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
| SDA | Moorland
|
| 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 http://rdpenetwork.defra.gov.uk/news-and-publications/rdpe-news/rural-growth-networks 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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