In a thorough and authoritative analysis, Alan Matthews examines the repurposing of the English agricultural budget since Brexit, noting that the only other developed country to attempt such extensive changes is New Zealand: http://capreform.eu/agricultural-policy-reform-in-england-and-the-2024-uk-budget/
There has been a much greater reallocation to agri-environmental funds in England than in the CAP.
The Government's intention to switch to public goods payments for farmers after Brexit may fall foul of the poor record of implementation of existing agri-environmental schemes. About 30 per cent of the farmers signed up to the various green programmes are still waiting for payments from 2017.
Payments often come up to a year late. By the government's own assessment, delivery of the country stewardship scheme has 'fallen short' and 'the situation is unacceptable' according to the latest annual report from Natural England.
The new schemes are likely to be even more complex and will have more money going through them, making even more delays likely.
Given the likely complexities of making applications, farmers could simply opt to farm their land more intensively, reversing previous environmental gains.
A new report Assessing the costs of environmental land management in the UK commissioned by The Wildlife Trusts, RSPB and the National Trust, shows how much Government might need to pay farmers and land managers for their role in looking after our natural heritage.
The report estimates that meeting existing government commitments to improving natural assets such as water quality, soil health and biodiversity will cost £2.3 billion per year. But meeting existing commitments will not be sufficient to halt the decline of the UK’s wildlife and reverse this trend.
£2.3 billion is five times more than is currently spent through agri-environment schemes – the source of most current environmental land management funding. This figure does not include wider financing required in the farming sector, for example for research and development or providing advice to farmers.
The total includes £876m for protecting and improving priority habitats, which include woodlands, marshes, bogs and fens; £402m for hedges and stone walls; and £78m for flood plains.
Ellie Brodie, Senior Policy Manager, of The Wildlife Trusts said: 'Farmers can sell the food they grow through the market. But they can’t sell a whole range of services that society needs them to provide, whether it’s reducing the risk of floods downstream, creating habitat for bees or improving the health of our soils. The Wildlife Trusts believe that farmers should be paid for this as it benefits us all. A healthy, wildlife-rich natural world is valuable in its own right and is also at the core of people’s well-being and prosperity. We must be prepared to pay for these benefits.'
Christopher Price, head of policy at the Country Land and Business Association said that government agri-environmental schemes were over bureaucratic and fragmented and drew attention to the CLBA's vision of a land management contract.
The associated policy briefing can be found here: Policy briefing
A group of academics funded by the ESRC has produced an authoritative briefing paper on agri-environmental policy post Brexit: New Dawn?
The report states,'By recognising the wider role of farming in the landscape, agricultural policy can become part of a wider sustainable Land Use Strategy, which seeks to end the decline in environmental quality and to enhance that quality through restoration.'
The policy brief concludes, 'There is a risk that future policy will be constrained by the legacy of past policies and practices. Whilst a transition arrangement between current and future policies is both sensible and inevitable, it is important to grasp this opportunity to remake our rural development and agricultural policies and avoid “lock-in” to unsustainable practices.'
A number of papers have been produced on the consequences of CAP and the policies that may replace it, but this is one of the better ones. It takes a critical look both at the pathologies of the CAP and the cases that have been put forward for continuing forms of subsidy: Dieter Helm
The paper points out that no other economic sector outside defence has received so much government money. It points out the CAP was the result of a very political deal, reflecting a very particular historical context. The reforms that have taken place addressed some of its deficiencies, but remain sub-optimal.
The paper subjects the three main arguments for subsidy to critical scrutiny: food security; a shift towards environmental subsidies; and public money for public goods. It points out that food security arguments still embody production maximisation. The paper then goes on to consider the key issue of a workable transition.
This is very much an economist's perspective and as a political economist I tend to take a somewhat different perspective. For example, I sometimes think it is necessary to accept a 'satisficing' (in Herbert Simon's terms) rather than an 'optimal' solution. However, I will certainly take its arguments seriously as I prepare my paper for a Welsh Assembly committee public seminar next month.
Philip Hammond as Chancellor has undertaken to maintain current farm subsidies until 2020 when the current EU multi-year programme ends. According to some reports, that may not be that long after Brexit takes place.
Not only does enable farmers to make business plans for the next four years, it allows full time for a debate about the future support regime for farming.
When Brexit does take place it will be necessary to fix farm subsidies with a sterling value.
There is still some uncertainty about exactly what is on offer. Chief secretary to the Treasury David Gaulke has stated that 'the agricultural sector will receive the same level of funding it would have received under Pillar 1 of CAP until the Multiannual Financial Framework in 2020.' Will this be inflation adjusted? Inflation looks likely to rise to a higher level over the next year or two.
