Bloomberg News

EU Reaches Deal Reshaping Bloc’s Farm Policy in Next 7 Years (1)

June 27, 2013

European Union negotiators agreed on the bloc’s future common agricultural policy, after two years of discussions on how to spend what may total 373.2 billion euros ($485 billion) over seven years.

The new policy will cut some subsidies in the 27-nation bloc and tie others to environmental measures, the European Commission, the EU’s executive arm, wrote in an e-mailed statement today. A plan by farm ministers to trim payments above 150,000 euros for a single farm was left out of final talks as there was no consensus, Paolo De Castro, chairman of the European Parliament’s agriculture committee, said at a news conference in Brussels yesterday.

The EU’s common agricultural policy sets the direction from 2014 to 2020 for farmers who produce 20 percent of the world’s wheat, milk and pork, 11 percent of its sugar and beef and account for 30 percent of global cheese exports. Agriculture would make up 39 percent of the EU’s total budget of 960 billion euros proposed for 2014-2020.

“You’ve got a policy that’s relatively cheap, which people are somewhat attached to and that could cause a lot of trouble when you try to get rid of it,” said Jack Peerlings, associate professor of agricultural economics at the University of Wageningen in the Netherlands. “So there’s no great pressure to really do something drastic.”

EU spending on agriculture and rural development is budgeted to slide over the seven-year period, falling to 50.6 billion euros in 2020 from 55.9 billion euros in 2014, based on a February agreement between the EU countries that is now being negotiated with the European Parliament.

Direct Aid

The EU pays farmers a fixed amount of direct aid for every hectare (2.47 acres) they tend, as well as subsidies tied to rural development or environmental measures such as preserving rows of hedges.

The accord is 1,350 pages long. “It’s going to take a long time to convert this into national legislation,” Stephane Le Foll, France’s agriculture minister, said at a news conference in Paris yesterday after returning at 6 a.m. from talks in Luxembourg.

Direct payments amounted to 40.9 billion euros last year, on a total budget for agriculture and rural development of 57.6 billion euros, provisional data from the bloc show.

In the new policy, 30 percent of direct payments will be linked to farming practices deemed helpful to the climate or the environment, according to the commission. The three basic measures are keeping permanent grassland, crop diversification and managing land as so-called ecological focus areas.

Ecological Focus

Farmers will have to manage 5 percent of their land as ecological focus areas, which could include field margins, trees and landscape features, starting in 2015. That may increase to 7 percent after a commission report in 2017 and subject to a legislative proposal. Farmers with less than 15 hectares may be excluded from the requirement.

Direct payments make up the biggest chunk of proposed future spending on the common agricultural policy, budgeted at 277.9 billion euros for the seven years through 2020. Spending on direct payments is projected to fall to 37.6 billion euros in 2020 from 41.6 billion euros next year, according to EU proposals. The figures are in 2011 prices.

“You see that instead of prices, the incomes of farmers are supported,” Peerlings said. “Over the past 30 years, there’s been liberalization. In small steps, support for agriculture has been reduced.”

The EU agreed to end sugar quotas in 2017, the commission said. A case for better access to cane sugar is still being discussed, according to a U.K. statement.

Reduce Imbalances

The policy aims to reduce imbalances in how much farmers pocket based on the hectares they work. Negotiators agreed per-hectare payments, which are based on how much money a farm made in the past, will be reduced by as much as 30 percent for the biggest beneficiaries.

Farmers getting the least aid per hectare must receive at least 60 percent of the national or regional average payment level, based on the agreement.

Countries will have the right to redistribute as much as 30 percent of their direct-payment budget to the first 30 hectares of a farm, which the commission said will “have a significant re-distributive effect.”

The countries of the EU had about 12 million farms in 2010, with an average size of 14.3 hectares, according to EU statistics service Eurostat. That compares with 2.2 million farms in the U.S. with an average size of 418 acres, U.S. government data show.

Money Issues

The ministers’ council had agreed farms that get more than 150,000 euros in aid would take a cut of 5 percent on direct payments they get above that amount, with some exceptions possible. That plan wasn’t discussed and there was no agreement, according to De Castro.

“No negotiations are perfect,” Simon Coveney, Ireland’s minister of agriculture, said in Brussels yesterday. “There are a relatively small number of issues now linked to how money is spent that parliament feels they want to negotiate on.”

Trimming the biggest payments will now be discussed as part of ongoing talks about the total EU budget, Coveney said. Ireland holds the six-month EU presidency until the end of June.

“Reforming an existing system is very troublesome due to vested interests,” Peerlings said. “So you see it being done step by step.”

The costs from protesting farmers blocking roads and streets might be greater than any economic benefits from getting rid of the common agricultural policy, he said.

Protein Crops

All EU countries will be allowed to link 8 percent of direct payments to production, so-called coupling, with an additional 2 percent for protein crops such as peas, according to the ministers. The number could climb as high as 15 percent for some countries.

The bloc also agreed on a list of land owners who won’t get payments because they don’t meet the definition of active farmers, including airports, railway services and permanent sports grounds.

Countries must use as much as 2 percent of their agricultural budget to support young farmers, topping up the basic payment for those under 40 by 25 percent in their first five years, according to the agreement between the ministers.

The ministers also agreed to end EU-dictated vine planting rights, with a new system for local planting authorization to start in 2016.

To contact the reporter on this story: Rudy Ruitenberg in Brussels at rruitenberg@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net


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