terça-feira, 9 de março de 2010

Accidental Farmer’s Remarks Bulletin (VI) Perfectible Storms

I suppose the most perfect kind of storm for a farmer is the non-existing storm, or the feared storm that transforms itself into a needed smooth rainfall. This is particularly so in the history of the CAP. For instance, those who wanted to undermine Sicco Mansholt structural reform proposal of 1968 did so by presenting it as a revolutionary event, carefully hiding the fact that the Mansholt’s proposals of 1968 were a redrafting of his own Stresa proposals presented in 1958 and that Mansholt always thought to be a tremendous mistake to replace structural needed reforms by market interventions.
In fact, apart from major catastrophic turns in the market situations, I cannot remember a single transformation in the CAP history that was not brewed over a long time, and this was particularly true with the most reformist minded period in the European history, the period that coincided with the Presidency of the European Commission by Jacques Delors.
From its first steps, the CAP used mechanisms aiming at restricting quantities of agricultural products sent to the markets (this was the case with fruits and vegetables, fish, sugar or wine) but otherwise used unrestricted price-support mechanisms in domains where the internal European market situation allowed it to do so (for instance, cereals and oil-seeds, milk and beef).
When the market situation made this last policy unsustainable from a budgetary point of view as well as from external impact and feasibility points of view, price-support mechanisms became more and more restricted and fully fledged quantity restrictive mechanisms were introduced, the most famous of which were the milk quotas introduced in 1984.
CAP was perhaps the domain where the Delors Commission appeared to be less revolutionary. He re-named the structural reform measures as CAP accompanying measures –which did a lot to diffuse the impression of a revolutionary stormy kind of policy – he introduced rural development both as a crucial initiative community (LEADER); he continued and deepened the existing trend to give CAP a regional flavour where support to agriculture depended of the regional or plainly geographical conditions and he gave some clout to the environmental policy by creating agri-environmental measures within the “accompanying CAP measures”.
The first and most striking innovation the Delors presidency brought to CAP was the introduction of imperative budgetary ceilings – guidelines was the term chosen – as well as other budgetary mechanisms that created rules of financial discipline into the CAP.
This transformation was clearly made easier for the budgetary expansionary environment where it was introduced, but its impact went far beyond the simple budgetary matters. It was the key element in reaching an overall institutional agreement on budgetary and policy issues overcoming the previous ferocious disputes between Parliament and Council, it allowed the European institutions not to be overwhelmed by the annual permanent drama of decisions on agricultural prices and budget and therefore to get involved in more promising issues and it helped creating the conditions for a global trade agreement.
However, the most striking innovation brought by the Delors Presidency was the decoupling of farm payments under the so-called McSharry reform.
During the eighties, agricultural economists had nearly unanimously been claiming – and international organisations such as the World Bank or the OECD had been echoing the claim – the need to decouple farm support from market distorting mechanisms, such as price guarantees.
The logic of decoupling is quite simple: if for whatever reason you want to give money to farmers – without negative consequences for the global economy and not least to the farmers themselves who see their natural markets flooded with unwanted products – you must separate this subvention from the obligation to produce.
Furthermore, it is somehow schizophrenic to couple policies that stimulate production – as subsidies coupled with quantities or guaranteed prices – with policies that restrict production, such as production or plantation quotas. This policy amounts to drive with one foot on the gas pedal and the other on the brake’s pedal.
That the absurdity of this situation was not obvious for all the economic actors in agriculture was a real mystery to me and I believe to a large sector of the agricultural economics profession.
As much as decoupling seems to be a matter of basic common sense, the fact is that this policy was always seen as a “perfect storm” type of policy, that is, a policy of subsidising the farmer for him not to produce.
In the popular view of the situation – painted with vivid colours by the press in a country like Portugal – we had a cocktail of policies such as subventions to agricultural investment, existing limits to production (requirement to leave a certain part of your land fallow was the most notorious) and decoupled payments on production that meant, in the whole, that people in Brussels were completely lunatic (kindest version) or that we were facing a Brussels master-minded plot to destroy agriculture, or in any circumstance, Portuguese agriculture (harshest version).
