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IEG Policy

Reform of the Common Agricultural Policy

Proposals and prospects for 2021-27

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Contents

About the author

Chris Horseman is a freelance journalist and consultant with over 30 years of experience in professional publishing, and a deep knowledge of EU, UK and global agriculture and trade policy issues. A former Editorial Director with Informa Agribusiness Intelligence, Chris worked for a period of time at the European Commission before joining Informa. He has been monitoring European agricultural issues as a journalist and editor since

joining Agra Europe as Brussels Correspondent in 1987. He took up a senior editorial position in Agra’s UK office in 1991, and was Editorial Director between 2006 and 2017. His specialist areas include the Common Agricultural Policy (CAP), agricultural trade policy and the World Trade Organisation (WTO), and rural development policy.

Chris is a regular speaker and moderator at agricultural conferences and seminars, and has made numerous appearances on TV and radio news programmes.

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5 1. Reforming the CAP: An introduction

7 2. Tracing the CAP’s evolution: A half-century of change

11 3. The CAP in 2020-27: Some key policy themes

17 4. The new CAP and the EU budget

27 5. The new CAP and agri-food markets

30 6. The new CAP and the environment

32 7. The new CAP and Brexit

35 8. The US and the new Farm Bill

39 9. Stakeholder reactions to the new CAP

43 10. CAP reform comparison: 2015-20 vs 2021-27, sector-by-sector

IEG Policy | Reform of the Common Agricultural Policy / 5

1. Reforming the CAP: An introduction

It still accounts for more than 30% of the total EU budget – a remarkable figure given that the agriculture sector makes up barely 1.5% of European GDP.

It somehow purports to provide a unified agricultural and rural policy framework for a European Union which encompasses (at present) 28 member states, extending from the Atlantic to the borders of Russia, and from the Mediterranean to the Arctic Circle. It has achieved this largely by devolving the implementation of many of its territory-specific policies to national or, in some cases, regional level – but everything falls under a single European policy framework.

The CAP generates strong feelings on the part of both its supporters and its detractors. Its critics have accused the CAP of many failings over the years, ranging from charges that it distorts markets for

food and damages the livelihoods of smallholders in developing countries, to accusations that it subjects Europe’s farmers to a sometimes excessively complex regulatory regime, and that it encourages the environment degradation of Europe’s countryside.

Others, however, view the CAP as a vital guardian of the ‘European model of agriculture’ – a philosophy that puts the emphasis on healthy food and on family farms as the bedrock of European agricultural structure. And while the size of the EU agriculture budget is often criticised, there is little doubt that in the (complete) absence of CAP subsidies, hundreds of thousands of farms would go out of business.

The shape and size of the Common Agricultural Policy thus matters a great deal

The CAP generates strong feelings on the part of both its supporters and its detractors

In many ways, the Common Agricultural Policy (CAP) defines the European Union. It is Europe’s first truly common policy, with its roots in the very earliest days of the fledgling European Economic Community back in the 1950s and 1960s. It has changed a great deal since then, but even today it remains the EU’s most deeply integrated policy.


– not only to farmers, but also to the food and ancillary industries, to consumers, to taxpayers, and to the governments of the member states for whom it operates. And changes to the CAP matter a great deal as well.

CAP programmes are now closely linked with the EU’s multi-year budget cycles, meaning that a new budget framework leads quasi-automatically to new CAP regulations. And it is the imminent expiry of the current 2014-2020 financial framework which has prompted the latest policy review.

On June 1, 2018, the European Commission tabled formal proposals for an overhaul of the CAP from 2021 onward. These proposals, which build on an earlier “Communication” from November 2017, are examined in this Special Report from IEG Policy.

The proposals will bring changes to the framework in which agri-food markets operate, re-allocate billions of euros of taxpayers’ money between countries and sectors, change the rules of engagement for millions of farmers, bureaucrats and administrators Europe-wide, and aim to improve the environmental and ecological health of the European countryside. They are, in short, a big deal for all involved in European agriculture.

They also represent a very major legislative operation for the EU, involving the adoption of two brand new basic Regulations and the substantial modification of a further existing Regulation. In addition, they will subsequently necessitate the adoption of a significant volume of secondary implementing legislation.

Nor does the submission by the Commission of its reform proposals represent the end of the story – indeed, far from it. The Council of agriculture ministers, and the European Parliament, will each submit the proposals to exhaustive scrutiny, and the key players in each institution will spend months arguing between themselves over the shape and content of the proposed amendments, before finally reaching agreed positions. This will just be the starting point for a conciliation process under which the two institutions meet to thrash out a unified text, in a process that will take many more months to conclude.

The political and economic sub-plotsBut the CAP reform process amounts to much more than just the re-ordering of the rules governing agricultural support. A whole series of political and economic sub-plots give this process much broader significance.

For one thing, the Commission is acutely aware of the criticism to which the CAP has been subjected in recent years – that the policy is bureaucratic, opaque and fails to deliver on its promises. Such criticisms are hardly new, but the current Commission executive, under the impetus of its highly-politicised President Jean-Claude Juncker and his vice-President Frans Timmermans, has made much of the executive’s desire to deliver ‘better regulation’ for Europe. This has created a clear impetus for simpler, more efficient and more results-focused regulations to replace the ‘policy for policy’s sake’ philosophy which has plagued much of the EU, and the CAP especially, in the past. The new CAP will represent a rigorous test of whether such ambitions can move beyond mantras and soundbites, and actually translate into a material change in what the CAP is able to deliver.

The Commission is also aware of the fact that large parts of European agriculture are currently low on confidence, following the various traumas which have beset the sector in recent years. Market prices in many sectors have been highly volatile, making investment decisions difficult, and driving farmers to seek the security of whatever safety-nets are available. The political climate is not one in which the Commission could realistically advocate any kind of ‘lighter-touch’ policy under which farmers were simply given freedom to farm in whatever way they see fit. Sure enough, the various safety-nets are set to either remain in place or be further reinforced, to the frustration of those who would prefer to see a greater degree of market-orientation in the CAP.

Probably even more significant than the traumas of the past are the difficulties which, farmers believe, EU trade policy will create for the agriculture sector in the future.

The Commission has actively pursued a policy of negotiating and striking new trade deals over the past few years, many of which – notably those with Canada, Japan

and Mexico – will create beneficial new market openings for Europe’s farmers. But this ‘good news’ story is set to be balanced by a decidedly more mixed reception within the agriculture sector when the latest batch of proposed trade deals go through – especially those with the Latin American ‘Mercosur’ bloc (on which the parties are reportedly close to an agreement), and those with Australia and New Zealand (which have only just begun).

All three agreements will inevitably lead to significant improvements in the terms of access to the European market for the highly-competitive agricultural producers in those regions, and many farmers are extremely worried about what this increased competition will do to prices and markets. This is another reason why domestic support for farmers within the CAP will continue to be significant.

And overshadowing the CAP discussion – and almost every other aspect of the EU’s functioning – is Brexit. The UK’s decision to leave the EU as from March 29, 2019 will have a range of impacts on the CAP, but more significant than any other is the loss of the UK’s net budget contributions to the EU budget.

A key narrative in this CAP review process will therefore be how the CAP can do more with less – on the (highly probable) assumption that the governments of the other 27 EU member states will not be minded to increase their own budget contributions sufficiently to fill the gap left behind by the UK. It is already clear that cuts will be made; the question is where the axe will fall, and how deep the cuts will be.

This Special Report from IEG Policy will examine the proposals for CAP reform in close (but never painful) detail. It will examine the key issues which surround the debate, and offer some pointers for the future course of European agriculture as we enter the third decade of the 21st century.


Because the CAP remains one of the EU’s most expensive policies, and because the scope and ambition of EU agricultural policy are so closely linked with the available budgetary resources, it has now become expected that any given version of the CAP will have a ‘shelf-life’ which coincides with the EU’s Multiannual Financial Framework (MFF), or long-term budget. The link became evident de facto with the last set of reforms, agreed in 2013, which adapted the policy to the 2014-2020 MFF. Now the linkage is explicitly hardwired into the EU policy framework, with the plans for the 2021-2027 CAP being billed by the Commission as part of a suite of “sector-specific” legislation to enact the MFF for that seven-year period.

But even though the current policy changes are to some extent ‘programmed’ by the expiry of current regulations, they also mark a continuation of a long-term process of adapting the CAP to changing circumstances.

From its inception in the 1950s and 1960s until the mid-1980s, the CAP changed comparatively little. The policy was initially designed primarily to promote and stimulate agricultural production, as an explicit response to the shortages of the immediate post-war period, and as a way of cementing the Franco-German entente that was at the heart of Western European politics in the latter part of the twentieth century. Economically, the strategy was to secure food self-sufficiency for Europe;

2. Tracing the CAP’s evolution: A half- century of changeThe changes to the Common Agricultural Policy proposed by the European Commission on June 1, 2018 are the latest in what has become a regular series of tweaks (or in some cases, genuine reforms) to the shape of European agricultural policy. This will be the fifth legislative undertaking since the early 1990s to bear the title of ‘CAP reform’ – following previous exercises concluded in 1992, 1999, 2003 and 2013.

The current policy changes mark a continuation of a longterm process of adapting the CAP to changing circumstances


while politically, the CAP was widely viewed as a mechanism to help redistribute the wealth created by Germany’s post-war industrial revival to benefit the agrarian sectors of France and Italy.

But once Europe had achieved self-sufficiency – and then rapidly moved into surplus – it proved politically impossible to scale back the generous guaranteed support prices for agricultural commodities. Intervention purchasing occurred on a huge scale, and soon vast butter ‘mountains’ and wine ‘lakes’ had been created as surplus stockpiles became a major political issue. Memories of these food ‘mountains’ still persist today as icons of a former era of CAP profligacy.

The policy’s operation was plunged into crisis; the cost of purchasing and maintaining these surpluses stretched the budget of the EU (or the EEC as it was then) to its limits, and the total CAP budget tripled between 1981 and 1991.

Moreover, the surpluses fuelled a significant expansion in what were then heavily subsidised exports of EU agricultural products, much to the fury of the EU’s trading partners. The ‘subsidy war’ which erupted between the EU and US in the mid-1980s was the main reason for the launch of the international negotiations which ultimately led to the signing of the WTO Agreement on Agriculture in 1994.

It is also significant that the EU happened to be drowning in unsellable surplus food at precisely the point in time when Live Aid and other similar high-profile initiatives were drawing global attention to the millions who were starving in Africa. The poor publicity that this generated for the

CAP – plus the fact that the EU almost bankrupted itself in 1988 because of the spiralling cost of agricultural subsidies – prodded European governments out of their inertia and drove them to contemplate radical change.

The MacSharry reform, 1992The resulting reform was widely referred to as the ‘MacSharry reform’, after Irish agriculture Commissioner Ray MacSharry, who piloted the package through the Farm Council. This package, agreed in 1992, marked the birth of the modern-day CAP, introducing as it did the concept of direct payments to support farmers’ incomes – rather than the previously-preferred strategy of artificially propping up farmgate prices through market intervention.

The changes brought about by the MacSharry reforms were significant and far-reaching. For cereals, for example, the intervention (market support) price was reduced by 35% over three years, and area payments to cereal farmers were phased in as compensation for these price cuts. Headage payments were similarly introduced for beef cattle and for sheep, as market support levels were reduced.

These ‘compensatory payments’ provided the basis for the entitlements which farmers went on to inherit in the course of subsequent reforms. In economic reality, therefore, many farmers are today still being compensated for a cut in EU institutional prices made a quarter of a century ago.

The MacSharry reforms were however successful in ‘deflating’ Europe’s agricultural economy, by allowing the markets to climb gradually down from the artificially high EU-supported prices which they had previously attained – and in creating a more efficient form of income support for farmers. (It should be noted, however, that income support had never been explicitly identified as the purpose for these multi-billion Euro payments – until the latest 2018 reform proposals finally did precisely that.

They also had some success in scaling volumes of production back to levels which more closely matched effective consumer demand, in concert with controversial measures such as “set-aside” (a policy which operated from 1993 to 2007 and which required arable farmers to leave a

proportion of their land uncultivated), and milk quotas (which regulated milk output volumes between 1984 and 2015).

The Agenda 2000 reform, 1999The direction of policy was maintained and reinforced in 1999 with the so-called ‘Agenda 2000’ reform package, which was the first to be agreed in concert with a multiannual financing programme (running from 2000 to 2006).

Further reductions in the cereals intervention price effectively brought European grain prices into line with world market values, while the EU also created, with effect from 2000, its first integrated Rural Development policy – a part of the CAP which is now universally referred to as its “Pillar Two”.

By 2002, however, the forthcoming enlargement of the EU to the countries of Central and Eastern Europe was uppermost in policy-makers’ minds, along with what were then expected to be significant external commitments resulting from the Doha Round of WTO negotiations.

In the event, the latter process faded without a conclusion – but the EU did indeed admit a further 13 member states to its number, in three ‘waves’, with 10 new member states joining in 2004, followed by Romania and Bulgaria in 2007, and Croatia in 2013.

The perceived requirement to create a CAP that was fit for both eventualities led agriculture Commissioner Franz Fischler to push through a new policy framework that was to remain in place for the next decade.

The Fischler reform, 2003The Fischler reform of 2003 introduced for the first time the concept of ‘decoupled’ aid, whereby farmers received area payments regardless of the type of product they were producing – or even whether they were actively producing at all.

By creating the decoupled Single Farm Payment, the EU was able to classify the bulk of its domestic support to European farmers as ‘Green Box’ support in the WTO context, and thus shield it from the reductions which then seemed likely to ensue from the Doha Round negotiations. It also created a methodological framework for making area payments to

The MacSharry reform package, agreed in 1992, marked the birth of the modern- day CAP

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farmers who had not undergone cuts in support price in previous years – as was, of course, the case for all of the new member states.

The shift towards decoupling was criticised in some quarters as effectively devaluing farmers’ primary role as producers of food, and it was notable that when the options for continuing to make sector-specific ‘coupled aid’ payments to farmers were expanded from 2015 onwards, most member states took advantage of the opportunity to do so. But the decoupling policy was certainly successful in reducing pressures of supply in the extensive livestock sectors, in particular, and this contributed to generally higher market prices for these products.

But the gradual movement towards a more liberal European farm policy – confirmed in 2008 when EU agriculture ministers agreed to end milk quotas at the end of a seven-year preparation period – was challenged, and arguably halted, by the shock of the financial crisis of the late 2000s, and by the abrupt ending of the commodities boom which had prevailed during most of that decade.

The Ciolos reform, 2013By the time Fischler’s successor-but-one as Agriculture Commissioner, the Romanian Dacian Ciolos, took responsibility for shaping the 2014-2020 CAP, the core focus was on preserving as much as possible of the CAP’s structure via an explicit push to win more public legitimacy for some of the most widely-criticised aspects of the direct payments regime – thereby safeguarding continued financial support for the policy.

Steps were thus taken to partially correct the significant differences in aid payment rates per hectare, both within and between member states, via a process of internal and external ‘convergence’. At the same time, the common accusation that EU farm subsidies did nothing to help the environment was addressed by the introduction of ‘Greening’ – whereby 30% of each farmer’s annual subsidy was made dependent on compliance with rules and processes designed to enhance on-farm environmental health and biodiversity.

The ‘Greening’ policy came to define the Ciolos reforms – a technocrat’s solution to a complex problem which seemed to promise a great deal on paper, but ended up

creating a reservoir of resentment at the bureaucratic restrictions on farmers’ activities which it introduced.

These limitations on farmers’ freedom to farm were subsequently circumvented in large part by virtue of implementing rules which were generally designed with ease of compliance and implementation in mind, and which tended, in many cases, to offer the credits required for compliance to practices to which most farmers were already committed.

The net result, according to the still-partial ex-post evaluations of the policy which have been conducted thus far by academics and EU auditors, is a process which has delivered very little in the way of measurable environmental gain.

Setting the scene for the 2021-27 CAP All of the foregoing has set the scene for the further changes which are now to apply for the next version of the CAP in 2021-27.

As already noted in the previous section, European agriculture is recovering only slowly from the crisis of confidence which has beset the sector in recent years, encompassing price shocks resulting from Russia’s trade embargo in 2014 and the ensuing loss of a major export market, and a slump in the price of milk just at the moment when the lid came off production with the ending of quotas a year later.

