Towards a New Strategic Agenda for the Common Agricultural Policy (CAP) after 2020

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1 Towards a New Strategic Agenda for the Common Agricultural Policy (CAP) after 2020 CEMA s contribution to the Mid-term Review of the CAP February 2015 Executive. Summary The Agricultural Machinery Industry Association CEMA represents the more than 4,500 manufacturers of farm machines in Europe. Modern farm machine technology enables farmers to grow food, feed, fibre and fuel affordably and sustainably and meet the rising demand driven by global population growth. As part of our commitment to farmers and the farming community in Europe and our aim to help making agriculture in Europe more sustainable and productive, this paper contains a number of specific ideas and proposals for: a thorough assessment of the effects of the current CAP ( ) the development of a new strategic agenda for the next CAP ( ) In particular, CEMA proposes to: 1. Use productivity and Total Factor Productivity (TFP) as key concepts for the CAP s Mid-Term Review A productivity-led approach will enable: a fair evaluation of the efficiency of the set of CAP measures adopted in 2014 to restore the productivity potential of agriculture in Europe a solid perspective on the inputs mix which drove any TFP gains a measurement of the EU s contribution to domestic & global food security an assessment of the CAP s impact on: farmers income evolution, the living conditions of farmers, and the overall attractiveness and competitiveness of the sector. 2. Facilitate access to Precision Agriculture (PA) through greater flexibility in the use of CAP funds 2.1. Precision Agriculture as a promoter of sustainable productivity growth in farming PA is essential to drive renewed TFP growth in the EU, as growing use of smart machines and further technological progress will help to boost farm output, raise farmers income, and promote sustainability in farming. In light of this: the benefits of PA in terms of managing the CAP (in terms of improvement of crop models and supporting the IACS) should be properly assessed in the Mid-Term Review. it should be assessed how new technologies can help to cut red-tape costs and administrative burden for farmers generated by the greening measures of the CAP.

2 2.2. Give more flexibility within Pillar 1 & 2 to facilitate access to, and uptake of, new technologies that make agriculture more sustainable and productive CEMA encourages EU policy makers to re-establish a mechanism similar to Articles 68 & 69 of the previous CAP ( ) allowing Member States to dedicate 10% of their Pillar 1 budget envelope to specific projects aimed at enhancing farm holdings productivity. This mechanism could be applied either to Pillar 1 (for a certain percentage of the total envelope i.e. 5% up to 10%) or Pillar 2 for any unspent budget. These amounts could be allocated to pilot projects demonstrating, e.g. efficient use of land in marginal or constrained agricultural areas, sustainable use of water and inputs, yield optimization and integrated farm management. 3. Consider new policy approaches for the CAP after Shifting CAP resources to the EU s R&D budget R&D investments in agriculture will be the key driving force for bringing about the agricultural jobs of tomorrow. Accordingly, CEMA would support a substantial shift (of up to 15% of the total budget) from the next CAP ( ) to enhance R&D in agriculture Introducing a Productivity Bonus to the CAP as part of the greening scheme CEMA proposes a new and innovative measure to boost TFP in farming in the EU: introducing an agricultural productivity bonus to the CAP. The concept underpinning such a productivity bonus is simple and straightforward: farmers who are able to increase their productivity while strictly following the crosscompliance requirements should be rewarded. The productivity bonus should be calculated based on TFP criteria, which by definition include: soil, water, and inputs management. Coming on top of the basic direct payment the productivity should be part of a renewed and modified greening scheme Extending Crop Yield Insurance Coverage in the EU under the new CAP CEMA recommends the extension of the existing private yield protection insurance schemes based on actual production history under the new CAP after Such tools would provide a basic safety net for farmers incomes and investments and would be less expensive and less controversial than revenue-based policies.

3 The Mid-term Review: assessing the current CAP ( ) to establish a new strategic agenda for the CAP after 2020 The adoption process of the current CAP ( ) triggered numerous controversial political debates. In particular, the greening measures were contested by a large share of the farming community. Now that the current CAP is being implemented is the time to leave past controversies behind, start a thorough assessment of the impact of the current CAP on European agriculture, with a view to developing a set of fundamental concepts for a new strategic agenda for the CAP after In order to assess and evaluate the effects of the measures entailed in the current CAP CEMA proposes to use clear and efficient criteria and consider a series of new policy approaches for inclusion in the CAP after 2020: 1 Using productivity & TFP as key concepts for the CAP s Midterm Review 1.1. TFP as an indicator of sustainable productivity growth in farming Total Factor Productivity (TFP) is the ratio of aggregate quantity agricultural outputs (gross crop and livestock) divided by the aggregate quantity of inputs used to produce these outputs (land, labor, livestock, fertilizer and machinery) per inputs. TFP can be highly variable as yields will rise and fall, reflecting changing weather patterns and other factors. CEMA strongly supports the use of the TFP ratio for measuring productivity potential and real growth in farming. Enhancing productivity requires growing more while using less water, land, energy, labor, and other inputs. In this respect, TFP is fully aligned with the goal to increase the European agricultural productivity in a sustainable manner. TFP is also a critical component for measuring whether we will be able to achieve global food and nutrition security by 2050 in order to feed a world population of 9 billion people. To do this, global TFP, according to various sources, will have to grow by an average rate of at least 1.80% per year. According to DG Agriculture, TFP growth in EU agriculture has constantly fallen below the percentage needed by the EU to contribute in a meaningful way to global food security. From 1995 to 2002, TFP grew by 1.6% per annum in the EU-15. Afterwards, EU-15 TFP growth in agriculture dropped to merely 0.3% per annum ( ). Using the TFP s approach as a key concept for the Mid-term Review will: o provide a fair evaluation of the efficiency of the set of CAP measures adopted in 2014 to restore the productivity potential of agriculture in Europe. o give a solid perspective on the inputs mix which drove any TFP gains (e.g. technologies, machinery, farming practices, crop selection, infrastructures ) o allow to measure the EU s contribution to domestic and global food security.

