In the impact assessment to be released with the legislative proposal the Commission has made some estimates of the cost of implementing these green measures. In this post, I examine these costs using information in the draft version of the impact assessment (Annex 12 Impact of Scenarios on the Distribution of Direct Payments and Farm Income).

This version was completed before June 2011 and the favoured proposal in the draft regulation now differs somewhat from the version examined in June. In particular, the obligation to maintain a green cover during winter has been dropped, but on the other hand the area to be setaside under the ecological focus requirement has been increased from 5% to 7% (see this post for a summary of the draft direct payments regulation).

The effect on farm income in 2020 of greening direct payments is determined by two factors. First, the implementation of the green measures increases the costs of farming either directly or in the form of loss in income. Second, various of the green measures (the requirement to maintain the 2014 level of permanent pasture, the requirement for crop diversification and, particularly, the ecological set-aside) will have an impact on supply and thus market prices. Thus, the greening leads to an increase of agricultural prices which tends to counterbalance the impact of the measures on cost.

The study concludes that the cost of greening will amount to €33/ha of potentially eligible area (PEA) in 2020. Just half of this figure is the cost of maintaining permanent grassland (€17/ha PEA). I have not been able to find any IACS figures on the size of the EU eligible area (if anyone knows where these can be found, please let me know). But the Commission estimates that the average direct payment will be €267 per ha PEA and, assuming a budget for direct payments of around €40 billion, this works out at a PEA of 151 million ha in 2020 (this compares to a utilised agricultural area of 178 million ha in EU-27 today). Using this figure, the cost of greening would amount to approximately €5 billion. This compares to the value of the green payment (30% of €40 bn) of around €12 billion.

Costs for the maintenance of permanent grassland and the ecological set-aside are in general the highest. For instance, among regions, the cost of maintaining permanent grassland in areas where an alternative use of land exists varies between €5 and €620/ha, with an EU average of €216/ha of grassland. With 5% of set-aside, the average cost per ha of land to be set-aside is €260/ha, but in some regions the costs per ha are more than €1,000. When the cost of greening is brought back to the total PEA, the amounts are lower. It is estimated that 29% of farms would have a cost between €15 and €30/ha of PEA, 4% would have a cost higher than € 200/ha of PEA, and about 21% of farms would not experience any cost.

In general, the costs are estimated to be highest in the Member States where maintaining large areas of permanent grassland is economically challenging due to pressure to substitute grassland by fodder crops (the Netherlands, Slovenia and Belgium).

It is interesting to speculate what is the value of the environmental benefit to be gained from incurring this cost? The Commission study cannot answer this question because of a lack of data on the environmental impact of the green measures. Instead, it quotes some figures on the land area likely to be affected by these measures.

Overall, for the EU-27, it estimates that 25% of the PEA will be affected. The risk of ploughing permanent grassland is reduced on about 13 million ha. On about 1.7 million ha of land, farmers receive incentives to cultivate alternative crops, mitigating the negative effects of monoculture, while about 3.6 million ha of arable land are set aside for ecological purposes. [It also estimated that an additional 20 million ha of arable land green cover is applied during winter time but, as noted above, this measure seems to have been dropped from the draft regulation].

But, in themselves, these figures do not give any insight into the size of the environmental benefits to be gained on these areas. Given this, it will be hard to answer the question posed at the beginning of this post whether incurring a €5 billion cost in this way is the most effective way of increasing the production of environmental public goods by farming.

Commission methodology

At a technical level, the credibility of the Commission estimates can be assessed by examining the methodology used. The Commission methodology is sophisticated and appears well suited to the task. My main criticism would be with the estimate of the cost of maintaining permanent pasture, which seems to me to be over-estimated. This is because the Commission methodology seems to assume that all permanent pasture that could be converted into arable cropland would be by 2020 in the status quo scenario. Its model does not have the capacity to estimate the proportion of permanent grassland that would actually be under threat in 2020, given the configuration of relative profitability (gross margins) between grazing livestock and other enterprises at that time.

The Commission’s analysis is carried out with FADN data at farm level using the AIDS7K model which covers 81,000 farms in 27 Member States. Expected prices and yield estimates in the scenario year 2020 are based on results taken from the Commission’s AGLINK-COSIMO model. Additionally, the labour input has been adjusted according to observed trends. The following steps are involved.

Crop diversification: This measure requires farms to cultivate at least 3 different crops, with no crop allowed to cover more than a 70% of the total arable land. It is assumed that the profitability of the additional crops corresponds to the average regional gross margin of field crop farms with diversified arable crops. Therefore, the costs are assumed to be equal to the difference between the farm’s individual gross margin of arable land and this average regional gross margin. In the cases where the farm individual gross margin is lower than this regional average it is assumed that there are no additional costs.

Ecological set aside: 5% of arable land has to be taken out of production. Costs for the implementation of the measure arise if the amount of fallow land on the farm is lower than the area to be set-aside. For each hectare to be additionally set aside it is assumed that the costs equal 2/3 of the farm individual gross margin of arable land. The idea is that farmers will set aside the less productive areas first (with the assumption that their gross margin is 2/3 of the farm average).

