Tag: cap reform

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

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

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

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

Agreement on the outstanding issues

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

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

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

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

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

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

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

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

Assessment of this CAP reform

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

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

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

But reform of agricultural policy is highly contested and bound to be a tortuous process. The new CAP has by and large kept to the market orientation established in previous reforms (even if the Liberal and Democrat political group in the Parliament will vote against the single CMO regulation because they view it as too protectionist). Some market management measures have been marginally enhanced (although the availability of budget funds for market intervention may be a more significant constraint). There appears to be greater scope for coupled payments, but they will be confined to sectors in certain difficulties and should only be granted to the extent necessary to maintain current levels of production.

It will be more difficult to justify the use of export subsidies. Sugar quotas will go in 2017 after milk quotas in 2015. Rural development policy puts more emphasis on encouraging collective action by farmers and on innovation, and a minimum of 30% of Pillar 2 resources should be devoted to climate change mitigation and adaptation, biodiversity, resource efficiency and soil, water and land management.

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

Habemus consilium rusticarum.

Picture credit: European Commission

Yesterday morning (Wednesday 27 June), in a final trilogue, the Irish Presidency reached a political agreement with the European Parliament negotiating team on remaining outstanding issues on the CAP reform dossiers. In the afternoon the deal was discussed in a relaxed COMAGRI meeting.
Although no formal vote was taken, Paolo de Castro, the COMAGRI chair, concluded that there was broader support among the Parliament’s political groups for the final outcome than there was for the vote on the negotiating mandate in March. The Presidency had secured a more flexible negotiating mandate at the June Agricultural Council meeting earlier in the week, so although there is as yet no formal reaction from agricultural ministers it seems clear this agreement will also be supported by the Council. The main points of the deal are summarised in this Commission press release.
To cap this success for the Presidency, there was the further announcement this morning of a political agreement between the three Presidencies (Council, Commission and Parliament) on the MFF. Details of this agreement are here. It builds on the political agreement reached by the Council Presidency and Parliament negotiators in the MFF trilogue this week discussed in this previous post. The main changes compared to that text are as follows:

• Increases in the unused payment amounts that can be carried forward to increase the ceilings in later years (the flexibility clause). There are no limits on the carry forward in the first four years, and the ceiling on the maximum carry forward in the final three years is increased to €26 billion with annual limits.
• Increased flexibility for member states on a voluntary basis to increase their allocations for the aid for most deprived persons scheme.
• An addition to the Commission Declaration on the mid-term budget review that “The Commission will also examine aligning its proposals for the next MFF with the political cycles of the Institutions”.
• Some wording on addressing outstanding liabilities in the 2013 budget as follows: “In the context of this agreement the Council commits to take a formal decision on the first tranche of DAB 2 no later than ECOFIN Council on 9 July 2013. The Council commits to take all necessary additional steps to ensure that the Union’s obligations for 2013 are fully honoured. On the basis of a proposal to be made by the Commission in early autumn on the basis of the latest updated estimates regarding payment appropriations, the Council commits to decide, without delay, on a further draft amending budget to avoid any shortfall in justified payment appropriations.”

On this basis, EP President Martin Schultz has announced that he will propose that the Parliament vote on this MFF deal in plenary next week.
The CAP review agreement

At the start of the Irish Presidency at the beginning of January, in looking at the complicated process of co-decision and the linkages with the multi-annual financial framework MFF dossier I concluded that CAP reform would not be completed under the Irish Presidency. In a formal sense, this was a correct prediction. The first reading agreement between the Parliament and the Council will not be completed until the autumn.
However, six months ago it was not clear to me how the co-decision process would work. I underestimated the importance of the informal trilogue process which takes place when the two institutions decide they want to reach a first reading agreement. But also important has been the hugely skilful handling of the dossier by the Irish Presidency and Irish Minister for Agriculture Simon Coveney and his staff, first in brokering a general position in the Council and subsequently negotiating the political agreement with the Parliament.
Deal not yet complete
Nonetheless, there remain some outstanding issues which could not be addressed in the CAP dossier trilogue because they are covered in the parallel MFF negotiations. These issues include the flexibility to transfer funds between direct payments and rural development, the allocation of national envelopes for direct payments (external convergence) and rural development, rates of co-financing in Pillar 2 rural development schemes, the question of capping and degressivity and possibly the crisis reserve, though the latter is not specifically mentioned in the Commission press release on the political agreement.
The Parliament’s position is that these questions should be decided by co-decision and it is looking for flexibility from the Council on these issues. The Irish Presidency during the Council meeting earlier in the week had proposed a ‘landing zone’ where the Council would accept a mandatory degressivity on direct payment amounts over €150,000 at a rate of 5% but strictly on the condition that all other MFF issues would be taken off the table by the Parliament. In the event, the political agreement excluded these MFF issues entirely, so these negotiations now revert to the Council.
There was no indication in the provisional MFF agreement between the Presidencies this morning how these MFF reserved issues in the CAP reform negotiations will be addressed (formally, they are part of the CAP regulations and not the MFF regulation). One possibility is that the European Council meeting currently meeting will be asked to approve the proposed Presidency landing zone compromise although it is not clear if this would be an acceptable outcome to the Parliament. Chairman Paolo de Castro avoided giving a direct answer to this question at the press conference following the COMAGRI meeting yesterday.
A CAP reform?

