21-03-2014 15:50 PM | Finance, News

Impacts of CAP reform on typical family farm



The effects of the Common Agriculture Policy (CAP) Reforms on productive livestock farms in the Orkney region have been highlighted by NFU Scotland.

An analysis of the Isle of Westray, initiated by NFU Scotland’s Orkney branch, engaged with consultants to look in greater depth at the likely impact of the CAP Reforms on a typical family farm on Orkney.

It was found that while the family farm was technically efficient in that it had diversified its business and undertaken an environmental scheme, it still heavily relied on support payments to survive.

The farm is set to lose 48 percent of the Pillar 1 support plus a further £2,800 per year from the cessation of the Land Managers Options (LMO). In addition, the future of the Rural Priorities environmental scheme was far from certain.

Small island farms tend to have high fixed costs and have to cope with a harsh climate, with cattle having to be housed for a long period, which in turn means there is a greater need for expensive farm buildings and storage facilities.

In conclusion it was found that there was little scope for the business to make changes that would maintain margins at present levels. It was forecast that the farm would probably remain in profit but there would be no finance left for future investment in the business and there would be a significant negative impact on the wider economy.

Brian Moss, Orkney regional board chairman for NFU Scotland commented: “The consultant’s report makes grim reading for the Orkney economy, estimating that there could be a loss of over £7 million per year - amounting to well over £300 for every person on Orkney - should the reforms proceed as proposed.

“With budgetary constraints, the decision to divert 9.5 percent of the available Pillar 1 funds into Pillar 2 without the Scottish Government match funding and the UK Government’s decision to divide the convergence money across the UK, a reasonable outcome from the reforms was always going to be a challenge.”

Given the starkness of the consultant’s report it is imperative that the following optional parts of the new direct payments scheme are carefully considered and implemented in order to minimise the damage to the agricultural and wider rural economy:

- Maximum use of voluntary coupled support must be made to support beef calves to ensure retention of suckler cows. In light of the consultant’s report highlighting the additional fixed costs faced and lack of viable alternative options open to farms on Scotland’s islands an enhanced payment should be made for island-born calves.

- The unwillingness of the Scottish Government to consider a Pillar 1 ANC removes an investment that could have been used to support Orkney and its island. With the profile of this reform that decision looks premature and could possibly be revised. There should be an enhanced area payment for region 1 (arable, TGRS, PGRS) for island areas in recognition of their increased vulnerability and lack of possible alternative enterprises.

- Robust measures need to be taken to ensure “inactive land” does not receive payment.

- If these options cannot be delivered then consideration needs to be given to the use of a “tunnel” option to provide some measure of stability to allow farm businesses to manage the change to area based payments.

The importance of the SRDP is highlighted in sustaining the viability of the farm, especially the Less Favoured Area Support Scheme (LFASS) element. It is hoped this can continue in its current form for the time being. A suitably focused new SRDP could help address some of the damaging impacts of the move to area based payments. Considerations should be given to:

- The Scottish Government match funding the modulated funds taken from Pillar 1;

- Including a programme to improve the efficiency of the national cattle herd. This would allow some of the work established under the current LMO’s to be continued and help beef herd play its part in achieving climate change targets, while hopefully improving the economics of the sector;

- Including a small scale capital grant scheme to help improve farm efficiency, viability and resilience;

- Ensuring that environmental scheme priorities suit regional requirements allowing access for a wide geographical spread of projects to be funded;

- Reducing the proportion of the budget allocated to forestry. The prospect of farmers having their direct payments reduced partly to finance forestry projects which are of negligible benefit on Orkney further threatens the competitiveness of the local industry.

- Mr Moss added that the study has illustrated the potential damage that will be done to active livestock farms on Orkney should the reform of the CAP proceed as proposed.

He said: “Orkney’s farmers have led the way in enhancing the health status of their animals, with the work done to eradicate BVD which, in turn, formed the template for the national scheme being one example. It is imperative that the expertise and stockmanship skills which has led to the islands hard earned reputation as a source of high quality livestock is not laid to waste by ill thought out reforms of the support systems.

“The threat to the wider economy and environment is even more pronounced. Suppliers, hauliers, employees, and companies servicing the farming industry all face a bleak future if the proposals are not modified.

“Similarly, those relying on the supply of produce from farms face uncertain times. There are a number of measures that can be used to reduce the effects of the changes and it is vital that they are deployed to ensure a viable future for agriculture on the islands.

“There is still time to act – but urgent action is needed.”

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