The Council’s position on the CAP 2020 green ambition: Worse than you thought

This post was written by Sebastian Lakner and Guy Pe’er (guy.peer@idiv.de)

In the following, first blog-post in a series of three, we evaluate the Council conclusions of early September 3, 2020 against the current CAP (2014-2020), looking into some of the details that were released by the Germany presidency. Especially, some of the most important environmental criteria in the CAP-proposals of 2018 (e.g. GAEC 9 and Eco-schemes) seem to be largely disarmed, coming back to an even weaker version of Greening. The Council-conclusions have already been commented, e.g. by Alan Matthew or on Arc2020, however we will add to the debate by contrasting the Council conclusions with figures from the actual CAP-period. A lot of black smoke seems to hide an attempt to maintain or even expand the “errors” that have led to the failure of Greening and to the large-scale misspending of taxpayers’ money over the current funding period (Scown et al. 2020 in One Earth).

A second post will examine the policy process and its consequences for the CAP in the long run. We will discuss the role of the German presidency in trying to minimize conflicts with farm lobbies through setting a lowest possible denominator, instead of showing leadership in moderating an in-depth, balanced negotiation process.

A third post in the series will focus on solutions, such as a phasing-in-model for Eco-schemes that could resolve some of the problems (e.g. for Eastern Member States) and may aid compromise-finding.

Antique mountain lodge for milk-farmers in Norway

Part 1: The devil is in the details, and the details look bad: the initial EU Council conclusion shows clear ambition to worsen environmental performance

On September 2020, the German presidency published the first conclusions of the meeting of the farm ministers (link), and publicly announced the main topics under discussion (link). Some reactions were quite harsh. For instance, EURACTIVE described the Council’s proposal as the “dark side of the moon”, and BirdLife’s policy Officer Ariel Brunner twitted:

The esteemed agricultural economist Alan Matthews evaluated the proposal as a clear form of reduced ambition, and interestingly commented that both the Council and the Parliament are likely to attempt watering down the Commission’s proposal:

It is indeed disheartening to see the way the AGRIFISH Council, once again, is participating in the watering down of the environmental and climate ambition in the Commission’s CAP proposal.“

Alan Matthews, September 10, 2020 on capreform.eu

Considering that the Commission’s initial proposal of 2018 has already been less ambitious than the current CAP (see Pe’er et al. 2019, Science), and in view of the final weeks of internal CAP-negotiations within the Council and European Parliament in preparation of their positions, in the first blogpost of this series we analyze some critical details of the preliminary position presented by the Council.

1. Outcomes of the Council-meeting: worse than current CAP

While we anticipated the Council to attempt a watering down of environmental ambition, after examining the details we must express our surprise as to how bad the Council’s proposal actually is. In fact, beyond the opening statements (acknowledging the need for high ambition, avoiding a race to the bottom etc.,), the Council’s proposal leaves room neither for confusion nor for optimism: it is a purely anti-environmental proposal, which ignores not only science or society’s expectations but also farmers’ needs. Such a proposal may place the environment, farmers and farming at risk. In the following, we demonstrate this conclusion by comparing the draft proposal, and suggested changes, to the current CAP of 2014-2020.

a.) GAEC 9: Minimum share of landscape features and non-productive land.

The existing GAEC 9 proposal (as made by the Commission in June 2018) requires farms to provide a minimum share of non-productive land and landscape features. The main purpose of this proposal is to secure a minimum area in support semi-natural landscape features and, with them, biodiversity. However, the Hogan-proposal of 2018 did not suggest a specific share, which makes this proposal subject to multiple debates.

In the current CAP, about 24,6% (2018) of the existing Ecological Focus Areas consisted of buffer strips (1.5%), Landscape features (1.7%), terraces (0.1%) and fallow land (21.3%) (data see link), amounting to a share of 2.2% of arable land.

Figure 1: Ecological Focus Area in the EU 2015-2018 (Data: EC; via Alliance Environment 2019)

Compared to scientific-based proposals, suggesting Ecological Focus Areas should cover 10% non-production area, the 2014-2020 CAP is under-performing. The EU Green Deal, in this sense, sets a clear target to restore the 10% level which in fact existed prior to 2009 (i.e. with the abolition of set asides).

