Policies for the Future of Farming and Food in the European Union

Assessment and recommendations

Assessment of performance

The EU agro-food sector is at a crossroads

In January 2023, the European Commission and the European Union Member countries began implementing the new Common Agricultural Policy (CAP) 2023-27. The new CAP entails a new delivery model in which Member States play a critical role in determining and implementing their CAP strategic plans (CSPs). The CAP 2023-27 is also expected to deliver on broader food systems objectives, such as delivering on long-term food security and responding to climate change and ensuring the sustainability of natural resources. To this end, valuable lessons can be learnt from the previous CAP 2014-22 and from experimenting and innovating during the 2023-27 period. The following assessment refers to regulations, programmes and policies implemented up to 2022. While recognising that the CAP 2023-27 includes many changes that have the potential to address shortcomings observed in past CAP cycles, given the scale of the challenges, it is useful to both focus on what can be learnt from experience to date and what further actions need to be taken to ensure that the CAP is able to deliver a more innovative, productive and sustainable agricultural sector in the future.

New demands for environmental sustainability are emerging from a broader food systems approach…

The CAP represents about one-third of the EU budget and is expected to deliver on broad food systems objectives that go beyond the agricultural sector’s boundaries. The EU agro-food sector ensures the food security of its population while also contributing to global food security. At the same time, the sector is strategic for the European Union’s green transition agenda due to its environmental impacts and resource implications. The public expects EU food systems to respond to the triple challenge of providing healthy, safe and nutritious food while providing livelihoods for farmers and other actors in the food chain and improving environmental sustainability (i.e. preserving land, water and biodiversity resources, and reducing greenhouse gas [GHG] emissions).

The European Union has expanded to become a diverse group of countries with different levels of economic development, more varied types of land use and different approaches to agricultural production. The European Union has also strengthened its leading position in global agro-food trade, becoming the world’s largest agro-food exporter and one of its largest importers, with agro-food products accounting for 9.3% of all exports and 6.8% of all imports.

The European Union’s competitiveness in world food markets has been largely driven by agricultural productivity growth. For a long time, productivity gains were achieved through agricultural intensification, with significant negative environmental consequences, such as increasing GHG emissions, loss of biodiversity on farmland, and damage to air and water quality. The Farm to Fork (F2F) and Biodiversity Strategies are part of the European Green Deal (EGD), which proposes a food systems approach to reduce agriculture’s impact on the environment and foster the transition towards healthier, more sustainable and fairer food systems.

...while systemic uncertainties call for adaptability and resilience to different crises

When the EGD was launched in December 2019, nobody imagined that the COVID-19 pandemic, nor Russia’s war of aggression against Ukraine in February 2022, would occur. Both these crises have elevated food security issues back to the top of the global and EU political agendas, while rising food and energy prices have challenged the vision of an ambitious green transition of the EU agro-food system. This, and the current high price for fossil energy and chemical fertilisers, are not only a challenge, but could also be an opportunity to transform the European agro-food system, benefiting as well from the opportunities created by the digital economy.

While the EU agro-food system has demonstrated its resilience during the COVID-19 pandemic and now Russia’s war of aggression against Ukraine, the European Union has addressed current global food security concerns by temporarily relaxing or removing some environmental restrictions to increase production. Since the recent crisis is primarily characterised by a decrease of purchasing power rather than a reduction in food availability, this resilience may not be durable if the sector does not improve its environmental sustainability.

The green transition of EU food systems calls for a transformation where innovation plays a critical role in delivering sustainable productivity growth. Such a transformation must include a transition towards more balanced and diversified diets, but also broader involvement of the other agro-food actors, with new retailing and processing patterns, new business models, as well as new spatial configurations of supply chains where farmers will have to anticipate and possibly lead this process.

Productivity is growing, but slower than in other countries, and has recently decelerated in all but the new Member States

A sustainable path of productivity growth is key to achieving the F2F and Biodiversity Strategies objectives. Unlike intensification of the use of inputs that could harm the environment, sustainable productivity growth can reconcile the apparently conflicting demands of increasing food production and environment sustainability. Improving technology, practices and the efficiency of input use, or total factor productivity (TFP) growth, would make it possible to produce more food with fewer inputs.

Over the last 60 years, EU agriculture has transitioned from a growth model based on intensification (use of more inputs) to one driven by productivity growth, thanks to technological improvements and efficiency gains. This has allowed the volume of production to expand. However, long-term output growth has been weaker in the European Union than in other OECD countries and the global average, while TFP growth has been mild. Most of the gains in TFP in the European Union have been related to reductions in agricultural labour due to increased labour productivity, while capital investments played a lesser role in output growth compared to other countries, such as the United States. Overall, the European Union has not succeeded in decoupling output growth from the use of variable inputs, which is critical in view of the F2F targets to reduce the absolute level of input use.

Different types of structural change and contrasting policies have led to significant variations in productivity performance between those Member States that were EU Members prior to 2000 (EU14) and the newer EU Member States (EU13). Up to 2010, the productivity growth of the EU14 remained well above that achieved in the EU13, but this trend was reversed during the last decade, and new Member States have led EU gains in productivity. Decreases in the labour force have been steady over the last six decades in the EU14, but the decline in the EU13 only started in the last two decades, when newer Member States experienced a significant and rapid increase in capital investments.

Productivity growth has not always been associated with improved sustainability

EU agricultural policies increasingly aim to improve the sustainable management of natural resources and contribute to climate action to ensure the long‑term sustainability and potential of EU agro-food systems. However, productivity growth has not always been associated with improved sustainability performance, especially in terms of reversing biodiversity decline and reducing GHG emissions.

Several factors have contributed to a decrease in biodiversity. According to the available evidence, the quality and health of EU agricultural landscapes and farmland biodiversity are declining. Growing urban areas and other competing demands for land use have led to a reduction in agricultural land. Pastureland has decreased, and agricultural fields have become more homogenous and, on average, farmed more intensively.

Direct GHG emissions from agriculture have remained stable over the last decade. While over the first decade of the 21^st century the reduction of livestock numbers and a more efficient use of fertilisers led to a consistent decrease in direct GHG emissions from EU agriculture, more recent data indicate a flat rather than a declining trend in GHG emissions. Nevertheless, GHG emissions have grown at a slower rate than the value of total output, indicating that the European Union has reduced emissions intensity and has successfully achieved a partial decoupling of GHG emissions from production.

Other environmental and resource challenges are growing in parts of the European Union, particularly in the case of water. Agriculture remains a major user of water and a source of pollution in many regions of the European Union, contributing to the unsatisfactory status of many water bodies in view of the objectives of the EU Water Framework Directive. At the same time, climate change is affecting agricultural productivity with new weather patterns that reduce the availability of water for agriculture in many countries. In addition, the negative effects of extreme weather events and animal and plant diseases have increased in most countries, and are expected to continue into the future.

At the EU level, several agri-environmental trends are still progressing. While nutrient surplus continues to be problematic in many regions, over the last 20 years, the European Union has reduced its nutrient balance per hectare while the total agricultural output has grown, leading to the absolute decoupling of nutrient balances from production.

The EU agricultural sector is undergoing structural change but must address generational renewal, gender bias and labour issues

The future capacity of the EU agro-food sector to combine productivity, sustainability and resilience performance will be influenced by recent and ongoing structural changes. The number of farms has been declining over time, while both the physical and economic size of farms have been increasing. This adjustment could be an important driver for productivity objectives but also for the adoption of technology and innovation aimed at increasing farm resilience and sustainability. In 2020, there were about 5.1 million fewer farms in the European Union than in 2005, a 36% decrease, while the agricultural area decreased only by 6.3% over the same period. The bulk of the reduction in farm numbers corresponds to holdings smaller than 5 hectares, while the number of farms larger than 100 hectares has increased. Agricultural labour and the share of the EU working population employed in agriculture has also dropped, while the average agricultural income per full-time employee has increased. Less than 10% of EU farms manage more than half of all agricultural land and therefore play a key role in the overall environmental performance of the sector.

