High Nature Value Farming Systems in Italy: a Policy ...

High Nature Value Farming Systems in Italy: a Policy Perspective

ANTONELLA TRISORIO* ANDREA POVELLATO* ANDREA BORLIZZI

* NATIONAL INSTITUTE OF AGRICULTURAL ECONOMICS (INEA) ROME, ITALY

Executive Summary

The recent policy debate has shed some light on the need to address farming activities towards a more sustainable path, though maintaining its primary function of food production, and has advocated for a reallocation of payments towards low intensity farming systems, in order to reward farmers as main providers of public goods. Aim of this paper is to investigate the potential use of High Nature Value (HNV) indicators in the definition of payment schemes in favour of HVN farms. After a description of the temporal evolution of the concept of HNV farming, we begin our analysis with the identification of the main HNV farming systems in Italy according to a combination of land use and intensity of farming dimensions based on FSS dataset. Then, an economic and structural characterization of HNV and non-HNV farms is provided on the basis of FADN data. The main results are the following: about 15% of Italian farms and 24% of the Utilised Agricultural Area are potentially of High Nature Value, with very high share in mountain and hill areas. The two most representative HNV farming systems are “Permanent grassland” and “Low-Intensity livestock systems”, which in total accounts for about 74% of total HNV farmland; common lands account for more than 30% of total HNV farmland. More than one fourth of HNV farmland is managed by farmers over-sixty and hence at risk of abandonment in absence of generational turnover. HNV farms, moreover, are characterised by smaller economic size and a greater dependence on subsidies than non-HNV farms. Support to HNV farms is therefore needed to maintain their viability and their provision of public goods over time. This should be realized through a proper and well targeted support scheme, even drawing from the available tools properly reshaped and targeted on HNV farming. Possible policy measures are those rewarding farmers' maintenance of semi-natural features (hedgerows, stonewalls, buffer strips, ponds, small area of woodland and ecological corridors), including recovery of the ecological structure in intensively managed areas, or the maintenance of certain low-intensity traditional practices. On the other side, measures favoring generational turn-over, especially in mountain areas and for small farms, would indirectly help tackling the abandonment of HNV farms, along with a more targeted and effective use of investment aid, with adequate payments in natural handicap areas, and with a wide use of advisory systems. In order to define well-targeted policy measures, however, there is a need for refining the broad picture on HNV farming systems with the characterization of individual HNV farming system at local level. Therefore it is urgent to improve data systems and integrated economicecological approaches.

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Introduction The biodiversity decline observed in the last decades in European territory is partly due to intensification and gradual abandonment of low-intensity farming and of marginal lands, which lead to the decrease of small traditional farms and, at the same time, to environmental and landscape degradation. Indeed, technological change, economic and social drivers, and past Common Agricultural Policy have often driven past farmers’ choices towards more intensive agricultural activities. The recent policy debate has shed light on the need to address farming activities towards a more sustainable path, though maintaining its primary function of food production, and has advocated for a reallocation of payments towards low intensity farming systems, in order to reorientate Common Agricultural Policy towards society’s expectation and to reward farmers as providers of public goods (EEA, 2009; European parliament, 2010; BirdLife International et al., 2009). High nature value (HNV) farming, as defined by Baldock et al. (1993), came to attention during the nineties when the positive role of agriculture towards biodiversity was debated both in theory and in practice. Then the concept of HNV farming evolved in the framework of both the integration of environmental concerns into the Common Agricultural Policy and the adoption of the European model of multifunctional agriculture. Within this framework, HNV farmland and the associated farming systems1 have increased their policy relevance, until their protection and enhancement became one of the strategic priorities in the implementation of European Rural Development Policy: the Community Strategic Guidelines for Rural Development (European Council, 2006) identified “biodiversity and the preservation and development of high nature value farming and forestry systems and traditional agricultural landscapes” as one of the three EU-level priority areas to protect and enhance the EU’s natural resources and landscapes in rural areas. Subsequently, in order to monitor and evaluate the results and impacts of Rural Development programmes on biodiversity, HNV farmland indicators have been included within the Common Monitoring and Evaluation Framework (CMEF). Due to the increasing importance of the conservation value of HNV farmland, the debate on HNV farming is evolving within both the policy arena and the scientific world. Andersen, et al. (2003) developed three different and complementary approaches to identify HNV farmland indicators: land cover, farming systems and the distribution of wild species, specifically birds. As specified by Cooper et al. (2007) “it is the combination of suitable land covers and features, the “state”, with appropriate management, the “driving force”, that creates the conditions for a farming system to be HNV”. Refinements and updating of methodological issues have been conducted with particular attention to the land cover approach (i.e. Paracchini et al. 2006, 2008), whereas only a few studies have been based on the farming system approach (Andersen, et al., 2003, Pointereau et al., 2007, Osterburg et al., 2008). In the meanwhile, the European Evaluation Network for Rural Development (EENRD) provided a guidance document on the implementation of the HNV farmland indicators (Beaufoy and Cooper, 2008) based on a previous specific study (Cooper, et al., 2007) funded by the European Commission. Aim of this paper is to investigate the potential use of HNV farmland indicators in the definition of payment schemes in favour of HVN farms. In particular, we concentrate the analysis on HNV farming system indicators that provide insights into the management needs of HNV farmland, thus allowing for a better targeting of policy measures. The policy relevance of the farming system approach derives from the direct link to the farm, which represents the physical place where decisions on land use and management are taken. The farming system approach focuses on the 1

