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Common Agricultural Policy

1. Introduction

Since the Common Agricultural Policy (CAP) was introduced in 1962 it has met new challenges on a regular basis. Following clear successes in the 1970s culminating in a major upturn in agricultural productivity and a steady increase in farmers' incomes, the CAP had to cope with managing production surpluses. Reforms to correct this situation in the 1980s led to the introduction of measures to limit the quantities produced in certain sectors. Specifically, a milk quota system was introduced in 1984.

The 1992 reform signalled the most radical change to the CAP since its introduction. It resulted in a reduction in institutional prices, which was partially offset by direct aid in the form of premiums per hectare or per animal and, in general terms, it allowed balanced markets to be achieved while ensuring farmers received a stable income.

A new reform was adopted in 1999. This reform enhances the changes made in 1992 and aims to preserve the European agricultural model as defined in the declaration of the Council of Agricultural Ministers in November 1997. The European Council adopted this declaration in December 1997. European agriculture, as an economic sector, must be versatile, sustainable, competitive and spread throughout European territory (including less-favoured and mountainous areas). It must respect the countryside, maintain natural areas and be able to make a key contribution to the vitality of rural life. In addition, European agriculture must be capable of responding to consumers' concerns and meeting their needs in terms of food quality and safety, protection of the environment and animal welfare. The 1999 reform brought rural development measures together into a single regulatory framework and increased the financial resources allocated to them. It also introduced the concepts contained in pillar 1 (supporting markets and direct aid to farmers) and pillar 2 (rural development) of the CAP.

The reform under way since 2003 aims not only to make agriculture more competitive and encourage market-oriented production but also to strengthen rural development by introducing new measures and transferring resources from pillar 1 to pillar 2 of the CAP. It also meets society's expectations on food safety and quality, environmental preservation and animal welfare.

Further changes were made to the CAP in 2008, following an evaluation of the 2003 and 2004 reforms which was published under the title “CAP Health check”. These modifications were designed to tailor production even more closely to market needs and implement a range of measures to promote rural development by meeting the new challenges faced by the agricultural sector (climate change, development of renewable sources of energy, preservation of biodiversity, optimum use of water resources, innovation and reorganisation of the dairy sector).

A major new reform of the CAP is currently being prepared for the period after 2013. In its communication on “The CAP towards 2020”, presented on 18 November, the Commission retains three main objectives for the future of the CAP: viable food production, sustainable management of natural resources accompanied by climate-friendly actions, and balanced territorial development.

The Council’s debate on this communication ended in 17 March 2011 with an adoption of the Hungarian Presidency's conclusions, supported by over twenty Member States, including Belgium. Subjects for debate notably included the specific role of the two pillars of the CAP, the future form of direct aid to ensure a minimum revenue for farmers and remunerate them for the supply of public goods and services not remunerated by the market, the fairer division of this aid among Member States, the application of ceilings to direct aid received by large individual concerns, market regulation through appropriate tools, the introduction of new risk management tools to restrict loss of revenues for EU farmers, the need to establish fair competition conditions between EU farmers and those in non-EU countries in view of the strict production standards imposed in the EU to respond to the demands of consumers and other social concerns, support for young farmers, and finally support for agricultural activity in all rural areas.

These legislative proposals are expected to be presented in autumn 2011. 
 

Direct aid and market support

The 2003-2004 reforms and their modification in 2008

The 2005-2007 reforms

Rural development

The financing of the CAP

2. Direct aid and market support

2.1. The 2003-2004 reforms and their modification in 2008

2.1.1. The single payment scheme and the decoupling of direct aid

The reform, on which the Agriculture Council reached a political agreement on 26 June 2003, introduced a key element into the CAP, namely the 'decoupling' of direct aid. In other words, much of the direct aid given is now decoupled from production and granted as a single farm payment. This encourages farmers to produce goods that meet market needs rather than comply with criteria for receiving premiums as in the past.