Without generational renewal, the achievement of relevant social, economic and environmental objectives that are at the core of current EU agricultural policies are at risk. Young farmers are crucial for viable, productive and innovative agriculture, but the proportion of young farmers has been decreasing over time. The problem of generational renewal goes well beyond the farming sector, and may potentially have negative long-term effects on, for example, land abandonment and rural viability. Access to land, and the corresponding payment rights, as well as to credit, are the main obstacles to setting up a business in the farming sector.

Women are underrepresented in the EU farming sector. Gender bias is a structural characteristic of agriculture in almost all EU Member countries. The CAP has few policy levers to change this and the efforts of some Members countries ‒ e.g. Spanish Law on Shared Ownership ‒ have not resulted in any significant change. Gender issues in agriculture deserve policy makers’ attention, as diversity has been shown to improve resilience and adaptability.

Migrant workers are an increasingly important part of the EU farming sector. The outflow of local labour has been partially compensated by inflows of foreign labour, including undocumented workers whose numbers are difficult to quantify. These undocumented workers are often poorly treated, and many are confronted with detrimental working and living conditions. The consideration of socio‑economic conditions and the assurance of social rights compliance, particularly for migrant workers, is therefore essential for the sustainability of the EU farming sector.

… the Common Agricultural Policy is also at a crossroads

The recent F2F and Biodiversity Strategies call for a co-ordinated effort in the European Union that reinforces farmers’ competitiveness while contributing to a cross-sectoral set of ambitious environmental objectives with specific targets for the agricultural sector. The EU Common Agricultural Policy, representing one-third of the EU budget, is the most important EU policy to operationalise such a vision and objectives. Given the European Union’s climate and environmental commitments to foster the green transition of EU agriculture, the European Union should break the path dependency that has shaped CAP reforms in the past and further transform the CAP into a policy that stimulates the capacity of the EU farming and food sector to encourage innovative responses to develop sustainable food systems. Moving towards greening and, as of 2023, the eco-schemes, are attempts to reorient support towards environmental sustainability incentives.

The CAP 2023-27 places a greater emphasis on performance, with more flexible implementation by Member States, and introduces a new way of working to modernise and simplify the policy. Important innovations, such as the eco-schemes and the programming approach that underpins the CSPs, have the potential to transform the CAP, but this will require significant efforts by Member States to improve policy design and the associated monitoring and enforcement procedures. The post‑2027 programming period will be an important opportunity to accelerate this change and further transform the CAP into a tool to achieve the EGD objectives.

Thus, not only is European agriculture at a crossroads, but the CAP is as well. One of the CAP’s most far-reaching reforms, known as the 1992 MacSharry Reform, demonstrated that multilateral processes, in that case the Uruguay Round multilateral agricultural negotiations, can catalyse significant changes. Current challenges call for another significant reform to respond to environmental and climate pressures, and to new demands from European society.

Current CAP funding allocation and expenditures are not contingent on performance

Nominal expenditure in the CAP has increased, but less than other policy areas. As a result, the share of resources allocated to the CAP in the total EU budget has declined from 65.5% in 1980 to 33.1% in 2021. The Total Support Estimate has also decreased, from 2.5% of gross domestic product in 1986-88 to 0.6% in 2019-21. The CAP is structured according to two distinct pillars: the first is centred on markets and farm incomes and is fully financed by the EU budget; the second focuses on rural development and is co-financed by EU Member States (varying from 25% to 75% depending on the measures and the region). The CAP’s overall budget (excluding EU Member State co-financing of Pillar 2) 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.

Member States’ main focus in the EU Multiannual Financial Framework (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. However, this indicator does not provide a good indication of a Member State’s comprehensive benefits from the EU budget and even less so of the overall benefits from EU membership. Once the MFF is concluded, it determines pre-allocations of CAP amounts among Member States. For direct payments, pre-allocations are largely based on historical allocations, rather than on more targeted criteria. Recent reforms have started convergence and resulted in greater uniformity in payment levels between Member States. The process of convergence is still ongoing and continues to be contentious in the European Union’s MFF negotiations.

While keeping common policy tools, in particular EU budget, objectives, interventions, rules and indicators at EU level, major responsibility for the design and implementation of strategies for the CAP 2023-27 was transferred to Member States, which were required to present their proposed policy interventions in the form of CSPs. However, under the CAP rules, there is no mechanism in the budget allocation process to reward Member States for a higher level of ambition or a higher level of performance in their CSPs. The new delivery model of the CAP and the focus on performance would benefit from stronger budgetary responsibility from Member States, such as performance bonuses or other incentives.

Over time the CAP has undergone positive reforms…

The CAP’s design is the result of wide-ranging consultations and multi-institution negotiations, which tends to favour incremental change rather than radical departures from one cycle to the next. Despite this institutional trend, far-reaching changes have been possible at certain points. An example is the 1992 MacSharry Reform, which introduced a system of coupled direct payments to compensate farmers for the anticipated loss in market income from the reduction in the level of market support prices. Similarly, the “mid-term review” reform package adopted in 2003, known as the Fischler Reform, introduced the single farm payment. By decoupling a large share of CAP support from production, the Fischler Reform is viewed by many experts as one of the most radical reforms of the CAP since its creation.

Looking at the many CAP reforms over the last 60 years, it is possible to identify three main axes of change: 1) greater market orientation; 2) greater integration of environmental and climate objectives; and 3) a broader focus on structural policy and rural development. The first two axes are reflected in the evolution of the European Union’s Producer Support Estimate (PSE).

CAP reforms prior to the mid-2000s were successful in reducing producer support, notably market price support, while progressively “decoupling” support from production, as well as in increasing the scope of input constraints attached to payments. Since 2010, the European Union’s PSE level and composition have remained almost unchanged, though increasingly with input constraints attached to payments, reflecting environmental and climate objectives. The increasing scope of this environmental cross‑compliance has not changed the basis on which the payments are made; therefore, there are no significant changes in the composition of PSE categories. The PSE methodology also reflects cross‑compliance in the increased share of payments with input constraints, but does not capture the scope of this conditionality.

Successive CAP reforms have led to a significant drop in the overall level of support measured as a proportion of gross farm receipts (%PSE), which decreased from 38% in 1986-88 to 19% in 2019‑21. Progress towards market orientation is reflected in the share of the most production- and trade-distorting forms of support, which decreased from 92% in 1986-88 to 23% in 2019-21. Given that such support (market price support, coupled direct payments and input support) potentially also contributes to negative environmental outcomes, further reductions should be a priority. This reduction would also contribute, among others, to achieve the goals and targets agreed in 2022 in the context of the Kunming-Montreal Global Biodiversity Framework.

… but direct payments still make up the bulk of CAP spending but are not targeted to, nor the most efficient tools for achieving, multiple key objectives

CAP direct payments represented 24% of agricultural income in the period 2015-20, but their distribution was uneven since they followed the skewed distribution of land use and farm size in the European Union. Despite many corrective measures, in some Member States a high share of direct payments goes to larger farms, where the need for income support is not always obvious. Furthermore, there is not enough information or analysis of the impact of these payments on improving income distribution among farm households, or its role in alleviating low levels of income among farmers. The data availability issue is further exacerbated by the absence of a reliable system to allow comparisons between agricultural incomes and those in other sectors of the economy, as well as by the lack of data on farmers’ off-farm income.

Even if the CAP had a more targeted and even distribution of direct payments among regions and farmers, this would not overcome the main shortcoming of this type of support, which is that it fails to target farm household income and to address the ambitious environmental goals set for the sector. Given the objective of supporting low-income farmers, it is difficult to understand the rationale of redistributing payments to households based on the amount of land used for farming (or kept under good conditions) rather than on their overall household income. The environmental conditions attached to these payments are aimed at ensuring that a large number of EU farmers comply with basic rules for the environment, food safety, animal health and welfare, but the observed implementation shortcomings demonstrate that direct payments have not been the most effective tool to promote public goods nor to reduce the environmental externalities of the farming sector.

