Still a thorn in the side? The reform of the CAP

ECDPM Discussion Paper 126: Still a thorn in the side? The reform of the Common Agricultural Policy from the perspective of Policy Coherence for Development

Executive Summary

1.    Under Article 208 of Treaty on European Union (also known as the ‘Treaty of Lisbon’), the EU must take account of the objectives of development cooperation in policies that are likely to affect developing countries. This commitment, which has in fact existed since the 1992 Maastricht Treaty, is commonly referred to as Policy Coherence for Development (PCD). The coherence of the EU’s Common Agricultural Policy (CAP) with development objectives is disputed, however.

2.    The CAP accounts for a substantial proportion of the EU budget. In 2009, the CAP represented 41% of the EU’s general budget.

3.    In past CAP reforms, farm support has been largely decoupled and the role of market intervention mechanisms has been significantly reduced to that of a safety net. This means that agricultural prices are now formed by the interplay of market supply and demand, although still with significant external protection for some commodities. Whilst the EU is the largest importer from developing countries, it also remains a big exporter to developing countries. The EU is no longer involved in the practice of dumping products directly in developing countries, as it was a decade ago. Export subsidies have been significantly reduced. Today, it is much more difficult to prove that the CAP has an adverse effect on developing countries.

4.    The current debate on the reform of the CAP is a narrow one from a developing country perspective: it focuses on the CAP’s internal dimension and largely excludes its external aspects, notably trade policy, which is the main other EU policy affected by the debate on the CAP (as are energy, environment, climate change, etc).

5. It is difficult to draw clear conclusions about the implications of the CAP reform for developing countries as the effects are both country-specific and commodity-specific. The CAP is a highly complex policy encompassing a huge number of measures and it is virtually impossible to assess how these affect developing countries, directly or indirectly. Even if one had access to all the information, the likely conclusion would be that some countries – and certain groups within these countries – benefit from some CAP measures whereas others suffer from them. Countries benefit from different types of preferential treatment. Developing countries are a highly heterogeneous group, depending on whether they are net importers or net exporters and also depending on whether one looks at the interests of the rural or urban population. Some emerging economies (e.g. MERCOSUR) have become fierce competitors of the EU in terms of agriculture.

6.    The EU’s proposals for reforming the Common Agricultural Policy post-2013 are expected to be published in October 2011. In the run-up to these proposals, this paper first reviews the current effects of the CAP on developing countries before studying the compatibility with development concerns of the most recent proposals in the Commission Communication of November 2010, and the EU member states’ positions on them. We make the following recommendations in relation to the reform of the CAP:
a.    Rethink the two CAP pillars

Pillar I:

•    Direct payments create an artificial competitiveness and should be abolished in the long term. •    The EU wishes to help satisfy the world demand for food. Decoupled direct payments have no role to play in satisfying demand, because they focus on maintaining capacity. The greater part of
the CAP does not therefore contribute to world food security. •    Targeting Pillar I at environmental objectives may limit its trade-distorting effect. However, it is
worth considering strengthening the greening measures in Pillar II instead, as farmers are likely to put pressure on their governments to increase their financial benefit from Pillar I measures. Not all EU farmers require funds to provide public goods and these should be tied to local conditions.

Pillar II:

•    To limit the co-financing burden placed on member states under Pillar II, incentive structures could be put in place if the EU has a strong interest in member states adopting certain measures (e.g. on climate change or energy). It might be possible to form a link between Pillar II programmes and their accompanying measures with capacity development in developing countries, so to enable the latter to benefit from the green ‘R&D’ taking place in Europe.

b.    Reform trade measures affecting the CAP

•    The CAP’s external dimension needs to be taken into account in current and future reforms. The close link with trade, energy, environmental and other policies needs to be acknowledged.

•    Making the EU’s agricultural sector more competitive is largely a trade issue.

•    The remaining export subsidies should be dropped even if there is no WTO agreement.

•    Domestic sugar quotas should be scrapped. Action could be taken in the development sector to
make ACP sugar exporters more competitive.

•    In future CAP reforms, the EU should seek to fully decouple cotton subsidies from production.

c.    Improve the monitoring and evaluation of the global impact of the CAP

•    Approaching the CAP reform in the spirit of MDG 8 means systematically assessing the impact of the CAP on developing countries. Funding should be made available for scientific studies on the implications of CAP instruments. The EU needs to set CAP-specific PCD indicators. Independent specialists should assess and build on the findings of the development-related component of the EU impact assessment study that is soon to be published.

•    There is a need for an EU-level institutional mechanism to relay feedback and allow redress.

d.    Rethink EU support for agricultural development in developing countries

•    The allocation of development funds for agriculture should be scrutinised and adjusted. The precise modalities for aid delivery for food security should be formulated jointly by development and agricultural experts. DEVCO should try and develop longer term programmes to support capacity-building    for    sustainable    agricultural    production,    innovation,    marketing (infrastructure) and processing.

•    The EU itself is likely to invest large sums of money in R&D and innovation, to make its agriculture more competitive and to tackle issues such as the mitigation of climate change, adaptation to climate change, and the scarcity of water and land. There is a need for time-bound, target-specific ‘accompanying measures’ for innovation for developing countries in this regard (carefully examining cases on a country-by-country basis).

The full report can be accessed here.

Further information

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