Greening the Common Agricultural Policy

Written evidence submitted by the National Farmers’ Union (NFU) (GCAP 08)

Examination of EU proposals to "green" the Common Agricultural Policy

1. The NFU represents 55,000 farm businesses in England and Wales. In addition we have 41,000 countryside members with an interest in farming and the countryside.

Introduction

2. The NFU welcomes the opportunity to submit written evidence to the Efra select committee’s inquiry into the proposed "greening" of the Common Agricultural Policy (CAP). The NFU is currently consulting its membership on the Commission’s proposals to reform the CAP and therefore this evidence is provided on the basis of initial reactions and early assessment of those proposals.

3. The Commission’s proposals lack the necessary detail in order to carry out a full assessment of the implications of "greening" direct payments. Nevertheless, the NFU is extremely concerned that as drafted the greening requirements may lead to perverse outcomes and may undermine existing efforts to improve the natural environment via pillar 2. In addition, the measures proposed reduce the scope for market orientation of agriculture and will place limitations on production [1] . This could undermine farming competitiveness, increase reliance on support payments and create additional bureaucracy.

4. The NFU is also concerned about the approach that might be taken by the UK government towards the Commission’s proposals. For this reason, as well as responding to the Committee’s specific questions, this response also examines certain issues concerning the UK government’s position on greening.

Specific Questions posed:

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

5. The Commission’s proposal for mandatory greening actions is likely to lead to more land being managed under specific environmental conditions across the EU. However we fear that the mandatory nature of the proposals will undermine existing voluntary efforts to improve the environment via agri-environment schemes as well as set-back the goodwill that has been established in the industry over the past 20 years with regards to the environment.

6. British Agriculture’s environmental awareness and its performance has improved greatly in the past 20 years. [2]

a. Fertiliser use has changed significantly since the 1980s. Nitrogen application rates in England and Wales have fallen by over 30% from 1987 to 102kg/ha in 2010. This helps reduce nitrous oxide emissions a nd a cross British farmland , phosphate use was 19 kg/ha in 2010 – a 52% reduction since records began in 1983 [3] .

b. Pesticide usage has been declining since 1990, despite a larger area being treated each year [4] .

c. Ammonia emissions fell by 22% between 1990 and 2009 to 288,000 tonnes. [5]

d. These improvements are in part are a result of changes of industry practice, use of precision farming techniques as well as the sustainable intensification of the agriculture.

7. In England, some 68% of UAA is covered by an agri-environment measure and a further 192,000ha of land is managed voluntarily for the environment. There is a very real danger that English farmers who have been willing partners in improving the environment will be placed at a competitive disadvantage if they are asked to do more on top of existing commitments for the environment. The objective of greening the CAP must be to bring all farmers in the EU up to the same level as the better performing countries. It should not compel those farmers who have already made significant efforts for the environment, to do more.

8. The Commission’s impact assessment considers alternative policy options as per the Commission’s original Communication document on CAP Reform (from November 2010). As such, it fails to model or quantify the environmental benefits of the proposals for greening pillar 1 based on the legislative texts published in October 2011. Instead, it refers simply to the greening measures bringing "considerable environmental benefits." Critically, it also fails to compare the effectiveness of the relatively blunt greening measures with the targeted approach of agri-environment measures through the second pillar.

9. The NFU believes that all policy making should be supported by a credible evidence base. Although we appreciate that the assessment of greening is very challenging, it is a major drawback that the accompanying impact assessments include little information on the potential enhancements to environmental performance as a result of greening.

What is the impact of additional greening requirements on food production and the competitiveness of the agricultural industry?

10. The NFU believes that the greening measures put forward by the Commission will reduce food production and will reduce the competitiveness of the agricultural industry.

