Impact of decoupled payments made under the 1st pillar on holdings and on nature conservation

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Impact of decoupled payments made under the 1st
pillar on holdings and on nature conservation

• Kaul Nurm
• Estonian Farmers Federation

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Short answer

• Negative trend for structure of holdings
• Negative trend for biodiversity

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Formation of the structure of agricultural
undertakings in Estonia

• Before the 2nd World War, there were 140 000
  farms in Estonia with an average size of 22,4
  hectares.
• In 1949, collectivisation was started under
  Moscow pressure. Deportation of ca 20 000 farm
  households to the Siberia was used as the means.
  Collective farms were established on the basis of
  the rest.
• In 1988, there were 365 state farms or collective
  farms in Estonia with an average size of 4500
  hectares.
• In the course of the land and agricultural reform
  completed by 1995, ca 1000 large-scale
  agricultural holdings, average size 800 ha and 69
  000 family farms, average size 25 ha came into
  being.

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Two different types of agricultural undertakings

• Traditional family farm, typical of old Europe.
  The farm is owned and managed by a family or an
  individual.
• Agricultural holding owned by a private limited
  company, public limited company or an
  association.

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Family farm

• Work is mainly done by family members.
• Size of family farms depends on the enterprising
  spirit of the farm household and on the resources
  available in Estonian circumstances up to 500
  ha.
• In case of a farm, living and production
  environment coincide.
• Therefore, a farmer is interested in clean
  environment abundant in species, as well as in
  motivated environmentally friendly production.
• Polluting your fields you also pollute your
  living environment.
• Organic farming practices are without exception
  used on family farms (save 1 enterprise).

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Family farm 2

• Production and profit realisation are not the
  only objectives related to land.
• Objective is to produce as much as required for
  family maintenance and for preserving valuable
  natural environment on the farm.
• Farmers carry onward rural culture and knowledge
  of how to manage nature.
• They are an essential part of rural life.
• Their weaker economic position is a circumstance
  of disadvantage.

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Enterprises

• Owners dont have to live in the country,
  investors often reside in cities or in other
  countries.
• Land use 500-10 000 ha, even more
• Work is mainly done by paid labour.
• Profit earning for owners is the main objective
  of activity.
• This is the reason for the concentration and
  intensification of production.
• Nature conservation restrictions are disturbing
  factors in profit generation.
• For example, enterprise owning 2000 head of
  dairy cattle, placed to the field a 1 km long
  dunghill in winter. In spring when snow melted,
  surface water was stored there, forming a lake.
  This activity was approved by environmental
  service.

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Enterprises

• Due to their scale, enterprises have competitive
  advantage as compared with family farms.
• Due to bigger volume of sales, enterprises are
  paid higher price by processors.
• Their creditworthiness is higher.
• Agro-business concentration is increasing with
  direct payments

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Examples of enterprises

• An investor mostly working with Russian capital,
  owns 10 big agricultural holdings in Estonia with
  the total area of 25 000 ha and with 10000 dairy
  cows.
• At the moment, investment fund Trigon Capital
  Agri holds owns 12000 ha of land and 5000 cows in
  Estonia, but their objective is to be introduced
  on a stock exchange and own 120000 ha of land in
  the region.
• What is the real objective of those companies? Is
  it sustainable agriculture or profit after all?

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Estonian experience

• In Estonia, decoupled support payments have been
  applied since 1997.
• Individual support rate calculation was based on
  the hectares used by the producer and on the
  number of cows.
• The principle - the more hectares and cows, the
  higher support payments, in absolute value - was
  established.
• Producers with less than 10 hectares and 5 cows
  were not granted any support.
• Other support measures, incl. rural development
  measures, were not applied.

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Estonian experience 2

• Single pilot projects similar to rural
  development projects were applied since 2001.
• In 2002, SAPARD was launched. This programme
  mostly supported bigger and more successful
  producers.
• Since 2004, the EU direct payments have been
  applied under the SAPS principles as well as the
  indirectly coupled complementary national
  payments.
• In 2004 2006, the measures of the Estonian
  Rural Development Plan (ERDP) were applied for
  the first time.

