Commission publishes Member State envelopes for direct payments and rural development 2021-2027

The Commission has published without fanfare on its MFF website the breakdown of national pre-allocated ceilings for direct payments and rural development for the coming 2021-2027 programming period as well as their scheduling over the seven-year period. These figures are based on the European Council’s MFF conclusions in July 2020 and assume that these conclusions will eventually receive the approval of the European Parliament. As I write this, this is not a foregone conclusion. Talks between the German Presidency and the Parliament negotiators on the MFF package made no progress yesterday evening despite an attempt by the Presidency to break the logjam by offering to find additional funds for budget lines supported by the Parliament at a mid-term review of the MFF. The next opportunity for a breakthrough is next Wednesday 14 October when the negotiators have agreed to meet again.

In my previous post, I pointed out that the absence of these figures was the main reason the Council and Parliament negotiators could only reach a partial common position on the CAP transition regulation in June this year. These figures will also become the basis for the relevant Annexes of the CAP Strategic Plans Regulation when it is finally agreed. In this post I look at some conclusions that can be drawn from the figures presented.

The overall picture

The first table below shows the total envelopes for direct payments and rural development and the scheduling over the seven-year period. These figures are prior to any transfers between Pillars that Member States might make. Recall that appropriations in the financial year 2021 reimburse Member States for direct payments to farmers in claim year 2020, and so on (given that the agricultural financial year starts on 15 October of the previous calendar year and payments to farmers are generally made after that date). The direct payments ceilings included in the CAP legislation are on a claim year basis and therefore are displaced one year from the corresponding financial year amounts.

Source:  Commission tables linked on its MFF website.

Two observations can be made about this table. The first is that there is a slight increase in the annual envelopes for direct payments each year over the MFF period. Until 2022 this is partly due to the final phasing in of direct payments in Croatia following its accession in 2013. But this is only a minor element. The more important reason is the way the Commission proposes to implement the external convergence guideline in the EUCO MFF conclusions.

The conclusions decided that all Member States with direct payments per hectare below 90% of the EU average will close 50% of the gap between their current average direct payments level and 90% of the EU average in six equal steps starting in 2022. This convergence will be financed proportionately by all Member States. Additionally, all Member States will have a level of at least €200 per hectare in 2022 and all Member States shall reach at least €215 per hectare by 2027.

One might anticipate that this provision would imply that annual envelopes would increase for those Member States that benefit from external convergence and annual envelopes would decrease for those other Member States that are financing this, such that the EU annual totals would remain constant over time. While the first statement is reflected in the annual scheduling of direct payments, the second statement is not. Instead, the Commission has opted to calculate the total payments over the seven-year period due to the Member States that will finance convergence and to divide by seven to obtain the annual envelopes, which thus remain constant over the period. This has implications for the envelope for direct payments in 2021 (which finances the payments farmers will receive this year) as we will see below. It also means that the gradual increase in the annual envelopes over the period reflects the phasing in of external convergence in those Member States that benefit from it.

The second observation from the first table above is that the Commission proposes to front-load EAFRD payments by adding €2.68 billion in 2021 and thereafter keeping the envelope constant. I discussed some of the consequences of this decision and how it interacts with the debate over the timing of the release of assigned revenue from the Next Generation EU recovery instrument in my previous post.

Implications for direct payments

In the next table, I look specifically at the breakdown of the direct payments envelopes by Member State in 2021, the first year of the next MFF. The figures refer to financial year (FY) 2021 and thus claim year (CY) 2020. These are compared to the amounts that had been already pencilled in for farmers in direct payments in CY 2020 (before transfers between Pillars). For further comparison, I have included the numbers for the 2021 financial year included in the Commission’s draft CAP Strategic Plan Regulation based on its May 2018 MFF proposal.

