IEEP CAP Health Check Review: Article 68

This is one of four briefings written by IEEP to analyse the outcomes of the 2008 CAP Health Check. One briefing provides an overview of the main outcomes, another examines the changes to cross compliance and a third examines the implications for the dairy sector. This briefing examines Article 68.

Article 68 – Implications for the Future of the CAP

One outcome of the Health Check appears to have been a blurring of the boundaries between Pillar 1 and Pillar 2 of the CAP. The broadening and increased flexibility agreed for Article 68, or ‘specific support’ measures within Pillar 1 of the CAP, is symptomatic of this shift. So what should we make of Article 68? Is this a first step on the way to a single Pillar CAP, by offering an opportunity to introduce payments under Pillar 1 targeted at sustainable land management? Or does it increase complexity and confusion as to the purpose of Pillar 1 support, bringing with it the possibility of reintroducing coupled payments via the backdoor?

Article 68 (previously Article 69) allows all Member States to retain up to 10 per cent of their national ceilings for direct payments to provide support to specific sectors, for an expanded range of purposes. There are now five purposes for which the funds can be used:

  • protecting the environment, improving the quality and marketing of products (as currently permissible under Article 69) or for animal welfare support;
  • payments for disadvantages faced by specific sectors (dairy, beef, sheep and goats, and rice) in economically vulnerable or environmentally sensitive areas as well as for economically vulnerable types of farming;
  • top-ups to existing entitlements in areas where land abandonment is a threat;
  • support for risk assurance in the form of contributions to crop insurance premia; and
  • contributions to mutual funds for animal and plant diseases.

In order to comply with WTO Green Box conditions, support for a number of these purposes is limited to 3.5 per cent of national ceilings. This includes support for types of farming important for the protection of the environment, support to address specific disadvantages, and support for mutual funds. A number of exceptions have been agreed, however, where it can be assured that support will not be trade-distorting, most notably where Article 68 is used to fund agri-environment type measures beyond those included within Pillar 2. In these circumstances, up to 10% of the national ceiling can be used, but these proposals will need to be formally approved by the Commission first, to check that they are WTO compliant. As with the rules for other direct payments, support provided under Article 68 is not subject to national co-financing.

To put Article 68 into a budgetary context, the resources represented by 10% of the national ceilings for direct payments is equivalent to between 10% of Pillar 2 budgets in some of the new Member States, to more than 100% of Pillar 2 budgets in other Member States, such as the UK and the Netherlands.

It seems that increasing the flexibility of Article 68 played a significant part in facilitating negotiations on some of the more controversial elements of the reform package, such as modulation and the phasing out of milk quotas.

So how are Member States likely to interpret and apply Article 68? It seems that increasing the flexibility of Article 68 played a significant part in facilitating negotiations on some of the more controversial elements of the reform package, such as modulation and the phasing out of milk quotas. The likelihood is that the majority of Member States will use the opportunities presented to provide additional support to individual sectors (as they currently do under Article 69) according to national agendas, effectively re-coupling support to production, or for providing support for crop insurance and mutual funds. Although it is stipulated that the combination of Article 68 support and partially coupled support should not result in a net overall increase in coupled support, the opportunities under Article 68 may simply serve to counteract progress towards the further liberalisation of agricultural support agreed elsewhere. The risk management proposals may help to protect producers from increased price volatility, however, whether this is a justifiable objective of the CAP is a matter for debate.

On the other hand, there may be a small number of Member States, such as Denmark and the Netherlands, whose political priorities are to ‘green’ Pillar 1, who look to use Article 68 to promote more sustainable land management practices. France has already stated its intention to switch support for its basic agri-environment ‘prime a l’herbe’ scheme, which currently provides area payments for the maintenance of grassland through the agri-environment measure in Pillar 2, to Article 68. It is not clear whether this is indicative of a commitment to introduce targeted payments under a ‘greener’ Pillar 1, or whether it represents a more expedient strategy to reduce the level of co-financing for agri-environment, and to increase the amount of rural development money available for measures under Axis1 and Axis 3. In other cases, the option for providing top-ups to existing entitlements in areas where land abandonment is a threat or to provide payments in economically vulnerable or environmentally sensitive areas, are not dissimilar to the type of support that is available under the natural handicap measures under Pillar 2.

While the provision of more environmentally focused payments within Pillar 1 may initially appear attractive, it may serve to dilute environmental outcomes.

While the provision of more environmentally focused payments within Pillar 1 may initially appear attractive, it may serve to dilute environmental outcomes. One of the benefits of the Pillar 2 approach is the ‘programming approach’, whereby measures are set within a strategic framework of priorities, and their use has to be justified according to national/regional priorities and needs. In addition, there is a clear approval process, whereby the appropriateness of individual rural development programmes is scrutinised, and the effectiveness of these programmes is subsequently subject to a process of monitoring and evaluation. This programming approach helps to ensure a far greater level of value added per euro of public money spent. Allowing similar volumes of money to be used to fund similar activities under Pillar 1, with no formal approval processes, no monitoring and evaluation, and no co-financing requirements, could be seen as a backwards step towards a funding programme which is far less rigorous compared to that operated under Pillar 2.

It remains to be seen how Member States ultimately choose to use the additional options available through Article 68 and what the impacts of this will be – new schemes to be operated under Article 68 will be implemented from 2010 onwards and proposals for its use must be submitted by August of the preceding year. However, one thing is for sure: some kind of monitoring and evaluation requirements should be put in place if the economic, social and environmental impacts of this considerable level of expenditure are to be determined and the policy measure to be justified and improved over time.

PUBLICATION DATE

02 Dec 2008

AUTHOR

IEEP

FURTHER INFORMATION

The Institute for European Environmental Policy coordinates CAP2020. It is an independent not for profit institute which undertakes research in a number of policy areas including agriculture and rural development.