THE REVISION OF THE EU COMMON AGRICULTURAL POLICY
Current state of affairs with the CAP reform
After more than two years from the publication (1st June 2018) of the initial Commission proposal for the revision of the EU Common Agricultural Policy (CAP) followed by intensive discussions in the Council of Minister for Agriculture (CMA) under five successive Presidencies and parallel debates in the Committee for Agriculture of the European Parliament (EP COMAGRI) in October 2020 the above two institutions succeeded in adopting common positions on the revision of the CAP. These will now be discussed at the “trilogue” meetings (European Commission, Presidency and EP) expected to start towards the end of November 2020 with a view to reconcile differences between the positions of the two co-legislators in consultation with the European Commission.
Before taking up the most recent debates in the CMA which led to its adopted position on the CAP revision, I believe that the reader will better understand the proposed new CAP if a short account of the previous CAP reforms is first presented.
The first five CAP reforms
Ever since it was introduced in 1962 the CAP has undergone five major reforms. Through a system of high support prices and unlimited buying guarantees the CAP had fulfilled its objective of securing adequate food supplies. However, it also produced excessive surpluses for many commodities and an increasing gap between EU and world market Prices. To bring expenditure under control, in 1992 the CMA decided to fundamentally change the policy by replacing the system of price support and interventions with a system of compensatory income support by direct subsidies per hectare of agricultural land. In 2003, and following a European Council decision a new alignment of the EU prices with world prices was applied (the negative effect on farmers’ income was partly offset by direct aid), while, at the same time, environmental cross-compliance was made a condition for granting aid to producers and a new “rural policy” (thereafter known as Pilar II) was introduced. Following a mid-term review conducted by the Commission in 2002 to assess the impact of the last CAP reform the CMA, in 2003, introduced further changes by decoupling of aid from volumes produced to make farms more market oriented (decoupled payments to farmers were termed “single farm payments”), enhancing environmental cross-compliance, ensuring compatibility of the aid with WTO rules and allowing funding to be transferred between the two Pillars of the CAP (“modulation”). The principle of financial discipline entailed that the allocations of the first Pillar were strictly determined with the imposition of annual ceilings. The existing twenty-one Common Market Organizations (CMOs) were codified in one Regulation. In 2009, decoupling was completed through the gradual alignment of the remaining coupled payments by moving them to the single payment scheme, partially re-orienting Pillar I funds towards rural development by increasing the modulation rate for direct aid and strengthening the ability of farmers to react to market signals. The main feature of the 2013 reform (for the 2014-2020 period) is replacing single payments and the “targeting” to specific objectives, some of them optional for Member States (basic payment, “greening payment” in addition to the basic payment per hectare for using friendly farming practices (crop diversification, maintaining permanent grasslands, maintaining an “ecological focus area”, i.e. fallow land, hedges, trees, etc. of 5% of the arable area on farms with more than 15 hectares), additional payments for young farmers, voluntary “redistributive payments” or additional support for the first hectares of agricultural land, voluntary additional income support for areas with specific natural constraints (such as mountainous areas), voluntary aid coupled to production for some products, voluntary simplified system for small farmers). An “external convergence” process was also adopted with a view to reducing the gap between direct payments per hectare received by farmers in the “old” Member States and those in the twelve countries that joined the EU following enlargement. A mandatory reduction of basic payments above 150 00€ was introduced while the flexibility to transfer funds between Pillars was enhanced. In the CMO domain, several supply control measure ceased (sugar quota abolished after 2017, vine planting rights replaced by an authorization system in 2016, etc.). Finally, the definition of “active farmer” was introduced with a view to excluding, on the basis of three criteria, from direct payments companies whose primary business is not agriculture and a “negative list of business activities” was adopted. Because of the administrative difficulties encountered by the public administrations of the Member States in the application of this definition, it was amended in 2017by a Regulation (the “Omnibus” Regulation) by which the criteria were reduced and the application of the definition became more flexible.
Developments in farm incomes, agricultural and food prices and trade following the CAP reforms
Before going into the most recent revision of the CAP, a few words should be said as to the effects of the CAP reform process to date. First, the CAP provided relative income stability to farmers. With the year 2010 as a basis, farmers’ net cash incomes remained stable and slightly above the base year (in the USA, after a peak in 2013 net cash incomes declined sharply in 2015). The gap between EU and world prices for some commodities, most pronounced between 2002 and 2007 particularly for sugar and beef, almost disappeared by 2016 reflecting better competitive conditions for the EU products as a result of the reduction in support measures and quantitative restrictions. While the EU was a net importer of agricultural and food products in 2003-2005 it had become a net exporter by 2013-2015. Some positive environmental externalities of the CAP should also be noted between 2000 and 2015, in particular the decline in the use of nitrogen and phosphorous fertilizers.
