Council debate on greening raises more questions than answers

Watching the videostream of the Agricultural Council’s greening debate held earlier this week was a rather depressing experience. There is something profoundly wrong with a decision-making system where food and agricultural policy is determined solely by agricultural ministers who speak on behalf of their farmers only, with only the Commission present to even vaguely represent the other interests who have a legitimate right to be heard, including taxpayers, environmentalists and those interested in the impact of EU policies on developing countries

At least in the Parliament, despite the enormous power of COMAGRI under the Parliament’s rules of procedure, final decisions are taken in plenary session where all interests (with the possible exception of taxpayers, as the Parliament does not face an effective budget constraint) are represented. And membership of COMAGRI is in principle open to all MEPs even if in practice it is heavily dominated by farming representatives.

Farmers, of course, have a perfect right to have their views heard and their interests taken into account. Indeed, agricultural policy under the Treaty has specific obligations towards farmers which give them a privileged seat in the debate. But it is the one-sided nature of the discussion on the revision of the CAP regulations so evident at Agricultural Council meetings that raises alarm bells and leads to perverse outcomes.

Differing approaches to greening

Consider the fundamental issue at the heart of the debate over greening. This was one of the issues on the Council agenda this week. Greening could be seen as a way of moving the CAP towards the principle of ‘public money for public goods’. It could justify moving money away from untargeted direct payments towards targeted payments for management practices which deliver environmental and climate benefits beyond the GAEC baseline.

Explicit in this approach is that farmers would receive less untargeted (Pillar 1) payments but that the budget to compensate farmers for the additional costs incurred for beyond-the-baseline green practices would be increased (ideally, for reasons to be discussed, in Pillar 2). In other words, the taxpayer could continue to transfer the same amount of money to the farming sector but would expect to see a significant increase in environmental benefits as a result.

Instead, the Commission proposed greening as a way of legitimising the existing flow of untargeted Pillar 1 payments to farmers. If the starting point is to legitimise existing payments, with no explicit commitment to reduce them, then it is clear that the incentive for Agricultural Ministers is to minimise the additional ‘burdens’ that greening imposes on farmers. The fewer the new greening requirements imposed on farmers, the more the value of existing payments is maintained. And the smaller the additional environmental benefit which taxpayers will obtain.

We see this happening in four ways in the current debate:

1. Relaxing or eliminating the conditions attached to the three greening measures proposed by the Commission (crop diversification, ecological focus areas, maintaining permanent pasture).
2. Making greening voluntary by limiting the penalty for non-compliance to the loss of the green payment thus excluding the basic payment as would be possible under the Commission’s proposal.
3. Introducing additional ‘equivalent’ greening measures which dilute the Commission’s proposal in the name of flexibility.
4. Permitting farmers to qualify for the green payment in Pillar 1 provided they show they are already managing land in an environmentally-responsible way (‘green by definition’).

The last two issues were the subject of the Presidency questionnaire which focused the Agricultural Council discussion this week. It asked whether member states were in favour of equivalence as a way of introducing flexibility into the greening proposals. If so, it asked how such equivalence should be assessed and whether, in the case that enrolment in agri-environment measures (AEMs) permitted a farmer to be ‘green by definition’, how the risk of double funding might be avoided.

Let me be clear that flexibility in paying farmers for environmental management practices is highly desirable. Environmental baselines and agronomic conditions differ widely across the member states. It was left to the UK alone to point out that flexibility could be best achieved by transferring the expenditure for the green payment from Pillar 1 to Pillar 2 where member states have considerable experience in managing flexible AEMs. Further, the issue of equivalence is managed on an objective basis in Pillar 2 because all farmers throughout the Union are only compensated for the costs of undertaking these practices, regardless of what the appropriate practices in any member state might be.

Recognising that it would not win this debate on this occasion, the UK said it was prepared to work with greening in Pillar 1, but the discussion at the Council meeting illustrated how difficult this is going to be.

Equivalence and its problems

The first issue is how to establish ‘equivalence’ between a broader range of greening measures and what the Commission has proposed (allowing for some watering down in the Commission’s proposals by the time they exit from the legislative process). To see the problem, consider the Belgian Minister’s proposal for how equivalence would work.

First, the Commission would draw up a list of potentially equivalent measures similar in action or pursuing the same objectives from which member states could draw their greening progammes. The Commission would approve ex ante these member state programmes. Second, farmers could choose among these measures in the light of their specific situation with member states approving the choice by the farmer.

There was broad agreement among the Ministers that equivalence should be assessed as the equivalence of environmental gains or impact, but much less agreement on how to establish this (beyond a common refrain that the accreditation process should be simple and not burdensome to the member states).

To really establish equivalence of gains would require a clear analysis and quantification of the environmental objectives and benefits (soil, air, water, climate, biodiversity) associated with each greening measure. This was not provided in the impact assessment for the three measures proposed by the Commission; indeed, comparisons across measures may not even be possible.

For example, crop diversification and ecological focus areas apply to arable farms, maintaining the current area of permanent pasture applies to livestock farms. How is it possible to establish equivalence between these measures? The arable measures may result in potentially measurable benefits, but the grassland measure is essentially an option whose value is currently unknown and which will depend on the future evolution of the relative profitability of livestock versus arable production and thus the (unknown) future incentives to plough up grassland.

Commissioner Ciolos, no doubt conscious that the Commission would be asked to arbitrate on these additional flexibilities, stated bluntly that it cannot be equivalence of outcomes because that would require mathematical counting which is not possible. He argued instead for equivalence of practices. Latvia proposed de minimis quantitative objectives and results to make ex ante assessment more tractable. Others recognised that comparison could be at best qualitative. But even a qualitative assessment is complicated if there is choice not only at member state level about practices but also the possibility for farmers in each member state to choose from within the menu permitted to that member state.

