My previous blog on Common Agricultural Policy (CAP) farming subsidies attracted a bit of interest in The Herald today and a number of people have been in touch to ask what can be done to ensure a fair distribution of EU farming subsidies. This question of course is exercising Richard Lochhead as he finalises the details of the subsidy system that will kick in in 2015 and run until 2020. There are a number of competing interests to be squared and his task is unenviable.

I have blogged in the past about “capping the CAP” here, here and here. Capping involves placing a ceiling or cap on the amount of subsidy given to any one farming business. The European Parliament voted that capping be mandatory but the Council of Minsters took the view that it should be left to Member States to decide for themselves and that means, in the UK, that the devolved administrations have complete discretion as to if and how they apply such a measure.

During negotiations of the CAP, the UK and Scottish Governments were opposed to a cap but back in 2011, Richard Lochhead admitted thatthe public did not like the idea of very big payments going to individual farm businesses and many of the farmers he had spoken to across Scotland had acknowledged that.”

I argued in February 2013 that existing payments were very unevenly distributed. The graph below shows the total for 2011 (the distribution for 2013 is very similar).

If payments were capped at £100,000 per farm business, then this would, in 2011, have enabled the redistribution of £53.9 million paid to 813 farmers.

On the basis of the 2013 data, over two-thirds of the total direct payments went to 21% of the recipients (3962 farm businesses). A total of 642 farm businesses received payments of over £100,000 and capping the basic payments at this level would recover £66.2 million per year for redistribution.

No farm business needs a subsidy of more than £100,000 or, if it does, it does not deserve to be in business. I would, in fact place the cap much lower – at £50,000. The Scottish Government consultation noted (page 13) that,

If we wish we can decide that there should be a bigger reduction on Basic Payments than the 5% which is required by Europe, including a total cap on the size of future Basic Payments. Reducing the potential size of future payments in this way might also help tackle slipper farming where entitlements to high value SFPs have been transferred and are currently being claimed on rough grazing. Imposing higher levels of degressive reduction or even a total cap on the size of future Basic Payments could be one way to limit the future size of payments to slipper farmers who meet any minimum activity requirement. Without a tool such as this, these claimants could continue to claim a relatively large share of future support until payments become fully area-based. (my emphasis)

Consultees were invited to express a preference for one of four options but none included a total cap of less than €500,000.

Most people understand the concept of a cap and, whilst the the £26,000 per year benefits cap is controversial because it relates to some of the poorest members of society, the same cannot be said, generally speaking, of farmers. There are some poor farmers of course. There are many who work long hours for poor rewards. There may well be some who rely on benefits to feed their family. But this need does not extend to Sheik bin Rashid Al Maktoum, the Earl of Moray or Viscount Cowdray.(1)

There is no justification for paying any farm business, including (as the previous blog noted) large landowners, much more than twice the cap on benefits received by the poorest in society. Furthermore, the current system of subsidies is contributing to a growing concentration of ownership and occupancy of land when the Scottish Government’s land reform policy is to see more diversity and have many more people owning land. Excessive subsidy (indeed any subsidy) also pushes up the price of land. Subsidies, in general are a bad policy but we are stuck with them.

So.

£50,000 a year. What do you think?

NOTES

(1) See previous blog to download Excel file of 2013 recipients of farm subsidies.

65 Comments

  1. This is a matter which should be continually exposed in the public domain until we have radical change.
    For a kick off, in an industry allegedly desperate to find opportunities for new entrants while there are no farms available for generations of countless potential new entrants, it is both ludicrous and unfair to provide subsidy to any faming business on more than one farm. This is a matter which creates the other land hot topic, ie landowners failing to relet vacated tenanted farms and gathering the “family farming” subsidies themselves on multiple farm land masses.
    £25,000 per farm, and per farm business, is adequate if our countryside is to be populated, managed and fairly distributed in the efficient production of food and maintenance of rural communities.

    Reply

  2. Reiner Luyken

    No subsidy at all. The butcher and the baker don’t get a subsidy either, do they?

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  3. Absolutely agree. We get about £60,000 and yes it’s gratefully received but it seems odd in the post Thatcher era that our industry be subsidised. We areOrganic, but any organic aid grants are seperate from this basic single farm payment as are environmental payments. So SFP is for being there and farming to basic legal requirements!

