Supporting Greening with Agri-Environmental Measures: Improvement or rather a waste of money?

The concept of Greening of Direct Payments and more specifically the Ecological Focus Area (EFA) are going into their second year of implementation. I will discuss the pragmatic option to additionally support EFA by agri-environmental measures (AEM) in order to improve effectiveness of EFA. The experience in Germany do not deliver strong arguments for this option. The advantage of this option is the application within the existing CAP-framework.

One effective EFA-option: Flouring strip with phacelia in Lindau, South Lower Saxony

The uptake of effective EFA-options in 2015 was very poor: Landscape elements, buffer strips and fallow land together contributed to 20% of EFA-area in Germany and 25% in the whole EU (figures before weighting factors and excluding figures from France, see my last post here). After the first year of learning and getting along with administrative restrictions, it is unclear whether we will observe an increase of effective EFA-options or not. Beyond the general recommendation to abolish Greening and to use the resources for agri-environmental schemes, we might think about options within the existing Greening-framework. And one of these options are the registration of existing agri-environmental measures (AEM) as EFA-option and thereby improve the effectiveness and focus of EFA-options.

In Germany, agri-environmental measures (AEM) are designed by the federal states (Bundesländer) and additionally supported by the national government. If the federal states want to get financial support form Berlin, the need to adjust their AEM to the regulatory national framework called “Joint Task for the Improvement of Agricultural Structure and Coastal Protection (GAK)“, which sets the general rules for the support by the national government. One rule is, that the payment has to be reduced, since part of the environmental service is already paid by the greening payment. Besides this, the rules have to go beyond the EFA-rules. Within the German framework GAK, the option to support EFA by agri-environmental measures or, vice versa, to register AEM as EFA is given for several EFA-options, as described in the next table 1:

Table: Payments in agri-environmental schemes and reduction rate due to registration as EFA in Germany

Note that there is always the problems of ‚double funding‘, which is forbidden by EU-law: Services cannot be paid twice. However, the rules of the agri-environmental measures are more detailed and strict and the EAM-payment is reduced (as displayed in tab. 1), therefore the services are higher and therefore the EU-Commission accepted the programs by the German states. Following a question of Alan Matthews, the way I put this option in this post is probably not very precise in legal sense. The legal logic is rather the other way: Farmers participate in the agri-environmental measure (AEM) and can register their measure as EFA. And if they do, they receive a reduced payment.

The agri-environmental programs of the federal states show that only some German states are using this additional support and only for some of the EFA-options. This creates a very heterogeneous picture, which is displayed in table 2:

Table 2: Table: Additional support of ecological focus area by agri-environmental programs in the federal states of Germany.

The table shows that some federal states use this additional option extensively like Lower Saxony, Bavaria and North Rhine-Westphalia, Rhineland Palatinate and Saxony-Anhalt (all with three options) and some East-German states like Saxony and Brandenburg, but also Saarland and Hessen don’t use this option at all. Some of the options are more strongly supported, like buffer strips (in 9 states) and nitrogen fixing crops (in 5 states with payment), and on the other hand fallow land is only supported in two states, and the forestry options are not supported at all.

The key question here is on the effect of this additional support. We might very simple look on the figures of the states, which use supporting options and find out, whether we can determine higher shares of the respective option. However, the answer to this question is not as easy, since this goes to more general issue on how farmers decide on the choice of EFA-types. And here we see conflicting determinants of decision, which probably overlap with the incentive of agri-environmental measures. Besides this, we know the existing options, but we do not know (so far) to what extent farmers use the specific option and participate in agri-environmental measures eligible for EFA.

To the more easy and obvious question, whether we can directly discover statistical evidence, I will give a try. This is done, by separating the EFA-figures of the federal states with additional support and without. The result is displayed in table 3:

Table 3: Impact of additional support by agri-environmental measures on EFA uptake
(The figures indicate shares of the respective option in states with and without additional AEM-support)

First of all, the main issue is, whether we can observe a higher uptake of the measures, which are additionally supported. This is the case of buffer strips, catch crops and nitrogen fixing crops with a higher share within the states with support. However, the rest of the results is rather puzzling: In many federal states with support, the share of the supported EFA-options is lower or even substantially lower like in the case of fallow land. And on the other hand, the additional of Nitrogen fixing crops and catch crops is marginal with 20 and 75 €/ha, therefore here the factors leading for an high uptake might be others.

