EN    EN EN 
EN    EN  COMMISSION OF THE E UROPEAN COMMUNITIES 
Brussels, 20.5.2008 
SEC(2008) 1886 
  
COMMISSION STAFF WORKING DOCUMENT 
accompanying the 
 
Proposals for 
 
COUNCIL REGULATION establishing comm on rules for direct support schemes 
under the common agricultural policy for farmers and establishing  
certain support schemes for farmers 
 
COUNCIL REGULATION on modifications to  the common agricultural policy by 
amending Regulations (EC) No 320/ 2006, (EC) No 1234/2007, (EC) No 3/2008  
and (EC) No […]/2008 
 
COUNCIL REGULATION amending Regula tion (EC) No 1698/2005 on support  
for rural development by the European Agricultural Fund  
for Rural Development (EAFRD) 
 
COUNCIL DECISION amending Decision 2006/144/EC on the Community strategic 
guidelines for rural development (programming period 2007 to 2013) 
 
Impact Assessment summary  
 
 
{COM(2008) 306 final} 
{SEC(2008) 1885} 
EN 2   EN 1. INTRODUCTION  
The aim of the CAP "Health Check" is to asse ss the experience of th e 2003 CAP reform, and 
to introduce adjustments that simplify and increase the effectiveness of the policy, allowing it to respond to present market opportu nities and face new challenges. 
First indications from the assessment of the 200 3 reform are in general positive, and indicate 
that a fundamental reform of the CAP for th e remaining horizon of the present financial 
perspectives (until 2013) is neither necessary no r desirable. However, other, parallel market 
and policy developments, together with experience  gained so far from reform implementation, 
indicate a rapidly changing environment f acing EU agriculture and the need for CAP 
adjustments which could not be foreseen  when the 2003 reform was carried out. 
The three main policy questions that the Hea lth Check addresses concern the three basic 
Regulations of the CAP: 
Regulation (EC) No 1782/2003 covers  all issues related to the core of farm support today, the 
Single Payment Scheme (SPS), 
Regulation (EC) No 1234/2007 covers issues related to  the single common market 
organisation (sCMO), 
Regulation (EC) No 1698/2005 c overs issues related to Ru ral Development (RD) policy. 
The Impact Assessment (IA) addresses the above issues, and analyses the impact of potential 
changes in the CAP, examining many exis ting studies, both internal and external. 
Public consultation with stake holders was organised, including two public seminars, one on 
the global presentation of the HC, the other on dairy issues. Stakeholde rs were invited to 
contribute to the preparation of proposals ba sed on a questionnaire. This resulted in a 
significant number of submissi ons with wide-spread representation across Member States 
(MS) and stakeholders. 
2. S
INGLE PAYMENT SCHEME  
The introduction of the SPS rende red decoupled farm support the central element of the 2003 
CAP reform. In implementing the SPS, MS could opt for two basic models: a historic model 
or a regional model. The current legislation does not include a "regret cl ause" that would allow 
MS to adjust their SPS model. 
Yet, as more sectors are included in the SPS, within on-going CAP reform, there are fewer a 
priori reasons to exclude such a possibility. To  assess the potential impact from allowing MS 
to move towards a more flat rate, f our alternative options were analysed. 
A move towards an EU-wide flat rate  per hectare was found to imply a fundamental reform 
and a major redistribution of support among MS. Turning the SAPS , the transitional area 
payment scheme in the new MS, into an EU-w ide permanent scheme would contradict the 
very philosophy of decoupled support because it would not be a system based on fixed entitlements. The two options of assessing a targeted move towards a flat rate  by harmonising 
payments in a regional context, either by en titlement or by hectare, was found to address 
equity issues related to the di stribution of support while minimi sing the impact of significant 
shifts of support on land values. 
EN 3   EN Adjustment of Article 69 of the SPS legislati on has also been shown to be desirable. 
Originally designed to f acilitate transition towards decoupling, this article could also facilitate 
the adjustment needs resulting from the change s proposed in the HC. These challenges mainly 
concern risks that some regions may face with  the gradual phasing-out of milk quotas and 
further decoupling, and the need  for policies addressing risk management. Through this 
revision MS could be allowed to use part of their available SPS support to target particular 
sectors and regions with specific needs of an ec onomic, social or environmental nature thus 
mitigating negative effects on income, contributi ng to the vitality of rural areas and to 
