CAP reform update December 2013

CAP reform update

"The 2014 transition year generally reduced the pressure to reach a full decision but the decision regarding the transfer of money from Farm subsidy to Rural Development has to be made by 31st December."

 

England CAP reform

EU Member States were left with a raft of options on the implementation of the CAP reform. The 2014 transition year generally reduced the pressure to reach a full decision but the decision regarding the transfer of money from Pillar 1 (Farm subsidy) to Pillar 2 (Rural Development) has to be made by 31st December.  In England a number of decisions have been published, likely outcomes for others stated and for a few options,  genuine consultation is offered.

Decisions made in England:

  • • Entitlements will be rolled forward from the current scheme into the new scheme. Consequently, there will be       no complications with sales and other transfers: holders of entitlements will be able to claim subsidy.  
  • • Those with more entitlements than land will lose surplus entitlements on the 2015 subsidy application. 
  • • The minimum claim size will be 5 ha (reducing the number of applicants by 17%).
  • • There will not be a small farmer scheme (a simplified scheme for those claiming between €500 and €1250). 
  • • Support will not be coupled to production (subsidy contingent on production).
  • • By implication the permanent grass restriction would be applied to England (and not at farm or regional level).

Likely English outcomes

Defra has provided its preferred conclusion on a number of options and a concerted effort by the industry will be required to change this. 

  • • No redistributive payment (transfer of 30% of the payment to the first 50ha of each claim).
  • • No increase in the minimum 5% rate of modulation (reduction) on the tranche of subsidy received over €150k by   a farmer (this excludes the 30% greening component of the payment).
  • • No labour offset to be applied before the progressive modulation is applied.
  • • No greening equivalency (the provision of an assurance scheme in place of the basic components of    maintenance of permanent pasture, crop diversification and environmental focus area).
  • • The full permitted 15% transfer from Pillar 1 to Pillar 2.  While the consultation appears open all the modelling has   been carried out on the basis of a 15% transfer. This 15% reduction would substitute directly for the current    voluntary modulation resulting in, approximately, an additional 6% reduction.

Options in the balance

  • • Choice of Environmental Focus Area options to be adopted.
  • • The size of the eligible area for the 25% Young Farmer bonus (25 to 90ha).
  • • Movement of payment to the Severely Disadvantaged Areas (SDA) from the non-SDA areas. Area boundaries    will not change.
  • • Extension of the list of business types that will be ineligible for payment.

What to do next

Of immediate interest is any decision to dispose of entitlements on farms under 5 ha or where entitlements are in surplus. Capital values above one year’s income may make it worth disposing of them now given the increasing supply going forward. 

Management systems for farms where the crop diversification measures will potentially make farms unviable also need careful management. A number of smaller units in contract farming agreements are based around simple single crop rotations.

The European Parliament finally gave its support to the €1 trillion Multi-annual Financial Framework (MFF) and Ministers were expected to approve the long-term budgetary spending plans at the Competitiveness Council on 2nd December.  With agreement reached the RPA should now be able to make the subsidy payments promptly although entitlement statements are expected to be delayed.

UK subsidy

With the agreement to the MFF finally voted through by Parliament it is possible to confirm the payment rates used by Defra in the consultation and calculate rates for all UK countries. Many commentators had failed to realise that the Pillar 1 (direct payments and market support) budget would be smaller because: 

  • • the sum the EU diverted from Pillar 1 to Pillar 2 through compulsory modulation was to be diverted directly to    Pillar 2 (rural development) and 
  • • high commodity prices reduced the expenditure needed for market support.

Neither of these changes had any impact on the net payment received by farmers.

An additional element, which has now been resolved, is that the UK would receive additional subsidy as a result of the convergence criteria designed to reduce payment differences between member states.  The UK only qualifies because Scotland receives an exceptionally low payment while the other UK countries receive a relatively high payment.  Scotland had been expected to receive the entire top up awarded to the UK, but it was agreed that it should be shared on the same basis as the remainder of the subsidy.  As a result, Scotland now has a significantly lower payment than any other member state.

 

CAP reform update December 2013
 

Key contacts

Andrew Wraith

Andrew Wraith

Director
Food & Farming

Savills Lincoln

+44 (0) 1522 508 973

+44 (0) 1522 508 973