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CAP Reform JUNE 2013 UPDATE The ‘less Common’ Agricultural Policy reform allows Member States greater freedom to implement agricultural policy so farmers are worried and environmentalists disappointed The European Commission, European Farm Ministers and the European Parliament reached a political agreement on some of the details of CAP reform on 26 June. Some of the most important issues for the UK, notably on capping payments to large farmers and transfers of funds between pillars, will be debated during further talks on the Budget later this year. The reform is not radical other than in the way it could transfer more power on how to implement the ‘broad’ policy to Member States. UK farming bodies are worried that Defra will transfer direct payment funds to rural development, which they claim would put UK farmers at a competitive disadvantage. Many of the worst elements for the UK have been watered down, such as capping payments to large farmers and a complicated way of deciding how payments are allocated. We are disappointed that the UK does not get a bigger slice of the overall European rural development budget and that it is not a bigger step towards truly sustainable farming.

Key Points + EU agricultural budget was agreed in January 2013 and has only been cut by 4% (2011 prices) – a good result – Direct payments will continue but will be at least 30% lower + Farmers can top the basic payment up with a ‘greening’ payment + Farmers will have to do more ‘green’ work for their payments. Defra will have more say on this than originally thought – UK will continue to receive a low level of Rural Development funding and so agri-environment schemes will continue to be underfunded + Payments to ‘large farmers’ will not be cut back as much as originally proposed +

Direct payments will only be made to ‘active farmers’. The original proposals have been simplified and Member States will have some scope to tailor this

The broad aim of the reform A greener, more equitably distributed CAP, which focuses on environmental protection and reducing climate change. It will also aim to support the overarching growth strategy for Europe, called Europe 2020, in making the Union more competitive, innovative and the leading body on climate change.

The reform seems to have been taken over by vested interests. It will not be green and it will not distribute rural development funding more fairly between Member States.

At best it is ‘business as usual’; at worst, a tragic fudge and wasted opportunity.

The main policy aims for agriculture 1. Food security This is an overarching aim as food production in Europe is now seen as strategically important given the rising world population and food price volatility 2. Environmental protection This is a key element –not a ‘nice to have’ that will be dropped due to economic circumstances 3. Social and economic The policy will support populations in rural areas, especially ‘physically disadvantaged’ ones

Four bodies are involved in the decision making process 1. The European Commission made draft proposals in October 2011, and has been consulting on them 2. European Heads of State: can trump all of the other bodies. Their agreement on the EU Budget in January 2013 included fixing some elements of the CAP reform 3. The European Parliament’s agricultural committee, called COMAGRI, makes recommendations for the full Parliament to agree 4. The European Council of Ministers, who are the farm ministers from each Member State, must agree a joint position with the European Parliament, which is what the meeting on 23-26 June 2013 was about (see below)

Agreements reached during the ‘trilogue’ meeting between the Commission, Parliament and Council on 23-26 June 2013 are shown with a symbol.

Whilst every effort has been made to ensure the accuracy of this briefing, its information may not be comprehensive and recipients should not act upon it without seeking full professional advice. We have tried to simplify this update by only showing the currently agreed position. If you would like to know the positions of the different bodies involved, please call us.

Timetable February

European budget agreed


Subject to European Parliament ratification, which has not happened yet


Proposals agreed


Agreement at trilogue meeting but further issues related to the European Budget still to be agreed

By the end

Final details linked to European

of 2013

Budget agreed

This is very important for the UK as it includes capping of payments to large farmers and rural development funding

By the end

Legal texts published

of 2013

By the European Commission


Existing CAP prolonged


So there is no gap


New CAP operational


Probably slipping into 2016, which will cause issues for rural development schemes

Smiths Gore offices

Please contact our farm management team to get the latest information on the proposals and to assess how the reforms might affect your business Head of Farm Management Simon Blandford 01962 857405

South East England Simon Blandford 01962 857405

South West England Thomas Brunt 01672 529053

East Midlands Robert Childerhouse 01638 676749

West Midlands Andy Pillow 01543 261992

North West Richard Cantillon 01387 274384

Yorkshire and Humber Michael Yeadon 01904 756310

Scotland James Worthington 01387 274383

East of England Robert Childerhouse 01638 676749

North East Duncan Winspear 01434 636071

The over all budget for agriculture The budget for agriculture has been cut by 4% (in 2011 prices), after the overall European budget, known as the Multi-annual Financial Framework, was agreed on 8 February 2013. This is probably the best deal that farmers and the CAP could have expected.

Pillar 1 direct payments Direct payments will continue to provide income support for farmers and some of the public goods demanded by the European public. Payments based on historic claims will largely be phased out by 2019, after which they will be made on ‘uniform unit values’ in each country. The plan is to have a single flat rate across Europe by 2029.

Coupled payments, linked to a specific product, can be made by Member States at their discretion.

Young farmer scheme will be mandatory so that farmers under 40 will receive a 25% top-up in payments per hectare up to 90 hectares for up to five years.

Allocation of budget • 30% of the Pillar 1 budget will be allocated to ‘greening’ so direct payments, now called the Basic Payment Scheme, will be lower.

• What counts as eligible area will be recalculated using who received the payments in 2013 and 2014 as the reference period. An optional higher rate of payment to all farmers for the first 30 hectares.

