Agricultural Solicitors Ipswich – Brussels News March 2013

Richard Barker

‘Almost 25 years ago I made my first visit to the Commission in Brussels, and over those years we have enjoyed a remarkably good working relationship, sometimes working together, and at other times arguing our respective positions.

Without doubt, and contrary to so many myths, the Commission is the most transparent organisation I have dealt with, with a passion for levelling out playing fields which have become uneven through the actions of a Member State Government.

I also have learned that it has the most remarkable political antennae.  Some examples:

Shortly following the adoption of the Lisbon Treaty, which enabled the European Parliament to be part of the decision making process on agricultural matters for the first time, and whilst applauding the democratic extension, I was told to expect significant delays in agreeing the reforms, because no administrative steps had been put in place to enable this new democratic regime to work effectively – absolutely spot on.

There will be no negotiations on the reforms until the EU budget has been agreed – talk there may be, negotiations none – absolutely spot on.

Capping once again will fall by the wayside during the negotiations – watch this space?

Despite the difficulties of negotiating with the 27 Member States in extremely difficult economic circumstances, the parties accept there is enough common interest to ensure an agreement on the reforms will be achieved – if somewhat delayed – spot on.
The Commission published its proposals for reform in November 2011 in the form of a series of draft regulations and directives.  Ever since then, the economic crisis has dominated all matters.

The Summit

In a two day summit (7-8 February 2013) heads of state (the European Council) finally agreed the spending ceilings for the next budgetary period 2014/2020 and, for the most part, they left undecided how the budget changes would be applied to the six headings into which the budget is divided, one of which includes agriculture and the reform of the CAP.

Overall CAP spending for 2014/2020 is being reduced by 13% compared with the previous 6 year period but the savings are most unlikely to significantly affect direct payments because the conclusions reached by the Heads of State must allow Member States to fund direct payments by using up to 25% of the monies allocated through the CAP for rural development.  In other words, the Heads of State were saying that direct payments to farmers would be maintained but the monies that are used to fund environmental improvement would be drastically cut – to the horror of environmental interests who describe the budget agreement, among other things as a “complete betrayal of European citizens on behalf of the usual vested interests”.

However, the Heads of State did not confine themselves to budgetary matters because they also sought to direct Member State farm ministers on the position that they should adopt when negotiating the reforms to the CAP.  For example, the Commission had proposed making payment of 30% of direct payments subject to compliance of three green conditions, crop rotation – permanent pasture – setting aside land for biodiversity.  The Heads of State agreed that Member States should be given much greater flexibility relating to the choice of equivalent greening measures – a significant watering down of the Commission’s proposals, but good for farmers.

The Commission had also proposed that farmers should have to set aside 7% of their arable land for biodiversity as one of the conditions needed to be satisfied to qualify for 30% of the direct payment.  The Heads of State concluded that this particular measure must be “implemented in ways that do not require the land in question to be taken out of production and that avoid unjustified losses”.  The effect would be that the land could continue to be used to grow crops, defeating the intended environmental purpose, according to the Commission.

The Commission’s reaction was that this summit’s conclusions removed the justification for maintaining the direct payment system, namely that farmers provided public goods in the form of environmental enhancement.

A spokesman for the European Parliament immediately responded to the summit’s conclusions by stating “the real negotiations will start now, with the European Parliament…. .the Member States can agree on whatever they want, but without the consent of the Parliament such an agreement is meaningless”.

In practice the European Parliament has the power to either approve or to reject the Heads of State’s agreement.  However, to carry through the threat to reject, giving the Parliament a stronger negotiating position, relies on the ability of MEP’s to resist instructions from their national capitals to back the summit agreement.  In fact the Parliament voted to adopt the €960 billion spending ceiling agreed by the Heads of State, realising that it would not be possible to renegotiate any other budgetary deal this side of Germany’s elections and thereafter the political turmoil in Bulgaria, Italy and Slovenia would make unanimity harder to achieve than it was when the Heads of State met in February.

What appalled the European Parliament was the fact that they had been effectively ignored by the Heads of State who had negotiated a budget in terms which could not effectively be challenged, despite the fact that the Lisbon Treaty requires budgetary matters to be approved by the Parliament.  Additionally, the Heads of State had stepped outside their terms of reference and begun deciding the finer detail of particular policy areas without obtaining the consent of the Parliament which again, under the Treaty they were required to do.

The Parliament’s response has been to claw back some measure of control over the budget by insisting that it will continue to refuse to negotiate reforms unless and until the Member States agreed to its full demands, the first two of which have been suggested by the Heads of State anticipating that this would be the reaction of the Parliament:

1. There would be a mid-term review of the long term budget.  The Parliament says this was ‘meaningless’ if it did not lead to a financial revision of the budget ceilings opening up the whole deal, revenue and expenditure side with qualified majority voting among the Member States so that no single Government could block the process.
2. That there should be “specific and maximum possible flexibility” of allocations of funds across years and across budget headings.  This would mean unused funds to be allocated elsewhere instead of being transferred back to the Member States at the end of each budget year.
3. The Parliament requires new funding sources to be considered, such as the transaction tax – so opposed by Cameron and the City of London.
4. An additional funding of €14 billion to cover unpaid financial commitments made in earlier fiscal years so policies then agreed can be fully implemented.

