Overview on the Agri-environmental policy in Europe as a system for

payment for environmental services

Tarek Amin

Abstract:

The aim of this work is to investigate the European Union agri-environmental schemes as a
policy tool for environmental conservation and rural development through payment for
environmental services. Starting by the placement of agrienvironmental measures among
other economically based approaches for environmental conservation, and a close
examination of how they have developed in EU member states since their beginning in the
mid 80’s. This study sheds light on farmer uptake criteria and the differences in bottom up
approaches.

Introduction:

According to the OECD definition Agri-environmental schemes are payments including

implicit transfers such as tax and interest concessions to farmers and other landholders to
address environmental problems and or provide environmental services.

The term Environmental services, often used interchangeably with Ecosystem services refers
to the conditions and processes through which natural ecosystems and the species that make
them up sustain and fulfil human life (Daily. 1997)
The flows of these services and disincentives depend directly on how agricultural ecosystems
are managed and upon diversity, composition and functioning of remaining natural
ecosystems in the landscape.
According to the Millennium Ecosystem assessment (2005), economic valuation of services
can be useful in assessing total contribution of ecosystems to human well being, understand
the incentives that individual decision makers face and evaluate consequences of alternative
courses of action.

From this economic perspective, some economically and market oriented environmental
policy have emerged , like Payments for ecosystem services in Latin America, and
Agrienvironmental measures AEMs in the European Union and OECD countries.

While AEMs are a form of payment in return to environmental services, be them positive
externalities or the reduction of negative externalities they differ from the definition of PES
suggested by Wunder (2005) that PES is a voluntary transaction where a well defined
environmental service is being bought by at least one buyer from at least one provider if the
ES provider secures the ES provision.
While the implementation of the AEMs remains voluntary by farmers it is obligator for EU
member states which makes it only partially voluntary. Hence the EU and the member state
governments act as an intermediary between providers (farmers) and users (tax payers).

History and rationale of AEMs

Since the creation of the common agricultural policy the main concern of European
agriculture was increasing agricultural productivity, later, farmers were receiving direct
payments in order to comply with certain measures aiming at restraining production. In 1992,
the agrienvironmental measures were introduced with the regulation no. 2078/92 in the
Mcsharry reform, which became compulsory for member states but remained optional for
farmers; in 1999 the council regulation 1257/1999 confirmed the essential role played by
farmers as paid providers of environmental services that go beyond good farming practices
and compliance with environmental legislation. In the council regulation on rural
development no. 1698/2005, AIM remained compulsory for the member states, which
underlines their importance.
EU agrienvironmental schemes focus on the positive environmental externalities generated by
agricultural production. They assume that their separate provision of commodity and non
commodity outputs is not physically possible. Since there are no market prices for non
commodity outputs, there is no market mechanism that ensures that social optimum is
achieved. Thus if there is an under supply of the agricultural positive externalities there is a
market failure (Bonnieux et al., 2006). From an economic theory viewpoint, market failure is
a reason for the government intervention. The very existence of market failure implies that
there are opportunities for mutual gains that have not yet been exploited. Wunder et al. (2008)
argued that governments are not always well placed to determine what environmental services
are about and how important they are, and that user financed programs to pay for
environmental services are more efficient being better targeted, more closely tailored to local
conditions and needs, with better monitoring and a greater willingness to enforce
conditionality. Yet, arranging for users to finance PES is not always possible.

The payment offered to farmers as incentives to internalise the environmental benefits into
their activities when decisions upon land use are made. The payments are meant to
compensate landowners for the profit foregone

Non market outputs such as positive and negative externalities and public goods closely
related to farming, environmental benefits resulting from landscape management and
biodiversity preservation and rural benefits resulting from enhanced economic and social
viability of rural areas are of high societal value. The multifunctionality of agriculture can act
as a justification for subsidies to agricultural land users and legitimises financial transfers at
the national level with regard to tax payers. Yet, the concept of multifunctionality was
criticised as being an excuse by countries like EU countries, Japan, and South Korea to
prolong trade distorting subsidies.

The United Kingdom has been one of the earliest EU member states to implement agric-
environmental schemes when it introduced the environmentally sensitive areas' scheme ESA
in 1986. In 2003, while stewardship payments offered in marginal agricultural areas were
attractive to farmers and tended to raise and stabilize farm incomes in less favoured areas, in
the more productive areas however, farmers were less interested in such payments as the CAP
income support for specialized conventional farmers were more interesting. Hence as Dobbs
and Pretty argued (2007) that the EU would find it necessary to decouple Pillar I (production)
payments to farmers towards the Pillar II rural development and environmental category of
payments.
By 2005 the EU has incorporated existing agri-environmental schemes into three new
schemes namely the entry level stewardship, organic entry level stewardship and high level
stewardship. The latter has the particular feature of long contractual duration, and is judged
according to environmental benefit per unit of expenditure.

