CAP reform update

Last June saw the European Commission, the Council of Ministers and the European Parliament signing up to an outline CAP reform deal, which will constitute a new era in terms of how support is made available to Europe’s farmers. Ireland’s Farm Minister, Simon Coveney, was at the helm of the negotiations, which will fundamentally change the ways in which European tax-payers’ monies are made available by way of subsidies to the farming sectors.

Politically, the deal also broke new ground, as it marked the first opportunity for the European Parliament to utilise powers of ‘co-decision’ in the context of a CAP reform negotiation. In addition, the agreement recognised that flexibility will be required when it comes to implementing the new measures at both national and regional level.

For example, the support needs of Irish farmers with their reliance on milk, beef and sheep production are fundamentally different to those of their counterparts in Eastern Europe who are working within entirely different climatic and market constraints.

The new deal contains a number of fundamental policies. These include a transition to a flat rate single farm payment (SFP), or area-based system, and the introduction of new ‘greening’, or environmental payments, plus enhanced support for young farmers and smaller producers. Overarching all of this is the deal struck by Europe’s heads of government in December 2012, which will see the EU’s overall budget reduced by around 7 per cent in the period up to 2020.

But perhaps the most fundamental change brought about by the new CAP support measures is the pre-requisite that only active farmers will be eligible to receive future support payments. This latter point is crucially important for Northern Ireland as up to one-third of the land farmed in this part of the world is rented, as conacre, on an annual basis.

The new measures will come into force in 2015 and will remain in place for a five-year period. This now leaves national governments in a race against time in which to interpret the new agreements in ways that best suit their own farmers and to have the enabling legislation on their respective statute books before the end of this calendar year.

Irrespective of the detailed regulations that are finally agreed for the new support measures, local farmers wanted to ensure that Northern Ireland would secure the largest possible CAP budget moving forward.

In the context of the UK debate on CAP reform, there had been major concerns prior to last Christmas that Scotland would push to secure a higher percentage of the United Kingdom’s support allocation from Brussels than would have traditionally been the case.

The Scots’ argument was based on a claim that they had lost out when it came to the allocation of the UK support budget when the previous CAP deal had been agreed back in 2005. However, the good news for Northern Ireland came just before the turn of the year when Westminster confirmed that the previously agreed pro-rata funding levels would be maintained for the purposes of the new CAP agreement.

Who will win?

But, of course, when it comes to settling the new measures down, the devil will be in the detail. And this is the challenge that now confronts agriculture in Northern Ireland. It is also worth pointing out that any agreement of the scale envisaged by the new CAP measures will generate winners and losers.

For example, the current CAP support arrangements were introduced as a follow-on from the negotiations driven by the then European Farm Commissioner, Franz Fischler, back in 2005.

At the very heart of that deal was a recognition that support levels would reflect the output generated on individual farms in the reference years 2000, 2001 and 2002. Such an arrangement favoured the large scale, intensive farming businesses, particularly within the beef finishing sectors. In total contrast the new measures, which will see the introduction of an area based payment system, will fundamentally favour extensive farming operations and particularly those farmers with large number of sheep.

So how do Farm Minister Michelle O’Neill and her team of advisors in DARD come up with a package of new support measures that marries the needs of both the aforementioned farming groups? The most obvious way of reflecting these diametrically opposed requirements is to push for a transition period to the new support arrangements, which is as long as possible. And this seemed to be the direction in which the argument was travelling until the Ulster Farmers’ Union proposed a CAP support model, which would divide Northern Ireland into two regions.

The union has claimed that such an approach will maintain the current balance, with regard to the pay out of support payments for agriculture as a whole. However, farmers in the severely disadvantaged areas – the big losers within such a scenario – have reacted furiously to such an approach.

Significantly, this anger was vented fully at a meeting held in Derrygonnelly in mid-January, which attracted an attendance of over 700 farmers. It should be pointed out at this stage that DARD analysts favour the principle of maintaining Northern Ireland as one region for the purposes of the new CAP measures.

The other issue that will fundamentally challenge the farming industry over the coming months is that of defining who will be eligible to draw down SFP support post-2015. Farm Minister Michelle O’Neill has already made it clear that she is intent on coming up with an official definition of what constitutes an ‘active farmer’ for the purpose of the new support arrangements.

What is already known, courtesy of the outline CAP deal struck in Brussels last June, is that only those people who take all of the risks inherent with the management of a specific area of land will be allowed to draw down the entitlements associated with it.

This automatically excludes those people who simply rent out their lands each year, many of whom currently receive SFP support due to the fact that they were deemed eligible for the CAP measures agreed back in 2005. The implementation of the new farm support arrangements will, therefore, have a fundamental impact on the way that future land rental agreements are transacted here in Northern Ireland. It also raises the question of how those people, who will lose out when it comes to the allocation of future SFP arrangements, can extract the best value from the entitlement which they currently own.

It is widely anticipated that Farm Minister O’Neill will push to secure agreement on the CAP measures to be implemented for Northern Ireland over the coming weeks. However, given that she was dragged into the courts at the end of last December by Finance Minister Simon Hamilton, it is likely that she will seek the agreement of the entire Stormont Executive before going public on this matter.

Adding to the tension that surrounds this issue is the recent confirmation by DARD that failure by the Executive to agree on the new CAP measures will be regarded as a ‘default’ position by the European Commission in Brussels. Within this scenario, Northern Ireland will move to a full flat rate SFP support mechanism, once the new measures kick in next year. Under these measures, there will be no provision made for a transition period away from those farm support mechanisms that are currently in place.