The single payment scheme was introduced in 2003 and entered into force in 2005, although its implementation was postponed until 2007 in certain Members States. Furthermore, those Member States that deemed it necessary to reduce the risk of abandonment of certain agricultural activities had the option of implementing only partial decoupling in some sectors (arable crops, cattle farming, sheep and goat farming) and of excluding certain forms of aid (e.g. subsidies for seed production) from the single payment scheme. Lastly, specific forms of financial assistance have been kept in place for a number of cultures (pulses, durum wheat, rice, nuts, starch potatoes).

On 22 April 2004, the Agriculture Council reached an agreement to reform four more sectors, namely hops, olive oil, tobacco and cotton. The partial decoupling of payments was approved for hops and only a certain proportion of the subsidies previously granted to the other three crops was integrated into the single payment scheme. The remaining part of the subsidies was reserved for the payment of specific forms of aid. It was agreed, however, that the payments for tobacco production would be fully decoupled from 2010 onwards.

The reforms undertaken from 2005 to 2007 in the sugar, bananas, fruit and vegetables and wine sectors introduced new direct payments which were fully integrated into the single payment scheme.

The agreement reached on 20 November 2008 on the “CAP Health check” was a further significant step toward the complete decoupling of payments. The subsidies to arable crops, durum wheat, olive groves and hops will be decoupled as of 2010. Subsidies for seed production and most subsidies for cattle farming will de decoupled by 2012 at the latest. The same applies to the various specific payments that were maintained on the occasion of the 2003 reforms. Aid for processing (dried fodder, starch potatoes, flax and fibre hemp) will be included in the single payment scheme in the course of 2012.

Member States still have the option to maintain payments to sheep and goat farming (coupled up to a maximum of 50%) as well as the suckler-cow premium.

Premiums per hectare for cotton are maintained, whereas aid for energy crops – which was established in 2003 to develop this sector – has been abolished.

Pursuant to the reforms introduced since 2003, more than 90% of direct payments will be decoupled by 2013.

In Belgium, most aid was decoupled from production following the 2003 reforms. Only suckler-cow premiums, the slaughter premiums for calves (exclusively in Flanders) and the subsidies for flax and spelt seed production were kept fully coupled.

2.1 2. Implementation of the single-payment scheme

The Member States can choose whether to implement the single payment scheme on an individual basis (known as the "historic" model), a regional basis (known as the "regional" model) or a combination of the two (the "hybrid" model).

For the historic model, the 2003 reform stipulates that each farmer is allocated a number of payment entitlements corresponding to the average number of hectares for which a direct payment was made in the reference period 2000-2001-2002. The value of the payment entitlement is equal to the reference amount (average total of the direct aid for arable crops and animal production during the reference period) divided by the number of entitlements granted. The number of payment entitlements and the calculation of the reference amount were subsequently adjusted to take account of the reforms adopted in various sectors not covered by the 2003 reform.

When the regional model is applied, the reference amount corresponds to the average over three years of the total amounts of payments made to farmers in the region concerned during the reference period. To determine the value of farmers' payment entitlement, this reference amount is divided by the number of hectares eligible for aid as established at regional level. Under this model, the value of the payment entitlement of farmers within a given region is a flat rate. As with the historic model, the reference amounts were adapted following the reforms adopted after 2003.

Member States that opt for partial regionalisation of the single payment scheme apply the "hybrid model". In this case, the flat-rate regional value of each of the farmer's entitlements is supplemented, if necessary, by an amount calculated individually on a historic basis.

On the occasion of the “CAP Health check”, it was decided to allow Member States opting for the “historic model” not only to level out the value of payment entitlements but also to shift to the “regional model” as of 2010.

In Belgium, the single payment scheme is implemented on an individual basis ("historic model").

