Memorandum submitted by the Department
for Environment, Food and Rural Affairs (H20)
INTRODUCTION
1. The Common Agricultural Policy (CAP)
was introduced in 1962 to respond to a strategic need for food
security in Europe. The key objectives of the CAP, as enshrined
in Article 33 of the consolidated Treaty of Rome, are to:
— increase agricultural productivity
thus to ensure a fair standard of living for agricultural producers;
— assure availability of supplies;
and
— ensure reasonable prices to consumers.
2. The original CAP's main mechanisms to
achieve this were market intervention to remove surpluses and
protection for the domestic market through import taxes and export
subsidies. This led to a deliberate increase in domestic food
production and consequent reduced dependence on imports. But as
production responded, surpluses grew and required increasingly
heavy expenditure. This led to friction with other suppliers to
the world market who were not so reliant on subsidy.
3. In response to burgeoning production
and expenditure a number of reforms were introduced. These have
included:
— artificial constraint of production
via mechanisms such as milk quotas and compulsory set-aside for
arable crops;
— cuts in support prices, although
they remain for the most part above world levels and producers
have normally been given direct payments in compensation;
— payments have been introduced for
environmentally beneficial forms of farming and support for environmentally
damaging investments has been reduced; and
— greater emphasis on rural development
and encouraging farmers to look to markets and diversified forms
of income to reduce their dependence on subsidy.
4. The most recent reform package, known
as Agenda 2000, was agreed at the Berlin European Council in March
1999. This brought cereal, milk and beef prices closer to world
levels, and established the Rural Development Regulation (RDR)
enabling the formulation of an integrated EU rural development
policy which underpins what has become known as the "second
pillar" of the CAP.
UK POLICY AIMS
5. Although the United Kingdom supported
the general direction of the Agenda 2000 package, the Government
was disappointed that the reform measures did not go further.
The Agenda 2000 agreement contained provision for reviews of various
market sectors and the budget between 2002-03. The European Commission
has sensibly decided to bring these reviews together and on 10
July published a discussion document containing its proposals
for the next stage of reform of the CAP. The UK Government has
consistently argued that this Mid-Term Review (MTR) of Agenda
2000 should herald further substantial reform to respond to both
domestic and international pressures. The forthcoming enlargement
of the European Union and next round of World Trade Organisation
negotiations means that we are in a different situation than when
Agenda 2000 was agreed, and we should re-examine the CAP with
this in mind.
6. The UK is committed to sustainable development,
and to sustainable agriculture. Consequently, our domestic objectives
for this sector include:
— to promote a sustainable, competitive
and safe food supply chain which meets consumers' requirements;
— to improve enjoyment of an attractive
and well-managed countryside for all;
— to promote sustainable, diverse,
modern and adaptable farming through domestic and international
actions and further ambitious CAP reform;
— to promote sustainable management
and prudent use of natural resources domestically and internationally.
7. This memorandum sets out the UK Government's
analysis of and approach to the Mid-term Review. The Scottish
Executive, the National Assembly Government, and the Northern
Ireland Executive have been closely involved in discussions on
the proposed reforms and will continue to be involved as directly
and fully as possible in the decision making as negotiations proceed.
THE EUROPEAN
COMMISSION'S
PROPOSALS
8. The Commission's discussion document
published on 10 July 2002 included reform proposals in four main
areas: market reform; "dynamic" modulation, decoupling
of support from production and rural development. A summary of
the proposals is attached at Annex A.
9. At the 15 July EU Agriculture Council,
the Secretary of State, Margaret Beckett, outlined the UK's initial
response to the Commission's proposals. She welcomed the proposed
shift in support from the first to the second pillar of the CAP
and the proposal to decouple direct payments from production,
describing it as a "brave and radical" proposal, and
one which would remove one of the main incentives to overproduction.
She also welcomed the Commission's proposal to introduce a more
objective basis for the allocation of rural development funding,
making clear that the current imbalance also had to be addressed.
She argued that overall the proposals went in the right direction,
but stressed that she did not believe that they went far or fast
enough, and in some areas we disagreed with the detail of specific
proposals, namely:
— there is no proposal for degressivity—the
progressive reduction of subsidies with budgetary savings;
— nor is it planned to phase out dairy
quotas;
— and we queried the proposals both
for a franchise below which dynamic modulation would not apply,
and the proposal to limit total subsidies payable to an individual
farmer.
