Jack, 'Economy and Environment: Shaping the Development of European Agricultural Law.'

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You are here: BAILII >> Databases >> United Kingdom Journals >> Jack, 'Economy and Environment: Shaping the Development of European Agricultural Law.' URL: http://www.bailii.org/uk/other/journals/WebJCLI/2001/issue2/jack2.html Cite as: Jack, 'Economy and Environment: Shaping the Development of European Agricultural Law'

Economy and Environment: Shaping the Development of European Agricultural Law.

Brian Jack

Summary

There has been a great deal of speculation about the effect of the foot and mouth crisis upon the future of agriculture within the United Kingdom. However, in relation to the potential effect of the current crisis on agricultural law, it should be remembered that the United Kingdom’s agricultural law is largely governed by the European Community’s Common Agricultural Policy (the CAP). This article seeks to examine the legal structure of the CAP. The article commences with an examination of the legal structure under which the CAP initially operated This initial structure has been the target of a great deal of criticism from both economists and environmentalists over many years. For example, in 1990, the Economist referred to the CAP as ‘the single most idiotic system of economic mismanagement that the rich western countries have ever devised.’ (Economist (1990) p.15) Elsewhere, Shoard has described the CAP as a policy which gave ‘subsidies for destruction.’ (Shoard (1980) p.21). The CAP has, however, undergone a number of reforms in recent years. Within the United Kingdom these reforms culminated, at the end of 2000, in the adoption of seven year rural development plans by each of the United Kingdom’s regional governments. Today, as a result of these reforms, the modern CAP is very different from that which the Community initially designed and put into operation. This article examines both the pressures for reform which existed and their effect upon the legal structure of the CAP. Additionally, the article concludes by asking whether these recent reforms provide any guide as to the potential for the current foot and mouth crisis to act as a catalyst for further reform of the legal structure of the CAP.

1. Introduction.

As a consequence of joining the European Economic Community, as it then was, the United Kingdom agreed to adopt the Common Agricultural Policy (the CAP) as the principal guiding force behind British agricultural policy. The creation of the modern CAP can be traced back to the 1960’s when common measures were agreed in several agricultural sectors, following intense negotiations between the original Member States (Tracey (1982) p.261). Perhaps unsurprisingly, the operation of the initial CAP was largely influenced by the domestic agricultural policies of the original Member States of the Community. These national policies, which mainly evolved in the post second world war period, had generally sought to encourage increased agricultural production. Such encouragement for agricultural expansion had provided a means by which agricultural incomes could be increased, food shortages tackled and scarce foreign exchange reserves preserved (Fennell (1997) p.1) . From such beginnings, however, the CAP has undergone radical reforms in recent years. Piecemeal reforms to individual areas of the CAP in the 1980’s have given way to more substantive reforms adopted in 1992 and 1999. As a result, the modern CAP is very different from that which the United Kingdom initially adopted.

2. The Initial Common Agricultural Policy.

2.1 Market Policy.

The approach actually adopted by the Community was to establish several European market organisations (Snyder 1985 p.71). The community divided the agricultural industry into major agricultural produce groups and created market organisations, known as Common Organisations of the Market (common organisations) for each produce group. Today some 22 such common organisations exist, each governed by Community legislation regulating the marketing of particular produce. No two common organisations operated in the same manner. However they were generally based upon the principle that farmers’ incomes should be determined by market prices. In turn, however, these market prices were heavily influenced by a price structure imposed by the Community. The common organisation in cereals was of particular importance, since cereal prices also determined animal feed costs and these costs in turn influenced farm incomes within the common organisations in pigmeat, eggs and poultry (Usher 1988 p.53). However, in practice, the common organisations could be divided into three groups, according to whether they provided complete, partial or no price guarantees to farmers. (Snyder 1985 p.73). The common organisations regulating important United Kingdom agricultural sectors, such as cereals, dairy farming and beef farming, provided farmers with complete price guarantees. The common organisation in cereals can be taken as an example. This common organisation was established by Council Regulation 120/67 (JO [1967] 2269). It provided for three prices to be set annually by the Council of Ministers. Firstly a maximum price, known as ‘the target price’, was fixed. This was the maximum price which it was hoped that produce might attain in the market place. Beyond the target price, cereal prices would be regarded as being unreasonable for both producers and consumers. Secondly a minimum price, known as a threshold price, was fixed. This was the minimum price at which the Community judged that producers would be able to earn a reasonable income. Member States were required to designate national bodies, known as ‘intervention agencies.’ This role was fulfilled in the United Kingdom by the Intervention Board for Agricultural Produce, which was established under section 6 of the European Communities Act 1972. The intervention price was the price at which national intervention agencies would purchase that produce in order to provide a floor for market prices and also to provide a market for unsold produce. Finally, the Council of Ministers also annually fixed a threshold price. This was the minimum price at which produce could be imported into the Community. This threshold price was calculated so that the price of imported produce would correspond to the target price which the Community had fixed. Since the inception of the CAP, Community prices had generally been maintained at a level which was much higher than prices which prevailed upon world markets. (Usher 1988 p.37) Variable import levies were therefore added to imported produce to prevent that produce from undercutting Community prices.

2.2 Structural Policy.

Agricultural productivity and farm incomes were also affected by other considerations. For example, large farm units offered the possibility of greater productivity and were more efficient users of labour and machinery. However, in 1960 more than two thirds of all farms in the original Member States were less than ten acres in size (European Economic Community Commission (1960) Chapter 1 p.15). Additionally, a direct link was noted to exist between defective agricultural structures and low farm incomes (European Economic Community Commission (1960) Chapter 2 p.8. To deal with these issues the Community created a structural policy, as a second pillar of the CAP, which sought to create larger, integrated farms which embraced modern technology and became highly productive.

