CAP reform proposals 12 October 2011
CAP reform consultation
SPS Payment Check
SPS: Dual use and obvious errors
2012/13 USDA forecast
Our first look at 2012 - 2013
Cereal S & D trends
DEFRA have a consultation on the main elements of the CAP reform. We are particularly concerned about the Direct Payment proposals and urge people to respond to: (Closing date 5 March)
EU Agriculture and Budget Strategy Team
Department for Environment, Food and Rural Affairs
EU Budget and Agricultural Strategy Programme
C/O Nobel House
17 Smith Square
Or alternatively by email to email@example.com
Our respnse is below. Our objective is to steer a course through the proposals to achive the wider objectives of public money while providing minimum distortion to the market. We have uniquely proposed the amalgamation of Stewardship and Greening Proposals through a novel "Cap and trade system".
1. Active Farmer (Article 9)
1.1. This proposal is flawed on a number of accounts and should be rejected.
1.2. The objective of the proposal is not clear. The proposals:
1.2.1. Would cause significant disruption, with the loss of established businesses which are indisputably involved with the production of food and stock (e.g. Co-op and AgReserves)
1.2.2. Would result in the loss of expertise, learnt in other sectors, from the farming industry
1.2.3. May raise the economic cost of food production and remove a means of managing risk through loss of cross subsidisation
1.2.4. Would provide no saving in subsidy (land would simply be let to an eligible farmer)
1.2.5. Provide no additional justification of the subsidy system to those funding the scheme
1.2.6. Provide no gain in sustainability.
1.3. Where a person or trading entity is involved in a farming business it is economically and morally appropriate that the business receives equal treatment with any other farming business irrespective of any other activity it is involved in. The contribution to food supply, employment and the rural economy is unlikely to be less for a business considered not to be an active farmer under this proposal than for an active farmer.
1.4. The number of farmers excluded according to the definition is greater than those targeted in the proposal pre-amble (airports, railway companies, real estate companies and companies managing sports grounds). In addition, those actually targeted are unlikely to be sanctioned, because with the possible exception of those managing sports grounds, they are likely to let the land to active farmers and receive, by means of rent charged, the subsidy and a share in any profit derived from farming the land.
1.5. The proposal results in an additional and unnecessary cost through information collection for the administration and for all farmers even where they retain access to subsidy. It does not achieve the stated objective of simplification.
1.6. Costs associated with non-farming activity, where run within the farming business, cannot be easily separated and a large part of the separation is likely to be arbitrary. Amongst other inputs it is possible that staff, accountancy cost, management time, office and fuel may be shared between farming and non farming activity and it is unlikely that the costs will be separated fully in the business accounts.
1.7. There is insufficient definition of “non agricultural activities” and “total receipts” to allow the impact of the proposal to be calculated. “Total receipts” are not the same as net receipts and may be substantially higher than the benefit to the recipient where cost s have to be deducted. Activities migh include normal farm diversifications that have been encouraged by UK and EU grant funding. Clarification is urgently required
1.8. According to the most recent Defra survey of diversification on farms, 24% had diversified into activities such as contracting and haulage, tourism, environmental management, processing and food manufacture and commercial energy. Some or all of these activities could lead to the loss of the Single Payment Scheme income and might also make the diversification unviable.
1.9. There is no clarity on the degree of linkage to other trading entities that may be permitted. Once identified there will be substantial cost involved in exploring these linkages.
1.10.If imposed, the main beneficiaries will be lawyers and accountants employed to avoid the sanction.
1.11.The current legislation 73/2009 Chapter 5 Article 58 paragraph 2 a and b allows member states to exclude non farmers or those farmers where the agricultural return is a small part of their income from the SPS. As far as I am aware no country in the EU has imposed this restriction.
1.12.The active farmer provision reduces the economic vitality of the industry, is an additional cost for all or many farmers, is potentially ineffective and certainly arbitrary in its application. This proposal should be rejected. Other member states are likely to join with the UK government to reject this aspect of the proposal.
2. Progressive reduction and capping of payment (Article 11)
2.1. This proposal is flawed on a number of accounts and should be rejected.
2.2. The contribution made by a large business to employment, food production and the environment is no less than made by a smaller business which makes discrimination inappropriate.
2.3. The cost reduction does not, and cannot, bear a relationship to the economies of scale achieved across all agricultural sectors. It fails to take into account any measure of profitability, which varies with factors other than scale, such as climate, sector and soil type.
2.4. The proposal actively works against the possibility of overall reducing subsidy in future because it cuts off expansion as a potential means of reducing cost of production to enable a reduction in subsidy.
