The Future of Rural Development: The Role of the CAP and Cohesion Policy

The EU policy architecture for supporting rural development beyond 2013 is currently a topic of debate amongst stakeholders and the European Commission. Rural development, broadly characterised as a process to enhance the quality of life of rural residents and the economic performance of rural areas, is predominantly supported at the EU level by the Common Agricultural Policy (CAP) (and in particular its second Pillar ), and the Cohesion Policy. There is support from some parties for elements of the current CAP Pillar 2 to migrate to Cohesion Policy in the post 2013 EU budget period, whilst others advocate that the co-ordination of Pillar 2 measures with Cohesion Policy should be further assessed, and if necessary, improved. There has, to date, however been little further discussion of how the former idea might be operationalised, or of the relative merits of strengthening the relationship between the two policy spheres. Nor have the implications of these options for the future role of the CAP been rehearsed very seriously, at least in public. This topic therefore warrants greater, more informed discussion. In this Policy Briefing we clarify the roles of Cohesion Policy and the CAP in supporting rural development, and present some of the arguments that might come into play regarding the future EU policy framework for supporting rural development.

Download the May 2009 CAP2020 Policy Briefing here (PDF version), or read it below.

Policy Discussion Points to the Need to Re-examine the Relationship between the CAP and Cohesion Policy

Broad ideas for the future execution of EU policy with respect to rural development have been presented by the Member States and other stakeholders in the responses to the Commission’s consultation on the EU Budget Review and as part of the debate on the future of Cohesion Policy. This debate is largely absent from the ongoing discussions on the future of the CAP which are, for the most part, focussed on simplification and developing the concept of environmental public goods as a defensible rationale for future public expenditure on European agricultural policy (there are many merits to this focus, as set out in a previous Policy Briefing). This may mean that ideas put forward on the future policy framework for rural development in the Budget Review and Cohesion Policy debate may potentially be excluded from, or underplayed, in the development of an environmental public goods focused European agricultural policy. The environmental public goods debate, and the discussion of where best to place rural development measures within the overall European policy framework, should therefore not be conducted in parallel, but be drawn together in order to explore a coherent approach to policy design for rural areas.

The debate is, at present, characterised by a number of broadly framed ideas, the implications of which are not always very clear. According to the European Commission’s summary of responses to the public consultation on the EU budget, ‘Some [stakeholders] propose to shift the 2nd pillar [of the CAP] closer towards cohesion policy and transform it into a more balanced policy for rural areas’ (CEC, 2008a). The responses of individual Member States are mostly rather guarded, with the exception of more bold proposals put forward by Denmark and by the Netherlands. Denmark argued that, ‘Rural development funds specifically tailored to poorer areas should be integrated into the Cohesion Policy’ (Danish Government, 2008). The Dutch government (2008), in its position paper on the future of the CAP, believed that, ‘non-agricultural activities that contribute to the quality of life in rural areas or to the rural economy but that are not linked to agricultural activities should no longer be covered by the CAP’ and should, instead, form part of Cohesion Policy. In a similar vein, WWF (2008) present the view that Pillar 2 should be given a stronger environmental focus, and that ‘certain Axis 1 and Axis 3 measures’ could be better funded by ‘the Cohesion Fund’ (i). In contrast, Sweden, Bulgaria and Hungary do not go so far as to call for a radical overhaul and call variously for the need to further analyse, improve the efficiency and identify the ‘right balance’ (Government of Hungary, 2008) between the CAP and Cohesion Policy.

More specific proposals on developing operational ideas for extracting the rural development aspect of the CAP and transferring it to Cohesion Policy, are beginning to emerge (ii). The most significant input to date has been the ‘Barca’ report, produced for DG Regional Policy (hereafter referred to as DG Regio) (iii). It presents the rationale for a reformed Cohesion Policy and puts forward recommendations for a comprehensive reform (iv). With respect to his conclusions on the CAP, Barca (2009) posits that merging all funding instruments (for rural areas) into a single fund to be managed by one Commission Directorate-General may be the optimal technical solution, but would not be feasible as this would require huge organisational change. He therefore suggests that a ‘strategic place based territorial framework’ for Cohesion Policy should be developed, with the ‘rural development actions of the EAFRD’ brought ‘under the umbrella policy heading of cohesion policy’ with the various funding streams dispersed in line with the strategic framework. In referring to ‘rural development actions’, it is not clear exactly which Pillar 2 measures Barca is referring to, nor are the benefits for rural areas of moving these actions to Cohesion Policy set out beyond a recognition of the need for the continuation of a ‘place based or territorial policy’ in order to target increased income and growth and to reduce inequalities.

