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EC proposals for the reform of the CAP leaked

05 October 2011

EC regulatory proposals on the future of the CAP beyond 2013 have been leaked. Underlying the EC proposals is the priority to promote ‘resource efficiency’ within the existing two-pillar approach. The EC has opted for an ‘integration scenario’, focused on enhanced targeting and greening of direct payments, and reinforced strategic targeting for rural development policy. Increased emphasis is placed on improving ‘agricultural productivity through research, knowledge transfer and promoting cooperation and innovation’ as well as on simplification of the CAP. The EC proposal will seek to gradually equalise payments across the EU27.

The EC proposes maintaining both reference prices and intervention prices, as appropriate, with each being carefully defined, alongside intervention buying within clearly defined quantitative limits and support to private storage. The EC also proposes retaining the right to use: export refunds; import and export licences; the entry price system, TRQs; inward and outward processing arrangements and special safeguard arrangements, as required, as part of its commitment to managed markets and ensuring effective safety nets for EU farmers.

The core system of direct aid payments will be retained, consisting of a basic payment and a range of additional payments designed to incentivise particular forms of climate and environmentally friendly farming practices. A system of voluntary coupled payments will also be retained (up to 5% of national budget ceilings and even 10% in exceptional circumstances), alongside coupled support to the cotton sector. In the cotton sector this will retain scope for coupled payments up to €260 million.

Increased emphasis will be placed on ensuring effective safety nets are in place to insulate EU farmers from the worst effects of global price volatility and other market crisis. This will use a range of traditional agricultural policy tools and will be backed up by the new special crisis reserve fund. In addition, special provisions are included in the EC proposals for crisis management in the fresh fruit and vegetable sector through producer organisations.

In the sugar sector, the EC proposes to abolish sugar production quotas from 1 October 2016, with the current sugar regime continuing to apply in the interim. In the dairy sector, specific measures to strengthen the functioning of the supply chain are proposed, including in the area of contracts between milk producers and milk processors.

Detailed provisions in a range of other sectors are included in the regulation, as are provisions dealing with: geographical indications (GIs), agricultural product standards; support to producer organisations, measures to strengthen the functioning of supply chains. Mechanisms for harvest insurance and support to the establishment of mutual funds are also proposed.

Overall expenditure levels on the CAP will be maintained in nominal terms at their 2013 level.

Editorial comment

The leaked EC proposals suggest that the basic structure of the CAP will remain the same. Direct aid payments (both decoupled and coupled) will remain at the heart of EU support policies with a wide range of other policy tools being used, as appropriate, in response to specific sector needs, in the light of the EU’s commitment to managed markets and strengthened safety nets for EU farmers.

From an ACP perspective, the retention of coupled support in the cotton sector can be seen as a lost opportunity for the EU to show leadership in the area of cotton sector reform.

The EC’s renewed commitment to the continued use of traditional trade policy tools (export refunds, import and export licences, TRQs, the use of entry price systems, intervention buying, support to private storage and the use of special agricultural safeguards) needs to be seen in the light of the ongoing EPA negotiations on provisions dealing with the use of these same tools in an ACP context (see Agritrade article ‘ Agricultural dimensions of the WTO EU trade policy review’, September 2011).

The establishment of a clear timetable for the abolition of production quotas as a market management tool in the EU sugar sector will affect both prices on the EU market and global prices, via changed patterns of trade in sugar (fewer EU imports and more EU exports), to the detriment of ACP raw sugar exporters.

The increased emphasis placed on effective safety-net measures for EU farmers, depending on how they are applied, could carry important implications for production in the dairy sector of some ACP countries. This would occur through a process of ‘adjustment displacement’, whereby the effects of price volatility are deflected from EU milk producers onto third-country milk producers, including those in ACP countries.

Potentially new EU policy initiatives on strengthening the functioning of supply chains and support to harvest insurance and mutual funds could hold some interest for ACP governments as they seek to effectively manage price and production volatility.


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