This chapter provides an overview of the developments of the EU Common Agricultural Policy (CAP) from its establishment to the most recent 2023-27 reform, together with an analysis of the evolution of support to the EU farming sector up to 2022, based on OECD Producer Support Estimate and related indicators. Successive CAP reforms have led to a significant drop in the overall level of support and the changes in its composition with greater market orientation and increasing integration of environmental and climate objectives. Despite substantial reforms, most-distorting and potentially most environmentally harmful forms of support still represent nearly a quarter of support to producers. The chapter also provides an overview of EU agricultural trade policies and a more in-depth analysis of CAP instruments and their relation to productivity and resilience objectives.
Policies for the Future of Farming and Food in the European Union
3. The agricultural policy setting
Abstract
Key messages
The Common Agricultural Policy (CAP), the central agricultural policy package in the European Union, is broken down into two categories of measures: Pillar 1 and Pillar 2. CAP Pillar 1 finances direct payments to farmers and market support measures, while CAP Pillar 2 co-finances rural development activities together with Member States. The budgetary process largely pre-allocates CAP amounts between Member States based on history.
Successive agricultural policy reforms in the European Union have significantly changed how support is delivered to farmers. Levels of trade protection and producer support have been reduced since the mid-1990s, and new instruments, such as payments that do not require production, have replaced price support policies. Overall support to producers significantly decreased from 38.4% of gross farm receipts in 1986-88 to 18.8% in 2019-21.
The evolution of support shows direct progress towards market orientation, which is reflected in the presence of less production and trade-distorting measures, as well increasing integration of environmental and climate objectives, reflected in the increasing scope of both mandatory and voluntary input constraints that are attached to payments.
Despite substantial reform of support for the sector, most-distorting and potentially most environmentally harmful forms of support still represent 23.1% of support to producers.
Direct payments make up the bulk of CAP spending. These are mostly decoupled from production and are an important part of farm income, but are not targeted to household income and are not the most efficient tool for achieving productivity and socio-economic objectives. They can slow structural and generational change and could weaken renewal.
Although the ongoing process of conversion of the Farm Accountancy Data Network to the Farm Sustainability Data Network (FSDN) is a positive development, the paucity of data on farm household income, as well as on the environmental and social sustainability performance of farms, may undermine the capacity to design, implement and monitor current and future EU agricultural policy to target and deliver its objectives on the ground.
The new delivery model for 2023-27 introduced a significant change in the governance of the CAP. Combined with the ambitious environmental goals of the European Green Deal (EGD), the 2023-27 CAP has the potential to ensure that the agriculture sector contributes to the European Union’s global sustainability goals, but this will ultimately depend on the individual efforts of Member States.
The CAP is one of the founding policies of the European Union and has significantly evolved over time. This chapter analyses how successive agricultural policy reforms in the European Union have progressively and significantly reduced levels of government support and changed how it is delivered to farmers. Section 3.1 provides an overview of agricultural policy reforms since the Treaty of Rome in 1957, as well as an overview of the main CAP budget mechanisms. Section 3.2 provides an analysis of the level and composition of support using OECD indicators of support, in particular the Producer Support Estimate (PSE), while Section 3.3 provides an overview of EU agricultural trade policies. Section 3.4 is dedicated to a more in-depth analysis of the past CAP instruments related to productivity and resilience objectives, while Section 3.5 examines the CAP 2023-27, highlighting what is new relative to the previous CAP, especially the new delivery model. The final section reviews policy pathways for the programming period post-2027.
3.1. Agricultural policy framework and objectives
3.1.1. Overview of CAP developments
The CAP has been the European Union’s agricultural policy framework since its institution in 1962, although the mix of policy instruments has evolved substantially over time (Table 3.1). As highlighted in Chapter 2, since its establishment, membership to the European Union has considerably enlarged, almost doubling in 20 years, from 15 countries in 1995 to 25 in 2004, 27 in 2007 and 28 in 2013. Following the United Kingdom’s exit in 2020, there are now 27 EU Member States. While the Common Market has become larger and more diversified, environmental and societal concerns around agricultural production practices and food processes have become more prominent in the policy debate.
As for many other policy areas, agricultural policy is a shared competence between the European Union and Member States under the EU Treaties. Member States exercise their own competence where the European Union does not exercise, or has decided not to exercise, its competence. However, the European Union has always intervened more extensively in agricultural policy than in other areas. Agriculture is one of the few areas where the treaties establish a Common Policy. The basic framework of rules is set down in the CAP established under Article 38 of the Treaty on the Functioning of the European Union (Tracy, 1989[1]).
The Treaty of Rome that established the European Community outlined the CAP in 1957 (OECD, 2011[2]; European Parliament, 2021[3]); European Parliament, 2021[170]). Agriculture made up a much larger share of Europe’s economy at that time, and the income gap between rural and urban households was increasing. Moreover, the region was a net food importer with concerns about securing adequate food supplies during the Cold War (Grant, 2020[4]).
The founding principles of the CAP include market unity, community preference and financial solidarity. Its objectives set out in Article 39 of the Treaty on the Functioning of the European Union are to increase agricultural productivity by promoting technical progress, and thus to ensure a fair standard of living for the agricultural population; to stabilise markets; to ensure the availability of supplies; and to ensure that supplies reach consumers at reasonable prices. These objectives have not changed since the CAP was launched over 60 years ago. In practice, the CAP now addresses additional objectives such as the environment, climate change, rural development and animal welfare, but these Treaty objectives remain as the legal statement of the policy’s objectives (Chapter 1, Box 1.1). Measures targeting these objectives were originally financed by the European Agricultural Guidance and Guarantee Fund.
Table 3.1. Overview of the most recent CAP reforms
A key achievement of the CAP has been the creation of a free agricultural market without tariffs and other restrictions on the movement of foodstuffs within the European Union as well as the harmonisation and mutual recognition of regulations that might act as trade barriers, as part of the single market that was completed in 1992. Rules on state aid prevent distortions in competitive conditions between farmers in different Member States. Agricultural markets and practices are also influenced by environmental and health legislation.
From the CAP’s institution until the 1990s, support prices were high compared to world market prices due to tariffs and other trade measures. Combined with an unlimited buying guarantee, European farmers produced increasing surpluses. The budgetary cost of these policies became increasingly high, leading to measures to limit expenditure in the 1980s that included quantitative production restrictions in the form of quotas on milk production.
The CAP’s first major reform occurred in 1992, in conjunction with negotiations on the General Agreement on Tariffs and Trade (GATT) and following the result of the US-EU oilseeds panel. The MacSharry Reform brought about a major shift: instead of supporting production, the regime shifted to supporting producer incomes directly through area payments, avoiding surpluses and reducing overall expenditures (European Parliament, 2021[5]).
The Agenda 2000 reform further aligned EU and world prices, offsetting the reduction of price support with increased direct aid to producers (European Parliament, 2021[5]). In addition, the Rural Development Regulation was introduced as Pillar 2 of the CAP, and the first environmental cross‑compliance conditions were required. As discussed in Chapter 4 (Section 4.3.1), cross‑compliance aims at making European farming more sustainable by creating a link between the full payment of support and the EU standards for public, plant and animal health and welfare.
The 2003 Fischler Reform introduced the single payment scheme, decoupling most support from any requirement to produce (European Parliament, 2021[5]). For most of the Central and Eastern European countries that acceded to the European Union in 2004 and 2007, the decoupled payments were made under the Single Area Payment Scheme. The reform included further cross-compliance and modulation, more financial discipline, and splitting the budget into two separate funds for Pillar 1 and Pillar 2.
Measures taken under the 2009 Health Check sought to continue the direction of the 2003 reform. Decoupling of aid continued and nearly all payments (with the exception of suckler cow, sheep and goat premia) were transformed into decoupled direct payments: the single payment scheme. It further reduced market intervention for a number of products, abolished set-aside and announced the phasing out of milk quotas.
The CAP 2014-22, while in many ways the continuation of the CAP 2007-13, offered a number of novel features (OECD, 2017[6]), including a new system of decoupled payments with seven components; the introduction of safety nets in case of market disruption or price crisis; as well as a more integrated, targeted and territorial approach to rural development (Section 3.4). The main policy tools of the CAP 2014-20 are analysed throughout the study since they applied until 2022.
Based on a 2018 proposal from the European Commission, the political agreement on the current reform (CAP 2023-27) was formally adopted in December 2021, with new legislation covered later in the chapter. This reform entered into force in January 2023 after transitional rules that allowed the continuation of the CAP 2014-20.
3.1.2. The budget process
The CAP is organised into two pillars. Pillar 1 finances direct payments to farmers as income support as well as some market measures and is fully funded by the European Union through the European Agricultural Guarantee Fund (EAGF). Pillar 2 finances rural development activities, including structural measures and agri-environment-climate schemes through the European Agricultural Fund for Rural Development (EAFRD), but requires co-financing by Member States. Member States programme EAFRD expenditures in national or regional rural development programmes that reflect their specific priorities and needs within a menu defined by the European Commission. Some principal differences in the management of the two funds include:
Expenditure under the EAFRD was programmed against specific objectives, whereas this was not the case for EAGF expenditure on direct payments.
Expenditure under the EAFRD only partially finances rural development interventions under shared management, with Member States required to make a co-financing contribution.
The EAGF operates on an annual basis and commitments to Member States must be spent within that year. The EAFRD operates on a multiannual basis, where unspent commitments in one year can be carried forward to later years within rules established in the CAP regulation.
EAGF expenditure that is recovered where the expenditure is not in conformity with Community legislation and no entitlement existed is paid back to the EAGF and becomes assigned revenue in the EU budget. In the case of the EAFRD, sums recovered or cancelled following irregularities remain available to the approved rural development programmes of the Member State concerned.
The absolute budget figure for the CAP more than doubled from 1990 to 2010 (partially related to additional Member States joining the European Union), but has remained relatively stable in absolute terms since then. At the same time, CAP expenditures as a share of the total EU budget declined sharply, from 65.5% in 1980 to 33.1% in 2021 (European Parliament, 2022[7]). The overall budget for the CAP during the years 2014-20 was EUR 408 billion (USD 465 billion), of which 76% was initially allocated to Pillar 1 and the remaining 24% to Pillar 2.
The budgetary mechanism is largely based on pre-allocated CAP amounts between Member States. The budgetary allocations are decided as part of the complex negotiation process of agreeing on the European Union’s Multiannual Financial Framework (MFF), which is decided every seven years. Member States’ main focus during the MFF negotiation process is the net budgetary envelope. This process is characterised by the juste retour principle, where each Member State compares its financial contribution to the EU budget with the money that flows back into the country. EAGF (Pillar 1) direct payments are allocated to farmer beneficiaries on the basis of their eligible hectares, but the funds are not distributed in line with the shares in the EU-eligible area. The Member States’ shares originally reflected the relative amounts of coupled support that was received under the rules put in place after the MacSharry Reform, implicitly benefiting countries with higher levels of production intensity. Direct payment levels per hectare thus differed between Member States. These disparities were exacerbated with successive enlargements in the 2000s. Recent reforms achieved convergence and greater uniformity in payment levels between Member States, while the issue continues to be contentious in the European Union’s MFF negotiations.
The basis for distributing EAFRD (Pillar 2) funds among Member States also depends on history. There are striking differences in the relative importance of EAGF and EAFRD funds across Member States. The EAFRD has a wider range of objectives than the EAGF, including cohesion objectives, since it is part of the European Structural and Investment Funds, which seek to transfer funds to more disadvantaged EU regions. EAFRD spending is increasingly focused on environmental and climate expenditure, although modernisation expenditure remains a priority in the newer Member States. This raises the question of whether the current distribution of EAFRD funds across Member States and regions is well aligned with EU priorities. In its impact assessment for the 2013 CAP reform, the European Commission examined the implications of using different criteria for the distribution of EAFRD support (EC, 2011[8]). The analysis concluded that distribution based on objective criteria would allow for a better fit between the policy objectives and the resources made available, thus a better use of the EU budget, but pointed out that any such change would need to be phased in to avoid disruption and ensure a smooth transition.
3.2. Agricultural support policies
3.2.1. Level of support
OECD indicators of support estimate all monetary transfers associated with agricultural policy and is calculated for the European Union as a whole, not at Member State level. In addition to EU CAP expenditures, these estimates include national and regional expenditures both associated with the co-financing of CAP Pillar 2 measures and purely national measures such as research expenditure, state aid and tax rebates. They also include transfers from market price support (MPS)1 measures.
The broadest OECD indicator of support is the Total Support Estimate (TSE), which includes support to producers individually (PSE) or collectively (the General Services Support Estimate, GSSE) and direct budgetary transfers to consumers. As a percentage of gross domestic product (GDP), it measures the total burden of agricultural support for the economy. The European Union’s TSE decreased from 2.5% of GDP in 1986-88 to 0.6% in 2019-21, a percentage point lower than the OECD average (OECD, 2022[9]). The vast majority of support (87.7% in 2019-21) is allocated to individual farmers and most of the remainder is designated for general services (GSSE) to the sector, which averaged 12% of total support – a decrease compared to 2000-02 and below the OECD average (Figure 3.1).
