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Evaluating the legislative basis for the new CAP Strategic Plans

The main novelty in the Commission’s legislative proposals for the CAP after 2020 is the New Delivery Model (NDM) which has been described by Commissioner Hogan as representing a shift from a compliance-based to a performance-based or results-based governance system for the CAP.

As set out in a recital to the CAP legislation: “In the CAP based on delivery of performance (‘delivery model’), the Union should set the basic policy parameters, such as objectives of the CAP and basic requirements, while Member States should bear greater responsibility as to how they meet the objectives and achieve targets. Enhanced subsidiarity makes it possible to better take into account local conditions and needs, tailoring the support to maximise the contribution to Union objectives.”

The key instrument designed to underpin the NDM will be the requirement for each Member State to draw up a Strategic Plan setting out its assessment of needs, the specific CAP objectives it intends to address, its intervention strategy including the targets it intends to achieve with respect to these objectives, and the interventions it plans to use. The rules for these Strategic Plans are set out in Title V of the Commission’s draft Regulation establishing rules on support for strategic plans to be drawn up by Member States under the Common Agricultural Policy (CAP Strategic Plans).

Whether these rules are adequate to ensure that the Commission’s declared objectives for the CAP post 2020 can be realised or not has just been thoroughly examined in a study by Professor Emil Erjavec and his colleagues from the University of Ljubljana in Slovenia commissioned by the Policy Department for Structural and Cohesion Policies of the European Parliament (this builds on a previous post on this blog by Professor Erjavec). The purpose of the study is to assist the COMAGRI rapporteurs and members in drawing up their reports on the Commission’s legislative proposals.

In this post, I review the suggested rules in the draft Regulation and outline seven suggestions in the Erjavec at al. paper on how they could be improved.

CAP Strategic Plan

The rules cover the four main elements for Strategic Plans: the procedural requirements for drawing up the Plans, the content of the Plans, the method for their approval, and their performance monitoring.

Procedural requirements (Art 94)

Member States should use transparent procedures when preparing their Strategic Plans. The competent regional and local authorities, including relevant public authorities, economic and social partners, and relevant bodies representing civil society, should be involved in the preparation of the plan. Specifically, the competent authorities for environment and climate should be effectively involved in the preparation of the environmental and climate aspects of the plan.

Elements making up the Strategic Plans (Art 95-103)

An explicit structure for the Strategic Plans is proposed containing the following sections.

(a) an assessment of needs. The Plan should include an identification and description of needs for all nine specific objectives set out in Article 6 of the draft Regulation regardless whether they will be addressed in the CAP Strategic Plan or not (a summary of these nine specific objectives taken from the Erjavec et al. study is shown in Table 1). Needs in relation to risk management in connection with the specific objective of support for viable farm incomes and resilience should be specifically described. These needs should then be ranked and prioritised and a sound justification of the choices made should be given, including why certain identified needs might not be addressed or only partially addressed in the Strategic Plans. (In passing, while this suggests that Member States may decide not to pursue one or more of the specific objectives shown in Table 1 if they can provide appropriate justification, in practice the mandatory nature of the agri-environment-climate interventions and the existence of the performance bonus (see below) makes the inclusion of the related specific objectives for the general environment and climate objective also mandatory).

(b) an intervention strategy. This section should set out quantitative targets and milestones to achieve each specific objective set out in Table 1 that is addressed in the Strategic Plan (not all objectives need to be addressed if the omissions are justified, as noted in previous paragraph). Targets should be defined using a common set of result indicators set out in an Annex to the draft Regulation. The value of the targets should be justified by reference to the needs assessment.

The intervention strategy should also set out the interventions proposed to reach these targets drawn from the menu set out in the Regulation. It should describe how the interventions allow reaching the targets and how they are mutually coherent and compatible.

Additional specific requirements include (i) an overview of the environmental and climate architecture showing the complementarity and coherence between the proposed conditionality attached to receipt of farm payments, the eco-scheme in Pillar 1 and the AECM measures in Pillar 2 and how this architecture contributes to meeting long-term national targets set out in relevant environmental legislation; (ii) in relation to the specific objective ‘attract young farmers and facilitate their business development’ the overall package of measures included in the Plan should be described, including their interplay with relevant national instruments; (iii) where coupled supports and other sector-related interventions are included in the Plan, the justification for targeting the sectors concerned, the list of interventions per sector, their complementarity, as well as the possible specific additional targets related to the interventions should be described; as well as (iv) an explanation as to which interventions will contribute to ensure a coherent and integrated approach to risk management.

(c) a description of elements common to several interventions. This is a catch-all heading that refers to a few disparate requirements. The most important is a description of the system of conditionality, including a detailed account of how each GAEC standard in the Regulation will be implemented and, specifically, how it will contribute to the environmental and climate specific objectives set out in Article 6 (see Table 1). Member States should also include information on the specific definitions they have adopted for some of the terms in the Regulation that are left up to Member States (for example, the definitions of agricultural activity, agricultural area, eligible area, genuine farmer, small farm and young farmer); on the use made of technical assistance; on the functioning of payment entitlements where the Member State opts to continue their use; on the uses made of revenues raised by capping and degressivity; as well as an overview of the coordination, demarcation and complementarities between the EAFRD and other Union funds active in rural areas.

(d) a description of the direct payments, sectoral and rural development interventions specified in the strategy. This should include an account of the design of the intervention and its eligibility conditions, the annual planned outputs for the intervention, the annual planned unit amount of support and its justification; and the resulting annual financial allocation for the intervention. Member States should also show how the intervention relates to the criteria for determining whether measures are trade-distorting or not in the WTO Agreement on Agriculture, and whether the intervention falls outside the scope of Article 42 TFEU and is subject to State aid assessment.

(e) target and financial plans. These should build on the annual financial allocations per intervention set out in (d) as well as detail transfers between Pillars and confirm that any minimum spending requirements set down in the Regulation have been met.

(f) a description of the governance and coordination system. The most important element here is information on the control system and penalties including the integrated administration and control system and the control and penalty system for conditionality. The monitoring and reporting structure should also be described.

(g) a description of the elements that ensure modernisation of the CAP. This covers two specific obligations; an overview how the Strategic Plan will contribute to the fostering and sharing of knowledge, innovation and digitalisation and encourage their uptake, including a description of the AKIS organisational set-up and how advice and innovation services are provided; and a description of the strategy for the development of digital technologies in agriculture and rural areas and for the use of these technologies to improve the effectiveness and efficiency of the CAP Strategic Plan interventions.

(h) a description of the elements related to simplification and reduced administrative burden for final beneficiaries. In addition, each CAP Strategic Plan should contain the following annexes:
(a) Annex I on the ex-ante evaluation and the strategic environmental assessment (SEA);
(b) Annex II on the SWOT analysis;
(c) Annex III on the consultation of the partners;
(d) Annex IV on the crop-specific payment for cotton;
(e) Annex V on the additional national financing provided within the scope of the CAP Strategic Plan.

Approval procedure (Art 106-108)

Member States are required to submit their Strategic Plans no later than 1 January 2020, although there is some ambiguity in the text whether this date is intended to be in square brackets or not (indicating that it is subject to further negotiation). The specific conditions for approval of the Strategic Plans are worth citing in full:

“The Commission shall assess the proposed CAP Strategic Plans on the basis of the completeness of the plans, the consistency and coherence with the general principles of Union law, with this Regulation and the provisions adopted pursuant to it and with the Horizontal Regulation, their effective contribution to the specific objectives set out in Article 6(1), the impact on the proper functioning of the internal market and distortion of competition, the level of administrative burden on beneficiaries and administration. The assessment shall address, in particular, the adequacy of the strategy of the CAP Strategic Plan, the corresponding specific objectives, targets, interventions and the allocation of budgetary resources to meet the specific CAP Strategic Plan objectives through the proposed set of interventions on the basis of the SWOT analysis and the ex-ante evaluation.”

Annexes 1-4 as well as the Member State plans for controls and penalties are explicitly excluded from the approval process. The Commission can address observations to the Member State within three months of receiving the Plan, and the Member State is required to provide any additional information requested and, if necessary, to revise the proposed Plan. It is further specified that approval should not take longer than eight months after submission of a Plan (but this time limit excludes any time required for a Member State to respond to Commission observations). Partial approval of elements of the Plan is also permitted. Member States can amend their Plans at any stage by following the prescribed procedure.

Performance monitoring (Art 115-124)

The draft Regulation specifies a performance framework consisting of a set of common context, output, result and impact indicators that will be used as the basis for monitoring, evaluation and annual performance reporting. Targets and annual milestones will be based on output and result indicators and progress will be reported in an annual performance report.

Mechanisms to reward good performance and to address low performance are proposed. Where the reported value of one or more result indicators deviates by more than 25% from the respective milestone for the reporting year concerned, the Commission can ask the Member State to submit an action plan with intended remedial actions and a timeframe. The performance bonus (actually a performance penalty) will be implemented by withholding in 2016 5% of each Member State’s pre-allocated Pillar 2 funding in 2017. This amount will be released to the Member State if the result indicators applied to the three specific environmental- and climate-related objectives in its CAP Strategic Plan have achieved at least 90% of their target value for the year 2025.

Recommendations of the European Parliament study by Erjavec et al. (2018)

The Erjavec et al. study welcomes in principle the shift to the NDM, pointing out that it is line with the principles of evidence-based policy making. It sees the greatest opportunity arising from the proposed approach in greater flexibility for Member States and efficiency for the EU. Risks are associated with the administrative burden of planning for Member States and lowering standards or ‘race to the bottom’ for the EU.

It suggests that the proposed new model of policy delivery draws on the established model of Rural Development programming and essentially the same governance system, and thus contains all the shortcomings of the current system. The study doubts that the proposed arrangements will lead to a genuine results-based policy. It sees limited incentives for Member States to make efforts for better policies, and highlights an “accountability gap” and a “systemic weakness in the intervention logic” in the new delivery model. It is too easy for Member States to draw up Strategic Plans that are mainly designed to minimise the hassle associated with the absorption and distribution of funds.

I distil seven main recommendations in the study designed to encourage and strengthen the results-based approach advocated by the Commission in its legislative proposal.

Make the specific objectives in the legislative proposal more concrete by setting quantified goals, drawing on related EU legislation where appropriate. The study accepts that, for CAP measures to contribute to the achievement of its specific objectives, these objectives should be sufficiently concrete and measurable so that quantified, measurable milestones and targets can then be established in Member States’ CAP plans and subsequently monitored. It notes that “The CAP policy objectives are relatively clear, what is missing is only their quantification”. Most of the discussion on quantified indicators at the EU level refers to the environmental and climate objectives. The study underlines that the need for quantification applies to all nine specific objectives. It recognises that for some of the other objectives, notably farm viability and resilience, the process of quantification could lead to considerable political and economic tensions.

Strengthen the commitment to greater environmental and climate ambition. An important foundation for the greater level of environmental and climate ambition desired by the Commission for the CAP post 2020 is set out in Article 92, which sets out that there should be no backsliding with regard to environmental and climate-related objectives in the current period (I have previously discussed Article 92 in this post):

“Member States shall aim to make, through their CAP Strategic Plans and in particular through the elements of the intervention … a greater overall contribution to the achievement of the specific environmental- and climate-related objectives … in comparison to the overall contribution made to the achievement of the objective … in the period 2014 to 2020.”

The study points out that implementing this commitment depends on the evaluation of the current state and goals and fails to instruct on how to define the situation and goals. It suggests strengthening the principle of ‘no backsliding’ with the requirement to maintain at least the absolute and relative share of support for climate and environmental objectives.

Improve accountability through a more comprehensive reporting system. As noted previously, the performance framework will require Member States to report only on output and result indicators in their annual performance reports. This study suggests this should be expanded to also include changes in the impact and contextual indicators. Specifically, better quantification of CAP objectives and indicators at the EU level could drive the monitoring of these objectives at the national level. Here the study raises but leaves open the question of how the EU-level objectives can be transmitted to Member States. It suggests it could be helpful to draw on independent quantitative and qualitative public assessment of experts and groups at the EU and national level.

Strengthen rules to ensure genuine consultation in Plan preparation. The study notes the current experiences with Rural Development programming, where the level of stakeholder consultation and engagement vary significantly from one country to another – even if the rules are common and fall under the European Code of Conduct on Partnership. In the future, the CAP Strategic Plans will no longer fall under this Code set out in the Common Provisions Regulation. The study concludes that it will be even more important that a strong framework on partnership and common rules be inserted into the CAP proposals. As it stands, while there is a requirement for Member States to consult adequately with “relevant” stakeholders, the annex on consultation will not be part of the approval process of the Plans.

The study recommends strengthening the stakeholder consultation process with more binding requirements concerning the composition of parties involved in the process, joint decision-making, monitoring and evaluation. These requirements could be drafted in line with the provisions put in place in cohesion policy and using the European Code of Conduct on Partnership as a basis. The objective should be to ensure that stakeholders’ opinions at national level are seriously taken into account.

Formalise more the approval process for Strategic Plans. The procedure related to the approval of the Strategic Plans is practically the only mechanism in the Commission’s power to ensure targeted and ambitious strategic planning. The study underlines the importance of ensuring that the Commission is empowered to make a proper qualitative assessment of the Strategic Plans. Here it proposes that the adoption procedure should be more formalised, with stakeholders’ opinions at national level taken into account. It believes this would improve the quality of the design as well as the legitimacy of the documents.

Make substantial investment in personnel, processes and analytical support for the preparation of Strategic Plans. The study underlines in various places the dramatic culture shift that the introduction of strategic planning will imply for those involved. While superficially there are similarities to the process used in drawing up Rural Development Programmes at present, the study suggests that the latter is more of a technical activity than a substantive, political task. To be implemented effectively, the strategic planning approach “demands competent human resources (e.g. strategic workgroups), effective coordination and organisation of the process, a well-established culture of democratic dialogue and learning that involves a broad spectrum of stakeholders, as well as sufficient external analytical and expert support”.

“Strategic planning is supposed to be a creative, intellectual and democratic endeavour, which requires excellent staff and a comprehensive approach. Will civil servants in Member States be up to the challenge? How to build a newly required culture of action and cooperation? In truth, probably in most Member States, civil servants are not sufficiently trained for quality strategic planning. Deficiencies also arise from the weak position of agricultural officials in society, inappropriate and narrow education, lack of training and practical experience, poor quality of management and politicized state administrations.”

The study notes that, for several Member States, the transition towards a strategically oriented and performance-based agricultural policy will prove to be a daunting task that will require increased efforts in terms of substantially upgrading strategic, analytical and administrative capacities, procedures and methods of work. Without serious investment in personnel, processes, analytical support and inclusive preparation of Strategic Plans, there may be considerable differences in policy implementation between individual countries.

The study emphasises the need for capacity building, and improvement of training and knowledge exchange in support of strategic planning. Among other suggestions, the study recommends establishing a common platform with open access to all Strategic Plans, progress and evaluation reports to assist in the process of mutual learning.

Make greater investment in data collection to support the results-based approach. The study underlines the importance of strengthening the data sources related to needs analyses, as well as making available appropriate data that will be employed as indicators for identifying and monitoring objectives. It sees the need for an upgraded system of data collection and data management in support of strategic planning. Both Member States and EU bodies (JRC, EEA, Eurostat) have a role to play here. The study proposes an enlarged technical assistance budget could be used to improve the depth and quality of data collection.

Additional issues

These recommendations are relevant and worth supporting. There are several other issues around the Strategic Plan instrument that would be worth exploring in more depth.

