EXPLANATORY MEMORANDUM

1. CONTEXT OF THE PROPOSAL

The Commission proposal for the Multiannual Financial Framework (MFF) for 2014-2020 (the MFF proposal)[1] sets the budgetary framework and main orientations for the Common Agricultural Policy (CAP). On this basis, the Commission presents a set of regulations laying down the legislative framework for the CAP in the period 2014-2020, together with an impact assessment of alternative scenarios for the evolution of the policy.

The current reform proposals are based on the Communication on the CAP towards 2020[2] that outlined broad policy options in order to respond to the future challenges for agriculture and rural areas and to meet the objectives set for the CAP, namely 1) viable food production; 2) sustainable management of natural resources and climate action; and 3) balanced territorial development. The reform orientations in the Communication have since been broadly supported both in the inter-institutional debate[3] and in the stakeholder consultation that took place in the framework of the impact assessment.

A common theme that has emerged throughout this process is the need to promote resource efficiency with a view to smart, sustainable and inclusive growth for EU agriculture and rural areas in line with the Europe 2020 strategy, keeping the structure of the CAP around two pillars that use complementary instruments in pursuit of the same objectives. Pillar I covers direct payments and market measures providing a basic annual income support to EU farmers and support in case of specific market disturbances, while Pillar II covers rural development where Member States draw up and co-finance multiannual programmes under a common framework.[4]

Through successive reforms the CAP has increased market orientation for agriculture while providing income support to producers, improved the integration of environmental requirements and reinforced support for rural development as an integrated policy for the development of rural areas across the EU. However, the same reform process has raised demands for a better distribution of support among and within Member States, as well as calls for a better targeting of measures aiming at addressing environmental challenges and better addressing increased market volatility.

In the past, reforms mainly responded to endogenous challenges, from huge surpluses to food safety crises; they have served the EU well both on the domestic and the international front. However, most of today's challenges are driven by factors that are external to agriculture and would thus require a broader policy response.

The pressure on agricultural income is expected to continue as farmers are facing more risks, a slowdown in productivity and a margin squeeze due to rising input prices; there is therefore a need to maintain income support and to reinforce instruments to better manage risks and respond to crisis situations. A strong agriculture is vital for the EU food industry and global food security.

At the same time, agriculture and rural areas are being called upon to step up their efforts to meet the ambitious climate and energy targets and biodiversity strategy that are part of the Europe 2020 agenda. Farmers, who are together with foresters the main land managers, will need to be supported in adopting and maintaining farming systems and practices that are particularly favourable to environmental and climate objectives because market prices do not reflect the provision of such public goods. It will also be essential to best harness the diverse potential of rural areas and thus contribute to inclusive growth and cohesion.

The future CAP will not, therefore, be a policy that caters only for a small, albeit essential, part of the EU economy, but also a policy of strategic importance for food security, the environment and territorial balance. Therein lies the EU added value of a truly common policy that makes the most efficient use of limited budgetary resources in maintaining a sustainable agriculture throughout the EU, addressing important cross-border issues such as climate change and reinforcing solidarity among Member States, while also allowing flexibility in implementation to cater for local needs.

The framework set out in the MFF proposal foresees that the CAP should maintain its two-pillar structure with the budget for each pillar maintained in nominal terms at its 2013 level and with a clear focus on delivering results on the key EU priorities. Direct payments should promote sustainable production by assigning 30 % of their budgetary envelope to mandatory measures that are beneficial to climate and the environment. Payment levels should progressively converge and payments to large beneficiaries be subject to progressive capping. Rural development should be included in a Common Strategic Framework with other EU shared management funds with a reinforced outcome-orientated approach and subject to clearer, improved ex-ante conditionalities. Finally, on market measures the financing of the CAP should be reinforced with two instruments outside the MFF: 1) an emergency reserve to react to crisis situations; and 2) the extension of the scope of the European Globalization Adjustment Fund.

On this basis, the main elements of the legislative framework for the CAP during the period 2014-2020 are set out in the following regulations:

- Proposal for a Regulation of the European Parliament and of the Council establishing rules for direct payments to farmers under support schemes within the framework of the common agricultural policy ('the direct payments regulation');

- Proposal for a Regulation of the European Parliament and of the Council establishing a common organisation of the markets in agricultural products (Single CMO Regulation) ('the Single CMO regulation');

- Proposal for a Regulation of the European Parliament and of the Council on support for rural development by the European Agricultural Fund for Rural Development (EAFRD) ('the rural development regulation');

- Proposal for a Regulation of the European Parliament and of the Council on the financing, management and monitoring of the common agricultural policy ('the horizontal regulation');

- Proposal for a Council regulation determining measures on fixing certain aids and refunds related to the common organisation of the markets in agricultural products;

- Proposal for a Regulation of the European Parliament and of the Council amending Council Regulation (EC) No 73/2009 as regards the application of direct payments to farmers in respect of the year 2013;

- Proposal for a Regulation of the European Parliament and of the Council amending Council Regulation (EC) No 1234/2007 as regards the regime of the single payment scheme and support to vine-growers.

The rural development regulation builds on the proposal presented by the Commission on 6 October 2011 that sets out common rules for all funds operating under a Common Strategic Framework.[5] A regulation will follow on the scheme for most deprived persons, for which funding is now placed under a different heading of the MFF.

In addition, new rules on the publication of information on beneficiaries taking account of the objections expressed by the Court of Justice of the European Union are also under preparation with a view to finding the most appropriate way to reconcile beneficiaries' right to protection of personal data with the principle of transparency.

2. RESULTS OF CONSULTATIONS WITH THE INTERESTED PARTIES AND IMPACT ASSESSMENT

ON THE BASIS OF THE EVALUATION OF THE CURRENT POLICY FRAMEWORK AND AN ANALYSIS OF FUTURE CHALLENGES AND NEEDS, THE IMPACT ASSESSMENT ASSESSES AND COMPARES THE IMPACT OF THREE ALTERNATIVE SCENARIOS. THIS IS THE RESULT OF A LONG PROCESS STARTED IN APRIL 2010 AND STEERED BY AN INTER-SERVICE GROUP THAT BROUGHT TOGETHER EXTENSIVE QUANTITATIVE AND QUALITATIVE ANALYSIS, INCLUDING SETTING A BASELINE IN THE FORM OF MEDIUM-TERM PROJECTIONS FOR AGRICULTURAL MARKETS AND INCOME UP TO 2020 AND MODELLING THE IMPACT OF THE DIFFERENT POLICY SCENARIOS ON THE ECONOMICS OF THE SECTOR.

The three scenarios elaborated in the impact assessment are: 1) an adjustment scenario that continues with the current policy framework while addressing its most important shortcomings, such as the distribution of direct payments; 2) an integration scenario that entails major policy changes in the form of enhanced targeting and greening of direct payments and reinforced strategic targeting for rural development policy in better coordination with other EU policies, as well as extending the legal base for a broader scope of producer cooperation; and 3) a refocus scenario that reorients the policy exclusively towards the environment with a progressive phasing out of direct payments, assuming that productive capacity can be maintained without support and that the socio-economic needs of rural areas can be served by other policies.

Against the background of the economic crisis and the pressure on public finances, to which the EU has responded with the Europe 2020 strategy and the MFF proposal, all three scenarios attach different weight to each of the three policy objectives of the future CAP which aims at a more competitive and sustainable agriculture in vibrant rural areas. With a view to a better alignment with the Europe 2020 strategy, notably in terms of resource efficiency, it will be increasingly essential to improve agricultural productivity through research, knowledge transfer and promoting cooperation and innovation (including through the European Innovation Partnership on agricultural productivity and sustainability). Whereas EU agricultural policy does not any more operate within a trade distorting policy environment, additional pressure on the sector is expected from further liberalization, notably in the framework of the DDA or the FTA with Mercosur.

The three policy scenarios were drawn up taking into account the preferences expressed in the consultation which was conducted in the context of the impact assessment. Interested parties were invited to submit contributions between 23.11.2010 and 25.1.2011 and an advisory committee was organised on 12.1.2011. The main points are summarized below:[6]

- There is broad agreement among stakeholders on the need for a strong CAP based on a two-pillar-structure in order to address the challenges of food security, sustainable management of natural resources and territorial development.

- Most respondents find that the CAP should play a role in stabilizing markets and prices.

- Stakeholders have diverse opinions concerning the targeting of support (especially redistribution of direct aid and capping payments).

- There is agreement that both pillars can play an important role in stepping up climate action and increasing environmental performance for the benefit of EU society. Whereas many farmers believe that this already takes place today, the wider public argues that Pillar I payments can be more efficiently used.

- The respondents want all parts of the EU, including less favoured areas, to be part of future growth and development.

- The integration of the CAP with other policies, such as environmental, health, trade, development, was emphasised by many respondents.

- Innovation, development of competitive businesses and provision of public goods to EU citizens are seen as ways to align the CAP with the Europe 2020 strategy.

