THE CAP REFORM The CAP has been

THE CAP REFORM

The CAP has been revised repeatedly over time…. • Introducing the first structural measures (70) • Limits market interventions and establish budgetary stabilizers (80) • Introduction of physical quotas (80) • Reinforcement of structural measures (Reg No 797/85) • Environmental measures, forestry, extensification and set-aside (late 80 s)

Two important reform has been adopted within the years 90’: q Mc Sharry Reform (1992 -93) ü Concern the reduction of the prices of the agricultural products ü Is related the introduction of the payments per hectar and per head of livestock ü It regard the supporting measure (agricultural environment, forestry, and early-retirement) q Agenda 2000 (1999 -2000) ü Continuing of the implementation of the Mc Sharry till 2006 ü Rural developmpent measure (Reg. n. 1257/99)

Agenda 2000 forecasted a middle term review • On 26 June 2003 the negotiation of the Council Ministri has been concluded • On 29 September 2003 seven regulations has been approved • On 22 April 2004 the Agricultural Council of Ministries has reached the agreement related the mediterranean OCM (Olive Oil, Tobacco, Cotton and Hops) • On 29 April 2004 has been approved the regulations related the Tobacco and the Olive Oil

Through the regulation (CE) n. 1782/2003: It was approved at a very deep reform of the CAP mechanisms for at least five reasons :

Rationale for the mid-term review • To adjust the agricultural support between the: - the measures related to the market (first pillar) - the measures related to the rural development (second pillar)

“pilastri”: The CAP is founded on two “Pillars” Common Agricultural Policy 1° Pillar: 2° Pillar: Support to the market Rural Develop ment

…financially not balanced Com mo 1° Pillar: market support n. A g Poli ricultu cy ral 2°Pillar: rural developm ent

Before the reform the instrument of the CAP were organised in two Pillars as below described ü Market Instruments: • Direct payments (per hectare, • • per head. . . ) Production aid Guaranteed prices (intervention) Quota systems Border protection (tariffs and export refunds) ü Rural Development • Farms investment • Investment marketing and • • • processing Diversification Agri-environment ("integrated" and "organic, landscape, biodiversity. . . ) Forestry Early retirement Compensatory Allowances

Rationale for the mid-term review 2. To take into account the need to finance agricultural development of new countries following the enlargement of the EU-25 countries (1 May 2004), then to 27, with the entry of Bulgaria and Romania 3. To monitor the expenditure of the CAP, which absorbs about 50% of the total resources of the EU budget 4. To reach the compatibility between the CAP and the world trade agreements.

Rationale for the mid-term review 5. To address the EU expenditure towards a sustainable agriculture and create more consensus among the public opinion. • • greater responsiveness to market needs, improved competitiveness, safety and food quality, stabilizing farm incomes, consideration of environmental issues within the agricultural policy, greater vitality of rural areas simplification and decentralization

Main principles of the reform The CAP reform started in 2003 with the enactment of Regulation No 1782/2003, was first a major operation to simplify legislation, which led to rationalization (re-engineering) of EU agricultural law.

Main principles of the reform • This simplification of the legislation moved along different directions: The restructuring of the financial instruments; The restructuring of the support measure; The reduction of the regulations; The conceptual change of aid.

Main principles of the reform A. In detail, as regards the first point was repealed EAGGF (formerly divided into two sections Guidance and Guarantee Fund), and in its place have been established EAGF (which has absorbed the previous guarantee section) and EAFRD (which received a share of the EAGGF Guarantee Section and the Guidance section, with the exception of structural spending). The two funds are the competent one - EAGF - for direct aid to the CMO, and the other - the EAFRD - Rural Development.

Main principles of the reform B. The separation of funds led to consider the construction of the CAP based on two pillars. The first is to aid agricultural production, the second is rural development.

Main principles of the reform C. Should now be clear that the legal construction of the CAP has been greatly simplified. Now it is based, essentially, on only four Council regulations, plus the implementing Commission regulations. These four rules are: • • Regulation No 1290/2005, which regulates the management EAGF and the EAFRD; Regulation No 1782/2003 (now replaced by Regulation No 73/2009), governing the single payment scheme; Regulation No 1234/2007, which regulates the c. d. "CMOs only"; Regulation No 1698/2005, governing rural development.

Main principles of the reform D. Finally, the reform of the CAP led to a new way of support for agriculture: the idea is to strength the component of the second pillar and to develop the market orientation of EU agriculture, especially through the instruments modulation and decoupling

Characteristics of the reform The CAP reform is characterized by the introduction of: • a new aid scheme; • horizontal measures.

Horizontal Mesaure • Conditionality of payments (crosscompliance) • Farm advisory system (audit) • Modulation and "financial discipline"

The single Payment Scheme(SPS) The new scheme introduced by Title III of Regulation (EC) No 1782/2003 (now Title III of Regulation (EC) No 73/2009) is the single payment scheme (SPS).

