BUDGET 2028-34: EC INITIAL IDEAS RAISE QUESTIONS

In preparing the financial perspectives for the period 2028-2034, the European Commission is indulging in its favourite exercise: on the one hand, creating margins without any new financial margin, and on the other, trying to force the hand of the Member States on the financing of the European budget while retaining its role as principal.

Traditionally, the Commission primarily sounded out the capitals on acceptable cuts to the budgets of the main European policies and the acceptability of a slightly increased total European budget. In this first-round exercise, the CAP was put forward as a target (proposed to be cut by up to 30% in 2018 for instance).

In the current context of budgetary frugality, the Commission is trying a different route, ultimately drawing on the proposal for (administrative) reform of the CAP that it made in 2018.

It proposes grouping the 530 European programmes (representing a total budget of more than 12 trillion euros) into a single large European fund, called Pillar I. Alongside this pillar, two others would exist: one aimed at the financing of the services (thus allowing negotiations on the Commission’s operating budget to be decoupled a little more from discussions on the funding of European policies) and a third relating to enlargement and major investments of collective European interest, including defence (a pillar for which money has yet to be found).

Pillar I would therefore bring together all the major European policies. The Member States would be asked to draw up national strategic plans, setting out their priorities and their wishes as regards the mobilisation of the money allocated to them under the various policies.

The creation of such a fund undoubtedly implies a certain degree of fungibility of budgets previously allocated to one policy or another. We can assume that both the CAP and cohesion policy – whose budgets are always a source of envy in the absence of other truly common policies – would no longer see their funding protected over the programming period. Funding would be set at the beginning of the period according to national priorities and would no doubt be adjusted along the way, particularly if disbursements turned out to be lower than expected.

Under this scheme, transfers of funding to the Member States for the various policies would be conditional on respect for the rule of law and the implementation of priority measures defined at European level. The Member States would then be able to activate the measures provided for in the various policies, which would act as toolboxes that the Member States could activate or not.

In the case of the CAP, the Commission illustrates its point with two examples that raise questions about the detailed knowledge of agricultural issues on the part of a side of the European Commission. As a condition of Member States’ access to CAP money, it imagines “promoting organic farming”. An original example, when it is clear that the objective put forward by the Farm to Fork of 25% of land in organic farming corresponds neither to the expectations of the markets, nor to the imperatives of food sovereignty, nor to those of sustainability in Europe. As for the CAP’s ‘investment’ chapter, the Commission takes the example of direct payments. While these payments are certainly vital for farmers’ incomes at the moment, is this the most relevant example when we are aiming for investments to resolutely win the dual performance challenge: getting European agriculture back on the road to profitability while pursuing the path of greater sustainability? Not to mention the arrival of Ukraine.

This suggestion to overhaul the European budget and the way it operates raises a number of questions that the European Parliament raised when it considered the Commission’s 2018 CAP proposal, before reformatting it to give it a minimum common meaning.

This scheme would leave it up to the Member States to implement the bulk of European policies in accordance with their national priorities at the time, with the exception of a few ‘gateway’ measures to funding, a condition which the European Council (which must act unanimously on financial matters) would no doubt seriously water down.

As with the 2018 CAP proposal, we are now in a situation where all European policies under Pillar I are to be renationalised across the board. At the end of the day, Europe will only remain common to Pillar III (enlargement, major European investment plans).

So what of the single market?

What would be the economic efficiency of such a renationalised system, with the temptation for some to concentrate funding on a few sectors in order to subsidise them more so that they can gain an advantage over their European competitors? The money used in this way would not lead to European growth, but to more fractures and, in the end, a waste of the taxes paid by Europeans.

This idea of a large common pot is no doubt also related to the Commission President’s leitmotiv over the last few weeks (at least with regard to the CAP) of having a more targeted budget and more targeted measures. If the aim is to have more effective measures, everyone can agree. But if it’s a rhetorical device to get people to accept a lower budget by explaining that, despite everything, everything will be fine with more targeting, then doubts are permitted. At this stage, doubts exist about the European executive’s intentions with regard to agriculture and its funding.

