Address https://gelex.eu/eli/EU/doc/http://publications.europa.eu/resource/cellar/fbf7d2e4-b0cd-43c6-98b6-47f895ef8ada.0006.01@2016-04-05/en

Contents

1. Preamble
2. ANNEX
3. ANNEX I MEMBER STATE CHOICES FOR THE IMPLEMENTATION OF EU DIRECT PAYMENTS
4. ANNEX II CALCULATION OF AGRICULTURAL INCOME AS DEFINED UNDER THE EAAS
5. ANNEX III CALCULATION OF INCOME IN THE FRAMEWORK OF THE FADN
6. ANNEX IV COMMISSION PERFORMANCE INDICATORS FOR ASSESSING THE CAP
7. ANNEX V Quality criteria applying to European statistics

The ECA’s special reports set out the results of its performance and compliance audits of specific budgetary areas or management topics. The ECA selects and designs these audit tasks to be of maximum impact by considering the risks to performance or compliance, the level of income or spending involved, forthcoming developments and political and public interest. This performance audit was produced by Audit Chamber I — headed by ECA Member Augustyn Kubik — which specialises in preservation and management of natural resources spending areas. The audit was led by ECA Member Rasa Budbergytė, supported by the head of her private office, Tomas Mackevičius, and Maura McElhinney, attaché; Hèlder Faria Viegas, principal manager; Sven Kölling and Blanka Happach, core team; Ramona Bortnowschi, Els Brems, Antonio Caruda Ruiz, Vincent Ly-Sunnaram, Ioannis Papadakis, Maciej Szymura and Bertrand Tanguy, auditors. From left to right: B. Happach, T. Mackevičius, S. Kölling, R. Budbergytė, H. Faria Viegas. CAP common agricultural policy CMEF common monitoring and evaluation framework EAA economic accounts for agriculture EAGF European Agricultural Guarantee Fund EAFRD European Agricultural Fund for Rural Development EU-SILC European Union statistics on income and living conditions FADN farm accountancy data network FSS farm structure survey OECD Organisation for Economic Cooperation and Development TFEU Treaty on the Functioning of the European Union Agricultural entrepreneurial income income generated by agricultural activities after deduction of the costs for employees, interest for borrowing capital and rents for land. It can be used to reward own production factors belonging to the holding (own work, own capital and owned land). Agricultural factor income income received from the factors employed in agricultural production (land, labour and capital). It is calculated by subtracting the value of intermediate consumption, the consumption of fixed capital (depreciation) and production taxes from the value of agricultural output at basic prices and adding the value of (other) subsidies on production. It does not as a general rule include income from other sources (non-agricultural activities, salaries, social benefits, income from property). Agricultural holding unit with a single management, which carries out agricultural activities within the territory of the EU, either as its primary or secondary activity. A farmer can have several agricultural holdings. Decoupling process of separation of direct aid payments from agricultural production. Disposable farm household income total income from all sources less taxes and mandatory social insurance contributions. Depreciation loss in value of an asset due to ageing or use. EAA economic accounts for agriculture, a basic tool for analysing the economic situation of a country’s agriculture. They are a satellite account of the national accounts. Evaluation the periodic collection and analysis of evidence to form conclusions on the effectiveness and efficiency of ‘interventions’. Interventions are judged on the basis of results and impacts at the level of the addressees of the policy. FADN farm accountancy data network, an instrument for evaluating the income and business activities of commercial agricultural holdings and the impacts of the common agricultural policy. It is based on the accounts data of a sample of more than 80 000 agricultural holdings across all EU Member States. Farmer an individual whose holding is situated within the territory of the EU and who exercises an independent agricultural activity. Farm net value added indicator of the FADN, which describes the total production value of an agricultural holding plus direct payments minus intermediate consumption and depreciation. This is the amount available to pay for all fixed production factors of an agricultural holding (land, labour and capital). Farm net income indicator of the FADN, which describes the amount available to remunerate the holding’s own production factors. It is calculated by deducting wages, rent and interest paid by the holder from farm net value added. Family farm income indicator of the FADN which describes the income from agriculture in holdings with unremunerated family workers, i.e. the farmer and members of his/her family. Farm household income income of households from an independent activity in agriculture and from non-agricultural activities. Agriculture may not be the main source of income. Indicator A measurable variable that provides useful information that helps assessing the degree to which an objective has been met. Intermediate consumption the value of the goods and services consumed in the course of a production process (does not include depreciation). (Public) Intervention an ‘operation’, ‘measure’, programme or project carried out by or funded by a public authority. Monitoring the regular examination of the resources, outputs and results of ‘interventions’. National accounts national accounts provide information about the structure of the economy and the development of the economic situation of each Member State. Satellite accounts accounts drawn up on the basis of the national accounts to provide complementary information and concepts adapted to the particular nature of an economic sector, for example agriculture. Standard output monetary value of gross production of agricultural holdings at farm-gate prices. The standard value is determined corresponding to the average situation in a given region. 2003 reform the CAP reform, which introduced the decoupling of direct aid from agricultural production and made payments conditional upon compliance with basic standards concerning the maintenance of land, the environment, food safety, animal and plant health and animal welfare (known as cross-compliance). 2013 reform the CAP reform for the 2014-2020 period. It aims to achieve a more balanced distribution of the available support and to reward farmers for sustainable farming practices via a specific ‘greening payment’. It also intends to improve the market orientation of EU agriculture, while providing a safety net to defend farmers against external uncertainties, and to further support rural development in the Member States. The incomes and standard of living of farmers are a particular focus of the treaty and the 2013 reform of the common agricultural policy (CAP). Almost one third of the EU budget is still directly or indirectly dedicated to supporting farmers’ incomes and thus contributing to ensuring a fair standard of living for farmers. The new framework for the monitoring and evaluation of the CAP requires the Commission to assess the combined impact of CAP measures in relation to the stated objectives. This requires not only clearly defined objectives, targets and indicators but also sufficient and good-quality statistical information on the economic situation of agriculture and on farmers’ incomes. This report assesses whether the Commission’s performance measurement in relation to farmers’ incomes is well designed and based on sound data. The Court examined whether the Commission clearly established the statistical data needed, whether these data were of appropriate quality and whether the Commission defined relevant indicators. The Court concludes that the Commission’s system for measuring the performance of the CAP in relation to farmers’ incomes is not sufficiently well designed and the quantity and quality of statistical data used to analyse farmers’ incomes has significant limitations. The Commission has not clearly established the statistical data needed to effectively assess the performance of CAP measures in support of farmers’ incomes. No representative data are available on the disposable income of farm households, which would facilitate assessing the achievement of the treaty objective of ensuring a fair standard of living for farmers. Furthermore, there is no reliable system to allow comparisons to be made between agricultural incomes and those in other sectors of the economy, which could justify EU income support for farmers. The main tools currently available at EU level for measuring farmers’ incomes are the economic accounts for agriculture (EAAs) and the farm accountancy data network (FADN). The EAAs are the Commission’s main statistical source for monitoring farmers’ incomes globally at macroeconomic level. However, their potential has not yet been fully used and they are not sufficiently informative about important factors that are relevant for farmers’ incomes, as well as for the economic value of agriculture as a whole. The FADN is an important instrument for the evaluation of the CAP but it has limitations, because it covers only commercial holdings and income information is incomplete. The Commission and Member States did not always ensure that the data used for the measurement of farmers’ incomes were of appropriate quality. For both the EAAs and the FADN, the Court found weaknesses in the management by the Commission and the Member States. In addition, quality assurance procedures for the EAAs are not yet fully effective, while the audit identified certain weaknesses in the quality assurance arrangements for the FADN. Vague objectives of certain CAP measures and the absence of a baseline make it difficult to assess whether individual CAP measures aimed at the support of farmers’ incomes have achieved their objectives. The Commission has also not defined relevant indicators for an effective performance measurement. The indicators on which the Commission has to build its assessment are not sufficiently reliable or are not linked clearly enough to CAP measures and, as such, are not useful to show whether they contributed effectively and efficiently towards the desired effects and reduced income disparities. In respect of statistical data on farmers’ incomes, the Court recommends that the Commission:

