Commission staff working document accompanying the Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions Towards a better targeting of the aid to farmers in areas with natural handicaps Impact Assessment Summary {COM(2009) 161 final} {SEC(2009) 449} {SEC(2009) 450}
Date: 2009-04-21
Institutions: European Commission
Subjects: agricultural area with environmental restrictions, aid to agriculture, hill farming, less-favoured agricultural area, mountain region, regional farm policy

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 21.4.2009 
SEC(2009) 451 

COMMISSION STAFF WORKING DOCUMENT 

accompanying the 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

Towards a better targeting of the aid to farmers in areas with natural handicaps 

Impact Assessment Summary 

{COM(2009) 161 final} 
{SEC(2009) 449} 
{SEC(2009) 450} 

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COMMISSION STAFF WORKING DOCUMENT 
Impact Assessment Summary 

Towards a better targeting of the aid to farmers in areas with natural handicaps 

1. 

PROBLEM DEFINITION 

In  place  since  1975,  the  aid  scheme  to  farmers  in  Less  Favoured  Areas  (LFA)  provides  a 
mechanism for supporting the continuation of farming and thus maintaining the countryside in 
mountain areas, in less favoured areas other than mountain (the so-called 'intermediate LFAs') 
and in areas affected by specific handicaps.  

The  intervention  logic  of  LFA  payments  -  now  called  Natural  Handicap  Payments  (NHP)  - 
was  revised  in  2005,  in  order  to  improve  their  contribution  to  the  EU  Sustainable 
Development Strategy, and following the discrepancies flagged up by the Court of Auditors in 
2003, namely as concerns the delimitation of intermediate LFAs.  

However  the  new  legal  framework  for  NHP  remains  to  be  completed  since  in  2005  the 
Council  did  not  reach  an  agreement  on  a  possible  Community  wide  system  for  a  new 
classification  of  areas  with  natural  handicaps  other  than  those  which  are  mountainous  in 
character and than those with specific handicaps, in line with the new policy objectives. The 
scope of the current review exercise is therefore to complete the process started in 2005, while 
not precluding future developments in policy design for beyond 2013. 

The problems that need to be tackled are: 

•  The  inconsistencies  of  the  current  delimitation  of  intermediate  LFAs,  partially  based  on 
socio-economic  indicators,  with  the  revised  objectives  of  the  NHP  scheme,  focussing  on 
land management instead that on socio-economic objectives;  

•  The  extreme  diversity  of  the  criteria  used  by  the  Member  States  for  designating 
intermediate LFAs, implying a lack of transparency that might lead to unequal treatment of 
beneficiaries;  

•  The insufficient targeting of the aid on the areas most in danger of land abandonment.  

It  is  noted  that  Article  37  of  Regulation  (EC)  No  1698/20051  introduced  a  change  as  far  as 
concerns  the  payment  calculation.  This  provision,  that  will  enter  in  force  when  the  LFA 
review  will  be  concluded  should  make  a  substantial  contribution  to  enhancing  the 
effectiveness of the aid.  

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Council Regulation (EC) No 1698/2005 of 20 September 2005 on support for rural development by the European 
Agricultural Fund for Rural Development (EAFRD) - OJ L 277, 21.10.2005, p. 1. 

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2. 

SUBSIDIARITY 

The current exercise is not a major reform process, but the updating of an existing scheme set 
within the Common Agricultural Policy. Its scope is limited to adapting the LFA delimitation 
and payment system in line with the policy objectives defined by the Council in 2005.  

A  simplification  potential  is  implied  in  the  objectives  of  the  revision,  as  a  consequence  of 
improved transparency of the area delimitation through common objective criteria.  

3. 

OBJECTIVES  

In response to the problems listed above, the aims of the revision are: 

•  To  adapt  the  intermediate  LFA  delimitation  and  payment  system  in  line  with  the  land 

management approach decided in 2005; 

•  To improve the transparency and objectivity of the area delimitation throughout the EU; 

•  To increase the targeting and the effectiveness of the aid in areas where the danger of land 

abandonment is greatest. 

