Speaking at a meeting of the Parliamentary Agriculture Committee in Nicosia, Cyprus on 29 June, Agriculture Commissioner laid out her current thinking on the future of the CAP, in particular the changes she will be proposing later this year for the CAP Health Check.
We will propose further moves towards more decoupling in the Member States which do not apply the Single Area Payments Scheme (SAPS). You can probably expect us to propose a higher level of compulsory modulation, to give us the funding that we need for our ambitious rural development policy. Furthermore, our work on cross-compliance will continue, following our report of March this year. A particular topic for the Health Check will be the scope of cross-compliance…. we will of course examine our various market instruments – intervention, quotas and so on. In particular, I have given a clear signal that we should not renew the milk quota system when it expires in 2015. Therefore, we need to think carefully about transitional measures to help give the sector a soft landing.
Fischer Boel was cautious about revealing her hand when it comes to the wider questions about the future of the CAP that will be part of the EU budget review which will begin next year (though many suspect it is already underway in certain other parts of the Commission). She said:
I don’t want to say too much about the Budget Review now. But I will say that it must not be a discussion about saving a few euros here, a few euros there. This must be above all a discussion about policy – about getting the CAP that we need after 2013. I am confident that this CAP will still have a “first pillar” of some kind, but we will need to think carefully about the exact form of that pillar. We will also need a strong second pillar – rural development policy – to continue to support competitiveness, care for the environment, economic diversification and a high quality of life in our rural areas.
It is likely to be a struggle for DG Agriculture to retain its current 40+ per cent share of the overall EU budget post-2013. The vultures do not yet appear to be circling, though it is clear that anyone who wants to increase spending in the EU budget (for EU foreign policy, innovation, competitiveness, research and development, defence) is going to be looking at the money currently allocated to the CAP to fund their ambitions.
Jack, it strikes me that the proposal to increase the rate of compulsory modulation from Pillar 1 direct payments to Pillar 2 rural development could be the most controversial part of this package. Recall that the original Commission dynamic modulation proposal for the Mid Term Review in 2002 was that all direct payments would be reduced annually by 3% to reach 20%, but that the final agreement provided only for 5% compulsory modulation. Suppose the Commission tries to reintroduce its original proposal as part of the Health Check, what reactions can we expect?
Farmers are likely to oppose it because it reduces the value of the Single Farm Payment or the remaining coupled direct payments, at a time when its value is anyway being reduced by inflation and there is the likelihood that cuts will be required anyway under the financial discipline provision once the new Member States reach close to the EU15 level of payments. Farmers opposed the additional voluntary modulation in the UK, even though most of those funds were being returned to farmers in the form of higher agri-environment payments, and the modulated payments leveraged a further financial contribution from the UK Exchequer (40% in England) which otherwise would not have been available.
Ministries of Agriculture will not like it because they are not certain they can find ways to spend this additional money. For example, France introduced voluntary modulation under the Agenda 2000 financial perspective but suspended its use in May 2002 because it couldn’t spend the level of receipts that were being generated. Any additional modulated funds would require a revision of the Rural Development Programmes now being painfully and belatedly approved by the Commission for the 2007-2013 period.
Ministries of Finance will not like it because Pillar 2 spending requires the Member States to come up with additional national funding if they are to draw down the EU funds – at least 40% and maybe more. Also, some Member States will find that they will not receive back in Pillar 2 spending what they give up to the EAFRD in terms of modulated funds under the Allocation Key agreed to divide up these funds – although, conversely, this could be an attraction to some Member States who might stand to gain a somewhat larger transfer of funds from Brussels as a result.
Although there are lots of groups, including the European Parliament, who would like to see more spending on rural development, this is a formidable array of opponents. What might the Commission propose to buy off some of this opposition?
– the requirement for matching funding could be reduced or even eliminated, as is the case for voluntary modulation at the moment. This would make further modulation more attractive to Ministries of Finance.
– if the Commission agreed that 100% of the additional funds would be returned to the Member State where the funds were generated, rather than the minimum of 80% (90% in Germany) as at present, this would also reduce opposition from countries who might fear losing some of their present transfers.
– removing the requirement that spending from the modulated funds must meet the minimum spending criteria under the three axes (10% for agricultural restructuring and rural development, respectively, and 25% for land management and agri-environment) would also give greater flexibility to Member States on how to spend this money.
– as would reducing the co-financing rate required for existing RD spending, which would release some national funds to help co-finance the new modulated expenditure.
– finally, to address farmer opposition, the Commission could propose agreement on a higher rate of compulsory modulation in the Health Check but postpone its implementation until after 2013 when the future of the Single Farm Payment is being heavily discounted by farmers anyway.
What is clear is that there is plenty of material for a good scrap over increased compulsory modulation and that the devil will be in the detail of any final agreement.