    However, there could be a double edged sword to abolition. The very large dairy farms (1000 + cows) are positioning themselves for a non subsidy future and there can be no doubt that a real free unsubsidised farming system will favour the “efficient” massive dairy farms who can’t wait for a free for all which drives the smaller farms to the wall. They will pick up the extra land either to purchase or rent (pushing prices up further). A big dairy farmer near us has made it clear that he intends to survive when everyone else is gone. When asked if he wanted to join a “planning to succeed” group (a SG funded collaborative excercise) he replied “why should I show anyone else how to succeed?”.

    Great 🙁

    Reply

  4. It says in the Herald article that the Duke of Westminster didn’t claim in 2013 and the Queen doesn’t claim. That being so, your allegations in the previous blog that they could be eligible for respectively £764,712 of public assistance for each of the next six years and over half a million pounds are demonstrably false even if we were to go straight to full area basis on Day 1.

    Are you still saying that Sheikh Maktoum has no cattle and only pretends to be a farmer at Kilillan & Inverinate?

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    • I know. I was the source of that info. Doesn’t change anything about their potential eligibility from 2015. I have no idea what Sheik Mohammed does at Inverinate except that Smech Management Co didn’t trade in the financial year 2012.

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  5. It changes *everything* about their potential eligibility because if you didn’t claim under the old scheme in 2013, then you’re not eligible for anything under the new scheme.

    If you’ve “no idea” what Sheikh Mohammed does at Inverinate, then why did you say “My understanding is that there are no farm emoployees, no cattle and certainly no £1 million per year.”?

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    • Reference year not yet determined. Could be 2013, 2014 or 2015.I don’t know the position at Inverinate – my understanding is as I stated but I could be wrong. What he does or does not do is irrelevant to the subject of the previous blog.

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      • Need to stick to the point here, surely it is not whether A,B or C with vast tracts of land took the sub. It is that they have the choice.

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        • And if someone makes the choice not to take SFP why should they be referred to on an open blog? Surely they should be congratulated, particularly when they are such significant employers in remote rural areas?

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          • Money not claimed is a net loss to scotland.
            They could claim it and give it to their tenants, or the queen could use it instead of evicting crown tenants.

          • Of course they are significant employers in remote rural areas when they control virtually the whole area and all its assets. That is not to say they employ to the maximum potential of the area concerned. This is the key which desperately needs to unlock the door to the sustainable development and aspiration of ALL our land and ALL our people.

      • I’m not talking about the reference year, I’m talking about the “gateway rule” which is that, if you didn’t claim in 2013, then you have no entitlement to payments under the new scheme.

        If what Maktoum does at Inverinate was irrelevant to the subject of the previous blog, then it’s curious you titled it “Sheik Mohammed bin Rashid Al Maktoum, the farmer” and concluded it with ” I … will be paying close attention to whether Sheik Mohammed is going to be allowed to pretend that he is a farmer …”

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        • Entitlement under the new scheme is not contingent on having made a claim for SFPS under the existing one but having been entitled to do so on the basis of holding eligible land. There are 357,850ha of eligible land that submitted no SFPS claim in 2013 but may have submitted claims under other schemes. My previous blog was about what might happen in future, not what anyone (including Maktoum) is up to now.

          Reply

          • Andy, your first sentence there is factually incorrect. But don’t take my word for it, look at Article 24 of the EU Regulation which sets up the new Basic Payment Scheme the important wording in which is:-

            “1. Payment entitlements shall be allocated to farmers … provided that: (a) they apply for allocation of payment entitlements under the basic payment scheme by the final date for submission of applications in 2015 …; and (b) they were entitled to receive payments … in respect of an aid application for direct payments … for 2013.”

            That means they actually had to have applied, not that they could have done but didn’t. Here’s the link to the regulation so you can check I’m not making this up – http://tinyurl.com/lgb3528.

          • I’ve seen the regulations and 24(c) allows anyone with eligible land who was actively farming to claim. Or they can claim from National Reserve. Not making a claim for SFPS in 2013 is not a barrier to receiving Basic Payments from 2015.

