Campaigning for farming and food in the general election

The general election is an opportunity for farming and food issues to be debated and the National Farmers' Union is fully entitled to brief its members with questions to be asked of candidates. Indeed, the NFU has posed very interesting questions about any referendum on membership of the EU and what the implications of 'Brexit' might be for British agriculture, an issue that requires more systematic attention and exploration.

What I think is less helpful is any suggestion that we need self-sufficiency targets which can all too easily smack of Soviet central planning. The NFU has warned that by 2080 less than half the nation's food needs will be met by UK farming. This date is a long way away and it is not clear whether this is a figure for temperate foodstuffs or whether it includes tropical products like the ever popular banana.

The NFU's report entitled Backing British Farming in a Volatile World said that 85 per cent of consumers wanted to see supermarkets selling food from British farms. This is a bit like asking people whether they are in favour of motherhood and apple pie.

There are food security issues to be discussed, but as Tim Benton of Leeds University, the UK's global food security champion, commented: 'It remains an "open question" as to what the optimal level of self-sufficiency should be.' I would argue that there is no methodology that can tell us, given all the uncertainties. That may, of course, represent a case for being cautious, but I don't think that target figures are the right way forward.

The NFU claims that more than half the income of an 'average' farm comes from single farm payments (soon to be the basic payment). This suggests an over dependence on subsidy, but the NFU says they are needed to protect against price volatility. What would perhaps help more is a supermarkets ombudsman with more powers and a staff of more than three to ensure more of a level playing field. But then governments like low food prices.

You can read the NFU report here: Backing British Farming

Large farms may abandon basic payment

It is being reported that some large arable farms are considering abandoning the basic payment (the successor to the single farm payment) because of the 'three crop' rule: Three crops

I do think that this rule is a typical example in the CAP of a possibly laudable objective leading to a policy instrument that is deficient. It arose out of a desire to curb the landscape and biodiversity effects of monoculture. However, at one time there was an implicit view in the EU that some parts of member states would be farmed in a way that maximized productivity. Requiring farmers to grow three different crops undermines this and, in my view, is an unwarrantable intereference in their freedom to make their own commercial decisions. I would also question whether it really achieves that much in the way of 'greening'.

Whether farmers would give up the basic payment is an interesting quetion. It can be a very substantial amount for some large-scale arable farmers, but others receive relatively small sums. However, in many cases it is the difference between making a profit and making a loss. The real hope must be that some progress will be made in reducing the impact of this policy instrument.

Why farmers have to hedge currency risk

One hundred years ago in 1913 the weather was also warm for the time of year with people claiming that it was too hot to play football. It all ended in a big thunderstorm here in the Midlands. According to a Farmers Weekly poll, the overwhelming majority of farmers still think they have been hit by the weather last winter and the wet and cold spring, the second in a row. I have been growing tomatoes in my greenhouse for over thirty years and this is the worst year I can remember (and, of course, I don't get a SFP!). In these circumstances subsidy payments become more important to farmers to maintain their cash flow.

Along with the uncertainties of the weather, farmers also have to face currency risk. Indeed, some of them follow the forex market as keenly as they keep an eye on the weather. The recent rally by sterling is not good news for farmers as September 30th is the day when their farm subsidies are translated from euros into pounds. (From next year it will be calculated as an average for the month). The pound has gone up by about two per cent since May when they submitted their claims.

A growing number of farmers are resorting to hedging their currency risk. According to Alick Jones, agriculture policy director at Lloyds TSB, about a third of their clients in receipt of the single farm payment hedge their currency risk. However, the Royal Society for the Protection of Birds, which receives £1m in subsidies as a big landowner, doesn't follow this practice.

It was interesting to read in yesterday's Financial Times report on this topic that on one 450-acre livestock farm in Anglesey, the single farm payment of about £30,000 represents about 40 per cent of profits. In the long run, such a dependence on subsidies cannot be healthy, as many farmers themselves recognise, but for now they are an integral part of the business model.

