One of the successes of outgoing Agriculture Commissioner Dacian Ciolos in the 2013 CAP reform was to maintain the size of the CAP budget in the 2014-2020 multi-annual financial framework (MFF), at least in nominal terms (and even in real terms in the Commission’s original proposal). This was no mean achievement given the extent of the financial crisis in Europe, the pressures on public spending and the competing demands for spending at EU level.
His success was due to persuading his fellow Commissioners that a larger share of the CAP budget would be devoted to paying for public goods, particularly environment and climate actions. However, in the subsequent negotiations on the details of the CAP reform, these commitments were greatly weakened, much to the frustration of the other Commissioners. It now appears that the other Commissioners have had enough and are fighting back, using the first amending letter to the 2015 EU budget as their instrument.
How should windfall ‘assigned revenue’ be used
The ‘amending letter No. 1’ to the 2015 budget is a traditional updating of estimated needs for agricultural expenditure in 2015 in the light of new information which was not available at the time when the Commission drew up its original budget estimates for next year.
At issue is the treatment of a windfall in ‘assigned revenue’ (amounting to €448.5 million compared to the draft budget 2015), largely arising because of higher milk quota levy fines. Commissioner Ciolos had argued that this money should be kept in the agricultural budget and used to finance the crisis payments to fruit, vegetable and milk producers in countries adversely affected by the Russian ban on imports from the EU.
But the rest of the Commission clearly felt that agriculture had done very well out of the MFF negotiations and were in no mood to give yet further transfers to a sector not obviously in need of additional funds. While farm prices have been falling over the past 12 months, they remain high in historical terms and record harvests are expected in 2014. The Commission thus decided to allocate the windfall assigned revenue to prevent the spread of Ebola and other humanitarian crises.
As the Commission press release noted:
Using instead the surplus (additional Assigned Revenue) for the crisis measures and keeping the crisis reserve in its integrity is not coherent neither with the MFF nor with the imminent needs we have for payments. This is not fair when many policies are in need for additional payments.
The implication of this decision is that the Agriculture Commissioner has no additional funding from which to pay for the crisis measures taken in response to the Russian ban. Instead, the Commission decided to activate the crisis reserve (totalling €433 million) to fund the emergency measures taken to date (which are estimated to cost just over €344 million).
The reluctance to triggering the crisis reserve is because the costs are borne, in effect, by other farmers through a reduction in their direct payments. The consequences of the decision, however, will not be felt by farmers until 2016, if even then.
First, the financing of the crisis reserve had already been included in the 2015 draft budget. For this purpose, the Commission will make use of the financial discipline mechanism which will reduce the direct payment receipts of those farmers affected in 2015 (i.e. those farmers with payment receipts greater than €2,000). The rate of financial discipline was set in August as a reduction of 1.302% for payments above €2,000. However, to offset this, these farmers will be reimbursed by the amount of the unused 2014 financial reserve which is virtually the same amount. This reserve was not used as the financial consequences of the temporary crisis measures taken in the second half of 2014 exclusively impact on the 2015 budget.
Furthermore, it is not certain whether the Commission will be required to authorise transfers from the financial reserve to pay for the emergency payments. According to the Commission press release:
Accordingly, even if the crisis reserve is used, farmers could be reimbursed of all or part of it depending on the under-implementation of the EAGF credits and on additional assigned revenues that will be collected during the year and we have quite positive estimations already at this stage (we expect revenues from clearance of accounts).
The response from COMAGRI was predictable. The coordinators of the four main political groups in COMAGRI (Albert Dess (EPP), Paolo de Castro (S&D), James Nicholson (ECR) and Jens Rohde (ALDE)) fired off a letter to the incoming Commission President Juncker calling on him to reverse the decision to activate the crisis reserve to fund the emergency payments. This is, of course, a costless political gesture with no substance. The European Parliament will not be taken seriously as a co-decision-maker on budgetary matters until it accompanies calls for increased expenditure by clearly indicating where it would make cuts in other areas to finance this expenditure.
As the Commission press release notes:
Not using the crisis reserve for its intended purpose would require additional credits to be budgeted. The ultimate consequence will always be that the Commission would have to request more commitment and payment appropriations compared to the use of the crisis reserve.
Perhaps this latest episode is an indication that the willingness to accede to agricultural sector demands for increased support may at last be reaching a saturation point.
This post was written by Alan Matthews.