In addition to income and environmental objectives, direct payments are expected to improve farm resilience and employment. However, while direct payments ensure a stable source of revenue for the farm household, several studies have found that they are neither the most efficient nor the most equitable instruments to improve longer term resilience, in particular to improve the resilience capacities to adapt and transform. This is due to the leakages to unintended beneficiaries but also to potential slowdown of the structural adjustments of agriculture and subsequent improvement of farm productivity and incomes.

Direct payments are also not the most efficient tool to create jobs or to maintain employment in agriculture and rural areas. Policy instruments directly aimed at enabling investments that create new and sustainable employment would be better than direct payments that maintain non-viable jobs and activities. Moreover, in some cases, the benefits of CAP direct payments do not remain with the intended beneficiary but benefit other stakeholders or create barriers to entry. This happens when CAP payments are, to a large extent, capitalised into the value of land and, especially, land rents. Higher land prices and rents make entry for younger farmers more difficult, slow the rate of generational renewal, and impede the development of new projects and practices. The most important impact may be delaying the exit of older farmers who risk losing their direct payments and deterring generational renewal. The impact of the direct payments system in slowing down generational renewal and innovation deserves particular attention with respect to their effect on broader socio-economic objectives.

Other CAP tools aimed at promoting resilience lack ambition and a holistic perspective on preparedness, adaptation and transformation

The CAP includes a broad set of measures to promote the resilience of the farming sector, including support for investments, measures to support generational renewal, as well as risk management measures and crisis management tools. As currently designed, these have significant shortcomings and fail to follow an integrated and holistic approach.

Measures to support generational renewal are included in both CAP pillars in the form of direct support to young farmers and in mechanisms that give them priority access to Pillar 2 measures for investment, advisory services and business start-up aid. While these go in the right direction, they do not tackle the root of the problem. Indeed, the current CAP process fails to address many of the barriers to generational renewal in agriculture, such as access to land and capital, lack of business skills, inefficiency of succession plans, and lack of attractive professional perspectives in the agricultural sector. Furthermore, as noted above, given that the capitalisation of direct payment in land values creates a barrier to entry and an incentive for incumbents to stay, it is unlikely that these additional measures for young farmers are sufficient to offset or reverse these disincentives.

The CAP should take an integrated approach to risk management policies that addresses all incentives related to risk exposure, preparedness, adaptation and transformation. An increasing number of measures dedicated to risk management have been developed, focused on stabilising revenues ex post, after the extreme event has taken place. Yet farmers and national and regional governments struggle with multiple tools that are complicated to implement and which are not consistently available across Member States. Furthermore, a large share of public support continues to be delivered through direct payments that guarantee farmers a stable income, and several Member States provide ad hoc assistance through state aid after systemic weather shocks, or subsidise insurance with national funding. While this support is well intentioned, its impacts on the incentives to proactively prepare for and invest in upstream risk mitigation need to be considered.

Environmental and climate objectives are at the heart of the CAP, but a disconnect between ambition and implementation prevents progress

Growing environmental ambitions are not properly supported by incentives for implementation

Agriculture plays a central role in achieving policy objectives across a range of environmental sustainability areas. This role is reflected in EU Regulations, Directives and treaties on biodiversity, habitats and landscapes; air pollution (National Emission Ceilings Directive); GHG emissions (Effort Sharing Regulation and the LULUCF Regulation on land use, land-use change and forestry); water quality and quantity (Water Framework Directive and Nitrates Directive); and on the sustainable use of pesticides. Agriculture also plays a key role in achieving the Sustainable Development Goals (SDGs), particularly SDG 2 ‒ Zero Hunger ‒ and SDG 12 ‒ Responsible Production and Consumption. Agriculture is also critical to the European Union’s progress towards the targets of the Paris Agreement and of the Global Biodiversity Framework. The F2F strategy promotes a transition to sustainable food systems as part of the European Green Deal (EGD), and sustainable production and consumption of food are two of its six objectives.

Despite the establishment of an EU Biodiversity Strategy, the EU Nitrates Directive, and EU agri-environmental schemes (AES), the environmental performance of EU agriculture has not met expectations and agricultural production continues to adversely affect water, soil and air quality, and biodiversity. The trend towards increasingly specifying objectives and a more outcome-oriented approach to policy design and delivery is likely to increase the effectiveness of policy efforts directed at sustainability, but evidence of progress is still lacking.

The assessment of the main EU legislation and policy implemented until 2022 highlights the presence of a gap between the ambitions set out in policy and the results of their implementation. Flexible mechanisms helped find agreement in challenging negotiation processes and reflected the different situations of Member States, but often weakened efforts since farmers were allowed to choose approaches that were less costly and easier to implement, potentially preserving income but less effective in achieving environmental results. The New Delivery Model of the CAP 2023-27 has the potential to ensure greater transparency and reporting on progress that could counteract the negative aspects of flexible approaches. Nevertheless, further reforms should ensure a stronger connection between incentives and performance both for Member States and farmers.

The EU has ambitious overall climate mitigation objectives but relatively weak targets for agriculture

Incentives to address greenhouse gas (GHG) emissions from agriculture have previously been limited by the absence of sector-level emissions reduction targets at the EU level. This is a consequence of intersecting concerns regarding trade effects (carbon leakage) and food security (impacts of targets on production), but also of difficulties in measuring and reporting emissions. While agriculture is the third largest source of emissions in the Effort Sharing Regulation (ESR) sectors, to date, it has contributed a smaller share of GHG emissions reductions; this is not expected to change before 2030.

Under the current framework, Member States must ensure that the land use, land-use change and forestry (LULUCF) sector does not generate net emissions and contributes to enhancing the carbon sink (“no-‑debit rule”). Organic soils and peatlands, while only 1.2% of the total cropland area, represent one of the largest potential sources of emissions reductions via carbon storage. Rewetting of peatlands also could have important biodiversity co-benefits, but incentives have been insufficient to encourage Member States to significantly curtail agricultural production on this land.

Progress in reducing nutrient balances and achieving water quality objectives has stalled, but existing tools could still lead to progress

Progress on improving the status of surface and groundwater has accelerated after a slow start, but 2027 goals are still at risk of not being achieved. Investments in institutional improvements and better monitoring and reporting on the ecological status of water bodies will increasingly bear fruit, but non-point pollution from agriculture is still a concern that requires more resources and more effective regulation if all objectives are to be fully met. The CAP is increasingly used as a vehicle in this regard through cross-compliance and voluntary AES. Given the important role of agriculture in improving EU water quality, the increasing use of Pillar 2 funding for Water Framework Directive objectives can be an effective way to accelerate progress. There are also opportunities to use market-based measures more to provide incentives to producers to act; cost recovery and efficient water prices for agricultural users are not yet common in water policy among Member States.

The Nitrates Directive, in place for more than 30 years, addresses non-point-source emissions of nutrients from agriculture. Member States produce action plans to encourage farmers to implement best practices. These plans are evaluated and adjusted regularly, yet nutrient surpluses continue to pose risks to water quality and the pace of improvement has been slowing. Member States should adjust their plans when the evidence shows that problems persist. The water quality monitoring system of the Water Framework Directive is a valuable tool in this regard.

Cross-compliance is difficult to monitor and its cost-effectiveness is questionable

Cross-compliance in the CAP is designed to ensure that beneficiaries of direct payments maintain a good level of compliance with statutory management requirements (SMRs) and carry out practices that are conducive to maintaining Good Agricultural and Environmental Conditions (GAEC). SMRs include several EU regulations and directives, such as those on animal welfare and the use of hormones, on the use of nitrates, on the conservation of wild birds, and on the conservation of natural habitats and of wild fauna and flora. GAEC are established at the Member State level within a framework given by the EU Regulation and include standards designed to prevent soil erosion, maintain soil organic matter and soil structure, protect biodiversity and ensure the retention of landscape features, and protect and manage water. That said, environmental benefits from SMR cross-compliance may be limited under the 2014-22 policy framework, as those requirements largely overlap with compulsory regulations, and farmers do not have to undertake any additional action beyond respecting the law. On the other hand, GAEC standards are additional operational practices which farmers must respect. However, the number of inspections is low and the penalties for non‑compliance are both not proportional to the potential harm and too low to be dissuasive. The administrative burden of cross-compliance is high, and inspections can be cumbersome and costly. For these reasons, it is unsurprising that stakeholders have rated cross-compliance as being of low effectiveness, especially with regard to GAEC standards designed to improve water and soil management.

