Analysis
8. Our evidence made clear that adopting the Single
Payment Scheme would have a significant economic impact. Farm
incomes would be redistributed. Certain crops and livestock would
be more likely to be grown, whilst others would be much less so.
The effects would be different depending on the basis for the
Payment chosen. For example, as the Minister has set out, a Scheme
based on a flat rate payment per hectare farmed across the whole
country would benefit hill farmers, extensive livestock producers,
and previously non-supported crops, and disadvantage intensive
livestock and particularly dairy. A Scheme of historically-based
payments would limit the effects of redistribution, but would
lead to anomalies over time.[9]
9. We were interested to discover what investigations
Defra had made of the likely impacts on farming of the
various Single Payment Schemes proposed, and thus their economic
and environmental effects. Some work had obviously been done:
Lord Whitty told us that Defra had assessed a number of models
of payment schemes,[10]
which "in effect" allowed economic analysis of the impact
on farming in England of different ways of making the single payment.[11]
In addition, the Department commissioned a study of the potential
environmental impacts of the CAP reform.[12]
10. Whether the work was sufficiently detailed is
a matter of debate. In evidence to our Milk Pricing Sub-committee,
Lord Whitty was asked specifically about the effect on the dairy
sector of the decision made about payments in the Severely Disadvantaged
Areas. In reply he conceded that the Department had not "got
the modelling [of] what the effect will be in individual sectors".[13]
Moreover, the announcement of the Single Payment Scheme on 12
February was not accompanied by the publication of substantial
supporting material. By contrast, the Department of Agriculture
and Rural Development (DARD) in Northern Ireland published 78
pages - covering thirty different schemes - of detailed analysis
in support of the Single Payment Scheme it announced on 9 February.[14]
It is worth noting that it seems that this type of impact assessment
is likely to be a requirement of the European Commission if its
concerns about the impacts of regionalising payments are reflected
in the reform's Implementing Regulations.[15]
11. The Department for Environment, Food and Rural
Affairs prides itself on its commitment to "evidence-based
policy making".[16]
Without obvious evidence to the contrary, we are forced to conclude
that the Department's decision about the basis of the Single Payment
Scheme was based on pragmatism and political expediency, notwithstanding
the Department's more recent announcement that it will 'shortly'
publish "an analysis of the economic impact on the English
farming industry" of the Single Payment Scheme.[17]
We believe that the Government
should have produced an in-depth study of the likely impacts of
the various options for the Single Payment Scheme prior to making
its decision about the Scheme. We strongly recommend that it now
speedily produce its promised detailed analysis of the economic
impacts of the model it has adopted, and that such an analysis
also set out the likely environmental impacts too.
12. As has been made clear by organisations such
as Oxfam, the decision not to cap support payments under the reformed
CAP means that some already wealthy farmers and landowners will
continue to receive very large sums from European taxpayers.[18]
Thus there is concern that the Single Payment Scheme will simply
shift subsidies from grain barons to land barons, with little
guaranteed gain for the environment. Without the detailed analysis
we have asked for it is difficult to assess who will be the main
beneficiaries of the new payments system. We
recommend that Defra set out their detailed assessment of (a)
gainers and losers in the new Scheme, (b) what environmental gains
will result from the new system, and (c) the case made by other
European Union member states in favour of a ceiling on area-based
payments.
13. Defra's main line of argument in choosing the
area payment method was to free English agriculture from a shape
determined by existing CAP arrangements. It is clear from what
the Government told us that they believe that a more dynamic,
market-influenced, agricultural sector will emerge over time.
We recommend that, going forward,
Defra produce an annual assessment of English and United Kingdom
farming in order to monitor the impact of its policy decision.
It should focus on environmental impacts and also on socio-economic
concerns, such as land ownership and the incomes of those who
work on the land.
Severely
Disadvantaged Areas
14. The Single Payment Scheme for England announced
by the Government envisages two rates of payment: one for the
Severely Disadvantaged Areas (SDAs), and one for the rest of the
country. In essence a rate for each area will be calculated by
totalling the amount of subsidy previously paid in that area and
dividing by the number of eligible hectares. The result will be
the flat rate payable per hectare in each area. It is this rate
which the Scheme will move towards as historically based payments
are phased out up to 2012.
15. The SDAs are those areas defined under the Less
Favoured Areas Directive.[19]
They comprise mountain and hill areas, 'simple' Less Favoured
Areas, which suffer from poor soils and low agricultural incomes,
and areas facing specific handicaps such as periodic flooding.
In the United Kingdom they are set out on statutory maps, last
published in 1992. They make up approximately 8.3 million hectares,
or around 45 percent of the total farmed area of the United Kingdom.[20]
16. In general terms Severely Disadvantaged Areas
tend to be given over to the farming of livestock. Sheep and cattle
have in the past been supported under the CAP on a per head basis.
In the SDAs the payments have been supplemented under the Hill
Farm Allowance scheme to reflect the more difficult conditions.
However, SDAs tend to have been farmed more extensively than lowland
areas. Thus if the total of the livestock headage payments paid
in SDAs is divided by the area concerned, to give a single farm
payment per hectare, the rate is likely to be much lower than
for the lowlands. Indeed it has been suggested that the rate would
be £75 per hectare in the SDAs compared to £210 to £230
per hectare elsewhere.[21]
17. As the example in the box below shows, different
payment rates in the SDAs compared to the rest of the country
will have an effect at the margin between the two. The result
may well be that production patterns change, with economic and
environmental consequences. For this reason it has been proposed
that changes be made to the Single Payment Scheme to reduce the
impact of such changes. For example, on 18 March a group of interested
parties[22] wrote to
Defra to propose the division of England into three regions:
the moorlands, the non-moorland Less Favoured Areas, and the rest.[23]
The difference in the flat rate between the non-moorland Less
Favoured Areas and lowland areas would be reduced, and thus the
effects at the margin would be lower: it is suggested that under
the proposal lowland farmers would receive £210 to £230
per hectare, non-moorland SDA farmers £110 to £150 per
hectare, and moorland farmers £30 per hectare.[24]