9. Future Directions for the CAP

The CAP is woven from the threads of around 20 different commodity regimes of varying design and vintage as well as numerous other measures. Many of these are trimmed and retailored on a regular basis, either individually or in small batches. Occasionally, a more significant change in direction is signalled and the ungainly flotilla is hauled onto a new course, often with a few vessels in the lead, while others continue much as before. The MacSharry reforms of 1992 comprised the last such episode, with substantial changes in the cereals and livestock support systems and a new or reinforced role for three ‘accompanying measures’.

A further wave of change is expected before the end of the century. After some initial debate and attempts to test the water in the Member States, notably at the Cork Conference in November 1996, the European Commission issued a set of relatively broad proposals in July 1997 in the form of Chapter 3 of Agenda 2000 (CEC, 1997a). This built on the December 1995 Agricultural Strategy Paper and picked up many of the same themes. In March 1998, the Commission published its detailed proposals for CAP reform (European Commission, 1998). The case for further reform, especially in the cereals, beef and dairy sectors, which are the main focus of attention, is founded on:

9.1. The Beef Regime

There is perhaps more consensus about the need to amend the beef regime than any other element of the CAP because of projections that supply will outstrip demand and surpluses will be difficult to dispose of on the world market without conflicts with GATT. The Commission’s central proposal is to reduce the intervention price for beef by 30 per cent from its present level of ECU 2,780 per tonne to ECU 1,950 over the period 2000-2002. Compensation will be offered to producers in the form of increased suckler cow premium and special beef premium and a new annual dairy cow premium of ECU 70 per annum. There is some pressure from more intensive producers, in Germany and Italy for example, to relax the conditions imposed on them by the 1992 reforms, including the livestock density limits on animals eligible for premia.

Of direct environmental interest is the Commission’s proposal to ‘reflect on how incentives to extensify production can be strengthened with a view to improving their effectiveness in relation to environmental objectives, without a major change in the global level of support’. The current extensification premium, which is payable on holdings where the number of eligible animals does not exceed the threshold of 1.4 LU/hectare, has not been an effective means of targeting support on the least intensive producers although these are the group most likely to be managing grazing land of high nature value. Research in the UK suggests that around 65 per cent of beef farmers receive extensification premia, ranging from 86 per cent for suckler producers in the LFA to 45 per cent for farmers with semi-intensive systems. Survey works suggests that only about a third of applicants have had to make real changes in their system in order to claim the extensification premium (Winter and Gaskell, 1998). Observations by the consultants suggest that this would also be the case in Ireland. The Commission now proposes that the extensification premium be significantly increased, and that qualification for the premium would be made more rigorous. The final proposals are disappointing since it was hoped that the extensification premium might be linked more explicitly to environmental criteria.

The greater emphasis on headage payments and reduced market prices may encourage farmers to finish their stock earlier but to maintain the same number of animals as at present. It would be advantageous if the regime could be amended so as to increase the competitiveness of grass-fed beef animals relative to intensively produced stock but there will be stiff opposition to any such proposals from a powerful group of Member States.

A change in the way that beef payments are made is proposed. Approximately 30% of the budget could be used for area payments rather than headage payments. This increased flexibility could allow Ireland to target farmers in environmentally sensitive zones or in areas with special social problems. Alternatively, an additional premium could be available to certain categories of producer, such as those with small herds, those retaining traditional breeds of livestock, those entering agri-environment schemes, etc. The French government has indicated an interest in increasing its flexibility in this way and has a particular concern to support the income of suckler cow producers in the Less Favoured Areas of France. In this context, it may be appropriate for the Department of Agriculture and Food to consider how it might utilise such an opportunity to redirect a portion of the subsidies in the light of national environmental and social priorities.

9.2. The Dairy Regime

The current quota system for milk production is due for review in 2000 and, after a period of deliberation, the European Commission has decided to propose an extension of the current regime to the year 2006. Many Member States, including the Netherlands, now support this proposal and the opponents, such as the UK and Sweden, seem unlikely to succeed in assembling a majority to terminate the quota system earlier. A 10% decrease in dairy support prices will be phased in over the six year period. Compensation is to be in the form of a new annual premium for dairy cows of ECU 145, adjusted to average yield.

Headage payments will not be made according to the actual number of cows on the holding but by reference to standardised cow units reflecting past average yield. Average or reference yields could be set at a national or more local level. This may work to the advantage of more extensive producers with lower yielding herds and may result in a freer market in milk quota than exists in some Member States.

Under the new regime, dairy cows will be eligible for two premia, with the compensation for lower milk prices being supplemented by a new premium of ECU 70 as part of the compensation arrangements for lower beef prices. The Commission is anxious to avoid any expansion in the overall size of the dairy herd and to limit the incentive for farmers to increase the number of calves born annually. The new headage payments represent a further entrenchment of this form of subsidy but few commentators seem to expect that they will prevent the process of intensification which is taking place throughout Europe. The trend of declining herd size and increasing both average milk yields and the output of farm-produced forage appears set to continue.