Total Factor Productivity

11. Total Factor Productivity (TFP) growth in UK agriculture (i.e. total output not caused by inputs) is stagnating [6] .  Prior to 1984 TFP grew at 1.68% per annum and after that date at only 0.26%.   International comparisons show that the UK has fallen far behind the leading EU countries with yield growth declining even more.  Thirtle et al., go on to state that "in part, the result is due to better data that incorporates more quality adjustment, but the real decline can be explained mainly by cuts in R&D, less patents, less growth in farm size and the demise of public extension". This situation continues to date, as illustrated in recent Defra and USDA statistics below [7]

12. If we look closer at yield itself, from the end of the Second World War yields were progressively increased for all crops through successive advances in plant breeding and crop protection.  This trend ended in the 1990’s when improvement increases declined [8] .  UK wheat yields have now been static for the last 15+ years. [9]

Impact on agricultural incomes

13. The Commission’s Impact Assessment shows that the cost of greening for the EU as a whole would range € 33 to € 41/ha of eligible farmland. It concludes that farm incomes per agricultural worker will fall for all sectors across a range of policy options modelled as a result of the greening measures . However, i t fails to quantify what the impacts would be on farm incomes arising from the specific pr oposals in the draft regulation.

14. T aking the scenarios which are presented by the Commission in the impact assessment, the largest negative impact on income per farm worker is attributed to sectors reliant on feeding grains to animals (i.e. the pigs & poultry sectors). The Impact Assessment concludes that farm incomes in the pig and poultry sector would fall by up to 25%, with the least damaging policy scenario presented being a fall of 10%. Dairy farmers would also face significant reductions in income per farm worker, with declines of around 5%. These negative impacts are as a result of increases in fodder prices. [10] According to the Commission’s impact assessment EU wheat and sugar beet prices may increase by 3% and barley prices by 12%.

15. The Agriculture and Horticulture Development Board (AHDB) has presented a paper on the impacts of CAP Greening proposals on the agricultural sector. [11] The report concludes that "The legislative measures, if implemented in the way they are currently set out, would seem to potentially have a large negative impact on UK combinable cropping farm-level profitability and production decisions."

AHDB conclusions

16. Implementation of 7% EFA would have a significant effect on current average gross margins of many combinable cropping farms in the UK

17. Considering crop diversification and making the assumption that temporary grassland is not included as part of the requirements, two of the three diversification criteria – the need to restrict main crop production to 70% of the productive area and the need to produce at least three crops - will affect the rotational choice of a significant percentage of combinable cropping farm groups in GB. The need to dedicate 5% of land to a third crop is seen to be less significant because those farms producing three crops generally meet this requirement easily. The lowest percentages of combinable cropping farms affected appear to be in the most productive areas of GB, although the percentages involved are still significant. Also, the rotation criteria may have a disproportionately large impact on production of specialist crops that dominate in certain regions (e.g. spring barley in North Scotland).

18. The final potential requirements for temporary and permanent grassland could have important effects on mixed livestock and arable farms, although more detail is needed before this can be quantified. Key issues to consider are whether temporary grassland is included in the rotation requirements and whether it will be possible to rotate grassland classifications where long rotation periods exist. The potential impacts could be significant for farm practice and diversity of cropping in predominantly grassland areas

19. The findings of the AHDB report leads us to query some of the results included in the Commission’s impact assessment. In particular, the IA suggests that only 51% of farms in the UK would face costs as a result of greening. The AHDB research suggests that the impact would be more far reaching than this, with ecological focus areas at the very least influencing decisions o   f the 104,000 farm business with cropping land [12] in the UK .

20. A report carried out by the International Centre for Trade and Sustainable Development (ICSTD) by Professor Alan Matthews [13] concludes that on balance the Commission’s proposals will reduce EU production capacity, at least in arable crops relative to the status quo. It finds that the implementation of greening measures will increase the costs of farming in the EU either directly or indirectly. The measures will reduce supply and increase market prices. It does note that in the longer-term, there may be a positive feedback from more sustainable agricultural practices in terms of higher yield, but the likely importance of this positive feedback is hard to quantify. The ICSTD puts the cost of greening at approximately €5billion, an amount broadly equivalent to an increase in input costs on average by over 2%.

