IP/03/46
Brussels, 15 January 2003
Farm reform: "Commission proposals would have positive effect on farm incomes," studies say
Today, the European Commission has published two internal and four external impact studies(1), which support the overall orientation of its proposals from July 2002 to review the Common Agricultural Policy (CAP). The studies indicate that "decoupling" aid from production would result in production adjustments where needed, but would clearly not lead to production abandonment. The studies also highlight that the reforms envisaged by the Commission would significantly improve market balances. This means that in the future our taxpayers' money would not be spent on financing unsaleable food mountains. The Commission's concept to reduce direct payments and shift more money to rural development, the so-called modulation, would impact little on markets. And the most important result of the simulations is that there would be a positive effect on overall farm income. The main impact of decoupling would be seen in the beef sector. The impact in the arable crops would be minor. This is the result of the fact that our current system is already decoupled to a large extent, meaning that adjustments in production will be limited.
Commenting on the studies, EU Farm Commissioner Franz Fischler said: "This impact assessment clearly demonstrates that cutting the link between payments and production leads farmers to use their land where this is profitable. I ask you: If farmers see better ways of farming, why should Brussels prevent them from taking their chance? Why should Brussels force farmers to produce at a loss? The motto of our mid-term review (MTR) is: "Let the farmer decide what and how much to produce obviously always in a sustainable way! The studies clearly show that doom-mongers who have claimed that our reforms would make British roast beef disappear or the Irish beef industry shut down have got it wrong. Yes, our proposal to simplify the present premium system and to free producers from the direct link between number of animals and payments would result in a 3% decline of beef production. But at the same time, there would be a 7% price increase offsetting the drop in production. Hence, the market revenue of beef producers would increase by 4% and this is what counts."
Another criticism relates to modulation(2) and its alleged negative impact on farm income. "They've got it wrong again. According to the studies,the full impact of the mid-term review (MTR) is positive with respect to farm income, increasing it by 1.7%.", Fischler concluded.
Background
In all, the Commission presented six studies, four of them undertaken by external bodies, two of them realised by DG Agriculture. Obviously, they have certain limitations, such as time constraints or no possibility to update the models. Another limitation derives from the fact that, although textbooks define models as a representation of reality, reality is perceived differently by model developers, who have their own analytical priorities and legitimate (from an academic point of view) biases.
This limitation is evident when comparing external and internal studies of the MTR impact in two areas. First, while the DG AGRI studies differentiate this impact according to the policy measure that created it (market measure, decoupling, or modulation), the external studies produced only one MTR impact figure, with no distinction.
Second, the representation of MTR policy options in some studies reflects more the current structure of these models than the MTR option. Decoupling is a very clear example. Two of the external studies modelled an alternative to the MTR approach: instead of modelling decoupling on the basis of historical references, they did so on the basis of an area payment, equal for all farmers.
Thus their results are to a large extent reflections of the negative redistribution impact of such an approach, which was exactly the reason for which this option was not retained in the MTR.
A third study treats the extent of decoupling using as a yardstick a rather academic purity in the approach to policy, thus interpreting cross-compliance as an element of "partial" decoupling. But in no case did the Commission ever consider that decoupling means that farmers are being paid for doing nothing. The opposite is true: Who would seriously claim that keeping land in good order, by keeping animals, managing land or cutting hay, and meeting the standards we ask from farmers is doing nothing?
Yet despite these limitations, for which time and procedures imposed constraints beyond the control of these researchers, the four external studies provide useful information about the potential impact of the MTR, especially with respect to the identification of areas where further analysis may be required.
These studies, together with other studies that were provided to the Commission will certainly constitute essential input.
After the decision of the Commission on the CAP reform proposal next week, we will of course update our internal analysis to incorporate any changes and evaluate their impact.
The studies are available on the website of DG AGRICULTURE at
http://ec.europa.eu/agriculture/publi/reports/mtrimpact/index_en.htm
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(1)The external studies have been realised by -Food and Agricultural Policy Research Institute (FAPRI), University of Missouri-EuroCARE, University of Bonn- Centre for World Food Studies, Amsterdam and The Netherlands Bureau for Economic Policy Analysis, The Hague
(2)The term "Modulation" refers to the Commission's proposal to reduce farmers direct payments and use these funds for rural development measures, such as environmental programmes, organic farming, promotion of quality or animal welfare.
