Greening the Common Agricultural Policy

Written evidence submitted by the Department for Environment, Food and Rural Affairs (Defra) (GCAP 30)

Introduction

1. The EFRA Committee’s inquiry will allow consideration of the impact and effectiveness of the European Commission’s proposals to green Pillar 1 of the CAP and a welcome exploration of the scope for possible alternatives.

2. The Government is in favour of a greener CAP, with a greater proportion spent on public goods, including improved environmental outcomes such as supporting biodiversity and climate change mitigation. Agri-environment schemes within Pillar 2 are the best way to deliver meaningful environmental outcomes, as programmes can be tailored to local conditions and commit farmers to taking environmentally beneficial actions over a reasonable period of time. However, the Government is also willing to consider alternative approaches, provided that they deliver good value for money.

The Commission’s proposal

3. The Commission’s proposals for new rules on direct payments include a requirement for Single Payment Scheme recipients to observe (where applicable) three environmental practices, intended to be beneficial to climate change mitigation and the environment, in return for a payment financed from 30% of the national direct support ceiling. The specific practices are as follows:

· Crop diversification: at holding level arable land of more than 3 hectares must have at least three different crops. None of the crops should cover less than 5% and the main crop should not exceed 70% of the arable land.

· Permanent grassland: farmers must retain areas under permanent grassland (as declared in 2014).

· Ecological Focus Area (EFA): an area equivalent to at least 7% of a farmers’ eligible hectares (permanent grassland is excluded from the calculation) should be used for ecological purposes. Habitats and features that would be eligible to fulfil the EFA requirement may include: fallow land, terraces, landscape features, buffer strips, and areas afforested under pillar 2.

4. Participants in the proposed small farmers’ scheme are exempt and organic farmers will automatically receive the greening payment.

5. Those farmers fully or partially in Natura2000 will need to meet the greening measures, in as far as they are consistent with their Natura2000 management requirements.

Whether the proposal to green direct payments will generate significant environmental benefits

6. We welcome the Commission’s ambition to generate greater environmental outcomes in the CAP. However, as currently proposed the Commission’s measures are unlikely to deliver additional environmental benefits across the EU because, in attempting to make them applicable across all Member States, they are far too basic in their approach. Moreover, because they will have to be applied as annual measures on a non-contractual basis they will be less effective in ensuring targeted, long term, guaranteed environmental management of the farmland. Consequently, in our view, they fall short of delivering the level of environmental outcomes achieved by England’s current Entry Level Stewardship scheme which delivers a basic level of environmental outcomes across 70% of England’s agricultural area covering a range of objectives including climate change mitigation, water quality and biodiversity.

The Commission’s impact assessment

Benefits

7. The Commission’s impact assessment does not provide strong evidence for the environmental benefits of the proposed greening measures. There is evidence that EFAs could provide benefits in terms of biodiversity, soil quality and potentially lower carbon emissions. However, it is noted that these benefits will be dependent upon which features are included in EFAs. It is argued that there could be reduced carbon released from land by reducing ploughing up of permanent grassland, alongside benefits in biodiversity, soil quality, and so on. However, much of this is based on the premise that specific parcels of grassland would be maintained over a lengthy period of time, rather than that the overall quantity of grassland is kept constant over time. (It is not evident that the proposal would have that effect). Neither does the impact assessment tackle the issue of additionality, i.e. the extent to which permanent grassland would be managed differently to the way in which it would be managed without this policy change. No evidence is given to support the environmental benefits of crop diversification. Instead the impact assessment is still focused on the former proposal of crop rotation.

Costs

8. The Commission estimates the areas of UK farmland affected by greening measures to be relatively small. For example, they estimate 0.5% of potentially eligible area (PEA) would be forced to diversify and 1% to 2.3% of PEA would need to be set aside after accounting for already fallow land. There is estimated to be an opportunity cost of maintaining permanent pasture for 8% of PEA.

9. The costs per hectare of PEA of each greening measure are estimated to be 0.6euros for crop diversification, 4 to 10euros for EFA (for 5% and 10% EFA thresholds respectively) and 27euros for permanent pasture. It is important to note a few things in interpreting these results.

