In addition, new sources of data such as satellite monitoring (Copernicus), big data solutions, and cooperation with specific data providers should be better utilised.

A key challenge lies in cross-linking existing data sets such as administrative databases stemming from application forms (IACS, LPIS) and registers maintained by MS and data collected and coordinated by Eurostat (Farm Structural Survey, land use and livestock surveys, agro-monetary and agro-environmental statistics) and FADN in DG AGRI. Close cooperation between the European Statistical System (ESS), European institutions and MS' administrations is crucial to ensure that data collected for administrative purposes can also be used for statistics and analyses and for overall functioning of the evaluation framework of the future CAP.

Further development of data quality especially in relation to impact indicators linked to agro-environmental, biodiversity and climate related issues is needed in order to make them more fit for purpose to evaluate the performance of the CAP.

Agricultural statistics will continue to play a major role in CAP performance assessment. The ongoing modernisation of agricultural statistics is providing the foundation for future data availability and aims to ensure continuity of core data combined with an element of flexibility for new and urgent data needs.

The FADN database is already widely used for analytical and evaluation purposes but FADN coverage needs to be expanded to provide the best possible representation of market-oriented farms in the EU. This may require a revision of variables in the farm return (also taking into account the recommendations of the FLINT project), and the way in which CAP beneficiaries participation in the FADN data collection is organised.

The new focus on policy performance requires comprehensive, complete, timely and reliable information on EU agriculture and rural areas. Existing data sources need to be adapted and strengthened to match better with the new policy and where needed, new data sources should be explored and mobilised in order to reduce the burden for farmers and administrations, while at the same time improving policy evidence base.

·The Commission would present two reports to the European Parliament and the Council on the implementation of the CAP strategic plans. These reports would be based on information collected from the PMEF, covering all instruments of the future CAP: the CAP strategic plans as well as those elements of the CAP not covered by the CAP plans. It also includes common context, output, result and impact indicators. This would include findings from both MS CAP strategic plan evaluations and from the Commission evaluations. The Commission could present an initial report, including first results on the performance of the CAP by December 2025 and a second report by December 2031.

·The Commission will carry out a mid-term assessment of the performance of the policy when the available evidence permits a meaningful causality link of the policy to results (e.g. after the first 3 years of implementation).

·Evaluations are planned in accordance with the policy cycle and the study and evaluation plan of DG AGRI (which is publicly available).

·On top of the annual reporting by MS on their strategic plans, the Commission will launch specific evaluations on specific topics during the programming period. These evaluations will combine the information facilitated by MS with the evidence directly available to the Commission.

·MS are responsible for evaluating their strategic plans (ex-ante, on-going and ex-post) and report yearly on implementation. MS also establish and carry out a specific evaluation plan for their strategic plan.

In cases of delayed progress towards the targets set for results for the whole period, or where schemes/interventions are failing to take off, MS will carry out an analysis of shortcomings and will include in the report proposals for remedying actions. The assessment of those reports would trigger interaction with MS in view of helping them to implementing the planned policy in an efficient way. This exercise would also involve the continuous exchange between MS and the Commission including in a regular Annual Review and Monitoring Committee meetings, on the state of play of the evolution of programme implementation towards the targets. In this context, on the basis of the provided information and available evidence, the Commission could provide pertinent recommendations to MS.

An annual performance review is foreseen as the key element of the ongoing monitoring and steering of policy implementation. In order to make an annual performance review operational, adequate output indicators and result indicators will have to be submitted jointly in an annual report on the implementation of the CAP plan, the so-called Annual Performance Report. MS will report annually on financial allocations, along with realised output and expenditure as well as distance to targets set for the whole period, expressed as values of common and programme specific result indicators.

It is proposed to organise the monitoring and evaluation of the future policy on the basis of a common set of indicators that was developed in line with the impact assessment (see Table on indicators in the legislative proposal on establishing rules on support for CAP strategic plans).

The new performance-based delivery model requires a solid evidence base composed of indicators which are reliable, comparable and available on time. Both the Commission and MS have to commit themselves to producing and using them.

In essence, what is being proposed is a shift in responsibilities and opportunities within a common framework, clearly defined and enforced, to deliver on more than one key objective at the same time, namely simplification, result-orientation (rather than compliance) and policy efficiency and effectiveness.

·The reliability of relevant performance indicators can be facilitated by synergies between statistical and administrative data, but requires the presence of a system of quality controls.

·Output indicators would annually link expenditure with the performance of policy implementation. The latter is an annual exercise, and relies on a list of (primarily already available) output indicators.

·Overall policy performance will be assessed multi-annually on the basis of impact indicators. Regular policy performance follow-up will rely on the full list of result indicators by using different means of analysis to arrive at conclusions on policy efficiency and effectiveness.

·A selection of a limited, but more targeted set of indicators should be made primarily in a way to choose those that reflect as closely as possible whether the supported intervention contributes to achieving the objectives versus established baseline and using clear definitions.

·Context indicators remain pertinent, as they reflect relevant aspects of the general trends in the economy, environment and society, and are likely to have an influence on performance.

The new model will be organised around the following principles:

·Sharing of data: the future set of indicators should take into account increasing reluctance from MS to introduce new indicators and their decreasing administrative capacity to follow-up existing ones. This is why the use of new technologies, new data sources and optimisation of existing administrative data oriented procedures should be encouraged.

·Availability of data. The current framework includes result and target indicators for which the data should be obtained via surveys by evaluators in MS. Problems have been identified concerning the availability of this data. Therefore, future output and result indicators should primarily be based on data which are directly available via existing systems. Timing of data delivery should be clear. Particular attention is needed with regards to data availability for the agro-environmental, biodiversity and climate related indicators.

·Reliability/quality of data. There are quality concerns on available data: beyond material errors in the notification, inconsistencies among data from MS have been detected. Therefore, for the future CAP, certification bodies should ensure the quality of the data before the data is sent to the Commission.

·Overlapping in the reporting obligations. The current implementation has allowed Commission services to identify the coexistence of different reporting obligations covering the same or similar information. For example, the data reported to CATS-Combo for audit purposes and data reported in the RD Annual Implementation Report. A future CAP organised under a single CAP Strategic plan and a single set of reporting mechanisms should allow for important simplification in this domain.

·Suitability of the indicators to their monitoring purposes. The current output and result/target indicators used in the Rural Development policy aim at the follow up of targets set by MS for the programming period. Therefore, the indicators defined and their specific reporting requirements (e.g. with regard to frequency and timing) do not always make them suitable for monitoring purposes on annual basis. Therefore, the new framework should ensure that the indicators used for monitoring purposes are, taking into account programming transition period, available on annual basis.

·Number of indicators. Apart from 45 context indicators describing general operational environment of the policy current CMEF contains 166 indicators which are used to determine whether the CAP is achieving its objectives. It includes 16 impact indicators, 41 result indicators (16 for pillar I and 25 for pillar II), 24 target indicators for pillar II and 85 output indicators (58 for pillar I, and 26 for pillar II). Indicators should give an overview of the achievements of the policy. Experience has shown that currently there are too many indicators (and sub-indicators). Therefore, the new framework will propose a significant reduction of the number of indicators.

In 2018, the Commission will present an initial report on the implementation of the current Common Monitoring and Evaluation Framework, including first results on the performance of the CAP. With a view to this report, some findings have already been identified:

The process of alignment of the objectives of the policy and the growing overlaps among the instruments of the two pillars require a more consistent and coherent evaluation system covering all the instruments of the CAP.

·For pillar II, the CMES established that MS report on implementation and are responsible for evaluating their rural development programmes (ex-ante evaluation, evaluation replies in 2017 and 2019, ex post evaluation). MS must also submit the ex-post evaluation reports to the Commission by the end of 2024. The Commission is responsible for the syntheses at EU level of the ex ante and ex post evaluations (the latter are planned for 31 December 2025).

·Evaluations of pillar I measures and of CAP horizontal issues (covering both pillar I and pillar II) are carried out by independent external contractors under the responsibility of the Commission services on the basis of a multiannual evaluation plan. The independent external contractor carries out the evaluation according to the terms of references under supervision of a steering group in a given, contractually fixed time period.

Despite the important advance in developing a single framework for monitoring and evaluation of the CAP based on the current three general objectives of the CAP, the existence of different delivery models among the two pillars of the CAP imply, in practical terms, the coexistence of two different systems to assess performance: a programming approach in pillar II implies a set of rules and mechanisms for monitoring and evaluation that coexist with the general mechanisms for the whole policy.

In the current framework, the performance of the CAP measures is assessed in relation to the three general objectives of the current CAP (i.e. viable food production, sustainable management of natural resources and climate action, and balanced territorial development) and, in the case of pillar II, in relation to the thematic objectives and rural development priorities for the Europe 2020 strategy for smart, sustainable and inclusive growth.

·More specifically, for pillar II (rural development), the monitoring and evaluation system is set out by: the common provisions regulation (Regulation (EU) No 1303/2013), which defines the common monitoring and evaluation elements for the European Structural and Investment Funds (ESIF); and the rural development regulation (Regulation (EU) No 1305/2013), which addresses the specificities for the rural development programmes.

