1 Financing of agricultural
and rural development policy
| (a)
(25832)
11557/04
COM(04) 489
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Draft Council Regulation on the financing of the common agricultural policy
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| (b)
(25841)
11495/04
COM(04) 490
+ ADDs 1 to 9
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Draft Council Regulation on support for rural development by the European Agricultural Fund for Rural Development
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| Legal base | Article 37EC; consultation; QMV
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| Document originated | 14 July 2004
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| Deposited in Parliament | (a) 21 July 2004
(b) 20 July 2004
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| Department | Environment, Food and Rural Affairs
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| Basis of consideration | (a) 31 August 2004
(b) 1 September 2004
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| Previous Committee Report | None, but see footnotes
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| To be discussed in Council | See para. 1.13 below
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| Committee's assessment | Politically important
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| Committee's decision | For debate in European Standing Committee A
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Background
1.1 The current approach to agricultural and rural support within
the Community was essentially determined by the Agenda 2000 reforms.[1]
These involved reductions in internal market prices which were
compensated for by increased direct payments to farmers under
what became known as the first pillar of the Common Agricultural
Policy (CAP), whilst the various elements of support for rural
development[2] comprising
the so-called second pillar were consolidated into a single Council
Regulation (No. 1257/1999),[3]
with Community financial support for the two areas continuing
to be provided through the European Agricultural Guidance and
Guarantee Fund (EAGGF), and, in the case of the second pillar,
through the Regional and Social Funds as well.
1.2 However, following the mid-term review[4]
of those reforms in 2003, a number of changes were made, notably
those in Council Regulation (EC) No. 1782/2003.[5]
This introduced the single farm payment (which decoupled support
from production), together with provisions for cross-compliance
(which made support payments conditional on the recipient meeting
certain environmental conditions) and for reductions to be made
from direct payments ("Modulation") in order to provide
additional Community support for rural development. In the two
current proposals, the Commission has now put forward further
changes arising from the mid-term review, aimed principally at
stressing the role of the CAP's rural development pillar.
The current proposals
Document (a)
1.3 This would replace the EAGGF by two new funds
—
the European Agricultural Guarantee Fund (EAGF) and the European
Agricultural Fund for Rural Development (EAFRD) —
and set out the basis on which they should be managed. In many
respects, the arrangements proposed in each case would follow
those under the EAGGF, in that payments would be made through
agencies accredited by the Member States, which would submit annual
accounts, with the latter in turn being checked by the Commission,
through a two-stage clearance of accounts procedure. The Commission
would also have the power to reduce the reimbursement of payments
to Member States if the Community budgetary ceilings would otherwise
be exceeded, and to determine the amounts by which direct payments
to farmers should be adjusted, if the Council was not able to
do this itself. The arrangements under the two Funds would, however,
differ from each other in certain respects, in that appropriations
from the EAGF would have to be used in the year in question, and
would be claimed monthly by the Member States, whereas unused
appropriations under the EAFRD could be rolled over for two years,
and funding would be provided by the Commission in three stages
(pre-financing, intermediate payments at roughly four-monthly
intervals, and a balance payment at the close of the programme).
DOCUMENT (B)
1.4 This sets out the detailed basis on which support
would be provided under the EAFRD, which the Commission sees as
now being the main focus for policy reform within the CAP following
the further changes to the first pillar agreed in 2003. It states
that over half of the population of the enlarged Community lives
in rural areas, and that farming and forestry remain of over-riding
importance for land use and the management of natural resources
there, as well as providing a platform for economic diversification.
It also summarises the challenges to be addressed as being economic
(due to the relatively low income in the areas concerned, an ageing
population, and greater dependency on the primary sector), social
(in that unemployment is higher in rural areas, but population
density and access to basic services are lower), and environmental.
1.5 The Commission recognises the need for rural
development measures to conform with Community priorities and
to complement other policies, such as the sustainable management
of natural resources and economic and social cohesion. It also
notes the need for the many different programmes and management
systems currently in force to be replaced by a single funding
framework so as to reduce the administrative burden and increase
coherence and transparency, with increased emphasis on the monitoring
and reporting of results.
1.6 In particular, it suggests that a more strategic
approach to rural development would be achieved by the adoption
of a Community strategy, which would then form the basis of the
various national strategies comprising the following three main
policy axes:
- increasing the competitiveness
of the agricultural sector through support for restructuring;
- enhancing the environment and countryside
through support for land management (including agri-environment
schemes and animal welfare); and
- enhancing the quality of life in rural areas
and promoting diversification of economic
activities through measures targeting the farm sector and other
rural actors.
