Memorandum submitted by the Processed
Vegetable Growers' Association
IMPLEMENTATION OF CAP REFORM IN THE UK
INTRODUCTION
1. The Processed Vegetable Growers' Association
(PVGA) has a membership of approximately 1,000 farmers covering
around 400,000 hectares, growing field scale vegetables and potatoes
for processing, in particular peas and beans for freezing and
canning. The issues faced by our members under CAP Reform are
shared by thousands of other farmers who have grown, or let out
land for, unsupported crops in the reference period 2000-02.
2. This submission concentrates on the impact
on growers of potatoes, vegetables and other unsupported crops,
who operate in finely balanced markets, and are particularly vulnerable
to the discrimination and market distortion that would result
from the allocation of entitlements based on individual historical
claims (IHC),
EXECUTIVE SUMMARY
3. CAP reform should ensure equal treatment
between farmers, avoid market and competition distortion, minimise
redistribution, keep money with working farmers, and be transparent
and justifiable to the public. The allocation of Single Farm Payments
based on individual historical claims (IHC) fails badly on nearly
all counts. The regional average payment approach (RAP) causes
too much redistribution in the livestock sector. The hybrid option
is the only way forward.
4. IHC would be seriously damaging to some
10,000 farmers who would receive no entitlements for land occupied
by unsupported crops in the reference period 2000-02, and would
lose their right to return to supported cropping with equal treatment.
They would be locked into reference period cropping and vulnerable
to exploitation from buyers.
5. Under IHC unsupported crop growers will
face unfair competition from farmers in other Member States, possibly
other UK regions, and certainly the 10 Accession States that will
have a regional approach. In the case of novel crops such as borage
they will suffer direct competition form other farmers in England
with aid.
6. IHC would distort land values and place
disproportionate burden of cross compliance on unsupported crop
growers.
7. The hybrid option would allow the livestock
sector to remain 90% based on historical claims, supplemented
by a 10% regional payment, while the problems of the unsupported
arable sector would be resolved with a regional payment.
8. The hybrid solution would resolve a large
number of transitional issues and reduce the cost and uncertainty
of appeals. It would not be as simple and cheap to administer
as RAP, but probably no more complex and costly as IHC.
9. CAP reform on the hybrid principle is
a good fit with the vision of the Policy Commission on Farming
and Food.
DETAILED SUBMISSION
In addressing the questions raised by the Committee,
we start by considering:
WHAT IMPACT WILL IMPLEMENTATION HAVE ON THE AGRICULTURAL
SECTOR, PARTICULARLY WHEN TAKING ACCOUNT OF APPROACHES TO CAP
REFORM IN OTHER EU MEMBER STATES?
Historical approach disastrous for unsupported
sectors
10. CAP reform would have a serious negative
effect on the presently unsupported sectors of agriculture if
the allocation of entitlements for the Single Farm Payment (SFP)
is based on individual historical claims (IHC). Farmers would
receive no entitlements for land occupied by unsupported crops
in the reference period 2000-02. The effect would be to fix farm
support for the next 10 years in an arbitrary time warp.
Large numbers affected
11. It might be tempting to think that those
adversely affected by the IHC approach are an insignificant minority.
Not so; according to the 2002 Agricultural Census, potatoes were
grown on 7,728 holdings in England, field vegetables on 5,761
and other arable crops (which includes unsupported combinable
crops such as borage) on 3,449. There will be some overlap in
these numbers, but they are likely to total at least 10,000, representing
some of the most dynamic, market-focused farming businesses in
the country. These are the farmers who have responded to the challenge
to diversify away from supported surplus commodities.
Loss of flexibility and market focus
12. Article 51 of the Regulation provides
for "the negative list" which, under IHC, would prevent
any farmer from claiming SFP entitlements on land used for potatoes,
vegetables and soft fruit. This gives some protection to existing
growers of unsupported crops from unfair competition from neighbours
with entitlements. But, under IHC, the unsupported crop growers
will lose their right to return to supported crops with equal
treatment, losing flexibility and market focus.
13. Under IHC, unsupported crop growers
will be locked into reference period cropping and vulnerable to
exploitation from buyers. They would lose the market focus that
de-coupling is intended to strengthen. In the past, the growers'
negotiating position with his customer (dominated by large multinationals)
has been underpinned by his ability to switch into supported combinable
crops. The loss of this option will seriously weaken the growers'
position, and we are already seeing signs that buyers will abuse
this situation.
Example from the pea industry
14. A clear example of this problem can
be seen in the vining pea industry. Over the years we have seen
pea prices moving in a loose correlation with wheat prices, as
one side or the other based its negotiating position on the returns
from an alternative cereal crop. When wheat prices rose between
1993 and 1996, growers were able to push up pea prices. Since
then it has been relentless downward pressure with buyers aware
of the lower returns from cereals. Under IHC the alternative to
growing vining peas is no longer cereals with area aid, but cereals
without area aid, and the growers' position is hopelessly undermined.
