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Communication on the future of the CAP

“The CAP towards 2020: meeting the food, natural resources and territorial challenges of

the future”

Owen JonesDG for Agriculture and Rural Development European Commission

Edinburgh16 March 2011

2

Outline

1. The context

2. The CAP today

3. Why do we need a reform?

4. New objectives, future instruments and policy options

5. Concluding remarks

6. Next steps

3

1. The context

Background of reform

• Entry into force of Lisbon Treaty• Budgetary framework ends in 2013• Need to align CAP post-2013 to Europe 2020 strategy

Public debate

The Communication

• Strong public interest in Commission call to public: 5 600 contributions• Very successful Conference in July 2010: 600 participants• Council, EP, EESC, CoR discussions and/or opinions

• Reflects broadly identified policy challenges• Responds to the public debate and outlines broad future options• Launches inter-institutional debate and prepares legal proposals

4

2. The CAP today

A substantially reformed policy…

• Structured in two complementary pillars

• Farm support mainly decoupled and subject to cross-compliance

• Role of market intervention mechanisms significantly reduced to safety net level

• Rural development policy strengthened with funds and new policy instruments

… better performing…

• Surpluses belong to the past

• Competitiveness improved

• Improved transfer efficiency

• More sustainable farming

• Contribution to EU budget stability

… and resulting in a territorial and environmentallybalanced EU agriculture

5

0

10

20

30

40

50

60

70

19

80

19

81

19

82

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83

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84

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85

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92

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97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

-pre

lim

in b

illio

n €

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

0.7%%

of G

DP

Export subsidies Other market support Coupled direct paymentsDecoupled direct payments Rural development CAP as % of EU GDP

The policy outcome of CAP reform...

Source: European Commission - DG Agriculture and Rural Development

Enlargement with same budget!

Rural development to meet

environment, competitiveness and

territorial balance challenges

Decoupled direct payments to

enhance market orientation and

avoid trade distortions

Reduction of market interventions: now only safety net

Reduction of export subsidies

Change of CAP since 1980 (in 2007 constant prices)

EU-27

6

0%

10%

20%

30%

40%

50%

60%

% of GDP

CAP expenditure All EU public expenditure

Alternative views on the cost of the CAP

0

20

40

60

80

100

120

140

Billion of euros

CAP expenditure EU budget

CAP cost in 2009 (in relative terms)

CAP cost in 2009 (in absolute terms)

0.5% ofEU GDP

41% of EU budget

Source: European Commission - DG Agriculture and Rural Development

7

3. Why do we need a reform?To respond to challenges ahead

Economicchallenges

• Food security

• Price variability

• Economic crisis

8

Recent trends in some commodity market prices

Sources: European Commission - DG Agriculture and Rural Development and World Bank

EUR/t for maize and fresh milk; EUR/100 kg for SMP

0

50

100

150

200

250

300

350

400

Jan-

00M

ay-0

0S

ep-0

0Ja

n-01

May

-01

Sep

-01

Jan-

02M

ay-0

2S

ep-0

2Ja

n-03

May

-03

Sep

-03

Jan-

04M

ay-0

4S

ep-0

4Ja

n-05

May

-05

Sep

-05

Jan-

06M

ay-0

6S

ep-0

6Ja

n-07

May

-07

Sep

-07

Jan-

08M

ay-0

8S

ep-0

8Ja

n-09

May

-09

Sep

-09

Jan-

10M

ay-1

0S

ep-1

0Ja

n-11

0

25

50

75

100

125

150

175

200

Crude oil, EUR/bbl

Fresh milk, EU SMP, EU Maize, US, Gulf Crude oil, avg spot price

9

EU developments in agricultural income (agricultural income/AWU in real terms)

( Index 2000 = 100 )

60

70

80

90

100

110

120

130

140

150

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010e

EU-15

20

40

60

80

100

120

140

160

180

200

EU-12

Source: Eurostat

EU-15

EU-12

10

Relative situation of agricultural income in the EU

Income gap with the rest of the economy

(average 2005-2007)

Agricultural income level between Member States

(2010e)

