Subsidies, are they here to stay? CAP Reform

14th October 2011

This week the European Commission released their draft proposals for the future of the Common Agricultural Policy (CAP), these proposals are yet to be debated in the European Parliament before MEP’s vote on which proposals are adopted and become legislation.

Farm businesses need to be in a position to mitigate against any loss of subsidy income and also take advantage of any opportunities it may present. The good news is that the subsidy support system will remain for all farmers, but will be in an amended format as follows:

Subsidies will be based on a single uniform Area Payment based system which will need to be adopted throughout the UK by 2019. This may result in Scottish and Welsh farmers going through a similar historic to area based transitional period as their English counterparts.

The Basic Payment Scheme will be paid to farmers subject to cross compliance and GAEC conditions. In addition a “Greening element” may be payable if you comply with additional environmental conditions. To do this you will need to have a minimum of three different crop types per year and/or maintain a certain level of permanent pasture and/or have a minimum of 7% of land devoted to ecological management, in order to claim this “Greening element”. Is this a return of set aside perhaps through the back door? The Greening Payment can be made up of 30% of the funds available within the national envelope of each member state and will be payable on a per hectare basis.

Louis Fell, Partner at George F White says– “What is not clear is how the governments in the UK will each interpret the detail, and what variances will emerge as there is scope for member states to offer additional payments and coupled options up to certain limits. We will be looking closely at all aspects of these reforms to assess how best to help and to inform farmers of the changes that may or may not affect them. Whilst some elements of the reform are compulsory, some flexibility is afforded to individual member states”

Capping is a thorny issue and whilst it is unlikely to affect the majority, there are going to be several who will be caught. Caps are proposed to take effect from over €150k at various levels, with the maximum claim possible at €300k. Employment costs can be deducted to calculate the cap level, no doubt an area of debate and ambiguity.

The definition of an “Active Farmer” is being tightened up significantly and potentially if your SPS payments are less than 5% of any non farming income, your payment may be in jeopardy. Similarly the activity on the land will need to be scrutinised in detail to ensure sufficient agricultural activity is taking place to justify payment being made.

Farmers operating in “Areas of Natural Constraint” (ANC) which may include those currently in LFA areas, maybe eligible for an additional payment of up to 5% of the national envelope for farming in a difficult areas.

Louis Fell adds “For the first time the EU has attempted to address the aging agricultural population by providing an incentive for farmers under the age of 40 to start up new businesses. An incentive of 25% of the Basic direct payment will be offered for the first five year and there is potential micro business financing of up to €70,000 available to new rural businesses”.

Opportunities will also exist for farmers under a similar format to the existing Rural Development Programmes; the EU has recognised this as a good platform for supporting and developing rural businesses and rural employment and will allow member states to fund this with future CAP support”.

It is important that UK Farmer make their voices heard and encourage UK MEP’s to take forward the views of UK farmers. The proposals will be debated at length over the next two years before final proposals will be adopted into legislation, and implemented in 2014.

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