PART IV. WHAT ARE THE CAP
REFORMS OF JUNE
2003?
On
26
June
2003,
EU agricultural ministers adopted a set of fundamental reforms
of the Common Agricultural Policy (CAP). The reforms will be
phased in between
2004
and
2007,
and will completely change the way the in which the EU supports
its farm sector. The new CAP will be geared more towards
consumers and taxpayers, while giving EU farmers more freedom to
produce what the market wants. These reforms were based on the
Agenda
2000
package, which was adopted by the EU in March
1999.
The objectives of this reform package were:
-
to smooth the way for the May
2004
expansion of the EU to
25
states;
-
to ensure that the EU meets its commitments on world trade made
at the Uruguay Round Agreement on Agriculture; and
-
to relieve pressures on the CAP budget.
The
2003
reforms are expected to
provide a more sustainable basis for European agriculture and
reflect the wider environmental and rural development objectives
which society seeks to achieve.
A.
Summary of
2003
CAP Reforms
The key elements of the
2003
CAP reforms are summarised as follows:
-
a
single farm payment
for EU farmers, independent from production; limited
coupled elements may be maintained to avoid abandonment of
production;
-
cross-compliance
- this payment will be linked to the respect of environmental,
food safety, animal and plant health and animal welfare
standards, as well as the requirement to keep all farmland in
good agricultural and environmental condition;
-
a
strengthened rural
development policy with more EU money, new measures
to promote the environment, quality and animal welfare help
for farmers to meet EU production standards starting in
2005;
-
modulation
- a
reduction in direct payments for bigger farms in order to
shift the funds to the new rural development policy;
-
a
mechanism for financial
discipline to ensure that the farm budget remains
fixed until
2013;
-
revisions to the market policy of the CAP:
-
price cuts in the milk sector;
-
reduction of the monthly increments in the cereals sector by
half, the current intervention price will be maintained;
-
reforms in the rice, durum wheat, nuts, starch potatoes and
dried fodder sectors.
In the future, the vast majority of subsidies will be paid
independently from the volume of production. To avoid
abandonment of production, member states may choose to maintain
a limited link between subsidy and production under well defined
conditions and within clear limits. These new
single farm payments
will be linked to the respect of environmental, food safety and
animal welfare standards. Severing the link between subsidies
and production will make EU farmers more competitive and market
orientated, while providing the necessary income stability. More
money will be available to farmers for environmental, quality or
animal welfare programmes by reducing direct payments for bigger
farms. The EC further decided to revise the milk, rice, cereals,
durum wheat, dried fodder and nut sectors. In order to respect
the tight budgetary ceiling for the EU until
2013,
ministers agreed to introduce a financial discipline mechanism.
B.
Detailed Review of
2003
CAP Reforms
The legal texts for the reforms were formally adopted by the EU
Agriculture Council in September
2003.
The different elements of the reform will enter into force in
2004
and
2005.
The single farm payment will become effective in
2005.
If a member state requires a transitional period due to its
specific agricultural conditions, it may delay the single farm
payment policy as late as
2007.
The elements of the reform package are reviewed in greater
detail below:
In principle all the major farm subsidies will be replaced by
the new single payment, which member states will be able to
introduce from January
2005,
but may delay until
2007
under certain conditions. This scheme will greatly simplify the
CAP and break the link between subsidies and production. Member
states may choose, at the national level or in specific regions,
to maintain the link of subsidy to production for:
-
seeds
-
up
to
25%
of arable payments except that a member state which does not
maintain the link elsewhere in the arable sector may do so for
up to
40%
of its durum wheat payments;
-
up
to
50%
of sheep and goat premium
-
for
cattle up to either -
a)
100%
of the suckler cow premium and
40%
of the slaughter premium; or
b)
100%
of the slaughter premium; or
c)
75%
of the beef special premium.
The dairy premium will remain linked to quota until dairy reform
is completed - except in cases where the member state decided to
apply the single payment scheme according to regions. In these
circumstances, the member state also has the option of including
the dairy premium in the single payment scheme from the outset.
Member states or regions will also have the option to retain
10%
of payments to establish a national envelope to address
potential negative impacts of decoupling or to improve marketing
or encourage specific types of farming. The
10%
limit counts towards the other limits mentioned above for member
states, which opt for them.
The new single payment will be based on historic direct payment
receipts in the period
2000-2002,
with special provision to help farmers who took up occupation of
land during this period or up to
31
May
2003.
A national reserve of single payment entitlements will operate
under rules to be set later by a new
Commission Management Committee.
The national reserve will be generated by a levy of up to
3%
of entitlements and certain other sources.
Payments will be based on land use, but transferable by sale
separate from the land. Farmers who have no land, e.g. intensive
beef feed lots, are covered by special rules. Member states may
also adopt a different approach in regions, allowing the total
subsidy paid to be averaged over all of the arable and pasture
land in a region.
The new arrangements will:
-
free farmers from the need to grow particular crops or keep
specific numbers of animals, instead allowing them to gear
their production to the market;
-
reduce the negative impact of the CAP on the world's poorest
farmers by cutting over-production of subsidised food;
-
remove the incentive to intensify production and damage the
environment;
-
allow the EU to engage positively in the WTO negotiations with
a significant offer on agricultural trade.
For the first time, the main subsidies are explicitly linked to
compliance with EU standards concerning the environment, public
health, animal health and animal welfare. Farmers are also
required to maintain their land in good agricultural and
environmental condition, as defined by the member states. Member
states will inspect a sample of farms each year on a systematic
basis to ensure that the standards are met.
