Annex E
Submission to the Defra consultation process
on CAP Reform in England from the National Beef Association
Preface
With the exception of observations on the decoupling
of dairy premia the NBA will confine its comments to issues relating
directly to the beef sector.
Should Defra adopt an area payment approach to
England?
More interest is being shown in the regional
flat-rate method of decoupled subsidy payment than there was when
the options contained within the English approach to CAP reform
were first considered.
The impetus is coming from environmental organisations
like the RSPB who believe cross-compliance measures will be more
effective if more land is covered by the Single Income Payment
(SIP), and the Country Land and Business Association (CLBA), who
are unhappy with the establishment of a free market for entitlement
which would make it more difficult for landlords to maintain or
increase rents.
Another argument that favours the flat-rate
approach is that it would remove the uncertainties over recent
land transfer that will be part of the historic approach, which
concentrates on occupation over the 2000-02 base years, because
entitlement will be shared equally among all land occupiers in
2005—and the NBA agrees that this would be the case.
Nevertheless we overwhelmingly support the historic
approach because it would reduce destabilisation triggered by
the massive redistribution of funds among primary producers that
would take place if the area-based route were taken.
It is self-evident that beef producers have
received more coupled payment than any other sector and that matching
levels of entitlement will be needed to help them stabilise their
businesses over the difficult 2005-06 period when they will also
have to accommodate problems created by the return of older beef
onto the market while export assistance, whenever it is forthcoming,
is likely to be limited in the first instance.
Should entitlement be reduced to an all-sector
area average, even if it was subdivided between grassland and
arable specialists, or between LFA and non-LFA, it would still
result in dramatically reduced income for the majority of beef
farmers and almost certainly trigger a greater level of destocking
than would be the case with historical allocation—which
would make it more difficult to maintain landscape and habitat
protection because the important contribution cattle make to this
would be diminished.
It would also make it harder for forward-thinking
beef businesses to bring their production systems closer to the
market, embrace sound agricultural and environmental practice,
and ultimately achieve profitability—all of which lie behind
the European Commission's decision to introduce decoupled subsidies
in the first instance.
The NBA's second objection is that the area-based
system would give the landowner more control over tenants' entitlement
because, as the CBLA has pointed out, it would inhibit the transfer
market.
Our view is that this would make it more likely
that high land and rental values, which are one of the primary
obstructions to profitable agricultural production across all
sectors, will be maintained.
One of the many hopes expressed by the European
Commission was that its CAP reforms would introduce several new
developments that would help to counter the high production costs
forced on EU farmers through heavy regulation, high labour bills
and high land prices.
However historic payments make it difficult
for landowners to control the transfer of entitlement—which
should help to ease land values and make it easier for all farmers,
whatever their speciality, to secure long-term profitability.
We anticipate that under the historic system
there will still be an active market for temporary grass lets
because hectares rented in previous years will have to be rented
in again to trigger entitlement claims earned from animals grazing
let land over the base years.
But if a landlord was obliged to let a farm
without entitlement after an outgoing tenant has sold it on the
open market the rent would be much lower and the ability of the
incoming tenant to farm the land according to cross-compliance
principles would be much easier—especially if he is in possession
of an attractive entitlement payment of his own.
Indeed we are certain that an area based approach,
with its levelling out of SIP, would make it more difficult for
beef farmers to meet cross compliance conditions which would surely
be unwelcome because maintaining land in good agricultural and
environmental condition will be a core requirement of the new
land management system.
Furthermore the retirement option contained
in the historic payment system which allows a tired farmer to
construct an annuity by selling off his entitlement and then renting
out his land (most likely at a very low rate) to an active farmer
who wishes to expand in accordance with new management principles
will be removed at a stroke—thereby depriving the agricultural
industry of two useful advantages contained in a single move.
Another objection is that adoption of the area-based
approach, and its radical redistribution of entitlement, will
create a much wider range of winners and losers than historical
allocation and introduce avoidable psychological strains within
the agricultural community.
The appeal system for hardship cases under the
historical system will eventually iron out most anomalies because
entitlement siphoned off through the national reserve will level
out the holes—although the appeals process will no doubt
be complicated and difficult.
However the area-based payment would leave a
permanent group of losers, as well as a significantly large number
of outright winners and the NBA is certain this would generate
further destabilisation because it would introduce divisive undercurrents
among the losers.
We therefore believe it would be entirely wrong
for farmers, even within the beef sector, who for many reasons
were less committed to their businesses over the base years to
benefit at the expense of those who maintained, or even increased,
their commitment over an extremely difficult management period.
