Implementation of the Common Agricultural Policy in England 2014-2020 - Environment, Food and Rural Affairs Committee Contents

2  Direct Payments

16. Under the reformed Common Agricultural Policy farmers will continue to receive direct payments and in doing so will have to satisfy the obligations of cross-compliance (the requirement for farmers to keep their land in good agricultural and environmental condition). The new Direct Payment will comprise a Basic Payment and one or more additional payments. For most farmers 30% of the Direct Payment will depend on their meeting various 'greening' criteria. There is also a new scheme for young farmers. A further change is that in order to receive a direct payment farmers will have to meet an 'active farmer' test.

Regional distribution

17. In 2005 the Government adopted three regions for the Single Farm Payment Scheme:

i.  land in non-severely disadvantaged areas (SDAs) (i.e. the lowlands outside the SDA)

ii.  land in SDAs other than moorland (i.e. the uplands below the moorland line), and

iii.  moorland (land above the moorland line)

Rates of direct payment differed across the regions based on productivity; because farming is less productive in SDAs and moorland (the uplands) owing to poorer climate, soils and terrain, upland farmers received a lower payment per hectare than lowland farmers. Under the new CAP the Government can change the regional structure and the payment rates within it. The Government proposes to retain the existing three-tier structure to avoid a costly and time-consuming exercise to identify and map the new regions and is consulting on adjusting the payment rates with a view to 'moving money uphill'.[18] We agree with the Government that the existing regional structure should be retained.

18. Upland farmers are particularly vulnerable with some existing on as little as £8,000 per year.[19] This is confirmed by Defra's latest farm income study which shows that livestock farmers in the uplands failed to make a positive return from agriculture in 2012-13.[20] The average age of upland farmers is 60 and few young farmers are entering the sector.[21] Economic profitability is a challenge due to a range of factors, including higher costs in accessing the market and supply chain, competition from more intensive production systems, and the failure of the CAP adequately to recognise the value of upland farming. Reductions in CAP payments from a reduced Pillar I budget and the end of the agri-environment Uplands Entry Level Scheme (UELS)[22] cannot be offset by increased agricultural production.[23] As a result, upland farmers rely disproportionately on support from CAP payments. We therefore agree with the Government that it is only right for payments to be redistributed across the three regions in a manner that is fairer to all.[24]

19. We recognise that changing CAP payments to increase financial support to upland farmers without linking the additional support to any environmental objectives could lead to adverse environmental consequences such as intensification of in-bye land[25] and under-grazing of the hills.[26] It is all the more important therefore that the increase in the direct payment is complemented by a New Environmental Land Management Scheme (NELMS) which contains appropriate positive land management options that encourage take-up by upland farmers. Without such options it is possible that, despite 'moving money uphill' under Pillar I, the end of the Uplands Entry Level Scheme will mean upland farmers losing out overall as what they gain with one hand they more than lose with the other.[27]

20. Aligning the payment rates of lowland and SDA regions would see lowland farmers' payments reduced by approximately €6 per hectare (as shown in Table 1 below).

Table1: Regional distribution of direct payments
Region Basic plus greening payment (€ per hectare)
Lowland SDAMoorland
No change€242€195 €34
Aligning Lowland and SDA€236 €236€62

Source: Department for Environment, Food and Rural Affairs, Implementation of CAP Reform in England Consultation Document, October 2013

We note that lowland farmers are likely to be disproportionately disadvantaged financially by the introduction of greening. They will also lose the agri-environment Entry Level Scheme (ELS)[28] while at the same time being less able to access funding under NELMS than their upland counterparts, but we nevertheless believe that, for the reasons set out above, there is sufficient merit in 'moving money uphill' to justify this course of action.[29]

21. Payment rates for the current lowland and SDA non-moorland region should be aligned. There remains merit in maintaining the moorland region at a separate lower rate but we believe it should receive the same cash uplift as those farming in the SDA given its high environmental value and the impact of the end of the Uplands Entry Level Scheme.

22. The Government must ensure that the New Environmental Land Management Scheme is open to all upland farmers. It would not be acceptable for those farming in the most challenging of environments to be left worse off overall by the changes introduced under the new CAP.

