Decoupling of direct aid to olive oil producers under the singal payment scheme (Alento)

Editor's note 6Jun14: Sources D142-4

The decoupling of direct aid to olive oil producers under the Single Payment Scheme (SPS) follows the general EU CAP goals. In considering the application of SPS to the olive oil sector, special attention was paid to the socio-economic role of olive oil farming to EU Member States as the EU is the largest producer and consumer of olive oil in the world as well as olive farming’s environmental role in maintaining cultural landscapes.

The formulation of agricultural policy for Italy, as for all EU Member States, comes directly from the EC through the Common Agricultural Policy. Thus, the Single Payment Scheme for olive producers was introduced under EC Council regulation no.1782/2003 and became effective starting from the 2005/06 harvest.

The main policy implementer is the Italian Ministry for Agricultural and Forestry Policies (MIPAF) as the competent national body defining “good environmental conditions” (GAEC) After Ministerial Decree (2004) a two level system was introduced: the national government would provide a general framework for the regulation, in particular the obligations concerning the statutory management requirements and GAEC, while the regional governments would be able to define more precise standards for GAEC.

Various agents acts as intermediary implementers of the SPS, including the national paying agency for agriculture, regional councils and provincial level administrative offices as well as the formal and intermediary implementers of cross-compliance measures.

The 2003 reform of CAP was based on four principal policy instruments:

1. Establishment of Single Payment Schemes to replace most existing direct aid payments, resulting in subsidies that are decoupled from production.
2. Cross-compliance measures making the granting of aid dependant on good farming practices, environmental condition of land, animal health and welfare and food safety. minimum requirements for good agricultural and environmental conditions are defined by Member States.
3. Compulsory mechanism to reduce all payments exceeding 5,000 euro per year by a fixed percentage “modulation”.
4. A financial discipline mechanism to ensure that the amounts agreed upon for the financing of Pillar I of the CAP are not exceeded in any year.

“Payment entitlements” are granted by the Ministry for Agriculture and Forestry (MIPAFF), in the general context of “national ceilings” of aid set at EU level, based on average amounts of direct payments to farmers over the reference period from 1999-2002 (or 1999-2003 for olive farmers). Italy chose a fully decoupled historic model to calculate entitlements: each farmer is granted payment entitlements based on the average amount received for the reference period and the average number of hectares farmed during that period under any of the former coupled support schemes (the reference area). Italian olive farmers were to receive 95% of average production linked-payments received in reference years from 1999-2003 with the remaining 5% allocated to officially recognized olive Producer Organization (PO) for financial support for quality, traceability, market and environmental programs.

Further changes under the 2009 Health Check included strengthened decoupling, increased modulation and division of cross-compliance measures into mandatory and optional categories. Member States have been strongly encouraged, though not legally obligated, to move their SFP model towards a flat-rate per hectare payment per region and away from the historically-based model that some Member States, including Italy, had implemented.

Therefore, two options are currently available to Italy: “regionalization” (splitting the national budget ceiling amongst yet to be defined “regions”) and varying degrees of “approximation” (reduction of disparities by giving the same value of entitlements to all farmers at a yet to be defined by Member States “appropriate geographical level” and/or institutional and administrative structure/regional agricultural potential). Both options seem to lead to significact income reduction for olive farmers.

Implementation, impacts, effectiveness

The main policy implementer is AGEA as Paying Agency. At regional and local levels, CAAs (Centro di Assistenza Agricola) act as intermediaries between farmers and AGEA. Applications for direct payments are made to a local CAA which prepares, validates and forwards applications for payments. There are five CAA offices in the Campania region making support for EU payments applications accessible to all farmers within the region. AGEA is also responsible for the implementation of the control system of SPS schemes (spot checks) as well as applying sanctions for breaches in cross-compliance.

In addition to the general framework of national statutory management requirements for GAEC, each region has produced a list of relevant issues for soil protection and minimum level of maintenance to include in GAEC. Specific standards for olive farming in the Campania region include minimum pruning timetables and minimum maintenance of olive groves with the removal of potentially damaging brush or other infesting vegetations. 

Interviews highlighted that one of the principal problems facing olive farmers is the high costs of production due to the impossibility to mechanically harvest olive trees on such hilly terrain.  Given the relatively low profitability of olive production in the study site due to the costs and limitations imposed by the natural landscape, stakeholders have confirmed that the security of constant income support irrespective of production levels since decoupling has  provided study site olive farmers with an incentive to  reduce if not cease production. As a result, stakeholders also confirmed that there has been a growing abandonment of olive groves in the study area, thereby evoking serious environmental concerns e.g., the collapsing of terraces because of a lack of maintenance, causing significant soil erosion and threats to slope stability. The introduction of the SPS in Alento is seen to have increased abandonment of olive groves.

With regard to cross-compliance, despite computerized systems to cross check applications and computerized aerial photography systems, policing remains incredibly challenging. Even once infractions have been identified, sanctions (applied after warnings) represent a small percent of subsidies, not acting as deterrents.  In areas such as Alento, where commercial olive growing is now uneconomic, it is essential that investments be directed towards the increased mechanization of olive farming, avoiding the need for replanting age old olive groves.

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