INTRODUCTION

  1.  This evidence is submitted on behalf of Natural England, the statutory body working to conserve and enhance England's natural environment, for its intrinsic value, the well-being and enjoyment of people and the economic prosperity that it brings. Its role is to ensure that England's unique natural environment, including its land, flora and fauna, freshwater and marine environments, geology and soils, are protected and improved. Natural England also has the responsibility to help people enjoy, understand and access the natural environment.

  2.  In this evidence, we have attempted to answer the questions listed in the "Call for Evidence" issued by the Committee on 30 April 2007. The total length of this evidence exceeds the recommended 6 pages, but the key points are summarised in the "overview and summary" section below:

OVERVIEW AND SUMMARY

Q1a.  What should be the long term objectives of the CAP? Does the title "Common Agricultural Policy" aptly fit your perceived objectives of the policy?

  3.  The current title of the Common Agricultural Policy does not fit either the current objectives of the policy or the direction in which Natural England would like it to evolve. Whilst we welcome the 2003 reforms, particularly the introduction of decoupling, these have stimulated debate about what the first pillar of CAP is for. It seems to have lost its original purpose, without finding a new one. Natural England believes that the long term objective of the policy should be to help secure the future of the rural environment by paying farmers and other land managers for forms of land management that are vital for maintaining and restoring environmental features but which cannot be secured, in sufficient quantity or quality, through the market or through advice and regulation alone. .

  4.  This view is based on three facts:

i.   Although the agricultural industry is relatively small in terms of its contribution to the economy (at least in Western Europe), it is critical in terms of its influence over the health of our environment. Farmers manage a very high percentage of Europe's land area and are one of the principal forces shaping our environment.

ii.   There is ample evidence that modern commercial farming can no longer be relied on to deliver a high quality rural environment as an automatic, free, by-product.

iii.   The rural environment is likely to face many new pressures in the years ahead, including the need to deal with the global and local consequences of climate change.

  5.  Looking forward, Natural England sees a need to use the land wisely, flexibly and sustainably so that it can supply the wide range of services that we will all require—reconciling the need for food, energy and water with allowing natural systems such as floodplains to function and maintaining landscapes rich in wildlife for people to enjoy.

  6.  There are unresolved questions about what the best European framework would be to achieve this, though it is clear that this framework will need to ensure the integration of the CAP with European environmental regulation and funding, and with European Structural Funds. However whatever this structure, we see a clear need for large-scale, long-term public funding to help safeguard the rural environment in England and across Europe in the face of the many and growing pressures that it faces.

  7.  CAP should however have wider ambitions than simply paying to secure the environmental management of land year by year. A reformed CAP should be aimed at helping to build a new social contract between farmers and the rest of society, where farmers see one of their primary roles being to manage the environment, including its landscape, biodiversity and natural resources, and where the public sees farmers as guardians of the environment and agrees that they are happy to pay farmers for these "public goods" through taxation. This contract would also involve farmers moving towards more environmentally and economically sustainable production of food that consumers want to buy and are prepared to pay a fair price for.

Q1b.  What do you consider to be the main pressures on the CAP as it currently is?

  8.  Listed below are what Natural England considers to be the main pressures on the CAP. In each case the description includes a short commentary on how CAP could respond to these pressures:

i.   Pressure to reduce spending on CAP: A growing number of Member States are becoming concerned at the scale of CAP spending, particularly given its perceived lack of purpose since the 2003 Reforms. We believe there is a need for continued large scale spending on land management but this can only be justified by a further major reform of CAP along the lines described above. .

ii.   Continued strong support in some member States for income support payments for farmers: This seems to be largely driven by concerns for rural communities and the rural environment in geographic areas where traditional farming methods are still widely employed. We believe that a proposal to re-focus CAP on the maintenance of the rural environment has the potential to recognize and address these concerns and could be used to widen the base of support for further reform.