Just one figure: if the CAP budget for the period 2028-2034 were to be maintained in current euros, this would mean that Europe is opting for a CAP whose economic value in 2034 (if inflation becomes low again) will be only 46% of the 2020 figure. Faced with the challenges of sovereignty, the loss of competitiveness over the last 2 decades, and enlargement to include Ukraine…

President Von der Leyen: a promising new beginning to be confirmed by concrete actions 

Agriculture appears six times in the 30-pages programme of the newly appointed President of the European Commission, Ursula von der Leyen. Ms von der Leyen is committed to strengthening the dialogue for “competitive and resilient” agriculture and food systems. Within the first 100 days of her term of office, the Commission’s President undertakes to present a new vision for agriculture and food, in the wake of the strategic dialogue launched at the end of the previous mandate. 

The Commission is willing to correct imbalances in the food chain, protecting farmers from unfair trading practices. “Farmers should not be systematically forced to sell below the cost of production”, she writes, deeming it “vital” that farmers have a fair and sufficient income. An initiative to fight against cross-border unfair trade practices is expected no later than this autumn. Ms von der Leyen pledges to continue defending a European policy for farm incomes, and promises that the next budget for the Common Agricultural Policy will be “targeted and strike the right balance between incentives, investment and regulation”, turning its back on excessive bureaucracy, supporting family farming and rewarding those who work with nature. 

The Green Deal is still there, mentioned four times. “We must stay on course, and we will do so for all our objectives, including those set in the context of the European Green Deal”, she pledge, adding in the direction of international partners that “we must listen more carefully and respond to the concerns of our partners affected by European legislation, in particular those linked to the European Green Deal” in a reference to regulations like the deforestation policy.

Overall, these strategic directions are laying down a positive course for the European agricultural policy. However, this needs to be materialized by concrete and tangible initatives for farmers, which will largely depend on the budgetary discussions that will start at the very beginning of the mandate. 

Are anti-erosion measures fair play for farmers in Wallonia?

In response to criticisms related to the complexity of the Common Agricultural Policy (CAP) and its disconnection from reality, the European Commission has proposed the implementation of national strategic plans, leaving it up to the Member States (or regions) to define the details of the measures to be implemented for farmers to get direct payments. This is a key feature of the new CAP, with serious impacts on the level playing field at EU level for farmers. The implementation of GAEC5 is shedding lights on this new reality, with farmers in Wallonia paying the high price.

Articles 12 and 13 of Regulation 2021/2115 of the Common Agricultural Policy (CAP) deal with conditionality, i.e., the set of obligations relating to good agricultural and environmental conditions (GAEC) that farmers must comply with to access funds from the first pillar of the CAP. The national plans submitted by the Member States must specify the details of these measures, indicating concretely how they intend to apply them to their farmers. Although this new approach, initially presented as a common-sense evolution in response to the failure of multiple attempts to simplify the CAP, it nonetheless presents a major obstacle. As far as basic aid is concerned, it places European farmers in the face of variable rules, with sometimes strongly divergent economic and agronomic impacts.

Each of these GAEC measures aims to address common environmental, health or animal welfare challenges, with the ambition of having a positive impact on a very large scale across the entire territory of the European Union, mobilizing a collective effort of all EU farmers. These actions must complement other specific measures and financed within the framework of eco-schemes or agro-environmental measures. All national (or regional) strategic plans are known. Even, many Member States are already preparing to adjust their initial plan, with the insights of one year of implementation. It is therefore useful to examine the details, analyzing not only their but also their socio-economic impacts. It appears that national or regional administrations are sometimes just as – if not more – creative than the European administration in terms of complexity, sometimes leaving farmers isolated in the face of an increased risk of inequitable treatment, without any real European debate.

In this regard, the analysis of GAEC 5 is particularly significant. Faced with the important challenge of soil erosion, the cross-compliance rule in the EU regulation states that it is necessary to “manage soil work in order to reduce the risk of degradation and erosion, taking into account the slope.” The objective to be pursued is that of “minimal land management reflecting specific local conditions in order to limit erosion.”

It plays an important role at the European level, alongside GAEC 4 and 6, in combating this phenomenon that affects the long-term fertility of soils. All other parameters are now the responsibility of the Member States or regions. They are the subject of the comparative study below. Previously, despite some flexibility, most of the details were fixed by a delegated act of 2014, which established the basic principles of minimum soil cover, the minimum area of farms that must be covered to comply with this GAEC, crop rotation or reduced tillage.

