Subsidy cuts will hit hill farmers hard

Funding for the Common Agricultural Policy is likely to be slashed from 2012 onwards, with support shifting even further towards environmental measures.




While complete decoupling of the single payment may create a more level playing field within the EU, experts warn these changes could have a devastating impact on Britain’s upland livestock producers.


“Many livestock producers are completely reliant on the single payment for any margin, and that will probably remain the same for some time,” says Andersons consultant, Mike Houghton.


He expects the single payment in England to be cut from about £225/ha in 2009 (in lowland areas) to £200/ha in 2013. Further reductions would then be phased in until 2020, when payments could fall to £110/ha, depending on the value of the euro. However, other commentators reckon payments could fall to £90/ha as early as 2013.


The implications for British farmers are significant. 2007/08 was the first year that British agriculture had made a profit in its own right in almost a decade, and incomes have fallen back again since then, says Mr Houghton. In 2008/09 lowland livestock farmers saw heavy losses, even after the single payment and Entry Level Stewardship scheme income is taken into account. “There is no doubt that it is the single payment that allows businesses to turn a surplus.”


Upland struggle


The CAP budget is almost certainly going to drop from €53bn to €35bn from 2013 and more funds likely to be diverted through environmental, upland and rural development schemes, Mr Houghton says. Farmers will face even more red tape to access their payments, and will have to budget carefully to ensure investments are financially viable, and take steps to mitigate volatile commodity markets and rising energy costs.


Upland livestock producers face an even greater challenge, with the average Less Favoured Area suckler producer losing £378 a head in 2008/09, according to EBLEX. Sheep producers in LFAs lost £34 a ewe, after accounting for non-cash costs, including unpaid family labour, and before inclusion of the single farm payment.


“In effect most upland businesses are reliant on single payments for profit,” says Ian Bailey, head of rural research at Savills. “This gives cause for concern, given a likely reduction in CAP support payments from 2013 onwards.”


From 1 July, 2010 upland support, currently in the form of the Hill Farming Allowance, is to be integrated into environmental stewardship to create the Uplands ELS. Under this scheme, payments are likely to increase to £62/ha in Severely Disadvantaged Areas, while moorland rates will rise to £62/ha for areas of less than 15ha, and £23/ha for areas above 15ha.


“At first glance payment rates under the new scheme would seem to be higher and this is supported by DEFRA’s pledge that up to £31m a year will be made available if demand exists,” says Mr Bailey. “This compares with current funding of £23.7m under the HFA scheme. However, payments will be conditional on achieving certain environmental standards along similar lines to the existing ELS.”


Of particular concern is the impact that decoupling, environmental stewardship, and low profitability of livestock farming is having on stock numbers. Between 2004 and 2008 the UK beef breeding herd declined by 5.1%, with breeding sheep numbers falling by 13.2% over the same period.


This drop has been felt even more acutely in the uplands, where stocking rates have reached a critical point, he adds. Scotland and Wales have suffered even greater declines. “This potentially poses greater challenges for their devolved governments at a time when they are having to consider the implications of moving away from historic-based single payments post 2012.”


Wales


With 80% of Wales defined as Less Favoured Area, the ability of upland farmers to compete in commodity markets is limited, says Mr Bailey. “Despite consensus on the need for a viable and profitable uplands farming sector in Wales, the move away from historic-based entitlements to area-based payments will not be an easy one.”


Some protection for upland beef and sheep producers could be achieved via the national envelope, which allows the redirection of up to 10% of the single payment to support specific types of farming. However, so far Wales has not taken that option.


Replacement of the existing agri-environment schemes, including Tir Mynydd, by a single scheme, Glastir, in 2012 could cause further problems for upland producers. “Over the past decade net farm incomes on LFA farms have varied between just £1600 and £15,900,” says John Owen from NFU Cymru. “The support delivered via Tir Mynydd has been the difference between people staying in the uplands of Wales, versus depopulation and land abandonment.”


He says that basing agri-environment payments on an income forgone basis is flawed, and farmers should instead be rewarded for the public and environmental good they provide through climate change mitigation, improving water quality and maintaining a biodiverse landscape. It is possible that some of that support could come through the proposed new Pillar III of the CAP, which could provide payments for combating climate change.


“Upland farmers can deliver on the significant challenges ahead – but this cannot be achieved without the recognition by the Welsh Assembly government that there are additional costs associated with achieving what society expects and needs from the uplands of Wales.”


Scotland


In Scotland, as in Wales, the single payment is still linked to farmers’ historic production during the reference years 2000 to 2002. But the pressure is on for this to be replaced by an area-based payment to fall in line with EU objectives, says Douglas Bell, senior agricultural policy consultant at the Scottish Agricultural College.


“Most people recognise that the historic basis isn’t really sustainable in the long term. It has served its purpose, but faming systems have changed since the reference period and you can’t keep on paying farmers based on how they farmed in 2000-2002.”


However, it is still too early to tell which option the Scottish government will choose, with opinion split between a headage-based system or a flat-rate payment. At present Scotland’s 21,000 farmers and crofters receive £450m through the single payment scheme, a level of support which is unlikely to continue beyond 2012. And with 83% of Scotland designated as Less Favoured Area, Scottish upland farmers face a similar challenge to their contemporaries in Wales, with beef numbers falling by 4.9% between 2004 and 2008, and the sheep flock declining by 12.6%.


“The incentive to actively farm is not there,” says Mr Bell. “It will be difficult to get a headage-type payment past Brussels, but livestock farming plays a critical role in the Scottish economy.”


A specialist group set up by the Scottish government, chaired by Brian Pack, is currently reviewing the single payment system and will publish its final report next spring. In its submission to the inquiry, NFU Scotland insisted that future single payment entitlements must recognise the productive potential of the land to which they accrue, and reflect the public goods being delivered as a result of agricultural activity.


In the absence of a profitable, subsidy-free environment, some form of direct support is vital to keep farming businesses operating, it says. This could be justified on the basis of paying for the range of environmental, social and food security benefits that flow from agricultural activity.


“A new set of SFP rules will be put in place in Europe by 2013, for implementation in 2014,” says Jim McLaren, president of NFU Scotland. “NFUS has considered a number of models for the future SFP and believes that work must be done to evaluate these models and the impact that each one would have on individual farm businesses and Scotland’s ability to maintain agricultural capacity.


“Scotland should then use the time available to influence the UK authorities and the EU so that the rules that come out of the negotiations in 2013 permit us to operate a scheme that will maintain capacity for quality agricultural production.”



























Cattle and sheep LFA farm business income 2007/08

 

With support payments


Without support


England


£10,386


-£15,493


Scotland


£26,243


-£29,263


Wales (uplands)


£21,184


-£9419


Northern Ireland


£13,371


-£10,763