EN Official Journal of the European Union C 255/87

Opinion of the European Economic and Social Committee on the ‘Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: Towards a better targeting of the aid to farmers in areas with natural handicaps’

COM(2009) 161 final

(2010/C 255/16)

Rapporteur: Ludmilla TODOROVA

On 21 April 2009 the European Commission decided to consult the European Economic and Social Committee, under Article 262 of the Treaty establishing the European Community, on the

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: Towards a better targeting of the aid to farmers in areas with natural handicaps

COM(2009) 161 final.

The Section for Agriculture, Rural Development and the Environment, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 11 November 2009. The rapporteur was Ms Todorova.

At its 458th plenary session, held on 16 and 17 December 2009 (meeting of 17 December), the European Economic and Social Committee adopted the following opinion by 81 votes to one with four abstentions.

1. Conclusions and recommendations

1.1 In several opinions (1) the EESC has emphasised the essential importance of adequate compensation as an indispensable tool for preserving the cultivated landscape and agriculture. LFA support is of paramount importance in ensuring the continuation of agricultural production and in contributing to the vitality of rural areas and to preventing land abandonment and depopulation in areas that face natural handicaps.

1.2 The LFA scheme should also make a contribution to preserving food production capacity, which could become increasingly important if the ongoing process of climate change reduces production capacity elsewhere. Therefore the scheme's rationale should be driven by the principle that there are public benefits to be secured by promoting the maintenance of farming activity in disadvantaged areas where land might otherwise be abandoned.

1.3 The LFA scheme should not be confused with agro-environment commitments undertaken on a voluntary basis. The LFA scheme must, in principle, offer compensation to farmers who operate under more difficult circumstances and are least able to earn compensation from the market, and yet contribute most to the maintenance of the landscape.

1.4 The proposed eight biophysical criteria could be an adequate basis for LFA delimitation but data availability and the selection of correct thresholds are of vital importance. Therefore the EESC recommends that Member States carry out an in-depth analysis of the impact of the proposed criteria, including detailed mapping.

1.5 The communication suggests that an area should be considered as an LFA if 66 % of the land is classified under at least one of the eight criteria. The EESC would analyse the results of LFA delimitation and provide an opinion on these thresholds.

1.6 The use of cumulative criteria based on scientific evidence in heterogeneous areas suffering simultaneously from multiple handicaps is very worthwhile, as they address in a practical manner the interactions between many influencing factors. Furthermore, the proposed designation criteria could be extended to include additional factors, such as isolation, that could be also seen as a natural handicap.

1.7 Following the LFA designation on the basis of the common biophysical criteria, it might prove necessary to engage on a degree of fine-tuning. In such a case the EESC is of the opinion that the most suitable indicator to be used would be a production-related one that reflects the entrepreneur's real economic situation, including opportunity costs for family work and equity. The Commission will ensure that the criteria used by Member States are objective and non-discriminatory and that they respond to the objectives of the scheme.

1.8 The EESC calls for the additional work required from farmers in disadvantaged areas, as well as the increased investment costs they face, to be adequately valued and taken into account in the new payment formula set out in Regulation 1698/2005.

1.9 An adequate phasing out period must be put in place to enable farmers to adapt to the new support regime for LFAs.

2. Background

2.1 In place since 1975, the Less Favoured Areas (LFA) payments - now called Natural Handicap Payments (NHP) - support the continuation of farming in mountain areas, in less favoured areas other than mountain areas (the so-called ‘intermediate LFAs’, which are the subject of the current communication) and in areas affected by specific handicaps (e.g. islands and coastal areas, which account for 9 % of the agricultural area). Mountain areas cover nearly 16 % of the agricultural area of the EU and are designated according to altitude, slope, or a combination of these two factors. Areas north of the 62nd parallel are also regarded as mountain areas. Approximately 31 % of the agricultural land of the EU is classified as intermediate LFA, on the basis of over 100 very different national criteria whose diversity throughout the EU was spotlighted by the European Court of Auditors as a possible source of unequal treatment (2). Not all farms in these areas receive an LFA payment.

