This post is written jointly with Dr. Norbert Röder of the Thünen Institute Federal Research Institute for Rural Areas, Forestry and Fisheries.
Eco-schemes (schemes for the environment and climate) are the main innovation in the green architecture of the CAP proposed by the Commission in its draft CAP Strategic Plan Regulation in June 2018. As mandatory instruments, they would oblige Member States to allocate a proportion of their Pillar 1 payments to schemes that would directly benefit the environment and climate. Participation would be limited to genuine farmers but would be voluntary for them.
Both the Council and Parliament have proposed amendments to the Commission’s original proposal. On the one hand, the amendments would ring-fence a minimum budget for eco-schemes at 20% (the Council) or 30% (the Parliament) of Pillar 1 national envelopes for direct payments. On the other hand, the amendments would greatly enlarge the scope of eco-schemes. Under the Commission’s proposal, these are to be used to achieve the CAP specific goals (d), (e) and (f) related to climate and environment. The Council proposes that eco-schemes could also support practices that address employment and growth including the bioeconomy and forestry as well as health, food waste and animal welfare (specific objectives (h) and (i)). The Parliament also wants to add animal welfare and would go even further by including ‘boost’ schemes that would address agricultural competitiveness (specific objectives (a), (b) and (c)).
The final design of eco-schemes will not be known until the trilogue negotiations are completed, sometime into next year. Nonetheless, Member States are currently in the early stages of trying to draft their national (and regional) CAP Strategic Plans in the light of the nine CAP specific objectives set out in the draft legislation. Strategy planning is hard at the best of times, but it is particularly difficult when there is uncertainty around how a major item in the CAP budget can be used to contribute to these objectives. Member States have thus insisted on guidance from the Commission on those interventions it thinks might best be suited to eco-schemes. The Commission has responded with a series of documents: a non-paper on four flagship eco-schemes as announced in the Farm to Fork Strategy in October 2020; a presentation to the Council Working Party on Horizontal Agricultural Questions in November 2020 based largely on an earlier DG AGRI presentation to an ENRD workshop in November 2019; and a Questions and Answers document presented to the Management Committee on Direct Payments in December 2020.
In this post, we evaluate the guidance the Commission has given, in particular its proposal for four flagship eco-schemes. Our assumption is that the eco-schemes will remain focused on climate and environmental objectives. If the scope of eco-schemes is widened in the way suggested by the Council and Parliament, then the practices supported would have to be rethought. Furthermore, our focus is on the practices that might best be supported by eco-schemes.
Various other issues that have been raised in the debate around eco-schemes will not be taken up in this post. These include issues such as:
how payment rates should be set;
whether the payments scheme should be management-based or results-based;
how to ensure additionality;
how to address the consequences of potential variability in enrolment in eco-schemes for the full drawdown of Pillar 1 national envelopes;
how to ensure coherence between the different elements of the green architecture and to avoid double funding, and
whether ring-fencing of eco-schemes in Pillar 1 should also take the level of spending on AECMs in Pillar 2 into account.
Commission guidelines for eco-schemes
The Commission’s draft Strategic Plans Regulation notes that “Member States may decide to set up ecoschemes for agricultural practices such as the enhanced management of permanent pastures and landscape features, and organic farming. These schemes may also include ‘entry-level schemes’ which may be a condition for taking up more ambitious rural development commitments” Two things are worth highlighting in this statement. First, the practices mentioned vary from entry-level schemes through creation of or enhanced management of landscape features to organic farming. Second, it seems to give Member States the flexibility to design eco-schemes as the lower level of an implied hierarchy of ambition, with even the suggestion that participation in an eco-scheme in Pillar 1 might be a condition for participation in an agri-environment-climate measure (AECM) in Pillar 2, or to programme them as particular interventions working alongside AECMs in a complementary but independent way. In this way, eco-schemes could pay for practices that are even more ambitious and go beyond practices that are funded under Pillar 2 AECMs.
The Commission’s Staff Working Document in May 2020 analysing the links between CAP reform and Green Deal observed that “eco-schemesin the CAP’s first pillar will be a major new tool to support precision farming, organic farming, agro-ecology and agro-forestry – as well as other approaches or specific practices relevant to climate change, management of natural resources, and biodiversity. Eco-schemes will allow a large number of farms to improve their environmental performance”.