The impact assessment thus compared the three alternative policy scenarios:

The refocus scenario would accelerate structural adjustment in the agricultural sector, shifting production to the most cost efficient areas and profitable sectors. While significantly increasing funding for the environment, it would also expose the sector to greater risks due to limited scope for market intervention. Furthermore, it would come at a significant social and environmental cost as the less competitive areas would face a considerable income loss and environmental degradation, since the policy would lose the leverage of direct payments coupled with the cross compliance requirements.

At the other end of the spectrum, the adjustment scenario would best allow for policy continuity with limited but tangible improvements both in agricultural competitiveness and environmental performance. There are however serious doubts as to whether this scenario could adequately address the important climate and environmental challenges of the future, which also underpin the long-term sustainability of agriculture.

The integration scenario breaks new ground with enhanced targeting and greening of direct payments. The analysis shows that greening is possible at a reasonable cost to farmers although some administrative burden cannot be avoided. Similarly, a new impetus in rural development is possible provided that the new possibilities are efficiently used by Member States and regions and that the common strategic framework with the other EU funds does not remove synergies with Pillar I or weaken rural development's distinctive strengths. If the right balance is struck, this scenario would best address the long term sustainability of agriculture and rural areas.

On this basis the impact assessment concludes that the integration scenario is the most balanced in progressively aligning the CAP with the EU's strategic objectives and this balance is also found in the implementation of the different elements in the legislative proposals. It will also be essential to develop an evaluation framework to measure the performance of the CAP with a common set of indicators linked to policy objectives.

Simplification has been an important consideration throughout the process and should be enhanced in a variety of ways, for instance in the streamlining of cross compliance and market instruments, or the design of the small farmers scheme. In addition, the greening of direct payments should be designed in such a way as to minimize administrative burden including the costs of controls.

3. LEGAL ELEMENTS OF THE PROPOSAL

It is proposed to maintain the current structure of the CAP in two pillars with annual mandatory measures of general application in Pillar I complemented by voluntary measures better tailored to national and regional specificities under a multi-annual programming approach in Pillar II. However, the new design of direct payments seeks to better exploit synergies with Pillar II, which is in turn placed under a Common Strategic Framework to better coordinate with other EU shared management funds.

On this basis, the current structure of four basic legal instruments is also maintained, albeit with the scope of the financing regulation enlarged to bring together common provisions into what is now called the horizontal regulation.

The proposals comply with the principle of subsidiarity. The CAP is a truly common policy: it is an area of shared competence between the EU and the Member States that is being handled at EU level with a view to maintaining a sustainable and diverse agriculture throughout the EU, addressing important cross-border issues such as climate change and reinforcing solidarity among Member States. In the light of the importance of future challenges for food security, the environment and territorial balance, the CAP remains a policy of strategic importance to ensure the most effective response to the policy challenges and the most efficient use of budgetary resources. In addition, it is proposed to maintain the current structure of instruments in two pillars where Member States have more leeway to tailor solutions to their local specificities and also co-finance Pillar II. The new European Innovation Partnership and risk management toolkit are also placed within Pillar II. At the same time the policy will be better aligned with the Europe 2020 strategy (including a common framework with other EU funds) and a number of improvements and simplification elements introduced. Finally, the analysis carried out in the framework of the impact assessment clearly shows the cost of no action in terms of negative economic, environmental and social consequences.

The rural development regulation builds on the strategic approach introduced in the current period, which has had a positive impact with Member States developing strategies and programmes on the basis of a SWOT analysis to best tailor intervention to national and regional specificities. The new delivery mechanism aims at reinforcing the strategic approach – among other things by setting clearly defined common priorities for rural development at EU level (with associated common target indicators) as well as by making the necessary adjustments in light of experience gained to date.

The regulation also includes the European Innovation Partnership on Agricultural Productivity and Sustainability which is aimed at promoting resource efficiency, building bridges between research and practice and generally encouraging innovation. The partnership acts through operational groups responsible for innovative projects and is supported by a network.

On the basis of the proposal presented by the Commission on 6 October 2011 that sets out common rules for all funds operating under a Common Strategic Framework, Pillar II of the CAP should work in a coordinated and complementary manner with Pillar I, as well as with other EU funds (in particular the European Regional Development Fund (ERDF), the European Social Fund (ESF), the Cohesion Fund and the European Maritime and Fisheries Fund (EMFF). The funds are placed under a Common Strategic Framework (CSF) at EU level which will be transposed into Partnership Contracts at national level including common objectives and rules for their operation. Establishing common rules for all funds operating under a Common Strategic Framework will make projects easier to handle for both beneficiaries and national authorities and will also facilitate the implementation of integrated projects.

In this context, rural development policy retains the long-term strategic objectives of contributing to the competitiveness of agriculture, the sustainable management of natural resources and climate action and the balanced territorial development of rural areas. In line with the Europe 2020 strategy, these broad objectives of rural development support for 2014-2020 are given more detailed expression through the following six EU-wide priorities:

- fostering knowledge transfer and innovation in agriculture, forestry and rural areas;

- enhancing competitiveness of all types of agriculture and enhancing farm viability;

- promoting food chain organization and risk management in agriculture;

- restoring, preserving and enhancing ecosystems dependent on agriculture and forestry;

- promoting resource efficiency and supporting the shift towards a low-carbon and climate-resilient economy in the agriculture, food and forestry sectors;

- promoting social inclusion, poverty reduction and economic development in rural areas.

These priorities should be the basis of programming, including the definition of target indicators in relation to each of them. The regulation includes rules on the preparation, approval and revision of programmes that largely follow current rules, and opens up the possibility for sub-programmes (e.g. young farmers, small farmers, mountain areas, short supply chains) that benefit from higher aid intensities.

The list of individual measures has been streamlined and individual measures have been reviewed, with a number of adjustments introduced to address issues of scope, implementation and uptake raised in the current period. With most measures potentially serving more than one objective or priority, it is no longer deemed appropriate to group them into axes; programming on the basis of priorities should ensure balanced programmes. A specific measure for organic farming is created, and a new delimitation for areas facing specific natural constraints is introduced. Provision for supporting joint environmental action is improved.

The current cooperation measure is significantly reinforced and extended to support a wide range of types of cooperation (economic, environmental and social) between a wide range of potential beneficiaries. It now explicitly covers pilot projects as well as cooperation crossing regional and national borders. Leader and networking approaches will continue to play a key role, in particular for the development of rural areas and the spreading of innovation. Support through Leader will be consistent and coordinated with the support for local development from other EU shared management funds. A prize for local innovative co-operation projects will support transnational initiatives in favour of innovation.

A risk management toolkit including support to mutual funds and a new income stabilization tool offers new possibilities to deal with the strong volatility in agricultural markets that is expected to continue in the medium term.

The abolishment of the current axis system will also streamline programming by the Member States.

Finally, it is proposed to build on the Common Monitoring and Evaluation Framework (CMEF) introduced in the current period which will be simplified and improved based on experience gained to date. A common list of indicators will be linked to the policy priorities for the purpose of monitoring and evaluation.

4. BUDGETARY IMPLICATION

The MFF proposal provides that a significant part of the EU budget should continue to be dedicated to agriculture, which is a common policy of strategic importance. Thus, in current prices, it is proposed that the CAP should focus on its core activities with EUR 317.2 billion allocated to Pillar I and EUR 101.2 billion to Pillar II over the 2014-2020 period.

The Pillar I and Pillar II funding is complemented by additional funding of EUR 17.1 billion consisting of EUR 5.1 billion for research and innovation, EUR 2.5 billion for food safety and EUR 2.8 billion for food support for the most deprived persons in other headings of the MFF, as well as of EUR 3.9 billion in a new reserve for crises in the agricultural sector and up to EUR 2.8 billion in the European Globalization Adjustment Fund outside the MFF, thus bringing the total budget to EUR 435.6 billion over the 2014-2020 period.

As regards distribution of support among Member States, it is proposed that all Member States with direct payments below 90% of the EU average will see one third of this gap closed. The national ceilings in the direct payments regulation are calculated on this basis.

The distribution of rural development support is based on objective criteria linked to the policy objectives taking into account the current distribution. As is the case today, less developed regions should continue to benefit from higher co-financing rates, which will also apply to certain measures such as knowledge transfer, producer groups, cooperation and Leader.

Some flexibility for transfers between pillars is introduced (up to 5% of direct payments): from Pillar I to Pillar II to allow Member States to reinforce their rural development policy, and from Pillar II to Pillar I for those Member States where the level of direct payments remains below 90% of the EU average.

Details on the financial impact of the CAP reform proposals are set out in the financial statement accompanying the proposals.

