CAP - major changes on the way

The recent, so called “health check” of the Common Agricultural Policy (CAP) has thrown up some potential major changes for the industry in the future.

These potential changes are based on the 2003 reforms to the CAP and are essentially separate from the current review of the sugar sector, the temporary suspension of set-aside for 2008, the prospective change to the 10 month rule and the changes being made to the administration of cross compliance.

The potential changes for 2009 and beyond are all subject to discussion and negotiation, and may alter substantially before implementation.

Of serious concern is the proposal that capping of the Single Farm Payment may apply to larger businesses, with those receiving in excess of €100,000 being subject to a 10% cut in their payments for money received in excess of the €100,000. Similarly for businesses receiving in excess of €200,000 there would be a 25% cut, and for those receiving in excess of €300,000 a 45% cut.

DEFRA is currently opposing such changes. It is however suggested that funds saved by this capping would remain within the member state, for funding other initiatives, so DEFRA’s stance may change.

Many businesses caught in these Single Farm Payment income brackets may consider ways of reducing their potential exposure to these proposed cuts. This could be by the splitting of an existing business, however the issue of separateness and the artificiality of the resulting two or more businesses would need to stand up to detailed scrutiny by the RPA.

The resultant increase in paperwork and professional fees such as accountancy costs may outweigh any financial benefit from such a split.

Of concern to Scottish and Welsh producers would be the suggestion that payments may move from a purely historic basis, to a flat rate payment. Individual member states would be allowed to adjust their current payment system during the period from 2009 – 2013. It is not clear at this stage whether these changes would be mandatory, or if individual member states would be given the freedom to change if they so wished.

Other proposed changes include the following:
A potential rise in the minimum claimable area from the current figure of 0.3 ha. This would possibly be achieved by either setting a minimum total payment, or a minimum area that could be claimed on. Any savings would be retained by the member sate and re-allocated on other funding initiatives.

A review of Cross Compliance requirements, with the removal of some SMR’s and amending others and some of the GAEC’s to reflect such items as climate change and resource (soil and water) management.

The abolition of set-aside, though the debate about the environmental benefits will continue to influence this decision for some time to come. Within a free market set-aside has little place as a production tool, and any environmental concerns could be dealt with by changes within the Rural Development sectors.

The abolition of milk quotas in 2015 is seen as the way forward within the dairy industry. Removal of quotas would help to free up the market and allow the EU to respond to rising demand within the various sectors. A gradual increase in quotas prior to their phasing out is seen by many as the best way forward.

Whatever these proposed changes may bring, it is certain that there will be some notable shifts in the way that funding is targeted within the agricultural sector. The increase in popularity of crops for bio-fuels and energy production has already begun to affect the cereals sector. Climate change, and its associated effects on soil and water management, may require the imposition of ever greater restraints on production in certain vulnerable areas within the member states. Proposed rises in modulation rates may enable more money to be raised for the so called Pillar 2 schemes (upland support and environmental measures), though access to these schemes is not open to all producers and as such gives rise to a degree of discrimination within certain areas within member states.

The continuing challenge of the agricultural industry is to try and remain profitable in the face of these proposed changes. With recently published farm income figures showing the huge losses being incurred by some producers within some sectors, without accounting for The Single Farm Payment, it is going to be increasingly difficult for some enterprises to remain viable in certain areas of the UK without additional support from environmental schemes or other means.

<<back