2. COMMON AGRICULTURAL POLICY: MID-TERM
REVIEW OF AGENDA 2000 REFORMS
(23670)
10879/02
COM(02) 394
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Commission Communication on the mid-term review of the Common Agricultural Policy.
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| Legal base: | —
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| Document originated: | 10 July 2002
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| Deposited in Parliament: | 19 July 2002
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| Department: | Environment, Food and Rural Affairs
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| Basis of consideration: | EM of 29 July 2002, Minister's oral evidence of 11 December 2002 and SEM of 8 January 2003
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| Previous Committee Report: | None, but see footnotes
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| To be discussed in Council: | See paragraph 2.39
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| Committee's assessment: | Politically important
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| Committee's decision: | For debate on the Floor of the House (together with the document on milk quotas)
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Background
2.1 The 1992 reforms of the Common Agricultural Policy
(CAP) introduced major changes by shifting the emphasis of Community
support away from intervention in favour of direct income payments
to farmers. However, it was recognised that further changes would
be needed both to accommodate the accession of countries in central
and eastern Europe, and for the Community to comply with the relevant
World Trade Organisation (WTO) rules. This eventually led to the
Agenda 2000 measures[2]
agreed by the European Council in Berlin in March 1999, which
(although considerably weaker than the Commission's original proposals)
extended the earlier reforms and consolidated rural development
as a second pillar of the CAP.
2.2 The Berlin European Council also asked the Commission
to carry out a mid-term review of the Agenda 2000 reforms, and
in particular to examine the development of the cereals and oilseeds
markets; to monitor the beef situation; to present a report on
the future of the milk quota system, with the aim of allowing
the present arrangements to run out after 2006; and to submit
an account on the development of agricultural expenditure. This
remit was subsequently extended to include the effects of the
reforms on the environment and sustainable development.
The current document
2.3 The Commission's mid-term review is set out in this
document, in which it addresses the various issues under three
main headings.
- (a) The evolution of the CAP
2.4 The Commission says that much has been achieved since
1992, in terms of improved market balance and the favourable development
of agricultural incomes, and that a sound basis has been established
for enlargement and for the next round of WTO negotiations. In
particular, it says that the reductions in price support for cereals
and (to a lesser extent) beef have helped both domestic uptake
and exports, and thus helped to reduce the level of intervention
stocks. However, it comments that Community producers in both
these sectors are likely to face stronger competition, and that,
although the role of intervention is now increasingly limited
to that of a safety net, the continuing (albeit partial) link
between production and direct payments makes it difficult for
farmers to adapt to new opportunities, despite the growth in average
farm size and greater specialisation.
2.5 The Commission also identifies a number of gaps between
on the one hand the mechanisms available under the CAP and the
aims of Agenda 2000, and on the other hand wider expectations
in such areas as food safety and quality, animal welfare, and
rural and environmental development. In this last connection,
it notes that, although Agenda 2000 introduced the concept of
voluntary modulation (involving reductions in direct payments)
in order to target farming systems requiring adaptation and to
reinforce rural development, only a limited number of Member States
have shown an interest, and even then at levels considerably lower
than that permitted. The Commission further comments that the
implementation of the environmental measures adopted as part of
Agenda 2000, including cross-compliance, has been uneven, and
that the price support mechanisms in some cases actually encourage
more intensive production.
2.6 The Commission also highlights two further constraints.
First, it says that rural development will be limited as long
as it continues to account for only 16% of expenditure under the
European Agricultural Guidance and Guarantee Fund (EAGGF). Secondly,
it suggests that the range of different mechanisms available under
the CAP, and their complexity, discourages initiative, and that
there should be greater simplification and decentralisation.
