What are EU farm subsidies?
Farm subsidies are EU payments to public authorities, companies and farmers who are active in the agricultural sector and/or contribute to its maintenance. Subsidies are financed by taxpayers' money, primarily through the EU, but the Member States also contribute financially in a direct way. Subsidies are part of the EU's Common Agricultural Policy (CAP), which came into force in 1962.
How much money is spent on it?
The budget for the CAP is the largest item in the EU budget. Between 2014 and 2020, it was around 38 percent of total expenditure, a total of 408.31 billion euros. For the period 2021 to 2027, 387 billion euros are earmarked, 31 percent of the total budget.
How is the money distributed?
The budget for agricultural subsidies is divided among the member states. France, Spain, Germany and Italy are at the top of the list. The member states are responsible for passing on the money as well as for checking that the rules for the subsidies are respected.
There are two so-called "pillars" into which the budget is divided.
- The first pillar is the larger one and is financed entirely by EU funds. These are direct payments to the owners of farms. Which farm receives how much money is calculated per hectare of utilised agricultural area.
- The second pillar is co-financed by the EU member states, but is smaller in total. To whom and for what the money is spent is more diverse in this pillar. It is not distributed generally, but is earmarked for specific purposes and projects. Basically, these funds are intended to support "rural development".
Why do agricultural subsidies exist at all?
The CAP is one of the EU's oldest policies. Five years before it was established, it was already an important issue when the founding treaty of the European Economic Community was signed.
The aim of a common agricultural policy was to increase agricultural productivity in order to stabilise the agricultural market and meet the demand for food in post-war Europe.
What has happened since the CAP was introduced?
The CAP and the distribution of subsidies that goes with it have been changed somewhat a few times over the last 60 years. To understand how the current system is structured, it helps to look back:
In the beginning, a system was introduced that guaranteed farmers a price for their products. In an emergency, the state intervened to regulate the market price. Relatively quickly, food production was more than sufficient to supply the population of the EU states. What stagnated, however, was the income of farmers.
An adjustment to this effect was to follow in 1970. The agricultural commissioner at the time wanted to merge farms in order to increase their size. In this way, they would produce more efficiently, earn more profit, but still offer favourable prices. His credo: more market orientation, less state regulation. Although this was not implemented in full force, it laid the foundation for later reforms and the current system.
The result: a surplus of products. The end of the 1970s saw the so-called "butter mountains". There were too much butter and other agricultural products, all of which could not be eaten or drunk. The state intervened and bought products to keep the price somewhat stable. Some was distributed, but much was thrown away. In 1984, the EU therefore introduced a quota for certain products, such as milk. Those who produced in surplus were now asked to pay.
In 1992, with the McSherry reform, subsidies shifted from intervention in the market to direct payments for farmers, so-called premiums. The payments were assessed per hectare of land - and still are today.
At the end of the 1990s, another pillar was added to these direct payments. Payments from the money pot of Pillar 2 are intended to promote the development of rural areas. This supports not only farmers, but also businesses, associations and authorities. This system is still in place today.
The currently valid regulation for the distribution of funds dates from 2014 and is the basis for the distribution of subsidies, which we have analysed together with our media partners.
How have agricultural subsidies been distributed since 2014?
The distribution of funds was to include above all "climate change, animal welfare, food safety and sustainable use of natural resources". The so-called "greening" was introduced. In order to receive these direct payments, conditions must be fulfilled: Cultivation of different crops, preservation of permanent grassland as well as designation of ecological priority areas. A premium for young farmers and a maximum level of financial support for large farms were also established.
However, greening has long been criticised. A study commissioned by the Federal Environment Agency and conducted by the Thünen Institute concludes (in German)
"While it has been possible to stem the loss of land, greening has not contributed to species protection and crop diversification, among other things. Likewise, many measures, such as the provision of fallow land and flower strips, are not sufficiently implemented. Toxic pesticides continue to be used and there is still a nitrogen surplus in agricultural soils."
