Do we still need public research and knowledge transfer in agriculture?

According to economic theory and practice, the formation and transfer of knowledge form a basis of economic development. Have research and innovation in agriculture indeed been losing importance and their role in development? Perhaps it is also because of agricultural subsidies that the direct demand for knowledge and indirectly also for public applied research is today lower than in the past. Researchers indeed provide less and less direct applied solutions for farmers, as this type of research is less appreciated and valued than basic research. Today, the applied research and transfer of knowledge is increasingly coming mainly from the industry of agricultural inputs, which, however, can only reach the best. Besides, it often follows its own commercial interests and thus fails to adapt the solutions to concrete situations in a concrete geographical environment. The truth is also the more agriculture is undeveloped, the less successful is private research and commercial transfer of knowledge in achieving their economic and public goals.

In European agriculture is often a perception that in agriculture everything has already been known and discovered. This is not and cannot be true. No economic activity can behave this way if it wants to be successful. If nothing else in a large part of Europe, there is still a huge gap in technological development and organisation of agriculture. Also public extension services in agriculture, which have been quite well presented in many countries, call for a serious consideration, as they record less and less contact and support for the best farms and also less success on the remaining farms with somehow development capacity.  In a vast majority of European countries and regions, a well developed public sphere of formation and transfer of knowledge will be required for quite some time.

New “smart” idea: “networking for growth”

The problem of non-competitiveness stemming from non-innovation is a serious one. Apparently, also the European Commission became aware of that. It decided to propose “agricultural productivity and sustainability” as one of the three subjects of the European Innovation Partnership (EIP), new strategic orientations of the European Union. It proposed to use new tools to support “interactive networking” of various stakeholders in the chain of formation and transfer of knowledge from research to farming. According to this concept, researchers, advisers, entrepreneurs and other actors would work together in solving individual development issues. They would have a clearly set goal which they would try to meet by a mutual effort to find new solutions and/or transfer the existing knowledge. This would be a new method of connecting research with practice at the European and national levels. Last but not least, by this approach the Commission would apparently try to indirectly contribute to the modernisation of agricultural policy.

The funds will be provided at the European and national levels. At the European level, various projects of transfer of knowledge, support to thematic networks, establishment of pilot and demonstration projects would receive support under the research policy (strategy “Horizon 2020”). Some of these projects have already been present today, also now they are expected to operate at the widest possible European level.

The greatest novelty of the new concept lies in the new accents of the rural development policy. In the future rural development programmes for individual regions, the Operational Groups will obtain start-up funding.  These funds will be earmarked for cooperation of individual stakeholders, their common information activities, organisation of workshops, gathering and transfer of knowledge on best practices, etc. Particularly important will be the pilot and demonstration projects by which new or existing solutions will be tested in the new environments. It will cover all types of innovation, technological or non-technological, organisational or social. Operational Groups will not be linked to a particular area but will be organised on the basis of a common concrete problem.

Lets talk about the concept

The concept is rather abstract, modern, but still rather vague. More than 200 representatives of various groups of potential stakeholders of the future EIP system for agriculture therefore attended with great expectations the conference organised by the Commission in Brussels on 19 November. The organisers intended to popularise the EIP concept and obtain the opinion of various European groups on the priorities and methods of operation of the partnership, all with the goal of enhancing the concept. I attended the conference as a representative of the European Association of Agricultural Economists.

In the first part of the conference various already functioning ideas of cooperation between research and practice were presented. An Austrian organic farmer presented his company which uses various development projects to reach consumers in a more innovative manner. An agricultural adviser from Poland presented a network which brings together demonstration farms in Poland which present various technologies and practices related to environmentally-friendly and more efficient use of soil. A project »Dairyman« brings together the dairy farmers, students, advisers and researchers who examine and learn about how to manage more efficiently dairy farms on 130 pilot projects in 10 regions of northern and western Europe.  A representative of a Flemish innovation support centre presented how a pig producer put to practice an innovation related to a new method of treating liquid manure in a way to reduce ammonia emissions. A potato producer from the Netherlands presented how they used various projects to test in practice the innovations in the area of precision agriculture. A researcher from Italy reported on the results of a large research project in the area of integrated pest management, where a wide range of researchers from the EU countries develop and transfer to practice the technologies of smaller pesticide input and better risk management in this area.

The second part was a attempt to involve all the participants in a large workshop dedicated to setting priorities and activities of EIP.  The results of this workshop primarily confirmed the necessity as well as the goals of the new methods in the area of agriculture and in this manner helped legitimise the Commission’s approach. By and large, it was not difficult to agree that improved connecting and networking of individual links in the chain of knowledge would contribute to a better income position in agriculture and in rural areas as well as to sustainable management of natural resources.  The workshop also showed that there are still a lot of ambiguities concerning the implementation of this concept in practice, in particular as regards the definition of assistance for the formation and functioning of operational groups in the rural development programmes.

Some are confused

The representatives of ministries for agriculture of Member States expressed their doubts about their proper understanding of how they should plan and form these measures; they admitted their fear that because of potential incorrectness established later, the regions and countries would have to return funds to Brussels. Certain uneasiness was felt on the side of environmental organisations, as a clear emphasis on the need for new production technologies and greater productivity was not in line with their general environmental paradigm and orientation to organic farming.

It was interesting to find out that mostly the representatives of some economically and therefore agriculturally more developed Member States prevailed in this Babylon discussion. Will this new concept again be suited to the needs and social values of the northern part of Europe? The east and the south still feature rather undeveloped agriculture, unused potentials and inadequate formation and transfer of knowledge. Will the institutional solutions as to the definition of research issues and methods of supports to the transfer of knowledge thus really get to where they are the most needed?