While the relative importance of the GSSE has slightly declined over the past two decades, the composition of GSSE expenditures has shifted. Expenditure on agricultural knowledge and innovation systems grew nine percentage points to 51% of total GSSE expenditures in 2019-21, equivalent to 6.1% of total support to agriculture. Expenditures on marketing and promotion also rose (now responsible for 25% of the GSSE), while support for the development and maintenance of infrastructure and public stockholding has remained static in absolute terms since 2000-02.
Figure 3.1. Composition of total support to agriculture in the European Union, 2019-21
Note: European Union refers to EU28 for 2019; EU27 and the United Kingdom for 2020; and EU27 for 2021.
Source: OECD (2022[10]).
3.2.2. Changes in the composition of support
Overall, the changes in the composition of support to EU agriculture correspond to three principal axes of reform, discussed below: greater market orientation; greater integration of environmental and climate objectives; and a broader focus on structural policy and rural development. The first two axes are reflected in the evolution of the European Union’s PSE.
Greater market orientation
The original CAP heavily emphasised the role of price transfers (market price support) to achieve its policy objectives, particularly the objective of supporting farm income. In this, it reflected the national policies of the six original Member States that were in place prior to the creation of the CAP (Martiin, Pan-Montojo and Brassley, 2016[11]). However, the level of MPS for grains that emerged from the political negotiations around the launch of the CAP set the initial level at the upper end of the range. This early political decision resulted in producer prices in the early decades of the CAP that were two or even three times higher than world market prices. High internal EU market prices were maintained by variable import levies, intervention purchasing of domestic supplies when producer prices fell below the high guaranteed minimum levels, and variable export refunds that enabled the disposal of surpluses at world market prices and which became increasingly important as EU production exceeded levels of domestic consumption.
Pressures to reform this policy came from its budgetary cost and the increasing trade tensions – particularly with the United States – arising from subsidised EU exports. Attempts were made during the 1980s to control budgetary costs, notably through the introduction of a quota regime for milk production in 1984. However, the first real reform of the CAP (the MacSharry Reform) took place in 1992 during the General Agreement on Tariffs and Trade Uruguay Round negotiations. This led to a lowering of the guaranteed intervention prices, which underpinned producer prices and introduced a system of coupled direct payments to compensate farmers for the anticipated loss in market income. This reform initiated a gradual movement toward greater market orientation with lower intervention support prices compensated by higher direct payments. This process was completed in 2012 following the Health Check Reform of 2009. Since then, intervention prices have been set at levels that provide a “safety net” in the case of a particularly severe drop in producer prices, but do not usually play a role in the formation of producer prices.
A further step towards greater market orientation was introduced with the Mid-Term Review/Fischler Reform in 2003, which decoupled direct payments from production. Farmers now were entitled to receive a lump-sum payment per hectare of eligible land regardless of the level of production on that land or, indeed, even whether the land was used for agricultural production at all (provided it was maintained in a state where it could be used for agricultural production).
Not all direct payments are decoupled. Member States are allowed to target aid to specific sectors facing difficulties, with a view to preventing the escalation of these difficulties that could lead to the abandonment of production. In the original Regulation (EU) 1307/2013, coupled support should only be granted to the extent necessary to create an incentive to maintain current production levels in the sectors or regions concerned. This restriction was removed in the Omnibus Regulation (EU) 2017/2393. Coupled support is still defined as a production-limiting scheme, but this only means that it should be based on either a fixed area or a fixed number of animals, not necessarily limited to the current production level. It must also respect financial ceilings intended to limit the extent of market distortion. The basic rule in the CAP 2014-22 is that coupled support should not exceed 8% of a Member State’s direct payments envelope, but this ceiling could be increased to 13% or even more with Commission approval, and by a further 2% to specifically support the production of protein crops. All EU Member States, except for Germany, decided to use voluntary coupled support during the 2014-22 programming period, with an annual monetary allocation of around EUR 4.2 billion per year. This represented 11.2% of the direct payments budget. The animal-based sectors have always been the largest beneficiaries of coupled payments: in 2022, 22 Member States decided to grant coupled support for beef and veal and 18 Member States to the milk and milk products sector (EC, 2022[12]).
The various reform stages in the CAP are clearly visible in Figure 3.2, which shows the changing level and composition of producer support (as measured by the PSE) over time. While at the end of the 1980s most CAP expenditures financed MPS measures, in particular market interventions and export refunds, the share of those measures in total support decreased gradually as the share of direct payments increased. At the same time, these reforms have also affected the level of support. Overall, the %PSE, which relates support to producers to the value of gross farm receipts, significantly decreased over time, from 38.4% in 1986-88 to 18.8% in 2019-21. Despite these substantial reforms of support for the sector, potentially most-distorting forms of support still represent 23.1% of support (OECD, 2022[9]). Reducing the most distorting producer support measures would most likely contribute to achieving environmental policy objectives across a range of areas (Chapter 4), since often the most-distorting measures also correspond to the most environmentally harmful type of support from a nitrogen pollution perspective (Henderson and Lankoski, 2019[13]; DeBoe, 2020[14]), or for biodiversity (DeBoe, 2020[14]; Lankoski and Thiem, 2020[15]).
Figure 3.2. Level and PSE composition by support categories in the European Union, 1986 to 2021
Notes: PSE: Producer Support Estimate; A/An/R/I: Area planted/Animal numbers/Receipts/Income.
Payments not requiring production include payments based on non-current A/An/R/I (production not required) and payment based on non‑community criteria. Other payments include payments based on non-current A/An/R/I (production required) and miscellaneous payments. European Union refers to EU12 for 1986-94, EU15 for 1995-2003, EU25 for 2004-06, EU27 for 2007-13, EU28 for 2014-19, EU27 and the United Kingdom for 2020, and EU27 for 2021.
Source: OECD (2022[10]).
In the mid-1980s, producer prices were maintained above world market levels by a combination of minimum intervention prices, import tariffs and export subsidies. The significance of MPS has been greatly reduced as successive CAP reforms moved agricultural policy in a more market-oriented direction, though its share has remained largely unchanged since 2010. The fall in MPS was originally compensated by coupled budget payments based on current area, animals, receipts or income (A/An/R/I) and then subsequently by decoupled payments not requiring production. However, in the recent CAP programming period, coupled payment support has again grown in importance. Payments based on input use represent only 16.5% of support, but its share has also grown over time.
From 1992, the share of MPS decreased and the share of payments based on current area and animal numbers increased following the implementation of the MacSharry Reform. This wide-ranging reform included reducing cereal intervention prices, introduced compensatory payments per hectare for cereals or per head for livestock as well as a mandatory set-aside scheme to take land out of production. In conjunction with the reform of budgetary support measures through the MacSharry package, MPS also declined thanks to EU commitments under the 1994 Uruguay Round Agreement on Agriculture. Namely, bound tariffs were gradually reduced and other border measures were implemented (including replacing variable import levies with ad valorem or specific tariffs and tariff rate quotas) (OECD, 2011[2]).
These movements were reinforced with the implementation of Agenda 2000, but the second substantial change to PSE composition began in the mid-2000s after the Fischler Reform decoupled most payments to farmers from production: MPS continued to decrease while a large share of payments lost their link with current factors of production and did not require any production to be granted. No further market orientation reforms have taken place in the last decade since the Health Check, in the 2013 reform or the CAP 2023-27.
Measures that support commodity markets represented 4.7% of the overall agriculture and rural development budget in 2021, but 26.6% of support. Prices paid to EU domestic producers averaged 4% above world market prices in 2019-21. The possibility for public intervention for cereals (namely common and durum wheat, barley, and maize), dairy and other products still exist. However, the last intake of cereals into public storage occurred during the 2009/10 marketing year (EC, 2013[16]) (EC, 2022[17]), the European Union may provide support to operators of private storage of products, such as olive oil, white sugar and more recently also pig meat (EC, 2022[18]).
The Single Commodity Transfer is the OECD indicator used to capture product-specific support. Its evolution shows that successive CAP reforms have reduced the link between payment entitlements and commodity production (Figure 3.3) and data confirm that the 1992 MacSharry Reform can be considered the turning point. Since the early 1990s, support started to be less linked to domestic prices or animal numbers. Another important step was the introduction of the single (decoupled) payment scheme (from 2005 or 2006, depending on the country). The Single Commodity Transfer of the European Union accounted for only 21% of the total PSE in 2019-21, which is well below the OECD average (49%) and the US average (46%), and considerably lower than the averages of Canada and Japan.
Figure 3.3. Single commodity transfers in selected economies, 1986 to 2021
Notes: European Union refers to EU12 for 1986-88; EU15 for 2000-02; EU28 for 2019; EU27 and the United Kingdom for 2020; and EU27 for 2021. The OECD total does not include the non-OECD EU Member States. Due to data availability, Chile only included from 1990, Colombia and Slovenia from 1992, Costa Rica and Israel from 1995, Luxembourg from 2001, and Latvia and Lithuania from 2004.
Source: OECD (2022[10]).
Over time, CAP payments have also become less commodity specific. Only a few commodities are characterised by non-zero transfers and for most of them, MPS is the dominant component of their single commodity transfers (Figure 3.4). Among them, the per cent of budgetary support on farm receipts is higher than the per cent of MPS only for sugar, milk, sheep meat and wine.
Figure 3.4. Commodity-specific transfers in the European Union, 2019‑21
Notes: EU28 for 2019; EU27 and the United Kingdom for 2020; EU27 for 2021. Only commodities with non-zero transfers are presented.
Source: OECD (2022[10]).
Greater integration of environmental and climate objectives
During the 1980s, policy increasingly focused on the environmental impact of agriculture, both to avoid damaging negative impacts on the environment and to promote and support agricultural practices that had a positive environmental impact. The Single European Act 1987 made the environment a shared Union competence for the first time, and the Commission published its first Communication on the Environment and Agriculture in 1988 that put an emphasis particularly on the problems caused by large-scale intensive livestock rearing and intensive crop production in zones at risk of pollution of surface and ground waters by nitrates.
Agricultural pollution issues were addressed mainly by regulation. Again, the 1992 MacSharry Reform can be considered an important turning point, since the agri-environmental Regulation (ECC) No. 2078/92 that was introduced as part of the accompanying measures of this reform was more oriented towards a model of paying farmers to provide desired environmental outcomes. This regulation differed from earlier measures since it made it mandatory for all Member States to implement an agri environmental programme. It also included a wider range of measures and, above all, provided for co-financing of agri-environmental schemes from the guidance section of the European Agricultural Guidance and Guarantee Fund, thus setting the agri-environmental measures on an equal footing with the CAP’s commodity programmes (Latacz-Lohmann and Hodge, 2003[19]).
The Fischler 2003 CAP Reform introduced mandatory environmental cross-compliance for those receiving CAP payments. Climate action has been an explicit objective of the CAP since the 2007-13 programming period. The CAP 2014-20 saw the introduction of a greening payment in Pillar 1, requiring farmers to follow three specific practices seen as beneficial for climate and the environment (Matthews, 2013[20]). EU Member States had to allocate 30% of their income support to this green payment. The CAP 2023-27 introduces a new delivery model with a performance and results based approach, as well as new instruments (e.g. the eco-schemes) to incentivise the adoption of specific farming practices with higher environmental benefits. See Chapter 4 for a more comprehensive analysis of the EU agri-environmental regulations and policy.
The increasing integration of environmental and climate objectives in the CAP is reflected in the increasing scope of input constraints that are attached to payments (Figure 3.5). The share of support with mandatory input constraints becomes significant with the introduction and generalisation of cross-compliance to all CAP payments after the 2003 reform, while the developments in payments with voluntary input constraints are linked to Pillar 2 and, in particular, to the agri-environmental payments that are granted on the condition that farmers change their farming practices (usually to adopt more extensive ones).
Figure 3.5. Payments conditional on the adoption of specific production practices in the European Union, 2000 to 2021
Notes: While the “with mandatory input constraints” label may generally be considered to refer to environmental cross-compliance requirements, programme descriptions often do not provide specifics on what those mandatory input constraints entail. They may or may not be related to environmental externalities or public goods. Similarly, the label “with voluntary input constraints” may describe programmes with input constraints not obviously associated with externalities or public goods.
Source: OECD (2022[10]).
Broader focus on structural policy and rural development
The modernisation of agricultural structures had been seen as a necessary complement to the market policy of the CAP. It led to the introduction of a socio-structural policy in the early 1970s, followed by various integrated development programmes, particularly for Mediterranean countries. Furthermore, a scheme of payments to farmers in less favoured areas was introduced following the United Kingdom’s accession to the European Union in 1975. These early structural policy interventions later broadened into a wider rural development policy following the publication of a Commission Communication on the Future of Rural Society in 1988 (EC, 1990[21]).
Since the 1990s, there has been increasing acknowledgement of the fact that EU agriculture is embedded in the wider fabric of rural communities with mutual synergies between them, recognising that agricultural production is no longer the main economic activity in many rural areas. Rural areas vary greatly in economic and demographic terms, and their challenges are extremely diverse. Various rural development initiatives were included in the newly created Structural Funds during the 1990s. As discussed in Chapter 2, other EU structural and investment funds, such as the European Regional Development Fund and the European Social Fund, also provide support to rural areas, while national policies relating to regional development, urban and spatial planning, and the provision of infrastructure and public services, are the dominant policy influence on rural development trends.
