The fortune of modulation in the process of CAP reform

Direct payments have progressively become the largest and most visible form of support in the CAP tool-box. Analyses on direct payments have always highlighted a large inequality in their distribution, both between Member States and, within them, among farmers and territories where, on one side, a relevant amount of payments is concentrated in the hands of a few beneficiaries; on the other, a small share of support is divided among many heads. The European Commission has faced the problem of the volume and the distribution of the direct payments with two main instruments: the modulation and the capping. Modulation was originally conceived as a temporary tool aimed at filling the gap between pillars, but in the last years it has changed shape and rules alongside with the CAP process path and it has become one of the milestones of the CAP tool-box. The capping has received high attention during each step of the recent CAP reform process, however, it has been never implemented so far. Both the instruments have relevant implications about the total amount of payments received by farms and by the Member States and about their distribution; however, the way they are implemented and combined together is crucial to fully evaluate their effects. The main goal of this paper is to reconstruct the evolution of modulation in the process of CAP reform, from the voluntary one launched by Agenda 2000 till the most recent proposal of the CAP Health Check, that combines in one single tool modulation and direct payments’ capping. Simulations of the most recent proposal of modulation show that the goal of Pillar 2 reinforcement has prevailed over the distributional one, through the creation of a sort of national envelope that shifts resources from Pillar 1 to Pillar 2, even though it is not very clear so far how and for what that envelope will be spent. Moreover, the capping goal within the progressive modulation is not very effective and only affects to some limited extent direct payments in few Member States.