Europe’s agri-food exports are at record high levels, as is its agri-food trade surplus – yet there is lingering concern in many sectors about future market prospects. Consumption of sugar is under threat as concerns over obesity and public health increase; meat and dairy producers face ever more vocal opposition from vegetarian and vegan lobbies; and cereal and oilseed producers fear that food crops may ultimately be supplanted by ‘new generation’ feedstocks as the key raw material for Europe’s biofuels industry.

And overshadowing everything is the knowledge that one of the EU’s largest member states – the UK – will be leaving the bloc in March 2019, thus depriving the EU of some €12 billion a year in net budget contributions. This loss of revenue will be one of the defining issues in the discussions which lie ahead on the EU budget, and on the policies on which it is spent.


3. The CAP in 2020-27: Some key policy themes

It would be wrong to claim that there are no new ideas or fresh thinking. The biggest changes are conceptual and administrative

The current set of proposals for adjustments to the CAP cannot be described as radical. The main ‘architecture’ of the existing policy is preserved, with measures divided between the two ‘Pillars’ on which the CAP continues to stand – i.e. market and income support in ‘Pillar One’, and rural development and agri-environment measures in ‘Pillar Two’.

Those who had been hoping for a transformational new way of channelling support to Europe’s rural communities – perhaps a decisive shift towards environmental or wildlife protection, for example, or a re-imagining of the basis for supporting farmers’ incomes – were always bound to be disappointed.

As discussed earlier, the current agri-political environment in European agriculture is not propitious for any radical changes in approach, especially as, thanks to Brexit, the CAP’s budget will be markedly lower in 2021-27 than in the current 2014-2020 iteration of the policy. The politics of this reform process will thus be dominated by a scramble to conserve as much as possible of the support that exists at present.

However, it would be wrong to claim that there are no new ideas or fresh thinking in the Commission’s proposals. The biggest changes are conceptual and administrative; the EU executive has gone to some lengths to set out a policy focused on measurable outcomes and benefits, rather than on rules and processes, as has tended to be the case in previous iterations of the policy. Evidence of input by project management consultants is clearly visible!

There are arguably three broad themes which underpin the latest set of proposals, each of which are discussed in this section:

1. A focus on strategy and objectives2. A fairer subsidy system 3. A focus on environmental and climate action.


1. A focus on strategy and objectivesThe net result of this shift in thinking is a new focus on strategy, both at central EU level and at the level of member states.

At EU level, the Commission has set nine core objectives, to whose fulfilment every policy instrument under the 2021-27 CAP must demonstrably contribute. The nine objectives are split rather neatly between three main ‘themes’, as follows:

Economic objectivesa) Support viable farm income and

resilience across the EU territory to enhance food security.

b) enhance market orientation and increase competitiveness including greater focus on research, technology and digitalisation.

c) Improve farmers’ position in the value chain.

Environmental objectivesd) Contribute to climate change mitigation

and adaptation, as well as sustainable energy.

e) Foster sustainable development and efficient management of natural resources such as water, soil and air.

f) Contribute to the protection of biodiversity, enhance ecosystem services and preserve habitats and landscapes.

Social objectivesg) Attract young farmers and facilitate

business development in rural areas.

h) Promote employment, growth, social inclusion and local development in rural areas, including bio-economy and sustainable forestry.

i) Improve the response of EU agriculture to societal demands on food and health, including safe, nutritious and sustainable food, as well as animal welfare.

None of these nine objectives are particularly controversial, and all (with the possible exception of point i)) have been viewed for some time as being current policy objectives. The difference is that under the new CAP, every policy action will need to be seen as addressing at least one of these objectives; if a measure does not

have one of these outcomes as its explicit objective, then it will not be allowed.

Moreover, in a significant shift towards greater accountability, the Commission intends to require member states, in the words of the foreword to the relevant draft regulation, to “annually report on the progress made in the implementation using a system of common indicators. The member states and Commission will monitor progress and evaluate the effectiveness of the interventions.”

The intention is, therefore, that the CAP should not only aim to deliver against clearly-stated objectives, but also that there should be an ongoing audit of the success (or otherwise) of the policy in achieving these outcomes, to which both the Commission and member states will contribute. In all probability this will open up a whole new field of controversy over the indicators to be used in assessing whether objectives are being met, and over the scope of the Commission’s powers in requiring member states to make any remedial alterations to their policy programmes.

CAP Strategic PlansFor individual member states, the shift towards what might facetiously be described as a Management Consultant’s CAP is even more marked.

Each member state will be required to draw up what the Commission describes as CAP Strategic Plans. These will enumerate the policy instruments that that member state will apply in its territory, defining that country’s choices in regard to the various available policy options, and setting out how these instruments will help it to attain the CAP’s objectives. The Strategic Plans will need to be assessed by the Commission, judged on their compatibility with EU’s core policy objectives, and duly approved, before they can become operational.

Member state (or regional) programmes have long been a feature of the CAP’s Pillar Two, which encompasses rural development and agri-environmental actions of various types, and which has long offered a ‘menu’ of policy options to choose from. But the novelty with the new Strategic Plans is that they will include both Pillar One and Pillar Two measures, such that the strategic rationale for each country’s policy mix will have to encompass

its various direct payment and market and income support options, as well as its rural development choices.

In effect, therefore, the well-established process for creating member state-level policy programmes in Pillar Two – which is generally seen to have been successful – will be generalised across the whole CAP. The net result will be a policy that is more flexible and more closely tailored to fit national and/or regional circumstances than ever before. The consequences for policy transparency will however be less positive, given that – to an even greater extent than at present – no two member states will be operating identical policies.

2. A fairer subsidy system

Direct PaymentsThe direct payments system represents the core of the Common Agricultural Policy; in budget terms, it accounts for around 73% of the whole CAP. For many farmers, payments under this regime represent the difference between survival and bankruptcy, and hence the Commission has been reluctant to tinker with the system to any great extent.

For the most part, the scheme offers farmers an annual payment based on aid entitlements per hectare. As discussed in the previous chapter, these entitlements can be viewed as the ‘descendants’ of the compensatory payments made to farmers when the CAP was first reformed in the early 1990s, although those links have since been weakened to the point where they are now ‘sui generis’ financial assets.

Except in specifically-defined cases, a farmer does not have to produce a specific crop or hold a specific type of animal in order to benefit from these ‘decoupled’ payments. Instead, farmers are required to show that they have not infringed any relevant laws on environmental protection or animal welfare, and have complied with specific environmentally-focused land managements requirements. These conditions are the subject of one of the most significant reforms in the current proposals – as discussed in more depth on pages 30-31.

One small but potentially far-reaching innovation for the 2021-27 CAP relates to the way the direct payments are described. The Commission’s draft regulation states

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that “Member States shall provide for a basic income support in the form of an annual decoupled payment per eligible hectare” [author’s italics].

This is the first time since their creation that the aid payments have been explicitly described in law as serving the purpose of income support. That may seem surprising, given their self-evident role in propping up incomes, but in the 2014-2020 CAP, and in previous iterations, they were simply described as ‘basic payments’, or the ‘single payment scheme’, with no reference to the purpose for which they were being granted.

This allowed for a certain amount of creative ambiguity on the part of the Commission. Depending on the context, the EU executive could imply that the payments formed part of some kind of unwritten ‘contract’ between the farming community and wider society, or that they (indirectly) served the purpose of keeping farmers on the land to allow them be stewards of a common asset.

Such lack of clarity is however incompatible with the new strategically-focused approach that the Commission is now pursuing, and hence these payments are now identified clearly as being for purposes of supporting incomes. Although this is unlikely to be a major factor in the politics of the current reform process, over time it should make it possible, perhaps for the first time, to assess the effectiveness (or otherwise) of the scheme in delivering against its stated objectives.

Aid cappingThe semantics of the draft regulation’s wording have, unsurprisingly, failed to generate headlines. But the same cannot be said of another key element of the new CAP proposal – the plan to cap direct payments at €100,000 per holding (with a ‘taper’ applied to payments between €60,000 and €100,000).

For the Commission, the reforms are seen as an opportunity for decisive action to address one of the CAP’s most persistent negative PR ‘stories’, namely the fact that about 80% of CAP subsidies are disbursed to about 20% of farmers. This basic statistic has changed little over the last few decades, and is perpetuated by the fact that, as already stated, EU agricultural support is paid out primarily on a per-hectare basis; the more land a farmer has,

therefore, the more money he or she generally receives.

The idea of addressing this apparent unfairness by imposing a ‘cap’, or maximum payment per holding, has been around for a long time, and indeed the 2014-2020 CAP introduced the idea of ‘degressivity’, under which, at present, a levy of at least 5% is applied to direct payments in excess of €150,000.

The arguments against such payment caps are well rehearsed. Some say that a ceiling on per-farm subsidies acts as a disincentive to economically-beneficial farm restructuring. Others point to the former state and collective farms in Central and Eastern Europe, which remain huge by EU standards, but which in many cases employ hundreds of local workers and scarcely fit the stereotype of the rich aristocratic estate raking in public money.

It is also pointed out that there would be nothing to stop farms artificially sub-dividing into smaller units in order to dodge any payment cap, thus negating the impact of the payment ceiling. And economists point to the distorting effect on land markets if parcels of land were to end up being sold either with or without subsidy attached – depending solely on the size and structure of the purchasing holding.

However, none of these arguments have the same popular appeal as what the Commission describes in the foreword to its draft Strategic Plans Regulation as ensuring “a fairer distribution of income support”. The proposal is thus for the aid payment threshold to be lowered to €60,000 per holding, as follows:

Direct payments will be reduced:

• by at least 25% for tranche between €60,000 and €75,000;



• by 100% for amounts exceeding €100,000.

The impact of these measures is however moderated substantially by the provision that member states “must subtract salaries


and other direct and indirect labour costs from direct payment amount for capping purposes”. This clause will somewhat assuage the inevitable opposition from the likes of the Czech Republic, Slovakia and Hungary over what they would see as an unfair assault on their large-farm legacy. But in a large number of cases, the deduction of labour costs will have the effect of taking ‘net’ direct payment receipts below the capping thresholds even for quite large holdings.

The fact that the UK will no longer be a member state by the time the new CAP comes into force arguably makes it a little more likely that aid capping will be approved – given that the UK has a higher percentage of larger farms (22.3% of holdings over 100ha) than any other member state.

In any case, the Commission doubtless expects this proposal to be weakened in the course of the subsequent discussions in Council and Parliament. By setting out a very detailed proposal for a tapered reduction in support for larger farms, the Commission has established a policy baseline on which subsequent compromise proposals will have to build – thus maximising the chances that at least the proposal’s outline will be ultimately be retained.

Redistributive paymentsTogether with the basic idea of less money for the largest farmers, the Commission has also put forward an accompanying proposal to give more money to the smallest farmers.

Like the aid capping scheme, the redistributive income support scheme

builds on and reinforces a measure which already exists in the 2014-2020 CAP. The plan for 2021-27 is that the money saved by aid capping should go towards a scheme to ‘top up’ payments on the first x number of hectares on which a farmer claims subsidy (‘x’ being deliberately left undefined by the Commission). In this way, smaller farmers would receive higher unit payments per hectare than would their larger brethren.

Reflecting the overall drive towards devolved policy implementation in the new CAP – and the fact that perceptions of ‘large’ and ‘small’ farms vary hugely across the different member states – the Commission has not bothered to try and define the parameters for the operation of this scheme. It has simply proposed that member states make the relevant definitions as part of their duly justified Strategic Plans, offering only the stipulation that the average amount of redistributive aid payment per hectare “shall not exceed the national average amount of direct payments per hectare…”. Another important change is that the scheme’s operation would be compulsory in all member states, not voluntary as with the current version of redistribution.

This provision could be a very important one both politically and financially, given its status as a ‘Robin Hood’ mechanism whereby money can be redistributed from larger to smaller producers. Moreover, in the context of a budget impoverished by Brexit, the ability to top up payments to vast legions of smaller farmers may ultimately be decisive in making the overall CAP package politically acceptable.

ConvergenceAnother important element in the Commission’s ‘fairer subsidy’ narrative is action to address the continuing wide gaps in average payment rates per hectare for direct payments under Pillar One, both between and within member states.

The former issue – so-called ‘external convergence’ – is the more politically resonant of the two, illustrating as it does the fact that aid rates in some countries, notably the Baltic States, are still substantially below those in others, and giving rise to accusations of unfair discrimination.

This divergence in payment rates is not at

all arbitrary in its origin. Given that all aid entitlements can trace a direct lineage back to the ‘compensatory’ payments that facilitated a transition away from market support in the 1990s (in the case of new member states, an equivalent value was calculated), it is hardly surprising that those countries where high-yielding, intensive agricultural production systems were prevalent, such as Belgium and the Netherlands, should have ‘inherited’ higher rates of aid per hectare of land than those member states with lower levels of productivity, or with more extensive production systems.

The politically salient point, however, is that such historically-rooted divergences are increasingly difficult to justify as a basis for establishing future rates of aid. The Commission has accordingly made a long-term commitment to take steps towards closing up these gaps – while taking into account the fact that a fully-equalised aid rate per hectare across the whole of Europe would defy all current indicators of agricultural productivity and regional land prices.

The formula proposed by the Commission for the next CAP period is that those member states with an average support level below 90% of the EU average will close half of the gap to 90% of the EU average, in six gradual steps starting in 2022. Thus, in a (hypothetical) case where a member state’s aid payment rates were currently 70% of the EU average, that would be brought up to 80% by 2027.

To give effect to this commitment, the Pillar One aid budgets for certain member states will increase over the period of the next CAP, in contrast to the freeze (at a lower level than in 2020) that will apply in most cases. It will be the Baltic States that benefit the most from this adjustment; the Pillar One aid budgets for Estonia, Latvia and Lithuania will be 12-13% higher in 2027 than in 2020 (see page 23).

Meanwhile, the question of why some farmers still receive a higher rate of aid than other similar farmers in the same member state – or even the same neighbourhood – continues to exercise the Commission. The issue of ‘internal convergence’ was partially addressed in the framework of the 2014-2020 CAP, but, as with external convergence, there remains work to be done in breaking the

The ability to top up payments to smaller farmers may ultimately be decisive in making the overall CAP package politically acceptable


links with historical entitlements.

The situation across the member states varies considerably; some countries, such as Germany, voluntarily transitioned to a unitary rate of aid per hectare for all its farmers as early as 2013, while some others will achieve this landmark by

2019-2020. However, many more member states continue to have divergent rates of aid, based on historical entitlement patterns.

The step proposed by the Commission is that “by claim year 2026 at the latest, all payment entitlements [must] have a value

of at least 75% of the average planned unit amount for the basic income support for that year”. This would be done by reducing aid payments for farmers with the highest rates of aid per hectare – always a difficult idea to ‘sell’ domestically. The Commission has clearly taken the view that alignment to within 75% of a country’s national

Table 1: Structure of EU Rural Development policy in 2021-27

Measure Intervention type Obligatory element of MS plan?

Minimum share of each MS’s P2 spend

‘Standard’ EAFRD co-financing rate

Environmental, climate and other management commitments

Payments to farmers who volunteer to ‘undertake management commitments which are considered to be beneficial’ to the environment

Yes30%

(shared with point 3)80%

Natural or other area-specific constraints

Annual per hectare payments to compensate farmers in less favoured areas (as defined in 2014-2020 CAP)

No Not stated 65%

Area-specific disadvantages resulting from certain mandatory requirements

Annual per hectare payments to compensate farmers for restrictions in Natura 2000 (habitat protection) and river basin management plan zones

No30%

(shared with point 1)80%

Investments

Subsidies of up to 75% of eligible costs for investments in (e.g.) land, livestock, irrigation systems, afforestation or infrastructure; also to subsidise debt interest payments

No Not stated 80%

Installation of young farmers and rural business start-up

Lump sum aid payments of up to €100,000 to assist young farmers and rural business start-ups

No Not stated70% in less

developed regions; 43% elsewhere

Risk management tools

Financial contributions to premiums for insurance schemes or mutual funds, covering losses of at least 20% of average annual production. Contributions to cover maximum 70% of costs

Yes Not stated70% in less


Cooperation

Grants to promote projects involving at least two parties and designed to enhance agricultural productivity and sustainability

No Not stated 80%

Knowledge exchange and information

Grants to cover up to 75% of total costs of actions to promote innovation, access to training and advice, and dissemination of knowledge and information

No Not stated70% in less


LEADERCommunity-led rural development schemes

Yes 5% 80%

Source: IEG Policy based on European Commission draft regulation


average is the best outcome that can be hoped for in this particular area.

