The figures in Table 1 have been slightly revised since the original post to calculate the flexibility amount as 25% of a country’s NRPF financial allocation less its minimum ring-fenced amount for CAP income support (from which the allocation for CAP investment supports for farmers and foresters should be deducted). In the original post I had based the calculation on the NRPF general allocation.
Commission President von der Leyen sent a letter to the Cypriot Presidency of the Council and to the President of the European Parliament yesterday 6 January 2026, in which she proposed to make additional resources available as of 2028 to address the needs of farmers and rural communities (with thanks to Politico Europe for the link).
This letter was sent on the same day as the Cyprus Presidency invited all Agriculture Ministers to a meeting also attended by the Commissioners for agriculture, trade and health to provide reassurances to Italy and other Member States to sign up to the contentious EU-Mercosur free trade agreement on Friday. The proposal in the letter would be a form of side-payment to bring the wavering countries on board.
The formal part of the proposal, in an annex to the letter, proposes to add a new sub-paragraph to Article 14 of the National and Regional Partnership Fund Regulation which sets out how the resources made available under the so-called General Allocation of the Fund can be used. Specifically, the following text would be added to Article 14.
“When submitting or amending its plan before the midterm review, Member States may use up to two thirds of the amount available for the midterm review for interventions referred to in Article 35(1) or for measures dedicated to rural areas.”
The flexibility amount
As this paragraph is pure legalese, I provide some context in this section. We first need to understand the notion of a flexibility amount. This is defined in Article 14(2) as money that is available to a Member State under its NRP Fund in the 2028-2034 period but which cannot be programmed immediately and which must be held in a flexibility reserve.
This flexibility amount is significant. It amounts to 25% of the financial allocation in the NRP Fund less an amount that is broadly the ring-fenced amount for CAP income support. The financial allocation is the sum of the NRPF general allocation plus the minimum ear-marked amount for migration, security and home affairs, as set out in Article 10(2)a of the NRPP Regulation.
In calculating the size of the flexibility amount, I say that the deduction from the NRP Fund financial allocation is broadly equivalent to the ring-fenced amount for CAP income support. This is because the amount that Member States allocate to investment support for farmers and foresters will be excluded when calculating the deduction and thus the size of the flexibility amount.
The use of the flexibility amount is strictly regulated in the NRP Regulation. One-fifth of the amount can be used by Member States to provide assistance in the case of natural disasters, adverse climatic events, and animal diseases in the first three years of the programming period 2028-2030.
Another three-fifths (plus any unused amount from the first fifth) is available for programming at the Mid-term Review which should be completed by 31 March 2031. While the Mid-term Review provides an opportunity for a Member State to revise its targets and instruments, the intention of the Commission is that the flexibility amount means that Member States will also have additional resources available to address any new challenges that might have arisen between agreement on the NRP Plan and 2031. Part of this reserve can be brought forward and used for programming at the request of a Member State “in duly justified and exceptional circumstances”.
This leaves the remaining fifth of the flexibility amount which can then be requested as of 2031, again to provide assistance in the event of crises. If there is still an unused amount as of June 2033, it can be made available at that point for programming for any amendment of the Plan.
Neither the general objectives for the NRP Fund (Article 2) nor its specific objectives (Article 3) specify that the Fund can be used to provide assistance for natural disasters or climatic crises, although this is provided for in Article 34 of the NRP Regulation.
The 45 billion euro question
Against this background, we can interpret the significance of the Commission proposal presented yesterday. The reference to Article 35(1) refers to the full list of CAP interventions and all are eligible for support.
The Commission has consistently presented the ring-fenced amount for CAP income support as a minimum amount, which Member States could add to from the unearmarked amounts in their NRP Fund allocations (minimum amounts are also earmarked for fisheries, less developed regions and for migration, security and home affairs). A big constraint on Member States being able to programme additional amounts for the CAP, apart from political battles within Member States on the priority to be given between the CAP and cohesion spending, is the Commission proposal to freeze the programming of the flexibility amounts until at the earliest the Mid-term Review.
The Commission proposal is that (a) two thirds of the flexibility amount reserved for the Mid-term Review can now be programmed from the start of the programming period but (b) only if this forwarded amount is used for CAP spending or for measures dedicated to rural areas. The attraction for Agriculture Ministers is that this not only unfreezes resources and makes them available for programming from the start of the programming period, but it locks in that these unearmarked resources have to be used for the CAP or rural areas.
Critics will correctly point out that this amount is not guaranteed additional spending. It does not increase the mandatory ring-fenced amount for CAP income support. But it will give Agriculture Ministers a stronger negotiating hand within their Member States. They will now be able to point out to their Finance Ministers that if the amount is drawn down immediately from the EU budget and used for the CAP or rural areas, the money becomes available to the Member State from 2028 instead of having to wait until 2031 to unfreeze these amounts. In addition, if 20 Member States decide to make use of the option but 8 do not (counting Belgium as 2), there will be significant additional pressure within the 8 countries to follow suit.
Any funding additional to the minimum ringfenced funding for the CAP will require national contributions from Member States depending on the appropriate co-financing rates set out for the specific type of region where the expenditure takes place. There are no requirements set on the types of CAP interventions that Member States can support with this additional funding. But as using these funds for cohesion or other objectives will require a similar level of co-financing, this is not in itself a disincentive to use this opportunity.
Given the lack of minimum ringfencing within the CAP budget for agri-environment-climate actions, a case could be made that additional funds made available for the CAP in this proposal should be confined to these environmental interventions. However, given the political purpose which this side- payment is intended to achieve, expecting this kind of fine-tuning was always going to be unrealistic.
The additional text proposed by the Commission allows the unfrozen flexibility amounts to also be used for measures dedicated to rural areas. To the extent that Member States favoured rural development measures, this would reduce the additional funding that would directly benefit farmers.
The CAP through its Pillar 2 always included measures designed to support rural development, including LEADER and rural business support schemes. In its November 2025 non-paper to the Parliament, the Commission had already proposed to amend the NRP Regulation to include a dedicated target for rural areas. It had proposed that at least 10% of the NRP Fund financial allocation (again after deducting the minimum amount for CAP income support) should be dedicated to rural areas, calculated by using the code 02 in the Performance Regulation. This refers to any expenditure that takes place in a rural area and is thus a much wider definition of rural development expenditure than traditionally associated with the CAP.
In this way, expenditure traditionally funded by cohesion policy can also be funded from the unfrozen flexibility amounts. This will please advocates of cohesion policy who otherwise have been dismayed by the apparent ability of farm groups to ‘jump the queue’ in accessing unearmarked resources under the NRP Fund. However, for the same reason, this broader remit for the use of the unfrozen resources may limit the extent to which farmers will benefit.
There is also a strong possibility that at least some of this additional CAP and rural area spending will not be additional. The minimum ringfenced amount for the CAP only refers to income support interventions. This term covers more than direct payments, it refers to all those payments (including investment aids) that are received by individual farmers. There are other CAP interventions, such as LEADER, support for knowledge sharing, and territorial and local cooperation initiatives, which are not counted as CAP income support. But the proposed CAP Regulation makes it mandatory for Member States to allocate funding to these interventions in their NRP Plans (in the case of territorial and cooperation initiatives, this only refers to EIP-AGRI operational groups). Funding these interventions will in any case require allocating money from the unearmarked amount in the NRP Fund.
One assumes, if these interventions are mandatory, they will have to be programmed from day one of the NRP Plans. So at least a portion of the unfrozen flexibility amount which can be brought forward is likely to be used to finance mandatory CAP interventions which would have to have been financed in any case. As a result, the net impact of the Commission proposal will be somewhat smaller than the headline amount.
A final element in the Commission proposal confirms that farmers will still be able to access the unprogrammed amounts in the Flexibility Amount for assistance in case of natural disasters, adverse climate events and animal diseases. The sums are substantial, amounting to 10% of the NRPF Fund financial allocation to each Member State less broadly the ringfenced amount for CAP income support.
Impacts will differ across Member States
If all Member States made use of this option in designing their NRP Plans, and if expenditure on rural areas were limited to interventions, such as LEADER, traditionally funded from the CAP budget, it would add a further €45 billion to the minimum CAP ringfenced budget of €293.7 billion, or an additional 15%. By highlighting also the doubling of the agricultural crisis reserve in the new Unity Safety Net, and as well the possibility of benefiting from borrowing under the Catalyst Europe fund (an option which I highlighted in my previous post on this blog), the Commission concludes that
“the combination of these policy and budgetary tools will provide the farmers and rural communities with an unprecedented level of support, in some respects even higher than in the current budget cycle...”.
However, there will be very different impacts across Member States (Table 1). In this table, I have calculated the maximum potential impact the Commission proposal would have on the CAP budget available per Member State. There is an extraordinarily consistent pattern. All recently-acceded countries would gain more than the EU average in additional spending (for example, Slovakia 40%, Poland 36%, Hungary 28%). On the other hand, all older Member States (except for Portugal and Greece) would receive a smaller increase in their CAP budgets compared to the EU average. While the increases for Italy (16%) and Spain (12%) are significant, the increases for France (7%), Austria (5%) and Ireland (4%) are hardly so.
From a Mercosur perspective, Giorgia Meloni handsomely succeeded in her objective to gain additional support for Italian farmers, while other major opponents (France, Austria and Ireland) fared less well.
Table 1. Impact of Commission proposal on minimum budget available for the CAP 2028-2034 Note: The flexibility amount is calculated as 25% of the difference between a country’s NRPF financial allocation and its minimum CAP ring-fenced amount for income support. This slightly underestimates the flexibility amount as CAP investment aids to farmers and foresters should be excluded from the CAP income support amounts that are deducted, but these allocations will not be known until the approval of the CAP chapters in the National Plans. The table assumes that all of the unfrozen flexibility amount will be used for CAP interventions rather than expenditure generally dedicated to rural areas. Source: Commission Fact Sheet, Europe’s Budget Member States allocation, 2025
This post was written by Alan Matthews.
Update 7 Jan 2026. Add paragraph on possible substitution between the unfrozen flexibility amounts and mandatory non-CAP income support expenditure in the NRP Plans. Corrected €45 million to €45 billion.
Update 27 Jan 2026. I have corrected Table 2 to reflect that the 25% flexibility amount will be calculated based on the full NRP Fund financial allocation to Member States and not only its general allocation, less the relevant ring-fenced amounts for the CAP.
Photo credit: stevepb and used under a Pixabay content licence.
The answer to this question is of course that we cannot know for certain at this stage. Under the Commission proposal the CAP will be merged into the proposed National and Regional Partnership Fund (NRPF) along with all other shared management funds where currently Member States receive pre-allocated amounts. Under the new arrangement, there would be only one pre-allocated envelope for Member States. There is a minimum ring-fenced amount for what is now referred to as CAP income support interventions (plus some fisheries support) of €295.7 billion. But the final amount allocated to CAP interventions will depend on how Member States allocate their NRPF resources in their NRP Plans.
It is no surprise that the initial response from farm organisations and stakeholder groups to the Commission’s CAP proposal focused on the budget allocation, although how the money is spent is at least equally important. I also did this in my first post following publication of the Commission’s MFF and CAP proposals (see “The Commission’s CAP budget proposal in the next CAP”). In that post, like most other observers in their immediate reactions, I focused on the minimum ring-fenced amount for CAP income support interventions and concluded there would be a reduction in CAP support even in nominal terms.
With the advantage of some more time for reflection, I would now argue that this is too pessimistic a conclusion (looked at from the perspective of those seeking to maintain support for farmers). Based on the Commission’s proposal, there is a good chance that the level of CAP support would be maintained in nominal terms. If this were to occur, it would follow the precedent of the current CAP where also the CAP budget was maintained in nominal terms compared to its predecessor.
I would still argue that the probability is there will be a reduction in CAP support, but not because of the Commission proposal, but because Member States will baulk at financing the sizeable increase in the MFF that the Commission has proposed. Because perceptions of the size of the budget will influence the debate on the Commission’s CAP proposal, it is important to emphasise this upside in the Commission proposal.
The potential for CAP spending in the MFF proposal
Let us start by spelling out the pessimistic outcome by examining the absolute minimum spending on the CAP in the Commission proposal. In this post, we are only concerned with EU spending. Additional national spending, either through national contributions (co-financing) to finance CAP interventions or through additional national financing is not considered here as the likely amounts are even more uncertain. The minimum amount of spending on the CAP is made up of three elements:
The ring-fenced amount for CAP income support interventions as defined in the NPR Regulation Article 35(1) paragraph 1 amounting to €295.7 billion. For the truly committed, these cover CAP interventions (a) to (k) and (r) and paragraph 10 (which refers to reimbursements for direct payments paid in claim year 2027 plus any carryover of rural development commitments from the current CAP) and for interventions listed in article 35 paragraph 11 (fisheries);
Amounts allocated to the other CAP interventions (l) LEADER (m) support for knowledge sharing and innovation (n) territorial and local cooperation initiatives (o) interventions in outermost regions (p) interventions in smaller Aegean islands and (q) the EU School Scheme. These are all mandatory elements for Member States but must be funded from the non-ringfenced elements of the NRP Fund. Thus, this expenditure will be additional to the ringfenced amount for the CAP. It should be added to the latter to make a like-for-like comparison with current CAP spending. We can derive a minimum estimate for this expenditure by assuming the Member States will choose to maintain the same relative share of CAP spending on these interventions as in the current CAP. Assuming that around 8% of the current CAP budget is allocated to these interventions, this would add a further €23.7 billion to the minimum CAP budget.
Finally, we should add the projected expenditure allocated to the Unity Safety Net in the EU Facility that will substitute for the agricultural crisis reserve. This amounts to €6.3 billion.
Thus, our estimate for the minimum possible spending on CAP interventions in the Commission proposal is €325.7 billion. This would be a significant reduction compared to the amount set aside for the CAP in the current MFF of €387.8 billion, or 16% in nominal terms. It assumes Member States would not allocate more than the minimum amount from their NRP Fund ceilings to the CAP.
However, we can take another and more plausible outcome of how Member States might allocate their NRPF ceilings. This scenario assumes that Member States would allocate the same proportion of the General Allocation within the NRP Fund to the CAP as they receive for the CAP within the total of their pre-allocated shared management funds at present. And because this General Allocation is slightly higher than the nominal total of the pre-allocated funds which it replaces, so too would be the CAP budget on this assumption. (For those unsure about how the NRP Fund is distributed between its components and what exactly is the General Allocation, I give a short primer in the technical note at the end of this post).
This scenario is shown visually in Figure 1. The figure shows that the Commission proposal represents a significant increase in MFF spending both in absolute terms and as a share of EU Gross National Income, GNI (I discuss these figures in greater detail later in this post). It also emphasises that all the additional spending will go to priorities outside the traditional shared management funds. The main beneficiary is the European Competitiveness Fund which will be managed by the Commission through direct and indirect management. A share is also needed to pay back the borrowing for the NGEU. However, the total available for all shared management funds remains steady in nominal terms.
Figure 1. Comparison of the Commission’s proposed MFF 2028-2034 with the MFF 2021-2027 (current prices) showing projected CAP expenditure if its share within all shared management funds is held constant. Notes and sources: The General Allocation amount in the NRP Fund refers to the amount that substitutes for the shared management funds listed in footnote 1 to Annex 1 of the proposed NRP Regulation. It is broken down by Member State in this Commission Fact Sheet. The shares in EU GNI in 2021-2027 are taken from Commission (2025) on the MFF technical adjustment for 2026 and exclude spending funded by the Next Generation EU. The sources for the shared management fund figures 2021-2027 are those for Table 1 in this previous post. The estimated CAP expenditure in 2028-2034 is based on maintaining the same proportion in the NRPF general allocation as in the shared management funds in 2021-2027.
The amount shown for the CAP expenditure in Figure 1 assumes that Member States will maintain CAP spending at the same share of the NRF Fund General Allocation as currently for all shared management funds. This is a plausible outcome, although there are three caveats.
In addition to the traditional priorities for the shared management funds, the NRP Fund General Allocation will also fund a new priority of defence and security. This will squeeze resources for the traditional priorities.
Member States will have the option to transfer resources from the NRP Fund to the European Competitiveness Fund so its priorities may also compete with the traditional priorities of the shared management funds.
In any event, the decision on how to allocate NRP Funds across priorities within a Member State will be made at government level. Agriculture ministries will no longer have a pre-allocated pot but will have to negotiate and argue their case at government level with other ministries and potential recipients of these funds. Although farm unions and stakeholders have criticised the loss of a stand-alone CAP funding instrument, I expect that in many Member States, given the emerging political complexion of national governments, support for farmers will be given a high priority. We could end up with an even higher share of the Fund allocated to CAP interventions than at present.
The size of the MFF
In my view, the biggest threat to the volume of EU resources available to finance the CAP in the next MFF is not the merging of the funds but rather the scale of the MFF increase proposed by the Commission. This can be measured both in absolute terms and as a share of EU GNI. My view that the MFF proposal is a very ambitious one in financial terms is at odds with a recent paper evaluating the proposal by the Hertie School Jacques Delors Centre (Hansum, Lindner, Redeker and Rubio, 2025). It describes the Commission proposal as “a very modest bump in volume” and “as [a] miniscule increase in size”. The paper is well worth reading and it is worth disentangling some of the reasons for the differing perspectives.
One measure of the MFF ambition is to look at its share in EU GNI. There can be no disagreement that the EU budget is very small in relation to overall EU GNI. The Commission used the slide shown as Figure 2 when presenting its MFF proposal. This suggests a steady increase from 1.05% of EU GNI in the earlier MFFs to 1.13% in the current MFF to 1.26% in the proposed MFF (or just 1.15% if NGEU repayments are excluded). This is a reassuring presentation for the onlooker.
Figure 2. MFF volume in relation to EU GNI over successive MFF programming periods. Source: Commission presentation at launch of the MFF “An ambitious budget for a stronger Europe” 16 July 2025.