2011/0282 (COD)

Proposal for a

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

on support for rural development by the European Agricultural Fund for Rural Development (EAFRD)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 42 and 43 thereof,

Having regard to the proposal from the European Commission[7],

After transmission of the draft legislative act to the national Parliaments,

Having regard to the opinion of the European Economic and Social Committee[8],

Having regard to the opinion of the Committee of the Regions[9],

Having consulted the European Data Protection Supervisor [10]

Acting in accordance with the ordinary legislative procedure,

Whereas:

1. The Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on "The CAP towards 2020: Meeting the food, natural resources and territorial challenges of the future"[11] (hereinafter "the CAP towards 2020 Communication") set out potential challenges, objectives and orientations for the common agricultural policy (hereinafter "the CAP") after 2013. In the light of the debate on that Communication, the CAP should be reformed with effect from 1 January 2014. That reform should cover all the main instruments of the CAP, including Council Regulation (EC) No 1698/2005 of 20 September 2005 on support for rural development by the European Agricultural Fund for Rural Development (EAFRD)[12]. In view of the scope of the reform, it is appropriate to repeal Regulation (EC) No 1698/2005 and to replace it with a new text.

2. A rural development policy should accompany and complement direct payments and market measures of the CAP and thus contribute to that policy's objectives as laid down in the Treaty on the Functioning of the European Union (hereinafter "the Treaty"). A rural development policy should also integrate the major policy objectives spelled out in the Communication from the Commission of 3 March 2010 "Europe 2020 A strategy for smart, sustainable and inclusive growth"[13] (hereinafter "Europe 2020 Strategy") and be coherent with the general objectives for the economic and social cohesion policy set out in the Treaty.

3. Since the objective of this Regulation, namely rural development, cannot be achieved sufficiently by Member States, given the links between it and the other instruments of the CAP, the extent of disparities between the various rural areas and the limits on the financial resources of the Member States in an enlarged Union, and can therefore be better achieved at Union level through the multi-annual guarantee of Union finance and by concentrating on its priorities, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5(3) of the Treaty on European Union. In accordance with the principle of proportionality as set out in Article 5(4) of that Treaty, this Regulation does not go beyond what is necessary in order to achieve that objective.

4. In order to supplement or amend certain non-essential elements of this Regulation, the power to adopt delegated acts in accordance with Article 290 of the Treaty should be delegated to the Commission. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level. The Commission, when preparing and drawing up delegated acts, should ensure a simultaneous, timely and appropriate transmission of relevant documents to the European Parliament and to the Council.

5. To ensure the sustainable development of rural areas, it is necessary to focus on a limited number of core priorities relating to knowledge transfer and innovation in agriculture, forestry and rural areas, the competitiveness of all types of agriculture and farm viability, food chain organisation and risk management in agriculture, restoring, preserving and enhancing ecosystems dependant on agriculture and forestry, resource efficiency and the shift towards a low carbon economy in the agricultural, food and forestry sectors, and promoting social inclusion, poverty reduction and the economic development of rural areas. In doing so account must be taken of the diversity of situations that affect rural areas with different characteristics or different categories of potential beneficiaries and the cross-cutting objectives of innovation, environment and climate change mitigation and adaptation. Mitigation action should relate to both limiting emissions in agriculture and forestry from key activities such as livestock production, fertilizer use and to preserving the carbon sinks and enhancing carbon sequestration with regard to land use, land use change and the forestry sector. The Union priority for rural development relating to knowledge transfer and innovation in agriculture, forestry and rural areas should apply horizontally in relation to the other Union priorities for rural development.

6. The Union's priorities for rural development should be pursued in the framework of sustainable development and the Union's promotion of the aim of protecting and improving the environment as set out in Articles 11 and 19 of the Treaty, taking into account the polluter pays principle. The Member States should provide information on the support for climate change objectives in line with the ambition to devote at least 20% of the Union budget to this end, using a methodology adopted by the Commission.

7. The activities of the European Agricultural Fund for Rural Development (hereinafter "the EAFRD") and the operations to which it contributes should be consistent and compatible with support from other instruments of the CAP. In order to ensure optimal allocation and efficient utilisation of Union resources the power to adopt acts in accordance with Article 290 of the Treaty should be delegated to the Commission in respect of defining exceptions to the rule that no support under this Regulation should be granted to operations supported under common market organisations.

8. In order to ensure the immediate start and efficient implementation of rural development programmes, support from the EAFRD should be based on the existence of sound administrative framework conditions. Member States should therefore assess compliance with certain ex ante conditionalities. Each Member State should prepare either a national rural development programme for its entire territory or a set of regional programmes. Each programme should identify a strategy for meeting targets in relation to the Union priorities for rural development and a selection of measures. Programming should comply with Union priorities for rural development, while being adapted to national contexts and complement the other Union policies, in particular the agricultural market policy, cohesion policy and the common fisheries policy. Member States which opt for a set of regional programme should be able to also prepare a national framework, without a separate budgetary allocation, in order to facilitate co-ordination among the regions in addressing nation-wide challenges.

9. Member States should be able to include in their rural development programmes thematic sub-programmes to address specific needs in areas of particular importance to them. Thematic sub-programmes should concern among others young farmers, small farms, mountain areas and the creation of short supply chains. Thematic sub-programmes should also be used to provide for the possibility to address restructuring of agricultural sectors which have a strong impact on the development of rural areas. As a means to increase the efficient intervention of such thematic sub-programmes Member States should be allowed to provide for higher support rates for certain operations covered by them.

10. Rural development programmes should identify the needs of the area covered and describe a coherent strategy to meet them in the light of the Union priorities for rural development. This strategy should be based on the setting of targets. The links between the needs identified, the targets set and the choice of measures selected to meet them should be established. Rural development programmes should also contain all the information required to assess their conformity with the requirements of this Regulation.

11. Targets are to be established in rural development programmes against a common set of target indicators for all Member States. In order to facilitate this exercise the areas covered by these indicators should be defined, in line with the Union priorities for rural development. Given the horizontal application of the Union priority for rural development relating to knowledge transfer in agriculture and forestry, interventions under this priority are to be considered as instrumental to the target indicators defined for the remaining Union priorities.

12. It is necessary to establish certain rules for programming and revising rural development programmes. A lighter procedure should be provided for revisions not affecting the strategy of the programmes or the respective Union financial contributions.

13. In order to ensure legal certainty and clarity concerning the procedure to be followed in the case of programme amendments, the power to adopt acts in accordance with Article 290 of the Treaty should be delegated to the Commission in respect of the setting of the criteria on the basis of which proposed changes of the quantified targets of the programmes shall be considered as major, thus triggering the need to modify the programme by means of an implementing act adopted in accordance with Article 91 of this Regulation.

14. The evolution and specialisation of agriculture and forestry and the particular challenges faced by micro-, small and medium-sized enterprises (hereinafter "SMEs") in rural areas require an appropriate level of technical and economic training as well as an increased capacity to access and exchange knowledge and information including in the form of diffusion of best agricultural and forestry production practices. Knowledge transfer and information actions should take not only the form of traditional training courses but be adapted to the needs of rural actors. Workshops, coaching, demonstration activities, information actions but also short-term farm exchange or visit schemes should therefore also be supported. Knowledge and information acquired should enable farmers, forest holders, persons engaged in the food sector and rural SMEs to enhance in particular their competitiveness and resource efficiency and improve their environmental performance while at the same time contributing to the sustainability of the rural economy. In order to ensure that knowledge transfer and information actions are effective in delivering these results it should be required that the providers of knowledge transfer services have all the appropriate capabilities.

15. In order to ensure that bodies providing knowledge transfer services are able to provide services of a quality and nature that is in line with the purposes of the rural development policy, to ensure a better targeting of funds and to ensure that farm exchange schemes and farm visits are clearly demarcated in relation to similar actions under other Union schemes, the power to adopt acts in accordance with Article 290 of the Treaty should be delegated to the Commission in respect of minimum qualifications of bodies providing knowledge transfer, eligible costs and the duration and content of farm exchange schemes and farm visits.

16. Farm advisory services help farmers, forest holders and SMEs in rural areas to improve the sustainable management and overall performance of their holding or business. Therefore both the setting up of such services and the use of advice by farmers, forest holders and SMEs should be encouraged. In order to enhance the quality and effectiveness of the advice offered, provision should be made for the minimum qualifications and regular training of advisors. Farm advisory services, as provided for in Regulation of the European Parliament and of the Council (EU) No HR/2012 of […][14] should help farmers assess the performance of their agricultural holding and identify the necessary improvements as regards the statutory management requirements, good agricultural and environmental conditions, agricultural practices beneficial to the climate and the environment set out in Regulation of the European Parliament and of the Council (EU) No DP/2012 of […][15], requirements or actions related to climate change mitigation and adaptation, biodiversity, protection of water, animal disease notification and innovation at least as laid down in Annex I to Regulation (EU) No HR/2012. Where relevant, advice should also cover occupational safety standards. Advice may also cover issues linked to the economic, agricultural and environmental performance of the holding or enterprise. Farm management and farm relief services should help farmers improve and facilitate management of their holding.