In terms of the agreement itself and what it means for future EU agricultural policy, although there are some positive features, overall it represents no more than some minor fine-tuning of the status quo CAP regulations in return for greater flexibility of implementation by member states and a considerable increase in administrative complexity. The reform does not lead to a decisive paradigm shift in favour of a ‘public money for public goods’ philosophy. It does not even take further steps along the trajectory of rebalancing CAP spending between Pillar 1 and Pillar 2 set out in the two Fischler reforms and the Health Check.
The bulk of the CAP budget will continue to be spent on land-linked payments under Pillar 1 with no obvious rationale other than that to remove them is opposed by the current beneficiaries. On the other hand, despite a reversion to giving member states greater flexibility to use coupled payments, the market orientation of the CAP has been broadly maintained and pressure to reintroduce greater market regulation has been resisted.
The introduction of the greening payment is a recognition that agricultural policy should encourage more sustainable farming practices, even if the actual consequences in terms of environmental improvement from the elements agreed are likely to be minimal. The environmental NGOs have expressed their frustration with the outcome (see the reactions from World Wildlife Fund, Friends of the Earth, the European Environmental Bureau, the Institute for European Environmental Policy and Birdlife). No environmental interests were represented in the trilogue process, so it is not surprising that the level of environmental ambition in this reform was set so low.
At the same time, the environmental NGOs were forced to play according to the Commission’s rules of the game. They ended up defending the Commission’s proposals to green the CAP through Pillar 1 despite their evident defects. Nonetheless, securing the principles of ‘no double funding’ and a mandatory minimum spending on agri-environment-climate issues in Pillar 2 were important achievements even if, again, they simply maintain the status quo and do not represent new steps towards a more sustainable agriculture.
Fairness and flexibility
The motivation for this CAP review was not reform but to legitimise and defend the continued transfer of almost 40% of the EU budget to agriculture. In this it succeeded to an exceptional degree given the pressures on public budgets in Europe during this period of economic crisis and the relatively favourable market environment for agricultural products.
However, describing the deal as a victory for the status quo does not mean that it was not contentious. The key isssues revolved around how much more farmers would be asked to do to secure these payments (greening) and how to make the budget ‘fairer’.
As already noted, farmers in general will not find the conditions required to qualify for the greening payment particularly onerous. Maintaining permanent grassland for livestock farmers and implementing crop diversification and ecological focus areas of at least 5% of the arable area of the holding for larger arable farms will require minimal changes in current farming practice on most farms. There will be a ‘greening equivalency’ system whereby farmers already following beneficial environmental practices can automatically qualify for the green payment without necessarily complying with these practices. The Commission review of the EFA experience in 2017 which will accompany its legislative proposal to increase the percentage to 7% will provide better evidence on how land use will be affected in practice.
This CAP reform was the first in which the redistribution of payments, both across countries and within countries, was explicitly on the agenda. The difficulties in securing agreement on the reshuffling of (largely) a fixed pot of payments within countries underline the even greater political difficulties which face proposals for more far-reaching reform of agricultural policy.
The approach to resolving both of these issues has been to grant member states much greater flexibility in how they implement greening and in how they redistribute payments; indeed, this flexibility extends also to other ‘optional’ or ‘voluntary’ measures included in the new package, such as whether to recouple payments or not, whether to shift funds between the Pillars and whether to introduce a small farm scheme.
Some object to this ‘a la carte’ approach to the CAP and worry about the potential for distortions in the single market if farmers in one country receive more support, or a different form of support, than farmers in another. However, it is probably an inevitable consequence of trying to implement a common policy in an increasingly heterogeneous Union and, if properly monitored to avoid distortions, it can be a positive step towards greater subsidiarity in implementing agricultural policy.
Final ratification yet to come

For both the CAP reform and MFF dossiers, what has been achieved are political agreements between the Council Presidency and the Parliament’s negotiators for which formal ratification by both bodies must now take place. Initial reactions from the parliamentary groups suggest there will be sufficient support for ratification of this morning’s MFF agreement in the Parliament next week (see reactions from the S&D, EPP, ALDE and the Greens). That then leaves the MFF reserved issues for decision somehow, following which the way is clear for agreement on the CAP legislative texts in the Parliament plenary and the Council and the process of implementation can begin.

