CAP reform implementation consultations begin

The most defining characteristic of the political agreement reached on CAP reform in June 2013 in hindsight may not be the greening of Pillar 1 payments or the move towards greater ‘fairness’ in the CAP as a result of external and internal convergence, but rather the re-nationalisation of some aspects of agricultural policy with the devolution of much greater flexibility to member states in how the new CAP can be implemented.

This flexibility may be seen as a consequence of trying to manage a single CAP in an increasingly heterogeneous agricultural landscape in Europe following successive enlargements to an EU of 28 member countries. Or it might be seen as the price of reaching agreement on a complex political package in which each member state had particular political interests to defend, leading to a self-service menu of CAP reform options.

Flexibility in implementing the CAP can be a desirable feature if it results in a better alignment of agricultural policy with the needs of individual countries and regions – this has been the traditional argument behind the menu approach which is now a well-established feature of Pillar 2. Some flexibility had already been introduced into the implementation of Pillar 1 direct payments in the Fischler 2003 reform and the 2008 Heath Check (the choice between the regional and historic basis for the Single Farm Payment, Article 69 (later Article 68) measures, and different options to maintain coupled payments, to name the most important). But this flexibility is greatly extended in the current CAP reform.

The danger is that the different implementation of agricultural policy in different member states could erode the single market in agricultural products and the notion of a ‘level playing field’ on which all EU farmers compete. To the extent that we are talking about different models to implement decoupled direct payments, this may not be a major problem given the limited (if non-negligible) impact of decoupled payments on production. But if member states choose to recouple different proportions of their direct payments, or if greening obligations are interpreted differently, the potential to re-introduce distortions in competition between farmers in different member states is evident.

Member state options

All member states are now grappling with decisions on how they should use the flexibility provided in the new Direct Payments regulation. These include deciding on which of the optional schemes should be applied as well as defining the specific parameters of each scheme. A number have begun consultations with stakeholders on the issues involved. Two examples are highlighted in this post.

The Irish consultation process sets out a list of 44 options for the implementation of the Direct Payments regulation on which stakeholders are invited to give their views. Even this is not a full list of all possible options given that certain issues remain to be resolved between the institutions (e.g. capping) while other options will only become clear when the Commission issues its implementing regulations.

The consultation paper is accompanied by a comprehensive summary of the decisions made in the CAP political agreement as well as by another paper setting out the provisional financial ceilings for the various ‘layers’ of direct payments in the Irish context. However, an editorial in today’s edition (3 August) of the Irish Farmers Journal criticises the absence of detailed modelling results on which to base an informed assessment of the various options.

The Welsh consultation process is interesting because the government has stated in the consultation document its clear preference on each of the flexibility options and given its reasons for making this choice. It then invites stakeholders to say whether they agree or disagree with this choice.

Unlike the Irish, the Welsh government has circulated the results of its modelling work to study what happens when the historical entitlement system is replaced with an area based system. This modelling is based on a mechanical redistribution of payments between farms and thus does not attempt to investigate whether production might change as a result of pursuing the different options.

The modelling distinguished four possible land classes which itself gives rise to a variety of possible combinations (e.g. to have different flat rates for each of the four classes, combining two classes to give three different flat rates, having just two categories with different flat rates, and so on).

For each combination the modelling looked at the effect of changing the weighting for payments between the land categories, running many different weightings in a systematic way. Around 30,000 combinations were examined and new payment values for every claiming farm from 2010 compared to values with historical entitlement were calculated.

The Welsh paper presents detailed results for those options which would cause least redistribution among farmers in the move away from the historic system. While the four category option would allow greatest flexibility in maintaining the current distribution of payments and thus cause least disruption, and the single flat rate model would cause the greatest disruption, the modelling concluded that a two category model would be almost as effective as the four category model in limiting redistribution while being administratively much simpler.

Other examples?

The difficult for all EU Ministers for Agriculture is that implementing the direct payment flexibility options is an inherently political process because it involves redistribution of a fixed pot of money between different groups of farmers. Should the options to privilege smaller farmers as against larger farmers be used? Should the options try to favour livestock farmers as against cereal growers? Should farmers in more marginal land areas be helped more than more productive farmers on more fertile land? There are no easy answers to these questions. Suddenly, agricultural policy has become the stuff of national political debate again.

If readers have links to consultation exercises or similar modelling studies in other countries I would be happy to include the links in this post.

Update 1 August 2013: In France, the Ministry of Agriculture has opened a consultation with farm groups on what options to choose. The French objective is to rebalance direct payments to favour livestock systems and farm employment. The accompanying discussion document (click here for an English translation of this document, thx to GH) illustrates the effect of four different distribution scenarios and compares their redistributive effect by farm system and farm size compared to 2010 data. However, the document does not express an official preference in favour of any of the scenarios.

Update 12 August 2013
. The German government’s CAP implementation paper (in German) published on 2 July sets out very specifically the options it proposes to use when introducing the new payment system. Germany, alone of the old member states, had already moved to a uniform regional payment by 2013 but different for each Land or state. The government paper proposes to move to a uniform national payment in four steps from 2015 to 2019, but the 30% green payment will already be paid as a uniform amount per hectare from 2015. The paper favours using 5% of the national ceiling for the introduction of a redistributive payment (€50/ha on the first 15 hectares and €30/ha on the next 15 hectares) which is seen as a preferable way to improve the distribution of payments than capping or modulating payments to the largest farms. Another 2.5% of the Pillar 1 ceiling will be used to make payments to farms in disadvantaged regions. This is seen as freeing up some resources in Pillar 2 which can be used for agri-environment schemes and promotion of organic production, but otherwise Germany does not intend to make use of the flexibility to move resources from Pillar 1 to Pillar 2. The distribution of Pillar 2 funds between the Länder will be adjusted so as to balance out the resulting redistribution of Pillar 1 payments arising both from the move from regional to a national flat rate payment and the introduction of a redistributive payment.

Not everyone in Germany is satisfied with this proposal. The agricultural minister for Lower Saxony has called for a much higher redistributive payment and to shift 15% of Pillar 1 funds to Pillar 2 (see the Minister Ilse Aigner’s response). However, Frau Aigner hopes that there will be majority in the Bundesrat (the upper house) for her proposals.

Update 14 August. DEFRA has now published its status update on implementation of the new direct payments scheme in the England region in the UK. England currently applies a flat rate payment within three regions, lowlands, uplands and moorlands. The government proposes to keep these three regions but to reshuffle payments ‘uphill’ from the lowlands to uplands and moorlands because of the need to maintain farming activity in these regions. It does not propose to make use of the option to provide an additional payment to Areas of Natural Constraints as these overlap closely with the uplands and moorlands regions, so adjusting payment rates is administratively easier. The paper keeps an open mind on which model to allocate entitlements to use. It also keeps an open mind on whether to offer a national certification scheme as an alternative to the three basic greening measures including in the direct payments regulation. The paper comes out against any recoupling of direct payments. It proposes further discussion with stakeholders on whether to introduce progressive reductions of higher payments and/or the redistributive payment.

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