EN Official Journal of the European Union L 30/16

COUNCIL REGULATION (EC) No 73/2009

of 19 January 2009

establishing common rules for direct support schemes for farmers under the common agricultural policy and establishing certain support schemes for farmers, amending Regulations (EC) No 1290/2005, (EC) No 247/2006, (EC) No 378/2007 and repealing Regulation (EC) No 1782/2003

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Articles 36 and 37 and Article 299(2) thereof,

Having regard to the 1979 Act of Accession, and in particular paragraph 6 of Protocol No 4 on cotton attached thereto,

Having regard to the proposal from the Commission,

Having regard to the Opinion of the European Parliament (1),

After consulting the European Economic and Social Committee (2),

After consulting the Committee of the Regions (3),

Whereas:

(1) The reforms of the Common Agricultural Policy (CAP) agreed in 2003 and 2004 included provisions to gauge their effectiveness. In this context the Commission presented a Communication to the European Parliament and the Council entitled ‘Preparing for the’ Health Check ‘of the CAP reform’ on 20 November 2007. That Communication and the subsequent discussions of its main elements by the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, as well as numerous contributions arising from public consultation should be taken into account.

(2) Experience drawn from the implementation of Council Regulation (EC) No 1782/2003 of 29 September 2003 establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes (4) in particular shows that certain elements of the support mechanism need to be adjusted. In particular, the decoupling of direct support should be extended and the functioning of the single payment scheme should be simplified. Furthermore, Regulation (EC) No 1782/2003 has been substantially amended on several occasions. In the light of these developments and in the interest of clarity, it should be repealed and replaced by this Regulation.

(3) Regulation (EC) No 1782/2003 established the principle that farmers who do not comply with certain requirements in the areas of public, animal and plant health, environment and animal welfare are subject to reductions of or exclusion from direct support. This ‘cross compliance’ system forms an integral part of Community support under direct payments and should therefore be maintained. However, experience has shown that a number of the requirements within the scope of cross compliance are not sufficiently relevant to farming activity or farm land or concern national authorities rather than farmers. It is therefore appropriate to adjust the scope of cross compliance.

(4) Furthermore, in order to avoid agricultural land being abandoned and to ensure that it is maintained in good agricultural and environmental condition, Regulation (EC) No 1782/2003 established a Community framework within which Member States adopt standards taking account of the specific characteristics of the areas concerned, including soil and climatic conditions and existing farming systems, land use, crop rotation, farming practices and farm structures. This framework should be maintained. Experience has shown nevertheless that the relevance and beneficial effects of certain standards are not sufficient to justify their implementation by all Member States. Such standards should therefore become optional for Member States. However, to ensure that the framework is as consistent as possible, a standard should not be optional where before 2009 the Member State concerned already defined a minimum requirement on the basis of such a standard or where national rules which address such a standard are in place.

(5) The abolition, in accordance with this Regulation, of compulsory set aside within the single payment scheme could in certain cases have adverse effects on the environment, in particular as regards certain landscape features. It is therefore appropriate to reinforce the Community provisions aimed at protecting specified landscape features. In specific situations it should also be possible for a Member State to provide for the establishment and/or retention of habitats.

(6) Protection and management of water in the context of agricultural activity has increasingly become a problem in certain areas. The Community framework for good agricultural and environmental condition should therefore also be reinforced with the aim of protecting water against pollution and run-off and of managing the use of water.

(7) Regulation (EC) No 1782/2003 recognised the positive environmental effect of permanent pasture. The measures in that Regulation aimed at encouraging the maintenance of existing permanent pasture to ensure against mass conversion to arable land should be maintained.

(8) In order to achieve a better balance between policy tools designed to promote sustainable agriculture and those designed to promote rural development, a system of compulsory progressive reduction of direct payments (‘modulation’) was introduced by Regulation (EC) No 1782/2003. That system should be maintained and should include the exemption of direct payments of up to EUR 5 000.

(9) The savings made through modulation are used to finance measures under the rural development policy. Since Regulation (EC) No 1782/2003 was adopted, the agricultural sector has been faced with a number of new and demanding challenges such as climate change and the increasing importance of bio-energy, as well as the need for better water management and more effective protection of biodiversity. The Community, as party to the Kyoto Protocol (5), has been called upon to adapt its policies in the light of climate change considerations. Furthermore, following serious problems relating to water scarcity and droughts, the Council, in its Conclusions ‘Water Scarcity and Drought’ of 30 October 2007, considered that water management issues in agriculture should be further addressed. Furthermore, the Council emphasised, in its Conclusions ‘Halting the Loss of Biodiversity’ of 18 December 2006, that protecting biodiversity remains a major challenge and while important progress has been made, the attainment of the Community's biodiversity target for 2010 will require additional efforts. Moreover, since innovation can, in particular, contribute to the development of new technologies, products and processes, it will underpin the efforts to tackle these new challenges. The expiry of the milk quota regime in 2015 in accordance with Council Regulation (EC) No 1234/2007 of 22 October 2007 establishing a common organisation of agricultural markets and on specific provisions for certain agricultural products (6) will require specific efforts on the part of dairy farmers to adapt to changing conditions, particularly in disadvantaged regions. It is therefore appropriate that this particular situation should also be defined as a new challenge which Member States should be able to address with a view to ensuring a ‘soft-landing’ of their dairy sectors.

(10) The Community acknowledges the need to tackle these new challenges in the framework of its policies. In the area of agriculture, rural development programmes adopted under Council Regulation (EC) No 1698/2005 of 20 September 2005 on support for rural development by the European Agricultural Fund for Rural Development (EAFRD) (7) are an appropriate tool for dealing with them. To enable Member States to revise their rural development programmes accordingly without being required to reduce their current rural development activities in other areas, additional funding needs to be made available. However, the financial perspective for the period 2007 to 2013 does not provide for the financial means to reinforce the Community's rural development policy as necessary. Under these circumstances, a large part of the financial resources needed should be mobilised by providing for a gradual increase in the reduction of direct payments through modulation.

(11) The distribution of direct income support among farmers is characterised by the allocation of a large quantity of payments to a rather small number of large beneficiaries. It is clear that larger beneficiaries do not require the same level of unitary support for the objective of income support to be efficiently attained. Moreover, the potential to adapt makes it easier for larger beneficiaries to operate with lower levels of unitary support. It is therefore fair to expect farmers with large amounts of support to make a special contribution to the financing of rural development measures addressing new challenges. Therefore, it is appropriate to establish a mechanism providing for an increased reduction in the larger payments, the proceeds of which are to be used to address the new challenges in the framework of rural development.

(12) The particular geographical situation of the outermost regions as well as their insularity, small size, mountainous terrain and climate impose additional burdens on their agricultural sectors. In order to mitigate such burdens and constraints, a derogation from the obligation to apply the modulation reduction to farmers in the outermost regions should be provided for.

(13) The increased rates of compulsory modulation need to be taken into account by those Member States that opted to apply a system of voluntary modulation. Council Regulation (EC) No 378/2007 of 27 March 2007 laying down rules for voluntary modulation of direct payments provided for in Regulation (EC) No 1782/2003 establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers (8) should be therefore amended accordingly.

(14) The amounts resulting from the application of 5 percentage points corresponding to the modulation reductions determined in Regulation (EC) No 1782/2003 should be allocated amongst Member States according to the same criteria established under that Regulation, that is in accordance with objective criteria, while establishing that a certain percentage of the amounts is to remain in the Member States where they were generated. In view of the structural adjustments resulting from the abolition of rye intervention, the specific measures for certain rye production regions to be financed with part of the amounts generated by modulation should be maintained. Moreover, the amounts raised by applying any further modulation reduction should be made available to the Member States in which they were generated.

(15) In order to facilitate the functioning of modulation, notably with regard to the procedures for granting direct payments to farmers, and the transfers to the rural development programmes, net ceilings should be determined for each Member State to limit the payments to be made to farmers following the application of modulation. To take into account the specificities of CAP support in the outermost regions and the fact that direct payments are not subject to modulation, the net ceiling for the Member States concerned should not include the direct payments in these regions. Council Regulation (EC) No 1290/2005 of 21 June 2005 on the financing of the common agricultural policy (9) should therefore be amended accordingly.

(16) Farmers in the new Member States which acceded to the European Union on or after 1 May 2004 receive direct payments following a phasing-in mechanism provided for in the respective Acts of Accession. In order to achieve a proper balance between policy tools designed to promote sustainable agriculture and those designed to promote rural development, the system of modulation should not be applied to farmers in the new Member States until the level of direct payments applicable in those Member States is equal to the level applicable in the Member States other than the new Member States.

(17) Modulation should not reduce the net amount paid to a farmer in a new Member State below the amount to be paid to an equivalent farmer in the Member States other than the new Member States. Therefore, once modulation becomes applicable to farmers in the new Member States, the rate of reduction should be limited to the difference between the level under the phasing-in schedule and the level in the Member States other than the new Member States following the application of modulation. Moreover, modulation should be taken into account in the granting of complementary national direct payments to farmers in new Member States who are subject to modulation.

