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Reform of the Common Agricultural Policy - A Summary of the Agreement

DescriptionInformation Document that was distributed to farmers and crofters
Official Print Publication Date
Website Publication DateOctober 17, 2003


    Reform of the Common Agricultural Policy
    A Summary of the Agreement

    This document is also available in pdf format (252k)


    The Reform of the Common Agricultural Policy (CAP) agreed on 26 June 2003 marks a significant shift in the nature of agricultural support across the European Union (EU), including Scotland. This leaflet summarises the main elements of the CAP Reform Agreement (the Agreement) and introduces the options for implementation which are currently part of a consultation process by the Scottish Executive. Details of how to obtain further information on the consultation, and on how to make your views known, are at the end.


    Historically most agricultural support has been paid either directly through headage and area payments or indirectly through prices. Headage and area payments became the main method of support following the CAP reforms in the early 1990s when most of the current subsidy schemes were introduced. These include the Arable Area Payment Scheme (AAPS), Suckler Cow Premium Scheme (SCPS), Beef Special Premium Scheme (BSPS), Slaughter Premium Scheme (SPS), Extensification Premium Scheme (EPS) and Sheep Annual Premium Scheme (SAPS). SPS and EPS were introduced as part of the Agenda 2000 changes.

    In recent years such support measures have been criticised for overburdening farmers with bureaucracy, for encouraging overproduction of low quality commodities and for encouraging non-sustainable farming systems in some areas - all whilst failing to secure reasonable farm incomes.


    The Agreement includes three main elements, two that are extensions of previous reforms and one that is a new concept. The new concept is decoupling, the other main elements are modulation and changes to market measures, including cuts in price support. Each of these is described briefly below.


    While the Agreement was reached in June this year, many of the detailed rules and conditions for operating the new system of farm support have yet to be discussed and agreed at European level. These important details will only start to emerge over the coming months and it may be as late as the spring of 2004 before it is all finally agreed. In the meantime, the Department is making outline preparations for implementing the new system from January 2005. SEERAD staff cannot tell you, at this stage, the exact level of your payments under the new arrangements, nor offer information on the many different circumstances that may arise when implementing the new system.


    Existing headage and area payments are known as direct payments and are linked, or coupled, to production. That is, farmers receive payments on the basis of what they claim - numbers of cattle and sheep, hectares of cereals, etc. Decoupling will mean that farmers continue to receive most of this money, in the form of a Single Farm Payment. The level of the payment will not be affected by the number of cattle and sheep kept or the area of crop grown. Most of the existing subsidy schemes will be abolished at the same time as the Single Payment Scheme is introduced.

    Decoupling will bring considerable benefits to farmers and crofters. The level of bureaucracy should be greatly reduced (but not eliminated), and farmers and crofters will regain the freedom to manage their holdings as best suits individual circumstances as well as the freedom to produce for the market.

    Payments under the Single Payment Scheme will be dependent on farmers meeting cross compliance conditions. There are two elements to these cross compliance conditions: respecting existing legislation in environmental protection, animal, plant and public health, and animal welfare (for example Action Programmes in Nitrate Vulnerable Zones); and maintaining land in good agricultural and environmental condition (GAEC).

    The precise definition of GAEC has yet to be finalised and will be the subject of a separate consultation after initial work with farmers' representatives and environmental experts. However, it will be a package of measures that will ensure that agreed standards of good husbandry and environmental protection are met. It will include the adoption of management measures, as contained in codes of good practice such as the Prevention of Environmental Pollution From Agricultural Activity (PEPFAA) Code, to prevent pollution and damage to habitats.

    Concerns have been expressed that decoupling might lead to shifts and reductions or loss of production in certain areas that could cause problems for rural communities, the food supply chain and the natural environment. A number of options for implementation were negotiated into the Agreement to allow such concerns to be addressed. The available options within the agreement, which can be exercised separately in Scotland, are:-

    • Partial recoupling, which would involve retaining some of the existing coupled schemes including: up to 25% of AAPS in the arable sector; and up to 50% of SAPS in the sheep sector. In the beef sector, the options are either up to 100% SCPS and up to 40% SPS, or up to 100% SPS, or up to 75% of BSPS. The main rules and constraints associated with these schemes would continue, eg quotas for SCPS and SAPS, cross-checks between bovine schemes and BCMS, and retention periods, etc;

    • Use of national envelopes to retain some of the money at the sectoral level to make payments to encourage specific types of farming which are important for the environment, or for improving the quality and marketing of agricultural products. Envelope money collected in any one sector would be spent on activities in that sector.