3. Environment, climate action and rural developmentNowhere has the disconnect between sincerely-held policy ambitions and actual results delivered been more marked than in the area of action to support the environment and climate change.

In theory, the 2014-2020 CAP was going to deliver a transformation in the way that agricultural policy supported society’s desire for better environmental protection in rural areas, enhanced landscapes, and decisive action to mitigate climate change. In practice, the much-vaunted ‘Greening’ policy has become one of the least popular in the CAP’s history, disliked by farmers because of the copious red tape associated with the policy, and derided by environmentalists for failing to deliver the promised benefits.

Since the current CAP rules came into effect in 2015, farmers have been required to comply with a series of detailed requirements in order to qualify for their direct payments, including the three-crop rule (requiring larger arable farmers to include at least three crops in their farm rotation mix), and the creation of Ecological Focus Areas (EFAs) – parts of a farmer’s holding which are managed primarily for their environmental or wildlife benefits.

Because the bureaucratic nature of the relevant regulations threatened to place significant administrative burdens on farmers and agriculture ministries alike, member states tended, when drawing up the national implementing rules for Greening, to shape the requirements such that many farmers would already be in compliance with them, via already-existing

programmes. As a result, the net environmental gains from Greening, according to assessments carried out thus far, have been disappointing.

Further issues have arisen from the fact that the Greening requirements in Pillar One of the CAP have tended to intersect with some of the land management requirements under the agri-environmental schemes which form the bedrock of Pillar Two. This has required complicated processes to require reductions in aid payments made under one Pillar to avoid the risk of farmers being paid twice for the same service – which is expressly forbidden under EU law.

The Commission’s plan is to deal with these issues by (slightly) simplifying the structure of the EU’s support and incentive programmes in this area, and by abandoning the previous policy of trying to agree centralised management rules to apply in all of the EU’s disparate member states and regions. In line with the overall approach of packaging up policy options into national Strategic Plans, the Commission will instead devolve a lot of the detailed land management regulations to member state level (see page 12 for a more detailed assessment).

Rural development in 2021-27The agri-environment and climate measures form only part – albeit a very important part – of the support measures to be offered under the CAP’s Pillar Two.

As discussed on page 24, this part of the CAP, which covers various types of rural development policy as well as environmental support programmes, looks set to bear the brunt of the budget restrictions which the EU faces post-2020. The proposed scope of the programme is

however as broad as in the current CAP – which means that member states will have to find ways of doing as much, or more, with less money.

Essentially, Pillar Two will be divided in 2021-27 into eight areas of policy. These are set out in Table 1, together with an analysis of the financing rules (where applicable) for each one.

There has been a simplification of the ‘menu’ from which member states may choose their policy approaches – and a conceptual merger of the strategic approaches undertaken within the two Pillars, embodied most symbolically in the fact that Pillars One and Two are to be regulated under one single ‘Strategic Plan’ regulation, rather than having separate regulations to govern direct payments and rural development policy respectively, as has been the case until now.

However, there is to be very little in the way of actual changes in the type of policy actions to be covered under Pillar Two. This will continue to focus on incentives for farmers to operate in more environmentally sympathetic ways, subsidies for farmers operating in Areas with Natural Constraints (ANCs), support for organic farming, schemes to encourage investment in more modern or more resource-efficient infrastructure at farm or food-processing level, and continued mandatory support for LEADER – the popular programme to support community-led rural development initiatives.

As well as significant cuts in the overall P2 budget, there are also to be reductions in the level of EU co-financing for many programme types. These are discussed on page 24.


4. The new CAP and the EU budgetBudget crises and the Common Agricultural Policy go back a long way together. The CAP, which for decades was the EU’s most expensive (it has now been relegated to second place by Cohesion Policy), has always had to fight to justify the billions of Euros spent on it every year. For some Europeans, CAP spending is an essential element in ensuring the social cohesion of Europe’s rural areas; for others, it is symptomatic of EU waste and profligacy. But whether spending rises or falls, it has never failed to be a source of controversy.

The main reason why the CAP’s budget is being cut can be summed up in one word: “Brexit”

This is especially the case at present, with Europe’s farmers and administrators staring down the barrel at an unparalleled reduction in CAP spending for the seven-year period beginning in 2021.

In fact, the CAP budget has actually been declining in real terms since about 2010. Total CAP spending in nominal (current) prices has been roughly stable at around €57-58 billion each year since then, and inflation has steadily eroded the real-terms value of these payments.

It is also the case that, over the years, the CAP has come to represent an ever-smaller share of the overall EU budget. As CAP spending has stagnated, it has been overtaken by a considerable increase in spending on other policies, notably

so-called Cohesion policy (regional and infrastructure spending). The CAP’s share of the overall total – which was as high as 80% in the early 1980s – has now fallen from 43% in 2007 to 35% by 2020, and is now projected to decline to just 27% by 2027 – see Figure 1.

For the 2021-27 period, however, major changes are in store. There is no need to make reference to actual or projected deflators in order to see that significant spending cuts are proposed as compared with 2014-2020, in nominal terms as well as real terms.

The Commission’s own assessment (as discussed below, EU budget figures are always highly dependent on the exact methodology used) is that the overall CAP


Evolution of Pillar 1 and Pillar 2 relative to total EU spending,2007-2027

200K

180K

160K

140K

120K

100K

80K

60K

40K

20K

0

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

42,3

1271

,700

40,8

7675

,341

40,7

8178

,833

43,4

2283

,720

43,2

7484

,196

43,7

4486

,104

43,9

3092

,160

44,1

3084

,758

44,3

6888

,463

44,6

2891

,936

44,8

6395

,880

44,8

8999

,822

44,9

1610

4,38

0

44,9

4110

9,00

5

40,2

6711

5,19

5

40,5

0112

1,93

5

40,7

7712

7,32

7

40,9

2113

0,71

2

41,0

6413

4,72

4

41,2

0614

1,27

8

41,3

4914

3,33

9

P1 P2 Non-CAP

Figure 1: Evolution of Pillar 1 and Pillar 2 relative to total EU spending, 2007-2027

16K

14K

12K

10K

8K

6K

4K

2K

0

-2K

-4K

-6K

2011 2012 2013 2014 2015 2016 2017

12,2

14-4

,132

8,08

2

12,6

36-4

,169

8,46

7

14,4

61-3

,996

10,4

65

14,3

62-4

,583

9,77

9

14,6

46-3

,883

10,7

63

13,1

18-3

,492

9,62

6

12,9

92-4

,084

8,90

9

£m

UK contribution (net of rebate) Public sector receipts Net public sector contribution

Figure 2: UK net contributions to EU budget, 2011-2017


budget, in the 2021-27 period, will be 5% lower than in the current 2014-2020 financing period in current prices, and 12% lower in real terms (i.e. after the effect of inflation has been taken into account).

The Brexit effectThe main reason why the CAP’s budget is being cut can be summed up in one word, albeit a word which did not exist in any dictionary until a few years ago: “Brexit”.

The United Kingdom, one of the CAP’s most vocal critics since joining the EU in 1973, has paid more into the EU budget (and hence that of the CAP) throughout its membership of the Union than any other member state apart from Germany. Despite the rebate which the UK negotiated in the mid-1980s, and has retained ever since with only minor changes, the UK has remained a major net contributor (see Figure 2). This sense that the UK gets a raw deal in financing the EU’s activities was an underlying narrative in the run-up to the UK’s vote to leave the EU in the country’s 2016 referendum.

In 2016 the UK paid some €13.5 billion into the EU budget, which was around €5.6 billion more than it got back in payments made in Britain from the EU budget. It follows that the UK’s departure from the EU will leave a shortfall in the EU accounts of a comparable amount; the Commission’s working assumption is that the CAP alone will be €3 billion a year worse off just because of Brexit.

In principle, the EU-27 could keep spending in 2021-27 at the same levels as at present if each member state was prepared to make a commensurate increase in its own contributions to the EU budget. But asking member states to pay more to Brussels is politically toxic at the best of times, especially if it leads to perceptions that one country’s taxpayers will be ‘unfairly’ subsidising recipients in another member state – and especially when there is already a widely-supported push for increased funding in other policy areas, such as migration, security and digitalisation.

The Multiannual Financial Framework for 2021-2027 The Commission’s proposed solution for squaring the Brexit circle was published in late April 2018, as part of its plans for a Multiannual Financial Framework (MFF) for 2021-27.

In all, the long-term budget for the seven years, in 2018 prices, would amount to €1,135 billion in commitments (i.e. money which the EU may commit to spend on specific budget items, either in the year in question, or in future years if it relates to a multi-year programme such as an investment project). This amount is calculated to be the equivalent of 1.11% of the EU27’s gross national income.

The Common Agricultural Policy’s share of that money is to be €365 billion. This is 10% less, in current terms, than the amount allocated to the CAP in 2014-2020 (€408.3bn), but when UK spending is stripped out of the 2014-2020 figure, the like-for-like reduction (i.e. for the EU-27) is of the order of 5% (see Table 2).

A true comparison of spending levels and their impacts across two different MFF periods is exceptionally difficult, given the variables involved in establishing budget figures.

To allow for a constant price base, without having to take inflation into account, the legal basis for the MFF is always established for a given year (2018 in the

case of the 2021-27 MFF), and all figures are established as “2018 figures”. However, in reality these figures are adjusted every year by a fixed 2% inflator, which means that the actual “current” prices which then apply to each year’s budget are invariably higher.

Moreover, year-on-year commitment and spending levels for Pillar Two in particular vary widely from year-to-year, as contracts tend to be signed for the multi-year projects supported by P2 in the early years of an MFF, and funds disbursed for the fulfilment of these contracts in the latter years. This means that so-called ‘commitment’ appropriations are typically high in the early years of an MFF and then tail off, whereas the opposite is true of ‘payment’ appropriations.

There is value therefore in comparing spend levels in the final year of the current MFF (2020), multiplied by seven, with the proposed spend levels in the final year of the next MFF (2027), multiplied by seven. This represents an alternative way of comparing budgetary impact as opposed to simply comparing the 2014-2020 aggregate figure with the 2021-27 aggregate figure.

Table 2: CAP budget commitments in MFF 2014-2020 and MFF 2021-27 (€m)

Total CAP spending

EU28 EU27 EU27 EU27 % ch vs EU27

% ch vs EU27

2014-2020

2020 spending*7

2014-2020

2021-2027 2020*7 2014-

2020Current prices

403,343 382,477 375,864 365,006 -5% -3%

2018 prices

411,335 367,625 383,297 324,284 -12% -15%

EAGF spendingCurrent prices

317,790 287,437 295,507 286,195 0% -3%

2018 prices

325,184 265,275 302,438 254,247 -8% -16%

EAFRD spendingCurrent prices

85,552 95,040 80,357* 78,811 -17% -2%*

2018 prices

86,151 93,150 80,859 70,037 -23% -13%

Note: “2020*7” = spending in final year of 2014-2020 period, multiplied by 7. * These data, taken from official Commission data, are surprisingly low, for which no explanation has been provided. The spending figures for ‘2020*7’, and the calculated 17% difference with 2021-27, are considered to represent a more accurate comparison.Source: Alan Matthews, in capreform.eu, based on European Commission figures.

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Further complications arise in comparing spending figures for Pillar One and Pillar Two, given that in 2014-2020 there have been transfers between the two Pillars – often by quite substantial amounts – whereas the figures proposed for 2021-27 are without application of any possible future inter-Pillar transfers. And of course, it is necessary to strip out UK spending from 2014-2020 figures in order to get a like-for-like comparison with 2021-27.

Depending on which of these parameters is in play, therefore, percentage comparison figures can vary considerably. The most relevant ones are set out in Table 2.

CAP financing in 2021-27For 2021-27, the ‘headline’ figure for CAP spending is €365 billion (in current prices, i.e. the actual amounts that will be available). This is divided between €286.2 billion for Pillar One and €78.8bn for Pillar Two.

The Commission has presented the MFF figures in current prices as well as the legally-required ‘constant’ (deflated) prices – a move which has been motivated, the Commission claims. by a desire for improved transparency. (An alternative and equally plausible suggestion is that by using current prices, the Commission is trying to mask the extent of the real-terms cuts in spending which lie ahead).

However, even these figures are not set in stone. As already noted, member states are to be given a substantial degree of leeway in transferring their allocations between Pillars. As was the case in 2014-2020, up to 15% of funds can be transferred either from P1 to P2 or vice-versa. In 2021-27, the Commission is proposing to allow member states to transfer as much as 30% from P1 to P2 if all of the additional 15% is spent on agri-environment and climate measures. The additional 15% would not need to be accompanied by national co-financing, as would otherwise be required for agri-environment schemes.

In 2014-2020, by way of illustration, seven member states are taking advantage of the opportunity to transfer money from P1 to P2, while five other member states have moved resources in the opposite direction. The result has been a net shift of around €4 billion from P1 to P2 over the seven-year period.

Pillar OneTable 3 sets out funding allocations for direct payments for each member state for each year in the 2021-27 MFF period. It will be noted that the total amount available (€265.3bn) is some €20bn less than the aggregate Pillar One amount for the seven-year period. The balance represents ‘other’ market support payments such as, most notably, intervention in the wine and fruit and vegetables sectors.

The aggregate amount allocated for direct payments in 2021-27 is about 9% less than the comparable figure for 2014-2020. However, the latter figure includes payments of around €3.2bn per year for the UK, whereas the former figure does not. On a like-for-like EU-27 basis, the reduction is only around 1.2%.

The total direct payments bill increases over the seven-year period, with allocations for 2027 some 1.6% higher than for 2021. This is because:

a) Croatia is still undergoing the final phases of a 10-year phase-in of full payments following its accession in 2013. This means rising amounts of aid for this country each year until 2022.

b) Those countries with low average aid payment rates per hectare are seeing gradually increasing aid allocations, in line with the ‘external convergence’ initiative to gradually equalize these rates (see page 14). The three Baltic states are most clearly impacted by these increases, but there are 12 beneficiary countries in all (some only marginally so).

As already noted, these 2021-27 figures are before any possible decisions on the part of member states to reallocate money between Pillar One and Pillar Two. If their inter-Pillar transfer choices were ultimately to follow a similar course to 2014-2020 – i.e. a net transfer of funds from P1 to P2 – then the overall amounts available for direct payments in 2021-27 would fall, and the gap with 2014-2020 would consequently widen.