What role should the Parliament have? COMAGRI has raised concerns that the NDM implemented through the Strategic Plans reduces the role of the Parliament in the definition of the CAP and could even make the AGRI Committee of the Parliament redundant. AgraFocus (72-18) reported that the Committee in September had sought the advice of the Parliament’s legal services comparing the powers the Parliament currently has with those it would have under the Commission’s proposal, but I am not aware that this legal advice has been made public. It is not clear exactly where the Committee’s concerns arise, but one might speculate that the reversion of significant powers to Member States to define how the CAP is implemented in their countries could remove these decisions from the remit of the Parliament’s scrutiny.

The draft Regulation envisages a limited oversight role for the Parliament in the CAP after 2020. The Commission would carry out an interim evaluation by the end of the third year after the start of the CAP Strategic Plans based on the impact, result and output indicators set out in the Annex to the draft Regulation. An initial report based on first results of implementing the new CAP would then be forwarded to the Parliament and Council after this interim evaluation. A second report including an assessment of the performance of the CAP shall be presented by 31 December 2031. All in all, this does not suggest that COMAGRI will have a particularly busy agenda in the coming parliamentary period.

Handling disagreement in the approval process. The study rightly highlights the crucial role of the approval process in ensuring that Member States deliver on the CAP’s EU objectives in their Strategic Plans. Compared to the current process for the approval of Rural Development Programmes, the approval of Strategic Plans will potentially be a more political process under a results-based strategic planning model. The Commission will not just be checking that the Plans comply with various requirements set out in legislation but will be required to evaluate whether the Plans make a sufficient contribution to meeting EU objectives.

The Plans will arrive on the Commission’s desk with considerable legitimacy behind them (an ex ante evaluation, a SWOT analysis, a stakeholder consultation process). It will take a brave desk officer to challenge the country’s priorities and choice of intervention strategy. But suppose the Commission does send observations that the Member State refuses to accept, and perhaps there are good grounds for this refusal. In this situation, the Commission can withhold its approval and thus delay the transfer of funds to the Member State. What procedures for arbitration will exist in cases where the two parties cannot reach agreement?

Changing the audit culture. An under-researched topic to date in the evaluation of the NDM is the role that the EU audit process will play. This process has come in for heavy criticism in recent years for its allegedly heavy-handed controls and its dampening effect on innovation (for a well-documented cri de coeur, see this submission from Freistaat Sachsen on how the audit process should be retooled in the CAP after 2020). The Parliament’s Budget Committee has also raised concerns that financial and performance control and audit functions of the CAP are performed to the same standard and under the same criteria across all Member States under the NDM. The mechanisms to ensure this in the draft legislation are not clear. Exactly the role that the EU audit function will play in the new results-driven model deserves much greater examination.

Where is the simplification? Simplification along with modernisation are the two over-arching objectives of the Commission’s CAP proposals. But initial reactions from Member States and farm groups suggest that many do not regard the proposals as a real simplification. Indeed, it should be recognised that strategic planning will result in a substantially greater administrative burden at the Member State level. The Commission proposals envisage considerable simplification at the beneficiary level (in part because Member States will now be able to design rules more appropriate to their farming circumstances, and in part through using new technologies to minimise the inputs required from farmers). Member States will be required to spell out, in one section of their Strategic Plans, the extent of this simplification at the level of beneficiaries. No doubt the Commission in its roadshow around the Member States to begin the process of strategic planning has identified ways in which the NDM also has advantages for the paying agencies and Member State administrations.

Maintaining a level playing field. One of the big concerns voiced by farm groups is that greater subsidiarity for Member States to design their own agricultural policies could lead to strong differences in the regulatory frameworks in different Member States (in the definition of conditionality standards and in the mix of support interventions that are employed). These groups fear that this ‘renationalisation of the CAP’ could lead to the fragmentation of the internal market and disrupt the level playing field for farmers in different Member States.

The significance of this objection is greatly overstated. Those groups who raise this objection against the NDM are usually the greatest proponents of the most trade-distorting CAP instrument, namely, coupled payments at the Member State level. The CAP has never been entirely uniform for a least a decade, with strong differences in the levels of direct payments per hectare and different payment models, and the single market has survived. More important, the conditions attached to the ‘licence to farm’ in Member States, in terms of regulation and taxation policies, remain very different.

Nonetheless, concerns over the disruption of the level playing field cannot be entirely dismissed. The single market is one of the greatest achievements of the European Union and should not be arbitrarily undermined. The Commission has recognised the issue and has stated that the level playing field will be ensured by using the Commission’s power to approve individual Strategic Plans “to ensure consistency and protection of the single market”. This has also been the position taken by Commissioner Hogan. But how the potential contradiction between giving Member States the power to design a results-based agricultural strategy while minimising different regulatory and support regimes across the EU can be avoided or minimised needs to be more clearly set out.

Conclusions

The Erjavec et al. study is the first systematic attempt to review and evaluate and suggest improvements to the Strategic Plan instrument which will be the centrepiece of the NDM in the CAP post 2020. It makes a valuable contribution and its recommendations must be seriously considered by the co-legislature when adopting the new legislation.

One of the main messages of the study is that the period 2021-2027 should be seen as a ‘deployment’ period for CAP strategic planning where no major adjustment of the measures nor particularly improved results can be expected.

The range of changes is so profound that a more long-term view should be taken, stressing the importance of collective learning and system building, to be able to implement better in the future.

Indeed, the Commission’s timetable for drawing up these Plans is ridiculously tight. According to the date in the draft legislation, Plans should be submitted to the Commission for approval by 1 January 2020, less than 15 months away.

During this period, Member States are expected to conduct a SWOT analysis, a multi-stakeholder consultation exercise, prepare a draft Strategic Plan, conduct an ex ante evaluation on this draft, revise the Plan and then submit it to Brussels.

And all this while the draft legislation itself has not yet been approved!

Given the magnitude of the changes implied by the NDM and the need to get it right (bearing in mind the difficulties around introducing greening without full analysis and piloting of the proposals) it is hard to defend this rushed timetable, however much we see a need for CAP reform. However, the Commission is unlikely to shift its position until it becomes clearer that the timetable for adopting the new CAP legislation prior to the European Parliament elections in May 2019 itself cannot be met.

The Erjavec et al. study on the CAP Strategic Plans is one of three studies commissioned by the Parliament that will be presented at a COMAGRI workshop on 15 October next “The Common Agricultural Policy beyond 2020: appraisal of the EC legislative proposals” (draft programme here). The other two studies are by Roel Jongeneel on assessing the future structure of direct payments and the rural development interventions in the light of the EU agricultural and environmental challenges and by Tomas Garcia Azcárate on possible options to improve the EU food value chain.

This post was written by Alan Matthews

Photo credit: Near Montpellier, own photo.

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The redistributive payment is more effective at redistribution

Capping of direct payments is not the only instrument proposed by the Commission to allocate more support to small and medium-sized farms. In addition to a mandatory ‘basic income support for sustainability’, the Commission CAP proposal would also require Member States to introduce a ‘complementary redistributive income support for sustainability’. This redistributive payment is currently voluntary under the 2014-2020 CAP.

Under the current CAP, the redistributive payment is applied by 9 Member States: BE-Wallonia, BG, DE, FR, HR, LT, PL, RO and UK-Wales. The financial allocation to the scheme takes up from 0.5% to 15% of the Member States national ceiling for direct payments. The payment aims at achieving a more effective income support for smaller farmers by granting an extra payment per hectare for the first hectares below a certain threshold.

All farmers eligible for BPS/SAPS receive the redistributive payment. However, they only receive this payment up to a certain number of hectares per holding. As a result, only a part of the BPS/SAPS area receives the redistributive payment. For most Member States the redistributive payment is paid on approximately 50% of the basic payment area.

Member States had the option to fix the top-up as an amount up to 65% of the average national/regional direct payment per hectare. However, this maximum amount is not used. The shares go from 0% for the first tranche in PL to 35% in BE-Wallonia.

Under the legislative proposal for the CAP post 2020, the scheme is made compulsory but virtually all the parameters (the thresholds, the unit rate) are left to Member States to decide and to justify in their CAP Strategic Plans. The only EU limit is that the redistributive top-up cannot exceed the national average amount of direct payments per hectare for that claim year. Given that only 9 Member States use the redistributive payment when it is voluntary, it will be interesting to see what is the minimum allocation that a Member State can get away with for this ‘compulsory’ scheme.

The Commission impact assessment provides an assessment of both capping and the redistributive payment in targeting support on small and medium sized farms, targeting support on farms with the lowest incomes as well as leading to a fairer distribution of support. However, the scenarios modelled differ from each other in significant respects, so it is hard to make a like-for-like comparison of the relative impact of these different instruments. Also, none of the modelled scenarios map exactly to the options put forward in the Commission’s legislative proposals.

Redistribution in France under the Commission legislative proposal

For this reason, Vincent Chatellier (INRA, SMART-LERECO) has made a very useful contribution by simulating different scenarios regarding the redistributive payment and capping for France, using French FADN data and the Commission legislative proposal, and assuming France continues to apply the redistributive payment as it does today. His paper was presented at the recent annual meeting of the French Society of Agricultural Economics (SFER). He constructs six different scenarios, three relating to the redistributive payment and three relating to capping. All scenarios are simulated using data for 2015. All scenarios are budget-neutral.

France is one of the 9 Member States to use the redistributive payment in 2015. Its intention was to gradually phase in the payment, using 5% of its national direct payments ceiling in 2015 (worth a top-up of €25/ha on the first 52 hectares) and increasing by 5 percentage points each year to reach 20% of the ceiling from 2018 onwards. However, the French government took the decision in 2017 to temporarily hold the share at 10% (due to the difficult grain harvest in 2016) and in 2018 to leave it permanently at 10% (partly in recognition of a further transfer from Pillar 1 to Pillar 2). Thus the simulations for the redistributive payment are relative to a 2015 baseline where a small redistributive payment has already been introduced.

A further issue of relevance to France needs to be explained before describing the results of the scenarios. France has had a long tradition of group farming going back to the 1960s – the GAEC (Groupement Agricole d’Exploitation en Commun) – based on farmers pooling land, labour and capital. In 2010 GAECs accounted for 7.6% of farms and 15% of agricultural adult work units, although their incidence varied greatly across regions. The law recognising GAECs specifies a legal minimum of two partners/associates and a maximum of ten, with the requirement that all partners work full time on the farm. The law also incorporated a ‘transparency principle’ (Article L323-13 of the French Rural Code) under which the State, for its agricultural support programmes, treats each partner as an individual entity, while also recognising a GAEC’s collective identity.

This ‘transparency’ principle allows GAEC partners to benefit from public incentives on the same basis as individual farmers. The ‘transparency’ principle for GAECs was fully recognised in the CAP 2013 regulations (for example, Article 11.5 of the direct payments Regulation 1307/2013) which allows the benefits of any exemptions to be ‘passed through’ to the individual members of a GAEC (incidentally, Norbert Röder in a comment on this post points out that similar complicated issues of joint ownership arise in the case of East German large farms).

We now examine the impact of the six scenarios modelled by Vincent Chatellier. The six scenarios are the following:

  • DP1. Capping is introduced as foreseen in the Commission’s June 2018 legislative proposal. The maximum payment is limited to €100,000 per holding, with degressivity introduced between €60,000 and €100,000. GAEC pass-through is allowed, and wages of salaried employees but not the implicit cost of family labour can be deducted from the payment before the limit takes effect. The proceeds of capping are distributed to all first hectares below 52 ha which is the current French threshold.
  • DP2. Capping is introduced at €60,000 per holding, with no deduction for labour use, but GAEC pass-through is allowed. The proceeds of capping are distributed to all first hectares below 52 ha.
  • DP3. Capping is introduced at €60,000 per holding, with no deduction for labour use, and GAEC pass-through is not allowed. The proceeds of capping are distributed to all first hectares below 52 ha.
  • PR1. The redistributive payment share is set at 20% of the direct payments envelope rather than 5% in the baseline, the share originally foreseen by the French authorities, which amounts to an additional payment of €100 per ha for the first 52 ha, and GAEC pass-through is allowed.
  • PR2. The redistributive payment share is increased to 30%, the maximum permitted by the current DP regulation. GAEC pass-through is again permitted.
  • PR3. The redistributive payment share is increased to 30%, but the maximum area to benefit is reduced from 52 ha to 30 ha. GAEC pass-through is again permitted.

It can be seen that the amounts redistributed under the capping options are very limited (€25 million for DP1, €127 million for DP2 and €360 million for DP3). The scenario DP1 is most like the Commission’s legislative proposal, although it does not allow the deduction of the equivalent wage paid to family labour as proposed by the Commission. This would further diminish the amount of resources redistributed in this option. Even without simulating that additional deduction, the proposal has almost no impact.

Even capping direct payments at €60,000 without allowing labour deductions (DP2) has very limited redistributive effect, although payment amounts to the very largest holdings would be on average reduced by 9%. Only where no GAEC pass-through is allowed (DP3) do the redistributive effects become noticeable, with a 5% increase in payments to smaller holdings and a 29% reduction in payments to the very largest holdings.

By contrast, the redistributive payment is shown to be considerably more effective at redistribution than capping. By construction, scenario PR3 is more redistributive than scenario PR2 and even more so than scenario PR1, because of the larger share of direct payments involved and the concentration of the top-up payment on fewer hectares. In the case of scenario PR3, the very smallest size group gains 23%, while the largest size group loses 13%.

The reason for the greater impact on redistribution is that all hectares above the 52 hectare threshold (or 30 hectares in PR3) contribute to the top-up payment on smaller farms, and not only the hectares on the very largest farms. Moreover, the redistributive payment at the rates that France intended to use would result in a larger reduction in payments to the largest holdings than would capping on its own.

Vincent Chatellier does not combine the two options (capping and the redistributive payment) in his paper although under the Commission proposals both options would be compulsory (although only for capping are minimum obligations included in the legislation). The original paper also shows the degree of redistribution by type of farming and region under the various scenarios.

The extent of redistribution needs to be kept in perspective. In 2015, holdings less than 100 ha received 37.2% of direct payments in France. After the PR3 simulation (by far the most effective at redistribution) these holdings would receive 39.2% of direct aids. While the intent of the redistributive payment is to favour smaller farms (and thus supposedly those with smaller incomes), Chatellier points out that many of the beneficiaries on smaller hectares are vineyards, fruit and vegetable growers and pig farms that have high output and earnings per hectare.

Conclusions

What insights do we get from this analysis? One conclusion is that, for those Member States that might wish to focus direct payments on smaller holdings, the redistributive payment can be an effective instrument. The lower the threshold, the larger the benefit to the very smallest holdings but, at the same time, the fewer the number of holdings that benefit.

The simulations also highlight the importance of the way in which ownership structures are treated for the redistributive outcome. In France, if large co-operative farms are treated as a single unit, then both the redistributive payment and even capping (depending on whether salaries can be deducted or not before the threshold is applied) have a significantly greater impact. We need to have much greater clarity and understanding of the ownership structure of very large holdings if we are to predict the impact of capping and the redistributive payment.

Finally, not all Member States will want to support small farms for their own sake. For these Member States, it will be interesting to see how much weight the Commission gives to the objective of a fairer distribution of support when approving their CAP Strategic Plans.

This post was written by Alan Matthews

Update 5 Sept 2018: Link to the Chatellier paper has been updated.

