Greening the Common Agricultural Policy

Further written evidence submitted by the National Farmers’ Union (NFU) (GCAP 08A)

Examination of EU proposals to "green" the Common Agricultural Policy

Views on other aspects of CAP reform package

1. The NFU represents 55,000 farm businesses in England and Wales. In addition we have 41,000 countryside members with an interest in farming and the countryside.

Introduction

2. The NFU welcomes the opportunity to submit written evidence to the Efra select committee’s inquiry on the European Commission’s proposals to reform the Common Agricultural Policy (CAP). The NFU is currently consulting its membership on the Commission’s proposals to reform the CAP and therefore this evidence is provided on the basis of initial reactions and early assessment of those proposals.

3. The NFU welcomes the commitment made by the Commission in its CAP reform package to create a new partnership between Europe and its farmers through the CAP . We would strongly agree that the next decades will be a crucial period for farmers, particularly in light of food and energy security concerns amidst a growing global population. EU farmers must be in a position to make a meaningful contribution to increasing food production , whilst at the same time contending w ith increased volatility in agricultural markets , globalisation and dysfunctional food supply chains. It is therefore essential that the EU retains a strong common agricultural policy and th at th e C AP provides the right framework for c apturing future opportunities. With this in mind, the NFU is concerned by a number of specific aspects of the reform package, which may result in increased bureaucracy, reduced market orientation and therefore an increase in farmers’ reliance on CAP support. Specifically:

Proposal establishing rules for direct payments

Towards a Flat Rate

4. The Commission proposes that Member States or Regions should move their direct payments towards a uniform payment rate per hectare and this should achieve a more common approach. However, there is concern amongst NFU Cymru members that the way in which the Commission proposes such a move (at least a 40% jump in the 1st year) will create significant financial upheaval in the 1st year. There is also concern that the transition period of 5 years is too abrupt. The NFU takes the view that by the end of the next financial period, the transition from the historic to the flat rate within regions must be completed.

Article 14 "Flexibility" : voluntary modulation

5. The NFU has lobbied for many years against Member States discretionary use of damaging and distortive "voluntary" modulation. The UK is currently the only Member State to apply voluntary modulation in the EU. In England, this will be at 9% in 2012. This reduction is applied in the UK, despite the UK already receiving less than 90% of the average pillar 1 support levels found in other Member States. The NFU is aware that the voluntary modulation receipts make up a substantial element of current rural development funding, but believes that Defra should more strongly argue for a fairer allocation of rural development funds and Treasury co-financing, therefore removing the need to revert to distorting and unilateral voluntary modulation to secure funds. If the UK Government is to make use of article 14 flexibility, then it is imperative that there is a requirement for additional match funding from Treasury.

Greening

6. The NFU has submitted separate written evidence to the enquiry setting out our views on the Commission’s proposals to "green" pillar 1.

Active Farmer

7. As a principle, NFU believes that the entitlements should be held, activated and paid only to active farmers. Whilst the Commission’s intention to better define "active" farmers is to be welcomed, we see that this is very difficult to translate into concrete measures without adding further complex rules on eligibility and control bodies. The requirement that payments shall only be made to those whose annual amount of direct payments exceeds 5% of the total receipts obtained from non-agricultural activities, will create administrative complexity. We would have concern at the amount of information that would have to be submitted, and the timeliness and ability of the RPA to assess eligibility. There is a concern that some businesses which have successfully diversified would fail this test. The NFU therefore calls for the "economic" aspect of the active farmer test to be deleted.

1st Allocation of payment entitlements and national reserve

8. The NFU welcomes the requirement that in order to receive new payment entitlements in 2014, a farmer would have had to have activated at least one payment entitlement in 2011. However we are concerned that there may be a limited number of genuine hardship cases, whereby a farmer failed to make a claim in 2011. There should be provision in the national reserve for farmers to appeal the decision not to be allocated entitlements in these cases and to be awarded entitlements through a special hardship category in the national reserve. Similarly, whilst the Commission proposes that new young entrants to farmers would be allocated entitlements through the national reserve, there is no category for "new entrants" to farming. The national reserve categories should be expanded to cover new entrants. The lack of detail relating to business scissions and transfers is leading to a great deal of uncertainty in the industry, particularly for those who have recently restructured businesses or are planning on restructuring in the future. There should be clear provisions set out for such business changes and the flexibility in the national reserve to ensure that decisions to restructure ahead of the proposals being agreed do not disadvantage those involved.

Progressive reduction and capping of payment

9. The NFU is opposed in principle to capping, because a cap would act as a disincentive to achieving economies of scale. The proposals on capping will disproportionately affect UK farmers due to our larger than average farm structures which over time have consolidated to become more efficient.

