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MEMO/02/13

Brussels, 30 January 2001

Questions & Answers - Commission enlargement proposals on agriculture

How will the progressive introduction of direct payments work?

The starting level at which direct payments would be granted for 2004 would be set at a rate equivalent to 25% of the present system. The transition should proceed over a period of 10 years, i.e. the level then applicable in the current EU member states would be reached in 2013, taking place in a two-stage process. In a first stage direct payments would be slowly increased by two steps of 5% per year. This would allow an intensive restructuring effort. In the second phase, levels of aid would be further increased to reach the full level in 2013.

Would the same percentages of payments and the same transition periods apply to all candidate countries, in spite of the differences between them?

There are major differences between candidate countries. However, although the exact combination of problems varies from country to country, all countries face major challenges in adapting to the EU's single market and the Common Agricultural Policy as outlined below. For example, a relatively dynamic cereals sector might disguise a particularly weak livestock sector in one country, while in another higher levels of support may exist alongside very small farm structures. For these reasons, a ten-year period appears an appropriate length of time.

It should not be forgotten, however, that there is significant scope for the candidate countries to tailor the instruments available to them to their specific needs. Firstly, the Commission has proposed that candidate countries can top up direct aids with national support to the pre-accession level. Secondly, rural development support, particularly through the new transitional income measure, can be targeted at those farms particularly involved in the restructuring process. This will be especially relevant for countries such as Slovenia and Poland with large numbers of smaller family farms.

Do lower direct payments mean less competitiveness for the farmers in the candidate countries?

Direct payments provide support to farmers and the farm household's income. In the short term, lower levels of direct payments would affect relative levels of income but would not affect the price, level or quality of production, that is to say the competitiveness of the farm. In the longer run, of course it influences the farmer's liquidity and his capacity to invest.

The Commission is aware of these problems and for this reason has proposed targeted instruments to encourage investment and restructuring within the framework of reinforced rural development programmes:

- Investment and restructuring aids;

    - A new transitional income support instrument targeted at restructuring semi-subsistence farms to ensure that they are able to avoid liquidity problems and to maintain an acceptable living standard.

Investment, restructuring, and making semi-subsistence farming commercially viable are the real key to competitiveness in the agricultural sector of the new member states. Finally, it should not be forgotten that the Commission has proposed a progressive alignment on EU direct aid levels over a ten-year period.

How could immediate direct payments hinder restructuring?

The situation in the candidate countries is very diverse but their agricultural sectors to a large extent share a number of restructuring problems:

High levels of direct payments are likely to consolidate existing structures in a period of rapid restructuring. For semi-subsistence farms in particular, high payments would consolidate a type of production based on private consumption by ensuring its viability. There would be little incentive to invest this aid in production or alternative activities, objectives in all cases better targeted by rural development programmes. However, high levels of direct payments in early year would not only slow the restructuring of small and semi-subsistence farms. They would also remove incentives towards other types of structural change that will be important to ensure the competitiveness of all farms in the new member states:

    - A major effort is required to reorientate all farming types towards EU quality, food safety and environmental standards and the provision of environmental services. EU rural development programmes will play a key role here.

    - Many candidate countries need to reduce considerable levels of hidden unemployment. Rural development and structural funds programmes will be essential in addressing these problems.

    - The commercial farming sector and agri-food chain in the candidate countries needs a favourable and stable investment environment in order to develop in a sustainable manner. Efficient wholesale, input and land markets are of equal importance.

If direct aids are introduced too quickly in the candidate countries, their short-term positive effects on farm income would be outweighed by their negative impact on restructuring. There is a significant risk that necessary restructuring would be slowed or even stopped, creating a durable vicious circle of low productivity, low standards and high hidden unemployment.

How will the simplified direct payment regime work?

The new Member States will have the option of granting direct payments during a limited period in the form of a de-coupled area payment applied to the whole agricultural area. The envelope for direct aids would be established according to relevant CMO rules for each direct aid and on the basis of the quantitative parameters specified in the relevant annexes to this paper. On the basis of its total envelope of direct aids and its utilised agricultural area, an average area payment would be calculated for each country.

