Select Committee on Environment, Food and Rural Affairs Appendices to the Minutes of Evidence

Annex 1

Countryside Alliance Proposal for the Use of Modulation in Achieving Rural Development Goals in England


  Priorities in rural policy in the UK are changing. There can be no doubt that the foot and mouth crisis has re-focussed our minds on the role of agriculture and rural areas in the UK economy. Whilst the direct benefits of agriculture, in terms of employment and contribution to GDP, have steadily declined since 1970, its enormous indirect contributions in terms of landscape and amenity was fully realised by the FMD outbreak.


  The Countryside Alliance strongly supports the principles of sustainable development and believes in a vision of agriculture where rural people and rural communities are given opportunities to respond more freely to the market and drive change themselves. We believe conditions need to be created to allow the protection and enhancement of the environment by ensuring that local rural communities have ownership of, and receive benefit from it. The Alliance believes that the current CAP regime is doing British farming a disservice. It has alienated farmers from market forces and consumer demand. This has meant that farmers plan their businesses on a year by year basis depending on CAP subsidies and has discouraged them, not only from finding out what their customers actually want, but also from seeking new markets and planning for a long-term future. The current system of CAP subsidies is unsustainable. Furthermore, the CAP runs counter to the determination to expand the EU, and to create fairer international markets, where local trade can flourish.

  Farming, farmers and farm employees, who are critical to the fabric of rural economies, communities and landscapes must be recognised for their direct role in food production, employment and local communities, but also for their contribution to our heritage, the landscape, biodiversity and conservation. The Countryside Alliance recognises that viable farming is critical to the landscape and culture of rural Britain.

  The countryside can deliver a large number of products, which benefit the whole of society. These products must be recognised and integrated into any reform of the Common Agricultural Policy. These "products" need to be defined as such by Government policy as the basis for determining farm "payments" which are acceptable to society.

  The Countrywide Alliance's long-term vision for a sustainable farming sector in Britain includes the removal of CAP production subsidies.


  The trend in rural policy (both National and European) is slowly moving away from commodity support towards trade liberalisation, curbing over-production, integrating environmental protection and promoting wider rural development. Currently public expenditure and rural policy is still dominated by production-related support. In 1997-98 only 2 per cent of the £3.4 billion EU CAP budget was directed to agri-environmental and forestry schemes.

  One of the most welcomed aspects of the Agenda 2000 round of CAP reform was the creation of the Rural Development Regulation (RDR). The RDR brought together nine previous measures which dealt with issues such as Less Favoured Areas, agri-environment programmes, afforestation schemes, early retirement programmes, farm modernisation, process and marketing etc. The RDR required each member state to draw up a single integrated rural development plan. Each devolved state of the United Kingdom drew up its own plan. The England Rural Development Programme (ERDP) was approved by Brussels in October 2000. The RDR was welcomed as a new approach to the planning and delivery of agri-environment and rural development schemes. The distribution of resources of the RDR for each member state was based on historical spending commitments. As a result of the low levels of spending, the UK will receive only 3.5 per cent of total EU allocation (

154 million) between 2000-2006. This compares with 16.1 per cent for Germany, 17.5 per cent for France, 10.6 per cent for Spain and 7.3 per cent for Ireland.

  To appease those member states that had pressed for a greater reorientation of agricultural funding in the Agenda 2000 round of talks, the European Union created a facility allowing member states to do just this if they so wished. This facility was termed modulation.

  Member states are allowed to "modulate" (ie reduce) direct aid payments by anything up to 20 per cent. This "top slicing" of payments to individual farmers is then redirected into the RDR schemes in that member state. This is an optional facility and to date only France, Portugal and the UK have taken it up. Under EU rules, member states must match fund this modulated money from national budgets.

  While it means more money is redirected into the RDR schemes (in England—the England Rural Development Programme), it also means farmers take a cut in their subsidy pay cheques. With farming incomes in the UK at an all time low, a further reduction in farm income through modulation has not been welcome.

  With this factor in mind, the former MAFF introduced a low percentage of modulation and throughout the budget period of the ERDP will gradually increase from 0 per cent in 2000 to 4.5 per cent in 2001.

