Select Committee on European Communities Eighteenth Report



  79.    A powerful case for co-financing is that it enables the Commission to monitor environmental policies more effectively. As Community money is involved, the accounting system itself can provide some safeguards against fraud. Given however the inherently disaggregated nature of environmental policy, the need for monitoring by the Commission and Member State governments goes much further than simply preventing fraud. Allowing national or local governments to initiate environmental policies within a Community framework means that there is a shared responsibility to ensure that such programmes are consistent with Community policy, that they represent value for money in terms of the environmental benefits generated and that they are genuinely decoupled. Without such monitoring, environmental policy may well lead to distortion within the single market and to conflicts with partners in the WTO.

Cross-compliance (conditionality)

  80.    The existence, even on a transitional basis, of direct payments to farmers as compensation for price cuts raises the possibility that environmental, or other conditions, might be attached to their receipt. Agenda 2000 suggests that Member States may apply conditionality within their own countries to the receipt of compensation payments. Environmental pressure groups have appealed both to the Commission and to national governments to introduce such an approach, if only on a transitional basis. Cross-compliance was also advocated by the Government's panel on sustainable development in their most recent report[41]. The attractions, prima facie, are considerable. A single budget payment seems to meet both income goals and environmental goals. There is a substantial increase in environmental leverage without any corresponding increase in apparent budget cost. If applied to arable areas alone an additional 3.7 million hectares would be covered. Such a policy could be implemented rapidly-it does not have to await the release of funds from other purposes. From an agricultural viewpoint it adds to the legitimacy of the subsidies received. The details of such an approach would need careful tuning to the environmental circumstances and goals of each Member State. Such a degree of differentiation, however, is likely to be needed for any effective environmental policy.

  81.    There are numerous arguments which can be raised against cross-compliance or conditionality. First, it can only be used in those areas where the CAP provides direct income support, and these may often be neither the product areas nor the geographical regions in which the greatest gain from environmental expenditure can be made. Second, the obligation on farmers to accept the environmental restraints exists only so long as the policy survives. Since we argue that compensation payments and price support should both be phased out, alternative means of funding would need to be found. Third, cross compliance would apply to existing producers only. It is likely that, once environmental policy is tied to existing farmers, this will be used as an argument, on the grounds that the environment would suffer, to resist change. This would seriously hinder the major restructuring of production necessary to create a competitive agriculture. (There are, however, examples from the Community and United States[42] of the reduction of cross-compliant subsidies.) The seeming legitimisation which environmental conditions would lend to support payments would make it even more politically difficult to secure their reduction and removal in the interest of competition. Fourth, cross-compliance is tied to production, even if it modifies the production processes. In this sense it cannot be regarded as decoupled and may well be seen by WTO partners as covert protection for the Community's farmers. Fifth, the cost-free nature of cross-compliance can be exaggerated. Even if the environmental conditions were carefully designed for ease of monitoring, there would need to be substantial expenditure in setting up and policing the policy so as to avoid potentially massive fraud. Finally, there is the problem raised by the departure from the principle of incentive. Farmers may well resent and not co-operate with the policy. Moreover, if the aim is ultimately to develop a better funded system of incentive-based environmental payments, it would seem irrational to impose a regulatory approach in the meanwhile.

  82.    An important step forward would be made if the Council of Ministers were to agree a strict timetable during which compensation payments would be phased out, and to make a simultaneous commitment to use part of the funds released to underwrite a more effective rural environment programme. Such a programme would stand on its own environmental merits, be fully decoupled and so acceptable within the WTO. It would include all who could contribute to the environmental enhancement of the countryside and would endure as long as the need for policy intervention prevailed. The agreed timetable would enable government, farmers, non-governmental organisations and others involved in the rural environment to implement plans which would use funds available to the greatest benefit to the environment. If these funds were not to be made available, another source would have to be found to redress the great imbalance between funding for agri-environmental measures on the one hand and the production regimes and compensation payments on the other. This could include a reconsideration of cross-compliance, including current provisions, on a modest basis and with strict time-limits. This should not be seen as compromising our opposition to cross-compliance in the medium and long term, which we reaffirm.