The Commission points out that the agreement concluding the 2021-2027 MFF (excluding NGEU spending) represented a commitment to contribute 1.13% of EU GNI to the EU budget at the time of the agreement over the lifetime of the MFF. Like the Hertie School Jacques Delors Centre paper, I can only find evidence for a GNI share of 1.12% in the first Technical Adjustment of the MFF but let us leave this disagreement to one side. Because for many programmes amounts are held constant in nominal terms over the programming period, the EU GNI share tends to be higher at the beginning of a programming period and to decline over the course of the period. The latest technical adjustment of the MFF (Commission, 2025) shows that, in practice, MFF commitments for the period 2021-2027 are expected only to amount to 1.01% of EU GNI (which is the share shown in Figure 1).
The reason for this is that MFF GNI shares are based on forecasts of nominal GNI growth over the programming period. While MFF expenditure amounts are increased by the standard 2% deflator each year, the actual inflation rate in the current period has been higher. As a result, in each annual technical adjustment of the MFF the calculated share of EU GNI has fallen. Although Member States may have agreed to commit 1.13% of EU GNI to the EU budget, in practice they are only contributing 1.01%. For this reason, the Commission proposal to increase this percentage to 1.26% would represent a significantly increased transfer from Member States (whether through new own resources or Member State contributions) compared to what they actually pay at the moment.
The other way to assess the MFF proposal is to look at the absolute numbers. Here, the Hertie School Jacques Delors Centre looks at the actual volume of resources available to finance EU priorities. They assess the MFF figures in real terms and also deduct the NGEU loan repayment to assess its spending power as does the Commission. By comparing the original MFF GNI commitment (which they identify as 1.12% rather than the 1.13% used by the Commission) with the size of the proposed MFF without the NGEU repayment (1.15%), they conclude that spending power will only increase by 0.03% of EU GNI. This is a valid comparison and helps us to keep the Commission proposal in perspective.
My concern is how Member States will respond to the Commission proposal. Here I would argue that we cannot exclude the repayment of the NGEU loans as these must be financed by the Member States. I also think that the jump from the current share of EU GNI (1.01%) to 1.26% will weigh heavier on Member States than what they were prepared to commit to in 2020. I see little willingness among Member States either to support the introduction of new own resources or to increase their national GNI contributions to match the Commission’s proposal. Recall that any increase in own resources also requires the unanimous approval of every national parliament in the Union.
A purely back-of-the-envelope calculation illustrates the dilemma. Compare the appropriations in the 2025 budget (€155.2 billion) with the Commission proposed commitments for 2034 in nominal terms (€279.7 billion). The GNI resource accounts for 64% of revenue in 2025, equal to €98.6 billion. Assuming no change in the VAT contribution, traditional own resources and no new sources of other revenue, then the entire increase in the budget would have to be funded by an increase in Member States’ GNI contributions. This would imply more than a doubling of Member State national contributions. These are extreme assumptions (the VAT base, for example, would be expected to increase over time, and the possibility of new own resources cannot be ruled out) but it is sufficient to illustrate the dilemma. Are Member States willing to approve a doubling of their national contributions to the EU budget over the next ten years?
Conclusions
This post reverts to examining the EU resources potentially available for CAP spending in the proposed MFF 2028-2024. In contrast to previous commentary, which has taken the minimum ring-fenced amount as the likely outcome, this post suggests that there is a plausible outcome in which the share of the CAP is maintained at its current share in the shared management funds pre-allocated to Member States. Instead of a foreseen reduction in the CAP budget in nominal terms, this would maintain the CAP budget in nominal terms. This would be the same outcome as occurred for the present CAP in the current MFF.
I have identified some caveats and potential threats to this outcome, notably that agriculture ministers will now have to negotiate and bargain with other potential beneficiaries of the NRP fund within their national governments. Still, given the political complexion of many Member State governments in the Union today, this national bargaining will not necessarily lead to a worse outcome for farmers.
Instead, I identify the most likely threat to the CAP budget from an unwillingness of Member States to finance the overall increase in the MFF sought by the Commission. If the final MFF is smaller than proposed, cuts will have to be found. It is impossible to say whether these reductions will mainly focus on the new or traditional priorities of the EU budget, but it is unlikely that any budget heading would emerge unscathed from such an outcome. It would then be a question whether additional national financing would be made available to offset any potential cuts in EU financing.
A final point. The scale of the CAP budget is important, but even more so how it is used. As argued elsewhere on this blog, there is work to do for the co-legislature to ensure real EU value added from the CAP budget whatever its size.
Technical note. The National and Regional Partnership Fund is allocated €865 billion for the MFF period 2028-2034 in the proposed NRP Regulation. This amount is allocated between the three main components of the Fund: the NRP Plans which encompass the existing shared management programmes, the EU Facility which will be managed by the Commission using direct or indirect management, and the Interreg programme (Figure 3). €782.9 billion is allocated to the NRP Plans. In turn, this sum is divided between a Home Affairs allocation (covering issues such as asylum, migration and integration, border management and internal security) and a General allocation. The latter is allocated €748.7 billion and is intended to cover all the existing priorities funded by the existing shared management funds (agriculture, cohesion, social, fisheries) plus the new priority of defence and security. The Social Climate Fund will also be managed as part of the NRP Plans developed by Member States but its funding comes from the sale of allowances from ETS1 and ETS2 and is not dependent on the Fund.
In my previous post, I calculated the size of the amounts that could be allocated to the degressive area-based income support payment using the minimum and maximum amounts of aid per hectare proposed in the NRPF Regulation of 130 EUR and 240 EUR, respectively. This payment is intended to provide area-based income support for eligible hectares to farmers to address income needs. The purpose of the exercise was to examine the potential allocations to other CAP instruments, for example, agri-environment-climate actions, depending on how much Member States allocated to the degressive area-based payment.
The limitation of that calculation is that it assumed that all hectares would receive these amounts, and thus it took no account of the potential impact of degressivity and capping. In this post, I try to provide a crude estimate of the likely impact of degressivity and capping for several Member States. It turns out that the degressivity and capping rules, though they seem sharp, will have a limited impact in practice in many countries.
In this post, I am only concerned with identifying the potential impact of the degressivity and capping rules. I do not discuss the policy intent of the proposal, whether this kind of targeting makes sense, or whether it is well designed for its purpose.
Degressivity and capping rules
The rules proposed for degressivity and capping are set out in the draft CAP Regulation Article 6 (3) and 6(4).
3. The total amount of payments per farmer established in accordance with paragraph 2 shall be degressive in accordance with the following rules:
(a) Member States shall reduce the annual amount of the area-based income support exceeding EUR 20 000 to be granted to a farmer by 25 % where the amount of the area-based income support granted to a farmer is between EUR 20 000 and EUR 50 000;
(b) Member States shall reduce the annual amount of the area-based income support exceeding EUR 50 000 to be granted to a farmer by 50 % where the amount of the area-based income support granted to a farmer is more than EUR 50 000 and not more than EUR 75 000;
(c) Member States shall reduce the annual amount of the area-based income support exceeding EUR 75 000 to be granted to a farmer by 75 % where the amount of the area-based income support granted to a farmer exceeds EUR 75 000.
4. The total amount of area-based income support shall not be higher than maximum EUR 100 000 per farmer per year. In the case of a legal person or groups of legal persons, the capping shall cover all holdings under the control of one legal or natural person.
In a previous version of this post, I interpreted these paragraphs to imply a tiered system of deductions. A kind reader pointed out this was not fully correct, in particular I misinterpreted the way the highest degressivity rate and capping would be applied. In this revised version of the post, I have applied the following rules as set out in Table 1.
Table 1. Implementation of the degressivity and capping rules in Article 6 of the draft CAP Regulation.
We should also recall that Member States can differentiate this payment by groups of farmers or geographical areas. Such differentiation would impact on the distribution of payments between farmers and thus on how degressivity and capping would work. As we cannot take account of differentiation we assume each hectare receives the same uniform payment.
Methodology
But this is only the first of many assumptions that are needed to devise a workable model. As the payments are linked to area, ideally we would like to have the distribution of all holdings in a country by their eligible area. We could then apply the assumed payment per hectare to derive the total payment per farm. We would then apply the degressivity and capping formula described in the previous section. Only Member State administrations and possibly the Commission have these data, so for the outside observer we have to make do with the information in the public domain.
The most relevant information is the distribution of CAP beneficiaries by payment size class published annually by DG AGRI. In a previous post I described some data from the latest report for the 2023 financial year which relates to payments farmers received in 2022. This was the final year of payments under the previous CAP Regulation before the current CAP entered into force.
The report provides tables showing payments for all direct payments, decoupled direct payments and coupled direct payments. For area-based payments the information on the distribution of decoupled payments is what we need. In 2022, this included the basic payment scheme, the single area payment scheme, the greening payment, the voluntary redistributive payment, the young farmer payment, payment for areas with natural constraints (which could be financed by Pillar 1 as well as Pillar 2 in that CAP), and the small farmers’ scheme. The eco-scheme had not yet been introduced.
The payment data are grouped into payment classes. We assume that all holdings within a payment class receive the average payment in that class. This assumption will influence the impact of the degressivity formula and implies that our results will be conservative and underestimate somewhat the impact of the formula (see technical note at the end of this post).
Applying the payment amounts per hectare for the degressive area-based payment results in total potential amounts for area-based income support that are different to the 2022 amounts paid in each Member State in 2022. I therefore scale the average payment in each size class to reflect the difference between the projected payment after 2027 and the actual payment in 2022. The assumption here is that the distribution of area-based payments after 2027 will be similar to that observed in 2022.
I then apply the degressivity and capping thresholds to these new projected average payments in each payment size class to derive the potential ‘savings’ that can be reallocated to financing other CAP instruments.
Exploration of results
Table 2 shows the results of this exercise for Spain. Spain has an average decoupled payment per beneficiary close to the EU average (which was €6994 in 2022) and also its degree of concentration of payments is close to the average – the top 20% of beneficiaries receive 78% of total direct payments support. The potential savings from applying the proposed degressivity and capping rules are estimated at between 6% and 14% depending on the overall allocation to the degressive payment. The savings are higher when the average payments per beneficiary are higher, as this means that more beneficiaries are pushed into the higher payment classes where the degressivity bites more. Nonetheless, what the exercise underlines is that the amounts involved are not enormous. Degressivity and capping will not cut the area-based payments in Spain in half, for example, freeing up this money to be spent on other CAP instruments.
Table 2. Spain How the table is constructed: The 2022 payments data are taken from Commission, Indicative figures on the distribution of aid by size class, financial year 2023. The distribution of average payments and total payments by payment size class under the projected allocations for the degressive area-based income support under the minimum and maximum payment rates per hectare are obtained by scaling the 2022 figures in relation to the total projected allocations for the degressive payment. These total allocations are taken from Table 1 in the blog post https://capreform.eu/commission-proposal-could-allow-significant-increase-in-cap-basic-payments-in-many-countries/. The degressivity saving in each size group is calculated according to the rules set out in Table 1 in this post.
To check whether Spain might be a kind of outlier, I applied the same methodology to a selected group of EU Member States (there is no difficulty to add the remaining Member States and I provide the template for the workbook in a link in the technical note annex). The countries are chosen to reflect differences in the average payment per beneficiary and the degree of concentration of payments in 2022, as these are the two parameters which have the most influence on the percentage savings likely to be realised by degressivity and capping. Table 3 shows the results, where the countries are ranked by the degree of concentration in total direct payments.
The results show that Spain indeed sits comfortably in the middle of the table. Czechia is a country with both a high average payment and a very high payment concentration rate. Degressivity and capping would have a uniquely large impact in this country, potentially reducing area-based payments by between 37 and 50% which could then be allocated to other CAP instruments (any money saved by degressivity and capping remains ring-fenced for other types of CAP income support). Denmark has a similarly high average payment per beneficiary but payments are less concentrated. As a result, the potential savings brought about by degressivity and capping drop to between 15 and 26% which can be allocated to other CAP instruments. Romania, on the other hand, has a concentration ratio very close to Czechia but a much lower average payment, and the shares saved by degressivity and capping are very close to Denmark.
The role played by the average payment per beneficiary and the degree of concentration emerges clearly when we compare the four countries Italy, Spain, Poland and Germany. Italy and Spain have similar concentration rates but the average payment is higher in Spain. So while Spain could save between 6 and 13% through degressivity and capping, these shares drop to between 4 and 8% in Italy.
The comparison between Poland and Germany is even more clear-cut. Both have the same rate of payment concentration but average payments are almost five times higher in Germany than in Poland. The consequence is that degressivity and capping would result in savings of between 13 and 21% in Germany, which is closer to Denmark in this respect, while in Poland the savings would be much smaller at between 3 and 6%.
Finally, we compare the results for France and Ireland. France has the least concentrated distribution of total direct payments in the EU (apart from Luxembourg) but a much higher average payment per beneficiary compared to Ireland. This means that degressivity and capping could result in savings of between 3 and 12% in France, but only between 1 and 4% in Ireland.
Table 3. Own calculations.
Conclusions
In this post, I have used the available public information on the distribution of area-based payments to estimate the potential impact of degressivity and capping on the funds that might be allocated to area-based payments for income support in the proposed CAP. The interest in this question is because, assuming a fixed CAP budget at the minimum ring-fenced amount of €296 billion, the more funds that are allocated to area-based payments, the less are available for other CAP instruments such as agri-environment-climate actions.
Two scenarios are examined, based on the minimum and maximum amounts for area-based payments per hectare in the NPRF Regulation. By linking these payments per hectare to the total Potentially Eligible Area in each country we can derive the potential allocation to area-based payments after 2027 (this calculation and the results are described in detail in my previous post).
By assuming that the distribution of payments will remain the same as for area-based payments in 2022, the last year of the previous CAP, and by assuming that all holdings in a size class receive the average payment in that size class, we can derive the potential impact of applying degressivity and capping to the area-based payment amounts after 2027.
The results show that the impacts will be very different across countries, depending on their average payment per beneficiary and the degree of concentration of their payments. The higher the average payment, and the more concentrated these payments are, the greater the impact of degressivity and capping. Czechia is the outstanding example among the countries I have selected here, where potentially the funds it can use for area-based payments will be reduced by around one half if it applies the maximum payment per hectare, so these funds would become available to use to finance other CAP instruments. In Denmark, which is close to Czechia but still with both lower average payment and a less concentrated payment distribution, the impact of degressivity and capping drops to around one-quarter of the area-based payment amount at the maximum payment per hectare.
These countries show the greatest impacts. Impacts for other countries are much smaller. For France and Ireland, the savings vary between 1 and 12% but these are two countries with among the least concentrated payments distribution. I have not attempted to calculate an EU average, but my estimate is that it might lie between 10 and 20%. This will depend both on the overall payment rate per hectare that countries choose to establish for their area-based payment, but also on the extent of differentiation between farm groups and geographical areas that they establish.
These figures are probably smaller than many readers had imagined. The degressivity and capping rates are much more aggressive than what has previously been proposed, and yet their impact in reducing the potential area-based payments is relatively limited. The inference I draw is that relying on degressivity and capping to release sufficient funds to finance other CAP instruments including agri-environment-climate actions may well be a false hope.
Technical note
The two key assumptions behind the calculations in this post are (a) that the distribution of area-based payments after 2027 will reflect the distribution of decoupled payments in 2022, and (b) that we assume that all holdings within a payment size class receive the same average payment of that class. The former assumption can be criticised because the distribution of payments in 2022 was influenced by factors that are no longer relevant (for example, the continued existence of historic payments in some Member States and different ways of implementing the greening payment). Also, there have been further changes to the delivery of area-based payments in the current CAP including the introduction of the mandatory CRISS payment, which will also have affected the distribution. But unfortunately data on the distribution of payments for the claim year 2023 will not be available until June or July next year given the Commission’s apparent policy to delay publication. Ireland, for example, has capped BISS payments at €60,000 under the current CAP which would no longer be possible under the new proposal.
Still, it is the second assumption that is likely to have more impact on the results. There are two reasons to expect that this methodology may underestimate the likely savings from degressivity and capping. One situation arises where the average payment in a size class falls just below a degressivity threshold, let us say the threshold of €20,000 even though the payment class has the range, say, €15,000 to €40,000. This implies there would be no savings attributed to degressivity in that class, even though some holdings will receive payments about the €20,000 threshold.
The second situation is where the distribution of payments within a size class has an upward skew, meaning that most beneficiaries are located towards the lower end of the payment class range, but there are a few beneficiaries with payments closer to the higher end of the payment class range. In this case, the average (mean) payment per beneficiary is above the median payment. In this situation, applying the marginal rate deduction for each beneficiary for amounts above the threshold will yield greater savings than applying this rate to the average payment and then multiplying by the number of beneficiaries in the class.
For these reasons, my estimates of savings from degressivity and capping are likely to be conservative and to show lower figures than if we had access to the individual raw data.
I provide here the workbook and dataI have used to make these calculations which readers can use to also derive results for other countries not considered in this post.
This post was written by Alan Matthews
Update 31 July 2025. I added Table 1 to correct the way in which I had previously interpreted the degressivity and capping formula and the figures in the post have been adjusted to reflect this formula. A big thanks to Henrik Maass for helping me to understand how the degressivity and capping formula is implemented in Table 1.
Photo credit: Alan Matthews, Storm clouds on the horizon.
Initial reactions to the publication of the Commission’s proposals for the next CAP and their budgetary implications focused on the overall reduction in the CAP budget for income support (the minimum €296 billion ring-fenced within the National and Regional Partnership Fund). In a previous post, I calculated this reduction to be 15% on a like-for-like basis compared to the current income support under the CAP in current prices. Making a comparison with the current total CAP budget will depend, in addition, on how much Member States will allocate to the non-income support elements of the CAP (including, for example, Co-operation projects (LEADER, EIPs) as well as Knowledge Exchange (AKIS)), which cannot be known at this stage.
