CAP Reform: Explanation of direct payments

The Commission, the Council and the European Parliament (EP) have reached a political agreement on the reform of the Common Agriculture Policy. Most elements were agreed in on June 26, and the last remaining issues were finalised on September 24. Based on the Commission proposals, the agreement relates to four basic European Parliament and Council regulations for the Common Agriculture Policy – i) on Direct Payments, ii) the Single Common Market Organisation (CMO), iii) Rural Development and, iv) a Horizontal Regulation for financing, managing and monitoring the CAP.

Direct Payments

In order to move towards a fairer distribution of support, the CAP system for Direct Payments will move away from one where allocations per Member State - and per farmer within the Member State - are based on historical references. This will mean a clear and genuine convergence of payments not only between Member States, but also within Member States. Moreover, the introduction of a "Greening Payment" – where 30% of the available national envelope is linked to the provision of certain sustainable farming practices – means that a significant share of the subsidy will in future be linked to rewarding farmers for the provision of environmental public goods. All payments will still be subject to respecting certain environmental and other rules [see "cross compliance" point 4 below horizontal regulation].

The Basic Payment Scheme (BPS): Member States will dedicate up to 70% of their Direct Payments national envelope to the new Basic Payment Scheme – minus any amounts committed for additional payments (Young Farmer top-ups, and other options such as Less Favoured Area top-ups, the Redistributive Payment) and "coupled" payments. For the concerned EU-12, the end-date for the simpler, flat-rate Single Area Payments Scheme (SAPS) system will be extended until 2020.

External Convergence: The national envelopes for direct payments for each Member State will be progressively adjusted such that there is not such a wide gap between Member States in the average payment per hectare. This will mean that those Member States where the average payment (in € per hectare) is currently below 90% of the EU average will see a gradual increase in their envelope (by 1/3 of the difference between their current rate and 90% of the EU average). Moreover, there is the guarantee that every Member State will reach a minimum level by 2019. The amounts available for other Member States who receive above average amounts will be adjusted accordingly.

Internal Convergence: Those Member States that currently maintain allocations based on historical references must move towards more similar levels of the basic payment per hectare. They may choose from different options: to take a national approach, or a regional approach (based on administrative or agronomic criteria); to achieve a regional/national rate by 2019, or to ensure that those farms getting less than 90% of the regional/national average rate see a gradual increase (by one third of the difference between their current rate and 90% of the national/regional average) – with the additional guarantee that each payment entitlement reaches a minimum value of 60% of the national/regional average by 2019 (unless Member States decide to limit the decrease in the value of entitlements). The amounts available to farmers receiving more than the regional/national average will be adjusted proportionally, with an option for Member States to limit any "losses" to 30%.

Member States also have the right to use a redistributive payment for the first hectares whereby they can take up to 30% of the national envelope and redistribute it to farmers on their first 30 hectares (or up to the average farm size in a Member State if higher than 30ha). This will have a significant redistributive effect.

Reduction of the payment for large farms: Agreement has been reached on compulsory reduction of the payments for individual farms above 150 000€ ("degressivity"). In practice this mean that the amount of support that an individual farm holding receives as basic payment will be reduced by at least 5% for the amounts above 150 000€. In order to take account of employment, salary costs may be deducted before the calculation is made. This reduction does not need to apply to Member States which apply the "redistributive payment" under which at least 5% of their national envelope is held back for redistribution on the first hectares of all farms. NB The funds "saved" under this mechanism stay in the Member State/region concerned, and are transferred to the respective Rural Development envelope, and can be used without any co-funding requirements. Member States also have the option of capping the amounts that any individual farmer can receive at 300 000€, also taking salary costs into account.

Young Farmers: In order to encourage generational renewal, the Basic Payment awarded to new entrant Young Farmers (no more than 40 years of age) should be topped up by an additional payment available for a period of maximum 5 years (linked to the first installation). This shall be funded by up to 2% of the national envelope and will be compulsory for all Member states. This is in addition to other measures available for young farmers under Rural Development programmes.

