The benefits of stability

The round of talks on Brexit and agriculture, at which one often meets the usual suspects, continues. Next stop Dublin, yesterday it was the Public Interest and Environmental Law (PIEL) conference at Cass Business School, ably organised by students.

My central focus was on the need for well-designed policy instruments in a domestic agricultural policy that would meet their objectives without imposing undue transaction costs.

Our chairman from the RSPB made an interesting observation. He said that the CAP was slow to reform, but the other side of the coin was that it offered stability through the legislative framework. Moreover, it offered a multi-year budget but in future we would be facing an annual budget with competing demands on resources.

Incidentally, I never knew that red diesel was used at Heathrow and for the refrigeration compartments of food lorries.

Farmers' fuel tax break under threat

The concession which provides farmers with 'red' diesel at a lower rate of duty are under threat. The diesel is coloured red so that checks can see if it is being used illegally off farm.

Draft plans by the European Commission say that current EU rules that allow member states to apply a zero rate of taxation on energy used for agricultural purposes should be repealed. The objective is to allow EU tax policy to contribute to 'green growth'.

The document argues that agriculture is one of the important sectors left out of the EU's Emissions Trading Scheme. The proposal says that a carbon tax of about £20/t should be introduced to bring agriculture in line with other sectors of the economy. It also calls for an energy consumption tax.

The news has been greeted with dismay by farming organisations at a time when oil prices have been rising. The duty rate on red diesel has increased nearly fourfold over the past decade. Farmers were paying an average of 63p a litre for red diesel in February, up from 46.9p in February 2010. This still compares very well with the price paid by hauliers and motorists.

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.