New regulations are coming in January 2023. What is changing?
The CAP is renegotiated every seven years. Actually, the new rules should have been introduced already in 2020, but it was not possible to reach an agreement sooner.
The EU has set itself ambitious goals for the period from 2023 to 2027 because the measures are to be agreed with the goals of the Green Deal. However, these targets are not legally binding.
- Reduction of the use of pesticides by 50 percent
- Reduction of soil nutrient loss by 50 percent
- at least 25 percent of farms are organic
- at least 10 percent of the land has structural elements with high biodiversity (flower strips, hedges, etc.)
How exactly this is to be implemented is primarily in the hands of the member states. They must draw up so-called "National Strategy Plans". The plans are then examined and approved by the Commission.
The previous principle of the two pillars will continue to exist. However, the relationship between the two areas is to change. There will be fewer direct payments to farmers and instead more money for rural development.
Greening will be abolished. Instead, so-called eco-schemes will be introduced. These are one-year measures that could bring premiums. The aim is to create incentives for organic farming.
Why is the system of EU agricultural subsidies controversial?
The distribution of agricultural subsidies is based on a very complex system. This is above all a disadvantage for farmers. In addition to their time in the barn or in the field, they still have to think their way through directives and paragraphs.
Moreover, numerous associations in the field of climate, environmental and species protection criticise that only the big players benefit and that the distribution does not contribute to a transformation of agriculture, which is needed in view of climate change.
IFOAM, the International Federation of Ecological Land Movements, writes on the current regulations:
“Overall, IFOAM Organics Europe is very concerned about the insufficient ambition and budgets to incentivise more farmers to convert to organic farming, and to reward organic farmers for the public goods they provide. More specifically, in comparison to the current CAP period (2014-2022), our members are concerned with the decrease of a comparative advantage for conversion of conventional farms to organic farming, compared to incentives to adopt other types of farming practices that are less transformative and provide much less environmental benefits. This alarming situation is mainly due to the lack of environmental ambition of the eco-schemes criteria as well as to issues for organic farmers to combine organic schemes with eco-schemes or agri-environmental and climate measures (AECMs).”
“our assessment showed that the overwhelming majority of national strategic plans fall short of ambitions and lack clear targets, measures and funding to halt biodiversity loss and to cut greenhouse gas (GHG) emissions (...) According to our national experts, 7 CAP Strategic Plans have changed for the worse in one or more of the given categories since November (Latvia, Lithuania, Denmark, Spain and Austria)”
And a study by the Thünen Institute, commissioned by the Federal Environment Agency, writes about Germany's plans:
„Insgesamt bleibt die Wirkung jedoch beschränkt, da kaum eine Maßnahme in der 1. Säule den Klimaschutz explizit adressiert.(...) Die im Rahmen der Studie durchgeführte maßnahmenspezifische Kalkulation zeigt, dass die Wirksamkeit der Öko-Regelungen nicht bei 100 Prozent, wie von der EU-Kommission vorgegeben, sondern lediglich bei gut 20 Prozent liegt. Auch für die Direktzahlungen liegt der klimawirksame Anteil nach ersten Schätzungen wesentlich niedriger (zwischen drei und vier Prozent) als die vorgegebenen 40 Prozent.”
And even the EU Commission itself is not convinced by the submitted National Strategy Plans. Internal letters from the summer of 2022, published by the NGO Arc2020, state:
“The assessment underpinning this list concerns the sufficiency of MSs’ changes to the Plan to address the Commission Observations. In some cases, MSs’ proposals are not in line with the conditionality provisions of the Regulation (problem of legal compliance of the SP with the EU rules). In other cases, the absence of, or the very low improvement of ambition of the original plan, make for an insufficient contribution to the needs identified by MSs themselves and to the pieces of environmental legislation listed in Annex XIII of the Regulation.”