- (b) Aims of the mid-term review
2.7 The Commission says that, in addition to the task
it was given by the European Council, the review provides a "unique
opportunity" to respond to wider concerns about agricultural
policy, and that a number of changes are needed. These include:
- reinforcing the role of intervention as a safety net without
compromising the export potential for European agriculture;
- orientating output more to what the public wants, and not
to artificially created price incentives or product-specific aids;
- preventing direct income payments from influencing farmers'
production decisions, whilst ensuring they still support farm
incomes;
- integrating food safety and environmental concerns fully into
the CAP through cross-compliance;
- providing more targeted support enabling farmers to adapt
to the market and to demand for quality products;
- achieving a better balance between the two pillars of CAP
support;
- ensuring that budgetary stabilisation remains a guiding principle;
- working towards simpler legislative and implementation mechanisms.
2.8 As regards the market organisations, the Commission
proposes in the arable sector:
- that the final 5% reduction in the intervention price for
cereals (from _101.31 per tonne to _95.35 per tonne) envisaged
in Agenda 2000 should take place in 2004-05, with direct payments
being increased by an amount equal to 50% of this reduction; that
the monthly increments payable on these crops should be abolished;
that intervention for rye should also be abolished; and that the
special additional supplement for durum wheat in traditional areas
should be reduced from _344.50 to _250 per hectare;
- that there should be no further changes in the relative position
of cereals and oilseeds following the Agenda 2000 decision to
align direct payments for the two sectors;
- that there should be a one-off reduction of 50% in the intervention
price for rice, coupled with the introduction of a private storage
scheme, and an increase in direct payments;
- that there should be new arrangements for dried fodder, involving
an income support envelope of _160 million, distributed between
Member States in proportion to national guaranteed quantities.
2.9 The Commission also looks closely at the effects
on the beef market of the Agenda 2000 reforms, notably
the 20% reduction made then in the intervention price, and its
replacement by a basic price for private storage. It says that,
following the crises created by BSE and foot and mouth disease,
the Community has been able to re-balance supply and demand, thus
demonstrating the robustness and flexibility of the Agenda 2000
changes. However, it also suggests that concerns remain over the
complexity of the direct payments in this sector, and the extent
to which they provide incentives towards intensification.
2.10 It is therefore proposing that headage payments
should be de-coupled from production, and replaced by a single
income payment per farm, based on historical entitlements —
a step which, together with reinforced cross-compliance conditions,
it believes will reduce pressures towards intensive production
and help to achieve a more balanced market. The only other measure
it proposes on beef is to reinforce the conditions and controls
under which export subsidies for live animals can be granted,
in recognition of the increasing concerns in this area over animal
health and welfare standards.
2.11 The Commission recalls that its Agenda 2000 proposals
for the dairy sector had envisaged a 15% reduction in intervention
prices in four stages from 2000, with a 2% increase in quotas,
but that the Berlin European Council had delayed the entry into
force of the main reform until 2005-06, and had made a 2.4% increase
in quota levels. It points out that the current Communication
is accompanied by the report it was asked by the Council to produce
on the future of the quota system. Since we have considered the
latter separately,[3] we
are simply noting here the Commission's main conclusions. These
suggest that the changes agreed in Agenda 2000 should have a beneficial
effect, particularly from 2008 onwards, and can thus be seen to
have forestalled to a considerable degree the comments made in
October 2001 by the European Court of Auditors.[4]
2.12 We also note that the Report identifies four main
options for the period 2008-2015, namely:
- a simple maintenance of the Agenda 2000 measures;
- a repeat of the Agenda 2000 approach, involving a further
3% increase in quotas and a lowering of the intervention price
(by 15% for butter, and 5% for skimmed milk powder);
- the introduction of a two-tier quota system, with a 5% reduction
in the quota for domestic production being offset by an unlimited
export quota;
- the abolition of the quota system, coupled with a 25% reduction
in intervention support.
2.13 In addressing the need for simpler and more sustainable
direct support, the Commission says that the shift since 1992
from the product to the producer, and the introduction of partially
de-coupled direct payments, has promoted greater competitiveness,
stabilised agricultural incomes, and reduced negative environmental
incentives. It adds that, although doubts have been expressed
about full de-coupling, it sees merit in integrating all the existing
direct payments (with a few minor exceptions) into a single income
payment per farm, determined on a historical reference basis.
