Direct Supports Under the Agenda 2000 (standard system) The EU-within the frame of the Common Agricultural Policy’s (CAP) reform in 1992 and the

Agenda 2000-has put the emphasis on direct income supports instead of the previous high price subsidies; this change has been achieved with the establishment of base areas and reference yields. The area payments in the EU have differentiated two types of producers and regulations (simplified or general regulation). Compulsory set-asides have not applied to those small farmers-growing cereals, oilseed crops and protein-and fibre crops (COPF plants), who, on the basis of the regional reference yield, have required support for an area suitable for growing maximum 92 tons of crops (in Hungarian relation it means 19.45 hectares), because according to the simplified regulation they have been entitled for direct

income supports without any set-aside. On the other hand, market oriented farms-according to the general regulation-have received direct income payments in case of growing COPF-plants if they have taken part in the compulsory set-aside programme (direct payments have been granted for set-aside areas as well).

4.4.1. Base Area and Reference Yields

The areas can be conferred direct income payments have been restricted with the establishment of base areas in the EU. The amount has been calculated for a given Member State or for its regions on the basis of the area used for cultivating COPF-plants between 1989 and 1991 and/or according to the average territory of the Member State taken part in the set-aside programme. The maximum cultivation area of certain plants entitled for direct income payments within the base area-with the exception of oilseed crops-has not been regulated.

When growers overran the base area entitled for direct supports, then the subsidies had been reduced proportionally with the amount of the exceedance.

In every Member State, in order to calculate subsidies, (in some member countries separately according to growing regions) a regional average yield, namely a reference yield has been figured out based on the cultivation results of the period between 1986/87 and 1991/92, but the two years showing the best and worst average yields have been neglected.

Reference yields are used for counting the amount of subsidies. It derives from this fact that huge differences can be observed among the Member States concerning the level of supports per hectares.

This way, base areas have defined the size of territories enjoying direct income payments. The overrun of base areas has resulted penalty sanctions because when agricultural producers have exceeded the allowed base areas in the Member States, then the subsidies for farmers had been reduced in proportion to the exceedance in the given economic year. The EU has sanctioned the Member State reporting exceedance and not the farmers. Overrunning base areas has occurred many times in some Member States but not on the level of the EU (Table 4.4.). During the examined period, Austria, Finland, Greece, Italy, Netherlands, Portugal, Spain and Sweden have not exceeded base areas but the other member countries have repeatedly broken the size limit referring to base areas. (Luxemburg has done it just once).

Table 4.4. The overrun of base areas in certain Member States of the EU between 1993 and 1999 (in the percent of the base area)

Finland 0 (-12,07) -20,11 -16,20

Greece 0 (-11,19) -19,44 -14,55

Ireland 0 (-0,58) -13,01 -7,56

Italy 0 (-12,43) -21,71 -17,53

Luxemburg 1 0,70 0,70 -9,30 -4,65

Holland 0 (-6,64) -14,68 -8,60

Portugal 0 (-9,99) -27,42 -20,35

Sweden 0 (-8,12) -11,57 -9,64

The United

Kingdom 5 1,54 2,26 -5,20 0,33

Source: European Commission (2001)

Base areas have been defined on a national or regional level and they have not been figured out on the level of individual agricultural producers, though the Member States have been given a chance for this (until 1996) but neither Member States have lived with this possibility. The farmers of the EU could enlarge freely the cultivation area of COPF-plants if they had enough appropriate territory for this and received additional direct payments. In a given situation, this had led to the overrun of base areas and has resulted criminal sanctions at a national or a regional level. The decision of individual growers has been influenced by the fact that how much additional support they have calculated in case of enlarging the area of COPF-plants and how big the loss has been deriving from the possible exceedance of the base area what the member country had to pay for as a criminal sanction.

Of course, in case of effective sanctioning the overrun of base areas-having defined at the national or regional level-could not occur (but it was frequent that some member countries have exceeded base areas.)

The fine charged for overrunning base areas has been a collective sanction and has applied to every farmer apart from contributing to overrun base areas or not. This way, there has not been a direct connection at the level of individual growers between exceeding base areas and the charged fine.

4.4.2. The Effect of Base Areas and Compulsory Set-Aside on the Production

The condition of receiving direct income payments has been compulsory set-asides (with the exception of the simple regulation referring to small farmers). The EU has decided upon the size of compulsory set-asides every year concerning the rate of stocks and utilization (in recent years it has been generally ten percent). Set-aside areas-similarly to areas had sown with COPF-plants-have been entitled to get direct income supports. The compulsory set-aside-differently from the restriction of base areas-has related to individual agricultural growers because according to the general rule, they had to rest the defined proportion of the area for cultivating COPF-plants on the basis of their reports. Farmers had to prepare a detailed report on the distribution of COPF-plants cultivated on their lands and on the size of the set-aside area. In this case, individual growers have been controlled and the breaking of set-aside commitments has resulted individual and not collective sanctions. (This meant the exclusion of the farmer from the subsidy programme). This is the reason why every Member State-without an exception-has kept the amount of compulsory set-asides.

Compulsory set-aside maintenance has not pertained to every producer. The farmer could grow COPF-plants without set-asides if he opted against direct support and he fell

under the simple regulation. So, compulsory resting maintenance has not meant the whole area of COPF-plants in the EU; it has referred just to the areas under general regulation (for the territory of COPF-plants cultivated by productive farms requiring direct support), which amounted seventy-five percent of the COPF-plants’ whole area between 1993 and 1999.

Since farmers have generally rested lands having the worst quality, the average yield has grown on the non-rested areas. This meant that in case of calculating the set-aside area into a land with an average quality, a territory- smaller than the average set-aside rate- has been cultivated. It derives from this, that the growing of COPF-plants has not reduced in a linear proportion with the size of compulsory set-asides but it has decreased in a less amount.

The restriction of set-aside areas and direct subsidies for COPF-plants have not resulted a rigid growing structure but between COPF - and other plants the previously mentioned structure has taken shape. As the consequence of base area restrictions and product-specific direct supports, the territory of COPF-plants have not been used for growing alternative plants by farmers (because it is not worth doing so), therefore a limited supply of this land has characterised the land market, which has yielded a higher than average land prices and rents. The application of direct income supports-in itself- has led to higher land prices and rents.

The limitation of base areas has consolidated the payment of direct income supports.

The definition of base areas at a national and regional level and furthermore the collective penalty system have allowed the stabilisation of budget expenditures but they have not had a coercive effect on individual farmers.

As opposed to this, compulsory set-asides have been an instrument of supply control in order to create a market balance because resting maintenance had a more direct effect on supplies than base areas.

4.5. Direct Support Under the 2003 CAP Reform (Single Farm Payment Scheme)