Select Committee on Environment, Food and Rural Affairs Written Evidence


Annex A

Letter to Lord Whitty, Minister for Food and Farming, Department for Environment, Food and Rural Affairs from the Chief Executive, National Beef Association, 11 January 2004

  Huge pressures will be put on the beef sector and rural England if hybrid route for entitlement allocation is adopted.

  The NBA was interested, but dismayed, to hear your observations at the Oxford Farming Conference on the hybrid method of entitlement allocation within the CAP reform adoption strategy for England.

  We understand the position you outline in which you envisage, in some years time, a successor to your post considering that the relationship between entitlement allocated per hectare on a historic basis in January 2005 bears no relation to contemporary land use patterns and is therefore outdated.

  We also appreciate that because the historic allocation of entitlement places a unique payment on each farm holding that the differences in entitlement income between some holdings will already be acute—and may even appear perverse some years hence when English farmers, as a group, have responded to both subsidy decoupling and the transfer of entitlement payments from Pillar 1 to Pillar 2 and modified their businesses in response to these stimuli and pressures.

  However we must point out our certainty that the historical allocation of entitlement is the only way to ensure that farmers will be able to enjoy the operational stability that needs to be created for them during the post-reform transition period when they are adjusting their businesses to the radically new management and commercial conditions they face.

  Also that any premature move towards area based allocation, even within a hybrid system, will compound the management difficulties they face and provoke a situation in which the dominant reaction to the increased uncertainty will be an overwhelming reduction in collective ambition to meet the challenges thrown up by CAP reform.

  Indeed we fear that progressive farmers, who have looked forward for some time to taking up the severe management adaptation test long heralded by Defra, will be among the most disappointed because their acceptance of full decoupling was based on the understanding, which both they and ourselves would hate to think will prove to be a false hope, that entitlement allocation would be historic.

  Since Tuesday we have been told by a number of these people, the very ones with the get up and go to lead English farming into the future, that if any hybrid allocation is likely to be forced on them during their businesses transition years they themselves will get up and go instead.

  Less ambitious farmers will also be likely to minimise the activity in their businesses, which would do little to aid agriculture's contribution to the rural economy, and in the case of beef farming would help to reduce national herd numbers below the level considered ideal by environmentalists for landscape maintenance and habitat protection.

  Defra may argue that the damage caused by these decisions would be minimised by judicious use of national envelope provision or adjustments through other measures such as national modulation or rural development funds.

  Our response would be that these measures would strip even more entitlement off beef farmers already made more vulnerable by area allocation and a much better idea would be to minimise the level of uncertainty faced by farmers by confirming the adoption of full historical entitlement allocation instead.

  At Oxford we felt some reassurance from your observation, unless we misunderstood you, that pure historic allocation might be used for an unspecified number of years after which there would be a phase over to total area based allocation.

  However our hopes in this area have been somewhat dashed after hearing from officials that although Defra has considered a number of hybrid options, and evaluated the impact of each of these on different commodity sectors, the combination that currently enjoys most favour is immediate 100% area based entitlement allocation in the arable sector together with an immediate 25% (should the European Commission agree) area based allocation in the livestock sector followed by a phased annual reallocation of area entitlement over historic until the historic element has been taken out completely.

  We cannot emphasise how damaging we think this would be and must entreat you, for the sake of Defra ambitions for English agriculture as well as the well being of rural England itself, to urgently reconsider the Defra position and dismiss the idea that there is any overall merit in the immediate adoption of the hybrid option.

  Previous discussions with Defra—we are talking about pre-autumn 2003—left us with the very firm impression it understood the damage that would be triggered by violent entitlement redistribution through flat rate allocation, that the hybrid system was bureaucratically crazy as well as an obstruction to forward planning and management, and that if any area based system was adopted during the adjustment period to CAP reform it would be accurately described as a step too far—and an unnecessary one too.

  There is not a beef farmer in England who would disagree with the sentiments expressed in the previous paragraph and if Defra confirmed its hybrid proposal publicly it would be met with levels of anger, resentment and dismay it would find disturbing.

  In view of this we are obliged to say that if Defra is serious about introducing hybrid allocation it should either give farmers an indication of where its thinking lies—and judge the reaction—or re-open a formal consultation focused exclusively on entitlement allocation and allow discussion on the merits of a range of options including pure historic.

  We believe the most striking flaw in Defra's hybrid position is that it fails to acknowledge that while historic allocation will undoubtedly become outdated it will, in January 2005, be the most up to date and least disturbing entitlement allocation option available to it.

  This being the case we are bound to enquire why Defra believes there is such an urgent need to introduce a premature change and suggest that it would be much more sensible to wait until forward events have overtaken historic allocation and it can be safely and sensibly replaced with allocation by the area route.

  At this stage we have no way of knowing when this is likely to be and unless Defra can suggest otherwise believe this reinforces the argument which favours postponing the introduction of area based allocation until an unknown future date.

  Certainly land use and land management in England face unprecedented upheaval and it would be miraculous if measures which anticipate the way it may develop could be accurately conceived before decoupling is introduced.

  We understand that the European Commission intends to review the impact of CAP reform on EU land management and agriculture two years after the last member state has introduced full decoupling.