The challenge of erosion throughout the European Union

It is important to recall that erosion is a challenge affecting all regions of the European Union, without exception, as shown by the recently published data from the Joint Research Centre in the context of discussions on soil strategy. By far, the most significant vector of soil erosion, both quantitatively and geographically, is water. This affects most Member States, with a stronger impact on Mediterranean countries and Central European countries. Erosion caused by ploughing also has a very large geographical impact, affecting all Member States, with a lesser impact in part of Belgium, the Netherlands, some regions in northern Germany and Poland.

As for wind erosion or erosion caused by harvesting, they are indeed more localised: the former occurs on the northwest coast, some regions of the Black Sea, southern Italy, or northern Spain, and the latter occurs in crop areas where uprooting is involved. The latter represents a much smaller part of the erosion phenomenon at the EU level. Measures planned under GAEC5 have limited relevance regarding harvest erosion. Combating this requires technical means aimed at limiting the amount of soil carried away during the harvesting of potatoes or beets through gentle digging or the use of specific conveyor belts.

Diverging ways to define targeted areas

In the case of Wallonia, the GAEC5, which determines the granting of all aid to farmers, is particularly detailed and expensive. Wallonia’s approach is very different from that of the majority of other Member States. We will analyse it in detail.

One substantial difference lies in the criteria used by Member States to define the areas to take specific actions. The vast majority of Member States (BG, EE, EL, ES, FR, HR, IT, CY, LV, LT, HU, MT, PL, PT, SI) only mention the “slope” of the soil as a criterion for defining intervention areas and almost always refer to areas with a slope greater than 10%.

Regarding other national plans, the criteria are, however, different. Generally, they are related to differentiated slopes or measures that apply to all areas, regardless of their erosion risk.

For example, Austria’s strategic plan refers to a soil slope greater than 10% but also prohibits agricultural machinery from working on frozen, water-saturated, flooded, and snow-covered soil. Ireland refers to slopes greater than 15% and 20%, but also proposes criteria for all meadows. Plowing of all meadows is prohibited between October 16th and November 30th. For the Netherlands, measures exist for slopes greater than or equal to 2% and greater than 18%. And for Slovakia, specific measures for areas severely threatened by water or wind erosion are mentioned, without specifying criteria. The measures apply to slopes greater than 3%. Finland, Denmark, and Sweden introduce criteria related to the proximity of soils to watercourses.

The Wallonia Region, on the other hand, stands out for its approach. It identifies three zones (high erosion risk, very high erosion risk, extreme erosion risk) using an equation based on the revised universal soil loss equation (RUSLE), which takes into account the following factors: the rainfall erosivity index, the soil erodibility index characteristic of the soil type and its properties, and the topographical factor combining slope length and steepness.

The only national plans that, along with Wallonia, identify different territorial zones with differentiated erosion risks based on multiple criteria are those of Flanders, Germany, Luxembourg, and the Czech Republic. However, these Member States use this tool with significant differences to be taken into account compared to the plan of Wallonia.

The strategic plan of the Flemish Region also provides that “the sensitivity to erosion of a plot is determined based on a calculation model of the average annual potential erosion per hectare using the Revised Universal Soil Loss Equation (RUSLE). Thus, slope, slope length, and soil type are taken into account. There are six erosion sensitivity classes: very high (purple), high (red), medium (orange), low (yellow), very low (light green), and negligible (green). But the impact of this formula in Flanders is marginal compared to that for Wallonia, according to the respective simulations carried out by the Wallonian (FWA) and Flemish (Boerenbond) agricultural organisations (1).

The German strategic plan delegates the designation of erosion risk zones to the Länder, based on uniform criteria, such as soil erodibility factor, slope factor, rainfall and surface runoff erosion factor, and wind erosion risk. The Czech strategic plan identifies several erosion risk zones based on the following criteria: slope length and steepness, structure and texture of the arable layer, soil organic matter content, soil erosion sensitivity, protective effect of vegetation, effectiveness of anti-erosion measures, and soil profile permeability.

Finally, the Luxembourg strategic plan uses a methodology based on multivariate statistical learning (machine learning) for arable land for classifying erosion risk zones. The calculation of potential erosion from RUSLE is only used for grasslands. In addition, there are measures for all agricultural land, for example, existing retention terraces must be maintained on the entire UAA (in arable land, permanent grassland, and permanent crops).