Please, not new innovation for redistribution

Regardless of these questions, it is necessary to welcome this new shift in the approach of the European agricultural policy. We recommend it to be less abstract and involve less “sweet talk”. EIP will need to be translated as soon as possible to the administrative language of rural development programmes and research policy priorities. The approach needs not only to enable easier realisation of the mostly good ideas of connecting science and practice, but it has to result in actual changes of the key development indicators. It should also be proved that this knowledge will actually get to the farmers and agriculture. Therefore, a new system of monitoring and assessment of these measures will need to be established. More suggestions need to be given to the drafters of measures on how to prepare these supports. Why not in the form of conceptual outlines of various possibilities of defining supports for operational groups?

On the other hand, the researchers and advisers who will be the key stakeholders in operational groups should not see this new support only as a new possible source of finance, but more as a commitment to achieve together with farmers the real results in practice. EIP must not become only a new, more sophisticated form of redistribution of public funds, but a real support to the development and growth of the European agriculture. And it should not be a problem if it stresses the importance of larger and more efficient production.  But the formation of a new innovation policy is not only a task of the Commission. The success of the partnership can only be assured by the shift of mind and a change in approach of all the involved stakeholders and by the awareness that knowledge is an essence of development and survival.

Emil Erjavec

Two major groups have been formed in the negotiations on the MFF, which is manifested in common meetings and statements. A group of net payers comprises of 10 Member States (AT, CZ, DK, FI, FR, DE, IT, NL, SE, UK, all of them except CZ net payers). It is known that this group wants to reduce the proposed volume of the MFF by 10 % or by around EUR 100 billion, i.e. from 1.11 to 1.0 % of the EU GNI. On the other hand, there is an informal group called Friends of the Cohesion, comprising of new EU Member States (including CZ, which takes part in both groups) and southern European Member States – GR, PT, ES, all great beneficiaries of the cohesion funds and currently in a strained economic situation. All friends of the cohesion except CY and ES are net beneficiaries from the EU budget and advocate the preservation of the volume of the budget as proposed by the European Commission.

CAP conservatives are prevailing

However, the groups are not as homogenous as it could be expected. They differentiate largely on the issue of where the savings should be made. It has probably been clear to all participants that the Commission’s proposal cannot be preserved as it is. The EU is in a difficult financial position and something has to be made also in terms of the budget. No doubt, the funds for competitiveness will be at a loss. But this will probably not be enough. The key issue in the negotiations on the MFF is thus whether to save funds on the Cohesion or Common Agricultural Policy (mostly Pillar I), as these are the two EU policies taking up most of the EU budget. Member States are thus further divided into new groups manifesting also the special power of agricultural interest groups.

The first block – the CAP conservative block consists of the countries which believe that the Commission has already gone too far by nominally freezing the amount of budgetary resources and that any further reduction is out of the question. In this block, there are the net payers and traditional supporters of the CAP: FR, ES, IE, BE, DE, AT, as well as net beneficiaries with very strong agriculture, strong agricultural interest groups or perhaps even with problems drawing on cohesion funds (RO, BG, HU, SI).

Another issue for the conservative group of old Member States is the proposed reduction of direct payments (convergence of payments) for those with high payments, where most of these countries belong to. These countries strive for the lowest possible reduction of payments for the countries with above-average amounts per area. Some of them advocate a partial preservation of historical payments and thereby smaller convergence among agricultural holdings also after the expiry of the MFF (e.g. PT, IE), other highlight the pointlessness of the equal amount of payments for arable land and grassland and therefore propose various levels of payments in terms of land use (AT, SI).

The second block – the CAP liberal block supports considerable cuts in budget expenditures. This block has been traditionally guided by the UK, and consists also of SE, NL and DK. They brought to the negotiating box a proposal that the resources for the Pillar I of the CAP should be gradually reduced over a certain time period. This of course strongly upset the conservative block and led to further polarisation of positions.

There is a group of countries in-between the two blocks, which is ready to consent to the reduction of the CAP Pillar I funds, but mostly in order to reduce the pressure on cohesion and rural development policy. In this group one can discern PL, as well as CZ, PT EE, LV, LT. This group even enhanced the liberal positions on the CAP funds. They would even be prepared to accept the reduction of Pillar I funds (of course, mostly direct payments) if the countries with below-average level of direct payments are excluded from the gradual reduction. By this proposal, this group of countries complemented their previous position to the proposed convergence of direct payments. So far, the members of this group, joined also by HU, BG and RO, criticized as insufficiently ambitious and thus unacceptable the Commission’s proposal of a partial rise of payments for the countries benefiting from below-average (below 90 %) amount of payments per area.

CAP reform issues mitigated

The next issue of budgetary negotiations is the greening of direct payments. According to the Commission’s proposal, it would be compulsory to implement special measures for the greening of agriculture for 30 % share of direct payments. Political positions of all Member States have been reserved. The administrative burden of the measures as well as their actual impact on the environment is questioned. Most countries would be ready to accept the proposal, if it was either non-compulsory or the share of direct payments was lower, or if its implementation was simpler and adapted to different situations in Member States.

Another contentious issue is capping of direct payments. The greatest opponents are the countries with predominantly large holdings (e.g. UK, CZ, FR, SK, HU, as well as DE). The main argument is that the measure hampers the competition of European agriculture. But the fact is that most countries support the capping measure or at least have no serious objections.

An interesting detail of the budgetary negotiations is that the volume of funds for Pillar II – the rural development policy is not clearly defined down to the level of Member States. Like in the past budgetary negotiations, it seems that the distribution of these funds will serve for the eventual balancing of the amounts among the Member States and reaching of the final compromise. It is the part of the MFF which will most probably not be agreed upon by the very end of negotiations, as many Member States make it conditional on the amount of funds for direct payments and cohesion policy. Two groups of countries support strong rural development policy; firstly, there are countries which have so far benefited from these funds and see it as an important source of development funds (e.g. AT, SI, FI, MT, PT, CY) and secondly, there are countries which place Pillar II ahead of Pillar I (e.g. UK, SE, CZ). The methodology of distribution of these funds among Member States is in any case still unclear. Economically less developed members strive for objective criteria of distribution (economic development, size of agriculture) and not so much for criteria of the past performance. On the other hand, the largest relative beneficiaries of these payments insist on the past performance criteria, in particular SI, FI, AT, MT.

