Agricultural Policy Monitoring and Evaluation 2019

Chapter 11. European Union

Support to agriculture

The European Union has gradually reduced its support to agriculture since the mid-1990s and support to producers as a share of gross farm receipts (%PSE) has stabilised at around 19% since 2010. While price distortions have been significantly reduced, trade protection measures are in place in a number of commodity sectors, including import and export licensing, Tariff Rate Quotas (TRQs) and special safeguards, that lead to higher support when world prices decline. Support linked to production increased in 2018 to its highest level in the past five years, mainly driven by a rise in market price support due to a price gap between domestic and world prices, emphasised by exchange rate movements.

Production distortions from payments have also declined since the early 2000s and most payments today do not require production. Payments not requiring production account for 41% of support on average in 2016-18. At the same time, more payments are contingent upon environmental compliance – nearly 50% of support to producers is conditional on mandatory environmental constraints, and an additional 10% of support to producers goes to voluntary agri-environmental schemes with conditions that go beyond the mandatory requirements.

The greatest share of overall support to the agricultural sector (TSE) goes to producers (about 89%). Public expenditure for general services to the sector at large (GSSE) has increased from 8% of the TSE on average in 2000-02 to an average of 10% in 2016-18, and its composition has evolved in recent years as well. Agricultural knowledge and innovation accounts for more than half of the GSSE. Expenditure for the marketing and promotion of agricultural products has become more prominent and represented more than 20% of the GSSE on average in 2016-18, whereas infrastructure expenditure has declined from about one fourth of the GSSE in 2000-02 to 17% in recent years.

Main policy changes

In 2018, the main policy developments related to the simplification of Common Agricultural Policy (CAP) implementation, and responses to adverse market and weather conditions. As part of the simplification process, farm-payment eligibility rules were relaxed in some Member States as were some of the conditions associated with the greening payment.

Member States affected by adverse weather events offered support and were permitted to ease greening conditions, provided that they notified the Commission of the specifics. Previous measures to ease market conditions in the dairy, pig and fruit and vegetable sectors were scaled down, and tenders took place to discharge skimmed milk powder (SMP) stocks.

Assessment and recommendations

• Over the past three decades, policy reforms have considerably reduced the level of support and shifted the composition of that support toward less production and trade-distorting measures. Producers have more flexibility to respond to market signals and to make their production choices independently from government intervention, but support still accounts for a significant share of gross farm receipts.

• In some sectors, however, prices paid to producers remain disconnected from world market prices. Potentially most distorting forms of support represent a quarter of support to producers, suggesting that further improvements towards market orientation are possible. While market access for agricultural products has improved through bilateral agreements and the reduction of applied tariffs, import and export licensing, Tariff Rate Quotas and special safeguards continue to apply to a number of products. These measures lead to higher support when world prices decline.

• Climate change adaptation and mitigation in agriculture are addressed with compulsory measures intended to improve the sector’s environmental performance: cross-compliance and greening under Pillar 1 of the CAP, and voluntary agri-environmental and climatic measures under Pillar 2. At the same time, although energy prices could be used as a strong lever to reduce carbon emissions, fossil fuel use is encouraged in some Member States through fuel tax rebates for agricultural use. Aside from being contrary to sustainability goals, these tax concessions also create an uneven playing field for producers. Policy coherence would require a unified phase-out of these types of measures.

• A more consistent approach in relevant regulatory areas is recommended to provide uniform incentives and market signals to all EU producers. In one example, after the Member States voted to ban some neonicotinoids, exemptions were granted for producers in certain countries. This creates uneven internal conditions of competition, and also undermines the position that the products are sufficiently dangerous to warrant banning.

• Payments for risk management measures under Pillar 2 more than quadrupled from 2017 to 2018. Support overwhelmingly goes to insurance subsidies – other risk management instruments (such as mutual funds or income stabilisation tools) remain largely overlooked. Additionally, while support for risk management is increasing, a large number of Member States continue to rely on ad hoc measures funded from EU and national budgets, including payments or tax provisions. Although these instruments may sometimes be necessary, they undermine a greater shift toward ex ante approaches (including on-farm measures and market-based tools) that are more likely to incentivise investments in long-term farm resiliency. The ambiguity is exacerbated when emergency measures exclude farmers who take up on-farm risk management.

Figure 11.1. European Union: Development of support to agriculture

Note: * Share of potentially most distorting transfers in cumulated gross producer transfers.

Source: OECD (2019[1]), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Support to producers (%PSE) in the European Union has declined in the long-term and has stabilised at around 19% since 2010, although it fluctuates from year to year due to commodity market conditions. In 2016-18, support was close to 20% of gross farm receipts, slightly above the OECD average. The share of potentially most distorting support has decreased significantly over time, due largely to a decline in market price support (MPS), and is now below the OECD average (Figure 11.1). In 2018, support increased due to both higher MPS and slightly increased budgetary payments. The rise in MPS indicates that the gap between prices received by EU farmers and world reference prices widened, largely the result of exchange rate movements, as both producer prices and, to a lesser extent border prices denominated in USD, increased (Figure 11.2). For the period 2016-18, MPS was the dominant component of single commodity transfers (SCT) for products that received the highest levels of support relative to gross farm receipts (beef and veal, poultry meat and rice), whereas commodity payments accounted for more than half the SCT for sheep meat and sugar (Figure 11.3). In all, individual farmers capture about 90% of total support, with the remainder designated for general services (GSSE) to the sector (Table 11.1). In 2016-18, GSSE relative to agriculture value-added was just 4.9% – slightly below the overall OECD average. The majority of GSSE spending is dedicated to knowledge and innovation systems. Total support to agriculture as a share of GDP has declined significantly over time, as has the share of the sector in the economy.

Figure 11.2. European Union: Drivers of the change in PSE, 2017 to 2018

Source: OECD (2019[1]), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Figure 11.3. European Union: Transfer to specific commodities (SCT), 2016-18

Source: OECD (2019[1]), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Table 11.1. European Union: Estimates of support to agriculture

Contextual information

The European Union is the largest economic region covered in this report. Its average GDP per capita is slightly below the OECD average but well above the average of all countries covered in the report. The share of agriculture in the economy has declined over time, now accounting for just 1.5% of GDP and 4.2% of employment (Table 11.2). At the same time, economic conditions, farm structures and production systems are very diverse across and within the 28 Member States. Across the European Union, agriculture occupies almost half of the total land area, with nearly 60% of the agricultural area categorised as arable. Crops, including cereals, oilseeds, fresh fruit and vegetables, and plants and flowers, account for 56% of overall agricultural production. The remainder are livestock products, including dairy, beef and veal, pig meat, sheep meat, poultry and eggs.

Table 11.2. European Union: Contextual indicators

	European Union		International comparison
	1995*	2017*	1995*	2017*
Economic context			Share in total of all countries
GDP (billion USD in PPPs)	7 848	21 786	26.6%	21.2%
Population (million)	371	512	9.6%	10.6%
Land area (thousand km2)	3 128	4 239	3.9%	5.2%
Agricultural area (AA) (thousand ha)	142 078	181 508	4.7%	6.1%
			All countries1
Population density (inhabitants/km2)	112	116	48	60
GDP per capita (USD in PPPs)	21 052	41 119	7 642	21 231
Trade as % of GDP	9	13	9.9	14.7
Agriculture in the economy			All countries1
Agriculture in GDP (%)	2.2	1.5	3.3	3.5
Agriculture share in employment (%)	5.1	4.2	-	-
Agro-food exports (% of total exports)	7.2	7.1	8.1	7.5
Agro-food imports (% of total imports)	8.6	6.2	7.4	6.6
Characteristics of the agricultural sector			All countries1
Crop in total agricultural production (%)	53	56	-	-
Livestock in total agricultural production (%)	47	44	-	-
Share of arable land in AA (%)	53	58	33	34

Note: *or closest available year. 1. Average of all countries covered in this report. EU treated as one.

Source: OECD statistical databases; UN Comtrade; World Bank, WDI and national data.

The European Union is the world’s largest importer of agro-food products and, since 2013, also the largest exporter (Figure 11.5). Since that year, the European Union has been a net agro-food exporter as well. In 2017, agro-food products accounted for 7.1% of all EU exports and 6.2% of all EU imports. The region’s agro-food exports (62%) mainly consisted of processed goods for final consumption. Agro-food imports include primary and processed goods for consumption and industry in nearly equal proportions.

After having dipped into recession in 2009 and 2012, GDP growth in the area recovered since 2013 (Figure 11.4). Unemployment is down to less than 8% from its record high of 11% in 2013, but large differences persist across Member States. Inflation remains relatively low, rising slightly to 1.9% in 2018.

Figure 11.4. European Union: Main economic indicators, 1995 to 2018

Note: EU28.

Sources: OECD statistical databases; World Bank, WDI and ILO estimates and projections.

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Figure 11.5. European Union: Agro-food trade

Note: Numbers may not add up to 100 due to rounding. Extra-EU trade: EU15 for 1995-2003; EU25 for 2004-06; EU27 for 2007-13 and EU28 from 2014.