The current reform – Preparatory stages
The budget
In May 2018 the European Commission submitted its proposals for the multiannual financial framework (MFF) period 2021-2027. The agricultural envelope (in constant 2018 prices) amounted to 324.2 billion € or 15% below the 2014-2020 envelope (of 382.8 billion €. The reasons for the reduction were the exit of the UK (a net contributor) and the need to cover other priorities (e.g., immigration, internal security, etc.). As a consequence of the smaller budget, Pillar I and Pillar II allocations were 11% and 28% respectively below their 2014-2020 levels. The choice made here was in favor of protecting farmers’ direct payments at the expense of rural development.
Commission proposals for three CAP Regulations
- Capping
The Commission proposes a mandatory degressive capping on direct payments starting with a tranche between 60 000 and 75 000 € for which an at least 25% reduction is foreseen, another tranche of between 75 000 and 90 000 € with at least 50% reduction and a third tranche between 90 000 and 100 000 € with at least 75% reduction. A 100% reduction is foreseen for above 100 000 €.
- General and specific objectives
On the basis of the new MFF, the Commission presented three proposals for Regulations setting out the legislative framework of the CAP 2021-2027 (a Regulation on Strategic Plans, a Horizontal with provisions on the financing and management and a Regulation on the Common Market Organization). With the Strategic Plans Regulation the Member States can chose what actions to employ in order to fulfill the general objectives of the CAP as defined in the Regulation “(to foster a smart, resilient and diversified agricultural sector ensuring food security, to bolster environmental care and climate action and to contribute to the environmental and climate –related objectives of the Union, to strengthen the socio-economic fabric of the rural areas”). It is important to note that the environment/climate perspective of the policy is now integrated as one of the primary objectives of the CAP. To make this priority stronger, three amongst the nine specific objectives of the new CAP relate directly to the environment and climate (“contribute to climate change mitigation and adaptation”, ”foster sustainable development and efficient management of natural resources, such as water and air”, ”contribute to the protection of biodiversity, enhance ecosystem services and preserve habitats and landscapes”). Furthermore, other provisions in the same Regulation underline the “increased ambition” of the new policy as regards the environment/climate by stipulating that Member States, through Pillar I and II interventions in their Strategic Plans, should aim at “making a greater overall contribution to the achievement of the “three specific environmental objectives of the CAP (see above). These provisions are sometimes referred to in the literature as “no back-sliding”.
- Conditionality and the “green architecture”
Although, in accordance with the principle of subsidiarity, Member States will be free to select the interventions necessary to fulfill the new CAP objectives, the Commission will control the results of their actions and the delivery on the objectives through indicators or benchmarks and the carrying out of reviews to ascertain that these indicators are attained. In case of non-respect administrative penalties on farmers may lead to reductions in their direct payments. The “result” indicators upon which this conditionality is based are included in a specific annex III of the Strategic Plans regulation (amongst them are Good Agricultural and Environmental Condition (GAECs) 8 on crop rotation (to preserve the soil potential) and 9 minimum area of land devoted to non-productive feature and area to improve on farm biodiversity).
The “green architecture” of the CAP consists of the introduction schemes, mandatory for the Member State administrations but voluntary for farmers, for the climate and the environment (“eco-schemes”). Financing for these schemes is granted under the Pillar I (direct payment) financial allocations to farmers in order to finance interventions designed to meet one or more of the environmental and climate specific objectives of the CAP (see above). Additional financing is reserved under Pillar II (rural development EAFRD) allocations for the three specific environmental and climate objectives. It is specifically indicated in the Regulation that “30%, of the EAFRD contribution to the CAP Strategic Plans shall be reserved for interventions addressing the specific three environmental objectives”.
The above elements of the new CAP are not an exhaustive list of the Commission proposals. However, they constitute the fundamental changes in the CAP policy as compared to the existing CAP. As such, they were the subject of the debate in the CMA.
Decisions in the EU Council in July 2020 open the way for an agreement on the CAP
Decisions adopted at the meeting of the EU Council of Heads of State and Government in July provided guidance for a number of controversial issues on which there had been disagreement between Member States in successive meetings of the CMA under the previous five Presidencies (Austrian, Romanian, Bulgarian Finnish and Croatian). Crucial and a starting point for an agreement on the CAP were the decisions in the EU Council on the budget, the capping, external convergence and the flexibility to transfer allocations between Pillars.
