Can the new CAP help EU agriculture to meet the targets in the European Green Deal?
It is no coincidence that the key items on the negotiation table between the European Parliament and the Council regarding the new European Union Common Agricultural Policy (CAP) related to environmental measures to make the Union’s future agricultural policies greener and more sustainable. To what extent can the new CAP contribute to the ambitious targets of the European Green Deal and its related strategies? Alan Matthews is Professor Emeritus of European Agricultural Policy in the Department of Economics at Trinity College Dublin and a reputed expert on the EU’s CAP, reflected in the many articles he has written on the subject. Below is his analysis on how well the new CAP’s framework is designed to accelerate a green transition in EU’s farming.
By Professor Alan Matthews, Department of Economics, Trinity College Dublin, Ireland
Linking the European Green Deal strategies with the new CAP
The European Commission launched its proposal to reshape the Common Agricultural Policy (CAP) post 2020 on 1 June 2018. This proposal followed a Commission Communication The Future of Food and Farming published in November 2017 that set out the main principles for this reform. The Communication noted that the EU is strongly committed to action on the COP21 Paris Agreement and the United Nations Sustainable Development Goals. It further noted that the CAP underpins the policies spelled out in the 2030 Climate and Energy framework, which calls upon the farming sector to contribute to the economy-wide emission reduction target of 40 % by 2030 relative to 1990. The Communication underlined that a modernised CAP should enhance its EU added value by reflecting a higher level of environmental and climate ambition, and address citizens’ concerns regarding sustainable agricultural production.
On 1 December 2019 a new Commission took office and launched its flagship proposal for a European Green Deal. This injected a new sense of urgency into the debate. The Green Deal was presented as a new sustainable and inclusive growth strategy, seeking to turn urgent challenges into opportunities. Its headline target that the EU should become a climate-neutral region by 2050 with net zero emissions by that date has now been enshrined in the European Climate Law, together with a more ambitious reduction target for 2030 of at least a 55 % reduction in net GHG emissions compared to 1990.
But its coverage is broader than climate stabilisation alone. In the framework of the Green Deal, the Commission adopted several communications addressing issues relevant to agriculture and rural areas, including the Farm to Fork (F2F) and Biodiversity Strategies published in May 2020. The F2F Strategy recognised the need for a fundamental transformation in our food system and, for the first time in an EU context, recognised that the food chain needs to be addressed as a whole, with economic, environmental and societal concerns treated in parallel. As Commissioner Kryiakides has stressed on several occasions, business as usual is no longer an option.
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The European Green Deal and its related strategies have set ambitious targets when it comes to agricultural policies. These ambitions must be addressed by the new CAP, following the political agreement on the future CAP reached by the Council and Parliament at the end of June 2021. While the overall aim of the what — climate neutrality by 2050 — is now legally binding, the how of realising these ambitions remains open. How will the new CAP framework contribute to achieving the Green Deal targets?
The new CAP legislative framework proposes a new delivery model that provides Member States with greater flexibility, and a new green architecture with mandatory standards, aimed at promoting environment and climate friendly practices by farmers. However, not all the Commission’s proposals to strengthen the mandatory standards were adopted and related eco-schemes run the risk to be used as income support. Much will depend on the Member States’ Strategic Plans, which will set out their intervention strategies to achieve the CAP goals. There are concerns related to Member State’s capacity to design such strategies, the extent of their ambitions, and the availability of data to monitor implementation.
The latter also relates to the CAP governance structure. The Commission must approve these plans but whether its preferred approach of structured dialogue rather than wielding the threat of withholding approval will generate the desired level of ambition remains to be seen. The Commission has levers such as the ‘no backsliding’ principle and has requested Member States to provide national targets in their Plans for six of the most important objectives in the Farm to Fork Strategy, but the CAP political agreement is clear that approval can only be based on legally binding obligations. Monitoring tools should provide insights and possible adjustments, but Member States consider the pre-allocated CAP budget envelopes as their money, regardless of quality delivered.