Source: UN Comtrade Database.

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Over the 2006-15 period, the annual agricultural output growth of the European Union averaged 0.6%, well below the world’s average of 2.3%. Total Factor Productivity (TFP) grew by 1.8% per year on average, to some extent driven by the reduction of intermediate inputs and primary factors (Figure 11.6). This increase in TFP makes up for the reduction of primary factors and intermediate inputs and drives output growth. The sector’s share in water use has declined and nutrient balances have improved since the 1990s (Table 11.3). Additionally, agriculture accounts for 2.6% of total energy use, slightly more than in the 1990s, and above the OECD average. The share of greenhouse gas (GHG) emissions remained at 10% in 2017 – about 1 percentage point higher than the OECD average.

Figure 11.6. European Union: Composition of agricultural output growth, 2006-15

Note: Primary factors comprise labour, land, livestock and machinery. EU28.

Source: USDA Economic Research Service Agricultural Productivity database.

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Table 11.3. European Union: Productivity and environmental indicators

	European Union		International comparison
	1991-2000	2006-2015	1991-2000	2006-2015
			World
TFP annual growth rate (%)	1.1%	1.8%	1.6%	1.5%
			OECD average
Environmental indicators	1995*	2017*	1995*	2017*
Nitrogen balance, kg/ha	73.4	52.1	33.2	30.0
Phosphorus balance, kg/ha	9.1	1.0	3.7	2.3
Agriculture share of total energy use (%)	2.3	2.6	1.9	2.0
Agriculture share of GHG emissions (%)	8.9	10.0	8.5	8.9
Share of irrigated land in AA (%)	..	..	-	-
Share of agriculture in water abstractions (%)	33.8	23.8	45.4	42.5
Water stress indicator	..	..	9.7	9.7

Note: * or closest available year.

Source: USDA Economic Research Service, Agricultural Productivity database; OECD statistical databases; FAO database and national data.

Description of policy developments

Main policy instruments

The Common Agricultural Policy (CAP) is the main agricultural policy framework of the European Union. In addition to the CAP, Member States may implement measures funded from national budgets that target specific sectors (including agriculture) or objectives, as long as they comply with the European Union’s state aid rules and do not distort competition within the common market (OECD, 2017[2]).

The CAP typically covers a seven-year period, currently 2014-20. It is composed of two pillars: the European Agricultural Guarantee Fund (EAGF) finances Pillar 1, and measures under Pillar 2 are based on Rural Development Programmes (RDP) co-financed by the European Agricultural Fund for Rural Development (EAFRD) and EU Member States.1 Member State RDPs are deployed over the seven year CAP programming period. The CAP 2014-20, while in many ways the continuation of the CAP 2007-13, offers a number of novel features (OECD, 2017[2]).

The implementation of the CAP 2014‑20 started in 2014 with the first measures under Pillar 1, followed in 2016 by the implementation of 118 national and regional Pillar 2 Rural Development Programmes (RDP)2 in the Member States. Later in 2018, the CAP simplification took place within the revision of the EU financial rules, also known as the Omnibus regulation (OECD, 2018[3]). Furthermore, the CAP had provided for opportunities at set times during implementation when Member States could review and notify adjusted decisions with regards to several choice measures.

The overall budget for the CAP over the 2014-20 period was set at EUR 408 billion (USD 453 billion), of which initially 76% were allocated to Pillar 1 (covering market related expenditure and direct payments), and the remaining 24% to Pillar 2. The CAP 2014-20 allows Member States to transfer up to 15% of each envelope3 between the two pillars. Over the period, thirteen Member States transferred funds from Pillar 1 to Pillar 2, while five Member States transferred funds from Pillar 2 to Pillar 1; with a net overall result of EUR 4.74 billion (USD 5.59 billion) transferred from Pillar 1 to Pillar 2 (EC, 2019[4]).4

Pillar 1 defines and funds market measures under the common market organisation, as well as direct payments – mostly per hectare payments that do not require production. To this end, entitlements to direct payments were assessed and allocated for the entire period of the CAP 2014‑20 to those deemed to be active farmers through the exclusion of a number of activities and businesses, known as the negative list. More flexibility was introduced in the active farmer condition in 2018. Most Member States abandoned the negative list, while some country specific alternative criteria were used to prove one’s farming activity in those that continue to apply it.

The Basic Payment Scheme (BPS) and the Single Area Payment Scheme (SAPS) – the BPS equivalent that offers a uniform per hectare payment rate in all but three Member States which joined the European Union after 20005 – make up 43% of the EU direct payments envelope on average in 2018 and 2019 (Table 11.4). Wide variations across Member States are observed that reflect Member States’ spending choices on optional measures under Pillar 1. Both the BPS and the SAPS are conditional to cross-compliance requirements, although exceptions apply. Additional conditions are attached to the per-hectare Greening payment that accounts for 29% of the Pillar 1 direct payments budget (Table 11.4). As of 2017, farmers who do not comply with all the requirements of greening may be subject to new greening administrative penalties (equivalent to 20% of the farmer’s greening payment in 2017, and raised to 25% from 2018 onward) in addition to forfeiting a share of the greening payment on the non-compliant area.

Table 11.4 Direct payments budget under Pillar 1, 2018

	Budget 2019 (EUR million)	Share in direct payments	Share in decoupled direct payments
Direct payments; of which:	40 545
Decoupled direct payments; of which:	34 388	85%
Basic Payment Scheme (BPS)	16 211	40%	47%
Single Area Payment Scheme (SAPS)	4 333	11%	13%
Greening	11 754	29%	34%
Voluntary Coupled Support	4 033	10%

Note: Other decoupled payments represent about 6% of direct payments under Pillar 1. The 2019 EU fiscal year (November to October) is attributed to year 2018 in PSE system.

Source: OECD calculations based on European Commission, EUR-Lex budget 2019.

In the ten Member States that apply the SAPS, commodity-specific payments may be granted from national budgets within limited envelopes. The Transitional National Aid (TNA) can be disbursed as decoupled payments while a fixed share may be spent on current production. They may apply on a per area basis to arable land, hop and starch potatoes; on a volume basis to milk; and on a headage basis to other livestock. Member States may review TNA budgets and supported commodities on an annual basis. The maximum TNA payments allowed decreases gradually from 75% of the 2013-level of SAPS aid in 2015 to 50% in 2020.

As the CAP 2014-20 is implemented, the gap in per-hectare payment rates of the BPS and the SAPS is set to narrow, both between countries (external convergence) and between regions within countries (internal convergence6). Internal convergence applies to the regionalised BPS while, under the SAPS, a uniform payment rate at national level already applies to each hectare.

In the CAP 2014-20, Member States may choose to allocate part of their direct payments envelope to commodity specific payments within defined ceilings. The voluntary coupled support (VCS) expands the coupled support scheme under Article 68 of the previous CAP 2007-13 and offers Member States the choice to allocate a larger envelope to more sectors or regions and under a wider set of specific conditions. Such support may be granted to create an incentive to maintain current levels of production in the sectors or regions concerned. Choices of Member States on the take-up of the VCS vary greatly, both in terms of the level of support and the commodities supported (Figure 11.7). On several occasions, Member States have reviewed VCS budgets and commodity attributions, making some minor adjustments. All Member States, except Germany, have chosen to offer VCS, using 10% of the EU direct payments budget on average. This compares to the 3% that was spent previously under Article 68 coupled support, as reported in the European Union’s general budgets.

Figure 11.7. The Basic Payment Scheme, the Single Area Payment Scheme and the Voluntary Coupled Support as a share of direct payments (Pillar 1), 2018

1. Note by Turkey: The information in this document with reference to “Cyprus” relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Turkey recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Turkey shall preserve its position concerning the “Cyprus issue”.

Note by all the European Union Member States of the OECD and the European Union: The Republic of Cyprus is recognised by all members of the United Nations with the exception of Turkey. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus.

Source: European Commission, Budget on-line 2019.

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A top-up payment to young farmers, in addition to the BPS and SAPS, applies in all Member States. In 2018, this payment accounts for 0.9% of the European Union’s direct payments envelope, as reported in the general budget. Member States have chosen to implement this measure in different ways. Some offer recipients a flat payment rate on a limited number of hectares, while others apply a payment proportional to the BPS or SAPS received. In addition to this compulsory scheme, 25 Member States have chosen to attribute a portion of their rural development expenditure, 4% on average, to support young farmers. The bulk of the latter goes to business development and investments.

Fifteen Member States have chosen to offer small farms simplified payment attribution conditions – the small farmers scheme – that waives the requirements attached to the greening payment and cross-compliance. The payment cannot exceed EUR 1 250 (USD 1 475) per farm and, depending on the method chosen by the Member State, the overall envelope may be limited to 10% of national direct payments.