Farmers and the EU

Yesterday I spent a very interesting day in Yorkshire talking with a cross-section of farmers. As always, it was good to hear of the ingenuity that farmers deploy in diversification such as an upland sheep farmer who was producing honey using the summer heather crop, a bit hit with consumers. Another interesting point to come out of the discussion was that many farmers, perhaps egged on by banks, had gone for increasing the area of their farms and had not thought enough about how they could improve productivity on existing land, e.g., by grassland improvement which could yield gains of 50 to 100 per cent.

Many different topics came up, the availability of plant protection products being a particular concern, but among other things we discussed Britain's membership of the EU. There was concern about EU regulations, particularly from the poultry sector, in terms of whether they prevented British farmers from enjoying a level playing field in terms of competition.

When I said 'many' farmers could not survive without the single farm payment, I was corrected by the word 'all'. If this is the case, it is worrying in terms of the viability of British farming. But I accept that the availability of the SFP is built into business models and can make the difference between profit and loss. An arable farmer did emphasise that most farmers would prefer to earn a living from the market if they could get a fair price and this led us into a discussion of the economic power of the supermarkets.

It is quite likely that we will have a referendum on Britain's continued membership of the EU: Labour would be disadvantaged at the next general election if it was unable to offer this. It is also quite likely that the vote would be to withdraw. In terms of the single market, a lot would then depend on whether a satisfactory association agreement could be concluded with the EU. European countries have an incentive to do so given the exports they make to the UK, but the devil would be in the detail.

But what would happen to farm subsidies? It would be an opportunity to think again about what the objectives of such subsidies should be, and also to reduce them. One of the problems with EU policy has been that the objectives in the Treaty of Rome were contradictory, had no preference ordering (although one appeared in practice) and were never changed in treaty revisions (too much of a hot potato).

What could be done is to pay farmers a tapering percentage of their historic SFP, say 90 per cent in the year after exit and 80 per cent in the second year while there was a serious conversation about what sorts of subsidies were needed, for what purpose and how they could be reduced over time. Indeed, farmers could be offered a buy out of their subsidies through a bond scheme.

Greening remains big issue in CAP talks

The general feeling from last week’s Farm Council and subsequent ComAgri meeting was that there needs to be more compromise from all sides in the forthcoming trilogue talks between the European Commission, Parliament and Council if they are to get the job done at the June 24-25 Farm Council as planned, reports Agra Europe

‘Greening’ remains one of the key talking points, with environmental groups again urging decision-makers not to ‘green-wash’ the CAP earlier this week, but many MEPs are still wary of the ‘double payment’ quandary should 30% of Pillar Two direct payments be linked to these measures.

Greening itself has not yet been tackled in the trilogues, yet EU Farm Commissioner Ciolos reiterated last week that an ‘equivalence’ system must be 'credible' and 'avoid double funding'. The measures must be 'clearly defined' and constitute a 'clear baseline' for Pillar Two agri-environment schemes, he added.

In England the concern among farmers is that Pillar Two measures will be maintained at the expense of the Single Farm Payment.

Farmers face early SFP hit

Farmers are likely to face an immediate hit in their 2013 subisdy payments. 'If farmers budget the same as for 2012, they may be in for a nasty surprise,' warned Richard King, head of research at the Andersons Centre.

The proposed EU budget includes a 9 per cent in CAP funding. But one of the oddities of the system is that this year's single farm payment (SFP) will be based on the new CAP budget, but under the current SFP regime. The result could be a cut of about 10 per cent in the single farm payment. This comes at a time when many farmers have been hit by the unseasonable weather. This particularly applies to livestock farmers in higher areas who tend to operate on small margins.

The 10 per cent figure may be a little high, although Richard King insists that it contains a margin for safety. The Commission envisages a cut in single farm payments of marginally under 5 per cent (4.98 per cent) in 2013, equivalent to an overall cut of €1.47bn from the Pillar 1 budget of €44.1bn. This figure will have to be approved by the European Parliament. The cut is the first time that the 'financial discipline' included in the 2003 Fischler reforms has been triggered.

The difficulty is that farmers have become very dependent on subsidies to make a profit. This is the problem with subsidy dependency. Faced with cash flow problems, farmers have been borrowing more. Bank of England agricultural lending figures show farmer borrowing increased to almost £13.5bn for January 2013. This compares to £12.2bn in January 2012 and £11.7bn in February 2011 (albeit there is an inflation component in those figures).

