The Domestic Impact of European Public Policies on Agriculture

• Carlotta Schilling
• 1. November 2020

Only one week ago on October 23^rd the European Parliament voted on the newest reform of the Common Agricultural Policy (CAP) which provoked protests by climate activists and others running under the hashtag #VoteThisCAPdown.[i] The widespread criticism indicates a strong domestic impact of the reform and more generally European Union (EU) public policies on its Member States (MS). This accounts especially for the policy area of agriculture which constituted one of the cornerstones of European integration since the Treaty of Rome from 1957 [ii] and still makes up the biggest part of the overall EU budget with 38%. MS created the Common Agricultural Policy already back in 1962 .[iii]  But over time, ideas and policy measures changed going through various reforms of the CAP: The paradigm of seeing agriculture as an exceptional sector in need for state assistance to guarantee food security and farmers’ incomes was gradually overthrown by more liberal and multifunctional ideas, such as the Mac Sherry Reform of 1992. With this, the manner of supporting farmers also changed from price supports to direct subsidies,  and with the Agenda 2000, the two-pillar model was implemented, which added rural development as a second policy goal apart from production support.[iv] The review planned in 2002 then ended up to be the most ambitious reform of the CAP until now: the Fischler Reform of 2003.[v] In the following we will exemplarily analyze the domestic impact of the Fischler Reform in Germany, in order to illustrate the far-reaching domestic impact of EU public policies in different spheres, which can help us understand today’s protests and serve as a basis for further analysis on the currently planned reform. In the first section, we will outline the major objectives and policy changes of the reform and its direct impact on German legislation, to then analyze the wider impact of the reforms on German economy, as well as social, environmental, and political aspects.

The main policy change of the Fischler reform, implemented between 2005 and 2007,[vi] is the decoupling of direct support for farmers, meaning that the amount of payments that farmers receive is not dependent on their productivity anymore, but on the land they own.[vii] By this, production shall react more efficiently to market signals [viii] and use less resources as it allows greater farming flexibility.[ix] These direct payments were now called Single Farm Payments (SFP), as several types of payments, e.g. certain premiums for beef producers as the special premium for male cows, were aggregated to one payment per farm. In order to receive it, the farm has to fulfill certain environmental and animal protection standards, e.g. recipients must mothball 10% of their land – a cornerstone of the CAP called Cross Compliance. Additionally, the Fischler Reform undertook some adjustments of the market order, including a change of the milk quotas and lower intervention prices intended to reduce the production of cereals and milk. Another focus of the reform was the so-called Modulation, which describes the reallocation of means to the CAP’s second pillar of rural development in order to redistribute payments between and within MS. This included a Degression of payments meaning a decrease in agricultural assistance, starting from 2006, especially restricting on bigger farms.[x]

The general legal foundations of the CAP consist of regulations, which are directly applicable for all MS and do not need to be implemented.[xi] Germany consequently had to follow the changes of the Fischler Reform as they were all legally binding, but had the choice between different measures in order to achieve a defined goal in the cases of directives.[xii] MS did however have the opportunity to implement different systems of partial decoupling, which Germany did not use. Except for hops, tobacco and potato starch, Germany already decoupled all products and payments in 2005.[xiii] So, it has been shown that German legislature was modified in reaction to the Fischler Reform.

These legislative changes did not fail to meet the ambition of making farmers react more to market signals than with state incentives, but also influenced the farmer’s behaviors and production decisions. According to a study from 2001/2002, roughly 30% of the farmers stated that they would alter their mix of farm activities after decoupling, because they would not risk losing their direct payments, e.g. due to short-term losses in productivity. Another question arising is if farmers were to stop production, they would receive the SFPs anyway.[xiv] Some forecasted a fall in food production of 1-2%.[xv] This applies especially for beef production with a fall of 29%. In fact, according to the same survey approximately 40% of the farmers would leave at least some of their land idle.[xvi] We can thus note that by changing farmers behavior, decoupling did also influence food production in its quantity and mix.

These changes in the production mix were at least partly intended to reduce the product indicated benefit of some few agricultural products and therefore reduce the contortion of the product structure. For instance, milk and cereal production were intended to be reduced by lowering the intervention price.[xvii] The consequently falling milk prices and the flat-rate model which pools and reallocates for example milk premiums, affect the milk farms’ income negatively. Arable farms on the other hand can profit from this.[xviii] We can consequently identify direct income consequences of the reform for farmers.