The 2021 numbers are before transfers between Pillars, so it is important to compare these with the projected payments to farmers in claim year 2020 envelopes before transfers. The projected payments in CY 2020 were notified in Commission Delegated Regulation (EU) 2018/162 which modified the relevant Annexes for the 2013 CAP for claim years 2018 and 2019 to take account of transfers between Pillars notified up to that point and where I assume that the figures for the 2020 claim year are prior to transfers. Actual FY 2021 envelopes will differ because Member States have made use of the flexibility to transfer funds between the Pillars and because of capping. The updated figures are contained in Commission Delegated Regulation 2020/756. In my post on the 2021 draft budget and its implications for the CAP, I noted that Member States notified transfers of a net €753.9 million from EAGF to EAFRD. These are booked in the 2021 budget but reflect transfers to be implemented for direct payments in this CY 2020. However, it is not appropriate to compare the Member State allocations in Regulation 2020/756 with the pre-allocated amounts by Member State published by the Commission following the European Council MFF conclusions precisely because the former include transfers due to flexibility and capping and the latter do not.

I have also assumed that the 2021 figures for direct payments include direct payments for cotton and for the POSEI and smaller Aegean Island programmes and have therefore made the comparison with Annex III amounts in the 2013 Direct Payments Regulation. If the Commission’s 2021 figures do not include cotton, POSEI and smaller Aegean Island programmes, then the 2020 comparison figures would be slightly different.

The following table shows the results of these comparisons. The first column of numbers shows the envelopes for CY 2020 which were established in 2018 (prior to transfers between Pillars). They are the amounts (prior to transfers) that Member States expected to pay to their farmers later this year. In the latest Commission figures, these Member State envelopes have all been reduced by around 2%. This is the first time this reduction has been explicitly acknowledged.

Sources: 2020 claim year amounts from Annex III ‘Net ceilings’ Commission Delegated Regulation (EU) 2018/162; 2021 Commission proposed envelopes from COM(2019) 581; EUCO proposed envelopes from Commission MFF page.

This is consistent across all Member States (recall that external convergence does not start to take effect until 2022) except for Croatia where direct payments are still being phased in after accession. While these figures are before the transfers between Pillars that have been notified by Member States already for financial year 2021, these transfers would reduce both the expected payments in the first column of numbers and the envelope available in the third column by the same amount. The consistency of the reduction across Member States suggests that any changes in a Member State’s Potentially Eligible Area between this programming period and the next has not led to any redistribution of funds.

Implications for rural development

Comparing the amounts allocated to Member State rural development envelopes in the coming programming period 2021-2017 with their envelopes in the 2014-2020 period is more straightforward because we do not have to deal with the difference between claim years and financial years. The following table shows the relevant envelopes in current prices by Member State for both periods. As before, I have also included for comparison the envelopes proposed by the Commission in 2018 on the basis of its own MFF proposal at that time.

Source: 2014-2020 envelopes from Rural Development Regulation (EU) 1305/2013; Commission 2021-2027 figures from COM(2019) 581: EUCO amounts from Commission MFF page. Amounts exclude money set aside in the EAFRD budget for technical assistance.

As we know, the EUCO conclusions imply a much smaller reduction in rural development envelopes (-6% in current prices) compared to what was implied in the original Commission proposal (a reduction of -25% in current prices). When previously discussing the Annex to the CAP draft Strategic Plans Regulation proposed by the Commission setting out the Pillar 2 allocations by Member State based on its May 2018 MFF proposal, I had noted in this post that the sharp reduction in the Pillar 2 budget was allocated proportionately across Member States as compared to their 2014-2020 allocations. There seemed to be no attempt at prioritisation and it was almost as if the figures were intended as placeholders rather than as final allocations. This has now changed because of the EUCO MFF conclusions which made additional allocations to specific Member States.  Specifically, the conclusions made the following provisions:

For Member States facing particular structural challenges in their agriculture sector or which have invested heavily in Pillar II expenditure or which need to transfer higher amounts to Pillar I so as to increase the degree of convergence, within the overall global amount the following additional allocations will be made: Belgium (EUR 100 million), Germany (EUR 650 million), Ireland (EUR 300 million), Greece (EUR 300 million), Spain (EUR 500 million), France (EUR 1 600 million), Croatia (EUR 100 million), Italy (EUR 500 million), Cyprus (EUR 50 million), Malta (EUR 50 million), Austria (EUR 250 million), Slovakia (EUR 200 million), Slovenia (EUR 50 million), Portugal (EUR 300 million), Finland (EUR 400 million).

