Common Agricultural Policy: What’s going on?

In this article, we provide an update on the Common Agricultural Policy.

28 April 2017

2016 saw unprecedented delays in the payment of the various elements of the entitlements under the basic payment and other schemes administered under CAP. These payments are received by almost 86,000 farmers across the UK; on average making up 55% of their income, and in some cases 70% of income. In the 2014-15 payment year, 97% of payments were made by the end of December; this fell to 51% in 2015-16. Only 77% of payments owed for 2015 had been made by the end of January 2016.

The delays caused significant hardship across the board – as well as affecting the bottom line, the uncertainty over when payments will be received will have affected future plans and may have had an effect on growth. Some farmers were owed 2015 payments as late as January 2017. The difficulties faced by farmers were compounded by depressed commodity prices and, until recently, the strength of the pound.

Defra reported a 29% fall in farmers' incomes in 2016. This was the first time in 15 years that such a large fall had been experienced. The problem can be particularly acute in Scotland, where per capita reliance on EU farm subsidies is three times higher than in England. Although Scotland’s population is only around 8% of the UK total, it receives 18% of overall CAP payments, and 85% of total Less Favoured Area Payments (2016 figures).

Whilst the Scottish Government has blamed the delays on the complexity and changes to the CAP system, industry bodies and commentators place the blame firmly on the payment mechanisms in place – particularly the faulty IT systems set up by the Scottish Government to administer the system, descried by Alex Fergusson as a “£300m black hole in the rural economy”. The Scottish Government attempted to allay the problem by using Government funds to loan cash to farmers. Despite this, Scotland may still be fined by the EU as a result of its failure to meet the minimum standard required for administering CAP payments.

With Brexit on the cards, it might seem like Scotland and the UK as a whole have the chance to free themselves from the red tape and complexities of administering the CAP payments. However, it is clear that many farmers rely (at least for now) on subsidies. Brexit negotiations bring uncertainty for the future of the subsidy regime and in some recognition of this, the UK Government has promised to continue the basic payment scheme which is paid directly to farmers (Pillar 1 support) until 2019/2020 and funding for the wider rural economy (Pillar 2 support) until the implementing EU policy comes to an end. However, no promises have been made to continue support after this time by either Westminster or Holyrood.

Scotland currently receives a share of the UK CAP budget, which is allocated by Westminster. Post Brexit, since agricultural is devolved, Holyrood could have control over subsidies as well as policy. However, the amount of the budget allocation from Westminster is uncertain. If the Barnett formula were to be utilised, Scotland’s share of any financial provision for Westminster would be materially reduced. Angela Leadsom recently stated that she has “no doubt that our best days as a food and farming nation lie ahead of us” but the lack of definite commitments and figures make it difficult to decide what that future might be. The “music” from Westminster suggests that subsidy for production will not continue.

The SNP has suggested that an independent Scotland, which is also an EU member, could negotiate a better deal for agricultural development. Payments would be received directly from the EU and be administered in Scotland.  In 2014, Richard Lochhead (then Cabinet Secretary for Rural Affairs, Food and Environment) indicated that Scotland would have received an additional €1 billion between 2014 and 2020 if Scotland became independent. However, other commentators claimed there could be losses of up to €1.2 billion, and pointed out the potential reluctance of other member states to allow an independent Scotland unfettered access to CAP payments immediately, as opposed to the customary ‘phased in’ approach.

It looks likely that support payments in Scotland will be reduced post-Brexit, but in these uncertain times nobody can predict what will happen in five – never mind two – years’ time. It is up to the Scottish Government to represent our farming community to ensure that their cause is taken into account in any agreed financial settlements.