· First, this is the cost spread across all areas of eligible land, not the cost per hectare of land that needs to change to meet a specific requirement.

· Secondly, it is not clear what has been counted as separate crops e.g. whether spring and winter barley count as separate crops.

· Thirdly, the quantity of land involved in conversion to EFA (and therefore the costs) is based on the land required to meet the threshold minus land already left fallow. If more features were permitted to count as EFA, e.g. hedgerows, then a smaller area would face extra cost due to this measure and therefore cost per hectare of PEA would be lower.

· Fourthly, the cost estimates of permanent pasture are not comparable to those of the other measures. They reflect the opportunity cost of not being able to convert grassland to its next best uses, not actual costs faced.

· Fifthly, the burden of costs will vary amongst UK farmers. For example, the Commission highlight that highly specialised cropping farms are expected to be most affected by diversification and livestock farms are more likely to be affected by the permanent pasture requirement.

10. The Commission also estimates wider impacts on commodity prices through changes in crop production due to the crop diversification and EFA requirements. Livestock farms are highlighted as potentially facing higher input costs as the price of feed increases.

Our interim assessment

11. The lack of detailed eligibility conditions (to be agreed in implementing regulations and delegated acts) makes a definitive analysis difficult. However, our assessment suggests the following:

a) Crop Diversification

12. Introducing a variety of crops into production can have a number of positive environmental effects for example on soil quality and protection. It can also prevent the build up of crop-specific pests and weeds. Further, diversification can have benefits for both landscape character and biodiversity where there is a predominance of one or two crops. The precise benefits are highly dependent on which crops are adopted and how they are rotated. However, as the Commission itself recognises, the environmental and agronomic benefits of this measure are severely limited by the inability to specify the crop because of World Trade Organisation (WTO) constraints on direct support for production and by the inability to require rotation because of the practical difficulties of administering and enforcing this as an annual measure in Pillar I.

b) Retention of Permanent Grass

13. Protecting permanent grassland can have benefits for biodiversity, historic interest, landscape character, climate change mitigation and resource protection. The extent of the benefit realised by this greening option, however, would depend on how permanent grassland is defined and what management practices are permitted. The current definition of permanent pasture in the draft regulations does not distinguish between valuable permanent pasture which is rarely, if ever, cultivated or re-seeded and more likely to consist of semi natural vegetation and less valuable pasture which is periodically cultivated or re-seeded. [1] This undermines, if not negates, many of the potential benefits. A measure which sought to protect this higher value pasture and maintain it under management would benefit soil and resource protection, help store carbon and ensure the maintenance of a significant biodiversity resource.

14. Instead the Commission proposals add little by way of environmental outcomes to the provisions already present in the CAP regime. The Commission proposals essentially place the national requirement for Members States to ensure that the ratio of the land under permanent pasture at national level in relation to the total agricultural area should not fall below 10% (compared to the baseline year) at the farm level. However, without also distinguishing higher value pasture the measure is unlikely to provide additional environmental benefit.

15. The current CAP control on permanent grassland operates at a Member State level. This permits cultivation and re-seeding of grassland, and limited production of some forage crops. The Commission’s proposals imply that a restriction will apply at an individual farm level in 2014 and 2015. The precise nature and impact of the control is unclear, but the inference is that farmers may no longer be able to plough this grassland. Consequently some farmers are considering taking pre-emptive action in the short term to avoid the risk of possible restriction in the future. This threatens to damage old unploughed grassland that may have become an important carbon store as well as developing an environmental value. Although there are potential mechanisms in place such as the Environmental Impact Regulations (applying to semi-natural habitats only) that may limit some of this damage, there are concerns that damage will result as a consequence of giving notice of the proposals and the apparent selection of a future baseline. The Commission has indicated that it intends to roll forward the current cross-compliance rule on permanent pasture in order to mitigate this.