10. Mitigation options: The proposals allows for "salaries effectively paid and declared by the farmer in the previous year, including taxes and social contributions related to employment" to be subtracted from the amount of aid to be capped (in addition to the 30% greening payment). It is unclear how exhaustive the definition of "salaries" would be. The proposals seem to disadvantage businesses that use contract labour rather than directly employing workers. They also disadvantage businesses that do not operate as limited companies because these structures would not take account of the cost of the owners own labour. Forcing businesses towards limited company structures is unlikely to be the most appropriate trading structure for all business. The NFU believes that all labour costs, including contract labour and business owners’ labour should be included.

11. Circumvention clause – We are very concerned by the proposal that no payment be made to businesses found to have artificially created the conditions to avoid capping. There are many genuine reasons for business structure changes in agriculture. The burden of proof will lie on all farmers to demonstrate to the competent authority that any business structure changes going forward are not as a result of capping. This will add further bureaucracy into the system for both farmers and the RPA and will do nothing to encourage businesses to take advantage of business structure efficiency improvement opportunities

Payments to small-scale farmers and minimum claim size

12. The proposal obliges Member States to implement a small farmers’ scheme, financed by ring fencing the money these farmers would be entitled to in a special fund, up to a maximum of 10% of the national envelope. The NFU believes that implementing the small farmers’ scheme should be discretionary for Member States to apply.

13. The RPA may see benefits in applying a simplified scheme, but given that the "active farmer" definition would not apply to these producers, it is likely that the bulk of these beneficiaries will have significant off farm income and essentially this support would be seen as a "pony paddock payment." The NFU believes that this would reduce the legitimacy of the CAP support in the eyes of the UK taxpayer. One way of ensuring that "pony paddocks" do not benefit from this support would be to set the minimum claim size in England to 5ha. This being the case, the financial incentive for farmers to participate in this scheme would be greatly lowered and the number of claimants potentially caught by the scheme would be reduced, therefore mitigating any benefits to the RPA. The NFU is also concerned that cross compliance sanctions would not apply to these beneficiaries.

Payments to young farmers

14. The NFU supports the principle of incentivising young entrants into farming, but believes that the key hurdle for entrance is not the size of support payments, but the profitability of farming and accessing capital. There are administrative complexities in determining when a young farmer is now "head of the holding." The amount of financial gain that a young farmer can receive is limited and the NFU doubts whether such an additional aid would act as an incentive to encourage young farmers. However the NFU would be supportive of efforts to ring fence money within the CAP for dedicated support for young farmers, for example through an access to guaranteed capital or low interest loan provisions.

Voluntary coupled payments

15. The NFU does not support production based support payments which distort the market. We do recognise that in certain duly justified cases, support targeted to specific sectors may be necessary. These aids must be limited to ensure that they do not cause distortions on the single market. The NFU does not support the possibility for any individual Member States to go further than existing coupled limits and therefore it is unacceptable for Member States to go beyond the 10% maximum threshold and never beyond a level "necessary to maintain current levels of production."

Payment for area of natural constraint

16. The NFU agrees with the Commission’s proposals that this measure should remain optional at regional level and limited to no more than 5% of the available funds. Our preference would be that support for these vulnerable areas is delivered through the pillar 2, EAFRD.

Cross Compliance

17. The removal of some of the SMR provisions is to be welcomed, but this is not a meaningful simplification of the system. The changes to the GAECs including the protection of carbon rich soils, with a ban on 1st ploughing, will limit opportunities for livestock and dairy farmers. Land not defined as arable (i.e. permanent grassland) which is land not in the rotation for 5 years would face a ploughing ban, which is intolerable. This GAEC should be deleted.

Delegated Acts

18. The Commission retains the right to adopt delegated acts at a later stage of the proceedings on critical issues including greening (defining crops, areas eligible for ecological focus areas), written contracts in the sugar sector, business changes impacting on 1st allocation of entitlements etc. The NFU believes that issues such as definitions and scope of provisions must be defined in the Council and European Parliament Regulation.

Review clause (Article 15)

19. The NFU believes that the right to review the CAP proposals should be broadened to include provision for review in case of food price crisis and agricultural market developments.

Entry into force

20. The NFU insists that there must be enough time left after the political agreement for effective implementation. This means that the 1st January 2014 start date needs to be kept under review.

Proposal establishing a common organisation of the markets in agricultural products

Extending the recognition of producer organisations

21. The proposals to extend the recognition of producer organisations to all sectors covered by the single Common Market Organisation sCMO may offer some encouragement to groups of farmers to collaborate in respect of production and marketing. However, the proposals do not appear to offer the significant incentives to form POs that are offered by the fruit and vegetables regime (operational funds) and dairy package (collective bargaining). Consequently, the NFU believes that the measures fall short of those that might help to strengthen the position of farmers within the food supply chain. Whilst the UK may have little experience of inter-branch organisations, the ideas are likely to prove popular in some other member states. It will be important to guard against such bodies leading to market exclusion by drawing up rules that might inhibit competition from producers in other parts of the EU.