10. However, it was also clear that the
UK's detailed reaction to the proposals would require additional
detail about the proposals and would be influenced by the results
of a full economic impact assessment. The proposals, their economic
effect and likely effect on UK producers are discussed in more
detail below. But it is important to recognise that we still lack
some important details of how the proposed reforms will be implemented
and, in particular, how a decoupled income payment scheme will
work in practice.
TIMETABLE
11. We understand from the Danish Presidency
that although discussion of elements of the MTR package is likely
at every remaining Agriculture Council this year, they will not
be seeking agreement to a reform package by the end of 2002. The
European Commission is not now planning to table draft legal texts
until early December, thus militating against progress before
the Copenhagen European summit on 12-13 December to which little
more than a report on work in hand will be possible. Agreement
to a reform package is therefore most likely in the first half
2003 under the Greek Presidency.
12. The proposed reforms come at a crucial
time for other equally important and related negotiations involving
the EU, namely EU enlargement and the next round of World Trade
Organisation negotiations.
ENLARGEMENT OF
THE EUROPEAN
UNION
13. The Danish Presidency's stated main
objective is to secure a successful conclusion to enlargement
negotiations, with the signing of accession treaties for up to
10 new Member States at the Copenhagen European Council in December.
The likely slippage of MTR discussions into 2003 means that enlargement
negotiations will have to be concluded in advance of a final MTR
settlement. Applicant countries are therefore likely to find themselves
signing up to a CAP, the main elements of which will be subject
to change. From January 2003, though, new Member States may be
granted observer status at EU meetings.
14. The Commission has proposed the phasing
in of CAP direct payments to new Member States, starting with
25 per cent in 2004, rising to 100 per cent of what current EU
members are receiving in 2013. No agreement has yet been reached
on this issue. But full rolling out of an unreformed CAP, including
the granting of direct payments, to 10 new Member States would
cost an extra ‚8-9 billion a year by 2014 (and more on the
accession of Romania and Bulgaria). This potential pressure on
the budget makes significant reform as part of the MTR process
even more important, in order that we can place the CAP budget
on a more sustainable footing before enlargement.
WORLD TRADE
ORGANISATION
15. A stated intention for the MTR is to
enable the EU to reach a satisfactory agreement in the current
round of World Trade Organisation (WTO) negotiations. Those negotiations
are required to lead to "substantial improvements in market
access; reductions of, with a view to phasing out, all forms of
export subsidies; and substantial reductions in trade-distorting
domestic support". WTO members are committed to reaching
a draft agreement on implementing these changes by the end of
March 2003.
16. The MTR proposals would strengthen the
European Union's (EU) negotiating position and facilitate the
WTO process as below:
Price support—Insofar as the MTR reduces
CAP support prices closer to world levels (eg 5 per cent reduction
in the cereals intervention price, 50 per cent reduction in the
rice intervention price) it will reduce the need for high import
tariffs and export refunds, reducing the level of EU Amber Box
support (see below).
Dynamic modulation—Will shift support from
the first to the second pillar of the CAP through a progressive
reduction in direct payments of 3 per cent a year to a maximum
of 20 per cent. This will reduce the level of the EU's WTO Blue
Box payments (but see section below).
Decoupling—The most significant element
of the paper in relation to the WTO negotiations is the Commission's
proposals concerning the decoupling of support from domestic production.
The Uruguay Round Agreement on Agriculture distinguished three
categories of subsidies to members' domestic industries:
(i) The Amber Box comprised those subsidies
which significantly distort trade and production because of their
direct link to current production factors;
(ii) The Blue Box comprised subsidies based
on current production but which were designed to be self-limiting
through the use of set-aside and other constraining measures;
(iii) The Green Box comprised subsidies with
little or no trade or production distorting effect—eg environmental
and structural aids or fully decoupled direct support.
