CAP Reform


[PDF]CAP Reform - Rackcdn.com19e21141e53b5c034df6-fe3f5161196526a8a7b5af72d4961ee5.r45.cf3.rackcdn.com...

3 downloads 201 Views 268KB Size

From

Farm Research Group

June 2013

BRIEFING PAPER- CAP Reform

struttandparker.com

COMMON AGRICULTURAL POLICY REFORM 2013 Author: George Chichester, MA, FRICS, FAAV

1.

Date: 28 June 2013

Introduction The Common Agricultural Policy (“CAP”) provides support payments to farmers and landowners, primarily by way of Direct Payments (currently the Single Payment) and Environmental Stewardship support. The CAP represents the largest allocation of funds paid centrally through the EU budget, currently representing over 40% of that budget, albeit still only a relatively small proportion of total government expenditure. Both CAP and EU Budget were due for review in 2014. Terms for Review th have now been agreed in principle (on 26 June 2013) and the new EU Budget for 2014 - 2020 has th also been agreed in principle (on 27 June 2013) although the new provisions are unlikely to take st effect until 1 January 2015.

2.

Background The original objectives of the CAP were enshrined in Article 39 of the Treaty of Rome of 1957, namely: a) to increase agricultural productivity by promoting technical progress and by ensuring the rational development of agricultural production and the optimum utilisation of the factors of production, in particular labour; b) thus to ensure a fair standard of living for the agricultural community, in particular by increasing the individual earnings of persons engaged in agriculture; c) to stabilise markets; d) to assure the availability of supplies; e) to ensure that supplies reach consumers at reasonable prices. These tenets remain as valid today as they did then, even though the impact of underlying support payments delivers somewhat greater effect now, due in particular to Cross Compliance obligations, thereby ensuring high standards of Animal Welfare, Food Safety and Environmental Protection also. Recent reforms of the CAP – in particular those in 2000 and 2005 – have gradually led to the dismantling of butter mountains and wine lakes, imposition and then scrapping of set-aside, the decoupling of payments, and the move in England to a flat-rate basis within each of three regions (Lowland, SDA moorland, and SDA non-moorland). The objectives of this 2013 Review have been targeted towards:   

supporting viable food production, encouraging more sustainable management of natural resources and climate, achieving a better balance to territorial development throughout the EU.

The effect of the reform proposals, as agreed, are set out below. However please note that these are still subject to formal ratification, and a significant number of the proposals – including in particular capping, degressivity, flexibility and rural development - remain subject to further negotiation in connection with agreement of the “Multi-Annual Financial Framework” (ie effectively the Budget agreement). More clarity will be gained when the draft legal texts are published – which is not anticipated until the autumn.

CAP Reform Briefing Paper – June 2013

1

struttandparker.com

3.

The Basic Payment Scheme The Single Payment Scheme will be replaced by the Basic Payment Scheme (BPS). Member States will dedicate 70% of their National Envelope (which is the pot of money allocated to each Member State for payment of Direct payments) to the new BPS payments, from which they will then deduct amounts committed for Young Farmer top-ups, the Small Farmers Scheme, the Redistributive Payment, other options such as Less Favoured Area top-ups, and any “coupled” payments. The remaining balance will be allocated to valid claimants as their annual Basic Payment. Those Member States which currently maintain allocations based on an historic reference date must gradually convert these towards flat-rate payments, either on a national or regional basis, such that by 2019 no one holding should receive an aid payment less than 60% of the average rate for the region concerned. This process is known as Convergence. It will apply in Scotland, Wales and Northern Ireland. (England is already operating on a flat-rate basis). For Young Farmers, the Basic Payment awarded to new entrant young farmers – so long as aged less than 40 years and head of the business concerned - will be topped-up by an additional 25% for the first 5 years of application. This will apply on up to 54ha in the UK. This is to be funded by up to 2% deduction from the National Envelope, and will be compulsory for all Member States to implement. The Small Farmers Scheme will be optional for Member States and will be based on a fixed annual payment of €500 - €1,250 per claimant, regardless of farm size. This is unlikely to be implemented in the UK. Member States will be permitted to grant additional payments to Areas with Natural Constraints (ANC’s), more commonly known in this country as Less Favoured Areas. This additional payment can be up to 5% of the National Envelope and is again discretionary at Member State level. The Redistributive Payment will permit a Member State to take up to 30% of the National Envelope and redistribute this to farmers in respect of their first 30 hectares of claim (or up to the national average farm size if this is higher than 30ha). This option is unlikely to be taken up in the UK. Member States will have the option of providing or continuing with coupled payments, but this will be limited to 8% of the National Envelope if the Member State currently provides coupled support, or up to 13% if the current level of coupled support is already higher than 5%. It is unlikely that coupled payments will be re-introduced in England or Wales but they might remain in Scotland (by way of the Scottish Beef Calf Scheme). There is also the possibility of providing a 2% coupled support for protein crops. In addition to the Basic Payment, each claimant will receive an additional payment in respect of certain agricultural practices beneficial for the climate and the environment, commonly referred to as “Greening”. Member States will use the remaining 30% of their National Envelope for this purpose. The Greening measures are compulsory, with penalties for noncompliance which will equate to 125% of the Greening element (phased up from 100% over the first three years). These Greening measures will involve three obligations: 

