GRANADA WORKSHOP REPORT 2

European agri-environmental policy and the integrated development of less-favoured areas

Siegfried Bauer

Department of Project and Regional Planning at Giessen University,
Diezstr.15, D-35390 Giessen, Germany

1. Introduction and background

From the beginning of the European Union ( EU ) and for a long time, the EU policy of the has given emphasis to the agricultural sector and here particularly to the field of market and price policy. The objectives behind this policy, however, have not mainly been related to markets and prices (like market stabilisation etc.), but to structural adjustment problems of the agricultural sector and particularly to income and social objectives. The price policy of the EU was, however, neither, effective in relation to structural adjustments, nor to social and income objectives within the different regions of the European Union. The equity and distributional effect of this policy was to a large degree dependent on the agricultural productivity differences between the EU country's and particularly between the various regions. The result was exactly opposite to generally accepted principles of income distribution and equity and also to the need of structural adjustments in the regions.

Partly because of this reason, the European Union has started already in the 70s and intensified this attempt in the 80s to shift part of the policy emphasis on the so called structural policy, mainly in the way of subsidising investments on farms. In the 80s price policy was modified in certain aspects, but the principle remained and the expenditure of this policy increased as well as the surplus on markets, which created international problems. It was mainly due to this financial pressure and the criticism from third country's, including the GATT, that led finally to the reform of the Common Agricultural Policy (CAP) in 1992. As an element of this reform, also certain environmental oriented elements, which were in line with the requirement of reducing the level of agricultural production were introduced. The present CAP is still very costly and contains still a number of conflicts and inconsistencies.

Parallel to these agricultural oriented activities, the EU decided to shift more and more emphasis and financial resources on general regional policies in order to develop disadvantaged areas. Particular programs were introduced for the Hilly and less favoured areas (Farm hill programme) and for the southern countries (like Greece, Spain, Portugal) through the so called Mediterranean Integrated Programmes for less-favoured areas. Later several financial funds were coupled in order to concentrate subsidies on disadvantaged rural and other areas. Beside the Structural Funds, specific initiatives, like the LEADER program or INTERREG program have been introduced. These regional programs received more and more importance compared to the pure agricultural subsidies. Therefore it seems advisable from the regional point of view to concentrate more on these programs.

Environmental policy is still receiving only little attention at the EU level. Beside the agricultural programs, particularly the FFH directive and the Ecological Audit initiative have to be mentioned. Therefore, the task and the necessity reminds to integrate environmental issues and requirements into the existing agricultural and regional policies (Bauer 1997).

The various policies mentioned above may still be seen very critical, since they are not well integrated, harmonised and co-ordinated at the EU level and with national and regional policies. Deficiencies have also been noticed in operationalising EU policy to the local competence and financial responsibilities. From this point of view, a principal discussion about an efficient and acceptable federal responsibility system at various policy levels seems necessary.

In the following, we just concentrate on certain aspect of the given theme. Since a number of basic facts and policy aspects have already been presented at the Naplio Conference (Bauer 1997), we will just go into some more details of the CAP reform, the regional policies and the requirements for integrating more environmental aspect into EU policies.

2. The Reform of the CAP and its Impact on Environment and Rural Regions

The biggest reform of the EU agricultural policy since its existence took place in the year 1992, after a long discussion about the proposal put forward by the EU commissioner Mac Sharry. To understand and analyse the effects of the reform, we have to consider the following two basic packages:

1. The price and market oriented policy changes, consisting mainly of the following elements:

• a significant reduction of the internal intervention prices for most agricultural commodities, like 30 - 50 % for cereals, 15 % for beef, and about 10 % for milk,
• introduction of direct compensation payments for the farmer, mainly in relation to agricultural land (grant cultures) and per livestock unit,
• set a side of agricultural land as a pre-condition for compensation payments to producers above a certain production level,
• several specific regulations for certain commodities regarding the level of production (quotas), prices and direct payments.

2. Complementary measures, as outlined in the EU regulations 2078/92, 2079/92 and 2080/92, aiming mainly an additional reduction of agricultural capacities,

• Regulation 2079/92 provides additional payments for early retirements of farmers (transfer of the land to expanding farms or set a side),
• Regulation 2080/92 aims at an accelerated afforestation of agricultural land in order to reduce agricultural capacity and to implement landscape elements in regions wherever necessary,
• Regulation 2078/92, supports environmentally sound and nature protecting agricultural production practices, particularly

- transforming arable land to grass land,

- extensification of arable land (reducing the level of fertiliser and pesticide
application to certain limits),

- extensification of grass land (reducing the level of fertiliser and pesticide
application and the stocking rate to certain limits),

- transforming traditional agriculture into organic farming practices.

As a matter of fact, the main part of the agricultural budget is still spent for market policy (intervention, export subsidies) and for compensation payments (about 95 %). The complementary measures receive only little attention. While the market expenditure including the area and livestock related compensation payments are fully paid out of the EU budget, the complementary measures are repaid only partly from the EU. For some measures, the major part has to be paid from the national or regional budget. Therefore, the positive attempt of the above mentioned EU regulation in terms of integrating environmental aspects into agricultural policy, does not succeed much importance in practise. It seems, that the complementary measures have been introduced more as an alibi in order to demonstrate, that the EU is doing something for environmentally sound agriculture.

