The competence over common agricultural policy is supposedly shared between the EU and the Member States. However, the EU has taken complete control of it with disastrous consequences over the past decades. The CAP has been trough different reforms but it continues to be one of the most expensive EU common policies, it imposes substantial costs on developing countries as well on EU consumers and taxpayers. The time has come to repatriate agriculture policy to Westminster.
Last October the European Commission proposed a draft reform of CAP for the period 2014 – 2020. However, under the Commission’s proposals CAP would not be simplified, as it will continue to be too costly for national authorities and beneficiaries. The Commission has failed to propose radical reforms. In fact, the Commission has managed to disappoint everybody, member states, MEPs, farmers, environmental organizations and taxpayers. We can, therefore, expect fierce negotiations.
It is well known that the EU Member States do not have the same vision on how CAP should be reformed. France has been defending the principle of direct aid granted to farmers. Whereas France has been trying to convince other EU member states to keep CAP spending at its current level, the UK has been calling for a "modernisation of European agriculture.” According to the UK Government the CAP reform should be focus on competitiveness, market liberalisation, trade-distorting elements, and protecting the environment. The UK has called for measures to enhance competitiveness, and reduce reliance on subsidies, wants market based solutions in order to reduce trade-distorting subsidies, as well as simplification of the CAP in order to reduce costs for both farmers and administrations. James Paice, the Minister of State for Agriculture and Food, said to the European Scrutiny Committee that the Commission’s proposal “reveals a disappointing lack of ambition, and is unlikely to benefit the environment or improve the long term competitiveness of the industry.” The Minister also noted that the proposal is “unnecessarily complex.” There is widespread opinion that the Commission’s proposals entail more red tape. According to James Nicholson MEP, ECR’s agriculture spokesman, "This is not a reform of the CAP but a regression.” He stressed that the CAP reform proposal "is complicated, bureaucratic, will lead to more red tape and will be too hard for farmers to implement.” The European Court of Auditors also considers that the Commission’s proposal for the reform of the CAP “remains too complex”. According to the Court “In spite of the claim that it focuses on results, the policy remains fundamentally focussed on spending and controlling expenditure and therefore oriented more towards compliance than performance.” Furthermore, the Court believes that the Commission proposed measures cannot be “implemented effectively without imposing an excessive administrative burden on national managing agencies and on farmers.”
The proposals for CAP reform are closely linked to the new multiannual financial framework. The negotiations of both proposals will run in parallel. The outcome of the negotiations by member states on the 2014-20 MFF will determine level of payments and their distribution. Under the Commission MFF proposal, from last June, a considerable part of the EU budget continues to be dedicated to agriculture. The Commission has kept the two pillar structure of CAP and proposed to allocate EUR 317.2 billion for Pillar I and EUR 101.2 billion for rural development (Pillar II) over the 2014-2020 period. Moreover, the Commission proposed five instruments outside the financial framework, including the European Globalisation Adjustment Fund (EUR 2.8 billion) and the Reserve for crises in the agriculture sector (EUR 3.9 billion). The total budget for CAP would be, therefore, EUR 435.6 billion over the 2014-2020 period. Hence, CAP will continue to amount 36% of the EU budget. The Government is seeking a considerable cut in the CAP budget. The UK has the right to veto the adoption of the financial framework, consequently it has a strong negotiating position.
The European Commission legislative proposals on the CAP reform, included a proposal for a regulation establishing rules for direct payments to farmers under support schemes within the framework of the common agricultural policy, proposal for a regulation establishing a common organisation of the markets in agricultural products, proposal for a regulation on support for rural development by the European Agricultural Fund for Rural Development (EAFRD), proposal for a regulation on the financing, management and monitoring of the common agricultural policy, proposal for a Council regulation determining measures on fixing certain aids and refunds related to the common organisation of the markets in agricultural products.
The European Commission presented its CAP reform package to the EU agriculture ministers in October 2011. Since then, the Council has been having policy debates on the different proposals. On 26 April the Agriculture Council held a debate on direct payments within the framework of the CAP reform. It is important to note that before the Lisbon Treaty entry into force, CAP’s measures were decided by QMV in the Council and the European Parliament had a consultative role. But now, the main decision making procedure for CAP is the “ordinary legislative procedure.” Hence, the European Parliament has, for the first time, a central role in shaping CAP reform. It remains to be seen what will come out of the negotiations between the Council and the European Parliament. Brussels is expecting to conclude negotiations on the Commission's proposed CAP reform in 2013, and then the new CAP would come into force on 1 January 2014. The Government regards such target date as "very ambitious" and “unrealistic if negotiations take as long as anticipated.”
The UK Government has been seeking more reductions in the total available for Member State direct payments. It believes that direct payments are “very poor value for money”. However, under the Commission proposal for a regulation establishing rules for direct payments to farmers under support schemes within the framework of the common agricultural policy, direct payments would be kept. The Commission proposed to replace the Single Payments Scheme in the EU-15 and the Simplified Area Payments Scheme (SAPS) in the EU-12 with a new Basic Payment Scheme as from 2014. The use of the regional model that is optional in the present period would be generalized. Hence, such scheme will operate on the basis of payment entitlements allocated at national or regional level to all farmers taking into account their eligible hectares. Consequently, subsidies would be calculated per hectare from 2014 to 2019, rather than basing payments on production.
