Agribusiness update December 2013
    Just how basic is the New Payment Scheme?

    CAP Reform - Just how basic is the New Payment Scheme?

    "Whilst it was inevitable that payments would reduce; linking them more to greening demonstrates a more concerted attempt to justify decoupled payments."

     

    So where are we?

    The final EU regulations for the reform have been presented to DEFRA and other European member national agricultural ministries. These have been approved and so we are hopeful that detailed guidance will be released in the near future. Thus, although the final details of exactly how the Basic Payment Scheme (BPS) will be claimed requires clarification, the essential details are now known.

    So how much will the payment be?

    It will come as no surprise that the budget for the new BPS, replacing the Single Payment Scheme, will be reduced. With modulation fixed at 12% and EU budgets not cut by as much as was feared during the height of the Euro Zone problems the BPS will not be lighter than first thought. Payment levels are yet to be confirmed and will be dependant on the Euro/Sterling exchange rate, but early indications are they will be in the region of £150 - £170/ha.

    Entitlements

    Due to England having already adopted a largely decoupled system in the SPS, for once England is in a relatively enviable position and so the existing Entitlements will simply be rolled over into 2015. They can (subject to the necessary IT systems being online and functional) be traded after 1st January 2015. A two year usage rule will apply - i.e. any entitlements not activated for two years will be absorbed by the national reserve.

    Direct payments and greening

    The major change from the SPS is the additional ‘greening‘ requirement and this is certainly getting most of the headlines. However, it should be noted that the ‘first’ 70% of the BPS, known as the Direct Payment, just requires existing cross compliance targets to be met. In order to obtain the additional 30% ‘greening’ management prescriptions will need to be adopted. These are split into two:-

    Greening – crop diversification

    The ‘greening’ element can then be claimed if three additional requirements for cross compliance are met. The most controversial of these is 'crop diversification'. On holdings with arable areas of 10 – 30ha then at least two crops must be grown, with the main crop not exceeding 75% of this area. If the arable area exceeds 30ha then three crops must be grown, again the main crop cannot exceed 75% but also the smallest crop must be planted on more than 5% of the arable area. This should not pose a problem to large arable farmers whose traditional rotations likely already satisfy these requirements. However, for smaller arable farms which are often block cropped by contractors, this could be an issue and it is difficult to see, at this stage, how the reduced efficiencies of enforced ‘crop diversification’ can be of any benefit to the environment or food security.

    Greening – Ecological Focus Areas (EFAs) and permanent grassland

    Ecological Focus Areas must be located on 5% of the arable land on any holding. These bear some similarities with the outgoing Entry Level Stewardship Scheme with qualifying features including buffer strips, fallow areas, hedges, nitrogen fixing crops, in field trees, ditches etc. It has not yet been made clear if these can be claimed on features already entered into existing ELS schemes, but it must be assumed that they will not, as this would effectively be double funding. Finally, at a national level, permanent grassland levels must not be reduced.

    Active farmers and capping

    In order to be an ‘active farmer’ there is a minimum activity list which includes growing crops or rearing animals and keeping land in condition to support grazing/cultivation. There is also a ‘negative list’, whereby the applicant will not be considered an 'active farmer' if their principal activity is not farming. This includes water works, airports, railway service, sports or recreation grounds or businesses providing real estate services. Furthermore, direct payments must constitute more than 5% of total receipts from non-agricultural income. Capping has remained, however, it has been rebranded as ‘degressivity’ and is not as punitive as first thought. Degressivity applies a 5% reduction (rather than cap) to claims over €150,000 and only applies to the initial 70% direct payment and not to any payments claimed through greening. There has also been a minimum claim size of 5ha introduced, anyone claiming on an area smaller than this will have their claim rejected.

    Young Farmers

    There is a 25% top up payment on the first 90ha of any claim if the person making the claim, and in overall control of the farming business, is below the age of 40. This top up can be claimed for up to 5 years, or until the applicant reaches the age of 40 – whichever is sooner.

    Conclusion

    The BPS is more of an evolution of the outgoing SPS than a complete change. Whilst it was inevitable that payments would reduce; linking them more to greening demonstrates a more concerted attempt to justify decoupled payments. Whilst satisfying crop diversification and EFAs will inevitably cause some problems for farmers in specific circumstances the changes will (subject to IT systems being successfully implemented!) hopefully be reasonably pain free in comparison to previous rounds of CAP reform. The biggest losers will be farmers on very small areas (sub 5ha) and farmers who use contractors to block crop their holding.

     

    Key contacts

    Philip Eddell

    Philip Eddell

    Director
    Country House Consultancy

    Savills Newbury

    +44 (0) 1635 277 709

    +44 (0) 1635 277 709