Modulation Delivers Environmental Benefits

Reducing CAP Pillar One payments by up to 20 per cent appears to have a negligible impact on agricultural commodity production and the viability of farm businesses at the EU level, although the impact is greater on grazing and mixed farms. In contrast, redirecting these funds to Pillar Two, leads to significant additional beneficial impacts, particularly for the environment, although these benefits are less easy to quantify.

This is the key message to come out of a report published by DG Agriculture last week on the economic, social and environmental impacts of compulsory modulation. The study, carried out by LEI (the Agricultural Economics Research Institute in the Netherlands) and IEEP (Institute for European Environmental Policy), examined the impacts of various rates of modulation (past and present and future) on farm structures, commodity production, farm incomes, the competitiveness of the agricultural sector, employment, quality of life in rural areas and the environment. It looked at the effect of reducing Pillar One payments as well as the effects of redirecting the funds into Pillar Two to provide an assessment of the overall net impact of modulation, drawing on modelling results and national case studies.

In general, compulsory modulation acts as a conduit for securing an increase in funding for rural areas, both to the agricultural sector and beyond. The results show that it can lead to a significant transfer of support between farms of differing types and size, and more specifically, from larger arable farms to livestock farms, to forestry and farm/forestry enterprises, and to the broader rural economy.

The effects of the increase in the Pillar Two budget.... tend to compensate for any negative impacts experienced as a result of reductions in Pillar One at the EU level.

The study found that the effects of the increase in the Pillar Two budget - augmented by national co-financing - tend to compensate for any negative impacts experienced as a result of reductions in Pillar One at the EU level. However these impacts will vary depending on farm type and size, as well as the design, implementation and targeting of Rural Development schemes in different parts of Europe.

The environment gains most from compulsory modulation, with positive impacts on the farmland bird index, High Nature Value farmland, nutrient surpluses and the production of renewable energy all anticipated, resulting from the availability of additional funds for a range of measures across all Axes, but particularly for the agri-environment measure. These benefits would be likely to increase with higher rates of modulation.

Assessing the impacts of compulsory modulation at the regional and local scale is dependent on the availability of good quality and comparable data across the EU-27 and the study highlights the importance of investing in environmental and social data to assess the impacts of Pillar Two measures.

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PUBLICATION DATE

22 Dec 2009

AUTHOR

IEEP

FURTHER INFORMATION

The Institute for European Environmental Policy coordinates CAP2020. It is an independent not for profit institute which undertakes research in a number of policy areas including agriculture and rural development.