HNV farming systems are defined as “low intensity farming systems (…) that are likely to promote the maintenance or enhancement of nature value” (Andersen et al., 2003, p. 19).

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management of farmland and of natural resources, and aims at identifying types of farming systems according to their ability to maintain or enhance the nature conservation value of the farmland. Data and methodology The identification of HNV farming systems has to start from the available data on land use at farm level. The most relevant European data collections are represented by the Farm Structure Survey (FSS) and the Farm Accountancy Data Network (FADN). Both surveys are realised with the aim of providing information on structural and socio-economic aspects of agricultural holdings, based on a common framework across EU Member States; FSS is based on a larger sample than FADN and its statistical representativeness is higher, although it provides less pieces of information than FADN database. The analysis has been carried out following two steps: 1) identification of HNV farming systems in Italy according to a combination of land use and intensity dimensions; 2) economic and structural specification of HNV farms. Step 1. The FSS collects comprehensive information on crops and animal species without any details on land use intensity. The survey of some farming practices and farmland features in the Italian 2005 FSS2, however, allows us to have an insight into the environmental dimension of the holdings and, then, to identify HNV farming systems subsequent to the definition of a farm typology by using the relative incidence of specific categories of crops and the size of livestock. The existing EU farm typology was designed to classify holdings according to the main source of income with the purpose of an economic analysis of holdings at EU level and within Member States. The classification is based on the calculation of standard income per production unit and on the proportion of each type of production in the holding's overall income. This economic criterion might be misleading in the case of analyses with environmental purposes. Therefore, we based the identification of HNV farming systems on a typology built upon physical information, namely: land use and size of livestock. Accordingly, we first, separated livestock systems from cropping systems (where the presence of livestock is not relevant al all) using a threshold of 2 Livestock Unit. Then, within the cropping systems, we identified four systems according to the land use dimension: specifically, the relative area of arable crops, permanent crops and permanent grassland (Fig. 1). Then, we selected HNV farming systems on the basis of a combination of two dimensions: intensity of farming and biodiversity, each of them characterized by a set of parameters/indicators. Specifically, the intensity of farming dimension was described by indicators such as absence of irrigation; minimum or no-tillage; crop rotation; green manure; grass covering, and livestock density3; the biodiversity dimension was described by indicators such as presence of olive groves4, of rice fields5 and of unfarmed features (hedgerows, small areas of woodland, etc.). Our data on unfarmed features, however, do not include the presence of stonewalls; therefore, the extent of HNV farming systems in Regions with a high proportion of stonewalls might be underestimated.

