European Commission
Directorate-General of Agriculture
Info-Paper
October 1999

1. Beyond its primary function of producing food and fibre agriculture contributes to the achievement of a number of other important societal goals. Societal goals evolve and it is therefore crucial that appropriate policy measures be adopted in order to preserve the multifunctional role of agriculture. These policy measures should be tailored to meet specific goals in the least trade distorting way.

2. In informal paper AIE/40 the European Community provided a first contribution on the multifunctional character of agriculture, describing the concept from a European perspective. This second paper briefly presents the type of policy instruments the European Community envisages to achieve its different multifunctionality objectives.

3. As recalled in AIE/40 the Agreement on Agriculture recognises the need for a certain balance between the ongoing multilateral reform process of agricultural policies and Members’ non-trade concerns (NTCs). For the European Community safeguarding the existing multifunctional character of its agriculture, as well as enhancing its multifunctional role for the future, is such a non-trade concern.

4. For many WTO members the main non-trade concern with regard to agriculture is its multifunctional role. It may be useful to share with other members the EU’s views on multifunctionality, which over the years has increasingly become important for the European model of agriculture, although we believe that to a large extent other countries are in a similar position with respect to the policy goals described below.

5. The multifunctional character of EU agriculture rests on three main functions, which are to a large extent interlinked and provide a range of marketable and non-marketable outputs of interest to society. These three main functions are:

• producing food, feed and fibre (including industrial use of agricultural products);
• preserving the rural environment and landscape;
• contributing to the viability of rural areas and a balanced territorial development.

6. At its inception in the post war era the Common Agricultural Policy primarily focused on the first function, but increasingly the environmental and rural functions have grown in importance and become a main concern in the multifunctionality debate.

7. Some of the main preoccupations with regard to food production are adequate supplies at reasonable prices and food safety and quality. Historically this function has been under-pinned by a (price) support policy with regard to the supply aspect and by a regulatory framework for the food safety and quality aspects. In addition to the safety of the end product consumer preoccupations about how food is produced have increasingly come to foreground such as with regard to the use of biotechnology traceability and animal welfare aspects. Such concerns can in part be met through improving consumer information through labelling schemes.

8. The outputs of the food production function are mainly of a private nature and therein market forces should play an important role. However, as pointed out in the contribution on direct payments under production limiting programmes (AIE/29), in moving to a more market oriented policy and reducing price support the availability of the direct payment instrument plays a crucial role.

9. Where food production gives rise to negative external effects, such as pollution not reflected in the private costs, these can be tackled through regulatory policies (setting limits to the use of productive resources). Already the move away from high levels of price support should help reduce environmental pressures.

10. In the EU agriculture is the biggest land user. Agricultural activities over centuries have given rise to unique landscapes with a rich variety of semi-natural habitats and species dependent on the continuation of farming. The high cultural and nature values of the farmed landscape can be harmed by both the intensification of agriculture and the marginalisation or abandonment of agricultural land. The respect of minimum standards ensuring sustainable resource use and prevention of pollution can be considered to fall under good agricultural practice. It is perceived that rules of "good agricultural practice" are generally not seen as an infringement on private property rights. Under such circumstances, the polluter pays principle requires that compliance costs fall on the farmers. However in cases where society demands more from the farmer than what can be considered good agricultural practice, for instance preservation of certain landscape features or actions to enhance biodiversity, the farmer is providing a public good or service, which does not or not sufficiently come about without policy intervention. Agri-environmental payments remunerate farmers for the provision of such services. The calculation of agri-environmental payments is based on the principle of covering income foregone or costs incurred.

11. As the environmental services are very often supplied together with agricultural activities, some might argue that agri-environmental payments provide an incentive for production, incompatible with the requirement of no or minimal trade distortion. However, agri-environmental premia cover only the opportunity cost of pursuing environmental objectives. Revenues from market activities are deducted for the calculation of agri-environmental payments. In addition, the quite stringent production constraints agri-environmental contracts usually impose tend to severely reduce any production incentive effect.

12. Maintaining agricultural activities, in particular in remote or peripheral areas where there are few other possibilities of gainful employment, can help to prevent depopulation, the social and economic cost of which is high for society, and to ensure that human activities and presence are well-balanced throughout the territory. More generally, agricultural activities and on and off-farm diversification can contribute to the economic and social viability of rural areas and thus to a balanced territorial development. In many regions farming is an important ingredient of the socio-economic fabric of rural areas and of the cultural values society attaches to the countryside.

13. In the past the rural function of agriculture was (mainly) assured by the production support policy. Relatively high price support meant that also regions with higher production costs could survive. With further reductions in price support farming in many intermediate and less favoured areas, which in the EU make up a significant proportion of agricultural land use and the farmed landscape, could come under severe pressure. Other forms of support are needed to maintain agricultural activity and its environmental and rural functions in these areas. These should be so designed so as not to increase agricultural production in these areas (which in any case are a minor share of overall production), but be aimed at preventing the disappearance of agricultural land use and the rural livelihood attached to it in whole regions.

14. Under the recently decided Agenda 2000 reforms the so-called second pillar of the CAP comprising the environmental and rural functions has been reinforced, implying a further shift away from generic market support (the first pillar) to targeted agri-environmental and rural development measures. A range of programmes and measures have been brought under a common rural development regulation covering the accompanying measures to the 1992 reform (agri-environment, early retirement and afforestation), aid for structural adjustment and to young farmers, investment aids, processing and marketing aids, diversification aids and the less favoured areas (LFA) scheme to promote continued agricultural land use and low-input farming systems.

15. Together the agri-environmental and rural measures and other direct payments such as in the LFA aim at ensuring that farmers and other rural actors continue to meet society’s demand for environmental and rural services and thus contribute to safeguarding and enhancing agriculture’s multifunctional role.

European Commission
Directorate-General of Agriculture
Editor: Stella ZERVOUDAKI, EC DG VI A.II.1. This publication does not necessarily express the official views of the Commission. For further information: Rue de la Loi 200, B-1049 Bruxelles/Wetstraat 200, B-1049 Brussel - Belgium - Office: L/130-4/148A Telephone: direct line (+32-2) 295 32 40, exchange (+32-2) 299 11 11. Fax: (+32-2) 295 75 40 Telex: COMEU B 21877. Internet: http://europa.eu.int/comm/dg06/index.htm

* This document was submitted by the European Communities to the Process of Analysis and Information Exchange of the WTO Committee on Agriculture in September 1999.