The relative shift from price policy support to compensation payments has significant impacts on the regional situation and the regional competitive situation of agriculture The basic impact of the EU agricultural policy reform on the relative situation of the different areas can be explained by the following figure:

Figure: Impact of the agricultural policy reform on regional competition

The graph presents the agricultural profitability as a function of land quality and the productivity of animal production. The given situation before the reform is characterised by the line T₀T₀ . The decrease in agricultural price by the reform leads to a downward sloping change of the profitability curve, as indicated by T₁T₁, which means that better regions are affected by higher income loss than disadvantaged regions. In other words, the higher the land quality the higher the average output per hectare, and thus the higher the forgone income per hectare. Consequently, this leads to a relatively lower income loss per hectare for less favourable land.

At the same time, farmers receive some compensation payments per hectare land. These general payments can be represented by the upward shift of the T₁T₁ curve to T₂T₂. In comparison to the original situation, this leads to a increase of income per hectare, per livestock unit and finally per farm in disadvantaged areas. As can be seen from this figure, in the short run the regional income situation in agriculture gets more equal and the reform forces the tendency of stabilising disadvantaged regions.

In the long run, however, the compensation payments can not be expected to continue, as the commission has already argued. In this most likely case, marginal area will have to struggle with the economic pressure and de-stabilising forcing factors. Though this policy relieves the income pressure of farmers in disadvantaged areas only in the short term and hence cannot be seen as a general and long run sustainable solution for various problems of disadvantaged areas.

In total, the reform has not integrated either environmental and landscape problems of European agriculture or the long run problems of disadvantaged regions into a comprehensive agricultural and environmental policy concept. It is difficult to find elements of the reform, which are in line with the conceptual framework of sustainable agriculture. In opposite, the reform itself does not seem to be sustainable, since the discussion about the 'reform of the reform' has started shortly after this reform was carried out.

There are still many problems, which are not solved by the reform and certain problems have additionally been created by the reform. The main criticisms of the reform are summarised as follows:

• The reform has introduced new and additional bureaucratic and administrative elements in the agricultural policy system. Farmers are more dependent upon bureaucrats and the administrative burden is higher today. Instead of introducing more market oriented elements, the EU agricultural policy system is moving more and more towards a planned system.
• The massive transfer payments are basically meant to preserve the previous existing income distribution. The public transfers are not oriented on generally accepted social or ecological criteria. This leads to a high inefficiency of spending public money from taxpayers and will therefore lead to a very low acceptance from the public, especially because this policy does not seem to be sustainable in the long run.
• The set aside program neither makes much sense from the economic nor from the ecological point of view. Payments given for setting aside the principally scarce factor land is a waste of resources and does not fit with the principle of an efficient and environmentally oriented use of resources. Obviously, the politicians, who argued for world market prices in the EU do not believe very much in the market mechanism in agriculture. In addition, those areas or plots set aside are not necessarily ecologically the most valuable but usually the least productive ones.
• From the regional and landscape point of view, the reform, particularly the compensation payments, will lead to some stabilisation of marginal areas. Many calculations show, that in marginal areas, the effect of decreasing agricultural prices will be overcompensated by the transfer payments. This means, that the withdrawal of agriculture from marginal areas will slow down. This positive effect from the regional point of view and also from an environmental and landscape perspective, however, is coupled with relatively high income transfers. But it must be expected, that these transfers are reduced drastically in the medium term. Then, a tremendous change of the land use pattern in marginal areas will take place. This change leads to economic, social and ecological problems of the respective peripheral and disadvantaged regions. Therefore, also from this point of view, the reform is not sustainable, even though it involves some positive short run effects in marginal areas.
• Finally, the reform neither solves the ecological problems involved by intensification, specialisation and regional concentration in agriculture, nor does it stop the tendencies observed in the past.

That is why the Common Agricultural Policy has been strongly criticised primarily by environmentalists as well as by economists. In fact, it is difficult, to find out a clear orientation of the reform on the fundamental long-term problems of the agricultural sector. From this global point of view, the reform turns out to be a very narrow and short term oriented superficial compromise. Since all affected interest groups can find some positive aspects within the reform package, they have more or less accepted the compromise without analysing the relevant long term consequences. However, the reform's inconsistency and the missing long term orientation also reflect the dilemma of agricultural policy, since on the one hand, its knowledge of ecological interdependencies is incomplete but on the other hand, the sensitivity and uncertainty of the economic, financial and ecological situation increases.