However, a deeper dive into the provisions of the relevant Regulations suggests that things are not so simple. Commissioners Serafin and Hansen have promised that farmers can continue to receive the same money under the proposed CAP as they do at present. If we define the money that farmers are entitled to as their basic payment, this may well the case. I have no idea whether this is indeed how the Commission is interpreting its commitment, it has been silent so far on this issue. In this post, I explore the rationale for this suggestion.
Defining the basic payment
To understand the significance of CAP support for farm income, we need to make a distinction between ‘pure’ income transfers (in the CAP proposal, these include the degressive area-based income support, coupled income support, payments for small farmers, and the crop specific payment for cotton, to which we might add payments for natural and other area specific constraints) and ‘other’ income support interventions (in the CAP proposal these include notably investment aids and support for establishing young farmers and rural businesses, agri-environment-climate actions and support for risk management tools).
To avoid misunderstanding, this distinction between ‘pure’ and ‘other’ income support is not formally defined in the CAP Regulation but a distinction that nonetheless I consider important. ‘Pure’ income support measures are payments that all farmers who are eligible for these payments are entitled to receive as of right. They are automatic and mandatory once a farmer fulfils the conditions. ‘Other’ income support measures depend on the willingness of farmers to enrol and participate in the relevant schemes. They are voluntary schemes, they are not entitlements and, in the case of agri-environment-climate actions, they also require farmers to incur the costs of complying with the conditions of participation.
When farmers look at the support they receive from the CAP, they are mostly concerned with their annual payment. At the moment, this consists of the Basic Income Support for Sustainability (BISS) payment, the redistributive (CRISS) payment, the Complementary Income Support for Young Farmers (CIS-YF) payment and the Small Farmer Scheme. For the purpose of this post I will refer to the sum of these payments as a farmer’s basic payment (the basic payment plus coupled payments make up the total of ‘pure’ income support). These payments will all be wrapped into the new degressive area-based income support payment which will effectively become the basic payment in the new CAP. It is thus relevant to ask how the size of this payment in each Member State in the proposed CAP will compare to the amounts that farmers currently receive as a basic payment (the sum of these individual payments) in the current CAP.
Before we look at the numbers, I need to make two caveats. The first concerns whether we should include eco-schemes in the category of entitlements or voluntary schemes and thus part of a farmer’s basic payment. In principle, enrolment in eco-schemes is voluntary but, in practice, most Member States have designed their eco-schemes such that they are a top-up of the basic payment. Farmers receive their eco-scheme payments along with the basic payment and may thus consider them as part of their basic payment. Because we cannot know the amounts that might be substituted for eco-schemes in the new CAP, we are forced de facto to treat them as voluntary schemes for the purpose of this exercise. That is, we do not include eco-schemes in the definition of the basic payment that farmers receive. For the same reason, we also do not consider payments for natural and other area specific constraints to be part of the basic payment.
The second caveat is that in this exercise we are looking at potential Member State ceilings. How these will be allocated between individual farms within a Member State cannot be known at this point. Article 6 of the proposed CAP Regulation provides considerable flexibility to Member States to differentiate the degressive area payment by groups of farmers or geographical areas. In addition, the payment received by an individual farmer under the proposal compared to their current basic payment will be influenced by the provisions on degressivity and capping set out in Article 6. Thus, the health warning attached to the exercise below is that the indicative trends at Member State cannot be translated automatically into the likely impact for an individual farmer.
Will the basic payment increase or decrease?
The basis for the exercise is Article 35 in the NPR Regulation which sets out that the planned average aid per hectare for degressive area-based income support shall not be less than EUR 130 and not more than EUR 240 for each Member State. This itself is a remarkably wide range, when we think how much effort has been put into the external convergence issue designed to achieve uniform payments per hectare across the Union over the past two MFF negotiations. Now the basic payment that farmers receive automatically (they can of course also apply for other CAP payments) can differ by almost a factor of two between two neighbouring countries. At face value it seems to directly undermine the principle of a level playing field in the single market. It would not be surprising to see some change in these figures during the legislative process.
For each Member State, I multiply these lower and upper limits on the amounts per hectare by the potential area eligible for support in 2022. This is the indicator and base year that is used for the big formula in Annex 1 of the NRPF Regulation to allocate the funds for the NRP Plans to Member States. The resulting figures give the minimum and maximum amounts for degressive area-based income support (Member States will not be allowed to provide additional top-ups to these amounts). I then compare these minimum and maximum amounts to the current levels of CAP support for the payments that this instrument will replace. The results are shown in Table 1.
Table 1. Comparison of basic payment amounts in current CAP with potential degressive area-based payments under proposed CAP. How the table is constructed. The Potentially Eligible Area data are sourced from Commission, Summary Report on the implementation of direct payments [except greening], Claim Year 2022, Table 1.1. The annual area-based support allocated in the national CAP Strategic Plans (CSPs) 2023-2027 is sourced from the Commission Catalogue of CAP Interventions. I have included the BISS, CRISS, CIP-YF and Small Farmer payments as area-based support. The Catalogue gives total EU support over the 5-year period of the CSPs, so the amounts shown in Column 2 are the amounts in the Catalogue divided by five. The minimum and maximum amounts are from the NRPF Regulation Article 35(3). The coupled payment amounts shown in Column (5) are also derived from the Commission Catalogue with the same procedure. The crop-specific payments for cotton for Bulgaria, Greece, Spain and Portugal are not considered coupled payments subject to the ceiling limit in Regulation (EU 2021/2115 and are not included in these totals. The bolded references are hyperlinks to the original sources.
I have ranked Member States by the change in these basic payments in Columns (6) and (7). If Member States only provide the minimum amount per hectare as degressive area-based support, farmers in nearly all Member States except for a handful at the bottom of the table would experience a reduction in these payments.
However, if Member States were to opt for the maximum, a very different picture emerges. Now farmers in nearly all Member States would see a potential increase in their basic payment. For countries at the bottom of the table, the basic payment amounts could be doubled. It is no coincidence that these are countries that failed to reach full external convergence under the current CAP. External convergence is no longer relevant in the proposed CAP, which would allow these countries to dramatically increase the basic payment their farmers receive.
For comparison, I have also included Column (5) which shows the annual amount allocated to coupled support in the CSPs 2023-2027. We do not yet know how much coupled support Member States will plan to provide out of their minimum ring-fenced CAP allocation. Article 35(5) of the NPRF Regulation allows up to 20% of the Union contribution to CAP income support measures to be allocated to coupled support. This percentage may be increased by a maximum of 5 percentage points, provided that the amount corresponding to the percentage exceeding 20% is allocated to protein crops, farmers combining the production of crops and livestock or agricultural areas at a risk of abandonment of agricultural production in particular in the Eastern border regions, defined in the Plans.
Only four interventions are included in the denominator in calculating this 20% or 25%: the degressive area-based income support payment; the crop-specific payment for cotton; support for small farmers; and agri-environment-climate actions. While the ceiling on coupled payments in the current CAP is 13% (rising to 15% if the extra is allocated to protein crops), these percentages are relative to the total allocation under Pillar 1 for each Member State. It is thus NOT the case there is necessarily greater scope to provide coupled payments under the proposed CAP. We will not be able to say for certain whether coupled payments have increased or decreased until the CAP chapters in the National and Regional Partnership Plans are approved.
Conclusions
This post points out that farmers’ receipts from the CAP are composed of two elements: a basic payment to which all farmers who meet the eligibility criteria are entitled, and payments under voluntary schemes which farmers can apply for if they wish. The exercise consists in asking how the amounts allocated to the basic payment in the proposed CAP compare to the amounts allocated in the national CAP Strategic Plans in the 2023-2027 period.
The outcome is uncertain because the proposed NRPF Regulation provides a wide band for the basic payment per hectare. If Member States only allocate the minimum amount, the total available for the basic payment would decrease in nearly all Member States. However, if Member States were to allocate the maximum payment per hectare, then the total available for the basic payment would significantly increase in nearly all Member States. For some Central and Eastern European Member States, the basic payment for farmers could almost double.
There are important caveats around these results. Many farmers might consider their eco-scheme payments as part of their basic payment in the current CAP. Because we do not know how much Member States will allocate to any equivalent scheme in the proposed CAP, we cannot take this into account. There is also an argument whether payments for natural and other area specific constraints might be considered a part of a farmer’s basic payment. For the same reason, we exclude these payments also from our definition. Finally, the exercise can only calculate the potential amounts available for the basic payment before degressivity and capping kick in.
The significance of these calculations is that, the more of a country’s obligatory allocation for CAP income support is allocated to degressive area-based income support (considered as the basic payment in the proposed CAP), the less will be available for the other CAP interventions, notably agri-environment-climate actions. There is no ring-fencing for these actions in the proposed CAP. But in the absence of information which will not be available until the Partnership Plans are drafted, it is impossible to know at this point whether the amounts available for these actions in the next CAP will be greater or smaller than at present.
But, to be honest, it does not look promising. We can total the amounts allocated to the degressive area-based payment under the two scenarios and compare these totals to the minimum ring-fenced amounts for CAP income support. If each Member State were to choose to allocate the minimum amount 130 EUR per hectare, the total potentially allocated to the degressive area-based payment would be €133 billion over the MFF period (€19.0 billion annually multiplied by 7) before taking account of degressivity and capping. However, if each Member State were to allocate the maximum 240 EUR per hectare, the total potentially allocated to the degressive area-based payment before degressivity and capping would be €246 billion (€35.1 billion multiplied by 7). On top of this, Member States can allocate the minimum 20%/maximum 25% to coupled payments. There would not be much left over out of the minimum ring-fenced amount of €296 billion to finance all the remaining CAP interventions.
Let us be clear, these numbers do not take into account the degressivity and capping associated with the degressive area-based payment. These aspects could potentially significantly reduce these overall numbers. But this assumes that the Commission’s targeting proposals will be accepted by the co-legislature.
While it might be assumed that the Commission and Council would not approve such a lop-sided allocation of CAP funds, the danger is obvious. Under the current CAP, a minimum of 25% of Pillar 1 and 35% of Pillar 2 ceilings must be allocated to measures that benefit the environment, climate and animal welfare. Under the proposed CAP, without ring-fencing, expenditure on these measures could be greatly squeezed.
This post was written by Alan Matthews.
Update 23 July 2025. Added the additional paragraphs at the end of the post on the macro implications of the two different scenarios for expenditure on agri-environment-climate actions.
Update 5 August 2025. Corrections made to Table 1 for Bulgaria and Slovenia.
Please note that I have updated and revised some of the commentary in this post in a later one here. This later post gives a a more optimistic view of the likely size of the CAP budget though still with caveats. I would urge readers to also read this later post in conjunction with this one. I have left this post online for the record.
The publication of the Commission’s MFF proposals and related legislative proposals on Wednesday 16 July was chaotic, in part it seems because negotiations within the Commission went down to the wire right up to the afternoon of the day of publication. Publication of the key texts was delayed, and indeed the NPRF Regulation (see below) only became available on the EU Register of Commission Documents early morning Friday 18 July.
As far as concerns the CAP proposal in the MFF, this chaotic delivery led to a bit of a communications disaster. Commissioner Hansen went immediately to address the COMAGRI in the European Parliament and met with a very hostile reaction. While pushback from that Committee was always to be expected, it was also clear that many of the criticisms were based on insufficient information and understanding of what the new proposals might actually mean.
The criticisms focused on two main concerns – that the MFF proposals represented a significant reduction in the CAP budget, and that eliminating the EAGF and EAFRD and folding the CAP into the so-called Single Fund proposal would change the CAP into the UAP (Uncommon Agricultural Policy) as the Irish MEP Luke Flanagan called it in his intervention in the debate.
There are many other issues to be addressed in these proposals – the implications of the shift from compliance to incentives in the case of agri-environment-climate actions for the level of ambition in these areas; the refinement of the delivery model including implementation and monitoring; the allocation of powers between the Commission, Member States and regions in the strategic planning process; the targeting of direct payments; the significance of the generational renewal package, and so on. I plan to tease out some of these issues in later blog posts.
In this post, I take up the issue of the CAP budget and what that might mean for payments to individual farmers. This has to be a very tentative evaluation at this stage because, as we will see, crucial pieces of information are still missing. Indeed, the full picture will not be known in any case until the 28 National and Regional Partnership Plans are finally approved by the Council presumably some time in 2027. Only then will we finally see how much Member States have allocated to their farmers. But in this post, I attempt to establish the parameters which will guide the Member State decisions.
The budgetary and legislative context
The budgetary context is set out in the proposed MFF Regulation (COM(2025) 571) and the accompanying Commission Communication A dynamic EU Budget for the priorities of the future – The Multiannual Financial Framework 2028-2034 (COM(2025) 570). This Regulation establishes the overall expenditure envisaged over the 2028-2034 period by heading.
The Commission is proposing for the MFF 2028-2034 a ceiling for commitments of €1,763.1 billion in constant 2025 prices equal to 1.26 % of EU GNI and a corresponding payment ceiling of €1,761 billion in constant 2025 prices equal to 1.26% of EU GNI. In current prices using a 2% deflator, these figures amount to €1,985 billion and €1,980 billion, respectively. This compares to the MFF totals (following the mid-term review in 2024) of €1,221 billion for commitments (1.02% of EU GNI) and €1,203 billion for payments (1.01% of EU GNI) in current prices (COM(2024) 120).
Apart from the amounts, which are set out in the all-important Annex to the MFF proposal, there are three novelties in the MFF proposal: (a) a significant reduction in the number of headings, (b) a simplification of the flexibility toolbox, and (c) a change in the manner of making technical adjustments to account for inflation.
The adjustment is needed to convert the amounts of the expenditure ceilings set out in the MFF from constant 2025 prices to current prices. The Commission proposes a new method to address difficulties related to a volatile inflation environment. The annual adjustment remains based on a fixed but adjustable deflator. In practical terms, the annual price adjustment will be equal to 2% whenever EU inflation is between 1% and 3%, and equal to the actual inflation forecast rate whenever the actual inflation forecast is lower than 1% or higher than 3%, where the inflation rate of reference will be the EU-27 GDP deflator.
The legislative context for the next CAP, based on the Commission proposals, consists of five Regulations:
A Regulation establishing the conditions for the implementation of the Union support to the Common Agriculture Policy for the period from 2028 to 2034 (COM(2025) 560) [CAP Regulation].
A Regulation establishing the European Fund for economic, social and territorial cohesion, agriculture and rural, fisheries and maritime, prosperity and security for the period 2028-2034 and amending Regulation (EU) 2023/955 and Regulation (EU, Euratom) 2024/2509 (COM(2025) 565). [I will refer to this as the NRPF (National and Regional Partnership Fund) Regulation in this post].
A Regulation establishing a budget expenditure tracking and performance framework and other horizontal rules for the Union programmes and activities (COM(2025) 545). [Performance Regulation].
A Regulation amending the Common Market Organisation Regulation (EU) 1308/2013 as regards the school fruit, vegetables and milk scheme (‘EU school scheme’), sectoral interventions, the creation of a protein sector, requirements for hemp, the possibility for marketing standards for cheese, protein crops and meat, application of additional import duties, rules on the availability of supplies in time of emergencies and severe crisis and securities (COM(2025) 553). [CMO Amendment Regulation].
A Regulation amending Regulation (EU) No 1370/2013 as regards the aid scheme for the supply of fruit and vegetables, bananas and milk in educational establishments (‘EU school scheme’) (COM(2025) 554). [School Scheme Regulation].
The first two draft Regulations are particularly important because they are intended to work together. The NRPF Regulation sets out the tasks, priority objectives, and organisation of the various shared management programmes (including the CAP) under the Fund, as well as setting out the financial rules and financial resources made available. The CAP Regulation is a policy-specific Regulation which is subordinate to the NRPF Regulation.
According to Commissioner Hansen, the existence of a stand-alone CAP Regulation was not originally envisaged and had to be fought for. Although the NRPF Regulation makes references to the CAP Regulation so was drafted once that decision was made, there is still a very odd division of Articles between the two Regulations. Many Articles in the NRPF Regulation under Title V referring to the CAP or Article 66 establishing European and national CAP networks could easily have been included in the CAP Regulation. The specifications for the new Farm Stewardship System are included in the CAP Regulation, but the controls and penalties for non-compliance are included in the NRPF Regulation. There is clear duplication, as where the NRPF Regulation sets out the CAP types of support in Article 35 and the CAP Regulation does exactly the same in Article 5, creating a risk in the legislative process that different amendments to these Articles (they will be managed by different Committees in the European Parliament) could lead to divergent texts in the final outcomes (there is already divergence in that crisis measures for farmers have been added as a CAP intervention in the CAP Regulation but not in the NRPF Regulation as well as small textual differences). There is clearly scope for tidying up in the subsequent legislative work.
The NRPF Regulation includes the provision for ring-fencing CAP income support payments and Common Fisheries Policy interventions to a minimum of €295.7 billion (Article 10). This will be paid in roughly equal annual amounts (in nominal terms) over the seven years (see Section 3.2.1.1 of the proposal). The Regulation also allocates a sum of €900 million annually for the Unity Safety Net designed to contribute to the stabilisation of agricultural markets faced with market shocks, for a total of €6.3 billion over the MFF period. It has been a long-standing demand of COMAGRI that the agricultural crisis reserve should be funded outside the CAP and this has been implemented in the current proposal.
The overall CAP budget and comparisons with the present CAP
The headline numbers that were the focus in the COMAGRI debate on Wednesday 16 July and in subsequent commentary have compared the minimum amount ring-fenced for CAP income support measures and fisheries of €295.7 billion in current prices over the seven years 2028-2034 with the €387.8 billion made available for the CAP in current prices in the period 2021-2027. At face value, this is a reduction in nominal amounts of 24%. In real terms, of course, the reduction would be even greater.