·The horizontal regulation (Regulation (EU) No 1306/2013, Article 110) establishes a common monitoring and evaluation framework with a view to measuring the performance of the CAP. It covers all instruments related to the monitoring and evaluation of CAP measures and in particular direct payments, market measures and rural development measures.

The 2013 reform of the CAP established, for the first time, a monitoring and evaluation framework that would cover the whole CAP (both pillars). This framework has undergone some changes in terms of promoting simplification and coherence while still maintaining an indepth coverage of policy interventions. The monitoring and evaluation framework for the CAP 2014–2020 is set out by EU regulations at different levels:

A new Performance Monitoring and Evaluation Framework (PMEF) will cover all instruments of the future CAP: the CAP strategic plans as well as those elements of the CAP not covered by the CAP plans (some parts of the Common Markets Organisation, specific schemes). Performance would be measured in relation to the Specific Objectives of the policy by using a set of common indicators.

The current Common Monitoring and Evaluation Framework (CMEF) and the current monitoring system of Direct Payments and Rural Development would be used as a basis for monitoring and assessing policy performance, but they will have to be streamlined and further developed (including consistency between the two pillars). Further investment into developing appropriate indicators and ensuring sufficient data streams would be needed.

A shift towards a more performance-oriented policy requires the establishment of a solid performance framework that, based on a set of common indicators, will allow the Commission to assess and monitor the performance of the policy.

·Risk management: Access to the crisis reserve will be conditional on the set-up of a risk management strategy at national level (not at farm-level). Risk management tools are to be included into the CAP strategic plans, and a platform will facilitate exchange of experience.

·Crisis reserve: A new agricultural reserve will be established in the EAGF, to provide additional support for the agricultural sector for the purpose of market management or stabilisation or in case of crises affecting the agricultural production or distribution.

·Market measures: against the background of budget cut and needs for external convergence, a limited reduction of pre-allocated amounts is proposed. On the other hand, the operation of the crisis management reserve is smoothened. Moreover, it is proposed to transfer part of the interventions currently undertaken under the Common Market Organisation (CMO) with sectorial programmes under the CAP Strategic Plans. This will enhance the coherence of sectorial interventions with the objectives of the CAP. Based on the effectiveness of existing programmes, it is proposed to extend this possibility to other sectors within a given budget allocation.

oClimate mainstreaming: in line with the Paris Agreement and the commitment to the United Nations Sustainable Development Goals, the Commission proposes to set a more ambitious goal for climate mainstreaming across all EU programmes, and thus the CAP, with a target of 25% of EU expenditure contributing to climate objectives. This should be seen together with ring-fencing, as many interventions deliver win-win effects for both climate and environment.

oThe strengthening of conditionality: the analysis showed that this works as a safeguard for ensuring observance of the requirements covered by the extended conditionality.

·Rural Development: In line with other ESIF, it is proposed to increase the national co-financing rate for rural development by 10%. However, less developed regions should continue to benefit from higher EU co-financing rates. This should also apply to interventions of EU priority such as LEADER and the payments for Agri-Environment, Climate and Health.

·Capping or degressivity of direct payments will promote a more balanced distribution of support. As shown in the analysis, the impact of capping or degressivity should not be used to create savings and should remain budgetary neutral for MS. Therefore, it is proposed that the product of capping could be used to finance a redistribution of support to smaller farms within the same MS or potentially be transferred to pillar II. Within this impact assessment, capping was tested in all options, with a ceiling ranging between EUR 60 000 and 100 000. Moreover, the analysis pointed to the importance of taking into account labour cost when applying capping, to avoid negative effects on jobs. To further acknowledge family labour, related costs could also be taken into consideration, especially with a low ceiling.

·External convergence: It is proposed that all MS with direct payments below 90% of the EU average will close 50% of the existing gap to 90%, in continuation of the process started in the period of 2014-2020. All MS above average will contribute to financing this external convergence of direct payments levels. It means that the envelopes distribution between MS proposed is somewhat different from the one used in this impact assessment. Further analysis confirmed that external convergence contributes to cohesion by reducing differences between MS.

·Cut in CAP budget: the cut of 5% proposed by the Commission is within the range assessed in this impact assessment, and appears moderate in the difficult context for the next MFF. While accounting for revealed MS preferences as regards transfers between pillars, options tested various combinations of allocations between broad interventions. This shows that the combined effect of the cut in budget, the redistribution of support and the emphasis put on environment and climate is significant. Distribution of support across broad interventions matters for achieving common objectives assigned to the CAP, hence the relevance of considering some degrees of earmarking/ring-fencing.

On the basis of the assessment of all these options and combinations thereof, further specifications can be added on elements included in the proposals for the next MFF for the CAP (both under the May MFF Communication and the CAP legislative proposals):

Other assumptions and choices would certainly alter this graph, but not its underlying message – that the preferred option for the future CAP should combine the most performing elements of the various options, but avoid their weaknesses by introducing the necessary safeguards to ensure an EU level-playing field. This implies the need for clear criteria for the level and the distribution of income support, the climate and environmental conditionality and overall ambition, the incentives for modernisation and the appropriate degree of subsidiarity/simplification.

On the basis of the assumptions and choices made in the present analysis, Graph 4 below summarises the potential trade-offs in the achievement of economic, environmental and social objectives of the CAP, as well as with respect to its desired modernisation and simplification. In summary, redistribution could lead to manageable income impacts, and support the desired increased ambition of environmental and climate action and other CAP synergies. This, however, would require that the sector and the policy grasp the opportunities offered by innovation and technologies already allowing modernisation and simplification.

Contributions from the stakeholder consultation and analyses demonstrate that this is possible, provided that the necessary accompanying measures addressing a higher environmental and climate action ambition enable the adoption of best practices (in both conventional and other forms of farming) that include knowledge, innovation and the latest pertinent technology. In addition, as shown in various analyses, the economic incentive for farmers remains a key element to promote the uptake of these practices.

Less clear, however, is the appropriate combination of measures that could mitigate negative income and competitiveness effects, while at the same time better addressing challenges that are also pertinent for agriculture - such as environment and climate, and societal expectations. This requires incentivising adjustments that improve both the economic as well as the environmental performance of the sector and its modernisation.

With respect to farm income, both the level and the distribution of support matter. Securing an adequate level of support and thus farm income remains a key element for the future, in order to ensure food security, environmental and climate ambition, as well as rural vitality. In a context of growing market uncertainties, there are limits in pushing the uptake of risk management tools, as they come at a significant cost and are not equally available and efficient in all sectors and regions. Moreover, targeting support to small and medium sized farms and areas with natural constraints can help keeping more jobs on farms and farming activity on the whole territory, hence strengthening the socio-economic fabric. In addition, capping and degressivity can improve the distribution of direct payments. It is clear that any option that significantly redistributes direct payments towards farms and regions of lower productivity will, in the short-term, lead to a reduction of EU competitiveness, while it enhances the protection of environment.

The results of the present analysis point out that difficult trade-offs are inherent when the basic parameters of a policy addressing diverse objectives are significantly changed.

The annual performance review process constitutes a further basis for detecting upcoming risks, such as issues with data quality or first signs of underperformance. In case of underperformance or deficiencies, the European Commission will be able to take corrective actions including the request to Member States for an action plan for remedial actions, suspension of payments and financial correction. Last but not least, timely evaluation will identify remaining issues, by assessing the effectiveness of the CAP and the realised administrative burden reduction, and allow taking on board lessons for the next MFF.

The setting of targets in the CAP plans is an important safeguard to monitor whether MS action is genuine and delivering on the ground. Appropriate attention should be paid to translating these targets at regional and beneficiary level. It is hence at planning stage that possible issues can be first detected, such as imbalances, incoherencies, lack of ambition and gold plating. The continuous and strengthened technical assistance from the Commission throughout the planning process can help for a better understanding of EU requirements in terms of planning and so avoiding delays at time of approval. The scope of the current network for rural development will be extended to the first pillar, to cover the whole CAP Plan.

Approval of CAP plans is thus an essential safeguard to assess the completeness, consistency, coherence and effective contribution to the CAP objectives of the national strategy. CAP plans should include elements related to simplification and reduced administrative burden for final beneficiaries. Synergies between economic, social and environmental objectives can be achieved from better targeting on local needs. Planning based on needs analysis allows for adequate targeting of measures to regional needs.

While ambition under measures like conditionality can bring some certainty on performance, enhanced incentives (some degree of budget earmarking, performance bonus) to performance could also be needed. As the comparison between option 3a and 3b shows, when more budget is allocated to the eco-scheme, the environmental and climate performance also improves.

The need to increase the environmental performance requires securing some minimum requirements (current cross-compliance plus greening) via conditionality. This was tested across all options, as their basic conditionality contained higher environmental requirements compared to the baseline. The comparison of the options indicates that setting minimum requirements works well. In option 4a, minimum requirements for environmental and climate action were set at a higher level, resulting in a better environmental performance compared to the baseline. At the same time, the level of prescriptiveness in EU legislation will be lower and MS will define the details of implementation of conditionality leading to simplification.

