The Common Agricultural Policy Factsheet

Extract from Commission Press Release, Brussels, 18 March 1998

Agenda 2000: the legislative proposals

The Common Agricultural Policy

The main proposals for new agricultural Regulations cover:

revised Council Regulation for the common market organisations for cereals, arable crops, beef and milk; a revised Council Regulations on olive oil (which follows the recent proposal on tobacco and will be followed by a proposal on wine before June 1998; a "horizontal" Regulation to introduce some common provisions on cross compliance with environmental conditions, modulation of payments linked to the labour force and an element of degressivity in large payments; a revision to the EAGGF Financing Regulation (729/70); a new Regulation covering rural development measures financed by the EAGGF both from its Guidance Section (in Objective 1 areas) and from the Guarantee Section (elsewhere).

All the agricultural proposals are due to come into effect in the year 2000. They represent a further major step in the direction of the reform of the CAP which was started in 1992. As indicated in Agenda 2000, the further reductions in market support prices proposed and the increase in direct payments to farmers are designed to improve the competitiveness of EU agriculture on domestic and world markets, thus reducing the risk of a return to the production of expensive and unsaleable surpluses while avoiding over compensation. Part of the reinforced direct payments will take the form of a financial envelope which Member States can distribute, subject to certain criteria, thereby allowing Member States to address their specific priorities. Lower prices will benefit consumers and leave more room for price differentiation in favour of quality products. Greater market orientation will prepare the way for the integration of new Member States and reinforce the EU’s position in the coming WTO Round. Moreover, there will be increased emphasis in the new CAP on food safety and environmental concerns. The EAGGF (European Agricultural Guidance and Guarantee Fund) rural development Regulation will for the first time provide an integrated approach to the development of the countryside. This comprehensive set of proposals are designed to ensure in a comprehensive, simplified and non bureaucratic manner that the European Model for Agriculture can be sustained in the long term, to the benefit not only of the EU agricultural industry but also for consumers, employment and indeed for the EU’s society as a whole.

Intervention prices in the dairy sector, as in the arable and beef sectors, will no longer be subject to annual price fixing but will be fixed for the whole period covered by Agenda 2000. It can be expected that internal market prices will stay above the intervention level.

Arable crops

The intervention price for cereals will be reduced by 20% in one step in the year 2000 while direct payments will be increased from 54 ECU/tonne to 66 ECU/tonne. Direct payments for oilseeds and non-textile linseed will be set at the same level, thereby eliminating the basic condition for production area constraints imposed by the Blair House agreement.

To ensure the profitability of protein crops compared to other arable crops, an additional direct payment of 6.5 ECU/tonne is proposed, bringing the total available for protein crops to 72.5 ECU/tonne.

The specific scheme for durum wheat which was modified in 1997 will be continued.

While compulsory set-aside will be retained, its compulsory rate will be set at zero. Voluntary set-aside will be maintained with the same level of payment as for cereals and may be guaranteed for 5 years, thus enhancing its positive environmental contribution.

Silage maize will continue to be eligible for direct payments as its abolition would involve expensive control mechanisms given that the final use of maize, i.e. for grain or silage may depend on weather conditions which cannot be foreseen when applying for the arable crop payment. Compared with the proposal from 1997, the retention of this aid will result in important cost savings for many producers notably those in the dairy and beef sectors and is therefore taken into account in the calculation for the increase in direct aids for these two sectors.

Beef

The effective market support level will be reduced by 30% in three equal steps, starting on 1 July 2000. From 1 July 2002 the present intervention system will be replaced by a private storage regime.

To ensure a fair standard of living for the farmers concerned, direct payments will be increased for male bovine animals and suckler cows. A new direct payment for dairy cows will be introduced. Flexibility and targeting will be increased by entitling Member States to allocate part of the increase in direct payments (national envelope) according to specific priorities.

The amount of direct support follows the Agenda 2000 proposal but will be sub-divided into a Community-wide basic payment and an additional payment according to national provisions. However, the premium for bulls has to take into account the benefits accruing to producers through the retention of the arable crop payment for silage maize.

The basic premiums will be (2002 level) 220 ECU for bulls, 170 ECU for steers, 180 ECU for suckler cows, and 35 ECU for dairy cows. These basic amounts correspond to the pre-reform level of the aid plus 50% of the increase in the total premium. The remaining 50% of the increase is distributed to Member States according to their share in production, in order for Member States to distribute these amounts within certain limits and according to common rules. While permitted flexibility, Member States will be responsible for non-discriminatory implementation.

Payments should be allowed per animal and/or per hectare of permanent pasture. For pastureland, a maximum amount per hectare should be approximately equal to the average area payment for arable crops.

When account is taken of the resources being provided through the basic premia and the additional payments, the level of premia which could be paid to producers would be; 310 ECU/head (+130%) for bulls paid once in their lifetime, 232 ECU (+113%) for steers paid twice in their lifetime, 215 ECU/head (+48%) for suckler cows per year and 70 ECU/head (new premium) per year for dairy cows to take account of the impact of the reduction in beef support price on the value of dairy cows. The level of premia actually received by any producer will however depend on Member States’ decisions regarding the distribution of the financial envelope allocated in the context of the additional payments.

