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European CAP Reform: an explanation of the main elements

The Commission, the Council and the European Parliament have reached a political agreement on the reform of the Common Agriculture Policy

Based on the Commission proposals from October 2011, the agreement relates to four basic European Parliament and Council regulations for the Common Agriculture Policy – i) on Direct Payments, ii) the Single Common Market Organisation (CMO), iii) Rural Development and, iv) a Horizontal Regulation for financing, managing and monitoring the CAP. The Commission is now preparing all the relevant Delegated and Implementing Acts so that the new rules can enter into force next year, or from January 2015 for most of the new Direct Payment arrangements. Separate "transition rules" for 2014 are being discussed and should be approved by Council and the European Parliament before the end of the year,

The main elements of the political agreement can be summarized as follows:

1. Direct Payments

In order to move towards a fairer distribution of support, the CAP system for Direct Payments will move away from one where allocations per Member State - and per farmer within the Member State - are based on historical references. This will mean a clear and genuine convergence of payments not only between Member States, but also within Member States. Moreover, the introduction of a "Greening Payment" – where 30% of the available national envelope is linked to the provision of certain sustainable farming practices – means that a significant share of the subsidy will in future be linked to rewarding farmers for the provision of environmental public goods. All payments will still be subject to respecting certain environmental and other rules [see "cross compliance" point 4 below horizontal regulation].

The Basic Payment Scheme (BPS): Member States will dedicate up to 70% of their Direct Payments national envelope to the new Basic Payment Scheme – minus any amounts committed for additional payments (Young Farmer top-ups, and other options such as Less Favoured Area top-ups, the Redistributive Payment) and "coupled" payments. For the concerned EU-12, the end-date for the simpler, flat-rate Single Area Payments Scheme (SAPS) system will be extended until 2020.

External Convergence: The national envelopes for direct payments for each Member State will be progressively adjusted such that there is not such a wide gap between Member States in the average payment per hectare. This will mean that those Member States where the average payment (in € per hectare) is currently below 90% of the EU average will see a gradual increase in their envelope (by 1/3 of the difference between their current rate and 90% of the EU average). Moreover, there is the guarantee that every Member State will reach a minimum level by 2019. The amounts available for other Member States who receive above average amounts will be adjusted accordingly.

Internal Convergence: Those Member States that currently maintain allocations based on historical references must move towards more similar levels of the basic payment per hectare. They may choose from different options: to take a national approach, or a regional approach (based on administrative or agronomic criteria); to achieve a regional/national rate by 2019, or to ensure that those farms getting less than 90% of the regional/national average rate see a gradual increase (by one third of the difference between their current rate and 90% of the national/regional average) – with the additional guarantee that each payment entitlement reaches a minimum value of 60% of the national/regional average by 2019 (unless Member States decide to limit the decrease in the value of entitlements). The amounts available to farmers receiving more than the regional/national average will be adjusted proportionally, with an option for Member States to limit any "losses" to 30%.

Member States also have the right to use a redistributive payment for the first hectares whereby they can take up to 30% of the national envelope and redistribute it to farmers on their first 30 hectares (or up to the average farm size in a Member State if higher than 30ha). This will have a significant redistributive effect.

Reduction of the payment for large farms : Agreement has been reached on compulsory reduction of the payments for individual farms above 150 000€ ("degressivity"). In practice this mean that the amount of support that an individual farm holding receives as basic payment will be reduced by at least 5% for the amounts above 150 000€. In order to take account of employment, salary costs may be deducted before the calculation is made. This reduction does not need to apply to Member States which apply the "redistributive payment" under which at least 5% of their national envelope is held back for redistribution on the first hectares of all farms. NB The funds "saved" under this mechanism stay in the Member State/region concerned, and are transferred to the respective Rural Development envelope, and can be used without any co-funding requirements. Member States also have the option of capping the amounts that any individual farmer can receive at 300 000€, also taking salary costs into account.

Young Farmers: In order to encourage generational renewal, the Basic Payment awarded to new entrant Young Farmers (no more than 40 years of age) should be topped up by an additional payment available for a period of maximum 5 years (linked to the first installation). This shall be funded by up to 2% of the national envelope and will be compulsory for all Member states. This is in addition to other measures available for young farmers under Rural Development programmes.

