of the retail price of food and even a reconsideration of the price and value of sustainably produced food.
© Catherine Lascurettes, Cúl Dara Consultancy
