Memorandum submitted by the Environment
Agency
INQUIRY INTO THE IMPLEMENTATION OF CAP REFORM
IN THE UK
SUMMARY
The Mid Term Review (MTR) of the Common Agricultural
Policy (CAP), agreed this summer, provides a complicated but workable
package. Whilst many of the implications of the reform are unclear,
there is certainly the potential to have a profound influence
on the natural resources of air, water and soil.
The framework provided by the Horizontal Regulation
(September 2003) leaves the environmental aspects of implementation
in the gift of Member States. To ensure that the MTR package delivers
these environmental improvements in the UK it is therefore essential
that:
— A workable and cost-effective mechanism
is found to introduce a decoupled area payment. A hybrid option
may be the most pragmatic short-term solution.
— The National Envelope option is taken
up to manage the potential negative environmental and economic
effects of decoupling and to prepare farmers for forthcoming environmental
responsibilities.
— The good agricultural and environmental
condition (GAEC) element of cross compliance is implemented in
two stages, underpinned by an accredited farm advisory system
and supported by complementary measures within the Entry Level
(agri-environment) Scheme.
— The Environment Agency plays a lead
role in implementation and enforcement of cross-compliance.
— Voluntary modulation is adopted to
ensure sufficient resources are available for rural development
and land management schemes.
Effective implementation of the CAP package
will be essential for the delivery of key recommendations of the
Curry Commission. The Water Framework Directive, Sustainable Food
and Farming Strategy and the Government's own PSA targets are
powerful drivers for environmental change. Failure to deliver
this change through CAP mechanisms will lead to the need for costly
regulation in the future.
PRINCIPLES AND
METHODS OF
IMPLEMENTATION FOR
THE PROPOSALS
CONTAINED IN
THE MID-TERM
REVIEW PACKAGE
Introduction
1. The Environment Agency is the principal
environmental regulator in England and Wales, with responsibilities
for the protection of the natural resources of water, soil and
air. Land management and farming have a profound influence on
the quality and quantity of natural resources in England and Wales.
The Agency therefore has an interest in any policies that affect
land management or the structure of the farming industry.
2. The Environment Agency is working to
improve the environmental performance of agriculture through an
integrated policy approach that includes regulation, advice, Environmental
Management Systems, voluntary initiatives and codes of practice
in a manner that is cost-effective and meets the standards required
by EU legislation, in particular the Water and Waste Framework
Directives.
3. The publication of Farming & Food:
a sustainable future in January 2002 by the Policy Commission
on the Future of Food and Farming (hereafter called the Curry
Report) marked a turning point in English agriculture policy development.
Central for the Environment Agency was recognition that in the
future environmental management will be part of the unofficial
"licence to farm" that society will expect of those
involved with land management, just as other industries have a
"licence to operate".
4. The Government's own Strategy for Sustainable
Farming & Food, published in December 2002, endorses this
principle of public money for public goods, and the Government
committed itself to pursuing radical CAP reform. Defra's negotiating
stance was strengthened by the addition of an environmental specialist
to the negotiating team. Defra should consider a more permanent
arrangement to include such a specialist in the European Union
and International Policy team.
5. Although the July 2002 CAP proposals
were subsequently watered down, the Agency broadly welcomes the
CAP reform agreement finalised in September 2003 as a significant
step on the road to a more sustainable agriculture in the UK and
Europe. The level of flexibility available to Member States means
that it is likely that any benefits will be unevenly delivered,
and the package is likely to fail to deliver solutions to many
of the major environmental issues facing the European Community.
Therefore we do not see the reform process stopping here.
6. In the UK there is the potential to reap
many of the benefits of the package by retaining a strong reformist
stance. There is a serious environmental job to be done. The costs
of damage to natural resources from agriculture have been estimated
to be £1.2 billion annually[5].
However, if best available techniques were implemented to address
environmental issues, the UK could reduce damages by around £0.3
billion annually in the short run (up to five years), and £0.5
billion annually in the long run (up to 20 years). In other words,
in less than five years the environmental costs of farming could
be reduced by a quarter via relatively simple, often low cost,
solutions. A bold approach will make a significant contribution
towards the successful delivery of the Water Framework Directive,
the Strategy for Sustainable Farming & Food, and PSA targets.
Failure to make use of the voluntary CAP mechanisms on offer to
improve environmental performance will necessitate more compulsion
ie regulatory solutions in the future. This will increase costs
for farmers, regulators and taxpayers.