Two important meetings as part of the process of agreeing a CAP reform took place earlier this week – the Agricultural Council on Monday and the Ecofin Council on Tuesday. The Agricultural Council meeting was notable for the success of the Irish Presidency in getting agreement on a compromise mandate on the Common Fisheries Policy reform after 36 hours of negotiations which it is hoped will be the basis for a political agreement with the Parliament before the end of the Irish Presidency in June.
We are not yet at the same point with the CAP reform dossier (see this recent update to the Irish Parliament by Simon Coveney, the Irish Minister representing the Council in the trilogue negotiations and this view from Mairead McGuinness, one of the shadow rapporteurs in the European Parliament). Both the Irish Presidency and the Agriculture Commissioner continue to make bullish pronouncements (as indeed they must) that an overall CAP package also acceptable to the European Parliament negotiators will be agreed at the next Agricultural Council in June. But is this more hope than reality?
The MFF issue

Before turning to the outstanding issues in the CAP negotiations we need to keep in mind that these negotiations are taking place in the context of the unresolved debate on the structure and funding of the EU’s long-term budget for 2014-2020. The Parliament had previously insisted that the two issues were inextricably linked, and that it would refuse to vote on CAP reform until the MFF budget agreement had been concluded.
However, it now seems that the Parliament’s CAP negotiators will be willing to reach a political agreement on CAP reform independent of the MFF outcome. It is now accepted that the consent process with the Parliament on the MFF will not change the CAP budget figures agreed in the European Council’s proposal last February. The Parliament’s negotiators are still trying to secure the release of the individual member state allocations for Pillar 2 rural development funding agreed as part of the European Council package, but even the continued suppression of these figures is not likely to be a stumbling block to a political agreement on the CAP regulations themselves.
However, progress on the MFF regulations may still influence the timing of the Parliament’s formal first reading vote on the reformed CAP if it decides to delay a vote on the new CAP regulations until after an MFF agreement. Here, the Ecofin Council agreement on the 2013 budget on Tuesday is important as it seems to postpone the likelihood of an MFF deal until after the end of October.
The 2013 budget

In a previous post, I discussed the four substantive questions remaining in the MFF negotiations. In addition, the Parliament has insisted as a threshold condition that additional unpaid liabilities from the 2012 and 2013 budgets should not be carried over to become a charge on the available funds in the 2014-2020 period.
I also highlighted that the trilogue negotiations had stalled because the Ecofin Council had refused to commit to approving the Commission’s draft 2013 amending budget which requested an additional €11.2 billion in payment appropriations to avoid this happening. An agreement between the three Presidents (Council, Parliament and Commission) in December 2012 when the 2013 budget was approved made provision for this amending budget.
The Parliament agreed on 6 May to restart the MFF trilogue negotiations following a meeting between the three partners in which the Council Presidency proposed to address the outstanding 2013 liabilities in two stages. It proposed to table a proposal for a first tranche for an amount of €7.3 billion, and to work with member states on a political commitment regarding the second tranche. The parties further agreed that the negotiations on the MFF for the 2014-2020 period would proceed in parallel with the negotiations on the draft amending budget for 2013.
Subsequently, the first MFF trilogue took place on 13 May in which the Council and the Parliament agreed both the scope and the calendar for the negotiations. The parties agreed that the negotiations will focus mainly on future flexibility of the EU budget, a revision clause, the future of the EU budget’s own resources and the unity of the EU budget.
The Ecofin Council last Tuesday reached a political agreement which supported the Irish Presidency compromise in the following terms:

Draft amending budget no. 2 for 2013 is about meeting outstanding payment needs in the 2013 EU budget. The Council agreed to provide EUR 7.3 billion in a first stage and to focus this amount on measures to support economic growth, create jobs and tackle unemployment, especially amount youth people.
The Council also adopted a statement confirming its willingness to take all necessary additional steps to ensure that the EU’s obligations are honoured in a second phase, when the Commission will have more information on implementation, the possibilities for redeployment and on budget revenues.
In a second statement the Council stressed the political nature of the agreement and declared to formally adopt its position on this draft amending budget at a later stage in parallel with the conclusion of the talks on the EU’s multiannual financial framework (MFF) for 2014-2020. Ministers stressed that nothing is agreed until everything is agreed.

The European Parliament’s Budget Committee must now take a view on these conclusions at its meeting tomorrow Thursday 16 May and decide if it is sufficiently water-tight to allow the MFF trilogue to proceed (the next meeting is scheduled for 28 May). Some initial reactions were negative, with Ivailo Kalfin (the Bulgarian MEP who is Vice-Chair of the Budgets Committee and one of the two rapporteurs on the MFF regulation) in this tweet refusing to accept the parallelism between the two processes and arguing that the 2013 additional funds are legally due in any case.