(18) With a view to ensuring that the amounts for the financing of the CAP comply with the annual ceilings set in the financial perspective, the financial mechanism in Regulation (EC) No 1782/2003 whereby the level of direct support is adjusted when the forecasts indicate that the subceiling of heading 2, with a safety margin of EUR 300 000 000, is exceeded in a given financial year should be maintained. Taking into account the levels of direct payments for farmers in the new Member States as a result of phasing-in, and in the framework of the application of the phasing-in mechanism to all direct payments granted in the new Member States, this instrument of financial discipline should not apply in those Member States until the level of direct payments applicable in those Member States is at least equal to the level applicable in the Member States other than the new Member States. In view of the particular weight in the general budget of the European Communities of the resource referred to in Article 2(1)(c) of Council Decision 2007/436/EC, Euratom of 7 June 2007 on the system of the European Communities' own resources (10), it is appropriate to provide, exceptionally, for the Council to adopt the necessary decision to apply the instrument of financial discipline on a proposal from the Commission.

(19) In order to help farmers to meet the standards of modern, high-quality agriculture, it is necessary that Member States continue to operate the comprehensive system offering advice to farms provided for in Regulation (EC) No 1782/2003. The farm advisory system should help farmers to become more aware of material flows and on-farm processes relating to the environment, food safety, animal health and welfare without in any way affecting their obligation and responsibility to comply with those standards.

(20) Regulation (EC) No 1290/2005 provides that Member States have to take the measures necessary to satisfy themselves that transactions financed by the European Agricultural Guarantee Fund (EAGF) are actually carried out and are executed correctly, and to prevent and deal with irregularities. To this end, they should operate an integrated administration and control system for direct payments. In order to improve the effectiveness and control of Community support, Member States should be authorised to make use of the integrated system also in the case of Community schemes not covered by this Regulation.

(21) The main elements of the integrated administration and control system and, in particular, the provisions concerning a computerised database, an identification system for agricultural parcels, aid applications from farmers, a harmonised control system and, within the single payment scheme, a system for the identification and recording of payment entitlements should be maintained.

(22) Managing small amounts is a burdensome task for the competent authorities of the Member States. To avoid an excessive administrative burden, Member States should in general refrain from granting direct payments where the payment would be lower than EUR 100 or the eligible area of the holding for which support is claimed would be less than one hectare. However, as the structures of the Member States' agricultural economies vary considerably and may differ significantly from the average Community farm structure, special provision should be made to allow Member States to apply minimum thresholds that reflect their particular situation. Due to the very specific farming structure in the outermost regions and the Aegean Islands, these regions should not be subject to the application of any minimum threshold. Moreover, Member States should have discretion to opt for the implementation of one of the two types of minimum threshold taking account of the particularities of the structures of their farming sectors. As special payment entitlements were allocated to farmers with so-called ‘landless’ holdings, the application of the hectare-based threshold would be ineffective. The average support-related minimum amount should therefore apply to such farmers. To ensure equal treatment of farmers whose direct payments are subject to phasing-in, the minimum threshold should be based on the final amounts to be granted at the end of the phasing-in process.

(23) Experience of the application of the single payment scheme shows that decoupled income support was in a number of cases granted to beneficiaries whose agricultural activities formed only an insignificant part of their overall economic activities or whose business purpose was not or only marginally targeted at performing an agricultural activity. To prevent agricultural income support from being allocated to such beneficiaries and to ensure that Community support is entirely used to ensure a fair standard of living for the agricultural community, Member States should be empowered, where such allocation occurs, to refrain from granting such natural and legal persons direct payments under this Regulation.

(24) Payments provided for under Community support schemes should be made by the competent national authorities to beneficiaries in full, subject to any reductions provided for in this Regulation, and within prescribed periods. In order to render the management of direct payments more flexible, Member States should be allowed to pay direct payments in up to two instalments per year.

(25) The support schemes under the CAP provide for direct income support, in particular with a view to ensuring a fair standard of living for the agricultural community. That objective is closely related to the maintenance of rural areas. In order to avoid any misallocation of Community funds, no support payments should be made to farmers who have artificially created the conditions required to obtain such payments.

(26) In order to achieve the objectives of the CAP, common support schemes have to be adapted to changing developments, if necessary within short time-limits. Beneficiaries cannot, therefore, rely on support conditions remaining unchanged and should be prepared for a possible review of schemes, in particular in the light of economic developments or the budgetary situation.

(27) Regulation (EC) No 1782/2003 established a single payment scheme that combined the existing various support mechanisms into a single scheme of decoupled direct payments. Experience of the application of the single payment scheme shows that some of its elements can be simplified for the benefit of farmers and administrations. Furthermore, given that the single payment scheme has in the meantime been implemented by all Member States that were required to do so, a number of provisions that were linked to its initial implementation have become obsolete and should therefore be adjusted. In this context, a significant under use of payment entitlements has been detected in some cases. To avoid such a situation and taking into account the fact that farmers are already familiar with the functioning of the single payment scheme, the period initially fixed for returning unused payment entitlements to the national reserve should be reduced to two years.

(28) The main elements of the single payment scheme should be maintained. In particular, the determination of national ceilings should ensure that the total level of support and entitlements does not exceed current budgetary constraints. Member States should also operate a national reserve that may be used to facilitate the participation of new farmers in the scheme or to take account of specific needs in certain regions. Rules on the transfer and use of payment entitlements should be laid down to prevent speculative transfer and accumulation of payment entitlements without a corresponding agricultural basis.

(29) The progressive integration of further sectors into the single payment scheme makes it necessary to review the definition of the land eligible to benefit from the scheme or for the activation of payment entitlements. However, provision should be made for excluding support for areas cultivated with fruit and vegetables in cases where Member States have opted for deferred integration of this sector into the single payment scheme. Besides, specific measures should be laid down for hemp to prevent support being granted for illegal crops.

(30) Compulsory set aside of arable land was introduced as a supply control mechanism. Market developments in the arable crops sector together with the introduction of decoupled aids no longer justify the need for maintaining this instrument, which therefore should be abolished. Set-aside entitlements established in accordance with Regulation (EC) No 1782/2003 should therefore be activated as regards hectares subject to the same eligibility conditions as any other entitlement. The abolition of the set-aside obligation may lead to the result that land that was eligible for the purpose of activating set-aside entitlements is no longer eligible. In order to maintain the eligibility of such land, it should be provided that certain afforested areas, including those afforested under national schemes complying with the relevant rules in Regulation (EC) No 1698/2005, or areas subject to certain environmental commitments are eligible under the single payment scheme.

(31) Further to the integration of formerly coupled market support into the single payment scheme, the value of payment entitlements was, in those Member States opting for historic implementation, based on the individual level of past support. With the time elapsing since the introduction of the single payment scheme and following the successive integration of further sectors into that scheme, it is becoming increasingly hard to justify the legitimacy of significant individual differences in the support level which are based only on past support. For this reason, Member States that chose the historic implementation model should be allowed under certain conditions to review the allocated payment entitlements with a view to approximating their unit value while complying with the general principles of Community law and the objectives of the CAP. In this context, Member States may take into account the specificities of geographical areas when fixing closer values. The levelling of payment entitlements should take place during an adequate transition period and within a limited range of reductions in order to allow farmers reasonably to adapt to the changing levels of support.

(32) Under Regulation (EC) No 1782/2003, Member States had the option to apply the single payment scheme by way of historic or regional implementation. Since then, Member States have had the opportunity to evaluate the effects of their choice as regards both their economic and administrative appropriateness. Member States should therefore be given the opportunity to review their initial choice in the light of their experience. For this reason, in addition to the possibility of levelling the value of payment entitlements, Member States that applied the historic model should be authorised to change over to a regionalised application of the single payment scheme in accordance with the options already provided for in Regulation (EC) No 1782/2003. In particular, Member States should be allowed to adjust the territorial distribution of direct support by effecting a gradual redistribution between regions. This option would give Member States increased flexibility to target direct support in the most appropriate way on the basis of the objectives laid down in Article 33 of the Treaty and on the basis of objective and non-discriminatory criteria such as agricultural potential and environmental criteria. Furthermore, Member States that chose to apply the regional model should be given the option to review their decisions under certain conditions with the aim of approximating the value of payment entitlements according to pre-established annual steps, while complying with the general principles of Community law and the objectives of the CAP. Such changes should take place during an adequate transition period and within a limited range of reductions in order to allow farmers reasonably to adapt to the changing levels of support.

(33) Regulation (EC) No 1782/2003, while introducing a decoupled single payment scheme, allowed Member States to exclude in whole or in part certain payments from that scheme. That Regulation also provided for the review and possible revision of this option in the light of market and structural developments. An analysis of relevant experience shows that decoupling introduces flexibility in the choice of products to be farmed, enabling farmers to take their production decisions on the basis of profitability and market response. This is particularly the case for the arable crops and hops sectors, and to a certain extent, the beef and veal and seeds sectors. Therefore, the partially coupled payments in the arable crops and hops sectors should be integrated into the single payment scheme from 2010. In the case of hops, Regulation (EC) No 1782/2003 allowed Member States to grant part of the hops area payments to recognised producer organisations. In order to allow the producer organisations to continue their activities as before, Regulation (EC) No 1234/2007, as amended by Regulation (EC) No 72/2009 of 19 January 2009 on modifications to the Common Agricultural Policy (11), provides for equivalent amounts to be used in the Member State concerned for the same activities. Such amounts should therefore be deducted from the national ceilings provided for in this Regulation for that Member State. In order for farmers in the beef and veal and seeds sectors to adjust to the new support arrangements, provision should be made for the integration of the beef and veal payments and the seed aid to be carried out by 2012 at the latest. Since partially coupled payments in the fruit and vegetable sectors were only recently introduced, and only as a transitional measure, the exclusion of such payments from the single payment scheme should be allowed to continue, whilst Member States should be allowed to review their decisions with a view to increasing the degree of decoupling.