Preservation of grassland: Farmers have to maintain their permanent grassland. The cost of the implementation of this measure would be an opportunity cost. To estimate this cost, it was necessary to assess on each farm whether there is an opportunity to convert grassland to arable land or not and to quantify the magnitude of the opportunity cost.

There will be little or no opportunity to convert grassland in farms with poor soil quality. For the simulation it is assumed that this is the case on farms with a low share of arable land (less than 5%) and on farms where sheep and goats represent more than 70% of grazing livestock units. Furthermore, it is assumed that rough grazing and 10% of the remaining permanent pastures cannot be converted.

For the remaining permanent pasture it is assumed that the opportunity costs are 2/3 of the difference in gross margins between permanent grassland based dairy and beef production systems and alternative systems at regional level. Only a fraction of the difference is kept in order to take into account that the newly converted grassland would probably not have the same level of productivity as land already in fodder crops (the most productive areas have been converted into arable crops before).

For the calculation of the difference in gross margins at regional level, it is considered that there are no opportunity costs in regions where permanent grassland is not relevant or where there is no alternative identified (no cattle production). Otherwise, in regions where grass-based and forage crops based feeding systems co-exist in specialised farms, it is assumed that the first alternative to cattle production based on grass is to intensify production adapting the feeding system by ploughing the grassland to produce forage crops. Finally, in the remaining regions, where cattle production takes place in mixed cropping-livestock farms, the farm gross margins per hectare of utilised agricultural area in mixed and specialised cropping farms are used.

Green cover: I include this because it is included in the draft Commission study even if it appears to have been dropped from the draft legislative proposal. During winter, farms have to apply green cover on 70% of their arable land and the area covered by permanent crops, excluding the area of ecological set-aside The costs of the implementation of green cover are estimated based on assumptions on the affected area and the costs per ha. As there is no information on green cover available at farm level several assumptions had to be made: first, it was assumed that a large part of the area covered by cereals is covered during the winter, as in most cases a large share of the cereals are winter crops. As in the FADN it is not differentiated between winter and summer crops it was assumed that on each farm the share is equal to the national shares of winter and summer varieties published by EUROSTAT. Furthermore, it was assumed that 30% of the area of permanent crops is already covered. The costs per ha of land to be additionally covered in order to meet the requirement are assumed to be equal to 50€.

Market effects: These gross costs of implementing the green measures are the appropriate measure to compare with the value of the environmental benefits to be achieved. However, in terms of the impact on farm income, these gross costs will be offset by a transfer from consumers through higher commodity prices. These are reported in the Commission study by farm type rather than by commodity. The income effect over all farms is reported to be an increase of +0.6%, with more positive effects on crop farms (2.6%) and grazing drystock farms (+1.2%), while enterprises using grain as a feed are worse off (income on milk farms would fall -0.2% and on pig/poultry farms by -8.4%).

Overall, farm income falls by -2.8% on average in the Integration scenario (which includes the greening option, but also includes the effect of capping, where the money saved by capping and diverted to rural development is assumed lost to farmers). It seems that the positive impact of the market effects from reduced supply do not compensate farmers for the increased cost of implementing green measures in Pillar 1.

Overall, these results are probably quite a good guide to the likely outcomes of the proposals in the draft legislative proposal because, although the green cover requirement is removed (thus reducing costs), the ecological focus area requirement is increased from 5% to 7% (thus raising costs).

Photo downloaded from http://www.flickr.com/photos/13847552@N03/3906560447/ under Creative Commons licence

BirdLife International is “a global partnership of conservation organisations that strives to conserve birds, their habitats and global biodiversity, working with people towards sustainability in the use of natural resources. BirdLife Partners operate in over one hundred countries and territories worldwide.”

Anyone who has been in and around Brussels policy circles over the past few years will know that Ariel Brunner is among the most knowledgeable and persuasive advocates for radical reform of the CAP. Recently been promoted from his role in charge of the agriculture policy brief, he is now BirdLife’s Head of EU Policy. Despite the new portfolio that includes big issues like climate change, he is certain to be in the mix at the crunch moments over the next year or two as the EU decides the future of the CAP.

In the course of the interview Ariel makes the case for an ambitions Europe-wide agriculture policy based upon the idea of putting money behind sustainable farming. He takes on the argument that in the wake of the food price spikes of 2008, Europe can afford to ignore the environment and calls for farmers and environmentalists to put past conflicts behind them and work together. He explains why the current political debate on the CAP is disappointing, with most member states defending narrow views of their own ‘national interest’ and the European Parliament too often defending the status quo.

CAP Reform Conversations: Ariel Brunner, BirdLife International from farmsubsidy.org on Vimeo.

Farming should protect Europe’s environmental resources not use them up

In 2009, farm incomes fell across the whole of the EU, not least in France. Dairy farms have been hardest hit with average prices down twenty per cent. This is despite the EU spending 55 billion euro on the common agricultural policy, one of whose aims is to ensure farmers a fair standard of living.