17. In order to ensure that bodies and authorities offering advisory services are able to provide advice of a quality and nature that is in line with the purposes of rural development policy, the power to adopt acts in accordance with Article 290 of the Treaty should be delegated to the Commission in respect of the further specification of the minimum qualifications of the authorities and bodies providing advice.

18. Union or national quality schemes for agricultural products and food provide consumers with assurances on the quality and characteristics of the product or the production process used as a result of the participation of farmers in such schemes, achieve added value for the products concerned and enhance their market opportunities. Farmers should therefore be encouraged to participate in these schemes. Given that it is at the moment of entering such schemes and in the early years of their participation that additional costs and obligations imposed on farmers as a result of their participation are not fully remunerated by the market, support should be limited to new participation and cover a period of no more than five years. Given the special characteristics of cotton as a farm product, quality schemes for cotton should also be covered. In order to ensure the efficient and effective use of EAFRD budgetary resources, the power to adopt acts in accordance with Article 290 of the Treaty should be delegated to the Commission in respect of the Union quality schemes that may be covered by this measure.

19. In order to improve the economic and environmental performance of agricultural holdings and rural enterprises, improve the efficiency of the agricultural products marketing and processing sector, provide infrastructure needed for the development of agriculture and support non-remunerative investments necessary to achieve environmental aims, support should be provided to physical investments contributing to these aims. During the 2007-2013 programming period a variety of measures covered different areas of intervention. In the interest of simplification but also of allowing beneficiaries to design and realise integrated projects with increased added value, a single measure should cover all types of physical investments. Member States should define a threshold for agricultural holdings eligible for aid for investments related to supporting farm viability based on the results of the strengths, weaknesses, opportunities and threats ("SWOT") analysis as means to better target the aid.

20. The agricultural sector is subject more than other sectors to damage to its productive potential caused by natural disasters. In order to help farm viability and competitiveness in the face of such disasters support should be provided for helping farmers restore agricultural potential damaged. Member States should also ensure that no overcompensation of damages occurs as a result of the combination of Union (in particular the risk management measure), national and private compensation schemes. In order to ensure the efficient and effective use of EAFRD budgetary resources, the power to adopt acts in accordance with Article 290 of the Treaty should be delegated to the Commission in respect of defining the eligible costs under this measure.

21. The creation and development of new economic activity in the form of new farms, new businesses or new investments in non-agricultural activities is essential for the development and competitiveness of rural areas. A farm and business development measure should facilitate the initial establishment of young farmers and the structural adjustment of their holdings after initial setting up, diversification of farmers into non-agricultural activities and the setting up and development of non-agricultural SMEs in rural areas. The development of small farms which are potentially economically viable should also be encouraged. In order to ensure the viability of new economic activities supported under this measure, support should be made conditional on the submission of a business plan. Support for business start up should cover only the initial period of the life of a business and not become operating aid. Therefore, where Member States opt to grant aid in instalments these should be for a period of no more than five years. In addition in order to encourage the restructuring of the agricultural sector, support in the form of annual payments should be provided for farmers participating in the small farmers scheme established by Title V of Regulation (EU) No DP/2012 who commit to transfer their entire holding and the corresponding payment entitlements to another farmer who does not participate in that scheme.

22. SMEs are the backbone of the Union rural economy. Farm and non-agricultural business development should be aimed at employment promotion and the setting up of quality jobs in rural areas, maintenance of already existing jobs, reduction of seasonality fluctuations in employment, development of non-agricultural sectors outside agriculture and agricultural and food processing while fostering at the same time business integration and local inter-sectoral links. Projects integrating at the same time agriculture, rural tourism through promotion of sustainable and responsible tourism in rural areas, natural and cultural heritage should be encouraged as well as renewable energy investments.

23. In order to ensure the efficient and effective use of EAFRD budgetary resources and to guarantee the protection of the rights of beneficiaries and avoid discrimination among them, the power to adopt acts in accordance with Article 290 of the Treaty should be delegated to the Commission in respect of laying down conditions under which legal persons may be considered as young farmers, the setting of a grace period for the acquisition of occupational skills, the minimum content of business plans and the criteria to be used by Member States for the definition of small farms and of upper and lower thresholds for determining the eligibility of an operation under the support for young farmers or development of small farms respectively.

24. The development of local infrastructure and local basic services in rural areas, including leisure and culture, the renewal of villages and activities aimed at the restoration and upgrading of the cultural and natural heritage of villages and rural landscapes is an essential element of any effort to realise the growth potential and promote the sustainability of rural areas. Support should therefore be granted to operations with this aim, including the access to Information and Communication Technologies and the development of fast and ultra-fast broadband. In line with these objectives, development of services and infrastructure leading to social inclusion and reversing trends of social and economic decline and depopulation of rural areas should be encouraged. In order to achieve the maximum effectiveness for such support, covered operations should be implemented in accordance with plans for the development of municipalities and their basic services, where such plans exist, elaborated by one or more rural communes. In order to ensure coherence with the Unions climate objectives the power to adopt acts in accordance with Article 290 of the Treaty should be delegated to the Commission in respect of defining the types of renewable energy infrastructure that shall be eligible for support

25. Forestry is an integral part of rural development and support for sustainable and climate friendly land use should encompass forest area development and sustainable management of forests. During the 2007-2013 programming period a variety of measures covered different types of support for forestry investments and management. In the interest of simplification but also of allowing beneficiaries to design and realise integrated projects with increased added value, a single measure should cover all types of support for forestry investments and management. This measure should cover the extension and improvement of forest resources through afforestation of land and creation of agro-forestry systems combining extensive agriculture with forestry systems, restoration of forests damaged by fire or other natural disasters and relevant prevention measures, investments in new forestry technologies and in the processing and marketing of forest products aimed at improving the economic and environmental performance of forest holders and non remunerative investments which improve ecosystem and climate resilience and environmental value of forest ecosystems. Support should avoid distorting competition and be market neutral. As a result limitations should be imposed relating to the size and legal status of beneficiaries. Preventive actions against fires should be in areas classified by Member States as medium or high fire risk. All preventive actions should be part of a forest protection plan. The occurrence of a natural disaster in the case of action for the restoration of damaged forest potential should be subject to the formal recognition by a scientific public organisation. The forestry measure should be adopted in the light of undertakings given by the Union and the Member States at international level, and be based on Member States’ national or sub-national forest plans or equivalent instruments which should take into account the commitments made in the Ministerial Conferences on the Protection of Forests in Europe. It should contribute to the implementation of the Union Forestry Strategy[16]. In order to ensure that afforestation of agricultural land is in line with the aims of environmental policy the power to adopt acts in accordance with Article 290 of the Treaty should be delegated to the Commission in respect of the definition of certain minimum environmental requirements.

26. In order to ensure the efficient and effective use of EAFRD budgetary resources, the power to adopt acts in accordance with Article 290 of the Treaty should be delegated to the Commission in respect of laying down conditions under which Member States shall establish the occurrence of a natural disaster or a pest or disease and the definition of types of preventive actions that shall be eligible for EAFRD support.

27. Producer groups help farmers to face jointly the challenges posed by increased competition and consolidation of downstream markets in relation to the marketing of their products including in local markets. The setting up of producer groups should therefore be encouraged. In order to ensure the best use of limited financial resources only producer groups that qualify as SMEs should benefit from support. In order to ensure that the producer group becomes a viable entity, a business plan should be submitted as a condition for the recognition of a producer group by Member States. To avoid providing operating aid and maintain the incentive role of support, its maximum duration should be limited to five years.

28. Agri-environment-climate payments should continue to play a prominent role in supporting the sustainable development of rural areas and in responding to society's increasing demands for environmental services. They should further encourage farmers and other land managers to serve society as a whole by introducing or continuing to apply agricultural practices contributing to climate change mitigation and adaptation and compatible with the protection and improvement of the environment, the landscape and its features, natural resources, the soil and genetic diversity. In this context the conservation of genetic resources in agriculture and the additional needs of farming systems that are of high nature value should be given specific attention. Payments should contribute to covering additional costs and income foregone resulting from the commitments undertaken and should only cover commitments going beyond relevant mandatory standards and requirements, in accordance with the "polluter pays" principle. In many situations the synergies resulting from commitments undertaken jointly by a group of farmers multiply the environmental and climate benefit. However, joint action brings additional transaction costs which should be compensated adequately. In order to ensure that farmers and other land managers are in a position to correctly implement the commitments they have undertaken, Member States should endeavour to provide them with the required skills and knowledge. Member States should maintain the level of efforts made during the 2007-2013 programming period and have to spend a minimum of 25% of the total contribution from the EAFRD to each rural development programme for climate change mitigation and adaptation and land management, through the agri-environment-climate, organic farming and payments to areas facing natural or other specific constraints measures.

