Posts Agriculture, Economy

The EU’s Common Agricultural Policy (CAP) is not like it used to be, as decision-making also deals with environmental, agricultural, climate and energy policies. The biggest challenge is how to make them work together, heading in the same direction.

In the ‘Communication on the Future of Food and Farming’ which was unveiled by Agriculture Commissioner Phil Hogan on November 29th, the European Commission lays out the future orientations for the CAP after 2020  and foresees significant changes in terms of the responsibilities shared between the EU and its member states.

According to Jyrki Niemi, research professor at Luke, the most striking aspect in the communication paper is the proposal for a new delivery model, which provides greater subsidiarity to member states and requires them to set up strategic plans, which will cover their actions under the CAP.  The Union would still set basic policy objectives, but Member States are required to produce plans showing how they intend to contribute to these objectives and to monitor the implementation by their farmers.

“In the absence of actual legislative proposals it is difficult to make predictions how this policy would work in practice. It seems likely that the agricultural policy will become more result-driven. Producers receive subsidies, for example, if they increase biodiversity, invest in the wellbeing of animals, preserve the cultural landscape and combat climate change. In the future, producers may also receive compensation according to how much their land collects carbon.”

Less money for the CAP

In its Communication, the Commission has avoided to mention two of the future CAP’s biggest challenges – the budget and Brexit.  The CAP is currently the largest single spending item in the EU budget, accounting for around 40% of the total. The general pressure to reduce budget funding for the CAP has increased.  The EU needs to address significant new challenges, especially with respect to climate change mitigation, immigration, security and growth, but there is reluctance among Member States to increase the overall size of the budget.

“The departure of the United Kingdom will add to these pressures. The loss of the UK’s net payments means that the 27 remaining EU member states should to pay as much as three billion euros more per year in order to maintain CAP funding at the current level. At this stage the Commission is unable to say anything about CAP budget after 2020. The budget proposals will not be forthcoming until May 2018,” Niemi says.

Finland’s agricultural production volume to remain unchanged

In Finland, agricultural subsidies have helped, throughout Finland’s EU membership, to safeguard the preconditions of agriculture in different parts of the country and in different production sectors. Subsidies have a much higher significance on agricultural income in Finland than in other EU member states, as production costs are much higher than market prices due to natural conditions.

In 2016, subsidies totalled nearly two billion euros, comprising approximately one third of total agricultural gross returns. In recent years, EU subsidies have accounted for roughly 70 per cent of total agricultural subsidies.

“On the basis of our economic models, it appears that a moderate decrease in EU subsidies would only have a minor impact on agricultural production in Finland, provided that production-based subsidies do not decrease. However, this requires that the national subsidy system remains unchanged and the price development of agricultural products at least matches that of production inputs,” says Heikki Lehtonen, research professor at Luke.

Climate decisions have an impact on agriculture

According to Pasi Rikkonen, principal researcher at Luke, the guidelines of the EU climate and energy policy have a significant impact on the level of agricultural production and the growth potential of the Finnish food industry.

“When it comes to the climate policy, forestry and agriculture walk hand in hand. Considering agriculture in Finland, it is particularly significant how emissions and carbon sinks in the LULUCF sector are taken into account in calculations regarding the member states,” Rikkonen says.

“If the climate package proposed by the European Commission is accepted and the large carbon sink of Finnish forests changes into a calculated source of emissions as a result of increasing logging volumes, the agricultural land use sector will face even more pressures. So far, the significant carbon sink of Finnish forests in the LULUCF sector has compensated for the emissions caused by agricultural land use.”

The EU policy also has a significant impact on everyday lives in agricultural enterprises. Entrepreneurs are closely monitoring the decisions made on subsidies paid for cereal-based biofuels, the handling of emissions resulting from changes in land use and emission limits set for agriculture.

In the near future, farms will invest in renewable energy forms, such as solar power, geothermal heat and biogas plants in order to become more self-sufficient in terms of energy. As a result, farms may also receive new business potential in the energy sector,” Rikkonen says.

The Natural Resources Institute Finland (Luke) has studied the outlook and impact of the CAP on Finland and the whole of Europe together with Pellervo Economic Research (PTT). The Development Fund for Agriculture and Forestry (Makera) has funded the “EU CAP now and in the future” and “EU CAP after 2020 – optional paths and agriculture in Finland (CAPMAP)” joint research projects of Luke and PTT.

Text: Ulla Ramstadius