German Presidency pursues lowest common denominator on future CAP green architecture

The German Presidency of the AGRIFISH Council posted a background note on 3 September 2020 on the green ambition of the future CAP prepared for a meeting of the Special Committee on Agriculture on 7 September. This follows a background paper on the green architecture of the CAP that it prepared in early July shortly after it assumed the Council Presidency. This was intended to steer discussion at the July AGRIFISH Council meeting and raised questions specifically around eco-schemes and setting a minimum share of non-productive land that might be required as part of conditionality.

These documents build on, and in some aspects amend, the work of the Croatian Presidency in the first half of the year. The legacy of the Croatian Presidency is summarised in its progress report circulated to the June AGRIFISH Council and in its consolidated version of the revised drafting suggestions for the three legal acts that make up the CAP reform package. The green architecture refers to conditionality (which brings together greening and cross-compliance from the current CAP), the new eco-schemes, a range of interventions for environment under Pillar II as well as some relevant definitions (e.g. eligible hectare) (see Section 1.2 in this Commission paper for a fuller description of the proposed green architecture).

The German Presidency proposals continue the tradition whereby the two arms of the legislature water down those aspects of the Commission’s draft legislation that seek to promote environmental and climate ambition. In view of the urgent necessity to accelerate the green transition to a sustainable agriculture, this is doubly unfortunate on this occasion.

The political context

Legacy of the Croatian Presidency. The main focus of the Croatian Presidency on the green architecture had been to explore the idea of a single percentage for environmental and climate-related interventions across the two CAP Pillars. This idea had originally been introduced by the Finnish Presidency as a way to ensure a higher environmental and climate ambition. The main issues revolved around the list of interventions to be counted, the sources of finance to be considered, and the method of monitoring the achievement of the single percentage. The Presidency had suggested a list of interventions to be considered as contributing to the single percentage, together with specific weightings reflecting their contribution to achieving the environmental and climate-related objectives. Member States seem to have been divided in their views on the merits of a single percentage and some worried about the complexity of what was being proposed. In the end, the Croatian Presidency withdrew this proposal. However, the German Presidency July background paper suggests the idea is not entirely dead, writing that “the idea of a contribution from both pillars was considered worth of attention by delegations at the SCA on 6 July. This aspect might need to be further explored, as well as the more general issue of how to ensure a common minimum level of ambition at EU level”.

Agreement on the CAP budget. The German Presidency papers reflect two further developments following the Croatian Presidency. The first is the European Council conclusions on the Multi-annual Financial Framework (MFF) for the period 2021-2027 agreed 21 July 2020 which specified the budget for the CAP during this period, including the contribution to be made by the Next Generation EU fund. These conclusions still await the approval of the European Parliament (and of national parliaments for the decision on own resources) and ratification is not a foregone conclusion. However, the proposed CAP budget is not one of the issues of contention so no further change is expected (of course, if the MFF is not approved by the  end of this year, the system of provisional twelfths would take effect for the 2021 financial year which could have implications for CAP spending in that year).

The German Presidency July paper notes drily that “Member States have always endorsed this higher [environmental and climate-related] ambition in principle, under the condition that this does not imply an excessive administrative burden and that a sufficient funding is assured for the CAP to meet these reinforced green objectives.” For many Member States the latter was interpreted as a stable budget for the CAP. Whether this objective was achieved or not is a glass half-empty/glass half-full situation. As my analysis of the MFF outcome shows, the CAP budget for the 2021-2027 period was maintained at the 2014-2020 level in nominal terms but this represents a reduction in constant price terms (the effect in real terms will depend on the actual rate of inflation over the coming period).

The German Presidency September paper does not express a view on whether the proposed CAP budget is sufficient to warrant pursuing a more ambitious environmental and climate strategy, although it does recognise that the European Council decision reinforced the commitment to sustainable agriculture. No doubt Member States will make their views known at the next AGRIFISH Council meeting 21-22 September.

Integrating Green Deal ambitions into the new CAP. The other major event influencing discussion on the green architecture of the future CAP has been the publication by the Commission as part of its Green Deal of the Farm to Fork and Biodiversity Strategies on 20 May last. Of particular relevance was the publication by the Commission at the same time of its paper Analysis of links between CAP Reform and Green Deal (also relevant are the Commission’s proposal for a European Climate Law and its new action plan for the Circular Economy). Both Strategies were in the nature of White Papers, setting out ambitious objectives for a green transition in a number of areas and a direction of travel and roadmap for future legislative initiatives. Many stakeholders highlighted the indicative nature of the quantitative targets set out and called for an impact analysis before further steps were taken to realise them.

