Communication on the future of the CAP

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

DG for Agriculture and Rural Development European Commission

Olof S.

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

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 Strong public interest in Commission call to public: 5 600 contributions Very successful Conference in July: 600 participants Council, EP, EESC, CoR discussions and/or opinions The Communication Reflects broadly identified policy challenges Responds to the public debate and outlines broad future options Launches inter-institutional debate and prepares legal proposals

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 Integrated approach for rural areas Contribution to EU budget stability

and resulting in a territorial and environmentally balanced EU agriculture

CAP expenditure and CAP reform path

(2007 constant prices)
70 60 50 40 30 20 10 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 billion
EU-10 EU-12 EU-15 EU-25

% GDP
EU-27

0.7% 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0.0%

Export subsidies Decoupled direct payments

Other market support Rural development

Coupled direct payments % of EU GDP

Source: European Commission - DG Agriculture and Rural Development

Alternative views on the cost of the CAP

CAP cost in 2009 (in absolute terms)
140 120 100 80 60 40 20 0 Billion of euros
20% 10% 0% % of GDP 60% 50%

CAP cost in 2009 (in relative terms)

41% of EU budget

40% 30%

0.5% of EU GDP

CAP expenditure

EU budget

CAP expenditure

All EU public expenditure

Source: European Commission - DG Agriculture and Rural Development

3. Why do we need a reform?

To respond to challenges ahead Economic challenges Food security Price variability Economic crisis

Recent trends in some commodity market prices

EUR/t for maize and fresh milk; EUR/100 kg for SMP 400 350 300 250 200 150 100 50 0 Jan-00 May-00 Sep-00 Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 Fresh milk, EU SMP, EU Maize, US, Gulf Crude oil, avg spot price
Sources: European Commission - DG Agriculture and Rural Development and World Bank

Crude oil, EUR/bbl 200 175 150 125 100 75 50 25 0

EU developments in agricultural income

(agricultural income/AWU in real terms)
EU-15 210 ( Index EU-27 in 2005 = 100 ) EU-12 60 50

200

EU-15
190

192.7

40 30 20 10 0

31.7
180

EU-12
170

17.9 168.0

160 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010e
Source: Eurostat

EU developments in agricultural income

(agricultural income/AWU in real terms)
EU-15 150 140 130 120 110 100 90 80 70 60 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010e
Source: Eurostat

( Index 2000 = 100 )

EU-12 200

EU-12

180 160 140 120

EU-15

100 80 60 40 20

10

Relative situation of agricultural income in the EU

Agricultural income level between Member States (2010e)
(agricultural income/AWU in real terms EU-27 = 100)

Income gap with the rest of the economy (average 2005-2007)

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

200 175 150 125 100 75 50 25 0

100% 80% 60% 40% 20% 0% EU-15 EU-27 EU-12 EU-15 EU-27 EU-12

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

11

Recent evolution of agricultural input and output prices

(index 1996 = 100, in real prices)

110

100

90

80

70 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010e Input prices - EU-27 Output prices - EU-27

Source: Eurostat

12

3. Why do we need a reform?

To respond to challenges ahead Economic challenges Food security Price variability Economic crisis Environmental challenges GHG emissions Soil depletion Water/air quality Habitats and biodiversity

13

Declining trend of GHG emissions in EU agriculture since 1990

Tg CO2 equivalents 700 600

EU-27 = -20%
500 400 300 200 100 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: EEA

EU-15 = -12%

14

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 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

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

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

15

3. Why do we need a reform?

To respond to challenges ahead Economic challenges Food security Price variability Economic crisis Environmental challenges GHG emissions Soil depletion Water/air quality Habitats and biodiversity Territorial challenges Vitality of rural areas Diversity of EU agriculture

16

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)

17

3. Why do we need a reform?

To respond to challenges ahead Economic challenges Food security Price variability Economic crisis Environmental challenges GHG emissions Soil depletion Water/air quality Habitats and biodiversity Territorial challenges Vitality of rural areas Diversity of EU agriculture

Equity and balance of support Contribution to Europe 2020 strategy

18

4a. What are the objectives with the reform?

