Written Statement - CAP. Reform Post - 2013

Introduction

In November 2010, the European Commission published high-level policy proposals for the shape of the CAP 2014-2020. The Commission has initiated also a consultative process. The purpose of this paper is to set out the Welsh Assembly Government’s initial views on the proposals from the Commission.

The Commission’s proposals, and associated consultation paper, lack any form of meaningful detail from which it is possible to reach an informed view at this stage on a range of issues where final decisions will have far reaching consequences for Wales and Welsh farming through to at least 2020.

On the CAP itself, I have been consistent in making clear that the funding available makes a vital contribution in sustaining farming and food production in Wales as well as enabling the farming community to deliver a range of environmental outcomes that are valued by society. Interaction within food supply chain mechanisms, and the inability of farmers to make profitable returns from the market, results in the CAP Single Payment Scheme (SPS) typically contributing between 80 per cent and 90 per cent of Farm Business Income.

On the latest income figures for 2010, it is evident that all farming sectors in Wales would be non-viable without CAP payments, despite a 16 per cent increase in income compared to 2009 building on an increasing income trend in recent years. The SPS support plays a significant role in solidifying Welsh Assembly Government strategic aims for sustainable agriculture in Wales and actions to improve the efficiency and profitability for primary food producers.

Maintaining the CAP and the 2 Pillar structure

Against that background, I am firm in the view that there must not be any fundamental change in the underpinning purpose of the CAP to provide income support for farmers, to sustain food production and to continue to support sustainable land management action.

As the responsible Minister within the Welsh Assembly Government, I can welcome the Commission’s view that a strong CAP is essential towards ensuring food production within EU 27, providing a stable income base for the farming industry and ensuring environmental outcomes. Furthermore, I believe it is important to retain the 2 Pillar structure for the CAP as this offers the basis for maintaining the competitive edge of Welsh farming more widely as well as making a key contribution to the socio-economic and environmental cohesion of rural Wales.

Viable farming and food production also require effective management of our natural resources and responding to the challenges of climate change. Again, I have little difficulty with the Commission’s overall position on linking these complex agenda items. The Glastir scheme is a dedicated response from Wales to recognise the key role that farming can undertake in shaping primary food production activities in a way that also delivers on broader societal outcomes associated with carbon, water, soil, habitat and biodiversity management.

The Commission’s proposals: The issue

My starting position is that the Pillar 1 arrangements under which direct payments are provided should guarantee an effective and transparent level of income support to farmers across EU 27. I am not altogether persuaded that the Commission’s preferred option for providing a basic payment, a mandatory “greening” payment and a discretionary payment for farming in a marginal area is a logical way in which to proceed. It lacks transparency and falls short in providing certainty and stability on the value of the pillar 1 income that will not aid future planning business decisions at individual farm level.

Furthermore, the Commission suggests that there should be a progressive move towards delivering a more equitable distribution in direct payments compared to the current position, in particular to tackle the marked differences in average receipts between the former EU 15 and the newer Member States (EU12).

Whereas I can support this as a long term aspiration, it will be critical for the Commission to spell out in detail how this might work in practice. Agriculture and farming systems across EU 27 are very diverse as are costs of production at farm level and, within very different national economies, there are substantial variations in relative costs of day-to-day living. Capping of payments to larger farms is not a major issue for Wales but I support the general principle. A labour adjustment to capping could be unworkable in Wales where contract and self-employed labour is a regular feature of the farming sector.

We need also to consider this move for a more equitable distribution on Pillar 1 receipts between EU27 in the context of the significant re-distribution of the SPS within Wales consequent to moving from the current historic SPS model in Wales to a flatter or area based payment from 2014. I am clear that it is not justifiable to maintain a direct payment regime based on production levels achieved some 10 years ago. The Welsh Assembly Government has undertaken an impact analysis on this change that points up starkly that there would be significant redistribution of payments. It is for this reason that I will be arguing for a lengthy transitional period of at least 5 years so that farmers can adapt to an area based payment new system.I do not see why it would be necessary to retain the complexity of the current entitlement regime under a generalised area-based payment system, particularly if we can ease the difficulties that new or young entrants face under the historic model for the SPS.

Further ‘greening’ of Pillar 1 payments is also a difficult area as approaches such as compliance in relation to permanent pasture, green cover, crop rotation and ecological set-aside would inevitably require more administration or ‘green tape’ which seems counter to the agenda to reduce the bureaucratic impact of the CAP – at farm level and for the Welsh Assembly Government.

