Evidence from the Tenant Farmers Association

1.              Introduction

1.1             The Tenant Farmers Association (TFA) welcomes the opportunity of providing evidence to the Select Committee as part of its Inquiry into the implementation, in England, of the 2013 reform of the Common Agricultural Policy.

1.2             The TFA is the representative organisation for tenant farmers in England and Wales.  As such it is the only organisation dedicated to the tenanted sector in England and Wales and is concerned to ensure that all new and amended policy respects the fact that there are individuals within the farming community who do not own the land that they farm.  The TFA therefore seeks to ensure that all new policy takes into account the unique impact it may have on the tenanted sector of agriculture.

1.3             The TFA takes note that the questions upon which the Committee is seeking evidence are structured around the four headings of Fairness, Bureaucracy, Greening and Lessons Learnt.  This written evidence will use that structure.

2.              Fairness:              Whether the UK's implementation of CAP might put English farmers at a competitive disadvantage to their regional and European counterparts.

2.1             Since the UK has devolved responsibility for implementation of CAP to each of the four countries within the UK, there is a major risk that the differentiation of priorities between each devolved administration could lead to the creation of competitive differences between farmers in the various parts of the Union.  This will be most striking in relation to the extent to which each devolved administration decides to use its discretion in areas like Greening, use of coupled payments under pillar one, inter-pillar transfers of funding and the structure of agri-environment schemes under Pillar II.

2.2             It is right that the individual countries of the UK should have discretion to ensure that the implementation of this important policy reflects local need.  However, the TFA is concerned that this responsibility is taken more seriously in Scotland, Wales and Northern Ireland, where the importance of the agricultural sector and the rural economy is better appreciated, than in England.  Sadly, the English (DEFRA) attitude to the Common Agricultural Policy is coloured by an overarching desire to see the early dismantlement of the CAP and to have farming operating in an environment where it receives no support except where it is providing landscape, biodiversity or other eco-systems services.  This leads DEFRA to characterise funding under Pillar I as being "bad" and funding under Pillar II as being "good".  The TFA would rather that DEFRA took a less evangelical, market orientated approach and ensured that best use was made of the Pillar I funding available and the flexibilities afforded to Member States in how that funding might be used. 

2.3             At the European level, in the main, other Member States are more reasonably disposed towards the CAP than the UK and are more willing to ensure that it is used to support their agricultural sectors.  There is the potential for this to be exacerbated in the context of this reform given the flexibility that Member States have to engage in "reverse modulation" which legitimises the movement of money from budgets earmarked for Pillar II type activity into the budgets for Pillar I expenditure.  This is a real threat to the competitive position of farmers in England and more widely across the UK.

2.4             Whilst the TFA is not arguing that "reverse modulation" should be practised in the UK, it is important that DEFRA ensures that it does not create two wide a differential between English farmers and farmers in other Member States which could lead to a major competitive disadvantage for English farmers.

2.5              The TFA understands the concern of DEFRA about the extent to which it will have adequate funding within its Pillar II budget to meet its aspirations for agri-environment activity.  However, the TFA has pointed out to DEFRA that it has the ability to augment its Pillar II budget by applying a high level of degressivity on the largest recipients of Pillar I funding.  The CAP reform package will already require Member States to apply a 5% reduction to receipts, by individuals, of basic payments over and above €150,000.  However, Member States have discretion to go further than this.  The TFA has suggested that individuals receiving more than €300,000 (£255,000) should have payments over and above that level reduced by 100%; effectively capping the level of support available to individuals under Pillar I.  The key benefit of this is the fact that all money saved can be moved from the Pillar I budget to the Pillar II budget.

2.6             To date, DEFRA has been resolutely opposed to the introduction of any form of limit on payments under Pillar I.  This does seem odd from a number of perspectives, not least the culture within DEFRA, as referred to previously, which is to be fairly scathing of direct payments and more disposed to schemes under the second pillar.  The argument against the use of enhanced degressivity is that the English farm structure is characterised by predominantly larger farms than in the rest of Europe and therefore any limit on payments based on farm size would impact disproportionately on British agriculture.  However, in a recent answer given to a Parliamentary Question[1] in the House of Commons DEFRA confirmed that only 174 claimants in England under the current Single Payment Scheme are in receipt of payments in excess of €300,000.  That represents just 0.01% of claimants.  At the other end of the spectrum, over 80% of claimants receive less than €25,000 (£21,250).