  6. The queen and duke of westminster may not be claiming the millions, but rest assured that every other estate owner will be.

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  7. Stuart Swanston

    Let’s go for a £50k cap. If this proves inconvenient to some of the larger landowners they could always sell som of their land to neighbouring farmers or community trusts. Such diversification would lead to more locally focused business plans and lead to more local employment and house building and give local school leavers more opportunities to live and work where they grow up. This should be an opportunity for the Scottish government to show that it is committed to land reform, rural development and ecological diversification from vast tracts of land managed in identically bleak ways. Grants attached to land should go to the people who are working and living on it. The Norwegians have been doing this for four hundred years.

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  8. Slurry Stirrer

    The two multi millionaire absentee lairds in my locality are claimants of agri subsidy. This gathering of pubilic money together with rental income is now seen as the modern sensible way to run an Estate. No longer is vast personal wealth required. And Agri business mentality is not much better, gather as much ground as possible and maximise subsidy. Both examples lead to the erosion of family farms and ultimately rural stagnation. Cap the CAP at around £25k this in turn will encourage family farming, new entrants and slowly close the door on monopolising sterile Agri business mentality, which main driving force is the landed elite and the NFU.

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  9. Years ago in the 1980s there was talk of capping which ment all the big farms if run badly would give up certain acerages and let potential new entrants like ourselves the real chance of letting or eventually buying.I couldn’t believe it would happen and of course it didn’t so the effect was I don’t know any first generation farmers of my age(born in 1960s).So capping would let new blood in and give people a chance which I have never seen up in Ross shire unless you are already connected/backed with a home unit from your father.The last time you could get a chance was the 1960s when many got in as tenants but that will never happen now but capping would give this chance again.One big problem though is most units got bigger as the profit/acre went down and so unless you have 500acres you might struggle or never make it,so Im not sure if even you get the chance it will be on.

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  10. Capping should be only the beginning.
    All tenants must get security of tenure, especially limited partners.
    All rent reviews should be banned unless the landlord has substantially altered the earning capacity of the holding.
    No rent payable unless a valid rent invoice sent. Devious lairds dont send notices, hoping you will forget.
    Pheasant damage to be set at £10 per released bird and deducted from rent.
    No eviction for non payment of rent unless over 12 months late.
    ARTB for the house, steading and at least 50 acres of land.

    Reply

    • Steady Hector, you might bring the major recipients in our farming scene into the real world of Scottish life. Ocht what the heck! Either their conscience does not embrace humanity and they are laughing all the way to the bank, or they are in for a big shock one day when the public open their eyes and shoot the cash cow.

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      • I would go further, classing tenants as consumers, with the same protections from bad practise.
        If a tenant is pressured into signing a document which turns out to be not as described, they should have a fortnight to overturn it, the same a consumer can rescind a credit deal signed under pressure for a tv , computer, etc.

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  11. Slurry stirrer, you said “Cap the CAP at around £25k this in turn will encourage family farming, new entrants and slowly close the door on monopolising sterile Agri business mentality”. What do you make of the point alluded to by Ross Paton above that any reduction in CAP runs the risk (put it no stronger than that) of tipping a medium sized business into unviability with the consequence that its farm is as likely to be snapped up by a farmer expanding to position him/herself for a post CAP world (“Agri business mentality”) as a new entrant? How do you guard against that? Maximum holding sizes?

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  12. I hasten to add I am not defending the current system, simply pointing out the rule of unintended consequences. I actually suspect energy costs will make a lot of these giant dairies unviable, but they control a lot of the NFU higher echelons, SRUC see them as the future and government may see them as “too big to fail ” (see Andy on “elite capture”!)

    Reply

    • The govt and sruc are actively conspiring against the family farm, excluding them from SRDP for example, allowing the mega farms to hoover all the cash, and perpetually raising compliance, driving the smaller producers out.

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  13. Rural Rascal

    Stopping subsidy will encourage commercial farmers to expand as they depend more on economies of scale. They would no doubt be active purchasers of ex-tenanted land if ever ARTB arrives taking greater areas out of the scope of new entrants.

    Interesting to see that NZ land prices are on the increase with arable and good grassland (dairy) now fetching £5,000 – 6,500 per acre. Proof that subsidy does not have an effect on land value whereas production does?