promoting environmentally be neficial farming practices. 
In order to avoid the risk of backtracking fr om the overall orientation of the CAP towards 
decoupling needs to be addresse d by dividing the resulting nationa l envelopes into two distinct 
sub-ceilings. One envelope could address the ad justment of decoupled support towards higher 
flat rate payments in those regions where the expiry of the dairy quotas and further decoupling 
could create potential risks, or the introduction of  risk management measures that meet Green 
Box criteria. The other sub-ceiling could be used  for targeted measures of coupled support or 
other risk management measures. 
As cross compliance creates a link between farm-relevant support and farm-relevant 
legislation, its scope was screen ed in order to examine whet her the SMR and the GAEC could 
be better targeted, whether the issues of climat e change and water manage ment could be better 
taken into consideration, and wh ether environmental benefits from set-aside could be retained 
through cross compliance. Two options were c onsidered. The first op tion identified those 
requirements whose removal would reduce the administrative burden, but  not impact upon the 
current ambition of cross-compliance, such as  those not directly linked to agricultural 
activities and agricu ltural land, whose non-re spect cannot be a ttributed to an individual farmer, 
concern MS instead of the farmer's responsibilit y, and are thus difficult to control under cross 
compliance. 
The second approach considered the broadening  of the scope of cross compliance by adding 
certain important legal acts relevant to farmi ng activities that would c ontribute to meeting new 
challenges and/or retaining environmental benef its from set aside. Ways of introducing water 
management within the scope of cross complia nce have also been considered, such as 
including water management within the GAEC. For retaining environmental benefits from set aside, an additional standard on buffer strips and a strengthening of the current standard on retaining landscape features have be en considered to be appropriate. 
Partially coupled support is avai lable for some sectors. The re maining coupled support should 
move to full decoupling to achieve more mark et orientation and improved competitiveness. In 
some cases, this may have consequences for th e environmental benefits provided by current 
policy tools, as well as for the vitality of rura l areas. The analysis conc ludes that the biggest 
impact would be in those sectors and regions  where the coupled premiums represent an 
important share of the farmer's margin, such as the sectors of suckler cows and sheep. In the cereals sector and in other beef production syst ems, the impact would not be so significant. 
On payment limitations, the situation is at present characterised by a small number of very 
high payments and a large number of very sma ll payments. Introducing individual limits was 
assessed in order for its potent ial of improving the equality of distribution of payments 
between farmers. The analysis shows that such a measure would affect a very small number of holdings in a limited number of MS, particularly in EU-10, and would result in significant cuts 
in their direct payment levels and the risk of  splitting of holdings to avoid the ceilings. 
Progressive individual limits, on the other hand, maintain the mo re generalised nature of the 
EN 4   EN measure across the EU, but have significantly m ilder impacts on cuts in direct payments and 
income on the affected holdings. 
An increase of lower payment limitations was assessed due to the merits this could have in 
easing the administrative burden for the MS. Depending on where the limit is set, the 
percentage of beneficiaries ex cluded from payments could vary greatly within MS. Leaving 
the choice of setting either a minimum area or a minimum amount to the MS would allow 
better adjustment to their specific needs. 
3. GRASPING MARKET OPPORTUNITIES  
The proposed options for adjustments to cereal intervention and set-asid e were assessed with 
respect to their capacity to improve competiti veness and market orientation for the sector 
while keeping intervention as a safety-net in ca se of market disruptions, facilitate farmers' 
response to market conditions, and identify measur es that could deliver similar environmental 
benefits to set-aside where its removal may put them at risk. 
Limiting quantities going to intervention at zero for all feed grains facilitates supporting the 
entire cereal markets if necessary (since cer eal prices move in parallel) without the 
disadvantage of artificially undermining barleys'  competitiveness. Introducing tendering would 