3. Regional Policies of the EU

As mentioned in the beginning, the EU has shifted an increasing proportion of whole budget to specific regional policies, which are not exclusively aimed for the agricultural sector. Since 1988 the EU regulation 2052/88 is been implemented as a common action of various subject oriented divisions of the EU. The aim is to concentrate funds of the EU and to provide integrated support programmes according to regional objectives. In 1993 this regulation, the so called "Structural Fund", has been revised in order to combine financial resources from

• the Fund for regional development,
• the European social fund
• the Agricultural fund
• and the fund of the Mediterranean Integrated Programmes.
  

In our context, the so called Objective 5b areas and support programmes are most important. The aim is to promote rural development and structural adjustments in rural areas identified backward regions. For example in western Germany 21 % of the total area is classified as 5b region east Germany belongs completely to Objective 1).

The main actions, which are carried in 5b regions include

• diversification and structural adjustment of the agricultural sector,
• development and diversification outside agriculture,
• development of human resources,
• and environmental and natural protection, including landscape measures
  

The Structural Funds can be seen as policy innovation, since they require initiative from the regions by constructing so called "regional development plans, support concepts and operational programmes" for the future development of the region from an regional perspectives. In other words, the former "top down" support programmes have been partly revised by introducing "bottom up" elements in the regional policy. Another innovative element is the continuous evaluation and control of the efficiency of the programme and the various measures applied.

At present the policy is not implemented in all countries and regions in the same way. It requires an active involvement and participation of the regional authorities and also of the population and the key persons within the region. This new requirement and policy participation is still not realised in all regions affected. For example, within Germany, the structural funds are applied differently in the various states and the national regional policy is still not adjusted to the innovations from the EU. Partly, the national policy (e.g. the Gemeinschaftsaufgabe ) is counter productive to new policy.

Beside this innovative character of the structural funds, the are also certain aspects, which can be criticised (Bauer 1996, SRU 1996):

• First, the criteria and the given classification of regions within and outside objective 5b has been criticise as being too static and rigorous.
• Second, the concept of using objectives for regional classification and for allocating financial resources can also be seen critical. The splitting up into different objective area is contradicting to the integrating character and aim of this policy.
• In relation to sustainable development, environmental aspects are an integral part of all support measures. Instead of supporting specific environmental measures, we have recommended to introduce certain environmental standards as a pre-condition for all support measurers. It would also be possible to require an environmental management system (EMS, as defined by the EU regulation 1836/93) from all firms and organisation supported. The main argument is that public money should not be spent for producing negative external effects and a second time for reducing these negative effects.
• Finally, a more fundamental aspect concerns the question whether the EU is the appropriate policy level for regional policy. In other words, is it efficient to transfer first money from the regions to the EU, which is distributed and partly given back to the regions for certain actions. The question is also, whether the EU evaluate and compare region specific problems and finally control the policy which is supported. The criticism includes the argument, that Brussels is too far away from the regions and that there is no equivalence between the range of regional problems and the administrative and financial responsibility. Following the principle of subsidiarity and the postulate of "a European Union of the regions", a more fundamental discussion about the adequate policy levels seem necessary.

4. Conclusions

As a conclusion of this analysis, a reorientation of agricultural, regional and environmental policy into an integrated 'rural policies' should consider the following basic elements and principles:

• The market mechanism has to be regarded as the basic and most efficient driving force for an efficient factor allocation and for structural and regional changes in the economy's and society's development (market economy).
• From the social point of view, there are good reasons for financial compensations and transfers between individuals as well as between regions in Europe. However, these transfers should be based on clear social and income criteria (social market economy).
• From the environmental point of view, regional spill-over exist in the sense of positive and negative externalities between regions. Also because of this reason, adequate financial compensations and incentive systems should be developed and implemented (social-environmental market economy).
• Finally, there are other public goods besides the environment with unbalanced regional burdens and utilities, as for example cultural and educational institutions, which also require financial compensations.

These principles for a reorientation of rural policies can guarantee an adequate co-ordination of regional policies including economical, environmental and social necessities. At the same time, such a policy reorientation would allow for more decentralised political decision-making and financial responsibilities at the regional level, where the real problems are best known.

References

Bauer, S., 1993, "EG-Agrarreform: Eine erste Bewertung aus marktwirtschaftlicher und umweltpolitischer Sicht", in: Zeitschrift für angewandte Umweltforschung, 6. Jahrgang, p.97-104.

Bauer, S., 1993, "EC agricultural policy and its impact on land use and environment", in: EUROMAB, Vol.3, October, p.19-29.

Bauer, S., 1992, "Landwirtschaft und ländliche Räume: Integration regional-, agrar- und umweltpolitischer Erfordernisse", in: Seminarberichte der Gesellschaft für Regionalforschung, Vol.32, p.91-125.

Bauer, S., Abresch, J.-P., Steuernagel, M., 1995, "Gesamtinstrumentarium zur dauerhaft umweltgerechten Entwicklung ländlicher Räume", Gutachten für den Sachverständigenrat für Umweltfragen, in: Materialien zur Umweltforschung, Vol.26, Stuttgart.
Rat von Sachverständigen für Umwelt, 1996, "Konzepte einer dauerhaft-umweltgerechten Nutzung ländlicher Räume", Sondergutachten, Stuttgart.

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