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Brexit Briefing: What would replace the CAP if the UK voted to leave?

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UK farmers receive about £3 billion a year under the much-derided Common Agricultural Policy. Would Brexit put this funding at risk or represent an opportunity to forge a better UK policy? Alistair Driver reports.

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Would farm support continue at the same level if the UK left the EU?
Would farm support continue at the same level if the UK left the EU?

Like it or not, Common Agricultural Policy (CAP) payments represent a vital component of many businesses’ incomes, often standing between profit and loss, survival or closure.

 

But while the money is essential in volatile and challenging marketplace, not to mention an equally unpredictable climate, the policy, with all its complexity and petty bureaucracy, leaves much to be desired.

 

So would Brexit put that money at an unacceptable risk? Or would it provide a welcome opportunity to design and implement less bureaucratic, more targeted and, simply, better UK versions?

 

What is at stake?

  • UK farmers receive more than £3 billion a year out of a total CAP budget of about £46bn (38 per cent of EU budget)
  • In 2015, UK farmers received about £2.44bn for Basic Payment Schemes, of which about £1.45bn went to England
  • UK direct payments average about £160/hectare (£65/acre), although this varies significantly across the four nations
  • About £4.1bn will be available to the UK in rural development funds from 2014-2020

Why do CAP payments matter?

  • In 2014, the £2.94bn received by farmers in CAP subsidies accounted for 55 per cent of the UK’s total income from farming, which stood at £5.4bn
  • By sector, Defra figures show cereals, beef and lamb and dairy farms are particularly reliant on support for income
  • In 2014, for example, farm support for the average Scottish beef or sheep producer was valued at over 200 per cent of income
  • The overall £3.87bn of UK CAP support in 2013 resulted in a £10bn contribution to the wider UK economy, research for the Country, Land and Business Association showed
  • Other sectors including agricultural suppliers, construction, forestry, IT and consultancy services, machinery and vehicle traders and even alcohol vendors also benefited, the report showed
  • The CAP also supported 350,000 jobs and generated £3.5bn for the Treasury, as well providing wider environmental and social benefits, particularly in the uplands, the report showed.

How other countries support their farmers

The Organisation for Economic Co-operation and Development (OECD) compiles figures comparing how the EU and countries around the world support their farmers.

 

It looks at two measures - the proportion of gross domestic product (GDP) countries spend on farm support and the percentage of gross farm receipts support provides – called the Producer Support Estimate (PSE)

 

 

Producer Support Estimate (%)

Per cent GDP

EU

18

1

Norway

60

0.1

Switzerland

55

1.1

US

10

0.5

New Zealand

1

0.3

 

Source: OECD

 

The figures highlight, for example, Norwegian and Swiss farmers are heavily supported, relative to their incomes, although their Governments are still spending a relatively small proportion of GDP on farm support.

 

In contrast, New Zealand have operated virtually without support for decades, while US farmers appear less well supported than their EU counterparts.

Would UK farmers continue to receive CAP support until 2020?

Officially the UK would have two years to negotiate a new deal with the EU, although many believe it would take a lot longer.

 

This means technically a vote to leave on June 23, could see the UK leave the EU as early as 2018 or 2019, prompting fears payments under the current CAP would no longer be guaranteed until 2020. The Country land and Business Association, in particular, has been demanding clarity on this issue.

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Farming Minister George Eustice, the leading farming voice for Brexit, said it was likely to take two years for the UK to negotiate a new settlement with the EU, meaning the earliest, in theory, a new British Agriculture Policy could replace ‘the old CAP’ would be 2019.

 

But he added: "However, given the timeframes of the remnant CAP policy, it is most likely that we would allow the current arrangements to run their course until 2020 with a new start after that.

 

"We would not terminate the redundant CAP system until the new British Agriculture Policy was ready to replace it."

 

Would a UK policy be devolved?

While Mr Eustice talks of a ‘British Agriculture Policy’ to replace the CAP, he acknowledged the devolved administrations would have ‘unprecedented power to design their own policies’.

 

"The UK government would have control over the budget and decide allocations based on a fair formula but there would be considerable latitude for the Devolved Administrations to design their own agriculture policy so that it suited their own needs under the devolution settlement," he said.

