Greening European agriculture: options at the EU and WTO

1 October 2007

The EU Common Agricultural Policy (CAP) significantly impacts both world trade and the environment. With the disbursement of over €58bn in agricultural subsidies each year, the CAP has become a key determinant of farmers’ incomes, and thus of their land-use decisions, with a resounding impact on wildlife and the environment in rural areas. The subsidies are also distorting world trade to the detriment of developing country farmers, and have become one of the principal stumbling blocks in the Doha round of trade negotiations.

The CAP underwent significant reform in 2003, with the main change comprising a shift from traditional market and product support measures to “decoupled” income support, which is compliant with WTO “Green Box” criteria. Farmers must now fulfil minimum environmental standards (cross-compliance). The “rural development” component of the CAP, which includes environmental schemes (agrienvironment) has also been strengthened. These trends are likely to continue through future reforms; indeed, environmental and landscape concerns are now widely used to justify continued farm support in the EU.

Our analysis shows that the current system has several flaws that prevent effective environmental delivery, whilst allowing for a “shadow area” where trade-distorting production subsidies sometimes can be disguised within the Green Box. We believe that, in order to ensure sustainable land management in Europe while avoiding unnecessary trade distortion, significant changes would be needed to the CAP, and also to the current definition of the Green Box.

Agriculture has shaped the European landscape for millennia and much of Europe’s biodiversity intimately depends on traditional farming. This means that abandonment of traditional agriculture is as much of a threat to biodiversity as is intensification.

The vast majority of CAP Green Box-compliant payments are currently made as income support, which has no clear environmental objective and is heavily distorted in favour of the most intensive farms. Cross-compliance rules vary hugely between EU Member States, and are often weak and riddled with loopholes.

Rural development, also known as the second pillar of the CAP, has much better delivery potential for the environment. In particular, agri-environment payments have been shown to be extremely effective, but only when they are well targeted and monitored, science based, and stakeholders are involved in design and implementation. Unfortunately, this best practice is often not followed.

Our analysis suggests that within the limits of current the Green Box definition, there is great scope for making the CAP more environmentally friendly. Beyond the obvious need to phase out environmentally harmful subsidies, much could be done to ensure that the subsidies actually deliver for the environment in general and biodiversity in particular. We suggest this would require:

• Shifting funds from untargeted subsidies to environmentally-targeted schemes with a much greater focus on outcomes such as biodiversity conservation.

• Better design and implementation of agri-environment and other rural development schemes.

• Effective coherence of environmental schemes with socio-economic schemes

The WTO Green Box definition as it stands limits the potential for CAP reform to deliver environmental objectives. This is particularly true for the support of so called “high natural value” farming systems. Traditional extensive land management, which is ecologically critical but economically marginal, is not captured under the current Green Box definition of environmental payments, which requires payments to be based on an income-forgone and cost-incurred formula. The Green Box definition should therefore be amended to allow for payments based on the value of environmental benefits and services as well as on any income foregone. We suggest that:

• Green Box payments are required, beyond being minimally trade distorting, to be targeted specifically at delivering environmental and social benefits that are not delivered by the market.

• All payments notified as Green Box are reviewed by an independent authority that has competence in both environmental and trade issues .

• Environmental programmes are allowed to be based on a combination of income foregone and the value of the social and environmental benefits they deliver.

• Countries are required to make the details of their agricultural spending publicly available. This increases the accountability of governments toward their own citizens, as well as towards their trading partners.

Green Box reform should also better shelter developing countries from subsidy regimes that unfairly disadvantage them, as well as address their specific socio-economic and environmental needs. However, whilst developed countries have funding available for environmental and social schemes, their potential use is restricted in developing countries. A funding mechanism that requires developed countries to contribute a percentage of their total Green Box payments to similar schemes in lower-income countries should therefore be established. This would allow global concerns over land use, deforestation and unsustainable commodity production to be addressed and would provide more equity in Green Box spending.

Ariel Brunner is EU Agriculture Officer with Birdlife International, and Harry Huyton is Agricultural Policy Officer at the Royal Society for the Protection of Birds.

This article is published under
1 October 2007
Parties to the UN Convention to Combat Desertification (UNCCD) have adopted a ten-year strategic plan, which refers to trade as a tool to help realise some of its objectives, and also points to the...
1 October 2007
The role trade can play in helping address unsustainable practices in drylands is coming increasingly to the fore through its inclusion in a new ten-year plan of action under the UN Convention to...