Commissioner Hansen, in responding to questions on this issue in the COMAGRI debate, insisted that the reduction would not lead to a reduction in the money received directly by farmers. He argued it reflected the fact that non-farm rural development spending and other CAP spending not received directly by farmers would now be financed outside the ring-fenced CAP income support amount.
In fact, making a like-for-like comparison is not straightforward. At least the following issues need to be considered:
The difference it makes when we consider that the ring-fenced amount only covers income support payments (as these are defined in the NRPF Regulation) and thus is not equivalent to the CAP budget provided in the current MFF (the Hansen argument).
The fact that spending on certain Common Fisheries Policy interventions (as defined in Article 35(11)) is included within the ring-fenced amount. Under the 2021-2027 European Maritime, Fisheries and Aquaculture Fund, the EMFAF budget was €6.1 billion in current prices of which €5.3 billion was under shared management. However, of the four priorities for the EMFAF budget, only elements of Priority 1 appear to be included in Article 35(1). From initial versions of the documentation accompanying the MFF proposal, it appeared that €2 billion euro was included for fisheries support in the ring-fenced amount, though this has been removed in corrected versions of the documentation that were subsequently published (see discussion in the comments). In fact, it will be up to Member States in their NRP Plans to decide how much to allocate to the Article 35(1) interventions, and whether they will then include these as part of the ring-fenced €295.7 billion or count them as additional. It does not seem productive to speculate on how Member States will respond, so we simply acknowledge this in the following calculations.
There is a potentially important technical issue in deciding on the methodology to make comparisons of spending between MFF periods. The criticism of the reduced budget available for the CAP cited above makes a comparison between the total envelope available for the CAP in each of the two MFF periods. An alternative approach is to take spending in the final year of the current MFF, multiply it by 7, and compare the resulting total with the expenditure proposed in the coming MFF. This latter approach is apparently part of the basis for the Commission’s argument that it is not asking Member States to pay more into the common EU budget than they currently do. In practice, because the CAP budget is roughly constant in each year of each MFF, both approaches should give similar answers for the CAP.
The fact that public support for agriculture in the EU comes through three, if not four, channels. In addition to EU support, there is national co-financing by Member States, there is additional national financing by Member States, and there can be additional national State aid in response to crises. It is of course relevant to focus on the change in EU support but the broader picture also needs to be kept in context.
The fact that the ring-fenced €296 billion in the proposed MFF is a minimum amount. It will be up to Member States to decide if they wish to allocate a higher proportion of their NRPF funds to CAP objectives. We will not be able to observe this until the Partnership Plans are approved presumably in 2027.
Definition of income support
We begin by identifying how CAP income support (which is the amount ring-fenced) is defined in the proposed NRPF Regulation. Until now, we generally refer to interventions financed by CAP Pillar 1 as income support and CAP Pillar 2 as rural development. In the proposed new CAP, payments made directly to farmers previously financed in Pillar 2 such as investment aids, AECM payments and payments to compensate for farming in areas of natural constraints are now considered income support payments in the new CAP.
The CAP Regulation (Article 5) specifies the following CAP interventions:
(a) degressive area-based income support;
(b) coupled income support;
(c) crop specific payment for cotton;
(d) payment for natural and other area specific constraints;
(e) support for disadvantages resulting from certain mandatory requirements;
(f) agri-environmental and climate actions;
(g) payment for small farmers;
(h) support for risk management tools;
(i) support for investments for farmers and forest holders;
(j) support for setting-up of young farmers, new farmers, rural business and startups and development of small farms;
(k) support for farm relief services;
(l) LEADER;
(m) support for knowledge sharing and innovation in agriculture, forestry and rural areas;
(n) territorial and local cooperation initiatives;
(o) interventions in outermost regions;
(p) interventions in smaller Aegean islands;
(q) EU school scheme referred to in Title I, Part II, Chapter IIa, of Regulation (EU) No 1308/2013 of the European Parliament and of the Council;
(r) interventions in certain sectors referred to in Title I, Part II, Chapter IIa, of Regulation (EU) No 1308/2013;
(s) crisis payments for farmers.
The NRPF Regulation specifies that interventions (a) through (k) and (r) will be deemed CAP income support measures for the purpose of ring-fencing.
Comparison of CAP budget 2021-2027 with 2028-2034 MFF
We first present a breakdown of the CAP budget 2021-2027 in current prices as the basis for comparison (Figure 1).
Figure 1. Source: European Union domestic support notification to the WTO, G/AG/N/EU/88 7 August 2023.
There is no more disaggregated table for the whole MFF period that would allow us to directly identify the commitments for CAP income support interventions to make a comparison with the ring-fenced amount in the proposed CAP. Virtually all the direct payments line is clearly relevant, apart from direct payments to POSEI and the smaller Aegean islands (thus also including the agricultural crisis reserve). Based on budgetary commitments in the annual EU budget, we assume 99% of the direct payments line can be considered as CAP income support for comparison with the Commission proposal. We also consider the bulk of market-related expenditure as CAP income support as it mostly finances sectoral interventions, although it also includes expenditure on POSEI and smaller Aegean islands, promotion, and the school schemes. We assign approximately 75% of this expenditure line to sectoral interventions which are included as CAP income support. Finally, we allocate 85% of the EAFRD expenditure to CAP income support interventions (based on deducting the share of EAFRD expenditure going to the Cooperation and Knowledge Exchange headings in planned EAFRD expenditure under the CAP Strategic Plans, see Commission, 2023, Figure 3).
This allows us to construct the like-for-like comparison shown in Table 1 for EU CAP income support. For the 2021-2027 total, we apply the percentage shares to the numbers shown in Figure 1. For the 2028-2034 total, we take account of the separate expenditure line for the Unity Safety Net which is intended to assist farmers to take account of market-related shocks and which replaces the agricultural reserve. This like-for-like comparison shows that the reduction in the nominal CAP income support budget is less than the headline reduction, estimated here at about 15%. The data at first sight do not appear to support Commissioner Hansen’s claim that there will be no reduction in the money in farmers’ pockets, even in nominal terms.
Table 1. Note: Figures are approximate, for methodology see text. Only expenditure under shared management pre-allocated to Member States should be included in the 2021-2027 figures to be comparable to 2028-2034 figures. Some of the ring-fenced CAP income support can also be used to finance certain Common Fisheries Policy interventions, depending on Member State decisions which could further reduce the amount available for CAP income support.
National co-financing and total public support
There may be scepticism whether Member States will want to transfer funds from other headings in the NRPF Fund such as cohesion, defence and social spending to top up spending on the CAP. However, national co-financing is different as this is obligatory spending which Member States must undertake if they want to draw down EU funding. There are some changes in the national co-financing requirements which can influence the total public transfer to farmers in the proposed new CAP.
Let us remind ourselves first what the rules on co-financing are for the current CAP. The CAP Strategic Plan Regulation sets out the rules in terms of EAFRD contribution rates (the converse of the national co-financing rate). The basic rates are graduated according to the level of a region’s development. Maximum rates can be 85% of eligible public expenditure in less developed regions (i.e, minimum of 15% national co-financing required); 60 % of eligible public expenditure in transition regions (minimum of 40% national co-financing); and 43 % of the eligible public expenditure in the other regions (minimum of 57% national co-financing). However, higher EAFRD contribution rates were set for specific EAFRD interventions: 65% of the eligible public expenditure for payments for natural or other area-specific constraints and 80% for AECM payments and payments to compensate for disadvantages from mandatory requirements. The minimum contribution rate was set at 20%.
The proposed national contribution rates in the new CAP will be a minimum of 15% for less developed regions, a minimum of 40% for transition regions and a minimum of 60% for more developed regions, thus not that different from at present. There will be full EU financing of interventions (a), (b), (c) and (g) in the list above (thus, the degressive area-based income support, coupled payments, the cotton payment, and the small farmer payment) again as at present. Article 35 of the NRPF Regulation states that the minimum national contribution to interventions (d) through (k) will be 30%, subject to compliance with the regional minimums (it is hard to understand why this point is necessary if it means that the minimum in less developed regions will still be 15% and in more developed regions will be 60%).
Note that eco-schemes (annual voluntary measures in favour of the environment, climate and animal welfare) are now merged with AECMs in the new CAP and will require national co-financing. Whether that will result in a higher level of co-financing finance overall will depend on how Member States distribute their CAP income support ceiling between area-based degressivity payments and coupled payments, on the one hand (where co-financing is zero) and AECMs and eco-schemes (now relabelled as agri-environment-climate actions AECAs, and other measures and where co-financing is required), on the other hand. In the absence of ring-fencing, one can be fearful that the need for co-financing will make agri-environment-climate actions much less attractive to cash-strapped governments, but that will be the topic for another post.
My conclusion at the moment on additional funding for farmers from national co-financing is therefore ambiguous. National co-financing rates are broadly in line with the current CAP, but they are higher for aids for farmers in areas of natural constraints apart from less developed regions (for example, minimum national co-financing rates go from 35% to 60% in more developed regions) and even more so for agri-environment-climate actions (where minimum co-financing rates go from 20% to 60%). On the one hand, this could mean a larger contribution from national exchequers, adding to the public finance available for farmer support. On the other hand, without ring-fencing and where there is a relatively free choice between financing degressive area-based and coupled payments without any co-financing, and financing AECAs and ANC payments with higher co-financing than at present, there will be a great temptation for many Member States to shift their funding to schemes that do not require any co-financing at all. There are limits to the extent to which this can happen as there are maximum ceilings on the amounts that can be used for both degressive area-based income support and coupled payments. Still, the bottom line is that we could even see less national co-financing than is currently the case.
Conclusion
There are many angles to be explored in the Commission’s CAP proposal, some deeply troubling and others highly promising. Yet inevitably the initial focus of reaction has been on the budgetary figures, and for understandable reasons. It is easier to propose change if there is a cushion there to ensure a soft landing.
My analysis suggests that on a like-for-like comparison, the minimum ring-fenced amount for CAP income supports (now to be interpreted more broadly than simply Pillar 1 direct payments) is around 15% smaller in current prices than what is available in the current CAP. To make a full comparison with the current €387 billion CAP budget, we would also need to know the allocations that Member States will make to the non-income support elements of the CAP, especially the Co-operation and Knowledge Exchange elements currently funded under Pillar 2. If expenditure on these elements is reduced by more than 15%, then the cut in the overall CAP budget would be greater, but also conversely.
It seems also unlikely that we will see an increase in national co-financing, given that Member States will have a reasonably free choice in allocating funds between degressive area-based income support and coupled payments without a co-financing obligation and all other measures that will require co-financing. On this evidence, it is hard to understand Commissioner Hansen’s argument that farmers will receive the same amount of money in their pockets (in current prices) as they currently receive. On the other hand, Member States will be free to allocate some of the other monies they receive from the NRPF Fund to top-up the minimum amounts they are required to allocate to the CAP. Ultimately, we cannot know the size of the CAP budget until the National and Regional Partnership Plans are approved by the Council sometime in 2027.
It is important for farmers to realise that this overall cut will not be a uniform, across the board cut in payments. First, a crucial appendix is still missing from the legislative package, in that there are as yet no figures in Annex XVIII of the NRPF Regulation showing how the minimum €296 billion ring-fenced amount for CAP income support and fisheries will be divided between the Member States. There is a formula to allocate the overall NRPF Fund between Member States which incorporates CAP direct payments. But we do not yet know how much of the minimum €296 billion each Member States will be required to spend. We do know that the planned average aid per hectare for degressive area-based income support should not be less than €130 and not more than €240 for each Member State but in addition the Commission proposes to introduce a sharp degressivity in these payments. How Member States design their CAP interventions and the willingness of farmers to enrol in some of the voluntary schemes that will be offered will determine whether individual farmers receive more or less money than under the current CAP.
A frequent complaint at the COMAGRI debate last Wednesday was that the CAP budget has been reduced in the context of a major proposed increase in the overall MFF. But whether that large MFF increase will eventually be agreed by Member States remains unclear. A smaller overall MFF would make it even more unlikely that additional CAP funds can be found in the EU budget. To the extent that it is Eurosceptic governments that tend to resist increases in the EU budget (though opposition is not limited to these governments), they also tend to proclaim their support for farmers more avidly. Thus they may well be willing to find the money nationally for farm support if they block the increase in the MFF sought by the Commission.
It is clear, for all the reasons mentioned in this post, there will be uncertainty around the CAP budget figures for at least the next two years.
This post was written by Alan Matthews.
Photo credit: Alan Matthews
If anyone notices errors in this post please point these out as understanding the legislative documents is not a straightforward matter.
Update 19 July 2025. I included a specific reference to Annex XVIII in the Conclusions. I corrected a typo in Table 1 where the ring-fenced amount for CAP income support is €295.7 billion and not €297.5 billion as originally stated which also required minor adjustments to other figures. Note added to Table 1 to clarify that only expenditure under shared management is relevant for the comparison.
Update 25 July 2025. I have corrected the text to reflect the comment received from Elsa Régnier below.
Update 5 August 2025. I clarified that certain elements of fisheries expenditure is included in the €296 billion ring-fenced amount.
Update 4 September 2025. Added the link at the top of the post to a later blog post which revises some of the commentary in this one.
The Commission Communication on The road to the next multiannual financial framework published in February 2025 put forward several proposals for the reform of the MFF structure prior to the formal legislative proposal now pencilled in for July 2025. For the Commission, the key priority is the scale of the budget and the means to finance what it sees as inevitably greater expenditure in the coming programming period. It notes in bold print on page one of the Communication that Europe needs to square the circle: “there cannot be an EU budget fit for our ambitions and notably ensuring the reimbursement of NextGenerationEU, and, at the same time, stable national financial contributions without introducing new own resources”.
The arguments for increased EU budget expenditure are well known. On this occasion they are amplified by the needs to support a surge in defence spending, to address the lagging competitiveness of European industry as identified in the Draghi report and to support the Clean Industrial Deal, as well as to start repayments of the borrowing undertaken to fund the Next Generation EU.
On the other hand, the reasons why Member States have been unable so far to agree on any significant increase in the EU’s own resources (where so far the only increase agreed since the last MFF negotiations has been the proceeds of a levy on non-recycled plastic packing waste) are also well known. These issues of budget size and potential new own resources are not addressed in this post.
Instead, I want to focus on some ideas in the Commission Communication regarding the structure and design of the MFF. The Communication declares that “The scale of the challenges ahead thus calls for an ambitious budget, both in size and design” (p. 4, bolding added). Indeed, the Budget Commissioner Piotr Serafin stated in a recent speech: “These realities [the need to address new expenditure priorities] require us to make difficult choices. They will come. But at this point the Road to the next Multiannual Financial Framework suggests to concentrate the debate on how the EU budget, whether big or small, could work better and how to increase the impact of every euro spend through the EU budget.”
Improving the effectiveness of CAP spending is obviously highly desirable, and there are many proposals for reform of the CAP regulations intended to do this. But it is also worth asking how the design of the MFF could contribute to this objective. Does it matter if the CAP is a stand-alone policy based on its twin funds, the EAGF European Agricultural Guarantee Fund and EAFRD, the European Agricultural Fund for Rural Development, or if it were integrated into a broader spending plan at national level? What might be the impacts good or bad of different MFF designs for the delivery of agricultural funding? These are the questions explored in this post.
Understanding the Commission’s MFF thinking
Among the proposals for improved design in the Commission Communication are changes in the number of funds, introducing policy-based budgeting, introducing performance-based budgeting, and introducing greater flexibility to reallocate resources within the budget to respond to crises and emergencies (Table 1). Many of these ideas were already prefigured in Commission President-elect von der Leyen’s Political Guidelines when she was seeking support for her nomination from the European Parliament.
There is no specific proposal in the Communication to merge different funds into a single fund, although it is noted that the existence of over ten pre-allocated funds requiring separate planning and programming efforts creates a heavy administrative burden for managing authorities. However, it reiterates von der Leyen’s idea that the future MFF would require “a plan for each country with key reforms and investments” focusing on joint priorities.
Nonetheless, expectations were raised by a leaked presentation produced within the Commission last October apparently as a brainstorming exercise (Natasha Foote has as usual an excellent summary of the leaked presentation on the ARC2020 website, this podcast by Euractiv provides a good flavour of what was envisaged, while Farm Europe also refers to key points in this document in a blog post here). The ARC2020 summary includes a critical slide from the leaked presentation which proposes the idea of a Single Fund which includes the main pre-allocated funds (Regional Fund, Cohesion Fund, Social Fund, Fisheries Fund, CAP funds and possibly others).
This idea of a Single Fund has created considerable angst among the agricultural policy community (see this recent Politico article by Bartosz Brzezinski and Gregorio Sorgi). In its conclusions responding to the report of the Strategic Dialogue in December 2024 and intended as political guidelines for the forthcoming legislative proposal, the AGRIFISH Council noted “that the CAP is fit for the policy-based distribution of agricultural funds, therefore URGES to maintain a separate and independent CAP containing two pillars with enhanced coherence.” The COMAGRI rapporteur’s draft report responding to the Vision paper also notes “whereas there is a need to maintain the two-pillar structure of the CAP, which ensures a balance between the market and production policy in Pillar I and the social and structural features of rural development in Pillar II”.
The Budget Commissioner Piotr Serafin gave an inkling in his recent speech on how the Commission’s thinking is evolving. He associated the idea of a single national plan per Member State linking key reforms with investments specifically to cohesion spending. The idea would be to increase the impact of investments financed by the EU budget. But, no doubt aware of the critical reaction from the regions to this proposal, he went on to say “What we should discuss, however, is what reforms, and at what level and who should bear consequences of no reforms”.
Then, specifically with reference to the proposed new Competitiveness Fund, he also raised the need to simplify the funding galaxy by merging some of them, but he was careful to add “only where it makes sense”. The funds identified as potential candidates for merging, including Horizon, EU4Health, the Digital Europe Programme, the Innovation Fund, the Programme for the Environment and Climate Action (LIFE), the European Defence Fund and others, are all funding instruments under direct management and not shared management.