One recommendation is that farmers should consider hedging at least part of their single farm payment to protect against exchange rate fluctuations. This could make thousands of pounds difference, but it is only an option for larger scale farmers.

Other farmers need to consider whether they want to stay in low margin businesses like dairying. There is a risk that if farmers sell their cows and machinery they may then be tempted to live on the assets while the capital value of the farm (if owned) deteriorates. They need an alternative business plan in place.

Fans of The Archers will note the controversy caused by Tom Archer's argument that Bridge Farm should stop milking its own cows and buy in the milk it needs on the market. Although the scriptwriters had the character put it tactlessly, he is right: milking cows is time intensive and the real money is to be made adding value to milk by making niche products such as organic ice cream and yoghurt.

The real difficulty for farmers is that they do not face a level playing field given the buying power of supermarkets. That is not going to change any time soon. But farmers need to recognise that subsidies are going to fall more in real terms than they have in the past.

Further cuts in direct payments?

CAP direct payments look set to be cut back even further than the recent level agreed by EU governments, it emerged this week, as the budget needs exceed the available funds. Agra Europe reports that the spending gap is due to the 2014-2020 funding cuts agreed by EU leaders in February, along with the need to fund a new 'Crisis Reserve' for emergency market measures under Pillar One and also the final stage of subsidy phasing-in for 'new' member states.

This is likely to lead to the first instance of the ‘financial discipline’ mechanism kicking in since its inception in 2003, as the European Parliament is treaty-bound not to accept a budget deficit. What happens next is somewhat uncharted territory. However, hard pressed farmers are likely to react angrily.

Sterling fall boosts farm incomes

The weakening of sterling against the euro over the past four months potentially boosts UK farmers' single farm payment subsidies by £240m. For every 1p/euro change in exchange rates, the UK's single farm payments alter by around £40m. SFP accounted for around 15 per cent of UK farm incomes and can be an even bigger slice of profits. For example, over half the profits at Cooperative Farms, the country's biggest farmer, are down to SFP.

Currency fluctuations also affect market prices with a 1p weakening against the euro adding £200m to UK farmers' total income. For example, a farmer producing a typical wheat crop should get about £18 a hectare more from wheat sales with the euro worth 6p more. That's nearly ten times the impact on that farm's SFP.

The downside is that inputs such as feed, fertilisers and sprays could now be 7 per cent more expensive in sterling terms, if all the currency effects are passed on. Machinery could also be more expensive.

It's not all Balls

The ploy by Ed Balls and Douglas Alexander to call for Dave Cameron to secure real cuts in the EU budget is a way of setting an elephant trap for the prime minister. They know if they were in office they would have great difficulty in securing such cuts given the stance of other member states. But it will give them another chance to score a few political points by portraying the Government as weak and incompetent, as well as increasing disarray on the Conservative benches.

So it's a smart tactical move. But once we get away from the partisan point scoring, they do have something interesting and important to say in their Times article. They point out that for all the fuss about Brussels bureaucrats, administration only takes up 6 per cent of the EU budget. £45 billion is sucked up by the CAP at a net cost to the UK of £1 billion a year (although we do get a budget rebate).

They argue, 'Although the butter mountains of the past are long gone, the need for reform is no less urgent. The CAP is an obstacle to international trade liberalisation, creates too few jobs and introduces distortions so that there is not a level playing field. The EU cannot afford this waste.'

They maintain. 'further reform of the CAP must not just be discussed but implemented.' If only. I think there will be some real cuts, but they will be mainly at expense of Pillar 2 expenditure which helps the environment and the rural economy. The blanket subsidies of Pillar 1 (the Single Farm Payment) will remain largely untouched.

There are a number of net beneficiaries of the CAP who will defend it to the last hedge row. But there is more to it than that. France gets less than it used to from the CAP, but for the French it is more than a question of the financial benefits, important though those are. It is also about a vision of Europe in which agriculture plays a central if often symbolic role. It is about a statist mode of government in which intervention in the market is seen as beneficial in the name of food security. Even though some are questioning whether France can continue to afford to allow 56 per cent of its GDP to be spent by the government, those attitudes are not going to change any time soon.