Table 1


Modulation per cent

  The ERDP has been assigned a budget of £1.6 billion. £240.4 million of this is modulated from the European Agricultural Guidance and Guarantee Fund (EAGGF) making a total of £477.1 million including match funding from the UK treasury. Over 28 per cent of the ERDP budget comes from modulation.

  The following direct payment commodity schemes currently subject to modulation are as follows:

Sheep Annual Premium SchemeSuckler Cow Scheme
Beef Special Premium SchemeSlaughter Premium Scheme
Extensification Premium SchemeSeeds
Arable Area Payments SchemePotato Starch

Methods of Modulation

  The UK Government has adopted a method of modulation where a flat percentage is applied across the board on the above schemes regardless of the size of the subsidy, the size of the farm, profitability of the farm, or number of employees. Thus a small family farm is modulated at the same percentage as a large extensive highly commercial one. This is termed Universal modulation.

  However the original Agenda 2000 proposals for modulation were based on labour use on each holding. In the final reform agreement there are now three alternative bases:

    (1)  Depending on the number of workers on the farm (with those farms with less workers having a greater rate of modulation).

    (2)  The profitability of the farm (with those farms having a higher profit margin receiving a higher rate of modulation).

    (3)  The amount of direct payments received per farm (with those farms receiving larger subsidies paying more to the RDR through modulation).

  The MAFF opted for the third option as the number of workers on a farm is difficult to determine as well as the profitability of a farm.

  As well as universal modulation other models of modulation have been proposed. These include:

    (1)  "Discriminatory" Modulation Where a ceiling is applied over a certain absolute level of compensation payments, and so modulated receipts are taken only from those producers enjoying higher payments and therefore would disadvantage larger farmers.

    (2)  "Progressive" Modulation Farm businesses receiving higher payments would have a higher percentage of their receipts modulated. Farm businesses receiving smaller payments would be modulated at a lower rate.

    (3)  "Progressive Discriminatory" Modulation This is a combination of the two other strategies above where only farm businesses in receipt of payments over a certain ceiling are modulated, and then at a graded, progressive rate according to levels of payment above that ceiling.

Table 2


"Universal" Modulation "Discriminatory" Modulation
Where all farm businesses in receipt of compensation payments experience a single-rate reduction in them. Where a ceiling is applied over a certain absolute level of compensation payments, and so modulated receipts are taken only from those producers enjoying higher payments.
This is the case at present.This would disadvantage larger farms.
"Progressive" Modulation "Progressive Discriminatory" Modulation
Farm businesses receiving higher payments would have higher proportions of their receipts modulated A combination of two other strategies.
Farm businesses receiving smaller payments would be modulated at a lower rate. Only farm businesses in receipt of payments over a certain ceiling are modulated, and then at a graded, progressive rate according to levels of payment above that ceiling.

Countryside Alliance Proposals

  The Countryside Alliance welcomed the ERDP but felt that MAFF could have gone much further. The Countryside Alliance is a strong advocate of the elimination of direct CAP subsidies (Pillar I) towards rural development (Pillar (II) and believes the UK Government should have undertaken a higher rate of modulation. As is the situation in France the full allowance of 20 per cent should be adopted as soon as possible.

  With the continuing WTO talks, the inclusion of a number of Eastern European countries (most notably Poland) joining the EU in 2004, it is highly likely there will be a large shift from Pillar I to Pillar II during the next round of CAP reform in 2006. The Countryside Alliance envisages direct subsidies being removed completely by 2015. With this in mind, it is unwise for UK farmers to continue to be reliant on direct subsidies. Farmers need to become proactive and adjust their farming activities and, become less reliant on direct subsidies and prepared for subsidy reductions in subsequent rounds of CAP reform. The Countryside Alliance believes modulation is a vital tool in weaning farmers off subsidies. There is also a strong possibility that the EU will make modulation compulsory across the EU during either the mid-term review or the next round of CAP reform. If CAP reform is radical, then modulation can act as a pilot for the introduction of such schemes.

  Therefore the Alliance would support the introduction of a progressive modulated system. It may be the case that those farms with the largest subsidies have a 30 per cent reduction. Those farms with the smallest subsidies (either because they are small farms or are less reliant on subsidy) would have a 5-10 per cent reduction.