Nonetheless, the Commission paper on the links with the CAP reform file made some specific connections. It argued that the CAP reform proposals provide the appropriate framework to support the implementation of the ambitions of the European Green Deal because of its more results-oriented delivery model based on strategic planning at Member State level, enhanced mandatory requirements, and an improved range of voluntary funding tools. However, it recognised that the capacity of the CAP to reflect the Green Deal ambitions depended on maintaining key provisions in the Commission’s proposal that have been called into question in the ongoing discussions in the two legislative bodies. It also pointed to a number of additional ways to strengthen the CAP legal texts to ensure the ambition of the European Green Deal.

Two of these proposals have attracted attention. The first was the Commission’s conversion to the idea of a mandatory minimum spending threshold for eco-schemes in Pillar 1. The second was the Commission’s proposal that it would make recommendations to Member States as part of a structured dialogue in the preparatory phase of the CAP Strategic Plans. These recommendations would be based on its analysis of the situation in each Member State as seen through the prism of the nine CAP specific objectives, and taking into account the European Green Deal. Most significantly, it also proposed that “The incorporation of the recommendations in the CAP Strategic Plan would be part of the criteria that the Commission would use in the assessment to approve each of the CAP Strategic Plans.

Assessing the German Presidency’s proposals. There are several benchmarks that can be used to assess the German Presidency proposals. One is to compare them against the Commission’s original proposals, keeping in mind the latter’s warning against any dilution of its proposals if the Green Deal ambitions are to be realised. Another is to compare them to the current CAP rules, with a view to deciding if the Presidency proposal avoids any back-sliding in environmental ambition which is expressly ruled out in Article 92 of the Commission’s draft CAP Strategic Plans Regulation. Yet another is to compare them with the Croatian Presidency proposals, which gives some idea whether the Council is moving forwards or backwards on the scale of ambition in its discussions in the light of the MFF conclusions on the CAP budget. We make use of these various benchmarks in the following discussion.

The role of eco-schemes

The Germany Presidency September paper makes drafting proposals on three elements of the future green architecture: the role of eco-schemes; setting a minimum threshold for non-productive land as part of enhanced conditionality; and the link between Green Deal ambitions and approval of the CAP Strategic Plans. We look at each of these in turn, while noting that these are only a sub-set of the decisions that need to be taken on the green architecture.  Another thorough analysis of the Presidency paper has been published by ARC2020 on its blog.

I am not a fan of eco-schemes, as I believe it would have been better to pursue agri-environment-climate (AECM) objectives by reallocating this budget to AECM schemes in Pillar 2. One of the advantages of Pillar 2 schemes is their multi-annual nature. The annual nature of eco-schemes and their funding is now being used as an argument to undermine their future role.

The debate revolves around two aspects of eco-schemes: whether they should be mandatory for Member States to introduce and, if so, if there should be a minimum threshold set for its share of spending in Pillar 1. The mandatory nature was part of the Commission’s proposal and it underlined its importance as one of the key elements that needs to be maintained in the negotiations in its May analysis of the links between the CAP and the Green Deal. Nonetheless, several Member States would like to see it left as a voluntary option.

The minimum threshold idea is supported by Member States that support the vision behind eco-schemes but that fear that widely different shares in Pillar 1 spending in Member States would distort conditions of competition. It would potentially make it more difficult for Member States that want to make it a worthwhile scheme to do this in the face of protests from their own farmers that it puts them at a disadvantage to farmers in Member States with just a notional implementation. As noted above, the Commission gave its support to this idea in its May paper.

Those Member States that oppose the mandatory nature of eco-schemes and also the idea of a minimum spending share make the argument that unspent amounts could be lost if the realised expenditure did not match the minimum budget (unlike Pillar 2 funding that can be carried forward to later years if not spent, there is no such provision for Pillar 1 funds). As ending the financial year with unspent funds that would have to be returned to Brussels is the nightmare of every Agriculture Minister, this argument strikes a powerful chord even with countries that are inclined to support the idea of eco-schemes.

Against this background, the Germany Presidency paper claims to see strong eco-schemes as a key instrument to increase the environmental and climate ambition of the CAP. It therefore proposes to maintain both its mandatory nature for Member States and the idea of a minimum share of spending, but to allay fears by providing sufficient financial flexibility for Member States to avoid losses of unspent funds.

Specifically, it proposes a phased introduction of eco-schemes in that, for the first two years (which, given the delay in introducing this CAP reform, would not be until 2023 and 2024 if there is a two-year transition period to the new CAP), any unspent funds in the eco-scheme budget, after playing around with unit amounts to try to absorb these funds, could be used for other direct payment interventions in Pillar 1. The idea is that this pilot phase would give Member States sufficient experience with regard to the take-up of eco-schemes to enable interventions to be programmed more precisely and it can be ensured (where appropriate by revising the CAP Strategic Plan) that the realised expenditure for eco-schemes meets the minimum budget.

