Lecture 10.
CAP Pillar 2 policies: from socio-structural policy to rural development

What we want to learn about this topic

become familiar with the functions and activities supported by the CAP in terms of socio-structural and rural development policies
be able to describe the functioning of the second pillar of the CAP today.
understand the tension between the sectoral focus and territorial rationale for EU rural development policy

Short introduction to the issues

Definition of structural policy

EU agricultural structures policy originally comprised those measures intended to influence the pace and direction of the adjustment of agricultural structures over time. By agricultural structures is meant both the production structure of individual farms (the relative use of capital and labour, for example) as well as the size structure of holdings and the demographic structure of the agricultural industry. These measures were originally funded from the Guidance Section of FEOGA in contrast to price and market policy measures funded by the Guarantee Section. Examples of measures funded under EU structural policy include:

· improvement of the structures of production
· aid for investments in agricultural holdings
· installation aid for young farmers
· aid for vocational training in agriculture
· aid for mountain and hill-farming and farming in other less favoured areas
· aids to encourage farmer retirement
· improvement of processing and marketing structures for agricultural products
· start-up aid for producer groups marketing agricultural products
· investment aid for the food industry
· improving the environment
· protection for environmentally sensitive areas
· aid for organic farm production

More recently, this agriculture-focused view of structural policy has merged with wider issues of rural development into an integrated EU rural development policy supporting both the multi-functionality of agriculture and the economic improvement of rural areas. This is now seen (post Agenda 2000) as the second pillar of the CAP. However, advocates of rural development were disappointed that Agenda 2000 did not make greater strides in that direction and EU rural development policy remains heavily farm-based. There has been only incremental change in the new Rural Development Regulation which will run from 2007-2013.

Objectives of EU structural policy

Thus the story of EU structural policy is one of evolution from a uniform, farm-oriented policy based on so-called 'horizontal measures' through regionally-differentiated programmes to the post-Agenda 2000 emphasis on rural development in which countries and regions can choose from a wide menu of programmes. This is reflected in its changing objectives over time.

Initial objectives were:

To create equal conditions of competition throughout the EU by preventing different national aids policies from distorting competition (a policing role)
to contribute to greater farm and food industry efficiency by improving production, processing and marketing structures (a modernisation role)
to contribute to narrowing disparities in income and productivity between farms and between EU regions (a cohesion role)

Subsequently more emphasis has been put on policies:

to help restore equilibrium between production and market capacity (a market management role)
to contribute to protection of the environment (an environmental protection role)
to promote integrated rural development (heavy emphasis on participatory and bottom-up approaches)

Drivers of change in structural policy include:

The growing diversity of EU agriculture, accentuated by successive enlargements, has moved the EU away from a one-size-fits-all policy.
The growing structural food surpluses from the late 1970s on which reduced the EU's willingness to fund farm modernisation likely to expand production.
Growing unemployment in Europe which also reduced willingness to accelerate structural amalgamation of farms.
An increasing awareness that economic development in rural areas can depend less in the future on agricultural development alone.

Early evolution of EU structural policy 1964-1987

First phase 1964-72: Rubber-stamping of national policies
Second phase 1972-early1980s: horizontal directives aimed at increasing productivity and promoting structural change in agriculture; continuation of aid to processing and marketing of food products
Third phase: 1980s: hesitant steps away from a farm focus to a more regional and rural development focus as well as first recognition of environmental impact of farming (Integrated Mediterranean Programmes, Western Package, new agricultural structures Regulation 797/85 in 1985).

The 1988 Framework Regulation on EU Structural Funds

The Framework Regulation redefined the objectives of the EU's Structural Funds, and introduced the objective of rural development for the first time.

Five objectives in all were specified.

Objective 1: promoting the development and adjustment of regions whose development is lagging behind
Objective 2: converting regions affected by industrial decline
Objective 3: combatting long-term unemployment
Objective 4: occupation integration of young people
Objective 5: (a) adapting production, marketing and processing structures for agriculture and (b) promoting the development of rural areas.

The Regulation also introduced significant changes in the disbursement of structural funds:

geographical concentration on underdeveloped regions
multiannual programming
additionality
partnership

Programming of Structural Funds in Objective 1 regions organised through Community Support Frameworks.

Each tranche of Structural Funds begins with the preparation of a National Development Plan which, after negotiation with the Commission, results in agreement on a Community Support Framework (CSF)
The CSF consists of a number of Operational Programmes each targeted on overcoming structural deficiencies in a particular area. Under the 1994-99 Irish CSF, for example, two OPs were of interest to agriculture: the Operational Programme for Agriculture, Rural Development and Forestry, and the Local and Urban Development Operational Programme.
Each OP consists of a number of measures and sub-measures, together with an estimate of EU, state and private funding to be provided over the period of the CSF
performance indicators are set out for each measure, and there is a regular system of monitoring and evaluation which reports through a Steering Committee for each OP to the Central Monitoring Committee made up of government, the social partners and EU representatives. This committee has the power to re-allocate funds across programmes in the light of expenditure developments and changing priorities.