Ambition divide: various approaches for the same measure

As for intervention measures, there are numerous ones. The most common ones are related to soil work restrictions, such as the prohibition of plowing during certain periods. Twenty national plans provide for such measures (AT, BE-FL, BE-WA, CZ, DE, DK, EE, IE, FR, IT, CY, LT, LU, HU, MT, NL, RO, SI, SK, SE). In addition, 13 strategic plans (AT, BG, DE, EE, EL, ES, FR, HR, LV, MT, PL, PT, RO) include measures on the orientation of soil work relative to slope. Twenty-three strategic plans (AT, BE-FL, BE-WA, BG, CZ, DE, DK, EE, IE, EL, FR, HR, IT, LV, LT, LU, HU, NL, PL, SI, SK, FI, SE) include measures related to vegetation cover.

In addition to these common measures, many Member States or regions are identifying other measures to combat soil erosion. For example, the “anti-erosion strip”. Denmark, Finland and Sweden refer to a buffer strip along watercourses with a ban on fertilisation, spraying, and soil work on a minimum width of three meters (six for Sweden), a measure that also meets GAEC4, but which they also consider as an anti-erosion measure. Germany and the Czech Republic mention buffer strips as an anti-erosion measure, but do not specify their length, with Germany leaving the details of the measures to the Länder. The Luxembourg strategic plan provides for the mandatory installation (except in the case of meadows) of anti-erosion grass strips with a minimum width of 3 meters in areas with a high and medium risk of erosion. France and Austria also provide for vegetated strips, with a minimum width of 5 meters in both cases, as an anti-erosion measure.

Conclusion

The analysis of the 28 strategic plans of the new Common Agricultural Policy (CAP) shows that only the Walloon and Flemish plans mobilise for all agricultural land in their region the RUSLE mapping methodology to target the implementation of GAEC5. Flanders is less concerned with this mapping, given the strong topographical differences with Wallonia.

These two plans also stand out for the size of the buffer strips, which can be up to 9 meters. The impact of the targeting methodology of the plots excluding most Flemish farmers from the system means that the choices made in implementing GAEC5 in Wallonia put farmers in a unique position in Europe of competition distortion compared to other European farmers, including those in very similar regions.

This is despite the fact that it is a cross-compliance measure that impacts all CAP support, not just a specific measure that is subject to ad hoc compensation or incentive. While the options taken by some Member States can be explained by particular agronomic, climatic or topographic conditions, it is difficult to single out Wallonia to justify such a difference in approach in the implementation of this GAEC.

The expected impact in Wallonia is disproportionate compared to the impact of the same measure elsewhere in the European Union. However, unlike agri-environmental measures or eco-schemes, it does not involve additional remuneration to compensate for these distortions. It is mandatory for all farmers concerned, and not just targeted to those who wish to engage in practices on a voluntary and specifically remunerated basis.

Summary analysis of the initial phase of implementation of the new CAP

In light of the notifications made to the Commission in August 2014, the implementation of the 2015 CAP reform by MS will be characterised by significant variation that will need to be taken into consideration in both the post 2020 policy development work and the CAP simplification exercise, set to be implemented in 2016/17.

We note :

  • a very widespread use of degressivity and capping of payments, going further than the regulatory minimum, with the introduction of caps for individual farms in 8 MS, a move which has seemed unthinkable since 1992;
  • a reversal of the approach to the coupling of support. Systematic decoupling appears no longer to be the ultimate objective. With the exception of Germany, all MS are taking up the ‘recoupling’ option, which provides a generic response to the problem that uncoupled direct aid has been, by definition, unconnected to the needs generated by changing markets(these choices need to be understood in light of the economic context of the milk and meat industries at the time the decisions were being made).
  • a substantial use of national flexibility in relation to the greening objective by a majority of MS, which may introduce a source of market distorsion, as well as complexity in terms of implementing and managing the CAP.

The CAP reform has also introduced a degree of flexibility to the provision of direct aid payments (1st pillar of the CAP). This briefing note examines 6 key components of the implementing provisions brought in by the 2013 reform ; components that will have an impact on the positions of MS in future negotiations.

 1) The transfer between pillars meets a demand

11 MS have chosen to increase their allocation to pillar II. The most enthusiasatic being: the United Kingdom (10.8 % annually), Germany (4.5 %), Denmark (from 5 % in 2016 to 7 % as from 2018), the Netherlands (4 % in 2016 to reach 4.3 % in 2020) and France (3.3 %). The other MS are Latvia, Belgium, the Czech Republic, Estonia, Greece and Romania.