While the 2021–2027 CAP budget may not have decreased in nominal terms, Green Deal targets will initially have negative effects on farmers’ incomes. Although politically sensitive, the classic negative externalities of farming for the environment and climate must be internalised for both farmers and consumers, which is also in farmers’ own interests in the longer term. New income models can become a win-win situations both for farmers and environment, also with the aid of technology and innovation using both nature-based and high-tech solutions to address climate and food security concerns.
The CAP political agreement weakened several of the Commission’s original CAP proposals. But several elements remain that will strengthen its effects in addressing environment and climate goals compared to the old CAP. An essential litmus test will be the contents of the Member States’ Strategic Plans, still to be published. Then the real potential and intentions of Member States to address the how regarding environment and climate goals will appear.
The Farm to Fork and Biodiversity Strategies include a range of ambitious targets intended to put the EU food system on a transformative path to greater sustainability. Those with the greatest relevance to agricultural production include the following:
- agriculture to contribute to a reduction of at least 55 % in net GHG emissions by 2030;
- reduction by 50 % of the use and risk of chemical pesticides and the use of more hazardous pesticides by 50 % by 2030;
- a reduction of nutrient losses by at least 50% while ensuring that there is no deterioration in soil fertility. This will reduce the use of fertilisers by at least 20 % by 2030;
- a reduction by 50 % of sales of antimicrobials for farmed animals and in aquaculture by 2030;
- reaching 25 % of agricultural land under organic farming by 2030;
- a minimum 10 % area under high diversity landscape features; and
- 100 % access to fast broadband internet in rural areas by 2025.
These targets were announced in Commission Communications. While the broad direction of travel was welcomed by the Council in its conclusions on the Farm to Fork and Biodiversity Strategies in October 2020, it did not explicitly endorse the specific targets. It took note of the reduction targets in the F2F Strategy and called for legislative proposals to be based on scientifically-sound ex-ante impact assessments. The European Parliament has (in June 2021) yet to adopt its formal position on the Strategy. Thus, it is important to underline that the specific targets have, until now, no legal or political legitimacy. Establishing legally binding targets would, under the Interinstitutional Agreement on Better Law-making, require an impact assessment. The Commission sees no need for an impact assessment of the F2F Strategy although a study by the Joint Research Centre is under preparation, but it has indicated that impact assessments will be prepared in connection with specific elements in the Strategy where legislation is required.
The fact that the Commission’s CAP draft legislative proposal was published prior to the more ambitious targets set out in the Green Deal raises the question whether the Green Deal ambitions can be realised within the parameters of what the Commission had earlier proposed. In an analysis accompanying the publication of the Farm to Fork Strategy in May 2020, the Commission concluded that its reform proposal was compatible with the Green Deal provided that key aspects were retained during the legislative process. It noted that ring-fencing funding for eco-schemes in Pillar 1 — the source of direct support payments to farmers — and integrating animal welfare and antibiotics legislation would strengthen the legal texts and help achieve the ambitions of the Green Deal. Among other initiatives, it proposed to establish ’a structured dialogue for preparation of CAP strategic plans, including by providing recommendations to each Member State in respect of the nine CAP specific objectives, before the draft CAP strategic plans are formally submitted.’ It floated the idea that the incorporation of the recommendations in the CAP Strategic Plan would be part of the criteria that the Commission would use in the assessment to approve each of the CAP Strategic Plans. It also proposed to verify at the time of approval and modification of the CAP Strategic Plans the coherence with the aggregated Green Deal targets.
Against this background, I assess the likelihood that the new CAP legislative framework will ensure achievement of the Green Deal targets, one of the top, if not the perceived top priority of the Von der Leyen Commission. For space reasons, the discussion is limited to four topics: the robustness of the legislative framework itself; the likely ambition of national CAP Strategic Plans; the rigor of the governance process for approving and monitoring these Plans; and the extent to which adequate account has been taken of political economy considerations in implementing the Green Deal.
Is the legislative framework robust enough?
