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4.4.1        Avoiding policy incentives leading to pressures on water

The CAP is one of the oldest policies, launched in 1962, and a core building block of the European Union. Some of its initial goals were to stabilize agricultural markets, guarantee minimum commodity prices to farmers, and support investment in the modernization of agriculture, with the overall objective to increase food production.

Thanks to this favorable policy framework, European agricultural output increased tremendously, increasing food security in Europe and vastly expanding exports on international markets (Chapter 2). However, at the same time, the used of inputs such as fertilisers, pesticides and irrigation water has increased and agricultural pressures on the European water environment have become more intense (Chapter 3).

In the last 30 years, successive reforms of the CAP have changed significantly the intervention logic of the CAP and the resulting incentive structure on farmers. Under Pillar I, the budget for market interventions which initially determined the market price have mostly transitioned to providing a market safety net. Some market mechanisms still exist in Pillar I under the Common Market Organisation, for example in the form of sector specific aid schemes to support the competitiveness and modernisation of agricultural holdings. This instrument is often used to support investments (e.g. in irrigation) in sectors such as fruit and vegetables, apiculture, wine, hops, cotton and olives.

Most of the Pillar I CAP budget has now been re-oriented towards direct payments to farmers in the form of income support. Direct payments consisted in the 2014-2020 programming period of several schemes, the main one being a basic income support scheme. Others direct payment schemes have more specific objectives, such as supporting young farmers, smaller farms, and specific sectors facing economic difficulties. The “greening” direct payment specifically aims at encouraging the uptake of some sustainable farming practices (Section 4.4.2).

The influence of the current CAP Pillar I on production and use of inputs (e.g. fertilisers, pesticides, irrigation water), and the resulting impact on the water environment, is subject to debate:

• One the one hand, direct payments can represent a substantial share of income of farming systems with a lower impact on water, for example diversified farmers in grass-fed livestock production or extensive farms in areas of natural constraints. This may maintain their economic viability and prevent their conversion to more specialist arable farming systems.
• On the other hand, direct payments may benefit historical beneficiaries with intensive forms of production, and sector-specific support (under the remaining coupled direct payments or under the market intervention instrument) may encourage further intensification. Some Member States have nevertheless set additional conditions on payments to benefiting farms, such as maximum livestock density and water saving targets (Devot et al., 2020).

It is important to note that the impact of direct payments and sectoral market intervention on farming practices and pressures on the water environment is dependent on many factors, varying with the implementation choice of Member States, characteristics and location of the farm, market conditions, and choices by farmers themselves.

The share of the CAP support in the overall farm income also has an influence. Where payments represent a smaller share of a farmers’ income (e.g. fruits, wine, vegetable sectors), the CAP will have less relevance on farmers’ choices, and market forces will likely be the predominant factor in the evolution of the farm operations. To prevent intensification in such cases, a more global response is needed, for example via interventions on the broader consumption system to induce the right signal on the evolution of agricultural practices (see Chapter 5).