The importance of rural areas was fully recognised in the context of the Agenda 2000 Reform, when rural development policy was made an integral part of the CAP by designating the set of measures subsumed under this term the “second pillar”. The main innovation in the policy was that measures had to be included in a Rural Development Plan, which followed programming methods previously known from the Structural Funds programmes. Member States could choose from a set of measures set out in the governing Regulation (EC) No. 1750/1999, which included, inter alia, a scheme of investment aids, aid for young farmers, support for vocational training, an early retirement scheme, support for farms in less favoured areas, compensation for agri-environment measures, support for the processing and marketing of agricultural products, and forestry. These measures were co-financed by the CAP and by Member States, in contrast to direct payments, which were fully financed from the CAP budget. Member States were given some flexibility to transfer resources between the pillars within limits set down in the CAP legislation. Most of these funds are allocated to farmer beneficiaries, with only a very small share allocated to other rural enterprises and organisations (ADE, 2020[22]).
3.3. Agricultural trade policies
3.3.1. Despite the reduction of market price support, tariffs on agriculture double the average and negatively impact trade
Up to the mid-2000s, MPS generated by trade and other market measures was the main component or producer support in the European Union (Figure 3.2). This changed after the Fischler Reform, and since then, decisions regarding agricultural trade policies have been mostly separated from those concerning domestic policies. Decisions on overall import protection, including the European Union Common External Tariff, the opening of tariff rate quotas (TRQs), and the conclusion of multilateral and bilateral trade agreements, are mainly under the purview of the Common Commercial Policy. Nevertheless, trade policy, as reflected in the European Union’s market price support, has consequences for the productivity, sustainability and resilience of the EU’s agricultural sector.
The European Union extensively applies TRQs in agricultural trade. The Uruguay Round Agreement on Agriculture established TRQs to maintain market access conditions and create minimum access for products with very high bound tariffs. There are also TRQs with specific regional trade agreements. Overall, more than 15% of EU agricultural tariff lines are covered by a TRQ, and more than 20% of agricultural imports enter the European Union under a TRQ regime (Matthews, Salvatici and Scoppola, 2017[23]).
The European Union is the world’s largest agricultural importer and tariffs are still significant in this sector: the simple average most-favoured nations-applied tariff rate for agricultural products was 11.7% in 2021, down from 15.1% in 2006, showing a slow but steady decreasing trend in the last decade and a half (WTO, 2022[24]). This applied tariff rate for agricultural products remains nearly three times the average applied tariff rate for non-agricultural products, calculated at 4.1% for 2021, slightly higher than 15 years ago (3.9%). They are also higher than in other OECD countries such as the United States (5.2%) and Australia (1.2%). The products with the highest most-favoured nation-applied tariffs are sugars and meat preparations, while lower tariffs are in place for products not produced in the European Union (e.g. coffee and tea) as well as for cereals and meats (Figure 3.6).
Figure 3.6. Applied most-favoured nations tariffs in the European Union by product groups, 2006 and 2021
Note: MFN: most-favoured nations.
Source: WTO (2022[25]).
Preferential access for developing countries has only a limited impact
The European Union maintains preferential tariffs for imports from certain countries pursuant to its reciprocal and non-reciprocal preferential agreements. It is the largest trading partner for many of the world’s developing countries, and trade preferences make up one of the central policies for improving integration between the European Union and these countries.
The European Union grants unilateral trade preferences to developing countries through the Generalised System of Preferences (GSP), which has been in force since 1971. The GSP seeks to create economic opportunities in developing countries and promote sustainable development. It consists of three non‑reciprocal arrangements.
The standard GSP, which offers access to the EU market at zero or reduced tariffs on two-thirds of the EU tariff lines – currently benefiting 15 countries.
GSP+, which reduces to zero the tariffs on the goods covered by the standard GSP if the beneficiary country has ratified and implemented 27 major international conventions and meets certain criteria related to the share and diversification of its exports to the European Union – currently benefiting nine countries.
Everything but Arms (EBA), which provides access free of tariffs and quotas to all products except arms and ammunition from 48 least developed countries (LDCs) (EC, 2021[26]).
As of 2019, total EU imports under the GSP amounted to EUR 62 billion, or 39% of all imports from GSP beneficiary countries. In the case of the LDCs, imports under the EBA were EUR 25 billion, or 67% of EU imports from the LDCs. Agri-food products represent only a small share of the European Union’s imports from the LDCs: in 2020, only 12% of total imports from these countries were from the agri-food sector (including fisheries), while 57% of imports were of textiles. The GSP utilisation rates2 for LDC agri-food imports ranged between 74% for vegetable products and 95% for fats and oils (UNCTAD, 2022[27]).
EU assessments have found that the GSP has made a modest contribution to export diversification in developing countries, which partly relates to its concentration in a limited number of beneficiaries: in 2019, five developing countries (Bangladesh, India, Indonesia, Pakistan and Viet Nam) accounted for 80% of total EU GSP imports (EC, 2021[26]). The current EU GSP regulation will expire at the end of 2023, and the system is currently undergoing a revision that seeks to address this and other identified problems and better exploit the GSP’s potential to promote sustainable development.
The proposed new GSP regulation for 2024-34 would keep the current structure of three arrangements. The modifications include adjustments of import criteria to guarantee that the system has more space for poorer developing countries relative to large, industrialised beneficiaries and that countries graduating from LDC status have a smoother transition from the EBA to the GSP+. It also enlarges the list of international conventions that must be implemented in order to benefit from GSP+ preferences to include the Paris Agreement on Climate Change (among others) and introduces an urgent procedure to withdraw preferences when a beneficiary country is found in violation of international standards (EC, 2021[28]).
A recent assessment of the impact of EU tariffs on imports to the European Union in the agricultural sector (Cipollina and Salvatici, 2020[29]) found that, on average, these tariffs have lowered agricultural imports by 14% and that the protectionist impact is larger than the trade creation due to preferential treatment, since the various agreements have increased extra-EU imports by about 10%.
The European Union applies numerous non-tariff measures, such as sanitary and phytosanitary measures and technical barriers to trade, on agri-food products. As of 2016, only 0.5% of food products, 1% of vegetable products and 4% of animal products were not subject to non-tariff measures (WITS, 2018[30]). Non-tariff measures applied by the European Union include requirements on food production and safety, animal and plant health, animal welfare, alien organisms, and gene technology. A 2014 study found that the sanitary and phytosanitary measures applied by the European Union present an important burden for low-income countries, leading to a 14% reduction in their exports (Murina and Nicita, 2014[31]).
3.3.2. The EGD has significant trade implications, and the European Commission intends to use external policy to globally promote higher sustainability standards
One of the objectives of the European Green Deal is to build a more sustainable and healthier food system. Implementing the necessary measures to achieve this objective will have a significant impact on the competitiveness of EU producers as well as on international trade in food, most likely reducing EU production (Petsakos et al., 2022[32]; Beckman et al., 2020[33]; Henning and Witzke, 2021[34]). The European Union has acknowledged that this transformation includes an important external policy dimension to also support the global transition to sustainable agri-food systems (EC, 2019[35]). The Green Deal Communication included an agenda of actions covering diplomacy, trade policy, development support and other external policies to make the European Union an effective advocate focused on convincing and supporting others to take on their share of promoting more sustainable development. It proposed to use its economic weight to shape international standards in line with EU environmental and climate ambitions.
The European Union has identified a particular need to take greater account of sustainability issues in trade policy and to bring about greater coherence between its own agricultural policy, trade policy and Green Deal policies. The Commission’s Trade Policy Strategy emphasised the need to make supply chains more sustainable, in particular, by promoting sustainability standards across global value chains (EC, 2021[36]). Several initiatives were highlighted, including improvements in the multilateral trade framework; promoting the sustainability dimension in the European Union’s trade and investment agreements; the introduction of autonomous measures such as the Carbon Border Adjustment Mechanism and requiring imports to comply with EU production requirements in line with WTO rules; the introduction of legislation addressing deforestation and forest degradation; and sustainable corporate governance, including mandatory environmental, human and labour rights due diligence. The Farm to Fork (F2F) Strategy (EC, 2020[37]) further underlines the importance of these initiatives.
The objectives of these upcoming trade policies are to avoid that EU consumers offshore the negative environmental consequences of their consumption through existing or increased imports and to ensure that EU producers compete with imports on a level playing field. Direct policies like regulations are likely to generate “pollution leakages” (Gruère et al., 2023[38]). These policies aim to raise global sustainability standards by leveraging access to the EU market to provide a stimulus to exporting countries to raise their standards. Its implications for market access are likely to be controversial.
The European Union has recognised the importance of multilateral initiatives to promote international standards in relevant international bodies and to encourage the production of agri-food products complying with high safety and sustainability standards. It has committed to supporting small‑scale farmers in meeting these standards and accessing markets through its development co‑operation policy. The F2F Strategy proposed to pursue the development of green alliances on sustainable food systems with all its partners in bilateral, regional and multilateral fora. One example is the Alliance on Sustainable Cocoa announced in June 2022 between the European Union, Côte d’Ivoire, Ghana and the cocoa sector, which, among other objectives, will help producing countries and the cocoa sector prepare for the implementation of EU legislation on deforestation and corporate sustainability due diligence.
Sustainability is now part of all EU Free Trade Agreements, with an expanding scope of provisions and of upcoming mandatory due diligence regulations
Sustainability as an objective of EU trade policy has also been reflected in a specific chapter on trade and sustainable development in all the European Union’s bilateral free trade agreements since the EU-Korea Free Trade Agreement in 2011. The Commission has recently proposed enhancing the contribution of EU trade agreements to promoting the protection of the environment and labour rights worldwide (EC, 2022[39]). Additional potential commitments include a chapter on sustainable food systems, respect of the Paris Agreement and Nationally Determined Contributions, and a more active role of the chief trade enforcement officer in implementing the sustainability dimension of existing agreements. The revision of the GSP currently underway could also be used to promote greater respect for the environment as well as core human and labour rights.
In line with the objective to make global supply chains more sustainable, two legislative initiatives extend the scope of mandatory due diligence obligations for companies. Political agreement on a regulation to prevent trade in commodities and products associated with deforestation and forest degradation was reached in December 2022 between the Council and European Parliament. The regulation will require operators that place specific commodities on the EU market that are associated with deforestation and forest degradation – soy, beef, palm oil, timber, rubber, cocoa and coffee and some derived products such as leather, chocolate, and furniture – to ensure that only deforestation-free and legal products (according to the laws of the country of origin) are allowed on the EU market. Operators will be required to keep strict traceability to ensure that only deforestation-free products enter the EU market – and that enforcement authorities in Member States have the necessary means to control that this is the case. Although the regulation is seen as mainly preventing the import of agri-food and timber products at risk of contributing to deforestation, it will apply to both domestic and imported products, so they are measured by the same standards.
The Commission also published a proposal for a Directive on Corporate Sustainability Due Diligence on 23 February 2022, which will require Member States to adopt national legislation obliging larger companies to conduct human rights and environmental due diligence. Such companies will be required to identify actual or potential adverse impacts, prevent and mitigate these impacts, and bring these impacts to an end. To ensure compliance, companies would be liable for damages if they fail to comply with their respective obligations. A further Commission proposal in September 2022 would prohibit all products made with forced labour on the EU market.
The application of EU health and environmental standards for imported agricultural products is on the agenda and faces opposition from trading partners
Of particular importance for the agri-food aspects of the Green Deal is the commitment by the European Council, Parliament and the Commission as part of the 2021 CAP political agreement to require that imported agricultural products comply with certain production requirements to ensure the effectiveness of the health, animal welfare and environmental standards that apply to agricultural products in the European Union and to contribute to the full delivery of the European Green Deal and F2F Strategy (European Parliament, 2021[40]).3 In its communication on the Future of Food and Farming in 2017, the European Commission (2017[41]) acknowledged that in “the Union's highly diversified farming and climatic environment, neither top-down nor one-size-fits-all approaches are suitable to delivering the desired results and EU added value”.
In June 2022, the Commission published a report entitled Application of EU Health and Environmental Standards to Imported Agricultural and Agri-food Products (EC, 2022[42]). The report was informed by a public consultation, to which stakeholders from 30 countries, 17 of which were non-EU Member States, submitted their comments; the orientation debate in the Agriculture and Fisheries Council in February 2022; and the Resolution of the European Parliament on the F2F Strategy (European Parliament, 2021[43]). The report concluded that there is some scope to extend EU production standards to imported products, provided this is done in full respect of the relevant WTO rules. The report showed that before applying production standards to imports, it is always essential to make a case-by-case assessment. This report, in addition to assessing the legal and technical feasibility of doing this, and explaining the constraints that apply, also indicated a wide range of areas where the European Union has already extended its domestic production standards to imported products, be it via multilateral, bilateral or autonomous instruments. The prohibition on the import of beef produced with growth hormones is an early example of the application of reciprocity measures to imported agricultural products and, more recently, the European Union has extended its domestic regulation on veterinary medicinal products4 to the import of animals and products derived from animals where antimicrobial drugs were used for growth promotion, or antimicrobials reserved for human health were administered.
