Further information : Modulation question & answers
What is modulation?
Modulation is the transfer of subsidy funds from Pillar 1 of the CAP (guarantee expenditure and single farm payments) to Pillar 2 (rural development and agri-environmental schemes)
How has the system of modulation changed?
Since 2005, modulation has been applied on a compulsory basis in all EU 15 Member States. This transfer of funds will amount to nearly €9bn across the EU 15 in the period up to 2013. This has been an important step towards improving the sustainability of the CAP across the EU.
In March 2007, the UK (together with Portugal) secured agreement to enable us to continue to levy an additional national rate of modulation, over and above the compulsory EU rate. Voluntary modulation has been permitted by European rules since 1999, up to a rate of 20%. Using voluntary modulation in England in the past (since 2001) allowed us to fund Environmental Stewardship, the Entry level of which is open to all farmers.
The EU legislation that will allow us to continue to put this in place - Regulation No. 378/2007 was published on 1 June 2007.
How will compulsory EU Modulation work?
A 4% rate of compulsory EU modulation was applied to subsidy payments in 2006 and a 5% rate will apply from 2007 onwards. All farmers will have the first €5000 of their payments effectively exempted from compulsory modulation; the appropriate sum will be repaid to farmers as an additional amount of aid.
How will the money raised by EU Modulation be shared out?
The proceeds of EU Modulation are shared out among EU-15 Member States on the basis of allocation criteria, set by the European Commission. A safety net provision means that no Member State will receive less than 80% of what is raised from its farmers.
Do the same rules apply to additional national modulation?
No. The first €5000 of farmers' payments will not be exempt from additional national modulation. However, there will be no redistribution of these funds: 100% of the funds generated in England will remain in England.
Why do we need an additional rate of national modulation?
The additional national rate in England is necessary in order to finance an expansion of our agri-environment schemes, and in particular to implement a new agri-environment scheme, Entry Level Stewardship (ELS), as recommended by the Policy Commission on the Future of Farming and Food. The ELS will be open to all farmers to apply. Through simple yet effective environmental management, it will deliver real environmental benefits over and above the levels that will be required under cross-compliance measures.
What will the overall rate of modulation be?
As mentioned above, the EU compulsory modulation will be 5% from 2007 onwards. This rate applies across all the old EU member states.
The rate of additional ‘voluntary’ modulation for Single Payment Scheme (SPS) 2006 payments was set under the old voluntary modulation regulation at 6%. The rate will be 12% for SPS 2007, 13% for SPS 2008 and then 14% for SPS 2009, 2010, 2011 and 2012.
Under European rules, receipts modulated in one year from SPS payments are made available for use on rural development funds in the subsequent year i.e. receipts generated from SPS 2007 will be spent in 2008.
Taken together, this gives the following overall modulation rates:
Year |
EU rate |
Additional |
Overall rate |
|---|---|---|---|
2007 |
5.0% |
12.0% |
17.0% |
2008 |
5.0% |
13.0% |
18.0% |
2009 - 2012 |
5.0% |
14.0% |
19.0% |
Will funds generated by modulation continue to be match funded?
EU ‘compulsory’ modulation will be co-financed at 50:50 for axes 1 and 3 and at 55:45 for axis 2.
From 2007, in England, 80% of voluntary modulation receipts will be spent on agri-environment measures under axis 2 of the Rural Development Programme for England. 10% of voluntary modulation receipts will be spent under Axis 1, and 10% under Axis 3. Voluntary modulation spent on Axis 2 measures will be co-financed at an EU: national ratio of 60:40. This means that for every €60 of voluntary modulation spent under axis 2, the Government will provide a further €40. It is estimated that over the period to 2012, this will result in a net increase in overall CAP spending in England of approximately €1 billion.
In Cornwall and the Isles of Scilly, (an EU designated convergence region) different co-financing rates will apply.
How has the additional national modulation rate been calculated?
The additional national modulation rate has been calculated to generate sufficient funds to bridge the gap between the amount generated by compulsory EU modulation and our funding requirements for agri-environment schemes.
Will the modulation rates be different in Scotland, Wales and Northern Ireland?
The rate of compulsory modulation is set by the EU and is therefore the same across all the UK regions However, the rules for additional voluntary modulation allow each administration in the UK to set modulation rates according to their own rural development needs and priorities.
What are the Devolved Administrations doing?
Scotland: There will be a total rate of 8.5% (4% compulsory + 4.5% voluntary) in 2006, 10% (5% + 5%) in 2007, 13% (5% compulsory + 8% voluntary) in 2008 and 13.5% (5% compulsory + 8.5% voluntary) in 2009.
Northern Ireland: There will be a total rate of 8.5% (4% compulsory + 4.5% voluntary) in 2006, 9.5% (5% compulsory + 4.5% voluntary)) in 2007, 11% (5% compulsory + 6% voluntary) in 2008 and 12% (5% compulsory + 7% voluntary) in 2009.
Wales: There will be a total rate of 4.5% (4% compulsory + 0.5% voluntary) in 2006, 4.5% (5% and 0.5%) in 2007, 7.5% (5% compulsory + 2.5% voluntary) in 2008 and 9.2% (5% compulsory + 4.2% voluntary) in 2009.
What are other EU Member States doing?
Under the new voluntary modulation agreement, only the UK and Portugal are permitted to apply voluntary modulation.
What impact will modulation have on farm businesses?
Farmers will be better off under CAP reform because of the economic benefits for them of decoupling. That will make the cost of modulation payments easier to bear. Modulated funds will be re-cycled through agri-environment schemes, including the Entry Level Stewardship, for which all farmers are eligible to apply, and also the former Countryside Stewardship, Organic Farming, and Environmentally Sensitive Areas schemes and their successors in Higher Level Stewardship. Importantly, modulation will also attract additional match funding from Defra's budget, so an increased rate of modulation means that there is more money available overall.
What did the Policy Commission recommend on modulation?
The Policy Commission on the Future of Farming and Food recommended that the Government should increase rates of modulation to 10% from 2004 with further increases to 20% if substantial CAP reform was not delivered.
Page published: 27 September 2007