It believes this will introduce both a major simplification and
greater transfer efficiency into Community support, allow farmers
to benefit fully from market opportunities, and remove certain
incentives which currently are potentially damaging to the environment.
Finally, it considers that such a change would facilitate the
integration of the new Member States into the CAP, and help to
ensure compatibility in future with WTO rules on agricultural
payments.
2.14 More specifically, the Commission proposes that
the new single payment should cover all products under the cereals,
oilseeds and proteins regime, grain legumes, starch potatoes,
beef and sheep, as well as the revised payments for rice, durum
wheat and dried fodder. Milk payments would be integrated on completion
of the Agenda 2000 decisions, whilst other sectors scheduled for
reform (sugar, olive oil, and some fruit and vegetables) could
follow later. It adds that, although the new scheme would not
cover all sectors at this stage, farmers receiving the decoupled
payment would have the flexibility to farm all products on their
land, including those still under coupled support, subject in
the latter case to their continuing to observe any necessary market
support constraints, such as production quotas etc.
2.15 The Commission also says that the decoupled income
payment will be established at farm level, with the overall entitlement
being split into parts (payment entitlements) in order to facilitate
a partial transfer when only part of the farm is sold or leased.
It will be providing further details in the context of its legislative
proposals, but, in order to allow sufficient flexibility, Member
States would be able to follow different approaches.
2.16 A significant element in the Commission's review
addresses the need to reinforce environmental, food safety,
animal health and welfare, and occupational safety standards,
where it stresses that the full granting of the decoupled income
payment will depend upon these being met. It adds that cross-compliance
will be applied as a whole-farm approach, with conditions attached
to both used and unused agricultural land, and that it will involve
both the respecting of statutory management requirements and the
obligation to maintain land in good agricultural condition. Where
cross-compliance conditions are not met, the Commission believes
that direct payments should be reduced, though in a way proportionate
to the damage involved. This approach would be under-pinned by
a Community-wide system of farm auditing, aimed at increasing
farmers' awareness of processes relating to environmental and
other standards, which would be a mandatory part of the cross-compliance
requirements for producers receiving more than _5,000 a year in
direct payments (and open to others on a voluntary basis).
2.17 The Commission proposes that, in order to maintain
the supply control benefits of set-aside, whilst reinforcing
its environmental benefits, rotational set-aside on arable land
should be replaced by compulsory long-term set-aside (10 years).
However, this would have consequences for energy crops, which
currently account for the largest amount of non-food production
on set-aside land, and which would be of increasing importance
if the recent proposal to incorporate biofuels within gasoline
and diesel were to be adopted. It is therefore proposing that
the existing set-aside arrangements for non-food crops should
be replaced by a non-crop specific "carbon credit" for
energy crops, aimed at achieving carbon dioxide substitution.
Such an aid, which would be _45 per hectare and paid to producers
entering into a contract with a processor, would complement investment
and establishment measures under the CAP's second pillar. It would,
however, be subject to a maximum guaranteed area of 1.5 million
hectares, which would be allocated between Member States, taking
into account historical energy crop production on set-aside land
and carbon dioxide commitments under the Kyoto burden-sharing
arrangements.
2.18 The Commission is also concerned to achieve a better
balance of support between sustainable agriculture and rural development,
in order to increase the social acceptability of the CAP, and
enable consumer, environmental and welfare concerns to be addressed.
At the same time, it points out that, although the shift to decoupled
direct payments will reduce incentives towards environmentally
damaging production, it may also create pressures towards abandonment
in some marginal areas: it therefore argues that this increases
the importance of instruments to promote sustainable agriculture
throughout the Community, such as agri-environment and less favoured
area payments.
2.19 The Commission says it will therefore be monitoring
Member States' efforts to make full use of these instruments in
future, but that it is in addition proposing a "system of
dynamic modulation on a compulsory basis" for all
Member States to replace the present voluntary arrangements. This
would involve all direct payments being reduced progressively
in steps of 3% a year, up to 20%. However, the Commission also
considers that modulation can contribute to "correcting the
allocation of funds", where it notes that smaller farms are
generally more labour intensive, less prosperous and receive less
support, but are also less capable of adjusting to new technologies
and achieving economies of scale.