Not long ago the lists of who gets what from farm subsidies were considered ‘state secrets’. No wonder. They reveal that far from supporting small family farms, as the public might suppose, the CAP is lining the pockets of Europe’s biggest landowners and agri-businesses. The data shows that across Europe, 85 per cent of aid goes to the top 17 per cent of recipients.

This is because under the twisted logic of the CAP, the biggest farms with the best land get the most public assistance. Besides helping the rich get richer and big farms to buy out their smaller neighbours, subsidies for land ownership and production rights creates a kind of closed shop. Young farmers must buy their way in and are saddled with heavy debts.

Modern agriculture has brought an abundance of food but it has come at a price that goes beyond the financial costs of the CAP. Over the past quarter century, 40 per cent Europe’s farmland birds have disappeared. Bee colonies, so necessary for pollination of arable crops, are experiencing sudden collapse. Rivers and seas are fouled with fertilizers, pesticides and animal effluent. Each year more ancient natural pasture is put to the plough and more wetlands are drained: once gone, forever lost. The CAP has done little to help. In France, for example, payments for farmland conservation amount to 380 million euro in 2008. They are dwarfed by old-style subsidies of 9.34 billion euro.

Things have improved a little in the past few years and Europe is no longer hurting farmers in developing countries by dumping big surpluses overseas. Farmers are mostly free to farm to market demand rather than to government diktat. Yet these reforms have been opposed at every turn by farm unions and the politicians and civil servants in ministries of agriculture, between whom there are often close ties.

And now, even this modest progress is at risk from a new wind of protectionism blowing across the continent. With a growing world population and a changing climate the question of how humanity will feed itself is back on the political agenda. And rightly so. During the winter of 2007/08, food prices leaped to record levels and the world’s poor faced hunger and even comparatively wealthy Europeans felt the pinch. The response in some quarters has been to adopt a siege mentality and aim for self-sufficiency in food. Why, it is argued, should we put ourselves at the mercy of global markets when there is more we can squeeze out of our own lands?

To base an entire agriculture policy on this logic would be a mistake. Seductive though it may be, the promise of European food self-sufficiency is an illusion as it would come through even greater dependency on on imports of natural gas from Russia for fertilizer and oil from the Middle East to run farm machinery.

Instead of a renewed push for unsustainable agricultural intensification, we should encourage more environmentally-friendly farming. Climate change will increase the risk of drought, flooding and poor harvests and the frightening reality is that any food shortages we may have experienced lately are nothing compared to what we might expect mid-century. We would be wise to safeguard the fertility of our own over-exploited soils, conserve our own precious water, protect the biodiversity we need for the pollination of fruits and vegetables and the ecological resources we will need in an uncertain future. In Europe there is little ‘spare land’ to cultivate and big increases in yields will be hard to find. Increasing global food production can best be achieved by helping farmers in poorer countries whose agricultural productivity lags far behind ours.

Following the election of a new European Parliament and the appointment of a new Commission, the EU will this year embark on a fundamental review of its agriculture policy, which still accounts for 40 per cent of the community’s entire budget. Aside from providing income support to a sector of society that is, more often than not, richer than the average citizen, taxpayers get little for our money. The future must be a common European policy to protect and preserve Europe’s lands, recognising the role played by sustainable farming.

It is certain that such a shift will be fought hard by those who have got used to receiving ‘money for nothing’ but at a time when government budgets are under such strain, we cannot go on like this. In 2009 we discovered where money goes and witnessed the sheer the waste and inequity of a system that in 2008 paid 1,583,120 euro to Prince Hans Adam II of Liechtenstein and 253,987 euro to Prince Albert of Monaco. This year we must start taking action to build a better policy.

Jack Thurston is co-founder of farmsubsidy.org, a network of journalists, researchers and activists pushing for greater transparency in the CAP.

For the environmental basic payment, it suggests that eligibility would be conditional on farmers turning over at least 10% of their area to environmentally-friendly husbandry with a view to maintaining a high level of biodiversity in the agricultural landscape throughout the EU.

The Council explicitly argues against the idea that farmers should be remunerated for fulfilling their statutory obligations with respect to the environment, animal welfare and food safety (cross compliance). It also justifies full EU financing of most of the payments “so long as these are directed to fulfilling EU objectives”, thus apparently advocating that some of the existing co-financed agri-environmental payments in Pillar 2 might be moved to Pillar 1 at least as far as financing modalities are concerned.

The report provides an excellent summary of the state of the debate on the environmental implications of agricultural policy (in German only, at least for the moment).

Read it here. Google Translate renders a passable English version of the press release for non-German speakers here.