The LEADER Community Initiative

pilot programme on integrated rural development

MacSharry CAP reform accompanying measures

agri-environment measure
early retirement incentive
afforestation measure
in a break with tradition, all were funded from the FEOGA Guarantee Section, not the Guidance Section
(the Agenda 2000 reform added the less favoured area scheme as an accompanying measure though it long pre-dates the MacSharry reform)

Summary: Evolution of EU rural development policy 1988-1999

Future of Rural Society document 1988

Recommended that thrust of EU policy should be an integrated approach based on indigenous resources
Reform of the Structural Funds 1988

The 1988 reform introduced support for rural development programmes especially in Objective 1, 5b and 6 regions.
LEADER Initiative

a Community Initiative operating in Objective 1, 5b and 6 regions with the aim of stimulating innovative rural development initiatives at local level launched in 1991
MacSharry reform introduction of accompanying measures funded from the FEOGA Guarantee Section 1993
The Cork Declaration on Rural Development 1996

set out to put sustainable rural development at the top of the EU agenda, but never ratified by the Council of Ministers

EU rural development policy post Agenda 2000

Basic principles

The multifunctionality of agriculture, i.e. its varied role over and above the production of foodstuffs. This implies the recognition and encouragement of the range of services provided by farmers.
A multisectoral and integrated approach to the rural economy in order to diversify activities, create new sources of income and employment and protect the rural heritage.
Flexible aids for rural development, based on subsidiarity and promoting decentralisation, consultation at regional, local and partnership level.
Transparency in drawing up and managing programmes, based on simplified and more accessible legislation.

Main elements

The rural development arm of Agenda 2000 draws together many previous structural policies under a single rural development heading. The measures included can be summarised as follows:

Investment in farm businesses, designed to reduce production costs, improve product quality, protect the environment, meet animal welfare/hygiene requirements or diversify agricultural activities
Human resources, where the three strands are helping people under 40 enter farming, providing financial support for those taking early retirement from farming and training.
Less-favoured areas and areas subject to environmental constraints where payments are available (per hectare) for farmers.
Forestry, under which assistance if provided for production, processing and marketing of forest products. Per hectare payments are also available to cover management costs (up to five years) and for loss of income from afforestation (up to 25 years).
Improving processing and marketing of agricultural products, including assistance for researching new market outlets and developing greater value added
Agri-environment measures, under which annual per hectare payments compensate farmers who incur income losses and additional costs while undertaking environmental measures beyond normal farming practices and legal requirements
General development and structural adjustment of rural areas measures which assist integrated rural development and cover many activities including provision of basic services for rural communities, preserving rural heritage, diversifying economic activities, improving rural infrastructure and promoting tourism.

In addition, two horizontal measures were introduced in Agenda 2000:

environmental cross-compliance. Member states are required to define environmental criteria, breach of which will result in penalties, including possibly the reduction or removal of support from an individual farmer.
modulation. This permits individual governments, if they wish, to reduce and redirect the compensation payments on the basis of certain criteria. For example, payments can be reduced to producers on the basis of labour employed being below nationally-determined thresholds, or farm income being above nationally-determined levels, or total direct payments being above nationally-determined levels. Any clawbacks in payments cannot exceed 20% of the total pre-reduction payment and the money saved should be used to fund the four 'accompanying measures' defined above.

Procedural innovations

Simplification of Structural Fund objectives to three. Existing Obj. 5b regions are absorbed into new Obj. 2.
Simplification of Community Initiatives to four, one of which is LEADER Plus as a successor to LEADER.
A single Rural Development Regulation (Council Regulation (EC) No 1257/1999 of 17 May 1999) replacing nine previous regulations covering different aspects of structural and rural development policy.
To ensure that all rural areas in the Community are covered by the rural development policy, the measures provided for in the Rural Development Regulation are included with other interventions under the Structural Funds in the following multiannual programmes:
- In Objective 1 regions, rural development measures are integrated with other measures promoting their development and structural adjustment;
- In Objective 2 regions, rural development measures accompany the other measures supporting the social and economic reconversion of areas defined as rural;
- Rural areas not included in either Objective 1 or Objective 2 areas may also submit multi-annual rural development plans.

Financing innovations

the FEOGA Guarantee Section now finances support for early retirement, less-favoured areas, agri-environment measures and afforestation of farm land (note less favoured areas moved from Guidance Section) in all regions
other rural development measures are financed by the FEOGA Guidance Section in Objective 1 areas
other rural development measures are financed by the FEOGA Guarantee Section outside Objective 1 regions.