The Need for Conceptual Clarity

In order to frame the discussion that follows, this table shows the geographic focus, the formal objectives and budgetary model of EU policy measures that target rural development. The text below explains some of the main differences in the ways in which the CAP and Cohesion Policy provide for rural development.

The CAP and Rural Development

The label of ‘rural development’, as it applies to Pillar 2 (v) of the CAP, is something of a misnomer. ‘Rural development’ is cast rather widely to refer to a somewhat diverse range of measures. Many have a focus that is principally economic or social, whilst others primarily pursue environmental objectives. These measures are predominantly focused on those engaged in agriculture and forestry, although a number target rural communities and the broader rural economy. There are a range of measures, for example, that help to support the adjustment of the agricultural sector and the actors engaged in farming to changing economic circumstances and challenging natural conditions. In this vein, long-term elements of Pillar 2 have included the Less Favoured Area measure, aid for farm investment, modernisation and diversification, and early retirement aids. Beyond the agricultural sector, a key priority of Axis 3 of Pillar 2 is to raise economic activity and employment rates in the wider rural economy (vi). This is perhaps where the greatest similarity in objectives between CAP Pillar 2 and Cohesion Policy can be found. Each Member State must spend a minimum of 10% of its financial allocation from the European Agricultural Fund for Rural Development (EAFRD) on Axis 3, with the choice of measures and scale of funding left to the discretion of the Member State. There will be some variation in the focus on Axis 3, as the content of each Rural Development Programme differs according to the priorities identified by each country’s National Strategy Plan. This Plan is directed by the Community Strategic Guidelines for Rural Development, which, as with the Community Strategic Guidelines for Cohesion (vii), stress the need for the two policy spheres to complement one another in supporting economic diversification, with the actions supported by each policy area to be set at the national level.

Pillar 1 of the CAP is primarily an income oriented policy, seeking, amongst other objectives, to maintain stable incomes for a specific group of beneficiaries - farmers and other agricultural land managers. It does not aim to promote rural development outside of the agricultural sector, although it may be argued that CAP Pillar 1 indirectly helps to underpin rural communities by supporting the continuation of farming. The principal focus on the discussion which follows is therefore on the relationship between Pillar 2 and Cohesion Policy.

Cohesion Policy, the Structural Funds and Rural Development

Cohesion policy, also at times referred to as regional policy, is designed to reduce disparities between levels of social and economic development across the EU’s regions and encapsulates both towns and rural areas. Framed by the overarching principle of European solidarity, it is a policy that seeks to address disadvantage and create potential so that regions can contribute to achieving greater growth and competitiveness. Cohesion policy is operationalised through three funds, i.e. the European Regional Development Fund (ERDF), the European Social Fund (ESF) and the Cohesion Fund. The degree to which these funds support rural development depends, in part, on the approach taken by Member States and regional authorities, which, under the framework of the Community Strategic Guidelines on Cohesion, devise national strategic priorities and Operational Programmes. The types of projects funded through the Cohesion Policy Funds vary but include a focus on investment in often large-scale innovation and infrastructure, such as increasing transport networks and building waste and water management capabilities in so called Convergence Countries (countries with GDP less than 75 per cent of the EU average) under the Cohesion Fund.

Questions for the Debate: Where Does ‘Rural Development’ Best Fit Within the EU Policy Framework?

It seems that further thought needs to be given to exploring (a) whether a shift from the current policy framework is needed (and to what benefit) and (b) if a shift does take place, what the implications for the CAP would be. We introduce a discussion around two key questions below: What are the arguments in favour of the CAP retaining a rural development function? And, what are the arguments in favour of the Cohesion Policy taking on a greater rural development role? Our aim is to present the basis for a more elaborate debate, and not to reach any particular conclusion.

What are the Arguments in Favour of the CAP Retaining a Rural Development Function?