2.20 It is therefore proposing a franchise of _5,000
for each farm with up to two full-time "annual work units",
with Member States being allowed to grant on an optional basis
an additional _3,000 for each additional annual work unit. It
says that this would fully exempt from modulation around three
quarters of the farms in the Community, which account for less
than one fifth of the direct payments made. The Commission also
proposes that, after the application of the franchise and modulation,
the maximum sum paid to a farm will be _300,000, and that any
direct aids beyond this amount will be capped and made available
for transfer to the second pillar in the Member State concerned.
The savings arising from modulation would also be devoted to rural
development, but would be distributed to Member States on the
basis of agricultural area and employment and a "prosperity
criterion" to target specific rural needs, such as those
in the poorer and more mountainous countries. All in all, the
Commission estimates that the additional funding for rural development
guaranteed by "dynamic modulation" will amount to around
_500-600 million in 2005, and will increase annually by an equivalent
amount with each 3% modulation increase.
2.21 Finally, the Commission says that it intends to
consolidate and strengthen the second pillar of the CAP in two
ways. First, the accompanying measures[5]
would be extended to address concerns about food safety and quality,
to help farmers adapt to new standards, and to promote animal
welfare. This would involve encouraging farmers to participate
in recognised quality assurance and certification schemes; supporting
the promotional activities of producer groups; paying temporary
and degressive aid to help farmers meet the "demanding"
standards set in Community legislation; and support for farm audits.
The Commission also proposes to introduce into the agri-environment
chapter the possibility of offering animal welfare payments for
efforts which go beyond mandatory reference levels, and that,
as from 2005-06, the inclusion of the food quality chapter would
be compulsory for Member States within their rural development
programmes. All these steps would be complemented by a widening
and clarifying of the scope and level of certain measures.
- (c) Likely effects of the proposals
2.22 The remaining part of the Communication focuses
on the internal, external and budgetary effects of these
proposals. On the first count, it says that, as a consequence
of decoupling and greater transfer efficiency, the prospects for
the farming sector as a whole should improve, as should the potential
for long-term sustainability in the sector and the social balance
of support within it; that the food industry will benefit from
the reduced cost of its raw materials in a number of sectors;
that there will be major benefits for consumers from the integration
of food safety and other concerns into the CAP, and the generally
greater responsiveness of farmers to market signals; that taxpayers
will also benefit from a better use of public resources; and that
Member States authorities will benefit from the simplified payment
and control measures proposed. Externally, the Commission points
out that the proposals will help the integration of the new Member
States into the CAP, and that they will also help the Community's
strategic goals and commitments internationally by promoting sustainable
development and minimising trade-distorting domestic support (adding
that it expects other trading partners to make comparable efforts).
On the budgetary front, the Commission says that it does not envisage
any overshoot of the average annual expenditure laid down in the
financial framework set by the Berlin European Council for the
period 2000-06, and indeed it considers that the changes proposed
for the various sectors and the decoupling of direct aids would
lead to an annual reduction of around _200 million.
The Government's view
2.23 In his Explanatory Memorandum of 29 July 2002, the
Parliamentary Under- Secretary of State at the Department for
Environment, Food and Rural Affairs (Lord Whitty) says that there
are a number of important policy implications for the UK in the
Commission's proposals, which he sub-divides into three broad
areas
2.24 The first is the proposed shift in support from
production-related agricultural subsidies towards wider agri-environment
and rural development measures. The Minister points out that,
under the second pillar, Member States may run a number of agri-environment
and broader rural development measures, and that, whilst the UK
has long advocated such a shift in support, it does not believe
that the Commission's proposals go far or fast enough. Specifically,
the Government would have liked proposals which offered real budgetary
savings with only some of the money cut from payments being recycled
into the second pillar of the CAP, and the rest being returned
to the Community budget. It believes this is needed to put the
CAP budget on a sustainable footing as the UK takes forward its
environmental and rural development objectives, and that enlargement
makes it all the more important that the CAP budget is under control.
