SUMMARY

  The Environment Agency welcomes this opportunity to submit evidence on The Future of the Common Agricultural Policy. In particular we are keen to emphasise:

—  In the longer term, sustainable rural land management requires that the Common Agricultural Policy (CAP) should be replaced with an adequately funded European common rural policy, addressing issues across the whole rural environment and economy. Public money should be used to secure public goods and services, including clean water, healthy soils and robust wildlife.

—  In the shorter term, the CAP Health Check should deliver a policy in which there is a greater transfer of funding from Pillar I (direct payments) to Pillar II (rural development) through a significantly higher rate of compulsory modulation, whilst retaining the ability for the UK to use voluntary modulation if needed. This would be allied with simplified and robust cross compliance protecting the environment.

—  It is essential that CAP reform allows us to provide greater resources to Rural Development Programmes in England and Wales, in order to deliver all that is required.

—  The CAP should ensure that the production of energy crops does not cause environmental degradation or loss of biodiversity and takes place within the context of overall energy use being significantly reduced.

1.  INTRODUCTION

  Almost three-quarters of the land in England and Wales is used for agriculture. Whilst there are positive environmental outcomes from farming, there are also many negative ones and costs. For example, almost half of groundwaters used for public drinking water supply now require some form of treatment, due in large part to nitrate pollution, whilst monitoring and/or removing pesticides from water costs consumers around £120m p.a. It has been estimated that agriculture contributes to 14% of total flood events costing £128m p.a.

  Taken individually, very few farms create substantial environmental problems, but the combination of small problems from over 100,000 farms adds up to a significant environmental impact. We consider that tackling these issues requires a spectrum of solutions, from regulation to advice and including the justified use of incentives to purchase public goods and services. Our work seeks to influence all of these issues to improve environmental outcomes.

RESPONSES TO QUESTIONS

  Our responses to specific questions/points in the consultation are as follows.

Q1.  What should be the long-term objectives of the CAP? Does the title "Common Agricultural Policy" aptly fit your perceived objectives of the policy? What do you consider to be the main pressures on the CAP as it currently is?

  Our objective when seeking to influence rural land management is to reduce overall environmental impact, minimising negative effects and increasing positive ones. Through regulation and advice we promote sustainable rural land management and encourage land managers to safeguard natural and cultural heritage. We wish to see publicly funded incentives used appropriately to support this work. It is our view that the long-term objective of the CAP should be to promote sustainable development across the rural environment and economy as a whole, with agriculture as an important component.

  Over the next 10-15 years we see land management expanding beyond traditional farming and forestry to cover the provision of a growing range of environmental goods and services, including adaptation to climate change. We want to see "traditional" environmental interests such as soil and water conservation, biodiversity conservation, access and cultural issues recognised as being critical in adaptation to climate change and building robust rural economies.

  The Environment Agency has a long-term vision for rural landscapes in England and Wales where:

—  Agriculture is profitable and provides net environmental benefit as part of a thriving rural economy.

—  Land managers have adapted to climate change, reducing flooding impacts and planning for drought.

—  Through the Water Framework Directive (WFD), land managers understand and accept their polluting impacts on the environment and are working to reduce them.

—  Agricultural production uses low carbon techniques, for example with minimal inputs of energy and artificial fertilisers, using waste streams to generate energy.

—  Biomass and biofuel crops help mitigate climate change without environmental damage.

  This vision is based on a number of principles, including the recognition that a high quality environment is a social and economic asset, giving businesses a competitive edge and improving the quality of life for both rural and urban populations.[17] We also believe that recipients of public subsidy should provide a range of services to society including sustainable management of soil, water and air, maintenance of locally distinctive landscapes and enhanced biodiversity. This should be underpinned by compliance with minimum statutory standards related to the environment, animal welfare, public health and countryside access.

  Delivering this vision will require both tactical and strategic changes to the CAP. In our view the current aims of the CAP are confused and unclear, it has moved away from its aims as expressed in the Treaty of Rome but has not clearly articulated its new end objectives. In the longer term EU strategy should be to:

—  Replace the CAP with an adequately funded European common rural policy that aims to secure sustainable land management in light of European Union (EU) commitments on climate change, water and biodiversity.