simplify and harmonise cereal interventi on rules with those of other CMOs. 
Removal of the set-aside obligation would li kely bring back into production an area 
corresponding to roughly half the area currently under mandatory  set-aside. It has been 
suggested that the environmental benefits of set aside could be retained by introducing a fixed 
percentage of total area as an "environmental compensation/pr iority" area, containing certain 
landscape features. However, such a measure would attempt to fix in a similar manner MS a potential problem whose distribution is presently  very diverse across MS, and would thus not 
necessarily compensate for environmental losses in  the place that they occurred. If the fixed 
percentage of set-aside for all farmers is re placed with new standards to reflect the above 
landscape features, an expanded lis t in GAEC would ensure better c overage than at present of 
these features by MS. Furthermore, the strengthe ning of set-aside within Pillar II would allow 
the targeting of environmental benefits where they are mostly needed , but the impacts will 
depend on relevant provisions of exis ting RD programmes in different MS. 
Milk quotas hold back the sector from achieving th e objectives of CAP reform since they still 
reflect concerns of two decades back, inst ead of responding to present opportunities. The 
phasing-out of dairy quotas was assessed, and various policy options were compared with the 
continuation of the dairy quota as a referenc e. In the continuatio n option, constrained 
production combined with growing demand increases  the milk price, but market orientation 
and competitiveness of producers and pr ocessors alike is being hampered. 
On the other hand, under the expiry option, when quotas are lift ed in 2015/16, production 
jumps to match demand, causing a strong price decrease after quotas expire. Price declines and 
production responses are smoother under both pha sing out options, but the extent of 
adjustment differs. The lower annual quota increase option allows for a smoother price 
adjustment throughout the transition period, but in both phasing out scenarios, the butter price 
falls to intervention price level. 
The transition to the phasing out of dairy quot as has social and environmental effects. A 
smooth transition in the phasing out scenarios prevents rapid restructuring and allows 
EN 5   EN preparing and adjusting accompanying measures to the potential social and environmental 
problems that could appear. 
Finally, for a list of sma ll support schemes, the status quo  option contradicts the 2003 CAP 
reform path in terms of competitiveness, mark et-orientation and simplification of the support 
scheme. Although full decoupling would have a positive impact on farm income in most 
regions due to higher tr ansfer efficiency of di rect support, nevertheless it could affect specific 
regions where local production is vital for the vi ability of the local ag ri-food chain or for the 
environment, thus indicating the need for a va riable degree of transition for the industry, 
according to the sector. 
Analysis has also been carried out on how to be st take account of the farmers increasing need 
for risk management tools, due to increasing im pacts of climate change and the higher degree 
of market orientation. Intr oduction of new risk manageme nt tools should contribute to 
stabilising the income of the farm society, wh ile not introducing unnece ssary administrative 
burden or excessively high budgetary costs. 
Price risks appear to be sufficiently addresse d with safety-net intervention and with the 
flexibility that decoupling provi des; hence there is no need fo r additional risk management 
tools to deal with price risks.  The extension of SPS to sectors which are currently not included 
could also provide a positive contribution in m itigating price variability for the agricultural 
community. 
With respect to the potentially growing needs for production risk s, an EU-wide scheme cannot 
be considered feasible at this stage. Such a scheme would be very expensive, and would imply 
an increased administrative burden for farmers and MS. Given the heterogeneity of the risks 
and crises that the EU faces heterogeneous m easures seem to provide the most suitable 
solution to help farmers deal w ith crisis situations. A harmoni sation at EU level of the aid 
schemes currently supported with  state aids could contribute to increased transparency 
between MS, while at the same time allowing  the CAP to better meet the objective of 
contributing to the income stability  for the agricultural community. 
An introduction of new risk management tools within existing CAP instruments as an option 
