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Research for AGRI Committee – CAP implementation: Flexibility given to Member States – state of play and perspectives

EXECUTIVE SUMMARY

The Common Agricultural Policy (CAP) is a complex accumulation of legislation. Although the name indicates it is a common policy, the legislation has always allowed some extent of flexibility at Member State (MS) level. Especially the Agenda 2000 reform, the CAP 2003 reform and the CAP 2013 reform gave a boost to the flexibility given to MS in implementing the CAP. This study discusses flexibility of the CAP from various perspectives.

The history of flexibility in the CAP measures is reviewed and the causes, modes and consequences of the current (2014-2020) flexibility are exposed. The options for flexibility in the future are also highlighted by stylised scenarios. The analysis is synthetic in nature and it is based on typologies, logical reasoning and selected statistical data.

Flexibility in CAP implementation has been used since the early 1970s
The CAP measures may be placed on the continuum of uniformly–flexibly applicable measures. CAP measures which regulate the operation of the common market for agricultural products and the food supply chain are largely uniformly applicable by all Member States. These measures refer to public intervention and private storage, aid schemes, marketing standards and conditions for production, producer and interbranch organisations, trade with third countries, competition rules and general provisions. A number of CMO measures have, however, some room for manoeuvre for Member States in order to define their scope, in particular when they include joint funding systems. In all other CAP measures flexibility is foreseen in the implementation. These refer to premiums and payments for producers in the market and income policies as well as the agricultural structural policy/rural development policy measures.

Uniformly applicable CAP measures tend to be used for affecting the operation of the market mechanism whereas flexibly applicable measures refer to payments and subsidies to farmers. Flexibility has been present since the three socio-structural Directives of the early 1970s, but it has expanded significantly in the sequence of policy reforms between 1992 and 2013 and currently applies to direct payments and rural development measures.

Regarding the positions by the key institutions in the CAP 2013 reform, the Commission was generally most in favour of common, uniform and streamlined measures, whereas the Parliament was generally most in favour of locally adapted, diversified and flexible measures; the Council had varying positions on these two policy modes. These positions manifest diverse views on how to observe increased  heterogeneity arising from enlargements of the EU (e.g. role of subsidiarity principle and European Value Added principle) and the multifunctional role of the CAP.

Three types of flexibility
Three types of flexibility were introduced for the direct payments in the CAP 2013 reform. First, a number of measures are optional for the MS rather than mandatory. This is called adoption flexibility. Second, in several measures the MS have latitude in defining the geographical level of application, eligibility thresholds, payments rates, eligible practices etc. This is called targeting & design flexibility. Third, the MS may transfer and reallocate funds between the measures or Pillars within certain limits. This is called financial flexibility. Flexibility of the MS is most extensive in the targeting & design of the direct payments and less extensive but still significant in the adoption and finance of the direct payments. Regarding targeting & design flexibility, measures dealing with natural conditions exhibit flexibility in the geography of application (national/regional), measures dealing with farm structures exhibit flexibility in the payment rates and eligibility thresholds; environmental measures (greening) have flexibility in the definition of eligible practices.

Selection of historical/regional model not dependent on farm size structure
A close look was taken at the national implementation styles of the single farm payment scheme (2003-2014) and the basic payment scheme (2015-2020), coupled support (2010-2014; 2015-2020) and redistribution payments and degressivity (2015-2020). Regarding the single farm payment scheme and the basic payment scheme, three different styles can be perceived: (1) MS applying the historical model for the single farm payments and partial convergence for basic payments; (2) MS using the historical model for the single farm payments and full convergence in 2019 for basic payments; and (3) MS applying the SAPS for the single farm payments and the basic payments.

However, there are six other implementation styles that each are used by one or two MS. Interestingly, the selection of the historical or regional model does not depend on the farm size structure. Coupled support is widely and continuously used: most EU MS granted such support both in the period 2010-2014 and 2015-2020.

