House of Commons - The Common Agricultural Policy after 2013 - Environment, Food and Rural Affairs Committee

The Common Agricultural Policy after 2013 - Environment, Food and Rural Affairs Committee Contents

8 The balance of funding between direct payments and payments for environmental public goods

136. The balance of funding between direct payments linked to cross-compliance and targeted payments in return for additional public goods is one of the key debates at the heart of this round of CAP reform. The Commission's Communication indicates a desire to allocate more of the money to 'public goods', in particular, measures to protect and enhance the environment, tackle climate change and improve the sustainability of the food supply chain. Commissioner Ciolo? described this as improving the environmental performance of the CAP, or 'greening', saying:

With the greening, we propose that our farmers do more, in terms of the management of natural resources, the quality and fertility of soil, and biodiversity, and we will use part of direct payments as an incentive in order to do more production of public goods.[221]

137. The majority of our evidence supported a greater focus on sustainability and the environmental performance of agriculture, but there was no consensus on the level of budget transfers or how any greening should be carried out. This section will consider the evidence for and against greening of the CAP and the subsequent section will consider the range of suggested options for implementation.

Does the CAP need to be greener?

138. The European Parliament's Resolution of 8 July 2010 on the future of the Common Agricultural Policy after 2013 and the Pack Inquiry into Future Support for Agriculture in Scotland echoed the Commission's desire to place greater emphasis on sustainable farming in the reformed CAP.[222] The Agriculture and Fisheries Council also "endorses the concept of further greening the CAP towards 2020".[223]

139. The RSPB emphasised the importance of "a re-focussing of support towards environmental and climate change objectives".[224]The CPRE similarly called for "a more comprehensive Pillar 2 with a greatly increased level of funding" to provide environmental public goods on a large scale.[225] The Rural Economy Land Use Programme (RELU) argued that the budget for Pillar 2 needed to be radically increased.[226]Professor Swinbank also advocated an increased spend on environmental schemes in Pillar 2 as part of the phasing-out of Pillar 1.[227] Recent studies have estimated that there is a shortfall in spending on environmental measures in the UK compared to the cost of providing a desirable level of environmental benefits.[228]The CLA pointed out that food prices were likely to rise in future meaning that farmers would need to be paid more to compensate them for taking part in agri-environment schemes.[229]

140. Unsurprisingly, farming groups expressed more reservations about 'greening' the CAP than environmental groups. The TFA were concerned that the Commission's proposals could have adverse effects on food security and said "with the extent of cross compliance conditions imposed on farmers within the UK context that there is no scope for further greening of Pillar 1".[230]The CLA supported a moderate shift towards better and clearer public goods provision, while warning of "a very real danger that we could overload our producers, impeding their economic competitiveness and thus sustainability".[231] The NFU agreed with the past trend to enhance support for public goods, while expressing concern that "in driving farmers into more environmental conditionality, the proposals could undermine agricultural productivity".[232]

141. However, we heard that targeting more of the available funding on sustainability does not have to come at the cost of competitiveness or food production. Several witnesses described potential 'win-wins'. The AHDB said the majority of evidence suggested that farms that were more efficiently run in terms of energy use would produce fewer greenhouse gas emissions as well as being more economically competitive.[233]'Precision farming', for example the use of sensors on tractors to determine exactly where fertiliser is needed, has the potential to deliver productivity and sustainability through reducing inputs. However, these high technology solutions are expensive. Reduced availability of chemical pesticides as a consequence of the shift from risk-based to hazard-based assessment is also likely to require the development and implementation of new pest-control techniques.[234]

142. For the UK, protecting our capacity to produce food is an essential part of our future food security. Similarly, the Foresight Global Food and Farming Futures project concluded that addressing the sustainability of food production globally was urgently needed in order to meet future food supply challenges. Therefore, while we recognise the concerns of farming groups that 'greening' might reduce their competitiveness or ability to produce food, we believe that this should not discourage the Commission. The reformed CAP should encourage farmers to produce more while having less impact on the environment (sustainable intensification) as this is in the long-term interest of EU farmers and EU citizens. Investment is needed to encourage the sort of transformational changes required and there is a clear role for the CAP in providing this.

143. We agree that the CAP post-2013 should target more of the available funding on incentivising sustainable farming. However, 'sustainable farming' should not be synonymous with simply 'not farming': it is essential that ways are found to farm more productively while minimising inputs and reducing negative impacts on the environment. We recommend that any 'greening' of the CAP should be directed at activities that promote sustainability alongside competitiveness.

The Commission's proposals to 'green' Pillar 1

144. While the Commission's intention to gently rebalance the CAP in favour of environmental benefits was broadly supported, we heard mixed views as to whether this 'greening' should be carried out in Pillar 1, or Pillar 2.

