CAP Reform.

13th October, 2011

Summary of Commission legal proposals

Background

The Commission published its proposals for the CAP Post 2013on 12 October 2011.  Negotiations willnow take place at political level over the next year or more and it is likelythat the package will not be finally agreed until sometime in 2013.  The outline below, which is not exhaustive,is from a first reading of the Commission’s proposals and it should be notedthat our understanding of these proposals will change as further clarification
is provided during the negotiations.  Inaddition the final outcome of the negotiations may be significantly differentfrom the Commission’s original proposals in many respects.

What levels of CAP funding are envisaged?

The funding for the CAP will depend on the outcome of theparallel negotiations on the next multiannual financial framework (MFF) for the
EU budget from 2014 to 2020.  The MFFproposals, released in June 2011, proposed that CAP spending be maintained innominal terms at 2013 levels. It also proposed that this amount be divided into€281.8 billion for pillar 1 (direct payments and market supports) and €89.9
billion for pillar 2 (rural development) over the lifetime of the nextfinancial framework.

What about Ireland’s allocation?

Ireland’s net ceiling for direct payments is to be set at€1.236 billion per annum in 2017 and subsequently (currently €1.255 billion,therefore a 1.5% reduction), representing 2.9% of the EU total. This figurearises from the reallocation proposal made in the Multiannual Financial
Framework.  That reallocation proposal isto close one third of the gap between those Member States with relatively lowaverage payments per hectare and 90% of the EU average, to be funded by those Member States with above average payments per hectare.

A specific proposal on rural development funding has not yetemerged.  However it is proposed that thedistribution between Member States shall be based on objective criteria andpast performance.

What is being proposed for the Single Payment Scheme?

The Commission proposes that the Single Payment Scheme willbe replaced by a new payment model, made up of a number of different elements
and moving eventually to uniform national or regional rates of payment. 30% of the payment will be reserved for a green element and
further deductions from the national ceiling are provided for areas of naturalhandicap – optional ( up to 5%), voluntary coupled measures (up to 5%),small-scale farmers (up to 10%) and young farmers (up to 2%).  There is provision for a national reserve ofup to 3% of the basic payment ceiling in the first year.

The proposals envisage that the individual historicreference will be replaced by a model based on regional or nationalaverages.  There is a target date of 2019for achieving a uniform value of all basic payment entitlements in a MemberState or region of a Member State. Implementation of the flatter rate regionalmodel is front-loaded with 40% of the basic payment allocated for flatteningfrom the first year of implementation.

What does this mean in practical terms?

Under this proposal new payment entitlements will beallocated in 2014. It is a matter for Member States to decide whether thepayment model will be based at National or Regional level. The intention is that,over the period from 2014 -2019, the value of individual payment entitlements
will gradually converge so that by 2019 all payment entitlements in the Regionwill have a uniform value.

Who will be eligible for an allocation of paymententitlements in 2014?

Only active farmers who used at least one paymententitlement in 2011 will be allocated a new set of payment entitlements in2014.

 

Is there a definition of an active farmer?

Payments are limited to active farmers defined as thosewhose annual direct payments are greater than or equal to 5% of the totalreceipts obtained from all non-agricultural economic activities or, in the caseof certain areas, who carry out a minimum level of agricultural activity as
established by the Member State.

How will the number and value of the new payment entitlements be calculated in 2014?

In 2014 a number of payment entitlements will issue to eligible farmers based on the number of eligible hectares of land declared by each eligible farmer in that year.

 

Are there other provisions on allocation of entitlements?

There are a number of other provisions dealing with issues such as leasing, rental and or sale of holdings, new entrants and so on.  These provisions are quite complex and require detailed clarification.

What is “greening”?

Greening refers to a new payment per hectare to farmers who are following agricultural practices beneficial for the climate and the environment. The Commission is proposing that 30% of the national ceiling be set aside for these payments.  However, to attract the basic payment and to qualify for the green element, farmers must comply with these compulsory green measures.  The measures proposed are retention of permanent grassland (with a 5% tolerance), crop diversification (3 different crops, minimum coverage of 5% and maximum coverage of 70%) and establishment of ecological focus areas (7% of land, excluding permanent pasture, devoted to ecological purposes).  Organic farmers qualify automatically for the green payment.