At the time that the United Kingdom joined the Community, structural policy was based upon three directives, which the Council of Ministers had adopted in 1972. Directive 72/159 (OJ [1972] L96/1) authorised Member States to provide financial assistance for investments upon farms which were suitable for development. Directive 72/160 (OJ [1972] L96/9) authorised Member States to make financial payments to farmers and farm workers aged between fifty-five and national retirement age. In the case of the farmers, this directive sought to encourage the amalgamation of their farms with neighbouring farms to create larger, more economically viable farm units or the use of the land for non-agricultural purposes. Thirdly, directive 72/161 (OJ [1972] L96/15) authorised Member States to provide socio-economic education and training to farmers. This last directive sought to ensure that farmers could both receive advice to enable them to decide whether to remain in farming or to seek employment elsewhere and also receive training designed to improve their agricultural skills. In addition to these measures, the Community in 1975 also adopted a further directive, directive 75/268 (OJ [1975] L128/1) on mountain and hill farming in agriculturally less favoured areas. This directive sought to maintain farming and rural communities in agriculturally disadvantaged areas and sought to prevent environmental damage to the countryside caused by the abandonment of agricultural land. The directive required Member States to designate the areas within which the directive was to apply. Within these designated areas, Member States were then authorised to make direct income payments to farmers and to provide financial grants for farm development or diversification into the tourist or craft industries. This directive was a direct product of the United Kingdom’s membership of the Community, since it largely replicated the provisions of the Hill Farming Act 1946 under which the United Kingdom itself had previously made similar financial provisions for hill farmers. The poor quality of agricultural land in these areas has resulted in their being predominantly utilised for livestock farming. Consequently today, they have all been directly affected by the foot and mouth crisis.

2.3 Funding the Common Agricultural Policy.

In order to fund the operation of the CAP, Regulation 25/62 established the European Agricultural Guidance and Guarantee Fund (EAGGF). The EAGGF formed an integral part of the Community budget. Income generated by the CAP, such as through import levies or customs duties, formed part of the Community’s own resources. Equally, however, the CAP was not designed to be self-financing, so the EAGGF had access to the other budgetary resources of the Community. Under Regulation 17/64 (JO [1964] 586) the EAGGF was divided into a guarantee section and a guidance section. Under the original policy the guarantee section financed the operation of the common organisations. This included the provision of export refunds and also intervention payments intended to stabilise agricultural markets. In contrast the guidance section provided financial assistance in relation to the Community’s structural policies. In both cases, payments were initially made to farmers by Member States and then reclaimed from the Commission. In accordance with the Community legislation creating the common organisations, Member States received a full refund upon all eligible expenditure which they had incurred under the guidance section. In contrast, however, the Community directives establishing the various structural measures merely provided for Member States to receive a partial refund, typically between twenty five and fifty per cent, of their expenditure under these measures.

3. Factors Which Led to Policy Reform.

3.1 Surplus Production.

Increased agricultural production within the CAP led the Community beyond high levels of self-sufficiency to a position in which many agricultural sectors were producing surpluses. Today, just five common organisations, concerning production of milk, beef and veal, cereals, pigmeat and fresh vegetables, account for over fifty per cent of the value of the Community’s entire agricultural production (European Commission 1999a p.T26). By the mid 1980’s each of these common organisations was producing surpluses, as were those concerned with sugar, wine, eggs and poultry (European Commission 1987 p.344). This caused adverse publicity for the Community as attention was drawn to butter and beef ‘mountains’ and wine ‘lakes’ which were a by-product of the purchase of excess produce by national intervention agencies.

3.2 Budgetary Problems.

Production surpluses also had important consequences for the Community budget. The commitment given by the Community to reimburse national intervention agencies, in respect of the costs which they incurred in the intervention purchasing of agricultural produce and the payment of export refunds, meant that this cost accrued to the Community budget. By 1985 the guarantee section of the CAP was absorbing seventy per cent of the entire Community budget (European Commission 1986 p.261). Expanding agricultural production resulted in Community expenditure increasing more quickly than budgetary receipts. Under Council Regulation 243/70, (OJ [1970] L94/19), these budgetary receipts included one per cent of Member States’ national VAT revenues. In 1985 the Member States agreed to raise these contributions from 1 to 1.4 per cent of national VAT revenues. (Council Decision 85/257 OJ [1985] L128/15). However, by 1986 even this additional expenditure had been consumed (Bladen-Howell and Symons 1991 at p.371). In response to this situation both the United Kingdom and the Netherlands refused to agree additional funding for the Community budget until the issue of agricultural overproduction had been tackled (Swann 1995 p.260).

3.3 World Trade Negotiations.

Pressure for reform also came from international competitors. This can be evidenced at the Uruguay round of trade negotiations within the then General Agreement on Tariffs and Trade, held between 1986 and 1994. At these talks other agricultural exporting nations sought major reductions in the levels of domestic agricultural protection which existed throughout the world (Ingersent, Rayner.and Hine 1994 p.260). In relation to the European Community, radical reductions were sought in the levels of export refunds and of domestic agricultural support provided by the Community. Additionally, greater access was sought to Community markets through the removal of variable import levies. Ultimately, under the terms of the 1994 GATT Agriculture Agreement, the Community agreed to reduce levels of domestic agricultural support by twenty per cent. In return, direct payments, which were independent of production levels, were exempted from this requirement. The Community also agreed to cut subsidised exports by thirty six per cent in value and twenty per cent in volume, to amend all import restrictions to fixed customs duties and to reduce these duties by thirty six per cent (Josling, Tangerman and Warley 1996 p.179)

Levels of domestic agricultural support in the European Community were still high in comparison with those of our international competitors. Calculations of domestic support, known as Producer Support Estimates (PSEs), are assessed as a percentage of the value of overall agricultural production. By way of analogy, in 1998 average PSE’s in Australia and New Zealand were seven and one per cent respectively, whilst in the European Community and the United States they were forty five per cent and twenty-two per cent respectively⁽²⁾ (Legg 2000 p.21). The prospect of international pressure for further agricultural trade liberalisation therefore contributed to the 1999 reforms of the CAP.

