Memorandum by the Institute for European
Environmental Policy (IEEP)
INTRODUCTION
1. The Institute for European Environmental
Policy (IEEP) is an independent centre for the analysis and development
of policies affecting the environment in Europe and beyond. We
undertake research and consultancy work on the development, implementation
and evaluation of environmental and environment related policies
in Europe. IEEP seeks to engage directly in relevant policy debates
and works closely with the full range of policy actors from international
agencies, and the EU institutions, to national government departments,
NGOs and academics.
2. IEEP has an established track record
of policy research and analysis on the CAP. Recent work for the
European Commission includes: an evaluation of the Less Favoured
Area measure in the EU-25; the environmental impacts of the CAP
beef and dairy regime; and, an evaluation of cross compliance
in the EU-25. Work for Defra includes work on: trade liberalisation
and the CAP; the environmental impacts of the 2003 CAP reform;
and, the environmental benefits of Pillar I of the CAP. Our research
puts us in a position to make an informed response to the questions
raised by the Committee's Inquiry into the future of the CAP and
gives us some familiarity with the effects of agricultural and
environmental policy across the EU-27 Member States.
3. The 2003 CAP reform introduced some notable
changes to the agriculture policy framework, including decoupling
and compulsory cross compliance. The impacts of these changes
are not yet fully apparent at farm level but a picture is beginning
to emerge of the extent to which the reforms have met their intended
objectives. As noted by the Committee, the forthcoming "Health
Check" of the CAP in 2008 is expected to lead to short term
"adjustments" with limited changes in overall policy
objectives. The budgetary review in 2008-09 is likely to result
in longer term reflections—and possibly decisions—on
the future shape of expenditure, potentially anticipating changes
to the CAP beyond 2013. There is a case, however, that more fundamental
agriculture policy discussions should take place first, in advance
of the budget review, if future agriculture policy is not to be
steered unduly by politically contentious decisions about the
size of the future EU budget. With this in mind, we offer our
thoughts on both the short and longer term prospects for CAP reform.
OVERVIEW
The CAP should continue to evolve into a more
broadly based policy concerned with sustainable rural development
and resource management designed to secure the provision of a
range of public goods and services. The objectives of the CAP
should be revised and a new title agreed that better represents
what the policy does.
4. The founding objectives of the CAP, as
set down in the 1957 Treaty of Rome, emphasise goals such as food
security and fair incomes for farmers. Successive reforms have,
without revision to the original Treaty, progressively moved the
CAP towards a policy designed to promote sustainable agriculture[17]
and rural development. Decoupling, the introduction of initially
voluntary, and now, compulsory cross compliance measures and the
Rural Development Regulation, now the European Agricultural Fund
for Rural Development (EAFRD), are examples of how the architecture
of the CAP has changed since the late 1980s.
5. EU policy reforms have been accompanied
by a repositioning of agriculture as a more explicitly "multifunctional"
activity that provides a range of public goods,[18]
including the protection of natural resources, the maintenance
of cultural and historic landscapes and the provision of recreational
opportunities. More recently, environmental goods have been discussed
in terms of "ecosystem services". The UN Millennium
Ecosystem Assessment defines four categories of services:
— Provisioning Services (eg food, fuel
and building materials).
— Regulating Services (water purification
and climate regulation).
— Supporting Services (necessary for
production of other ecosystem services).
— Cultural Services (recreation, spiritual,
aesthetics and sense of well-being).
Greater clarity about farming's long term role
in providing these services in Europe should underpin both the
goals and mechanisms of agricultural policy.
6. Looking ahead to a world in which containing
climate change is a central challenge, agriculture's role in supplying
renewable resources of energy and raw materials, sequestering
carbon and reducing greenhouse gas emissions will be increasingly
critical.
A longer term and more integrated perspective
on resource management is required. This implies greater linkages
between agricultural and energy policy and breaching some of the
traditional divides, for example, between agriculture and forestry.
Commodity production will continue to be important but in a different
context from the 1960s when the CAP was put in place. With the
advent of decoupling and modulation, the mechanisms of the CAP
have moved on from their original commodity production logic but
with no corresponding shift in the formal objectives in the Treaty.
Leaving aside the political feasibility of agreeing appropriate
new objectives for the CAP, it is clearly desirable to anchor
a new vision and sense of direction in an amended Treaty. On this
foundation, intervention measures could be based on a new and
forward looking logic rather than the historically rooted compensation
rationale that underpins the present direct payments.
