I.Introduction

After an extensive consultation exercise, in November 2010 the European Commission issued a paper on the options for reform of the Common Agricultural Policy (CAP). (Commission 2010b) Arguing that there should be a common policy built around two pillars, the Commission suggested that the three strategic aims of the policy in the period up to 2020 should be to guarantee long-term food security, to provide European citizens with high quality food that is produced in a sustainable manner and to maintain the viability of rural communities. For the Commission this would involve greener and more equitable measures in the area of market support (first pillar) whilst rural development measures (second pillar) would concentrate on competitiveness, innovation, climate change and the environment. The reform path according to the Commission would involve a choice between three broad policy options. This contribution examines the options identified by the Commission in more detail and how the environment has been impacted by the existing CAP. As for the scope of the environmental challenge facing the EU, some interesting facts are given in the Commission’s Consultation Document for the Impact Assessment of the proposed reform. This indicates that:

-Agriculture and forests cover 77% of the EU territory (47% agriculture). There are 13.7 million holdings with an average farms size of 12.6 ha and over 50% of farms are managed by persons over 55. Between 0.2 and 2% of utilised agricultural land is abandoned annually;

-36.4% of family farmers engage in another gainful activity;

-One-third of EU agricultural land is managed by farming systems delivering High Nature Value;

-Natura 2000 sites cover 10% of agricultural areas;

-65% of assessments under the Habitats Directive are unfavourable;

-24% of water abstraction is used for agriculture (only one-third of this is returned);

-25% of EU soil suffer from unsustainable erosion and 45% has low organic matter content;

-There has been a substantial decline in fertiliser consumption and a decline in the use of plant protection products;

-Non-CO2 emission from agriculture fell by 20% from 1990 to 2005. Emissions in agriculture are predicted to remain at current levels unless further action is taken. Agriculture currently represents 9% of total European emissions;

-Agriculture is a source of renewable energy and provides raw materials for bio-based products; and,

-Agriculture uses 2.4% of final energy consumption in the EU. (Commission 2011, 4-9)

II.Option 1

Under this option in the first pillar, the current direct payment system would remain basically unchanged, although measures would be introduced to ensure a more equitable distribution of such payments, and existing market instruments would be simplified with stronger risk management tools being introduced. In the second pillar, the orientation of the policy evident from the 2008 Health Check of the CAP would be maintained with increased funding for the challenges posed by climate change, water, biodiversity and renewable energy. This option is essentially the “business as usual” or limited adjustment option.

The 2003 Mid-Term Review introduced the Single Farm Payment (SFP) to improve the overall market orientation of agriculture and to promote greater environmental protection by the removal of production-specific incentives. The 2008 CAP Health Check acknowledged the central role played by agriculture in protecting and enhancing biodiversity, managing and protecting water resources and in tackling climate change. Key to these objectives is the cross-compliance criteria, which are classified into the following areas; animal welfare, animal health, public health, and the environment. There are five cross-compliance criteria which relate to environmental protection. Two of these relate to the contribution of agriculture to nature conservation, namely Directive 79/409 on the conservation of Wild Birds and Directive 92/42 on the conservation of Natural Habitats and of Wild Fauna and Flora. Although the two Directives establish a comprehensive legal framework to protect biodiversity within the EU, it has been noted that: “in reality, Member States’ implementation record in relation to each Directive has been less than impressive.” (Jack 2009, 157) The Commission has emphasised that the CAP must do more to protect biodiversity through the support of environmentally-friendly farming practices. (Commission 2007) The Member States also have an important role to play in this area as sitting alongside the cross-compliance criteria is a requirement for the Member States to develop codes of practice on maintaining land in good agricultural and environmental condition as a further eligibility requirement for the SFP.

A further two directives in the cross-compliance criteria deal with water pollution caused by the use of nitrates (Directive 91/676) and certain dangerous substances (Directive 80/68). Pollution is defined in the Nitrates Directive as the direct or indirect discharge of nitrates from agricultural sources “into the aquatic environment, the results of which are such as to cause hazards to human health, harm to living resources and to aquatic ecosystems, damage to amenities or interference with other legitimate uses of water.” Waters with a nitrate content above a certain threshold are regarded as being polluted and an obligation is imposed on the Member States to designate all lands draining into those waters as being “Nitrate Vulnerable Zones.” Within such zones an action programme must be implemented to reduce the level of nitrate pollution, irrespective of the source of such pollution. These two directives are part of a wider EU programme with respect to Water which includes the Urban Waste Water Treatment Directive and the Water Framework Directive.

In early 2010 the Commission reported on the implementation of the Directive 91/676 for the period 2004-07 which was the first report covering all 27 Member States. (Commission 2010a) The report indicated that some 21 million tons of nitrogen fertilizer and nearly 17 million tonnes of nitrogen from animal husbandry were used annually in this period. It also indicated that 15% of monitoring stations had average nitrate concentrations greater than 50mg/l, which is the level set by the Directive for water to be regarded as polluted; the non-binding target of 25 mg/l, which had been initially set in Directive 75/440, had been exceeded in a further 21% of monitoring stations. Eight Members States were identified as having increasing trends of pollution in more than 30% of their monitoring stations compared with the previous period; Ireland was included in this list.

