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Last update:  July 2, 2008

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European Commission publishes legislative proposals on Health Check of CAP

On May 20, 2008, the European Commission published its legislative proposals for the CAP Reform.  The proposals have been sent to the Council and the European Parliament with the intention that agreement is reached in November during the French Presidency of the EU.  The policy would then apply from 2009/10.  For more information see GAIN Report E48058.

In November 2007 the European Commission published its “Communication from the Commission to the Council and the European Parliament preparing for the ‘Health Check’ of the CAP reform”.  The Communication was designed to initiate a wide-ranging six-month consultation before developing legislative proposals. It is hoped that the proposals will be adopted by agriculture ministers by the end of 2008 during the French Presidency of the EU.  During 2008, the Commission will develop its approach to the budgetary review 2008/2009. The Health Check constitutes a preparatory action within this framework, without prejudging the outcome of the review.

The main features of the Health Check proposals are:

	how to make the direct aid system more effective and simpler;
	how to make market support instruments, originally conceived for a Community of Six, relevant in today’s environment;
	how to confront new challenges including climate change, biofuels, water management and the protection of biodiversity.

Direct Aid System

The measures suggested include making the Single Payment Scheme simpler and more efficient.

The following ideas are discussed:

	moving away from payments based on historical receipts towards a flatter rate system;
	increasing the rate of decoupling in those Member States which opted in a number of farm sectors to maintain the link between subsidy and production, although coupled support could still play a role in regions where production is small-scale but of particular economic or environmental importance;
	gradually reducing the support level as overall payments to big farmers increase, starting from a level of, for example, Euro 100,000 per year. This would have to differentiate between multiple-owner farms with many workers and single-owner farms with just a few;
	increasing the amount of land a farmer has to own before qualifying for EU support from the current 0.3 hectares;
	reviewing the cross-compliance standards which farmers are obliged to respect to receive their support from Brussels. This could mean stripping out unnecessary obligations, but also adding new ones to deal with new challenges including improving water management and mitigating climate control.

Market Support Instruments

As regards adjusting market support instruments to make them relevant for an EU of 27 Member States, the Communication asks:

	Should intervention revert to its original purpose as a real safety-net, particularly given the current market prices?
	Could intervention for most grains be set at zero, while maintaining intervention for a single grain (e.g. bread-making wheat)?
	Should set-aside be abolished, while finding new ways of preserving the environmental benefits it has brought?
	Milk quotas are already programmed to disappear in 2015, but should there be a gradual increase in quotas between now and then to allow a ‘soft landing’ for the sector? This should examine possible measures to help dairy farmers in those regions of the EU, such as mountain areas, which depend significantly on dairy production.

New Challenges

Regarding response to new challenges, the Communication examines how agricultural policy can respond to issues including managing risk, fighting climate change, managing water more effectively, optimizing opportunities offered by bioenergy and preserving biodiversity.  Climate change and water management objectives could be met through cross compliance. There should be incentives to improve action in these areas, which could be financed through Rural Development Policy. The Communication proposes increasing the rate of modulation (i.e. the reduction of direct payments to all farms receiving more than Euro 5,000 per year and the transfer of the money into the rural Development budget. This could increase gradually from 5 percent to 13 percent in 2013. The appropriateness of the energy crop premium should also be examined given new incentives for biofuels production including the compulsory bioenergy targets and high prices.
 

CAP Reform Agreement

In September 2003, the Agriculture Council formally adopted the legal texts of the June 2003 CAP Reform agreement.  The regulations on CAP reform were published in Official Journal L 27 of October 21, 2003.  Reforms were introduced starting in 2004, though Member States have the option to delay implementing some of the decoupling measures until 2008.

The essence of the reform was a shift from subsidies based on production to subsidies that are decoupled from production.  Fully decoupled payments were aimed to shift a large part of EU farm payments from the WTO Blue box (trade distorting, allowed within limits) to the Green box (non-trade distorting). 