(a) develop a more comprehensive framework for providing information on disposable income and for comparing farmers’ incomes with incomes in other sectors of the economy;

(b) further develop the EAAs so that their potential can be better used;

(c) ensure that the analysis of farmers’ incomes is based on indicators taking account of the current situation of agriculture and on sufficient and consistent data for all beneficiaries of CAP measures — this could be done by developing synergies between existing administrative data or by developing the FADN or other suitable statistical tools;

(d) enhance the present quality assurance arrangements for the EAAs and the FADN statistics established by the Member States.

With regard to the measurement of the performance of CAP measures aimed at supporting farmers’ incomes, the Court recommends that, for the next programming period, the Commission define from the outset appropriate operational objectives and baselines against which the performance of the CAP measures can be compared, complement in the context of its evaluations the current framework of performance indicators with other relevant and good-quality data to measure the results achieved and assess the effectiveness and efficiency of the measures designed to support farmers’ incomes. According to the treaty, the objectives of the CAP include increasing agricultural productivity ‘thus to ensure a fair standard of living for the agricultural community, in particular by increasing the individual earnings of persons engaged in agriculture’. The 2013 CAP reform also focused on agricultural income, in the context of the objective of viable food production, thus contributing to ensuring a fair standard of living for farmers. CAP measures are financed by the EU budget through the European Agricultural Guarantee Fund (EAGF or ‘Pillar 1’) and the European Agricultural Fund for Rural Development (EAFRD or ‘Pillar 2’). Under the current multiannual financial framework, between 2014 and 2020 up to 277 billion euro (29 % of the total EU budget) will be spent from the EAGF for direct payments to farmers and for market support in specific agricultural sectors. The 2003 CAP reform shifted the emphasis from production support (so-called decoupling) and introduced a system of income support that was largely based on the aid levels received by individual farmers during a reference period. The 2013 reform further detached the payments from their historical context, while gradually moving towards more uniform payments per hectare across all EU Member States. It also restructured direct payments, which, as of 2015, are broken down into a basic per-hectare payment for all farmers, a ‘greening payment’ by which farmers are rewarded for specific agricultural practices considered beneficial for the climate and the environment and a payment for young farmers. Within certain limits, Member States have significant leeway and can further target payments in order to address specific policy concerns. Although they are not particularly clearly stated in the regulation, the Commission considers certain policy elements to be specifically related to supporting farmers’ incomes, in particular direct payments. These payments intend to help keep farming in place throughout the territory of the EU by supporting and stabilising farmers’ incomes, thereby ensuring the longer-term economic viability of farms and making them less vulnerable to price fluctuations. In addition, by making full payments conditional upon respecting basic standards (known as cross-compliance) and by applying the specific ‘greening’ component, these payments should also help ensure that agriculture provides public goods for society. Although financially the most important, direct payments are not the only instrument that affects farmers’ incomes. At EU level, they are accompanied by rural development measures and a set of market and promotion measures which aim at specific agricultural sectors. The Commission may also intervene in specific markets in times of crisis by opening limited access to public or private intervention storage, which influences market prices and thus farmers’ incomes. Family farming is the most common farming model in the EU, with the vast majority of agricultural holdings still managed as individual holdings. Such holdings are typically characterised by the extensive use of family labour. The income situation of this type of farm household is displayed in the Figure. EU legislation has never defined the concepts of ‘agricultural community’, a ‘fair standard of living’ or ‘earnings’ mentioned in the treaty, but the disposable income of the farm household is a key element for assessing the standard of living. The Commission has to define the necessary statistical framework to measure farmers’ incomes, while Member States should provide the Commission with all the information necessary for monitoring and evaluation of the measures concerned. As far as possible, the information needed should be based on established sources of data. The Commission’s principal source of general data about the agricultural population is the farm structure survey (FSS), which collects data on the agricultural situation across the EU for monitoring trends and transitions in the structure of European agricultural holdings. It is not designed to collect data on agricultural income of farmers or on EU support financed by the EAGF. The Commission uses two main statistical instruments to monitor economic activities and income from agriculture and certain farm-related business activities:

the economic accounts for agriculture (EAAs), a basic tool for analysing the macroeconomic situation of a country’s agricultural sector and changes in agricultural income;

the farm accountancy data network (FADN), a microeconomic tool whose objective is to assess incomes and business activities of commercial agricultural holdings.

The EAAs are a satellite account of the European System of Accounts (ESA 95), which provide additional information and employ concepts suited to the agricultural sector. They follow a specific methodology and are compiled using specific rules and methods. For larger Member States, the EAAs are subdivided into regional accounts. Data collection and aggregation at national level is entirely financed by the Member States, and national statistical institutes or ministries of agriculture are responsible for data collection and the calculation of national EAAs. The Commission (Eurostat) is responsible for establishing the methodology and aggregating the data at EU level. The FADN is designed to estimate the income of commercial agricultural holdings as a business unit, whose production value, measured in standard output, exceeds a certain threshold of what is considered to cover the largest possible share of agricultural output, agricultural area and agricultural labour of those holdings run with a market orientation. It is the only harmonised source of economic data on agricultural holdings at EU level and is managed by the Commission’s DG Agriculture and Rural Development. As it is based on national accountancy data networks, the Member States finance data collection but the Commission pays a standard fee per holding for the data received from Member States. Currently, national liaison agencies (public or private bodies) collect data from more than 80000 agricultural holdings across all Member States. Participation in the survey is voluntary. Data are used by the Commission and many other stakeholders, including Member States. Each CAP measure must be monitored and evaluated in order to improve its quality and demonstrate its achievements. The performance measurement of CAP measures in relation to agricultural income is based in large part on the information contained in the EAAs and the FADN, which therefore must be sufficient and of good quality. By 31 December 2018, the Commission has to present the initial report on the implementation of monitoring and evaluation, including the first results of the performance of the CAP for 2014-2020. A second report including an assessment of the performance of the CAP shall be presented by 31 December 2021. With the 2013 CAP reform, the common monitoring and evaluation framework (CMEF), already applied for the EAFRD, was also applied to measures financed from the EAGF. In order to fulfil its responsibility of monitoring and evaluation of the measures financed by the EAGF the Commission must establish what information is necessary and draw up a multiannual evaluation plan. Member States should ensure that such data are of good quality and available in a timely manner. The CMEF is based on standard indicators in order to make a comprehensive and regular assessment of the progress, effectiveness and efficiency of the measures against objectives. The Commission has established a set of indicators to describe the implementation of the CAP instruments (output indicators), to measure what results are achieved (result indicators) and to show what impact they have on the achievement of the general objectives of the CAP (impact indicators). The Court audited the Commission’s measurement of farmers’ incomes in 2002. This audit concluded that the EU statistical instruments did not provide sufficiently exhaustive information on the disposable incomes of farm households and did not allow an assessment of the living standard of the agricultural community to be made. In its annual report for the financial year 2007, the Court observed, with regard to the measurement of farmers’ incomes, that the Commission had taken a number of initiatives regarding the EAAs and the FADN. However, the Court considered that more complete statistics and indicators were indispensable in order to follow more closely the performance of the CAP of which more than two thirds of the budgetary resources were devoted to income support. The monitoring and evaluation of the CAP requires good-quality information on the economic situation of agriculture and farmers’ incomes. The most significant risk is not having sound statistical information and relevant indicators at European level. More specifically, there is a risk that the indicators and criteria for measuring farmers’ incomes may not be properly defined or that appropriate data may not be available or not be of sufficient quality. The aim of this audit was to examine the Commission’s tools for measuring farmers’ incomes and its use of income-related data for assessing the performance of CAP measures aimed at viable food production and supporting the income of farmers. In this context the Court also reviewed the common performance indicators which the Commission recently defined for direct payments and other measures financed by the EAGF in relation to specific CAP objectives. It was not the purpose of this audit to evaluate the CMEF as such or to express an overall opinion on the functioning of the Member States’ statistical systems. The overall audit question was: ‘Is the Commission’s system for measuring the performance of the CAP in relation to farmers’ incomes well designed and based on sound data?’ More specifically, the audit aimed to answer the following questions.