These ‘sweeteners’ in the EUCO conclusions are reflected in the final column of the previous table which shows the percentage change in Member State rural development envelopes for the coming programming period (before transfers) with their 2014-2020 envelopes (before transfers).  For those Member States that did not receive a ‘sweetener’, there seems to be a baseline reduction of around -12.9%. Those countries favoured in the EUCO conclusions experience a smaller reduction or even in a few cases such as France, Ireland, and Finland, (leaving aside Malta and Cyprus as outliers) can look forward to increases. Actual rural development budgets will depend on the decisions Member States make about transfers between Pillars in their CAP Strategic Plans.

We can also examine what the EUCO envelopes and the Commission’s front-loading of EAFRD payments to the 2021 budget year will mean for Member State rural development appropriations in 2021 compared to 2020.  For this comparison, it makes sense to take into account the transfers between Pillars. In the table below, this is done for budget year 2020 but unfortunately not for 2021. We know Member States have notified transfers both ways between Pillars in the 2021 budget. The Draft Budget 2021 reports these transfers in aggregate but it does not provide the Member State breakdown that would enable us to adjust the EUCO column for individual Member States in the following table. This will have to wait publication of the relevant Annex in the CAP Transition Regulation in due course. The following table can then be updated at that stage.

Sources: 2020 figures from Commission Delegated Regulation (EU) 2018/162; EUCO figures as for previous table.

The impact of the Commission’s front-loading of EAFRD spending in 2021 emerges clearly from the table. We know that there will be an additional €754 million added to the EAFRD envelopes because of the net transfers between Pillars notified by Member States. Even without taking these transfers into account, rural development appropriations will increase next year under the Commission’s proposal.  However, there is a very mixed picture among Member States where the EUCO envelopes could imply either large increases in appropriations or large decreases. These differences will be considerably reduced when the inter-Pillar transfers are factored in. Nonetheless, the table is still useful because it highlights what transfers would be necessary to hold rural development appropriations in 2021 at the same level as in 2020 in individual Member States.

Conclusions

Publication of the pre-allocated amounts by Member State and by year for direct payments and rural development allows the relevant Annexes in the CAP Strategic Plans Regulation and the CAP Transition Regulation to be completed and paves the way for their final approval by Council and Parliament. However, as previously discussed on this blog, this is certainly not the only hurdle in the way of final approval.

There are two main points to highlight following this examination of the Commission figures. The first is that the way the Commission has scheduled the direct payment envelopes over the seven years has reduced the amount available in the coming financial year to reimburse Member States for payments to farmers later in this claim year. As a result, expected direct payment envelopes in the coming months have been reduced by 2% across the board.

The second is to highlight that commitment appropriations for rural development will increase in 2021 compared to 2020 for the EU as a whole. Whether this will be the case for all Member States depends on the decisions they have notified regarding transfers between Pillars. For those Member States with increased rural development envelopes, there could be a challenge in drawing down on these funds, given the limited time available to prepare the opening of schemes. The fact that Member States will be extending existing programmes rather than implementing new ones may make this challenge more manageable. The challenge to make effective use of rural development funds will be even greater if assigned revenue from the Next Generation EU recovery instrument is brought forward to 2021.

Finally, I should add that understanding the intricacies of the CAP budget is not straightforward. If there are errors in the previous analysis, I would be very grateful if they are pointed out.

This post was written by Alan Matthews

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