Safeguards and mitigating measures built into the policy cycle should guarantee that both are met. The EU legislation will include a number of safeguards for anticipation of risks such as imbalanced strategies, inadequate targeting or lack of ambition. Safeguards include requirements for content of CAP plans, more ambitious EU basic requirements (e.g. conditionality), a rule on no back-sliding/increased ambition, and budget earmarking.

Option 4 holds potential for improved performance with reduced administrative burden because of the lower uncertainty of conditionality compared to eco-schemes, which are dependent on their uptake by farmers. High potential reduction in administrative burden stems from the lower variety and complexity in the schemes taken up by MS, which simplifies administrative processes at all levels. While orientation towards performance is assessed as comparable for options 3 and 5, uncertainties in simplification derive from the divergences in ambition and related interventions, and how these translate into the administrative processes. With regard to proportionality of administrative burden options 3a and 5 score best, due to their higher effectiveness. However, under greater subsidiarity, the development of national CAP Plans and the way administrations implement them at beneficiary level will strongly determine the resulting simplification and performance.

Less prescriptive EU compliance elements and less detail for measures and eligibility rules would allow economies of scale for checks and reduce burden for planning and applications as less time would be required for familiarising with information obligations. Performance-orientation allows putting less emphasis on ex-ante checks, reducing further administrative burden for applications (less evidence to collect/submit) and for administrative checks (less evidence to check). Cutting down on EU requirements also provides for simplification of audits performed by the Commission.

Annex 7 assesses the simplification under the new delivery model, driven by the shift towards performance and a streamlined CAP implementation approach. Simplification of programming and notification procedures, better adaptation to local needs and better coordination of the actions of the two pillars can reduce administrative burden and can also improve the acceptance of the CAP.

A digital farm dossier, as well as organising the data gathering and sharing through the whole supply chain can lead to the simplification of the CAP administration, monitoring and management systems; together with the building of efficient learning networks useful for cross-policies implementations. (Additional insights are available in Annex 6)

All options score significantly better in this area, especially compared to the baseline post-Brexit. The CAP plans should include a strategic approach towards modernisation, which will be followed up in the performance reporting. Experts consider that most significant impact on this objective is to be expected from the EIP, hence its budget allocation is significantly increased in the alternative options. Other instruments, such as the young farmer payment, or additional budget for competitiveness or infrastructure and services, are also important to facilitate innovation uptake.

Enhancing interactive innovation is essential to develop solutions which are more ready to be applied in practice and cover real needs. Supporting digital transition in agriculture is needed to make sure the potential of digital technologies is fully realized.

The basis for enabling an innovation environment is a well-functioning AKIS, where the actors and potential partners in innovation projects can meet and discuss the main challenges, and be fed with innovative knowledge. The efficiency and effectiveness of advisory services can best be upgraded by improving their connections within the AKIS and sharing knowledge and innovative applications more intensively.

The tensions identified in the previous sections between enhanced environmental ambition and viable farm income can be partly bridged and turned into synergies in a well performing Agricultural Knowledge and Innovation System (AKIS). Current technological advances offer an unprecedented opportunity to move toward modern farming - more sustainable, resilient, and productive, to a significant extent also based on EU advanced technologies (e.g. Copernicus). Nature-based solutions can also be further considered, and knowledge from their applications better spread. However besides advice, farmers need support to adopt innovation, as the positive effect on income comes after several years and some environmental requirements will lead to lower returns, at least in the short/ medium term.

Agriculture research may deliver new insights which often remain confined to the scientific world only; also, the agricultural sector itself has a considerable and under-used innovation capacity. Overall, with take up of new knowledge and technology still rather slow, bridging the gap between research and farming practice is key.

Rendering the access to a possible agricultural crisis reserve conditional to the use of risk management tools at farm or sectorial level might result in penalising certain farm types, especially the most vulnerable and unprotected, not always in the best position to adopt risk management tools. In addition, it would generate deadweight losses as those who already receive compensation from their risk management schemes would also benefit from the crisis reserve. Finally, the heterogeneity of risks and tools related to price, income or climate makes compliance to conditionality difficult to assess at farm level.

This targeting could drive support away from sectors where the main problem is the level of income rather than its variability, for which direct income support remains a better solution. Furthermore, there is no guarantee of uptake given the complexity of such tools and the need for farmers to get organised (e.g. to create mutual funds).

A transfer of funding from direct payments to risk management tools could potentially help farmers facing income variability. Risk management tools should be seen in combination with the direct payments and market measures that also provide a buffer against volatility. As shown in Annex 5, compensating income drop via an income stabilisation tool for all EU farmers is very costly. It would need to be targeted to those that are more frequently exposed to high income variability and have fewer alternative tools available (futures, insurances, etc.).

Regarding consumers' demands on food and health, the (sub-) options scoring better on price and economic efficiency underperform somewhat with respect to contributing to healthier lifestyles and sustainable use of pesticides and antibiotics. So also here there is a trade-off between higher priced food with higher environmental and health quality attributes versus lower priced food.

Also from options comparison, potential trade-offs between policy objectives emerge. This is for example clear for sub-options 4a and 4b, with 4a scoring better on environmental objectives, while 4b scores better on economic objectives, as it is less environmentally demanding. From a pure economic point of view option 3a performs best because the stronger reduction in the basic payment is supposed to trigger faster structural change, making the agricultural sector, after an abrupt transition, more efficient and resilient (for example by using more risk management tools). This comes at the detriment of the social (and potentially environmental) dimension, as fewer farms will survive. By contrast, option 5 contributes greatly towards social objectives but attains a lower score on the economic objectives. As explained in Annex 5, according to the Multi-Criteria Analysis, its strong focus on small farms is hampering structural change driven by economies of scale.

In particular, the extended requirements considered under the new conditionality (e.g. obligation to dedicate more land to non-productive elements, land re-allocation to fulfil crop rotation and cover crop costs) lead to a significant decline in cereal area in favour of set aside and fallow land, and thus to a decline in market revenue of arable crop producers as well as to a deterioration of the EU trade balance. Approaches supporting the shift towards different production systems and new technologies are necessary to smoothen the impact on farm income and food security.

From the analysis, several trade-offs emerge. Enhancing the environmental and climatic performance of the CAP will contribute to preserve natural resources (e.g. the soil) to produce in a more sustainable way; over the medium and long term, this is expected to have positive effects on productivity. However in the short term, it could come at an economic cost for farmers and the agri-food sector.

The qualitative assessment on its turn shows that none of the options come close to the theoretical maximum (100), so combining the strong points of the different option designs will further increase the performance (Graph 3). In general, the policy compensates for the provision of public goods, which are not sufficiently rewarded by the market, resulting in better scores on the environmental and social objectives.

The analysis further shows that budget cuts have strong negative effects on farms viability for cattle, sheep and cereal producers, sectors for which direct payments represent a large share of income. A re-allocation of support to production systems contributing to environmental sustainability, notably through coupled support to extensive livestock production systems and redistribution of support to permanent grassland, can attenuate their drop in income.

From the quantitative analysis it becomes clear that budget cuts together with changes in income support and higher environmental ambition have strong negative effects on farmers’ income, with a decline of overall farm income in the options compared to the baseline. CAP support is crucial in reducing the income gap between agricultural income and other economic sectors and between Member States and regions.

The many societal expectations on food and health touch upon several economic, social and environmental objectives. None of the tested options achieves best scores on all items, hence the interest of complementary approaches. As an example, to quickly transmit consumer demands to farmers, the policy should not blur market signals (e.g. through excessive use of coupled support), provide for a well-functioning advisory system, create synergies along the value chain (e.g. by organising farmers in producer organisations) while also leaving room for short supply chains. Food waste and agricultural losses can be reduced by stimulating efficiency gains (through advice, extension and investment support) and further embedding agriculture in the bio-economy (innovation, investment on farms and in rural areas).

The impact on food safety is not assessed as it is part of the basic requirements and should be ensured in all options. On top, advances in reduction of pesticide load and antimicrobial resistance are analysed for the different options in the qualitative part under the environmental objective.

Regarding food security, the Scenar 2030 study clearly shows the negative impact of removing the CAP on EU production and trade balance. In addition to the overall level of production (-6%), the impact on its localisation needs to be considered (concentration in most productive areas, abandonment elsewhere). For the other options tested in this Impact Assessment, the quantitative analysis shows a predominantly negative effect on the EU's net trade balance due to the increased environmental climate requirements, the redistribution of support and the budget cut.

As stated during the public consultation and in the Communication on the Future of food and farming, the CAP is expected to respond better to consumer demands on food and health. Related societal expectations stretch over various food-related aspects such as food security, safety and quality, affordability of food, health issues such as pesticide load and antimicrobial resistance, food waste and agricultural losses as well as responding and anticipating to changing demands. These issues are covered across several of the objectives against which the different options are tested.

This IA shows the efficiency of some specific requirements in addressing challenges. Within the EU legislative framework, based on the analysis to draw their strategic plans, MS should select the most relevant interventions and requirements to address local and national needs.