For instance, in Lower Saxony, which supports 4 options, the participation rate is not 100% clear. In 2015, 10.866 of 39.500 farms in Lower Saxony were working under agri-environmental schemes (including the organic farming support and all grassland-programs), which is just 27% of all farms. To figure out an impact, we would need to know, how many farms use the combination of EFA and EAM, because with low participation rates AEM can’t simply exert any impact on EFA. And this was probably the case in many federal states displayed here.

Finally, only buffer-strips we might observe a small impact, for the rest of the options AEM are not leading to high rates of uptake in absolute terms. We might conclude, that the additional incentive of AEM is outweighed by other factors in the decision process.

Coming to the conclusion:  The advantage of this option is the comparatively easy application within the existing CAP-framework. So states can decide to take this option and improve the effectiveness of EFA. If we don’t want to loose five years for biodiversity, we might still want to consider this option, even if this has a number of drawbacks like double funding and even more complicated requirements: Farmers in this case need to fulfill the requirements of two systems, where sometimes one is already too complicated.

The additional support of AEM is so far rather a theoretical option and the rates of uptake do not give strong arguments for this option. Greening is not effective and highly inefficient. And at the end of the day, with additional support of EFA we take away money from other, much more effective support schemes within the agri-environmental measures, which are essential for the support of biodiversity in agriculture. So the final long-run conclusion is (again) to abolish Greening, shift money into pillar two and to extend agri-environmental measure instead of sticking to the ineffective and inefficient instrument of ecological focus area.

Greening 2015: First preliminary data show necessity for further reform

As one main element of the EU’s CAP-Reform 2013, the Greening of EU Direct Payments has been implemented for in 2015 the first year. In the last weeks some first data on the implementation of Greening and the Ecological Focus Area (EFA) were unofficially presented by the EU Commission. I want to share these data and do a bit of commenting on them.

As already reported on this website, farmers have to fulfill three criteria (crop diversification, maintenance of permanent grassland and the ecological focus area (EFA)) to receive 30% of the direct payments. There are some exemptions for very small farms (< 10 ha), some simplified criteria for small farms (10-30 ha) and some exemptions for farms with a high share of permanent grassland or fodder production on arable land. The EU-Commission provides some general information  on greening and the member-states had some flexibilities in the implementation of Greening on a national level. So most of the information were provided by national authorities, since the Greening-regulations are dependent on the decisions taken in the member-states.

In December 2015, EU member states had to report the figures of the first year of implementation to the EU-Commission. On this website, I already reported on the implementation of Greening and EFA in Germany, since the German ministries (in the Federal States and in Berlin/Bonn) published the implementation data in great detail. So it was possible to draw some first conclusions, even though it is clear, that farmers choices will still change to some extent in the next years, when all the details are known and farmers have more time to take their decisions how to comply to Greening.

Ploughing 2016 on the island of Föhr, in Schleswig-Holstein, Northern Germany

The EU-Commission also published a document on the national choices with respect to all the flexible element of the CAP-Reform. From this document, it is clear that on the  national states took the full flexibility of national decision. With respect to the ecological focus area, different options are offered on the national level. The following figure 1 shows the number of countries in which the different EFA-options are chosen:

Fig. 1: Number of EU-member states offering the different EFA-options (Source: European Commission 2015: Direct payments post 2014 Decisions taken by Member States by 1 August 2014 – State of play on 07.05.2015-, Brussels, 
url: http://ec.europa.eu/agriculture/direct-support/direct-payments/docs/direct-payments-schemes_en.pdf)

So the most chosen option are 1.) nitrogen fixing crops, 2.) land lying fallow and 3.) Landscape features. Figure 2 illustrates the number of options chosen in the EU member-states:

Fig. 2: Number of chosen EFA-options by the EU-member states (Source: European Commission 2015: Direct payments post 2014 Decisions taken by Member States by 1 August 2014 – State of play on 07.05.2015-, Brussels, 
url: http://ec.europa.eu/agriculture/direct-support/direct-payments/docs/direct-payments-schemes_en.pdf )

14 member states have chosen 10 or more EFA-options. Obviously, large countries like Germany, France, Italy and Hungary took the administrative challenge to provide a large number of options for their farmers (17-18 EFA options), which also includes a substantial administrative costs. On the other hand, nine of the member states only offered a moderate choice of 5-9 EFA options and only five member states offered rather few options to their farmers (2-4 EFA options).