It is striking that for 14 of the 27 member states, the 2027 direct payments budget will be precisely 3.89% lower than in 2020. This is clearly intended to be the baseline reduction level. The Commission appears to have calculated that, against the


Table 3: Proposed budget allocations for CAP Pillar 1 direct payments, by memberstate, 2021-27 (€m)

2021 2022 2023 2024 2025 2026 2027 2021-27 total

% change

2027 vs

2021

% reduction

2027 vs

2020

% reduction 2015-20

annual ave vs 2021-27 annual ave

Austria 664,820 664,820 664,820 664,820 664,820 664,820 664,820 4,653,737 - -3.89 -3.94

Belgium 485,604 485,604 485,604 485,604 485,604 485,604 485,604 3,399,228 - -3.89 -3.25

Bulgaria 776,282 784,749 793,216 801,683 810,150 818,617 818,617 5,603,312 5.45 2.80 2.31

Croatia 344,340 367,711 367,711 367,711 367,711 367,711 367,711 2,550,608 6.79 20.77 43.44

Cyprus 46,750 46,750 46,750 46,750 46,750 46,750 46,750 327,251 - -3.89 -5.59

Czech Republic

838,844 838,844 838,844 838,844 838,844 838,844 838,844 5,871,910 - -3.89 -1.86

Denmark 846,125 846,125 846,125 846,125 846,125 846,125 846,125 5,922,872 - -3.89 -0.15

Estonia 167,722 172,668 177,614 182,560 187,507 192,453 192,453 1,272,976 14.75 13.63 36.41

Finland 506,000 507,784 509,568 511,353 513,137 514,921 514,921 3,577,683 1.76 -1.85 -2.45

France 7,147,787 7,147,787 7,147,787 7,147,787 7,147,787 7,147,787 7,147,787 50,034,509 - -3.89 -1.76

Germany 4,823,108 4,823,108 4,823,108 4,823,108 4,823,108 4,823,108 4,823,108 33,761,756 - -3.89 -1.14

Greece 2,036,561 2,036,561 2,036,561 2,036,561 2,036,561 2,036,561 2,036,561 14,255,926 - 5.46 7.96

Hungary 1,219,770 1,219,770 1,219,770 1,219,770 1,219,770 1,219,770 1,219,770 8,538,388 - -3.89 -8.38

Ireland 1,163,938 1,163,938 1,163,938 1,163,938 1,163,938 1,163,938 1,163,938 8,147,568 - -3.89 -3.99

Italy 3,560,186 3,560,186 3,560,186 3,560,186 3,560,186 3,560,186 3,560,186 24,921,299 - -3.89 -5.95

Latvia 299,634 308,295 316,956 325,617 334,278 342,939 342,939 2,270,656 14.45 13.27 33.72

Lithuania 510,820 524,732 538,644 552,556 566,468 580,380 580,380 3,853,982 13.62 12.25 15.76

Luxembourg 32,131 32,131 32,131 32,131 32,131 32,131 32,131 224,917 - -3.89 -4.07

Malta 4,507 4,507 4,507 4,507 4,507 4,507 4,507 31,552 - -3.89 -12.48

Netherlands 703,870 703,870 703,870 703,870 703,870 703,870 703,870 4,927,093 - -3.89 -3.06

Poland 2,972,978 3,003,574 3,034,171 3,064,767 3,095,364 3,125,960 3,125,960 21,422,774 5.15 2.10 -8.78

Portugal 584,824 593,443 602,062 610,680 619,299 627,917 627,917 4,266,142 7.37 4.77 4.14

Romania 1,856,173 1,883,212 1,910,251 1,937,290 1,964,329 1,991,368 1,991,368 13,533,988 7.28 4.63 6.89

Slovakia 383,806 388,575 393,344 398,112 402,881 407,649 407,649 2,782,016 6.21 3.36 -8.94

Slovenia 129,053 129,053 129,053 129,053 129,053 129,053 129,053 903,369 - -3.89 -4.96

Spain 4,768,737 4,775,899 4,783,061 4,790,223 4,797,385 4,804,547 4,804,547 33,524,399 0.75 -1.82 -1.69

Sweden 672,761 672,985 673,209 673,432 673,656 673,880 673,880 4,713,803 0.17 -3.70 -3.57

Total 37,547,129 37,686,679 37,802,859 37,919,038 38,035,217 38,151,396 38,151,396 265,293,713 1.61 -9.66 -8.98

Note: In current prices. Based on European Commission proposal, June 1 2018. Does not include any transfers between CAP Pillars, or ‘financial discipline’ cuts for Crisis Reserve, or capping/redistribution.


backdrop of a serious squeeze in resources for the CAP, a headline cut of ‘less than 4%’ in the size of farmers’ aid payment cheques would be a politically feasible ‘sell’.

Moreover, given the flexibilities available to member states in capping aid to larger farms and reallocating money to small and medium-sized farms, the impact on many of the most politically-sensitive segments of the European farming community could end up being quite limited.

Pillar TwoFor Pillar Two, the reductions are more marked than for Pillar One, although again the possible impact of future inter-Pillar transfers should be taken into account; i.e. if there is a net transfer in favour of P2, then availability may be higher than stated in Table 4, and the difference with 2014-2020 consequently reduced.

However, as things stand, the amounts available for rural development and agri-environmental spending will be as much as 21% below the comparable levels in 2014-2020 – or 16.5% on a like-for-like comparison, excluding the UK. Clearly the cuts will fall more heavily on P2 than on P1, in order to conserve as much money as possible for the more politically-sensitive direct payment budget.

As with other aspects of the CAP proposal, however, the Commission is leaving the member states a great deal of flexibility in the way they apply the policy, so that those who want to emphasise P2 policies will have a reasonable amount of leeway to do so – even if this can only be achieved by sacrificing resources in other areas.

One of the most substantial changes around P2 – and one which has attracted surprisingly little comment thus far – is a radical plan to cut EU co-financing rates by a full 10 percentage points (more in some cases) for the majority of rural development schemes. The relevant rates are as follows:

• In the poorer parts of the EU: 70% of eligible public expenditure (compared with up to 85% in 2014-2020).

• In richer parts of the EU: 43% of total expenditure (from 53%).

• For agri-environment and climate measures: 65% of the payment costs (instead of 75%).

% change 2027 vs 2021

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Figure 3: CAP Pillar 1 - % change 2017 vs 2021

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Table 4: Proposed budget allocations for CAP Pillar 2 direct payments, by memberstate, 2021-27 (€m)

2021 2022 2023 2024 2025 2026 2027 2021-2027 2020 vs 2027

2014-2020 ave vs

2021-27 ave

Belgium 67,178,046 67,178,046 67,178,046 67,178,046 67,178,046 67,178,046 67,178,046 470,246,322 -34.60 -27.41

Bulgaria 281,711,396 281,711,396 281,711,396 281,711,396 281,711,396 281,711,396 281,711,396 1,971,979,772 -16.90 -16.68

CzechRep 258,773,203 258,773,203 258,773,203 258,773,203 258,773,203 258,773,203 258,773,203 1,811,412,421 -19.54 -21.44

Denmark 75,812,623 75,812,623 75,812,623 75,812,623 75,812,623 75,812,623 75,812,623 530,688,361 -49.99 -42.24

Germany 989,924,996 989,924,996 989,924,996 989,924,996 989,924,996 989,924,996 989,924,996 6,929,474,972 -29.02 -26.64

Estonia 87,875,887 87,875,887 87,875,887 87,875,887 87,875,887 87,875,887 87,875,887 615,131,209 -31.97 -25.29

Ireland 264,670,951 264,670,951 264,670,951 264,670,951 264,670,951 264,670,951 264,670,951 1,852,696,657 -15.32 -15.42

Greece 509,591,606 509,591,606 509,591,606 509,591,606 509,591,606 509,591,606 509,591,606 3,567,141,242 -27.02 -24.40

Spain 1,001,202,880 1,001,202,880 1,001,202,880 1,001,202,880 1,001,202,880 1,001,202,880 1,001,202,880 7,008,420,160 -15.40 -15.53

France 1,209,259,199 1,209,259,199 1,209,259,199 1,209,259,199 1,209,259,199 1,209,259,199 1,209,259,199 8,464,814,393 -27.82 -25.65

Croatia 281,341,503 281,341,503 281,341,503 281,341,503 281,341,503 281,341,503 281,341,503 1,969,390,521 -0.35 -2.80

Italy 1,270,310,371 1,270,310,371 1,270,310,371 1,270,310,371 1,270,310,371 1,270,310,371 1,270,310,371 8,892,172,597 -15.41 -14.86

Cyprus 15,987,284 15,987,284 15,987,284 15,987,284 15,987,284 15,987,284 15,987,284 111,910,988 -15.33 -15.38

Latvia 117,307,269 117,307,269 117,307,269 117,307,269 117,307,269 117,307,269 117,307,269 821,150,883 -27.36 -23.66

Lithuania 195,182,517 195,182,517 195,182,517 195,182,517 195,182,517 195,182,517 195,182,517 1,366,277,619 -15.30 -15.30

L’bourg 12,290,956 12,290,956 12,290,956 12,290,956 12,290,956 12,290,956 12,290,956 86,036,692 -15.30 -14.45

Hungary 416,202,472 416,202,472 416,202,472 416,202,472 416,202,472 416,202,472 416,202,472 2,913,417,304 -14.48 -15.08

Malta 12,207,322 12,207,322 12,207,322 12,207,322 12,207,322 12,207,322 12,207,322 85,451,254 -11.92 -12.20

N’lands 73,151,195 73,151,195 73,151,195 73,151,195 73,151,195 73,151,195 73,151,195 512,058,365 -38.00 -33.09

Austria 480,467,031 480,467,031 480,467,031 480,467,031 480,467,031 480,467,031 480,467,031 3,363,269,217 -15.30 -14.58

Poland 1,317,890,530 1,317,890,530 1,317,890,530 1,317,890,530 1,317,890,530 1,317,890,530 1,317,890,530 9,225,233,710 11.00 6.07

Portugal 493,214,858 493,214,858 493,214,858 493,214,858 493,214,858 493,214,858 493,214,858 3,452,504,006 -15.32 -14.93

Romania 965,503,339 965,503,339 965,503,339 965,503,339 965,503,339 965,503,339 965,503,339 6,758,523,373 -15.30 -16.85

Slovenia 102,248,788 102,248,788 102,248,788 102,248,788 102,248,788 102,248,788 102,248,788 715,741,516 -15.30 -14.57

Slovakia 227,682,721 227,682,721 227,682,721 227,682,721 227,682,721 227,682,721 227,682,721 1,593,779,047 6.13 2.19

Finland 292,021,227 292,021,227 292,021,227 292,021,227 292,021,227 292,021,227 292,021,227 2,044,148,589 -15.30 -14.13

Sweden 211,550,876 211,550,876 211,550,876 211,550,876 211,550,876 211,550,876 211,550,876 1,480,856,132 -15.32 -16.03

Tech assist 28,146,770 28,146,770 28,146,770 28,146,770 28,146,770 28,146,770 28,146,770 197,027,390 -17.55 -17.54

EU total 11,258,707,816 11,258,707,816 11,258,707,816 11,258,707,816 11,258,707,816 11,258,707,816 11,258,707,816 78,810,954,712 -21.45 -20.86

EU minus UK

-17.08 -16.50

Note: In current prices. Based on European Commission proposal, June 1 2018. Does not include any transfers between CAP Pillars.


This means that there would accordingly be a shift in the balance of responsibility for funding such schemes from the EU’s P2 budget (the so-called European Agricultural Fund for Rural Development, or EAFRD) to member states. The onus thus shifts to national governments to maintain payment rates for well-established Pillar Two schemes if they so choose, by paying more from their own national resources.

Such reductions in EU co-financing rates will be strongly opposed by member state governments, but the message from the Commission will be (in effect): If you don’t want the axe to fall in this area, then where?

Hard talking lies aheadNone of what the Commission has proposed can yet be viewed as a fait accompli. The budget is central to the EU’s activities in every area, and as such it will be for EU heads of government to take a final decision on the shape and size of the Multiannual Financial Framework – including the CAP spending ceilings – at a future EU summit, probably at some point in 2019.

Given the funding challenges thrown up by Brexit, the competing claims of other non-agricultural sectors for more money, and the strong political resistance in many European countries to any cuts in agricultural support spending, this process will be even more fraught than usual.

At the first Agriculture Council at which the CAP proposals were discussed on June 18 2018, no fewer than 14 member states – Finland, France, Greece, Ireland, Portugal, Spain, Croatia, Cyprus, Hungary, Lithuania, Luxembourg, Poland, Romania and Slovakia – called for CAP funding to be maintained at an unchanged level in 2021-27. It is however routine for farm ministers to protest about proposed reductions in agricultural spending – and it is not unusual for a country’s agriculture minister to argue simultaneously for an entirely different outcome than that supported by the same country’s finance minister – so the Agriculture Council’s plea for ‘no change’ is highly unlikely to be heeded.

The key decisions will in any case be taken at a higher political level. When agreeing the 2014-2020 MFF, EU leaders were quite

prescriptive about aspects of the budget framework affecting agriculture, and it is likely that something similar will happen again in 2021-27, with budget-sensitive issues, such as the degree and scope of external convergence for direct aid payments and levels of co-financing for Pillar Two, forming part of EU leaders’ overall agreement on the MFF.

Even so, there remains plenty at stake for the agricultural policy-makers. Against the backdrop of the biggest multi-year cuts in agricultural spending ever proposed for the CAP, the tensions between net-recipient member states for whom a well-funded agricultural support budget is a key indicator of European solidarity, and net-contributor countries who are already facing Brexit-induced increases in their payments to the EU, will be more acute than ever.

A compromise solution will ultimately be found – but the financial pressures could end up changing the policy framework in ways which, at this early stage in the proceedings, are difficult to predict.


5. The new CAP and agri-food marketsThe European food and drink sector – European agriculture’s principal client – has a slightly uneasy relationship with the Common Agricultural Policy.

The proposals have been put together against a backdrop of trade initiatives which look set to further open European markets to imports

Most food businesses would basically support the European Commission’s well-rehearsed PR line that the CAP plays a vital role in providing Europe with safe, healthy food, in adequate volumes and at reasonable prices. On the other hand, the model of agriculture which the CAP supports is not always the most economically efficient one, and the support provided to European agriculture comes at the price, in some instances, of limited access to imports from third countries which might be cheaper.

Viewed from the farmgate perspective, there are inevitably going to be battles over the prices and contracts offered by processors and retailers, and a series of legislative initiatives in recent years have sought to give farmers a stronger position in negotiations with purchasers. These are not going to be revisited to any significant extent in these latest reform proposals.

And from the point of view of international trade too, the new CAP proposals have no direct impact. The changes relate entirely

to modifications to Europe’s internal farm policy, and there will be no changes to tariffs or quotas on imports, or any significant modifications to the food regulatory framework.

That said, however, the proposals have been put together against a backdrop of trade initiatives which look set to further open European markets to imports, in some sectors more than others.

With hopes of a new multilateral agreement to liberalise agricultural trade via the WTO Doha Round process now buried – a development which pre-dated the arrival of the anti-multilateralist Donald Trump in the White House – the EU has been pursuing a vigorous policy of striking bilateral and regional trade agreements with key economies.

In recent times this has yielded new trade deals with Canada, Japan and Mexico (the latter two now pending ratification), as well as negotiations with the South American Mercosur bloc (close to

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conclusion at the time of writing), and with Australia and New Zealand (just under way). An initiative to negotiate a trade deal with the US, in the form of the so-called TTIP agreement, has run aground on the sandbank of regulatory differences between the two sides.

The Japan and Mexico deals in particular are, broadly speaking, a ‘good news’ story for European agriculture in that they will offer substantial additional market access for European exports of high-value dairy, pigmeat and wine products in particular.

But with the impending new deals with Mercosur, Australia and New Zealand, the trade dynamic is different, and the deals offer the prospect of significant additional imports from highly-competitive world-leading exporters. The concerns that this has provoked among European farmers’ organisations are of a scale that the Commission is unable to ignore.

There has therefore been a substantial focus in the new proposals on securing the viability and sustainability of European farmers who might otherwise struggle to cope in a liberalising European market environment.

The Commission’s dilemma – caught between a basic commitment towards greater market orientation for the CAP, and a Treaty-mandated requirement to support farmers and farm incomes – is articulated very clearly in an introduction to the new draft basic Regulations:

“Securing an adequate level of support and thus farm income remains a key element for the future, in order to ensure food security, environmental and climate ambition, as well as rural vitality. Better targeting of support to small and medium sized farms and areas with natural constraints can help keeping more jobs on farms and farming activity on the whole territory, hence strengthening the socio-economic fabric of rural areas. Capping and convergence can improve the distribution of direct payments.

“It is clear that any option that significantly redistributes direct payments towards farms and regions of lower productivity will, in the short-term, lead to a reduction of EU competitiveness, while it enhances the protection of the environment. Less clear, however, is the appropriate combination of measures that could mitigate negative

income effects while at the same time better addressing challenges that are also pertinent for agriculture – such as environment and climate, or societal expectations. This requires incentivising adjustments that improve both the socio-economic as well as the environmental performance of the sector.”

Market support lives onFor well over two decades now, the CAP has channelled most of its financial resources into support farm incomes, via direct payments to producers. But support to agricultural markets still exists in various guises, and will continue to do so through to 2027 at least.

In fact, some €19.3 billion1 has been allocated to market support measures in the draft MFF for 2021-27. Much of that €19.3bn is allocated to programmes to regulate the markets for fruits and vegetables and for wine. This money is channelled to recipients via Producer Organisations, who have responsibility for operating Operational Programmes (OPs) to regulate the markets in their local area.

Such programmes can be highly interventionist in nature. As well as aiming to meet objectives such as investing in higher quality output and improving marketing and promotion, most OPs also include schemes to hold produce off the market in case of oversupply, and even its effective destruction in the event of a serious problem. However, such intervention tends to escape the critical gaze of the European public, probably precisely because its operation is devolved to the various producer organisations, rather than overseen and directed centrally by the Commission.