 

With this new system of what would effectively be four unique UK farming support systems would come an almighty tussle for funding.

 

Scotland, still smarting over funding allocations agreed in 2013 for the current CAP, Wales and Northern Ireland are unlikely to settle for the current arrangements.

UK CAP allocations 2014-2020

  • Overall from 2014-2020 the UK will receive €25.1bn (£19.6bn at current exchange rate) in direct payments and €2.6bn (£2bn) in pillar 2 funds.
  • England: Direct payment - €16.421bn (£12.8bn), Pillar 2 - €1.52b (£1.19b)
  • Northern Ireland: Direct payment - €2,299 million (£1.8bn), Pillar 2 - €227m (£177m)
  • Scotland: Direct payment - €4.096bn (£3.2bn), Pillar 2 - €478m (£373m).
  • Wales: Direct payment - €2.245bn (£1.7bn), Pillar 2 - €355m (£261m)

NFU Scotland parliamentary officer Claire Slipper said: "NFUS is aware of some arguments suggesting that the devolution of agriculture to the Scottish Parliament would allow for further farming powers being handed to the Scottish Government.

 

"However, this would almost certainly require a further constitutional discussion and, without the commitment of substantial resources from the UK Treasury to allow for a Scottish Agricultural Policy, the extra transfer of powers would be limited."

 

Farmers Union of Wales president Glyn Roberts said: "The FUW is a supporter of devolution and therefore believes agricultural matters should continue to be devolved to the Welsh Assembly should we leave the EU.

 

"There would then arise the question of how any budget for agricultural support was split between the devolved regions, and whether it was targeted where needed or on an historical basis."

 

Funding cut concerns

The UK farmings unions all fear funding cuts. Significantly reducing or eliminating direct support would make ‘many British farms less viable’, resulting in lower incomes and productivity, the NFU’srecently-published analysis on Brexit concluded.

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NFU president Meurig Raymond has warned UK farmers would be put at a competitive disadvantage if farm support was cut post-Brexit.

 

He said: "The UK’s EU competitors are likely to receive in the region of £70-80/acre (£173/hectare) in future years.

 

“We need that money to remain competitive. If it was denied to UK farming it would have a catastrophic effect on incomes and would be the death knell of farming."

 

Ms Slipper said the CAP remained a 'complex but essential support system for Scottish farmers and crofters'.

 

"Any drop in, or removal of, direct support could lead to a significant restructuring of Scottish farm businesses, particularly those in the most marginal areas, which would result in significant downward harmonisation on the rural economy and stewardship of the land," she said.

 

FUW's Glyn Roberts said: "Without support the impact on our rural economies and those employed throughout the food chain would be devastating."

 

Would a UK Government maintain farm support levels?

Prime Minister David Cameron has pledged a Conservative Government would continue to support UK farmers in the event of Brexit, although he has not committed to providing the same levels of support.

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In an interview with Farmers Guardian, Mr Cameron said: "If Britain votes to leave we would have to put in place an agricultural support system. I am very pro-countryside and pro-farming and, as Prime Minister, I would make sure that happens."

 

But he said there would be no such certainties under a Labour Government.

 

In reality, many pundits predict Mr Cameron would no longer be in a position to oversee the new arrangements if the vote was to leave.

 

But what of one of his most likely successors, Boris Johnson, London mayor and figurehead for the 'Leave' movement'.

 

Mr Johnson went a step further than Mr Cameron when he gave evidence on Brexit to MPs recently.

 

He said: "We will certainly continue support for agriculture, and all farmers will continue to receive the current levels of subsidy.

 

"It is very important for my side of the argument to stress that we believe in subsidising and supporting agriculture. It would not be reasonable to expect British agriculture to survive without direct support. What we are advocating is a repatriation."

 

But he added: "There would be some reductions in the cost of food, made possible by getting rid of some bureaucracy and provisions in the current CAP system."

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Labour was less willing to provide any firm guarantees.

 

Shadow Farming Minister Nick Smith said: "The Labour view is that it"s not just about subsidies, but crucially about lost markets and exports.