In addition, the Government is concerned that the inclusion in
the Commission's proposals of a franchise at farm level below
which modulation would not apply, and a ceiling above which producers
would not be entitled to any direct payments, risks creating an
unnecessarily complex system which will prove unworkable and discriminate
unfairly against certain categories of farmers.
2.25 The Government welcomes the Commission's proposal
to introduce an objective key for the distribution between Member
States of the increased rural development funds generated by this
shift in support. It considers that there is a serious and damaging
imbalance in the current allocation of funds and that it will
be important to take the opportunity to correct this. It also
welcomes the proposals for simplifying and widening the scope
of spending under the second pillar of the CAP, and says that
the UK is considering whether it should go even further, for example,
by widening the range of schemes eligible for funding under the
Rural Development programmes, and the range of potential beneficiaries.
2.26 Secondly, on the decoupling of agricultural support
from production, the Minister says that the Government is pleased
that the Commission has proposed abolishing the link between agricultural
subsidies and production, which is something long advocated by
the UK. He adds that decoupling would remove many of the present
incentives to over-production and consequent risks of environmental
damage. Farmers will no longer have to produce anything to receive
their decoupled payment, but will have to meet certain environmental
and/or animal welfare standards and to maintain their land in
good agricultural condition. This will allow them to make business
decisions based on a realistic appraisal of market opportunities,
focussing on quality and choice rather than quantity. It would
also carry real merit in relation to the UK's wider interests
in the Doha Development Agenda. However, the Minister points out
that a workable system will be complex, and that the Government
will need to work hard with the Commission and other Member States
on the detail of what is proposed.
2.27 Lastly, on the market reform measures, the Minister
says that the Government can support the proposed 5% cut in the
cereals intervention price, which completes the Agenda 2000 process
of making intervention a safety net only. However, it is not convinced
of the need for this cut to be compensated for. Most significantly,
it is disappointed by the lack of any firm proposal for dairy
reform in line with the mandate established by Agenda 2000. It
stresses that milk quotas are scheduled to end in 2008, and says
that it believes that arrangements must be put in place to allow
the sector time to adjust.
2.28 The Minister's Explanatory Memorandum also deals
briefly with the regulatory impact of the proposals, their financial
implications, and the likely timetable. He says that a full Regulatory
Impact Assessment will be supplied once the Commission has provided
more detail, but that an initial assessment suggests that the
main effect will be on the commercial environment within which
producers operate (as regards the encouragement in future to concentrate
on the market), and on the overall administrative burden. Likewise,
the financial implications for UK expenditure and receipts will
depend upon further information on such issues as modulation.
He says that the Communication will be discussed at Agriculture
Councils during the autumn, and that legislative proposals are
expected to be tabled before the November Council (but see paragraph
2.32 below). He adds that complex negotiations are at an early
stage, and that it is difficult to predict when agreement might
be reached, it being possible that discussions will continue into
the first half of 2003. In the meantime, the Government has asked
for comments on the proposals by early October, and will be submitting
after then an analysis of the responses received.
Minister's oral evidence of 11 December 2002
2.29 Because of the wide-ranging implications of these
proposals, we thought it right, before reporting to the House,
to seek oral evidence from the Minister, particularly in the light
of the agreement in the European Council in Brussels at the end
of October on the budget limits[6]
on CAP market expenditure between 2007 and 2013. Also, since the
Environment, Food and Rural Affairs Committee has been conducting
an inquiry into the internal aspects of the mid-term review, we
decided to pay particular attention to the implications of the
Commission's Communication for the enlargement negotiations.
