IEEP CAP Health Check Review: Overview of Key Outcomes

This is one of four briefings written by IEEP to analyse the outcomes of the 2008 CAP Health Check. Three further briefings examine particular issues in more detail: Article 68, cross compliance, and the implications for the dairy sector.

Political Agreement on CAP Health Check Reached

Political agreement on the CAP Health Check was finally reached on Thursday 20 November after a long night of negotiations. Many of these were undertaken in trilateral discussions between the Commission, the Presidency and the individual Member States – an increasingly common strategy, and one which inevitably results in the negotiating tactics of more experienced Member States being less transparent, and prevents the formation of blocking alliances. The final agreement is a step in the right direction but has been regarded by many as a missed opportunity to prepare the CAP for the considerable environmental challenges that lie ahead.

The agreed compromise text did not receive unanimous support, with the UK, alongside five of the new Member States (the Czech Republic, Estonia Latvia, Lithuania and Slovenia) unable to agree to the entirety of the proposals. However, there was no move to block the compromise deal and because a qualified majority of Ministers supported the revised proposals, it passed through without a formal vote. The final version of the regulatory texts are likely to be discussed in the Special Committee on Agriculture (SCA) in December, and will be adopted by Ministers at either the January or February Agricultural Council. The detailed Implementing Regulations will be worked up by the Commission in the meantime and these will be negotiated in the first half of 2009.

... the final agreement is far removed from the position of many stakeholders and environmental NGOs, who are calling for a CAP that supports the provision of public goods.

The compromise deal is a considerably scaled back version of the Commission’s proposals of May 2008 despite the positive rhetoric of Mariann Fischer Boel, Agriculture Commissioner, and Michel Barnier, French Agriculture Minister. It is similar in tenor to the report of the European Parliament’s Agriculture and Rural Development Committee, approved by the European Parliament earlier in the week, which called for a weakening of the proposals and a minimisation of any reductions in support to the agricultural sector. As such, the final agreement is far removed from the position of many stakeholders and environmental NGOs, who are calling for a CAP that supports the provision of public goods.

A synthesis of the agreement is set out below, and the implications for cross compliance, Article 68 and the dairy sector are analysed in more detail in three accompanying papers.

Decoupling, the Single Payment Scheme (SPS) and the Single Area Payment Scheme (SAPS)

Although the agreement serves to broadly move the sector towards fuller decoupling, this is at a much slower pace than originally planned, with full decoupling in some sectors delayed until 2012 and with the agreement on Article 68 likely to constrain a comprehensive shift in this direction. The Commission has produced a guidance document which explains which areas are eligible for direct payments, with a detailed explanation of the rules relating to areas of land with trees. In addition, in order to reduce administrative burdens, and as a result of a proliferation of very small claims since the 2003 reforms, minimum thresholds for the receipt of SPS or SAPs are to be introduced. Member States can establish their own figures and these will be calculated using a coefficient that will reflect the situation of the Member State compared to the EU average.

The decision to abolish set-aside will come into force on 1 January 2009. This is a disappointment from an environmental perspective, particularly as the measures that have been introduced through cross-compliance to help mitigate the negative environmental impacts of the loss of set-aside are insufficient to prevent the environmental losses that are already being experienced. The latest figures from the European Bird Census Council show a 50 per cent drop in the population of common farmland birds over the period 1980 to 2006, the most recent year for which data are available, and these declines are expected to continue with the removal of set-aside.

Cross Compliance

The agreement also includes changes to cross compliance, both to the Statutory Management Requirements (SMRs) and the standards of Good Agricultural and Environmental Condition (GAEC). All key environmental SMRs remain, although some of the articles under the Wild Birds and Habitats Directives have been removed. As had previously been anticipated, the Water Framework Directive has not been added to the list of SMRs as this was seen as premature, given that operational programmes will not be fully implemented until December 2012. In relation to GAEC standards, Annex III of the new draft common rules regulation (previously Annex IV) includes two new ‘issues’ in relation to the ‘protection and management of water’ and to ‘protect water against pollution and run-off and manage the use of water’, with associated new related standards.

By rendering certain standards voluntary, the possibility of the emergence of an unequal mandatory baseline across Europe is opened up.