Photo credit: Plowed fields in Spain Quinntheislander on Pixabay, used under a CC0 Creative Commons Licence

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Wales charts course towards radically different farm policy

Wales is one of the three devolved government regions which along with England make up the four countries in the UK. Its agricultural sector is, in absolute terms, small. Around 38,400 holdings farm an area of 1.9 million hectares, with an average farm size of 49 hectares. Just over 15,000 of these holdings receive support under Pillar 1 of the CAP as many of them are deemed to be ‘very small’ with insignificant agricultural activity. These farms produce output valued at £1.6 billion in 2017, contributing a gross value added of €457 million and a total income from farming (TIFF) of £276 million in that year (statistics taken from Wales Statistics and Research, Farming Facts and Figures, Wales 2018 and the Aggregate agricultural output and income web page).

Total receipts under the Basic Payment Scheme (BPS) amounted to £234 million while agri-environment payments under the Glaistir scheme amounted to a further £55.7 million in 2017. The dependence on CAP support is obvious, and is well illustrated in the figure below. Only very large farms, measured in terms of economic size, have a positive net income from the sale of agricultural produce. For the agricultural sector as a whole, total income from farming is made up of the BPS payment and agri-environment payments.

Yet Wales could prove to be a test-bed for agricultural policy reform, with a significance far beyond its own borders. As part of its post-Brexit preparations, the Welsh Government issued a consultation paper on post-Brexit agricultural policy Brexit and our Land: Securing the Future of Welsh Farming on July 10 last.

While many of the ideas in this paper echo ideas put forward in the Defra consultation paper on Health and Harmony: the future for food, farming and the environment in a Green Brexit on ideas for a post-Brexit agricultural policy for England, the Welsh Government paper is much more detailed and specific in its proposals, and thus a much more interesting document to analyse.

Criticisms of CAP

The Welsh Government does not hold a candle for the CAP and particularly the BPS which it believes has been insufficiently targeted to make a useful contribution. In economic terms, the BPS has not done enough to improve farm productivity (the net margin per unit of production). The consultation paper points out that agricultural value-added in Wales has been decreasing, both in absolute terms and as a share of the economy. It believes this reflects the fact that BPS payments are not intended to support productivity improvements or wider benefit delivery.

It also argues, though on less clear evidence, that “the BPS is not structured to offset the financial impact from significant downside risks to the trading environment (which result from some Brexit scenarios). CAP is designed for land managers within the European Union; outside the EU, a different support system is needed”. It also identifies problems with the rules for agri-environment schemes, arguing that there is insufficient focus on addressing environmental challenges relevant for Wales, specifically the challenge of decarbonisation.

In summary, the paper concludes: “The BPS has not been a targeted intervention and is in essence a payment for holding land. It is too blunt a lever to improve economic performance, is too poorly targeted to keep farmers on the land and does not contribute sufficiently to our environmental resilience”.

Five principles

In putting forward proposals for an alternative agricultural policy, the paper is guided by five principles:

Principle 1. We must keep farmers, foresters and other land managers on the land.
Principle 2. Food production is vital for our nation and food remains an important product from our land. That means continuing to support the economic activities of farmers where it is sustainable and financially viable to do so.
Principle 3. This must be done in a way that builds a prosperous and resilient Welsh land management industry – especially agricultural (sic) and forestry.
Principle 4. In order to dramatically increase the services that Welsh society can receive from our land, future support will encompass the provision of additional public goods from land.
Principle 5. All land managers should be able to access new schemes; support will not be restricted only to current recipients of CAP funding. But land managers may need to do things differently in return for support.

Specifically, the consultation paper proposes a new Land Management Programme that will replace the CAP in its entirety. The Programme as proposed consists of two over-arching schemes: the Economic Resilience scheme and the Public Goods scheme.

“The Economic Resilience scheme will provide targeted investment to both land managers and their supply chains. The scheme will provide support to increase market potential, drive improvements in productivity, diversify, improve risk management and enhance knowledge exchange and skills. In doing so, it will help businesses to stand on their own two feet.

The Public Goods scheme will provide support to deliver more public goods from the land. In return, it will provide a new income stream for land managers and make a significant contribution to addressing some of our most pressing challenges such as climate change, biodiversity decline, adverse air quality and poor water quality.

We therefore propose a phased transition plan to move from old to new schemes. We intend to bring forward detailed proposals by spring next year and publish legislation by the end of the Assembly term. Our ambition is to complete reform by 2025.”

Economic Resilience scheme

The proposal to replace CAP support in its entirety given that it makes up the totality of farm income in Wales is a bold move. The consultation paper believes that the two replacement policies can make up the gap, but in different ways.

The Economic Resilience scheme is based on the belief that area-based direct payments have cushioned the industry from making necessary investments to improve its competitiveness. It points to evidence from farm survey data that there is a huge gap in performance between the higher-performing farms and those in the lowest tiers.

Although total payments make up 100% of farm income, the consultation paper notes that they are a relatively small share of turnover.

“Commercial income is the major component of farm turnover but significant costs mean it makes only a small (or negative) contribution to net income. A relatively small change in turnover or costs would have a proportionately large impact on the net income position. As such, changes to turnover and costs could have the potential to alter the perceived “reliance” on CAP support….. It is also important to recognise there is often a significant difference between net farm business income and farm household income. For small farms, net farm business income (and hence support payments) make up a smaller proportion of income than non-farm income”.

The belief underlying this argument is that properly-targeted investment support (at least to those farms with the potential to be viable) can enable a sufficient lift in productivity to enable farms to earn a sufficient return from the market place. As the paper notes: “The ultimate aim is to help land management businesses stand on their own two feet”.

One of the objectives of the consultation paper is to seek views on the appropriate shape and scale of this support. The government expects it to be conditional on a credible business strategy, assessment of viability and potential for a return on investment. Five areas for potential support are outlined in the paper:

Area 1: increasing market potential.
Area 2: improving productivity.
Area 3: diversification.
Area 4: effective risk management.
Area 5: knowledge exchange, skills and innovation

In the absence of income support, then farmers must seek ways to increase their labour productivity, as this is the sole determinant of their income in the longer-run. There are two ways to increase labour productivity. One is through structural change, in which the individual farmer increases his or her individual earnings by farming more hectares. This approach would not be consistent with Principle 1 in the paper to keep farmers on the land.

The other way to increase labour productivity is to increase land productivity, or the income earned by the farm per hectare. This can be done by improving yields or reducing costs (Area 2), by adding value to existing production (Area 1) or by using some farm resources to earn non-farm income through diversification (Area 3).

The unanswered (and unanswerable) question is what is the potential to increase land productivity (the farm income generated per hectare of land)? As the consultation paper notes, Welsh farm income is small relative to the total value of output (£276 million compared to £1.6 billion). Therefore, an increase in the value of output of 17% (with no associated increase in on-farm costs) would generate the missing millions. (Other combinations are possible – reducing costs while maintaining the value of output, or using some under-employed farm resources to diversify or add value to existing output). There is clearly scope to improve farm incomes in these ways, also because farm input prices such as land rents would adjust to the elimination of direct payments, although the timespan over which these gains can be achieved remains uncertain.

Public Goods scheme

However, this is where the consultation paper introduces the second prong of its proposal, the Public Goods scheme. This scheme is intended to address pressing challenges such as climate change, habitat and species loss, adverse air quality, poor water quality and increased flood risk. However, it would also have the explicit objective “to provide a valuable new income stream for land managers, open to all and with payment for outcomes based upon the value society places upon them”.

The paper sets out a set of high-level design parameters for the Public Goods scheme, and seeks the views of stakeholders on the detailed design of scheme parameters. The parameters are:

Parameter 1. Scope of the scheme – which public goods
Parameter 2. Open to all – ensuring all land managers have the opportunity for eligibility
Parameter 3. Opportunities for action – taking a spatial approach
Parameter 4. Evidence-based public goods – ensuring value for money
Parameter 5. Additionality – a focus on active land management
Parameter 6. Advisory support for land managers – how to provide appropriate guidance

From our perspective in this post, the key innovation in the scheme is the intention that it would provide an income stream for farmers. The paper notes that EU agri-environment schemes are restricted to costs incurred and income foregone. As a result:

“Where agricultural incomes are marginal the quantum of funding is necessarily reduced to reflect a low or negative level of income foregone. This leaves insufficient incentive for participation, especially on land where intervention is most desirable. These schemes are also restricted in terms of scope, only supporting the delivery of environmental outputs and not social ends. This limited scope and the funding structure drives a focus on inputs rather than outcomes. It is therefore possible to have an agri-environment scheme where land managers fully meet the requirements of the scheme but without delivering the desired outcomes.”

Under the new Public Goods scheme land managers will be paid an appropriate value for both environmental and social outcomes rather than being compensated for input costs. The paper notes that valuation of outcomes will be important and new tools will be required to determine appropriate social values for the outcomes sought, as well as robust methodologies for measuring outcome delivery. The paper notes that any valuation in part should reflect the social value of keeping land actively managed through the retention of people on the land.

What is striking is that this proposal exactly echoes the eco-schemes proposed by the Commission in its legislative proposal to be funded by Member States from their Pillar 1 direct payment budgets. One of the options for the eco-scheme is to make payments additional to basic income support for farmers who voluntarily agree to pursue agri-environnment-climate measures on their land beyond the regulatory baseline. These payments would not be limited to costs incurred and income foregone (one difference is that under the Commission’s proposal only genuine farmers can benefit, while the Welsh consultation paper is clear that participation would be open to all land managers).

When a scheme is designed to achieve two objectives (income support and environmental objectives), there is clearly a tension between them. The more the emphasis is placed on providing income support, the less ambitious will be the environmental objectives achieved, and vice versa. In a worst case scenario, one can end up with something similar to the current greening payment, which is almost completely an income support payment with very limited environmental outcomes (as argued by the European Court of Auditors in its 2017 report Greening: a more complex income support scheme, not yet environmentally effective). How the Welsh government would navigate this dilemma after Brexit remains to be seen.

Uncertainties

The Welsh government’s consultation paper on post-Brexit agricultural policy is a substantive effort at re-thinking agricultural policy. Although it shares many of the ideas underlying the Commission’s legislative proposal for the CAP post 2020 (including the emphasis on targeting payments on results, the idea of an eco-scheme, and the need to put more emphasis on addressing lagging productivity, for example), it is far more consistent in following through on the logic of a results-based model than is the Commission.

In particular, it recognises that uniform area-based decoupled payments are not consistent with a results-based agricultural policy. It therefore proposes to do away with direct payments over a relatively short time horizon by 2025. If only the Commission had had similar courage (though, to be fair, there is little evidence of political backing for such a move in either the Council or Parliament at the present time). Also, the Commission’s proposal, in theory, leaves it open to a Member State to follow the Welsh model if it wanted as it could devote the bulk of its Pillar 1 ceiling to the eco-scheme as well as use the maximum flexibility to transfer funds to Pillar 2. Under the Commission’s proposal, this debate on priorities will take place at the Member State level.

Of course, the idea of using public goods payments also for income support suggests that the Welsh proposal may not be quite as radical as it sounds. But requiring payments to be linked to measurable outcomes is an important and necessary first step.

Many uncertainties remain over the implementation of the new Welsh model, which is still at the consultation stage. The paper makes clear that it wants funding for the new agricultural policy to be maintained at least at the same level as existing CAP funds. This will depend on the funding mechanism for agricultural policy agreed within the UK after Brexit, and there is no clarity on this at the present time.

Although the paper recognises the risks to trade relationships from Brexit, it assumes a relatively benign outcome both in that the UK would continue to maintain the same level of border protection for agricultural products as it does as an EU Member State and that favourable trade relationships will be maintained with the EU as its most important market.

If the UK leaves the EU under a disorderly Brexit, or if the UK government after Brexit moved to lower tariff protection, either unilaterally or as part of its strategy of concluding free trade agreements with major agricultural exporters, the market environment for this major policy experiment would be radically different.

On the other hand, a disorderly Brexit could lead to a fall in the value of sterling on foreign exchange markets which could help to cushion some of the adverse economic fall-out from increased trade barriers in EU markets.

It will be worth keeping an eye on the evolution of this debate in Wales in the coming months. Initial reactions from the Welsh Farmers’ Union NFU Cymru have been hesitant. It has emphasised the need for stability in policy and notes that “Removing direct payments would have a massive impact on the Welsh agricultural industry and because farming is so intrinsically linked to the well-being of Wales, it would consequently have a similarly detrimental effect on the people and communities of Wales.”

The consultation paper is open for responses until 30 October this year.

This post was written by Alan Matthews

Photo credit: Copyright Rudi Winter and licensed for reuse under this Creative Commons Licence.

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The Article 92 commitment to increased ambition with regard to environmental- and climate-related objectives

Article 92 of the draft CAP Strategic Plan regulation is headed “Increased ambition with regard to environmental- and climate-related objectives”. In my previous discussion of the proposed green architecture in the CAP post 2020, I interpreted this Article as a commitment to no back-sliding on expenditure on agri-environment and climate objectives in the new CAP. For this reason, I took a more positive view of the potential of the new legislation to live up to the Commission’s declared ambition in this area than reflected in initial statements from environmental NGOs.

In the wake of further conversations with Birdlife Europe who have had the benefit of discussions with DG AGRI officials, I conclude that my initial interpretation of Article 92 as guaranteeing no back-sliding in expenditure was incorrect. On closer reading the Article says nothing about financial commitments and indeed seems hardly to bind Member States to any substantive commitments at all.

If the Commissioner’s claim that his CAP proposal will deliver more for the environment and climate is to be substantiated, then we must examine the likely impact of the proposal as a whole. There are positive elements that deserve to be underlined but there are also risks, depending how Member States implement the new responsibilities they are given. To avoid the risk of back-sliding, it would be highly desirable to strengthen the language now used in Article 92.

What does Article 92 say

Because of its importance, it is necessary to quote the two paragraphs in Article 92 in their entirety.

“1. Member States shall aim to make, through their CAP Strategic Plans and in particular through the elements of the intervention strategy referred to in point (a) of Article 97(2), a greater overall contribution to the achievement of the specific environmental- and climate-related objectives set out in points (d), (e) and (f) of Article 6(1) in comparison to the overall contribution made to the achievement of the objective laid down in point (b) of the first subparagraph of Article 110(2) of Regulation (EU) No 1306/2013 through support under the EAGF and the EAFRD in the period 2014 to 2020.

2. Member States shall explain in their CAP Strategic Plans, on the basis of available information, how they intend to achieve the greater overall contribution set out to in paragraph 1. That explanation shall be based on relevant information such as the elements referred to in points (a) to (f) of Article 95(1) and in point (b) of Article 95(2).”

Getting behind the legalese, what Article 92 says is that Member States “shall aim” to make a greater overall contribution to achieving the specific agri-environment and climate objectives in their CAP Strategic Plans as compared to the contribution to the sustainable management of natural resources and climate action through support under the EAGF and the EAFRD in the current programming period.

Given the reference to the two budget funds, I had interpreted ‘contribution’ in this context as meaning expenditure. I had thus dubbed this clause the ‘no back-sliding’ clause on the presumption that Member States would have to spend at least as much on fulfilling agri-environment and climate objectives in the next programming period as in the current one.

But this is apparently not what the Article intends. DG AGRI officials make clear that the term ‘contribution’ in this Article does not refer to monetary amounts or expenditure. All that is required is that Member States “shall aim” to show, in drafting their Plans, how they are expecting to achieve this “greater overall contribution”. As set out in paragraph 2, this demonstration should be based on “relevant information” drawn mainly from the needs assessment, SWOT analysis, intervention logic, targets and financial plans included in the CAP Strategic Plan.

How will the Plan’s overall contribution to environmental and climate objectives be defined?