21. Clearly, a stronger emphasis on competitiveness intended by CAP proposals is at odds with the reduced profitability that farm businesses can expect from greening. Higher costs of production and reduced output will also impact on the rest of the supply chain. This is vital. For every extra £1 that farmers add to the economy, food manufacturers add £3.60 and wholesalers another £1.40. This impact indicates that a fall in the profitability of farming will be felt by others in the supply chain and also the wider economy.

How consistent are the greening proposals with the CAP simplification agenda?

22. The Commission’s proposals will lead to an increase in bureaucracy for farmers and competent authorities. The Commission’s proposals are silent on how the measures would be implemented and administered , but i t is likely that farmers will have to record crop codes and record minimum and maximum areas under the crop diversification requirement I t is unclear whether they would have to submit this information to the competent authority . Similarly there is a fear that there may need to be a re-mapping exercise to administer the ecological focus areas.

23. The greening requirements may see the proliferation of artificial land swap agreements as happened with "fruit and vegetable" entitlements in the early years of the current Single Payment Scheme. This will result in additional administration by the RPA and will come out at significant financial cost to farmers through legal fees to make such arrangements.

24. The NFU advocate s a light touch approach to administration. Farmers should be able to apply for the additional payment for greening at the same time as their main aid application. They should not have to declare precisely on their aid application the conditions or locations that apply under the ecological focus area requirement or crop diversification measure. Verification of compliance should form part of the standard cross compliance checks and controls.

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

25. At present, the drafting of the proposed "greening measures" appears to mean that these measures are largely focused on retention as opposed to additional active management requirements.  The NFU is concerned that Defra under pressure from the environmental bodies will seek to "gold plate" the greening measures in order to enhance their environmental benefits. At the same time this would be an attractive proposition for Treasury so as to reduce national co-financing requirements if actions currently financed through the RDPE were made compulsory in pillar 1.  If the UK government is successful, either at European or an English level, in enhancing the environmental outcome of greening in pillar 1, then the likelihood is that we will see those requirements encroach on existing agri-environment schemes such as the ELS and create overlap. The greater the overlap, the greater the potential negative impact on agreement holders and the need for rewriting of agreements to avoid double funding or face significant additional areas of land taken out of production.  Those who have embraced the Campaign for the Farmed Environment (CFE) and have been encouraged to put substantial areas of land into key target ELS options would be particularly disadvantaged. The risk is that English farmers will be required to "pay twice" for the environment and be placed at a competitive disadvantage. Should the goalposts change as a result of the Commission’s plans to introduce "greening" it is imperative that farmers within existing agri-environment schemes are treated fairly and have the ability to withdraw from the scheme without penalties, or requirement to pay back money.

Position of UK government on greening

26. The UK government has yet to take a clear and detailed position on the Commission’s proposals and at times its position has appeared to be both ambiguous and contradictory. The government appears to share the NFU’s concern about the potential negative impact of proposals on agri-environmental programmes and has argued that it does not want to disadvantage UK farmers. Nevertheless, the NFU is concerned that the government’s position at this stage could lead it to negotiate an outcome to the reform package that is counter-productive to the competitiveness of UK, especially English, agriculture. Our fears are based on two key elements.

Pillar 2 funding and modulation

27. Both the UK government and the NFU believe that the next multi-annual financial framework for the EU (MFF) must allocate a fairer share of core EU rural development funding to the UK. We see this as part of the need to see a more equitable distribution of the budget and to ensure that voluntary national modulation can be eliminated. The UK government appears to want to retain voluntary modulation in order to provide additional funding to extend agri-environment schemes after 2013, despite the additional greening of direct payments. The NFU believes this approach would leave English/ UK farmers at a competitive disadvantage to our neighbours who would choose not to apply such modulation. Indeed, the Commission has proposed that those member states who currently receive less than 90% of the EU average payment (including the UK) should be able to move money from pillar 2 to the direct payments envelope.