The role of structural development policies

  83.    The economy of rural Europe is experiencing a far reaching and relatively rapid change. In some parts, rural communities have long been growing as urban commuters choose to live outside major towns and as new small-scale businesses offer fresh employment opportunities to rural residents. Elsewhere, there has been a loss of population, increasing difficulty in maintaining services such as shopping, public transport and health and education facilities. The sustained and general decline in the number of people engaged in agriculture is one element in this transformation. In the 1980s more than three million people left the sector (Community of 12 Member States) and the process continues. Agenda 2000 recognises that the considerable social problems which arise cannot be resolved either within the framework of a competitive agriculture or of environmental policy alone. This places considerable weight on its proposals for rural development policy. Here the detail in the Communication is sparse but the intentions seem to be to concentrate structural spending on a smaller percentage of the population, to simplify the operation of the Structural Funds and to fund part of the existing policy package from the Guarantee rather than the Guidance section of FEOGA.

Economic development and the role of farming

  84.    A major role for rural development policy must be to facilitate the increased competitiveness of agriculture. The changes needed take a variety of forms. A central element is the enlargement and amalgamation of farm businesses so that they can attain the economies of scale made possible by modern farming technology. This process is already underway, farms are gradually becoming larger and, through shared facilities, the co-ordination of production plans and precise targeting of production to market requirements, benefits may be secured without necessarily changing farm boundaries. The result is not to create a single system of very large farms but to enhance the ability of a diverse range of farms in the European Community to survive in a competitive world. Such developments do not need additional funding but they will require the removal of obstacles to change such as quotas and area related payments, which restrict the ease with which farming can adapt. Agenda 2000 continues rather than removes these obstacles and the Committee reaffirms its belief that an adequate adjustment policy cannot be designed as long as no time limit is set for compensation payments or for the end of quota restrictions.

Diversification off the farm and part-time farming

  85.    The adjustment of farming cannot be solely dependent upon new arrangements within the farm business. Part-time farming already plays a major role in many countries and may facilitate the emergence of a more competitive agriculture with new, non-farming sources of income, supplementing earnings from agriculture. In Germany, as Professor von Urff (QQ 349-55) reminded the Committee, part-time farming has a long history and has been combined with the development of highly-skilled small businesses situated in rural areas. The development of business activities in rural areas can enable some farmers faced with reduced income to remain in agriculture by becoming part-time farmers. Such an approach is to be encouraged and should be taken further in the Agenda 2000 proposals for rural development. A specific programme to encourage non-agricultural businesses in rural areas (and so provide job opportunities for a growing number of part-time farmers) would form a key part of developing a living rural economy. We note that considerable costs are involved in converting redundant rural buildings to premises capable of use by other businesses. This has largely limited such projects to large estates. We recommend that the Commission emphasises, within its single menu approach, co-financed support for the costs associated with new small-scale enterprises in rural areas.

On-farm diversification

  86.    Adjustment may also be eased by the development of new non-farm related businesses on the farm itself. Tourism is one such activity which already receives some encouragement. However the Committee was told of difficulties created by planning restrictions, by lack of funds or of skills among farmers. The scope for developing on farm tourism should not be exaggerated, but in areas where demand exists and among farm families who possess the necessary skills and personal qualities, unnecessary impediments to development should be removed. Although some of the traditional craft businesses which supplemented income from farming have disappeared in the face of industrial competition, there are some worthy new possibilities which can create new employment opportunities. Modern telecommunications create the possibility of conducting many varied competitive businesses within the farm premises but unrelated to the farm itself. Such developments can make it possible for farm families and former farm workers to continue to live in the neighbourhood and so preserve rural communities which might otherwise decay. If such developments are to take place, an important requirement is likely to be provision of adequate services. These include not only water, power and telecommunications (for the provision of which we argue that there should be Community co-financing) but also, for example, the existence of car parks, the presence of village shops and of a functioning system of public transport. In some areas local communities have shown initiative in developing innovative solutions to these requirements.

