7.Farming has been shaped by the European Common Agricultural Policy (CAP) for the last 45 years. Many farms make a loss from the agricultural side of their business but benefit from financial support (Direct Payments), taking part in agri-environment schemes or diversifying their activities for income.
8.The consultation paper outlines Defra’s plan to phase out Direct Payments to farmers and landowners to create “a more dynamic, more self-reliant agriculture industry”. Making the case for this, Defra states that Direct Payments “can distort land prices, rents and other aspects of the market, creating a reliance on these payments, which can limit farmers’ ability to improve the profitability of their businesses”, yet simultaneously the consultation paper acknowledges that many farm businesses rely on Direct Payments to break even.
9.During our inquiry, we heard that many witnesses were supportive, or at least understanding, of the Government’s proposal to withdraw Direct Payments from farmers and landowners. As an example, the National Farmers’ Union (NFU) told us it accepts that “direct payments based on area are crude and not very sophisticated”. However, like other witnesses, it is concerned about the design and delivery of a new scheme going forward and would like more information.
10.Defra’s data, published in the evidence compendium alongside the consultation paper, shows that between 2014/15 and 2016/17 42 per cent of farms are not profitable if their Direct Payments removed from their historic accounts. Yet the consultation paper makes little reference to the degree to which farms are therefore reliant on Direct Payments and the likely result of their withdrawal. Sustain was concerned about the large numbers of farms that could be lost if Direct Payments were removed without an adequate replacement scheme. Vicki Hird from Sustain told us that “there is a potential 25% loss of farms. This would have a big impact on rural cohesion […] as well as ecosystem services, for jobs, for livelihoods, for the local food economy and for local food links”.
11.Guy Smith from the NFU criticised the paper for not including a full impact analysis of this change. Without a thorough impact assessment and detail on what future financial support might be available, witnesses could not speculate on the precise effects of the withdrawal of Direct Payments, but were clear that the effect would be quite large and impact some sectors more than others. Professor Dwyer explained to us that:
The impact of the loss of direct payments is going to vary by sector, by scale of operation, by type of farming and by geography and the natural conditions under which farms operate. You get a very marked difference between the level of dependence on direct payments according to those factors.
12.Guy Smith agreed: “Quite clearly, it will have impacts on some sectors quite quickly, particularly livestock and cereals, other sectors less so. The devil will be in the detail. It will depend on what alternative policies are brought in in its place”.
13.Defra states that on average farms would only need to reduce their costs by 11 per cent in order to break even without Direct Payments. However we heard from a range of witnesses who believed that the potential impact of withdrawing Direct Payments would have a disproportionate impact on their businesses. We had hoped that Defra’s consultation would have used a comprehensive sectoral assessment of the impact of withdrawing Direct Payments to help design its new agricultural policy. In the absence of such an assessment, we present below the evidence we received from various sectoral representatives on the potential results of the withdrawal of Direct Payments:
14.In addition, we heard from many witnesses that small and medium farms will suffer disproportionately from the loss of Direct Payments. The loss of these farms will disproportionately damage the countryside. Having a range of farm sizes and types is vital to ensure a thriving farming and rural industry, available and attractive to new entrants, progressing farmers and producing a healthy countryside. Discussing family-run farms, Professor Dwyer highlighted that there could be a wider effect on the rural economy: “You put those sorts of businesses in a vulnerable position and the impact on the wider economy is greater, not just in monetary terms but in social and community terms as well”.
15.We put the concerns of our witnesses to the Minister for Agriculture, Fisheries and Food and asked how the impact could be justified on these vulnerable sectors. In response, George Eustice said:
We are looking at the impacts on different sectors. We have Farm Business Survey data, and other such data, to try to assess how great the dependency is on the single farm payment. […] We have said that we recognise that there could be some particularly vulnerable sectors, and that we are inviting views on how we should address that. It may be that you would have a slower pace of change, or recognise that they provide an important position for the social fabric in some of those areas, or it may be that you design your new system in a way that is sufficiently generous that they can have a business model.
