Capping the CAP: The loopholes that could see Larry Goodman, Coolmore and a Sheikh hold onto huge EU farm subsidies
Huge payments of farm subsidies to individuals from the Common Agricultural Policy (CAP) has long been a cause of outrage to farmers.
Just last week, IFA President Joe Healy said CAP should be used to fund genuine farmers, not the likes of Larry Goodman, Coolmore or Sheiks.
On average, at EU level, half of the direct payments beneficiaries receive less than €1,250 per year (around €100/month), corresponding to 4.5pc of the total direct payments envelope. What is less evident is that just 2pc of beneficiaries (121,000 farms) receive 30pc of the total direct payments envelope (those receiving more than €50,000 in total).
In Ireland in 2017, 37 farms and businesses shared a subsidies pot of almost €7m, while 85,000 of the country's 120,000 farmers receive individual payments of less than €10,000.
Recently, the EU has made efforts to tackle the issue and capping was first introduced in the 2013 CAP reform but it was a voluntary basis by Member States to bring in.
In the final regulations of the 2013 CAP, the EU also ruled that basic payments above €150,000 would be reduced by at least 5pc. Member States could increase this percentage up to 100pc, which would, in effect, introduce a cap of €150,000.
In its most recent CAP proposals, which would govern the CAP from 2020, the European Commission is proposing a reduction of payments above €60,000, with compulsory capping for payments above €100,000.
This, it says, is designed to ensure a fairer distribution of payments, with the saved monies being used to fund small and medium-sized farmers.
However, the move has been slammed by some commentators and farmers, who say this claim is misleading and disingenuous, as it ignores what is likely to be the fine-print in the Commission proposal.
The crux of the issue is that under the proposals the Commission says all Member States must allow for labour costs to be taken fully into account.
The effect of this proposal is that farmers receiving large payments can deduct the value of salaries or on-farm labour from the direct payments received before the cap is applied.
The draft Regulation states that: “To calculate the amounts referred to in points a) and b) [where (a) refers to the deduction for wages paid by the farmer to hired labour, and (b) refers to the deduction for unpaid labour contributed by persons who do not receive a salary], Member States shall use the average standard salaries linked to an agricultural activity at national or regional level multiplied by the number of annual work units declared by the farmer concerned”.
This would mean that the Department would come up with a standardised rate (which would be linked to average standard wages rates paid) and would then have to determine, or estimate, the number of labour units supplied.
In the case of a husband-wife run farm, both would qualify, so the total family labour deduction could reach €60,000 even if the standardised rate would be closer to the minimum rate set for agricultural workers.
Under the proposal, those in receipt of large payments can also include the imputed value of own family labour engaged on the farm, such as themselves the farmer or a family member.
According to Professor Alan Matthews of Trinity College Dublin, the effect of these rules makes the proposed capping meaningless.
"The general conclusion that capping is not likely to release significant amounts of funding for the redistributive payment or other purposes is likely to remain valid as long as salaries and the implicit cost of family labour can be deducted from the payment before the cap is applied."
He also has said that capping large payments might encourage large farms to adopt more labour-intensive enterprises as part of their product mix in response to the cap.
"In effect, if they are capped, these farms could increase their labour use at effectively zero cost (their higher wage bill would be offset by an equivalent increase in their direct payment income)."
The argument in favour of allowing the deduction of labour costs is that capping penalises farms providing numerous jobs.
Capping and the reduction of payments in the current CAP programming period mainly affects Eastern European bloc countries. In these countries, the capped farms have close to 50 employees on average.
The Department of Agriculture in Ireland has also voiced concerns over the proposal to deduct salaries.
Assistant Secretary, Colm Hayes told a recent meeting of the Joint Oireachtas Committee on Agriculture that it will create an unnecessary and significant administrative burden on member states that goes against the spirit of modernising and simplifying the CAP.
"If we must start factoring in individual P60s, P45s and all sorts of other factors, it will bring about a complexity nobody wants to see."
Farm Organisations React
All of the major farm organisations are in favour of capping the CAP, but there are some differences as to how it should be carried out.
IFA is not opposed to the capping proposal from the Commission and says it is in favour of the salary exemption if there is more than one member of the family working on the farm.
This is in stark contrast to the to the INHFA, which says the maximum direct payment should be capped at €60,000 with no allowance for labour units to be used to "bring up payments".
The President of ICMSA, Pat McCormack said his organisation supported the cap proposed by the Commission. “In relation to the capping of payments, ICMSA supports the principle of the cap in payments proposed by the EU Commission and we are clear that exemptions to such a cap should only be considered in very specific and justifiable cases - if ever. The idea of a salary exemption is...unworkable and would be open to manipulation, thus making it unfair."
The ICSA also state that there should be no exemption for salaries. "It would be absurd if the average farmer continues to get €9,000 and they are continuing to be cut when someone could avoid a €100,000 cap by saying they have a few guys working for them, so they should get €160,000," said its General Secretary Eddie Punch.
Professor Matthews has accused President of the European Commission Jean-Claude Juncker and Agriculture Commissioner Phil Hogan of being 'downright mischievous' in talking up the capping of payments at €60,000 per farm as a way to target support to small and medium-sized farms.
"They must be well aware that the small print of the Commission proposal (allowing the deduction of labour costs including unpaid labour from the amount of direct payments before capping is implemented) means that the proposal will have absolutely no impact in the great majority of, if not all, Member States," he said.
CAP reform timeline
The new draft CAP regulations were launched on June 1, 2018. A position on the draft regulations must be agreed by the Council of Ministers and the European Parliament.
Then, Trilogues between the Council, Parliament and Commission take place in order to reach overall agreement by the co-regulators on the Regulations.
As the CAP regulations contain financial references, agreement on the overall EU budget, which is a matter for unanimous agreement by Heads of State and Government, must also take place to allow final conclusion on the CAP regulations.
The draft proposals require Member States to submit their CAP Strategic plans to cover all schemes by January 1, 2020. The Commission’s objective is to have the proposals adopted by the co-legislators in spring 2019, prior to European Parliament Elections in May of that year.
The CAP draft legislative proposals are intrinsically linked to the recent proposals for the next European Multi-annual Financial Framework (MFF) 2021-2027. The MFF proposes a 5pc cut to the overall CAP budget.
EU leaders have called for more work in the coming months, “with a view to achieving an agreement in the European Council in autumn 2019”.
The MFF runs for seven years and will need to be in place in time to replace the current budget programme, which ends in December 2020.
Based on the new agreed Regulations, DAFM will have to draw up a national CAP Strategic Plan which will require approval by the European Commission prior to national implementation. This process will involve ongoing consultation with national stakeholders.
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