This means that the Commission is responsible for all steps in a programme’s implementation: launching the calls for proposals, evaluating submitted proposals, signing grant agreements, monitoring project implementation, assessing the results, and making payments. No Member State agencies are involved. These direct management instruments make up about 20% of the MFF budget. (This Commission web page explains the different management modes for EU spending).
Serafin’s speech makes no reference to the CAP. This post takes up this issue of what MFF design would make sense where the CAP is concerned and how would this relate to the Single Fund proposal. I argue that, while merging the CAP with cohesion and other shared management funds in a Single Fund has obvious drawbacks, this should not preclude some careful reflection on the place of agricultural spending in a redesigned MFF.
The CAP in a Single Fund proposal
Let us look first at why the Commission brainstorming might have been attracted to merge shared management funds into a Single Fund in the light of the stated objectives of the redesign of the CAP identified in Table 1.
One objective is to simplify access to EU funds for beneficiaries. The Communication acknowledges that the many different spending programmes, each with different eligibility rules, application processes, co-financing rates and multiple entry points, are not easy for beneficiaries to navigate. It notes that “A true single point of entry for beneficiaries to all EU funding and advisory services in the next financial framework could facilitate access for beneficiaries”. But this duplication of sources of funds is not a burdensome issue for farmers and would not make a strong case for merging the CAP with cohesion and other funds.
A second objective recognises that the fragmentation of the financial landscape translates into too many programming documents, which are resource-intensive for administrations and lead to delays. Undoubtedly, there were significant start-up costs for national administrations with the introduction of national CAP Strategic Plans in the current programming period. But it is difficult to see why merging CAP programming into the programming of a Single Fund would dramatically reduce the workload of agriculture ministries, which would still be required to draft the agricultural programming element for a Single Fund.
A third objective is to achieve a more flexible MFF where resources could be re-allocated when necessary to address urgent crises and unforeseen expenditure needs. Here the Communication notes that the EU budget differs from national budgets in that it is largely an investment budget subject to multiannual planning. An investment budget may have indicative spending amounts, but it does not involve future financial commitments to specific beneficiaries. This contrasts with much of the CAP budget where there is at least an implicit commitment to funding individual farmers over the life of the MFF.
It might be argued that this is an unreasonable inflexibility. Given support payments are renegotiated every seven years, there is no inherent reason why this renegotiation should not occur, say, three years into a programming period if other urgent expenditure needs appear. But getting this flexibility does not appear to require merging the CAP into a Single Fund. The main barrier here is the inflexibility of the headings set out in the MFF itself (these are the limits per main area of activity (headings and sub-headings) set at the beginning of the MFF period and which constrain the transfer of resources).
One unspoken consequence of creating a Single Fund and requiring Member States to prepare a national plan and programme expenditure against national priorities and targets is that, to a greater extent than at present, Agriculture Ministers would have to fight their corner with other national spending ministries to hold on to the agriculture budget. One does not have to be a total cynic to suggest that this potential consequence may be one reason why the AGRIFISH Council of Ministers opposes the proposal.
This could have positive consequences. The problem with the pre-allocation of CAP funds to national agriculture ministries at present is that much of it is effectively free money (co-financed expenditure under Pillar 2 is somewhat different). There is no pressure on ministers to justify how they propose to make use of the money. Thus we see the continuation of passive income transfers to farmers who perceive this as ‘their money’ because to try to make more ambitious use of the funding will simply upset their farmer clients. The CAP strategic planning exercise must meet a minimum threshold to gain the approval of the Commission, but it has no bearing on the amount of funds that a country will receive, this has already been decided in the MFF conclusions.
However, there would also be strong negative downsides. Because the agricultural budget in each country would now be determined by national intergovernmental negotiations, there would be a high likelihood that the resulting levels of direct payment support to farmers would also be very different across countries. This fear applies particularly to direct income support payments. If farmers in France perceive that Spanish farmers are receiving a higher level of support, there is a high risk that acceptance of free competition within the single market would be threatened.
There is greater acceptance of differences in payments for agri-environment-climate practices across countries. Farmers who enrol in these programmes will usually incur costs and the payments are limited by the requirement that they should not cover more than the costs incurred or income foregone by the farmers concerned (even if we recognise that these concepts are quite elastic and should be interpreted sufficiently flexibly to ensure the requisite uptake). But the risk to the single market if we ended up with large differences in the level of income payments per hectare as a result of 27 national plans is too great. Maintaining a level playing field requires maintaining a separate CAP budget, at least for direct income support payments, at EU level.
Another unspoken concern about merging CAP into a Single Fund is that the allocation criteria across member states would need to be decided. Cohesion and agricultural spending are roughly of equal size, but currently the criteria for distributing these funds between countries is very different. Without getting into the important details, one can summarise by noting that cohesion funding is linked to GDP per capita figures while the more important CAP Pillar 1 payments are distributed according to shares in utilised agricultural area (there is no objective basis for the distribution of CAP Pillar 2 payments which are heavily influenced by historic path dependencies). Even if a Single Fund combined these criteria in some way, there is a strong likelihood that there could be significant shifts in the net receipts situation of member states as a result. Such shifts could be avoided by using the implicit shares in the current MFF for the combined funds that might be merged in the Single Fund as the allocation criteria, but the absence of clear objective criteria would be very unsatisfactory when it came to deciding future allocations.
Yet another fear is that including the CAP within a Single Fund that would be subject to general conditionalities might risk disrupting direct payments to farmers for reasons that had nothing to do with them. An example might be the EU’s decision to withhold payments under the Recovery and Resilience Facility from Poland in the period 2022-2023 despite the fact that Poland’s National Recovery Plan was approved in June 2022. The EU took this decision because the then PiS government in Poland had introduced measures that increased political control over judges thus undermining judicial independence. This led to the triggering of the Rule of Law Conditionality Mechanism in December 2021 which allows the EU to freeze funds if rule-of-law breaches involve a direct risk to EU financial interests.
However, the EU froze RRF funds not under this Conditionality Mechanism but because the RRF legislation itself required member states ex anteto commit to milestones and targets on judicial independence and anti-corruption. Both CAP and most cohesion funding continued to be paid to Poland because the Rule of Law Conditionality Mechanism operates ex post. Payments can be suspended only if the rule-of-law breaches result in serious deficiencies directly risking EU money, which is a higher hurdle to prove than for RRF payments. As it happens, the revised Polish Recovery Plan includes very significant funding for Polish agriculture which was delayed because of the funding freeze, and there is a risk that Poland will not be able to spend this money before the deadline expires. CAP funding could also have been frozen if, at the time, the RRF and CAP funding had been merged into a Single Fund with the same ex ante conditionalities.
Taking these arguments together, we do not see a Single Fund as set out in the Commission brainstorming presentation as an appropriate model for the future CAP. This is largely because direct payments as income support transfers are not analogous to investment funds and it is not appropriate to treat them in the same way. As long as income support payments remain an important element of the CAP, they should be decided at EU level to minimise any risks to the single market. But this does not mean that the status quo is necessarily the preferred option. In the following section, we explore three different design models for how the CAP might be structured in the next MFF.
Possible future MFF design models for the CAP
Integration of EAFRD with the Competitiveness Fund. In all models, direct income transfer payments under the European Agricultural Guarantee Fund (EAGF – Pillar 1 of the CAP) would be left untouched as a stand-alone fund. In this model, the European Agricultural Fund for Rural Development (EAFRD – Pillar 2 of the CAP) would be merged with the Competitiveness Fund. Here we refer to the two CAP funds in principle, allowing (as argued later) that specific expenditure items currently undertaken in one or other fund should be switched to the other. While conceptually attractive, this option is a non-runner.
There are good reasons to reframe the EAFRD as a competitiveness fund – this clearly covers investment aids as well as rural development supports designed to improve agricultural and rural area competitiveness, respectively. But it could also apply to the ring-fenced agri-environment-climate expenditure designed to strengthen the resilience of the EU agricultural sector to future shocks through improved soil health, the conservation of biodiversity and pollinators, reduced emissions, while protecting water quality and quantity. Reframing in this way would also help to minimise the often-felt polarisation between economic and environmental objectives in the agricultural sector.
Unfortunately, this option is a non-runner for practical reasons. The Competitiveness Fund will group the various EU direct management programmes together. The legislator explicitly requires that most expenditure under the CAP Strategic Plans shall be implemented under shared management (Regulation (EU) 2021/2116) with exceptions for some minor EAGF expenditure concerning promotion of agricultural products, the conservation of genetic resources, and farm accountancy and agricultural surveys. This is decided under secondary legislation and is not an obligation in the Treaty itself, so possibly could be altered. But practically, it is impossible to envisage that the Commission would take direct responsibility for administering, for example, applications for investment aids from individual farmers throughout the Union, or applications for enrolment in agri-environment-climate schemes.
Integration of EAFRD with cohesion spending and other shared management funds. This can be seen as the ‘little brother’ to the Single Fund idea as it excludes EAGF direct payments from inclusion in the requirement to prepare a single national plan with targets and performance indicators. Apart from the arguments outlined previously, there are good logical arguments in favour of this division. Although the Commission made a big deal out of the extension of strategic planning from rural development programming to cover all CAP expenditure including in Pillar 1 in the last CAP reform, the idea of applying performance targets to what are essentially transfer payments to individuals makes little sense.
This is confirmed by looking at the Result indicators used for the objective of supporting farm income which are purely administrative targets (for example, R.4 Share of agricultural area covered by income support and subject to conditionality). These indicators have nothing to do with any meaningful notion of performance and it is nonsense to try to shoehorn income transfer payments into a strategic planning framework. This will become increasingly evident as CAP direct payments become increasingly focused either on providing supplementary pension income to older farmers or income top ups for smaller holdings and lose any relevance they might have had to maintaining food production capabilities in Europe.
If direct income transfer payments to farmers are left with EAGF, this leaves open whether EAFRD funding should remain linked with it in an overall CAP fund or be merged with cohesion funding and other shared management funds in a new Single Fund. I assume that under the second option the relevant measures (investment aids, AECM funding, specific rural development measures) would continue to be managed by agriculture ministries as at present. The decision requires weighing up any potential performance benefits from putting these specific measures into a larger funding pot, as against the likely disruption from moving away from the CAP strategic planning approach trialled for the first time in the current programming period, and thus implementing a further change in administrative procedures.
The performance benefits of integrating EAFRD measures into a Single Fund do not seem very significant to me. I pointed out earlier that a possible benefit of including CAP measures in a Single Fund is that this would require weighing up the benefits of these measures against alternative uses of these funds at national level. This argument is of most relevance to Pillar 1 payments. In the case of EAFRD measures, member states must anyway come up with national co-financing which imposes a certain amount of fiscal discipline.
I don’t see any performance benefits from managing investment aid applications in a Single Fund rather than as part of a CAP fund. One area where some benefits might be observed is with specific rural development measures where place-based measures could benefit from synergies with regional policy measures implemented under cohesion policy. It is also possible that programming farm-level environmental payments as part of a Single Fund might improve the level of ambition of the specific measures adopted as part of an agri-environment-climate scheme, but I find it hard to see why this should be the outcome. Given the limited benefits foreseen, the argument for avoiding further administrative disruption and allowing more time for the CAP strategic planning process to bed down appears more convincing.
Merging the two CAP pillars. A more limited structural reform would be to consider merging the two CAP funds into one. The two-Pillar structure of the CAP was introduced with the Agenda 2000 reform, and the two separate funds EAGF and EAFRD to finance each Pillar were established in 2005 (Regulation (EC) No 1290/2005). Each fund finances specific areas of the CAP. Some principal differences in the management of the two funds include the following:
Expenditure under EAFRD was programmed against specific objectives whereas this was not the case for EAGF expenditure on direct payments. This has now changed with the CAP Strategic Plans Regulation (EU) 2021/2115 which purported to extend strategic planning to EAGF expenditure as well. I argue above that this is more notional than tangible when it comes to the direct income support payments, but there is no longer a difference in principle on this criterion.
EU expenditure under EAFRD only partially finances rural development interventions under shared management, with MSs required to make a national co-financing contribution. EAGF expenditure is fully funded from the EU budget.
The EAGF operates on an annual basis and commitments to MSs must be spent within that year. The EAFRD operates on a multi-annual basis where unspent commitments in one year can be carried forward to later years, within rules established in the CAP regulation.
EAGF expenditure that is recovered where the expenditure is not in conformity with Union legislation is paid back to the Fund and becomes assigned revenue in the EU budget. In the case of the EAFRD, sums recovered or cancelled following irregularities remain available to the approved rural development programmes of the Member State concerned.
If the two-Pillar structure of the CAP is retained, and given the changes introduced by the new delivery model, in particular the extension of a programming approach to both Pillars, the question arises if the two-Pillar structure continues to serve a purpose. Member states already have the possibility to modulate the pre-allocated amounts they receive between the two Pillars, within limits laid down in the legislation. Also, the introduction of eco-schemes in Pillar 1 financed from EAGF with the same objectives as AECMs in Pillar 2 financed by EAFRD further blurs the distinctiveness of the two Pillars. Options to support young farmers are also present in both Pillars, while support for areas with natural constraints could be provided under both Pillars in the 2014-2022 CAP. These overlaps suggest there could be a case to merge the two Pillars. An issue raised by any such merger would be whether to extend the co-financing principle to direct payments, but this is not an essential element as an EU co-financing rate of 100% could be established for these payments under a unified structure.
Even if convincing financial management reasons to maintain the two-Pillar structure exist, the parallel pursuit of environmental, climate and social objectives through different interventions in Pillar 1 and Pillar 2 complicates their programming. The introduction of eco-schemes in Pillar 1 by Commissioner Hogan was primarily an exercise in political economy. He wanted to increase the environmental ambition of the CAP (partly as an argument to protect the level of CAP spending), but recognised there would not be political support to transfer resources from Pillar 1 to increase the ceilings for Pillar 2 in the MFF negotiations. The fudge was to introduce the idea of voluntary eco-schemes in Pillar 1 to fund in principle the same practices as could be funded by voluntary AECMs in Pillar 2. This allowed an increase in CAP environmental spending without disturbing the traditional relationship between the Pillar 1 and Pillar 2 ceilings in the MFF.
But having two schemes with the same objectives but with different financial management rules complicates administrative programming. Also, the need to limit eco-schemes to annual schemes to fit with the Pillar 1 structure greatly reduces their environmental effectiveness, given that it takes time to achieve the desired environmental outcomes. Probably the easiest way to address these issues would be a mandatory requirement in the CAP legislation to transfer the ring-fenced allocation for eco-schemes to Pillar 2 to be managed as AECMs when countries prepare their CAP Strategic Plans. As long as Pillar 1 direct payments do not require national co-financing, there should be no obligation for national co-financing of the transferred amounts.
Given there are some differences between the two schemes, some reformulation of the rules regarding AECMs would be required to accommodate the additional flexibilities now possible under eco-schemes (e.g. the possibility to make annual payments where these can be justified). It would be difficult to transfer the top-up payment option now available under eco-schemes to an AECM framework, but the new rules permitting AECM payment levels to be set in relation to the target enrolment to be achieved make that option unnecessary.
New funds – Nature and Just Transition Funds. Proposals have also been made for new funds supporting farmers but outside the CAP, most notably in the report of the Strategic Dialogue on the Future of Agriculture. This report called for “the establishment of a well-resourced nature restoration fund (outside of the CAP) to support farmers and other land managers to restore and manage natural habitats at the landscape level”.
The proposal for a dedicated Nature Restoration Fund had been included as an amendment to the Commission’s draft Nature Restoration Law proposal in the draft report prepared by the Environment Committee’s rapporteur César Luena, S&D. This did not survive opposition from EPP lawmakers. However, in the final legislation, the Commission is required to present a report within 12 months from the date of entry into force of the Law identifying any implementation gaps, which should include, where appropriate, financial measures such as the establishment of dedicated funding. An important marker was set in the legislation that the preparation of national restoration plans should not imply an obligation for Member States to re-programme any money intended for agricultural or fisheries funding under the MFF to implement the Nature Restoration Law (though presumably they could decide to do so if they saw good reasons).
The proposal for a dedicated Nature Restoration Fund has also been supported by several environmental NGOs. One 2024 NGO proposal called for a Fund of between €15 and €25 billion annually to ensure effective implementation of the Nature Restoration Law and Natura 2000. The Fund would be managed under shared management with Member States and accessible to a broad range of stakeholders, including local and regional authorities, associations, and NGOs. The report of a workshop hosted by IEEP in 2023 examined some of the barriers and opportunities involved in creating a stand-alone Nature Restoration Fund in the next MFF.
The Strategic Dialogue report also recommended a temporary Agrifood Just Transition Fund (AJTF) to provide one-off investment support as well as support for capacity building to farmers and other food system actors for their sustainability transition. The EU already has a Just Transition Fund but it is not oriented towards agriculture. Based on voluntary buy-in and a business plan, the proposed Fund would offer financial assistance for farm transformation, access to new equipment, support for new businesses in rural areas, voluntary buy-out schemes, and up-and reskilling programmes to transition to alternative production systems. It would have a particular focus on areas of high concentration of livestock where destocking solutions could be financed using the Fund. A recent IEEP paper explores some of the issues that might be involved in creating such a fund.
The Commission’s Vision for Agriculture and Food steered clear of making any proposals on funding, apart from highlighting that work has started to draw in private funding for nature and climate protection.
A main motivation for proposing the creation of new funds is to avoid the inevitable political opposition to diverting existing CAP funds for these purposes (as underlined by the amendment to the Nature Restoration Law cited above). A second objective is that creating dedicated funds with a specific mandate to support nature restoration or a just transition, and possibly with a wider governance structure than traditional CAP funding instruments, would lead to greater ambition in the way the money is spent.
Unfortunately, both objectives fly in the face of current MFF realpolitik. Despite the merits of the case for additional funding for these purposes, the likelihood of squeezing additional resources out of the EU budget in the current climate appears remote. The proposal to create new and additional funds also runs counter to the Commission’s expressed desire to reduce the number of funds.
