The Scottish Government

This item was published during the term of a previous administration that ended in April 2007

Listen

European CAP reform confirmed

26/06/2003

Following three weeks of intricate negotiations, the EU Agriculture Council has today agreed to the most radical reform of the Common Agricultural Policy (CAP) in over a decade.

Environment and Rural Development Minister Ross Finnie said the deal is a major step towards making Scottish agriculture more responsive to the market place, allowing the EU to enter World Trade Organisation (WTO) talks later this year with a greater degree of confidence.

The key points negotiated will:

• Break the link between farm subsidies and production
• Provide flexibility to help Scotland manage the change
• Make support contingent on environmentally sensitive and sound farming practices
• Reduce substantially the amount of bureaucracy and red tape
• Maintain cereals institutional prices

Mr Finnie said:

"This is a very good deal for Scotland. Farmers have been clear that they want to become more responsive to the market and see an end to bureaucratic regimes.

"Breaking the link between subsidies and production will allow producers to respond to market signals. The reforms establish a new single payment, reducing much of the bureaucracy associated with current subsidy schemes.

"We have pressed the case throughout these difficult and protracted negotiations for the necessary degree of flexibility to enable the Scottish industry to manage the reform process. This deal provides that flexibility both on the decoupled elements of the package and in the use of targeted support to assist transition to the new arrangements.

"The provision to transfer funds to support rural development has been much improved from the Commission's original proposals. Scotland will now be able to retain at least 80 per cent of the funds taken from subsidising production to support rural development.

"Tying support to promoting best practice on our farms will help in our drive to raise standards across the industry.

"Decisions on proposals to reduce subsidies further (called 'degression') have been deferred. A new financial discipline will trigger action to reduce subsidies if CAP expenditure is in danger of exceeding the agreed ceilings.

"This deal represents a significant improvement on earlier proposals. In the face of January's damaging proposals for Scotland's dairy industry, we have achieved a lower reduction in milk prices and an increase in compensation for farmers. We have maintained the cereals price against a proposal for a 5 per cent cut. There will however be a reduction of 50 per cent in monthly increments. This compares with an initial suggestion to remove increments altogether.

"We have substantially achieved our objectives. We have secured decoupling for our livestock industry, achieved the flexibility required to tailor support in the best interests of Scottish farming, secured transitional arrangements under modulation and improved the position for our dairy and cereals sectors.

"We will work with the industry to implement these radical reforms in order to achieve the best outcome for Scotland."

A summary of the main elements of the proposals as they affect Scotland

Single Income Payment (Decoupling)

Member States will be able to break the link to production for all the major farm subsidies. This provision can be applied separately at Scotland level.

There is also the option, at Scotland level, to maintain the link to production for :-

There is also provision for the dairy premium to be decoupled from the point at which it becomes payable.

The new single payment will be based on historic direct payment receipts in the period 2000-2002, with special provision for farmers who took up occupation of land during this period. A national reserve of single payment entitlements will operate under rules to be set by a new Commission Management Committee.

Modulation

Reduction of direct payments and transfer of the money to Rural Development expenditure (Pillar 2) will start in 2005: earlier than proposed (2006) and at a higher rate for the earlier years.

The first €5,000 of direct payments for each farmer will be returned to the farmer (so, in effect, no cut is applied to that element of the subsidy.)

Part of the receipts from modulation will be redistributed on the basis of criteria related to the relative shares of agricultural land, agricultural employment, and GDP per capita. However, the product of the first percentage point of modulation each year will be allocated to the Member State from which it was collected; and every Member State is guaranteed to get back at least 80% of what it pays in.

Market Regimes

Milk

The support price cuts now agreed have been scaled back considerably from those proposed in January - to 25 % for the butter Intervention Price, from 35%, and to 15% for the SMP Intervention Price, from 17.5%. The compensation is higher than under the January proposals - some 58% compared with 50% previously. The implicit reduction in support is around the same level as that set under Agenda 2000.

Cereals

The deal removes the proposed 5% cut in cereals Intervention Price; it also halves the monthly increments, compared with the original proposals for abolition of these increments. Set-aside continues, but with much greater flexibility which will help maximise its environmental benefits (rotational options, non-food/energy crop use, narrower strip widths).

Financial Discipline

A new financial discipline mechanism (previously referred to as degressivity) has been agreed to reduce direct payments to fund policy changes and restrain overall expenditure with agreed limits. The arrangements will not be introduced immediately but from 2007 and only when the Commission judge that expenditure on CAP (market support) is within €300 million of the budget ceiling.

Cross Compliance

For the first time, the main subsidies are explicitly linked to compliance with EU standards covering the environment, public and animal health and animal welfare. Farmers also have to maintain land in good agricultural and environmental condition as defined at Scotland level.

Farm Advisory Service

By 2007 Member States must set up a farm advisory service that will be available to farmers to help them meet their cross compliance obligations.