Denmark and Slovenia implement the Pillar 1 direct payment to Areas with Natural Constraints (ANC). Under this payment, the ANC are defined based on eight biophysical criteria.7 Currently, Denmark uses 0.3% and Slovenia 1.6% of their national direct payments envelope for ANC payments. A payment targeted to areas with natural or other specific constraints can also be budgeted under the RDP, labelled as the Less Favoured Areas payment in the previous CAP. It is implemented in 25 Member States using 29% and 21% of Pillar 2 public expenditure funds (including Member States contributions from national budgets) in 2017 and 2018, respectively. Until now, Member States have used up to 140 different criteria for assessing ANC status for Pillar 2 payments. These are being replaced by the same set of eight biophysical criteria that applies to Pillar 1 ANC payment. Initially scheduled for 2018, the deadline for reassessment of eligible areas by Member States was deferred to 2019.

Ten Member States or regions have chosen to grant higher payments to the first hectares8 under the so-called redistributive payment, using 4.1% of the European Union’s direct payments envelope as reported in European Union’s general budget.

Member States that implement the redistributive payment may choose to opt-out from so-called “degressivity” and six Member States and regions have chosen to do so.9 Under degressivity, BPS amounts above EUR 150 000 (USD 177 028) per recipient are reduced by a minimum of 5%. Funds deducted under this provision are transferred to Pillar 2 and used to fund the Member State’s RDPs. Fourteen Member States10 have chosen to apply the minimum reduction. Ten Member States have used the possibility to increase the amount that is exempt from the 5% reduction by the value of salaries paid. Ten Member States have chosen to apply a full cap on the BPS at levels varying from EUR 150 000 (USD 177 028) to EUR 600 000 (USD 708 111).11

A Crisis reserve is earmarked to be used in case of emergency situations. It is funded from the Pillar 1 direct payments budget. If it is not used in the current year, the envelope is reverted for distribution as Pillar 1 direct payments in the same year. The crisis reserve is renewed each year and has not been used up to now as an emergency fund.

The POSEI scheme (Programmes dʼOptions Spécifiques à lʼEloignement et à lʼInsularité) supports farming in the European Union’s outermost regions by using production-related payments. The scheme supports access to food, feed and inputs for local communities, and also the development of local agricultural production with a little more than 1% of the direct payments envelope in 2018.

Pillar 1 also funds measures that support commodity markets, representing 6.1% of the overall agriculture and rural development budget in 2018. Prices paid to EU domestic producers averaged 5% above world market prices in 2016-18, and the support they generated (Market Price Support) represented 19% of total estimated support to agricultural producers.

While the possibility exists for public intervention for cereals (namely common and durum wheat, barley and maize), it has not been applied in recent years. Purchase at the cereal intervention price is limited to 3 million tonnes of common wheat, beyond which purchase is by tender. Public intervention for durum wheat, barley and maize can be opened under special circumstances by means of tendering. Public intervention also applies to paddy rice. Until 30 September 2017, sugar was supported through production quotas, coupled with a minimum price for sugar beets. After the end of the sugar quota regime, existing provisions for agreements between sugar factories and growers have been maintained, and white sugar remained eligible for private storage aid. The support regime for cereals and sugar also includes trade protection through tariffs and tariff rate quotas (TRQs). No export refunds have been granted since July 2013. Furthermore, since the WTO Ministerial conference in Nairobi in December 2015, the European Union has committed not to resort to export subsidies.

Fruits and vegetables are eligible for voluntary coupled support and commodity specific payments; they are also supported through various market measures. These include crisis intervention measures that may be managed by producer organisations, an entry price system (minimum import price) for some products, and ad valorem duties, but no export subsidies. Support co-financed by Member States also applies to the fruit and vegetables sector as well as the olive oil and table olives sectors. These support a wide range of actions from production planning, quality measures, market withdrawal and harvest insurance to training, promotion and communication. Some of these measures apply at farm level while others are provided to producer organisations or to the sector at large. Private storage may also be activated as an optional scheme for olive oil and flax fibre. In the CAP 2014-20 the rules on recognition of producer organisations and inter-branch organisations are expanded beyond fruits and vegetables. Compensation may be greater when producers claim support via producer groups, as was the case with compensation payments related to the Russian Federation’s embargo on imports.

Also targeting the fruit and vegetables sector, a consumer support system directed toward schoolchildren covers the consumption of fresh fruits and vegetables, processed fruits and vegetables, and banana products. The scheme’s budget has grown rapidly from EUR 29 million (USD 32 million) when it was first implemented in 2010 to EUR 117 million (USD 129 million) in 2016. A similar scheme supports milk consumption for schoolchildren, with a budget of EUR 64 million (USD 72 million) in 2017. In August 2017 both schemes were merged under the title “School Schemes” and the budgets combined into EUR 188 million (USD 212 million).

In the dairy sector, intervention prices are used for butter and skimmed milk powder, together with import protection. Intervention purchases cannot exceed 50 000 tonnes for butter, and 109 000 tonnes for skimmed milk powder (SMP), representing are 2% and 7% of production, respectively, in 2018. Above those limits, purchase is made by tender.

The beef market is supported by floor prices, tariffs and TRQs. Support for pig meat is provided by import protection. For sheep meat, the market support regime is comprised of tariffs and TRQs, with most country-specific TRQs subject to a zero customs duty. TRQs also support the poultry and eggs markets. Private storage may be activated as an optional scheme for butter, SMP, certain cheeses, beef, pig meat, sheep meat and goat meat. Furthermore, specific provisions are made for milk and milk products.

The wine sector is supported through a system of authorisations for new vine planting. Since January 2016, new vine planting is authorised, but is limited to 1% of the planted vine areas per year. Authorisations would be automatically granted to producers to replace grubbing of an existing vine area. Member States have up to 31 December 2020 to transition to the new system. The sector is also supported through promotional measures, both in the European Union and in third countries, restructuring and conversion of vineyards, compensation for green harvesting, setting up mutual funds, investment in tangible and intangible capital, income insurance, development of new products, processes and technologies, and distillation of by-products.

Rural Development is part of the EU-level Common Strategic Framework covering all support from European Structural and Investment (ESI) funds (the EAFRD, ERDF, Cohesion Fund, ESF and EMFF) in Member States through partnership agreements. The EAFRD uses Pillar 2 of the CAP 2014-20 to serve six priority areas: 1) fostering knowledge transfer and innovation; 2) enhancing competitiveness of all types of agriculture and the sustainable management of forests; 3) promoting food chain organisation, including processing and marketing, and risk management; 4) restoring, preserving and enhancing ecosystems; 5) promoting resource efficiency and the transition to a low-carbon economy; and 6) promoting social inclusion, poverty reduction and economic development in rural areas (Table 11.5). Pillar 2 funds are implemented through national (or regional) Rural Development Programmes (RDP). RDPs also support projects that use the “LEADER approach” (Liaison Entre Actions de Développement de l’Économie Rurale) – i.e. relying on a multi-sectoral approach and local partnerships to address specific local problems; and technical assistance for the implementation of Pillar 2 measures.

Table 11.5. CAP expenditure by source and use (estimated 2018)

CAP expenditure (EU funding), of which:	Share in EU funding:
Administrative expenditure	0.2%
Interventions in agricultural markets CMO	4.3%
Direct Payments	71.6%
Rural Development - EU funding	23.2%
Research and innovation - Horizon 2020	0.4%
Rural Development (total public expenditure) of which:	Share in total public expenditure:
Rural Development EU funding	66%
Rural Development national funding	34%
Priority 1: knowledge	Allocated through other priorities
Priority 2: competitiveness	20.0%
Priority 3: food chain organisations	11.5%
Priority 4: ecosystems	51.3%
Priority 5: resource efficiency	4.9%
Priority 6: social inclusion	12.3%

Source: OECD calculations based on European Commission, EUR-Lex budget 2019 (for EU funding) and EAFRD financial execution (for Rural Development and allocation to priorities). Total public expenditure comprises EU funding and Member States national funding of Rural Development.

The implementation of RDP 2014-20 had a delayed start and by 2018, most payments for programmes within the RDP 2007-13 had been terminated. At the same time, payments for farm restructuring under CAP 2007-13 were prolonged, including early retirement, conversion of arable land into grassland, and afforestation of agricultural land.

Member States participate in the funding of Pillar 2 payments (also called co-financing) in accordance with the RDPs that cover the entire duration of the CAP cycle. In their plans, Member States can choose from a menu of 19 measures to meet the six priority areas of Pillar 2. Two conditions apply: a minimum 30% of rural development funding from the EU budget must be spent on measures related to the environment and climate change adaptation, including forestry and investments in physical assets; and another 5% must be spent on the LEADER approach.

On average and at EU28 level, the greatest share of the new RDP budget is allocated to three measures: Investments, Agri-environment and Climate and Areas with Natural Constraints. While Member States’ choices may vary, Investment is one of the three measures receiving the highest shares of expenditure for the period 2014-18 in most Member States.

