CAP reform update.

22nd November, 2012

Multiannual Financial Framework (MFF) 2014-2020
and CAP Reform

 

 

Priorities

  • Irish priorities are sustainable intensification
    of production, environmental stewardship and the maintenance of a vibrant rural
    economy.

 

Process

  • Ireland is prepared to put a major effort into
    securing a deal on CAP reform during the Irish EU Presidency. However, to do
    this, three things need to happen:

    • there must be progress on the MFF by the end of
      the year,
    • there must be substantial progress during the
      Cypriot presidency on technical issues,
    • all three institutions – the European
      Parliament, the Council and the Commission – need to engage actively in the
      negotiating process.
    • Draft EP reports from COMAGRI Rapporteurs in
      respect of each of the main CAP reform legislative proposals have been
      published, and amendments (nearly 8,000) have been submitted by MEPs.
    • However, a COMAGRI vote on the amendments, which
      had been due to take place at the end of November, will not now happen until
      late January 2013. This significantly narrows the available window for the
      conclusion of a deal on CAP reform under the Irish Presidency.

 

MULTIANNUAL
FINANCIAL FRAMEWORK:

  • The EU budget is divided into five
    headings.  Heading 2 covers Sustainable
    Growth: Natural Resources. The vast bulk of funding under this heading is
    allocated to the Common Agricultural Policy (CAP).
  • Of the €975 billion in the current EU Financial
    Framework (2007-2013), expenditure on the CAP accounts for over €410
    billion.  This represents about 40% of
    the EU budget or some 0.48% of EU GNI.  Over 85% of Ireland’s
    funding, comes from the CAP, including €1.255 billion per annum in Direct
    Payments to farmers in pillar 1 of the CAP and €346 million per annum in rural
    development funds in pillar 2.
  • Negotiations on the next EU financial framework, covering the period from 2014 to 2020, are currently taking place in parallel to negotiations on the reform of the CAP. Indeed, a number of the sectoral reform proposals are being addressed in the MFF negotiations.
  • Under Heading 2, the Negotiating Box deals with
    the size of the CAP budget, the mechanisms for distribution of funds between
    Member States, and co-financing rates. It also deals with some non-financial
    issues such as the two-pillar structure of the CAP, the degree of flexibility
    within these pillars, capping of payments and greening of Pillar 1 (direct
    payments).
  • The key issues for Ireland in a MFF context are
    the size of the CAP budget, the mechanism for distribution of funds between
    Member States and the proposals for greening of the CAP:

 

COMMISSION MFF
PROPOSALS

Overall Funding:

  • The
    Commission proposal is to maintain agriculture funding at 2013 levels in
    nominal terms. (More recent proposals re the overall Budget are outlined
    further below)
  • This represents a decline in real terms over the
    lifetime of the next Financial Framework.
    It also falls slightly short (by 1.4%) of the amount needed to fund the full
    cost of phasing in direct payments in Bulgaria and Romania in the period after
    2013, and means that direct farm payments across the EU will suffer a small
    reduction.
  • Nevertheless, Ireland’s view is that the
    Commission proposal represents a reasonable starting point for the negotiations.
  • However, we have pointed out that agriculture is the
    expenditure heading showing the most restraint, and that the amount proposed is
    the minimum required. Ongoing pressure from some Member States for further cuts
    in the overall budget, and in the proposed CAP allocations (see below), will
    therefore continue to be resisted.

 

Allocation of funds
between Member States

  • The key priority for Ireland is to retain our
    levels of funding for both direct payments (pillar 1) and for rural development
    (pillar 2).
  • Commission proposals for redistributing direct
    payments between Member States (where a Member State’s average payment per
    hectare is less than 90% of the EU average, one-third of the gap between that
    Member State’s payment per hectare and 90% of the EU average will be closed, and
    paid for proportionately by those Member States above the EU average) are
    broadly satisfactory from an Irish viewpoint.
  • The Commission has yet to table a specific
    proposal in respect of rural development funding, but we have concerns that the
    proposed criteria for Pillar 2 will reduce our allocation.
  • Ireland is also pressing for Pillar 1 and Pillar
    2 funds to be considered together, and for the pragmatic approach being
    employed for direct payments to be used for rural development too. The latter
    would be consistent with the complementary nature of the two pillars within one
    common agricultural policy.
  • In any event, it is imperative that we see
    proposals soon from the Commission on Pillar 2 distribution.  It is unrealistic to expect Member States to
    sign up to proposals for the allocation of Pillar 1 funds without knowing the
    Commission’s intentions on the second pillar.

Greening

  • In a MFF context, the main focus is on the
    proportion of direct payments to be used for greening measures. The Commission
    has proposed that 30% of the annual national ceiling should be used. Ireland
    considers that this rate would represent an unacceptable hastening of the move
    to flat rates of payment, unless it is applied at individual farmer level, i.e.
    each farmer is paid the same percentage of their overall payment rather than a
    flat-rate in return for greening measures.