The Presidency paper underlines that an important prerequisite for its proposal to work is that Member States have sufficient room for manoeuvre to vary the unit amounts set out in the CAP Plans for the main Pillar 1 interventions. Article 89 in the draft CAP Strategic Plan Regulation already provides that Member States shall set a maximum amount or a percentage of variation for the main interventions. Percentage of variation is the percentage by which the realised average or uniform unit amount may exceed the planned average or uniform unit amount referred to in the CAP Strategic Plan (in other words, unit amounts can exceed the planned amounts but cannot be lower than them, although a specific exception is made in the case of direct payments where the realised output exceeds the planned output as established in the Strategic Plan). The Presidency proposes an amendment to this Article that would give Member States explicitly the possibility to take into account the objective of avoiding unspent funds when determining a possible adjustment of the unit amount.

As the ARC2020 critique points out, one consequence of the Presidency proposal is that it could reduce ambition in eco-scheme construction until 2025. It points out, reasonably enough, that there is no requirement that unused funds should be used for interventions that might help farmers to prepare for eco-schemes. There are constraints imposed by the annual payments cycle in Pillar 1 – Member States will not have time to design new schemes if it becomes clear that applications at the end of year t-1 will be insufficient to draw down the allocated funds for eco-schemes in year t. A preferable option from an environmental perspective would be to allow unspent funds to be transferred to Pillar 2 to be used for AECMs in later years, but farm interests will prefer the Presidency proposal.

The ARC2020 critique also assumes, perhaps rather naively, that Member States will intend to use eco-schemes to maximise agri-environment-climate objectives. My fear, on the contrary, is that eco-schemes will simply become a new form of green-washing, especially where Member States make use of the option to design them as a top-up to the basic income support payment. To avoid the risk of unspent funds, the incentive for Member States is to design an eco-scheme that could well have a substantial unit value payment per hectare or per livestock unit but which will require such minimal conditionality that the environmental and/or climate impact will be almost invisible. Given this incentive, I speculate that the problem for Member States will be to ration applicants for these generous Pillar 1 payments rather than worry about unspent funds. This will give rise to its own set of problems for Ministers for Agriculture as disappointed farmers complain about being excluded or unit value amounts have to be reduced.

Non-productive areas in conditionality

The issue here is GAEC 9 in the draft CAP Strategic Plans Regulation Annex III. GAEC 9 is one of the measures designed to protect the quality of biodiversity and landscapes and has the specific objective to maintain non-productive features and area to improve on-farm diversity. In addition to requiring the retention of landscape features, imposing a ban on cutting hedges and trees during the bird breeding and rearing season, and optionally including measures to avoid invasive plant species, its main obligation is a requirement to ensure a minimum share of agricultural area devoted to non-productive features or areas.

GAEC 9 can be seen as the transposition of the ecological focus area (EFA) obligation under greening in the current CAP. However, there are important differences. EFAs in greening are limited to arable farmers with arable land exceeding 15 ha who are required to reserve 5% of their arable land for EFAs. EFAs can be defined from a menu of ‘EFA types’ drawn up by national authorities from a common EU list. Following legislative amendments introducing during the approval process of the last CAP reform, the EU list covers a broad range of features including fallow land and landscape features, but also areas planted to catch crops and nitrogen-fixing crops.

According to the Commission’s evaluation of EFAs published in 2017, the EFA obligation covers 70% of the EU arable area after the various exemptions are considered. Remarkably, around 15% of this area was covered by an EFA in 2016 compared to the statutory minimum of 5% in the greening legislation (reduced to an effective 10% when the weighting factors for different EFA types are applied).  Importantly, most of this was due to the area used for nitrogen-fixing crops, catch crops and land lying fallow. Landscape features accounted for only 1.7% of the EFA area although land lying fallow accounted for 26% of the reported EFA area in 2015 (the latter was still only one-third of the area classified as lying fallow in Eurostat statistics for that year). Thus, in total, 4.2% of the arable area was classified as non-productive area in 2015.

The Commission’s proposal for GAEC 9 made two important changes compared to EFA. First, the minimum requirement for non-productive areas and features was defined in relation to the agricultural area and not just the arable area, thus implying that grassland farms would also be expected to participate. Second, the GAEC 9 standard refers specifically to a minimum share devoted to non-productive areas and features. Unlike EFAs which could count productive land, only fallow land and landscape features can be counted towards the minimum requirement for non-productive areas in the Commission proposal.

Already, under the Croatian Presidency, the Council had significantly weakened GAEC 9. The requirement for a minimum area of non-productive land was limited, again, just to arable land. More significantly, the Council proposed to allow the inclusion of productive land in the calculation of this minimum, specifically catch crops and nitrogen-fixing crops cultivated without the use of plant protection products. The biodiversity benefits of the latter can be questioned. Effectively, these changes would maintain the status quo for EFAs.