Meanwhile, less drastic but still highly market-distorting measures are also an option in the dairy sector – this time not administered by producer groups, but with the Commission acting as market manager.

Intervention buying for butter and skimmed milk powder still remains in place, representing in effect the last bastion of the heavily interventionist CAP of the 1980s. Intervention prices for dairy commodities have remained unchanged for over a decade, and until the dairy price crash of 2015 it had been widely assumed that, with market prices generally well above intervention levels, the measures

were on the statute books simply as a historical relic. This view had to be quickly revised, however, when a prolonged slump in the price of skimmed milk powder led to some 380,000 tonnes of SMP being bought in by the Commission between 2015 and 2017. The huge stockpile thereby generated is only now being gradually released back to the market.

Intervention will thus continue to be available to European traders until 2027 at least, at the current ‘safety-net’ intervention prices of €2,463.90/t for butter and €1,698/t for SMP.

As well as traditional intervention, the current private storage aid (PSA) system is also set to be retained. This is a programme under which traders may receive EU aid to withdraw product (mainly butter, SMP and pigmeat) from the market on a temporary basis when prices are low, and release it back to the market at a later stage when the market is more favourable.

Coupled aid paymentsThe Commission and member states have further tools at their disposal to influence not only the incomes that farmers receive, but also the types of agricultural product that they produce.

The ‘decoupled’ direct payment system remains the bedrock of the CAP’s support system beyond 2021 (see page 12). But in some cases, payments will remain ‘coupled’ to production. In such cases, a farmer only receives the aid if he/she cultivates a particular crop, or keeps specific types of livestock. For these payments, area and headage limits are established for each participating member state, so as to avoid the risk of encouraging over-production (and in order to allow such payments to be declared as ‘Blue Box’ subsidies in the WTO context, rather than fall into the ‘Amber Box’ category, for which limits apply).

The schemes are optional at member state level, but in 2014-2020, every member states other than Germany opted to operate coupled aid schemes in at least one sector, and some 10% of the overall direct payment budget is currently being allocated to coupled aid schemes.

The sectors in which coupled aid payments schemes may be applied were significantly expanded in 2014-2020 as compared with the previous version of the CAP, in which

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coupled aid payments were seen very much as the exception to the ‘decoupling’ rule. Member states currently have the option of setting up coupled aid schemes in almost every major agricultural product sector. All of these options are to be retained in 2021-27 – in fact, the only change is that one additional sector is to be added to the list of sectors where coupled aid may be paid, namely the non-food biomass crop sector.

On the surface, it may seem a little mysterious that coupled aid payments should be as popular as they are, given that they significantly restrict the farmer’s freedom of operation in tying him/her to a specific form of production.

Such schemes are however often supported by the food industry, as in effect they create a semi-guaranteed supply of local raw material. Coupled aid schemes are a form of insurance policy against the risk of large numbers of local farmer either converting to a different form of production (as they would be free to do under a decoupled aid system), or abandoning production altogether.

In a sense, it can be argued that the coupled aid payments which operate in the dairy sector (in 18 member states) and in the sugar sector (in 11 member states) have the effect of negating, at least partially, the impact of the abolition of production quotas in these sectors in 2015 and 2017 respectively.

From national governments’ point of view, however, coupled aids are a way of offsetting the risk of rural desertification, which is viewed as a very real threat in a number of countries. Taking steps to ensure the continuation of beef and sheep production in a particular country or region, for example, not only keeps the livestock farmers in question in business, but also preserves the jobs of the feed merchants, abattoirs and vets who service that industry. The continued presence of grazing livestock, in areas where they might otherwise no longer be kept, can also be viewed as a positive both for the environment and for tourism in the areas in question.

For all of these reasons, and despite the complaints of agricultural economists who regard coupled aid payments as the very epitome of resource misallocation, coupled

aids are popular – and they will remain in place, at least until 2027.

Plans to make GI registrations more flexibleAnother minor adjustment proposed by the Commission which is designed to help the agri-food industry involves a move to ease the EU’s internal procedures for registering new Geographical Indications. Including wine denominations, the EU now has 3,400 GIs in place, and more are being added all the time as local producers seek to a) protect their food or drink product names against possible misappropriation by non-local producers and b) cash on the marketing boost which GI recognition always delivers.

Most of the proposed rule changes are fairly technical, but they are expressly designed to make it easier for food producers to register new GIs, and to speed up the authorisation process.

One way that this will be achieved will be to separate out the two main pre-approval functions of the EU executive – assessing compliance with intellectual property rules on the one hand, and assessing compliance of the product specifications with the relevant rules on the other – such that the process is completed more rapidly.

More powers are also to be given to national governments in making an initial assessment of the validity of a GI claim. The Commission will subsequently scrutinise applications submitted by member states, but their role will be “to ensure that there are no manifest errors and that Union law, and the interests of stakeholders outside the member state of application, are taken into account,” according to the text of the draft regulation.

1 This is not including a proposed €400 million per year ‘crisis reserve’ which would be activated if there was a call for specific interventions to deal with market crises. Unlike in 2014-2020, this crisis reserve will be rolled over from one year to the next if unused, and indeed, the Commission intends that the current reserve will be rolled over from 2020, to kick-start the new reserve as from the beginning of the MFF period. This will obviate the need for the current, slightly farcical process of levying the reserve from farmers at the start of each year, and then refunding it at the end of the year, just in time for the following year’s reserve to be created.


6. The new CAP and the environment For a policy which is as explicitly committed to a outcome-based approach as the new CAP will be, the environment represents a particularly significant challenge.

It is notoriously difficult to assess or measure the true impact of any given set of policies on something as organic and multi-faceted as the European environment, but it is nevertheless the Commission’s intention, in its proposals for the 2021-27 CAP, to deliver something which can be seen to be beneficial for the environment. This is not least because, as the Commission often points out, opinion polls in Europe often support the idea of public funding for agricultural policies if these can deliver a ‘greener’ countryside in return.

It is equally important that the new CAP’s environmental policies should be credible with farmers and land managers – after the ‘greening’ policies pursued under the current CAP plan failed to convince producers that they deliver anything more than a significant amount of bureaucratic hassle.

The Commission has therefore attempted to put together an agri-environmental programme which is less prescriptive at the farm level than the current programme, but which remains ambitious in terms of its overall impact and delivery.

The Commission’s core ‘manifesto’ on this point is set out in Recital 16 of the CAP Strategic Plan regulation:

“Bolstering environmental care and climate action and contributing to the achievement of Union environmental- and climate-related objectives is a very high priority in the future of Union agriculture and forestry. The architecture of the CAP should therefore reflect greater ambition with respect to these objectives. By virtue of the delivery

model, action taken to tackle environmental degradation and climate change should be result-driven... “

The proposals for 2021-27For the new CAP post-2021, therefore, a new architecture for agri-environmental policy is proposed – but one which is not conspicuously simpler than the existing approach. Already, environmentalist groups have criticised the Commission for a lack of ambition and commitment, and accusations of ‘greenwashing’ (i.e. introducing policies which purport to serve environmental objectives but in reality fail to do so) are already being bandied around.

The Greening rules are to disappear – but in fact their key objectives are all retained as part of new streamlined ‘Conditionality’ provisions. These thus become the key land management ‘quid pro quo’ for farmers receiving direct payments from 2021 onwards.

The rules on ‘Conditionality’ contain a mixture of two elements:

1. Statutory Management Requirements (SMRs), which require farmers to be in compliance with all existing rules relating to environmental protection, public, animal or plant health, and animal welfare),

2. Good Agricultural and Environmental Condition (GAEC) requirements, which require certain basic land-management standards to be complied with.

As such, ‘Conditionality’ is actually just a


(slightly) beefed-up version of the principle of ‘cross-compliance’ which has applied in the CAP since 2005.

The 2014-2020 ‘Greening’ requirements which have been incorporated into the 2021-27 ‘Conditionality’ rules include:

• Provisions on the maintenance of permanent grassland, based on ‘a ratio of permanent grassland in relation to agricultural area’.

• Appropriate protection of wetland and peatland.

• A ban on burning arable stubble.

• Maintenance of soil organic matter.

• Tillage management to reduce the risk of soil degradation, and avoiding leaving soil bare in winter.

• Rules on crop rotation.

A significant difference, however, is that the Commission is no longer proposing to elaborate detailed and specific management rules to apply throughout the EU. Learning lessons from the ‘Greening’ debacle, the Commission will require member states to set up implementation rules which are appropriate to local conditions, within their Strategic Plans.

Beyond these compulsory ‘baseline’ requirements, member states are also required to offer ‘opt-in’ schemes to incentivise higher-level action to benefit the environment. These include not only the long-established Agri-Environment-Climate Measures (AECMs) which have traditionally made up a key part of the CAP’s Pillar Two, but also include new ‘Eco-schemes’ which the Commission intends to make a new optional feature of Pillar One.

It is not immediately clear what the operational differences would be between the measures available under the P1 Eco-schemes and the P2 AECMs, although the former would be paid as an add-on to the basic annual payment and hence may be attractive to those farmers who would prefer to submit only one set of scheme applications per year. It is also significant that the P1 payment would be 100% EU-funded, unlike payments under P2, which will require (some) co-financing from the relevant member state – see below.

As with most other aspects of the new CAP, the precise mix of schemes and policies in the area of agri-environmental schemes will be different for each member state. The ‘menu’ choices of each member state will be established at national level and submitted to Brussels as part of that country’s CAP Strategic Plan. It will then be up to the Commission to review each plan and ensure that the schemes are in conformity with the relevant regulations and coherent with the thrust of the member state’s own stated priorities and objectives.

Budget ceilings and targets for agri-environment policyPerhaps the ultimate test of any public body’s commitment to any objective is the amount of money which that body is prepared to earmark towards achieving it. (It should go without saying that simply throwing money at an objective is no guarantee of effective delivery – but on the other hand, depriving it of money is a very effective way of guaranteeing its non-delivery).

In this case, the Commission has proposed two separate but overlapping spending targets for agri-environmental measures in 2021-27.

As has been the case in 2014-2020, the Commission is planning to require all member states to allocate at least 30% of their Pillar Two budgets to AECMs. Unlike in 2014-2020, however, expenditure on Areas of Natural Constraints and areas with other specific constraints may no longer count towards this 30% figure. Given that payments in support of ANCs make up 16.3% of total EAFRD expenditure in 2014-2020, this could trigger a significant increase in spending on actions which are specifically designed for environmental protection and enhancement – if the Commission’s proposals are retained by the Council and Parliament.

Alongside this figure would be a new target which simultaneously required member states to ensure that at least 40% of the total spending in their CAP Strategic Plans contributes to “climate change objectives”. This appears at first sight to be a challenging target, although given that member states can count 40% of their spending on decoupled aid payments towards this target – and given the preponderance of such aids in the overall

weighting of CAP spending – this may in fact be a relatively easier target to meet than the 30% target for AECs in Pillar Two.

Moreover, the proportion of the overall costs of individual agri-environment schemes which are to be funded by the European Agricultural Fund for Rural Development (EAFRD) will be higher than in 2014-2020. The proposal is for 80% of the cost of agri-environment measures to be covered by the EAFRD (and the remaining 20% by national governments), up from 75% / 25% under the current CAP.

In fact, the EU co-financing amount could be as high as 100% for any schemes funded by money which has been transferred from a member state’s Pillar One budget allocation to its Pillar Two fund, specifically for the purpose of supporting AECMs.

This is a sure sign that the Commission is seeking to prioritise investment in AECMs, especially given that for most other types of spending under Pillar Two, the EU co-financing rate is set to be reduced by 10 or more percentage points (see page 24).

A further arcane-but-significant development which offers a further indication of the elevation of agri-environmental policy up the overall CAP agenda is that the European Parliament’s Environment Committee will now have ‘Associated Committee’ status in the CAP legislative process. This gives that committee more input over the formulation of the Parliament’s position, and the ability to submit amendments directly to the Parliament’s plenary session without having to defer to the Committee on Agriculture. The likely result of this change is that MEPs’ overall position in the final conciliation talks with the Council is likely to be a little more ‘green’ than would otherwise have been the case.

A new architecture for agri-environmental policy is proposed - but one which is not conspicuously simpler than the existing approach


7. The new CAP and Brexit The imminent departure of the UK from the EU presents a number of unique agricultural policy challenges, many of which have already been discussed in this report.

For the first time, a brand new agricultural policy is to be created in a former member state which is turning its back on the CAP

The loss of the UK’s net contribution to the EU budget has deprived the EU of a significant budgetary resource which has influenced the scale of ambition for the CAP’s operations in 2021-27 and prompted a push for more efficient use of limited cash resources.

A more open question at the time of writing is the exact nature of the future trade relationship between the EU-27 and the UK once the Brexit process has been completed. In 2017, the EU-27 exported around €42 billion worth of agri-food products to the UK (and collectively imported about €18bn), so any disruption in the UK-EU trade flow would have a significant impact on the EU’s overall agri-food economy (especially for countries particularly dependent on UK trade such as Ireland, Belgium and the Netherlands).

The impact on the UK’s agri-food economy in the event of Brexit-related trade disruption would be proportionately greater than on that of the EU-27 – but by then, the UK would no longer be part of the Common Agricultural Policy.

The new UK agricultural policyIndeed, one effect of Brexit is that, for the first time, a brand new agricultural policy is to be created in a former member state which is turning its back on the CAP. This will offer a chance to compare and contrast the policies in force on either side of the English Channel.

As of July 2018 the UK government was still deliberating on its preferred post-Brexit agricultural policy (or rather, “policies” – given that farm policy implementation is devolved to the governments and assemblies of Scotland, Wales and Northern Ireland).

For the sake of (relative) simplicity, this report will focus mainly on what is known thus far about the agricultural policy for England, the largest of the four UK nations, and for which the UK Secretary of State, and Defra (the Department for the Environment, Food and Rural Affairs), have direct responsibility.

The expectation is that the UK will start to


apply its own domestic farm policy from 2021 onwards. This is because the UK and EU have reached a provisional agreement that the UK will remain de facto part of the EU during a transition period running from March 29 (the legal date of UK exit) until December 31, 2020.

During this period, the UK will continue to operate under the rules and policies of the (2014-2020) CAP, and will continue to benefit from CAP direct payments and other support programmes. This is a logical corollary of the political agreement reached in December 2017 that the UK should continue to pay into the EU budget until the end of the current Multiannual Financial Framework in 2020, so as to prevent other member states being financially disadvantaged midway through a MFF period. It would be perverse of the UK to pay its own farm subsidies solely from its own national budget, while simultaneously contributing to agricultural subsidy payments in the other 27 member states.

From 2021 onwards, however, the UK’s new agriculture policy will take shape – based on an Agriculture Bill which Defra was due to submit to the UK parliament either just before or just after its August 2018 summer recess.

What has already become clear is that England will move away from the direct payment system which has been the bedrock of CAP support since the 1990s. There will be a period of ‘agricultural transition’ once CAP membership comes to an end, during which time direct payments will continue in modified and scaled-down form, to give farmers time to adapt to the new subsidy framework. But once this transition period is over – thought likely to be in 2024 or 2025 – aid payments will end.

A ‘consultation paper’ on future agricultural policy in England, entitled ‘Health and Harmony’ and published in February 2018, set out the government’s ambitions.

“From the end of the ‘agricultural transition’, a new environmental land management system will be the cornerstone of our agricultural policy in England … It will consist of a new scheme that pays providers for delivering environmentally beneficial outcomes; and will provide support for farmers and land managers as we move towards a more effective application of the ‘polluter pays’ principle.

“Our new environmental land management system will be underpinned by natural capital principles, so that the benefits the natural environment provides for people and wildlife are properly valued and used to inform decisions on future land management. The new system aims to deliver benefits such as improved air, water and soil quality; increased biodiversity; climate change mitigation and adaptation; and cultural benefits that improve our mental and physical well-being, while protecting our historic environment.”

Precisely what form these land management supports will take remains to be decided. More detail is expected to be set out in the forthcoming White Paper, based in part on feedback from the ‘Health and Harmony’ consultation paper.

But it has already been made clear that there will be a strong focus on the principle of ‘public money for public goods’. This will involve incentives for farmers to deliver a healthy environment, but there will be a strong focus on animal welfare and public health issues as well.