These ideas were developed in the Commission non-paper in October 2020 detailing the four flagship eco-schemes announced in the Farm to Fork Strategy. These were, in brief:
Agro-forestry. While the flagship proposal defines agro-forestry as a particular type of land-use system and technology where woody perennials (trees, shrubs, etc.) are deliberately used on the same land management unit as agricultural crops and/or animals, there is no clear indication how eco-schemes might be used to promote agro-forestry. In the presentation to the Council Working Party, the agro-forestry flagship is confusingly re-interpreted as landscape and biodiversity on agricultural lands. Relevant eco-scheme practices suggested included land lying fallow and establishment and management of landscape features to improve their quality, which are defined as agro-ecology in the flagship proposal.
Agro-ecology. The flagship proposal defines agro-ecology as practices that rely on, and maximize, ecological processes to support the production system. A relatively long list of possible eco-scheme practices are suggested, including organic farming; sustainable land management practices; enhanced crop rotation, for example, including leguminous crops; landscape features; land lying fallow; support for low to moderate grazing; and implementation of flower strips, margins strips and high diversity grassland strips.
Precision farming. This is defined as a management concept focusing on observation, measurement and responses to inter- and intra-variability in crops, fields and animals using ICT-based sensor technologies and software. Support for a nutrient management plan is highlighted as a possible eco-scheme practice (although how this would relate to use of the Farm Sustainability Tool for Nutrients (GAEC 5) as a mandatory requirement for direct payments is not clear).
Carbon farming. This refers to farm activities having an effect on carbon pools in soils and vegetation. Again, there is a lengthy list of possible practices that could be supported by an eco-scheme: conservation agriculture, cover crops, afforestation, rewetting of peatlands, conversion of arable land to grassland, and grassland management (e.g. switching to multisward grasslands).
Eco-schemes – an additional instrument but with constraints
This section summarises the rules regarding eco-schemes. Recall that eco-scheme payments will be made under the financial rules for all Pillar 1 direct payments (Table 1). This means that the funds allocated to eco-schemes must be spent in the designated year, while in Pillar 2 unused funds can be carried forward from one year to the next and even beyond the MFF programming period.
In contrast to Pillar 2 AECMs, the payment can only be claimed by “genuine” farmers for “eligible” areas (according to the proposals of the Commission and the Council). Member States can design eco-schemes in a way that requires only a one-year obligation with farmers declaring their commitment with their “normal” aid declaration in May of each year for payments that will be made at the end of the year. However, the Commission has confirmed in its Q&A document that Member States have the possibility to design multi-annual schemes which could be formalised by means of a multi-annual contract exactly as for AECMs. In this case, the only differences would relate to the different budgeting rules and the rules defining the supported areas and beneficiaries. Given that there will be a delay in the coming into force of the new CAP legislation until January 2023 and the budgeting rules of Pillar I, (multi-annual) eco-schemes would apply for five years at most (2023 through 2027) and the maximum duration of these eco-schemes contracts declines by one year every year.
Eco-schemes can be open to all farmers or can be targeted to specific territories or to specific groups of farmers provided this is justified by the needs analysis for the CAP Strategic Plan. Furthermore, Member States can implement a selection procedure if there is a risk that too high an enrolment would drive the unit payment amount below the minimum level foreseen in the CAP Strategic Plan. Thus, eco-schemes designed this way are not open-ended and not all farmers who might wish to participate will be guaranteed enrolment.
Finally, payment rates can be based either on the principle of compensating for costs incurred or income foregone by the farmer who undertakes to follow a specific management practice or to deliver a specific result or be made as a top-up to the basic income support payments. According to Art. 10 of the Strategic Plan Regulation eco-schemes must be notified in the Green Box according to the Annex of the WTO Agreement on Agriculture. Consequently, if the WTO Agreement is interpreted in the conventional way, payments designed as a top-up and providing income support must not be linked to any form of production. As soon as a scheme targets a land use type, for example, permanent grasslands management or catch crops on arable lands, only the compensation payment mechanism will be possible.
An issue is whether there are advantages of an eco-scheme in Pillar 1 compared to an area-related environmental measure in Pillar 2 either for Member State administrations or participating farmers? Eco-schemes provide for the administration one key advantage compared to agri-environmental measures in the Pillar 2. The obligation can be annual only and the file can be closed after the end of the year. For Pillar 2 payments the obligation (in some cases including even its location) must be actively managed in the Integrated Accounting and Control System for the entire duration of the obligation (at least 5 years), as infringements of an obligation in, for example, year four can lead to a reduction in the payments and sanctions for the previous years. This would also be the case if a Member State opts for multi-annual schemes as an eco-scheme.
