2013-07-05  facebooktwitterrss
CAP Reforms Scottish Policy Briefing

Staff linked to the Rural Policy Centre of Scotland’s Rural College were busy in the aftermath of the agreement in Brussels over the reforms of the Common Agricultural Policy. Below is their latest briefing on CAP reform.

It is true to say there is much still to be decided, with the well worn phrase “devil in the detail” seldom more true. Nevertheless the picture so far is more than broad brush and those needing a clear concise summary should read on.

Highland Cow

Introduction
On 26th June 2013, final trilogue negotiations between the European Parliament, Commission and Council, ended with a political agreement on the new Common Agricultural Policy for the EU, signed off by the Agriculture Committee of the European Parliament.

This briefing summarises the key points of the agreement. It is important to note that many issues are still to be resolved as they are tied up with negotiations on the Multiannual Financial Framework (MFF). Although EU leaders reached a deal on the MFF on 28th June following political agreement between the Commission, European Parliament and Council the previous day, key CAP issues, including capping, flexibility between pillars, co-financing rates and external convergence between Member States (MS), still have to be finalised.

Key points of the agreement – Pillar 1

  • Basic Payment Scheme (BPS): In addition to granting the basic payment in the first year to those who had entitlements in 2013, MS can grant entitlements to those who can prove that they were actively farming in 2013. This means that new entrants can access entitlements on the same basis as established farmers in 2015. This option will be particularly welcomed by those that are currently farming without Single Farm Payment who would not benefit from the dedicated Young Farmer Scheme due to being aged 40 or over.
  • Internal convergence: MS can now choose not to fully make the transition to a regionalised area payment at the end of the CAP convergence period, i.e. a certain historic element can continue to be factored in. This means that, should the Scottish Government utilise this leeway, farmers’ existing Single Farm Payment entitlements will contribute to their direct support payment. However, should the longer transition period be utilised, MS will have to ensure that the lowest payments per hectare are at least 60% of the national/regional average by 2019. Another option afforded to MS is to limit individual farmer losses to 30% due to convergence. Whilst these options are likely to be particularly welcomed by Scotland’s intensive beef, dairy and cropping sectors it should be recognised that baseline payment rates will be regulated by national ceiling deductions and the overall change in eligible area due to non SFP claimants becoming eligible.
  • Active farming: The so-called ‘Scottish clause’ ensures that payments are better targeted at land which is actively managed. MS can set up minimum activity requirements to prevent so-called ‘slipper farmers’ from receiving payments. ‘Negative lists’ have been drawn up of enterprises which cannot receive direct payments unless they can prove they are actively farming (e.g. airports, golf courses) and the Scottish Government can add to that list should it wish to. It is likely that the “active farmer” definition will not apply to those in receipt of less than €5,000 direct support.
  • Definition of permanent pasture: This has been defined as land used to grow grasses or other herbaceous forage, which has not been included in the crop rotation for five years or longer. However, there is an important derogation that MS can include land which can be grazed and which forms part of established local practices where herbaceous forage is traditionally not predominant. Importantly for Scotland, grazed heather is eligible.
  • Greening: In addition to the Basic Payment Scheme (BPS), each business will receive a “greening” payment per hectare for respecting certain agricultural practices beneficial for the climate and the environment. This payment amounts to 30% of the national (i.e. 30% of a farm’s total Basic Payment is reserved for “greening”). Three basic measures are foreseen in terms of greening requirements:
    o Crop diversification: Farmers with less than 10 hectares of arable land will be exempt. Farmers with 10-30 hectares will have to grow two crops (with neither more than 75% of the arable area), and over 30 hectares three where the main crop can cover 75% of the arable area and no crop can be less than 5% of the area. There is an exemption from this measure when more than 75% of the agricultural area of a farm is grassland and less than 30 hectares arable (as is the case for many Scottish livestock farmers). Winter and spring cereals and the different types of Brassica crops (turnips, kale, oilseed rape, etc.) count as different crops. There is also an exemption when farmers exchange arable land.
    o Ecological Focus Area: EFA applies where the arable land of a holding is more than 15 hectares, and must cover 5% of the arable land, or areas immediately around the arable land. There is a long list of eligible features (e.g. fallow land, landscape features, buffer strips and strips of eligible land along forest edges), meaning that fewer Scottish farms will be required to change management practices to comply. This 5% may increase to 7% after a report by the Commission in 2017 and legislative proposals. Permanent crops are excluded from EFA and there are exemptions where >75% of the holding is grass, forested, etc. Half of the EFA of a MS or region can be done at regional level, and there are provisions that encourage farmers with adjacent areas of EFA to work together. A matrix will be introduced to determine the biodiversity weighting of different EFAs and to facilitate their measurement.