The new rural economy

  87.    The changes which are taking place in rural areas are not simply the result of developments in farming. A new rural economy is being created and economic and employment opportunities may have no relationship to farming at all. This development is the result of technological and economic change which has made a wide variety of industry much less dependent on large labour forces and urban locations. Many policies affect development, notably transport and planning policies. As rural policy responds to changes in agriculture, it should do so taking full account of the employment and business opportunities associated with this autonomous process of rural change. An important area of growth is the development of new enterprises which respond to the environmental challenges of a modern economy.

The importance of horizontal measures

  88.    We note the concerns expressed by several witnesses that the Commission's proposals for the reform of the Structural Funds will disadvantage rural areas and in particular the United Kingdom. The intention to reduce the proportion of population covered from 51 per cent to between 35 and 40 per cent must mean that some current recipients cease to benefit. Rural communities in disadvantaged areas which currently benefit from Objective 5b funding (in 1996 a Community total of 901.6 million ecu), fear that in competition with the needs of urban regions they will lose out. Provided the Commission's forecasts for the development of GNP are realised, we believe that a substantial sum could be set aside for an horizontal rural development policy within the budgetary guideline of 0.46 per cent of GNP which presently exists for the Structural Funds. An adequately funded horizontal measure of this nature would be especially welcome as a response to the more general problems of agricultural adjustment which must arise from the need to assist the Community's agriculture to prepare for international competition. These problems will affect not only farmers in marginal areas but the whole of agriculture.

Merging urban and rural Objectives

  89.    Agenda 2000 proposes merging the rural Objectives 5a and 5b into the urban and industrial Objective 2. The rural economy has to grow within the constraints and opportunities of the economy as a whole. The Committee has some sympathy with the Commission's proposal. A somewhat similar issue arises in the United Kingdom with the proposed creation of regional development agencies which will absorb the local activities of the Rural Development Commission. Tackling the problems of rural areas however requires a great deal of specialist knowledge. This may not be fully understood by agencies based in large cities and for whom rural populations form but a small part of their total responsibilities. In the United Kingdom, the Rural Development Commission has been the national custodian of this specialist knowledge and a means by which rural concerns have been effectively voiced as decisions are made at the levels of central or local government. We underline the need for ensuring that institutional arrangements make certain that rural issues are adequately represented in the setting of development expenditure at both Member State and Community level. Specific rural projects will be required. Within the context of retraining, for example, there could be funding for travel to retraining courses, so that programmes currently available to town dwellers are made equally accessible to rural workers. Another example might be the provision of local computer training courses.

Source of funding for rural development

  90.    The proposal to fund Objective 5a and 5b type measures from within the Guarantee section of FEOGA is broadly welcome. This creates opportunities for a switch of emphasis from commodity based support to assistance which focuses on the adjustment of the industry. We are concerned however that the Guarantee fund's present rules may limit it to funding solely on-farm development and it is our argument that rural economic diversification must take a broader approach. The fund's rules must accommodate off-farm non-agricultural development as well as the current measures, for example, programmes funding the conversion of redundant rural buildings into premises suitable for commercial or light-industrial use. We are also concerned, however, that there should be no presumption that funds released by cutting production support should automatically be deployed on other forms of agricultural or rural expenditure.

Administration and implementation

  91.    A recurrent theme among witnesses was the importance of local initiatives and local responsibility. One of the Commission's Directors implementing European regional policy said to us:

  "... if you look at the LEADER Programme ... you find an enormous amount of vivacity, imagination, interest and commitment, all to spend tiny sums of money, and then you go into the bigger programmes with massive sums of money and you think, `If only we can show the same amount of vivacity, imagination and commitment here, we could really transform these rural communities'. But the strange thing is that the bigger you go, the more there is a loss of ownership. We try to overcome that but it really is surprisingly difficult to duplicate for huge sums of money the same commitment that you can get for quite small sums of money ... we used to have a 200 million unit of account programme in Nord Pas de Calais and a 12 million unit of account programme in the same area for the coalfield. If you went into the region they would always talk about the 12 million programme and not the 250 million programme. Why? Because they felt more ownership for this small programme and yet the amount of good it could do for them was obviously much less than could be done through the big programme." (QQ 332-3).