Profiting from the reform are also organic farms, firstly from decoupling. As they are usually less productive than conventional farms, their income increased significantly and the income gap to conventional farms fell from 9% to 3%.[xix] Secondly the cross-compliance approach put more attention on sustainable land use and the protection of animals. Therefore, the Fischler Reform also contributed to environmental protection.

In what way the reform made an impact in social regards is questionable, but it is definitely existent.  Counting transfers per worker or farm, the CAP contributed to social cohesion.[xx] Due to Degression and Modulation inequalities between bigger and smaller farms, as well as between urban and rural areas, should be at least to some extent reduced. Other scholars argue that the negative impacts on milk farms vis-à-vis the income increase for arable farms tightened existing problems of distribution.[xxi]

Another result of decoupling is an increased capitalization in soil prices. Also, the leasing prices rose with every additional euro of decoupled direct payments by 32 cents.[xxii] In financial terms it has to be noted as well, that the reform provoked costs for the state and the federal states. Subventions and external costs of agrarian production of the state amount more than 29 Billion Euros per year,[xxiii] which marks an important percentage of the overall budget of the state and could otherwise be used for other policies.

Especially future policies could be affected by the Fischler Reform too, because the change in support schemes influences farmers’ perception of themselves and their degree of dependency on state support. With decoupling and making SFPs dependent on compliance with certain standards, the payments were seen by farmers more and more as payments for providing services for the society than as a social policy. This could make future attempts to reduce payments difficult, because farmers would feel that they would lose payments for their produce.[xxiv] This shows that the reform also framed domestic beliefs and expectations and thereby influenced future policies.

Concluding we have shown that the Fischler Reform, and especially the decoupling of direct payments for farmers, were followed by direct changes in German legislature. These adjustments had impacts on different spheres of society. As such we have seen the impact on the quantity and mix of food production and the economic consequences for different kinds of farms, including the positive impact for organic farms and the impact on environmental protection. Furthermore, we discussed social consequences of the reform and illustrated its financial impact as well as the bearing of the Fischler Reform for future policies. By showing the strong domestic impact of the adjustments on the CAP made with just one single reform, the paper illustrated the enormous domestic impact that EU policies on agriculture have in all spheres of life. Maybe this can help us understand the strong reactions on the currently planned reform and serve as a basis for further analysis. What remains questionable is if the concentration on agriculture by EU policy is still up to date at all, or if EU expenditures should concentrate on other issues like the refugee crisis and other social issues. Maybe Brexit could now be the chance to implement such a new orientation and budget redistribution.

Endnotes

[i] Fridays for Future (2020): #VOTETHISCAPDOWN. Weblink: https://fridaysforfuture.de/votethiscapdown/, Accessed: 31.10.2020.

[ii] Bundesministerium für Ernährung und Landwirtschaft (n.d.): EU-Agrarpolitik. Weblink: https://www.bmel.de/DE/Landwirtschaft/Agrarpolitik/agrarpolitik_node.html, Accessed: 02.01.2020.

[iii] European Commission (n.d.): Die Gemeinsame Agrarpolitik auf einen Blick. Weblink: https://ec.europa.eu/info/food-farming-fisheries/key-policies/common-agricultural-policy/cap-glance_de#legalfoundations, Accessed: 03.01.2020.

[iv] Weiland, Sabine (2019): EU Common Agricultural Policy. Seminar: EU-Policymaking (not published).

[v] Massot, Albert (2019): Die Instrumente der GAP und ihre Reformen. Weblink: http://www.europarl.europa.eu/factsheets/de/sheet/107/die-instrumente-der-gap-und-ihre-reformen, Accessed: 03.01.2020.

[vi] Brandt, Hartmut (2004): Kosten und Auswirkungen der gemeinsamen Agrarpolitik (GAP) in Deutschland. Oxfam Deutschland , Berlin. p. 9.

[vii] Tranter, R.B.; Swinbank A.; Woolridge A.J. et al. (2007): Implications for food production, land use and rural development of the European Union’s Single Farm Payment: Indications from a survey of farmers’ intentions in Germany, Portugal and the UK. In: Food Policy, Vol. 32, Issues 5-6. Elsevier Ltd. p. 656.

[viii] Sinabell, Franz; Schmid, Erwin (2003): Die Reform der Gemeinsamen Agrarpolitik der EU. WIFO Monatsberichte 6/2003. Österreichisches Institut für Wirtschaftsforschung, Wien. pp. 425-427.