(34) However, as regards the suckler cow and sheepmeat and goatmeat sector, maintaining a minimum level of agricultural production may still be necessary for the agricultural economies in certain regions and, in particular, where farmers cannot have recourse to other economic alternatives. Against this background, Member States should have the option to maintain coupled support either at the current level or at a lower level. In that case, special provision should be made for compliance with the identification and registration requirements provided for by Regulation (EC) No 1760/2000 of the European Parliament and of the Council of 17 July 2000 establishing a system for the identification and registration of bovine animals and regarding the labelling of beef and beef products (12) and Council Regulation (EC) No 21/2004 of 17 December 2003 establishing a system for the identification and registration of ovine and caprine animals (13), in particular with a view to ensuring the traceability of animals.

(35) Member States should be allowed to use up to 10 % of their national ceilings for the single payment scheme for granting specific support in clearly defined cases. Such support should allow Member States to address environmental and animal welfare issues and improve the quality and marketing of agricultural products. Specific support should also be available to buffer the consequences of the phasing-out of milk quotas and the decoupling of support in particularly sensitive sectors. Given the growing importance of the effective management of risks, Member States should be given the option to contribute financially to the premiums farmers pay for crop, animal and plant insurance as well as to the financing of compensation for certain economic losses in the event of animal or plant diseases and environmental incidents. With a view to respecting the Community's international obligations, the resources that could be used for any coupled support should be limited to an appropriate level while allowing for transitional measures for Member States facing particular difficulties. The conditions applicable to the financial contributions for crop, animal and plant insurance premiums and compensation in relation to animal and plant diseases and environmental incidents should be established accordingly. Moreover, Member States which have made use of Article 69 of Regulation (EC) No 1782/2003 should be given a sufficient transitional period in order to allow for a smooth transition to the new rules for specific support.

(36) Experience has shown that currently Member States do not use the entire amount of the funds available under the national ceilings for the single payment scheme, in particular where the payment entitlements have not been activated. In order to facilitate the more efficient use of the funds, Member States should be allowed to grant support above their national ceilings up to an amount the level of which ensures that it remains within the margins of the under-execution of the national ceiling. Such amount should be calculated on the basis of the budget under-execution for the most recent year available and should not put into question the respect of the total net ceiling for direct payments per Member State. For this reason and to ensure that farmers do not face unforeseen reductions of payments, the calculation should be carried out within certain safety margins. These amounts should either be used for the funding of specific support or transferred to the EAFRD.

(37) Direct payments under the single payment scheme were based on reference amounts of direct payments that were received in the past or on regionalised per hectare amounts. Farmers in the new Member States did not receive Community direct payments and had no historical references for the calendar years 2000, 2001 and 2002. Therefore, provision was made under Regulation (EC) No 1782/2003 for the single payment scheme in the new Member States to be based on regionalised per hectare amounts. Several years after the accession of the new Member States to the Community, however, the use of reference periods could be considered for those new Member States that have not yet moved to the single payment scheme. With a view to facilitating the transition to the single payment scheme and, in particular, to preventing speculative applications, the new Member States should be authorised to take account, for the purpose of the calculation of the payment entitlements under the single payment scheme, of the areas for which, historically, support under the single area payment scheme was granted.

(38) Under the regionalised option for the single payment scheme, the new Member States should have the possibility to adjust the value of the payment entitlements per hectare on the basis of objective criteria in order to ensure equal treatment between farmers and to avoid market distortions.

(39) The new Member States should have the same possibilities as the other Member States to partially implement the single payment scheme.

(40) The decoupling of direct support and the introduction of the single payment scheme were essential elements in the process of reforming the CAP. However, in 2003, several reasons called for specific support to be maintained for a number of crops. Experience gained through the application of Regulation (EC) No 1782/2003 together with the evolution of the market situation indicates that schemes that were kept outside the single payment scheme in 2003 can now be integrated into that scheme to promote more market-oriented and sustainable agriculture. This is the case, in particular, with the olive oil sector, where only marginal coupling was applied, as well as with durum wheat, protein crops, rice, potato starch, and nuts payments, where the decreasing effectiveness of remaining coupled payment supports the decoupling option. In the case of flax and hemp, dried fodder and potato starch, the support for processing should be decoupled and the relevant amounts should be integrated into the single payment scheme. As regards protein crops, rice, potato starch, nuts and flax and hemp, in order to allow producers to adjust, it is appropriate to integrate the aids for those sectors into the single payment scheme from 2012 while at the same time, and with the exception of the processing aids which are dealt with under Regulation (EC) No 1234/2007, allowing Member States to decide on an earlier date for their integration. As regards nuts, Member States should be allowed to continue to pay the national part of the aid in a coupled way in order to cushion the effects of decoupling.

(41) As a consequence of the integration of further sectors into the single payment scheme, provision should be made for the calculation of the new level of individual income support under that scheme. In the case of nuts, potato starch, flax and hemp and dried fodder, such an increase should be granted on the basis of the support farmers received in most recent years. However, in the case of the integration of payments that were partially excluded from the single payment scheme, Member States should be given the option to use the original reference periods. For potato starch, the amounts available for distribution in Germany and the Netherlands should take into account the cross-border deliveries of potato starch produced in one of those Member States for processing in the other. Furthermore, with a view to covering the specific needs of their agricultural sectors and to ensure that the support received in the past by farmers is not drastically reduced, Member States should be allowed under certain limits to use the funds to be integrated into the single payment scheme to support farmers who exercised certain agricultural activities in other sectors during the same years, such as using grassland or keeping animals.

(42) Regulation (EC) No 1782/2003 established specific support for energy crops with a view to assisting the development of the sector. Due to recent developments in the bio-energy sector and, in particular, to the strong demand for such products on international markets and the introduction of binding targets for the share of bio-energy in total fuel by 2020, there is no longer sufficient reason to grant specific support for energy crops.

(43) When the cotton sector was integrated into the single payment scheme, it was deemed necessary for part of the support to continue to be linked to the cultivation of cotton through a crop specific payment per eligible hectare to ensure against any risk of disruption to production in the cotton producing regions. This choice should be maintained in accordance with the objectives set out in Protocol No 4 on cotton attached to the 1979 Act of Accession.

(44) To buffer the effects of the restructuring process in Member States which have granted the restructuring aid provided for in Council Regulation (EC) No 320/2006 of 20 February 2006 establishing a temporary scheme for the restructuring of the sugar industry in the Community (14), the aid foreseen for sugar beet and cane producers for a maximum of five consecutive years should be maintained.

(45) When the fruit and vegetables sector was integrated into the single payment scheme, a temporary coupled area aid for strawberries and raspberries was provided for. It is appropriate to extend such support beyond the original deadline while at the same time providing for the decoupling of this support from production. The national ceilings should be adjusted to take this into account.

(46) The transitional simplified support scheme for granting direct payments in the new Member States based on area, that is the single area payment scheme, has proved to be an efficient and simple system for granting income support to farmers in the new Member States. In the interest of simplification, the new Member States that opted to apply the scheme should be allowed to continue to apply it until the end of 2013.

(47) Further to the respective reforms of the sugar and fruit and vegetable sectors and their integration into the single payment scheme, those Member States that opted to apply the single area payment scheme should be allowed to grant income support to growers of sugar beet, cane and chicory and producers of certain fruit and vegetables in the form of separate payments. Likewise, such Member States should be allowed to pay separate specific support under similar conditions to those applicable to the other Member States.

(48) As a consequence of the phasing-in of direct payments in the new Member States, the new Member States were allowed to grant complementary national direct payments. The conditions for granting such payments should be maintained.

(49) In the initial allocation of payment entitlements by Member States, some errors led to particularly high payments to farmers. This non-compliance is normally the subject of financial correction until such time as corrective measures are taken. However, taking into account the time that has elapsed since the payment entitlements were first allocated, the necessary correction would lead to disproportionate legal and administrative constraints for Member States. In the interest of legal certainty, the allocation of such payments should therefore be regularised.

(50) In accordance with Regulation (EC) No 1782/2003, France, Portugal and Spain decided to exclude from the single payment scheme the direct payments made in the French overseas departments, the Azores and Madeira and the Canary Islands respectively and to grant them under the conditions provided for in Title IV of that Regulation. Part of the aid provided for in that Title has been completely integrated into the single payment scheme. In the interest of simplification and to take into account the specific circumstances of the outermost regions, such aid should be managed within the support programmes established by Regulation (EC) No 247/2006 of 30 January 2006 laying down specific measures for agriculture in the outermost regions of the Union (15). To this end, the relevant funds should be transferred from the national ceilings for direct payments to the financial amount set out in that Regulation. In order to allow the Member States concerned to adapt the support programmes, such transfers should only take place in 2010. In the meantime, direct payments will apply in the outermost regions under the conditions provided for in Regulation (EC) No 1782/2003. Regulation (EC) No 247/2006 should therefore be amended accordingly.

