Greening the Common Agricultural Policy

Written evidence submitted by the Country Land and Business Association (CLA) (GCAP 05)

Summary

1. This reform is a rather unprincipled set of ad hoc actions to ‘legitimise’ the CAP. A great deal more work is required to improve them and make them workable. As with other membership organisations the CLA is busy explaining the proposals to members exploring what they mean and assembling ideas for improving them. The suggestions made here are preliminary ideas and not definitive. We are still discussing them inside the CLA and with partner organisations.

2. The reforms aim to redistribute and ‘green’ the Pillar 1 direct payments and to offer the possibility of giving further help to young farmers/new entrants, farmers in less favoured areas, small farmers as well as leaving some payment coupled.

3. There are four structural points with which we disagree:

a. the definition of agricultural activity is too narrow, it should include reference to environmental management especially as this is a centre point of the reform;

b. the restriction that those establishing new entitlements in 2014 must have activated at least one hectare in 2011 is unnecessary and unreasonable to those who had made arrangement to review land occupancy in 2012;

c. the proposed definition of active farmers is highly discriminatory and practically inoperable, it will exclude many businesses which have followed the advice to diversify their farming businesses exploiting their assets;

d. the payment cutting and capping proposal is wrong in principle, will have perverse economic effects, signalling farm enlargement is undesirable and reducing labour productivity, and it will introduce enormous complication for the sake of affecting relatively few applicants.

4. The proposals on mandatory greening threaten to completely disrupt the enormous efforts the UK has put into Pillar 2 agri-environment schemes. We suggest ways this could be overcome by building on Article 29.4 of the proposals which introduce the concept of "equivalence to Mandatory Greening. If organic farming is deemed to be equivalent, then why not well-constructed agri-environment schemes, and indeed other certified farming systems such as Integrated Farming (LEAF in the UK)?

5. These ideas require further thought and teasing out. We welcome the Select Committee’s contribution to these discussions.

General points on the CAP reform

6. The CLA represents 35,000 active rural land managers and rural businesses who occupy in total about half the rural land area of England and Wales. These proposals therefore have very great impact on the businesses of our members. We therefore follow the CAP reforms very closely, and are pleased to have this opportunity to provide written evidence to the EFRA Committee.

7. The Ciolos proposals cannot be described as a far-seeing and principled reform to the CAP. Indeed they can be described as an ad hoc series of compromise measures which seem to be as much to do with generating public relations signals about the CAP as really changing the realities on the ground. In fairness to the Commission, the context of this reform does not lend itself to a highly principled potentially long-lasting reform. The facts that: in contrast to the early 1990s and in 2003, now there is no agreement on the worst problems of the current CAP and at the same time Europe is in deep financial crisis; we have experienced two recent commodity market spikes; the consequential volatile farming incomes; combined with the enlargement of the EU to 27 Member States (MS), and co-decision with the European Parliament all conspire to make this a highly pragmatic rather than principled reform.

8. The Commission cannot be faulted for the breadth and length of the consultation they undertook last year before they produced their consultation document in November 2010. The most conclusive result of that consultation was that there was only the tiniest support for their Option 3 which has been styled as the UK/Swedish (government) option of abandoning Pillar 1 and concentrating the CAP on Pillar 2 measures. The problem is that the chosen middle-way, the so-called ‘Integration’ Option 2 was very broadly specified.

9. The actions of the European Parliament did not sharpen or narrow down the real debate or provide any radical new ideas. Whilst, the report of Albert Dess MEP in February 2011 bravely tried to marry the Commission’s Pillar 1 greening to the conventional wisdom that targeted environment schemes are best done in Pillar 2, it was not well articulated, so it was widely misunderstood, and consequently amended out of sight in the all-things-to-all-men report which finally emerged from the Parliament. This gave the Commission full scope to plough on with its own ideas.

10. The Commission proposals when they were published on 12th October 2011 were therefore no great surprise (beyond a number of small but significant details). Commissioner Ciolos is trying (in his own words) to "legitimise" the CAP by:

· Making it fairer, an aim which it is hard to disagree. However it proposes this by a (rather modest) redistribution of Pillar 1 funds – but worryingly they are silent on the equally needed distribution of Pillar 2 funds which is hugely important to the UK.

· Dealing with what he claims are, unjustified large payments to large businesses, and removing payments to inactive non-farmers. Unfortunately the proposals introduce a contradictory definition of agricultural activity, an unfair requirement to activate payments in 2011 to be eligible to establish the new entitlements in 2014, an unworkable definition of active farmer, and economically and structurally perverse proposals to cut and cap large payments.

· Trying to encourage "agricultural practices beneficial to the climate and environment". This phrase will no doubt acquire sacred status, it is clearly a good thing to do in seeking to establish more environmentally sustainable agriculture in Europe. Unfortunately the Commission insists that this be done in Pillar 1 through simple, mandatory, generalised, non-contractual, annual actions through three elements of Mandatory Greening. This is the core problem for which we tease out some suggested solutions in paragraphs 28 to 38 below.

