The recent emphasis on rural development policies in the CAP was developed in response to the need to reform the CAP, while continuing to provide support to the farm sector. Successive EU agricultural reforms shifted policy emphasis from commodity price support to producer income support through direct payments, and gradually toward incentives to promote rural development objectives. Early reforms were driven by the need to reduce surpluses of agricultural products by reducing price support, limiting area eligible for support, and imposing mandatory set-aside requirements. A series of budget crises gave rise to the need to provide budgetary stability by fixing a large share of the agricultural budget through fixed producer payments. The impending enlargement to a Union of 25 and the entry of several large agricultural-producing countries threatened budget stability with runaway farm support spending. Equity concerns were also a factor, as policy makers recognised that large farmers were benefiting disproportionately from the CAP (EPSON, 2004.)
The policy shift in favour of rural development measures was also in response to new concerns raised by the public and recognised by policy makers as important to the long- term well-being of EU agriculture – food safety and quality, animal welfare, and environmental concerns. As a result of repeated incidents of food-borne disease outbreaks and tainted food and general wariness of external contaminants like pesticide residues and other plant-protection products, consumers began to associate intensive agricultural production with harmful environmental effects.
World Trade Organization (WTO) negotiations and rules on agricultural support played an important role in the policy shift. Limits on EU-subsidised exports under the WTO Agreement on Agriculture provided a strong incentive to reduce price support and rein in surpluses. At the same time, the Agreement provided an incentive for countries to shift spending on agricultural programmes from trade-distorting forms of support, like price support and production-linked payments, to “Green Box” support, which included some agri-environmental programmes, infrastructural services, decoupled producer income support, structural adjustment assistance, and regional assistance programmes. WTO members agreed, in Article 20 of the Agreement on Agriculture, to include non- trade concerns (which include environmental protection, rural development, and food security) in the negotiations, but disagreed over whether these concerns provided a rationale for production-linked support.
The bulk of EU rural development programmes are implemented through the four Structural Funds, which address a broad array of rural development objectives, one of which is to address imbalances in less-developed regions, known as Objective 1 regions (regions with less than 75% of average EU GDP.) Of the four Funds, the one that relates specifically to agriculture is the Guidance Section of the European Agricultural Guidance and Guarantee Fund (EAGGF), which funds the structural reform of agriculture and development of rural areas in Objective 1 regions. Also of interest is an initiative under the Structural Funds, known as LEADER+, which supports rural development through local initiatives. A number of LEADER+ initiatives relate to agriculture, and the 2007-13 budget guidelines give additional emphasis to LEADER+.
The Guarantee Section of the EAGGF is funded through the CAP. It funds the “market organisation measures” of the EU – direct market support (intervention purchasing, export subsidies, etc.), as well as direct payments to producers – but also
178 – Part IV. Agricultural Policies and Rural Development: Country Experiences
COHERENCE OF AGRICULTURAL AND RURAL DEVELOPMENT POLICIES – ISBN-92-64-02388-7 © OECD 2006 funds a number of rural development programmes. Specifically, the Guarantee Section finances:
• rural development initiatives similar to those financed by the Guidance Section, but targeted to regions that do not qualify for Objective 1 programmes under the Structural Funds; and
• measures introduced to “accompany” the market organisation measures. There are
four such accompanying measures. Three were introduced during the 1992 CAP reforms – they include afforestation, agri-environmental measures, and aid for the early retirement of farmers. The fourth, which was introduced under Agenda 2000 CAP reform, includes “payments for less favoured areas and areas subject to environmental constraints”.
Rural development programmes financed by the CAP are commonly referred to as “Pillar II” of the CAP (Pillar I being the set of market organisation measures).
During 2000-06, Pillar II supported a menu of 22 measures, from which member countries can choose. These options fall into the following broad categories:
• investments in farm business aimed at reducing production costs, improving
product quality, meeting sanitary and animal welfare requirements, environmental improvement, and diversification of agricultural activities;
• human resources – early retirement of farmers, vocational training, and training of
young farmers;
• aid to less-favoured areas and areas subject to environmental constraints; • agri-environmental schemes;
• processing and marketing of agricultural products;
• forestry; and
• “measures promoting the adaptation and development of rural areas” – these include measures that reach beyond the farm and promote the broader development of rural areas. They include infrastructure development, land re- parcelling, preservation of cultural heritage, agri-tourism, water management, environmental protection, recovery from natural disasters, and others.
The 2003 CAP reform added new measures to the menu – including support for food- quality improvement, meeting EU environmental standards, agricultural advisory services, and implementation of the Birds and Habitat Directive – and increased levels of support for others. Also, the New Member States (NMS) were given funds for additional measures:
• semi-subsistence farms undergoing restructuring,
• producer groups,
• compliance with Community standards, • technical assistance,
• top-ups to direct payments.
The total Pillar II budget for the period 2000-06 was EUR 32.9 billion, just over 10% of the total CAP budget (European Commission, 2003.) However, the symbolic
importance is much greater than that. This is seen as the first step in a major move away from commodity-linked support towards greater emphasis on promoting the “non- commodity outputs” of agriculture. The vision is one of a sustainable agricultural sector that promotes the broader objectives of rural development. In keeping with this vision, the 2003 CAP reform called for a steadily increasing share of CAP spending to go into Pillar II during the 2007-13 budget period. The goal was for the Pillar II share to reach 25% by 2013. In part this will be accomplished by compulsory modulation, introduced in the 2003 CAP reform, whereby member states are now required to reallocate a fixed percentage of their Pillar I funds to Pillar II each year.