Proposal for a Council Regulation laying down rules for voluntary modulation of direct payments provided for in Regulation (EC) No 1782/2003 establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers, and amending Regulation (EC) No 1290/2005
Date: 2006-05-24
Institutions: European Commission
Subjects: EU financing arrangements, agricultural product, aid system, common agricultural policy, farmers' income, production aid

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 24.5.2006 
COM(2006) 241 final 

2006/0083 (CNS) 

Proposal for a 

COUNCIL REGULATION 

laying down rules for voluntary modulation of direct payments provided for in 
Regulation (EC) No 1782/2003 establishing common rules for direct support schemes 
under the common agricultural policy and establishing certain support schemes for 
farmers, and amending Regulation (EC) No 1290/2005 

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

The European Council in its December 2005  agreement on the financial  framework 
for 2007–2013 introduced the possibility for Member States to “modulate” or reduce 
market  expenditure  and  direct  payments  which  accrue  under  the  first  pillar  of  the 
CAP up to a maximum of 20% and to use the amounts thus generated for their rural 
development  programmes  (second  pillar  of  the  CAP).  It  invited  the  Council,  on  the 
basis  of  a  Commission  proposal,  to  establish  the  modalities  governing  the  transfers 
from  the  first  pillar  and  stipulated  that  the  additional  Community  funding  for  rural 
development  would  neither  be  subject  to  national  co-financing  nor  to  the  minimum 
spending per axes rules as set out in the rural development regulation. 

Since  the  amounts  corresponding  to  voluntary  modulation  should  not  be  considered 
as  part  of  the  maximum  amounts  constituting  the  annual  ceiling  for  EAGF 
expenditure and since the possibility to adopt detailed rules concerning in particular 
voluntary  modulation  should  be  provided,  Council  Regulation  (EC)  No 1290/2005 
should be amended accordingly. 

The  present  legislative  proposal  for  a  Council  Regulation  laying  down  rules  for 
voluntary  modulation  of  direct  payments  pursuant  to  Council  Regulation  (EC) 
No 1782/2003 and amending Regulation (EC) No 1290/2005 on the financing of the 
common  agricultural  policy  sets  out  how  Member  States  can  apply  voluntary 
modulation and how the money can be used for rural development. 

A first important principle will be that the money will transit through the Community 
budget, i.e. a reduction in commitment appropriations for first pillar expenditure with 
an equivalent increase in commitment appropriations for rural development. 

CAP market expenditure (e.g. intervention, export refunds, private storage aids, etc.) 
does not lend itself to modulation. It supports the market as a whole, cannot be clearly 
attributed  to  a  particular  Member  State  and  fluctuates  over  time.  Also  when  market 
interventions are needed, it makes little economic sense to pay for example only 90% 
of the export refund. For these reasons CAP expenditure other than direct payments 
should de excluded from voluntary modulation. 

Voluntary  modulation  should  be  aligned  as  much  as  possible  on  the  provisions  for 
compulsory modulation, i.e. apply to the same base of direct payments. A franchise of 
the first € 5 000 of direct payment would also apply to such additional reduction as in 
the  case  of  compulsory  modulation,  involving  an  additional  amount  of  aid  to  be 
returned  to  the  farmers,  within  ceilings  per  Member  State  applying  voluntary 
modulation  to  be  fixed  by  the  Commission.  Member  States  would  communicate  to 
the  Commission  the  rate  of  voluntary  modulation  they  wish  to  apply  (up  to  a 
maximum of 20%) for the period 2007–2012 (calendar years for direct payments). 

Member  States  applying  voluntary  modulation  would  receive  the  corresponding 
amounts  as  a  second  source  of  Community  funding  for  their  rural  development 
programmes,  to  which  all  rural  development  rules  would  apply  with  possible 
exception of co-financing [Article 70(3) of Council Regulation (EC) No 1698/2005] 
as well as the pre-financing arrangements for EARDF [Article 25 of Regulation (EC) 
No 1290/2005].  However,  Article  17  of  Regulation  (EC)  No 1698/2005  (minimum 
spending  rates  per  axis)  should  also  apply  to  the  amounts  available  from  voluntary 

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modulation for the purpose of ensuring compliance with the basic rules governing the 
commonly agreed policy. Released funds would be used within the mainstream rural 
development  programmes  (not  in  separate  smaller  programmes  fed  by  voluntary 
modulation  only)  to  allow  management  of  programmes  by  the  same  management 
authorities and paying agencies. 

8. 

Finally,  the  Commission  would  be  empowered  to  adopt  implementing  rules  for 
integrating  voluntary  modulation  in  rural  development  programming  and  for  its 
financial management. 

