• The European Parliament and Council are finalising the rules for a transitional EU farming policy in 2021-22
• Direct payments and rural development funding will broadly continue under the same terms
• €8 billion in COVID-19 recovery aid will be released during this two-year period

On 1 December, members of the European Parliament's Agriculture Committee (AGRI) endorsed the informal deal reached with the Council last week on how the EU's Common Agricultural Policy (CAP) should be extended until the end of 2022. The text was approved by 40 votes in favour to three against.

The vote took place one day after the permanent representatives of the member states (COREPER) gave the green light to the transitional rules, which are needed to bridge the gap with the next EU farming policy, on which there is no agreement yet.

The text now needs the formal approval from the Council of EU agriculture ministers and all MEPs before it can enter into force. The Parliament's plenary vote is scheduled for 14-17 December, while the next AGRIFISH Council takes place on 15-16 December.

The draft rules set out to extend the existing measures for 2014-2020 to ensure that direct payments to farmers (Pillar 1) and rural development support (Pillar 2) can continue uninterrupted. The aid for the outermost regions (POSEI) and smaller Aegean islands (SAI) will also be maintained at current levels, while the negotiators agreed to prolong the exceptional rural development support to farmers affected by COVID-19 by six months.

Some EU countries will also be allowed to extend transitional national aid (TNA) - extra income support to farmers in specific areas - until the end of 2022. The Commission wanted to eliminate these subsidies, but Central and Eastern European member states such as Bulgaria, Hungary and Romania fiercely advocated for the continuation of the payments.

Meanwhile, EU member states will have the option to improve farmers' access to the risk management instruments by lowering the threshold for compensations for income losses from 30% to 20%. These losses may be caused by adverse weather events or outbreaks of animal or plant diseases.

They will also have to keep the CAP's level of ambition on the environment and climate objectives intact under a "no backsliding principle" and contribute to the European Commission's new Green Deal objectives.

The agreed text covers the second draft regulation proposed by the European Commission in October 2019 to ensure a smooth transition to the next CAP. The Parliament and Council already accepted the firstset of more technical rules in December 2019 and January 2020 respectively.

Budget pending

The exact funding for the transitional measures will depend on the next EU budget for 2021-27, which the Council and Parliament have a provisional agreement on but still need to formally approve the financial figures.

However, the transition rules already incorporate a deal to release the EU's COVID-19 recovery aid earlier to farmers, food processors and rural areas than originally planned. This would see the bloc pay out 30% of the foreseen €8.07 billion to the sector in 2021 and 70% in 2022.

At least 37% of these recovery funds should also go to organic farmers, environment and climate actions, and animal welfare, while a minimum of 55% needs to support young farmers and on-farm investments.

The money is part of a financial instrument called Next Generation EU (NGEU), whose goal is to mobilise €750 billion from financial markets to help the bloc's economy recover from COVID-19.

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.