2.5. In practice, rental income is determined by the level of subsidy and a share of income from agricultural production. The cost of expansion is not consistent across all scales of operation and may on some occasions be lower for a smaller farmer than a larger farmer despite the smaller farmer having higher average costs (for example, a farm with underemployed labour can expand more cheaply than a larger farmer despite higher average cost across the business.)
2.6. Where payments are capped, the major casualty is the farm worker and not the farmer. Farm workers are often the least equipped for other economic activity since; they often live in areas with little alternative economic activity; have few capital reserves and a skill set that is not easily transferred. Also awareness of other opportunities is often low.
2.7. The labour reduction is bureaucratic and badly defined. Thus where the business trades as a company the business principals are paid salaries and these may be set at any level to avoid capping. However, this option is not open to partnerships or sole traders.
2.8. There is no common financial year end for any trading business and it is unlikely that many businesses will have a financial year end that coincides with the scheme year end, possibly forcing the construction of additional records for the business. There would need to be an annual submission and complex verification procedure. This measure increases the cost for a significant number of participants and for the bureaucracy associated with managing it.
2.9. It is likely that an absolute payment cap can be avoided. It is vital that, if imposed, there is no move to replace the current proposals with a rise in the cap and removal of the labour off-set. A rise in the cap to say €500,000, would leave our largest claimants with a reduction in payment of close to that amount, making them unviable.
2.10.While a reduction in payment for all participants may be justified, a discriminatory reduction cannot be economically justified and should be resisted. However, as the proposals are currently worded the labour adjustment to the threshold means that there is relatively little impact on the sector through loss of subsidy but here is a large increase in the level of bureaucracy.
3. Payment for agricultural practices beneficial for the climate and the environment (Chapter 2, Article 29) ‘Greening measures’
3.1. We see no practical reason why there should not be some linkage between pillar 1 and provision of environmental goods traditionally paid through pillar 2. However, the blurring of the two pillars may require some redefinition. We would suggest that any CAP expenditure that involves annual support (such as Entry Level Stewardship) rather capital investment could be part of pillar 1.
3.2. However, the current proposals impose an uneven burden on individual farmers, have only a weak relationship with environmental objectives and have an unnecessarily high negative impact on food production.
3.3. We believe that government has a responsibility to deliver public goods as efficiently as possible and in such a way, that delivery has least implications for relative competitive advantage. A menu of environmental measures should be applied across the whole trading block (EU) rather than unilaterally (UK).
3.4. Politically it appears that while there is dissatisfaction over the particular measures described in the proposal, the concept of a greening payment is generally accepted. We believe that the UK focus should be on achievable targets and not dismissal of the proposals in their entirety.
3.5. The Environmental Stewardship Schemes in the UK are recognised across the EU as examples of good environmental practice. Modified forms of these schemes should be used to help the UK to meet its obligation under the greening proposals. In addition, the greening proposals could be used to help improve the focus of the Stewardship Scheme by realigning payment with environmental value and not just income foregone.
3.6. In response to questions from the MEPs and Council of Ministers on 7 November in the Committee on Agriculture and Rural Development Ciolos (the agricultural Commissioner) made two important statements that are relevant to these proposals:
3.6.1. “If a farmer under pillar two is paid to take a plot of land to cultivate trees or have as set aside it will be taken account within the 7% for greening.” The implication is that the Commission already perceives the benefit of a carrot as well as stick.
3.6.2. There is “waste with regard to food and how food is used but there is also waste with regard to how land is used...the 7% would drawback land into use and to maintain that land”. The commission does not want to have a negative impact on production.
Our proposed mechanism for application of any agreed greening measures
Our proposed mechanism for application of any agreed greening measures
3.7. We believe that:
3.7.1. Options should be appropriate to the member state and consequently suggest that a menu system as piloted by the Entry Level Stewardship Scheme should be adopted with additional options appropriate to other member states.
3.7.2. There is value in integrating the Stewardship Schemes and greening measures to remove duplication and allow additional payment for the more complex options. The threshold under the Entry Level Stewardship scheme should be removed with recognition of individual options.
3.7.3. There should be minimum disruption to the objectives of food production and the optimisation of the allocation of inputs through a market based system.
3.7.4. The system should be flexible and able to respond to changes in the market value for both public and private goods.
3.8. We have created two mechanisms that we believe meet these objectives.
3.9.1. Any measures that are agreed are fully tradable between farms if necessary constrained by areas or regions. This ensures the measures are complied with but are transferred to land causing least economic loss.