iii.   Changing global context: There are some calls for CAP to help farmers to adapt to a rapidly changing environment where they face significant challenges in an increasingly competitive global market for agricultural products, demanding expectations from consumers for high quality and low price, changing regulatory and tariff regimes and, on top of all this, the uncertainties and opportunities of climate change. By contrast, some aspects of CAP are also under pressure as some farming sectors experience a revival in prosperity, driven in part by the growing demand for bio-energy. We recognise that there may be a need to help the farming industry adapt to change but we must manage the environmental side-effects and beware of re-introducing measures that distort markets and recreate the sort of long term dependency on public subsidy that existed before the recent rounds of CAP Reform.

THE REFORMED CAP

Q2.  What has been your experience so far with the reformed CAP? What has worked well and less well? And where can lessons be learned?

  9.  Natural England is fully aware of the problems of implementing the Single Payment Scheme in England, but there are many other organisations better qualified than us to provide evidence on this subject. Our evidence therefore concentrates on the environmental effects of the 2003 CAP Reforms.

  10.  Disentangling the impacts of the 2003 Reforms is complicated by the fact that they were the latest in a series of reforms. The need for an environmental dimension and moves towards some decoupling were addressed in earlier rounds, particularly the 1992 MacSharry reforms and Agenda 2000. However, the 2003 Reforms added two key new dimensions. These were a further shift towards decoupling income support payments from production and the introduction of cross-compliance as a condition applying to nearly all payments linked to land and its management.

DECOUPLING

  11.  England was one of the first Member States to take full advantage of the opportunity to decouple income support payments from production and so provides something of a test bed for understanding the environmental impacts of these latest reforms.

  12.  Factual data on the actual changes that have occurred as a result of decoupling is still limited. The initial results from Defra's Agricultural Change and Environment Observatory (ACEO) suggest that change in the immediate aftermath of decoupling has been slow. Land managers appear to be taking time to consider their options, given that in many cases they are still receiving very similar levels of payment. A survey commissioned by the ACEO[1] has shown that only 26% of farmers indicated that they intended to change their farming system in the next five years, whilst 44% were uncertain. The same survey included a Comparison of five investment strategies and identified that the use of the single payment to "substitute" for the previous production linked payment was the strategy that farmers were most likely to adopt, followed by use of the Single Payment as a "pension".

  13.  Despite this "inertia", there are indications that decoupling will have significant impacts over time. Forecasting work done so far for the ACEO[2] and research in Wales[3] indicates that these will include both positive and negative impacts, although it is difficult to be completely accurate in relation to "cause and effect", given the wide range of drivers (additional to the CAP) which impact on land management decisions.

  14.  In summary, the potential environmental implications of the anticipated changes in farming practices include:

—  Biodiversity—potential risks in the arable sector relate to increases in block cropping and shifts to simplified crop rotations which could reduce habitat diversity. When prices are low, there could be an increase in fallow land, which could potentially be beneficial to biodiversity, although this will depend on how it is managed. In lowland areas of high nature conservation, there are concerns that it will become harder to find the grazing animals needed to maintain these areas, particularly where cattle are needed. In upland areas a reduction in the stocking rate of over-grazed land will provide benefits, particularly for heather moorland, although issues with under-grazing may begin to emerge. Upland ecosystems may also be affected by a move away from cattle, which are important in the control of bracken and other coarse vegetation.

—  Landscape—over the longer term there could be major changes in landscapes as the balance and nature of livestock and cropping enterprises alter. In some areas there may be increasing homogeneity and loss of distinctiveness due to either larger scale intensive management in productive areas or, conversely, increased extensification and near-abandonment in marginal areas. The landscape will also be affected as land leaves productive agriculture for leisure and other uses. The maintenance of landscape features may also decline in these circumstances;

—  Water quality—Changes in types of crop and livestock, cropping practices and the degree of intensity of livestock production are likely to be particularly important in affecting the potential for reducing water pollution. Risks of localised negative impacts remain through increased stocking rates on dairy farms. There is some evidence to suggest that farmers are making increased use of buffer strips of uncultivated land alongside water courses and other sensitive habitats following CAP reforms, which will help to reduce the risks of water pollution.