Implementation problems with greening have led to the introduction of enhanced conditionality and new eco-schemes

In the CAP 2014-22, greening requirements established ecological focus areas (EFAs), obligations for crop diversification and the preservation of permanent pasture. This was an ambitious attempt to strengthen the environmental requirements of Pillar 1 payments beyond cross-compliance. However, implementation flexibility led to few changes in farm practices and limited effectiveness of the greening requirements. The CAP 2023-27 has now replaced cross-compliance and greening requirements with enhanced conditionality and has added eco-schemes as a new vehicle for environmental and climate actions funded under Pillar 1. This is an agile response to address the shortcomings of the greening requirements and to increase the environmental ambitions of the CAP. That said, the extent to which enhanced conditionality will be effective deserves an evaluation, given the limited performance of this tool in the past. The capacity of eco-schemes to deliver will depend critically on the extent to which Member States are prepared to undertake and learn from the new performance-based approach.

Environmental measures can be improved with innovative policy approaches such as result-based payments and collective action, but need to limit administrative requirements

AES are a long-standing component of the CAP and the only measure in Pillar 2 that is mandatory for Member States to implement. AES have evolved from being applied in only a few countries with sensitive environmental issues to becoming a core mechanism for maintaining cultural landscapes and protecting farmland biodiversity. The CAP 2014-22 expanded their scope to include climate change action, and they represented 15% of Pillar 2 payments under the rural development funds, covering about 13% of EU agricultural area. AES are most commonly used for protecting biodiversity, ecosystems and landscapes, and supporting traditional practices, organic and sustainable farming. However, limited budgets, low uptake resulting from the voluntary nature of participation, poor design and implementation, high administrative burden, and poor targeting of practices rather than results frequently prevent AES from living up to their potential.

The CAP 2023-27 retains AES in Pillar 2 while introducing eco-schemes as part of Pillar 1 (not co-financed by Member States). Lessons learnt from AES can contribute to innovative policy design across countries. Results-based payments and higher compensation rates have been proposed to improve the performance of AES in certain Member States. Examples can be increasingly found in several countries, although they are not without challenges of their own such as high monitoring costs. Adjusting rules to encourage further experimentation and piloting could help make this policy option more dynamic and effective.

Another shortcoming of the current environmental measures of the CAP is that, by default, they are targeted to individual farmers rather than groups of farmers and other collectives. Collective approaches could be more effective and efficient for providing agri-environmental public goods, such as biodiversity and landscape, that are defined beyond the boundaries of individual farms. Collective action can also be a vehicle for peer learning, identifying environmental priorities and designing innovative practices. Spatially targeted AES could be a further mechanism to improve the effectiveness of voluntary measures (i.e. focusing interventions on areas with particular environmental problems). While such approaches are emerging in several countries, the Netherlands is the only country where the collective implementation of AES has been mainstreamed.

The CAP 2023-27 offers improvements, but the implementation gap remains, as does the need to balance income support and environmental sustainability objectives

The new CAP 2023-27 addresses some of the shortcomings observed in past CAP cycles. The New Delivery Model gives Member States more flexibility to design schemes that meet the needs of their farming sector. A clearer definition of Member States’ needs and objectives will help to design more targeted and effective programmes and improve the policy design cycle. Achieving results efficiently should become a central feature of the CAP. Regularly reporting on progress would help address the perennial problem of flexibility mechanisms that lead to an “implementation gap” between policy ambition and implementation results. This would require measurable, relevant and timely objectives with the capacity to report on progress and adjust policies as appropriate as part of the policy development cycle. This would also require reliable and robust data to design result indicators.

The implementation gap has several causes that need to be systematically assessed to improve the effectiveness of CAP spending. First, within limits stipulated by EU legislation, Member States need to make choices that limit administrative overhead and more strongly focus on objectives and reporting combined with simpler administrative requirements would help with this. Second, member states tend to balance environmental objectives with the primary intention of CAP funds to support farmers’ income; this results in environmental programmes that often do not challenge the status quo on the farm, as the requirements imposed are limited compared to the size of the payments.

An EU-wide, high-level discussion on the purpose of the CAP is needed on farmers’ rights and responsibilities, the effectiveness of providing farm income support separate from the social security net and the financial weight given to income compared to environmental or other rural development objectives. The present architecture distinguishes between funds that are co-financed (Pillar 2) and those that are not (Pillar 1), but these funds no longer have distinct objectives. This can confuse farmers regarding the amount, form and purpose of the support they may expect to receive in the future.

Stricter environmental constraints could make European production less competitive and hinder incentives for implementation

Reconciling the tension between farm income and environmental sustainability will be critical for the CAP to contribute to achieving EGD objectives. More stringent environmental regulations for agriculture and food may increase production costs for specific products in the short term in the absence of technological or other innovation-based alternatives. This may negatively impact the international competitiveness of the targeted products and raise the possibility of increased environmental harm in third countries with lower regulatory standards (pollution leakage). The risk of losing competitiveness could be a factor contributing to the implementation gap.

In this context, a debate is underway in the European Union as to whether access for third countries to the EU market should be conditional on their exports meeting equivalent EU standards not only for product safety and quality but also in terms of other production standards such as environmental regulations. Such an approach is rather complex to implement, taking into account the diversity of standards among international trading partners, and needs to be implemented in compliance with international trade rules. The European Union’s free trade agreements cover some sustainability provisions with requirements that have evolved over time. The European Union also recognises 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. The European Union has also started to work directly with actors along the food chain via due diligence requirements.

Innovation may also improve resource efficiency and bring win-win solutions for farmers by reducing their costs of production while limiting environmental impacts. Other policy approaches could alleviate the potential negative impact on competitiveness of meeting the environmental challenges and reduce demands on public resources, for instance through a greater focus on results-based environmental payments, by phasing out environmentally harmful subsidies, and by implementing market-driven or demand-based approaches.

The European Union plays a major role as a research and innovation catalyst, but adoption of innovation remains a challenge

The long-term strategy for research and innovation seeks to achieve sustainable agriculture, but ambitions and resources remain limited both under the CAP and Horizon

The European Commission’s first efforts to direct agricultural innovation towards sustainable development under Horizon date from 2016. That year, the Commission launched its long-term strategic approach to agricultural research and innovation and identified priority areas: sustainable resource management, plant and animal health and well-being, integrated ecological approaches, the development of rural areas, and enhancing human and social capital. To date, however, not all EU Member States have a national long‑term strategy to guide agro-food innovation efforts in their countries. This strategic approach to agriculture research and innovation has been translated into the wider EU innovation policy strategy, Horizon Europe, through Cluster 6. This could be a very useful strategic planning instrument, but would benefit from being more strongly linked to the CAP and accompanied by a proactive strategic cycle of regular monitoring and assessment of performance, continuous co-ordination of the main policy tools, and a redefinition of priorities and plans for each new cycle.

Support provided to agricultural knowledge generation, agricultural education and extension services constitutes a small part of the total support provided to the agricultural sector, at only 6.1% of policy transfers in 2019-21. In 2014-20, knowledge, advice and innovation through co-operation measures were very limited under the CAP, with the initially planned budget accounting only for 1.5% of the rural development funding (including EU and national contributions). Reorienting resources currently used on most distorting payments could provide a means to increase innovation spending. Additionally, more evidence is needed to assess how these Pillar 2 expenditures translate into innovations or new skills that can effectively support the green transition of EU agriculture.

Despite some progress, agricultural innovation instruments could be better co‑ordinated

The EGD requires good policy co-ordination to boost innovation to achieve the European Union’s ambitious goals for food systems. While the CAP is not an innovation policy per se, the CAP measures, together with Horizon Europe, address the different stages of the innovation cycle from idea generation to dissemination. Horizontal and vertical co-ordination across policy areas and levels of governance within the European Union is still required. The Commission is already making efforts in this direction.

