Comparative analysis

CAP implementation in the EU-27 Member States

1. Introduction
2. Budgets for SPS and Rural Development
3. Single Payment Scheme
4. Historic or flat rate approach
5. Rural Development Programmes 2007-2013
6. Distribution of second pillar budgets
7. Leader
8. Debate on the role of the CAP beyond 2013
9. Key issues in the debate: the purpose of the CAP
10. Key issues in the debate: structure and organisation of first and second pillars
11. Key issues in the debate: financing of the CAP
12. Table Comparative Analyses 1:
Budget CAP 2007-2013 (Single Payment Scheme (SPS) and second pillar) in the EU Member States
13. Table Comparative Analyses 2:
Overview implementation of Single Payment Scheme (SPS) in the EU-27 Member States
14. Table Comparative Analyses 3:
Distribution of public budget for the second pillar over the four axes, 2007-2013 (%)
15. Table Comparative Analyses 4:
Operating budgetary balance for the EU-25 Member States, 2006

1. Introduction

Although there is a common policy for agriculture across the EU-27, this does not mean that the agricultural sectors in the individual Member States are all similar. Due to varying physical, climatic and socio-economic conditions in the EU Member States, agriculture has evolved from a wide range of different circumstances. In some Member States the emphasis is on dairy or livestock production whilst others focus more on arable crop production or horticulture. In some countries the average farm size is over 40 ha, whereas in others it is less than10 ha. In addition, in some countries the share of total employment within the agricultural sector is now very small, whereas in other places – especially in the new Member States – the share is still over 10%. Also, in some areas agriculture is under pressure due to high population density and urban expansion whilst in other parts of Europe it operates in the context of continued population decline and progressive land abandonment.

These varying conditions applicable to the agricultural sector affect Member States decisions on how best to implement both the first and second pillars of the CAP as well as their positions in the debate on further CAP reform. This comparative analysis is based on a series of fact sheets for the 27 EU Member States as presented on this website and is designed in order to explore whether there are groups of countries with similar approaches on specific issues. Since not all of the fact sheets have yet been completed, the comparative analysis sometimes covers only parts of certain Member States. In this comparative analysis, we will successively focus on the budgets available for the first and second pillar, the implementation of the CAP reforms of 2003, the proposals for the second pillar during the period 2007-2013, and the wide range of visions for the CAP post 2013.

2. Budgets for SPS and Rural Development

During the years 2007-2013, the combined EU-27 budget for the Single Payment Scheme (SPS) and the second pillar amounts to nearly 375 billion euros (Table Comparative Analyses 1). Out of this total, 80% is allocated to the EU-15 and 20% to the NEU-12. For many of the EU Member States their share of the total budget is 2% or less; however, in a number of larger Member States with substantial agricultural production, the proportion is much higher: France (17%), Germany (13%), Spain (11%), Italy (9%), UK and Poland (8%), Greece (5%), Romania (4%) and Ireland and Hungary (3%).

Total planned EU-27 expenditure on the SPS during the period 2007-2013 amounts to 286 billion euros. This is more than three times larger than planned EU expenditure for the second pillar over the same period Table Comparative Analyses 1). Amongst Member States, there are large variations in the proportional contribution that Brussels makes to the SPS and the second pillar. There is a striking difference between the EU-15, in which over 80% of the total receipts are spent on the SPS, and the NEU-12, where just over 50% of the total receipts are reserved for SPS. As a result, the second pillar is relatively more important in the new Member States than in the old Member States. This difference relates to the fact that the new Member States are still in a phasing-in period, during which less than 100% of the planned maximum amount of direct payments are available from the CAP budget.

Amongst individual Member States, the proportion of EU receipts spent on SPS and the second pillar also varies considerably. Within the EU-15, between 50-75% of EU receipts are reserved for SPS in Portugal, Austria, Finland, Luxembourg, Sweden and Italy, leaving 25- 50% of receipts for the second pillar. On the other hand, in France, Belgium, Netherlands, UK and Denmark the share of EU receipts used on SPS in the national budget amounts to 90-95%, which leaves only 5-10% for the second pillar. In the NEU-12 differences in the way EU receipts are shared between the SPS and the second pillar in the national budget are less pronounced: on the whole, the proportion used on the second pillar varies from about 40-60% with the exception of Malta. In terms of absolute spend, the five largest absorbers of SPS expenditure are France (58 billion euros), Germany (40 billion euros), Spain (32 billion euros), UK (28 billion euros) and Italy (27 billion euros). By contrast, the five largest users of second pillar expenditure are Poland (13 billion euro), Italy, Germany and Romania (8 billion euros each) and Spain (7 billion euros).