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The 2007 FSS does not contain information on some of the agricultural practices and farmland features collected with the 2005 FSS, such as the unfarmed features. 3 As to livestock density, three intensity thresholds has been fixed in order to take into account the different suitability of land, based on literature and expert judgments, and namely: 0.5 LU per hectare of forage area in mountainous areas; 0.75 LU/ha in hilly areas; and 1 LU/ha in plain areas. 4 Cfr. Beaufoy, et al., 1994; Beaufoy, 2009. 5 Very important habitats for birds and amphibians.

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Figure 1 – Types of farming systems

Presence of livestock (≥ 2 LU)

Specialist livestock if perm. grassland ≥ 50% UAA

Mixed livestock and crops

Absence of livestock (< 2 LU)

Specialist arable crops if ≥ 50% UAA

Specialist permanent crops if ≥ 50% UAA

Specialist permanent grassland if ≥ 50% UAA

Mixed crops

Step 2. The economic and structural specification of HNV farms was based on the selection of a random sample of farms drawn from FADN over-4 Economic Size Unit (ESU) farms6. The analysis was carried out on three-year (2003, 2004 and 2005) average values, providing more robust estimates. The classification procedure, shown in Trisorio et al. (2008), is different from the classification made on FSS dataset and is derived by Andersen et al.’s (2003) work. The parameters used to classify HNV farming systems are mainly related with the intensity of farming (input cost7, stocking density, presence of irrigation) and the presence of extensive habitats such as permanent grassland, fallow and pastures. Moreover, new stratifying structural and economic variables8 are introduced in order to characterise the two groups of farms (HNV and non-HNV) from an economic standpoint and to analyse the role of farm subsidies in HNV vs. non-HNV farms. Besides mere economic variables, finally, other quantitative and qualitative variables related with the labour factor have also been considered. Results Identification of HNV farming systems. According to our classification, more than 250,000 farms and almost 3 million hectares of Utilised Agricultural Area (UAA) in Italy are potentially of HNV, accounting for 15% of the total Italian farms and 24% of the total UAA (Tab. 1). The average UAA of HNV farms, in fact, is almost twice the average area of non-HNV farms (12 ha vs.6.5 ha, respectively); however, this can be due to the fact that 32% of the total HNV farmland (something less than 1 million hectares in total) is made up of common lands, managed in large part by relatively few public bodies (Fig. 2) with an average UAA of 453 ha, and which are surveyed as “farms”. Consequently, almost half the HNV farming systems are located in mountain areas, given the abundance of common grazing areas on Italian mountain ranges9, and 41% on hills, while only 9% of total HNV farmland is located in plain areas. More than two thirds of HNV farmland are covered by permanent grassland, while permanent crops only account for the 10% of the total HNV farmland, even though such percentage is higher in Central and Southern regions due to the presence of HNV olive groves. Finally, more than 16% of HNV farms undertake animal husbandry activities, with an average stocking density (0.2 L.U. 6

I.e. farms getting an over 4,800 Euros (1 ESU = 1,200 Euros) Standard Gross Margin and regarded in Italy as “commercial” farms. 7 It includes the costs of fertilisers, pesticides and concentrate feedstuff . 8 The variables are: Utilised Agricultural Area (UAA), Net Value Added (NVA), Annual Working Unit (AWU) , Net Value Added per ha, Net Value Added per AWU, Net Farm Income (NFI), Total Assets (TA), Return on Investment (NFI / TA), Family AWU (< 45 years old), Farmer age. 9 Common lands are mostly located in mountain areas, where they represent 26% of total UAA. Moreover, 98.9% of the agricultural area managed by public bodies is covered by permanent grassland.

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per hectare of forage area) and a number of livestock units per holding considerably lower to those characterizing non-HNV farms. Table 1 - HNV farming in Italy Not_HNV

HNV

Total

Number of farms

1.473.651

254.881

1.728.532

Utilized Agricultural Area (ha) Avg. Utilized Agricultural Area (ha) Avg. Gross Standard Margin (€) Utilized Agricultural Area composition (%) - field crops - permanent crops - permanent grassland

9.643.522 6,5 16.472

3.064.324 12,0 8.658

12.707.846 7,4 15.319

67,0 20,5 12,5

20,1 10,0 69,9

55,7 18,0 26,3

254.850

41.703

296.553

17,3 9.188.425 36,1

16,4 374.458 9,0

17,2 9.562.884 32,2

3,3

0,2

1,9

Number of farms undertaking animal husbandry activities Percentage of farms undertaking animal husbandry activities Total Livestock Units Livestock Units per farm Livestock Units per hectare of forage area

Source: FSS 2005.