Reduction of direct payments
and transfer of the money to
Rural Development
expenditure (pillar
2)
will start in
2005:
earlier than originally proposed (2006)
and at a higher rate for the earlier years. The new rates are:
|
Year |
As agreed |
January
2003
proposal |
|
2005 |
3% |
|
|
2006 |
4% |
1% |
|
2007 |
5% |
2% |
|
2008 |
5% |
3% |
|
2009 |
5% |
4% |
|
2010 |
5% |
5% |
|
2011
and thereafter |
5% |
6% |
The first
5,000
of direct payments for each farmer will be returned to the
farmer (so, in effect, no cut is applied to that element of the
subsidy.)
Part of the receipts from modulation will be redistributed on
the basis of criteria related to the relative shares of
agricultural land, agricultural employment, and GDP per capita.
However, the product of the first percentage point of modulation
each year will be allocated to the member state from which it
was collected; and every member state is guaranteed to get back
at least
80%
of what it pays in. For the member state with the highest level
of rye production (Germany) this is increased to
90%
to help meet structural adjustment pressures arising from the
abolition of rye intervention.
The level of modulation now proposed will mean a switch of just
under
9
billion of CAP funding to agri-environment schemes and rural
development between now and
2013,
compared with
6.6
billion in the Commission January proposals. As part of the
overall package we will be able to impose an additional level of
modulation, the proceeds of which we can retain.
A new financial discipline mechanism has been set in order to
reduce direct payments, to fund policy changes, and restrain
overall expenditure within agreed limits. The arrangements will
be introduced from
2007
and provided the Commission determines that expenditure on CAP
budget category
1A
is within
300
million of the budget ceiling.
By
2007,
member states are required to set up a farm advisory service
that will be available to farmers to help them meet their
cross-compliance obligations. Member states will have some
flexibility to implement this more in line with any similar
schemes they already have.
Land covered by the simplified payments must be farmed in
accordance with the cross compliance rules and must not be used
for permanent crops, except for energy crops including short
rotation coppice, nor for growing fresh fruit and vegetables,
including potatoes.
Set-aside will be based on the amount of land a farmer had in
compulsory set-aside in the simplified payment reference period.
This land is covered by the same payment system, but subsidy is
only paid if the land is kept in set-aside, although rotation is
allowed. The rules for set-aside have been relaxed to provide
more flexibility in ways to deliver environmental objectives,
for example, in relation to strip widths for conservation
headlands - the strips of uncultivated land around the edges of
a field.
For durum wheat, the aid payable in traditional areas of the EU
will be reduced from
344.50/ha
to
285/ha
phased over a three-year period and decoupled from
2005.
The aid paid in well-established areas (currently
138.90/ha)
will be phased out over a three-year period. In addition, a new
quality premium of
40/ha
is being introduced, limited to the traditional durum areas.
The existing tonnage-based supplement payable for peas and beans
will be converted to an area based supplement of
55.75/ha,
subject to a maximum area in the EU of
1.4
million hectares. The aid will be coupled to production.
The rice reform includes the following elements:
-
a
50%
reduction in the intervention price and abolition of monthly
increments;
-
intervention purchasing limited to
75,000
tonnes year;
-
the
aid payable to rice producers will be increased from
52.65
per tonne to
177
per tonne, of which
102
per tonne will be included in the single payment scheme;
-
adjustment in the maximum guaranteed area (MGA) eligible for
aid to the lower of average plantings
1999-2001,
or the existing MGA;
-
adjustment of base area overshoot penalty system;
-
a
mandate to open negotiations about import arrangements under
GATT Article XXVIII.
A new annual area aid of
120.75
per hectare for nut production has been introduced for up to
800,000
hectares. Member states may grant an equivalent amount in
national aid.
Energy crops are those used for the production of bio fuels and
electrical and thermal energy from biomass. An aid of
45
per hectare for land used to produce energy crops has been
established. This will not apply on set-aside land, though
certain energy crops - short rotation coppice - on set-aside
land will be eligible for set-aside payment. A maximum
guaranteed area of
1.5m
hectares is fixed for the EU and aid will be reduced if
production exceeds that area. By December
2006,
the Commission will report on the implementation of the scheme,
taking into account progress with the EU bio fuels initiative.
40%
of the existing aid payable to producers of starch potatoes will
be integrated into the single income payment scheme, with the
remainder payable as a coupled aid. In addition the existing
minimum price arrangements will be maintained, along with the
starch production refund.
The proposed additions to the Rural Development regulation,
which set out what member states can spend Pillar II money on
are optional. One significant change is an increase in the
percentage level of EU co-financing. That will mean that to draw
down
3
of the EU rural development funding, member states need to
contribute
2
of their own money, not the full
3.
The support price cuts now agreed have been eased back to
25%
for butter over
4
years from
35.8%,
while for skimmed milk powder price cuts will remain at
15%
as agreed in the Agenda
2000
package. The compensation payments have been scaled back in
proportion but will be phased in over a
3
year period. The general quota increases agreed in Agenda
2000
have been delayed from
2005
for a year. The proposed additional two
1%
quota increases have been dropped pending further review and the
milk target price has been abolished.
The compromise removes the proposed
5%
cut in the cereals intervention price but halves the monthly
increments resulting in a small reduction in total support and
bringing prices closer to world prices. Intervention for rye is
abolished. Set-aside continues, but with much greater
flexibility which will help maximise its environmental benefits
(rotational options, non-food/energy crop use, narrower strip
widths).
The settlement replaced half the existing processing aid with an
area aid for producers. It provides for a Commission report in
2008
evaluating the Common Market Organisation for dried fodder,
which will consider the environmental implications of dried
fodder production.
The supplementary payments for cereals, oilseeds, linseed and
flax and hemp grown for fibre are increased from
19
to
24/tonne. |