3.9.2. Top up payments for more expensive options can be awarded via pillar two
3.9.3. Implementation could be via the authorisation of certificates managed by the private sector although the payment agency would have to monitor and levy fines for non-compliance.
3.10.1. Implementation should be applied regionally
3.10.2. An additional payment should be made to support the proposed measures to encourage those farmers that can most effectively delivery the target objectives to do so funded from the payments to all farmers.
3.10.3. Application would be through a simple Stewardship type pro-forma which would enable the committed area in each region to be estimated and determine payment.
3.10.4. Penalties for regional non-fulfilment would be applied to those farmers not achieving the desired targets and money recovered used to increase the option payment, encouraging greater uptake in subsequent years (much like a ‘cap and trade’ scheme).
3.11. While the proposals add complexity to the SPS, the combined complexity and experience of managing the SPS and Stewardship schemes should make the scheme manageable, providing carefully and thoughtfully designed and managed computer systems are put in place.
3.12. There is no reason why the area of any particular option should not be limited so that those adopting first have the greatest choice. The payments could be subject to review under defined conditions to enable rebalancing of options to provide the most cost effective delivery of public goods. Payments may be made through a pillar 1 to 2 transfer, via coupled payments or from pillar 2 or a combination of these. We see that the mechanism is more important than the pot of money used. There is no need to increase the budget.
Three crop rotation (paragraph 1 a and Article 30)
3.10.This proposal is unacceptable. It provides little by way of environmental delivery, has an excessive cost for many farmers and increases the bureaucracy of the scheme. We suggest that there is too little worthwhile delivery of public goods to make this a worthwhile option.
3.11.To have three crops on 3 ha or even larger area up to say 200ha is very expensive. Even 3 ha of a single crop will generally produce insufficient grain to fill a typical lorry used for grain transport (a high yielding wheat crop producing 10t/ha might just produce enough grain to fill one 28t lorry). Any subdivision would increase cost for all smaller producers. Three crops on 3 ha would mean that all crops were part loads on delivery to market and the cost of storage would rise for virtually all smaller producers. The cost of cultivation and management would also rise.
3.12.Forced production of crop could significantly distort market prices by increasing production of crops where demand is not sufficient to justify production and lead to lower farm production by forcing production of unsuitable crop.
3.13.Many small farmers operate a rotation on an area below (say) 50 ha but on a sequential basis. There is unlikely to be a material environmental advantage by changing to three crops in a single year.
3.14.Livestock producers frequently grow a single cereal crop (wheat, barley or maize in addition to grass) and have no use for other crop types.
3.15.Possible solutions. While still not providing value for money, at the very least the minimum area requiring application of this rule should be increased to at least 100ha and the three crops allowed to be grown in sequence. The environmental delivery could be increased by specifying a specific crop or combination of crops that have to make up the cropping mix, such as a proportion of spring cropping to provide over winter habitat for birds or inclusion of pulses or vetches to produce a saving in greenhouse gas emissions from nitrogen fertiliser manufacture. Higher energy costs are likely, eventually, to make these crops more profitable to produce and there would be a direct benefit in encouraging limited production in order to maintain the plant breeding and research bodies involved with these crops for the future.
3.16.We believe that our proposed mechanism (paragraph 3.7) provides a favourable solution if the option cannot be avoided.
Permanent grassland (Article 29 1(b) and Article 31)
3.17.In contrast to the crop diversification proposal, we recognise that there is an environmental benefit to this proposal through the capture of carbon. However, the uneven cost burden is extreme and out of line with the value of carbon in the market place.
3.18.As an illustration, of the cost and benefit, we note that the standard annual loss of carbon dioxide from converting grassland to arable according to PAS 2050 for the UK is 7 t CO2 per ha per year. Current market price of carbon is under €10/t producing a value of €70/ha. Where a farm has an unprofitable livestock enterprise and wishes to convert grassland to arable land the additional benefit would be the cereal gross margin (output minus variable costs such as seed, fertiliser, sprays, and for the purpose of this calculation fuel, repairs and other costs incurred when expanding an existing enterprise) which is likely to be in excess of £700/ha. The proposal is very poor value for money and an unreasonable imposition of cost on those farmers in the situation described.
3.19.While Defra is concerned about the fall in area of permanent grass and compliance with current measures the reasons for the reported fall needs to be understood:
3.19.1. Arable land taken out of production is generally coded as OT2. Under UK conditions land taken out of production and mown reverts to grass. However, this is not recorded as permanent grass.