Each of the priority axes would consist of the range
of measures summarised in Annex I below, in addition to which
it is proposed that each programme should contain a separate,
horizontal LEADER (local rural development strategies) axis. The
latter would fund local partnerships involving the public, private
and voluntary sectors in rural areas to draw up an integrated
development strategy for the area in question and to develop and
implement projects to meet these development needs in a way consistent
with the objectives of the three priority axes.
1.7 The proposal includes a requirement that each
rural development programme should allocate at least 15% of the
total Community funding to the first and third axes, at least
25% to the second, and at least 7% to the LEADER axis, with a
provision that up to 4% of programme funding may be reserved to
fund technical assistance for the implementation of each Member
State's programme (including funding of national and local networks
to support the implementation of rural development measures, and
to act as a contact point for a European Network for rural development).
Funds under the Regulation would be allocated to Member States
based on objective criteria, taking into account the amounts reserved
for regions eligible for Convergence Objective funding,[6]
past performance, and particular situations and needs. The Commission
also proposes that, for the period 2007-2013, eligibility for
the Convergence Objective would be based on regions with a GDP
per head less than 75% of the Community average, and that eligibility
for Less Favoured Status should be re-defined on the basis of
(i) soil productivity and climatic conditions and the importance
of extensive farming activities for land management and (ii) poor
climate conditions giving an indication of the difficulty of maintaining
agricultural activity. The maximum co-financing by the Community
would be 50% of total public expenditure (75% in Convergence regions)
for the first and third axes, and 55% for the second and LEADER
axes (80% in Convergence regions). There would be a minimum level
of co-financing of 20% for all axes.
1.8 The Commission envisages that the Community budget
for the EAFRD for the period in question would be €88.75
billion, with allocations to individual Member States being supplemented
by funds received from first pillar expenditure as a result of
modulation. It is also proposed that €31.3 billion should
be concentrated in regions eligible for the proposed Convergence
objective.
The Government's view
1.9 The Government's Explanatory Memoranda of 31
August and 1 September 2004 deal respectively with the two documents.
On the first document, the Parliamentary Under-Secretary of State
(Farming, Foods and Sustainable Energy) at the Department for
Environment, Food and Rural Affairs (Lord Whitty) says that the
UK broadly supports the proposal. More particularly, it is in
favour of having a rural development fund governed by many of
the financial rules applying to the direct payment schemes (which
will simplify financial management for the Member States); of
allowing unused appropriations under the EAFRD to be rolled forward
for two years; of a proposal that the Commission should in future
have 36 months (rather than 24, as at present) in which to open
an investigation of a financial irregularity; and of the Commission
being given powers to reduce payments to farmers where Community
budgetary ceilings are likely to be exceeded. On the other hand,
the Minister says that the Government is opposed to a proposal
to limit reimbursements for direct payments to the amounts set
in euros, which it says would be unfair, in that it would mean
any gains through currency fluctuation being credited to the Community
budget whilst any losses would be borne by the non-participating
Member State in question. Also, as with other proposals which
the Commission has put forward recently, the Government has stressed
that any financial provision made in this area must be compatible
with the view held by the UK and other Member States that the
maximum funding for the Community budget should remain at 1% of
GNI.
1.10 On the second document, the Minister of State
(Rural Affairs and Local Environmental Quality) at the Department
(Mr Alun Michael) says that the UK welcomes the early publication
of the draft Regulation, which he suggests should allow time to
reach agreement at Community level on the legal and policy framework,
and then for Member States to develop detailed implementation
programmes. He adds that the UK supports the transfer of funds
from the first pillar of the CAP to the second, and would like
to see that process taken further; at the same time, however,
it wants to ensure that rural development funding contributes
real added value towards Community objectives, and would therefore
like the draft Regulation to place greater emphasis on meeting
Community environmental objectives.
1.11 However, the Minister also says that, although
the UK supports the simplification and flexibility of the new
regulation, and regards it as being in step with the aim in the
Government's own 2004 Rural Strategy to merge the current plethora
of rural funding streams into three major funding programmes,
it does not think the list of measures proposed under the three
thematic axes is the best way of achieving an effective programme.
In particular, the UK believes that the list of measures on the
current Rural Development Regulation has already grown unwieldy,
and that this proposal would increase their number further. He
adds that the UK also considers that more emphasis should be placed
on the use of rural development funds for key Community environmental
priorities, particularly water quality and biodiversity, and that
it would like to see a fairer allocation of rural development
funds on the basis of objective criteria, regarding the Commission's
proposals as vague in this respect and in need of further clarification.
