APPENDIX 6
Memorandum submitted by the Tenant Farmers
Association (H6)
INTRODUCTION
The Tenant Farmers Association welcomes the
opportunity of making a submission to the Select Committee as
part of its Inquiry into the Mid Term Review of the CAP. The TFA
is the only organisation dedicated to representing the interests
of tenant farmers in Great Britain who farm approaching 40 per
cent of the total agricultural area of the country. As well as
providing direct advice and support to TFA members the Association
has an important role in scrutinising policy and new legislation
to ascertain its impact on farmers whose businesses and homes
are based on rented property. Policy changes can have differential
impacts on farmers depending on whether they are owner-occupiers
or tenants. The TFA's role in lobbying Government at all levels
is to ensure that the interests of tenant farmers are properly
taken into account.
THE IMPACT
OF THE
CAP
Despite heavy intervention in agricultural markets
and the provision of large amounts of direct support through the
CAP it is a fact that agricultural incomes have fallen to their
lowest levels for a generation. Commentators have consistently
asked where the £3 billion of taxpayer's money spent on agricultural
policy in the UK each year has gone. Clearly it is not staying
within the farming community which is the constituency rightly
identified as requiring support by the founding fathers of CAP.
The TFA's conclusion is that CAP support has, in the main, been
translated into higher input prices, including land, sending the
benefits of the CAP upstream and lower output prices for reasons
both of structure and production sending benefits downstream.
The squeeze on incomes not only causes problems for now but will
also lead to future problems as levels of investment on farms
have fallen to chronically low levels. Unless this trend is reversed
the ability of UK agriculture to continue to be competitive will
be severely dented. The CAP has created a high cost structure
within which agricultural production takes place and therefore
fails in meeting its primary and justifiable objective of supporting
producers.
A good example of how this can occur can be
seen as result of the abandonment of the rule within the Arable
Area Payments Scheme which required producers to have farmed arable
land for two years before setting it aside. Landlords letting
arable land on Farm Business Tenancies (FBTs) are now able to
use the level of set-aside payment as the minimum rent they would
be prepared to accept since they would be able to receive the
set-aside payment themselves by farming it in hand. As the "market
rent" for this land it becomes replicated across the whole
of the sector for new lets and for existing FBTs which come up
for rent review. This immediately adds costs at the farm level.
This real life scenario should sound an alarm bell in relation
to the Commission's wider plans to create "area entitlements"
from the proposed de-coupled payments.
THE COMMISSION'S
PROPOSALS FOR
THE MID
TERM REVIEW
The TFA argues that a new policy framework must
avoid or significantly reduce the leakage of support away from
its intended beneficiaries. The question is do the Commissions
proposals provide the answer? The answer from the TFA's perspective
is a resounding no.
It would appear that the Commission's main influences
are twofold. Firstly, the need to reform the CAP before the EU
moves from a block of 15 Member States to one of 25 Member States.
Particularly so as the likely 10 new members are candidates to
be major net recipients from the agricultural budget. Secondly,
the need to provide a negotiating platform for the emerging round
of WTO talks. These are indeed important considerations but the
TFA believes that the package of reforms could be amended to achieve
both these aims and avoid, in large part, the leakage of support
away from its intended beneficiaries.
There is much of merit in the package announced
by the Commission. Whilst the TFA supports the concept of de-coupling
per se, it questions the mechanism proposed to implement de-coupling
within the mid term review. With the right mechanism the TFA believes
that de-coupling would provide major advantages to European agriculture
and the administration of the CAP including its links with the
forthcoming round of WTO negotiations and EU enlargement.
THE EUROPEAN
COMMISSION'S
PROPOSAL
The Commission communication of 10 July proposes
the establishment of a single de-coupled payment to replace virtually
all arable and livestock subsidy payments. The payment to individual
farms will be based on historic entitlements and will be paid
to producers. Farms in receipt of such a payment will have almost
complete farming flexibility but there will be conditions on environment,
food safety and animal health and welfare in return for the payment.
The Commission goes on to propose that the overall
amount to which a farm will be entitled will be split into payment
entitlements in order to facilitate a partial transfer of the
payment when only part of a farm is sold or leased. The following
obligations would have to be met in every case.
1. Agricultural land throughout the EU should
be maintained in good agricultural condition and managed in accordance
with mandatory environmental standards.
2. Speculative transfers leading to the
accumulation of payment rights without a corresponding agricultural
basis should be avoided.
3. The total level of support and entitlements
should not exceed current levels at either EU or national level.
4. The WTO—Green Box nature of the
payments must be maintained.
In order to achieve this the Commission has
proposed that overall payments should become linked to eligible
hectares for the purposes of transfer. However, the Commission
has given member states the ability to use different approaches
as long as the four obligations noted above are respected.
PROBLEMS WITH
AREA ENTITLEMENTS
The concept of area entitlements produces difficulties
in a range of areas. These are grouped below:
1. Initial eligibility for payment
— How was the base year to be assessed?
— What about producers who did not
receive subsidy due to matters beyond their control in the base
period (for example Foot and Mouth Disease)?
— What about new entrants in the base
year?
2. Future Entitlements and Transfers
— How do you assess the subsidy value
of different pieces of land?
— Does the value of transferred in
entitlement retain its value or is it pooled with the value already
existing on the unit?
— What happens if land goes for non-agricultural
use?
— What happens if a producer transfers
in land with no subsidy to a holding which does have subsidy,
does the transferred in land now have an entitlement?