The other main elements of the reform are:

· to try to encourage new entrants of youngish farmers (a laudable aim);

· to offer more help to farming in Areas of Natural Constraints [1] (another laudable aim. It’s a pity that the help offered is a crude top-up payment and not linked to improving productivity of either farming or delivery of other ecosystem services;

· to enable even more recoupling of support to production. This is a retrograde step moving away from market orientation; and

· to simplify payments to a large number of Europe’s very small, and therefore almost certainly, part-time farms. This too is a sensible thing to do, although it offers no little or incentive or assistance for farm enlargement or restructuring. Neither does it address the problem of the equally large number of semi-subsistence farmers in Europe who will get no help from the CAP because they fall beneath the increased minimum requirements - with which we do not disagree.

11. All this said, and subject to what happens to the proposals as they go through the negotiation mill of co-decision by Council and Parliament, the two big changes for which this reform might come to be remembered are:

· that the scale of the CAP resources explicitly devoted to environmental delivery, i.e. Greening, which is currently about €2.5 billion per annum [2] , and is proposed to grow six-fold to €15billion [3] ,

· That the bulk of this expansion is through compulsory measures introduced in Pillar 1.

Put this way it might be judged that this is quite a high risk reform, especially as it is being described as an attempt to legitimise the CAP.

12. Based on the CLA concept that the CAP is Europe’s policy for achieving Food and Environmental Security, the CLA supports the idea that a significant part of the CAP budget can be justified for the delivery of environmental public goods which can only be provided by farmers (defined widely). We also were prepared to accept the judgement that to move significantly more resources into Pillar 2 was simply not a politically feasible step to take, not least because of the additional national co-financing that would be required. Thus we were not and are not shocked by Greening Pillar 1.

13. However we have always felt that the right way to arrange the delivery of the environmental goods is through multi-annual, voluntary, targeted schemes more akin to Pillar 2 agri-environment schemes than through annual EU wide measures. The stewardship of the environment is a long term concern and needs careful tailoring to suit the agricultural practices as well as the ecology and climate of Europe’s incredibly varyied rural areas. We urged a less dogmatic approach to the Pillars, and that it was more important to get the delivery structures right. We now turn to the specific questions asked.

Q1 Will the proposal to green direct payments generate significant environmental benefits?

14. First it must be stated that it is truly extraordinary that in the Impact Assessment of these proposals there is, quite properly, a good deal of analysis of how the greening measures will interfere with farming and the consequential effects on farm income, but unforgivably, there is no attempt at all to assess if they will deliver any environmental benefit or to quantify it, especially in relation to the scale of resources proposed.

15. In member states where agri-environmental schemes are rudimentary and where cross compliance is not very demanding either, then provided they are actually implemented, the three Mandatory Greening actions do have the capacity to pull up base environmental standards somewhat over a large number of hectares. If the crop diversification restriction inhibits harmful cereal monocultures in water catchments which are rapidly depleting, as we understand happens in some parts of southern Europe, or if it limits damaging continuous cropping of forage maize in parts of the Continent as we understand is another target, then it may produce environmental benefit. Likewise if the maintenance of permanent pasture prevents in Central and Eastern Europe what happened to much semi-natural grassland in Western Europe in the last half century, that is going under the plough and in so doing emitting a large quantity of CO2 as well destroying biodiversity, then this could be hailed as an achievement worth having. Similarly if the Environmental Focus Areas mean that more ecosystems on farms survive and are better connected, then this too can provide environmental gain. The measures therefore do have some potential to provide environmental gain. However these examples do not apply to the UK situation.

16. The overall notion of Mandatory Greening (MG) is to produce small environmental gain over a large area of Europe’s agricultural land precisely by requiring all farmers to participate. This is intended to be a small further shift to more sustainable farming – an objective with which it is hard to disagree.

17. Another way of describing MG might be to suggest that the idea is to bring all Member States basic environmental management of farmland up to the standards of the best. Given that the UK considers itself to be at the high performing end of this spectrum amongst the EU27, then it is doubtful that MG itself will produce any noticeable enhancement here. A great deal depends on how MG, especially the maintenance of permanent grassland and the Ecological Focus Area are integrated with environmental stewardship. This is addressed in paragraphs 28 to 38 below.

Q2 What will be the impact of additional greening requirements on food production and the competitiveness of the agricultural industry?

18. The answer to this question depends to a great extent to the answers given to Question 4 below, on how the MG ties in with Environmental Stewardship schemes.

19. Farmer’s organisations will no doubt spell out in detail the situations where the crop rotation requirements will require costly changes in present farming practices and structures. Great uncertainty reigns until a ‘crop’ is defined. The main examples of potential difficulty drawn to our attention are block cropping and medium sized livestock holdings.