Greening causes substantial administration costs and efforts

We know the offered EFA-options in the member states and some implementation data from single member-states. But it turned out to be very difficult to get concrete EFA-data from other member-states. Some ministries were very constructive and helpful and gave data to our research-group. However, even the EU could not get all the data by 15.December 2015. It was obviously difficult to implement Greening into the EU’s Integrated Administration and Control System (IACS) of direct payments. Many representatives, to which we were talking to in the last months, reported difficulties in implementing Greening. The result is, that many countries delivered the data from January to March 2016, and France is still to deliver. Besides the control and administration systems of Pillar II. and of Cross Compliance (CC), we now find a third bundle of regulations, where the administration has to perform controls and register data etc.. So the term „simplification“ is not meaningless in that sense, that the implementation of Greening causes a lot of administrative burden and the overlap of three different control scheme needs simplification. And simplifying without reducing the ecological impact, will be a great challenge of the next mini-reform 2017.

EU-Implementation of Greening & Ecological Focus Area 2015

The EU-Commission announced to publish the first detailed evaluation of data in May/June 2016, however at different conferences in the last weeks, some preliminary data were presented. On April 05, 2016, the European Landowners Organization (ELO) held a meeting titled “A Sustainable European Agriculture: Is Greening the Way Forward?„. At this meeting, Joost Korte, (Deputy Director-General at the DG Agri in the EU Commission) reported some first preliminary figures on Greening on the EU-level. Those figures (probably) do not include the data from France. I also received data from other sources in Brussels, however these figures are preliminary (!) and still subject to data control. However, I still want to present the data here to give some first ideas, how Greening was implemented in Europe. The debate on the further development of Greening will be done this year, because on March 31, 2017 the EU Commission will present a report on the implementation. The public needs to follow up in the debate and influence the discussion. Therefore, even preliminary data might help.

The first figures are about the question, on how much land Greening was implemented: On 73% of the land, at least one Greening criterion was implemented and around 40% of the farms had to comply to at least one criterion. Crop diversification was relevant on 79% of the EU arable land. 67% of the arable land was with obligations of 3 crops, and 12% of 2 crops. This means that 21% of the arable land was excluded from Crop Diversification, which is even more than the first estimates of Pe’er et al. (2014, in Science), who estimated 13% of the arable land to be excluded.

My own calculations and also the calculations of Thünen Institute estimate that around 10% of the farms have problems with the Crop Diversification criterion, but Farmers need to do only small adjustments. In Germany, the main effect of Crop Diversification is to correct a bit of the negative side-effects of the national Biogas-support, which lead to a high share of maize in the crop rotations. Maize is the main crop, which causes problems in Crop Diversification. I would suggest to correct the Renewable Energy Act (EEG) in Germany and leave away the Crop Diversification criterion. I don’t see much of an effect.

Based on Mr. Korte’s report, the Ecological Focus Area (EFA) was relevant on 70% of the arable land. I.e. 30% of the arable land is exempted. The farmers mainly implemented land lying fallow (35% of the arable land after applying the weighting factors), nitrogen fixing crops (38%) and catch crops (15%). Landscape elements (4.5%) and buffer strips (5.9%) are of minor importance.

Other sources from Brussels also report, that there is substantial ‚overbooking‘ on EFA: EFA has a share of 16% of the arable land subject to EFA before applying the weighting factors (WF) and 10% after WF. However, the obligation is just 5% (after weighting factors), so farmers registered far more than necessary in order to avoid problems with controls. This also suggests, that the main debate should not be about the questions whether 5% or 7% of the arable land are necessary. It should be more about which options are useful and effective to target biodiversity problems.

The preliminary land-shares of the different EFA-options are shown in figure 3:

Fig. 3: EFA Choices in the EU 2015 as shares of EFA-area in per cent (Source: Preliminary data presented by the EU Commission 2016)

The ‚productive options‘ catch crops and nitrogen fixing crops together take the largest part (53%). Landscape elements and buffer strips, as very effective measures to protect species and link structures within the landscape, have only 11% of arable land (after applying WF). Note that the real shares are given by the figures before applying weighting factors (WF), so the proportion of landscape elements and buffer strips are around 5% alltogether. Countries with the largest shares of landscape elements are Ireland (by far!), United Kingdom, Malta, (surprisingly) Germany and Sweden. Buffer strips are of the registered in Denmark, United Kingdom and Ireland. Also interesting is the fact, that many of the two forest-options don’t play a role: There is a bit of short rotation coppice in Finland and Denmark and a bit afforested area in Portugal, Poland, Hungary and Spain. But on the EU-levels, these options play with 1% a minor role.