    Decisions on whether to make use of the above options are subject to consultation in Scotland and are explained in greater detail in the consultation paper.


    Individual payments approach

    • The Single Farm Payment will be based on the average of payments received under the main existing subsidy schemes during a historic reference period (2000, 2001 and 2002).

    • The number of entitlements allocated to each farmer will be based on their reference area, which is the average of the area of farmed land (including all forage area) which gave rise to the subsidy payments during the historic reference period.

    • The entitlements will be calculated for each farm business based on its payments and area during the reference period to give an entitlement per hectare. Within a farm business, the value of the entitlement per hectare will be the same; but this value is likely to vary between businesses depending upon their subsidy history during the reference period.

    • Special rules will apply in defined situations (including hardship cases) where the reference period is not appropriate or representative.

    Optional flat-rate area based approach

    • Instead of calculating the value of entitlements described above - that is based on individual farmers payments during the reference period - an alternative approach may be used (this is currently subject to consultation). This would involve averaging the total amount of money available in Scotland by all eligible hectares of land to give a single, average rate of entitlement.This average rate would apply to every hectare of eligible land in the country. It is possible to vary this optional method by giving an average, single rate of entitlement for arable land and a different rate for grassland, or to use different combinations of calculation methods in different parts of Scotland.

    Common features of both approaches

    • At the start of the new system in 2005, farmers and crofters will be allocated payment amounts, which will be referred to as entitlements. Entitlements will be activated (validated for payment) by an application in the first year of the scheme, which must be made by 15 May 2005.

    • A national reserve of entitlements will be established by reducing entitlements across the board by up to 3%. The national reserve will be used to allocate entitlements to new entrants and to deal with hardship cases and other situations (yet to be agreed). An appeals procedure will be set up for disputed cases. Precise details have yet to be agreed at European level.

    • To receive payment annually from 2005 onwards, every entitlement must be matched with the same number of eligible hectares (not necessarily the same actual land as in the reference period). Eligible hectares are defined as any agricultural area of the holding taken up by arable land and permanent pasture except areas under permanent crops, forests or used for non-agricultural activities.

    • Under the individual payments' approach the Agreement prohibits the payment of the Single Farm Payment on land used to grow fruit, vegetables and potatoes. Under the flat-rate area based approach, the Single Farm Payment could be claimed on the same total area of land in Scotland that was used to grow fruit, vegetables and potatoes in the reference period.

    • From 2005, entitlements can be sold with or without land; they can also be leased but only when land is leased with the entitlement.


    Modulation involves the transfer of money from direct agricultural support payments (including the new decoupled payment) to a wider range of rural development measures. Most of these measures are intended to help farm businesses build a more environmentally and financially sustainable future, for instance by paying farmers to farm in a way which promotes biodiversity or by helping support the costs of diversification projects. Until now, it has been up to Member States to decide whether to apply national modulation and if so what modulation rate to apply. Scotland, in common with the rest of the UK, already applies a national modulation rate of 3.5% to production-related subsidies in 2003, rising to 4.5% in 2004.

    The Agreement introduces compulsory modulation throughout the EU at the rate of 3% in 2005, 4% in 2006, and 5% from 2007 to 2012. The first ¤5,000 of direct payments are exempt from modulation. Voluntary (or national) modulation is still permitted, and decisions on the rate of national modulation, and the type of environment and rural development activities which could be funded, will be taken on the basis of views expressed in the consultation.

    If implemented, the options outlined above - voluntary modulation, national envelopes, or partial recoupling - would each mean a reduction in the size of the Single Farm Payment to an individual farmer. However, farmers would have the opportunity to access the money retained by these options through undertaking specified activities designed to deliver environmental and socio-economic benefits. Higher rates of modulation would mean that more farmers would be likely to benefit from grant-aided investments in improving the environmental or financial sustainability of their businesses, but higher modulation rates would also mean all farmers would see some reduction in the amount of Single Farm Payment they receive. If modulation rates are increased, there will be further discussion with farmers' representatives and other stakeholders about the possible uses of modulated funds.