The Council’s proposal (Council Conclusions of 3 September 2020) cancels GAEC 9 in a number of ways:

  • By altering the wording from “agricultural area” to “arable land”, the Council essentially exempts grassland, orchards, olive and wine groves as well as other permanent crops. The impact of altering merely one word is in this case impressive: the difference between agricultural and arable area reduces the applicable area by 38% (in the EU-27, based on Eurostat 2018, tag00025). This is particularly regrettable both because orchards and groves are among the best (and easiest) places to protect biodiversity with relatively little efforts, and where pollination deficits are highly impactful.
  • By proposing to introduce production areas, particularly catch crops and nitrogen fixing crops into non-productive area, the Council knowingly opens a Pandora box. Various evaluations of Greening 2014-2020 clearly indicated that catch crops and nitrogen-fixing crops are highly attractive for farmers (taking 75-95% of EFA area) since these are productive options (Zinngrebe et al. 2017; Schüler et al. 2018, Alliance Environment 2019), but at the same time, these options are highly ineffective for biodiversity (e.g. Pe’er et al. 2017EU Court of Auditors 2017Alliance Environment 2019). Introducing attractive and ineffective options, that do not contribute to the main objective of GAEC 9 while competing with valuable options like landscape features, is a proven way to replicate the mechanism that led to the failure of Greening. Having said that, we should clarify that catch crops and N-fixing crops are important for protecting soil and water, but these productive options should be covered by GAEC 7 (no bare soil) and GAEC 8 (crop rotation), respectively, rather than by confusing Member States and farmers with the choice between production and non-production options.
  • Minimum share of 3%: The Council proposes that, if only non-production options are chosen, MSs can reduce the level to 3%. This is lower than the 5% Ecological Focus Area under Greening (albeit only slightly higher than the current low implementation of effective options, reaching circa 2.1%), but obviously far under the 10% defined by the Commission in the Biodiversity Strategy and Farm to Fork Strategy – thus ignoring scientific evidence and coming in direct conflict with the clearly-formulated Biodiversity Strategy, which requires that

To provide space for wild animals, plants, pollinators and natural pest regulators, there is an urgent need to bring back at least 10% of agricultural area under high-diversity landscape features.

(EU Commission 2020: p.8).

b.) Recoupling the AECM-payments to animals: bringing back to rightly-criticised harmful subsidies.

The Council’s texts remain silent about the proposal to maintain Coupled Payments in the upcoming funding period of the CAP. One must recall that Coupled Payments have been rightly criticised for their negative impacts on markets in the EU and globally  (OECD 2018Alan Matthews 2015), as well as detrimental environmental effects (water, soil, contribution to Greenhouse Gas emissions) by supporting intensive farming and particularly animal production. Not only Aichi targets demanded phasing out harmful subsidies, but also the World Trade Organization demanded the phasing out of coupled payments, yet instead they have seen an increase in budget following the 2013 reform, now amounting to 14% of Pillar 1 (2018).

Interestingly, while the Council’s text does not touch the subject, but Julia Klöckner after the late September-Council explicitly addresses the issue by stating:

“The Presidency, Germany as member state is skeptical on coupled payments, but we support the initiative of France to get stronger in protein supply in the EU. But we yet do not agree on the instruments.”

Julia Klöckner, Press Conference on 21.09.2020; Min 7:00; own translation.

Klöckner’s speech justifies this decision by the need to ensure “Protein supply” – an implied reference to food security. Considering all evidence proposes that EU citizens suffer from over- rather than under-nourishing by proteins, this is a deceiving narrative, if not a form of word-laundering. Getting independent from imports, while still exporting pig meat in other regions of the world, does not seem like a sound strategy, and at the end, this serves as an excuse for the maintenance of coupled payments with all its distortive effects.

Yet, the Council’s proposal goes a step forward. If Article 6b is applied, a profit top-up in Pillar 2 (Agri-Environmental and Climate Measures (AECM)) can be made per area or per animal unit. The question is, to what extent this could incentivize animal production, since now, we have another re-coupling of AECM-payments to animal heads. If this provision comes without any other regulations, it implies that intensive animal husbandry, or intensive grazing, would receive higher support than extensive grazing with low animal densities (since the payment is given per animal, thus profiting systems with higher animal densities per hectare). This is essentially a return to the former coupled payments, now also in Pillar 2, with known negative impacts on markets and the environment.

c.) Area of Nature Constraints (ANC) payments – back to Pillar 2?

The Council here proposes that ANC-Payments shouldremainin 2nd Pillar, with the seeming justification that this is an environmental payment:  

“Environmental and climate provisions in the second pillar: The Presidency proposes to maintain the compromise reached under the Croatian Presidency regarding the payments for areas with natural constraints. The compromise reintroduces the possibility to count the payments for areas with natural constraints against the 30% ring fencing for environmental and climate objectives in the second pillar.”