(51) It should be specified that the provisions of this Regulation which could give rise to behaviour of a Member State possibly constitutive of State aid are, save as otherwise provided for in this Regulation, excluded from the application of the State aid rules given that the provisions concerned include appropriate conditions for the granting of support, or envisage the adoption of such conditions by the Commission, in order to prevent undue distortion of competition.

(52) The measures necessary for the implementation of this Regulation should be adopted in accordance with Council Decision 1999/468/EC of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission (16).

(53) In order to allow Member States as well as the farming community to benefit from the simplification mechanisms introduced by this Regulation, and in particular from the abolition of the set aside obligation, this Regulation should apply from 1 January 2009. However, those provisions that may reduce farmers' rights or create new obligations, inter alia the cross compliance obligations with which farmers have to comply throughout the year, should only apply from 2010 and, in the case of the standard on establishment of buffer strips along water courses, by 1 January 2012. Furthermore, Member States should be given sufficient time to implement the provisions allowing further decoupling of direct payments and those allowing them to review the decisions taken in the context of the 2003 reform. For this reason, the relevant provisions of this Regulation should only apply from 2010 and the repealed Regulation (EC) No 1782/2003 should be applied during 2009 to those aid schemes that will only be integrated into the single payment scheme from 2010,

HAS ADOPTED THIS REGULATION:

TITLE I

SCOPE AND DEFINITIONS

Article 1

Scope

This Regulation establishes:

(a) common rules on direct payments;

(b) an income support scheme for farmers (hereinafter referred to as the ‘single payment scheme’);

(c) a transitional simplified income support scheme for farmers in the new Member States as defined in Article 2(g) (hereinafter referred to as the ‘single area payment scheme’);

(d) support schemes for farmers producing rice, starch potatoes, protein crops, nuts, seeds, cotton, sugar, fruit and vegetables, sheepmeat and goatmeat and beef and veal;

(e) a framework to enable the new Member States as defined in Article 2(g) to complement direct payments.

Article 2

Definitions

For the purposes of this Regulation, the following definitions shall apply:

(a) ‘farmer’ means a natural or legal person, or a group of natural or legal persons, whatever legal status is granted to the group and its members by national law, whose holding is situated within Community territory, as defined in Article 299 of the Treaty, and who exercises an agricultural activity;

(b) ‘holding’ means all the production units managed by a farmer situated within the territory of the same Member State;

(c) ‘agricultural activity’ means the production, rearing or growing of agricultural products including harvesting, milking, breeding animals and keeping animals for farming purposes, or maintaining the land in good agricultural and environmental condition as established in Article 6;

(d) ‘direct payment’ means a payment granted directly to farmers under a support scheme listed in Annex I;

(e) ‘payments in a given calendar year’ or ‘payments in the representative period’ means the payments granted or to be granted in respect of the year/years concerned, including all payments in respect of other periods starting in that calendar year/years;

(f) ‘agricultural products’ means the products listed in Annex I to the Treaty, with the exception of fishery products, as well as cotton;

(g) ‘new Member States’ means Bulgaria, the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Romania, Slovenia and Slovakia;

(h) ‘agricultural area’ means any area taken up by arable land, permanent pasture or permanent crops.

Article 3

Financing of direct payments

The support schemes listed in Annex I to this Regulation shall be financed in accordance with Article 3(1)(c) of Regulation (EC) No 1290/2005.

TITLE II

GENERAL PROVISIONS ON DIRECT PAYMENTS

CHAPTER 1

Cross compliance

Article 4

Main requirements

1. A farmer receiving direct payments shall respect the statutory management requirements listed in Annex II and the good agricultural and environmental condition referred to in Article 6.

The obligations referred to in the first subparagraph shall apply only in so far as the agricultural activity of the farmer or the agricultural area of the holding is concerned.

2. The competent national authority shall provide the farmer, inter alia by the use of electronic means, with the list of statutory management requirements and the good agricultural and environmental condition to be respected.

Article 5

Statutory management requirements

1. The statutory management requirements listed in Annex II shall be established by Community legislation in the following areas:

(a) public, animal and plant health;

(b) environment;

(c) animal welfare.

2. The acts referred to in Annex II shall apply as in force and, in the case of Directives, as implemented by the Member States.

Article 6

Good agricultural and environmental condition

1. Member States shall ensure that all agricultural land, especially land which is no longer used for production purposes, is maintained in good agricultural and environmental condition. Member States shall define, at national or regional level, minimum requirements for good agricultural and environmental condition on the basis of the framework established in Annex III, taking into account the specific characteristics of the areas concerned, including soil and climatic condition, existing farming systems, land use, crop rotation, farming practices, and farm structures. Member States shall not define minimum requirements which are not foreseen in that framework.

The standards listed in the third column of Annex III shall be optional except where:

(a) a Member State had defined, for such a standard, a minimum requirement for the good agricultural and environmental condition before 1 January 2009; and/or

(b) national rules addressing the standard are applied in the Member State.

2. The Member States other than the new Member States shall ensure that land which was under permanent pasture at the date provided for the area aid applications for 2003 is maintained under permanent pasture. The new Member States other than Bulgaria and Romania shall ensure that land which was under permanent pasture on 1 May 2004 is maintained under permanent pasture. Bulgaria and Romania shall ensure that land which was under permanent pasture on 1 January 2007 is maintained under permanent pasture.

However a Member State may, in duly justified circumstances, derogate from the first subparagraph, provided that it takes action to prevent any significant decrease in its total permanent pasture area.

The first subparagraph shall not apply to land under permanent pasture to be afforested, if such afforestation is compatible with the environment and with the exclusion of plantations of Christmas trees and fast growing species cultivated in the short term.

CHAPTER 2

Modulation and financial discipline

Article 7

Modulation

1. Any amount of direct payments to be granted in a given calendar year to a farmer in excess of EUR 5 000 shall be reduced for each year until 2012 by the following percentages:

(a) in 2009 by 7 %;

(b) in 2010 by 8 %;

(c) in 2011 by 9 %;

(d) in 2012 by 10 %.

2. The reductions provided for in paragraph 1 shall be increased by 4 percentage points for amounts exceeding EUR 300 000.

3. Paragraphs 1 and 2 shall not apply to direct payments granted to farmers in the French overseas departments, in the Azores and Madeira, in the Canary Islands and in the Aegean islands.

Article 8

Net ceilings

1. Without prejudice to Article 11 of this Regulation, the total net amounts of direct payments which may be granted in a Member State in respect of a calendar year after application of Articles 7 and 10 of this Regulation and Article 1 of Regulation (EC) No 378/2007 and with the exception of direct payments granted under Regulations (EC) No 247/2006 and (EC) No 1405/2006 shall not be higher than the ceilings set out in Annex IV to this Regulation. Where necessary, Member States shall make a linear reduction in the amounts of direct payments which are subject to the reduction provided for in Articles 7 and 10 of this Regulation and Article 1 of Regulation (EC) No 378/2007 in order to comply with the ceilings set out in that Annex.

2. The Commission, in accordance with the procedure referred to in Article 141(2) of this Regulation, shall review the ceilings set out in Annex IV to this Regulation in order to take account of:

(a) modifications to the total maximum amounts of direct payments that may be granted;

(b) modifications to the voluntary modulation system provided for in Regulation (EC) No 378/2007;

(c) structural changes to the holdings;

(d) transfers to the EAFRD in accordance with Article 136 of this Regulation.

Article 9

Amounts resulting from modulation

1. The amounts resulting from application of the reductions provided for in Article 7 of this Regulation in any Member State other than the new Member States shall be available as additional Community support for measures under rural development programming financed under the EAFRD, as specified in Regulation (EC) No 1698/2005, in accordance with the conditions set out in this Article.

2. The amounts corresponding to one percentage point shall be allocated to the Member States where the corresponding amounts have been generated. The amounts corresponding to the reduction by 4 percentage points shall be allocated amongst the Member States concerned in accordance with the procedure referred to in Article 141(2), on the basis of the following criteria:

(a) agricultural area;

(b) agricultural employment;

(c) gross domestic product (GDP) per capita in purchasing power.

However, any Member State concerned shall receive at least 80 % of the total amounts referred to in the first subparagraph generated in that Member State.

3. By way of derogation from the second subparagraph of paragraph 2, if in a Member State the proportion of rye as part of its total cereal production exceeded 5 % on average during the period 2000-2002 and its proportion of the total Community production of rye exceeded 50 % during the same period, at least 90 % of the amounts which the modulation generated in the Member State concerned shall be reallocated to that Member State, until 2013 included.

In such a case, without prejudice to the possibilities provided for by Article 68, at least 10 % of the amount allocated to the Member State concerned shall be available for the measures referred to in paragraph 1 of this Article in rye producing regions.

For the purpose of this paragraph, ‘cereal’ shall mean the products listed in Annex V.

4. The remaining amount resulting from the application of Article 7(1) and the amounts resulting from the application of Article 7(2) shall be allocated to the Member State where the corresponding amounts have been generated, in accordance with the procedure referred to in Article 141(2). They shall be used in accordance with Article 69(5a) of Regulation (EC) No 1698/2005.

Article 10

Special rules for modulation in the new Member States

1. Article 7 shall apply to farmers in a new Member State in any given calendar year only if the level of direct payments applicable in that Member State for that calendar year pursuant to Article 121 is at least equal to the then applicable level in the Member States other than the new Member States, taking into account any reductions applied under Article 7(1).