Currently, both the European Regional Development Fund and the Cohesion Fund have specific objectives “Enhancing protection and preservation of nature, biodiversity and green infrastructure, including in urban areas, and reducing all forms of pollution” and “Promoting climate change adaptation and disaster risk prevention and resilience, taking into account ecosystem-based approaches.” Member States must allocate 30% of ERDF funding to climate action (including biodiversity-linked approaches) while at least 37% of Cohesion Fund allocations must support climate objectives (including biodiversity).
There would thus be scope to programme both nature restoration and just transition funding within a Single Fund model where the AECM, eco-scheme and specific rural development spending would be merged with other shared management funds, leaving the CAP budget consisting of the remaining elements of current CAP support. Whether this would lead to a potential improvement in the effectiveness of spending in these areas is an open question. But at a minimum it would require that the funding currently allocated to these areas in the CAP would be moved to the new Single Fund. If only the responsibility was shifted but not the funding, the most likely outcome would be that the CAP would revert to a pure income transfer instrument. The argument would be used that there was no longer any need to make provision for environmental and climate objectives as these would now be the responsibility of the Single Fund. This is exactly the opposite outcome to what the proponents of these two new Funds intended.
Conclusions
In this post, I review various options for the design of the MFF structure and the role of the CAP. The Commission Communication outlining the road to the next MFF highlights the need for a fundamental rethink of the MFF structure with a view to simplification, linking budget allocations to performance, and ensuring greater flexibility. The Commission’s initial thinking pointed in the direction of merging all direct management programmes into an enhanced Competitiveness Fund, and all shared management programmes into a new Single Fund requiring Member states to prepare a single national plan linking key reforms with investments. More recent statements by the Budget Commissioner suggest that the Commission has pulled back from these far-reaching ideas even if the direction of travel remains the same.
Against that background, I reviewed various options for how the CAP might be included in the next MFF.
A common assumption behind all options is that CAP direct income support payments under the CAP are unique in the EU budget as they are transfer payments rather than investment support and it would not make sense to merge them with other Funds. As long as income support payments remain an important element of the CAP, they should be decided at EU level to minimise any risks to the single market. This does not preclude decisions on the size of this expenditure in the next MFF and whether or not these payments should be gradually phased down and out, although there is no indication there is an appetite for this at official level at this point in time.
Reframing the remaining CAP elements as targeting long-term competitiveness of the agricultural sector and merging it with the Competitiveness Fund is conceptually appealing but in practice a non-starter.
Merging the remaining CAP elements with other shared management funds in a new Single Fund would be feasible. Funds such as the Regional Development Fund and the Cohesion Fund already have specific objectives targeting the green transition which could be expanded to include agriculture. But I find it hard to identify real performance benefits from this option, and potential downside risks. One is the likely disruption from making another administrative change in the programming of CAP funds so soon after the introduction of CAP strategic planning. Another is the danger that the responsibility for environmental and climate action in farming would be shifted to the Single Fund but the resources would remain with the CAP budget.
These considerations point to maintaining the CAP budget as a stand-alone entity, but there is still the possibility of innovation in reforming its two-Pillar structure by combining the EAGF and EAFRD. The distinction between the two Funds no longer seems to have much meaning. If nonetheless there are convincing financial management reasons to maintain the two Funds, there would be clear benefits from appropriate streamlining. Aids for farmers in less favoured areas are clearly income support payments and should be moved to EAGF, while eco-scheme spending should be moved to the EAFRD and merged with AECM spending.
It appears from this analysis that there is limited scope to improve the effectiveness of CAP spending by redesigning the MFF, which reinforces the need for a greater focus on the CAP regulations themselves. I would be very happy to hear alternative views, so comments are welcome. Readers should also be aware that is possible to submit ideas and comments specifically on implementing shared management programmes under the MFF such as the CAP in the Commission’s public consultation open until 6 May 2025.
This post was written by Alan Matthews.
Photo: Martin Luther King park in Paris, signs of Spring (own photo).
Update 8 April 2025: Added quotation from the COMAGRI rapporteur’s draft report on the Commission’s Vision paper supporting two-pillar structure for the CAP.
In the early hours of Tuesday 21 July 2020, around 5.30 am, after four days and nights of negotiations, European Council leaders reached agreement on both the Next Generation EU recovery instrument and the Multi-annual Financial Framework (MFF) for the period 2021-2027. Reaching unanimous agreement among 27 leaders who entered the negotiations with widely different positions was an astounding political achievement. And although the inevitable compromises were accompanied by expressions of regret, it is extraordinary that every leader has expressed satisfaction with the final outcome.
There are many aspects of the European Council conclusions that warrant analysis: the agreement that the EU for the first time can issue debt to fund a stimulus package to address the catastrophic economic fall-out from the coronavirus pandemic; the future links between EU financial transfers to countries and the rule of law; the framework set out for additional own resources in the coming years; the continued relevance of budget rebates: and the extent to which the final outcome succeeded in ‘modernising’ the budget to reflect the EU’s new priorities.
In this post I concentrate on what the final outcome implies for the CAP budget in quantitative terms. The outcome is not what farmers had hoped for but nor is it as bad as they feared.
The following table shows how the proposed CAP budget evolved in successive iterations of the MFF negotiating box.
Source: Elaboration by Alan Matthews on basis of Massot and Negre (2018) for current MFF figures and Commission May 2018 proposal; European Parliament position from Resolution of 14 November 2018 on the Multiannual Financial Framework 2021-2027; Finland Presidency proposal from Council document 14518/1/19 5 December 2019; Michel first attempt figures from Council document 5846/20 14 Feb 2020; Commission reinforced MFF figures from Commission COM(2020) 442 ‘The EU budget powering the recovery plan for Europe’; Michel 2nd negotiating box from Council document 9415/20 10 July 2020; European Council conclusions EUCO 10/20 21 July 2020. MFF totals include the European Development Fund. Notes: * Contribution to EAFRD from Next Generation EU recovery instrument; ** €2.5 billion of the EAFRD total was held back as unallocated. The current price figure for the CAP EAGF spending is from EUCO 10/20, the EAFRD figure is the sum of the EAFRD MFF total provided on the Commission MFF webpage plus half of the current price Next Generation EU assigned revenue notified in COM(2020) 459, and the total CAP figure in current prices is the sum of these two.
The overall CAP budget
The MFF negotiations were kicked off by the Commission proposal in May 2018. The European Parliament responded with its own alternative MFF proposal in November 2018. The first negotiating box with figures was presented at the end of the Finnish Presidency in December 2019. This was followed by European Council President Michel’s ill-fated version of the negotiating box presented prior to the European Council meeting in February 2020.
The political landscape changed dramatically in March 2020 when the coronavirus pandemic took hold and Member States began to lock down their economies to slow its spread. As economic activity collapsed, the need for a European-level stimulus package became evident. On May 18, France and Germany proposed a €500 billion stimulus package to be funded by EU borrowing. On 27 May, the Commission followed up on this with a new budget proposal built on two legs: a €750 billion European Recovery Instrument (ERI) called Next Generation EU, and a proposal for a ‘reinforced MFF’ including ideas for new own resources. This formed the basis for President Michel’s second negotiating box circulated prior to the most recent European Council summit. Various changes were made to this during the four days of negotiations, resulting in the final European Council agreement.
The CAP budget figures swung to and fro like a pendulum during these successive iterations of the MFF budget. The Commission’s original proposal was for a CAP budget of €324.2 billion (all figures in constant 2018 prices). This was increased to €334.3 billion in the Finnish negotiating box and reduced to €329.3 billion in Michel’s first negotiating box. The CAP budget got a boost in the Commission’s reinforced MFF to €348.3 billion thanks mainly to an allocation of €15 billion from the European Recovery Instrument. This was cut back slightly to €348.2 billion in Michel’s second negotiating box, and finally landed at €343.9 billion in the European Council conclusions.
There has been a lot of focus on how the outcome compares to the allocation to the CAP in the current MFF period 2014-2020. As explained in this previous post, there are different ways to make this comparison. Two estimates of what is meant by ‘MFF spending 2014-2020’ are shown in Columns A and B in the previous table, respectively, with the Commission’s preferred approach being Column B. Column B refers to a baseline for commitments in the current MFF derived by taking commitments in the final year (2020) and multiplying by seven, rather than simply summing up commitments in each of the seven years as shown in Col. A. On either comparison, the outcome implies a reduction in constant 2018 prices, by either 10.2% relative to Column A (€38.9 billion) or 6.4% relative to Column B (€23.7 billion).
The table also shows the comparison in current prices. While the European Council conclusions provide the EAGF total in current prices, the EAFRD figure is the sum of two items. EAFRD spending in the MFF in current prices is based on this table provided on the Commission’s MFF webpage. The additional assigned revenue from the Next Generation EU recovery instrument is based on the current price figures in the Commission’s draft legislative proposal, but divided by two as the European Council reduced the Commission’s original EAFRD amount by half. In broad terms, the CAP budget has been maintained in nominal terms, and even slightly increased, compared to the 2014-2020 baseline.
It is also worth highlighting the difference between the European Council outcome and the Commission’s original MFF proposal in May 2018. Here there has been a clear increase amounting to almost €20 billion in constant 2018 prices.
Pillar 1 CAP budget
The European Council outcome represents a small increase over the EAGF Pillar 1 budget proposed by the Commission in May 2018. The breakdown of this increase between direct payments and market-related expenditure is shown in the following table. There has been a small increase in the amount allocated to direct payment envelopes, but a small decrease in the amount allocated to market-related expenditure.
Breakdown of Pillar 1 commitment appropriations, constant 2018 prices, million euro
Commission MFF proposal May 2018
EuCo MFF conclusions July 2020
Direct payments
235,022
239,916
Market-related expenditure
19,225
18,678
Total EAGF Pillar 1
254,247
258,594
Source: Direct payments figure for Commission May 2018 proposal from Table 4, Massot and Negre (2018), European Parliament Policy Department for Structural and Cohesion Policies. Direct payment figures for EuCo July 2020 MFF from EuCo MFF conclusions. Total EAGF figures from previous table. Market-related expenditure is derived as the difference.
The increase shown for direct payments implies that the relevant Annexes II and III in the CAP transition regulation and in the draft CAP Strategic Plans regulation which give the direct payment envelopes by Member State each year in current prices will be changed. The new allocations will also need to take into account the impact of the further move towards external convergence agreed in the European Council conclusions which will start in financial year 2022. Given the slight increase in the current price value of direct payments in the next MFF shown in the first table, there should be sufficient funds in the 2021 budget to fund the national envelopes and payments to farmers foreseen in the amended direct payments regulation No. 1307/2013 without recourse to the financial discipline mechanism.
There is a reduced allocation for market-related expenditure. Part of this is pre-allocated to Member States for sectoral interventions while part is used for measures such as promotion and school schemes. When the Commission increased the EAGF allocation by €4 billion in its reinforced MFF proposal compared to its original May 2018 proposal, it justified this by saying that this money is intended for “Strengthening the resilience of the agri-food and fisheries sectors and providing the necessary scope for crisis management”. In a previous post, I suggested that this additional funding could help to cover the €1 billion safety net promised by former Agriculture Commissioner Phil Hogan to address potential market disruption if the EU-Mercosur Free Trade Agreement enters into force. There is no specific mention of this safety net in the European Council conclusions and one must assume it has vanished into the far distance along with the Commissioner.
However, a relevant factor for agricultural crisis management not shown in the European Council conclusions is the margin left in Heading 3 in the MFF between committed expenditure and the Heading 3 ceiling. This margin can potentially be available for agricultural crisis management.
Further, the creation of a new special Brexit Adjustment Reserve worth €5 billion in constant 2018 prices (€5.3 billion in current prices if all of it is spent in 2021) to counter adverse consequences in Member States and sectors that will be worst affected should be highlighted. This was particularly pushed by Ireland whose agri-food sector stands to lose the most when the current Brexit transition period ends at the end of this year. The criteria by which this crisis reserve will be disbursed are not yet known and the Commission is invited to bring forward proposals by November 2020. However, a significant chunk of this money will likely be directed to farming in Ireland and in other Member States given its exposure to negative impacts.
Pillar 2 CAP budget
There have also been interesting dynamics behind the European Council conclusions on the EAFRD allocation for rural development. In the Commission’s original MFF proposal, the EAFRD budget was cut much more severely than the EAGF budget. Rural development programmes are co-financed by Member States. Some of this reduction in EAGF spending was compensated by a reduction in EU co-financing rates which would require Member States to put up more of their own money in order to draw down EU funds.
The Finnish Presidency restored some of the reduction by adding €10 billion to the EAFRD budget, but most of this increase was removed in Michel’s first negotiating box. The fortunes of rural development programmes were dramatically altered when the Commission proposed in its reinforced MFF to boost rural development spending by a further €15 billion from the Next Generation EU recovery fund. This level of funding was broadly retained in Michel’s second negotiating box, with one crucial qualification. Michel, following former European Council President von Rompuy’s playbook in 2013 for successful MFF summitry, decided to withhold €2.5 billion of EAGF funding as potential ‘sweeteners’ to win over waverers to a final deal. Finally, in the hectic four days of negotiations, this pot of ‘sweeteners’ was further increased. By Saturday evening, it had been increased to €4.6 billion and by Tuesday morning a further €750 million had been found to increase the pot to €5.35 billion shared between 15 countries.
According to the European Council conclusions, this money is intended for Member States facing particular structural challenges in their agriculture sector or which have invested heavily in Pillar II expenditure or which need to transfer higher amounts to Pillar I so as to increase the degree of convergence. In the light of the last criterion, the next table shows the countries benefiting from ‘sweeteners’ ranked according to their direct payment per hectare in 2017.
While a range of criteria are mentioned as contributing to the justification for these ‘sweeteners’, there is a slight bunching at the top of the table. These are the countries that expect to lose out from further external convergence of Pillar 1 payments. France emerges as the clear winner with an extra allocation of €1.6 billion over the MFF period. Compensating these countries through higher rural development allocations may have been an implicit objective in the allocation of ‘sweeteners’. However, the ‘base’ amount allocated to the EAGF budget before sweeteners and before the ERI injection of €7,500 million is still higher than the original EAFRD allocation in the Commission’s May 2018 proposal. The latter formed the basis for Member State individual rural development envelopes in the draft CAP Strategic Plan Regulation. So all Member States will see a small rise in their national envelopes compared to the figures in that draft Regulation, with somewhat bigger increases for the 15 beneficiaries of President Michel’s largesse. There will also be further additions when the allocations from the ERI injection are known.
Pillar 2 co-financing
Another important change in the Pillar 2 arrangements are the EU co-financing rates. The Commission’s May 2018 MFF outline proposed to lower co-financing rates across the board (except for agri-environment-climate measures, see following table). This would mean that Member States and regions would be required to put up more of their own money in order to draw down EAFRD funds. The argument in favour of this was that it would help to offset some of the proposed reduction in the EAFRD budget and increase overall rural development funding. The argument against was that, for some Member States and regions, budget constraints could make it difficult to find the additional national co-financing and might mean that they would be unable to draw down all the EU funds to which they were entitled.
The European Council conclusions altered the Commission’s proposal in important ways although they maintain the fundamental approach. The maximum EAFRD contribution rate is reduced to 60% of eligible public expenditure in transition regions and to 43% in developed regions. However, the rate is maintained at 85% for the less developed regions. Furthermore, the higher rate of 80% is maintained for agri-environment-climate expenditure, giving Member States and regions an incentive to prioritise spending in this area if they wish to minimise their own budget contribution. The overall outcome will be to attract additional national financing for EAFRD-funded interventions in the national CAP Strategic Plans, though the precise magnitude of this additional funding will not be known until these Plans are finally approved.
Conclusions
This post examines what the historic European Council conclusions on the Next Generation EU fund and the MFF 2021-2027 agreed earlier this week imply for agricultural spending in the coming years.
The farm unions and their political representatives in COMAGRI in the European Parliament have argued that the greater environmental and climate ambition envisaged in the CAP post 2020, and the goals for the green transition set out in the Farm to Fork and Biodiversity Strategies, require additional financing. They have called for the CAP budget to be maintained in constant prices relative to the 2014-2020 MFF period. As the first table in this post shows, this has not happened.
Depending on whether the comparison is made with the overall volume of resources allocated to the CAP in 2014-2020 (Column A) or the imputed volume derived from the 2020 calendar year allocation multiplied by 7 (Column B), there is a reduction of either €39 billion or €24 billion in constant prices (either 10% or 6%).
However, the European Council outcome maintains the CAP budget in current prices, or even slightly increases it, compared to 2014-2020 expenditure. It also represents a significant increase of almost €20 billion in constant prices compared to the Commission’s original proposal in May 2018. Furthermore, overall CAP budget expenditure includes national expenditure on rural development programmes. Additional national expenditure will be generated by the average reduction in EU co-financing rates.
Indeed, there will be pressure on national governments to further top-up rural development spending as is possible under EU state aid rules, as evidenced by this reaction from the Irish Farmers’ Association to the budget deal. The importance of national spending has been underlined in the responses to the COVID-19 crisis. In any case, as I argued in a previous post, constant price figures (converted to current prices using a fixed deflator of 2% per annum) are not necessarily a good guide to future expenditure in real (deflated) terms if the actual rate of inflation over the coming period is less than 2%.
As well as these quantitative elements, the European Council conclusions cover other CAP elements, including external convergence, capping, the agricultural reserve, flexibility to transfer resources between Pillars, and climate mainstreaming, which we will return to in another post.
The European Council conclusions are not yet a done deal. The consent of the European Parliament is needed as is approval by national parliaments (for the Own Resources Decision). The Parliament’s initial reaction welcomed the agreement on the European Recovery Instrument but found it unacceptable that the long-term budget has been cut. The Council will now finalise its mandate to enter negotiations with Parliament while the Parliament will also need to agree its position before starting negotiations with the German Presidency of the Council as soon as possible.