Source: European Commission - DG Agriculture and Rural Development, based on Eurostat data

(agricultural income as % of average income in the total economy)

0%

20%

40%

60%

80%

100%

EU-15 EU-27 EU-12

(agricultural income/AWU in real terms - EU-27 = 100)

0

25

50

75

100

125

150

175

200

EU-15 EU-27 EU-12

11

Recent evolution of agricultural input and output prices

Source: Eurostat

(index 1996 = 100, in real prices)

70

80

90

100

110

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010e

Input prices - EU-27 Output prices - EU-27

12

3. Why do we need a reform?To respond to challenges ahead

Economicchallenges

Environmentalchallenges

• Food security

• Price variability

• Economic crisis

• GHG emissions

• Soil depletion

• Water/air quality

• Habitats and biodiversity

13

Declining trend of GHG emissions in EU agriculture since 1990

Source: EEA

Tg CO2 equivalents

100

200

300

400

500

600

700

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

EU-27 = -20%

EU-15 = -12%

14

3. Why do we need a reform?To respond to challenges ahead

Economicchallenges

Environmentalchallenges

Territorialchallenges

• Food security

• Price variability

• Economic crisis

• GHG emissions

• Soil depletion

• Water/air quality

• Habitats and biodiversity

• Vitality of rural areas

• Diversity of EU agriculture

15

Importance of agriculture in the EU territory

• 13.7 million farms (70% with less than 5 ha)

• The agrifood sector has 17.5 million employees (7.7% of total employment)

16

3. Why do we need a reform?To respond to challenges ahead

Economicchallenges

Environmentalchallenges

Territorialchallenges

• Food security

• Price variability

• Economic crisis

• GHG emissions

• Soil depletion

• Water/air quality

• Habitats and biodiversity

• Vitality of rural areas

• Diversity of EU agriculture

Equity and balance of support

Contribution to Europe 2020 strategy

17

4a. What are the objectives with the reform?

Viable foodproduction

Sustainable management of

natural resources and climate action

Balanced territorialdevelopment

• To contribute to farm income and limit its variability

• To improve sector competitiveness and share in food chain value-added

• To compensate areas with natural constraints

• To guarantee the provision of public goods

• To foster green growth through innovation

• To pursue climate change mitigation and adaptation

• To support rural vitality and employment

• To promote diversification

• To allow social and structural diversity in rural areas

Common EU response needed

18

4b. What policy instruments?

Better targeted to objectives Based on two pillar structure

Direct payments

• Redistribution

• Better targeting

• Redesign:• Greening of direct

payments• Capping of

payments• Small farmers

support• Areas with

specific natural constraints

19

Average direct payments per potentially eligible area and beneficiary

Direct payments net ceilings fully phased-in (in 2016)

Source: European Commission - DG Agriculture and Rural Development

0

100

200

300

400

500

600

700

800

Mal

ta

Bel

gium

Net

herla

nds

Italy

Gre

ece

Cyp

rus

Den

mar

k

Slo

veni

a

Ger

man

y

Fra

nce

EU

-15

Luxe

mbo

urg

EU

-27

Irel

and

Aus

tria

Hun

gary

Cze

ch R

epub

lic

Spa

in

Fin

land

Sw

eden

Uni

ted

Kin

gdom

Bul

garia

Pol

and

EU

-12

Slo

vaki

a

Rom

ania

Por

tuga

l

Lith

uani

a

Est

onia

Latv

ia

EUR/ben.EUR/ha

0

8000

16000

24000

32000

40000

48000

DP net ceilings fully phased-in (EUR/ha)EU-27 average (EUR/ha)DP net ceilings fully phased-in (EUR/beneficiary)

20

4b. What policy instruments?

Better targeted to objectives Based on two pillar structure

Direct payments Market measures

• Market orientation

• Streamline and simplification

• Improved food chain functioning

• Redistribution

• Better targeting

• Redesign:• Greening of direct

payments• Capping of

payments• Small farmers

support• Areas with

specific natural constraints

21

4b. What policy instruments?