145. The Commission has suggested a "compulsory additional aid for specific 'greening' public goods through simple, generalised, annual and non-contractual agri-environmental actions based on the supplementary costs for carrying out these actions" in Pillar 1.[235] Suggested agri-environmental activities included crop rotation, ecological set-aside and maintaining permanent pasture. The Commissioner explained that the rationale for including these measures in Pillar 1 is that it would be mandatory for Member States to offer the measures resulting in a higher level of production of public goods than if the measures were voluntary.[236] The Commissioner suggested that these top-ups would have a value of up to one-third of the direct payment.[237]

146. 'Top-up' payments in Pillar 1 were also recommended by the European Parliament's Resolution on the Future of the CAP after 2013 and the Pack inquiry into Future Support for Agriculture in Scotland.[238] The European Parliament resolution said top-ups to Pillar 1 should explicitly reward farmers for reducing their greenhouse gas emissions or increasing carbon sequestration, while agri-environment activities should be paid for in Pillar 2.[239]

147. The alternative to the Commission's proposals is to transfer more of the overall budget into Pillar 2 in order to fund a greater deployment of the existing agri-environment schemes. Defra favour the option of greening the CAP through a greater focus on Pillar 2 agri-environment schemes while also phasing out direct payments in Pillar 1.[240] A draft report by Albert Dess MEP for the European Parliament also recommended that greening be carried out using the existing Pillar 2 measures. However, in contrast to Defra, Mr Dess suggested that the additional measures be entirely EU-financed and that they would be funded by reducing farmers' direct payments unless they implemented at least two agri-environment measures.[241] This proposal is being considered by the European Parliament Agriculture and Rural Development Committee.

148. The Commission's proposals to green Pillar 1 did not receive strong support from any of our witnesses. There is a general concern that the Commission's proposals will make the CAP more complicated to administer and would confuse the logic of the two Pillar structure (because agri-environment activities are currently in Pillar 2).[242] Some farming groups felt that compulsory agri-environmental measures in Pillar 1 risked reducing the competitiveness of farm businesses through adding burdensome regulations and undermining farmers' ability to make business decisions.[243]The TFA were also concerned they would have a negative effect on food production at a time when the prevailing messages are that EU agriculture will need to increase its food production capacity.[244]

149. The RSPB and CPRE felt that the Commission's proposals did not go far enough as too few measures were linked to environmental delivery and risked being merely a 'greenwash'.[245]Defra agreed with this position, stating that greening Pillar 1 is "is unlikely to deliver significantly greater or more ambitious environmental benefits" than the current programmes.[246]The NFU said "there can be no assumption that generalised measures will bring tangible environmental benefits".[247]The CLA were the most supportive of the Commission's ideas, arguing that "broad-brush environmental conditions that should apply to most farming" could move to Pillar 1 and "higher level and more regionally adapted environment schemes" remain in Pillar 2.[248]

150. Several witnesses also expressed concern about expanding Pillar 2, which is Defra's alternative to greening Pillar 1. The central issue appears to be the difficulty of achieving political support in Europe as expanding Pillar 2 would mean greater financial contributions from Member States (because Pillar 2 is co-financed). The CLA said:

The problem with shifting the policy to Pillar 2 [...] was that the opportunity was offered to the Member States with voluntary modulation, and all but the UK ignored it because they didn't want to put any additional money into matched funding, into the co-financing. So, whilst we might be in principle in favour of co-financed Pillar 2 measures, the political reality is that there isn't the money to do it.[249]

George Lyon MEP, speaking at the 2011 Oxford Farming Conference, agreed that Member States were more likely to embrace greening if it was entirely funded through Pillar 1.[250] Brian Pack warned that expanding Pillar 2 risked creating a "very uncommon market" because "new Member States cannot afford their share of the finance; therefore, they can't draw down the European money".[251]

151. Defra's ambition to rebalance the CAP budget in favour of Pillar 2 would have implications for the UK Exchequer because the UK will have to co-finance any increased EU spend on Pillar 2. If a large proportion of the current Pillar 1 budget were to be shifted in to Pillar 2, UK spending on agriculture and the environment would increase significantly compared to its current levels. When we questioned Defra on this, their response was "we shall be seeking to strike the right balance between a Pillar 2 budget which will deliver the required outcomes at best value for money and which will be affordable for the taxpayer".[252] We are not convinced that Defra has fully considered how their aim to shift most of the CAP budget into Pillar 2 is to be afforded.

152. Strengthening Pillar 2 is not necessarily consistent with the simplification agenda. The CLA and NFU argued that Pillar 2 environmental stewardship payments are more complicated and expensive to administer than direct payments. According to Defra, environmental stewardship schemes are cheaper to administer than direct payments: the cost of administering an environmental stewardship scheme payment in England is £700 per claimant while the cost of administering an SPS claim in England is £850 per claimant.[253] It should be borne in mind however that the cost per claimant of administering the SPS in Scotland is only £300.[254]

153. It appears that neither the Commission's proposals nor Defra's alternative offer a universally acceptable solution to greening the CAP. The decision between greening Pillar 1 and expanding agri-environment schemes in Pillar 2 must be made on the basis of which policy will be the most effective and simple to implement, tempered with a consideration of the political realities. The evidence that we received suggested a number of criteria against which proposals to green the CAP must be considered.