So instead of seeing pea prices rise for next year to reflect
the 50%+ rise in wheat prices, we are now seeing growers squeezed
even further.
15. We have already seen one of our member
co-operatives lose its long-term supply contract for 2004 for
refusing to accept a 16% price cut demanded by its customer. The
growers will now have to face the future with neither pea contract
nor entitlements. Some might argue that the position is caused
by oversupply, but that itself is partly caused, and certainly
exacerbated, by the loss of options to growers under IHE.
16. The UK is the largest producer of frozen
peas in Europe—second only to the US in the world—but
we can see growers under similar pressure in other negotiations
and the future for the industry under IHC is bleak.
Why should unsupported growers need subsidy now
when they resisted it before?
17. It might be argued that growers of unsupported
crops chose to operate without subsidy in the past and should
not now try to climb back on board the subsidy train. Indeed the
vining pea growers, represented by this Association, campaigned
successfully against the inclusion of the crop in the IACS scheme
in the mid '90s. However, there is a big difference between growing
without subsidy whilst retaining the option to revert to subsidised
crops, and being permanently excluded with all the consequences
outlined here.
18. It has been suggested that if unsupported
growers benefited from a regional payment they would be squeezed
by the big buyers—retailers and processors—and that
aid would be passed on down the supply chain. Such an argument
misses the point—there will be the same downward pressure
on price whether or not vegetable growers receive aid.
Novel crop growers doubly hit
19. Growers of unsupported crops not protected
by the negative list, such as borage and other novel crops, will
face unfair competition from farmers who have not grown these
crops during the reference period and who, under IHC, will have
entitlements from supported combinable crops. There is already
clear evidence that buyers are contracting with growers who will
have entitlements under IHC when the new scheme comes into being.
It is reasonable to suppose that this will lead to downward price
pressure at the expense of the traditional growers.
Capital values
20. Unsupported crop growers will be further
penalised by devaluation of their capital base. Land with payment
entitlements will be worth upwards of £1,500 per hectare
more than similar land without entitlements.
Farms in transition
21. Growers who have changed from unsupported
to supported crops since the reference years will be particularly
hard hit. Between 2001 (the middle year of the reference period)
and 2003 22,800 hectares has come out of unsupported crops but
will miss out on the allocation of entitlements under IHC:
| Thousand hectares
| 2001 | 2003
|
| Horticultural crops | 154.9
| 157.8 |
| Potatoes | 126.0 | 108.8
|
| Sugar beet | 177.3 |
162.0 |
| Other arable crops | 11.8
| 18.6 |
| 2471.0 | 2450.2
|
| | |
Source: DEFRA June Census Stats 46/03 1 December 2003
Rotation and good agricultural practice
22. Growers of specialist crops frequently rent land
from other farmers in the interest of good agricultural practice,
to improve rotations and reduce pest and disease problems. The
combination of IHC together with the three-year use it or lose
it rule (Art 45) will put constraints on this essential land dynamics.
Much of the national potato acreage is grown on land rented for
the season by specialist growers from ordinary farmers who will
lose their entitlements under IHC.
Cross-compliance
23. Unsupported crop growers will bear the same cross-compliance
obligations over their entire farm area, but with less aid to
fund them.
Market and competition distortion
24. The degree of Member State flexibility within the
new Regulation opens the door for market and competition distortion
between the Member States and between regions within a Member
State. The adoption of IHC in England would leave our industry
at a disadvantage compared to competitors in other Member States,
the ten accession countries, and even possibly other UK regions,
choosing a regionalised approach. Competition from potato and
vegetable growers in those countries receiving decoupled aid would
put at risk the future viability of vulnerable sectors of our
industry. The only solution is to adopt regional averaging for
the arable area of England.
25. Some have suggested that that our cereal producers
would be at risk from competition distortion if they were at a
disadvantage of approximately
55 per hectare, compared with continental producers, as a result
of regional averaging. How much more devastating would it be for
unsupported growers against competition with
300+ per hectare advantage?
FOLLOWING WHAT
PRINCIPLES AND
BY WHAT
METHOD SHOULD
THE UNITED
KINGDOM IMPLEMENT
THE PROPOSALS?
Purpose of public support for agriculture
26. There has been debate on the purpose of the Single
Farm Payment. The argument that it is compensation for price cuts
dating back to the commencement of IACS in 1992 is not sustainable
through to 2012. Nor is it simply a payment for providing environmental
services to the public. It is an income support scheme to enable
farmers to farm the land in a way that keeps the countryside how
the British public likes to see it. The alternative economics
would drive us to farm the land on a prairie scale with as much
regard for the environment as some of our international competitors.
Guiding principles
27. The UK should implement the reform in the way that
best suits the interests of a dynamic and forward looking industry
for the next ten years. It should ensure equal treatment between
farmers; avoid market and competition distortion; minimise redistribution;
ensure that losses for individual businesses are not punitive
or financially crippling; and keep money with working farmers.