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Problems in new Member States

• During the pre-accession period, most countries
  which acceded to the EU in 2004, went through
  radical reforms.
• Due to reforms and the loss of Eastern markets,
  production volumes and farmers incomes
  decreased. A remarkable part of land fell out of
  use.
• Level of direct payments was linked to the
  reference period of Member States, which
  coincided with low production level.
• This will retain the unequal support payment
  levels in old and new Member States for years.

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Problems continued

• Even if the support payment levels will be
  unified by 2013, they will still differ a lot
  between Member States.
• Now when we are all competing on the single
  market, support payment levels should be as
  similar as possible in Member States.
• Although the accession was voluntary, disparities
  should not be retained.
• This requires another review of direct payment
  principles (could consensus be reached by Member
  States here?)

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CAP reform

• Two different support payment schemes were
  provided.
• Old Member States mostly applied the Single Farm
  Payment Scheme (SFPS), related to historical
  reference.
• New Member States mostly chose the area-based
  Single Area Payment Scheme (SAPS).

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Results of SAPS

• Resulting from the number of hectares and cattle
  enterprises receive a big amount of support on
  their bank account, in absolute value, which can
  be used for investments.
• Area-based supports have a booster effect and
  create competitive disparity with smaller
  producers.
• Large-scale enterprises keep growing, production
  intensifies.
• Farms, in particular smaller farms, will be
  driven out of competition in the long run.
• Enterprises will take over the farm lands, low
  density areas will disappear.
• Animal keeping farms are getting bigger,
  agriculture of industrial type will come into
  being.
• This will cause point source pollution and
  increase in environmental risks.

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Results of SAPS

• Grazing livestock will disappear from the
  landscape as it is more profitable to keep
  animals inside.
• Pressure on the environment and on the
  alleviation of environmental requirements will
  increase.
• For making profit, the GMO crops can be taken
  into use.
• Natural diversity will decrease.
• Food table will become unvaried.

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Estonian experience RDP 2004-2006

• Political power contributed to the preference
  development of agriculture of industrial type, as
  a result of which a significant part of the ERDP
  investment support became divided between ca 500
  bigger producers.
• 80 of total 1st and 2nd pillar support went to
  300 bigger enterprises.
• Requirements of the support for environmentally
  friendly production were relatively low.
• Enterprises focused on intensive production
  optimise supports by applying organic production
  in some of their areas.

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What should be kept in mind?

• Not only clean nature and natural diversity but
  also various undertakings are important to be
  presented in countryside.
• Family farms play a special role in the
  diversification of rural life. They are motivated
  to produce, preserving nature.
• When farms disappear, schools will also disappear
  from the country. Due to that, villages will
  become empty.
• Large-scale enterprises are competitive anyhow,
  why would they need the 2nd pillar funds for
  investment support.

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Measures

• Financing of the 2nd pillar from the EU
  agricultural budget should be considerably
  increased (1st pillar 50 - 2nd pillar 50 )
• Modulating the 1st pillar funds and using the 2nd
  pillar funds, the competition distortions caused
  by the 1st pillar and their negative impact on
  the environment can be balanced.
• 2nd pillar measures should primarily be directed
  at support to the activity of family farms, at
  the development of organic farming and at nature
  preserving ways of production.

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Summary

• Emphasis on the 1st pillar will make agriculture
  industrial and large-scale enterprises will drive
  smaller family farms out of competition.
• Big farms will become bigger and resemble
  enterprises. The importance of paid employment
  will increase in enterprises.
• With disappearance of family farms, rural life
  will also come to an end.
• Triumphal progress of enterprises in new Member
  States will in the long run have strong influence
  upon the structure of old Member States based on
  family farms. Significant structural changes are
  indispensable.
• Triumphal progress of agriculture of industrial
  type will have negative impact on natural
  environment and sustainable agriculture.
• Do we really want that? Is this the objective of
  the CAP?
• 2nd pillar is tool to balance negative impact of
  1st pillar and must get more value.

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Sustainability of the European agricultural model
lies in the enhancement of the 2nd pillar
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Thank you for your attention!