16.The consultation gives no clear commitment to funding. It commits to retaining the cash total for the sector to the end of the current Parliament in 2022. However some of these funds will be redistributed, by capping the total payment received by some landowners and funding others to undertake pilots of environmental land management schemes. Defra suggests that a progressive reduction in payments could be made or a cap could be applied above which no payment would be made. These are likely to affect the largest recipients first. There is no funding commitment for the new system that uses public money to pay for public goods after 2022.
17.Concern was raised at the lack of information about how the proposed redistribution would take place and the uncertainty about funding levels after 2022. Tim Breitmeyer from the CLA criticised the lack of detail in the consultation paper: “We have no clarity on how the money spent in transition will be pushed into programmes to improve productivity and profitability, and also the piloting of the new model”. In written evidence, Wildlife and Countryside Link stated that: “Clarity on the scale of future funding, and how it will be given a long-term and stable footing is needed as a matter of urgency”. Similarly, CIWEM described the consultation as lacking a “clear or convincing vision for the future support of farmers” and the Campaign to Protect Rural England told us that: “Defra has given no indication of how cuts would be applied beyond the first year and how and when funding for public goods would become available”.
18.Tom Lancaster from RSPB raised the absence of funding in the consultation paper and explained to us that the timing of bringing in the new funds will be equally important:
Ensuring that transition and taper brings in an environmental land management system whilst the taper is ongoing, or however they transition away from direct payments, will be really key, so we do not see that deficit in terms of environmental protection and land management in the interim.
19.Angela Francis from Green Alliance went further and stated that even the current financial contribution of £3.1 billion was insufficient and to reach existing Government commitments on the environment, slightly more would be needed:
A bottom-up calculation that has been done by the RSPB is their needs assessment, which says that to restore nature, which is a commitment we have made, would cost £2.4 billion. It acknowledges that we could count more in that by looking at soil restoration, which was not part of the first assessment and would bring it up to £3 billion to £3.5 billion, so a bit more to meet our environmental commitments.
20.Several organisations suggested that the provision of public goods could also be funded by other non-public sector sources such as water companies. The National Trust told us it sees “strong potential for private finance to complement current levels of public funding, enhancing the support farmers receive in future”. CIWEM cautioned that private markets for public goods are not “sufficiently mature to be applied as widely as would be required” so public money will be needed in the interim.
21.We asked the Minister whether farmers could rely on any new agricultural policy being funded in the future. He told us:
We have a manifesto commitment to maintain funding at the current level until 2022, and a manifesto commitment thereafter to roll out a new type of agriculture policy, focused on the delivery of public goods. Payment for public goods is something economists are comfortable with.
22.We also asked whether he had had discussions with the Treasury. He replied: “No, not yet, in terms of funding”. When pressed further on this point he responded:
Of course there are discussions. We are having discussions about the design, and Treasury officials are engaged in that. […] To be clear, the manifesto commitment is that the funding stays the same until 2022. After 2022 a new scheme will be put in place, which will be funded.
23.The consultation indicates that once the UK leaves the EU and the CAP there will be a period of “agricultural transition” in England during which Direct Payments will be gradually withdrawn. The consultation does not make clear how long the transition will last; it suggests it may be “a number of years” following exit from the European Union. After the transition period, Direct Payments will end and will be replaced by a “system of public money for public goods”.
24.Several witnesses expressed concern that the capping and removal of Direct Payments has the potential to create a period of uncertainty and volatility for many in the farming community. The CLA was particularly frustrated that the paper only discusses the first year in detail:
One of the worrying things in the command paper is that it only talks about the first year. It is very silent on the fact that the whole industry, within five years—or probably about that timeframe—will have no BPS [Basic Payment Scheme] left. It does not make that at all clear.