7. A more integrated agricultural policy
will need to address:
— The longer term resource management
and ecosystem services agendas alluded to earlier, with the focus
on public goods.
— Reasonable stability in food and
raw material supplies.
— The economic and social viability
of the agriculture sector at a time of continuous change in an
enlarging Europe.
— A complex rural development agenda
exhibiting considerable variation within Europe.
— Sustainable and equitable trade relationships.
THE REFORMED
CAP
The 2003 CAP reform introduced a complicated
package of measures which gave Member States many implementation
options. Such options give rise to variable economic, social and
environmental impacts which are not always easy to anticipate
when policy is agreed. Any future CAP reforms should be preceded
by full (economic, social and environmental) impact assessments.
8. The 2003 reform sought to simplify the
CAP, but following a range of concessions to national governments,
resulted in one of the most complicated packages to date due to
the range of options it provided Member States. For example, there
are three different options for the design and calculation of
the Single Payment Scheme, options for partial decoupling and
for "additional payments" (referred to as national envelopes).
A simpler and different system is in place for the Member States
that joined the EU in 2004 and 2007 at least for some years. As
a compromise deal, it highlights the increasing difficulty of
securing agreement on a common policy in an enlarged Union. The
way in which Member States approach implementation of variable
options can give rise to very different economic, social and environmental
effects; this is confirmed from the evidence collected for a number
of policy evaluations we have undertaken for DG Agriculture of
the European Commission.
9. One consequence of such differences may
be undesirable impacts on competitiveness within the internal
market. From an environmental perspective, however, national discretion
and subsidiarity may have some benefits, allowing Member States
to design and target policy to reflect national or regional circumstances
and conditions, as can occur with cross compliance obligations.
This underlines the value of undertaking full impact assessments
during the policy development phase in order to determine the
likely effects of any possible reforms. Such assessments should
include consideration of how implementation may differ from Member
State to Member State and farmers' likely responses to policy
proposals.
10. On specific aspects of the 2003 reform,
we offer detailed comments on cross compliance in paragraphs 22-24
of our submission.
THE SINGLE
PAYMENT SCHEME
The future of the SPS is open to question if
the objective of policy is the delivery of public goods. The 2008
Health Check is an opportunity to increase rates of modulation.
From 2013, more fundamental reforms to Pillar I of the CAP are
required and various options should be explored.
11. The Single Payment Scheme is the central
policy instrument of Pillar I of the CAP. Payment allocations
do not reflect environmental and rural development needs but rather
historic production patterns. Payments are based on a compensation
logic, replacing support that was previously linked to production.
This is not an appropriate long term basis for agricultural and
rural policy which needs to have a stronger focus on the provision
of public goods and services, with some flexibility regarding
the variety of conditions and challenges in the EU.
12. Commissioner Fischer Boel has already
hinted at likely components of the 2008 Health Check including
a move to the full decoupling of aid (with options for partial
decoupling removed) and an increase in the rate of compulsory
modulation to shift a greater proportion of funding into Pillar
II. We consider these would be important first steps in a more
fundamental reform of the CAP which should continue beyond 2008.
13. The arguments for strengthening Pillar
II are powerful:
— It has much clearer objectives than
Pillar I and these address long term concerns and the provision
of public goods.
— It is subject to planning and an
analysis of needs, programming, monitoring and evaluation. These
disciplines allow the policy to respond to changing requirements
compared to blanket payments in Pillar I.
— There is more flexibility to match
local conditions.
— Co-funding provides some incentive
for Member States to seek value for money.
Given these characteristics, Pillar II provides
a potentially more effective mechanism for a sustainable rural
policy than a reliance on a compensatory payment such as the SPS
or some of the alternatives to it in Pillar I, such as bonds.
Consequently, the principle of modulation is attractive, with
certain provisos:
— There have been few empirical studies
of the full consequences of modulation in practice and so the
impact of the measure in different settings is not yet established.
— Pillar II measures need to be well
designed and sufficiently simple in administrative terms to avoid
large transaction costs.