2.2 Article 50.3(a) of the EAFRD Regulation (EC) No 1698/2005 (3) provided a new definition of areas with natural handicaps other than those which are mountainous in character and those with specific handicaps, i.e. ‘areas affected by significant natural handicaps, notably a low soil productivity or poor climate conditions, and where maintaining extensive farming activity is important for the management of the land’, while Article 37 introduced a change as regards the payment calculation. However, in 2005 the Council did not achieve an agreement on a possible Community-wide system for classifying these areas. It was therefore decided to maintain the previous system in force for a limited period of time and the Commission was asked to undertake a review of the LFA scheme. The new area delimitation system is likely to be in place in 2014.

2.3 The current classification of intermediate LFAs is based on the three typologies of indicators listed in Article 19 of the EAGGF Regulation (EC) No 1257/1999 (4): poor productivity of the land; economic performance in agriculture appreciably lower than the average; a low or dwindling population predominantly dependent on agricultural activity. It is partially based on socio-economic criteria that, according to the Commission, no longer reflect the core objectives of NHP. Furthermore, the evolution of the demographic and economic data used has not been taken into account to update the delimitation. In addition, it has occurred with reference to a wide range of national criteria often not comparable at a European level.

2.4 The information necessary to assess the outcome of a new delimitation approach on a sufficiently detailed scale (e.g. municipality, LAU 2 in the nomenclature of territorial units for statistics) can only be collected at national level. The Commission suggests that Member States be invited to simulate the application on their territory of eight biophysical criteria (low temperature, heat stress, soil drainage, soil texture and stoniness, soil rooting depth, soil chemical properties, soil moisture balance and slope) and to produce maps of the areas that would become eligible under such simulations. An area is considered affected by significant natural handicaps if 66 % of its utilised agricultural land meets at least one of the criteria at the threshold value.

2.5 At present 13 Member States use several indicators combined for calculating an index used for classifying areas according to specific thresholds or classes. In some cases the ‘index systems’ can be considered more sophisticated than the biophysical criteria and therefore able to better capture the presence of handicaps in an area. However, from the point of view of the Commission, setting up a common index system to be applied consistently by all the Member States would require a huge effort in terms of design, data collection, analysis and implementation. Therefore, the establishment of a pan-European index system as a means of properly capturing the presence of natural handicaps would neither be efficient nor realistic.

2.6 It is also necessary, according to the Commission, in the cases where natural handicaps can be overcome, to fine-tune the area delimitation by applying biophysical criteria in combination with appropriate production-related indicators.

2.7 The communication states that appropriate farm level eligibility rules are a useful way of targeting the aid beyond the area delimitation. According to the Commission, around 150 different eligibility criteria at farm level are currently in place in the different Member States and some of them could raise some concerns regarding WTO compatibility because they exclude certain production sectors or agricultural activities from support. Some Member States currently exclude part-time farmers from receipt of aid, although such farmers contribute to the objective of the measure.

2.8 Four review options were submitted to public consultation on 22 May 2008:

— Option 1: Status Quo+ In this scenario the Member States would be asked to remove the socio-economic indicators currently in use for delimiting LFAs and to identify the criteria they deem the most appropriate for defining natural handicaps affecting agriculture.

— Option 2: Common Criteria LFAs would be designated by using the common bio-physical criteria.

— Option 3: Eligibility Rules The Community legislation would provide a basic framework for the eligibility criteria indicating the principles and the type of criteria to be used for excluding intensive farming systems (e.g. maximum livestock density, average yield, standard gross margin).

— Option 4: High Nature Value This option would imply a more targeted delimitation of areas: only areas classified as High Nature Value (HNV) farmland within areas affected by natural handicaps would qualify as LFAs.

3. Position of the EESC

3.1 Agriculture is one of the EU's most important economic sectors, providing employment for nearly 30 million people. Maintaining the European model of agriculture, safeguarding the availability of quality food and providing employment are essential to the continuity of the social fabric in rural areas, but also for its wider responsibility for land stewardship. This will also contribute to safeguarding the present rich diversity of foods, local traditions and crafts. A sustainable agriculture has numerous positive side-effects providing public services such as the maintenance of biodiversity, the conservation of wildlife habitats and an attractive and well-maintained landscape.