Figure 2 - HNV farmland by legal personality (percentage of UAA)

Legal entity 7%

Other forms 4%

Public body 28% Holder manager 61%

Source: FSS 2005.

The most representative type of farming system in terms of share of the total UAA is “Permanent grassland”, which accounts for 42% of the total HNV area (almost 1.3 million of hectares) and 39% of total HNV farms (almost 100,000), followed by the “Low-intensity livestock Systems”. If 6

considered together, these two categories accounts for 45% of total HNV farms and almost three fourth of the total HNV farmland (Fig. 3). Moreover, 24% of small-scale farms, i.e. those farms with an economic dimension lower than 4 Economic-Size Unit (ESU), are potentially HNV, accounting for almost 12% of total HNV farmland. The mere use of FADN data, therefore, would underestimate the total extent of HNV farming systems by such entity. Finally, more than one fourth of HNV agricultural farmland is managed by farmers over sixty, and is therefore at risk of abandonment in the next years in absence of generational turn-over. Figure 3 - Types of HNV farming system in Italy (percentage of UAA) Mixed Low-intensity livestock permanent crops crops 9% 5%

Low-intensity arable crops 11%

Low-intensity mixed crops 1%

Permanent grassland 42%

Low-intensity livestock 32%

Source: FSS 2005.

Economic and structural specification of HNV farms. The FADN dataset allows to analyse the economic aspects of HNV farming systems and the role of CAP subsidies, as shown in Trisorio et al., (2008). The size of HNV holdings is larger than non-HNV ones only in terms of farming area (28 ha vs. 13 ha10), whereas the economic size as well as the number of worker units are definitely larger in non-HNV farms (Tab. 2). Nevertheless, the lack of good opportunities for the economic development seems to limit the ability of holdings to produce an adequate income. The mean value of the Net Value Added is16,000 Euros for the HNV farms, while 29,000 Euros for non-HNV ones. The difference is particularly evident in holdings in the plains and in the Northern regions. The larger economic size and the possibility of allocating the production factors in a more effective way determine a remarkable difference in terms of labour and capital productivity. The labour productivity of non-HNV farms is on average 33% higher than HNV ones on a national level, with even larger differences in Northern regions, probably because of the favourable soil-climatic conditions that allow farmers to choose among a larger number of productive combinations, thus favouring the specialised and intensive holdings. Also the return on investments is definitely higher in non-HNV farms than in HNV ones.

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These figures are different from those obtained by using FSS data because in the FADN dataset are only included farms characterised by an economic dimension greater than 4 ESU.

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Table 2 – Structural and economic profile of HNV and non-HNV farms

Utilised Agricultural Area (UAA) Net Value Added (NVA) Annual Working Unit (AWU) Net Value Added per ha Net Value Added per AWU Net Farm Income (NFI) Total Assets (TA) Return on Investment (NFI / TA) Family AWU (< 45 years old) Farmer age

HNV

non-HNV

Total

28,1 15.966 1,0 568 15.299 11.775 301.193 3,9 0,2 57,3

13,2 28.629 1,4 2.177 20.388 21.014 352.918 6,0 0,3 56,6

15,0 27.029 1,4 1.797 19.893 19.846 346.380 5,7 0,3 56,6

Source: FADN, Italy 2003-2005.