 

MFF – Other Issues

  • Capping:
    Not an issue for Ireland, as very few Irish farms are affected.  We have no objection to the concept but
    understand the difficulties it poses for some Member States.
  • Financial
    discipline:
      Our preference is to
    retain the current system of financial discipline without the €300 million
    margin (as per the latest Negotiating Box text).
  • Flexibility
    between pillars:
    This poses no particular difficulty for Ireland and we
    would support the suggestion to exempt funds transferred from Pillar 1 to Pillar
    2 from co-funding.
  • Co-financing
    rates:
    We welcome the possibility of higher general co-financing rates
    (55%) and the higher rates (75%) mooted for environmental and climate change
    measures.
  • Increased
    co-financing for programme countries:
    This is an important issue in the
    context of exchequer co-funding on rural development.  We favour the proposed 10% increase in EU
    funding, although it should be noted that this represents a substantial
    reduction on the current arrangement of 85%.
  • Food for deprived
    people:
    If this is to be placed in Heading 2, the necessary funds should be
    transferred with it, although the latest text suggests it will be placed in
    Heading 1b.

    • Macro-economic
      conditionality and performance reserve:
      We have serious concerns about the
      practical effects of suspension of EU funding for rural development programmes
      in the event that we are deemed not to meet macro-economic targets.  We also have issues with the administrative
      burden posed by the performance reserve proposals.

 

MFF NEGOTIATING BOX
OF 13 NOVEMBER 2012

  • The European Council is meeting on 22/23 November to
    discuss the MFF.
  • The most recent version of the MFF Negotiating Box
    outlines an overall budget cut of €75 billion, with a further cut of €25.5
    billion for the CAP.
  • Pillar 1 (direct payments and market supports) is cut
    by €13 billion, while funding for rural development is cut by €8.3 billion.
  • In addition, an earlier provision for a €3.5 billion
    reserve for crises in the agriculture sector, which was to remain outside the
    MFF, has been removed. A reserve of €2.8 billion is now included within the
    heading, to be deducted from direct payments each year and reimbursed if not
    drawn down. In the event that these funds are used, the result would be a
    further cut of about 1% in the EU direct payments budget annually.
  • The Minister has again made the point that the
    defence of our CAP funding remains at the core of
    the Irish Government’s stance in the budget
    negotiations
    .
  • Protection of CAP funding is a crucial national issue, given its
    importance to our national agri-food development strategy and the importance of
    the sector to our economic recovery.
  • The Government is determined to protect the CAP to the maximum
    extent possible, and to defend Ireland’s share of it.

 

CAP REFORM

  • Ireland’s key concerns arise in the context of
    proposed revisions to the system of direct payments.
  • The main issue is the potential redistributive
    effect of the Commission’s proposal to move to flat national or regional rates
    of payment by 2019.
  • The second relates to the principle of greening
    and to the difficulties associated with its implementation.
  • There are also a number of other points to
    consider under the proposals relating to rural development and the operation of
    the single CMO.

 

 

Direct Payments – Allocation
of funds within Member States

  • This is a key issue for Ireland. The priority is
    to obtain as much flexibility as possible for Member States with regard to
    payment models and transitional arrangements.
  • Ireland currently operates a “historic” model of
    payments whereby payments to farmers are related to their average annual
    receipts over the period 2000 to 2002.
    Ireland is concerned that the Commission proposal to move to flat
    national or regional rates will cause large transfers from the more productive
    farms to more marginal and less productive land, and that much of this movement
    is proposed to be front-loaded.
  • The Department’s
    analysis indicates that, under a national flat rate, around 74,000 Irish
    farmers would gain an average of 85% on their current payments, while around 56,000
    would lose an average of 33%. These are average percentages, and many of the individual
    gains and losses would be far more significant than this.
  • Ireland therefore contends that Member States
    should be allowed to determine the payment model best suited to their
    conditions and to the development of their farming systems. If there are to be
    any changes, a lengthy transitional period will also be required.
  • We would like to have
    the possibility of putting a limit on the amount any farmer could lose in any
    redistribution. This would be consistent with the Commission’s desire to
    achieve a more level playing field, but would avoid a disruptive level or pace
    of change.
  • The ‘approximation’
    approach, by which all payments could gradually move towards, but not fully to,
    the average, is one alternative that we believe should be considered in this
    regard.
  • In our discussions
    with Member States who are in a similar position to ourselves by virtue of
    their use of the historic model, we have been focussing in particular on the
    application of the Commission’s external convergence methodology (used to
    calculate the redistribution of direct payments between Member States) to the
    internal redistribution of payments within Member States. We have agreed a set
    of common conclusions with Spain, Portugal, Italy, Luxembourg and Denmark in
    this regard, and have expanded these detailed discussions to other Member
    States with a view to building on this alliance.

 

  • The farm bodies have
    supported this kind of approach and the IFA recently participated with the
    Minister in a range of meetings around the country on CAP reform, discussing
    proposals with farmers.