The main innovation introduced by the Single Payment Scheme is the decoupling • Decoupling means to separate the level of support by the amount and type of production. • Support, therefore, is no longer linked to the cultivation or breeding of a species of plant or animal, but the possession of "entitlements" (entitlements payment - rights).

Single payment scheme: the models • The most important issue raised by single payment scheme is the allocation of entitlements. In general terms, there are two models: • the historical model, used by many of the old EU Member States; • the regional model, used by some of the old Member States and all new Member States

The two models • -Classical regime (individual approach historical) • - Regionalization • - Exceptions (partial implementation)

The determination of the entitlements in the historical model (outline) To the producers have been recognized bond premium per hectare equal to the average amounts received in the three years 2000 -20012002 (1999 - 2002 olive oil) divided by the areas that have given rise to such payments in the same period.

Single payment scheme: eg historical pattern • The farmer has received in three years period direct payments amounted to an average € 7, 500 (Reference amounts) • He manages 36 hectares of eligible land of which 25 has generated direct support (surface reference) • The 'reference amount of € 7500 is then divided on a reference surface 25 has created 25 titles for aid each amounting to € 300. • The farmer receives payments 25 titles to his aid only if it has at least 25 ha of eligible area.

Single payment scheme: eg historical pattern • This farmer will receive 25 rights each of one with a value of EUR 300. This means that it can sell up to 11 rights has no affect your premium (7, 500 €) • If the farmer sells-loses other 5 hectars will have only 20 hectares as eligible area. This means that 5 licenses aid will not be paid. • The farmer has two options for his unused rights: - Selling it to other farmers - Buy or rent eligible area

The determination of the rights in the regional model (outline) • The regions are defined within a MS • The national ceiling is divided between regions • The value of the aid right are determined dividing the regional ceiling for the total eligible area. • Allocation of aid rights of eligible hectares available to companies in the region.

Hybrid regional model (Article 47 of Regulation (EC) No 73/2009 • The Entitlements (righsts) are allocated to all farmers in the region, including those not having such entitlements provided because do no meet the requiremets descrbed in Regulation (EC) No 1782/2003. • The ceiling used for this purpose can be up to 50% of regional ceiling. • The value of entitlements (rights) is calculated by dividing the regional ceiling for the total number of eligible hectares in the region. • Farmers who already own the entitlements provided for in Regulation (EC) No 1782/2003 receive an increase in the value of their rights, and use the remaining part of the regional ceiling.

pro/contro due modelli Single payment scheme: for / against two models Historical Model Regional Model Calculation of rights on a historical basis (period) Calculation of securities on a territorial basis, awarded to applicants in the first year of application Keeping Status Quo Redistributive effect Bond (rights) market very developed Underdeveloped bond market (all rights are the same) Risks distortion of competition

New Member States that have implemented the Single Area Payment Scheme (SAPS) Regional implementation • The matter is regulated by Title III, ch. III of Regulation (EC) No 73/2009. • The allocation of entitlements is subject to the presentation of an application, by farmers, by May 15 the first year of the aid scheme • There are exception as cases of force majeure or exceptional circumstances.

New Member States that have implemented the Single Area Payment Scheme (SAPS) Regional implementation Management of the national ceiling: The new Member States may implement the single payment scheme at regional level: in this case the MS define the regions according to objective and non-discriminatory criteria (for example, taking account of its administrative structure or the specific conditions of agricultural production). • The national ceiling is divided between the regions according to objective and non-discriminatory criteria (such as, for example, the level of aid granted under the SAPS in each of the regions identified).

National Reserve • To establish a national reserve is made a percentage reduction of the national ceiling • The national reserve is used to allocate entitlements (rights): • -to farmers who are in a particular situation; • -to farmers in specific areas which are in a special situation, following the transition to the single payment scheme; • -to new farmers; • -to farmers in areas covered by the restructuring programs and development programs relating to one form of public intervention in order to guard against the risk that the lands are abandoned and to compensate farmers for the handicaps in those areas.

National reserve For allocation of entitlements from the national reserve shall be considered in special situations: - the transfer of land leased; - investment; - the lease and purchase of land leased; - administrative measures and judicial decisions

Allocation of entitlements (rights) • Each farmer will receive payment entitlements (rights) equal in number to the number of hectares he declares in the first year of the Single Payment Scheme implementation. • The value of each right is calculated by dividing the national ceiling for the total number of eligible hectares.

Conditions for the entitlements (rights) • In the regional model, the transfer of rights may be limited within the same region or between regions with the same rights per hectare. Payment entitlements (rights) may be transferred with or without land. • A farmer may transfer his payment entitlements (rights) without land only after benfit, at least of the 80% of his entitlements for at least one calendar year, or he give back to the national reserve all unused entitlements (rights) within the first year of the single payment scheme implementation. • The entitlements not activated for a period of two years shall be paid to the national reserve, except in cases of force majeure or exceptional circumstances

Special rights • If a farmer operate in the meat - beef or veal or sheep and goat- or dairy sector that does not declare eligible land (hectares) in the first year of the single payment scheme, he will receive special rights of the maximum value of 5000 Euro per normal right. • A farmer who declares special rights shall not declare eligible hectares, provided that it maintains at least 50% of the agricultural activity before the transition to the single

Other assistance under Title III specific support -Alongside the decoupled aid, the single payment scheme also forecast specific support provided to farmers in view of special needs. Specific support is governed by Article 68 of Regulation (EC) No 73/2009.

