High Level Conference “The Future of the CAP”
"The challenge exists to make things better."

MAIN POINTS OF DISCUSSION

Kurhaus, Scheveningen, The Netherlands
27-28 January 2010

1. Introduction
The aim of the High Level Conference was to create a platform where important
questions about the future course and destiny of the CAP could be discussed
amongst representatives from all 27 Member States and the European Commission
with input from respected experts from the policy field and/or with an academic
background.
The Conference took place under the ‘Chatham House Rule’ to create an open
atmosphere and to have discussions in an informal way.
In her opening speech, the Dutch Minister of Agriculture, Nature and Food Quality,
Gerda Verburg, stressed the importance of these informal discussions: ‘We should
focus our discussions on what is good for Europe, European agriculture and the
major challenges that lie ahead. Because together we stand stronger than alone, in
groups or divided. To achieve this, we must be willing and able to cross borders.
National borders and borders in our own minds. Sometimes we should even put
aside our personal believes and preoccupations about each other. We need to really
listen to each other and be ready to adapt our positions if others have convincing
arguments to do so. I like to invite you - and even challenge you - to do just that
today. Because "the challenge exists to make things better".’
The future of the CAP was approached from multiple perspectives with the input
from keynote-speakers, discussions in several parallel workshops and with a panel
discussion to conclude. The conference explored subjects such as the future of
direct income support, risk management, competitiveness and sustainability, future
of rural development and climate change and biodiversity.
This report starts with a short outline of the key note speeches (paragraph 2) and
then focuses on the main points of discussion between the participants in the
parallel workshops (paragraph 3) and the afternoon panel discussion (paragraph 4).
Conclusions were not drawn, nor statements formulated.

2. Key note speeches
One of the main priorities of the new Commission is to define the perspectives of
the CAP after 2013. It has to do so against the background of huge new challenges
at both European and global level. Moreover it has to do so while we are still
absorbing the consequences of the financial and economic crisis. The global
challenges of the agricultural sector in the 21st century are daunting. It must
provide food security for an ever growing population and accommodate changes in
diet due to income growth in developing countries. It has to deal with increasing
demands for feedstock from the bio fuel industry and with competing claims on land
and water. It has to cope with the consequences of climate change. It has to play
an important role in mitigation policies and in preserving the environment and the
countryside. At the same time it has to face severe constraints on arable land and
water, increasing climate variability and environmental degradation. Last but not
least the agricultural sector must make good on its promise of poverty alleviation
since 70% of the worlds poor live in rural areas and rely on agriculture.
The global markets are deemed to recover from the recent turmoil of the economic
crisis (high prices followed by a demand slump). Prices then will reflect expansion
of demand by emerging economies and demand for bio fuels, balanced with a
growing resource scarcity on a global level. EU markets are now more open to

global fluctuations in production and commodity prices. These fluctuations can be
aggravated by extreme weather events, low stock levels and/or bio fuel mandates.
On the other hand fluctuations can be reduced by growing shares of trade in global
agricultural production, a growing share of consumption in low-income countries
and by further trade liberalisation.
European agriculture is, for a large part, competitive on the global market: it plays
in the top league of global agriculture. Still, competitiveness can be further
enhanced. Europe has some unique competitive advantages, like a favourable
climate and good soils, able and well educated famers, located close to large
markets, produces high food quality, has a highly efficient food industry and has
good governance. These advantages can be exploited better. On the other hand
European agriculture has also some competitive disadvantages: e.g. the high land
prices, a small-scale farm structure in large parts of Europe and a slowing down of
productivity growth. The EU lags behind compared with countries like the USA in
the use of modern technology. Also the relative high farm support is slowing down
farmers returns from the market.
The CAP response should be to stimulate a dynamic, offensive spirit of agricultural
entrepreneurs, to exploit global market opportunities to allow the EU output to
expand and encourage risk management by farmers. This needs a further reduction
of market policies to an absolute minimum, strengthened competitiveness through
the Lisbon Agenda and Europe 2020, further adjustments in the agricultural
structure and enhancement of mobility, reduction of land prices (by cutting direct
payments), support for less favoured areas and last but not least enhanced
sustainability of agricultural production through targeted payments.
The CAP is one of the foundations of European cooperation. This was true in the
past, is still true today, and can hold true in the future. The objectives of the CAP –
now enshrined in article 39 of the Lisbon Treaty – have not changed formally over
the past 50 years. But the traditional objectives of the CAP do not take sufficient
account of sustainable development of agriculture and new preferences of society
concerning nature conservation, environmental protection, and animal welfare.
The future will only be secure with a fundamental reform of the CAP, because even
in its present, modernised form, it is often viewed as a stumbling block, rather than
as the basis for further cooperation and integration. At this moment the key
question is: “how do we deal with these challenges, how do we ensure that the CAP
continues to serve as the foundation for cooperation and integration in Europe?” Or
in other words: “How can agriculture regain public credibility?” Especially in view of
the main drivers and trends that will influence agriculture and rural areas in the
next decades: climate and energy; food and the environment; food and health;
food and modern technology; globalisation and liberalisation; as well as
demography, regional development, the importance of a living rural area, and
animal welfare. We also need more policy coherence in the order of: environment –
agriculture – trade – ODA.
The new CAP should enable agriculture to make an optimal contribution to public
prosperity. This means that it should not only produce “food” (marketable
agricultural products) but also provide “public goods” (such as attractive
landscapes). In order to achieve this, the present system of direct payments is nor
effective, nor appropriate. It should be replaced by targeted payments. These
payments are only needed when the market fails and as long as they do not lead to
unacceptable market distortion.

