INTRODUCTION

  1.  The Farmers' Union of Wales was established in 1955 in order to protect and advance the interests of Welsh families who derive an income from agriculture. In addition to 35 Area Officers, the FUW has 11 offices distributed around Wales that provide a broad range of services to members. The FUW is a democratic organisation, with policies being formulated following consultation with its twelve County Executive Committees.

AGRICULTURE IN WALES

  2.  As highlighted in the Sustainable Farming and Environment: Action Towards 2020 report,[2] farming plays a fundamental part in Welsh life, industry and culture. However, despite this acknowledged role, the report states that "average farming incomes, compared with the rest of society, continue to be unacceptably low and do not fairly reward farming's contribution of capital, skills and labour". This conclusion was based upon incomes prior to the 2007 FMD outbreak.

  3.  In the 2005-06 financial year the average net farm income in Wales was £12,500, equating to £3/hour[3]. For a lowland beef and sheep farmer the average net income was as low as £3,500.[4]

  4.  Around two out of every five rural businesses can be classed as being involved in the farming industry.[5] In 2006 Welsh agriculture employed 56,400 people in full time, part time, and seasonal employment.[6] This figure does not include the secondary businesses related to agriculture such as contractors and food processors.

  5.  In 2007 1.6 million hectares of Welsh land were in agricultural production, equating to 81% of the surface area of Wales.[7]

  6.  Farming also plays a key role in the preservation of Welsh culture, particularly in terms of the Welsh language, which in many areas is primarily preserved in farming communities, having been largely displaced by the English language in towns and villages.

  7.  The position of Welsh agriculture prior to the adverse affects of the 2007 FMD outbreak was summarised in the 2020 report[8] as follows:

"Most businesses would not be able to survive on the financial returns which the Welsh agricultural industry continues to produce... If production falls below what is referred to as a critical mass the agricultural supply and processing industries will suffer irreparably as a consequence. Farming, with all its diverse effects on the landscape, the economy, communities and social structures, will only be sustainable if it returns to acceptable profitability in the short to medium term."

  8.  The current position is that returns are well below the level of acceptable profitability. For example, data for lamb production in the 2006-07 financial year show that, on average, market prices cover just 79% of production costs, with the top third of producers achieving returns of 5% on their investments. A similar pattern of production costs being well above returns exists for beef enterprises.

  9.  As such, Welsh farming businesses are wholly reliant upon the payments they receive from the Common Agricultural Policy, and reductions in CAP market protection seem unlikely to have any affect other than to further reduce levels of income. Yet the preference of the Welsh farming community would be to be in receipt of economically viable incomes purely from the marketplace, with no need for reliance on support.

  10.  Single Payments on Welsh farms are currently based upon average CAP Pillar I payments received per hectare during reference years not affected by what the Welsh Assembly Government deemed were exceptional circumstances (predominately the years 2000, 2001, and 2002), and/or the amount of milk quota held on 31 March 2005.

  11.  CAP Pillar I Payments received during the reference period were effectively based upon the number of eligible stock held on each farm, which, in turn, can in simplistic terms be considered to be a reflection of the fertility, size, altitude, and climate of any particular farm.

  12.  Thus, the payment received by a smaller, fertile, lowland farm can be similar to that received by an extensive, infertile, upland farm, with both payments effectively reflecting the production capacity (but not the production) of each farm. Payments can typically vary from around £60/hectare for an extensive upland farm to upwards of £350/hectare for a small, fertile, lowland farm.

  13.  The Farmers' Union of Wales supported the Welsh Assembly Government's implementation of an historically based Single Payment Scheme, on the basis that a flat-rate payment per hectare would result in a complete redistribution of payments away from smaller, more fertile farms, to larger upland farms, rendering many family farms unviable.

  14.  The removal of direct headage payments has resulted in many farms restructuring their enterprises to more appropriately reflect market demands, as was the intention of the 2003 reforms. However, it must be borne in mind that changes in agricultural practices rely on long term breeding and management strategies, and 2007 is only the third year of the current scheme.