Specific support - the case • A. To: • i) specific types of farming which are important for the protection or improvement of the environment • ii) improving the quality of agricultural products, • iii) improving the marketing of agricultural products, • iv) improving the criteria for animal welfare • v) specific agricultural activities which involve additional agrienvironmental benefits (subject to approval by the European Commission).

Specific support, the case B. To address specific disadvantages incurred by farmers for dairy, beef, sheep and goat meat and rice in areas vulnerable economically or environmentally sensitive, or, in the same fields, for types of farming vulnerable from the economic point of view.

Specific support, the case C. In areas subject to restructuring programs and / or development in order to guard against the risk that the lands are abandoned and / or to address specific disadvantages for farmers in those areas.

Specific support, the case D. Support for insurance premiums payment related to the harvest or animals and plants.

Specific support, the case E. Through contributions to mutual funds for animal and plant diseases and environmental accidents

Characteristics of schemes within the specific support Support on specific types of farming important for: protection and improvement of the environment; improving quality and marketing of agricultural products; to improve the criteria for animal welfare; the specific agricultural activities that provide additional agroenvironment benefits; • contributions for the payment of insurance premiums of crops, animal and plants; • • • takes the form of additional annual payments.

Characteristics of scheme within the specific support The specific support is necessary to meet particular disadvantages incurred by farmers working: • - in the dairy, beef, sheep and goat meat and rice sectors located in areas vulnerable economically or environmentally sensitive. • - in same sectors for types of farming economically vulnerable it takes the form of annual additional payments such as payments per head of cattle or pasture premium

Characteristics of schemes within the specific support • Specific support to farmers in areas subject to restructuring programs and / or development in order to guard against the risk to abandon lands and / or face specific disadvantages for farmers in these areas takes the form of increased value unit and / or number of entitlements (rights) of the farmer • For the Member States applying the single payment scheme per area, such specific support is represented by an hectare amounts increment paid under this scheme

Characteristics of schemes within the specific support Specific support provided through contributions to mutual funds for animal and plant diseases and environmental incidents is represented by compensatory payments.

Specific support for crop insurance, animal and plants • Member States may grant financial assistance for payment of crop insurance premiums, animals and plants to cover the risk of economic losses caused by adverse weather conditions and animal or plant diseases or pest infestations. • A financial contribution may be granted of a certain farmer only for losses caused by atmospheric adversity or a disease, a parasitic infestation or plant disease that destroys more than 30% of average annual production in the previous three years or in base of his production year average based on five years earlier, excluding the years with low production and the one with the highest production. • The financial contribution granted per farmer shall not exceed 65% of the premium.

Specific support for crop insurance, animal and plants • Specific support is co-insurance of 75%. This means that a share of 25% of the national budget remains in charge to the member state. • The specific support is paid directly to the farmer, is not possible therefore, pay the aid, for example, directly to insurance companies.

Specific support for crop insurance, animal and plants • To be eligible for special support, the contracts must show the insured risks, the economic losses covered and the premium paid, this at net of taxes. • The farmer provides to the Paying Agency the number of the insurance policy, a copy of the contract and proof of payment of premium.

Specific support - funding sources • For the purposes of special support, Member States may reserve up to 10% of the national ceiling. • Bulgaria may decide to consider the national ceiling specified for the year 2016 (see the article about 69. 9. a) • If a deduction is made at sector level, the resources will be used only for specific support in the sector affected by retention.

Specific support - funding sources • Member States applying the single area payment scheme create the necessary resources for the provision of special support: • a) reducing their annual financial envelope referred to in Article 123 and / or • b) doing a linear reduction of direct payments other than the single area payment scheme.

Disbursement of the aid in the Single Payment Scheme To receive each year the payment of the decoupled aid is necessary that each farmer submit an application and to demonstrate to conduct a number of eligible hectares corresponding to the number of rights he has – The areas covered by the decoupled payment may be destinate to any agricultural use. – It also allowed to not cultivate the surface but in this case is still necessary to ensure the maintenance of the Agricultural Fund (Cross Compliance).

Cross compliance (outline) The provision of direct payments is necessarily bound to the respect of regulations and directives on environmental, food safety, public health, health and welfare.

The procedure for allocation of entitlements (aid rights) • Prior reconnaissance (if the Member State establishes a representative period see Article 59. 3 of Regulation (EC) No 73/2009) • Provisional Rights • Application to establish rights • Single application (usage rights) • Definitive Rights