The launch of the European Innovation Partnership for Agricultural productivity and Sustainability (EIP-AGRI) in 2012 was followed by integrating the Horizon 2020 programmes specific to research and innovation in agriculture into the CAP 2014-20. The focus of the Horizon 2020 programmes relevant to agriculture is on securing sufficient supplies of safe and high quality food and other bio-based products. The Horizon 2020 budget under the agriculture and rural development title has increased substantially since it was initiated in 2013 from EUR 1 million (USD 1.11 million) to EUR 211 million (USD 249 million) in 2018. A total of EUR 3.8 billion is available for the period.

Programming for CAP 2014-20 is set to conclude next year. However, preparations for the next iteration of the CAP are well underway (Box 11.1).

Box 11.1. Development of CAP 2021-27

The European Commission presented its proposal on CAP for 2021-27 beginning in June 2018 (EC, 2018[5]). The proposal preserves the existing CAP structure, with support divided between Pillar 1 and Pillar 2 activities, which respectively fund direct support for farmers and rural development. At the same time, proposed funding levels are reduced by about 5% — anticipating a decline in contributions with a smaller number of Member States.

The Commission proposal emphasises a simplification of the CAP, shifting from a compliance-based approach to a results-based framework. The proposal also increases country flexibility to choose the most appropriate policy mix from an extensive toolbox of available policy options. These policies are intended to help achieve nine identified core objectives: 1) ensure fair income, 2) increase competitiveness, 3) rebalance power in the food chain, 4) climate change action, 5) environmental care, 6) preserve landscapes and biodiversity, 7) support generational renewal, 8) vibrant rural areas, and 9) protect food and healthy quality. The proposal requires that Member States submit “Strategic Plans” detailing their goals and the measures that they intend to employ in order to achieve them. Furthermore, the proposal calls for results in these areas to be monitored and assessed according to standardised, pre-defined indicators.

Aside from the nine core objectives, the proposal also identifies the need to better target assistance (including towards small or young farmers), achieve higher ambitions on environmental and climate action, and acknowledge the key role that farmers play in the viability of rural communities. New, simplified administrative procedures are also foreseen, as well as increasing support for research and innovation through a designated EUR 10 billion investment in the Horizon Europe programme, which succeeds Horizon 2020, subject to the adoption of the EU Multiannual Financial Framework.

Some revisions to the initial proposal have been made. For example, members of the Agriculture Committee of the European Parliament supported a delayed implementation of the “Strategic Plan” requirement in the version of the rules on direct payments and rural development programmes that they approved in April 2019. The text as revised by the Agriculture Committee is set to be presented to Parliament after the May 2019 European Parliament elections.

Domestic policy developments in 2018-19

Overall support

After two years of minor nominal decreases in 2016 (-2%) and 2017 (-1%), the EU budget for agriculture and rural development under Title 05 Agriculture and Rural Development increased by 2% to EUR 57 billion (USD 67 billion) in 2018. About 4% went to market intervention measures, 72% to direct payments under Pillar 1 and 23% to rural development measures under Pillar 2. The higher share for Pillar 2 results from Member States’ decisions to increase transfers to their RDP.

CAP Direct payments

Member States’ decisions on commodity-specific payments granted under the CAP 2014-20’s Transitional National Aid (TNA) varied in 2018. The TNA was reinstated in Estonia at the end of 2016 and discontinued in Latvia, while in the Czech Republic it was reduced and limited to crops and cattle, in Poland, transitional support was provided only to tobacco.

Markets and sector support

In January 2018, automatic intervention purchases of skimmed milk powder were temporarily suspended and tenders were held throughout 2018 and early 2019 that reduced the 380 000 tonne SMP stockpile down to just over 1 000 tonnes.

Sectoral plans were developed in some Member States in 2018. In July 2018, the sheep sector development plan 2018-23 was signed in Estonia. The plan aims to increase the sustainability of the sector, and increase the added value of production by examining the current market situation with respect to production, consumption, breeding, trade and other market characteristics, and then identify relevant measures to be taken in order to fulfil the established objectives.

In February 2019, the European Commission announced the new Market Observatory for wine and fresh produce. As with established market observatories for crops, sugar, meat, and milk, the observatory will publish data on tomatoes, apples, citrus fruit, peaches and nectarines with a view toward increased transparency and improving the ability of stakeholders to cope with market volatility. In November 2018, France enacted the Law to promote balanced commercial relationships in the agricultural and food sector, and healthy sustainable food. In parallel to several provisions aiming to improve sanitary and environmental conditions in production, it reinforces the producers’ negotiating stand with the distribution sector, on the basis of ‘indicators of reference’ for production costs and market variables agreed among actors in each commodity sector. A committee was set up to monitor commercial transactions. Spain moved to improve market transparency in the olive and olive oil sectors. A new decree updated the existing system of compulsory declarations for the sectors, and upgraded the sectors’ market information systems in order to comply with European Commission obligations.

The European Parliament and Council endorsed a new regulation governing organic production and trade that is set to go into effect from 1 January 2021. It aims to modernise the sector and harmonise rules on organic production across Member States, including by guaranteeing fair competition amongst European farmers, as well as preventing fraud and increasing consumer confidence in the sector. Some components of the regulation include more frequent farm inspections; broadening the application of organic standards to products like salt, cork, and essential oils; precautionary measures to avoid accidental contamination by unauthorised pesticides; and the possibility of group certification for small farmers. Additional support to organic farming was also prioritised by several Member States in 2018. Estonia’s 2018 plan for an eco-economy aims to establish eligibility for the organic designation for 51% of the country’s land area by 2021 and to increase organic exports. Also in 2018, Italy passed legislation to harmonise controls on organic food production. From the consumer side, in December 2018 as part of a larger regulation on food and agriculture, France mandated that public catering companies must source at least 50% of their products from organic, local, or other quality schemes by 2022 as a measure to improve the overall quality of food on offer.

In France, an experimental programme that introduced labelling of origin of milk and meat in processed food has been renewed through March 2020. A similar regulation entered into force in Spain in January 2019, requiring food manufacturers to indicate the origin of milk and milk products. Outside of the dairy and livestock sectors, Italy introduced mandatory country of origin labelling on rice in February 2018.

Latvia introduced measures in 2018 for improved genetics in the animal sector, providing funding of EUR 3.7 million (USD 4.4 million) for the plan. An estimated 57% of this support was to be channelled to improved breeding and genetics of dairy animals.

Agri-environment and climate

While various actions were taken in 2018 with a view toward improving the environment, most could be categorised as actions on the bioeconomy, actions designed to reduce air pollution, and actions targeting climate change adaptation and mitigation. With regards to the bioeconomy, in October 2018, the European Union launched an updated bioeconomy strategy action plan (EC, 2018[6]). Designed to accelerate activities in line with the Paris Agreement and the 2030 Sustainable Development Agenda, the updated action plan includes three tiers: strengthen and scale up the bio-based sectors while also unlocking investments and markets; deploy local bioeconomies rapidly across the whole of Europe; and understand the ecological boundaries of the bioeconomy. Member States are also ramping up individual efforts to shift towards agricultural production systems that are based in either the bio- or the circular economy, including endeavours to reduce food loss and waste. In this regard, most countries have set up food recovery frameworks and household food waste reduction campaigns. Austria pledged to use bioeconomic measures to meet part of its commitments under the Paris Agreement, and intended to draft a strategy plan in early 2019. Austria also implemented measures to divert food from waste to feed. In Belgium (Flanders), work began in 2018 on a bioeconomy platform to assist stakeholders in formulating solutions to problems encountered in the strengthening of the bioeconomy sector and investments were targeted to research on reducing food waste. The REGAL initiative in Belgium (Wallonia) aims to reduce food waste with better measurement and increased knowledge. In the Netherlands, the Minister of Agriculture released a new vision statement that advocates for a shift to a circular economy approach in the Dutch agricultural sector, titled, “Agriculture, nature and food: valuable and connected”. The plan seeks to prevent depletion of soils, halt the decline in biodiversity, close mineral cycles, prevent waste, and ensure that farmers receive a fair price, with outcomes to be achieved by 2030. The Programme for the Estonian eco-economy 2018-21 was approved in May 2018. Goals contained within the plan for the agricultural sector include increased production and export of organics, and higher production of value-added goods.

Air pollution control regulations were advanced in a few Member States in 2018, taking steps to implement the EU Directive on the reduction of emissions from certain atmospheric pollutants. Greece is developing an advisory code of good agricultural practices for the reduction of ammonia emissions from agriculture. In Spain, actions outlined include aid to renovate slurry cisterns.

Much of the EU-wide action on climate change in 2018 was not specific to the agricultural sector, but instead addressed emissions more broadly (Box 11.2). Concurrently, Member States have developed their own complementary policies in the area of climate change and sustainability, focused on reducing emissions and adaptation. Austria has committed to join a “High Ambition Coalition” of countries to accelerate actions to confront climate change. The country also approved 404 environmental projects in 2018 (including efficient energy use and building renovation), with estimated savings of 70 000 tonnes of CO₂ per year. Austria also launched the “Klimafit” project for breeding new plant varieties that have a high tolerance to climate extremes. In October 2018, Hungary adopted their Second National Climate Change Strategy (NCCS-2), focusing on decarbonisation, adaptation, and awareness raising. The government of Luxembourg updated its climate change adaptation strategy in 2018, to include intensifying research activities to forecast extreme weather, develop surveillance for invasive pests, and test options to increase crop rotation.

