The new CAP: approved in Europe and now moving on to member States

The reform of the European Union Common Agriculture Policy brought in a reduction of overall resources of 13% under the previous PAC. The cuts are adjusted for each single country and are expected to lead to a further 6% reduction in the budget assigned to Italy. Some additional resources under the Rural Development heading with an overall sum of resources for the seven years 2014-2020 coming to 10.4 billion euro. Bureaucratic complications among the critical points of the reform

Finally the PAC was completed. After as many as two years after the proposal for new European Union regulations in October 2011, negotiations, draft reports and trilogue negotiations, the European Parliament, Council and Commission reached agreement this past September on new agriculture policy for post 2013. Due to setbacks in the timetable for approval, this is a reform which will come into effect only on 1st January 2015 to some degree, as for the case of direct payments, whereas the coming year will witness the extension of old rules based on the new budget earmarked for the sector. The overall amount of resources as regards the European budget will be subjected to a reduction of some 13% compared to the previous round to be applied across the boards to the budgets of all the Member States. Unfortunately, however, the cuts do not end there but vary from country to country according to way the shares are allocated. This means that for direct payments the Italian budget will drop by another 6% as the result of the so-called external convergence, that is, according to which countries with assistance per hectare above the European average must contribute to the reduction of the existing gap between this parameter and countries which, on the other hand, find they are below 90% of the average.

As a form of compensation, Italy will earn something under Pillar II, the one on rural development, for which Italian farmers can count on EU resources coming to 10.4 billion euro in the seven years 2014-2020, nearly 1.5 billion more than in the previous 2007-2013 round. But beyond the funds, this new CAP will bring in a good dose of complications, especially in bureaucratic red tape, as will be the case of direct payments, income derived from financial allocations. Among other issues, though many twists and turns were eliminated this was due especially to the work of the European Parliament which, compared to the Commission, stepped in to sweeten legislative bitterness and mainly to facilitate reaching the requirements needed to obtain direct payments to farmers. An example of this was the case of so-called greening, the shares of direct payments accounting for 30% of the national total to be obtained on conditions involving agricultural practices favoring climate and the environment. Among them are crop diversification – involving farms with more than ten hectares under crops – and the requirement to allocate areas of ecological interest in a form of set-aside of at least 5% of Usable Agricultural Areas (UAA) seeded by the farm. The original Commission proposal called for calculating the farm's the total land holding but then this was changed by the Council and the Parliament to calculations leaving out tree crops resulting in a great sigh of relief by allowing large numbers of Italian farmers to exclude fruit orchards, olive cultivations and vineyards.

Leaving out greening however, the writing of the norms which will result in the greatest impact on the allocation of direct payments are so-called regionalization and the convergence title norms, more precisely, the base payment. In considering this article, the values of the titles must be uniform per hectare of land and equal to the national or regional average, according to the choice made by Italy. Given that there are extreme differences in title values side-by-side in Italy, from cases of more than 3,000 euros per hectare for historic tobacco cultivations to less than 300 euros for cereal crops farmers, the application of regionalization could have carried strongly negative repercussions for various categories of farmers. Thus the convergence mechanism was provided for to mitigate this impact by gradually reaching uniform values by 2019 within the framework of the entire nation or region. As can be easily understood, the new scheme for the allocation of direct payments is a truly complicated mechanism in which the final results as regards the value of new titles is left up to the farmer and will be produced through the interconnection of numerous variables. These range from the definition of active farming, those who benefit from these direct payments, to the choice of the regionalization framework, the entire Member State or single regional administration, moving on to the way convergence is achieved, immediately or gradually up to 2019, and all the rulings which must be decided on by the governments or regions by July next year.

Without entering into greater detail on the arrangements of the norms which complete the picture of direct payments, such as further redistribution components, those linked to young farmers and disadvantaged areas and small farms, it is worthwhile here to consider the possible impact of the new CAP on farming enterprises coping with their willingness to invest. In light of the changes dealt with above, it is easy to understand that the potential levelling of direct payments will lead to a substantial decline in the financial resources available to those farmers who have benefited in the past from assistance over the national average. There is need only to consider the sectors of tobacco and rice crops, the raisers of beef cattle, industrial tomatoes, olive cultivations and citrus growers. For many of the enterprises in these specialized sectors the cuts could reach 50% in value of their direct payments at present. Taking into consideration that at the average national level of this assistance accounts for nearly 20% of Company Gross Margin it is easy to imagine that these drops in financial resources will not only diminish the ability of enterprises to invest but could even compromise their continuance.

There is thus only the option of seeing the glass half full, that is, considering that the levelling of assistance will lead to a redistribution of resources towards the less fortunate enterprises in the past or even exclude the allocation of direct payments, such as those for fruit and vegetable growers and vineyards and winemakers, without forgetting the million and-a-half euro more brought home for Italy for rural development, part of which can be earmarked for boosting the competitiveness of the nation's enterprises through the acquisition of technical equipment, machinery and instruments.