3. Single Payment Scheme

The Single Payment Scheme (SPS) was introduced as part of the CAP reforms of 2003, providing direct payments to farmers, which are largely decoupled from production. Member States have considerable flexibility in applying the SPS, and they are allowed to maintain some production-linked payments in order to avoid abandonment of production. Within the EU-15, Member States were required to introduce the SPS before January 2007. However, new Member States who were applying the Single Area Payment Scheme (SAPS) upon accession can introduce the SPS at any time. Malta and Slovenia were the only two new Member States applying the SPS upon accession.

4. Historic or flat rate approach

Direct payments to farmers may be based either on individual payments received in the reference period 2000-2002 (historic approach) or on the average level of payments received by the farmers in a region during the reference period (flat rate approach). Nine of the EU-15 Member States plus Scotland and Wales opted for the historic approach to the SPS (Table Comparative Analyses 2). Only Germany, Finland and England selected the flat rate model, in each case involving a transitional period from the historic approach. Finally, three Member States and Northern Ireland chose a mix of the historic and flat rate approaches, referred to as ‘SPS static hybrid’. Usually, those countries applying the historic approach justify their choice on the basis of wishing to avoid damaging income redistribution effects. In England, the movement towards a flat rate model is justified as providing a better rationale for the provision of farm payments in the long term. In most of the EU-15 Member States, except for Germany, Ireland, Luxembourg and UK, payments remain partly coupled to production, especially in the beef and sheep sectors. The main reasons for this retention of partial coupling are related to the wish to maintain certain types of production and to prevent land abandonment.

In those EU-15 Member States applying a historic approach to the Single Payment Scheme (SPS), farmers who did not receive direct payments in the reference period, are not eligible for SPS entitlements. However, in most countries , entitlements are tradable, either within regions (France, Germany and Sweden) or across the Member State as a whole (Denmark, Netherlands, Portugal and the UK). Austria is the only Member State where entitlements are not tradable, but can only be transferred from landowner to tenant. During 2006, about 70% of all farmers in the Netherlands and Portugal received the SPS, whilst in Austria, Denmark, Germany and Sweden the range was 90-100%. The relatively low proportion of claimants in the Netherlands is explained by the large numbers of farmers involved in the horticulture and intensive animal husbandry sectors.

Receipt of the SPS is subject to cross compliance: farmers have to maintain their land in good agricultural and environmental condition (GAEC) and have to respect statutory management requirements established under nineteen separate EU Directives and Regulations relating to the protection of environment, public, animal and plant health, and animal welfare. The GAEC is defined at Member State level, except for Belgium and the UK; usually it reflects current national legislation and requirements. However, in England the GAEC has been used to introduce additional agri-environmental type measures whilst in Denmark it is used to implement measures aimed at the protection of the water environment.

5. Rural Development Programmes 2007-2013

In order to obtain EU support under the second pillar, all Member States have to prepare a Rural Development Programme (RDP), setting out those measures that they intend to implement in the period 2007-2013. All RDPs have to be approved by the European Commission. An RDP may cover an entire Member State or can cover individual regions within a country. All new Member States and seven EU-15 Member States (Austria, Denmark, Greece, Ireland, Luxembourg, the Netherlands and Sweden) have decided to submit a RDP for the whole country. However, Belgium, Germany, Italy, Spain and the UK have all submitted regional RDPs. Three Member States (Finland, France and Portugal) adopted a hybrid approach, by designing one RDP for the mainland with regional RDPs used for islands or overseas departments.

In the course of 2007, the RDPs of most Member States have been approved by the Rural Development Committee. In January and February 2008, RDPs for Denmark, Romania, five Italian regions, five Spanish regions and two UK regions have been approved. On the whole this implies that by March 2008 there are still nine RDPs for Spanish regions waiting for approval.