Sugar regime

22. The NFU does not support the Commission’s proposal to remove sugar quota on 30th September 2015. English sugar beet producers would be placed at a competitive disadvantage to other Member States who did not fully restructure their industries in the 2006 sugar regime reform if this were to happen. The NFU recommends a transition of 5 years to support the aim of progressive deregulation beyond 2015. Of critical importance is the right to carry out commercial negotiations collectively on behalf of all growers through an inter-professional agreement (IPA).  The Commission’s  proposal weakens this provision and would risk undermining the proper functioning of the sugar supply chain.  

Proposal on support for rural development by the European Agricultural Fund for Rural Development (EAFRD)

23. The removal of the axes should provide greater flexibility for delivery of the rural development programmes in the future and is welcomed. With close to 80% of the available funds in England currently spent on agri-environment actions, largely focused on nature and biodiversity measures, there is an urgent need to re-balance spend to other areas of priority as identified by the EU, namely measures to improve the competitiveness of the farming sector.

24. The proposed EAFRD regulation clearly identifies that one of its key aims and objectives is to improve the competitiveness of the agricultural sector. This is to be welcomed and the Commission sets out concrete ideas for facilitating this. The strategic approach to achieving all of the Union priorities will go some way in ensuring that the Member State are obliged to consider how best to put in place the necessary actions and funds to achieve this. The creation of a European Innovation Partnership is also welcome, however it is important that EIP operational groups utilise existing partnerships and networks. In order to realise the full potential for EU funds to help deliver food security and a strong economy, complementarity between EAFRD (specifically the proposals for a European Innovation Partnership) and Horizon 2020 (the successor to the FP7 EU research & development programme) is vital. The Horizon 2020 programme must fund research which contributes to the challenge of increasing food production sustainably while the focus of EAFRD should play a greater role in enabling exploitation of the results of this research on-farm, including Community-funded KE, translation and extension services.

25. There is some concern that the regulation contains a number of unnecessary "add-on’s" for example the prize for innovation will result in significant transaction costs for those applying and it is unclear if the "prize" is envisaged to replace the support that would have been available for the project through the established programme. The performance reserve of 5% is also of concern. The allocation of the funds at such a late stage of the programming period will lead to uncertainty. There is merit in the Member State establishing milestones to demonstrate progress towards meeting the objectives of the EAFRD, but the performance reserve itself is unnecessary.

26. The changes to the way in which the areas of less favoured areas are to be designated is also concerning. The NFU has lobbied over many years to ensure the inclusion of Field Capacity Days as a measure of natural constraint in the UK. However in many cases, it is not the existence of one factor which limits agricultural productivity in the UK, but a combination of factors. The regulation should reflect that in some cases an area may not meet the threshold for that factor, but in combination with other factors, the cumulative effects results in disadvantage. LAU 2 in the UK is defined at ward level. These boundaries change regularly and a finer scale of designation (i.e. townships of parishes) would be more appropriate. The Member State should be able to define at the level most appropriate for its mapping and administrative capacity. The threshold of 66% of that area should also be revised to 50% of the area.

27. With regards to financing, the NFU does not support the ring fencing of at least 5% of the funding for Leader. It is also disappointing that there is no requirement for Member States to co-finance the monies made available to the EAFRD as a result of capping.

28. The NFU is concerned that there may be significant overlap with some measures as outlined in the EAFRD and in the Direct Payments Regulation, namely support for areas of natural constraint, top ups for young farmers and support for small farmers.

29. Member States are expected to submit regional programmes within 6 months of the adoption of the EAFRD text. It is critical that a new programme is approved and in operation as quickly as possible from the envisaged start date of 1st January 2014 so as to ensure support can be made to farmers under the various measures in a timely manner without delays or funding voids.

30. It is disappointing that there is no clear indication of the allocation key for funds within the EAFRD for each Member States. The UK currently receives the lowest rate of EAFRD support per hectare and there is an urgent need to address this going forward. Details are scarce, but it is disappointing that an element of allocation will be on the basis of past performance. The UK past performance has been artificially inflated by the existence and utilisation of voluntary modulation to increase available funds for rural development programmes. The NFU seeks the immediate end of damaging and distortive voluntary modulation. The allocation of EAFRD 2014 – 2020 money between Member States should reflect the past performance on the basis of the total money available to previous programmes and not simply the past allocations of core EAFRD allocations.

November 2011