General principles for design of agri-environment interventions
Agri-environmental payments can be made for two general types of interventions: they either aim to encourage farmers to a) modify their operation to become more environmentally friendly (e.g. change to a more resource-efficient technology, establish flower strips) or b) maintain an environmentally friendly operation (e.g. appropriate management of a limestone grassland or hedges). These two interventions can be implemented in two different settings. In setting I) the key risk for the concerned environmental good is that farmers try to raise profit by continuing intensive management or further intensifying their production. This is a situation typical for many arable farming regions or high intensity dairy regions in Western and Central Europe. In setting II) the key risk for the concerned environmental good is that farmers try to cut their costs by abandoning hard to manage areas or farming at all. This situation is e.g. typical for many mountainous grassland areas.
Situation b II) is generally the easiest case for a support program, as one “just” has to dedicate appropriate funding to the area and frequently some general obligations suffice to achieve the desired environmental output. In case b) the management intensity will likely be near the lower boundary of the obligation (i.e. the farmer will manage the land with the lowest allowed management intensity (e.g. stocking density) as the marginal benefits from additional production are negative or at best positive but close to zero). Here, at the lower boundary, the environmental response is in most cases less sensitive to changes in the management intensity compared to the upper boundary.
In the other situations the decision is much more delicate. In situation b I) the farmer shall either maintain an extensive management or not remove important structures (e.g. ponds, groves, hedges). If the environmental output of these structures is not dependent on appropriate management, ordinance law or general obligations (such as cross-compliance or enhanced conditionality) might suffice to secure it. However, if the concerned area requires a special management practice, the support program must include an appropriate set of restrictions to limit the management intensity (to prevent an unwanted intensification) and provide a remuneration for the farmer’s labour and capital that is competitive to their normal operations (as otherwise they are not going to enrol in the programme). If the environmental good at stake demands a continuous appropriate management, the scheme must be further designed in a way to prevent revolving door situations, without an environmental benefit. An inappropriate scheme would be, for example, to ban the ploughing of grassland for just very few years with the intention to preserve soil organic carbon. As soil carbon kinetics follow the principle of ‘slow in fast out’, the potential saving effect is limited. Also, with respect to biodiversity conservation, a singular event such as the clear-cut of a solitary hedge or grove can have drastically negative effects.
In the situations a I and a II, farmers must change their behaviour. In these situations, one has to consider:
the technical nature of the intended change (Is it a discrete or continuous decision?)
the cost structure of the change (Are the costs primarily investment costs or management costs?)
the characteristics of the natural systems’ response function to the management change (e.g. time delay of the response, required threshold levels).
Critical evaluation of the eco-scheme flagships
Keeping these characteristics of agri-environment-climate measures in general and eco-schemes in particular in mind, let us examine whether the proposed flagship options really make sense from an environmental economics perspective:
agroforestry: here we assume that the agro-forestry option does refer to agro-forestry. The establishment of an agroforestry system is linked to significant investment costs. The potential positive effects (economic and environmental) will occur only after a significant time delay. Given the 5-year period of the next CAP, it is hard to imagine that farmers will establish agroforestry systems on the basis of eco-schemes. Only if the sum of the annual payments exceeds the investment cost will farmers opt for this option. This means the costs must be capitalised within 5 years or less resulting in extremely high payments per hectare. In addition, the maintenance of these newly created features is not ensured after 2027. At best an eco-scheme could help to preserve existing structures and improve their quality. In our view, the non-productive investments measure in Pillar 2 is much better suited to achieve this goal.
agro-ecology: the Commission describes agro-ecology as a holistic approach requiring knowledge, investments and management. Enhanced crop rotation is suggested as an agro-ecological practice that might be funded under this heading. However, crop rotation would require that the national authorities should track the management of individual fields for multiple years irrespective of the farmer that is managing them. It would require creation of an information system for farmers informing them on the management of the respective areas in recent years. As short-term lease contracts for arable land are not unusual, farmers would need access to such an information system to have the information which crops would be allowed each year. Establishment of landscape features such as hedgerows is also suggested under this heading, but similar arguments can be made here as against agro-forestry. Another example is nutrient management. If the goal is to reduce the nutrient level for a specific area, the restriction should be required continuously. Especially in the case mineral phosphorous or potassium there is generally no environmental benefit in waiving their application for a limited number of years (1-3) and then fertilising the soil “buffer” in the years in between. Consequently, this goal could be only achieved with classical AECM in Pillar 2 or with eco-schemes mimicking these AECMs (i.e. multi-annual contracts).
