The Common Agricultural Policy after 2013 - Environment, Food and Rural Affairs Committee Contents

7  A more equitable distribution of funding

125.  There are several problems with the method currently used to allocate Pillar 1 funding (the Single Payment Scheme) to individual farmers, and as a consequence, to Member States. First, old and new Member States use different systems. Second, the historically-based payments used in most old Member States refer to the 2000-2002 reference period—over ten years ago. Third, the Single Payment Scheme was originally intended as compensation for the removal of coupled support in the 2003 Fischler reforms, and thus was implicitly time-limited. Fourth, but perhaps most importantly, the level of payments per hectare is highly variable between Member States (Figure 5).

Figure 5: Pillar 1 (Direct Payments) spending in Euros per hectare of utilised agricultural land

Date source: The Scottish Government, The Road Ahead for Scotland: Final Report of the inquiry into Future Support for Agriculture in Scotland, November 2010, p33

126.  The European Commission intends to replace the historic basis of direct payments with a new set of criteria. The Communication proposes an area-based payment that would be uniform within a Member State or region—but not an EU-wide flat rate.[202] It is not known what the exact criteria would be; the Commissioner told us some distinction between different types of farming will be made, so that similar business models will receive similar payment rates.[203] An alternative, more pragmatic solution is simply to adjust the national allocations to make the per hectare level of payments within each Member State more similar.[204]

127.  The Minister wanted to move to an area based payment that was more similar between new and old Member States, but felt that an equal rate was not "achievable".[205] The NFU and CLA agreed that a more objective distribution of funding should be one of the aims of this round of reform.[206] The Andersons Centre felt that most farmers accepted the end of the historic basis of payments.[207] Defra did not agree with paying different rates to land based on its quality or productivity.[208]

128.   Reaching agreement on this politically sensitive issue will be difficult. The Commissioner told us that "it's an ambition to propose a more equitable system of payments; another is a realpolitik emphasis—the political realism at European level to obtain this".[209] George Lyon MEP noted that "there were seven European countries, older Member State countries, that were utterly against any end date [of historically based payments] whatsoever".[210] The NFU warned that "You cannot find a single scenario that is likely to buy a qualified majority within the Council of Ministers".[211]

129.  Moving from historic to area-based payments will have varying impacts across the UK (Figure 5). For example, Northern Ireland could lose up to 28% of its single farm payment if UK funding was redistributed on an area basis.[212] As well as redistribution between the UK's constituent countries, implementing a flat rate per hectare is likely to result in CAP money flowing from more productive areas to less-favoured areas, which could have considerable effects on individual farm businesses.[213] New administrative systems are also likely to be needed, which can be expensive and cumbersome. In England, the difficulties and costs attending implementation of the 'dynamic hybrid' system by the Rural Payments Agency have been well-documented.[214]

130.  The Communication refers to the possibility of a new distribution criteria for Pillar 2 (rural development) funding as well.[215] Pillar 2 allocations are based on historic spend in the mid-1990s on rural development policies. The Minister told us that this historic basis was no longer justifiable.[216] The historic basis has also resulted in considerable variation between Member States. The UK receives one of the lowest allocations of Pillar 2 spending per area, and Scotland the lowest of all (Figure 6). It is likely that a re-allocation of Pillar 2 based on objective criteria, such as area, would benefit the UK.[217]

Figure 6: Pillar 2 (Rural Development Programme) spending including co-financing in Euros per hectare of utilised agricultural land

Data source: The Scottish Government, The Road Ahead for Scotland: Final Report of the inquiry into Future Support for Agriculture in Scotland, November 2010, p34

131.  In England, a significant proportion of the current Pillar 2 budget is funded through modulation. Modulation is the transfer of a percentage of each farmers' direct payment to the Pillar 2 budget. England uses a higher modulation rate (19%) than most EU countries (10%), or even the devolved administrations (11%-14%).[218] Farming groups felt this created unfair competition and advocated either equal rates or no modulation at all.[219] However, according to Defra, higher rates of modulation in England are needed to fund environmental stewardship schemes.[220]

132.  Varying modulation rates across the EU makes the distribution of funding between Member States more complex and less objective, moreover the current system is not in the interests of fair competition for UK producers within the EU market. To avoid a substantial cut to agri-environment schemes, which would undermine the efforts already made, and enable English modulation rates to be brought in line with the rest of Europe, Defra will have to renegotiate a settlement on Pillar 2 that is commensurate with its ambitions.