All types of agricultural land (defined as utilised agriculture area) would be eligible for the payment. There would be no obligation to produce. However, land should be maintained in a manner compatible with the protection of the environment. The minimum size of eligible area would be set at 0.3ha.

The approach should be optional. However, candidate countries which did not choose the simplified system would be required to fully implement the standard system for direct payments on accession in accordance with the relevant EU management and control rules. There would be no transitional periods for IACS implementation or other CMO requirements concerning direct payments à la carte.

The simplified scheme would be available for three years, renewable twice by one year. Controls of payments would be effected by a simple physical control of land, through, in principle, the IACS system. At the end of the transitional period, the new Member States would enter the regular system of direct income support in the form then applicable.

How are the direct payments calculated?

The amount of direct payments for each member state would be calculated according to the criteria of the relevant common market organisations on the basis of a recent reference period. For the period of the simplified scheme, this would be used to establish a national envelope. At the end of the simplified scheme, the payment system would revert to the normal common market organisation rules.

What is the special support scheme for semi-subsistence farmers?

In the candidate countries many "semi-subsistence farms" persist, which produce for own consumption, but market the larger part of their production. During the transition period, the EU will support these farms in two ways. To help to turn them into commercially viable units a specific measure for semi-subsistence farms is proposed. This measure should take the form of a flat rate aid of € 750 maximum. Payment of the aid should be conditional on submitting a business plan demonstrating the future economic viability of the enterprise. The temporary income support would serve to alleviate cash flow constraints and household income difficulties as further restructuring is undertaken to ensure the future of the holding.

Second, all farmland will be eligible under the simplified scheme, whether it is in production or simply maintained in a manner compatible with environmental protection. The big advantage of the approach is its administrative simplicity which will ensure that it is comparatively easy to deal with a large number of small claims in the early years. This will also give semi-subsistence farmers additional time to concentrate on restructuring rather than on paperwork. The scheme is not only good for semi-subsistence farmers, but for all small farmers.

Will the new Members be subject to quotas and other supply management from day one?

The candidate countries will be subject to all quotas and supply management instruments from the first day of accession under market management and the standard direct payments system. Those new member states which opt into the simplified system will not be subject to supply control requirements as regards premia ceilings and set-aside during its application. They will, however, remain subject to quota restrictions.

Given that the simplified system tends to favour extensive farming systems over more intensive farming systems, the absence of premia ceilings and set-aside is not expected to lead to significant additional surpluses.

What does "a strengthened rural development policy" for the new members mean in practice?

It is essential to establish and maintain the momentum of the restructuring process bringing semi-subsistence farms into the market, creating alternative jobs off-farm, and ensuring the competitiveness of the commercial sector. The positive effects of rural development, investment and structural funds programmes require time.

Which measures can be financed?

Rural development measures eligible (max. 80% EU financed):

  • early retirement of farmers

  • support for less favoured areas or areas with environmental restrictions

  • agri-environmental programmes

  • afforestation of agricultural land

  • specific measures for semi-subsistence farms

  • setting up of producer groups

  • technical assistance

The following additional rural development measures will be financed from the Structural Funds (EAGGF Guidance sector): Investment in agricultural holdings, aid for young farmers, training, other forestry measures, improvement of processing and marketing, adaptation and development of rural areas.

How much money, which co-funding rate?

A significant increase in funds available for rural development is foreseen. According to the Commission's proposals, rural development appropriations (from FEOGA-Guarantee section) are approximately €1,800 million in 2006. This means that the support would be reinforced by 50% compared to the normal EU-level. To this the allocation of FEOGA-Guidance from the structural funds to be decided by the new member states must be added.

A number of measures designed ensure the proper uptake and good administration of funds: management of Guarantee funds through differentiated appropriations, ensuring a better use of resources; use of SAPARD structures, including SAPARD agencies for programme administration; co-financing rate of 80% compared to 75%.

How will the progressive introduction of direct payments work?

The starting level at which direct payments would be granted for 2004 would be set at a rate equivalent to 25% of the present system. The transition should proceed over a period of 10 years, i.e. the level then applicable in the EU would be reached in 2013, taking place in a two-stage process. In a first stage direct payments would be slowly increased by two steps of 5% per year. This would allow an intensive restructuring effort. In the second phase, levels of aid would be further increased to reach the full level in 2013.


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