Commission CAP health check proposals

The Commission published its long-awaited legislative proposals on the CAP "health check" on 20 May. The proposals were presented by the EU Agriculture Commissioner, Mariann Fischer Boel, at a special meeting of the European Parliament's Agriculture Committee in Strasbourg. Given that these have been so well trailed since last November when the Commission published its health check, there were certainly no surprises. As the Commission makes clear in its explanatory memorandum, "the proposals are not a fundamental reform, but rather are a “contribution to future developments of the CAP”.

If you want to read Commissioner Boel's speech at the Committee, click here.

So what do the proposals actually seek to do?

Firstly, the Commission wants to simplify the Single Payment Scheme by introducing a number of measures:

More decoupling. As part of its pursuit of the decoupling of aid (single farm payments), the Commission proposes eliminating the supports which are still partially coupled to production (cereals, arable crops, olive oil, meat production), with two exceptions: the suckler cow premium (the only aid which could remain fully coupled at the current level or at a lower level) and the aid to sheep and goat farmers (50% of premiums could be granted as coupled payments).

Greater uniform support. The Commission also gives countries the choice of abandoning payments calculated based on historical receipts in favour of a more flat-rate system to make the single payment scheme simple and more effective and efficient. Changes should be notified by 1 August 2009 at the latest to apply the single payment scheme from 2010. Finally, it advocates extending the period in which the new Member States can use the single area payment scheme from 2010 until 2013.

Ex-Article 69 (new Article 68). This article currently gives the Member States the possibility to reserve specific support up to 10% of the national direct aid envelope with the aim of promoting environmental protection, quality or the marketing of products. The Commission intends to propose strengthening Article 68 by widening these provisions to provide: measures in favour of farmers in certain regions which specialise in dairy products, cows, sheep and goats; the granting, under certain conditions, of support for certain risk management measures; crop insurance schemes for natural disasters and mutual funds for animal diseases (level of public financing limited to 60%, of which 40% for Community loans); the possibility of using the amounts retained to top up entitlements in areas subject to restructuring or development programmes; doing away with the restriction according to which the amounts released must remain in the sector from which they originated.

However, specific support for the above measures must ensure that it is consistent with other existing policy measures. For example, any contribution to insurance premiums should not constitute a barrier to the internal market for insurance services.
To avoid misallocations of Community funds, Member States may also decide "in an objective and non-discriminatory manner" not to grant direct payments to applicants whose "principal company's objects do not consist of exercising an agricultural activity (Article 30 (2)).

Modulation. Under the CAP reform of 2003, the compulsory modulation rate went from 3% in 2005 to 4% in 2006 and 5% in 2007 and subsequent years. These rates are only applicable to farms which receive more than €5,000 in direct aid annually. Under the new legislative proposals, the current modulation rate would be increased by 2% per year from 2009 until 2012 (with a rate of 7% in 2009, 9% in 2010, 11% in 2011 and 13% in 2013). These significant transfers of funds to rural development programmes are to enable Member States to respond to new challenges such as climate change, agricultural risk management, bioenergies, water management and biodiversity. The countries which joined the EU in 2004 would be affected by the modulation in 2012 (at a rate of just 3%, compared to 13% for the others).

Capping of aid. In addition to the 2% increase in the compulsory modulation rate, the Commission has proposed the gradual reduction of payments related to the size of farms. Direct aid will be reduced by an additional 3% per year (from 2009 to 2012) for farms which receive between €100 000 and €200 000 annually in aid, 6 % per year for those which total between €200 000 and €300 000 annually and 9 % for farms which earn more than €300 000 annually.

All receipts resulting from EU modulation are to remain within the Member State in which they originate. Money released would be redirected to rural development programmes. Any Member State concerned shall receive at least 80% of the total amounts which modulation has generated in that Member State.

