Executive summary
The European Union’s diverse agro-food sector is at a critical juncture, confronting climate change and successive crises such as the systemic shock of the COVID-19 pandemic and the war in Ukraine, while addressing the triple challenge facing food systems: ensuring food security and nutrition, providing livelihoods for actors in the food chain, and improving environmental sustainability.
Through the OECD’s Agro-Food Productivity-Sustainability-Resilience lens, this review, which draws lessons from the period 2014-22, shows that, in this ever-changing economic and policy environment, the EU agro-food system has demonstrated its resilience and has been able to keep productivity growing, in particular in post-2004 Member States, to reduce GHG emissions intensity, and to foster cross-country collaboration on innovation.
However, in recent years, agricultural productivity has increased at a slower pace than in other OECD countries, while the environmental sustainability performance of the sector has not improved in line with expectations. This stalled progress is not due to insufficient ambition or lack of resources, but rather to policy design and implementation.
The Common Agricultural Policy (CAP) 2023-27, which represents about one-third of the EU budget, includes promising new approaches and priorities. The CAP is considered strategic for the European Green Deal (EGD) agenda due to its potential for addressing environmental concerns, and is increasingly expected to deliver on broad food systems objectives that go beyond the agricultural sector.
The transition of the EU food systems calls for an overall transformation, where innovation will play a critical role in delivering sustainable productivity growth. Meeting the ambitious EGD objectives will require further reform, by redesigning payments, regulations, innovation and data strategies, as well as adopting new approaches to deliver environmental services.
Payments. Further redesign CAP payments into separate measures targeted at income support and environmental sustainability and align the CAP expenditures with environmental and climate priorities. Introduce specific mechanisms to incentivise performance by Member States, reduce total spending on decoupled income payments and phase out coupled support.
Regulations. Address the implementation gap on sustainability objectives, enhance regulatory design and overcome potential barriers that hamper innovation.
Innovation. Bring innovation to the centre of EU agricultural policy strategy to ensure that it effectively helps the sector to become more productive, sustainable and resilient.
Data. Strengthen the EU agro-food data strategy and enhance digitalisation to monitor policies, create awareness, facilitate knowledge exchanges and find innovative solutions.
Environmental services. Advance in the adoption of result-based multi-annual payments and collective action for environmental services when possible, and introduce reporting on results.
The EU agro-food sector needs to adapt to an ever-changing economic and policy environment. Following enlargement, the European Union has grown in membership to 27 countries and strengthened its position as one of the world’s largest agro-food players. Tackling the triple challenge food systems face is more difficult in the new policy context of growing environmental concerns and successive global crises. While recognising potential trade-offs with other objectives, the urgency of the climate and environmental situation means that the transition of the EU agriculture and food systems cannot be delayed. The systemic shock of the COVID-19 crisis, the war in Ukraine and its implications for food security, the need to halt and reverse the loss of ecosystem services and to adapt to climate change make improving resilience to unforeseen shocks and environmental sustainability even more urgent.
Productivity growth has been mild and not always associated with improved sustainability performance. Over the last 60 years, EU agriculture has expanded its production while transitioning from a growth model based on intensification to one driven by productivity growth, thanks to technology and efficiency gains. Nevertheless, long-term agricultural productivity growth in the European Union has been weaker than in other OECD countries. In many EU countries, biodiversity has declined, emissions continue to increase, and pressure on water has not eased. Despite increased efforts with new and more targeted measures, as well as increased funding, environmental performance has not met expectations.
The European Green Deal with the associated Farm-to-Fork and Biodiversity Strategies provide a new context for the Common Agricultural Policy (CAP). At about one-third of the EU budget, the CAP increasingly expected to contribute to objectives beyond the boundaries of the agricultural sector. While ensuring the food security of the European Union and contributing to global food security, the EU agro-food sector should also contribute to making Europe climate-neutral, protecting its diverse natural habitats and transforming the European economy in line with sustainability objectives.
The main challenge for the CAP is to overcome its path dependency and move towards a bolder and more forward-looking food systems policy. Recent CAP reforms have changed the way support is delivered, but have only resulted in incremental progress. Although the CAP 2023-27 is taking a performance-based approach with more flexible implementation at the Member State level much remains to be done to put the agricultural sector on a fully sustainable footing. An EU-wide, high-level discussion on the purpose of the CAP, the rights and responsibilities of farmers, and the financial weight given to income compared to environmental or other objectives is needed.
