UK: Common Agricultural Policy Reform - A Work In Progress

Last Updated: 16 November 2011
Article by Smith & Williamson

On 12 October the EU Commission released legal proposals for the Common Agricultural Policy (CAP) post-2013. Negotiations will now continue through 2012 and into 2013. The proposals are for the new scheme to commence on 1 January 2014, although if this timetable slips it could conceivably be 2015 before the reforms are in place.

Since the first 'communication' was released by the Commission a year ago there have been some amendments to the plans. It also appears that cuts in the next EU budget for agriculture do not look as bad as once feared; with spending on agriculture falling from just over 40% of the budget to about 36%. Although it must be remembered these are only proposals and may change. The same can be said about the CAP plans and past experience shows us a lot can shift during negotiations. Careful consideration must be given if businesses are thinking about making decisions based on these proposals.

Looking at the reforms, the familiar two pillars will be retained, with direct payments making up pillar 1 and rural development in pillar 2, although 30% of direct payments will be made up of a compulsory 'greening' element. The table shows how the money available for direct payments, the national ceiling (NC), can be split up by member states. The Basic Payment Scheme (BPS) and the 'greening' measures will be the two main elements of any new scheme.

Basic Payment Scheme

A new BPS will replace the existing SPS. It will be largely familiar with entitlements activated on a yearly basis by eligible land.

Existing entitlements will be cancelled and an application for new entitlements will be based on the eligible area as made by 15 May of the first year of the new scheme (2014).

Entitlements will only be granted to claimants who activated at least one SPS entitlement in 2011.

The 'historic' payment method, as still used in Scotland and Wales, will be phased out over five years, but only 60% of the payment being based on 'historic' entitlements will be allowed in the first year. Farmers in Scotland and Wales with high-value entitlements may experience a sudden fall in their payments.

Environmental elements

Under the proposals, 30% of direct payments will be conditional on producers undertaking the following 'greening' measures.

  • Where the arable area exceeds 3ha, claimants will need to grow three different crops, each crop to be between 5% and 70% of the total cropped area.
  • Claimants must maintain the area of permanent grassland on the holding at 95% of the level of the first year of the scheme.
  • 7% of the holding must be maintained as an ecological focus area (e.g. fallow, landscape features, buffer strips).
  • Organic farmers will be exempt from these measures.

Other issues

Farmers in areas with natural constraints (less favoured areas) may have their payments topped up by 5%. A further 5-10% of the NC may be used by member states for coupled (headage) support payments. These are unlikely to be used in England, but could be seen in Scotland and Wales. Member states will be required to set up a Small Farmers Scheme; up to 10% of the NC can be used for this. A further 2% can be allocated to young farmers (under 40 years' old) commencing their agricultural activity and up to 3% will be used to set up a national reserve.


This would limit the amount of BPS paid to larger claimants. The proposals would introduce a system of bands (similar to income tax) shown in the table below.

Up to €150,000 Full payment €150,001 - €200,000 20% reduction €200,001 - €250,000 40% reduction €250,001 - €300,000 70% reduction Over €300,001 100% reduction The environmental element is exempt from capping, which is calculated after the previous year's salaried labour costs have been deducted. After taking these factors into account, the effects of capping are expected to be quite limited even for some of the largest farms, although more detail is required regarding how salaried labour costs are to be calculated.

Active farmers

The proposals state that direct aid will only be paid to 'active farmers'. These are defined as those whose direct payments are less than 5% of their total receipts from all non-agricultural activities.

Rural Development Regulation

The current Rural Development Regulation (pillar 2) ends at the end of 2013. Each of the devolved regions will have to draw up new rural development programmes for the period 2014 to 2020 and this means there is scope for profound changes. The current three axes will end and will be replaced by six 'priorities' (Leader will be retained). The priorities will contribute to achieving:

  • the competitiveness of agriculture
  • the sustainable management of natural resources, and climate action
  • a balanced territorial development of rural areas.

The existing range of measures will broadly continue, but there may be a shift of focus towards schemes to combat climate change. There will also be specific measures for organic farmers and farmers who carry out an agricultural activity in mountain areas and other areas 'facing natural or other specific constraints' (member states are required to designate such areas).


1 All funding not used within other elements defaults to be used within the Basic Payment Scheme (BPS). Within the BPS there is also a national reserve that can comprise up to 3% of the NC.

2 Member states will have to open mandatory schemes to applicants. Spending is then dependent on how many apply. For the purposes of calculating the residual funding for the BPS in the table, 1% is assumed for both schemes.

3 Up to 10% of the NC can be used for coupled payments where they have been used widely by the member state under the existing Single Payment Scheme (SPS).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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