Cyprus Presidency progress report on CAP reform – direct payment controversies

When the Agricultural Council meets tomorrow and Wednesday (18-19 December) it will discuss the Cyprus Presidency’s progress report on CAP reform. As the first day of the December Council is devoted to the annual bargaining over fish quotas, this report will be presented in a public session (with web streaming) on the morning of Wednesday 19th.
The progress report is drawn up by the Presidency on its own initiative and summarises the main amendments to the four main CAP regulations as well as outstanding issues which are left for the Irish Presidency to resolve. As it is highly unlikely that the Irish Presidency will revisit issues unless they are expressly identified as unresolved (in square brackets), the progress report and the accompanying amended draft regulations give us a good idea of the evolution of the Council’s thinking since the end of the Danish Presidency last June.
In addition to the progress report, the latest drafts of the four regulations can be downloaded using the following links.
Latest draft direct payments regulation

Latest draft single CMO regulation

Latest draft rural development regulation
Latest draft horizontal regulation

I look at two of the controversial issues in the direct payments regulation in this post, namely, internal convergence and greening.
Internal convergence

The Presidency organised a discussion on internal convergence at the Special Committee on Agriculture in October. At this meeting most member states expressed opposition to the modalities proposed by the Commission to reach a uniform level of payment by region by 2019 (this included a heavy front loading of the move to a uniform basic payment in the first year plus a uniform green payment for all farms from year 1). This poses enormous political problems for member states using the historic model because it would lead to a profound redistribution between sectors and regions, as well as potentially introducing additional eligible areas which would, in addition, further water down the value of existing entitlements.
Two alternative proposals were circulated by groups of member states.
Ireland, Denmark, Spain, Italy, Luxembourg and Portugal proposed that internal convergence should follow the same rhythm as that for external convergence (flattening of payments across countries) proposed by the Commission (recall that the formula proposed by the Commission was that member states with average payments below 90% of the EU average would close one third of this gap over the MFF period). This would keep the link with historical references for direct payments well into future MFF periods. This partial convergence should take place in equal linear steps up to 2019. Also, the same principle should apply to the green payment which would thus be expressed as a percentage of the basic payment established at the individual farm level rather than of the national or regional flat rate. Further, member states should be allowed to establish a reference year for eligible area in the first allocation of direct payments entitlements prior to 2014, within a period starting in 2009.
Austria, Belgium, Czech Republic, Hungary and Slovenia also circulated a proposal calling for greater flexibility for individual member states. A key demand for this group, which included some new member states, was that the countries applying the SAPS (which is of course a flat-rate system) should not be disadvantaged by any differentiation allowed to the older member states. Thus, they wanted to be allowed also to differentiate payment entitlements depending on the type of land during the transition period. Apart from looking for a longer transition period, this paper proposed a number of options to limit the extent of redistribution among farmers, including a tunnel model (similar but not identical to the ‘MFF’ model proposed by the Ireland et al. group).
A further model proposed by France would give a subsidy premium for the first few hectares of each farm, to address the particular French need to favour generally smaller livestock farms at the expense of more profitable crop farms. France is negotiating on the basis that this premium would apply to hectares equivalent to the average farm size in each EU country, which would be about 50 hectares in France. What is interesting is that this proposal would result in degressivity of payments, something the Commission wanted to achieve via capping but which was opposed by many member states.
The Cyprus Presidency model

What the Cyprus Presidency proposes [in square brackets, so not yet agreed] closely follows the Commission proposal (Article 22 dealing with the value of payments entitlements and convergence). Member states applying the SFP can limit the basic payment to no less than [40%] of the regional reference basic payment (let us call this level the ‘minimum’ basic payment although this term does not appear in the regulation) in the first year. The money ‘saved’ by this would then be recycled to farmers whose existing entitlement values are currently higher than this minimum basic payment, by increasing the value of his/her entitlement by a share of the difference between the current payment and the minimum basic payment. This echoes the Commission proposal but with square brackets around the proportion of the distance to be travelled to be achieved in the first year.
What the Cyprus draft adds is that precisely the same flexibility would be given to new member states using the SAPS and transferring over to the SFP model after 2013. It also would allow a reduction coefficient to convert hectares of permanent grassland where grasses and other herbaceous forage are not the predominant cover into hectares of eligible area, as sought by the Austria et al. group.
An earlier amendment would allow member states which have already adopted either the regional or dynamic hybrid SFP model to keep their existing allocation of entitlements. These member states are given the flexibility to adjust their payment entitlements without any prescriptions.
Significantly, the aspiration to reach internal convergence by a nearby date is retained in the draft regulation even if the 2019 year is in square brackets. “As of claim year [2019] at the latest, all payment entitlements in a Member State or, in case of application of Article 20, in a region, shall have a uniform unit value.”.
The Cyprus model would thus potentially slow down the achievement of a uniform rate compared to the Commission proposal. Member states would also get the flexibility to define the annual progressive modifications of the payment entitlements on the way to uniformity in [2019] in accordance with objective and non-discriminatory criteria.
But, unlike the paper from Ireland et al., the Cyprus model maintains the end goal of a uniform regional or national payment within the next MFF period. It would also retain the green payment as a fixed share of the national ceiling per farm, and not a fixed share of each farm’s basic entitlement, which implies an immediate move to a uniform payment for that element of direct payments from year 1.
It is perhaps not surprising that press reports indicate that many member states expressed their dissatisfaction with the Cyprus proposal at the Special Committee on Agriculture meeting last week. Expect to see many member states make their views known on this issue at the public Council session on Wednesday.
Greening

