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6 January
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The European Commission formally proposed a CAP Reform in January 2003. Key elements included breaking the link between production and support payments, as well as linking future support payments to new - often environmental - goals. The proposal also included reductions in cereal market price support, with some compensation through higher direct aid.
June 2003 saw a number of meetings take place between EU Farm Ministers and the European Commission, chaired by the Greek Presidency, in an aim to reach an agreement. Key areas of negotiation included the decoupling concept as well as changes to cereal support arrangements.
An agreement was finally reached early in the morning of 26 June 2003. An outline of the agreement can be found on the European Commission website. A summary is also available on the Defra website.
Much of the technical detail is still unclear. We will publish regular updates as the detail becomes clearer. For further details, contact julian.bell@hgca.com
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CAP Reform Update
6 January 2004
The Commission recently published the implementing regulation for the horizontal measures under 1782 of 2003 (see link below from 23 October update). Basically, these cover issues such as how the durum wheat, protein and energy crop aid payments are implemented. The regulation is 2237 of 2003. The regulation can be downloaded from the EU Eur-Lex website at http://europa.eu.int/eur-lex/en/archive/2003/l_33920031224en.html
Chapter 2 of the regulation relates to the implementation of the durum wheat payment. Chapter 3 relates to the implementation of the protein crop payment. Chapter 8 relates to the implementation of the aid for energy crops. These details need to be read in conjunction with the overall scheme details, laid out in regulation 1782 of 2003.
There is still no definitive news on whether the decoupled scheme will be based on historical, regional average or hybrid calculations.
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CAP Reform Update
30 October 2003
Earlier this week, the Commission published proposals to allow harmonisation of the EU Accession and the CAP Reform processes. This is because the Act of Accession was completed prior to the CAP Reform agreement. As a result, the CAP Reform agreement isn't necessarily compatible with all areas of the Act of Accession.
Commission press release, outlining the proposal, click here
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CAP Reform Update
21 October 2003
The Council Regulations establishing the legal background to the CAP Reform agreement were finally published yesterday, in Official Journal L270. The 'horizontal measures' regulation, covering decoupling, cross compliance, etc, is 1782/03. The cereal market regulation, detailing changes to the intervention increments and the rye intervention system, is 1784/03. Both of these can be downloaded directly from the EU Eur-Lex website at http://europa.eu.int/eur-lex/en/archive/2003/l_27020031021en.html
Meanwhile, the Defra consultation on options under CAP Reform closes on Friday 24 October.
The Scottish Executive Consultation Paper on CAP Reform was recently published, and can be found at http://www.scotland.gov.uk/view.views.asp Responses are required by 6 January 2004.
There is no news yet on whether the decoupled scheme will be applied based on historic entitlements or regional payments as yet. The current Defra consultation is asking for views from the industry on this specific key point.
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CAP Reform Update
22 July 2003
The July Farm Council meeting is being held today. This was the first opportunity that Farm Ministers had to OK the proposed Council Regulations relating to CAP Reform (see the 10 July update for more details). However, discussions in recent weeks have been slower than expected, with some issues still to be resolved. This is particularly the case with the proposed Council Regulation on horizontal measures - ie. the single farm payment. All the proposed CAP Reform Council Regulations are thus not now expected to be agreed until the September Farm Council.
Meanwhile, the EU Commission have recently published 2 useful documents on their website. The first is a more user-friendly summary of the CAP Reform agreement than the initial documents. This is a 141kb PDF File at http://europa.eu.int/comm/agriculture/mtr/sum_en.pdf
The second document is a 'before and after' comparison. In tabular format, the document sets out the key differences between the current system, the July 2002 MTR concept, the January 2003 Commission proposal and the final June 2003 CAP Reform agreement. This is a 82kb PDF file at http://europa.eu.int/comm/agriculture/mtr/avap_en.pdf
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CAP Reform Update
10 July 2003
Draft legislative texts have now been prepared by the Commission and are being considered by member states. These are effectively documents which put the political agreement reached in end-June into legal texts. There are seperate legislative texts for key areas. The key text is obviously the one that covers decoupling and the operation of the single farm payment. This is known as the horizontal measures draf regulation.
Each of these proposed regulations will now need to be checked by member states to ensure the detail accurately reflects the political agreement in end-June. The two most likely opportunities for them to be accepted by member states is either at the July or September Farm Council meeting.
The next stage in turning the agreement into reality is for the Commission to prepare technical legal texts. These are effectively the regulations which detail the technical way in which the various schemes will operate. Drafts of these are not expected until the autumn, and may not be agreed until the end of 2003.
In the meantime, Defra has confirmed that it will be running a series of consultations covering the areas of flexibility it has under the agreement over the autumn. These include issues such as decoupling and the national envelope. Agriculture departments in the develved regions are expected to consult as well.
Meanwhile, the draft regulation on the market in cereals has confirmed that the changes to the market measures - removal of rye from intervention and halving of the monthly increments - is to take place from the beginning of the 2004/05 marketing year, ie. July 2004.
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CAP Reform Update
8 July 2003
The CAP Reform compromise is now available in full on the European Commissions website. The document is titled "Presidency Compromise - in agreement with the Commission".
It is 35 pages long and quite technical. The summaries referred to above are more user-friendly, but this paper does include more detail for those interested. It is a 254kb PDF file. Click here to view.
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27 June 2003
Key points of the CAP Reform Agreement are now clearer, following yesterday's agreement. It should, however, be noted that much work is yet to be done on consolidating all the recent compromises into a final legal text. This will then be followed by the detailed work of turning the agreement into a set of implementing regulations. It is only when this is complete that the answers to many technical questions will be available. Member states will also face the question of how to apply the flexibility the agreement gives them in some key sectors.
