Poor crop prospects

    Reform Issues

    We provide a summary of the key issues to be finalised

    How much money?

    Few of the CAP issues causing most concern for farmers have been fully resolved by the publication of the political agreement.  Thus payment rates depend on a decisions by individual member states on, for example, the proportion transferred to Areas of Natural Constraints or whether a Small Farmer Scheme is introduced.

    It probably won’t happen

    Perhaps the biggest member state decision is whether to introduce a redistributive payment to increase the receipt to farms below the national average farm size (this could be a transfer of 30% of the national award).  While this support tends not to be favoured by government, or the farming pressure groups, it is not without some merit if it is accepted that the livestock sector has been unduly disadvantaged by the current system and that the expected 54ha limit would not prevent the arable sector expanding where appropriate to do so for economic reasons.

    Entitlement award, Degressivity and Capping (The Good the Bad and the Ugly)

    We strongly suspect the adoption of some options: for example, that entitlements in England will be rolled forward (at a stroke removing issues for new entrants or purchasers of farms) and that payments will not be capped at €300,000 in England (if the final EU decision permits this to be optional as drafted).  However, these decisions also await a formal decision by government and it looks likely that England, Scotland and Wales will chose different options.  Wales has already proposed a preference to cap payments.  There may well be a number of complex issues for businesses operating across national borders.

    Other conclusions such as on the progressive reduction (degressivity) of payments by 5% over €150,000 hinge on agreement on the budget and, in any case, we do not know whether it will be possible for England to reduce the transfer of money from pillar 1 to pillar 2 to remove the impact (as occurs now for businesses receiving over €300.000).  It appears probable that the total subject to degressivity and capping excludes the 30% allocated to greening and that the proposed off-set of the labour cost will be voluntary.  The complication of inclusion would make it a difficult option to introduce.

    Quotas – time to think of the longer term

    Economically the impact of ending dairy quotas in 2015, sugar beet quotas in 2017 and the imposition of coupled payments will depend on economic conditions prevailing at the time of change.  It would be good for the industry if the current sugar beet price negotiations could be completed with a long term arrangement before then to secure the future of the industry in what may prove to be a tougher environment.

    Supporting production – double support for pulses?

    Coupled payments are largely to protect the industries associated with farming or prevent depopulation but since it involves transfer of payments, they tend to reduce the competiveness of other sectors.  Production of peas and beans for specialist markets (rather than for animal feed where competition is with global soya bean production) could receive a double whammy of a coupled payment and possibly qualifying area within the Environmental Focus Area (see below).

    Active Farmers - Inactive farmers can rest?

    Excluded businesses will be defined by a list of unacceptable activities such as those whose primary activity is the operation of airports or sports grounds.  However, these businesses may be included where farming activity can be demonstrated.

    Does money transfers divide livestock and arable sectors?

    It appears likely that up to 15% may be transferred from the direct payments system (pillar 1) to rural development (pillar 2) and for certain countries 25% may be transferred in the opposite direction.  This is already opposed by an alliance of the various farmer pressure groups.  However, the impact on arable farmers is small since arable farmers already benefit from much higher wheat prices than could be foreseen and significantly higher wheat yields than the EU average (by over 2t/ha) but the impact would be significant for some of the livestock sectors.  Pillar 2 money can also be used to provide long-term benefit considerably greater than its loss through, for example, increased investment in innovation.

    Greening and stewardship – a right mess

    Greening includes the three elements expected: retention of permanent grass (albeit at farm, regional or, as at present, national level); crop diversification (forcing the production of two crops on arable areas between 10 and 30 ha and three crops over 30ha); and Environmental Focus Area (requiring that 5% of the arable area provides some environmental gain).  There is a provision for environmental equivalence (i.e. fulfilment of the condition through compliance with other schemes) but this looks less likely to offer material gain than once thought.  More positively there is nothing to stop farmers signing up to new Environmental Stewardship Schemes if they make sense economically or for out of interest.  The scheme will be terminated if they conflict, leaving the farmers with the benefit up until that point.  However, options will not qualify for both greening and stewardship payments.

    Continuous revelation

    Many of the options have now been defined but which of these options will actually be adopted might not be known for another eight months.  While the reform notionally starts in 2014 many of the options will not come into force until 2015.  It is not a great reform and achieves few national, farmer or environmental objectives.  However, for some now is the time to review business structures and enterprises.

     
     

    Key contacts

    Andrew Wraith

    Andrew Wraith

    Director
    Food & Farming

    Savills Lincoln

    +44 (0) 1522 508 973

    +44 (0) 1522 508 973