Farm business consultants Andersons have pointed out that the final year of the MFF actually pays the 2019 Basic Payment. It is thus possible that the guarantee lasts only until 2019.
It is clear that agri-environmental agreements already under way will be honoured, but there are questions over Countryside Stewardship agreements due to start this autumn. Applications to other rural development projects, including Leader projects that help rural businesses to grow, are guaranteed only if they are agreed before this year's Autumn Statement.
The Government statement says, 'The Chief Secretary to the Treasury, David Gauke, has also written to each devolved administration to confirm the same level of assurances offered to UK government departments in relation to programmes they administer but for which they are expected to rely on EU funding. The Treasury will work closely with the devolved administrations on subsequent funding arrangements to allow them to prioritise projects within their devolved responsibilities.'
This was well received in Northern Ireland where it was seen as removing uncertainty, but declared to be not good enough by the Scottish Government finance minister.
The Tenant Farmers Association is the first farm organisation to come up with a plan for a post-Brexit domestic agricultural policy. It should be noted that basic payments often go to landlords rather than tenants so their advocacy of the abolition of general support payments is not surprising,
What they propose is a three pillar scheme. There would be a new agri-environmental scheme that would set out a menu of costed options that farmers can choose from to deliver on their farms and would be judged on the basis of outcomes. It would include options for hill and upland farmers focusing on livestock production. Of course, they form a significant portion of the TFA membership, but many analysts think that support payments should move 'up the hill'.
Second there would be a farm business development scheme to provide annual grants of up to £25,000 a farm a year to assist with the implementation of five year plans for farm development. This would take into account economic, social and environmental resilience. It strikes me that the administrative costs of this would be quite high in relation to the amount available, both for government and for farmers.
Third, there would be a package of near-market research and development, technology transfer, promotion, market development, brand development and other supply chain initiatives focused on supporting British-produced food. Our capability to provide scientifically based advice to farmers has been severely diminished and they have become increasingly reliant on private providers such as agronomists.
Public procurement of British food would be part of this effort, something also supported by the NFU. That sounds fine, but if you are a prison governor with a restricted budget but more autonomy to spend it, are you going to want to buy food that is more expensive?
There is talk of a coalition being formed between the NFU, the CLA and the TFA to provide a united front to government. Other groups might become involved such as the Food and Drink Federation and selected environmental organisations, although the NFU do not seem keen on working with them.
UK farmers are less productive than their counterparts in the Netherlands, France and the US. The CLA rightly argues that there must be an attempt to improve the productivity of the worst performers. The top ten per cent of British farmers are twice as productive as the bottom ten per cent.
It was interesting to hear Meurig Raymond talking at the Great Yorkshire Show. The NFU is, of course, going through a big consultation exercise with its members, but it was possible to see some of his thinking.
The balance of payments argument was used extensively in the 1960s as a justification for subsidies to farmers and with the trade deficit at not far off 7 per cent of GDP, it seems that this is to be used again. Of course, much of the deterioration is due to falls in repatriated investment income. The balance of trade in goods, although in deficit, is broadly stable.
It was interesting that he said it was not necessary to match the current sum paid by the CAP to the UK, but this may just be an acceptance of reality.
He was clearly aware of how relatively well Pillar 2 type payments are viewed, but said these should be more oriented to promoting competitiveness on the farm.
He noted that farmers found it difficult to influence the UK Government, noting the recent decision to turn down a revised and reduced application for the use of neonics. Denmark had permitted 100 per cent use.
In reply to a question, he made it clear that the scope for coalition building with NGOs was limited. The focus would be on the NFU's own members.
With Meurig Raymond at the Great Yorkshire Show
Here is the text of my address at the NFU breakfast meeting.
Harold Wilson used to say a week in politics was a long time. We have recently learnt than an hour in politics is a long time. Fortunately, we are now entering a period of greater stability as far as the Government is concerned. We have to wait to see who will be Defra secretary. I would expect Theresa May to approach the start of the Article 50 negotiations with some caution. Little preparatory work was undertaken by government, or at least little that was committed to paper. I think that our YAS report is actually quite helpful in terms of highlighting the issues that need to be considered.
Brussels is on holiday in August. Of course, too long a delay could lead to Article 7 being triggered. This invokes sanctions against an EU member for ‘failing to uphold the values on which the Union is based.’ However, I do not think that would be a very likely scenario.
How long the negotiations will take is a matter for speculation. They have to be completed in two years, but could be completed in less. France has a presidential election in April and May 2017, where the outcome is uncertain, and Germany has a federal election in September 2017. France is trying to carve out a leading role for itself in the negotiations and has set up its own task force led by their secretary-general for European affairs.