Council for Agriculture and Fishery, Conclusions of September 3, 2020.

The official objective of ANC, however, is not to protect the environment, and in many countries indeed it doesn’t. ANC implementation has been shown to be highly variable among MSs, with some MSs using it for environmental purposes (in some cases only on paper, others in reality), while others using it for intensification or simply as another form of Direct Payments in Pillar 2 (Alliance Environment 2019). So in consideration of the upcoming budget cuts on Pillar 2, and in light of overall negotiations on how to ring-fence environmental payments, the Council’s proposal may generate a double-damage: on the one hand it will allow larger proportions of non-environment instruments to be listed as environmental investments, while on the other hand leaving less money for AECM. 

More specific implication of the shift of ANC between pillars:

The proposed move of ANC to Pillar 1 was one of the details that were evaluated positively in the Commissions’ proposal of 2018, given the evidence from the literature showing that ANC payments only sometimes achieve environmental benefits, and generally cannot be regarded as environmental payments. Basically, ANC are a form of regional Direct Payments, which is presumably paid only in regions of lower production potential but regardless of farm management. Only in some countries and regions, ANC are combined with environmental requirements (and in these cases, indeed bringing benefits to both farmers and nature). Overall, this funding line cannot be automatically accepted as contributing to the green ambition within the CAP.

If these ANC-resources would be available for AECM in the funding period 2021-2027, the potential to support environmental action would substantially increase – whereas if ANC is placed back to Pillar 2, they will decrease (for the assumptions of the calculus, see box below). What does that mean in actual figures? The AECM-spending has been between 4% and 6% between 2000 and 2014, with some single years (the first years in a program period) less than that. If we assume that AECM would receive all ANC-payments (according to the year 2018), we would increase AECM from 3.4 to 5.9 bn. EUR. The share of AECM in 2018 has been 6.1%, which is rather the upper end of the shares 2000-2018.

If ANC would be shifted to pillar 1, as proposed by the Commission, the relative share of AECM could increase to 10.1% of the CAP-budget, which is substantially above the normal shares 2000-2018. At the same time, the average expenditure of ANC (2.4 bn. €) will only have a moderate effect on the basic payments by reducing it from 20.5 bn. € to 18.1 bn. €.

Figure 2: Impact of the shift of Area of Natural Constraints (ANC)* between Pillars

Our calculation shows that the Council’s propose “damage”, i.e. if ANC will count as environmental measures in Pillar 2 (i.e. taking 2.4 of circa 5.9 billion Euros), they will take 40% away from the targeted and more effective AECM. In light of already insufficient budget for AECM, this is a slippery slope proposal. 

With the proposed budget cut on Pillar II (RDP), which has been already over-proportionate, the Council’s additional proposal regarding ANCs places a potential double damage on the future performance of AECM.

d.) Overall reduction on environmental spending

Already the Finish presidency proposed ring-fencing for both pillars, not only for the Eco-Schemes in pillar 1:

„The Presidency suggested to replace the minimum 30% of environmental and climate-related expenditure under the EAFRD with a single percentage or fixed amount under the whole CAP Strategic Plan budget […] This suggestion is aimed at ensuring a higher environmental ambition while increasing flexibility for Member States on how to fulfil it with different interventions.“

Council-Conclusion from December 19, 2019: p.8

This proposal might be helpful for countries with high shares in pillar 2, as shown in the figure below. The procedure can create more transparency and takes out a disadvantage for those MS with ambitious AECM and high spending in Pillar 2. 

However, the problem lies with the proposed share of 30% for all environmental instruments together (including both pillars, and ANC). If we calculate Greening and the AECM, the total spending in the current period (2014-2020) is already about 30.9% of the total CAP-budget in 2017 and even if we exclude ANC, we get to 26.7% for environmental ambition in 2018 (figure 3): 

Figure 3: Share of environmental spending in the CAP-Budget 2018

Thus, a proposal for a total spending of 30% goes under the current environmental investments of 2014-2020, and the inclusion of ANC is, at best, slightly below the current spending level, which even now contains a large proportion of ineffective (“light green”) measures. The Council introduces again a weakening on both ends, i.e. both a reduction in spending and a reintroduction of inefficient measures. 

e.) Postponing Eco-Schemes: 2 more years of mercy for MS to use the funds for Basic Payments

A justified concern that was raised by agricultural ministers, was that budgets for Eco-schemes may not be fully used if farmers do not take them up. The Council thus proposed that, to avoid loss of unspent budgets from Eco-Schemes, these budgets can be used elsewhere including as Basic Payments in the first two years. 

