Environment, Food and Rural Affairs CommitteeWritten evidence submitted by the Central Association of Agricultural Valuers (CAAV)
1. An Overview of the Package
1.1 The political agreement on the future shape of the CAP, largely reached in late June, does not amount to a substantive reform, particularly when considered in England. While the Single Payment Scheme was a major and important reform, decoupling of subsidy from production, this package instead rather adds what will probably prove to be ineffectual and ornate complexity to the relatively straightforward basic structure of the current regime as it has eventually settled down. It does not build in any significant way on the 2005 reform. We may come to miss the simplicity of the Single Payment Scheme as we grapple with this multi-tiered system and its confusion in “greening” of Pillar 2 multi-annual objectives within the annual measures of Pillar 1.
1.2 While bringing some certainty to the underlying policy framework, the June agreement recognises the diversity of the EU with a greatly widened scope for the national discretion over options and exemptions, evidently needed not just with the diversity of EU agriculture but to secure the deal. It will be increasingly hard to see that the CAP will now be truly common at a practical, operational level. Further, it lacks a coherent sense of strategic purpose in its spending a third of the EU’s budget. Explaining the Single Payment Scheme credibly to interested non-EU visitors has been hard enough (especially to those from emerging markets); explaining the logic of this package as the EU’s policy to 2020 will be much harder.
1.3 At its worst, it entrenches coupled payments and indeed could allow them to grow while the new option of a Small Farmers Scheme offers to exempt many across the EU from cross compliance and greening altogether.
1.4 The main reform is for the phasing in of standard area payments. While Wales and Scotland are looking to complete this for 2019, the rules are now so compromised that other countries can choose that the value of their entitlements in 2020 will still partly reflect what their creators were doing twenty years and more earlier. However, England has already made this change to standard area payments.
1.5 Greening looks to deliver little that is positive. Within the limited resources available under the Rural Development Regulation, England (and Wales) has focused heavily on agri-environment schemes in a way not seen in many other member states. Yet the greening proposals look to pose a direct challenge to these agreements, especially where held by some medium and larger arable farmers.
1.6 Importantly, the role of direct payments in rewarding the occupation of land encourages stasis, not innovation, and supports rents—more than outweighing any help to either young farmers or new entrants. This was noted by the recent Future of Farming Report to DEFRA:
“The situation has been exacerbated by the present Common Agriculture Policy (CAP) and is likely to continue in the next round. The Single Farm Payment, decoupled from production, can be seen to offer a continuing payment, subject to cross compliance, simply for occupying farmland. Logically, it encourages existing occupiers to remain where they are so that they can continue to secure the payment.” (Para 5.38)
1.7 Above all the detail, the large question is whether this deal for 2014–20 is really where the CAP should be in 2020 with all the wider challenges that exercise the EU. More than usually, it may be that the CAP should now not be confused with a real agricultural policy. That will now be more driven by the market place and the constraints of other legislation such as the Water Framework Directive.
1.8 The obvious concern is that this has so failed to address the wider issues that it merely leaves the pressures for greater change to accumulate until they drive swift and radical reform with larger consequences, rather than managed and tempered change. Meanwhile, much of the rest of the world is out there winning its markets.
Questions
2. Will the UK’s implementation of CAP put English farmers at a competitive disadvantage to their regional and European counterparts?
2.1 While there seem to be various ways of calculating the figures, it does not appear that the UK has come badly out of the allocation of CAP money for the new Multi-annual Financial Framework period to 2020, given the starting point which includes a low rural development allocation. The exchange rate will affect the outcome in sterling terms.
2.2 The only significant implementation of the CAP at the UK level is the prospective division of the UK’s national ceiling between the four countries. The outcome of that is not known. After that all decisions for England effectively lie with DEFRA though issues for cross-border farmers may again be fraught.
2.3 The points of contention for this question appear to be:
the transfer of money from direct payments to the rural development programme. In practical terms, this replaces the modulation that has funded Environmental Stewardship. Our understanding is that the scale of existing commitments under continuing agri-environment agreements with farmers will require virtually the whole of the available 15%;
the continuing existence of coupled payments in parts of the EU allowed by the package; and
that those farmers who had high historic payments (usually now or once beef or dairy) are better funded to compete with English farmers on standard area rates. While Wales and Scotland are looking to move fully to standard area values, not every member state may do this. That is allowed by the package.
