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Rural development and renewable energy

Revised draft version of Regulation on single farm payments

Following the meeting of the Special Committee on Agriculture on 10 December 2012, the Cypriot Presidency issued a revised draft of the key regulations, showing the proposed changes.The Presidency text builds upon the amendments prepared by the Danish Presidency (doc. 10890/12).

The Cypriot presidency finds broad support of delegations for amendments in the following areas:
- Article 18 (Payment entitlements),
- Article 21 (First allocation of payment entitlements),
- Article 23 (Establishment and use of the national reserve) and
- Article 25 (Activation of payment entitlements).

Also, based on discussions in the SCA and working groups, to:
- Article 22, paragraphs 1 to 3a (Value of payment entitlements - doc. 14148/12),
- Articles 48, 49 and 51 (Small Farmers Scheme - doc. 14149/1/12 REV 1);
- Articles 36 and 37 (payment for young farmers - docs. 14153/12 and 15625/12);
- on the accession of Croatia (doc. 15793/12);
- on data protection (doc. 16050/2/12 REV 2)

Articles 29 to 33 (Greening of the CAP) have been adjusted to reflect the outcome of the Working Party on Horizontal Agricultural Questions on 12 December. This text on greening is a 'work in progress'.

Source: register.consilium.europa.eu

Alan Matthews reports two key areas of discussion - internal convergence (bringing payments to the same level) and greening the CAP.

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Alan Matthews is Professor Emeritus of European Agricultural Policy in the Department of Economics, School of Social Sciences and Philosophy at Trinity College Dublin, Ireland. He is President of the European Association of Agricultural Economists in the period 2011-2014.

As Alan Matthews reports, the Cypriot Presidency organised a discussion on internal convergence at the Special Committee on Agriculture in October. Most member states were opposed to the method of adjustment proposed by the Commission to reach a uniform level of payment by region by 2019.

The Commission proposal included a heavy front loading of the move to a uniform basic payment in the first year plus a uniform green payment for all farms from year 1. This poses political problems for member states using the historic model because it would lead to a profound redistribution between sectors and regions, as well as potentially introducing additional eligible areas which would, in addition, further water down the value of existing entitlements. England has already experienced this disruption following decisions in 2004.

Two alternative proposals were circulated by groups of member states:

Proposal 1: Ireland, Denmark, Spain, Italy, Luxembourg and Portugal proposed that internal convergence should follow the same rhythm as that for external convergence (flattening of payments across countries) proposed by the Commission. The formula proposed by the Commission for converegence between payment levels in different member states was that those with average payments below 90% of the EU average would close one third of this gap over the MFF period to 2020.

This would keep the link with historical references for direct payments well into future MFF periods. It was proposed that this partial convergence should take place in equal steps up to 2019. Also, the same principle should apply to the green payment which would thus be expressed as a percentage of the basic payment established at the individual farm level rather than of the national or regional flat rate.

Proposal 2: Austria, Belgium, Czech Republic, Hungary and Slovenia also circulated a proposal calling for greater flexibility for individual member states. A key demand for this group, which included some new member states, was that the countries applying the SAPS (which is a flat-rate system) should not be disadvantaged by any differentiation allowed to the older member states. Thus, they wanted to be allowed also to differentiate payment entitlements depending on the type of land during the transition period. Apart from looking for a longer transition period, this paper proposed a number of options to limit the extent of redistribution among farmers.

A further model proposed by France would give a subsidy premium for the first few hectares of each farm, to address the particular French need to favour generally smaller livestock farms at the expense of more profitable crop farms. France is negotiating on the basis that this premium would apply to hectares equivalent to the average farm size in each EU country, which would be about 50 hectares in France.

This proposal would result in degressivity of payments, something the Commission wanted to achieve via capping but which was opposed by many member states.

The Cyprus Presidency model

What the Cyprus Presidency proposes closely follows the Commission proposal on Article 22, dealing with the value of payments entitlements and convergence. Member states applying the SFP would be able to limit the basic payment to no less than say 40% of the regional reference basic payment (what Alan refers to as the ‘minimum’ basic payment, although this term does not appear in the regulation) in the first year.

The money ‘saved’ by this would then be recycled to farmers whose existing entitlement values are currently higher than this minimum basic payment, by increasing the value of their entitlements.

The Cyprus draft adds that the same flexibility would be given to new member states using the SAPS and transferring over to the SFP model after 2013. It also would allow a reduction coefficient to convert hectares of permanent grassland where grasses and other herbaceous forage are not the predominant cover into hectares of eligible area, as sought by the Austrian-led group.

