Revealed: Cost of ‘three-crop rule’

A typical arable farmer stands to lose almost £9,000 a year under EU rules requiring producers to grow at least three crops.

A 300ha arable unit currently growing winter wheat and oilseed rape will lose £8,975 in annual profit due to the so-called three-crop rule.

But a similar farm specialising in high-value root crops will lose almost £34,000 a year.

Calculations by consultant Strutt & Parker were presented to farmers attending a briefing on Monday (24 March).

“This rule will affect farming costs, contract farming agreements and ultimately the bottom line,” said Strutt & Parker farm business consultant Charles Ireland.

In simple terms, CAP reform crop diversification or “greening” rules mean farms with more than 30ha of arable land must grow at least three crops from 1 January 2015.

Subject to some exemptions, the main crop can cover up to 75% of the arable area, but the two main crops together must not cover more than 95%.

Fallow land is classed as an arable crop for the purposes of the rule.

Farmers who fail to comply will lose 30% of their direct payment for the first two years of the rule, with the penalty increasing in subsequent years.

Strutt & Parker based its calculations on an arable unit farmed in hand. The loss of £8,975 a year would be suffered by a 300ha farm switching from a rotation of first wheat, second wheat and oilseed rape to a rotation that includes 5% fallow land (see Table 1).

Table 1: 300ha combinable crops farmed in hand   
  Pre CAP reform With greening Opt out of greening (30% reduction in direct payment)
Arable output  £378,000  £359,000  £378,000 
Gross margin  £209,500  £199,025  £209,500 
Single payment (£200/ha)  £60,000  £60,000  £42,000 
Profit (before rent)  £134,500  £125,525  £116,500
Source: Strutt & Parker, March 2014. (Pre-reform rotation: One-third first wheat, one-third second wheat, one-third OSR; greening rotation: 95ha first wheat, 95ha second wheat, 95ha OSR, 15ha fallow)    

The effect of the three-crop rule would differ depending on the size of business and how it was farmed, Mr Ireland told farmers at the Colne Valley Golf Club, near Colchester.

Opting out of the rule may be sensible for an 80ha parcel of land block-cropped under a contract farming agreement, suggested Mr Ireland (see Table 2).

 Table 2: 80ha block cropped under contract farming agreement   
  Pre-CAP reform   With greening (10% additional contracting charge)  Opt out of greening (30% reduction in direct payment) 
Arable output  £100,801  £93,960  £100,801 
Gross margin  £55,867  £51,440  £55,867 
Single payment (£200/ha)  £16,000  £16,000  £11,200 
Net margin  £38,067 £33,240 £33,267
Divisible surplus £18,067 £13,240 £13,267
Farmer return £29,034 £26,620 £26,634
Contractor return  £29,034 £27,520 £26,634
Source: Strutt & Parker, March 2014. (Pre-reform rotation: year one – first wheat, year two – second wheat, year three – OSR, basic contractor charge: £250/ha, farmer’s first charge £250/ha, 50% divisible surplus, greening rotation: 50% first wheat, 45% OSR, 5% fallow and increased contractor charge £275/ha)    

But it would not be sensible for larger holdings, he added. Implementing the rule would cost £33,568 a year in lost profits for a 300ha holding farmed in hand and growing high-value root crops such as sugar beet, onions and potatoes (see Table 3).

Table 3: 300ha high-value crops farmed in hand     
   Pre-CAP reform  With greening  Opt out of greening (30% reduction in direct payment)  Renting 15ha fallow from third party 
Arable output  £886,500   £838,426  £886,500  £886,500 
Gross margin  £614,200  £580,632  £614,200  £614,200 
Single payment (£200/ha)  £60,000  £60,000  £42,000  £63,000 
Profit (before rent)  £404,200  £370,632  £386,200  £399,775 
Source: Strutt & Parker, March 2014. (Pre-reform rotation: 50% first wheat, one-sixth sugar beet, one-sixth onions, one-sixth potatoes, greening rotation: 143ha wheat, 47ha sugar beet, 47ha onions, 48ha potatoes, 15ha fallow, rent paid for fallow land = £7,425 (£475/ha)     

Opting out of the rule and sacrificing 30% of the farm’s direct payment in the process would reduce annual lost profits to £18,000 – but this would increase after year two.

Instead, the best bet might be to rent in 15ha of fallow land from a third party to ensure the farm met rule requirements, suggested Mr Ireland.

This would reduce annual lost profits to £4,425 – although farmers renting in fallow land must ensure doing so was a proper business decision and did not fall foul of EU “artificiality” rules.

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