The mid-term reform (MTR) (originally planned as the mid-term review) was put in place for the 2005 harvest.  While all countries in the UK implemented a the subsidy system based on the subsidy payments received from 2000 to 2002 the implementation differed between countries.  In England implementation was through a dynamic hybrid system where payments were initially paid to farmers largely based on their individual historic claims but changing over the period to 2012 to a system where all payments in a similar region are the same per unit area.   In Scotland and Wales each farmer retained a payment based on the historic claim.  In economic terms the English system reduces the historic distortion while it may be argued that now, in 2009, the system in Wales and Scotland supports farming as it was between nine and seven years ago. Perhaps not surprisingly this will be one of the areas likely to debated at the next CAP reform in 2012.   

In order to activate the subsidy the applicant must have access to an area of land equal to the area giving rise to the payment.

In 2008, for implementation from 1 January 2009, agreement was reached in the EU to tweak the mid-term reform. This was largely designed to simplify the earlier scheme.

The EUs New Member States (NMS) who were not part of the EU in the reference period adopted the Single Area Payments Scheme (SAPS).  Payments are based entirely on the area occupied and increase to 2016.

The Health Check reform was a more modest adjustment of the Mid Term Reform and came into operation in January 2009.

Glossary

Reference period

These are the years from 2000 to 2002 on which subsidy was calculated. The bases year may be applied to an individual farm claim, a regional claim, or a combination of both options.

Reference area

The average hectares used to acquire the subsidy in the reference years including forage area, but excluding set aside or in England the area registered in 2005.

Regions

England adopted three regions: the moorland area, the remaining severely disadvantaged areas (SDA) and all other areas known as the non-SDA area.  This area covers most of the country and receives the highest payment per unit area at final implementation.  Scotland and Wales adopted a single area each although since prior to the MTR each had two payments regions the actual payments differed between farms even where cropping and stocking had been identical.

Single Farm Payment/ Reference amount

A single payment replaced area aid subsidy (AAPS), beef premiums, sheep and goat subsidies.  In exchange for reducing the support level for milk a new subsidy was introduced and incorporated into the new subsidy scheme.  In 2006 sugar beet was brought into the scheme similarly to the dairy subsidy the payment was introduced as the supported price was reduced.  Strictly the application process is still the IACS (integrated administration and control system).

Entitlement

The single farm payment is divided by the reference area to give a value per hectare. Each hectare unit is called an entitlement. Where an historical award is made the entitlement value varies between farms.  Initially there were four types of Entitlement in England: normal entitlements, set aside entitlements, FVP (fruit vegetable and potato) entitlements and special entitlements.  The set aside entitlements were based on 8% of the arable area (including temporary grass)available in 2003 and 2005. The FVP entitlements could be activated by FVP crops (and other crops) while normal entitlements could not be activated by these crops.  Special entitlements are rare but ocurred where beef subsidy gave rise to a payment of over €5,000/ha and stock to be kept to maintain this payment.  In 2009 set aside and FVP entitlements became indistinguishable in treatment to normal entitlements.  In 2010 entitlements will be issued for orchards and other permanent crops that had been excluded.

Eligible hectare

This is the area needed to activate the payment and may differ from the land used to acquire the entitlement.   Most woodland (except where it is grazed) cannot be used to activate the payment and until 2009 land used for orchards and top fruit could also not be used to activate period.   Until the Health Check occupation of the land needed to be for 10 months but now can be only for the 15 May application date.  However, the cross-compliance obligation applies to the calendar year and subsequent or previous occupiers could potentially impact on the claimants subsidy.

Negative list

Initially, where an historical payment was introduced the payment could not be activated on land used to grow fruit, vegetables or potatoes.  In England FVP entitlements were issued that could be activated by these crops.  The negative list ceased to exist in 2009.

Decoupling

The UK fully decoupled the payments allowing farmers to change production or even stop farming altogether (subject to cross compliance) without jeopardising the receipt of payment.  Many EU countries continued to couple part of the payments to protect the environment and those industries supporting farming.  In the Health Check the scope for coupling payment was reduced although some countries, most notably France, made use of other articles to effectively achieve the same ends.

