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Document 52011SC1154
COMMISSION STAFF WORKING PAPER EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENTCommon Agricultural Policy towards 2020
COMMISSION STAFF WORKING PAPER EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENTCommon Agricultural Policy towards 2020
COMMISSION STAFF WORKING PAPER EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENTCommon Agricultural Policy towards 2020
COMMISSION STAFF WORKING PAPER EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENTCommon Agricultural Policy towards 2020 /* SEC/2011/1154 final */
Agriculture is at a crossroads and in the
headlines: EU agriculture and its Common Agricultural Policy (CAP) are no
exception. Challenges, impacts and solutions worldwide vary, but a common theme
is also emerging: sustainability is at the core of solutions. This is why the
overarching objective for the future CAP should be sustainable competitiveness
to achieve an economically viable food production sector, in tandem with
sustainable management of the EU's natural land-based resources. Previous reforms of the CAP were mainly
driven by the need to respond to challenges that were primarily endogenous to
agriculture, from huge surpluses to trade agreements or food safety crises.
They have served the EU well both in the domestic and in the international
front. But many of the challenges EU agriculture faces today are driven by
factors beyond its control, and require much broader policy responses. The future CAP should no longer be a policy
that addresses the activity of a small, albeit essential, segment of the EU
economy, but one that impacts on more than half of the EU territory and all of
EU consumers, and is of strategic importance for food security and safety, the
environment, climate change and territorial balance. This would also enable the
CAP to enhance its contribution to the Europe 2020 strategy. What such a policy
direction would imply is the focus of this report.
1.
Problem definition
Over the last two decades, the CAP has
undergone a substantial reform process, which reflects the changing societal concerns
related notably to the environment, food quality and safety, territorial
balance, as well as to the evolving needs of the EU economy. As a result of
this process, the CAP provides today the general framework that allows the
policy to address competitiveness and sustainability challenges of agriculture
and rural areas across the EU territory. This framework takes the form of two
complementary pillars.[1] Pillar I includes instruments related to
the functioning of agricultural markets and the food supply chain (Council
Regulation (EC) No 1234/2007) and to direct payments (Council Regulation (EC)
No 73/2009) conditional upon statutory management requirements and good
agricultural and environmental conditions.[2] Combined,
these measures provide a fundamental layer of support to EU farmers, creating
the basis for keeping sustainable farming in place throughout the EU. Pillar I
measures are mandatory for Member States and, with very few exceptions, there
is no co-financing. This ensures the application of a common policy within the
Single Market, monitored by an integrated administration and control system
(IACS). Pillar II – rural development policy
(Council Regulation (EC) No 1698/2005) - includes measures that aim at
improving the competitiveness of the agriculture sector, delivering specific
environmental public goods and promoting the diversification of economic
activity and quality of life in rural areas. These measures are largely
voluntary, contractual in nature, co-financed and delivered within a strategic
framework which links policy action to European, national, regional and local
needs. The above framework responded to the
challenges EU agriculture faced during the past two decades. However, for the
policy to remain relevant, the framework under which it functions has to prove
itself capable also to address the main challenges which EU agriculture is expected
to face in the current decade: economic, environmental and climate change
pressures as well as the territorial aspects of the policy. In the economic front, agriculture faces
today a global deterioration in its terms of trade. In recent years in
particular, this has been more pronounced. During the 2004-2010 period, the
average level of world agricultural prices increased by 50% from its
corresponding level in 1986-2003; by comparison, energy prices jumped by 220%
and fertiliser prices by 150%, while exhibiting at the same time the highest
degree of volatility of the past three decades. Stable higher prices could provide clear
market signals to the sector. However, high volatility, the slowdown in factor
productivity growth (land, energy, fertiliser, labour), the uneven and
asymmetric transmission of price changes in the food supply chain and the
declining share of agriculture in the value added of the chain are expected to put
