House of Lords - Innovation in EU agriculture

Innovation in EU agriculture - European Union Committee Contents

CHAPTER 6: Eu Policy and regulation

"Millions of hectares are being lost to agriculture in the rest of the world—in China, Australia and the US—and probably even in Europe. Some of the big new emerging powers are buying millions of hectares of agricultural land in Africa and South America. We in Europe are sitting here saying, 'Agriculture is the old economy', in what I call an innovation-hostile environment. A lot of political groups are telling us to farm as we did in the 19th century, selling our tractors and doing it in the old way because it will be good for the environment ... This is the strategic debate. Does Europe say that it can provide food for 500 million rich Europeans and import what we do not have, or does it play a role in feeding 9 billion people, including 1 billion people in China and India who are starting to eat meat?"

Mr Georg Häusler, Head of Cabinet, DG Agriculture, European Commission[224]

INTRODUCTION

138. Various aspects of EU policy relate to innovation in agriculture, some of which have already been explored earlier in the report. In this chapter, we look in some detail at the Common Agricultural Policy (CAP) itself and consider some of the other policies which have an impact on the ability of the agricultural industry to innovate.

139. In its Communication on CAP reform in November 2010,[225] the Commission refers within the rural development section to "support for innovation, knowledge transfer and capacity building" but goes into no detail. We therefore seek, without repeating relevant conclusions of the preceding chapter, to probe further on how the reformed CAP can promote innovation in EU agriculture. We gave an earlier indication of our thinking in the comments which we published in January 2011 on the Commission's Communication.[226]

DIRECT PAYMENTS—PILLAR 1 OF THE CAP

140. Under Pillar 1, direct payments to farmers and market management measures are funded; we explored with witnesses how direct payments could support innovation. For the European Commission, Mr Häusler observed that the direct payment "gives a solid base for most of our European farmers: it gives them security, predictability and a planning period" and warned that, "if we did not have first pillar money, no farmer will invest".[227] This argument was supported by Mr de Castro and was based on farm income statistics indicating that the average income in farming is substantially lower than that in the rest of the economy.[228] A similar line was taken by the Polish Government who saw Pillar 1 as protection for basic needs and necessary for survival in less favourable years.[229] Both the NFU and the CLA agreed that farmers required "a certain level of income ... to be able to invest in new technologies".[230]

141. The alternative view on direct payments was that they act as a brake on innovation. Some of those advocating this argument asserted that innovation has been more apparent in historically unsupported sectors, such as pigs and horticulture. From the AHDB, we heard that "the unsubsidised UK pig industry has had to be continuously innovative and this enabled it to survive through a very difficult economic period in the 1990s".[231] Similarly, the Macaulay Land Use Research Institute (now part of the James Hutton Institute) observed that "technological, product and marketing innovation has been notable in those sectors for which a CAP commodity regime was, prior to 'decoupling'[232] light or absent, such as pigs, poultry, potatoes and most fruits and vegetables."[233] The UK Government considered that the single farm payment "stultifies competition" and called for a strategy looking forward towards the gradual reduction and eventual elimination of the Single Farm Payment, a position supported by the Danes.[234]

142. While there was a general consensus that direct payments should, or at least would, continue, there was also a strong recognition that payments should encourage environmental innovation. Professor Moloney was clear that subsidies could be "based on the introduction of innovative approaches that reduce our carbon footprint or benefit biodiversity at the same time."[235] The Dutch agreed that financing under Pillar 1 should reward innovative behaviour: "a farmer has to do something to get direct payments, either in competitiveness or sustainability"[236] and the Commission acknowledged that "we want to get something in exchange for our money."[237] The Polish Government supported a payment to support ecosystem services.[238]