Box 11.2. The three pillars of the EU’s emissions reductions strategy

The European Union and its Member States are committed to a binding target of at least a 40% reduction in greenhouse gas emissions by 2030 compared to 1990, to be fulfilled jointly, as set out in the conclusions by the European Council of October 2014. The EU’s emissions reduction strategy – as outlined in the 2030 climate and energy framework – contains three pillars: the Emissions Trading System, the Effort Sharing Regulation and the land use, land-use change and forestry Regulation.

Legislation covering the Emissions Trading System (ETS) – the European Union’s cap and trade scheme – was revised early in 2018 [Directive (EU) 2018/410]. The new system applies a single, EU-wide emissions cap, covers new sectors, and functions on an auctioning mechanism instead of a system of free allocations. The Commission estimates that 45% of the EU’s emissions are covered under the ETS, including sectors like power and heat generation, steel production, and commercial aviation. Agriculture, however, is not covered under the ETS.

The Effort Sharing Regulation [Regulation (EU) 2018/842] was adopted in May 2018. It outlines binding annual emissions targets for each Member State through 2030, differentiating targets based on individual Member State capacity. The regulation also allows for some flexibility in terms of ensuring that countries can achieve their targets in a fair and cost-effective manner. While agriculture is one of the sectors covered by the Effort Sharing Regulation, there is no sector specific target.

Also in May 2018, a new regulation on the reporting and accounting of emissions and removals from land use, land-use change and forestry (LULUCF) was adopted [Regulation (EU) 2018/841]. The regulation stipulates that for the period 2021-30, any emissions from land use change must be offset by an equivalent removal of CO₂ from the atmosphere. With respect to agriculture, this regulation is intended to incentivise the adoption of more climate-friendly land use.

Fuel tax relief

The Czech Republic saw a large increase in spending on fuel tax relief in 2017 and 2018, as fuel tax exemptions were extended to the livestock sector. Estonia continued to provide fuel excise tax exemptions for producers in 2018, setting the tax level at 73% lower than the normal rate. Latvia is gradually raising the excise rate on diesel fuel used for agricultural purposes while maintaining the 85% discount compared to the standard tax rate. In January 2019, the Slovak Republic reinstituted a regime of fuel tax reimbursements for farmers – the programme had previously been abolished in 2011.

Investment

Financial support for investment in the sector also increased in 2018, with the European Investment Bank launching a new financing initiative of nearly EUR 1 billion (USD 1.2 billion) for investments in agriculture and the bioeconomy. The financing is made available under an extension of the European Fund for Strategic Investments (EFSI), whose rules changed in 2018 to accommodate a specific focus on investments in the sector. In addition, some Member States made substantial changes in investment incentives and funding under Pillar 2 over the year. In Ireland, funding for the country’s Targeted Agricultural Modernisation Scheme (which funds improvements in farm buildings and equipment) more than doubled from EUR 31.3 million (USD 35.3 million) in 2017 to EUR 66.8 million (USD 79 million) in 2018 after the scheme was made available to all farming sectors. Italy reintroduced tax credits for certain types of investments, including investments in digital or technological transformation processes. In Poland, the assistance limit was raised 67% to PLN 500 000 (USD 138 451) for producer investments in physical assets for the processing of agricultural products.

Risk management

Policy developments for 2018 in the area of risk management included the introduction of new risk management tools, changes to existing programmes under Pillar 2, and the provision of incentives to promote uptake of available tools. Early in 2019, Austria reduced the tax rate on some insurance policies covering natural hazards from 11% to 0.02% in order to incentivise farmers’ uptake of insurance schemes. In France, a new precautionary savings programme was introduced, allowing producers to put aside EUR 150 000 (USD 177 000) into a tax deductible savings account to be used in the event of a climatic or economic crisis event. This new precautionary savings vehicle replaces two previous measures – the Deduction for Hazards and the Investment Deduction. Beginning in May 2018, Hungary extended their set of tools used in agricultural risk management with the implementation of their national hail damage prevention system. The system relies on cloud seeding to prevent the formation of hail, reducing damage and limiting the need for ex post compensation. In Italy, new risk management tools were offered to farmers, including the establishment of producer mutual funds, and extended protections against natural disasters, pests, and diseases. Crop insurance premiums in Poland were subsidised at a rate of 65% in 2018, with policies typically covering risks of damage by strong winds, flood, torrential rain, drought, and other natural threats. In Slovenia, the insurance premium subsidisation rate in 2018 was raised from 40% to 50% for most fruits, and from 20% to 40% for other crops. Further increases in the subsidy rate are to be implemented in 2019. The government of Spain also authorised an additional EUR 97 million (USD 114.5 million) for use in agricultural insurance in 2018 (a 46% percent increase over 2017), as a result of increased demand from producers in 2017 and 2018. The system now provides around 420 000 policies, insuring around EUR 14 billion (USD 16 billion) in assets.

Responses to animal disease & plant pests

Measures were either continued or enacted in 2018 to compensate farms affected by various animal diseases. Farmers in France received the balance of compensation for 2017’s outbreak of avian influenza, bringing total compensation under the programme from both the French state and the European Union to EUR 77 million (USD 91 million). An additional EUR 20 million (USD 23.6 million) was made available to affected downstream businesses. Various measures were deployed to compensate producers for both herd and income losses resulting from African swine fever (ASF), in addition to efforts to stem further spread of the disease (see Box 11.3). Latvia paid out more than EUR 1.7 million (USD 2.0 million) to affected pig farms in 2018, and Romania allotted EUR 43 million (USD 51 million) to both affected farms and to preventing further spread of the disease. In Poland, farms affected by ASF could apply for support for income adjustment based on historical production, interest-free loans, or for reimbursement of expenses incurred for improvements in biosecurity in affected areas. In 2018, Belgium confronted an outbreak of Newcastle disease for the first time since 2010. The country implemented strict control measures at national level, including a ban on poultry collections, which helped to stop the spread of the disease, such that the country was able to regain its “Newcastle disease-free” status. In June 2018, the first EU case of ovine rinderpest12 was reported in eastern Bulgaria. Strict biosecurity measures were put in place and more than 4 000 animals were culled; affected farms were eligible for compensation. In addition to Member States’ response measures, the European Food Safety Authority (EFSA) introduced a new animal diseases data collection system designed to harmonise reporting and to lead to more effective risk assessments. In conjunction, the Commission pledged EUR 141 million (USD 166 million) to animal health improvements, including disease surveillance, control, and eradication.

Also in 2018, EUR 13 million (USD 15 million) was committed to plant health surveillance. Another EUR 6.3 million (USD 7.4 million) was committed to control outbreaks of quarantine pests. Much of the funds were earmarked for fighting Anoplophora glabripennis, Xylella fastidiosa and Pine Wood Nematode. The Xylella fastidiosa bacterium has been identified in several EU regions, where strict control measures are in place to eradicate the pest and prevent its further spread to the rest of the European Union. The largest effects to date have been seen in olive trees in Southern Italy. As a containment measure, in January 2019, the Italian government mandated that all affected trees be felled and farms assisted through the National Solidarity Fund as part of the implementation of the 2018 Stability Law. Elsewhere in plant health, the government of Austria provided emergency greening exceptions to sugar beet growers as a result of a massive beet weevil infestation, allowing farmers to grow more than 75% corn or to plant additional flower pastures on their land.

Box 11.3. African Swine Fever in the European Union

African Swine Fever (ASF) continued to spread across Europe in 2018. In domestic animal populations, there were more than 1 000 cases in Romania in 2018. The disease has also been identified in domestic pig populations in Bulgaria (August)13, Italy (September, limited to Sardinia), Latvia (August), Lithuania (October), and Poland (September). Outside of the countries that had seen outbreaks in domestic swine herds, the disease has been found in wild board populations in Belgium (December), the Czech Republic (April), Estonia (December), and Hungary (December) (EC, 2019[7]; FAS, 2019[8]).