At first sight, this cooperation has something going for it. It navigates between the extremes – stubborn farmer federations that resist change, on one side, and, on the other, non-farm interests that want to squeeze money out of the CAP budget with little regard to the societal values at stake. It is attractive to the ELO, who is afraid that the political rigidity of farmers, their traditional allies, will backfire and play into the hands of the CAP critics. The ELO has recognized that substantial concessions are necessary to re-legitimize the CAP. Maintaining the size of the CAP budget is more important to them than defending farm income support at the expense of public goods payments. Some of the public goods payments will still end up as profit for land owners, and these payments will improve the quality of rural life about which the ELO cares. Its cooperation with BirdLife will also give it more leverage over farmer federations who now cry foul (e.g. the NFU) but may gradually soften their positions to avoid isolation. This logic is sound.

However, it makes much less sense for BirdLife to team up with the ELO. First, the ELO states the intention to build on the experiences and successes of the CAP. Its ambition is a gradual improvement, not a bold switch to a sustainable land-use policy. Environmentalists who cooperate with the ELO thus lower expectations and soften pressure on the Commission to include ambitious reform options in its proposals. Second, lower expectations will dampen the general interest in CAP reform. The power of environmentalist arguments depends very much on raising the stakes of CAP reform and pushing it to the center of public debate. If CAP reform boils down to a tug-of-war between farmers and finance ministers, the outcome will be a smaller CAP centered on farm income support. Third, the ELO has not been very specific on what policy instruments and subsidy allocations they are aiming for. It is doubtful whether they would endorse a stringent greening of the CAP (especially when political pressures inside the organization grow as the CAP negotiations move forward). My expectation is that environmental objectives will receive more funds under a ‘green and lean’ than under a ‘big and a little better’ CAP.

Fourth, BirdLife had to subscribe to the idea of threatened EU food security as a justification of the CAP. Of course, food security as meant by BirdLife is nothing else but ‘environmental security’: we need to farm sustainably to protect our natural farming resources in the long run. But the ELO use of the term comes closer to what farmers mean by it. Environmentalists should be most careful not to strengthen a term that is the most powerful and misleading argument of old-style CAP defenders (I have summarized the case against the food security argument here).

While warning of the dangers of closer cooperation between environmentalists and land owners (or other stakeholders who benefit most from CAP subsidies that are not effectively targeted at public goods), I do not overrate this joint position paper. It is rather vague and contradictory, and it says very little on the most contentious issues, such as farm income support, the definition of European public goods, the choice of targeted policy instruments, and co-financing.

Let me repeat my general appreciation for BirdLife’s CAP reform advocacy. They have published excellent studies, such as ‘Could do better! Why EU Rural Development Policy is failing to reach its biodiversity potential’ and ‘Through the green smokescreen’. And they have recently developed a much more precise vision of the future CAP together with four other farming and environmental NGOs.

I tend to feel that Barroso was left with no other option, as no one was willing to put forward a good candidate – and that he was the only suitable candidate from among the nominees.

40-year-old Ciolos has enjoyed a meteoric political ascent (just ten years ago was employed as an intern at DG Agriculture) but he still has to clear the hurdle of confirmation by the European Parliament. Roger says he’ll be an obvious target for a new Parliament looking to flex its muscles. He considers the arguments against Ciolos and the reasons why the EP Ag Committee (COMAGRI) may choose to support the appointment of a inexperienced Agriculture Commissioner who is far from a household name in European politics.

Arguments Against Ciolos
– Wrong nationality. Romania is too dependent on agriculture, and besides which Ciolos is too French – having lived & studied there, i.e. a Romanian with a French CV.
– lacks political experience. He was only Minister for 15 months, and has spent most of his relatively short career as a civil servant; When he was Minister EU payments to Romania (for pre-accession Rural Development schemes) were frozen because of maladministration;
- lacks political support within the EP. Although he previously insisted that he was “independent”, he has now been embraced by the right of centre European People’s Party, but it remains unclear how strong this support is.

Arguments for COMAGRI supporting Ciolos
– Lack of alternative – COMAGRI is pro-farmer, and the fear from blocking him is who might be offered as an alternative Commissioner. Certainly it would be no one as well-qualified & informed as Ciolos. Without any doubt, there is no other Romanian who would be acceptable for the post.
– Lack of political experience – With co-decision, it could be a massive advantage for the EP, and for the COMAGRI in particular, to have an inexperienced Commissioner. He is reasonably close to COMAGRI Chairman Paolo De Castro (former Italian Minister) from their time together as Ministers – and so De Castro may have a much stronger influence over him, than over a different Commissioner.

Read Roger’s analysis and profile in full.

Readers should be aware that we’re still figuring out how to get the website to correctly display the ’s’ diacritic character in the Commissioner-delegate’s surname.

The proposal, which comes from BirdLife International, the European Environmental Bureau, the European Forum on Nature Conservation and Pastoralism, the International Federation of Organic Agriculture Movements and WWF, begins with a fierce critique of the current CAP. It is argued that most of the €55 billion spent by the EU on the CAP “still goes to a very small number of large or resource intensive farms, and all too often to those engaged in unsustainable practices.” The leaps in agricultural productivity in the EU over the past 50 years have

“been based primarily on unsustainable use of natural resources and has brought significant negative environmental effects.”