    Cuts to price support measures started in the early 1990s and were extended under the Agenda 2000 reforms. The Agreement continues this process. Perhaps the most significant change, although it was signalled under Agenda 2000, is that price support cuts for the dairy sector - which will start in 2004 - will be partially compensated for by the introduction of direct payments, the so-called dairy premium and additional payment. This mirrors the introduction of direct payments for other sectors in the early 1990s. Milk quotas will continue until the 2014/15 season. The general increases in quota agreed under Agenda 2000 have been postponed until 2006, with a commitment to review in 2008. In the arable sector, monthly increments in the intervention price will be reduced by 50%. The requirement to set-aside land will continue.


    Q When will decoupling come into effect?
    A The plan is that the new decoupled payment - the Single Farm Payment - will be introduced from 1 January 2005.

    Q How much will my Single Farm Payment be?
    A The method of calculating the Single Farm Payment is outlined in this leaflet. However, given that the details have yet to be agreed at European level, along with decisions on implementing the policy in Scotland (currently subject to consultation), it is not possible at this stage to provide details on exactly how much your payment will be.

    Q Will my Single Farm Payment entitlements be linked to the land or the business?
    A They will be linked to the business farming the land during the reference period, provided an application is made by 15 May 2005.

    Q Will my Single Farm Payment entitlement be tradable in the same way as quota?
    A Yes, entitlements can be sold independently of land, but they can only be leased with the same number of hectares.

    Q Will producers be able to pick the most suitable years from the historic reference period for calculating the Single Farm Payment?
    A No. The Single Farm Payment will be based on the direct payments, and area of land that gave rise to those payments, during the years 2000, 2001 and 2002, unless there were exceptional circumstances such as Foot and Mouth Disease.

    Q Will dairy farmers receive both decoupled payments for existing schemes (such as BSPS and SPS) and coupled dairy payments?
    A Like other farmers, dairy farmers will receive decoupled payments from based on schemes such as BSPS and SPS. The dairy payment will start in 2004 and will be coupled to production. It will be decoupled from production by 2007 at the latest, but there is an option to decouple the dairy payment from 2005 in line with decoupling in other sectors.


    The Scottish Executive has now launched (early October) a consultation process amongst a wide range of stakeholders, including representative bodies of farmers and crofters, to seek their views on the available options for implementing the CAP Reform Agreement. The consultation runs for three months, from October 2003 to 6 January 2004. Based on the outcome of the consultation, decisions on the options for implementation will be taken in February/March 2004. The questions in the consultation are included here.

    • Should a fully decoupled system of farm support be applied in Scotland (ie without use of the recoupling options or the national envelope provision)?

      If not:

      • Should use be made of any of the recoupling options? Please provide views on which of the available recoupling options should be retained and why.

      • Should use be made of the provision for a national envelope? If so, in which sectors? Please also comment on how the illustrations (that are provided in the consultation paper) could be developed further, or other ways in which a national envelope could be designed.

    • Should the single payment system be operated on a flat-rate area basis, instead of the individual payments approach?

    • Should dairy payments be decoupled at the same time as decoupling in the other sectors, ie January 2005? For the years in which there will be an 'additional payment' (2004 if decoupling starts in 2005 and the three years to 2006 if decoupling starts in 2007) in which ways should this money be spent?

    • How should set-aside be operated in Scotland?

    • Should additional rates of national modulation be applied?
      If so, what rate and for what purposes?

    If you would like to find out more, the consultation paper is available from your local SEERAD Area Office or on the Scottish Executive website at -


    You can either respond to the specific questions raised in the consultation paper, or send your views on the options within the CAP Reform Agreement directly to the Scottish Executive at the following address:
    CAP Reform Consultation
    Room 245
    Pentland House
    47 Robb's Loan
    Edinburgh EH14 1TY
    or by emailing capreform@scotland.gsi.gov.uk .

    Scottish Executive
    October 2003