2.4 One issue then is the way the regime affects different types of farming. In essence, greening bites on the larger, more specialist arable farmers more likely to be found in England than some other countries which may either be more predominantly pasture (such as Wales) or have smaller farms. Another aspect of that may lie in England’s flexible use of land compared with more rigid markets in some other parts of the EU—subsidies may feed more readily into rents in England.
3. What steps might the Government take in implementing CAP to help tenant farmers and farmers in upland areas and to take account of issues pertaining to common land?
3.1 There is a policy question here as to what actually constitutes help. The easy answer is more money and few, if any, will turn that down. However, it is a matter of observation that farming subsidies tend to turn into increased costs of production. With a payment system based on occupying land, direct payments all too easily feed into the cost of the land that good, expanding or new businesses will want to rent. There are indeed counter-arguments to consider that:
direct payments stabilise farm accounts in times of more volatile prices; and
give some confidence and resource for farmers to experiment, improve and develop their businesses,
but, with rural development money being scarce, the system offers little means to consider ways to use the money to achieve the structural benefits that would improve the position of farming.
3.2 Had the Commission come forward with the more radical option it dismissed in its original 2010 Reflections paper and moved to phase direct payments out by 2020, that would perhaps have been equivalent to the phasing of English payments to standard values from 2005 to 2012. On that timescale, the costs of factors of production and business structures would have adapted around that change and absorbed what would have been a great shock had it been done overnight (as in New Zealand).
3.3 Tenant Farmers—Entitlements can only be used by the “farmer” who holds them and then in conjunction with eligible land “at his disposal”. That means they are in the hands of the tenant, subject only to any terms in his tenancy agreement (only likely to be relevant to the Basic Payment if written recently and dependent on DEFRA’s decision about entitlements under the new regime).
3.4 However, claiming the Basic Payment Scheme will still rely on the mechanism of matching entitlements against land at the claimant’s disposal. Not only is that then a payment for occupying land but, as the contrast under the Single Payment Scheme between England and Scotland shows, its effects are compounded by an area based system for allocating entitlements which makes land relatively scarce with effects on its rental value while entitlements are then relatively cheap for the income they produce. Those are natural consequences of the system.
3.5 There is no obvious answer to that within the policy.
3.6 Upland Farmers—We have seen arguments for some move of the available direct payment money in England from the non-SDA payment area into the SDA and moorland areas where farming is inherently more difficult. The difference in scale between these areas is such that a noticeable increase in the latter payment values could be achieved for a relatively small loss to the lowlands. Anything more than that would probably distort markets further. The consequences of such a move should though be understood since that extra money will tend to feed into rents and other costs.
3.7 Common Land—The proposed regime is no more designed to take common land readily into account than the Single Payment Scheme. One of the key eligibility criteria is that the claim is made by matching entitlements against land which is at the claimant’s disposal. Commons have caused particular issues under the Single Payment Scheme in terms of both eligibility and cross compliance; however ways have been found to allow those holding common rights, as well as common land owners, to claim. We hope that this understanding may continue under the Basic Payment Scheme regime. However, we encourage DEFRA to look at ways in which unused notional areas of common land might be available to benefit those managing the land and maximise the use of much needed funds on upland commons.
4. What steps does the Government need to take to ensure the reformed CAP is less bureaucratic than its predecessor? What might prevent this ambition from being achieved?
With the architecture of the package now largely fixed, this will only be achieved (so far as it can be) by a determined focus on simplicity over any other policy objectives in selecting the options available under the package.
5. How might the Government define the minimum activity required for qualification as an active farmer?
5.1 The oddity of the revised CAP definition of a “farmer” (and so of an “active farmer”) means that this requires careful analysis. The present definition of a farmer covers those who:
farm, as conventionally understood in the English language; and
keep land in good agricultural and environmental condition for which the minimum standard is that it can be brought back into grazing or cultivation without undue effort.