3.4 Community Enlargement.

In the course of the early twenty first century the Community proposes to enlarge to incorporate several new member states, including ten central and eastern European countries.⁽³⁾ This provided a further incentive for the 1999 reform of the CAP. Agriculture generally forms a larger part of the economies of many of the applicant central and eastern European countries than it does within the current Member States. For example, the average percentage of the population employed in agriculture in the European Union is currently 5.1 per cent, whilst that of the ten central and eastern European countries is 21.1 per cent (European Commission 1998 p.T.24). Similarly, whilst agriculture accounts for an average 1.7 per cent of gross domestic product in the economies of the current Member States, the equivalent average figure for the ten applicant central and eastern European countries is 6.8 per cent. (European Commission (1998) ibid). Many, though by no means all, of the applicant countries have large farming sectors, which are of central importance to their economies. Additionally, in most cases, these farming communities are composed of large numbers of small farmers.⁽⁴⁾

3.5 Rural Development.

3.6 Environmental Issues.

Aside from economic factors, environmental considerations were also an important element in the reforms of the CAP which occurred in 1992 and 1999. Historically agriculture has been regarded as being environmentally beneficial and farmers have been considered to be ‘the guardians of the countryside.’ For example, the prized landscapes of modern Britain are generally semi-natural landscapes which were cleared from forest by medieval farmers and which agriculture has subsequently maintained (Green 1990 p.365). Equally, however, it has become increasingly recognised that many modern agricultural practices have become a source of environmental damage.

Additionally, this environmental damage has been encouraged by the manner in which the CAP has operated. The system of farm support provided through the CAP encouraged farmers to increase their output. Simultaneously, rapid development in agricultural technology, coupled with the availability of financial assistance to conduct farm improvements also led to further agricultural intensification. This agricultural intensification has had important consequences for the British landscape. For example, in 1984 the then Nature Conservancy Council noted that in the period 1945 to 1984 there had been a loss of, or significant damage to, between thirty and fifty per cent of ancient woodland, ninety five per cent of flower rich meadows, forty per cent of lowland heaths, sixty per cent of lowland raised peatbogs and thirty per cent of upland heaths and blanket bogs (Nature Conservancy Council 1984 p.49). The Nature Conservancy Council identified agricultural intensification as being a major source of these landscape changes. Additionally, the Nature Conservancy Council also estimated that agricultural modernisation had led to the removal of 140,000 miles of hedgerows in the period 1946 to 1974 (Ibid. p.55). These landscape changes have also had important consequences for wildlife. For example, one agricultural trend has been the ploughing up and replacement of semi-natural grasslands with perennial rye grass mixtures. One commentator has estimated that, by 1987, unimproved or semi-natural grasslands made up only eleven per cent of English and Welsh lowland grasslands (Fuller 1987 p.281). Farmers prize improved grasslands precisely because they do not contain the botanical diversity of semi-natural grasslands. However, within the food chain the affect of such limited diversity have also been linked to declining insect and bird populations (Green 1990 p.365).

Away from physical alterations to the landscape, another example of agricultural intensification has been the greater usage of artificial fertilisers. For example, the Council of Ministers has identified a sixty-three per cent increase in the use of artificial fertilisers in the period between 1970 and 1988 (Council of Ministers 1993 p.23). The usage of large amounts of fertiliser not only has potential repercussions for water pollution, it also has a direct consequence for nature conservation. For example, there has been shown to be a strong link between high nitrogen fertiliser usage and declining populations of large grassland insects. (Beintera., Thissen, Tensen et al 1991 at p.31). In turn, declining insect numbers have been linked to declines in bird populations, such as lapwing and redshank, for whom these insects are an important food source (Beintera 1991 p.97).

Overall agricultural intensification has had an important effect upon wildlife. In Great Britain it has been reported that in the last fifty years ten species of flowering plant, three or four species of dragonfly and one species of butterfly have become extinct. These extinctions have been linked to land use changes associated with agricultural intensification. Additionally some 149 plants, eleven species of dragonfly, thirteen butterfly species, thirty-six bird species, four species of reptile or amphibian and several species of mammal, especially otters and bats, have sustained serious population declines (Nature Conservation Council 1984 p.61-64). More recently the World Wide Fund for Nature predicted that a number of species, namely the marsh fritillary butterfly, the high brown fritillary butterfly, the song thrush, the skylark and the grey partridge would become extinct within the next twenty years (WWF 1998).

Environmental issues also play an important role in protecting rural economies. Although agriculture is no longer a predominant rural employer, agricultural land still dominates the rural landscape. In the period since the end of the second world war, urban dwellers have increasingly travelled into the countryside, attracted by rural scenery. However, although the tourist industry had become an important element of the rural economy, farmers previously obtained little benefit. This is an example of market failure. For example, well maintained hedges and stonewalls contribute towards a picturesque rural landscape. However, in 1996 the Department of the Environment noted that the loss of hedgerows through neglect and lack of management had become a greater problem than deliberate removal (Department of the Environment 1996 p.8). Additionally, the Department reported a loss of some 8,000 kilometres of stonewalls (ibid. p.8). For modern farmers it is often much cheaper and easier to erect wire fences than to maintain hedges and stonewalls. Although, in terms of their contribution to the landscape, hedges and stonewalls had some economic value in helping attracting tourism, none of that economic value accrued directly to the farmer who was responsible for their creation and maintenance (Bowyers, Cheshire 1983 p.142).