Critique and evaluation

despite the emphasis on a multisectoral and integrated approach to rural areas, the sectoral function (devoted to agriculture) still dominates with 90% of expenditure in the second pillar, compared to 10% of expenditure on the territorial function (devoted to the viability of rural areas).

Pillar 2 in the 2007-2013 Financial Perspective Period

Three issues of note:

a new Rural Development Regulation was agreed in September 2005. This enlarges the menu of options available to the regions and member states when drawing up their rural development plans. [Irish Department of Agriculture and Food summary] The key framework for the new Regulation is the distinction between three Axes (four if LEADER is included), each of which must receive a minimum level of funding in rural development programmes.
a new single European Agricultural Fund for Rural Development has been established to fund all rural development measures, in place of the mixed Guarantee and Guidance funding under Agenda 2000.
provides diminished resources under the new Financial Perspective 2007-2013, despite the rhetoric of the need for increased emphasis on rural development and the introduction of compulsory modulation in the Luxembourg Agreement 2003.

Reading suggestions

Wye Group Handbook, 2005, A Summary of EU Agriculture and Rural Development Policies, Annex 2, Rural Households' Livelihood and Well-Being, UNECE.
(a short summary of the evolution of the CAP Pillar 2 policy)

Saraceno, E., 2002, Rural Development Policies and the Second Pillar of the Common Agricultural Policy, mimeo.
(Ms Saraceno worked in the Group of Policy Advisors in the European Commission on rural development issues. The paper is up to date but more detailed than is necessary unless you have a particular interest in this issue).

The European Commission, Proposal for a Council Regulation on support to Rural Development by the European Agricultural Fund for Rural Development, Commission Staff Working Document, Extended Impact Assessment, SEC(2004) 931, Brussels.
(sets out the rationale and proposed changes in the new Rural Development Regulation. This Impact Assessment was subsequently updated in SEC(2005) 914 containing new sections highlighting the key Community objectives for rural development, the new reporting system and the timetable for programming deadlines. The European Union's strategic guidelines for rural development were published in July 2005).

[Shorter briefs on EU rural development policy]. The CAP Reform: Rural development brief on the DG Agri website summarises the operation of the 1999 Rural Development Regulation in the 2000-2006 period. The proposed implementation of rural development policy in the 2007-2013 period is discussed in a later fact sheet. Another brief 'Putting rural development to work for jobs and growth' deals with EU rural development policy in the context of the Lisbon strategy. DG Agri has prepared a powerpoint presentation on the new rural strategy (prepared around mid-2005) which summarises the key points. More generally, there is much information on this website on EU policies of rural development interest.

There is a useful discussion of EU rural development policy in chapter 5 of the House of Lords Report, The Future Financing of the Common Agricultural Policy. [download full report as pdf file] [access html version of chapter online]

Pezzini, M., 2000, Rural Policy Lessons from OECD Countries, Federal Reserve Bank of Kansas City, Economic Review, Third Quarter, 2000.
(discusses the rationale for rural policy and identifies some key issues for rural policy-making. Short background article which helps to set the scene for EU rural development policy)

Supplementary reading:

Government of Ireland, National Development Plan 2000-2006, Dublin, Stationery Office, 1999, Ch. 11 'Rural Development' (plan can be downloaded but its a large file so better to consult it in the Library)
(sets out how Ireland intends to spend the current tranche of EU agricultural structural funds under the second pillar)

Department of Agriculture and Food, 1999, CAP Rural Development Plan, 2000-2006, Dublin, Stationery Office.
(covers the four accompanying measures - but best overall starting point is the Heritage Council report which is next item)

Gwyn, D., L. Jones, E. Bignal, L. Lysaght, D. Baldock and J. Phelan 2003, A Review of the CAP Rural Development Plan 2000-2006: Implications for Natural Heritage, The Heritage Council, Kilkenny, Ireland.
(evaluates the four measures which make up the CAP Rural Development Plan in Ireland, primarily from an environmental perspective, and thus concentrates mainly on the REPS scheme, but introductory chapters are useful in setting the scene and describing the relationship between the RDP and the agricultural measures in the National Development Plan)

AFCon Management Consultants in association with University College Cork, 2003, CAP Rural Development Plan: Mid-Term Evaluation, Department of Agriculture and Food, Dublin.
(This document evaluates the measures contained both in the CAP Rural Development Plan and the agricultural measures in the National Development Plan. It is a zip file of a very large document running to 385 pages - the zip file itself is 2MB! If you want to look at it, I suggest you read Part 1 (Summary and Conclusions) and Part 2, Chapter 1 (Backgtround and Introduction) .

Lecture 10. CAP Pillar 2 policies: from socio-structural policy to rural development