—  This new European common rural policy should pay for the public benefits delivered by rural land management where those benefits are not rewarded through the market.

—  Such support should help regenerate the rural economy, by directly sustaining and creating jobs in land management and by supporting related activities. There should also be investment support for a wider range of rural business development, training and capacity building and for changes in land management and land acquisition which bring added environmental benefits.

  The move towards de-coupled support in the 2003 CAP reforms and the accompanying emphasis on a sustainable EU rural development policy is a welcome step in the right direction and has reduced negative impacts of the CAP. However, much more needs to be done to ensure that in the short-term financial support to the agricultural sector is directly linked to sustainable land management and clearly defined environmental outcomes. A favourable outcome from the CAP Health Check would be the first step towards achieving this longer-term vision. The key changes we would like to see are:

—  A further transfer of funding from Pillar I to Pillar II through a significantly higher rate of compulsory modulation, emphasising a direction of travel that progressively strengthens Pillar 2 and removes Pillar 1.

—  Continued ability to raise additional funds through voluntary modulation.

—  Cross-compliance conditions maintained and streamlined through tighter targeting underpinned by appropriate environmental standards.

—  Administrative improvements to the implementation of cross compliance such as tolerance for minor non-compliance and harmonisation of control rates.

—  Measures taken to ensure that if set-aside is abolished, the scale of environmental benefits are retained.

—  Biofuel production to be associated with strict environmental standards and a requirement to provide a net reduction in greenhouse gases.

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

  Factual data on the changes that have occurred since decoupling began to be implemented in UK are limited, hampered by the fact that many changes in land management take place relatively slowly, at least at first, so environmental changes take time to emerge. It is also often difficult to relate cause and effect, given the wide range of decisions unrelated to the CAP which affect land management.

  Work to predict impacts indicates that there will be both positive and negative effects. For example, there is evidence to suggest that farmers are already making increased use of buffer strips of uncultivated land alongside water courses and other sensitive habitats which will help reduce the risks of diffuse water pollution. On the other hand, there are potential risks to biodiversity in the arable sector from an increase in block cropping and simplified crop rotations that could reduce habitat diversity.

  We expect that the introduction of cross compliance and Good Agricultural and Environment Condition (GAEC) rules will bring about a gradual improvement in basic environmental management standards on farms, regardless of how they are changing due to other policy drivers. The Environment Agency has Competent Control Authority status for cross compliance relating to Groundwater Regulations, the Nitrate Action Programme and Sewage Sludge Regulations. To date, minor breaches of the Nitrate Action Programme (ie poor record keeping) are one of the most common non-compliance issues. We consider that over time (and for as long as it remains), cross compliance should be extended by adding more simple controls over a wider range of topics.

  Our recent report with the National Farmers Union (NFU) and Farmers Union of Wales (FUW) into the state of the farmed environment[18] strongly indicated the need to reduce diffuse water pollution from farming. Our early experience with the England Catchment Sensitive Farming Delivery Initiative indicates that farmers are capable of significantly reducing their environmental impacts once they accept that there is a need to do so, and realise how they can achieve it. The means of reducing impact differs from farm to farm. Sometimes it is a matter of better compliance with regulation, other times it requires changes in land use or land management outside the requirements of regulation. In the latter case some additional incentive is required and rural development funding will be essential for this.

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

  Our long term vision for rural land management (see Q1) is that the CAP, and therefore the SPS, is replaced with an adequately funded European common rural policy that aims to secure sustainable land management in light of EU commitments on climate change, water and biodiversity. Public money should be used in return for the delivery of public goods, including clean water, healthy soils and robust wildlife.

  The SPS, which is intended as "income support", is a flawed basis from which to deliver the environmental outcomes we are seeking. However, there is evidence that it is not an effective way to deliver income support either as it is diverted into capital value. In the short-term the continuing presence of the SPS offers opportunities to restrict further environmental damage via cross compliance. However, as the SPS reduces in value so the influence of cross compliance will decrease, particularly in the face of improved commodity prices. This emphasises the need to develop a robust, well-funded and properly targeted rural policy.