European efforts to stem the spread of the disease have included both individual country responses as well as centralised measures. Belgium has extended the protected zone buffers after diseased animals were found outside of the original buffer zone. In Bulgaria, a National Emergency Taskforce was established to coordinate interagency responses to ASF, including an intensive informational campaign for rural areas and inspections of small farms to ensure that animal records were up-to-date. In January 2019, France moved to eradicate wild boar populations close to their border with Belgium, including the construction of 78 km of fencing and the mobilisation of intensive hunting efforts. In Denmark, construction commenced on a wild boar fence along that country’s border with Germany as a pre-emptive strategy against the disease’s future spread. The Danish government also introduced new hunting times, fines for improper cleaning of animal transport, and awareness-raising initiatives about the risks of the disease’s spread. Lithuania targeted measures to small pig farms (1 to 100 heads) with the compensation of culling (EUR 100 per head) and support up to 90% of the conversion cost to other livestock for a period of three years, limited to EUR 2 000 (USD 2 360). In addition, 90% of the compliance cost to biosecurity requirements was covered, limited to EUR 900 (USD 1 062) per applicant. In addition to the culling of an estimated 366 000 pigs through February 2019, Romania instituted restrictions on swine movements and prohibited the slaughter of non-traceable animals in commercial plants.

With the disease continuing to spread, renewed focus has been placed on prevention, control, and eradication. Prevention and control measures have been specified for cases where ASF is suspected in either domestic swine or wild boar populations. An analysis of existing ASF control measures published by EFSA in November 2018 indicated that a combination of strategies is needed to contain the disease, including early detection, quick removal of carcasses, and intensive hunting in specifically designated areas (EFSA et al., 2018[9]). Furthermore, the recommended measures vary for different scenarios, with approaches differing for non-affected areas close to affected areas, for example. This approach has generated some success. In response to identification of the disease in wild boar populations in the Czech Republic in June 2017, targeted measures were applied. The measures were effective – the country was declared ASF-free in February 2019.

The Commission has also implemented and updated regionalisation measures to ensure that appropriate steps are taken to prevent further spread of the disease. Aside from these actions, the European Union is funding various research initiatives to improve ASF prevention and control, including Swinostics swine diseases field diagnostics toolbox, VetBioNet network of research facilities on zoonotic diseases, and ASF-STOP knowledge integration platform. Finally, beginning in October 2018, the Commission began soliciting proposals for steps to develop a vaccine against the disease.

Response to adverse weather conditions

Several natural disasters in 2017 and 2018 provoked exceptional aid assistance in 2018. A period of heavy rains in late 2017 that either flooded sown area or else prevented the sowing of winter crops in parts of Finland and the Baltic states led the European Commission to adopt emergency measures for those countries within the regulation on the common organisation of markets rather than the Direct payments’ crisis reserve. Under these measures, Estonia received EUR 1.34 million (USD 1.6 million), Finland EUR 1.01 million (USD 1.2 million), Latvia EUR 3.46 million (USD 4.1 million), and Lithuania EUR 9.12 million (USD 10.8 million) to be attributed on a per hectare basis to affected farms who did not benefit for the same loss of any national and EU aid or insurance (EC, 2018[10]). In addition to EU funds, Member States could match the EU support payment with national payments. In Estonia, exceptional adjustment aid was granted for potatoes and vegetable producers to compensate for damage incurred in flooding events between August and October 2017. Compensation payments for crop loss of EUR 9 million (USD 11 million) were provided in Lithuania. In Latvia, EUR 4.4 million (USD 5.2 million) of state aid was paid for climatic events not covered under the EU emergency measures. Then in the summer of 2018, drought conditions developed throughout much of Northern and Central Europe, resulting in reduced output for many commodities in a number of countries. Rapeseed, soft wheat, maize, and vegetables were some of the most affected crops, in turn affecting feed input prices in the livestock sector. CAP direct payments were advanced by two months and greening EFA conditions were relaxed. Derogations on greening rules (for either fallow land requirements or catch crop/winter crop requirements) were granted to Belgium, Denmark, Estonia, Finland, France, Germany, Ireland, Latvia, Lithuania, the Netherlands, Poland, Portugal, Sweden, and the United Kingdom. Simultaneously, many Member States granted emergency compensation to farms affected by the drought using state aid – Austria designated EUR 20 million (USD 24 million) for direct assistance, while EUR 15 million (USD 18 million) and EUR 55 million (USD 65 million) were allocated respectively to drought damage in Belgium (Wallonia) and drought compensation in Belgium (Flanders). The Czech Republic provided support for growers of the crops most affected by the drought, including spring wheat, sugar beet, hops, and vegetables. In France, the government introduced a range of measures, including reductions in land taxes, delays or reductions in social charges, and advance payments on insurance indemnities from drought damage; Ireland launched several measures aimed at the livestock sector, including a EUR 4.25 million (USD 5.0 million) programme for importing fodder; Poland released EUR 350 million (USD 413 million) for farms affected by both droughts and floods in a mixed package that included both preferential loans and tax cuts; Slovenia provided EUR 12.7 million (USD 15 million) in temporary ad hoc support, of which EUR 6.9 million (USD 8.1 million) was for drought and EUR 5.8 million (USD 6.9 million) for frost assistance; Sweden made EUR 39 million (USD 46 million) available in 2018 and a further EUR 74 million (USD 87 million) in 2019.

As a means of providing improved flexibility in times of crisis, the European Commission revised state aid rules in February 2019. The maximum amount that could be dispersed without prior approval from the Commission was raised from EUR 15 000 per farm (USD 17 703) to EUR 20 000 (USD 23 604). In addition, the national ceiling was increased from 1% to 1.25% of countries’ annual agricultural output.

Digitalisation

The EU commitment to the digitalisation of rural areas was re-affirmed with the issuance of the Bled Declaration in April 2018. Work on digitalisation also progressed in Member States. The Austrian Federal Ministry for Sustainability and Tourism prioritised farmer access to digitalisation and training for young farmers by setting up a digital model farm (the so-called “Innovation Farm”) and establishing a new five-year study programme focused on agriculture and the digitalisation of secondary schools (beginning in the coming school year). In Spain, a new RDP provides EUR 57 million (USD 67 million) to create and implement innovative projects in rural areas from 2018 and an Agenda for the digitalisation of the agro-food, forestry, and rural sectors is under preparation for 2019.

Regulations

In 2018, substantial policy change was made with respect to the usage of neonicotinoid insecticides. On April 27, EU Member States voted on a total ban of three of these products (clothianidin, imidacloprid, and thiamethoxam14) for outdoor uses beginning in December 2018. The products are still permitted for greenhouse uses, however. Then in May 2018, the European Court of Justice confirmed the Commission’s discretion to regulate these pesticides under the precautionary principle given updated risk assessments, and upheld earlier restrictions on the products that were first put in place in 2013. France went further, banning the use of five neonicotinoid pesticides (acetamiprid and thiacloprid, in addition to the three products banned EU-wide) for both indoor and outdoor uses beginning in September 2018. At the same time, producers in several countries applied for emergency exemptions from the regulation, based on the current lack of commercially available alternative products. Sugar beet growers in particular sought exemptions for seeds treated with thiamethoxam, but approvals of exemptions for this and other uses were uneven across the European Union. Petitions from growers for emergency authorisation to purchase neonicotinoid-treated seeds were rejected in Bulgaria, the Netherlands and the UK, while waivers were granted in Belgium, Denmark, and Finland.

Pollinators

In June, the Commission approved a Communication for a new EU pollinators initiative. The initiative focuses on three priority areas: improving knowledge of pollinator decline (including causes and consequences), tackling the causes of pollinator decline, and raising awareness through engaging society-at-large and promoting collaboration. The Communication delineated action items for each of the proposed areas, with implementation targeted by 2020. Pollinator viability is visible in the policy agendas of Member States – several countries paid out compensation to beekeepers in 2018 (France, Latvia, and Slovenia) for bee mortalities due to weather and disease. In September 2018, France put in place an exceptional aid scheme of EUR 3 million (USD 3.5 million) to compensate beekeepers for high bee mortalities.

Tax

Several member countries introduced changes to their tax and social security policies with respect to food and agriculture over the past year. As part of the tax reform introduced in France, farm households can choose transitioning to the corporate tax system, with the option to return to individual income tax after a period of five years. The threshold value on the tax-free transfer of land leased on a long-term basis or leased outside the family was raised from roughly EUR 102 000 (USD 120 379) to EUR 300 000 (USD 354 056). Provisions for young farmers were also introduced, with the tax rebates refocused on the lowest profit years. Finally the taxes on flour, cereals, sugar used in wine making, wood and vine plants, and seafood were eliminated, amounting to roughly EUR 90 million (USD 106.2 million) in savings to the sector. In Hungary, the VAT rate for several staple foods (including various fish products and swine offal) was reduced from 27% to 5% in January 2018, and rates for extended shelf life and ultra-high temperature pasteurised milk were reduced in January 2019. Finally, Italy’s 2018 Stability Law exempts farmers under the age of 40 from paying social security contributions.

Market promotion

Market promotion efforts expanded over the past year, both at the EU level and for the individual Member States. EU resources available for co-financing from the countries was raised from EUR 179 million (USD 211 million) in 2018 to EUR 191.6 million (USD 226.1 million) in 2019. EU-wide campaigns focused on the promotion of the different EU quality schemes.15 Member States introduced new commodity-centred promotion efforts in 2018 with this funding. For example, Estonia’s food sector export development plan for the period 2019-22 aims to strengthen market power, improve the availability of market information, support R&D activities, develop the image of Estonia and Estonian food abroad, and support sales related activities. Poland implemented four new programmes targeting increased consumption of apples and turkey.