3.2 Non-mountainous LFAs account for 30 % of agricultural holdings, 39 % of the utilised agricultural area (UAA), 31 % of the agricultural labour force and 26 % of the economic potential expressed in terms of economic size. Rural areas are being depopulated throughout Europe and the LFAs are the most vulnerable regions. This process may have a very destructive effect. LFA support is thus of paramount importance in ensuring the continuation of agricultural production and in contributing to the vitality of rural areas and to preventing land abandonment and depopulation in areas that face natural handicaps.

3.3 In several opinions the EESC has already highlighted the difficulties faced by farmers in LFAs and emphasised the essential importance of adequate compensation in ensuring that land continues to be used for agricultural production. The EESC regards compensation as an indispensable tool for preserving the cultivated landscape and agriculture in areas which are particularly sensitive from an economic, environmental and social point of view. The EESC pays particular attention to the problems of the EU's northern regions.

3.4 Throughout this communication, the Commission aims to identify areas (by way of mapping) that present severe limitations for agricultural production. In an initial phase, the criteria proposed provide an adequate basis to assess the natural handicaps across the EU. However, since a well functioning LFA support scheme is so important for the future of the CAP, a careful evaluation of the suggested criteria is required. The Committee therefore welcomes the cooperation to that end between the Commission and the Council (5).

3.5 It is vital for data to be available for the eight biophysical criteria in order to be able to define and classify intermediate agricultural areas clearly and objectively. It is very important for the Member States to carry out an in-depth analysis of the impact of the proposed criteria, including detailed maps. Further to this, allowing Member States to provide the Commission with simulations for additional criteria and different thresholds also helps to better incorporate the specific characteristics of each Member State into the debate. The delimitation of the LFAs at municipality level (LAU 2) could be considered to be a sufficient degree of detail.

3.6 The communication suggests that an area should be considered as an LFA if 66 % of the land is classified under at least one of the eight criteria. This implies additionality, meaning that up to eight different subtotals could be added up (and eventual overlaps discounted) to get the total classified land in a given region. While the whole point of the zoning exercise is to target support towards areas where it is crucial to the maintenance of agriculture, the proposed limit is felt to be too high and there is some concern that this could lead to the potential exclusion of current LFAs. The EESC is of the opinion that, in the absence of simulation results, the 66 % threshold must be viewed with considerable caution and can only be further discussed once the simulations and maps are available.

3.7 Particular attention should be paid to the use of cumulative criteria based on scientific evidence in heterogeneous areas suffering simultaneously from multiple handicaps. The advantage of the systems previously used, which in many cases were index systems, was that they incorporated several criteria and therefore, as instruments, were more specific and meaningful. They reflected conditions on the ground, and the interplay between them, far better. The use of a composite indicator combining several criteria on objective, scientific grounds, could enable an area to be classified as an LFA even when individual criteria would not trigger that classification. Such a situation exists in some Member States for the classification of mountainous areas, for example. These instruments are very worthwhile, as they address in a practical manner the interactions between many influencing factors.

3.8 In circumstances where the natural handicap has been overcome by technical progress or other forms of intervention (such as irrigation or drainage), the Commission proposes a fine-tuning that should be used only to exclude areas that would otherwise be designated as LFAs and not to include additional areas. A major problem lies, however, in zones to be excluded from the delimitation because they have overcome their natural handicaps through appropriate adaptation of their farming practices. It should be pointed out that natural disadvantages cannot be considered to have been totally eliminated despite a certain level of intervention. The burden from investments, which are almost always very high, and the costs of maintenance should also be considered. Furthermore, careful consideration should be given to the fact that those adaptations, in most cases, are only possible with additional financing (e.g. drainage and irrigation methods).

