EU shifts farm subsidies from production to rural development, climate change and bioenergy

The EU's Council has come to an agreement that will help reform the Common Agricultural Policy (CAP). It shifts subsidies away from agricultural production and towards conservation, the fight against climate change and bioenergy. A key aim is to make agriculture more responsive to market forces and to avoid overproduction of food. Liberalisation of the milk sector and a phase out of quota was agreed on too. Importantly, the set-aside rule is abolished, as is an energy crop premium.

Negotiations began under the Slovene Presidency with the publication of Commission proposals last May and ended between the 27 Member States late last night, following European Parliament’s opinion which was given the same morning.

The agreement mainly covers the following points:

Shifting money from direct aid to Rural Development: Currently, all farmers receiving more than €5,000 in direct aid have their payments reduced by 5 percent and the money is transferred into the Rural Development budget. This rate will be increased to 10 percent by 2012. An additional cut of 4 percent will be made on payments above €300,000 a year. The funding obtained this way may be used by Member States to reinforce programmes in the fields identified as "key challenges": (1) climate change, (2) bioenergy, (3) water management, (4) biodiversity, (5) innovation linked to the previous four points and (6) for accompanying measures in the dairy sector. This transferred money will be co-financed by the EU at a rate of 75 percent and 90 percent in convergence regions where average GDP is lower.

Phasing out milk quotas: As milk quotas will expire by April 2015 a 'soft landing' is ensured by increasing quotas by one percent every year between 2009/10 and 2013/14. For Italy, the 5 percent increase will be introduced immediately in 2009/10. In 2009/10 and 2010/11, farmers who exceed their milk quotas by more than 6 percent will have to pay a levy 50 percent higher than the normal penalty.

Decoupling of support: The CAP reform "decoupled" direct aid to farmers i.e. payments were no longer linked to the production of a specific product. However, some Member States chose to maintain some "coupled" – i.e. production-linked - payments. These remaining coupled payments will now be decoupled and moved into the Single Payment Scheme, with the exception of suckler cow, goat and sheep premia, where Member States may maintain current levels of coupled support.

Assistance to sectors with special problems ('Article 68' measures): Currently, Member States may retain by sector 10 percent of their national budget ceilings for direct payments for use for environmental measures or improving the quality and marketing of products in that sector. This possibility will become more flexible. The money will no longer have to be used in the same sector; it may be used to help farmers producing milk, beef, goat and sheep meat and rice in disadvantaged regions or vulnerable types of farming; it may also be used to support risk management measures such as insurance schemes for natural disasters and mutual funds for animal diseases; and countries operating the SAPS system will become eligible for the scheme.

Extending SAPS: EU members applying the simplified Single Area Payment Scheme will be allowed to continue to do so until 2013 instead of being forced into the Single Payment Scheme by 2010.

Additional funding for EU-12 farmers: €90 million will be allocated to the EU-12 to make it easier for them to make use of Article 68 until direct payments to their farmers have been fully phased in.

Using currently unspent money: Member States applying the Single Payment Scheme will be allowed either to use currently unused money from their national envelope for Article 68 measures or to transfer it into the Rural Development Fund.

Investment aid for young farmers: Investment aid for young farmers under Rural Development will be increased from €55,000 to €70,000.

Abolition of set-aside: The requirement for arable farmers to leave 10 percent of their land fallow is abolished. This will allow them to maximise their production potential.

Cross Compliance: Aid to farmers is linked to the respect of environmental, animal welfare and food quality standards. Farmers who do not respect the rules face cuts in their support. This so-called Cross Compliance will be simplified, by withdrawing standards that are not relevant or linked to farmer responsibility. New requirements will be added to retain the environmental benefits of set-aside and improve water management.

Intervention mechanisms: Market supply measures should not slow farmers' ability to respond to market signals. Intervention will be abolished for pig meat and set at zero for barley and sorghum. For wheat, intervention purchases will be possible during the intervention period at the price of €101.31/tonne up to 3 million tonnes. Beyond that, it will be done by tender. For butter and skimmed milk powder, limits will be 30,000 tonnes and 109,000 tonnes respectively, beyond which intervention will be by tender.

Payment limitations: Member States should apply a minimum payment per farm of €250, or for a minimum size of 1 hectare or both. Alternatively, they may apply a coefficient on 250€ and 1ha, based on the comparison between the EU average farm size and payment and the national average.

Energy crop premium: The energy crop premium will be abolished.

The outcome of this dossier is the result of intense and effective dialogue and coordination led by the Presidency (currently: France) with the Member States, the European Commission and European Parliament:
energy :: sustainability :: biomass :: bioenergy :: rural development :: climate change :: Common Agricultural Policy :: subsidies :: European Union ::

The ministers of the 27 also reached an agreement on the proposed free distribution of fruit and vegetables in schools. An innovative project, this new mechanism, whose budget amounts to over €90 million, will contribute to improving the balanced diet of the youngest.

The agreement is part of a substantial reform of the CAP, dubbed a "health check", that has been going on for the past few years. The new changes build on a major CAP reform enacted in 2003, which broke the link between farm production and subsidies.

Critics say the EU's subsidies distort world markets and harm farmers in developing countries, by guaranteeing prices for farmers in the EU.

Before the 2003 reforms, which "decoupled" subsidies from production, the EU was widely criticised for the accumulation of butter mountains and wine lakes.

The CAP is the EU's single biggest expenditure item, accounting for about 45% of its budget. In 2006, total CAP spending was €50 billion, seriously distorting world agricultural markets.

References:
European Commission, DG Agriculture: Agriculture: CAP Health Check will help farmers meet new challenges - November 20, 2008.

Presidency of the Council (France): Agriculture and Fisheries Council: ministers set to conclude the health check of the CAP - November 18, 2008.