The future CAP Pillar 1

Rosi Waterhouse

Scottish Government

CAP Reform & Crop Policy

• Timeline

• Overview of Pillar 1

• Funding of Pillar 1 schemes

• Basic Payments

• Greening

• Voluntary Coupled Support

• Redistributive payments

• Initial views

PLAN

Oct 2013 Nov Dec Jan 2014 Feb March April May June July August Sept Jan 2015

MS notify EC decisions 1st

August on active farming,

degressivity, regions, budgets,

redistributive payments,

greening equivalence, PG area,

VCS, ANC, etc

Start new P1

MS notify EC decision on Flexibility Dec 31st

CAP P1 timeline

17-18 Oct

Council 18-19 Nov

Council 16-17

Dec

Council

Council vote

Final EU

agreement

on CAP

CAP regs

published in

OJ

Draft implementing rules published & discussed

EP vote –

18-19 Nov

(MFF)

Council expert groups

already looking at draft text

for delegated acts

SG P1 consultation

The future CAP P1 – what is it?

P1 support payments post-2015 which will be:

• For first time, a CAP agreed by both EP and Council

• A big change from current position

• More targeted so in some ways more complicated

• Fairer – area based payments and new entrants

• Greener – new requirements accounting for 30% of funds

Future CAP

post-2015

Mandatory Basic Payments

Mandatory

Greening

Optional Schemes

“Payment

regions”

3 standard requirements:

- Crop Diversification,

- Maintain area permanent grass

- Have 5% Ecological Focus Areas (EFA)

Can also meet Greening

requirements through

equivalence ie some sort

of certified scheme

Mandatory

Young Farmer

top up

payment

Top up those

<40 by 31st

Dec 2015 and

first time in

charge (up to

2% of NC)

Small Farmer Scheme

– “simple” procedures

max payment €1250 (up

to 10% of NC)

P1 ANC (up

to 5% of NC)

Voluntary Coupled

Support (VCS) (up to

8% of NC)

“National

Reserve” eg

for future

new entrants

“Regional

Budgets”

Internal

convergence

So depending on decisions, future Pillar 1 support to a farmer may comprise:

• A Basic Payment

• A Greening Payment as long as they meet Greening requirements

• A Young Farmer top up if eligible

• Possible optional payments (VCS, redistributive payments, P1 ANC payments)

How is it all funded?

Scotland’s national ceiling (100%) (for example if we started with €600m)

Flexibility – can transfer up to 15% P1 to P2

(eg 15% = €90m)

Revised Scottish national ceiling (85%) (eg €510m)

Mandatory 30%

deduction for

Greening (eg

€153m)

Up to 2% mandatory

deduction for YF

scheme (eg €10.2m)

So 68% of revised Scottish ceiling left

for Basic Payments (eg €346.8m)

3% for National

Reserve (eg

€10.4m)

€336.4m left for the new Basic Payments

Mandatory deductions account for 32% of the revised NC

Ie maximum of 56% of Scotland’s

initial national ceiling used for BP

Scotland’s national ceiling (100%) (for example if we started with €600m)

Flexibility – can transfer up to 15% P1 to P2

(eg 15% = €90m)

Revised Scottish national ceiling (85%) (eg €510m)

Mandatory 30%

deduction for

Greening (eg

€153m)

Up to 2% mandatory

deduction for YF

scheme (eg €10.2m)

Up to 8%

deduction

for VCS (eg

€40.8m)

Up to 30% deduction

for redistributive

payment (Scotland

could only use 20%

max)(eg €102m)

May use 5%

deduction P1

ANC support

(eg €25.5m)

May use up to 10%

for small farmer

scheme (eg €51m)

So 68% of revised Scottish ceiling left for

Basic Payments & NR (eg €346.8m)

3% for National

Reserve (eg €10.4m)

Eg €336.4m left for Basic Payments

Optional schemes account for 43% of revised Scottish NC. 10% for

SFS but this replaces other forms of DP. Mandatory account for 32% of the revised NC

Ie maximum of 56% of Scotland’s initial

national ceiling (eg €600m) used for BP

So, depending on choices this means:

• Mandatory schemes only leaves 56% of NC for Basic Payments

• Mandatory + VCS leaves 49% of NC for BP

• Mandatory + VCS + Redistributive payment leaves of NC 33% for BP

So BP may account for less than half of Scotland’s initial national

ceiling.

Depending on choices, the Basic Payment may account for between

26-66% of a farmer’s total direct payments.

Depending on the choices, the Greening payment may account for

between 26% - 44% of a farmer’s total direct payments.

Greening = lower share of total direct payments if a farmer receives

additional non-area-based payments. Greening = higher proportion of

a farmer’s total direct payments if other schemes are funded from

which the farmer doesn’t benefit.

Amount of funding transferred to the National Reserve varies

depending on the choices made. The more optional schemes used,

the smaller the amount potentially generated for the NR – unless we

make a higher than 3% deduction.

So need to consider total support

package to a farmer and not just

one aspect of it – not all about the

Basic Payment

How should we introduce Basic

payments into Scotland?

It’s very difficult and complicated.