A few words about the negotiation process. The role of the European Council in the negotiations is to set the guidelines and key conditions while Commission staff will make concrete recommendations. The Council task force on the UK is headed by Belgian diplomat Didier Seeuws. There was some feeling in the Commission that he had been appointed too early. President Juncker’s chief of staff Martin Selymar is expected to be the Commission’s lead, at least unofficially.
The European Parliament won’t be directly involved in the negotiations, but will try to make itself felt before it carries out its official role, ratifying the final agreement. The Commission is likely to issue progress reports on the talks and the Parliament will vote on non-binding resolutions on them. One of our objectives with our report was to try and get greater attention given to agriculture and the food chain in the referendum debate. We were not very successful and I am concerned that this will happen again in the Article 50 negotiations.
The work of the YAS working party will continue and will have two main tasks:
I have been asked to be positive today and I will try to be so, but it has to be recognised that farmers face political challenges and no longer have the support of farmers elsewhere in Europe. ‘Time to cut our greedy farmers down to size’ says this article in last Saturday’s Times. It is a very ill informed article and I have criticised it in my blog. The only good point in it is when it says that the NFU is a well organised lobby. But we can expect more of this sort of thing.
Before looking at various areas of policy, I want to say something about sterling. A falling rate against the dollar and the euro brings many advantages to farmers, but also some downsides. Exports become more competitive and the value of EU subsidies rises, but the cost of inputs such as fertilisers and soya increases. Fuel prices also increase, which is why the future of red diesel is something that needs to be watched.
The future of subsidies is clearly a matter for concern as for many enterprises they make the difference between running at a profit and a loss. Pillar 2 subsidies are in many cases protected by contracts that run beyond 2020, but we were also confident in our report that there was a strong domestic coalition of support for the continuation of agri-environmental subsidies, but hopefully putting right some of the failings in the existing scheme. There needs to be some discussion about whether subsidies should move up the hill to livestock farms.
We were much less confident about Pillar 1 or basic payment subsidies. We didn’t think they would be abolished, but we did think they would be a target for the Treasury. It has to be recognised that falls in tax revenue, some of which may be longer term, will put public expenditure under greater pressure, even though the budget surplus target has been rightly abandoned.
Inertia would suggest that a modified form of the basic payment would be used, hopefully with fewer form filling complexities and payments being made to farmers on time. I am clear that there will be no return to the deficiency payments that were used in the past because it is difficult to forecast how much they will cost in any one year.
The justification for general subsidies (or support payements) needs to be articulated. In my view the strongest argument is the need to maintain a level playing field with farmers elsewhere in Europe that will continue to receive CAP subsidies. There are also food security arguments given that our ability to grow temperate foodstuffs has declined over time. One also needs to consider environmental protection and the maintenance of the appearance of the countryside.
As far as regulation is concerned, hopefully we will see the back of the monoculture regulations that interfered in farm decision-making without making any contribution to environmental objectives. I think that it should be possible to eventually get rid of the Nitrates Directive in its present form and some aspects of the Water Framework Directive.
It does need to be recognised, however, that there is a strong coalition of domestic lobbies - environmental, conservation, animal welfare, consumer, public health – that often do not have a good understanding of the challenges that face farmers.
Take the case of badgers and bovine TB which I have written about a lot, indeed I am giving a presentation at the vet school at Surrey University next week. In forty years of working on agricultural policy, I have never encountered such an intractable policy problem in which emotion often trumps the evidence.
Plant protection legislation has not worked well in the EU. The internal market is not complete. Many of the national agencies suffer from very serious problems. There is too great a willingness to accept hypotheses about risk which are not evidence based. However, the UK Government is not necessarily sympathetic, as has been shown by the recent decision to reject a revised application to use neonics this autumn. It won’t be too easy to operate a pesticides regime in the UK that is at odds with that in the EU.
Trade agreements between the EU third countries or groups of countries, of which there are over fifty, provide one of the greatest challenges, although my guess would be that probably only fifteen of these are really important for agriculture. Trade negotiations are very complex and we lack enough experienced trade diplomats, although I believe that the Government is thinking of hiring them in from private firms, which will not be cheap.
There is a major issue about migrant labour which is particularly important in terms of planting and harvesting field vegetables and fruit. I don’t have time to go into this in detail, but in my view the way forward is through a revised version of the SAWS scheme that extends to specific countries beyond the EU. As far as the border with Ireland is concerned, I think that the most likely solution is to move it back to England.
The NFU is undertaking a major consultation with its members, probably one of the biggest it has ever undertaken. I await the results of that with interest, but in the meantime the work of our working party will continue.
Sources close to the NFU suggested to me later in the day that the biggest challenge would be managing the expectations of farmers.