The new scheme of direct payments proposed by the European Commission has been considered by several member states as too complex. They believe that such proposals defy the main objective of simplifying the CAP. Moreover, it has been estimated that the proposed reform would result in an increase of 15 % in the costs of managing the direct payment schemes, which will be bear by Member States.
The Commission proposal is aiming at reducing the differences between the levels of payments between farmers, as well as between regions and between Member States. Hence, in order to ensure equal distribution of direct support between Member States, the Commission proposes to reduce the link to historical references and to progressively adjust the levels of direct support per hectare. Member States that receive direct payments below 90% of the EU average payment per hectare will receive more. According to the Commission “this gap will be reduced by one third during the period 2014-2018.” Moreover, from 2019 there would be a uniform payment per hectare at national or regional level. Consequently, payments would no longer be linked to production. The Government has regarded the proposal for redistribution of the direct payment budget between Member States “as un-ambitious”. Several Member States had concerns about the impact of this proposal and called “for greater flexibility and appropriate transitional periods”. France, Belgium, Italy and the Netherlands have criticized the Commission’s proposal on redistribution of direct payments, as they would be particularly affected by it. In the other hand, Sweden and the East European member states believe the proposal does not go far enough.
The Commission has noted, “The distribution of direct income support among farmers is characterised by the allocation of disproportionate amounts of payments to a rather small number of large beneficiaries.” Hence, it proposed to progressively reduce the support level for large farms. Unsurprisingly, several Member States have already shown their opposition to cap payments to large farms, as they are worried that it would have a detrimental effect on their agricultural sectors. According to the UK Government such proposal is “bad for competitiveness”. The Commission is willing to change the amount of the cap, but the cap itself is not for negotiation. The European Commissioner for Agriculture and Rural Development, Dacian Cioloş said, “For some member states the subject will continue to be discussed. But for me, discussion will continue to take place, but not on the existence of the capping scheme.” Under the Commission proposal, payments from the Basic Payment Scheme would be progressively decreased for bigger farms, with a limit of €300,000 per farm. According to the Commission these maximum levels would not apply to payments “granted to agricultural practices beneficial for the climate and the environment since the beneficial objectives they pursue could be diminished as a result.” The Commission said “The amount of support that any individual farm can receive from the Basic Payment Scheme will be limited to €300 000 per year, and the payment will be reduced by 70% for the part from €250 000-300 000; by 40% for the part from €200 000-250 000, and by 20% for the part from €150 000-200 000.” This system would take into account employment levels when calculating how to cap direct payments. Consequently, big farms can deduct the costs of salaries, including social security costs, from the total. However, the Government has noted, “the Commission's requirement that Member States should control this would be administratively complex to implement along with calculating salaried labour.”
It is important to recall that the European Court of Auditors has published a special report on the Single Payment Scheme of the common agricultural policy. According to the Court persons or entities not engaged in agricultural activity have been benefiting from the SPS payment because of the way the definition of the beneficiaries of the scheme was formulated and applied, such as recreational and sports clubs, railway companies, nature reserves, airports and city councils, hunting and sporting estates, government bodies, schools and camping sites. In order to respond to the ECA´s criticism, the Commission’s proposal aims to ensure direct payments just go to "active farmers.” The Commission has changed the definition of active farmers in order to exclude payments to applicants who have no real or tangible agricultural activity. Under the Commission proposal, applicants “whose CAP direct payments are less than 5% of total receipts from all non-agricultural activities” would not be entitled to received payments, as well as “if their agricultural areas are mainly areas naturally kept in a state suitable for grazing or cultivation and they do not carry out the minimum activity required, as defined by Member States.” The Commission has proposed derogation for smaller part-time farmers. The Government believes that the active farmer proposals would defy the simplification agenda, consequently giving rise to administrative burdens. Member States would be required to control the proportion of direct payments received by recipients compared to their receipts from non-agricultural activities. Moreover, it is important to mention that the European Court of Auditors has noted that the Commission's proposal to limit payments to active farmers would not eliminate the risk of payments being made to beneficiaries who do not exercise any agricultural activity.
Under the Commission's proposal, cross compliance will continue to be a key element of CAP whereby direct payments from national envelops may be reduced if the beneficiaries have not respected certain environment, food safety, animal and plant health and animal welfare rules. However, according to the European Court of Auditors “in spite of the proposed reorganisation, the complexity of this policy continues to make it difficult for paying agencies and beneficiaries to administer.” The Commission proposed “a mandatory "greening" component of direct payments.” Hence, 30 percent of EU direct farm subsidies would be conditional on respect for the environment. Member States would be only allowed to pay 30% of the single farm payment to farmers who follow “agricultural practices beneficial for the climate and the environment.” In order to receive payment farmers would be required to comply with three measures, crop diversification, a farmer would be required to cultivate at least three corps, “none accounting for more than 70% of the land, and the third at least 5% of the arable area”, maintenance of permanent pastures as well as maintenance of ecological focus areas such as set-aside of at least 7% of farmland. Obviously, agricultural organisations have criticised such measure, as farmers would be required to stop all production on at least 7% of their land when more food is necessary.
