RMI(11)9833:8 Brussels, 20 A pril 2012 THE COMMON AGRICULTURAL POLICY AFTER 2013 - RISK MANAGEMENT TOOLS - The reaction of EU farmers and Agri-Cooperatives to the Commission s legislative proposals concerning insurance and mutual funds as part of the risk management tools Copa - Cogeca European Farmers European Agri-Cooperatives 61, Rue de Trèves B - 1040 Bruxelles www.copa-cogeca.eu EC Register Number Copa 44856881231-49 Cogeca 09586631237-74
I. INTRODUCTION 1. This paper on insurance and mutual funds represents a more detailed reaction 1 to the positioning of Copa-Cogeca as a reaction to the legislative proposal of the European Commission for the Common Agricultural Policy (CAP) post 2013. 2. In recent years, European farmers and European agri-cooperatives have faced a significant increase in risks, mainly due to: a more market-orientated agriculture which has emerged as a result of the CAP reforms since 1992; higher market volatility, caused by an increasingly open EU market and international trade flows; greater exposure to new animal and plant diseases, caused by increased international movement of people and goods, and; an increased frequency of extreme weather events as part of climate change. 3. Although Copa-Cogeca recognises that direct payments are still considered an essential measure for supporting farm income, a wide and effective range of risk management tools within the CAP post 2013 should be available to farmers in the European Union. This would help to better deal with market volatility, serious consequences of animal and plant disease outbreaks, as well as weather extremes. Such tools should be a complement to the existing system of direct payments and market management measures, and, under not circumstances, represent a replacement. The current EU Veterinary Fund should be maintained and its activity must be assured in future, as indeed should the current measures within the single CMO. 4. Insurance and mutual funds within the second pillar of the CAP should aim at stabilising the economic situation of farms without distorting trade and competition between farmers from different MSs. They should always remain flexible to coexist alongside state aid (current Reg. 1857/2006), and be characterised by consistency and simplicity. Implementation both at MS level and by individual farmers must be voluntary. 5. New risk and crisis management instruments within the second pillar of the CAP post 2013 must allow the current instruments in Member States to be maintained. Moreover, it should be still possible for Member States, who so choose, to use any un-used funds within the CAP (first pillar) to finance risk management tools. It is essential for the interests of farmers and their agri-cooperatives to be at the centre of any kind of insurance system. They should be the only beneficiaries of these instruments and should be able to benefit from them. 6. Agri-cooperatives and other types of producer organisation, as well as farmers organisations and interbranch organisations, should play a stronger role in taking out insurance contracts and setting up mutual funds; this possibility is yet to be fully explored. Although the scope of producer organisations differs between Member States, the idea of a collective approach should be given further consideration. 7. The European Commission in the CAP proposal post 2013 has presented a new risk management toolkit which is in part based on the existing crop, animal and plant insurance (art.70 of Reg. 73/2009, now art. 38 of the new CAP proposal) and mutual funds for animal and plant diseases and environmental incidents (art.71 of Reg. 73/2009, now art.30 of the new Reg.73/2009). In addition, they also propose a new income stabilisation tool (art. 40 of the new CAP proposal) in the form of mutual funds to address income volatility. 8. The repositioning of the current risk management measures and the introduction of the additional voluntary income stabilisation tool within the second pillar of the CAP are welcomed. However, Copa-Cogeca is disappointed that its own specific proposals both to strengthen the existing risk management tools, as well as to overcome a series of practical problems of implementation, have not been taken up by the European Commission. 1 The overall reaction of European farmers and European agri-cooperatives to the Commission s legislative proposals on the future CAP can be found on Copa-Cogeca s website www.copa-cogeca.eu 2 5
9. Use of the different tools within the risk management toolkit should be made available in a more complementary manner. Such approach should allow farmers to benefit from a wider range of tools which could cover different risks, be they economic, climatic, sanitary, etc. Moreover, if the 30% threshold is only to apply to the share eligible for a publically-financed contribution, a complementary financial contribution, on a private basis, should be allowed under the 30% threshold. II. CROP, ANIMAL AND PLANT INSURANCE 10. The eligibility criteria in the new CAP proposal remain unchanged and existing problems remain unsolved. Measures must be revised, ensuring that they are market orientated, stabilise farm income and do not distort competition between farmers from different MSs. 11. As has been shown even by insurance systems outside the EU, the 30% threshold as the eligibility criterion for a financial contribution is clearly too high and discourages farmers from employing risk management tools. Copa-Cogeca has asked on several occasions for the existing criteria to be improved in order to facilitate on-farm assessment of production loss. This should be done by: a. Including the possibility of using biological (quantity of biomass) or weather indexes (quantity of rainfall, temperature, etc) external to the farm which are developed at local, regional or national level to further assess production losses experienced at farm level within a suitable and prompt timeframe. This may be useful in cases where it is difficult to carry out an assessment of production loss (e.g. permanent pasture); b. Ensuring that the eligibility criteria can be tailored to the specific characteristics of each type of product or type of farm. It is often the case that a lack of threshold values on average yearly production puts small and medium farms at a disadvantage since in the majority of cases they do not have exact records of their performance. This is often the case in short life-cycle fruit production; c. Allowing the calculation of the economic loss in terms of the equivalent yield loss in a specific year. Market prices for certain crops may change rapidly over the year. Damages should be calculated by private insurance companies by investigating the raw harvest yield loss per vegetation period where farmer s accounts are not available; 12. Copa-Cogeca believes the list of animal diseases currently covered by the scheme should be extended to include new diseases (e.g. bee diseases). This would increase MS interest to implement this provision nationally. 