Performance at the heart of the new Common Agricultural Policy

For decades, agriculture has played a pivotal role in the EU’s agenda — particularly on it as a share of and it will continue to do so for decades to come. The farming sector needs to face emerging challenges related to food security, rural development, environment and climate importance with regard to. Consequently, expectations have increased when it comes to the performance of agricultural policies, and this is what sets aside the new Common Agricultural Policy (CAP) from the previous ones. Mihail Dumitru, as Deputy-Director General in DG AGRI, European Commission and responsible for direct payments and rural development policies and one of the negotiatiors of the CAP reform, explains how enhanced performance will be achieved without decreasing effectiveness in protecting the EU budget and ensuring sound financial management and to.

By Mihail Dumitru, Deputy-Director General for Agriculture and Rural Development. European Commission

A new governance to shift from compliance to performance

The Common Agricultural Policy (CAP ) needs to sharpen its responses to new challenges and opportunities. A fast-changing global economic context, an urgent need for climate action and better management of natural resources, as well as new demands and higher expectations from society at large, require a different agricultural policy from the one we have today. In the context of the European Green Deal, the CAP must be instrumental in managing the green transition towards a sustainable food system socially, environmentally and economically, and in securing the contribution of the EU to the Sustainable Development Goals. The agreed budget of more than €380 billion for the 2021–2027 period confirms the strategic role that food, farming and rural areas play in today’s European agenda.

To deliver on these challenges, the CAP also needs to streamline its governance, modernise its delivery model and shift towards a more performance-oriented policy. The current CAP relies on detailed requirements at EU level, which have increased over time and apply to all beneficiaries. These rules are often very complex and prescriptive, right down to farm level. In the Union’s highly diversified farming and climatic environment, however, neither current top-down nor one-size-fits-all approaches are suitable to delivering the desired results and EU added value effectively. To address these challenges, the European co-legislators have agreed on a new and modernised governance for the CAP, based on a new concept: the CAP Strategic Plans.

As of 2023, and for the first time in the history of the CAP, the most significant support instruments (in budgetary terms) implemented in the same territory will be brought under a single programming instrument. This is a key step towards guaranteeing a more consistent approach in the design and implementation of the different CAP instruments, in particular between what are known as the first pillar (direct payments and sectoral support) and the second pillar support schemes (rural development).

Under this new governance, the EU is reducing the level of prescription and moving the focus to achieving objectives and to performance, while Member States bear greater responsibility, being accountable as to whether they achieve the objectives and meet agreed targets (see Box 1). At the same time, this new way of working maintains core mandatory requirements, to guarantee that a common ambition is respected across Member States.

Box 1 — The new ‘Green architecture’ of the CAP in practice

First, set of requirements defined at EU level, common across the Member States:

• a set of basic mandatory good environmental practices to farmers (i.e. obligation to protect wetlands and peatlands, crop rotation, share of land devoted to non-productive features…);

• minimum expenditure to actions benefiting environment and climate (voluntary for farmers):

25 % of the direct payments (eco-schemes);

2. 35 % of the EAFRD;

3. sectorial interventions: 15 % for fruit and vegetables and 5 % for wine;

Second, the Member States will:

• carry-out a SWOT analysis and analyse their specific needs on the environmental and climate, in consistency with the climate and environmental legislation;

• define the specific interventions tailored to the specific problems and propose targets in the draft CAP Strategic plan;

Third, the European Commission will:

• assess the ambition of each CAP Strategic Plan and send observations to the Member States;

• approve the CAP Strategic Plans; and

• monitor performance of CAP Strategic Plans.

Programming approach based on analysis and a common set of objectives and indicators

The legal framework for the new CAP has established a common set of general and specific objectives defined at EU level. The specific objectives, defined in a way that integrate the three dimensions of sustainability, are the entry point for the design of each of the future national CAP Strategic Plans.

A clear strategic approach is embedded in the design of the future CAP Strategic Plans:

• firstly, Member States will assess the needs of their agricultural sector and rural areas against the specific objectives of the CAP, based on a territorial and sectorial SWOT analysis, identifying Strengths, Weaknesses, Opportunities, and Threats. Thus, policy choices defined in the CAP Strategic Plans will be based on evidence. Such analysis will lead to the setting of ambitious targets for the period, using a common set of result indicators;
• secondly, based on this analysis and target setting, they will design and develop the interventions (notably the eligibility criteria and support rates) together with corresponding budget allocations to address their needs and to contribute to specific common objectives.

Subsidiarity in the design of the interventions will make it possible to better take into account national/regional conditions and needs. While maintaining current governance structures — that must continue to ensure effective monitoring and control of the attainment of all targets — the Member States would also have a greater say in designing the compliance and control framework applicable to beneficiaries (including controls and penalties).

To enhance EU added value, ensure ambitious and compliant strategic plans that guarantee the level playing field that will preserve a functioning internal market for agri-food products, the new CAP Strategic Plans will be assessed and approved by the European Commission. This is a key step towards maximising the contribution of the CAP to the EU’s priorities, including the European Green Deal.

Monitoring progress, steering policy implementation and assessing performance

A shift towards a more performance-oriented policy requires the establishment of a solid performance framework based on a set of common indicators, which are reliable, comparable and available on time.

