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.