The Commission proposal introduced two main novelties relevant to the Green Deal: a new delivery model that gives Member State greater flexibility to pursue those CAP specific objectives they find most relevant to their needs within a performance framework, and an enhanced green architecture. The new green architecture consists of:
- mandatory standards that all farmers in receipt of CAP payments must observe;
- a new eco-scheme to reward farmers who adopt more environment and climate friendly practices on a voluntary basis funded as part of Pillar 1 of the CAP;
- the continuation of the voluntary agri-environment-climate measures;
- support for productive and non-productive investments; as well as
- ‘soft’ infrastructure such as training and advice, all in Pillar 2 of the CAP, its rural development policy.
The Commission proposed to raise the minimum compliance standards that farmers would be required to observe to be eligible for CAP payments by adding new mandatory standards and strengthening existing ones. In the final legislation, many of the innovative mandatory elements were either removed (e.g., the proposal that farmers would be required to prepare nitrogen and phosphorus budgets using a Farm Sustainability Tool for Nutrients) or watered down (e.g., in the Commission’s original proposal, all farms including grassland farms would have been required to have a minimum share of non-productive features, but this in future will again be confined only to arable farms over a certain size). Still, Member States have the option to set additional standards provided they are relevant to the objectives identified in the relevant section of the legislation (Annex III of the CAP Strategic Plans Regulation) and some of these objectives can be advanced through other CAP measures, e.g., eco-schemes could be used to increase the share of non-productive features beyond the legislated minimum.
Eco-schemes can reward farmers for practices that go beyond these mandatory standards and at least 25 % of the Pillar 1 budget has been allocated for this purpose. The practices supported can address Green Deal targets through actions such as lower input use, creation of biodiversity habitats, conservation tillage, or carbon farming. Eco-schemes have a more flexible funding model than agri-environment-climate measures in Pillar 2. Many practices can be rewarded through an additional payment to the basic income support payment rather than being limited to compensating for costs incurred and income foregone. This option has been applauded because it could enhance the attractiveness of enrolling in eco-schemes for more intensive farms, but it also may allow schemes that are primarily intended to provide income support under the guise of being an environmental scheme.
Will Member State Strategic Plans be ambitious enough?
The legislative framework, even if weakened in certain respects compared to the Commission draft proposal, nevertheless provides a set of tools that Member States could use to pursue the Green Deal targets. Their level of ambition will be set out in their CAP Strategic Plans. Based on a needs assessment, these plans will set out how each Member State intends to address the various CAP specific objectives set out in the legislation and will describe the intervention strategy to achieve its goals. This exercise in strategic planning is a familiar part of rural development programming under CAP Pillar 2 but is now extended to all CAP expenditure.
Although the Commission is providing technical assistance to Member States in preparing their strategic plans, questions have been raised regarding the capacity of Member State administrations to prepare high-quality plans. The responsible ministries may have an ambivalent attitude to the value of strategic planning. Even if the will is there, strategic planning requires a different mind-set and different skills and capacities for ministry officials, and there may be limited human resources and institutional capacity to undertake strategic planning. Strategic planning requires setting targets, measuring progress against these targets, and making adjustments where it is clear progress is off course. There will be a natural temptation to set the level of ambition low, to avoid the outcome that targets are not met. In the case of some interventions, including related to some environmental objectives, data availability may be inadequate to support evidence-based policymaking.
Are governance structures rigorous enough?
The safeguard in the legislation against weak or unambitious strategic plans is the requirement that these plans must be approved by the Commission. Draft plans should be submitted by the end of 2021. The Commission can then make observations on the plans to the Member States. Member States should respond to these observations but are not obliged to adopt the recommendations if they can provide a reasoned explanation for their preferred approach. The threat that the Commission will refuse to approve a plan is theoretical, and the Commission has made clear it does not intend to use this nuclear option, preferring instead its structured dialogue with Member States to nudge the plans in a more ambitious direction.
The Commission can rely on the ‘no backsliding’ principle in Article 92 of the CAP Strategic Plan Regulation, obliging Member States in their national plans to show an increased ambition than at present regarding environmental- and climate-related objectives. Member States must also show how the plans make a specific contribution to achieving the objectives of various pieces of EU environmental, climate and energy legislation listed in Annex XI to the Strategic Plan Regulation and addressing biodiversity, water and air quality, greenhouse gas emissions, energy and pesticides.