133.  It is essential that the historic basis of payments is replaced with a more objective system, but we recognise that there is no easy solution to what this should be. Given the concerns over redistributive effects between areas within the UK, Defra should argue for national flexibility to allocate payments within Pillar 1, paying attention to the concerns of the devolved administrations.

134.  Defra should use its experience of implementing the dynamic hybrid system in England to help guide the Commission's proposals to ensure any new method can be implemented without excessive cost or administrative burden.

135.  Defra should argue strongly for a more equitable distribution of Pillar 2 funding. If modulation is to continue, the rate at which payments are reduced should be common across the EU. Defra should ensure that it can meet its ambitions for delivery of agri-environment schemes from its Pillar 2 budget without recourse to higher modulation rates in England than apply in the rest of the UK, or in Europe.

202   The CAP towards 2020, p 8; "Flat rate payments inequitable and impractical-Commission", Agra Europe , 21 January 2011. Back

203   Q 192 Back

204   The Communication refers to both objective criteria and "guaranteeing that farmers in all Member States receive on average a minimum share of the EU-wide average level of direct payments" (The CAP towards 2020, p 8). The European Parliament Agriculture and Rural Development Committee's draft report on the Communication supports the latter option, proposing that "each Member State should receive at least two thirds of the EU average direct payments" (Draft Report: the CAP towards 2020: meeting the food, natural resources and territorial challenges of the future, PE458.545v02-00, Rapporteur Albert Dess MEP, 15 February 2011, p 7, para 10). Back

205   Q 494 Back

206   CLA (Ev 118), NFU (Q 134). Back

207   Ev w28 Back

208   Ev 176 Back

209   Q 191 Back

210   Q 308 Back

211   Q162 Back

212   Ev w29 Back

213   The Pack Inquiry into Future Support for Agriculture in Scotland gave extensive consideration to different payment criteria and concluded that a flat area-based system was not workable (The Road Ahead for Scotland: Final Report of the inquiry into Future Support for Agriculture in Scotland, p 71). Brian Pack told us "What became very clear is a simple area-based payment does not work for the poorer areas of Scotland " (Q 333).The Farmers Union of Wales said "modelling undertaken by the FUW in 2009 demonstrated that transition to a simplistic flat-rate payment per hectare model would represent significant disruption for Welsh farm businesses [...] The most simplistic model, a single flat-rate payment per hectare for all Welsh land, could result in a net flow of as much as €36 million away from non-LFA [Less Favoured Area] and DA [Disadvantaged Area] land, to SDA [Seriously Disadvantaged Area] and common land" (Ev w42). Back

214   National Audit Office, Second progress update on the administration of the Single Payment Scheme by the Rural Payments Agency, October 2009, and references therein.  Back

215   The CAP towards 2020, p 11. Back

216   Q 494 Back

217   Cao, Y., Elliott, J., Moxey, A and Zahrnt V., Alternative Allocation Keys for EU CAP Funding, Report to the LUPG. ADAS UK Ltd, ECIPE and Pareto Consulting, December 2010, p vii. Back

218   Defra, Rural Development Programme Document, 2007. Back

219   For example, the Farmers' Union of Wales (Ev w46), the TFA (Ev 111), the CLA (Q 89). Back

220   See Modulation Questions and Answers on the pre-election Defra website. Back

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