The Basic Payment Scheme: In order to move away from the different systems of the Single Payments Scheme in the EU-15 (which allows for historical references, or a payment per hectare, or a "hybrid" combination of the two) and the Simplified Area Payments Scheme (SAPS) in most of the EU-12, a new “Basic Payment Scheme” will apply after 2013.

This will be subject to “cross compliance” (respecting certain environmental, animal welfare & other rules), as at present, although there are various simplifications to current requirement.

The aim is to reduce significantly the discrepancies between the levels of payments obtained after full implementation of the current legislation, between farmers, between regions (i.e. internally) and between Member States (i.e. externally).

All Member States will be obliged to move towards a uniform payment per hectare at national or regional level by the start of 2019. In line with the Commission proposals within the Multi-Annual Financial Framework, the national envelopes for direct payments will be adjusted so that those that receive less than 90 per cent of the EU average payment per hectare will receive more.

The gap between the amounts currently foreseen and 90 per cent of the EU-27 average is reduced by one third. For example, if a Member State currently receives an average amount per hectare which is 75 per cent of the EU average, ie 15 per cent below 90 per cent, then it will gradually increase to 80 per cent. The Commission is committed to discussing a longer-term objective of achieving "complete convergence" through the equal distribution of direct support across the European Union in the next Financial Perspectives after 2020.

Greening: In addition to the Basic Payment, each holding will receive a payment per hectare for respecting certain agricultural practices beneficial for the climate and the environment. Member States will use 30 per cent of the national envelope in order to pay for this. This is compulsory, but will not be subject to capping.

The three measures foreseen are:

• maintaining permanent pasture; and
• crop diversification (a farmer must cultivate at least three crops on his arable land none accounting for more than 70 per cent of the land, and the third at least five per cent of the arable area); and
• maintaining an “ecological focus area” of at least seven per cent of farmland (excluding permanent grassland) – i.e. field margins, hedges, trees, fallow land, landscape features, biotopes, buffer strips, afforested area.

NB: Organic producers have no additional requirements as they are shown to provide a clear ecological benefit.

Areas with natural constraints: Member States (or regions) may grant an additional payment for areas with natural constraints (as defined under Rural Development rules) – of up to five per cent of the national envelope. This is optional and does not affect the LFA options available under Rural Development.

NB In response to criticisms by the Court of Auditors, the definition of "Less Favoured Areas" has been adjusted to reflect objective criteria.

Young Farmers: The Basic Payment to new entrant Young Farmers (those under 40) should be topped up by an additional 25 per cent for the first five years of installation. This is limited to a maximum of the average farm size in that member state. For Member States where the farm size is small, the limit is 25 ha. This shall be funded by up to two per cent of the national envelope.

Small farmers: Any farmer claiming support in 2014 may decide by October 15, 2014 to participate in the Small Farmers Scheme and thereby receive an annual payment fixed by the Member State of between 500 € and 1,000 €, regardless of the farm’s size. (The figure will either be linked to the average payment per beneficiary, or the national average payment per hectare for three ha.)

This will be an enormous simplification for the farmers concerned and for the national administrations. Participants will face less stringent cross-compliance requirements, and be exempt from greening. (The impact assessment shows that approximately one third of farms applying for CAP funding have an area of three ha or less – but this accounts for just three per cent of the overall agricultural area in the EU-27.)

The total cost of the Small Farmers Scheme may not be more than 10 per cent of the national envelope, and the level of the payment will be adjusted accordingly if necessary. There will also be Rural Development funding for advice to small farmers for economic development and restructuring grants for regions with many such small farms.

"Coupled" option: In order to address the potentially adverse effects of redistributing direct payments on a national basis and take account of existing conditions, Member States will have the option of providing limited amounts of "coupled" payments, i.e. a payment linked to a specific product. This will be limited to five per cent of the national envelope if the Member State currently provides 0-5 per cent of coupled support, or up to 10 per cent if the current level of coupled support is higher than five per cent. The Commission may approve a higher rate if the Member States can show it is justified.

Transferring funds between Pillars: Member States will have the possibility of transferring up to 10 per cent of their national envelope for Direct Payments (1st Pillar) to their Rural Development envelope; and the Member States that get less than 90 per cent of the EU average for direct payments now may transfer up to five per cent of their Rural Development funds to their 1st Pillar national envelope.

Cross compliance: The award of all payments from the Direct Payment national envelope will continue to be linked to the respect of a number of baseline requirements relating to environment, animal welfare and plant & animal health standards. However, as an exercise in simplification, the number of Statutory Management Rules (SMRs) has been reduced from 18 to 13 and rules on Good Agricultural & Environmental Condition (GAEC) reduced from 15 to eight – for example, excluding elements that are not relevant to the farmer. It is also proposed that the Water Framework Directive & the Sustainable Use of Pesticides Directive will be incorporated into cross-compliance rules once they have been shown to have been properly applied in all Member States and obligations to farmers clearly identified.

"Capping": The amount of support that any individual farm can receive from the Basic Payment Scheme will be limited to €300,000 per year, and the payment will be reduced by 70 per cent for the part from €250,000-300,000; by 40 per cent for the part from €200,000-250,000, and by 20 per cent for the part from €150,000-200,000.

However, in order to take employment into account, the holding can deduct the costs of salaries in the previous year (including taxes & social security contributions) before these reductions are applied.

NB: The funds “saved” under this mechanism stay in the Member State concerned and are transferred to the Rural Development envelope, for use as innovation & investment by farmers, and European Innovation Partnership operational groups.

“Active farmers”: In order to iron out a number of legal loopholes, the Commission is tightening the definition of active farmers. Aimed at excluding payments to applicants who have no real or tangible agricultural activity the proposed definition states that payments would not be granted to applicants whose CAP direct payments are less than five per cent of total receipts from all non-agricultural activities, or if their agricultural areas are mainly areas naturally kept in a state suitable for grazing or cultivation and they do not carry out the minimum activity required, as defined by Member States.There is a derogation for farmers who receive less than 5 000 in direct payments the previous year.

Eligible hectares – The rules foresee setting 2014 as a new reference year for land area, but there will be a link to beneficiaries of the direct payments system in 2011 in order to avoid speculation.

October 2011