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Monday 24 July 2017

Brexit blues and a major shake up of CAP financing

Britain's exit from the EU will be a long and tortuous process but one certaintyis that it will shake up CAP financing and policy, write Kevin Hanrahan and Trevor Donnellan

Brexit could be a slow and painful process
Brexit could be a slow and painful process

Kevin Hanrahan and Trevor Donnellan

Without the UK's budget contribution, the EU will need to redraft its €140bn annual budget, either as a smaller pot, or with bigger contributions from some or all of the remaining member states.

The exit of the UK might mean one voice less calling for the "abolition" of the budget's biggest single cost centre - the CAP. But the shock caused by the exit of the UK from the EU could also in the longer run lead to a fundamental reappraisal by Member States of what they want the EU to do for its citizens, including agriculture's share of the total.

The extent of the expenditure on the CAP was already under question, before Brexit ever became a concern.

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Some see the need for the EU to free up resources to tackle major challenges facing the EU, such as border security, counter terrorism measures and a means to deal with the migration crisis.

In addition, there are pressures to ensure that the CAP is better tailored toward green objectives and there are also pressures for further moves towards an equalisation of payments across the member states.

It is not difficult to see an end outcome involving a smaller total EU budget, a smaller CAP budget, and a reapportioning of that budget across the remaining EU member states. For Ireland the combination of these three aspects of changes to the EU budget could ultimately lead to a lower total payout under Pillar I of the CAP and lower direct income support payments per farm.

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Leaving aside Pillar I considerations, there could also be concerns for Ireland under Pillar II - the CAP's Rural Development Budget.

While resources for Pillar I funding are derived directly from the common funding pot in Brussels, resources for Pillar II are funded differently in that member states co-fund it from their national exchequer.


The extent of the co-funding required is not uniform across the member states.

Generally speaking the more affluent member states are required to contribute a larger percentage share towards the cost of any co-funded initiative in their member states.

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This is all relevant since once the UK leaves the average income level in the new EU27 will decrease, which could mean that the more affluent member states find themselves required to dip into their pockets to provide a greater level of co-funding to finance their Pillar II initiatives, including Ireland.

The Irish government would then need to decide if it would increase its budget for co-funding under Pillar II or alternatively resign itself to a lower level of Pillar II funding from Brussels.

British Agricultural Policy (BAP)

While a member of the EU the UK Government has regularly advocated radical reform of the CAP - typically involving a much reduced CAP budget. Most observers would expect at least some reduction in the level of support provided to UK agriculture, with any public support that would be provided being increasingly linked to the provision of agri-environmental services.

The future shape of UK agricultural policy is also complicated by the devolved nature of agriculture policy in the UK. Scotland, Northern Ireland and Wales have all a role in agricultural policy within the limits of the national UK CAP budget.

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It is probable that the devolved administrations will favour more public support for agriculture than England.

This is despite the fact that farm incomes depend on the CAP no matter what part of the UK they are located (see table on right), so UK farmers will be vocal on this issue.

MAJOR OR MINOR BAP REFORM?

A conservative reform could result in an agricultural policy that is close to the current ­situation and would probably be favoured by many UK farmers.

At the same time, the UK would join the single market, via membership of the European Economic Area (EEA).

Unlike an EEA member such as Norway, the UK could choose to have tariff-free trade in agri-food products with the EU.

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However, a more extreme outcome would be one where the UK completely dismantles its agricultural policy, with no budgetary supports available to agriculture, just as New Zealand did in 1984.

The UK could then liberalise access to its agri-food markets, by eliminating all tariff barriers for exporters.

Between these two extreme outcomes is a very large set of alternative UK agricultural policy and agri-food trade policy configurations

Kevin Hanrahan and Trevor Donnellan are Teagasc economists

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