Specifically, the proposal refers to over-exploitation of water, over-reliance on fossil fuels inputs, soil erosion and depletion of soil fertility, loss of biodiversity, decline in the character of landscape, pollution of rivers and seas and increased pesticide residues in foods. Climate change means this model of intensive agriculture will become ever less sustainable than it already is. Meanwhile, European farming has shed much of its workforce and many of Europe’s remote rural areas are in apparently terminal social, environmental and economic decline.

What is proposed is a new set of objectives for the CAP to replace those set out in the founding treaties and which – quite unbelievably – are transposed word-for-word into the new Lisbon Treaty. The new objectives, it is argued, should be as follows:

• To create the environmental conditions to sustain long-term agricultural production through the protection of ecosystems and their services (soil, air and water) and the sustainable use of natural resources;
• To accelerate the transition toward resource-efficient farming that is less dependent on fossil inputs and more resilient in the face of climate change and other external pressures;
• To promote conditions for the production of safe, healthy and high quality food;
• To maintain and enhance (wild) farmland biodiversity by halting and reversing declines;
• To maintain (domesticated) agricultural biodiversity ;
• To contribute to achieving ‘good status’ in European freshwater systems and adjacent coastal waters;
• To contribute to climate change adaptation and mitigation;
• To support the maintenance of landscapes and a rural heritage rich in aesthetic, cultural or historical value;
• To contribute to the rural vitality of areas highly dependent on agriculture and where this is important to support the viability of those farming systems which underpin the delivery of public goods;
• To promote enhanced animal welfare;
• To support sustainable food systems which better connect producers and consumers.

To deliver on these objectives, the CAP must move away from ‘a logic of dependency and compensation’ to ‘a new contract between farmers and society’ in which farmers are rewarded for their role as land managers providing tangible benfits to society. Public money should be tied to the provision of public goods and no public money should be used to support activities which have adverse environmental impacts (the ‘polluter pays’ principal that is already enshrined in the EU Treaty but which in relation to agriculture is more honoured in the breach than in the observance). The proposal is clear that the current system of cross compliance, in which farmers are apparently paid for observing the law, is not acceptable:

“Payments should not, as a general rule, be made to farmers or land managers for respecting this mandatory baseline.”

Not only that, but the proposal argues the mandatory baseline should be raised with the addition of EU laws on water, soil, pesticides and industrial emissions.

Where the proposal starts to get even more radical is when it asserts that that certain farming systems consistently deliver more public goods than others yet these farming systems are not currently well-supported in the current CAP. The proposal identifies organic farming and high natural value (HNV) farming as the farming systems that should be most heavily supported in the new CAP. Conventional farming, it is argued, does not produce public goods to anywhere near the same extent. Where they do, “this is highly dependent on the management decisions taken by the farmer and is often not an inherent product of a conventional farming approach”.

In the context of the CAP, the revolutionary nature of this approach cannot be overstated. Since its inception the CAP has been based around the idea of maximising production by rewarding the most productive, intensive and conventional agriculture. Recent rhetoric about the sustainability of ‘European model of agriculture’ is mostly just that: rhetoric. The dirty secret of European farming is that much of it is among the most intensive in the world. With a large population to feed from a relatively small area of (fairly expensive) land, European farmers choose to apply more chemical fertilizers and pesticides than farmers elsewhere in the world and have to stock their animals more densely. Unsustainable water use is a problem for agriculture the world over, but as the proposal points out, “agriculture accounts for over 60% of total water use in southern EU countries”, much of which is being extracted from underground aquifers far faster than it is be replenished. What BirdLife, WWF and their partners are proposing is a fundamental reorientation of the CAP away from a production-maximising paradigm of agriculture to a sustainability-maximising paradigm.

The proposal argues that the CAP of the past is in part responsible for this unsustainable path and the current CAP does very little to check it, in some cases continuing to reward intensification. It follows that what is required is the complete sweeping away of the current first pillar of the CAP – the market mechanisms, export subsidies and ‘compensatory payments’ for historical cuts to intervention prices that between them amount for the bulk of current CAP expenditure. In their place is proposed five core schemes:

1. Basic Farm Sustainability Scheme. This would be open to all farmers and land managers and would aim to achieve a ‘green transition’ for conventional farming and drive improvements in biodiversity, resource use and landscape character. The payment would be a flat-rate area payment, decoupled from production. The rate would vary by member state or region, within upper and lower limits set at an EU level.

2. High Nature Value System Support Scheme. This would support the maintenance or recovery of farming systems that deliver high levels of public goods but are threatened by marginalisation, abandonment or conversion to intensive farming. Member states would have flexibility to vary the rates of payment according to national priorities.

3. Organic System Support Scheme. This would aim to increase the amount of organic farming in the EU through support for conversion to, and maintenance of, organic farming.

4. Targeted Agri-Environment Schemes. These would be used to address specific problems such as species or habitat loss, soil erosion and salination, water pollution etc. These contracts would be very detailed and targeted.