I believe that the cross compliance regime should continue to set a minimum baseline and that where farmers are asked to provide environmental enhancements, these more properly belong to actions under pillar 2 and axis 2 of the Rural Development Plan regime. In Wales we have well established mechanisms under the Wales RDP to provide funding for farmers’ sustainable land management actions. That is the way that the Glastir scheme has been developed. The Commission, through its “greening” proposal, is attempting a one-size-fits-all approach that fails to recognise the progress made by certain individual countries such as Wales. I would not want that progress restricted and will be looking to the Commission to recognise past performance and initiatives already in place to support environmental action by farmers.

I remain opposed to continuing any form of voluntary coupled support that does little to encourage farmers to make market based production decisions and also leads to competitive advantages and disadvantages between Member States. Wales, as with the rest of the UK, implemented the decoupled SPS in 2005. I see no case for allowing Pillar 1 payments that link directly to production. In addition, providing area based payment support for specific sectors and regions (with specific natural constraints) would not represent extra funding; rather such support would in effect be generated by a “top slicing” mechanism, resulting in reduced payments for the majority while at the same time adding a further element of administrative complexity.

There is then the complex matter of who should receive the CAP payment and determining what is meant by “active farmer”. The Commission raises an important issue that actually has 2 intertwined aspects: whether the land is being actively farmed and how we identify who the payment for that land should go to. There is a strong argument that payment should be provided where it can be demonstrated that the farmed land is the principal source of economic livelihood. This also begs the question whether there is a minimum size of farmed land from which an economic living can be made. Circumstances in Wales are different to the rest of the UK and even more marked where comparison is made at an EU 27 level. Our farmland is a natural and rich resource that should be used to optimise both food production and environmental benefits. Whilst the concept of targeting support to ‘active farmers’ seems wholly appropriate, there is clearly difficulty around how the term is defined and the control measures.

In terms of Pillar 2 and the rural development the proposals, these will enable us to further our advances in improving competitiveness of agriculture and forestry, managing land sustainably, local empowerment and capacity building in rural areas. The Europe 2020 strategy of smart, sustainable and inclusive growth is embraced and the increased emphasis on innovation is to be welcomed, while a less rigid structure would facilitate this and also enable cross-cutting economic and environmental gains. Integration of Natura 2000 and HNV into environmental measures already fits with Glastir. Similarly the emphasis on local production, procurement and market development sits comfortably with my policies.

Although potentially a welcome development, the risk management toolkit approach towards addressing both production and income risks through insurance and mutual funds needs more consideration to determine its appropriateness to Welsh agriculture.

A key issue to resolve under pillar 2 relates to the inequitable share made available historically to Wales and the UK. The current EU funding arrangements significantly disadvantage Wales and place an enormous pressure on the Welsh Assembly Government to make its own resources available to ensure a meaningful programme of actions under the Wales RDP. The current Plan has an overall spend commitment of £795 million between 2007 and 2013, of which some £600 million is provided directly by the Welsh Assembly Government. This domestic funding commitment is wholly disproportionate when comparisons are made elsewhere within EU 27. It is disappointing that the Commission’s public documentation remains silent on future action.

Related to this funding aspect, the Commission’s documents avoid any reference to whether “modulation” will continue under the CAP regime from 2014. Modulation has been the mechanism by which the Welsh Assembly Government has “top-sliced” the SPS receipts to generate funding to advance agri-environment action by our farmers. It is inextricably linked to addressing the historic under-funding for Wales by the EU under the pillar 2 arrangements.

Conclusion

To summarise, there are a number of points in the Commission’s documents that fit well with the needs of Wales and our overall position on CAP Reform.  It is difficult to reach a starting point for the proposals overall in the absence of real detail. It is also highly relevant that the future funding for the CAP will have a key impact. It is deliberate on my part to avoid comment on the budgetary position. That is not the purpose of this paper. What I would say is that the absence of detail on the future direction of the CAP from 2014 does not provide the basis for taking a positive view at this time.

Finally, as the Minister responsible, I can say that the Welsh Assembly Government remains committed to a CAP reform outcome that:

• Maintains direct support
• Provides the basis for sustainable food production
• Strengthens the competiveness of our land based industries
• Recognises the role of farming in safeguarding and enhancing the natural assets of Wales, and
• Contributes to the socio-economic development of our rural communities.