  15.  Nevertheless, the economic reality of poor returns from the marketplace has resulted in significant falls in livestock numbers, particularly in the Welsh uplands, to the extent that under-grazing is now a major concern for conservationists. Welsh Assembly Government figures show that numbers of both cattle and sheep on Welsh farms fell by 4% between 2006 and 2007.

FUW REACTION TO THE COMMUNICATION FROM THE EUROPEAN COMMISSION TO THE EUROPEAN COUNCIL AND PARLIAMENT: PREPARING FOR THE "HEALTH CHECK" OF THE CAP REFORM

  16.  The Farmers' Union of Wales is currently in the process of consulting with members regarding the proposals outlined in the "Health Check" document published on 20 November 2007. The following comments are therefore the initial views of the Union in light of the limited consultation that time has allowed.

EU SET-ASIDE

  17.  The FUW welcomes the Commission's proposal that the mandatory EU set-aside scheme for arable crops be abolished from 2009 to 2013. The decoupling of payments in 2005 significantly diminished the perceived need for set-aside, and its continuation would constrain the arable sector's ability to meet growing market needs, and benefit from increased world market prices.

  18.  The FUW objects to the suggestion that Cross Compliance requirements might be stepped up in reaction to the abolition of set-aside, as such changes could negate any positive effects the removal of set-aside would bring for the sector. Rather, any moves to counter perceived adverse impacts on the environment should take the form of compensatory payments made to those who wish to take/keep land out of production.

MARKET INTERVENTION

  19.  The FUW believes that any review of market intervention should take the possible adverse, or otherwise, impacts on rural incomes into consideration. Moreover, the FUW believes that such a review should not take place until adequate controls are put in place to ensure that produce from third countries are produced to the same standards as those required in the EC. In the context of Wales, such market intervention controls are or particular relevance in terms of import quotas and tariffs for lamb and beef, and the clear impact that further liberalisation of restrictions relating to such imports would have on what are already unsustainable Welsh livestock prices.

CAPPING PAYMENTS

  20.  The distribution of farm payments continues to be the subject of considerable discussion within the farming community, and debate within the FUW as regards capping is ongoing. Superficially, larger farms that receive high Single Payments benefit from economies of scale that are not available to smaller farms. However, such large enterprises often support extended families and/or employ a workforce, and thus it is the Union's current view that the possible impact of capping on relatives, the families of employees, and the wider community should be taken into consideration when reviewing the possible impact of capping. There is also the distinct likelihood, expressed on numerous occasions by Commissioner Fisher-Boel, that businesses would simply be broken up in order to avoid a cap, with the main beneficiaries being solicitors and lawyers.

  21.  Notwithstanding the above, it is the view of the FUW that there is a clear argument in favour of reviewing the possible impact of mechanisms such as tapering payments in proportion to the number of hectares owned and the number of families or individuals supported by farms.

  22.  The European Commission has suggested that payments might be reduced for those receiving more than €100,000 in Single Payments. Such a limit is expected to affect around 400 Welsh farms, and would therefore have a minimal impact on Welsh businesses.

MODULATION

  23.  Wales currently operates a system of Voluntary Modulation which is match funded by the Welsh Assembly Government at a rate of 90p for every £1 deducted from Single Payments. This money is retained in Wales to fund Rural Development programmes. Under the Health Check proposals, the level of Compulsory Modulation will increase, with a commensurate decrease in Voluntary modulation.

  24.  Receipts from Compulsory Modulation are sent to Brussels, and 80% are returned to the Member State. Unless there is a commitment to continue co-financing modulated receipts at levels that make up the expected shortfall of at least 20% of modulated monies, the most efficient and effective method of injecting monies into Welsh rural communities will be compromised under the Health Check proposals.

  25.  The FUW therefore believes that increases in Compulsory Modulation could jeopardise the current level of funding available to Wales under Pillar II programmes.

  26.  Funds available to the UK and Wales from the European Agricultural Fund for Rural Development (EAFRD) are based upon historical claims made by the UK, and the previous failure of the UK to utilise available funds has resulted in Wales receiving an inadequate and disproportionate EAFRD allocation. This is particularly pertinent given that 80% of Wales is categorised as Less Favoured.