7. The Agency sees further CAP reforms to
reduce Pillar I and strengthen Pillar II as inevitable and desirable,
and strongly urges the Government to take a strategic view in
deciding how to implement the latest reforms. Whatever system
is implemented must be robust in the medium to long term. Value
for money (not least cost) and better (not necessarily more) regulation
are key touchstones for the process, whilst the decision making
process must be transparent and publicly accountable.
8. Using these principles the Agency believes
that Government should adopt a flexible approach, utilising implementation
options that offer potential for delivering its wider objectives.
Additional modulation, cross compliance, national envelopes and
the Single Farm Payment system should be developed together and
should mutually reinforce one another to achieve the maximum benefits.
Underpinning this should be an integrated national advisory system
to support farmers when they face major changes. This system should
be introduced as soon as possible.
9. The Agency is working closely with the
Countryside Agency and English Nature on input to Defra's work
on interpreting the Horizontal Regulation. This semi-formal arrangement
(approved by Defra) has worked well, with the Agency taking the
lead on cross compliance issues, English Nature leading on National
Envelopes and the Countryside Agency leading on modulation issues.
Defra also appears to appreciate a more co-ordinated input from
the statutory agencies, and certainly we welcome the opportunity
to input at the earliest stages of policy developments. Our involvement
in this process however should remain distinct from our formal
advisory / regulatory role and as a public consultee.
Decoupling and the Single Farm Payment
10. The Curry Report recommended that "direct
payments . . . be phased out as quickly as possible . . . decoupled
from production and . . . subject to base environmental conditions
for as long as they do exist". The Agency supports the decisions
already taken by the Government to regionalise implementation,
to introduce the new payment scheme in 2005, and to adopt a fully
decoupled approach. The question now is how to implement the Single
Farm Payment (SFP), as the decision will set the framework for
major subsequent decisions on agriculture policy (National Envelopes,
elements of cross compliance, forthcoming sectoral reforms and
the Diffuse Water Pollution from Agriculture initiative). The
potential for SFP decisions to redistribute Pillar I support clearly
has serious political ramifications. We believe that the policy
decision should be based on a strategic assessment of the long-term
implications of the payment system. Shorter-term considerations
such as payment redistribution impacts and set-up costs should
not be the sole basis for a decision.
11. However, the decision on which decoupling
option to introduce—historic or area payments or a hybrid
system—will be made within the next few weeks. The Agency
favours a hybrid option that would extend the principle of area
payments and therefore cross-compliance to the greatest area of
farmed land and crop types. The decision is being hampered by
a lack of defined purpose for SFP (the Horizontal Regulation does
not provide a rationale for this payment). In addition, the implementing
regulations are still under development within the Commission
and will not be available till early 2004. This has not made Defra's
position any easier, but we believe it should not be used as a
reason to delay decisions or to postpone policy development. The
Government should take a proactive approach to negotiating the
implementing regulations (and future amendments to the Horizontal
Regulation).
12. The Agency is concerned by the lack
of clarity over the administration costs of implementing the different
options, which is hindering objective debate. Conversations with
Defra officials suggest that the range between the different options,
including the hybrid proposals, is "no more than £10
million". However, £10 million could be spent on real
environmental gains including the provision of advice for farmers.
13. Whichever option is adopted it is critical
that adequate advice and support for farmers should be available
to prevent adverse economic and environmental effects from subsidy
redistribution and the introduction of cross compliance. The Agency
would therefore like to see greater commitment and resources for
the early provision of advice and training for farmers, potentially
through the use of the National Envelopes.
14. The Agency supports the Governments
proposal to bring dairy decoupling forward to 2005. The dairy
industry creates significant environmental pressures. Of 1,234
water pollution incidents from farming in 2002, 597—or 48%—arose
from the dairy sector. Of the most serious and significant farm
pollution incidents, 59% came from dairy farms. Most of these
arise during storage, handling and spreading of slurry and manure.
Continued failure by the dairy sector to manage these problems
will put the UK's environmental commitments at risk, particularly
Water Framework Directive and Bathing Water Directive targets.
15. Inclusion of dairy into the SFP and
the introduction of cross-compliance will go some way to managing
the environmental effects of the dairy industry. Opportunities
for providing support to small specialist dairy enterprises through
the National Envelope option or through the Rural Development
Regulation should be explored.