Interesting that Gisela Stuart, the Labour MP for Birmingham Edgbaston, thinks that Britain should contemplate leaving the EU: Stuart . Admittedly, she has been moving in a Eurosceptic direction for eight years or so and is now something of a maverick on the Labour benches. But she was born in Germany and is a particularly thoughtful MP. What she says needs to be taken seriously.

Where her argument is perhaps weakest is in relation to the possibility of a two-tier EU, although I think she is correct in her judgment that a negotiation would not deliver that much in terms of a repatriation of powers (certainly not an exit from the CAP). This is not one of the usual supspects and it may be an early indication of a real shift in the political climate.

Are UKIP wrong about the CAP?

Stuart Agnew MEP, the UKIP agricultural spokesman, has said the EU 'has become far too big to have a CAP.' There are certainly those who think that the EU is too geographically diverse to have a 'one size fits all' policy, although in practice it is not really like that. He also criticised farmers who receive subsidies for wind turbines and solar panels on their land as 'robbing the poor to pay the rich.'

European Commission official and agricultural economist John McClintock was trotted out to defend the CAP and said that scrapping the CAP 'could lead to food riots like we have seen in other parts of the world like Haiti.' This is scaremongering of the worst kind, but defenders of the CAP have seized on the food security card.

Mr McClintock is described as an agricultural economist, but he doesn't seem to have much love for the market mechanism. He said, 'There are still people who dream about the free market in agriculture, but the reality is that it could be socially disastrous.' Socially disastrous for whom, one has to ask?

Mr McClintock said that scrapping the CAP would mean that many farmers would not be able to survive. But is getting rid of marginal and inefficient producers necessarily a bad thing? He also argued that food prices would go up, but this could be offset if the EU lowered the high tariff walls it erects against much of the rest of the world. Defenders of the CAP argue that this helps the EU to be self-sufficient, but is it such a bad thing to import from countries well suited for agricultural production? Anyway, if one is concerned about self-sufficiency, perhaps there ought to be renewed attention to the quality of agricultural land when development takes place?

He also said that one of the main objectives of the CAP was to ensure that farmers had a comparable income to those in cities. Fair enough, but there are many people in rural areas who are not farmers and suffer from relative poverty. Surely this is a case for income supplements rather than subsidies to agriculture?

Similarly he argued that the CAP kept the countryside alive. But that is a case for transparent subsdies to keep the land in good heart and environmentally sustainable, not for blanket subsidies like the single farm payment.

The CAP costs €50bn a year and hardly represents value for money. 40 per cent or more of the EU budget represents a high opportunity cost. But, of course, we are where we are and withdrawing subsidies overnight would hit the rural economy hard. So it is incumbent on those who would withdraw from the EU to say what they would replace the CAP with in terms of domestic policy.

Accession state farmers get little money from CAP

96 per cent of direct payment beneficiaries in the new member states received no more than €5,000 in the 2010 financial year according to Commission figures. The average amount in the EU-12 was €1,550 per farmer. In overall terms 80 per cent of farmers received 20 per cent of the payments. It should be noted that payments are still being phased in in the new member states.

Just over 60 per cent of European farmers received less than €1,250, although quite a few of these would be part-time farmers. Nearly 4,000 received more than the proposed cut off point of €300,000. 1,660 of them were in Germany, 390 in the Czech Reoublic, 330 in Spain and about 310 in the UK.

The Commission notes that 'the direct payments have lost their compensatory character over time' (which is how they were justified at the time of the MacSharry reforms) 'and have increasingly become a support ensuring a certain farm income stability and in combination with cross-compliance, promoting sustainable farming activity.'

If the objective is to stabilise farm incomes, Single Farm Payments are an inefficient way of doing it and a blunt instrument to promote sustainability.

Subsidy cuts could be deeper than anticipated

The cut in single farm payment subsidies could be deeper than the anticipated four to five per cent according to Richard King of Andersons. He thinks that pressure on the EU budget could see the amount of money available through the reformed CAP reduced by twelve to fifteen per cent.