Has the Commission clearly established what statistical data are needed for the effective performance assessment of CAP measures in support of farmers’ incomes?

Did the Commission and Member States ensure that the data used for the measurement of farmers’ incomes are of appropriate quality?

Did the Commission define relevant indicators allowing for the effective performance assessment of CAP measures in support of farmers’ incomes?

The Court established its audit criteria on the basis of the provisions in the treaty and the regulations in force. Audit visits were carried out at the Commission and in six Member States. Together, these Member States account for more than 50 % of the gross value added of European agriculture and farmers in these Member States receive more than 50 % of the EU budget for agriculture, primarily in the form of direct payments. At the level of the Commission, the Court audited whether procedures ensured that the compilation of the EAAs and the management of the FADN were in line with the quality requirements of the framework for the development, production and dissemination of European statistics laid down in the Eurostat code of practice. In the Member States visited, the Court reviewed the procedures in place for data collection and quality assurance in respect of both the EAAs and the FADN. The purpose of the visits to Member States was also to identify good practice in terms of measurement of farmers’ incomes. Audit evidence was collected and examined against the audit criteria by means of interviews and the analysis of documents and data. In addition, the Court conducted a survey in all 28 Member States regarding the implementation of the EAAs and the FADN. The Court also carried out a desk review and analysis of the Commission’s performance management framework with regard to the objectives and performance indicators in relation to farmers’ incomes. In this analysis as well as in the audit of the FADN system the Court was assisted by two external experts. To address the issue of whether the Commission has clearly established the statistical data needed, the Court considered whether information on all relevant aspects of farmers’ incomes is obtained, whether the EAAs capture sufficient macroeconomic data on farmers’ incomes and whether the FADN includes sufficient income data at the level of individual farmers. Disposable income of farm households includes receipts from sales of agricultural products, subsidies, other receipts (farm-related income) and other income. Disposable income is a key element for assessing the standard of living of farmers, one of the main objectives of the treaty. A statistical framework to provide information on the disposable income of farmers and their households has not been developed at EU level. This is despite the fact that available information points to the growing significance of incomes that are not related to agricultural activity. The Commission conducted two feasibility studies on the collection of such data, the evaluation of which was part of the Commission’s statistical programme 2008-2012. However, the Commission has so far neither carried out such evaluation, nor taken any other action to improve its knowledge of disposable farm household income. Data on the disposable income and living conditions of households in general, including farm households, are available through the EU statistics on income and living conditions (EU-SILC). The number of farm households included in this survey is, however, generally too small to draw valid conclusions on the incomes and living conditions of the farmers. Furthermore, farm household income data are only specifically collected in 10 Member States. In addition, the approaches to collecting such information and the level of detail obtained vary significantly across these Member States (see Box 1). This variability of approaches limits the conclusions that can be drawn on the incomes and standard of living of farmers. Data on the income of farm households are currently collected in Bulgaria, Denmark, Spain, France, the Netherlands, Austria, Poland, Finland, Sweden and the United Kingdom (England). However, there is no common definition of ‘farm households’ and methodologies applied vary. In the Netherlands, information on household income is available for more than half of the farms in the FADN sample (2013). In France, the authorities use the FADN data together with information from tax registers to calculate the income of farm households. In Poland, the EU-SILC survey is used and FADN respondents are asked to provide additional information about the income of their households on a voluntary basis. Bulgaria, Spain and Finland use only the EU-SILC survey, which contains a comparatively small number of farm households. It is important to compare farmers’ incomes to incomes in other sectors of the economy or with the income of specific socioeconomic groups that are comparable to farmers in order to determine to what extent they may be disadvantaged and why EU income support is needed or important for the viability of the holdings. According to the Commission, available statistics indicate that farmers’ incomes are still significantly below the average income in the total economy. However, this conclusion is based on comparing incomes which are computed on different bases and are therefore difficult to compare. Such comparison requires careful interpretation to avoid the risk of inaccurate conclusions as to whether and, if so, the extent to which farmers’ incomes are lower than those in other sectors of the economy. Farm sizes and the income levels of the farming population vary significantly, as does the diversity of holdings. The averages used by the Commission to compare incomes per farm size, farm type and region in the FADN do not always demonstrate the extent to which certain groups of farmers are disadvantaged compared to others. As a result, these averages cannot be used to help determine whether the CAP measures to support farmers’ incomes help to reduce income disparities. The Commission has to date not adapted the EAAs to the new standards for national accounts and has not used the full potential of the EAAs by developing them further to provide information on the role of imports, developments in demand for agricultural products (domestic or foreign), supply to the food industry, final consumption by households, special treatment of agriculture in the tax systems or use for non-food purposes such as production of bioenergy. All these elements are, however, important factors that impact farmers’ incomes. The EAAs are not designed to help analyse the dependency of specific sectors on subsidies and their importance for viable farming in the regions, for specific types of production or for specific socioeconomic groups of farmers. The role of subsidies is only shown as an aggregate which includes both EU and national support granted to farmers. This limits the EAAs’ usefulness in providing a basis for the analysis of the effectiveness and the efficiency of CAP measures in relation to farmers’ incomes. Information on land prices and rents is not only important for the calculation of farmers’ incomes but also for the assessment of the impact of CAP measures, because land is the main production factor for agriculture. Moreover, direct payments are mostly related to agricultural land, which can have an influence on land prices and thus on the efficiency and effectiveness of the support. To date, there is no legal basis in EU legislation that would ensure the regular collection of data on land prices and rents in all Member States and of comparable quality. In spite of some efforts by Eurostat to gather suitable data, the available data are incomplete and do not follow a common methodology. This also affects the accuracy of the data reported in the EAAs. The EAAs show income results for each Member State as a whole but not at regional level. Member States provide additional regional income data only on a voluntary basis, but these are not available for all relevant Member State regions and, where available, are provided only with a significant delay of 2 years. This reduces the usefulness of the results for assessing the regional income situation in agriculture. By definition, the EAAs measure, at the macroeconomic level, economic performance and growth as a result of market activities and their evolution over time. They do not account for public goods provided by farmers to society. The provision of such public goods is an important specific objective of measures such as the ‘greening payment’, which accounts for 30 % of the EU direct payments. It emphasises the multifunctional role of agriculture, while also contributing to the income of farmers. The extent to which agriculture produces public goods and its evaluation by society may, however, vary significantly across regions and Member States. So far, the Commission has not considered developing the EAAs further or established any other instrument to measure the economic value of public goods produced by the agricultural sector as a whole. The EAAs are designed to provide information on changes in the income of the agricultural sector as