3. Administration
— Tracking transfers of land and subsidy
entitlements will be a major headache.
— DEFRA will have to keep a continuing
register of all land covered.
— What happens if land is transferred
with a subsidy entitlement to a holding receiving the maximum
de-coupled payment—is the subsidy entitlement lost?
4. Landlord/Tenant
— By attaching the payment to land
at the point of transfer this will have a major impact on rents.
— Tenants who have already got livestock
premium quotas (some of which are purchased) will be forced to
relinquish their rights to their landlords.
— Similar arrangements that apply now
for dealing with milk quota on that land will have to be put in
place for dealing with compensation issues relating to the de-coupled
payment at end of tenancy.
— The de-coupled payment will very
quickly become capitalised into land values (including rents)
and will therefore be of no specific benefit to producers.
PRODUCER ENTITLEMENTS
The TFA argues that avoiding any link to land
whatsoever could surmount many of the above problems. This would
be achieved by wholly de-coupling the payment through creating
a real producer payment. The TFA believes that such a system would
respect the four obligations outlined by the Commission and it
would work as follows.
The first step is to create the de-coupled payment
for each farm in the same way as envisaged by the Commission's
proposals. Having assessed the level of entitlement in Euro each
individual IACS identifier should be used to create a new form
of "share account" into which entitlements will be placed.
These could be delineated in any way but as a suggestion entitlements
could be based on a number of Euro 10 shares. For example if a
farm is assessed to have an entitlement to subsidy of Euro 10,000
per annum then the share account for that producer would be credited
with 1,000 shares which will entitle him to Euro 10 per share
per year.
New accounts would only be allocated to individuals
who could prove that they were validly entering agriculture on
a reasonable commercial basis. Once a new account was established
the account holder would be entitled to buy shares from existing
holders and would then be entitled to the annual value in subsidy.
The transaction would have to be carried out through a national
share register.
In order to ensure that shareholders do not
attempt to accumulate rights by splitting or otherwise creating
new businesses, the current rules and regulations that cover this
for IACS purposes would continue to apply. Businesses would have
to show a valid reason for such activity and show themselves to
be truly separate from one another.
In order to avoid the accumulation of rights
in existing accounts a legal limit on the total number of rights
held could be imposed on each account. The Commission has already
proposed an annual limit of Euro 300,000 per year per producer
under its own proposal. Whilst the TFA believes this might be
too low for UK purposes a similar cap could be applied to share
accounts such that, using the Commission's current figure, no
one account should be able to have more than 30,000 Euro 10 shares.
Land and other fixed equipment would change
hands at market rates and trading in shares would take place separately
but only amongst those with the share accounts.
Where an account holder decided to give up,
or substantially give up his agricultural base then there should
be a requirement that his shares are sold within one year of that
action or else they would be lost to the State. For the purposes
of defining "substantial" it could be assumed that it
involves at least a 75 per cent net transfer out of any interest
in land.
Modulation could be applied by simply reducing
the annual value of the shares by 3 per cent per year until they
reach 80 per cent of their original annual value. Therefore a
Euro 10 share in year one of the change will yield Euro 10.00
in subsidy whereas by year seven a Euro 10 share will yield only
Euro 8.00.
Cross compliance could be imposed on all existing
account holders in the same way as proposed by the current Commission
proposals on area entitlements.
The Commission's proposals would serve only
to add value to land, increase rents and therefore provide no
benefit to the farming community. The proposal set out above would
avoid these pitfalls without undermining any of the Commission's
main principles for reform.
DYNAMIC MODULATION
The TFA also has concerns about the Commission's
proposal for a new form of incremental modulation which it calls
"Dynamic Modulation" rising to 20 per cent of direct
aids by 2011. Again, the TFA is not opposed to modulation per
se, but while tenants continue to face difficulties in accessing
rural development and agri-environment schemes which are funded
by modulation, the TFA cannot support any modulation. The TFA
is working with the Government and other industry bodies to find
ways of surmounting these problems.
The TFA also believes that it is essential to
ensure that each Member State is allowed to retain modulated money
for redistribution internally rather than allowing it to be filtered
into a central EU pot for redistribution. The UK has already had
a bad deal on its budget under the Rural Development Regulation
and there is a great danger that this would be compounded through
the system proposed by the Commission.
CONCLUSION
The package of proposals is certainly more radical
than was expected. It has taken some Member States by surprise
and there is already a growing opposition to the proposals amongst
some. Those that are opposed take the line that the reforms are
unnecessary as the Agenda 2000 package was meant to last until
2006 and that they go beyond the legal boundaries set at the Berlin
Summit in December 1999 which set out the provisions for the Mid
Term Review.
In broad terms the TFA finds itself in a relatively
supportive position on the package with two major provisos. Firstly,
the proposal on de-coupling envisages the payment being made to
producers on the basis of area entitlements. This will simply
add value to land and rents without bringing any specific benefit
to the farming community. The only way in which this de-coupling
will work is if it is paid to the producer without any reference
to land. Secondly, the TFA is concerned that the proceeds of dynamic
modulation are to be retained by the EU prior to re-distribution.
The criteria for this re-distribution would work against the UK,
which has had a relatively small budget allocated to it for rural
development already. It will also be important, as highlighted
by the Curry Commission, to reform agri-environment and rural
development schemes to make them more effective and efficient
in delivering their objectives at least cost and allowing freer
access to the schemes.
7 August 2002
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