29. In order to ensure that agri-environment-climate commitments are defined in line with the Union's overall environmental objectives, the power to adopt acts in accordance with Article 290 of the Treaty should be delegated to the Commission in respect of laying down the conditions applicable to the annual extension of commitments after the initial period, commitments to extensify or manage differently livestock farming, to limit fertilisers, plant protection products or other inputs, to rear local breeds in danger of being lost to farming or to preserve plant genetic resources and the eligible operations in relation to conservation of genetic resources in agriculture.

30. Payments for the conversion to or maintenance of organic farming should encourage farmers to participate in such schemes thus answering society's increasing demand for the use of environmentally friendly farm practices and for high standards of animal welfare. In order to increase synergy in biodiversity benefits delivered by the measure, collective contracts or collaboration between farmers should be encouraged to cover larger adjacent areas. In order to avoid large-scale reversion of farmers to conventional farming, both conversion and maintenance measures should be supported. Payments should contribute to covering additional costs incurred and income foregone as a result of the commitment and should cover only commitments going beyond relevant mandatory standards and requirements.

31. Support should continue to be granted to farmers and forest holders to help address specific disadvantages in the areas concerned resulting from the implementation of Directive 2009/147/EC of the European Parliament and of the Council of 30 November 2009 on the conservation of wild birds[17] and Council Directive 92/43/EEC of 21 May 1992 on the conservation of natural habitats and of wild fauna and flora[18] in order to contribute to the effective management of Natura 2000 sites while support should also be made available to farmers to help address disadvantages in river basin areas resulting from the implementation of Directive 2000/60/EC of the European Parliament and of the Council of 23 October 2000 establishing a framework for the Community action in the field of the water policy[19]. Support should be linked to specific requirements described in the rural development programme that go beyond relevant mandatory standards and requirements. Furthermore, the specific needs of Natura 2000 areas should be taken into account by Member States in the overall design of their rural development programmes.

32. Payments to farmers in mountain areas or in other areas facing natural or other specific constraints should contribute, by encouraging continued use of agricultural land to maintaining the countryside as well as to maintaining and promoting sustainable farming systems. In order to ensure the efficiency of such support payments should compensate farmers for income foregone and additional costs linked to the disadvantage of the area concerned.

33. In order to ensure efficient use of Union funds and equal treatment for farmers across the Union mountain areas and areas facing natural or other specific constraints should be defined in accordance with objective criteria. In the case of areas facing natural constraints these should be bio-physical criteria underpinned by robust scientific evidence. Transitional arrangements should be adopted in order to facilitate the phasing out of payments in areas that will no longer be considered as areas facing natural constraints as a result of the application of these criteria.

34. Farmers should continue to be encouraged to adopt high standards of animal welfare by providing for support for farmers that undertake to adopt standards of animal husbandry, which go beyond the relevant mandatory standards. In order to ensure that animal welfare commitments are in line with the overall Union policy in this field, the power to adopt acts in accordance with Article 290 of the Treaty should be delegated to the Commission in respect of the definition of the areas in which such commitments should provide upgraded standards of production methods.

35. Payments should continue to be granted to forest holders who provide environmental or climate friendly forest conservation services by undertaking commitments to enhance biodiversity, preserve high-value forest ecosystems, improve their mitigation and adaptation potential, and reinforce the protective value of forests with respect to soil erosion, to maintenance of water resources and to natural hazards. In this context the conservation and promotion of forest genetic resources should be given specific attention. Payments shall be granted for forest environmental commitments going beyond relevant mandatory standards established by national legislation. In order to ensure the efficient and effective use of EAFRD budgetary resources, the power to adopt acts in accordance with Article 290 of the Treaty should be delegated to the Commission in respect of the types of operations eligible for support under this measure.

36. During the 2007-2013 programming period only one type of co-operation was explicitly supported under rural development policy: co-operation for the development of new products, processes and technologies in the agriculture and food sector and the forestry sector. Support for this type of co-operation is still necessary but should be adapted in order better to meet the requirements of the knowledge economy. In this context the possibility should be provided for projects by a single operator to be financed under this measure, on condition that the results obtained are disseminated, thus achieving the purpose of diffusion of new practices, processes or products. In addition, it has become clear that supporting a much broader range of types of co-operation, with a wider range of beneficiaries, from small operators to larger ones, can contribute to achieving the objectives of rural development policy by helping operators in rural areas to overcome the economic, environmental and other disadvantages of fragmentation. Therefore, the measure should be widened. Support for small operators to organise joint work processes and share facilities and resources should help them to be economically viable despite their small scale. Support for horizontal and vertical co-operation among actors in the supply chain, as well as for promotion activities in a local context, should catalyse the economically rational development of short supply chains, local markets and local food chains. Support for collective approaches to environmental projects and practices should help to provide greater and more consistent environmental and climate benefits than can be delivered by individual operators acting without reference to others (for example, through practices applied on larger unbroken areas of land). Support in these various areas should be provided in various forms. Clusters and networks are particularly relevant to the sharing of expertise as well as the development of new and specialised expertise, services and products. Pilot projects are important tools for testing the commercial applicability of technologies, techniques and practices in different contexts, and adapting them where necessary. Operational groups are a pivotal element of the European Innovation Partnership (hereinafter "EIP") for agricultural productivity and sustainability. Another important tool lies in local development strategies operating outside the framework of LEADER local development – between public and private actors from rural and urban areas. Unlike within the LEADER approach, such partnerships and strategies could be limited to one sector and / or to relatively specific development aims, including those mentioned above. Inter-branch organisation should also be eligible for support under this measure. It should be limited to seven years except for collective environmental and climate action in duly justified cases.

37. Farmers are exposed today to increasing economic and environmental risks as a consequence of climate change and increased price volatility. In this context, effective management of risks has an increased importance for farmers. For this reason a risk management measure should be set up to assist farmers in addressing the most common risks faced by them. This measure should therefore support farmers to cover the premiums they pay for crop, animal and plant insurance as well as the setting up of mutual funds and the compensation paid by such funds to farmers for losses suffered as a result of the outbreak of animal or plant diseases or environmental incidents. It should also cover an income stabilisation tool in the form of a mutual fund to support farmers facing a severe drop in their income. In order to ensure that there is equal treatment among farmers across the Union, that competition is not distorted and that the international obligations of the Union are respected, specific conditions should be provided for the granting of support under these measures. In order to ensure the efficient use of EAFRD budgetary resources the power to adopt acts in accordance with Article 290 of the Treaty should be delegated to the Commission in respect of defining the minimum and maximum duration of commercial loans to mutual funds.

38. The LEADER approach for local development has, over a number of years, proven its utility in promoting the development of rural areas by fully taking into account the multi-sectoral needs for endogenous rural development through its bottom-up approach. LEADER should therefore be continued in the future and its application should remain compulsory for all rural development programmes.

39. In order to ensure that local development strategies are applied at a territorial level that allows them to deliver results that effectively contribute to the Union priorities for rural development and innovation, the power to adopt acts in accordance with Article 290 of the Treaty should be delegated to the Commission in respect of setting population criteria for the area to be covered by each such strategy and the detailed scope of preparatory and animation costs to be supported.

40. Support to LEADER local development from the EAFRD should cover all aspects of the preparation and implementation of local development strategies and operation of local action groups as well as cooperation among territories and groups which carry out bottom-up and community-led local development. In order to enable partners in rural areas not yet applying LEADER to test and prepare for the design and operation of a local development strategy a "LEADER start-up kit' should also be financed. In order to ensure the efficient and effective use of EAFRD budgetary resources the power to adopt acts in accordance with Article 290 of the Treaty should be delegated to the Commission in respect of the detailed definition of eligible animation costs for local action groups.

41. Investments are common to many of the rural development measures under this Regulation and may relate to operations of very diverse nature. In order to ensure clarity in the implementation of these operations certain common rules for all investments should be laid down. These common rules should define the types of expenditure that may be considered as investment expenditure and ensure that only such investments that create new value in agriculture receive support. In order to take account of specificities relating to particular types of investments such as the purchase of second hand equipment and simple replacement investments while ensuring the efficient use of EAFRD funds, the power to adopt acts in accordance with Article 290 of the Treaty should be delegated to the Commission in respect of setting the conditions under which certain types of investments may be considered as eligible expenditure. In order to facilitate realisation of investment projects it should be possible for Member States to pay advances. To ensure the effectiveness, fairness and sustainable impact of EAFRD assistance, rules should be laid down to ensure that investments related to operations are durable and that EAFRD support is not used to distort competition.

42. Certain area related measures under this Regulation involve the undertaking on the part of beneficiaries of commitments extending over at least five years. During this period changes may occur to the situation of either the holding or of the beneficiary. Rules should therefore be laid down in order to determine the course to be followed in these cases. In order to ensure the efficient implementation of area related measures and secure the financial interests of the Union the power to adopt acts in accordance with Article 290 of the Treaty should be delegated to the Commission in respect of setting the conditions applicable in case of partial transfer of a holding, defining other situations in which reimbursement of the aid shall not be required.