17. Only Amber Box subsidies were subjected
to reductions under the Uruguay Round. The majority of EU subsidies
(direct payments) now fall in the Blue Box and are thus protected
from reduction. However, the EU is virtually the only WTO member
still using the Blue Box and there is strong pressure to abolish
or severely limit its use in the forthcoming WTO agreement. The
proposals in the Commission's paper would address this by effectively
transferring the majority of CAP support into the Green Box. If
the MTR leads to a fully decoupled payment system, the EU will
be able to argue that the new system is Green Box compatible.
But any weakening of the proposals towards the sort of partially
decoupled scheme advocated by some would severely weaken the EU's
position.
DEVELOPMENT AGENDA
18. The UK is committed to meeting our global
obligations to partners around the world, and especially those
in developing countries. The recent World Summit on Sustainable
Development in Johannesburg reaffirmed the commitments in the
Doha Development Agenda and recent G8 Action Plan for Africa to
reductions in agricultural support in developed country markets.
CAP subsidies encourage over-production in Europe which helps
to depress world prices and discourages agriculture in developing
countries. The EU spends three times as much on support for its
farmers through subsidies and higher food prices than it does
on development aid (in 2000,
97.2 billion on farmers against
27.4 billion on aid)
19. The MTR proposals provide a good starting
point for improving the position of developing countries, and
allowing the EU to reduce substantially the distortions in the
agriculture sector. The proposed introduction of a single decoupled
payment is particularly welcome as it will begin to reduce the
incentive to over-produce. A reduction in EU production levels
would lead to higher world prices, which would benefit the agriculture
sectors in developing countries. It should also lead both to a
greater demand for developing countries' products and a greater
potential for developing countries to export to third countries
currently supplied by the EU.
20. The MTR proposals must be set in the
appropriate context. Negotiations over Economic Partnership Agreements
in the follow-up to Cotonou will determine EU market access for
a number of priority countries and progress in the WTO will determine
tariff and subsidy reductions in the other countries, including
those that affect South-South trade. Progress in these areas will
also have substantial affects on developing countries' agriculture
sectors
ECONOMIC EFFECT
OF PROPOSED
REFORMS
21. In 2001 the CAP is estimated by OECD
to have increased costs of food to EU consumers by some
53 billion and a further
40 billion (gross) from taxpayers under pillar one.
22. In the absence of reform the Commission
estimate that the EU(15) Pillar one budget in 2006 will increase
to just under
42 billion, but will remain about
1 billion below the financial ceiling agreed at Berlin
in 1999. Our estimates broadly confirm this, and suggest a further
increase to some
43 billion by 2008.
23. There are three elements to the proposed
reforms. The changes to the commodity regimes are mainly in cereals
and rice regimes with some adjustment to dried fodder and nuts.
These changes are estimated to reduce the total economic cost
of commodity support by
340 million (
40 million in the UK). This reflects a benefit to
EU producers of
640 million (UK
70 million), consumer benefits estimated at
430 million (UK
60 million) and additional taxpayer costs of
730 million (UK taxpayer cost
100). Overall these impacts are relatively modest.
The main components are the gain to producers (and the cost to
taxpayers) arising from the excessive level of compensation for
cuts in cereal intervention prices and the savings to consumers
from the cut in rice support price. The overall impact of the
changes in the commodity regimes on the EU budget is estimated
at about
730 million. This is broadly in line with what we
understand to be the Commission estimates (
780 million) for commodity areas. Overall (including
the impact of decoupling) the Commission estimate that there will
be savings to the EU budget of around
200 million.
24. The Commission outlines options for
reform of the dairy sector, but has no specific proposals. Our
analysis indicates that the best option in terms of economic welfare
would be for the complete removal of quotas coupled with reductions
in price support.
25. Decoupling is particularly difficult
to analyse, not least in the absence of a clear indication as
to how it would be implemented. In principle, it will reduce production
distorting support and should enable the EU to meet WTO requirements
for reducing subsidies. The proposals will have an impact on the
way in which production decisions are made and hence on the levels
of production. By removing the direct link between subsidy and
production, producers will receive, and be able to respond to,
real market price signals. Management resources will not be diverted
to meeting requirements for obtaining subsidy, but will be used
to produce for market requirements. Because producers will not
have to continue producing at below cost in order to obtain subsidy,
overall farm income should be improved and depending on the market
position, these changes might also have an impact on consumer
prices.