5. Natura 2000 and Water Framework Directive compensation schemes. These would provide compensation to farmers or land managers subject to specific restrictions arising from these two compulsory EU regulations.

The existing investment grant aids in the CAP’s rural development programmes would be retained but restricted to the provision of public goods and not aimed exclusively at “improving the competitiveness of individual producers”. Investment grants would only be awarded to farms that are already participating in organic, HNV or agri-environment schemes. Farm advisory and agricultural extension services would be provided to address knowledge-gaps among farmers, help them in their ‘green transition’ and assist in the drawing up of land management plans and help with marketing for HNV and organic farms. There would also be separate, non-farm based measures for rural communities threatened by abandonment.

New objectives will require new delivery mechanisms but the proposal makes the case for retaining a common European approach on the grounds that “the EU has the covernance structure to pursue collective action at the required scale”.

While the proposal does defend the idea of a common European agricultural policy, it is neverthless a radical departure from the shared view of European Commission’s DG Agri, the European Parliament’s agriculture committee and most farm ministries and farm unions that basically European farmers are on the right track in terms of sustainability and they just need a substantial, relatively no-strings-attached stream of financial aid to keep them going. What BirdLife, WWF and their partners are saying is that most European farmers are actually on the wrong track and will need to change their ways if they’re going to become sustainability in the future.

Such a radical shift in the paradigm of European farm policy will inevitably result in massive changes to the allocation of the CAP budget at a farm level. Intensive farms producing few public goods would see their support reduced while extensive, HNV and organic farms would get much more. A transitional period is suggested but there is no denying that the politics of ‘robbing Peter to pay Paul’ is toxic. Though not impossible as shown by Michel Barnier who used the CAP ‘health check’ to take money from French barley barons and give it to livestock farmers in upland areas.

The proposal implies a big shift of resources away from supporting conventional farms towards supporting HNV and organic farming. Opponents will inevitably be argued that if the result is that the ‘basic stewardship’ flat-rate scheme (BFSS) is funded at too low level there may well be a large swathe of more commercially-oriented farms that decide not to participate at all and instead to embrace an even more intensive method of production to make up for lost subsidy revenues.

Getting the balance right between achieving suffciently high participation in the BFSS, setting farm-level requirements that represent better value for public money than the current CAP direct payments while delivering a real increase to funding for HNV, organic and agri-environment policies will be a real challenge. If, as is proposed, this balancing act is left to member states, there is a very real risk that the new policy framework will simply be ‘retro-fitted’ onto the existing allocation of subsidies of the currenty CAP, for instance by rebadging SPS/SAPS as the Basic Farm Stewardship Scheme, the existing Less Favoured Area scheme as the HFA scheme and continuing to keep existing organic and agri-environment measures with their relatively low level of funding.

It is to be expected at such an early stage that a proposal such as this should focus on aims, objectives and instruments rather than numbers. Tactically it may be necessary to maintain the coalition that is behind the proposal and to attract more supporters. Sooner or later, however, there will need to be some more detail in the proposal on the allocation of resources between the five core schemes, even if it is just EU guidelines for maximum and minimum payment rates.

The consultation is open and you can read the proposal in full and contribute your own views, over here.

The book features chapters from many of the leading lights of in agriculture and trade economics including David Orden, Alan Swinbank, Tim Josling, Harry de Gorter, David Blandford. NGOs analysis are also among the contributors including Ariel Brunner of BirdLife International, an occasional contributor to this blog, Teresa Cavero of Oxfam-Intermon and Carlos Galperín of the Argentinian think tank Centro de Economía Internacional. There are also chapters by Pedro de Camargo Neto, a former trade negotiator for Brazil, and Ann Tutwiler, who was appointed to the Obama Administration in the US earlier in the year with special responsibility for trade and development in Africa. It’s an impressive cast list. One of the book’s contributors, Vincent Chatellier, explains out the kind of subsidies that can qualify for the green box:

Within the green box, there are two types of subsidy. The first relates to public service programmes. This consists mainly of general services such as research, training, dissemination, and inspection (health, safety, quality control and normalisation), sales, promotion and infrastructural services. Domestic food aid or the stockpiling of foodstuffs for purposes of food security also falls into this category. The second concerns direct payments to producers. Article 6, Annex 2 of the URAA (box 1) sets out the conditions that govern the allocation of decoupled income support to the green box. It specifies that these subsidies should not be linked to either production, or factors of production (land and livestock), nor even to an objective price. This applies mainly to income guarantee and security measures (natural disasters, State contribution to crop insurance, etc.) ; to structural adjustment measures (farmers’ retirement schemes, withdrawal of land from production, investment grants) ; and environmental protection programmes.

According to countries’ latest official reports to the WTO, the US provided $76 billion in green box payments in 2007 – over nine-tenths of its total spending – while the EU notified €48 billion ($91 billion) in 2005 , or around half of all support provided by the bloc. The book is the first ever attempt to look at green box support from a ’sustainable development’ viewpoint, examining how payments affect economic, social and environmental progress in both the developed and developing world.