The ideal budget for Defra is a smaller one, focused on Rural Development measures, particularly climate change and agri-environment. This won’t happen. The reallocation of entitlements should be much simpler than originally feared but if you are buying land carefully draft contracts.


environmental work that farmers can do for additional payments • Farmers will have to do at least three measures in addition to cross-compliance, which will continue and be simplified, to receive an additional annual payment on top of the basic direct payment: 1. Crop diversification: 2. Permanent grassland: 3. Ecological focus area:

Arable farms must grow at least three different crops each covering at least 5% and no more than 75% of the area. Grassland over five years old and which was not set-aside must be retained. 5% rising to 7% after 2017 of the farm (excluding permanent pasture) managed for the benefit of the environment (e.g. fallow, buffer strips, hedges, field margins, woods)

• The greening payment will not be cut back by capping. Farmers will not be paid twice for doing the same environmental measures, under Greening in Pillar 1 and Rural • Development in Pillar 2. • Member States may use 5% of their national pot to finance annual area-based payments for farmers in Less Favoured Areas; this is in addition to payments to LFAs under the Rural Development pillar. Greening penalties will be phased in to allow farmers to adjust to the new rules.

The ‘greening’ top up is not popular with Defra; it wants to separate direct payments from environmental payments as it considers this the best way to achieve its long-term objective of ending direct payments. The ‘greening’ route helps the European Union justify continuing direct payments to farmers. The ‘greening’ measures may not improve the farmed environment, hence why environmental bodies consider it to be greenwash and why Defra needs to be innovative and imaginative in how it is implemented.

The balance of spending between both pillars is kept largely the same although the direct payments budget, which accounts for over 75% of CAP spending was cut less (-2%) than rural development (-8%), much to the chagrin of environmentalists. New mechanisms will be introduced so Member States can make transfers between pillars (see below).

Member States can transfer up to 15% of their annual ceiling from Pillar 1 to Pillar 2, set by the EU Budget Deal, but still potentially open for negotiation Member States can transfer up to 15% of their annual ceiling from Pillar 2 to Pillar 1 Member States, like the UK, which receive less than 90% of the EU average direct aid can transfer 5% from Pillar 2 to Pillar 1 Member States can transfer unallocated ‘greening’ funds to Pillar 2

Active farmer

direct payments for real agricultural activity only • Payments will only be made to ‘active farmers’ and not those on a ‘negative list’ which Member States will have to apply mandatorily, which includes golf courses, airports, railway services, water works, real estate companies and sports / recreation grounds. • Payments will only be made to entities who can demonstrate farming is ‘significant’ to their business, decided by Member States.

The proposals agreed by the trilogue are a vast improvement over the Commissions’ BUT only if Defra administers them simply and does not disrupt the landlord and tenant system or ‘conservation farmers’, who contribute to biodiversity and social aims.

Capping of payments to large farmers • Mandatory 5% cuts to payments over €150,000. Member States will be able to transfer the ‘capped amounts’ to their Rural Development budgets.

This is a better result for the UK than the original proposals, which would have cut payments for large farmers by up to 100% but it is not quite as good as the EU Budget deal proposal, which made capping voluntary. Heads of State won’t like their agreement changed so this may not be fixed yet.

There will also be a shift in how the overall budget is spilt between Member States, so that payment rates per hectare are more equal – but not equal. The rate at which this will happen will be slower than the Commission’s original proposal, which was for a flat rate of payments across Europe by 2019. No farmers should receive less than 60% of the EU average payment rate by 2019 Budget deal: set a minimum payment level of €196/ha in current prices by 2020

Pillar 2 rur al development Rural Development means promoting competitiveness, management of the environment and development of rural areas. The threat to the whole Rural Development pillar that appeared in June 2011 has gone – Pillar 2 will stay but how it operates will change.

Allocation of budget

Despite hope that there would be a significant change in allocations between Member States, which would have been good for UK farmers as we get a small proportion of the pot, it looks like we will stick to the old (unfair) allocation.

Defra is a strong supporter of Rural Development spending - it is one of the few areas of CAP spending that it wants. Existing agri-environment schemes will use a significant amount of the UK’s Rural Development budget so there will not be a lot for new initiatives.

Structure of rur al development • The current structure of three axes will be replaced with a ‘measures based’ approach to contribute specifically to the achievement of one or more EU priorities in the Europe 2020 policy. Minimum spending on environmental measures of 30% and minimum 5% on LEADER. • Member States will select from a menu of compulsory (see list below) and chosen measures: • Land management that protects and enhances the environment, including training and information and conversion to organic farming. This is now called Agri-Environment Climate

• Innovation and Knowledge Transfer and the European Innovation Partnership on sustainable, low carbon agriculture

• Forestry, woodland creation, prevention and restoration of damage caused by pests and diseases

• Top ups for less favoured areas, now called Areas of Natural Constraint

• Strengthened farm advisory services

• A new co-operation measure to fund co-operative activities

• Farm and business development support for rural business to boost their economic and environmental sustainability • There will be more co-ordination between policies, through the Common Provisions Regulation, which will regulate the four EU Structural and Investment Funds. We hope this also means that it will be easier to combine funding streams.

CAP Reform Update 2013  

CAP Reform Update 2013

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