We also think it would be perverse, even unjust,
if farmers from other sectors, who in many instances will have
enjoyed their own, quite different, securities over the base year
period are able to take advantage of the committed beef farmer's
efforts to move his business forward against the difficult background
of BSE, the export ban, and persistently low prime cattle prices.
It is for this reason we think the outcry against
flat-rate payments will be loud and long—and we hope it
will never be adopted because it would create a divisive situation
among all types of farmers that will be difficult to repair and
is therefore best avoided.
All of the above effects would be exacerbated
by a flat-rate payment which covered land used for the growing
of fruit and vegetables during the base years. This would further
inhibit the development of a market in entitlement—there
would be fewer "bare" hectares onto which entitlement
could be traded—further erode the SIP of beef farmers and
others, and create a whole new range of winners who had previously
no expectation of entitlement on land used for enterprises undertaken
without the incentive of direct subsidy.
Should Defra bring forward the decoupling of dairy
premia to 2005?
If decoupling within England were synchronised
on a cross-sector basis it would make it easier for English agriculture
to adjust to the management freedoms offered by the Single Income
Payment.
We can envisage a number of businesses being
better able to consider their options for long term survival if
the fullest possible range of choices was available to them—which
would not be possible if dairy decoupling was delayed.
We would like to encourage Defra to introduce
dairy decoupling in 2005 so more businesses are offered more choice
about their best pre-2015 management options.
How should Defra introduce the so-called national
envelope?
The NBA appreciates the effort Defra invested
to secure the option of national envelopes through the retention
of up to 10% of direct payments from each sector to encourage
land management that is important for the protection and enhancement
of the environment or to improve the quality and marketing of
farm products.
We note however that retained funds can be used
only within the sector from which they were taken and so our current
view is that it would be a mistake to immediately introduce these
in the beef sector—although we are aware that many organisations
with environmental specialities think otherwise.
Our reasons are similar to those we advanced
in the section on area-based payments.
We believe the beef sector faces a uniquely
difficult period over 2005-06 when the problems of adjusting to
decoupled subsidy will be compounded by the return of older beef
onto the market and likely delays in re-opening export markets
and that these difficulties will be aggravated if the SIP is reduced
to fund national envelope projects.
Indeed we are certain that beef farmers will
be less likely to reduce their cattle numbers to levels that could
threaten landscape and habitat protection in key areas if they
are able to use their SIP to adapt their businesses to post-CAP
conditions.
We also think that the requirement they maintain
their farms in good agricultural and environmental condition under
cross-compliance offers the UK taxpayer a firm baseline guarantee
that grassland on beef farms will be well managed as long as the
SIP is sufficient to allow this—which it may not be if some
of it is retained to fund envelope schemes.
In contrast we are extremely interested in how
match funded modulation could develop. We see this as a means
of reinforcing a sound environmental base to beef production—especially
if it is incorporated into HFA where it could encourage more mixed
stocking on higher land and help to counter the reduction in suckled
calf income faced by breeders after anticipated BSP and SP are
no longer included in the calf's purchase price.
We note that up to 10.5% of the SIP will have
to be directed into modulation in England to secure some £150
million of EU and UK match funding in the first year.
We do not object to this because match funding
will swell the budgetary pot and in the vast majority of cases
SIP deductions for modulated schemes will be returned to beef
farmers through different channels leading to a situation in which,
even if there is little overall net gain, there will be only a
minority who will be significant net losers.
However up to 3% of SIP will be deducted to
fund the national reserve and if a further 10% is retained fund
national envelopes aimed at encouraging good farm practice, rural
enterprise marketing, preventing land abandonment and reinforcing
clean water regulation then the overall capability of the beef
farmer to maintain his land in good agricultural and environmental
condition will be weakened because direct SIP payments may only
be 73.5% of the maximum if modulation is included—and could
be even less in later years as modulation deductions increase.
We therefore believe that because projects,
or schemes, constructed using envelope funding will have a narrower
base than modulation they will produce a much wider range of net
losers and more beef farmers than we would like would have to
manage their businesses with significantly less income than they
received under the coupled subsidy system and will therefore find
it more difficult to embrace the freedoms offered them under decoupling
and develop enterprises that will be profitable in the long term
as well as deliver improved ecological management.
As we indicated earlier our reservations are
compounded by the fact that funding for envelope projects can
only be assembled from the sector at which it will be directed.
Essentially this demands that a sector that
will have difficulty adjusting to CAP reform, and we are certain
some upland and lowland beef farms—especially those that
pay labour—will face difficulties, will have to contribute
to its own repair.
