High commodity prices have made European farmers much less dependent on farm support, offering cash-strapped governments a unique opportunity to reform the European Union’s Common Agricultural Policy (CAP), according to a new OECD report published Wednesday.

Evaluation of Agricultural Policy Reforms in the European Union shows that European support to farm incomes has decreased substantially over the past 20 years. Farmers earned 22% of total annual receipts from government support over the 2008-10 period, down from 39% annually over the 1986-88 period.

The decline is due to many factors, including high commodity prices, which automatically push down income support, as well as 25 years of CAP reform outlined in the report.

Despite the decline, CAP expenditures nonetheless comprised close to 45% of the total EU budget in 2010, or about EUR 53 billion. Overall farm support reached EUR 77 billion in 2010, as measured by the OECD’s Producer Support Estimate, which includes direct payments to farmers as well as the impacts of government policies on prices.

"Expected growth in demand and higher real commodity prices offer tremendous opportunities for farmers and government alike," said Ken Ash, OECD director of Trade and Agriculture, during the report’s launch in Brussels. "A window has opened for re-orientation of policy away from broad income support and towards investments in a strong and competitive agri-food sector."

The OECD report details the major CAP reforms over the past 25 years, describes the main characteristics and structure of the current CAP and recommends paths for future reform, including:

• the removal of remaining impediments to the functioning of input and output markets, more open access to the European market and transparent EU-wide markets for the sale and lease of land, production quotas and payment entitlements

• greater investment in agricultural innovation.

• introduction at the EU level of an effective and comprehensive framework for risk management,  steering clear of areas where private sector solutions exist, such as production contracts, insurance and futures contracts.

• targeted efforts to improve the environmental performance of agriculture, including direct payments to farmers, when necessary, for provision of environmental goods and services.

Money is wasted but capping payments won’t help.

The report highlights the inequalities of the support system with "the 25% larger farms with income levels per farm above the average of all farms receiving close to 75% of support, particularly income support". As direct income payments take a large part of the support, this suggests that much money is wasted to 'unintended' beneficiaries, those who receive support that is not needed to achieve policy objectives. Placing a ceiling on payments on individual farms would not address the problem, says the report, and might encourage the break-up of larger farms. The report goes on to say that as awareness about the use of public money increases, it is important to clarify what the income objectives of the CAP are, in particular what type and level of income is targeted.

Environmental policy.

The environment is another area where policy coherence between agriculture, agri-environmental and other EU environmental policy is essential to success. The report argues that the polluter pays principle should be implemented more widely in agriculture, including technologies to identify polluters. The responsibility to enforce this principle should lie at the local level. Guidance should be provided to producers regarding which additional environmental services are demanded including the use of proven best farm management practices. There is still a need for more research and extension to identify and get farmers to adopt evidence-based sustainable farming practices argue the authors of the report.