The CAP reform will no doubt lead to a drop in the overall amount and a redistribution of funds among the Member States. Therefore, a number of countries, including the most influential F and DE require joint negotiations on the two CAP pillars. Mostly the western part of Union sees the distribution of rural development funds in the light of possible compensations for the losses in 1. Pillar direct payments. Of course, there is the opposite side here too, which claims that these two pillars of agricultural policy have different goals and can therefore not be compared in terms of the envelopes per ha; this is why joint negotiations are not possible. Some countries also insist that no country should lose in both pillars.

All about net financial positions  

Although it is rather risky to predict the outcome of negotiations, there are some signs indicating the possible direction of final solutions. The available overall amount of the EU budget will be smaller than that proposed by the Commission. Mainly, it will be probably at the expense of the funds for competitiveness. But this will not be enough. When choosing between cohesion and agriculture, it will most probably be the cohesion policy that will come off worse, given the balance of political and economic powers; an important part of the net payers namely support the preservation of funds for Pillar I. It is more likely that the funds for Pillar II will be reduced. The final distribution of Pillar I resources among the Member States will most probably be close to the Commission’s proposal, but the losses of the old Member States will be compensated for by the rural development policy. The other CAP issues, such as greening and capping, will be most likely watered down already during the budgetary negotiations, and further on during the negotiations on the CAP regulations at the level of agricultural minsters, which will apparently be concluded at a later stage.

Let us conclude by saying that also this time negotiations on the EU budget are mostly a (gun)fight for preserving or improving the net position of Member States. The CAP, with all discourse and interests it involves, will importantly contribute to it. What objective criteria, what strategies? It is only about the political-economic reality and pragmatism, which only proves that the European Union is not yet ready for a common responsibility and more efficient public policies. It is all about the money and political power at home, on a domestic stage. As if the difficult times have not yet convinced us about the incredible need for a change, for a reinvigorated European idea.

 Emil Erjavec

Photo Credit: Thom  Ross Gunfight at the OK_Corral.

Competitiveness and innovation in the agriculture of new Member States before EU accession can be assessed as relatively poor. In a part of the area, the situation even resembled the situation in developing countries. In the parts where a certain level of development was achieved, i.e. closer to the Central Europe part of EU, extreme structural deficits were perceived. There was an obvious need for a development policy that would support restructuring and enable a new development cycle of agriculture.

Strong RD funding for modernisation of farms

Comprehensive European resources from the pre-accession and accession rural development funds were thus of great help. The issue of raising competitiveness became one of the key priorities of the rural development programmes in the region, which account for 35 do 65 % of total funds per country. Comprehensive support programmes were formed, with support to capital investment to agricultural holdings and to the food processing industry as the prevailing measures. Direct support to innovation was not apparent, but some countries used the support for extension services and knowledge transfer.

Thus in the period from 2000 to 2012, the region received a strong financial injection of public funds for development and modernisation of agriculture. No precise calculation was made, but according to estimates, more than EUR 20 billion of EU and national funds were invested for these purposes. This is a huge investment which should contribute significantly to raising competitiveness in the entire agro-food chain.

Impact assessment of the policy is quite demanding: existing national evaluations are rather bureaucratic and do not go beyond simple descriptions of fund distribution and numbers of approved projects. Not many analyses of macroeconomic effects are available at the level of the entire region, only some partial analyses, which, however, expose problems in programming and implementing this policy.

Creating new landlords?

Funds go mostly to individual large projects in agricultural production and food industry, as well as to the purchase of agricultural mechanisation, which reaches a wider circle of beneficiaries. Large modernisation projects are mostly granted to large agricultural holdings (private individuals or companies) which are capable of meeting the demanding criteria for obtaining of funds. They usually involve building and comprehensive planning of stables, ecological facilities, bioenergy plants. Partly, the projects involve the replacement of old facilities, mostly for increasing the capacity, and for sanitary, environmental and animal welfare adaptation. In food industry, the projects mostly involve establishing of new plants to replace the old ones which fail to meet the hygiene and environmental standards.

Only rarely do the projects involve completely new approaches and innovation, but rather the transfer of the most recent technologies which already exist in Western Europe. Thus, the innovation element is not particularly present in agriculture, the technological innovation mostly comes from Western European industry and is usually adapted to the management of larger holdings.

A number of successful projects of this type can be found in new Member States, ranging from half a million to several million EUR worth of investment. If we disregard some cases of corruption and bad investments, these are mostly successful cases of establishing new economic infrastructure. Often, these holdings obtained several projects from EU funds, becoming their special preoccupation.

The fundamental question is how such an approach actually contributes to changing the structure and raising competitiveness. It probably involves around 3000-6000 agricultural holdings (in the whole region) or one per 20,000-30,000 ha of agricultural land and 40,000-60,000 of rural population (all very tentative estimates). These investments are very often unevenly distributed across regions.

Such an approach and extraordinary inflow of funds importantly contributes to raising the competitiveness of a few individual holdings, but not of agriculture at the aggregate level, neither does it significantly contribute to improving the welfare of the rural population. On the contrary, it widens the differences among the rural population: the EU funds creating a type of ‘new landlords’ who then tend to take ownership as well as the political initiative.

Policy makers are of course afraid of making wrong investments, and therefore prefer to give funds to those who are clearly capable of implementing the projects, in terms of the capital and substance. Although a new competitiveness ‘lever’ is established, some important goals of the rural development policy fail to be met.