Regional ceilings for the number of premium rights for male animals will be fixed at 1997/98 levels i.e. 9.095 million. The deseasonalisation premium for steers will continue as at present while the calf processing scheme will be abolished.

In addition, it seems appropriate to introduce national ceilings to cover all suckler cow premium rights. The overall number of premium rights would therefore be reduced to the level of actual use in a certain reference period (best out of 1995/1996 plus 3% i.e. a total of 10.285 million).

The total number of animals qualifying for the special premium and the suckler cow premium will be limited to 2 livestock units (LU) per hectare forage area. Producers with a stocking density less than 1.4 LU per hectare and currently practising extensive production methods (animal grazing on pasture land) may qualify for an additional payment of 100 ECU (+178%) per premium granted.

Dairy Regime

It is proposed to reduce intervention prices for butter and skimmed milk powder by 15% in four steps to improve competitiveness on the internal and external markets.

While this proposed price decrease goes beyond the Agenda 2000 proposal, it is justified not only by the added benefit in terms of competitiveness but also, in comparison to the Agenda 2000 proposal, by the fact that available milk quotas will be increased and also by the fact that dairy farmers will partially benefit from the retention of a crop premium for silage cereals. Moreover, most farmers can be expected to adapt to their new situation through cost saving measures.

The amount of direct support per producer will be based on the number of premium units. This number will be determined by dividing the individual reference quantity by the average milk yield in the Community of 5,800 litres/cow. In order to target support to producers rather than quota holders, temporarily leased quota will be accounted to the producer who has leased it.

The amount of direct payment per premium unit follows the Agenda 2000 proposal but will be sub-divided into a basic payment of 100 ECU per premium unit and an additional payment of 45 ECU per unit according to national provisions. The basic cow premium will be phased in gradually in four equal steps in parallel with the reduction in guaranteed prices.

Milk quota

It is proposed to maintain milk quotas until 31 March 2006. In view of the impact of the 15% price reduction on internal consumption and exports, a 2% (2.34 tonnes) increase in the total reference quantity in four steps is proposed. This additional quota should be distributed to particular categories of producers who need particular support, i.e. young farmers and producers in mountain and nordic areas.

It is also proposed that in cases on non permanent transfer of quota (leasing etc) member states place a certain percentage of that quota in a national reserve for redistribution. Furthermore member states will have the possibility of transferring to the national reserve the quota from those to whom quota reverts at the end of a leasing contract but who choose neither to resume production themselves nor to sell their quota.

Rural development

Rural development measures concern, in particular, support for structural adjustment of the farming sector (investment in agricultural holdings, establishment of young farmers, training, early retirement), support for farming in less favoured areas, remuneration for agri-environmental activities, support for investments in processing and marketing facilities, for forestry and for measures promoting the adaptation of rural areas insofar as these are related to farming activities and to their conversion. The policy brings together for the first time all the measures related to the development of the countryside which were funded by the EAGGF and is to accompany and complement the proposed reforms in market and price policy.

The reformulated policy involves a radical simplification and allows for far greater flexibility and subsidiary.

Current eligibility criteria for support in Less Favoured Areas (LFA) will be modified in order better to integrate environmental goals into rural development policy; the LFA scheme will gradually be transformed into an instrument to maintain and promote low-imput farming systems. In addition, targeted agri-environmental measures will be aimed more specifically at achieving the objectives of protecting the environment and maintaining the countryside.

Coherence between rural development measures and other instruments of the Common Agricultural Policy or other Community policies will be ensured by specific rules, which will ensure that overlapping between instruments is avoided. Maximum amounts for some measures will prevent any abuse of rural development support, such as unjustified additional market support.

Rural development measures will in future be financed by either the Guarantee Section or the Guidance Section of EAGGF according to the regional context. Rural development measures covered by Objective 1 programmes and the rural development Community Initiative will be financed by the Guidance Section of EAGGF. Other rural development measures will fall under the Guarantee Section of EAGGF. These will be the accompanying measures and the LFA scheme in all rural areas as well as measures concerning modernisation and diversification covered by Objective 2 programmes and by rural development programmes outside Objective 1 or 2 regions.

Horizontal measures

Cross compliance: With respect to integrating better the environment into the CAP, Member States should apply appropriate environmental measures concerning the particular market support schemes.

Modulation: The distribution of direct payments among farmers might cause specific problems within certain Member States which call for a subsidiary approach. However, agricultural income including direct payments has important employment impacts in rural areas. Member States would therefore be authorised to modulate direct payment per farm within certain limits and relative to employment on the farm.

Funds made available from aid reductions - either under cross-compliance and/or under modulation - would remain available for the respective Member State as an additional Community support for agri-environmental measures.

Ceilings on aid payments: To avoid excessive transfers of public funds to individual farmers, the Commission proposes to introduce a degressive overall ceiling to direct payments. The ceiling applies only to payments under the support schemes once cross-compliance and modulation have been applied and involves a 20% reduction in payments between ECU 100,000 and ECU 200,000 and 25% reduction on amounts above ECU 200,000.