c) Ecological Focus Areas

16. This measure, depending on detail, could have benefits for biodiversity, resource protection, landscape character and greenhouse gas emissions. The extent of those benefits is critically dependent on the final percentage requirement for EFA, the targeting of the areas and the eligibility of different features as contribution for the EFA requirement. However, there would have to be sufficient Member State discretion allowed to ensure the measure could be applied in ways appropriate to specific national circumstances and environmental priorities. In such circumstances the potential environmental benefit of EFA could be significant.

d) Other Considerations

17. The 30% of Pillar 1 devoted to greening will vary in size between Member States depending on the size of their Pillar 1 allocations. The costs of implementing greening also vary considerably between Member States. In the UK this could mean a payment of around £50-60 per hectare (though this is a very rough estimate depending on assumptions about Pillar 1 allocations which are far from settled), considerably more than the £30 per hectare payment rate used for Entry Level Stewardship. However, the size of the greening payment does not reflect, nor attempt to reflect, either the cost to farmers of the greening requirements or the benefits to the public of greening.

18. WTO rules require that agri-environment schemes in the so-called Green Box (as current schemes such as Environmental Stewardship are) pay only for the income foregone by the land owner / manager, the additional costs incurred and the transaction costs. The implication of the Commission’s Impact Assessment is that they intend to get around this, by not declaring the greening payment as an agri-environment scheme but instead as an income support scheme. It remains to be seen if this is really credible. Declaring greening as an income support scheme also comes with rules to fit within the WTO Green Box – primarily, that the payment cannot be tied to production or factors of production. This therefore limits what greening, as envisaged by the Commission, can ask of farmers and achieve for the environment.

The impact of additional greening requirements on food production and the competitiveness of the agricultural industry;

19. A concern about the impact of greening on food production and competitiveness comes from the proposal that farms should have 7% of their agricultural area as an EFA. If this means simply increasing the amount of productive land out of production, this could decrease the amount of food produced by EU farms. This could then have the effect of increasing grain prices and also the price of livestock sector outputs through an increase in their feed costs. The EU’s net trade position might be expected to worsen due to lower production. For example, its exportable surplus in grain would be expected to diminish. Careful consideration therefore needs to be given to the proportion of land which should be managed as EFAs.

20. The degree to which EFAs will require productive land to be taken out of production will be a factor of the features which would be allowed to count towards the total. Additionally, the proportion of land which should be set aside as EFA could be mitigated by the type and extent of environmental management which should be undertaken on them. In short, the size of the EFA could be traded off against the amount of environmental management that takes place in it.

Consistency of the greening proposals with the CAP simplification agenda;

21. The CAP has become complex and cumbersome to administer, leading to significant costs to national governments and to farmers, who have to comply with complicated legal requirements. The UK is committed to the goal of a CAP that is significantly simpler overall for farmers, administrators and paying agencies and that can be operated more cheaply and more efficiently than the current regime.

22. The direct payments proposals are a great deal more complex than before and applicants will face greater risk of inadvertent errors resulting in significant financial penalties. In particular instead of the single top slice of direct payments allowable under article 68 at present the new single payment scheme would now have potentially four top slices (for small and young farmers, an optional payment for Areas of Natural Constraint (ANC) and greening).

23. The greening proposals themselves create further complexity and are likely to add additional administrative burden to farmers and paying agencies with little by way of offsetting environmental gains. The crop diversification proposal for example appears at odds with the simplification agenda for the customer. Enforcement of this provision could require validation that farms have arable land consisting of at least three crops none of which cover less than 5% of the arable land with the main one not exceeding 70% of the arable land. The scheme that preceded the Single Payment Scheme had 135 crop codes and the move to fewer codes under the Single Payment Scheme was a welcome simplification for customers which reduced the scope for audit criticism where they had entered the wrong land use code. At present a single land use code ‘OT1’ covers arable crops in England. Potentially additional codes might need to be reintroduced in order to differentiate between different crop types. Initial analysis suggests that approximately 71,000 claims contain at least some arable land and might have to use additional land use codes.