Perhaps the more contentious element in relation to cross compliance is the division of GAEC standards into those that are mandatory and those that are voluntary for Member States to implement. By rendering certain standards voluntary, the possibility of the emergence of an unequal mandatory baseline across Europe is opened up. The introduction of a new voluntary standard which allows for the ‘establishment and/or retention of habitats’ - resulting from successful negotiating on the part of the UK delegation - now paves the way for the UK to introduce a set-aside mitigation scheme. This has been met with fairly strident resistance from farming organisations with claims that UK farmers will face an unequal burden. There are also concerns that some of the standards relating to the protection of soils have been made voluntary, apparently at odds with the severity of the threat facing Europe’s soils and with the importance of cross compliance as an instrument to deal with this.

Read IEEP’s Detailed Analysis of the Implications of the Health Check for Cross Compliance.

Article 68

The proposals for Article 68 have remained broadly intact in the final agreement. This means that Member States will continue to be allowed to retain up to 10 per cent of their national ceilings for direct payments to provide support to specific sectors (as under current the Article 69), but that the menu of options has been expanded and the scheme has also been extended to those Member States operating SAPS.

The funds can now be used for five purposes:

  • 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.

The agreement reached on Article 68 appears to be leading to the blurring of the boundaries between Pillar One and Pillar Two of the CAP, and perhaps can be seen as the first step on a path to a single Pillar CAP. Indeed, France has already stated its intention to switch support for its basic agri-environment ‘prime à l’herbe’ scheme, which supports the maintenance of grassland, from Pillar Two to Article 68 under Pillar One. It is not clear whether this is indicative of a commitment to introduce targeted payments under a ‘greener’ Pillar One, 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 Axis 1 and Axis 3. Perhaps a more fundamental question is whether the source of funding results in any differences in environmental outcomes on the ground. The jury will remain out for some time to come as the schemes are designed and implemented, and will depend on the level of targeting and on adequate monitoring and enforcement.

Read IEEP’s Detailed Analysis of the Outcome of the Health Check for Article 68.

Modulation

Increasingly, the broader debate on CAP reform is being framed in terms of tying support to the provision of public goods and services, largely achieved through Pillar 2 measures at the present time. It is likely that significantly more funds will be needed under Pillar 2 in the future, to respond to the environmental and social needs currently facing Europe. The key mechanism for the transfer of money to Pillar 2 is through modulation, although it will now be possible to generate a small amount of extra money through the use of ‘unused amounts’ in Member States’ national envelopes. This agreement was understood to be at the behest of Germany to provide a mechanism to generate sufficient resources to fund the accompanying measures for the German dairy sector, now identified as an additional ‘new challenge’ within Pillar 2.

Compulsory modulation was one of the most contested issues within the Commission’s Health Check proposals, and as anticipated, the outcome was much weaker than originally proposed.

Compulsory modulation was one of the most contested issues within the Commission’s Health Check proposals, and as anticipated, the outcome was much weaker than originally proposed (see IEEP’s Policy Briefing No 1 – Making the Case for Modulation). The final political agreement resulted in much lower rates of both the basic modulation rate and the ‘progressive’ element. It allows for an additional increase in modulation rates, over and above the existing rate, for the EU-15, of only 5 per cent by 2012 for all farms receiving more than €5,000 in direct payments (in comparison to the original proposal of 8 per cent). This rate will increase gradually, starting with a 2 per cent increase in 2009, followed by a 1 per cent increase in subsequent years. In addition, farms receiving over €300,000 in direct payments will be subject to an additional 4 per cent modulation, whereas the original proposals had recommended further reductions in direct payments for farms receiving over €100,000. All funds raised through these additional rates of modulation will be available for use within the rural development programme of the Member State in which they are generated.

Although the progressive element will only affect a tiny proportion of farms across the EU (0.04 per cent according to 2005 figures), and thus only raise a small amount of additional funds, the Agriculture Commissioner emphasised the political significance of the agreement. For the first time, there has been acceptance of the concept that farms in receipt of larger payments, should be subject to greater reductions under modulation. This sets a useful precedent for future negotiations regarding levels of modulation in the run up to 2013.

It is estimated that the higher rates of modulation will provide an additional €3.24 billion for Pillar 2 (excluding national co-financing) to be spent on the expanded set of ‘new challenges’ (see below) between 2010 and 2013. This is approximately €1.7 billion less that the anticipated €4.9 billion that would have been made available under the original proposals.

The other change to the proposals is in relation to the level of co-financing that Member States are required to contribute to the funds raised when transferred to Pillar 2. Amidst concerns from many Member States that they had insufficient national funds to meet the 50 per cent co-financing proposals, the co-financing rate has been reduced to 25 per cent for the additional modulation receipts, and as low as 10 per cent in convergence areas.

