CAP changes sow confusion

A climate of uncertainty is rarely a good thing for business. The current proposals for reform of the Common Agricultural Policy (CAP) will take at least two years to be hammered into shape within the EU institutions and for most of that period farming businesses will have little idea as to the shape or size of the CAP post-2014.

Three proposals in particular are adding to the state of confusion: payment capping, restricting payments to “active farmers” and creating new “basic” entitlements in place of existing entitlements.

The principle of capping payments would not be good news for East Anglian farmers, many of whom have increased their holdings to achieve economies of scale and who, as a result, are among the most efficient food producers in Europe. The current proposal is that salaries and employment costs could be deducted from the amount of payment to be capped. Does this mean that larger businesses should be aiming to restructure over the next two years or will that prove to be a fruitless exercise?

The proposal that only active farmers will be able to receive payments could create a huge extra layer of bureaucracy. How are active farmers to be defined and how would the rules be enforced? One suggestion is that, to be an active farmer, an applicant for payments would need to show that he was in occupation of the land for farming purposes, taking the entrepreneurial risk for the farming activities and in close management of the farming operations.

Creating a new entitlement to payment in 2014 is, perhaps the biggest cause of concern. The wording of the draft regulation is far from clear but the proposal seems to be that, to qualify for the new 2014 entitlement, you must have made a claim for payment in 2011. This proposal has serious implications for landlords who are expecting entitlements to be returned to them by tenants at the end of a tenancy and for investors and new entrants who acquire farms or farming businesses after May 2011. They may well be genuine farmers who find that they are not qualified to apply for new entitlements in 2014.

If there is one certainty about CAP reform, it is that the final regulations will look very different from the current draft. But over the next two years, businesses will need to pay careful attention to developments to ensure that opportunities are not lost to benefit from the new CAP environment expected from 2014 onwards.

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