—  Soils—Significant changes in levels of compaction and erosion, and possibly organic matter, are considered particularly likely through changes in the balance of crops grown and in methods of livestock production. Potential risks for localised negative impacts are linked to move to larger, more intensive dairy farms and increases in maize production. There are also potential issues arising from bio-crop production, depending on the location and type of management.

—  Air quality—declines in the beef herd, extensification and potential reductions in fertiliser use are important factors leading to reductions in emissions. Some localised risks for ammonia emissions exist through more intensive production on dairy farms.

—  Climate change—declines in the beef herd and reductions in fertiliser use should lead to reductions in greenhouse gas emissions, particularly methane and nitrous oxide.

—  Pesticides—extensification may lead to less herbicide usage.

  15.  Across Europe, there is concern that decoupling may have some adverse consequences in some areas where traditional farming systems have survived. In Spain, for example, production linked Pillar I payments have provided an incentive for some extensive producers in marginal areas to manage their traditional olive groves. Also, in La Vera, Extramadura, CAP pillar I support for the goat, sheep and cattle sectors has helped to maintain extensive grazing in areas where it contributes to maintaining diverse and attractive landscapes.

CROSS-COMPLIANCE

  16.  Working to a common framework, Member States have implemented cross compliance in a variety of ways, particularly in respect of the development of Good Agricultural and Environmental Condition (GAEC). It is therefore difficult to estimate the environmental benefits and dis-benefits of cross compliance across Europe. Even in England, there are difficulties. These are partly due to the fact that cross-compliance has only been operational since 2005 and partly because the monitoring and evaluation system is still under development. However, we think Cross-compliance has a valuable role to play in establishing baseline standards for land and environmental management and in improving farmer awareness of environmental issues.

  17.  Natural England believes that cross-compliance is a powerful tool to ensure that minimum standards are met. We do however recognise the widespread concern about the level of bureaucracy surrounding the administration and enforcement procedures relating to cross-compliance. We support moves to simplify these processes, but strongly believe that simplification should not be achieved at the expense of lowering environmental standards.

THE SINGLE PAYMENT SCHEME

Q3.  Do you consider the Single Payment Scheme to be a good basis for the future of EU agricultural policy? What changes might be made at the EU level to the Single Payment Scheme, including to the rules governing entitlements, in the short and/or the longer-term?

  18.  Although environmentally speaking, the Single Payment Scheme is undoubtedly an improvement on the production-based subsidies that preceded it, Natural England does not consider that the Single Payment Scheme is a good basis for the future of EU Agricultural Policy. We think a key principle for future reforms of CAP should be that public funds should be used to produce public benefits. Although there are potential environmental benefits from the cross-compliance standards attached to the Single Payment, these mostly relate to better compliance with statutory requirements. The Single Payment remains essentially an income support payment, not a payment for positive environmental management.

  19.  Natural England consequently believes that over time resources should be progressively shifted from the Single Payment to the Rural Development Programme, and especially to the Axis 2 Measures including agri-environment, where payments can be used to directly secure positive environmental management. We believe that such a shift could address the negative consequences of decoupling listed in our answer to question 2 as well as retaining the positive benefits.

MARKET MECHANISMS

Q4.  What short and longer-term changes are required to the CAP's market mechanisms? Suggestions made by the Commission have included re-examination of certain quotas, intervention, set-aside, export refunds and private storage payments.

  20.  Natural England's general view is that the remaining market mechanisms are an anachronism in a decoupled world and should be phased out. However, in doing so it is important to manage any environmental side-effects. In the case of set-aside, for example, Natural England would not oppose the abolition of set-aside, provided there were to be a commensurate increase in Pillar II funds to deliver the environmental benefits that set-aside has been providing. Natural England is currently helping to support research aimed at establishing the extent to which set-aside has had beneficial environmental side-effects and would be pleased to make the results available to the Committee when the research is complete. A recent survey[4] has shown that set-aside can be directly linked to a recovery in woodlark numbers in England.