The simulated obligation to dedicate 3% of the UAA to non-productive elements such as set aside, fallow land, linear elements and afforested area is binding in several MS (and thus for many farmers) and should contribute positively to improving biodiversity.

The analysis shows that cover crops can potentially reduce soil erosion on arable land by 15% and on permanent crops by 30% with a cover rate at 75% in the EU. They can also produce additional biomass for energy (e.g. biogas) and non-energy uses, without land use competition (although these impacts were not assessed in the model simulations). However, soil cover is not systematically used by farmers and not sufficient to decrease soil erosion. Therefore, the winter soil cover requirement would need to be combined with other measures e.g. crop rotation, in order to reduce erosion to acceptable levels in all MS. Crop rotation obligation leads notably to a decline in grain maize and durum wheat area, which are more often cultivated in monoculture.

The imposed reduction targets were met with an average reduction for the EU of close to 4% of N-surplus in the most constraining scenario. Farmers take advantage of more N-efficient technologies and are reducing significantly the use of mineral fertiliser, by 1.5% (option 3b) to 5% (options 3a and 4a).

The assessment explored how the introduction of farm sustainability tool for nutrients combined with nutrient reduction targets could contribute to improve water quality, concentrating the analysis on nitrogen and introducing reduction targets, differentiated by regions according to their N surplus and to the possibility they have to trade manure.

The analysis assumes that the minimum conditionality requirement to maintain the share of permanent grassland in UAA and the redistribution of support towards permanent grassland (option 4 and 5) both favour the preservation and sequestration of carbon, and therefore reduce CO2 emissions. This might also lead to the maintenance of animal numbers, but the net impact on emissions is always difficult to assess. The protection of wetlands and peatlands under basic conditionality in all options is clearly seen as an improvement compared to current policy as it preserves or restores the large existing carbon pool.

However, the positive effect of a reduction in GHG emissions is partly offset by leakage of emissions to other parts of the world. This effect is the strongest in option 3a due to the strong decline of EU beef production replaced by imports from less efficient regions in terms of GHG emissions/kg of product. The qualitative assessment considered that the main factors to reduce non-CO2 emissions are policy measures that impact on cattle numbers and fertiliser use (included in options 3a, 4a and 5); not all such measures could be modelled in this exercise.

In the present quantitative assessment, the main driver for the reduction in N20 emissions is the introduction of a farm sustainability tool for nutrients with reduction targets of N-surplus. Close to 60% of the total reduction in GHG emissions is achieved via mitigation technologies in option 4a, while it is around 25%-45% in the other options. The major part of the reduction is due to precision farming and the use of nitrification inhibitors out of four farming practices modelled.

However, a widespread adoption of these practices by farmers would come with considerable budgetary and unitary costs and imply substantial incentives. The fact that such incentives are not explicitly included in the present analysis (also because of its budget-neutral assumption) explains why only small reductions in non CO2 emissions compared to baseline are reached in this assessment.

Previous analysis shows that there is a need to give an incentive to farmers in order to reduce GHG emissions. The EcAMPA project showed that, in the absence of a compulsory emission reduction target for agriculture, a subsidy covering 80% of the costs of mitigation technologies, could deliver significant non-CO2 emission reductions, with little negative impact on EU production.

Thus, in order to stimulate ambitious environmental and climate choices, additional safeguards (e.g. target setting or budget earmarking) would be needed. The approval of CAP plans by the Commission will serve as a first safeguard to ensure sufficient ambition is translated into adequate targets and financial means, while performance reporting, and incentives for performance, will bring MS to follow up on their ambition.

A voluntary eco-scheme is more effective in the case of hot spot problems as it can better target the desired environmental outcome. Typically under a voluntary eco-scheme, those already performing well will sign up, while those lagging behind will hesitate to engage if the provided incentive is not high enough, all the more as the economic incentive remains key for farmers to change practices (see Annex 8 on behavioural insights).

Furthermore, enhanced conditionality could perform better where there is no existing regulation in place (e.g. for soil) or if the issue is of general concern (e.g. climate change). As enhanced conditionality needs to apply to all farmers concerned, it will be necessarily less demanding/targeted compared to the eco-scheme. Option 5 also scores high on environmental outcomes as it combines both conditionality and environmentally targeted top-ups. But the effect of these top-ups is not uniform across MS, as highlighted in the previous section, because of the significant differences in features across MS, such as permanent grassland and organic area.

The MCA also finds that the overall environmental outcome depends on the uncertainty surrounding the coverage and implementation of measures by MS. An approach based on ambitious conditionality (option 4a) seems to be more effective than a voluntary approach as it is easier to control and it avoids annual budget swings. Most importantly, it ensures the engagement of all farmers: conditionality works as a safeguard to enforce the law and any additional requirements set at EU or MS level.

From the Multi-Criteria Analysis (MCA), which combines a qualitative assessment with elements from the quantitative assessment, it emerges that the more ambitious environmental schemes (options 3a and 4a) perform best in terms of addressing environmental and climate ambition.

Beyond these minimum requirements, MS would have the possibility to define stricter conditionality requirements and opt for voluntary schemes, via an eco-scheme or via agri-environment, climate action and health interventions (AECH). Moreover, the assumed budget allocation to AECH, EIP and FAS is another determining factor partly explaining the difference in the environmental performance of the various options.

The higher ambition of the new CAP in terms of environmental sustainability is reflected in an increase of minimum green requirements of the new conditionality applying in all options. These green requirements, applying in the whole EU, go beyond the current cross-compliance rules and account for current greening provisions while overcoming some drawbacks in its implementation identified in previous analyses. In addition, the removal of exemptions automatically broadens the area covered by conditionality.

In mountain areas, farmers’ income is nearly 40% below the income of farms located outside areas with natural constraints (ANC), and in other ANCs the income is more than 30% lower. Any cut in this support might threaten the viability of farms in ANC, which have a key role for the vitality of rural areas and for the provision of environmental services. This result is also supported by findings of the recent World Bank study, which shows that the CAP contributes significantly to poverty reduction in rural areas. This is why maintaining support to ANCs is key, even when other interventions are cut. Thus, for MS with large ANC area, it is better to keep ANC payments in pillar II, where co-financing allows granting higher support, while keeping EU funds to address other challenges. In addition, income disparity between ANCs and outside ANCs can be reduced with a redistribution of support to permanent grassland (options 4 and 5) and increasing support to ANCs.

Overall, quantitative analysis demonstrates that the most effective way to achieve a reduction in support concentration is to modulate decoupled payments by size (e.g. by classes of hectares as included in option 5) and, second, to introduce a redistributive payment.

In addition, the introduction of a capping with the objective to create savings could go against cohesion and convergence, concentrating the burden on a few MS (notably BG and RO, which one would expect on the contrary to benefit from convergence). By contrast, it could be envisaged to redistribute the capped amount to smaller beneficiaries. Finally, lower available budget and shifts in priorities as well as possible reductions in direct payment imply potentially lower capped amounts.

Capping direct payments per farm can address concerns about the high level of support received by few large beneficiaries. However, a correction for salaries paid could be considered since often these large farms provide a large number of jobs, all the more since they are mainly located in central Europe where income levels are lower. In the absence of further convergence of direct payment level (option 3b), capping per hectare (proportional to the national or regional average payment) could limit differences in support between farmers. However, this will have more negative effects on Southern MS and on certain sectors (e.g. olive oil, cattle).

Targeting EU support to environmental benefits via top-ups to permanent grassland, organic farming and biodiversity-enhancing elements could be envisaged by MS in their CAP strategic plans (option 5). However, the analysis shows the difficulties linked to obliging MS to have the same share of pillar I envelope to be dedicated to these top-ups and ANC due to significant differences in these features across MS.

Coupled support, if not well tailored, can lead to unfair competition and affect the EU level playing field. In addition, contrary to decoupled payments and pillar II support, it hampers productivity gains. However, it can address specific issues that the decoupled payment would otherwise leave unresolved. Coupled support could be limited and granted to sectors identified by MS as undergoing certain difficulties, in line with the EU legislative framework.

Therefore, in option 5, whose support redistribution is based on such a mechanism, the latter effect can partly be compensated with coupled support to extensive livestock systems and top-ups to permanent grassland. Granting a redistributive payment (top-up on first hectares of the farm, as applied in option 3b) is another possibility to redirect support to small-and medium-sized farms, while limiting undesired effects of a payment modulated by size.

The quantitative analysis shows that targeting small and medium size farms can be best achieved with decoupled payments modulated by size (combining both degressivity of payments by size and capping). However, this redistribution results in undesired effects: a strong reduction in support for very large farms (more than 500 ha, employing 20 persons on average), an increase in basic payments for more intensive farms (smaller on average, selecting products with higher returns), as well as a decline of support to most extensive farmers.

Graph 2. Impact of a shift in priorities applying on top of a support cut on EU income by type of farming

By contrast, the redistribution of support to permanent grassland benefits to extensive systems (option 4 and 5). Finally, the higher requirements to increase environmental performance have a bigger impact on crop producers; a 3 year rotation affects particularly sugar beet and potato producers.

