Climate change has been an absent element of the CAP. A proposal for a third pillar was put forward in the last round of reforms, but was quickly squashed - I suspect by agri-business interests. However, the pressures to do something are now substantial, but what policy instruments should be used?
In that respect an article in the latest Journal of Agricultural Economics is helpful: M Himics et al, 'Setting Climate Action as the Priority for the Common Agricultural Policy: a Simulation Experiment.'
They examine the possibilities of re-directing the direct income support provided to farmers to a direct greenhouse gas reduction subsidy. They find that such a reallocation of financial resources could reduce agricultural non-carbon dioxide emissions (nitrous oxide and methane) by 21 per cent by 2030, compared to a business-as-usual baseline. Two-thirds of the emission savings are due to changes in production levels and composition.
A table lists various technological mitigation options, e.g., feed additives for livestock and breeding programmes to increase ruminant feed efficiency. Crops could use measures such as precision farming and better timing of fertilisation.
The special needs of remote island farming communities like the Orkney Islands would be respected
The greening top up of Pillar 1 would be retained, as would coupled supports for sectors and regions in competitive disadvantage. There would also be support for farmers in areas with natural constraints. My example would be the Orkney Islands which receive coupled support via the Scottish Government.
However, the removal of the basic payment could be associated with accelerated structural change and variable income effects. This does raise questions of political feasibility.
In future member states will have more flexibility to choose from a menu of greening policy options. However, it is not clear how the new CAP design would enable agriculture to meet the EU's emission reduction targets.
One area of difficulty in terms of the article's proposal is the impact on the livestock sector, already under economic pressure. 'The ruminant meat sector is most affected (-10% decrease in herd size and -9% in production), but pig production is also negatively affected.' Prices for beef and sheep and goat meat would go up, but would be offset by increasing imports and decreasing exports.
There would also be a six per cent decrease in the total utilised agricultural area, particularly of fodder activities and a 34 per cent increase in set aside activities and fallow land.
Emission savings in the EU are partially offset globally due to increasing production in less emission efficient trading partners. (Not given as an example, but Brazil comes to mind).
The scheme might also penalise farmers who have already invested in emission-efficient technologies and might require above average financial incentives to achieve further GHG reductions.
The authors argue that 'taking the current status quo of the regional pattern of basic CAP payments as a benchmark for direct agricultural GHG emissions-reduction policy would be suboptimal'. In terms of political acceptability, that might be problematic.