24. On permanent pasture the reference area would under the proposals be evaluated on a holding basis rather on a national basis, as at present. Arguably the existing national requirement to maintain the area of permanent grass, coupled with the Environmental Impact Assessment provisions already provide a more specific safeguard, especially for higher environmental value grassland that is not covered by statutory designations. These arrangements are well established, simpler to administer and have given rise to no particular concerns about the retention of permanent pasture.

25. The percentage based quantification of Ecological Focus Area will add complexity to claim processing. Even if there was simply a basic requirement to take a certain area of land out of production, with no specific management requirements, a certain amount of complexity would still arise from the need for accurate calculation of the eligible area.

How greening pillar 1 can be made coherent with agri-environment schemes,

26. There are a variety of ways in which greening could be made coherent with agri-environment schemes. Some have already been suggested as possibilities. For example receipt of greening in Pillar 1 could be made conditional on participation in entry-level type agri-environmental schemes (under Pillar 2). Alternatively some form of entry-level environment scheme membership in Pillar 2 could be considered sufficient condition for receipt of greening payments – effectively a derogation from the greening requirements. Or Member States could be given significantly greater flexibility to design stringent greening requirements that suit their own conditions and avoid unnecessary burdens of farms. However, none are without their disadvantages and will vary as to the additional environmental benefit they bring to the CAP, the potential legal constraints they face, and the value for money they represent.

27. The UK wants to be able to continue its ambitious agri-environment programme. We recognise that there is concern about how the greening of pillar would relate to agri-environment schemes. If greening measures similar to those proposed by the Commission are finally adopted, agri-environment schemes, and ELS in particular, will inevitably need adjustment in order to reflect the legislative baseline measures in Pillar 1 either under cross-compliance or through greening.

28. If that is the case we will want to ensure there is an appropriate and acceptable balance between the potential environmental benefit on the one hand and degree of delivery disruption on the other. It is too early to say how this would be done in practice but, while we need to comply with the regulations, we would want to ensure farmers, land-mangers and other stakeholders are properly involved and consulted and that we manage the negotiations and policy development in a way that ensures that agri-environment agreements holders continue to be paid for environmental land management measures they deliver over a number of years that go beyond the requirements of Pillar 1 and are not left worse off or penalised for having entered into agreements. We would seek to ensure that any adjustments that would absolutely have to be made to existing agreement would be made in a way that would not require farmers to take land out of production beyond the future requirements of cross-compliance and / or "greening" measures.

Recommendations for improving the greening proposals.

29. A CAP which delivers greater environmental outcomes through expenditure on public goods is best delivered through Pillar 2 where programmes can be targeted at local conditions, be both multi-annual and contractual, and offer better value for money. If additional environmental measures are to be included in Pillar 1 they must, at minimum, deliver meaningful environmental outcomes and provide a strong base for actions under Pillar 2.

30. The option of transfer of funds from Pillar 1 to Pillar 2 is not covered by the Committee’s questions. The Commission proposals now provide for up to 10% transfer from Pillar 1 to Pillar 2 alongside greening. Flexibility to move resources between pillars is potentially the most flexible mechanism available to Member States to maximise the environmental outcomes from the CAP and the one delivering both the most additionality and the least disruption to existing agreements.

31. With regard to improving the greening proposals themselves, the extent of additionality of any greening is a key consideration. Greening options with low or no additionality represent poor value for money and will make little contribution to the overall environmental outcomes of a reformed CAP. Options with high additionality would underpin and provide a baseline across the EU for more focused and targeted agri-environment schemes potentially providing greater ambition and scope for expansion of activity within Pillar 2.

32. We recognise that there is a difficult balance to strike between achieving the Commission’s laudable aims of enhancing environmental outcomes most effectively and adding too much administrative burden. However, we do not think the Commission’s greening proposals find the right balance between complexity and additional environmental outcomes.

33. Providing more flexibility for Member States to define land to be included in the Ecological Focus Area, and management practices appropriate in their countries; whilst removing those elements of the proposal which offer least for the environment (such as crop diversification), might offer some scope for redressing some of that balance.

November 2011


[1] Article 4 (h), COM(2011) 625/3

Prepared 30th November 2011