Dacian Cioloş said that these 'greening' measures would be voluntary, meaning that there is no sanction for those who fail to respect them other than not receiving the subsidy. Nevertheless, member states, farmers, environmental groups, although for different reasons, have criticised such measures. According to several member states the greening measures proposed by the Commission should be optional and included in the second pillar (rural development). Dacian Cioloş has already said will not compromise on including greening measures in the first Pillar of the CAP. The Government is in favour of improving the environmental performance of the CAP, nevertheless it has noted that some proposed measures would “add additional complexity, and could impact negatively on agricultural competitiveness and productivity without delivering substantial environmental outcomes.” Some member states, particularly France, have raised concerns over the size of the national envelope reserved for environmental measures. Germany, France and Italy believe such measures will increase bureaucratic burdens. Italy's Agriculture Minister Saverio Romano said the measures would entail "more spending for companies and entail a huge bureaucracy without bringing real benefits." According to German Minister Ilse Aigner, "Leaving whole surfaces dormant is not compatible with the objective of producing more food in the context of a rising global population and at the same time producing renewable energy.” George Lyon MEP said “the measures run a real risk of making European farmers less competitive.” Moreover, he said “it is complete nonsense to require 7% of each farm's land to be set aside for ecological purposes at a time of food and energy scarcity." Copa President, Gerd Sonnleitner, said, “Production costs will increase, but production will not,” According to James Nicholson MEP "The greening measures will put an excessive burden on farmers and will make it harder for them to produce food.” He noted "At a time of rising food prices and fears regarding food security it is incredible that the EU wants to pay farmers to keep land fallow. I thought we had seen the end of this ridiculous idea.” In the other hand, environmentalists groups believe the proposals do not go far enough.
The Commission also proposed a voluntary payment, of up to 5% of member states' national ceilings for direct payments that they would be able to grant to farmers in areas with natural constraints. Moreover, under the Commission proposal, Member States may also use up to 2% of their national ceilings for direct payments to help young farmers (aged under 40). That payment may only be granted during a period of maximum five years. Although this proposal was generally supported, several Member States want this scheme to be voluntary. The Commission also proposed a scheme for small farmers aiming at reducing administrative costs, accordingly a lump-sum payment replacing all direct payments would be established. In order to face less stringent cross-compliance requirements, and be exempt from greening measures, any farmer may ask to participate in the Small Farmers Scheme and receive an annual payment fixed by the Member State, between €500 and €1 000. The total cost of the Small Farmers Scheme may not exceed 10% of the national envelope. According to the Government the introduction of mandatory schemes for young and small farmers are likely to “run counter to the simplification agenda, in that they would give rise to administrative burdens for both the farmer and the paying agency.”
Member States would be also allowed to use part of their national ceilings for direct payments for coupled support in some sectors. According to the Commission “Coupled support should only be granted to the extent necessary to create an incentive to maintain current levels of production in those regions.” The UK has been stressing the need to phase out the remaining coupled subsidies. However, under the Commission proposal, Member States will be allowed to use limited amounts of "coupled" payments, meaning a payment linked to a specific product, which would be up to 5% of their national envelops or 10% if their level of coupled support exceeded 5%. The member states are deeply divided on voluntary coupled support. Whereas several member states are asking for the list of possible coupled production to be extended, others, including the UK, believe that this proposal defies the main objective of CAP reform to promote decoupling support. The Government would seek, therefore, a reduction in coupled payments during the negotiations. The Government considers “that any type of subsidy, coupled or decoupled, inhibits business decisions which can deliver efficiencies, and thus discourages farming from reaching its competitive potential.”
The Commission, aiming at introducing flexibility for transfers between pillars, has proposed to introduce the possibility for member states to transfer up to 10% of their national envelope for Direct Payments (Pillar I) to their Rural Development envelope; in the other hand, Member States whose level of direct payments remains below 90% of the EU average, may transfer up to 5% of their Rural Development funds to their Pillar I national envelope. This would lead to backdoor subsidies.
The UK has been demanding the end of all market instruments whereas France has been defended them. The Commission has kept the existing market management mechanisms. According to the Commission “The existing systems of public intervention and private storage aid are proven safety net mechanisms to help producers at times of market difficulties following for example a food crisis.” The Commission proposed to introduce a “safeguard clause” for all productions to allow the Commission to take emergency measures to respond to general market disturbances. Such measures will be funded from the proposed crisis reserve fund, which amounts €3.9 billion, created outside the financial framework. The government has stressed that any support providing a safety net must be a measure of last resort.