Furthermore, the stronger the link to high historic references the higher the income drop due to the regionalisation of the basic payment (flat rate) and to capping (options 3a and 4). This is typically the case for olive growers, intensive livestock and cereal producers. The redistribution of support to smaller farms (options 3b and 5) leads to higher income drops for larger farms (mostly cereal producers and extensive livestock farms), while olive growers (on average 65% smaller than the average EU farm) benefit from this redistribution.

Sectorial impacts differ and are substantial (Graph 1 and 2). The cut in direct payments (baseline post-Brexit and option 3) has a strong effect on cattle, crop, sheep and olive producers because direct payments represent a large share of their income. In addition, cattle and sheep sectors, where significant coupled support is currently granted, are by definition more affected when coupled support is removed (option 3a).

Compared to the post-Brexit baseline, farm income declines on average by 5% in option 3b, 4b and 5; the decline in options 3a and 4a is higher, 10% and 8% respectively. The latter difference is explained by the very low basic payment in option 3a as budget is devoted to other measures. When adding other criteria, such as targeting smaller farms and farms with lower incomes, option 5 outperforms the other options in terms of income distribution. However, this result is also conditional to the fact that the total level of support (EU and national) is maintained in areas with natural constraints (ANC).

The quantitative assessment of income impacts (see Table 3) shows that the baseline pre- Brexit outperforms all options (given the higher budget). The baseline post-Brexit (which implies a linear cut) already has a significant impact on income in some sectors (Graph 1). In addition to the budget reduction, alternative allocations (e.g. towards risk management), redistribution of support (e.g. towards small farms and regionalisation) and the additional environmental requirements in the options bear on the final impact of options on average EU income level.

A note of caution is necessary about the interpretation of results. In this analysis, farm income decline is overestimated, as the model used does not account for structural change, iterative price feedbacks and longer term benefits due to changes in production systems. Nonetheless, the analysis gives an accurate indication of the relative performance of the various options in the short-term, as well as of the expected impact on different farm types and sectors.

A different focus on environmental and climate payments also affects the distribution of support, and thus income. In option 3 basic payments are significantly reduced and support is targeted towards a new voluntary eco-scheme; option 3a is more environmentally ambitious, but entails no further redistribution of support (as direct payments are reduced), while option 3b is less environmentally ambitious, but combined with more redistribution, capping and coupled support. Option 4 tests jointness by coupling direct income support with extra environmental requirements, while also redistributing towards permanent grassland; the latter is associated with lower incomes. Option 5 targets small and medium size farms.

The role of direct payments in stabilising farm income is generally recognised, but both the Communication on the Future of Food and Farming and the MFF related documents called for a more balanced distribution of support. This possibility was further explored across the various options in three ways: a compulsory capping of direct payments, degressive payments as a way of reducing the support for larger farms, and with enhanced focus on a redistributive payment in order to be able to provide support in a targeted manner e.g. to small-medium sized farms.

These were applied at farm level, regional or national level depending on the model used and results could be aggregated at EU level. More explanations on what was precisely modelled in this impact assessment can be found in Annex 5.1. In addition, to cover the items which are not sufficiently captured by the models, and to summarize the impact of the options vis-à-vis the baseline, Multi-criteria Analysis, including an extensive literature review, was used (See Annex 5.2).

The different budget allocations and interventions were translated into more detailed schemes and payment levels for modelling purposes. Some environmental requirements were selected in view of their modelling feasibility for the purpose of testing the options. In particular, a number of requirements considered under the new conditionality could be assessed (crop rotation, winter soil cover, nutrient management, minimum share of area devoted to non-productive features, restrictions on permanent grassland…).

Note: The above allocation of funds to different policy interventions in the various options is purely based on assumptions for purposes of analysis and is in no-way indicative of preference of a specific option. Some differences were on purpose made wide so that differential impacts could be better assessed.

Option 5 (focus on small farms and the environment) places strong emphasis on environmental care and employment – and shifts the focus on small and medium size farmers to keep jobs in rural areas. MS are obliged to allocate 30% of pillar I payments to provide top ups for four schemes that would be voluntary for farmers, organic farming, permanent grassland, Areas with Natural Constraints (ANC) and linear landscape elements. This ring-fencing obligation would further encourage climate action and sustainable management of natural resources.

In option 4 (jointly address environmental and economic sustainability), direct payments are better targeted and the implementation of conditionality is more ambitious in order to improve the joint economic and environmental performance of the CAP, as well as address climate challenges. Sub-options are also developed to illustrate possible differences in MS ambition regarding environmental targets.

Option 3 (incentives for environment, climate action and health) tests the potential of a voluntary eco-scheme to increase environmental sustainability. It also examines the potential role of risk management tools with lower direct payments in supporting farmers' income. Two sub-options reflect different MS environmental ambitions and approaches to direct payments:

All assessed options assume the 2013 CAP reform fully implemented and 2030 market environment as described in the EU agricultural Outlook, with a value of production increasing on average by 2 % per year in nominal terms, i.e. almost stagnating in real terms and subject to risks of output variability. The initial baseline was updated to incorporate the post-Brexit budgetary envelopes.

To ensure an increase in environmental and climate ambition, a new basic conditionality is proposed; it includes some additional minimum requirements going beyond the current cross-compliance rules (as explained in section 3.3). While the Commission reaffirmed the need to enhance the environmental and climate ambition, this new conditionality applies to all options with different ways of articulating with voluntary measures. (see 4.2.2).

Since MS potential choices in their future CAP Strategic Plans are not known, options should be interpreted as illustrative of different ways to achieve these objectives, more particularly in terms of environment-climate performance as well as for targeting and re-distributing support. Because of this design, options are not mutually exclusive, and results should not be interpreted as indicative of a preferred option. Sub-options were defined to reflect the degree of subsidiarity left for MS under the new delivery model and possible differences in the level of ambition in the environmental and climate priorities of MS, as these are the areas where most uncertainty exists about these possible differences. Both voluntary and mandatory (conditionality) approaches were tested to achieve higher environmental sustainability (insights on behavioural differences for those approaches summarised in Annex 8).

With these instruments offering limited possibilities for cuts since they perform an essential role in times of price declines, in particular as safety net, a higher cut for direct payments (-10%) was simulated instead. Since options tested in this impact assessment could not prejudge the next Multiannual Financial Framework (MFF), they did not include assumptions on EU resources and kept the distribution of envelopes between MS unchanged. Specifications about proposals tabled by the Commission for the future MFF can be found in the summary section (4.2.7).

The overall budgetary envelopes for options were determined by assuming that the withdrawal of the UK would translate into an 8.9% reduction in CAP budget. In this assessment, the budget for market measures is kept unchanged as their share in total CAP support is now very small (reaching 5% of the total CAP budget).

The baseline for the period post 2020 takes into account the fully phased-in envelopes by MS and the distribution between direct payments and rural development as currently in place (i.e. after applying the flexibility between pillars). A "post-Brexit baseline" for the EU-27 deducting UK pre-allocated envelopes and related contributions was developed.

Options were designed to test how EU objectives can be best met (Table 2 in section 2), while reflecting broad ideas of the ongoing public debate, i.e. better targeting of payments, increased environmental and climate ambition and fostering of modernisation and simplification. In addition, the greater subsidiarity given to MS under the new delivery model to plan CAP interventions against EU objectives and to shift from compliance to performance is assessed. This section summarises the options tested in this impact assessment and presents key impacts that would result from a shift in priorities to address EU objectives (more details are available in Annex 5).

Options testing various degrees of emphasis on EU objectives/broad interventions are assessed in the next section.

Significant involvement and oversight from the Commission will ensure a level-playing field with common requirements, for instance on conditionality, indicators and minimum target setting and accountability (see section 5). In the areas of the environment and climate it emerged that, although voluntary tools have a very large role to play, they need to be complemented by a certain level of "mandatory" standards, especially (but not only) regarding domains in which there is no EU legislation but nevertheless commitments for action, such as that of soil.

In the proposed future CAP, MS will address potential difficulties in the choices which they make (within CAP strategic plans) about how to allocate funding on their territory to achieve objectives. The easiness or difficulty of this exercise depends partly on available funding.

The best way to meet the CAP's objectives is to strike the right balance between common rules established at EU level and flexibility granted to MS in selecting broad intervention types and designing measures within this framework. In such a way MS can better prioritise the appropriate interventions to address the objectives considering the economic, environmental and social conditions prevailing on their respective territories.

For the sake of preserving the balance across the dimensions of sustainable development, all the objectives identified in section 2 do matter. However, within their CAP strategic plans MS will respond to the EU objectives in ways which reflect the analysis of their situation and needs. A wealth of evidence drawing on the experience of implementing the CAP over many years points to a need for various types of support through the CAP – along the lines of those described in section 3.3.

The funding mechanisms should remain mainly grants, mixed with financial instruments in the EAFRD as currently. Financial instruments may be used independently or in combination with grants. On CAP plan level they may contribute with additional financing in particular for revenue generating projects. The use of financial instruments under Rural Development is to be further encouraged in the next MFF as access to capital for the sector differs very much between MS. A limiting factor for further use of financial instruments is the lack of experience of the MS authorities. Specific actions under technical assistance will also be necessary in future to facilitate the implementation. Furthermore, the preparation and programming of financial instruments needs to be simplified.