1.12 Finally, the Minister reiterates that it will
not be possible to establish a budget for this area until the
over-arching negotiations on the new Financial Perspective have
been agreed, and that the level of funding available will need
to be consistent with a budget stabilised at 1% of the Community
GNI. He also points out that the total level of funding agreed
may impact on both the nature of the targets and the balance of
priorities within the programme.
1.13 Both Ministers say that an initial debate was
held at the Council meeting on 19 July 2004, and that the detailed
negotiations (which commenced in September) are likely to continue
into 2005.
Conclusion
1.14 In common with a number of other proposals
currently on the table, the decisions reached on these two documents
clearly depend on the outcome of the discussions concerning the
overall ceiling on Community expenditure in the next Financial
Perspective. That said, the documents do also have a close bearing
on the future direction of agricultural and rural development
policy following the recent mid-term review of the Agenda 2000
reforms of the Common Agricultural Policy, and it is also evident
that they each give rise to a number of specific points of concern
to the Government, which we have summarised above. We think it
right that the House should have an opportunity to consider these
further, and, for that reason, we are recommending that the documents
be debated in European Standing Committee A.
ANNEX I
MAIN POLICY AXES
PRIORITY AXIS 1: IMPROVING THE COMPETITIVENESS OF
THE AGRICULTURAL AND FORESTRY SECTOR
(a) Measures aimed at improving human potential
through:
- vocational training;
- setting up young farmers;
- early retirement of farmers and farm workers;
- use of advisory services;
- setting up farm management, farm relief and farm
and forestry advisory services.
(b) measures aimed at restructuring physical potential
through:
- farm modernisation;
- improving the economic value of forests;
- adding value to primary production;
- improving and developing infrastructure related
to the development and adaptation of agriculture and forestry;
- restoring production potential damaged by natural
disasters and introducing appropriate prevention actions.
(c) Measures aimed at improving the quality of
production and products by:
- helping farmers to adapt to
demanding standards based on Community legislation;
- supporting farmers who participate in food quality
schemes;
- supporting producer groups for information and
promotion activities for products under food quality schemes.
(d) Transitional measures for the new Member States
concerning:
- supporting semi-subsistence
farms undergoing restructuring;
- supporting the setting up of producer groups
PRIORITY AXIS 2: LAND MANAGEMENT
(a) Measures targeting the sustainable use of
agricultural land through:
- natural handicap payments to
farmers in mountain areas;
- payments to farmers in areas with handicaps,
other than mountain areas;
- NATURA 2000 payments;
- agri-environment and animal welfare payments;
- support for non-productive investments.
(b) Measures targeting the sustainable use of
forestry land through:
- first afforestation of agricultural
land;
- first establishment of agroforestry systems on
agricultural land;
- first afforestation of non agricultural land;
- NATURA 2000 payments;
- forest-environment payments;
- restoring forestry production potential and introducing
prevention actions;
- support for non-productive investments.
PRIORITY AXIS 3: DIVERSIFICATION OF THE RURAL ECONOMY
AND THE QUALITY OF LIFE IN RURAL AREAS.
(a) Measures to diversify the rural economy, comprising:
- diversification into non-agricultural
activities;
- support for the creation and development of micro-enterprises
with a view to promoting entrepreneurship and developing the economic
fabric;
- encouragement of tourist activities;
- the protection, upgrading and management of the
natural heritage, so contributing to sustainable economic development.
(b) measures to improve the quality of life in
the rural areas, comprising:
- essential services for the
economy and rural population;
- village renovation and development, and the conservation
and upgrading of the rural heritage.
(c) A vocational training measure for economic
actors operating in the fields covered by this Axis.
(d) A skills-acquisition and animation measure
with a view to preparing and implementing a local development
strategy.
1 (19028) 7073/98; see HC 155-xxvi (1997-98), para
1 (29 April 1998). Back
2
These include modernisation of agricultural holdings, training,
support for young farmers, early retirement, measures applying
to Less Favoured Areas, aid for forestry and the adaptation of
rural areas, agri-environment, and improved processing and marketing
of agricultural products. Back
3
OJ No. L.160, 26.6.99, p.80. Back
4
(23670) 10879/02; see HC 63-vii (2002-03), para 2 (15 January
2003). (24234) -; see HC 63-xi (2002-03), para 1 (5 February
2003). Back
5
OJ No. L.270, 21.10.03, p.1. Back
6
(25864) 11606/04; see para 10.12 below. Back
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