Ecological focus area: for farms in excess of 15ha in size (excluding permanent grassland area), at least 5% of the arable area of the holding must be maintained as Ecological Focus Area, this involving environmental benefits such as field margins, buffer strips, fallow land, maintenance of hedges/trees/landscape features, biotypes and afforested areas; possibly also nitrogen-fixing crops. This 5% figure will rise to 7% in 2018.

CAP Reform Briefing Paper – June 2013

2

struttandparker.com

 Crop diversification: a farmer with arable land must cultivate at least two crops on that land where the area exceeds 10ha, and at least three crops if the arable land area exceeds 30ha. The main crop can cover up to 75% of the area, and the two main crops must not exceed 95% of the area. It is thought that Winter and Spring planted crops of the same species will qualify as different crops.  Permanent grassland: the area of land under permanent grassland must not deviate by more than 5% from the area on a particular reference date (likely to be 2015). Member States will be given the option to decide whether to regulate this at national level or at farm level. (The latter would be far more compromising where changes to farm policy are contemplated.) In order to avoid penalising those already addressing environmental and sustainability issues (such as organic famers), there will be provision for a Greening equivalency system whereby these practices can be considered to satisfy the Greening provisions. Some agri-environmental practices might also be deemed sufficient to satisfy Greening obligations, but it is important the there is no double-funding implication and payments made through Rural Development programmes will be scaled back where these involve duplication with basic Greening obligations. It is anticipated that Member States will be given discretion to determine a minimum claim size or value. Assuming so, England is likely to set a minimum claim area of 5 hectares, which would significantly reduce administration for the RPA. Direct payments will be made only to Active Farmers in future. Such farmers will be defined not only by their agricultural activity but also through a “negative list” of business activities which will be excluded from receiving such payments – this will include airports, railway services, water works, real estate services and permanent sports/recreation grounds. (The original proposed definition of an Active Farmer, which defined eligibility according to the extent of the receipts which an applicant obtained from non-agricultural activities, has been dropped.) The agreement indicates that a new reference year will be set for identifying the allocation of Basic Payments. This is proposed as 2014, but with a link to claimants from 2013 in order to avoid undue speculation. However, it is hoped that Member States which already have an effective regional model being operated - such as the Single Payment scheme in England - will be permitted to roll this system over to become new Basic Payment Entitlements. Capping of payments will apply to larger farming businesses, but this is expected to be a voluntary option at Member State level, and will seemingly not be introduced in the UK. Where it does apply, it will affect payments over €150,000pa. In addition – or alternatively – Member States will have the option to apply Degressivity, which would appear to permit payments over a set level (€300,000pa?) to be reduced by 5%. Member States will be granted the flexibility to impose up to 15% voluntary modulation. This appears to be instead of the existing 10% compulsory EU modulation and the relevant rate of National Voluntary Modulation (which combine to make up the 19% modulation currently applied to Single Payment in England), and will not have to be co-funded by the Member State. The effect of the modulation will be to move funds from Pillar 1 (Basic Payment) to Pillar 2 (Rural Development Regulation), thus in effect providing the funding for Environmental Stewardship Schemes to encourage good uptake. This option is likely to be used to the full in the UK. It is envisaged that farmers will continue to be able to transfer entitlements in future, but Member States will have the option to apply a siphon when entitlements are sold without land.