2.7             Taking these figures, the savings from applying 100 per cent degressivity above €300,000 on those 174 claimants would be at least £70 million.  This would have the benefit of feeding through to lower levels of modulation for all direct payment recipients possibly by as much has four percentage points.  The TFA accepts that as the degressivity under the new arrangements will only apply to the Basic Payment Scheme the savings will be lower but they will still be significant.  The TFA believes it is time that DEFRA thought this one through again as it will make it easier to ensure that English farmers are not placed at a competitive disadvantage and yet continue to provide adequate funding for Pillar II activity. 

3.              Fairness:              What steps the Government might take in implementing CAP to help tenant farmers and farmers in upland areas and to take account of issues pertaining to common land?

3.1             Turning first to the issues for tenant farmers, there are three principal areas for concern.   Firstly, there is the initial allocation of entitlements for the new payments envisaged under Pillar I.  The draft Regulations from the European Union contain the default position that new entitlements are allocated to claimants in relation to land declared in 2015 subject to the claimant having made an application on any land in 2013.  The TFA has expressed concern that this provides an incentive for landlords, with tenants on short term Farm Business Tenancies, to bring those agreements to a conclusion in time for them to be able to use the land released to augment, artificially, their claims for initial allocations of entitlements.  However, the Regulations will also provide Member States with the flexibility to roll forward existing entitlements into the new scheme for regions, like England, which already have a “flat rate” payment system.  From the TFA’s discussions with DEFRA it seems clear that this option will be taken up in England which will minimise the ability for landlords to take a speculative approach.  The TFA hopes that the Select Committee will also support that approach.

3.2             Secondly, the TFA is concerned to ensure that only active farmers are able to access funding through Pillar I and Pillar II.  The TFA has been concerned about individuals who are not actively managing land themselves but who are still able to access Pillar I and Pillar II schemes even where they are allowing other individuals to actively use the land upon which they are making their claims.  The TFA has been a vocal advocate for the inclusion of a viable definition for active farmers in this round of reform.

3.3             The current draft of the direct payments Regulation published by the Presidency of the EU on 06 September states, at article 9 (1):

No direct payments shall be granted to natural or legal persons, or to groups of natural or legal persons whose agricultural areas are mainly areas naturally kept in a state suitable for grazing or cultivation and who do not carry out on those areas the minimum activity established by Member States in accordance with Article 4(1)(c).

Draft Article 9 (3) further says:

In addition, Member States may decide, on the basis of objective and non-discriminatory criteria, that no direct payments shall be granted to natural or legal persons, or to groups of natural or legal persons:

(i)              whose agricultural activities form only an insignificant part of their overall economic activities, and/or

(ii)              whose principal activity or company objects do not consist of exercising an agricultural activity.

3.4             The TFA believes that this provides DEFRA with sufficient flexibility to exclude those individuals who are unable to meet the following three -part eligibility criterion for being an active farmer:

(i)                 They are in occupation of the land being used to support the claim; and

(ii)               they are in close management control of all of the activities taking place on the land being used to support their claim; and

(iii)             they are bearing the entrepreneurial risk of the agricultural activities taking place on all the land being used to support their claim.

3.5             In order to minimise the regulatory burden involved in applying this test, the TFA would see the active farmer test operating on a self-assessed (declaration) basis.  Applicants would be required to ensure that they were able to meet the criteria for being defined as an active farmer on all the land used for their claim and to sign a declaration to that effect when making their applications.  Other than that, at the point of application, applicants would not have to submit documents to support their declaration of active farmer status.  However, the Rural Payments Agency should be then required to make compliance with the active farmer rules a point upon which applicants are inspected in the normal course of events.  Only upon inspection would applicants be required to produce evidence which substantiated the declarations which they have made.

