CAP To Be Capped?

5th October 2011

“Leaked proposals from the European Union are likely to begin the capping of CAP payments to farmers” says Guy Sampson, of George F. White. He believes that the new payment scheme will affect larger scale farmers the most, with the greatest reductions falling on businesses that employ contractors for significant amounts of farm work.

Details of the proposals, which have been hinted at for some time, come in the recent “leak” from Brussels. The Formal CAP Proposals are not expected to be released until mid October outlining the proposals to take the CAP forward post 2013; we will know at that point if the leaked proposals will be fully implemented.

Guy believes the implications of the expected reductions contained in the latest leak will affect the whole of the UK. He says, “The brief timescale leaves only a short time for wider discussion or protest via MEPs. Our region may not be the heaviest to suffer, but the bigger the enterprise, the larger the effect.”

The leaked paper confirms that the system of subsidy based on area of land occupied will remain. For most farmers, the reformed area-based payment will now be called the Basic Payment Scheme. This scheme is expected to comprise of up to three different elements. The exception is for ‘Small Farmers’ who may have an alternative payment mechanism. Therefore for the majority of farmers, payments will comprise of:

  1. A Direct Payment similar to Single Farm Payment today (though probably paid at a lower rate). 70% of the current system will be paid through this.
  2. An extra payment for farmers subject to Specific Natural Constraints expected to include the upland areas of the UK.
  3. A Greening element paid as a ‘top-up’ to farmers who comply with certain environmental conditions. Currently this is expected to represent up to 30% of the total payment.

Under the scheme, direct payments above €150,000 will be reduced in percentage terms, including those paid for natural constraints, as shown below. The Greening payment is exempt from any capping.

PAYMENT

PERCENTAGE REDUCTION

€150,000 to €200,000

20%

€200,000 to €250,000

40%

€250,000 to €300,000

70%

Over 300,000

100%

Farmers may deduct expenses connected to employing personnel, e.g. wages and NI contributions. The percentage cut is then made after this deduction. This will not be applied, if contractors bear these costs.

This is not just a simplification of the existing scheme and the example below is an illustration of how this might work.

  1. A large farmer has an annual total claim of €350,000.
  2. The ‘Greening’ element, if applicable, would be 30% of €350,000, i.e. €105,000. This would not be capped. The balance of €245,000 would be.
  3. Before applying the percentage cut, farmers deduct employment costs. Assume a total wage bill of €50,000 is deducted from the €245,000, leaving €195,000 subject to the cap This will be 20%, as explained in the reductions tabled above.
  4. As the first €150k is exempt, the balance (€195k – €150k = €45k) is subject to the 20% reduction, or €9,000.
  5. The total subsidy received by the farmer would be reduced from €350,000, to €341,000.

The new rules assume larger farmers require less support from the CAP and will be most affected. Guy Sampson concludes, “This especially affects landowners who are claiming large subsidy but use contract farmers and may not have any wage costs to offset.”

Guy cannot predict exactly how much land a farmer will need to occupy before the cuts begin to affect them. He adds, “This will depend on a large number of matters which are not yet clear, such as the value of entitlements, the rate of modulation, the percentage of funds allocated to the Greening payment. This makes it extremely speculative as to where the cuts will begin to bite. As a worst case scenario where farmers have no employment income to offset against the subsidy, it is likely that someone claiming 2,000 acres plus of non SDA land would be affected.

Finally he warns “the leaked paper proposes that steps should be taken to prevent farmers benefitting where they have artificially created the conditions to avoid the effects of this measure – by splitting holdings between family members specifically to enable separate claims.”

This will lead to considerable debate in the coming weeks and months. The leaked EU proposal states ‘It is clear that larger beneficiaries do not require the same level of unitary support…the potential to adapt makes it easier for larger beneficiaries to operate with lower levels of support‘.

Contrary to this view however is the fact that the proposals remove the advantages farmers achieve through economies of scale and improving efficiency, both vital objectives if British agriculture is to continue to compete in the global market.

X