Q4.  What short and long-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.

  Set-aside currently provides a reservoir of largely uncropped land over about 3% of agricultural land in England and Wales. This includes highly intensive arable areas where there is low cover of semi-natural habitat and participation in agri-environment schemes is low. Evidence suggests, although introduced for purely market management reasons, set-aside has delivered environmental benefits for biodiversity, soil and water protection. However these benefits largely depend on how set-aside is managed and do not accrue when set-aside land is used to grow industrial crops.

  The Environment Agency, working with the other UK countryside and environment agencies as the Land Use Policy Group, recently commissioned research into alternative policy options for retaining the largely accidental environmental benefits of set-aside.[19] This indicates that the most realistic and beneficial way to retain the environmental benefits of set-aside would be to develop a package in which:.

—  General widespread environmental protection benefits arising from set-aside are delivered through adapted cross compliance conditions;

—  Specific, high value, environmental benefits arising from set-aside are delivered through agri-environment targeted measures;

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?

  It is still very early to comment on whether EAFRD is meeting its objectives. The Rural Development Programmes (RDP) for 2007-13 are the first to operate in the reformed CAP environment post-2003, and these programmes are yet to be approved. EAFRD has a legacy of focus on the agricultural industry, and a relatively small amount of funding is dedicated to the wider rural community.

  Agri-environment schemes have traditionally been the main focus of rural development in UK. These schemes have now been in operation for over a decade, and there is clear evidence they have generated positive environmental outcomes. In our view, agri-environment schemes are essential to raise the general level of performance on resource protection and reduce soil erosion and water pollution. They are a positive mechanism for engaging with the farming community.

  Of all the human activities contributing to pollution, farming is one of the most significant: Over 75% of the land area of England and Wales is farmed, contributing on average to 60% of nitrate and around a third of phosphate pollution. Failure to tackle diffuse water pollution is very likely to result in the UK failing to achieve the objectives of the Water Framework Directive (WFD) in 2015. It has been identified as the main threat to achieving "good ecological status". WFD objectives aim to ensure that the water environment is in a fit state to serve the needs of the whole community. Early work on the WFD indicates that to achieve the objectives will require use of a full suite of measures from regulation to incentive. Defra has built full use of its agri-environment programme, Environmental Stewardship, into its baseline assumptions on how to achieve WFD objectives in England and we welcome this.

  In England and Wales most EAFRD funding will be spent in the agri-environment objective of Axis 2, and its application is restricted because it must be related to income foregone by the land manager. This is an area of concern in the uplands, where income achievable per hectare is relatively low, meaning that agri-environment schemes are much less attractive. If significant management effort or change of practice is required, or particularly capital expenditure, then the schemes are unlikely to attract entrants. EAFRD should provide a mechanism more easily tailored to achieving environmental objectives in the uplands, which are areas of great importance for water quality and reduction of flood risk.

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

  Rural development funding is essential for the delivery of water, climate change and biodiversity outcomes. It is one of a number of mechanisms, but is a vital part of the policy framework. Our aspiration is for an expanded RDP by 2013, including an enhanced Higher Level Stewardship Scheme. Natural England's best estimates of spending need for ES are approximately £500-700m per year. Any validation of this figure needs to ensure ES meets not only biodiversity, access and landscape objectives but also resource protection of air, land and water. The recently announced RDP budget for England, which draws on voluntary and compulsory modulation money plus domestic match funding, allocates approximately £414m per year to ES.

  Due to the allocation criteria for the EU rural development budget being based on historical spend, the UK receives a disproportionately small amount of the budget. The 2003 CAP reforms introduced compulsory modulation (CM), which must be co-financed. However, even with CM, higher levels of RD funding are still needed by the UK Government to deliver its environmental commitments. As such we have supported Defra in pursuing the ability to generate additional resources via voluntary modulation (VM) and exchequer co-financing.

  In the short term we support a further transfer of funding from Pillar I to Pillar II through a higher rate of compulsory modulation. However this must be combined with the continued ability to raise additional funds through voluntary modulation and a better system of allocating rural development funding, This places more emphasis on agricultural area and less on past spend.