The EU’s embrace of the green box is the legacy of Franz Fischler, whose major reform of the CAP was agreed in 2003 and from 2005 shifted the bulk of taxpayer support for farmers into the green box by maintaining exactly the same distribution of farm subsidy payments as previously but decoupled from current production levels. The G20 grouping of agriculture-oriented developing countries has been quick to argue that, green box or not, the EU’s new decoupled supports could not be non-distorting, as the sheer scale of the payments would insulate farmers against fluctuations in price, provide additional finance for investment. They repeated their refrain, ‘Developing world farmers can compete with farmers in the EU and the US, but we can’t compete with their finance ministries.’

I have always understood that the green colour of the green box comes from the Green means Go of a traffic light (as opposed to the red and amber boxes that are subject to strict limits). But for some, and particularly those politicians who advocate these payments, the hue of the green box owes something to its environmental credentials. In a thorough analysis of the EU situation, Ariel Brunner and Harry Huyton show this argument to be false. They argue that “abuse of the green box is damaging the reputation of agricultural support, which can deliver genuine social and environmental benefits” and that while the current green box rules allow for abuse they mitigate against the kind of environmental support measures that are needed to reverse biodiversity decline.

Brunner and Huyton argue that the single payment scheme, which accounts for the bulk of the CAP’s direct payments to farmers, is not about maintaining environmental, food safety, animal and plant health, and animal welfare standards but about improving farmer incomes. They give a startling example. On the RSPB’s 181-ha arable farm in Cambridgeshire, England it was calculated that the costs of implementing cross-compliance were approximately €75 compared to €27,000 received in direct payments.

Meanwhile, WTO rules on what qualifies for the green box rules out certain agri-environment programmes that seek to pay farmers to enter ‘contracts’ in which they agree to meet specific standards of environmentally-friendly land management. Steenblik and Tsai make a similar point in their chapter on the environment and the green box. This observation leads Brunner and Huyton to argue for a change to the green box rules that would have a profound impact on the measures that are currently designated as green box:

A second fundamental requirement should be introduced, in addition to the current requirement that green box support has no, or at most minimal, trade-distorting effects on production. This should require green box support to be targeted specifically at delivering environmental and social benefits, i.e. “public” benefits that are not already delivered by the market.

This would, at a stroke, disqualify measures that are primarily ‘income support’ policies from the green box and bring the WTO rules into service of BirdLife’s notion of ‘public money for public goods’.

Elsewhere in the book, Carlos Galperín and Ivana Doporto Miguez address the question of whether there is a cumulative effect of green box subsidies when it comes to distorting trade. Taking the reader step-by-step through the micro-economics of farm level production decisions in response to different kinds of subsidies, they show that decoupled support does not impact on short term production decisions, but it does impact on long term decisions about whether to stay in farming or not, and thus favours those farmers in countries with generous income support policies, making life harder for farmers in the developing world where governments are not rich enough to pay similar aids.

Galperín and Doporto Miguez discuss solutions capping green box payments, limiting the overal size of the green box and limiting green box payments to producers not in receipt of support that is designated in any of the other boxes. The fact that they don’t come down in favour of any particular solution to the problem of accumulation of green box supports and the impact on production decisions reveals how far we are from reaching an agreement at the WTO on the subject. The authors concede this is likely to be a subject for negotiations after conclusion, or abandonment, of the current Doha Round. The editors of the book provide a handy table showing the negotiating positions of the various actors at the WTO on key green box issues (see below).

There is plenty more in this book to digest and debate, far more than can be covered in a single blog post but it is clear that the current and future status of the WTO green box is incredibly significant – both for patterns of international trade and for agriculture and environment policies. The book can be ordered here and for those that can’t afford the £80 price tag or want a shorter read there is a 16 page breifing note from International Centre for Trade and Sustainable Development, the NGO that provided the impetus for the book.

Part of the difficulty in answering this question is that there is not yet an agreed methodology for measuring the carbon emissions of a particular foodstuff. Supermarkets in some countries have begun to experiment with carbon labels which purport to give consumers some idea of the carbon footprint of the product they are buying. However, in many cases these measurements are limited to the distance travelled by the product from farm to shop – so-called food miles.

It is by now well established that food miles are a misleading indicator of a product’s carbon footprint (The UK DEFRA commissioned a useful report on this issue in 2005). Not only is distance itself just one of the many inputs which determine the overall carbon footprint – for example, it makes a huge difference whether the transport is by sea or by air – but the energy used in transporting the final product has been shown to be a relatively small part of the overall energy input (and therefore carbon emissions) required for its production.

From the relatively small number of studies completed to date, it appears that in some cases – cut flowers from Kenya and lamb from New Zealand exported to the UK – EU production requires more energy than its overseas competitors.

This may not always be the case, however. If expanding beef production in developing countries requires deforestation to create more pasture land, then on a life cycle analysis basis grassland beef production in the EU may be much more carbon efficient.