As it was the case with the previous Mansholt reforms, the inability of the reformers to explain their strategy to the public opinion in general and the stakeholders in particular made the overall situation for the “decoupling strategy” very difficult.
The McSharry reform coincided with a major redressing of agricultural markets, and therefore cereal producers got a handsome compensation for a predicted fall in prices that failed to materialise.
This fact certainly bought the good-will of the farming community to this reform that it deeply disliked and always saw as a mere first step to the dismantling of protective agricultural policies (in this respect, not without reason).
McSharry reform was logically only a first step to be followed by the decoupling of payments in every sector and from obligations with specific types of farming.
As early as in 1994, official European Commission publications such as “European Economy (number4 and 5) were already modelling the impact of a continued agricultural reform made of the generalisation of decoupling, and otherwise this was seen as inevitable.
However, either in the domain of decoupling as in others such as cross-compliance and modulation – kept as optional but not mandatory mechanisms – Agenda 2000 did not go as far as expected.
The reason why of this paralysis can be seen from several angles, some of them – like the fall-down of the Santer Commission – having nothing to do with CAP, others, like the negative view of “giving subventions for farmers not to produce” playing an important role within the agriculture debate.
However, much to the surprise of most of the observers, we had to wait for the Mid Term Review (MTR) of 2003 – a political exercise supposed to be less ambitious than the Agenda 2000 – to see this reform advancing visibly.
The MTR generalised the application of another mechanism – the modulation that only existed for compensatory payments since Delors and as an option for direct payments after the Agenda 2000 – to other farming subsidies on a mandatory basis.
Otherwise, it also made some way to give some more effectiveness to the heavy environmental legislation that the European Union had approved, through the so-called cross compliance, which became obligatory rather than a mechanism that member states could implement.
One the absurdities of the price support mechanisms had been its incentive to intensification practices in the agricultural domain that were contrary to the global European environmental aims.
The fact that a European economic agent could not only disregard European legislation but still being subsidised for the very same economic activity that ran against European legislation had been viewed as a top anachronism and the cross-compliance, by instituting the principle of compliance to European legislation as a condition to receiving European subventions seemed to be quite a logic step.
One of the trading arguments given by the European Commission for making the MTR more palatable was the promise that there would be no major reform in 2007, contrarily to what had been assumed by Agenda 2000, promise that was kept.
The calm – non-storming could perhaps be the best expression – and conservative image of Commissioner Fischler might have been one reason why the decoupling initiated with President Delors was finally achieved for most of the agricultural production.
Exactly as it was the case with the MTR, I believe success with a CAP 2020 reform process will crucially depend on its non-stormy character, and the way Commission will be able to market it.
The fact remains that MTR decoupling kept subventions coupled with the Member States that used to be their major beneficiaries, which is perhaps the biggest draw back of this reform, since this divorce will be a determinant key for the success of future negotiations and it will be very hard to obtain, as no member state will gladly accept to give away what it considers to be a tremendously difficult achievement of the past.
Decoupling was not a very appealing marketing label in the first place, and there are certainly a host of more appealing formulas to design what we are aiming at.
Wedding could certainly be a better way to approach what we have in mind: wedding with nature; wedding with the reality of market forces; wedding with the countryside, wedding with the Millennium development goals; wedding of budgetary resources with those who most need them.
Whoever is following the mechanics of the CAP budgetary implications is certainly quite aware that the rebalance of burden and distribution of agricultural funds between member states is the heart of the success of the CAO 2020 exercise. I also believe that whoever has been following closely the issue also knows that there is a way to insure this will not happen: to present reform as an argument on how to slice the budget between member states.

Brussels, 2010-03-03

(Paulo Casaca)

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