2. If Article 7 applies to farmers in a new Member State, the percentage applicable under Article 7(1) shall be limited to the difference between the level of direct payments applicable to it under Article 121 and the level in the Member States other than the new Member States, taking into account any reductions applied under Article 7(1).

3. Any amount resulting from the application of Article 7(1) and (2) shall be allocated to the new Member State where the corresponding amounts have been generated, in accordance with the procedure referred to in Article 141(2). They shall be used in accordance with Article 69(5a) of Regulation (EC) No 1698/2005.

Article 11

Financial discipline

1. With a view to ensuring that the amounts for the financing of the market related expenditure and direct payments of the CAP currently under heading 2 of Annex I to the Interinstitutional Agreement between the European Parliament, the Council and the Commission on budgetary discipline and sound financial management (17) respect the annual ceilings set out in the Decision 2002/929/EC of the Representatives of the Governments of the Member States, meeting within the Council of 18 November 2002, concerning the Conclusions of the European Council meeting in Brussels on 24 and 25 October 2002 (18), an adjustment of the direct payments shall be determined when the forecasts for the financing of the aforementioned measures under heading 2 for a given financial year, increased by the amounts given in Articles 134 and 135 of this Regulation and before application of modulation provided for in Articles 7 and 10 of this Regulation and Article 1(1) of Regulation (EC) No 378/2007, indicate that the applicable abovementioned annual ceiling, taking into account a margin of EUR 300 000 000 below that ceiling, will be exceeded.

2. The Council, acting on a proposal from the Commission presented no later than 31 March of the calendar year in respect of which the adjustments referred to in paragraph 1 apply, shall determine these adjustments no later than 30 June of the same calendar year.

3. In the framework of the application of the schedule of increments provided for in Article 121 to all direct payments granted in the new Member States, paragraph 1 of this Article shall not apply to the new Member States until the beginning of the calendar year in respect of which the level of direct payments applicable in the new Member States is at least equal to the then applicable level of such payments in the Member States other than the new Member States.

CHAPTER 3

Farm advisory system

Article 12

Farm advisory system

1. Member States shall operate a system of advising farmers on land and farm management (hereinafter referred to as the ‘farm advisory system’) operated by one or more designated authorities or by private bodies.

2. The farm advisory system shall cover at least the statutory management requirements and the good agricultural and environmental condition referred to in Chapter 1.

3. Farmers may participate in the farm advisory system on a voluntary basis.

Member States may determine, in accordance with objective criteria, the priority categories of farmer that have access to the farm advisory system.

4. By 31 December 2010, the Commission shall submit a report to the Council on the application of the farm advisory system, accompanied, if necessary, by appropriate proposals.

Article 13

Obligations of designated authorities and private bodies

Without prejudice to national legislation concerning public access to documents, Member States shall ensure that the designated authorities and private bodies referred to in Article 12(1) do not disclose personal or individual information and data they obtain in their advisory activity to persons other than the farmer managing the holding concerned, with the exception of any irregularity or infringement found during their activity which is covered by an obligation laid down in Community or national law to inform a public authority, in particular in the case of criminal offences.

CHAPTER 4

Integrated administration and control system

Article 14

Scope

Each Member State shall set up and operate an integrated administration and control system (hereinafter referred to as the ‘integrated system’).

The integrated system shall apply to the support schemes listed in Annex I.

To the extent necessary, it shall also apply to the administration and control of the rules laid down in Chapters 1 and 2 of this Title.

Article 15

Elements of the integrated system

1. The integrated system shall comprise the following elements:

(a) a computerised database;

(b) an identification system for agricultural parcels;

(c) a system for the identification and registration of payment entitlements;

(d) aid applications;

(e) an integrated control system;

(f) a single system to record the identity of each farmer who submits an aid application.

2. Where Articles 52 and 53 of this Regulation apply, the integrated system shall incorporate a system for the identification and registration of animals set up in accordance with Regulations (EC) No 1760/2000 and (EC) No 21/2004.

3. Member States may include a geographical information system for olive cultivation in the identification system for agricultural parcels.

Article 16

Computerised database

1. The computerised database shall record, for each agricultural holding, the data obtained from aid applications.

This database shall in particular allow consultation through the competent authority of the Member State, of the data relating to the calendar and/or marketing years, starting from 2000. It shall also allow direct and immediate consultation of the data relating to the four previous years.

2. Member States may set up decentralised databases on condition that these, and the administrative procedures for recording and accessing data, are designed homogeneously throughout the territory of the Member State and are compatible with one another in order to allow for cross-checks.

Article 17

Identification system for agricultural parcels

The identification system for agricultural parcels shall be established on the basis of maps or land registry documents or other cartographic references. Use shall be made of computerised geographical information system techniques, including preferably aerial or spatial orthoimagery, with a homogenous standard guaranteeing accuracy at least equivalent to cartography at a scale of 1:10 000.

Article 18

System for the identification and registration of payment entitlements

1. A system for the identification and registration of payment entitlements shall be set up allowing for verification of the entitlements and for cross-checks with the aid applications and the identification system for agricultural parcels.

2. The system referred to in paragraph 1 shall allow direct and immediate consultation, through the competent authority of the Member State, of the data relating to at least the previous four consecutive calendar years.

Article 19

Aid applications

1. Each year, a farmer shall submit an application for direct payments indicating, where applicable:

(a) all the agricultural parcels on the holding, and where the Member State is applying Article 15(3), the number of olive trees and their positioning in the parcel;

(b) the payment entitlements declared for activation;

(c) any other information provided for by this Regulation or by the Member State concerned.

2. Member States shall provide, inter alia by the use of electronic means, pre-established forms based on the areas determined in the previous year as well as graphic material indicating the location of those areas and, where appropriate, the positioning of olive trees. A Member State may decide that the aid application needs to contain only changes with respect to the aid application submitted the previous year.

3. A Member State may decide that a single aid application shall cover several or all support schemes listed in Annex I or other support schemes.

Article 20

Verification of eligibility conditions

1. Member States shall carry out administrative controls on the aid applications to verify the eligibility conditions for the aid.

2. Administrative controls shall be supplemented by a system of on-the-spot checks to verify eligibility for the aid. For this purpose, Member States shall draw up a sampling plan of agricultural holdings.

Member States may use remote sensing and Global Navigation Satellite System (GNSS) techniques as a means of carrying out on-the-spot checks on agricultural parcels.

3. Each Member State shall designate an authority responsible for coordinating the controls and checks provided for in this Chapter.

Where a Member State provides for the delegation of some aspects of the work to be carried out under this Chapter to specialised agencies or firms, the designated authority shall retain control over, and responsibility for, that work.

Article 21

Reductions and exclusions in the event of non-compliance with eligibility rules

1. Without prejudice to any reduction or exclusion provided for in Article 23, where it is found that a farmer does not comply with the eligibility conditions relating to the granting of the aid as provided for in this Regulation, the payment or part of the payment granted or to be granted for which the conditions of eligibility have been met shall be subject to the reductions and exclusions to be laid down in accordance with the procedure referred to in Article 141(2).

2. The percentage of reduction shall be graduated according to the severity, extent, permanence and repetition of the non-compliance found and may go as far as total exclusion from one or several aid schemes for one or more calendar years.

Article 22

Controls on cross compliance

1. Member States shall carry out on-the-spot checks to verify whether a farmer complies with the obligations referred to in Chapter 1.

2. Member States may make use of their existing administration and control systems to ensure compliance with the statutory management requirements and good agricultural and environmental condition.

These systems, and notably the system for the identification and registration of animals set up in accordance with Council Directive 2008/71/EC of 15 July 2008 on the identification and registration of pigs (19) and Regulations (EC) No 1760/2000 and (EC) No 21/2004, shall be compatible with the integrated system, as provided for in Article 26(1) of this Regulation.

Article 23

Reduction of or exclusion from payments in the event of non-compliance with cross compliance rules

1. Where the statutory management requirements or good agricultural and environmental condition are not complied with at any time in a given calendar year (hereinafter referred to as ‘the calendar year concerned’), and the non-compliance in question is the result of an act or omission directly attributable to the farmer who submitted the aid application in the calendar year concerned, the total amount of direct payments granted or to be granted, following application of Articles 7, 10 and 11 to that farmer, shall be reduced or excluded in accordance with the detailed rules laid down in Article 24.

The first subparagraph shall also apply where the non-compliance in question is the result of an act or omission directly attributable to the person to whom or from whom the agricultural land was transferred.

For the purpose of this paragraph, ‘transfer’ shall mean any type of transaction whereby the agricultural land ceases to be at the disposal of the transferor.

By way of derogation from the second subparagraph, from 2010, where the person to whom the act or omission is directly attributable has submitted an aid application in the calendar year concerned, the reduction or exclusion shall be applied to the total amounts of direct payments granted or to be granted to that person.

2. Notwithstanding paragraph 1 and in accordance with the conditions laid down in the detailed rules referred to in Article 24(1) of this Regulation, Member States may decide not to apply a reduction or exclusion amounting to EUR 100 or less per farmer and per calendar year.

Where a Member State decides to make use of the option provided for in the first subparagraph, in the following year the competent authority shall take the actions required to ensure that the farmer remedies the findings of non-compliance concerned. The finding and the obligation to take remedial action shall be notified to the farmer.

