1 CAP Reform and entrepreneurial opportunities in the enlarged EU 27 th – 28 th May 2004 Hilborough, Norfolk The newly decoupled CAP and English Land Management Allan Buckwell CLA Chief Economist and Head of Research

2 The newly decoupled CAP and English Land Management The evolution of the CAP, UK view. Decoupling and the English SFP Challenges and impacts of decoupling The Second Pillar: Rural Development The future of the two pillars of the CAP

3 A few basic statistics

4 Agriculture in the UK economy 2002p

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6 The evolution of the CAP, UK view. Traditional 19 th C approach was free trade. After 2 WWs in 20 th C, 1947 Ag Act – ‘produce that part of the nation’s food in our economic interest to produce’. Price support by producer deficiency payments Joined EEC in 1973 on third application. Expansion of UK agriculture, raised self supply. Non-farmers very critical of CAP: consumer, environmental and trade (3 rd world) costs. Very strong environmental movement

7 UK position on EU and CAP UK political parties cannot make-up their minds on Europe; both parties have reversed their positions Opt-outs of social chapter and Euro, red lines on Constitution. Governments pro-reform on CAP, pro trade liberalisation Net contributor to budget, hence British Budget rebate (political weight much greater than economic) Small use of structural funds; small beneficiary of Pillar 2 Favour reductions in market support, moves away from supply management. Supports shift Pillar 1 market support to Pillar 2 Rural Dev. But wants a fairer, more objective sharing of Pillar 2 Favoured enlargements, supports further enlargement – wider Europe of freely trading nation states.

8 Decoupling and the English SFP Support for decoupling in principle: for trade, market orientation and environmental reasons Broad acceptance that farmers deliver multi- functional benefits Acceptance of SFP as correct further move towards paying farmers for ‘looking after the countryside’ Strong English debate on how to allocate the SFP Decided for a hybrid scheme which gives the payments mostly on Historic basis in 2005, and Regional average payment by Some strong landlord tenant issues given 1/3 rd land is leased and also the prevalence of short term leasing arrangements.

9 Controversial aspects of decoupling National Reserve: to right injustices of the Reference period ( ) Treatment of new entrants Entitlement trading, the concern End of tenancy problem Siphons on entitlement trading The 10-month ‘land at the farmers’ disposal’ rule and short term contracts Cross compliance conditions –Statutory Management Requirements –Good Agricultural and Environmental Conditions –Retention of 2002 permanent pasture

10 The impacts of decoupling Many expect production to fall and therefore incomes to rise –Elimination of unprofitable production –Rise in prices (?) Environmental benefits Main EU support reclassified as Green Box (from blue) and therefore safe, Is it? Justifications for the SFP? –Income support, and income stabilisation –Preserving farming where it would otherwise disappear –Delivering public environmental services –Compensation for higher enviro costs

11 Pillar 2: Rural Development Policy Rural Development Regulation ( 1257/99) –Co-financed –regionally defined –Menu-driven, programming approach –multi-annual The measures available –Competitiveness: training, investments, e retirement and new entrants –Environment: LFAs, Agri-enviro, N2K –Wider rural development: diversification, quality of rural life –Plus LEADER

12 Future development of the CAP? Funds for Pillar 2? –Compulsory modulation 5% (2007) –Leaves balance Pillar 1:Pillar 2 at 80:20 Financial perspectives –Based on 1.24% of GNI (contested) –1 Sustainable Growth Lisbon: competitiveness & cohesion 47% –2 Preservation and management of natural resources G ö teborg: sustainable development 39% Agriculture markets and SFP 29% Rural development and other 10%

13 Concluding remarks The CAP is a continually evolving, complex set of arrangements for rural policy The drivers are: –The budget: amount and structure –External – trade – forces, especially WTO –Domestic pressures: massive detachment from food production; highly precautionary approach; food safety, environment and animal welfare. Is Europe going forward or about to stall? The new member states can have an important influence

14 Allan Buckwell CLA Chief Economist and Head of Research Tel