The entire greening chapter of the direct payments regulation is in square brackets and the progress report notes under outstanding issues included in Heading 2 of the MFF Negotiating Box “the principle of greening of direct payments and the proposed 30% proportion of direct payments subject to greening”. Apparently, even the principle of greening, supposedly the ‘big idea’ of the Ciolos reform and the basis for legitimising the continued high share of the EU budget going to CAP Pillar 1 payments in the Multi-annual Financial Framework, is just about hanging on by its fingernails at this stage of the negotiations.
The Cyprus Presidency draft regulation makes clear how much of the original idea of the Commission of greening as a uniform payment in Pillar 1 to all farms which would be required to follow practices beneficial for the climate and the environment would be changed even if the principle survives.

    The crop diversification requirement would apply only to holdings with more than 15 hectares of arable land with further exemptions for holdings with more than 75% of the total area is permanent grassland or cultivated with crops under water.
    The Commission’s proposal that every farm would be required to maintain its area of permanent grassland (within a 5% tolerance) is weakened by permitting member states, as a ‘derogation’, to suspend this requirement where the national share of permanent pasture in total agricultural area has been maintained (which is the status quo obligation under the Health Check).
    Ecological focus areas are now confined to mainly arable holdings over 15 hectares. Also what counts as ecological focus area is extended to include certain areas of permanent crops as well as areas covered by equivalent practices funded under agri-environment measures in Pillar 2. The 7% figure still appears in square brackets so remains to be decided.

But the big addition is to allow two other measures which are defined as equivalent practices to the three practices proposed by the Commission. These are commitments undertaken as part of agri-environment measures funded under Pillar 2 and environmental certification schemes. While I have been critical of aspects of the equivalence debate, the Cyprus amendments actually propose a rather limited version of equivalence, at least compared to suggestions that member states could also have flexibility to define their own menus of equivalent measures.
Most of the technical adjustments make sense, assuming that broad, uniform measures in Pillar 1 are introduced as a way to green the CAP. They don’t make much difference to the limited environmental impact these broad-brush measures will have, in any case.
While the equivalence measures are more limited than some member states would like, there are still legitimate question marks raised if farms which are funded to undertake certain agricultural practices under Pillar 2 can also claim these for eligibility for the green payment in Pillar 1. At a minimum, there is clearly no additional environmental gain for the taxpayer. And it also raises questions of double funding.
In this connection, the Presidency proposal (Article 29(2)) adds the statement that “[The green payment] shall be without prejudice to the calculation of costs incurred and income foregone for the equivalent practices referred to ….” The meaning of this sentence is not easy to interpret, but one interpretation is that the baseline for Pillar 2 schemes should not be affected by the green practices in Pillar 1.
The double funding issue is also addressed in the revised Article 29 (No double funding) in the draft Horizonal Regulation which now reads:

Except with regard to [support provided for under (agri-environment measures) which is without prejudice to payments under (Article 29(2) of the direct payments regulation)], expenditure financed under the EAFRD shall not be subject of any other financing under the EU budget. (Note that the square brackets are in the original and represent text not yet signed off, while the ordinary brackets contains text which replaces otherwise indecipherable references to specific paragraph numbers and regulations).

The green payment was defended by the Commission as using some of the Pillar 1 money to support practices beneficial to the climate and the environment. Those farmers enrolled in AEMs are certainly farming in more environmentally-friendly ways, but the European taxpayer is already compensating these farmers for the additional costs that they incur. Giving these farmers the green payment in addition, without any further environmental benefit, is simply a total deadweight loss.
Think of the difference it could make if this money were available to expand AEMs in Pillar 2 so that even more farmers would be encouraged to farm in ways beneficial to biodiversity, climate and the provision of ecosystem services.
Picture from: B. Monginoux / Landscape-Photo.net (cc by-nc-nd)

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