The Case of Agricultural Exceptionalism

The CAP focuses on a particular strand of rural development. In the past it has largely centred on the agricultural sector, providing measures to help the sector adjust to changing economic circumstances and challenging environmental conditions. More recently, its focus has expanded to a broader array of rural actors, through interventions such as the Axis 3 measures supporting the provision of local services and training for rural actors, and the Axis 4 Leader measure. Many Pillar 2 measures continue to focus on sustainable land management, and thus target actors in the agricultural and forest sectors. This array of measures, targeting social, economic and environmental outcomes, could be considered to maintain a degree of coherence if they are regarded as mutually supportive. In one respect, measures focused on supporting sustainable land management practices that help to maintain attractive agricultural landscapes provide a number of second order economic effects, for example, in reinforcing the potential for rural areas to attract visitors and new residents. In turn, providing measures to support the existence of viable rural communities, including the services that underpin this, is critical in many Member States to retaining people in rural areas. Without such support the agricultural workforce and skills base could decline and the continuation of land management practices needed for the provision of attractive landscapes could suffer.

This is an argument founded on the case of ‘agricultural exceptionalism’, that may lend some support for retaining rural development, in the way it is presently formulated, in agricultural policy, within Pillar 2 of the CAP. Mariann Fischer Boel (2009), the EU Commissioner for Agriculture has, for example, stressed rather adamantly that ‘Rural Development policy must stay in the CAP’ and should not be subsumed within ‘regional policy’ because this would create a strong risk that the available funding would more likely be expended on urban centres rather than within rural areas. This perceived risk may be explained by the apparent ‘Lisbonification’ of the Structural Funds in terms of the EU objective to increase economic growth and employment opportunities. A contributing factor may also be that a stronger emphasis on cohesion principles could lead to a redistribution of funds, currently provided to all rural areas under Pillar 2, towards economically lagging areas more generally, both urban and rural. A shift of this sort would see funding move away from the northern European Member States towards the South and the East. This state of affairs does not, however, preclude a revision to Cohesion Policy so that the available funds could be targeted more clearly at all rural areas to achieve the outcomes currently sought by some of the Pillar 2 measures that target rural development both within and beyond the agricultural sector.

Scale of Implementation

The use of tailored rural development programmes to deliver Pillar 2 measures reflects the principle that aids should be targeted at addressing particular issues identified within the programme area. These issues are likely to be of a smaller scale than most of the projects that would currently be tackled by Cohesion Policy, pointing to the importance of distinguishing the scale of implementation of the two policy spheres and assessing the extent to which there is a coherent link between them (or an opportunity to develop one). The Community Strategic Guidelines for Rural Development state that the demarcation line should be set out in the National Strategy Plan of each Member State, and suggest ‘for example, for investments in transport and other infrastructure at Member State, regional or subregional level, cohesion policy instruments would be used, while at the local level the basic services measure under Axis 3 could be used, ensuring the link between local and regional levels.’ It could be asked, however, whether ensuring a complementary approach between different Community instruments provides a more coherent approach to rural development than that which could be provided by a single policy framework.

Funding

Transferring certain Pillar 2 measures to Cohesion Policy would presumably need to be accompanied by an appropriate re-allocation of EU funding. Understanding the resulting change to the overall budget available for pursuing rural development would, however, depend on a range of factors. These include how the relevant Pillar 2 measures are integrated within Cohesion Policy, and whether the design of measures is altered in the legislative texts, for example, with respect to how they are targeted geographically, and in terms of who might be eligible to benefit from the measure. The subsequent decision of the Member States to implement these measures (or not), and the way they choose to implement them, will also have a bearing on the pressure placed on the EU budget to meet rural development objectives. In some cases, steps may need to be taken to ring-fence a portion of the available funds for rural areas.

Depending on the approach taken, a redistribution of funds between regions and perhaps economic sectors is likely to arise from a change in policy architecture. The varying willingness or capacity of individual Member States to provide funding for rural development from national sources needs to be taken into account as well. Those Member States with greater financial means and a strong history of supporting rural areas may, for example, be ready to accept a reduction in EU funding. Other Member States, particularly those that are economically lagging, may find that they gain as funds are shifted from more prosperous EU regions.

The discussion suggests it may be difficult to discredit the current role of the CAP in supporting rural development given the mutually supportive functions of Pillar 2 measures in supporting the economy, environment and quality of life in rural areas, the differences in the scale of implementation between CAP and Cohesion Policy and, whilst somewhat uncertain, the potential loss of funding for rural areas that any policy revision may entail.

What are the Arguments in Favour of the Cohesion Policy Taking on a Greater Rural Development Role?