4. The Modern Common Agricultural Policy.

4.1 Market Policy.

Today, the operation of the CAP is still centred around individual common organisations, each dealing with distinct agricultural produce. However, within these common organisations major reforms have occurred. In response to its GATT commitment to reduce levels of domestic support and to cut levels of subsidised exports, the Community has reduced the prices fixed for major groups of agricultural produce. Such price reductions also have the benefit of easing the burden of agricultural spending within the Community budget, by lowering the gap between Community and world prices and hence lowering the amount of any export refunds which are paid. In regard, for example, to cereals Council Regulation 1766/92 (OJ [1992] L106/18) provided for target, intervention and threshold prices to be reduced by twenty-one per cent over a three year period. Subsequently, Council Regulation 1253/99 (OJ [1999] L160/18) introduced further price reductions from 2000. In the common organisation in beef and veal intervention prices were also initially reduced by Council Regulation 2066/92 (OJ [1992] L215/49) and then further reduced from 2000 under Council Regulation 1254/99 (OJ [1999] L160/21). A similar situation also exists in relation to the common organisation in milk and milk products. However, in this case, price reductions were first agreed in 1999, under Council Regulation 1255/99 (OJ [1999] L160/48). This regulation provides for the target price fixed for milk and the intervention prices fixed for milk products such as butter and skimmed milk to be reduced over a seven year period operating from 1^st July 2000 to 1^st July 2007.

Alternations have also occurred in the manner in which agricultural prices are set within these common organisations. Previously agricultural prices had been fixed by the Council of Ministers on an annual basis. It had originally been intended that these prices would provide a reasonable profit margin for rationally operated family farms, whilst not maintaining in production farms which were inefficient and obsolete. Farmers falling into this latter category could instead utilise Community structural policy to develop their farms. In reality, however, the prices actually fixed by the Council of Ministers were often much higher than those which had initially been proposed by the European Commission. This situation was generally the result of political compromises required in order to obtain agreement by qualified majority and by agriculture ministers’ need to placate national interests (Van der Velde; Snyder 1992 p.5). In view of such difficulties and their consequences in forcing higher agricultural prices, the common organisations in cereals, beef and veal and milk and dairy products now all operate upon the basis of fixed prices which will apply over a number of years.

Away from measures relating to agricultural prices, measures have also been introduced which have limited the Community’s commitment to finance intervention spending. For example, as is further discussed below, one of the major changes to the common organisation in cereals has been the introduction of direct compensatory payments to farmers, known as arable area payments. However, farmers who claim these payments upon an area of land which is greater than that which would be required to produce more than ninety two tonnes of cereals are required to set aside a percentage of their arable land, currently ten per cent, from arable production. These calculations are based upon average regional yields. This compulsory set aside requirement was first introduced in 1992 by Council Regulation 1765/92 (OJ [1992] L181/12) and has been continued by Council Regulation 1251/99 (OJ [1999] L160/1). These provisions replaced a previously unsuccessful voluntary measure, introduced in 1988 by Council Regulation 1760/87 (OJ [1987] L167/1) under which farmers could receive payments in return for agreeing to set aside at least twenty per cent of their arable land from arable production for at least five years.

In relation to beef farming, the current intervention system follows the pattern of a reform of this COM in 1987 which introduced the concept of a ‘buying in price’. Intervention purchasing no longer occurred when prices fell to the intervention price, but when they reached a lower ‘buying in’ price. Under Council Regulation 467/87 (OJ [1987] L48/1), intervention buying was only authorised when average Community market prices were less than ninety-one per cent of the intervention price and the national or regional average market price for the particular area was less than eighty-five per cent of the intervention price. The actual ‘buying in’ price was then calculated on the basis of the average Community market prices (Usher 1988 p.83). Today Regulation 1254/99 (OJ [1999] L160/21) provides for intervention purchasing to occur where, for a period of two consecutive weeks, both the average Community market price falls below eighty four per cent of the intervention price and the average market price in a particular Member State or region is also less than eighty per cent of the intervention price throughout this period. Additionally the Community has prescribed a ceiling for intervention purchasing in that, in the Community as a whole, a maximum of 350,000 tonnes of beef can be purchased in this way. However, a further safety net is provided in that the Community will also authorise intervention spending to occur upon specific cattle if for two consecutive weeks the Community market price for these cattle remains below seventy per cent of the intervention price and additionally the market price in that particular Member State or region also remains below sixty per cent of the intervention price. Cattle purchased into intervention under this safety net provision are also not counted toward the 350,000 tonnes intervention ceiling.