3. Workshops
The main points of discussion in the parallel workshops are summarized in the next
paragraphs.

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Direct income support: flat rate, targeted payments or both?
The future of direct payments was discussed. Questions brought to the table
focused on the following issues:
Future justification for the new CAP payments: income, food security or public
goods?
Size of the payments: what tool in what size is fair or efficient?
Co-financing: on EU or MS level? Consequences for single market and level
playing field?
Impact of payments? On farm structures, on factor markets, environmental
effects.
There is a mix of interactive instruments which affect in a complex way a set of
non-independent targets.
The first part of the discussion focussed on the justification and public support for
direct payments. There was unanimity that the justification for direct payments
based on historical production is not longer valid or tenable. Some participants
consider that some basic support can be justified by the ‘automatic’ delivery of
public goods jointly supplied through agricultural production. The remuneration for
these public goods is thus not considered as trade distorting.
Others see securing agricultural activity as the core of the present and future CAP.
In their view direct payments are still needed to safeguard agriculture as a viable
economic activity for food production. But also arguments related to social policy,
income, employment, migration and retirement are mentioned. Thus, the
economics instead of public goods should stay the focal point.
Food security was not brought forward as a main justification for direct payments.
A certain base level of support could, according tot some participants, be justified
for complying by farmers with higher standards (beyond cross compliance).
There was general agreement that in the new CAP additional support is needed for
more marginal production regions and Less Favoured Areas (LFA). Some
participants consider farming in LFA as it is as a public good to be rewarded.
The design of future direct payments raises more questions: should it be one flat
rate in the EU or differentiated between member states or regions? Should it (be
made possible to) vary payments within a certain ranges? Attention should be paid
to the fact that flat or flatter direct payments are often (directly) converted in the
price of agricultural goods. Also the question was raised about the future of
entitlements and the role that contracts can play. Contracts replacing entitlements
was seen by most participants as a very interesting new possibility. Regarding more
targeted direct payments it is recognized that, although it is very difficult to
calculate the real economic value of public goods, the calculation of the costs of the
delivery of public goods is very well possible.
Certain participants raised questions about the available budget. Probably there will
be less financial resources available in the EU budget. By keeping national
envelopes the required flexibility in targeting the available money can be sustained.
With a pragmatic view to the future of the CAP, a vast majority of the participants
predict that some level of direct payments, but provided with a new justification,
will continue. They believe that a complete abolition of direct payments is most
unlikely. Also a ‘one size fits all approach’ will be difficult to maintain. The question
is thus: how should the transition to a new (lower) level of direct payments be
organised and what possibilities for regional differences are to be made?