RURAL DEVELOPMENT

Q5.  What is your view on the introduction of the European Agricultural Fund for Rural Development (EAFRD)? Do you consider that it is meeting its objectives thus far? Is it suitably "strategic" in nature, meeting the needs of rural society as a whole rather than being restricted to aiding the agricultural industry? How well is it being co-ordinated with other EU and national policies on regional and rural development?

  21.  Natural England believes that EAFRD should not be primarily either about the agricultural industry or rural society. Instead, it should be about payment for the management needed to maintain the quality of the rural environment.

  22.  Natural England therefore supports Defra's decision to weight the England Rural Development Programme as heavily as possible towards Axis 2 and the delivery of environmental benefits. We feel this should be the main purpose of EAFRD, at least for England. There is a clear need to secure the rural environment, there is a clear case for public funding, based on the absence of suitable market mechanisms, and there are no adequate alternative sources of funding.

  23.  Safeguarding the rural environment does moreover produce wider benefits. There is good evidence from the economic valuation literature that people value a high quality natural environment. In the specific context of agri-environment schemes a number of studies have attempted to value the benefits of Environmentally Sensitive Area (ESA) schemes (one of the predecessors to Environmental Stewardship). All yielded positive benefits and estimated people's willingness-to-pay to be in the region of £25 per person.

  24.  On the economic side, it is extremely difficult to estimate all the economic benefits of an attractive environment, but there have been attempts to measure some of the more direct economic effects. It has for example been estimated that across the UK green agricultural systems, including organic systems and land in agri-environment schemes, support 41,000 FTE jobs and contribute £840 million in value added.[5] In another study, of the Lake District ESA, it was calculated that this scheme had generated enough building work on historic farm buildings to create 25-30 FTE jobs in the local economy.[6]

Q6.  Is there a case for a higher level of EU financing of rural development? Do you have a view on the extension of compulsory modulation from Pillar I (Direct Payments) to Pillar II (Rural Development)?

  25.  There is a clear case for a higher level of Rural Development funding in England. Although Defra did well in negotiating the budget for the 2007-13 Rural Development Programme for England (RDPE), it is obvious to Natural England, as the body responsible for delivering the largest part of this programme, that the demand and need for environmental management will continue to exceed the available budget. This situation is likely to be reinforced by the additional pressures of adapting to climate change.

  26.  The maintenance of the Agri-environment Scheme budget within the overall RDPE funding is our first priority and, given that the UK receives a disproportionately small allocation from the core EAFRD budget, this can only be achieved through a high rate of modulation.

  27.  We also support modulation in principle, as it is the main tool available at the moment for transferring resources from Pillar I to Pillar II. Natural England does however recognize the concern that some farmers in England have expressed at the relatively high level of voluntary (national) modulation that Defra has agreed to levy in England. We would therefore support an increase in the rate of Europe-wide compulsory modulation, both as a way of reducing the disparities between farmers in different countries and as a way of moving more of CAP funding into Pillar II.

  28.  However, given the underlying imbalance in the allocation of Pillar II money to Member States, and the fact that we only retain 80% of the proceeds from compulsory modulation, it is very unlikely that agreement will be reached on a rate of compulsory modulation that is sufficient to maintain, let alone increase, the scale of our current commitment to agri-environment funding. There is also a wide variation in spending on Rural Development, across Europe and even between the countries of the UK. It is therefore vital to maintain the flexibility to continue to apply an appropriate level of voluntary, national modulation in each of the countries of the UK.

WORLD TRADE

Q7.  What benefits can the EU's World Trade Organisation obligations create for EU agriculture and, consequently, for the EU economy as a whole?

