“Habemus consilium rusticarum”

White smoke eventually emerged from the Brussels CAP negotiations on Tuesday evening last 24 September to indicate that the final elements of the CAP regulations for the period 2014-2020 had been agreed between the Council, Parliament and Commission. The Ciolos reform has been concluded. The outstanding elements concerned those issues related to the CAP which were left in ‘square brackets’ in the June political agreement because they had been included in the European Council’s MFF conclusions in February this year.

For the Parliament it was a matter of principle that issues which would be addressed in the CAP regulations should be negotiated through the co-decision procedure and not decided unilaterally by the Council, even the European Council. It wanted to establish the principle that all outstanding issues were open to negotiation even if, in the final compromise, only some of the Council conclusions were modified.

But that even some of the February European Council conclusions were modified was underlined in the Parliament’s press conference this morning as an important outcome in the inter-institutional battle, as indeed it was. The European Council is less likely to ‘trespass’ (in MEP George Lyon’s words) on co-decision issues (which this time also covered regional as well as agricultural policy concerns) in the future.

The logjam was broken on Monday evening in the statement following the Agriculture and Fisheries Council meeting which revised the mandate for the Council Presidency in the final trilogue yesterday. The deal is described in the Council press statement here, in the Lithuanian Presidency statement here, in the European Parliament’s statement here, and in the Commission’s statement here.

Agreement on the outstanding issues

National ceilings for direct payments. The Council position was that all member states with direct payments per hectare below 90% of the EU average will close one third of the gap between their current direct payments level and 90% of the EU average in the course of the next period, subject to all member states attaining at least the level of €196 per hectare in current prices by 2020 (payment year 2019). This convergence will be financed by all member states with direct payments above the EU average, proportionally to their distance from the EU average. This process will be implemented progressively over 6 years from the financial year 2015 to financial year 2020. The Council position was agreed.

National ceilings for rural development. The European Council in its MFF conclusions had agreed that support for rural development would be distributed between member states based on objective criteria and past performance. However, the basis for the distribution agreed by the Council was never made explicit. In a concession to the Parliament, the Council agreed to include this breakdown in an annex to the rural development regulation, thus granting the power to the Commission to amend this annex through delegated acts in clearly defined circumstances.

Flexibility between the pillars. The Council position was to allow the transfer of up to 15% of Pillar 1 ceilings to Pillar 2 without a requirement for co-financing. It addition, it would allow reverse flexibility to transfer up to 15% of Pillar 2 funding to Pillar 1, while member states with payments below 90% of the EU average could transfer an additional 10% for a total of 25% of their Pillar 2 ceiling. Parliament was opposed to reverse flexibility (except for allowing the 10% transfer from Pillar 2 to Pillar 1 for those member states with payments below 90% of the EU average). In the final agreement, Parliament accepted the Council’s position.

Capping and degressivity. The Council position originally had been that capping of large payments should be voluntary. In the revised mandate on 23 September, which was subsequently agreed by the Parliament, Council conceded that there would be mandatory degressivity of 5% on payments over €150,000 (only the basic payment or single area payment is counted in this ceiling, the green payment is excluded, and in addition farms can deduct salary costs including wages paid to the farmer to arrive at the relevant amount).

Member states can voluntarily increase the rate of degressivity on amounts over €150,000, up to and including 100%, meaning that €150,000 could be the maximum amount that could be paid to any one farmer as a basic payment after deduction of salary costs. Member states which opt for the redistributive payment will not have to apply the mandatory degressivity, provided they use at least 5% of their national envelope for the redistributive payment.

Recall that degressivity replaces modulation, which after the 2008 Health Check reduced payments above €5,000 by 10% in 2012 and payments over €300,000 by a further 4 percentage points or by 14%. The mandatory degressivity proposal is thus much less redistributive than what is currently in place (not only is the percentage reduction much lower, but it also only applies to the basic payment after salary costs). Other things equal, it would result in a less equal distribution of payments in future. The final distributional outcome will, of course, also be affected by the mechanism of internal convergence, and whether or not a member states opts for the redistributive payment and for additional voluntary degressivity.

The funds released by the capping of payments will stay with each member state and will be recycled to rural development programmes without any need for co-financing (Updated 26 September 2013).

Co-financing. Member states acceded to the Parliament request to increase the rural development co-financing rate for less developed regions, outermost regions and smaller Aegean islands on a voluntary basis to 85%.

Assessment of this CAP reform

It is still far too early to provide a definitive assessment of this CAP reform. For one thing, member states are given a huge amount of flexibility to decide on how exactly they want to implement the new rules, and these national decisions will not be known for some time.

In Capoulos Santos’ words, this has been the best CAP reform ever. The case for this proposition, as spelled out in the Parliament’s press conference, is that the reform will lead to a greener CAP, a fairer CAP, a simpler CAP (at least with respect to the Commission’s original proposals) and a more targeted CAP. George Lyon, with some pardonable exaggeration given the many long days and nights of negotiation, claimed that at least 50% of Pillar 1 spending would now be directed to public goods (defined broadly to include greening, payments to young farmers and areas of natural constraints) rather than blanket income support. Support in future will be confined to active farmers.

The case for the opposition is that this CAP reform was a missed opportunity. The role of Pillar 1 payments in the overall CAP budget has been enhanced at the expense of rural development programmes in Pillar 2. The European taxpayer will continue to transfer very significant sums to farmers, mostly (up to 68% or more) in the form of untargeted payments linked to land without clear obligations in return. Direct payments will be distributed more equally on a per hectare basis, but how the distribution of farm household income (also taking account of off-farm income) will be affected is impossible to say. The eligibility conditions for the green payment mean that the additional environmental benefits from this payment in the years to 2020 are likely to be very limited (particularly if funding for Pillar 2 is further reduced by member states making use of reverse flexibility).

But reform of agricultural policy is highly contested and bound to be a tortuous process. The new CAP has by and large kept to the market orientation established in previous reforms (even if the Liberal and Democrat political group in the Parliament will vote against the single CMO regulation because they view it as too protectionist). Some market management measures have been marginally enhanced (although the availability of budget funds for market intervention may be a more significant constraint). There appears to be greater scope for coupled payments, but they will be confined to sectors in certain difficulties and should only be granted to the extent necessary to maintain current levels of production. It will be more difficult to justify the use of export subsidies. Sugar quotas will go in 2017 after milk quotas in 2015. Rural development policy puts more emphasis on encouraging collective action by farmers and on innovation, and a minimum of 30% of Pillar 2 resources should be devoted to climate change mitigation and adaptation, biodiversity, resource efficiency and soil, water and land management.

It will take time to tease out the relative importance of some of these issues. In the meantime, the fact that an agreement is now in place will be good news for farmers. The Parliament and Council must both yet approve the new package (COMAGRI will start the process next Monday when it votes on the four regulations), and the transitional arrangements for 2014 remain to be finalised. But everything points to the new CAP being in place by the end of the year. Habemus consilium rusticarum.

Picture credit: European Commission

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