At EU level it is possible to identify several policy tools that, to some extent, are related to the provision of environmental goods through agriculture.
Cooper et al. (2009, p. 88) have identified three types of EU policy measures that have some potential to support the provision of environmental public goods:
1. Measures with a direct focus on the provision of public goods: cross- compliance, art. 68, agri-environmental measures (214) and non-productive investment (216) in the framework of the CAP, LIFE+ projects focused on agricultural and structural funds projects under the heading ‘Preservation of the environment in connection with land and … landscape conservation;
2. Measures with a partial focus on the provision of public goods, such as Rural Development advice and training measures (111, 114, 115), farm modernisation (121), infrastructure development (125), LFA payments (211, 212), Natura
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2000 (213), conservation and upgrading of the rural heritage (323), training and Information (331),
3. Measures with no direct focus on the provision of public goods, but that may have a positive impact, such as direct payments and Rural Development measures on adding value to agricultural products (123), diversification (311) and encouragement of tourism activities (313).
Amongst the measures which have been implemented specifically for the provision of environmental public goods (first group of policy tools above), the most significant in terms of institutional, political and academic interests are the cross compliance and the agri-environmental measures in the framework of the CAP.
The idea beyond the CAP cross-compliance is placing environmental conditions on the receipt of agricultural support payments, an approach that started in the 1990s with the objective of improving the adherence to environmental standards at farm level. While the 1992 and 2000 CAP reforms provided member states with the ability to make the receipt of certain payments conditional on meeting specified environmental standards, cross compliance requirements were made compulsory for member states to apply as part of the 2003 reform of the CAP (OECD, 2011).
Implemented since 2005, this mechanism ties EU support for farmers to compliance with specific standards, by penalising farmers who infringe the law on environmental, public and animal health, animal welfare or land management – by reducing the CAP support they receive.
Cross-compliance mainly covers directives and regulations (SMR - Statutory Management Requirements) – that have existed for years and apply to all farmers but also a set of rules on Good Agricultural and Environmental Condition (GAEC), designed specifically for farmers receiving CAP payments. GAEC standards were designed to promote more sustainable agriculture, as well as to act as a flanking measure to address unwanted side-effects of the introduction of single payments, most notably the cessation of the active management of farmland and the risk of land abandonment (OECD, 2011).
In all countries farmers are required to respect certain environmental regulations, whether or not cross compliance approaches are used. In the EU, due to the introduction of GAEC, the reference level of environmental quality for cross compliance is higher than defined by the environmental regulations. At the same time, where farmers voluntarily enter into a contract with the government to provide environmental quality beyond what is required (the reference level) and for which no market return exists (public goods), then they would be entitled to a compensation or incentive a payment as long as they complied with specified criteria (OECD, 2010b).
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Figure 2.2 shows the relationships between environmental targets, reference levels and farmers’ economic optimum (the level of environmental quality farmers would provide on the basis of private profitability).
Figure 2.2 - Environmental targets, reference levels and farmers’ economic optimum
Source: OECD (2010b)
With regard to the environmental performance of cross compliance, it has been showed that the introduction of this requirement since 2005 has undoubtedly expanded the area of land subjected to basic environmental management requirements, it has increased the pressure on a proportion of farmers to comply with baseline environmental standards and in many cases raised their awareness of environmental legislation (Hart et al., 2010).
At the same time, several limitations have also been observed, especially in relation to the levels of compliance and enforcement and to the lack of monitoring and evaluation (European Court of Auditors, 2008), but also to the general approach of this policy tool.
Indeed, as observed by Brady (2011), targeted measures would be more effective than cross compliance to improve the environmental performance of agriculture given the immense heterogeneity of agri-environmental conditions across Europe.
Nevertheless, the EU considers this policy tool the most important mechanism for delivering environmental benefits in agriculture across a large land area, and this is confirmed by the recent proposal of the European Commission (2011a) for the CAP for the 2014-2020 programming period.
The current debate on the future CAP is highly concentrated on the greening of the first pillar, which consists in three measures to be applied at farm level related to the eligibility of farmers to the 30 per cent in direct payments: (i) crop diversification; (ii)
Environmental Target Reference Level Farmers Economic Optimum Costs to be borne by society Costs to be borne by farmers Environmental Quality
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maintaining permanent grassland and (iii) 7 per cent of ecological focus areas on all eligible arable land per farm.