Minimum level of support. In order to reduce administrative burdens, the Member States will have to set a minimum amount of payments (€250) and/or a minimum size of area eligible for aid of at least one hectare.

Cross compliance. The Commission plans to introduce requirements that retain the environmental benefits from set-aside. It includes a new declaration about the importance of water management in the context of ensuring that all agricultural land is maintained in good agricultural and environmental condition.

Secondly, the Commission wants the least possible intervention via:

Market intervention instruments. The Commission believes that market supply control should not serve to slow down the ability of farmers to respond to market signals. In the cereals sector the Commission proposes to introduce a tendering system for bread wheat; the reduction to zero (as for maize) of the quantitative ceiling for feed grains; the abolition of intervention for durum wheat. Furthermore, the Commission wants to abolish intervention in the rice and pig meat sectors. Finally, the tendering system will also be applied to butter and skimmed milk powder.

Abolition of set-aside. According to the Commission proposals, set-aside is no longer an instrument of supply control. Nonetheless, in order to maintain the environmental advantages of set-aside tools will be made available to the Member States as part of rural development measures and under conditionality (payment of aid on the condition of respecting certain criteria).

Expiry of milk quotas. The Commission has already proposed a 2% increase in the EU's milk quotas for 2008/2009 (the Agriculture Council reached an agreement on this on 17 March). In its legislative proposals the Commission advocates an annual increase of 1% for the quotas from 2010/2011 to 2013/2014. Quotas are to be abolished in 2015. Member States will have the possibility of recourse to new Article 68 to support the regions, and in particular mountain regions, which risk having problems maintaining a minimum milk production.

Specific aid for the dairy sector. The Commission proposes the abolition not only of the private storage aid for cheese, but also the aid for butter for pastry and ice cream and for direct consumption. But if market conditions justify it, the Commission could apply private storage aid for butter, aid for skimmed milk in animal feed and aid for casein production.

Other support schemes. The Commission proposes extending the single payment scheme to small sectors: immediately for hemp, protein crops and nuts and gradually for rice (with a transition period until 2012), starch potatoes (2011), dried fodder (2011) and long fibre flax (2013). The Commission also proposes abolishing the (45€/ha premium) support schemes for energy crops.

Thirdly, the Commission wants to respond to new challenges facing agriculture, such as climate change, etc through rural development policy:

The increase in compulsory modulation in the Commission’s proposals will see just over 2 billion euro of direct aids shifted from Pillar 1 to Pillar 2 of the EU's Rural Development budget, strengthening the second pillar to respond to new challenges of climate change, bioenergies, water management, biodiversity, etc. Member States' rural development strategies and programmes will be amended over the period from 2010 to 2013 to fund measures in these areas.

The 7th Framework Programme for Research and Development will also contribute to addressing these challenges by providing support for innovation in the farming sector.
These proposals are to be welcomed and certainly are a good starting point for discussions over the coming months. However, issues remain with the progressive rate of modulation and how this will play out. On the issue of compulsory modulation we will certainly be working hard to ensure that for every increase in compulsory modulation this is matched by a corresponding decrease in Scotland's voluntary modulation. This would enable Scotland's farmers to compete on a level basis with the rest of Europe's farmers by 2013. Equally, it will be interesting to see how the new Article 68 pans out in the discussions and is something that will need to be tested rigorously.

Next Steps
The first formal discussion of the proposals will be at the meeting of EU farming ministers on 23 - 24 June in Luxembourg, although farming ministers are likely to have an initial discussion at the informal EU farm Council meeting in Maribor on 25-27 May. Much of the negotiation will take place during the second half of 2008 when France holds the six month Presidency of the EU.

The European Parliament's Agriculture Committee will play a key role in scrutinising the Commission's proposals and will take a formal position on them in November.

With the debate now getting underway in Brussels there is a clear opportunity for Scotland to engage with these crucial discussions and ensure Scotland's voice is heard and our distinctive farming interests represented and reflected in the final outcome.