Raising the groundwater level of the peat grasslands and extensification of buffer zones around Natura 2000 sites are both essential for achieving the government’s goals for agriculture as regards carbon and nitrogen. Farmers could be directly compensated for the additional constraints and efforts this will entail through a transfer of 30% of the CAP budget from the first pillar to the second pillar. Further, the impact on farmers’ incomes will be limited in absolute terms, but will vary per sector.
These findings are based on scenarios analysed by Wageningen University & Research in a bid to determine the most effective way of using CAP funds to achieve the maximum benefit. The research was commissioned by the Ministry of Agriculture, Nature, and Food Quality. Wageningen was asked to develop and explore options for the National Strategic Plan (NSP) as regards how to best distribute the available budget of approximately €800 million per year to meet the various objectives (economy, climate, environment, biodiversity and landscape).
The study reveals that the major challenges are so specific to certain parts of the country, particularly in relation to the climate and nitrogen emissions, that they require targeted CAP funding (and this also applies to funding outside the CAP).
Raising groundwater levels
By far the most economical way to achieve the 2030 climate targets for agriculture is to raise the groundwater level in 80,000 hectares of peat grasslands, as set out in the Netherlands’ climate agreement. This is because a large part of Dutch agricultural CO2 emissions are produced in peat grassland regions, and raising groundwater levels is an effective way to reduce these emissions. None of the other solutions will allow the sector to achieve its goals without also spending a substantial amount of taxpayers’ money. Depending on how the system is designed, the farmers in the peat grassland regions can be compensated for the effects of raising the groundwater levels from the available CAP funds and so do not have to be disadvantaged by the measures. This will cost an estimated €40 million a year.
The Natura 2000 sites are in need of buffer zones where agricultural extensification can reduce nitrogen deposition. Assuming a width of 250 meter, this will affect some 160,000 hectares of land. Agricultural extensification entails decreasing stock numbers per hectare and reducing the environmental impact of arable farming with measures such as decreasing fertiliser use and raising the groundwater level. The study has identified an option whereby farmers can be fully compensated from CAP funds for the loss of income that this entails. This would involve around €100 million a year of CAP expenditure.
Regional rather than national implementation of the eco-schemes
The new CAP introduces the eco-schemes, a new means of subsidising farmers who voluntarily participate in measures to improve the climate, environment and biodiversity. The study reveals that a nationally uniform scheme will be insufficient to achieve the goals. If farmers in the Netherlands can choose from a national menu of activities available to all of them, the effectiveness of the measures for the climate and nitrogen emissions will be reduced by a factor of 10, because the environmental problems are concentrated in certain areas. Each area therefore requires targeted measures specific to that area. However, even if such measures are implemented, the targets in the climate agreement and for nitrogen emissions cannot be achieved by the eco-schemes alone but also requires increasing groundwater levels in peat grassland regions and creating buffer zones around Natura 2000 sites.
Impact on farm income varies by sector
The only legal possibility to compensate farmers for mandatory measures in the peat grassland regions and around Natura 2000 sites involves transferring the required budget from the first pillar (the European Agricultural Guarantee Fund, which provides income support) to the second pillar (the European Agricultural Fund for Rural Development, which targets other themes such as innovation, young farmers and agricultural nature management).
The impact of this transfer on average farm income will be limited to €4300, €3000 and €1500 less income per year if respectively 40%, 30%, or 20% of funds are transferred (this in comparison to the current 10% transfer). However, the impact could be significant for specific sectors. For example, arable farmers in the Veenkoloniën (former peat cutting regions) and grazing livestock farms other than dairy could lose up to 20% or more of their income.
Particularly those farmers with large areas of land stand to lose the most income. This could in part be ‘corrected’ by redistributing subsidies from farms with above-average incomes to those in greater need of support.
New CAP requires a paradigm change
The philosophy behind the current CAP is that all farmers should receive an equal amount of financial support per hectare. However, the new CAP is geared towards achieving specific goals in response to the predominant economic, environmental and social challenges in a Member State. The Ministry of Agriculture, Nature and Food Quality is advised to transform the CAP from an instrument for equal income support per hectare for all farmers into an instrument that facilitates area-specific measures for specific problems in those areas and supports the affected farmers as regards the consequences of these measures.
The revised CAP will enter into force as of 1 January 2023. Member States are bound to decide how to spend the CAP funds. For the Netherlands, this amounts to about €800 million per year. Member States must set targets in their own NSPs as regards a series of economic, environmental and social objectives as well as for knowledge development and innovation. The targets must be based on a problem analysis. Member States may face sanctions if they fail to achieve their targets. Part of the income support (25%) must be spent on the eco-schemes, a form of performance-based funding that will be available to all farmers.
Up to 40% of first pillar of CAP funding (traditional income support) may be transferred to the second pillar (rural development, agri-environment-climate measures and innovation) for promoting innovation, the green objectives and areas with natural handicaps (e.g. mountainous regions and regions below sea level) and/or to compensate for restrictions based on the Birds and Habitats Directives and the Water Framework Directive. Some instruments are more effective or cost-effective than others.
The report describes all the goals as regards the CAP in detail for the reference year 2030, provides scenarios for achieving them and so offers guidance on how to utilise the CAP funding effectively. It also explores what the most cost-effective measures are and what the consequences of these will be for farmers’ incomes and for achieving the government’s climate and biodiversity targets.