Cap payments to be capped

In early August 2011 the CLA and NFU came into possession of a leaked draft Direct Payments Regulation relating to reform of the SPS that precedes the official publication of the draft text in October. Some comment has already been given but because of its status these have carried health warnings – that applies equally to what follows. It is all subject to debate, amendment and agreement. However what follows is a brief synopsis of what the Commission appears to be wanting.

• The new regulation to come into force 1^st January 2014
• All payments to be based on a “uniform unit value” by 2019 – this meaning that historic payment amounts inputting into aid calculations to be phased out (in England this will have happened by next year (2012) - Wales and Scotland will have to follow suit).
• The SPS to comprise 4 elements:
  • A basic payment
  • A mandatory greening element
  • A top-up for farmers in Less Favoured Areas
  • A (as yet undefined) scheme for “small” farmers.

• It is suggested that the greening element may comprise up to 30% of the total payment. It is unclear what this might mean but the discussions have centred around
•  “ecological focus areas” at 5% (another name for ecological set-aside?)
• Maintaining a minimum area of permanent pasture,
• Observing a minimum level of crop diversification (does this include green cover and crop rotation?)
• All payments (less the greening element) to be subject to capping. In addition there is a new concept in that in determining the amount to be capped a famer can deduct “salaries effectively paid and declared by the farmer the previous year including taxes and social contributions relayed to employment”. The capping is proposed to be progressive and the scale is:
• 20% deducted from payments between €150k and €200k.
• 40% deducted from payments between €200k and €250k
• 70% deducted from payments between €250k and €300k
• All payments above €300k subject to 100% reduction.

• The leaked document suggests that just over 5% of direct payments would be capped.
• There is a lack of clarity as to how the cost of labour and allowable deductions will be approached – for instance will partner’s drawings be deductable and how does one approach to provision of housing.
• The final level of SPS will not only depend on this regulation but will also depend on the result of the debate as to the overall level of the European budget and what proportion the CAP takes of it. 

It must be emphasised that the above proposals have emanated from the Commission. We are aware that the European Parliament does have a different approach and that many stakeholders will lobby vehemently to address some (if not all) of the issues raised. With regard to the capping, it was initially thought that the UK would have a strong ally in Germany because of the scale of its farms. However because of the inclusion of the labour element and because many of the big German farms have high labour costs there is a concern that Germany’s resistance to capping may reduce or disappear.

In some of the initial communications about reform of the CAP there seemed to be a genuine desire to move towards simplification. However the more that is leaked, the more complex things become. For instance in the draft article proposing the capping there is a provision that farmers who artificially split the holding, or the legal person making the claim or who artificially transfers part to a related person, should be excluded from receiving payments. Who is to determine whether a family business restructuring is artificial and determine its motives – the RPA?

There has been a drive to make farming more efficient (and hence more profitable). The proposals above appear to be a disincentive for this.

As stated above this is a commentary on a leaked Commission document that will be subject to change. However as the next few weeks pass various lines in the sand will become clearer.

For more information on any of the points raised, please contact Paul Rice on 01926 880777.

August 2011

First published in UK200 Group Agricultural Legal Update