26. Overall, though, the impact of decoupling
is very difficult to predict and will depend on the ways in which
it is implemented. But the potential gains are large: preliminary
work by Danish researchers suggests that the overall economy-wide
gains to the EU could eventually be as much as
11 billion per annum.
27. There is a strong economic case for
switching support from the first to the second pillar so as to
assist in sustaining and enhancing the "public good"
which agriculture delivers. The proposals for modulation, when
fully implemented in 2010 are estimated to reduce the level of
direct payments to producers by some
4.3 billion in the EU (15)—some
620 million in the UK. Based on the key proposed,
our estimates of the funds available to the UK for expenditure
under Pillar II from the modulated pool are
55 million in 2005, rising to
410 m by 2010 when the full 20 per cent modulation
rate is reached.
EFFECT ON
BRITISH PRODUCERS
28. Analysing the effect of the proposed
reforms on producers is particularly difficult without knowing
the precise detail of the reforms and how they would be implemented
in practice. The Commission has a great deal of work to do to
flesh out its proposals and there are genuinely difficult questions
that will need to be resolved before a full assessment of the
impact on producers can be made. That said, we have examined the
main elements of the proposals and modelled as far as possible
the likely effect on producers, as set out in the following paragraphs.
Market Reform
29. The changes due to the commodity reforms
will have a generally positive effect on producers as the proposed
compensation in the form of direct payments is estimated to exceed
the reduction in market prices for cereals. The UK Government
has thus far queried whether additional compensation is necessary,
particularly at the level proposed by the Commission. The overall,
cumulative impact of all the commodity changes proposed by the
Commission is as estimated as follows:
Summary of impact of proposals for all commodity
regimes (excl dairy)
| Impact in UK |
Impact in EU |
| million | million
|
| Producers returns | 70 |
640 |
| Consumers savings | 60 |
430 |
| Taxpayers costs | 100 | 730
|
| Net welfare | 40 | 340
|
Note: figures rounded to nearest
10 million
These figures suggest that overall, producer returns will
be enhanced by the commodity regime changes as proposed by the
Commission. The main taxpayer cost is the increase in direct payments
associated with the cut in cereal intervention price.
30. Of course, dynamic modulation (see paras 36-38) would
reduce the level of payments and hence producer returns especially
for cereal and livestock farms where the level of direct payments
is highest. As the modulated funds are to be recycled under the
second pillar there will be some offsetting impact on incomes
but the extent of this for any type of farm will depend on the
nature of the schemes used for payment.
Decoupling
31. The Commission propose that most of the direct payments
in the arable and livestock sectors (durum wheat is the main exception)
should be decoupled from production and linked to cross compliance
with environmental, animal welfare and food and occupational safety
standards. A single decoupled income payment per farm would be
created, based on historical receipts from direct payment. This
payment would be split into "payment entitlements" on
a hectare basis to facilitate the partial transfer of payment
when only part of the farm is sold or leased. However, it is clear
from discussions with the Commission that there remain significant
gaps in the detail of how they believe such a system would be
implemented. The UK Government is working closely with the Commission
and other Member States towards a workable solution.
32. There is a strong economic case for supporting the
policy of decoupling. By removing the link between subsidy and
production of a particular commodity, the producer's decision
will be based on the costs of production and the market price
of the output. This change should improve the productive efficiency
of the industry and bring producers much closer to the needs of
the market, thereby enabling them to benefit from the production
of high quality goods for which there is a demand, while discouraging
production purely to maximise subsidy receipts. Assuming that
the administration can be simplified, resources employed on farms
in order to meet criteria for subsidy can be redeployed to encourage
production for the market.
Cross-Compliance
33. The UK Government supports the principle of cross-compliance,
recognising the public benefits which can be delivered by linking,
as proposed, the receipt of a single income decoupled payment
to environmental, animal health and welfare, food safety and occupational
safety standards. We understand from official level meetings that
the Commission envisage the cross-compliance rules as encouraging
compliance with EU statutory requirements, plus an obligation
similar to that in the current EU small farmer scheme to keep
land in good agricultural condition. As yet is unclear whether
this will also be a measure for improving standards through national
codes of practice—as is the case for existing environment
cross compliance in Agenda 2000—or for introducing new standards.