43. Certain measures under this Regulation provide as a condition for granting support that beneficiaries undertake commitments going beyond a relevant baseline defined in terms of mandatory standards or requirements. In view of possible changes in legislation during the period of the commitments that have as a result the modification of the baseline, provision should be made for the revision of the contracts concerned in order to ensure continued respect of this condition.

44. In order to ensure that financial resources for rural development are used in the best possible way and to target measures under rural development programmes in accordance with the Union priorities for rural development but also to guarantee equal treatment of applicants, Member States should establish selection criteria for the selection of projects. Exception to this rule should be made only for those measures for which support consists in payments for the provision of agri-environmental or animal welfare services. In the application of selection criteria account should be taken of the principle of proportionality in what concerns small grants.

45. The EAFRD should support through technical assistance actions relating to the implementation of rural development programmes, including costs related to the protection of symbols and abbreviations relating to Union quality schemes for participation in which support may be granted under this Regulation and costs of the Member States for the delimitation of areas facing natural constraints. In order to ensure the efficient use of EAFRD budgetary resources, the power to adopt acts in accordance with Article 290 of the Treaty should be delegated to the Commission in respect of the control activities that may be financed under technical assistance.

46. The networking of national networks, organisations and administrations involved in the various stages of programme implementation, organised in the context of the European network for rural development, has proven that it can play a very important role in improving the quality of rural development programmes by increasing the involvement of stakeholders in the governance of rural development as well as in informing the broader public of its benefits. It should therefore be financed as part of the technical assistance at Union level.

47. In order to contribute to the achievement of the aims of the EIP for agricultural productivity and sustainability a EIP network should be set up in order to network operational groups, advisory services and researchers involved in the implementation of actions targeting innovation in agriculture. It should be financed as part of technical assistance at Union level.

48. During the 2007 -2013 programming period an evaluation expert network operated in the context of the European network for rural development. To take account of the specific needs of evaluation, a European evaluation network for rural development should be set up for the 2014-2020 programming period in order to bring together all actors involved in evaluation activities to facilitate the exchange of expertise in the field. It should be financed as part of technical assistance.

49. Member States should reserve a portion of the total amount of each rural development programme devoted to technical assistance to finance the setting up and operation of a national rural network bringing together organisations and administrations involved in rural development, including the partnership, with the aim of increasing their involvement in the implementation of the programme and improve the quality of rural development programmes. National rural networks should prepare and implement an action plan.

50. The EAFRD should signal the Union's recognition of how local development approaches and a trans-national dimension can reinforce each other, especially when an innovative spirit is applied. It should do this by awarding prizes to a limited number of projects which exemplify these characteristics. The prizes should complement other sources of funding available through rural development policy by conferring recognition on any leading suitable project, whether or not that project was also financed through a rural development programme.

51. Rural development programmes should provide for innovative actions promoting a resource-efficient, productive and low-emission agricultural sector, with the support of the EIP foragricultural productivity and sustainability. The EIP should aim to promote a faster and wider transposition of innovative solutions into practice. The EIP should create added value by enhancing the uptake and effectiveness of innovation-related instruments and enhancing synergies between them. The EIP should fill gaps by better linking research and practical farming.

52. Implementation of innovative projects in the context of the EIP for agricultural productivity and sustainability should be undertaken by operational groups bringing together farmers, researchers, advisors, businesses and other actors concerned by innovation in the agricultural sector. In order to ensure that results of such projects profit to the sector as a whole, their results should be disseminated.

53. Provision should be made for the determination of the total amount of Union support for rural development under this Regulation for the period from 1 January 2014 to 31 December 2020, its annual breakdown and the minimum amount to be concentrated in less developed regions in accordance with the Multi-annual Financial Framework for the period 2014 to 2020 and the Interinstitutional Agreement on budgetary discipline and improvement of the budgetary procedure[20] for the same period. The appropriations available should be indexed on a flat-rate basis for programming.

54. In order to facilitate the management of EAFRD funds, a single contribution rate of the EAFRD to rural development programming should be set in relation to public expenditure in the Member States. In order to take account of the particular importance or nature of certain types of operations, specific contribution rates should be set in relation to them. In order to mitigate the specific constraints resulting from level of development, remoteness and insularity an appropriate contribution rate of the EAFRD should be set for less-developed regions, outermost regions referred to in the Treaty and the smaller Aegean islands.

55. Funds released in Members States as a result of the application of the upper ceiling to directs payments received by large individual farms under the first pillar of the CAP should be reserved for financing, in each Member State of projects related to innovation in order to help farms, including large farms, to increase their competitiveness in the framework of the objectives of the CAP. These projects should be initiated by farmers, whatever the size of their farms, EIP operational groups or local action groups, groups of partners involved in the agricultural sector.

56. Member States should take all the necessary steps and put in place adequate provisions to ensure that their rural development measures are verifiable and controllable. To this end the Managing Authority and Paying Agency should provide an ex ante assessment and undertake to assess measures throughout the implementation of the programme. Measures not respecting this condition should be adjusted.

57. The Commission and Member States should take all required steps to ensure sound management of rural development programmes. In this context the Commission should undertake adequate controls and the Member States should take measures to guarantee sound functioning of their management system.

58. A single Managing Authority should be responsible for the management and implementation of each rural development programme. Its duties should be specified in this Regulation. The Managing Authority should be able to delegate part of its duties while retaining the responsibility for the efficiency and correctness of management. In case a rural development programme contained thematic sub-programmes the Managing Authority should be able to designate another body to carry out fully management and implementation of that sub-programme in relation to the financial allocations that have been identified for it in the programme while ensuring sound financial management of these sub-programmes.

59. Each rural development programme should be subject to monitoring in order to regularly follow the implementation of the programme and progress towards the established targets of the programme. Demonstrating and improving the effectiveness and impact of actions under the EAFRD also depends on appropriate evaluation during the preparation and implementation of a programme and its completion. A monitoring and evaluation system should therefore be set up in common by the Commission and the Member States with the purpose of demonstrating the progress and assessing the impact and efficiency of rural development policy implementation.

60. In order to ensure that information can be aggregated at Union level a set of common indicators should form part of the system. Key information on the implementation of rural development programmes should be recorded and maintained electronically as a means to facilitate data aggregation. Beneficiaries should therefore be required to provide the minimum necessary information that is needed for monitoring and evaluation.

61. Responsibility for monitoring of the programme should be shared between the Managing Authority and a Monitoring Committee set up for this purpose. The Monitoring Committee should have as its task to monitor the effectiveness of implementation of the programme. To this end its responsibilities should be specified.

62. Monitoring of the programme should involve the drawing up of an annual implementation report, to be sent to the Commission.

63. Each rural development programme should be subject to evaluation in order to improve its quality and demonstrate its achievements.

64. Articles 107, 108 and 109 of the Treaty should apply to the support for the rural development measures under this Regulation. Nevertheless, it should be established that, given the specificity of the agricultural sector, the rural development measures concerning operations falling within the scope of Article 42 of the Treaty, that are carried out under and in conformity with this Regulation, as well as payments made by the Member States, intended to provide additional national financing for rural development operations for which Union support is granted and which fall within the scope of Article 42 of the Treaty should be excluded from the application of Articles 107, 108 and 109 of the Treaty.

65. Moreover, in view of ensuring consistency with the rural development measures eligible for Union support and in order to simplify procedures, payments made by the Member States, intended to provide additional national financing for rural development operations for which Union support is granted and which fall within the scope of Article 42 of the Treaty, should be authorised as a part of programming under a notification procedure in accordance with the provisions of this Regulation. In order to ensure their appropriate monitoring, when assessing these payments the Commission should apply the criteria established for the application of Article 107 of the Treaty by way of analogy. In order to ensure that additional national financing which is not authorised by the Commission is not implemented, the Member State concerned should not put its proposed additional financing for rural development into effect until it has been approved. Payments made by Member States intended to provide additional national financing for rural development operations for which Union support is granted and which fall outside the scope of Article 42 of the Treaty should be notified to the Commission pursuant to Article 108(3) of the Treaty, unless they fall under a regulation, adopted pursuant to Council Regulation 994/98[21], and may not be put into effect until this procedure has resulted in a final approval by the Commission.

66. An electronic information system should be established to provide an efficient and secure exchange of data.

67. Union legislation concerning the protection of individuals with regard to the processing of personal data and on the free movement of such data, in particular Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data and Regulation (EC) No 45/2001 of the European Parliament and of the Council of 18 December 2000 on the protection of individuals with regard to the processing of personal data by the Community institutions and bodies and on the free movement of such data are applicable.

68. In order to ensure uniform conditions for the implementation of this Regulation in relation to the presentation of rural development programmes, the approval of programmes and of modifications thereof, the procedures and timetables for approval of programmes, the procedures and timetables for the approval programme modifications, including their entry in to force and frequency of submission, specific conditions for the implementation of rural development measures, the structure and operation of networks set-up by this Regulation, the adoption of the monitoring and evaluation system, the rules for the operation of the information system, implementing powers should be conferred on the Commission. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and the Council of 16 February 2011 laying down the rules and general principles concerning mechanisms for control by the Member States of the Commission's exercise of implementing powers[22].

