CAP reform agreement means that decoupling will be partial
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CTA. 2003. CAP reform agreement means that decoupling will be partial. Agritrade, August 2003. CTA, Wageningen, The Netherlands.
Permanent link to this item: http://hdl.handle.net/10568/52485
In the words of the European Commission, the June 26th 2003 agreement on CAP...
In the words of the European Commission, the June 26th 2003 agreement on CAP reform will mean that 'in future, the vast majority of subsidies will be paid independently from the volume of production'. However 'member states may choose to maintain a limited link between subsidy and production under well-defined conditions and within clear limits'. The single farm payment system will enter into force in 2005. However, member states may get a special dispensation to apply it only from 2007. The key elements of the reform package as agreed are: a single farm payment for EU farmers, independent from production; limited coupled elements may be maintained to avoid abandonment of production; this payment will be linked to respect for environmental, food-safety, animal and plant health and animal-welfare standards, as well as the requirement to keep all farmland in good agricultural and environmental condition ('cross compliance'); a strengthened rural-development policy with more EU money, new measures to promote the quality of the environment and animal welfare, and to help farmers to meet EU production standards starting in 2005; a reduction in direct payments ('modulation') for bigger farms to finance the new rural development policy; a mechanism for financial discipline to ensure that the farm budget fixed until 2013 is not overshot; revisions to the market policy of the CAP involving: asymmetric price cuts in the milk sector; reduction of the monthly increments in the cereals sector by half, (the current intervention price will be maintained); reforms in the rice, durum wheat, nuts, starch potatoes and dried fodder sectors. The Commission press release provides a detailed summary of how the various reforms will be implemented. This includes an outline of the modifications made to the Commission's original proposals with regard to the single farm payment scheme, where member states can be allowed to maintain up to 25% of current hectare payments in the arable sector linked to production if this maintains land in production. Alternatively 40% of the supplementary durum wheat premium may continue to be linked to production. Unlike the Commission's initial proposal there will be no reduction in cereals intervention prices, although the existing seasonal correction payments will be reduced by 50%. A supplement for durum wheat in traditional durum wheat farming areas will be paid independently of production for which member states may decide to retain 40% linked to production. A quality premium for durum wheat used in pasta and semolina production to farmers in traditional zones will also be paid. A one-step reduction in the price of rice of 50% was agreed. This will bring the EU price (€150/tonne) into line with the world market price. Current direct aid payments will be increased from €25/tonne to €177/tonne. Of this €102/tonne will be part of the single farm aid payment, based on historical rights, while the remainder (€75/tonne) will be paid as a crop-specific aid. Intervention buying will be triggered should market prices fall to €150 per tonne, with a ceiling of 75,000 tonnes being set for intervention buying. New tariff items are to be created to accommodate the new rice regime. With regard to the beef sector, member states may decide to retain up to a 100% of the suckler cow premium and over 40% of the slaughter premium as a production-linked payment, or 100% of the slaughter premium or 75% of the special male premium. In addition for sheep and goats, a maximum of 50% of the premium can remain linked to production, while drying aid for cereals in the outermost regions of the EU may remain linked to production. The dairy sector will only be incorporated into the single farm payment from 2008 when the process of reform has been fully implemented. The reformed dairy quota regime will remain in place until 2014/15. The intervention prices for butter will decrease by 25% over four years which is an additional price cut of 10% compared to those agreed in 2000. There will be a reduction in skimmed milk powder prices of 15% over three years in line with the Agenda 2000 agreement. Intervention buying for butter will be suspended above a limit of 70,000 tonnes in 2004, with this declining to 30,000 tonnes by 2007. Compensation payments will rise from €11.81 per tonne in 2004 to €23.65 in 2005 and €35.5 per tonne in 2006. In addition member states may make additional payments equivalent to 10% of the sum of the single farm aid payment to encourage specific types of farming. With regard to funds generated by 'modulation' (that is the progressive reduction of payments to larger farms) 1% will remain in the member states where the money is raised. The remainder will be allocated to member states according to: agricultural area; agricultural employment; GDP per capita, purchasing power. This being said every member state will receive at least 80% of the funds generated from modulation in its territory. Proposals for reform of the olive oil, tobacco and cotton regimes will be tabled in autumn 2003. Comment: The prior implementation of reform in the dairy sector, involving substantial price reductions, in advance of incorporation into the single farm payment scheme, gives an indication of the likely trajectory for reform in the sugar sector, a sector of vital importance to a number of ACP economies. The impact this will have on the value of ACP sugar preferences (quite independent of the outcome of the Brazilian and Australian WTO challenge to the EU's 'C' export arrangements) will need to be taken into account in the on-going EPA negotiations; possibly through the negotiation of 'compensatory trade measures' explicitly linked to the erosion of the value of trade preferences as a result of the implementation of CAP reform. In the rice sector the compromise reform includes a specific reference to traditional rice suppliers stating 'the Commission will also take into account the interests of developing countries, including those traditional suppliers, as well as the implementation of the EBA regulation', it remains to be seen what this will mean in practice for traditional ACP suppliers such as Surinam and Guyana. The major change with regard to modulation which keeps the vast majority of these funds for deployment in support of rural development means that there will be little scope created for the financing of further reform. This could serve to defer substantive reform of the EU sugar regime.