Decision Reached On CAP Reform

4th July 2013

A political agreement over the new CAP Reform was reached between the European Parliament, European Council and the European Commission on the 26th June.

A formal adoption of the reform by the European Parliament and the European Council should follow later in 2013, with the CAP reform being in place from 1 January 2014. This should then enable a start date for the new system of 1 January 2015.

The main elements of the decision are described below as we understand them, however, the devil is always in the detail, and the complete picture may not be clear until the latter part of 2013. Please bear this in mind when reading.

Greening

This will require farmers to adhere to three environmental conditions in order to receive a payment which is the equivalent of 30% of the regional average payment in addition to the new Basic Payment Scheme. As had been widely speculated previously, these three measures are Crop Diversification, Ecological Focus Area and Permanent Pasture. These will be additional requirements on top of current cross compliance measures.

Crop Diversification

Where arable land covers between 10 and 30ha, at least two crops must be planted, with the main crop covering no more than 75% of the total arable area.

On holdings with more than 30ha of arable land, three crops must be planted covering not more than 75% or less than 5% each. Where grass or fallow land covers over 75% of the arable area, the maximum threshold will not apply.

Crop diversification will not be applicable to holdings where more than 75% of the total agricultural area is permanent or temporary grass or left fallow, as long as the remaining arable area does not exceed 30ha.

A “crop” can include temporary grass and fallow land. In addition, crops with a different culture belonging to the same genera can be classed as different crops, e.g. winter wheat and spring wheat.

It is likely that this variation will affect the diary sector significantly.

Ecological Focus Area

Where a farm has arable land covering more than 15ha, at least 5% of the arable land must be EFA. This is planned to rise to 7% in 2017-2018. EFA will include fallow land, hedges, short rotation coppice, buffer strips, and nitrogen fixing and catch crops and has drawn comparisons to set aside.

If over 75% of the entire agricultural land is temporary or permanent grassland and the remaining arable land does not exceed 30ha, farms will be exempt from EFA. This will also be the case where over 75% of the arable land is used for temporary grassland and/or leguminous crops providing the remainder of the arable land does not exceed 30ha.

Permanent Grassland

For definition purposes permanent grassland will be land out of rotation for five years or more and registered on your SP5 Claim form as PP1.

Member states must designate areas of permanent and possibly also environmentally sensitive grassland. Farmers will not be permitted to plough this grassland as designated by the member state; however, other areas of permanent grassland not designated will not be affected.

There has been much talk about ploughing out permanent pasture ahead of the changes. It may still be possible to plough up and cultivate up to 2ha on your holding each year without submitting a claim for an Environmental Impact Report, or more than this threshold subject to the national registered area not falling to less than 5% of the claimed area in 2012 scheme year. It also appears that improving grassland by other methods is acceptable.

The Role Of Agri-Environment Schemes

The need for CD, EFA and Permanent Grassland could potentially be removed if England administers an agri-environment scheme equivalent which offers equal or higher environmental benefits.

A new scheme is currently being worked on to replace the existing Environmental Stewardship scheme, known as the New Environmental Land Management Scheme (NELMS), and this could incorporate such measures.

Organic farms will also not be required to comply with CD, EFA and Permanent Grassland.

Double Funding

Double funding has been speculated over leading up to this decision, and it is now clear that it will not be permitted. If Greening is accepted over an equivalent agri-environment scheme, any overlap will require alteration to the agri-environment scheme.

There is a distinction between double funding and dual claimants. At the date of writing we have no further guidance whether it will be permissible for one party with an interest in land, i.e. a tenant, to claim their Basic Payment Scheme income and for the Landlord to hold an agri-environment scheme over the same area. The speculation has been that current arrangements along these lines will come under closer scrutiny under the new scheme rules.

We will have to wait for further announcements on the implementation and adoption by individual member states before advice can be given on how to manage any transitional arrangements.

Penalties

It appears that there will be no penalties for non-compliance to Greening in the first two years, but penalties will come into force in year three. This is likely to be in the form of the loss of the Greening top-up plus an additional fine to 20% of the value of the Greening aid, rising to 25% from year four onwards.

Active farmers

The previously considered income test has been scrapped and instead a minimum level of activity will be defined by each member state and farmers who do not meet this will not receive any payments. In addition, a list of entities which will not be able to claim payments will be drawn up, to include for example, airports and water works unless substantial agricultural works are also carried out.

Allocation of Entitlements – The Golden Ticket?

As England is already operating on an area based payments system, it could choose to maintain the existing entitlements already in place. Also, any additional entitlements held in 2015 for which the applicant does not have enough eligible hectares will expire thereafter.

Alternatively, England could operate by allocating new entitlements to active farmers in 2015 provided that they apply in 2013. Again, the number of entitlements must be equal to the amount of eligible hectares declared in 2015. In addition to these requirements, if England chose to adopt this route there may also be further restrictions limiting the number of entitlements available nationally.

Under the proposals there is a suggestion that the new reference year for declaring eligible hectares will be 2014, with a requirement that the claimant also claimed in 2013. If this transpires, then it should enable a relatively smooth transition when considering the transfer or acquisition of entitlements and for the change in business structures. However, until we get clear guidance, the 2011 reference year appears to remain key to ensure that claimants in 2015 will hold the new entitlements.

Provision has also been made for new entrants to farming to allow them to be allocated payment entitlements.

Young Farmer Top-up

Member states will be required to grant an annual top-up payment to young farmers who can have eligible land and payment entitlements. The basic criteria for a young farmer is to be under 40 years of age in 2015, and have started farming under their own right as a natural person in the last five years, as well as any training requirements the member state chooses to impose.

The amount a young farmer can receive is not yet clear, but could be calculated by one of three methods:

  • 25% of the average value of entitlements held by the farmer

  • 25% of the national flat rate for the year 2019

  • Or, a cap could be placed on the number of entitlements eligible for the top-up of 25%, of between 25 and 90

Exchange Rate

The exchange rate from Euros to Pounds Sterling will be averaged over the month of September of each year, rather than being taken on a single day.

Other possible elements of the CAP Reform

There are number of other schemes and options which England could decide to employ. These briefly comprise:

  • A small farmers scheme

  • Capping of direct payments is still being negotiated, with the possibility of claimants receiving over €150,000 being capped on a sliding scale

  • Coupled aid for some types of farming

  • Additional payments for Areas of Natural Constraint

  • Less Favoured Areas will be reclassified by 2018

  • A minimum claim size could be introduced of up to 5ha

George F. White have a dedicated CAP Reform team keeping up to date with the latest developments in the European Union, and are also expert in dealing with all aspects of agri-environment schemes.

For further information on the upcoming CAP Reform, transition of your agri-environment scheme or simply a discussion on how the changes may affect your holding, please contact Kevin Guy or Matthew Brown on 01677 425301.

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