The minimum required for that second head has been defined in England by the GAEC 12 rules which seem to have worked (with practice established and tested at appeals since 2005) and to encompass the environmental management of some land as domestically desired.
5.2 The new package adds a third route to being a farmer but its practical meaning is still far from clear. It is based on land that is both in the claimant’s agricultural area and is “naturally kept” in a condition to be grazed or cultivated. Given that England’s landscape has been man made several times over the millennia and will generally tend to revert to scrub, it is not yet properly understood what land that phrase might cover—perhaps ground that could be grazed because of heavy grazing by rabbits or deer, perhaps heather on hills too high to revert to scrub.
5.3 It is for that land, probably often of environmental value, that DEFRA has to draft the new definition of minimum activity. Requiring any positive intervention may conflict with the land’s environmental value while perhaps also taking the land within GAEC 12 and out of this category. Thus, the definition should rather focus on the management being protective, as perhaps in preventing encroachment.
5.4 The importance of the defining that minimum activity threshold comes with the “active farmer” definition. Despite the original proposals, this is now a test for few to fail rather than for many to pass—essentially all farmers are active farmers unless they fail one of two tests. The operation of the first test with its list of excluded potential claimants and the means for those among them who do also farm to regain active farmer status are still being explored. The alternative way for a farmer to fail to be an active farmer turns on this “naturally kept” land.
5.5 If more than half a farmer’s agricultural area is such naturally kept land, then he has to undertake that minimum activity if he is to be an active farmer. That is irrespective of how much other farming he does on his remaining area. Thus, 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.
5.6 In conclusion, while this might in some parts of the EU be seen as means to exclude unwanted claims and idle “slipper”/“sofa” farmers, it appears to make little sense in an English context. The minimum activity should be those actions that preserve the land in its present “naturally kept” condition.
6. How should the Government ensure that the CAP delivers the best environmental benefits while supporting food production?
6.1 The package offers few options for either objective and this is further limited if the package is not to be implemented in too bureaucratic a way
6.2 Food Production—The policy is not directly intended to support food production per se. In principle, its subsidies are expressly decoupled from production for well understood policy reasons—albeit that this is not completely implemented across the EU (or even the UK). The policy’s aims are to offer income support for farmers, an aid to the rural economy and to promote “balanced territorial development”. It hopes to maintain the EU’s agricultural capacity, partly by stabilising farming accounts in volatile times, albeit that studies suggest there would be little substantial loss in that capacity were subsidies withdrawn though there would doubtless be some restructuring and possible retreat from some of the most marginal areas.
6.3 Considered at least from an English perspective, the deficiencies are not of support to farmers (at the EU level direct payments to farmers will still be 25% of the total EU budget in 2020) but in supporting the infrastructure of a sector that is naturally one of small and very small businesses.
6.4 The proposed Rural Development Regulation with its headings of competition and innovation may offer some opportunity to tackle the need to enhance research and development for agriculture. The larger issue was picked up by the Future of Farming report (noting, for example, the collapse in domestic post-graduate numbers), the Green Food Project and now the Agri-Tech Strategy. As that work indicates, many of the answers may lie outside the CAP but this new heading may offer opportunities. That potential use of limited Rural Development money is though in direct competition with other calls on it, most obviously the agri-environment-climate schemes building on what England has been developing for 25 years.
6.5 Another significant issue with the sector’s infrastructure is its buildings, many of which are now aging badly but whose replacement is a major call on capital. That expenditure is now no longer recognised at all by the tax system with the withdrawal of Agricultural Buildings Allowances. Looking at the Rural Development Regulation, Scotland has used its RDP to aid farmers investing in buildings. Again, that leads directly to hard decisions about the allocation of funds.
6.6 Environmental Benefits—It is understood that greening has its origin in the Commission’s view that several member states were doing very little under the CAP on environmental issues having been given no specific direction under the previous regulation to do so. However, within available funds this area has been a particular feature of English agricultural policy since the introduction of ESAs. The lion’s share of the RDPE has been spent on Environmental Stewardship and continuing commitments under previous schemes.