Moving away from a preoccupation with financial inputs towards a greater emphasis on effort and results achieved is not necessarily a bad thing. The problem is that a “greater overall contribution” is not well defined and is a very vague yardstick by which to measure a Member State’s commitment.

A more precise definition might define “a greater overall contribution” in terms of targets only. For example, if a country had N thousand hectares under organic farming in the current programming period, this target might be set at X * N where X is some positive number greater than 1 in the coming period. Ideally, one would like to be able to use impact indicators rather than the results indicators that will be used in the Strategic Plan (for example, a reduction in greenhouse gas emissions from agriculture by X% rather than the number of hectares of carbon-rich soils protected from drainage and ploughing), but there are well-known difficulties in using impact indicators to measure progress over relatively short periods.

By comparison, the formulation in Article 92 seems particularly weak.

First, the commitment is expressed in terms of intentions. Paragraph 1 states that Member States “shall aim to make” a greater overall contribution so it is only their plans that are assessed and not any outcomes. This is even clearer in Paragraph 2 where all a Member State is required to do is to “explain… how they intend to achieve the greater overall contribution”.

Second, Paragraph 2 allows a whole series of qualitative justifications to be used to defend the claim that the Plan seeks to achieve a greater overall contribution, and not only targets and financial plans. Because it requires a qualitative rather than a quantitative assessment it is much easier to fudge. This will make evaluating whether the Plan does achieve this objective particularly difficult to assess.

The implication of this vagueness is that the Commission has very limited grounds to ask a Member State to revise its Strategic Plan on the basis that it fails to show a “greater overall contribution” to environmental and climate objectives during the approval process. This is not to underestimate the Commission’s power of approval.

Even without a clear legal basis, Commission requests for Plan revisions can delay the approval process and put payments to beneficiaries at risk. A Member State may find it easier to simply accede to the request rather than put up a fight to defend its original Plan. Nonetheless, a clearer definition of what is meant by a “greater overall contribution” would clarify both the goals that Member States should be aiming at when preparing their Plans as well as the approval procedures.

Is higher ambition with less money possible?

Let us suppose that, in spite of these caveats, a Member State clearly demonstrates in its Strategic Plan that it intends to achieve a higher level of environmental and climate ambition. Can this be done without increasing spending on these objectives? Can a Member State credibly claim it is increasing its environmental and climate ambition even while reducing expenditure on this objective?

To do so would imply a significant increase in the efficiency of agri-environmental and climate expenditure. Are there other changes in the draft Regulation which would suggest that this will happen?

In my earlier post I discussed the changes in the green architecture in the proposal for the CAP post 2020 but not their likely effectiveness. The three changes that are important here are (a) the addition of new obligations under enhanced conditionality as compared to cross-compliance, which partly reflects the abolition of greening but also includes some additional elements; (b) giving Member States greater responsibility for defining the GAEC requirements farmers must observe as part of enhanced conditionality when receiving direct payments, and (c) the new eco-scheme.

In terms of enhanced conditionality, important changes are the three new GAEC standards: GAEC 2 Protection of carbon-rich soils (peatlands and wetlands); GAEC 5 Use of Farm Sustainability Tool for Nutrients: and GAEC 10 Ban on converting or ploughing permanent grassland in Natura 2000 sites. These three new GAEC standards will contribute to improved environmental and climate outcomes without additional expenditure, although it is notable that the Impact Assessment does not make any attempt to try to quantify their impacts.

Furthermore, three new or extended GAECs (GAEC 1 Maintenance of permanent pasture, GAEC 8 Crop rotation and GAEC 9 addition of Maintenance of non-productive features including a minimum share of agricultural area devoted to non-productive features or areas) bring revised greening requirements within the scope of enhanced conditionality. In the basic Regulation these standards apply to all farms receiving direct payments without the current exemptions, although whether Member States in their Strategic Plans will be able to add exemptions is not clear.

No doubt Member States will be keen to emphasise the importance of these changes when they come to make their case in their Strategic Plans that they are upping their game with respect to environment and climate objectives.

Potentially of greater importance will be the way Member States implement both these and the other GAECs. It is up to Member States to define, at national or regional level, minimum standards for beneficiaries in line with the main objectives of the GAEC standards.

This greater subsidiarity could allow Member States to define more appropriate and thus more efficient standards that take into account their specific farming conditions, in contrast to the ‘one size fits all’ approach of the current greening regulations. One example might be the substitution of sensible crop rotation rules adapted to specific farming systems in place of the crop diversification greening obligation. There is a consensus that the environmental benefits of the greening payment are limited, so improving on its performance should not be difficult.

This greater subsidiarity could also justify the view that there will be an increase in the efficiency of CAP spending with respect to its environmental and climate objectives post 2020. On the other hand, there will be a suspicion that Member States will use their additional flexibility to water down these requirements as far as possible. Until we know how Member States will implement their GAEC standards, the jury must remain out on this question.

The third change is the new eco-scheme to be funded from the first Pillar. I noted in my previous post that both the eco-scheme and agri-environment-climate measures (AECMs) funded from Pillar 2 can fund interventions designed to address environmental and climate objectives. The big difference is that the former can be a top-up to basic income support, while the latter are limited to compensating farmers for the costs incurred and income foregone as a result of their participation.

There are those who argue that, because of this funding principle, AECMs generally focus on compensating for management practices on a flat-rate basis and that Member States are reluctant to fund more result-based schemes or payments for ecosystem services in Pillar 2 because of the fear of the risk of disallowance. Whether this is really the case or not is disputed (see this post by Jean-Christophe Bureau that discusses whether the relevant WTO rules really are a constraint on the design of AECMs, although what really counts of course is the attitude of the Commission when it comes to auditing and approving Member State expenditure).

To the extent that this link is broken in the eco-scheme in Pillar 1, Member States may be encouraged to be more innovative in the types of agri-environment and climate measures they will design. On the other hand, Member States could decide to allocate their eco-scheme funding to entry-level schemes that achieve limited environmental additionality.

Agri-environment and climate payments in an eco-scheme can include the possibility of a much larger element of income support in an environmental payment than would be permitted under an AECM designed to be consistent with a narrow interpretation of the WTO rules. This could make participation in the eco-scheme more attractive particularly to more intensive farmers for whom a payment based on average costs incurred and income foregone is not an incentive.

Allowing an environmental scheme to also provide a measure of income support, by definition, implies that its efficiency from an environmental perspective per unit of spending is reduced. This objection may be over-ridden if farmers are prepared to enrol a greater area in the environmental scheme or to adopt more ambitious measures, but this assumes that the budget resources are there to fund this greater participation. So we are back where we started, and what Article 92 and the other elements in the draft Strategic Plan Regulation imply for overall spending on environmental and climate action.

Financial implications

The one definite requirement in the draft Regulation is that at least 30% of the EAFRD contribution in Pillar 2 must be reserved for interventions addressing specific environmental and climate-related objectives in AECMs. Unlike in the current programming period, expenditure on Areas of Natural Constraints and other area-specific constraints (except where the latter result from certain mandatory requirements) cannot be counted towards this 30% requirement.

Even with a reduction in the Pillar 2 ceiling available to a Member State (either directly in the draft Regulation or because a Member State opts to transfer up to 15% of its EAFRD ceiling to the EAGF for use in Pillar 1), this requirement could still imply an absolute increase in spending (in current price terms) on AECMs in a number of Member States (if anyone would like to run the numbers on this, I would be happy to publish them).

Under Article 85 of the draft Strategic Plan Regulation, the EAFRD contribution to AECM expenditure is raised to 80% from 75% in the current period, and compares to a proposed 43% share for other EAFRD interventions in developed regions and 70% in the less developed and outermost regions. This could encourage some Member States particularly in the east and south of Europe to give greater priority to AECMs in their Strategic Plans if they are keen to minimise their additional national expenditure on rural development programmes.

There is no such minimum spending threshold set for the eco-scheme in Pillar 1. If Article 92 were to be interpreted in financial terms, and if the greening payment in the current programming period were deemed to be a payment made to achieve the objective of the sustainable management of natural resources in the current CAP, then there is a lower bound on the amount of its Pillar 1 ceiling that a Member State would have to devote to the eco-scheme. Its total spending in the 2014-20 period on the greening payment and AECMs is known. Its proposed spending on AECMs in the 2021-27 period would be set out in its CAP Strategic Plan, and a no-backsliding commitment in financial terms would give the minimum required spending on the eco-scheme by subtraction.

As we have seen, this is not a correct interpretation of Article 92. As a result, there is no effective minimum floor for spending on the eco-scheme. The Impact Assessment of the Commission’s legislative proposal runs simulations where Member States allocate between 30% and 60% of their Pillar 1 ceilings to the eco-scheme, but a Member State could decide to allocate only 10% or even 5% to the eco-scheme.

No doubt, if a Member State submits a CAP Strategic Plan for approval with a very low allocation to the eco-scheme, the Plan’s intervention logic and its justification under Article 92 showing that it is making a greater contribution to environmental and climate objectives will be scrutinised more carefully by the Commission. However, the language of Article 92 is so loosely drawn that it is hard to imagine that any half-decent civil servant could not make out an apparently convincing case that the Plan is “intending” to make a greater contribution.

Participation in the eco-scheme is voluntary for farmers. Some might fear that, even if 30% of the Pillar 1 scheme is allocated to the eco-scheme, a Member State might deliberately make the scheme unattractive for farmers so as to maximise the amount of its Pillar 1 budget available for the basic income support scheme. However, presumably in this case its Plan targets for enrollment in the scheme would not be met. The Commission following its annual performance review could then request the Member State to take remedial action under an action plan possibly including an adjustment in the financial allocations to make the eco-scheme more attractive.

Conclusions

There has been much focus on what the new CAP legislative proposals mean for the share of the CAP budget devoted to environmental and climate objectives. Article 92 sets out a requirement for increased ambition with regard to environmental- and climate-related objectives. This Article does not have direct financial implications. It simply requires each Member State to show in its Strategic Plan how it intends to achieve a greater overall contribution to these objectives in the coming programming period as compared to the current one.

The following table shows how the changes to the green architecture could potentially impact on achieving a greater contribution to environmental and climate objectives. It identifies both positive elements in the Commission’s proposal as well as highlighting the risks.

Moving away from a focus on inputs (i.e. financial envelopes) to outputs (i.e. actual impacts on environmental and climate objectives) is potentially a desirable step. The problem is that the lack of any clear definition of what is meant by a “greater overall contribution” leaves considerable scope for story-telling and creative invention in the CAP Strategic Plans. If the Commissioner’s goal of greater ambition for environmental and climate objectives is to be realised, then Article 92 will need to be tightened up.

This post was written by Alan Matthews

Photo credit: Alex Berger via Flickr, (CC BY-NC 2.0) licence

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CAP strategic planning: scope and implications

We are pleased to welcome this guest post by Emil Erjavec, Professor of Agricultural Economics, Policy and Law at the University of Ljubljana, Slovenia. It is a version of his keynote speech to be delivered at the “The future of the CAP – L’avenir de la PAC” conference organised by Société Française d’Économie Rurale at Montpellier Supagro on 22 June 2018.

In December 2017, the European Commission published a Communication announcing a new round of important changes to the CAP post-2020; its legislative proposals, published June 1st 2018, have officially initiated it. Whether these changes are truly far-reaching and whether they contribute to a more efficient, effective and less controversial policy, will largely depend on the result of inter-institutional negotiations and later national implementation.

Nevertheless, the basic building blocks of reform are known. I agree with those who point out that this reform is primarily about changes in the institutional approach and responsibility of agricultural policy and less about changes in available policy instruments.

The public debate over the past six months in social media, at numerous conferences, as well as reactions in the Council and European Parliament, show that the key issues of the future CAP are: i) the reduction of resources (significantly larger for rural development than for direct payments), ii) the further stronger inclusion of societal considerations with a more pronounced environmental orientation, iii) the introduction of degressivity and capping of direct payments for larger farms, and of course iv) the new CAP implementation model, which has become known as “CAP strategic planning” for EU-funded agricultural policy measures.

Considering the first reactions to these issues (Agra-Facts, 2018/45), it is becoming clear that the key points of negotiation in EU institutions will be the amount of funds, the capping for agricultural holdings and the environmental focus of future policy. Given past experience and the farm interest-based nature of decision-making in the European Parliament COMAGRI and Council of the EU, the final outcome of the negotiations can be expected to be a weakening of the Commission’s proposals, which will nevertheless preserve the indicated direction.

Strategic planning – a serious evolutionary shift in the CAP?

Many commentators see comprehensive strategic planning at the Member State (MS) level as the crucial element of the proposal. Due to its technical nature, the current proposal does not directly favour anybody. While it can be expected that the political process will morph it significantly, the new fundamental principle and shift in policymaking will likely remain the same. The legislative proposals are clear: while previously strategic planning was a requirement at the EU level, though frankly more a justification of political decisions made beforehand and toothless in the case of policy failure, its transfer to MSs turns a new page in CAP history.

The proposed Regulation (COM (2018) 392) unequivocally states that policy will have to be formed following a comprehensive intervention logic; this includes programming of measures and a more rigorous application of the policy cycle concept. This entails founding policy on societally identified and recognised needs for intervention, deriving objectives and indicators (at all levels of evaluation) from these, and selecting the best available measures that can effectively contribute towards reaching the set targets. If effects are insufficient and there are no other known objective causes for this, measures should be accordingly modified.

This logic is not in itself under question, as it is supposedly the foundation of modern public policy governance; the key question is how consequentially it will be applied in the real world and whether it will bring about a more effective policy. There are fears that, similarly to ‘Greening’ in the previous reform, strategic planning is simply a new pretext to preserve the redistribution approach of the CAP, with at best marginal changes in its functioning and effects.

From the political economy point of view that takes into account the interconnectedness of vested interests in agricultural policy decision making, one of the key questions for representatives of mainstream agricultural governmental and non-governmental organisations is the amount of funding that will still be available for the CAP, coupled with how many ‘new’ demands will be placed on farming.

From an analytical point of view, as well as in the view of numerous environmental interest groups, however, applying national strategic planning to the entire CAP (this was already done for Rural Development policy in previous periods) certainly represents the greatest novelty and merits careful consideration and debate. Will there be minimal requirements for Member States for real CAP reform changes? What kind of obstacles and risks can be expected when implementing the strategic logic at national level?

In this post, we attempt to elucidate the substantive part of strategic planning given the current array of measures and indicators, i.e. analyse to which extent institutional structures, actors and procedural rules allow for quality strategic planning resulting in a more efficient (in terms of the effect/resource ratio) and effective (in terms of achieving goals) agricultural policy.

Defining needs is the policy’s weakest link

The proposed concept of strategic planning is based on the policy intervention framework at the EU level and CAP Strategic Plans at the level of individual MSs. There are 9 specific objectives that are derived from the three pillars of sustainability (see figure). They in turn are the basis from which derive indicators and broadly defined interventions, i.e., general descriptions of measures to achieve the objectives.

MSs will have to identify and determine their own needs for intervention and, in accordance with targets set out at the EU level, select, justify and elaborate measures from the given set of instruments. The European Commission will approve the CAP plans and monitor their results in accordance with the set objectives and indicators.

The essence of any strategic planning is defining needs (problem state) and policy objectives (desired state) based on those needs. The performance of policy management depends on how well this is done. The definition of needs should also determine and reflect the priorities of the decision-maker. We claim that it is precisely this element that is the weakest link of the CAP (and all agricultural policies). It originates primarily in the interest-based nature of the policy.