69. The new support scheme provided for by this Regulation replaces the support scheme set up by Regulation (EC) No 1698/2005. Therefore, Regulation (EC) No 1698/2005 should be repealed from 1 January 2014.

70. In order to facilitate a smooth transition from the system established by Regulation (EC) No 1698/2005 to the system established by this Regulation, the power to adopt acts in accordance with Article 290 of the Treaty should be delegated to the Commission in respect of establishing transitional provisions,

HAVE ADOPTED THIS REGULATION:

TABLE OF CONTENTS

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on support for rural development by the European Agricultural Fund for Rural Development (EAFRD) 10

TITLE I Objectives and Strategy 28

Chapter I Scope and Definitions 28

Chapter II Mission, objectives, priorities and consistency 31

TITLE II Programming 34

Chapter I Programming content 34

Chapter II Preparation, approval and modification of rural development programmes 38

TITLE III Rural development support 40

Chapter I Measures 40

Section 1 Individual Measures 40

Section 2 Leader 64

Chapter II Common provisions for several measures 66

Chapter III Technical assistance and networking 68

Chapter IV Prize for innovative, local cooperation in rural areas 73

TITLE IV EIP for agricultural productivity and sustainability 75

TITLE V Financial provisions 77

TITLE VI Management, control and publicity 83

TITLE VII Monitoring and evaluation 86

Chapter I General provisions 86

Section 1 Establishment and Objectives of a monitoring and evaluation system 86

Section 2 Technical provisions 87

Chapter II Monitoring 88

Chapter III Evaluation 89

TITLE VIII Competition provisions 91

TITLE IX Commission powers, common provisions and transitional and final provisions 92

Chapter I Commission powers 92

Chapter II Common provisions 93

Chapter III Transitional and final provisions 93

ANNEX I Amounts and support rates 95

ANNEX II Biophysical criteria for the delimitation of areas facing natural constraints 99

ANNEX III Indicative list of measures and operations of particular relevance to thematic sub-programmes referred to in Article 8 101

ANNEX IV Ex ante conditionalities for rural development 103

ANNEX V Indicative list of measures with relevance to one or more Union priorities for rural development 109

TITLE I Objectives and Strategy

Chapter I Scope and Definitions

Article 1

Scope

71. This Regulation:

72. lays down the general rules governing Union support for rural development, financed by the European Agricultural Fund for Rural Development (hereinafter "the EAFRD"), established by Regulation (EU) No HR/2012;

73. defines the objectives to which rural development policy is to contribute and the relevant Union priorities for rural development;

74. outlines the strategic context for rural development policy;

75. defines the measures of rural development policy;

76. lays down rules on programming, networking, management, monitoring and evaluation on the basis of responsibilities shared between the Member States and the Commission.

77. lays down the rules to ensure co-ordination of the EAFRD with other Union instruments.

78. This Regulation complements the provisions of Part Two of Regulation (EU) No [CSF/2012].

Article 2

Definitions

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

80. "programming": the process of organisation, decision taking and allocating the financial resources in several stages intended to implement, on a multi-annual basis, the joint action by the Union and the Member States to achieve the Union priorities for rural development;

81. "region": territorial unit corresponding to level 1 or 2 of the Nomenclature of territorial units for statistics (NUTS level 1 and 2) within the meaning of Regulation (EC) No 1059/2003 of the European Parliament and of the Council[23];

82. "measure": a set of operations contributing to one or more of the Union priorities for rural development;

83. "operation": a project, group of projects, contract, or arrangement or other action selected according to criteria for the rural development programme concerned and implemented by one or more beneficiaries allowing achievement of one or more of the Union priorities for rural development;

84. "beneficiary": a natural or legal person or other body, whether public or private, responsible for implementing operations or receiving support;

85. "monitoring and evaluation system": a general approach developed by the Commission and the Member States defining a limited number of common indicators relating to the baseline situation and the financial execution, outputs, results, and impacts of the programmes;

86. "local development strategy": a coherent set of operations to meet local objectives and needs, which contributes to meeting the Union priorities for rural development, implemented in partnership at the appropriate level;

87. "support rate": the rate of the total public contribution to an operation;

88. "public expenditure": any public contribution to the financing of operations whose origin is the budget of the State, of regional and local authorities, of the Union and any similar expenditure. Any contribution to the financing of operations whose origin is the budget of public law bodies or associations of one or more regional or local authorities or public law bodies, within the meaning of Directive 2004/18/EC[24], shall be regarded as public contribution;

89. "less developed regions": regions whose gross domestic product (GDP) per capita is less than 75% of the average GDP of the EU-27;

90. “micro-, small and medium-sized enterprises” (hereinafter "SMEs") : micro-, small and medium-sized enterprises as defined in Commission Recommendation 2003/361/EC[25];

91. “transaction cost”: a cost linked to a commitment but not directly attributable to its implementation;

92. utilised agricultural area (hereinafter “UAA”): utilised agricultural area within the meaning of Commission Decision 2000/115/EC of 24 November 1999[26];

93. “economic losses”: any additional cost incurred by a farmer as a result of exceptional measures taken by the farmer with the objective of reducing supply on the market concerned or any substantial loss of production;

94. “adverse climatic event”: weather conditions, such as frost, storms and hail, ice, heavy rain or severe drought, which can be assimilated to a natural disaster;

95. “animal diseases”: diseases mentioned in the list of animal diseases established by the World Organisation for Animal Health or in the Annex to Council Decision 90/424/EEC[27];

96. “environmental incident”: a specific occurrence of pollution, contamination or degradation in the quality of the environment related to a specific event and of limited geographical scope. It does not cover general environmental risks not connected with a specific event, such as climate change or atmospheric pollution;

97. "natural disaster": a naturally occurring event of biotic or abiotic nature that leads to important disturbances of agricultural production systems and forest structures, eventually causing important economic damage to the farming and forest sectors;

98. "catastrophic event": an unforeseen event of biotic or abiotic nature caused by human action that leads to important disturbances of agricultural production systems and forest structures, eventually causing important economic damage to the farming and forest sectors;

99. "short supply chain": a supply chain involving a limited number of economic operators, committed to co-operation, local economic development, and close geographical and social relations between producers and consumers;

100. "young farmer": farmer who is less than 40 years of age at the moment of submitting the application, possesses adequate occupational skills and competence and is setting up for the first time in an agricultural holding as head of the holding;

101. "completed operation" means an operation that has been physically completed or fully implemented and in respect of which all related payments have been made by beneficiaries and the corresponding public contribution has been paid to the beneficiaries;

102. "thematic objectives": the thematic objectives defined in Article 9 of Regulation (EU) No [CSF/2012] of the European Parliament and the Council[28].

103. "Common Strategic Framework (hereinafter "CSF")": the Common Strategic Framework referred to in Article 10 of Regulation (EU) No [CSF/2010].

104. As regards the definition of young farmer laid down in paragraph 1(u), the Commission shall be empowered to adopt delegated acts in accordance with Article 90 concerning the conditions under which a legal person may be considered a 'young farmer', including the setting of a grace period for the acquisition of occupational skills.

Chapter II Mission, objectives, priorities and consistency

Article 3

Mission

The EAFRD shall contribute to the Europe 2020 Strategy by promoting sustainable rural development throughout the Union in a complementary manner to the other instruments of the common agricultural policy (hereinafter “CAP”), to cohesion policy and to the common fisheries policy. It shall contribute to a more territorially and environmentally balanced, climate-friendly and resilient and innovative Union agricultural sector.

Article 4

Objectives

Within the overall framework of the CAP, support for rural development shall contribute to achieving the following objectives:

105. the competitiveness of agriculture;

106. the sustainable management of natural resources, and climate action;

107. a balanced territorial development of rural areas.

Article 5

Union priorities for rural development

The achievement of the objectives of rural development, which contribute to the Europe 2020 strategy for smart, sustainable and inclusive growth, shall be pursued through the following six Union priorities for rural development, which translate the relevant Thematic Objectives of the CSF:

108. fostering knowledge transfer and innovation in agriculture, forestry, and rural areas with a focus on the following areas:

109. fostering innovation and the knowledge base in rural areas;

110. strengthening the links between agriculture and forestry and research and innovation;

111. fostering lifelong learning and vocational training in the agricultural and forestry sectors.

112. enhancing competitiveness of all types of agriculture and enhancing farm viability, with a focus on the following areas:

113. facilitating restructuring of farms facing major structural problems, notably farms with a low degree of market participation, market-oriented farms in particular sectors and farms in need of agricultural diversification;

114. facilitating generational renewal in the agricultural sector.

