The environmental impacts of decoupling EU agricultural support from production presented in this paper were assessed as part of the IDEMA project. Both the 2003 CAP reform and a more extreme bond-type scheme were analysed. The central element in the 2003 reform was the introduction of the Single Payment Scheme (SPS) which is linked to land via the obligation to keep land in Good Agricultural and Environmental Condition (GAEC), but decoupled from production. In the hypothetical bond scheme, we test the implications of the GAEC obligation by allowing farmers to collect the bond payment even if they leave the agricultural sector, and hence break the link between payments and land.

Decoupling and implications for the environment

Our results demonstrate that the 2003 reform could have negative consequences for the environment — principally landscape values — but only under particular circumstances. In the most extensive regions (Jonkoping and Vasterbotten) with relatively high production costs, the reform was shown to have a negative impact on the landscape mosaic compared to continuation of the Agenda 2000 framework. Since the GAEC obligation for arable land represents a minimum management requirement, the SPS provided an incentive to homogenize land use - increasing the area of the dominant land use, grass (i.e. grass-sown fallow/set-aside). On the other hand, by mimicking existing agri-environmental schemes, the GAEC obligation for semi-natural grassland ensured preservation of biodiversity values associated with this land (by requiring annual grazing by ruminants). Existing agri-environmental schemes and national support were also shown to reduce or buffer, to some degree, the full potential negative impacts of decoupling direct payments from production in these regions.

Modelled impacts were least in regions with favourable conditions for agriculture (Vysocina and Mediterranean regions), because most land was continued to be used in commodity production by farm agents despite the 2003 reform. Hence in these regions GAEC proved to be a redundant obligation in view of the fact that market prices were sufficient to keep land in commodity production and hence meet payment requirements. Environmental outcomes of decoupling were, as a result, capricious in these regions, depending on crop choices and environmental heterogeneity. Under these circumstances, the SPS merely raises land rents — see Brady et al. (2010) in these proceedings — without contributing to environmental quality. In the Czech region where the intensity and scale of arable farming is recognised as being detrimental to landscape value, we found nothing in the design of the GAEC obligation that provides incentives to improve the situation. On the contrary, things became worse for biodiversity and soil erosion due to EU accession and the accompanying higher payment levels: GAEC is after all a minimum standard and hence does not prevent over-use. So, even though agricultural activity was maintained, important habitats may still be lost despite continuation of direct support.

Our overall conclusion regarding pollution risk is that it is largely unaffected by decoupling. However, our results indicate that change in the ratio of livestock to cultivated area could induce undesirable pollution effects (via concentration of manure spreading) in high-cost regions. In situations where there is a direct relationship between input levels and cultivated area, such as the use of chemicals, then inputs can be expected to decrease in proportion to the area taken out of production. This effect was shown to be significant in high-cost regions. Otherwise, factors such as crop characteristics, choices of agricultural management practices, and biophysical features of the landscape determine pollution levels. As such, the need for non-point source pollution policy seems unchanged as a result of decoupling, especially in intensively cultivated regions.

In summary, the GAEC obligation (as modelled here) did not prove to be a sufficient measure to avoid all the negative environmental consequences of decoupling. Rather, our results imply that the SPS has serious weaknesses as a means of procuring environmental stewardship, which is also supported in theory. Any flat-rate payment scheme — and the SPS clearly qualifies as such — will be inefficient when either the costs or benefits of environmental provisioning are heterogeneous (Fraser, 2009). Under these circumstances, cost-effectiveness calls for spatially differentiated environmental policy instruments (Watzold and Drechsler, 2005). The key problem is the immense heterogeneity of agri?environmental conditions in the enlarged European Union. Insufficient flexibility is available under the stipulations of Pillar 1 support — by definition a common policy — to handle environmental heterogeneity. What is more, the stricter the environmental conditions associated with GAEC obligations, the higher the costs to farmers of meeting payment obligations; and hence the less the SPS will support farm incomes, the overriding goal of direct support. The SPS is therefore not generally justified as an efficient environmental instrument. More efficient (and effective) environmental policy instruments are needed to match the local requirements for conservation and landscape enhancement than is provided by the SPS. This flexibility is available under the auspices of Pillar 2 agri-environmental schemes.

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