Small Farmers Scheme: Optional for Member States, any farmer claiming support may decide to participate in the Small Farmers Scheme and thereby receive an annual payment fixed by the Member State of normally between 500 € and 1 250 €, regardless of the farm size. Member States may choose from different methods to calculate the annual payment, including an option whereby farmers would simply receive the amount they would otherwise receive. This will be an enormous simplification for the farmers concerned and for national administrations. Participants will not be subject to cross-compliance controls and sanctions, and be exempt from greening. (The impact assessment showed that approximately one third of farms applying for CAP funding have an area of 3 ha or less – but this accounts for just 3% of the overall agricultural area in the EU-27.) The total cost of the Small Farmers Scheme may not be more than 10% of the national envelope, except when a Member State chooses to ensure that small farmers received what they would be due without the scheme. There will also be Rural Development funding for advice to small farmers for economic development and restructuring grants for regions with many such small farms.

Voluntary coupled support: In order to maintain current levels of production in sectors or regions where specific types of farming or sectors undergo difficulties and are important for economic and/or social and/or environmental reasons, Member States will have the option of providing limited amounts of "coupled" payments, i.e. a payment linked to a specific product. This will be limited to up to 8% of the national envelope, or up to 13% if the current level of coupled support in a Member State is higher than 5%.The Commission has flexibility to approve a higher rate where justified. There is a possibility of providing an additional amount (up to 2%) of "coupled" support for protein crops.

Areas with Natural Constraints (ANCs) /Less Favoured Areas (LFAs): Member States (or regions) may grant an additional payment for areas with natural constraints (as defined under Rural Development rules) of up to 5% of the national envelope. This is optional and does not affect the ANC/LFA options available under Rural Development.

Greening: In addition to the Basic Payment Scheme/SAPS, each holding will receive a payment per hectare declared for the purpose of the basic payment for respecting certain agricultural practices beneficial for the climate and the environment. Member States will use 30% of their national envelope in order to pay for this. This is compulsory and failure to respect the Greening requirements will result in reductions and penalties which might in some cases go beyond the Greening payment. In years 1 & 2 the penalty for greening may not exceed 0%, 20% in the third year and as of the fourth the maximum penalty applied will be 25%. Of course, the green payment will only be granted for those areas that comply with the conditions (i.e. being eligible for BPS or SAPS, respect of greening obligations).

Areas under organic production, which is a production system with recognised environmental benefits, shall be considered as fulfilling the conditions for receiving the greening payment, without any additional requirements.

The 3 basic practices foreseen are:

maintaining permanent grassland; and

crop diversification (a farmer must cultivate at least 2 crops when his arable land exceeds 10 hectares and at least 3 crops when his arable land exceeds 30 hectares. The main crop may cover at most 75% of arable land, and the two main crops at most 95% of the arable area);

ensuring an “ecological focus area” of at least 5% of the arable area of the holding for most farms with an arable area larger than 15 hectares – i.e. field margins, hedges, trees, fallow land, landscape features, biotopes, buffer strips, afforested area. This figure may rise to 7% after a Commission report in 2017 and subject to a legislative proposal.

Greening Equivalency: In order to avoid penalising those that already address environmental and sustainability issues, the accord foresees a "Greening equivalency" system whereby the application of environmentally beneficial practices already in place are considered to replace these basic requirements. For example, agri-environment schemes may incorporate practices that are considered equivalent. The new regulation contains a list of such equivalent practices. To avoid "double funding" of such measures (and any agri-environment schemes in general), the payments through RD programmes must take into account the basic greening requirements.

Financial Discipline: notwithstanding the separate decision for the 2014 budget year, it was agreed that any future Financial Discipline reduction in annual direct payments (i.e. when payment estimates are higher than the available budget for the 1st Pillar) should apply a threshold of €2 000. In other words, the reduction would NOT apply to the first €2 000 of each farmer's Direct Payments. This will also serve to feed the Market Crisis reserve where necessary [see horizontal regulation].