6. Distribution of second pillar budgets

Rural development policy measures are grouped under four separate axes:
Axis 1 - increasing the competitiveness of the agricultural and forestry sector;
Axis 2 - supporting land management and improving the environment;
Axis 3 - improving the quality of life in rural areas and encouraging diversification of economic activities;
Axis 4 - Leader

In order to ensure a degree of balance in the package of rural development measures used within each RDP, a minimum level of funding is required for each axis. These minimum requirements are as follows: 10% for Axis 1; 25% for Axis 2; 10% for Axis 3 and 5% for Axis 4 (2.5% in new Member States). Member States have chosen to distribute their budgets in various ways, reflecting the very different rural development needs in each locality (Table Comparative Analyses 3). Within the EU-15, Finland, UK (England, Scotland and Wales), Ireland, Austria and Sweden plan to spend about 75% of the second pillar budget on Axis 2, about 10% on each of Axis 1 and Axis 3 and about 5% on Axis 4. Another group of countries, including Spain, France, Italy, Portugal, Belgium (Wallonia) and Greece, intend to spend about 40-50% of their budget on both Axis 1 and Axis 2, leaving less than 15% spread between Axis 3 and Axis 4. Within the German Länder, the planned distribution of the budget over the four axes is far from uniform, although in most regions more than 20% of the budget is reserved for Axis 3. The Netherlands also intends to spend a considerable share of its budget on Axis 3. This differs from the situation in most EU-15 countries, where 10% or less of the budget is spent on Axis 3. Spending patterns in Denmark and Luxembourg involve a substantial spend (ca. 60%) on Axis 2 and at least 20-35% on Axis 1, whilst Belgium (Flanders) is spending 68% on Axis 1. In the new Member States, two groups of countries can be distinguished. On the one hand, the Czech Republic, Slovenia and Slovakia intend to spend about 50% of their second pillar budget on Axis 2, about 30% on Axis 1 and about 20% on a combination of Axis 3 and 4. On the other hand, the remaining NEU-12 countries plan to use about 40-50% of their budget for Axis 1, 30-40% on Axis 2 and 20-30% on Axis 3 and Axis 4.

7. Leader

The Leader approach is designed to encourage the ‘bottom-up’ implementation of local development strategies devised by Local Action Groups (LAGs). These strategies can also contribute to the implementation of any the measures drawn from Axes 1, 2 and 3. In most of the EU-27 Member States, it is intended that the Leader approach will contribute across all axes; however, in Belgium (Flanders), Denmark, Ireland, Italy, Portugal, UK (Northern Ireland), Latvia and Slowakia the Leader approach has been limited to Axis 3. Compared to the previous programming period 2000-2006, it is intended to increase the number of LAGs in most EU-15 Member States during the period 2007-2013. However, in Belgium (Wallonia) and the Netherlands hardly no increase in the number of LAGs is planned, and in Portugal the number of LAGs will be reduced in order to increase the critical mass of the remainder. In the new Member States, the Leader approach was still in an experimental phase during the accession period 2004-2006, but it is now intended to extend the coverage of LAGs during the new programming period.

8. Debate on the role of the CAP beyond 2013

In most of the EU-15, a debate on the role of the CAP beyond 2013 has already started. The exceptions appear to be Belgium, Luxembourg, Ireland, Spain, Portugal and Greece. Nevertheless, our contributors in Spain and Portugal have outlined some of the issues which are likely to come to prominence at the time the Health Check is published. By contrast with the EU-15, there is hardly any debate on the future of the CAP in most of the new Member States, although Latvia, Poland and Romania are the exceptions. This lack of debate may relate to the possibility that the new Member States are perhaps more concerned about the implementing of existing EU legislation than they are about reform.

In those Member States where the debate already started, there are usually a large number of actors involved, including Government Ministries, statutory agencies, farmers’ organisations, consumer groups , scientists and NGOs.

9. Key issues in the debate: the purpose of the CAP

In comparing the key issues emerging in the various debates on the future of the CAP, it is striking that rather divergent issues are put forward in each Member State and there is rarely a consistent view on the primary purpose of the policy. The overall impression is that the issues at stake tend to reflect country-specific concerns.

According our respondents from Denmark, Finland, Sweden, the UK and Latvia, there is a need for further liberalisation and more market orientation within the CAP, including elimination of price support, export refunds, production quotas, and other interventionist market support measures. This position is linked to support for full decoupling of the Single Payment Scheme. Full decoupling is also advocated by the Dutch farmers’ organisation, whereas the Italian farming organisations have more divergent views. By contrast, our respondents from Austria, France, Portugal and Spain can be characterised as being much more resistant to the idea of further liberalisation.

