The Impacts of the CAP on Water Demand for Irrigation in the Mediterranean

2. The Impacts of the CAP on Water Demand for Irrigation in the Mediterranean A literature review A. Scardigno, CIHEAM-IAM.B D. Viaggi, University of Bologna

3. Outline of the presentation • Brief description of CAP • Irrigated agriculture in the Mediterranean Members States • Main findings of the literature review • on crops • on irrigated surface area • on water demand

4. The Common Agricultural Policy • In 2003 the EU passed the third major reform of its Common Agricultural Policy (CAP) followed by a reform of Mediterranean commodities in April 2004 and by the reform of the organization’s sugar • The MTR is part of an evolutionary process that began with two previous reforms in 1992 (MacSharry reforms) and 1999 (Agenda 2000)

5. Mid-Term Review • It was decided in 2003/2004 with progressive implementation from 2005 onwards • It applies to a larger numbe of sectors milk, rice, cereals, oilseed and protein crops, nuts (first wave), tobacco, cotton, olive oil, hop (second wave) and sugar beet

6. Objectives of the MTR • More market-oriented and less trade-distorting agriculture • Strengthening of rural development policy • Financial discipline • Environmental considerations

7. Key elements of the MTR (1) • the introduction of a single payment scheme independent from production (DECOUPLING), (limited “coupled” elements can be maintained in order to avoid abandonment of production) • SPS is qualified by the respect of environmental, food safety, animal and plant health and animal welfare standards, as well as to the requirement to keep all farmland in Good Agricultural and Environmental Condition (CROSS COMPLIANCE)

8. Key elements of the MTR (2) • a reduction in direct payments for bigger farms to finance the new rural development policy (MODULATION) • a mechanism for financial discipline • the revisions on some CMOs (price cuts in the milk sector; reduction of the monthly increments in the cereals sector by half, reforms in the rice, durum wheat, nuts, starch potatoes and dried fodder sectors)

9. Rural Development Measures • Rural development policy is widened, it receives more EU funds and specific new support is also provided •Food quality •Animal welfare •Measures promoting the adaptation and development of rural areas •Farm Advisory Service•Long-standing rural development measures (Investments in farm businesses, young farmers, early retirement, training, Less favoured areas and areas subject to environmental constraints, Agri-environment measures, Processing and marketing of agricultural products, Forestry)

10. National Implementation (1) Italy and Greece opted for a full decoupling of cereal production, while Spain and France, retained a 25% of the payment as area based. The same different attitude is partially reflected in the cotton, tobacco and olive oil sectors.

11. National Implementation (2) • Only in few countries Cross compliance includes measures related to irrigation: requiring authorization for water abstraction in areas benefiting from CAP payments in France; recording groundwater abstraction and maintenance of irrigation equipment in Spain. • Measures addressing irrigation may be found also in the RDP: to improve water distribution networks and small water storage facilities (Italy) and to reduce the use of water for irrigation as a constraint in the standards for integrated or organic agriculture

12. Irrigation in Mediterranean Agriculture Source:our elaboration on FAO and EEA data

13. The literature reviewed • 34 studies have been collected and reviewed: France (7), Greece (1), Italy (12), Spain (7) and regional (7) • 23 of them are specifically targeted to investigate MTR effects on irrigated agriculture • Many of them focus on one specific product or sector

14. Methods (1) • Both mathematical programming models and a more simple approach are used • The former allows for simulations of water demand under different scenarios • Sometimes multiobjective mathematical programming techniques are used and results are under the form of economic, social and environmental indicators

15. Methods (2) • The latter is based on the comparison between net or gross margins of the crops for different policy scenarios with and without the CAP reform • Farmers’ behaviour is not explicitly considered and long-term validity of results is questionable

16. Scale and time horizon • All the analysed studies are carried out at a sub-national scale • Case studies represent the most important irrigation areas of the countries and are chosen on administrative basis or on irrigation districts basis • Scenarios are for both medium and long term but no dynamics is considered

17. Scenarios • Among the several components of the MTR decoupling is more studied • In some studies combined effects of CAP, market and water scenarios are simulated

18. Main Results: crops (1) • Main changes in cropping pattern occur within the COP sector that decrease as a whole. • Both irrigated and not irrigated COP crops decrease

19. Main Results: crops (2) • Durum wheat and maize reduce almost everywhere • Soft wheat, barley, oliseeds -sunflower- and fodder crops somewhere replace them • Fruit and vegetables also increase

20. Main Results: crops (3) • Cotton, tobacco and sugar beet are heavely affected by the MTR. In particular conditions these crops disappear completely • On the contrary olive oil seems to be not affected by the MTR • Minimum cultivation (GAEC) increases

21. Main Results: water demand (1) Effects on water demand depend on a lot of factors: • if the “decoupled” crop was irrigated before the reform • if the “new” crop is more or less water demanding • if there is a change in the irrigation technique • if crop alternatives are possible Reform affects the “opportunity” cost of irrigated crops.