2.30 As it turned out, we were not able to take evidence
from the Minister until 11 December 2002,[7]
just before the meeting of the European Council in Copenhagen
at which the accession terms for the ten countries due to join
in May 2004 were agreed (see Annex). We were, however, still able
to question him on a number of important aspects of the negotiations,
as a result of which he told us:
- that the differential in the first ten years after accession
between the level of direct payments in the existing Community
and those available to the new Member States could be justified
on the grounds that such payments should be considered as compensation
for past price support which had been removed, and that, since
the incoming countries had not previously had such high levels
of support, direct payments were in a sense a bonus so far as
they are concerned;[8]
- that, if (as the UK wished) all direct payments were phased
out, a level playing field would be reached relatively rapidly;[9]
- that he had in any event told the applicant countries that
a shifting of resources into rural development was in their interests,
as their agricultural industries need incentives to restructure
and modernise;[10]
- that he did not think the increased level of direct payments
for the applicant countries agreed at the Copenhagen summit would
jeopardise reform of the CAP, partly because the main decisions
would need to be taken by the Community of 15 prior to enlargement,
and partly because the pressures for reform came from the budget
limits set and, perhaps most immediately, from the need for the
Community to go into the WTO negotiations later this year with
an acceptable package.[11]
2.31 In addition to these external aspects of the mid-term
review, we also pressed the Minister further on a number of other
points arising from the Communication and from his Explanatory
Memorandum. In the course of his evidence, he confirmed:
- that the adoption of the proposals as they stood would leave
very little headroom between CAP market expenditure and the new
ceilings agreed by the European Council in October;[12]
- that the problem would be exacerbated if reforms in the dairy
sector and of the sugar regime required farmers to be compensated,
at least for a transitional period;[13]
- that, although the UK wished to see production subsidies removed
altogether, it had to be recognised that politically a single
decoupled payment of the kind proposed was the only way to proceed,
at least in the short term;[14]
- that, although the UK recognised there was a case for exempting
from compulsory modulation small farms receiving less than _5,000
in direct aid, it was concerned that the Commission's proposal
would fall disproportionately on Northern European farming;[15]
- that the UK did object very strongly to a _300,000 cap being
put on the amount of aid payable to any one farm because this
would penalise the larger, more efficient farms, and would encourage
dis-aggregation of farms purely to preserve the level of subsidy.[16]
Supplementary Explanatory Memorandum of 8 January 2003
2.32 The Minister has now provided with his Supplementary
Explanatory Memorandum of 8 January 2003 an initial Regulatory
Impact Assessment, pointing out that a full Assessment (which
will be possible only after the Commission has released its legislative
texts[17]) should be
available by the end of May.
2.33 In general terms, the Assessment provided recalls
the Commission's estimate that the reforms proposed should lead
to an annual saving to the Community budget of _200 million, but
adds that it is not possible to estimate fully the impact on the
UK without detailed proposals or further information on some of
the issues raised, such as modulation. However, it points out
that the annual budgetary cost of the CAP is at present around
_45 billion, and that in addition consumers in 2000 paid some
_48 billion in higher food prices. The Minister says that this
does not provide value for money, and that, in many cases subsidies
received at farm level were higher than the profits made, with
producers being forced to "chase subsidy" rather than
respond to market demands. He also points out that the current
CAP has both positive and negative effects on the environment,
and that, although these are difficult to measure, the latter
have been put at between £1 - 1.5 billion a year, as against
benefits of just under £600 million. He believes that CAP
reform would reduce the negative impacts, and that there would
also be substantial benefits arising from the liberalisation of
trade, particularly for a net importer of foodstuffs like the
UK.
2.34 In the case of particular commodities, the Assessment
says that, since the outlook in the medium term is for world cereal
prices to be at or above the Community support level, the proposed
cut in the intervention price would have little impact on market
prices (and hence on either producers, consumers, or the level
of export refunds). On the other hand, Community producers would
receive a net benefit of _770 million from the increase in direct
payments, giving rise to a broadly similar increase in budgetary
expenditure. It also suggests that the impact on production and
on the budget of the changes proposed for set-aside are unlikely
to be significant, and it contrasts this with the benefits which
consumers in particular would derive, were set-aside to be abolished,
as the UK has argued.