Transferring funds between Pillars: Member States will have the possibility of transferring up to 15% of their national envelope for Direct Payments (1st Pillar) to their Rural Development envelope. These amounts will not need to be co-funded. Member States will also have the option of transferring up to 15% of their national envelope for Rural Development to their Direct Payments envelope, or up to 25% for those Member States that get less than 90% of the EU average for direct payments.

“Active farmers”: In order to iron out a number of legal loopholes which have enabled a limited number of companies to claim Direct Payments, even though their primary business activity is not agricultural, the reform tightens the rule on active farmers. A new negative list of professional business activities which should be excluded from receiving Direct Payments (covering airports, railway services, water works, real estate services and permanent sports & recreation grounds) will be mandatory for Member States, unless the individual businesses concerned can show that they have genuine farming activity. Member States will be able to extend the negative list to include further business activities.

Eligible hectares – The rules foresee setting 2015 as a new reference year for area giving right to allocation of payment entitlements, but there will be a link to beneficiaries of the direct payments system in 2013 in order to avoid speculation. Member States which might see a large increase in declared eligible area are allowed to limit the number of payment entitlements to be allocated in 2015.

2. Market management mechanisms

With milk quotas expiring in 2015, the reform foresees the end to the sugar quota regime on September 30, 2017, confirming the indication of the 2005 sugar reform to put an end date for the quota regime while allowing for additional time for the sector to adjust. This will ensure improved competitiveness for EU producers on the domestic and world market alike (as EU exports are limited by WTO rules under quotas). This will also provide the sector with a long-term perspective. Ample supply on EU domestic markets at reasonable prices will also benefit the intermediate and final users of sugar. In order to provide added security, standard provisions for agreements between sugar factories and growers will be maintained. For the period after quotas, white sugar will remain eligible for private storage aid. Most developing countries will continue to enjoy unlimited duty-free access to the EU market.

On wine production, the accord respects the decision of the 2006 wine reform to end the system of wine planting rights at the end of 2015, with the introduction of a system of authorisations for new vine planting from 2016 – as recommended by the High Level Group on Wine last December – with growth limited to 1% per year.

Other amendments to the Singe Common Market Organisation (CMO) rules aim to improve the market orientation of EU agriculture in light of increased competition on world markets, while providing an effective safety net for farmers in the context of external uncertainties (together with direct payments and options for risk management under rural development). The existing systems of public intervention and private storage aid are revised to be more responsive and more efficient, for example with technical adjustments for beef and dairy. For dairy, these changes – buying-in period extended by 1 month, automatic tendering for butter & SMP beyond ceilings, increase in butter ceiling to 50 000 tonnes, and possible private storage for SMP & certain PDO/PGI cheese - come in addition to the 2012 "Milk Package" which is incorporated into the Regulation and strengthening the bargaining power of farmers.

Moreover, new safeguard clauses are introduced for all sectors to enable the Commission to take emergency measures to respond to general market disturbances – such as the measures taken during the e-coli crisis in May-July 2011. These measures will be funded from a Crisis Reserve financed by annually reducing direct payments. Funds not used for crisis measures will be returned to farmers in the following year. In case of severe imbalance in the market, the Commission may also authorise producer organisations or inter branch organisations, respecting specific safeguards, to take certain temporary measures collectively (for example market withdrawal or storage by private operators) to stabilise the sector concerned.

The School Fruit Scheme and the School milk scheme are to be extended, and the annual budget for the school fruit scheme is increased from EUR 90 to EUR 150 million per year.

In order to improve farmers' negotiating position in the food chain, the Commission is looking for a better organisation of the sectors with a few limited derogations to EU competition law. Rules related to the recognition of Producer Organisations (POs) and inter-branch organisations are now covering all sectors – with further options for establishing such oganisations now transferred to Rural Development funding (see below). Furthermore, the possibility for farmers to collectively negotiate contracts for the supply of olive oil, beef, cereals and certain other arable crops is foreseen under certain conditions and safeguards. The Commission will provide guidelines about potential issues relating to competition law. Producers of hams covered by a protected geographical indication or a denomination of origin may under certain conditions regulate the supply of the product to the market.