— Some of the principal environmental
benefits associated with agriculture in Europe arise from "High
Nature Value" farming, much of which comprises low intensity
livestock grazing systems generating relatively limited commercial
returns. Pillar II measures on their own are not sufficient to
maintain these systems under current circumstances and this is
an issue where direct payments can contribute to the provision
of wider benefits. A means of providing support for appropriate
management over and above the compensation logic of agri-environment
measures will continue to be required. This amounts to "recoupling"
to clearer objectives not simply decoupling.
— Sufficient funding needs to be available
for Pillar II on a secure footing to provide confidence that this
is a long term strategic measure for Europe. This would contrast
with recent experience, such as the sharp cuts in the Commission
proposals for Pillar II expenditure made at the December 2005
Council.
— The allocation of funding between
Member States needs to be put on a more rational basis related
clearly to the objectives and the needs identified.
14. In the longer term (2013 and beyond),
there are different variants of Pillar II and modulation that
could be envisaged. With a decline or demise in Pillar I, various
policy tools could be used to help protect farm incomes from the
vagaries of the market, for example, crop insurance, futures contracts,
tax and social security measures. Funding for Pillar II would
be increased from present levels with the final allocation based
on an assessment of needs. The measures contained within Pillar
II should be reviewed and revised, if necessary, to ensure they
are suited to meeting the desired objectives.
15. In evaluating the options, some key
questions to consider include: which option is most likely to
underpin the continuation of those farming activities which are
critical to the delivery of many public goods? What are the administrative
and technical requirements of the different options and which
are likely to be more efficient in terms of the use of public
money? What would be the wider effects on trade, food security,
the food chain and rural communities of the different options?
MARKET MECHANISMS
Many market mechanisms are no longer required
as a result of past reforms and could be phased out. Set-aside
has provided environmental benefits and alternative ways of capturing
these should be examined.
16. The CAP is already on a trajectory of
reduced market intervention, illustrated by progressive reforms
which have cut price support, reduced intervention and, latterly,
decoupled support from production. As farming is brought closer
to the market, the need for mechanisms such as quotas, set-aside
and private storage decline. However, the outright abolition of
such measures would be likely to result in various consequences
which need to be thoroughly examined before action is taken. Changes
often need to be phased in over time.
17. Set-aside is of particular interest
to us because, although essentially a supply control measure which
may no longer be needed, some proportion of this land has proved
to be of environmental value, providing wildlife habitat within
otherwise denuded areas. As part of any future reforms, we suggest
that ways of "capturing" the benefits of set-aside be
considered rather urgently. Establishing an obligation to maintain
or establish Ecological Priority Areas[19]
could be one means of retaining non-cropped areas.
RURAL DEVELOPMENT
The measures within EAFRD should be reviewed
and, if necessary, revised, to ensure that a sufficiently broad
range of environmental and rural development needs are met. EAFRD
should not be allowed to fund environmentally damaging activities.
18. The European Agricultural Fund for Rural
Development (EAFRD) is, for the most part, a progression of earlier
rural development policy (Regulation 1257/99). This earlier Regulation
was an umbrella under which a range of pre-existing measures such
as the agri-environment and forestry measures, first introduced
in 1992, were brought together. The extent to which the EAFRD
constitutes a coherent package designed to deliver public goods,
rather than an assembly of previously relevant measures growing
incrementally, is therefore a key question. The EAFRD has now
been strengthened by the requirement for an EU strategy and National
Strategic Plans, in addition to Rural Development Plans, which
set out the priorities and justification for rural development
expenditure. There is an argument however for a fundamental review
of the options within EAFRD and their implementation if, as is
possible, budgetary allocations to Pillar II increase in future.
Is EAFRD, for example, capable of addressing some of the most
significant environmental issues facing Europe such as climate
change or water management? How effectively does EAFRD address
the development needs of rural areas as a whole rather than just
those needs closely allied to the agriculture sector? This final
question is particularly pertinent since figures for planned expenditure
for 2007-13 rural development programmes indicate that Axis 3—the
Axis most able to target rural development activities beyond the
farm gate—will receive the lowest share of the rural development
budget in many Member States.
19. Concerns have also been raised about
the use of some rural development funds in certain Member States.
For example, some countries such as Spain have used rural development
funds for capital investments and infrastructure projects that
have caused environmental damage. Similarly, some Member States
with high shares of internationally important habitats and species
have allocated very low shares of their budgets to environmental
measures. The in-built subsidiarity of the regulations allows
Member States to make such choices but the Commission, in approving
plans, must ensure such conflicts are avoided as far as possible.
