SPS Payment Cuts for 2013 and 2014

No sooner had we written in the last Bulletin about possible cuts in the 2013 Single Payment, than an official statement outlining a 5% reduction was made.  And further announcements on ‘transitional measures’ for 2014 indicate that there could be more falls next year too.  What is actually happening is quite complicated to ascertain out due to the overlapping nature of EU Budget periods, direct payment systems and Rural Development programmes.  We will do out best to explain matters as best we can.

2013 Payments

The underlying principle for direct payments in 2013 and 2014 is ‘existing rules, new budget’.  This means the SPS will continue to operate, but payments will be made from the new (reduced) funds under the MFF for 2014-20 (see February Bulletin for details).  Due to a quirk of the CAP, budget years and Single Payment years are out of step, and the 2013 Single Payment is paid from the 2014 budget. 

The EU Commission has calculated that all 2013 Single Payments will have to be reduced by 4.98% to bring spending below the set threshold for 2014.  This ‘Financial Discipline’ reduction applies right across Europe, apart form Romania and Bulgaria where direct payments are still being phased-in.  In addition, farms receiving less than €5,000 per year will be exempt from the cut.  This latter point is contentious, with some Member States arguing that there should be no threshold, or that it should be lower at €2,000. 

The EU Commission has stated that this figure is indicative at present, and could change.  It is partly dependent on whether the MFF is agreed or amended by the European Parliament.  Also, the amount of revenue into the CAP (dairy superlvey forexample) could make a difference.  As stated last month, we believe farmers should budget a 10% reduction in the Euro value of their 2013 payment compared to 2012 to be on the safe side.  This may sound dramatic, but at present much of the fall would be mitigated by currency changes.  Current £/€ values at 85p are around 6.5% up on the 2012 conversion of 79.8p.  If these rates are maintained until September much or all of the Financial Discipline cut would be offset.  

One further point is that existing rates of modulation (compulsory EU and voluntary UK) will apply for 2013.  This means 19% reductions in England, 14% and 11½% in Scotland and Wales respectively.  (For those that are interested in such things Regulation EC 671/2012 rolled the old modulation rules over into 2013.)

2014 Payments

The EU Commission has recently published a draft Regulation outlining ‘transitional provisions’ for the 2014 year.  This is to fill the legal gap now that it has been conceeded that the Basic Payment Scheme will not replace the Single Payment Scheme until 2015. 

Technically, the new legislation still starts on 1st January 2014 though.  This has the odd effect that parts of the reform apply from 2014 even whilst the old SPS is still operating.  The main points are;

• ‘external convergence’ begins in 2014 – this is the levelling of payment rates between the countries of the EU.  It means that the UK funding allocation for the SPS changes – more on this below
• the ‘new modulation’ rules apply for 2014 – this is likely to mean a maximum 10% (or 15%) shift from the SPS to Rural Development (depending on the final CAP deal).  Importantly, the money shifted will not have to be match-funded by national governments
• all the other main Single Payment rules are rolled-over for another year including entitlements, cross-compliance, IACS, and the Farm Advice Service 
• the provisions of the current Rural Development Programmes for 2007-13 are also extended for another year.  This certainly allows payments under existing agreeements under ELS, Glastir, RDCs etc. to be made.  It is not quite so clear whether administrations could offer new contracts under current programmes.  Our reading is that they could, but we are seeking clarification.

It is when you start to work out what this might mean for payments in 2014 that things really start to get confusing.  A split of total funds for the SPS between Member States is provided in the draft regulation.  This is based on the EU Budget for 2015 agreed under the MFF.  A further fall of 2.8% in SPS funds for the UK is suggested 

However, this is comparing the 2014 figure with that for 2013 in Regulation 671/2012 (see above).  But that 2013 figure would be before any Financial Discipline, so will end up lower in reality.  The 2013 figure also seems to have risen compared to 2012, which looks odd.  However, it seems that there has been a change in whether modulation is included or not.  It is therefore not obvious at all what this might mean for payments in 2014.  We will try to get to the bottom of it, but in the meantime it may make sense to budget another 3% cut in Euro terms between 2013 payments and those in 2014.   

More widely on CAP reform the trialogues between the EU Commission, the European Parliament and the Farm Council (Farm Ministers) continue.  The stated aim is still to have a political agreement tied-up by the end of June.  We will, of course, report on any developments over the next couple of months.