Are there any other new measures being proposed?

The text also includes provisions for the following:

a measure for young farmers

a measure for small-scale farmers

an optional measure for areas with Natural Constraints

a measure for coupled support

a National Reserve

 

Scheme for young farmers

There is provision to use up to 2% of the national ceiling to make top-up payments to young farmers for a five-year period.  The scheme is mandatory.

 

Scheme for small-scale farmers

As an alternative to tiered direct payments, small-scale farmers may opt for lump-sum payments within minimum and maximum limits of €500
and €1,000. Ten percent of the ceiling may be used for this purpose.  Such farmers would not be obliged to meet greening requirements or cross compliance. The scheme is mandatory for Member States and optional for farmers.

Area of natural constraints payment

An optional additional payment comprising 5% of the national ceiling is proposed for farmers situated in areas with natural constraints.  These are the areas that would replace the current Less Favoured Areas according to the proposals in the Rural Development regulation and the payment would be on top of the LFA payment under the new Rural Development Regulation.  There is provision allowing Member States to exclude certain areas from these payments.

Coupled payments

Five percent of the ceiling may also be reserved for coupled payments in listed sectors.  The sectors listed comprise all the main livestock and tillage sectors and also includes short rotation coppice. Coupled support is limited to regions and sectors deemed to be undergoing difficulties and of particular economic, social or environmental importance. This is the case at present under Article 68 of Regulation 73/2009. These coupled payments are to be optional and the limit increases to 10% in those MS which operated coupled sucker cow payments under
Art 69 of the 2003 Direct Payments regulation or SAPS, with provision for additional increases in the latter subject to Commission approval.

Are there any limits proposed for large payments?

Progressive capping is foreseen in respect of payments in excess of €150,000 with reductions ranging from 20% up to 100% for amounts in
excess of €300,000.   Capping is to be applied net of the 30% green payment and net of salary costs. It would have very little impact in Ireland.

Will Article 68 of the current Direct Payments Regulationcontinue?

The current provision under Article 68 of Regulation 73/09  whereby Member States may top-slice up to 10% of direct payment funds and use
for targeted measures is missing from the proposal although some of the measures in question reappear as options in the Rural Development draft regulation.

Can Member States transfer funds between the two pillars of the CAP?

There is provision for all Member States to transfer up to 10% of pillar 1 ceilings to pillar 2, and for certain Member States to transfer
up to 5% of ceilings from pillar 2 to pillar 1.

Are there changes to the rural development provisions?

There are changes to the process of approval of rural development plans and to the measures available. These are as follows.

Co-ordination of EU priorities

There is provision in parallel proposals from the Commission (on cohesion spending) for increased coherence between measures under the
various EU funds to ensure consistency with the EU 2020 strategy.  The plan is to have a common strategic framework agreed by Council and the European Parliament at EU level for use of all of EU funds and to have a further co-ordination process through partnership
contracts at national level.  This is in addition to the existing arrangements for stakeholder consultation, ex ante evaluation and SWOT analysis before drawing up Rural Development programmes.

Conditionality

There is also a proposal for increased conditionality whereby, for example, funding to a Member State would be withdrawn or held back
if that Member State failed to comply with macro-economic guidelines under the Stability and Growth pact.

Performance reserve

The overarching proposal makes provision for a performancereserve of 5% which would be held back if Member States failed to meet the
outcomes targeted in their programmes.

 

What about the rural development objectives and priorities?

The three objectives of competitiveness, sustainable management of natural resources and the wider rural economy are retained.  The requirement to maintain an axis balance between the three objectives is deleted but the programme must demonstrate that
relevant combinations of measures are included in regard to six defined priorities of knowledge transfer, competitiveness, food chain organisation and risk management, preserving ecosystems, promoting resource efficiency and low carbon economy and realising jobs potential and development of rural areas.  An agri-environmental element is compulsory and there is also an indication that it will be required to allocate
at least 25% of total rural development funds to agri-environment/climate, organic farming and areas facing natural constraints.  LEADER must account for at least 5% of the EAFRD contribution.

Are there changes to the Rural Development measures themselves?