There was broad agreement that, however equivalence was to be determined, it had to be defined and known ex ante to minimise the risk of payments being disallowed following audit. A proposition supported by a number of ministers was that the Commission and member states together (presumably in the management committee) would come to an overall evaluation of whether a particular member state’s greening scheme met with the criteria. But without either some quantitative criteria or a common list of supported practices it is hard to see how this can avoid being arbitrary and subject to political influence.

Green by definition

Nowhere is the conflict between the taxpayer vision of greening as providing additional environmental gains and the Agricultural Ministers’ concept of minimising the additional requirements on farmers more starkly highlighted than in the proposal to permit farmers to be ‘green by definition’. The idea is that if farmers are following practices deemed to be environmentally benign, then they should automatically qualify for the green payment without further requirements being imposed.

The list of exemptions proposed by ministers is a long one: holdings with more than 75% (or even 50%) permanent pasture; holdings with forests; holdings with permanent crops; holdings located in protected areas; organic holdings; small holdings; holdings subject to national legal restrictions (such as a ban on cultivation along river margins); holdings complying with environmental certification; and holdings participating in AEMs under Pillar 2.

The problem with these exceptions is that, in most cases, there is clearly no environmental additionality. ‘Greening’ becomes just a rhetorical phrase to justify the continuation of the existing flow of payments. There is no real reform.

AEMs and double funding

The idea that holdings enrolled in AEMs in Pillar 2 should be automatically eligible for the green payment in Pillar 1 is particularly problematic, as it raises the possibility that farmers would be paid twice for the same management practices. The question of double funding is complex as a recent IEEP study on the subject demonstrates. Without going into all the complexities here, it is sufficient to observe that at least two positions were advanced on this question at the Agricultural Council in response to the Presidency questionnaire.

Some member states dismissed the possibility of double funding as a significant threat, sometimes using rather tortuous logic. Spain, for example, argued that double funding is not an issue because the nature of the two payments is different. Payment under AEMs is compensation for loss of income by farmers who voluntarily undertake more demanding environmental management, whereas greening measures are a compulsory requirement to receive the payment.

Leaving aside the Council’s strongly expressed preference that the greening measures should be optional and thus voluntary, which undermines the Spanish logic, the possibility remains that, at least in principle, farmers could be compensated in Pillar 2 for the same greening measures (or measures with similar environmental effect) for which they receive the green payment in Pillar 1. Nonetheless, the Spanish view was supported by a number of other countries which argued that greening should not raise the baseline for Pillar 2 payments, including Germany which pointed out that this was not the case for organic farms in the Commission’s proposal.

On the other side of the argument were those, including the Commission, which argued that greening must be included in a higher baseline for Pillar 2 AEMs. In other words, farmers enrolling in AEMs would not be entitled to further monetary compensation for practices covered by the Pillar 1 greening.

Notice here the potential boomerang effect of using equivalence to justify a wider range of flexible measures, on the one hand, and allowing holdings enrolled in AEMs to be green by definition, on the other hand. If greening is included in the baseline, it is not just that farmers would not be entitled to compensation as part of an AEM if they implement crop diversification or ecological target areas. If greening measures are determined by the principle of equivalence, then farmers in Pillar 2 schemes would not be eligible for payment for any measures which have an environmental impact equivalent to the basic greening measures.

But given that the member states, and the Commission, seem to agree that it is impossible to quantify with any precision the environmental impact of the enlarged menu of measures under ‘flexible greening’, how will member states, and farmers, know where to draw the baseline for Pillar 2 measures?

The Finnish minister gave a concrete example using ecological focus areas of how the division might work between the two Pillars. Setting aside land is a requirement for greening, so farmers enrolled in an AEM would not get compensated for taking land out of production, but they could get compensated under Pillar 2 for managing that land in a more environmentally-friendly way than simply leaving it fallow.

This seems plausible, but it would only work if it was a requirement in an AEM for arable farms to have ecological focus areas. If this is the case, what is the point of seeking ‘green by definition’ status if the farmer has to undertake the measure anyway?

Or take the example of a grassland farm that is enrolled in a Pillar 2 AEM. Will it too be required to maintain the area of permanent pasture as part of its AEM commitments and, if so, what is the point of a ‘green by definition’ exemption? If not, how would the option value of maintaining land in permanent pasture be calculated so to establish the baseline for the grassland farm’s AEM payment? And what if farms with more than 75% permanent grassland were also deemed to be green by definition? In that case the AEM baseline would remain cross-compliance and the taxpayer would end up paying for ‘greening’ but without seeing any additional environmental gain in return for this payment.

Final thoughts

It is impossible to avoid the conclusion that adding the desirable objective of flexibility to the false premise of greening Pillar 1 is leading member states to an outcome which is unworkable, fraught with danger as regards audit challenges, which hugely complicates the task of national administrations in administering direct payments and, most important, which delivers nothing for taxpayers in terms of additional environmental gains.

The failure to achieve environmental gains is due both to ‘green-washing’ – the dilution of the environmental conditionalities attached to the green payment – and the introduction of ‘green by definition’ categories, which simply rubber stamps the continued payment of transfers to farmers for practices they already implement.

Given this likely outcome, there is no justification to maintain the share of the money in the MFF going to agriculture with no additional environmental benefit. Van Rompuy’s most recent MFF proposal, which virtually maintains Pillar 1 spending at its current level, and which concentrates cuts on rural development and competitiveness spending (as well as external aid commitments) despite rising unemployment and fiscal austerity, must be reversed.

At a time of economic crisis, Europe deserves better than this.

Photo credit Basher Eyre