a whole, rather than on absolute income levels, the income of individual agricultural holdings or of households employed in agriculture. As such, they are not designed for drawing detailed conclusions at a microeconomic level such as on the economic viability of individual holdings and the standard of living of farm households. Nevertheless, in its annual activity reports and its annual statistical and economic information reports, the Commission uses EAA information at micro level by employing comparisons of the agricultural factor income per worker in absolute values as a key performance indicator. However, the EAAs are not expressly designed to provide data on absolute income levels or on the income levels of individual farmers. The Commission uses the indicator ’agricultural entrepreneurial income’ as a proxy for ‘family farm income’ and considers it to be the closest indicator for the standard of living of the farmers. However, this assumption no longer reflects the reality of agriculture in the EU, because the farming population varies significantly across Member States and no longer contains only individual (‘family’) holdings managed by sole proprietors who receive no payment for their work but also a significant share of legal entities or group holdings, which almost exclusively use paid labour. The latter are often conventional companies (e.g. investors buying large land tracts for intensive farming), as in other sectors of the economy. EAA income results can thus not clearly be attributed to ‘family farms’ and cannot be taken as a proxy for the income or standard of living of individual farmers. As the share of individual holdings across Member States also varies significantly, income results, as provided by the EAAs, are not comparable between Member States. The FADN aims to collect representative accounts data on commercial agricultural holdings. It can provide important and useful information about the business performance of agricultural holdings per agricultural sector and size class. It is thus a primary source of information for the evaluation of the performance of CAP measures. Following the Court’s Special Report No 14/2003, the Commission, in cooperation with the Member States’ liaison agencies, has been developing the FADN methodology to take account of the evolution of the agricultural sector. It has also taken steps to bring the FADN results closer to international accounting and financial reporting standards. The main income indicator of the FADN is ‘farm net value added’. It is useful for comparing the income performance of farms irrespective of their organisational form. As it does not take into account the costs of external production factors (e.g. land rent or bank interest), which many farmers have to bear, it cannot provide sufficient information about the actual agricultural income of farmers or the profitability of the holdings. Historically, the FADN was designed to provide information on ‘family farms’, and an important indicator used is the ‘farm net income per family work unit’ for holdings which use the labour and capital of the holders and their families. It is calculated only for holdings for which unremunerated family labour has been recorded. However, companies owned by single holders or a group of holders set up for tax purposes, which are similar to family farms in all but legal form, are excluded, because they do not have unremunerated labour. Such structures are however frequent in many Member States, notably in Germany, Spain and France, and their exclusion is likely to distort the results. Furthermore, there is no separate income indicator for farms organised as conventional companies, although such legal entities play a major role in the agricultural sector in many Member States. Revenue from financial investments, capital transfers and the favourable effects of taxation on agricultural income can significantly impact the income and financial situation of a holding and its ability to react to market forces. The current FADN methodology does not, however, take such effects into account. Many farmers also use the resources of their holdings to engage in gainful activities other than primary agricultural production or otherwise diversify their business activities to increase their income. Examples of such farm-related activities are the processing of food on farms, the direct sale of products, providing services using agricultural equipment, the production of renewable energy and agri-tourism. Such activities provide additional income, reduce income volatility and make farmers less dependent on subsidies. © European Union 2008. Source: EC Audiovisual Service. Photo: L. Chamussy More detailed information on other farm-related incomes has been collected only since 2014. However, this information is included only where revenue and costs cannot be separated from agricultural activities in the holdings’ accounts. Information remains incomplete, because in other cases it is not included, for example when such an activity is managed in separate business units belonging to the farmer. Data collected are also not representative, because such holdings are currently under-represented in the FADN sample and, due to differences in accounting treatment, the data are not comparable across Member States (see Box 2). Consequently, there is an incomplete picture of farmers’ actual farm-related business activities and the role which additional sources of revenue play in the stabilisation of their overall income. According to the 2010 FSS, more than 30 % of the holdings in Germany declared that they had business activities outside agriculture. The governing element for the classification of the income in the FADN is however the national tax law, according to which operating revenues which do not come from primary agricultural production are only considered to be agricultural income within narrow limits. If these limits are exceeded, the revenue is not recorded in the FADN. Many holdings operate biogas plants and produce and sell electricity to the national grid. As this revenue is classified as ‘non-agricultural’, it is not considered to be directly related to the holding and does not appear in the FADN results. In France, income from other gainful activities related to the farm such as the processing of agricultural products, agricultural services, renting out land or buildings (including rental income for the installation of wind energy plants or solar panels and sale of electricity) are included only as long as they are performed by the same holding and as long as the revenue from such activities does not exceed a certain amount. Otherwise, it is not included in the FADN. In both cases the FADN only incompletely reflects the actual level of diversification. In the Netherlands, a good practice was noted whereby data collection on other gainful activities allows for a better assessment of the income situation of farmers. According to the Dutch 2012 FADN results, holdings which had other gainful activities beside primary agricultural production received an average of 51000 euro from these activities. The survey underpinning the FADN is designed to represent the largest possible share of agricultural output, agricultural area and farm labour for these holdings. For this purpose, all holdings are classified on the basis of a standardised output value, which reflects in general terms the value of their agricultural production. However, the minimum standard output threshold varies between Member States, as does the coverage of the total farming population and beneficiaries of EU support (see Table). While the approach used is justified from the Member States’ point of view, because the economic size of holdings varies significantly across the EU, this limits FADN-based comparisons of income across Member States. As an example, for a holding with a standard output of 10000 euro per year in Spain, no comparable data are available in Germany, France or the Netherlands, because such holdings are not included in the survey. As a consequence, harmonised information across the EU is only available for those holdings which exceed the threshold of 25000 euro annual standard output. Comparisons of average income per worker across all holdings included in the FADN can thus lead to misinterpretation about the income situation of farmers across Member States. The FADN was set up to observe incomes and business operations of agricultural holdings. However, the selection of holdings does not take into account if they are beneficiaries of EU support. This can mean that sufficiently representative information is not available on the effects of specific EU support measures and the income of specific groups such as young farmers. Moreover, direct payments are not only paid to commercial farmers but also to a significant number of part-time or subsistence farmers who are outside the FADN’s scope. The Commission has little knowledge of the income and production activities of such smaller holdings, which range from 12 % of the beneficiaries of EU direct payments in Bulgaria to 79 % in Slovakia. This limits the conclusions that can be drawn from the FADN results regarding the overall effects of the support