If we take a look into the main reform document, EU-Regulation No. 1307/2013 of the European Parliament and of the Council of 17 December 2013, into argument (44), we find the main motivation for the Ecological Focus Area (EFA): „Ecological focus areas should be established, in particular, in order to safeguard and improve biodiversity on farms„. So EFA is about Biodiversity! Ecologists tell us, that mainly buffer strips, landscape element and land lying fallow only show a significant impact on biodiversity. The other elements might be in one or the other way beneficial for the environment in general, however their effect on biodiversity is probably rather limited.

Conclusions: A substantial reform of Greening or beyond is necessary

The preliminary data show that only about 45% of the EFA-area (after WF) useful options are chosen. If we take real area, the share is just about 26%, which is disappointing. There is a lot of water in this system, especially if we take into account the administrative costs to implement Greening. Note that the figures vary substantially between the member states. So I am already looking forward to analyze the full published data-set. Note also that some national experts evaluate the EFA-effects a bit differently across the countries.

The figures clearly show: Greening and the EFA is not the best instrument to perform targeted support of biodiversity and especially endangered species! EFA might contribute for a more broad extensification of arable land – if we take this as an objective for EFA. So from an environmental point it might be worth to think about a pragmatic improvement of EFA. But we need other more effective instruments for a targeted support of biodiversity and endangered species. Greening and EFA are not the solution to this problem.

It is still to early to give a final comment on the figures, since we don’t have more precise and detailed data. And 2015 is just the first year, so given the low commodity prices for agricultural goods, I would expect e.g. the fallow land to be chosen more often in 2016. Also the buffer strips might gain a bit, since the regulations are more clear this year and farmers know how to implement buffer strips.

On the other hand, my two main argument would still be the low efficiency of EFA and Greening and missing effectiveness for endangered species. And remember: The endangered species are the main objective of EFA. This still highlights the potential but also the necessity to substantially adjust the EFA-measures and to financially increase the share of Pillar II and also to reform Pillar II-programs. I will comeback to this in a few months, when more data are available.

Did I miss something or is something unclear? Just write or comment, I am happy about feedback!

Thanks to Dr. Jürgen Wilhelm from the Ministry for Agriculture in Lower Saxony for presenting some of the data in Loccum and for fruitful discussion. Also note that not all data stem from Dr. Wilhelm and I won’t take any guarantee on the data, which are still preliminary.

Efficiency and Productivity in Organic Farming – a Scientific Symposium at the ICAE in Milano

On August 9th, 2015 starts the International Congress of Agricultural Economists (ICAE) in Milano, Italy. On Thursday, August 13, 11-12:30 o’clock (Malliani Room 70) we will discuss topics of efficiency and productivity of organic farming systems together with some of the most specialized and experienced scientists in the field.

Markets for organic farming have been constantly growing during the last twenty years, however, in some established countries like Germany, Austria or Denmark we can observe, that the number of farmers who convert to organic farming is stagnating or declining. In 2014, for the first time, the organic area in Germany has been slightly decreasing with a lot of press-echo. So journalists have already announced the organic crisis 3.0, which is a bit overdone from my point of view. But the fact is there and it might be interesting to discuss, why this is the case.

The scientific and public debate in Germany about the reasons for farmers being reluctant to become organic has been focused on the question, whether organic farmers are systematically disadvantaged on the land-markets, because their conventional neighbors might receive additional support for their biogas-plant. The debate is just ignoring, that not every conventional farmer has a biogas-plant, that the market for land are quite different among different regions. There is so far no empirical proof that problems on the land-market are a problem for all organic farmers. Also the system of subsidization of organic farms has been questioned. But if this would have been the main issue, the number of new organic farmers must have exploded in 2014, since almost all German federal states announced higher support rates for organic farming.

Organic barley production in Brandenburg

How about efficiency and productivity?

