As the current round of CAP funding comes to an end, livestock farmers will need to know what aspects of policy are being reformed and what the implications are for farming.
This guide explains some of the terms, the main policy reform areas and how they may affect livestock farmers.
What is the CAP?
The Common Agricultural Policy (CAP) is the EU's main land-use programme.
Created in the 1950s to encourage high yields by paying for production, it has been reformed over the years with a scheme of direct payments linked to compliance with standards on food safety, animal welfare and environmental concerns.
Currently close to £50bn of EU money goes to European agriculture annually. In the UK, nearly 200,000 farmers receive payments of £3.3bn every year.
What do Pillars 1 and 2 mean?
Pillar 1 (P1) refers to direct support under the Single Farm Payment, which accounts for 70% of the CAP budget.
Since 2004, P1 payments to England's farmers have been based on the hectarage of the farm, while Wales' and Scotland's farmers have continued to receive their payments on an historic basis.
Pillar 2 (P2) refers to funding for rural development. Accounting for 11% of the EU budget, P2 funding is focused on improving farming's competitiveness through development and innovation; improving the environment and countryside; and improving the quality of life in rural areas.
Why is it being reformed?
The current round of funding for the CAP comes to an end in 2013, meaning a new budget has to be agreed for the 2014-20 period.
The need to cut EU budgets while finding ways to produce more food in a more sustainable way has driven a substantial overhaul of the CAP in a bid to make it more efficient, simpler and fairer.
Over the past 21 months, extensive negotiations have taken place between the European Commission, the European Parliament and member states to try to come up with a policy which satisfies all 28 members while meeting the objectives of the reform.
It has been an arduous process and one which has taken longer than anticipated, meaning that the new policy will now come into force in 2015 - a year later than originally planned.
What are the proposed changes?
The most controversial change is around the so-called "greening" of the CAP, which aims to encourage farmers to adopt more environment-friendly farming practices in exchange for direct support.
From 2015, 30% of farmers' direct payments will be dependent on compulsory environmental measures: crop diversification, ecological focus areas and retention of permanent grassland.
Alternatively, farmers will be able to carry out equivalent practices which yield similar benefits compared to one or more of the three measures. DEFRA has to decide how this system will work at a farm level.
Flexibility between Pillars
While this element is still under discussion, as it stands all member states can shift or modulate up to 15% of their budgets from Pillar 1 into Pillar 2, and vice versa.
The modulation rate must be communicated to the Commission by 31 December 2013, with the UK able to set a lower rate initially before moving the rate upwards in 2017 if it is deemed necessary.
Areas with Natural Constraints
Areas with Natural Constraints will replace Less Favoured Areas (LFAs) from 2018. Under the reforms, 30% of rural development (Pillar 2) funds must go on agri-environment and climate change measures.
There will be support for producer groups, organic farming, forestry and mountain areas and optional start-up grants for young farmers and small farmers.
Young farmers scheme
Young farmers under the age of 40 and setting up as head of the holding will receive a top-up payment. Their payment will be granted annually for a maximum five years after the business was set up, with DEFRA setting the number of entitlements.
The funding for the scheme will be paid from a National Reserve, made up of 2% of the member state's Pillar 1 allowance once the greening payment has been taken out.
Land owners will only be eligible for funding if they can prove that farming contributes a significant share of their income.
No payments will be made to farmers whose land is naturally kept in a state suitable for grazing unless they carry out a minimum level of activity. DEFRA will identify which land this applies to and what the level of activity will be.
Still to be finalised, it is possible that payments more than E150 (£125) will be reduced by 5%, with an option for member states to increase the rate further.
Move to a flat rate
By 2019, payment entitlements must move away from historic-basis payments and be on the flat rate value or closer to it than they are now. No farmer will receive less than 60% of the national or regional average by 2019.
To do this, payments above the average must decrease, but member states have the option to ensure no farmer loses more than 30% of their entitlement.
How could livestock farmers be affected?
The crop diversification rules within the greening measures have been watered down over the negotiation period so that their impact would not be felt as harshly as they might have been by mixed and dairy farming systems.
Under the rules, arable land between 10ha and 30ha must have at least two different crops grown on it, with the main crop covering no more than 75% of the land.
If the land is greater than 30ha, there needs to be three crops, and the main two crops together cannot exceed 95% of the land.
However, these maximum thresholds will not apply to land where more than 75% is used to produce grass or left fallow, provided the arable area not covered by these uses does not exceed 30ha.
Under the Ecological Focus Area rule, arable land of more than 15ha must have at least 5% of that area designated as an EFA.
Member states get to choose what an EFA is, but it could include fallow land, buffer strips or nitrogen-fixing crops.
However an exemption will be granted where more than 75% of the holding is in temporary or permanent grassland, subject to a maximum for the remaining land of 30ha.
Also where more than 74% of the arable land is temporary grassland, fallow, leguminous crops or a combination, an exemption will be granted subject to a maximum of the remainder of the arable land of 30ha.
The permanent grassland rule will require countries to designate environmentally-sensitive grasslands located in some Sites of Special Scientific Interest (SSSIs), Special Areas of Conservation (SACs) and Special Protection Areas (SPAs). Farmers will not be allowed to convert or plough these areas up.
Member states will also have to ensure on a national or regional level that the ratio of land under permanent grassland does not fall by more than 5% - a move NFU Scotland says will avoid a farm-level approach which could have been extremely damaging to productive livestock units.
Flat rate payments
There is some trepidation regarding the move from historic payments to area-based ones, particularly for beef and dairy systems which could face significant changes in payments.
To minimise the impact, member states can pick from different options which include a guarantee that every farmer reaches a minimum payment of 60% of the national average.
Farming organisations in Wales and Scotland have also called for a gradual introduction of payments to help farmers deal with the change more easily.
While England and Wales farming ministers argued against the move, the Commission and Parliament agreed up to 8% of a member state's P1 funding (minus the greening allocation) could be used for coupled payments. The Commission could approve a higher rate where justified.
In addition, there is a possibility of providing a 2% coupled support for protein crops.
According to NFU Scotland, allowing some degree of coupled payments is a vital tool in ensuring P1 payments are used efficiently in the livestock sector.
"The option to couple some of our support payments to livestock, as we currently do via our Scottish Beef Calf Scheme, may be an essential tool in stabilising and rebuilding our declining stock numbers," said NFUS vice president Rob Livesey.
Coupled support will be crucial not only for Scottish agriculture but will be important in maintaining communities, downstream meat processing, the rural economy, local employment and exports, he added.
In addition to using funding to couple support, up to 5% of the UK's direct support budget can be used to provide extra payments for hill farmers.
What happens next?
The Commission and Parliament are still finalising certain areas, with capping and the transfer of payments between pillars 1 and 2 proving two of the main sticking points.
Once finalised and ratified by the European Parliament, it will be up to governments in England, Wales, Scotland and Northern Ireland to interpret the rules and implement them in a way which suits them.
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