The reform and the future of the Common Agricultural Policy (CAP) is undoubtedly one of the biggest challenges of the European Union. Its reformulation, as highlighted by the Commission, affects not only farmers but all citizens as consumers and taxpayers. Achieving a competitive agriculture both from economic and environmental point of view is one of the objectives pursued by the Commission in its Communication on the future of the CAP presented on 18 November.

The Communication on "The Common Agricultural Policy (CAP) towards 2020 – Meeting the food, natural resources and territorial challenges of the future" put forward by the European Commission on 18 November looks at the future instruments that might be suitable for best achieving the challenges faced by European agriculture.

These objectives which have been identified during 2010 through the public debate launched by the European Commission on the future of CAP as well as a major conference on EU agriculture challenges held in Brussels, can be summarised as:

• Viable food production
• Sustainable management of natural resources and climate action
• Maintaining the territorial balance and diversity of rural areas

For direct payments, the Communication outlines the importance of a redistribution, redesign and better targeting of the support, based on objective and equitable criteria, easy to understand by the taxpayer. These criteria should be both economic (noting the “income support” element of direct payments) and environmental (reflecting the public goods provided by farmers), with support better targeted towards active farmers.

A more equitable distribution of funds should be organised in an economically and politically feasible way with a transition to avoid major disruption.

On market measures, such as public intervention and private storage aid, there may be some scope for streamlining and simplifying measures, and possibly introducing new elements with regard to improving the functioning of the food chain. Although these mechanisms were the traditional tools of the CAP, subsequent reforms have enhanced the market orientation of EU agriculture and reduced these to safety net measures, to the extent that public stocks have virtually been eliminated.

Rural Development policy has allowed enhancing the economic, environmental and social sustainability of the farming sector and rural areas, but there are strong calls to fully integrate environmental, climate change and innovation  considerations into all programmes in a horizontal way. Attention is drawn to the importance of direct sales and local markets, and the specific needs of young farmers and new entrants.

One new element in future rural development policy should be a risk management toolkit to help deal better with market uncertainties and income volatility. Options should be open to member states to address production and income risks, ranging from a new income stabilisation tool compatible with World Trade Organization (WTO), to strengthened support to insurance instruments and mutual funds. As with direct payments, there should be a new allocation of the funds based on objective criteria, while limiting significant disruption from the current system.