The 2003 reform of the Common Agricultural Policy marked the culmination of a gradual reorientation of EU farm subsidies from product support to direct income support. A mid-term “Health Check” of this reform is now underway, exploring what further adjustments may be required for the period 2009 to 2013. The initiative is a stepping-stone ahead of the 2008/09 Budget Review, which will examine all aspects of EU expenditure—including spending on the CAP, which has traditionally been the largest single item of budget expenditure.
We conclude that—with a limited number of exceptions—the Commission’s proposals for short-term adjustments to the CAP merit support. However, we are not convinced of the long-term justification for maintaining direct subsidy payments in their present form. We consequently advocate a phased reduction in direct payments over the course of the next financial period beginning in 2014. In order to facilitate an orderly transition, we recommend that a significant
proportion of the funds released should remain earmarked for the CAP, but be spent on the rural development element of the policy rather than on farm subsidies. We do not envisage a Common Rural Policy, but rather an EU-level framework defining admissible uses for EU rural development funds, ruling out measures that might lead to distortions in the Single Market for agricultural commodities.
In the course of our report, we also address the challenges and opportunities that lie ahead for the EU agriculture industry. We note that the sector is a significant contributor to climate change, while at the same time being particularly vulnerable to its effects. Climate change may nevertheless present a business opportunity for the industry, which is uniquely placed to deliver environmental services.
We observe that soaring global demand for many agricultural commodities has allowed some sectors of the European farming industry to prosper, while others are grappling with rising input prices and stagnant or falling output prices. Were supply shortages to ensue in future, we expect that food scarcity would be a function of income rather than of production capacity. In our view, those most at risk are therefore consumers on low incomes in the developing world.
We strongly support further trade liberalization in the agriculture sector, but note that if direct payments are withdrawn and import tariffs reduced—as the UK Government advocates—then the production standards that EU producers of agricultural goods are obliged to meet should be re-examined.
The full report is available at http://www.publications.parliament.uk/pa/ld200708/ldselect/ldeucom/54/54.pdf