additional pressure on farm profitability in the EU, and require substantial
investment in more productive methods for the sector to adjust in a sustainable
manner. In the environmental front, the main
drivers affecting the environmental sustainability of agriculture relate to
intensification of production in some areas with abandonment and under
management of land in others, as well as changing land use patterns and
agricultural and forestry practices. The CAP plays an important role in
maintaining sustainable agriculture across the EU territory and in promoting
environmentally and climate friendly practices. The environmental sustainability of farming
is related to farmer decisions about whether to produce and what and how to produce,
while market prices do not reflect the externalities linked to agricultural
production and in many cases the supply of environmental public goods is
insufficient. This is particularly important as modern farming puts many
pressures on the environment. By contrast, certain farming systems and
practices, such as extensive livestock and mixed systems, traditional permanent
crop systems or organic farming, are particularly favourable for the
environment and climate objectives. The CAP should respond to these challenges
by better integrating its objectives with other EU policies and adjusting its
measures accordingly. The EU biodiversity strategy to 2020 requires further
integration of biodiversity in key sectors such as agriculture and forestry in
order to meet the ambitious EU headline target. The Europe 2020 Strategy
establishes the reduction of greenhouse gases as one of the EU's five headline
targets. In the Climate and Energy Package, the EU also
committed to increase renewable energy uses in order to reach a 20% share in
total EU final energy consumption in 2020. Finally, with respect to social challenges,
the primary sector still represents 4.9% of value added (and more, if related
(food) industry is considered) and 15.7% of employment in predominantly rural
areas. This is where the role of agriculture can be particularly important, not
only directly but also indirectly - through the generation of additional
economic activities with strong multiplier effects, most notably with the food
processing, hotels and catering, and trade sectors. These sectors in turn have
further high links with the rest of the rural economy, thus helping among
others remote rural areas, which have the most limited access to general
services, such as schools, primary health care and banking.
1.1.
The EU value added of the CAP
The added value of the CAP is in its
ability to: –
respond effectively to transnational goals and
cross-border challenges such as mitigating climate change, enhancing
biodiversity and contributing to economic and social cohesion, the development
of the Single Market and the EU trade policy, through a common set of rules,
principles and objectives; –
ensure a more efficient use of the budgetary
resources of the Member States vis-à-vis the coexistence of national policies
(e.g. compared to a single common policy, 27 different policies would have been
more costly and certainly less effective inducing different levels of
intervention, a major risk for distortion of competition); –
help to develop a competitive and balanced European
agriculture from an environmental and territorial point of view, which
contributes positively to the competitiveness of the EU food supply chain and
trade, and enhance the cohesion of rural areas by encouraging initiatives
favouring their economic and social growth.
2.
The main policy objectives of CAP reform
For the CAP to address the economic,
environmental, climate change and territorial challenges, the objectives are to
adapt the current CAP framework along the following lines: (1)
Gearing the CAP measures towards increasing the
productivity and the competitiveness of the agricultural sector by: - improving the functioning of the
advisory system and creating networks (of farmers, advisors, researchers, food
operators, consumers etc.) for knowledge creation and transfer and favouring
innovative approaches in granting funding for projects for rural development
measures - encouraging pro-competitive joint
action among farmers in order to foster efficient use of resources, product
development and marketing - provide incentives to use risk
management instruments and active prevention strategies (2)
Improving the environmental and climate change
performance of the CAP by: - increasing the number of agricultural
areas which are under agricultural practices providing environmental and
climate action benefits and encouraging the take-up of more advanced
agri-environmental measures by Member States and farmers; (3)
Enhancing the effectiveness and efficiency of
the policy by: - rebalancing the direct payment
support to better reflect income support objective and environmental
performance - reducing the disparities in direct
payment support levels between Member States and farmers.
3.
