Investors buying up farm subsidies

The past week has seen a series of revelations in the media about the way that decoupled farm subsidies are operating in Scotland. It has become evident that farm subsidy entitlements are being sold by farmers and that investors – who may never have set foot on a farm – are buying up entitlements to claim the new Single Farm Payment, which accounts for the bulk of the European Union’s £48.5 billion Common Agricultural Policy.

The Times and BBC Radio 4’s Today Programme reported on how a researcher from the Open Europe think tank attended a recent public auction of farm subsidy entitlements in Scotland and for £562.82 bought an entitlement that is worth £306 a year indefinitely. According to The Times, this is how it works:

Under EU regulations, only someone classified as a farmer can buy the right to receive subsidies, but to be classified officially as a farmer, people need only hold a lease on a minimum of 1.7 acres for ten months of the year, and never need to visit it.

Scottish landowners are now leasing out vast tracts of rocky highland for as little as £5 an acre a year, so that investors can claim to be farmers. For each acre you lease, you can buy annual subsidies averaging £100 an acre, but which can rise to over £1,000 an acre.

Spencer Hayes, of the agricultural broker Hayes McCubbin Macfarlane, estimates that about 200,000 acres of Scottish highland and woodland are being leased to non-farmers:

“People are doing it massively. We have been leasing 100,000 acres simply to allow them to meet the European definition of farmer. The total market could be double that.”

Separately, The Herald reports the private trading of subsidy entitlements. The report explains it as follows:

The amount of SFP paid is unique to each farm as it is based on the subsidies that were historically paid to each business in selected years, called base years. Under Freedom of Information rules, the Scottish Executive publishes every farmer’s SFP on its website, and some run to several hundred thousand pounds. SFP entitlements can be traded freely amongst registered farmers and that has led to the development of a healthy trade, particularly from large farms and estates selling off low-value entitlements and replacing them with more lucrative ones that pay more per hectare.

A loophole has been created that also allows any investor to become classified officially as a farmer and then buy the right to be paid these valuable annual EU subsidies. Classification is achieved by purchasing a registered smallholding, and then the investor simply rents in additional “bare acres” at a nominal £6 per acre in a paper exercise that allows a legitimate claim on unlimited amounts of acquired SFP entitlements.

That has led to unease in some quarters. Andrew Arbuckle MSP, the LibDem deputy spokesman on rural affairs, is one such critic. He has calculated that £100m of the £420m annual SFP pay-out in Scotland now goes to non-active farmers.

Anthony Gibson, head of communications at the National Farmers Union, which speaks for British farmers, defended the arrangements in a letter to The Times the following day:

The EU Single Payment Scheme is not a subsidy; it is a payment made to farmers to reward them for keeping land in good agricultural and environmental condition, in the public interest. It is not linked to production, so as to free farmers to produce what the market wants, rather than what the politicians dictate. This is a thoroughly sensible reform, which will consign the butter and other EU food mountains to the history books and has vastly reduced the trade-distorting elements of the CAP.

Yes, the entitlements to receive single payments are tradeable, but only with an equivalent area of land, and the purchaser becomes responsible for meeting precisely the same environmental conditions as the original owner. The value of the entitlements on the market is largely determined by their face value, which cannot be increased, but which could be reduced. There is thus no scope for making windfall profits, for nonfarmers or farmers.

What Anthony Gibson fails to point out is that the Single Farm Payment looks much more like a subsidy than it looks like a payment for environmental services. For a start, the amount of SFP a farmer can claim is determined by the amount of farm subsidy he or she claimed during the ‘reference years’ of 2000-2002. There is no link between the amount of SFP paid and the amount of environmental services that the farmer provides. True, the SFP can be reduced if farmers fail to comply with the regulatory minimum levels of environmental protection and animal welfare. But how many farmers are actually seeing their SFP payments reduced for failure to comply? Here is what the Rural Payments Agency had to say on the issue as at October 2006:

“Cross compliance breaches resulting in reductions to Single Payment Scheme (SPS) payments to farmers in England. Just under 1,500 of the approximately 120,000 applications had a reduction applied as a result of not meeting one or more of the cross compliance conditions. Nearly 1,200 of these reductions were applied at the lowest rate (1%) allowed by the legislation, with over 90% the result of a failure to comply with the cattle identification requirements (particularly failure to report movement of animals, failure to return passports for dead animals).”

These seem rather low penalty figures, begging many questions. Either (1) most farmers are doing a brilliant job of meeting the new cross compliance environmental requirements, (2) the requirements are not very onerous, (3) there are not many inspections going on or (4) inspectors are turning a blind eye to breaches of cross compliance laws. I gather that the Institute for European Environment Policy are doing some work in this area, and I await the findings with interest.

Whatever is said in defense of the Single Farm Payment, what we are seeing is that increasingly less of the £48.5 billion paid in subsidies of one kind or another actually end up in the pockets of working farmers. And the money which does is concentrated in the hands of the very largest. The latest figures released by the European Commission show that across the 25 EU member states in 2005, 85% of the farm payments go to the top 18% of recipients.

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