This policy shift comes with challenges and risks that are analysed in great detail in Annexes 4 and 5. The related safeguards to minimise these are further analysed in section 4 below. Section 5 outlines changes considered in the Common Monitoring and Evaluation Framework to improve performance reporting. These various checks and balances of the policy cycle are summarised in Chart 3.

1)A multi-annual programming approach that will cover the two pillars of the CAP (direct payments, sectorial strategies under the current CMO and rural development), based on a common set of objectives, indicators and a common catalogue of broad types of interventions.

The new delivery model for the CAP will involve a shift from compliance towards results and performance and a new distribution of responsibilities between the EU and Member States, involving substantial changes at three different levels:

The existing CAP governance bodies set up in the Member States, notably the paying agencies and certification bodies, have shown their effectiveness in protecting the EU budget and ensuring sound financial management and reasonable assurance. The new CAP delivery model acknowledges this situation by conferring more flexibility to Member States in deciding and managing the control systems in place. Changes in the assurance framework are explained in Annex 4.

In view of the large number of beneficiaries from CAP support, shared management remains the main implementation mode for the major part of the policy. Shared management provides for the possibility to establish tailor made instruments which take into account the envisaged geographical distribution.

·Reporting: instead of annual notifications and implementation reports, annual performance reports will focus on outputs and results, with common indicators.

·Factual basis for designing plans/programmes: the obligation to base future CAP strategic plans on sound evidence will not mark a theoretical change from what should happen with current rural development programmes. However, a new policy period offers a chance to correct some cases of poor application of this principle. For pillar I, this implies moving from notifications to planning (MS must integrate interventions into their strategic analysis and plan, Commission must approve).

·Length of plans/programmes: the intention is that CAP strategic plans will contain less detail than current rural development programmes – though enough to judge whether MS are presenting a credible approach to meeting the objectives.

·CAP Plan: Member States will submit a single strategic document for both CAP pillars for their entire territory. However, where elements of the CAP Strategic Plan are established at regional level, the Member State will ensure the coherence and the consistency with the elements of the CAP Strategic Plan established at national level.

·Interventions: the essence will remain the same but there will be a reorganisation. Current "measures" will be bundled into broader "types of intervention". More significantly, the number and detail of related EU rules will be cut back to what is strictly needed at EU level to ensure level playing field.

·Objectives: are streamlined into a limited number of general and specific objectives, applying to both pillars of the CAP.

The approach of steering policy design and implementation through plans rather than through compliance with detailed EU rules will mark a bigger change for pillar I rather than pillar II, as the new "planning" process for both pillars will have elements in common with the process for drawing up and implementing rural development programmes in the current period.

·payments related to constraints (i.e. payments in areas facing natural constraints – ANCs – as well as payments related to the Natura Directives and the Water Framework Directive);

The types of intervention which may be funded through CAP strategic plans will remain broadly like those available today – with possible amendments - and will be laid down in CAP legislation but bundled into broader categories (with fewer rules attached, as already indicated). In the following Box 3, a non-exhaustive list of such interventions is presented.

Conditionality also ensures that direct payments continue to serve several objectives (economic, climate and environmental, social). Their integration into strategic planning will further strengthen the linkage between needs, types of intervention and results. This new EU framework will still include some basic requirements, needed to ensure a level playing field, but it will enable MS to better target the implementation of direct payments according to needs.

Chart 2 illustrates the changes proposed in the "green architecture" of the CAP. Enhancing current cross-compliance to a strengthened conditionality will work as a safeguard for related requirements stemming from EU legislation embedding statutory management requirements pertaining to public, animal and plant health (including relevant provisions of food law), as well as animal welfare, in addition to climate and environmental requirements.

This flexibility is essential for MS to meet their targets. In this respect, MS would also be able to deploy voluntary interventions promoting the provision of environmental and climate public goods, going beyond business as usual. In particular a new intervention is proposed under pillar I, the eco-scheme, aimed at enhancing the environmental and climate performance of the CAP, going beyond the basic conditionality. Additional commitments can be further supported under rural development (pillar II).

The scope and definition of the elements included will ensure a solid foundation for a positive influence of the CAP on the environment and climate – especially as MS' planned implementation of conditionality will be assessed and approved in CAP strategic plans. But the level of prescriptiveness in EU legislation will be below that of green direct payments (i.e. with basic descriptions of the practices concerned, leaving MS to propose the details of implementation), giving MS sufficient flexibility to take into account the wide diversity of farming conditions across the EU.

Other requirements could be more demanding than at present (e.g. crop rotation instead of crop diversification, which would bring multiple benefits such as helping replenish nitrogen in soil, reducing erosion, increasing the water infiltration capacity of the soil and preventing weeds - thus reducing pesticide use; ban on converting or ploughing any permanent grassland in Natura 2000 areas to preserve biodiversity and maintain carbon stocks).

A proposed new system of "conditionality" will draw on the most relevant aspects of cross-compliance and green direct payments. An extension of the scope is envisaged. This would lead to adding new requirements, for instance a ban on converting or ploughing wetlands or peatlands to protect carbon-rich soils, the use by farmers of a Farm Sustainability Tool for Nutrients that would reduce ammonia and N2O emissions, with reduced nutrient leaching and run-off expected to improve water quality.

But this does not mean that the new CAP will be shorn of environment - and climate-related rules connected to support payments.

This can be illustrated for environment and climate (Annex 4 also offers other examples). As previously mentioned, the current "green direct payments" have been heavily criticised. Among other things, what was originally supposed to be a short list of simple, generally applicable requirements expanded to encompass a mass of numerical thresholds and exemptions, and there have been loud calls for change.

The above-mentioned process will be the main means of "steering" what the CAP does, albeit in a manner less prescriptive and detailed than at present. Legislative acts will become more focused on creating a framework for MS to achieve EU-wide objectives in a more flexible way, while ensuring an EU level playing field and keeping accountability for results, in line with the principle of Budget Focused on Results.

The progress of the plans will be assessed each year against the targets set in terms of result indicators (all of which will be, by their nature, closely linked to the CAP). When targets are missed by a significant margin, the Commission would request Member State to submit a formal action plan to remedy the situation. Where the intended remedial actions have not been implemented or the Member State is not willing to engage, the Commission may suspend payments. Should the problem not be solved, the suspended amounts would be definitively lost by the Member State. Such EU corrective actions would not apply at the level of beneficiaries.

The Commission will assess whether the draft plan sets appropriate targets and a credible approach to meeting them, and request modifications as necessary before approving it. The approval process is designed as a strong safeguard to ensure strategic planning and enhanced efficiency. While effectiveness of national CAP plans will be assessed on the basis of the needs analysis, simplification can be assessed based on the MS description of administrative burden reduction, but it can also be estimated on the basis of the complexity of the planned strategy. Identifying potential issues early on at planning stage will allow adapting the national plans and increasing their coherence with the EU CAP objectives, including simplification.

MS will also need to identify how their plan performs in terms of simplification and reduced administrative burden and justify when national rules add additional administrative burden for beneficiaries.

Annex 4 provides detailed explanations and illustrations on the new delivery model, as well as an analysis of opportunities and challenges and related safeguards. In essence, each MS will draw up a "CAP strategic plan" – covering interventions planned under both CAP pillars to meet quantified targets (based on result indicators set out in EU legislation) linked to EU-level CAP objectives. The targets and planned interventions (with financial allocations) will be justified by an analysis of strengths, weaknesses, opportunities and threats (SWOT) which the MS in question will carry out with regard to its farm sector and rural areas, taking into account their planning tools emanating from EU environmental, climate and energy legislation.

Against this background, it is proposed to further simplify the CAP and to improve its performance (Chart 1). With the proposed new delivery model, CAP design and implementation is streamlined around the EU objectives spelled out in section 2. These objectives, to be agreed at EU level, should be clearly outlined in a new basic act of the CAP that should bring together the two pillars under a common planning strategy (proposal for a regulation for CAP Strategic Plans).

This draws on the lessons learnt from the implementation of policy and from the public consultation. Having detailed EU rules raises issues about the complexity of the policy, the limitations of a "one size fits all" approach, the effectiveness and the efficiency of the policy, including the excessive administrative burden. Moreover, there is need to strengthen the coordination and synergies between CAP pillars and interventions, and to maximise the CAP contribution to EU priorities. While striving to accommodate the diversity of situations and challenges, the policy became more and more complex and its main purposes lost visibility.

As proposed in the Communication on the Future of Food and Farming and confirmed in the MFF Communications (February and May), a new delivery model will bring a fundamental shift in the CAP, moving away from compliance with detailed EU-level rules towards placing more emphasis on achieving results against the policy's common objectives, defined and agreed at EU level.

On the other hand, the complementarity and the synergies between the two pillars will be enhanced thanks to a single strategic planning process.