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    • Strong demand from east Asia for dairy products is increasing land prices in NZ. This in no way proves that subsidy does not have an effect on land prices here.

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    • Slurry Stirrer

      RR, “purchasers of ex-tenanted land if ever ARTB arrives taking greater areas out of the scope of new entrants” a bit of a wobbly argument there! are these ‘commercial farmers’ not already out bidding new entrants? are tenants who buy under ARTB solely focused on selling the family farm? could such a holding not be let to a new entrant?

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  14. You refer to demand and production, two factors that generally lead to an increase in value. Increased demand for a product generally leads to greater supply from increased production and a corresponding demand and increase in the value of land that produces it – as NZ proves nothing to do with subsidy.

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  15. Research provides a lot of evidence that subsidies are capitalised into land values. The extent varies according to fiscal regimes and other market factors that also influence land value. See, for example, what Professor Paul Cheshire told Scottish Affairs Committee (Land Reform Interim report para 38 March 2014)

    38. In this interim report we have focussed on the role fiscal policy plays in determining the price of land. Professor Paul Cheshire, Emeritus Professor of Economic Geography at the London School of Economics was clear in what he told us.

    “My basic message to you would be that all the work that I have done, and that an increasing number of scholars around the world have done, reinforces the conclusion that land markets are amazingly efficient at capitalising almost everything. By “capitalising,” I mean that the price of land reflects everything about its value and use […]

    If you try to help poor farmers by giving them subsidies, it gets capitalised into the price of land. If you give inheritance tax reliefs to farmers to try to keep family farms going, it gets capitalised into the price of land and squeezes family farmers out. If you give subsidies to farmers, it gets capitalised in the price of rural land. If you give planning permission with particular obligations—because it is always in the future—is again reflected in the price of land”

    Also see work of Ciaian et al. – a big study of EU land markets and the CAP

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  16. Responding to Andy on May 9, 2014 at 8:19 pm when you said: “I’ve seen the regulations and 24(c) allows anyone with eligible land who was actively farming to claim. Or they can claim from National Reserve. Not making a claim for SFPS in 2013 is not a barrier to receiving Basic Payments from 2015.”

    What 24(c) says is that a member state *may* (note – not *must*) allocate entitlements to someone who was actively farming in 2013 but didn’t claim. If you think Scotgov are even remotely likely to exercise that discretion to award the Duke of Westminster £[20-25€] x the hectarage of Reay Forest (even assuming he was farming there last year, about which you have no more or less of an idea than Maktoum at Inverinate), then at best you’re living in a cloud cuckoo land of ignorance about the subject and at worst you’re guilty being irresponsibly disingenuous.

    David Ross of the Herald is equally guilty for repeating your claims at face value without independently verifying them from a more credible source.

    So the statement “24(c) allows anyone with eligible land who was actively farming to claim” is not true. Actually, I’ll rephrase that. It’s technically true (in that they can claim but will be refused) but the statement is a misrepresentation of the reality.

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    • The Irish call this the “Scottish derogation” It is what will (or should) be used for new entrants. Anyone who can claim to have been farming according to the (as yet unknown) details of what constitutes an “active farmer” can claim. The Scottish Government have to apply this according to “objective and non-discriminatory eligibility criteria” I have no view on the likelihood of this happening – am merely drawing attention to fact it could. Of far greater significance is the 100 or so estates that DID claim on modest hectares and for whom a bonanza may await. There is a huge amount of activity in the seasonal letting market of poor ground all designed to try and game the system.

      Anyway, time to turn in in my “cloud cuckoo land of ignorance”.

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      • By hiding under the guise of “I have no view, I’m only saying it could happen”, when in reality it’s so *not* going to happen, you’re guilty of exactly the same thing you’re accusing SLE of in your latest blog – saying something that’s true but may not represent reality.

        I await with interest you posting an Excel spreadsheet of that “100 or so” estates that have claimed on “modest hectares” and await a “bonanza”. (How? Because for some reason they have previously mysteriously neglected to claim on all the hectares at their disposal???)

        Or is this going to be another example like the 432 where we just have to take your word for it with no actual facts released while gullible journalists swallow it whole?

