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Ref. Ares(2022)4380888 - 14/06/2022 Ministry of Agriculture and Rural Development MINISTER BD. Carol I no. 2-4, sector 3 Bucharest, postal code 030163 Contact details T + 40(21)307 8588 F + 40(21) 313 4766 www.madr.ro http://www.m No. 197239/02.06.2022 adr.ro/ To: Janusz WOJCIECHOWSKI Commissioner for Agriculture European Commission REF.: COM comments on Romania’s National Strategic Plan 2023-2027 Dear Commissioner, Thank you for the observations and recommendations of the European Commission regarding the first version of the Romanian National Strategic Plan for the period 2023- 2027 submitted by the Romanian authorities on 28.02.2022. I also appreciate the efforts made by the Commission’s representatives in evaluating the document in a short time, as well as the willingness to participate in technical discussions in order to clarify all the issues mentioned in your letter. I stress that the Romanian authorities take all necessary steps to clarify, as soon as possible, together with the services of the European Commission the comments received, as well as the resubmission of the consolidated version of the Romanian National Strategic Plan (NSP) for approval by the Commission. I appreciate the possibility of communicating a first reaction on the key elements of the Commission’s observations. In this respect, the representatives of the Ministry of Agriculture and Rural Development are open to discuss during the technical meetings the approach envisaged in the elaboration of the NSP and to provide more detailed clarifications and explanations regarding the arguments underlying the proposed interventions in line with Romania’s specific needs. First, I would like to stress that Romania welcomes the European Commission’s efforts to identify solutions to combat the severe consequences of the war in Ukraine, including that of a possible global food crisis, as the Strategic Plans contribute in this regard to strengthening the resilience and sustainability of the agricultural sector. Thus, one of the main concerns is finding the balance between common ambitions to achieve the overall strategic objectives agreed at EU level and the need to strengthen the capacity of Romanian farmers to face all the challenges they face. 1 I stress that the basis for the Romanian NSP’s elaboration was the analysis of the current situation, the prioritization of the identified needs and of course the results of the debates with the socio-economic partners. The interventions planned by the Plan aim to respond, in the most appropriate manner possible, to the reality in Romania with the preservation of the rigors of the European legislation on the Common Agricultural Policy. Thus, I believe that the National Strategic Plan of Romania submitted to the Commission for analysis identifies, properly and based on the analysis of the current situation, ways of support adapted to the national context and addressing the most urgent needs identified. Thus, after a first analysis carried out by the Romanian authorities, we can agree with a number of Commission observations regarding the need for further justification, detail or adjustments in order to better substantiate the proposed interventions, synergies between them and the coherence of the whole Plan. However, the national policy options for directing support to the agricultural and rural development sector are the exclusive attribute of the Romanian authorities in transposing the principle of subsidiarity, of course by following the rigors of CAP legislation. From this point of view, I believe that the proposed strategic approach closely follows the conditions imposed and the MARD team will provide all the necessary arguments in this respect during the subsequent technical discussions. However, I would like to point out that the Romanian authorities consider that a significant impediment in setting a wider range of interventions or higher targets was the insufficient financial allocation available to Romania in the programming period 2023-2027, which has, moreover, been pointed out to the Commission on numerous occasions by Romania’s representatives and which has influenced the planning process for the next programming period. Below, let me send you a series of general assessments reflecting the position of the authorities on the Commission’s letter of observations: First, it is important to emphasize that the NSP must propose solutions to the particular situation in Romania where an extremely high number of small farms coexist, which are in fact peasant households, on the one hand, with large competitive farms, on the other hand. The dual structural character of agricultural holdings in Romania, which has historical reasons, is still a challenge in the development of Romanian agriculture. Therefore, the NSP strategy to support farmers and develop the agricultural sector takes into account the two structural levels, each of which has different objectives that require differentiated approaches, so that the congruence between them leads to increased effectiveness. These approaches targeted both Pillar I and Pillar II CAP’s support, aiming at ensuring the fairest possible distribution of Pillar I direct payments and the inclusion of forms of support appropriate to the specific needs of each farm category through Pillar II. With regard to the Commission’s comment on ensuring a fairer distribution of direct payments, we consider that the option already set out in the NSP is fully substantiated, based on the results of the SWOT analysis and strengthened following the consultations with representatives of farmers and of agricultural and research organizations. The way in which the option to