BREXIT: which impact on the CAP budget and on farm incomes?
Against the backdrop of the ongoing negotiations concerning the UK withdrawal from the European Union, the European Commission will present on May 2ndits Budget proposals for the period 2021-2027.
Farm Europe analyzed the financial consequences of the departure of the United Kingdom on the budget of the Common Agricultural Policy and on farm incomes.
The actual net cost of the UK departure from the EU is €2.7 billion per year in constant euros -5% of the CAP budget, and -6.5% if the entire decrease would be affected to the 1stpillar (direct aid).
With the current Common Agricultural Policy, the immediate impact on European average farm income would be significant. It would stand at at least -3.6%, and with considerable disparities among Member states and sectors:
– 6 Member States would face a decline bigger than 4.5%, including Slovakia and Denmark, which with decreases in average agricultural income of over 10% would be the most affected;
– 14 Member States would face decreases of between 2% and 3.5%;
These average rates of decline in farm incomes, however, mask the disparities between production sectors, with specific impacts, which are concentrated on field crops, meat and milk sectors, and therefore this means much larger decreases for these productions. These sectors, which are already quite weakened today, cannot be able to absorb such declines without major impact in terms of jobs.
Facing a fall in the CAP budget, representing 50% of the net deficit due to the UK withdrawal – an amount of 1.35 billion euro – would already be a challenge in itself, with an immediate impact on the average agricultural income of around 1.8%, again, concentrated on few sectors.
In this context, the challenge of the forthcoming reform of the CAP will be to both: secure its budget, and increase the efficiency of every euro invested in European agriculture, in order to revive the sector and heading it towards a positive, economic dynamic.
This new CAP will have to valorize economic efficiency combined with environmental efficiency, as a key objective. In other words, it means (i) putting the double performance of European agriculture at the core of the CAP, (ii) delivering efficiency for both European farmers and territories, and (iii) firmly rejecting too technocratic systems and projects which go against the European spirit and the European single market.
The full report is available at the following link:
Due to the relevant quantity of parameters to be taken into account, the study developed by Farm Europe was based on scenarios presented by the European Commission and by some Member States. This initial analysis gave rise to the thorough study of 9 different situations. The baseline data refer to the period 2010-2016, covering the specific patterns of expenditure related to the end and the beginning of the EU financial years.
The estimated cost of UK departure from the EU budget results from the following factors:
- the loss of UK net contributions to European budgets (€6.6 billion from the EU budget, and €2.7 billion from the CAP budget; average 2010-16);
- the loss of own resources from UK (customs duties collected on imports to the UK – €2.8 billion/year, average 2010-16), this loss being able to be compensated, at least partially, in the EU-UK negotiations, through a payment by the UK to access the EU27 single market;
- the Commission proposal to finance 20% of the EU’s new priorities (defense, migration, youth mobility, etc.) from existing policies; an issue of €2.5 billion/year, of which €1.2 billion would be taken from the CAP budget);
Given these declines in EU resources and increase in budget needs, three scenarios were analyzed and presented:
- to increase national contributions to the EU budget with the aim to maintain the level of CAP aid received by the Member States;
- to reduce CAP expenditures by 2.55 billion €/yearin constant eurosto compensate for 50% of net deficit caused by the withdrawal of the UK from the CAP budget and to finance up to € 1.2 billion/year of new priorities (EC proposal);
- to reduce CAP expenditures by the total net cost of the UK withdrawal from the CAP budget, i.e. € 2.7 billion/year in constant euros (5% of the total CAP budget, 6.5% of the 1stpillar budget).
The study also details the consequences of the scenarios analyzed on the average farm income of each of the 27 Member States, one by one. These consequences are, in fact, quite similar in the case of Scenarios 2 and 3.
Finally, it is relevant to note that any changes in the CAP budget must be evaluated in constant euros. This is the only credible position, which could ensure the financial value of commitments that policymakerswill take with respect to the economic sectors concerned. The decision to reduce the CAP budget by 5%, in current euros, corresponds in reality with a 20% decline of CAP aids budget in the next budget period, which would be strictly unsustainable.