2.1.3.  The single area payment scheme

In the new Member States, a single area payment scheme has been introduced. This is a simplified model which involves payment of a flat-rate amount per hectare supplemented, if necessary, by additional national payments for some sectors. This is a transitional scheme which is set to be replaced by the single payment scheme based on the regional model. On the occasion of the “CAP Health check”, it was decided that the ten new Member States which still apply this system could keep it in place until 2013. Slovenia and Malta have already been applying the single payment scheme, implemented on a regional basis, since 2007. It should be noted that the direct aid for new Member States is being phased in gradually in those countries. The 100% rate will apply by 2013 in the Member States that joined the EU in 2004 and by 2016 in Bulgaria and Romania.

2.1.4. Specific aid

The 2003 reforms authorised Member States to keep, for each sector, 10% of their national budgetary allocation earmarked for direct payments and to allocate this amount, in the sector concerned, to supporting environmental measures or actions aimed at improving the quality and marketing of products. Following the “CAP Health check”, this option has been made more flexible and broadened in scope. Thus, for example, these funds no longer have to be invested in the sector from which they originated and they may be used to offset specific disadvantages faced by certain sectors (the rice and dairy sectors as well as cattle, sheep and goat farming) in economically- or environmentally-vulnerable geographical areas. The funds may also be used to promote certain risk management measures (crop insurance against natural disasters and mutualised funds against animal or plant diseases), with up to 65% of costs being covered by public funds and a Community co-financing rate of 75%. The new Member States that have adopted the single area payment scheme may also apply this mechanism.

2.1.5. Cross compliance

Full payment of direct aid is now subject to regulatory management requirements in the areas of food safety, the environment, animal and plant health, and animal welfare, and the preservation of all agricultural land in good agricultural and environmental conditions. Member States must also ensure that a certain proportion of land designated as permanent pasture continues to be used for this purpose. In the older Member States, regulatory management requirements have been gradually integrated into the conditionality framework over a period of three years from 2005. For their part, the new Member States are allowed to incorporate the regulations over a four-year period as of 2009, with the exception of Bulgaria and Romania, where the “progressive integration” process will only start in 2012. The minimum requirements in respect of “good agricultural and environmental conditions” are defined by the Member States at national or regional level and are directly applicable to all Member States.

2.1.6. Modulation

Additional support measures to promote rural development will be financed by the transfer from the first to the second pillar of funds released by the compulsory modulation of aid. The basic compulsory modulation scheme consists in transferring to rural development, every year, a certain percentage of the direct payment allocations in excess of €5,000 per farm per year. Initially set at 3% in 2005, the modulation rate was increased to 5% in 2007. Following the “CAP Health check” it was decided to gradually raise the base rate as of 2009 to bring it up to 10% by 2012 and to establish a supplementary compulsory modulation of 4%, as of 2009, for large-scale farms receiving more than €300,000 per year. Member States may use the funds raised through this mechanism to meet the new challenges faced by the agricultural sector (see Section 3.3 below).

The outermost regions are exempt from compulsory modulation. Furthermore, modulation will only apply to the new Member States (EU-12) once direct payments to these countries reach the level of the direct payments applicable to the old Member States (EU-15), taking into account any reduction carried out under the compulsory modulation scheme.

The Council also adopted a voluntary modulation scheme in March 2007. This scheme, which results from the agreement at the European Council in December 2005 on the 2007-2013 financial perspectives, allows Member States who wish to do so to transfer up to 20% of direct aid to rural development programmes. It is only being implemented in the United Kingdom and Portugal.

2.1.7. Market support

Initiated by the 1992 reform and subsequently intensified by the 1999 and 2003 reforms, the decrease in market support continued in 2008 following the “CAP Health check”.

The compulsory lying fallow of 10% of arable land to limit production has been abolished.

As regards common wheat, purchases under public intervention buying-in schemes are now capped at 3 million tonnes per intervention period. Once this ceiling has been reached, the Commission may decide to continue intervention measures, in which case intervention will be by tender. For other cereals (durum wheat, barley, corn and sorghum) as well as for paddy rice, the possibility of purchases under public intervention buying-in schemes has only been retained as a safety net, with the ceiling set at zero. However, where the market situation justifies intervention, the Commission may decide to carry out intervention by tender. Rye has been excluded from the intervention system since 2003.