“The Presidency therefore proposes, that in the first two years (2023 and 2024) eco- scheme funds, which could unexpectedly not be spent due to an insufficient take-up and where the possibilities to allocate the funds by varying the unit amount for the eco-schemes are exhausted, can be used for other direct payment interventions.”

Council Conclusions of September 3, 2020

In an initial read, the Council’s proposal regarding Eco-schemes may sound plausible: given the uncertainties about their nature, and the risk of low uptake by farmers, MSs should indeed have some flexibility to use the money elsewhere to ensure it is not lost. Yet, if Eco-schemes are supposedly earmarked as environmental payments, then money-not-spent should not go “anywhere” but rather to environmental instruments. Both scientific and administrative evaluations of the CAP repeatedly showed that Natura 2000 payments and AECM have insufficient budgets to cover the area, and number of farmers, needing support for environmentally-friendly farming. By contrast, the Council essentially proposes to allow environmentally-marked budgets to be used for supporting any form of farming. This is clearly a weakening compared to the current CAP, where Greening earmarks 30% of Pillar 1 budget under environmental purposes.

At the end of the day, considering we are already entering 2 years of bridging-budget (= B.A.U for 2021-2022), the Council’s proposal implies that MSs can postpone Eco-schemes until 2025, losing four out of seven years in the MFF while obtaining a new freedom to misuse environmentally-marked payments. This is clearly a divergence from business as usual toward lower environmental performance – or if you want, temporary deregulation. 

f.) Other issues: 

Beyond environmental failures, the proposal to make “Capping and redistribution“-mechanism voluntary for MSs ensures a failure of the instrument also in the next CAP implementation. This mechanism has been proposed to rectify the inequity that is generated by a per-ha payment, in which 1.8% of beneficiaries receive 32% of payments (or 20% receiving 80%). Implementation of the CAP 2014-2020 shows that most MSs chose the least ambitious option for capping and redistribution, and inequity has not been substantially reduced in many MS. A proposal which fails to address the largest source of critique on the CAP (see e.g. New York Times on November 3, 2019), and in fact fails first and foremost for farmers, seems rather questionable if the CAP should presumably be fairer (link Arc 2020 analysis). 

2. Conclusion: 

In contrast to previous commentaries and responses to the Council’s conclusions, they are not “unambitious”. Instead, they are designed to systematically weaken the green ambition of the EU Commission, working against the Farm-to-fork-strategy and the Biodiversity Strategy. Even for the farming sector, this is not advantageous, since some of the biggest the challenges to farming and production come directly from environmental aspects – soil erosion, droughts effects, heat waves, pollination losses etc. Furthermore, we are convinced that a majority of farmers would be happy, or even prefer, to adopt a more environmentally-oriented management if they were to be supported, and incentivized, to do so. Recalling that 94% of the public and 67% of the farmers that replied to the 2017 Public Consultation asked that the CAP will do more for the environment, the Council’s initial conclusions go not only against the environment and against public will, but also against farmers‘ needs and opinions.

In the next blogpost, we present our analysis of the political processes that led to this point – and explain where there might be still hope if the EU Parliament takes a clear (and more ambitious) stand on the topic. Yet we will also examine what can be the longer-term risks of a weak (or weaker) performance of the CAP 2021-2027.

Comments and Questions are welcome!

===

*How did we calculate the Shift of ANC?

In the financial period 2014-2020, ANC were supplied with ca. 16.8% of the RDP including national co-funding (own calculations based on EC 2016). If we assume that this share is the same without co-funding and that ANC in pillar I (about 5 Mio. EUR in 2018), the total sum of ANC in 2018 is about 2.4 bn. EUR, most of it of course in pillar II. The real expenditure of ANC in 2018 was even slightly higher with 2.73 bn. €.

We should also note, that the shares of ANC are still subject to further negotiations in Council and Parliament and furthermore to national implementation of the CAP post 2020. However, it seems probable, that MS will take similar decisions, if the set-up is completely flexible and there are similar instruments available (- the only brand-new instrument is Eco-Schemes, but even this could be regarded as voluntary Greening, just leaving the choice to farmers whether to participate or not. So taking today’s figures on RDP implementation can give a realistic indication on how things might evolve from 2023 onward.

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