Viable food production Sustainable management of natural resources and climate action To guarantee the provision of public goods To foster green growth through innovation To pursue climate change mitigation and adaptation Common EU response needed Balanced territorial development

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 support rural vitality and employment To promote diversification To allow social and structural diversity in rural areas

19

4b. What policy instruments?

Better targeted to objectives Direct payments Redistribution Better targeting Redesign:
Greening of direct payments Capping of payments Small farmers support Areas with specific natural constraints

Based on two pillar structure

20

Average direct payments per potentially eligible area and beneficiary

Direct payments net ceilings fully phased-in (in 2016)
EUR/ha 800 700 600 500 400 300 200 100 0 Malta Germany Slovenia Slovakia Italy Hungary Greece Austria Ireland EU-15 EU-27 EU-12 Luxembourg Cyprus Netherlands Denmark United Kingdom Bulgaria France Poland Sweden Romania Portugal Czech Republic Lithuania Belgium Estonia Finland Latvia Spain 8000 0 32000 24000 16000 EUR/ben. 48000 40000

DP net ceilings fully phased-in (EUR/ha) EU-27 average (EUR/ha) DP net ceilings fully phased-in (EUR/beneficiary)
Source: European Commission - DG Agriculture and Rural Development

21

4b. What policy instruments?

Better targeted to objectives Direct payments Redistribution Better targeting Redesign:
Greening of direct payments Capping of payments Small farmers support Areas with specific natural constraints

Based on two pillar structure

Market measures Market orientation Streamline and simplification Improved food chain functioning

22

Slow, limited, asymmetric price transmission along the food supply chain
FOOD PRICE CRISIS PRODUCERS LAG RETAILERS LAG STABILISATION

120 115 110 105 100 95

Overall inflation (HICP) Food producer prices Agricultural commodity prices Food consumer prices

Jun-07 Jul-07

Jun-08 Jul-08

Nov-07 Dec-07

Nov-08 Dec-08

Apr-07 May-07

Apr-08 May-08

Jan-07 Feb-07

Source: European Commission DG Economic and Financial Affairs, based on Eurostat data

May-09

Aug-07 Sep-07

Jan-08 Feb-08

Aug-08 Sep-08

Jan-09 Feb-09

Mar-09 Apr-09

Mar-07

Mar-08

Jun-09 Jul-09
23

Oct-07

Oct-08

4b. What policy instruments?

Better targeted to objectives Direct payments Redistribution Better targeting Redesign:
Greening of direct payments Capping of payments Small farmers support Areas with specific natural constraints

Based on two pillar structure Rural development Environment, climate change and innovation as guideline themes Improved coherence with other EU policies More effective delivery mechanisms Address risk management New distribution criteria

Market measures Market orientation Streamline and simplification Improved food chain functioning

24

% of total expenditure

Source: European Commission - DG Agriculture and Rural Development

100%

10%

20%

30%

40%

50%

60%

70%

80%

90%

0% Denmark Netherlands Belgium France Greece Germany United Kingdom Spain Italy Ireland Sweden Luxembourg Finland Cyprus Hungary Austria Portugal Czech Republic Poland Lithuania Slovakia Slovenia Estonia Latvia Bulgaria Romania Malta Second Pillar First Pillar

CAP expenditure between pillars

(in 2009)

25

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) Capture the opportunity for reform ensuring that CAP becomes more sustainable and balanced (between policy objectives, MS and farmers) through more green targeted measures More fundamental reform focusing entirely on environmental and climate change objectives through rural development, moving away from income support and most market measures

Option 2

Option 3

26

4c. What policy options?

Direct payments
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 Streamline and simplify existing measures Gradually phase out direct payments

Market measures

Streamline and simplify existing measures

Phase-out most measures Keep disturbance clause for severe crises Primarily focus on measures linked to the environment and the delivery of public goods

Rural development

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

Option 1

Option 2

Option 3

27

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

28

6. Next steps
Inter-institutional debate on the Communication Preparation of Impact Assessment (IA) 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 Preparation of Legal Proposals Legal proposals will be presented in the second semester of 2011

29

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

30

Thank you

31