This post was written by Alan Matthews.
Update 22 July 2020. An explanation of Columns A and B in the first table has been added.
Update 24 July 2020. The text has been corrected to point out that it is not likely the financial discipline mechanism will be used to reduce 2020 direct payment national envelopes.
Update 12 Sept 2020. The figures for the CAP budget in current prices have been updated with the Commission estimate for EAFRD spending communicated to COMAGRI on 7 September 2020 by Commissioner Wojciechowski and the text has been amended accordingly.
Update 8 October 2020. The figures for the CAP budget in current prices were again revised taking account of information published on the Commission’s MFF webpage on 28 September giving EAFRD spending in the MFF in current prices.
There is increasing focus on how the coronavirus pandemic is
likely to affect agricultural markets, food supply chains and farm incomes (for
example, the series of IFPRI
Resources and Analyses on COVID-19). Panic buying of long-life staples – as
well as toilet roll, of course – led to temporary shortages on supermarket
shelves but supplies
were very quickly replenished.
In the medium-term, there are concerns that labour
shortages, logistical difficulties in transporting goods across borders and
falling export demand have the potential
to cause disruption. The various actors in the European food chain issued a
statement
on 19 March calling attention to likely operational difficulties and asking
the Commission to ensure that free movement of goods within the single market can
continue, including through managing ‘green lanes’ at borders, to allow the
food chain to function effectively.
The European Milk Board has called
on the Commission to start preparing the launch of a voluntary milk supply
reduction scheme as it expects processing capacity will not be sufficient to handle
the volume of milk farmers are able to produce.
Any or all of these initiatives would require policymakers
to respond. The question how policymaking can continue with stringent social
distancing restrictions in place has thus become more urgent. In this post, we
look not at the short-term responses to the potential for disruption but rather
at the implications of the COVID-19 pandemic for ongoing negotiations affecting
the future of the CAP. The most important of these is the need to agree on the
EU long-term budget, the Multi-annual Financial Framework (MFF), for the
2021-2017 period.
The 2021-2027 MFF
The extraordinary meeting of the European Council called to discuss the MFF in February failed to reach agreement with positions between the net contributor Member States and the net recipient Member States far apart. Farmers are aware that the CAP budget included as part of the package put on the table for that meeting represented a 3% reduction in nominal terms compared to CAP spending in the current MFF period.
Another meeting of the European Council should have taken
place later this week which might have provided another opportunity for
discussion. However, this European Council meeting has been postponed and will be replaced by a
videoconference where only responses to the coronavirus pandemic will be
discussed.
The MFF negotiations are important not only because they
establish the ceiling for CAP support in the medium term, they also determine
the value of payments that farmers will receive later this year. This is
because direct payments to farmers in 2020 are financed from the 2021 EU budget
due to the way the EU budget works.
When the MFF negotiations resume, they will take place in a
vastly different economic context. The fall in economic output this year could
rival that of the Great Financial Recession in 2008, depending on how long the
economic lockdown continues.
Such a negative economic shock will require a major
injection of public funds to overcome. Already, we are seeing European
governments respond to the crisis with astronomical compensation packages for
businesses and workers. One estimate
is that countries such as Germany, the UK and Denmark have already announced stimulus
packages (or what some economists are calling shield packages) amounting to 15%
of their GDP. In the context of the enormous sums now being mobilised at very
short notice to minimise the adverse effects of the restrictions necessary to
address the pandemic, the amounts at stake in the MFF negotiations are puny.
Whether these compensation packages will encourage Member States to look more favourably on increased EU spending including the CAP budget, or whether they will constrain their ability to finance such spending, is not yet clear. It will depend, in part, on the depth and persistence of the economic collapse and on how farm incomes are affected relative to other workers in the economy including the self-employed.
There is still time to reach an MFF agreement before the end
of this year but Member States may be reluctant to resume serious negotiations
until the economic fallout from the coronavirus pandemic is clearer.
If no agreement is reached, the EU Treaties provide that there
is an automatic and temporary extension of the ceilings in the last year of the
current MFF. Paradoxically, this would result in a significantly higher MFF
volume (around 1.15% of EU GNI) compared to the 1.11% proposed by the
Commission and the 1.074% proposed by the European Council President prior to its
February 2020 meeting.
However, as the MFF co-rapporteurs in the European
Parliament’s Budget Committee have pointed out in a draft
own-initiative resolution, having money available to spend does not help if
there is no legal authority to use this money. Many expenditure programmes
contain expiry dates that have to be prolonged to avoid a shutdown of the
concerned programmes and to protect the beneficiaries. Their draft resolution
calls on the Commission to propose legislation by 15 June 2020 that would
extend the time limits laid down in the basic acts of all concerned expenditure
programmes and to update the relevant financial amounts on the basis of
technical prolongation of the 2020 MFF ceilings.
The CAP transition regulation
As it happens, such a transition regulation was already proposed by the Commission in October 2019 to cover the CAP. This was not because of the delays in the MFF at the time, but in the light of the slow pace of negotiations on the CAP reform package proposed by the Commission in 2018. This slow pace was due to disruptions caused by the Brexit negotiations, elections to the European Parliament in the middle of 2019, as well as the failure until now to agree a budget framework for the coming period. All of this meant that the deadline for submission of national CAP Strategic Plans for approval by the Commission by 1 January 2020 could not be met.
The idea behind the transition regulation is that existing rules would continue to apply for at least one more year within the framework of the budget ceiling given by the new MFF. Member States that have already used up their funds avaliable for the 2014-2020 period will be able to finance these extended programmes from the corresponding budget allocation for the year 2021. They will be expected to maintain at least the same overall environmental and climate ambition when prolonging their schemes. Member States that still have funds available are given the option to transfer their 2021 budget to the 2022-2027 period if they wish.
The Parliament’s AGRI Committee had intended to provide its opinion on this draft regulation in April with a vote scheduled in the whole Parliament in June which would allow negotiations to open with the Council of Agriculture Ministers. The position of the Council is not yet finalised and its working documents with proposed amendments are not available to the public. However, decisions should be made by mid-2020 to allow Member States to make the necessary adaptations at national level.
Many are of the view that it would make sense to extend the
transition regulation for a two-year period given this uncertainty. In the
COMAGRI rapporteur Elsi Katainen’s draft report, the Commission’s draft regulation
is amended to extend the transition period to two years if MFF conclusions for
the period 2021-2027 are not published in the Official Journal by the end of September.
I suspect this amendment will be supported by the Committee and by the Parliament
in plenary and will also find support in the Council. Given the delays and
difficulties in finalising the MFF, a two-year transition must now be the most
likely outcome.
The CAP budget for direct payments in 2020
The transition regulation also sets out the national
envelopes for Member States for 2021 for both direct payments and rural
development spending. Because the MFF was not concluded when the Commission prepared
the draft regulation, it entered figures based on the overall ceilings for
Pillar 1 and Pillar 2 spending contained in its own MFF proposal from May 2018.
While this proposal foresees a relatively small reduction in spending on Pillar
1 direct payments in nominal terms, it included a significant reduction in Pillar
2 spending on rural development.
The COMAGRI rapporteur argues that, if farmers should work to the same rules in 2020 as in 2019, they should also work for the same money. She has proposed that the national allocations included in the Annexes to the transition regulation should be calculated on the basis of the figures agreed for the MFF 2021-2027 or,
if not adopted in time, on the basis of extended 2020 ceilings in accordance
with the Treaty provisions.
In case this results in a sharp cut in Pillar 2 ceilings in
2021, the rapporteur suggests allowing Member States to increase their national
co-financing to allow rural development programmes to continue without any cuts
to farmers.
When discussing the roll-over arrangements for the MFF ceilings
in the event of no MFF agreement being concluded before the 2021 EU budget is
adopted, I highlighted that the 2020 ceilings for the various headings and
sub-headings, including the CAP, would automatically be carried forward to
2021. In principle, therefore, it would be possible to continue to make direct payments
to farmers at the same level in 2020 as in 2019.
Whether this would happen in practice would depend on the
outcome of the EU’s 2021 budget negotiations later this year, where decisions
in the Council are taken by qualified majority and the Parliament has equal
status as co-legislator. It could therefore be quite late into this year before
farmers know the value of their direct payments.
Farm to Fork Strategy
Another argument for a longer transition period is that it
would allow more time to absorb the implications of the Farm to Fork Strategy which
is the agri-food component of the European Green Deal and to integrate its
objectives into the CAP Strategic Plans.
The Strategy was originally expected to be announced this
week but this has now also been postponed by at least one month. It is expected
to contain high-level targets for reduced use of fertilisers, pesticides and
antibiotics, an expansion in organic farming while also highlighting the more
ambitious targets to reduce net greenhouse gas emissions and incentivising
carbon sequestration practices.
Finding a way to properly debate these potentially
far-reaching proposals if the social distancing measures to address the
coronavirus pandemic remain in place will be a challenge. At a purely banal
level, EU rules of procedure to allow decisions to be taken by videoconference
rather than requiring a quorum at physical meetings will be necessary.
Conclusions
In summary, policymaking in the coronavirus era will have to
adapt until population immunity is built up and a vaccine is available. A way will
be found to make farm direct payments in 2020 but the level of these payments
may not be known until much later this year.
The delays in decision-making mean that any new CAP rules under the CAP Strategic Plans will be postponed most likely now for two years. To the extent that the new CAP framework would have facilitated a greater emphasis on addressing urgent environmental and climate challenges, this delay is unfortunate.
These challenges do not simply disappear because of the coronavirus. This makes it all the more important to use the additional time as productively as possible to see how best to integrate the recommendations of the Farm to Fork Strategy into Member States’ CAP Strategic Plans. As the European Court of Auditors notes in its Opinion on the transition regulation: “This additional time should be used to address the climate and environmental challenges set out in the Green Deal, ensure robust governance of the future CAP and shore up its performance framework“. I agree totally.
This post was written by Alan Matthews.
Update 12 May 2020: The description of the options available to Member States with respect to their rural development programmes has been corrected.
In my previous post
I discussed the challenges facing European Council President Charles Michel as
he took over responsibility from the Finnish Presidency to prepare the draft
conclusions on the Multi-annual Financial Framework for the coming meeting of the
European Council on 20 February next.
The Finnish Presidency proposal had been attacked on all sides as unsatisfactory. Yet, in that previous post, I speculated that Mr Michel was unlikely to hear anything very different to what the Finnish Presidency had heard when charged with forwarding the ‘negotiating box with figures’ to the December 2019 meeting of the European Council. Thus, I did not expect Michel’s draft conclusions to be dramatically different to the figures in the Finnish Presidency’s December proposal.
On the other hand, I noted
that the new Commission’s flagship proposal for the European Green Deal had
been published after the Finnish Presidency had prepared its final draft of the
negotiating box, and I wondered if this might be sufficient to reframe the
conversation between the ‘frugal Five’ and net recipients on the overall size
of the EU budget.
It seems that I was correct in my first assumption and that the European Green Deal proposal has failed to move the dial where the MFF negotiations are concerned, based on a leaked draft of the European Council MFF conclusions uploaded by the Romanian multimedia website caleaeuropeana.ro (link here to the draft MFF conclusions). This is very closely based on the Finnish Presidency draft with the addition of €7.5 billion for the Just Transition Fund financed from Heading 3 (but not the CAP).
CAP figures in the Michel draft MFF
conclusions
For readers of this
blog, the main interest will be in what Michel has proposed for agricultural
spending. The table below updates the similar table in the previous blog post
by including an additional column to show Michel’s draft conclusions compared
to the spending in the current MFF, the Commission’s proposal, the Finnish
Presidency negotiating box last December, and the European Parliament’s
position.
Sources: Table in previous post and Council of the European Union Document 5824/20
The key takeaways are
the following:
There has been a very small upward adjustment in the overall size of the MFF (from 1.07% to 1.074% of EU27 GNI reflecting the addition of funding for the Just Transition Mechanism in Heading 3;
Despite the slightly larger overall MFF, the budget allocated to the CAP has been cut back compared to the Finnish Presidency proposal, although there is a slight increase (of around €5 billion over the coming seven years) compared to the Commission proposal in May last year;
The Finnish Presidency had increased the CAP budget as compared to the Commission proposal by adding a further €10 billion to rural development spending in Pillar 2 while maintaining Pillar 1 spending at the level proposed by the Commission. The Pillar 2 increase has been significantly cut back in the Michel proposal while there is now a small increase in the Pillar 1 budget, both compared to the Finnish proposal. The small increase in the overall CAP budget as compared to the Commission proposal is now divided equally (in absolute terms) between the two Pillars.
These small increases in both the EAGF and EAFRD funds in the Michel proposal will need to be distributed as national envelopes to Member States in the annexes to the CAP Strategic Plans Regulation. While the distribution key for EAGF envelopes will follow the external convergence rule agreed in the MFF conclusions, the distribution key for the additional EAFRD resources is not specified. This may give the Council President some leeway to offer ‘gifts’ if these are necessary to conclude a deal.
Unlike under the Commission proposal but similar to the Finnish Presidency proposal, agricultural spending would remain slightly greater than cohesion spending in the coming MFF.
There are further
interesting differences in the fine print of the Michel proposal compared to
the Finnish proposal, reflecting the political pressures on Michel in his
confessionals with Member State leaders.
First, on external convergence of direct payments, the text maintains the further partial convergence that all Member States with direct payments per hectare below 90% of the EU average will close 50% of the gap between their current average direct payments level and 90% of the EU average in six equal steps starting in 2022.
However, the Finnish
Presidency draft had held open the possibility that, as in the 2014-2020 MFF,
there would be a guarantee of some minimum level of direct payments per eligible
hectare by 2027. It was reported that this was a critical ‘red line’ for Poland
but it has been removed in the Michel draft.
The other main change concerns flexibility between Pillars. Whereas in the Commission proposal and in the Finnish Presidency drafts, Member States would be able to shift up to 15% of their direct payments envelopes under Pillar 1 to rural development programmes in Pillar 2, this percentage has now been increased to 20%.
The converse
arrangement whereby Member States could shift up to 15% of their EAFRD funds in
Pillar 2 to direct payments in Pillar 1 has also been increased to 20%. Furthermore,
in a gesture to those Member States that would no longer receive a guarantee of
a minimum payment per eligible hectare by 2027, the Michel draft would allow
this percentage to be increased up to 25% for Member States with direct
payments per hectare below 90% of the EU average.
There is a certain
rough justice in this proposal as I pointed out in
this post. Those Member States that now complain most strongly that they
are discriminated against due to receiving lower direct payments per hectare
ignore the deal made at accession that the EU deliberately skewed the transfer
of CAP funds towards Pillar 2. If these countries now seek to re-negotiate this
deal by pushing for external convergence in Pillar 1, the quid pro quo would be
some relative reduction in transfers received through Pillar 2. This is in
effect what the Michel proposal achieves.
The third major change is that EU co-financing rates for rural development support have been increased from 70% to 75% in outermost and less developed regions. The rates for other regions and minimum and maximum rates are left unchanged.
In the case of the two
other CAP measures covered in the draft MFF conclusions, the Michel paper
confirms that capping would begin at €100,000 per beneficiary solely for the
Basic Income Support for Sustainability and with Member States allowed, on a
voluntary basis, to subtract all labour-related costs. Similarly, the figure to
be transferred to the agricultural reserve is confirmed at €450 million in current prices.
Proposed changes to own resources
While the overall size
of the MFF and the distribution between spending priorities attract the most
attention, the draft MFF conclusions also make proposals with respect to new
resources. As the European Parliament, which must give its consent to the MFF,
has insisted on the need for new resources, the Michel proposals are worth highlighting.
While the Finnish proposal had left open that Member
States could retain a range of between 10-20% of traditional own resources
(mainly customs duties) as collection costs, the Michel proposal fixes this at
12.5%.
While the Finnish proposal had left open the possibility
that the VAT resource might be abolished, the Michel proposal comes down in
favour of using the Commission’s refined alternative method from January 2019.
Two new own resources would be introduced. The
first would be a national contribution calculated on the weight of non-recycled
plastic packaging waste with a call rate of €0.80 per kg with a mechanism to
avoid excessively regressive impact on national contributions.
The second would be any revenue generated by
the European Union Emissions Trading System that exceeds the average annual
revenue per Member State generated by allowances auctioned over the period 2016-2018.
This limitation to additional revenues contrasts with the Finnish proposal of a
uniform call rate of possibly [20%] on these revenues.
There is also a commitment in the Michel
proposal to assess possible proposals for additional new own resources in the period
2021-2027. Such new own resources may include a digital tax, aviation levy, or
a carbon border adjustment mechanism or a Financial Transaction Tax. These
proposals have all been previously considered and rejected, so we can interpret
this as a sop to the Parliament that its hopes for significant new own
resources are still alive.
Finally, while the Finnish Presidency proposal
had opted for an end to the current national rebates (corrections) from the end
of 2020, the Michel proposal recognises that lump-sum corrections on a degressive
basis will continue to be necessary in the period 2021-2027 to reduce the GNI-based
contributions of Denmark, Germany, the Netherlands, Austria and Sweden.
European Parliament position
Getting agreement
among Member States in the European Council is one thing; any MFF deal must
also receive the consent of the Parliament. The Parliament has set out its
position (reflected in the table above) in various resolutions. This position
was reiterated in a letter
from the leaders of the four main political groups (EPP, S&D, Renew Europe
and the Greens) to the European Council President earlier this week.
While the letter does
not explicitly refer to the Parliament’s demand for an MFF budget equal to 1.3%
of EU27 GNI, it does stress that the MFF must finance the new political agenda
and the strategic headlines ambitions of the Union including the European Green
Deal. It also states that the Parliament will not give its consent to the MFF
without an agreement on the reform of the EU’s own resources system, including
the introduction of a basket of new own resources from the very first day of
the entry into force of the next MFF. Whether the proposed plastics waste tax
and a share of ETS revenues will satisfy the Parliament remains to be seen.