Agricultural policy has long since solved Europe’s post-WWII problems with food security (even famine), which was the original reason for its existence; ever since, it has largely been an income policy, solving the question of farmers’ economic situation. Yet it is not at all clear which groups of agricultural holdings are being targeted (all/large/small), what their sources of income are supposed to be and which production and economic activity they are supposed to be engaged in. At least at the EU level, policy documents have never allowed for a precise definition of these elements for different reasons, ranging from objective problems with fragmented farm ownership and specificities in agricultural taxation to political charades.

Anybody engaged in thorough agricultural policy analysis knows that in the majority of MSs, there is a lack of precise information regarding the economic and income status of rural households. Thus, the image of the economic situation and the influence of agricultural policy on this situation is quite blurred, as are agricultural policy priorities. How can there be clear goals and targeted measures if there is no clear image regarding the crucial question that they are addressing?

For decades, support mechanisms have been changed, adjusted and renamed, yet still the majority of budgetary transfers reach the same type and size of producers. Caught in a clinch of particular interests of individual MSs and interest groups, policymakers at the EU level have not been able to untangle this Gordian knot. Will is lacking, as is (not unrelatedly) factual information regarding the situation; meanwhile, structural change is treading a path of its own, while the majority of support is handed to those who should not receive it if objective economic criteria were applied. We can therefore no longer speak of an income policy, but of one of societal redistribution; one that, due to its mainly area-based measures, favours the largest, and as a rule most influential and organized beneficiaries.

Naturally, the Commission recognizes this problem and is attempting to address it with its proposals (capping, complementary redistributive income payment, attention to small farms), but it does not do away with agricultural policy’s original sin of the mainly non-targeted income support favouring larger land owners and producers. The legislative proposal throws this hot coal in MS’s laps, where heterogeneity in clarity of vision regarding priorities and quality of data sources for policy planning and monitoring is even bigger. Considering the conditions in individual countries, it is likely that an important share of member states will not know where to put this Commission ‘gift’ and will probably attempt to maintain the status quo, adapting only to compulsory new demands.

The European Commission has played its part in obstructing serious strategic thinking. Due to internal (path dependency mentality) and international (WTO rules) political and administrative reasons, the two-pillar structure lingers; yet the form and amount of direct payments (per area payments with top-ups and very open conditionality) leave little room, if any, for serious income, let alone social, policy to take place.

Naturally, the key question is actually how to clearly define needs without incurring the wrath of some interest groups. In a period of rampant populism and pragmatism, including that of European governments, no decisive moves are to be expected in the majority of MSs, as such moves bring no political points. On the contrary, they introduce additional conflict into a political field that is, in the end, not that important in the general political context; it is simply about who gets how much money and for what.

Heretical suggestions, like a universal basic income for workers in agriculture that could improve the economic situation of the most vulnerable and have both territorial and social effects in rural areas, are of course out of the question. Better to adhere to area-based politics supporting everything from “income stability” to “competitiveness”. Even discussing different income policy measures would be a loud and clear statement that the agricultural policy of the past few decades has been little more than a thinly veiled, poorly executed substitute for a serious social policy, its good intentions additionally twisted by particular interests; and clear statements seem outside of the remit of current agricultural policy discourse.

Agricultural policy for whom?

Another fundamental field where the deficiencies of the CAP’s strategic logic become prominent is of course environmental protection and conservation. The increasing inclusion of environmental considerations into agricultural policy is a reflection of its attempts to be more societally relevant. This is in stark opposition to its scope in the past, when agricultural policy was strictly sectoral, in the domain of agricultural ministries and interest representatives.

At the EU level, environmental concerns are clearly stated. Many commentators, especially representatives of environmental organizations, criticize the policy for exploiting this (legitimate) societal concern to maintain the size of the agricultural budget and thus the political power of the agricultural sector. The Commission is forced to navigate the waters between the Scylla of agricultural income politics and the Charybdis of environmentalists’ invocation of widespread destruction of nature due to agricultural practices. Perhaps the European Commission could be more decisive: it is a large ship it is steering towards change, not a rubber boat.

Unfortunately, environmental protection is not exempt from a lack of clear identification of needs. While perhaps in this field the quality of indicators exceeds that of the field income needs, the main challenge of this policy lies in deficiencies knowing the real situation and in understanding agriculture’s concrete effects on nature and the environment, and especially in setting environmental priorities in agriculture.

In a considerable number, if not in all MSs, decision-makers and agricultural pressure groups consider environmental priorities to be a necessary evil, imposed by Brussels under the influence of (irrational) environmentalists. Most agricultural administration and decision-making is, at least in the East and South, still permeated by productivist logic; they are not convinced by such arguments, but view them as superfluous administrative constraints.

This conflict will likely not be resolved with strategic planning at the national level, at least in most administrations. Rather, the rift will deepen. In many countries, incentives to conduct a serious environmental policy will be weakened with the transfer of strategic planning to the national level. This pitfall is apparently recognized by the Commission, likely due to the influence of DG Environment, as it is introducing safeguards, such as minimal compulsory percentages of funds allocated to environmental protection and a new green architecture (the eco-scheme). Naturally, this is opposed by some MSs, who demand less stringent environmental conditioning. To be frank, this does significantly constrain strategic planning and enforces Brussels’ dictate.

We could also discuss other priorities of agricultural policy highlighted in the proposals and point out the weaknesses in the explanation of needs, choice of mechanisms and thus potential for serious application of intervention logic in MS strategic plans. Risk management, rural employment and poverty, the role of knowledge and the increasingly societally relevant issue of agriculture and food, are more touched upon than strategically determined, as opposed to the two fundamental fields mentioned above. Moreover, in most of these fields, the evidence base available for planning and evaluation is quite weak. The extent to which MSs consider these priorities is left to them, but they are certainly fated to be marginal topics.

With perhaps some exceptions, MSs are not likely to address these societally relevant topics (food, employment, poverty), nor to apply systemic tools (knowledge, risk management) to bring about change; most countries neglect these topics due to their entanglement in redistribution logic. It is difficult to ignore the impression that the Commission only addressed these topics to free itself of responsibility for them in the sense of ‘We know these are important topics, here are some tools, now you deal with them.’ MSs will probably follow suit: invoke these issues and their importance to justify the policy and then blame a lack of (and even decreased) funding for their ‘inability’ to address them. In some MSs, this is already taking place. Hopefully this kind of behaviour will not be applied by all states; perhaps there will be a breakthrough for some topics.

The concealed conflict in discourses

There are additional obstacles to future strategic planning of the CAP. We may expect the new approach to widen the East(South)/West(North) divide. Agricultural policy discourses and their understanding are quite different. They are influenced by objective historical, structural and economic differences in the agriculture and rural areas in different parts of the Union. These differences have not yet been adequately recognized by the EU decision makers.

Measures to compensate for the lagging economic development of the agriculture of the East(South) states behind the West(North) have only been partially successful. Moreover, the CAP is unable to address rural (un)employment, depopulation and poverty in the East(South). The developmental needs here are different and the implementation of the CAP so far has been administratively and financially too demanding to benefit the majority of the rural population, with the exception of rural elites with the capacity to acquire extensive EU funding. This is of course a harsh statement based on the author’s personal experience and difficult to prove, owing to a lack of good records.

While tackling strategic planning will not be a simple task for any administration, agricultural policy-makers in the East (South) of Europe could have difficulty recognizing the nature and causes of the issues they face and addressing complexity to change the situation. And while there may be good intentions on the Commission’s part to allow MSs as those best acquainted with their own needs to deal with them in their own way, the involvement of political elites in interest-based redistribution is too obvious for the author to be optimistic about the results of this process.

Risks in policymaking wear a human visage

The scope of strategic planning is also crucially dependent on the programmers and administrators of agricultural policy. Implementation is in the hands of state and regional bureaucracies, which have until now been strongly engaged in meeting Brussels’ demands, living in fear of audits and low absorption of funds.

Though differences between parts of the EU in the quality and functioning of administrations are enormous, certain challenges are common. Even a quick review of Rural Development Programmes, which must already now be planned using strategic thinking, indicate not only large differences in quality, but ensnarement in a bureaucratic, emulating logic, path dependency and a distribution of funds based on political interests.

Strategic planning is supposed to be a creative, intellectual and democratic endeavour, which requires excellent staff and a comprehensive approach. Will civil servants in MSs be up to the challenge? The common, populistic practice of asking stakeholders what kind of measures they might prefer certainly does not contribute to a clear intervention logic. It is neither proper nor democratic to ask someone who depends on the public purse for his or her survival, how much funding and under which conditions they should receive it.

The complexity of modern agricultural policy, as reflected in the European Commission’s proposal, requires multi-disciplinarity, good analytical bases, creative solutions and, of course, a democratic exchange of views on the various options and effects of the proposals. The proposal for a European Network for Agricultural Policy, which would upgrade the existing Rural Development Network, should support the exchange of opinions and democratic decision-making, but it will not in itself provide a higher quality of planning. More radical moves are needed, and above all, more investment in human resources and modes of operation of the responsible ministries.

As in other parts of modern society, we should rediscover “professionalism” and assign it the same, if not higher, importance as apparent “democracy”, which all too quickly becomes interest-based and populistic. In truth, probably in most Member States, civil servants are not sufficiently trained for quality strategic planning. The deficiencies also arise from the position of agricultural officials in society, inappropriate and narrow education and lack of training, poor quality of management and politicized state administrations.

There is no other way but forward

CAP strategic planning introduced by the European Commission exhibits many flaws and faces many limitations. Its problems range from being caught in the logic of past measures, weak evidence bases, fixed shares allocated to specific purposes, lack of innovation, conflicting priorities, to deficiencies in planning and implementing structures; the list goes on. Does this mean we should oppose the Commission’s proposal? No, this would be very unwise.

The EU political system (unfortunately) allows for no other way of achieving changes other than through a trial-and-error process. Openly criticising policy in a constructive manner will allow us to introduce changes more easily and to achieve a more modern policy that meets society’s requirements, rather than serving smaller groups of farmers. Therefore, introducing CAP strategic plans is a first, necessary, but not sufficient step towards a more efficient and effective policy. For one who believes in the EU project, a Common agricultural policy that could develop into a Food, environmental and rural policy, is a necessity.

So the question is not how to get rid of this pesky strategic planning, but how to execute it better and mitigate the risks that come with its enactment. This requires serious consideration. We offer some suggestions for its improvement.

The first is certainly improving evidence bases and really using them as indicators of state and of the effects of policy. This does not mean only the improvement of income and environmental indicators, but also of those pertaining to social issues (e.g., indicators for rural poverty, quality of knowledge creation and transfers), where the data framework is relatively poor and incomplete. These indicators should also be given a much higher level of importance, like macro-economic indicators, which are used in public debates and are the basis of decision-making. Naturally, this is a long road, but we should embark upon it as soon as possible, and force policy to address them.

Secondly, more innovation should be allowed in designing measures. The current system is restrictive: states can only choose measures and adapt them; some measures are compulsory. In a way, this is understandable and intended to prevent renationalisation of policies and to achieve environmental goals. On the other hand, it limits strategic planning and flexibility of MSs in adapting to their situations. In an appropriate framework, proposals could be bolder and allow for innovative concepts (e.g. cooperation for addressing environmental issues or for strengthening agri-food chains). The crucial constraint here is income policy, which is frozen into per-area payment thinking.

Thirdly, quality of functioning demands substantially more work with staff, institutions and decision-making structures. Being from a New MS, I have had the insight of personally witnessing the strengthening of the administration through training and twinning, and even of the quality of high-level politicians, in the pre-accession period. All this more or less stopped after accession, and the process of European integration, as well as the improvement of administration, has been halted. There are trainings, workshops, exchanges etc., but apparently they are not enough; they should be strengthened and improved. It is encouraging that Commissioner Hogan announced several times that the Commission intends to fund the preparation of the Strategic Plans and to provide technical assistance to this end.

This touches upon the fourth issue, i.e. better strategic planning at the EU level. Approving, monitoring and evaluating programmes demands highly qualified, professional and cross-disciplinary staff. Without belittling their important contribution, I believe that this goes beyond the purview of the competent desk officers, who have so far been an important, if not the key, element in assessing Rural Development Programmes. The Commission also needs to raise the level and quality of operation. Is it really so unacceptable to formally invite independent assessors from outside official structures as referees?

Strengthening the internal and external think-tank apparatus is a prerequisite for better governance with strategic planning.

We conclude that the introduction of strategic planning presents a special challenge for both agricultural economists and other professional profiles (from both natural and social sciences) engaged in this kind of work. If strategic planning is and should be the way forward in agricultural policy, it should be included in university education. A system of specialist training should be developed. Support should be offered to institutions at both the national and Union level that will intensively work on data sources, evaluation, impact assessment and other forms of analytical support to planning. In truth, these institutions and human resources are seriously lacking at both levels and this probably also represents a threat to the success of (the attempt at) strategic planning. If the Commission’s proposals speak of necessary investment into knowledge, this also includes skills and capacities that can support quality CAP strategic planning in the future.

This post was written by Emil Erjavec, University of Ljubljana

Update 23 June 2018. The slides accompanying this presentation can be downloaded.

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Commission Proposals on CAP: Will this become another decade of biodiversity decline?

We are pleased to welcome this guest contribution from Trees Robijns, Agriculture and Bioenergy Policy Officer, NABU (BirdLife in Germany) and Ariel Brunner, Senior Head of Policy, BirdLife Europe and Central Asia, who react to the Commission legislation proposals on the Common Agricultural Policy post 2020 published earlier today.

We have seen it all before: CAP reform. The same old CAP reform. To many of us following the process in detail, we are always in the run up to, in the middle of, or in the aftermath of a CAP reform. It feels like a never ending story of small incremental steps which, only to the absolute “uber-CAP-nerd”, lead in a clear direction.

Today, we had another déjà vu. The Commission had a press conference, NGOs and farmer organisations reacted strongly. Agri ministers meeting in Sofia this weekend will probably welcome the proposal in diplomatic speech and Parliamentarians will start to prepare thousands of amendments. We are all on the treadmill and we know where it ends: essentially at the status quo.

Meanwhile, the countryside keeps dying.

This is when citizens, voters and civil society have to say: stop! No more of this! The environmental crisis is too big to go through this game again and again without an outcome. Let’s remember the facts.

Farmland birds are disappearing from the countryside across Europe at a dazzling speed (for those who need a reminder: here are some examples from France, Denmark, Belgium and the 56% decline in the EU Farmland bird index). The scientifically documented insect decline in Germany shows a more than 75 percent decline over 27 years in total flying insect biomass in protected areas.

Turtle doves are on the brink of extinction in several European countries (-77% in the EU, -95% in the UK). We are on the brink of losing the partridge (-94% in Germany and Slovakia). The EU State of Nature report shows 64 % of grassland (non-bird) species and 86% of grassland habitats are in an unfavourable state. Furthermore, 70% of cropland (non-bird) species are deemed to be in an unfavourable state.

We know agriculture is the primary driver of the collapse. This is now as much an established scientific fact as human induced climate change. Our own governments identify agriculture as the largest threats for birds and habitats. The sad reality is that we are heading for the end of the line. Commissioners and farm lobbyists can play word games with “steps forward” and “evolution not revolution”. However, the naked truth is that our natural world cannot afford another couple of rounds of CAP reform. Should current trends continue, many species and habitats will simply be gone by the time the next CAP reform is on the agenda.

Meanwhile, on the political side, the story seems to be equally disheartening. The CAP, the policy with the greatest capacity to make a difference for nature and the environment, was refused any meaningful scrutiny (to which ALL environmental legislation is being subjected) and NGOs had to commission their own CAP Fitness Check. There was even a brutal disregard for the pile of critical Court of Auditors’ reports, the last one on the Commission’s own communication.