Introducing National Envelopes
16. The National Envelope proposal provides
a valuable instrument to manage the potential adverse environmental
and economic effects of decoupling, particularly given the very
limited expansion of the Rural Development budget. The Curry Commission
recommended the use of National Envelopes to encourage "environmentally
desirable behaviour", and the UK Government argued strongly
for this during the MTR negotiations. However, the effects of
introducing National Envelopes are difficult to forecast. They
should, therefore, be designed to respond quickly and flexibly.
This reinforces the need for monitoring, so that problems can
be detected as early as possible, and counter measures put in
place.
17. Concern has been expressed that National
Envelopes will be a very blunt tool to address environmental management
and that there is a risk that they will be used to reduce the
need for an expanded Rural Development budget. Whilst it is undesirable
for the envelopes to be used to top up established RDR schemes
or to replace match funding, there are strong reasons to use them
to fund something new. The simplest use of National Envelopes
would be to raise practices across the board via capital grants
to improve infrastructure (eg for storing and handling farmyard
manure, slurry and silage), with payments to reduce intensification
and fund advisory services. This has the merit of helping to prepare
the industry as a whole for new regulatory responsibilities such
as the Water Framework Directive and aiding compliance with Annex
III, as well as the obvious environmental benefits.
18. A CAP budget of approximately £3
billion could generate up to £300 million/year for National
Envelopes. New research by the Agency and English Nature[6]
calculates that the total costs of implementing a grant aid package
to finance soil/nutrient management plans, requiring all farmers
(in England & Wales) to adopt basic good practice and comply
with existing regulations, is £140 million. Given the environmental
costs of agriculture discussed in paragraph 6, this appears to
be excellent value for money. The cost for implementing slightly
more onerous measures (going beyond basic good practice) outside
of priority catchments is estimated at £156 million. Planning
for and funding higher cost measures in priority areas is estimated
to cost £80 million over five years. National Envelope budgets
clearly have great potential to help deliver solutions to key
environmental problems which the Government is committed to dealing
with.
Cross compliance
19. A key element of the Agency's vision
for agriculture is that payments to farmers under the CAP are
dependent on achievement and maintenance of environmental standards,
as envisaged by the Curry report. In addition, environmental planning
should be a standard part of farm business management. Cross compliance
should demonstrate this baseline of performance. It presents opportunities
to improve soil quality, reduce erosion and compaction, and reduce
the impact of silt on freshwater biodiversity and fisheries.
20. Better environmental performance from
the majority of farmers will be needed to deliver the objectives
of the Water Framework Directive and reduce the risk of infraction
under existing water quality directives, including prevention
of diffuse pollution from agriculture. In principle, therefore,
a more demanding definition of cross-compliance is needed to raise
standards. In practice, however, there are limitations to what
can be achieved by the time cross-compliance is adopted in January
2005. Whilst there is no question that the standards required
by Annex III should be adopted in full immediately, the Agency
recommends a different approach to introduction of Annex IV, Good
Agricultural and Environmental Condition (GAEC).
21. If they are to demonstrate that they
are complying with GAEC, many farmers will need increased knowledge
and skills, particularly for soil management and planning. Capital
grants may be required to tackle poor farm infrastructure. Many
will need to access specialist advice, currently limited. Meanwhile,
those that fail to meet cross compliance standards stand to lose
a significant part of their farm payment. In practice, therefore,
January 2005 is too soon for a demanding definition to be adopted.
22. The Agency recommends that GAEC is introduced
in phases. In the first phase (2005), key texts on good farming
practice should be distributed and a self-assessment undertaken.
In Phase 2 (2006) farmers should complete a Soil Action Plan,
identify high-risk areas (eg pigs, maize or potato production)
and comply with national prescriptions. In Phase 3 farmers implement
their Soil Action Plans (2007). Assistance to understand soil
management should be given through National Envelopes, advice
provision and take up of the soil management options in the Entry
Level Scheme. Wherever possible grazing and landscape provisions
already existing in the England definition of Good Farming Practice
should be retained (and improved).
23. Failure to adopt a staged approach to
GAEC will either mean that a simple definition is adopted that
provides an inadequate standard of environmental protection, or
a prematurely challenging definition that will deprive the majority
of inspected farmers of part of their Single Farm Payment. The
Agency believes that neither of these is an acceptable option.
Although administratively more complicated than the other two
options, the phased approach would greatly increase the likelihood
of effective implementation.
24. Effective implementation of cross compliance
also relies on the presence of an effective, accredited Farm Advisory
System (FAS). In the first instance farmers will have to absorb
a great deal of information regarding the new expectations of
them, and the FAS should be used to communicate these messages.
