Direct Support Under the 2003 CAP Reform (Single Farm Payment Scheme) The most important measure of the Common Agricultural Policy in 2003 (CAP) has

been to end coupled payments (decoupling)-decoupling was introduced in 1992 with the MacSharry Reforms- and the introduction of a new support system. This system has been restricted to the land/farm, it has been a flat-rate aid scheme based on historical entitlement (originally: Single Farm Payment Scheme: SFPS, later on simply: Single Payment Scheme:

SPS) having introduced in the EU-15 between the period of 2005 and 2007. (Popp et al., 2004).

The reforms-besides changing the system and modulation of direct payments- have meant to adjust the organisation of the most important produces to the processes of foreign-and internal policies foreign-and to strengthen the role of rural development as well. Some components of the reforms (like: market interventions) were introduced in 2004, other parts (like: single farm support, degression and modulation) were established between 2005 and 2007. In the reformed CAP, quality, food safety, animal welfare and environment protection have been highlighted because, on the one hand, the achievement of all of these (eighteen regulations) has been the condition of the Single Payment Scheme, on the other hand, the enlargement of the measures on rural development (with the introduction of four new measures) have also served this aim.

The Common Agricultural Policy of the EU-15 has eaten up forty-five percent of the common budget. The following foreign-and internal policy factors have necessitated the reform of the Common Agricultural Policy (CAP) in 2003.

 To achieve the commitments established at the Uruguay Round of the WTO and the negotiations of the WTO at the Doha Round;

 The rather expensive implementation of the agricultural policy ( The agriculture of the EU- in spite of the MacSharry Reforms and the Agenda 2000 Reforms- has struggled with the problem of overproduction and the selling of the surplus has demanded a significant export support);

 To strengthen the role of rural development against price subsidies;

 The changes in the agricultural policy of the USA due to the new Agricultural Act in 2002 (Farm Security and Rural Investment Act);

 The enlargement of the EU with ten new Member States in 2004 (29% increase in agricultural lands, the number of farmers has risen with 55%;

 To meet costumers’ rising expectations on the fields of: food quality and safety and environment protection);

 The demand for a cultivation being more consumer-and market orientated.

The main aims of the reform have been the following: to create a stable agro-and food market, to reduce interventional supplies and to decrease export subventions in order to enhance market-orientated and competitive cultivation. To increase income stability of growing, to reduce the income differences among farmers and to establish supplementary and alternative income generation possibilities-linked to agriculture-in the rural areas have received high priority. (Kiss, 2003). The BSE-crisis, the epidemic of food-and mouth-disease, the quick spread of genetically modified and hormone-treated products have shaken consumer confidence in the EU as well, for the sake of gaining back this confidence, the measures of environment protection, animal welfare, food quality and safety have become more and more important. Greater emphasize has been put on rural development, though it has happened mainly at the level of words and not on the field of serious deeds or significant supports.

Besides all of these, it is worth mentioning the effort to reduce bureaucracy and administrative costs, the demand for increasing decentralisation and transparency, furthermore the limit on agro-expenditures.

To support the First Pillar of the CAP has been recorded in 2002 for the period between 2006 and 2013. In this term, supports cannot exceed the amount of subsidies in the year of 2006 (the EU allows a one percent increase). This way, agricultural supports remain unchanged between 2007 and 2013, maybe a modest decrease can be observed in real terms.

If agricultural expenditures had exceeded the appropriation with 300 million euros; then it would have had to calculate with the further decrease of direct payments (this has not included/it does not include the new Member States, until they can reach the EU-15’s level of support). The restriction of supports does not involve rural development subsidies. In the new fiscal period (2007-2013), the assets of rural development have been combined into a common fund; therefore implementation and control could be/can be coherent.

The previous ceiling of national contributions in the EU– 1,24 % of the Gross National Income- has not been used because in 2006 the appropriations for budget amounted 1,08% of the Gross National Income. The difference has been more than 16 billion euros, which has been regarded-non-officially- as a reserve by the Ministers of Finance. In the fiscal period between 2007 and 2013, the European Commission has suggested to specify the upper limit of national contributions in 1, 15 % of the Gross National Income, namely GNI (Gross National Income: GNI) instead of the previous 1, 24%, which sum-at the end of the present fiscal period- means a 143 billion euro support. The budget of the CAP in 2013 is about 55, 5 billion euros, from which 42, 3 billion euros can be used for direct and agricultural

market supports. From the 42, 3 billion euros 38, 7 billion euros can be spent on direct payments (Table 4.5).

