SFER seminar 22 nd May 2013 AgroParisTech The CAP and public goods Allan Buckwell,

The CAP and public goods The changing purpose and methods of the CAP Where did the public goods story come from? What are the rural, land-based, public goods? Current attempt to integrate them into the CAP Is it succeeding? Why not? Future options for securing public goods? 2

Changing purpose & methods of the CAP A39 – the five objectives – subsequently tempered by Goteberg (sustainable development) and Lisbon (smart inclusive green growth). Initial method was high and stable prices: intervention, variable import levies & export subsidies (1968-late ‘80s). Agricultural policy was for farmers narrowly defined. Start of switch from price to income support (1992) Creation of two pillar CAP with Rural Development (2000) Decoupling & consolidation to Single Payment System (2004 & 2007), shifting resources P1  P2 Now fragmenting & diversifying P1, diminishing P2 (2014) 3

Where did the public goods story come from? Ideology, observed problems: over supply – trade tensions and emerging evidence of the environmental market failures From environmentalists, not farmers, supply or food industry Refinement of the unsuccessful ‘multifunctionality’ as a motive for farmer support Growing awareness of the pervasive market failures surrounding land management –Scale of negative externalities: water, air & soil pollution –& positive externalities: biodiversity & cultural landscape EU agriculture is currently unsustainable 4

The usage of the concept Formal economic definition of public goods: non-excludability and non-rivalness in consumption These concepts are elastic, –degrees and costs of exclusion, –degrees of jointness between the public & private goods Groping for the right language: PGs, externalities, depletion of natural capital, non-provisioning ecosystem services Most examples are environmental. Some social public goods, e.g. rural vitality, & avoiding land abandonment Controversy whether food security is a public good Strong temptation amongst interest groups to widen still further: public good becomes public benefit 5

Degree of publicness in Public Goods 6

DG Agri Study on Public Goods from EU Agriculture (IEEP) 7

From identification to action Existence of PGs implies some kind of collective action for their optimal delivery Reluctance to concede taxpayer responsibility –Because PGs become an excuse to continue subsidies –Incidental delivery –Marketised delivery PES – payment for environmental service Public payment for public goods a last resort? Principles for the payments? Direct costs + income forgone. 8

Environmental target, reference levels and farmers’ optimum 9

Integrating public goods into the CAP Cross compliance Agri-environment schemes Less favoured area supports and A68 The Ciolos proposals: –Big stress on Greening; public goods, more sustainable agriculture, soil, water, climate and biodiversity protection –Is this pure cynicism? –Key strategic choice was to green P1 Why? –30% of P1 is a big statement 10

Environmental services expand into the CAP 11

The greening proposals Greening principles: –compulsory, all farmers, simple, generalised, non- contractual, annual. Greening actions –Cross compliance –Crop diversity (3 crops) –Maintaining permanent grassland –Ecological Focus Area (7%) –Strengthening P2, raising the threshold, 25% of exp. –Innovation and knowledge exchange Payment principles are crude 12

Proposals are being substantially diluted Note the narrowing definitions of agriculture; agricultural activity & active farmer Watering down of the greening –Non inclusion of soil carbon protection in XC –CD – thresholds changing, more exemptions –PP – farm level or not? 2014 base –EFA – 3 or 5%, some non-ecological, 80% farms exempt –Permitting double funding of same actions in both pillars –Proposal to allow 25% P2 funds to switch to P1 (in nMS) –Status of the 25% of RDR for agri-env related measures –The European Council’s larger cut to P2 funds Conclusion: small political appetite for Public Goods (?) 13

Why is this happening? The global food crisis and resurrection of food insecurity First reform with nMS – redistribution dominates Farmers’ organisations: rhetoric vs. reality Inhibitions really to grasp ecosystems service logic Reluctance to accept environmental limits Reluctance to accept Pillar 2 logic (multi-annual, programmed, regionally defined, menu driven, co-financed) Institutional structures: DG Agri + COMAGRI + Ag Council is incapable of widening the remit of agriculture 14

Future options for securing PGs Political realities –Farmer power within the CAP has increased with nMS –Co-decision: weakened ability of Commission to steer rational reform, EP plenary ineffective on technical matters. –Austerity and the limits of the EU budget –Lost decade; environment downgraded in priorities Balance of competences review (UK) – should agricultural policy stay with the EU? 1 CAP or 28 APs? –Fragmentation of SPS, regionalisation  subsidiarity –Transboundary nature of nature + jointness  commonality Wider landscape delivery? How to integrate given individual farmer contracts? 15

The 2020 reform of the CAP? Food insecurity implies stronger demand for PGs – and higher cost of delivering them. But is the CAP the right vehicle? Make Pillar 1 greening work? Co-finance Pillar 1? Resurrect shift to Pillar 2? Abolish the distinction between the pillars – there is no clear principled distinction anyway Change the institutional structure: merge DG Agri and DG Enviro, COMAGRI and COMENV and the two councils 16

Beyond the CAP Private provision of public goods, privately paid Marketed provision linked to food, organic, integrated, welfare friendly Willing voluntary provision Habitat markets, flood protection, C sequestration 17

In short Two decade build-up of strong rhetoric of the CAP switching from the marketed private goods to non- market public goods. But reality does not match the rhetoric The task is genuinely complex and place and farming system specific If the CAP cannot deliver, what can? No answer implies continued degradation of EU natural environment 18

19 Thank you IEEP is an independent not for profit institute dedicated to advancing an environmentally sustainable Europe through policy analysis, development and dissemination.