7 th May Re The Common Agricultural Policy Reform: Direct payments to farmers - next steps

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1 Dr Nicholas Islwyn D. Fenwick, Director of Agricultural Policy, Farmers Union of Wales, Llys Amaeth, Plas Gogerddan, Aberystwyth, Ceredigion, SY23 3BT Tel: Fax: CAP Reform Team Welsh Government First Floor Crown Buildings Cardiff CF10 3NQ 7 th May 2013 Dear Sir/Madam Re The Common Agricultural Policy Reform: Direct payments to farmers - next steps The above named consultation paper has been circulated amongst the Farmer Union of Wales twelve County Branches, and their views have been taken into full account in drafting the below response. Yours faithfully Nicholas Fenwick Director of Agricultural Policy 1

2 The Common Agricultural Policy Reform: Direct payments to farmers - next steps Farmers Union of Wales response 7 th May 2013 Direct Payments 1. Do you have a view on what sort of combination of rates should be used? Why? The modelling conducted to date suggests that a single uniform flat-rate payment is likely to be the most disruptive to regions, businesses and sectors within Wales. While that modelling is welcome, and provides invaluable insights, it is not yet possible to judge what combination of rates should ultimately be used, as the UK and Wales Pillar 1 budget have yet to be agreed and the Regulations have yet to be finalised. It is therefore important that a full consultation is undertaken by the Welsh Government once the Regulations have been finalised, the Welsh CAP budget is known, and modelling based upon these has been undertaken. Transition Period 2. Do you think that the transition period should be 5 years, 10 years or an alternative? Why? The transition period should be as long as possible in order to minimise disruption for those businesses which stand to lose the greatest amount due to the introduction of flat rate payments. It should also be noted that those countries which have, since 2004, been most reluctant to implement the long term CAP objectives outlined by the European Commission have benefited significantly in terms of winning concessions during the current CAP reform negotiations. Change to 100% area payments 3. Do you think that the change in year 1 should be 40%? Why? No. Payments in year 1 should be a minimum of 10% of the regional flat rate payment, as proposed by the EU Agriculture and Rural Development Committee under Compromise Amendment 9, in order to facilitate a smooth transition throughout the transition period. National Reserve 4. Do you agree that new entrants should be able to access entitlements through the National Reserve? Yes. The FUW has long advocated such a National Reserve for young farmers and new entrants, Moreover, while the introduction of the YESS scheme was an important and welcome move, in no way does the scheme make up for the disadvantages faced by those who have no choice but 2

3 to borrow money in order to buy entitlements which the majority of those who have been farming for many years have been granted free of charge. Entitlements 5. Do you agree that there should be two or three reference years to access entitlements? There should be three years. However, it should be noted that Compromise Amendment 8 agreed by the EU Agriculture and Rural Development Committee, and further discussions during the trilogue negotiations, suggest that Wales may only be able to choose one of the three years 2009, 2010 or It is therefore believed that 2011 should be chosen, and that additional measures should be introduced to ensure that those who are genuine farmers in the year prior to the new CAP being implemented are awarded entitlements. 6. Do you think that farmers who have not exercised entitlements in the reference years should be allowed to apply for entitlements, if they can demonstrate active farming activity? Yes, provided that strict eligibility criteria are in place to ensure that only genuine active farmers are eligible. Active Farmer 7. Do you think that the negative list approach is a good one? What sort of characteristics or business types should be in a negative list? A negative list, to include certain forms of business such as airports and large water companies, would appear to make sense, along with a definition of active farmer as someone whose land is used to produce some form of output, including food, forage, biomass etc. However, we have major concerns regarding any negative list which could impact on those who have been encouraged by Government to diversify into, for example, golf courses, caravan sites etc. Careful consideration should also be given to the merits of implementing a negative list and any income threshold, as proposed by the Commission, given that the numbers of businesses involved may be minimal, and that the annual income turnover for a non-agricultural business with high overheads may significantly exceed profit. Greening 8. Do you agree that a proportion of the direct payment should be dependent on environmental actions? No; Greening measures should remain in Pillar 2, and the controversy over dual payments in relation to Pillar 1 Greening underlines the short-sightedness of the original Commission proposals. 3