Table 4.5. The budget of the EU (2007-2013)

billion euros 4. International relations 11,232 11,40 12,175 12,945 13,720 14,495 15,115 15,740 5. Management 3,436 3,675 3,815 3,950 4,090 4,225 4,365 4,500 Compensation to the new

members 1,041 - - - - - - -

Total appropriations 120,688 133,560 138,700 143,140 146,670 150,200 154,315 158,450 Actual payment 114,740 124,600 136,500 127,700 126,000 132,400 138,400 143,100 Payment in the percent of the

GNI 1,09 1,15 1,23 1,12 1,08 1,11 1,14 1,15

Source: http://europa.eu.int/comm/agriculture

Within this, the direct payments of the new member countries have approximately increased fourfold, the 25% support-level has risen to 100%. Hungary received 305 million euros in 2004 and 350 million euros in 2005 this way, then in 2013 it is expected to receive almost 1 300 million euros (Table 4.6.). Direct payments-as a result of the Health Check- have slightly changed, so Hungary in 2013 is entitled to get 1 300 million euros instead of 1 205 million.

Table 4.6. The ceiling of direct payments in the EU-10

million euros Source: Official Journal of the European Union. 30. 3. 2004.

The advantage of direct income-supports-made independent from growing-is to assure flexibility for farmers to establish a cultivation structure, so growers can decide freely on crop structures and livestock, which is a step showing towards a market-orientated raising. All in

all, we can say that the reform wanted to establish a sustainable and competitive European agricultural model. The priorities of the reform are the following:

 The application of interventions-as a safety net- makes the enhance of agricultural competitiveness possible, which helps farmers to see market signals clearly but at the same time it protects them from the extreme effects of the market.

 In order to encourage market-oriented and sustainable agricultural growing, the support of farmers has been highlighted instead of granting produces. On the basis of the received direct payments in the reference period, a Single Farm Payment Scheme has been introduced between 1 January 2005 and 1 January 2007, which is bound to achieve the norms of environment protection, animal welfare and food safety but independent from producing. All these have increased the income transfer-efficiency of producer supports.

 The redeployment of some sources from the First Pillar (agriculture) to the Second Pillar (rural development)-for the sake of having a more balanced support and rural development-has been compulsory for every member country. The supplementary measures of rural development have been enlarged in order to improve food quality, to apply stricter regulations and to encourage animal welfare dispositions.

The CAP reform of 2003 has involved-besides introducing the Single Farm Payment Scheme independent from growing- the application of produce-specific supports restricted to cultivation, the agricultural organisation and other regulations linked to the payment of subsidies. Fundamentally, the Single Farm Payment Scheme belongs to the category of supports independent from production, in spite of this, in a few sectors, some parts of the Single Farm Payment- in a certain amount- is still bound to cultivation; for example: to crop cultivation, cattle fattening and sheep farming (derogation possibility).

However, the main part of the payment concerning the Single Farm Payment Scheme has become independent from growing. The reform has also allowed applying produce-specific supports linked to cultivation, besides the Single Farm Payment Scheme being independent from raising (derogation is possible). Produce-specific subsidies can be entirely connected to cultivation.

During the reform of agricultural organisation, institutional prices and supplementary supports have changed. The reform-within the frame of other schemes-regulates the following fields: the enforcement of specifications linked to the payment of supports, set-aside, the settlement possibility of the Single Farm Payment on the basis of regionalisation, the tasks of the Integrated Management and Control System, the definition and transfer of support entitlements.

The reform introduced degression and modulation in 2005 in order to distribute agricultural incomes in a fair way. As a result of this, the direct support of farms- having more than five thousand euro subsidy per year-is reduced in the proportion of subsidies over five thousand euros. This way, in 2005 the decrease meant 3%, in 2006 it was 4%, in 2007 it amounted to 5% and between 2008 and 2013 the reduction of direct supports was unchanged, namely 5%.

