CAP Reform February 2013 update Reform will mean ‘business as usual’ so environmentalists disappointed Since the European Commission published its draft proposals in October 2011, they have been widely debated. The European budget has been agreed and the European Parliament has set out its negotiating position. Although the reform won’t be agreed until the summer at the earliest, it is not likely to be radical. It looks like the UK Government will have more flexibility on how to implement it and should be able to ‘manage around’ the most challenging, often political, issues, such as active farmer and capping.
Key Points • • • • • • •
EU agriculture budget was agreed in January 2013 and has only been cut by 4% (2011 prices) – a good result Direct payments to farmers, now called Basic Payments, will continue but will be at least 30% lower Farmers can top the Basic Payment up with a ‘greening’ payment Farmers will have to do more ‘green’ work for their payments. Defra will have more say on this than originally thought UK will probably continue to receive a low level of Rural Development funding but this is still open for negotiation. If there is not a significant redistribution, agri-environment schemes will continue to be underfunded Capping of payments to ‘large farmers’ is unlikely to be introduced in the UK Basic Payments will only be made to ‘active farmers’. The original proposals were vastly complicated but, thankfully, Member States will have more scope to tailor this
The stated aim of the reform A greener, more equitably distributed CAP, which focuses on environmental protection and reducing climate change. It will also aim to support the overarching growth strategy for Europe, called Europe 2020, in making the union more competitive, innovative and the leading body on climate change.
The reform seems to have been taken over by vested interests. It will not be green and it will not distribute rural development funding more fairly between Member States. At best it is ‘business as usual’; at worst, a tragic fudge and wasted opportunity.
The main policy aims for agriculture 1. Food security This is an overarching aim as food production in Europe is now seen as strategically important given the rising world population and food price volatility 2. Environmental protection This is a key element – not a ‘nice to have’ that will be dropped due to economic circumstances 3. Social and economic The policy will support populations in rural areas, especially ‘physically disadvantaged’ ones
Four bodies are involved in the decision making process we have shown their positions using icons in this document:
1. The European Commission made draft proposals in October 2011, and has been consulting on them. European Heads of State: can trump all of the other bodies. Their agreement on the EU Budget in January 2. 2013 included fixing some elements of the CAP reform. 3. The European Parliament’s agricultural committee, called COMAGRI, has proposed a ‘compromise agreement’ for the full Parliament to ratify, probably in March, as its negotiating position and so still subject to change 4. The European Council of Ministers, who are the farm ministers from each Member State, must agree its position (probably in March 2013) and then agree with the European Parliament
Based on information available after the European Parliament Committee on Agriculture and Rural Development (COMAGRI) agreement on 22-23 January 2013. Whilst every effort has been made to ensure the accuracy of this briefing, its information may not be comprehensive and recipients should not act upon it without seeking full professional advice.
Timetable February 2013
European budget agreed Subject to European Parliament ratification, which is likely before June 2013
Mid – late 2013
Proposals agreed Possibly slipping due to European Council having co-decision with European Parliament
1 January Existing CAP prolonged 2014 So there is no gap. 1 January 2015
New CAP operational Probably slipping into 2016, which will cause issues for rural development
Smiths Gore offices
Head of Farm Management Simon Blandford 01962 857405 simon.blandford@smithsgore.co.uk
South East England Simon Blandford 01962 857405 simon.blandford@smithsgore.co.uk
South West England Thomas Brunt 01672 529053 thomas.brunt@smithsgore.co.uk
East Midlands Robert Childerhouse 01638 676749 robert.childerhouse@smithsgore.co.uk
West Midlands Andy Pillow 01543 261992 andy.pillow@smithsgore.co.uk
North West Richard Cantillon 01387 274384 richard.cantillon@smithsgore.co.uk
Yorkshire and Humber Michael Yeadon 01904 756310 michael.yeadon@smithsgore.co.uk
Scotland James Worthington 01387 274383 james.worthington@smithsgore.co.uk
East of England Robert Childerhouse 01638 676749 robert.childerhouse@smithsgore.co.uk
North East Duncan Winspear 01434 636071 duncan.winspear@smithsgore.co.uk
The over all budget for agriculture The budget for agriculture has been cut by 4% (in 2011 prices). After the European budget, known as the Multi-annual Financial Framework, was agreed on 8th February 2013. This is probably the best deal that farmers and the CAP could have expected.
Pillar 1 direct payments Direct payments will continue to provide income support for farmers and some of the public goods demanded by the European public. Payments based on historic claims will largely be phased out by 2019, after which they will be made on ‘uniform unit values’ in each country. wants 20% scope around the EU average in 2019. The plan is to have a single flat rate across Europe by 2029.
Allocation of budget • 30% of the Pillar 1 budget will be allocated to 'greening' so direct payments, now called the Basic Payment Scheme, will be lower. Budget deal: same. : same but with a maximum cut in direct payments of 30% per farm • What counts as eligible area will be recalculated using who received the payments in 2011 as the reference period. proposed allowing Member States to choose between 2009, 2010 and 2011 as the reference year • an optional higher rate of payment to all farmers for the first 50 hectares
The ideal budget for Defra is a smaller one, focused on Rural Development measures, particularly climate change and agri-environment. This is increasingly unlikely to happen. The reallocation of entitlements should be much simpler than originally feared but new entrants or restructuring businesses beware! Carefully draft any contracts used to buy land.
