Impact of decoupled payments made under the 1st pillar on

holdings and on nature conservation

Kaul Nurm

Estonian Farmers´ Federation

Short answer

• Negative trend for structure of holdings

• Negative trend for biodiversity

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.

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.

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).

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.

Enterprises• Owners don’t 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.

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

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?

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.

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.

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.

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?)

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).

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.

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.

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.

Number of applicants of SAPS

0

100

200

300

400

500

600

700

800

900

2004 2005 2006

nu

mb

ers

21…50 ha

51…100 ha

101…200 ha

2001…500 ha

501…1000 ha

1001…5000 ha

Average size of holdings, ha

0

200

400

600

800

1 000

1 200

1 400

1 600

2004 2005 2006

ha

21…50 ha

51…100 ha

101…200 ha

201…500 ha

501…1000 ha

>1001 ha

Average Size of Herds in Estonia in 2000-2007

0

100

200

300

400

500

600

700

800

900

1000

1100

1200

1300

1400

1500

1600

2000 2001 2002 2003 2004 2005 2006 2007

her

d s

ize,

co

ws

11…100 cows

101…500 cows

501…1000 cows

>1001 cows

Number of Farmers (Herd Owners) in Estonia in 2000-2007

0

100

200

300

400

500

600

700

800

2000 2001 2002 2003 2004 2005 2006 2007

farm

ers

no. 11…100 cows

101…500 cows

501…1000 cows

>1001 cows

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.

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.

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.

Sustainability of the European agricultural model lies in the

enhancement of the 2nd pillar

Thank you for your attention!