Looking specifically at water and Ireland, in 2008 the Environmental Protection Agency (EPA) has identified the main threat to surface water quality as being eutrophication, which comes mainly from agricultural manures and fertilisers, sewage and detergents. For the period 2004 – 2006, the 2008 report indicated that the percentage of water bodies at risk of failing to meet the targets set by the Water Framework Directive for good water by 2015 in Ireland were: 64% (rivers), 64% (lakes), 53% (estuarine waters), 27% (coastal waters) and 62% (groundwater).  On the latter the EPA reported that approximately 30% of all samples taken between 2003 and 2005 showed bacteriological contamination, with such contamination occurring at least once in the period 2003-05 at 52% at all monitoring locations. (EPA 2008) However, the latest report, published in March 2011, indicates that there have been improvements in water quality. For example, significant investment in facilities for the storage of livestock slurry and manure at a farm level and decreasing sales of fertiliser have improved the quality of groundwater with just over 15% of groundwater now being classified as Poor under the Water Framework Directive. Similar improvements were made in the other categories (lakes, rivers, estuarine and coastal waters), however, the 2011 Report recognises that continuing efforts will be needed to maintain these improvements and to reverse the negative effects of agriculture in this area. (EPA 2011)

Option 1, the limited adjustment option, should lead to a harmonisation of the SFP across all the Member States, and as a result give encouragement to agriculture in the new Member States where the sector remains important for social and economic reasons. The focus of the policy would remain income support for “active” farmers, with this concept still to be refined. There would also be some changes to the market management measures, especially in the area of risk management and this would allow the EU to cope more efficiently with exceptional situations such as those that arose in the dairy sector in 2009. Public intervention and private storage would continue to be features of the first pillar. As for the second pillar, there would be strengthening of measures in accordance with the 2008 Health Check (climate change, water, biodiversity and renewable energy) but the increase in funds for these measures would be limited. Overall, the extent to which this reform scenario would refocus the policy to support the production of public goods as suggested in the public consultations that preceded the Commission’s communication may be doubted. A more integrated approach would be needed.

III.Option 2

There would be a substantial re-design of direct payments under the second option with the basic rate serving as income support and a compulsory additional aid for those extra costs associated with realising the public goods demanded from agriculture. Further additional payments would be available to compensate for specific natural restraints and a new scheme would be introduced for small farms. In the second pillar, the Commission would propose measures to ensure that existing instruments would be better aligned with priorities in the areas of the environment, climate change and/or restructuring and innovation at national/local levels. Whereas the first option envisaged risk management measures under the first pillar, this option would see the introduction of such measures as part of second pillar measures to ensure income stabilization and to compensate for substantial income losses. It is implicit in the Commission document that it is this option which will lead to “green growth in the agricultural sector and the rural economy as a way to enhance well being by pursuing economic growth while preventing environmental degradation.” (Commission 2010b, 6)

Increased competitive pressures arising from a more open international trading system (and the need to feed an expanding population) will lead to greater specialisation and intensified production and so the greater integration option can be seen as a response to the need to create incentives within the CAP promoting more sustainable agricultural practices. Within the existing policy such incentives are located in the poorer second pillar but under this option they would become a more prominent feature of the first pillar addressing issues such as climate change and the environment.

On climate change, land use, land use change and forestry is not part of the EU’s greenhouse gas reduction commitment, although the Commission will report later this year on the possible inclusion of this sector in the future. There is little doubt that changes in climate will affect agricultural production but the nature of those changes is uncertain at a global level and may be minimised if there is an open international trading system. As for the local impact of climate change the EPA recognises that Ireland faces significant challenges if it is to meet its emissions targets for greenhouse gases under the EU Climate Change Package. Emission levels peaked at about 68.3 million tonnes of CO2 equivalent in 2005 and are projected to fall to just above 65.3 million tonnes of CO2 equivalent by 2020 but a further reduction of 5.2 million tonnes could be made with additional measures. (EPA 2010, Appendix 1) The 2020 EU Effort Sharing target requires a 20% reduction from 2005 levels for those sectors not covered by the Emissions Trading Scheme which includes agriculture.  The latest emission projections for agriculture show the three main sources of emissions as enteric fermentation (47%), manure management (28%) and nitrogen application to soils (20%) with total emissions decreasing by 5% by 2020 to 17.8 million tonnes of CO2 equivalent. (EPA 2010, 14) The agriculture sector is the largest source of emissions in Ireland at 29% of total emissions in 2009 so meeting the mandate of the Climate Change package will be a major challenge, especially if the food processing sector is included.