22. The IS area of “reformed” crops decreases Rain-fed and less water demanding techniques and crops appear decreasein the Water Demand A The IS area of “reformed” crops decreases More water demanding irrigation techniques and crops like horticultural and fruit crops occur increase in the Water Demand B Main Results: water demand (2) Two main trends are expected for irrigated surface (IS) and water demand (WD) :

23. WATER DEMAND is more remarkable when: • the water intensity of the “decoupled”crops is higher • the differences between irrigated and non irrigated crops yields are lower • the irrigation costs are higher • there are few alternative crops and irrigation techniques A This result prevails in most reviewed casesSouthern and Central France -7% (Buisson, 2006), Midi-Pyreneees –4% (CACG,2006), Guadalquivir irrigation district, -20% (Blanco-Fonseca, 2006), Pella,-8% (Manos et al.,2004), Central Italy, -3% (Dono, 2006) Main Results: water demand (3)

24. WATER DEMAND is more remarkable when: • the water intensity of the “decoupled”crops is lower • there are more alternative crops • the differences between irrigated and non irrigated crops is higher • the irrigation costs is lower This result prevails in the less specialised farms localised in the more productive area: Guadiana irrigation district, 2% (Blanco-Fonseca, 2006), Aragon (Albiac-Murillo, 2004). B Main Results: water demand (4)

25. The Impact of AEM • The difficulties to assess the impact of AEM are generally recognized • Such impacts although likely to be significant are difficult to evaluate at this stage. A part from their immediate impacts on farming practices, results on changes in water quality, water demand and ecosystems are still limited • In 2005 an evaluation study of AEM was financed by the European Commission

26. The Impact of AEMs Water quality is a priority in Finland, Sweden, Greece, Ireland, Denmark, France. AEM portfolio varies a lot. Studies confirm the favourable effects of the following measures: •Redu-ction of agricultural inputs •Transfer reduction of agri-cultural pollutants •Diversification of rotations, maintenance of grass-lands, arable reversion to grassland and extensification •Organic farming Only Spain, France and Portugal have defined quantitative water management as one of their main agri-environmental issues. In these cases AEM obtained valuable results in the reduction of water consumption and in recovering water tables (i.e. Tablas de Daimiel National Park in Castilla-la-Mancha)

27. Conclusions (1) • Crops with a substantial comparative advantage in the previous payment scheme (maize, cotton and durum wheat) reduce • When the production for some crops -such as cotton and tobacco- is highly concentrated in marginal areas, special consideration should be given to the effects of decoupling on the abandoning of production that generates significant negative impacts on rural development

28. Conclusions (2) • A regional polarisation between regions already specialized in COP cultivations and regions not specialized which are likely to regress especially in the inland and mountain areas • More marked effects in terms of reduction of water demand are expected from the forthcoming reform of CMO of fruit and vegetables and wine sector • Results on water demand are sensitive to market price product trend as confirmed by the last season 2006-2007 for maize

29. Conclusions (3) • Even though one of the main goals of the MTR is the environmental protection, the results obtained show no definitive reduction of water demand unless additional measures are introduced • Cross compliance and good agricultural and environmental conditions could contribute to achieve this objective even though no clear evidence of their effects is available at this stage. Specific analyses of the potential of these instruments is needed.

30. Conclusions (4) • WDM is not a major concern of the CAP and, accordingly, CAP impacts on water quality and -even more- on water quantity issues are limited • ….However…

31. Conclusions (5) • Decoupling can provide the basis for making water pricing work • Specifically WDM-oriented policy measures can be included in the CAP in order to “facilitate” other policies such as the WFD i.e. A new article introduced by Commission under the last RDR which aims to “..compensate for costs incurred and income foregone resulting from disadvantages in the areas concerned related to the implementation of […] Directive 2000/60/EC”.