Support for selling mechanisation and equipment

Otherwise, investment in equipment and mechanisation reaches a wider circle of beneficiaries. These applications are less demanding and public funds in fact contribute to the improvement of capital assets and help solve capital “malnutrition”, for these farms. These funds are much better accepted by producers, as they enable them to acquire modern equipment, in particular machinery (tractors, etc.). But also, the measures have certain weaknesses. They can be granted to everybody, regardless of the development perspective of holdings, although small and subsistence farms are excluded, because they are not able to provide their own funds or they are excluded by the planners. Often, farmers purchase very expensive equipment, which they thus get at very cheap prices, but they speculate that they will be able to sell it after the compulsory period expires. This pushes up the price of mechanisation, on the market.

Considering this, there are substantial deadweight losses in the distribution of public funds. Also these measures often have a concrete impact on individual holdings, but not so much raising their competitiveness, merely helping them stay on the market. Neither could it be claimed that these measures substantially improve the competitiveness of agro-food industry at the level of the state or region. The innovation element is also lacking, as it is mostly about the purchase of mechanisation produced by technology from elsewhere (even if the equipment and mechanisation is produced in new Member States).

No “green revolution”

Finally, the development of innovation and knowledge transfer in NMS seriously lags behind the new investment. It is not the priority of the EU funds, but entirely left to national financing. The whole region lacks a suitable infrastructure for the formation and transfer of knowledge and innovation development. The expected ‘green revolution’ did not happen after accession. Thanks to subsidies, incomes in agriculture improved, but the value-added did not increase, neither was there any significant break-through at the level of groups of producers and regions. The absence of national investment to innovation and knowledge transfer, which has further deteriorated since the beginning of the financial and economic crisis after 2007, is an important reason behind the lack of more integral development. Knowledge formation at the national level is weak, in some cases even weaker than before the transitional period. Although public extension services, which are meant to assist also smaller producers, exist, they are more engaged in assisting them to access public funds than contributing to technological and organisational development. To exaggerate a bit, these countries transposed from the Western Europe the democratic interest-lobbyist manner of organising agricultural interests, but almost completely failed to transpose a comparable European public system of knowledge transfer. There was also no systematic support from the European government or non-governmental organisations for these functions.

RD as only redistribution policy

The reasons for the current situation are multi-faceted and stem not only from the predominant methods and approaches to programming and implementation of rural development policy, but also from the general perception of agricultural policy measures, as well as competences and capacities of the human resources and institutions necessary for their efficient implementation.

The decision-makers and also the entire agricultural sector view rural development policy too much as a tool for the redistribution of funds in agriculture: only important in order to achieve the greatest possible absorption of the EU funds and satisfy well-organised interest groups. The quality aspect and the actual meeting of the strategic goals of rural development policy – at least by definition – only come second. The policy programmes are not based on real analysis of the situation and identification of problems. Often there are inadequate data and analytical bases to pursue such an approach. What is preferred is simple solutions which often stem from a merely bureaucratic transposition of solutions from other countries, and are not a result of a rational reflection and search for the best possible solution in a real-world environment. They do not take sufficiently into consideration the actual situation in a region and/or sector.

The production-based, partial approach prevails, instead of an integral economic approach. Programming is predominantly by administrative elites, which prioritise the needs of administration and fear of failure to meet the EU criteria over the search for ways to stimulate greater competitiveness. There is a critical lack of vision for a sustainable development of agriculture which would be based on an integrated view of the situation and its development opportunities.

Innovation as an important factor in competitiveness is usually not included in the spectrum of approaches. There are only rare cases of more sophisticated approaches based on the development of human resources and transfer of knowledge, and encompassing a wide range of beneficiaries.

The deficiencies in programming thus further lead to inefficient implementation of measures. Overcome by fear of failure to meet the EU criteria and of fraud; administrators design extremely complicated implementation systems which are not friendly to beneficiaries, but on the contrary, narrow the circle of applicants to those few beneficiaries who have sufficient funds and knowledge to respond to such complex calls for tender. Calls are fragmented by individual sectors and types of capital investment. The selection is usually bureaucratic-based, not based on a comprehensive assessment of the business idea and its realization, but merely on meeting numerous standard and pre-determined criteria.

The failures of impacts evaluation system

There are only a few cases of comprehensive and objective assessment of tenders which engage experts and specialists in various competitiveness issues. There is a lack of skilled human resources in the relevant ministries and paying agencies. There is a general deficit of broad and relevant agricultural-economic knowledge in civil society in these countries, which is necessary for comprehensively addressing development issues.  This is not only a problem in the public administration but also among the interest groups, extension and research institutions.

The entire system of programming and planning rural development policy lacks sophisticated and integral solutions and therefore falls victim of the poor quality of public administration, lack of capable human resources and the burden of absorption of EU funds. The European Commission is not of great help here. It is a part of the rigid administrative system. It is not viewed as an adviser but as the guardian of legitimacy. This is in a way understandable, but it often narrows the programme perspective and the potential measures by expecting RDPs to use already existing solutions and restrictions. It is sceptical about investment in both small and very large farms. It always targets the centre of the structure, the medium family farms which are, however, very rare in Central and Eastern Europe. By its approach, the European Commission no doubt contributes to the inefficiency of rural development policy in the new Member States, in terms of competitiveness. Its main goal is that the programmes are implemented and that the funds are used, in line with the legislation.

Although rural development policy has an extensive system of evaluations in line with the policy cycle theory, these are unfortunately only bureaucratic exercises. They are ordered by the ministries, which, of course, do not want to be criticised. Because of the complexity of the issues involved, these evaluations are very demanding and are beyond the scope of many of the companies dealing with them. As experience shows, there is no real cooperation between evaluation groups and the Commission, which could contribute to a better quality of programmes.