A number of MS are set to strengthen pillar I with funds from pillar II, including Poland (25%, as negotiated during the reform procedure), but also Hungary (15%), Slovakia (21.3 %), Croatia (15%), and, symbolically, Malta. This will have an impact on the next budget negotiations, particularly in light of Poland’s negotiating position in this regard in 2013.

2) ‘Recoupling’ : limited but real

27 of the 28 MS of the EU have opted, to varying degrees, to put in place coupled payments. Only Germany has not. The use of coupled payments is however very limited in 7 MS (Ireland, the Netherlands, Luxembourg, the United Kingdom, Austria, Denmark and Estonia – at between 0.2 and 3.5 %). Belgium, Finland and Portugal are taking up the opportunity of going further than 15 % (from 17 to 21 %). The majority of new MS are using their maximum authorised allocation. It should also be noted that Sweden has decided to allocate 13% of its direct support as coupled payments. This coupled support will first and foremost focus on meat, milk, sheep, fruit and vegetables and protein crops. It will also benefit beetroot growers in 10 MS where productivity is traditionally lower, as well as the Czech Republic, Slovakia and Poland.

3) Capping mechanisms: almost universally adopted

Degressivity and even capping mechanisms for direct aid will be applied in 19 MS. Among these, 8 have opted to apply an absolute aid ceiling, with amounts varying between 150 000 €/year (Flanders, Ireland, Greece, Austria, Northern Ireland, and Poland, without subtraction of salaries in the case of Poland), 600 000 €/year (Scotland), 500 000 in Italy, 300 000 in Wales and 176 000 in Hungary. In total, capping will save some 110 million €/year.

4) Strengthening support for ‘average’ sized farms

In parallel, redistributive payments allocating additional funds for the ‘first hectares’ will be applied in 8 countries (Belgium, Bulgaria, Germany, France, Croatia, Lithuania, Poland and Romania). With the exception of Poland and Bulgaria these countries have decided not to apply degressivity.

5) The marginal impact of the ‘Small Farmers Scheme’

While the scheme aimed at supporting ‘small farmers’ is being taken up in 15 MS, only 2 countries are using it to increase financial support for small farmers.

6) Greening : national flexibility is being used

8 MS will apply greening equivalence, with 6 (Austria, Greece, Ireland, Italy, Luxembourg and Poland) opting for agri-environmental and climate measures and 2 (the Netherlands and France) preferring certification schemes.

Regarding the geographic scale for the application of the permanent grasslands PG ratio :

23 of the 27 MS will apply the PG ratio on the national scale. Only Belgium, France, Germany and the United Kingdom will apply it on the regional scale.

Only 2 MS, the Netherlands and Poland, will implement Ecological Focus Areas on a national basis (EFA).

In Austria, Finland, Lithuania, the Netherlands, Slovenia and Spain the list of options that farmers may choose from to fulfil their EFA obligations is limited (between 2 and 4). In contrast, in Belgium, Bulgaria, Croatia, the Czech Republic, France, Germany, Hungary, Ireland, Italy, Luxembourg, Poland, Romania and Slovakia a much wider palette of options is available (10 or more).

The most commonly selected EFA options are : the area of nitrogen-fixing crops (all MS, except Denmark), land lying fallow (all MS except the Netherlands and Romania), short rotation coppice (23 MS or regions), catch crops (21), buffer strips (20), trees in groups (18), hedges (17), trees in line (16), hedgerows (16), afforested areas (15), ditches (15), isolated trees (13), ponds (12), area for agroforestry (12), forest edge strips without production (11), terraces (8), forest edge strips with production (8) and finally, traditional stone walls (7).

It should also be noted that 10 MS (Denmark, Finland, Germany, Hungary, Ireland, Italy, Latvia, Malta, Portugal, and the United Kingdom (Northern Ireland)) will, in relation to the EFA, take landscape features that are protected by GAEC into account, but which are not in this list.

Some MS will make full use of conversion factors (Belgium, Bulgaria, Croatia, France, Hungary, Ireland, Italy, Luxembourg, Poland, Romania, Slovakia and the United Kingdom) whereas others will use real dimensions for all or many of the options selected (the Czech Republic, Estonia and Germany).

In contrast, virtually all MS will apply weighting factors.