  27.  Thus, the Welsh Assembly Government has had to make up the deficit in the EAFRD allocation by implementing Voluntary Modulation on top of Compulsory Modulation, leaving Welsh farmers at a disadvantage to their European counterparts. .

  28.  It is notable that while the Health Check paper expresses concern over the increasing irrelevance of historically allocated Single Payments, the historical allocations received by Member States are not subject to such scrutiny.

  29.  Thus, increasing Compulsory Modulation will further disadvantage Welsh farmers, and further compromise the efficient distribution of monies in rural areas.

  30.  The FUW maintains that all those whose payments are reduced by modulation should have access to modulated monies, and, in this context, it is particularly concerning that Pillar II payments are increasingly being targeted at non- agricultural concerns, such as measures available under Axis 3 and 4 of the Rural Development Plan, in order to make up deficits in domestic funding.

DECOUPLED SUPPORT

  31.  The FUW supports moves to examine further ways to fully decoupling CAP aid payments from production within the Single Payment Scheme. However, there should remain a degree of flexibility within the model that takes into account the importance of maintaining livestock numbers for environmental and other reasons, particularly in the uplands.

MOVEMENT TOWARDS FLAT RATE AREA PAYMENTS

  32.  The European Commission argues that it will be difficult to justify future aid being based on past levels of production and differences in support, especially in the historic model, and that Member States should consequently be encouraged to move towards a flat rate system per hectare during the period 2009 to 2013.

  33.  For the reasons given in paragraphs 10 to 14, the FUW believes that the implementation of a flat rate area payment will result in the complete redistribution of payments, in many cases away from those whose need is greatest.

  34.  It is notable that Single Payments are made on eligible forage area, but that no account is taken of the quality of such forage area.

  35.  Since the limited trading, leasing, and transfer of Single Payment entitlements has occurred in Wales since 2005, there has been some move away from the historical system.

  36.  The FUW maintains that it is an anomaly to scrutinise historical allocations on a farm by farm basis, without similarly scrutinising other historically based allocations made to Member States and their regions. This is particularly the case given Wales' disproportionately low EAFRD allocation.

  37.  Thus, the FUW maintains that, in the absence of some form of counter-mechanism, the implementation of a flat rate area payments could have severe implications for many family businesses, and that this likely effect should be taken into account.

  38.  The FUW believes that movement towards a flat rate area payment is likely to have a far greater impact on Welsh businesses than any moves to cap payments. Thus, any honourable motives put forward by the Commission in relation to capping run counter to the likely outcome of requiring payments to be calculated on a flat rate basis.

  39.  The FUW is unaware of any significant pressures from the public to move from historically allocated to flat-rate payments, and international pressures from third countries continue to focus on aid per se, and intervention, rather than the minutiae of how individual payments are calculated.

MINIMUM AREA FOR CAP CLAIMS

  40.  The FUW supports propositions that the minimum area for Pillar I claims be increased in order to minimise what are clearly disproportional administrative costs for the taxpayer.

CROSS-COMPLIANCE AND RELATED ISSUES

  41.  For many years the FUW has, on behalf of members, fought cases where farmers have been penalised for what all parties have acknowledged were genuine errors. The rate of penalisation in such cases is often draconian, with multipliers to initial penalties being applied that result in catastrophic losses to income that are completely disproportionate to the errors made.

  42.  Such fines are made under a bureaucratic system based upon an assumption that almost all errors are the result of attempted fraud.

  43.  The FUW therefore believes that penalties should become more proportionate, and that an assumption of innocence should be made where rules have been breached, with the burden of proof being placed upon the authorities where any suspicion of genuine fraud exists.