Although over 80% of citizens engaged actively with the Commission’s own “public consultation”, the Commission readily pushed it aside. Reports from Bulgaria and Slovakia showed corruption and abuse of taxpayers’ money in CAP implementation in Eastern Europe. And as a sad cherry on top: Budget Commissioner Oettinger slashed the more progressive pillar 2 funding, while doing the utmost possible to preserve meaningless and distorted direct payments.

One would think that the disaster in the countryside, combined with the policy-related problems, would lead the Commission to set the record straight. All the more shocking is the complete lack of ambition in their proposal. BirdLife baptised it as CAP Greenwash 2.0. Here is a list of the facts upon which we base ourselves (the full table can be downloaded from the link at the bottom of this article):

• We do not have sufficient funding to protect nature. We need EUR 15 Billion at EU level to implement the Birds and Habitats Directive. We have, instead, seen a decrease in environmental ringfencing and a smaller second pillar from which most of these more targeted measures should come. Removing Areas of Natural Constraints from the minimum spending requirement could have some effect (although one needs to take into account a decreased pillar 2 budget) but this will be far from enough to close the financing gap.

• Climate spending will not be real money spent on measures for climate. The policy claims to be dedicating 40% of the direct payments to climate – an approach that was already heavily criticised by the Court of Auditors in the past. This means that even direct payments to intensive livestock operation or to arable farming on peatland will still be automatically considered as climate expenditure.

• The new programming structure, although good in its intention, risks becoming a Member State free-for-all fund without the necessary accountability mechanisms.

• The new objectives and indicators are not specific enough to deliver on the promised “budget for results”.

• The old system remains strongly in place, by keeping the two pillar structure and by not allowing a 100% modulation from the first to the second pillar.

• Capping as was shown on this blog before, will probably be ineffective.

• There is a partially improved conditionality (old cross compliance and greening) which now includes (part of) the Sustainable Use and Water Framework Directives as well as clarifying and adding some elements to the Good Agricultural and Environmental Conditions (appropriate protection of wetland and peatland). However the flexibilities in implementation will need to be monitored closely and it does not apply to crucial parts of the policy such as investment aid.

• Several of the safeguards on investments (such as irrigation) were removed, thus driving further unsustainable farming practices

• Mandatory Eco-schemes could be beneficial, but without any ring-fencing of funding they might actually not or barely be used.

• The involvement of environmental authorities remains weak.

• The proposal allows coupled support for biofuels.

In the past (the Ciolos Reform), we could cultivate the illusion of good intentions gone wrong. This time, the Commission’s level of ambition leans closer to 0 degrees. It is all the more incredible that it is coupled with wording such as “A modernised Common Agricultural Policy must enhance its European added value by reflecting a higher level of environmental and climate ambition and addressing citizens’ expectations for their health, the environment and the climate”.

The only answer now is for the Heads of State (Merkel, Macron and colleagues) to take action. Closely followed by a European Parliament that should not forget it will face the electorate in less than a year from now. They must turn the tide and show that the EU-Budget negotiations as well as the CAP co-decision process can transform this proposal into something which will not make this the decade of biodiversity loss but the decade in which we stood up together for nature.

This post was written by Trees Robijns and Ariel Brunner.

The German version of this article can be read on the NABU blog here.
The table with the evaluation can be downloaded here. BirdLife and NABU colleagues have done their best to interpret the Commission proposals correctly. However, if you do notice any mistakes, please flag them to the authors

Photo credit: Peacock butterfly on Field Scabious flowers, by Eskling, reproduced under a Creative Commons licence

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A Tale of Two Policy Documents: DEFRA vs. Commission Communication

The Commission published its Communication The future of food and farming in November 2017 following an extensive public consultation process. Legislative proposals accompanied by an impact assessment are expected at the end of May. At the same time, the UK is preparing for life after Brexit. To this end, the UK Department for the Environment, Food and Rural Affairs (DEFRA) published a Command Paper (consultation document) on February 27 seeking views on a future post-Brexit agricultural policy. The paper provides a clear direction of travel for UK, or at least, England’s future agricultural policy, and will result in a White Paper and legislation in the form of an Agricultural Bill later in this parliamentary session. A comparison of the policy proposals in the two documents is thus of some interest.

An important clarification is needed at the outset. Agricultural policy is one of the devolved competences in the UK, meaning that the three devolved administrations in Scotland, Wales and Northern Ireland each have responsibility for the design of their own agricultural policies (presently, of course, within the parameters of the CAP legislation). Only in England is agricultural policy determined in Westminster. Thus, the ideas in the Command Paper are solely relevant to future agricultural policy in England, as there is no guarantee (and, indeed, it is highly unlikely) that these ideas will be supported by the three devolved administrations.

Overall objectives

The Commission Communication is called The future of food and farming with a focus on modernisation and simplification. The UK Command Paper is entitled Health and harmony: the future for food, farming and the environment in a Green Brexit. The latter’s outline of a plan to change the use of land so as ‘to better promote health and harmony’, as DEFRA Secretary of State Michael Gove puts it in the foreword to the document, certainly seems more poetic and post-materialist than the more prosaic title of the Commission’s work. However, the two documents differ not so much in their stated objectives for farm and food policy, although there is one important difference, but more in the ways they plan to move farming in the direction of those objectives.

The EU Communication sets out the following three objectives for agricultural policy:

• To foster a smart and resilient agricultural sector, including a fair income support to help farmers to make a living; investment to improve farmers’ market reward; and risk management.
• To bolster environmental care and climate actions and to contribute to the environmental and climate objectives of the EU.
• To strengthen the socio-economic fabric of rural areas, by promoting growth and jobs in rural areas and by attracting new farmers.

The UK Command Paper sets out three very similar objectives for agricultural policy as follows:

• Providing support to encourage industry to invest, raise standards and improve self-reliance, including making sure that farmers have access to the tools needed to effectively manage their risk.
• Setting the regulatory baseline to protect high environmental, plant and animal health and animal welfare standards and creating a level playing field for farmers and land managers, while rewarding farmers and land managers to deliver environmental goods that benefit all, including high animal welfare.
• Helping rural communities prosper, including through improving physical and digital connectivity.

Both documents also have a strong simplification focus. In the case of the EU Communication this is to be pursued in part through a new delivery model for the CAP (moving away from a compliance-based to a performance-based model). In the case of the UK Command Paper, it will be pursued through smarter regulation and enforcement. The UK has already set in train a comprehensive review of farm inspection, seeing how inspections can be removed, reduced or improved to lessen the burden on farmers while maintaining and enhancing animal, environmental and plant health standards.

The most important difference in farm policy objectives is that, in the UK Paper, unlike the EU, the level of farm income is not a specific objective. The UK Command Paper mentions income only in the context of income volatility, apart from a reference to exploring ways to support farming in upland areas where farming activity is more restricted. The omission of a specific commitment to support farm income lies behind the biggest difference between the two documents, which is their attitude to direct payments.

Direct payments

For the EU Communication, direct payments partially fill the gap between agricultural income and income in other economic sectors. It also argues that they provide an important income safety net, ensuring there is agricultural activity in all parts of the Union, including in areas with natural constraints. It asserts that the resulting agricultural activity provides various economic, environmental and social associated benefits, including the delivery of public goods. It therefore advocates that direct payments will remain an essential part of the CAP in line with its EU Treaty obligations.

The UK Command Paper takes a very different view of direct payments. It argues that direct payments are poor value for money, untargeted and can undermine farmers’ ability to improve the profitability of their businesses. They have distorted land prices and rents, can stifle innovation and impede increases in productivity. It therefore proposes to move away from direct payments in England, eventually phasing them out altogether. Instead, they would be replaced with a system of public money for public goods, principally environmental enhancement.

The Command Paper recognises that direct payments cannot be switched off overnight and that a transition to a replacement system will be needed. It proposes to pay the 2019 Basic Payment Scheme in England broadly on the same basis as at present. It then proposes an ‘agricultural transition’ period, in which direct payments will be gradually reduced over a number of years, starting with those receiving the highest payments, in order to free up money to help the industry to prepare for the future and to pilot new environmental land management schemes.

The colour-coded version of the draft Withdrawal Agreement agreed by the two negotiating teams on 19 March specifically provides (Article 130(1)) that the CAP’s direct payments regulation will not apply in the UK in the claim year 2020.

Changes introduced in the Omnibus Agricultural Provisions Regulation anyway give Secretary of State Gove some of the flexibility he needs to start on the rebalancing of support. Under the 2013 CAP reform, Member States had to apply the principle of degressivity to direct payments over €150,000, reducing these payments by at least 5% but potentially up to a reduction of 100% (which effectively implies capping payments at this level). England chose to remain at the minimum level of 5%, on the basis that it did not want to penalise larger, more competitive, farms.

Under the 2013 Direct Payments Regulation, Member States had a once-off opportunity to make their decision which would apply to the claim years 2015 through 2019. The Omnibus Regulation has introduced an additional flexibility that Member States can now revisit their choices on an annual basis, provided that the review does not lead to a reduction in the amounts available for rural development. This would allow the UK government to announce before 1 August 2018 that it was capping payments above €150,000 in the claim year 2019 with the savings devoted to the proposed new pilot agri-environment schemes as the first step towards the promised rebalancing of support.

Perhaps surprisingly, given the legitimate emphasis in the Command Paper that farmers need as much certainty about future policy as possible, no announcement was made to this effect. As the Command Paper consultation seeks opinions on whether the reduction in payments should be progressively applied to all beneficiaries, or should be solely targeted at those with the largest payments, it may have been felt that making such an announcement would have pre-empted the results of the consultation.

There are a number of issues around the ‘agricultural transition’ period and beyond which merit further discussion.

• There is an implicit assumption that farmers currently relying on direct payments to make up their income will be able to make up for the elimination of direct payments by enrolling in the proposed new environmental land management system. On p. 20, the Command Paper states: “We understand that many farm businesses currently rely on Direct Payments to break even… Farmers may wish to apply for payments under our new environmental land management system and we will seek to involve them in trials of this system during the ‘agricultural transition’.” Many farmers are sceptical that agri-environment schemes can be a genuine source of additional income, as opposed to mainly covering the costs in terms of income foregone of enrolling in such schemes. The Command Paper commits to achieve better environmental outcomes and improve value for money, suggesting innovative mechanisms such as reverse auctions, tendering, conservation covenants and actions which encourage private investment in natural capital. At least some of these mechanisms are likely to erode the rents that farmers might otherwise expect to receive from environmental payments.

• It is recognised that farmers need assistance to help them prepare for a future without direct payments support. The Command Paper provides that the two processes will proceed in parallel, in that reductions in direct payments provide the funding for the necessary assistance. To the extent that direct payments are currently used to fund living expenses, it will be difficult for farmers to use the payments to invest in and adapt their businesses. If direct payments are terminated over a relatively short time period, farmers may not have time to benefit from any investments or structural changes designed to improve productivity and their competitiveness in a world without such payments. The consultation explicitly asks for views on how long the agricultural transition period should be.

• The Command Paper recognises that farmers in remote areas may need tailored support, but the way in which farming, land management and rural communities in the uplands should be supported to continue delivering environmental, social and cultural benefits is also left as a question in the consultation.

• Finally, the Command Paper floats a version of the idea of a ‘bond scheme’ first put forward by Stefan Tangermann in a 1991 article and elaborated in the 2004 book Bond Scheme for Agricultural Policy Reform edited by Alan Swinbank and Richard Tranter. In a bond scheme, the future time-limited entitlements to direct payments would be capitalised in a bond that would be traded on financial markets. The advantage as seen by proponents is that farmers are no longer tied to their land in order to receive these payments, giving them greater flexibility in how to use the proceeds of the bond. The Command Paper does not go quite that far. It envisages an option whereby payments would continue to be made to existing farmers ‘irrespective of the area farmed’. Farmers could choose to use the payments to invest in or adapt their businesses (though recall the caveat above that at least in some cases farmers currently use these payments for living expenses which it will be difficult to forego) or to exit the sector. Again, views are sought in the consultation on whether this should be an option during the ‘agricultural transition’ period.

Greening architecture

The EU Communication proposes a new approach to achieving the EU’s environmental and climate objectives. The current green architecture of the CAP – cross-compliance, green direct payments and voluntary agri-environment and climate measures – will be replaced by a more integrated, targeted yet flexible approach. The granting of income support to farmers will be conditioned to their undertaking of environmental and climate practices which will become the baseline for more ambitious voluntary practices.

This new conditionality – which will replace cross-compliance and greening – will be designed by Member States as a mixture of mandatory and voluntary measures to meet the agreed environmental and climate objectives defined at EU level. However, exactly how this new conditionality will differ from the combination of cross-compliance and greening measures remains to be spelled out.

The UK Command Paper proposals for new environmental land management schemes could have been designed to fit into the Commission’s proposed new flexibility for Member States. From the end of the ‘agricultural transition’, it promises a new environmental land management system to be the cornerstone of agricultural policy in England. The system will be designed to deliver the government commitment to be the first generation to leave the environment in a better state than it inherited it.

The Command Paper contains a chapter (Chapter 5) defining the public goods that will be supported, and a chapter (Chapter 6) that sets out some ideas on what elements might be included in the new environmental land management system. Like the Commission Communication, however, the proposed new system is only rather vaguely outlined, more a set of principles than a specific roadmap.

One of the issues that both the EU and UK will have to address in designing their new greening architecture is where the dividing line should be drawn between polluting activities and public goods (I discuss this issue at greater length in this paper). The elimination of direct payments also means the disappearance of cross-compliance. The UK government will have to decide which of the measures in cross-compliance will become part of good farming practice which farmers are expected to undertake as part of their ‘licence to farm’, and which will fall into the category of public goods for which farmers can expect to be rewarded.

The Command Paper states that “A strong baseline will maintain and enhance important environmental, animal and plant health and animal welfare standards, backed by an integrated inspection and enforcement regime”, but it gives no indication of the measures that will be included in the baseline.

One exception is the case of high animal welfare which the Command Paper emphasises must be at the heart of a world-leading food industry. Here the Command Paper proposes to leave the legislative baseline as it is, but suggests that pilot schemes that offer targeted payments to farmers who deliver higher welfare outcomes in sectors where animal welfare largely remains at the legislative minimum could be introduced.

This debate over where to draw the baseline will also be a crucial element in the future EU greening architecture which leaves it up to Member States to devise a mixture of mandatory and voluntary measures in Pillar I and Pillar II to meet the environmental and climate objectives defined at EU level.

Conclusions

There are some obvious similarities between the future farm and food policies outlined in the Commission Communication and UK Command Paper, but also some significant differences. The most significant difference is that using public money to directly support farm incomes is no longer an objective of English agricultural policy. Following from this, the Command Paper proposes the phasing out of direct payments and a greater focus on using public money for public goods.

The most important public good identified in the Command Paper is protection and enhancement of the environment, but better animal and plant health, animal welfare, improved public access, rural resilience and productivity are also seen as areas where government could play a role in supporting farmers and land managers in the future. While some principles behind the proposed new environmental land management policy are spelled out, a more detailed roadmap remains to be developed. There is a similar lack of clarity in how the proposed new greening architecture will work in the Commission Communication on the CAP post 2020.