However, a few MS /regions did not use it at all in both periods. A small number of MS apply redistributive payments. This option is not always combined with the exemption of the degressivity tax. Most MS use the minimum rate of 5% as degressivity tax. Ten MS use a cap, varying from payments beyond 150,000 EUR to 600,000 EUR. As a whole, the diversity of national implementation styles manifests the historical, structural and natural heterogeneity of European agriculture.

Flexibility: bounded targeting and redistribution rather than renationalisation
The current flexibility has specific effects on meeting the CAP objectives, on the institutional process and on the policy implementation. The current flexibility introduced in the CAP 2013 reform has no major conflicts with the key objectives of the CAP: viable food production, sustainable management of natural resources and climate action, and balanced territorial development. Flexibility provides means for addressing heterogeneous circumstances, which is important in achieving the sustainability and territorial objectives of the CAP. Flexibility may retard the productivity growth of EU agriculture and may allow unproductive proenvironmental measures – this may be avoided by monitoring and evaluating effectiveness of the measures, however. Flexibility in the adoption, design & targeting and finance of specific CAP measures makes the decision-making process more dispersed over the MS, but also more effective. Achieving a same level of tailoring of the measures to diverse agronomic and structural conditions through centrally designed and agreed regulations would be an enormous bureaucratic endeavour. The current flexibility increases the diversity of the portfolios, implementation modes and funding of CAP measures, but this is bounded targeting and redistribution rather than renationalisation. Increased flexibility relocates complexity of implementation of the CAP from the EU level to the MS or regional level, but does not increase complexity if the existing level of targeting is maintained. Extended flexibility may have adverse effects on the level playing field among comparable regions, farms or farming practices facing divergent payments in various MS or regions, but as long as flexibility pursues divergent problems effectively it should not provide illusive competitive advantages.

Three options for future flexibility of the CAP
The future of flexibility of the CAP was discussed by using scenarios. By assigning different degrees of flexibility to the three groups of CAP measures (CMO measures, direct payments and rural development measures), three options for future flexibility of the CAP measures were designed: (1) no flexibility in the implementation in all three groups of CAP measures; (2) maintenance of the current level of flexibility in the CAP measures; (3) flexibility in the implementation in all three groups of CAP measures. In the beginning of 2017, the European Commission launched two sets of future scenarios: one set for Europe by 2025 and the other for the future of the CAP. It appears to be complicated to directly link our flexibility options to these sets of scenarios, as in the scenarios for Europe by 2025 no specific attention is given to agriculture and in the options for the future of the CAP no attention is paid to flexibility.

Nevertheless, some global linkages can be detected. It turns out that tensions between on the one hand flexibility modes and on the other hand policy objectives, institutional processes and policy implementation, such as a biased balance in the bargaining power in the food chain, retarding productivity growth, risk of renationalisation, increasing complexity of implementation of CAP measures in the MS, and no level playing field, cannot be solved by switching to another flexibility mode. Usually, this is due to new tensions that arise or the persistence of the tension within any flexibility mode. Among the three options for future flexibility of the CAP there is no option with hardly any tensions in the field of policy objectives, institutional processes and policy implementation; all three options are accompanied by tensions. Reconfiguration of flexibility implies reconfiguration of tensions.

Recommendations
The findings of this study authorise two policy suggestions. First, to safeguard the integrity and efficiency of the common market it is not feasible to introduce national flexibility in the management of the common market. Moving away from the current situation of largely uniformly applicable measures may have distortive effects on the internal market. Deviations from the uniformly applied rules for the organisation of the common market and the food supply chain should only be allowed under specific and well-defined circumstances (e.g. the outbreak of an animal disease, natural catastrophe, immigration crisis). Second, the current modes of flexibility for the direct payments (Pillar I) and rural development measures (Pillar II) have generally more positive than negative effects.

The current flexibility gives MS the possibility to address specific problems and pursue heterogeneous and/or geographically bound goals. This flexibility should not be regarded as renationalisation, but as bounded targeting. Achieving the current level of targeting and contextual sensitivity through central EU level design and application would result in a flux of bargaining and bureaucracy. Therefore, there is little need to change the current modes of flexibility.

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SOURCE: European Parliament