Overview on farmers' uptake

A study conducted on the Veneto region in Italy, where the relevant AEMs included organic
farming, conservation of grassland, in aquifer recharge belt and in the uplands. The aim for
AEMS for the new regional rural development policy is to better understand farmers' attitudes
towards the environment in addition to socioeconomic factors affecting farmers decisions
whether to participate or not. In that study, it has been found that a market/investment
oriented behaviour does not favour the participation in AEM's hence; farmers identified as
conditional none adopting were characterized by below average farm sizes and above average
farmers' age that have a shortage in information relevant to technical, financial and
administrative aspects of AEM's. The active adopters were elderly farmers, with a traditional
and more extensive approach to farming, and most importantly, their income needs are not
strictly related to farm activities. This sheds light on the most important limiting factor for
non adopters, which are concerns over income loss. Other groups of active adopters include
younger, environmental protection oriented farmers, who don't suffer lack of information and
are motivated by society's opinions and environmental needs (Defrancesco et. al, 2008).

In the IFSA workshop, Knierim and Siebert argued that the prime factor for farmers to adopt
a policy measure aiming at the protection of biodiversity is the economic incentive, and
whether a given measure fits into one's own farm development plan. This does not exclude
willingness to take action in environmental conservation, or social/cultural reasons, like
keeping the farm for future generations as valid reasons for participation. The fact that
farmers are seen as the protectors of the environment on the one hand, and subject to criticism
for the negative impact of agriculture on the environment on the other hand, creates a social
pressure on them that influences their uptake of AEMs. The social aspect influencing farmers'
attitude can also include interaction with neighbours and family members and their feedback
on agricultural practices.
Some studies at regional level show that the top down introduction of nature protection by
establishing a protected area cause usually resistance and protests among the concerned land
users, even though a legally defined process of public and organised participation when
selected protected areas are to be established, yet not in a way that meets people's concerns
and expectations. Knieirim and Siebert, 2004)

It is an accepted fact that agrienvironmental schemes vary across Europe between member
states due to a number of variables. The comparison between two European countries
representing both extremes in policy implementation, namely Spain and Germany argued that
Mediterranean member states are not as prepared to implement a complex policy as the
Agrienvironmental policy with the same pace as their northern European counterparts which
have already established agrienvironmental policies of their own, regardless of the time when
they joined the European union. But the most important criterion for comparison was the
general attitude, namely the post productivist attitude in Germany against the productivist
ethos in Spain (Wilson et al. 1999).

The agrienvironmental policy in Spain was perceived by farmers in an unfavourable light due
to the fact that the decision making and the preparation of a programme that is remote from
farmers' needs, in other words, imposed from above and outside, which makes the farmer feel
abandoned and less willing to embark on such approaches that are remote from his socio-
economic and productive reality(Mazorra, 2001).
the same author argued that the effective implementation is determined by how relevant the
agri-environmental programme is to the objectives of each region's agricultural policy, and
the availability of funds for that purpose. The agrienvironmental contracts were taken up b
farmers who have other occupations. In Spain, AEMs, meant greater extensification in farm
management and less time devoted to it, which is also the case in Veneto region in Italy,
moreover, it has been noticed in both cases that some adopters were above the average age
and the farmers did not rely on their farms for generating income (Defrancesco et al.,
2006;Mazorra 2001)

Moreover, interviews with Greek farmers from different agricultural zones showed farmers’
awareness of the negative impact of agriculture on the environment and how some of them
were considering or had already considered implementing environmentally friendly practices;
nevertheless concerns over income distortion hindered the majority of them from taking this
decision.

Top down or bottom up?

the LEADER community initiative took place out of a need to try novel approaches in EU
rural policies .to obtain subsidies within the scope of LEADER local partnerships have to be
established and a regional action plan formulating an integrated high quality, original
strategy for a special region has to be prepared in cooperation with local .
LEADER+ stimulates new forms of regional governance in rural areas, by the emergence of a
regional bottom up structure guided by a top down institutional framework provided by the
European Union and the national state levels. The building up of networks and cooperation
between relevant actors within a rural region represents the organising principle of regional
governance (Böcher, 2006). The LEADER+ approach will be mainstreamed in rural
development programmes funded by the EU in the programming period 2007-2013 forming
the fourth access of the rural development programming (the first three are improving
competitiveness in farming and forestry, environment and land management, and improving
the quality of life and diversification). Local action groups within the framework of the
LEADER approach propose an integrated local development strategy and are responsible for
its implementation (Kröger et al, 2006).