As regards the budget, the EU Council fixed the allocations for the next CAP at 343.9 billion € (2018 prices) which is considerably below (-10 %) the budget for the current 2014-2020 CAP (see above). With a view to facilitate negotiations in the subsequent meetings of the CMA, the EU Council also decided to reserve 5.4 billion € from the Pillar II (rural development, EAFRD) fund of 85.4 billion € and make “additional allocations” to those Member States facing particular structural changes in their agricultural sector or which have invested heavily in Pillar II expenditure or which need to transfer higher amounts to Pillar I so as to increase the degree of convergence” (France was the most favored receiving 1.6 billion, followed by Germany with 650 million €, Spain and Italy 500 million € each, Finland 400 million €, etc.).
Of major importance for a subsequent agreement was the EU Council decision on capping of the direct payments. Capping will be “voluntary for Member States at the level of 100 000 €”. This decision departs from the initial Commission proposal in 2018 which makes capping mandatory from 60 000 € upwards on a degressive scale and with 100% reduction for payments above 100 000 € (see above).
On external convergence the EU Council decided that it should “continue” in the same way as in 2014-2020, i.e. “those Member States receiving direct payments below 90% of the EU average will close 50% of the gap between the current average direct payments level and 90 % of the EU average in six equal steps”. It should however be noted that estimates from the Commission have shown that the average EU direct payment per hectare in 2019 was 271 € (with all eastern European EU Member States (except Slovenia and Croatia) below this average. Particularly disadvantaged are the three Baltic states (with average direct payments of 181 € per hectare for Lithuania, 179 € for Latvia and 178 € for Estonia). This is most likely the reason why, on the basis of a proposal by Lithuania, a sentence was included in the Council conclusions that “additionally, all member states will have a level of at least 200 € per hectare in 2022 and all member states shall reach at least 215 € per hectare by 20207”.The Council further determined that “This convergence will be financed proportionately by all Member States”.
Equally important for the CMA negotiations was the EU Council decision on the flexibility in the transfer of allocations between Pillars. It is stipulated that the transfer from Pillar I (direct payments) to Pillar II (rural development) is limited to 25% (if however the funds transferred to Pillar II are destined to the financing of interventions addressing specific environmental and climate related objectives” the 25 % threshold “may be increased by 15% points”). The same 25 % limit applies for transfers from Pillar II to Pillar I.
Other provisions in the EU Council conclusions fix the co-financing rates for Pillar II (rural development) support. An (exceptionally high) high rate of 80 % shall apply for commitments relating to the specific environmental and climate objectives; for areas under specific disadvantages resulting from mandatory requirements (this refers to mainly projects for Natura 2000 sites); etc. To be noted that if funds are transferred from Pillar I to Pillar II a “100 % co-financing rate applies”.
The EU Council also settled another contentious issue by deciding to set up an “agricultural crisis reserve” to provide support for market management or stabilization in the case of crises affecting agricultural production”. The reserve shall be established at the beginning of each year within the Pillar I (direct payments) allocation and the amount of the reserve is set at “450 million € in current prices”.
The German Presidency compromise proposal and the agreement in the CMA on 19th and 20th October 2020
The German Presidency of the CMA prepared proposals which incorporated, in a legal language, in the Articles of the CAP Regulations the above decisions by the EU Council. With the more divisive issues cleared, the debate in the CMA (at its meetings in September and October) focused on fine-tuning some remaining pending matters from previous Presidencies and some other amendments.
The German Presidency presented its compromise proposals to the CMA of 19th and 20th October. As regards the definition of the “genuine farmer” it is left at the discretion of the Member States to define the “genuine farmer” (“Member States may determine in their CAP Strategic Plans which farmers shall be considered as “genuine farmers” according to objective and non-discriminatory criteria”). On “capping” the Presidency considered that the EU Council decision for a “voluntary capping at the level of 100 000 €” did not exclude the inclusion of a (voluntary) degressive scale of reductions in direct payments. The relevant Article in the Strategic Plans Regulation introduces tranches as in the initial Commission proposal (see above) but with the difference that for the third tranche (between 90 000 and 100 000 € with at least 75 % reduction as in the Commission initial proposal) an “up to 85 % above 90 000 €” is now foreseen. In accordance with the EU Council decisions it is also stated that “Member States that choose to introduce capping shall reduce by 100% the amount exceeding 100 000 €”.