2.35 The Assessment also estimates the impact of the
four options put forward by the Commission for the dairy regime
(see paragraph 2.12 above). It disregards the possibility of a
two-tier regime as being incompatible with WTO rules, but compares
the remaining two approaches (Option 2 — repeating the Agenda
2000 approach, and Option 4 — the removal of quotas) with
the status quo. On that basis, the impact within the Community
as a whole (in _ million) is put as follows:
|
Option 2
|
Option 4 |
Producers' returns |
-1345
|
-4550 |
Consumers' savings |
3125
|
7105 |
Taxpayers' costs |
1385
|
1655 |
Net welfare |
395
|
900 |
2.36 The Minister comments that the overall benefits
to economic welfare are greatest from the option under which quotas
are removed, but that this also produces the highest losses to
producers. He adds that the analysis does not take into account
the further dynamic adjustment that will take place when quotas
are removed, though he also points out that most of these would
accrue to other Member States which have not introduced the same
liberal quota trading regime as in the UK. He concludes that,
notwithstanding the impact on milk producers, the overall economic
benefit strongly supports the UK policy of quota abolition.
2.37 Finally, the Assessment looks at the impact of the
proposals for decoupling and modulation. It says that there is
a strong economic case for the first of these, though this is
difficult to measure. However, research carried out in Denmark
suggests that, in the Community as a whole, there would be net
benefits of _10.5 billion in 2013 arising from a more efficient
allocation of resources, of which some _3.4 billion would be in
the UK. On the other hand, the Assessment suggests that the environmental
and social impact of decoupling could be more mixed. Thus, although
the resultant decline in production should lead to environmental
benefits, there is likely to be an intensification of production
in some areas, whilst in others environmental harm could arise
as a consequence of undergrazing. Likewise, whilst farm incomes
may in some cases increase, structural changes could lead to rural
depopulation.
2.38 In the case of modulation, the Assessment says that
the resulting reduction in direct support payments (and hence
in production) in favour of increased rural development expenditure
is likely to produce a range of positive effects on the environment
and on the wider rural economy. It adds that, although these cannot
be measured precisely, the _5,000 franchise would in the Community
as a whole exempt 34% of payments from modulation (16% in the
UK). Further exclusions would arise from the optional adjustment
for additional labour units, though this would also involve considerable
administrative complexity and the potential for fraud. Also, since
farmers receiving direct payments would in future be able to switch
production and compete with those in unsubsidised sectors, issues
of fairness would arise, as they would in relation to larger farmers
as a result of the exclusion of small farms from modulation and
the placing of a ceiling on CAP receipts.
2.39 The Minister has also provided an updated timetable.
As already noted, the Commission is expected to publish its draft
legislative texts on 22 January, and it would apparently like
to secure agreement at the end of the Greek Presidency in June.
He describes this as an ambitious timetable, but says that the
Government supports a deal being reached in good time for the
WTO Ministerial meeting in September.
Conclusion
2.40 It is clear that this is a document of major
importance, and we are therefore recommending it for debate on
the Floor of the House. Moreover, as with our recommendation on
the proposals for reforming the Common Fisheries Policy, we hope
that the Government will make possible a debate considerably longer
than the 1½ hours normally available for the consideration
of European Union documents.
2.41 Such a debate will provide the Government with
the opportunity to explain the proposals more fully to the House,
and to give a progress report on the negotiations so far in the
light of the reportedly very different reactions among the various
Member States. We also suggest that there are a number of issues
in particular on which the House may wish to press the Government
for further clarification:
- subject to the detailed arrangements eventually proposed,
the concept of a single decoupled direct payment has been
given a broad welcome in principle, but it would seem to imply
producers receiving without any 'degressivity' (reduction over
time), or any obvious time limit, substantial payments without
the need to produce anything: we appreciate that there will be
obligations to maintain the land in good agricultural condition,
but we wonder how long such an open-ended arrangement will be
acceptable to the taxpayer;
- this lack of degressivity could give rise to budgetary
problems, given that the level of direct payments envisaged in
the applicant countries will be aligned with those in the existing
Member States by 2013;
- although the concept of modulation is not new, the
compulsory measures now proposed by the Commission would represent
a new departure, as would the suggestion that the resultant savings
should be distributed to Member States for rural development on
the basis of various criteria: however, whilst the objectivity
of the latter approach is to be welcomed, it is clear from the
Minister's oral evidence that the exemption proposed for farms
receiving less than _5,000 in direct aid would bear disproportionately
on countries such as the UK;
- similarly, there are clear grounds for concern about the
relative impact on the UK of the proposal to place a cap of
_300,000 on the amount of aid paid to any one farm.
