A Bond Scheme for Common Agricultural Policy Reform

201 Pages·2004·1.864 MB·English

by  Alan Swinbank, R. B. Tranter

A Bond Scheme for Common
Agricultural Policy Reform

A Bond Scheme for Common
Agricultural Policy Reform
Edited by
Alan Swinbank and Richard Tranter
Centre for Agricultural Strategy, The University of Reading, UK
CABI Publishing
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A catalogue record for this book is available from the British Library, London, UK.
Library of Congress Cataloging-in-Publication Data
Swinbank, A. (Alan)
A bond scheme for common agricultural policy reform / Alan Swinbank and Richard Tranter.
p. cm.
Includes bibliographical references and index.
ISBN 0-85199-744-9 (alk. paper)
1. Agriculture and state--European Union countries. 2. Governement securities--European Union
countries. I. Tranter, R. B. II. Title.
HD1917.75.S956 2004
338.1’3--dc22
2004007863
ISBN 0 85199 744 9
Printed and bound in the UK by Cromwell Press, Trowbridge, from copy supplied by
the author.
Contents
Contributors vii
Preface ix
List of Abbreviations xiii

1 Decoupled Payments and a Triad of Policy
Objectives: Compensation, Farm Income
Support and Multifunctionality 1
Alan Swinbank
2 Direct Payments in the EU and their Treatment
in the WTO 5
Alan Swinbank
3 Compensation Proposals for EU Farm Policy
Reform 39
Jonathan Little, Thomas Knapp, Miguel Sottomayor
and Alan Swinbank
4 A Bond Scheme to Facilitate CAP Reform 55
Alan Swinbank and Stefan Tangermann
5 From CAP to CARPE: Embedding the Bond Scheme
Proposal in a Comprehensive Reform 79
Leonardo Costa, Arlindo Cunha, Américo Mendes
and Miguel Sottomayor
6 Why a Bond Scheme was not Adopted in 1992 93
Carsten Daugbjerg
7 Implementing a Bond Scheme 111
Alan Swinbank, Jonathan Little, Thomas Knapp
and Miguel Sottomayor
v
vi Contents
8 Asking Farmers about their Response to the
Proposed Bond Scheme 127
Richard Tranter, Leonardo Costa, Thomas Knapp,
Jonathan Little and Miguel Sottomayor
9 A Role for Direct Payments? The Doha Round,
EU Enlargement and Prospects for CAP Reform 149
Arlindo Cunha
10 Concluding Comments 169
Alan Swinbank and Richard Tranter
Index 177
Contributors
Leonardo Costa: Faculty of Economics and Management, The Portuguese
Catholic University, Centre Regional do Porto, Rua Diogo Botelho 1327, 4169-
005 Porto, Portugal
Arlindo Cunha: Praceta das Caleiras 47, 4470-155 Maia, Portugal
Carsten Daugbjerg: Department of Political Science, University of Aarhus,
Universitetsparken, DK-8000 Aarhus C, Denmark
Thomas Knapp: Institut für Agrarökonomie, Georg-August Universität Göttingen,
Platz der Göttinger Sieben 5, 37073 Göttingen, Germany
Jonathan Little: Centre for Agricultural Strategy, School of Agriculture, Policy
and Development, The University of Reading, PO Box 237, Earley Gate,
Reading, Berkshire, RG6 6AR, UK
Américo Mendes: Faculty of Economics and Management, The Portuguese
Catholic University, Centre Regional do Porto, Rua Diogo Botelho 1327, 4169-
005 Porto, Portugal
Miguel Sottomayor: Faculty of Economics and Management, The Portuguese
Catholic University, Centre Regional do Porto, Rua Diogo Botelho 1327, 4169-
005 Porto, Portugal
Alan Swinbank: Centre for Agricultural Strategy, School of Agriculture, Policy
and Development, The University of Reading, PO Box 237, Earley Gate,
Reading, Berkshire, RG6 6AR, UK
Stefan Tangermann: Directorate for Food, Agriculture and Fisheries, OECD, 2
rue André Pascal, F-75775 Paris Cedex 16, France.
Richard Tranter: Centre for Agricultural Strategy, School of Agriculture, Policy
and Development, The University of Reading, PO Box 237, Earley Gate,
Reading, Berkshire, RG6 6AR, UK
vii