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        • I published the spreadhseet at the foot of the previous blog (Sheik Mohammed). Because existing claims are historic – yes many estates have not been claiming on their whole eligible acreage for a variety of reasons (including that some has been tenanted or rented to slipper farmers). You don’t have to take my word for anything – if you choose to disbelieve my research for the 432 or whatever then fine. Do your own. Oh, and most journalists I have worked with are not gullible – they are some of the finest in the business.

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          • No, you published two spreadsheets, each with about 18,000 lines of what appear to be every single SFP claim in 2012/13 and with roughly a third to a half of the blanked out because they’re natural persons. There’s no spreadsheet of 100 or so estates awaiting a bonanza.

            Is there a link to a list of the 432 available anywhere?

          • All the data is there including the estates and hectares they are claiming at the moment. Multiply them and additional eligible hectares (on my GIS) by RGR rates and there’s a potential bonanza for many of them. That;s why NFUS wants them eliminated from new scheme. No link to 432 anywhere, no. Analysis published in Chapter 12 of Poor Had No Lawyers.

  17. That’s all well and good and I don’t necessarily disagree but the simple issue is again one of demand and supply. No new land is being produced and on an island with a population of 60m an element will always have aspirations to own land and will sometimes purchase, often regardless of subsidy, applying a value that they personally are happy to pay in order to secure a chunk of a finite resource. It is often these deals that then go on to set market value.

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  18. This idea that CAP subsidies are capitalised into the value of land is also total bollocks.

    If the whole criticism of slipper farming is that you can detach the subsidy from fat East Lothian arable and retire by renting in the top of the Cairngorms, then can someone explain to me why a shrewd investor is going to inflate the purchase price of the EL arable by factoring in the value of the subsidy which has already been hived off?

    Why do all Strutt & Parker and Savills brochures say “No SFPE included” or “SFPE available by separate negotiation”?

    I’m not defending the present or future systems which, like anything in life, have good and bad points and are not as clear cut or simple as you would imagine. But equally, I’m not going to stand by while total rubbish like “CAP is capitalised into the value” is spouted.

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    • Correct – productive capacity is the key not subsidy. Just compare Macauley Land Classification maps and a set of sales particulars or a price achieved.

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    • Not sure Professor Paul Cheshire and those other academics think it is total bollocks.

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      • I don’t read Professor Paul Cheshire’s blog, Andy, I read your blog so I’d be grateful if YOU could explain why someone would bid up a price for a factor which does not exist.

        Or are you saying you don’t really understand it either?

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        • No-one will bid up the price for a factor that doesn’t exist. That’s why young farmers with no SFP will always lose out bidding for grazing lets against those who receive subsidies. I am not going to spend time explaining well-established observations from economic research into the land market. I have provided two sources. There are plenty more.

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    • Slurry Stirrer

      NK, how can you start with a bold statement like “total bollocks” then ask for someone to explain the system to you?
      Are you an expert subsidy adviser and land sales expert or not? Please let us know then i can set the level at where i explain the subsidy system to you. thanks

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      • SS, I’m a retired rural property lawyer. I am neither an expert nor an advisor on subsidies although I know a little about them, though not very much about the actual practicalities of complying with them on the farm. I know something about land sales but as I’m not an estate agent, I am certainly not an expert on prices. I hope that answers your question.

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  19. Are they accredited valuers?

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  20. If neil and rascal believe that subsidy doesnt put up the value of land, they must be the only ones in scotland to think so.
    Even lord gill in his glorious moonzie judgement said that a tenant would take account of available subsidy when offering a rent. And if rent rises, so does capital value.
    Land in aberdeenshire was £400/ac in 1987, but the introduction of set aside payments put it to £1000/ac in 1988.
    Introduction of sfp in 2005 put arable land up from £2,000/ac to £3,000/ac as under sfp, you werent burdened with the cost of growing a crop.

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    • No Hector – I said that if subsidies go land values are unlikely to fall.

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    • How do you mean “weren’t burdened with the cost of growing a crop”?

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      • Neil, Under the previous IACS system, you had to grow barley or some other crop , invariably at a loss in order to claim the subsidy.
        Under sfp, there is no requirement to grow anything or rear any livestock, so the two could now be separated entirely, farming and sfp.

