The agreement reached between the heads of state & governments on the European budget – and thus the CAP budget – has relaunched the European negotiations on both the CAP reform and the recovery plan or the 2021-2022 transition period.

Beyond the declarations of principles of a CAP proposal that meets the objectives of the Green Deal – even though the genesis of the latter came much later – the link and coherence between CAP reform and the two proposals for “Farm to Fork” and “Biodiversity” strategies remain to be established, and possible antagonisms to be avoided. 

This note aims at describing the state of play of the various negotiations in progress, as well as underlying some subjects that could have consequences.

European Institutions: a new deal

During the period 2014-2019, the European Parliament has been the driving force behind the changes decided at European level for agriculture. After the 2019 elections, this institution, – which until then has been governed by an EPP-S&D (socialists) majority – had to deal with a governance agreement bringing together 4 political parties: EPP, S&D, Renew Europe and the Greens. Any decisions now require an agreement between at least 3 of these 4 parties. At the same time, the weight of environmental concerns has become the focus in all political parties; S&D and Renew Europe have no intention to leave the “environmental cause” dossier to the Greens. Finally, it should be noted that the Environment and Health Committee of the European Parliament has become the committee with the largest number of members, almost twice as many as the Agriculture Committee.

Since 2010, the Council has been afflicted from a divergence of views between Germany and France on CAP issues. Being more fragmented, the Council has hardly been able to steer developments, whether during the 2013 reform, on the financial omnibus of 2015, or during the first two years of now discussed CAP reform. During the past period, its positions have swung between a search for the status quo, a limited capacity to deviate from the Commission’s proposals and a regular search for more flexibilities for Member States. The current German Presidency has set itself the objective of finding a compromise between the Member States by October in order to define the starting position of the Council in its CAP negotiations with the European Parliament. 

The new Commission is marked by the predominant role of Dutch Vice President Timmermans, in charge of the Green Deal and head of the cluster bringing together the Commissioners for Agriculture, Health, Environment and Climate Change. Within this new team, it is important to note the (political and technical) weaknesses of the Commissioner for Agriculture, and the fact that the Vice-President and his cabinet have placed Wojciechowski’s team and DG-Agri under the supervision of Timmermans’. With a vice-president who favors political orientations over economic and technical reasoning, agriculture is approached as one of the potential bankers of the Green Deal.

CAP Reform: two years after the draft proposal, negotiations finally begin

Last July’s European Council defined the CAP budget for the period 2021-2027, as well as certain guidelines for the future CAP, anticipating on these points the forthcoming negotiations between the European Parliament and the Council (trilogues). 

The decision of the Heads of State must in theory be ratified (or rejected) as a whole by the European Parliament. The latter has expressed its refusal to adhere to the roadmap drawn up by the European Council without even discussing it. Even if the ongoing trialogues are judged “positive” by the EP representatives, the adjustments should be on the margin and concern very little the agricultural chapter. 

For the CAP, three dossiers are currently being discussed in parallel: the reform proposal, the transition regulation and the agricultural chapter of the post-Covid European recovery plan.

Transitional regulations: 

Most of the negotiations on this dossier focused on the duration of the so-called transition period. The Commission campaigned for only one year (2021), but both the Parliament and, ultimately, the Council agreed on a 2 years period. This is the minimum period that is technically credible, considering that the EP-Council negotiations on the reform will only start in November 2020. During the transitional period, Member States will be able to anticipate the use of rural development funds by mobilizing, in addition to the 2021 and 2022 allocations, a maximum of €2.6 billion of the funding planned for the years 2023-2027. 

The new CAP will therefore start on January 1st, 2023 and end on December 31st, 2027. A CAP shortened to 5 years, with, as for every reform, a first year of running-in. 

All along the discussions on the transition, the Commission is trying to negotiate (even if it is not a co-legislator) the reinforcement of the share of pro-environmental measures in the current CAP for 2021 and 2022 in order to be able to communicate from 2022 on 40% of the CAP budget devoted to pro-environmental measures.

European recovery plan for agriculture: 

A specific envelope of €8.2 billion (€7.5 billion in 2018 prices) has been decided by the European Council in favor of the agricultural sectors under the umbrella of the recovery plan. Although reduced by half compared to the Commission’s initial proposal, this amount does not seem to need to be reviewed during the negotiations of financial trilogues between the Council and the European Parliament. 

These funds are to be committed in 2021 and 2022. Payments could be spread out until 2025. 