4 The FUW also believes that, if Greening measures must be undertaken under Pillar 1, these should take the form of actions which help farmers become more efficient, for example in relation to climate change and other global environmental concerns, rather than by mirroring actions already undertaken by many farmers as part of Pillar 2 Axis 2 schemes. 9. What percentage should be governed this way? 0%. However, if a 30% percentage is applied, this should be as a percentage relative to a farmer s basic payment, as proposed by the EU Agriculture and Rural Development Committee under Compromise Amendment 15, rather than as a separate area based payment as proposed by the Commission. This is because the latter would represent an accelerated transition towards flat-rate payments, thereby undermining the principles of a smooth transition. 10. What do you think of the alternative practices being proposed for greening? The introduction of any flexibility should be welcomed, given Wales long history of implementing agri-environment schemes and the threat that Greening measures represent to elements of these schemes; the limitations that Wales climate and topography represent in terms of crop diversification; the fact that the self-sufficiency of farms is likely to be undermined by a requirement to grow a diverse range of crops on small areas of land; and that the acceptance of nutrient and energy efficiency plans would be of significant benefit to the global environment, and is in accordance with the objectives of the Lyon Report. Small Farmer Scheme 11. Do you think the Welsh Government should run a Small Farmer Scheme? Why? No, because the administrative costs of such a scheme would far outweigh any benefits, and it would be unacceptable to allow such small holdings to be exempt from Cross Compliance and related requirements. The significant administrative problems caused in England in 2005 due to tens of thousands of additional applications for entitlements by the owners of small areas of land also demonstrates the type of problems associated with allowing what are, to all intents and purposes, nonfarmers to apply for Pillar 1 funding. It should also be noted that a large number of those with small areas of land who applied for Pillar 1 funding in England in 2004/5 no longer bother to claim Single Payments. 12. What do you think should be the minimum farm size to be eligible to claim direct payment? Why? 5 hectares, as this represents a threshold which is high enough to ensure that genuine new and young entrants would be able to claim, while excluding large numbers of smaller holdings which are not agriculturally significant and are run by those who neither rely nor aspire to rely on agriculture for their incomes. 4

5 However, if the final Regulations allow flexibility in relation to the area threshold, the Welsh Government should consider allowing a lower area threshold for young farmers and new entrants who are at an early stage in terms of developing their businesses. Capping 13. Do you think the Welsh Government should make payments of over 300,000 to individual businesses? Is 300,000 the right level for capping? The FUW believes that the proposed capping levels, which take into account wages, PAYE etc. paid by farm businesses, are acceptable. Young Farmers 14. Do you think that enhanced compulsory income support is a good way to support young farmers? Young farmers should be granted entitlements with values equal to the regional average under a national reserve, and any additional benefits afforded young farmers should be granted under the YESS scheme or its successor. 15. Would it be better to support them through other measures, such as skills improvements, mentoring or capital grants? Why? Measures such as skills improvement, mentoring or capital grants have an important role to play for young farmers. However, the fact that income from Pillar 1 payments continues to play an essential role in terms of farm turnover must be taken into account when considering that no amount of mentoring etc. can make up for annual Pillar 1 payments, and failure to ensure that genuine new entrants/young farmers are granted Pillar 1 entitlements would result in unfair competition between them and established farmers. Coupled Payments 16. What coupled support schemes would be good for agriculture in Wales? Why? While the FUW supports Wales having the option to introduce coupled support at any time under the new CAP, in the absence of further modelling work and an analysis of those sectors which may be under threat or need support, it is not currently possible to identify any particular coupled schemes. If coupled support is to be allowed under the new CAP, it is essential that every region of the EU be entitled to use the same proportion of its Pillar 1 budget to do this. The current proposal to allow those already paying coupled support to use up to 12 per cent of their budget to continue doing this under the new CAP, while limiting to 7 per cent the proportion which could be used to do the same in regions not currently paying coupled support, represents a significant departure from a common policy and should be objected to by the Welsh Government. 5

6 Moreover, the UK s support for such a proposal represents an extremely short-sighted move which could undermine the viability of farms in Wales and the UK, and should be objected to by the Welsh Government in the strongest terms. Area of Natural Constraint Scheme 17. Is there a case for an Area of Natural Constraint scheme in Wales? Yes, but only under Pillar 2, since the draft Pillar 1 Regulations already allow different payment rates in different areas to be calculated based upon objective criteria. Any ANC scheme implemented under Pillar 1 would simply represent a redistribution of monies between Welsh businesses, rather than an additional payment to the industry as a whole in recognition of the adversities faced by farmers in many parts of Wales. 18. What would be the economic arguments for such a scheme? Such a Pillar 2 scheme can be justified on the same grounds as they are justified in every other area of the EU, except England, and on the same grounds that have been used to justify them for more than 60 years. The Minister has publicly agreed to consider the recommendation of the Upland Forum that Government develops a targeted package of support through the next RDP, and a tiered ANC scheme operating under Pillar 2 and the evidence which supports doing this. The Welsh Government should therefore consider that evidence, based upon farm income data collected by the Farm Business Survey, and implement an ANC scheme under Pillar 2 of the new CAP. Transfer of funds to RDP 19. Do you think that transferring funds to the RDP is a good use of the funds? Only where co- or match-funding is provided by the administration at a significant level, and such funds are used in a way which increases returns to the agricultural industry by at least as much as the value of the modulated funds. Failure to ensure that this happens merely means a loss of income to Welsh farmers who have been assigned monies by the EU, and a departure from the principles upon which the Common Agricultural Policy is based, since modulation in other countries is likely to be applied at a lower rate. 6