The proposed abolition of the milk quota crops up frequently in the debate. Apart from those national governments in favour of further liberalisation (Denmark, Finland, Sweden, UK and Latvia), a number of other national governments such as Germany, the Netherlands and Poland also support the abolition of the milk quota. Nevertheless, the Finnish and German governments are also concerned about safeguarding the future of dairy farming in less competitive areas. On the other hand, Austria is opposed to an abolition of the milk quota, unless sufficient accompanying measures are implemented to protect farmers in mountainous and remote regions against possible negative impacts.

Within countries such as Austria, Spain and Portugal, the CAP is mainly seen as an instrument for supporting the functions and structure of European agriculture. However, in other Member States such as Italy, the Netherlands and Sweden, a more broad–based territorial approach is emphasized, taking account of the needs of the entire rural population. A search for mechanisms that can support those farming systems that deliver public goods such as landscape, biodiversity, traditional cultural features such as stone walls and the full range of ecosystem services is also part of the debate, especially in Italy, the Netherlands and the UK.

Finally, Germany, Sweden, the UK, Bulgaria, Estonia, Latvia, Hungary and Romania argue that the capping of individual SPS receipts is not desirable as it would lead to the fragmentation of holdings. In the UK, it is stressed that CAP changes should not come as an overnight upheaval, but a transition period is necessary to ensure that farmers have time to adjust their businesses.

10. Key issues in the debate: structure and organisation of first and second pillars

With regard to the structure of the CAP, the debate in Finland, Italy the Netherlands and the UK has focused on shrinking the role of the first pillar and increasing the size of the second. In Austria, many are in favor of maintaining the current structure based on two pillars, whilst in Latvia there are proposals to merge both pillars. Moreover, within Finland, Italy and Latvia, there is support for integrating the second pillar into regional development policy. Providing more room for manoeuvre for individual Member States in determining their agri-environmental priorities and other rural development needs is emphasized in the debate in both the Netherlands and the UK.

11. Key issues in the debate: financing of the CAP

Almost all of the EU-15 Member States were net contributors to the European budget in 2006, with the exception of Ireland, Spain, Portugal and Greece. (Table Comparative Analyses 4). On the other hand, all new Member States were net beneficiaries. Not all of the net contributors favor a reduction in the CAP budget: only in Denmark, Finland, Germany, Sweden and the UK is the idea of such a reduction supported, whilst in both Austria and France it has been rejected. Denmark, Italy and the UK have all proposed decreasing the budget for the first pillar and an increasing the amount spent on the second pillar.

A re-nationalization of CAP financing is not desirable according to Austria, Denmark, Portugal and Spain. However, in countries like France, the Netherlands, Sweden and the UK, the debate suggests a need for a more fundamental analysis of whether agricultural support should be financed at EU or national level. During such an analysis, the principles of subsidiarity, proportionality and sound financial management would all have to be taken into account.

During the debate in Sweden, it has been argued that the modulation instrument is a rather blunt, complicated and not particularly transparent tool which needs to be improved. Swedish participators in the debate want to use modulation receipts for broader rural development, whilst the farmers’ organisation in the Netherlands argues that that modulation funds should remain in the agricultural sector. Meanwhile, in Portugal, the UK and Latvia, various organisations have suggested that a higher rate of compulsory modulation would be helpful.

12. Table Comparative Analyses 1

Budget CAP 2007-2013 (Single Payment Scheme (SPS) and second pillar) in the EU Member States

*) The total budget for SPS is less than the total budget for the first pillar as it excludes expenditure for export subsidies and market interventions. Source: Budget SPS from: Council Regulation 1782/2003 (consolidated version - August 5, 2006) and Agra Europe (2007), ‘Threat of SPS cuts rises as NMS accede’, Agra Europe Weekly, January 12; Budget second pillar from: EC (2007), EU support for rural development 2007-2013; Pre-allocated funding under Heading 2 ‘Natural Resources’ of the Financial Framework, Brussels: European Commission.

13. Table Comparative Analyses 2

Overview implementation of Single Payment Scheme (SPS) in the EU-27 Member States

Source: European Commission (2007), Overview of the implementation of direct payments under the CAP in Member States; version February 2007; Brussels, DG for Agriculture and Rural Development.

14. Table Comparative Analyses 3

Distribution of public budget for the second pillar over the four axes, 2007-2013 (%)

Source: Own calculations based on RDPs 2007-2013 for the EU Member States/regions.

15. Table Comparative Analyses 4

Operating budgetary balance* for the EU-25 Member States, 2006

* Operating budgetary balances are calculated, for a given Member State, as the difference between allocated operating expenditure and own resource payments.
Source: European Commission (2007), EU budget 2006; Financial Report.