While the Commission suggested that the majority of the funds should be devoted to environmental measures (2nd pillar), the work developed with the rapporteur (P. de Castro) and the three most important parties of the EP (EPP, S&D and Renew Europe) should lead to amendments:

  • Giving, respectively, 2.387 and 5.683 billion euros for the years 2021 and 2022;
  • Aiming to direct these funds to investments for the principal part (target of a minimum of 55%) and towards environmental measures for 37% (including measures in favor of organic farming).

Member States, from their side, put pressure on their national MPs so to have more discretion in the usage of this money.

CAP Reform: 

On this dossier, the EP and the Council are in the process of finalizing their initial negotiating positions. The objective for both of the institutions is to reach a conclusion by the end of October in order to start the trilogues by the end of November.

European Parliament position:

The ComAgri of the (previous) legislation voted a position on the CAP reform in May 2019. This position effectively addressed a good number of points to be amended in the Commission’s 2018 proposal. The new Parliament elected in June 2019 decided to make this position its working basis and to complete the work by asking three ComAgri rapporteurs to prepare additional amendments for a vote in the plenary of October 20th

The May 2019 position initiated a return to a common policy, where the Commission proposed a de facto re-nationalization of the CAP through 27 national strategic plans (NSP) defining the requirements to be demanded to farmers and through 27 different management, control and sanction policies. 

ComAgri also asked for the obligation for the Member States to set up eco-schemes within the first pillar, and to dedicate part of the budget to this new tool – without specifying how much money yet -, but also to devote 60% of the first pillar budget to basic income aid (and first-hectare aid). It put in place relevant risk management tools and prescribed an operational crisis reserve of €1.5 billion. It placed the economic stakes on an equal footing with the environmental stakes when the Commission’s initial proposal only put forward the latter. 

Although this position put back common elements of CAP management, it did not succeed in fully re-establishing common management (based on the conformity of payments with EU rules), nor in finding a rationale in the Commission’s proposal sanction-based management: on the one hand, each year, on the basis of output indicators (number of hectares under the different measures with regard to the objectives set out in the NSPs) and, on the other hand, every two years on the basis of results that the MS should commit itself to achieve in its NSP. 

At the end of May 2019, work was still in progress to define a common European basis for the cross-compliance rules and, above all, the definition of what the eco-schemes should be in order to avoid different uses among MS, which would lead to distortions in treatment.

With 10 days to go before the plenary vote, the work on maintaining the C of the CAP could lead to a positive outcome. A coalition of EPP, S&D, ECR (thus a majority of the EP) is in the process of formation, against the rapporteur of the file and the Commission, to define a common management framework of the CAP based on operational conformity (verified for each MS by the national certification body, the Commission will intervene only in case of failure of the latter) and a performance assessed (and sanctioned) only on result indicators reworked and evaluated every two years. These modifications – however technical they may seem – are no less fundamental. The absence of any conformity control proposed by the Commission inevitably leads to criticism of the CAP’s hidden management by the courts of auditors and the media, making it all the more fragile. The control “only by performance” put forward by the Commission had performance only in the name. Apart from its cumbersome nature, it did not in any way allow the actual impact of the CAP in terms of environment or economy to be highlighted. Moreover, in order to avoid any sanction in this area, Member States in the Council are trying to negotiate margins of maneuver of 50 to 150% in the objectives to be reached in relation to what they would put in the NSP, hiding the impact in terms of credibility that this would induce for the CAP in public opinion. The risk of dismantling the CAP would increase accordingly.

With regard to the cross-compliance rules for CAP aid, negotiations between the political groups in the European Parliament are focusing on:

  • a compulsory EFAs rate for all Member States of 5% as of 2023 and the link to be made or not with the guidelines proposed by the Commission in its Farm to Fork and Biodiversity strategies. Faced with the proposals for a 10% EFAs rate at the end of the period, another option is being worked on: a rate of 5% of arable land for each farm and an additional X % to be reached at national level by 2027, the objective being to have this additional rate of 2% in cross compliance for some or to raise it to 5% via an obligation in the eco-schemes (thus 5% cross compliance + 5% eco-schemes) for the other groups in the coalition.
  • The definition of the rotation requirement which, for the time being, is left to the initiative of each Member State. Parliament may insert rotation requirement “or equivalent measures”.
  • The possibility of equivalence to GAEC cross compliance requirements but only via eco-schemes. If eco-schemes are more demanding than cross compliance, then cross compliance will be deemed to be achieved for farmers applying eco-schemes.