Data  limits  do  not  allow  the  Commission  to  present  a  legislative  proposal  underpinned  by 
thorough  analysis  of  a  possible  new  delimitation  system  at  this  stage.  The  information 
necessary  to  assess  the  outcome  of  a  new  delimitation  approach  at  detailed  scale  is  only 
available – or can be collected – at national level. It is therefore envisaged to pave the way for 
a subsequent legislative proposal by the following three steps: 

(1) 

(2) 

(3) 

Adoption of a Commission Communication describing the state of play and invitation 
to the Member States to simulate the application on their territory of possible common 
criteria  for  delimiting  areas  with  natural  handicaps  other  than  those  which  are 
mountainous in character and than those with specific handicaps; 

Transmission of the Member States' simulations to the Commission in autumn 2009; 

Finalisation  of  the  impact  assessment  and  elaboration  of  the  legislative  proposal  as 
soon as possible, following reception of Member States' simulations.  

4. 

POLICY OPTIONS 

Four review options were identified and submitted to public consultation on 22 May 2008:  

Option 1: Status Quo+  

Area designation 

In this scenario the Member States would be asked to remove the socio-economic indicators 
currently  in  use  for  delimiting  LFAs  and  to  identify  the  criteria  they  deem  the  most 
appropriate  for  defining  natural  handicaps  affecting  agriculture.  The  Member  States  using 
index  systems  might  be  allowed  to  continue  using  them,  having  removed  the  socio-
economic  indicators  embedded  into  these  systems.  The  other  Member  States  would  be 

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required  to  develop  a  system  of  soil  and  climate  criteria  adapted  to  their  situation.  The 
Commission would have to assess the appropriateness of the system used by each Member 
State in relation to the objectives of the NHP scheme.  

Eligibility Rules 

The Member States would have the possibility to fix eligibility rules at farm level in order to 
target the aid to specific farming systems in the framework of their RDP programmes. The 
Commission  would  have  to  assess  that  such  criteria  are  objective,  non  discriminatory  and 
consistent with the objectives of the measure and the international commitments of the EU.  

Options  2,  3  and  4  are  all  built  upon  the  same  area  delimitation  method,  based  on  eight 
common  bio-physical  indicators  identified  by  a  panel  of  soil,  climate  and  land  evaluation 
experts co-ordinated by the Joint Research Centre. The definition and the application of the 
criteria are discussed in the Communication that this Executive Summary accompanies. 

Option 2: Common Criteria 

Area designation 

Intermediate LFAs would be designated by using the common bio-physical criteria listed in 
the annex to the Communication. 

Eligibility Rules 

The Member States would have the possibility, in the framework of their rural development 
programmes, to fix eligibility rules at farm level in order to target the aid to specific farming 
systems.  The  Commission  would  have  to  assess  that  such  criteria  are  objective,  non 
discriminatory,  consistent  with  the  objectives  of  the  measure  and  with  the  international 
commitments of the EU. 

Option 3: Eligibility Rules 

Area designation 

Intermediate LFAs would be designated by using the common bio-physical criteria listed in 
the annex to the Communication. 

Eligibility Rules 

The Member States would be required to fix appropriate rules in order to target the support 
to  extensive  farming  making  a  positive  contribution  to  sustainable  land  management  by 
excluding  intensive  farming  systems  from  the  aid.  The  Community  legislation  would 
provide a basic framework for the eligibility criteria indicating the principles and the type of 
criteria to be used for excluding intensive farming systems (e.g. maximum livestock density, 
average  yield,  standard  gross  margin).  On  this  basis  the  Member  States  would  choose  the 
most appropriate indicators and set the relevant thresholds within their Rural Development 
Programmes. The eligibility rules should be objective, non discriminatory, consistent with 
the objectives of the measure and with the international commitments of the EU.  

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Option 4: High Nature Value 

Area designation 

This option would imply a more targeted delimitation of areas: only areas classified as High 
Nature Value (HNV) farmland within areas affected by natural handicaps would qualify as 
LFAs.  

The  delimitation  of  intermediate  LFAs  would  first  be  operated  according  to  the  same 
method  used  for  options  2  and  3,  on  the  basis  of  the  common  bio-physical.  The  areas 
resulting from this first delimitation would subsequently be further reduced in order to cover 
only  the  areas  classified  as  HNV  farmland,  defined  as  those  areas  in  Europe  where 
agriculture is a major (usually the dominant) land use and where agriculture supports or is 
associated  with  either  a  high  species  and  habitat  diversity,  or  the  presence  of  species  of 
European, and/or national, and/or regional concern, or both.  

Eligibility Rules 

Member  States  would  have  the  possibility  to  fix  eligibility  rules  according  to  transparent, 
objective and non discriminatory criteria consistent with the objectives of the measure.  

In  all  the  options  payments  would  be  calculated  on  the  basis  of  the  additional  costs  and 
income  foregone  related  to  the  handicap  in  the  areas  concerned,  respecting  minimum  and 
maximum amounts fixed by the Council. 

