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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.
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:
RAP trajectory %
non-SDA RAP £/ha
SDA RAP £/ha
Historic element %
non-SDA RAP £/acre
SDA RAP £/acre
Individual farm ready-reckoner: non-SDA farm
Total eligible agricultural area in 2005 ha
This is the future number of Entitlements.
Total AAPS claims for reference period £
Total Livestock claims for Ref. Period £
Total Historic claim £
Gain or Loss %
Entitlement Rate £/ha
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
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
6 Issues remaining
21. There are a great number of issues still to be clarified and spelled out. Many of these are dependent on the implementing regulations which are not expected until late March or April.
22. In particular, the rules for dealing with farmers in hardship cases, including FMD, agri-environment schemes and ‘in transition’ are still under detailed discussion.
23. One possible arrangement is that the Rural Payments Agency may issue early indications of their understanding of who has what historic Entitlements later this year. This will enable them to see the extent of those who are in these special situations and to gauge how they can best be dealt with. There then might be two separate application dates just for 2005 to set the system up. The first when farmers are invited to apply for their Entitlements, ie to clarify the number of entitlements. This could have the double benefit of discovering just how much eligible land there really is out there, and second to allow those who have sold or leased out land and who intend the payments to accrue to the purchaser or lessee, to get the entitlements and then pass them to the new occupant. The actual application for payment of the entitlement would then follow, e.g. on May 15th as normal. At this stage these are simply ideas under discussion.
24. Whatever the procedures and sequencing, it is clear that applications not made in the first year, i.e. in 2005, will mean the payments are forfeited forever. This is particularly important to understand for those farmers who have never had to complete an IACS form before.
25. It is important also to realise that the consequence of invoking the Article 56 Regional Allocation is that the set-aside rules and the rules for the operation of the negative list will be those set out in Articles 58-63. More analysis is required of these issues, but several point are already beginning to emerge.
26. There will be no inter-regional transfers of Entitlement possible between the non-SDA and SDA regions of England. Just as there are no transfers possible between England, Scotland and N Ireland or any other Member State.
27. The procedures for dealing with holdings which have land in more than one region of the UK, or England are not yet clear.
28. The set-aside rule will be mean that the normal 10% (ignoring this year’s reduction to 5%) of the cereals, oilseed and protein area which has to be set-aside, will in future be expressed as a smaller percentage of the larger area defined as the ‘arable area’. The Regulation partitions total agricultural area only into ‘permanent pasture’ and ‘arable area’. As things stand, the latter is likely to include temporary grass – unless DEFRA can persuade the Commission to take a different view. This could mean that the lower set-aside rate, say 6%, applies to all the arable area, combinable crops, vegetables and temporary grass. This would be a further blow to dairy farmers. This is under deep discussion. DEFRA certainly see no logic in having grassland (or for that matter vegetable land) set-aside in order to manage the cereals markets. If it is any consolation this problem is shared with other countries making use of Regional Implementation (Germany and Denmark).
29. The negative list will operate as explained in Article 60. In essence farmers are able to claim RAPs for their fruit and vegetable crops up to the national areas of these crops in 2000-2002, and if that area is not met, then up to their individual areas recorded in 2003. There is nothing to stop farmers growing more than these areas, but in doing so they will forfeit the area payment.
7 CLA position on all this
30. The CLA has welcomed decoupling as a brave step forward which will lead to a better policy more in tune with what society wants from the countryside. But it is a huge change for farmers. The CLA recognised very early in this whole debate that historic payments, which most farmers’ intuitively thought would be the simplest and best solution, had three serious defects.
31. The first was that the extent of Entitlement-free land and the variation in Entitlement rates would be maximum under this distribution and this would give greatest scope for a damaging trade in Entitlements. We therefore wanted a sensible part of payments to be given as a RAP from day one.
32. The second defect is that Historic payments put all those farmers in transition, who have changed the land they occupy since the beginning of the reference period, were likely to suffer huge uncertainty and then get very rough justice from the national reserve. Giving the crop payments as we had proposed, would have eliminated a large proportion of these problems.
33. Third, the CLA also recognised early on that the historic solution was not likely to be a politically acceptable solution for the long run; it was backward looking rather than forward facing.
34. We have won something on all these arguments. Beckett’s Hybrid does cover all land with Entitlement. We are still concerned that it does too little in the early years and this might intensify the swaps in Entitlements before this opportunity tails off as more of the payments are offered as the single RAP. We are also very concerned that the small RAP in the early years does not solve the farms in transition or unsupported crop growers legitimate problems.
35. The Progressive Hybrid is now all a done deal. Our attention now switches to helping members understand what has been announced. This is being done through information releases such as this paper and meetings being arranged by Regional Directors around the country. Our lobbying focus is now on the long list of issues still to be decided.
14th February 2004
Allan Buckwell, CLA Chief Economist
Country Land & Business Association
Tel 020 7460 7937