Agricultural research and innovation in the European Union comprise multiple streams and instruments. First, the Directorate-General for Agriculture and Rural Development leads agriculture policies, supporting knowledge exchange and innovation via selected measures under the rural development funding and through dedicated platforms such as the European Innovation Partnership for Agricultural Productivity and Sustainability (EIP-AGRI). Second, the Directorate-General of Research and Innovation and the Directorate-General for Agriculture and Rural Development implement policies that have an impact on the agro-food sector, in particular Horizon Europe. Third, other directorate-generals support relevant policies, such as the EU funding instrument for the environment and climate action (LIFE Programme) and the European Union’s programme to support mobility activities in education and vocational training (Erasmus+), both of which may contribute to fostering sustainable agriculture by promoting knowledge, skills and innovation.

Individual EU Member States also support innovation efforts through their research and innovation programmes and specific agro-food research and education agencies. These programmes often serve different objectives and operate under different sets of rules without any overarching strategic planning. There is limited evidence that they have been implemented in a way that harnesses the full potential of synergies. The number and complexity of the innovation systems may also limit transparency and encourage beneficiaries to remain in their respective silos.

The European Commission provides a well-functioning framework for agricultural knowledge and innovation systems (AKIS) at the EU, national and regional levels. Nevertheless, AKIS are complex systems that would benefit from integration and better knowledge flows among all actors, in particular through advisory services. The interface of research and practice, promoting interactive innovation and digitalisation in agriculture requires particular attention. Integrating AKIS strategies into the CAP strategic plans as from 2023 is a promising step in this direction, but this integration has been more formal than substantive in several CSPs.

The overall regulation and policy environment may risk disincentivising innovation

EU regulations, such as those relating to biopesticides, genetically modified organisms and new breeding techniques, and the role of the precautionary principle, which seeks to avoid potential adverse impact on the environment or human health, may have unintended consequences on innovation. Innovation actors complain about the time it takes to get approvals, even where new techniques are allowed. This overall regulatory framework can create uncertainty for research and prevent innovation adoption, thus making innovation less attractive compared to other countries. Furthermore, the context of high government support for agriculture may undermine incentives to take risks to innovate and search for new opportunities.

Mechanisms for fostering co-creation, such as the European Innovation Partnership for Agricultural Productivity and Sustainability (EIP-AGRI), are promising

The EIP‑AGRI is the European Commission’s main policy tool for promoting bottom-up multi‑actor public-private agricultural innovation partnerships, as well as for giving methodological support and providing a networking platform to local operational groups (OGs). Both rural development funding of the CAP and Horizon Europe funding are channelled to join forces in these partnerships. The EIP-AGRI OGs are laying the foundation for demand-driven innovation, thanks to their interactive approach and the involvement of a wide range of stakeholders. They have significant potential to convert bottom-up grassroots ideas into innovative projects and ultimately into innovative outcomes. After a slow start, the number of OGs has been growing in recent years and tripled in 2023-27 CAP strategic plans compared to the 2014-20 period. They are an asset that deserves monitoring and evaluation of their performance and investigation of the drivers of success for the widespread implementation of the most successful practices.

Research and innovation programming has fostered co-operation between countries but needs to further integrate farmers

The European Union’s Research and Innovation Framework Programme, led by the Directorate‑General of Research and Innovation, strongly promotes cross-country collaboration through a single European Research Area, which has increased the share of agri-food publications and patented innovations with foreign co-authors. Research policy related to agriculture, forestry sectors and rural areas are co-managed with the Directorate-General for Agriculture and Rural Development. Research policies are also increasingly “mission-oriented”, with an emphasis on project impact and results that are aligned with well-defined priorities. However, pre-defined topics may limit the possibility of developing grassroots ideas and the active role of small farms and other end users.

The current Horizon Europe programme aims to simplify the complex architecture of partnerships under the Horizon 2020 programming (2014-20). It also introduces four new European Partnerships with potentially high value for the agricultural sector: “Accelerating farming systems transition: Agroecology living labs and research infrastructures”, “Agriculture of data”, “Animal Health and Welfare” and “Food systems”. Their functioning cannot be assessed at this stage, as they have not yet been implemented, but it is critical that they create opportunities for co-operation with farmers and, possibly, direct links to CAP measures, including eco-schemes and additional funding for innovation from Pillar 2.

Skills imbalances are a challenge for the future of the agricultural sector and the green transition

The effects of climate change, the increasing ambition of environmental regulations and the need to maintain competitiveness are new challenges for the sector. New digital technologies and analytical tools may transform these challenges into opportunities for the agricultural sector. Evolving requirements, however, demand new skills and capacities among agricultural workers, including digital, environmental management and entrepreneurial skills. While the demand for highly skilled workers in the agricultural sector is increasing, there is a high degree of skills shortages and mismatches compared to other sectors.

While the CAP provides some measures to address these skills imbalances, they are not ambitious enough to solve the problems. A clearer picture of the skills requirements for the next decade would help identify gaps and inform policy design. The Erasmus+ projects, such as FIELDS and I‑Restart, aim to identify current and future skills needs for sustainability, digitalisation and the bioeconomy in agriculture and have the potential to help fill the gaps and support the prioritisation of educational and training needs in the European Union.

Despite the support offered to vocational education and training, farmers’ participation in adult training programmes is low, indicating that unaddressed barriers exist. Connecting participation in training to accessing specific support (e.g. AES) could improve farmer participation. Similarly, connecting the support under the Young Farmer Payment and innovative investments with specific training could encourage young farm workers to gain additional skills and knowledge.

The CAP 2023-27 contains elements to boost knowledge networking activities and promote the role of farm advisory services in building transformative capacity, though progress on this needs to be monitored. The new EU-wide CAP network, which aims to improve the flow of information on EU agricultural and rural policy among national CAP networks, organisations, administrations, researchers, farmers and practitioners has the potential to foster greater synergies and increase inclusive knowledge exchange in the sector. Training advisors are now compulsory, and this may lead to a greater use of training and advisory measures and a more prominent role for advisors in national AKIS.

Farm advisory services are often not sufficiently attractive to farmers nor well geared to future needs

Farm advisory services are essential for helping farmers find solutions, leading to greater uptake of innovation and boosting sustainability in the sector. In most countries, advisory services have changed from mostly public services to a system that combines independent private advisors; private advisors from input providers companies; and new forms of public advisors, including private, public and mixed funding. Different advisory models have potential to reach similar goals.

However, despite the growing importance and diversity of the need for multidisciplinary farm advice, due to delivery mechanisms in the 2014-20 period, the funding for relevant policy instruments is marginal within the overall CAP budget (0.2% of Pillar 2 in 2014-20). Part of this support can be allocated to upskilling advisors, but the actual number of trained advisors is unclear. The demand for advice seems to be fragmented, as a large percentage of farmers remains hard to reach. Furthermore, the effectiveness of farm advisory services in the areas of innovation for environmental sustainability is difficult to assess due to methodological limitations and data issues.

A performance-based CAP requires additional investments in data, evaluation and reporting

The European Union has embraced several data-related initiatives that can improve the monitoring and evaluation of agricultural policy, but the shift towards a more performance-based CAP requires additional investments in data, evaluation and reporting. These data are needed to inform farmers and others about environmental pressures, identify priorities, design more efficient policy instruments (including result-based payments) and monitor performance.

Better data on agricultural household income is needed to design more effective income support

Income support is a long-standing objective of the CAP and the main focus of Pillar 1. Despite this, the available statistical tools do not measure the economic well-being of farm households. There is no reliable system to allow income comparisons among farmers, farm workers and those in other sectors of the economy. Nor is the system able to identify problems related to low-income farm households. Information on the disposable income of agricultural households from all sources, including on- and off-farm activities, is also lacking in databases such as the Farm Accountancy Data Network (FADN). Conclusions, therefore, cannot be drawn on the impact of CAP income support on the income distribution among farm households. Deficient information may lead to misleading policy conclusions, does not provide a solid basis to justify current income support to farmers and hampers the development of more targeted measures.