At present, all we can do is to compare two documents. But if the UK does implements its policy vision for England, it will provide a fascinating role model and case study of agricultural policy change. Once the ‘agricultural transition’ is completed, the UK experience is likely to define the parameters of debate on future agricultural policy in the EU. If the UK experience is deemed a success, advocates of reform of agricultural support under the CAP will for the first time have a relevant role model (the New Zealand experience of agricultural policy reform in 1984 being of very limited relevance). If it is deemed a failure, advocates of the need to maintain strong public support for farm incomes will be confirmed in their views.

Some might argue that, regardless, England is also not a very relevant example for much of EU agriculture. The average farm size is 85 hectares, which is well above the average farm size in the EU of 16 hectares, although just over a third of all holdings are less than 20 hectares. The structure of holdings is very skewed. In 2016, just 7% of farm holdings produced 55% of agricultural output, using just 30% of the total farmed land area.

Nonetheless, the dependence of farm income on direct payments is at least as great as in the rest of the EU. Across all farm types, 61% of farm business income came from direct payments over the period 2014/15 to 2016/17, with grazing livestock and mixed farms the most dependent. Over the same period, 16% of farms made a loss with direct payments. Removing them would have meant 42% of farms would have made a loss, ignoring adjustments such as lower investments and rents which would be expected to offset some of the impact.

Eliminating direct payments over a relatively short time period, even if some (most?) of the money saved is recycled into payments for public goods, will be a major shock to English agriculture. How will it react? Success or failure will, of course, mean different things to different people. Where one person will celebrate structural adaptation which leads to improved competitiveness, another will lament the disappearance of smaller farms. The experiences gained

if the UK goes ahead and implements its proposed policy vision in England will provide invaluable data on the impact of reform, but it will certainly not end the debate on how best to design agricultural policy.

Update 29 March 2018: Post has been updated to take account of Article 130(1) in the version of the draft Withdrawal Agreement agreed by negotiators on 19 March 2018 which provides that the CAP direct payments regulation will not apply in the UK in claim year 2020.

This post was written by Alan Matthews

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The ANC delimitation controversy continues

Last week it was the turn of farmers in the south-west of France to take to the streets to protest against the introduction of new maps of Areas facing Natural Constraints (ANCs). I have explained the background to this controversy in a previous post , which essentially revolves around how to define ANC category (b) areas which are described in the Rural Development Regulation 1305/2013 as “(b) areas, other than mountain areas, facing significant natural constraints.”

For years the European Court of Auditors criticised Member States for designating these areas (previously referred to as Less Favoured Area (LFA) intermediate areas) without proper documentary evidence. It also concluded that Member States often had very different interpretations of the delimitation criteria which in previous periods included socio-economic as well as bio-physical criteria, thus undermining common conditions of competition within the single market.

Already in the Rural Development Regulation (EC) No 1698/2005 it was agreed in principle that socio-economic criteria would no longer be used to designate intermediate LFA areas and a new definition of these areas was agreed. But the Council could not agree on how to apply the new criteria so it extended the old system while asking the Commission to make a proposal for a new payments and designation system to apply from 2010.

The Commission invited the Joint Research Centre to suggest a set of bio-physical indicators which it then piloted with Member States to test their feasibility. Once it was satisfied that mapping ANCs using these criteria would be feasible, the Commission proposed their inclusion as the basis for ANCs in its proposal for the 2013 CAP reform. Another concept introduced at the time was that of ‘fine-tuning’. This is the idea that, within the ANC area designated using the bio-physical criteria, those areas where human intervention had overcome the natural handicaps should be excluded. Although neither Council nor Parliament was particularly supportive, the Commission’s proposals were eventually adopted with some small amendments in Regulation (EU) 1305/2013. I have always considered this as a major achievement of Ciolos’ period as Commissioner.

There was, of course, a sweetener. Although in principle the newly-delineated ANC areas should have been attached to the Rural Development Programmes submitted for the period 2014-2020, it was recognised that it would take time for Member States to undertake this work. A derogation up to 2018 was allowed. Article 31(5) allowed Member States to continue to make payments to farmers who had received LFA payments under the previous, more extensive, definition of LFAs during the period 2014-2020. However, for farmers who would no longer be eligible for payments under the new ANC criteria, their payment in 2018 and in later years should be reduced on a degressive scale over at most a four-year period. For example, in 2018 the payments had to be fixed at no more than 80% of the average payment fixed in the LFA programme for intermediate areas in the 2007-2013 period and would end in 2020 at no more than 20% of this amount. This would mean that the new maps would have to be approved by the end of 2017/early 2018 so that farmers in applying for their 2018 payments in May 2018 would know where they stood.

As I described in the previous post, approval of the new ANC maps at Commission level is not trivial. Member States must send their proposed designation to DG AGRI which is then assessed by the JRC (for the bio-physical delimitation) and by DG AGRI for the fine-tuning. Once the designation is approved, a modification to the country/regional RDP is required. This modification should be submitted before the Member States make expenditures, in order for this expenditure to be eligible for reimbursement. Because Member States were making heavy going of the new mapping, the Commission feared an avalanche of designations close to the deadline which would have made it difficult to get approvals in place in order to allow the affected farmers to be paid in 2018.

Then, as so often in this long-running saga, the goalposts were moved again, this time in the Omnibus Agricultural Provisions Regulation (EU) 2393/2017. This amended the relevant Article 31(5) paragraph to push the derogation date forward one year to 2019. This means Member States have given themselves one more year to conclude the necessary mapping.

Latest state of play

The most recent state of play is set out by DG AGRI in its updated CAP Context Indicator 32 on Less Favoured Areas/Areas facing natural constraints and specific constraints. The cartography was completed in December 2017 so I assume the information it portrays also represents the situation as of that month. It makes for rather sobering reading. Only a handful of Member States – Sweden, Finland, Romania, Croatia, Estonia and Latvia – have completed the mapping exercise and had their new designations approved (the Netherlands should also be included here given that none of the country is eligible for ANC status). This is also the case for a few regions in other Member States, but the overwhelming impression from the map is that most areas fall into the striped area.

Another interesting feature of the map is that it shows Brexit has already occurred. The UK regions have indicated that they are no longer pursuing the remapping because, by the time it would take effect (now for payments in 2019), they do not expect to be an EU Member State. However, for the period to the end of 2020, under the Council’s agreed negotiating directives for the transition period, the UK will be expected to apply the rules and regulations of the CAP and will make the same CAP payments to its farmers. This means that, for ANC payments in 2019 and 2020, payments to farmers who would not be eligible under the new criteria should be reduced, to 80% in 2019 and to 20% in 2020, of their 2007-2013 levels. But, in the absence of new maps, the UK regions will not be able to identify who these farmers are. Also, it is interesting that the cartographers have chosen to include the UK in the category of regions ‘where ANC designation is not eligible’. This would seem intended for regions, such as the Netherlands, where no mapping is required to show that none of the country’s area is limited by bio-physical criteria. Were the cartographers privy to information that the UK might not be able to make ANC payments of any kind to its farmers in 2019 and 2020?

Leaving these speculative questions regarding the UK’s future position to one side, the map indicates the scale of the task remaining in the course of 2018. Of course, it can be argued that there was no incentive for Member States to bring forward the mapping exercise given that it inevitably means reducing payments to some farmers that are used to receiving them. Looking at those Member States and regions where the new ANC designations have been approved, it is not surprising to find that almost all of the countries and regions concerned (with the exception of Romania) remain eligible for ANC payments, so these countries (regions) had no reason to delay the exercise (in this context, it would be interesting to know how many farmers were adversely affected in Romania by the narrower criteria for ANC (b) areas than before).

But the protests in France should remind us that completing this exercise is politically charged in all the outstanding Member States. The French Ministry of Agriculture intends to finalise the new maps by 15 February. President Macron on the 25 January promised accompanying measures and a further delay of two to three years before the exclusion from payments would take effect. We don’t know the exact status in other outstanding Member States, but this issue could continue to be a hot potato on the Commissioner’s desk this time next year.

This post was written by Alan Matthews

Photo credit: Flickr by Artur Staszewski under a Creative Commons licence.

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Rethinking EU budget spending on agriculture in the next MFF

This post reproduces my key-note statement to the session More efficient use of scarce financial resources – An efficient Common Agriculture Policy and focussed structural Funds at the European Political Strategy Centre High Level Conference ‘Shaping our Future: Designing the next Multiannual Financial Framework’ which was held 8-9 January 2018 in Brussels. The delivered version was slightly abbreviated for time reasons.

The session was intended to reflect on more efficient use of scarce financial resources in the EU budget’s two largest spending categories – agricultural policy and structural funds. I expected my fellow panellists to have a lot to say about structural funds, so my presentation focused on agricultural policy.

The factual background

First, some background figures. CAP spending commitments including the Rural Development Fund make up 38% of the current MFF, just ahead of economic, social and territorial cohesion at 34%.

71% of CAP spending is currently devoted to Pillar 1 direct payments, hectare-based payments to all farmers with eligible land. 24% of the CAP budget is allocated to Pillar 2 schemes under rural development programmes, with the remainder allocated to market-related expenditure.

The distribution of direct payments remains highly skewed. There are over 7.2 million beneficiaries of CAP direct payments across the EU. Most receive relatively small amounts. Figures for the 2014 claim year show that there were 131,300 farm holdings that each received more than €50,000 in direct payments. These farms received between them €13.8 billion. Thus, 33% of the direct payments budget, just less than 10% of the entire EU budget, is paid to a relatively small group of landowners. It is not clear what is the European value added of this expenditure.

The value added of direct payments

The Commission Communication on the future of food and farming after 2020 proposes that the future CAP would remain structured into two Pillars and that direct payments to farmers should continue. Direct payments make up an important share of farm income on many farms, particularly for grazing livestock. They represent a stable income stream in an industry exposed to considerable volatility. But they are not well-designed or well-targeted for these purposes.

Much of the benefit is capitalised into land values. It is hard to see this in the older Member States that have had agricultural support payments for decades, but it can be clearly seen in the evolution of land rents and prices in Bulgaria once that country was expected to adopt the CAP after accession in 2007. Land prices and rents rose four to five times in a ten-year period as CAP payments were phased in. Higher land values benefit non-farmers or those leaving the industry and make access for young farmers more difficult.

In the long run, we should phase out hectare-based income support payments. But this cannot be done overnight, and in any case the Communication foresees a continued role for direct payments in the next MFF. So we need to reflect on what the MFF should say about direct payments.

The Communication recognises the need to limit payments to the largest beneficiaries. It proposes various solutions including compulsory capping. The next MFF should at least make clear that there is no European value added in making income support payments to farms that are already well-structured and enjoy significant economies of scale. Whether the threshold for capping should be the same in each Member State merits further discussion.

Capping, in any case, is a second best solution. Capping is likely to lead to the artificial division of larger farms, and may slow down structural change. But as long as direct payments are justified as a form of income support, it is the lesser of two evils.

Distribution between Pillars

Continuing with the two-Pillar structure leaves open the question what should be the relative size of the Pillars in the next MFF. There are significant differences in the relative shares of the two Pillars between Member States. Pillar 2 shares range from less than 10% in Denmark to more than 70% in Malta.

The budget devoted to Pillar 1 direct payments is derived from the formulae used to calculate the compensation to farmers for reductions in support price guarantees in the two decades after 1992 (for the older Member States) plus the amounts negotiated for the newer Member States on their accession. For the older Member States, Commissioner Fischler decoupled these payments in the 2003 CAP reform but did not alter their magnitude. The current envelope for Pillar 1 direct payments reflects the path-dependence of EU agricultural policy rather than any objective demonstration of need. In the last MFF, the European Council made the decision to hold the size of these payments constant in nominal terms. However, it also gave Member States some flexibility to shift funds between Pillars if they desired.

The distribution between Pillars boils down to the relative priority to be given to straightforward income support compared to assisting farmers to meet the challenges of adopting new technologies, achieving more ambitious environmental goals, transforming to more sustainable production models, building farm resilience and improving the quality of life in rural areas. In the current MFF, greater cuts were made in Pillar 2 spending in order to maintain Pillar 1 spending in constant nominal terms. What should be the basis for this division in the next MFF? In principle, a higher share of EU money should be used on these more targeted interventions designed to overcome specific market failures.

Previous MFFs have also made use of maximum and minimum spending limits on particular policy instruments. The new delivery model set out in the CAP Communication is built around Member States setting targets for both Pillar 1 and Pillar 2 payments within the context of an overall CAP strategic plan which must be approved by the Commission. The logic would seem to be that Member States should be able to use the totality of CAP funding in the most appropriate way to meet the targets that they set.

Such a scenario has the danger that Member States would opt to concentrate funding on a set of easily-delivered targets with low transactions costs, such as either coupled or decoupled direct payments. There will thus be a need to introduce some restrictions on the relative spending on different targets and instruments to try to maximise the contribution to European value added. Some limits could already be introduced in the MFF (as, for example, the requirement to spend 30% of Pillar 1 direct payment ceilings on the greening payment in the current MFF) while others will be left to the CAP basic regulations.

The Communication acknowledges that the greening payment introduced in the last reform has not been a success. One option is to transfer this money to Pillar 2 where it could be used more effectively to achieve the EU’s environmental targets. The Communication suggests that the greening payment would be used, in conjunction with cross-compliance, to fund a menu of voluntary and mandatory environmental and climate interventions designed by Member States to suit their conditions chosen from an overall menu set out in the basic Regulation. Farmers would have to participate in these shallow or entry-level agri-environment-climate schemes in order to receive basic income support.

The move away from the prescriptive one-size-fits-all approach of the three greening practices is welcome. The problem is how to ensure that the measures designed by Member States and offered to farmers are meaningful in terms of environmental ambition and not simply a cover for disguised income support. Carefully designing the overall menu defined in the basic Regulation is one safeguard, but experience shows that, once the budget is secured, the co-legislature has a huge temptation to water down the requirements. The Communication suggests that the need to define quantified targets that will achieve the agreed environmental and climate targets at EU level will provide the required incentive. We discuss some ways in which the MFF could be designed to support this objective.

Co-financing Pillar 1 direct payments

In the context of the new delivery model, and given that limits on expenditure shares can be introduced in the basic CAP regulations, the traditional division between Pillar 1 and Pillar 2 of the CAP no longer plays a policy role. The sole justification for its survival in the CAP Communication appears to be that it demarcates the line between funds that are 100% financed by the EU and those that are co-financed.

Introducing co-financing of Pillar 1 payments was an idea raised in the Commission Reflection Paper on the future of EU finances. Although it was explicitly ruled out in an early draft of the CAP Communication, that paragraph was removed in the final version, suggesting the idea is still on the table. Co-financing would bring benefits in terms of a more efficient use of EU funds in a number of ways.

First, Member State contributions give them an incentive to maximise the value of spending compared to transfers financed 100% by Brussels. This justification for co-financing assumes Member States have choices over how this money is spent. Some flexibility in the design of Pillar 1 payments was introduced in the last reform, and this flexibility will be extended under the new delivery model proposed in the CAP Communication, especially where greening is concerned.

Second, assuming the two-Pillar structure of the CAP is maintained, co-financing would remove the anomaly between Pillar 1 and Pillar 2 spending and put spending in the two Pillars on an equal footing.

Third, co-financing allows the EU to use its budget to drive Member State expenditure in the direction of priorities with higher European value added. Co-financing rates would, as at present, be differentiated by Member State level of development but could also be adjusted to reflect European value added. Voluntary coupled payments, for example, which have no European value added, might be financed entirely by Member States (subject to rules set down in the CAP) whereas area payments for organic farmers or for environmentally sensitive permanent grasslands might receive higher EU co-financing than the norm.

Fourth, co-financing would release funds in the general EU budget which could be used for other EU priorities.