Preface
A succession of agricultural economists, way back to the 1960s, has advocated the
use of decoupled compensation payments to facilitate reform of farm policies. In
Chapter 3, we outline some of the issues and concerns revealed by that literature. In
particular, in 1991, a report commissioned by the Land Use and Food Policy Inter-
Group (LUFPIG) of the European Parliament proposed a significant development
of the concept of decoupled payments: a bond scheme in which the rights to future
compensation payments would be vested in a paper asset - the bond - that could
then be retained by the original recipient or sold on the stock exchange (see, in
particular, Tangermann, 1991). Although the European Commission did propose a
transferable bond as part of its reform proposals for milk in 1991, and the Danish
Government pressed for a bond scheme rather than arable area payments in the
debate over the 1992 CAP reforms, the bond scheme was not adopted at that time.
Chapter 6 assesses why it was that the Danish Government’s proposals were ill-
fated.
In the event, the 1992 reforms introduced arable area payments into the CAP,
and modified (and for beef increased) the headage payment schemes for beef cattle
and sheep. Although the new arable area payments were introduced to compensate
farmers for the revenue loss, a decade later the European Commission admitted
that:
‘they have lost part of their compensatory character after ten years of implementation
and have instead become simple direct income payments. Therefore, the term ‘direct aid’
has replaced ‘compensation payment’’ (Commission, 2002a).
The 1992 (MacSharry) reforms did, however, facilitate the conclusion of the
Uruguay Round of GATT negotiations, which made special provision for ‘direct
payments under production limiting programmes’, so-called blue box payments,
into which category the EU’s area and headage payments fell. The CAP reforms of
Agenda 2000 further embedded the concept of direct payments into the CAP -
introducing them for milk producers from 2005 for example - although it was now
expected that the Member States would introduce an element of ‘cross compliance’
into their payment regimes, under which farmers would be obliged to respect
specified environmental standards if they were to receive payment in full.
However, with the prospect of EU enlargement to embrace up to ten candidate
states from Central and Eastern Europe (the CEECs), and three Mediterranean
ix
x Preface
countries, and a new round of WTO trade negotiations about to begin (since
launched as the Doha Development Agenda), doubts were raised about the future
of direct payments. These developments are outlined, and concerns explored, in
Chapter 2.
It was against this background that a research project under the EU’s Fifth
Framework Programme, to re-examine the feasibility and practicality of
introducing a bond scheme as an element of CAP reform, was proposed to DG
Research and accepted (QLRT-1999-01510). The project involved research teams
from The University of Reading (UK), the Georg-August Universität, Göttingen
(Germany), and The Portuguese Catholic University (Portugal). We are grateful to
the European Commission for this financial support, and to our desk officer Dr.
Hans-Joerg Lutzeyer for his support.
The Research Team was:
The University of Reading
Alan Swinbank, Jonathan Little and Richard Tranter
Georg-August Universität Göttingen
Stefan Tangermann, until 31 January 2002, and Thomas Knapp
The Portuguese Catholic University
Américo Carvalho Mendes, Leonardo Costa, Miguel Sottomayor
with, as associates:
Arlindo Cunha, MEP, until October 2003
Carsten Daugbjerg, University of Aarhus
In revisiting the bond scheme proposal, an initial task was to re-articulate its
component parts and clarify its scope. As Chapter 6 makes clear, in the Council
discussions of late 1991 and early 1992, there was some confusion over the scope
of the proposed scheme. Thus, an important part of this project was to clearly
articulate the scope and intent of the proposal. This was done in Swinbank and
Tangermann (2000 and 2001), as set out in Chapter 4. It is important to note that
what was proposed was a transformation of existing direct payments (i.e. the area
and headage payments of the MacSharry reforms) into the bond scheme: thus all
other aspects of the CAP - the residual elements of price support for cereals and
beef, the full support arrangements for other commodities, and the second pillar -
would remain in place. By contrast, Beard and Swinbank (2001) had advocated a
bond scheme to displace all price and income support elements of the CAP.
Swinbank and Tangermann (2001) also noted that, although the purpose of
their paper was to argue the merits of a fully decoupled system of compensation
(or adjustment) payments, as exemplified by the bond scheme, they saw this
‘embedded in a comprehensive reform of the CAP to better reflect the public’s
wider concerns about the environment and rural development’. This had already
led to considerable debate within the research team, with some members arguing
that it would be difficult to assess the bond scheme in isolation: that it could only
be judged in the context of that wider reform; and that it was beholden on the team