This will be crucial to determining the likely effect on producers.
34. The Commission has confirmed that they intend the
cross-compliance measures to be applied on a whole farm basis,
ie a producer receiving a decoupled payment on the basis of past
arable production, could have his payment reduced or removed if
he is found not to be meeting required standards on activities
which did not generate entitlement (eg pig production).
35. The Commission also propose a system under which
producers receiving more than
5,000 per year in subsidies will be subject to a compulsory farm
audit (probably every three to five years). The Commission intend
these audits to have an advisory rather than regulatory function
(ie to advise farmers on how they can meet the required standards
rather than to check that they are doing so) although we need
to establish precisely where the boundary between these two objectives
is to lie. Farms receiving less than
5,000 per year in direct payments will be exempt from the need
for an audit but will be able to request one.
Dynamic Modulation
36. The Commission proposals on modulation exempt small
farms and hit the largest producers with a ceiling beyond which
no extra payments can be earned. All producers will benefit from
the proposed franchise below which dynamic modulation would not
apply. It is estimated that 16 per cent of UK producers would
be completely unaffected by modulation with the proposed franchise
level of
5,000. This rises by a further 5 per cent if the proposed Agricultural
Worker Unit (AWU) element of
3,000 per AWU for every worker above two is applied.
37. The impact of modulation will vary from year to year.
Not only does the rate of modulation increase, but as the ceiling
is applied after the payments have been modulated the number of
farms breaching the ceiling will decline. Data are not readily
available to enable us to measure the precise impact of the franchises
and ceilings on modulation. The table below sets out our best
assessment for 2010 and subsequent years (when modulation has
reached 20 per cent) of the effect in each Member State of the
reduction in the level of direct payments made to farmers and
the levels of funds withheld in Member States from payments in
excess of the ceiling of
300,000 per farm.
Estimated impact of ceiling and franchise by Member State:
2010
| Total
Direct
Payments
| Payments
excluded by
a
5,000
franchise
| | Additional
payments
excluded by
AWU
option
| | Payments
modulated
at 20 per cent
(assuming
franchise
and AWU
operate)
| Payments
in excess of
ceiling
|
| million
| million
| | million
|
| million
| million
|
| Belg/Lux | 583 | 169
| 29 per cent | 28 | 5 per cent
| 77 | |
| Denmark | 1,025 | 267
| 26 per cent | 41 | 4 per cent
| 144 | 0.63 |
| France | 8,511 | 1,859
| 22 per cent | 301 | 4 per cent
| 1,270 | 6.4 |
| Germany | 5,723 | 1,464
| 26 per cent | 317 | 6 per cent
| 788 | 115.6 |
| Greece | 2,368 | 1,688
| 71 per cent | 121 | 5 per cent
| 112 | |
| Ireland | 1,179 | 467
| 40 per cent | 52 | 4 per cent
| 132 | |
| Italy | 4,304 | 2,280
| 53 per cent | 192 | 4 per cent
| 367 | 7.0 |
| Netherlands | 701 | 246
| 35 per cent | 39 | 6 per cent
| 83 | |
| Portugal | 608 | 436
| 72 per cent | 24 | 4 per cent
| 30 | |
| Spain | 4,668 | 1,786
| 38 per cent | 185 | 4 per cent
| 539 | 7.5 |
| UK | 3,960 | 642
| 16 per cent | 197 | 5 per cent
| 624 | 20.6 |
| Austria | 697 | 410
| 59 per cent | 39 | 6 per cent
| 50 | |
| Finland | 462 | 240
| 52 per cent | 22 | 5 per cent
| 40 | |
| Sweden | 657 | 201
| 31 per cent | 24 | 4 per cent
| 86 | |
| EU15 | 35,446 | 12,153
| 34 per cent | 1583 | 4 per cent
| 4,342 | 158 |
38. The mechanics of modulation in the proposal raise
questions which bear on rural development:
— the proposed franchise (
5,000, subject to increase for labour employed) will not only
exempt a large number of farmers in the EU but substantially reduce
the total of money captured by modulation;
— the ceiling (
300,000) would not transfer any money out of the UK (as the Commission
propose this being retained by the individual Member State for
spending on rural development measures) but would hit UK producers
harder than any other member state bar Germany. The case against
the ceiling is that it discourages rationalisation and modernisation
and unfairly discriminates against the efficient large-scale producer.