redistribute payments has been planned and defined will allow direct support to be channelled much more effectively, exclusively to small and medium-sized 2 farms (i.e. the category of farms from 1 to 50 ha, which represents 97 % of the total number of farmers registered in IACS), by reference to the current programming (2014- 2020/2021-2022). Romania opted for the redistributive payment in order to efficiently target income support, considering that this is a much more appropriate instrument for national realities compared to ceiling payments. The European Regulation grants this flexibility to Member States so that they can select the most appropriate and efficient ways of achieving the objective of fair distribution of direct payments. In addition, the application of the ceiling may lead to an imbalance in the agricultural sector, with an impact on the market and implicitly on the possibility of ensuring food security, which is undesirable, in particular, in the current geopolitical context. At the same time, by defining direct support for young farmers, a considerable part of the ceiling for this intervention will be addressed to the same category of small and medium- sized farms. In addition, small and medium-sized farms, due to compliance with increased environmental rigour, will also benefit from the opportunity to access eco-schemes, whose total ceiling is 29 % of the total national envelope for direct payments. Eco-schemes will shape a way to develop and focus the efforts of small and medium-sized farmers towards increasing the sustainability and resilience of European agriculture in the long term, in particular through the promotion of small-scale and environmentally friendly agriculture, as small farmers are a guarantee to preserve biodiversity and agricultural natural resources. In the same vein, small and medium-sized farms will benefit equally with the remaining categories of farmers from coupled support interventions in both the plant and livestock sectors. In the context of distributing direct payments in a fair way for farmers, we would also like to point out Romania’s repeated request to define external convergence in a fairer way for our farmers vis-à-vis European farmers. The subject was part of the CAP negotiations and the EU’s 2020 New Multiannual Financial Framework, however, the way external convergence was redefined has reduced the fairness ambition of the amounts of direct payments set in the November 2013 reform. This sensitive aspect was a factor in the design of the NSP to limit the amount of the subsidy per hectare for all farmers in Romania, regardless of the size of the farm in which they operate and to maintain the environmental benefits for the sustainable future of the European Union. With regard to the Commission’s observations on rural development interventions such as the investments provided for in Articles 73-74 of the Regulation on Strategic Plans for the agricultural sector, we appreciate the fact that Romania, through the proposed interventions, addresses the issue of structural duality at NDP level based on a differentiated approach. Thus, small and medium-sized farms will be supported with a view to market orientation, restructuring and retrofitting, and for larger farms, which are essential to ensure products to competitive standards and ensure food safety, the focus is on the application of high- performing and sustainable technologies where digitalization and innovation are key features. At the same time, small farms will be the subject of financing through LEADER taking into account the local specificity and the possibility of their easier interconnection with local 3 actors so that they can easily integrate into the local market. On the other hand, at national level, rural development interventions are intended to strengthen farms that reach the minimum cost-effectiveness threshold so that they can become competitive in real terms. Thus, the minimum eligibility threshold of 12,000 SO is not determined randomly, but is based on economic analyses, being the minimum point of profitability of a farm in order to support the investments needed to increase competitiveness. Therefore, rural development interventions aimed at investments in agricultural holdings are aimed at supporting potential farms at sectoral level. In addition, the integration of primary production into the food chain is essential to support farmers and the whole sector, and therefore, on this basis, intervention for the processing of agricultural products covers both associative forms and actors in the food industry. For Romania, as it is also identified in the needs analysis, the capitalization of primary production is still deficient in certain sectors, which is why the construction of large-scale storage/conditioning units with territorial service is a sustainable and effective development goal, so that farmers with small and medium-sized farms who do not have the economic capacity to develop such facilities to be able to capitalize on their production under favourable conditions, thus integrating the cumulative support through Pillar I and II into a positive final result. In the context of the crisis generated by the Russian invasion, which has attracted major economic disturbances throughout Europe, the inflationary phenomenon is increasingly present with a steady upward trend and with corresponding repercussions in all sectors of the economy. Therefore, it is obvious and supported with statistical data the increase in the prices of goods, including the prices of construction materials as well as services. In this context, the Romanian authorities support the maximum ceilings per project proposed in the Plan as being essential for