The much heralded demise of the 10-month occupation of land in order to activate subsidy payment has now been confirmed (see September 2007 Inside Track).  As of this year the applicant need only hold land and Entitlements on 15 May in order to activate them.

In contrast to the draft legislation, the person activating the Entitlement retains the cross-compliance liability for the full 12 month calendar year irrespective of occupation (including sale of land).

But be warned, the requirement to notify the RPA of Entitlement transfer six weeks before the operative data still applies.  Leasing of land and Entitlement is still possible and provides greater security than a simple sale and option to buy back although, for short-term seasonal occupations, (now that authorised Entitlements are also gone) most growers are likely to opt for using licences for short term land occupation.

There has been excitement over the taxation implication, since provision for subsidy did not previously have to be made until the 10-month period had been completed, while it now looks likely that the key date will be 15 May.  For a few businesses two subsidy payments may need to be accounted for in one year, although a year-end change may remove the problem.

According to a communiqué from the RPA Stakeholder meeting, computer limitations will require a start date of 30 April to be entered on the application form.

According to Entitlement traders, lower income value Entitlements i.e. including only a regional element of subsidy or little more, are trading at a higher multiplier on the 2007 income than higher value Entitlements.  Thus, the capital value for Entitlements consisting of only the regional subsidy are trading at around 1.75 times the 2007 income produced, while Entitlements containing high historic subsidies have a capital value of less than one times the 2007 income.

This has the implication that a simple sale and purchase could potentially secure in excess of £250 per ha in the period to 2012 and that shared income arrangements would make a lot of sense for high income Entitlement holders wishing to sell.  There are, however, risks (e.g. exchange rate changes or capping) to be aware of.

The area of uncropped land (set-aside plus GAEC 12 fallow) is expected to fall by 53% in 2008, according to a telephone survey of participants in the Farm Business Survey.  The rotational area is expected to fall by 85% and the non-rotational area by 35%.  These reductions are on top of the 14% decline in set-aside area in 2007.

These figures are published at the same time as unconfirmed reports that the RSPB are lobbying Defra for the inclusion of 5% ‘environmental’ set-aside as a compulsory requirement under cross-compliance, presumably under GAEC 12.  This follows Defra Minister Hilary Benn’s threats to take action to mitigate the environmental impact of the EU’s decision to reduce set-aside to zero (see October 2007edition of InsideTrack).

Source: Defra

As expected, the area of margins falls the least as most of this area is tied up under Environmental Stewardship, as shown below.  The figures show a higher rate of loss of rotational set-aside on agri-environmental farms than on non agri-environmental farms but this is likely to be a chance effect and is not statistically significant (standard errors for the estimates range from 2% to 12%).

Source: Defra             * agri-environment

The relative areas of (former) set-aside land, as against GAEC 12 land, will be important in determining the impact of set-aside rates on the total area of uncropped/fallow land.  Around 30% of fallow land (and over 50% in the south-east) resulted from GAEC 12 in 2007; 2.4% out of a total of 8.1% of land out of production came from GAEC 12 land.

Source: Defra

The survey indicated that over 80% of former rotational set-aside will be planted with autumn sown crops, suggesting a significant drop in the national area of winter stubble.  By contrast, only 56% of formerly long-term set-aside is autumn sown, presumably because of the greater land work required to return this land into production.

The impact of these changes on the national distribution of set-aside/uncropped land is significant.  It would reverse the existing trend of smaller distances between areas of uncropped land since the introduction of compulsory set-aside in 1994.  The average distance from a random point in England to the nearest uncropped land will rise from 1.75km in 2007 to an estimated 2.0km in 2008, when only 34% of England will be within 500m of uncropped land compared to 44% in 2007.

Source: Defra

While the direction of change is significant, it is no different to the position seen in 1998.  The issue, therefore, is whether the return to cropping experienced in 2007, following higher crop prices for both food and industrial/energy crops, would have continued in 2008 regardless of the change in the set-aside rates.  Clearly both factors (higher prices and 0% set-aside) have had an effect and this needs to be taken into account by Defra when considering mitigating policy scenarios in response to environmental concerns.

In 2002 Commissioner Fischler proposed long-term (10-year non-rotational with no industrial crops) ‘environmental’ set-aside in the Mid-term Review reform.  This was not supported by the UK or many of the other Member State at the time and so was dropped from the July 2003 agreement.  If Defra was to unilaterally impose ‘environmental’ set-aside following lobbying from the RSPB, it would be interesting to see the Commission’s reaction, particularly if the NFU or another representative body was to challenge it in the European Courts.  The original purpose behind set-aside and GAEC 12 was to keep uncropped land in good condition so that it could be returned to production if required (and not be allowed to turn into scrub).  In the new Guide to Cross-Compliance in England, Defra does say that following the fixing of set-aside at 0% “clarifications have been made (to GAEC 12) to reflect the interest in safeguarding the environmental benefits of land previously set-aside”.  But this is not reflected in the EU Regulations and is an issue that could be challenged in the courts.

No doubt Defra are taking legal advice and sounding out the European Commission before making a decision.  If ‘environmental’ set-aside is seen by policy makers in both Defra and the Commission as being the way forward, it would make sense to include the proposal in the CAP Health Check reform for the whole EU, rather than unilaterally on English farmers.