Crop specific payments

Introduced for the 2004 harvest and subsequently paid in addition to the SPS subsidy. The energy supplement is not available on set aside land. MGA = maximum guaranteed area above which subsidy will reduce proportionately.  The energy MGA was exceeded in 2007 reducing the payment to €31.65/t. 

Compulsory Modulation

Voluntary modulation

The Member State was allowed to increase the rate of modulation unilaterally but this was only taken up by the UK and Portugal and is generally considered in the EU and unwelcome departure from a common policy (despite a much greater divergence in other areas).  It is a means of diverting money from Pillar 1 (farm production) to Pillar 2 (rural development and the environment)) without loss of the unique UK rebate. The money extracted from Pillar 1 is returned to the rural sector with a top up from the Treasury.

Progressive modulation

Financial discipline

From 2007 if the payments exceed budget limits (within a margin of €300m) agreed within the EU on 18^th November 2002 they will be reduced to keep within the financial constraints.  However, high commodity prices and teh reduction in export subsidies has meant that to date (2009) this has never been imposed.

National reserve and Hardship

The MTR reform allowed for an annual deduction to fund a National Reserve. In fact the provision was only used in the initial year and at the implementation of the new elements introduced into the SPS such as the sugar beet reform and the introduction of top fruit and permanent crops into teh scheme.  The objective was to ensure that farmers were not disadvantaged through missing out on subsidy following land changes. The provisions were however discriminatory and for example, a landowner taking land back from a tenant would not qualify and arable investments that increased productivity were generally (but not consistently) excluded.  While the basic provision was 3% additional funding could be found and in the UK the total funding was increased by another 4.2%.  National Reserve entitlements could not be transferred but since the Health Check are treated as normal Entitlements.

There was also a facility in the original reform and the subsequent extensions to make a Hardship claim in place of a National reserve claim.  This covered similar but not identical situations and allowed farmers to omit or a year from the reference period or adopt another reference period where exceptional conditions had led to disadvantage.

National envelope

The national envelope is optional and maybe up to 10%. It is to encourage specific types of farming for the protection and enhancement of the environment and improve quality and marketing of agricultural products. It has to be returned to the sector that it was originally taken from. The UK was responsible for its inclusion in the reform although implementation is controversial on the grounds of complexity and effectively reintroduction of partial coupling of payments.  Scotland was the only UK country to introduce this measure.  It has become more important under the Health Check where it has been used to reintroduce coupling which is no longer possible in other ways.

Base area ceiling

Where exceeded payments will be reduced.

Set aside

Set aside is no longer included within the legislation and set-aside entitlements have been re named normal entitlements.  However, they do not include any historic element of subsidy in the UK implementation.

Transfer

Sale may be with or without land but would be subject to VAT where transferred separately.  Since the Health Check it is no longer necessary for the transferor to be a farmer at the time of transfer.  Entitlements can only be leased with land.  It is increasingly common for farmers to let their land to specialist crop producers on licences rather than tenancies where the occupation is hared or for grass lets to be offered on grazing agreements.

Cross compliance

Subsidies are linked to compliance with EU standards on the environment, public and animal health, and animal welfare. Land must also be maintained in good agricultural and environmental condition as defined by the Member States. Significantly the cross compliance measures apply to the whole farm area and not just to the area subject to payment.

Intervention

Intervention is no longer available for rye and payment increments are halved to €0.465/t (33p/t/month). Intervention remains unchanged at €101.3/t (£70/t)

Entry Level Environmental Scheme

This is not part of the Mid Term Reform but the reason for the higher levels of Modulation in the UK. The scheme was formerly also called the Broad and Shallow Scheme. It is currently being piloted in four areas and will become nationally available in 2005. Unlike the other Regional Development Schemes payment will be available to any farmer achieving sufficient ‘points' for environmental measures. Payment is around £30/ha.

MTR top level legislation

29th September 2003

Start date

1^st January 2005

Application

By 15^th May 2005

Payment dates

1^st December to 30^th June