The new Performance Monitoring and Evaluation Framework (PMEF) of the CAP improves the previous framework by integrating all the instruments of the CAP under a single common monitoring framework and introducing quantified targets for all result indicators. Furthermore, previous concerns about the quality of the data available have been taken into consideration both in the selection of the indicators and the establishment of the reporting obligations by Member States (i.e. introduction of new legal basis for statistics, certification bodies will ensure the quality of the data before the data is sent to the Commission). In areas where indicators are weak, such as for biodiversity, projects have been launched to improve them.

Based on the experience from the previous programming period and constructive exchanges with Member States and the European Parliament, the monitoring and performance of the new CAP will rely on 38 output indicators, 44 result indicators,

30 impact indicators and 49 context indicators. The targets for each CAP Strategic Plan will be established for the whole programming period at result indicator Level.

Mechanisms to monitor and assess performance will be strengthened, with annual reporting obligations by Member States: every year, the Commission will analyse the reporting on performance, which will include both the output achieved and expenditure as well as progress towards the targets set for the whole period. The assessment of those reports will trigger interaction with Member States with a view to helping them to implement the planned policy in an efficient way. The Commission will play a supporting role by facilitating exchanges on good practice and providing pertinent recommendations to Member States. Furthermore, a full performance review exercise will be carried every second year, which can lead to formal requests to Member States to take action to improve performance and which could potentially entail financial penalties (such as suspension of payments) for the financial years 2024 and 2026.

On top of these exercises, Member States will also be responsible for evaluating their CAP Strategic Plans while the Commission will provide a synthesis of the Member States ex-ante and ex-post evaluations and will carry out additional evaluation activities at EU level. An interim evaluation is planned for 2026, as well as specific reports to assess the contribution of the CAP Strategic Plans to the ambitions of the European Green Deal, as defined in the Farm to Fork Strategy and the Biodiversity Strategy.

Last but not least, the new CAP also provides for a set of core indicators to enable specific annual reporting at EU level in the context of the performance framework for the EU budget under the 2021–2027 Multiannual Financial Framework. The establishment of this set of core indicators will allow for a transparent and effective dialogue on CAP performance between the Commission and the other EU institutions, including the European Court of Auditors.

A new assurance model, which is evolving from compliance at beneficiary level towards performance at MS level

The CAP is implemented in shared management by the EU and the Member States. The existing CAP governance bodies set up in the Member States, notably the accredited paying agencies and certification bodies, have shown their effectiveness in protecting the EU budget and ensuring sound financial management and reasonable assurance.

The new CAP delivery model acknowledges this situation by keeping these governance bodies in place while conferring more flexibility, but also more responsibility, on Member States in deciding and managing the control systems. In this context, EU legislation will provide for a general set of rules for Member States: for example, keeping the Integrated Administrative and Control System (IACS) in place with the Land Parcel Identification System (LPIS) and an Area Monitoring System (AMS) as well as establishing anti-fraud measures and dissuasive penalties. Member States will create the legal arrangements applicable to individual beneficiaries.

In line with the ‘budget focused on results’ approach, CAP strategic plans will be assessed in relation to their expected performance; payments will be granted on the basis of outputs achieved, in order to reach the pre-established result targets. Thus, the CAP will link the eligibility of EU financing to the actual achievements on the ground, while respecting EU-level governance systems, including accredited paying agencies. In addition, the certification bodies must provide the necessary assurance that the governance structures are in place, the EU rules have been respected at Member State level and the reporting systems are reliable.

The Commission will check that the governance structures set up in the Member States are functioning effectively, will reimburse the payments incurred by the accredited paying agencies and will clear the accounts by assessing that the declared expenditure corresponds to the achieved outputs reported by the Member States. A key novelty in that process will be the annual performance clearance: this new exercise will determine, for each paying agency, the expenditure to be reimbursed to the Member State during the financial year against the outputs achieved during that same period, as per the CAP strategic plan. The annual financial clearance will remain as in the current model, and will solely concern the accuracy, veracity and correctness of the accounts in financial terms.

In line with the Financial Regulation, the single audit approach will be fully applied to the CAP. This means that the Commission will take assurance from the work of the certification bodies where it is considered reliable, based on its audits. The focus of the Commission’s audits will be the Member States and their systems, still applying the single audit principle. In addition, based on an assessment of risk, the Commission may check if the Member States have implemented the CAP plans as approved by the Commission. In contrast, it will be a Member State responsibility to check whether the beneficiaries respect the eligibility rules set at national level.

The three elements controlling eligibility under the new CAP — accredited paying agencies, properly functioning governance systems and expenditure linked to outputs — will continue to provide solid assurance on CAP expenditure, as in the current system.

The way forward

After three years of inter-institutional discussions, the legal framework for the new CAP has been agreed between the co-legislators. As the Commission had proposed in 2018 and as amended by co-legislators, the new CAP will be fairer, greener and more flexible. The increasing emphasis placed on performance by the European Parliament, the Council, the European Court of Auditors and the Member States has helped the Commission build a new governance system based on a modern and strong performance framework, which aims to boost the effectiveness of CAP expenditure.

In the next months, Member States need to draft the CAP Strategic Plans and submit them to the Commission at the end of 2021. Then the Commission will assess and approve them before 2023. Afterwards, a new implementation period will start, while certain elements of the current CAP will still run until 2025. This transition period will require important efforts from all actors involved in implementing the new CAP and will require good cooperation among the EU institutions in order to ensure the performance-oriented culture becomes fully integrated in the CAP.

This article was first published on the 2/2021 issue of the ECA Journal. The contents of the interviews and the articles are the sole responsibility of the interviewees and authors and do not necessarily reflect the opinion of the European Court of Auditors.