20. Block cropping in arable farming areas offers the possibility of cost-reducing, intelligent use of machinery amongst neighbouring farmers. This may mean that one participant (and claimant’s) farm is entirely one crop in any one year, infringing the suggested three crop rule. This practice may well be environmentally benign because normal good agronomic crop rotation is practiced. Therefore to insist that each farm has simultaneously three crops may offer no environmental gain yet significant cost.

21. Livestock farms (with more than three hectares of arable crops) which have been encouraged to practice mixed farming and therefore grow some feed grains for their own use may well only have two ‘crops’, e.g. feed wheat and temporary grass. They may well also have areas of permanent pasture. Are such farms really to be required to grow very small areas of a ‘third’ crop purely to satisfy crop diversification? Is there any evidence that the biodiversity, soil conditioning or landscape gains will outweigh the costs of this crop grown for the regulations rather than the market?

22. On the face of it the EFA proposals, if clumsily implemented, have most scope to interfere with farming profitability and competitiveness. Of course if a particular farm only has grade 1 and 2 agricultural land and is intelligently and intensively cultivating all of it with high value fruit and vegetable crops, to ask him to manage 7% of such land for EFAs might be a high-cost way of delivering environment service. It would be easy to show that if all the 7% EFA were to mean taking good food-producing land out of cultivation then this would result is a significant cost to farmers, fall in their competitiveness and fall in EU food output which would have to be made up by imports from zones where we have no idea what the environmental cost would be.

23. However in reality farmers will devote their worst, not best, land to EFA. It is a complete unknown how much each farm has. This is not knowable until:

a) we get further clarification of the precise definition of "land left fallow, terraces, landscape features, buffer strips and certain afforested areas",

b) there are clear decisions on whether the areas taken up by, for example such landscape features as hedgerows, copses, ditches, ponds, banks, grassy tracks, walls and so on, may be counted towards the 7%, and

c) we know how areas under the numerous options of the Stewardship schemes in England and Wales are to be treated, do they score as EFA or not?

24. If the answers to these questions are favourable to farming then the impact of EFA on the farming activity, output and costs may be small, particularly on farms already enrolled on Stewardship schemes. If on the other hand it is ruled that the areas in 23(b) are all outside the eligible hectares of the farm and don’t count, and if the answer to 23(c) is that EFA must be in addition to any such areas under agri-environment schemes then the impacts, particularly on net incomes, will be large.

Q3 Are the greening proposals consistent with the CAP simplification agenda?

25. There are some simplifications suggested in the whole package of five regulations proposed. There is some proposed simplification of cross compliance (by removing things which should have never been included in the first place). The small farmer scheme will be helpful in several of the new Member States with millions of such farmers. The suggested structure of the Rural Development Regulation includes some useful and welcome simplification. However the bulk of the proposals for the Direct Payments system are complications not simplifications.

26. In many ways it was always delusional to suggest that we could better target the Single Payment System to achieve environmental, social and distributional objectives, adding climate change and innovation to the list of things the CAP should assist, and expect this to be a simpler policy. If we set complex policy objectives and we want the measures to be effective across the astonishing heterogeneity of the European rural space, then it is a bit optimistic to suggest this can be achieved by simple measures. The proposals shift the Single Payment scheme into a nested array of six separate elements (Basic, Mandatory Greening, Young farmers, Areas of Natural Handicap, Coupled payments and small farmers). How could this possibly be simpler? The important thing with any policy is that it cost-effectively achieves legitimate stated objectives – as ever, the objectives of most of these six elements remain stunningly opaque.

27. We single out the definition of Active Farmer (AF) and operation of Payment Cutting and Capping (PCC) to be the greatest departures from rational policy – they will cause immense administrative work for affected farmers and for the Payment Agencies for the least policy benefit. Indeed they may result in environmental deterioration as land currently receiving payment is declared ineligible under the definition of AF, and perverse effects on farm restructuring and on labour productivity due to the PCC proposal.

Q4 How can greening pillar 1 be made coherent with agri-environment schemes, and our recommendations for improving the greening proposals.

28. It is early days in exploring what will be possible to adjust and adapt the Commission’s proposals . Having digested the proposals internally, organisations are only now beginning to talk to one another and with Defra and the Commission to explore how they can be made coherent with Pillar 2 agri-environment schemes. The ideas explained below are therefore exploratory and not definitive. We have not yet sufficiently discussed them with Members or other organisations.

29. We would start by suggesting the following three principles. Greening must be done in a way that (a) it does not impair agricultural competitiveness and productivity - indeed it should improve the long term productivity and sustainability of European Farming, (b) it should deliver noticeable environmental outcomes, and (c) it should be done in any way that does not impair or disincentivise the excellent work UK (or any other EU) farmers have already done in building-up some of the best agri-environment schemes in Europe. There are very real dangers that without such principles the Member States, and farmers within those States, who have already gone furthest to positively embrace the delivery of environmental public goods could be most disrupted by the greening proposals.