Following the “CAP Health check”, the possibility of purchasing pork meat under intervention buying-in schemes was abolished.

As far as the dairy industry is concerned, in the context of the 2003 reforms it was decided to gradually reduce the intervention price for butter (a 15% reduction as of 2006) and skimmed-milk powder (25% reduction as of 2007). The cap on intervention buying-in schemes was kept at 109,000 tonnes for skimmed-milk powder. It was gradually reduced for butter and set at 30,000 tonnes in 2008. Public purchases may continue beyond these limits by tender, at the Commission’s discretion. The “CAP Health heck” did not modify these provisions or the compulsory nature of private storage aid.

To partially offset the reduction in intervention prices in the dairy sector, the 2003 reforms established a dairy premium. As noted above, this has been incorporated into the single payment scheme since 2007.

As far as the milk quota system is concerned, the 2003 reforms kept the system in place until the 2014/2015 season and approved a 2% increase of the quotas as of April 2008. In order to ensure a smooth transition to the new situation without quotas (starting in April 2015), an agreement was reached, following the “CAP Health check”, to increase the quotas by 5% in 1% yearly steps from 2009 to 2013 and to adjust the fat correction factor – which, in the case of Belgium, means an additional 3.4% increase of the quotas. To ensure that these quota increases lead to a smooth and flexible transition in all Member States, farmers who exceed their quotas by more than 6% in the 2009-2010 and 2010-2011 seasons will have to pay an additional levy 50% higher than the normal levy.

2.2. The 2005-2007 reforms

2.2.1. The sugar sector (2005)

On 24 November 2005, the Council reached a political agreement by qualified majority to undertake an in-depth reform of the EU’s sugar sector. This reform was vital to ensure an even sugar supply balance in the EU, taking into account the concessions made to the least developed countries (LDCs) benefiting from the "Everything but Arms" initiative, the commitments being negotiated at the WTO (Doha Round) and the WTO's verdict – confirmed in April 2005 – on sugar exports (condemnation for exceeding the authorised limits on refunds and cross-subsidising C sugar).

This reform provided for the abolition, on a voluntary basis, of 6 million tonnes of quota over a four-year period from 2006/2007 to 2009/2010.

The new scheme, including the prolongation of the quota system, came into force in July 2006 and will apply until 2014/2015.

The reform profoundly modified the common market organisation in the sugar sector and introduced new measures in support of producers. The key element of the reform consisted in setting up a temporary restructuring scheme for the sugar sector in order to encourage the less competitive enterprises to discontinue or reduce their business activities.

As regards market support, the intervention system will be maintained for a period of four years, albeit with a gradual reduction in the guaranteed price of sugar, which will lead to a final reduction of 36% from 2009/2010. The minimum price of sugar beet will fall simultaneously. Beyond this period, only an (optional) private storage aid scheme will be kept in place as a safety net. The reform also involved merging the A and B quotas into a single production quota, from which sugar for the chemical and pharmaceutical industries and for the production of bio-ethanol is excluded.

Following the reduction in market support, an aid payment to farmers was introduced. This aid – decoupled from production and integrated into the single farm payment – is equal to 64.2% of farmers’ loss in income. In Member States that choose to give up at least 50% of their quotas, additional aid coupled to production is granted to beet growers who continue production. This aid, which equals up to 30% of lost income, can be granted for a maximum of five consecutive years. Furthermore, during the same period, the Member States concerned may grant limited national aid to beet growers.