  Modulation is an ungainly device, currently favoured simply because it is the only available means of switching money from Pillar I to Pillar II. Longer term, we expect to see a detailed review of the CAP budget, resulting in a fundamental re-balancing between Pillars I and II.

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

  We believe that the EU involvement in World Trade Organisation negotiations should be used to raise environmental standards globally. Without a level playing field of high environmental standards, or full internalisation of environmental costs into market prices, higher standards in the EU may push unsound practices to other countries, often developing countries with even more fragile environments and potentially less robust regulatory frameworks to protect them.

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?

  Cross compliance in its present form is still relatively young, starting in January 2005. As a result only the short-term impacts are becoming evident now, and even these need to be estimated as there are no published evaluations of cross compliance yet. In the meantime there is a need for policymakers to consider the future of cross compliance, firstly to ensure that it achieves its current objectives and secondly to influence the future shape of the CAP.

  With this in mind, the Environment Agency, working with the other UK countryside and environment agencies, recently commissioned some research into policy options for the future of cross compliance.[20] This found that within the common framework, Member States have implemented cross compliance in a variety of ways. There appears to be most variety in respect of GAEC.

  Key factors which influence the extent to which cross compliance achieves its objectives, and hence its environmental outcomes, include:

—  The standards established by Member States; ie the Statutory Management Requirements (SMRs), GAEC and permanent pasture rules which farmers must comply with.

—  The information provided to farmers, including the content and comprehensiveness of information and delivery systems).

—  The systems of control and payment reductions.

  In broad terms, it seems likely that cross compliance will have a positive impact on specific environmental issues including water quality, soils, biodiversity, landscape and the historic environment. In addition cross compliance is likely to improve compliance with SMRs where there have been compliance issues (eg Groundwater and Nitrates Directives); improve compliance with other environmental regulations; establish baseline standards for land and environmental management; and improve farmer awareness of environmental issues. Cross compliance also appears to add value to agri-environment schemes by helping to reduce the gap between every-day farming systems and practices and agri-environment schemes, and enabling agri-environment schemes to focus on environmental maintenance and enhancement, as opposed to protection.

  Future policy options for cross compliance will need to extend and enhance the environmental and other public benefits being delivered through the current system, and be in line with key principles underlying the future development of the CAP. These include focusing on environmental and other priorities, reducing cost, simplification, improving/maintaining competitiveness.

  In the short term, there are a number of administrative improvements to improve the effectiveness of the cross compliance system, including and building on the proposals set out in the Commission's March paper.[21] We welcome many of the Commission's proposals including tolerance for minor non-compliance and harmonisation of control rates. We consider that additional changes could also be considered in the short term including:

—  Adopting a risk-based approach to inspections (something we already do as a Competent Control Authority).

—  Allowing Member States to retain more/all of the payment reductions to help finance the cross compliance system or fund technical assistance to farmers.

  The scope of the cross compliance standards could be expanded. For example, could they be expanded by adding Directives to the existing 19 Statutory Management Requirements. Two potential candidates are selected measures from the Water Framework Directive and aspects of the forthcoming Soil Directive, both important pieces of environmental legislation that will have an impact on agricultural practices.

  CAP reform to remove subsidy under Pillar I payments suggests the end for cross compliance. We consider that in future eligibility for rural development payments should be tied to undertaking certain activities or meeting certain standards, which could ultimately replace the baseline requirements of cross compliance.

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?

  Biofuels for transport energy are governed by other European policies. There is concern that the EU is setting mandatory targets that can not be effectively serviced by land without increasing pressures on other resources, especially water quality. The Environment Agency believes there should be mandatory environmental and carbon reporting requirements to ensure that these crops do not cause or undo the benefits that will be realised by existing Pillar II funding.

  It is likely that mitigating climate change through providing energy from land can be more effectively promoted by supporting the provision of infrastructure to process fuel, rather than subsidising growing bioenergy crops. Once there is a demand for biofuels and/or biomass then farmers will respond to the market by producing them. An important further area for public expenditure is the research and development of much more efficient biofuel crops and production methods. All of this should only be done in the context of significantly reducing overall energy use. There is scope to do much more in UK and some other member states to support producing energy from anaerobic digestion of crops and of manure.