The increased emphasis on the social dimension of farming also requires new data

The CAP, especially Pillar 2, contains interventions aimed at attracting and sustaining young farmers; facilitating business development in rural areas; and promoting employment, growth, gender equality and social inclusion. The CAP 2023-27 has introduced for the first time the new social conditionality mechanism to link payments to compliance with certain European labour law provisions, including the working conditions of immigrants. The broad measures adopted to increase social sustainability have the potential to increase the attractiveness of rural areas, promote agricultural entrepreneurship, and improve labour standards and working conditions on farms. However, more granular data on the role of women and migrants are needed to design targeted and adapted policy responses to different social issues affecting the farming sector.

Measuring environmental performance is set to remain a major challenge

The new Performance Monitoring and Evaluation Framework is an important step to incorporate monitoring and evaluation in the policy implementation process. It covers all the CAP 2023-27 instruments and aims to measure performance in relation to the specific objectives of the policy using a set of common indicators. Nevertheless, some of the main shortcomings of the previous framework remain. In particular, there are no well-defined impact indicators to assess the environmental and social performance of farming. While the difficulty of measuring environmental and social outcomes at the farm level should not be underestimated, digital technologies have an enormous potential that remains largely untapped. Improved access to technology and more efficient use of spatial data – the Land Parcel Identification System (LPIS) ‒ may offer viable solutions in the future.

Another positive development is the ongoing process of conversion of the Farm Accountancy Data Network (FADN) to the Farm Sustainability Data Network (FSDN). The FSDN will include additional variables that will fill some data gaps on environmental and social sustainability. Nevertheless, these and other data will only be available towards the end of the upcoming CAP period, therefore showing significant synchronisation problems between CAP developments and data needs. The heterogeneous and fragmented data landscape between Member States further exacerbates confidentiality constraints on data collection and harmonisation. Furthermore, incentives are needed for individual farmers to collect data about their performance on environmental results and use this information to design their investment strategies and practices on the farm.

Evaluation of bottom-up multi-actor agricultural innovation partnerships is needed for policy learning

The 2023-27 CAP facilitates the uptake of the EIP-AGRI OGs by addressing two main barriers: the administrative burden and a lack of upfront funding. However, to date, there is no systematic evaluation of the functioning of OGs and their outcomes for the period 2014-22. A comprehensive data set is needed to track the characteristics and achievements of these partnerships and to analyse the factors that contributed to the best performance. More evidence is needed to ensure an appropriate feedback loop, with information and analysis of the main drivers of innovation outcomes that could enhance policy learning and the application of the best set-ups and practices among OGs. While some data are available, the current participation of advisors and the level of engagement of farmers across different projects has not been sufficiently analysed.

Policy recommendations

The green transition of EU food systems calls for an overall transformation, where innovation will play a critical role in delivering sustainable productivity growth. While the CAP 2023-27 includes a number of promising new approaches and priorities, meeting the ambitious sustainability objectives and raising productivity growth will require further significant reforms going forward. The above assessment helped identify 15 recommendations that are categorised into five areas: 1) payments; 2) regulations; 3) innovation; 4) data strategies; and 5) environmental services. Each of these 15 recommendations includes specific actions that can be applied either during the current programming period (2023-27), and which are labelled as [Current], or that could be applied only in the next programming period, and which are labelled as [Next].

Payments. Reform the structure of the CAP and policy design to better reflect stated priorities and alignment with European Green Deal objectives

1. Align CAP budget allocations with stated priorities and address disincentives

• Target a larger share of the budget to performance-oriented payments for environmental and climate objectives [Next]. Increase the agricultural sector’s contribution to the F2F and Biodiversity Strategies’ objectives by ring-fencing a higher share of CAP expenditures to remunerate the provision of public goods, in particular for environmental stewardship and climate change mitigation.

• Increase the share of the budget devoted to innovation, information, training and advice targeted to sustainability and resilience objectives [Next], both through direct innovation measures and indirect integration of innovation and advice in other measures. Increase the coherence between the vision of the green transition of the sector and the needed innovation-related activities that have the potential to contribute to achieving related environmental targets. A combination of different actions and policy tools may help to achieve greater coherence: identifying and addressing barriers to the uptake of available knowledge and innovation-related measures, reorienting more public investment towards agricultural research and innovation, and promoting private investment. CAP rules should make it easier for Member States to fund specific components of their AKIS they have identified as key levers to improve sustainability and resilience. More investment in information, training and advice is also fundamental to respond to sustainability challenges and ensure increased sector resilience.

• Invest in the risk management toolkit to improve preparedness, adaptation and transformation [Next]. The CAP toolkit should include broader risk management strategies, in particular, ex ante tools. Finance advisory services to undertake risk assessments at the farm level, including the impacts of climate change, and to give impartial advice to farmers on risk management practices, including investment in adaptation and diversification, and ex ante investments in prevention of hazards (e.g. prevention of floods or diseases). Rather than focusing on increasing revenue stability by compensating losses ex post, promote farmers’ awareness of the impacts of risks and climate change on their farm and enhance their co‑responsibility on adaptation and transformation.

• Phase out the most-distorting and potentially most environmentally harmful forms of support [Next]. Policy reforms over the past three decades substantially reduced the level of support to the sector and shifted the composition to less production and trade-distorting measures. Despite substantial progress in reforming support for the sector, the most distorting and potentially most environmentally harmful forms of support, such as coupled direct payments, input support and market price support, still represent nearly a quarter of support to producers. Reducing tariff rates for agricultural products and phasing out other distorting measures, which also contribute to negative environmental outcomes, would improve CAP coherence with the F2F and Biodiversity Strategies.

2. Ensure that all CAP payments that focus on sustainability, resilience and innovation objectives are linked to monitorable performance

• Strengthen the monitoring and evaluation of the CAP strategic plans (CSPs) with greater transparency and reporting on progress [Current]. Make a mid-term assessment of the CSPs and the monitoring mechanisms. Define objectives and propose indicators and mechanisms to measure and monitor Member States’ progress and adjust their plans. The flexibility provisions on regulations and directives should not be a source of implementation gaps. Provide Member States with incentives to take meaningful action and to use such flexibility to achieve more ambitious targets in different situations.

• Reform payments to target environmental sustainability outcomes as defined in agricultural-related regulations [Current]. While the CAP is increasingly used as a vehicle to achieve sustainability targets, a more extensive use of CAP funding to reflect and achieve the objectives of the Water Framework Directive, the Nitrate Directive and the Climate Law could be an effective way to accelerate progress in achieving the European Green Deal’s ambition. Provide guidance to member states regarding how to maximise CAP integration with river basin management plans, nutrient action plans and climate objectives. Clarify and simplify rules to encourage co-ordination between the administrative bodies in terms of programme and payment delivery.

• Introduce specific mechanisms to incentivise good policy design and performance by Member States [Next]. Link Member States’ CAP budgetary allocation to the achievement of environmental and climate objectives. To improve the effectiveness of CAP spending, different options could be explored to strengthen this link and give Member States greater budgetary responsibility, such as introducing a performance bonus or other incentives.

3. Transition to targeted income support and introduce a clearer separation of income support from measures targeted towards environmental sustainability

• Undertake an in-depth assessment of the impact of CAP direct payments on household income inequality [Current] among farm households and with other sectors, on the incidence of low income and poverty among farmers, and on the inclusiveness of women and minorities in agriculture. This would require investing in data to measure the well-being of farm households, including on-farm and off-farm activities. Explore policy options to better define the rationale of income support and target it to legitimate social objectives, including the possibility of incorporating them into social security nets. Systematically measure total farm household income on a regular basis.

• Accelerate a transition process to target income support to low-income farm households [Next]. This transition should be informed by and consistent with the findings of the in-depth assessment of the impact of direct payments. The bulk of income support to farm households should target low-income or poverty issues, ensuring that synergies with broader social policies are realised. A certain level of decoupled payments could be maintained to keep land for agricultural use.