This strategy confirms that the European Commission considers the approach of cross-compliance as the most cost-effective strategy in delivering environmental goods at large scale, especially in areas characterised by intensive and productive agricultural systems. At the same time, while the greening measures have an annual, non- contractual basis and apply to all farmers in a generic way, while public goods such as biodiversity could be better provided through regional coordinated measures that increase landscape heterogeneity through the construction of multi-annual green infrastructures (Westhoek, 2012).
The impact of this approach depends very much on local farming systems and on local biophysical and cultural features as well as on the details of the national/local regulations and on the practical implementation at farm level.
Indeed, this approach remains rather top-down and it may result in a lack of effectiveness since it does not take adequately into account the local situation as a starting point. It does not incorporate the wishes, ideas and capabilities of local communities, while it would be better to use persuasive power instead of obligations, and focusing on learning processes within the policy process (Hajer, 2011). The legislative proposals for the CAP still focus on regulation rather than providing objectives and a framework for Member States (and their regions) to seek effective measures for reaching multiple objectives (Westhoek, 2012).
Positive benefits can be reached through local-specific management conditions, especially through the improvement and/or supplement of command and control (and top-down) measures with more targeted rural development measures, in particular agri-environmental schemes.
Agri-environmental schemes are sitting within Pillar 2 of the CAP alongside other land management measures in Axis 2, and they are the oldest and the single most significant measures for pursuing environmental objectives across the farmed landscape, both in terms of the spatial coverage of schemes and the resources allocated to them (OECD, 2011).
These measures provide payments to single farmers to adopt specific farming practices on producing land, and are implemented specifically to achieve positive environmental effects and/or providing public goods (such as landscape, biodiversity, etc.).
Farmers sign a contract with the administration and are paid for the additional cost of implementing such commitments and for any losses of income (e.g. due to reduced production) which the commitments entail. Agri-environmental payments are co- financed by the EU and the Member States and may be designed at national, regional
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or local level so that they can be adapted to the particular farming systems and environmental conditions (European Commission, 2005).
However, these payments in many cases are largely inefficient and they seem inadequate to improve the provision of such goods at the required scale. Their lack of efficiency is mainly related to their lack of targeting and tailoring, but also to the fact that usually their targets are defined in the form of a specific farming practice rather than a specific (measurable) environmental outcome (Vojtech, 2010).
Moreover, agri-environmental schemes have generally been promoted through the provision of fixed payments for certain environment-friendly farming or management practices but the location and the quality of agricultural land and production systems used by farmers vary enormously, especially for small households in hilly and mountainous regions, where fixed payments that are uniformly distributed at regional region cannot correspond to the individual heterogeneity (OECD, 2012b, p. 43).
The voluntary policy mechanisms based on the agri-environmental measures in the framework of the second pillar of the CAP are mainly based on formal contracts between individual farmers and government agencies, under which the farmers agree to follow a particular set of practices and not to undertake others. Hodge (2001) has identified the main limits of those formal environmental contracts, which may be synthesised in the following points:
- Formal contracts restricts the range of objectives and requirements for farmers, since they involve a strong formalisation (common rules and range of actions to be controlled);
- In some cases farmers may evade the contract requirements, because there are always aspects of the contracts which are not readily observable by the government agency;
- The nature of the contracts usually results in a lack of incentives for entrepreneurship and, above all, may limit the incentives and the opportunities for co-operation between landholders.
In addition, while such measures are usually targeted to individual farms, environmental public goods could be more effectively delivered if farmers in a given area take joint action, since in many cases the provision of environmental goods may be ensured only where groups of local stakeholders in rural areas agree to adopt a coordinated approach to resource management (Hodge, 2001).
This highlights the need of a different approach regarding innovative forms of intervention, which take more into consideration the collective dimension of agri- environmental action, in order to favour joint action to provide public goods at territorial scale. This kind of action, in fact, can provide a higher level of public goods
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provision which otherwise would not be possible to reach by individual farmers, and which is particularly relevant in cases of some environmental objectives such as improving public goods such as biodiversity, landscape and water quality (ENRD, 2011).
There is an increasing awareness, also at the EU level, that a more effective implementation of agri-environmental measures could be secured by adopting territorial approaches to delivery, ensuring that the focus of action widens beyond the individual farm, in order to achieve sustainable solutions at landscape scale (Hart et al., 2011).