154. The proposed additional greening measures must deliver tangible benefits: they must be ambitious and challenging or else they risk losing credibility and accusations of 'green-wash'. Measures should focus on farming more sustainably, for example, using fewer inputs of chemicals, energy and water or helping biodiversity to co-exist with farming. 'Greening' through taking land out of production alone is not conducive to meeting future food supply challenges or reducing farmers' reliance on direct payments. A commitment from farmers to carry out measures over multiple years may deliver more environmental benefits than annual schemes.[255]

155. Uptake of the scheme should be common across all Member States, as much as possible. The current framework of Pillar 2 results in significant variation between Member States in the type of activities that are funded (Figure 3). This creates competitive distortion where some payments directly increase farmers' competitiveness (Axis 1) while others are broadly neutral or mildly deleterious (Axis 2).

156. One solution would be to make agri-environment measures compulsory. However this is likely to be perceived by farmers as just an extension of cross-compliance, which risks reducing farmers' engagement in the process and undermining voluntary efforts such as the Campaign for the Farmed Environment.[256] Providing farmers with incentives to implement agri-environmental measures would be preferable to more regulation. Reducing the level of direct payments is one way to make agri-environment schemes more attractive to farmers. The take-up of environmental stewardship in England (almost 70% of available land is in an agri-environment scheme) suggests this approach could be successful.[257]

157. We suggest there is a strong case for full EU-funding of additional EU-wide greening measures, not Member State co-financing. Co-financing is advantageous in that it encourages financial discipline on the part of Member States.[258] However, as co-financing is a direct cost to Member States they are naturally less willing to take-up these measures.[259] EU-financing of EU-wide agri-environment measures would break the negative associations with Pillar 2 agri-environmental schemes, thus increasing take-up. There would be budgetary implications of this change as Member States would be required to increase their EU contributions (while national contributions would fall). Reducing the level of direct payments would counteract this to some extent however fuller analysis can only be made in light of the entire post-2013 EU budget.

158. Any new greening proposals must be compatible with the UK's current agri-environment programmes so that UK farmers that have already joined these programmes are not penalised.[260] Additional green measures should not generate undue administrative burdens, for farmers or governments. The CLA's proposals for multi-annual, outcome-based contracts might offer a way to do this.[261]

159. The Commission's proposals to green Pillar 1 through compulsory additional annual agri-environmental activities have failed to win support from UK interested parties. Defra should not support the Commission's current proposals for greening Pillar 1 as they risk reducing the competitiveness of UK farming and increasing the complexity of the CAP while not delivering an improved environmental performance.

160. We recommend that additional greening measures bear many of the characteristics of Pillar 2 agri-environment schemes, namely voluntary for farmers, incentives rather than regulation, and multi-annual. The design of the additional measures is crucial to the success of the scheme and the guiding principle must be to mainstream sustainability into successful, competitive agriculture. We believe that EU-wide buy-in is more likely if these additional greening measures are entirely EU-financed. Funding them from the existing Pillar 1 budget is one way to maintain budgetary discipline while incentivising farmers to implement the additional measures.

161. The European Parliament's draft report on the Commission's Communication was published after we had finished taking evidence,[262] and has not been agreed by the European Parliament Agriculture and Rural Development Committee. We have not examined it in detail, but their ideas for greening the CAP appear to chime with many of our recommendations above.

162. We encourage Defra to analyse the impact on the UK were the Commission to take forward the innovative ideas in the European Parliament Agriculture and Rural Development Committee's draft report for greening the CAP through EU-financed agri-environmental measures in Pillar 2, incentivised by reductions to farmers' direct payments if they do not adopt some of the measures.

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222 European Parliament resolution of 8 July 2010 on the future of the Common Agricultural Policy after 2013, TA(2010)0286), para 53;The Scottish Government, The Road Ahead for Scotland: Final Report of the inquiry into Future Support for Agriculture in Scotland, Chairman Brian Pack OBE, November 2010, p 66-68. Back

223 Council of the European Union, Presidency conclusions on the communication from the Commission: The CAP towards 2020: meeting the food, natural resources and territorial challenges of the future, p 3. Back

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228 For example the Land Use Policy Group (LUPG)'s study Estimating the scale of future environmental and land management for the UK (December 2009) examined the costs of farmers providing the desired environmental services in the UK. The conclusions of this research were that the costs were approximately three times greater than the current UK expenditure on delivering public goods through environment schemes, i.e. about £1.98bn compared to about £700m on agri-environment. The Lawton report, Making Space for Nature (September 2010) estimated the cost of establishing a 'coherent and resilient' network of biodiversity reserves as £600m to £1.1bn. Back

229 Q 78, Q 96. Farmers' payment for taking part in agri-environment schemes is based on the estimated 'income foregone' through carrying out the activity. For example, the income foregone through establishing a field margin would be the lost area that could be cropped. If food prices increase in future, due to rising demand, the income foregone will also increase. Back

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