Above all it should be transparent and justifiable to the public
and the taxpayer.
Regional averaging
28. The regional average payments approach (RAP) achieves
most of these principles. However, in the livestock sectors where
current support is not area based, this would lead to an unacceptable
degree of redistribution.
Hybrid option
29. The solution lies in the hybrid option—Option
G in the DEFRA paper on regional options of October 2003. [4]This
uses the provisions in the regulation for "part ceilings"
to be distributed among all the farmers in the region, and for
member states to fix a different unit value for grassland. This
would allow the livestock sector to retain for example 90% of
its decoupled aid on a historical basis, with the remaining 10%
spread as a regional payment to all the grassland in the region.
At the same time, the Arable Area Payment Scheme (AAPS) money
could be spread across all the arable land as a regional payment.
Whilst there would be some dilution of aid for the sector, there
would be no major individual losers.
30. This would secure a fairer distribution of payments
for the purposes of direct cross compliance, a significant reduction
in the number of farmers forced to rely on the national reserve
as well as fairer treatment for growers of unsupported crops,
who would otherwise forgo all future entitlement to support. This
option would avoid significant redistribution within the livestock
sector and cross-subsidisation between livestock and arable sectors,
whilst retaining much of the essential simplicity of the RAP approach.
Arable sector
31. In the arable sector, under the hybrid solution the
AAPS money would be diluted by about 15% as a result of spreading
it across all the arable land. Against this, however, should be
offset the savings that would be available (compared with IHE)
from the reduced call on the hardship fund and national reserve,
which would probably bring the real dilution figure down to about
10-12%. The only farmers who would lose this much would be those
who have grown nothing but AAPS crops, who have not let out any
land for potatoes or vegetables, who have not taken on any land
since the reference period, and who have not been involved in
environmental schemes (eg NSA) in the reference period.
High administrative cost and uncertainty of IHC
32. One advantage of the regional approach is that it
would be more up-to-date; entitlements going to those farming
the land in 2005 rather than the reference period 2000-02. The
allocation of entitlements under IHC would result in vast numbers
of appeals by farmers who have expanded since the reference period
or who claim under the "hardship cases" as a result
of environmental schemes. This would give rise to a huge bureaucratic
cost to farmers and Government, uncertainty for the individuals
involved and for the industry as a whole since the call on the
hardship fund and national reserve would be unpredictable. It
would not be possible to resolve all such appeals until final
allocations are possible in 2008, since farmers would have up
to three years to claim all their entitlements before they would
be lost to the national reserve.
Loss to working farmers under IHC
33. The IHC approach would allocate entitlements to farmers
who have retired or reduced their activity since the reference
period. It would also give rise to "naked" land, leading
to undue trade in entitlements and the temptation for retiring
farmers to transfer high value entitlements to low value land.
Transitional problems resolved by regionalisation
34. The hybrid solution would resolve all these transitional
issues at least in respect of the arable land. Transfers of entitlements
should be restricted to those necessary to accompany bona fide
land transfers, keeping more of the money with working farmers,
and reducing the money flowing out of the industry in professional
fees and retirement plans.
Regional approach simplest to administer
35. In terms of administrative simplicity, the RAP approach
is by far the easiest and cheapest option. After that, there is
probably not much to choose between the pure IHC and the hybrid
option.
36. IHC would probably be more costly to set up initially,
and would lead to large numbers of claims and appeals under the
hardship and national reserve provisions. There would also be
more transfers of entitlements to control and register. On the
other hand, the hybrid solution would create some extra work as
a result of the negative list and the additional claims that would
probably arise.
HOW DOES
IMPLEMENTATION OF
THE PROPOSALS
OF THE
POLICY COMMISSION
ON THE
FUTURE OF
FARMING AND
FOOD MESH
WITH WIDER
REFORM OF
THE CAP?
The Commission Vision
37. The Commission envisaged a profitable and sustainable
farming industry, able to compete internationally, continuing
to receive payment from the public purse, but only for public
benefits that the public wants and needs. It saw farmers looking
after the countryside, not just when they could afford to, but
as core business; cropping decisions taken for good commercial
reasons; close engagement with consumers; and the eventual removal
of the existing CAP system.
RAP or Hybrid fits, not IHC
38. CAP Reform will fit this vision if implemented in
a fair and equitable way under a regionalised or hybrid system.
If the reform is based on history, some sectors will struggle
to retain profitability and international competitiveness; cropping
decisions will be based on the wrong reasons; and the environmental
burden will be much more onerous for some than for others.
CONCLUSION
39. Given that there is probably little to choose between
the hybrid option and the individual historical approach in terms
of administration costs, then the decision on which to implement
should be based on philosophy and public justification. In both
respects, and in accordance with the true principles of de-coupling,
only the hybrid option qualifies.
Processed Vegetable Growers' Association
December 2003
4
DEFRA paper Options for Regional Averaging (October 2003) outlines
a number of options permissible within the terms of the Regulation. Back
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