measures on different holding categories. Source: ECA on the basis of Commission and survey data. Member State Holdings in FSS 2010 National FADN threshold (in euro SO) Percentage of FSS holdings represented by FADN Percentage of CAP beneficiaries not represented by FADN Belgium 42850 25000 72 % 30 % Bulgaria 370500 2000 31 % 12 % Czech Republic 22870 8000 65 % 39 % Denmark 42120 15000 68 % 51 % Germany 299150 25000 65 % 47 % Ireland 139900 8000 74 % 36 % Greece 723010 4000 44 % no information Spain 989810 4000 53 % 61 % Estonia 19620 4000 41 % 55 % France 516110 25000 15000 57 % 28 % Italy 1620900 8000 49 % 38 % Cyprus 38860 4000 26 % no information Latvia 83400 4000 26 % 67 % Lithuania 199930 4000 27 % 69 % Luxembourg 2210 25000 73 % 20 % Hungary 576840 4000 18 % 45 % Malta 12540 4000 24 % 37 % Netherland 72320 25000 71 % 25 % Austria 150160 8000 62 % 26 % Poland 1506620 4000 48 % 50 % Portugal 305260 4000 36 % 53 % Romania 3859030 2000 27 % no information Slovenia 74640 4000 54 % 33 % Slovakia 24460 25000 18 % 79 % Finland 63880 8000 61 % 38 % Sweden 71100 15000 39 % 57 % United Kingdom 186650 25000 15000 50 % 50 % EU-27 12014740 In addition, information on EU support from the EAGF is not surveyed in the FSS and only a few Member States have a unique holding identification number which would make it possible to link FSS and FADN data with administrative data such as those from the integrated administration and control system on support payments and areas farmed. Such a link would allow information on EU income support to be combined with data on agricultural structures and land use. This would also help to better understand the factors determining farmers’ incomes and also reduce the administrative burden on the respondents. The treaty establishes the basic principles for European statistics, which should be impartial, reliable, objective, scientifically independent, cost-effective and confidential. The principles are further elaborated in the European statistics code of practice adhered to by both the Member States and the Commission. Its implementation is facilitated by a quality assurance framework. However, neither the code of practice nor the quality assurance framework is mandatory. The specific criteria applying to the quality of the statistical information produced are set out in Annex V. To assess whether the data on farmers’ incomes were sound, the Court audited the arrangements in place to ensure inter alia the quality of the statistical data from the EAAs and the FADN, as provided in the European statistics code of practice. The information about EAA methodology and data sources (known as ‘inventories’) provided to the Commission by Member States varied significantly in terms of detail and quality and had not been updated since 2006, while for three Member States no such inventories were available. In all six Member States visited, procedures and data sources for material items varied significantly and no longer matched the description in the inventories. As a result, the Commission cannot verify whether statistical information submitted by Member States is sufficiently harmonised and comparable and its capacity to establish recommendations and develop guidelines in order to improve the overall quality of statistical information is reduced. The main EAA indicators compare agricultural income at the level of the labour input of the persons employed in agriculture (expressed in agricultural working units). Any change to or inaccuracy in the labour input calculations impacts the income per person employed and can thus significantly affect the income results and their interpretation. Eurostat had insufficient up-to-date information about the methodologies used by Member States, which reduced its ability to assess the accuracy and comparability of the information received. Moreover, working hours laid down by Member States varied between 1600 annual hours in France and 2120 hours in Poland, which also affected the comparability of the results. The Court found various instances where data disclosed in the EAAs were not sufficiently accurate or comparable, which substantially affected the calculation of the income disclosed in the EAAs. For example, inconsistencies were found in accounting for certain products such as wine and olive oil, rents for agricultural land, the disclosure of certain non-agricultural activities, accounting for subsidies and the calculation of the agricultural entrepreneurial income (see Box 3). In Poland, the statistical office included in the EAAs only the estimate of the rents which farmers paid for state-owned land, which did not include the value of land leased from private landowners, as this is not known by the authorities. Based on the FADN results, the Court estimates that such land, however, covers around 61 % of the rented agricultural area in Poland. Similarly, in Romania, the statistical office included only data on the value of land leased by farm companies but not by individual farmers. Many holdings are engaged in the processing of agricultural goods such as production of cheese, forestry products, logging or agri-tourism. The value of such activities has to be included in the EAAs, if they are inseparable from the agricultural activities. However, for many Member States no data on the value of such activities are available. In Romania, the statistical office recorded area-related subsidies in the year when they were paid to the farmers (cash based). According to the applicable standards, the subsidies should have been recorded for the year when the farmer introduced the aid application (accrual principle). In France, data on fees for specific forms of tenant farming (‘fermage’) paid to owner shareholders were outdated and not correctly taken into account for the calculation of the agricultural entrepreneurial income. This form of farming covers more than half of the agricultural area utilised in France. Member States have to communicate definitive income data by the end of September of the following year. However, Member States frequently modified their data in subsequent years, which had a material impact on the incomes disclosed in the EAAs. The updates were mostly explained by the need to correct errors in the previously reported data, the late availability of source data or the fact that better data sources now provided more accurate information. Although revisions of statistical data are a standard procedure in the establishment of statistics, the updates highlight weaknesses in the procedures for compiling the EAAs in the Member States and reduce the reliability of the Commission’s main performance indicators for income. While Eurostat made efforts to improve the quality of the EAAs, no exhaustive and independent assessment has been conducted as to whether Member States have set up an effective quality assurance framework for EAA data collection and compilation. In 2010 Eurostat initiated a joint task force to identify EAA quality indicators and define standards for quality reports. In 2012, it coordinated a self-assessment of the national bodies in charge of their compilation. On this occasion, Member States were asked to provide their overall assessments of EAA data quality and indicate needs for improvement. The Court observed that in this exercise four Member States had not submitted any reports, which left Eurostat without updated and complete information on the quality of the EAA data submitted. Generally, three FADN survey systems can be distinguished. In one group of Member States, the national FADN liaison agencies acquire data from private accounting firms, which keep the accounts of individual holdings and use the data also for the farmers’ income tax declarations. In a second group, the liaison agency is directly involved in keeping the accounts for FADN purposes and is in direct contact with the farmers. In a third group, the national liaison agencies contract private data collectors, who collect data directly from the holdings. A directly managed system contributes to a high level of data quality. For example, a good practice was found in the Netherlands, where data collection is entrusted to a research institute which takes over the accounting work and has direct access to all relevant information regarding the holdings’ business activities. Similarly, where FADN data are derived from data used for taxation, there is an incentive for greater accuracy, since incorrect accounting could be penalised under national tax law. Under the arrangements found in Spain and Romania, the contractors received a fixed amount per farm return delivered to the liaison office. There is a risk of selecting holdings with simple structures in order to reduce the workload per holding and there is thus a higher risk for the quality of the information obtained. The Commission approves the sample size proposed by the Member States but it does not have sufficient documentation about how they calculated it, what assumptions were made and whether calculations were in line with statistical principles. Critical information such as the precision of the parameters and confidence bands used is not published or reviewed by independent experts to assess the quality of