Finally, the perception and the concept of agricultural policy in these countries are, in many ways, quite specific. Apart from the countries with a relatively liberalist attitude to agriculture, such as the Czech Republic and Latvia, the protectionist attitude prevails in most other countries, placing an emphasis on production and national food security. What is usually seen as a societal problem is the poor exploitation of resources and low income situation of farmers. Environmental issues, which importantly affect perceptions of agricultural policy and its formation in Brussels, Berlin, Paris and London, are in this part of the Community largely seen more as an administrative burden than a public obligation. In most of these countries, the decision-makers and the public see the provision of a sufficient quantity of food for the domestic population as the essence of agricultural policy. Thus, competitiveness is not perceived as the key issue of agricultural policy. Although structural indicators of agriculture have been mostly trending upward since  accession, they still reveal the low value-added of agriculture, a lag behind in productivity, unused production potential, and growing negative social trends.

Poor public knowledge transfer system

The investment support system apparently at least works, but with certain problems of efficiency and real impacts. But the situation is more alarming as regards the promotion of innovation and knowledge transfer. Innovation is rarely present in the agricultural policy approach. Public systems of knowledge transfer only exist in outline, and their effects are questionable. This part of the agricultural infrastructure and policy is faced with lack of funds as well as a rather disrespectful attitude of decision makers towards investments in knowledge. Under-development of a public research and extension network significantly affects the efficiency of support aimed at raising competitiveness.

The problem in new Member States is not only the search for basic development solutions and their transfer, but also filling technological and organisational gaps. The institutions in the chain of knowledge lack funds and human resources. Potential young academics prefer to search for other types of employment as these professions are less attractive, not only financially but also in terms of status. Rather than engage in technological development, the developing agricultural science largely prefers to engage in basic research in applied biology and biotechnology, the sciences where national and international projects can be won but which are not directly useable in knowledge formation and transfer for agriculture.

Support for better policy: Commission working like OECD secretariat?

To be able to thoroughly reflect upon the situation and search for proper solutions, the Commission should establish services that would engage in constant monitoring of policies not only at the level of the Community but also at the level of individual Member States. They could have a similar function as, for instance, the OECD secretariat has for its members, which carries out constant and objective monitoring of agricultural policies (PSE calculations, dealing with certain issues). In addition, an institutional framework should be established in the form of committees, which would comprise  independent experts who would give their opinion on the policy and also monitor the situation. This could be a kind of advisory body for sustainable competitiveness (or for other issues of agricultural policy, e.g. environmental and territorial).

Moreover, the rural development programmes, evaluations and individual issues should be subject to proper expert reviews, not just the bureaucratic ones which prevail today. There is a need to educate and licence suitably qualified evaluators, who would then have an independent mandate and would assist the Commission in its assessment of whether to approve a certain programme. Also external experts would need to be included in the process of approving the programmes, who would provide their opinion and in this manner contribute to better quality programmes.

The European institutions should also adopt new guidelines on good practice in the area of raising competitiveness and in particular innovation. Implementation of these practices in member States should also be monitored and special bodies should give recommendations.

Recognition of the issue at the national level  

At the national level it should firstly be that competitiveness becomes the central issue of agricultural policy and that innovation and knowledge transfer gain importance. Furthermore, it should be reconsidered how to approach different groups of producers in terms of market size or capital power. Economic approaches should be pursued to a greater extent than currently. Licensing and special forms of education should be put in place for programming and evaluation projects.

In the area of extension services, rural development policy should support the formation of networks and workshops where producers of various types join together and, using modern communication approaches, search for concrete solutions for individual groups and cases. Support to extension services should constitute an important part of overall support. Even a compulsory share could be considered.

Special attention should be paid to the formation of more efficient research support for raising competitiveness and innovation. Rural development policy funds should be used to support the formation of demonstration centres, projects aimed at filling technological gaps, researching biological, mechanical and organisational progress, adapted initially to the situation in a concrete environment in a Member State. A lot could be achieved by a more efficient transfer of solutions from foreign environments which, however, need to be properly tested and adapted to the new environment. Public support to research and education institutions has multiplier effects. In the given economic situation and considering the social role of agriculture, this could not be achieved without support from the EU funds.

Also the national decision-makers should be convinced about this, as they still view income support as the main tool for raising competitiveness and pay less attention to support to restructuring and knowledge transfer.  An important contribution could also be made by the discussions and strategies adopted in the European Parliament and other European institutions.

Emil Erjavec

Greening of direct payments is the focal point of the Commission’s legislative proposal. By this measure, Commissioner Dacian Ciolos substantiates the reform orientation and greater target orientation of the proposed new Common Agricultural Policy. Out of all funds for direct payments, 30 % would be allocated to fulfilling the environmental conditions, which is EUR 12.5 billion annually and five times more than the amount of funds for the agri-environmental measures under the current rural development policy.  The impact of agriculture on the environment is undisputable; we economists understand it through the concept of externalities or public goods, as something that cannot be regulated societally correctly by market forces.

Two poles: environment as target or excuse?

In last two decades, the arguments for the reform of traditional agricultural policy through targeted support for eco-system services of agriculture have been strengthening. The latter is also a part of the pro-reform campaign by the environmental organisations, which also emphasise that these services need to be carried out in a controlled manner. On the other hand, the representatives of European and national farm organisations and most Member State governments do not give an impression that they are actually standing for such an argumentation of the reform. For most of them the environment is just an unnecessary obstacle; they accept with clenched teeth the proposed direction of reform, “understanding” that there is a need for a new justification of the preservation of extensive support for farming. Moreover, there are the barely living WTO negotiations which call for the reform; if they are by any chance brought to an end, the European agricultural policy would also need some argument to be ranked among the less distortive type of measures, which makes the reform urgent.

In this game between the two poles, again the political-economic reality is the winner. Commissioner Dacian Ciolos apparently played on both cards, but it will be interesting to analyse which side he wanted to please more with the very concept of the policy. It needs to be explored whether the substance of the proposed measures even allows for a more targeted and environmentally tailored orientation of the policy, or is it more about the fight for preservation of the money for agriculture or, as some critics say, the reform is more about the “green washing” of the reform. As a rule in public policies, the devil is in the detail, which is why we shall analyse some key issues of the greening components of the direct payments as the key concept of the future CAP reform.