    o Permanent pasture: MS must ensure that permanent grasslands in NATURA 2000 areas, and further sensitive soils which they identify, must not be converted or ploughed. There is also a general requirement at MS level (or at regional or sub-regional level if the MS chooses) to not let the permanent grassland ratio fall by more than 5% since the reference period. If so, farmers will face obligations to reconvert land into permanent grassland on their holding.
  • Greening equivalency: The Commission will draw up a list of ‘equivalence practices’ (including measures such as winter soil cover, catch crops, steep slope management, and keeping wet soils under grass), based on agri-environmental measures in Pillar 2 and environmental certification schemes, which farmers can use to qualify as ‘equivalent’ to greening. Permanent crops have been removed from the list of possible measures that can count as equivalent practices. In return, farmers would face a reduced agri-environmental payment, in order to avoid double payments. Equivalence would relate specifically to the measure being replaced (i.e. farmers would have to choose from the ‘crop diversification equivalence options’ to replace crop diversification, and so on).
  • Greening sanctions: Farmers who do not fully comply with the greening requirements will not be eligible to receive the 30% greening payment per hectare. In addition, a greening penalty, after a transition period, of up to 25% of the greening payment will also apply, meaning a farmer eventually could lose 37.5% of their total Basic Payment for consistently failing to comply with the greening requirements.
  • National Reserve (NR): MS can top up artificially low value entitlements, as well as grant new entitlements, to new entrants up to the national or regional average. The NR can be financed through a top slice of direct payments in years after the first year, allowing Scotland to adequately finance entitlements to new entrants.
  • Young Farmer Scheme: This will be a mandatory ‘top-up scheme’ (an additional 25% of the Basic Payment awarded for the first five years of installation), consisting of up to 2% of the national envelope, to assist farmers under 40 years of age. This is in addition to other measures available for young farmers under Rural Development programmes.
  • Small Farmer Scheme: This will be optional for MS with a maximum payment of €1,250 using up to 10% of national ceiling. There will be different calculation methods to suit different MS circumstances. This represents a simplification for the farmers concerned and for national administrations. There will also be Rural Development funding for advice to small farmers for economic development and restructuring grants for regions with many such small farms.
  • Redistributive Payment: Member States are given the option to use 30% of the national ceiling and introduce a redistributive payment (a higher rate per hectare) for the first 30 hectares (or up to the national average farm size). Whether there would be political support for this in Scotland is uncertain, as it is designed to redistribute support to smaller farms.
  • Coupled support: There will be a two tier approach to voluntary coupled support. All MS will be allowed 8% plus 2% for protein crops. Those MS who used over 5% in any year between 2010 and 2014 can use up to 13% plus 2% for protein crops. MS who used more than 10% can use more than 13% with Commission approval. The list of eligible products will be the Commission’s original list (i.e. essentially products which have been eligible before). The Scottish Beef Calf Scheme equates to 4.6% of the national ceiling meaning Scotland will likely be restricted at 8% recoupling rate.
  • Areas of Natural Constraint (ANC): MS (or regions) may grant an additional payment for areas with natural constraints (as defined under Rural Development rules) of up to 5% of the national envelope. This
    is optional and does not affect the ANC/LFA options available under Rural Development, reducing one potential short-run concern for farmers.
  • Issues still to be agreed:
    o Capping of direct payments: Council is adamant that capping should not be mandatory for MS. A likely compromise will involve degressivity of payments above €150,000, with MS deciding on the percentage to be applied (likely to be 5%).
    o Flexibility between pillars: Parliament and Council agree on a 15% maximum transfer from Pillar 1 to Pillar 2 (with a possible review in 2018). It will also be possible to transfer money from Pillar 2 to Pillar 1 but Council would like a much higher proportion than Parliament (perhaps up to 25% of Pillar 2 money for the UK). A decision and notification to the Commission now need to happen by the end of 2013 rather than August 2013.

Key points of the agreement – Pillar 2

MS will continue to design their own multiannual programmes on the basis of the menu of measures available at EU level. Programmes will be co-funded from national envelopes (with the amounts and rates of co-funding dealt with in the context of the MFF). Key issues agreed include:

