Can the EU’s CAP help markets function better, and also improve food security?

August 2015

Earlier this summer I attended an event on the EU’s Common Agricultural Policy (CAP) at the Milan Expo – a major international exhibition on the theme of ‘feeding the planet, energy for life’. The European Commission’s DG-AGRI, which organised the event, had asked me to offer some thoughts on the CAP’s role in contributing to more competitive food and agriculture markets, while also delivering on broader public policy goals such as food security.

The event came only days after the FAO released new figures on the number of hungry people in the world – and found that the Millennium Development Goal hunger target now could be considered to have been achieved. Clearly, huge progress has been achieved since UN member states recognised the right to food some seven decades ago – even though some 795 million people remain chronically undernourished. That figure is estimated to be 216 million fewer than in the early 1990s – even though we’re still far from achieving the ‘zero hunger’ vision spelled out by the UN Secretary-General.

Who are the hungry?

With food security high on world leaders’ agendas in both developed and developing countries, it can be easy to lose sight of the fact that the world’s hungry people are overwhelmingly developing country citizens – with less than 2 percent living in the developed world. What’s more, the world’s hungry mostly live in rural areas and are often also farmers. Most are also women.

Also often lost in the food security debate is the reality that there is enough food in the world for everyone. Hunger and malnutrition primarily result from inadequate economic access to food, rather than due to inadequate availability or supply at the global level. Sustainably boosting poor farmers’ productivity can be critical to raising rural incomes and helping people escape poverty and hunger.

Developing country governments may therefore need to intervene in order to improve the functioning of markets, and to address market failures. For example, they can support the roll-out of agricultural extension services, research, pest and disease control, and rural infrastructure such as roads and irrigation systems.

Delivering public goods

In 2003, African governments signed up to the Maputo Declaration, in which they committed to allocate at least 10 percent of their national budgets to agriculture and rural development – but progress towards this goal in most countries has so far been limited.

In other world regions, some developing countries that once taxed agriculture now support it. This includes countries like China – which is still home to hundreds of millions of food insecure people, but which has managed to more than halve hunger since the early 1990s, reducing the number of hungry people by some 155 million.

Governments may also need to intervene in markets to ensure that today’s food is not produced at the expense of tomorrow’s. Weak global environmental rules mean that economic actors still don’t have to cover the cost of damage to the environment, for example when their activities produce greenhouse gas emissions that affect the earth’s climate. Although climate change is due to have global impacts, poor developing country producers are especially vulnerable. Often, they lack the resources and alternative income and employment options needed to cope with environmental disasters.

Improving efficiency

So can developed country policies such as the CAP help markets function better, and improve food security? Developed countries can help by reforming agricultural policies that impact developing country markets, including in the area of agriculture. The EU has in fact made substantial progress in reforming its farm policies so as to reduce their trade distorting effects and therefore their impact on producers in poor countries. Input and output linked payments in the EU have now been reduced from over one-third of gross farm receipts three decades ago to less than a tenth today.

Alongside the desire to cut waste and inefficiency, reduce budgetary costs, and minimise the impact on trading partners, successive CAP reforms have also been driven by a desire to improve the competitiveness of farmers in the EU. The switch to decoupled direct payments has been a critical transition mechanism enabling the EU to do so. The move has allowed the bloc to move away from market price support and export subsidies.

Do ‘decoupled’ payments still affect trade?

At the same time, total farm support payments in the EU still account for around a fifth of gross farm receipts. The OECD has looked at how even supposedly “decoupled” payments might still continue to influence production and trade, both at a given moment and over time. The agency has suggested, for example, that decoupled payments could affect farmers’ perceptions of risk, or instead improve their ability to obtain credit by affecting incomes and capital.

So should decoupled payments continue indefinitely? Because they were originally introduced as a transition mechanism, some commentators have suggested gradually phasing them out, and setting a clear end date for doing so. At the same time, it’s clear that some types of agricultural support will continue to be needed to deliver public goods that the market will not otherwise provide, including, for example, payments for research and development, pest and disease control, environmental sustainability, and biodiversity.

“Greening” the CAP

This thinking is very much behind the most recent round of CAP reform, and has informed in part the shape of the 2014-2020 framework. Some environmentalists have argued that the reforms only go part way towards reorienting support around public goods.

The challenge therefore is to try and ensure that support is targetted, measurable, and proportionate to the benefits provided. Doing so would improve the effectiveness and efficiency of action to protect the environment in the EU. But it could also reduce distortions in food and agriculture markets that can otherwise harm producers and consumers in other world regions, including the poorest and most vulnerable among them.

Jonathan Hepburn is the Group Manager of the E15 Expert Group on Agriculture and Food Security. He is the Agriculture Programme Manager at ICTSD.

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