For an EU Common Agricultural Policy serving the public good after 2020: Fundamental questions and recommendations

Abstract

Agriculture fulfills a variety of societal functions: it mainly produces food but also biomass used for energy and materials; it shapes agrarian landscapes and biotopes, and determines the level of animal welfare. In addition, it influences socio-economic structures. In order to promote the societal functions of agriculture, the state should establish framework conditions in such a way that the entrepreneurial activities of farmers simultaneously serve the public good. This can be achieved through the imposition of obligations and the creation of incentives. The Common Agricultural Policy
(CAP) of the European Union (EU) is of major importance in this context.

The present CAP, however, is failing to tackle current and future challenges in the policy field of agriculture and rural areas. Since its 2003 reform, the CAP has basically been at a standstill. Due to insufficiently developed incentive systems as well as insufficient regulatory enforcement, numerous important German and European agricultural objectives regarding climate, water and biodiversity conservation have not and cannot be achieved. Incentive systems to improve animal welfare are almost non-existent, resulting in a considerable need for action. Major action is also required when it comes to developing rural areas.

Important decisions about the CAP will be taken in the near future. They will shape the CAP up to the end of the next decade. Hence, there is a window of opportunity to tailor the CAP to meet the current and future challenges that agriculture and rural areas are facing, thereby developing it into a policy serving the public good. This would support the CAP’s societal acceptance in the long run and contribute to a reliable agricultural policy framework for the next decade. The Scientific Advisory Board on Agricultural Policy, Food and Consumer Health Protection (WBAE) recommends
reorienting the CAP towards a policy for agriculture and rural areas that consistently serves the public good.

Such a reorientation requires overcoming the one-sided focus on support for agricultural incomes as demanded by much of the agricultural profession and endorsed by many political decision-makers. Currently, around 73 % of the European CAP funds (around EUR 40 billion annually) are paid to agricultural enterprises as area-based direct payments (DPs). Many of these DPs are specifically intended to serve income purposes but they cannot be justified from a distributional perspective: they are neither oriented towards maintaining the societal functions of agriculture nor to meeting farmers’ personal or operational financial needs. Moreover, a large part is passed on to landowners. Consequently, the financial resources tied up in DPs cannot be used to remunerate public services. This is all the more true since from an environmental perspective the promotion of so-called ecological focus areas (greening) has proven to be largely ineffective. Instead of continuing to spend a large share of the CAP budget on DPs not tailored to the needs and provision of public services, there is an urgent need to (further) develop adequate governance and funding instruments for the remuneration of public services rendered by agriculture.

In its current form the CAP has serious shortcomings in terms of its strategic orientation, its instrumentation and in producing disproportionate administrative burdens. The urgently needed substantive and structural reorientation would inevitably affect long-standing privileges. Since these are often perceived as justified in the sector, a consistent reorientation of the CAPis dependent on political assertiveness. Postponing the necessary reorientation of the CAP, however, would exacerbate both the problems to be addressed and the need for operational adjustments at farm level,
leading to additional adjustment costs. Though often claimed, reliable long-term framework conditions cannot be achieved by maintaining the status quo. On the contrary, reliable framework conditions can only be established through a long-term orientation of the CAP towards public interest objectives that enjoy broad societal support.

The WBAE recommends transforming the CAP into a policy that consistently serves the public good. Specifically, with regard to decisions taken at EU level and for national implementation, the WBAE makes the following recommendations to the German Federal Government:

I) Rebalance the CAP objectives and pursue them consistently: (1) identify and operationalise the challenges related to environmental and climate protection, animal welfare and rural development; in particular, consistently implement the missed agriculture-related environmental objectives and orient the CAP more than in the past towards these objectives, (2) develop adequate governance and funding systems for the provision of public services and compliance with obligations in the field of agriculture, (3) align the CAP with the maintenance of the societal functions of agriculture (thereby supporting the interpretation and implementation of the income objective in accordance with the established case law of the European Court of Justice), and (4) initiate and actively shape a broad societal discourse (beyond the current reform decisions) on the objectives and mechanisms of a CAP that serves
the public good.

II) Rethink the CAPs architecture and revise competences: (1) untie the two CAP funds
(European Agricultural Guarantee Fund - EAGF - and European Agricultural Fund for Rural Development - EAFRD) in particular in terms of financing rules, measures and
implementation mechanisms, (2) support the path outlined by the European Commission in its November 2017 Communication towards greater decentralisation of the CAP, (3) in the long run, only finance market regulations and selected parts of climate and biodiversity protection (peatland protection and Natura 2000) to 100 percent from the EU budget, (4) extend support measures for further public services and shift competences regarding their design more to the Member States; these measures should be consistently co-financed by the Member States and programmed by them within a framework of national or regional strategic plans, and (5) develop appropriate incentive, control and sanctioning systems in order to support ambitious target setting by the Member States within the framework of their own subsidiary responsibility.

III) Reduce the administrative burden to an appropriate level: (1) significantly reduce the complexity of the legal framework and the regulatory depth of the CAP by scaling back and codifying the EU implementation provisions, (2) introduce the single audit principle, (3) no longer require Member States to prove the regularity of expenditure, but provide performance statements and checks on the basis of output and result indicators, and (4) promote administrative efficiency through increased use of digital technologies and adequate monitoring systems.

