The Commission has been carefully monitoring the various effects of the current situation on the agricultural sector in close collaboration with the Member States, the European Parliament and stakeholders. We are all fully aware of the challenges.
As you know, we have taken a number of emergency measures in recent months.
- The crisis reserve was activated for the first time and allowed to support most affected farmers with an additional EUR 492 million complemented by almost EUR 1 billion of national co-funding;
- At the same time, the Commission adopted the Temporary Crisis Framework, to allow Member States to support their economies in the context of Russia’s invasion of Ukraine;
- In October the Commission adopted a 2nd amendment of the Temporary Crisis Framework to substantially increase thresholds for aid to up to EUR 250 000 for primary agriculture and more flexible support possibilities for companies and farmers affected by the increase in energy costs.
The Commission will continue to closely monitor the evolving situation in the coming weeks and months.
Inflation impact on CAP
Inflation affects all programmes under the MFF, including the CAP.
As regards income support under the CAP, the absence of a correction for inflation has always been part of the policy design, as agreed by the European Parliament and the Council. This contributes towards a more market-oriented CAP.
On the other hand the present inflation can impact prices of agricultural products, and therefore farmers’ revenues.
For the right response, we must therefore consider the combined effect of higher output prices versus higher input costs, as well as the loss of economic value of CAP subsidies.
The first estimates of farm income in 2022 published by Eurostat on 19 December show higher agricultural product prices, compensating to varies degrees the very large cost increases. Agricultural output value increased by 19% in 2022, gross value added by 16% and entrepreneurial income by 25%.
Our estimate suggests that the impacts of inflation differ substantially across type of farms and size.
The relative importance of energy and fertilisers in total input costs has increased from 19% in 2021 to 23% in 2022. However, the largest increase in input costs is observed for field crop (+23%) and permanent crop (+33%) farms, as these sectors are more exposed to fertilisers’ costs (from 21% to 25% of total input costs).
In the context of Rural Development, inflation is creating implementation difficulties as costs of projects increase with programmed support becoming insufficient.
This is the main reason for the lower-than-expected level of Rural Development payments in 2022. Member States are amending their programmes to reallocate funds between measures when relevant and possible.
Review of MFF
In the Letter of Intent of 14 September 2022, President von der Leyen confirmed that the Commission will present a mid-term review of the 2021-2027 MFF in 2023 – meaning earlier than the original 2024 date that the Commission had included in its 2020 declaration.
As you know, carrying out such a review is a voluntary initiative of the Commission, not a legal obligation.
The commitment for an MFF review is not a commitment to propose a revision, and at this stage, it is too early to speculate or foresee any such initiative.
We will need to assess our options carefully, bearing in mind that the long-term budget agreed in 2020 lasts until 2027: it must be able to support the Union’s priorities and react to new challenges over the next four to five years.
Nevertheless, we cannot ignore that since the adoption of the 2021-2027 MFF and Next Generation EU in December 2020, new and unexpected challenges, and in particular Russia’s war of aggression against Ukraine bring significant pressures on the EU budget.
The questions underpinning the review will in large part have to take into account the new and foreseeable challenges as well as the implementation so far. Finding a strong and common response in this challenging environment requires a profound reflection about the future of the EU budget and our joint efforts, as Europeans.
The Commission will carefully assess the sustainability of the expenditure ceilings and sub-ceilings of the MFF 2021-2027 because the EU budget must continue enabling us to deliver on our policy priorities.
Please keep in mind that a revision of the MFF Regulation would require reaching a unanimous agreement in the Council and the consent of the European Parliament, which is generally a lengthy and difficult process. A revision of the MFF Regulation would not apply retroactively.
As the high level of inflation (well beyond the fixed 2% deflator used when establishing the budget) is reducing the real value of MFF expenditure, we are now using existing flexibilities in the EU budget to minimize the impact of high inflation and higher Next Generation EU financing costs, to ensure that EU support achieves its objectives.
Stronger CAP budget
At the end of 2023, the Commission will publish a first report to assess all CAP Strategic Plans.
In principle, I support a stronger budget for the CAP, due to its importance for:
- food security,
- farming and rural communities,
- and environmental protection.
It is of crucial importance that CAP support provides sufficient incentives for producers to remain compliant with the growing and costly obligations.
We cannot prejudge the next Commission/legislature/MFF and the consultation of stakeholders, but strategic elements to be taken into account in any long-term reflection must be:
- food security;
- sustainable development in all its dimensions, including climate change mitigation and adaptation;
- Resilience in the face of more challenging crises;
- Economic viability of farms.
Thank you.
