Policies for the future of farming and food in the European Union by OECD

Policies for the future of farming and food in the European Union

The European Union has embarked on an ambitious environmental agenda for its agriculture and food policies.

To meet objectives of the European Green Deal (EGD) the EU Common Agricultural Policy (CAP) needs to evolve further, including a strategic re-orientation of direct payments.

The observed gap between environmental ambition and implementation is limiting progress, and should be addressed through outcome-based regulations, result-based payments and collective action.

Bringing innovation to the centre of EU agricultural policy is essential to ensure a productive, sustainable and resilient sector.

The EU agro-food sector is facing multiple new challenges

The European Union’s diverse agro-food sector is at a critical juncture, confronting climate change and successive crises, such as the systemic shock of the COVID-19 pandemic and the war on Ukraine, while also addressing the triple challenge facing food systems: continuing to ensure food security and nutrition, providing livelihoods for actors in the food chain, and improving environmental sustainability.

The European Union is a successful agro-food exporterthe largest in the world - and one of the largest importers. Agricultural productivity has been growing, but slower than in other countries and not always with improved

sustainability performance. In many EU countries, biodiversity has declined, emissions continue to increase, and pressure on water has not eased. Despite increased efforts with new and more targeted measures, as well as increased funding, environmental performance has not met expectations.

A key challenge for the EU agro-food sector is ensuring that innovation can be successfully mobilised to improve resource efficiency and reduce farm-level production costs, to reconcile economic and environmental sustainability in the long term.

The EU Common Agricultural Policy (CAP) needs to evolve further

In the past decades, the CAP has undergone significant and positive reforms. Trade protection, trade distorting support and producer support levels have declined since the mid1990s, and new and better instruments, such as payments that do not require production, have replaced price support policies. Overall, support to producers significantly decreased from 38.4% of gross farm receipts in 1986-88 to 18.8% in 2019-21.

However, direct payments still make up the bulk of CAP spending. Such payments are not targeted to, nor are they the most efficient tools for achieving multiple key objectives. Moreover, direct payments may have unintended consequences such as keeping some farmers in uncompetitive activities, stifling innovation, slowing structural and generational change, and weakening longterm resilience.

2023 agriculture policy brief

October

@OECDagriculture

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Policies for the future of farming and food in the European Union

Notes: PSE: Producer Support Estimate; A/An/R/I: Area planted/Animal numbers/Receipts/Income. European Union refers to ECC12 for 1986-94, EU15 for 1995-2003, EU25 for 2004-06, EU27 for 2007-13, EU28 for 2014-19, EU27

A disconnect between environmental ambition and implementation is limiting progress

This new report draws lessons from the CAP 2014-22 period. It identifies a gap between policy ambitions on environmental sustainability objectives and observed results. The report finds that this gap is not due to a lack of resources but to weaknesses in policy design and implementation. A long and complex policy reform process has often resulted in excessive flexibilities allowing Member States to choose lower cost options with limited sustainability benefits.

If the CAP is to be further reoriented towards environmental sustainability, this will require the re-instrumentalisation of support in the next programming period to improve the regulatory and economic incentives for farmers and policy makers in Member States to shift away from the

status

quo

The European Union is a research and innovation catalyst, but adoption of innovation is lagging

The European Union’s long-term strategy for research and innovation seeks to achieve sustainable agriculture, but resources devoted to agricultural knowledge and innovation systems (AKIS) — through Horizon Europe and the CAP — are limited compared to the total support provided to the sector. Support provided to knowledge generation, agricultural education and extension services represented only 6.1% of policy transfers in 2019-21. This positions the European Union above the OECD average (4.1%), but behind Australia (24.4%) and Canada (8.8%).

Investment in AKIS and digital technologies has the strong potential to make enhanced productivity and environmental sustainability mutually compatible. The European Innovation Partnership for Agricultural Productivity and Sustainability is an important initiative in this regard. However, investment in and adoption of innovation needs to be enhanced.

% Coupled Support McSharry Reform Agenda 2000 Fischler Reform Health Check 2013 Reform -5 0 5 10 15 20 25 30 35 40 45 1 9 8 6 1 9 8 7 1 9 8 8 1 9 8 9 1 9 9 0 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8 2 0 1 9 2 0 2 0 2 0 2 1 Market price support Payments based on current A/An/R/I Payments based on output Payments not requiring production Other payments Payments based on input use Percentage PSE As a percentage of farm gross receipt

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Figure 1. Level and composition of support to agricultural producers in the European Union, 1986 to 2021 and the United Kingdom for 2020, and EU27 for 2021.

Policies for the future of farming and food in the European Union

A new role for EU agricultural policies in the context of the European Green Deal

The European Green Deal (EGD), with the associated Farm-to-Fork and Biodiversity Strategies launched in 2020, embraces a broad food systems approach, responding to new demands for environmental sustainability. It also calls for new roles and functions for the CAP, which needs to be scrutinised and analysed accordingly. The CAP 202327 places greater emphasis on performance, with more responsibility on strategic design and implementation by Member States.

The new CAP 2023-27 addresses some of the shortcomings observed in past CAP cycles, but the implementation gaps remain, as does the need to balance income support and environmental sustainability objectives. Moreover, a performance-based CAP requires additional investments in data, evaluation and reporting. Meeting the ambitious EGD objectives for agriculture will require the CAP to overcome its path dependency and move towards a bolder and more forward-looking food systems policy.

www.oecd.org/agriculture tad.contact@oecd.org @OECDagriculture Producer Support Estimate (PSE) 87.7% Consumer subsidies 0.3% Other general services 5.8% Knowledge and innovation systems 6.1% Ag. knowledge generation 2.3% Ag. education 3.4% Extension services 0.4% Address the gap between environmental ambition and implementation Reform the structure of payments and invest in data, evaluation and reporting Break the path dependency and re-orient support towards innovation for sustainability Free from the weight of the past (Funding allocation and expenditures) Use the

of the

Prepare for the pull of the future (New

CAP

push

present

(New delivery model and focus on performance)

governance settings and food systems approach)

Figure 2. Composition of support to agriculture in the European Union, 2019-21 Figure 3. How to re-orient the CAP to new functions and objectives?

Policies for the future of farming and food in the European Union

Recommendations for improved policy in the European Union

Payments. Further redesign CAP payments into separate measures targeted at income support and environmental sustainability and align the CAP expenditures with environmental and climate priorities. Introduce specific mechanisms to incentivise performance by Member States, reduce total spending on decoupled income payments and phase out coupled support. Regulations. Address the implementation gap on sustainability objectives, by designing outcome-based regulations that do not hamper innovation.

Innovation. Bring innovation to the centre of EU agricultural policy strategy to ensure that it effectively helps the sector to become more productive, sustainable and resilient.

Data. Strengthen the EU agro-food data strategy and enhance digitalisation to monitor policies, create awareness, facilitate knowledge exchanges and find innovative solutions.

Environmental services. Progress in the adoption of result-based multi-annual payments and collective action for environmental services and introduce reporting on results.