5. 

ASSESSMENT OF IMPACTS  

5.1.  Data limits and difficulties in assessing Option 4  

As  mentioned,  this  analysis  is  limited  by  the  fact  that appropriate  data are only available at 
national level. At this stage, the assessment can only provide indications and extrapolations of 
the  types  of  impacts  expected  from  the  review;  the  further  progress  of  the  review  exercise 
relies on the simulations to be done by the Member States.  

Significant and objective obstacles exist for the assessment of option 4 'High Nature Value'. 
The  process  of  identification  of  HNV  indicators  within  the  Common  Monitoring  and 
Evaluation  Framework  for  Rural  Development  is  not  enough  developed  at  this  stage  and  is 
progressing at very diverse pace in the different Member States. In these circumstances, it is 
extremely  difficult  to  establish  an  outline  framework  joining  natural  handicap  and  HNV 
indicators that could be used as a basis for the assessment.  

In  the  absence  of  sufficiently  clear  indications  on  the  HNV  indicators,  it  seemed  therefore 
appropriate not to consider Option 4 for the short term, without discarding its plausibility for 
the long-term perspective.  

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5.2.  Transparency and targeting of the aid 

The  Status  Quo+  option  would  largely  maintain  the  lack  of  transparency,  objectivity  and 
scientific  ground  for  the  classification  criteria,  and  the  danger  of  unequal  treatment  of 
beneficiaries the current system of delimitation has been criticised for. 

Both Option 2 and 3 would improve the transparency and accountability of targeting due to a 
common delimitation system. The absence of a common approach for further targeting the aid 
through  eligibility  rules  under  Option  2  poses  the  threat  of  support  not  being  sufficiently 
concentrated; however, compared to Option 3 it provides more opportunity to respond to local 
needs.  

5.3. 

Socio-economic impacts  

The main type of socio-economic impact expected from the LFA review regards farm income 
in  the  areas  concerned  by  the  new  delimitation  and  payment  system.  The  information 
available at this stage does not allow identifying the areas that would be affected by a change 
of LFA status under the options identified.  

In synthesis, it can be considered that the negative impact of a loss of LFA status for an area 
following the application of new delimitation criteria would vary according to the importance 
of the LFA payment in the farm income. In this regard, Status Quo+ appears to be the option 
with the most limited impact, as it does not entail significant changes compared to the current 
delimitation. 

Under  Options  2  and  3  changes  in  the  area  delimitation  affecting  farms'  income  both 
negatively and positively are possible, but cannot be assessed at this stage because of the lack 
of  appropriate  data.  In  any  case,  the  loss  of  the  LFA  payment  would  have  extreme 
consequences and lead to a negative income situation (in terms of farm net value added) in a 
limited number of cases (3% of total beneficiaries). 

The  introduction  of  a  common  framework  for  the  national  eligibility  criteria  envisaged  in 
Option 3, would concentrate  the aid on extensive farming systems which are  less profitable 
and present a higher risk of land abandonment. It is thus likely to have a positive impact on 
the farms with low income and a high degree of dependency on the LFA aid.  

–  It should also be mentioned that in a number of Member States, farmers can benefit from a 
series  of  advantages  (e.g.  lower  taxes  based  on  national  legislation)  because  they  are 
located  in  LFA,  even  if  they  are  not  LFA  beneficiaries  stricto  sensu.  A  change  in  LFA 
status  for  these  areas  can  have  considerable  effects  on  farms'  income,  although  these 
cannot be assessed at EU level.  

–  At  the  present  stage  of  the  analysis  it  is  not  known  whether  and  where  there  would  be 
farmers who will no longer benefit from LFA support as a result of the annulment of the 
socio-economic  criteria.  The  probability  and  the  dimension  of  such  cases  should  be 
assessed on the basis of the simulations that should be provided by the Member States in 
autumn 2009. In that context, it should be considered: 

–  If the other CAP measures available in the region, for instance under Axis 3 of the relevant 
Rural Development Programme,  can compensate for the socio-economic handicaps  up to 
now covered by the LFA support; 

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–  Whether possible ways of ensuring a smooth transition to the new delimitation should be 

put in place.  

5.4.  Viability of rural communities 

In  areas  where  farming  remains  the  backbone  of  local  economy  a  change  in  the  LFA 
delimitation and/or in the payment system is likely to have significant impacts on their overall 
development.  

