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land use patterns and is therefore outdated.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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