Is the CAP fitting us? Patrick Playfair looks at subsidy payments

Environmental expert Patrick Playfair, of chartered surveyors Edwin Thompson, looks at subsidy payments in CAP Reform

Cows are overfat approaching calving time
Cows are overfat approaching calving time

As all of you will be aware, the subsidy (and grant) system is changing.

The first year of the new regime is almost certainly going to be 2015 but there will be important dates and information you need to know before then.

You may be thinking of changes to your business and this might alter the way you go about it, or the reform may present otherwise unanticipated opportunities to make changes.

Very little has been finalised or even announced on the detailed rules for implementation in England; indeed, there are still some aspects to be finalised at EU level. However, as things stand:

Automatic qualification: Entitlements held on December 31, 2014, will be converted into new Basic Payment Scheme (BPS) entitlements; as long as you have entitlements and satisfy any additional criteria introduced (eg, there will be a requirement to include at least 5 hectares), you will be eligible for the new payment. Those businesses who do not have entitlements or have insufficient entitlements to cover their whole agricultural area should consider buying entitlements in the next trading season (January-March 2014 inclusive) to cover any shortfall.

It is also the case that spare entitlements – those not activated in 2015 – will be lost to the national reserve.

If you are likely to have ‘spare’ Entitlements (most likely giving up or selling land), you should consider selling them in the next trading season.

Businesses not automatically eligible: There will be a national reserve. The only compulsory element of the reserve is young farmer/new entrants, but there will presumably be a number of other categories for other people who do not have sufficient entitlements after December 31.

Some types of business will not be able to receive subsidy under the new system.

At present, the list is small and includes businesses such as golf courses, railway and airport operators. Defra’s preference is to not enlarge this list. The active farmer test has not been decided at European level yet.

Payment regions: The existing three regions are going to remain the same, but the difference between the payment rates may change. The recent Defra consultation makes it clear their preference is to move some subsidy money uphill, possibly even equalling the non-SDA and SDA payment rates.

If this happens, the projected non-SDA rate will fall slightly, allowing an increase in SDA payment rates and a significant increase in moorland region payment rates. The Defra consultation only gave figures as examples:

Non-SDA decreasing from €242/ha to €236/ha.

SDA increasing from €195 to €236/ha.

Moorland increasing from €34/ha to €62/ha.

Greening: Satisfying the greening rules is crucial to gain the last 30% of the BPS. Greening has three measures – crop diversification, protection of permanent grass and ecological focus areas.

Potentially complicated calculations will be needed on an annual basis to work out whether a business is abiding by the rules.

The biggest implications of greening will be for largely arable/temporary grass farm businesses, with biggest unknowns currently being what will count as an ecological focus area (to be 5% of the qualifying area) and what the relationship will be with pre-existing stewardship agreements on the same land.

Young farmer/new entrant top-up: One compulsory element is for a top-up for young farmer/new entrants for a maximum of five years. It is to be equivalent to 25% of the value of the entitlements and capped to a maximum of 90 entitlements (minimum 25), but it may only apply to sole trader businesses and there may be other eligibility criteria that restrict entry as well.

Capping of payments: There will be an element of capping to BPS receipts with payments over €150,000 receiving a 5% reduction at least. Defra’s position is they wish to leave it at this minimum level (with no salary mitigation), but they have consulted on extending it to a greater percentage or a staggered reduction (e.g. somewhere between 5% and 15% reduction in payment between €150,000 and €200,000, a greater percentage above €200,000).

Modulation: Defra wishes to modulate the new payments by the maximum 15%, but this has been part of the consultation so could change.

Stewardship schemes: In 2014, there will be limited ability to renew schemes that are running out. The few invitations for new HLS Agreements have already gone out.

ELS Agreements coming to an end in 2014 are unlikely to be renewed in 2014, if at all, unless they are supporting an HLS scheme, replacing a classic (eg, Countryside Stewardship Scheme) agreement, or are new OELS and UELS schemes.

While there is no indication how existing stewardship schemes will inter-relate with the new subsidy scheme (and the greening part of it in particular), it is very likely that there will be no new or replacement ELS or ELS equivalent from 2015 onwards.

The new stewardship scheme will be more targeted than the current one, so some areas are unlikely to have any stewardship on offer (except a possible small-scale capital works only scheme).

However, this is another area covered by the Defra consultation so is far from confirmed as yet.

Capital grant schemes: The Defra consultation included replacing the Farm & Forestry Improvement Scheme and REG schemes without suggesting a structure for a new scheme.

They have to include a newLeader scheme and have already requested submissions fromLocal Enterprise Partnerships onthe more general rural community and economic diversificationgrants.

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