Small Farmers Scheme: Optional for Member States, any farmer claiming support may decide to participate in the Small Farmers Scheme and thereby receive an annual payment fixed by the Member State of normally between 500 € and 1 250 €, regardless of the farm size. Member States may choose from different methods to calculate the annual payment, including an option whereby farmers would simply receive the amount they would otherwise receive. This will be an enormous simplification for the farmers concerned and for national administrations. Participants will not be subject to cross-compliance controls and sanctions, and be exempt from greening. (The impact assessment showed that approximately one third of farms applying for CAP funding have an area of 3 ha or less – but this accounts for just 3% of the overall agricultural area in the EU-27.) The total cost of the Small Farmers Scheme may not be more than 10% of the national envelope, except when a Member State chooses to ensure that small farmers received what they would be due without the scheme. There will also be Rural Development funding for advice to small farmers for economic development and restructuring grants for regions with many such small farms.

Voluntary coupled support: In order to maintain current levels of production in sectors or regions where specific types of farming or sectors undergo difficulties and are important for economic and/or social and/or environmental reasons, Member States will have the option of providing limited amounts of "coupled" payments, i.e. a payment linked to a specific product. This will be limited to up to 8% of the national envelope, or up to 13% if the current level of coupled support in a Member State is higher than 5%.The Commission has flexibility to approve a higher rate where justified. There is a possibility of providing an additional amount (up to 2%) of "coupled" support for protein crops.

Areas with Natural Constraints (ANCs) /Less Favoured Areas (LFAs): Member States (or regions) may grant an additional payment for areas with natural constraints (as defined under Rural Development rules) of up to 5% of the national envelope. This is optional and does not affect the ANC/LFA options available under Rural Development.

Greening: In addition to the Basic Payment Scheme/SAPS, each holding will receive a payment per hectare declared for the purpose of the basic payment for respecting certain agricultural practices beneficial for the climate and the environment. Member States will use 30% of their national envelope in order to pay for this. This is compulsory and failure to respect the Greening requirements will result in reductions and penalties which might in some cases go beyond the Greening payment. In years 1 & 2 the penalty for greening may not exceed 0%, 20% in the third year and as of the fourth the maximum penalty applied will be 25%. Of course, the green payment will only be granted for those areas that comply with the conditions (i.e. being eligible for BPS or SAPS, respect of greening obligations).

Areas under organic production, which is a production system with recognised environmental benefits, shall be considered as fulfilling the conditions for receiving the greening payment, without any additional requirements.

maintaining permanent grassland; and

crop diversification (a farmer must cultivate at least 2 crops when his arable land exceeds 10 hectares and at least 3 crops when his arable land exceeds 30 hectares. The main crop may cover at most 75% of arable land, and the two main crops at most 95% of the arable area);

ensuring an “ecological focus area” of at least 5% of the arable area of the holding for most farms with an arable area larger than 15 hectares – i.e. field margins, hedges, trees, fallow land, landscape features, biotopes, buffer strips, afforested area. This figure may rise to 7% after a Commission report in 2017 and subject to a legislative proposal.

Greening Equivalency: In order to avoid penalising those that already address environmental and sustainability issues, the accord foresees a "Greening equivalency" system whereby the application of environmentally beneficial practices already in place are considered to replace these basic requirements. For example, agri-environment schemes may incorporate practices that are considered equivalent. The new regulation contains a list of such equivalent practices. To avoid "double funding" of such measures (and any agri-environment schemes in general), the payments through RD programmes must take into account the basic greening requirements [see RD section below].

“Active farmers”: In order to iron out a number of legal loopholes which have enabled a limited number of companies to claim Direct Payments, even though their primary business activity is not agricultural, the reform tightens the rule on active farmers. A new negative list of professional business activities which should be excluded from receiving Direct Payments (covering airports, railway services, water works, real estate services and permanent sports & recreation grounds) will be mandatory for Member States, unless the individual businesses concerned can show that they have genuine farming activity. Member States will be able to extend the negative list to include further business activities.