Summary: ‘Modulation’ is a policy mechanism for shifting funding from the part of the CAP budget dedicated to providing direct payments to farmers (Pillar 1) to the European Agriculture Fund for Rural Development (Pillar 2), which aims to provide targeted support to rural areas, to improve the competitiveness of the farming and forestry sectors, enhance the environment and improve quality of life. In keeping with requirements under the World Trade Organisation (WTO), changes have been made to the way the EU Common Agricultural Policy (CAP) operates in recent years to ensure greater market orientation. Central to this were the 2003 reforms, which introduced the decoupling of direct payments from production as well as, amongst other changes, modulation on a compulsory basis for the EU-15 under Article 10 of Council Regulation (EC) No 1782/2003. Greater market orientation within the agriculture sector means that the influence the CAP once had on patterns of production through production related payments and market interventions has significantly decreased, and will decrease further over the coming years. The market now plays an increasingly significant role in determining what gets produced, where and how, and is becoming increasingly global in nature as legal arrangements governing trade, through bilateral and multilateral agreements, become less constraining to the free movement of goods. At the same time, support within the CAP has started to place a greater emphasis on sustainability, the environment and rural development, encouraging the provision of public or non-market goods.
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