Policy options
Following a wide public debate and a series
of own initiative positions from EU institutions and particular Member States,
three coherent policy scenarios (adjustment, integration and re-focus) have
been formulated to feed the decision-making process by exploring the continuum
of possible policy evolutions in a holistic approach that also looks at the
potential interactions and synergies between the main lines of policy
intervention, while every element is individually assessed in specific annexes. · The adjustment scenario focuses on adjusting the CAP in a limited
way by emphasizing those elements that work well in today's CAP and addressing
the major shortcomings of the current policy framework without making any
fundamental changes to the policy. · The integration scenario has the purpose of improving the targeting
of CAP support to the objectives of the policy, especially by better
integrating the contributions of different policy elements, which includes the
introduction of new elements into the policy framework as well as substantial
changes to structure of the policy. · The re-focus scenario narrows down the focus of policy intervention
of the CAP to environmental and climate change aspects while it is assumed that
production capacity can be maintained without support through the reliance on
market signals and the objective of contributing to the vitality of rural areas
and territorial balance would be met by other Community policies. These scenarios
are cross-cutting approaches that each address the three broad policy
objectives of the future CAP described in the previous section. They do,
however, place different weights on the three objectives and are based, to a
certain extent, on different approaches with respect to the necessity of policy
intervention. In doing so,
these scenarios also address in different ways the essential risk that stems
from the absence of policy intervention, market failures, and the consequent
risk that stems from wrongly targeted policy intervention, policy failure. The
latter risk formed the basis for discarding other policy scenarios that were
presented during the public consultation. With respect to
the analysis of the effects of these scenarios, the reference is the status
quo, which does not address the policy shortcomings identified in problem
definition and the counterfactual scenario of having no policy at all, which is
expected to lead to significant income and environmental problems.[3] The scenarios
are presented on the basis of implied changes in the three main lines of policy
intervention, namely market measures (Council Regulation (EC) No 1234/2007),
direct payments (Council Regulation (EC) No 73/2009) and rural development
policy (Council Regulation (EC) No 1698/2005). Table 1:
Outline of main policy options by scenario and policy instrument || Market instruments (Council Regulation (EC) No 1234/2007) || Direct Payments (Council Regulation (EC) No 73/2009) || Rural Development (Council Regulation (EC) No 1698/2005) Adjustment: Emphasizing the CAP's achievements and addressing major shortcomings || Streamlining and simplification of existing instruments Improving farmers' cooperation within competition rules. || Redistribution; enhanced cross compliance || Moderate increase in budget; used for competitiveness/innovation or environment Integration: Improving the targeting of the CAP to its objectives || Streamlining and simplification of existing instruments Focus on food chain and improved bargaining power of farmers (3 sub-options) || Redistribution; new direct payment architecture; "greening" Enhanced cross compliance; capping; small farmer scheme; young farmer scheme || Redistribution between Member States Innovation, climate change and environment as guiding principles; Reinforced strategic targeting and common strategic framework with other funds Re-focus: Limiting the scope of CAP interventions to environmental aspects || Abolished || Phased-out || Substantially increased funding; focus on climate change and environment
4.
Assessing the impact of alternative policy options
The adjustment scenario assumes the
continuation of the principles of the current policy framework based on market-orientation.
It is expected to allow farmers, prompted by market signals, to make better use
of available policy instruments to increase their competitiveness, while redistributed
direct payments among Member States would shield them from excessive income
fluctuations in a more effective and equitable manner throughout the EU. Redistribution
of direct payments within Member States (regional model) would allow higher
support for more environmentally beneficial agricultural areas and limit land
abandonment, but increased economic pressure would likely drive towards
intensification production in the most fertile regions. Rural development
measures would continue to address wider rural issues, but the role of
agriculture in the economy, employment and growth or rural areas would
diminish. The integration scenario proposes an
enhanced policy framework geared towards support for competitiveness, sustainable
development and innovation in the sector and aimed at fostering conditions
under which farmers, either individually or collectively, would be better able
to face upcoming economic and environmental challenges. Direct payments would
provide a stable income, leading not only to more balanced, effective and
equitable redistribution but actively targeting certain beneficiaries
(small-scale holders, farmers in regions with natural constraints, sectors at
risk, new entrants etc.). A greening component would also promote certain basic
environmental practices throughout the EU, focusing principally on those farms,
often most competitive, which have moved away from such practices as well as
those which are considering abandoning them in the light of current economic
pressures. In re-focus scenario, a phasing out
of direct payments would lead to strong restructuring in the sector and much
larger and more capital intensive farms. Production intensification in the most
fertile regions and land abandonment in less advantageous areas would have
negative environmental consequences. Focusing policy on rural development-type
environmental measures would alleviate these problems, but would not contribute
to enhancing the sustainability of agriculture over the whole EU. Phasing out
of direct payments would lead to failure of many agricultural holdings and
would put additional pressure on the viability of rural areas with higher
unemployment and migration.
4.1.