[ix] Tranter, R.B.; Swinbank A.; Woolridge A.J. et al. (2007): Implications for food production, land use and rural development of the European Union’s Single Farm Payment: Indications from a survey of farmers’ intentions in Germany, Portugal and the UK. In: Food Policy, Vol. 32, Issues 5-6. Elsevier Ltd. p. 656.

[x] Sinabell, Franz; Schmid, Erwin (2003): Die Reform der Gemeinsamen Agrarpolitik der EU. WIFO Monatsberichte 6/2003. Österreichisches Institut für Wirtschaftsforschung, Wien. pp. 425-429.

[xi] Massot, Albert (2019): Die Instrumente der GAP und ihre Reformen. Weblink: http://www.europarl.europa.eu/factsheets/de/sheet/107/die-instrumente-der-gap-und-ihre-reformen, Accessed: 03.01.2020.

[xii] European Commission (n.d. a): Types of EU law. Weblink: https://ec.europa.eu/info/law/law-making-process/types-eu-law_en#types-of-eu-legal-acts, Accessed: 03.01.2020.

[xiii] Brandt, Hartmut (2004): Kosten und Auswirkungen der gemeinsamen Agrarpolitik (GAP) in Deutschland. Oxfam Deutschland , Berlin. pp. 10-11.

[xiv] Ebd. pp. 656-671.

[xv] Brandt, Hartmut (2004): Kosten und Auswirkungen der gemeinsamen Agrarpolitik (GAP) in Deutschland. Oxfam Deutschland , Berlin. p. II.

[xvi] Tranter, R.B.; Swinbank A.; Woolridge A.J. et al. (2007): Implications for food production, land use and rural development of the European Union’s Single Farm Payment: Indications from a survey of farmers’ intentions in Germany, Portugal and the UK. In: Food Policy, Vol. 32, Issues 5-6. Elsevier Ltd. pp. 656-671.

[xvii] Sinabell, Franz; Schmid, Erwin (2003): Die Reform der Gemeinsamen Agrarpolitik der EU. WIFO Monatsberichte 6/2003. Österreichisches Institut für Wirtschaftsforschung, Wien. pp. 425-429.

[xviii] Brandt, Hartmut (2004): Kosten und Auswirkungen der gemeinsamen Agrarpolitik (GAP) in Deutschland. Oxfam Deutschland , Berlin. p. 12.

[xix] Offermann, F.; Sanders, J.; Nieberg, H. (2009): Auswirkungen der Entkopplung der Direktzahlungen auf den ökologischen Landbau in Deutschland. In: Tagesband 2 of the 10. Wissenschaftagung Ökologischer Landbau. Dr. Köster Verlag, Berlin. pp. 23-24.

[xx] Hansen, Heiko; Harsche, Johannes (2006): Die Förderung landwirtschaftlicher Erzeugnisse durch die europäische Agrarpolitik. Regionale Auswirkungen in Deutschland und Bestimmungsgründe. In: Unternehmen im Agrarbereich vor neuen Herausforderungen. Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues , Bd. 41, 2006. Ed. Bahrs, E.; Cramon-Taubadel, S.; Spiller, A. et al. Landwirtschaftsverlag GmbH, Münster. p. 480.

[xxi] Brandt, Hartmut (2004): Kosten und Auswirkungen der gemeinsamen Agrarpolitik (GAP) in Deutschland. Oxfam Deutschland , Berlin. p. 12.

[xxii] Feichtinger, Paul (2014): The Influence of the Common Agricultural Policy on Agricultural Land Prices. Technische Universität München, Fakultät für Wirtschaftswissenschaften, Lehrstuhl für Volkswirtschaftslehre – Umweltökonomie und Agrarpolitik, München. p. X.

[xxiii] Brandt, Hartmut (2004): Kosten und Auswirkungen der gemeinsamen Agrarpolitik (GAP) in Deutschland. Oxfam Deutschland , Berlin. p. III.

[xxiv] Daugbjerg, Carsten; Tranter, Richard; Jones, Philip et al. (2005): The visibility of agricultural subsidies and market illusions in the Common Agricultural Policy: Some evidence from farmers’ views in Germany, Portugal and the United Kingdom. In: European Journal of Political Research, Vol. 44, Issue 6. p. 764.