Most of the debate in the CMA focused on the following issues;
- As regards the “green architecture” the presidency proposed an amendment to ring-fence a 20 % of Pillar I (direct payments) allocations for eco-schemes in response to request by some Member States and by the European Commission for mandatory eco-schemes with a ring-fenced allocation. Sensitive to the argument by other Member States that because of the complexity of the programming exercise required for eco-schemes funds may remain unused and risking to be lost the Presidency introduced some flexibility by allowing, for the first two years of implementation (2023 and 2024), the use of such funds at risk “for other interventions” (including direct payments and rural development interventions). As a further concessions the Presidency compromise offers some margin to reduce the 20 % ring-fencing by the amount of interventions in: a) environment, climate and other management commitments, b) area-specific disadvantages resulting from mandatory requirements and c) investments exceeding 30 % of the total Pillar II (EAFRD) allocation. However, the Presidency compromise includes a limit to this possible reduction of the 20 % as it is stated that it may not be “more than 50 %”. The Presidency however did not accept suggestion by some Member States to extend the possibility to reduce the 20 % ring-fencing for non-used funds to the whole of the period (i.e. until 2027). Furthermore, the Presidency argued that the 20 % ring-fencing is a necessary tool for the negotiations with the European Parliament (which in his own position on the new CAP is asking for a 30 % ring-fencing in Pillar I).
- Another important amendment by the German Presidency relates to the conditionality as regards the respect of the Statutory Management Requirements (SMRs) and Good Agricultural and Environmental Conditions of land (GAECs) which appear in an Annex of the Strategic Plans Regulation (see also reference in section “Conditionality and the Green architecture” above). The German Presidency compromise proposal for GAEC 8 (preserving soil potential such as crop diversification) and GAEC 9 (minimum share 5 % of arable land devoted to non-productive features) was to exempt holdings wit a size of arable land up to 5 hectares. In view of the negative attitude of many Member States the Presidency final compromise proposal was to retain the 5 % arable land in GAEC 9 but raise to 10 hectares the size of arable land below which holdings will be exempted from the obligation to respect GAECs 8 and 9.
- There was also a number of other amendments by the German Presidency on other Articles in the Strategic Plans Regulation, which were, however less controversial, like for example in the “coupled support” financing where a 13 % from Pillar I (direct payment) allocation was accepted (+ 2 % for the support of protein crops). Another amendment, introduced in some Articles of the same Regulations relating to allocations and payments (e.g. the Articles on capping, complementary redistributive income support, etc.) seeks to ensure identification of the natural person or individual farmer who benefits from CAP support and requires the Commission to set up a “real time information and control system” in which Member States will be obliged to enter information “as a condition for receiving funds” from the CAP. It should be noted that the above amendment (in the same wording) has been adopted by the European Parliament in its own position on the CAP revision.
As I have already remarked, the above amendments are not a complete list and there are many more in the final documents adopted by the CMA which ended its proceedings inn the early morning of 21st October. They are however those on which most of the political debate in the CMA focused.
Some thoughts on the “common” character of the CAP and its contribution to environment and climate mitigation.
The political decisions taken in the EU Council and the CMA confirm the prevalent position of Agriculture amongst the other European Union common policies and its role in supporting farmers’ income and food supply in accordance with Article 39 of Treaty on the Functioning of the European Union (TFEU). Although the instruments to apply the CAP were adapted since its inception through successive revisions and in response to changing circumstances in the EU and internationally, the results and the impact of the CAP on incomes, prices and trade remained favorable. In recent years it became more and more evident that a common effort was needed in all sectors of activity in the EU to contribute towards environment conservation and climate mitigation. From already the second revision of the CAP in 2003 elements of environmental cross-compliance were introduced in the policy while the intensity of these measures increased considerably in subsequent revisions. Already a considerable part of CAP funding is directed towards environmental objectives under strict conditions for Member States and farmers. The recent revision of the CAP, now in the process of being finalized, has confirmed the continuing commitment of the EU in this respect despite considerably diminished financial resources and higher administrative requirements it entails in terms of management for both national administrations and farmers.
There are, however, some issues that require further elaboration. The first is that the CAP should remain a “common policy” as stated in Article 39 of the TFEU. I am fully conscious of the difficulties in a negotiation between 27 Member States with considerable differences in their agricultural economies. Quite often in such negotiations, in this and other domains in the EU, concessions have to be made to reconcile acute differences in national interests. These however should not impair the ”common” character of a policy by the introduction of a “voluntarism” which in some cases touches upon a “re-nationalization” of the policy with all the consequences this might have on competition and the maintenance of a level-playing field. Secondly, although undoubtedly the agricultural sector should make its contribution towards meeting the commitments and targets of the Green Deal initiative and its accompanying Farm to Fork and Biodiversity strategies, it should not be expected that the recommendations in this initiative (like organic farming, reduction in the use of pesticides, etc.) can be fulfilled, by and large, through additional constraints in the CAP. The targets and commitments proposed in the Green Deal should indeed be taken into account by the Member States in the formulation of their Strategic Plans as recommendations but not as mandatory commitments which many Member States would be unable to fulfill to the detriment of their economies and to the overall credibility of the initiative.
Artikel aus dem Magazin land 3.20
Konstantin Kostopolous, European Landowners Organization (ELO)