It’s difficult because Scotland has 85% less favoured area.

It’s difficult because Scotland has a diverse farming landscape with

good land often found next to poorer land.

It’s difficult because we have a wide range of current entitlement

values ranging from a few cents/ha to >€350/ha.

Its difficult because the current distribution of payments in Scotland:

• <20 businesses receive >€500k

• Average SFP is around €29k

• Median – midpoint where as many payments are above as below is

around €13.5k

Basic Payments

What payment regions? What budgets? How do we introduce?

Strong consensus at April workshop

for 2 or perhaps 3 payments

regions based on historical land

types. But continue to look at LCA.

JHI modelled 9 payment

region options

JHI modelled 3 types of budgets

Less consensus at conference

but weighted option/Olympic

podium preferred

Options are:

1) Flat rate on Day 1

2) Flat rate by 2019

3) Irish tunnel where all PEs

reach at least 65% of 2019

regional average value by

2019.

Why do we need Payment regions?

Because Europe says we have to move from our current historic basis

for payments – which can no longer be justified since they reflect

production between 2000 and 2002 – towards payments based on

areas of land.

Moving to area-based payments in Scotland tends to move funding up

the hill from intensive to extensive producers.

It is possible to try and mitigate this effect to allow producers time to

adjust to the new levels of payment. One such method is to ring fence

funding using payment regions. Another is to use optional support such

as voluntary coupled support.

Payment regions

Areas of land grouped together for purpose of making payments.

Can be contiguous geographic areas such as “Borders” or “Tayside” but

these contain land of varying type.

Do not have to be contiguous areas of land ie can be virtual regions where

we assign land of some particular type.

Conference consensus was to use historic land

type:

• 3 region land type model = Arable (0.9m ha),

Permanent Grass (0.8m ha), Rough Grazing (2.8m

ha) (Olympic podium budgets with highest rates in

middle)

• 2 region land type model = Arable + Permanent

Grass (1.7m ha) and Rough Grazing (2.8m ha)

Also continue investigating LCA capability:

• 3 region LCA model = LCA 1=3.1 (0.37m ha),

LCA 3.2 – 5.3 (1.9m ha) and LCA 6.1-7. 2 (2.3m

ha)(olympic podium budgets with highest rates in

middle)

• 2 region LCA model = LCA 1-3.1(2.27m ha) and

LCA 3.2-7 (2.3m ha)

NB: areas are existing areas. Future declared areas may differ and may be

either higher or lower than present figures.

General method

• Identify which parcels of land belong to which regions to

estimate total area of land in a region;

• SG allocate Basic Payment budget to region;

• In 2015, farmers declare land in each region;

• SG calculate PE value and issue new entitlements that

can then only be used or traded in that region. Value

varies depending on which method is used – see later.

Who is eligible?

A farmer who is active in 2015 provided they were entitled to receive

direct payments in 2013.

MS have option to allocate entitlements to:

• Farmers who did not receive direct payments in 2013 but produced

fruit, vegetable or potatoes;

• Were allocated national reserve entitlements in 2014;

• Never held entitlements to SFP but who submit verifiable evidence that

they were active farmers in 2013.

What about slipper farmers?

• Need to be active farmer at the time of application (May 2015) ie meet

conditions of article 9 on “active farmer”.

• Ongoing requirement to meet conditions of article 9 on “active farmer” to

claim payments

Article 9 – active farmer clause:

Scottish clause: No direct payments to farmers whose agricultural areas are

mainly areas naturally in a state suitable for grazing or cultivation who do not carry

out on those areas the minimum activity required by the Member State.

Negative list: No direct payments to claimants who operate airports, railways,

waterworks, real estate, permanent sport and recreational grounds.

• MS have option to add to this list.

• Does not apply to claimants receiving <€5000 direct payments

How much will entitlements be worth?

3 options:

• Flat rate ie regional average from Day 1;

• Flat rate ie regional average in 2019;

• Irish tunnel – where PE which 2019 have a value less than 90%

of the regional average see the gap to the regional average

closed by one third with no PE receiving less than 60% of the

regional average

Internal

convergence

Option 1: Flat rate on Day 1

= Regional budget/declared area of eligible hectares.

So farmer if farmer has 50ha he will receive 50 entitlements

at the regional average value

Option 2: What is internal convergence

Means taking into account in the initial value of the

entitlements for the new Basic Payment, the value of SFP

paid to a farmer in 2014 and then moving the PE value to

the regional average value in a series of equal steps.

Ie all BP payment entitlement values within a region

converge on the regional average value.

Can also do this calculation based on value of entitlements

held in 2014.

With Options 2 and 3, in Year 1, the value of a farmer’s entitlements will be based

on the farmer’s share of the total 2014 regional SFP pot.

Assume a Farmer A had 30 hectares with 2014 SFP of €8,000 and the total SFP

in 2014 in the region being €1,500,000 so farmer A currently receives 0.53% of

regional 2014 total SFP.

If the regional budget for this payment region in 2015 was €1m then in 2015, the

farmer A would get 0.53% ie €5,300. Farmer A’s initial payment entitlement rate

would be €5300/30 = €176.67/ha.