For the Commission, the second option would link the SFP with the provision of public goods (environment, climate change etc) and the proposed division into three parts would further reduce the link between support and historical type and level of production, thus promoting greater equity between farmers and Member States. The three elements are a basic rate for all active farmers, additional aid to compensate for the extra costs associated with realising an improved environmental outcome (e.g. permanent pasture, green cover, crop rotation and ecological set-aside) and payments to compensate for specific natural restraints. This three/four fold division of income support raises the question of whether it is in accordance with the simplification agenda for the CAP. Under the proposal, active farmers would be eligible for environment payments and payments for specific natural constraints under both pillars, which would increase the relative share of the Rural Development pillar in overall spending. This is hardly consistent with the objective of a simpler CAP. It also raises the questions of whether the additional environmental payment under Pillar 1 would be more effective and efficient than equivalent payments under Pillar 2 and the balance between the specific natural constraints under Pillar 1 and the less-favoured areas payment under Pillar 2. In both cases there may be a transfer of resources from Pillar 2 to Pillar 1.

The basic rate will still be conditional on the cross-compliance criteria and maintaining land in good agricultural and environmental condition. How prominent this feature will be is a decision that has yet to be made as is the decision on the period during which these changes will be implemented. In deciding on this balance, the fact that farm income has stagnated – the decline following 2008 has brought levels back to what they were fifteen years ago – will have to be taken into account and the Commission communication promises that any reform would limit the “gains and losses of Member States by guaranteeing that farmers in all Member States receive on average a minimum share of the EU-wide average level of direct payments”. (Commission 2010b, 8) So, for example, if the relationship between these three elements were to be 50:40:10 (basic rate: environmental payment; specific payment) this would yield greater benefits to the environment than one in which the relationship was 90:5:5. It is the balance between these three elements, which will ultimately be decided by the Council and the European Parliament that will determine the extent to which this particular option meets its goal of ensuring that the CAP becomes “more sustainable and that the balance between different policy objectives, farmers and Member States is better met.” (Commission 2010b, 12)

IV.Option 3

The integration approach focuses on the issues of climate change and improving environmental performance which could also be a feature of the third option presented by the Commission. This option, the most radical presented, would involve the phasing-out of existing direct payments and the abolition of all market measures, although there would be limited payments for environmental public goods and specific natural constraints and a disturbance clause that could be activated in the event of severe crises. Most measures under this option would be in the second pillar and would focus on the environment and climate change. Whilst proposed it is difficult to imagine that the Commission wishes this option to be taken seriously.

However, others have proposed this option as the way forward, by pointing to the fact that the CAP does not at present adequately fulfill important objectives in relation to the environment, competition and development. Support for some of these arguments actually emerges from the Commission who in their Impact Assessment document acknowledge that the state of European farming is such that it would be difficult to reorient the policy towards greater environmental sustainability. (Commission 2011, 2) The Commission also appear not to recognise that farm household income is more than income from farming as members of the household, including some farmers, have non-farm incomes. This makes justification of a CAP directed at income support harder to justify. Of greater significance is that the document suggests that concerns about food security in Europe are misplaced and that agriculture’s positive contribution to the environment is questionable.

V.Conclusion

Legislative proposals are due from the Commission later in 2011 and it is probable that the second option, greater integration, will be chosen. However, a number of questions remain to be answered. These include; the definition of an active farmer; the balance between elements of the Pillar 1 payment; the relationship between the cross-compliance criteria (and the good agricultural and environmental condition requirement) with the additional environmental payment; the relationship between the payment for specific natural constraints under Pillar 1 and the Less Favoured Area payment under Pillar 2; the balance between the two pillars; the impact of the changes on the Rural Development pillar; and, the budgetary settlement for agriculture. Answers to these questions will determine what sort of CAP emerges from the current reform process.

Joseph A. McMahon is Professor of Commercial Law, School of Law, UCD. This is an abbreviated version of a contribution to the Irish European Law Forum on European Environmental Law and Governance held on 25 February 2011.

References

Commission (2007), COM (2007) 722 Preparing for the ‘Health Check’ of the CAP Reform.

Commission (2010a) COM (2010) 47, Report from the Commission to the Council and the European Parliament on implementation of Council Directive 91/676/EEC concerning the protection of waters against pollution caused by nitrates from agricultural sources for the period 2004-2007.

Commission (2010b) COM (2010) 672 The CAP towards 2020: Meeting the food, natural resources and territorial challenges of the future.

Commission (2011) The Reform of the CAP Towards 2020: Consultation Document for Impact Assessment  ec.europa.eu/agriculture/cap-post-2013/consultation/consultation-document_en.pdf,

Jack, Brian  (2009), Agriculture and EU Environmental Law (Ashgate Publishing, Farnham).

EPA (2008), Water Quality Report: Water Quality in Ireland (2004-2006) (EPA, Dublin) Available at www.epa.ie/downloads/pubs/water/waterqua/waterrep/#d.en.25320.

EPA (2011), Water Quality in Ireland Report (2007-2009) (2011, EPA, Dublin)  www.epa.ie/downloads/pubs/water/waterqua/WaterQuality0709.pdf

See, also, “Ireland’s Water Quality: Groundwater OK, Surface Waters 50% Good, 50% Not So Good,” in the Reports section of irish environment (May 2011).

EPA (2010), Ireland’s Greenhouse Gas Emissions and Projections 2010-2020 (EPA, Dublin). www.epa.ie/downloads/pubs/air/airemissions/EPA_GHG_Emission_Projections_2010.pdf.