precision farming: the objection here to the Commission’s ideas are somewhat different to those made previously. Frequently, the costs of the technology needed for precision farming do not scale in line with the farmed area (the implementation of precision farming is frequently a binary decision). This means that, if payment is linked to the farmed area, there will be tremendous overcompensation of larger farms that employ the technology anyway because of its labour-saving effects and greater efficiency, or else the support would not be sufficient to foster implementation in small and medium-sized farms. In addition, some technologies, like for example improved fertiliser application, are not size neutral. Thus, managers of smaller farms frequently know their plots well enough. The variation of the site characteristics within their generally small plots is so small that precision farming provides hardly any ecological and economic benefit compared to an appropriate management based on average conditions per plot. It would seem more sensible to support precision farming under Pillar 2 AECMs as (1) investments can be directly supported, (2) the support can be referenced to more sensible units (e.g., m³ of slurry spread with an efficient technology instead of just applied ha) and (3) targeted to other suitable beneficiaries (e.g. machine rings or contractors). All these levers can strongly increase the efficiency of the support measure.
carbon farming: for many actions undertaken by farmers or land managers that help to lock up carbon either in biomass or the soil described earlier (conservation agriculture, cover crops, afforestation, rewetting, conversion to grassland, etc), the efficacy of annual payments can be questioned. The same arguments apply to afforestation as applied to agroforestry discussed above. In the case of the rewetting of organic soils, there is no benefit if the water level is elevated for just one year. Also, rewetting requires in most cases planning, consultation and investment, all of which sounds remarkably like the toolbox provided by Pillar 2. The conversion of arable land to grassland also only makes sense if the plot stays grassland for several years (the soil carbon kinetics follow the principle of ‘slow in fast out’), thus requiring a long-term commitment to have an effect. Finally, the effects of conservation agriculture at least in the humid zone of west-central Europe on GHG mitigation can be very mixed, therefore requiring a careful delineation of eligible areas. This all suggests that carbon farming is not a first-choice option for eco-schemes and that Pillar 2 instruments such as non-productive investments and longer-term management contracts will be more appropriate.
Making effective use of eco-schemes
If the Commission’s ideas for eco-schemes do not seem convincing, the question remains which measures make sense from an administrative, environmental and farmers’ point of view. A good eco-scheme practice would have an environmental effect starting in the first year of implementation. Typical measures falling into this category are:
landscape fragmentation (smaller plots);
orphan crops with environmental benefits, (rough) pastures, unmanaged grass strips;
ban of pesticides on arable land.
Despite the fact that catch crops can provide an immediate positive effect, they are only partially suitable for eco-schemes. First, they require a second application slot, as farmers frequently need to readjust the location of the catch crops for weather reasons. Second, catch crops are efficient with respect to soil carbon accumulation, greenhouse gas mitigation and nutrient leakage provided they remain on the field as long as possible. However, to allow a payment of the eco-schemes around the end of the year, all controls must be finalized before. This problem can be tackled if eco-schemes and the enhanced conditionality are smartly interwoven, as is the case for catch crops under the greening payment in Germany.
Fallows and flower strips on arable land provide a positive environmental impact in the first year. However, their impact increases the longer they remain on the spot. With a smart design of the payment levels a multiannual implementation can be promoted e.g. if the installation costs are distributed over several years. In this case the obligation would legally be only annual, but the economic incentive would encourage farmers to keep the fallow on the same spot. Multi-annual fallows and flower strips are much more suitable for an implementation in eco-schemes compared to agro-forestry and carbon farming as the share of installation cost on the total costs (given a five-year duration) is much lower.
A second set of measures are those for which it is unlikely farmers will significantly adjust the size or area on an annual basis. Good options at this level include the promotion of organic farming, low input grassland management, or a ban of mineral fertiliser. At the plot level sensible measures include result-based payments for flower rich meadows or for permanent low input systems (e.g. Dehesas / Montado, meadow orchard ‘Streuobstwiesen’, habitats of the Habitat Directive dependent on agriculture).
If measures are targeted at the level of the farm or at least the branch of farming, some further measures become sensible as farmers rarely adjust these levels annually. This would include a ban on mineral fertiliser and pesticides or reduced management intensity on grassland.
A fourth option would be to use the eco-schemes to compensate for specific area-related legal restriction (e.g. Natura 2000 area, water framework directive area).
