Agricultural policy and climate change: An integrated assessment of the impacts on an agricultural area of Southern Italy

Highlights

• Integrated ecologic-economic modelling at regional scale.

• Environmental implications of agricultural land use and land use change.

• Economic impact at farm-level.

Abstract

The European Union (EU) has recently reformed its Common Agricultural Policy (CAP) and, in parallel, has completely abolished the production quotas for milk. These changes will have important consequences for the use of land, of inputs (i.e., water and chemicals) and on the economic performance of rural areas. It is of interest to evaluate the integrated impact of these modifications and of climate change (CC), since the latter could neutralize or reverse some desired effects of the former. For this purpose, this paper evaluates the potential impact of the abolition of milk quotas, as well as of the reform of the first pillar of CAP in two different climate scenarios (present and near future). A bio-economic model simulates the possible adaptation of various farm types in an agricultural area of Southern Italy to these changes, given the available technological options and current market conditions. The main results show that the considered policy changes have small positive impacts on economic and environmental factors of the study area. However, some farm types are more affected. CC can effectively attenuate or reverse several of those effects, especially in some farm types. These results can inform the planning of future changes to the CAP, which will have to act in the context of deeper climate alteration.

Introduction

The European Union (EU) has recently reformed its Common Agricultural Policy (CAP) and, in parallel, has completely abolished the production quotas for milk. These changes will have important consequences for the use of land, of inputs (i.e., water and chemicals) and on the economic performance of rural areas in a context where farmers already cope with great uncertainty due to climate change.

To achieve the sustainability objective, the CAP 2014–2020 changed the basic tool of its first pillar, integrating the basic payment with additional allowances that farmers receive only when applying certain agricultural practices beneficial for the climate and the environment. This funding of EU-wide mandatory green standards through direct payments (greening) requires, among others, crop diversification and the maintenance of existing pastureland (Matthews, 2013). In addition, the CAP reform allocates part of the financial resources to coupled payments and provides convergence of the farm-based unitary entitlements to national average, which increases the basic payment to some farms and decreases it for others.

Many studies have been conducted to assess the impacts of the direct payment changes, especially using mathematical programming models. In the following section, a literature review has been conducted. Among the most recent, Cortignani et al. (2017), Gocht et al. (2017) and Louhichi et al. (2017) show that greening has limited impacts, that coupled payments result in more significant changes to gain environmental benefits and that the largest economic impact is due to convergence.

From February to May 2017, the European Commission held a public consultation on modernizing and simplifying the CAP (European Commission, 2017). Open to all interested EU organizations and citizens, it asked a series of questions about principles and priorities for the future CAP to inform a Commission Communication on the CAP post 2020, due in spring 2018. The results of the public consultation clearly demonstrate the important role the CAP is seen as playing and must continue to play with regard to maintaining and enhancing the environment in rural areas generally and on agricultural land specifically. Climate issues are also flagged as an area where the CAP should do more in the future, although views differ on where the focus of policy intervention should lie. The challenge now for the Commission is to develop proposals for a modernized and, in some sense, simplified CAP for the post 2020 era that champions these environmental and climate objectives as part of a package of measures that promote an economically robust and sustainable agricultural sector for the future.

Climate change (CC) affects agricultural land use and the economic performance of farms (Blanco et al., 2017). Many recent studies highlight these potential effects in different parts of Europe. Dono et al. (2016) showed that a greater use and availability of water is vital for adapting to CC in Italian Mediterranean agriculture. Nunes et al. (2017) studied an agricultural area of Portugal and reach the same conclusion about the role of water availability for the resilience of the farming sector to CC. Steidl et al. (2015) evaluated the impact of CC on hydrologic conditions and the agro-economy of an area in north-eastern Germany. They showed that a possible future increase of irrigation needs and water deficits for the entire area and for specific crops might limit the profitability of irrigation. Schönhart et al. (2016) showed that CC could increase productivity and the economic performance of the Austrian agriculture but could deteriorate the environmental conditions in rural areas. Mittenzwei et al. (2017) determined the combined effects of policy and climate uncertainty in Norway. They note that the uncertainty of CC and the policy may affect the performance of the farming sector, with repercussions for production, land use, income and social welfare. Finally, the CAP reform itself recognizes the relevance of these impacts when it defines sustainable growth in relation to CC mitigation and adaptation as an objective (European Commission, 2010; European Commission, 2011).

The purpose of this study is to assess the potential impact of the milk quota abolition and the reform of the CAP first pillar integrated with the potential effects of CC. The impact of these changes is evaluated under two climate scenarios (present and near future), whose outcomes are compared to derive the separated and integrated effects. We chose a relatively near future horizon (2020–2030) because this perspective is of great interest to study the interactions between possible CC, the current policies, and the responses of the existing farming systems. The analysis concerns a study area of central-west Sardinia (Italy), where different farm types operate, and assesses the potential impacts on land use, inputs (water, chemicals, feeds), and economic results. A Discrete Stochastic Programming (DSP) bio-economic model represents the existing productive conditions, specified for the main farm types, with uncertain conditions for crop yields and water requirements. A recent study in this area used a DSP model to evaluate the impact of CC (Dono et al., 2016). The current study modifies various structural aspects of that model, especially relating to livestock activities, allowing for adaptation strategies that modify the consistency of herds and flocks as reactions to policy changes and to CC.

The following overview highlights some major aspects of the reform of the first pillar and milk quota abolition, with a literature review of some recent research. The Materials and Methods section describes the study area, along with the climate, agronomic and livestock simulations submitted to the bio-economic model. The Results section reports the simulated scenarios and the impacts on the use of land, inputs, and economic results. Discussion and Conclusions reports critical reflections about this study and presents the policy implications and some policy considerations for the future of the CAP.