Brussels, 28 March 2013
Commission tables proposal for "Financial Discipline" for CAP Direct Payments in 2014 financial year
With the forecast for expenditure on CAP Direct Payments & Market measures for 2014 higher than the provisional ceiling for 2014 agreed by EU heads of government1, the European Commission has tabled a proposal for "Financial Discipline" to ensure that spending remains within budget limits. The concept, established in 2003 but never triggered until now, requires the Commission to make a proposal before the end of March introducing a linear cut in CAP Direct Payments in order to ensure that the ceiling for the CAP's first pillar in the forthcoming year is respected. The Commission proposal, which includes a threshold to exempt the first €5 000 of farmers' Direct Payments from any reduction, foresees a reduction of just under 5% (4.98%) in all Direct Payments – or an overall reduction of €1 471.4 million. This proposal relates to applications for Direct Payments in 2013, to be submitted by farmers in May 2013, and usually paid out in December 2013 (from the 2014 budget), but will not apply for Bulgaria, Romania and Croatia because the system of CAP Direct Payments is still being phased-in. This move follows the accord among EU heads of government1 to set a budget ceiling for 2014 which is roughly €800 million lower than the Commission proposed and to create a new market crisis reserve (worth €424.5 million) from within Heading 2 of the Multiannual Financial Framework (MFF), rather than from a separate reserve created outside the MFF as originally proposed by the Commission, and to finance it through financial discipline. Under the Regulation, the proposal needs to be adopted by the European Parliament and the Council by 30 June 2013. If not, the Commission is empowered to set the adjustment rate. The Commission will update its forecasts for market and direct payment spending for 2014 in the autumn, as usual, and, if necessary, propose an adjustment to the rate of financial discipline, which would then need to be adopted by the Council by December 1.
Taken together, CAP Direct Payments and Market measures are frequently known as the "First Pillar" of the CAP and are financed through the European Agricultural Guarantee Fund (EAGF). NB This proposal has no implications for Rural Development programmes (the "Second Pillar") which are financed through the European Agricultural Fund for Rural Development (EAFRD).
Compared to the Commission proposal of €42.36 billion in 2011 prices, the ceiling for 1st Pillar spending agreed by the February 7/8 European Council amounts to € 41.58 billion in 2011 prices, corresponding to € 44.13 billion in current prices. The financial discipline mechanism applies after taking into account the financial transfers to Rural Development, as well as the financing of the new agricultural crises reserve.
The Commission is still preparing its Draft Budget for 2014, which will be published later in Spring. However, for the "Financial Discipline" instrument, the Commission is obliged to table a proposal before the end of March.
Although this is the first time that the Commission has proposed this instrument, it stated at the time of the 2003 agreement its intention to propose a €5 000 threshold in order to take account of the unequal distribution of direct payments between small and large beneficiaries. Based on previous figures, it will mean that more than 80% of beneficiaries will not be affected by this measure. This threshold is also in line with the compulsory modulation mechanism which applied in the 2007-2013 period, and is coherent with the Commission proposal on direct payments in the context of the CAP reform.
As a precautionary measure, the financial discipline proposal is based on the European Council conclusions on the MFF. However, the final calculation of the financial discipline rate depends on the EAGF sub-ceiling under Heading 2 to be fixed in the Council Regulation on the Multiannual Financial Framework for 2014-2020.
The February 7/8 Conclusions of the European Council on the 2014-2020 Multi-Annual Financial Framework (MFF) are still subject to the consent of the European Parliament. Nevertheless, the Commission has to take a realistic figure on which to base its calculations. It has therefore taken the budget sub-ceiling for the 1st Pillar in the Feb 8 Council Conclusions as the best working hypothesis. If need be, this figure can be updated when the MFF is definitively adopted.