• Reduce decoupled payments through better targeting and make them conditional only to basic GAEC requirements [Next]. Reduce sector specific income support and keep a limited share of the income support package in the form of decoupled payments, applied as flat rate payments fully decoupled of any production to ensure income transfer efficiency. Maintain basic GAEC requirements for this type of support to ensure a broad-scale approach to sustainability, but also to maintain a sufficient area suitable for agricultural production across Europe and ensure a rapid response to market signals when food markets become tight and to food crisis situations.

• Define two different sets of direct payments: income support and voluntary payments for environmental services [Next]. Structuring direct payment support into two well-defined and distinguishable packages will clarify the relationship between CAP spending and the different CAP objectives. It will give more certainty to farmers and avoid blurring the line between income support and other goals. This will also ensure that sustainability spending is not viewed as coming at the expense of income. Allocate a dedicated budget to each of the two packages and eventually introduce different co-financing rates according to the priorities established by each Member State. The support for environmental sustainability should be performance-based (see Recommendation 14).

4. Ensure that CAP payments do not create barriers to entry

• Explore the possibility of withholding CAP income payment rights from farmers who have reached the statutory retirement age [Next]. Several countries (i.e. Austria, France and Germany) have already introduced linkages between CAP payments and pension schemes, for example, by requiring the farm to be passed on to a successor to receive a pension. Whilst respecting national legislation regarding pension rights, create incentives for Member States to withhold CAP payments from farmers who have reached the statutory retirement age to encourage generation renewal, as well as to improve the connection between income support and actual income problems.

• Reduce policy barriers to generation renewal, new entrants and women [Next]. Support to young farmers should be integrated with a broader range of measures to address all major obstacles to setting up a farm, such as access to land and access to credit. The reduction of decoupled income support entitlements will reduce the cost of land, although it could continue to act as an obstacle to entry. The eligibility criteria for entry support should not be limited to the applicant’s age, with more targeted and long-term investment programmes on innovative business plans aimed at favouring the installation of labour from non-traditional populations outside the agricultural sector and with skills that are undersupplied. Design specific measures to reduce the barriers to entry for women, learning from the experience of other countries.

Regulations. Address the implementation gap on sustainability objectives and innovation barriers via SMART regulations

5. Enhance regulatory design

• Assess the impact of the agro-food regulatory environment on innovation with a view to promoting a more integrated approach to policy making [Current]. This will enable a better evaluation of the trade-off between different risks before delivering new regulations (e.g. on genetically modified organisms, gene editing and pesticide use). It will also ensure that an integrated policy approach is developed, comprising all the policy measures necessary to overcome potential innovation barriers, as well as all the necessary incentives and investments in R&D that are often indispensable for making environmental regulations effective.

• The objectives and targets of all new regulatory initiatives and proposals should be SMART: specific, measurable, achievable, relevant and targeted [Next]. While maintaining a high level of ambition, ensure that the objectives and targets of new regulatory initiatives and proposals are based on a sound scientific assessment of the actions required to achieve them. This will avoid responses to objectives perceived as unfeasible or focusing on loopholes and technical compliance that does not lead to real success. Follow an outcome-oriented approach as a guiding principle for the design and delivery of all new regulations, learning from the experiences of, for example, the Nature Restoration Regulation Law, which is a good example of increasing the specificity in objectives to foster a more effective outcome‑oriented approach.

6. Refocus the role and scope of cross-compliance to increase its effectiveness

• Make regular training on agriculture-related regulations a part of CAP conditionality [Current]. Compliance with compulsory regulations under the current statutory management requirements will be the core of this training. Advisory services will be proactively used to promote awareness and understanding and to provide continuous professional training.

• Reform cross-compliance by focusing enhanced enforcement on a reduced number of practices that are monitorable at a large scale [Next]. Reduce the scope of cross-compliance by selecting GAEC that can be easily controlled at a large scale, including through satellite images or other digital tools (see the first action point in Recommendation 11). This will limit the administrative burden for Member States and farmers. In liaison with the improved remote sensing tools, on-farm controls should be substantially strengthened, and penalties should be proportional to the environmental damage caused to ensure compliance is incentivised. These GAEC will be a reference level for all voluntary AES and eco-schemes.

Innovation. Foster agro-food innovation, advice and skills as cornerstones of a new sustainable food systems approach

7. Put innovation at the centre of food systems to achieve greater synergies between different policies and meet green transition targets

• Undertake a systematic evaluation of the functioning of EIP-AGRI Operational Groups and their outcomes [Current]. In parallel, gather further evidence on the effectiveness of the use of these funds, as well as their contribution to the achievement of sustainability goals. Establish a mechanism to track the characteristics and performance of each partnership. Analyse this evidence and the main drivers of innovation outcomes. Identify the best set-ups and practices among OGs and use this information for innovation policy design and implementation. Take stock of lessons learnt from the existing projects and identify key enablers and possible barriers. This will continue to facilitate policy learning and allow future policy tools to be better designed to induce innovation efforts for agricultural sustainability.

• Transform long-term agricultural innovation strategy into a strong policy programming tool that effectively links different policy areas [Next] by achieving a stronger integration between the CAP tools and the research and innovation framework programmes. First, use it for multi-actor identification of innovation priorities. Then, ensure a cross-sector approach to foster agro-food innovation, in particular in areas under the jurisdiction of different directorate-generals. Pay increased attention to potential trade-offs and synergies between different policy goals, as well as to collaboration on cross-cutting challenges of the green transition. Proactive use of agricultural innovation strategy (at the EU and national levels) could steer and strengthen potential interlinkages. As part of this agro-food innovation strategy, include the skills agenda and a data strategy.

• Encourage EU Member States to establish their own agro-food innovation strategies that are fully integrated into the CSPs and consistent with the EU strategy [Next]. These strategies should include operational targets compatible with the vision set out in the EGD. Invest in improving governance and co-ordination of Member States’ research and innovation agendas for the sector.

8. Use incentives and policy levers to steer agricultural innovation efforts towards environmental sustainability and meeting green transition targets

• Strengthen the participation of farmers in the AKIS, both in identifying the environmental challenges and in co-creating solutions [Current]. Given recent efforts to reduce administrative burdens and the lack of upfront funding, it will be necessary to reassess potential barriers to farmers’ and advisors’ active participation in innovation projects for environmental sustainability. On this basis, address barriers and create incentives to promote their active role in the co-production of knowledge and innovation. Foster further co-operation among different actors within the AKIS in the European Union. Use the AKIS strategy, in particular the advisory services and the skills agenda, to increase farmers’ awareness of the role of innovation in tackling the productivity-sustainability trade-offs and of the tools and policy measures available.

• Strengthen the mission-oriented EU approach for the benefit of an environmentally sustainable agricultural sector [Next]. At the level of objectives, strengthen the integration of a long-term agricultural innovation strategy into the overall EU mission approach. While doing so, take into account the needs arising at all stages of the innovation process and uptake, including building human capital in the sector. At the level of implementation, use CAP measures as policy levers to support mission objectives by integrating innovation aspects into agri-environmental measures. Use the best ideas from OGs’ innovation projects to enrich the spectrum and improve the cost-effectiveness of eco-schemes.

9. Build a new and strong skills agenda for transforming the sector through a sustainability innovation pathway

• Improve the assessment and outlook of skills requirements for the agricultural sector [Current], in co-ordination with different actors of the AKIS and of the value chain. The objective is to identify skills gaps for the upcoming decade, taking into account the new environmental agenda and the need to keep businesses competitive, and to explore possible action tracks. Use this improved information on the sector’s current and future skills needs to build a long‑term skills agenda and education planning.

• Develop an ambitious skills agenda for the EU agro-food sector and promote the active engagement of Member States through the inclusion of specific measures in the CSPs [Current]. In co-ordination with the European Skills Agenda for Sustainable Competitiveness, Social Fairness and Resilience, establish a skills agenda for the EU agricultural sector to improve skills alignment with the needs of the green and digital transitions. Set ambitious objectives for the next five and ten years and a clear strategy for upskilling and retraining agricultural workers, with a particular emphasis on competencies in the areas of environmental management and digital technologies. Engage the relevant stakeholders, including regulators, education, research, advisory services and food chain actors in this process. To foster investment in skills, mobilise the financial means by leveraging existing instruments such as the European Social Fund Plus, Erasmus, Digital Europe or the CAP.