The annual nature of eco-schemes provides two additional levers for a positive environmental impact. The first is in environments with great uncertainty, e.g. in case of the predominance of short term, annual or bi-annual, land lease contracts. In this environment farmers often refrain from participating in Pillar 2 schemes as they are uncertain whether they can provide the intended minimum area. Measures where the outcome depends crucially on weather conditions are also relevant. As an example, given appropriate soils and weather conditions it is comparatively easy to shift to mechanical weeding in maize. However high soil humidity in spring can make mechanical weeding infeasible. An annual eco-scheme would allow farmers to take non-chemical weed control into consideration, as they might adjust their decision late in the year. Second, the annual nature of eco-schemes can be exploited to incentivise farmers to limit their input of fertiliser or pesticides. In some crops as maize, rye, triticale but also leys, foregoing the use of mineral fertiliser and pesticides between the beginning of January and the harvest is not associated with strong changes in yields. Even though the direct ecological effect of such a measure might be small, it could encourage farmers to generally use mineral fertiliser and pesticides more sparingly.
Another example where eco-schemes could be really suited is where a rapid adjustment in management is necessary during spring. Consider the preservation of ground-nesting birds occurring in low to medium densities, e.g. Montagu’s, Hen and Marsh Harrier, Corn Crake, Lapwing and other waders. The problem is that these species frequently do not select the same plot in consecutive years. To avoid losses in the birds due to agricultural management the management must be strongly altered or even ceased. Support instruments are needed that start when the respective species has started to breed, which in most cases is somewhere in spring.
There are disadvantages as well as advantages to annual schemes that can fluctuate from year to year (one-year fallows or flowering areas). There could be a strong variation in uptake if the compensation levels are in a sensitive zone of the aggregated cost curve. This implies that small changes in market prices or expected yields could lead to strong adjustments in enrolment by farmers. Unwanted fluctuations can be mitigated with appropriate mechanisms: e.g. using payments degressive to the realised share of area or setting absolute limits regarding the implementation level at the farm level (e.g. 10%).
Member States are currently engaged in the design of their CAP Strategic Plans. A key innovation in the green architecture in the future CAP are eco-schemes in Pillar 1. Because of their novelty, there is a lot of uncertainty around how eco-schemes might work in practice, and how best they might be designed to contribute to the environmental and climate objectives of Member State Strategic Plans. Further uncertainty arises because amendments proposed by both the Council and Parliament could radically change the scope of eco-schemes from that envisaged in the Commission proposal.
In response to Member State requests, the Commission has provided guidance on how it sees eco-schemes operating. It has made clear that eco-schemes can be designed around multi-annual contracts as for AECMs, but they also provide additional flexibility in that they can also fund annual interventions. Member States will also be able to limit access to eco-schemes if the potential enrolment would require unit payment values to vary by more than provided for in the CAP Strategic Plan.
The Commission has highlighted various eco-scheme flagships that it sees as particularly appropriate for eco-schemes. We are not convinced that these are necessarily a good fit for the characteristics of eco-schemes. We argue that much of the potential of the instrument is wasted if eco-schemes only (insufficiently) mimick well suited Pillar 2 measures. In this case shifting the funds to Pillar 2 and ring-fencing the agri-environmental budgets over both pillars appears more appealing. We propose instead some alternative practices that would seem to better fit the specific new characteristics of eco-schemes. We argue that eco-schemes are particularly suited where:
the intention is to support existing agricultural management options that are environmentally beneficial but challenged by under-exploitation or even abandonment;
an intended change in the farming practice is continuous in nature;
the annual duration of eco-schemes has strong environmental advantages;
the annual duration can open doors in the agricultural community and when the negative effects with respect to environmental efficacy are limited;
they can mitigate problems of national administrative law (e.g. problems induced by the “no early start of action” regulations in Germany).
A good deal of further discussion to clarify these issues will be required. The Commission itself has recognised this. The minutes of the December meeting of the Management Committee on Direct Payments where it presented its latest ideas record that “the Commission considered that further exchanges are needed” and it offered to update the Q&A document based on additional issues raised. Further exchange sessions in expert group or management committee are planned.
Finally, we want to stress the issue that the environmental performance of the new green architecture in general and the eco-schemes in particular depends on three general aspects:
The measures are effective on a unit base (i.e. per ha, per animal, …).
The overall implementation level of the measure is sufficient to modify the picture on an aggregate scale.
The payment levels are adequately related to the environmental output provided.
The weak overall environmental performance of greening was not because the measures were inappropriate per se but that the last two aspects were inadequately addressed. Again, much of the public debate around eco-schemes focuses on the selection of measures, while the remaining two aspects somehow fly under the radar.
All in all, the design of eco-schemes remains a work in progress.
This post was written jointly by Norbert Röder and Alan Matthews.
O artigo foi publicado originalmente em CAP Reform.