As part of its structured dialogue with Member States in the preparation of their plans, the Commission issued recommendations to each Member State in December 2020, outlining specific priorities that it felt should be addressed in their plans. These recommendations also covered environmental and climate objectives addressed in the Green Deal. The Commission has asked Member States to determine specific national values for six F2F and Biodiversity Strategy targets and to align their strategic plans with these targets (though a notable omission is a requirement for a target for reductions in agricultural GHG emissions). The Commission now accepts that its approval of the Plans will be based on the criteria set out in the Strategic Plans Regulation but that its recommendations will be ‘an important reference’. On this point, the AGRIFISH Council of Ministers had pushed back strongly. The Council’s view has been that approval must be based solely on any legal requirements, and that the recommendations should serve simply as additional guidance for the elaboration of strategic plans. This principle is now reflected in the political agreement on the Strategic Plan Regulation which states that ‘[…] The assessment [of the Plans] shall exclusively be based on acts which are legally binding on Member States.’
Plan approval is just one element of governance. Monitoring progress and adjusting strategies in the light of outcomes is equally important. The draft legislation proposed annual monitoring of progress against milestones and targets. Plan targets according to the legislation will be set for result indicators but not necessarily in terms of impacts (though, as noted, the Commission has requested national targets for six impact indicators related to the Green Deal). A result indicator measures, for example, the share of agricultural area under management contracts to sequester soil carbon, but not necessarily the amount of carbon that will be sequestered because of these actions. The political agreement on the future CAP limited performance review to two bi-annual reviews in 2025 and 2027 on a much-reduced set of indicators, not covering all interventions or full expenditure. Where the results achieved are significantly below the Plan milestones, the Commission can ask that Member State to submit an action plan setting out the remedial actions it intends to take. Member States have an interest to comply because otherwise they risk not to be able to draw down on all their pre-allocated funds.
How these governance arrangements will work in practice remains to be seen. The legal basis for Commission oversight and its possibilities to intervene to ensure greater ambition in the final legislation appear relatively weak in the face of the strong pressures we can expect within Member States to maintain the status quo. Ultimately, the major weakness in the governance framework is that Member States’ CAP budget envelopes are pre-allocated during the negotiations on the EU’s Multi-annual Financial Framework (MFF). This means that the resources they receive are not influenced by the quality of their Strategic Plans nor by the level of environmental and climate ambition that they set for themselves.
Are political economy issues adequately addressed in the Green Deal?
To achieve the Green Deal targets for agricultural production will require millions of farmers across the EU to change their farming practices and the way they manage their land. The CAP budget (including the contribution to rural development from the Next Generation EU fund) was maintained in nominal terms in the 2021–2027 MFF but farmers are aware that, at least in the short-run, the Green Deal targets will have a negative effect on their income. Limits on input use, the requirement to set aside land for nature, and higher animal welfare standards will likely raise their costs. And they will have to work harder for the direct payments from the CAP budget that account on average for 50 % of the entrepreneurial income from farming across the EU. As many farms currently struggle with low profitability, these additional requirements are viewed with apprehension. Farm groups argue that they are willing to do more for the environment and climate but only if they are compensated for this (see also page 117).
Green Deal targets are a necessary step on the path to a more sustainable food system. They are needed to redress the environmental damage caused by imbalances in nutrient flows, to reverse the ongoing loss in biodiversity, to prevent destabilising change in the climate system, to limit material resource use and to move towards a more circular economy, and to improve human health outcomes from the food system. These are classic negative externalities that have not been fully integrated into farm-level decision-making. Farmers themselves are at risk from the consequences of some of these developments. Biodiversity loss, soil degradation and weather extremes will impose increasing costs on farmers in any case that might be avoided or minimised by taking early action now. The counterfactual in assessing the impact of the Green Deal on production and incomes is not the continuation of business-as-we-know-it.