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2006/0083 (CNS) 

Proposal for a 

COUNCIL REGULATION 

laying down rules for voluntary modulation of direct payments provided for in 
Regulation (EC) No 1782/2003 establishing common rules for direct support schemes 
under the common agricultural policy and establishing certain support schemes for 
farmers, and amending Regulation (EC) No 1290/2005 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in  particular 
Article 37 thereof,  

Having regard to the proposal from the Commission, 

Having regard to the opinion of the European Parliament1, 

Whereas: 

(1)  With  a  view  to  strengthening  rural  development  policy  in  the  Community,  Member 
States should be given the possibility to apply a system of voluntary modulation. The 
voluntary  modulation  should  take  the  form  of  reducing  direct  payments  within  the 
meaning  of  Article  2(d)  of  Council  Regulation  (EC)  No  1782/20032,  using  the  funds 
corresponding  to  that  reduction  for  the  financing  of  rural  development  programmes 
pursuant to Council Regulation (EC) No 1698/2005 of 20 September 2005 on support 
for  rural  development  by  the  European  Agricultural  Fund  for  Rural  Development 
(EAFRD)3. Reductions of direct payments applied in respect of voluntary modulation 
should be additional to those resulting from the application of compulsory modulation 
provided for in Article 10 of Regulation (EC) No 1782/2003. 

(2) 

(3) 

In  order  to  facilitate  its  administrative  implementation,  the  voluntary  modulation 
should  be  calculated  on  the  same  basis  as  that  applicable  to  compulsory  modulation 
under Article 10 of Regulation (EC) No 1782/2003. 

In  order  to  take  account  of  the  particular  situation  of  small  farmers,  an  additional 
amount of aid should be granted in case of application of voluntary modulation. That 
additional  amount  should  be  equal  to  the  amount  resulting  from  the  application  of 
voluntary modulation to the first EUR 5 000 of direct payments, within ceilings to be 
fixed by the Commission. 

1 
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3 

OJ C …, …, p. …. 
OJ  L  270,  21.10.2003,  p. 1.  Regulation  as  last  amended  by  Regulation  (EC)  No  247/2006  (OJ L 42, 
14.21.2006, p. 1). 
OJ L 277, 21.10.2005, p. 1. 

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(4) 

(5) 

(6) 

The use of the funds corresponding to the application of voluntary modulation should 
not be subject to national co-financing pursuant to Regulation (EC) No 1698/2005 and 
to  the  prefinancing  arrangements  applicable  to  the  EAFRD  pursuant  to  Council 
Regulation  (EC)  No  1290/2005  of  21  June  2005  on  the  financing  of  the  common 
agricultural policy4. Derogations from those Regulations should therefore be provided 
for. 

The measures necessary for the implementation of this Regulation should be adopted in 
accordance  with  Council  Decision  1999/468/EC  of  28  June  1999  laying  down  the 
procedures for the exercise of implementing powers conferred on the Commission5. 

The amounts corresponding to the application of voluntary modulation should be taken 
into consideration when defining the annual ceiling for the expenditure financed by the 
European  Agricultural  Guarantee  Fund  and  the  possibility  to  adopt  detailed  rules 
concerning in particular voluntary modulation should be included  in Regulation (EC) 
No 1290/2005.  

(7) 

Regulation (EC) No 1290/2005 should therefore be amended accordingly, 

HAS ADOPTED THIS REGULATION: 

CHAPTER I 
VOLUNTARY MODULATION 

Article 1 

1. 

2. 

3. 

Without  prejudice  to  Article  10  of  Regulation  (EC)  No  1782/2003,  Member  States 
may  apply  a  reduction,  hereinafter  referred  to  as  “voluntary  modulation”,  to  all  the 
amounts  of  direct  payments  within  the  meaning  of  Article 2(d)  of  Regulation  (EC) 
No 1782/2003  to  be  granted  in  their  territory  in  a  given  calendar  year,  during  the 
period 2007–2012.  

The  net  amounts  corresponding  to  the  application  of  voluntary  modulation  shall  be 
available as Community support for measures under rural development programming 
financed  by  the  European  Agricultural  Fund  for  Rural  Development  in  accordance 
with Regulation (EC) No 1698/2005. 

Reductions  under  voluntary  modulation  shall  be  made  on  the  same  basis  of 
calculation as that applicable to modulation pursuant to Article 10 of Regulation (EC) 
No  1782/2003.  Additional  amounts  granted  to  farmers  under  Article  12  of  that 
Regulation shall not be subject to those reductions. 

In  case  of  application  of  reductions  under  voluntary  modulation,  farmers  receiving 
direct payments under Regulation (EC) No 1782/2003 shall be granted an additional 
amount of aid which shall be equal to the amount resulting from the application of the 
percentage  of  reduction  to  the  first  EUR  5 000  or  less  of  direct  payments.  That 
additional amount shall not be subject to the reductions under voluntary modulation 
nor to modulation pursuant to Article 10 of Regulation (EC) No 1782/2003. 

4 
5 

OJ L 209, 11.8.2005, p. 1. 
OJ L 184, 17.7.1999, p. 23. 

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The  total  additional  amounts  of  aid  which  may  be  granted  in  a  Member  State  in  a 
calendar year shall not be higher than the ceilings to be fixed by the Commission in 
accordance  with  the  procedure  referred  to  in  Article  144(2)  of  Regulation  (EC) 
No 1782/2003. Where necessary, Member States shall proceed to a linear percentage 
adjustment of additional amounts of aid in order to respect those ceilings. 

4. 