Greening
environmental work that farmers can do for additional payments • Farmers will have to do at least three measures in addition to cross-compliance, which will continue and be simplified (ho, ho!), to receive an additional annual payment on top of the basic direct payment : same. 1. Crop diversification: arable farms must grow at least three different crops, each covering at least 5% and no more than 70% 3 crops and no more than 75%. 2. Permanent grassland: grassland over five years old and which was not set-aside must be retained. 3. Ecological focus area: at least 7% of the farm (excluding permanent pasture) managed for the benefit of the environment (e.g. fallow, buffer strips, hedges, field margins, woods). 3% initially, 5% from 2016 and 7% from 2017. These areas can be used for production but without fertilisers or pesticides • The greening payment will not be cut back by capping. • Organic farmers will automatically receive the greening payment farmers in ‘equivalent’ agri-environment schemes will also receive it. This so-called ‘double funding’, proposed by the EP, has been heavily criticised by environmental bodies • Member States may use 5% of their national pot to finance annual area-based payments for farmers in Less Favoured Areas, which will be renamed Areas Facing National Constraints; this is in addition to payments to LFAs under the Rural Development pillar.
The ‘greening’ top up is not popular with Defra; it wants to separate direct payments from environmental payments as it considers this the best way to achieve its long-term objective of ending direct payments to farmers. The ‘greening’ route helps the European Union justify continuing direct payments to farmers. The ‘greening’ measures may not improve the farmed environment, hence why environmental bodies consider it to be greenwash and why Defra needs to be innovative and imaginative.
The balance of spending between both pillars is kept largely the same although the direct payments budget, which accounts for over 75% of CAP spending, was cut less (-2%) than rural development (-8%), much to the chagrin of environmentalists. New mechanisms will be introduced so Member States can make transfers between pillars (see below).
Member States can transfer up to 10% of their annual budget from 15% 10% Pillar 1 to Pillar 2. This was set by the EU Budget Deal Member States can transfer up to 15% of their annual budget no original proposal from Pillar 2 to Pillar 1 Member States, like the UK, who receive less than 90% of the EU average 10% direct aid can transfer 5% from Pillar 2 to Pillar 1 Member States can transfer unallocated ‘greening’ funds to Pillar 2 no original proposal
Active farmer
direct payments for real agricultur al activity only • •
Payments will only be made to 'active farmers' and not 'sofa farmers', such as non-agricultural recipients such as sports grounds or airports. greater flexibility for Member States to decide who is an active farmer Direct aid will only be paid to entities whose direct payments are greater than 5% of their ‘total receipts’ from non-agricultural activities and carry out a minimum level of farming activity (defined by Defra). payments only to entities who can demonstrate farming is ‘significant’ to their business, decided by Member States, so much more sensible
The EP’s proposals are a vast improvement over the Commissions’ BUT only if Defra administers it simply and does not disrupt the landlord and tenant system or ‘conservation farmers’, who contribute to biodiversity and social aims.
Capping of payments to large farmers • This was a key element of the Commission’s plans. But has been trumped by the voluntary, decided by Member States, so unlikely to be introduced by Defra
Budget deal which made capping
There will also be a shift in how the overall budget is spilt between Member States, so that payment rates per hectare are more equal – but not equal. The rate that this will happen will be slower than originally expected. No farmers should receive less than 65% of the EU average payment rate Set a minimum payment level of €196/ha in current prices by 2020
Pillar 2 rur al development Rural Development means promoting competitiveness, management of the environment and development of rural areas. The threat to the whole Rural Development pillar that appeared in June 2011 has gone – Pillar 2 will stay but how it operates will change.
Allocation of budget There could be a significant change in allocations between Member States, which is probably good news for UK farmers as we get a small proportion of the pot. 50% of each Member State’s budget will remain based on historic or past distribution and the remaining part will be based on new objective criteria. stick to old (unfair) allocation
Defra is a strong supporter of Rural Development spending - it is one of the few areas of CAP spending that it wants. A problem for Defra’s negotiators is how to get enough RD spending in the short term, which it wants, without supporting the continuation of direct payments, which it does not! If there is not going to be a significant increase in RD spending, environmental bodies will push for greater ‘greening’ of direct payments.
Structure of rur al development • The current structure of three axes will be replaced with a ‘measures based’ approach to contribute specifically to the achievement of one or more EU priorities in the Europe 2020 policy which include knowledge transfer, enhancing competitiveness and farming viability, preserving ecosystems, low carbon economy and job creation. A significant amount (20% minimum) of rural development funding should be on climate change reduction. Budget deal: same minimum spending on agri-environment and organic farming of 25% • Member States will select from a menu of programmes wants Member States to have more flexibility to select from the menu, including: Knowledge Transfer • Innovation: Knowledge transfer, adaptation to low carbon farming • Strengthened farm advisory services Enhancing Competition • Restructuring and investment grants • Risk management tools, including subsidised crop and weather insurance • Funds for villages, including rural broadband • LEADER projects, which are now the main approach for community-led development. Environmental • Agri-environment funding that supports collaboration and training • Top ups for Less Favoured Areas • •
There will be more co-ordination between policies, under the Common Strategic Framework, such as the cohesion, social, regional and fisheries policies and CAP. We hope this also means that it will be easier to combine funding streams. Rural Development will remain co-financed, i.e. funded by both the EC and UK Government, with 50% coming from each (apart from a few exceptions) 55%