 

"A Labour Government would obviously have to look at how we could best help farmers in the event of Brexit. It's naive of George Eustice to promise farmers it won't have consequences as it clearly will."

 

Are claims of future support credible?

Former Defra Secretary Owen Paterson has insisted the UK Government would be ’idiotic to slash the CAP’.

 

He, along with Mr Eustice and other farming Brexit campaigners like UKIP Agriculture spokesman Stuart Agnew argue the UK could afford to fund farm support at current levels because, as a net contributor, of the money the UK would save by leaving.

 

How much would the UK really save from Brexit?

Mr Eustice has, controversially, been using a figure of £350m a week, £18bn a year, to show how much the UK has been sending Brussels - and what Brexit would therefore save.

 

This has been branded a 'straight lie' by former Liberal Democrat MEP George Lyon as it fails to take into account to the money the UK gets back through its rebate and policies like the CAP. Mr Lyon said the net contribution was actually nearer £6-£7bn.

 

Challenged on the figure Mr Eustice admitted 'about half' the £18bn contribution comes back to the UK ‘with lots of strings attached’.

 

But he insisted the £18bn figure was 'correct' as the net figure 'ignores the fact that, if we never sent the money in the first place, we could avoid exchange rate risk and remove the deadweight costs of circulating funds via Brussels'.

But whatever the true saving, two big questions remain over claims support levels would be maintained.

 

The Farmers For In campaign group, insisted it was simply ‘not credible’ to make this argument, given the positions taken on the CAP by Conservative and Labour Governments.

 

The UK Government, often with the Treasury in the driving seat, has been at the forefront of calls to cut the CAP budget over the past 20 years.

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Mr Lyon said both parties had vigorously campaigned to ‘phase out direct payments as quickly as possible’, accusing Mr Eustice and fellow Brexit campaigner Owen Paterson of 'hypocrisy' on the issue. "It just won't happen," Mr Lyon said.

 

Mr Paterson was particularly vocal during his time at Defra on the need for food production decisions to be based solely on the market, while subsidies focused on 'public goods'.

 

“I get frustrated with suggestions that subsidies are the be all and end all of agricultural success,” he told a Farmers Guardian web debate.

 

“Until 2020 I’m clear that pillar one will be significant. But given austerity and high food prices, I believe the public will only tolerate significant subsidy in return for environmental and other public goods.”

 

Wider pressures

Then there are the wider pressure on the UK finances, as the Chancellor wrestles with the vast spending deficit.

 

Mr Lyon insisted other priorities such as the NHS – running a shortfall of £3.8b – education and security, would always take precedence over farm spending.

 

EU Agriculture Commissioner Phil Hogan also joined the debate. Shortly the March UK budget, which was dominated by welfare cuts, he told Farmers Guardian:

 

"If they are not part of the EU I don’t know where they (UK farmers) will get their money from in the future because as, you can see from recent days, it is not easy to get money to reduce deficits.”

 

Brian Gardner, author of a recent report on the implications of Brexit for agriculture, said his research indicated ‘no UK Government would ever subsidise farmers to current levels’.

 

He predicted UK farm support would be reduced to one-third of current levels, with a ‘worst case scenario’ of a ‘complete cut’.

 

MP support for farm support

Mr Eustice has an answer for all these arguments, however

 

Launching his Farmers for Britain campaign at the Farmers' Club in London in March he said: “Let us get one thing straight. The UK Government will continue to give farmers and the environment as much support – or perhaps even more – as they get now.

"The Prime Minister has made this clear and I agree with him. After all, non-EU countries like Switzerland and Norway actually give more support to their farmers than we do."

 

The Cornwall MP described the £3bn UK CAP budget as ‘modest when compared with other spending areas’, such as the NHS.

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He insisted MPs had in recent months been voicing their desire to ensure agriculture would continue to be well supported if the UK left the EU.

 

The Treasury, historically no supporter of the CAP, would do what Parliament told it to, he added, although it was fair to say not everyone in the room was convinced on that point.

 

But he also made the point the post-2020 EU CAP budget would equally come under pressure, as austerity applied across the EU, too.