  29.  In brief, Natural England agrees that trade liberalization is likely to produce net economic benefits for the EU. Trade liberalization is however likely to have complex environmental side-effects, some of which will need intervention to manage and mitigate. Pillar II funding can help to do this in relation to the adverse impacts arising within Europe, but more thought is needed on how adverse impacts can be avoided in other countries.

  30.  Because Pillar II is important in mitigating the effects of trade liberalization, it is important that future World Trade Organisation (WTO) rules do not constrain its legitimate use.

  31.  There is a voluminous literature on agricultural trade liberalisation covering a host of liberalisation scenarios. Much of it focuses on how regional (continental) output and trade flows might change under a new set of rules (eg the global GTAP model). The OECD, World Bank, UN and some development NGOs tend to lead research in this area. As a result, the analysis of impacts is often very aggregated, and since the EU is a trading bloc, the impacts of liberalisation scenarios tend to be assessed at this level.

  32.  Whatever the scenario modelled, most analysis concludes with a similar direction of travel for the EU. In general, market liberalisation will lead to increased competition for EU producers and output levels and prices are likely to fall as a result. Clearly the extent of liberalisation will determine the degree of change. The main losers would most likely be developed country producers (excluding notable cases like New Zealand and Australia). EU consumers would gain (in the form of lower prices) along with key non-OECD country producers (eg India, Brazil, Argentina, etc).

  33.  As with decoupling, the environmental effects of trade liberalisation are more difficult to assess. The consensus in the literature is that trade liberalisation, although good for growth, can have negative impacts on the environment and these need to be guarded against where possible. Defra has recently completed some work in this area looking at liberalisation in different commodity regimes.[7] The overall conclusion is that the speed of liberalisation is important and whilst there are likely to be positive environmental gains in the EU (of a similar nature to those from decoupling), the international environmental impacts are likely to be negative as a result of increased output overseas. Most research concludes that the EU has adequate systems in place (such as agri-environment schemes and regulations) to guard against what negative impacts might result but the same can not be said for other countries.[8] The EU could, therefore, be legitimately criticised to some extent for "exporting environmental degradation" if the net environmental impact of trade liberalisation is negative overall.[9]

ENVIRONMENTAL PROTECTION AND CLIMATE CHANGE

Q8.  To what extent has the system of cross-compliance contributed to an improved level of environmental protection? How is it linking with other EU policy requirements such as the Water Framework Directive?

  34.  For the reasons set out above in our answer to Question 2, it is very difficult to assess the contribution made by cross-compliance. This is currently the subject of a review commissioned by Defra, which should be reporting shortly. A preliminary assessment by the Land Use Policy Group[10] concluded that in broad terms it seems likely that cross compliance will:

—  have a positive impact on specific environmental issues including water quality, soils, biodiversity and landscape and historic environment.

—  help improve compliance with the Statutory Management Requirements (SMRs) where there have been compliance issues (eg Groundwater & Nitrates Directives).

—  improve compliance with other environmental regulations.

—  Add value to agri-environment schemes by helping to reduce the gap between normal farming systems and practices and agri-environment schemes and by enabling agri-environment schemes to focus on environmental maintenance and enhancement, as opposed to protection.

  35.  Natural England believes that cross-compliance needs to evolve into a mechanism for codifying acceptable baseline standards of environmental land management.

Q9.  How can the CAP contribute to mitigation of, and adaptation to, climate change? What do you consider the role of biofuels to be in this regard?

  36.  Natural England is of the view that land managers can make an important contribution to both adaptation and mitigation of climate change.

  37.  There has been an overall reduction in greenhouse gas pollution from agriculture both across Europe and in the UK since 1990.[11] This has been in part due to the implications of various CAP reforms, mainly from a reduction in livestock numbers, but also other policy drivers such as the Nitrates Directive.