3.9 In a previous opinion, the EESC has already called for a sensible balance between the EU rules and flexibility on national and regional levels in working out the details of these measures (6). Following the implementation of the biophysical criteria, it might prove necessary to undertake a fine-tuning of the designated LFAs. The EESC is of the opinion that should such situation occur it should be allowed and it should take place at Member State level. From the EESC's point of view, the most suitable indicator to be used in this secondary process would be a production-related indicator that reflects the entrepreneur's real economic situation, including opportunity costs for family work and equity. The Commission will ensure that the criteria used by Member States are objective and non-discriminatory and that they respond to the objectives of the scheme. This alternative approach will improve the access of small and medium-sized farms to the financial support and, at the same time, will avoid penalising farmers who make investments to overcome natural handicaps. To avoid uncertainty among farmers, their inclusion in the scheme should be valid for at least the whole programming period.

3.10 It is worth highlighting the total absence in the proposal of a reference to geographical handicaps (isolation, distance from consumer bases, decision-making centres and services, etc.) which nonetheless represent one of the major constraints faced by farms situated in LFAs. Adjustments based on farm scattering, market access or transport abilities in the region could also be allowed.

3.11 The proposed designation criteria could be extended. One extra criteria could be ‘field capacity days’, acknowledging the limitations of wet unworkable soils and thus allowing for the interaction between soil types and climate, for example in a maritime climate. In addition to this, some of the suggested threshold values should be carefully analysed to uncover the real conditions. One example is the 15 % value for the slope criterion proposed by the Commission. The Committee has already called for consideration to be given to the accumulated negative temperatures in the winter (7).

3.12 Taking into account the fact that the new criteria might exclude certain areas that are currently eligible, extreme consequences at farm level are to be expected. The EESC considers an adequate phasing-out period to be essential in allowing farmers to adapt to the new support regime for LFAs. The policy orientation for the future CAP should also be integrated into this process.

3.13 The LFA scheme is intended to channel aid to farms in areas suffering from natural handicaps and forms an integral part of the rural development policy, the so-called second pillar of the CAP. The LFA scheme should also make a contribution to preserving food production capacity, which could become increasingly important if the ongoing process of climate change reduces production capacity elsewhere. Therefore the scheme's rationale should be driven by the principle that there are public benefits to be secured by promoting the maintenance of farming activity in disadvantaged areas where land might otherwise be abandoned.

3.14 The LFA scheme should not be confused with agro-environment commitments undertaken on a voluntary basis. Both schemes should be seen as additional rather than mutually exclusive. LFA aid payments should not be linked to environmental obligations that go beyond cross-compliance requirements. Contrary to the first pillar of the CAP (direct payments and market support), the LFA scheme must, in principle, offer compensation to farmers who operate under more difficult circumstances than those in non-handicapped areas and are least able to earn compensation from the market, and yet contribute most to the maintenance of the landscape.

3.15 Member States will be required to calculate LFA payments using the new payment formula set out in Regulation 1698/2005, which stipulates that payments should compensate for costs incurred and income foregone. The EESC therefore calls for the additional work required from farmers in handicapped areas, as well as the increased investments and operating costs they face, to be adequately valued and taken into account in compensation payments.

3.16 The new payment system should improve transparency. However, there will continue to be considerable variation in LFA payment levels across and within Member States. This is an inevitable result of allowing individual authorities to exercise discretion in how they deploy the rural development funding they receive through the EAFRD, including the freedom not to operate an LFA scheme at all.

3.17 Many Member States are providing insufficient support to their LFAs. The EESC calls on Member States to acknowledge the utmost importance of LFA support and to maintain the share allocated to the LFA scheme within their national envelopes for rural development, regardless of the result of the current LFA delimitation exercise.

Brussels, 17 December 2009. The President of the European Economic and Social Committee Mario SEPI

(1) OJ C 318, 23.12.2006, p. 93; OJ C 44, 16.2.2008, p. 56; OJ C 318 of 23.12.2009, p. 35.

(2) OJ C 151, 27.6.2003.

(3) OJ L 277, 21.10.2005, p. 1.

(4) OJ L 160, 26.6.1999, p. 80.

(5) Council Conclusions of 22 and 23 June 2009.

(6) OJ C 44, 16.2.2008, p. 56.

(7) OJ C 318 of 23.12.2009, p. 35, point 1.7.