19 May 2016
Article by Nia Seaton, National Assembly for Wales Research Service
This article is taken from ‘Key issues for the Fifth Assembly’, published on 12 May 2016.
Support provided by the Common Agricultural Policy is vital to many farm and rural businesses in Wales. How does it work and what changes may be on the horizon?
The Common Agricultural Policy (CAP) is the EU’s farm support policy.
Farmers in Wales will receive €322 million a year in direct payment support by 2019 and the Welsh Government will receive €355 million to support its Rural Development Programme over the 2014-2020 period. In May 2009, the Welsh Government estimated that the CAP accounts for the largest proportion of most farm businesses’ profitability. The future of the CAP, and how it is delivered in Wales, are therefore key concerns for the agriculture sector and rural stakeholders.
While the future of the CAP may be less directly relevant if the UK votes to leave the EU, discussions about how to support farmers and rural communities in Wales will continue to be important.
How does the CAP work?
The CAP provides direct income support to farmers, and rural development funding to communities and businesses across the EU. Originally conceived in 1962 to encourage food production in the post-war period, the policy has been subject to a series of significant reforms with the latest round concluding in 2014. Despite these changes the policy remains one of the most significant EU financial commitments, accounting for approximately 40% of the EU’s budget.
The CAP is made up of two separate strands commonly referred to as the two ‘pillars’ of the policy. Pillar 1 provides direct income support to farmers. This is done mainly through the Basic Payment Scheme. Under the scheme all eligible farmers receive an annual payment in return for complying with a number of basic agricultural and environmental conditions. Payments made under Pillar 1 are fully funded by the EU; each Member State is given an annual allocation which it distributes to farmers. In the UK this allocation is divided between the four constituent countries. The devolved administrations are responsible for delivering the policy in their own territories.
While governments have to comply with a number of EU-wide rules on how funding should be distributed, they also have some discretion to pay out the money in a way that fits their needs.
Pillar 2 provides EU funding to governments for rural development programmes. Governments are required to match the funding provided to them by the EU. These programmes cover a seven-year period and contain a variety of different funding schemes that support farm businesses, environmental improvements and rural communities. The current Rural Development Programme for Wales covers the 2014 to 2020 period and is focussed on improving the competiveness of Welsh agriculture, supporting the sustainable management of natural resources and supporting the economic development of rural communities.
What are key issues around the CAP 2014-2020?
Since its inception the CAP has been through a series of reforms aimed at making the policy increasingly market orientated, more conducive to free trade and more environmentally friendly. Each round of the policy tends to cover a seven-year period to match the EU’s financial planning periods. The current round covers 2014-2020.
The latest round of reforms introduce a number of significant changes to the policy. These include:
- moving towards a system where farmers are paid on an area basis (eg how much farming land they own rather than how much they produced historically);
- a requirement for farmers to undertake a number of ‘greening’ actions in order to receive support (actions aimed at improving the environmental contribution of farms such as requiring farmers to include ecological focus areas on their farms);
- new support mechanisms for young farmers and new entrants to the industry; and
- a requirement for applicants to prove they are actively farming the land they own.
These changes have proved incredibly complex and difficult for governments to administer leading to delays in issuing payments to farmers. In some cases, they have led to legal challenges.
In Wales, the majority of farmers would traditionally expect to receive their full annual payment under the Basic Payment Scheme in December. For the 2015 payment round, however, farmers have received payments in two separate instalments and have been paid later than usual. As of 8 April 2016, only 75% of Welsh farmers had received their full payment for 2015. Wales is not unique in this situation with a number of governments struggling to issue payments under the new rules.
The European Commission acknowledges the complexity of the current CAP rules and Phil Hogan, the Commissioner for Agriculture, has introduced a number of changes to simplify the rules. The Commissioner is expected to announce further simplification measures by the end of 2016. The new Welsh Government will need to consider these changes and decide how it applies them in Wales.
What next for the policy?
Although the current CAP has only been in place for a little over a year, stakeholders and policy-makers are already beginning to talk about the shape of the policy post-2020. The debates and negotiations on the last round of reforms took over three years to complete. If the next round of reforms follow a similar pattern, formal consultation documents and papers will begin appearing at the start of 2017. In truth, however, discussions over the CAP’s future direction have already begun.
The significant market volatility and downward trends in prices experienced by EU farmers over the last two years have hastened these talks. In the last twelve months the European Commission has had to take unprecedented action on two separate occasions to introduce emergency support packages for key farming sectors.
In Wales, the wider market conditions and the experience of going through the latest round of reforms have led stakeholders to call on the Welsh Government and the Assembly to engage early in discussions to ensure that the CAP post-2020 delivers for Wales. If the UK votes to leave the EU, stakeholders are still likely to call on the Welsh Government and Assembly to hold early discussions about future support for farmers, and to ensure farm businesses are resilient to any future changes.
Environment and Sustainability Committee, Fourth Assembly Legacy Report (2016)
European Commission, Annual Budget 2016 (website)
European Commission, European Commission activates exceptional measures to further support European farmers in crisis (2016)
European Commission, Greening (website)
European Commission, Simplification of the CAP (website)
European Commission, The CAP in your Country (website)
European Commission, The CAP post-2013 (website)
Research Service, A way forward for direct payments to farmers in Wales? (2015)
UK Government, UK CAP allocations announced (2013)
Welsh Government, Basic Payment Scheme (BPS) Update (2016)
Welsh Government, Basic Payment Scheme (BPS) Final Instalments (2016)
Welsh Government, Welsh Government rural communities- Rural Development Programme 2014-2020 (website)
Promoted by the National Assembly for Wales Commission, Cardiff Bay, Cardiff, CF99 1NA