143. Others recognised that Pillar 1 was likely to go further in future in making payments conditional on meeting environmental goals, but warned against over-complexity. Mr de Castro acknowledged the need to encourage farmers "to go in the right direction with good practice, taking care of the environment ... but at the same time we need to make them more competitive, to be strong enough to win".[239] COPA-COGECA suggested that payments should be based on "win-win measures that had a positive impact for the environment or reducing emissions, but also had a positive impact on the farmer, enabling him to have better resource efficiency, for example encouraging precision farming, manure processing and biofuel processing on farms". Any farmer not wishing to pursue such a path would be free to do so but would not receive that part of the payment.[240]

144. As we said in commenting to the Commission in January of this year, we see no case for payments that are made available without an environmental justification or, at the very least, without environmental conditionality. Moreover, payments that are essentially income support payments do not encourage innovation. We consider that payments under Pillar 1 of the CAP should be made in return for delivery of public goods, responding to climate change, protecting biodiversity and encouraging environmental innovation.

145. We agree, however, that better integration of environmental considerations into Pillar 1 must not lead to further bureaucratic complexity. The sustainable intensification of the CAP must be achieved on the basis of real improvements to the EU's and Member States' knowledge transfer systems. More effective advice to farmers must strengthen the adoption of best practice which will have both economic and environmental benefits. As set out in Chapter 5 of this report, we see significant potential for improvement both in the Farm Advisory System of the CAP, and in national arrangements for farm advice, notably in the UK.

RURAL DEVELOPMENT—PILLAR 2 OF THE CAP

146. In our April 2011 report on the EU Financial Framework from 2014,[241] we concluded that Pillar 2 is a vital method of helping farmers to innovate, and we supported a strengthening of it in financial terms by moving funds from Pillar 1. This movement of funds from Pillar 1 to Pillar 2 is otherwise known as "modulation".

147. We heard various suggestions as to how Pillar 2 (see Box 12) might more effectively support innovation. The European Commission told us that it is considering offering a higher rate of co-financing[242] to promote innovation in Pillar 2: "there is a lot of new technology on the market that farmers do not use yet, or do not use enough, for cost and other reasons".[243] Such an increase in co-financing would boost the proportion of funding from the EU budget, thus reducing the proportion required from national budgets.

148. The Danish Government would like to see greater flexibility for enhanced public support, at least "for innovation projects that address the future challenges", although it did not specify that this should mean higher rates of co-financing. In particular, the Danes would support changes in order to allow greater public financing (whether EU or national) of renewable energies such as biogas. Higher levels of investment are currently restricted by state aid rules to products listed in Annex I of the Treaty (which are almost exclusively food products) as long as the results of the project are made public. They would also like changes to allow support for single projects because innovation is often performed by individual enterprises.[244]

BOX 12

Rural Development Regulation[245]

Articles 26-30 of Regulation 1698/2005 provide for the funding of measures "aimed at restructuring and developing physical potential and promoting innovation". In particular:

· the modernisation of agricultural holdings (Art 26);

· improvement of the economic value of forests (Art 27);

· adding value to agricultural and forestry products (Art 28);

· cooperation for the development of new products, processes and technologies in the agriculture and food sector, and in the forestry sector (Art 29);

· infrastructure related to the development and adaptation of agriculture and forestry (Art 30)

Pillar 2 offers a suite of measures that can be supported, with the aim that Member States and regions have the flexibility to tailor their rural development programmes to their respective needs.

149. The Polish Government pointed to the potential of the current articles 28-30 of the Rural Development Regulation to be used to give money to investors to use knowledge generated somewhere else: the money could be directed for the development of new technologies to help research institutions to work on something that is of interest to industry or farmers.[246] The NFU also considered that Pillar 2 could be used more effectively to support projects of a genuinely innovative nature, suggesting that Pillar 2 has been too orientated towards agri-environment schemes, "rather than a focus on what would increase productivity and competitiveness".[247]

150. Morrison's considered that they should be able to access rural development funding in order to support new innovations that could then feed through into the agricultural supply chain.[248] This suggestion was underlined by the Danish Government, who called for greater flexibility in the levels of funding allocated to larger companies: "large companies act as well as small and medium sized companies as a driving force behind innovation".[249]