115. promoting food chain organisation and risk management in agriculture, with a focus on the following areas:

116. better integrating primary producers into the food chain through quality schemes, promotion in local markets and short supply circuits, producer groups and inter-branch organisations;

117. supporting farm risk management:

118. restoring, preserving and enhancing ecosystems dependent on agriculture and forestry, with a focus on the following areas:

119. restoring and preserving biodiversity, including in Natura 2000 areas and high nature value farming, and the state of European landscapes;

120. improving water management;

121. improving soil management.

122. promoting resource efficiency and supporting the shift towards a low carbon and climate resilient economy in agriculture, food and forestry sectors, with a focus on the following areas:

123. increasing efficiency in water use by agriculture;

124. increasing efficiency in energy use in agriculture and food processing;

125. facilitating the supply and use of renewable sources of energy, of by-products, wastes, residues and other non food raw material for purposes of the bio-economy;

126. reducing nitrous oxide and methane emissions from agriculture;

127. fostering carbon sequestration in agriculture and forestry;

128. promoting social inclusion poverty reduction and economic development in rural areas, with a focus on the following areas:

129. facilitating diversification, creation of new small enterprises and job creation;

130. fostering local development in rural areas;

131. enhancing accessibility to, use and quality of information and communication technologies (ICT) in rural areas.

All of the priorities shall contribute to the cross-cutting objectives of innovation, environment and climate change mitigation and adaptation.

Article 6

Consistency

132. There shall be consistency between support from the EAFRD and the measures financed by the European Agricultural Guarantee Fund.

133. No support under this Regulation shall be granted to operations supported under common market organizations. The Commission shall be empowered to adopt delegated acts, in accordance with Article 90 to define exceptions from this rule.

TITLE IIProgramming

Chapter I Programming content

Article 7

Rural development programmes

134. The EAFRD shall act in the Member States through rural development programmes. These programmes shall implement a strategy to meet the Union priorities for rural development through a set of measures defined in Title III, for the achievement of which aid from the EAFRD will be sought.

135. A Member State may submit either a single programme for its entire territory or a set of regional programmes.

136. Member States with regional programmes may also submit for approval a national framework containing common elements for these programmes without a separate budgetary allocation.

Article 8

Thematic sub-programmes

137. Member States may include within their rural development programmes thematic sub-programmes, contributing to the Union priorities for rural development, aimed to address specific needs identified, in particular in relation to:

138. young farmers;

139. small farms as referred to in the third subparagraph of Article 20(2);

140. mountain areas as referred to in Article 33(2);

141. short supply chains.

An indicative list of measures and types of operations of particular relevance to each thematic sub-programme is set out in Annex III.

142. Thematic sub-programmes may also address specific needs relating to the restructuring of agricultural sectors with a significant impact on the development of a specific rural area.

143. The support rates laid down in Annex I may be increased by 10 percentage points for operations supported in the framework of thematic sub-programmes concerning small farms and short supply chains. In the case of young farmers and mountain areas, the maximum support rates may be increased in accordance with Annex I. However, the maximum combined support rate shall not exceed 90%.

Article 9

Content of rural development programmes

144. In addition to the elements referred to in Article 24 of Regulation (EU) No [CSF/2012], each rural development programme shall include:

145. the ex ante evaluation referred to in Article 48 of Regulation (EU) No [CSF/2012];

146. an analysis of the situation in terms of strengths, weaknesses, opportunities and threats (hereinafter "SWOT") and identification of the needs that have to be addressed in the geographical area covered by the programme and, where relevant, by the thematic sub-programmes referred to in Article 8.

The analysis shall be structured around the Union priorities for rural development. Specific needs concerning the environment, climate change mitigation and adaptation and innovation shall be assessed across Union priorities for rural development, in view of identifying relevant responses in these two areas at the level of each priority;

147. a description of the strategy which includes the target setting for each of the focus areas of the Union priorities for rural development included in the programme, on the basis of common indicators referred to in Article 76, to be defined as part of the monitoring and evaluation system referred to in Article 74, and a selection of measures, based on a sound intervention logic of the programme, including an assessment of the expected contribution of the measures chosen to achieve the targets.

The rural development programme shall demonstrate that:

(i) relevant combinations of measures are included in relation to the Union priorities for rural development included in the programme, logically following from the ex ante evaluation referred to in point (a) and the analysis referred to in point (b);

(ii) the allocation of financial resources to the measures of the programme is balanced and adequate to achieve the targets set;

(iii) specific needs linked with specific conditions at regional or sub-regional level are taken into account and concretely addressed through adequately designed combinations of measures or thematic sub-programmes;

(iv) a pertinent approach towards innovation, the environment, including the specific needs of Natura 2000 areas, and climate change mitigation and adaptation is integrated into the programme;

(v) appropriate action is envisaged to simplify the implementation of the programme;

(vi) measures have been taken to ensure the availability of sufficient advisory capacity on the regulatory requirements and all aspects linked to sustainable management in agriculture and forestry, as well as climate action;

(vii) initiatives are planned for raising awareness and animating innovative actions and establishing operational groups of the EIP for agricultural productivity and sustainability;

(viii) an appropriate approach has been defined laying down principles with regard to the setting of selection criteria for projects and local development strategies, which takes into account relevant targets. In this context Member States may provide for priority to be given or for a higher support rate for operations undertaken collectively by groups of farmers;

148. the assessment of the ex ante conditionalities and, where required, the actions referred to in Article 17(4) of Regulation (EU) No [CSF/2012] and the milestones established for the purpose of Article 19 of Regulation (EU) No [CSF/2012];

149. a description of each of the measures selected;

150. in relation to local development, a specific description of the coordination mechanisms between the local development strategies, the measure co-operation referred to in Article 36, the measure basic services and village renewal in rural areas referred to in Article 21 and the support for non-agricultural activities in rural areas under the measure farm and business development in rural areas referred to in Article 20;

151. a description of the approach towards innovation in view of enhancing productivity and sustainable resource management and the contribution to achieving the objectives of the EIP for agricultural productivity and sustainability referred to in Article 61;

152. an analysis of needs relating to monitoring and evaluation requirements and the evaluation plan referred to in Article 49 of Regulation (EU) No [CSF/2012]. The Member States shall provide sufficient resources and capacity building activities to address the identified needs;

153. a financing plan comprising:

(i) a table setting out, in accordance with Article 64(4), the total EAFRD contribution planned for each year. When applicable this table shall indicate separately within the total EAFRD contribution the appropriations provided for the less developed regions and the funds transferred to the EAFRD in application of Article 7(2) of Regulation (EU) No DP/2012. The planned annual EAFRD contribution shall be compatible with the Multi-annual Financial Framework;

(ii) a table setting out, for each measure, the type of operation with a specific EAFRD contribution rate and technical assistance, the total Union contribution planned and the applicable EAFRD contribution rate. Where applicable, this table shall indicate separately the EAFRD contribution rate for less developed regions and for other regions;

154. an indicator plan comprising for each of the Union priorities for rural development included in the programme the indicators and the selected measures with planned outputs and planned expenditure, broken down between public and private;

155. where applicable, a table on additional national financing per measure in accordance with Article 89;

156. the elements needed for the appraisal under Article 89 and, where applicable, the list of aid schemes falling under Article 88(1) to be used for the implementation of the programmes;

157. information on the complementarity with measures financed by the other common agricultural policy instruments, through cohesion policy or by the EMFF;

158. programme implementing arrangements including:

(i) the designation by the Member State of all authorities referred to in Article 72(2) and, for information, a summary description of the management and control structure;

(ii) a description of the monitoring and evaluation procedures, as well as the composition of the Monitoring Committee;

(iii) the provisions to ensure that the programme is publicised, including through the national rural network referred to in Article 55;

159. the designation of the partners referred to in Article 5 of Regulation (EU) No [CSF/2012] and the results of the consultation of the partners;

160. where applicable, the main elements of the national rural network action plan and structure referred to in Article 55(3), and provisions for its management, which would constitute the basis for its annual actions plans.

161. Where thematic sub-programmes are included in a rural development programme, each sub-programme shall include:

162. a specific analysis of the situation in terms of SWOT and identification of the needs that have to be addressed by the sub-programme;

163. specific targets at sub-programme level and a selection of measures, based on a thorough definition of the intervention logic of the sub-programme, including an assessment of the expected contribution of the measures chosen to achieve the targets;

164. a separate specific indicator plan, with planned outputs and planned expenditure, broken down between public and private.

165. The Commission shall, by means of implementing acts lay down rules for the presentation of the elements described in paragraphs 1 and 2 in rural development programmes. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 91.

Chapter IIPreparation, approval and modification of rural development programmes

Article 10

Ex ante conditionalities

In addition to the ex ante conditionalities referred to in Annex IV, the general ex ante conditionalities established in Annex IV of Regulation (EU) No [CSF/2012] shall apply for the EAFRD.

Article 11

Approval of rural development programmes

166. Member States shall submit to the Commission a proposal for each rural development programme, containing the information mentioned in Article 9.

167. Each rural development programme shall be approved by the Commission by means of an implementing act adopted in accorda