development in the current economic reality. Following all the Commission services’ key requests and comments, the MARD analyses, on a targeted basis, the appropriateness of concentrating support for the consolidation of medium-sized farms in order to ensure the restructuring and competitiveness of this type of holdings. At the same time, in order to better integrate farmers in the short chain, the possibilities of supporting separate operations for cooperation between farmers and other agro-hub entities are explored. As regards non-productive investments such as green curtains, we understand the Commission’s position, but we consider it necessary to clarify further as regards the classification of these types of stand-alone activities within the scope of State aid. As regards the sectoral interventions targeting the wine, beekeeping and vegetable-fruit sectors, they contribute to achieving the CAP’s objectives by ensuring a level playing field in the internal market, contributing to their cooperation and competitiveness. The inclusion of EGF funding interventions for other sectors requires significant allocations in the context of a limited budget and would jeopardise the balance in the distribution of financial resources for direct payments. With regard to the Commission’s observation on the targets proposed by the Plan, we would like to point out that more appropriate indicators shall be added and certain targets shall be revised where necessary. However, it should be noted that the low level of certain result indicators such as R5 — Risk Management, R8 — Targeting towards farms in certain sectors, R9 — Farm Modernization, R10 — Better organization of the supply chain, is directly linked to budgetary constraints, i.e. the limited budget for various interventions 4 and to the high values of context indicator C12, which represents the total number of farms and which, in the case of Romania has a value of 3.4 thousand farms (of which over 3 thousand less than 5 ha). We specify out that out of the total number of farms registered statistically mentioned above, the number of beneficiaries of direct payments is 781.246. When establishing the budget for the interventions, both the identified needs and the expenditure thresholds laid down in EU legislation for the different objectives and types of support have been taken into account. More detailed clarifications will be provided in the context of further technical discussions with the Commission services on how to set targets and the link of allocations to the proposed interventions and estimated output and result indicators, based on the methodologies made available by the Commission. With regard to environmental and climate interventions, as it can be understood from the information included in the SWOT analysis, the environmental components in Romania generally have a good conservation status. For this reason, the proposed objectives are mainly aimed at maintaining this good status and are addressed through instruments used successfully also in previous programming periods. Thus, the EAFRD interventions contributing to the specific environmental and climate objectives respond effectively to a wide range of identified needs, ensuring an appropriate level of consistency for the strategy, in the context of available financial resources, diminished compared to the previous programming period. The hierarchy of the different integral elements of the green architecture and the complementary mode of action established by the specific conditions (intervention areas, eligibility conditions and basic and specific requirements) which complement the general framework given by the conditionalities, provide the necessary prerequisites for achieving the objectives set. In order to reflect more clearly the contribution of these interventions to the proposed objectives, further clarifications and more detailed information can be provided regarding their correlation with the intended results, including from the perspective of established indicators or from the perspective of the relevant targets under European or national environmental legislation. At the same time, in view of the current situation reflected by the analysis and the way in which environmental and climate interventions financed by the EAFRD have been developed, it is expected that the implementation of the NSPs will ensure the contribution during the entire implementation period to all current issues, including those recently introduced on the EU agenda and for which the relevant implementation elements are to be established in the next period at the level of the Member States. Through the proposed environmental and climate interventions under rural development and the related financial allocations, Romania proposes a consistent contribution to the targets set by the Green Deal. It is important to specify that not only the efforts supported under the NSP are contributing to meeting these targets. On the other hand, quantifying the contribution of interventions to the achievement of these targets is not a mandatory element to be included by the Member States in the Strategic Plans. At the same time, we consider that the setting of national targets must be carried out in a common exercise, to which all Member States must contribute, so as to ensure that the proposed European targets are met, based on the reference levels and factual situations specific to each Member State. In the light of the above, Romania does not intend to provide separately in the Plan the values for these targets. As regards Natura 2000, the NSP supports actions in the framework of interventions aimed at achieving Specific Objective 6 on biodiversity and conservation of habitats and 5 lan