151. Under Pillar 2, support for innovation-related projects must be core and a balance must be ensured between purely agri-environmental projects and funding to support agricultural innovation, whilst recalling that the two are often compatible. One example might be support for projects using agricultural materials, such as straw in bio-energy. In that light, we recommend that Pillar 2 be sufficiently flexible to encourage innovation in relation to all forms of agricultural material, whether food or not. Alongside such flexibility, we support the European Commission's proposal that a higher rate of co-financing be made available to support innovation-related projects under Pillar 2. Such an increase in financing can be supported, at least in part, by reducing the level of direct payments under Pillar 1. This would involve modulation from Pillar 1 to Pillar 2.

REGULATORY REGIME—APPLICATION OF THE PRECAUTIONARY APPROACH

152. Some witnesses suggested that the European Union is hostile to innovation. Mr Häusler, of the Agriculture DG, described "the microcosm of Brussels" as "an innovation-hostile environment."[250] Examples of pertinent areas of regulation are offered in Box 13. The AHDB agreed that the right EU policy and regulatory environment to encourage innovation in agriculture "has been substantially absent", with specific reference to biotechnology and crop protection products.[251] Similarly citing pesticides and GMO legislation, the European Crop Protection Association (ECPA) noted that policies affecting agriculture's ability to innovate are often led by departments other than the Commission's Agriculture DG. The ECPA urged DG Agriculture to exert greater influence over other, related, policy areas.[252] We are clear that policy incoherence in the Commission is a serious obstacle to agricultural innovation. The European Commissioner responsible for agriculture and food must ensure that the need to promote innovation in EU agriculture is respected by other parts of the Commission when they take decisions which will impact on the food and farming sector.

BOX 13

A snapshot of EU regulation

Novel foods

Novel foods are defined in EU legislation as foods which have not been consumed in the EU to a significant degree before 15 May 1997. A regulatory framework is in place,[253] but attempts at agreeing a revised one recently failed.

Animal cloning

Food products from cloned animals are considered a novel food, but are not banned, nor are those from the offspring of cloned animals. In October 2010, the European Commission published a Report[254] in which it proposed a temporary ban on cloning in the EU, although it is yet to do so. Particular debate surrounds the marketing of products derived from the offspring of clones. While such products are thought to be safe, animal welfare concerns have been raised.

Pesticides

New EU rules for the authorisation of plant protection products in commercial form and for their placing on the market, use and control within the EU came into effect on 14 June 2011.[255] The new rules use strict hazard-based criteria; some fear that this may reduce the pesticides available on the market, with an impact on crop yield.

Genetically Modified Organisms

The EU regulatory framework on GMOs currently consists of two pieces of legislation.[256] In both cases, the relevant company makes an application for approval in the first instance to the Member State concerned. Under the framework, various authorisations for the placing on the market of GM food and feed have been granted but only two products have been accepted for cultivation in the EU: a GM maize product, MON 810, in 1998; and a starch potato, for industrial use, in 2010.

In summer 2010, the Commission proposed[257] changes to the regulatory framework in an effort to open the way for more GM products to be approved, if only for cultivation in some, not all, Member States. In spring 2011, there was little prospect that these proposed changes would soon be agreed.