The total amount of subsidies received by HNV farms is slightly greater than the amount received by non-HNV farms (Tab. 3), even though the amount of subsidies per hectare is higher in non-HNV farms. Moreover, HNV farms are more dependent on subsidies than non-HNV ones; indeed, subsidies represent more than 40% of HNV farms’ Net Value Added (NVA), and only 20% of non-HNV farms’ NVA. Table 3 – Farm subsidies of HNV and non-HNV farms

Subsidies Subsidies on Net Value Added (%) Distribution of subsidies (%): - Direct Payments - Agro-Environmental Schemes - Less Favoured Areas Payments - Other RD measures - Other subsidies Subsidies per hectare Subsidies per Annual Working Unit /AWU) Net Value Added per AWU (without subsidies)

HNV

non-HNV

Total

6.823 42,7

5.673 19,8

5.818 21,5

74,3 13,2 5,5 4,5 2,5

87,7 5,2 1,2 4,4 1,4

85,7 6,4 1,9 4,5 1,6

243 6.537 8.761

431 4.040 16.348

387 4.282 15.611

Source: FADN, Italy 2003-2005.

Also the source of the subsidies is different between HNV and non-HNV farms: the latter rely more on direct payments, whereas HNV farms received a more significant part of the payments through the Agro-Environmental Schemes and the Less Favoured Area Allowance. The relatively higher share of HNV farms in mountain and other marginal areas can explain this difference. Our analysis confirms the results obtained by Osterburg et al. (2008) about the essential contribution of the subsidies to the economic viability of the HNV farms. The subsidies per Annual Worker Unit are greater in HNV farms compared to non-HNV farms, where the amount of subsidies reaches higher levels in terms of area units. Comparing the net-of-subsidies labour productivity (net value added minus subsidies per AWU) the dramatic difference between the two types comes out very clearly: the "net" labour productivity of the HNV farms (coming from the market) is half than the productivity of non-HNV farms. 8

Final considerations The analysis of HNV farming systems indicators allows us to point out the main features, weaknesses, and strengths of HNV farming systems, and provides us with useful information about the needs of policy interventions. HNV farming systems are mainly extensive, often traditional, farming systems with a high proportion of unfarmed features and semi-natural vegetation. Most of them are semi-natural grazing systems located in hill or mountain areas, characterized by low economic viability and high levels of subsidies for Annual Worker Units. Common lands represent a large part of HNV farmland. These systems are at risk of abandonment in marginal areas, and at risk of intensification in more productive areas. However, HNV farming systems are acknowledged as provider of a wide range of environmental and social public goods. This is a strong policy argument to justify HNV farming systems support. The main features of HNV farming systems discussed above suggest the need of both economic support measures to prevent abandonment and payments to prevent intensification or land conversion. This should be realized through a proper and well targeted support scheme, even drawing from the available tools properly reshaped and targeted on HNV farming. On the one side agro-environmental measures might be used to obtain the provision of particular environmental benefits through specific farming practices, such as the maintenance of semi-natural features (hedgerows, stonewalls, buffer strips, ponds, small area of woodland and ecological corridors), including recovery of the ecological structure in intensively managed areas, or the maintenance of certain low-intensity traditional practices. In some cases, these measures might be more suitable then those reducing input use. Indeed, in order to contain the increasing intensification of farming activities, cross compliance standards and green technologies might be more effective. In some cases a well maintained ecological structure may change to HNV even a relatively high-intensity agricultural land use. Moreover, the maintenance of unfarmed features is easier to check, even though the compensation should also take into account higher income losses due to the loss of utilized agricultural area. Nevertheless, further investigations are needed on the ecological role of the unfarmed features in the maintenance of biodiversity (Farmer et al., 2008). On the other side, measures favoring generational turn-over, especially in mountain areas and for small farms, would indirectly help tackling the abandonment of HNV farms, along with a more targeted and effective use of investment aid including adequate rates of grant, with adequate payments in natural handicap areas, and with a wide use of advisory systems. These measures should contribute to the medium-long term economic viability of HNV farms. Yet the problem of abandonment still remains a relevant issue, and requires also wider public intervention such as investments in public services and technology. Finally, about 30% of Italian HNV farmland is managed by public bodies that usually lease it seasonally to graziers. Common land users should be compensated for the environmental services they provide. A possible solution could be the development of collective agreements (BirdLife International et al., 2009), but further analyses are required to address this issue. Nevertheless, in order to have well-targeted policy measures, there is a need for refining the broad picture on HNV farming systems with the characterization of individual HNV farming system at local level. Therefore it is urgent to improve data systems and integrated economicecological approaches.

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