the selection plans. The sample size varies significantly between Member States and regions, as does the number of holdings represented by a holding in the sample. Important agricultural sectors can, however, be under-represented in the FADN. An example is producers of wine and grapes, fruits and citrus fruits, olives and various permanent crops in Spain who, combined, included just 0.8 % of the holdings in the respective sectors. These sectors accounted, however, for around 24 % of the total production value of Spanish agriculture. The Commission recommends selecting new holdings at random to provide the best statistical representativeness with respect to statements concerning the population. Only 11 Member States selected new holdings randomly. In other Member States, however, the selection was not always transparent and was restricted by the way the data collection is organised. Thus in Germany, Spain, France, Poland and Romania the selection process depended significantly on the initiative of the accounting offices or data collectors, who had to identify ‘suitable holdings’ that fulfil the selection criteria. In this regard, subjective factors could influence the selection of a holding, which may have an impact on the representativeness of the income information that is obtained. In Spain, this also resulted in significant gaps in the FADN sample’s coverage of subregions so that a significant part of the country and the territorial structure was not well represented. This has also an impact on future evaluations of direct payments, because Spain has introduced a system with 51 subregions, which are currently not sufficiently covered by FADN. Participation in the FADN survey is voluntary. Member States visited had difficulties in finding a suitable number of holdings for nearly all relevant size classes. Some Member States put in place incentives to recruit holdings and compensate them for the additional burden, but the Court found that these measures were not always effective in covering all relevant types and size classes of holdings. Despite the incentives in place, in Germany small and very large holdings are significantly under-represented in the sample. Difficulties were also observed in the Netherlands, where 78 % of the new holdings selected declined to participate. In Romania, due to the absence of specific incentives, across all size classes, fewer holdings than expected could be recruited, with particular difficulties for very small and very large holdings. It is, however, important to obtain good-quality data for all relevant size classes, as situations in larger or smaller holdings can significantly differ from those in average farms. FADN data derive from accounts with entries made systematically and regularly throughout the accounting year. Holdings which participate in the survey must be willing and able to keep farm accounts. In Romania, where individual holdings account for around 70 % of the FADN sample, results were, however, widely based on interviews, as smaller holdings in particular did not duly fill in accounting records. Similarly, in Spain, data collection for many holdings was widely based on interviews with the farmers instead of systematic accounting entries. This reduces significantly the quality of the information reported and does not allow the information provided to be traceable to underlying supporting data. Inconsistencies were also found in the calculation of unremunerated labour of family members, where the Commission acknowledged that the number of hours of family workers is typically overestimated. This can result in an underestimation of the income per worker and affect the reliability of the indicators. As a rule, the Member States submitted FADN data within the regulatory deadlines of 12 months after the closure of the accounting year. The quality of the data was, however, not always as expected by the Commission and required, for some Member States, extensive follow-up work. So, for the accounting year 2012, the Commission could only publish the results in November 2014, i.e. around 2 years after the end of the reference year. The Commission tried to accelerate the process by increasing the fees paid to Member States, but without improving data quality this is unlikely to significantly shorten the process. If this situation continues, important data for the monitoring and evaluation of the measures adopted in the 2013 reform of the CAP are unlikely to be available on time for the 2018 interim report. The fees, which the Commission pays to Member States, are independent of the system for data collection and the actual costs incurred by Member States. The FADN generally functions better where the Member State also has a strong interest in obtaining good-quality data on the income and business performance of agricultural holdings and thus ensures sufficient funding. Thus, in the Netherlands, the FADN is built on a large set of data on the business activities of agricultural holdings, as well as on environmental and social aspects, which goes far beyond what is currently required at EU level. Also, in Germany, France and Poland, the national authorities have a keen interest in the functioning of the FADN system, as the results are widely used for their own policy and performance analysis. For the Member States visited, most weaknesses were found in Spain and Romania. Both currently face difficulties in providing the necessary national funding. In these Member States, the functioning of the FADN relies heavily on EU financing. In both Member States, the use of the data for national purposes was very limited. In Romania, data are collected solely for the purpose of reporting it to the Commission, and the authorities did not have the necessary technical means and sufficiently qualified staff for further analysis of the data. In view of the significant leeway which Member States have in the distribution of EU support, it is however indispensable for the FADN, as the most important tool for the evaluation of the performance of CAP measures, to deliver results of appropriate quality for each Member State. The FADN is managed by the Commission’s Directorate-General for Agriculture and Rural Development, which is also in charge of ensuring the quality of the data, together with the national liaison agencies. Eurostat is responsible for coordinating the statistical activities of the Commission. In the context of the FADN, the scope of Eurostat’s coordination is defined in a mutual agreement. This agreement does not, however, provide for a supervisory role for Eurostat. In the Member States visited, a formal quality assurance procedure was only in place in the Netherlands, and only here did the authorities validate the sample with respect to the underlying population and test it regularly against assumptions. In the other Member States, the liaison offices carried out checks on the plausibility of the data received. However, with the exception of Poland, these were not completed by on-the-spot checks in order to assess the quality of the work of the data collectors or to trace the information provided to the underlying records. The Commission is aware of FADN performance problems in individual Member States. However, to date no timetable has been set to improve the situation, and significant weaknesses such as inadequate coverage of sectors and size classes in all Member States, absence of incentives for the recruitment of holdings in many Member States and lack of financing still need to be tackled. The Commission is seeking to address weaknesses in the FADN and, in cooperation with Member States, is exploring ideas for a more cost-efficient data collection system. It also intends to use the FADN to provide up-to-date information on farm-level indicators for sustainability. It is, however, likely that concrete improvements will not be put into effect before the year 2017, and data will not be available before the end of 2019. This may have an impact on the evaluation of the 2013 CAP reform. Data from the EAAs and the FADN form the basis of the Commission’s assessment of the performance of CAP measures aiming at farmers’ incomes. An effective performance assessment, however, not only requires the availability and quality of data on farmers’ incomes, but also, from the outset, clearly defined objectives of measures and indicators specific to the objectives. Moreover, income is not the only objective of the CAP and it is not an exclusive objective of most CAP measures. The Court analysed whether CAP measures set clear objectives from the outset insofar as they are related to farmers’ incomes. On this basis the Court assessed whether the Commission defined relevant indicators allowing for an effective performance assessment of CAP measures in supporting farmers’ incomes. In addition, it assessed whether the performance indicators for the current programming period will enable the extent of the achievement of those objectives to be measured. The Court’s analysis was also corroborated by the experts. In order to analyse the objectives of the CAP in relation to farmers’ incomes, the Court used the SMART criteria — that objectives should be specific, measurable, achievable, relevant