The UK Overseas Development Institute (ODI) has published a study analysing the potential impact on developing countries of a greener EU CAP. The study notes that there will be costs associated with the ‘greening’ measures (protecting biodiversity, preserving the rural environment and reducing environmental damage), and that, as a consequence ‘when the greening measures are binding and change the behaviour of EU farmers, this will reduce the production of EU farmers in the short run, which could lead to increased commodity prices.’ The effects, however, would vary from commodity to commodity. It is estimated that wheat prices might increase by 3%, beef prices by 7%, barley prices by 12% and rice prices by 39%.
In the short term, according to the study, this would ‘stimulate exports from developing country producers (by up to 3% for certain countries and commodities), but would harm food-importing countries’. In the long term, it would reduce emissions and the adverse effects of climate changes on developing countries.
The study outlines the type of environmental measures under consideration. Within Pillar I, these initially included:
- The promotion of ‘green cover’: sowing temporary plant cover on land that would otherwise be bare, with the aim of improving soil quality. (This proposal was subsequently abandoned.)
- The promotion of crop diversification to improve soil quality. (This is now being reviewed.)
- The establishment of an obligation to maintain permanent pasture to protect vulnerable soils, improve soil quality, protect biodiversity and prevent flooding.
- The reintroduction of set-aside in a broader form.
Under Pillar II, rural development measures would be redesigned to include six priorities, two of which have a clear greening element, namely restoring/preserving and enhancing ecosystems, and promoting resource efficiency and the transition to a low-carbon economy.
The study outlines the three scenarios for greening that are being considered by the EC. The favoured ‘Integration scenario’ would allocate 30% of the direct aid payment budget as payments for the adoption of eligible greening measures, with certified organic farming being automatically eligible for this additional ‘greening payment’.
The ODI analysis notes that the Environment Council at a meeting on 19 December 2011 ‘refused to endorse the EC’s greening proposals’. While this was interpreted as a successful weakening of the EC ‘greening’ proposals by the farming lobby, it also reflects doubts about ‘the effectiveness and environmental value of the measures that the Commission proposes’.
While seeking to calculate a financial aid equivalent effect of the reduced climate change effects of CAP greening measures, the study questioned whether CAP instruments are in fact the best vehicle for changing farming practices and addressing climate change challenges.
Overall, the study concludes that the greening of the EU CAP offers opportunities for developing counties to marginally increase exports in some products. However, it points out ‘in economic terms, a greened CAP is still worse than a no-CAP situation for developing countries.’ It suggests that better climate-related outcomes could be achieved by supporting better environmental practices in developing countries through an extension of the Kyoto Protocol-defined Clean Development Mechanism (CDM) to the agricultural sector.
ODI’s analysis focuses on the direct climate-change-related economic consequences of CAP greening measures. However, extending financial assistance to greening measures can also have an impact on the expectations of agro-food sector stakeholders as regards the distribution of the costs of more sustainable farming practices along the supply chain.
While European food processors and retailers are increasingly setting targets for the procurement of sustainably produced raw materials, little consideration is being given to the distribution of costs of more sustainable farming practices along the supply chain. There is a danger that EU financial support to its greening measures could generate an expectation among EU food processors and retailers that more sustainable farming practices can be achieved without incurring significant additional costs for their enterprises. This could arise if the costs of implementing more sustainable farming practices in the EU were largely met by publicly financed support programmes, and could then impact on food processors’ and retailers’ expectations regarding the distribution of costs associated with more sustainable farming practices in developing countries.
These developments could lead to the financial burden of implementing the more sustainable farming practices associated with sustainability standards falling largely on primary producers in developing countries. This is particularly a concern in sectors where sustainable production standards become the industry norm (e.g. in the ACP, the horticulture sector, and in future the palm oil and cocoa sectors). It would appear to give added importance to calls for the extension of the CDM to the agricultural sector.