  38.  Despite these reductions, projections are that by 2020 UK agricultural emissions will be nearly back to 2004 levels (ie around 15% below 1990 by 2020).[12] It would appear, therefore, that the sector is not on course to deliver the scale of contribution that will be required across the economy if the UK is to meet the 26-32% reduction that the Climate Change Bill proposes by 2020. This suggests that there is a need for agricultural policies such as CAP and the funding streams that flow from it to be playing a more defined and direct role in ensuring that the sector delivers more on climate change.

  39.  For example, research by Defra into the contribution that Environmental Stewardship makes to mitigation has found that most options under ELS and HLS, especially habitat creation and buffer strips, will result in reduced emissions (due to less inputs and energy use) and enhanced carbon storage in soils and vegetation. However, the research has calculated that the annual contribution ES as a whole makes to reducing greenhouse gas pollution is only equivalent to 0.5% of total UK emissions.[13] Although this is still a useful contribution, it could be significantly higher if climate change were a specific target in the design and delivery of the scheme.

  40.  Furthermore, there has not been (to our knowledge) any assessment at the UK or EU level of the contribution that Pillar I mechanisms, especially cross-compliance, are making to reducing emissions and enhancing carbon storage.

  41.  It is even harder to assess or quantify the contribution that CAP is making to delivering adaptation for the natural environment. Natural England believes however that Environmental Stewardship has the potential to make a major contribution in this area. Environmental Stewardship is currently encouraging practices that will conserve and enhance the existing natural environment, and the integrity of the existing features of the natural environment will be a key factor in determining resilience to climate change. Natural England has contributed to a recent report[14] that identifies a range of practical actions that can help habitats and species adapt. Many of these can already be facilitated using Environmental Stewardship.

  42.  If there is a more significant shift of support from Pillar I to Pillar II and a greater focus on providing public goods, then in our view CAP would have the potential to improve the contribution of the sector to mitigation and adaptation. To do this, all aspects of CAP, both Pillar I and II, will need to be "climate-proofed', so that they are making a clear and direct contribution to mitigation and adaptation.

  43.  However, it is important that we do not concentrate too much on financial incentives from public subsidy as a long-term solution. There will always be limited funding available and CAP alone will not deliver the scale of contribution required from the sector. We also should, as a matter of principle, be exploring what can be achieved through market mechanisms.

THE ROLE OF BIO-ENERGY

  44.  There is considerable debate about the extent to which bio-energy crops (both perennial crops for biomass heat and power and annual crops for transport biofuels) will or will not contribute to greenhouse gas pollution abatement.

  45.  There is also much speculation about the extent to which the increased global demand for biofuels will lead to significant changes in land use in England. Simple extrapolations of the amount of land that may be required to meet for example the EU Directive on biofuels or the Renewable Transport Fuels Obligation (RFTO) do not take into account the fact that the biofuels market will be global and that production will come from countries and regions which have the most suitable conditions and can produce the fuel at the lowest cost. However, production in these areas may also have the greatest overall impact on the natural environment.

  46.  For the emerging bio-energy industry to be sustainable, it will need to both minimise the impact on the natural environment and optimise the contribution to reducing greenhouse gas pollution.

  47.  Natural England believes that urgent action is required to establish agreed standards and methods of accreditation for sustainable bio-energy production both domestically and overseas. There is also a need for more evidence to be gathered on the economic viability of biofuel production in England relative to the rest of the global economy and the consequence for current land use.

FINANCING

Q10.  The Commissioner has expressed her dissatisfaction at the financing agreement reached by the Member States at the December 2005 Council. Do you consider the current budget to be sufficient? Do you consider co-financing to be a possible way forward in financing the Common Agricultural Policy?

  48.  The December Financial Settlement made it harder to fully exploit the potential of the Rural Development Programme. It did nothing to address the imbalance in the share of the core EAFRD budget allocated to the UK and by squeezing the overall budget for Pillar II, it sent an unfortunate message to Europe. Although the voluntary modulation arrangements negotiated by the UK government has allowed the UK to mitigate this impact the overall budget for Pillar II is still not sufficient to fully meet the scale of need.