Intervention measures likewise apply within the common organisation in milk and milk produce. However, given that milk is highly perishable, intervention measures in this area have been developed with regard to milk produce such as butter and skimmed milk. Council Regulation 1255/99 (OJ [1999] L160/48) fixes intervention prices for these products and, in relation to butter provides for intervention buying to occur if market prices fall below ninety-two per cent of the intervention price in one or more Member States. Similarly, the regulation makes provision for intervention purchasing of skimmed milk powder, though in this case such purchasing can only occur in the period 1^st March to 31^st August and the Commission is authorised to limit intervention purchasing to a total of 109,000 tonnes throughout the Community. The production of large quantities of surplus milk has been one of the principle problems faced by the CAP and the Community budget. In 1984 the Community introduced milk quotas as a means of limiting its financial exposure. Initially national quotas were imposed upon Member States, based upon milk deliveries made in 1981 plus one per cent. This figure itself provided for increased surplus production and subsequent Community legislation reduced these quota levels. This legislation was consolidated within Council Regulation 3950/92 (OJ [1992] L405/1). Today the quota system remains in operation and indeed Council Regulation 1256/99 (OJ [1999] L 160/73) makes provision for it to continue to apply until 1^st April 2008. The quota operates by dividing the national quota into individual reference quantities which are given to individual producers. If in any year the national quota is exceeded, Member States will then apply a levy upon producers who exceeded their individual reference quantity. In situations where farmers sell their milk to dairies, the levy is imposed upon the dairy, which will recover it through the prices which they pay to those farmers for their milk. Alternatively, where farmers directly market their own milk for sale, the levy is imposed directly upon those farmers. In either case the levy is 115 per cent of the target price for milk.

4.1.3. CAP and World Trade.

Reforms to the common organisations have also reduced the Community’s insulation from world markets. Within each common organisation variable import levies have been replaced by fixed customs duties. Initially, under the GATT Agriculture Agreement, the Community was able to fix these customs duties at a level which actually exceeded the previously prevailing variable levies (Fennell 1997 p.393). However, under the Community’s GATT commitments these initial customs duties have subsequently been reduced by thirty-six per cent between 1995 and 2000. A safeguard does, however, give the Community the right to impose additional duties where the stability of the Community market will be affected by either a surge in imports or a fall in world prices. Farm incomes have also potentially been affected by the Community’s GATT obligation concerning export refunds. Today, export refunds are only available in any year to the extent that the Community will remain within its GATT obligation.

4.1.4. Direct Payments.

In the light of these reforms, in particular in a response to the reduction in agricultural prices within particular common organisations, the Community has introduced a number of compensatory direct payments. As outlined previously, the GATT Agriculture Agreement committed the Community to the objective of reducing levels of domestic agricultural support. However, direct payments made to farmers which were independent of their production levels were exempted from this requirement. Under a, so-called, ‘peace clause’ in the 1994 GATT Agriculture Agreement the direct payments introduced by the Community were accepted as coming within this exemption, even though, in practice, they were not actually independent of farmers production levels (Swinbank and Tanner 1996 p.149). The direct payments which the Community has introduced include arable area compensatory payments and also livestock based payments made to beef farmers. These complement direct payments, the sheep annual premium, which have been paid to sheep farmers since Council Regulation 1837/80 (OJ [1980] L183/1) introduced a common organisation in sheep-meat. In the case of the common organisation in sheep-meat, this payment was introduced as an integral part of the common organisation to compensate sheep-farmers for income losses caused by the pricing system through which this common organisation operated. The losses were determined by calculating the difference between a basic price fixed by the Community and the arithmetic mean of the weekly prices which farmers actually obtained upon Community markets.

For arable farmers, Council Regulation 1251/99 (OJ [1999] L160/1) provides for arable area payments to be paid upon land which is either used for growing arable crops or is subject to compulsory set aside requirements. In order to prevent farmers from entering arable farming simply to obtain these payments, a stipulation provides that in order to be eligible for payment land must, on 31^st December 1991, have been neither under permanent pasture, permanent crops or forest, nor used for non-agricultural purposes. Similarly, in order to prevent currently eligible farmers from simply subsidy farming, that is sowing a thin crop simply for the purpose of claiming the payment but without necessarily intending to harvest the crop, further conditions are also imposed. The crop must be sown in accordance with local standards and maintained until at least the beginning of flowering, in normal growth conditions. The actual level of payment is calculated by multiplying the hectarage of eligible land farmed by a claimant by a figure calculated by the Member State to represent the historic annual yield per hectare of the region in which the land is located. This latter figure is obtained by calculating the average yield per hectare obtained in that region over the period between the marketing years 1986/87 to 1990/91. The figure representing the average historic yield of the claimants land is then multiplied by an amount per tonne, set out in the Regulation, to provide the actual arable area payment which is due.

The concept of direct payments to beef farmers was initially introduced by Council Regulation 467/87 (OJ [1987] L48/1). Today, Council Regulation 1254/99 (OJ [1999] L160/21) provides for a number of direct payments to be made to farmers. The most important of these payments are the special beef premium and the suckler cow premium. Farmers can claim special beef premium once upon up to ninety bulls aged from nine months, or twice in the life of up to ninety steers, at nine months and twenty one months. Contrastingly suckler cow premium is paid annually upon suckler cows which are retained by farmers for at least six months after they lodge their payment application. Again, the level of payment is stipulated by Council Regulation 1254/99. Farmers who receive either special beef premium or suckler cow premium may also be entitled to an additional extensification payment if they keep their livestock densities to 1.4 livestock units or less per hectare of forage area upon their farm. Regulation 1254/99 does, also, give Member States a discretion to vary this provision by providing a graduated series of extensification payments to farmers whose stocking rates are between 1.4 and 2.0 livestock units per hectare. In each case these livestock units are calculated by attaching the following notional values to farm livestock:

The price reductions and consequent introduction of direct payments represent a radical change of direction within the CAP. At the same time, however, each of the direct payment measures also includes provisions which are designed to limit the degree of expenditure which is imposed upon the Community budget. For example, in relation to the payment of arable area payments, Council Regulation 1251/99 requires Member States to calculate base areas for each of their regions. These base areas represent the average number of hectares which in that region were used for arable crops or set aside land in period 1989 to 1991. If in any year the total hectarage in that region for which arable area payments are claimed exceeds this base area then Member States are required to proportionately reduce their arable area payments for that region. In the case of claimants for beef payments, national ceilings similarly fix the maximum number of cattle upon which Livestock payments will be paid. Elsewhere claimants for suckler cow premium are affected by individual quotas which limit their entitlement to payments to the number of suckler cows which they owned on 31^st December 1999. Indeed more broadly, claimants for both special beef premium and suckler cow premium are also restricted by a requirement that they should maintain stocking densities below 2.0 livestock units per hectare of forage area in order to be eligible for these payments.