Administrative burden
Certain
components of a new model for direct payments, such as capping, the definition
of "active farmers" and the "greening" could potentially be
burdensome with additional control requirements. On the other hand, the small
farmer scheme would substantially reduce the administrative demands from the
application for and granting of direct payments to such beneficiaries. The removal of the
current overlap between agri-environmental actions available under specific
support in the Pillar I and in rural development and a uniform solution for
coupled support would lead to simplification. However, the introduction of a
possible approval process by the Commission could be more burdensome, mainly
for the Commission services. Improving the
targeting of payments to active farmers would require careful fine tuning of
definitions in cooperation with Member States and selecting criteria at Member
State level to be integrated into the IACS register. This could require
substantial administrative effort for them and certainly for farmers to prove
eligibility, as they would have to provide supplementary detailed information
and possibly submit accompanying documents with their application.
4.2.
International dimension
The successive reforms of the CAP have
diminished substantially the distortive impact of the policy on international
markets. All the analysed scenarios should have minimal
effects on global markets (including on developing countries). This is the
combined result of previous CAP reforms and the present and expected future
level of world prices that have turned the EU into a price-taker in
agricultural markets.
4.3.
Comparison of options
All three options aim at a more competitive,
sustainable and resilient agriculture in vibrant rural areas, and thus seek to
better align the CAP to Europe 2020, notably in terms of resource efficiency.
To this end, it will be essential to improve agricultural productivity through
research, knowledge transfer and generally promoting collaborative approaches. Hence
the importance of innovation, including the upcoming European Innovation
Partnership on agricultural productivity and sustainability, as a basic
pre-condition that cuts across policy options. This cross-cutting element is
present in all three options, and therefore not part of the comparison below. In terms of budget, it is clearly the refocus
option that would in the end place the lowest demands on the EU budget since
direct payments would be phased out. This option places priority on market
orientation, and thus on the acceleration of structural adjustment in the
sector towards greater profitability of enterprises. This option would also
expose the sector to greater risks in terms of market stability in the absence
of appropriate safety nets and risk management tools, as well as the risk of
decreased spending on innovation due to the pressure on farm income. Structural
adjustment under the terms of the refocus option would come at a significant
social and environmental cost. Income would fall by 25% and production would
concentrate in the most profitable areas and sectors. Even if spending on better targeted
environmental measures under rural development doubles, this would not be able
to achieve sustainable land management across the EU territory, as the policy
would lose the leverage of direct payments coupled with the cross compliance
requirements. In addition, the negative social consequences particularly in
areas and sectors that are most dependent on direct payments (e.g. large field
crops and dairy farms, extensive beef and sheep and goat farms) would be such
that the temporary use of axis 1 measures to support restructuring would not be
able to make up for losses from the phasing out of direct payments. The absence
of axis 3 measures could threaten the rural fabric, especially in diversified
rural economies, putting the territorial balance at risk. These results are not
new, but echo similar results in the two prospective Scenar 2020 studies. At the other end of the spectrum, the
adjustment option would best allow for policy continuity with limited but
tangible improvements both in agricultural competitiveness and environmental
performance, through the redistribution of direct payments, enhanced cross
compliance, simplification and streamlining of market instruments and support
for cooperative approaches, as well as the channeling of additional resources
into new challenges under rural development. The main new element in the
adjustment option is the rebalancing of direct payments among and within Member
States, for which different options have been analysed. The question is how to
ensure a more equitable distribution and a better targeted support in line with
the policy objectives while avoiding major disturbances. The convergence
towards a flatter rate would particularly benefit those Member States that are
currently significantly below the EU average. The move towards a regional model (together
with the inclusion of naked land) would rebalance support between farm types,
especially in Member States currently using a historical model, mostly towards
more extensive production systems. In fact, grazing livestock, wine and
horticulture would benefit, while field crops, mixed and milk farms would lose
from such redistribution. There are however serious doubts as to
whether the adjustment option can adequately address the important climate and
environmental challenges in the future, thereby also underpinning the
sustainability of agriculture itself in the longer term. The integration option takes the
need to green the CAP a step further with the "greening" component of
direct payments. The challenge is how to design such greening so as to reap