  49.  £3.9 billion will be available for the next Rural Development Programme in England over the next seven years, of which £2.9 billion will be available for Environmental Stewardship. This is a very good settlement in the circumstances, but does not provide sufficient funds to meet the current and likely future scale of need. Estimates of the size of programme needed to fully deliver on the existing objectives of Environmental Stewardship vary, but we would need in the order of £500-£700M per year by 2013 to do this. However, this estimate is incomplete as it does not take into account the substantial extra resources needed to meet the challenge of climate change, nor the cost of purchasing the environmental benefits currently provided by set-aside.

  50.  Because of this scale of need, Natural England is convinced that a further, large scale transfer of resources is needed from Pillar I to Pillar II. We do not yet however have a view on whether the overall level of CAP funding is sufficient. This is largely because, if Pillar I were to be drastically reduced, we think that it would be necessary to revise both the scope of Pillar II and the basis on which Pillar II payments are calculated, as many farmers do currently choose to use their Pillar I payments to help underwrite their fixed costs. Our current estimate is that this would require a substantial further increase in the Pillar II budget, though this would not be so large as to replace Pillar I.

  51.  This is a complex area that urgently needs further research and testing. Natural England is currently commissioning research to assess the implications of phasing out Pillar I. Initial findings will be available in the autumn and the final report is due in January 2008.

  52.  Natural England's primary interest is in ensuring there are sufficient funds to meet the environmental needs identified. The extent to which this should be done by co-financing is primarily a political decision which it would not be appropriate for us to comment on.

ENLARGEMENT

Q11.  What has been the impact on the CAP of the 2004 and 2007 enlargements and what is the likely impact of future enlargements of the EU on the post-2013 CAP?

  53.  Following EU accession in 2004, Polish agricultural businesses saw a tenfold increase in subsidies (CAP and other subsidies) and higher prices. This led to a 142% increase in agricultural business income, higher energy use, more intense and simplified land use, use of manufactured bought-in feed in place of on-farm production, replacement/improvement of machinery, and increased use of more productive plant and animal breeds[15]. A key environmental issue is the need to conserve Polish rural landscape structure, biodiversity and soils eg by preventing excessive land consolidation, decline of landscape features, reduction in crop diversity and further decline in extensive farming and other practices where these maintain natural and landscape values (eg prevent intensification or abandonment).[16]

  54.  The current CAP is therefore both part of the problem and part of the solution. Pillar I payments and even elements of Pillar II have fuelled rapid change in the countryside, but other parts such as agri-environment have at least the potential to be part of the solution. It could be argued that enlargement strengthens both the case for having a European level programme and the case for further reform. The case for having a European level Programme is that enlargement has brought into the EU several countries with large areas of internationally important wildlife habitat but with limited ability to fund its conservation, and they need an element of cross-subsidy. The argument for further reform is that, given the current balance of funding in CAP, the present policy probably does more harm than good.

  55.  Enlargement seems likely to increase the pressure on the Rural Development Programme budgets in the older Member States. Given the scale of the issues faced by some of these new member states we should accept the need for an element of cross-subsidy, subject to two important caveats:

—  further reform, so that we are not subsidising habitat destruction.

—  increased overall funding for Pillar II, so that important environmental management here in England is not squeezed too hard.

  56.  Enlargement also increases the range of variation between member states. We now have a Europe that consists of countries at very different stages of development and with very widely differing land management and rural development needs. This reinforces the point made earlier that it is extremely unlikely that a single, Europe-wide rate of compulsory modulation will provide every member state with the right level of Rural Development Programme funding. It strengthens the case for continuing to allow member states to apply additional voluntary modulation at national level.

SIMPLIFICATION OF THE CAP AND OTHER ISSUES

Q12.  How could the CAP be further simplified and in what other ways would you like to see the Common Agricultural Policy changed in the short and/or the long term?