In the interests of simplification and market orientation, a number of minor or unused schemes are abolished (aid for the use of skimmed milk and skimmed milk powder in animal feed and casein, coupled aid for silkworms!)

3. Rural Development

Rural development policy will retain its current, successful foundation concept: Member states or regions will continue to design their own multi-annual programmes on the basis of the menu of measures available at EU level – in response to the needs of their own rural areas. These programmes will be co-funded from the national envelopes – where the amounts and rates of co-funding will be dealt with within the context of the MFF. The new rules for the 2nd Pillar provide a more flexible approach than at present. Measures will no longer be classified at EU level into "axes" with associated minimum spending requirements per axis. Instead, it will be up to Member States / regions to decide which measures they use (and how) in order to achieve targets set against six broad "priorities" and their more detailed "focus areas" (sub-priorities), on the basis of sound analysis. The six priorities will cover: Fostering knowledge transfer and innovation; Enhancing competitiveness of all types of agriculture and the sustainable management of forests; Promoting food chain organisation, including processing and marketing, & risk management; Restoring, preserving & enhancing ecosystems; Promoting resource efficiency & the transition to a low-carbon economy; and Promoting social inclusion, poverty reduction and economic development in rural areas. Member States will have to spend at least 30 % of their rural development funding from the EU budget on certain measures related to land management and the fight against climate change, and at least 5 % on the LEADER approach. [For the 30%, this covers The measures concerned will be: Investments in physical assets (environment- / climate-related investments only); all forestry-specific measures; Agri-environment-climate; Organic farming; Natura 2000 payments (not Water Framework Directive payments); and Payments to areas facing natural or other specific constraints.]

Rural Development policy will also operate in closer co-ordination with other policies through an EU-level Common Strategic Framework and through Partnership Agreements at national level covering all support from European Structural and Investment (ESI) funds (the EAFRD, ERDF, Cohesion Fund, ESF and EMFF) in the Member State concerned.

National allocations: Rural Development allocations per Member State are included in the Basic Regulation, but with the possibility of adjusting these amounts through a Delegated act if technically necessary or provided for by a legislative act.

Co-funding rates: The maximum EU co-funding rates will be up to 85% in less developed regions, the outermost regions and the smaller Aegean islands, 75% in transition regions, 63% in other transition regions and 53% in other regions for most payments, but can be higher for the measures supporting knowledge transfer, cooperation, the establishment of producer groups and organisations and young farmer installation grants, as well as for LEADER projects and for spending related to the environment and climate change under various measures.

In the new period, Member States / regions will also have the possibility to design thematic sub-programmes to pay especially detailed attention to issues such as young farmers, small farms, mountain areas, women in rural areas, climate change mitigation / adaptation, biodiversity and short supply chains. Higher support rates will be available within sub-programmes in some cases.

The streamlined menu of measures will build on the strong points of measures available in the current period. Among other things, it will cover:

Innovation: This key theme (and more specifically the planned European Innovation Partnership for Agricultural Productivity & Sustainability – the "EIP") will be served by various rural development measures such as "knowledge transfer", "cooperation" and "investments in physical assets". The EIP will promote resource efficiency, productivity and the low-emission and climate-friendly/-resilient development of agriculture and forestry. This should be achieved, inter alia, through greater cooperation between agriculture and research in order to accelerate technological transfer to farmers;

Knowledge – “a knowledge-based agriculture”: Strengthened measures for Farm Advisory Services (also linked to climate change mitigation and adaptation, to environmental challenges and to economic development and training);

Farm restructuring / investment / modernisation: Grants still available – sometimes with higher support rates when linked to the EIP or joint projects;

Young farmers - A combination of measures can include business start-up grants (up to €70 000), general investments in physical assets, training and advisory services;

Small farmers: Business start-up aid up to €15 000 per small farm;

Risk management toolkit: Insurance & mutual funds – for crop & weather insurance, animal disease [currently available under Article 68 in the 1st Pillar] - extended to include income stabilisation option (which would allow a pay-out (up to 70% of losses) from a mutual fund if income drops by 30%);

