CAP Budget 2021-2027 : In response to the crisis, meet more challenges with less budget

Posted on

Loss of 40 billion in constant euros, Maintained in current euros,
Less for the recovery, 40% of the budget to be oriented on climate & environment

 21 July 2020

After a 4-day marathon European Council, the Heads of State and Government gave the European Union a budget of €1074.3 billion for the period (in 2018 constant euros) reinforced by a recovery budget of €750 billion (€390 billion in grants and €360 billion in loans).

For the CAP, the agreed budget amounts to €258.594 billion (in 2018 constant euros) for the 1st Pillar and €77.85 billion for the 2nd Pillar. Under the recovery budget, €7.5 billion will be added to the 2nd Pillar budget.

In total, €343.95 billion (2018) will finance CAP actions over the next 7 years.

If in current euros, and assuming inflation at 2%/year over the period, the CAP 2021-2027 budget is broadly stable compared to the previous period (2014-2020); expressed in 2018 constant euros, it is down by €39 billion (-10.2%), i.e. slightly more than a full year of first pillar aid.

A little less than half of this decrease can be linked to the cost of Brexit for the CAP, the UK was a net funder of the CAP for about €2.7 billion/year.

Therefore, including the recovery plan, European farmers are being asked to finance some €20 billion of other European policies.

Compared to the Commission’s latest proposals, the budget for the first pillar remains more or less the same, the budget for the second pillar increases by €2.8 billion over the period, but the allocation for the recovery is halved, from €15 billion to only €7.5 billion.

The use of the remaining €7.5 billion is not subject to any particular guidelines from the Heads of State. The negotiations linked to the Omnibus Recovery package will be crucial to ensure that recovery actions are more targeted and relevant as the envelope is constrained.

In the context of a decreasing budget, and even more so for the 2nd pillar, the distribution of the €77.85 billion of the latter provides additional allocations at the rate of 100 million for Belgium, 650 for Germany, 300 for Ireland, 300 for Greece, 500 for Spain, 1 600 for France, 100 for Croatia, 500 for Italy, 50 for Cyprus, 250 for Austria, 200 for Slovakia, 300 for Portugal and 400 for Finland.

In addition, the European Council defined, in parallel with the CAP budget, certain parameters for the future CAP reform which will apply from 2023 (and until 2027):

  • While 30% of the European budget (including recovery) is to be linked to climate actions, a target of 40% is set for the CAP as a whole. However, no direction is given to the green architecture of the new CAP (unlike in 2013 where the European Council had clarified what greening should be).
  • Convergence of direct payments levels between Member States: over the period, 50% of the gap to 90% of the EU average will have to be closed, with aid/ha not falling below national averages in the EU of €200/ha in 2022 and €215/ha in 2027.
  • The capping of direct payments will be done on a voluntary basis at a possible level of EUR 100 000 of basic direct payments per beneficiary, whereby wage costs can be excluded.
  • The crisis reserve will have to be endowed with €450 million (in current euros) at the beginning of each year and will be fed primarily by clearances, budgetary margins and, as a last resort, by financial discipline. Unspent amounts will be transferred from one year to the next, with no increase in the reserve beyond the €450 million. It should be noted that this amount is lower than the current reserve (480 million in current euros) and that its capped mechanism already undermines the credibility of its action.
  • Budget transfers from the 1st pillar to the 2nd pillar will be up to 42% at the choice of the Member States, with 25% to finance any action chosen from the 2nd pillar, 15% to finance only environmental actions and 2% for measures in favour of young farmers.
  • Transfers from the second pillar to the first pillar may be up to 25% and may be increased to 30% for Member States whose direct aid is less than 90% of the European average.
  • The maximum basic European co-financing for 2nd pillar measures is set at 43%, 10 points lower than at present. It is 80% for the outermost regions and 85% for less developed regions. For environmental measures, non-productive investments, EIP and Leader actions, it may be as high as 80%. For measures financed via a budget transfer from the first to the second pillar, EU co-financing may be up to 100%.