CAP Reform: Direct payments explained

The Commission, the Council and the European Parliament (EP) have today reached a political agreement on the reform of the Common Agriculture Policy – subject to formal approval by the Council and the EP.

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will move away from one where allocations per Member State - and per farmer within the Member State - are based on historical references.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.

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

Internal Convergence: Those Member States that currently maintain allocations based on historic references must move towards more similar levels of 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 – with the additional guarantee that every farmer reaches a minimum payment of 60% of the national/regional average by 2019. 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 if higher than 30ha). This will have a significant redistributive effect. A further possible option is to apply a maximum payment per hectare.

Young Farmers: In order to encourage generational renewal, the Basic Payment awarded to new entrant Young Farmers (those under 40) should be topped up by an additional 25% for the first 5 years of 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 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 face less stringent cross-compliance requirements, and be exempt from greening. 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.

"Coupled" option: In order to address the potentially adverse effects of internal convergence for specific sectors in certain regions and to take account of existing conditions, 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 8% of the national envelope if the Member State currently provides coupled support, or up to 13% if the current level of coupled support is higher than 5%.The Commission has flexibility to approve a higher rate where justified. In addition, there is a possibility of providing a 2% "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 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 penalties which go beyond the Greening payment, i.e. after a transition offenders will also lose up to 125% of their Greening payment.

The 3 basic measures foreseen are:

1. maintaining permanent grassland; and

2. 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 least 95% of the arable area);

3. maintaining an “ecological focus area” of at least 5% of the arable area of the holding for farms with an area larger than 15 hectares (excluding permanent grassland) – i.e. field margins, hedges, trees, fallow land, landscape features, biotopes, buffer strips, afforested area. This figure will rise to 7% after a Commission report in 2017 and 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, organic producers will have no additional requirements as their practices are shown to provide a clear ecological benefit. For others, agri-environment schemes may incorporate measures that are considered equivalent. The new regulation contains a list of such equivalent measures. To avoid "double funding" of such measures, the payments through RD programmes must take into account the basic greening requirements [see RD section below].

Financial Discipline: Subject to approval of the MFF and notwithstanding the separate decision for the 2014 budget year, it was agreed that any future Financial Discipline reduction in annual direct payments (i.e. when payment estimates are higher than the available budget for the 1st Pillar) should apply a threshold of €2 000. In other words, the reduction would NOT apply to the first €2 000 of each farmer's Direct Payments. This will also serve to feed the Market Crisis reserve where necessary [see horizontal regulation].

“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.