        This has led to the massive rise in contract farming which would not have happened otherwise. The landowner collects the sfp, and does nothing, while a contractor attempts to turn a profit by working (raping)the land on a much bigger scale.
        Without the security of sfp and the “division” of sfp from production, contract farming would never have expanded like it has.

        These landowners who stay in bed all day dont even have to wear slippers to collect subsidy, lets call them “dressing gown farmers” and are equally as bad as slipper farmers in my opinion.

        This ability to claim sfp and contract out the raping of the land has led in part to the flood of investors into farmland and the £10k per acre price.

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  21. Land value is a function of interest rates, tax efficiency,safety of alternative investments, subsidy levels, and lastly, production.
    Nz land prices plummetted when subsidies were removed.

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  22. Fine, but land values in NZ are now comparable to those in Scotland with foreign ownership helping to underpin the market and the economy.

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    • “Foreign ownership helping to underpin the market and the economy”

      I think most kiwis would beg to differ, as speculators are driving the price of land beyond the reach of the wealth makers, the young dairy farmers.
      Even so, foreign ownership is banned except in certain carefully scrutinised situations., something badly needed in scotland.

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  23. Fact is, the growing, and hungry Chinese economy is driving land values in NZ. Subsidies and fiscal measures, or lack of them, are also drivers. Foreign ownership is a consequence rather than a driver.

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    • Slurry Stirrer

      Exactly TG. if nz were to introduce subsidies tomorrow would it have an influence on land price? yes.
      subsidy are entwined in the price of land, why because they are discussed at sale and at rent negotiations, so therefore have an influence.

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  24. You cannot compare the nz landmarket with scotland, since big estates in nz were broken up long ago, and there are thousands of farms for sale in any given week, wheras in scotland there might be ten or twenty.

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  25. I’ve read the Cheshire/Adams evidence to the SAC (and watched about half of it) and it seems that things “being capitalised in” to the value of land is just a fancy, high falutin’ way of saying the value of land is dictated by market forces.

    Thus, to mention an example cited by Prof. Cheshire, house prices in certain parts of Berlin are being depressed by the threat of a new airport being built nearby. To relate it to CAP subsidies, if they were withdrawn then some marginal farms might go out of business, that would lead to more farms coming on the market when there are fewer farmers, supply increases and demand lowers so prices go down. But you don’t need to be an Emeritus Professor or have a Parliamentary enquiry to reach that conclusion, do you?

    What I thought “capitalising in” meant (which provoked my “bollocks” remark: apologies for that) was something more subtle – namely the syndrome that Prof C characterised as land being “a licence” for something. For example, APR being a licence to avoid IHT so the tax not paid is “capitalised in” to the price for the land which is the ticket (licence) for that exemption – the price must be an almost arithmetical increment related to the tax involved added to the underlying agricultural value. I totally get that.

    But Prof Cheshire also talked of land as a licence to receive subsidies. If he meant SFP, then I disagree with that. It’s owning SFP Entitlements that’s a “licence” to receive subsidy. You need land as well, of course, but you can rent in naked acres for a few bob for that. (The subsidy is capitalised into the value of the entitlement but not the land. Apart, possibly, from the otherwise worthless naked acres. Certainly not the prime East Lothian arable.)

    That apart, I noted Prof Cheshire thought APR inflated land value four-fold and that re-applying taxes on agricultural land could even end up giving it a negative value. These seem pretty extreme statements – anyone else got a view on that?

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  26. I think prof cheshire is about right on the 4 fold increase in value, and if taxes were levied on farm land at excessive rates, it could have a negative value. Either of these scenarios is unlikely of course.
    You are wrong to assume that nodbody will capitalise the sfp into prime arable land, it is there, and can be used, and will be.

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  27. Hi hector, on the four fold thing, it surely can’t be too difficult for someone to establish what the price of farmland is in a nearby European country that doesn’t have APR.

    I no longer assume people don’t capitalise SFP into prime arable. That’s now that I understand what “capitalise in” means! An example of the high priests of arcane knowledge using jargon which obscures very simple concepts from ordinary folk, methinks!

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  28. Neil, re cost of growing a crop, answer see above.

    Reply

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