Productivity and efficiency is still not in the focus of the public crisis-debate (I don’t see a crisis, but that’s another issue…). Productivity in organic farming is not growing at the same pace like in conventional farming. Just a simple (and maybe even misleading) observation on the development of wheat-yields in organic farming might show what the topic is all about. The following figure shows the long-term development of wheat yields, yearly reported by the German test-farm network:

Yields of soft-wheat in organic and conventional farming 1986-2013 in Germany (own calculations based on data from the German ministry for agriculture)

There are a few details on these data we need to consider, before we get too critical with organic farming as a system. 1.) Organic farming tend to work on less favorable locations and therefore achieve lower yields. So a part of the difference is a systematic difference. 2.) The data-set on organic farms have changed throughout the years: Especially in the years between 1994 and 2000 the data-set has been extended to East Germany, which substantially changed the sample. 3.) A lot of organic farms are milk- and grassland-farms, whereas in comparison to conventional farming, the share of arable farms is lower. This might explain the difference in wheat and it might also explain, why a similar graph for milk-yields looks much more parallel. But this is not the point here.

What is so striking, is the missing yield-growth of wheat! So if farmers convert to organic farming, they might face limits. Obviously the wheat-varieties do not grow to the same extent that in conventional farming. So one conclusion, without any discussion might be, that there is too little done in adjusting wheat-varieties to the system of organic farming. Breeding varieties is a costly and a very difficult business, therefore firms might sometimes be (too?) reluctant to work 10 years on new breeds for organic farming. So this might be a task for public support in science? According to Felix Prinz zu Löwenstein, chairmen of German Federation of the Organic Food Industry (BÖLW) innovation, research, development and extension is one of the main topics to further develop organic farming. So I hope we can contribute a bit to the topic. On the other hand, the lower yields come together with an good environmental performance. Do farmers have to accept lower yields because society wants environmental sound farming practices? How can we include the environmental dimension of organic farming into classical ag-economics modeling?

A symposium to bring together knowledge on organic farming

Organic farming relies more on natural resources and (as described above) is often less productive than conventional systems. The methods of efficiency and productivity analysis can provide important insights into the potential for improving the performance of organic farms. One main challenge is how we can do an appropriate comparison of the productivity of conventional and organic production systems. The challenge is how we can select data-sets that allow a clear comparison. The symposium gives an introductory overview on the main study-topics and presents three studies in the area: Technical efficiency might be also a driver for conversion, therefore this fact has to be included in the model-setup. Structural differences between conventional and organic farming should be taken in into account while modelling farm comparisons. Modelling-results can also be affected by price-effects. Finally, we want to include one study from Africa, since modelling organic farming in the tropics and subtropics might come with different challenges. At the end, we want to discuss the following five questions:

– What are the main conclusions from efficiency analysis?

– Where is a lack of data for further modelling

– What are methodological challenges.?

– Which are conclusions for agricultural policy?

– Where are links for interdisciplinary cooperation?

We will have the following topics on the schedule:

2) Introduction: Efficiency analysis of organic farming systems
– a short overview of topics, results and conclusions (by Sebastian Lakner University Göttingen & Gunnar Breustedt, University Kiel)

The introductory presentation provides an overview on the literature on efficiency and productivity of organic farming. We can distinguish between studies that aim to compare conventional and organic farming systems and studies that concentrate of specific problems of the organic sector. Sample selection issues are a major challenge in farm system-comparisons. The efficiency results are very heterogeneous depending from model set up, data set and background of the study. Some of the studies also show, that the conversion to organic farming is influenced by inefficiency. In three of four studies, organic farms have a lower productivity than conventional farms. The degree of specialization on organic farms is not optimal, however the limits of specialization for organic farms are not discussed. Studies on environmental efficiency show organic farming is more efficient when the environmental dimension is taken into account. Some studies also model the impact of subsidies on farm’s efficiency.

3) Technical efficiency as a determinant of conversion to organic farming
(by Laure Latruffe (INRA, Rennes), Céline Nauges (University Queensland, Australia) & Yann Desjeux (INRA Rennes))

Technical efficiency of farms under conventional agriculture determines whether farms convert to organic or remain in conventional farming. Efficient farms may be more capable of adopting new technologies and therefore convert to organic farming. By contrast, choosing to produce for the organic niche market may be a survival strategy for technically inefficient conventional farms.

A study on French crop farms investigates technical efficiency during the years preceding conversion in order to predict the probability of conversion. The results show an influence of technical efficiency of (conventional) farms on the probability to convert to organic farming, but that the direction depends on farm-size and production-type.