IV) Phase-out direct payments and other payments not oriented towards societal objectives: (1) phase-out existing DPs over a period of about 10 years and grant payments to farmers only in areas where the management of land and related public services would otherwise be at risk, (2) for the transition period, in which there are still DPs, i) implement cutbacks of the EU agricultural budget by reducing DPs instead of reducing expenses for measures currently programmed via the EAFRD, ii) extend the possibility of reallocating financial resources from the EAGF to the EAFRD beyond the current 15 %, iii) allow for national co-funding of DPs and nationally funded top-ups in order to increase the level of acceptance for exiting DPs, iv) identify further options to bring Member States on board that are critical of co-funding DPs (e.g. higher EU co-funding rates for Member States with currently below-average DPs), (v) strictly limit the option of coupled DPs to the provision of narrowly defined public services and base the scale of support on the costs of providing these public services, (vi) end capping
or degression of DPs as well as support for the first hectares and young farmers within the EAGF, and (3) limit investment support exclusively to the pursuit of public interest objectives such as an increased level of environmental protection or animal welfare.

V) Further develop measures to remunerate agriculture’s environmental and climate
protection and animal welfare-related public services: (1) progressively develop and finance a new European policy area under which the European Commission, via tendering procedures, purchases greenhouse gas emission reductions through peatland protection, (2) allocate a separate share of the budget at European level for the promotion of biodiversity protection in open landscapes within the Natura 2000 nature conservation network, (3) further develop existing agri-environmental and climate protection measures, as instruments tailored to different habitat types, and endow them with a larger budget; in particular i) introduce more incentives to spatially govern environmental and climate protection measures, e.g. premiums for the linking up of priority areas for biodiversity differentiated according to soil quality, ii) further develop result-based remuneration models, iii) step up the elaboration of collective approaches to environmental and climate protection, (4) make administrative and monitoring provisions for agri-environmental and climate protection measures more efficient, (5) require Member States to allocate at least 30 % of the current DPs to targeted agri-environmental and climate protection measures in their strategic plans, (6) abolish greening and cross compliance while simultaneously tightening regulatory law and strengthening its enforcement, and (7) further develop options to remunerate animal welfare services in the context of the CAP.

VI) Understand risk management as an entrepreneurial task: (1) clearly distinguish policy measures to support the risk management of agricultural enterprises from income policies and do not present income-motivated DPs as a risk management instrument, (2) place more emphasis on promoting knowledge transfer in the area of risk management, (3) enable the saving of financial resources in the EU crisis reserve, (4) review the justification for and the design of remaining state "safety nets", e.g. intervention prices, and (5) communicate significant changes in the political environment in a timely manner.

VII) Strengthen knowledge systems and innovations: (1) further develop the European
Partnership for Innovation in Agriculture, (2) employ research funding to enable agricultural enterprises to adapt to changing conditions and societal requirements, and (3) make greater use of research results and innovations through cross-national communication.

VIII) Understand and strengthen rural development as a cross-sectoral task: (1) if rural
development remains an area of the CAP, continue providing sufficient opportunities for the implementation of measures reaching beyond the agricultural sector, (2) focus measures more than before on those Member States and regions in which the need for action with regard to balanced spatial development in the EU is particularly high, and (3) improve the harmonisation of all policies with spatial impacts within the framework of the European Structural and Investment Funds.

IX) Better coordinate agricultural and food policy: (1) routinely review the food and human health implications of the CAP, (2) clarify conceptual questions regarding the complementary (both supply and consumption driven) pursuit of public interest objectives in terms of environmental and climate protection and animal welfare, (3) further develop consumeroriented food policy instruments in Germany and deploy them significantly more than in the past to pursue public interest objectives regarding environmental and climate protection and animal welfare, and (4) strengthen competences at the political and administrative level to understand the sector as an integrated food system and develop policies to make this system more sustainable.

Hence, a CAP reform is strongly required. In addition, the WBAE observes that Germany does not use the scope that the present CAP offers Member States to allocate resources to societal objectives to full capacity. Germany should use the existing and prospective future scope for action for increasing orientation towards the common good.

The WBAE makes the following recommendations to the German Federal Government: (1) For the remaining period in which there are still DPs i) increase the reallocation rate from the first to the second pillar of the CAP to the 15 % currently possible under EU law, ii) use the option of coupled DPs with a strict focus on the provision of closely defined public services and base the level of support on the costs of providing these services, (2) consistently orient all support measures of the Joint Task "Improvement of Agricultural Structure and Coastal Protection" (GAK) covered by the national framework regulation towards the public good, (3) use the GAK for a national expansion of the remuneration of animal welfare services, and (4) implement the planned GAK specific framework plan "Promotion of the development of rural areas" in a manner conducive to the public good.

Finally, the WBAE concludes: The decisions to be taken in the near future at EU level will shape the CAP up to the end of the next decade. The German Federal Government should see the CAP reform as a great opportunity and use the CAP reform and its subsequent implementation in Germany to free the CAP from its income orientation and transform it into a policy that consistently serves the public good. A CAP oriented towards the public good would help agriculture to meet the challenges ahead and support the CAP’s long-term societal acceptance, thereby creating a reliable agricultural policy framework for the next decade and beyond.