Select Committee on Environment, Food and Rural Affairs Seventh Report


3  Questions raised

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]
Example: dairy farming at the margin between SDA and lowland

A dairy farm within an SDA and one just outside of equal area and with the same size of herd, if working at equal intensity, operate under the same CAP regime at present. However, once the Single Payment Scheme is instituted the farm further down the hill would attract a higher flat rate support.

There would therefore be encouragement for dairy farming to move down the hill, out of the SDA. The result might be that the farmer just inside the SDA would give up dairying, and turn instead to extensive livestock grazing. The result might be the problem of under-grazing, affecting on-farm habitats. Moreover, land values and indeed patterns of land ownership inside and outside the SDAs would be sharply affected - for example, the farmer abandoning dairying and taking up livestock rearing might need to buy additional land. In short there would be considerable economic, social and environmental impacts.

18. There are clearly difficulties associated with the impact on farming activities at the margin between lowland areas, which will receive a higher flat rate payment, and SDAs, which will receive less. It seems that the full economic and environmental effects of such a differentiation were not fully thought through. Ministers should have been alert to the consequences of their proposals as far as the SDAs were concerned, and taken steps to minimise the impact of their policy on these fragile sections of the rural economy.

19. However, on 22 April 2004, the Government announced that it had accepted the case made for the division of agricultural land into three regions.[25] We are pleased that the Government has now responded to the problems which may have resulted from having significant differences in the level of support given to Severely Disadvantaged Areas and the rest of England.

Cross-border issues

20. A similar distinction to that between Severely Disadvantaged Areas and the rest of England will result from the different application of the reform of the CAP in the constituent nations of the United Kingdom. Scotland and Wales have announced that they will adopt the historic model, in broad terms basing support on farmers' past payments. Northern Ireland has opted for a static hybrid, under which farmers will receive a single flat rate payment per hectare plus a payment which reflects historical payment levels.
Scotland

Will adopt a single farm payment paid on a historic basis. In addition it will 'top slice' the single farm payments using the National Envelope mechanism in order to provide specific support to the beef sector.[26]

Wales

Will adopt the historic model.[27]

Northern Ireland

Will adopt a static vertical hybrid model of decoupling. The payment will consist of a flat rate, area based component funded from:

50 percent of the budget arising from the decoupled Beef Special Premium, plus;

50 percent of the decoupled Slaughter Premium budget (including the heifer top-up), plus;

35 percent of the decoupled Sheep Annual Premium budget plus;

80 percent of the decoupled LFA sheep supplement plus;

20 percent of decoupled Arable Area Payments budget.

This basic payment will be topped up for each individual farmer based on historic payments using the remaining decoupled monies left in the budget from the above schemes and all of monies arising from the suckler cow premium, the extensification premium and the dairy premium schemes.[28]

21. The adoption of different models of single farm payment in the four nations of the United Kingdom will lead to distortions within the UK, affecting decisions about farming and about land ownership. Such distortions will be particularly acute in border areas, where some farmers operate on either side and so will confront different regimes. We recommend that Defra, in conjunction with the devolved administrations, commission research into the likely effects on farming production of adopting different single farm payment regimes in the nations of the United Kingdom. We further recommend that it consider what support and assistance it might be able to offer farmers particularly affected, such as those who operate on either side of the border between the nations. Farmers whose holdings are divided by a border should have the right to opt for the regime which they consider most appropriate for the whole of their holding.

Rural Payments Agency: can it cope?

22. Another area of concern is whether the Rural Payments Agency (RPA) is able to cope with making payment to farmers under a complex and changing Single Payment Scheme. The Agency has in the past experienced some difficulty in dealing with the complicated data management needed to deliver existing CAP schemes properly, and so in making payments on time.[29] The Agency is already engaged in a 'Change Programme' which involves significant investment in information technology to "streamline and modernise the system of administering claims under CAP".[30] In that context it is worth noting the difficulties faced by Government in delivering IT projects.