In real terms the loss would be even greater and farmers in Scotland and Wales could see bigger cuts as payments moved from an historic to a flat rate basis.

Snaller traditional family-run mixed farms were likely to be hardest hit by the cuts, as many relied on subsidy payments to get anywhere near making a profit.

The European crisis, Britain and the CAP

The outcome of the eurozone crisis remains unknown, although none of the measures taken so far have really tackled the fundamental problems of sovereign debt and structural uncompetitiveness in Southern Europe.

What effects will the exercise of the British 'veto' have on attempts to reform the CAP? NFU policy director Martin Haworth is one of the most experienced individuals in agricultural politics and policy and he told Farmers Weekly that only time would tell if Britain would be marginalised in Europe and hence have less influence on a range of issues.

He made a distinction between Britain's largely unsuccessful attempts to secure CAP reform and broader efforts on regulation. He noted, 'The UK has pursued CAP reform policies ... which have pursued UK negotiators on the margins of the debate, so it is unlikely that Mr Cameron's actions will change the way in which the UK is already viewed with regards to CAP.'

'However, on broader regulatory matters where the British voice has been heard in recent years, for example on environmental and market regulation matters, Mr Cameron's actions may affect Britain's influence in the EU.'

The NFU is concerned about a scenario in which agricultural powers were repatriated to the UK, although Eurosceptics have focused mainly on various forms of labour market protection and the Common Fisheries Policy.

A NFU briefing document states that 'A worst-case scenario would see the UK remaining in the single market but regaining autonomy over support arrangements.' The NFU fears 'That would allow the Treasury to achieve its long-standing goal of removing direct payments altogether.'

Supposing Britain left the EU or repatriated CAP payments, the withdrawal of subsidies overnight would cause chaos in agriculture. In principle one might want to see a return to a deficiency payments system which was the more market attuned form of subsidy that existed before Britain joined the EU.

However, in practice, it would be costly to dismantle the existing (albeit rather inefficient) administrative apparatus and replace it with a new one. One would therefore have to pay farmers the SFP on an historic basis, tapering the amount paid over time so that one might start at 90 per cent of the existing payment.

More radically one could compensate farmers for the subsidy by issuing them with interest bearing bonds which could also be sold on the market but that would probably be unacceptable to the parties involved.

Meanwhile British farmers who had opted to be paid in euros have been converting them into pounds on the spot market rather than waiting for a more favourable rate (which, of course, might well not materialise).

It is generally larger farmers who take payments in euros and they usually have some form of relatively sophisticated risk management in place, including hedging.

The crisis has also injected some uncertainty into the market that trades in English Single Farm payment entitlements. If CAP reform is not agreed in time for the 2014 claim, which in my view is more than likely, the purchase of entitlements now would give buyers access to claims for the years of 2012, 2013 and 2014 for little more than the value of one year's SFP.

Leading broker Webb Paton is reported to be doing about 15 deals a day. The existence of such a secondary market might seem to be perverse but, given that we have farm subsidies, it is a 'second best' solution that facilitates their more efficient allocation.

Storm of protest greets 'capping' plans

A storm of protest from farmers and their representatives has greeted the leak of European Commission plans to cap Single Farm Payments (SFPs) to large farms. The proposals should have come as no surprise as the Commission sets out to meet imperatives to cut the CAP budget and make it superficially fairer. However, critics say that the move undermines the international competitiveness of EU agricultire.

Under the leaked proposals individual farmers receiving above €150,000 (£132,000) in payments would lose 20 per cent of that support with the amount increasing proportionately for those raising larger sums. There would be an overall limit of €300,000.

The cutbacks would not apply to the so-called 'greening' element of Pillar 1. They would also take account of farms with large workforces through a so-called 'salaried labour intensity' indicator. However, most large farms are relatively capital intensive and make extensive use of contractors who presumably would not count.

The Commission intends to introduce legislation to close a loophole that might be available to farmers by splitting up their holdings into separate legal entities or transferring payments to relatives. Some of them may have already done this or still have a period of grace to do so.

In a sense this is a shift in the direction of confirming that the CAP is essentially a social policy for marginal farmers. Competitiveness is a formal objective, but has always been given relatively little attention.