On the one hand, the CAP will continue to operate through two funds. In general terms, the EAGF – (CAP pillar I) will finance the bulk of income support payments for farmers as well as market instruments, while the EAFRD – (CAP pillar II) will be the source of funding for most other types of intervention, as at present. The two-fund structure is kept, reflecting differences between the respective types of support concerned: annual and fully Union-financed (pillar I) vs. mainly multi-annual and mainly co-financed by EU and MS (pillar II).

Although no significant changes are envisaged in the structure of the programmes of the CAP, major changes in the delivery mechanism and the scope of various interventions are proposed to respond to the urgency, the range and seriousness of the identified challenges.

A certain level of flexibility for transfers between pillars will be offered to MS. Up to 10% can be transferred between direct payments and EAFRD, in both directions. A higher percentage can be transferred from direct payments to EAFRD allocation for interventions addressing environmental and climate objectives and installation grants for young farmers.

For rural development, a 10% increase in national co-financing rates is proposed to rebalance the financing between the EU and Member States’ budgets, in line with what is foreseen for the other European Structural and Investment Funds. The distribution of EAFRD support will be based on objective criteria linked to the policy objectives and taking into account the current distribution across MS.

A more balanced distribution of direct payments (pillar I) will be promoted through either compulsory capping at farm level or degressive payments. Direct payments will also continue to converge towards EU average.

These agricultural funds are complemented by additional funding of EUR 5 billion from Horizon Europe, out of an allocation of EUR 10 billion proposed to support research and innovation in food, agriculture, rural development and the bio-economy.

The Communication further confirmed that the reformed policy would continue to be built around two pillars. In current prices, the following allocations are proposed:

Against the background of a difficult budgetary context, the May Communication for the 2021-2027 MFF proposes a moderate cut for the CAP budget (- 5%). Nevertheless, a significant part of the EU budget should continue to be dedicated to this common policy of strategic importance.

The notion of a critical mass of projects is unlikely to be an issue for the CAP as a whole. Nevertheless, this could be critical for some MS/their authorities in some cases or for some measures. In a policy such as the CAP – which addresses large numbers of potential beneficiaries and a large physical area – there is a possible danger that support is spread too thinly to have a significant effect. The risk is perhaps greatest in the case of area-based payments (not only direct payments but also various environmental payments) but is also present in other types of support, e.g. for investment.

The CAP is currently implemented under shared management, with MS setting up their specific governance structures in order to ensure sound management of EU funds. With regard to a critical mass of "projects" to meet its economic, environmental and social objectives the CAP needs to offer funding to large numbers of farmers and other beneficiaries in rural areas, and improve its targeting, so that farm income, food security, food safety, environmental and climate ambition and the diversity of rural areas are adequately addressed. However, this will take place efficiently only if the total available budget is adequate.

The future policy approach set out in section 3.3 is proportional. The economic, environmental and social challenges facing the EU's farm sector and rural areas require a substantial response which does justice to the EU dimension of those challenges. The greater power of choice to be offered to MS in selecting and adapting available policy tools within the CAP to meet objectives, in a more results-based model, should make it even less likely that the CAP oversteps a proportionate level of action.

The Communication on the Future of Food and Farming suggests a new delivery model for the CAP which, by rebalancing responsibilities between the EU, MS and beneficiaries, is expected to enhance subsidiarity and flexibility for MS as described in sections 3.3 and 3.4 below.

One of the tested scenarios in the JRC study shows notably that removing the CAP would result in an 18% drop in farm income on average in the EU, threatening the economic viability and attractiveness of rural areas, a sizeable decline in production affecting food security, land abandonment, a decline in permanent grassland and a stronger production intensification, which can lead to more pressure on the environment.

In other areas, a strong EU-wide dimension needs to be combined with more subsidiarity. These areas include food quality, public health and nutrition, rural area challenges (with big gaps in rural unemployment existing between MS), poor rural infrastructure and services, and weaknesses in research and innovation. An appropriate EU-level response to these challenges allows more effective and efficient action when combined with more flexibility at MS level. A common budget enables all MS and regions to respond to the challenges and objectives set out, including those with limited financial resources. In this respect it supports solidarity and limits gaps between regions. Furthermore, the CAP promotes networking, spreading of good practices and supports the delivery of public goods across the EU. Both the World Bank study on the CAP and the JRC study on Scenario 2030 provided additional evidence on the value added of the CAP.

·Thirdly, key sustainability challenges like climate change, water use, air quality and biodiversity are cross-border, and also require EU action to meet EU-wide objectives.

·Secondly, the effects of increased exposure to world markets, resulting from previous CAP reforms and trade agreements can only be addressed at EU level.

·Firstly, the single market for goods and services offers substantial economic opportunities to farmers as well as important pressures which require a common safety net, including a system of income support that avoids potential distortions of competition, and underpins food security as well as food safety.

Most of the challenges identified above have cross-border and global nature which require a common action at EU level:

This fundamental legal basis is interpreted in various legislation emphasising the strong links of agriculture to the wider economy (especially the rural economy) and to the natural environment. Art 11 states that environmental protection requirements must be integrated into the definition and implementation of Union policies and activities, in particular to promoting sustainable development. Additionally, the Charter of Fundamental Rights of the European Union provides for protection of intellectual property that includes geographical indications (Article 17).

The main legal basis for EU action stems from the Treaty (Arts. 38 to 44 TFEU), which enshrines an obligation to establish and implement a CAP. See previous section for the objectives set out in Art. 39. Other Articles of the Treaty are also relevant. Arts. 174 and 175 on economic, social and territorial cohesion include a reference to rural areas, as do Art. 191 to 193 on the environment.

In its Communication for the MFF for 2021-2027, the Commission confirmed that it would propose a reformed, modernised CAP. This will allow maintaining a fully integrated single market, ensuring food security, safety and quality, as well as placing greater emphasis on the environment and climate. The reform should "support the transition towards a fully sustainable agricultural sector and the development of vibrant rural areas".

Compared to objectives stemming from the 2013 reform of the CAP, based on identified challenges, emphasis and/or wording are changing for some objectives and cross-cutting objectives are made more explicit within a streamlined architecture. Having three policy objectives - each of which is encompassing three specific objectives - aims at improving the balance across the dimensions of sustainable development. Moreover, the cross-cutting objective on sustainable development, alongside with the objectives of simplification and modernisation, are mainstreamed as part of this new architecture. These objectives apply to the whole CAP - they are the entry point for a single strategic planning encompassing both pillars (see section 3.3).

These policy and cross-cutting objectives are broken down into more specific objectives which reflect the emphasis required by the identified challenges, Commission priorities and UN SDGs. Based on challenges highlighted in the previous section, table 2 summarises the general architecture of objectives. For evaluation and monitoring, these objectives were complemented by operational criteria that serve for the impact assessment as well as for setting up indicators (see Annex 5.3).

All the above is in line with the cross-cutting objectives for the next Multiannual Financial Framework: coherence, synergies, simplification and performance. The bulk of CAP expenditure is currently pre-allocated to MS to provide a degree of stability to MS and beneficiaries over the medium-term, but flexibility is offered to MS in the implementation of allocations within a newly defined EU framework.

·Address simplification by streamlining the design and delivery of the CAP on relevant EU objectives through a shift from compliance to performance, in line with the requirements of Budget Focused on Results.

These objectives correspond to the three dimensions of sustainability and complemented by the cross-cutting objectives pertaining to modernisation and simplification can be summarised in a cross-cutting manner:

·Bolster environmental care and climate action and contribute to the environmental and climate objectives of the EU;

Based on the Communication, this Impact Assessment as well as the broader EU political priorities, the corresponding policy objectives of the CAP can be summarised as follows:

However, achieving the above objectives in the current context necessitates adjustments to the CAP’s objectives, which are herewith suggested as follows (see table 2).

The CAP objectives, set out in Art. 39 TFEU, aim at: (a) increasing agricultural productivity (including through technical progress and optimum usage of the factors of production); (b) thus ensuring a fair standard of living for the agricultural community (including by increasing earnings); (c) stabilising markets; (d) ensuring the availability of supplies; and (e) ensuring that supplies reach consumers at reasonable prices.

CAP objectives are stemming from three different layers - the Treaty objectives, the broader policy objectives that link the CAP to other EU policies, and specific objectives stemming from the more immediate challenges identified above.

Despite relevant CAP provisions on the Farm Advisory System, weaknesses and gaps in quality remain. Rural areas show lower participation in education and training than urban areas (in 2015 19% of the population of rural areas had tertiary education, compared with 27% of people in all areas).

Major drivers for various problems include insufficient levels of innovation and knowledge, whether in products and processes or the provision of services. With investments in certain areas of R&D falling and difficulties in translating the results of research into practical innovation, the level of knowledge was deemed unsatisfactory.

Complexity in terms of eligibility requirements and variety of measures leads to increased burden for beneficiaries (time for familiarising with information obligations and extent of information/evidence to be provided with applications) and lack of economies of scale for administrations. Gold-plating further increases burden as it adds unnecessary national requirements. A trade-off should be found between simplification and the need for accountability of the budget spent.

