You are in > Home > SAC Rural Policy Centre > Hot Topics for Discussion > Hot Topics > Why is CAP Reform so important to Scottish farmers?
Why is CAP Reform so important to Scottish farmers?
Author: Douglas Bell, Senior Agricultural Policy Consultant, SAC
According to Scottish Government figures just published (in the Economic Report on Scottish Agriculture 2011 Edition), the average Farm Business Income (FBI) across all farm types for 2009/10 was £34,366, a 12% reduction on the previous year.
The FBI represents the return to unpaid individuals (usually the farmer and his or her family) for their input to the business including capital invested. The FBI can therefore be expressed per unpaid full time equivalent (FTE) to give an indication of income level per person. On average this equated to £23,740 per FTE in 2009/10. For farmers, concerns surrounding this modest level of return, in relation to the effort, investment and risk involved, are exacerbated by worries about potential changes to the EU Common Agricultural Policy (CAP) farming support regime.
With the exception of dairy farms, the direct support received in 2009/10 exceeded the farm business income per full time equivalent. This demonstrates that the majority of Scottish farmers would be generating negative farm business incomes were it not for support payments. It is therefore no surprise that for the majority of Scottish farmers, the forthcoming reform of the EU Common Agricultural Policy (CAP) is uppermost in terms of concerns about the future of their businesses.
Reform of the CAP will take place at two distinct but intrinsically linked levels. Firstly and fundamentally the budget for the CAP to apply for seven years from 2013 is currently being negotiated. Spending on the CAP currently accounts for around 40% of the EU budget. Economic and political pressures look likely to result in a reduction in agricultural spending, certainly in real terms if not in the actual rate.
Secondly a planned overhaul of the distribution mechanism for CAP payments is due to be implemented in 2014. The objectives for this element of reform can be simplified to three main aims; completing the decoupling of support from production levels started in the 2003 reforms; achieving more equitable payments across all member states and providing more transparency and legitimacy with regard to the payments made to farmers.
For Scottish farmers, the reforms will bring to an end the current system of having their Single Farm Payments (SFP) based on entitlements relating to historic farming activity. It is almost certain that an area payment system will be introduced similar to that voluntarily adopted by England at the last major reforms in 2003. The actual rates of payment will depend on budgetary pressure and on the system adopted to determine payment rates for different regions. In addition both the EU Commission and the European Parliament are in broad agreement that farmers will have to meet new statutory but as yet undefined ‘greening’ environmental requirements in addition to meeting current Cross Compliance conditions.
The uncertainty surrounding the future of agricultural support makes it difficult for farmers to plan their businesses. As the debate progresses, information will gradually become available. Indications on the direction of the budget are due this summer. The Commission will publish its Legislative Proposals for Reform of the CAP in October. The Scottish Government commissioned the ‘Pack Inquiry’ to look at possible options for Scotland. However history of previous reforms suggests it is likely to be close to the implementation date of 2014 before farmers will have detailed knowledge of the likely impacts on their businesses. Until then, from a business planning perspective, it’s a case of keeping an eye on developments as they emerge together with a little educated guesswork.