In principle, there is an opportunity to introduce environmental conditions or a form of cross-compliance on the new dairy ‘headage’ premia since these are direct payments, unlike the market price support mechanisms applied currently. At present, Member States are permitted by the EU regulations to impose environmental conditions on CAP headage payments for sheep and cattle, provided that they notify the European Commission. It could be argued that a similar arrangement should apply to the new system of headage payments for dairy cows, even if these are not paid in relation to the actual number of animals on the holding. In both legal and political terms, it is easier to consider the introduction of environmental conditions on a new category of payments than on the existing system of quotas. In Sweden, farmers were asked to meet certain conditions concerned with the storage of livestock wastes when milk quotas were reintroduced following Sweden’s accession to the EU. However, this is an isolated example and it is unclear whether it is permissible under existing EU legislation.

9.3. Cereals, Oilseeds and Protein Crops

Reform of the cereals and related regimes was the principal component of the 1992 reforms. The Commission will pursue the same approach a step further from the year 2000, arguing that failure to intervene will result in an unacceptable rise in intervention stocks. Rejecting the use of set-aside on a larger scale, the Commission has opted for a single 20 per cent cut in the cereals’ intervention price to take place in the year 2000. Compensation would be in the form of a non-crop specific area payment of ECU 66 per tonne, multiplied by the regional cereals’ reference yields established under the 1992 reforms. This adjusted form of area payments is likely to be more compatible with the General Agreement on Tariffs and Trade (GATT) agreement than the present system. In contrast to the present arrangement, arable area payments could be reduced if market prices reach a higher level than anticipated. It is hoped that cereal prices can be brought down nearer to world market levels and to those prevailing in Central and Eastern Europe. Obligatory set-aside would be eliminated in most years, although a voluntary form would continue.

If these proposals are agreed, set-aside is likely to disappear on most farms other than in exceptional years. Marginal producers, including some in Ireland, might find voluntary set-aside attractive, however. Area payments will continue to provide farmers with a strong motive to retain their overall area of arable land and to inhibit those in grassland areas from moving into crop production. The system therefore reinforces the existing trend towards more specialised production and militates against initiatives to encourage mixed farming for environmental or social reasons.

Many commentators suggest that the current proposals will lead farmers in northern Europe to maximise wheat production at the expense of other arable crops, such as oilseeds. If so, it would be a further step towards the dominance of this crop and the significant degree of reliance on agrochemicals which accompanies monocultures of this kind.

The Commission’s proposal will include powers for Member States to attach environmental conditions to area payments, both for arable crops and for set-aside. As in the beef and sheep regimes, these will be voluntary for Member States. Clearly, many will be inhibited from such an initiative through fear of disadvantaging their farmers in a competitive European market. Denmark has been in the lead in pressing for this change in the regulations, not least because a fierce national debate about effective means of reducing nitrate leaching from farmland. It would be appropriate for the Irish authorities to consider introducing a system of this kind within the Republic and, if so, which conditions might be best suited for meeting environmental objectives.

The Commission proposes a ceiling on the level of direct payments that can be made to farmers under all the relevant CAP regimes. In effect, there are already limits on the number of stock on which farmers can claim direct payments for sheep and cattle, and now cereals have been brought under the same discipline.

9.4. The Ewe Premium Scheme

Agenda 2000 does not include any proposal to amend the sheep and goatmeat regime. It is generally considered that the amendments made in 1992 have succeeded in halting the increase in ewe numbers. In several Member States sheep numbers have declined since a peak in the early 1990s. However, the European Commission has been under pressure to react to relatively specific requests from a group of Member States including Ireland, Finland, Greece, Italy, Portugal and Spain, either for technical amendments to the basic regulation underlying the regime, or for derogations for individual countries. In a recent report, the Commission rejects most of the proposals made by these Member States; it states clearly that it does not foresee the need to make any changes to the existing basic Regulation. Nonetheless, the Commission has the power to negotiate with individual Member States relatively technical arrangements which are permissible within this framework (CEC, 1997b).

One of two Irish requests to the Commission was for clearance to introduce a positive form of cross-compliance on the ewe premium in the Republic; producers would qualify for a special compensatory payment if they agreed to reduce ewe numbers to comply with environmental stipulations. This request was presented in December 1996 but was rejected by the Commission in its recent report which points out that area payments may be available to producers who reduce sheep numbers to desirable stocking levels under the REPS. In the Commission’s view, the amendment to the REPS provides the compensation mechanism sought by the Irish government without the necessity of changing the sheep regime. Payment of ewe premia is now conditional on farmers joining the REPS scheme.