Cross-cutting broader challenges such as those linked to food security, food safety, food quality, and sustainability are assumed to overarch the above challenges, and are thus not included in this table. The same applies for other cross-cutting challenges: simplification and modernisation.

Considering all the above, detailed analysis led to the classification of these challenges according to the three dimensions of sustainable development and linked them to the assessment of the related achievements and shortcomings of the CAP reviewed ahead of the Communication on "the Future of Food and Farming". (These are summarised in Table 1).

Based on the lessons learnt from earlier reforms, a broader and more prospective analysis was carried out to identify problems and challenges, to anticipate needs up to 2030, in line with the horizon for the next MFF and SDGs.

Synergies also link successive reforms of the CAP, that aimed at improving the sustainability of agriculture and rural areas since the adoption of the EU sustainable development strategy in 2001, to a number of UN Sustainable Development Goals (SDGs), in line with the "European Action for sustainability", which outlines that "sustainable development is an essential guiding principle for all policies".

Turning such tensions into synergies would be the litmus test for the capacity of the future CAP to deliver in a coherent manner to its objectives, as well as those of related EU policies and priorities. Such priorities include CAP' contribution to many Union priorities, including to key priorities (Jobs, growth and investment; the Digital Single Market; Energy Union and climate action; a Stronger Global Actor; and Migration).

·the often-complex trade-off between simplification and targeting, and the appropriate degree of subsidiarity in the context of very different structural characteristics in the farming sector of 28 MS.

·the risk for employment from efforts to raise productivity and growth, especially in the primary farm sector;

·the need to improve simultaneously the economic and environmental and climate performance, which sometimes creates a short-term trade-off (the public consultation illustrated different perceptions on economic and environmental challenges);

The public consultation and subsequent analysis also revealed concerns around three significant tensions that characterise modern agriculture in its transformation towards what is often termed as Farming 4.0 (digital farming). These tensions relate to:

The public consultation also reiterated the call for simplification when it comes to future CAP, with specific suggestions including the reduction of overlaps between Rural Development and other CAP measures, better use of new technologies and e-government tools to reduce controls.

·The wider public also raised a series of concerns on how agriculture interacts with the environment, climate, animal welfare, food safety and consumer protection, health standards and broader sustainability challenges.

·The call for a reduction of administrative burden is a generalised demand in the papers submitted by farmers and public administrations.

·At the same time, “greening”, aid applications and controls are identified as the most burdensome and complex elements.

·The excess of bureaucracy and lack of attention to sustainability was often highlighted as the main problems/obstacles preventing the current policy from successfully delivering on its objectives.

·All types of respondents (farmers, other citizens and organisations) also share a negative reply when assessing to what extent the current CAP addresses the environmental challenges (63%).

·The participants to the public consultation considered that the current CAP successfully addresses the existing challenges to some extent only (57%). This view is shared among different types of respondents (farmers, other citizens and organisations).

The public consultation confirmed the challenges identified with the lessons learnt from the latest CAP reform: replies about future CAP highlighted the continuous need for income support, although questions were raised about whether the current distribution of CAP support leads to the best possible outcomes, requests were made for agriculture to be more environment and climate-friendly, and expectations were advanced about farming's contribution to rural employment. Moreover, answers also reflected further societal demands about food (organic, quality) and animal welfare, while the most common answer to the open question on modernisation was sustainability.

These shifts are reflected in the EU Agricultural Outlook, which provides updated projections for agricultural markets until 2030 under an unchanged policy assumption. This outlook points to an agricultural income decline in real terms up to 2030 at sectoral level, but income per agricultural working unit is expected to increase driven by the continuous labour outflow from agriculture.

III.new EU international commitments on Climate Change and on Sustainable Development Goals added new dimensions to the challenges and opportunities facing the CAP.

Within this background of the proposed CAP budget, EU agriculture and rural areas face developments that have significantly changed the broader environment and the challenges within which EU's agriculture and the CAP will have to operate. This is evident from the three major changes that have taken place since the 2013 CAP reform was implemented:

In its proposal for the next MFF, the Commission proposed an allocation of EUR 365 billion for the period 2021-2027 for the EU-27. After deducting the UK budget contribution, this amount represents a 5% cut compared to the CAP budget allocation for the EU-27 in 2020.

The total MFF allocation for the CAP for 2014-2020 in current prices amounts to EUR 408.3 billion for the EU-28, including an effect of phasing in of direct payments for Bulgaria, Romania and Croatia.

The creation of the European Innovation Partnership for Agricultural Productivity and Sustainability (EIP) gave an impetus to knowledge creation and sharing, but important efforts should continue to be made to facilitate the access of farmers to knowledge.

Another cross-cutting concern is generational renewal: only 5.6% of all European farms are run by farmers younger than 35 years. Access to land, reflecting both land mobility and farm succession constraints, together with access to credit, are often cited as the two main constraints for young farmers and other new entrants. ECA recommended that CAP support should be better targeted to foster effective generational renewal.

Criticism about fairness and targeting was reiterated while the distribution of direct payments appears to remain unchanged, on average 20% of farmers still receive 80% of direct payments (although figures differ among MS). This ratio reflects land concentration, with half of CAP beneficiaries coming from very small farms while most of the payments go to medium-sized farms.

A study mapping the implementation of the 2013 reform of the CAP confirmed that the policy became more complex with the new flexibilities. For the CAP Post 2020, MS are encouraged to establish a long-term strategy that better takes into account the CAP objectives including simplification. The public consultation on "modernising and simplifying the CAP" confirmed a widespread consensus on the idea that the current CAP tools successfully addresses current challenges to some extent only. A consensus also emerged on the EU value added of the CAP, but the excess of bureaucracy was highlighted as a key obstacle preventing the current policy from successfully delivering on its objectives.

Several concerns on cross-cutting issues emerged from the public debate and from studies and evaluations on the CAP. The REFIT Platform put emphasis on the perception of an excessive administrative burden of the current greening measures, the control and audit system and the growing overlaps between direct payments and rural development. The stakeholders of the REFIT Platform called for a reduction of the regulatory burden of the CAP and an improvement of its value for money while ensuring the achievement of the objectives and increase its integration with other policy areas, especially with other European Structural Investment Funds (ESIF).

Specific measures for agriculture have been implemented in Outermost Regions (OR) through the POSEI scheme (Programme of options specific to the remote and insular nature of the outermost regions). In its report presented in December 2016 after an external evaluation of the scheme, the Commission concluded that POSEI appears critical to maintaining agricultural production in these regions and to ensure a sufficient supply in agricultural products. Following the Communication adopted by the Commission in December 2017 on a stronger and renewed strategic partnership with the EU's outermost regions, no change was considered in this impact assessment for the specific provisions applying for agriculture in these regions.

ECA further recommended that the Commission defines the various types of indicators more accurately to have a common set of result-oriented indicators that are more suitable for assessing results and the impact of interventions.

While acknowledging that the design of the 2014-2020 programming framework was more ambitious, the European Court of Auditors (ECA) noted that the implementation was affected by significant shortcomings, for instance programmes did not started earlier than in the previous period, despite efforts. To make the programming process more manageable and efficient, the Court encourages the Commission to review the design of programming documents with a view to simplifying their content and reducing the number of requirements for the post-2020 programming period.

A recent report underlines that EU funding will be essential for the development of the support services sector in Europe, especially in rural areas where services are scarcer and less developed.

While stressing the need for better targeting of support in the future, the report argues that the CAP was associated with the reduction of poverty and the creation of better jobs for farmers across the EU, although this role differs depending on where a country finds itself along the process of structural transformation. The report also stresses the positive impact of decoupled support in increasing productivity and in structural adjustment (while it does not find a significant or similar impact from coupled support).

A recent addition on evidence from CAP's contribution to balanced territorial developments came from the publication of the World Bank's study of the CAP (preliminary results of which were presented to one of the IA Workshops).

In the period 2014-2020, investment in the general rural fabric is continuing: further improvements to local basic services should cover a total area which is home to 51 million citizens, while 153 million people should be covered by CLLD strategies (LEADER). There is a sharper focus on ICT: 18 million citizens should be covered by better ICT services and infrastructure. Ex-ante evaluations point to a need to further enhance needs prioritisation and internal coherence.

Ex-post evaluations for Rural Development Plans (RDP), strategies and frameworks for the period 2007-13 are predominantly positive about the contribution of RDPs to environment and climate action, as well as for growth and jobs. On the latter, the economic crisis was part of the limiting factors. Outcomes for the quality of life, diversification and innovation are more nuanced. Prioritisation within limited budget resources has had a limiting effect on innovative approaches. This support delivers benefits at the micro-level. There have sometimes been obstacles to effective targeting, including where this has required effective co-ordination with other EU funds (e.g. concerning infrastructure).

In 2007-2013, the CAP supported 280 000 projects related to non-farm micro-enterprises, local basic services (childcare, healthcare etc.) and other aspects of rural life – in addition to a further 170 000 projects under community-led local development (CLLD) strategies.

The CAP currently helps to achieve balanced territorial development both through support for the farm sector (which has strong links to the rest of the rural eco