Select Committee on Science and Technology First Report


4.1 When farmers plan their enterprises, they base their decisions not only on the costs and returns from the market but also on the subsidies available and the regulatory constraints attached to those subsidies.

Current Support Measures for Food Crops

4.2 Under the Common Agricultural Policy (CAP), food and feed production in the EU is aided through a range of support mechanisms and a wide variety of programmes. The two main mechanisms are market price support, which is used to control the supply of products, and direct income support, which is provided through area payments for crops and through headage payments for livestock. Direct income support, with limits on the amount of the support imposed through quotas, was introduced as compensation for price cuts under the MacSharry reforms of 1992.

4.3 Market support mechanisms are used to raise output prices above world market levels. These tend to make production of food crops more attractive to farmers than the growing of other (non-food) crops. The mechanisms differ between commodities: there are tariffs on imports of most food products, quotas on milk and sugar beet, and intervention with export refunds for butter, skimmed milk powder, cereals and beef.

4.4 For most of the main arable crops, farmers also receive direct income support in the form of area payments. These payments, which were introduced under the Arable Area Payments Scheme (AAPS), were set in ECUs/tonne (now Euro/tonne). They vary according to the type of crop and regional yields[11] . The actual payments to farmers in national currency vary from year to year according to the exchange rate with the Euro. The 1998 payment for cereals in England was £240/ha, for oilseeds it was around £300/ha and for proteins £350/ha. The further strengthening of sterling against the Euro between 1998 and 1999 would normally mean that payments under the AAPS would be 13.9 per cent less in 1999 but, exceptionally, the difference is to be made up with "agri-monetary compensation".

4.5 To qualify for area payments, producers must set aside a certain proportion of their arable land (small producers are exempt up to a certain production limit)[12]. Although the set aside rate was initially at 15 per cent, it has been varied from year to year following decisions by the Council of Ministers. In 1998 it was 5 per cent and it is currently 10 per cent. Farmers must maintain their set aside land in good order but they cannot grow food crops on it and can only grow certain non-food crops. In return, they receive an annual payment, currently some £305/ha. Farmers can, under certain conditions, opt to put additional land into voluntary set aside.

4.6 The payments per head for certain types of livestock, for instance the beef special premium, are comparable to the arable area payments in providing direct income support. The support provided through these payments, and the other forms of market support for livestock production, may be viewed as indirectly supporting the pasture on which livestock graze. The result is that the growing of other crops, including non-food crops, on grassland is made less competitive.

4.7 Expenditure on market support and on direct income payments is fully funded by the EU although the United Kingdom does, of course, contribute to the EU budget and this contribution is itself subject to the Fontainebleau Abatement[13]. In addition, there is considerable expenditure on other measures to assist particular sectors of the United Kingdom agricultural industry which is either EU funded, part EU/part nationally funded or wholly national funded[14].

Current Support Measures for Non­Food Crops

4.8 Where there is a choice, farmers will grow only non-food crops if the returns are at least comparable with those for supported food crops. This has led to the introduction in the EU of piecemeal and complex support for non-food crops.

4.9 An important example is that, subject to specific conditions, farmers can grow crops for industrial purposes on set aside land and receive the annual set aside payment (about £305/ha). The crops which qualify, and the conditions under which they may be grown, are set out in the MAFF Arable Area Payments Explanatory Guide. In the United Kingdom, the main crops grown on set aside land are industrial oilseeds and energy crops (e.g. short rotation coppice).

4.10 High erucic acid oilseed rape can also be grown on land qualifying for arable area payments and receives the same area payment as oilseeds for food or feed (about £300/ha in 1998). There is a separate area payment for linseed which amounted to nearly £470/ha in England in 1998.

4.11 For short rotation coppice (SRC), farmers in receipt of a national planting grant for biomass production can keep the same land set aside for five years in return for a payment which is guaranteed not to be reduced (in Euro terms) over a five year period. In addition to the set aside payment, growers of SRC can also receive a lump sum payment of £400/ha towards the cost of planting under the Woodland Grant Scheme[15]. For planting on land outside the Arable Area Payments Scheme, the amount is increased to £600/ha.

4.12 There are separate support regimes for fibre flax and hemp with a payment per hectare fixed annually. In 1998, these EU funded payments were in the range of £450-£535/ha for fibre flax and about £500/ha for hemp. Growers must have a contract with a processor and the latter is required to lodge a security with the Intervention Board Executive Agency. This security is repayable on confirmation of delivery of the crop as contracted. This measure is designed to reduce the risk of fraud through farmers receiving a payment but failing to grow and harvest a crop which meets the volume and quality criteria.

4.13 Where products of food crops, such as starch or sugar, are used for industrial purposes, refunds are paid to processors at a level designed to enable European Union suppliers to compete with imports from countries outside the European Union. The conditions relating to raw materials that could be used for both food and non-food purposes also require a contract with a processor who must lodge a security repayable only on proof that the crop has been processed for non-food use.

Agenda 2000

4.14 Following the Commission's proposals under Agenda 2000, a number of changes to agricultural support were agreed at the Berlin European Council in March 1999. Those most relevant to non­food crops were the reduction in support prices for commodities, such as cereals, beef and milk, and the introduction of a non-crop-specific area payment. The area payments for cereals, oilseeds, linseed and set aside will be standardised by the year 2002 at 63Euro/tonne[16] (about £240/ha in England at 1999 exchange rates). This compares with 1998 payments in England of some £240/ha for cereals, £300/ha for oilseeds (after penalties under the Blair House Agreement), £470/ha for linseed and £305/ha for set aside. However, and contrary to the initial proposals under which the compulsory set aside rate would have been set at zero, the rate was set at 10 per cent until 2006.

4.15 A new Rural Development Regulation will change the basis on which Member States may provide support to farmers in less favoured areas, effectively replacing Hill Livestock Compensatory Allowances (HLCAs). This will require payments per head to be replaced by a payment per hectare with more explicit environmental objectives. Member States will also have discretion to reduce direct payments by up to 20 per cent according to labour force criteria, overall prosperity criteria and the total amount of direct payments received by a farm business.

11   The United Kingdom has five regional yields for cereals, ranging from 5.03 to 5.89 tonnes/ha. Back

12   A farmer's eligible area was based under the MacSharry reforms on the area of arable land in the crop rotation in 1991. In return for the set aside payment, farmers may not grow any food crop on land that is set aside or use the land for grazing. They must also comply with strict rules for managing the land during the set aside period to ensure that it is maintained in good condition. See Arable Area Payments, Explanatory Guide, Parts I and II, 1997 edition and 1998 and 1999 up-dates, MAFF. Back

13   The Fontainebleau Abatement is a mechanism which returns to the United Kingdom Exchequer roughly two-thirds of the difference between the United Kingdom's gross contribution to, and receipts from, the European Union budget.  Back

14   Agriculture in the UK 1998, Table 9.1. Back

15   If planting is on set aside land, payments from the Woodland Grant Scheme are nationally funded. If planting is on non set aside land, the payments are 50 per cent financed by the EU, except in Objective 1 areas where there can be up to 75 per cent funding by the EU. Back

16   A Euro9.5 supplement is paid on proteins and the durum wheat supplementary aids remain. Back

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