6.7 In an English context, greening offers very little that is positive in delivering environmental benefits, given the existing commitment to formal agri-environment schemes. It is difficult to see what it can achieve over and above that while it looks to create a further level of unnecessary bureaucracy. What it has created is immense uncertainty about its interaction with both existing and future agri-environment agreements. It may ultimately undermine the environmental benefits achieved in England which would be a perverse outcome.
6.8 The prospect of its “permanent grassland” rule operating at farm level (now unlikely) led directly to some ploughing of such ground, including land that had been in arable reversion. Now it seems that the “permanent grassland” rule will look very much like the present rule while its definition means that it is not really about what would be agreed to be environmentally valuable permanent pasture.
6.9 The crop diversification measures appear either to lead to no change on many arable farms that already carry enough crops while disrupting a significant minority of those that do not for their own reasons. Among those will be:
hill and stock farmers who maintain small areas of arable as feed but for reasons of scale, need and climate may only have one crop, yet this brings diversity to grassland areas; and
specialist crop farmers and those who provide land to them. The area of our high value vegetable and horticultural sectors has been in decline and this will not help.
It is not understood how it will work with outdoor pigs.
6.10 In the expectation that buffer strips will be included as an EFA measure, the bar on double funding would pose a direct challenge to many of the existing agri-environment agreements on arable farms that use buffer strips. Combined with the hiatus in new agreements until the start of 2016, agri-environment policy is looking precarious.
6.11 While there might be apparent attractions in the national certification alternative to the default greening measures, the options allowed here look so constrained that with the greater complexity involved they may not deliver what could have been hoped.
6.12 The presumed end of “dual use” whereby a farmer with land “at his disposal” can claim SPS while an agri-environment agreement holder who can show “management control” of the same land at the same time (often as landlord) is likely to undermine the goal of landscape wide agreements. Many estates have the capability to deliver this in a co-ordinated way which their various tenants might not.
7. What are the principal lessons the Government should learn from the implementation of the previous CAP?
7.1 Having had to handle many of the practical and business problems that arose with the introduction on the Single Payment Scheme (not all yet resolved), our very basic message is that policy decisions cannot sensibly be divorced from implementation. That is even more true in a time of austerity when the financial risks of failure or disallowance and the costs of complexity can least be afforded.
7.2 There were particular issues in the scale of the challenge taken up by the then Government in 2004 when it adopted the dynamic hybrid option which it had not negotiated for use in England, and having just built a new computer system that was not designed to handle the system it faced nor, indeed, change. The present challenge looks smaller but the warning is still to be sensitive to risk and to avoid complexity when reviewing the available options.
7.3 In preparing for implementation, 2015 is now very near in terms of real decisions and work not only for DEFRA but also for claimants whose land occupation and cropping arrangements already bear on their first claims and compliance.
7.4 We urge DEFRA to try to do more work ahead of time to ease pressure for the first applications. One example from 2005 is the way Wales and Scotland handled many national reserve claims early, while the RPA had to go out again for a complete second application in autumn 2005. Two examples of current issues are:
a firm decision soon whether English entitlements are to be kept or freshly allocated. Much planning and desirable business reorganisation is currently on hold on this score; and
as much of the scheme turns on active farmers, some will need to know in advance whether or not they are “active farmers” and to pursue any appeals so that they can prepare for 2015 with certainty.
It is appreciated that implementation is not helped by the slow processes in Brussels as we await the settling and formalisation of the political agreement in the main regulations and any sight of even drafts of the implementing regulations.
7.5 While we understand the motivation to move towards a digital-only environment for both submitting claims and scheme guidance, implementing the new Basic Payment Scheme at the same time as introducing the new CAP IT system in 2015 would seem a risky approach in the light of the issues seen with the introduction of the Single Payment Scheme. We particularly urge that printed, hard copy guidance be retained for at least the first year of the new Scheme when everyone will be grappling with a completely new set of rules. It appears prudent to allow the new system to bed down rather than effectively force everyone to engage digitally with all aspects of the new scheme.
7.6 Finally, we express our appreciation of DEFRA officials’ engagement with us on the many practical matters involved as they have arisen in this long and unfinished process.
October 2013