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33. Definition of decoupling • Only subsidies that do not depend on current prices, factor use, or production can be considered fully decoupled from farm production decisions • A policy is decoupled if it has no or minimal impact on production and trade. A fully decoupled payment would be made irrespective of market conditions such as: current prices, factor use, or production

34. The main support price/direct aid decisions • Cereals: Intervention price and direct payment of EUR 63/tonne retained, but monthly increments reduced by 50 %. Rye excluded from the intervention system but Member States whose rye production is very significant can receive an additional 10 % of the modulation money raised in the Member State concerned in order to assist, within the framework of rural development measures, rye producing regions; • Protein crops: The current supplement for protein crops (EUR 9.5/tonne) will be maintained and converted into a crop specific area payment of EUR 55.57/hectare. It will be paid within the limits of a new Maximum Guaranteed Area of 1.4 million hectares; • Grain legumes: The current regime remains unchanged for 2004-2005. Thereafter it will be integrated in the single payment regime; • Durum wheat: The supplement for durum wheat in traditional production zones will be paid independently from production. Member States may decide to keep 40 % linked to production. It will be fixed at EUR 313/hectare in 2004, EUR 291 in 2005 and EUR 285 from 2006 and included in the single payment scheme. The specific aid for other regions where durum wheat is supported, currently set at EUR 139.5/hectare, will be phased out. The cuts will be implemented over three years, starting in 2004 (EUR 93/ha in 2004, EUR 46/ha in 2005 and zero thereafter). From 2004/05 introduction of a special premium of EUR40/tonne, depending on certain criteria; • Drying aids: Supplementary payment increased from EUR 19/ha to EUR 24/ha; • Starch potatoes: 40 % of the existing payment of EUR 110.54 per tonne of starch will be included into the single payment scheme, on the basis of historical deliveries to the starch industry. The remainder will be maintained as a crop specific payment for starch potatoes. The minimum price will be maintained, as will the production refund for starch; • Dried fodder: Support in the dried fodder sector will be redistributed between growers and the processing industry. Direct support to growers will be integrated into the single payment scheme, based on their historical deliveries to the industry. National ceilings will apply to take into account current National Guaranteed Quantities. The processing aid will be fixed at EUR 33/tonne in 2004/05;

35. The main support price/direct aid decisions • Support for energy crops: An aid of EUR 45 per hectare will be offered to farmers who produce energy crops. It will be applied on a Maximum Guaranteed Area, in the whole EU, of 1 500 000 hectares. Farmers qualify to receive the aid, if their production of energy crops is covered by a contract between the farmer and the processing industry concerned. Where the processing occurs on the farm concerned no contract is necessary. • Rice: The intervention price will be cut by 50 % to EUR 150/tonne. Intervention will be limited to 75 000 tonnes per year. To stabilise producers’ revenues, the current direct aid will be increased from EUR 52/tonne to 177/tonne. Of this, EUR 102/tonne will become part of the single payment scheme and be paid on the basis of historical rights limited by the current maximum guaranteed area. The Commission has been requested to renegotiate the bound duties for rice; • Nuts: the current system will be replaced by an annual flat rate payment of EUR 120.75/hectare for 800 000 hectares divided into fixed national guaranteed areas for almonds, hazelnuts, walnuts, pistachios and locust beans. Member States are allowed to use their guaranteed quantities in a flexible way. This aid can be topped up by an annual maximum amount of EUR 120.75 per hectare by Member States; • Dairy: The Council decided on asymmetric price cuts in the milk sector. The intervention price for butter will be reduced by 25 % (-7 % in 2004, 2005, 2006 and -4 % in 2007), which is an additional price cut of 10 % in addition to what has been already foreseen as a result of Agenda 2000. For skimmed milk powder prices will be cut by 15 % (3 steps from 2004 to 2006), as agreed in Agenda 2000. Intervention purchases of butter will be suspended above a limit of 70 000 tonnes in 2004, falling in annual steps of 10 000 tonnes to arrive at 30 000 tonnes from 2007. Above that limit, purchases may be carried out only under a tender procedure. The target price for milk will be abolished. Compensation (i.e. becoming part of the single payment scheme) is fixed as follows: EUR 11.81/tonne in 2004, EUR 23.65 in 2005 and EUR 35.5 from 2006 onwards. In order to provide a stable perspective for dairy farmers, the Council decided the prolongation of a reformed dairy quota system until the 2014/15 season. The general quota increases decided under Agenda 2000 will take place from 2006 onwards.