An earlier amendment would allow member states - like England in UK - which have already adopted either the regional or dynamic hybrid SFP model to keep their existing allocation of entitlements. These member states are given the flexibility to adjust their payment entitlements without any prescriptions.

The intention is that by a particular year, probably still to be 2019, "all payment entitlements in a Member State or ... in a region, shall have a uniform unit value.”.

The Cyprus model would thus potentially slow down the achievement of a uniform rate compared to the Commission proposal. But it would maintain the end goal of a uniform regional or national payment within the next MFF period. It would also retain the green payment as a fixed share of the national ceiling per farm, and not a fixed share of each farm’s basic entitlement, which implies an immediate move to a uniform payment for that element of direct payments from year 1.

The entire greening chapter of the direct payments regulation is in square brackets (ie. unresolved). The Cypriot progress report also notes under outstanding issues included in Heading 2 of the MFF Negotiating Box (ie. issues needing to be resolved by the summit) “the principle of greening of direct payments and the proposed 30% proportion of direct payments subject to greening”. As Alan Matthews comments, even the principle of greening, supposedly the ‘big idea’ of the Ciolos reform and the basis for legitimising the continued high share of the EU budget going to CAP Pillar 1 payments in the Multi-annual Financial Framework, is 'just about hanging on by its fingernails' at this stage of the negotiations.

However, it is important to note that Commissioner Ciolos remains committed to greening, and can only be overruled if the Council is unanimous, although in practice it is a matter of negotiation as 'nothing is agreed till everything is agreed' in Council

The Cyprus Presidency draft regulation makes clear how much of the original idea of the Commission of greening would be changed even if the principle survives.

The crop diversification requirement would apply only to holdings with more than 15 hectares of arable land with further exemptions for holdings with more than 75% of the total area is permanent grassland or cultivated with crops under water.

The Commission’s proposal that every farm would be required to maintain its area of permanent grassland (within a 5% tolerance) is weakened by permitting member states, as a ‘derogation’, to suspend this requirement where the national share of permanent pasture in total agricultural area has been maintained (which is the status quo obligation under the Health Check).

Ecological focus areas would now be confined to mainly arable holdings over 15 hectares. Also what counts as ecological focus area is extended to include certain areas of permanent crops as well as areas covered by equivalent practices funded under agri-environment measures in Pillar 2. The 7% figure still appears in square brackets so remains to be decided.

But Alan points out that the big addition is to allow two other measures which are defined as 'equivalent practices', alongside the three measures proposed by the Commission. These are commitments undertaken as part of agri-environment measures funded under Pillar 2 and environmental certification schemes.

Alan has been critical of aspects of the 'equivalence' debate, but the Cyprus amendments actually propose a rather limited version of equivalence, with less member state flexibility. His assessment is that the measures proposed would not make much difference to the limited environmental impact these broad-brush measures will have.

While the equivalence measures are more limited than some member states would like, there are still legitimate question marks raised if farms which are funded to undertake certain agricultural practices under Pillar 2 can also claim these for eligibility for the green payment in Pillar 1. At a minimum, there is clearly no additional environmental gain for the taxpayer. And it also raises questions of double funding. In Eurinco's opinion, this would be unacceptable to the Court of Auditors, and is unlikely to survive the negotiations.

The Presidency proposal (Article 29(2)) adds the statement that “[The green payment] shall be without prejudice to the calculation of costs incurred and income foregone for the equivalent practices referred to ….”. His assessment is that this means that the baseline for Pillar 2 schemes should not be affected by the green practices in Pillar 1.

The double funding issue is also addressed in the revised Article 29 (No double funding) in the draft Horizonal Regulation which now reads:

Except with regard to [support provided for under (agri-environment measures) which is without prejudice to payments under (Article 29(2) of the direct payments regulation)], expenditure financed under the EAFRD shall not be subject of any other financing under the EU budget.

The green payment was defended by the Commission as using some of the Pillar 1 money to support practices beneficial to the climate and the environment. Those farmers enrolled in Agri-environment measures (AEMs) are certainly farming in more environmentally-friendly ways, but the European taxpayer is already compensating these farmers for the additional costs that they incur. Giving these farmers the green payment in addition, without any further environmental benefit, is in economic terms, 'a deadweight loss'.

As Alan points out, if this money were available to expand AEMs in Pillar 2, even more farmers would be encouraged to farm in ways beneficial to biodiversity, climate and the provision of ecosystem services. The Eurinco view has long been that funding some current base-level agri-environment measures (such as those in ELS) under pillar 1 should release some of the remaining pillar 2 funds for higher level measures.