I welcome the opportunity to update the joint committee on the health check. I last addressed it on the topic in December 2007, at which stage only the Commission communication had been published. Since then the Council of Ministers agreed in March a set of conclusions on the Commission communication which set the framework for subsequent negotiations. The draft legislative proposals were published in May and have put flesh on many of the ideas contained in the communication. These have been the subject of detailed negotiation since at official and ministerial level. The French Presidency hopes to bring the negotiations to a political conclusion at the Council of Ministers meeting next week.
The CAP health check arises from review clauses built into the 2003 CAP reform package on milk quotas and the implementation of the single payment scheme. In legal terms, it is a review of three legislative measures on the single payment scheme, the rural development policy and the single Common Market Organisation. The Council conclusions of last March underlined that the health check was intended to address three main questions: first, the effectiveness, efficiency and simplification of the single payment scheme; second, the role of market support instruments in improving market orientation; third, responding to new and ongoing challenges of risk management, climate change, bio-fuels, water management and biodiversity.
The health check proposals are a large and complex set of detailed measures and it would not be possible to go through all of them today. However, it might be helpful if I briefly touched on some of the main issues that are the focus of debate, at least in this country. The first is milk quotas. The current milk quota regime will expire on 31 March 2015. The Commission has stated on numerous occasions that it will not bring forward a proposal to continue the regime beyond that date and that, in any case, there would not be a qualified majority in Council for such an extension. The milk elements of the health check proposals are, therefore, structured with this in mind.
To provide for a smooth transition towards quota expiry in 2015, often referred to as a "soft landing", a 1% per year increase in quota for five years, commencing in 2009-10, is proposed. It is also proposed that the Commission will report to the Council and the European Parliament in 2011 on the necessity for other measures to ensure a "soft landing" and, if appropriate, will bring forward proposals. As to market management measures, it is proposed to abolish aid for private storage, APS, for cheese, disposal aid for butter for the pastry-ice cream industries and aid for butter for direct consumption. It is also proposed that APS for butter, aid for skimmed milk powder, SMP, for feeding stuffs and casein production aid will be made "optional" at the discretion of the Commission and that a tendering system for intervention for butter and SMP will replace the current regime.
Ireland's position is predicated on the understanding that milk quotas will end in March 2015. We agree with the need to ensure a "soft landing". The alternative of a sudden change in 2015 with no preparation would clearly be very disruptive to markets and damaging to dairy farmers. Ireland believes the overall proposal to increase quotas by 1% per annum is rather conservative. The Commission's own impact assessment suggests a somewhat larger increase would lead to a smoother phasing out of quotas. At a recent meeting with the Commission and the French Presidency the Minister stressed the need for a genuine "soft landing" when milk quotas come to an end, accompanied by a predictable set of steps that would allow farmers and industry to plan for the future. He emphasised the need for progressive quota increases and sought that additional quota allocations for Ireland be front-loaded, given our capacity to increase production. One possible avenue identified to achieve this was through a change to the butterfat adjustment. While there is support from some other countries for Ireland's position, there are other member states that have a very different view, particularly those that do not have the same potential for additional production. If necessary to get agreement, Ireland is open to a differentiated approach for member states.
In the negotiations we have also strongly defended the view that quota increases must be matched by effective dairy market management measures. The transition to a post-quota EU dairy market, with current market fluctuations, makes this particularly important. We have, therefore, called for the continuation of such measures and are particularly concerned to keep effective measures for the support of the butter market. These measures are used by Irish producers and are particularly important for us. The Minister has recently called on the Commission to use the dairy market management tools in the light of the current weakness in dairy product prices.
I now turn to modulation, the process under which a proportion of each farmer's single farm payment is transferred to rural development in pillar 2 of the CAP. The current rate of compulsory modulation is 5%. For payments in excess of €5,000, additional compulsory modulation at a rate of 2% per year is proposed from 2009 to 2012. This would bring the modulation rate to 13% by 2012. A further 3% modulation is proposed on payments in excess of €100,000; an additional 6% on payments over €200,000 and an additional 9% on payments above €300,000. This is referred to as progressive modulation. The moneys resulting from increased modulation, with the required national co-funding, must be used on rural development schemes which address the so-called "new challenges" of climate change, bio-energy, water management and biodiversity.