There have been debates about the application of EU health and environmental standards for imported agricultural products, particularly when EU farmers no longer have access to active substances for use as pesticides or herbicides, even if in the past there have been some derogations for some Member States. Imports produced with the aid of these substances compete with EU producers. In the F2F Strategy, the Commission stated that it would, in compliance with WTO rules and following a risk assessment, take into account environmental aspects when assessing requests for import tolerances for pesticide substances no longer approved in the European Union. In the first implementation of this principle, the Commission proposed to lower all the current maximum residue limits for two neonicotinoid insecticides, clothianidin and thiamethoxam, to the limit of determination. There has been significant opposition to this unilateral adoption of environmental criteria when setting maximum residue limits from the European Union’s trading partners.5
3.4. CAP 2014-22: Overview of selected tools to achieve PSR objectives
In many ways, the CAP 2014-22 – which includes the 2014-20 Reform and the 2021‑22 transitional rules (Table 3.1) – can be characterised as a continuation of the CAP 2007-13, since the overall funding was almost constant and the two-pillar structure maintained (OECD, 2017[6]). The three main novel features of the CAP 2014-22 can be synthesised in the following (European Parliament, 2021[5]).
Converting decoupled aid into a multifunctional support system with aid directed toward specific objectives. Accordingly, the single payment scheme was replaced by a system of decoupled payments with seven components: 1) a basic payment; 2) a greening payment for environmental public goods; 3) an additional payment for young farmers; 4) a “redistributive” payment for first hectares of farmland; 5) support for areas with specific natural constraints; 6) aid coupled to production; and 7) a simplified system for small farmers. These options also applied in countries implementing the Single Area Payment Scheme.
Consolidating Common Market Organisation tools into safety nets in case of market disruption or price crisis, and ending other supply control measures, namely the milk and sugar production quotas in 2015 and 2017, respectively.
A more integrated, targeted and territorial approach to rural development, including simplifying the range of available instruments to focus on six priority areas: 1) fostering knowledge transfer and innovation; 2) enhancing the competitiveness of all types of agriculture and the sustainable management of forests; 3) promoting food chain organisation, including processing and marketing, and risk management; 4) restoring, preserving and enhancing ecosystems; 5) promoting resource efficiency and the transition to a low-carbon economy; and 6) promoting social inclusion, poverty reduction and economic development in rural areas.
For the 2014-20 period, agricultural expenditure totalled EUR 408.3 billion: EUR 291.3 billion for direct payments (71.3% of the CAP total), EUR 99.6 billion for rural development (24.4%) and EUR 17.5 billion for market measures (Common Market Organisation) (4.3% of the total) (European Parliament, 2022[7]). Table 3.2 shows the distribution of the different types of expenditure by scheme (direct payments and market expenditure), and for priority areas (rural development expenditure).
Table 3.2. Distribution of CAP expenditures, 2015-20
1. No financial allocation is shown for Priority 1 as the expenditure is distributed across other focus areas.
2. The programme of options specifically relating to remoteness and insularity (POSEI) supports the European Union’s outermost regions, which face specific challenges due to remoteness, insularity, small size, difficult topography or climate. It also supports those that are economically dependent on only a few products.
Source: EC (2022[44]).
Figure 3.7 shows the selected policy instruments that are analysed in greater detail in this study amongst the broad portfolio of tools available in the CAP 2014-22, categorised according to the PSR objectives of productivity, sustainability and resilience and the overarching innovation driver. The next subsection reviews agricultural policy tools for productivity and resilience. Measures to promote sustainability and innovation are analysed in Chapters 4 and 5, respectively.
Figure 3.7. The main CAP instruments categorised according to the PSR objectives
Notes: AKIS: Agricultural Knowledge and Innovation System; EIP-AGRI: European Innovation Partnership for Agricultural Productivity and Sustainability. The categorisation was made considering the main objective of each instrument, although some instruments may also have effects on different categories (e.g. AKIS design, advisory service, investment supports, generational renewal; the EIP-AGRI may have effects on productivity and sustainability).
3.4.1. Direct payments
Direct payments make an important contribution to farm income, but their distribution is uneven and is not based on farm households’ disposable income and living standards
Originally, direct payments were introduced to compensate farmers for income losses arising from the reduction in high market support prices (with the implication that they would be transitional or temporary payments). As decoupled payments became a permanent feature of the CAP, various justifications have been advanced: to increase farm income, stabilise farm income, compensate farmers for higher regulatory standards compared to overseas competitors, compensate farmers for the delivery of public goods and ecosystem services, or ensure food security. Certainly, direct payments make an important contribution to farm income, representing 24% of agricultural income in 2015-20 and 12.2% of gross farm receipts in 2021 (OECD, 2022[9]). These percentages are higher for specific sub-sectors (e.g. beef farming) and can be higher or lower for individual countries, even if these cross-country variations cannot be analysed by the PSE database in its current form.6
The distribution of Pillar 1 aid is uneven, since the distribution of direct payments follows the distribution of land use in the European Union, which is highly skewed. Despite all the corrective measures introduced, in 2015, 20% of farms received 80% of this aid (EC, 2022[45]). Moreover, it has been found that land concentration is correlated with the level of direct payments concentration (Severini and Tantari, 2014[46]) and that a high share of direct payments goes to larger farms, where the need for income support is not obvious (Guth et al., 2020[47]; Matthews, 2016[48]; 2017[49]; Ciliberti et al., 2022[50]). Modalities envisaged so far to address this problem, such as higher payments to the first hectares or degressivity above certain thresholds, have witnessed limited take-up by Member States (OECD, 2020[51]).
While some evidence exists on the association between the CAP and the reduction of poverty at the sub-national level (World Bank Group, 2018[52]), there is not enough information or analysis of the impact of direct payments on improving income distribution among farm households, or its role in alleviating low levels of income among farmers. Indeed, direct payments are not targeted to low-income producers. A flat-rate payment per hectare inevitably benefits larger farms whose incomes are often well above the average non-farm income in the relevant country. Some steps to limit payments to very large holdings and to focus payments more on smaller farms have been taken, but their impact on the distribution of payments between farms has been limited to date. Furthermore, it is not farm income but household income that matters for policies that target equity. The untargeted nature of the income support granted by direct payments underlines the potential to make more effective use of these funds (Matthews, 2016[48]) (Marino, Rocchi and Severini, 2023[53]).
Direct payments are no longer the most efficient instrument for achieving resilience objectives
Several studies have found that direct payments stabilise farm income because their coefficient of variation is smaller than market income and smaller than farm income as a whole (Severini, Tantari and Di Tommaso, 2016[54]; Knapp and Loughrey, 2017[55]). To the extent that direct payments improve either the level or stability of farm income, they may contribute to absorption resilience capacity. The extent to which they contribute to adaptation and transformation resilience capacities is more doubtful (Sauer and Antón, 2023[56]). Direct payments may even have negative consequences on the resilience of some farming systems, especially on adaptability and transformability capacities (Buitenhuis et al., 2020[57]), by negatively affecting farm efficiency, total agricultural production and salaried employment (Žičkienė et al., 2022[58]).
However, direct payments are neither the most efficient nor the most equitable instrument to achieve resilience objectives (Matthews, 2016[48]; Matthews, 2017[49]). Leakages to unintended beneficiaries reduce the value of this support to farmers (OECD, 2003[59]; Ciliberti et al., 2022[50]). Direct payments have a short-run effect in raising farmers’ income, but ultimately, the effect of the transfer is to maintain a higher number of people working in agriculture than would otherwise be the case. In the longer run, the effect of the transfer is to slow down the structural transformation of agriculture rather than improve individual farm incomes that mainly respond to productivity trends (Matthews, 2017[49]).
The effectiveness of direct payments in stabilising farm income relative to other risk management instruments can also be questioned. They are not designed to deal with variations in income over time. Payments are made to farmers when prices are low, but when prices are high as well. Simulation analyses undertaken by the OECD found that highly decoupled payments (such as the EU single farm payment/basic farm payment) have very limited crowding-out effects on other risk management strategies, but also have a very limited effect in reducing income variability (OECD, 2011[60]). They are also not necessarily targeted to those farms and farm systems that experience the greatest income variability (Severini, Tantari and Di Tommaso, 2016[54]). To the extent that direct payments do contribute to stabilising farm income, this resilience stabilisation function could also be provided using more targeted payments (Matthews, 2017[49]).
Effects of CAP payments on agricultural employment are uncertain
The literature does not agree on the impact of CAP payments (decoupled, coupled and rural development payments) on agricultural employment. Some studies find a positive impact (though varying by type of payment), while others find a negative impact (for reviews, see Bojnec and Fertő (2022[61]) and Schuh et al. (2022[62]). However, the studies generally agree that the effects are small. One of the more recent studies that addresses some methodological deficiencies of previous studies found that CAP subsidies reduce the outflow of labour from agriculture, but the effect is almost entirely due to decoupled Pillar 1 payments (Garrone et al., 2019[63]). These authors estimated that the budgetary costs of preserving jobs in agriculture are high, putting the estimated cost at more than EUR 300 000 per year per job saved in agriculture. If the policy objective is to create jobs and maintain employment in rural areas, it would seem preferable to use a policy instrument directly aimed at preserving agricultural employment. Helming and Tabeau (2018[64]) simulated the impact of transferring 20% of the 2020 reference scenario Pillar 1 budget per Member State to finance a subsidy on agricultural labour use (independent of the type of labour – family labour, hired labour or contract work). They concluded that the social cost would be about EUR 1 400 per full-time work equivalent in agriculture (their model assumes full employment, the cost would be lower if unemployed labour exists). The lower cost per job maintained may reflect the more targeted nature of a labour subsidy rather than subsidies linked to land, production or investment.
CAP payments can be capitalised in land rents and can also deter generational renewal
In some cases, the benefits of CAP direct payments do not remain with the farmer beneficiary but leak out to benefit other stakeholders. This is particularly likely where the decoupled area-based or coupled payments are capitalised into the value of land and especially land rents, or where payments encourage additional production that decreases agricultural prices, which benefits consumers. Empirical studies agree that capitalisation takes place, although they disagree on the scale of the phenomenon (Baldoni and Ciaian, 2021[65]; Varacca et al., 2022[66]).
Higher land prices and rents can make entry for younger farmers more difficult and thus slow the rate of generational renewal. However, a more important impact may be to delay the exit of older farmers who would otherwise lose their direct payment if they handed over the farm (Schuh et al., 2022[62]). Some Member States required (Austria, Germany, Poland) or still require (France) to cease farming if they wish to receive the state pension (or at least the non-contributory part), which can encourage the transfer of land to the next generation where the state pension is attractive. But in many Member States, the state pension is low. Farmers would suffer an income loss if they ceased farming and lost their entitlement to direct payments, so extending this national legislation may have a limited effect. It may also run into constitutional objections, as was the case in Germany in 2018. However, the effect of CAP payments being used as a social payment to elderly farmers would be to slow down generational renewal.
3.4.2. Other measures to promote resilience
Risk management measures are underused
The European Union has progressively introduced subsidised agricultural risk management measures. Progressive liberalisation of the CAP, via the reduction of price support measures, increased EU farmers’ exposure to market volatility. This led to greater interest in the development of risk management measures, particularly insurance and mutual fund schemes. EU schemes were originally designed with the strict conditions set out in the WTO Agreement on Agriculture to be classified as “green box” payments. These conditions have been gradually relaxed over time to encourage greater uptake. The Commission’s conditions for a national government to subsidise risk management instruments have also been relaxed.
The EU framework to support risk management includes both CAP instruments and state aid rules (Bardají et al., 2016[67]). The first step was taken in 2007 with the reform of sectoral regulations for fruit and vegetables, as well as the wine sector, which allowed introducing prevention and crisis management mechanisms, including support to crop insurance or setting up mutual funds. In the 2014-22 programming period, a risk management toolkit was included in the menu of rural development programmes financed by Pillar 2. Support could be given through financial contributions to insurance premiums; mutual funds compensating production losses due to climatic, sanitary and environmental risks, or an income stabilisation tool which de facto operates as a mutual fund compensating income losses due to production and/or price risks. Additionally, Member States provide ex post natural disaster aid under state aid provisions. It is not clear the extent to which these programmes compete with each other and overlook the recommendation that government support for risk management is best concentrated on addressing market failures, with subsidies limited to covering programme administrative costs and, at most, losses from catastrophic risks (Glauber et al., 2021[68]).
Giving Member States the option to fund insurance schemes and mutual funds in rural development programmes (RDPs) and state aids means that there is no harmonised EU-wide agricultural risk management scheme. While the use of funded risk management presents intra-EU challenges and could have other unintended consequences depending upon programme design, its use remains limited due, at least in part, to the effect of direct payments. Farmers’ access to these instruments varies widely across Member States. Finally, evidence suggests that the expectation of free assistance is important for decisions about risk management measures: if producers believe that the government will bail them out in the event of a disaster, they may be willing to forego participation in existing insurance programmes or to engage in other risk-reducing and managing practices (Glauber et al., 2021[68]; Deryugina and Kirwan, 2017[69]).
There is also a risk that public subsidy of risk management instruments could discourage farmers from adapting to new climate conditions and from increasing self-reliance and preparedness (OECD, 2019[70]). Still, less than 2% of RDP funds were programmed for risk management in RDPs in the 2014-22 period. More generally, the EU risk management toolkit has remained largely underused (Cordier and Santeramo, 2020[71]). Even if improvements are made to increase the availability of risk management options for farmers, there may be limited interest among farmers, given the important role of direct payments in stabilising farm incomes. Additionally, excessive governmental support might crowd out private and market-based risk management solutions by overcompensating for normal business risks and incentivising risky and unsustainable farming practices (OECD, 2019[70]).