25.It was further suggested that the transition to the new scheme should not be started until the new system based on public goods is clear so that there is more certainty for farmers. Angela Francis told us:
We are asking for a transition period of five years, and we want the transition to the new system to start in 2022. During that period we [will] already know what the new system is, so farmers have certainty and can start changing how they provide public goods in their business model.
26.Professor Dwyer also called for a longer transition period. She highlighted a potential environmental risk arising from too quick a policy change. She drew parallels to the approach taken when the historic payments system moved to an area-based payments system with decoupling in 2005:
Defra took the decision to phase that over 10 years and to do it gradually, so that farmers knew that that was happening and had that period of time in which to adjust and to make plans.
27.The National Trust warned that any delay in starting delivery of public goods could result in a permanent reduction of the overall funding level. It warned “the Treasury may attempt to reduce overall spending levels if the money cannot be redistributed quickly”.
28.While a transition period is welcomed, there appears to be little consensus how long it should be. Our written evidence suggested a range of estimates between a minimum of three to seven years. We heard from the agricultural sector that the period needs to be long enough to ensure that farmers in England have time to adapt to change and invest to improve their productivity, whereas environmental organisations were concerned that any delay could result in inaction by farmers.
29.Defra suggests that during the agricultural transition period, it will simplify existing environmental rules under CAP:
We will seek to simplify Countryside Stewardship schemes, cross compliance and remove or reduce current ineffective greening requirements, before we move to a new regulatory regime.
30.Guy Smith from the NFU did not consider that the simplification proposals were clear. In particular he asked whether greening conditionality would still be required when reducing the Direct Payment: “Do you ratchet back the greening conditionality that goes with it? […] It is not clear, and I cannot see it in the Command Paper”.
31.Some evidence supported the proposed simplification of cross-compliance. However it was noted that there was uncertainty around cross-compliance during the transition period. Ellie Brodie from The Wildlife Trusts highlighted that there is a risk that environmental standards under cross-compliance will be forgotten. She explained:
Boundary features such as hedgerows are really important. They bring a range of benefits for wildlife and habitat connectivity. They are currently part of cross-compliance, and we would need to see those being picked up somewhere.
32.The NFU also observed that there are existing environmental schemes that have not concluded: “We have to see them through the next few years. We cannot just cut them off. There are five to 10 year contractual style agreements”. Arlin Rickard from The Rivers Trust agreed: “It is really important that we are able to transition across without a hiatus that could be very damaging”.
33.We were concerned by the evidence we heard on the possible impacts to the environment from the withdrawal of Direct Payments, so we put our concerns to the Minister. He responded:
It is a fair comment, and that is why we do not intend to rapidly withdraw direct payments. It is why we intend to do it in a very orderly way, over a transition, so that the larger farmers affected by the cap would become early adopters of a new scheme, which would be all about payment for the delivery of environmental outcomes. We do not envisage that there would be a gap where you would lose people and they would fall between the stools.
If you, however, were to say, “We are going to withdraw the single farm payment”, your criticism is absolutely pertinent, because you would lose all the things that are protected by cross-compliance: hedge-trimming provisions, field boundaries and all sorts of things that are not well protected through cross-compliance but are protected to a certain extent.
34.The evidence from a range of agricultural businesses indicates that their sectors will face significant impacts from the proposed withdrawal of Direct Payments. The level of impact will vary by sector as the economics of each are so different. There are likely to be particularly damaging effects on grazing livestock, cereal and mixed farms and the withdrawal of support and any subsequent closures of businesses could have wide reaching impacts on the rural economy and its communities. As in our Brexit: Trade in Food report, we were disappointed that these impacts have not been thoroughly assessed by Defra on a sector-by-sector basis, to then inform future agricultural policy.
35.We recommend that Defra produces a thorough sectoral assessment of the withdrawal of Direct Payments in response to this Report. Production of this assessment will allow Defra to better target the additional support that will be required by small and medium-sized farms and businesses in especially vulnerable sectors.