Against this background,  the German Presidency paper argues that, to achieve the desired higher environmental performance, the minimum percentage share should be increased from 5% (as in the current greening) to some unspecified x% figure with reference to arable land. If, on the other hand, Member States do not wish to make use of the option to include productive areas and define a minimum percentage solely with respect to non-productive area or features, the Presidency paper proposes to fix the minimum area at 3%.

We saw above that, currently, the EFA area of non-productive land averages 4.2% across the EU, mainly because of fallow land. The proposed minimum percentage share of 3% is thus not only well below what ecologists deem necessary to maintain biodiversity, but also below the EU average that has already been achieved. In fact, the comparison is even more unfavourable because, in comparing the minimum threshold proposed by the German Presidency with the current area of non-productive land covered by EFAs, the proposed extension of the definition of ‘eligible area’ by the Council should be considered (see the modifications in the Croatian Presidency consolidated draft text from June 2020).

The Council proposes to define eligible hectares not only, as at present, as agricultural area, but also as including any area of an agricultural holding covered by a retention obligation under GAEC 9, or any area used to attain the minimum share of arable land devoted to non-productive features under GAEC 9, or which, for the duration of the relevant commitment by the farmer, is established or maintained as a result of an eco-scheme. These are welcome changes in their own right, but they also make it significantly easier for Member States to meet any minimum threshold for non-productive areas that might be agreed.

Link between CAP reform and the Green Deal

There has been a broad acceptance (even if not enthusiasm) for the Commission’s proposed New Delivery Model for the CAP among Member States, even if there are widespread concerns about the administrative demands that it will make. Both Member States and civil society groups such as NGOs have been particularly exercised about the basis and criteria that the Commission will use when approving Member State CAP Strategic Plans, although for different reasons. Within the Council at least, it appears that the Commission’s proposal in its May paper analysing the link between the CAP and the European Green Deal that the response of Member States to the Commission’s own recommendations on what should be included in these Plans should be considered as part of the approval process has provoked alarm.

The Presidency paper notes that “Many Member States expressed deep concerns and questions about the necessary legal certainty concerning the process of approval of Member States’ strategic plans by the Commission.” The Presidency has thus proposed to insert a corresponding legal clarification in Article 106 of the Strategic Plan Regulation. This reads that “The assessment shall exclusively be based on acts with (sic) are legally binding on Member States.

One has some sympathy with Member States on this issue. As I have previously pointed out, the Commission in its desire to simplify the basic legislation governing the CAP effectively gutted specific objective criteria on which it could rely when evaluating Member State Strategic Plans and particularly the basis on which it might wish to withhold approval. The response to this proposed modification by the German Presidency should be to beef up the criteria for approval in the basic legislation so that all parties know where they stand, but one can be forgiven for doubting whether the co-legislators have that in mind.

Conclusions

It is indeed disheartening to see the way the AGRIFISH Council, once again, is participating in the watering down of the environmental and climate ambition in the Commission’s CAP proposal. Specific decisions on how CAP interventions should be designed would be of lesser importance if there were a robust system of monitoring ambition and performance in place and a system where CAP money followed performance, but that is not the case. Hence the importance of specifying in legislation how CAP money should be used.

Member State concerns over the potential loss of unspent funds are inherent in trying to integrate a conditionality-based payments scheme into an annual funding cycle, which is why the better outcome would have been to allocate these funds to Pillar 2 AECM spending in the first place. The risk with eco-schemes is not of underspending but that Member States have an incentive to water down the environmental demands to avoid any risk of underspending. It makes little difference if there is a mandatory scheme with a minimum Pillar 1 allocation if Member States use the top-up option to devise so-called environmental schemes that, in practice, will have very limited environmental effects.

Maintaining the status quo on EFAs in GAEC 9 is particularly disheartening given the absence of evidence that the existing EFAs have had a significant impact in reversing the decline in farmland biodiversity. It also dramatically diverges from the EU Biodiversity Strategy which sets out the ambition that “To provide space for wild animals, plants, pollinators and natural pest regulators, there is an urgent need to bring back at least 10% of agricultural area under high-diversity landscape features. These include, inter alia, buffer strips, rotational or non-rotational fallow land, hedges, non-productive trees, terrace walls, and ponds.”  The Biodiversity Strategy goes on to say that “Member States will need to translate the 10% EU target to a lower geographical scale to ensure connectivity among habitats, especially through the CAP instruments and CAP Strategic Plans, in line with the Farm to Fork Strategy, and through the implementation of the Habitats Directive.” It seems that Agricultural Ministers are on course to give the proverbial two fingers to this recommendation.

This post was written by Alan Matthews

Photo credit: Isle of Skye sheep via Flickr using CC licence.

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