The database created by my Department, based on payments made to farmers in 2010, was established for the specific purpose of modelling the impacts of alternative approaches to internal convergence, rather than to deal with all of the Commission proposals on direct payments or to capture the effect of CAP budget cuts, changes in modulation and so on. Thus, it does not capture the effects of reductions proposed to payments arising from reductions in the overall CAP budget or the cessation of modulation. Neither does it capture the effects of other changes proposed to the Direct Payments Scheme e.g. to fund the national reserve, the payment to young farmers, the crisis fund and coupled payments. These proposed reductions are still the subject of negotiations and there is no certainty as to the final outcome.
While the European Council reached agreement on the new Multiannual Financial Framework for the EU budget in February last, this agreement has yet to be endorsed by the European Parliament. The agreement envisages a reduction in the Direct Payments budget of just over 3% together with a redistribution of payments between Member States or external convergence as it is known. Ireland is largely protected from the latter with an overall cut in direct payments of some 3.3%.
The Commission proposals envisage a number of other changes to the basic payment scheme that need to be taken into account to conduct meaningful modelling. These include proposed reductions to all payments to fund the national reserve and to provide top-up payments for young farmers. The percentages currently proposed are for maximum deductions of 3% and 2% respectively. However, the final deductions may be less – depending on the funding needs for these schemes.
There is also provision for a crisis fund – to be financed from cuts to direct payments – and refunded to farmers if not used to address a crisis in the market. There is an additional complication in regard to this fund in that there is a disagreement between the Commission, Council and European Parliament as to whether annual payments below €5,000 should be exempt from deductions to finance this. The Commission has proposed a franchise of €5,000. The European Parliament has proposed no franchise and the Council has suggested a limit of €2,000. This will have to be resolved before any meaningful modelling can be carried out on the impact.
Equally, there is disagreement between the three institutions on the level of coupling that should be allowed with the Commission arguing for a 5% limit in the case of Member States such as Ireland who have fully decoupled payments, the Council advocating a maximum level of 7% for these Member States and the European Parliament seeking a maximum of 15%. And of course, coupled payments are proposed as an option for Member States. I do not intend to take a decision whether to proceed with a deduction for coupled payments until the deal is finalised and the full outcome known.
Given the extent of variables, it would be premature, in my view, to attempt an exercise that would superimpose the impact of internal convergence and variable greening on the other factors playing out in these negotiations.