A major debate is under way as to how to reform Common Agricultural Policy (Cap) support payments.
The stakes are high for Europe's farmers and they are aggressively opposing reductions in their lifeline subsidies.
The principal payment is the Single Farm Payment (SFP), worth a hefty £480.5 million last year to Scotland's 18,783 farmers who claimed it. That works out at an average of £25,580 per claim last year.
Of course, averages are just that and don't always reveal the actual position. The majority of farmers receive much less than the average payment, as the average is influenced by the relatively small number of very large payments that can be as much as £1m. The median SFP, the middle-of-the-range of payment, is £11,680.
There is also the Less Favoured Areas Support Scheme (LFASS), an annual payment to compensate for the disadvantage of farming in the hills and uplands, worth £63.995m to Scottish farmers last year and an average of £5855 to the 10,930 claimants. Unfortunately, the median figure for LFASS is not readily available, but the same principle of larger claims distorting the average applies.
So, depending on the figures you use, typical, middle-of-the-range payments of SFP and LFASS come to about £15,000 in total, while combined "average" payments are worth a hefty £30,000, or so, a year. On top of that, many farmers receive other grants and subsidies for environmental schemes.
I wouldn't mind betting a lot of small, non-farming businesses envy that level of public support.
SFP and LFASS payments are virtually the annual profit for most Scottish livestock farms, where beef and sheep are the main enterprises. Time and again, official figures reveal that without those two payments most livestock farmers would fail to make a profit – hence the reason farmers defend them so vigorously.
The SFP was introduced in 2005 in response to concerns from the World Trade Organisation (WTO) that EU production subsidies put farmers in Third World and developing countries at a disadvantage. Not only did surplus European farm products undermine world markets, non-EU countries found it hard to compete in the EU.
To overcome WTO concerns, the European Commission de-coupled farm subsidies from production – in other words, instead of paying subsidies for every beef-breeding cow, young beef animal, or breeding ewe kept, or every acre of certain crops sown – the EU made an annual payment per hectare on the area farmed.
That single payment (SFP) was based on the total annual production subsidies paid to individual farms in the two reference years of 2003 and 2004, divided by the number of hectares on each individual farm – hence the reason each individual SFP varies so much.
At its inception, farmers were clearly told the SFP was a transitional support mechanism to help them adjust to a world without subsidies. The commission warned farmers the SFP would be reduced annually by modulation – a clawback on their payments – to fund environmental schemes and rural development.
The idea was that, in future, farmers would only produce for "real" and profitable markets, rather than for European intervention stores. Sadly, few have taken up the challenge of change and have continued to farm much as they did before, albeit having significantly reduced the number of breeding ewes and beef cows they keep.
Currency changes over the years have worked in their favour and eliminated the urgency to change their farming systems.
Back in 2005, the first SFP, which is paid in euros, was made when a euro was worth £0.68195. That steadily increased until it peaked in 2009 when a Euro was valued at £0.9093, before easing back to £0.8665 last year. In other words, the value of the SFP has increased by 21.3% over the past seven years.
Meanwhile, modulation for most farmers has increased from 7% in 2005 to 14% last year – so, instead of decreasing, the net SFP has grown by about 7%.
Clearly, at a time of budgetary pressure on the Cap, due to economic turmoil in the eurozone, Scottish farmers, whether they like it or not, are going to have to accept reduced support from the public purse.
Their argument that they cannot survive without such generous support is undermined by the growing band of new entrants to farming since 2005 who are denied the SFP. Despite paying hefty, open-market rents, they have managed to run profitable businesses in the absence of support. Poultry, pig and deer farmers, as well as vegetable and soft fruit growers, also receive no subsidies.
Many contend that agriculture needs support because food security is a growing issue. If that was the case, Europe would do better to address the scandalous fact that it wastes half of all the food it produces. That would be a cheaper and more sustainable solution to food security.
Another argument against continuing with the present high levels of support is that it keeps the inefficient in business, thereby denying efficient farmers the chance to expand.
I can understand why farmers want to continue with the status quo, but I do feel it is time for a reality check.
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