FUTURE FINANCING OF THE COMMON AGRICULTURAL POLICY

The House of Lords EU Sub-Committee D (Environment and Agriculture) has decided to examine the future financing of the Common Agricultural Policy in the context of the current negotiations on the next EU budget.

The European Commission has released proposals, known as the financial perspective, for the next budgetary period between 2007 and 2013. They include a proposal for a Regulation on the financing of the Common Agricultural Policy[48].

Some Member States have indicated that they would like to see the EU budget capped below the Commission's initial estimates[49]. The final overall budget will have an impact on money available for the Common Agricultural Policy (CAP), both in terms of direct subsidy (Pillar 1 spending) and rural development funds (Pillar 2 spending).

The CAP is a major part of the EU budget, and underwent initial reforms in 2003. Although the reforms have already fixed spending ceilings for direct subsidies (Pillar 1) until 2013, rural development expenditure under the CAP will be negotiated over the next year.

Events such as enlargement of the European Union, and the ongoing discussions of the EU's agricultural policies (e.g. sugar, dairy and export subsidies) during the current Doha Round of World Trade talks, will all have an impact on how much money is needed and where.

The Committee is keen to explore how the budget for the CAP will be set through the financial perspective negotiations. The Committee will also want to examine details of rural development spending, the impact of CAP reforms and enlargement.

The Committee would very much welcome your views on the following key questions:

CAP as a part of the EU Budget

How will total CAP expenditure be affected by the European Commission's proposed financial perspectives, or the 1% of GNI limit proposed by the group of net contributors, if agreed by the Council of Ministers?

Is there a need for further reform of the CAP? If so, what opportunities exist for reforming it further as a result of the financial perspective negotiations?

Enlargement

Structural and regional aid will mainly be available to the new Member States of Central and Eastern Europe, which raises questions over what impact this will have on farmers in older Member States with reduced agricultural support.

How will rural development expenditure (Pillar 2) be affected by enlargement, recent and future?

What is the potential impact on the rural economy of increasing structural funds, which will mainly be available to new Member States, at the same time as reducing direct (Pillar 1) payments?

Financial Discipline

As part of the June 2003 CAP reform, a "financial discipline mechanism" was introduced with a view to ensuring that from 2007 direct subsidy payment ceilings would not be exceeded. The mechanism allows automatic reductions in Single Farm Payments whenever the budget ceiling is likely to be exceeded. However, there is likely to be significant pressure on these spending ceilings when single farm payments are phased in for new Member States, and after further enlargement in 2007[50]. Reform in the dairy and sugar sectors would also have an impact.

How far are market support and direct subsidy expenditure (Pillar 1) likely to increase as a result of further enlargement and the payment of new subsidies to the dairy and (possibly) the sugar sector?

Can use of the financial discipline mechanism realistically be avoided?

Will market support and direct subsidy (Pillar 1) be affected by any concessions which the EU has to make on export subsidisation, import tariffs and domestic support expenditure in any agreement in the Doha Development Round of trade negotiations?

Rural Development

Although the 2003 CAP reforms agreed spending ceilings for direct payments (Pillar 1), the amount of the EU budget to be spent on rural development (Pillar 2) remains to be agreed during the financial perspective negotiations. If it appears that the financial discipline mechanism is likely to be implemented over direct subsidies, it is possible that cutbacks would have to be made to the rural development part of the CAP budget.

Are the spending ceilings likely to be exceeded? If so, what will the consequences be for the farming industry if the EU fails to meet the financial demands of both market and structural policies in an EU25 or EU27?

Is the negotiating stance of the net contributor countries, who aim to keep the budget at 1% of GNI, appropriate to balance the needs of rural development and promote agricultural reform in the EU as a whole?

Should the Rural Development budget be increased significantly up to 2013, or can spending remain similar to current levels?

Will the Rural Development fund set up by the Regulation on the Financing of the Common Agricultural Policy improve the distribution of funds to rural development projects?

49   The United Kingdom, France, Germany, Sweden, the Netherlands and Austria have proposed that the EU budget should be capped at 1% GNI overall, compared to the Commission's proposed 1.14% GNI. Back

50   Romania and Bulgaria are due to accede in 2007. Back