How to use the EU's Multiannual Financial Framework to encourage a more efficient CAP

1. RETHINKING EU BUDGET
SPENDING ON AGRICULTURE IN
THE NEXT MFF
Presentation to the session ‘More efficient use of
scarce financial resources – An efficient Common
Agriculture Policy and focussed structural Funds’
EPSC High Level Conference ‘Shaping our Future:
Designing the next Multiannual Financial Framework’
8-9 January 2018, Brussels
Alan Matthews
Professor Emeritus of European Agricultural Policy
alan.matthews@tcd.ie

2. Key figures
• Shares in MFF commitments 2014-2020
• CAP 38%
• Economic, social and territorial cohesion 34%
• Shares in CAP expenditure (following Pillar transfers)
• Direct payments 71% (share in EU budget 28%)
• Rural development 24%
• Single CMO market management 4%
• Payments over €50,000 (2104 claim year)
• Number of beneficiaries 131,300
• Amount paid to these beneficiaries €13.8 billion
• Share of direct payments to these beneficiaries 33%
• Share of total EU budget to these beneficiaries 10%
2

3. The value added of direct payments
• Direct payments make up an important share of farm
income on many farms…
• … but they are not well-designed or well-targeted for
these purposes.
• Much of the benefit is capitalised into land values
• (see next slide)
• There is no European value added in making income
support payments to farms that are already well-
structured and enjoy significant economies of scale…
• … although capping is very much a second best solution
3

4. 4
Source: Eurostat
Land rents up 4 times
Land prices up 5 times
In last 10 years
Two-thirds land rented
Accession

5. 5
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Denmark
UnitedKingdom
Netherlands
Belgium
France
Germany
Spain
Ireland
Greece
EU-28
CzechRepublic
Sweden
Cyprus
Hungary
Italy
Luxembourg
Bulgaria
Lithuania
Poland
Latvia
Finland
Romania
Slovakia
Estonia
Austria
Slovenia
Portugal
Croatia
Malta
Relative importance of direct payments and rural
development funding by Member State, 2015-2020
Pillar 1 Pillar 2
Source: Own calculations based on DG AGRI data
Note: Figures prior to transfers between Pillars

6. Co-financing Pillar 1 payments
• Co-financing would bring benefits in terms of a more
efficient use of EU funds.
• Give Member States an incentive to maximise the value
of spending
• Remove the anomaly between Pillar 1 and Pillar 2
spending
• Allow the EU to use its budget to drive Member State
expenditure in the direction of priorities with higher
European value added
• Release funds in the general EU budget which could be
used for other EU priorities.
6

7. CAP net balance structure after Brexit
(% of GNI, 2016 figures)
7
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
NL MT BE LU SE DE IT FR DK AT CY FI ES HR SI SK CZ PT IE PL EE LV HU RO EL LT BG
CAP net balance CAP PI net balance CAP P2 net balance
Source: Own calculations. 2016 CAP spending from DG BUDGET Operating Balances
workbook, GNI figures from Commission Amending budget No. 4 2016
Excludes market-related expenditure

8. A budget for results
• Structuring the MFF to encourage a high level of
ambition in setting CAP targets
• The current incentive structure, with pre-allocated funds
which Member States see as ‘their’ money, is all wrong.
• Member States should be incentivised to achieve better
results with EU money in various ways:
• Target co-financing on measures with high European
value added
• Use of performance reserve
• Competitive funding
• Ex ante conditionalities
8

9. Conclusions
• Ways in which the next MFF could support a more
efficient CAP
• No longer a policy rationale to maintain the two-Pillar
structure.
• Limit payments to larger beneficiaries allowing national
top-ups if desired
• Introduce co-financing for Pillar 1 payments
• Require that the greening payment be used to finance
an environmentally-meaningful menu of options chosen
by Member States
• Some proportion of CAP funds should not be pre-
allocated but distributed in a way that incentivises
ambitious programmes
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