Brave new world

On 1 January 2005 farmers will awake to a new world in which brave decisions will have to be made if farm incomes are to be maintained or enhanced. On that date, following the mid-term review of the CAP, a multiplicity of former subsidies, linked to production, will be replaced by a new regime, decoupled from production and linked instead to good agricultural and environmental practices. Furthermore, payments will be modulated, both at EU level and regionally (Scotland is for this purpose a region), on a rising scale so that year on year, payments reaching farmers’ pockets will, in most cases, reduce for the foreseeable future.

The new system will be a three tier one, under which farmers will receive different levels and types of subsidy consistent with the standards to which they take measures to protect and enhance the environment and follow good practices.

Validate your entitlementsAt the basic level, which comes into operation on 1 January 2005, to which most farmers will, one way or another, be entitled, there will be one annual payment (the single farm payment) calculated at a rate per “entitlement” based on the number of entitlements relating to the particular farm. “Entitlements” are calculated on average subsidies claimed and areas cropped over the three years, 2000 to 2002. The number of “entitlements” issued will equal the average hectares farmed during the three years, 2000 to 2002. “Set-aside entitlements” will also be issued where the set-aside management rules apply to the particular farm. Certain categories of farmer who were not in occupation of their farms during those base years (for example new entrants to farming between 2002 and November 2004) may apply for an allocation of “entitlements” from the national reserve which will be part funded by the Scottish regional modulation (recently set at 3%).

For single farm payment to materialise, “entitlements” will have to be “validated”. Validation will be achieved by the person entitled being involved in agriculture and lodging both a claim form and an IACS form, in May 2005. “Entitlements” may then be claimed provided that the claimant occupies one hectare of eligible land for each “entitlement” for any period of 10 months (of the farmer’s choice) commencing between 1 October 2004 and 13 April 2005 (or, by default, the period between 1 February and 30 November 2005).

Private contract clauses permit entitlements to be passed on if land is sold, but not where a lease changes hands. Where a lease changes hands an application for an allocation of entitlements from the national reserve is permitted.

Good practice in returnAs the quid pro quo to receiving payments, farmers will be required to cross-comply with statutory management requirements (SMRs) – provisions from several pieces of existing EU environmental, animal welfare and protection, food safety and similar legislation – to be phased in over three years, and measures (coming into effect on 1 January 2005) requiring farmers to keep their farms in good agricultural and environmental condition (GAEC), by protecting wildlife and habitats, combating soil erosion, maintaining soil organic matter levels and structure, and maintaining and protecting landscapes.

The second level of subsidy will depend on farmers entering into land management contracts (which are still in the process of development), by which farmers will be bound by further specific obligations having environmental, economic or social benefits in order to qualify for subsidies. These will be funded by EU modulation of single farm payments.

The top tier will consist of top-up payments made under specific schemes yet to be introduced. Payments are likely to be either capital or further annual payments.

The new subsidy regime will, of course, not affect existing environmental schemes including NVZs (nitrate vulnerable zones), SSSIs, and ESAs (environmentally sensitive areas).

Single farm payments will, in due course, become tradable with or without land, provided that where transfers are effected without land, “entitlements” are first validated and claimed, to the extent of 80%, before transfer. No part of the entitlements will be syphoned off to the national reserve when they are sold.

The new subsidy regime will have extensive implications for the farming industry – not least in relation to cash flow, given that a farmer will, in future, receive one cheque, not several payments per year. As the effects of modulation bite, so farmers will increasingly have either to become more efficient or to diversify their activities to compensate for lost subsidy income.

Alasdair G Fox, Anderson Strathern WS