• Strengthen the system of advisory services, in particular in the areas of sustainable environmental practices [Current]. Facilitate the training and upskilling of independent advisors so that they can provide up-to-date, evidence-based advice to farmers. In particular, strengthen their knowledge and awareness of environmental pressures, sustainability practices and new technologies. Promote innovative ways to encourage the use of qualified advisors, e.g. through a voucher scheme as recently introduced in the Netherlands or an online platform for agro-food advisors as announced by Spain.

• Upskill farmers via a lifelong learning approach as an integral part of payments for environmental services (PES) [Next]. Promote various learning methods, including self-learning, expert teaching, and peer‑to-peer learning through online and in-person (with hands-on activities) channels. Address identified barriers to farmers’ participation in adult and vocational training. For instance, target selected upskilling actions to farmers of different ages and qualification-level groups or those in remote areas. Also, specific advisory services could be proposed as part of PES to enhance farmers’ awareness and knowledge of the required practices.

Data. Strengthen data-driven policy design, assessment and monitoring

10. Strengthen the EU agro-food data strategy to respond to the triple challenge of food systems and the corresponding data needs from farmers, the food chain and policy makers

• Expand the agricultural data strategy as an integral part of the European Union’s agro‑food innovation strategy [Current]. Identify the main data gaps and implement actions to tackle them. Address the problem of a heterogeneous and fragmented data landscape in different policy areas and across EU Member States. Expand this strategy to identify priorities, especially in two areas: 1) agri-environmental performance at farm, landscape, regional and country levels responding to the new EGD ambitions; 2) farm household income and the social dimensions of farming, such as migrants and gender.

• Use the CAP budget to support investment in data and the use of digital technologies [Next]. CAP measures should provide incentives to gather more data for farmers and policy makers. In order to fully adopt a performance-based approach, the lack of synchronisation between the CAP’s policy cycle and the implementation of data initiatives like the FSDN needs to be addressed and improved for future CAP reforms.

11. Enhance digitalisation to monitor policies, create awareness, facilitate knowledge exchanges and find innovative solutions

• Make more extensive use of digital platforms to better monitor the implementation of agricultural and agri-environmental policies [Current]. For instance, include platforms based on earth observation data as part of the formal policy monitoring process. In particular, greater use of highly differentiated spatial data (e.g. by parcel) on agricultural practices and landscape characteristics (e.g. slope, proximity to receiving waters, soil type) could allow for the implementation of more spatially targeted, monitorable and dynamically flexible policies.

• Address challenges farmers face in adopting digital technologies [Current], including lack of relevant skills, lack of trust, non-compatibility with farmers’ needs, investment and maintenance costs, institutional constraints, transparency, oversight, and responsibility. Avoid new digital divides through accompanying measures to ensure equal access to technologies. Build farmers’ digital technology awareness and strengthen the competencies needed to take advantage of digital technologies by directing part of the CAP measures dedicated to knowledge exchange and advice to these issues. Furthermore, allocate part of the CAP measure dedicated to investment to support the adoption of innovative digital technologies that are commercially available but not yet widely adopted within a given farm type. Provide space for experimentation on digital technologies for sustainability in the agricultural sector by enhancing co-operation between regional European digital innovation hubs and EIP-AGRI operational groups.

• Leverage digital technologies to strengthen advisory services [Current]. Promote the use of digital tools to facilitate the offer and use of advisory services and encourage the provision of impartial advice on digital technologies. Encourage the creation and use of online advisory services, access to digital tools that provide advice on a wide range of topics, and encourage the provision of advisory services to groups of farmers with similar needs. Exploit the potential of digitalisation in knowledge exchange and diffusion for the professionalisation of advisors by training advisors with new technologies that monitor farm practices and processes.

12. Facilitate policy learning by addressing data gaps and improving evidence on the effectiveness of innovation partnerships

• Build evidence to better inform policy design [Current]. Leverage the momentum generated by the transition from the FADN to the FSDN to ensure that the range of variables covered by the FSDN is comprehensive and sufficient to inform policy in key areas.

• Continue to improve the quality and availability of existing indicators on R&D and innovation policy efforts and impacts [Current]. Enhance efforts to collect data on investment in agricultural R&D by thematic area to better monitor the contribution of agricultural innovation systems to the widely acknowledged goals of productivity, sustainability and resilience. To benefit multiple analytical projects and help better inform policy, encourage individual EU Member States to share existing data that have not yet been made public.

• Gather further data for the monitoring and evaluation of multi-actor innovation partnerships and projects [Current]. Monitor and analyse their impacts on the sustainability of the sector and the uptake of innovation and experience from co-creation projects by both participating and non‑participating farmers. Map themes explored in different projects and develop an analytical framework (including modelling) to assess whether obtained results depend on local conditions or whether the solutions could be implemented in different contexts.

Environmental services. Adopt result-based payments and collective action, and introduce reporting on results

13. Promote collective action for the delivery of environmental public goods and services

• Pilot collective agri-environmental measures (AES and eco-schemes) [Current]. Use pilot experimentation to move from single field or farm to landscape space-based environmental action. Allow CAP payments to local authorities, local collectives or groups of farmers to ensure more effective achievement of environmental and climate outcomes, to increase capacity for landscape monitoring and to simplify requirements for beneficiaries.

• Use the CAP to promote collective action on environmental sustainability and innovation [Next]. A broader strategy should be adopted to address the main barriers preventing the large‑scale uptake and implementation of collective measures. Pillar 2 payments to resolve a local sustainability pressure or deliver local public goods should be made, by default, to the community of farmers facing the joint challenge, building on existing experiences in some Member States. Include in such measures a technical assessment of the environmental priorities and best responses and make the payment based on results. Promote synergies and direct links to other innovation measures and initiatives, such as the EIP-AGRI operational groups, to induce the co-creation of the best solutions to achieve results.

• Consider introducing collective penalties [Next]. For instance, in river basins that violate Water Framework Directive objectives, based on an assessment, a share of the CAP direct payment could be retained from all farmers in the river basin until performance improves. This funding could be allocated to managers of resources (e.g. river basin authorities, municipalities or other local authorities) to improve monitoring, management, extension and advice.

14. Transform voluntary schemes into result-based payments for environmental services (PES)

• Encourage greater experimentation with AES and eco-schemes design towards result‑based multi-annual payments for biodiversity and ecosystem services [Current]. In the context of a transition towards PES, facilitate a learning process to rapidly move from practice requirements towards requirements based on results in the next CAP programming period. Related efforts, both in terms of budget and dedicated policy tools, should be increased by investing in piloting projects, advisory and communication.

• Provide training to support the adoption of result-based approaches [Next]. Help farmers understand the environmental challenges on their farms by providing training and assistance for environmental impact assessment, with specific reference to which changes they can implement to reach the goals set by result-based AES and eco-schemes. When farmers better understand the consequences of their choices, they may be more likely to adjust their practices.

15. Introduce reporting on results and ex ante assessment for payments for environmental services (PES)

• Require reporting on results by the beneficiaries of PES [Current]. Connect this reporting with SMART (specific, measurable, achievable, relevant and time-bound) objectives to enable an effective policy design cycle in a shorter timeframe. Consider introducing higher financing rates for farmers participating in schemes who have undertaken an environmental impact assessment of their farm operation through a recognised process.

• Make the eligibility to PES conditional to an ex ante assessment of the local environmental conditions [Next] to identify the main pressures and priority actions and create a baseline against which progress can be measured. Use this assessment as the basis to improve the coherence and targeting of the adopted policy measures, as well as their environmental performance. Take advantage of the opportunities offered by ongoing digitisation, including satellite data and machine learning. Promote the agri-environmental assessment in a collective manner for farmers envisaging a similar environmental situation and public good demands in the same location.