Making greening meaningful

28. The government has suggested in the Council of Ministers that it does not see the Commission’s proposals as ‘meaningful’. It is not clear what the government is arguing for. Is this a restatement of its position favouring more resources being shifted to Pillar 2 to support agri-environment schemes or a desire to see the greening measures proposed significantly enhanced? If it is the former, then UK government runs the risk of being marginalised within Council where few member states are convinced of the merits of extending pillar 2. This reinforces a risk that the government would choose to discriminate against its own farmers by applying modulation purely at a national level to support its ideological fixation with Pillar 2. If it is the latter, there is a risk as we saw in 2008 in the Health Check negotiations that the government will argue for the ability to apply additional national measures under pillar 1 thereby forcing farmers to adopt additional greening measures (beyond those in other member states). If it is in fact both a desire to see money move from pillar 1 to pillar 2 and an enhancement of greening, then English farmers will be seriously undermined by this approach.

29. It is essential that we receive some clarity on the UK government’s position and how its stance on greening meets its commitment to ensure that English farmers are not disadvantaged in the next round of reform.

Recommendations for improving the greening proposals.

30. The NFU is currently consulting its membership on the question of recommendations to improve the greening proposals. The NFU initial view on greening is as follows:

NFU Initial position on "greening"

31. The NFU supports the view of the Commission that the CAP and agriculture must be environmentally sustainable and that the CAP can play a role in addressing environmental concerns. We believe that the necessary measures already exist to protect and enhance the environment in both pillars 1 and pillar 2.

32. The European Commission has proposed that a significant element of future direct support (an amount equal to 30% of the direct payments national / regional ceiling) will be dependent on farmers fulfilling mandatory actions deemed to be beneficial to the environment. The NFU believes this approach to ‘greening’ the CAP may lead to perverse outcomes, undermining existing efforts to improve the natural environment via pillar 2, failing to deliver improvements where they are needed. In addition, the measures reduce the scope for market orientation of agriculture and will place limitations on production. This could undermining farming competitiveness as well as create additional bureaucracy.

33. The Commission argues that greening pillar 1 is necessary to better justify the payment of direct support in the future and to ensure the long term sustainability of farming systems in Europe. Yet, the effect of greening on production and market output may lead to crops being grown in inappropriate places and result in food price increases, at a time when EU consumers are battling with rising food price inflation. Limitations in supply will also have an impact on the EU food manufacturing industry, the EU’s largest employer.  

34. The NFU wants to ensure that productive capacity is not lost, costs and additional bureaucracy is minimised, existing environmental efforts made by farmers are recognised, and that any unintended consequences and absurdities as a result of the greening proposals are kept to a minimum.

35. The following principles guide the NFU policy position on greening:

Principle 1.  Measures should be genuine incentives/ top-ups and participation in them voluntary for farmers.

36. As drafted a farmer must observe the greening measures on all of his "eligible" hectares. If a farmer is in compliance he will receive an additional payment. The text suggests that participation is a mandatory condition of receiving direct payments, including the basic payment and that farmers receiving the basic payment has no option but to undertake these actions. Farmers will buy into the idea that they are performing a valued role if they are encouraged to deliver public goods via incentives rather than a regulated approach. The greening actions should not be a condition of the basic payment.

Principle 2. A farmer who chooses to opt out of "greening" would forego the aid associated with the greening option but would face no additional penalty or sanction on their basic direct aid

37. It is unclear what the sanction would be for a farmer who does not adopt the beneficial practices. The NFU believes that if a farmer intentionally chooses not to adopt the practices, then he should forego the greening component but no further penalties should apply to the basic payment. Any breach of eligibility or administrative rules relating to the greening practices (i.e. the wrong % for ecological focus area or the main crop exceeds the defined maximum) should incur a proportionate sanction on the additional aid top up and there should be no link to the remainder of the basic payment.

Principle 3. Greening should not undermine participation in agri-environment schemes and should take regard of actions beneficial to the environment already in operation on the farm.

