€500m shift in CAP direct payments

A triple whammy of eco schemes, convergence and front-loading could move over half a billion euros of direct payments between farmers.

The Department’s own CAP modelling has confirmed that almost half of the €1.2bn Pillar I annual fund will be on the move.

The cumulative effect of these three measures will see the gap between payment levels cut drastically.

Eco schemes will redistribute €300m, one-quarter of the Pillar I fund. CRISS (front-loading) will move at least €59m between farms.

Convergence will move at least another €12.9m in 2023

If introduced at the maximum 10%, that would double to €119m, directed to smaller farms. All that movement will happen in 2023, the first year of the new scheme, in one fell swoop.

Convergence will move at least another €12.9m in 2023, in the first of four equal steps.

The highest entitlement value will fall from the current €600/ha to €325/ha, a drop of almost 45%

Even if the minimum 85% is opted for, in 2026 convergence will move €51.6m. It could be as high as €94.4m if the Government opts for fully converged entitlement values.

With all the changes, the average entitlement value will fall by as much as €100/ha. The highest entitlement value will fall from the current €600/ha to €325/ha, a drop of almost 45%.

The changes have been well flagged, but the Department of Agriculture’s modelling of the new schemes, released last Friday, lays it all out in the starkest of terms.

The complexity of the proposals can be seen in the two-page glossary of terms relating to CAP payments. Many of these, such as BISS and CRISS, are new. Here are the most important terms and their meaning:

BISS: Basic Income Support for Sustainability

This is the successor to the Basic Payment Scheme (BPS).

The bottom line: all farmers are losing 25% of their old BPS value (including the Greening payment) to eco schemes. The minimum entitlement value, currently €160/ha, will be reduced to €120/ha. That is before the other changes affect entitlement values.

CRISS: Complementary Redistributive Income Support for Sustainability

This is the formal name for the concept of front-loading, where a proportion of direct payment funds is taken and paid out as a top-up on a set number of hectares. As the Department puts it, CRISS “aims to ensure a redistribution of support from larger to smaller or medium-sized farmers by providing a redistributive payment per eligible hectare”.

All CRISS changes will happen in 2023, the first year of the new system.

The bottom line: CRISS payments are being modelled at 5% (the minimum) of the overall direct payment fund (€59m) and at 10% (the maximum – €119m).

The modelling looks at paying this out in three different ways – on the first 10ha at €52/ha, on the first 20ha at €29/ha and on the first 30ha at €22/ha if the 5% CRISS option is chosen. If 10% of funds are used for CRISS, those figures will be 10ha at €103/ha, 20ha at €58/ha or 30ha at €44/ha.

Convergence

Already a feature of the Ciolos reforms introduced in 2016, this mechanism “aims to bring payment values towards a national average value”.

The bottom line: convergence will take place between a minimum of 85% and a maximum of 100%. Convergence will take place in stages over the first four years of the next CAP 2023-2026.

Degressivity

This is the EU’s term for capping of payments, where the total payments cannot exceed a set level.

The bottom line: payments will be capped at somewhere between €60,000 and €100,000. There may be an allowance for wages paid to family or outside labour on larger farms.

Eco schemes

Described as a “voluntary annual scheme or schemes for the climate, environment, animal welfare and microbial resistance”.

The bottom line: one-quarter (25%) of the direct payment fund is being transferred into the eco-schemes fund. This amounts to €300m every year, making eco schemes the most significant change to the new CAP. In this document, the Department is making an assumption that this money will be paid out on all eligible land on a flat rate, with all farmers applying for and qualifying for payment. This equates to a payment of €64/ha. That is unlikely to happen, but it is increasingly obvious that the Department want an area-based, widely received payment at the heart of eco schemes. It will more closely resemble Greening than might have appeared some months ago.

With scrubland now eligible for payment, provided it accounts for no more than 30% of a parcel, will farmers automatically be paid on it? Probably not, unless they own entitlements they could apply for it on.

Perhaps young farmers who qualify as new entrants could gain entitlements from the National Reserve. Failing that, farmers would need to rent in or buy entitlements for the newly eligible scrubland.

Unless there is something called full flattening.

The Department speaks of convergence of entitlement values, and that will not see new entitlements for newly eligible land. Even if convergence of entitlement values reaches 100%, it would just mean that every entitlement currently in circulation would have the same value by 2026. That value would be €178 if CRISS takes 5% of funds, and €165 if it takes 10%.

However, if there were fully flat payments, entitlements would effectively be abolished. Instead, every hectare applied on that is deemed eligible would receive the same payment in a given year.

The number of eligible hectares would be divided into the BISS fund (the new name for the Basic Payment Scheme). The payment would thus change a little every year. This would have the benefit of paying out on all newly eligible scrubland, but would increase the land base and further dilute average payments. The Irish Farmers Journal understands that the Department of Agriculture considers this option unwieldy and hard to administrate, and is unlikely to choose it.

One effect of the intense convergence of payments will be to reduce the amount of farmers affected by the maximum payment ceiling that will be imposed, which is likely to be somewhere between €60,000 and €100,000.

Let’s assume minimum convergence of 85% and the lower rate of CRISS of 5%, which is now effectively being presented as the minimum model. That leaves a maximum entitlement value of €325/ha.

Only farmers with more than 185ha will be affected by the €60,000 payment ceiling at that payment rate.

If the ceiling is set at €100,000, only farmers with more than 300ha (750 acres) will be affected.

Those areas will be somewhat lower when CRISS is added back in and if eco schemes are accessed, but not that much lower.

And that’s before any adjustment to allow for farm staff salaries will be taken into account.

It’s fair to say that the ceiling payment is an issue that won’t affect many.

Looking at three farmers with different farm sizes and entitlement values, the combined effect of CRISS, convergence and eco schemes becomes apparent.

The scenarios make the assumption that CRISS will be paid out on the first 30ha. There are two options presented, what the Department call the “minimum model”, where convergence is at 85% and CRISS is at 5%, and the “maximum model”, where convergence is at 100% (fully flat entitlement values) and CRISS is at 10%.

The small (5ha) farmer currently with the lowest possible entitlement value of €160/ha stands to gain in either scenario. The maximum model works better for them, delivering an extra €135 by 2026.

The farmer with 20ha is still below average in size, as the average Irish holding is almost 35ha, and has average entitlements. Despite all the changes, this farmer gains little even in the most extreme scenario, gaining only €220 a year from 2026. They actually lose €240 a year under the lower flattening.

The farmer most affected is the third example. Only slightly bigger than the average farm, but with good entitlements currently, they will lose €6,580 by 2026 under the 85% convergence 5% CRISS scenario. In 2023 alone they lose €3,500. And if we opt for full flattening of entitlement values and 10% CRISS, their payment shrinks to €10,480, a 44% drop.