Article 24

Detailed rules on reductions and exclusions in the event of non-compliance with cross compliance rules

1. Detailed rules for the reductions and exclusions referred to in Article 23 shall be laid down in accordance with the procedure referred to in Article 141(2). In this context, account shall be taken of the severity, extent, permanence and repetition of the non-compliance found as well as of the criteria set out in paragraphs 2, 3 and 4 of this Article.

2. In the case of negligence, the percentage of reduction shall not exceed 5 % and, in the case of repeated non-compliance, 15 %.

In duly justified cases Member States may decide that no reduction shall be applied where, given its severity, extent and permanence, a case of non-compliance is to be considered as minor. However, cases of non-compliance which constitute a direct risk to public or animal health shall not be considered as minor.

Unless the farmer has taken immediate remedial action putting an end to the non-compliance found, the competent authority shall take the actions required that may, where appropriate, be limited to an administrative control to ensure that the farmer remedies the finding of non-compliance concerned. The finding of minor non-compliance and the obligation to take remedial action shall be notified to the farmer.

3. In the case of intentional non-compliance, the percentage of reduction shall not in principle be less than 20 % and may go as far as total exclusion from one or several aid schemes and apply for one or more calendar years.

4. In any case, the total amount of reductions and exclusions for one calendar year shall not be more than the total amount referred to in Article 23(1).

Article 25

Amounts resulting from cross compliance

The amounts resulting from the application of the reductions and exclusions in the event of non-compliance with Chapter 1 shall be credited to the EAGF. Member States may retain 25 % of those amounts.

Article 26

Compatibility of support schemes with the integrated system

1. For the purpose of applying the support schemes listed in Annex VI, Member States shall ensure that the administration and control procedures applied to these schemes are compatible with the integrated system in the following respects:

(a) the computerised database;

(b) the identification systems for agricultural parcels;

(c) the administrative controls.

To this end, the database, the systems and the controls referred to in points (a), (b) and (c) of the first subparagraph respectively shall be set up so as to allow, without any problems or conflicts, a common functioning or the exchange of data between them.

2. Member States may, for the purposes of applying Community or national support schemes other than those listed in Annex VI, incorporate into their administration and control procedures one or more components of the integrated system.

Article 27

Information and control

1. The Commission shall be kept regularly informed of the application of the integrated system.

It shall organise exchanges of views on this subject with the Member States.

2. In accordance with Article 37 of Regulation (EC) No 1290/2005, after informing the competent authorities concerned in good time, authorised representatives appointed by the Commission may carry out:

(a) any examination or control relating to the measures taken in order to establish and implement the integrated system;

(b) controls at the specialised agencies and firms referred to in Article 20(3).

3. Without prejudice to the responsibilities of the Member States for the implementation and application of the integrated system, the Commission may seek the assistance of specialised bodies or persons in order to facilitate the establishment, monitoring and utilisation of the integrated system, in particular with a view to providing the competent authorities of the Member States with technical advice, should they request it.

CHAPTER 5

Other general provisions

Article 28

Minimum requirements for receiving direct payments

1. From 2010, Member States shall not grant direct payments to a farmer in one of the following cases:

(a) where the total amount of direct payments claimed or due to be granted before the reductions and exclusions provided for in Articles 21 and 23 in a given calendar year is less than EUR 100; or

(b) where the eligible area of the holding for which direct payments are claimed or due to be granted before the reductions and exclusions provided for in Article 21 is less than one hectare.

In order to take account of the structure of their agricultural economies, Member States may adjust the thresholds referred to in points (a) and (b) of the first subparagraph of this paragraph within the limits set out in Annex VII.

Farmers holding special entitlements referred to in Article 44(1) shall be subject to the condition referred to in point (a) of the first subparagraph of this paragraph.

The Member States concerned may decide not to apply this paragraph in the French overseas departments, in the Azores and Madeira, in the Canary Islands and in the Aegean islands.

Where the amount paid is reduced as a consequence of a progressive introduction of direct payments as foreseen in Article 121 of this Regulation, in point K of Annex VII to Regulation (EC) No 1782/2003 or in point C of Annex IX to this Regulation, the amount claimed or due to be granted shall be calculated on the basis of the final amount of support to be received by the farmer.

2. From 2010, Member States may establish appropriate objective and non-discriminatory criteria to ensure that no direct payments are granted to a natural or legal person:

(a) whose agricultural activities form only an insignificant part of its overall economic activities; or

(b) whose principal business or company objects do not consist of exercising an agricultural activity.

3. Payment entitlements not giving right to payments during two consecutive years due to the application of paragraphs 1 and 2 shall revert to the national reserve.

Article 29

Payment

1. Save as otherwise provided for in this Regulation, payments under support schemes listed in Annex I shall be made in full to the beneficiaries.

2. Payments shall be made in up to two instalments per year within the period from 1 December to 30 June of the following calendar year.

3. Payments under support schemes listed in Annex I shall not be made before the verification of eligibility conditions, to be carried out by the Member State pursuant to Article 20, has been finalised.

4. By way of derogation from paragraph 2 of this Article and in accordance with the procedure referred to in Article 141(2), the Commission may:

(a) provide for advances;

(b) authorise the Member States, subject to the budgetary situation, to pay prior to 1 December advances in regions where, due to exceptional conditions, farmers face severe financial difficulties: (i) of up to 50 % of the payments; or (ii) of up to 80 % of the payments where advances have already been provided for.

Article 30

Circumvention clause

Without prejudice to any specific provisions in individual support schemes, no payment shall be made to beneficiaries for whom it is established that they artificially created the conditions required for obtaining such payments with a view to obtaining an advantage contrary to the objectives of that support scheme.

Article 31

Force majeure and exceptional circumstances

For the purposes of this Regulation, force majeure or exceptional circumstances shall be recognised by the competent authority in cases such as:

(a) the death of the farmer;

(b) long-term professional incapacity of the farmer;

(c) a severe natural disaster gravely affecting the holding's agricultural land;

(d) the accidental destruction of livestock buildings on the holding;

(e) an epizootic affecting part or all of the farmer's livestock.

Article 32

Review

Support schemes listed in Annex I shall apply without prejudice to a possible review at any time in the light of economic developments and the budgetary situation.

TITLE III

SINGLE PAYMENT SCHEME

CHAPTER 1

General implementation

Article 33

Payment entitlements

1. Support under the single payment scheme shall be available to farmers if they:

(a) hold payment entitlements which they have obtained in accordance with Regulation (EC) No 1782/2003;

(b) obtain payment entitlements under this Regulation: (i) by transfer; (ii) from the national reserve; (iii) pursuant to Annex IX; (iv) pursuant to Article 47(2), Article 59, the third subparagraph of Article 64(2), Article 65 and Article 68(4)(c).

2. For the purpose of Article 47(2), Article 57(6), Article 64(2) and Article 65, a farmer is considered to be holding payment entitlements where payment entitlements have been allocated or definitively transferred to him.

3. Set-aside entitlements established in accordance with Article 53(2), Article 63(2) and Article 71j of Regulation (EC) No 1782/2003 shall not be subject to previous set aside obligations.

Article 34

Activation of payment entitlements per eligible hectare

1. Support under the single payment scheme shall be granted to farmers upon activation of a payment entitlement per eligible hectare. Activated payment entitlements shall give a right to the payment of the amounts fixed therein.

2. For the purposes of this Title, ‘eligible hectare’ shall mean:

(a) any agricultural area of the holding, and any area planted with short rotation coppice (CN code ex 0602 90 41) that is used for an agricultural activity or, where the area is used as well for non-agricultural activities, predominantly used for agricultural activities; and

(b) any area which gave a right to payments under the single payment scheme or the single area payment scheme in 2008 and which: (i) no longer complies with the definition of ‘eligible’ as a result of the implementation of Council Directive 79/409/EEC of 2 April 1979 on the conservation of wild birds (20), Council Directive 92/43/EEC of 21 May 1992 on the conservation of natural habitats and of wild fauna and flora (21) and Directive 2000/60/EC of the European Parliament and of the Council of 23 October 2000 establishing a framework for Community action in the field of water policy (22); or (ii) for the duration of the relevant commitment of the individual farmer, is afforested pursuant to Article 31 of Council Regulation (EC) No 1257/1999 of 17 May 1999 on support for rural development from the European Agricultural Guidance and Guarantee Fund (EAGGF) (23) or to Article 43 of Regulation (EC) No 1698/2005 or under a national scheme the conditions of which comply with Article 43(1), (2) and (3) of that Regulation; or (iii) for the duration of the relevant commitment of the individual farmer, is set aside pursuant to Articles 22, 23 and 24 of Regulation (EC) No 1257/1999 or to Article 39 of Regulation (EC) No 1698/2005.

The Commission, in accordance with the procedure referred to in Article 141(2), shall lay down detailed rules on the use of eligible hectares for non-agricultural activities.

Except in the case of force majeure or exceptional circumstances, hectares shall comply with the eligibility condition throughout the calendar year.

Article 35

Declaration of eligible hectares

1. The farmer shall declare the parcels corresponding to the eligible hectares accompanying any payment entitlement. Except in the case of force majeure or exceptional circumstances, these parcels shall be at the farmer's disposal on a date fixed by the Member State which shall be no later than the date fixed in that Member State for amending the aid application.

2. Member States may, in duly justified circumstances, authorise the farmer to modify his declaration on condition that he adheres to the number of hectares corresponding to his payment entitlements and the conditions for granting the single payment for the area concerned.

