Decoupled payments to facilitate CAP reform

Abstract

There is a long tradition of advocacy of decoupled compensation payments to facilitate reform of agricultural policies. To illustrate this, we cite some of the European literature of the 1960s and 1970s. In the 1980s and 1990s, decoupled payments were frequently proposed, but despite years of discussion there is still surprisingly little agreement on the role that decoupled compensation payments can play in facilitating common agricultural policy (CAP) reform. The Uruguay Round Agreement introduced the so-called blue and green boxes; and the MacSharry and Agenda 2000 reforms have made extensive use of the blue box to shelter an increasing proportion of CAP support from international scrutiny. Blue-box payments are not, however, fully decoupled; and cross-compliance will not turn them green. The Peace Clause provides limited protection for the blue box, but if this were to lapse in 2003/04 the blue-box provisions would be of little worth. We assert that the EU must engage in radical reform of the CAP, and make truly decoupled and transitory compensation payments the central element of that reform. This could best be facilitated by allocating transferable bonds to the present generation of farm operators, with annual payments made to the bond owner. We set out the essential conditions that must be met for a bond scheme to be put in place, and explore in a very preliminary fashion the budgetary implications.