153. According to Article 191(2) of the Treaty, the precautionary principle[258] should underpin EU environmental and related legislation. The Dutch Government reminded us that a restrictive regulatory environment in food safety was created by a number of problems, such as the BSE crisis: "it is not there for nothing."[259] Nevertheless, there was a feeling that the EU had taken the principle too far and that, by doing so, it had significantly limited innovation in agriculture.[260] Professor Moloney asserted: "the precautionary principle is very dangerous when used capriciously or just in selective cases".[261] Mr de Castro told us that "the precautionary principle is very important" but that it is important to look seriously at whether there is any evidence for damage to human health and the environment from agricultural innovations.[262]

154. Similarly, Dr Barsby emphasised the need for "science-based regulation and decision-making" and added that, because political issues get embroiled with the science, issues arise with timing of the introduction of new innovations.[263] Dr Little confirmed that the regulatory framework has a substantial impact on investment decisions. He noted that BASF had managed to get a GM crop authorised for cultivation in 2010 (amflora potato), 13 years after the first: "you certainly don't want to invest in products for Europe if you believe that it is going to be another 13 years before the next one is going to be allowed in".[264] The political step at the end of the food safety assessment process was recognised as an issue by others.[265] US witnesses observed that food safety assessment in the EU is similar to elsewhere, based on the codex alimentarius,[266] but that, in the EU, there is a political step at the end of the process.[267]

155. Instead, argued some witnesses, the EU should look to encourage innovation in EU agriculture, which would require a re-orientation of the precautionary principle. The Dutch Government raised the possibility that the regulatory environment could make adoption of innovation an assumption, with the requirement being to prove that an innovation is unsafe rather than that it is safe.[268] Dr Bushell emphasised the need for a regulatory environment that, rather than "stopping things happening" is "benefiting the outcomes that we want from agriculture and how it is encouraging innovation in order to get better outcomes".[269] Dr Little put the regulatory regime into historical perspective, noting that the CAP went through a period of overproduction. Consequently, there was little initial interest in technology that allowed more production. He noted, however, that we "are now in a situation where in some ways the overall policies of the EU to reduce productivity have to be reversed".[270]

156. There was particular criticism from witnesses of the restrictive regime for authorisation of GMOs for cultivation in the EU. Several confirmed that, if GM crops were allowed to be more widely available in the EU, they would almost certainly be planted.[271] On behalf of European farmers, COPA-COGECA told us that EU farmers should certainly have the choice to cultivate GM crops.[272] Scientists expressed frustration. Professor Oldroyd commented that "currently what we have is science essentially locked down"; Professor Moloney added that the regulatory framework had made it difficult for agricultural scientists to access funding in areas that will eventually matter.[273]

157. There was also a reminder that a restrictive approach to the growth of GM crops in Europe means that much of the plant protein on which EU animals are fed needs to be imported. Professor Moloney observed: "we will be eating them and using them, but we won't be growing them".[274]

158. Some witnesses, on the other hand, supported the current restrictive approach as regards GM technology specifically. Pete Riley was not convinced "that GM will be the answer to increased yields."[275] He emphasised that a plant "will thrive in an environment as a result of its total genetic base rather than single gene changes"[276] and he highlighted the growing problem of the increasing resistance of weeds to a particular herbicide (glyphosate) in areas where GM crops resistant to glyphosate have been grown. The co-existence of GM crops and organic crops was raised as a concern.[277] Dr Julian Little was confident that both crops can co-exist. He observed that no problems had arisen in terms of organic accreditation as a result of GM field trials in the UK.[278] However, Emma Hockridge described GM crops and organic crops as "mutually incompatible" and brought to our attention the example of an Australian farmer who had lost his organic certification as a result of GM contamination from a neighbouring farm.[279]

159. As regards the development of genetic technology in livestock, Professor John Oldham emphasised the need to "be careful to make sure that we do not compromise the interests of animals." It was also observed that, as a result of complex genome mapping, many of the characteristics of interest of animals and plants are under the control of hundreds of genes, thus making genetic modification challenging. Genomic mapping might help instead with genetic selection. Professor Geoff Simm warned against the "danger that we see GM as a silver bullet to a lot of the problems that we face".[280] Similarly, Professor Godfray considered that "GM is extraordinarily important, but it is one of a suite of innovations from high-tech to low-tech that we need", such as utilising new genomics to mark selected genes and characteristics.[281]

160. We were interested to observe European Commission actions in relation to the EU regulatory framework and the precautionary principle. A Communication in 2000 (see paragraph 153) outlined the Commission's interpretation of the principle in some detail, but the Commission made clear that it should be seen as "the point of departure for a broader study of the conditions in which risks should be assessed, appraised, managed and communicated".[282] Since then, the Commission itself has not reflected specifically on the precautionary principle.

