1 Voluntary reduction
("modulation") of direct farm support payments
(27550)
10014/06
COM(06) 241
| Draft Council Regulation laying down the rules for voluntary modulation of direct payments provided for in Regulation (EC) No 1782/2003 establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers, and amending Regulation (EC) No 1290/2005
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| Legal base | Article 37EC; consultation; QMV
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| Document originated | 24 May 2006
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| Deposited in Parliament | 5 June 2006
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| Department | Environment, Food and Rural Affairs
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| Basis of consideration | EM of 14 June 2006
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| Previous Committee Report | None
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| To be discussed in Council | Autumn 2006
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| Committee's assessment | Politically important
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| Committee's decision | For debate in European Standing Committee
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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 (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. These reforms also
introduced (in Council Regulation (EC) No 1259/1999)[4]
the concept of voluntary modulation, under which Member States
were free, if they so wished, to make reductions of up to 20%
in the direct support payments to their farmers in order to fund
rural development measures.
1.2 However, following the mid-term review[5]
of those reforms in 2003, a number of changes were made, notably
those in Council Regulation (EC) No. 1782/2003.[6]
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). It also enabled compulsory
modulation[7] to be applied
as from 2005 to direct payments in order to provide additional
Community support for rural development, whilst at the same time
repealing as from 31 December 2004 the provisions for voluntary
modulation contained in Regulation 1259/1999.
1.3 It was followed in 2004 by further changes, now
contained in Council Regulation 1698/2005, and aimed principally
at stressing the role of the CAP's rural development pillar. The
effect of these was to replace the European Agricultural Guarantee
and Guidance Fund (EAGGF) by two new funds — the European
Agricultural Guarantee Fund (EAGF) and the European Agricultural
Fund for Rural Development (EAFRD), and to set out the detailed
basis on which support would be provided under the second of these,
with emphasis being placed on three policy axes (increasing competitiveness,
enhancing the environment and countryside, and enhancing the quality
of life in rural areas and promoting diversification).
The current proposal
1.4 In putting forward the present legislative proposals,
the Commission notes that, when the European Council in December
2005 reached agreement of the financial framework for 2007-13,
including the overall budget for rural development, it also paved
the way for those Member States wishing to do so to re-introduce
voluntary modulation of up to 20%, and to use the amounts generated
for their rural development programmes under the second pillar
of the CAP. The Commission has accordingly sought in this document
to lay down detailed rules for the application of voluntary modulation,
and to specify how the money concerned can be used for rural development.
In particular, it provides that:
- as with compulsory modulation,
the deduction would not apply to the first €5,000
of aid;
- unlike other rural development expenditure, the
sums deducted do not have to be matched by equivalent national
co-funding;
- unlike the earlier voluntary arrangements, where
Member States were able to operate different regional rates, there
would in future have to be one national rate of modulation; and
- the proceeds of voluntary modulation would be
subject to the minimum spend requirements laid down in Regulation
1698/2005 for the three policy axes (10% for competitiveness and
enhancing the quality of life, and 25% for enhancing the environment).
The Government's view
1.5 In his Explanatory Memorandum of 14 June 2006,
the Minister for Sustainable Farming and Food at the Department
of Environment, Food and Rural Affairs (Lord Rooker) says that
securing agreement to voluntary modulation was of key importance
to the UK, which has in the past received a disproportionately
low share of the Community rural development budget, and will
enable it to meet its commitments to agri-environment schemes.
He also points out:
- that the exemption of the first
€5,000
means either that a higher rate of modulation will be needed to
secure a given amount of receipts, or at the level of receipts
generated by a given rate of modulation will be reduced;
- that different rural development programmes are
currently in place within the UK, and that there are plans to
continue to operate on this basis in future in order to reflect
the strategic objectives set by each of the four administrations:
the imposition of a single national rate could therefore significantly
constrain the UK's ability to achieve the desired rural development
outcomes; and
- that the requirement for a minimum spend for
each of the policy axes under Regulation 1698/2005 contradicts
the agreement reached by the European Council in December 2005
— and welcomed by the UK — that such a minimum would
not be set, and would, for example, prevent the UK from concentrating
exclusively on measures for enhancing the environment.
Conclusion
1.6 This proposal can in a sense be regarded as
an extension of the earlier arrangements for voluntary modulation,
and as simply giving legislative effect to conclusions of the
European Council in December 2005. However, there are a number
of outstanding issues —
such as the lack of any national co-funding requirement, the lack
of freedom for Member States to vary the rate of modulation within
their territory, and the requirement for a minimum level of spend
on each of the three rural development policy axes —
where it seems to us the implications need to discussed further.
In addition, if the maximum rate of modulation were to be applied,
this would imply a substantial impact, not only on farm incomes,
but on the level of rural development expenditure in the UK. We
therefore think it would be helpful if the Government could indicate
what level of voluntary modulation it envisages, and what the
implications would be in these two areas. For all these reasons,
we are recommending the document for debate in European Standing
Committee.
1 (19028) 7073/98; see HC 155-xxvi (1997-98), para
1 (29 April 1998). Official Report, 21 May 1998, Cols.
1128-79. 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, 26.6.1999, p.80. Back
4
OJ No. L.160, 26.6.1999, p.130. Back
5
(23670) 10879/02; see HC 63-vii (2002-03), para 2 (15 January
2003) and (24234) - ; see HC 63-xi (2002-03), para 1 (5 February
2003). Back
6
OJ No. L. 270, 21.10.2003, p.1. Back
7
Of 3% in 2005; 4% in 2006; and 5% in each of the years 2007-12
inclusive. Back
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