During the ‘agricultural transition’ period, meanwhile, CAP-style direct payments will continue, but the consultation paper indicated that these would be gradually phased out, or at least scaled back – partly by way of preparing farms for the change in subsidy environment, but also with a view to freeing up money for the new-style land management aids that would ultimately replace them.

The system which the paper appeared to favour involved a ‘tiered’ capping system, with reductions starting to be made at a rate of 5% on direct payments over £25,000, rising in stages to a 75% reduction for payments over £200,000. This is similar in concept to the progressive capping mechanism proposed for the EU from 2021 onwards, albeit with cuts being triggered at a much lower threshold level, and with no absolute cap even on aid payments to the largest farms.

In subsequent comments to a Parliamentary committee on 13 June 2018, Secretary of State Michael Gove appeared to row back from the progressive capping idea, saying that initial feedback from the consultation process had demonstrated a “preference” for a uniform aid cut across all farm sizes. But in advance of the release of

the White Paper, it had yet to be confirmed that this would in fact be Defra policy.

The devolution dimensionIt is already clear that the other component parts of the United Kingdom are likely to pursue different farm policy options after Brexit than those followed in England. This in fact will represent a continuation of the status quo; agricultural policy is one of the legislative areas which has been devolved to the national administrations of Scotland, Wales and Northern Ireland. The difference is that at present, the policy divergence options are prescribed by the flexibilities offered under the CAP. After Brexit, by contrast, the UK must create its own framework to determine which policy issues are decided centrally for the UK as a whole, and which are devolved.

The UK government has already confirmed that the four UK nations are free to follow divergent farm policy paths, albeit within a common funding framework (the division of which is likely to be a hotly contested area), and with safeguards applied to protect the integrity of the UK’s own single market for agricultural products.

None of the devolved administrations has yet decided its plans in detail, but Scotland has made clear its preference for direct payments to continue as a core element of its post-Brexit, and is even aiming to retain coupled payments (see page 28) to support its economically vital beef and sheep industries.

Wales, by contrast, has stated an ambition to shadow England in moving away from direct payments. It plans to create instead a two-pronged support programme: an “Economic Resilience Scheme”, which will support targeted investments to farmers and their supply chains, with extra support going to hill farmers; and a “Public Goods Scheme”, which will offer grants and loans in return for specific environmental outcomes.

The situation in Northern Ireland, whose parliament is currently suspended, is not clear. Leaks from an unpublished document from Northern Ireland’s Department of Agriculture, Environment and Rural Affairs (DAERA) have suggested that NI will retain direct payments, albeit at a lower level than at present, supplemented by ‘public goods’ payments for maintaining or enhancing the environment.


Budgetary divergenceOne side-effect of Brexit is that the UK will move out of the orbit of the EU’s seven-year financial framework system and into its own electoral and budgetary ecosystem. The UK government has accordingly already set out a farm support guarantee which binds the current administration up until the year of the next general election – namely 2022. Within that period, the Government has pledged to maintain the “same cash funds” for farm support as they currently receive under the CAP (although, as has already been seen, there is no commitment to leave the policy instruments themselves unchanged during that period).

Most observers see this as a cast-iron guarantee that UK farmers will continue to receive some £3.1 billion in annual farm subsidies, as it does at present, until 2022. This holds out the (rather surprising) prospect of British farmers being financially advantaged in the first two years of Brexit as compared with their Continental neighbours, if UK farm subsidies are indeed held steady while the Brexit-induced reductions in the EU budget lead to farm subsidy cuts for the EU-27.

Beyond 2022, it is widely expected that overall UK farm spending will be reduced from current levels, although this will not become clear for some time yet.

Comparing and contrastingA comparison of the likely policy framework for England with that for the EU-27 suggests that significant policy divergences lies ahead. While the EU remains firmly committed to direct aid payments as the cornerstone of its agricultural support system, England (and Wales) have pledged to phase them out after a period of transition.

This clearly presents the risk, at least in principle, of distortions in competition between UK and other EU farmers if the latter are more heavily subsidised than the former – although, in light of the CAP budget cuts which lie ahead, this outcome is far from a foregone conclusion.

Moreover, the fact that farmers in England and Wales will be supported by policy instruments that are different from those in force in the EU-27 does not in itself mean that UK farmers will receive less support

overall. Indeed, as already discussed, it seems possible that the relative balance of financial advantage may even shift to the UK in the immediate post-Brexit period (i.e. 2021-22).

It is certainly true that the UK is less ideologically wedded to the concept of comprehensive agricultural income support than many EU member states are, and it is likely to view any longer-term divergence in EU and UK farm support budgets with relative equanimity. It already faces the prospect of divergent support schemes even within the UK. Environment Secretary Michael Gove stated in June 2018 that he regarded the prospect of Scottish farmers receiving continuing direct payments, while these were phased out in England, as simply ‘a consequence of devolution’.

In terms of wider strategic goals, the aims of the UK and EU agricultural policies are not that dissimilar. Both are seeking to deliver an improved environment, investment in smarter and more climate-friendly production systems, and more vibrant and better-connected rural communities. The EU is however placing significantly more emphasis on enhancing the resilience of what it views as essentially vulnerable agricultural producers, whereas the UK (at least at present) sees the future for its agricultural producers as being an essentially bright one.

The issue of the post-Brexit trading relationship between the UK and EU is still being resolved. It now seems clear that there will be no tariffs on trade between the two sides, but non-tariff barriers could yet cause future trade ‘friction’, unless there is ongoing deep alignment on food product standards and similar regulations.

One possible area of substantial policy divergence is over the question of live exports of animals for slaughter, which are opposed by significant sections of the UK populations, but which the UK government could not ban outright under current EU law. The ‘Health and Harmony’ consultation paper stated that the government would “take early steps to control the export of live animals for slaughter as we leave the EU” – although it quickly added: “We are mindful that farmers have to compete with overseas producers whose farm animal welfare standards may not be as robust as our own.”


8. The US and the new Farm Bill The EU is not the only major economic power which is currently in the process of overhauling its agricultural support policy. In the United States too, a major policy review is under way (as of July 2018) which will lead ultimately to a new Farm Bill being approved for the next five years.

There are Farm Bill controversies which have direct echoes on the other side of the Atlantic

In some ways, the elaboration of agricultural policy in the EU and the US follows a similar process. As in Europe, much of the legislation which gives effect to most aspects of farm support and related measures is time-limited – and many of the current rules and policies are due to expire on September 30 2018. The race is on, therefore, to agree a new five-year Farm Bill to see the country through to 2023.

And the forthcoming disputes over the CAP in the Council of agriculture ministers on the one hand, and the European Parliament on the other – the EU’s ‘co-legislators’ – are mirrored in Washington by parallel discussions of the new Farm Bill by the House of Representatives and by the Senate.

The latter discussions are much more advanced than the EU talks about CAP reform, which, as of July 2018, had only just got started.

Both the House (on June 21) and the Senate (on June 28) have approved their own versions of the Bill. Now a politically-fraught ‘conference’ process has been launched to reconcile the two drafts and create a unified Conference Report which will be referred back to House and Senate for approval. Once drafted, neither chamber may amend this Report – they will be required to either accept or reject the text as presented.

That text will also need to be signed off by the US President, which cannot be taken for granted. A Presidential veto may delay the adoption of a Farm Bill, although such a veto can be overridden by Congress if there is a two-thirds majority in favour of the Bill in both House and Senate. This is something which happened as recently as 2008, when President George Bush’s concerns over the budgetary cost of the new Farm Bill were overruled by the House and Senate.


The debate over the 2018 Farm Bill has been dominated by an issue which does not form part of the CAP – namely the Supplemental Nutrition Assistance Program, or SNAP (see below). This program provides so-called ‘food stamps’ which offer nutritional support to eligible poorer families, and free school meals for under-privileged children. (In Europe, such actions fall within the purview of social security policy, and as such they are areas of national, rather than EU, competence).

However, there are other Farm Bill controversies which have direct echoes on the other side of the Atlantic – such as funding for agri-environmental schemes, caps on subsidy payments for large farmers, and the contentious question of how to define an ‘active’ farmer.

Food and nutritionSNAP makes up the bulk (roughly 80%) of what is projected to be a US$428 billion Farm Bill budget, and it looks set to be its most controversial element.

Most analysts agree that SNAP’s slightly incongruous presence alongside the various farm income and agricultural commodity support schemes which make up the rest of the Farm Bill can be explained by pragmatic politics.

“Without SNAP you would never have a farm-only Farm Bill,” commented Roger Bernard, Senior Agriculture Policy Analyst with IEG Vantage. “The link between nutrition and farm programs is what enables a Farm Bill to get through Congress. After all, not every lawmaker has a farmer in their district, but they all have food consumers.”

The key point of contention is around proposed eligibility changes for SNAP benefits. The version of the Bill passed by the House says that able-bodied adult recipients will be required to work at least 20 hours a week, or participate in a training program, in order to receive such benefits. Democrats in the House viewed this clampdown as being excessively draconian, but were not able to prevent a Farm Bill package including this provision being approved by 213 votes to 211.

The Senate, however, voted for such work requirements to be excluded from SNAP eligibility rules. There was largely bipartisan support for the Senate’s version

of the Bill, with Senators voting 86-11 in favour.

SNAP will now become a major battleground as the two sides of Congress attempt to reconcile their differing philosophies within the conference report. “To get the report though the Senate, there will have to be some movement on work requirements,” Bernard forecast.

Conservation policyMeanwhile, an area of US farm policy which has much closer parallels with its EU counterpart is Conservation – and here too there is much work to be done in reconciling the House and Senate versions of the Bill.

The core US scheme in this area is the Conservation Reserve Program, or CRP, which functions a little like the EU ‘set-aside’ programmes of the 1990s and 2000s. Under CRP, farmers can commit to take a specified number of acres of land out of production for a period of between 10 and 15 years, in return for an annual payment. The objective is to protect environmentally sensitive land and retain it as a natural asset rather than have it cultivated.

The budget for CRP is however limited – making up around 6% of the total Farm Bill spending commitment – and so Congress needs to set a maximum acreage that can be committed to the conservation reserve. At present, participation in CRP is capped at 24 million acres (around 9.7m hectares) – a ceiling which was imposed for budgetary purposes in the 2014 Farm Bill. The House version of the Bill has called for this cap to be increased to 29m acres (11.7m ha), of which 3m acres would be reserved for grassland, while the Senate is proposing a more modest increase, to 25m acres (10.1m ha).

The total area covered by CRP is less than 10% of the US’s total cropland area of roughly 300m acres (121m ha), which is a significantly lower proportion of land than the EU has enrolled in its core agri-environmental programmes (around 26% as of 2013, according to Eurostat).

Increasing the CRP area naturally has budgetary consequences, however, and hence payment rates to farmers with CRP contracts are to be adjusted accordingly. The House proposes to limit CRP payments


to 80% of prevailing land rental rates in each US county, while the Senate, which has more modest ambitions in terms of the area enrolled, is advocating 88.5%.

All of these calculations will have to be balanced out in the upcoming conference process. Increasing the available budget would be one way of squaring the circle, but this would of course run the risk of Presidential veto if the costs were to rise excessively.

Commodity programsThere are to be no substantial changes to either of the US’s major market and income support programs – the Agriculture Risk Coverage (ARC) scheme, or the Price Loss Coverage (PLC) scheme. These commodity programs account for about 5% of the total US farm budget, while crop insurance premiums make up a further 8%.

Both the ARC and PLC schemes operate ‘counter-cyclically’, with payments under ARC issued when the actual revenue for a covered commodity is less than an historical average, while under PLC a payment is generated when the season-average price is below a guaranteed price set for the commodity in question. (All major arable commodities, and some minor ones, are covered by these schemes - namely wheat, oats, barley, corn, grain sorghum, rice, soybeans, seed cotton, sunflower seed, rapeseed, canola, safflower, flaxseed, mustard seed, crambe and sesame seed, dry peas, lentils, small chickpeas, large chickpeas and peanuts.)

“Commodity programs are not a

conference issue. But there are provisions on farm program payment eligibility which are controversial,” Bernard noted.

In an echo of the lively EU debate on similar topics, the Senate has introduced a provision into its version of the Bill which would limit support coverage to “actively engaged” farmers as opposed to non-farmer landowners – and only to individuals whose average adjusted gross income (AGI) was less than $700,000 (down from a current cap of $900,000).

The House version of the Bill, meanwhile, has no ‘active farmer’ provisions, expands the eligibility for farm program payments and would keep the eligibility AGI cap at $900,000. These are yet further discrepancies which House and Senate negotiators will have to somehow resolve before new provisions can hit the statute books.

US legislation also provides for a number of other farm support measures, such as the Margin Protection Program (MPP) for milk. This scheme was modified by Congress only recently, but further changes are envisaged under the Farm Bill, to provide a better safety net for US dairy farmers.

Completing the dealTwo separate deadlines are now bearing down on the agricultural specialists in Congress who are responsible for pulling together a ‘conference report’ that can ultimately form the basis of a new five-year support plan.

Many current Farm Bill provisions, and the

funding underpinning them, expire on September 30. In the absence of an agreement by that date, current provisions can be rolled over, but this can in itself be problematic if the budget provisions for fiscal year 2019 (which begins on October 1, 2018) are insufficient to cover the schemes in question.

A perhaps more fundamental deadline, and one which will be particularly exercising the relevant lawmakers, is the Congressional election which will be held on November 6 2018. All 435 seats in the House, and 35 of the 100 seats in the Senate, will be contested, in what is being viewed as a critical mid-term assessment by the US electorate of Donald Trump’s presidency.

“Congress will want to get things done,” commented Roger Bernard. “It won’t be easy, but lawmakers won’t want the Farm Bill hanging over them as their minds turn to the elections. But there could be other considerations that may push an eventual vote beyond that November balloting.”

Similar considerations of political mortality are underpinning the CAP reform negotiations in Europe; the European Parliament will be dissolved in the spring prior to elections in late May 2019, while the European Commission’s term of office expires in October 2019.

However, the chances of the EU’s legislative process on the CAP being wound up before these deadlines take effect are considerably slimmer than those seen in the US, where a new Farm Bill looks likely to be signed into law later this year.

Image: TommyBrison / Shutterstock.com


9. Stakeholder reactions to the new CAPOne of the few things that can be guaranteed about any proposal for reforming the CAP is that it will attract a wide spectrum of reactions from stakeholders. The Commission’s proposals for the CAP in 2021-27 are no exception, attracting praise, criticism, hope and disappointment in (not necessarily equal) measure.

The proposals’ aims are ambitious and wide-ranging, setting targets to promote greater resilience for the agriculture community, to make agricultural activity in Europe more environmentally sustainable, and to make agricultural regulation more efficient and coherent – all against the backdrop of a significantly reduced budget. The proposals will be chewed over and amended by the co-legislators in the Council and Parliament, but the Commission’s proposals will inevitably create at least a template for the eventual deal.

To gauge reaction to the plans. IEG Policy conducted a short survey of four different stakeholders, each with a very different perspective on the proposals, and with differing views on the positives and negatives of the plans on the table.

The responses of these stakeholders are set out in the following pages.


Q1: The Commission says that its proposals for the 2021-27 CAP will create a more “resilient, sustainable and competitive” agricultural sector. Would you agree with that assessment?

Ariel Brunner, Senior Head of Policy, BirdLife Europe and Central Asia:

No. The proposal completely fails to shift the CAP from perverse subsidies locking farmers into the status quo to a new policy that rewards biodiversity conservation and helps farmers face the necessary ecological transition. By vastly increasing member states freedom to choose whom and what to subsidise, while failing to build strong accountability mechanisms, the proposal opens the door to a race to the bottom that can send us back to the butter mountains and wine lakes of a generation ago. The active removal of safeguards against perverse subsidies (e.g. in irrigation expansion) shows that the message on resilience and sustainability is just empty words, while competitiveness is pursued in a 20th century logic instead of a 21st century one.

Jannes Maes, President of the European Council of Young Farmers (CEJA):

While there are undoubtedly some positive developments in the Commission’s CAP proposals, there is a lot that is disappointing. First and foremost, the reduced budget put forward in the MFF proposals will affect all farmers and perhaps most significantly those who are young and wish to enter or remain in the sector.

Agriculture will become less resilient, sustainable and competitive if less money is available to help farmers produce food to the highest standards. As a farmer, receiving a decent income is the precondition for so many of my activities. It is only through financial stability that I can innovate, improve professionally and go the extra mile in my efforts to preserve the environment I farm in.