  Mitigation can also be improved by making better use of soil as a carbon store, moving from an overall addition of carbon to the atmosphere, the current situation in UK and probably other Member States, to an overall reduction. This is likely to prove challenging as climate change will increase the rate of loss from soils. Improving carbon capture on rural land can be done in two ways, by preventing further deterioration in peat bogs and returning them towards their previous state, and by changing agricultural practice to reduce carbon loss from farming operations. Both of these are more suited to an incentive approach rather than regulation and would be an appropriate use of rural development funding.

  With regard to adaptation, agriculture and rural land use in general can provide public goods in terms of reducing the severity of the impacts of climate change on flood risk from rivers. This would be an appropriate use of rural development funding. There will also be impacts on land from the abandonment of river defences, from coastal re-alignment and managed retreat as sea levels rise. In order to maintain food production, agriculture will need to adapt now for expected climate change implications of water resources. In order to provide for future water requirements sustainably, land managers will be encouraged to provide for their water resource needs, particularly by providing for winter water storage. Climate change is likely to worsen the risks and impacts of diffuse water pollution. This increases the need to address the issue.

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 CAP?

  The current CAP budget is significant in financial terms, representing around half of the EU budget. However, post-decoupling, the CAP lacks clear policy objectives so that it is not possible to assess whether its budget is sufficient to achieve those objectives. As subsidies are distributed to landowners in proportion to land possession, it would be fair to say that the original objectives of the CAP as in the Treaty of Rome, "to ensure a fair standard of living to farmers", is not met. This does not necessarily mean that the budget is not sufficient, but that it may not be distributed effectively to that end.

  The question of whether current budget allocation would suffice for land management purposes with clear environmental outcomes is far more difficult to assess. This sort of assessment should take place as part of the discussions on the future of the CAP after the Health Check.

  We are not in a position to estimate costs for achieving the Environment Agency's vision for sustainable rural land management across Europe. We know that to achieve it will have costs because land management for public goods as well as private profit will come at a price. We suggest that the current CAP budget should be secured for the delivery of public goods. Rural development is around 15% of the current budget total, so there is scope for very significant expansion of rural development spending whilst still leaving room for reduction in the overall budget spent on rural issues.

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 post-2013 CAP?

  Abandonment and intensification are the biggest threats to the farmed environment in the new Member States. Evidence already shows that farmland bird populations have started declining,[22] largely due to agricultural intensification. Farmers are taking advantage of Pillar I payments (which until 2006 were "topped up" with Pillar II money) to restructure their businesses. In addition, considerable political pressure means that rural development and agri environment funds are being used to increase productivity rather than deliver environmental protection/enhancement. There is significant investment in farm machinery and artificial inputs in arable areas whilst traditionally managed, high nature value farming systems such as low/no input grasslands are increasingly being abandoned or taken over by larger farms and managed more intensively. As a result of CAP payments, farm incomes in the new Member States are forecast to rise 42% between 2005-13.

  Future enlargements of the EU will put significant pressure on the CAP budget, and are likely to lead to widespread environmental degradation in its current guise. This reinforces the need for a defendable policy that supports the delivery of public goods in exchange for public money.

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

  As identified above, in the longer-term the Environment Agency would prefer to see the CAP replaced by a single EU rural policy providing for sustainable rural land management in all economic sectors active in rural areas, not just agriculture. In the short-term, we would wish to see the CAP significantly simplified and environmental outputs enhanced, particularly in relation to cross compliance and set-aside as suggested above.

June 2007

18   Environment Agency, NFU & FUW (2006) Good Farming, Better Environment, December 2006. Back

19   Silcock P & Lovegrove C (2007) Retaining the environmental benefits of set-aside-a policy options paper. Report prepared for the Land Use Policy Group, April 2007. www.lupg.org.uk Back

20   Silcock P & Swales V (2007) Cross compliance-a policy options paper. Report prepared for the Land Use Policy Group, April 2007 (draft). Back

21   Report from European Commission to Council on the application of the system of cross-compliance. Back

22   RSPB (2006) Farmland birds and agri-environment schemes in the new Member States. Back