COMAGRI draft report on direct payments regulation

The draft reports by the COMAGRI rapporteurs on the four main CAP regulations were published last week. They include reports on the future of direct payments and support for rural development by Mr Luis Manuel Capoulas Santos, the report on the single common market organisation by Mr Michel Dantin, and the report on the common provisions for financing, management and monitoring of the CAP by Mr Giovanni La Via.
In addition, a number of the other EP committees have prepared draft opinions on the proposals – see the Environment Committee here, but also the Development Committee, the Budget Committee and the Regional Development Committee. The easiest way to keep track of these reports is by following the links on this European Parliament Legislative Observatory page to the individual procedure files.
The draft reports will be amended later, but they provide the first official indication of the thinking in the European Parliament on the Commission’s CAP post-2013 legislative proposals. This post summarises the main changes proposed in the Capoulas Santos draft report for the future direct payments regime after 2013.
Makes greening voluntary. The Capoulas Santos draft report accepts much of the Commission’s proposal but its key amendment, that the greening payment should be voluntary, undercuts the Commission’s argument for greening Pillar 1. The Commission’s argument for greening Pillar 1 was that the measures should be compulsory for every farmer. If the green payment is merely a voluntary scheme which farmers can opt into if they desire, why not deliver this through the agri-environmental measures in Pillar 2? Update: In the explanatory memorandum, there is a suggestion that a member state could allocate more than 30% of its direct payment ceiling to the greening payment, but this does not appear to be reflected in the proposed amendments. In any case, this issue is part of the MFF negotiations and not the responsibility of COMAGRI.
Extends the possibilities to be ‘green by definition’. The Commission opened this door by suggesting that organic farmers could be exempt from the greening measures but still receive the green payment. The Capoulas Santos draft report would extend this exemption to farmers who sign up for agroenvironmental programmes as an aspect of rural development or who take part in a national certification scheme of recognised environmental value.
The report acknowledges that this proposal might mean that farmers could receive a double payment under both the greening and agri-environment-climate measure in rural development programmes. It proposes to exclude this possibility by amending the Rural Development Regulation to make sure that all agro-environment-climate measures go beyond the greening requirements. But either the AEM measures build on the basic requirements in Pillar 1 or they are a substitute for them. It seems impossible to avoid that many farmers in a Pillar 2 AEM including organic farmers would receive a double payment in Pillar 1 and Pillar 2 under the ‘green by definition’ option.
If one assumes that farmers in a certification scheme do not receive payments under Pillar 2, then this problem does not arise. A certification scheme then becomes a way for Member States to introduce additional measures to qualify for the greening payment beyond the three proposed by the Commission. In principle, this flexibility should be welcomed, but it introduces a completely new instrument into the CAP. One would need to know a lot more about how these certification schemes work in practice before coming to a final judgement.
Crop diversification. The Capoulas Santos draft report partially relaxes the crop diversification requirement proposed by the Commission that all farms with more than 3ha of arable land should grow a minimum of three crops. It proposes that farmers should have two different crops on their arable land where the arable land of the farmer covers between five and 20 hectares and three different crops where the arable land of the farmer covers more than 20 hectares.
There is a further exemption for predominantly grassland farms or farms with permanent crops. The rule would not apply where more than 80% of the eligible agricultural area of the holding is covered by permanent grassland and historical pastures, or permanent crops, and the arable area is less than 50ha. Farmers with permanent crops such as olive groves, vineyards or orchards shall apply specific agronomic practices that imply minimum soil disturbance and green coverage of the soil surface.
If one accepts that crop diversification is a desirable requirement then these adjustments make sense to avoid particular problems for small arable areas. The Parliament’s Environment Committee draft opinion continues to push for a crop rotation rather than crop diversification requirement. “Crop diversification would merely give an incentive for farmers to take out small pieces of their land to plant different crops it will not help the environment. Crop rotation would on the other hand prevent monoculture, improve biodiversity and lower the need for pesticide use.”
Ecological focus areas. The Capoulas Santos draft report relaxes the Commission’s EFA proposal. The 7% requirement would now apply only on holdings larger than 20 hectares (the Commission had no threshold). Land planted with nitrogen-fixing crops would be eligible to be counted as part of a farm’s EFA. In order to encourage cooperation between farmers to install biodiversity corridors the minimum EFA percentage is reduced to 5% in cases of joint undertakings of groups of farmers putting in place continuous, adjacent ecological focus areas. In contrast, the Environment Committee’s draft opinion proposes raising the EFA requirement to 10% of eligible area.
Permanent grassland. The Capoulas Santos draft report does not modify the Commission’s proposal that the area of permanent grassland should be maintained at the individual farm level, but it adds the category of ‘historical pasture’ which is defined rather vaguely as pasture with features of importance that warrant describing it as historical pasture. The amendment is justified by the need to include permanent pastures rather than just permanent meadows, so as to take account of farmers engaged in extensive stock-rearing. The Environment Committee’s draft opinion would exclude intensive grasslands which do not bring benefits for climate or biodiversity and focuses instead on non-herbaceous or ligneous pastures.
Altered formula for convergence across member states. The Capoulas Santos draft report proposes that “the national envelopes for direct payments should also be adjusted so that in Member States with a current level of direct payments per hectare below 70% of the Union average, that shortfall is reduced by 30%. In Member States with a level of direct payments between 70% and 80% of the average, the shortfall should be reduced by 25%, and in those Member States where the level is more than 80% of the average it should be reduced by 10%. Following application of these mechanisms, the level received should not, in any Member State, be less than 65% of the Union average. In the case of Member States with payment levels above the Union average, the convergence effort should not pull those levels below the average. The convergence should be financed proportionally by all Member States with direct payments above the Union average.” It also deletes the aspiration in the Commission’s recitals that “The debate on the next Multiannual Financial Framework for the period starting in 2021 should also focus on the objective of complete convergence through the equal distribution of direct support across the European Union during that period.”