30. Simply adding three Mandatory Greening obligations and not working through the implications and integration with agri-environment schemes is not good enough. On the face of it the simplest adaptation of the existing regulation to deal with this integration would be to extend the concept of "equivalence to Mandatory Greening" which is embraced in Article 29.4. This says that "Farmers complying with the requirements of" the relevant EU recognised Organic Farming certification "shall be entitled ipso facto to the payment referred to in this chapter" (the Mandatory greening payment). If organic farming is considered to be equivalent to mandatory greening, then we see no reason not to make the same allowance for farmers enrolled in suitably defined agri-environment schemes. The same principle could also be applied to other well-defined and certified farming systems such as Integrated Farm Management as developed in the UK under the LEAF scheme.

31. Every Member State is already obliged to have agri-environment schemes in their Rural Development programmes. Indeed they should be devoting at least 25% of their Pillar 2 funds to such schemes. We acknowledge that not all such schemes may lend themselves to the concept of ‘equivalent to Mandatory Greening’, but where they do, to the satisfaction of the Commission, this should be deemed sufficient for farmers to satisfy the greening requirement.

32. To take an example, we have annexed a list of the 67 options in England’s Entry Level Stewardship scheme which currently has two-thirds of English farm land enrolled. We asked which of these options a reasonable observer would score as "agricultural practices beneficial to the climate and the environment’. Our suggested scoring is that all 67 actions satisfy this. These actions are all deemed by Defra, and approved by the Commission, to be beyond cross compliance. All farmers accepted into ELS must have accumulated sufficient such ‘agricultural practices’.

33. This approach has three immediate advantages: (a) it requires eligible farmers to take no further mandatory greening actions, (b) it requires no further new checks and controls for the administration beyond the existing normal checking already in place, and (c) rewards rather than penalises those who are already doing the right thing as we require all other farmers to raise their environmental standards.

34. The intention would be that farmers essentially have the choice of satisfying Greening either by adopting the three Mandatory Greening actions, or by ‘ticking’ the I’m in an equivalent agri-environment scheme’ box. We recognise that there are at least two sets of practical and legal issue to clarify even if this proposal is accepted in principle. The first is to square the mix of annual non-contractual mandatory greening and the multi-annual contractual agri-environment agreements. The second is what payments may be made for this greening.

35. This needs a great deal more thought and discussion. It will, no doubt, be argued by some that farmers using the agri-environment equivalence route cannot seem to be paid twice for their greening actions, once from the greening element of the new Direct Payment scheme and then their Pillar 2 agri-environmental payment. We ask, why not? This is the status quo. Also it is far from clear what is the payment for the Pillar 1 Mandatory Greening. The Commission has gone to great lengths to explain that the concept is not that the Greening is done for 30% of the payment. The penalty for not greening depends on the size of the non-compliance from something very small to much more than 30%. Also the Commission proposal allows Organic producers to receive all the Direct Payment, and also any relevant Pillar 2 agri-environment payments (such as the double weighted Organic Entry Level Stewardship payment in England). We acknowledge that the appropriate P2 payment rates might be discussed.

36. These issues will be debated. Continuing with the example of England’s Entry Level Stewardship Scheme (ELS), three options seem possible.

i. All ELS counts as equivalent to all MG and all ELS payments continue.  (i.e. the organic farming-like option).

ii. All ELS counts as equiv to all MG but then no payment can be made for ELS.

iii. Then there are an infinite number of intermediate options where some ELS option score for some MG requirements and some ELS payment can continue. It might be possible to identify some ELS options which are deemed to be resource protection and equivalent to MG, leaving the other options in the Pillar 2 Stewardship scheme and paid for there.

37. These ideas are offered as an early contribution to how to resolve the obvious conflict between Mandatory Greening in pillar 1 and existing Pillar 2 environmental Stewardship schemes. Because each Member State has gone about their approach to agri-environment in different ways, it is too early to say how practical the above ideas are for other Member States. Indeed we have not even explored how they fit the new Glastir Scheme in Wales.

38. It quickly becomes evident that another principle has to be debated. Does it matter if different territories implement the Greening in different ways? The Commission’s approach is to try to define ‘simple and common ways to be applied across all the regions and territories. Yet this is immediately criticised as being clumsy and unsuited to many farming systems and structures. It needs better targeting. If we then explore the possibility of each Member State or region defining its own alternative to Mandatory Greening the criticism will be that some farmers are apparently having to do more environmental work for their Greening payments than others. Can simple common measures really work across the huge variety of climate, soils, farming systems, farming structures and societal demands found in the EU?

November 2011