13. Copa-Cogeca welcomes the new possibility to cover losses caused by measures adopted in accordance with Directive 2000/29/EC to eradicate or contain plant diseases or pests in the European Union. However, within the ongoing revision of the Community Plant Health Regime, this new option must not hinder the possibility of expanding the existing Solidarity Fund to cover direct losses incurred by farmers 2. Moreover, for all plant disease or pests covered under this specific measure, it should be considered whether the existing 30% threshold would really constitute an incentive for farmers to eradicate or contain a plant disease or pest and thereby prevent further spread across the rest of the European Union. 14. Examples and further information on how this scheme is practically applied are needed at EU level to further stimulate MS interest in implementing this provision. III. MUTUAL FUNDS FOR ANIMAL AND PLANT DISEASES AND ENVIRONEMTNAL INCIDENTS 15. Mutual funds for animal and plant diseases and environmental incidents have been slightly readjusted in the new CAP proposal, as compared to the existing measures (art. 71 of Reg. 73/2009). 2 The current solidarity fund compensates only eradication/monitoring measures adopted by competent authorities to control harmful organisms on their national territory. 3 5
16. Copa-Cogeca is disappointed to see that the new proposal does not cover risks caused by extreme weather events (e.g. droughts, floods, excessive rainfall, frost, hail, heat waves, storms, etc.). 17. Mutual funds could, under certain circumstances, be a useful tool for allowing farmers or groups of farmers to manage their own risk, although in certain situations it can be difficult to address catastrophic economic losses. 18. It should be possible to complement mutual funds with insurance systems in view of a more effective on-farm risk management, especially with regard to reinsurance; 19. The financial contributions to mutual funds under the current proposal apply to the administrative costs of setting up the mutual fund, the amounts paid by the mutual fund as financial compensation to farmers, and the interest on commercial loans taken out by the mutual fund for the purpose of paying financial compensation to farmers should a crisis occur. 20. Copa-Cogeca believes that it should also be possible for a financial contribution to be received towards the capital on commercial loans taken out by the fund in order to pay financial compensation to farmers in the event of a crisis, as laid down under the current art.71 of Regulation 73/2009. 21. Examples and further information on how mutual funds within the CAP framework could be implemented, should be made available at EU level. This, together with a more flexible approach to implementation, would possibly further encourage Member States to use these risk management instruments. IV. INCOME STABILISATION TOOL 22. Copa-Cogeca sees the voluntary income stabilisation tool proposed under the second pillar of the CAP post 2013 as a sensible instrument for certain regions of Europe. Such an instrument, however, cannot guarantee farm profitability. It must not be a replacement for the existing system of direct payments and market management measures. 23. For certain regions of Europe, a new income stabilisation tool, in the form of a mutual fund, is welcomed. However, management of economic risks should also be possible through insurance contracts. Provided that both insurance and mutual funds are well defined, they could be used in a complementary manner to extend the risks covered and ensure better management of economic risks on farms. 24. Implementation must be on a voluntary basis, for both MSs and individual farmers. The EU framework should be well structured and monitored at EU level and should not distort trade and competition between farmers from different Member States. However, due to the heterogeneity of the risks and agricultural structures in the EU, the system should allow flexibility for the application of this tool, allowing Member States to adapt the specific tools to their reality, choosing the most suitable solution according to their specific needs. 25. Certain guarantees are needed for those farms without proper farm-related data. This should not prevent implementation at farm level; 26. When discussing an EU wide system of risk management tools, in order to keep premiums to a low and acceptable level, it might be important to consider the feasibility of introducing public-private reinsurance between Member States as a public reinsurer, and private harvest and reinsurance providers in the European Union. Whether or not such a framework would significantly encourage the development of a better and more diversified market of insurance products should be carefully analysed, looking also at how farmers could further benefit from it. 4 5
IV. FINANCING RISK MANAGEMENT TOOLS WITHIN THE CAP PROPOSAL 27. Copa-Cogeca would emphasise that it is important to continue providing public contributions to insurance premiums and mutual funds on an annual basis. Farmers are required to pay their own premium in order to fulfil their contractual agreement and have their risk cover guaranteed. Moreover, because of market volatility and the variability of risks over different years, multiannual management of resources should be possible for mutual funds. 28. A regional approach, as is often taken for rural development programmes, should not lead to an increase in insurance premiums or affect the sustainability of mutual funds which are often set up across regions. It is often the case that in order to keep insurance premiums at a reasonable level or ensure the operability of mutual funds, the risk is spread over a wide geographical area, where damages occur in varying frequencies and dimensions. If needed, Member States should be able to submit for approval a national programme with dedicated budgetary allocation to implement risk management measures. V. COMMON ORGANISATION OF THE MARKETS IN AGRICULTURAL PRODUCTS (SINGLE CMO REGULATION) 29. Copa-Cogeca welcomes subsidies for insurance premiums for weather related disruptions to the production of fruit, vegetables and wine within the Single CMO. Existing measures need to be improved and made available to all farmers. 5 5