Simplification

  57.  In the timescale of the CAP Health Check, there are a number of ways of simplifying the CAP:

—  Abolishing Set Aside, with appropriate environmental follow up measures incorporated into Pillar II. See answer to Question 4.

—  Simplification of Cross-compliance, without diluting the standards it sets. See answer to Questions 2 & 8.

—  Completion of decoupling. See answer to question 2.

—  Further simplification through the introduction of a flat rate SPS.

Other short and longer term changes

  58.  As already mentioned, Natural England would support an increase in the rate of compulsory modulation as part of the CAP Health Check, though not at the expense of the ability to raise voluntary modulation.

  59.  In the medium term, we would favour a much larger scale transfer of funding from decoupled income support payments to payments that help farmers and land managers to maintain the quality of the rural environment. This can be summarized as paying for public environmental goods in areas of market failure.

  60.  In terms of the current structure of the CAP this would mean arguing for the phasing out of Pillar I and the expansion of Pillar II, and more specifically the measures available under Axis 2. However, looking to the longer term, we need to keep the mechanisms available to us under review.

  61.  Agri-environment schemes, together with basic regulatory framework, are currently the only major policy instruments available in England to conserve and enhance the natural environment on a sufficient scale. Whilst we strongly believe that the role of agri-environment schemes needs to be expanded, we also recognise a number of limitations and therefore the dangers of over-reliance on this approach. Potential problems include:

i.   The schemes effectively "rent" environmental goods and services from land managers rather than "buying" them. The implication is that the continued provision of a high quality natural environment is completely dependent on government funding in perpetuity.

ii.   The determination and specification of target outputs has to be undertaken by government rather than the beneficiaries, which perpetuates a "subsidy" mentality.

iii.   Scheme payments tend to be based on "input activities" rather than actual outputs. This can reduce the incentives for the development of new and novel approaches to delivering environmental goods and services by suppressing the role of entrepreneurship.

iv.   Many of the environmental improvements we seek need to occur at a scale that greatly exceeds individual holdings—implying some degree of co-ordination.

  62.  In response, Natural England will lead the new thinking around the development of agri-environment policy going forwards and explore new ways and mechanisms to deliver a high quality natural environment that complements the current Environmental Stewardship programme.

11 June 2007

2   See "CAP Reform-Implications of farm level change for environmental implications", CSL/CCRU, October 2006. Back

3   ADAS, 2007, Review of Indicators for assessing the impacts of agri-environment schemes and recent CAP Reforms on biodiversity in Wales. Back

4   Unpublished results of 2006 national survey: BTO,RSPB, Natural England & the Forestry Commission, England, Back

5   Soil Association, 2006, Organic Works: Providing more jobs through organic farming and local food supply. Back

6   English Heritage 2005, Building Value. Public benefits of historic farm building repair in the Lake District. Back

7   Defra (2006) "The environmental impacts of trade liberalisation and potential flanking measures". Back

8   See also European Commission work on Sustainability Impact assessment of WTO reforms (University of Manchester). Back

9   Potter (1999) Agricultural liberalisation and its effects', Report for the UK Countryside Agencies. Back

10   Land Use Policy Group Briefing-Cross Compliance, April 2007. Back

11   UK GHG emissions from agriculture have fallen by 15% (1990-2005) and by 14% across the EU-15 (1990-2003). Back

12   UK Climate Change Programme (2006), Defra. Back

13   1.03 million tonnes of carbon equivalent a year. Back

14   Defra 2007: Conserving Biodiversity in a changing climate: Guidance on building capacity to adapt. Back

15   Institute of Agricultural and food Economics national Research Institute, Multi-annual research programme, 2005research synthesis, Warsaw 2005. Back

16   WWF Poland, Polish national report for the WWF /LUPG project Europe's Living Countryside, Warsaw 2005. Back