  44.  The current rules can see farmers suffering numerous financial penalties for single actions that are genuine mistakes; for example, a single inadvertent or negligible action could result in prosecution and fines under domestic legislation, cuts or loss of the Single Payment under EC rules relating to Pillar I payments, and cuts or the loss of Pillar II environmental scheme payments, also under EC rules. For example, the FUW is aware of cases whereby the undertaking by a farmer of a long established and inconsequential practice has resulted in multiple penalisations totalling some £15,000.

  45.  The FUW believes that to subject farmers to such multiple-jeopardy is morally indefensible, and that moves should be made to bring such penalisation into line with the moral principles long recognised by the British legal system; ie that double, or multiple, -jeopardy should not be applied.

  46.  The FUW welcomes the Commission's intention to simplify and examine the scope of Cross-Compliance, and would emphasise the importance of ensuring that farmers within the EU should not, as is currently the case, be expected to compete with those in third-countries who are not subject to such regulations

MILK QUOTA

  47.  The FUW maintains its belief that milk quota should be continued as a means by which to manage market supply and minimise price volatility, and therefore objects to the proposals to abolish milk quota in 2015.

  48.  While we accept that the world market for milk is undergoing major changes, it is the belief of the FUW that any changes to the EU milk regime made to take account of those changes should take the form of a more flexible framework, rather than the complete abolition of quotas.

  49.  The FUW believes that acceptable prices sustained over a prolonged period must be observed before any increase—let alone the abolition—of quotas is considered. To date, price improvements during 2007 have only seen a couple of months during which farmgate returns started to approach acceptable levels, and moves to increase the EC quota in preparation for abolition are premature.

  50.  This is particularly the case given that 1.9 million tonnes of EU quota have not been taken up in 2007, and that dairy imports to China, which have been one of the main driving forces behind price rises, fell by almost 20% during the first 8 months of 2007 compared with the same period during 2008. Similarly, the equivalent drop in milk powder imports to China have fallen by 34.6%.

REDUCTIONS IN EU-15 PAYMENTS

  51.  The Commission is predicting that cuts in EU-15 Member States' Single Payments are likely to be needed from 2009 onwards in order to keep the CAP within the ceilings agreed in the 2007-13 financial perspectives. Such reductions are considered to be necessary to balance out increased spending on the Single Payment in new Member States.

  52.  The FUW believes that the well founded concerns over the impact that climate change and growing populations will have on food supplies, coupled with the clear central role that faming must take in mitigating the causes and impacts of global warming, highlight the importance of continuing to support economically viable farming communities.

  53.  The Union therefore believes that such support should continue, and that the introduction of new Member States necessitates a proportional increase in the CAP budget.

  54.  In the context of such budgetary reductions for the EU-15, and other changes proposed in the European Commission paper of 20 November 2007, the FUW believes that far too little attention is paid to the sustainability of agricultural incomes in all regions and sectors. The Union also believes that parallel measures, such as the provision of legislation to ensure fair returns from the marketplace, are needed to mitigate the possible adverse impacts of the proposed changes, and that such measures would also benefit third countries. We would particularly highlight the misconception, based particularly upon increases in grain prices, that market prices today are in such good shape, whereas rising grain prices are adversely affecting incomes in large areas of Europe that, due to environmental factors such as climate and soil types, have no choice but to rely upon incomes from the livestock sector.

13 December 2007

3   http://new.wales.gov.uk/topics/environmentcountryside/countryside_policy/farming/sustainablefarming2020/?lang=en Back

4   http://new.wales.gov.uk/docrepos/40382/40382313/statistics/agriculture/1270792/farming-facts07-e2.pdf?lang=en Back

5   http://new.wales.gov.uk/docrepos/40382/40382313/statistics/compendia/comp-2001/sb49-2001-focus-rural/sb49-2001-econ.pdf?lang=en Back

6   http://new.wales.gov.uk/docrepos/40382/40382313/statistics/agriculture/1270792/farming-facts07-e2.pdf?lang=en Back

7   http://new.wales.gov.uk/docrepos/40382/40382313/statistics/agriculture/1270792/sdr143-2007?lang=en Back

8   http://new.wales.gov.uk/topics/environmentcountryside/countryside_policy/farming/sustainablefarming2020/?lang=en Back