3 Land use and the Environment within the CAP

(a)The Impact of European Environmental Law on Agriculture

2.15 The Single European Act 1987 added new articles to the Treaty, in order to give environmental protection a legal basis as an objective of the Community.

(b)Land use and the CAP

2.16 The impetus towards adopting an environmental agenda within the CAP itself developed after 1992, as a consequence initially of the reform proposals adopted in that year to reduce overproduction of many agricultural commodities within the CAP. Under the 1992 ‘McSharry Proposals’ supply control measures were introduced for some agriculture sectors – through quotas on livestock subsidy payments, and the introduction of a requirement for producers to ‘set aside’ a proportion of their arable land before arable area payments could be paid.

2.17 Environmental management requirements were also introduced into the arable regime and the livestock subsidies requiring eg the management of arable land set aside from production for environmentally beneficial purposes. This was achieved by introducing a new technique of environmental regulation into the CAP, known as ‘Cross-Compliance’, with the aim of tying the receipt of public subsidies for farming to the observance of basic environmental safeguards. The agri-environment measures have had a major impact in the UK, which has taken advantage of EU co-financing to introduce a number of environmental schemes.

(c)Agenda 2000 and the Reform of CAP

2.18 The Agenda 2000 reform ushered in a period of fundamental change in CAP support regimes, and in particular a major shift in financial support away from agricultural products and towards producers. These reforms were greatly extended by the Mid-term Review of Agenda 2000, agreed in June 2003.³⁰ Farm subsidy payments were substantially ‘decoupled’ from production following the Mid-Term Review, and switched decisively towards providing income support to farmers. Following the Mid-Term Review most direct payments to farmers were reconfigured under the ‘single farm payment’ (‘SFP’) implemented from 1 January 2005.

2.19 The transfer of farm support from product to producer started with the 1992 Mac Sharry reforms,³³ and Agenda 2000 represented a ‘deepening and extending [of] the 1992 reform through further shifts from price support to direct payments’.³⁴ This reflects the basic principle, that where support is proportionate to the quantity produced, there is a permanent incentive to greater production and further intensification.³⁵ The Agenda 2000 reforms and their Mid-Term Review were driven in part by the need to break this link, and to reach agreement in the ongoing World Trade Organisation negotiations for a new international agreement to replace the Uruguay Round Agreement on Agriculture concluded in 1994.³⁶

(d)The Mid-Term Review of Agenda 2000

2.20 The Mid-Term Review introduced a major reconfiguration of the direct payments regime³⁷ by bringing most domestic support schemes within a new and simpler farm support regime based upon the Single Farm payment (‘SFP’). This was intended in part to secure ‘green box’ exemption from domestic support reduction commitments in the WTO negotiations on a new Agriculture Agreement.³⁸ The SFP was intended to be production neutral, in that a farmer did not receive payment differentiated according to the crop or other agricultural product produced. It was also claimed that the ‘decoupled’ support permitted a more effective response to market signals. The precise meaning of ‘decoupling’ remains elusive, however, and there are conceptual problems in arriving at a working definition.² A distinction can, for example, be drawn between ‘fully decoupled’ support and ‘effectively fully decoupled’ support.

(e)The Single Farm Payment and Cross Compliance

2.21 The Single Farm Payment applied to all agricultural products included in the former arable crops regime, grain legumes, seeds, beef and sheep.⁴¹ The system was based on the allocation of payment ‘entitlements’ to each farmer. These were allocated so that each farmer was entitled to a payment entitlement per hectare. The entitlement was calculated by dividing the reference amount by the three years average number of hectares that in the reference period (2000, 2001 and 2002) gave rise to the direct payments that that farmer received.⁴² The reference amount was then the three year average of the total amounts of payments which the farmer had been granted under the relevant CAP support schemes in each of calendar years 2000, 2001 and 2002.⁴³ This calculation generated a payment entitlement based upon that farmer’s historic claim during the reference period. The member states could opt to apply the single payment scheme at a regional level under certain conditions,⁴⁴ a facility that was been used in England (but not in Wales). In England payments on a regional basis were phased in over the period 2005–2012.⁴⁵ Where this was done, as in England, payment entitlements would be calculated on a unit value arrived at by dividing the regional ceiling by the total number of eligible hectares within that region.⁴⁶