The draft report contains a table of national payment ceilings based on this calculation which is compared to the Commission’s proposal in the figure below. The changes are rather minimal. Germany and France would lose under the Santos formula, while Italy, Poland, Romania, Netherlands and the Baltic states would gain. However, the suggestion is only that, a suggestion. The convergence formula will not be decided by the Agricultural Committee or the Parliament but by the Council of Ministers in the discussions on the Multi-annual Financial Framework.

Basic payment scheme. The Capoulas Santos draft report argues that farmers in Members States (or regions) with fully regionalised SPS models already have payments entitlements for all eligible areas, and thus it is not necessary to introduce a completely new system.
Definition of an ‘active farmer’. Where the Commission proposed to exclude landowners from receiving direct payments where the annual amount of direct payments is less than 5 % of the total receipts they obtained from non-agricultural activities in the most recent fiscal year, the Capoulas Santos draft report leaves the definition of active farmer to the Member States. “Member States shall establish appropriate objective and nondiscriminatory criteria to ensure that no direct payments are granted to a natural or legal person: (a) whose agricultural activities form only an insignificant part of its overall economic activities; or (b) whose principal business or company objects do not consist of exercising an agricultural activity. Entities such as transport companies, airports, real estate companies, companies managing sport grounds, campsite operators and mining companies may not, a priori, be regarded as active farmers or be the beneficiaries of any direct payments whatsoever unless they can prove that they are not covered by the criteria set out in the first subparagraph, points (a) and (b).”
Capping. The Capoulas Santos draft report accepts the principle of capping and would make it even slightly more progressive. It proposes that a greater reduction (80% instead of 70%). should be applied to amounts of aid in excess of €250 000, while seeking to ensure that production cooperatives would not be affected.
More flexibility for internal convergence. The Commission’s proposal that all entitlements should have a uniform unit value by 2019 is relaxed to “approximate to or reach” a uniform unit value. The Santos draft report notes that some farms where the entitlements per hectare differ widely from the regional average may be severely affected by the move to a flat-rate system. It therefore proposes that individual farm payments could still deviate by up to 20% from the average unit value in 2019, and that Member States may take measures to ensure that, where payment entitlements at farm level are reduced, the level of those entitlements activated in 2019 is not more than 30% below that of 2014. It would also reduce the proportion of the basic payment that must be unified in the first year from 40% to 20% so that the transition is less abrupt during the first year of introducing the reform.
Coupled support. The Commission proposal was that, where coupled support was continued, it should only be granted to the extent necessary to create an incentive to maintain current levels of production. The Capoulas Santos draft report would give more flexibility by adding the possibility to provide coupled support to create an incentive to maintain current levels of employment or production in those regions or to support sectors or types of production that offer significant advantages in terms of environmental improvement, combating climate change or biodiversity. The list of crops eligible for coupled support is extended to include fodder legumes and soya.
Small farm scheme. The small farm scheme is made optional for Member States.
Modulation. The Commission proposed that Member States should be given the possibility to transfer up to 10% of their direct payments ceiling to support assigned for rural development. The Capoulas Santos draft report would make the modulation possibility more flexible. Member States less favourably placed with regard to rural development should be able to add to the transfer. Specifically, Belgium, Denmark, France, Germany, Ireland, the Netherlands, Spain, Sweden and the United Kingdom may decide to increase the percentage of their annual ceilings transferred to 20%. In addition, all Member States should be able to supplement the transfer by a sum proportional to those monies unallocated under the heading of support for areas with natural constraints. They shall also have the option of transferring unspent monies for “greening” so as to provide additional support for agro-environmental rural-development measures. However, there should be a cumulative limit of 20% of the national ceilings (excluding unused greening funds). All monies thus transferred should be used without co-financing. The Environment Committee’s draft opinion, on the other hand, would remove any restrictions on the amount of direct payments which could be transferred to Pillar 2.
Summary. The main issue before the Commission in formulating its proposal was to define the purpose of these payments. Those calling for CAP reform put forward the argument ‘public money for public goods’ and wanted payments to farmers to be targeted on the delivery of environmental public goods. The Commission’s proposal for greening the CAP made greening part of Pillar 1, but has been widely criticised as untargeted, overly complicated to administer and not related to the cost of provision. Some of the criticisms have come from beneficiaries of the current policy who wish to maintain their current level of payments with the minimum additional conditionality.
The Capoulas Santos draft report reflects many of these criticisms. The main thrust of the amendments is to limit the impact of the Commission’s original proposals (introducing a threshold for EFA requirements, lowering the EFA requirement for adjoining areas, relaxing crop diversification, extending the transition period towards the regional SPS model) or to give more flexibility to the member states (extending the ‘green by definition’ categories, allowing greater modulation of funds to Pillar 2, relaxing the constraints on recoupling support). Only in the cases of capping and convergence between member states does the report go slightly beyond what the Commission has proposed and, in the latter case, the Parliament’s powers are limited.
Member States will welcome the Capoulas Santos draft report while pushing for further relaxation and flexibilities. The Commission will continue to argue to maintain a link between the green and basic payments but will be able to live with some of the simplifications. But the taxpayer is left wondering what additional environmental improvements will there be at the end of this process, and for what price?
The amendment deadline in the Agriculture Committee is 9 July, and the final report is expected to be agreed in November.