Nonetheless, if the Green Deal is to succeed and not give rise to political counter-movements that reject the need for change, the potential trade-off between environmental and climate action and farm incomes needs to be acknowledged and addressed. The Green Deal can create new income streams for farmers, e.g., through the production of industrial raw materials for the bio-economy, biomass for energy, or carbon farming as a new business model. It should also be emphasised that improving resource efficiency (e.g. nitrogen use efficiency) and promoting a circular economy (thus valorising waste streams) can be a win-win situation both for farmers and the environment.
The future market context will also be important. World market prices for agricultural commodities (in June 2021) reflect a tight supply and demand situation. It would make the green transition easier if this situation were to continue over the medium-term and if it were reflected in higher producer prices within the EU. More generally, internalising the costs of health and environmental externalities that are currently mostly borne by taxpayers cannot all be borne by farmers. Consumers and other actors in the food chain will also be expected to contribute by increasing the price they pay for food at the farmgate. The F2F Strategy has an objective to preserve the affordability of food, while generating fairer economic returns in the supply chain. The Commission intends to bring forward a legislative proposal for a framework for a sustainable food system before the end of 2023 which, among other issues, will examine how farmers can benefit from sustainable practices, for example, through certification and labelling.
Other steps should be taken to ease the green transition. Much greater investment in research and innovation is needed to enlarge the toolbox of environmentally-friendly practices available to farmers. Innovation is needed in nature-based solutions, data- driven farming, as well as more high-tech solutions based on molecular genetics, vertical farming, and alternative proteins. Existing income supports under the CAP could be better targeted to protect more vulnerable farming groups, making use of the various redistributive instruments included in the new CAP legislation. The way trade policy could be used to support the green transition needs to be reviewed. A joint statement by the Council, Parliament and Commission attached to the political agreement on the next CAP confirmed that it was appropriate to require that imported agricultural products comply with certain production requirements so as to ensure the effectiveness of the health, animal welfare and environmental standards that apply to agricultural products in the EU and to contribute to the full delivery of the European Green Deal and Farm to Fork Strategy communications. The Commission has been requested by the Council and Parliament to provide a report by June 2022 outlining the rationale and legal feasibility of applying EU health and environmental standards to imported agri-food products.
New CAP addresses green transition needs… but proof of the pudding is in the eating
The European Green Deal and its associated communications emphasise the importance of accelerating the transition to more sustainable farming and food systems in the EU. The potential impact of the Green Deal can be evaluated at two levels. One level looks at the proposals and targets set out in the Green Deal documents and asks whether these proposals are sufficiently coherent and ambitious to address the pressing environmental, social and health challenges linked to our food system. For example, it can be questioned whether the F2F Strategy adequately addresses the question what is the safe operating space for EU livestock.(1) The second level, and the focus of this contribution, is to ask whether the new CAP legislative and budgetary framework is adequate to accelerate the necessary green transition.
Some provisions included in the Commission’s draft legislative proposal have been removed from the final legislation, which weaken its impact. Nonetheless, the new legislation does contain new instruments and provisions that will strengthen the effectiveness of the CAP in addressing environmental and climate goals as compared to the existing CAP. In this sense, the new CAP represents a continuation of the incremental and path-dependent reform process that has characterised CAP reforms to date.
Whether this potential for greater effectiveness is realised or not will depend greatly on the design and ambition of national CAP Strategic Plans. Draft Plans should be submitted by the end of 2021 following which the approval process will take several months. The significance of the new CAP for the European Green Deal will only become clear when the final Plans are published and can be assessed. Here the Commission has flagged that the F2F Strategy will be reviewed by mid-2023 to assess whether the action taken is sufficient to achieve the objectives or whether additional action is necessary. So depending on how seriously Member States address sustainability needs in the new CAP, they may find themselves back at the negotiation table in two years’ time to discuss opening up the new CAP…
(1) Buckwell, A., and E. Nadeu, What Is the Safe Operating Space for EU Livestock? Brussels (RISE Foundation), 2018.
This article was first published on the 2/2021 issue of the ECA Journal. The contents of the interviews and the articles are the sole responsibility of the interviewees and authors and do not necessarily reflect the opinion of the European Court of Auditors.