Some  farming  communities  are  more  vulnerable  than  others  to  decline  because  of  the 
production  system,  limited  value  added,  the  size  of  holdings  and  a  peripheral  location.  In 
several  cases  the  vulnerability  of  the  production  system  is  a  consequence  of  the  natural 
conditions, therefore enhancing the targeting of the aid to the areas most severely affected by 
natural handicaps can have positive impacts on the overall viability of the area.  

In  the  cases  where  the  decline  is  not  linked  to  the  presence  of  natural  handicaps,  measures 
aiming  at  fostering  the  competitiveness  of  the  agricultural  sector,  promoting  diversification 
and  setting  up  integrated  bottom-up  development  strategies  seem  to  have  more  chances  of 
being successful than a payment compensating farmers for the natural handicaps.  

5.5.  Environmental effects  

An  area  delimitation  based  upon  a  homogeneous  set  of  bio-physical  criteria  throughout  the 
European  Union  would  increase  the  probability  of  focusing  the  aid  on  extensive  farming 
systems because the area designation is unambiguously linked to natural handicaps hindering 
agriculture. For this reason Options 2 and 3 are more efficient than Option 1. 

Option  2  would  leave  up  to  the  Member  States  the  choice  of  setting  eligibility  conditions 
linked to land management requirements. The area delimitation based on common biophysical 
criteria  should  direct  the  aid  to  areas  predominantly  characterised  by  extensive  farming  and 
NHP beneficiaries would have to respect cross compliance. However, the effectiveness of the 
scheme could be hampered by an insufficient targeting of the aid, in particular in areas where 
intensive farming systems, normally associated with greater environmental risk, coexist with 
extensive  farming  systems.  Under  Option  2,  NHP  contribution  to  sustainable  land 
management  and  to  the  environmental  targets  of  the  EU  would  therefore  depend  on  the 
implementation made by the Member States.  

Compared to Option 2, Option 3 includes further requirements in terms of farm management 
practices  and  would  limit  NHP  support  to  those  farming  systems  which  make  a  specific 
positive contribution to sustainable land management. However, the payment would not cover 
the  commitments  going  beyond  the  baseline  but  would  only  compensate  for  farmers' 
additional costs and income foregone related to the handicap. Option 3 appears therefore as 
the  option  having  the  highest  potential  to  contribute  to  environmental  objectives,  provided 
that  the  aid  scheme  is  implemented  in  harmony  with  the  other  Axis  2  measures.  A  well 
balanced implementation of Option 3 requires on the one hand that farmers should not be paid 
twice (under NHP and under other Axis 2 measures) for meeting the same commitment and, 
on  the  other  hand,  that  farmers  in  areas  affected  by  natural  handicaps  are  not  discriminated 
against  by  being  excluded  from  agri-environment  payments  that  would  apply  to  farmers 
meeting similar conditions outside the region. 

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6. 

COMPARISON OF OPTIONS 

At this stage of the review process there is no clear preference to be given to a specific option. 
However Status Quo+ is little responsive regarding the critical points that have been identified 
in relation to the current scheme and Option 4 (HNV) cannot be implemented in the short term.  

It is envisaged to continue the review process as suggested in section 3 in order fine-tune the 
options  and  come  to  a  preference  on  the  basis  of  the  simulation  of  the  application  of  the 
common biophysical criteria made by the Member States.  

7. 

MONITORING AND EVALUATION 

The following indicators are envisaged for monitoring the payments to farmers in areas with 
handicaps other than mountain areas: 

Common 
indicators 

baseline  Biodiversity : high nature value farmland and forestry 

Biodiversity : population of farmland birds 

input 

Amount of public expenditure realised (total versus EAFRD) 

output 

Number of supported holdings in areas with handicaps, other than mountain areas 
(division according to the type of handicap –wetland, hills…-) 

Agricultural land area supported (division according to the type of area and to the 
type of handicap) 

result 

Areas under successful land management contributing to: 

improvement of biodiversity 

improvement of water quality 

mitigating climate change 

improvement of soil quality  

avoidance of marginalization and land abandonment 

impact 

Reversing biodiversity decline 

Maintenance of high nature value farmland and forestry  

The following points should be stressed in the evaluation of the revised aid scheme: 

–  To what extent have NHP helped in ensuring continued agricultural land use in areas with 

handicaps, other than mountain areas?  

–  To  what  extent  has  the  scheme  contributed  to  maintaining  or  promoting  sustainable 

farming systems? 

–  To what extent has the scheme contributed to maintaining the countryside and improving 

the environment? 

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