and timed — set out in the financial regulation. In general, commercial agricultural holdings gain their income mainly from the sale of their produce. Direct payments to farmers are per se additional revenue. Moreover, they can be expected to have a further impact on farmers’ income by influencing their business decisions. The general CAP objective of viable food production and its impact on agricultural income has so far not been translated into measurable targets. How individual measures within the direct payments schemes should precisely contribute towards achieving this overall objective is also not specified, because neither the regulation nor its preamble define their specific objectives in a sufficiently clear manner and there is no baseline or target against which their performance could be measured. Moreover, the relationships with the other CAP objectives such as the sustainable management of natural resources are complex and can affect farmers’ incomes as well. The Commission considers that direct payments, also in conjunction with other measures, should simultaneously contribute towards achieving a multitude of objectives, such as supporting the economic viability of holdings, improving productivity and competitiveness in agriculture and promoting the sustainable management of natural resources and climate action. However, due to the overall lack of clarity regarding what the general and specific objectives of the CAP are expected to achieve, it is inherently difficult to assess, on the basis of the performance indicators, whether a measure has achieved its objective. The variety of options that Member States can choose for the implementation of direct payments adds complexity, because effects on agricultural markets and income disparities of farmers can be considerably different from one Member State to another. Indicators should allow for the assessment of the progress, effectiveness and efficiency of the policy measures against the objectives. They should be relevant, accepted, credible, measurable and robust and based on sound statistical information. The impact indicators are designed to show the combined effects of the CAP measures. In respect of farmers’ incomes, as a part of the general objective of viable food production, the agricultural entrepreneurial income and the agricultural factor income are the most relevant impact indicators. However, they are limited to showing trends and not absolute income values, and no baselines have been established. Moreover, changes in these indicators are mainly due to changes in prices and not to the effect of CAP measures. They also cannot provide information as to what extent the CAP achieved the treaty objective of a fair standard of living for the agricultural community, as no adequate data are available at EU level. The Court also found that the Commission’s result indicators, insofar as they are directly related to income, are relevant for the general objective of viable food production and thus the income of farmers from agriculture. Information provided by the indicators, however, are once again not sufficiently precise to be linked clearly enough to EU measures to show that they contributed towards the desired effects (see Box 4). As no targets or baselines have been set, the indicators cannot provide information about a possible gap between the desired and the actual achievement of objectives and whether the measures have contributed to reducing this gap. The indicator share of annual direct payments in agricultural income, which is calculated on the basis of the EAAs, highlights the importance of direct payments for the agricultural sector. However, the underlying data for this indicator are not sufficiently reliable. Furthermore, the indicator is distorted by the following situations: there are holdings, which receive direct payments but do not produce and thus have no agricultural income; in contrast, in some Member States a significant share of agricultural income is generated by farmers who receive no or only marginal amounts of direct payments; finally, the indicator does not take into account the reduction in farmers’ incomes due to the increased rents which result from the capitalisation of the direct payments in land prices. Furthermore, it is also not clear if a change in the indicator is solely or mainly due to specific CAP measures, changes in markets or other factors. The indicator variability of farm income depends mainly on the volatility of world market prices. This indicator, which is calculated on the basis of FADN data, can provide relevant information about the overall effectiveness of direct payments in cushioning the effects of market instabilities. However, the indicator is not sufficiently sound as it does not take into account subsidies, taxes and non-agricultural income, which can play an important role in helping farmers cope with price volatility. The indicator value added for primary producers in the food chain looks at the added value of primary agricultural production in comparison to other stages of the food chain, such as the food processing industry, traders or supermarkets. The indicator is not sufficiently robust, as situations can occur where the indicator decreases while agricultural income increases. This is for example the case where there is a high demand for new food products resulting in higher product prices. In this case the share of farmers in the food chain is likely to be reduced, although the income of farmers may be higher. The Commission’s indicators do not consider other results that are important for the performance of direct payments in relation to income. For example, there is no result indicator to provide information as to the extent to which the farming population uses the instrument of direct payments,to what extent the payments actually go to agricultural producers and whether the new direct payment schemes support low income farmers better than before the reform. Also, the indicators are not informative about whether the EU payments contributed towards achieving the income objective efficiently, because the indicators cannot show whether other levels or forms of CAP support would affect agricultural income by the same amount and at the same budgetary costs, or that a specific measure was sufficiently targeted to deal with market failure in the most efficient way. Food production, income and standard of living of farmers are a particular focus of the treaty. With the 2013 reform of the CAP one third of the EU budget is still directly or indirectly dedicated to stabilising markets and supporting the income of farmers, and thus contributing to viable food production and a fair standard of living for farmers. In the past, the Court observed that more reliable and comprehensive statistics and indicators were required in order to follow more closely the performance of the CAP, of which more than two thirds of the budgetary resources were devoted to income support. The new framework for the monitoring and evaluation of the CAP requires the Commission to assess the combined impact of the CAP measures in relation to the stated objectives. This involves sufficient and good-quality information. The Court concludes that the Commission’s system for measuring the performance of the CAP in relation to farmers’ incomes is not sufficiently well designed and the quality and quantity of statistical data used to analyse farmers’ incomes have significant limitations. No representative data are available on the disposable income of farm households, which would facilitate the assessment of the achievement of the treaty objective of ensuring a fair standard of living for farmers. Also, there is no reliable system to allow comparisons to be made between agricultural incomes and those in other sectors of the economy, which could justify EU income support for farmers (paragraphs 26 to 32). The Commission should develop a more comprehensive statistical framework to provide information on the disposable income of farm households and to better capture the standard of living of farmers. For this purpose the Commission should, in cooperation with the Member States and based on a common methodology, consider how best to develop and combine existing EU statistical instruments. The Commission should also improve the framework for the comparison of farmers’ incomes with incomes in other sectors of the economy. The tools currently available at EU level for measuring farmers’ incomes are the EAAs and the FADN. Both provide essential data for measuring the performance of the CAP measures directed at promoting viable food production and supporting farmers’ incomes. These instruments, however, have significant limitations and important data may not be available for an effective assessment of the CAP measures aiming at the support of farmers’ incomes. The potential of the EAAs has not yet been fully used and they are not sufficiently informative about important factors that are relevant for farmers’ incomes. Furthermore, EAA information is not always used correctly by the Commission (paragraphs 33 to 39). The Commission should further develop the EAAs so that their potential could be better used in order to:

