A Multicommodity EU Policy Framework Incorporating Public Good Criteria into the Direct Payment System in Agriculture

For decades the CAP has been the major influence in shaping EU agriculture and food production. The economic and policy environment in the EU is now very different from that which prevailed in the earlier decades. The future economic, social and geographic diversity of the EU will be further increased by enlargement. Agricultural policies and the related operational frameworks will inevitably change to accommodate this added diversity and the changing societal and consumer values. This paper evaluates how the current shape of EU agriculture has been influenced by the reforms to date. It also attempts to focus on where EU farming may be, or wish to go, over the next decade. The evaluation is restricted to the beef sector as it has been to the forefront in the policy reforms of the last decade and because the adjustments were inevitably complex due to the scale of the oversupply problems, the biological and market intricacies involved. This evaluation concluded that the current EU beef policy is severely constrained with poor targeting of the income supports, high production costs, based on an administratively complex and expensive control system without any clear benefit to either society or taxpayer for a rather large expenditure. In the past, agricultural policy in the EU was primarily driven by the need for a secure food supply and with the objective of sustaining the economic and social needs of farmers. But, in the well fed and affluent EU society of the 21st century, agricultural policy will be mainly driven by the economic and social goals which are rapidly changing. This society places a declining value on extra units of food production, but an increasing value on any public goods consumed in the production process. As a consequence, the mix of agricultural production and public goods that this society is prepared to support financially is changing rapidly. The level and components of farm incomes in the EU in the 21st century will reflect these changes. Farm revenue will likely consist of a mix of payments for conventional agricultural products and public goods. The public good payments will be conditional on the level and type of inputs used, farming practices, types of products produced and a societal vision of the role of farming. This will affect production costs, scale of operation and the future configuration of agriculture and rural society. To meet this evolving situation the paper also develops and outlines a multicommodity framework by which the EU could reorient its direct payment (DP) system to incorporate a range of public good values to the mutual benefit of consumers, taxpayers and farmers.