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May 17, 2005

New CAP Subsidies.

Today is the day that the new CAP subsidies come in.

From today, farmers will be paid a subsidy for owning their land. It is as strange and straightforward as that. They will not have to do anything explicitly "environmental" to get the cash, which will vary from £60 to £100 an acre. If they want to do something "environmental", such as not ploughing up the edges of their arable fields, or putting in beetle banks, or planting new hedges, they will get extra money for that.

This has to be one of the most absurd things they’ve done yet. What happens to the price of an asset if you raise the returns to that asset?  It goes up, of course. Absolutely the only efect of this will be to make farmland more expensive. That’s it, nothing more.

Is that really how we should be spending 50% of the European Union’s money (sorry, budget, for it’s our money, isn’t it)?

May 17, 2005 in European Union | Permalink


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I read somewhere (I forget where) that this new system was introduced by Franz Fischler as a cunning means of destroying the CAP altogether. Fischler wanted to abolish the CAP but knew that the French would never wear it (sorry) so proposed this system which means that farmers would be subsidised simply for owning the land. The thinking is that this would then remove any element of legitimacy from the subsidy and that, eventually, the moral case for the end of this practice would be so overwhelming and unstoppable that even the French farmers would not be able to resist it. Time will only tell if this is correct.

Posted by: David H | May 17, 2005 10:47:46 AM

From Catch-22:

"His specialty was alfalfa and he made a good thing out of not growing any. The government paid him well for every bushel of alfalfa he did not grow. ... He invested in land wisely and soon was not growing more alfalfa than any other man in the county. Neighbors sought him out for advice on all subjects, for he had made much money and was therefore wise. 'As ye sow, so shall ye reap,' he counseled one and all, and everyone said, 'Amen.' "

Posted by: Tim Newman | May 17, 2005 11:10:20 AM

The CAP has always affected land values. Farmland is already "too expensive" precisely because price support for farm output raises the value of the land itself. This is nothing new.

The point of the new arrangement is to replace certain subsidies that were previously directly linked to output (price support) by a payment that is made irrespective of whether the farmer actually produces or not.

The effect of this is that farmers do not suffer a large change in income , but you end up with a less distortionary form of support, as decisions whether to produce or not are now market driven at the margin.

Of course - it is still completely lunatic to be paying all this money to the farming sector. Agreed 100%. It makes no sense to spend 5% of the EU budget on farming, never mind closer to 50%.

But if you "have" to pay subsidies this is one of the "better" (least distortionary) ways of doing it.

Posted by: rjw | May 17, 2005 11:37:36 AM

The least distorting subsidy would be to pay farmers based on their profits!

Posted by: Rob Read | May 17, 2005 4:35:36 PM

If I get £100 an acre then the price of land must immediately be worth £2000 an acre, With a guarranteed yield, can I now put farmland into my Self employed pension? In which case I get another tax break, and with a bit of luck I can then get John Prescott to rezone the land for "essential housing" and make an enormous capital gain.Hurrah for the EU!

Posted by: Mark T | May 18, 2005 8:01:26 AM