The restructuring scheme, which lasts four years (2006/2007 to 2009/2010) for EU sugar factories and isoglucose and inulin syrup producers, consists of a payment to encourage factory closure and the renunciation of production quotas in the least competitive regions, as well as of aid for sub-contracted machinery manufacturers and companies. To this end, a temporary restructuring fund has been set up, financed by a levy on holders of sweetener quotas during the first three years of the reform. The aid to companies is degressive in time in order to encourage them not to delay the decision to renounce the quotas. It is higher in the case of a complete dismantling of the production facilities than in the case of a partial dismantling; and it is reduced in the case of a partial renunciation of the quotas without dismantling the facilities.

Initially, the reform did not achieve the expected results, given that by mid-2007 only 2.2 million tonnes of quotas had been renounced. The restructuring scheme was therefore modified in October 2007 to make it more attractive for manufacturers and producers. By March 2009, the quotas renounced added up to 5.8 million tonnes, a figure close to the target set for the 2009/2010 season.

Following the reform, the EU’s sugar production is currently concentrated in 18 Member States rather than 23, and the EU has moved from being the second-largest exporter to being the second-largest importer of sugar in the world.

2.2.2. The banana sector (2006)

The internal aspect of the common organisation of the markets for the banana sector was discussed by the Council in November 2006 and adopted without debate in December 2006. This reform replaces the compensatory aid scheme for banana producers with support that is better adapted to the specific situation in each of the production regions and which complies better with the basic principles of the reformed CAP. It also allows spending in the sector to be estimated and stabilised, unlike the previous regulations.

A budget of €280 million per year, based on the average amount of aid granted between 2000 and 2002, will be transferred to the POSEI programmes that have been specially developed for the outermost regions (Canary Islands, Guadeloupe, Martinique, Madeira and the Azores). In the mainland regions (Portugal, Greece and Cyprus), sectoral aid will be integrated into the single payment scheme. This reform took effect on 1 January 2007.

2.2.3. The fruit and vegetables sector (2007)

On 12 June 2007, the Council reached a unanimous agreement on a reform of the common market organisation in the fresh and processed fruit and vegetables sector. It took effect on 1 January 2008.

A key aim of the reform is to strengthen producer organisations. In order to make the latter more attractive, the rules concerning their recognition and functioning were simplified and made more flexible. In addition, Community co-financing of their operational programmes will be increased from 50% to 60% in Member States where less than 20% of production is marketed by producers’ organisations.

Crisis prevention and management will take place primarily via producer organisations within the limit of 33% of their operational funds and will be 50% financed by the Community budget. Community aid will continue to be capped at 4.1% of the total value of the products marketed by the producer organisation although this limit may be extended to 4.6% on the condition that the additional amount is used for crisis management and prevention.

Crisis management and prevention tools include green harvesting, non-harvesting, promotion and communication in times of crisis, training, harvest insurance, help in securing bank loans and help with the administrative costs of setting up mutualised funds.

As with other crisis management tools, market withdrawals by producer organisations will be 50% co-financed. However, withdrawals for free distribution to schools, hospitals and charities, etc. will be 100% paid by the Community at a rate of 5% of the quantity of products marketed by the producers’ organisation.

In regions where the level of organisation is very low, Member States may grant state aid for three years to extend crisis management and prevention measures to independent producers who have entered into a contract with a producer organisation. However, this financial assistance must be no more than 75% of the aid paid to members of a producers’ organisation.

Land used to grow fruit, vegetables and table potatoes will be eligible for the single payment scheme, but Member States who wish to do so may defer activation of the entitlements relating to these crops for up to three years, i.e. until 31 December 2010.

Aid for processed products will be decoupled, although partial decoupling will remain permitted until the end of 2011 for tomatoes and until the end of 2012 for orchard fruits (prunes, peaches, pears, etc.). However, following the “CAP Health check”, the Member States concerned may decide to integrate these temporary payments into the single payment scheme as of 2010.