  92.    The Committee agrees that it is important to encourage local initiative and notes the praise given by many witnesses to the LEADER programme which adopts a bottom up approach. We also note that there exists within the framework of local government a considerable wealth of talent and experience which can be harnessed to promote development. Agenda 2000 recognises that in rural development policy there is a strong case for decentralisation. Decisions have to be made by national or local governments rather than imposed from the Community level. The Committee believes that within the menu of measures offered by the Community there should be assistance to promote small-scale commercial and industrial development, innovative means of providing services and the expansion of low-cost housing for rental. A key issue was the extent to which existing bureaucratic processes, especially the difficulty of integrating funds which have very tightly defined and different purposes, were consistent with delivering a coherent and timely response to local development opportunities. We endorse the principle that there should be single menus at the Community and Member State levels, which can be accessed through a single agency, and which can combine the resources of the various funds and so make an effective contribution to rural development with the minimum of bureaucracy.


  93.    We were reminded that the process of economic change raises a number of difficult issues relating to the planning process. These included the conversion of redundant farm buildings, the existence of affordable housing and the decay of some traditional rural services. We note that the DETR's recently revised planning policy guidance note seven "The Countryside-Environmental Quality and Economic and Social Development" is more sympathetic to development than previous guidance and agree that it is an important step forward. In the light of future developments in agriculture, however, this guidance may need further review. Strutt & Parker, in their evidence, drew attention to the scope throughout the United Kingdom to convert post-war farm buildings, redundant now because of farm amalgamation and other causes, to light-industrial use. They noted that financial limitations and planning delays impeded such developments and suggested that a national body akin to the Rural Development Commission could be given the role of providing an opinion on the merits of applications in order to guide the planning process and ensure national consistency. The expertise present in the Rural Development Commission would be especially valuable when decisions have to be made concerning rural development, for example on providing support for the conversion of redundant farm buildings, or for the start-up costs of rural businesses which would provide employment for those already living in the countryside. These decisions seem likely to be a responsibility of the proposed regional development agencies.

The place of rural development

  94.    We have examined carefully the proposals in Agenda 2000 which relate to rural development. We recognise that development of the rural economy is taking place and has to be encouraged if the valued fabric of rural society is to be maintained. We argue however that the contribution which the proposals in Agenda 2000 make to this process, although generally helpful, can make at most a relatively minor contribution. Rural development is a diffuse process influenced by a wide range of circumstances ranging from the state of the economy to the details of local initiative and planning. Many factors affect the outcome of which agricultural policy and policies directed specifically at the rural scene can form only one part. Whilst welcoming the Commission's declared intention to give support to the rural economy, rather than to maintain price support, we recognise that the development of the rural economy is a continuous process. Policy must be modified immediately to enable it to cope better with those changes which stem from adjustment within its major industry, agriculture. The test of success for such policies however must be that after a period they become unnecessary. Within the Community the opportunities and difficulties for rural development vary greatly and we recognise that in some regions assistance stemming from agricultural change may be needed for a substantial period. This should not distract from the more fundamental need to see these measures as temporary and to remove so far as possible those policies which impede the healthy growth of the economy as a whole. This is one of the major reasons for a more far reaching reform of the CAP than Agenda 2000 promises to deliver.

41   British Government Panel on Sustainable Development, Fourth Report, February 1998, para 51, published by the DETR. Back

42   Within the EC, area set-aside has been reduced from 18 per cent to 5 per cent. In the United States, soil and water conditions were attached in 1985 to the acreage reduction programme and the crop-specific subsidy. Both payments were reduced in 1995 as a result of WTO commitments. Back

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