Producer groups / organisations: Support for setting up groups / organisations on the basis of a business plan and limited to entities defined as SMEs;

Agri-environment - climate payments: Joint contracts, link to adequate training/information, greater flexibility when extending initial contracts,;

Organic Farming: New separate measure for greater visibility;

Forestry: Strengthened / streamlined support through grants and annual payments;

Mountain areas: For mountain areas and farmland above 62º N, aid amounts can be up to 450 €/ha (increased from 250 €/ha);

Other areas facing natural & other specific constraints: New delimitation for Areas with Natural Constraints (ANC) – with effect from 2018 at the latest - based on 8 biophysical criteria; Member States retain flexibility to define up to 10% of their agricultural area for specific constraints to preserve or improve the environment;

Co-operation: Expanded possibilities to support technological, environmental and commercial cooperation (e.g. pilot projects, joint environmental schemes, development of short supply chains and local markets);

Non-agricultural activities: Grants for start-up and development of micro- and small businesses;

Basic services and village renewal: Investments in broadband infrastructure and renewable energy can go beyond small-scale, relocation of activities / conversion of buildings now covered;

LEADER: Greater emphasis on awareness-raising and other preparatory support for strategies; promoting flexibility for operating with other funds in local areas, i.e. rural-urban co-operation; N.B. LEADER will now be used as the common approach for community–led local development by the following ESI Funds: the ERDF, ESF, EMFF and EAFRD.

4. Horizontal Regulation

Controls: Control requirements will be lowered in regions where previous checks have shown good results, i.e. the rules are being properly respected. However, checks will need to be increased in regions where there are problems.

Farm Advisory Service: The list of issues on which Member States will have to offer advice to farmers has been enlarged to cover, beyond cross compliance, the green direct payments, the conditions for maintenance of land eligible for direct payments, the Water Framework and Sustainable Use of Pesticides Directives, as well as certain rural development measures.

Cross compliance: All direct payments, certain rural development payments and certain vine payments will continue to be linked to the respect of a number of statutory requirements relating to environment, climate change, good agricultural condition of land, human, animal & plant health standards and animal welfare. The list has been simplified to exclude rules where there are no clear and controllable obligations for farmers. The deal confirms that the Water Framework and the Sustainable Use of Pesticides Directives will be incorporated into the cross-compliance system once they have been shown to have been properly applied in all Member States, and obligations to farmers have been clearly identified.

Crisis reserve : A crisis reserve will be created every year for an amount of €400 million (in 2011 prices) by application of financial discipline. If the amount is not used for a crisis it will be reimbursed to farmers as direct payments in the following year.

Transparency: Member States will have to provide full transparency of all beneficiaries – with the exception of those farms which are eligible for the Small Farmers Scheme in that Member State. For these farms, the data will be provided but without the name or address. This fully respects the Court ruling of October 2010 which stated that the existing rules did not respect data privacy rules for natural persons.

Monitoring & Evaluation of the CAP: The Commission will present a report before the end of 2018 – and every 4 years thereafter – on the performance of the CAP with respect to its main objectives – viable food production, sustainable management of natural resources, and balanced territorial development.

5. Further elements

Alignment: In terms of further implementation, a number of issues in particular relating to the Single CMO regulation have been designated as subject to approval under Article 43) and others under Article 43.

Transitional arrangements: The aim is that all the new Regulations enter into force from January 1, 2014 – and the Commission can now start work on the implementing rules for these Council Regulations. However, given the preparation necessary, it is already clear that the Member State Paying Agencies do not have enough time to have the necessary administration and controls for the new system of direct payments in place by the start of next year (when the IACS forms are sent out to farmers). As a result, the Commission has made a separate proposal that there should be a transition year for Direct Payments in 2014. In other words, the new elements such as Greening and the Young Farmers top-up will only apply from 2015 onwards. Similarly, Member States are encouraged to work on their multi-annual Rural Development programmes, which should be approved early next year. However, for certain annual elements, such as agri-environment payments, transition rules should apply so that there is no interruption in this type of scheme.

by S. C.
04 november 2013, World News > Europe