It is also likely that those most affected will seek to restructure
so as to avoid the penalty (with consequent loss of efficiency
and, no doubt, complex arguments as to what is admissible);
— then there is the balance between what the UK
contributes and receives once the modulation has taken place.
The present arrangement gives the UK a disproportionately low
share of EU RDP funds (see next section); we need to redress the
imbalance but the present proposal does not fully do that.
RURAL DEVELOPMENT
39. At present, the UK receives 3.55 per cent of RDR
funding under the second pillar of the CAP—around
170 million per year out of an EU pot of
4.8 billion. The Commission proposes allocating EU funds generated
by dynamic modulation on an objective key incorporating agricultural
land and employment criteria and an additional prosperity factor.
Our broad calculation suggests that this would give the UK a little
under 10 per cent, while we contribute around 15 per cent to the
receipts from dynamic modulation.
40. The fact that a given level of dynamic modulation
will not produce the same funds for the UK as a similar level
of voluntary modulation (under which we retain all the monies
we modulate) means that we will need to be careful to ensure that
planned increases in activity in our Rural Development Programmes
can take place. The Commission paper acknowledges the need for
transitional arrangements for Member States which are currently
modulating: we are working closely with the Commission on what
this may mean in practice.
41. One way of avoiding a short-term funding shortfall
would be to ensure that the new dynamic modulation funds are allocated
so as to correct unfairness in the current allocation of rural
development resource. This would not be popular with Member States
which do relatively well out of current allocations; and the Commission
will want to ensure existing countries who receive large amounts
of Rural Development funding do not lose out. Even forcing them
to accept a standstill will be difficult to achieve, when their
farmers are contributing to dynamic modulation.
42. The UK has already called for some widening of the
scope of rural development measures, in particular to provide
a general power to fund rural development going beyond agriculture.
However, some of the areas suggested by the Commission are questionable,
and seem designed in part to allow Member States to spend more
money on alternative methods of support to their agriculture industries.
In particular, the exclusive focus of these measures on farmers
is questionable, and the suggestion that they should be compulsory
could reduce the scope for expenditure (in the UK) on more productive
schemes. The WTO implications of some of the proposed new possibilities
(for example, expenditure on animal welfare under the agri-environment
schemes) will need careful consideration.
MISSING ELEMENTS
Degressivity
43. The Commission's proposals fail to respond to the
UK's priorities for the MTR (as outlined in paragraph seven) in
a number of ways. The key of these is that, if implemented in
full, there would be inadequate overall budget savings, necessary
if we are to put the EU budget on a sound footing before enlargement.
The Commission has not yet published a detailed assessment of
the financial implications of reform, but have estimated that
there would be a annual saving of around
200 million compared to current policies. However, even were such
a saving to be realised, it is insufficient in the overall context
of a CAP budget of over
40 billion, and an additional cost of
8-9 billion a year by 2014 if the Commission's proposals for rolling
out the CAP to new Member States are implemented.
44. The UK will therefore be arguing that the "dynamic
modulation" proposal is inadequate and that we need a firm
agreement to degressivity of direct payments. By this we mean
application of annual, degressive cuts in direct payments, in
line with the "dynamic modulation" model, but with some,
rather than all of the money saved being recycled into the second
pillar. This mechanism would deliver a shift in funding from the
first to the second pillar of the CAP, but would also offer savings
which could be returned to taxpayers. The level of the degressive
cuts required would depend on the precise reform measures implemented,
and the extent of the recycling of monies saved into the second
pillar.
Dairy Reform
45. The other key missing element from the UK's point
of view is a firm proposal for reform of the dairy regime. Under
Agenda 2000, milk quotas were extended to 2008, with price cuts
of 15 per cent to be phased in over three years from 2005, and
accompanying direct aid as partial (60 per cent) compensation.