The FAS will help deliver the Curry Commission recommendation
of a whole farm approach to regulation and flexible management
of environmental risks.
25. Unfortunately the Horizontal Regulation
discourages Member States from setting robust standards, primarily
because receipts from penalties are returned to the EU rather
than retained by the Member State in question and reinvested in
the industry to try to improve standards. The Government should
seek to influence the implementing Regulations and future CAP
reforms to try to address this problem.
26. We are strongly of the opinion that
there are substantial advantages in the Agency maintaining a lead
role in the inspection and enforcement of the resource protection
parts of both Annex III and Annex IV. Specialist agencies undertaking
inspections with the Rural Payments Agency (RPA) providing an
overall co-ordination role seems to offer the most cost-effective
and targeted approach to cross-compliance, offering transparency
to the farming industry and real environmental gain. The alternative
of the RPA undertaking compliance checks offers simplicity but
makes a risk-based approach relevant to all Directives and GAEC
impossible. The Agency estimates that cross-compliance will increase
the cost of its existing (legally required) visits by only 25%.
This compares well with the cost of undertaking additional independent
inspections.
Modulation
27. The agreement reached in Luxembourg
in June will result in compulsory modulation—but not a rate
sufficient to deliver the vision set out by the Curry Commission.
The Agency believes that the UK must continue to push this issue
in the build up to CAP reform for 2006+ and in the meantime maximise
additional national modulation. This will generate the resources
necessary for delivery of the Entry Level Scheme and higher tier
schemes, and set the tone for further debate on CAP reform.
IMPACTS ON
THE AGRICULTURAL
SECTOR, PARTICULARLY
IN RELATION
TO APPROACHES
TAKEN IN
OTHER MEMBER
STATES
28. A number of studies have been produced
on the potential impacts of the Mid Term Review on the agriculture
sector. By their very nature these are based on many assumptions
and unknowns, but what is clear is that there will be winners
as well as losers. Reducing payments to an individual farm will
require adjustment on the part of the manager, and will be unpopular
with those affected. At the same time however, payments to more
extensive producers will be increased and should help those producers
to continue to compete while remaining in a production system
which is more sympathetic to the Government's objectives and society's
aspirations.
29. Priorities and environmental issues
are clearly different across the EU, and implementation of the
CAP package will reflect that. In the UK, a historically low allocation
of Rural Development funding means that there is a need to find
environmental solutions elsewhere in the package. Whilst we can
learn from implementation in other Member States, the Agency believes
it is important that the MTR package is used to its full potential
to deliver sustainable agriculture here in the UK.
30. We believe policy decisions should be
based on a strategic assessment of the long-term implications
of the payment system and not solely on shorter-term considerations
such as payment redistribution impacts and set-up costs. It is
also critical to ensure that farmers who face a change in Pillar
I income receive support through targeted advice, access to National
Envelope money for systems which are important for the environment,
and continued development of the Rural Development Programme.
PROGRESS IN
IMPLEMENTING THE
PROPOSALS MADE
BY THE
CURRY COMMISSION
AND INTEGRATION
WITH WIDER
CAP REFORM
31. There are a number of key recommendations
made by the Curry Commission and reflected in the Strategy for
Sustainable Farming & Food that could be significantly progressed
through the pragmatic but positive implementation of the MTR package.
This paper has already outlined a number of those proposals. However,
given the current state of flux in policy developments, it is
difficult to predict the overall impacts. This underlines the
need for monitoring, which will be critical in informing future
policy debates. A summary of the impact of CAP reform on the environmental
aspects of the Curry Report is given in Annex I.
CONCLUSIONS
32. The MTR package represents a crucial
opportunity to reset priorities for the countryside. However,
the benefits will only be seen if the UK makes full use of the
instruments offered in the package. Failure to act now will seriously
prejudice the ability of the UK to meet forthcoming environmental
obligations such as the Water Framework Directive. In the medium
and long term the package appears to be broadly positive for the
environment, particularly the introduction of compulsory modulation
and more rigorous cross-compliance. The short-term implications
are less obvious.
The Environment Agency
December 2003
5 Environment Agency (2002) Agriculture and natural
resources: benefits, costs and potential solutions. Back
6
Withers P, Royle S, Tucker M, Watson B, Scott T, Silcock P, Smith
G & Dwyer J (2003) Field development of grant aid proposals
for the control of diffuse agricultural pollution. R&D Technical
Report P2-261/09/TR. Back
| 