The reform introduced specific measures for the new Member States. In some of the latter, Direct Community aid of €230/ha is granted for a transitional period to producers of strawberries and raspberries for processing. Following the “CAP Health check”, this temporary aid will be integrated into the single payment scheme in 2012. In addition, these Member States will be allowed to pay a national supplement, provided that the total aid does not exceed €400/ha. Finally, new Member States that apply the single area payment scheme will be able to use their national envelope to make a separate payment to historical producers of fruit and vegetables.

Environmental protection has been increased by making the sector subject to aid conditionality, following its inclusion in the single payment scheme. At least 10% of operational programme expenditure will have to be devoted to environmental measures and a 60% co-financing rate will be introduced for organic production in each operational programme.

To encourage the consumption of fruit and vegetables, producer organisations will be able to include promotional actions in their operational programmes. If these actions are targeted at children in educational establishments, the Community co-financing rate will rise to 60%.

In addition, to tackle obesity in school-age children, on 19 November 2008 the Council reached a political agreement on the Community co-financing of school fruit and vegetable programmes, starting from the 2009/2010 academic year. Community aid is set at €90 million per academic year and limited to 50% of costs (75% in regions that fall under the convergence objective).

2.2.4. The wine sector (2007)

On 17 December 2007, the Council reached a qualified-majority agreement on the wine-sector reform.

Reform of the sector is urgently required given the now structural production surpluses within the EU. This situation is owing to the steady decline in wine consumption in the EU over recent decades and the far slower growth in Community exports since 1996 compared with the growth in wine imports from the “New World”.

The reform aims to balance out supply and demand, win back old markets and conquer new ones while taking care to preserve the best traditions of Community wine production, strengthen the social fabric of rural areas and protect the environment.

As regards management of the production potential, a new three-year grubbing-up scheme has been introduced from the 2008/2009 season for a three-year period, and the vine-planting ban will be maintained, with a few exceptions, until 31 December 2015. However, Member States may decide to maintain the ban until as late as 31 December 2018.

The premium paid to growers who voluntarily grub up all or part of their vineyards decreases over the three years of the scheme and may be supplemented by national aid not exceeding 75% of the premium already awarded. The Community envelope allocated to Member States for grubbing-up premiums is enough to withdraw 175,000 ha from production over three years.

To finance specific support measures for the wine sector, each Member State is allocated a national envelope whose value is linked to its historical share in the Community wine budget, its wine-growing area and its production history.

Measures eligible for financing from the national envelopes are those aimed at: supporting farmers' income under the single payment scheme (up to €350/ha for farmers taking part in the grubbing-up scheme, with the option of awarding aid to wine growers based on objective and non-discriminatory criteria), making the sector more competitive (promotion in third-country markets, vineyard restructuring/conversion, overall improvement in company performance), preventing and managing market crises (green harvesting, mutual funds) and managing climate and health risks (harvest insurance). Subsidies for the distillation of winemaking by-products are still permitted. In contrast, subsidies for potable alcohol distillation, crisis distillation in the event of a production surplus and the use of concentrated grape must to increase wine's alcoholic strength will no longer be allowed after 31 July 2012.

Some of the support previously awarded for market regulation measures will be transferred to the rural development fund for winegrowing regions. This measure mainly affects Spain, France and Italy.

As regards wine labelling, the biggest change is the option for table wines to carry indications of vintage and variety, both previously confined to local wines (vins de pays) and wines sold under a protected designation of origin.

Finally, in relation to wine-making practices, chaptalisation (adding sugar to the must) will still be permitted, except in southern European countries (Italy, Greece, Spain, Portugal and Cyprus) and some French departments, unless the French authorities decide to authorise it as an exceptional measure. However, the currently permitted levels for individual production regions will be lowered by 0.5% from 2009/2010, though with the Commission's agreement they may be raised by the same percentage to offset an exceptional lack of sunshine.

On this issue, Belgium particularly defended the right to use chaptalisation, which is a traditional practice in countries with low levels of sunshine and provides an important market for the sugar sector.

The reform took effect on 1 August 2008, except for the grubbing-up scheme (30 June 2008) and some provisions on labelling and wine-making practices in particular (1 August 2009).