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The architecture of safety nets to manage risks
Participants are not unanimous in whether positive price outlooks for agricultural
commodities will materialize (higher input prices outpacing higher output prices?),
but they generally agree on the overall positive outlook for the dairy sector. They
do agree that due to structural changes in agriculture, increased specialization of
production, increased financial input from banks and more globalized trade, farmers
become more vulnerable. At the same time the trend becomes manifest to pass
price risks more and more from retail through trade and distribution to the
producer. So, proper risk management is in the farmer’s interest and a skill to be
developed.
There is a general acceptance of the need for safety nets for weather/climate,
veterinary and phytosanitary risks, but participants have differing views to what
extent price or income fluctuations should be addressed through safety nets.
Increasing price volatility and more fluctuating farm income will be important issues
in the discussions about the future of the CAP. That managing risks as a result of
extreme price volatility should be part of future CAP toolbox is generally accepted.
But views differ to the extent in what role the EU and national authorities should
play in managing income fluctuations. Some believe that (private) income
assurance schemes should be part of the EU toolbox, others point at national social
security, or at adaptable state aid rules. Also some participants like more the idea
to stimulate farmers cooperation to build up strong positions in the food chain or to
generate alternative income sources.
Further development and wider use of market instruments, such as production
contracts, insurance policies and futures markets, could facilitate the management
of price and production risks and should be stimulated through the CAP. There is
scope for improvement. Futures especially are seen as a potential, interesting new
tool. Although it is recognized that futures might be more interesting for certain
sectors and/or commodities than others. Some participants doubt if futures could
be an appropriate tool on farm level or be used by producers organizations and
cooperatives.
Improving competitiveness and sustainability of European agriculture
In a general sense competitiveness of EU agriculture has in recent years already
made remarkable progress. But at the same time prices of agricultural inputs have
been a significant impediment to a positive development of agricultural incomes.
And these input prices can hardly be influenced by the sector or farmer. Still, even
after recovery of the economic crisis, price volatility on the European and world
market will increase. A determining factor in the debate seems then to be the
answer to the question what or which will be the driver(s) for agricultural price
development in the years to come. And if supply constraints could become the main
driving force, it would justify continuation of direct payments.
Some participants underlined that the future CAP should be geared towards the
promotion of the production and marketing of high-quality agricultural products on
the world market and targeted at selected groups of consumers. The future CAP
should also need to take into account the need of producing green energy from
biomass and waste of agricultural production. Policy wise that would mean a shift
from the traditional instruments to promoting research and development; access to
education and dissemination of results of applied research; development of skills
throughout the food chain and so forth. Also the rural development policy should be
more focussed on the strengthening of competitiveness: “focus on getting farmers
more competitive by themselves, then just throwing money at them”. Other

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participants pointed out – underlining the need to become more competitive - that
the traditional CAP-policy-instruments can not yet be missed taking into account
the different stages of development of the agricultural sector and food chain in the
27 Member States. Not all regions in the EU have the optimal physical-geographic
circumstances to be able to produce and market competitively. Policy instruments
to ensure the viability of the agricultural sector, which is essential to keep these
areas populated, to manage the land and to deliver important public goods, still are
needed.
Given the complexity of the (global) challenges which will have to be addressed as
well as the necessity to reach agreement among a great number of Member States
and recognizing the different stages of agricultural development, “one size fits all”solutions would not be appropriate. There is a need for a varied policy toolbox to
address the different needs and difficulties in different regions and a transitional
approach to offer opportunities for catching up.
Future of rural development policy within the CAP
The question was raised how to further focus the policy in order to maximize its
effectiveness and how to improve policy delivery, including better coordination with
other policies, and striking the right balance as far as simplification is concerned.
Participants discussed the following questions:
- Should the objectives for future rural development policy be: addressing climate
change and delivering environmental goods; fostering agricultural
competitiveness; and ensuring a balanced territorial development?
- How should the policy be further focused in line with the future EU-priorities?
- Would it be feasible to set targets, that could then be used both ex ante in
drawing the programs, as well as ex post in evaluating the results?
- How can spending on farm investments be made more effective?
- Should sustainable land management focus mainly on areas with natural
handicaps and /or prone to land abandonment?
- Should measures aimed at the provision of basic services targeted to areas
lagging behind or in the periphery of the EU?
Some participants supported the idea of a more strict targeted policy but stressed
the importance of taking into account regional differences. Others reminded on
broadband, a target in the economic recovery plan, as a bad example of targeting.
Mitigating climate change was broadly seen as the biggest challenge in coming
planning period. But it was also brought forward that climate change should be
seen as a priority which should be divided in different more specific and focused
targets. Most participants agreed that thematic targeting should be combined with
some kind of territorial targeting, more flexibility in all axes and on a more coherent
policy approach on all levels. These concepts should be elaborated more in depth.
A better defining of the third axis in the Rural Development Policy with Cohesion
Policy was seen as an important issue. Most participants stressed the importance of
the third axis as an integrated part of rural development which should be kept in
the second pillar. Cohesion fund is more oriented towards urban areas. It was
suggested to make a stricter distinction between the Rural Development Fund and
the Cohesion fund by targeting the third axis towards rural areas or even limit the
use to farmers. A few participants mentioned that the third axis of rural
development policy is of minor significance and not essential for the CAP.
Also the topic of public services was discussed. It was stressed that this is a serious
topic which could not just be dealt with by changing labels on existing measures.
Measures must really be targeted towards demands of society. Some participants