Each Member State shall apply a single rate of reduction per calendar year. The rate 
may  be  subject  to  progressive  modifications  according  to  pre-established  steps.  The 
maximum rate of reduction shall be 20%. 

Article 2 

Within two months of the entry into force of this Regulation Member States shall decide on 
and communicate to the Commission the annual rates of voluntary modulation that will apply 
for the period 2007–2012. 

Article 3 

1. 

2. 

The  net  amounts  corresponding  to  the  application  of  voluntary  modulation  shall  be 
fixed  by  the  Commission  and  added  to  the  annual  breakdown  by  Member  State 
referred to in Article 69(4) of Regulation (EC) No 1698/2005. 

Member  States  may  decide  not  to  apply  the  ceilings  referred  to  in  Article  70(3)  of 
Regulation  (EC)  No  1698/2005  to  the  amounts  added  to  the  annual  breakdown  by 
Member State pursuant to paragraph 1 of this Article. 

Article 25 of Regulation (EC) No 1290/2005 shall not apply to the amounts added to 
the annual breakdown by Member State pursuant to paragraph 1 of this Article. 

Article 4 

Detailed  rules  for  the  application  of  this  Chapter  shall  be  adopted  in  accordance  with  the 
procedure referred to in Article 90(2) of Regulation (EC) No 1698/2005, which shall cover in 
particular  provisions  for  the  integration  of  voluntary  modulation  in  the  rural  development 
programming,  or,  as  appropriate,  in  Article  41(2)  of  Regulation  (EC)  No  1290/2005,  which 
shall cover in particular provisions for the financial management of voluntary modulation. 

CHAPTER II 
AMENDMENT OF REGULATION (EC) NO 1290/2005 AND FINAL PROVISION 

Article 5 

Regulation (EC) No 1290/2005 is amended as follows: 

(1) 

In Article 12, paragraph 2 is replaced by the following: 

“2.  The Commission shall set the amounts which, pursuant to Articles 10(2), 143d 
and  143e  of  Regulation  (EC)  No  1782/2003  and  Article  1  of  Council 
Regulation (EC) No …./2006*, are made available to the EAFRD. 

* 

OJ L …, …, p. ….” 

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(2) 

In  the  introductory  terms  of  Article  42  the  second  sentence  is  replaced  by  the 
following: 

“Those rules shall include in particular:” 

Article 6  

This Regulation shall enter into force on the seventh day following that of its publication in 
the Official Journal of the European Union. 

This Regulation shall be binding in its entirety and directly applicable in all Member States. 

Done at Brussels, 

For the Council 
The President 

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FINANCIAL STATEMENT 

1. 

2. 

3. 

4. 

BUDGET HEADING: 
05 03 
05 04 

APPROPRIATIONS (PDB 2007):
€37660,663 million 
€12366,220 million 

TITLE: 
Council  Regulation  laying  down  rules  for  voluntary  modulation  of  direct  payments  provided  for  in 
Regulation (EC) No 1782/2003 establishing common rules for direct support schemes under the common 
agricultural policy and establishing certain support schemes for farmers, and amending Regulation (EC) 
No 1290/2005 

LEGAL BASIS: 
Article 37 of the Treaty. 

AIMS: 
To provide for a possibility for Member States to voluntarily reduce the direct payments to farmers by up 
to 20% and to use those amounts to finance rural development programs in the same Member State. 

5. 

FINANCIAL IMPLICATIONS 

5.0 

CHARGED TO THE EC BUDGET 

EXPENDITURE 
– 
(REFUNDS/INTERVENTIONS) 
– 
– 

NATIONAL AUTHORITIES 
OTHER 

12 MONTH 
PERIOD 

(EUR million) 
– 

CURRENT 
FINANCIAL 
YEAR 2006 
(EUR million) 
– 

FOLLOWING 
FINANCIAL 
YEAR 2007 
(EUR million) 
– 

5.1  REVENUE 

– 

– 

– 

OWN RESOURCES OF THE EC  

– 
(LEVIES/CUSTOMS DUTIES) 
– 

NATIONAL 

5.0.1  ESTIMATED EXPENDITURE 
5.1.1  ESTIMATED REVENUE 
5.2  METHOD OF CALCULATION: 

2008 
– 
– 

2009 
– 
– 

2010 
– 
– 

2011 
– 
– 

6.0  CAN THE PROJECT BE FINANCED FROM APPROPRIATIONS ENTERED IN THE 

RELEVANT CHAPTER OF THE CURRENT BUDGET? 

6.1  CAN THE PROJECT BE FINANCED BY TRANSFER BETWEEN CHAPTERS OF 

THE CURRENT BUDGET? 

6.2  WILL A SUPPLEMENTARY BUDGET BE NECESSARY? 

6.3  WILL APPROPRIATIONS NEED TO BE ENTERED IN FUTURE BUDGETS? 

YES NO 

YES NO 

YES NO 

YES NO 

OBSERVATIONS: 
This Regulation does not entail any additional Community expenditure. It merely extends the possibility already 
foreseen  in  Article  10  of  R. 1782/2003  to  transfer  amounts  from  expenditure  under  "direct  aids"  to  "rural 
development". Therefore the measure is budgetary neutral. 

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