Another study on dairy farms from North West France considers the effect of (past) technological change on the decision to convert. Results show that dairy farms switching to organic farming show a higher efficiency in conventional farming, but experienced a slowdown in efficiency the year before conversion.

 

4) Matching efficiency results of organic farms
(by Jochen Kantelhardt and Stefan Kirchweger (both Natural Resources and Life Science (BOKU), Austria) 

Organic farms work under very heterogeneous natural-site and socio-economic conditions. This heterogeneity is of clear relevance for economic efficiency and for the decision of farms to convert to organic farming. In order to produce proper results efficiency analysis must consider such heterogeneity and self-selection aspects. This applies in particular to data envelopment analysis, since this technique does not calculate error terms, but include heterogeneity into efficiency results. One way to control for such effects is matching. Matching is based on the assumption that under a given vector of observable variables, the outcome of one individual is independent of the adoption of a specific treatment. In our paper we present how to implement matching into efficiency analysis of organic farms. We give a brief overview on literature applying this technique and we discuss which insights the application of matching might contribute to the current discussion on organic farming.

5) Determinants of MD2 Adoption, Production Efficiency and Technology Gaps in the Ghanaian Pineapple Production Sector
(Amos Mensah and Bernhard Brümmer (University Göttingen)

This study examined the response of the Ghanaian pineapple production sector to the 2004/05 crisis where a swift shift of international market demand from the traditional smooth cayenne and sugar loaf variety to MD2 variety almost destroyed the entire fruit industry. Seven years after the crisis, we studied how Ghanaian pineapple farmers have responded to international market demand. We estimated the proportion of our sampled farmers cultivating the MD2 variety and analysed the factors influencing adoption of the MD2 variety using a logistic regression model. We employed metafrontier analytical techniques to assess the current productivity level of organic and conventional pineapple producers using a cross sectional data set gathered from 404 farm-households in three regions where commercial production is most concentrated. The results of our analysis reveal that, the majority of farmers in both organic and conventional production systems was operating quite near their group frontier as well as the industrial frontier.

So if you found that interesting, feel free to visit our Symposium! It’s on Thursday, 13/Aug/2015: 11:00am – 12:30pm, Malliani Room 70.

The following might be interesting for additional reading: Lakner, S. and G. Breustedt (2015): Efficiency analysis of organic farming systems ICAE-paper

Comments always welcomed!

The Implementation of the CAP-Reform 2013 – an actual overview

A. Flexibility options of the EU-member-states

In December 2013, EU-Parliament and Council could reach an agreement on the main issues of the CAP-Reform 2013. The final EU-Regulation 1307/2013 is already published in the Official Journal of the European Union. Some of the main issues of the reform allow a lot of flexibility for the single EU-member-states. The following article will go into details which of the options are going to be used by the EU-member-states.

Flexibility of EU policies in general might even be useful if motivated by the concept of subsidiarity, which means that specific political problem is decided by the decision level (regional, national or EU), which is capable and in the position to do the most appropriate and precise decision and to design an efficient policy-solution. That is so far the theory.

The decision upon the CAP-reform 2013 was taken in a quite complicated institutional environment, where EU-Commission, EU-Parliament and EU-Council had to agree to the reform. Besides those three institutions, specific national interests of 28 EU-members and also party-loyalties had an influence on the decision-process. So the flexibility elements of the CAP-reform have not always been introduced because of subsidiarity, but rather, because otherwise, some of the issues within the reform would not have been solved at all. This fact has already been criticized by scientists (Lakner et al. 2013), however, the interesting question is now, how do the EU-member-states use their flexibility options and do the flexibility elements at the end improve the reform.

We will focus on the following flexibility elements of the CAP-reform 2013, note that there are still some other flexibility elements (see Menadue and Hart 2014):

1.)   Redistribution of direct-payments:

1. Degressivity tax of direct payments: According art. 11 in the EU-regulation 1307/2014, member-states have to reduce direct-payments exceeding 150.000 EUR/beneficiary by a so-called degressivity-tax of min. 5%. That also means, that member-states can increase the degressivity-tax up to a 100% tax, which is finally the concept of capping of direct-payment. Member-states can optional subtract salaries paid on farms from the direct-payment and thereby reduce the tax-load for large and labour-intensive farms (art. 11, 2).
2. A more relevant option might be the use of a redistributive payment, which is a top-up payment for the first hectares of a farm, instead of the degressivity tax (art. 11, 3). So 5% of the national ceiling can be used to pay a top-up for the first hectares up to the limit of 30 hectares or up to the average size of agricultural holdings (art. 41, 2). E.g. in Germany, a top-up-payment for the first 46 hectares is paid, which is the average farm-size in Germany.