As part of the final agreement, UK, Italy, Sweden, Denmark secured
a commitment for the Commission to produce a report to form the
basis of the Mid-term Review of the quota system "with the
aim of allowing the present quota arrangements to run out after
2006". In accordance with this, the Commission has produced
a report on the quotas system, published alongside the general
MTR document, and summarised within it. The position on dairy
is less developed than that of the rest of the MTR package, in
that the report on the quotas system presents options for the
future of the dairy regime, as opposed to concrete proposals.
46. The report first outlines the role that the quota
system has had, since its introduction in 1984, in bringing EU
budgetary expenditure on milk under control. It acknowledges that
quotas are a source of economic inefficiency, driving up costs
both for producers and consumers. Nonetheless, it attaches importance
to the role of quota in yielding general social and environmental
benefits, including the protection of Less Favoured Areas. This
is inconsistent with the general MTR paper, which highlights the
importance of attaining such benefits through targeted aid via
the Second Pillar. The report outlines four possible scenarios
for the future of the quota regime. The UK Government will want
to ensure that the prospects are maintained for preventing an
extension of quotas when they expire in 2008.
47. The Commission's discussion document also confirms
that proposals for reform of other sectors not included in the
MTR such as olive oil and sugar will be brought forward after
conclusion of the MTR process, within the framework of the proposed
new decoupled payment scheme.
Department for Environment, Food and Rural Affairs
30 September 2002
Annex A
CAP REFORM: MID TERM REVIEW OF AGENDA 2000
SUMMARY OF
COMMISSION'S
DISCUSSION DOCUMENT—10
JULY 2002
The Commission's document sets out reform proposals which
it would like to see apply from 1 January 2004. These proposals
address three main issues:
— Market support regime reforms.
— Decoupling of CAP direct payments from production.
— Reinforcing the Rural Development Pillar.
Market Support Regimes
The package will:
— Propose abolition of monthly increments.
— Address some technical weaknesses in the EU's
border protection regime on cereals (Commission has indicated
its wish to negotiate a change under the WTO).
— Abolish intervention for rye.
— Reduce durum wheat support to
250/ha in traditional areas over three years, and abolish the
special aid in established areas. Establish a high quality premium
at
15/tonne.
— Contain no specific proposals on oilseeds.
— Reduce the rice intervention price by 50 per cent
to a basic level of
150/tonne for 2004-05. Introduce a private storage scheme to be
triggered if the market price falls below the basic price. Safety
net intervention will be at
120/tonne. Compensation increased to
177/tonne, of which
75/tonne will be granted as a crop specific payment. Reduce the
Maximum Guarantees Amounts to the 1999-2001 average or the current
MGA, whichever is the lower.
— New stand alone protein supplement of
55.57/hectare.
— Replace current dried fodder arrangements with
an income support envelope of
160 million, to be distributed between Member States in proportion
to national guaranteed quantities for dehydrated and sun-dried
fodder. A reduced single support payment of
33/tonne will be maintained for a transitional period for both
dehydrated and sun-dried fodder.
— Replace existing arrangements for nuts with a
flat rate payment of
100/ha, which can be topped up to a maximum of
109/tonne by Member States. The maximum guarantee area will be
800,000ha.
— Introduce a new carbon credit of
45/ha for energy crops (contract with processor required), within
a Maximum Guaranteed Area of 1.5 million hectares.
— Leave beef market support arrangements (pretty
minimal after Agenda 2000) unchanged.
— Commission to reinforce the conditions and controls
under which export subsidies for live animals can be granted.
— On dairy float the following options:
(i) continuation of Agenda 2000 measures until 2015;
(ii) repeat the Agenda 2000 approach (further increase
in quotas, +3 per cent, and lowering of intervention prices, -15
per cent butter and -5 per cent SMP);
(iii) create separate quotas ("A" + "C")
for production for domestic consumption and export consumption;
(iv) abolish quotas from 2008;
— Propose nothing on Sugar, olive oil, fruit, and
vegetables and wine which will be the subject of further proposals
in 2003.
Decoupling Direct Payments from Production
— All direct payments (cereals, beef, sheep) to
be decoupled from production from 1 January 2004 (dairy from 2005-06).
— Creation of a single decoupled income payment
per farm, based on historical receipts from Direct Payments (but
with modulation—see below).
