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Director of Policy's Blog 19 September 2016

As thinking on the future design of agricultural policy in the UK and Scotland begins to emerge, a fundamental policy choice has resurfaced in the wake of the EU referendum.

Should we go back to the future – decoupled or coupled support?

First and foremost, the UK will REMAIN a Member State of the European Union until it is not! Until such times as Brexit is complete, farm support will still be governed by the current Common Agricultural Policy, and all that goes with it by way of budgets, compliance, inspections and all.  

What is clear today is that outside the EU there is an opportunity for the UK, and its devolved administrations, to construct a domestic agricultural policy that is more adapted to domestic needs and which reflects the inherent farming systems of the British Isles.  The debate has already begun.

There have already been calls from some - not least within the Union’s membership - for a return to coupled support payments, and even for the ‘deficiency payments’ model of pre-1973.  Others have called for less or little direct support, but with remaining budgets focused on environmental delivery and investment to foster innovation and competitiveness as the safety of direct support is removed.  And others, aware of the challenges of being more exposed to world markets and price volatility, have called for insurance type systems.

There will be many possible UK and Scottish agricultural policy options.  These will undoubtedly be influenced by budgetary pressures and public spending decisions.  Equally, there are other international obligations that limit our ability to do as we please or as we used to.  

We do not have a blank canvass – although the ‘colour’ of our future policy choices will be extremely significant.

An obvious influence will be the 1994 World Trade Organisation (WTO) Agreement on Agriculture.  This placed all farm support measures into so-called ‘boxes’ of differing colours

  • Green Box - measures which have no, or at most minimal, trade distorting effects or effects on production 
  • Blue Box - measures which provide direct payments under schemes which limit the level of production - such as Scotland’s coupled support schemes for beef calves and hill ewe hoggs  
  • Amber Box - all other agricultural support payments. The amount of support provided is limited, with reductions required from historic levels

The bulk of CAP direct support has been in the form of decoupled payments since 2005, when the link between production (headage payments for livestock etc.) and income support was finally broken.  The current Basic Payment Scheme (BPS) and Greening payments are in the Green Box.

All current Pillar 1 spending in England, Wales and Northern Ireland is in the Green Box, and Scotland is mostly Green Box other than the Blue Box coupled support payments mentioned above.

It is impossible to second guess how the EU’s obligations in the WTO will be translated to the UK when it leaves, but a safe assumption is that the UK will not be able to introduce new measures that are deemed to be trade distorting.

Even some decoupled direct payments currently in the Green Box are disputed by some WTO members.  Many other payments under CAP, such as agri-environment measures and other elements of rural development programmes (such as the SRDP) also fall into the Green Box – perhaps with the obvious exception of Scotland’s Less Favoured Areas Support Scheme (LFASS).

Before and since the EU referendum outcome, many suggested that the UK and Scotland could continue with a simplified and decoupled direct payments system outside the EU.  CAP-like support systems would provide continuity, but equally may offer a means for government to phase out direct Pillar 1 type support in favour more competitive rural development type funding currently associated with Pillar 2 and the SRDP.

Under the CAP, from 2014 to 2020, Scotland would have received around €4.6 billion (£3.5 billion) from the EU.  It is also clear that the Scottish agricultural sector remains heavily reliant on CAP funding, with support payments amounting to around two-thirds of total net farm income in Scotland.

The recent announcement from the Chancellor of the Exchequer has provided assurances that the current level of agricultural funding under CAP Pillar 1 will be upheld until 2020, as part of the transition to new domestic arrangements.

However, what remains unclear is whether the UK will look to develop a UK-wide agricultural support system or devolve this to UK nations. Given the UK Government’s past criticism of CAP Pillar 1 payments, we do not know the scale of future support to the agricultural industry in the UK or in Scotland.

Even looking at the simplest of policy choices – coupled or decoupled support – there are strong arguments both for and against.  And that is before any notion of what support budget might be available; what Scotland’s share of that might be or what the whole range of policy possibilities might be available for Scottish agriculture.

We are back to the drawing board if not quite back to the future, yet.

(A full version of this blog will appear in the October edition of the Scottish Farming Leader)
 

Author: Jonnie Hall

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About The Author

Jonnie Hall

NFU Scotland’s Director of Policy Jonnie Hall has been involved with agricultural and rural policy for more than 30 years. He is a graduate of the University of Newcastle-upon-Tyne (BSc. Honours in Agricultural Economics and an M.Phil. in agricultural policy research) and Oxford University (MSc. in Agricultural Economics). Following an academic and consultancy career, Jonnie joined what was the Scottish Landowners’ Federation in January 1998, leading their policy work on agriculture and land use issues. Jonnie then joined NFU Scotland in May 2007, and has overall responsibility for the policy work of NFU Scotland as Director of Policy and Member Services. He has served on all key rural and agricultural policy stakeholder groups.

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