In these circumstances we believe it would be
counterproductive, both in terms of the environment and of the
sustainability of the rural economy, to ask the beef sector to
immediately give up SIP to national envelopes and a much better
idea to allow beef farmers to keep as much direct control as possible
over their SIP so they can more easily make immediate adjustments
to post-CAP reform conditions.
If envelope funding could be assembled from
a wider base because preventing grassland deterioration was seen
as a national, rather than a beef sector, problem we might be
able to reconsider this—especially if re-examination was
conducted after there had been time to assess the reaction to
reformed CAP management systems and the areas where help may be
needed through national envelope projects are more easily identified.
We are aware that the representatives of environmental
organisations feel it would be better to construct envelope schemes
in anticipation of likely problems.
However we think these will be fewer if farmers
are able to receive as much SIP as possible and be allowed to
demonstrate, because they know their land and its capabilities
better than anyone else, that in their hands it will deliver a
much better national return than if it was used to fund a relatively
narrow range of highly focused envelope schemes instead.
Indeed we believe that many of the cross-compliance
requirements, notably clean water protection and the protection
of habitat, may well be further emphasised within the national
envelope system and lead to unnecessary duplication.
With this in mind the NBA would prefer carefully
thought-out cross compliance measures, which should give adequate
initial cover on a range of issues, to be formulated. A quick
review could be conducted over 2006-07.
Should gaps in the cross-compliance framework
emerge on a regional or land type basis then it is possible that
these could be filled by well-targeted national envelope initiatives,
but we would urge Defra to suspend its ambitions for national
envelopes in the beef sector until the effectiveness of cross-compliance
measures can be reviewed.
We are also anxious to avoid the recoupling
of farm management to a new range of non-headage based management
incentives.
It seems to us that the very welcome freedoms
offered to farmers to manage their businesses under the decoupled
system are in danger of being either obstructed or dissipated
by the construction of an alternative range of inducements which
could, if we are all not careful, result in farmers seeking to
increase their incomes by seeking financial security by falling
in with, or recoupling to, new, non-headage-based subsidies (if
we can use that term loosely) instead of using the greater flexibility
decoupling offers to prepare their farms for the 2015 target date
when even decoupled subsidy is expected to be withdrawn.
We view recoupling as a very real threat to
the broad aims that lie behind the CAP reforms because we do not
underestimate the likelihood that many farmers will reshape their
businesses to draw as much centrally funded income as possible
(even though it will no longer be production based) instead of
re-constructing them so they reach 2015 in a position to enjoy
long-term profitability while at the same time delivering the
public goods required of them in terms of agricultural and environmental
sustainability.
There may of course need to be some short-term
encouragements that help farmers take the right direction. However
the touch and the incentive must be kept light otherwise the principal
aims of CAP decoupling will be obscured and obstructed.
Should Defra make changes to the existing England
Rural Development Programme to transfer funds into new schemes
making use of options that have been added to the Rural Development
Regulation?
The range of options open to Defra and the industry
over the management of the post-CAP reform programme is bewildering
and the NBA believes, as already outlined, that the most effective
national policy will be to keep the system as simple as possible
so that the new management flexibilities, and the capacity these
generate to secure long term agricultural and environmental sustainability,
are not obscured.
The other limiting factor is funding and as
Defra is quite clear that additional money to promote and encourage
higher animal welfare standards through the Rural Development
Regulation (RDR), which is the option within the RDR framework
that excites beef farmers most, is not available there appears
to be little point in discussing it.
Defra's comments on additional funding being
available, apart from that furnished by top-slicing SIP, only
through the entry-level agri-environment scheme is also pertinent
because it confirms the NBA view that a sustainable and environmentally
satisfying agricultural structure is most likely to be achieved
over the ten years between 2005 and 2015 through the broad direction
of modulation measures (including the Curry scheme) and effective
cross-compliance.
We believe that beef farmers will be in a better
position to raise the quality credentials of their product, quickly
meet new legislative requirements, raise standard management practice
and assist in integrated rural development strategies if they
are in control of as much of their SFP resource as possible and
the broad management direction they take is moulded only by cross-compliance
conditions and well placed modulation initiatives.
We note that throughout the consultation paper
Defra refers to assessment and revision of the effectiveness of
the programmes it has undertaken in years to come and we too believe
that the best course of action for 2005 and 2006 is to set up
a simple development system based on modulation and cross-compliance
and then modify, or rectify its shortfalls (if any) when it is
possible to take a more reflective and considered assessment of
its effectiveness.
National Beef Association
October 2003
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