4.5.1. Direct Supports and Agricultural Market Regimes

Before introducing the Agenda 2003, direct supports-just partly independent from growing-have amounted almost seventy percent of the EU’s agricultural budget (the condition of receiving subventions was to sow plants entitled for subsidies and to

preserve them at least until the time of flowering and furthermore to keep animals authorized for supports).So, undoubtedly, the separation of direct supports from cultivation has been a positive step (decoupling). The farmer can decide when, what and how much he intends to grow on the basis of the market supply and demand. This has led to the improvement of more balanced product markets and the reduction of overproduction. The radicalism of the change is decreased by the fact that decoupling has not been entire, in some sectors (for example: crop production, cattle fattening, sheep-and goat farming) supports linked to growing-with certain conditions and in different amount-have still remained.

(Popp et al., 2004).

Direct payments-which, could have been taken out under different claims previously-can be obtained in a combined way under the so called Single Payment Scheme (SPS). These payments have been separated from growing. The sum of the Single Payment Scheme in the Member States of the EU-15 have been fixed on the basis of direct subventions drawn in the reference period. The years between 2000 and 2002 have been chosen as a reference period (just in the case of fibre flax and hemp, have they calculated with the average of the obtained direct subventions between 2001 and 2002 and so was the case with olive, where the reference period fell between 1999 and 2003). The Single Payment Scheme based on historical entitlement belongs to the inalienable right of farmers, this way it guarantees a suitable income safety. The Member States of the EU-15 and Slovenia and Malta from the EU-12 had to change to the Single Payment Scheme between 1 January 2005 and 1 January 2007. The new Member States could have also shifted to the Single Payment Scheme (SPS) in 2005 but in the end, they remained in the Simplified Area Payment Scheme (SAPS) having applied in 2004. Eight countries from the ten new Member States-with the exception of Slovenia and Malta-have decided to choose the Simplified Area Payment Scheme in 2004. It is important to note that direct payments detached entirely from growing are considered to be green box supports conform to the WTO. (Popp et al., 2004).

In order to calculate the sum of the Single Payment Scheme, the following supports are taken into consideration in the reference period:

 Area payments for COPF-plants;

 Supplementary support of durum wheat;

 Area payments for rice;

 Area payments for leguminous plants;

 40% of the support for potato starch;

 New, producer support of dried fodders;

 Support of seed production;

 Cattle premiums;

 Sheep- (and goat-) premiums;

 Milk premiums;

 Tobacco premium;

 Support of hop production;

 Support of cotton production;

 Support of olive production.

At the application of derogation- in case of specified produces under Member State competence- the Single Payment Scheme partly (small amounts of supports) can be still bound to production. Supports partly restricted to growing can be also paid from the sum of the Single Payment Scheme. If the given Member State wants to live with this possibility, the farmer without growing is entitled to have the proportion of the support, which is not restricted to production (for example: in case of crop production, 75% of the Single Payment

Scheme because maximum 25% of the aids can be connected to cultivation). If we take all the EU Member States into consideration; we cannot talk about the introduction of a Single Payment Scheme being entirely independent from production because significant amount of the member states have lived with the option of derogation (the settlement of the Single Payment Scheme is partly restricted to growing) moreover, product-specific (totally bound to cultivation) subsidies have also remained in some sectors.

Besides the Single Payment Scheme; product-specific supports-restricted to cultivation-have been applied as well. Product-specific subsidies do not belong to the category of the Single Payment Scheme because they are entirely restricted to production (without growing there is no entitlement for product-specific aids). The application of the following product-specific supports is possible:

 Quality support of durum wheat;

 Product-specific support of rice;

 Supplementary area payments for protein plants;

 Processing aids for fibre plants;

 60% of the support for potato starch;

 Processing aid of dried fodders;

 Area payments for nuts;

 Support of energy plants;

 Area payments for cotton.

Within the frame of the reform, besides the regulations of subsidies independent from production and product-specific supports bound to growing, agricultural market regimes (agricultural market regulation) changed in 2004 as well. The change of the agricultural market regime applied already to every Member State (EU-25) in 2004 as well.

4.5.2. The application of the Single Payment Scheme

In order that partial detachment and the later introduction of the Single Payment Scheme should not deform competitiveness and threaten the adhering of budgetary frames, the European Commission has fixed a separate limit value for the concerned sectors in every member state. Since, besides the EU-15, the introduction of the Single Payment Scheme happened in Slovenia and Malta between 1 January 2005 and 1 January 2007, temporarily, depending on the time of the change in some member states the Agenda 2000-so the standard system- has been valid with the consideration of its reform in 2003 referring to agricultural organizations (market subventions). Some parts of the reform entered into force in 2004, in other member states the payment of direct supports has started on the basis of the Single Payment Scheme (both the subsidies, independent from growing and aids bound to cultivation). This means that some member countries introduced the Single Payment Scheme in 2004, the other in 2006 and the remaining part of them not later than 1 January 2007.