#ecofin agreed on part of DAB2/2013 only and made it conditional on the #EP conscent on #MFF.Ridiculous,these are funds legally due.A no go!

— Ivailo Kalfin (@IvailoKalfin) May 14, 2013

Even if the MFF trilogue gets the go-ahead tomorrow and a political agreement is reached by end-June, the Council’s decision to wait until the Commission comes forward with revised figures in October before committing to approve the remainder of the draft amending budget seems to suggest (if parallelism means what it says) that the MFF regulations will not be formally tabled for approval by Parliament until after that point in time.
This, in turn, may mean that the MFF sectoral legislation (including the revised CAP regulations) must also wait for first reading approval until after that point in time. The Commission has already accepted that the new rules for direct payments cannot come into force until 1 January 2015 and it has also proposed transitional rules for rural development programmes. However, a further delay in formal approval of the new CAP regulations is likely to further complicate the process of drawing up and approving member state rural development programmes.
CAP reform

While the political agreement on the fisheries reform was an undoubted political triumph for the Irish Presidency at last Monday’s Agricultural Council, the CAP reform debate was a curious affair. The Presidency made clear that it was not yet seeking a new mandate from the Council, but instead it sought feedback on three of the politically contentious items in the trilogue negotiations with the Commission and Parliament.
The issues it chose to focus on were the young farmers scheme, the small farmers scheme and the definition of an active farmer. According to Minister Coveney in the chair, the aim of the session was to narrow down the number of issues on which there needs to be a ‘political’ negotiation and compromise in order to get a whole package agreed in June.
While important, the differences on these three issues are not at the heart of this CAP reform. The decision to focus on these issues for the Council debate suggests that the Presidency did not want an open discussion on the more complex and central issues remaining – greening, internal convergence, flexibility between Pillars, sugar quotas, and the role of delegated and implementing acts – which might only have hardened positions and made an ultimate compromise more difficult rather than easier.
According to the Council conclusions (see also this statement released by Minister Coveney):

On the active farmer requirements, several delegations showed openness to a compromise solution consisting of a short mandatory ‘negative list’ to avoid farm payments being allocated to natural/legal persons with marginal agricultural activities (e.g. airports, sports facilities), with the possibility for member states to complete this list according to national needs. However some member states repeated their preference for a voluntary negative list. On the nature of both the young farmers’ scheme and the small farmers’ scheme, while member states generally reiterated their commitment to the position set out in the Council’s general approach, they showed openness to exploring compromise solutions, including on certain operational aspects of these schemes (in particular the maximum number of hectares eligible for the young farmers top-up and the maximum amount for farmers participating in the small farmers’ scheme).

The outlines of the Presidency compromises on these issues point to the possible solutions on other issues. The central theme of the Ciolos CAP reform is turning out not to be greening or a more level distribution of payments, but rather enhanced member state flexibility in policy design or what one observer has described as the ‘pick and mix’ approach.
We saw this already in the drafting of the Council’s mandate where a range of possible models was included from which member states could choose (for example, with respect to establishing eligible hectares for direct payments, on internal convergence, and on greening mechanisms). Additional flexibility is now proposed to address the divisions between Council and Parliament on the definition of active farmers.
Flexibility (or subsidiarity by another name) can be broadly positive, particularly where it allows policies to be better designed at national or regional levels to achieve better outcomes. The danger with flexibility is if it leads to distortions of competition between farmers in different countries, and thus puts at risk the great achievement of the single market in agricultural products.
Allowing member states to voluntarily recouple direct payments to production is an example of the more dangerous form of flexibility in the current proposals. Allowing member states to make up their own minds if throwing money at young farmers in a totally untargeted way and without conditions is the best way to achieve generational renewal in agriculture is surely a wise example of the use of flexibility.
Next steps

Following Monday’s Council meeting, discussions within the Council continue at official level in the Special Committee on Agriculture, and between the Council, Parliament and Commission in the trilogues. The Presidency has scheduled an informal Council for three days at the end of this month (26-28 May), to which the COMAGRI chair is also invited.
The Presidency will be hoping that most of the hard bargaining on where the Council is prepared to compromise with the Parliament on the outstanding political issues will be decided at this meeting, away from the direct glare of video lights and public sessions. Provided the Parliament feels that sufficient concessions to its positions have been made, this would then allow the Presidency to present new texts of the four CAP regulations at the final Agricultural Council under the Irish Presidency on 24-25 June. Ultimately, it only requires a qualified majority of member states to support the compromise position. These texts would then have to be approved by the Parliament, possibly at its July meeting, but if a linkage is made with the MFF agreement then approval could be delayed until the late autumn.
This is the most favourable scenario for the timing of an agreement on CAP reform. Its very tight, there are a lot of ‘ifs’, but it could be done. But even this favourable scenario would still be just the first step in the approval process which could last until the late autumn (note: these two concluding paragraphs slightly revised 16 May).