CAP Reform Briefing Paper – June 2013

3

struttandparker.com

4.

Rural Development Rural Development policy will continue, based on its current foundation concept. Member States will design their own multi-annual programmes on the basis of a menu of measures to be set at EU level, thereby with ability to respond to the needs of their own rural areas. These programmes will be co-funded from the National Envelopes, albeit with flexibility to move monies between Pillars, as noted above. Six broad priorities have been identified, namely:  Fostering knowledge transfer and innovation;  Enhancing competitiveness of all types of agriculture and the sustainable management of forests;  Promoting food chain organisation, including processing and marketing, and risk management;  Restoring, preserving and enhancing eco-systems;  Promoting resource efficiency and the transition to a low-carbon economy;  Promoting social inclusion, poverty reduction and economic development in rural areas. In addition, Member States will have the option to design sub-programmes, to include such options as €15,000 business start-up aid for small farmers, up to €70,000 business start-up grants for young farmers, support for setting up producer groups, support for organic farming and forestry, additional support for mountain areas and ongoing LEADER funding. Within the Rural Development budget will be provision for Agri-Environment Climate Schemes, which in effect will replace Entry Level and Higher Level Stewardship schemes within a new provision called New Environmental Land Management Schemes (“NELMS”). These schemes will need to be designed such as to avoid overlap with Greening obligations, and there is a great deal of detail yet to be decided. It may be that the lower level of entry will cease (because it is largely replicated by Greening and thus now contained within Pillar 1), with a more focused approach through carefully targeted Higher Level schemes.

5.

Market Management Mechanisms In order to further improve the market orientation of EU agriculture, milk quotas will expire (as th already scheduled) in 2015 and the sugar quota regime will end on 30 September 2017. The system of wine planting rights will end in 2015, to be replaced by a system of authorisations for new vine plantings to be introduced in 2016. The existing systems of public intervention and private storage aid are to be revised to become more responsive and more efficient. Appropriate professional organisations will be promoted and, for certain sectors, there will be specific regulations on competition law (including in particular with regard to dairy, beef, olive oil and cereal sectors). Such organisations will be able to increase efficiency by negotiating sales agreements on behalf of their members. In order to safeguard against general market disturbance – such as occurred during the e-coli crisis in 2011 – a Crisis Reserve will be established, financed by an annual reduction from direct payments. Funds not used for crisis measures will be returned to farmers the following year. In the event of severe market imbalance, producer organisations may be permitted to take collective temporary measures (for example market withdrawal, or storage by private operators) in order to stabilise the sector concerned.

CAP Reform Briefing Paper – June 2013

4

struttandparker.com

6.

Horizontal Regulation The new regime and its associated payments will be strictly regulated through a mechanism of controls, based in particular on ongoing Cross Compliance. This relates to statutory requirements relating to the environment, climate change, maintenance of agricultural land in good condition, animal welfare, and human, animal and plant health standards. These obligations inter-relate with the Water Framework and the Sustainable Use of Pesticides Directive. Member States will be required to provide full transparency of all beneficiaries with the exception of those claiming under the Small Farmer Scheme. Member States will also be required to offer a Farm Advisory service to cover, in particular, such topics as green Direct Payments, the conditions for maintenance of land in order for it to be eligible for Direct Payments, and certain Rural Development measures.

7.

