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Beginner’s guide to EU Common Agricultural Policy

05 Jul 2010. Including a timeline of measures under pillar one.

In June 2003, the Common Agricultural Policy (CAP) was reformed with the aim to reduce subsidy payments and to create more market-orientated agriculture in the European Union (EU). The main reform elements included a shift from product support to supporting the producers and a shift of focus from “pillar one” – that is, direct payments, funded by the EU budget – to “pillar two”, which consists of the Rural Development Programmes (RDP), co-financed by the EU and member states.

For pillar one, the reforms stipulated the introduction of the Single Payment Scheme (SPS), which involves payments decoupled from actual production to farmers. Payments became linked to historic production entitlements (reference period 2000 to 2002), but there was also an option for a regional hectarage payment, or a combination of the two. The first stage of these changes started in 2005, with options for retaining some “coupled” payments in several sectors. Under the second stage of the CAP reform process, which started in 2010, almost all of the “coupled” payment options must be removed.

Time line of CAP measures

Reforms for olive oil, cotton, tobacco, and hops (the “Mediterranean package”) were negotiated separately in April 2004 because of the “high dependency of less-favoured areas [a specific EU-term] on a single culture, the existence of traditional farming and the importance of preserving rural areas”. It was decided that decoupling payments for those crops could be delayed until 2007. In the transition phase until 2010, member states could either completely decouple tobacco subsidies from production (as Greece, Belgium and Austria did) or continue to link up to 60 per cent of subsidies to production (implemented by Germany, Italy, France and Spain).

Furthermore, the phasing out of coupled support was to be accompanied by the provision of financial support to restructure tobacco-producing regions under pillar two of the CAP – a move that was contested by the tobacco-producing member states. This means that, starting in 2010, 50 per cent of direct (decoupled) payments will go to restructuring programmes and no longer direct to farmers. Not all tobacco-growing countries have restructuring programmes for the tobacco sector, though. Poland, for example, has implemented none.

Because of the lack of previous subsidy payments, and thus reliable reference data in most new member states, and to ease the administrative burden on farmers in the wake of EU accession, a different payment system was created especially for the accession countries: the Single Area Payment Scheme (SAPS). Unlike the SPS, which was linked to historic production, SAPS is a flat-rate payment per hectare for all agricultural land, including non-farm land. All farmers, irrespective of the crops they cultivate, or whether they cultivate any at all, receive the same amount per hectare.

The national SAPS envelope is calculated by dividing the annual national financial envelop of a member state, as specified in the accession agreements, by the actual agricultural area under SAPS in a given year for which aid is applied for. For example, at accession the national tobacco quota for Poland was set at 38.000 tonnes, and later raised to 42.000 tonnes.

Importantly, SAPS payments are being phased in gradually, reaching 70 per cent in 2010 and only achieving 100 per cent of the SPS funds paid to the old member states by 2013 (see also table).

Because of this grave disadvantage, the new member states negotiated the possibility to top up payments with additional funds from their own national budget. These so-called Complimentary National Direct Payments (CNDP, or top-up) would bring the level of direct support closer to the level applicable in the old member states. Though not EU-financed, top-up payments are nonetheless subject to the same rules as direct payments, for example, they require authorisation by the European Commission each year and cannot exceed the maximum level of support in old member states. This is why top-up payments are fully decoupled and, because national SAPS envelopes are reduced in conformity with SPS envelopes total national top-up payments in 2010 are also effectively 50 per cent lower than in 2009.

The CAP reforms soon revealed unintended and, for many, unacceptable results, particularly the unequal distribution of payments among farmers. In 2008, the Commission’s paper “Preparing the Health Check of the CAP reform”, which was originally intended to assess the implementation of the reform and to introduce necessary adjustments, turned into the most comprehensive reform catalogue since 2003, as it became the last chance to adapt the reform process before 2013 (the budget review had started at the end of 2008).

Taking effect in January 2009, the agreement on the Health Check of the Common Agricultural Policy (Council Regulation No 73/2009) put additional resources into tackling environmental challenges, such as supporting renewable energies to combat climate change, but also addressed previous shortcomings, such as assisting the dairy sector in restructuring. Another important adjustment was that the new member states were allowed to extend the Single Area Payment Scheme until 2013, instead of having to switch to the Single Payment Scheme by 2010.

Under Article 68 of the Health Check reforms, options for specific support measures were established for sectors with special problems. Before the Health Check reforms, member states could already retain – by sector! – ten per cent 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 was broadened in that funds (i.e. the direct payments that were granted for a specific crop) no longer have to be used in the same sector. Funds can be used to support farmers in disadvantaged regions, vulnerable types of farming, to support risk management measures, such as insurance schemes for natural disasters, etc.

Tobacco farmers became eligible for funds according to paragraph 1(c) of Article 68: Member states may grant specific support to farmers “in areas subject to restructuring and/or development programmes in order to ensure against land being abandoned and/or to address specific disadvantages for farmers in those areas…”

Because specific support schemes can be used to allocate payments coupled to production, these measures have been criticised for blurring the boundaries between pillar one and pillar two.

Anja Helk