4 1.2. Productivity growth as a key factor for improving living conditions of farmers and restore the attractiveness of the farming sector In CEMA s view, the European agricultural productivity challenge is less about relative productivity in comparison to the rest of the world than about the social dynamics it generates for the sector in Europe. As many other stakeholders, CEMA is greatly concerned by the fact that the average income per farmer in Europe remains much lower than the EU s GDP per capita (by around 50%). In terms of age structure, it is also highly concerning that less than 14% of the European farmers are below 40 years old. In this respect, productivity growth is a key-factor for improving the livingcondition of EU farmers and restoring the attractiveness of agriculture towards the next generation. For these reasons, CEMA recommends the Mid-term Review to also assess the CAP s impact on: o Farmers income evolution o the living conditions of the farmers (well-being, safety, working conditions, educational level) o the attractiveness of the sector (investments and new entrants) 2 Facilitate access to Precision Agriculture through greater flexibility in the use of CAP funds 2.1. Precision Agriculture as a promoter of sustainable productivity growth in farming In March 2014, an analysis by the European Parliament s Directorate General for Internal Policies underlined that Precision Agriculture could actively support CAP goals. The report notes that: Precision Agriculture (PA) is a farming management concept based upon observing, measuring and responding to inter and intra-field variability in crops, or to aspects of animal rearing. The benefits to be obtained are chiefly due to increased yields and/or increased profitability of production to the farmer. Other benefits come from better working conditions, increased animal welfare and the potential to improve various aspects of environmental stewardship. Thus, PA contributes to the wider goal concerning sustainability of agricultural production. 1 CEMA fully shares this view. Precision agriculture and smart farm machines help farmers to increase their productivity in a sustainable way. Thanks to high-precision satellite positioning systems and a multitude of sensors which closely monitor and record farm operations, smart machines help farmers to optimize and increase crop yields while reducing the use of agricultural inputs (such as fertilizer, pesticides or irrigation water). Growing use of smart machines and further technological progress will help to boost farm output, raise farmers income, and promote sustainability in farming. In this sense, Precision Agriculture is essential to drive renewed TFP growth in the EU. The European Parliament s analysis also shows the benefits of Precision Agriculture for managing the CAP in terms of: a) Improvement of crop models 1 Precision Agriculture: an opportunity for EU farmers potential support with the CAP , p. 9.

5 Data collected and shared from PA may constitute a new information source on the spatial variability of crop performance and thus contribute to a better understanding of the impacts of soil properties, fertilisers/pesticides efficiency, topography, climate and other factors. These elements would provide a better understanding or fine-tuning of crop yield components, improving accordingly yield forecasting models. 2 b) Supporting the IACS (Integrated Administration and Control System) procedures Notwithstanding the need for standardization and harmonization of data exchange and format, information recorded and produced in the frame of PA activities could be used in the IACS, facilitating different administrative and control procedures. Supporting farmers declaration document The geographical accuracy of agricultural parcel maps produced in PA would be sufficient so that farmers can use them during the submission of their digital application. 3 The benefits of Precision Agriculture in terms of managing the CAP (in terms of improvement of crop models and supporting the IACS) should be properly assessed in the Mid-Term Review. Also, the Mid-Term Review should assess how new technologies can help to cut red-tape costs and administrative burden for farmers generated by the greening measures of the current CAP Give more flexibility within Pillar 1 & 2 to facilitate access to, and uptake of, new technologies that make agriculture more sustainable and productive CEMA encourages EU policy makers to re-establish a mechanism similar to Articles 68 & 69 of the previous CAP ( ) allowing Member States to dedicate 10% of their Pillar 1 budget envelope to specific projects aimed at enhancing farm holdings productivity. This mechanism could be applied either to Pillar 1 (for a certain percentage of the total envelope i.e. 5% up to 10%) or Pillar 2 for any unspent budget. These amounts could be allocated to pilot projects demonstrating: o Efficient use of land in marginal or constrained agricultural areas o Sustainable use of water, fertilizers, pesticides and other inputs o Yield optimization o Integrated farm management (including the international trade dimension) o Demo-prototypes: robots, automation, computer-based solutions o Integrated schemes for helping farmers to reduce red-tape costs (administrative simplification, software, electronic assistance). 3 New Policy Orientations for the CAP after Shifting CAP resources to the EU s R&D budget CEMA shares the view that a balanced, well-funded CAP must remain a strong EU policy to help Europe contribute to global food security and address climate change. The next CAP after 2020 should be forward-looking and avoid becoming engulfed in the inefficient measures that triggered broad controversy around the adoption process of the current CAP 2 Ibid., p Ibid.