Is a radical approach to CAP reform off the agenda?

In the latest issue of Eurochoices the editor John Davis suggests that 'Those who favour a more radical approach to policy development [in the CAP] may now be considered "outliers".' He notes that CAP reform has followed an evolutionary path, which is certainly the case, and that as a consequence the Producer Support Estimate (PSE) has been reduced from around 35 per cent in the late 1990s to about 24 per cent in 2009 which is close to the OECD average (although the US figure is 10 per cent).

Of course, in the absence of any radical impetus, we may not progress much further. Those who take a relatively radical position may help to produce compromise positions which still lead to real progress on reform.

It is interesting that elsewhere in the issue an article by David Harvey and Attila Jambor point out the flaws in the conception that Single Farm Payments should now be interpreted as payments for public goods.

They note, 'In fact, these payments derive from and largely reflect previous coupled and production related support. They are a supplement to production-related market returns, and are treated as such by farmers.' As for cross-compliance it is 'often regarded as an unnecessary and irritating condition attached to deserved support for commercial farming.'

'Greening' of CAP on its way

Both Defra and the NFU think that they have lost the battle to prevent the 'greening' of the CAP: Greening .

The NFU is concerned about the impact of the proposed measures on competitiveness, but it looks as if farmers will have to comply with environmental requirements to claim their Single Farm Payment. The NFU is consequently going to re-think its tactics on this aspect of the negotiations.

The NFU also thinks that delays in putting forward formal Commission proposals means that the start of the new policy will be delayed until January with the existing policy rolled over for one more year.

Lords committee calls for radical CAP reform

The House of Lords EU Sub-Committee on Agriculture, Forestry and Fisheries has called for radical reform of the CAP: Lords . Direct payments should be phased out. The Committee welcomes proposals to 'green' Pillar 1.

The committee argues that innovation should be a central part of the whole reform agenda. This would unlock agricultural productivity which has been relatively static. High quality agricultural research and development, and its transfer to practitioners, are key to the future of EU agriculture. To boost funding, it should be possible to transfer money from the CAP to the research budget to fund Framework programmes.

The Committee calls for vastly improved farm advisory services so that farmers have better access to high quality impartial advice on possible innovative approaches. Unfortunately, publicly provided arrangements were dismantled a long time ago and it is difficult to see how they could be restored. Possibly private providers such as agronomists could undertake public policy work on a contract basis.

The report seems to reflect good sense, but there have been so many of these reports over the years and nothing much really seems to change as a result.

The subsidies dilemma

A farmer writing to Farmers Weekly says of Caroline Spelman's support for phasing out the Single Farm Payment, 'Surely she must realise the subsidy keeps most farmers in business?'

The correctness of this view in the short term, for livestock farmers at any rate, was confirmed by HSBC's head of agriculture Allan Wilkinson who said that livestock and dairy enterprises are likely to be even more reliant on subsidy payments to make a profit this year.

He told Farmers Weekly that while arable producers will benefit from the dramatic upturn in commodity markets, relatively static meat and milk prices, combined with big increases in feed costs, will put margins for beef, sheep and dairy producers under significant pressure.

Part of the answer is, of course, not subsidies but the response of the individual farm business to admittedly difficult market conditions. Mr Wilkinson acknowledged that output and costs varied significantly and that top-performing producers and those who had managed to secure higher end prices or cheaper inputs would fare better.

He commented, 'It's clear that volatility is here to stay and the successful busineses will be those that devote more effort to marketing strategies, in conjunction with a continued focus on technical efficiency and lowering production costs.' In other words, farmers have to get smarter.

Subsidies may not help them to get smarter. With Simon Marsh of Harper Adams University College, Farmers Weekly is following the month-by-month progress of an upland suckler herd that's consistently performing in the top 1 per cent of all costed herds. Mr Marsh commented, 'For too long, the UK beef industry has relied on support payments and it has stifled incentive to strive for efficient production.'

I was recently talking to a journalist from an esteemed weekly who has written on the CAP. He commented that when prices were low, the French (as the main defenders of the CAP) said that subsidies were needed to boost farm incomes. When prices were high or volatile, they were needed to ensure food security. He once asked a French minister if there were then any conceivable market circumstances in which an argument could not be produced in favour of subsidies.

