No evident rationale for Pillar 2 allocations

“The basis for Pillar 2 allocations to individual member states remains unclear with no evident rationale behind their distribution.” That is according to Professor Alan Matthews who was speaking at the recent CAP 2014 seminar organised by Teagasc and the Agricultural Economics Society of Ireland.

He said: “The allocations are obviously based at the moment largely on history. But is that really in the long term a good basis for deciding what countries should get?”

He argued: “There is a strong case for suggesting a lot of that Pillar 2 funding should simply go back to the individual member states. Because it is hard to see a community rationale behind it.”

Prof Matthews noted that courtesy of the current reform process Ireland has received one of the largest cuts in its pillar 2 allocation, when assessed historically. However, he noted on a year by year basis it is not such a dramatic fall. He also noted that Ireland was the most successful country in drawing down payments for pillar 2 over the 2007-2013 period.

He commented: “The outcome given the size of the CAP budget was far better than farm organisations might have feared, that is in the context that going into the reform process the agriculture budget was under a lot of scrutiny.”

Prof Matthews highlighted the commission’s leaked 2009 draft which stated that the new reform must stimulate a further significant reduction in the overall share of the EU budget devoted to agriculture, freeing up spending for new EU priorities. He cited: “There was a significant treat back then that there would be a significant change in the budget.”

However he said: “This didn’t materialise and when measures outside the CAP budget are included it could be the case that the CAP budget will be maintained in real terms. That was an extraordinary outcome given the financial pressures on the EU budget and demand for finding money for new priorities.”

Given the budget pressure Prof Matthews cited that CAP reform model was driven by the need to provide a better narrative/justification for the continued transfer of funds to farmers.

On the impact of external convergence he said for most countries the changes are not dramatic. The main effect is in the Baltic countries, where the minimum payment of €75/ha has impacted.

“What is interesting about Cioloş reform is that it has been the first reform with an explicitly redistributive motivation.”

However he said: “The results were minimal. Just €2.9 billion out of the total direct payments envelope of €265 billion, just over 1 per cent, will be shifted between member states over period 2014-2020 compared to 2007-2013. This shows significant maintenance of the status quo will be on the impact of the reforms.”

Although the results of external convergence are minimal there are winners and losers he noted. Countries like Romania, Poland, Spain and the Baltic states came out as winners, with Germany, France, Italy and the Netherlands losing out.

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