Yves Le Morvan, agricultural policy expert at AgrIDées (a French think-tank working in the agricultural, agri-food and agro-industrial sectors):

It is difficult to be so optimistic. The

Commission’s proposals on sustainable development and climate measures could be interesting, as long as there is a significant simplification in the way they are applied. There is nothing new on competitiveness, on risk management, on economic resilience. Has the Omnibus [a mini-package of reforms agreed in 2017] already integrated everything in this area? No.

Stefan Tangermann, agricultural economist and former OECD Director for Trade and Agriculture:

There are individual elements in the proposals that have the potential to make EU agriculture somewhat more resilient, sustainable and competitive – compared with the current CAP. More attractive options for risk management can improve resilience, more emphasis on the environment and climate can enhance sustainability, and more resources for innovation can contribute to strengthening competitiveness.

But this is only in comparison with the current CAP. There would have alternative policies that the Commission could have proposed which would have been much more effective in all three dimensions. In particular, moving from direct payments per hectare to more targeted measures could have opened up entirely new horizons towards improving resilience, sustainability and competitiveness.

Q2: It can be argued that the CAP’s biggest challenge in 2021-27 is coping with a reduced budget after Brexit. Do you think the Commission’s proposed budget allocation solution is the best one available under the circumstances?

Ariel Brunner: No. The Commission is concentrating the cut on rural development, the more progressive part of the CAP, while going out of its way to safeguard direct payments which are widely proven to be ineffective and highly biased towards environmentally and socially harmful types of farming. Tight budget should call for targeting, accountability and ferocious quality control. Instead, the proposal favours protection on vested interests and allowing Member States to cater for powerful domestic lobbies.

Jannes Maes: I don’t. While it’s undeniable that Brexit will negatively affect the EU’s overall budget, diminishing the funds allocated to the CAP is not the way forwards. The CAP is socially and historically significant, and it has provided the EU’s Member States with high-quality, traceable food to consume. With a reduced budget, farmers and particularly young farmers, will struggle to make their activities viable. It must be acknowledged that the EU has changed and is faced with other concerns related to migration and defence. These should be taken into account, but not at the expense of agriculture.

Six Member States recently signed a memorandum that communicates the need for the CAP budget to be increased to its current EU-27 level. Others have expressed their support for this document vocally. It is clear that Member States recognise the vital importance of maintaining the CAP budget and the negative effects a reduced budget could have on the agricultural sector and consumers.

Yves Le Morvan: One compromise solution could be to ensure that the CAP budget was impacted solely by the agricultural consequences of Brexit, and not by the development of new policies [on defence, border protection, etc].

Stefan Tangermann: I don’t agree that the biggest challenge for the CAP in 2021-27 is coping with a reduced budget. The biggest challenge is to change the mindset of EU agricultural policy makers at all levels, away from the perception that the most important objective of the CAP is to provide farm income support, towards a much clearer understanding that public money under the CAP should be spent only on providing public goods. If that perspective were to gain more ground, then even a significantly reduced budget could achieve a lot.

Q3: The new ‘CAP Delivery Model’ puts a heavy emphasis on national Strategic Plans. Are you concerned that the policy may lose coherence or transparency as a result of this move towards subsidiarity?

Ariel Brunner: Yes. Moving to a planning logic with more freedom to member states on the “how” in exchange for more


accountability on the “what” would have been a great idea. Sadly the new delivery model is so weak that it is almost guaranteed to trigger a race to the bottom. Member States won’t really be accountable for achieving objectives but only for rolling out schemes that won’t be assessed for their quality. There will be almost no safeguards against perverse subsidies and no requirement to seriously invest in addressing the biodiversity crisis. The most likely outcome is a wide range of unrelated policies with a few Member States going ahead and many going backwards.

Jannes Maes: There are significant differences between the EU’s regions and the Strategic Plans are a way of taking this into account and tailoring specific measures to different farming realities. However, binding measures at EU level need to be put in place in order to ensure that the sector progresses. CEJA is firmly against any moves that imply a renationalisation of the CAP because it is only through having strong measures at EU level that young farmers will be able to thrive in the agricultural sector.

Member States may set themselves lower targets in the Strategic Plans in order to be sure of reaching them and not incurring penalties. The New Delivery Model therefore does not encourage ambition at Member State level. Take the ring fencing of at least 2% of national direct payments envelopes for young farmers, for example. While the intention is positive, Member States will have little incentive to ring fence more than this amount.

The CAP must remain a European policy.

Giving Member States free rein in many areas may lead to an increased disparity between countries.

Yves Le Morvan: Subsidiarity is a cause for concern. It poses the risk of distorting competition and jeopardising the integrity of the single market. One is put in mind of Non-Tariff Barriers which affect international trade negotiations.

Stefan Tangermann: No, I am not concerned – as long as the development and assessment of the national strategic plans is taken sufficiently seriously. In the CAP (and in other domains of EU policy) the principle of subsidiarity has far too long been neglected.

There are policy objectives that can and should only be pursued at the Union level. The optimal allocation of productive resources through market forces, for example, is clearly a matter for the Union. But there are also many other policy issues where member countries and even regions should have more flexibility. Many environmental matters belong in that category. What is important, though, is that member states should not only have a say in how such more differentiated policies should be designed – they should also bear more financial responsibility for them. This is, unfortunately, not part of the package now proposed by the Commission.

Q4: The Commission says that 40% of the CAP’s overall budget should contribute to environment and climate action objectives. Is that percentage about right, too little, or too much?

Ariel Brunner: The problem is not the percentage, it is the frankly fraudulent way in which the Commission proposes to achieve it. The Proposal would not actually force Member States to allocate 40% of their spending to measures addressing climate change. They will simply count 40% of what they spend, regardless of what it achieves as “climate spending” using the “Rio markers” trick already slammed by the Court of Auditors. Incredibly, even perverse subsidies such as payments for maize on drained peatlands or factory farms would count as “climate funding”.

Jannes Maes: This percentage respects the

EU’s commitment under the Paris Agreement to reduce its emissions by 40% by 2030. We don’t question this commitment or the ambition it reflects. Very often we tend to forget that farmers (especially in the south) are the first victims of further climate change. What we do ask is that positive farm practices, also current ones, are taken into account when calculating the contribution of the agricultural sector.

Yves Le Morvan: That 40% figure is more about public relations than it is about economic reality. It is legitimate to set a figure and is a matter of interest to society. But any calculation of this type runs the risks of being vague and becoming a topic for debate, and as such it will always tend to put more pressure on the agriculture sector.

Stefan Tangermann: Too little. And some of the measures counted among the 40% are not as effective as they should be. This is particularly true for the environmental and climate conditionality of the direct payments. Unfortunately the proposals even foresee a greater financial weight for direct payments as opposed to rural development and environmental/climate action.

Q5: In what ways (if any) will the new CAP make European agriculture better able to compete internationally, in light of the pending new trade agreements with the likes of Mercosur, Australia and New Zealand?

Ariel Brunner: The proposal essentially seeks a business as usual scenario, while allowing Member States to compete with each other on production subsidies (both declared and disguised). Many Governments will jump on it as a way to shield farmers, particularly the livestock sector, from the impact of falling prices. In reality this will spell disaster for EU farmers. Ever growing intensification means lower prices and continued loss of farmers and ever growing debt burden on the surviving ones. Runaway climate change and depletion of biodiversity, water and soil will sooner or later trigger a major crisis in EU farming. And locking EU producers into chasing the bulk commodities market is a suicidal strategy even in purely commercial


terms, as the EU competitive advantage is in quality – and its biggest potential advantage could be in sustainability.

Jannes Maes: Due to its reduced budget, the CAP may be detrimental to European agriculture’s ability to compete internationally. European farmers produce food to a very high standard, but reduced funds could negatively affect this. The CAP, combined with some other key policies such as the Unfair Trading Practices regulation and the ambition on market transparency, should be capable of helping farmers to become more market-orientated. Whether that market is in my village or the other side of the world, I should be able to be competitive. But it is clear that a strong CAP is worthless if not combined with the same attention for agriculture in trade agreements or negotiations at the WTO.

Yves Le Morvan: There is nothing new in [this version of] the CAP. The international competitiveness of European agriculture depends rather more on possible changes to the Common Commercial Policy, and on the health and food safety regulations which apply on the internal market.

Stefan Tangermann: More emphasis on, and greater financial resources devoted to, innovation through research, and measures bringing its results to the farmer’s fields, have the potential to improve competitiveness as they can enhance the productivity of EU agriculture. Unfortunately there are, though, also elements in the proposed package that can work in the opposite direction. Support for young farmers can, if it attracts

operators into agriculture who would have worked in other sectors if it were not for these subsidies in the farming industry, reduce productivity. Coupled payments distort the allocation of resources and reduce market orientation.

Q6: In your view, what is the most positive innovation or change within the Commission’s latest CAP proposals?

Ariel Brunner: The proposal includes a few potential improvements. Excluding the support to “areas of natural constraint” from environmental spending might release some badly needed money for genuine environmental schemes. Some improvements are being introduced to conditionality, notably on water and pesticides, but much depends on how this is enforced (in the past Member States have been allowed to cut cross compliance both on paper and through poor controls and sanctions). The move to programming and requiring Member States to justify payments against explicit objectives could be a positive revolution, but it would require a much more coherent set of indicators and objectives, and a much tighter accountability system then the one on the table.

Jannes Maes: The Commission’s inclusion of a definition of a “genuine farmer” is a positive development. Having this definition in place will enable supports to be better targeted. While the specificities are left up to the Member States, Article 4.d of the proposals says that “genuine farmers shall be defined in a way to ensure that no support is granted to those whose agricultural activity forms only an insignificant part of their overall economic activities or whose principal business activity is not agricultural, while not precluding from support pluri-active farmers.”

Yves Le Morvan: Support for generational renewal; and the specific budget of €10 billion (in the Horizon Europe Programme) to support innovation in food, agriculture, rural development and the bioeconomy.

Stefan Tangermann: The emphasis on performance of policy instruments pursued under the CAP, as opposed to administrative compliance, is a helpful innovation of the

policy regime. If taken seriously it has the potential to create more transparency and raise awareness regarding what the policy is expected to achieve.

Q7: ... And which would you say was the most unhelpful or unwelcome change?

Ariel Brunner: The combination of massive budget cut to Pillar 2 and the de facto scrapping of environmental earmarking in Pillar I risks stopping in its tracks the reorientation of the CAP towards dealing with environmental crisis. The complete lack of any ring-fencing of money for biodiversity almost guarantees that the EU will fail to even try to stem the ongoing collapse of nature. The huge expansion of flexibility to support pet sectors and well connected farmers, combined with weakening of safeguards against environmentally perverse subsidies and coupled support for biofuels is extremely worrying. On the environmental side we are likely to see more support for irrigation expansion, drainage, monocultures and factory farming. In terms of farm policy we are likely to see more trade distortion and unfair treatment of farmers, more political corruption and a serious erosion of the legitimacy of the common market.

Jannes Maes: Though it is a matter that has come about because of the MFF proposals, the reduction in the CAP budget is the most unwelcome change.

Yves Le Morvan: Is subsidiarity compatible with simplification? You cannot have an effective policy with an overly weak budget.

Stefan Tangermann: What is most unwelcome is the lack of change. In most of its central features the CAP will remain what it is now, rather than being fundamentally reformed. The most obvious and disappointing lack of change is the continued existence of coupled payments. It is so evident that coupled payments run entirely against the spirit of more market orientation that was central to past CAP reforms and is still so frequently invoked. And how can the proposal to maintain outdated coupled payments, running against all principles of effectiveness and efficiency, co-exist with an emphasis on assessing the performance of policy measures?Image: Artistan / Shutterstock.com


10. CAP reform comparison: 2015-20 vs 2021-27, sector-by-sectorThe new CAP will introduce a number of changes in approach as compared with the current (2015-2020) version of the policy. In most respects, the changes are less than radical, and there will be a significant amount of policy continuity. But there will be changes to the rules for direct payments, for market support and for rural development. There will also be a significant shift in the way EU agriculture policy is programmed and administered, with a heavy focus on CAP Strategic Plan for each member state.

In the table on the following pages, IEG Policy sets out how the CAP reform package, as proposed by the Commission, will compare and contrast with the current CAP, topic-by-topic.


Table 5: CAP 22015-2020 vs CAP 2021-27 sector-by-sector

Topic 2015-2020 2021-2027 (proposed)

GeneralDelivery Mechanism Centralised rules for Pillar One aid

payments (albeit with significant areas of national and regional flexibility). Compliance with rules monitored by member states.

National / regional schemes in Pillar Two comprising elements selected from central ‘menu’ and approved by Commission.

Each Member State sets out a CAP Strategic Plan, comprising elements from both Pillars 1 and 2. The Plan is aimed at addressing 9 specific objectives, as follows:

1. support viable farm income and resilience across the Union to enhance food security;

2. enhance market orientation and increase competitiveness, including greater focus on research, technology and digitalisation;

3. improve farmers’ position in the value chain;

4. contribute to climate change mitigation and adaptation, as well as sustainable energy;

5. foster sustainable development and efficient management of natural resources such as water, soil and air;

6. contribute to the protection of biodiversity, enhance ecosystem services and preserve habitats and landscapes;

7. attract young farmers and facilitate business development in rural areas;

8. promote employment, growth, social inclusion and local development in rural areas, including bio-economy and sustainable forestry;

9. improve the response of EU agriculture to societal demands on food and health, including safe, nutritious and sustainable food, food waste, as well as animal welfare.

Member states define eligibility criteria at national level.

Commission approves and signs off Strategic Plans.

Member states report annually on progress made on implementation, using system of common indicators.

Direct PaymentsBasic Payment Annual decoupled Basic Payment paid per

eligible hectare.

Amounts may be differentiated on regional basis.

Basic Income Support paid in form of annual decoupled payment per eligible hectare.

Amounts may be differentiated “amongst different groups of territories faced with similar socio-economic or agronomic conditions”.


Basis of aid entitlement Entitlement created based on entitlements under 2007-2013 CAP (except where full regionalisation applied in that period).

Entitlement to Basic Income Support based on either:

a) individual entitlements to Basic Payment + Greening in 2014-2020; or

b) unitary amount per hectare.

Pillar Fund Transfers All member states may transfer up to 15% of their P1 allocation over to P2.

All member states may likewise transfer up to 15% of their P2 funds to P1 – or up to 25% for countries receiving less than 90% of the EU average direct payment allocation.

Funds transferred to P2 do not have to be matched with any national co-funding from the country concerned.

All member states may transfer up to 15% of their P1 allocation over to P2.

All member states may likewise transfer up to 15% of their P2 funds to P1 – or up to 30% if the additional 15% is allocated to environmental- and climate-related objectives.

Funds transferred to P2 do not have to be matched with any national co-funding from the country concerned.

Single Area Payment Scheme (SAPS) Simplified decoupled aid payment applied by 11 of 13 ‘new’ member states (all bar Slovenia and Malta).

All farmers have unitary per-hectare entitlements calculated on a national basis.

Simplified cross-compliance rules apply.

No provision for SAPS in 2021-27.

Capping of Aid Payments Minimum 5% ‘tax’ charged on all basic direct payment amounts over €150,000.

Only applies to BPS/SAPS payment - ‘greening’ payment is exempt. Salary costs for farm workers may be deducted before tax is applied.

Member states may choose to apply tapered threshold, and tax rate may range from 5% to 100%.

Member states exempted from capping if redistributive payment scheme is operated instead.

Member States obliged to cap direct payments over €60,000 as follows:




• by 100% for amount exceeding €100,000.

Member States must subtract salaries and other direct and indirect labour costs from direct payment amount for capping purposes.

Money saved by capping used to finance complementary redistributive scheme, and/or Rural Development measures.

Redistribution of Aid Payments Optional alternative to capping, whereby at least 5% of member state’s P1 envelope held back to be redistributed on the ‘first’ hectares of recipient farms.

Top-ups of up to 65% of the national/regional average per hectare

Granted either for a maximum of 30 hectares per holding, or a maximum equivalent to a country’s average farm size.

Compulsory additional redistributive income support payment.

Support redistributed from bigger to smaller farms via annual decoupled payment per eligible hectare.

Member states establish an amount per hectare, or different amounts for different ranges of hectares, as well as the maximum number of hectares per farmer on which the redistributive income support is paid.


