According to the EC, within the EU, 43% of the land is utilised by agriculture. As of 2007, arable land accounted for 25%, while permanent grassland took up 13%, and perennial crops only 3%. About 50% of the EU land area is farmland, and thus, beyond its role in food production, agriculture also has a very important land management function.
The Common Agricultural Policy (CAP) was the original rationale behind a common budget of the EU and remains the largest portion of the EU budget. The importance of agriculture for Europe’s economy and policy should therefore not be underestimated. Today the CAP represents about 40% of the total EU budget. Budget Heading 2, which deals with Protection and Management of Natural Resources, is set to average about €53 billion for the period 2007-2013. This expenditure currently impacts on about 80% of the EU territory and its environment, 40% of its population and about 5% of the working population, which is engaged in land-based activity and 3% of the EU GDP arising from agriculture.
Specifically the CAP budget impacts on the activities of rural entrepreneurs who could most probably deliver more environmental services beyond food production, such as climate change mitigation, watershed services (regulation and purification) and biodiversity conservation, if they get the right policy signals. But at this stage, there are clear market failures and the cost of producing more environmental services cannot be solely supported by rural enterprises, especially in a volatile market sector driven by the world wide economy. There is a requirement on the part of society that land managers provide not only private goods, such as food, fibre and fuel, but also public goods, goods that we all benefit from. Examples of agronomic ecosystem services include, among others, pest and disease regulation, pollination, nutrient cycling, water retention, soil conservation, climate regulation and other landscape values. Though these are indispensable benefits, they are not currently valued by the market and proper public payment for delivering such public goods and services are not yet guaranteed.