The topic of the redistribution of direct-payment has raised many debates in the last reforms 2005, 2009 and 2013. Especially the option of a redistributive payment has been criticized in Germany by Bahlman and Sahrbacher (2014) as ‘museum-premia’, since it potentially supports small structures in agriculture, but does not substantially contribute to support small farmers e.g. on the land markets. Besides this, the redistribution of direct-payment is about fairness of distribution, which is a political term, but hard to scientifically evaluate. Therefore, ag-economists for many goods reasons are generally very reluctant in giving positive statements on this option. The overall consensus seems to be, that the state should not intervene into agricultural structures. However, it will be interesting to see, what options the member-states use.

2.)   Flexibility between pillars: Member-states can reallocate funds between the two pillars (art. 14). For this option, member-states have to declare their willingness to do so to the EU-commission by the end of 2013 for using this option in the year 2014, and by August 1, 2014 for the years 2015-2020. The rural development programs (Pilllar 2) can be regarded as potentially more targeted. In practise, a lot of the P2 programs are still suffering from unfocused and poor policy design and from windfall gains (as e.g. in the agri-investment-schemes) (see Zahrnt 2009). However, the principle of policy design in P2 is a definition of objectives, design of appropriate measures and a minimum-standard of evaluation – even though there is a lot of scope for improvement here. Therefore, a strong shift to P2 could support a more targeted and efficient use of tax-payers money for policies, which are designed and co-financed on the national or regional level. Therefore, some experts say, that this might improve the overall balance of this reform. On the other hand, the CAP-reform 2013 also has the option for member-states to reallocate funds from P2 into P1 (direct payments), which might be used to increase the level of direct-payments in some of the member-states (with a low level of direct payments).

3.)   Re-coupling of direct-payments: Member-states can use coupled payments for particular sectors or farm-types facing specific challenges (Fig. 49) and which deserve (from the perspective of a member-state) support for environmental or social reason. First of all, the formulation in the EU-regulation is very broad and unspecific and it leaves a lot of space for interpretation. But basically, the member-states have to bring some arguments to the EU-commission, why a specific sector or farm-type needs specific support by coupled direct-payments. Member-states can use between 8% and 13% of their national ceiling for coupled support and another 2% of the ceiling to support protein-crops. Since coupled direct payment are generally regarded as more distortive to production and trade, an excessive use of this element (if not for environmental reason, so e.g. an extensive grazing premium) might bee seen critical. It is therefore also very interesting to see, how many member-states are still using this tool.

B. Status of Implementation in the Member States

The EU-member-states have to report the options they want to take until August 1, 2014. Nonetheless, some of the member-states have already taken a decision. Therefore, I did a detailed web-search on available government-documents, I reviewed the available issues of Agra Europe. I also did a written request some of the CAP-experts I know and to the ministries, where I could not find any information. The objective of this exercise is to get a picture as complete as possible on what is the actual status implementation in the member-states. I also asked, if there is already a tendency within in the ministry, what option the member-state wants to take. There is also a similar overview recently published by Henrietta Menadue and Kaley Hart from the Institute for European Environmental Policy (IEEP), which has though a slightly different focus.

Note that in Belgium, the region of Flanders and Wallonia and within the United Kingdom, England, Scotland, Wales and Northern Ireland are using different options. This is the reason why we have to evaluate not 28 EU-member-states but rather, 26 EU-member-states and another 6 regions within Belgium and UK. Actually, we could get information from almost 22 of 32 EU-member-states / regions and these are the main tendencies. If we indicate an intention in the following graphs, that means that the ministry has not yet decided and the intention is just a tendency, which is still subject of the political debate and the decision process in the member-state.

1.)   Redistribution of direct-payments:

For the redistribution options, we could get information from 16 member states / regions. The following fig.1 shows the decided or intended options by the member-states:

Fig.1: CAP-reform 2013 – redistribution (n=18, updated)

It is already quite clear, that most of the countries are opting for the simple degressivity tax, just four countries (Germany, France, Wallonia and Bulgaria) will work with a redistributive payment and Romania is tending to opt for a redistributive payment. The majority tend to use the degressivity tax. Ireland and Northern Ireland will apply a 100% degressivity tax, which is finally capping direct payment at 150.000 EUR. Still for 16 member-states there is no information.