  • Axes and Priorities: There will be more flexibility on future priorities (i.e. no Axes and no minimum percentage spends). MS/regions will decide which measures they use and how, in order to achieve targets set against six broad priorities2. Support is also included for fast growing trees (not for energy production) and for quality schemes, including support for information and promotion activities with a support rate of 70%. An option is retained to ensure that when woodland is created, farmers are compensated for agricultural income foregone. There is more flexibility on when Commission approval is needed for future Programme modifications.
  • Rural Development ring-fencing: 30% of rural development funds must be used for a variety of environment-related measures, such as agri-environmental schemes, LFA, organic farming, forestry and climate investments.
  • LEADER: At least 5% of rural development funding must be spent on the LEADER approach. There will be greater emphasis on awareness-raising and other preparatory support for strategies. LEADER will be used as the common approach for community-led local development by a number of EU funds (ARDF, ESF, EMFF and EAFRD).
  • Coordination with other EU funds: Rural development policy will operate in closer co-ordination with other policies through an EU-level Common Strategic Framework and through Partnership Agreements at national level covering all support from the EAFRD, ERDF, Cohesion Fund, ESF and EMFF.
  • Agri-environment measures: Agri-environment measures now include climate change options and agri-environment-climate payments are included to cover commitments going beyond mandatory greening standards (so there will be no double funding).
  • Innovation: This key theme (and more specifically, the planned European Innovation Partnership for Agricultural Productivity and Sustainability – the EIP) will be served by various rural development measures, such as knowledge transfer and cooperation. The EIP will promote resource efficiency, productivity and the low emission and climate-friendly/-resilient development of agriculture and forestry. This should be achieved, inter alia, through greater co-operation between research and agriculture in order to accelerate technological transfer to farmers.
  • Farm Advisory Service: The list of issues on which MS will have to offer support to farmers has been enlarged to cover, beyond cross compliance, the green direct payments, the conditions for the maintenance of land eligible for direct payments, the Water Framework and Sustainable Use of Pesticides Directives, as well as certain rural development measures.
  • Areas with Natural Constraints (ANCs)/ Less Favoured Areas (LFAs): There will be greater flexibility over designating land as ANC with a realistic timetable (2018) and the ability to continue paying LFASS in the interim with a gradual phasing out of people who no longer qualify for payments. The new eight biophysical criteria will be introduced as the basis for the new LFA scheme in 2018 at the latest. MS retain flexibility to define up to 10% of their agricultural area for specific constraints to preserve or improve the environment.
  • Producer groups/organisations: Support for setting up groups/organisations on the basis of a business plan and limited to entities defined as SMEs.
  • Risk management toolkit: Insurance and mutual funds – for crop and weather insurance and animal disease – have been extended to include an income stabilisation option (allowing a pay-out up to 70% of losses) from a mutual fund if income drops by 30%.
  • Cross-compliance: All direct payments and certain rural development payments will continue to be linked to a number of statutory requirements relating to environment, climate change, good agricultural condition of land, human, animal and plant health standards, and animal welfare. The Water Framework and Sustainable Use of Pesticides Directives will be incorporated into the cross-compliance system once they have been shown to have been properly applied in all MS, and all farmers’ obligations have been identified.
  • Additional measures: These may include support to young farmers, small farms, organic farms and mountain areas, grants for farm modernisation, investment and restructuring, non-agricultural activities (e.g. the start-up and development of micro-/small-businesses) and investment in broadband infrastructure and renewable energy.

What happens next?

The European Parliament is expected to vote through a non-legislative resolution giving its reaction to the MFF deal at the Parliament plenary on July 3rd. Once the MFF regulation (which sets expenditure limits and does not include the specific CAP-related items) has been verified, the General Affairs Council will give its agreement in principle, with the Parliament expected to give its consent in September. The Agriculture Committee will return to negotiations on the outstanding CAP issues immediately after this, if a solution has not already been found.

At UK and Scottish levels, the focus now shifts to identifying how the proposals will be implemented. While the new CAP looks to have considerable flexibility, it also contains significant complexities which will need to be resolved. The aim is that the new Regulations enter into force from January 1 2014 but it is clear that MS Payment Agencies will not have the necessary administration and controls in place for the start of next year. As a result, the Commission has made a separate proposal that there should be a transition year for Direct Payments in 2014 (i.e. the new direct payments structure will only apply from 2015 onwards). MS should work on their Rural Development Programmes which should be approved early in 2014 (the new SRDP will likely open for applications by August 2014). However, for certain annual elements, such as agri-environment payments, transition rules should apply so that there is no interruption in this type of scheme.

In terms of supporting research work, researchers at the James Hutton Institute are continuing their modelling work to look at the many different ways of delivering support in Scotland3. Researchers at SRUC are exploring a variety of CAP related issues, including developing a model to examine the impact of different flat rate payment scenarios on different farm types (ScotFarm), analysing the impacts of greening CAP payments, High Nature Value Farming, and creating a viability index for Scottish farms4.

Looking further ahead, the Commission will present a report before the end of 2018 – and every four years thereafter – on the performance of the CAP with respect to its main objectives – viable food production, sustainable management of natural resources, and balanced territorial development.

SRUC Rural Policy Centre

SRUC

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