 

Mr Hogan said he was seeking to maintain the next CAP budget at current levels by making the case for the wider benefits the policy brings.

 

What would UK support policies look like?

 

Mr Eustice and supporters within the Farmers for Britain movement argue, freed from Brussels bureaucracy and the ever present threat of infringement fines from its auditors and the Court of Justice, the UK could construct a far more effective policy than the much-derided CAP.

 

The constant threat of fines for 'petty infringements' of EU rules - which have totalled more than £600m in recent years - has created a ‘culture of fear’ within Defra when it comes to implementing policy, as highlighted by many of the unsatisfactory elements of the current CAP.

 

Rid of all this, UK politicians would again be inspired to work with the farming industry on the creation of an effective domestic agricultural policy.

 

He said: "For the first time in 40 years Ministers would have the power to change things and farmers will be given a say in shaping the future. A UK agricultural policy will not be dumped on everyone from on high like CAP.”

George's Plan B

Mr Eustice has outlined a broad 'Plan B' for a British Agricultural Policy, or in reality for England. It includes:

 

  • Retaining an element of area payments, initially at similar levels to the CAP but likely to be reduced over time
  • Under the new farm area payment, farmers would sign up to privately operated UKAS accredited schemes promoting environmentally-friendly farming
  • Cross-compliance rules would be abolished
  • Funding to support science and technology, including new breeding techniques like gene editing
  • Government-backed insurance schemes to mitigate risk similar to those in place in Canada and US-style futures markets
  • An environmental stewardship-type scheme, with an element rewarding animal welfare-friendly systems.

 

 

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Other Brexit campaigners have come up with different ideas, including Conservative MEP Daniel Hannan made the case at Februarys NFU conference for a straightforward acreage grant 'without any complexity'.

 

It would pay £90/acre to farmers, bringing them closer to the EU average, he said, emphasising the money scheme would pay in British acres, not hectares.

 

In its 2015 General Election manifesto, UKIP said it would introduce a modified UK Single Farm Payment (SFP) scheme of £80 per acre for lowland farms, with comparable arrangements for lower grades of land, capped at £120,000.

Land would have to conform to 2013 Entry Level Stewardship (ELS) requirements to comply, while there would be a 25 per cent premium for organic farms and help for maintaining rare breeds.

 

Hill farmers would receive additional headage payments. There would be no greening requirements.

 

UKIP's Agricultural spokesman Stuart Agnew has said since, however, he would work with Mr Eustice and others to develop a policy.

 

Fought out

Such is the nature of the EU Referendum debate, in reality, nobody can say with any certainty what the UK policies would look like.

 

The final make-up of UK support schemes would be fought out between politicians in key positions at the and stakeholders, including environmental groups with differing priorities, for example on the balance between supporting farmers and delivering wider ‘public goods’.

 

Mr Lyon also sought to rein in expectations that UK farm policies would be magically freed of all the bureaucracy and record-keeping that generates all the bad feeling about the current. The UK Treasury would just as keen to audit spending to ensure the taxpayer is getting a good deal as Brussels is today.

 

The UK, after all, has form when it comes to gold-plating EU regulation, he pointed out.

 

He acknowledged the CAP was 'far from perfect' but said the priority should be to continue the process of reform from within the EU.

 

Opportunity or unaffordable gamble

The arguments on farm support are best summed summed up by Mr Eustice and his predecessor but one in the post.

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Sir Jim Paice, former Farming Minister, is adamant, given the raft of other spending priorities' and the calls of the last three governments to 'cut or scrap the CAP', it is not credible to argue that subsidies will last in the UK.

He said: “The EU and the CAP are far from perfect but the risk to farming from being outside are immense and a gamble we cannot afford”.

 

But Mr Eustice sees opportunity in having 'control and the ability to decide, arguing credible reform will never be negotiated by 28 member each with different agricultural priorities.

 

"Where power has been ceded to the EU, we see inertia, inconsistency and indecision.

 

"I believe there is special value in having the ability to act, to decide and get things done. If we left the EU we could pilot new ways of doing things and we could deliver the change British farming craves.

 

 

  • We will be looking in more depth at what post-Brexit UK support policies could be like in the coming weeks.
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