Article 36

Modification of payment entitlements

The payment entitlements per hectare shall not be modified, save as otherwise provided for in this Regulation.

The Commission, in accordance with the procedure referred to in Article 141(2), shall lay down detailed rules for the modification, from 2010, of payment entitlements, in particular in the case of fractions of entitlements.

Article 37

Multiple claims

The area corresponding to the number of eligible hectares in respect of which an application for a single payment has been submitted may be the subject of an application for any other direct payment as well as for any other aid not covered by this Regulation, save as otherwise provided for in this Regulation.

Article 38

Use of land in the event of the deferred integration of the fruit and vegetables sector

Where a Member State has decided to make use of the option provided for in the second subparagraph of Article 51 of Regulation (EC) No 1782/2003 (hereinafter referred to as ‘deferred integration’), the parcels in the regions concerned by the decision, up to a date no later than 31 December 2010, shall not be eligible if used for:

(a) the production of fruit and vegetables;

(b) the production of ware potatoes; or

(c) nurseries.

In the event of deferred integration, Member States may decide to allow secondary crops to be cultivated on the eligible hectares during a maximum period of three months starting each year on 15 August. However, at the request of a Member State, this date may be modified in accordance with the procedure referred to in Article 141(2) for regions where cereals are normally harvested earlier for climatic reasons.

Article 39

Use of land for the production of hemp

1. Areas used for the production of hemp shall only be eligible if the varieties used have a tetrahydrocannabinol content not exceeding 0,2 %. Member States shall establish a system for verifying the tetrahydrocannabinol content of the crops grown on at least 30 % of the areas under hemp. However, if a Member State introduces a system of prior approval for such cultivation, the minimum shall be 20 %.

2. In accordance with the procedure referred to in Article 141(2), the granting of payments shall be made subject to the use of certified seeds of certain varieties.

Article 40

National ceilings

1. For each Member State and each year, the total value of all allocated payment entitlements and of the ceilings fixed in accordance with Articles 51(2) and 69(3) of this Regulation, or, for 2009, in accordance with Article 64(2) of Regulation (EC) No 1782/2003 shall not be higher than the respective national ceiling determined in Annex VIII to this Regulation.

Where payment entitlements are allocated to wine growers, the Commission shall, taking account of the latest data made available to it by the Member States in accordance with Articles 9 and 102(6) of Council Regulation (EC) No 479/2008 of 29 April 2008 on the common organisation of the market in wine (24) and in accordance with the procedure referred to in Article 141(2) of this Regulation, adapt the national ceilings determined in Annex VIII to this Regulation. By 1 December of the year preceding the adaptation of the national ceilings, Member States shall communicate to the Commission the regional average of the value of the entitlements referred to in point B of Annex IX to this Regulation.

2. Where necessary, a Member State shall make a linear reduction in the value of the payment entitlements in order to ensure compliance with the ceiling determined in Annex VIII.

Article 41

National reserve

1. Each Member State shall operate a national reserve that incorporates the difference between:

(a) the national ceilings determined in Annex VIII to this Regulation; and

(b) the total value of all allocated payment entitlements and the ceilings fixed in accordance with Article 51(2) and Article 69(3) of this Regulation, or, for 2009, the ceilings fixed in accordance with Article 64(2) of Regulation (EC) No 1782/2003.

2. Member States may use the national reserve to allocate, as a matter of priority, in accordance with objective criteria and in such a way as to ensure equal treatment between farmers and to avoid market and competition distortions, payment entitlements to farmers who commence their agricultural activity.

3. Member States not applying Article 68(1)(c) may use the national reserve for the purpose of establishing, in accordance with objective criteria and in such a way as to ensure equal treatment between farmers and to avoid market and competition distortions, payment entitlements for farmers in areas subject to restructuring and/or development programmes relating to one or other form of public intervention in order to ensure against land being abandoned and/or to compensate farmers for specific disadvantages in those areas.

4. Member States shall use the national reserve for the purpose of allocating, in accordance with objective criteria and in such a way as to ensure equal treatment between farmers and to avoid market and competition distortions, payment entitlements to farmers placed in a special situation, to be defined by the Commission in accordance with the procedure referred to in Article 141(2).

5. When applying this Article, Member States may increase the unit value and/or the number of payment entitlements allocated to farmers.

Article 42

Unused payment entitlements

Any payment entitlement which has not been activated in accordance with Article 34 for a period of two years shall be added to the national reserve, except in the case of force majeure or exceptional circumstances. However, for 2009, payment entitlements not activated for the two-year period 2007-2008 shall not be added to the national reserve if they were activated in 2006 and, for 2010, payment entitlements not activated for the two-year period 2008-2009 shall not be added to the national reserve if they were activated in 2007.

Article 43

Transfer of payment entitlements

1. Payment entitlements may be transferred only to a farmer established within the same Member State except in the case of transfer by actual or anticipated inheritance.

However, even in the case of actual or anticipated inheritance, payment entitlements may be used only in the Member State where the payment entitlements were established.

A Member State may decide that payment entitlements may be transferred or used only within one and the same region.

2. Payment entitlements may be transferred by sale or any other definitive transfer with or without land. In contrast, lease or similar types of transactions shall be allowed only if the payment entitlements transferred are accompanied by the transfer of an equivalent number of eligible hectares.

3. Where payment entitlements are sold, with or without land, Member States may, acting in compliance with the general principles of Community law, decide that part of the payment entitlements sold revert to the national reserve or that their unit value is reduced in favour of the national reserve, in accordance with criteria to be defined by the Commission in accordance with the procedure referred to in Article 141(2).

Article 44

Conditions for special entitlements

1. Save as otherwise provided for in this Regulation, payment entitlements established under Section 2 of Chapter 3 of Title III and Article 71m of Regulation (EC) No 1782/2003, as well as Article 60 and the fourth subparagraph of Article 65 of this Regulation (hereinafter referred to as ‘special entitlements’) shall be subject to the conditions laid down in paragraphs 2 and 3 of this Article.

2. By way of derogation from Article 34(1), a farmer who has special entitlements shall be authorised by the Member State to derogate from the requirement to activate his payment entitlements by an equivalent number of eligible hectares, provided that he maintains at least:

(a) 50 % of the agricultural activity carried out in the reference period referred to in Regulation (EC) No 1782/2003, expressed in livestock units (LU); or,

(b) in the case of special entitlements established under Article 60, 50 % of the agricultural activity carried out before the transition to the single payment scheme, expressed in LU; or,

(c) in the case of Article 65, 50 % of the agricultural activity carried out during the application of Articles 67 and 68 of Regulation (EC) No 1782/2003, expressed in LU.

However, where a farmer has been allocated special entitlements both under Regulation (EC) No 1782/2003 and under this Regulation, he shall maintain at least 50 % of the highest of the levels of activity referred to in the first subparagraph.

The condition referred to in the first subparagraph shall not apply to Malta.

3. In the case of a transfer of the special entitlements in 2009, 2010 and 2011, the transferee may benefit from the derogation provided for in paragraph 2 only if all of the special entitlements are transferred. From 2012, the transferee shall benefit from the derogation only in the case of actual or anticipated inheritance.

The first subparagraph shall not apply to Malta.

Article 45

Revision of payment entitlements

1. In duly justified cases, the Member States having introduced the single payment scheme in accordance with Chapters 1 to 4 of Title III of Regulation (EC) No 1782/2003 may decide, acting in compliance with the general principles of Community law, to move in or after 2010 towards approximating the value of payment entitlements.

Where that decision applies from 2010, it shall be taken by 1 August 2009. In any other case it shall be taken by 1 August 2010.

2. For the purpose of applying the first subparagraph of paragraph 1, the payment entitlements may be made subject to annual progressive modifications in accordance with objective and non-discriminatory criteria. If the modification results in a reduction in the value of the payment entitlements, it shall be made in at least three pre-established annual steps.

In none of the annual steps referred to in the first subparagraph shall the reduction in the value of any payment entitlement be more than 50 % of the difference between its initial and final value. Where the reduction in the value is less than 10 % of the initial value, Member States may apply fewer than three steps.

3. Member States may decide to apply this Article:

(a) at the appropriate geographical level which shall be determined according to objective and non-discriminatory criteria such as their institutional or administrative structure and the agricultural potential; or

(b) where Article 46(4) is applied, in the region defined in accordance with Article 46(2).

CHAPTER 2

Regional and partial implementation

Section 1

Regional implementation

Article 46

Regional allocation of the national ceilings referred to in Article 40

1. Having introduced the single payment scheme in accordance with Chapters 1 to 4 of Title III of Regulation (EC) No 1782/2003, a Member State may decide to apply the single payment scheme in or after 2010 at regional level under the conditions laid down in this Section.

Where that decision applies from 2010, it shall be taken by 1 August 2009. In any other case it shall be taken by 1 August 2010.

2. Member States shall define the regions in accordance with objective and non-discriminatory criteria such as their institutional or administrative structure and the regional agricultural potential.

Member States may consider their whole territory as one single region.

3. Member States shall divide the national ceilings referred to in Article 40 between the regions in accordance with objective and non-discriminatory criteria. Member States may decide that these regional ceilings shall be subject to annual progressive modifications in accordance with no more than three pre-established annual steps and objective and non-discriminatory criteria such as the agricultural potential or environmental criteria.