Many of the measures available under the existing Regulation are retained in broad terms but there are changes to the details.  There are new measures for farm and business development providing start up aid for young farmers, small farms and non-agricultural activities (the latter directed at SMEs/Micro Enterprises).  There are also new measures to facilitate cooperative projects and risk management.  The farm investment measures have been consolidated and in the case of investments relating to farm viability only farms under a certain size are eligible – to be determined by the MS.  The forestry support measures are retained but the period for payment of the annual premium is reduced to 10 years and the premium does not cover loss of income.  Short rotation coppice is also excluded from the forestry measure, but provision for assistance to coppice is made under the coupled payments in pillar 1. The early retirement measure has been deleted but there is a new provision whereby Member States could make annual payments to farmers opting for the new small-scale farmer scheme who decide to give up their entitlements.  Measures on knowledge transfer and the advisory services appear to be more extensive than heretofore. The provisions for aid for quality schemes seem more regulated than at present.  The changes already mooted by the Commission to the definition and delineation of Less Favoured Areas (based on eight biophysical criteria) are incorporated in the draft. These are known as Disadvantaged Area payments in Ireland.

Are Co-financing rates for rural development changed?

EU co-financing of 50% is envisaged with higher rates (up to 80%) for knowledge transfer, producer groups, cooperation measures, LEADER and
young farmers. A co-financing rate of up to 100% is proposed for projects providing a significant contribution to innovation relevant to agricultural productivity and sustainability.

Will market supports continue unchanged?

The majority of the existing rules on intervention, aids for private storage, export refunds and so on remain unchanged. The proposal incorporates the proposed changes currently under discussion in respect of quality policy, marketing standards, contractual relations in the milk sector and alignment of legislation with the Lisbon Treaty.

Are any current schemes abolished?

Aids for use of skim for feed and casein are abolished as is the possibility of intervention for pigmeat.  However, these schemes have not been utilised in practice for many years

What about sugar quotas?

The proposal is to abolish sugar quotas from 30 September 2015.  Provision is made for written agreements to cover the terms for buying sugar after quotas expire.

Are there any changes to the emergency provisions?

The provisions for addressing serious market disturbances and emergencies appear to be extended.

Are there changes in regard to producer organisations and inter-branch organisations?

It appears that some of the provisions currently proposed for the milk sector are to be extended to all sectors.

What about the other proposals from the Commission e.g. on financing?

There is a new Financial Regulation which sets out the rules for disbursement of CAP funds including the procedures for establishment and
accreditation of paying agencies, arrangements for financing payments and accounts clearance, control systems and sanctions. It includes the revised requirements for cross compliance and Good Agricultural and Environmental Condition (GAEC) which had been in the Direct Payments regulation. Many of the provisions on financing, control and sanctions are carried forward unchanged from the existing regime.

Are there changes to the system of Financial Discipline?

Under the new regime, financial discipline (linear cuts to direct payments) will be triggered only where forecast expenditure is in danger
of exceeding the ceiling for direct payments/market supports (rather than in the past where it was triggered if forecast spending came within €300 million of the ceiling). The Direct Payments regulation excludes beneficiaries of under €5,000 from financial discipline.  Before financial discipline is triggered there is provision for raiding the Agricultural Crisis Fund.

What about Advance payments?

There is provision for advances of direct payments of 50% from 16 October of each year. Under the existing regulation, Commission consent
was required for advances based on applications from Member States citing exceptional circumstances. Advances at a rate of 75% are provided for rural development payments.

Are controls and sanctions changed?

The control systems and sanctions in respect of direct payments, market supports and rural development have been amalgamated into the
single regulation.  There are no major changes to the substance although a lot of the detail (e.g. inspection rate and minimum sanctions) is left to Commission implementing regulations.

What about simplification, cross compliance and GAEC:
Attempts at simplification are modest. One welcome change is removal of the requirement for follow-up inspections in respect of minor non compliance. Although four statutory management requirements (SMRs) for cross compliance have been deleted, the SMRs in question were not onerous (sewage sludge and notification of disease outbreaks) and did not impact directly on farmers. Moreover the requirements for Good Agricultural and Environmental Condition (GAEC) remain and are more specific in terms of minimum soil cover, bans on ploughing
and retention of landscape features.  In addition, Article 94 provides for the inclusion of the Water Framework and
Sustainable Use of Pesticides Directives once they are fully implemented in Member State.