We do not start with a blank sheet of paper and a sudden withdrawal of subsidies would seriously disrupt the market. But we should be starting down that road. Many farmers would be happier getting their return from their market without all the transaction costs of filling in forms to claim subsidies and the hazard that you may be denied part or all of your entitlement because of an inadvertent error.

What is more the UK is facing up to £1bn of fines from the EU in large part because of incompetent handling of Single Farm Payments (some £664m appears to relate to Defra). This was described in 2009 by the Commons Public Accounts Committee as a 'singular example of comprehensively poor administration on a grand scale.' Britain has now joined Italy and Greece among the worse offenders on farm funding

Buoyant market for SFP entitlements

The market for SFP entitlements appears to be buoyant. Buyers far outnumber sellers which naturally tends to push up prices. George Paton of WebbPaton told Farmers Weekly that they had a requirement for 2400ha on their waiting list.

The confiscation of entitlements under tighter usage rules has had the effect of reducing the number of 'spare' entitlements. There are also more buyers about, some of them finally getting round to buying entitlements for land that missed out on the original allocation in 2005.

English flat-rate entitlements of €241/ha are currently worth around £205/ha, which is close to the level they can be expected to pay out in 2011, assuming exchange rates remain similar to current levels (when the pound fell against the euro it pushed up the value of payments received by farmers in sterling.) Entitlements for Severely Disadvantaged Areas and Moorland Areas are once again in particularly short supply and are fetching up to twice their annual face value.

Ideally one would not pay general subsidies of this kind to farmers at all. However, if one does have them, there is an argument for having a secondary market to re-allocate them more efficiently to those who think they need them most.

In a sense those who buy and sell in this market are taking a bet on the sterling/euro exchange rate. Of course, this not only affects the sterling value of the SFP, but also key input prices which have been rising substantially recently. 'Red' diesel for use on farms is taxed at a lower rate than diesel bought for normal domestic or business use, but its price has been pushed up substantially recently by rising world oil prices.

Ciolos lays it on the line

Dacian Ciolos has emerged as a more authoritative and decisive farm commissioner than many expected. Whether his line is the correct one is another matter. But the grumpy old man of British farming, Farmers Weekly correspondent David Richardson writes of his appearance at the Oxford Farming Conference, 'he had comprehensively mastered his brief and, when questioned, actually answered as fully and frankly as any politician I have known.'

The content of his message is perhaps less welcome. It's clear that he sees his job as being to change the CAP but also to defend its essential elements. I do, however, welcome the news that research and development may be included in pillar two. The food chain needs more publicy funded, applied research which can help to tackle pressing policy problems and on farm challenges. This has been cut back drastically over the years.

It is evident that the Commissioner thinks that part of the price of defending the CAP is capping subsidies to larger farmers. He is clearly influenced by his Romanian experience where it has been possible for farmers with very large farms (presumably in some cases former collective farms) to use the income from subsidies to start other businesses. This is evidently resented in Romania where there are also many small (and by European standards) relatively backward farms.

Ciolos argues that in some parts of Europe the choice is small farms or no agricultural activity at all. It may be that in some of these areas agricultural activity is not really viable and the land should be farmed as an ecological asset to maximise environmental benefits.

Ciolos argues that it's very difficult to explain how giving €2m to one individual or company is 'income support'. If the CAP really is income support, it's an inefficient way of delivering it.

What is continually overlooked with the CAP is the international competitiveness dimension which is supposed to form part of the policy. Large-scale farmers tend to farm to a high standard (including animal welfare standards), are highly competitive and also are often substantially involved in agri-environmental work.

If you cut off aid to them, you are penalising them for being more efficient. In any case there would be all sorts of legal problems over the definition of a farm business.

Ciolos evidently sees the CAP as more justifiable as a mechanism for the transfer of funds from taxpayers and consumers to marginal farmers. It is actually not an efficient way of helping them or the environment, it doesn't do much for food security (given that their output is low) and it doesn't help the EU food industry to become more competitive.