4. Where a Member State applying paragraphs 1, 2 and 3 of this Article decides not to apply Article 47, it shall, to the extent necessary to respect the applicable regional ceilings, adjust the value of the payment entitlements in each of its regions. To this end, the payment entitlements shall be subject to linear reductions or increases in their value. The total reduction in the value of the payment entitlements under this paragraph shall be limited to 10 % of their initial value.

5. If a Member State decides to apply both Article 45 and this Article, the reductions in the value of the payment entitlements referred to in paragraph 4 of this Article shall be taken into account for the calculation of the limits set in the second subparagraph of Article 45(2).

Article 47

Regionalisation of the single payment scheme

1. In duly justified cases, Member States may decide to divide no more than 50 % of the regional ceiling established under Article 46 between all the farmers whose holdings are located in the region concerned, including those who do not hold payment entitlements.

2. Farmers shall receive payment entitlements the unit value of which shall be calculated by dividing the corresponding part of the regional ceiling established under Article 46 by the number of eligible hectares established at regional level.

The value of these payment entitlements shall be increased in cases where, prior to the application of this Article, a farmer holds payment entitlements. To this end, the regional unit value of each of the farmer's payment entitlements shall be increased by an amount calculated on the basis of the total value of the payment entitlements which the farmer held by a date to be fixed by the Member State concerned. These increases shall be calculated within the limits of the remaining part of the regional ceiling after application of paragraph 1 of this Article.

3. The number of payment entitlements per farmer shall be equal to the number of hectares the farmer declares in the year of application of the single payment scheme at regional level, as referred to in Article 46(1), in accordance with Article 34(2), except in the case of force majeure or exceptional circumstances.

4. Payment entitlements held by farmers before the division referred to in paragraphs 1 and 2 shall be cancelled and replaced by the new entitlements referred to in paragraph 3.

Article 48

Revision of payment entitlements

1. In duly justified cases, the Member States applying Article 47 may decide, acting in compliance with the general principles of Community law, to move, in the year following the application of the single payment scheme at regional level as referred to in Article 46(1), towards approximating the value of the payment entitlements established under this Section.

Where that decision applies from 2010, it shall be taken by 1 August 2009. In any other case it shall be taken by 1 August 2010.

For the purpose of applying the first subparagraph, the payment entitlements may be made subject to annual progressive modifications in accordance with objective and non-discriminatory criteria. If the modification results in a reduction in the value of the payment entitlements, it shall be made in at least two pre-established annual steps.

2. In duly justified cases, the Member States having introduced the single payment scheme in accordance with Section 1 of Chapter 5 or Chapter 6 of Title III of Regulation (EC) No 1782/2003 may decide, acting in compliance with the general principles of Community law, to move, in or after 2010, towards approximating the value of the payment entitlements.

Where that decision applies from 2010, it shall be taken by 1 August 2009. In any other case it shall be taken by 1 August 2010.

For the purpose of applying the first subparagraph, the payment entitlements shall be subject to annual progressive modifications in accordance with objective and non-discriminatory criteria. If the modification results in a reduction in the value of the payment entitlements, it shall be made in at least three pre-established annual steps.

The first subparagraph shall apply without prejudice to the decisions taken by Member States pursuant to Article 63(3) of Regulation (EC) No 1782/2003. The Member States concerned may derogate from the minimum number of steps provided for in the first subparagraph and the limits established in paragraph 3 of this Article.

3. In none of the annual steps referred to in paragraphs 1 and 2 shall the reduction in the value of any payment entitlement be more than 50 % of the difference between its initial and final value. Where the reduction in the value is less than 10 % of the initial value, Member States may apply fewer than three steps.

4. Member States may decide to apply paragraphs 1, 2 and 3 at the appropriate geographical level which shall be determined in accordance with objective and non-discriminatory criteria such as their institutional or administrative structure and the agricultural potential.

Article 49

Grassland

When applying Article 47, Member States may, in accordance with objective and non-discriminatory criteria, determine, within the regional ceiling established under Article 46 or part of it, different per unit values of the payment entitlements to be allocated to the farmers referred to in Article 47(1):

(a) for hectares under grassland on the date set for the area aid applications for 2008 and for any other eligible hectare; or

(b) for hectares under permanent pasture on the date set for the area aid applications for 2008 and for any other eligible hectare.

Article 50

Conditions for the payment entitlements established under this Section

1. Payment entitlements established in accordance with this Section or with Section 1 of Chapter 5 or Chapter 6 of Title III of Regulation (EC) No 1782/2003 may only be transferred or used within the same region or between regions where the value of the payment entitlements per hectare is the same.

2. Save as otherwise provided for in this Section, the other provisions of this Title shall apply.

Section 2

Partial implementation

Article 51

General provisions

1. The Member States having granted payments in the sheepmeat and goatmeat sector or the beef and veal payments in accordance with Section 2 of Chapter 5 of Title III of Regulation (EC) No 1782/2003 may decide, by 1 August 2009, to continue to grant these payments under the conditions laid down in this Section. They may also decide to set the part of the component of their national ceilings to be used to grant these payments at a lower level than that decided in accordance with Article 64(2) of Regulation (EC) No 1782/2003. Where a Member State does not take that decision, the payments shall be integrated into the single payment scheme from 2010 in accordance with Article 66 of this Regulation.

In the case of the beef and veal payments referred to in Article 53(2) of this Regulation, Member States may also decide, by 1 August 2010, not to grant these payments but to integrate them into the single payment scheme from 2011 in accordance with Article 66 of this Regulation.

Where a Member State excluded all or part of the fruit and vegetable payments from the single payment scheme pursuant to Article 68b of Regulation (EC) No 1782/2003, it may:

(a) from 2010, grant the fruit and vegetable payments under the conditions laid down in this Section and in accordance with the decision taken on the basis of Article 68b(1) and (2) or 143bc(1) and (2) of Regulation (EC) No 1782/2003; or

(b) decide, by 1 August 2009, to integrate the fruit and vegetable payments excluded from the single payment scheme pursuant to Article 68b of Regulation (EC) No 1782/2003 into the single payment scheme, in accordance with Article 66 of this Regulation; or

(c) decide, by 1 August 2009 to grant the transitional fruit and vegetable payment under the conditions laid down in this Section and at a lower level than that decided in accordance with Article 68b of Regulation (EC) No 1782/2003.

The new Member States having applied the single area payment scheme may decide, when introducing the single payment scheme, to grant the payments referred to in the first subparagraph under the conditions laid down in this Section. In the case of the transitional fruit and vegetables payment, the new Member States not having applied Article 143bc of Regulation (EC) No 1782/2003 shall not apply Article 54 of this Regulation. Furthermore, in the case of the transitional fruit and vegetable payment, the new Member States shall take into account, where relevant, Article 128(3) of this Regulation.

2. On the basis of the choice made by each Member State, the Commission shall determine, in accordance with the procedure referred to in Article 141(2), a ceiling for each of the direct payments referred to in Articles 52, 53 and 54.

This ceiling shall be equal to the component of each type of direct payment in the national ceilings referred to in Article 40, multiplied by the percentages of reduction applied by Member States in accordance with Articles 52, 53 and 54.

Article 52

Sheepmeat and goatmeat payments

Member States may retain up to 50 % of the component of the national ceilings referred to in Article 40 of this Regulation corresponding to payments in the sheepmeat and goatmeat sector listed in Annex VI to Regulation (EC) No 1782/2003. In this case they shall make, on a yearly basis, an additional payment to farmers.

The additional payment shall be granted to farmers rearing sheep and goats, under the conditions provided for in Section 10 of Chapter 1 of Title IV of this Regulation and within the ceiling determined in accordance with Article 51(2) of this Regulation.

Article 53

Beef and veal payments

1. The Member States having applied Article 68(2)(a)(i) of Regulation (EC) No 1782/2003 and the new Member States having applied the single area payment scheme may retain all or part of the component of the national ceilings referred to in Article 40 of this Regulation corresponding to the suckler cow premium referred to in Annex VI to Regulation (EC) No 1782/2003. In these cases they shall make, on a yearly basis, an additional payment to farmers.

The additional payment shall be granted for maintaining suckler cows, under the conditions provided for in Section 11 of Chapter 1 of Title IV of this Regulation and within the ceiling determined in accordance with Article 51(2) of this Regulation.

2. In 2010 and 2011, the Member States having applied Article 68(1), Article 68(2)(a)(ii) or Article 68(2)(b) of Regulation (EC) No 1782/2003 and the new Member States having applied the single area payment scheme may retain all or part of the national ceilings referred to in Article 40 of this Regulation corresponding to the slaughtering premium for calves, the slaughtering premium for bovine animals other than calves or the special male premium. In these cases, they shall make an additional payment to farmers. The additional payments shall be granted for the slaughtering of calves, for the slaughtering of bovine animals other than calves and for holding male bovine animals, under the conditions provided for in Section 11 of Chapter 1 of Title IV of this Regulation and within the ceiling determined in accordance with Article 51(2) of this Regulation.

Article 54

Transitional fruit and vegetables payments

1. Member States may retain, until 31 December 2011, up to 50 % of the component of the national ceilings referred to in Article 40 corresponding to support for the production of tomatoes.

In this case and within the ceiling determined in accordance with Article 51(2), the Member State concerned shall make, on a yearly basis, an additional payment to farmers.

The additional payment shall be granted to farmers producing tomatoes, under the conditions provided for