3.6             The TFA is aware that, in the same way as there has been an industry of advice in relation to assisting individuals to minimise their tax liabilities, there is also an industry of advice established around assisting individuals to maximise their subsidy take through CAP schemes.  Whilst the TFA believes that individuals should be able to structure their businesses in a way which places them as advantageously as reasonably possible in relation to schemes being made available by Government, there is a point at which a line is crossed.  For the TFA, we believe this point is where the individual concerned is unable to meet the three part eligibility criterion for being an active farmer set out above.  The principal benefit of having this test would be reducing the extent to which advisors engage in creating the circumstances within which land owners can take unfair advantage of the rules for fear of being sued by their clients when an inspection leads to the imposition of a penalty or denial of payment.

3.7             Without an adequate active farmer test there will be an increasing temptation for landowners to abandon the use of tenancies in favour of shorter, less secure and riskier ventures for individuals such as contract farming, share farming, grazing licences and cropping licences where land owners create the appearance of being in occupation and have the advantages (both in terms of taxation and subsidy) from that but who are not actively engaged in the management of the land or taking any of the risk associated with that management.  The TFA should put on record that it is not opposed to the use of other forms of land management beyond tenancies but these must be entered into for the right reasons rather than simply to avoid or evade tax or gain subsidy advantage for the land owner. 

3.8             Thirdly, and linked to the issue of the definition of an active farmer, there is the issue of "dual use".  This is the practice of allowing two individuals to claim different subsidies on the same area of land.  Typically it involves a tenant farmer being able to claim payments through the Single Payment Scheme (Pillar I) whilst their landlord claims payments for a separate agri-environment scheme but on the same land.  This has arisen because of the subtly different eligibility criteria required for entry into these schemes.  The Single Payment Scheme provides that applicants must have "land at their disposal" whereas agri-environment schemes require only that applicants have "management control" which may be expressed through the use of clauses in agreements with third parties such as tenant farmers.

3.9             Of course there are many cases where dual use operates on a fair and reasonable basis, however there are many cases where the TFA is aware that tenants are forced into having to comply with the terms of agri-environment schemes in the name of their landlord without adequate consideration to them either through a lower rent or management fee.

3.10         The TFA is aware that the European Court of Auditors has expressed concern about the ability for a sustainable argument to be maintained for dual use and the TFA would agree that the time has come, whenever the new CAP reform Pillar I and Pillar II schemes are implemented, for dual use to be prohibited.

3.11         For upland areas the TFA believes that there are two main policy options DEFRA could adopt to assist farming in these remote areas.  The first is to align the payment rates between the current lowland and SDA regions used for the Single Payment Scheme.  The TFA believes it was wrong in 2004 for the then Government to differentiate the payments between these two regions.  However, the TFA still believes that there is merit in maintaining the moorland region at a separate, lower rate given the large amount of land that is utilised in sporting estates as opposed to land used for agriculture.  Whilst the TFA would wish to see the retention of the moorland region, it would be on condition that DEFRA put in place a specific, agri-environment scheme targeted at encouraging and rewarding moorland livestock grazing given the clear environmental benefits, both in terms of landscape and biodiversity, provided by grazing livestock in upland areas.

3.12         Whilst the TFA does not have particular expertise in relation to common land, this clearly continues to be a major problem for DEFRA and the RPA in terms of administration.  It is essential that in building new IT and scheme rules that the issues impacting common land are considered and "built-in" rather than looked at as an add-on.  It will also be important when implementing CAP reform on common land to focus on those who are actively grazing rather than observing slavish adherence to common land registers which may or may not reflect what is really happening on the ground.  For example, those registers will not record the use by tenant farmers of rights provided to them by their landlords through contracts of tenancy. 

4.              Bureaucracy:              What steps does the Government need to take to ensure the reformed CAP will be less bureaucratic than its predecessor and what might prevent this ambition from being achieved?

4.1             The TFA believes that the biggest issue here is Central Government’s drive to move all communications online.  Whilst the TFA is enthusiastic to work with the Government to achieve a greater take-up of digital communications between it and the farming community, the TFA believes that paper-based systems must be maintained for the foreseeable future for a significant minority of individuals. The TFA supports the expansion of digital capability and understands the major benefits which can arise from that both for farmers and the Government but we cannot accept the complete withdrawal, as is planned, of manual systems for those who lack the capability to interact with Government on a digital basis. 