It is first worth noting that the suggestion of greater synergy, or an even more fundamental reconsideration of the relationship between rural development within Pillar 2 and Cohesion Policy, is linked to the recent rumours of DG Regio’s growing interest in incorporating elements of the CAP’s second Pillar within EU Cohesion Policy. Alongside the current debate on the future of the EU Budget Review and the future of the CAP, a debate on the future of Cohesion Policy is also underway. It should be noted that there is good reason for the timing of these linked debates since together the CAP and Cohesion Policy make up around 80 per cent of current EU spending. As part of this period of reflection on Cohesion Policy, DG Regio has produced a number of high level policy documents (including a Green Paper on Territorial Cohesion (CEC 2008b) (viii) and ‘Regions 2020’ (CEC 2008c), a paper that maps out future challenges across the regions) and held a series of large scale conferences across the Member States in 2008. Throughout these inter-linked debates it is becoming increasingly apparent that DG Regio considers itself well equipped to defend a major continued EU role in rural development - perhaps more so than DG Agriculture.

One of the main arguments behind a potential shift in policy structure for rural development policy is the increased coherence it could potentially bring to the pursuit of rural development at an EU level. Many Member States are facing difficulties in coordinating the various funds (i.e. ERDF, ESF, Cohesion Fund and the EAFRD) and apparently ‘express anxiety in the face of the lack of synergy and sometimes of the competition between the ….funds’ (Délégation Interministérielle, 2008). The complex management rules of the European funds can be held partly to blame for this. There is some variation in the institutional capacity of the Member States to overcome the barriers required to satisfactorily coordinate the funds.

Drawing together all those measures that target increasing the rates of employment and economic activity under the banner of Cohesion Policy would seem to reflect an approach to coherent policy design. It may also provide greater added-value for European spending, as the funds would be directed at those regions identified as most economically lagging in European terms. It would seem prudent, however, to ensure safeguards are put in place so that the needs of rural communities and rural areas are appropriately provided for, particularly in regions with strong urban centres.

Such a shift in rural development policy would also allow, potentially, Pillar 2 to focus more exclusively on supporting sustainable land management. This focus could elevate the important of environmental measures within the CAP and so possibly place the EU on a stronger footing to deal with pressing environmental problems such as the loss of biodiversity and natural resource protection. However, there would need to be clear links made between the objectives of the two policies to ensure that the people needed to undertake land management practices remain within rural areas, and that the rural infrastructure needed to underpin the viability of sustainable farming systems continues to be supported.

Supporting Rural Development: Is There an Alternative EU Policy Framework for Rural Areas?

The centre of gravity in the ongoing CAP reform debate ranges from simplification and flat rate area payments to developing the concept of environmental public goods as the rationale for a future agricultural policy, and on to the need for the future CAP to play a role in providing food security. They are issues of importance that justify a pre-eminent position in the debate. However, the dominance of these topics risks sidelining other issues that must also be thought through in order to develop a comprehensive proposal for policy reform.

It seems the arguments about the policy framework and institutional base for EU rural development funding is too important to be debated at the rather elementary level that has occurred so far. There would be significant implications of a transfer to Cohesion Policy and DG Regio that need serious examination. Apparently tidy solutions are not necessarily the best.

Endnotes

i. Presumably WWF are referring to all of the Structural Funds rather than just the Cohesion Fund.

ii. Other commentators have raised some of the questions, but not followed through with a review of the pertinent arguments. The Rural Environment Platform (2008) for example has asked a key question: ‘Does it make sense to talk about the CAP as the rural policy when there are other instruments besides CAP (for instance, structural funds) affecting rural territories?’

iii. Prior to the Barca report, a number of ideas were floated in a discussion paper on the future of Cohesion Policy issued by the French Presidency in 2008 (Délégation Interministérielle, 2008). The paper asked whether the EU should develop ‘a rural European strategic framework’, building on the strategic guidelines for the rural development Pillar of the CAP. Second, it asked whether a dedicated EU rural development policy should be established, integrating fragments of existing EU policies that address the challenges faced by rural areas. It does not seem any particular conclusion to these questions was reached. In a more recent policy debate, members of the European Parliament’s Regional Development Committee are understood to have discussed the integration of CAP rural development (EAFRD) spending into ‘regional’ (i.e. we understand this to mean cohesion) policy (Agra Facts, 2009).

