QLK5-1999-01510 BONDSCHEME: An assessment of the practicalities and acceptability of a bond scheme as part of Common Agricultural Policy reform.

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Website: www.reading.ac.uk/agristrat/bondscheme/
Summary Information



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Agriculture : Quality of Life - Other Activities in Key Action 5

Contract No:	QLK5-1999-01510
Source:	18 Month Progress Report - September 2001 - Abstract

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18 Month Progress Report - September 2001 - Abstract

Objectives

The aim of this project is to assess the so-called bond scheme as a way of providing transitional relief to farm businesses experiencing reductions in price and income support as part of CAP reform. The main objective is to design a workable bond scheme and to test its practicality and acceptability on policy-makers, farmers and the stakeholders in agriculture. The key features of a bond scheme can be summarised as follows:

• Farmers would be issued with bonds on which the EU would make annual payments for a certain number of years.
• The total value of bonds would be based on: i) the existing entitlements to direct payments and ii) the income loss expected to result from a cut in support prices.
• Bonds would be allocated to individual farmers on the basis of their output, quota holding, or entitlement to direct payments, in a recent reference period, and would not be affected by production decisions. (A range of bonds may be necessary to fit the needs of a range of farm types and sizes).
• Bonds would be transferable, and could be sold on the private capital market.

As a result, such a bond would enable farmers to be compensated for the removal of price support, allowing them to adjust to more competitive market conditions. It does not seek to encourage farmers to remain in production. A working hypothesis, at the outset, is that alongside the bond scheme, environmental and other green box payments (as defined in the Uruguay Round Agreement on Agriculture) could be made.

Activities

The suggested scheme would involve farmers being issued with bonds on which the EU would make annual payments for several years. The bonds would be transferable and could be sold. Several variants of the bond scheme will be developed as part of the study.

Following an extensive literature review of similar previous initiatives both in the EU and elsewhere, a costed and worked through proposal for a bond scheme will be drawn- up and discussed by a workshop of policy-makers with relevant interests. Following any necessary re-design, farmers' response to the bond scheme set out will be canvassed via a postal survey and a follow-up series of in-depth interviews. This will enable the acceptability of the proposed scheme to be assessed by type and size of farm business as well as region. Any employment or environmental consequences will also be calculated, as will the effects on farm diversification.

The final task of the work project, following the analysis of the data gathered in the two surveys, will be to reconcile the stated intentions of the farmers with a theoretical perception of the proposed scheme. This will be helped by a final series of workshops involving a range of stakeholders in agriculture such as bankers, land agents, suppliers, policy-makers and so on. A final report, with sections on the partner's countries will be published.

Results and Milestones

Throughout the process of development of the bond scheme proposal, the underlying objective has been to produce something that is more than just an interesting academic idea. It has been constantly acknowledged that the proposal must be compatible with the EU's WTO obligations and acceptable to taxpayers, politicians, farmers and other stakeholders in the rural economy of the EU.

In drawing together the relevant literature and background material (Milestone 1), it became apparent that very little research had been carried out in the past to assess the feasibility and political acceptability of introducing a bond scheme. While numerous issues were highlighted during the course of the consultation phase (Milestone 2), nothing was brought to our attention that suggested our proposals needed radical revision, or, indeed, that they were regarded as being completely unworkable.

In moving on to the survey phase of the project work, it is hoped that all the ramifications of applying the proposed bond scheme, in terms of rural employment, farm incomes and output, land-use and environmental impact, will be better understood.

Benefits and Beneficiaries

The predicted impacts of applying the bond scheme, obtained from the outcome of the survey work, along with the rest of the project results and conclusions, should provide a useful contribution to the ongoing debate on CAP reform. The planned date for the completion of the BONDSCHEME project is just prior to the scheduled re-evaluation of the last reform, under the heading of the Mid-term Review, so any input into the policy discussions then could also prove to be quite timely. In this way, this applied research project should provide results that will be of direct relevance to policy makers when they come to consider the options for future change.

Future Actions

A delay to workpackage 2 means that there is less time to complete the remaining work tasks than had originally been planned. To meet the original target of finishing the project within the scheduled 30-month duration, it will require maximum effort from the research team, as well as some very careful project management. Nevertheless, the project members do believe that the revised target dates for the rest of the project are achievable. However, it is acknowledged that there is no longer any timetabled contingency should any unforeseen problem develop before the completion of the research.