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focused on renewable energy as a public service, others on biodiversity. It was
noticed that involvement of local authorities is essential. Also Leader was
mentioned in this respect, as being the specific territorial instrument in the Rural
Development Policy.
All participants were in favour of further simplification of the Rural Development
Policy. This is a challenge that has be to dealt with both on a European and on
national level.
Climate change: agriculture and rural development as part of the solution
Climate change has significant but diverse impacts on farming. Integrating both
mitigation and adaption policies promises the biggest payoffs. Encouraging a ‘low
carbon’ agriculture may impede the goal of producing more food in the short run.
Carbon pricing is a crucial signal for influencing behaviour. Discussions focused on
the following issues:
- In addressing climate change in CAP relate public ‘goods’ (payments for carbon
sequestration?) and ‘bads’ (taxes on Green House Gas emissions?), and
improve resilience of agriculture (through insurance systems?)
- To give a strong signal for investment in low carbon food production,
technologies and farm practices, facilitation of a provision of a real or implicit
carbon price is needed;
- Further analysis of costs and benefits of alternative scenario’s is also needed to
address agriculture’s role in climate change.
In addressing the ‘bads’ only a minority of participants has the conviction that a
carbon tax is needed or even inevitable and that a carbon tax is better than a
emission (trading) scheme. Creating a link between trade and carbon tax is crucial
to avoid trade distortion. The system should preferably be common, but also
international. Although measurement is a very important difficulty, it is also the
biggest challenge. Other participants argue that agriculture attributes only for a
small part in climate change and that Green House Gas emissions from other
economic sources are increasing faster than from agriculture. So a tax for
agricultural emissions might not be the best solution. Besides, a tax has the
additional risk of carbon leakage. Taxes may even reduce production, although
aiming at reducing carbon levels per unit produced agricultural product may be a
better way. Most participants stressed the complexity of measuring and from that
the difficulties for designing and implementation.
Most participants supported addressing climate change through positive incentives.
There is a need to set priorities and sort out the budget for it. Opinions differ in
what instruments to be used, although for a majority it is clear that climate change,
and especially mitigation, should be fully EU funded because climate change is a
shared responsibility for both EU and Member States. Also because climate change
has a multiple impact on regional, national, European and on international level.
Some nevertheless have a preference for the second pillar in Pillar two, which is in
their view the traditional vehicle for these kind of measures. Some participants
stressed the need for a closer look at adaptation strategies and measures, which
have not fully been explored yet.

4. Panel discussion
In the afternoon panel discussion the main points of discussion from the workshops
were presented and discussed.

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Direct income support
Input from the workshops:
• Basis area payment for providing food security, income support, high standards,
etc. needed (i.e. ‘for being a farmer’) or not? Is only cross compliance a
sufficient justification for direct income support?
• Additional area payment for disadvantaged areas needed.
• Rewarding specific and additional green and blue (ecosystem) services needed
through targeted payments.
• One size fits all approach difficult; tailoring necessary.
Panel discussion:
Direct payments comprise the largest share of the EU Budget. This focuses
unmistakeably the discussion about the future of the CAP to the future of direct
payments. The main drivers for the CAP post 2010 will probably be Climate Change,
the EU Green Growth strategy and recovering from the economic crisis. It is not
expected that architecture of the CAP with two pillars will change. Future CAP direct
payments will tend to be decoupled and become more targeted. Opinions differ
about what it could or should be: some kind of basic income support or payments
based on objective criteria for the public goods delivered by agriculture. The first
raised the question of necessity of an EU flat rate. Most participants do not
generally see any reasoning in an EU flat rate, but have in view a system that could
be a calibration of levelling income differences and targeted public goods.
The latter raised the question of equity: how to define public goods (beyond cross
compliance requirements), what are the criteria, how are they delivered, how to
calculate them (EU, national, regional level?), who should pay and who benefits?
Some participants believe that the active delivery of public goods should not be
confused with the application of cross compliance linked to direct payments. The
reasoning behind the new justification therefore becomes critical, because it will
lead to redistribution of money between farmers and a one size fits all solution
seems not most appropriate.
Although a new justification for direct payments is generally deemed to be of crucial
importance, it should be credible, lasting and helpful in WTO discussions. The need
of control, further simplification and the issue of transaction costs need to be
addressed in the future shape of the direct payments. In all cases an adequate
transition period will be needed.
Competitiveness, Sustainability & Safety Nets
Input from the workshops:
• No unanimity whether positive price outlook will materialize (higher input prices
outpacing higher output prices?). General agreement on overall positive outlook
for dairy sector.
• Broad support for need to improve competitiveness; different views on which
policy measures to choose.
• General acceptance of need for safety nets for weather, veterinary &
phytosanitary risks; differing views to what extent price or income fluctuations
should be addressed through safety nets.
• Managing risks as a result of extreme price volatility should be part of future
CAP toolbox; innovative tools should be stimulated (private crop insurance,
futures, etc.)
Panel discussion:
The question how to stimulate competitiveness of European agriculture is not an
easy one. Indeed there is no unanimity whether positive price outlook will
materialize. Some do not believe in strong consumer demands through the market