Crisis management
The CAP includes several measures that can be activated in the context of market and economic crises. While there is no definition of what such crises are, and therefore no clear threshold exists, the scope of these measures has grown since 2013. In particular, the traditional instruments of public intervention and support for private storage were augmented by provisions for exceptional measures in the event of a market disturbance in Articles 219-222 of Regulation (EU) No. 1308/2013 for all products. These articles provide considerable discretion to the European Commission to handle market crises, including the use of voluntary supply controls and financial support packages. In addition, Member States can be authorised to provide national assistance to their farmers under state aid rules. In recent years, in response to the COVID-19 pandemic (Box 3.1) and the energy price hike induced by the Ukraine war (Box 3.2), a broad range of exceptional crisis management measures and aid packages have been adopted both at the Member State and EU level.
The Commission can use public procurement interventions and aids for private storage for a selected number of commodities such as wheat, rice and beef for public buying interventions, and white sugar, olive oil, and pig meat in the case of private storage. Removing products from the market can give a more sustained boost to prices but is a more costly option. Producer organisations in the fruit and vegetables and wine sectors have long been able to institute market withdrawals, green harvesting7 and non-harvesting8 in crisis periods. The Commission was recently given the power to authorise market withdrawals by producer organisations and recognised interbranch organisations for other products (Article 222 of the Common Market Organisation Regulation), and by co-operatives (Omnibus Regulation (EU) No. 2017/2393). This implies that these measures are no longer considered measures of last resort.
The Commission can also grant financial support packages to producers affected by a sudden market crisis. Advance payments can be made from the CAP budget to improve farmers’ liquidity. Funding for additional aid may be available within the financial ceilings for the CAP budget laid down in the MFF (particularly in the past when assigned revenue from fines and disallowances on Member States boosted budget revenue). The CAP 2014-22 also created a special crisis reserve by withholding an amount of direct payments (EUR 400 million in 2011 prices) to fund emergency measures. If the crisis reserve funding was not used in a particular year, it was returned to farmers the following year and a further cycle of withholding was initiated. However, even in a crisis, Member States in the Council were reluctant to activate this mechanism because it implies the redistribution of funds from one group of farmers to another. The mechanism was activated for the first time in 2022 to make up for a shortfall in available funding elsewhere in the CAP budget to fund the EUR 500 million package to support farmers in light of rising input costs, such as energy and fertilisers, further accelerated by Russia’s war of aggression against Ukraine.
An evaluation of crisis measures in the CAP noted that public intervention and private storage measures have become less effective over time as EU producer prices have become increasingly aligned with world market prices (Wageningen Economic Research and Ecorys, 2019[72]). It also pointed to weaknesses in the supply management measures, partly because they are voluntary (giving rise to a free rider problem [see also Mahé and Bureau (2016[73])] and partly because the entities authorised to engage in co-ordination measures may be too small to influence market prices under increasingly open markets.
On the other hand, state aid was seen as flexible and effective, albeit raising issues of fairness between farmers in different Member States and a lack of transparency on risks covered by this ad hoc assistance. The evaluation concluded that there is no need for additional instruments, neither for crisis prevention, preparation or crisis response and recovery.
Mahé and Bureau (2016[73]) were more critical, noting that the European Union lacks financial resources in times of crisis. They proposed legal changes to budgetary rules to allow the crisis reserve to build up to a sizeable war chest. They also suggested the eligibility for particular emergency aid programmes should be conditional on producer participation in risk mitigation schemes and better defined thresholds.
Box 3.1. European and Member States’ policy responses to the COVID-19 pandemic
The COVID-19 pandemic plunged the European Union into its worst-ever recession and raised multiple challenges that often compounded the European Union’s existing weaknesses (OECD, 2021[74]). The COVID-19 emergency also caused huge disruptions in food and agricultural markets, but the European food and agricultural systems proved resilient in ensuring that consumers could access food. This is also the result of the broad range of measures that have been adopted on this front at the EU level, including flexibility under the Common Agricultural Policy (CAP), exceptional market measures, and direct support to farmers and rural areas.
In this framework, Member States responded with their own policy packages, targeting the most affected sectors. In particular, spending on state aid initiatives under the Temporary State Aid Framework soared in 2020 and early 2021, with 22 countries implementing sector-specific aid packages totalling nearly EUR 6.2 billion (USD 7.1 billion), equivalent to more than 11% of CAP expenditure in 2020 (OECD, 2021[75]). Member States also put in place their own regulatory flexibilities, tax concessions and social contribution measures, investment assistance, and allowances to farm households to help farmers and agro-food enterprises cope with the financial impacts of the COVID-19 emergency. Response measures also responded to labour concerns within the sector, ensured minimal interruptions to food supply chains and helped to ensure that affected consumers had adequate access to food.
The European Union also put in place some trade measures in response to COVID-19, but most were unrelated to agriculture. One measure that did impact agricultural supply chains was the designation of Green Lanes to ensure that trans-European trade in goods under a functioning single market could continue even in the presence of internal border controls erected to protect public health (EC, 2020[76]).
Finally, some policies were implemented to facilitate longer term recovery and sector transformation, such as the Recovery Plan for Europe, a long-term recovery initiative from the COVID-19 emergency. In particular, the Next Generation EU initiative under this plan funds some activities for the agricultural sector to support Member States in recovering, repairing and emerging stronger from the crisis.
Recent experience has shown that, beyond the crisis reserve mechanism, the MFF has limited financial headroom to fund emergency aid packages. Thus, in response to the COVID-19 pandemic and, more recently, Russia’s war of aggression against Ukraine, the Commission has introduced temporary state aid packages that authorise Member States to give national aid, inter alia, to farmers and food companies. The regulations include conditions and stipulations designed to minimise any distorting impact of these packages on competitive conditions within the single market. While they helped in the recovery, these ad hoc measures likely do not encourage preparedness.
In the framework of the F2F Strategy, in November 2021, the European Commission published a Communication on a Contingency Plan for Ensuring Food Supply and Food Security in Times of Crisis (EC, 2021[77]), which outlines areas for improvement that were identified during the COVID-19 pandemic and previous crises, as well as principles that should be adhered to in times of crisis. It also proposed the creation of the European Food Security Crisis Preparedness and Response Mechanism, which has been useful and active, both as follow-up to the Communication as well as in response to the food security challenges caused by Russia’s war of aggression against Ukraine (Box 3.2). Overall, while the EU food supply chain has proved resilient and there were no enduring supply problems or food shortages, the pandemic highlighted the key role of migrant workers both at the farm level in harvesting and in processing plants since border closures and lockdowns affected the availability of migrant workers in labour-intensive food value chains such as meat processing and fruit and vegetables (Matthews, 2020[78]; Wieck et al., 2021[79]).
Following Russia’s war of aggression against Ukraine in February 2022, food security issues were back at the top of the EU political debate. Countries that rely heavily on cereal imports from Ukraine and Russia (mainly North Africa and the Middle East) are at heightened risk of food insecurity due to supply chain disruptions. In response, on 23 March 2022, the Commission published a Communication (EC, 2022[80]) which outlined a number of measures being taken to safeguard global food security and support EU farmers and consumers that have been impacted by Russia’s war of aggression against Ukraine.
Box 3.2. Ukraine war and the implication for the European Union’s agricultural policies
Russia’s war of aggression against Ukraine (hereinafter referred to as the “war”) and related policy responses and economic consequences have shaped global agricultural markets. At the time of the annexation of Crimea in 2014, Russia banned imports of meat, dairy products, and fruits and vegetables from the European Union, North America and several other countries. On 24 February 2022, this long-standing situation escalated into an open war when Russia invaded Ukraine, further affecting global markets and threatening global food security at a time of already elevated global commodity prices.
Ukraine and Russia are among the most important producers and exporters of arable crops in the world, particularly wheat, barley, maize, sunflower seed and rapeseed. Russia also plays an important role in global energy and fertiliser markets. Russia is the world’s top natural gas exporter, second-largest oil exporter and third coal exporter, accounting for 10%, 11% and 18% of global exports, respectively, in 2021 (FAO, 2022[81]). Russia is also the world’s top exporter of nitrogen fertilisers, the second leading exporter of potassic fertilisers and the third leading exporter of phosphorous fertilisers (FAO, 2022[81]), accounting for over 15% of total global fertiliser exports in 2020 (UNTAD, 2022[82]).
Several scenarios have been conducted with the Aglink-Cosimo model that assumes different impacts on the harvest and export levels of all crops in Ukraine, and on the export levels of wheat in Russia for the next marketing season (2022/23) (OECD/FAO, 2022[83]). Table 3.3 shows the impact of these scenarios on international wheat prices. The full loss of Ukraine’s capacity to export would lead to a 19% increase in global wheat prices. This highlights the importance of maintaining Ukraine’s production and export capacity. In the extreme scenario where Russian exports are also affected, wheat prices would be 34% higher than without the war. In this scenario, Russia and Ukraine would jointly export 36 million tonnes (Mt) less wheat, but other countries would increase their exports by 16 Mt due to the higher international prices.
Table 3.3. Relative change in global wheat prices: Scenarios with Aglink-Cosimo for marketing year 2022/23
Notes: The upper left cell in the table refers to the hypothetical situation where exports from both countries are at the same levels as in the past years, not the data presented in the OECD-FAO Agricultural Outlook. Vertically, the production and export of cereals in Ukraine are reduced. Horizontally, the wheat exports of Russia are restricted.
Source: OECD (2012[84]).
A Commission Communication that presented options for addressing rising food prices and the issue of global food security concluded that the European Union’s agricultural production potential should be maintained (EC, 2022[80]). It proposed allowing Member States to derogate from certain rules for ecological focus areas in 2022 by allowing for the production of any crops for food and feed on fallow land that is part of ecological focus areas while maintaining the full level of the greening payment (Commission Implementing Decision (EU) 2022/484). Subsequently, Member States were authorised to derogate the application of Good Agricultural and Environmental Conditions (GAEC) Standards 7 and 8 in 2023 eliminating the need to maintain a minimum share of non-productive area, including fallow land. Fallow land that is brought back into production cannot be used for the production of maize or soya for animal feed (Commission Implementing Regulation (EU) 2022/1317). The Communication also recommended that Member States revise their CAP strategic plans with a view to supporting farmers in adopting practices optimising the efficiency of fertilisers, thus reducing their use, and prioritising investments that reduce dependency on gas and fuel.
The Communication cautioned against any increase in the use of food and feed crops as feedstock for biofuel and supports Member States to reduce the blending proportion of biofuels to reduce the use of EU agricultural land for the production of biofuel feedstocks, thus easing pressure on the markets for food and feed commodities.
3.4.3. Measures to promote productivity
Investment support
The CAP provides investment support for farms to stimulate farm modernisation and productivity.9 This support is manly provided through RDPs, with the overall objective of stimulating technical progress and labour productivity in agriculture.10 Farmers can face liquidity constraints when they seek to use advanced technological innovations. CAP payments can help to overcome these constraints. Access to credit at competitive rates is difficult, as banks consider potential loans to farmers and many other rural businesses – especially smaller ones – as risky.
A study by the European Commission and the European Investment Bank estimated that the EU agricultural sector financial gap for short-term loans is EUR 1.56 billion to EUR 4.12 billion and for medium- and long-term loans EUR 5.50 billion to EUR 14.48 billion (EC and EIB, 2018[85]). CAP income support payments can help relieve these constraints. Guastella et al.’s (2013[86]) empirical analysis suggests that on-farm investment levels are positively related to the receipt of direct payments. However, the overall impact of direct payments on agricultural productivity depends on the use of these payments. There is little evidence that partially coupled subsidies in place prior to 2005 have lowered farm productivity, but that the change to decoupled payments after 2005 has eliminated this negative effect and may have even contributed to a positive productivity effect (Antón and Sauer, 2021[87]). The potential positive effect of fully decoupled payments on productivity was confirmed by Sauer et al. (2021[88]), who compared the impacts of reforms largely decoupling payments in the United Kingdom to the minimum decoupling approach in France (Box 3.6). Still, most studies find that the impact of decoupling of CAP direct payments on productivity is limited (Matthews, Salvatici and Scoppola, 2017[23]; DeBoe, 2020[14]).
Investment programmes under Pillar 2 of the CAP have been widely used to incentivise investments in innovation by improving the liquidity position of farmers, with the expectation that this would lead to increased production and higher productivity. Empirical studies provide some evidence that these investment programmes have helped to scale up and speed up farm modernisation and restructuring (Fertő et al., 2017[89]). Kirchweger and Kantelhardt (2015[90]) concluded that publicly supported farm investment activities in Austria fostered farm growth significantly, with both total livestock units and utilised agricultural area increasing significantly more on investing farms than on non-investing farms. In a recent study on the effects of investment support from RDP measures on Swedish farms, it has been observed that farms receiving support go through a period of adjustment before they see an increase in productivity performance, confirming the presence of time lags between investments and effects that need to be considered to avoid misleading conclusions and policy recommendations (Nilsson and Wixe, 2022[91]) In a study of farms in Central and Eastern European countries, Czubak, Pawłowski and Sadowski (2021[92]) found that investing farms, including those co-financed by CAP investment grants, were much larger than average and were the only farms to experience an improvement in technical efficiency in the study period. At the same time, a study by the Directorate-General for Agriculture and Rural Development concluded that the effectiveness of CAP investment programmes on agricultural productivity in the European Union is hampered by the fact that only 2.5% were expected to receive such support. The programme’s effectiveness in generating farm-based growth potential could also be impeded by the lack of integration with business development advice (DG AGRI, 2019[93]).