4.2 Community Rural Policy.

As a result of the reforms introduced by Council Regulation 1257/99 (OJ [1999] L160/80), the second pillar of the CAP has now moved from operating as a structural policy for agricultural development to being what the Commission has referred to as a “coherent integrated rural development strategy” (European Commission 1999(b) p.7) In the light of the alteration of agriculture’s economic position in rural areas agriculture is now viewed as having a multi-functional role, not merely limited to food production (European Commission 1999(c) p.12). In this context, Council Regulation 1257/99 has authorised the Community to provide financial support for projects seeking not merely structural improvement, but also those whose objects include inter alia :

Member States have been required to design rural development plans covering a seven year period from 1^st January 2000. In the United Kingdom, competence for both agriculture and rural development now resides with the United Kingdom’s regional governments. The governments of Scotland, Wales and Northern Ireland and the United Kingdom government in respect of England, have therefore been required to produce individual rural development plans. In designing these plans, title two of Council Regulation 1257/99 specifies a menu of measures for which the Community will provide partial financial assistance. In accordance with the principle of subsidiarity, Member States are authorised to decide which of these measures are appropriate to their circumstances, though the Regulation does place an obligation upon Member States to include an agri-environmental measure within these plans. Additionally, Member States have been given a broad level of discretion, within parameters set out in the Regulation to adapt individual measures to the needs of their rural areas. Ultimately, however, the rural development plans drawn up by the Member States require the approval of the Commission. The menu of measures which Member States may include within their rural development plans include many of the measures which had previously been available as part of the Community’s programme to improve the efficiency of agricultural structures. These include the provision of investment aid to enable farmers to improve agricultural incomes, living conditions or production conditions; financial aid for farmers under forty who are setting up in agriculture for the first time; financial assistance for Member States to assist them in providing vocational training for farmers; financial assistance for farmers located in mountain, hill farming or other agriculturally less favourable areas and the payment of early retirement aid to farmers and farm workers with a view to farms being taken over by others who can improve their viability or use the land for non agricultural purposes. Additionally, the measures also include the provision of an agri-environmental scheme and also a new measure which seeks to promote the adaptation and development of rural areas. This latter measure authorises investments which come within a variety of categories, both agricultural and non agricultural, encompassing for example, both investments on land improvement and agricultural diversification as well as the provision of rural services. Ultimately the rural development plans drawn up by each of the United Kingdom’s regional governments to incorporate these provisions were finally approved by the European Commission in September and October 2000.

The Community continues to make a full refund to Member States of all eligible expenditure which they incur in relation to the payment of export refunds, intervention payments and direct income payments. However, the Community only makes a partial refund to Member States of the expenditure which they incur under their rural development plans. This rebate varies from between fifty and seventy five per cent of eligible expenditure incurred within objective one areas, areas whose gross domestic product is less than seventy five per cent of the Community average, and between twenty five and fifty per cent in other areas. Expenditure incurred through the rural development plans therefore has a much more limited affect upon the Community budget. Nevertheless the Community has recognised that rural development spending can have important indirect consequences for budgetary spending. For example, investment aid is not available for projects whose object is to increase the production of agricultural produce of which a surplus already exists. Such expenditure would merely result in increased Community expenditure upon intervention purchasing and export refunds.

4.3 Community Agri-Environmental Policy.

However, these endorsements of Community agri-environmental policy were not induced merely by a recognition of environmental issues. In promoting less intensive agricultural practices, Community agri-environmental policy would also coincide with the need to reduce levels of surplus produce and Community budgetary expenditure (Baldock and Lowe 1996 p.12). Similarly environmental payments, given that such payments were specifically approved by the GATT Agriculture Agreement, offered the Community the simultaneous opportunity to pursue social objectives by supporting family farmers and encouraging them to remain in farming (Sheele 1996 p.4). Such considerations have influenced the development of Community agri-environmental policy. Today this policy influences all aspects of the CAP.

4.3.1 Environmental Measures Within Community Market Policy.

Attention has been drawn to the introduction of a variety of direct income payments to farmers in several common organisations. In return for receiving these payments farmers have been required to observe a number of environmental requirements. In 1992 Council Regulation 1765/92 (OJ [1992] L181/12) introduced a requirement for Member States to require arable farmers to observe appropriate environmental conditions in relation to set aside land as a condition of receiving area arable payments. Similarly in 1993 and 1994 respectively amendments were made to the common organisations in beef (Regulation 3611/93 OJ [1993] L30/9) and sheepmeat (Regulation 233/94 OJ [1994] L30/9) which gave Member States the discretion to link direct payments under these common organisations with appropriate environmental conditions. In practice only four Member States put forward proposals under these latter measures (Cammarata 1997 p.23). Today Council Regulation 1259/99 (OJ [1999] L160/80) has replaced and broadened each of these provisions by placing a mandatory requirement upon all Member States to link all direct payments with appropriate environmental conditions. The Regulation provides that the measures taken by Member States may include requiring farmers to observe specific environmental requirements as a condition of payment; or alternatively requiring all farmers to observe mandatory obligations, such as criminal regulations; or providing payments to farmers, for example through an agri-environmental scheme, in return for those farmers accepting particular environmental undertakings. In reality, therefore, the Regulation has also given Member States a broad discretion as to the manner in which these environmental conditions might be imposed. Given that concern to protect farm incomes remains high in many Member States, it is likely that the third of these options will be chosen in many Member States. In this way the measures will boost farm incomes rather than penalising farmers who fail to observe given environmental criteria.

