61. There was consensus among witnesses from
the environmental sector that agricultural activity can produce
positive environmental side-effects, and that in the absence of
market compensation for these externalities, farmers should be
rewarded financially for at least some of the environmental public
goods that their activity generates. This is already a feature
of the CAP, for example as part of cross-compliance in Pillar
I, and through agri-environment schemes in Pillar II.
62. Dr Helen Phillips, CEO of Natural England,
proposed that "EU policy should be directed towards securing
environmental goods and services that are not rewarded by the
prices paid for in our food"(Q 143). Natural England
envisages "a new social contract between farmers and the
rest of society: one where farmers see one of their primary roles
as the protection and stewardship of the countryside, in return
for which taxpayers are willing to make that investment in the
longer term." Hannah Bartram of the Environment Agency took
a similar view, advocating that public money should be spent on
"the provision of public goods and services. We are obviously
particularly interested in clean water, robust soils, functioning
flood plains, but also the wildlife/access/landscape issues. We
feel that support for these goods is justified when the market
does not value them, and therefore fails to deliver them at an
optimal level" (Q 184).
63. Dr Mark Avery of the Royal Society for
the Protection of Birds also highlighted a perceived market failure
in this area, arguing that "agriculture is different from
other industries. Agriculture produces wildlife, landscape and
other public goods, providing you get the right type of agriculture,
and it is fair for the public to support farmers to produce that
because there is no market for farmers to tap into" (Q 57).
Meanwhile David Young of Natural England warned that "a consequence
of not having a CAP is that we place at risk all of those public
goods that will not be delivered by the market mechanisms"
64. Other witnesses pointed out that the environmental
externalities of farming activity contributed to the maintenance
of landscapes that the tourist industry relies upon. Dai Davies,
President of NFU Cymru, emphasised that "farming does not
only produce food, it has a responsibility for the environment
and the environment seems very important for tourism coming into
parts of Wales" (Q 326). Ian Woodhurst of the Campaign
to Protect Rural England pointed out that "when you look
at the Visit Britain website there is a lot of play made
about the quality of the landscapes," but "there is
actually no mention at all of what any of this has to do with
farming or the fact that farming systems are producing and still
maintaining these environmental assets and these landscapes"
65. We recognize that certain types of farming
activity can generate environmental benefits that are valued by
society at large but whose value is not reflected in market prices
for agricultural products. It does not automatically follow, however,
that farmers should receive financial rewards for the environmental
public goods that their activity helps to provide.
66. Rather than being prompted with financial
rewards, producers in other sectors of the economy tend to be
subject to regulation that penalizes them if they fail to deliver
on environmental objectives. Baroness Young of Old Scone, Chief
Executive of the Environment Agency, acknowledged that "you
can substitute the words 'miners' or 'the British car industry'
for 'farmers' and it sounds like madness". She insisted that
"the reality, however, is that the difference between the
farming industry and land management generally and any other economic
sector is that they are the guardians, the operators,
over a fundamental slice of the environment, probably impacting
on all three environmental media: land, air and water" (Q 186).
67. "Why should consumers pay for the environment
where other businesses are not paid to obey environmental laws
is a very good question," conceded Allan Buckwell of the
Country Land and Business Association. In his view, "it is
because land managers, farmers, steward the environment the way
that no other business does", but also "because consumers
will not pay in their food". He thus argued that "what
people say they want in environmental standards they do not match
in their purchases in the supermarket. If we do not provide some
assistance to the deliverers of these environmental services then
we will not get these services" (QQ 241-242).
68. Some witnesses expressed scepticism over
whether the desired environmental outcomes could be secured through
regulation. Professor Buckwell insisted that "in terms
of achievement and results you will find that if you try to bring
about the environmental standards you want by pure regulation
you will not achieve it" (Q 245). Tom Oliver told us
that the Campaign to Protect Rural England's "strong feeling
is that it is much more effective to incentivise people than it
is to regulate them into doing things" (Q 265).
69. Others, however, pointed out that distinctions
could be drawn among different environmental objectives, some
of which could be met by regulation alone, and some of which could
not. Dr Helen Phillips of Natural England pointed out to
us that Statutory Management Requirements, one of two elements
of the cross compliance conditions that farmers must meet if they
are to be eligible for Single Farm Payments, are "legal requirements
that are effectively being paid for through the Single Farm Payment"
(Q 148). She argued that "we do not want to be either
subsidising or consequently inflicting undue regulation on people
for meeting basic operating requirements" but should instead
consider how to protect additional requirements, such as the Good
Agricultural and Environmental Condition requirements that make
up the second facet of cross compliance (QQ 148-149).
70. A compelling argument in favour of drawing
such a distinction is that "at the end of the day, we do
not by any manner of means want to be paying for every environmental
good and service we want. If we get ourselves into that positionlet
us be frankthere will not be enough money to go round,"
Dr Phillips warned (Q 147).
71. We believe that the CAP should continue
to promote farming methods and practices that will result in environmental
benefits. Given limited public resources, we see merit in drawing
a distinction between environmental outcomes that can be secured
through regulationsuch as the control of emissions and
pollutionand those that are unlikely to be delivered without
financial incentivessuch as the positive management of
a wildlife habitat.
72. Dr Phillips explained that in the United
Kingdom, the funding formula for securing environmental goods
and services from land managers is based on income foregone. She
pointed out that this implies that when commodity prices go up,
the inevitable reality is that "you can buy less" (Q 152).
73. We recognise the inherent difficulty in
determining which environmental goods and services should be paid
for from the public purse, and in putting a price on their value
We expect that these valuations may change over time, notably
in the event of food price inflation. We consequently recommend
that these decisions should be taken at a national level wherever
possible, albeit on the basis of a menu of admissible uses for
CAP funds defined at the EU level.
74. While most of our witnesses chose to dwell
on agriculture's positive environmental externalities, the sector
also has very considerable negative impacts. It is accountable
for nine per cent of greenhouse gas emissions across the EU, and
is the second-highest producer of methane in the UK after the
energy industry (Q 164). This means that "agriculture,
like all other industries, will have to be looking at its carbon
emissions and looking at ways to do its job with lower emissions",
Dr Avery of the RSPB told us. But he was keen to stress that
this provides an opportunity as well as a challenge for the industry:
"there are some quite big opportunities for land management
in terms of looking at whether places like the uplands have a
different future, which is in being carbon sinks, and managing
upland peat and soils in different ways to stop them being degraded,
to stop them drying out, to stop them emitting greenhouse gases".
He concluded that "it may be that upland farmers will be
paid for farming carbon rather than farming sheep in 20 years'
time", and added that "flood risk management may be
another thing which is produced in that way" (Q 92).
75. Climate change considerations will clearly
have to figure prominently among the future environmental objectives
of the CAP. The EU's agriculture sector will need to improve its
impact on the environment, but climate change also presents a
business opportunity for the industry, which it must be encouraged
to seize. In the long run, the best way to secure progress towards
both goals may be to integrate agriculture in an EU-wide greenhouse
gas emissions trading scheme. We consequently recommend that this
possibility be given further consideration as a matter of urgency.