British farmers’ single farm payments could be cut by over a third as a direct result of the EU budget deal struck by heads of state in Brussels last weekend.

Under the agreement, spending on direct payments and market supports (Pillar 1) will be frozen at current levels, as agreed by EU leaders in 2002.

But for rural development, funding is being reined in substantially, with just 69bn (47bn) earmarked for the next seven years, compared with the 89bn (61bn) the EU Commission was originally after.

Controversially, the UK also succeeded in its plan to allow member states to apply voluntary modulation of up to 20% as a means of shifting more money from Pillar 1 to Pillar 2.

This will not have to be match-funded by government.

“It seems highly likely this option will be used in the UK, but not in other member states, leading to major competitive distortions,” said NFU chief economist Carmen Suarez.

“The UK is the only country that currently has national modulation.

Germany tried it, but then abandoned it.”

If used to the full, UK farmers could see 20% of their SFPs taken by national modulation, on top of the 5% by compulsory EU modulation.

But it does not end there.

While the new budget fixed Pillar 1 spending at 293bn (199bn) for the next seven years, this will have to be shared out among 27 member states, not 25 as originally intended.

The EU Commission estimates that the accession of Romania and Bulgaria will cost around 8bn (5.4bn).

“That will take about 7% or 8% off EU15 farmers’ payments due to the financial discipline mechanism,” said Ms Suarez.

“Combined with a 3% cut for the national reserve, farmers could be looking at a total cut in their SFPs of 36%.”

Another matter still to be resolved is how the 69bn (47bn) of rural development funds will be distributed among member states.

It has been a long-term complaint that the UK gets too small a share of the cake, owing to its low historic use of these funds.

But with half the cash reserved for new member states, and with a further 3.6bn (2.4bn) guaranteed to Austria, Finland, Ireland, Luxembourg, France and Sweden, the UK is likely to be getting less, not more, from EU coffers.

The NFU puts the drop at around 20m (14m) a year compared with the 80m (54m) the UK currently receives from Brussels.

“That will increase the incentive for government to apply national modulation,” said Ms Suarez. “We are determined that the Treasury should continue to match-fund any contribution farmers make.”

philip.clarke@rbi.co.uk

Have your say on proposed budget cuts at www.fwi.co.uk/talkingpoint