Institutional changes

New complete editions of the Common catalogues of varieties of Vegetable species16 and of varieties of Agricultural plant species17 were published. The Catalogues list all varieties, the seeds of which are not subject to marketing restrictions in the European Economic Area.

Several institutional changes also took place in the European Union in the past year, both at the EU-wide level and within Member States. In Spain, the Ministry of Agriculture Food and Environment was reorganised into a new Ministry of Agriculture, Fisheries and Food, and some responsibilities, including the management of water supply, transferred to the new Ministry of Ecological Transition. The management of irrigation, however, is a competence of the new Ministry of Agriculture, Fisheries and Food.

In March 2018, the Commission’s Joint Research Centre announced that they would launch a Knowledge Centre on Food Fraud and Quality. The Centre was created in response to consumer concerns about food quality and fraudulent practices concerning food. It is to be comprised of an expert network on both fraud and alleged dual quality products.

In Austria, the Federal Institute for Agricultural Economics merged with the Federal Institute for Less-favoured and Mountainous Areas early in 2019. In October 2018, the French government announced the proposed merging of INRA (the French acronym for the National Institute of Agronomic Research) and IRSTEA (the National Research Institute of Science and Technology for Environment and Agriculture) into a single research organisation for agricultural, agronomic, and environmental issues.

Trade policy developments in 2018-19

The European Union’s simple average MFN applied tariff rate for agricultural products was 10.8% in 2017, down slightly from 2016 (WTO, 2019[11]). This level remains higher than the average applied tariff rate for non-agricultural products, calculated at 4.2%. Applied duties are above 15% for animal products, dairy products, sugars and confectionary, and beverages and tobacco. EU import duties for six cereal types are based on reference prices. Under this system, import duties on high quality wheat have been suspended since 2010. However, duties of EUR 5.16 per tonne were introduced for maize, sorghum and rye in August 2017 and subsequently revised downward as cereal prices rose, and on 3 March 2018 were again set at 0% (EC, 2018[12]).

Of the European Union’s 64 import tariff rate quotas (TRQs), 31 were filled at 80-100% during the 2018 calendar year, including those for chicken and poultry cuts, potatoes, tomatoes, carrots, sweet peppers, almonds, lemons, grapes, apples, pears, maize, milled rice, grain sorghum and wine. Most of the remaining TRQs had a fill rate of less than 10% (WTO, 2019[13]). From 1 January 2018, results of import and export tariff quota allocation are published on the European Commission’s website.18

After the European Union committed to eliminating export subsidies at the 2015 WTO Ministerial conference in Nairobi, 2017 marked the first year when no export subsidies were provided for agricultural products. (WTO, 2019[14]).

The price-based special safeguard system was operationalised in marketing year 2017/18 for some frozen poultry products, dried eggs not in shell, and some preparations of poultry meat. During the same period, the volume-based special safeguard action has not been invoked. However, the system has been made operational at the level of calculation of figures for the trigger volumes for some fruit and vegetable products, including tomatoes, cucumbers, artichokes, oranges, clementines, table grapes, apples, peaches, and cherries (WTO, 2018[15]).

On 19 October 2018, the EU Council approved the opening of discussions between the European Union and the United States for designating country-specific allocations within the European Union’s existing 45 000 tonne hormone-free, high-quality beef TRQ.

In March 2019, and as foreseen in the EU import licences system for rice, EU imports of 264 000 tonnes of rice triggered the doubling of import duties on husked rice from EUR 30 to EUR 65 per tonne (USD 35 to USD 77 per tonne) until September 2019. The duties may be extended after that date. The tariff levels had not been revised since March 2012.

In January 2019, the European Union instated new tariffs on Indica rice imported from Cambodia and Myanmar. The measure followed a 2018 safeguard investigation that determined that duty-free rice imports from the two nations under the European Union’s Everything But Arms tariff preference regime caused economic damage to the rice sector in Europe.

Disputes

On 21 June 2018, the European Union suspended the application of import duty concessions under the GATT 1994 to the trade of the United States and imposed additional import duties of 25% to a list of 182 products of US origin defined at the CN 8 digit level, of which 21% are food and non-alcoholic beverages. These include all parboiled semi-milled rice, broken rice, a few categories of edible vegetables, categories of cereals‑based prepared foods, raw and prepared sweetcorn, peanut butter and categories of orange and cranberry juices (EC, 2018[16]).

On 31 January 2019, the European Union circulated a request to WTO members for WTO dispute consultations with the United States concerning US anti-dumping and countervailing duties imposed on imported ripe olives from Spain. Since then, Australia has asked to join the consultation (WTO, 2019[17]).

Free Trade Agreements

In late 2018, the European Union released its second annual report on the implementation of EU Free Trade Agreements (EC, 2018[18]). The report noted that, in 2017, EU agro-food trade with FTA partner countries represented more than 40% of total agro-food imports, and one-third of total EU agro-food exports. The report also noted that FTAs had opened more than 600 preferential TRQs for EU agro-food products, and have increased the legal recognition of EU GIs in third countries. The bloc currently has more than 30 agreements in force, and continues to negotiate (and in some cases renegotiate) agreements with additional trading partners.

On 1 February 2019, the European Union-Japan Economic Partnership Agreement entered into force. The agreement substantially reduces tariffs and trade barriers for both partners. The European Union is scheduled eliminate duties on 99% of imports from Japan. Tariffs on beef, tea, alcoholic beverages and other priority products are to be eliminated (most upon the agreement’s entry into force). Once fully in place after 21 years, the agreement is set to liberalise tariffs on 85% of the EU’s agro-food products exported to Japan including the elimination of duties on 90% of agricultural products. Additionally, tariffs on hard cheeses and processed agricultural goods like chocolate, pasta, and tomato sauce are to be eliminated over time. For pork and beef, tariffs are reduced over time, but not fully eliminated. Finally, improved EU access to the Japanese market is also secured under the agreement through the establishment of country-specific TRQs for products including wheat and wheat flour, barley and barley flour, malt, butter, skimmed milk powder, and fresh cheeses. Duties and trade restrictions on rice, however, were excluded from the negotiations. Aside from market access, the agreement establishes recognition of more than 200 EU Geographical Indications (GIs), as well as more than 50 protected names for Japanese wine, spirits and food products.

In February 2018, the European Union-South African Development Community Economic Partnership (EU-SADC) came into force. While the agreement is largely intended to provide improved access for SADC countries to the European market, it also provides greater access for some EU products into SADC. For example, the agreement includes a 300 000 tonne duty-free wheat TRQ, a 10 000 tonne duty-free TRQ for barley, and a duty-free TRQ for cheese that increases in size annually. The agreement also included protection for more than 250 EU GIs.

The periodic review of trade in agricultural products foreseen in the European Economic Area (EEA) agreement with Iceland, Liechtenstein and Norway was completed and the revised European Union-Iceland agreement came into force on 1 May 2018, followed in October 2018 by the European Union-Norway agreement. As part of the EU-Iceland agreement, EU import quotas for agricultural products have increased (skyr, butter and sheep meat) or have been established (cheese, processed sheep, pig meat and poultry) while certain food preparations including flavoured yoghurts and ice cream are excluded from liberalisation. In return, Iceland granted duty-free access to a range of agricultural products (mostly processed products but also live animals, and some fresh fruits and vegetables), reduced tariffs on meat and some vegetables, expanded existing quotas for beef, pig meat, poultry, cheese, and certain meat products, and provided protection for EU GIs. Under the EU-Norway agreement, two tariff lines were fully liberalised and quotas for imports of several types of chicken meat, preserved meat and offal, dried milk albumin and whey products were opened. In return, Norway increased tariff rate quotas on several products, including meat, cheese, vegetables and certain products used in the food industry.

The European Union and Viet Nam reached an agreement on a bilateral free trade agreement in July 2018, with the agreement awaiting signatures and conclusion. The agreement includes improved market access for Vietnamese agricultural commodities with the progressive reduction of duties over a maximum period of seven years. The European Union is set to open duty-free Tariff Rate Quotas for 30 000 tonnes of milled rice; 20 000 tonnes of husked rice and 30 000 tonnes of fragrant rice, as well as quotas for sugar, baby corn, garlic, mushroom, manioc starch and eggs. The tariff on broken rice will be phased out over 5 years, starting with a 50% cut. European Union exports to Viet Nam will also enjoy the progressive elimination of duties over a period of ten years, including for chicken, dairy, beef, wine, spirits, chocolates, pastas, apples, wheat, and olive oil. Protection for nearly 170 EU GIs are also included in the agreement. At the end of the implementation period, an average tariff of 1.1% will apply to agricultural goods originating in Viet Nam and 2.1% to processed agricultural products while the average tariff for EU agricultural exports will be 2.6%.

In June 2018, negotiations began for two bilateral free trade agreements with Australia and New Zealand.