considerable environmental and climate change benefits and assure the
sustainable use of natural resources without undermining territorial balance
throughout the EU as well as the long-term competitiveness of the agricultural
sector and unduly complicating the management of direct payments. The analysis shows that this is possible
although some administrative burden cannot be avoided. The resulting negative
impact on income remains moderate on average (but varies significantly between
Member States, regions and farming systems); this negative impact would be
exacerbated with a more ambitious crop diversification measure, but alleviated
in the case of more ambitious provisions for ecological focus areas, due to the
market impact. The greening component would also free up
funds in rural development to be deployed towards more sophisticated
agri-environment and climate focused measures. The combined effect of
environmental and LFA measures in both pillars could thus significantly enhance
the CAP contribution to the provision of public goods, though at the cost of
additional administrative efforts to manage a more complex structure and avoid
duplication of measures. Provided that the right balance is struck in the
design of measures and their implementation by Member States, this option best
safeguards territorial balance by addressing the long term sustainability of
agriculture and rural areas. A significant change in rural development
policy is also part of the integration option. The result should be a more
effective policy that delivers results in line with the Europe 2020 priorities
under a common framework with the other EU funds, provided that the
possibilities are used well by Member States and regions at the level of
programming and that the closer coordination with the other funds does not
remove the synergies with Pillar I. The distribution of rural development
support would also better reflect the policy objectives while taking into
account the current distribution. Finally, better targeting of support by
means of the different components of direct payments (in particular capping,
the small farmer scheme and the better definition of "active
farmers") can help achieve more effectiveness in terms of income support
and provision of environmental public goods. For the food supply chain, there
is a balance to be found between improving the bargaining power of farmers and
assuring the competitiveness and improved performance of the whole chain. The integration option would maximize the EU
value added by best maintaining a sustainable agriculture throughout the EU,
addressing important cross-border issues such as climate change and reinforcing
solidarity among Member States; this would be followed by adjustment and then
refocus. In terms of cost-effectiveness, the
integration option would make the best use of the budget by maximizing EU value
added. On the other hand, the adjustment option would place equally important
demands on the EU budget without the same ambition in terms of results, while
the refocus option would produce budget savings but at the same time significantly
reduce the scope and added value of EU action. Table 1: Comparison of options by objective, EU value added
and cost effectiveness || Adjustment || Integration || Re-focus Viable food production || ++ || +++ || + Sustainable management of natural resources and climate action || + || +++ || ++ Balanced territorial development || ++ || +++ || + EU value added || ++ || +++ || + Cost effectiveness || + || ++ || + On the basis of
the above comparison, the preferred option is the integration option, followed
by the adjustment option and finally the refocus option. This assessment
coincides with the preferences expressed in the public consultation (see Annex
9). While the adjustment option may not be sufficiently targeted and the
refocus option too risky, the integration option appears to strike the right
balance in progressively steering the CAP towards the Europe 2020 objectives,
and this balance will also need to be found in the implementation of the
different elements.
5.
Monitoring and evaluation of costs, benefits and achievement
of the desired effects
In the future, it will be important to
reinforce monitoring and evaluation for the CAP, including new elements of the
design of the policy introduced in Pillar I, such as greening. The future
monitoring and evaluation system for rural development should also better
reflect the reinforced strategic approach with common indicators based on
objectives and priorities and facilitate the use of evaluation as a management
tool throughout the programming period. In addition, monitoring and evaluation for
both pillars should be brought together into a common framework to measure the
performance of the CAP as a whole within Europe 2020. To this end, a process is
under way for the development of a common set of indicators linked to the policy
objectives, which would consist of: –
impact indicators linked to general objectives; –
result indicators linked to specific objectives; –
output indicators linked to expenditure under
different instruments. In addition, to address data gaps, for
instance on sustainability indicators, it is also envisaged to launch a pilot
project that would create a process which, by filling existing data gaps of
indicators at farm level, would allow the better monitoring and evaluation of
implemented reforms. [1] For detailed characteristics of CAP instruments and
their evolution see a series of Policy briefs of DG AGRI
http://ec.europa.eu/agriculture/analysis/perspec/app-briefs/index_en.htm. [2] As defined in Annexes II and III of the Regulation
(EC) No 73/2009. [3] http://ec.europa.eu/agriculture/analysis/external/scenar2020ii/index_en.htm