Another tool used in the EAFRD is financial instruments (FIs). These are EU measures providing financial support in the form of equity or quasi-equity investments, loans or guarantees, or other risk-sharing instruments. FIs may be combined with grants, where appropriate. Loan funds and guarantee funds have been the most common FIs used in the agricultural sector. FIs have been part of EAFRD funding since the 2000-06 programming period, but interest among RDP managing authorities has been growing in recent years (54 RDPs included this option during the CAP 2014-20 period compared to 14 during the 2007-13 period). Nevertheless, FIs’ full potential continues to be largely untapped. By June 2017, EUR 460 million of RDP funds were allocated to FIs, barely contributing to overcoming the EUR 7 billion-EUR 19 billion loan financing gap for agricultural small and medium-sized enterprises. This could be attributed to a lack of awareness among managing authorities of the potential of FIs (EC and EIB, 2018[85]).
Young farmers support
The CAP includes several measures that support young farmers, seeking not only generational renewal in the agricultural sector but also increased adoption rates of agricultural innovations. Under the first pillar of the CAP 2014-22, young farmers received a 25% supplement (top-up) to the direct support allocated to their farm for a period of five years as part of the “Young Farmer Scheme”, which Member States were obliged to implement. Member States could choose to strengthen the eligibility criteria by defining further requirements (such as adequate training or submission of a business plan). Under the second pillar, young farmers had access to a start-up grant while they could also be granted more favourable access to other measures, e.g. investment support or extra support for farm advisory services specifically addressing the needs of young farmers.
There is little evidence that these CAP measures helped young farmers set up or improved generational renewal and the viability of the supported holdings. Several studies suggest that the Young Farmer Support under the CAP had little impact on young farmers’ decisions on whether to enter farming or not, and it recommended alternative approaches to support young farmers that better address the challenges and barriers to entry, such as targeted agricultural training and education and specific support with access to the land market and credit for investments (Vigani et al., 2017[94]; Coopmans et al., 2021[95]; Coopmans et al., 2020[96]). The start-up programme under Pillar 2 had some positive effects, since it was directed to more qualified farmers who committed to implementing a business plan intended to demonstrate the viability of the business and sped up the transition process for becoming the manager of a farm as well as increasing income from farming and the prospects for farm survival (Nordin and Lovén, 2020[97]).
Overall, current policies have been assessed to be ineffective in supporting the farm transfer process and providing aid during farmers’ early career, they do not target the stage preceding farm take-over, during which possible entrants develop a successor identity (Coopmans et al., 2020[96]). In particular, existing CAP payments may deter access to land for young farmers. A report for the European Parliament (Zagata et al., 2017[98]) recommended re-evaluating the direct payment scheme and creating new incentives for older farmers to pass on their farms. It also suggested that supports further focus on additional barriers, such as access to capital, lack of business skills and insufficient succession plans. Additional research suggested that the financial support schemes aimed at encouraging young people to participate in agricultural activities can be offset by other CAP measures, which contribute to increasing land prices, thereby creating a barrier to entry for young farmers (Đurić, Kuzman and Prodanović, 2019[99]). The challenge is to find the right balance between encouraging additional entrants to farming and encouraging a process of structural transformation, which is a necessary step to creating more profitable and attractive professional perspectives in farming (Ryan, 2023[100]).
3.5. From compliance to performance: The ambition of the CAP 2023-27 Reform
3.5.1. Negotiating the CAP in the context of the European Green Deal
The European Commission presented its proposal for the CAP reform in 2018 in the context of its MFF proposal for the period 2021-27, along with an impact assessment. The key initiatives in the legislative package had previously been flagged in a Communication on the Future of Food and Farming published by the Commission in November 2017 (EC, 2017[41]), which in turn took into account the results of a public consultation on the future CAP earlier in 2017 (Ecorys, 2017[101]). After the presentation of the European Commission’s proposals, several factors delayed the progress in the protracted negotiations’ key events and dates (Figure 3.8).
The discussions on the future CAP took place in a restrictive budget context, due partly to the departure of the United Kingdom, which was a net contributor to the EU budget, and partly to the growing importance of other priorities that the European Union wished to fund (Matthews, 2018[102]; Matthews, 2020[103]). The Commission’s initial MFF proposal put forward in May 2018 would have reduced the budget allocation for the CAP by around 5% in current prices. The MFF negotiations made little progress in resolving divisions between Member States until early 2020. In March 2020, Europe had become the epicentre of a global pandemic caused by the COVID-19 coronavirus. The European Council tasked the Commission to come forward with a proposal for a recovery fund targeted towards the sectors and geographical parts of Europe the most affected. It subsequently tabled an amended MFF proposal together with a proposal for a regulation establishing a recovery instrument (Next Generation EU) for 2021-24 to support recovery in the aftermath of the COVID-19 pandemic. This enabled MFF conclusions to be agreed upon in July 2020, which slightly raised the CAP budget above the Commission’s original proposal, including a contribution from the new recovery instrument to EAFRD funding (Massot, 2021[104]). With the budget agreed upon, both the Council and Parliament quickly reached their first reading negotiating positions on the CAP legislative proposal in October 2020 and the trilogue process could begin.
Figure 3.8. Timeline of the CAP 2023-27 Reform
Notes: CAP: Common Agricultural Policy; MFF: Multiannual Financial Framework; EP: European Parliament; MS: Member States.
Source: Martinos et al. (2022[105]).
Another factor that delayed negotiations was the European Parliament elections held in May 2019, which resulted in a change in political composition. A new College of Commissioners took up office in December 2019 and, in the same month, the Commission published the Communication on the European Green Deal (EC, 2019[35]). The Commission spelt out implications for agriculture in the F2F Strategy in the spring of 2020, which was designed to accelerate the transition to a fair, healthy and more environmentally friendly food system (EC, 2020[37]). It was accompanied by a Biodiversity Strategy that also has implications for agricultural land use (EC, 2020[106]). Agriculture will also be affected by other EU legislative and other initiatives linked to the EGD, notably the European Climate Law (EC, 2020[107]), a new Circular Economy Action Plan (EC, 2020[108]), and the updated EU Bioeconomy Strategy (EC, 2018[109]). These ambitions and the new targets set out in the F2F and Biodiversity Strategies should be integrated into the future CAP, as discussed in Chapter 4.
Table 3.4 shows a selected and non-exhaustive list of targets and initiatives of relevance to agriculture. It also lists the main directorates-general responsible for action to meet these targets. While the Directorate-General for Agriculture and Rural Development (DG AGRI) is responsible for some of the targets and actions, other Directorates-General such as Environment (DG ENVI), Health and Food Safety (DG SANTE) and Climate Action (DG CLIMA also play a major role. The growing influence on agricultural policy of these non-traditional actors is an important driver of change and requires increased attention to co-ordination within the Commission as well as with Member States.
Table 3.4. Main targets and actions relevant to farming in the European Green Deal
Notes: DG AGRI: Directorate-General for Agriculture and Rural Development; DG ENVI: Directorate-General for Environment; DG SANTE: Directorate-General for Health and Food Safety; DG CLIMA: Directorate-General for Climate Action.
1. As shown in Chapter 4, agricultural emissions are only to a very small extent covered in the Fit for 55 proposal.
By definition, a Communication from the European Commission is not itself a legislative or policy proposal and is published when the Commission wishes to set out its position on a topical issue. While certain aspects of the quantitative targets in the F2F Communication have been criticised (Copa-Cogeca, 2020[110]), in particular the realism of the proposal to increase the EU area under organic farming from 9.1% in 2020 (Eurostat, 2022[111]) to 25% by 2030 (Box 3.3) an impact assessment is not required for Communications from the European Commission, and for some targets, legislative proposals are planned. It is once the Commission wishes to make EU legislative proposals that proposals must be accompanied by an impact analysis to allow the environmental, social and economic consequences of specific targets to be assessed.
When the Council and Parliament negotiating mandates were agreed in October 2020, there was considerable push-back from those who argued that they were inadequate to ensure that the CAP would sufficiently contribute to achieving the EGD targets (see, for example, IEEP (2020[112]). The Commission’s view was that the CAP legislative package was compatible with the EGD (EC, 2020[113]) while identifying certain aspects of the proposals from the co-legislatures that did not match with the new CAP delivering on the EGD objectives (EC, 2020[114]). The Commission was particularly concerned about proposals that would weaken conditionality relative to what it had proposed, weaken the ring‑fencing of Pillar 2 expenditure for climate and the environment, and weaken the effectiveness of the performance monitoring framework.
Following extensive negotiations between the European Parliament, the Council of the European Union and the European Commission, agreement was reached, and the new CAP was formally adopted on 2 December 2021. For 2021 and 2022, a transitional regulation was in place, bridging the gap between the two programming periods. The CAP 2023-27 is built around ten objectives (Chapter 1, Figure 1.2), which are also the basis upon which EU Member States have designed their CAP strategic plans (CSPs). Such objectives are linked to common EU goals for social, economic and environmental sustainability in agriculture and rural areas.
The 2023-27 CAP reform covers three main regulations: one setting out rules for support in CSPs (EU Regulation 2021/2115); one horizontal regulation establishing rules for the financing, management and monitoring of the CAP (EU Regulation 2021/2116); and the third amending the Common Market Organisation Regulation, the rules on quality schemes and aid measures for agriculture in the outermost regions (EU Regulation 2021/2117). The final regulations are not very distant from the Commission’s draft CAP legislative proposal of 2018, which was published prior to the more ambitious targets set out in the EGD. The new CAP delivery model for 2023-27 has the potential to be a milestone to ensure that the CAP contributes to the EU’s global sustainability goals, but this will ultimately depend on how Member States implement it and the results it will be able to deliver on the ground.
Box 3.3. Organic farming
Organic production is an overall system of farm management and food production that contributes to the preservation of natural resources and applies high animal welfare and production standards. Since 1 January 2022, Regulation (EU) 2018/848 of the European Parliament and of the Council of 30 May 2018 is the applicable legislative act, also known as the basic act, laying down the rules on organic production and labelling of organic products in Europe.
Through the F2F and the Biodiversity Strategies, the European Commission has committed to reaching a target of 25% of the European Union’s agricultural land being under organic farming by 2030. This target aims to both improve the sustainability of the food system and reverse biodiversity loss. To meet this target, and help the organics sector reach its full potential, the Commission has set out an Action Plan for the Development of Organic Production (EC, 2021[115]). The action plan is divided into three interlinked axes that reflect the structure of the food supply chain and the EGDs sustainability objectives:
Axis 1: Stimulate demand and ensure consumer trust
Axis 2: Stimulate conversion and reinforce the entire value chain
Axis 3: Organics leading by example – improve the contribution of organic farming to environmental sustainability.
Recent production and market trends show the importance that organics have gained over the last decade in Europe. Agricultural area under organic certification has consistently expanded, reaching around 14.7 million hectares of agricultural land in the European Union in 2020, corresponding to 9.1% of the total utilised agricultural area. This represents a steep rise from the 9.5 million hectares used for organic agricultural production in 2012 (Eurostat, 2022[116]). Nevertheless, there is great variability among countries and only Austria has already reached the 25% target. Most countries are well below the target, with only eight countries, in addition to Austria, with an area cultivated with organic methods above the 10% level (Figure 3.9).
Figure 3.9. Share of land under organic production in the European Union and EU Member States, 2020
Source: Eurostat (2022[117]), accessed July 2022.
3.5.2. The new delivery model
The most paradigmatic change of the CAP 2023-27 is that a great responsibility for the design and implementation of this policy has been transferred to Member States, which were required to present their proposed interventions in the form of CSPs. The Commission’s main justification for this New Delivery Model was as follows: “The current CAP delivery system relies on detailed requirements at the European Union level, and features tight controls, penalties and audit arrangements. These rules are often very prescriptive, down to the farm level. In the Union’s highly diversified farming and climatic environment, however, neither top-down nor one-size-fits-all approaches are suitable to delivering the desired results and European Union added value” (EC, 2017[41]).
The Commission proposed instead that the European Union set the basic policy parameters (objectives of the CAP, broad types of intervention, basic requirements), while Member States should bear greater responsibility and be more accountable for how they meet the objectives and achieve the agreed targets. This is summarised as a shift in Member States’ implementation responsibilities from a compliance-based to a performance-based or results-based CAP. The CAP objectives would include those set out in the Treaty, but also other agreed objectives and targets set in the context of climate policy and the United Nations Sustainable Development Goals. Greater subsidiarity allows Member States and regions in federal states to better take account of local conditions and needs against such objectives and targets. Member States can decide how to tailor CAP interventions to maximise their contribution to EU objectives.
Member States were required to develop CSPs to be able to draw down CAP funding. In developing these plans, Member States analysed their specific situation and needs through a SWOT analysis (Strengths, Weaknesses, Opportunities and Threats), set targets linked to achieving the objectives of the CAP in light of these needs, and designed the interventions which will allow those targets to be reached (EC, 2022[118]). An important innovation is that this programming approach should be applied to interventions under both pillars of the CAP, not only to rural development interventions as was the case previously. There is one CSP for each Member State (except for Wallonia and Flanders in Belgium) for a total of 28 plans. This compares to 118 rural development plans in 2014-20 that included regional plans in several countries (e.g. France, Germany, Italy and Spain).