2.) Re-coupling of direct-payments:

For recoupling of direct payment we could get information from 21 member-states /regions. The main policy options are described in the following fig.2:

Fig 2: Coupling of Direct-Payments (n=21)

Most countries are tending to use the instrument of coupled payment and in most of the 13 countries, the full envelope of 13% will be used, some of the countries will use the 2% for protein crops, but not all of them. The countries which are opting against coupled payments are Germany, Irland, Austria (sic!), Wales and England. Italy and Estonia are also sceptical to coupled payments, but in both countries the final decision is not clear yet.

3.) Flexibility between pillars:

We could get information on the decisions and tendencies in 22 member states /regions, which is documented in fig. 3:

Fig. 3: CAP-reform 2013 – Allocation Pillars (n=22, updated)

The figure indicates, that both directions of transfer is used. Still the transfer to pillar 1 is only used in Poland, Croatia and Slovakia. This was especially surprising in Poland, since the former minister for agriculture had a strong emphasis on P2-policies, which is now under different under the minister. Germany, France, UK (England, Wales, Scotland), Flanders and Latvia. In Northeren Ireland, the agricultural minister was in favor of a reallocation to P2, but the cabinet did not support this option. Hungary might also use the option to increase P2-budget. The following fig.4 is showing the relative shift in the different EU-member-states in percent:

Fig. 4: Reallocation 2014-2020

Since the ‚big‘ EU-members Germany, UK and France are all opting for a reallocation to P2, the net-effect on the total budget of the EU-28 is 0,6% between 2014 and 2020. This might still change a bit, since especially the situation in Italy and Spain is not yet clear, but the most of the large countries have already done a final decision. We can also see, that countries, that are using reallocation in order to increase the level of direct payment, such as Poland, Croatia and Slovakia, have an originally a rather low level of direct payment, on the other hand, countries with a relatively low level of P2-budget, use the option to shift funds to P2. Overall, the 2.46% of the total EU-budget is allocated with the net-tendency (0.6%) towards P2. The following graph shows the net-budget transfer. Nonetheless, this might still change as soon as some of the remaining countries (especially Italy and Spain!) make their final decision.

Fig. 5: Reallocation net effect

Status: 25.04.2014.

Updates: on 29.04.2014, I included some new information from Finland, Sweden and also Romania in the figure 1 and 3.

Thanks: Most of these information were gathered by support of different experts and colleagues of mine. Therefore great thanks to: Alex Lotman (Estonia), Oana Tanasache (Romania), Sebastian Hess (Sweden), Ewa Rabinowicz (Sweden) Anne van Doorn (Netherlands), Marian Stuiver (Netherlands), Sergio Araujo Enciso (Spain), Tomás García Azcárate (Spain) and Thelma Brenes Muñoz (expert for Portugal!). Besides this, I received immediate response and support from the ministries of Poland, Czech Republic, Greece, Finland and Hungary, thanks a lot for supporting this search!

Disclaimer: No guarantee on the provided information, some of these information might not be complete, and a lot of documents are not 100% clear. Especially the information on the intentions or tendencies of the administration might be mistaken (especially when provided in Italian!). So if you have questions, more precise information or even other information, let me know, I am very interested in feedback! This article is subject to constant updates. I hope by next week, I can publish a comprehensive table with the respective information on every country.

Other Sources:

Balmann, Alfons and Christoph Sahrbacher (2014): Mehr als „Museumsprämien“? Zur Förderung der ersten Hektare und Junglandwirte im Rahmen der EU-Agrarpolitik.
IAMO Policy Brief No. 14, Halle (Saale).

Lakner, S., C. Holst, B. Brümmer, S. von Cramon-Taubadel, L. Theuvsen, O. Mußhoff and T. Tscharntke (2013): Zahlungen für Landwirte an gesellschaftliche Leistungen koppeln! Discussion-paper of the Department for Agricultural Economics and Rural Development, University of Göttingen.

Menadue, H. and K. Hart (2014): Member State implementation of the CAP for 2015-2020 – a first round-up of what is being discussed, online article by the Institute for European Environmental Policy (IEEP).

Zahrnt, V. (2009): Public Money for Public Goods: Winners and Losers from CAP Reform, ECIPE WorkIng Paper Nr. 08/2009