4.3.2 Environmental Measures Within Rural Policy.

Environmental measures have also become an important element of the Community’s new rural policy. For example, in relation to investment aid, Council Regulation 1257/99 makes specific provision for Member States to provide financial assistance for projects which aim to preserve and improve the natural environment. Additionally this regulation also provides that all applicants for investment aid should at least comply with minimum, nationally determined, environmental protection standards. Similarly, it is a condition of eligibility for financial aid for farmers under forty setting up in agriculture that their farms should also comply with such minimal, nationally determined, environmental protection standards. Elsewhere Council Regulation 1257/99 also provides that vocational training provided by Member States for farmers may include training on production practices which are compatible with the maintenance and enhancement of the landscape or with the protection of the environment. However, within Community rural policy, the largest contributions to environmental protection policy have been made by the introduction of agri-environmental land management schemes and by recent reforms to the Community’s long standing less favoured area scheme.

The development of Community legislation concerning agri-environmental schemes can be traced to Council Regulation 797/85 on improving the efficiency of agricultural structures (OJ[1985] L95/1). Article 19 of this regulation gave Member States a discretion to introduce agri-environmental land management schemes within nationally designated environmentally sensitive areas. These were required to be areas of ecological or landscape importance. Within these areas Member States were authorised to make financial payments to farmers who undertook to farm in a manner which preserved or improved the environment. They would be required, for example, to avoid further intensification of their farming practice and to ensure that both stocking densities and the level of intensity of their general production was compatible with the capacity of their lands. Initially this regulation made no provision for Community funding and agri-environmental land management schemes were only implemented by four nations: Denmark, Germany, the Netherlands and the United Kingdom (Cammarata 1997 p.23). Even when Council Regulation 1760/87 (OJ [1987] L167/1) provided for the Community to reimburse twenty five per cent of Member States expenditure, implementation of the scheme remained limited to these four nations. However, Council Regulation 2078/92 (OJ [1992] L) placed a mandatory requirement upon Member States to implement national agri-environmental land management schemes. Today, the provision of agri-environmental land management schemes has been subsumed within Community rural policy under Council Regulation 1257/99. As such, agri-environmental measures are the only measures which Member States are compelled to include within their rural development plans. The regulation requires Member States to provide financial support to farmers who accept agri-environmental commitments for a period of at least five years. These commitments are required to go beyond the mere application of usual good farming practices. However, in actually developing national agri-environmental land management schemes, Member States have a large measure of discretion. Regulation 1257/99 merely provides for these schemes to promote the following objectives:

These objectives would, for example, enable Member States to address the problem of market failure identified previously, by providing payments to farmers for the upkeep of landscape features. In the United Kingdom these provisions have led to the introduction of a number of schemes. In England and Northern Ireland areas of particular ecological and landscape importance have been identified as being Environmentally Sensitive Areas and farmers located within the designated areas have the opportunity to enter ten year whole farm agri-environmental land management agreements. Outside these areas, the Countryside Stewardship Scheme, in England, and the Countryside Management Scheme in Northern Ireland are open to farmers who have particular priority habitats or features upon their farms. Farmers again enter ten year whole farm agri-environmental agreements which require the farmer to follow specific management practices upon the part of the farm containing the priority habitats or features and also regulate their general farming practice on the farm as a whole. In Scotland and Wales, agri-environmental measures had also previously distinguished between Environmentally Sensitive and non Environmentally Sensitive Areas. However, today separate countrywide agri-environment schemes, known respectively as the Rural Stewardship Scheme and Tir Gofal, been implemented.

In many respects, the less favoured area scheme, introduced by Council Directive 75/268, was the Community’s first agri-environmental measure. One of the objectives of the scheme had been to prevent ecological damage occurring through the colonisation of abandoned farmland by scrub and forest. Ironically, however, the scheme has come to be regarded as a source of environmental damage. Under the scheme, livestock farmers received additional payments based upon their livestock numbers. This encouraged overgrazing, since increased livestock numbers equated to increased payments to farmers (Wathern 1992 p.194). Some payment limitations were introduced. For example payments were only made to farmers who maintained livestock densities of 1.4 livestock units per hectare. Additionally, the Community introduced a limitation upon its willingness to reimburse Member States for their expenditure under the scheme. Under Council Regulation 2328/91 (OJ [1991] L218/1), full reimbursement was only made upon a maximum of 60 livestock units per farmer, whilst a fifty per cent reimbursement would be made between 60 and 120 livestock units. In practice these measures were economically inspired, designed to limit Community budgetary expenditure. Such measures actually exacerbated environmental problems by providing farmers with targets to attain in order to maximise their incomes. Initially the Community attempted to deal with the environmental consequences of the measure through a provision which gave Member States a discretion to attach environmental conditions to these payments. However, as in the case of Member States’ discretion to attach environmental conditions to beef and sheep premiums, this was largely ignored by many Member States.