WORLD TRADE
Trade liberalisation may result in both benefits
and threats to the environment as agriculture restructures in
response. A Doha agreement is likely to require, and may encourage,
further reform of the CAP.
20. Our past work on the effects of agricultural
trade liberalisation on EU agriculture has focused primarily on
the environmental impacts. With the WTO Doha trade negotiations
entering what may be their concluding phase, although this is
by no means certain, it is important to understand what the land
use and environmental implications of an agreement might be and
thus to begin to assess the degree of compatibility of an increasingly
market-exposed agriculture with broader rural sustainability objectives.
21. Various studies[20],
[21],
[22]
suggest that, in a European farming context, the effects of trade
liberalisation will be mixed and some will not, on balance be
beneficial to the environment. The form and rate of liberalisation,
as well as the ability to apply any flanking measures under WTO
rules, are critical in determining the restructuring process that
inevitably flows from exposing a previously protected agriculture
sector to market forces. The exact nature and specificity of any
Doha agreement will therefore determine the impacts that flow
from it. The picture is complex and there is insufficient space
here to explore all the possible outcomes of a trade agreement.
However, assuming an agreement is reached, based on the current
inbuilt agenda, further reform of the CAP is likely to be necessary.
It is unlikely, for example, that on the current scale, partial
decoupling (as applied by some Member States) would be likely
to survive following a Doha agreement. The extent to which EU
policy makers then choose to further rebalance EU agriculture,
steering it away from the production of commodities for world
markets and expanding the production of quality products for domestic
and international markets, is uncertain. This choice is likely
to be determined in part by whether the EU is able to extract
concessions on non-trade concerns such as Geographical Indications
and the protection of multifunctionality.
ENVIRONMENTAL PROTECTION
AND CLIMATE
CHANGE
Cross compliance
Cross compliance has resulted in environmental
protection but implementation could be improved. The policy could
be further strengthened and its environmental outputs enhanced
under various policy options.
22. IEEP is currently undertaking three
European Commission funded projects looking at different aspects
of cross compliance and has a wide knowledge of the implementation
of this policy across the EU. Our research suggests that cross
compliance is resulting in an improved level of environmental
protection as a result of the following:
— The establishment of environmentally
relevant obligations (Statutory Management Requirements (SMRs)
and Good Agricultural and Environmental Conditions (GAECs)) with
which farmers, throughout the EU must comply.
— The provision of information to farmers
which has increased awareness of their obligations although not
necessarily their understanding of them.
— The recent introduction of Farm Advisory
Systems which should help to improve farmers' understanding of
their obligations.
— More systematic systems of control
which are more likely to detect non-compliances.
— The threat of payment reductions,
which farmers are very aware of, and which encourage compliance.
23. It is early days, however, in the implementation
of the policy and there is clearly room for improvement across
the Member States. The Commission has recently proposed some revisions
to the policy which should facilitate its effectiveness and help
to improve the acceptability of the policy. For example, the Commission
has proposed that for minor non-compliances, Member States should
be allowed not to apply payment reductions but rather to "warn"
farmers that they are non-compliant and that they must take action
to remedy this.
24. The cross compliance policy could be
further strengthened and its environmental outputs enhanced. IEEP,
along with a network of European Institutes[23]
recently presented a range of options for the development of cross
compliance at a policy seminar held in Brussels on 26 April 2007.
These options move from relatively minor fine tuning of cross
compliance to a more fundamental policy reform of Pillars I and
II, in line with our earlier comments. The second option considers
whether new legislation such as the Water Framework Directive
should be included in the SMRs or relevant aspects included in
GAEC, since there is currently no direct link between this legislation
and the cross compliance policy.
Climate change
The process of absorbing climate change objectives
in the CAP is in its infancy. Pillar II measures could contribute
to the mitigation of, and adaptation to, climate change and could
support second generation fuel production.
25. At the present time, climate concerns
are barely reflected in the policy measures of the CAP. The principal
focus has been on incentives for growing energy crops. Here the
objectives have been wider than the mitigation of greenhouse gas
emissions, reflecting a concern to diversify farm incomes, for
example. There has been little attention given to mitigation or
carbon sequestration as priorities for agricultural policy. In
the second Pillar of the CAP, concerned broadly with rural development,
there are no dedicated measures responding to the climate challenge.