— Exceptions from the single scheme to include durum
wheat quality premia, new stand-alone protein crop supplement,
the crop specific payment for rice, and payments to potato starch
and dried fodder processors.
— Where allocating payments on a historical basis
gives serious regional inequities, Member States will have the
right to reallocate payments within their territory to achieve
a balance.
— The "single income payment" to be split
into "payment entitlements" on a hectare basis to facilitate
the partial transfer of payment when only part of the farm is
sold or leased. Member States will be able to establish different
approaches (eg to define a balance between individual payment
entitlements and regional/national averages).
— Payment entitlements cannot be transferred speculatively:
agricultural land must be maintained in good agricultural condition
and to mandatory environmental standards.
— All the old rules for Direct Payments (need to
count cattle, measure areas) will fall away. There will be no
obligation on recipients to produce anything. But there will be
new, binding cross compliance rules: direct payments will be conditional
on the respect of statutory legal standards (environment, food
safety, and animal welfare) and keeping land in good agricultural
conditions in line with environmental requirements.
— Compulsory long-term (10 years) non-rotational
set-aside will be introduced on arable land. Farmers will be obliged
to put an amount equivalent to current compulsory set-aside into
long-term set-aside as an element of the cross-compliance rules.
The non-food regime on set-aside land will be abolished.
— In addition to the checks on statutory standards,
there will be whole farm audits (likely to be once every three,
four or five years), to help farmers draw up a compliance plan
to cover eg animal welfare, environmental and health and safety
requirements. Farms receiving less than
5,000 per year in direct payments will be exempt from the need
for an audit but could request an audit.
— Energy and other non food crops will no longer
be able to be grown on set-aside. A new carbon credit to be introduced
at
45/ha of energy crops with a maximum guaranteed area of 1.5 million
hectares, to be paid to producers entering into a contract with
a processor. Area allocation between MS to take account of historical
energy crop production on set-aside and carbon dioxide commitment
burden sharing arrangements.
Strengthening Rural Development
— There will be compulsory "dynamic" modulation
at 3 per cent of the original entitlement in 2004, and a further
3 per cent of the original entitlement in each year thereafter
to a maximum of 20 per cent (in six or seven years).
— There will be transitional arrangements for Member
States (like the UK) which already operate modulation.
— Modulation to be operated in the same way in each
Member State For the years up to 2006, there will be a commitment
that all the funds will be retargeted to Rural Development spending.
No commitment for post-2006.
— Modulated funds won't be reserved to the Member
State which collects them but reassigned on the basis of agricultural
area, agricultural employment and prosperity criteria, to target
specific rural needs. However, money saved by application of a
maximum upper ceiling on direct payment receipts per farm (see
below) will be reserved to the individual Member State.
— Modulation will not bite on farmers evenly. All
farms will be exempted the first
5,000 and there will be a further
3,000 allowance for every full-time labour unit beyond a basic
two full-time workers. There will also be a maximum upper limit
on Direct Payment receipts after franchise per farmer of
300,000.
Use of Modulated Funds
— Modulated funds to be spent on any rural development
measure under the EAGGF guarantee section. Member States will
be able to use it to increase the level of Community co-financing
within their programmes up to the regulatory ceilings, to finance
new measures, to increase the scope and/or to finance additional
beneficiaries.
— A new food quality chapter to be included in the
rural development regulation, including incentives (on a flat
rate basis for a maximum of five years) to produce to quality
assurance scheme standards, and support for producer groups for
promotional activities of quality products. These will be compulsory
elements of a Member State's RDP in 2005-06.
— Flat rate aid also available under this chapter
to help farmers meet costs of farm audits. In particular will
help farmers prepare for and meet new cross-compliance requirements
for receipt of direct payments.
— New animal welfare measure. Fixed co-financing
of agri-environment and animal welfare schemes to be increased
to 85 per cent in Objective one areas and 60 per cent in other
areas.
— Some adaptations to the non-accompanying measures
to complement the introduction of the above measures, including
clarification of the marketing activities under Article 33 to
include specific references to the eligibility of the cost of
setting up quality assurance and certificate schemes.
State Aids
— To accelerate implementation of new state aid
regimes, the Commission is examining the possibility of adopting
a block exemption regulation at EU level in the field of agriculture.
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