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by emerging economies. What will happen in the future with the marginal costs of
farming is like looking into a crystal ball. So perhaps the future CAP should not
completely overlook the issue of dealing of supply of agricultural commodities,
although stabilizing prices in the past has proved to be very complex and
expensive. It will also depend more and more on the farmers themselves to use
their resources as effectively and efficiently to be or become competitive on the
market. They have to produce quality and sell this quality. To be able do so, they
need among other things education, vocational training, extension services and ICT
applications. The CAP should provide the positive incentives including funds for
research and development, knowledge and innovation.
Still the issue what kind of instruments is needed as (public) safety net remains on
the table. The Health Check agreement already introduced additional instruments to
help stabilize income variability. They should help farmers understand that the
government only steps in when private systems fail or do not function well. Not
clear is what the bottom line is or should be? Should an instrument to reduce price
risks be developed: contracting, futures, risk funds like in the CMO? Although there
is a general feeling that something should be in place, it must also be clear that it
should be a facilitating tool, with no guarantees for the farmer and not containing
any incentive to produce.
Rural Development & Climate Change
Input from the workshops:
• Architecture of 1st and 2nd pillar to continue after 2013? Much more flexibility
needed in four axes.
• Better targeting of rural development measures needed: prioritizing in stead of
multiple goals. A limited number of thematic and regional priorities should be
focused on. A more coherent policy approach on all levels is required.
• Which policy instruments needed to promote CO2 emission reduction in
agriculture? Subsidies or legal obligations?
• Too much overlap between rural development measures (in particular 3rd axis)
and cohesion policy; back to the agricultural roots?
Panel discussion:
Some warn not to reinvent the wheel. The Rural Development Policy is a good
instrument that should be kept in place, although some believe that the logic of
Pillar one and Pillar two is already a little mixed up by article 68. The RDP has some
flexibility in addressing the right objectives for example on a regional level, but that
can be expanded in future. Some believe the RDP is also ready for a milk quota free
environment. To stimulate competitiveness there are measures under axis one, to
respect the environment and preserve biodiversity we have axis two. There, and
under axis three, there are also measures to invite farmers not to opt out farming
and stay on the land and to help preserve permanent pasture through GAEC.
There is unanimity that better targeting is needed. So it would serve the EU well
when the policy will be designed in an early stage setting the right parameters,
including the financial responsibilities in the sequence EU – member state – region
and the link with direct payments.
Little time was left for discussion with regard to the role of agriculture in mitigating
climate change. However there is already a whole range of possible instruments
available: e.g. taxes, cross compliance, weather insurance schemes and targeted
payments in the second pillar. Again some stressed that more attention should be
given to measuring on farm level, to address both reduction and sequestration of
carbon dioxide and where to put the right responsibility (common or local level?).
The role of (agro)forestry and perhaps even land use perspectives should be
analysed in depth and discussed.

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Programme
Wednesday 27 January 2010
09.00

Opening by Gerda Verburg, Minister of Agriculture,
Nature and Food Quality
Chair of the conference: Carlo Trojan

09.15

Key note speech by Stefan Tangermann, Professor
Department for Agricultural Economics and Rural
Development, University of Göttingen

09.45

Key note speech by Louise Fresco, Professor
Sustainable Development, University of Amsterdam

10.45 - 12.15

Workshop round 1

14.00 – 15.30

Workshops round 2

16.00 – 17.00

Panel discussion chaired by Carlo Trojan

Thursday 28 January 2010
08.15

Excursion to Laag Holland, visit to biological dairy
farm

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