3.19.2. Land in Stewardship such included as field margins and field corners is also not recorded as permanent grass.
3.19.3. The risk of a cross-compliance penalty where a small number of stock are kept on an otherwise mixed farm makes it difficult to justify retention of grass.
3.19.4. Relative profitability of the livestock sector compared with the arable sector, high grain prices, and legislative burden, has actively discouraged marginal livestock producers with consequent risk of grassland loss.
3.20.Of these measures 3.19.1 and 3.19.2 result in an understatement of the current area of permanent grass while the reduction in area is accurately recorded.
3.21.We believe that our proposed mechanism (paragraph 3.7) provides a favourable solution if the option cannot be avoided.
Ecological focus area (Article 29 1(c) and Article 32)
3.22.We recognise that the ecologic focus area offers some opportunity to provide public goods through enhanced environmental diversity. However, the benefit and cost are unbalanced. Applied at an individual farm level the land loss cannot be taken from land that would otherwise be wasted and there would be a reduction in sustainable production at a time of potential shortage. Inevitably, some of the most productive farmland would therefore need to be taken out of production. An indication of the market cost of this measure was provided post 2005 when dairy farmers paid in the order of £450/ha to other farmers to take on their set aside liability.
3.23.Possible solutions. We suspect that the 7% proposal is greater than can be absorbed without significant financial loss and national loss of production and that the Campaign for the Farmed Environment target of 3-4% is more achievable without significant production loss. We suggest that:
3.23.1. The focus area is reduced from 7% to no more than 3%
3.23.2. Recognition is give to the environmental delivery of different land covers. Thus a pollen and nectar mix should count for more than a grass margin (i.e. the diversity supported is greater) and a grass margin along a watercourse should be valued more highly than a grass margin along a field edge (i.e. there is a more significant reduction in diffuse pollution).
3.24.We believe that our proposed mechanism (paragraph 3.7) provides a favourable solution if the option cannot be avoided.
Exemption for organic farmers
3.25.The environmental benefits are not automatic for organic farmers and in common with their conventional neighbours there are good and bad examples of farming practice. There are also significant negative implications in terms of food production.
3.26.We propose that their contribution should be recognised through a reduction in greening requirement, via a general environmental contribution within our main proposal. Other systems such as the introduction of improved application GPS technology or even LEAF may be recognised in a similar way.
4. Payment for areas with natural constraints (Chapter 3)
4.1. If the greening measures are appropriately designed specific payments for areas with natural constraints should be unnecessary.
5. Voluntary coupled support
5.1. While generally undesirable, coupled support can be justified where:
5.1.1. It enables public goods to be supplied most cheaply (for example if pulses were seen as desirable).
5.1.2. To ensure critical mass could be achieved in an area to maintain a processing plant. (For example, if a dairy processor required supply from 100 farmers and only 99 were interested in supplying an additional coupled payment may be worthwhile to entice the 100th supplier to preserve the livelihood of the other producers.)
5.1.3. While we are not in favour of the active farmer proposal the introduction of a coupled payment to cropping, stocking or environmental management is preferable to the current active farmer proposal.
6. Small farmers scheme (Title V article 47 onwards)
6.1. The small farmer scheme can only be justified in terms of reduced bureaucracy. We do not favour the Small Farmer Scheme and would argue that those farmers within the stated threshold should be excluded from the scheme altogether. These farmers are not reliant on agricultural activity and place an unnecessary burden on scheme management.
7. Flexibility between Pillars (Article 14)
7.1. We find that there is no reason why there should not be flexibility at the member state level to transfer between the pillars. However, we urge that a greater distinction is made between income payments and capital investment and between economic support and the provision of public goods.
8. First allocation of entitlements (Article 21)
8.1. The requirement for the 2014 applicant to have made a claim in 2011 is an unnecessary additional complexity. It provides no meaningful protection to the existing land occupier. At the very least, it should be introduced at the discretion of the member state.
9. Establishment and use of the national reserve and payment for young farmers (Section 2 Article 23 and Chapter 4)
9.1. The treatment of young farmers is open to abuse, with no obvious gain in terms of increasing vitality and industry skills. Most beneficiaries are likely to be farmers’ sons and daughters who would at some point succeeded to the business in any case and who do not necessarily introduce new skills. If it were to be implemented we suggest that there are minimum qualification standards proposed and levels of experience acquired away from the subject holding. There may also be grounds for implementing an ongoing training requirement (Continued Professional Development (CPD)) as applied to other professions.