38. There is a genuine fear amongst English farmers at present to renew or sign up to agri-environment programme. This fear manifests itself from a belief that features under agri-environment schemes such as hedges, buffer strips, conservation headlands etc, would not count towards the ecological focus areas. There is also a concern that Defra will seek to gold plate the EU greening measures to attempt to increase environmental delivery and outcomes. Once greening measures cross the line between retention towards the enhancement of environmental features, the likelihood of overlap with existing agri-environment schemes increase substantially. Should some overlap result from implementation of greening in pillar 1, it is imperative that farmers within existing agri-environment schemes are treated fairly and have the ability to withdraw from the scheme without penalties, or requirement to pay back monies granted through the agri-environment scheme. It may be the case that system of the payments under agri-environment schemes will have to be amended to reflect that the "retention" of features, now financed though greening is removed.

39. The NFU believes that it is appropriate to consider whether the additional aid should be granted "ipso facto" to further categories of farmers beyond the current derogations for organic and incompatible Natura 2000 agreements. For example, for farmers who are undertaking agri-environment commitments or are participating in equivalent certified schemes such as the integrated farm management approach.

Principle 4 Greening measures must be common, simple to understand, operate and administer.

40. The greening measures put forward at an EU level should be implemented evenly across the EU. There should be no opportunity for Member States to gold plate the measures or add in requirements beyond those stipulate at EU level.

41. Another possibility could be for the Commission to present more options, with the choice being made by farmers. It would be acceptable if we had an extended list of measures at EU level, as long as the choice of which measures to be implemented at farm level was made by the farmer himself and not on his behalf by the Government. The NFU does not support a complicated hybrid of pillar 1 / pillar 2 measures to achieve greening, or the use of "article 68" national envelopes to support specific types of farming for the environment.

42. Farmers should be able to apply for the additional payment for greening at the same time as their main aid application. A light touch approach to administrative requirements should be adopted, for example a farmer should not have to declare precisely on their aid application the conditions or locations that apply under the ecological focus area requirement or crop diversification measure. Verification of compliance should form part of the standard cross compliance checks and controls.

Principle 5 The scale of top up (as a proportion of national envelope) should be the same throughout the EU and should be kept to a minimum proportion of the budget.

43. The Commission’s proposal to assign 30% of the available funds for the "greening" payment is too high and should be reduced to reflect the positioning of financial reward above cross compliance, but below typical agri-environment payments. These measures will put some farmers in such a predicament of having to change systems or forego the payment that they will take inappropriate market based decisions, thus increasing reliance on the CAP payments. It should not be the system that dictates the business decisions; at 30% we will see distortions of management decisions and is effectively another form of recoupling.

Principle 6 Greening measures should not hinder competitiveness and food production.

44. The Commission argues that the EU should be able to contribute to rising global demand for food and to enhance agricultural competitiveness. Greening direct payments could place constraints on farming businesses that undermine their ability to compete and could reduce the EU’s productive capacity. Specifically:

7% Ecological Focus Areas

45. Setting aside 7% of the EU’s productive arable land as "Ecological Focus Areas" would result in 5.74million hectares of land withdrawn from food and energy production (based on EU arable land area of 82 million hectares). Based on average EU wheat yields (of 5.36 tons / hectare) this would equate to 31 million tonnes of wheat production, which is more than twice the annual output of wheat production from the UK alone and almost a ¼ of EU wheat production as a whole. Every percentage of productive land set aside would result in 4.4m tonnes of wheat production lost to the EU. Clearly all lost production is not going to be in wheat, another way to consider the impact of a loss of 5.74million hectares is that this is broadly equivalent to the UAA in Hungary or Bulgaria or the combined UAA of Belgium, the Netherlands and Denmark.

46. It is essential that the % to be set aside as ecological focus areas is reduced and that non-productive landscape features count towards these focus areas. Land or features which gives rise to an agri-environment payment such as hedges, buffer strips and conservation headlands must also count towards these areas. Areas of farm woodland should also count towards the EFA.

3 crop diversification

47. The requirement for farmers who have more than 3ha of arable land to grow 3 different crops on their arable land will have a significant effect on current farm practices across the UK across all sectors.

48. It is extremely frustrating that the definition of a crop has not been given in the Commission proposals. The definition of a crop must be established in the broadest sense reflecting the agronomic and environmental differences of different crop productions. For example, temporary grass, winter barley, spring barley and oil-seed rape should all be classed as separate crops. This may lead to increased bureaucracy if a farmer has to record crop codes on application forms, but the alternative approach of "crop groups" will significantly redu ce market orientation further.