(Popp, 2004).

The member states has been given opportunity to put aside maximum ten percent of the total direct payments coming from the Brussels source-linked to growing and detached from cultivation- and to offer supplementary subsidies for farmers who carry out growing with the consideration of the environment, quality and marketing. Every member state(EU-15) introduced the Single Payment Scheme not later than 1 January 2007 and

following that, the European Commission has prepared a detailed report on its operational experiences and has amended proposals (see: Health Check).

The member countries had the chance to grant the following supports-besides the Single Payment Scheme- according to the Agenda 2000 with the consideration of the reform’s measures on agricultural organisation. The member countries-within their own competence-can live with the following options:

 In the crop growing sector:

- Maximum 25 % of the area payment for COPF-plants, or

- Maximum 40% of the supplementary area payments for durum wheat paid in the traditional growing areas;

- 100 % of the direct payments for seeds;

- Maximum 60% of the tobacco premium between 2006 and 2010;

- Maximum 25% of the support for hop production;

- Maximum 40% of the support for olive production.

 In the animal husbandry sector:

- Even 100% of slaughter support (calf) and besides this

- 100% of the premium for cows belonging to meat breed and 40% of the slaughter premium (adult animal) or

- 100% of the slaughter support (adult animal), or

- 75% of the special premium for cows for meat production;

- Maximum 50% of the direct subsidies paid for sheep (and goat) (together with the supplementary subventions given to areas with unfavourable conditions).

If a Member State -within the frame of the Single Payment Scheme-has lived with any of the above mentioned derogation options, the following restrictions have been applied:

 A financial frame has been specified for the involved sector, from this sum the direct payments restricted to growing commitments can be granted according to the required system;

 The Single Payment Scheme of the given country is/has been reduced with this frame:

The conditions of the entitlement for direct supports have not changed because the adequate regulations for environment support, food safety, animal health and animal welfare had to be enforced further on at the level of the whole farm. If farmers fail to meet the requirements, then the support decreases in the proportion of the expectable risk or the caused damage. For the sake of enforcing the aspects of environment protection and plant health, (to avoid land abandonment) it is compulsory-in order to receive the direct payments- for the transferee to keep the agricultural area in good agricultural and environmental conditions (Table 4.7.).

Table 4.7. The minimal requirement of keeping agricultural areas in good agricultural and environmental conditions

Scope of action Necessary measures

 Protection against soil erosion with appropriate tools

 Minimal vegetation cover

 Minimal soil cultivation compliant with regional conditions

 Tended terraces

 To keep the soil organic matter at a  The application of crop rotation

Scope of action Necessary measures

proper level according to the regulations (where

it is valid)

 Fair management of arable stubble

 To preserve the soil structure with

suitable machinery  Proper use of machinery

 Minimal preservation, to prevent the degradation of natural habitats

 Minimal animal density and/or relevant requirements of market regulation

 Protection of permanent grass

 Protection of landscape

 To prevent the spread of undesirable plants

Source: Hungarian Ministry of Agriculture and Rural Development (2004)

This provision applies to the whole farm and every sector, independently from the fact whether it is a cultivated or a non-cultivated land. So, if the farmer for example uses performance enhancer hormones and pollutes the environment, then the penalty-according to the seriousness of the case- can amount 10-100% of the support. Twenty-five percent of the revenue coming from the penalty remains at the member countries. To meet the requirements of support conditions is not a prerequisite of the settlement concerning supports because control takes place in the given year but the accidental penalty is inflicted next year.

To keep the soil in good agricultural and environmental conditions belongs to the supports restricted to stipulations (18 regulations) because otherwise the abandonment and neglect of soils- not used for agricultural growing- would result in unpredictable consequences to the country and rural environment. The subsidy restricted to conditions states that the agricultural area must be kept in good agricultural and environmental conditions,

To keep the soil in good agricultural and environmental conditions belongs to the supports restricted to stipulations (18 regulations) because otherwise the abandonment and neglect of soils- not used for agricultural growing- would result in unpredictable consequences to the country and rural environment. The subsidy restricted to conditions states that the agricultural area must be kept in good agricultural and environmental conditions,

In document Agricultural Policy (Pldal 73-93)