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A primer in Beckett’s Progressive Hybrid

(view as pdf file)

Allan Buckwell, CLA Chief Economist

Country Land & Business Association

How will it affect CLA members?

 

This explanation, and specifically the per hectare  RAP figures, are indicative only, they are based on best current information and interpretation of the regulations, these may change.

 

1     What is the Progressive Hybrid?

    1.           The Progressive Hybrid announced by Mrs Beckett on 12th February is a method of allocating the Single Farm Payment (SFP) which progressively moves from 90% Historically based in 2005, to 100% Regionalised after 8 years, in 2012.   Another way of describing it is a delayed RAP.

    2.           The trajectory of the proportion of payments each year which are given as a RAP (ie given as a area-based payment) starting in 2005 are: 10%, 15%, 30%, 45%, 60%, 75%, 90%, and 100%.

    3.           This trajectory is used for all payments, although the calculations will be done separately for the Severely Disadvantaged Areas (SDAs) and all other areas.  This is done to prevent redistribution of payments to extensive grazing areas.

    4.           These decisions are used to calculate, at the English national level, the Regionalised Average Payments (RAPs) for non-SDA and SDA land, for each year.  These are then applied to individual farms.  The RAP payment will be based on the valid claims of eligible agricultural land in each future year, starting in 2005.  This area defines the number of Entitlements.  The RAP element will steadily build to the English national figures of £216/ha for non-SDA and £67/ha for SDA land. 

    5.           To the RAP element is then added the relevant remaining part of the historic payment which is based on Individual Historic Claims in the reference period (2000-2002).   For this part of the calculation only the financial totals of crop and livestock claims are relevant, historic areas or livestock numbers are not relevant once this historic total has been calculated and agreed.  Whatever total sum is finally arrived at for each farm, this will be expressed each as a rate per entitlement.  In 2012 every farmer’s rate will converge to the English RAP, say £216/ha (0r £67/ha in the SDAs).

    6.           All those farms who are uncertain of their historic based claims because they have changed their occupation of land since mid-2000 will remain in doubt until the rules for allocating Entitlement from the National Reserve are clarified.  This may not happen for several months, and possibly even longer.

2      How does it work?

    7.           The calculations are best described in concrete figures as in the accompanying Table in section 5 below.  

    8.           Applying Beckett’s Progressive Hybrid.  The first block of information in the Table shows our estimates of the national ceiling amounts of total entitlement (in £m) available for England and the land they will be spread over.  The financial figure is actually quoted in Euro and is sensitive to the exchange rate.  The relevant rate is that at the beginning of each calendar year. This figure has been partitioned into SDA and non-SDA components – this is a crude estimate. Accurate figures may not be available until all claims are made and summed each year.  Likewise, the total eligible agricultural area of England and its partitioning into SDA and non-SDA are estimates.  Definitions of what is included are still undecided, for example the treatment of common land and land with horses.  Thus the Regional Average Payments for the English SDA and non-SDA regions are estimates subject to all these uncertainties.  They are offered as ‘in the right ballpark’.

3      Applying this to an individual farm

    9.           The second block of information shows the trajectory for the RAP element of the payments which the Government has now decided.   With this trajectory and the National information above, the Regionalised Average Payment (RAP) can be calculated for each year.  This is the proportion of total payment given as a RAP divided over the whole eligible agricultural area.  These are shown for each year as £/ha rounded to the nearest pound (£/acre in the right most column).  The column headed Historic element, shows the proportion of the total historic payments to be added to this RAP for each farm each year.   

    10.       The next part of the table shows the information necessary to apply it to any individual farm.  There are just three pieces of information required to do this.

    §              The total eligible area in 2005 (and each other year)

    §              The total historic crops claim for the Reference Period (RP: 2000-2002)

    §              The total historic livestock claim for the RP, including dairy premia

    11.       The eligible agricultural area is the total area occupied and actively farmed by the applicant in 2005.  This is “arable land, and permanent pasture except areas under permanent crops, forests or used for non-agricultural purposes” (Article 44(2)).  This means that all those farms in transition at least from day one start to get some certainty of payment, the historic component for farms in transition is discussed in paragraph 23 below.

    12.       The total historic crops claim is calculated as we have known since the Regulation was first published.  That is, calculate the average supported arable crop areas (cereals, oilseeds, proteins and set-aside) for the three reference years, and multiply this by the 2002 payment rates.  The only thing that matters is the financial total.  With an area payment over the whole eligible area of the farm the historical areas of crop claims no longer have any relevance.

    13.       The total historic livestock claim is calculated, also as we have known since June 2003, as the average numbers of claims for each category of beef and sheep payments multiplied by the 2002 payment rates.  To this total is added the total amount of Dairy premia.  It was part of the Secretary of State’s announcement on 12/2/04 that dairy premia will be decoupled and consolidated with the Single Farm Payment in 2005.  For 2005, this means multiplying the 31/3/2005 quota held by 1.8 ppl, for 2006 the premium per litre rises to 2.4 ppl.  For simplicity the calculations shown below take the 2006 figure from the outset.  As with the crop payment, the area on which the livestock claims were made is also now irrelevant.