In the meantime, the summary below is our best understanding of the agreement reached yesterday.
Cereal Market Measures
There is no reduction in cereal intervention prices under the agreement. However, the monthly cereal intervention price increment will be reduced by 50%. At present, the increment in the UK is 0.93 euro per month from November through to May. This means that the intervention price for cereals will continue to rise in euro terms through the season, but only by half the current rise. This change will have knock-on technical effects on the calculation of other market measures such as variable cereal import duties and export refunds. Rye intervention will be abolished under the agreement. Germany will be able to spend extra rural development funds in traditional rye areas to compensate.
Our assumption is that these market measures will apply from the intervention season beginning 1 July 2004, as in the original proposal. However, there is some confusion about the possibility that they could apply from 1 July 2005. We will post an update when this is clarified.
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Single Payment Scheme
The single payment scheme is designed to replace most of the major farm subsidies currently paid, including arable area aid payments. Member States will be able to introduce these from January 2005, but may delay this until January 2007 in certain conditions.
The idea of these payments is to break the link between payments and production - often referred to as decoupling. Amongst other things, this could allow a larger proportion of EU farm expenditure to be classed as "green-box" and thus avoid future reductions in any WTO agreement.
There are, however, a number of options member states may choose to implement, either at national or regional level. These include keeping some part of the payment, subject to a maximum, coupled to production. For the arable sector, member states have the option to keep upto 25% of the payment coupled, ie. receivable only on the condition of producing. A larger part of durum wheat payments may also remain coupled under certain circumstances.
Full details of the coupling options in other sectors can be found in the full EU and Defra texts - see hyperlinks above.
The single payment will be based on cropping patterns in 2000 to 2002. However, special provisions will be made for those who have taken on land during that period and upto 31 May 2003, as well as other defined special circumstances. These will be funded partly by a 3% levy on all payments.
Land covered by the single payment may not be used for permanent crops (expect certain energy crops), for growing fresh fruit and vegetables, including potatoes.
Member states or regions will also have the option of creating a national envelope, in order to address negative issues resulting from decoupling, improve marketing or encourage specific types of farming. This will be funded by the retention of upto 10% of payments.
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Set-Aside
The set-aside obligation will be maintained, and based on the amount of land the farmer had in compulsory set-aside in the 2000 to 2002 reference period. Rotation of the set-aside obligation will be allowed. Non-food and energy crops will be permitted on set-aside. Member states may accept for environmental reasons a minimum strip width of 5 metres.
The Commission have the right to apply further set-aside obligations, in case of market needs, to land that a beneficiary grows with cereals and oilseeds.
Modulation
Modulation - the transfer of money from direct payments to Rural Development expenditure - will start in 2005. The rates are 2005 3%, 2006 4%, 2007 5%, remaining at 5% through to 2011. However, the first 5,000 euro of direct payment will not be subject to modulation, albeit through a system of refunding it. There are some farmers in some remote regions exempt from modulation.
Member states will have the option to set extra modulation, above the EU minimum, in order to fund any prior expenditure commitments.
Financial Discipline
Formally referred to as degressivity, this mechanism is designed to allow the possible reduction of direct payments in future years to fund policy changes and stay within budget ceilings. The mechanism will apply from 2007, and will allow the Commission to reduce direct payments when they judge CAP expenditure is within 300M euro of the budget ceiling.
Cross Compliance
Receipt of the Single Payment will be linked to compliance with EU standards covering the environment, public and animal health and animal welfare. Farmers will also be required to maintain land in good agricultural and environmental condition. This is to be defined by member states. A sample of farms will be inspected each year by the member state to ensure standards are met.
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Durum Wheat
Aid payable in "well-established" areas will be phased out completely over three years. Aid payable in "traditional" areas will be reduced and decoupled from 2005. However, a new quality premium of 40 euro per hectare will be introduced in the traditional areas.
Protein Crops
An area-based supplement of 55.75 euro per ha will be payable, subject to a maximum guaranteed EU area of 1.4M ha.
Energy Crops
Extra aid of 45 euro per ha for land used to produce energy crops has been agreed - although not for set-aside land. This includes crops for the production of biofuels. This payment is subject to a maximum guaranteed EU area of 1.5M ha. The Commission will report on the implementation of the scheme, taking into account progress with the EU biofuels initiative.
Other parts of the agreement
The agreement covers other areas, including the Farm Advisory Service, Rice, Nuts, Starch, Milk, Dried Fodder and Drying Aid in Finland and Sweden. These areas are covered in the official summaries, linked above.
Member State Flexibility
It is cleat that member states have the option to choose to apply, and the level at which to apply, some of the parts of the agreement. It is expected that a consultation process will occur where the respective agricultural departments of the UK will ask for feedback on how to make use of these over coming months.
No later than 2 years after implementation of the single farm payment, the Commission will submit a report to the Council on the possible consequences in terms of market development and disturbances following implementation by member states of the options available to them to keep some degree of coupling in specific sectors.
Impact of CAP Reform
It is clear that the detail of the agreement is still a long way from being clarified. However, the principle that payments in the arable sector could be completely decoupled from production in the UK is clear. The Cambridge University Study, funded by DEFRA, thus remains a largely robust and sound analysis of the potential impact on decoupling the arable payment. See http://statistics.defra.gov.uk/esg/reports/decoupling/Cambridge.PDF
Further Updates
We will continue to post updates as more detail is available. Meanwhile, contact julian.bell@hgca.com with any questions.
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