Allocating CAP funds between Member States

Both the division of the CAP budget in the MFF between Pillars and co-financing impact on the net CAP transfers received or paid by Member States which is always a sensitive topic. The political difficulties are shown on the next two slides.

The first compares the share in CAP Pillar 1 and Pillar 2 receipts of each Member State with its share in EU Gross National Income in 2016 assuming the UK were no longer a member. Countries are divided into three equal groups – net contributors on the left, those relatively unaffected by the CAP in the middle, and the net beneficiaries on the right.

In some cases, the amounts are small because the countries are small. Expressing net balances as a per cent of GNI makes clearer the distribution of net contributors and net beneficiaries. On this basis, around one-third of Member States are net contributors to the CAP budget, while two-thirds are net beneficiaries.

CAP funds, like the structural funds, are pre-allocated to Member States in the MFF so it is necessary to decide on an allocation key. For Pillar 1 direct payments in the last MFF, a process of ‘external convergence’ towards uniform payments per eligible hectare across Member States was agreed. The CAP Communication proposes that this process would be further continued for direct payments in the next MFF period.

No objective basis for the distribution of Pillar 2 payments exists. As for cohesion funding, the development of objective indicators on which to base the allocation of CAP funds between Member States remains a challenge.

Assuming one has found the ‘right’ allocation for Pillar 2 payments between Member States, it makes no sense to allow money from capping direct payments in Pillar 1 to be moved to Pillar 2 in the same country, as happens under present rules. Instead, land on individual farm holdings above a certain size should be excluded from a country’s eligible area and should not be counted when calculating a country’s entitlement to basic income support payments in the first place. These farms, instead, should be encouraged to seek funding under other CAP instruments for the uptake of technology, improved land management and strengthened resilience.

A budget for results

The new delivery model proposed in the CAP Communication would give Member States a lot more flexibility to design the specific measures to be funded under the CAP within the context of a CAP strategic plan covering both Pillars. Objectives would be set at EU level as well as a menu of policy interventions. Target setting and the choice of policy interventions would be left to Member States.

In this situation, there is the potential for conflict between the level of ambition that Member States set for themselves and their ability to draw down pre-allocated CAP funds. The priority in most cases will be the drawing down of funds, especially where they are 100% financed by the EU. Member States have a huge incentive to make that as easy as possible by setting targets as low as possible.

The Commission is placed in the impossible position, when approving the CAP strategic plans, of fighting an uphill battle to persuade Member States to be more ambitious. Even if Member States reluctantly agree to more ambitious targets, it is not clear if there will be repercussions if these targets are not met. The incentive structure, with pre-allocated funds which Member States see as ‘their’ money, is all wrong.

Member States should be incentivised to achieve better results with EU money in various ways. The use of differentiated co-financing rates has already been mentioned. Some of their budgets might be put into a performance reserve to be redistributed in the light of actual outcomes. Some of the CAP budget might not be pre-allocated but used to finance projects selected on a competitive basis from those submitted by regions and Member States. There could be a requirement for ex ante conditionalities to ensure that the conditions are in place to make best use of EU money.

As in all cases of performance-based budgeting, the choice of indicators by which to measure results will be critical. We must avoid the use of input indicators such as the proportion of budgets spent. Ideally, indicators should reflect the results achieved, but we may need to recognisee that it can be hard to move beyond outturn indicators to measuring what is really happening to outcomes. This is, in part, because of the long time lags in agriculture between interventions and outcomes, and in part because even well designed interventions may not achieve their intended outturns and outcomes because of the role played by extraneous events such as weather, disease or market conditions.

Conclusions – towards a more efficient CAP

The CAP Communication provides a promising basis on which to start deliberations on the future CAP. The beneficiaries of CAP funds will argue for the maintenance of the CAP budget, of course, that is what we would expect. We need to focus on how the next MFF can better support the objectives of ensuring European value added and a budget focused on results.

In the context of CAP strategic plans covering both Pillar 1 and Pillar 2, there is no longer a policy rationale to maintain the two-Pillar structure. Whether or not the Pillar structure is retained, the relative importance of spending on what we now call rural development issues should be increased compared to income support. Payments to larger beneficiaries should be limited allowing national top-ups if desired. Co-financing should be introduced for Pillar 1 payments as for all structural fund spending.

Turning the greening payment into a menu-based environment-climate scheme makes sense, provided the menu options make a genuine contribution to environmental improvement – here again co-financing gives the Commission a tool to steer Member States in a more ambitious direction. A proportion of CAP funds should not be pre-allocated but distributed on the basis of good performance and/or competitive funding. These are just some ways in which the next MFF could support a more efficient CAP.

The slides accompanying the presentation can be viewed here.

This post was written by Alan Matthews

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The CAP Communication: Paradigmatic change or empty rhetoric?

The following guest post was written by Professor Emil Erjavec, Professor of Agricultural Policy and Ilona Rac, researcher, at the University of Ljubljana, Slovenia.

The European Commission’s Communication on The Future of Food and Farming stands apart from all its predecessors. Rather than being a conceptual presentation of new mechanisms, as has been the norm since 1997, the document focuses on new political priorities and broad areas of intervention. We are presented with a range of new and not-so-new emphases arising from a number of EU strategies, a public consultation on the future of the CAP and various position papers presented by Member States and interest groups.
The intention of the Commission to preserve and strengthen the role of the CAP as an important European policy is quite clear: while the policy has had a “solid performance”, as clearly corroborated by support expressed in the public consultation (inevitably visualised in one of a series of visually appealing infographics), there is of course “further work to be done”.
Even more intensively than before, there is an attempt to connect agricultural strategic priorities to both EU (e.g. the Juncker priorities, the White Paper on the future of Europe) and global (SDGs, Paris climate policy agreement) goals, continuing the shift of agricultural policy towards societally acceptable agriculture that has been occurring since the Fischler 2003 reform. The present document plainly indicates that further financing of the policy is contingent upon the meeting of societal objectives.
These new CAP goals might be construed as a new take on the sustainability paradigm, as they emphasize the economic, environmental and social functions that underpin the original definition of sustainability. Seen in this way, there are no real novelties as compared to the Fischler and ‘greening’ CAP reforms, but merely a reformulation of the same substantive framework using new terminology.
This applies to all the priority areas: lagging incomes, environmental issues, generational renewal, ‘new’ investment support, etc. – all recycled. However, some topics are receiving more attention than previously, e.g. the importance of knowledge and the need for innovation and better risk management; there is also a stronger emphasis on consumer attitudes towards food, and on employment and growth. These ‘new’ topics are also marked by weak conceptualisation: it is difficult to ignore the nagging feeling that the inclusion of these topics is a consequence of populistic pragmatism, as these parts of the text read pretty much as a succession of clichés, without any clear connection to actual policy mechanisms.
Renationalisation or weakening of the common policy?

The Communication envisages a single ‘CAP Strategic Plan’ for both pillars, which is an almost revolutionary novelty. There has never before been a requirement to justify direct payments and market measures; this has, on the other hand, been required under rural development policy, though demonstrating needs and selecting measures has always been an ordeal for both planners and stakeholders.
There are commentators who see this very element as an indicator of renationalisation, as it represents a significant change as compared to the practice so far, in which the first pillar fell entirely under EU jurisdiction. This approach, within which the EU retained full control over measures and their execution, enabled the introduction and enforcement of many good initiatives which might otherwise not suit individual Member States. The sometimes patronising system of Commission control often reinforced this aspect.
The second biggest shift after the strategic plan is brought about by changes in environmental and climate policy. The current schizophrenic system, which features environmental measures in both pillars, is to be replaced by a single architecture of result-oriented measures. This is the very point around which the majority of criticism of the current policy revolves, and therefore represents the area of greatest challenges.
While the new approach is sensible, it is likely going to be difficult to realise in all parts of the EU. The proposed changes remain at a very general level, however, since attaining greater goal orientation and significance is often quite elusive in the real world. There is also a new emphasis on collective approaches that involve both farmers and stakeholders. This is a logical and expected step in the development of the policy, as the approach has the potential to both unburden the EU budget and stimulate locally relevant and sound practices.
In principle, being able to prepare its own strategy offers a Member State an excellent opportunity to tailor policy to its needs. However, there are also quite a few potential pitfalls, as pointed out by a number of critics. Environmentalists warn that without a clear mandate and accountability at the EU level, the quality of policies could deteriorate. A similar concern is voiced by some Commission officers, who doubt the ability of some countries to prepare adequate plans, as well as the professional and political capacity of the Commission itself (and DG AGRI in particular) to handle negotiations with countries potentially wishing to deviate from the agreed common EU strategic direction.
Past experience shows that this misgiving is not entirely unfounded, nor is the concern for a societally relevant development of instruments: strategies could conceivably become hijacked by narrow interests and/or watered down due to a lack of competent and creative programming of measures.
Path dependency of CAP societal priorities

In its presentation of the new CAP’s mechanisms, the Commission has given priority to the role of knowledge and innovation supporting sustainable agriculture. This is sensible, given the fact that developmental theory and practice underline the importance of knowledge as a key factor that separates successful regions from unsuccessful ones. However, it is quite unclear how the Commission intends to approach this issue. While the previous (leaked) version of the Communication stated that Member states will have to prepare an AKIS (agricultural knowledge and innovation system) plan, this has been omitted from the current document.
Given the weak position of knowledge in certain Member States, it is doubtful that national policymakers will be able to tackle this problem successfully on their own. It would require the establishing of complex systems that demand not only public funding, but also good staff, effective institutions, public-private cooperation and a network approach. This is one of the critical points at which the difference between agriculturally developed and underdeveloped economies becomes obvious; and most EU Member states fall in the latter category.
The Communication clearly states that direct payments remain ‘an essential part of the CAP’, though admittedly their distribution is contentious. Despite the fact that the document to some extent dismisses (though somewhat less vehemently than its leaked predecessor) these accusations of ‘unfairness’ as unfounded, it concedes that ‘a more balanced distribution of support should be promoted’ and that direct payments should be simplified and better targeted.
The Communication also states that the possibilities of capping, degressivity and introducing targeted redistributive payments should be explored further. It is difficult to discern from these descriptions precisely what kinds of schemes will be possible in the future. Apparently, the general direction is towards regionally uniform payments, but it is unclear how better targeting of such support is to be achieved, and the same goes for the manoeuvring space that Member States will be granted in implementation. Most likely, limiting payments will again remain a voluntary measure. As with other topics, there is a feeling that the text is meant to appease the general public and not to introduce a serious debate about future funding schemes.
The text emphasizes the need to improve risk management tools; there is a vague description of an EU risk management platform, including an income stabilisation payment and certain new measures, e.g. new financial instruments, reinsurance, and an emphasis on the possibility of state aid. Although activity in this field was expected, the proposal is a disappointment to many. A significant number of Member States and interest groups, as well as the European Parliament, have been stressing the importance of this topic, yet the Commission’s approach is half-hearted once more. There are no real new ideas and no concrete proposals, clearly indicating that Member States will be left to their own devices in devising and applying measures.
In the field of rural growth and employment, the Communication reads as a very ambitious document, though it is difficult to shake off the feeling that this is the very field in which the policy is least thought-out and incapable of rising above the fog of general, agreeable and vaguely described goals. What does the CAP really have to offer in terms of general employment in rural areas? A somewhat more critical assessment, some grounding and specification of these intangible, nice-sounding goals on the authors’ part would be welcome.
There is a similarly vague statement regarding the need for farmers to better understand the needs of consumers and adapt to them. Again, the Communication seems to be very ambitious, but reads more as a populistic wish list. Certainly these are societally important priorities, but there is no inkling of what kind of measures are to be used to achieve them.
The part of the Communication that pertains to external trade reflects a continued course towards the liberalisation of trade. While it is expressly stated that full trade liberalisation will not be pursued, this globalist orientation is bound to be rejected by certain countries and social groups, especially since future trade agreements are going to increase the pressure on weaker regions, farmers and countries.
Finally, the introduction of questions of migration into agricultural policy is an innovation that is difficult to fathom. Most probably it can be included into the ‘miscellaneous’ group of issues that are addressed in order to increase societal relevance and thus the policy’s perceived importance, while they are not really backed by any kind of thought-out measure. It remains to be seen whether this category of issues will actually be addressed in the CAP regulatory proposals or remain as a footnote to be considered in national strategies.
A quickly forgotten strategy/communication?

The Communication is a text that reads nicely, but leaves the reader empty and doubting the seriousness of the European Commission’s intentions. It seems that the Commission has grown weary of constant criticism and is putting the ball in the Member States’ court: “Well, YOU make a better CAP then, since you are so good at criticising”. This is especially evident from the suggestion to introduce a Strategic Plan and from the integration of environmental and climate policies, which are in the author’s view the only real novelties (ignoring, of course, the ‘miscellaneous’ category).
While the text is full of politically acceptable catchphrases, there is a large gap in place of concrete mechanisms to achieve these shiny goals. We will have to wait for the legislative proposals to see more concrete measures. It is not entirely unconceivable that the vast majority of mechanisms will be retained, slightly tweaked, with the added task for Member States to prepare a Strategic Plan and result-based measures.
How are Members States expected to fulfil this, if the Commission itself is not able (or willing) to do so? Writing a strategy is not an administrative task, it is intellectually demanding work that must be based on good analyses, data and, ultimately, political decisions. Are these conditions really met at Member State level? There is also the dangerous and very real option that Member States will use the façade of strategic planning to keep current suboptimal mechanisms in both pillars. This almost seems to be an inevitable fact given the current political-economic situation. Is ‘greenwashing’ to be followed by ‘strategy faking’?
A less cynical view might be that the Communication reflects a firm rooting of the multifunctionality discourse and that, this time, agricultural policy is not only preoccupied with itself at the strategic level, but actually trying to contribute towards fulfilling societal goals. Conceptually, this would mean a final detachment from classical agricultural policy, i.e. from addressing only the income issue and the consequences of dealing with this issue.
However, one of the main issues with texts such as this Communication is that there is no financial planning to back them, nor any analysis of the performance of the current policy. This naturally limits discussions and the possibility of constructive, substantiated responses. While the suggested (re)direction of the CAP does have the potential to represent a radical, paradigmatic shift, it is equally possible that it is nothing more than a modern populistic and pragmatic approach to policy concealing an effort to retain financing, or even reflecting a certain level of ignorance or impotence of decision-makers.
There is even an often-voiced opinion in the EU that the proposal is but a pro-forma document designed to bridge the period between the current and future European administration, as we are in the pre-election period. Some commentators dismiss the applicability of the approach entirely and say that the current policy will be extended until 2023, with no real negotiation until 2020.
If the intent of the authors of these strategies was to write a text that cannot be opposed by anybody while offering no basis for decision-making, they have completed this task marvellously. But sadly, we are passing up the opportunity to undertake radical, necessary changes to the CAP. Apparently the Commission lacks the will, power or ability to do so, or perhaps it is not quite the right time due to the prevalence of other, more pressing topics. Perhaps it is also an indicator of key CAP stakeholders (Member States and interest groups) actually not wanting any change.
In a time of decreasing CAP funding, which is inevitable after Brexit and the introduction of new EU political priorities, the agricultural policy community has the real opportunity to reconsider societal needs and priorities related to food production and processing, the countryside and the environment. With the possibility of running a more autonomous policy opening up, Member States could use the reform for their own, desperately needed changes. However, making this move still requires precise guidance by the European Commission, as well as clear accountability.
This post was written by Emil Erjavec and Ilona Rac.

Photo credit: Vojko Flegar