Conclusions
While it may seem
unlikely that the differences between Member States will be bridged at the
European Council meeting on 20 February, it is clear that the movements of the
budget pendulum are homing in on a potential landing ground. It is unlikely
that any final agreement will be significantly different to what this leaked
draft conclusions contains, although some marginal adjustments in response to
national pressures are still possible.
The ‘friends of CAP’,
who did relatively well under the Finnish Presidency proposal, have lost some
ground in the past two months. Even though the Michel proposal is for a slightly
bigger MFF and cohesion funding is kept at the same level as under the Finnish
Presidency proposal, the CAP budget is reduced in favour of higher spending on
other priorities.
At the same time, the ‘friends
of CAP’ have succeeded in shifting the balance of CAP spending back in favour
of Pillar 1 direct payments and away from Pillar 2 rural development funding.
These two changes may not be unconnected.
This post was written by Alan Matthews
Update 15 Feb 2020: The post has been corrected to recognise that funding of €7.5 billion has been made available for the Just Transition Mechanism (Paragraph 96 in Heading 3). Also small corrections made to Cohesion and Other Priorities spending in the table.
Climate mainstreaming of the EU budget was introduced in the
Commission’s Multiannual Financial Framework (MFF) proposal for the period 2014-2020
which first put forward the idea that “the optimal achievement of objectives
in some policy areas – including climate action, environment, consumer policy,
health and fundamental rights – depends on the mainstreaming of priorities into
a range of instruments in other policy areas” (COM(2011)500).
The Commission advocated in particular that the EU budget could play an
important role in catalysing the specific investments needed to meet the EU’s
climate targets and to ensure climate resilience.
The policy
fiche on climate action in the Annex to the 2011 MFF proposal included the idea
that the proportion of EU budget spending contributing to the EU’s transition
to a low carbon and climate resilient society should be increased to at least
20%, subject to impact assessment evidence. This at least 20% target was endorsed
in the European
Council conclusions in February 2013 adopting the 2014-2020 MFF.
In making its more recent MFF proposal for the period 2021-2027 in May 2018, the Commission proposed, in line with the Paris Agreement and the commitment to the United Nations Sustainable Development Goals, to set a more ambitious goal for climate mainstreaming across all EU programmes, with a target of 25% of EU expenditure contributing to climate objectives. This target was endorsed in its European Green Deal Communication as a contribution to the overall increase in annual investment (estimated at €260 billion per annum or 1.5% of EU GDP) required to achieve the EU’s current energy and climate targets.
Spending under the Common Agricultural Policy (CAP) is expected to make up a substantial share of the overall EU budget contribution to the Green Deal, between 40-45% of the total. This post investigates the plausibility of this figure. It argues that the Commission’s methodology set out in the draft CAP Strategic Plan Regulation to assess the climate relevance of CAP expenditure in the 2021-2027 period is not appropriate and likely exaggerates the climate contribution of this expenditure. Given the important role of CAP spending in the expected EU budget contribution to mobilising investment of €1 trillion over the next decade, this issue needs to be addressed by amendments to the draft Regulation.
We proceed in three stages. First, the way the Commission
assesses the climate relevance of CAP spending in the current MFF 2014-2020 is
explained. Second, the proposed change in the draft Strategic Plan Regulation
is described. Finally, some suggestions for possible amendments to improve the
situation in the future CAP are put forward.
CAP climate-related expenditure 2014-2020
For the tracking of climate-related expenditure, the
Commission took over an existing OECD methodology called ‘Rio markers’ that the
OECD had developed to track climate-related development assistance expenditure.
This called for the use of three categories: climate related only (100%); significantly
climate related (40%); and not climate related (0%) but did not exclude the use
of more precise methodologies in policy areas where these are available.
The climate tracking is done using EU climate markers, which adapted the OECD’s development assistance tracking ‘Rio markers’ to provide for quantified financial data. EU climate markers reflect the specificities of each policy area, and assign three categories of weighting to activities on the basis of whether the support makes a significant (100%), a moderate (40%) or insignificant (0%) contribution towards climate change objectives. At the same time, the tracking methodology has also reflected the specificities of policy areas.
Climate markers in EAGF spending. The Commission assumes that, for European Agricultural Guarantee Fund (EAGF) expenditure, the practices supported by the greening payment and the cross-compliance required for direct payments both contribute to climate action, using the following climate markers:
Expenditure under the greening payment is divided
into three equal tiers, linked to the three compulsory farming practices. The tiers
receive the following climate markers, which take into account the estimated
climate contribution (both mitigation and adaptation) of the practices concerned.
Crop diversification tier: 0%
Ecological focus area tier: 40%
Permanent grassland tier: 100%
For the remaining 70% of direct payments (though
not including payments under the Small Farm Scheme where farmers are not
subject to cross-compliance), the Commission assumes that some of the legal
requirements and Good Agricultural and Environmental Condition (GAEC)
requirements have climate benefits. It applies a 40% marker to the 20% of these
payments potentially at risk to farmers from an initial failure to comply. This
leads to a 19.5% average marker for EAGF expenditure, calculated as follows:
Climate markers in EAFRD spending. In the case of the European Structural and Investment Funds, including the European Agricultural Fund for Rural Development (EAFRD), the detailed application of climate markers is set out in Commission Implementing Regulation 215/2014 in Article 2 and Annex II, as follows:
Support farm risk prevention and
management: 40%
Restoring, preserving and enhancing ecosystems
related to agriculture and forestry (Priority 4, all focus areas): 100%
Promoting resource efficiency and supporting the
shift towards a low-carbon and climate-resilient economy in the agriculture,
food and forestry sectors (Priority 5, all focus areas): 100%
Fostering local development in rural areas: 40%
On the basis of these climate markers, the Commission
estimates the amounts and percentages of the CAP budget that help to deliver
climate action shown in the following table. We will return to some of these
percentages later in this post. For the moment, note that around 28% of the CAP
budget in recent years is estimated to be climate-relevant using the climate
markers devised by the Commission and applied to the specifics of CAP
expenditure (the lower figure for 2014 is mainly due to the delay in
introducing the greening payment, so that only the cross-compliance
contribution for EAGF payments was included in that year).
Overall, the Commission has almost reached its target of 20% of the budget devoted to climate-relevant spending in the MFF period, with the CAP contributing almost half of this amount.
Critical comments of the European Court of Auditors
In 2016, the European Court of Auditors (ECA) reviewed
the Commission’s practice of tracking climate-related expenditure in the EU
budget. In its remarks on the EAGF climate markers, it accepted that the method
and climate markers associated with the greening payment fairly reflected the
climate-relatedness of the three farming practices. For the cross-compliance
element, it noted there was a lack of appropriate justification particularly
for the assumption that 20% of the direct payments had a significant
relationship to climate action and it recommended a more conservative
assumption.
The ECA was also critical of the Commission’s assumption
that all expenditure under Priority 5 ‘Protecting ecosystems’, which also
includes payments for areas under natural constraints, justified a climate marker
of 100%. For example, ANC payments are intended to prevent land abandonment
and, while the Court accepted they could help to prevent climate change, that
was not their primary objective and therefore a 40% marker would be justified. The Court developed an alternative matrix
where markers were applied at the measure level rather than by priority and
focus area. Using this alternative approach, it estimated that the Commission’s
estimate of EAFRD climate-related spending would be reduced by 42%.
The Commission responded that it believed its use of climate
markers was appropriate and did not lead to over-estimation of the
climate-relevance of CAP expenditure. Specifically on the Court’s recommendation
that EAFRD tracking should be carried out on a measure level rather than by
priority and focus area, it noted that the Court’s proposed approach of
applying different climate coefficients to different measures/operations within
specific focus areas and Union Priorities would increase the accuracy, but
would also lead to an increase of the administrative burden on national and
regional administrations.
CAP climate-related spending in the European Green Deal
As noted above, the Commission proposes to increase the share
of climate-related expenditure from 20% to 25% in the next MFF. This might seem
to be a relatively small increase, but the bulk of climate expenditure in the current
MFF is spent on CAP and cohesion funds. These programmes will be slightly
reduced in the next MFF, while increases will take place in areas such as
security and migration where it is harder to define climate elements. Against
this background, the Commission has proposed to increase the share of climate
expenditure in the CAP in the next MFF to 40% (compared to 28% share in
commitment appropriations in the last years of the current MFF, see table
above).
Thus, spending under the Common Agricultural Policy (CAP) is
expected to make up a substantial share of the overall EU budget contribution
to the Green Deal. Under its Sustainable
Europe Investment Plan published earlier this month, the Commission aims to
mobilise at least €1 trillion in current prices over the coming decade. This
amount is a simple extrapolation over 10 years of the Commission’s 2021-2027 MFF
proposal for the first seven years, thus implying investment of €700 billion
during the MFF programming period.
Of this, 25% will come from the EU budget earmarked for
climate action, for a total of €320
billion in the 2021-2027 MFF period. In fact, the Sustainable Europe
Investment Plan envisages an investment of €503 billion over 10 years from the
EU budget, or pro rata €352 billion over the MFF period. The difference, as far
as I can see, is made up by the EU budget contribution to the Just Transition
Mechanism (which is proposed as additional to the MFF budget proposal) plus
additional environmental expenditure of €39 billion over a ten-year period.
The total CAP budget is fixed at €365 billion in current prices in the Commission’s 2021-2027 MFF proposal, though this figure remains contested in the ongoing negotiations. If 40% of this amount is available to support climate-related objectives, this would contribute €146 billion of the anticipated €320 billion in the EU budget for climate action (46%) or 41% of the expected EU budget contribution to the investment to be mobilised for the Green Deal including the Just Transition Mechanism and environmental objectives. The first percentage figure, the CAP’s share of climate finance in the total EU budget, is very close to its share of the EU budget in the 2014-2020 MFF.
How robust are the climate markers proposed for the CAP budget?
The EU budget is expected to provide 50% of the total investment to be mobilised under the Sustainable Europe Investment Plan, and the CAP in turn is expected to make up around 41% of the EU budget contribution. But this depends on the assumption that 40% of CAP spending will itself be climate-relevant. How likely will this be the case?
This 40% commitment is not legally binding, but appears in the preamble to the draft Strategic Plan Regulation (Recital 52) which notes that “Actions under the CAP are expected to contribute 40% of the overall financial envelope of the CAP to climate objectives”. It will be one of the parameters used by the Commission in evaluating and approving draft Strategic Plans submitted by the Member States. Thus, one source of uncertainty is that the way Member States intend to programme CAP expenditure under their Strategic Plans is not yet known.
More important is that this commitment to higher climate-related
expenditure in the next CAP will be achieved by a sleight of hand. The
Commission proposes to significantly increase the climate markers applied to
agricultural spending and particularly direct payments without any clear
rationale.
On this occasion, all the climate markers and not just those
for EAFRD spending will be included in legislation (Article 87 of the draft
Strategic Plans Regulation).
40% for expenditure under the Basic Income
Support for Sustainability and the Complementary Income Support measures;
100% for expenditure on eco-schemes in Pillar 1;
100% for expenditure on interventions addressing
the three specific objectives contributing to climate change mitigation and
adaptation including sustainable energy; encouraging sustainable management of
natural resources such as water, soil and air; and protecting biodiversity and
ecosystems, in Pillar 2;
40% for expenditure for natural or other
area-specific constraints.
While the Commission has partly taken the criticism of the
European Court of Auditors into account by reducing the climate weighting of
payments for areas of natural constraints to 40%, it proposes to dramatically
increase the climate-relevance of direct payments justifying a weighting of 40%
by reference to enhanced conditionality. This increase is only partly countered
by the exclusion of coupled payments and income support for young farmers from
the calculation.
But the requirements for enhanced conditionality are, by and
large, mainly the combination of cross-compliance and the greening practices in
the current CAP to which the Commission assigned a climate weighting of 19.5%,
a percentage which the Court of Auditors had already criticised as too high.
There is no justification for increasing the weighting further from 19.5% to
40% except to allow Member States to massage the figures and make it look as
though they are doing more for climate than they actually are.
Needless to say, the European Court of Auditors repeats its criticism
in its Opinion
on the Commission’s CAP draft legislation:
The biggest contribution to the expenditure target is the weighting of 40% for basic income support. This estimate is based on the expected contribution from ‘conditionality’, the successor to cross-compliance and greening. We have already questioned the justification for the corresponding figure from the current period – 19.46%– and reported that it is not a prudent estimate. Hence, we find the estimated CAP contribution towards climate change objectives unrealistic. Overestimating the CAP contribution could lead to lower financial contributions for other policy areas, thus reducing the overall contribution of EU spending to climate change mitigation and adaptation. Instead of using the weighting of 40% for all direct payment support, a more reliable way to estimate the contribution would be to use this weighting only for direct payment support for areas where farmers actually apply practices to mitigate climate change (for example, protecting wetland and peatland).
Conclusions
The European Green Deal is this Commission’s defining
priority. As I previously argued in this post
discussing the Green Deal, achieving net zero emissions in the EU by 2050 will
cause significant economic dislocation. It will also require significant
additional investment in coming decades. Even if much of the necessary
investment must be undertaken by the private sector (stimulated and
incentivised by a rising price on carbon), the EU budget can contribute directly
to this investment through its own spending priorities as well as leveraging
additional private investment.
In its plans to mobilise €1 trillion over the next ten years
to help to finance the green transition, over 40% of the EU budget contribution
will consist of CAP spending. To make this happen, the Commission proposes that
40% of CAP expenditure should be climate-relevant. To assess climate relevance,
the Commission applies climate markers to specific items of CAP expenditure.
The previous analysis shows that the climate markers the Commission proposes to
use will significantly overstate the climate relevance of CAP expenditure, risking
a major loss of credibility in the financing of the European Green Deal as this
massaging of the figures becomes more widely known.
There are a number of ways in which the Commission’s
proposal must be improved, some of which are more radical and thus more difficult
to implement in the short-run (see also the suggestions in this report by
Ricardo Energy & Environment, IEEP and others on Climate
mainstreaming in the EU Budget: Preparing for the next MFF prepared for
DG CLIMA in 2017).
Where a measure is expected to have a climate impact, ideally, the expected impact should be specified and, where possible, quantified. Quantification is more relevant to measures that address mitigation rather than adaptation, though even here it can be difficult ex ante to assess likely mitigation impacts and even more difficult to measure whether these impacts have been achieved ex post. Nonetheless, Member States in preparing their own climate action plans will need to show how they intend to achieve the mitigation targets set out in their National Energy and Climate Plans. Quantifying the mitigation effect of individual CAP measures will be an important element in this.
Even if the Commission’s climate weightings (0%, 40% and 100%) are maintained, these should be applied at the most disaggregated level of interventions possible. Whether all measures intended to address specific objectives (d), (e) and (f) in Article 6 of the draft Strategic Plans Regulation actually warrant a climate marker of 100% should be examined.
The Commission has failed to provide any justification why the enhanced conditionality attached to the basic income support and redistributive payments would warrant a 40% climate marker. There is the purely formalistic argument that, because some of the conditions may help to lower emissions or improve resilience, a marker greater than 0% is warranted and the next step is 40%. If the Commission really wants to incentivise the vital next steps in the green transition in agriculture, the metrics are important and should reflect the real impact on the ground. It is hard to understand why payments to a maize farmer growing maize silage for animal feed using conventional chemicals and fertilisers are assumed to contribute to climate action with a coefficient of 40%.
One possible approach would be to try to quantify the climate impacts of the enhanced conditionality requirements for a sample of sites covering different farming systems, soil types and climate zones across the EU. For mitigation reductions, these could be valued at a specific cost of carbon (say, €35/tonne which might be increased over time in line with changes in the cost of allowances in the Emissions Trading Scheme). A more subjective approach would need to be taken to quantify the likely benefits of greater climate resilience. Measures that are part of legal requirements should be ignored as only actions that are incentivised by CAP payments are relevant. Aggregating up the values for the EU as a whole would give a total value of climate action that could then be compared to direct payments expenditure to derive an initial proportion.
Some discounting should be introduced to reflect the fact that the climate benefits of direct payments (as well as many agri-environment-climate measures) are only obtained in the year the payments are made and will require a continuing stream of payments year after year to be sustained. This is very different to a similar investment in, say, converting a coal-fired power plant to run on natural gas or biomass where the once-off investment leads to a permanent reduction in emissions. The Sustainable Europe Investment Plan calls for the mobilisation of €1 trillion in investments, but many (most?) of the changes incentivised by the CAP are not investments but (temporary) changes in management practices that might easily be reversed if the payments were to disappear.
Finally, consideration should be given in climate tracking to net off the impact of CAP payments that lead to negative climate impacts, whether these be coupled livestock payments or investment supports for unsustainable irrigation practices.
Addendum 29 Jan 2020. This quotation from a policy contribution by Grégory Claeys, Simone Tagliapietra and Georg Zachmann for the Bruegel think tank last year makes similar points.
….increasing the target [the share of climate-relevant expenditure in the EU budget] goes in the right direction, but for the EU budget to be significant in filling the green investment gap, it is also crucial to review how EU expenditures are accounted for as contributing to the fight against climate change. The current methodology tends to overestimate substantially the contribution of the EU budget, in particular of agricultural funds (European Court of Auditors, 2016). Each expenditure item is given a climate coefficient of 0 percent, 40 percent or 100 percent depending on its contribution to climate change mitigation or adaptation. This method has the advantage of being simple and pragmatic, but can be highly misleading: for instance, expenditure that leads to an increase in emissions does not have a negative coefficient for negative impact. A more demanding but much more accurate methodology that would try to estimate carbon content of each action would help make the EU budget genuinely greener.
Update 14 February 2020: Those interested in this topic will also find this briefing Keeping track of climate delivery in the CAPpublished on 12 February 2020 by a team of authors from the Institute for European Environmental Policy of interest.
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