  If France persists with its current position this is likely to be January 2009, some four years after we would like pure historic allocation to be introduced in England, and would like to suggest that this may be the ideal time for Defra to conduct its own review and make its view known to the Commission.

  However we offer even this suggestion with some caution because knowledge that entitlement allocation could be reviewed so early would be received badly by farmers, especially those with the most forward reaching development plans, who would rightly and legitimately ask for as much notice as possible of area allocation introduction to be given.

  If Defra met this request it could mean area allocation may not be introduced until 2011 by which time the first budget phase of the decoupled CAP reform programme will be within a year of its end and another, fuller, review likely anyway.

  This implies that a review of the entitlement allocation method would best take place in 2012 ready for 2013 and knowing as we do that it takes ten years to accurately assess the environmental and economic changes triggered by a change in breed and management within a suckler cow herd we would concur with this.

  It is perhaps necessary to further explain why the NBA is so worried about the impact of area based entitlement allocation on the beef sector.

  It is of course the sector which receives the highest coupled subsidy payments with the maximum annual subsidy income from a suckler cow, if the BSP payment from a steer calf and extensification is included, averaging around £400 an animal.

  While in most instances, and we can think of few exceptions, the net margin earned by a finisher from the sale of prime cattle is lower than his subsidy income from BSP and SP.

  In these circumstances we believe the beef sector, which is able to make a valuable contribution to landscape protection and environmental enhancement, needs careful nursing through the post-decoupling transition period—especially as it takes three years to breed and then sell a slaughter animal and as mentioned earlier 10 years to fully evaluate a change of breed type within a herd.

  It is for this reason that in previous submissions the NBA has advocated the simplest possible approach to CAP reform in the beef sector and the maximum possible retention of Single Income Payment (SIP).

  Indeed our private formula for success in the beef sector, perhaps ten years hence, is full decoupling, historical allocation of entitlement, no stripping of entitlement through general beef envelope programmes and encouragement for the adoption of new environmental measures as outlined by the Curry broad and shallow scheme through match funded voluntary modulation.

  Even if this wish list became reality we would still argue that it would be necessary to curb top slicing of the SIP so we could be sure beef farmers would be able to meet cross compliance conditions and at the same time develop their businesses so they delivered the new environmental and economic targets required of them.

  Nevertheless recent market developments, rising EU demand and contracting EU supply, have persuaded us that in four years time the beef sector would, once the OTMS revision and the re-opening of export markets had been successfully negotiated, be in a better position than we had previously thought possible and the difficulties forced on it by previously heavy reliance on coupled subsidy mostly overcome.

  However area based allocation of entitlement, even through a relatively modest hybrid, would shatter this hopeful scenario and put the beef industry in such a difficult position its re-emergence in a form that would be pleasant to Defra's eye would be seriously delayed—and may not take place on a general basis at all.

  In short we feel that if the English industry is to have any chance of refocusing itself on the delivery of high quality, high integrity products to the widest possible range of domestic and export markets, and be able to mange the land it occupies in accordance with new environmental principles, it will need as much time as can be given it on SIP levels that are as close as possible to those earned under the coupled subsidy system—and this can only be delivered through historic allocation.

  Furthermore if an area hybrid is introduced which regularly and incrementally reduces the proportion of historical allocation at the same time as compulsory Pillar 2 modulation deductions increase, and then degressivity offtakes begin, the proportion of SIP available to the beef farmer compared with previous coupled subsidy earnings will become even lower and their business position even less tenable.

  Other arguments which support the exclusive introduction of historic entitlement are the virtual certainty that even in ten years time some exclusive area based entitlement will look silly—with the biggest single winners in the much too violent re-distribution including sparsely populated sheep farms which will mean tundra like hill sides and grouse moors in Northumberland will earn as much SIP per hectare as prime grazing land in Leicestershire and a much greater total income per farm.

  And finally the NBA believes, as previously indicated, that one of the greatest overall benefits of historic allocation is the presence of naked hectares, or empty squares, on which traded entitlement can be moved.

  This will protect tenant farmers, including those in the arable sector, from rent pressure from their landlords as well as ease, if not reduce, the upward pressure on land prices. We are certain this development is part of Dr Fischler's vision because it will assist in the development of a lower cost, more environmentally friendly, more marketing conscious, agricultural economy.

  In view of all that is outlined in this letter we find it hard to understand how Defra can contemplate introducing an entitlement allocation system that will shatter the welcome composure that was beginning to build up within the beef sector as it contemplated the restructuring task that lies ahead—and will undermine any chance there may have been of beef farmers achieving what is required of them by both the European Commission and Defra before the budget revision of 2013.

  The EU and Defra are about to establish a radically new decoupled agricultural and environmental management programme with a greater proportion of subsidy moving into Pillar 2 as the years progress.

  In this type of policy theatre it is important to get time scales in perspective and we would firmly suggest that a decade is not a long time to wait so that historical allocation is allowed to help the industry find its new feet—especially as beef production itself requires management plans which can easily span more than a decade.

  The introduction of any form of area based allocation, hybrid or otherwise, anytime over the next decade would be premature and we would urge Defra to be patient before it rightly introduces transfer to an area based system—assuming of course that the Single Income Payment system still exists in 2015.

Robert Forster

National Beef Association

January 2004


 
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