49. Even when taking the definition of crops in the broadest sense, research carried out by the Agricultural Horticulture Development Board (AHDB) demonstrates that the requirement to have 3 crops in the rotation, with minimum and maximum area conditions attributed to those crops, would negatively affect 30% to 66.5% of farms depending upon location. The evidence also demonstrates that small farms will be proportionately more affected by this measure, with almost 70% of farms under 50ha surveyed by AHDB in all Regions in the UK unable to meet the crop diversification requirement. Implementing the requirement will be even more expensive for smaller farmers who may have to buy extra equipment of potentially get in contractors at a higher per hectare rate. Ironically, having such a low threshold will threaten the existence of small farmers in some areas.

50. The 3 ha minimum threshold should be set considerably higher to reflect the difficulties that this measure will create for smaller enterprises. We would suggest that the Commission adopts the same principle with regards "average farm structure size" that it has taken elsewhere in the proposals. For cereal farms, the average tillage area is 167ha in England. This would be a more suitable starting point for this crop diversification requirement as the use of "average" farm structure size is established elsewhere in the proposals .

51. The proposal will have an extremely perverse impact on dairy and livestock farmers who grow home grown cereals or fodder crops to supplement grass diets. A typical livestock farmer may have permanent grassland, temporary grassland and an area of cereals or forage crops (such as maize). Under the 3 crop requirement, if the area of temporary grass and cereals/ forage crop exceeds 3ha, this farmer will also need to fulfil the 3 crop requirement and meet the minimum / maximum requirements. The Commission proposes that if the land is entirely used for grass production, then the crop diversification requirement is not relevant. The requirement for these farmers to grow at least 3 crops will discourage farmers from planting anything other than grass on their arable land and will lead to a loss in biodiversity in the countryside and an increased reliance on purchased proteins to supplement grass based diets.

52. The proposal will also have massive consequences for specialist farming systems. Many farmers opt to "contract farm" blocks of land owing to economic pressures to increase the scale of operations. There must be recognition of specialist growers with "share" or block cr opping agreements and workable solutions identified. W ithout this, the RPA is likely to be inundated with additional bureaucracy associated with farmers carrying out "land swaps" or transfers.

53. Ironically, Commission modelling shows that crop diversification will actually increase the area of arable land in production (in the absence of ecological set aside), as land cannot always be used to produce the crop which it is best suited to. Such a policy conflicts with the increased focus on the resource efficiency agenda, as resource owners are put in a position where they cannot use their resource in the most efficient way. A dairy or livestock farmer may be forced to reduce their grassed area to comply with the maximum 70% constraint.

54. The NFU does not support the requirement to have 3 crops. We would suggest that the crop diversification requirement is set at 2 crops (one of which may be grass). Furthermore, it is important that the requirement to grow the 2 crops is across the year (i.e. the crops are not necessarily grown concurrently). Crops grown for agri-environment purposes, such as wild bird mix should also count, as well as biological control crops such as mustard.

55. The impacts of crop diversification and ecological set-aside will be far reaching across the whole of the agricultural industry. In the impact assessment published alongside the proposals, Commission modelling shows that income per worker in the pig and poultry industries could fall by 25%, and in the dairy industry it could fall by nearly 6%. Clearly the policies set out do not assist with making a secure future for farmers in the EU.

Maintain areas under Permanent Grassland

56. The Commission’s proposals regarding the retention of permanent grassland are particularly concerning for dairy and livestock farmers who may seek to change enterprises in the future. The definition of land classed as permanent grassland is land not in the rotation for 5 years or longer. A distinction must be made between uncultivated land and land down as a long grass ley (i.e. longer than 5 year). It should be this previously uncultivated land that it maintained in future.  It is wholly unacceptable to "fossilise" parcels of agricultural land and therefore it is imperative that a farmer is able to improve long grass leys through ploughing and re-seeding and that derogations are available for farmers who are making sustainable economic decisions to change farm enterprises.  

November 2011