CAP reform: Analysis of key areas affecting farmers

The first claim under the new CAP regime will be in 2015, when a Basic Payments Scheme (BPS) will be introduced. Environmental measures known as greening must be undertaken to qualify for 30% of the new direct payment.

National governments must decide on how they will implement many aspects of the reform, with separate consultations in autumn for England, Wales, Scotland and Northern Ireland.

Many of the financial aspects of the reforms are still to be decided in EU budget talks.

These include the level of capping and whether money taken from direct support to fund rural development must be matched by funds from member states. The way in which member states implement the optional aspects of the reforms will determine how competitive their farmers are.

One of these options is to couple part of direct support to production. “England will almost certainly not want to go back to having coupled payments,” said Richard King of consultant Andersons.

“The Scottish government is likely to be very keen to use the maximum flexibility to retain and expand its production-linked support such as the current Scottish Beef Calf Scheme. The position of the Welsh government is less clear.

“This will create distortions across the United Kingdom where, for example, some beef producers will be getting headage payments, while others won’t.”

The reforms also aim to close the gap between a member state’s average per-hectare payment rate and the EU average by 2020. The UK as a whole is close to the EU payment average, points out Andersons, but how the total UK fund is divided between devolved regions will be a bigger argument.

An agreement late last week means that it is prudent for farmers to budget for a further 5% cut in direct support for the 2014 claim year, on top of the 5% cut expected for 2013 payments, advises Andersons.

A new Basic Payment Scheme (BPS) replaces the Single Payment Scheme, running on similar lines, matching against eligible land with cross-compliance.

England is likely to roll over existing entitlements with those held at the end of 2014 converted into BPS for 2015. In Wales and Scotland, where the historic system operates, new BPS entitlements will be allocated using 2014 as the reference year, but with 2015 as the first claim year.

Only those making a 2013 SPS claim will be granted the new entitlements, but there will be a national reserve to deal with hardship claims.

Member states can limit the number of BPS entitlements granted to either 135% or 145% of the area declared under the SPS in 2009. This may have implications for allocations in Scotland, which has a large area of “naked acres”.

Changes to payment rates in member states should ensure all claimants get at least 60% of the average regional payment by 2019 – this will mean some losing payments, but losses can be limited to 30% of a claimant’s current payment. This is likely to affect Welsh and Scottish farmers.

Several top-up schemes (see the “What is compulsory?” and “What is optional?” tabs) will boost direct support payments, also known as Pillar 1 payments.

Greening

Three greening measures are compulsory in order for claimants to qualify for 30% of their annual direct payment. There will be some choice as to how member states run this aspect of the reform and certified organic farms will automatically meet the greening requirements.

• Crop rotation – those with arable areas of 10-30ha must grow two crops. Above 30ha, three crops must be grown, with no crop covering more than 75% of the whole farm and the two main crops accounting for a maximum of 95%.
  
• Permanent pasture – at least 95% of the permanent pasture area must be retained at farm or national level. It is still to be decided whether five or seven years in grass qualifies as permanent pasture. Andersons expects a national approach to this, similar to the current one.
  
• Ecological focus areas (EFAs) – initially set at 5% of a farm’s eligible arable area, this may rise to 7% after 2017. A list of possible qualifying features includes landscape features (hedges and trees), buffer strips, fallow land, protein-fixing crops, agro-forestry and short-rotation coppice.

No EFA is required on farms with more than 75% grassland (subject to a 30ha maximum). National measures could provide up to 50% of the country’s EFA requirementbut this is to be confirmed.

Practices and schemes that are judged may count towards the greening requirement but will not be double-funded, so ELS and HLS payments could be reduced if aspects of these schemes are offered as part of basic greening.

To give farmers time to adjust to the new system, penalties for not greening will only take effect from 2017, but after that penalties rise so that 125% of the greening payment would be lost in 2019.

Capping

Member states will have to introduce a gradual cap where a proportion of payments above €150,000 would be cut – 5% is the likely starting point. The cap originally proposed (no further payments after a €300,000 limit) has gone.

Active farmer

A list of activities not qualifying for direct support includes airports, water companies, railways, sports grounds – but if there is genuine farming activity they may still qualify for BPS. Member states will have some discretion on how claimants qualify.

Young farmers

Farmers younger than 40 must be paid a 25% top-up in entitlement values for five years. Qualifying areas will be limited to the average regional farm size (minimum 25ha, maximum 90ha). Andersons calculates that, at the upper limit of 90ha, the extra payment would be worth a maximum of about £3,500 a year.

Modulation

Up to 15% of the direct support budget can be shifted or modulated in either direction by each member state between direct support and environment and rural development spending. Andersons expects all UK administrations to do this to some extent, with England to switching to the full 15%.

Money switched in this way had to be match-funded in the past, with each £1 from the EU budget being matched by £1 from member state governments. There is no requirement for this in future.

Distribution of support

The first 30ha (or the average national farm size if larger) can receive a top-up capped at 65% of the regional average payment rate, and total funding limited to 30% of the BPS fund. Member states spending more than a certain proportion of their budget on this may not need to implement capping.

Small farmers

Member states can choose to run a small farmers’ scheme – those qualifying would receive a fixed annual payment, have less stringent cross-compliance and no greening requirement. Andersons thinks it is unlikely any UK administration will opt to do this.

Hill farmers

Up to 5% of the UK’s direct support budget can be used to provide extra payments for hill farmers.

Coupled support

Countries will be able to pay 8% of total BPS funds as coupled payments, plus another 2% for protein crop support. Those with a history of high levels of coupled support will be able to use 13%, plus the 2% for proteins for this purpose, and in some cases a higher rate than 13% may be possible.

• Rural development – Areas with Natural Constraints (ANC) will replace LFAs from 2018. Under the reforms, 30% of rural development 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.
  
• Sugar quotas – to end on 30 September 2017
  
• Milk quotas – to end in March 2015 – no new provision for market management
  
• Payment rates – average exchange rate for September will be used to convert value of BPS payments for countries outside euro. This will reduce the impact of currency fluctuations under current regime where the rate on 30 September each year is used
  
• A crisis reserve will be established to fund market disruption – funded from the direct payments budget
  
• CAP payment recipients – member states will have to publish details of CAP payment recipients.