Modulation will be applied in the new Member States (excluding Bulgaria and Romania) from 2012, at a point when payment levels reach 90 per cent of those in the EU-15. The basic rate of modulation will start at 3 per cent and it is unclear whether the ‘progressive’ element will apply in the new Member States. Whilst this rate of modulation is fairly low, Pillar Two accounts for a much higher proportion of the total budget in the new Member States compared to the EU-15 (approximately 50% compared to 17%), and so the scale of the shift required ultimately is not as large.

Read IEEP’s Detailed Analysis of the Outcome of the Health Check for the Dairy Sector.

Pillar 2 and the New Challenges

The requirement for resources generated by additional rates of modulation to be focused on the ‘new challenges’ of climate change, renewable energies, water management and biodiversity has remained intact and the Member States will be required to demonstrate how they intend to spend the additional money. Rather unexpectedly, however, the number of new ‘challenges’ has increased to include ‘innovation’ in the environmental areas listed above, and ‘accompanying measures for dairy’, the latter of which appears to have been a core part of the final negotiations with Germany.

It is still not clear how this obligation to address the six new challenges will translate into practice. However, it is thought that Member States will no longer be required to meet this obligation through the introduction of new agreements, as long as existing agreements can be shown to be meeting the challenges and their lifetime extends beyond 2010. Member States are required to revise their National Strategy Plans and to amend their rural development programmes to demonstrate how they will use these additional resources within three months of the adoption of the revised Community Strategic Guidelines. The revised programmes will take effect from 1 January 2010. This is likely to require a significant effort by Member States over the coming 12 months as it also comes at the same time as revisions to their LFA schemes.

The inclusion of the accompanying measures for the dairy sector as one of the new challenges is also disappointing from an environmental perspective...

The inclusion of two additional ‘challenges’, coupled with the modest outcomes on modulation, means that a smaller amount of additional funds are available for allocation between a larger number of priorities within Pillar 2. The lower rate of national co-financing required further reduces the level of actual funds available for the rural development programmes from 2010 - 2013. The inclusion of the accompanying measures for the dairy sector as one of the new challenges is also disappointing from an environmental perspective, as it opens the door for the additional modulation funds to be used to improve the competitiveness of the agricultural sector, rather than to meet environmental objectives. It is not yet clear whether there will be minimum spend requirements for each of the new challenges.

In addition, the implications of this outcome for the UK and Portugal for meeting the new challenges remains uncertain, given that the only means these Member States have to raise additional funds for their rural development programmes is now the unused funds within their national envelopes. At the very least it looks as if they will need to demonstrate to the Commission how their existing programmes are meeting the new challenges, using their existing budgets.

Stakeholders Express Disappointment

Overall responses to the deal reached have been mixed. The UK, for example, has described the deal as ‘a step forward but a missed opportunity’. Other Member States have been keen to stress the concessions they have achieved for their own farming sectors such as in Ireland, where reference has been made to the increase in milk quotas, maintenance of milk market support measures and simplification of the farm payments. In Finland, a statement welcomes the exemption granted to Finland with respect to coupled beef payments, but not the abolition of milk quotas.

Neil Parish MEP, chairman of the European Parliament Agriculture Committee described the Health Check as a ‘missed opportunity’ for further reform of the CAP whilst Green MEP Caroline Lucas has stated on her website that the reforms come at the ‘expense of any substantial support for local, sustainable or organic agriculture’. In terms of broader stakeholder feedback, Birdlife International has been very critical of the Health Check and suggests that the agreement ‘completely fails to address the new environmental challenges of the 21st Century’. In particular the proposals for lower (‘tiny’) rates of modulation and abolition of set aside are criticised, whilst it is thought that amendments to cross compliance are likely to be ineffective. Farming unions have been critical of the reforms on the basis that they will weaken farm incomes, according to COPA-COGECA. Coop de France expressed concerns about the ‘myth of supposedly self-regulating markets’ which the proposals are thought to promote, whilst the NFU has criticised the reforms for not moving far enough in terms of market orientation.

As may be expected, the battleground is a familiar one. The debate continues to be carved up along similar lines and there have been few surprises in the positions taken by the range of stakeholders and the Member States. Will this lead to an impasse in 2013 and a maintenance of the status quo? The answer to this question is difficult to predict but is likely to depend both on the outcomes of the EU Budget Review in terms of the funding available for the agricultural sector in the future, as well as on a whole host of extraneous factors such as climate, energy prices, food production and changing economic conditions that in combination serve to shape the priorities of the citizens of Europe.

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.