2.22 The SFP covered all the principal support schemes, and rolled them into one decoupled payment regime.

2.23 The Mid-term Review retained set aside as a supply-side management tool in the arable sector. The set-side model used in previous Community legislation had been ‘rotational’, whereby the land set aside from production by each producer was changed annually.⁵¹ Under the Mid-term Review it was proposed that the set-aside concept be extended and, further, that compulsory long-term set-aside be introduced on arable land for 10 years.⁵² In the event, however, the rotational model was retained, in a complex settlement under which set-aside entitlements were allocated and managed as a separate branch of the SFP scheme. Each producer was allocated set-aside entitlements calculated by reference to the average number of acres compulsorily set aside over the period 2000–2002. However, the United Kingdom opted to apply a regionalised method for calculating the set-aside rate, as allowed for in the Community legislation.⁵³ In consequence, it was fixed at 8 per cent for lowland England, 1.3% for severely disadvantaged areas and 0% for moorland.⁵⁴

2.24 Land which was set aside could not be used for agricultural purposes or for the production of a commercial crop, but had to be maintained in good agricultural and environmental condition.⁵⁵ Payment of set-aside entitlements was unlocked where a producer could match set-aside entitlements against eligible land, as under the SFP scheme generally.

2.25 The concept of cross compliance was radically extended under the SFP. The implementing regulations for the SFP imposed cross-compliance conditions upon the receipt of both the SFP and other direct payments. Farmers were obliged to observe a range of EU statutory management requirements in the areas of: public, animal and plant health; the environment; and animal welfare.⁵⁷ They also had to maintain all agricultural land in ‘good agricultural and environmental condition’, minimum requirements for which were defined at national or regional level by the Member States on the basis of a Community framework.⁵⁸ These requirements have been retained in the CAP 2020 reform measures (see below) as an important element in the ‘greening’ of the CAP support scheme.

(f)Europe 2020 and the Basic Payment Scheme

2.26 Further reform has now been implemented as part of the Europe 2020 reform process. The Europe 2020 Strategy⁵⁹ proposed a more refined approach to the environmental performance of the CAP. This was followed by an EU Commission proposal in 2010 to introduce a mandatory ‘greening’ component to support payments in order to support environmental measures across the whole of the European Union.⁶⁰ This suggested the introduction of simple, generalised non contractual and annual environmental actions that go beyond cross compliance and are linked to agriculture – for example permanent pasture, green cover, crop rotation and ‘ecological set aside’. It also proposed to include the management requirements for Natura 2000 sites designated under the Habitats Directive in the green element of the reformed farm support scheme.⁶¹ Draft regulations published by the European Commission in 2011 included proposals to apply a range of greening measures to CAP support payments including the set aside of 7% of arable land on each farm from production in ‘ecological focus areas’ which could include forest areas, buffer strips around arable fields to protect water courses and fallow land. Cross compliance was to be maintained under a new Basic Scheme Payment but the number of conditions reduced and simplified.

2.27 Agreement on the shape of the reform package was reached in June 2013. This was based largely on the Commission’s 2011 proposals, but the environmental conditions attached to the new single payment – the Basic Scheme Payment – were significantly reduced. The basic payment scheme (‘BSP’) will represent 70% of each member state’s Pillar I payment envelope. The other 30% must be used to support mandatory ‘greening’ requirements applied to every agricultural holding. The green conditions have three elements. There is now a requirement to maintain permanent grassland; only 5% of the permanent grassland on a holding may be converted to intensive agricultural use (although this restriction will not apply if less than 5% of grassland is converted nationally). There are also requirements to maintain crop diversity. A farmer will have to cultivate at least 2 crops when his arable land exceeds 10 hectares and 3 crops when it exceeds 30 hectares (the ‘2 or 3 crop rule’). And the main crop so grown may cover no more than 75% of the holding’s arable land area, with (if 3 crops are required) the 2 main crops covering not more than 95% of the arable area on each farm. In addition to these requirements, each farm with an arable area exceeding 15 hectares must maintain at least 5% of its arable area as an ‘ecological focus area’. The ecological focus area can encompass field margins, hedges, trees, fallow land, landscape features, buffer strips, biotopes and afforested areas (if any) on the farm. The requirements to keep ecological focus areas will be reviewed in 2017 and may be increased to 7% subject to further legislative proposal being submitted by the Commission and adopted.