Ireland has opposed the proposed modulation increases on the grounds that they run counter to the expectations of farmers who accepted decoupling just three years ago and are still in the process of adapting to that fundamental change. In Ireland, the cumulative amount raised from the single payment scheme through this proposal over the four years to 2012 would be €172 million approximately. These funds would remain in Ireland and could be used for farmer payments under the rural development programme. In excess of 55,000 Irish farmers would be exempt from any modulation deduction.
With regard to simplification, the Minister has said on numerous occasions that simplification should be a key focus of the health check. We have made a number of suggestions in this regard which we have brought to the attention of the Commission and the Council. We are interested in delivering real and measurable simplification for farmers and administrations alike. A large number of other member states are of similar mind and many proposals have been made in the course of the negotiations. It is clear that some progress will be made on this in the health check, even though most of the changes are technical. However, it is also clear that there is an impetus for the simplification process to continue after any agreement on this package, given the large number of proposals made and the number of member states pushing for change in this area.
One area of simplification receiving attention from the Commission is the proposal that all remaining coupled schemes, with the exception of suckler cow and sheep and goat premia, be decoupled. Certain other member states are seeking retention of coupled schemes either on a permanent basis or for a further period. As we are fully decoupled, Ireland would tend to support movement towards further decoupling. However, we would not have a difficulty in allowing member states some freedom to continue coupled schemes to support certain vulnerable areas or sectors, provided this would not distort competition.
It is also proposed to allow member states the option of moving to a flatter rate payment per hectare. The Commission's thinking is that, with the passage of time, the historic model, that is, payments based on actual aid receipts by each farmer in the reference period 2000-02, will become less relevant and defensible. New member states have used the discussions on flatter rates to press for rebalancing of payment allocations between old and new member states. Ireland operates fully decoupled arrangements under the historic model. The Minister has made it clear that he has no plans to alter our system of single payments. We welcome the optional nature of this proposal and would object to any movement towards a mandatory change at this time. It is clear that this option will be included in the final agreement and used by a number of member states that currently operate the historic payments model.
Article 68 is the provision whereby up to 10% of single payment funds may be targeted at specific measures. It is proposed to broaden the scope of this existing provision by removing some restrictions and providing an enlarged menu of options for the use of these funds. In addition, it is proposed to allow use of the national reserve for such measures.
Ireland is open to having greater flexibility in the article as an option for member states. We see it as a potential means to support regions or sectors facing particular challenges due to decoupling and competitive markets. In this regard, the Minister for Agriculture, Fisheries and Food, Deputy Brendan Smith, has sought an increase in EU funding under the article. Many countries, including Ireland, are unable to fully utilise the funding allocated for the single farm payment scheme because of the complex and restrictive rules governing it. The Minister, therefore, is seeking greater national discretion in the use of these funds. If agreed, this would release the unspent funds and provide additional moneys for necessary measures to assist farmers the under article. A number of other member states support this proposal. The Commissioner has responded somewhat cautiously but agreed to consider the idea when the Minister raised it at their most recent meeting.
Under the proposed Article 68, member states would be allowed to support crop and livestock insurance or mutual funds for animal and plant diseases. There is considerable support among some member states for greater use of such risk management measures. As the proposals are optional, we have no difficulty with them.
A payment of €250, or an area of 1 hectare, was originally proposed as the minimum requirement for receiving the single farm payment under the proposals. The figure of €250 has since been revised downwards at the most recent meeting to €100 following pressure from many member states, including Ireland. The existing provision of 0.3 hectares is discretionary and we would prefer if the provision remained optional. The €100 threshold would affect approximately 850 payees but they would have a number of options such as acquiring more land or selling their entitlements to avoid the cut. If the entitlements were to remain unused for two consecutive years, they would be added to the national reserve.
Aside from the changes in market management measures proposed in the dairy sector, to which I have referred, it is also proposed to introduce tendering systems for intervention for bread wheat, quantitative ceilings — at zero — for intervention for feed grains and abolish intervention for durum wheat, rice and pigmeat. In principle, Ireland has always supported the concept of market management measures which play a useful role as a safety net at a time of change. However, apart from the dairy sector, we have made limited use of such measures in recent years.
This is not a comprehensive outline of the proposals but I have covered some of the key points and would be happy to cover others if the committee so wishes.