Internal Convergence (Regionalised aid) All member states must adapt individual farmers’ aid entitlements to move at least part of the way towards uniform area-based payments at regional or national level.

The gap between a farmer’s payment per hectare and 90% of the national/regional average in 2015 must be reduced by at least one-third by 2019.

All farmers must receive at least 60% of the national or regional average payment by 2019.

Member states also have the option of limiting the loss to any individual farmer’s subsidy level between 2015 and 2019, as a result of this process, to a maximum of 30%.

Member States must ensure that by 2026 at latest, all payment entitlements have a value of at least 75% of the average unit amount for basic income support.

Member states to establish maximum value for payment entitlements by 2026 at least.

Member states have the option of limiting the loss to any individual farmer’s subsidy between 2021 and 2027, as a result of this process, to a maximum of 30%.

External Convergence Member states with an average payment per hectare currently below 90% of the EU average see a gradual increase in their envelope such that the difference between their current rate and 90% of the EU average will be closed by one-third between 2014 and 2019.

All member states must also reach an average level of at least €196/hectare by 2020.Countries receiving allocations above the EU average see their envelopes adjusted downwards to fund this partial equalisation.

Member States with an average support level below 90% of the EU will close 50% of the gap to 90% of the EU average in six gradual steps, starting in 2022.

All Member States contribute to financing this convergence (i.e. built into annual P1 budget ceilings).

Greening Payment 30% of each farmer’s entitlement is paid dependent on compliance with specific EU-wide requirements aimed at benefiting the climate and environment.

Certain measures are approved as ‘equivalent’ in terms of benefit.

Organic producers and small farmers exempt from greening.

There are three types of Greening measure:

• Crop diversification: Farmers with 15-30 hectares of arable land must cultivate at least two crops - farmers cultivating more than 30ha of arable land must grow at least three crops. Holdings with more than 75% of their area under grass are exempted.

• Permanent grassland: Farmers may convert no more than 5% of their permanent grassland to cropland.

• Ecological Focus Areas (EFAs) have to be established on at least 5% of a farmer’s arable land area.

Non-compliance means no greening payment, and also a penalty amount deducted from the separate BPS/SAPS payment.

Greening rules discontinued: some principles carried forward into new concept of Conditionality.

Member states must offer voluntary agri-environment-climate schemes under P1. These will support “agricultural practices beneficial for the climate and the environment”.

Measures must be “different from commitments in respect of which payments are granted under [Pillar Two]”.

Paid as annual payment per eligible hectare, either as:

• top-up to the basic income support; or

• payments to compensate for all or part of the additional costs incurred and income foregone.


Cross-Compliance Rules ‘Cross-compliance’ system requires all CAP direct aid payment beneficiaries to comply with key EU legislation on environment, climate change, agronomic health, public, animal and plant health, and animal welfare.

Two key elements:

1. 13 Statutory Management Requirements (SMR).

2. A set of basic Good Agricultural & Environmental Condition (GAEC) rules.

Member states check compliance and may apply penalties for failure to meet these standards.

Replaced by new system of Conditionality.

To receive their income support payments, farmers must comply with:

• 16 Statutory Management Requirements (SMRs) relating to a) climate and environment, b) public, animal and plant health, and c) animal welfare.

• 10 Standards for Good Agricultural and Environmental Condition of land (GAEC).

Member States to define, at national or regional level, minimum standards for GAEC.

An ‘early warning’ system will apply to advise farmers of minor cases of non-compliance (without penalty being applied), unless same compliance has previously been notified.

In the case of non-compliance due to negligence, farmers to be fined 3% of the total amount of payments.

A ‘higher’ penalty (unspecified, but up 100% and for one or more calendar years) may apply for repeat offences or intentional non-compliance.

Member States may retain 20% of the amounts resulting from the application of these reductions.

Voluntary Coupled Aid (VCA) Scheme Coupled support may be granted for nearly all CAP products other than tobacco.

In principle a maximum of 13% of Pillar 1 envelope may be allocated, plus additional 2% for protein crops. Separate crop-specific payment for cotton.

Option retained largely as at present, with additional option to create coupled aid schemes for non-food biofuel / biomass crops.

Maximum of 10% of Pillar 1 may be allocated, plus additional 2% for protein crops.

Separate crop-specific payment for cotton.Financial Discipline If payment commitments under P1 look

likely to exceed the available budget, linear cuts are imposed on all subsidy amounts over €2,000.

Croatia is exempted.

If payment commitments under P1 look likely to exceed the available budget, linear cuts are imposed on all subsidy amounts (the €2,000 threshold is removed).

This reserve, once created, may be rolled-over from one budget year to the next if not required in the year that it is initially levied.

Croatia is exempted until 2022 (when its 10-year phasing-in period for direct payments is complete).

P1 Top-Ups in Areas Facing Natural Constraints

Up to 5% of each member state’s P1 envelope may be used for top-up aid payments to farmers in Area with Natural Constraints (ANC).

Option only chosen by two member states.

ANC support to be focused exclusively within Pillar Two (within each member state’s CAP Strategic Plan) from 2021.


EU ‘Active Farmer’ Rules An EU-wide ‘negative list’ is created of types of land-owning entity that are deemed ineligible for payment because agriculture is not their primary business. Since 2018, member states may choose not to apply this list.

Member States define in their CAP Strategic Plans which farmers are not considered ‘genuine farmers’, based on a set of conditions and criteria. “Pluri-active farmers” (those who are actively farming but who are also engaged in non-agricultural activities) are not excluded from support.

Small Farmers Member states may choose to implement a Small Farmer Scheme under which a fixed annual payment is paid to eligible farmers. Participants are exempt from ‘greening’ and have simplified ‘cross-compliance’ requirements. For most member states, the annual payment must not be lower than €500 or higher than €1,250 (it may be lower for some member states). Up to 10% of a member state’s P1 envelope may be used for the SFS.

Member States may grant “round sum” payments to small farmers, as defined by member states, instead of the standard direct payments. These schemes will be designed by member states as part of their CAP Strategic Plan.

Young Farmers Member states are obliged to offer top-up aids to new young farmers. Those under the age of 40 receive a 25% supplement (up to 50% in some circumstances), paid on top of his/her basic payment, for five years, or until he/she turns 40.

Up to 2% of national P1 envelopes must be used to finance these top-up payments.

The number of hectares eligible for the extra payments must be between 25ha and 90ha per farm.

Member states may apply Complementary Income Support for young farmers as part of their CAP Strategic Plans.

Where this support is provided, at least 2% of national P1 envelope must be allocated to it.

Annual decoupled payment per eligible hectare payable to “young farmers who have newly set up for the first time” (eligibility not further defined).

Measures to support young farmers also available via P2, including increased “installation allowance” of up to €100,000.

EU Farm Advisory System All member states must have a Farm Advisory System for CAP beneficiaries. The scope must cover at least the obligations at farm level resulting from cross-compliance standards and the environmental “greening” requirements.

CAP Strategic Plans must include Farm Advisory Services for CAP beneficiaries.

Market SupportMarket Support Regulation Comprehensive basic regulation covering

different types of market support set out in Regulation 1308/2013.

Reg. 1308/2013 remains in force - amendments introduced by new Regulation.

Operational Programmes No provision. Elements of market support also to be covered within national CAP Strategic Plans.

Operational Programmes (OPs) to be included in Strategic Plans – compulsory in some sectors, optional in others.

OPs delivered by Producer Organisations (POs).

OPs to have duration of minimum of three and maximum of seven years.

EU funding for OPs to be limited to 50% of programme cost and limited to maximum 5% of value of production marketed by PO.


Intervention and Private Storage Aid Provisions set out in Reg 1308/2013 for intervention and PSA for butter and skimmed milk powder (and, under given conditions, for other commodities as well).

No reference to intervention / PSA in new draft Reg – which means current provisions remain in force.

Crisis Reserve Reserve intended to provide “additional support in the case of major crises”.

Crisis Reserve fund is €459.5m in 2018

Funded by linear cuts to most P1 direct payments via Financial Discipline mechanism.

Unused Crisis Reserve funds in a given year are reimbursed to farmers the following year.

New-style agricultural reserve for safety-net measures “in the context of market management or stabilisation and/or in case of crises affecting agricultural production.”

Amount of reserve = “at least €400 million”.

Unused amounts from crisis reserve in financial year 2020 rolled forward to financial year 2021 to create reserve; an annual roll-over of the unused amounts will apply thereafter.

Market Support for Fruit and Vegetables Support channelled through fruit and vegetable Producer Organisations (POs).

POs set up ‘Operational Programmes’ which can last from 3-5 years.

Funds financed by contributions from members (50%) and CAP P1 (50%).

Operational programmes aimed at at least two of the following objectives:

• planning of production

• improvement of product quality

• boosting products’ commercial value

• promotion of products, whether in fresh or processed form

• environmental measures and production methods respecting the environment

• crisis prevention and management

Operational programmes to be integrated into each member state’s CAP Strategic Plans.

Mandatory for every member state.

Essential elements of programmes to remain unchanged. Programmes to be financed by EAGF (i.e. within Pillar One) .

Market Support for Wine Wine growers eligible for Direct Payments unless member state makes other provisions.

Controls on plantings of new vines.

Member states may draw up national support programmes - partly funded from P1 budget.

National support programmes may include:

• product promotion

• restructuring and conversion of vineyards

• green harvesting

• mutual funds

• harvest insurance

• investments

• innovation in the wine sector

• by-product distillation


Mandatory for all wine-producing member states.

Essential elements of programmes broadly unchanged. Programmes to be financed by EAGF (i.e. within Pillar One).


Apiculture Member States may draw up national programmes lasting three years, to cover:

• technical assistance

• bee health

• improved marketing

• measures to support restocking of hives

• market monitoring

EU co-financing rate of 50%.


Mandatory for all member states.

Programmes to be financed by EAGF (i.e. within Pillar One).

Olive Oil and Table Olives Recognised olive oil producer organisations (POs) may draw up three-year work programmes co-financed by EU budget. These cover following areas:

• Market management

• Reduction of environmental impact

• Improved sector competitiveness

• Improving product quality

• Traceability and certification

• Dissemination of information

EU support for these measures capped at maximum 75% of cost.

Member states may choose to include operational programme as part of CAP Strategic Plans.

Schemes may include measures to address:

• Improving organisation and management of production

• Improving sector competitiveness through modernisation

• Reduction of environmental impact

• Improving product quality

• Research and development

• Crisis prevention and management

EU support for these measures capped at maximum 75% of cost.

Other Sectors No specific provisions. Member states may choose to include operational programme as part of CAP Strategic Plans.May cover any CAP sector other than ethyl alcohol or tobacco.

Schemes may include measures to address:

• Planning of production, adjusting production to demand, optimisation of production costs, and stabilising producer prices.

• Concentration of supply

• Research and development

• Promoting environmentally-friendly production systems

• Mitigating and adapting to climate change

• Improving product quality (including GIs and national quality schemes)

• Promotion and marketing

• Crisis prevention and risk management

Rural Development and Agri-Environment PolicyRural Development Policy Decentralised policy based on national or

regional Rural Development Programmes.

Governed by separate Regulation (1305/2013).

Funded by European Agricultural Fund for Rural Development (EAFRD).

All schemes co-financed by member states.

Decentralised policy consisting of programmes integrated into each member state’s CAP Strategic Plan.

Governed by CAP Strategic Plan Regulation (same legal basis as for direct payments).

Funded by European Agricultural Fund for Rural Development (EAFRD).

All schemes co-financed by member states.


Structure of Rural Development Scheme Six key ‘priority areas’:• fostering knowledge transfer and

innovation;

• enhancing competitiveness and farm viability;

• promoting food chain organisation, processing and marketing, and risk management;

• restoring, preserving and enhancing ecosystems;

• promoting resource efficiency and supporting ‘a low-carbon and climate-resilient economy in agriculture’;

• promoting social inclusion, poverty reduction and economic development in rural areas.

Eight policy measures covered:• environmental, climate and other

management commitments;

• natural or other area-specific constraints;

• area-specific disadvantages resulting from certain mandatory requirements;

• investments;

• installation of young farmers and rural business start-up;

• risk management tools;

• cooperation;

• knowledge exchange and information.

Minimum funding allocations per scheme At least 30% of total EAFRD contribution allocated to agri-environment-climate schemes (including measures in favour of ANCs).

At least 5% of EAFRD contribution allocated to LEADER projects.

At least 30% of total EAFRD contribution allocated to agri-environment-climate schemes (excluding measures in favour of ANCs).

At least 5% of EAFRD contribution allocated to LEADER (community-led local development) projects.

Avoidance for double-funding for agri-environment-climate measures in P1 and P2

Where land management requirements under any agri-environmental scheme do not go beyond the ‘greening’ requirements set out in Pillar 1, level of payment may be reduced proportionately to avoid risk of ‘double-funding’ for same activity.

Commitments supported under P2 must be “different from commitments in respect of which payments are granted under [P1]”.

Commitments in either cases must go beyond basic Conditionality requirements.

Natural or other area-specific constraints Payments under P2 (also optionally under P1) for producers in Area with Natural Constraints (ANCs).Review of eligible areas due to be completed in 2018.

Payments for “natural or other area-specific constraints” under P2.

Eligible areas as established in 2018.

Co-financing of rural development measures

EAFRD co-funds measures as follows:

• up to 85% in less developed regions, the outermost regions and the smaller Aegean islands.

• 75% in ‘transition regions’ whose GDP per capita for the 2007-2013 period was less than 75% of the average of the EU-25 for the reference period but whose GDP per capita is above 75% of the GDP average of the EU-27.

• 63% in other ‘transition regions’.

• 53% in all other regions.

But co-financing rates of 75% apply for measures relating to environment and climate change mitigation, 80% for LEADER projects, and 100% for financial instruments (income insurance etc).

EAFRD co-funds measures as follows:

• 70% in less developed regions, the outermost regions and smaller Aegean islands.

• 65% for payments for natural or other area-specific constraints.

• 43% in the other regions.

But specific co-financing rates of 80% apply for:

• agri-environment-climate measures.

• ‘non-productive’ investment grants.

• European Innovation Partnership grants.

• LEADER (community-led local development) projects.

Co-financing rates of 100% apply for operations receiving funding which has been transferred to EAFRD from P1.


Risk Management Risk management tools available under P2.

Insurance and mutual funds for crop damage, animal disease and climatic/environmental incidents.

Income stabilisation tool (IST) option available – farmers receive up to 70% of income loss if income falls by at least 20% below a three-year average.

IST may operate on sector-specific basis from 2018.

For every €1 paid in by the farmer, an additional €0.65 is topped-up from P2.

Risk management tools available under P2, to be specified in CAP Strategic Plans.

Member states may provide:

• financial contributions to premiums for insurance schemes;

• financial contributions to mutual funds, including set-up costs.

Income losses of at least 20% to be covered.

Member States to cover up to 70% of eligible costs.


• Economic modelling and forecasting• Economic analysis and policy evaluation• Economic and policy impact assessment• Economic impact of technological change• Scenario planning• Market information and statistics• Market, sector and micro-economic analysis

• Policy and legislation monitoring and business impact analysis

• Trade and economic analysis• Financial investment and due diligence• Business impact analysis and strategy• Training and institutional development

Contact us today to see how we can help you and your business achieve tangible results.

Policy change can have major impacts on the agri-food and bioenergy sectors, as well as on the overall macro economy. In the EU, policy makers must address the direct impact of Brexit as well as the shape of the Common Agricultural Policy post-2020. This will be impacted by the post-2020 EU budget agreement as the EU loses its second largest net contributor.

A host of policy issues – both directly and indirectly impacting agriculture – are being discussed around the world. These involve trade agreements, environmental regulations, climate change and renewable fuels/bioenergy, approach to GMOs.

There is considerable uncertainty about what the new agri-food and bioenergy policies might look like and what they may mean for businesses operating along the value chain. Are you prepared for these changes and how they will impact your business?

Informa’s Agribusiness Consulting provides agricultural policy and economic consulting services that can help you understand the impact of policy on your business. We offer a range of services, including:

https://agribusinessintelligence.informa.com/products-and-services/consulting

Expert Agribusiness Consulting

Dr. Dylan Bradley:Senior Consultant European Agribusiness Consulting+44 (20) 701 [email protected]

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