This is a clear signal that the Commission does not want to allow positive cross-compliance within the framework of the sheepmeat regime with the costs falling wholly on EAGGF (European Agriculture Guidance and Guarantee Fund) It increases the pressure on the Irish government to resolve the overstocking issue through the REPS, and other national measures.

9.5. Rural Development Policy

The rural development proposals in Agenda 2000 are still rather vague and require some interpretation. Although there are no entirely new initiatives, a substantial reorganisation in the funding mechanisms for rural development is proposed, especially for areas outside the existing Objective 1. This could be of some significance for Ireland since it is possible that the Republic may face a reduction in the area of land within Objective 1. Significant changes in the Less Favoured Areas policy are also proposed.

In Objective 1 regions, rural development measures will be organised in a similar way as at present, drawing on funds from the EAGGF Guidance Section, as well as the ERDF and ESF. However, it is clear that the geographical extent of Objective 1 areas will be diminished and there has been much speculation about the likelihood of a contraction in Ireland. If this occurs, it will have implications for other policies as well. Funding for several measures affecting farmland in Ireland, including large scale afforestation, has been provided from EAGGF and other Structural Funds in the past within the frameworks of Objective 1. The flow of resources for such schemes could be expected to be reduced. Furthermore, Objective 1 regions are eligible for a higher rate of reimbursement from EAGGF for certain CAP measures than is available elsewhere. Under Regulation 2078/92, the reimbursement rate is raised from the normal level of 50 per cent to 75 per cent in Objective 1 regions. Loss of Objective 1 status would therefore require the Irish authorities to meet a larger proportion of the cost of the REPS and any other schemes proposed under the Regulation. This could give rise to a cut in the funds available for the scheme and a possible contraction in the number of agreements offered to farmers.

Objective 5b regions is planned to be phased out. While there will be some continued support for poorer rural regions, this will be concentrated onto a smaller area than at present. A new series of Objective 2 areas will include both urban and rural regions with structural economic problems, including declining rural areas selected on stricter economic criteria than now apply to Objective 5b areas. Effectively, the existing Objectives 2 and 5b are being combined and applied more selectively to the areas of greatest need, covering a smaller proportion of the Community’s population than the current Structural Fund regions. Whilst there are no Objective 2 or 5b regions in Ireland, because the whole country qualifies as Objective 1, this position could change after the year 2000. Certain rural areas which lose their Objective 1 status might become eligible for the new Objective 2. It should be noted that the EAGGF Guidance Section will continue to be one of the funds available in Objective 2 regions. The Commission has suggested that aid should be directed particularly at economic diversification, including support for small businesses, investment in human resources, training, environmental protection and better links between the countryside and local towns.

Outside the newly defined Objective 1 and Objective 2 regions, significant changes in the funding mechanisms for rural development are proposed. These may have only limited relevance to Ireland, depending on the extent to which the Objective 1 boundaries are redrawn. However, it is worth noting that a new system of regional programmes is proposed, bringing together the three accompanying measures, including the agri-environment Regulation 2078/92, the existing Objective 5a measures, including support for Less Favoured Areas and rural development measures of the kind now supported under Objective 5b. The only EU funding available would be from the EAGGF Guarantee Section. This already supplies the budget for the three accompanying measures, but in future would have to cover Objective 5a and rural development measures as well. It is not clear whether the rural development measures now dependent on resources from the European Regional Development Fund (ERDF) will qualify for aid from EAGGF in future or whether they would cease to apply outside the new Objectives 1 and 2.

Member States will be required to draw up multi-annual programmes for each of the relevant regions showing how funds would be deployed for the full suite of measures. Some of these measures are optional, as at present, whilst others will be compulsory, as Regulation 2078/92 is now. To some extent, Member States may be able to select measures which suit their own local circumstances from this menu of EU options, giving most weight to those which match local priorities. One important issue concerns the level of co-finance available from EAGGF for different measures. There has been discussion of different means of altering the level of EAGGF participation in line with cohesion principles, with support for some measures outside Objectives 1 and 2 falling well below 50%, for example. This is likely to influence the scale of any rural development programmes put forward by regions excluded from Objectives 1 and 2.

9.6. Less Favoured Areas and Agri-Environment Policy

Agenda 2000 lays some stress on the importance of the environment and the role of farmers in maintaining the countryside. Over the last year or so, the European Commission has been inclined to stress the necessity of maintaining subsidies for agriculture in order to manage the rural environment without being very clear about the precise role of individual policies. However, Agenda 2000 does propose that agri-environmental instruments will be given a prominent role in supporting sustainable development in rural areas and meeting society’s environmental demands and concludes that measures for maintaining and enhancing environmental quality should be reinforced and extended. The significant elements from the viewpoint of this study are as follows:

Area payments to replace headage payments in Disadvantaged Areas

Headage payments will be abolished and compensatory allowances will be made on a per hectare basis. This is likely to prove politically controversial in Ireland, since the old system of headage has been in operation since 1975, and there are fears that farmers may lose out under the new system. The justification for the switch from headage to area supports is based on need to reduce environmental damage, e.g. from overgrazing.