In addition to negotiating new agreements, the European Union and Mexico reached an “agreement in principal” in April 2018 to modernise their existing trade agreement (which had been in place since 2000), superseding it with the European Union-Mexico Global Agreement. The revised agreement further liberalises agricultural trade between the two partners, including eliminating Mexican tariffs on many EU agricultural exports (including pasta, chocolate, apples and pork products), and creating duty-free TRQs for milk powder, other cheeses, and fresh and processed cheeses.

The 37^th round of negotiations of the Trade Part of the Association Agreement between the European Union and the four founding members of Mercosur (Argentina, Brazil, Paraguay and Uruguay) was held in Montevideo in December 2018. The negotiations started 20 years ago and by the end of 2018, the parties had agreed on 12 of the 15 chapters in the agreement. With regards to trade in goods, outstanding tariff lines remain on agricultural market access.

Five countries currently have candidate status to the European Union, including Turkey (since 1999), the Republic of North Macedonia (since 2005), Montenegro (since 2010), Serbia (since 2012) and Albania (since 2014).

References

[7] EC (2019), “Animal Disease Notification System 2018 Disease Overview”, European Commission, DG Health and Food Safety, https://ec.europa.eu/food/sites/food/files/animals/docs/ad_adns_overview_2018.pdf.

[4] EC (2019), “Direct payments 2015-2020. Decisions taken by Member States: State of play as from December 2018”, European Commission, https://ec.europa.eu/agriculture/sites/agriculture/files/direct-support/direct-payments/docs/simplementation-decisions-ms-2018_en.pdf.

[16] EC (2018), “Commission Implementing Regulation (EU) 2018/886 of 20 June 2018 on certain commercial policy measures concerning certain products originating in the United States of America and amending Implementing Regulation (EU) 2018/724”, European Commission, http://data.europa.eu/eli/reg_impl/2018/886/oj.

[5] EC (2018), “Future of the Common Agricultural Policy”, European Commission, https://ec.europa.eu/info/food-farming-fisheries/key-policies/common-agricultural-policy/future-cap_en.

[18] EC (2018), “Report on Implementation of EU Free Trade Agreements”, European Commission, Publications Office of the European Union, Luxembourg, http://dx.doi.org/10.2781/660927.

[6] EC (2018), A Sustainable Bioeconomy for Europe: Strengthening the Connecion between Economy, Society and the Environment, European Commission, https://ec.europa.eu/research/bioeconomy/pdf/ec_bioeconomy_strategy_2018.pdf#view=fit&pagemode=none.

[12] EC (2018), “Commission Implementing Regulation (EU)2018/316, of 2 March 2018, fixing the import duties in the cereals sector applicable from 3 March 2018”, Official Journal of the European Union, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32018R0316&qid=1552486514157&from=EN (accessed on 13 March 2019).

[10] EC (2018), European Commission Implementing Regulation (EU) 2018/108 of 23 January 2018 on an emergency measure in the form of aid to farmers due to the floods and heavy rainfalls in certain areas of Lithuania, Latvia, Estonia and Finland, https://eur-lex.europa.eu/eli/reg_impl/2018/108/oj.

[9] EFSA, A. et al. (2018), “Epidemiological Analyses of African Swine Fever in the European Union (November 2017 until November 2018)”, EFSA Journal, Vol. 16/11, p. 106, https://efsa.onlinelibrary.wiley.com/doi/epdf/10.2903/j.efsa.2018.5494.

[8] FAS (2019), ASF Hits One of Romania’s Largest Pork Production Areas, USDA GAIN Report No. RO1905, https://gain.fas.usda.gov/Recent%20GAIN%20Publications/ASF%20Hits%20one%20of%20Romania%E2%80%99s%20Largest%20Pork%20Production%20Areas_Bucharest_Romania_2-15-2019.pdf.

[1] OECD (2019), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

[3] OECD (2018), Agricultural Policy Monitoring and Evaluation 2018, OECD Publishing, Paris, https://dx.doi.org/10.1787/agr_pol-2018-en.

[2] OECD (2017), Evaluation of Agricultural Policy Reforms in the European Union: The Common Agricultural Policy 2014-20, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264278783-en.

[17] WTO (2019), DS577: United States — Anti-dumping and countervailing duties on ripe olives from Spain, https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds577_e.htm.

[11] WTO (2019), European Union Tariff Profile, World Trade Organization, https://www.wto.org/english/res_e/statis_e/daily_update_e/tariff_profiles/E28_E.pdf (accessed on 13 March 2019).

[13] WTO (2019), Notification G/AG/N/EU/50 on European Union Tariff Quotas (Table MA:2) in Calendar Year 2018, World Trade Organization, https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?Query=(%20@Symbol=%20g/ag/n/eec/*%20or%20g/ag/n/eu/*)&Language=ENGLISH&Context=FomerScriptedSearch&languageUIChanged=true#.

[14] WTO (2019), Notification G/AG/N/EU/51 on European Union Export Subsidy Commitments (Table ES:1) in Marketing Year 2017/18, World Trade Organization, https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?Query=(%20@Symbol=%20g/ag/n/eec/*%20or%20g/ag/n/eu/*)&Language=ENGLISH&Context=FomerScriptedSearch&languageUIChanged=true#.

[15] WTO (2018), Notification G/AG/N/EU/47 on European Union Use of Special Safeguard Provisions (Table MA:5) in Marketing Year 2017/2018, World Trade Organization, https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?Query=(+%40Symbol%3d+g%2fag%2fn%2feec%2f*+or+g%2fag%2fn%2feu%2f*)&Language=ENGLISH&Context=FomerScriptedSearch&languageUIChanged=true#.

Notes

← 1.  Cofinancing rates vary by measure and by Member State.

← 2.  Member States commonly have one RDP, while Belgium and Finland have 2, France has 30, Germany has 15, Italy has 33, Portugal has 3, Spain has 19 and the United Kingdom has 4.

← 3.  Member States with average direct payment per ha below 90% of the EU average can transfer up to 25% of rural development fund to direct payments.

← 4.  The following Member States have opted for transfers of funds from Pillar 1 to Pillar 2 throughout the CAP 2014-20 exercise: Belgium, the Czech Republic, Denmark, Estonia, France, Germany, Greece, Latvia, Lithuania, the Netherlands, Romania and the United Kingdom, Croatia, Malta, Hungary, Poland and the Slovak Republic chose to transfer funds from Pillar 2 to Pillar 1.

← 5.  The SAPS is applied all Member States joining since 2004 but Slovenia, Malta, and Croatia, which implement the BPS in addition to the EU15.

← 6.  The BPS is “regionalised” in six Member States [Germany (by Länder), Greece (3 regions), Spain (50 regions), France (2 regions), Finland (2 regions), United Kingdom (separate regions within Scotland and England)], meaning that a different payment rate per hectare applies depending on the region.

← 7.  These criteria are: low temperature, dryness, excess soil moisture, limited soil drainage, unfavourable texture and stoniness, shallow rooting depth, poor chemical properties and slope.

← 8.  Payments are granted on a maximum number hectares which varies by implementing country or region: Belgium (Wallonia): 30 ha; Bulgaria: 30 ha; Croatia: 20 ha; France: 52 ha; Germany: 46 ha with a higher per hectare payment rate for the first 30 ha; Lithuania: 30 ha; Poland: no payment below 3 ha, from 3 to 30 ha; Portugal (as from claim year 2017): 5 ha; Romania:30 ha with a smaller per hectare payment rate for the first 5 ha; and United Kingdom (Wales):54 ha.

← 9.  Belgium (Wallonia), Croatia, France, Germany, Portugal and Romania.

← 10.  The Czech Republic, Denmark, Cyprus, Estonia, Finland, Latvia, Luxemburg, Malta, the Netherlands, Slovenia, Slovakia, Spain, Sweden and the United Kingdom (England).

← 11.  Belgium (Flanders), Bulgaria, Ireland, Greece, Italy, Hungary, Austria, Poland, Portugal and the United Kingdom (Northern Ireland, Wales and Scotland).

← 12.  The ovine rinderpest is known by its French acronym PPR, for Peste des Petits Ruminants.

← 13.  Note that the dates indicated here come from EFSA’s Animal Disease Notification System (ADNS) notifications, and represent the date of the last outbreak recorded.

← 14.  Commission Implementing Regulations EU (2018)783, 784 and 785.

← 15.  Including protected designation of origin (PDO), protected geographical indication (PGI), and traditional specialty guaranteed (TSG).

← 16.  The common catalogue of varieties of vegetable species was published for the first time on 29 June 1972 (Official Journal C 169, 29.6.1972, p. 1).

← 17.  The common catalogue of varieties of agricultural plant species was published for the first time on 21 July 1975 (Official Journal C 164, 21.7.1975, p. 1).

← 18.  The European Commission’s page on Agriculture and rural development Tariff rate quotas can be found here: https://ec.europa.eu/agriculture/tariff-rate-quotas-trqs_en.