3. Rural development

3.1. The June 2003 measures

The 2003 CAP reform introduced new measures to support rural development, coupled with a significant increase in Community aid as a result of funds made available by modulation. These measures, which came into force in 2005, meet society's expectations on food safety and quality, protection of the environment and animal welfare. They also provide farmers with new sources of income for their agri-environment activities and for the marketing of quality products.

Farmers involved in programmes designed to improve the quality of agricultural products and production processes may claim support. The programmes concerned relate mainly to organic products and those protected by geographical indications and designations of origin.

New support measures have been introduced to help farmers adapt to the introduction of Community standards not already included in their national legislation and which concern the environment, public health, animal and plant health, and animal welfare.

Additional subsidies for protecting the environment, maintaining natural areas and improving animal welfare are granted to farmers who pledge to meet standards higher than those laid down by law.

Finally, measures were taken to support young farmers. The maximum installation premium aid for young farmers was raised – subject to certain conditions – from €25,000 to €30,000 per farm and the rates of co-financing for investments aimed at modernising farms were also increased.

3.2. The new regulation for the 2007-2013 period

The new regulation on support for rural development was unanimously approved by the Council on 20 June 2005. It brings together the new and existing measures under three axes corresponding to the core policy objectives. It also includes a horizontal Leader axis, consisting of an integrated, territorially-based approach to rural development, centred on participation by the various rural players and covering all of the first three axes.

Axis I focuses on boosting the competitiveness of the agricultural and forestry sector by improving human potential, restructuring physical potential and enhancing the quality of production and products. Axis II, being management of the environment and the countryside, focuses on the sustainable use of agricultural land and forests. Axis III relates to diversification of the rural economy and improving the quality of life in rural areas.

To guarantee balanced inclusion of the rural development objectives, national programmes must include a minimum Community financial contribution for each axis: 10% of the total Community contribution for axes I and III, 25% for axis II and 5% for the horizontal Leader axis.

The new regulation applied the principle of aid conditionality – applicable to direct aid pursuant to the 2003 reform – also to certain rural development measures. The measures subject to conditionality are mainly those implemented under axis II.

The maximum installation premium aid for young farmers was raised to €55,000 per farm.

3.3. The modifications in 2008 and 2009

The political agreement of 20 November 2008 on the “CAP Health check” introduced further aid measures to meet the new challenges faced by the agricultural sector, including climate change, the development of renewable sources of energy, water management, the preservation of biodiversity, innovation relating to these first four challenges, and the restructuring of the dairy sector. These new measures will be co-financed through additional resources derived from the increase in modulation at a rate of 75% of eligible expenditure (90% in regions that fall under the convergence objective).

Furthermore, to help young farmers start their business, the maximum installation premium aid for young farmers was again reviewed and raised from €55,000 to €70,000 per farm.

The latest major modification of the regulation in support of rural development was introduced following the agreement of the European Council of March 2009 on the European Economic Recovery Plan. Adopted on 25 May 2009, this modification introduced the development of broadband infrastructures in rural areas.

4. The financing of the CAP

On 30 May 2005, the Council reached an agreement on a proposal for a regulation implementing a new framework for financing the CAP. Previously financed by the EAGGF (European Agricultural Guidance and Guarantee Fund), since 1 January 2007 the CAP has been financed by two new funds, i.e. the EAGF (European Agricultural Guarantee Fund) for market support expenditure and direct payments (first pillar) and the EAFRD (European Agricultural Fund for Rural Development) for rural development measures (second pillar). The new regulation considerably simplifies the current system and strengthens management and financial control.

The commitment appropriations for agriculture and rural development represent 40% of the EU’s overall budget for 2011. The breakdown of these appropriations, totalling 57.2 million euros, is as follows: 70% to direct aid (€39.8 billion), 5% to market support (€3.0 billion), and 25% to rural development (€14.4 billion).

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