11 Nov 2016
Risk Management central to Omnibus proposal and CAP 2021
Within the mid-term review of the EU’s multiannual financial framework for 2014-2020, key amendments have been proposed to the CAP under an ‘omnibus’ regulation. These proposals include offering member states flexibility in their definition of an active farmer, simplification of payments for young farmers, as well as to the rules for accessing loans under rural development programmes, and perhaps most interestingly, the introduction of a sector specific income stabilisation tool, aimed at addressing price volatility.
Since 2005 increased price volatility has left farmers uncertain about their incomes, an issue that is predicted to get worse in the coming decades. Rather than addressing the prices themselves (as was done in the past), the current CAP aims to compensate farmers for the negative effects of price volatility by stabilising income through direct payments as well as through risk management tools, such as insurance schemes and mutual funds.
These risk management tools are operated through rural development programmes in each member state, with 1.7 billion in EU funding allocated to them in the 2014-2020 period. However only a small number of Member States choose to introduce these mechanisms in their national programmes and Ireland was not one of them. The current options included Insurance schemes and mutual funds, which would cover production losses higher than 30% of the average annual production in the last 3 years, caused by diseases or climatic and environmental events, as well as a income stabilisation tool, a kind of mutual fund which covers income losses (rather than production losses) of higher than 30%, with a maximum compensation of up to 70%. However public funding cannot be used for the initial capital stock (only for the administrative costs of setting up the fund and for the contribution paid out to farmers) which limited their attractiveness in setting up. The current lack of uptake is therefore attributed to the difficulty in getting precise measurements on farm incomes and attracting a sufficient number of participating farmers.
These issues have been address to an extent in the new income stabilisation tool under the omnibus regulation to ensure it is a viable risk management option. Member states would have the ability to introduce this tool into their rural development programmes and target it to a specific sector to make it accessible and applicable to farmers in need. Under the scheme, compensation could be triggered when income drops lowers than 20% of a farmers average annual income in the preceding three year period. A public contribution to the initial capital stock would also be allowed, to help its establishment.
The Omnibus regulation must now pass through the European Parliament and Council who have the possibility to make amendments and approve or reject the proposal. It is expected to be ratified by December 2017 and to come into force on 01 January 2018.
This omnibus regulation proposal gives us an indication of the direction the Commission is thinking when it comes to the next CAP reform. A public consultation on CAP 2021 is expected to be opened by the Commission in December, followed by a paper outlining first thoughts on a basic framework before Summer 2017. Legislative proposals are then expected in 2018. It seems likely that risk management tools will be further developed and optimised in this future framework and we expect them to be central to the upcoming discussion.
By Alison Graham
European Affairs Executive