Financing Rural Development in

the EU-25 – the new challenge

Allan Buckwell
CLA Chief Economist and Head of Land Use
Chairman of ELO Policy Group
Financing Rural Development in
25 Countries, the new challenge

• What is rural development?

• How do you get it?
• What is the contribution of the CAP?
• Its first Pillar
• The second pillar
• Are we moving resources between the two?
• Some issues for the Rural Development Regn.
• Concluding remarks
 What is Rural Development?

• It is economic development of rural areas

• Economic development
– Raising real living standards – employment,
incomes, quality of life, health, education,
opportunities.
• Implies diversification of the rural economy
– From producing things to providing
services
– Rural areas have unique services to offer
Declining relative importance of
marketed outputs of rural areas
• Demand growth
– Static and aging population
– Slow demand growth for food and fibre
– But rising incomes => higher quality
• Export opportunities only for hi quality goods
• New demands:
– Energy and material substitution
– Only if incentives are in place
• Productivity growth is imperative
– Substitution of capital & knowledge for labour
– Outflow of labour from primary production
– Farm and business restructuring
The switch to a service economy
• Many services are suited to rural areas
– People intensive
– Can be SMEs
– Do not require massive material flows
• Rural areas can offer unique services
– Tranquility,
– Therapeutic qualities of green spaces
– Cultural heritage – our roots
– Biodiversity
– Landscape
– Recreation opportunities
– Flood and water management
• The challenges are who pays? What
livelihoods can this support?
How do we get rural development?

– The same way that we get general

economic development
– Via national economic and social policy
• Macro-economic policy
– Low inflation, stable currency
– I.e. conditions to attract investment
• Micro-economic policy
– Encourage competition
– Stimulate productivity growth
• Health, education, rule of law,
infrastructure
– Important to rural-proof all such policies
What policies are relevant?
• Mostly national economic and social policies
• Role of the EU
– currency stability
– open trade regime
– competition via common regulatory
standards
• Then Europe / Brussels – stand back
• Let the member states and regions decide

• Relative importance of the CAP?

 The Common Agricultural Policy
CAP
• Despite efforts of many over years, the CAP
sticks as an agricultural policy – which taken
literally condemns it to being of declining
importance.
• Because its influence on rural development is
small, all the more important it is focussed on
things that only such a policy can achieve
• Is there an ambition to turn it into a more
balanced rural policy for Europe? The new
member states could be decisive in this.
 The current two-Pillar CAP
• Pillar 1: Direct payments and market supports
– Decoupled direct payments:
– Residual market supports

• Pillar 2: Rural Development Regulation

– The three axes: strategic approach or Brussels control
– Competitiveness of agriculture and forestry
– Land management
• Agri-environmental schemes
• Natura 2000 supports
• Less Favoured Area Schemes
– Wider rural development
– Plus the LEADER implementation mechanism
 The fundamental distinctions
between the two pillars of CAP
• Pillar 1: agricultural support
– Annual, EU-wide, compulsory measures
– 100% FEOGA financed
– Decoupled direct payments to farmer for keeping
land in Good Agricultural and Environmental
condition
– Can these be justified long term?
• Pillar 2: rural development
– Multi-annual programmes
– Regionally defined
– Menu driven
– Co-financed – for good reasons
 Rural Development Policy:
desert or main course?
• Its history is as a desert, a sweetener to finish the
main meal
• Accompanying measures to the MacSharry reform
• The creation of Pillar 2 in Agenda 2000
– The 90:10 split in resources for P1 : P2
• The method of changing the balance
– Voluntary Modulation: 2000 - 2005
– Compulsory Modulation: 2005 – 2007, to 5%
– Both available from 2007
• The ambition? Accompaniment or replacement?
The resources: now & in prospect
• The resources have been cut
• Expansion of core funding in the nMS
• Contraction in core funding in the EU-15
• How will it be shared? Objective criteria or history?
– History plus political fudge
• Mechanisms for additional RD funding:
– Bigger budget? No chance
– Voluntary modulation
– From 2008, more compulsory modulation?
– Co-financing Pillar 1
– Thresholds and capping of Pillar 1 payments
• After 2013? One way bet for CAP Budget
The current regulation: issues

• Beneficiaries of Rural Development measures

– Farmers only?
– What about
• Foresters,
• Wetlands other wildlife, or
• Heritage managers ?
– How about wider rural development
• the village hairdresser,
• or the church roof?
– And facilitators too, eg LAG co-ordinators?
The current regulation: issues
• Less Favoured Area policy
– LFAs defined by ‘compensation for natural
handicap’ – ie socio-economic & natural conditions
– Widely criticised especially Court of Auditors
– Attempt to redefine on natural conditions or
environmental criteria only
– Decisions postponed
– Tied to the criteria for paying for environment
• Income forgone in farming
• Additional costs
• Incentive element
– This must widen to opportunity costs of non-
farming alternative, and relate to the value of the
environmental services
 Concluding remarks
• Don’t get over-excited about the EU Rural
Development Policy! More important things will
determine your future.
• The CAP will provide useful funding streams of a
decade or two
• Use the money for businesses restructuring to
enable enterprises to stand on their own feet.
• Help make the case for enduring support for non-
market services.
• Try to understand and exploit the uniqueness of
your rural area.
 Contact details
Emeritus Professor Allan Buckwell
CLA Chief Economist and Head of Land Use
Tel 00 44 20 74 60 79 37
allan.buckwell@cla.org.uk
www.cla.org.uk