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Friday 22 June 2018

The big switch to performance-based farming targets

Nothing is finalised yet, but Phil Hogan's CAP reform proposals represent a potentially decisive shift away from compliance to performance-based farming targets

EU Agriculture Commissioner Phil Hogan unveils the CAP reform proposals in Brussels last Friday. Photo: Reuters
EU Agriculture Commissioner Phil Hogan unveils the CAP reform proposals in Brussels last Friday. Photo: Reuters

Alan Matthews

The legislative proposals for the CAP post 2020 announced by the Commission last Friday continue the trend embarked upon in the last CAP reform. They give even more responsibility and flexibility to Member States in the design of agricultural policy.

The general objectives of the CAP remain much the same as today, but the way these objectives will be pursued will change dramatically, at least for the Member States and their paying agencies. This is summarised as a shift from a compliance-based to a performance-based approach.

In the current CAP, detailed rules on what farmers should do in order to receive support are spelled out in the CAP regulations. Member States ensure that these detailed requirements are included in the way they implement their payment schemes.

EU auditing focuses on whether Member States and farmers are complying precisely with the letter of these rules.

If not, the farmer and Member State risks disallowance and even fines.

In the new performance-based delivery model, only essential policy parameters, such as objectives of the CAP, the different types of interventions and some basic requirements, are included in the CAP legislation. It will be up to Member States to decide how they meet the objectives and achieve targets. It will also be up to Member States to establish the necessary audit and control requirements.

The Member State policies will be set out in a CAP Strategic Plan which must be approved by the Commission.

Targets for the share of farmers expected to benefit from the different types of interventions will have to be established under the Strategic Plan. If a Member State falls behind these targets when implementing the Plan, corrective action will be demanded by the Commission.

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Commissioner Hogan believes that this enhanced subsidiarity will make it possible to better take into account local conditions and needs.

In future, it will be the Member States that will define eligibility conditions that are most suited to their particular circumstances.

This is expected to produce a substantial simplification of the requirements that farmers must fulfil to receive payments.

Giving even more responsibility to Member States to design and implement agricultural policy, albeit within a framework defined at EU level, means that agricultural policy will increasingly be a national matter. This will lead to a more lively and animated debate about Ireland's national agricultural priorities than we have experienced heretofore.

Ireland will have options on how to use the money allocated under the CAP budget. The two Pillar CAP structure is maintained.

There is a small cut in Ireland's direct payments allocation under Pillar 1 in nominal terms of 4pc which will affect farmers' payments from 2020 onwards. There is a bigger cut of 15pc in the Pillar 2 rural development allocation, although Ireland will be expected to contribute more national resources through a higher co-financing rate which will help to offset this reduction.

As under the current CAP, Ireland will have the option to shift up to 15pc of its Pillar 1 ceiling to rural development, or vice versa. It could in addition transfer up to a further 15pc of its Pillar 1 allocation to Pillar 2 interventions designed to benefit the environment and climate.

There is also a requirement to introduce an eco-scheme funded by the Pillar 1 direct payments allocation which could be used to pay for some agri-environment-climate measures.

How large a share of the direct payments allocation should be used for this scheme will be for Ireland to decide, but the overall resources committed to environmental and climate action compared to the current CAP cannot be reduced.

Entitlements

For the first time, the option is given to move away from the entitlements basis for direct payments and to make payments per eligible hectare that can be differentiated by socio-economic or agronomic conditions.

If Ireland stays with the entitlement system, there will be an obligation to pursue further 'internal convergence' to ensure that no payment entitlement has a value less than 75pc of the national average value by 2026.

At least 2pc of its Pillar 1 allocation must be used to support young farmers, but this could be done either by means of a top-up in direct payments or through installation aid.

There is a requirement to cap direct payments after deducting labour costs at €100,00, but an option to reduce this cap to €60,000. However, the ability to deduct labour costs including the value of family labour before the cap is applied will make this provision rather meaningless in practice.

Ireland will also have to introduce a redistributive payment for smaller and medium-sized farms.

The additional amount per hectare and the maximum number of hectares that will qualify are national decisions. Given the likely very limited proceeds from capping which is intended to finance this payment, it is hard to see it amounting to much.

Ireland will again have the opportunity to use coupled support up to 10pc of the value of its direct payments allocation (12pc if the additional amount is used for protein crops).

For the first time, energy crops are included in the list of commodities eligible for coupled support.

The legislative proposals envisage that the CAP Strategic Plan should be ready by January 1, 2020. This would mean setting preparations in train by the end of this year.

This assumes that the legislation is approved by the Council and Parliament before the Parliamentary elections in May next year. If this does not happen, all bets for the CAP post 2020 are off.

Alan Matthews is Professor Emeritus of European Agricultural Policy at Trinity College Dublin.

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