in a revised Article 69 would be  budget neutral with respect to the overa ll EU budget. National 
contributions would depend on MS preference, but  introducing the measure would in any case 
be optional. On top of this, RD programmes contain measures directly related to risk 
management for agriculture and forestry, and that provide complementary support for 
preventive action in the areas of physica l investment or human capital formation. 
4. RESPONDING TO NEW CHALLENGES  
The HC Communication identified a number of  new and ongoing cha llenges facing the CAP 
(such as climate change, bio-energy, water mana gement and biodiversity) and considers RD to 
be a key instrument to deal with these challe nges. The screening exercise of RD programmes 
indicates that existing measures are already providing various solutions to address the new 
challenges and that MS have alr eady included a significant number of related measures in their 
RD programmes for the period 2007-13. 
The analysis of the impact of the proposed options for facing "new challenges" via RD 
measures focused on the impact of such proposals on improving the EU responsiveness to new challenges via greater MS uptak e of second pillar measures. Four options were examined, 
aiming at targeting additional funds through modul ation to existing measures related to "new 
EN 6   EN challenges" with a reporting oblig ation concerning the new funding and indicators of measures 
in areas where "new challenges" were considered. 
However, the constraints on the RD budget following the 2005 decision on the Financial 
Perspectives, present an obstacle to the realisation of 2nd Pillar objectives in the current 
budgetary period. Reinforcement of budgetary resources is also necessary in order to respond to the need for increased efforts to address new challenges identified in the HC Communication. 
Analysis of alternative levels of modula tion assessed their impact on the net budgetary 
transfers among MS and the level of  their RD funds, as well as the impact on farm income for 
the farms and sectors involved. Since the mann er to distribute modulated funds among MS, 
once the new MS are also part of the system, is  not yet decided, the aim was to illustrate the 
potential impact of the opti ons addressed. Different options  were analysed, assuming an 
overall increase in modulati on, achieved with the same annua l steps from 2009 onwards, but 
taking into account different assumptions about  the contribution of new MS. The retained 
option analysed is a variant of the idea supported by th e European Parliament  that introduces a 
progressive element in modulation based on different thresholds of payments, thereby 
addressing equity issues relating to individual producers limits. 
5. C
ONCLUSIONS  
The continuation of present CAP policies sh ows that the current policy framework, as 
reformed in 2003, contributes positively to fulf illing the main CAP objectives. The analysis 
points to areas where adjustments in current pol icies would lead to more optimal solutions. 
With respect to the Single Payment Scheme, the implementation of the SPS and the gradual 
expansion of decoupling to more sectors render the need to allo w MS to consider adjustments 
in their SPS model towards a more flat rate for payments. Such a move could address the 
societal concerns of unequal distribu tion of payments between farmers. 
Further decoupling, as well as a continuation of move to producer  support of sectors not yet 
integrated in the SPS, could sign ificantly enhance market orientat ion of the CAP, but in some 
sectors decoupling may create the need for transitional measures in order to address 
economical, social or environmental concerns. So lutions could be addressed through a revision 
of Article 69 and through transitional periods. 
Revising the scope of cross compliance would c ontribute to easing th e administrative burden 
as well as addressing new challenges that we re not as present in 2003. Also, environmental 
benefits of set-aside could be retained through  the combined effect of adjustments in cross 
compliance and RD measures. 
In terms of agricultural markets, the phasing ou t of milk quotas and removal of set-aside will 
allow the farmers to better respond to market situations. 
Finally, a screening exercise has showed that th e present tool kit of measures available under 
RD programmes appears to be sufficient to address new challenges . The best way to 
strengthen the role of these measures within  the RD policy appears to be the creation of 
mechanisms that guarantee an increased uptake by Member States, as well as the provision of 
additional financing thro ugh progressive modulation.