Annex 1
Countryside Alliance Proposal for the
Use of Modulation in Achieving Rural Development Goals in England
INTRODUCTION
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.
COUNTRYSIDE ALLIANCE
VISION
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.
CURRENT SITUATION
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
INCREASE IN THE RATE OF MODULATION OVER THE
ERDP BUDGET PERIOD
| Year | 2000
| 2001 | 2002
| 2003 | 2004
| 2005 | 2006
|
| Modulation per cent | 0%
| 2.5% | 3.0%
| 3.5% | 3.5%
| 4.5% | 4.5%
|
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 Scheme | Suckler Cow Scheme
|
| Beef Special Premium Scheme | Slaughter Premium Scheme
|
| Extensification Premium Scheme | Seeds
|
| Arable Area Payments Scheme | Potato Starch
|
| Hops | |
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
TYPES OF MODULATION
| "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
INCREASES IN THE RATE OF MODULATION AS PROPOSED BY THE
COUNTRYSIDE ALLIANCE
| Year | 2001 |
2002 | 2003
| 2004 | 2005
| 2006 | 2007
|
| Modulation percentage | 2.5%
| 5% | 7.5%
| 10% | 12.5%
| 15% | 20%
|
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.
Summary
— 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.
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