An influential committee of MPs has cautioned environment secretary Owen Paterson against moving funds from farmers' direct payments to rural development and environmental programmes, unless there is "a clear benefit" to be had from so doing.

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The Environment Food and Rural Affairs (EFRA) Committee released its report on implementation of the reformed EU Common Agricultural Policy on Monday (2nd December).

Costing almost €60billion (£50bn), the CAP is the EU's largest single area of spending. Debate over the way CAP money is allocated has raged across Europe throughout the reform process. CAP allocations affect almost 50 percent of the EU's land area and nearly 14 million agricultural holdings in the 28 member states.

The EFRA report examined the issue of modulation, the measure which has caused most controversy amongst farmers in the UK. Under modulation, up to 15 percent of a member state's Cap allocation can be shifted between the direct payments (Pillar One) and rural development pots (Pillar Two). In the UK, the government intends to move funding to Pillar Two, though the farming industry has objected, arguing that governments elsewhere will do the opposite, putting British producers at a competitive disadvantage.

When EU legislators passed the modulation mechanism earlier this year, environmentalists also expressed concern at the prospect of member state governments taking more money from their – already beleaguered – rural development pillars. To date, only the UK and Portugal have ever shifted money towards green measures.

Reacting to the outcome of final CAP negotiations in September, European Greens agriculture spokesperson José Bové MEP said, "Heads of State and Government have turned a page by more or less allowing a renationalisation of the CAP. Member States won against the communitarian ideal of solidarity and equality: it is the politics of everyone for themselves wins."

EFRA report comes down in support of subsidies

On Monday, the Committee urged Defra secretary Owen Paterson to maintain the current rate of transfer (9 percent of funds going towards rural development), and only increase this after two years if there is clear evidence to support a greater shift. Committee Chair, Conservative MP Anne McIntosh, said, "Against a background where farm incomes are falling, the Government needs to recognise that cutting payments to these businesses will reduce their ability to compete in the marketplace, will leave farmers less able to invest in vital infrastructure and may make them more vulnerable to shocks such as poor weather, higher input costs and price variations."

She added, "We recommend that the Government maintains the current 9 percent rate of transfer away from the direct payment budget. This rate of transfer should rise to 15 percent in 2017 only if it can demonstrate that additional funds are required and that this change will deliver a clear benefit."

The problem with direct payments

The RSPB believes that evidence already supports a transfer of CAP funds. The organisation is calling for full modulation, arguing that the contested proportion of CAP funds would be put to better use, and go further, if they were spent on rural development rather than direct payments. RSPB spokesperson Grahame Madge commented on the EFRA Committee report, "Obviously we don't see eye to eye with the Committee on this one. There is much greater societal and environmental benefit from funding [rural development] schemes such as agri-environment programmes. In fact evidence suggests that funding such schemes amplifies the benefits of spending by a factor of 3 to 1."

In May, RSPB conservation director Martin Harper pointed out that Pillar Two funding has been harder hit than direct payment provisions in EU budget cuts. Rural Development, which supports agri-environment measures that can provide additional income for farmers, is facing cuts of 12 percent.

Although MPs on the EFRA Committee supported farmers' calls to limit modulation, experts from the University of East Anglia released a report in prestigious journal Science that lent weight to the RSPB's position over the summer. In July, scientists who previously worked on the UK's National Ecosystem Assessment warned that the British countryside is not being used to its fullest advantage and that current subsidy allocations benefit a few businesses at expense of taxpayers who foot the bill. They called for a radical reform of farm subsidy spending, to target environmental improvement instead of supporting production, arguing this could turn a net loss for society and the environment into a major gain.

Under the current system, landowners and farmers in the UK receive around £3bn in CAP subsidies each year, almost half the total value of the UK farming industry. The environmental economists behind the UEA report argued that the subsidy regime has burdened the public with "considerable financial and environmental costs." They said that by "allowing land use to be determined purely by an agricultural market, which is distorted by multi-billion pound subsidies," and externalises the cost of agriculture's excesses on to the public, the system delivers a "poor value for society".

The NFU, on the other hand, said it was "encouraged" by the Committee's recommendations. President Peter Kendall said, "The NFU agrees with many of the findings in the EFRA report. I'm pleased that MPs have listened to their rural constituents and taken on board their concerns. Up-and-down the country farmers are concerned with the complexity of the next CAP."

A Defra consultation on CAP allocation closed on Thursday (28th November). A spokesperson said the department would consider the views of the Committee alongside submissions to the consultation and respond in due course.

Other CAP issues

Dealing with other issues of contention, the EFRA Committee said that subsidy funds should only go to those who farm the land, and called for the implementation of an 'active farmer test' to enforce this. The MPs also stated their support for 'greening' measures, which will make 30 percent of direct payments dependent on farmers achieving basic environmental measures by 2015.

However, on the issue of Greening, Anne McIntosh said, "A National Certification Scheme approach to 'greening' does not offer the flexibility to avoid the Commission's impractical crop diversification rule so the Government is right to dismiss this approach."

The Committee expressed concern that IT challenges could affect payments to farmers or make applications unnecessarily difficult. The government plans to introduce a new IT system to process payments, and wants the single payment application process to become 'digital by default', meaning farmers will have to apply online.

Questioning the wisdom of such measures in the light of recent experience, Anne McIntosh said, "Farmers know from bitter past experience that the development of the new IT system will be a stand-out challenge for Government. A lot went wrong in the last round of changes, and these problems gave rise to £580 million in penalties. With that in mind, we question whether it makes sense to introduce a new computer system at the same time as complex new payment rules."