1 Common Agricultural Policy reform
and the future of farming
1. Radical reforms to the Common Agricultural Policy
were agreed in 2003 and are due to be implemented from 2005. Ten
separate farm subsidies which are based on production levels will
be brought together into one subsidy decoupled from production
- the "single farm payment". Scotland, Wales and Northern
Ireland have opted for systems which will base the single farm
payment wholly or largely on historic entitlements, which in practice
will be the amount of subsidy paid during the reference period
2000-2002. In contrast, farms in England will move in stages over
the period 2005-2012 from a subsidy based largely on historic
entitlement to a subsidy based on the area of farmland managed.[2]
2. The move in England to a single payment linked
to the number of hectares managed marks a departure from subsidies
linked to production and will be available to virtually all farmers.
For these reforms to be effective, however, the farming industry
will need to embrace a change in practice from production to maximise
subsidy, to production which responds to the demands of the market
and consumers. Historically, the farming sector has reacted relatively
slowly to change, having been sheltered by the subsidy regime
from market forces. The Department believed that the farming industry
had, however, begun to diversify in response to the opportunities
and challenges posed by the new regime, and that the removal of
the subsidy system should encourage farmers to be more responsive
to market signals than had previously been the case.[3]
3. Member States can decide the basis of the single
farm payment, and they also have some discretion over how subsidies
are allocated. Member States must top-slice some of the funds
available for direct payments and transfer these funds to schemes
which seek to promote environmentally-friendly farming (so called
agri-environment schemes) and to other rural development schemes
including farm business support. This top-slicing and transfer
is known as 'modulation'. The European Union has set a rate of
3% compulsory modulation in 2005, rising to 5% in 2007. Member
States that previously operated discretionary modulation may also
set additional national modulation up to a combined maximum of
20%, but only insofar as is necessary to fund Rural Development
Schemes in place by 2005. In England, the Department has decided
to set an additional national rate of 2% in 2005 and 6% in 2006,
bringing total modulation to 10% in 2006. (No national rate has
been set for 2007 and beyond as there is currently no legal base).
The Department could help the industry adapt more quickly if the
Council Regulation were amended to permit or require higher rates
of modulation.[4]
4. Member States also have an option to implement
'national envelopes' which allow up to 10% to be deducted from
single farm payments, to be redistributed to more environmentally-friendly
farming or to improve the quality and marketing of farm produce.
These national envelopes apply within a sector, such as arable
or livestock, and must be redistributed within the same sector.
In England, the Department decided not to use a national envelope
because sector-specific arrangements were not easily reconcilable
with the move to an area-based scheme. In addition, envelopes
involve a degree of recoupling, albeit indirect, because they
must be applied within a production sector. There is also a 'national
reserve', which is a mandatory deduction of up to 3% from single
farm payments, to be redistributed to those farms which faced
business changes after the reference period 2000-2002 and which
would otherwise be denied subsidy or unfairly disadvantaged by
the changes.[5]
5. The linking of single farm payment to achievement
of environmental standards, enforced through an inspection regime,
will be beneficial. Previous Common Agricultural Policy rules
have tended to promote practices which do not necessarily increase
productivity, and which can be detrimental to the taxpayer and
the environment. Under the new regime, payment of subsidy
to farmers and land managers will be linked to compliance with
European Union Directives and Regulations covering aspects of
animal husbandry, stewardship of the countryside and the environment
(cross compliance). Farmers must also maintain land in good agricultural
and environmental condition to protect soil, habitats and landscape
features, as defined by the Department within a framework agreed
by Member States.[6]
6. The baseline standards set for England include
potentially significant benefits to the public through improved
access to the countryside and preservation of rights of way. With
75% of the English land mass under the stewardship of the farming
sector, this is an important issue. The Department will need a
strong inspection regime if it is to enforce the delivery of the
standards, and to reduce subsidy payments to farmers who do not
meet the standards, or in extreme cases exclude them from entitlement
to payment.[7]
7. The experiences of other countries suggest that
farmers can adapt to a market environment, although they also
suggest that unsupported transitions cause significant distress
for rural communities. In New Zealand, for example, the farming
sector is unsubsidised and thriving, but the transition to this
point has been difficult. Government support to New Zealand's
farmers has fallen from 35% of the value of agricultural output
in 1983 to 1%. However, the parallels with the UK are not exact
because, for example, when New Zealand changed its subsidies it
also had a 20% devaluation and its agricultural export and food
processing industry was more significant as a proportion of the
national economy. In England, the Department sought a farming
industry that was able to respond to market signals. The reform
of the Common Agricultural Policy provided a significant step
towards that goal. Another important difference between the UK
and New Zealand situations was the importance the Department here
attached to public money being used for the public good, namely
to provide environmental benefits and stewardship of the countryside.[8]
2 Qq 30-32, 63-65, 74, 125; Ev 5, 9-10, 17 Back
3
Qq 66-67 Back
4
Qq 31, 76-78, 85, 117-118, Ev 21, Ev 5, 11-12, 16 Back
5
Ev 40-41 Back
6
Qq 46-47, 126-127 Back
7
Qq 46, 136-138, 145-147; Ev 22 Back
8
Q 13; C&AG's Report, para 1.14 and Figure 8 Back
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