provide more detailed information on the factors impacting agricultural income;

ensure transmission of regional-level data based on formal arrangements with the Member States.

The Commission should also:

examine whether the EAAs can be further developed to provide a reasonable estimate of the economic value of the public goods that are produced by farmers;

ensure that EAA information is used appropriately in income indicators.

The FADN is an important instrument for the evaluation of the CAP, but it has limitations. The income indicators do not fully take account of the evolution of holdings in the agricultural sector, while information about other farm-related incomes of farmers is incomplete. Furthermore, no income data are available at EU level for a large number of beneficiaries of EU-support (paragraphs 40 to 51). The Commission’s analysis of farmers’ incomes should be based on indicators taking account of the current situation of agriculture and on sufficient and consistent data for all beneficiaries of CAP measures. This could be done by developing synergies between existing administrative data or by developing the FADN or other suitable statistical tools. The Commission had insufficient up-to-date information on the EAA methodology and data sources used by Member States, reporting to Eurostat was affected by shortcomings and the quality assurance arrangements were not fully effective. This can affect the accuracy and impair the comparability of the data reported. It also calls into question the reliability of the Commission’s main indicators for monitoring the performance of the CAP (paragraphs 53 to 58). In view of the importance of the EAAs for monitoring the CAP, the Commission should introduce regular quality reporting on the EAAs and obtain reasonable assurances that Member States set up a quality assurance framework to ensure that data provided by Member States are comparable and compiled in line with the quality criteria applying to European statistics. For the FADN, in some Member States the technical implementation of the survey affected the quality of the results, and the representativeness of the sample varied across Member States. As a consequence, not all sectors, size classes and regions were sufficiently well represented in the FADN, which reduces its usefulness for analysis purposes. Furthermore, insufficient funding by Member States for the collection of FADN data can impact the quality of the results obtained (paragraphs 59 to 72). The audit identified certain weaknesses in the quality assurance arrangements for the FADN (paragraphs 73 to 76). The Commission should also address weaknesses identified in the implementation of the FADN by agreeing a clear timetable with the Member States concerned and encouraging better use of the system’s potential. The Commission should further develop the present quality arrangements for the establishment of the FADN statistics by the Member States to ensure that, in all Member States, sectors and size classes of holdings that are of interest for the CAP are adequately represented, reflecting also the choices made by Member States in terms of CAP options. Vague objectives and the absence of a baseline make it difficult to assess on the basis of the performance indicators whether individual CAP measures aiming at the support of farmers’ incomes have achieved their objectives. Member States’ choices for the implementation of direct payments are an additional challenge for the Commission’s analysis as to whether they contributed more efficiently and effectively to achieving the CAP objectives and thus added EU value (paragraphs 79 to 82). The Commission’s indicators in relation to viable food production and farmers’ incomes are not sufficiently reliable or are not linked clearly enough to CAP measures to show that they contributed effectively and efficiently towards the desired effects. Limitations in the availability of data further reduce the relevance of the indicators. They are also not informative as to whether the objectives were efficiently achieved, which requires an in-depth analysis of the factors impacting farmers’ incomes (paragraphs 83 to 87). Taking into consideration the weaknesses identified by the Court, the Commission should improve the reliability and completeness of performance information of the CAP measures in relation to farmers’ incomes by:

defining from the outset appropriate operational objectives and baselines against which the performance of the CAP measures can be compared for the next programming period;

in the context of its evaluations, complementing the current framework of performance indicators with other relevant and good-quality data to measure the results achieved;

also in the context of its evaluations, assessing the effectiveness and efficiency of the measures designed to support farmers’ incomes.

This Report was adopted by Chamber I, headed by Mr Augustyn KUBIK, Member of the Court of Auditors, in Luxembourg at its meeting of 13 January 2016. For the Court of Auditors Vítor Manuel da Silva Caldeira President

ANNEX

ANNEX I MEMBER STATE CHOICES FOR THE IMPLEMENTATION OF EU DIRECT PAYMENTS

Member State Basic payment Single area payment Redistributive payment Payment for young farmers Payment for areas with natural constraints Payment for agricultural practices beneficial for the climate and the environment Voluntary coupled payments Small farmers’ scheme Belgium X - X X - X X - Bulgaria - X X X - X X X Czech Republic - X - X - X X - Denmark X - - X X X X X Germany X - X X - X - X Estonia - X - X - X X - Ireland X - - X - X X - Greece X - - X - X X X Spain X - - X - X X X France X - X X - X X - Croatia X - X X - X X X Italy X - - X - X X X Cyprus - X - X - X X - Latvia - X - X - X X - Lithuania - X X X - X X X Luxembourg X - - X - X X - Hungary - X - X - X X X Malta X - - X - X X X Netherlands X - - X - X X - Austria X - - X - X X X Poland - X X X - X X X Portugal X - - X - X X X Romania - X X X - X X X Slovenia X - - X - X X X Slovakia - X - X - X X - Finland X - - X - X X - Sweden X - - X - X X - United Kingdom X - - X - X X -

ANNEX II CALCULATION OF AGRICULTURAL INCOME AS DEFINED UNDER THE EAAS

ANNEX III CALCULATION OF INCOME IN THE FRAMEWORK OF THE FADN

ANNEX IV COMMISSION PERFORMANCE INDICATORS FOR ASSESSING THE CAP

Output indicators (who and what is supported) Direct payments Area and number of farmers under Market measures Horizontal aspects Impact indicators (where the CAP is expected to have an influence) General objective: Viable food production Agricultural entrepreneurial income — Agricultural factor income — Total factor productivity in agriculture — EU commodity price variability — Consumer price evolution of food products — Agricultural trade balance General objective: Sustainable management of natural resources and climate action Emissions from agriculture — Farmland bird index — High nature value (HNV) farming - Water abstraction in agriculture — Water quality — Soil organic matter in arable land — Soil erosion by water General objective: Balanced territorial development Rural employment rate — Degree of rural poverty — Rural GDP per capita Result indicators (what CAP measures have achieved) Specific objectives: Contribute to farm incomes, limit farm income variability, improve competitiveness of EU agriculture and enhance share in food chain and maintain market stability Share of direct support in agricultural income — Variability of farm income (by type of farm; by economic size) — Value added for primary producers in the food-chain — EU agricultural exports — Share of EU agricultural exports in world exports — Share of final products in EU agricultural exports — Percentage volume of products bought in intervention or private storage out of total EU production — Percentage volume of products exported with export refunds out of total EU production — EU commodity prices compared to world prices — Value of production under EU quality schemes compared to total value of agricultural and food production — Importance of organic farming — Share of organic area in total utilised agricultural area (UAA) — Share of organic livestock in total livestock Specific objectives: Provide public goods, pursue climate change mitigation and adaptation, foster resource efficiency through innovation Crop diversity (on farm and in a region) — Share of grassland in total UAA — Share of ecological focus area (EFA) in agricultural land — Share of area under greening practices — Net greenhouse gas emission from agricultural soils Specific objective: Maintain a diverse agriculture across the EU Structural diversity (in absolute and in relative terms) — Additional result indicators for rural development specified in Implementing Regulation (EU) No 808/2014

Basic payment scheme

Single area payment scheme

Transitional national aid

Redistributive payment

Greening (crop diversification, permanent grassland, ecological focus area, organic farmers, etc.)

Payment for young farmers

Small farmers’ scheme

Voluntary coupled support

Payment for areas with natural constraints

National programmes for the cotton sector

Public intervention (volume and duration)

Private storage (volume and duration)

Export refunds (volume of products exported with export refunds

Exceptional measures (as appropriate)

Producer organisations (percentage of production marketed by producer organisations and associations of producer organisations)

School schemes (Number of final beneficiaries of school milk and fruit schemes)

Number of hectares of new vine plantings

Number of hectares of restructured vineyards

Number of promotion projects, projects of investment and innovation measures in the wine sector

Number of hectares and share of CAP payments subject to cross-compliance

Geographical indications for quality policy (wine sector), number of new protected designations of origin, protected geographical indication and traditional speciality guaranteed by sector

Number of hectares under organic farming (total and under conversion) and of certified registered organic operators

Number of programmes (in and outside the EU) and of new proposing organisations for promotion policy

Number of farmers advised by farm advisory system

ANNEX V Quality criteria applying to European statistics

Principles of the Eurostat code of practice Relevance Degree to which statistics meet current and potential needs of the users. Accuracy Closeness of estimates to the unknown true values. Timeliness Period between the availability of the information and the event or phenomenon it describes. Punctuality Delay between the date of the release of the data and the date by which the data should have been delivered. Accessibility and clarity Conditions and procedures by which users can obtain, use and interpret data. Comparability Measurement of the impact of differences in applied statistical concepts, measurement tools and procedures where statistics are compared among geographical areas, sectoral domains or over time. Coherence Adequacy of the data to be reliably combined in different ways and for various uses.

Versions

1. 2016-04-05