Better targeted to objectives Based on two pillar structure

Direct payments Market measures Rural development

• Market orientation

• Streamline and simplification

• Improved food chain functioning

• Environment, climate change and innovation as guideline themes

• Improved coherence with other EU policies

• More effective delivery mechanisms

• Address risk management

• New distribution criteria

• Redistribution

• Better targeting

• Redesign:• Greening of direct

payments• Capping of

payments• Small farmers

support• Areas with

specific natural constraints

22

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%D

enm

ark

Net

herla

nds

Bel

gium

Fra

nce

Gre

ece

Ger

man

y

Uni

ted

Kin

gdom

Spa

in

Italy

Irel

and

Sw

eden

Luxe

mbo

urg

Fin

land

Cyp

rus

Hun

gary

Aus

tria

Por

tuga

l

Cze

ch R

epub

lic

Pol

and

Lith

uani

a

Slo

vaki

a

Slo

veni

a

Est

onia

Latv

ia

Bul

garia

Rom

ania

Mal

ta

% of total expenditure

First Pillar Second Pillar

Source: European Commission - DG Agriculture and Rural Development

CAP expenditure between pillars (in 2009)

23

4c. What policy options?

Option 1

Continue the reform process by introducing further gradual changes while adjusting the most pressing shortcomings (e.g. more equity in the distribution of direct payments)

Option 2

Capture the opportunity for reform ensuring that CAP becomes more sustainable and balanced (between policy objectives, MS and farmers) through more ‘green’ targeted measures

Option 3

More fundamental reform focusing entirely on environmental and climate change objectives through rural development, moving away from income support and most market measures

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4c. What policy options?D

irec

tp

aym

ents

• More equitable distribution among MS and among farmers

• More equitable distribution among MS and among farmers

• Greening of direct payments• Capping of payments• Increase small farmers

support

• Gradually phase out direct payments

Mar

ket

mea

sure

s • Streamline and simplify existing measures

• Streamline and simplify existing measures

• Phase-out most measures

• Keep disturbance clause for severe crises

Ru

ral

dev

elo

pm

ent • Continue emphasis on

climate change, biodiversity, bio energy and innovation

• More focus on environment, restructuring and innovation, climate change, local initiatives

• Risk management tools and income stabilisation tool

• New distribution criteria

• Primarily focus on measures linked to the environment and the delivery of public goods

Option 1 Option 2 Option 3

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5. Concluding remarks

With reform, the CAP needs to:

better respond to the economic, environmental and territorial challenges

be more sustainable, balanced, better targeted, simpler, effective and more accountable

improve current CAP instruments and design new ones

26

6. Next steps

Inter-institutional debate on the Communication

Preparation of Impact Assessment (IA)

Preparation of Legal Proposals

• In-depth Commission analysis of new policy settings, options and their economic, social and environmental impacts

• Stakeholders consultation: analytical contributions from stakeholders based on Consultation document published on the 23th of November

Legal proposals will be presented in the second semester of 2011

27

For further information

• The CAP after 2013

http://ec.europa.eu/agriculture/cap-post-2013/index_en.htm

• The Communication on the future of the CAP

http://ec.europa.eu/agriculture/cap-post-2013/communication/ index_en.htm

• Public consultation

http://ec.europa.eu/agriculture/cap-post-2013/consultation/ index_en.htm

28

Thank you

29

Climate change- Possible impacts on EU agriculture

▲ Floods risk▲ Hotter and drier summers▲ Sea levels▲ Risk crop pests, diseases▲ Crop, forage yields▼ Animal health, welfare

▼ Water availability ▲ Risk drought, heat spells▲ Risk soil erosion▼ Growing season, crop yields ▼ Optimal crop areas

▼ Summer rainfall▲ Winter storms, floods▲ Length growing season, yields▲ Suitable farmland▲ Pests, diseases risks

▲ Winter rainfall, floods ▼ Summer rainfall ▲ Risk drought, water stress ▲ Soil erosion risk ▲ Yields, range of crops

Source: DG Agriculture and Rural Development, based on EEA reports, JRC and MS academic studies