4.2             The TFA is aware of the considerable work that is being undertaken by both the CAP Delivery Team and the RPA on “assisted digital”.  However, we fear that the phrase "assisted digital" can have many meanings.  We would not support the idea that access to the new schemes will be online only either applied for directly or through agents and intermediaries.  Instead, we would support the segmentation of those customers who currently do not use SPS online into those who could be helped, either with training, access to broadband or better equipment, to access online services and those, on the other hand, for whom the transition will be just too difficult.  For this latter group, which we appreciate will have to be carefully identified, the ability to supply information on a manual basis must be maintained. 

4.3             The TFA believes that the Rural Payments Agency would be placed at a disadvantage in terms of its ability to implement the new schemes if it were given only a digital platform to engage with the farming community. This also highlights the wider issue of ensuring that the Government does not allow its aspiration to cast a shadow over its ability to adequately implement the new schemes.  It is vital that policymakers stay close to the needs and concerns of those charged with implementing the schemes they develop. 

5.              Bureaucracy:              How might the Government define the minimum activity required for qualification as an "Active Farmer"?

5.1             This point has been answered in paragraphs 3.2 to 3.7.

6.              Greening:              How should the Government ensure that CAP delivers the best environmental benefits while supporting food production?

6.1              In July of this year the TFA issued a joint statement together with the Country Land and Business Association and the National Farmers Union setting out the principles that the Government should adhere to when implementing “Greening”.  With the Select Committee’s indulgence the points raised in the joint statement bear repeating here:

• English farmers, like farmers in the rest of Europe, must have a choice of greening options, including access to all the applicable categories deemed “green by definition”, which recognise those already providing environmental benefit at least equivalent to the greening requirements in other ways.

• Greening should not impose higher standards, or compliance costs, on English farmers than those in other UK regions or Member States of the EU. Given food security and economic concerns greening must be implemented in a way that does not require the land in question to be taken out of production and avoids unjustifiable loss in farm income; a point endorsed by the EU Heads of Government.

• We, like Defra, believe that our current combination of statutory and voluntary measures produces levels of environmental protection and improvement that are well above the European average.

• English farmers recognise their obligation to the natural environment and as a result founded The Campaign for the Farmed Environment, which will play a central role in enhancing environmental outcomes from farmed land in England. We remain focused on actively promoting its message.

• The outcome of the EU Budget negotiations 2014-2020 means that there must be a strategic review of Government policy that ensures that the objectives of the next programme can be fulfilled with the monies that are made available.

7.              Lessons learnt:              What are the principal lessons the government should learn from the implementation of the previous CAP?

7.1             Two phrases, both uttered by a senior civil servant within DEFRA during meetings attended by stakeholders, characterise the debacle of the implementation of the last round of CAP reform:

"The RPA will do what the RPA is told it will do"

"Ministers have their own minds on these issues"

7.2             The fallout from the failure of the implementation of the last round of CAP reform left the RPA as DEFRA’s whipping boy.  It was clear that the RPA was treated as a junior party whose concerns expressed over implementation were not welcomed.  The TFA recalls many meetings where RPA staff highlighted concerns over the implementation of the Single Payment Scheme on the basis of a "dynamic hybrid" but found their concerns falling on deaf ears - even when they were repeated by members of the wider stakeholder community.  DEFRA's stance was further displayed when, in the House of Commons debate which followed the failure of the payment system in 2005, the Secretary of State at DEFRA was challenged as to whether she would take responsibility for the failure and answered that she had taken responsibility and had sacked the Chief Executive of the RPA.  The RPA had, in that instance, been set up to fail.  It is essential in implementing this round of CAP reform that the expertise and practical input of the RPA is sought, valued, listened to and fully embedded into the policy-making process.

7.3             As noted above, Ministers need to ensure that in having their own mind on an issue, they do not create policies which end up becoming an implementational nightmare.  Genuine consultation with the stakeholder community and with other partners within Government will be essential to ensure we have good policies well implemented.

2 October 2013