    14.       The fourth section of the table shows for the non-SDAs how the farm payments will evolve under the announced Progressive hybrid.  The RAP amounts for each year are calculated from the RAP rates in the second section times the total eligible agricultural area of the applicant from the middle table.  (e.g. for 2005, 200 hectares times £22/ha).  The historic payment is the remaining (90% for 2005) of the total historic claim paid which is to be paid on this basis.  The total is the sum of the RAP and historic elements.  The final column shows the loss or gain compared to the Historic Entitlement.   The example has been calibrated to show the hypothetical farm which has the combination of supported and unsupported crops, and the intensity of livestock claims in relation to the national average, such that this farm has exactly the England average payment and so neither gains nor loses from this hybrid.  Most actual farms will gain or lose.

4      What determines if a farm loses or gains?

    15.       There are two critical elements which determine if your farm will lose or gain, one relating to crops the other to livestock. 

    16.       For the crop enterprises, the critical factor is the extent of currently unsupported crop and grass areas which will in future get the RAP.  The English non-SDA RAP is much less than 2002 payment rates for supported crops.  Thus specialist combinable crop farms which don’t have compensating other areas of crops and grass will lose out. Those who have such currently unsupported areas will get, steadily rising, payments offsetting the dilution of the supported crop payments. There is a threshold ratio of unsupported to supported crop areas below which crop farms lose and above which they gain.  Roughly this threshold is 20% although it is different (less) for a mixed farm which also has livestock. 

    17.       For the livestock enterprises, the critical factor is the intensity of livestock claims per hectare.  This can be expressed as the total livestock claims, including dairy premia, divided by the total forage area of the farm.  If the intensity of livestock claims is less than the England RAP (£216/ha) then the livestock part of the farm will gain, but on the more densely stocked farm with payments over this threshold the livestock enterprises will lose.  It is fundamentally no more complicated than that!

    18.       Farms in transition where there is uncertainty over the historic element of their payment unfortunately remain in this uncomfortable situation until the rules for allocating the National Reserve are known.  Once they have been allocated their ‘historic’ entitlement thereafter the payments are calculated as described.

 

 

Health Warning

    19.       It cannot be over emphasised that the figures in these tables are illustrative, and the interpretation of the implementation of the new scheme is still provisional.  The calculations assume the exchange rate is £0.68/€, and they are before deductions for National Reserve (up to 3%), Modulation (10% from next year), and Financial Discipline (up to 3% per year from 2007).  The threat of a 10% National Envelope has, thankfully, gone.

    20.       These tables are available in spreadsheet form so any member can plug his own figures in and test how this illustrative hybrid affects him.  The spreadsheet is also attached, for anyone who wishes to experiment!)  As more information emerges and time permits more detailed versions of this ready-reckoner will be developed if Members find it useful.


     

 

 

5    Beckett's Progressive English Hybrid:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

£million

Ha '000

£/ha

£/acre

 

 

 

 

 

Eligible area

1,731

9,039

191

80

 

 

 

 

 

non-SDA

1,631

7,539

216

90

 

 

 

 

 

SDA

100

1,500

67

28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year

RAP   trajectory    %

non-SDA RAP    £/ha

SDA  RAP  £/ha

Historic element   %

 

non-SDA  RAP    £/acre

SDA  RAP £/acre

 

1

2005

10

22

7

90

 

9

3

 

2

2006

15

32

10

85

 

14

4

 

3

2007

30

65

20

70

 

27

8

 

4

2008

45

97

30

55

 

41

13

 

5

2009

60

130

40

40

 

54

17

 

6

2010

75

162

50

25

 

68

21

 

7

2011

90

195

60

10

 

81

25

 

8

2012

100

216

67

0

 

90

28

 

 

 

 

 

 

 

 

 

 

 

 

Individual farm ready-reckoner:  non-SDA farm

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total eligible agricultural area in 2005                 ha

200

This is the future number of Entitlements.

 

 

Total AAPS claims for reference period                £

23,750

 

 

 

 

 

 

Total Livestock claims for Ref. Period                   £

19,500

 

 

 

 

 

 

Total Historic claim                                                   £

43,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year

    RAP           £

Historic              £

Total            £

Gain or Loss  %

 

Entitlement Rate £/ha

 

 

 

2005

4,326

38,925

43,251

0.0

 

216

 

 

 

2006

6,489

36,763

43,251

0.0

 

216

 

 

 

2007

12,977

30,275

43,252

0.0

 

216

 

 

 

2008

19,466

23,788

43,254

0.0

 

216

 

 

 

2009

25,955

17,300

43,255

0.0

 

216

 

 

 

2010

32,444

10,813

43,256

0.0

 

216

 

 

 

2011

38,932

4,325

43,257

0.0

 

216

 

 

 

2012

43,258

0

43,258

0.0

 

216

 

 

 

 

 

 

 

 

 

 

 

 

 

Note:  Payments quoted are illustrative, calculated at £0.68/€ and

 

 

 

before deductions for National Reserve, Modulation and Financial Discipline

 

 

 

 

 

 

 

 

 

 

 

 

Enter your farm's figures for the three red items

 

 

 

 

 

 

Cell E22  Total area of eligible agricultural land, including: IACS crops, all unsupported crops, all forage including

 

 

               rough grazing, occupied in 2005, excluding permanent crops (orchard and vines), woodland and

 

 

               non-agricultural activity

 

 

 

 

 

 

 

Cell E23  Supported crop claim = Average supported crop area (2000-2002) in hectares times 2002 payment

 

 

               Rates per hectare

 

 

 

 

 

 

 

 

Cell E24  Total Livestock claim = avge 2000-2002 livestock numbers x 2002 payment rates, plus 2005 milk

 

 

               quota litres times 2.4 ppl

 

 

 

 

 

 


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