The amount of funds for greening was set at 30 % of all direct payments. How was this percentage determined? Was it a result of an estimation of the necessary amount of eco-services? Definitely not, as no such study was mentioned by the proposers. The impact assessment, which is, by the way, technically questionable and could not easily survive any methodological examination by a doctoral seminar of agricultural economics at renowned universities, speaks of the loss of income caused by the greening measures, but it includes no calculation leading to this concrete percentage. Even if they decided to set this level arbitrarily, because it is not possible to set it in any other way and it is most easily justified politically, the fact is that the need for greening of the policy and the understanding of such argumentation differs significantly across Member States. European agriculture is very heterogeneous and the environmental burden of agriculture is the heaviest in the countries and regions alongside the North Sea, where intensive and largely monoculture production prevails. In these areas, this is also a societally and publicly very relevant issue. But there are also areas in the EU where agriculture does not present an environmental problem or is at least not seen as such by the public. It is almost perverse to talk about target-oriented eco-services for instance in some areas in the eastern part of the Community (e.g. eastern areas of Bulgaria, Romania and parts in the Baltic States), where rural poverty is a real problem, where vast areas are not cultivated and thus remain in half natural condition. And they are supposed to pay for eco-services!

Apparently, the reform proposers see and judge the situation in agriculture and public awareness of it predominantly from the point of view of a very narrow part of north-western Europe. The damage caused by such arbitrary solutions, however, will be done elsewhere. The greening funds could only be a sum of target measures taken in the actual areas and with due consideration of the actual preparedness for payments. All the rest are just political excuses for the policy or for the greening.

Environmental or only political benefits?

In substance, there are three “greening” conditions which agricultural holdings will have to meet. The first condition is crop diversification on arable land. Holdings must record the minimum shares of at least three crops. This is meant to prevent the cultivation of environmentally non-sustainable monocultures, reduce soil erosion, loss of organic substance in soil and pollution of underground waters. This is definitely not a bad proposal to improve the environmental dimension of the agricultural activities. It will limit the decisions of farmers and force them to introduce better agricultural practices. The question is whether the three crops condition is actually related to any additional costs? Agronomists will ask whether the crop rotation is not the very standard in production, which has been written down in schoolbooks for decades as it leads not only to better environmental but also to long-term economic results? Why would it be necessary to additionally pay for this? Some Member States, also some new ones, e.g. Slovenia, have fulfilled this condition even to a stricter degree in the current cross-compliance requirements. For these countries, the introduction of crop differentiation instead of crop rotation would mean a step back and therefore no serious progress in eco-services. They will need to preserve these measures, this is true, but we cannot help feeling that this condition was merely set to justify the preservation of the existing level of funds for agriculture without any known or measurable additional environmental benefits, at least not for an important part of the EU regions.

The second condition is that agricultural holdings need to maintain practically the same percentage of permanent grassland as in the reference year (2014) also in the future. Grassland is important for preservation of habitats, it accumulates greenhouse gas emissions and thus contributes to the mitigating of climate change impacts. Permanent grassland is the land where no other agricultural use is possible or where green cover has been in place for several years. At least for a significant share of the “real permanent grassland” where no other agricultural use is possible, it is somehow useless to speak of maintaining the structure of use. Extensive grassland in the alpine, mountainous and karst regions are a part of cultural landscape and have at least some public value. To be able to keep them, it is important that their use is economically viable. And in many of these areas this could be achieved by the combination of current payments with some reasonable, possibly extensive breeding of animals and production of high quality traditional food. So, here the greening is not the first argument for the support and if the proposers think to preserve the landscapes they have to consider a broader concept of support rather than preserving the share of permanent grassland; it is too simplistic.

 Also the impact of the conditionality to preserve the grassland on habitats is questionable, as it does not distinguish between different types of grassland; it should largely contribute to preserving those types of grassland which have an actual environmental value and not to the intensive production on the grassland which, for example, prevails in the flat regions around the North Sea.

 Much more bizarre is perhaps a recognisable hidden intention to keep the vast uncultivated grasslands in new Member States outside the intensive agricultural production. It is a discriminatory and unfair intervention for these countries and should not be part of public financing scheme. The fact is that this part of Europe is already in a less favourable position in terms of the level of payments, as it was determined during the accession negotiations based on lower intensity of production at that time; therefore any additional conditionality that would hamper development and production of food in this part of Europe is very unfair and politically destructive.

 In short, the preserving of grassland share not only lacks a clearly defined target, which could lead to additional problems, but also its environmental effects and economic justification are questionable.

 Magic 7 %

However, even if we could live with the first two conditions seeing them as the necessary political economic reality despite their limited environmental impact and poor economic justification, the introduction of “ecological focus area” could be a real nightmare. Farmers, bureaucrats, politicians and environmentalists, they have all been banging their heads about how to actually implement the measure of setting aside 7 % of farming land, excluding permanent grassland. Here the proposal speaks of some landscape or environmental elements in the use of land. We can imagine field margins, terraces, groups of trees as well as buffer strips contributing to a better landscape and habitat diversity. But reading the current proposal, these elements would need to be introduced on the arable land on all holdings. This is an example of spatial deindustrialization of agriculture.  And there is no need to guess that 7% is only a political magic number. Very brave, but will it work out?

 The EU regions differ significantly in terms of spatial use. We can agree that it is sensible to introduce new landscape elements in the monotonous pools of land along the North Sea and some other areas. It is, however, very contradictory to introduce such measures in a large part of southern and also central and eastern Europe. In these areas, which are marked by fragmented land ownership structure in agriculture and naturally diverse terrain, a large share of forest and grassland (e.g. Alpine and Scandinavian countries as well as a large part of the Mediterranean), the diversity condition applies intrinsically. In these areas, it is more about the quality of these elements and their disappearance because of abolishing agricultural production.