iv. The report ‘An Agenda for a Reformed Cohesion Policy – A place-based approach to meeting European Union challenges and expectations’ was presented by DG Regio on 27 April 2009. The independent report was requested by the Commission and was built on a process of a series of seminars and hearings with academics and Member State officials. It has been mainly authored by Fabrizio Barca, Director General in Italy’s Ministry of Finance and Economy. The report seeks to ‘initiate a frank, informed and timely debate on conceptual, political and operational aspects’ of Cohesion Policy.

v. The measures within Pillar 2 are set out by Council Regulation 1698/2005 of 20 September 2005 on support for rural development by the European Agricultural Fund for Rural Development, OJ L 277, 21.10.2005. This Regulation is amended by Council Regulation (EC) No 74/2009 of 19 January 2009, OJ L 30, 31.1.2009.

vi. According to the key actions of the Community Strategic Guidelines for Rural Development: Council Decision of 20 February 2006 on Community strategic guidelines for rural development (programming period 2007 to 2013), 25.2.2006 OJ L55 and Council Decision of 19 January 2009 amending Decision 2006/144/EC on the Community strategic guidelines for rural development (programming period 2007 to 2013), 31.1.2009, OJ L30.

vii. Communication from the Commission, Cohesion Policy in Support of Growth and Jobs: Community Strategic Guidelines, 2007-2013, COM (2005) 299, 5.7.2005.

viii. The concept of territorial cohesion is based on the logic that different geographic areas (or ‘territories’) such as mountain ranges, remote areas or islands, have inherent features which bring specific development opportunities or problems and therefore require their own tailored ‘development programmes’. However, a major problem in assessing what territorial cohesion could mean for rural development policy is the lack of clarity of the concept which appears not to have been resolved by the 2008 Green Paper (CEC, 2008b) on the subject.

References

Agra Facts (2009) BRIEFS: EP C’ttee on RD funds. No. 12, 13.02.09.

Barca, F (2009) An Agenda for a Reformed Cohesion Policy: A Place-based Approach to Meeting European Union Challenges and Expectations. Independent Report prepared at the request of Danuta Hübner, Commissioner for Regional Policy. Available here.

CEC (2008a) Consultation Report - Reforming the Budget, Changing Europe: Short Summary of Contributions. Working document prepared by the Secretariat-General and DG Budget, SEC(2008) 2739, 3.11.08. Brussels. European Commission. Available here.

CEC (2008b) Green Paper on Territorial Cohesion - Turning territorial diversity into strength, (COM(2008)616), 6.10.08. Brussels. European Commission. Available here.

CEC (2008c) Regions 2020 – An Assessment of Future Challenges for EU Regions. (SEC (2008) 2868). Brussels. European Commission.

COPA-COGECA (2008) Visions for the Future of Agricultural Policy in Europe. Available here.

Danish Government (2008) The Danish Government’s Contribution to the 2008/2009 Budget Review. Available here.

DG Regio (2007) Cohesion Policy 2007–13: Commentaries and Official Texts. Available here.

Dutch Government (Ministry of Agriculture, Nature and Food Quality) (2008) European Agricultural Policy 2020: The Dutch Outlook. Available here.

Délégation Interministérielle à l’Aménagement et la Compétitivité des Territoires - France (2008) Reform of the Common Agricultural Policy and the European Cohesion Policy. Available here.

ECORYS (2008) A Study on EU Spending. A Report for DG Budget. Available here.

French Presidency (2008) What’s the best way to prepare the CAP of the future? Available here.

Government of Hungary (2008) Answers of the Government of Hungary to the Questions of the Commission Raised in its Communication ‘Reforming the Budget, Changing Europe’, 2.4.2008. Available here.

IEEP (2008) Funding for Farmland Biodiversity in the EU: Gaining Evidence for the EU Budget Review. A Report for the RSPB. Available here.

Mariann Fischer Boel (2009) ‘The Voice of the Mountains’, Speech by Mariann Fischer Boel at the ‘Forum Berglandwirtschaft’, Brussels, 31.03.09. Available here.

Rural Environment Platform (2008) Why Rural Areas Need a Regional Approach.

WWF (2008) Reforming the CAP: WWF Vision for Rural Europe, 2013 and Beyond - A Discussion Paper. Available here.

PUBLICATION DATE

08 Jun 2011

AUTHOR

IEEP