 

  • Fianna Fáil’s Eamon O’Cuiv has taken the
    opposite view and is supportive of the Commission’s proposal to move to a flat
    rate system. FF is now engaging in a number of meetings around the country to
    build support for this approach. This position is proving divisive, and has the
    potential to split farmers across the country. The FF position is broadly aimed
    at building support amongst farmers in the West.

 

  • In reality, there is much greater variation within
    regions than expected – it is not a case of East v West. There are many productive
    farmers in the West that would lose significantly if Eamon O’Cuiv’s approach
    was implemented. The overall approach is to try and do what is in the best
    interests of the country broadly and of ALL farmers and to negotiate a CAP that
    will allow us to deliver on the aims of Food Harvest 2020.

 

 

Direct Payments – Greening

  • Ireland supports the idea of encouraging
    sustainable forms of agriculture, which is at the heart of the Food Harvest
    2020 strategy, and can support the Commission in its desire to further enhance
    the green credentials of direct payments.
  • However, it is preferable to do so in a way that
    avoids adding excessive bureaucracy.
  • There are concerns that the proposed structure
    of the greening payment, i.e. a flattening of 30% of the direct payment, would
    hasten the movement towards uniform national or regional payment rates.  We would wish to see the 30% greening
    component calculated as a percentage of each individual farmer’s payment (as
    opposed to a flat 30% of the national average payment, which in Ireland is
    equivalent to €80/ha).
  • In
    addition, there are practical difficulties with the three greening criteria
    proposed that need to      be resolved:

    • on retention
      of permanent grassland (with a 5%
      tolerance), Ireland has difficulties with the definition of permanent
      grassland  proposed by the Commission,
      and would prefer that this measure continue to be controlled at regional or
      national level rather than at the level of the individual holding as proposed
      by the Commission,
    • on crop diversification (3 different
      crops, minimum coverage of 5% and maximum coverage of 70%), Ireland would
      prefer the threshold for the application of this provision to be raised from 3
      to 15 hectares, that the number of alternative crops be reduced to two and that
      the maximum percentage for the main crop be increased from 70% to 85%,
    • on EFAs (ecological focus areas – 7% of
      land, excluding permanent pasture, devoted to ecological purposes), Ireland
      would like to see a  reduction in the percentage
      of land to be assigned as EFA or an expansion in the kinds of activities that
      would qualify as EFA. We would also like to see farmers with less than 15
      hectares of tillage excluded from the requirement. With a pre-dominance of
      grassland, the continuance of arable production is positive for bio-diversity.
    • Ireland’s preferred option was to enhance
      current cross compliance and GAEC (Good Agricultural and Environmental
      Condition) provisions by adding (adjusted) greening measures, but we now accept
      that this will not deliver the visibility sought by the Commission for its
      greening initiative. As an alternative, we would wish to see the adjustments to
      the three greening criteria as outlined above together with an expansion of the
      “green by definition” category to include measures that have equivalent or
      better environmental impacts to what the Commission is proposing, e.g. for
      Ireland, membership of a sustainability scheme such as those run by Bord Bia.

 

Direct Payments – other issues

Definition of Active Farmer

  • On the definition of an active farmer, Ireland’s priority is to
    ensure the avoidance of payments to non-farmers in a way that does not create
    additional bureaucracy. Ireland supports recent efforts by the
    Presidency to focus on agricultural activity, and on a negative list.

 

Young Farmers

  • On young farmers, Ireland’s main concern is that Member States
    should be allowed to identify objective criteria – for example a minimum
    standard of agricultural education – in order to ensure that the scheme can be
    targeted at genuine young farmers.

 

Small Farmers

  • Ireland would prefer that this scheme is
    optional for Member States, given the significant administrative burden
    involved.

 

Rural Development

  • On rural development, Ireland’s priority is to
    maintain support for on-farm investment and to assist the structural adjustment
    necessary to improve competitiveness as we implement the Food Harvest 2020
    strategy.
  • Ireland has concerns about how rural development
    funding can fit strategically within the Common Strategic Framework model, as
    proposed by the Commission.
  • We are also concerned about issues such as the
    restriction of investment to farms of a certain size, the absence of a forestry
    premium for loss of income, the designation of areas of natural constraint and
    the potential effects of Pillar 1 greening payments on agri-environment
    payments.

 

Market Support
Measures

  • Ireland welcomes the proposed retention of key
    market supports, including export refunds, together with the use of exceptional
    measures and a crisis reserve for emergency situations.
  • On exceptional measures and the crisis reserve,
    the key requirement is that funding is available to deal with whatever
    emergency situations might arise.
  • We have concerns in relation to the effects of
    increased recognition of producer organisations and inter-branch organisations
    on the functioning of the single market.
  • Ireland strongly supports the proposal to
    abolish sugar quotas from 30 September 2015.

 

Conclusion

  • We are entering a crucial stage of what will be
    a protracted negotiation process,
  • Many details remain to be thrashed out and the
    nature of many of the proposals may change considerably as the process evolves.