Reduction in direct payments

23. As part of the CAP deal European Agriculture Ministers agreed to a provision to reduce payments going to the largest recipients. This can be achieved by reducing payments above a certain level or by making redistributive payments or both. Under the proposed system of reductions, Member States must impose a reduction of at least 5% on basic payments above €150,000. The level of reduction can be set as high as 100%. The Government's preferred option is to adopt the minimum reduction of 5% on basic payments over €150,000. All money 'saved' via this method must be transferred to Pillar II.

24. The Government has made it clear that it opposes capping payments i.e. raising the level of reduction to 100% at a certain threshold. The Secretary of State set out his reasoning to us:

I want to see an efficient, successful farming industry concentrating on the production of good-quality food, with successful environmental outcomes. I do not want to see our successful farmers spending hours and hours with expensive solicitors artificially carving up their holdings to avoid an arbitrary diktat on the size of their holding.[30]

25. We agree with the Secretary of State that setting a ceiling at a certain level may discourage businesses from expanding and may simply lead to those affected finding a way around it.

26. The Government sees Pillar II as delivering greater benefit and value for money than Pillar I. A mechanism that transfers money from those who can most afford it to Pillar II is one the Government should use. As the Secretary of State told us, those in receipt of the largest claims are also most likely to farm efficiently and be able to take advantage of the benefits that economies of scale bring with them.

27. The RPA told us that they would expect the 5% level of reduction at €150,000 to generate 'somewhere in the region of £1.2 million to £2.2 million per year'.[31] Such an amount of money is not insignificant and could make a big difference to the rural economy.[32] We recommend that the Government increase the rate of reduction for those in receipt of basic payments over €300,000 in order to boost the funding available for rural development. We believe a higher level would not necessarily impact unduly on the largest claimants, nor would it prompt them to seek to carve up their holdings. It would however provide extra funding to help deliver the Government's rural development policy objectives. We believe our proposals to be administratively simple and agree with the Government that reducing payments above a certain level is preferable to the redistributive option.

Active farmer test

28. In order to receive direct payments claimants will in future have to meet an 'active farmer test', the detailed rules of which have yet to be defined. What is clear is that the test will be in two parts. The first part is a 'negative list' of business types which will be ineligible to apply for direct payments. The list comprises operators of airports, railway services, waterworks, real estate services and permanent sport and recreational grounds. Businesses within this list could have their eligibility restored if:

  •   their direct payments represent at least 5% of their non-agricultural receipts;
  •   their agricultural activities are 'not insignificant'; or
  •   their organisation's principal objective is an agricultural activity.

29. The Government also has the discretion to add business types to the negative list should it become clear that their primary business is not related to agriculture. The Government should review annually who receives direct payments and if it is clear that a business type for which agriculture is not a significant activity receives financial support, the Government should add it to the negative list.

30. A number of organisations raised concerns with us that the negative list might catch genuinely active farmers who have responded to the Government's call to diversify, by, for example, providing private water supplies or renting out real estate to supplement their farm income. The Government must ensure this does not happen.

31. The Tenant Farmers Association suggest that the negative list should be expanded to ensure those in receipt of direct payments are actively farming:

We believe that added to the negative list of individuals who should be precluded from being defined as an active farmer are those who are not in occupation of land or rights of common, those that are not taking an entrepreneurial risk and not in day-to-day management control of that land. This would preclude quite a lot of individuals who now are able to claim subsidy through sorts of sham agreements such as contract farming, share farming and partnerships, where they are pretending that they are in occupation and taking an active interest and entrepreneurial risk, but they are not. We think there should be an added element to the negative list of those individuals.[33]

We agree with the TFA that the person doing the job should be the one who receives the direct support under Pillar I. For example, it is not acceptable for people who were previously tenants to be offered other arrangements such as share farming, contract farming or grazing licences in order for the landlord to be able to claim the direct payment. The Government must use the flexibility of the active farmer test to ensure that individuals who are not in occupation of the land or rights of common, who are not taking the entrepreneurial risk and who are not in day-to-day management control of land do not receive direct payments. At point of application claimants should declare that they are the active farmer, and checking the evidence to support such a declaration should be incorporated within the normal course of inspections.