Having agreed the headline reduction agreed by the Heads of State in their financial commitments to the CAP on 13 March, the Parliament agreed its position on a number of the elements of the reforms proposed by the Commission but it placed itself in opposition to the European Council (i.e. the Heads of State when they agreed the budget) such as:
• Their agreement to accept the need for capping direct payments, including a €300,000 limit on subsidies, whereas the European Council considers that capping should be voluntary.
• Rejecting the Council’s position which would allow certified agri environmental schemes to count towards the 30% ‘green’ proportion of direct payments, provided these schemes were “at least equivalent” to the three new greening measures proposed by the Commission.  The European Council is strongly in favour of equivalent measures, aimed to give farmers greater flexibility in dealing with this issue.
• That the three greening requirements should be tailored to the size of the farm, requiring that farmers should cultivate at least two crops (rather than three) on an arable area covering between 10-30 hectares with no crop covering more than 80% (rather than 70%) of the land.  On farms with an arable area above 30 hectares, farmers should cultivate at least three crops provided that the principal crop should not cover more than 75% of the arable land.
• Convergence i.e. the transfer of value of direct payments to close the gap between differing Pillar 1 levels so no country would receive less than 65% of the EU average.  The European Parliament also wants to see a more gradual shift from historical to area based payments than that proposed by the Commission, but less gradual than that proposed by the European Council.

The European Council wishes Member States to have the option to transfer funds from Pillar 1 to Pillar 2, subject to co-financing.  The European Council wishes transfers to be made from Pillar 1 to Pillar 2 but without co-financing (which would mean farmers paying directly for a proportion of the cost of agri-environmental schemes) and from Pillar 2 to Pillar 1.

The Parliament supports definition of “active farmer” to reduce the possibility of “armchair farmers” continuing to receive direct payments.

Contrary to the Commission’s view, the Parliament voted that the end of the current system of farm aid entitlements under the single area payment scheme should be put back from 31 December 2013 until 31 December 2020, thus allowing a longer transitional period.

One of the effects of the European Council’s decision to support the use of equivalent measures to satisfy the greening conditions is the so called ‘double funding’ i.e. paying farmers twice for carrying out the same measures, once under Pillar 1 and again under Pillar 2.  The Parliament agreed to reject that result, thus once more putting it on a collision course with the European Council.

The Parliament also voted to extend the life of certain quotas, including sugar from 2015 to 2020, contrary to the Commission’s position.

The Parliament also called for a 25% minimum spend on agri environmental schemes and organic farming and further opted for such schemes to receive the benefit of increased co-funding rates with rates climbing above 50% in less developed regions of the EU.

Finally, the Parliament reversed its earlier decision and sought to reintroduce a number of statutory management requirements and standards for good agricultural and environmental conditions under cross compliance rules, such as the sustainable use of pesticides and the electronic tagging of sheep, cattle and pigs but it rejected the Commission’s proposals to introduce the Water Framework Directive and elements of the Bird/Habitats Directives into the cross compliance regime and voted to reject the Commission’s proposals limiting the fines for breaching the 30% greening requirements, thus it is argued making greening effectively optional.

The budget, or at least the headline amount of the budget, having been agreed, nothing should now stand in the way of detailed negotiations beginning and accordingly agreement has been reached that between 11th April and 21 June 30 three way (or trialogue) meetings will take place involving the European Council, the European Parliament and the Commission.

You will recall that during the course of their budget discussions, the Heads of State sought to direct how their respective agricultural ministers should proceed in the detailed negotiations.  In anticipation of the trilogues the Council of Ministers (this time the agricultural ministers of each of the Member States) met on 19 March 2013 to hammer out its negotiating position.

The main provisions of the Council’s deliberations are:
• To keep capping voluntary
• To allow double funding
• To make aid to young farmers voluntary
• To provide increased flexibility on convergence of direct payments at National or Regional level by allowing Member States to move towards partial rather than full convergence by 2019.
• A voluntary extension of the single area payment scheme until 2020 in the Member States applying the scheme is now foreseen.
• To tailor greening according to farm size.
• The setting aside of ecological focused areas should extend to 5% as opposed to 7% until 2017 and then possibly rising to 7% thereafter.
• To widen the scope of equivalent practices (practices which yield an equivalent or higher benefit for the climate and the environment compared to the greening practices proposed by the Commission).
• Farms, 75% of which are covered by National or Regional environmental schemes, would be considered equivalent and the same for farms where at least 75% of the surface is grassland or cultivated with leguminous crops.

At the conclusion of this Council meeting the Irish Presidency commented that “no country is getting everything they want and the time for hard line national positions is over”.

An immediate consequence of the main institutions on this debate having made their positions relatively clear is that the Commission is now expected (any day) to table a proposal to trigger “financial discipline” in 2014 which will result in a reduction in the value of direct payments because the difference between the new budget ceilings and its spending requirements is so small there cannot be any alternative.  The exact amount of the reductions has yet to be calculated but it is likely to be between 1-3%.

The final terms of the reform will only be known, I suspect, at the conclusion of the trilogues next June.  The Irish Presidency is particularly anxious to reach a final conclusion which will still mean that the new regime of direct payments and the programme of convergence will not begin until 2015 although it is hoped that the Rural Development measures will be in place by the beginning of 2014.

Brussels News will endeavour to keep you up to date with the negotiations on the reforms.  Today is too early to speculate what their final shape will be but there are now much clearer signs of the final outcome, all of which will follow in the next edition of Brussels News.

The principal aim of Brussels News is to give you a better understanding of the European dimension, particularly the CAP reforms at this time and to provide you, whenever we can, with guidance and advice in a form which we believe will allow you to make informed decisions concerning your agricultural businesses.  We do not speculate upon the likely outcome of the negotiations, but we do note that one or two marketing departments of professional firms have already gone into print, principally on the basis of what was said by the agricultural committee of the European Parliament some weeks ago.  As you will have realised from this note, that committee’s view has since changed to some extent being but one cog in a complex wheel which, at long last, is beginning to grind forward.

Richard Barker is a practising consultant, specialising in agricultural law at Barker Gotelee, solicitors in Ipswich

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