23. We put it to Defra that the RPA might well face difficulty delivering the new Single Payment Scheme, particularly in terms of being ready for its commencement in January 2005. The Department assured us that although "it is a great task … [RPA staff] are working very hard to make sure that when the time comes they will deliver an efficient and effective scheme".[31] Lord Whitty argued that in fact the new system was "less complex" than what had gone before, which had "21 different regimes, all of which changed every year".[32] Defra concluded that the new Scheme was not "beyond the ability of the RPA systems to deliver in time [though] it would be unwise for anybody to sit here and say today that we will have a fault-free system in place at the beginning of next year".[33]

24. We note Defra's cautious confidence. Nevertheless, the RPA is being asked to deliver a new and complicated Single Payment Scheme against a tight deadline. It is an administrative process which will initially bring with it all of the problems of introducing a historic scheme whilst at the same time having to manage the transition to a area-based payment. We recommend that Ministers pay close attention to the steps taken by the Agency up to 1 January 2005 to ensure that all necessary systems are in place on time, and report to us by 1 October 2004 about the progress made. We also recommend that if additional resources are required by the RPA to deliver the new Scheme that Ministers commit themselves to providing those without hesitation.

25. We are interested to know how the work to deliver the new Scheme fits with the existing Change Programme. We recommend that Defra and the RPA provide us with an explanation of how the existing Change Programme can be adapted to provide the systems needed to underpin the Single Payment Scheme. We further recommend that they set out what work in the Change Programme has proved unnecessary due to the introduction of a single farm payment, and thus what expenditure has been nugatory.


9   See the speech delivered by Lord Whitty to the Oxford Farming Conference on 6 January 2004. Back

10   Q232 Back

11   Q233 Back

12   GFA-RACE (2003) The potential environmental impacts of the CAP reform agreement, GFA-RACE Partners Limited, Cirencester Back

13   Evidence taken on 8 March 2004 before the Milk Pricing Sub-committee, Q.380 Back

14   See DARD (2004) Minister announces decisions on implementation of CAP Reform, press notice 027/04, 9 February 2004; and DARD (2004) CAP reform: Rationale for main implementation decisions in Northern Ireland, DARD, 9 February 2004. Both are available from www.dardni.gov.uk Back

15   See Fischler letter outlines concerns over SFP implementation, Agra Europe, 6 February 2004, EP/1-2 Back

16   Defra, Departmental Report 2002, CM 5422, May 2002, p.19 Back

17   HC Deb, 5 March 2004, col 1151W. Back

18   See Spotlight on subsidies: 10 killer facts, Oxfam press release, www.oxfam.org.uk [accessed 21 April 2004], and the associated Oxfam briefing paper no.55. Back

19   EC Directive 75/268 Back

20   According to figures published by the European Commission in Ex post evaluation of measures under Regulation (EC) No 950/97, available from www.europa.eu.int/comm/agriculture/ Back

21   See NBA backs down on SDA plan, Farmers Weekly Interactive, downloaded on 24 March 2004; www.fwi.co.uk Back

22   Country Land and Business Association, Tenant Farmers Association, National Farmers Union, National Sheep Association and National Trust. Back

23   Three regions proposed for English Single Farm Payment, NFU Press Release, 18 March 2004 Back

24   See NBA backs down on SDA plan, Farmers Weekly Interactive, downloaded on 24 March 2004; www.fwi.co.uk Back

25   HC Deb, 22 April 2004, col 26WS Back

26   See the CAP Reform Statement, at www.scotland.gov.uk Back

27   See www.countryside.wales.gov.uk Back

28   See Full decoupling of all direct payments in the beef, sheep and arable sectors will be introduced from 2005, which is available at www.ruralni.gov.uk Back

29   See Sixth Report from the Environment, Food and Rural Affairs Committee, Session 2002-03, Rural Payments Agency, HC 382, para.8 ff Back

30   Evidence given to our inquiry into the Rural Payments Agency, quoted in para.4 Back

31   Q259 Back

32   Q262 Back

33   Q260 Back


 
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