Financial Implications The financial implications of the CAP and EU Budget Reviews are not yet entirely clear, largely because so much detail is yet to be worked through both at EU and then at Member State level. However initial indications are that the EU budget has been agreed at €960 billion for the 7-year period from 2014 to 2020, equating to a reduction of 6% (down to €142bn) in commitment appropriations for 2014, of which the CAP allocation will be €50.6bn, representing a 9.5% reduction on the previous €55.9bn. This then needs to be apportioned between the Member States. The allocation to Rural Development will however be especially low for the UK, which is why the UK government is so keen to take advantage of the proposed Flexibility to transfer up to 15% of funds from Pillar 1 (Direct Payments) to Pillar 2 (Rural Development), as explained earlier. Allocations will also be exposed to Financial Discipline in the event that there are insufficient funds within the Budget – readers will be aware that Financial Discipline is to be imposed for the first time this year (2013), at a rate of 5%. As noted above, the allocation to a Country’s National Envelope will need to fund the additional provisions such as Young Farmers scheme, Small Farmers scheme, ANCs, any Redistributive payment and any Coupled payments before then being applied to the annual Basic Payment. This payment will then be exposed to currency exchange rates for those Member States outside the euro. At this stage one can but give a very rough indication of the ultimate effect of all these factors. But it might be prudent to assume perhaps a 10% reduction in the value of the new Basic Payment – as compared with Single Payment and on the assumption that the claimant will comply fully with greening obligations.

8.

Action These changes represent a major reform of the CAP, and also a change of direction in particular towards increased protection for the environment and the offsetting of climate-change. However, some of the new provisions are dramatically different from the original proposals which were published in October 2011: in particular the rather strange proposal that farmers with significant nonagricultural income should not qualify for the new direct payments has been abandoned, as is likely to be the case for the “golden ticket” provision whereby claimants under the new regime would have had to have historically been farming and claiming Single Payment in some historic base year (proposed 2011) in order to claim Basic Payment Entitlements. It is right that capping is not to be introduced in the UK, as there is no logic in penalising farming businesses from maximising economies of scale. One is now able to plan ahead with greater certainty, particularly with regard to proposed changes in business structure (e.g. between private trading, partnerships and incorporation). Farmers will need to consider very carefully their future farming and cropping/stocking policy in order to mitigate as best practical against the effects of the Greening measures, and their inter-relationship with Environmental Stewardship commitments.

CAP Reform Briefing Paper – June 2013

5

struttandparker.com

IMPORTANT NOTICE

This Briefing sets out our understanding of the new provisions as at the date as shown on the first page of this Briefing. It sets out a summary of our understanding of what is a highly complex Policy. For full details, reference should be made to DEFRA and/or the implementing Council Regulations (when these are published). Strutt & Parker can take no responsibility for any action which any third party might take based on the content of this Briefing, unless this is in conjunction with appropriate advice which has been sought from a suitably qualified employee of Strutt & Parker.

Farming Departments Cambridge Chelmsford Morpeth Newbury Northallerton Oxford St Albans Salisbury Stamford

01223 459500 01245 258201 01670 516123 01635 576914 01609 780306 01865 366700 01727 840285 01722 328741 01780 484040

Contacts Farm Research Group Chairman George Chichester MA FRICS FAAV Tel: 01635 576914 [email protected] Land Research Group Chairman Ralph Crathorne MA MRICS FAAV Tel: 01227 473716 [email protected] Farming Department Will Gemmill BSc FAAV MBPR Tel: 01223 459471 [email protected] Land Management James Farrell BSc MRICS FAAV Tel: 01423 706770 [email protected] Residential Development Simon Kibblewhite BSc (Hons), BA, FRICS MCIArb Tel: 020 7318 5177 [email protected]

Accounting and Taxation Services Shaun Spalding FCCA MBA Tel: 01245 254661 [email protected] Resources and Energy Michael Verity MA MRICS FAAV Tel: 020 7318 4671 [email protected] Planning and Development Craig Noel BA MSc Dip Up FRGS MRTPI Tel: 01273 473411 [email protected] Building Surveying and Architecture Jane Henshaw BSc(Hons) MRICS 01273 407024 [email protected] National Estate Agency Michael Fiddes BA MRICS Tel: 020 7318 5192 [email protected] Estate & Farm Agency Mark McAndrew MRICS Tel: 020 7318 5171 [email protected]

Every effort has been made to ensure the information provided within this document is fully accurate. However Strutt & Parker LLP accept no responsibility if recipients should act upon any of the information without seeking the appropriate professional advice.