Brussels, 30/07/2009 (Agence Europe) - On Thursday 30 July, the European Commission adopted a report on the application of voluntary modulation of direct payments, used only by the United Kingdom and Portugal. (Modulation is the system whereby budgetary resources are transferred from direct payments to rural development measures.) These two countries opted for this system in 2005, so that they could go further than what was provided for under the compulsory modulation introduced by the 2003 agricultural reform, namely a 3% reduction in aid in 2005, 4% in 2006 and 5% from 2007, with a €5,000 threshold below which no reduction can be applied to direct payments.
In the meantime, the common agricultural policy (CAP) health check, which was adopted at the end of 2008, has responded to the need to increase funding for rural development by increasing the rate of compulsory modulation. The member states which apply voluntary modulation will gradually replace it with compulsory modulation, thus better aligning modulation rates across the European Union. The Commission does not plan any further initiatives on voluntary modulation in the current programming period of 2007-2013.
The United Kingdom set its annual rates of voluntary modulation according to its constituent parts: 12-14% for England, 2.5-6.5% for Wales, 5-9% for Scotland and 4.5-9% for Northern Ireland. A total of €2.689 billion, once voluntary modulation has been applied, is due to be transferred from the 1st pillar of the CAP (direct payments) to the 2nd pillar (rural development) in the UK over the course of the 2007-2013 programming period. This equates to a more than doubling of the rural development budget in the UK (an increase from €1.910 billion to €4.599 billion), taking the EU rural development budget to €91.9 billion over the same period.
On 18 June 2007, Portugal informed the Commission of the rate of voluntary modulation for the 2007-2012 period. The annual rate advised was 10% from 2008. If account is taken of the threshold, the effective level of reduction of direct payments is 6.1%. €164 million is due to be transferred from the 1st to the 2nd pillar between 2009 and 2012 in Portugal.
The Commission report reveals that voluntary modulation has either been used for a short period (UK) or has yet to be implemented as expected under rural development programmes (Portugal). It is, therefore, “very early” to draw any firm conclusions on the impact of voluntary modulation on the economic situation of farms or their competitive position. Other factors, such as the rise in commodity prices, the increase in input prices and the credit crunch, have probably had a greater impact on total income from farming than voluntary modulation.
The Commission notes that, in the UK, a wide range of environmental benefits is expected, mainly through agri-environmental measures.
Impact of health check. The CAP health check seeks to help farmers better to respond to market signals and to face new challenges. To this end, the rate of compulsory modulation will increase in four stages up to 10% by 2012, while the €5,000 threshold will be maintained. In addition, progressive modulation of a further 4% for payments over €300,000 will be introduced.
Consequently, €3.24 billion will be transferred to the 2nd pillar (rural development) over four years. The additional funding will be used in the same member state for “new challenges”: climate change, renewable energy, water management, biodiversity, innovation linked to these challenges and dairy accompanying measures. The co-financing rate is set at 90% in convergence regions and 75% in non-convergence regions.
Member states applying voluntary modulation will reduce rates accordingly. This means that the health check will bring about a reduction in the scale of voluntary modulation in the United Kingdom and Portugal, without having any impact on total modulation. (L.C./transl.rt)