161. In the summer of 2010, the Commission brought forward a proposal to amend the regulatory framework, in order to allow greater discretion for individual Member States to authorise cultivation of GM crops in their own territories once a food safety assessment had been completed at EU level. Discussion of this proposal continued into 2011 but, at the time of preparation of this report, the indications were that in its current form the proposal was unlikely to resolve the current impasse in Europe.

162. More recently, the Commission published a report on the socio-economic implications of GMO cultivation on the basis of contributions sent by the Member States.[283] The report is inconclusive due to a statistical framework which we found to be particularly poor. A review of international literature on the economic implications of GMOs was also undertaken on behalf of the Commission, which similarly indicated inconclusive results.[284] We urge the Commission and Member States to act with urgency in determining a robust set of factors, indicators and rules for data collection that will facilitate a better understanding of the socio-economic implications of GMOs.

163. Good regulation is evidence-based, taking into account environmental, economic and social considerations. We are clear that the precautionary principle must continue to underpin regulatory decisions with regard to food safety. It must, however, be applied with due consideration of available scientific evidence of potential risks and benefits. Reluctance to take a risk can be a risk in itself if, for example, global food security is likely to be threatened.

164. A wide range of innovative new technologies, including biotechnologies, is available for use and for further research. No single one should be seen as the silver bullet that will transform EU agriculture, either in the arable or in the livestock sector; and each needs to be assessed for its wider environmental impact as well as for its benefit to agricultural production. But we are clear that it is critical for reasons of productivity, sustainability and competitiveness that appropriate technologies can be adopted swiftly after proper testing. The EU decision-making procedure should seek to help, rather than hinder, the adoption of appropriate new technologies. We would not recommend that new techniques should routinely be assumed to be safe unless proven otherwise, but there is undoubtedly a need for a much clearer articulation of the potential risks and benefits of any technology. In advancing this debate at a political level, it would be appropriate for the European Commission to re-visit its 2000 Communication on the Precautionary Principle and to re-consider the application of the principle in the light of the grand challenges faced by society.

ANIMAL WELFARE REGULATION

165. Another issue raised with us was that of animal welfare standards in the European Union which can place European farmers at a competitive disadvantage if the same standards do not apply to others. The Commission acknowledged that high animal welfare standards such as the Laying of Hens Directive[285] "puts the industry in a very difficult position compared with ... its most important competitors."[286] Mr de Castro recognised the same concern but emphasised that "we should be proud of our high standards of animal welfare" and should encourage others, outside Europe, to rise to our standards.[287]

166. Professor Oldham insisted that high animal welfare standards need not imply higher net costs: while the actual costs may rise, the returns may rise higher.[288] This was borne out by the Dutch hen housing example (see Box 11 in Chapter 5). By working with industry, animal welfare standards have been increased while improving productivity at the same time.

167. We note concerns that high animal welfare standards in EU legislation can harm the competitiveness of EU farmers on the world market. Equally, however, we would not wish to see a weakening in EU standards as a result. Rather, we have been impressed to see how high animal welfare standards and business efficiency can be mutually supportive, and we encourage partnerships that can develop such win-win scenarios.

224 Q 538 Back

225 Op. cit. Back

226 Op. cit. Back

227 QQ 517-8, 520 Back

228 Q 207 Back

229 Q 560 Back

230 QQ 150, 152 Back

231 IEUA 2, para 4 Back

232 This term refers to the removal of a link between an agricultural subsidy and a particular commodity. Back

233 IEUA 13, para 19 Back

234 QQ 500, 707 Back

235 Q 137 Back