If there are 10,000 hectares in the region, then the regional average rate is

€1,500,000/10,000 = €150/ha

So if budgets remain constant, Farmer A would see his initial value of €176.67/ha

fall to €150/ha between 2015 and 2019.

Internal convergence – simple example – one way of doing

the calculation

Irish tunnel

• External convergence mechanism now also possible for internal convergence.

• So, if in 2015, a PE has a value below 90% of the 2019 regional average value,

these PE will see the gap closed by one third.

• In addition, need to ensure that in 2019, no PE is less than 65% of the regional

average value.

• Option to also ensure that no PE falls by more than 30%.

New entrants

Post-2004 new entrants with SFP eligible for BP

Post-2004 new entrants with partial cover Either initially get BP

with low value and then value slowly increases to the regional average

or top up initial low value to regional average rate from National

Reserve

Post-2004 new entrants with no SFP NR and receive regional

average value from Day 1

Post-2015 new entrants NR and will receive regional average

value – have secured ability to perform future top slices to ensure

sufficient funds in NR.

What about capping large payments?

• Mandatory “at least” 5% reduction on direct payments excluding

Greening payments. Therefore can impose higher deductions on

very high payments.

• Funding transferred to Pillar 2 so link with decision on Flexibility.

• Can also exclude salaries before calculating degression;

• If 15% of ceiling used for redistributive payment then do not have to

do this degression;

• However, with internal convergence the value of PE will converge

towards regional average, so degressivity will generate less funding

as internal convergence proceeds.

Greening the CAP

Overall more than one way to green farming:

• Pillar 1 Greening;

• Enhanced cross-compliance;

• Pillar 2 agri-environment measures;

• Non-CAP eg Farming for a better climate

Europe’s 3 standard measures:

• Crop diversification – 2 crops if 10-30ha arable and 3 crops if >30ha

arable (winter and spring crops count separately and so do crops within

Brassica genus)

• Maintain area of permanent grassland + ploughing bans on PG in

designated sites

• 5% ecological focus areas on arable area (options for collaboration).

• EC to supply weighting matrix and coefficients

• MS can choose which measures to offer.

Pillar 1 “Greening”

Greening: Equivalence

EC also allows idea of

“Equivalence” ie measures

which yield an equivalent or

higher level of benefit for the

climate and the environment

MS can offer both the

standard measures and

equivalent measures

Equivalence could be a certified

scheme delivered by some third

party eg like LEAF

MS can choose to only

make available equivalent

measures

What could be an equivalent type of measure?

Crop diversification crop diversification/crop rotation measures including

winter sown and catch crops

Maintain PG Management of pastures, cutting and mowing regimes, fertiliser and

pesticide restrictions

EFA Ecological set-aside, buffer zones for HNV sites, buffer strips and

margins, management of landscape features, etc

Greening - GAEC:

SMRs & GAEC: Range of measures under:

• Water:

• eg buffer strips along water courses & protection of water from pollution

• Soil and carbon stock:

• Eg minimum soil cover, limit erosion, maintain soil organic matter

• Biodiversity:

• Articles from two SMRs on wild birds and conservation of natural habitats

• Landscape, minimum level of maintenance:

• Eg landscape features, hedges, trees in a line etc

• Public, animal and plant health:

• Two SMRs on food law and prohibition on stockfeeding with certain hormonal

substances

Optional schemes: Voluntary Coupled Support

Can use up to 8% of Scotland’s revised national ceiling for voluntary coupled

support where it is important (economic, environmental, social) with an option for

a further 2% for protein crops.

VCS is about maintaining the current level of production not to enhance the level

of production ie about “volume”.

So if volume increases then either the number of animals paid on needs to fall or

the rates need to fall to decrease the incentive to produce.

Redistributive payments

MS can use up to 30% of revised national ceiling for top up payments (65% of

regional average rate of first 30 (or in UK’s case up to 54) hectares.

Breakeven points is around 100ha.

The application of this measure is that funding moves from large claimants to

smaller claimants so its impact has similarities with degressive reductions. For this

reason Europe says that if MS uses more than 15% of your ceiling for

redistributive payments it can be exempted from having to apply degression.

Initial analysis suggests if it chose to offer these payments it would take less than

20% of Scotland’s revised national ceiling.

What has Cabinet Secretary

already said he is minded to

do?

BP

2 or at most 3

payment regions

based on field

boundaries.

Greening

Scotland must be genuinely green. Want

every farmer getting greener over time.

Farmland birds index going down and only

60% water bodies in good condition.

Wins to be had.

VCS

Serious consideration to devoting

all to beef and will review

weightings. Sheep producers will

gain from move to area payments.

Will continue to look at options

for an equivalence scheme but

not clear these will deliver

benefits eg for biodiversity

Can we use equivalence to deliver

carbon reducing measures?

Keen to address huge

individual payments but

move to area basis also

does this and also need

to look at redistributive

payment.

Capping

Find minimum activity

requirement that keeps

slipper farmers out

New entrants on level

playing field from Day 1.

Continue to look at

Irish tunnel