2.42 Finally, the timing of the debate needs careful
consideration. On the one hand, this needs to take place well
before the end of June target set by the Commission for an agreement.
On the other hand, it would clearly be desirable for any consideration
of the subject to take into account the Commission's legislative
proposals, and, assuming these are presented on 22 January as
expected, and that the Government is able to let us have an Explanatory
Memorandum as quickly as possible, it should prove possible for
us to produce a Report in time for a debate during March. All
other things being equal, we suggest that this would be a sensible
aim.
ANNEX I
ENLARGEMENT: AGREEMENT ON AGRICULTURE
— The new Member States will receive a rural development
package, more favourable than those applied to the present Member
States, and amounting to _5.1 billion for 2004-06. This can be
used for various measures, including early retirement of farmers,
support for less favoured areas or areas with environmental restrictions,
agri-environmental programmes, afforestation of agricultural land,
special measures to make semi-subsistence farms viable, the setting
up of producer groups, technical assistance, and aid to meet Community
standards. These will be co-financed at a maximum rate of 80%
by the Community. However, this money can also be used to top
up direct payments.
— Direct aids for the new Member States will be phased
in over ten years. They will receive 25% of the full Community
rate in 2004, rising to 30% in 2005 and 35% in 2006, but they
can choose to top this up by 30% - to 55% in 2004, 60% in 2005,
and 65% in 2006. Until 2006, such top-up payments can be co-financed
up to 40% from their rural development funds.
— Direct payments after 2006 will be increased by percentage
steps so as to ensure that the new Member States in 2013 reach
the CAP support level then applicable in the rest of the Community.
From 2007, the new Member States may continue to top-up these
by up to 30%, but financed entirely by national funds.
— Alternatively, topping up will be allowed up to the
total level of support a farmer would have been entitled to receive,
on a product by product basis, in his country prior to accession
(2003) under a national scheme increased by 10%. However, the
total a farmer is granted cannot exceed existing Community levels.
— The new Member States will have the option of a simplified
system of direct payments for three years. This is a de-coupled
area payment applied to the whole agricultural area, and all types
of agricultural land would be eligible. After that, the new Member
States will enter the regular system of direct income support
in the form then applicable.
— Production quotas have been agreed, mainly based
on the most recent historical reference periods for which data
are available, but taking account of specific problems, such as
the Russian crisis or the anticipated switch from on-farm consumption
to marketed milk.
— The new Member States will have full and immediate
access to CAP market measures, such as export refunds, and intervention
for cereals, skimmed milk powder and butter.
2 (19028)
7073/98; see HC 155-xxvi (1997-98), paragraph 1 (29 April 1998);
Official Report, 21 May 1998, cols. 1130 - 1179; and (19585)
-; see HC 34-ii (1998-99), paragraph 6 (2 December 1998) and HC
34-ix (1998-99), paragraph 2 (10 February 1999); Official
Report, European Standing Committee A, 15 February 1999. Back
3 See
paragraph 3 below. Back
4 (22773)
12457/01; see HC 152-ix (2001-02), paragraph 18 (5 December 2001). Back
5
Agri-environment, less favoured areas, afforestation of agricultural
land and early retirement. Back
6
That the level of market support expenditure under the CAP should
between 2007 and 2013 rise by no more than 1% a year as compared
with 2006. Back
7
The evidence is published with this Report. Back
8
Q.8. Back
9
Q.8. Back
10
Q.9. Back
11
Q.17. Back
12
Q.18. Back
13
Q.24. Back
14
Q.28. Back
15
Q.31. Back
16
Q.31. Back
17
It is expected to do so on 22 January 2003. Back
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