The process started in 2021 with the preparation of the CSPs by Member States. Ultimate responsibility for drafting the plan rests with the relevant ministry, usually the Ministry for Agriculture. An important innovation in the process is that relevant non-CAP measures, including related national interventions, should be described in the intervention strategy to give a complete picture of how the targets should be achieved.
The plans were developed in partnership with the relevant authorities at the regional and local levels; economic and social partners, including representatives of the agricultural sector; as well as relevant bodies representing civil society and, where relevant, bodies responsible for promoting social inclusion, fundamental rights, gender equality and non-discrimination. Specific rules were laid down for how this partnership process should operate, including a requirement for widespread consultation. While it is not within the scope of this review to evaluate the extent to which these procedural requirements were met in practice, a preliminary overview of the CSP is available (EC, 2022[118]).
The achievement of the ten specific objectives of the CAP 2023-27 is strongly dependent on the quality of CSPs that Member State administrations were able to prepare, with technical assistance provided by the Commission, and their capacity to implement and monitor the programmes at the farm level. Ministry officials may require a new mindset, skills and capacities, as well as the institutional capacity to undertake the required strategic planning.
The key governance challenge of the New Delivery Model is to ensure that the incentives and targets at the Member State level are also well designed and transmitted at the farm level. Only with actual changes in farming practices will these efforts sum up to the required changes at the EU level. As shown in the next section, this will depend on several factors, including the governance structures put in place by the legislation as well as the effective improvement of monitoring and evaluation systems, including the availability of data.
3.5.3. Achieving sustainability targets
A new role for Member States to achieve environmental targets and social sustainability
The new CAP aims at a higher level of environmental and climate ambition and, since the publication of the EGD, it is also expected to help achieve the targets set out in the F2F, Biodiversity and other relevant strategies in the climate and energy domains. The CAP 2023-27 contains a revised “green architecture” with instruments that Member States can use to achieve their sustainability goals (Chapter 4), and puts a greater emphasis on the importance of innovation (Chapter 5).
Over time, the environmental sustainability elements have been increasingly accompanied by social sustainability considerations and an increased emphasis was placed on employment, gender equality, social inclusion and local development in rural areas. For the first time, CAP payments will be linked to compliance with certain European labour law provisions under the new social conditionality mechanism (Box 3.4). While these new provisions on highly socially resonant elements, such as the working conditions of migrant workers, represent an important innovation for the CAP (Erjavec and Erjavec, 2021[119]), some of the shortcomings observed for the environmental conditionality (Chapter 4) – linked to the difficulties to enforce rules and monitor results – could also apply to this new mechanism.
Box 3.4. Social conditionality
Future Common Agricultural Policy (CAP) payments will be linked to compliance with certain European labour law provisions. In particular, payment beneficiaries can be subject to an administrative penalty if they do not comply with the requirements related to applicable working and employment conditions or employer obligations arising from legal acts referred to in the regulation (concerning transparency and predictable working conditions and health and safety conditions at work). Because of the complexity of setting up systems at the national level which respect the autonomy and specificity of national systems, Member States are allowed to delay the implementation of social conditionality, but they will have to implement it by 1 January 2025.
The new mechanism will cover directives on:
Transparent and predictable employment conditions: farm workers must be informed of employment conditions in writing, regardless of the hours worked. This includes place and type of work; beginning and, where relevant, end of employment; information on probation period; paid leave; notice periods; remuneration; work pattern/schedule; and social security information.
On-farm safety and health: employers must ensure the safety and protection of farm workers with regard to farm machinery and equipment, protective clothing and equipment, or dangerous substances.
Social conditionality will operate differently than the other conditionality elements. Paying agencies have no role in ensuring that social conditionality rules are enforced. They will receive annual information about the outcome of controls; administrative and legal procedures from the competent enforcement authority; and information on the breach, its severity and extent. The paying agency will then interpret what that information means for the administrative penalty to be applied to the farmer.
Labour organisation on farms is changing rapidly and this brings new challenges. Introducing social conditionality implies that farm advisory services must provide information to farmers on working conditions and on information to be provided to workers (Laurent and Nguyen, 2022[120]), and that Member States have the opportunity to promote the improvement of working and employment conditions as part of their sectoral interventions.
The feasibility of including provisions for the free movement of workers will be assessed by 2025. As the social conditionality mechanism is being created for the first time, an evaluation of its functioning by the European Commission is foreseen after two years of implementation to see whether possible adjustments are necessary.
Additionally, CSPs will support farmers to improve working conditions on farms through the farm advisory system and under interventions in the different sectoral programmes.
Given that when the CSPs were approved before a decision has been taken on whether to include relevant targets for agriculture in the F2F, the Biodiversity Strategy and the Climate Law, and that there is no EU-wide legally required reduction in agricultural emissions, the level of ambition to date is determined by the targets that Member States included in their CSPs.
The New Delivery Model introduces a significant change in the governance of the CAP. The use of CAP funds in Member States is no longer primarily evaluated on the basis of whether paying agencies and managing authorities have complied with detailed legislative rules. Instead, the focus is on setting targets based on a needs assessment against the ten CAP objectives and, based on an intervention logic, deploying interventions and allocated CAP resources to achieving those targets. Evaluation of the use of CAP funds will be based on how well countries achieve the targets they set for themselves.
In December 2020, the Commission issued recommendations to each Member State as part of its structured dialogue in the preparation of their plans. These identified specific priorities that the Commission felt should be addressed in their plans. The recommendations also covered the environmental and climate objectives addressed in the EGD. The Commission asked Member States to determine specific national values for six F2F and Biodiversity Strategy targets and to align their strategic plans with these targets. A requirement for a target for reductions in agricultural GHG emissions was not included (EC, 2020[121]).
The European Commission’s approval process involved external and internal validation. For the external validation, the Commission is required to assess “its completeness, its consistency and coherence” with the CAP Regulations and EU law. It should also assess its effective contribution to achieving the CAP’s nine specific and one cross-cutting objective, its impact on the functioning of the internal market and any potential distortions of competition, and its level of administrative burden on beneficiaries and the administration. The internal validation assesses the adequacy of the plan’s strategy and whether the corresponding specific objectives, targets, interventions and the allocation of budgetary resources meet the specific plan’s objectives through the proposed set of interventions based on the SWOT analysis and the ex ante evaluation.
The challenge of monitoring and evaluating policy impacts
Under previous CAPs, most payments to EU farmers have not been performance-based, and farmers have not been paid for achieving performance targets (Lankoski, 2016[122]). The new CAP 2023-27 has adopted a common practice of assessing the achievement of performance targets on the basis of a set of common indicators. The quality of monitoring and evaluation is very dependent on the quality of the indicators chosen (Wieck and Hausmann, 2019[123]) and may depend on how closely indicators are linked to objectives and on the reliability and robustness of the data behind the indicators.
When drafting their CSPs, Member States have been required to demonstrate the alignment with and appropriateness of the choices made to EU priorities and objectives. In line with the performance-based intervention strategy structured around the specific objectives of the CAP, the CSPs also include quantified targets and milestones for relevant result indicators in relation to those objectives.
Plan approval is one element of governance. Monitoring progress and adjusting strategies in light of outcomes is equally important. The Commission’s legislative proposal recognised that a shift towards a more performance-oriented policy required the establishment of a more solid performance framework that would allow the Commission to assess and monitor the performance of the policy based on a set of common indicators. The legislation introduced a new Performance Monitoring and Evaluation Framework that covers all instruments of the future CAP. Performance is measured in relation to the specific objectives of the policy using a set of common indicators. Member States will provide an annual performance report to the Commission on the implementation of the CSP in the previous financial year by reference to financial data and output and result indicators (Article 134, EU Regulation 2021/2115).
According to the legislation, the plan’s targets will be set for result indicators, but not necessarily in terms of impacts (although the Commission has requested national values for six impact indicators related to the EGD). A result indicator measures, for example, the share of agricultural area under management contracts to sequester soil carbon, but not necessarily the amount of carbon that will be sequestered because of these actions (ECA, 2018[124]). A lack of appropriate impact indicators – and therefore of quantified targets – may then undermine the capacity of current models to assess the environmental performance of farming and, above all, the full spectrum of the environmental impacts of the CAP (Guyomard et al., 2020[125]). Impact indicators are also very important for ex ante modelling to support policy planning, particularly considering the wide range of policy options Member States dispose of in the CAP 2023-27 (Petsakos et al., 2022[32]). Even though it has been observed that the majority of result indicators rather reflect outputs and that several “impact indicators” do not address impacts (IEEP, 2019[126]), cost and feasibility considerations also need to be taken into account.
In September 2022, the Commission adopted EU Regulation 2022/1475, providing a common framework for monitoring and evaluating the CAP achievements. The new evaluation framework builds on existing experience and provides a common understanding of key concepts and elements for monitoring and evaluating the implementation of CSPs. When evaluating their CSPs, Member States are expected to assess their factors of success, for example the decrease of greenhouse gas emissions in agriculture, the stability or increase of the agricultural income, the improvement of nutrient balance on agricultural land, or the growth of rural businesses. In the framework of the Annual Performance Report, Member States will share with the Commission aggregated data at the national level, offering an overview of the level of implementation of CSPs at the national level.
Farm-level data are gaining importance with agricultural policy shifting away from market interventions and direct payments to farmers requiring more precise and efficient measures. They are a prerequisite for carrying out policy impact assessment and are necessary to gain insights into drivers of farms’ performance. However, obtaining access to individual data and cross-country analysis is challenging due to confidentiality requirements and the lack of cross-country harmonisation of definitions. In 2008, the OECD established the Farm-Level Analysis Network (FLAN) with the aim of “improving the quality and relevance of policy analysis applied to the agricultural sector through the use of micro-level data” (Box 3.5).
In the European Union, the range of farm-level data currently available limits which indicators can be developed and the capacity to design outcome based eco-schemes that are known to be more effective (OECD, 2022[127]). Together with the indicators of environmental sustainability and innovative practices that promote more efficient use of natural resources and the resilience of farmers, the social sustainability of farms is one of the dimensions that needs the most development of indicators in the future (Latruffe et al., 2016[128]). Disaggregated data per beneficiary and intervention will help these efforts, but will only be available in 2025, reflecting data for 2023 and 2024 (EC, 2022[129]).
Box 3.5. Drivers of farm performance: Conclusions from the OECD Farm-Level Analysis Network
The OECD Farm-Level Analysis Network (FLAN) brings together experts in the field representing both agricultural economics research institutes and government bodies. It provides its members with a platform to share experiences using micro-level data, draw attention to emerging policy issues and raise awareness for the need for improved data at farm level. FLAN activities enrich OECD agricultural policy analysis by using micro-level data and expertise, which has resulted in number of analytical projects and publications, including on drivers of productivity, sustainability and resilience on the farm level described below.
In “Dynamics of farm performance and policy impacts”, Sauer et al. (2021[88]) used case studies from seven countries, six of which are European, to evaluate farm performance based on an analysis of farm‑level data. They concluded that the development of the gap in productivity growth between high- and low-performing crop farms differs between countries. While the most productive farms in Australia have widened the gap to the worst performers, the opposite applies in many European countries, where the gap has decreased. In the case of dairy farms, a widening gap between the most productive and least productive farms was shown in all analysed countries. To provide further policy insights, a counterfactual analysis was conducted. While France implemented the single farm payment scheme making use of the maximum possible share of payments as coupled (25%), the United Kingdom decoupled the payments entirely (only Scotland maintained partial decoupling). The results showed that complete decoupling had a positive effect on farm productivity performance, hence English farms displayed stronger productivity increases than French farms.
In “Drivers of farm performance”, Sauer and Moreddu (2020[130]) looked at drivers of environmental sustainability and productivity performance of farms through empirical country case studies. The analysis suggests mixed results: while the gap in the productivity performance between low- and high‑productivity performers is widening in some countries, it is narrowing in others. Looking into the links between environmental sustainability and productivity, the authors conclude that trade-offs and synergies depend on the type of farming. For instance, dairy, pig and poultry farms show a negative relationship between sustainability and productivity, while crop farms benefit from strong synergies. The authors identify innovation and technical change as key drivers of farm productivity and environmental sustainability. The innovation-cooperation-commercialisation index was used to reflect purchases of new technologies and engagement in new activities, among others. This index was shown to have particularly strong positive effects on productivity in a variety of production types. For practical design and implementation of policies, more country-specific, in-depth analyses would be needed.
Source: OECD (2023[131]).
The need for data and evidence
To design, monitor and evaluate the CAP, the Commission receives and processes a large volume of data. Consolidated data are published on the Agri-food Portal (EC, 2022[132]), which offers information from many data sets, including Eurostat agricultural statistics, through interactive visualisation and dashboards. In line with its Data Policy (Chapter 2, Section 2.3.5), the Commission is expanding data sources and encouraging data sharing to tackle data gaps, also by improving data infrastructure and data used for the CAP. Nevertheless, several barriers exist and are related to different stages of the data collection and analysis cycle.