36.We are concerned to hear that there have been minimal discussions between Defra and the Treasury over the future funding of the new agricultural policy. There was a legitimate fear among our witnesses that without early commitments to funding levels, well in advance of 2022, promises on funding levels following the transition period cannot be “guaranteed”. Any new stewardship scheme must be sufficiently resourced to achieve the Government’s commitments to restoring the natural environment. The Government should commit, in response to this Report, to fully fund the future agricultural policy and ring-fence the funds that are released from the withdrawal of Direct Payments to fund the rural economy and the environment.
37.The consultation lacks specifics. We have noted above the absence of a thorough analysis of the effect of the withdrawal of Direct Payments and Defra’s seeming lack of urgency in ensuring guaranteed funding for agriculture after 2022. We trust that these weaknesses will be remedied in the Government’s response to this Report.
6 For example, 94 per cent of the average farm business income from lowland grazing livestock farms came from Direct Payments between 2014/15 to 2016/17. Defra, The Future of Farming and Environment Evidence Compendium, February 2018, p35
7 Defra, The Future of Farming and Environment Evidence Compendium, February 2018, p23
11 The Campaign to Protect Rural England (), para 6; British Ecological Society () para 3; Wildlife and Countryside Link () para 5.5; Which? () para 10
13 [George Dunn]
15 Defra, The Future of Farming and Environment Evidence Compendium, February 2018, p41
16 [Vicki Hird]
17 [Guy Smith]
18 [Professor Dwyer]
19 [Guy Smith]
20 Defra, The Future of Farming and Environment Evidence Compendium, February 2018, p45
21 [Tim Breitmeyer]
22 [George Dunn]
23 [Phil Stocker]
24 [Phil Stocker]
25 [Jilly Greed]
26 [Jilly Greed]
27 The National Trust (), para 6
28 In the period 2014/15 to 2016/17. Defra, The Future of Farming and Environment Evidence Compendium, February 2018, p35
29 [Tim Breitmeyer]
30 Dairy UK (), para 2
31 Horticulture does not receive Direct Payments however the EU Fruit and Vegetables Regime provides financial support to co-operatives formed by producers to reduce production costs, improve marketing and promote environmentally sound cultivation.
32 Asplins PO Ltd (), para 5–7
33 ; [Peter Dawson]; Sustain: the alliance for better food and farming (); para 5–7; Chartered Institution of Water and Environmental Management (), para 1.3–1.4; The Campaign to Protect Rural England (), para 1
34 Sustain, CPRE, TFA, NEF, FFA, FoE, The need for specific support for maintaining a diverse farm structure in new English agriculture policy, March 2018
35 [Professor Dwyer]
37 [Tim Breitmeyer]
38 Wildlife and Countryside Link (), para 1.1
39 Chartered Institution of Water and Environmental Management (), para 2.1
40 The Campaign to Protect Rural England (), para 6
41 [Tom Lancaster]
42 To restore nature within a generation and deliver commitments in the 25-year environment plan
44 ; Anglian Water Services (), para 3; The National Trust (), paras 18–30
45 The National Trust (), para 16
46 Chartered Institution of Water and Environmental Management (), para 4.2
52 ; The National Trust (), para 10; Woodland Trust (), para 1.4
53 [Tim Breitmeyer]
54 [Angela Francis]
55 [Professor Dwyer]
57 The National Trust (), para 10
58 Soil Association (), para 31; British Ecological Society (), para 16
59 Dairy UK (), para 16
60 NFU (), para 3.2; Dairy UK (), para 16
61 Chartered Institution of Water and Environmental Management (), paras 5–5.5; Wildlife and Countryside Link (), para 5.4
62 Cross-compliance requires farmers to meet legislative standards in environment, food safety, animal and plant health and animal welfare. They must also keep land in good agricultural and environmental condition to ensure they receive Direct Payments and certain rural development payments.
64 [Guy Smith]
65 The National Trust (), para 11; Friends of the Earth England Wales and Northern Ireland (), para 4.8; RSPCA (), para 6
69 [Arlin Rickard]
Published: 6 June 2018