One of the most interesting examples for a combination between the "top-down" "bottom-up"
approaches is the Contrat territorial d'exploitation or the farming territorial contract. CTE is
an agrienvironmental program enacted in France in 1999 under the Loi d'Orientation
Agricole; it strives to integrate sustainable rural development policy and agri-environmental
policy. the program targets conservation of the French environment, rural economy and rural
population (Basquin and Dobbs, 2005). To apply for this multiple objective policy instrument,
the farmers had to draw up a farm diagnosis and design a global farming project. thus farmers
could opt for an individual strategy integrating the economic and environmental farming or a
territorial strategy aiming at global objectives. Using a combination of "top down” and
“bottom up” strategies allowed the participants to own the actions that were implemented,
since they had to choose those actions. However, while it is necessary to have a high level of
involvement of local communities in implementing policies, that involvement must be framed
and monitored. Inadequate coordination of the good will of the local actors contributed to the
imbalance between socio economic and environmental results. This particular example
showed that, according to Basquin and Dobbs that too much bottom up could be more
harmful than too much top down.
CTE was criticized for the low rate of adoption and the high public administrative costs
The CTE has been replaced by the Contract of Sustainable agriculture "Contrat d'agriculture
durable" which is also based upon the concept of agricultural multifunctionality, yet with
more simplified adherence conditions (terresdeurope.net)

On the contrary, The agrienvironmental policy in Finland has experienced an original way to
deal with the relations between farming and the environment. Before entering the
EU agricultural policy was jointly designed by the agricultural administration and farmers'
union. Concerns about agriculture having a negative effect on the environment led to the
approval of the first national environmental programme for rural areas in 1992(Bonnieux,
2006). The agri-environmental coalition in Finland was established along a decade,
through policy learning across the agrienvironmental subsystem. This policy learning process
gained momentum as a result of accessing the EU. This has brought policy belief systems of
agricultural and environmental coalitions close together which led in turn to the restructuring
of the agri-environmental policy subsystem towards a more multifunctionality oriented
agricultural thinking (Kröger et al. 2006).
the draft version of AEP was circulated to and commented on by a hundred actors from
regional and local level administration, different organizations and businesses, and their
comments were taken into consideration. thus, if the degree of uptake by farmers is a criterion
for the success of an agrienvironmental policy, the high uptake by farmers in Finland and
Czech republic can confirm that (Bonnieux, 2006).
New trends and criticism of the Agrienvironmental policy

Given the limitations of the agrienvironmental policy, concepts like Green and Blue services
in the Netherlands have been developed. Their definition according to Westerink et el (2008)
is : the activities in the field of nature, water, landscape and cultural history and recreation
that improve the quality of rural and urban area and go beyond legal obligation and can be
paid or unpaid. The main features of the GBS include: funds originating at lower
administrative levels, possibility of private funding, measures and schemes developed with
farmers and local stakeholders, establishing new relationships between rural and urban areas.

Similar initiatives diverging from the mainstream Agrienvironmental policy, and are
designed, funded and implemented on local regional scale. Similar initiatives were found in
the UK, Spain and Germany.
Particularly in Germany, the development of the “Biodiversity and Spatial Complexity in
Agricultural Landscapes under Global Change” project as a new scheme for payments for agri
environmental services in Northeim was based on the criticism of the existing
agrienvironmental policy. According to Berke and Margraaf (2003) The AE policy was
missing for: incentives for innovations due to action orientation, efficiency in resource
allocation, and transparency in demand for ecological goods and services, and specificity in
formulation of targets according to the region.
Thus, the new trend was brought to light to be outcome based, decentralized, and more
conforming to the free market components of supply and demand.

A comparative study conducted between the Agrienvironmental policies in both the EU and
the US sheds light on interesting features of the EU agrienvironmental policy where
provisioning of positive externalities is more common than reduction of negative externalities.
Moreover, the existing Agrienvironmental schemes do not target results, but rather certain
activities or measures that are expected to bring about a number of positive externalities rather
than a single positive externality (Baylis et al, 2007 ). A summary report of AEP evaluations
concluded that only a few evaluations have actually attempted to measure environmental
outcomes, the environmental effects of the implementation of AEMs are not systematically
monitored at a European level, thus there is a need to develop monitoring and evaluation
procedures and tools that are oriented towards impacts (Polman and Slangen, 2007 ).
Discussion and conclusion

Due to the weak competitiveness of Finnish agriculture high level of agricultural support is
considered a necessity for continuing the agricultural production in Finland,
Multifunctionality is a tool for legitimizing agricultural support.