6 ( ). The past controversy has clearly shown that the next CAP after 2020 will need a clear strategic agenda and new driving concept in order to be acceptable in the eyes of the public. Retrospectively, the greening measures of the CAP can be seen as a first step towards a new paradigm shift summarized by the motto Producing more with less. CEMA anticipates that the less in the future could mean much more than reducing inputs for improving agricultural productivity. It could also mean much less financial resources for the CAP. In a period of slow growth and persisting budgetary constraints in Europe, other policy priorities are likely to supersede CAP priorities. The decision by the European Commission on 15 October 2014 to shift 448 million from the CAP budget to other actions, including the fight against Ebola, is one of the numerous signs that subsidies for agriculture are not perceived to be as necessary as they used to be in previous decades. Nonetheless, in the foreseeable future, European farmers will still need financial support for contributing towards the EU s broader societal goals related to water quality, biodiversity, carbon sequestration, renewable energy production and the new target of a 40% greenhouse gas emissions reduction by In light of this, and in order to maintain a high-performing and sustainable agriculture in Europe, CEMA proposes to shift a substantial part of the total CAP budget after 2020 to the EU s Research & Development budget. CEMA strongly believes that investments in Research & Development will be the key driving force for bringing about the agricultural jobs of tomorrow. Accordingly, CEMA would support a substantial shift from the CAP ( ) to enhanced R&D in agriculture. Assuming that the budget of the next CAP will be in the range of 400 billion, CEMA proposes to shift up to 15% of the total budget ( 60 billions) to Research & Development Introducing an Agricultural Productivity Bonus to the CAP Farming is a private activity subject to, and driven by, market forces. It is of critical importance that productivity in farming continues to grow. Should productivity growth in farming fall behind productivity growth in the rest of the economy in the long run, farmers living standards will automatically decline with it. Future productivity growth in farming will primarily be driven by: technical progress related to new inputs (such as advanced agricultural equipment, seeds, plant protection products and health products); and farmers managerial decisions. It is essential that the processes driving productivity growth in farming be actively encouraged by the next CAP. Progress towards high-precision farming would be part of such a process. Productivity gains require significant investments. Risk-taking attitude should be rewarded so that progress disseminates among farming communities. In line with this, CEMA proposes a new and innovative measure to boost TFP in farming in the EU: by introducing an agricultural productivity bonus to the CAP.

7 The concept underpinning such a productivity bonus is simple and straightforward: farmers who are able to increase their productivity while strictly following the crosscompliance requirements should be rewarded. The productivity bonus should be calculated based on TFP criteria, which by definition include: soil, water, and inputs management. Coming on top of the basic direct payment the productivity should be part of a renewed and modified greening scheme Extending Crop Yield Insurance Coverage in the EU under the new CAP Agriculture is a biological process dependent on natural forces such as weather, climate change, pests and diseases. This can create great volatility in terms of the achieved agricultural output in addition to the volatility of economic variables, prices, costs, interest and exchange rates. New and more sophisticated risk management tools are therefore necessary to provide a basic safety net for farmers incomes and investments. CEMA recommends the extension of the existing private yield protection insurance schemes based on actual production history under the new CAP after These schemes are less expensive and less controversial than revenue-based policies. Yield insurances already protect against yield and/or quality losses from many different perils, including drought, excess moisture, cold and frost, wildlife, disease and insects. Various coverage levels are available on the market. The guarantee is based on the producer s own yield records, while the projected price is determined by the Commodity Exchange Price Provisions. Crop insurances provide a source of income when low crop yields are caused by covered perils. They add security to farm loans and low-level security for marketing plans. Main crops covered include: Wheat, Barley, Malting Barley, Corn, Grain Sorghum, Soybeans, Cotton, Rice, Sunflowers and Canola/Rapeseed. Guiding principles for extending crop yield insurances in the EU under the new CAP after 2020: o Any measure to be adopted should not disrupt the emerging yield insurance private market o It should give priority to crops not yet covered o o Beneficiaries should be individual producers Positive inducements should be sought for encouraging individuals to contract crop yield insurances (further tax rebates, tax credit, direct payment bonus ). For further information, please contact: Gilles Dryancour Chairman, Public Policy Group (PPG), CEMA secretariat@cema-agri.org ***** About CEMA CEMA ( represents in total 4,500 manufacturers of agricultural equipment consisting of large multinational as well as numerous small and medium-sized enterprises (SMEs). The sector has a total annual turnover of 26 billion and provides employment for 135,000 people directly in the sector and another 125,000 persons indirectly in the distribution and service network.

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