2.28 These requirements are set out in three sets of European Council and Parliament Regulations, which provide the legal framework to implement the agreement reforming the CAP:

•Regulation 1307/2013 of the Council and the Parliament establishing rules for direct payments to farmers under the new Basic Payment Scheme.⁶²

•Regulation 1305/2013 of the Council and Parliament on Rural Development.⁶³

•And Regulation 1306/2013 of the Council and the Parliament on the financing, management and monitoring of the CAP (the ‘horizontal’ regulation).⁶⁴

2.29 These are considered in more detail in 2.29 These are considered in more detail in Chapter 15 below.

2.30 The ‘greening’ conditions attached to the BSP are supplemented by a further extension of the concept of cross compliance, or ‘environmental conditionality’, which stipulates basic conditions that must be met by farmers in order to receive the payment. These rules are largely based upon those under the former single payment scheme, but the conditions have been extended in some cases while some statutory standards have been removed altogether. There are two basic sets of condition that claimants must observe:⁶⁵

(i)statutory management requirements established in EU law

(ii)standards of good agricultural and environmental condition of land (‘GAEC’) established at national level. GAEC conditions can relate to: environment, climate change and maintaining land in good agricultural condition; public, animal and plant health; and animal welfare.

2.31 The member states must ensure that all agricultural areas, including land that is no longer in production, are maintained in GAEC.⁶⁶ They must fix minimum standards at national level for GAEC, and penalties for breach of the requirements must be applied – these will involve the reduction or exclusion of payments under the BPS.⁶⁷ There are guidelines on appropriate penalties in the horizontal regulation.⁶⁸ These are not overly restrictive and the penalty criteria reflect intentionality and negligence ie the quality and nature of the act concerned. They do not reflect the severity of the environmental damage that the act has caused. The 2013 horizontal regulation gives the member states an incentive to enforce the conditions, in that they can keep 25% of the amount resulting from the application of the reductions and exclusions of payment resulting from breach of the cross compliance rules.⁶⁹

2.32 It remains important to distinguish the cross compliance conditions under the BPS from payments for agri-environmental and animal welfare commitments made under the EU Rural Development Regulation.⁷⁰ To qualify for payments under the Rural Development programmes the farmer must enter into commitments that go beyond the relevant mandatory standards (that is, the ‘cross compliance’ rules) described above’.⁷¹ This is an indicator of ‘good farming practice’ and provides a benchmark for agri-environmental commitments – and management to the mandatory standards of agricultural practice is effectively treated as an attribute of the property rights of the landowner and as such will not be compensated.

2.33 The statutory management requirements set out in the 2013 Horizontal Regulation are requirements that farmers should in principle already be observing under EU law eg for the protection of wildlife habitats designated as European Sites under the EU’s Habitats Directive. It is therefore questionable whether the cross-compliance conditions attached to the BSP and other direct payments deliver additional benefits in return for public expenditure.⁷² Their inclusion in the cross-compliance conditions for the BSP does, however, give the member states an additional mechanism for enforcing compliance with pre-existing legal obligations viz. the withdrawal of farm support payments. In the case of the statutory management requirements set out in Annex I, the 2013 Horizontal Regulation provides for reduction or exclusion from payments in the event of non-compliance, thereby providing a sanction additional to the sanctions in the various Directives and Regulations that form the basis of the cross-compliance requirements.Where non-compliance is intentional, the percentage of reduction is not in principle to be less than 20% and in appropriate cases the ultimate sanction is the exclusion of a farmer from one or several aid schemes for one or more years. The same sanctions are imposed for breach of the requirement to maintain all agricultural land in good agricultural and environmental condition if one is claiming the BSP.⁷³