Concerning the nature of Eco-Schemes and their financing 

  • The majority groups (EPP, S&D, Renew Europe) tend towards a proposal of 30% of 1st pillar funds to be allocated to Eco-schemes. German MEPs, relaying the request from countries with a very strong 2nd pillar, suggest that MS devoting more than the minimum required under the 2nd pillar to AEMs could reduce their eco-schemes budget allocations by the amount that exceed the so-called minimum required under the 2nd pillar. While the interest is obvious for countries that already have large AEMs budgets in order to minimize the impact of the eco-scheme measure, it is not the same for other countries that would be tempted to transfer more money from the 1st to the 2nd pillar with a significant difference for farmers: AEMs may target only some farmers where eco-schemes are intended to address almost all, AEMs compensate for costs, where eco-schemes are incentive payments, not limited to the strict maximum compensation of the so-called over-costs.
  • With regard to the nature of the Eco-schemes, it seems to have been added in their definition that these environmental measures must strengthen the profitability of farms.  At the same time, the eco-scheme measures that have to be decided by the MS should include a list of action headings (input reduction, carbon sequestration, GHG reduction, water protection, erosion control, biodiversity protection, animal welfare, precision and digital agriculture, genetic diversity) and tick one to three (under discussion) of them.
    In that context, the EP could ask the Commission either to propose by delegated act an indicative list of eco-scheme measures (unless this list is inserted as an annex to the basic regulation) and/or a list of quality indicators to which the measures decided upon by the Member States in their national strategic plans should respond.

On the allocation of Cap funds between types of measures, the majority of the EP tends towards:

  • a possibility for MS to transfer 15% of direct aid from the first pillar to the second pillar, which can be increased from 12 to 15 points (potentially 12 to 15 % of BISS “only”) to finance exclusively AEMs.
  • a possible transfer of 5% from the 2nd pillar to the 1st pillar, increased to 15% for MS whose direct payments per hectare are below the EU average,
  • 30% of direct payments to be spent on eco-scheme measures over the period 2023-2027 (possible annual variations),
  • at least 60% of the direct payments envelope to finance basic income support, redistributive support, coupled support and support for operational program,
  • 7% of direct aid in favor of redistributive aid. If this rate is at least 12%, then the MS does not have to apply the capping,
  • 35% of the 2nd pillar to be oriented in favor of environmental actions, with ICHN aid up to 40%,
  • 30% of the 2nd pillar in favor of investment and risk management measures,

Beyond the issue of EFAs, the link with the Farm to Fork and Biodiversity strategies could be the subject of a review clause on January 1st, 2025, in order to give the co-legislators time to orient these strategies and not pre-empt the conclusions of this work by decisions within the CAP reform, contrary to the wishes of the Greens and part of Renew Europe.

Council position: 

Within the Council of Agriculture Ministers, the key word seems to be the search for maximum flexibility. The Commission has opened the door to hyper-flexibility with its proposal and the Member States have rushed in, pushing the CAP towards a de-facto re-nationalization. Discussions now aim at limiting the Commission’s right of scrutiny (or to provide for such margins in relation to the objectives to be achieved and on which the Commission proposes to base its controls only. The constraints would be almost non-existent whereas the Commission has proposed to put an end to the principle of compliance defined and controlled at European level). 

The Council also envisages that at least in the first years of implementation of the CAP, funds dedicated to Eco-schemes that would not be used by farmers could be recycled to finance other measures. In fact, the percentage of the 1st pillar to be dedicated to Eco-schemes would only be indicative for the first years.

In this context, the cabinet of the President of the Commission has just become aware of the risks of diluting the environmental ambitions that she would like to obtain via the CAP and of the risks of not having any control or monitoring of the use of the funds of the 1st European policy. 

It appears that the President and her First Vice-President Timmermans have taken over the management of the CAP reform dossier directly, with the Agriculture Commissioner and his cabinet playing an increasingly tenuous role. 

Their only room for maneuver at the moment is to seek the support of the European Parliament (ahead of the vote on its position in plenary and during the trilogues which will begin at the end of November and probably end in March). The strategic issue for them appears to be the content of the eco-scheme and its dedicated financing (no recycling). In this context, the commission has just finalized a working document proposing to group the eco-schemes around four headings (agro-forestry, agro-ecology, precision agriculture, carbon sequestration) by illustrating the headings with examples of measures. 

Furthermore, the VdL and Timmermans cabinets do not yet seem to have grasped the importance of the ongoing negotiations on the horizontal regulation.