32. The second part of the active farmer test refers to a minimum level of activity and affects claimants when most of their land is naturally kept in a state suitable for grazing or agriculture. While we expect the minimum activity test to be one that few will fail, the idea of a minimum level of activity gives rise to concern, particularly if it is to involve a minimum stocking density. Care is required to ensure that criteria are not set at levels which would exclude very extensive livestock producers—many of whom are found in the High Nature Value[34] English uplands, or lead to activity that would damage habitats that can be an additional source of farm income in their own right through tourism.[35] Furthermore, the Central Association of Agricultural Valuers point out that:

A farmer who milks 200 cows on 300 acres of valley bottom land but also has 600 acres of high heather hill ground (assuming that that might be 'naturally kept' land) cannot be an active farmer unless he meets the minimum activity on the hill.

It would be perverse if such a situation were allowed to develop. Commercial factors, not arbitrary criteria, should drive decisions to cultivate or rear animals. Care must be taken to ensure that criteria are not set at levels that would exclude low-intensity farming systems whose activity make a positive contribution to some of our areas of greatest environmental value. Furthermore, an over-prescriptive approach to the minimum activity criteria would only add to the list of eligibility checks that the RPA will have to undertake.[36]

33. To help farmers plan for the future Defra should communicate key decisions as soon as possible. Defra's early announcement that entitlements will be rolled forward is a welcome example of this. We appreciate that the details of the active farmer test have yet to be published by the Commission but we expect Defra to give those affected as much advance notice as possible once final decisions on the test have been made.

Minimum claim size

34. The European regulation requires Member States to set a minimum claim size for direct payments. The Government has decided to set the threshold at the highest possible level of five hectares. This is the same level recommended by the Farming Regulation Task Force in 2011. We asked Richard Macdonald, who chaired Task Force and is now in charge of the Task Force Implementation Group, what assessment the Task Force had made of such a measure:

The judgment we made was that the vast majority of those claimants [with less than 5 hectares] were not economic units. They were, in lay parlance, hobby farms. They were not the sort of units where there would, frankly, be significant change either way, ripped up or changed.

[...] By dint of what happened in 2004-05, we have added a great layer of bureaucracy that was never there beforehand. None of these people claimed or were in environmental schemes beforehand.[37]

Setting the minimum threshold at five hectares would, in 2012, have excluded 16,000 or 15% of claims and affected less than 1% of agricultural land. 60% of those holdings were also not being managed primarily for agricultural purposes. While land excluded by the threshold will cease to be subject to cross-compliance many components of cross-compliance will still apply under existing English or EU law. We support the Government's intention to raise the minimum claim threshold to five hectares, and in so doing reduce the administrative burden on the Rural Payments Agency.

18   Department for Environment, Food and Rural Affairs, Implementation of CAP Reform in England Consultation Document, October 2013 Back

19   Ev w1 [Susan Atkinson] Back

20   Department for Environment, Food and Rural Affairs, Farm Business Income by type of farm in England, 2012/13, 31 October 2013 Back

21   Ev w1 [Susan Atkinson] Back

22   The Uplands Entry Level Scheme (UELS) is an agri-environment scheme supporting upland farmers to deliver environmental management. Back

23   Ev 96 [RSPB] and Ev w12 [National Parks England] Back

24   Ev 82 [NFU] and Ev w1 [Susan Atkinson] Back

25   In-bye land is enclosed farm land which is used mainly for arable and grassland production and is not hill and rough grazing. Back

26   Ev w28 [Wildlife and Countryside Link] Back

27   Q 3 [Dr James Jones] Back

28   Entry Level Stewardship Scheme (ELS) is the basic support to farmers delivering simple and effective environmental management across the whole farm. Back

29   Department for Environment, Food and Rural Affairs, Implementation of CAP Reform in England Consultation Document, October 2013 Back

30   Q 178 Back

31   Q 127 Back

32   Taking the Devon and Somerset Rural Growth Network as an example, here Ministers have stated they expect the £2.9million investment to create 1,100 jobs and boost the region's economy by £58million, see Back

33   Ev 101 [Tenant Farmers Association] Back

34   'High Nature Value' farming commitments were first established in the 1998 EU Biodiversity Strategy, which includes the explicit objective 'to promote and support low-intensity farming systems'. HNV farming is characterised by a combination of low intensity of land use, presence of semi-natural vegetation, and the presence of a landscape mosaic. Back

35   Ev 96 [RSPB]; Ev 105 [The Wildlife Trusts]; Ev w28 [Wildlife and Countryside Link] Back

36   Ev 70 [Country Land and Business Association] Back

37   Qq 334-5 Back

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Prepared 3 December 2013