I wonder if a synthesis article yet exists which summarises the state of knowledge on this issue?

For years, environmentalists like Birdlife and WWF have been talking about the role of environmentally-friendly farming in securing clean water, healthy soil, wildlife and the like. These are outputs of farming that tend not to be traded in the way that beef, wheat and milk are traded. Environmentalists referred to these things as ‘public goods’, drawing on a economic concept that was first developed by Paul Samuelson in The Pure Theory of Public Expenditure (1954) and that will be familiar to anyone who has taken an undergraduate course in microeconomics. Their argument is that public money should be targeted at farmers who provide ‘public goods’, and that this would require root and branch reform of the CAP. As it stands, the CAP is aimed at a distinctly ‘private good’ in the form of a social welfare policy for farmers.

With everyone jumping on the public goods bandwagon, and the Commission announcing its own work plan looking at public goods in farming, and seeing as it’s a Friday afternoon, I thought I’d brighten things up with a little quiz to test your knowledge of what is, and what is not a public good.

Should your first year undergraduate microeconomics be a little shaky, there’s a nice definition over here. But I recommend taking the test without first reading the definition. Come back for the answers and discussion next week.

1. Which of the following is a public good?

a. A lighthouse that warns ships of underwater reefs
b. A harbour wall that protects ships from storms
c. A lifeboat that saves shipwrecked sailors
d. All of them
e. None of them

Answer: a. The light from a lighthouse is definitely non-rival and probably non-excludable, although it could be that vessels are charged a ‘license fee’ for going to sea and this could be used to finance lighthouses etc.

2 (i) In July 2008, who wrote that “food is a global public good”?

a. Mariann Fischer Boel – European Commissioner – Agriculture & Rural Development
b. Michel Barnier – French Agriculture Minister
c. Gordon Brown – Prime Minister of the UK
d. Louis Michel, European Commissioner – International Development.
e. Pascal Lamy, Director General of the WTO.

Answer: Louis Michel and Mariann Fischer Boel.

2 (ii) Do you think he/she has a good command of basic microeconomics, or not?

Answer: It would appear as though both Commissioners have a shaky understanding of public goods. Food is clearly rival and excludable, and definitely not a public good.

3. The English Lake District is widely regarded as a beautiful pastoral landscape, worth preserving from the ravages of intensive agriculture and saved from land abandonment. It is one of the UK’s top tourist destinations. Taking into account the theory of public goods, which is the most appropriate policy response?

a. Farmers in the Lake District should be paid to practise environmentally-friendly farming, with the money coming from general taxation.
b. Farmers in the Lake District should be paid to practise environmentally-friendly farming, with the money coming from a new Lake District tourism tax (e.g. tax on hotel beds and/or a national park entry fee).
c. Introduce laws that require farmers to practise environmentally-friendly farming without any payment.
d. Leave it to local farmers and local businesses and environmentalists to come to a voluntary agreement.

Answer: The principal benefits of a beautiful Lake District landscape accrue to those who live there and those who visit on holidays, though there may be some people who think they gain benefit from the very existence of the Lake District, even though they’ll never visit (they might like to know that the land that gave us Wordsworth’s poems is still as it was in his time, they may enjoy looking at photographs or paintings of the Lake District).

Option a. involves the largest redistribution as most of the people who pay will not directly benefit from the policy. It involves a transfer from the national population to the farmers who manage the land. Option b. makes a closer link between those who benefit and those who pay and represents a transfer from those who visit the Lake District and the farmers managing the land. Option c. involves a transfer from farmers to those who live and visit the Lake District although it has a lot in common with conservation requirements in towns and cities where the burden of compliance falls on the property owner. Since it is hard to exclude people from enjoyment of the landscape, option d. presents free-rider problems is likely to result in less conservation than is socially optimal.

4. If they get out of control, animal diseases (such as BSE and foot and mouth disease) can wreak economic havoc and even cost human lives. Taking into account the theory of public goods, measures to prevent animal disease outbreaks, tackle them when they occur and safeguard the safety of food should…

a. Be run by government and paid for by general taxation.
b. Be run by government but paid for by a sales tax on meat and livestock products.
c. Be run by government but paid for by a tax on livestock farmers.
d. Be run and paid for by farmers and producer organisations.

Answer: Due to problems of collective action and free-riding, Option d. is likely to result in insufficient safeguards and insufficient contingency funds for managing a serious outbreak. Options b and c are equivalent, although option b. may differ by also involving a tax on imported meat, which may be considered discriminatory and an unfair barrier to trade. Option a. involves the largest redistribution and does not create any additional incentives for farmers to take measures to contain the costs of animal disease. Option c is probably preferable from the perspective of economic theory as it operates rather like a private insurance policy, where the tax is the policy premium and the government is the insurer.

5. Economics jargon-busting bonus question: Which of the following economic concepts is NOT usually relevant in the analysis of public goods:

a. Free rider
b. Moral hazard
c. Tragedy of the commons
d. Externality
e. Market failure

Answer: Moral hazard.