Going forward, the targeting of direct payments should be improved in light of the ambitious policy goals. Direct payments are the main tool to support EU agriculture, and efforts have been made to improve fairness and to better distribute payments. However, direct payments may have consequences in terms of keeping some farmers in uncompetitive activities, stifling innovation, slowing structural and generational change, and could weaken long-term resilience. In the short term, income support objectives should be met with targeted payments not only to be more effective, but also to allow more funding to be made available for voluntary payments for environmental services, and for investment in innovation and resilience. In the long term, the appropriate roles for agricultural and broader social policies should be reviewed.
There is currently a gap between policy ambitions on environmental sustainability and observable results. The stalled progress to date is due to policy design and implementation rather than insufficient ambition or lack of resources. A protracted policy reform process has often resulted in excessive flexibilities for Member States, and reduced incentives to implement policies with clear implications for environmental sustainability. Instead, such flexibilities allowed them to choose lower cost options with limited sustainability benefits. If the CAP is to be further reoriented towards environmental sustainability, this will require the re-instrumentalisation of support in the next programming period to improve the regulatory and economic incentives for farmers and policy makers in Member States to shift away from the status quo.
Research and innovation are key drivers in the transition towards more sustainable food systems but remained marginal in the 2014-20 CAP design. The resources devoted to agricultural knowledge and innovation systems (AKIS) ‒ through Horizon Europe and the CAP ‒ are limited compared to the total support provided to the sector. Although the European Innovation Partnership for Agricultural Productivity and Sustainability is an important initiative and investment in AKIS and digital technologies has high potential to make enhanced productivity and environmental sustainability mutually compatible, investment in and adoption of innovation remains a challenge. Moreover, as noted above, the incentives created by the broader policy and regulatory environment for agriculture may slow the innovation needed to ensure long-term sustainability.
The stalled progress has not been due to insufficient ambition or lack of resources but rather to policy design and implementation. Meeting the ambitious EGD objectives will require redesigning payments, regulations, innovation and data strategies, as well as adopting new approaches to deliver environmental services.
Payments. Reform the structure of the CAP and policy design to better reflect stated priorities and align with EGD objectives.
Strengthen the link between budget allocation and performance.
Strategically reorientate the CAP and the role of direct payments by separating and targeting measures aimed at income support and measures aimed at environmental sustainability, linking them to results and ensuring they do not undermine incentives for innovation and generational renewal.
Accelerate the transition to targeting income support to low-income farm households.
Increase the share of expenditures on innovation, information, training and advice.
Phase out market price support and payments with potential to harm the environment and to distort markets and trade.
Regulations. Address the implementation gap on sustainability objectives and innovation barriers via SMART (specific, measurable, achievable, relevant and targeted) regulations. Reconsider the role and scope of cross-compliance mechanisms to increase their cost-effectiveness. Design outcome-based regulations that do not hamper innovation, specifying their objectives and monitoring outcomes to increase effectiveness in promoting sustainability.
Innovation. Foster agro-food innovation, advice and skills as cornerstones of a new sustainable food systems approach. Enhance synergies between different policy signals to steer agricultural innovation efforts towards environmental sustainability. Promote innovation, skills and digital tools by encouraging EU Member States to improve their Agricultural Knowledge and Innovation System and establish their own agro-food innovation strategies. Develop a skills agenda and strengthen the capacity and impact of advisory services in guiding the transformation of agriculture towards innovative and sustainable pathways.
Data. Strengthen data-driven policy design, assessment and monitoring. Expand the EU agro-food data strategy to respond to the triple challenge facing food systems. Dedicate CAP budget to investments in the data needs of farmers, food chain actors and policy makers. Embrace and promote digitalisation as an enabling technology to monitor policies, create awareness, facilitate knowledge exchange and find innovative solutions leading to sustainable productivity growth. Allocate part of the CAP measures to adopt innovative digital technologies to address the main challenges and needs farmers face and facilitate the offer and use of such technologies by advisory services.
Environmental services. Adopt result-based payments for environmental services and collective action when possible, and introduce reporting on results. Transform voluntary schemes into result-based multi-annual payments for environmental services to increase policy performance and offer farmers additional sources of revenue. Use pilot experimentation to promote collective action and consider introducing collective incentives. Require reporting on results by the beneficiaries of the payments for environmental services.