Today the less favoured area scheme has been radically reformed by Council Regulation 1257/99. This regulation now provides that it should be a specific objective of such payments that they should “maintain and promote sustainable farming systems which in particular take account of environmental protection requirements” (Council Regulation 1257/99 OJ [1999] L160/80 Article 13). In this regard it is now a basic requirement of the scheme that, in order to be eligible for payment, farmers should “apply usual good farming practices compatible with the need to safeguard the environment and maintain the countryside, in particular by sustainable farming.” Additionally Council Regulation 1257/99 has also extended the range of areas which are eligible for inclusion within the scheme. Under European Community nature conservation law, the Community is presently in the process of declaring Natura 2000, a Community-wide network of important habitat and wildlife sites protected by both Community and national laws. Since these laws are likely to restrict farming activities within these areas, Council Regulation 1257/99 provides for them to come within the scope of the Less Favoured Area scheme, so that farmers affected by these designations can be eligible for payments under the scheme.

However the major reform which the regulation has introduced has been to alter the nature of the less favoured area scheme from one in which payments were based upon the number of livestock owned by farmers to an area based scheme in which payments are determined by the size of their farms. Member States which wished to implement the scheme were required to set out in their rural development plans the manner in which this area based scheme would operate. Indeed this requirement was the main reason that rural development plans for each of the regions of the United Kingdom were only approved by the Commission at the end of 2000. In each case concerns of farming unions that an area-based scheme would cause financial loss to more heavily stocked farmers led to initial proposals which sought to calculate payments on the basis of the numbers of livestock owned by farmers in previous years. In each case, these initial proposals were rejected by the Commission. Ultimately, the proposals eventually accepted by the Commission in respect of England, Scotland, Wales and Northern Ireland were area-based schemes, though the Commission did also compromise by additionally agreeing to allow safety-net measures. In each case, these safety-net measures will, for three years after the introduction of area based payments, provide regressive compensation to farmers who suffer financial loss as a result of this change. Indeed, in England and Wales, the national measures adopted to implement the Less Favoured Area scheme , known respectively as the Hill Farming Allowance and Tir Mynydd, make additional provision for environmental protection by enabling participating farmers to increase their payments by up to twenty per cent in return for observing a number of environmental criteria.

5. Conclusion.

The basic structure of the CAP remains broadly similar to that which the United Kingdom adopted upon joining the then European Economic Community. The CAP remains supported upon two pillars. One of these pillars continues to provide an agricultural marketing policy, through the operation of the twenty-two common organisations which regulate the production and sale of major agricultural commodities. Similarly, although the second pillar of the CAP is now given the title of ‘rural policy’, each of the Community’s early structural policy measures remains in existence within it. However, a deeper examination of the CAP reveals the important changes which have been introduced as a result of the broad range of economic and environmental pressures which have been brought to bear upon it. The common organisations may remain in position, but price reductions, together with limitations placed upon intervention purchasing and decreased protection from competition from third country produce, mean that today no common organisation provides farmers with complete income guarantees. Although direct payments have been introduced as compensation, farmers have had to adapt their practice to accommodate these changes. Additionally the CAP has been reformed to take account of environmental considerations. The European Commission has noted that some twenty per cent of the Community’s agricultural land is presently enrolled within the agri-environment land management scheme. (European Commission (1999c) p121) As has been mentioned, these land management measures have been influenced by social and economic considerations, in providing new sources of income whilst encouraging reduced production levels, as well as considerations of environmental enhancement. Indeed in this situation it is not always clear that national schemes have given priority to this latter goal. However, the compulsory requirement for Member States to introduce this scheme, together with the introduction of environmental measures affecting direct payments to farmers and the reform of the less favoured area scheme, show that environmental issues have increasingly come to influence the framework of the CAP.

It seems unlikely that the present CAP represents the end of the Community’s agricultural reforms. In that regard, the question remains as to the effect which the current foot and mouth crisis will have in relation to future reforms. In the first place it is sincerely to be hoped that by the time that such reforms are being negotiated the Community will be reflecting upon a disease which has been completely eradicated within the United Kingdom and neighbouring countries. Additionally, the lesson of recent reforms of the CAP would appear to be that the after effects of the current crisis will, at best, be only one factor amongst several which may be acting upon the minds of policy makers. For example it is likely that the current WTO negotiations and the consequences of the enlargement of the Community will remain important considerations. Similarly it is necessary to look at the future of the CAP from a Community, rather than a national, perspective. In that regard the Community’s legislative procedure for agriculture, Article 37 of the EC Treaty, which requires that legislation concerning agriculture should be adopted by the Council of Ministers by a qualified majority with the European Parliament having the right merely to express an opinion, will also be influential. For example, one effect of the current foot and mouth crisis has been to place a spotlight on financial payments which are received by farmers through the CAP. Arguably social necessity remains a justification for financial payments made to farmers within agriculturally less favoured areas. However, this still leaves the various direct payments received by farmers through the common organisations. The United Kingdom, where government policy promotes further liberalisation of the CAP, would be likely to support the removal or reduction in value of such payments (MAFF 1999 p.7). Such a reform, if coupled with a reduction in agricultural prices to world price levels and a removal of production limitations such as quotas, would enable farmers to export surplus produce without subsidy. However, the United Kingdom’s situation, in having a very small agricultural economy supported principally by large, efficient farms which are better able to directly compete upon world markets, is unlike that which exists in other Member States. Countries such as France, Germany, Greece, Portugal, the Republic of Ireland and Spain, which have politically influential farming sectors made up of smaller family farms, could be expected to oppose moves to remove or reduce such payments. Objections by these countries would be sufficient to defeat any such proposals within the Council of Ministers. Any reform on this issue is more likely to be prompted by other issues such as WTO negotiations or the Community’s eastern enlargement. Even then it is likely to be a hugely divisive issue. Overall therefore it would appear that, in itself, the current foot and mouth crisis in the United Kingdom will have only limited impact upon any future reform of the legal structure of the CAP.

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