Environmental conditionality in Disadvantaged Areas

The new compensatory allowances will be made conditional on the need to safeguard the environment and preserve the countryside, in particular by sustainable farming. Sustainable farming is to be defined for different areas, and so the Department of Agriculture and Food would be given scope to make such definitions. One model for this approach is the ‘prime l’herbe’ scheme in France, which obliges farmers to maintain grazing, comply with limits on stocking density and manage certain features of the farm in order to receive a flat rate per hectare payment with minimum bureaucratic procedures.

Compensation for adhering to environmental legislation in Disadvantaged Areas

The new compensatory allowances can take into account the costs to and income foregone by farmers resulting from their obligations under environmental legislation. In Ireland’s case, this would be relevant to the possible impacts of restrictions on farming in Special Areas of Conservation and Special Protection Areas (see Chapter 1.3).

Differentiation of payments in Disadvantaged Areas

The allowances will be differentiated to take into account the natural disadvantages of a particular region, its development objectives and its particular environmental problems. It appears that the Commission’s intention is to provide a clearer environmental rationale for LFA payments and to distinguish general aid for low intensity systems from more targeted assistance for farms accepting relatively demanding conditions under the agri-environment measures.

Stronger agri-environment measures

The agri-environment measures are to be reinforced and awarded an increased budget. It is likely that the Commission will encourage Member States with below average expenditure on agri-environment schemes to enlarge their programmes and this may be the first priority for the enlarged budget. There is an emphasis on targeted measures which call for an extra effort by farmers to deliver substantive environmental benefits, including the maintenance of semi-natural habitats and conversion to organic farming. There is a clear signal that schemes which make minimal environmental demands on participating farmers may not be appropriate for agri-environment funding in future. Indeed, Member States may be encouraged to transfer some schemes into a form of support for Less Favoured Areas.

Continued support for afforestation

The Commission intends to continue its robust support for afforestation, justifying it on the basis of ‘contributing to the diversity of rural areas’ and providing a sink for carbon dioxide. The proposed forestry measures differ little from the previous forestry regulation (EEC Regulation 2080/92), and there appears to be a lack of appreciation in the Commission of the need to promote environmentally sound afforestation rather than plantations of fast growing exotic species such as Sitka spruce, which dominates the Irish planting programme. Aid for afforestation shall not be given to fast growing species cultivated in the short term unless it is adapted to local conditions. However, fast growing species are not defined, and presumably this is left to Member States to interpret. We suggest that the Heritage Council should devote some attention to the new forestry proposals, and particularly how they might be improved environmentally and made more harmonious with agri-environmental objectives.

Other measures

The Commission intends to support some measures which could be regarded as contradictory to the new emphasis on sustainable rural development and environmental protection. ‘Land improvement and re-parcelling’ are proposed for support, as well as ‘preservation of the environment and management of rural areas’. There should be some scope at national level to direct EU support away from potentially environmentally damaging activities and targeting support to environmental protection. This will depend on the imaginative input of policy makers, state bodies such as the Heritage Council and the various non-governmental interest groups (NGOs).

Programming

EU support for rural development measures will be in the form of multi-annual programmes. In drawing up its rural development programme, Ireland would have to make a prior appraisal of the economic, environmental and social impacts that the programme is likely to have. This should give the opportunity to further focus support towards environmentally beneficial activities. How this will succeed depends on the commitment of the Government to environmental sustainability and the involvement of Dúchas, the Heritage Council and the relevant NGOs.

9.7. Conclusions

References

Commission of the European Communities (1997a), Agenda 2000: For a Stronger and Wider Union, European Commission, Luxembourg
Commission of the European Communities (1997b), Report from the Commission to the Council on Sheepmeat: Second Commission Report to the Council on the Functioning of the Ewe Premium, COM(97)679, European Commission, Brussels
Commission of the European Communities (1997c), Report from the Commission on the Application of Council Regulation (EEC) No 2078/92 on Agricultural Production Methods compatible with the requirements of the Protection of the Environment and the Maintenance of the Countryside, COM(97)620 final, European Commission, Brussels
European Commission (1998) Agenda 2000: The Future of European Agriculture. Directorate-General of Agriculture (DG VI), Brussels. Web address: http://europa.eu.int/en/comm/dg06/
Government of Ireland (1997b) Sustainable Development: A Strategy for Ireland. Stationery Office, Dublin.
Winter, M and Gaskell, P (1998) From MacSharry to Cork and Beyond: CAP Reform, Environmental Agriculture, Integrated Rural Development, paper for RGS-IBG Annual Conference, Kingston, January 1998