CAP cuts: direct payment fund hit

The legislative proposals presented by European Commissioner for Agriculture Phil Hogan in Brussels last Friday presented few surprises. We had already known the overall pot of money to fund the CAP would be reduced, reflecting the gap in the EU budget caused by the UK’s departure. Add the ambition by the EU to enhance spending in other areas, particularly defence and migrants, and pressure on CAP increases further. Prioritising young farmers and small- and medium-sized farmers had been flagged in his communication published last November and the legislative proposals provide more detail.

The biggest change is the level of freedom being returned to member states to shape the delivery of the CAP in their country. Critics see this as a renationalisation of the CAP but the Commission is adamant that safeguards should be built in to prevent this.

Each member state will be invited to submit a strategic plan for delivery of the CAP support measures to farmers in their territory.

This will be approved by the Commission and assessed annually against nine core objectives set out by the legislative proposals covering economic performance, the environment and social policy.

Where member states meet their targets on climate, the environment and biodiversity, a 5% bonus of the rural development budget will be given at the end of the period. Where targets aren’t being met, the Commission can intervene and ultimately penalties can be imposed if corrective action isn’t taken to get the plan back on track.

A total budget of €365bn between 2021 and 2027 breaks down into €265.2bn for direct payments (Pillar I), €78.8bn for rural support (Pillar II) and €20bn for market support measures. Another €10bn will come from the Horizon Europe research programme to support research and innovation.

This is a 5% cut in overall money and reduces the CAP share of the overall EU budget to 28.5% compared with 38% in the 2014-2020 CAP. When inflation is factored in, the cut is projected to be effectively 12%.

Payments will be limited to €100,000 annually, though salaries, wages and unpaid labour will be excluded from this calculation. Payments over €60,000 will be reduced on a sliding scale – 25% between €60,000 and €75,000, 50% on payments between €75,000 and €90,000, and a 75% cut on payments between €90,000 and €100,000.

Member states will keep these deductions for redistribution to small and medium farmers.

There are five elements to Pillar I support proposed:

1 A Basic Income Support for Sustainability (BISS) will replace the current Basic Payment Scheme (BPS). However, while the current BPS is boosted by a Greening payment which is a bolt-on that is captured by virtually all grassland farmers, that will not be included in BISS. Payments will only be made to “genuine farmers”, which will be defined by member states and approved by Brussels.

2 A portion of the Pillar I budget will be ring-fenced for an eco scheme where farmers would have the option to apply for an environmental payment in return for delivering enhanced environmental performance. This is compulsory at a national level but optional for individual farmers to apply.

3 A further 2% slice form the direct payments fund will be taken to create a reserve to assist young farmers going into farming.

4 Complementary redistributive income support – this means that small- and medium-sized farmers will get a higher level of support per hectare, funded from Pillar I in addition to any savings made from cutting payments in excess of €60,000. A lump sum payment will also be an option available to member states.

5 Coupled support – member states will have an option to allocate up to 10% (plus 2% for protein crops) of their payments by way of coupled support, with the main sectors of Irish farming eligible if the Government chooses. This is reduced from 13% in the current CAP.

In a CAP proposal where there is a 5% cut in the budget equating to 12% in real money over the 2021-2027 period, there are no real winners. Against this, Minister for Agriculture Michael Creed and an alliance of five other agriculture ministers from France, Spain, Portugal, Finland and Greece are campaigning for maintenance of the CAP budget. This would involve an increase in overall member state contribution to the EU budget but, while many countries would accept an increase, there is a strong minority opposition led by the Netherlands, Denmark and Sweden.

The creation of a young farmers fund which would provide for a top-up payment in Pillar I and up to €100,000 installation grants under Pillar II, alongside land mobility and partnership schemes to facilitate succession planning is positive, but will it be enough? Developed for someone keen to get into farming but finding it hard to access land, in theory it should also help many older farmers who are having difficulty persuading family members to take over operation of the farm.

More money for small- and medium-sized farmers sounds good, but in reality it is a case of taking from one and giving to the other. The Government will have to decide the definition of a small- and medium-sized farmer, just as they will with what is a “genuine” farmer which will generate plenty of controversy. Front-loading or increased payments for the first number of hectares is fine if you only have a small area of land. However, there are many farmers in what might be described as the squeezed middle where there is a substantial land block but in livestock or tillage in recent years, actual profit has been small. These farmers will experience the effect of Pillar I direct payments being sliced to create a fund for young farmers, an optional eco scheme, possibly to fund a coupled payment scheme and to facilitate front-loading. This would have the effect of shrinking the basic payment.

During the period of the proposed CAP, EU agriculture will be able to draw up to €10bn from another budget – the Horizon Europe research programme. This is targeted at innovation, knowledge exchange and digital technology.

As with the current CAP, a portion of Pillar I funding will be taken to create an “agricultural reserve”, which can be used as market support in exceptional circumstances. The milk and pigmeat price collapse were two such examples in the current CAP and support was delivered through intervention purchases for dairy and private storage aid for pigmeat.

The reserve will be a minimum of €400m annually with one difference from the present policy – from 2021, funds unused will be rolled over to the following year rather than returned to member states with a new fund created. This is administrative efficiency.