Greening of the CAP: is the “Emperor Naked”?

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   

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