The key elements of the reform can be divided into four categories:
 

	The Single Farm Payment (decoupling)
	Horizontal Measures (cross compliance, modulation, financial discipline)
	Rural Development Policy
	Market Measures

Legislation

	Council Regulation 1782/2003: Horizontal rules (single farm payment, set-aside, modulation, etc.)
	Council Regulation 1783/2003: Rural Development
	Council Regulation 1784/2003: Cereals
	Council Regulation 1785/2003: Rice
	Council Regulation 1786/2003: Dried Fodder
	Council Regulation 1787/2003: Milk (CMO)
	Council Regulation 1788/2003: Milk (levy)
	Council Regulation 1290/2005: financing of the CAP
	Council Regulation 378/2007: voluntary modulation of direct payments

Implementing Regulations

	Commission Regulation 795/2004: Single Farm Payment
	Commission Regulation 796/2004: Cross-Compliance & Modulation
	Commission Regulation 1973/2004: Direct Support Schemes
	Commission Regulation 570/2005 establishes budgetary ceilings for direct payments

SINGLE CMO

Council Regulation 1234/2007 establishes a single common market organization (CMO) for all agricultural products and is viewed as an essential element of the Commission’s strategy to simplify the CAP.  This regulation enters into force on July 1, 2008, and replaces 21 existing CMOs.  It combines and harmonizes as far as possible the different Council acts in areas of market policy covering rules on intervention, private storage, marketing and quality standards, import and export rules, safeguard measures, competition, state aid and the reporting of data.  Council Regulation 1234/2007 has been amended by Council Regulation 361/2008 to incorporate the policy changes agreed in the context of the CMO reforms for fruit and vegetables.
 

Reports

EU-27 | European Commission publishes legislative proposals on Health Check of CAP (GAIN report E48058): On Tuesday, 20 May, the European Commission published its legislative proposals for the CAP Reform. The proposals will be sent to the Council and the European Parliament with the intention that agreement is reached in November during the French Presidency of the EU. The policy would then apply from 2009/10.

European Commission publishes "health check" of the CAP (GAIN report E47100): On Tuesday, November 20 the European Commission published its 'Communication from the Commission to the Council and the European Parliament preparing for the 'Health Check' of the CAP reform'. The Communication is designed to initiate a wide-ranging six-month consultation, after which the Commission intends to develop legislative proposals. It is hoped that those proposals will be adopted by the Council by the end of 2008 to come into effect immediately after adoption.

Council of the European Union approves proposal creating a single Common Market Organization (GAIN report E47048): The EU Council of agricultural ministers has backed the Commission's proposal to replace the existing 21 Common Market Organizations (CMOs) with a single CMO for all agricultural products. This is viewed as being an essential element of the Commission's strategy to simplify the CAP. Under the plan, the entire CAP will eventually be covered by four main Council acts, namely those on the single CMO, the direct aid regime, rural development and the financing of the CAP.

European Union Rural Development Policy: Overview of Modulation (GAIN report E47034): The following report gives a brief overview of how the European Union concept of Modulation works. As a result of the 2003 CAP Reform the European Union mandates Compulsory Modulation of 5 percent of Direct Payments for 2007. In addition to Compulsory Modulation the EU recently granted individual Member States the ability to voluntarily modulate additional Direct Aid spending. Compulsorily Modulated funds are spent on Rural Development programs with additional co-financing coming from individual Member States. Voluntary modulation does not require co-financing. Recently, EU Agriculture Commissioner Fischer Boel has signaled the desire to increase the compulsory rate past the current 5 percent limit However, the European Commission has stated that this will not occur before 2013.

 Archive of FAS reports

Links

	Beneficiaries of CAP payments (European Commission - DG Agriculture)
	CAP Reform (European Commission - DG Agriculture)
	Commission publishes indicative figures on the distribution of direct farm aid in 2005 (European Commission - DG Agriculture - March 2007)
	CAP Reform: Commission proposes to simplify agricultural state aid rules and facilitate crisis support (European Commission press release - Feb. 2006)