 In a country such as, for instance, Slovenia, landscape elements have been excluded from the areas eligible for direct payments for the last several years, with a view to preventing any incorrect subsidizing. This resulted in additional administrative work and quite some dissatisfaction as well as concrete damage for individual farmers. In Slovenia, it is unconceivable to create some new Potemkin villages of landscape elements in the present structure of agriculture, as the average size of agricultural land is 6 ha, the prevailing area is permanent grassland, and the forested area is expanding and currently accounts for more than 60 % of total area. From the environmental point of view, it would perhaps be sensible to implement this measure in a small (representing only a few per cent of total area) area in the north-eastern flat parts of the country. When mentioning this issue to some EC representatives we were told that that this should not be a problem for Slovenia, that only the areas which have so far not been included into areas eligible for subsidies system (and were excluded for the last decade) should now be added. This is a simple bureaucratic answer, which, however, entails huge administrative costs, a bulk of administration and additional stress for each individual farmer, in many cases a less-educated elderly head of agricultural holding. And all this just to justify subsidies but completely disregarding real environmental effects, huge public costs and dissatisfaction among farmers? Could such areas, i.e. the areas under NATURE 2000, mountainous areas or areas with prevailing grassland or forest not simply be excluded from such requirements? It is rather worrying that the Commission has not foreseen this problem and that it should be addressed only now, in the political negotiations, when the majority coalition needs to be formed to effect any change, which is extremely difficult without the Commission or large countries on your side.

 Please, propose something more consistent

Last but not least, there is a question of how this environmental orientation through a greening component of direct payments will be paid at all. As these are in fact additional conditions, they could become a part of the existing cross-compliance conditions for granting direct payments. They would only need to be adapted to the situation in a certain region, whilst some general conditions would also apply. That would be relatively easy compared with the above mentioned system. But, obviously, such a proposal would not be politically “sellable” neither for the public nor for the WTO and was therefore opposed to also by the Commission; which reduced any chances if its realization. As this special greening package will apparently be implemented, the farmers around Europe have already started to speculate how to avoid these expensive solutions and come to terms with lower (70%) payments. This is not compatible with the logic behind the proposal, which defines the greening component as a general condition rather than a supplement. In negotiations and implementing acts, we can therefore expect pragmatic solutions that will eventually result in an even less green greening policy.

All in all, the greening proposal seems to be mostly a political and rather symbolic act, a political bone to chew on, which could eventually, when it comes to practical implementation, stick into somebody’s throat. The proposal has not been very carefully thought out and has more elements of “washing” than of seeking target-oriented tailor-made solutions for a policy. Can the EU really afford to accept it as a political economic reality and the most that could be achieved at a given moment? In these times of political and economic crisis, Europe should not afford it. Greening of CAP is a shame for the EU. Such decisions only further deepen the distrust of public policies and increase uneconomical spending of public money. The proposal is so inconsistent that political negotiations could in no way improve it, only further spoil it. It should be admitted that the “emperor is naked” (or better that “he is not green enough”) and the proposal should be returned to the Commission to prepare a better and a less political solution. The fact that the Commission “negotiates” in advance with stakeholders from large Member States and non-governmental organisations of both poles even before tabling the proposal makes Europe even less efficient and more confused. Greening of the CAP is a good example of such practice, regardless of it being a question of “sly intentions” of its creators to serve all interests or merely a question of incompetency (or God forbid imbecility) of the whole proposing procedure.

 This post was written by Emil Erjavec   

The new CAP reform has been promoted by its creators as being more target-oriented and better adjusted to what the public expects from the funds invested in agriculture. To meet these expectations and particularly to preserve as much funds for agriculture as possible, the first pillar direct payments have been veiled under various new support schemes. The most important ones are the basic payment scheme and its “greening” component. Let us focus on the basic payment, which will take up from 43 to 55 per cent of the direct payments envelope.

Politics trumps economics

The aim of the basic payment is unify the payments among the Member States and at the same time provide a kind of income support to agriculture. It could be understood as a single regional payment, i.e. a single payment per-hectare of all eligible areas in a region; the size of the region has not yet been defined, so far the condition was set at a minimum of 3 million inhabitants. The regional payment was available as an option already in the Fischler reform of 2003, but was accepted only by some countries, namely the more important ones and the net contributors to the European budget, such as Germany and majority of the Great Britain.

The proposal, therefore, does not unify the payments at the European level. Although this would seem reasonable in terms of levelling the competitive conditions for all European producers, looking at the income nature of payments, it does not have any particular sense, not least because of the differences in purchasing power and costs of agricultural production. Here, the reform-makers missed an opportunity to introduce greater objectivity in setting the level of payments across the regions. The decision to compensate for a part of the differences to those who receive considerably less by taking from those who receive more than the average European payment is of course merely a political one. Its real purpose is to preserve the greatest possible share of historical rights and to add something to the countries with lower payments, such as the new EU Baltic States and Romania and thus calm them down. This is obviously a political reality, with striking of balance between the interests being the basic goal of European integrations.

One size does not fit all

The second problem with the basic payment is its purpose. The reform-makers promote, sometimes more sometimes less bravely, the income nature of these payments. By this measure, agricultural policy is meant to promote higher standards by means of cross-compliance rules and at the same time contribute to greater competitiveness of European agricultural production. We cannot help but saying that this is a mere agrarian political storytelling. The truth is that the CAP preserves a part of the historical legacy that had been accumulated over years of price supports and later direct payments, always based on the support to very particular agricultural sectors. Also this is a political reality which, however, allows the creation of new failures of agricultural policy. It is these failures that we want to pay some attention to, as they are not very often a subject of debate of the CAP reform, neither on European nor national levels.

What is it about? The new defined basic payment actually neglects the different production capacity and income potential of different uses of agricultural land. A uniform level of payments would be justified if various uses of land could be fully interchanged, if different types of land would provide at least comparable profitability, let alone a comparative income, speaking of the income-related objective of this payment. By introducing a uniform level of payment for arable land, permanent crops and permanent grassland, the Commission ignored that individual types of land use are related to different labour inputs and other production costs as well as different potential returns and revenues.

