RDP contributions: the criterion of "simplified costs"

To reduce the possibility of errors and the administrative burden imposed on both the managing authorities and the beneficiaries of the projects for the RDP 2014-2020, the European Commission proposes a methodology for calculating the actual market value of eligible machinery. The topic was discussed in-depth during a seminar sponsored by Ismea

Within the framework of the RDPs, the European Commission and national authorities are preparing the extension of the use of so-called “simplified costs” (flat-rate financing, standard tables of unit costs and flat rates), using it instead of the reimbursement of “real costs”, on the basis of Article 60 of Reg. (EU) No. 1305/2013. In accordance with Article 62 of Reg. (EU) No. 1305/2013, the calculations necessary to quantify the simplified costs can be done directly by the Managing Authority (MA) or by an independent body with the appropriate responsibilities. During the September 29 event in Florence on “Simplified costs in the Rural Development Programmes 2014-2020: Implementation, Management and Control”, organized by the National Rural Network and with the participation of the Network experts, the European Commission - DG Agri, the European Court of Auditors, and representatives from the ministries, to examine the issue of the methodology to be applied to machines, with a dedicated seminar organized by Ismea. With the project “Support for the adoption of simplified costs in the RDPs”, Ismea is developing a methodology for the calculation of simplified costs for the agricultural machinery category. The method involves the development of specific tables of standard unit costs. The chosen methodological approach is based on the statistical analysis of market data (to be approved by the Commission and adopted by the Management Authorities in the RDPs, the methodology must be “fair, equitable and verifiable”).

In particular, the methodology involves the following steps: retrieval and statistical analysis of the list prices; survey to find the average discounts applied; application of discounts and identification of unit costs; certification and periodic update of the unit cost tables. Identifying standard tables of unit costs on which the Regions can base their calculatations of the amount of aid is not the only possible way of applying simplified costs, but Brussels considers it very effective in reducing the error rate. The project is part of the broader topic of “Improving the administrative capability of the MAs for rural development”.

The work of Ismea

With a specific survey, Ismea has identified the list prices of: tractors - 900 models analysed, divided into tractor types: specialized (198 models), equal-wheeled (128), conventional (515), and tracked (59), of 29 different brands; combine harvesters - 174 distinct models of combine harvesters with wheat-rice heads (91 models) and maize heads (83), of 6 different brands; operating machines - by October (2016 or 2017?) we will have the list prices. Prices will be divided by category of machines (for working soil, for harvesting, etc.) and type (eg. plows, harrows, etc.).

 In the case of tractors, the methodology involves the identification of the main types, the definition of the reference parameter (power/Kilowatt) and, through empirical analysis, the variables that affect the price. In addition to the type of tractor (conventional, specialized, equal-wheeled and tracked), the most important variables are the type of protection (arch/ fram or cabin) and the transmission, divided into mechanical, powershift and continuous (CVT). This has enabled us to identify 15 classes of tractors, and for each of these we calculated the relationship between machine power (expressed in kW) and price (expressed in EUR per Kw). In order to make the system usable and easily understandable, for each of the identified classes we will prepare a table of simplified costs by “power range”, whose values ​​are derived from the price/Kw ratio above.  This, however, is just the intermediate result, to which we must apply the average discount rate found by the survey on the discounts system, which represents a fundamental step in identifying the unit values ​​ascribable to the prices actually charged on the market.  The survey will consist of interviews with key players (farmers, technicians, retailers, RDP managers, etc.), surveys of retailers on discounts usually applied to customers (by geographic area and makes/models) and validation of the results obtained from a focus group, which will be attended by representatives of farmers, retailers, Regions, etc. In the final result, each unit cost will be calculated on the basis of the value resulting from list prices for the discount rate typically applied. The proposed methodology also provides for a regular update of the unit cost tables, to be carried out every two - three years. Each year we will verify that the market conditions are more or less stable, performing the update earlier if there are significant and documented changes.  

The use of simplified costs is an option for individual Member States: at the beneficiary level, the managing authority may decide to make their use voluntary or mandatory for all or part of the beneficiaries or for all or part of the operations. The use of simplified costs in rural development programmes is rather widespread.

Some Regions have chosen to use this method of calculation because it allows to simplify the administrative procedure, to guide the administration’s attention to the result/output of the project, and to reduce the error rate. Eg. the “price list of maximum costs” of the Umbria Region for agricultural machinery and equipment is designed to determine the maximum expenditure that the Region considers reasonable and therefore eligible for support under the RDP investment measures for the 2014/2020 period. Then, the value of the machine covered by the aid application is automatically established in advance according to the reference costs. However, the aid will continue to be paid according to the invoice amount, which must be equal to or lower than the maximum reference price.

By the end of 2016 and beginning of 2017, the work should be complete in all its parts, and it should be certified by an independent party, as provided by Article 62.2 of Regulation 1305/2013.