Aims of income support for farmers
The European Union provides farmers with income support or 'direct payments' to:
- function as a safety net and make farming more profitable;
- guarantee food security in Europe;
- assist them in the production of safe, healthy and affordable food;
- reward farmers for delivering public goods not normally paid for by markets, such as taking care of the countryside and the environment.
Farmers generally receive income support based on their farm’s size in hectares. All EU countries have to offer a basic payment, a payment for sustainable farming methods ('greening') and a payment for young farmers. As it is compulsory for EU countries to provide these payments, they are often referred to as obligatory payments.
Additionally, EU countries can choose to offer other payments that focus on specific sectors or types of farming. There are specific schemes designed to help small and medium sized farms, young farmers, farmers who operate in areas of natural constraint and/or sectors undergoing difficulties.
New CAP: 2023-27
In June 2021, following extensive negotiations between the European Parliament, the Council of the EU and the European Commission, agreement was reached on reform of the common agricultural policy (CAP). The new CAP will begin on 1 January 2023.
Under the new CAP, changes will be made to the existing income support system, with measures being taken to ensure a fairer distribution of financial support for farmers and workers across the EU. Until 2023, current income support measures will continue, in line with the provisions of the CAP transitional regulation.
Linking support to respect for rules
The EU links the majority of income support for farmers to two main criteria.
- The farmed hectares, not the quantities produced. Farmers have to respond to market demands in order to increase profit. Decoupling (delinking) payments from the quantity produced avoids 'food mountains' such as those the EU faced in the late 1970s and 1980s.
- Respect for the environment, plant health, and animal health and welfare, contributing to sustainable agriculture. This is referred to as 'cross compliance'. Farmers not complying with EU rules can see their payments reduced or stopped entirely.
Why farmers need support
The average farm income remains significantly below average incomes in the rest of the EU economy.
Farming is a risky – and often costly – business. Agriculture is more dependent on the weather and climate than other sectors. There is an inevitable time gap between consumer demand and farmers being able to increase supply as growing more wheat or producing more milk takes time and investment.
EU farmers are under pressure from increasing global trade in food products and trade liberalisation. Developments in global markets increase competition, but also create new opportunities for the European agri-food sector. Additionally, globalisation and fluctuations in supply and demand have made agricultural market prices more volatile in recent years, adding to farmers’ concerns.
These business uncertainties in agriculture justify the important role the public sector plays in ensuring a safety net for farmers’ income.
Income support in practice
Each year farmers have to submit an aid application declaring all the agricultural parcels on their holding.
While the rules governing income support are set at EU level, each EU country implements them on the ground. National authorities are responsible for the administration and control of income support to farmers in their country ('shared management').
Within the EU legal framework, each country also has a certain level of flexibility in the way they grant these payments, to take account of national farming conditions, which vary greatly throughout the EU. In line with EU transparency rules, national administrations have to publish the beneficiaries of CAP payments.
Conditions for support
In order to receive income support, farmers need to respect several eligibility conditions
As a general rule, farmers must fulfil a number of criteria.
- Their farm must be located within the EU.
- Minimum requirements to receive income support must be met. Income support is not granted for amounts lower than €100 to €500 (depending on the EU country) and/or where the eligible area is less than 0.3 to 5 ha.
- They must perform an agricultural activity (production, rearing or growing of agricultural products, etc. or maintaining land in a good agricultural state) on agricultural area (encompassing arable land, permanent crops and permanent grassland) that is at their disposal.
- They must meet the definition of an 'active farmer'. The new CAP contains a mandatory but flexible definition of an active farmer which relates to minimum levels of agricultural activity, lists of ineligible economic activities, pluri-active and part-time farmers, and reduction of the administrative burden.
- In EU countries operating the basic payment with a payment entitlements system, a farmer needs payment entitlements to access decoupled income support payments.
Level of support available
Income support benefits nearly 6.3 million farms throughout the EU and often represents an important share of agricultural income. On average, over the last 10 years, income support represented nearly half of farmers’ income.
The level of income support may vary considerably from one farm to another, from one EU country to another or from one region to another.
The EU operates a mechanism called ‘external convergence’ which aims to progressively adjust income support payments per hectare in each country, either upwards or downwards, to bring them closer to the EU average level.
Currently, this means that in EU countries where the average payment is below 90% of the EU average, it is increased by one-third of the difference between their current rate and 90% of the EU average. In countries where the average payment is higher than the EU average, the amounts are adjusted downwards.
Under the New CAP, which will begin in January 2023, EU countries where the average payment is below 90% of the EU average will see an increase in their budget of up to half of the difference between their current rate and 90% of the EU average. Payments will be at least EUR 200/ha in 2022 and increase to EUR 215/ha in 2027.
The cost of income support
In 2018, the EU budget provided €41.74 billion in income support. This was taken from the budget of the common agricultural policy.
The following rules govern EU income support in agriculture.
- Rules on income support to farmers (EU Regulation 1307/2013, EU Delegated Regulation 639/2014, EU Implementing Regulation 641/2014)
- rules on management, financing and monitoring of the common agricultural policy (EU Regulation 1306/2013, EU Delegated Regulation 640/2014, EU Implementing Regulation 809/2014)