Calls have been made for the Commission to make better use of data and data analytics for the CAP. Although there is an increasingly more effective use of data, in some areas, current data and tools do not sufficiently deliver elements of information that are needed for well-informed policy making (ECA, 2022[133]). One of the main barriers is related to data availability, especially on farm income, farming inputs and farming practices.
Concerning the measurement of farm income, the available statistical tools – namely the Economic Accounts for Agriculture and the Farm Accountancy Data Network (FADN) – seem inadequate for several reasons already identified by the European Court of Auditors (ECA, 2016[134]). First, there are no representative data available on the disposable income of farm households, which would facilitate assessing the achievement of the Treaty’s objective of ensuring a fair standard of living for farmers. Only a few Member States, for example Ireland and the Netherlands, have started gathering farm household income data. Yet, the approaches vary widely and do not allow comparisons across countries. Second, there is no reliable system to allow comparisons between agricultural incomes and those in other sectors of the economy, which could justify EU income support for farmers. Finally, the Economic Accounts for Agriculture and the FADN do not fully account for other farm-related income of farmers beyond primary agriculture.
With regard to sustainability indicators, information available may be of low quality and high uncertainty and the information included in existing databases, like the FADN, has not allowed a coherent and inclusive set of impact indicators to be developed. To address this limitation, the Commission has proposed in the framework of the F2F Strategy to enlarge the scope of the FADN, which hitherto has focused on financial and production information, to also include information on sustainability indicators in a new Farm Sustainability Data Network (EC, 2022[135]). This could help produce more robust data, although some limitations still persist and the timeline for its implementation may impede its systematic use in the 2023-27 programming period.
Looking at farmers as the data suppliers, one major point arises. The increasing degrees of conditionality for payments to farmers are accompanied by the need for data to monitor progress and results. The farm-level data crucial to these efforts need to be transferred from the farm to other relevant parties. While trust issues and costs associated with data collection have been discussed, the inherent value of the data itself is not reflected in the Commission’s efforts to attain them. Payment schemes currently do not address the absence of incentives for farmers to hand over the data generated on the farm.
As for the accessibility of data, the Commission has limited access to Member States’ Integrated Administration and Control System (IACS),11 which is the main building block of the management of CAP payments in Member States. The IACS’ decentralised approach limits the integration and crosslinks with other Commission data sources (EC, 2022[132]). However, DG AGRI has recently undertaken steps to improve the integration of the IACS, for instance, through enhanced sharing of spatial data via the INSPIRE geoportal (EC, 2021[136]). A key component of the IACS is the spatial identification of agricultural parcels, for which purpose Land Parcel Identification Systems (LPIS) have emerged. Member States were forced to establish a corresponding system as a part of the 2003 CAP reform. While land parcel identification systems have become an important tool in supporting farmers’ subsidy applications through the IACS, methodologies vary widely between Member States, hindering data accessibility (EEA, 2015[137]).
Regulatory obstacles further exacerbate data accessibility issues. On the one hand, the General Data Protection Regulation seems to induce rising concerns over confidentiality infringements and hinders Member States’ efforts in supplying data to the European Commission. On the other hand, some Member states have “gold-plated”12 data regulations such as the General Data Protection Regulation, making it increasingly difficult to comply with the added restrictions imposed on data-responsible entities.
Moreover, it has been pointed out that the aggregation of data may limit the potential for the data to be reused for policy design or policy assessment purposes (ECA, 2022[133]). Especially for socio-economic aspects, there is often not an adequate disaggregation and some data (e.g. on age or gender of CAP beneficiaries) are available only at Member State level and not accessible to the Commission (Eurostat, 2011[138]; ADE, 2020[22]).
Finally, a more effective combination of data sources is one of the main data challenges that needs to be addressed to ensure there are appropriate data to evaluate the CAP. The lack of common references, such as a unique identifier, makes it difficult to combine farm-level data from different data sources for CAP analysis. The IACS, which manages and controls CAP payments to farmers, collects information on compliance with farming and conservation practices that are often the basis for the payments. This information overlaps with data needs addressed in the transition from the FADN to the FSDN (Box 3.6) and offers a cost-effective opportunity for increasing data availability (Rega, 2022[139]).
Box 3.6. Conversion of the Farm Accountancy Data Network to the Farm Sustainability Data Network
The Farm Accountancy Data Network (FADN) is the most important information source for understanding the impact of the measures taken under the Common Agricultural Policy (CAP). The FADN is a unique source of microeconomic and accountancy data collected from more than 80 000 farms in the European Union every year. Data are collected through national surveys and are harmonised through bookkeeping principles to provide a comprehensive source of microeconomic data. The collected data have allowed for estimations of income trends and enabled assessments of the financial situation of farms since the network’s inception in 1965.
However, the available data do not cover all data needs, and the FADN has been found to have limitations: farm-level data on farming and conservation practices have so far not been collected (Rega, 2022[139]). Reflecting the CAP’s evolution towards more environmental and social policies, the European Commission has proposed a process of converting the FADN to the Farm Sustainability Data Network (FSDN) (EC, 2022[135]). The FSDN’s objectives are to improve policy analysis along the environmental and social sustainability dimensions and provide feedback and advice to farmers. For this purpose, the FSDN introduces new environmental and social variables to its data collection. The FSDN also plans to use a farm ID, which could help link this data set to other farm-level data sources, such as the Integrated Farm Statistics.
The Farm Level Indicators for New Topics in policy evaluation (FLINT) project has demonstrated the increase in public value of the FADN data set when data on the sustainability performance of farms are included, but it also highlighted several challenges for the practical implementation of this transition in relation to the availability, collection and management of data.
Vrolijk and Poppe (2021[140]) estimated that collecting the sustainability data from all farms included in the FADN would increase costs by about 40%. While a reduction in the overall number of surveyed farms could reduce costs, there are several drawbacks in reducing the sample size and associated issues. This and other concerns over a transition from the FADN towards the FSDN should, however, not impair the ability of the network to provide a better understanding of the sources of sustainability performance, in order to overcome the lack of adequate data that imposes limitations on the evaluation of the CAP’s performance.
Building upon the FLINT work, a pilot project conducted by a consortium including several organisations and experts assessed the relevance and feasibility of 85 variables on environmental (35 variables), social (39) and economic sustainability (11). The basic legislative act for establishing the FSDN is projected to enter into force in 2023, with the secondary legislation foreseen to be finalised in 2023 or 2024.
The first FSDN data set will reflect 2025 data and will be publicly available in 2026 or 2027 (EC, 2022[141]). Therefore, information on farmers’ performance will only be available towards the end of the new CAP and not be synchronised with the needs of the current CAP period. The added variables should cover considerable amounts of previously identified gaps in the data. For instance, the pilot project collected data on the share of farming income on household income. It should, however, be noted that the consortium concluded that collection feasibility for this variable is only moderate and that the variables for which a collection feasibility has been determined will not necessarily be the new variables added to the FSDN (Ecorys, 2022[142]).
3.6. Future policy pathways
The possible future pathway of the CAP will be determined by the complex interaction between different stakeholders and factors in the European Union’s institutional decision-making process. This includes the timing of European elections and the MFF, the need for greater co-ordination among Member States, the structure of the new Commission, the balance between sustainability and productivity priorities in a changing international scenario, the external dimensions of the EGD and the upcoming Sustainable Food Systems Framework legislation, as well as other EU priorities.
The CAP 2023-27 entered into force on 1 January 2023. The next MFF programming period will begin in 2028. If the customary timeline were followed, the European Council would have an initial discussion on priorities and ask the Commission to forward its proposal for the next MFF sometime in 2025. There will be elections to the European Parliament in May 2024 and a new Commission will take up office on 1 December 2024. Given the evidence of growing political mobilisation around food and agricultural issues both at European Union and national levels, the new Commission may take office with specific commitments around future agricultural policy.
For the next CAP iteration, the tight timing and institutional context will make it even more difficult to present a Commission vision on the next CAP strategy prior to the publication of the MFF proposal. Thus, the amount allocated to the CAP in the next MFF proposal may be subject to even more political negotiation before any decision is taken on its content. The key debates on the shape of the next CAP legislation will most likely take place after the allocation of the CAP budget in the same way that has been decided since the European Parliament co-decision on the CAP has been introduced.
The CAP has always had to strike a balance between accommodating asymmetries in its design while preserving the single market. Examples include differing price levels during the period of monetary compensatory amounts, differing unit values for direct payments (Section 3.4.1), differing interpretations and implementation of cross-compliance and greening requirements (as outlined in Chapter 4), and differing access to Pillar 2 funds. The risk is that the new delivery model could further exacerbate these differences, leading to fragmentation and renationalisation as Member States take advantage of the flexibility to design their own agricultural policies (European Parliament, 2018[143]). A particular source for concern is the potential for differences in environmental standards, given the greater importance given to higher environmental and climate ambitions in the CAP 2023-27.
The post-2027 CAP design will also be influenced by the continuity – or not – of the structure of the European Commission introduced in 2019-24, with an Executive Vice-President responsible for co-ordinating the implementation of the EGD across several directorates-general. This structure encourages a broader perspective on agricultural policy making than might occur through a more horizontal assignment of competences across directorates-general (Table 3.4) and could also be important in determining the balance of priorities in the next CAP.13
The specific policy context in which the post-2027 CAP will be formulated cannot be known with certainty. Nonetheless, it seems likely that the consequences of Russia’s war of aggression against Ukraine – the dependence of European agriculture on imported energy, fertiliser and animal feedstuffs – will continue to be salient in the coming period. Consequently, the need to strike a balance between productivity and sustainability (sustainable productivity), as well as to strengthen resilience to greater global market volatility may remain prominent in the future agenda. Furthermore, the growing ambition of EU climate policy may be reflected in the European Union’s update of its Nationally Determined Contribution in the 2025 Global Stocktake under the Paris Agreement. This will put an additional focus on the future role of livestock, which by far makes the largest contribution to EU agricultural emissions, and its role in diets and in the sustainable productivity balance.
The need to address the climate and biodiversity crises debate will also be influenced by the impact of the legislative initiatives announced by the Commission to reduce the use of chemical pesticides, protect nature and reduce agricultural emissions (Chapter 4). The debate on the sustainability of the European Union’s agricultural production is likely to also be shaped around the need to ensure greater coherence between sustainability demands on European farmers and trade policy, to avoid domestic production from simply being offshored, thus displacing environmental damage to third countries (Fuchs, Brown and Rounsevell, 2020[144]). The external dimension of the EGD is likely to pose challenges, both inside the European Union and with its trading partners.
Finally, as outlined in Chapter 2, an important piece of legislation will be the Sustainable Food Systems Framework initiative announced in the F2F Strategy. This horizontal framework law aims to establish new foundations for future food policies by introducing sustainability objectives and principles on the basis of an integrated food system approach (EC, 2021[145]). The Commission’s view is that (environmental) sustainability is already established as a guiding principle in sectoral policies such as the CAP or the Common Fisheries Policy, but this is not the case for the food system as a whole, where the General Food Law focuses principally on protecting human health and consumers’ interests in relation to food. The proposed legislation, subject to the EU decision making process, would create harmonised rules applicable in Member States to ensure the sustainability of food and food systems. Inevitably, additional sustainability demands and objectives for the food system and food consumption will feed back into the demand for farm produce. Even in the absence of direct legislative interventions affecting primary agriculture, these demands transmitted through the food chain will have an impact on future food production. The post-2027 CAP will be designed within the context of this framework.
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Notes
← 1. Market price support is defined as the “annual monetary value of gross transfers from consumers and taxpayers to agricultural producers, arising from policy measures that create a gap between domestic market prices and border prices of a specific agricultural commodity, measured at the farm gate level” (OECD, 2016[146]). It is calculated for individual commodities, as the gap between the domestic price paid to producers and the equivalent price at the border (market price differential), multiplied by the quantity produced, and aggregated to the national level.
← 2. GSP utilisation rates are calculated as the share of GSP-received imports in GSP-covered imports.
← 3. In the policy debate these instances are commonly described with the term “mirror clauses”.
← 4. Regulation (EU) No. 2019/6 of the European Parliament and of the Council of 11 December 2018.
← 5. See also discussions in Gruère et al. (2023[38]).
← 6. The current OECD Producer Support Estimate database calculates support for the whole European Union, not at Member State level.
← 7. Green harvesting refers to the complete collection of non-marketable products carried out prior to the beginning of the normal harvesting date.
← 8. Non-harvesting refers to the non-harvest or collection of the product on a particular date throughout the normal production cycle.
← 9. The discussion in this section refers to the traditional way of looking at economic productivity and does not consider the environmental dimension associated to the broader concept of sustainable productivity growth (Bureau and Antón, 2022[147]).
← 10. Measure 4 of the RDP 2014-20 provides support for investment in physical assets and comprises four sub‑measures. Sub-measure 4.1 aims at supporting the overall performance and sustainability of an agricultural holding.
← 11. Member States’ IACS oversee the standardised administration of all income support schemes for farmers and certain rural development schemes as long as support is granted based on number of hectares or animals held. The IACS draws on a number of interconnected databases in order to, among others, manage irregularities and support farmers in their applications to programmes.
← 12. The process of gold-plating describes the national implementation of obligations derived from EU laws that exceeds the requirements imposed by the European Union.
← 13. A potentially important piece of legislation influencing the post-2027 CAP will be the Sustainable Food Systems Framework initiative (Chapter 2, Section 2.3.6).