Let us look at the difference between arable land and permanent grassland. It is perfectly clear to every agronomist, let alone a farmer, that the production of vegetables and crops is related to much higher costs as well as the revenue per area unit, compared to the potential costs of the extensive use of pastures and other forms of permanent grassland (which cannot be used or are not profitable enough to be used as arable land because of natural or soil conditions). Thus, the incomes from both purposes could differentiate at the ratio of 1 : 10 and even more. If the payments for both land-uses remain the same, they of course favour the extensive use of grassland. And this leads to new failures of agricultural policy. In the countries with such a system, it has already paid off and will pay off even more in the future to merely accumulate the hectares of grassland and collect subsidies for them with minimum effort, if possible even without livestock breeding.

Windfall gains for owners of permanent grassland

Introduction of basic payment would therefore produce, deliberately or not, new “profiteers” from public funds. I believe that this is where the goal of a better target orientation of the policy would fail as well as the reputation of the CAP after the reform. This problem is particularly serious in the regions with diverse land use and with a large proportion of permanent grassland. The proposal would lead to a substantial and irrational redistribution of funds among the producers and types of production and would also question the policy of less-favoured areas under the second pillar; it will particularly upset the conservative majority in European agriculture, who advocate the importance of food production and food security; and this is only a few negative consequences of such proposals.

Looking at Slovenia alone, the amount of funds for permanent grassland would almost triple, should the basic payment be introduced according to the current proposal of the CAP reform. This not only gives a completely wrong signal to agriculture, but also means squandering of tax-payers money. It could not be justified neither by the public goods argument nor by production de-coupling as one of the basic principles of the new agricultural policy.

Production decoupling concept means that the payment does not affect a farmer’s decision of what to seed, plant or breed on a certain agricultural area. This should be left up to natural or market conditions. This concept works for the arable land, where the use of land could optionally be changed, but not for permanent grassland. The only professionally correct alternative for grassland is grazing and mowing for ruminant and horse fodder, which takes into account the natural potentials of grassland and at the same time contribute to the preservation of landscape and biodiversity. These standards have been defined and make part of modern agronomic practice. The subsidy system should provide support to this type of land use, but it should set such conditions for the allocation and the level of funds that would cover the real costs of such use and moreover, that it would be in a proper relationship with other types of land use. And this is where the new proposal fails. The level of payments will be too high and will consequently encourage livestock breeders to increase the area of land instead of investing in proper technology, and thus collect more subsidies. And the incentives for a proper use of grassland leading also to sufficient stocking density  would be weaker. It would be the most profitable for breeders to have the fewest possible animals and the most possible hectares of land, as in this way their income goals would be the most easily met.

Perhaps, this problem could be avoided by better rules of good farming practice that would require adequate stocking density and the use of proper technology. But most countries do not succeed in this; they merely hope that this is the case. Which is not enough, especially as financial incentives work just the opposite. The conditions for payments lack any relation between the stocking density and the use of land, as there is fear that it could lead to production coupling and consequently disapproval by the EU’s partners in the WTO. Therefore, in some parts of Europe, the number of grassland areas for which producers receive subsidies increase, even if they provide only minimum management of land (with only 1 grass mulch) or they reduce the stocking density to the minimum (e.g. 1 animal per 100 ha or more). What we have in mind here is not traditional technologies typical for instance for Scotland, but a new phenomenon observed in some new Member States in the Alpine and also Mediterranean parts of the EU. It is about farmers who are farmers just to obtain subsidies and who fulfil their income goals only by subsidies. Perhaps, they have a few animals, although an increasing number of them only own grassland. From the agronomic point of view, this is intolerable, as the cultivation of hay for selling is not considered economically viable. In Slovenia, there are more than a quarter of agricultural holdings with grassland but no animals, but they apply for direct payments. Among them, there are less and less farmers and more and more mere land owners, who will have an increasing interest in the expansion of land, which they would rent out and if nothing else, split the subsidies with a tenant.

Public money, but few public goods

If the proposed basic payment is actually put in place, the effect of public goods from agriculture on the European grassland will be minor, a lot of public money will be wasted and the target-orientation and the reputation of the CAP will be dented. Of course, it can always be claimed that proper agricultural practice on these areas could be enforced by regulations. But, the truth is that the officials only do what they are told to and that Brussels is often too distant from the reality and not aware of the diversity of European agriculture. This particular problem is most likely too insignificant for them to even think about this dimension of the CAP reform. And the fact is that it is very difficult not only to regulate but also to control the proper use of grassland. These are usually very remote areas, and besides, very different uses and breeding technologies are possible in grassland management.

To conclude with, in some regions unifying of the payments per ha will lead to undesired effects in terms of target-orientation of agricultural policy. This will probably mostly be the case in the Alpine and Mediterranean parts and also in the vast lowlands of some new members in the very eastern parts of the EU, with mixed structure of land use. For the sake of the common sense, the negotiations on the new CAP reform should take account of the differentiation of the level of payments by the use of land. At the same time, a serious consideration should be given to the rules of the good farming practice on permanent grassland. Efficient and environmentally-friendly farming on permanent grassland is only possible by proper breeding of ruminants on active agricultural holdings. All the rest is anomalies, which have been or will be further created by the agricultural policy.

The Commission will have to admit that it failed to take account of some agronomical characteristics of agriculture. This will probably not happen. They will most likely say that if this poses a serious problem it should be voiced by Member States in negotiations. Thus, the decision will be left to the potential coalitions of Member States which could identify the problem of over-subsidizing of permanent grassland by the introduction of basic payment. As higher political levels usually do not deal with such issues – there the form is often more important than substance – we cannot be overly optimistic about any changes to the proposals. Anyway, let’s wait and see!