In spite of this argument it is important to note the lack of competitiveness in the agricultural
sector in north European countries which is a greater motivation to support agriculture than in
the south European countries where agriculture is a viable sector and represents a substantial
percentage of these countries’ economies.
It is also worth mentioning that where substantial agricultural production is present under a
prevailing conception of the necessity to increase production, i.e productivist ethos, it should
logically take time to shift towards a post productivist ethos, and with the reasonable
justifications. By looking at the variables influencing uptake it is clear that the choice of
agrienvironmental measure or the identification of an environmental services to be
provisioned should consider the actual situation on the regional/territorial level. This should
consider the sizes of farm holdings, and the relationship between their location and the
potential of the land use type to influence the provision of the environmental service in
question.
A more important consideration is the human aspect regarding the farmers themselves, their
knowledge and how it relates to societal environmental concerns. The uptake of farmers/
landowners of agrienvironmental measures is similar to the process of natural selection, where
the ”fittest” farmers are more prone to adopt AEMs, and this should influence greatly the
evaluation of an AEM. The fitness is determined by the overall readiness of the farmer, and
may not reflect the potential of the land he owns to provide environmental services, not does
it reflect how comprehensive or targeted the AEM is.
An AEM with a high degree of sophistication and multiple goals that encompass agricultural,
environmental and socioeconomic goals like the French CTE didn’t have much success
because of the lack of participation. Indeed the CTE was a good approach yet it came too
early without sufficient history of implementing agrienvironmental schemes. For such an
approach, the different actors need to develop a certain ”maturity” with regards to the
concerted action and a certain degree of familiarity with the implementation of
agrienvironmental schemes.
Clearly, Agrienvironmental measures don't address the same problems; hence across the EU
they vary greatly according the societal needs, resource base and environmental conditions,
and political consideration. This variation leads to different degrees of success expressed by
the uptake of these schemes by farmers rather than by the environmental outcome. In effect,
studies concerned with the environmental outcome of implementing agrienvironmental
schemes are very limited, and this might be due to the difficulty of monitoring these outcomes
or evaluating the positive externalities or the reduction of the negative externalities. This has
been particularly one of the major differences between the European agrienvironmental
schemes and those in the US, where, payments in the US are based on the result, whereas in
Europe are based on the implementation of a certain practice that aims at a given result.

While monitoring is essential to evaluate the degree of success of an agrienvironmental

scheme, little is known about the effectiveness of AES . Most of the information provided by
member states is derived from statistics that reflect uptake and acceptance of the programmes
(Hertzog, 2005). This can be attributed to the fact that some positive externalities are difficult
to estimate, and also the fact that a contract period of five years may not be sufficient to
observe the expected change. However monitoring is of prime importance for ensuring
compliance and emphasize mutual trust between both sides of the agrienvironmental contract
(the administration and the farmer) and reflect credible commitment on both sides as
highlighted in ITAES report. Monitoring through the IRENA project targets only 5% of the
farmers adhering to Agrienvironmental schemes, and although non compliances are not
spread in EU agrienvironmental policies, breaches do occur nevertheless (Potter, 2002)

In spite of all criticism on the EU common agricultural policy, the development from cross
compliance, to agrienvironmental schemes to the LEADER+ and other trends diverging from
the mainstream agrienvironmental policy, is promising since it allows a progress in
developing new approaches for sustainable environmental management and rural
development. Several valuable lessons could be drawn from the experience of EU member
states with agrienvironmental policy implementation, about the importance of implication and
participation of stakeholders in the policy learning process, the need to simplify the policy to
guarantee more stakeholder involvement, the importance of capacity building and developing
trust between contracting parties.
Finally, it must be noted that there is a growing attention towards PES, and PES like
approaches, which is a great opportunity for mutual learning and networking.
Acknowledgement:
I would like to thank my dear friend and colleague Julia Clause for helping me with
finding the references. And especially thank Dr. Emil Sandström, Dr. Kristina
Marquardt Arevalo, Dr. Lennart Salmonsson, and Prefect Rolf Johansson from the
department of environmental communication and rural development in SLU.

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