  However there is a major concern. Farm incomes are at an all time low and further increases in modulation will depress farm incomes further, putting many out of business. The Countryside Alliance proposes that the full rate of modulation is not introduced immediately but gradually over a seven-year period from the current level of 2.5 per cent to 20 per cent in 2007. The Countryside Alliance proposes a system of "accelerated" or "progressive" progressive modulation. The objective is to support change but at a realistic pace which enables farm businesses to survive and change themselves.

Table 3


Modulation percentage

  Modulation should be compulsory to all farmers receiving a subsidy regardless of the size of the farm. Those smallest farmers receiving a small subsidy should also be modulated, although this would be at the lowest possible rate.

  Understandably there are concerns that farmers will lose out but the Countryside Alliance proposes that no farm should lose income. The modulated money should stay on the farm but in return each farm should take up a rural development scheme. The Countryside Alliance is also proposing a radical restructuring of the rural development/agri-environment schemes so that they are all streamlined into one scheme that is applicable to ALL farms. The Countryside Alliance is proposing the introduction of an English Land Management Contracts (LMCs), similar to that already introduced in France. In order for the modulated money to stay on the farm it would be compulsory for the farmer to enter into a land management contract. The idea of the LMC system is that it identifies local problems and needs (environmental, social and economical) and pays the farmer to provide solutions.

  EU regulation states that modulation must be matched pound for pound by treasury spending. Therefore, a second stream of funding (the UK Treasury) is made available to which all farmers can apply, to top-up their funding for the LMC. The Countryside Alliance proposes that fund will be used selectively depending on the need of the farmers and his commitments under his LMC. It may be the case that a small farmer may have a small amount of money from modulation to enter into a LMC but wants to undertake a large project. He/she could then apply for a much larger grant from this second stream of money. Those farmers currently receiving no direct payments from the EU would also be actively encouraged to enter into a LMC. This would be funded from the UK Treasury stream of money.

  The objective is to drive change in farming practice so that the new demands on the countryside become part of a farmer's business profitability.

  The Countryside Alliance has prepared a proposal for the England LMC system. However the following is a brief summary:

Land Management Contracts

  Under an LMC the farmer would complete a sustainable development project encompassing business development, environmental protection and social benefit. These contracts still account for food provision, but at the same time, ensure farmers are able to take up new responsibilities meeting social expectations on employment, food quality and safety, environmental protection, and balanced regional development.

  Each contract would be based on an overall assessment of the farm within a local context and the Government would be committed to helping the initiative financially for a period of at least five years.

  Each local DEFRA office would have to draw up a standard contract, relevant to a specific geographical area and comprising a coherent set of standardised measures. A standard measure would be an action or set of actions aimed at a common objective. These actions would be reflected in the contractual requirements of each farmer.

  Importantly, within this framework, LMC's enable farmers to innovate—seeking new market niches, working with others to promote a product, or finding new ways of preserving existing jobs or creating new ones.

  A farm business should be rewarded for keeping/maintaining labour not penalised for reducing it. This would ensure there was no contradiction of one of the objectives of CAP reform, which is to prepare agriculture for exposure to world markets.


    —  The Countryside Alliance advocates a greater shift from Pillar I to Pillar II of CAP with the eventual aim of eliminating direct subsidies.

    —  The Countryside Alliance believes modulation is a vital tool in achieving these aims and helping the farmer to adjust to the inevitability of CAP reform. Modulation will help farmers become less reliant on subsidies and help create a sustainable farming sector with long-term prospects but recognises that this can only be achieved if farm viability is not penalised or compromised.

    —  The Countryside Alliance advocates an increase in modulation to 20 per cent. This modulation must be progressive and increased to 20 per cent by 2008.

    —  For modulated money to stay on the farm, it will be compulsory for the farmer to enter into a Land Management Contract.

    —  A second stream of money match funded by the UK Treasury will be given to farmers depending on their needs and commitments under their Land Management Contracts. This requires an increased spending commitment from the UK Treasury. However, the Countryside Alliance believes that the benefits received through the LMC system will far out weigh the additional cost to the Treasury.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2002
Prepared 6 November 2002