Structure of EU financing
93. If the rural development funding of the EU
is to be focussed towards the new Member States then the structure
of the financing set out in the proposed rural development Regulation
needs to reflect their priorities.
BOX
7
The new Member States
The agricultural situation for the new Member States
is as follows:
- Agricultural market policies are
applied in full from the outset, but the direct aid payment system[42]
(Pillar 1) is being applied gradually in the period 2004 to 2013;
- Farmers in the new Member States receive 25%
of the EU-15 level of direct payments in 2004, 30% in 2005, 35%
in 2006, 40% in 2007 and then further adjustments of 10% in each
subsequent year to reach 100% by 2013.
- This process could however be altered by application
of the financial discipline mechanism in the EU-15: if the full
subsidy is reduced by financial discipline, then the full amount
eventually to be paid in the new Member States will also be reduced
and the final year for payment of the full subsidy will be brought
forward (for example, if application of the financial discipline
mechanism resulted in a reduction of 10% in the single farm payment
by 2011, then the last year of adjustment for the new Member States
would not be 2013 but 2012).
- The new Member States become liable for compulsory
modulation and financial discipline mechanism adjustment from
the last year of transition to full payment.
- Rural development policies (Pillar 2) are being
applied in the new Member States in the same manner as in the
EU-15.
- New Member State governments are allowed to "top
up" direct payments from national funds, and rural development
allocations from the EU farm fund, to a higher proportion of EU-15
level.
94. We initially investigated the approach of
subsuming rural development into structural and cohesion funds
as they are targeted at the poorest regions. Although several
witnesses agreed with the idea of targeting funds to poorer areas,
the use of the structural and cohesion funds was treated cautiously
as they are generally only available for large infrastructure
projects which would lose the benefits from small scale local
action. While the Structural Policies would have a greater effect
in achieving cohesion objectives, Pillar 2 expenditure is likely
to be important at the local level. Dr Davidova told us "Pillar
2 can help small local initiatives which will be overlooked by
structural funds... I think that there is a niche for Pillar 2,
in comparison to the big funding. I treat Pillar 2 as a very important
tool or avenue for further CAP reform" (Q 624).
95. Agriculture must not be subsidised by rural
development funds. However, we recognise the importance of rural
development funds in enabling new Member States to diversify their
rural economies. Even in the more agriculturally developed countries
among the new Member States, such as Slovenia, Pillar 2 schemes
can help to deal with a variety of issues, such as, early retirement
of farmers, farm restructuring and diversion of the farm population
out of agriculture into alternative rural industries. This was
a point strongly endorsed by Mr Franc But, Slovenian Secretary
of State for Agriculture and Food, who told us that "on average,
a Slovenian farm would be 7.5 hectares. We never had any so-called
collectivisation as in the other new Member States. There was
a prohibition on increasing the level of hectares. The normal
procedure [of farm enlargement] in the old EU of 15 was frozen
for 40 years in Slovenia. The first axis [of the new Rural Development
Policy] will be extremely important for Slovenia" (Q 695).
96. The direct payment is seen as a useful interim
social measure to slow down rural migration to the towns in countries
where unemployment rates were in excess of 18% and there was considerable
hidden unemployment in rural areas. The Polish Minister Counsellor
remarked that "if you are giving money for semi-subsistence
farms it will help them to stay a few years more in the business.
Normally they will go out, but this is a kind of social support,
because we are not ready with the jobs for those people and it
is better socially to keep them as farmers then keep them on the
street" (Q 677).
97. Throughout the EU the majority of small family
farms are dependent for their survival on having a non-agricultural
income or wage coming into their household. A prosperous and broad-based
rural economy is therefore vital for the long term survival on
the land of most EU farmers. Thus a meaningful budget for rural
development in the EU, predominantly targeted at economically
backward regions, is the most sustainable way of supporting traditional
landed communities throughout the EU-25.
BOX
8
LEADER
LEADER is a Community initiative for rural development
which began in 1991 with LEADER I. LEADER II ran between 1994
and 1999, and it is now in its third phase, LEADER+ (2000-2006).
LEADER has initiated small-scale rural development projects in
lagging regions and vulnerable rural territories, for example
objective 1 areas. A total of €5046.5 million for the period
2000-2006 will be spent, of which €2105.1 million is funded
by the EAGGF Guidance section and the remainder by public and
private contributions. There are currently three priority streams
of funding:
- Action 1: Support for integrated
territorial development strategies of a pilot nature based on
a bottom-up approach
- Action 2: Support for cooperation between rural
territories
Local action groups set up under action 1 can establish
projects with a variety of objectives such as; making the best
use of natural and cultural resources; improving the quality of
life in rural areas; adding value to local products, and exploiting
new technologies to improve competitiveness.
Source: European Commission
98. We were impressed by the success of rural
development funding through the LEADER approach which enables
very small projects to be established. We do not believe that
rural development should be included in structural and cohesion
funds, but that a separate rural development heading should remain
to fund small projects which we feel may be lost under structural
and cohesion policy.
99. In order to align rural development funding
to new Member States' needs, we recommend that the percentage
of funds directed towards Axis 3 (wider rural development) should
be increased.
100. Under the existing rural development Regulation
funds are allocated on a historic basis, using criteria based
on past levels and types of spending. This has meant that countries
such as the United Kingdom have been entitled to low levels of
rural development funding. It has also meant that new policies
and schemes have been restricted.
101. We support the British Government's position
of basing spending on need rather than past expenditure (p 39)
because this will ensure that disadvantaged regions in all Member
States will benefit fully from rural development funding.
102. Some witnesses were concerned by the ability
of new Member States to absorb rural funds, and also to distribute
them. The Polish Minister Counsellor stated that the accession
funding programmes did take a while to operate to capacity but
the infrastructure was now in place to take advantage of development
funds. Dr Dwyer had found that the most recent figures for spending
on Special Assistance for Pre-accession Agriculture and Rural
Development (SAPARD) showed that around 60% of funds allocated
were taken up (Q 258).
103. The infrastructure for delivering rural
development funding exists across the EU, but it differs from
country to country and there are widespread concerns over how
the money is spent. The new rural development Regulation will
create the structure for distributing the finance for rural development
and a key objective in reforming the Regulation is to improve
transparency and accountability. A number of witnesses, including
Dr Dwyer, identified a lack of focus on rural development objectives
which has made it difficult to evaluate successes. The difficulty
for the new Regulation is to retain flexibility of application,
but to allow clearer evaluation of projects.
104. Given the diverse needs across the EU we
recognise the difficulty in establishing a single definition of
rural development. Once the single farm payment is phased
out, the importance of EU funds for rural development will inevitably
increase. In our judgement it is most important that, in the
2008 review the Commission identify how rural development targets
will be set and reviewed. This will be necessary in order to establish
local objectives, assess the success of individual projects and
avoid unjustified or fraudulent spending.
105. A major conclusion of this report is that
market support and direct subsidies to farmers will become of
declining importance. The restructuring of rural areas on the
other hand, has become of paramount importance. This is particularly
true in the new Member States and in those countries likely to
join the EU during the next ten to fifteen years.
106. There is a need to build on the rural development
work already undertaken by the Commission. We recommend that a
new European Rural Development policy, concentrating particularly
on the rural poverty problems of the least advantaged areas of
the EU, should be established. At the same time, all rural development
schemes should pay due attention to the protection of the rural
environment.
31 