There is, on the other hand, a clear instruction to the Member
States in the Strategic Guidelines that their rural development
programmes should address Community priorities, one of which is
climate change. In this sense, the process of absorbing a new
climate dimension into the CAP is in its infancy.
26. There are numerous ways in which the
CAP could contribute to the mitigation of, and adaptation to,
climate change. Possible options include:
— Using Pillar II to provide incentives
to farm businesses eg for technical measures to reduce greenhouse
gas emissions and improve energy efficiency.
— Using legislation and incentives
to achieve "joint" climate and environmental objectives
eg reducing nitrous oxide emissions and water pollution by improving
management of manure and livestock wastes or re-flooding oxidising
peat soils in selected locations to contribute to soil conservation,
climate change and biodiversity goals.
— Using Pillar II incentives to help
adaptation to climate change and respond to issues such as pressure
on biodiversity, landscape change, flood management and reductions
in water supplies.
27. The current focus on providing incentives
to grow conventional agricultural crops for bioenergy purposes
is difficult to defend in many cases given their carbon and environmental
profile. Nonetheless, there may be political pressure to increase
incentives for growing energy crops to stimulate supply, especially
if market set aside is abolished. This does not appear good value
for money in the light of the buoyant market and limited increase
in carbon efficiency achieved by substituting first generation
biofuels for fossil fuels. As second generation fuels become more
readily available, the case for incentivising appropriate crop
production on a limited scale to pump prime new technology becomes
stronger especially if the efficiency of conversion processes
can be improved. This could be tackled through a range of measures,,
focusing on innovation, the development of sustainable production
and processing technologies, the creation of suitable infrastructure
and local scale initiatives.
28. Imported biofuels come from a wide variety
of sources and there is clearly a role for developing countries
in this market, which should not be stifled by protectionism.
Concerns about unsustainable or environmentally damaging crop
production are, however, legitimate, especially since biofuels
are being sold as a "green" fuel. A code of EU standards
for bioenergy crop production which would apply to both domestically
produced and imported crops would help to eliminate the least
sustainable practices and set standards on a non-discriminatory
basis. This can build on existing cross compliance.
Whilst some farming interests regard this as
duplication, the need for a transparent and balanced approach
in the early stages of the industry's development is clear.
FINANCING
A greater proportion of CAP funding should be
shifted from Pillar I to Pillar II and co-financing of Pillar
I should be considered.
29. The financing agreement reached by Member
States at the December 2005 Council resulted in a very poor allocation
of resources to Pillar II of the CAP, much less than the Commission's
original proposal. As indicated earlier, we support further compulsory
modulation, shifting resources from Pillar I to Pillar II of the
CAP. In the future, the possibility of co-financing Pillar I should
be considered both for budgetary reasons and to focus more on
the benefits derived from such payments.
11 June 2007
17 The Council of the European Union, in its conclusions
from the Gteborg Council on the European Union's Strategy for
Sustainable Development in 2001, stressed the need for the EU
to integrate environmental objectives into its internal policies
and to improve the sustainable management of natural resources. Back
18
Public goods are defined as non-rival and non-excludable, ie consumption
of the good by one individual does not reduce the amount of the
good available for consumption by others; and no one can be effectively
excluded from using that good. Insufficient provision of public
goods is an example of market failure. Production of public goods
results in positive externalities which are not remunerated. Because
no private organisation can reap all the benefits of a public
good which they have produced, there will be insufficient incentives
to produce it voluntarily. Consumers can take advantage of public
goods without contributing to their creation. Back
19
Lessons can be drawn from the Swiss system where farmers are required
to take a proportion of land receiving support out of production
for ecological reasons and to manage it accordingly. Existing
features such as hedgerows and copses could be included in this
area. Those farmers who have retained such features in the past
would easily meet the requirements of the scheme while other farmers
would have to take specific action. Back
20
Potter, et al (1997) Agricultural liberalisation and its environmental
effects, English Nature Research Report, English Nature, Peterborough. Back
21
IEEP/GHK (2005) The environmental impact of trade liberalisation
and potential flanking measures, IEEP, London. Back
22
Kaditi, E and Swinnen J (eds) Trade Agreements, Multifunctionality
and EU Agriculture. CEPS Brussels 2006. Back
23
http://www.ieep.eu/publications/pdfs/crosscompliance/future_policy_options_for_cc.pdf Back
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