2 The basic payment scheme – European law
(a)Key features of the basic payment scheme
15.05 The legal framework within which the basic payment scheme must be implemented by the member states is established in three sets of European Council and Parliament Regulations:
•Regulation 1307/2013 of the Council and the Parliament establishing rules for direct payments to farmers under the new Basic Payment Scheme;7
•Regulation 1305/2013 of the Council and Parliament on Rural Development (the ‘rural development regulation’);8 and,
•Regulation 1306/2013 of the Council and the Parliament on the financing, management and monitoring of the CAP (the ‘horizontal’ regulation).9
Regulation 1307/2013 requires the member states to make three types of direct payment to farmers under Pillar 1 of CAP:10
(i)a basic payment for farmers (the ‘basic payment scheme’ and a transitional simplified scheme),
(ii)a payment for farmers observing agricultural practices beneficial for the climate and the environment, and
(iii)a payment for young farmers commencing their agricultural activity.
15.06 Elements (i) and (ii) are interconnected, in that a farmer receiving the basic scheme payment must adhere to the agricultural practices specified by the member state as beneficial to the environment on their eligible land – the ‘greening component’ of the overall payment. In addition, there are a number of voluntary payment schemes that the member states can adopt, including voluntary transitional aid, a voluntary redistributive payment, a voluntary payment for farmers in areas with natural constraints, a voluntary coupled support scheme, and a voluntary simplified scheme for small farmers.11 The voluntary schemes have not been implemented in England; a voluntary redistributive scheme has been adopted in Wales, under which an additional payment will be made to each producer on the first 54 ha.
of eligible land.1215.07 The 2013 Regulation introduced a new requirement – the ‘active farmer test’.13 This was introduced to deal with an issue that has arisen under the single farm payment rules, whereby experience had shown that payments had been made to some claimants whose ‘business purpose was not, or was only marginally targeted at an agricultural activity’.14 The active farmer test prevents the activation of entitlements – and payment of the basic scheme payment – in two situations. The first is where the claimant15 has an agricultural area that is mainly kept in a state suitable for grazing or cultivation but s/he does not carry out on the land the minimum activity required by the member state to demonstrate active farming.16 The second applies where the character of the claimant’s business use falls within a number of prescribed land uses set out in the Regulation. Thus, no direct payments can be made to natural or legal persons (or groups thereof) who operate airports, railway services, waterworks, real estate services, permanent sports and recreational grounds.17 The member states can add to the list of non-agricultural businesses or activities if they wish, provided they do so applying objective and non-discriminatory criteria. We will return to the interpretation of the active farmer test below, in the context of its application in England and Wales.18
15.08 A key feature of the basic payment scheme is that, in order to activate and receive payment, the producer must declare ‘eligible hectares’ (parcels of land) in the member state where the entitlements have been allocated.19 In other words, a payment can only be ‘unlocked’ if the farmer is able to ‘match’ his payment entitlements with eligible land. ‘Eligible hectares’ are defined to mean20 ‘any agricultural area of the holding…. that is used for an agricultural activity or, where the area is also used for non-agricultural activities, is predominantly used for agricultural activities’, or any area that gave rise to payments under the former single payment scheme and which no longer complies with the definition because it has been taken out of production in order to implement the requirements of the EU Habitats or Wild Birds Directives,21 or the Water Framework Directive.22 Or it may have been taken out of production and afforested or set aside from production under a national or EU rural development programme or under a national or EU set aside programme.
The land so declared must be ‘at the disposal of the farmer’ on a date fixed by the member state, which must be no later than the date fixed for the amending of his aid application.23 This requirement also applied to entitlements under the former single payments scheme, in which context it was interpreted broadly by the CJEU: it is not necessary for the land to be held under a lease or other legal entitlement; all that is required is for the farmer to enjoy management autonomy sufficient to carry out his/her agricultural activities; and while the farmer must carry out agricultural activities on his/her own behalf, it was not relevant that they were carried out under requirements stipulated by a public body or other third party, such as a public conservation agency.2415.09 Payment entitlements that have not been used for a period of two consecutive years must revert to the national reserve, except in cases of force majeure or in exceptional circumstances.25 If not used, payment entitlements will be taken back to the national or regional reserve and will be available for redistribution. This provision is clearly one to which close attention needs to be paid by land managers, but a loss of entitlements can be readily avoided with appropriate management. In the first place, entitlements are transferable under the EU legislation, provided the transfer is to another ‘active farmer’ or they are transferred by ‘actual or anticipated inheritance’.26 Secondly, the two-year rule gives the farmer a reasonable period in which to acquire alternative land to ‘match’ the entitlement eg if s/he is a tenant with a short term farm business tenancy, which comes to an end and thereby makes it impossible to activate the entitlement in a given year.
15.10 The receipt of the single payment is ‘decoupled’ from agricultural production in the sense that farmers can use parcels of land declared for these purposes for any agricultural activity except the growing of permanent crops.27
(b)The ‘Greening’ Component
15.11 As noted above, 70% of each member states national ceiling for direct payments under Pillar I is set aside for the basic scheme payment.
The other 30% must be used to support mandatory ‘greening’ requirements applied to every agricultural holding. This is a new requirement introduced in the 2015 reform, and intended to underpin the ‘public goods’ approach to agricultural support.15.12 Farmers entitled to a payment under the scheme must observe, on all their eligible hectares within the meaning of the scheme, ‘the agricultural practices beneficial for the climate and the environment’ laid down on the 2013 Regulation. These are crop diversification, maintaining existing permanent grassland, and having ‘ecological focus areas’ on the agricultural area concerned.28 Alternatively, they can observe ‘equivalent practices’, which are defined to include ‘similar practices that yield an equivalent or higher level of benefit for the climate and the environment compared to one or several of the practices’ previously referred to29. A list of equivalent practices is given in Annex IX of the 2013 Regulation.
15.13 The green conditions therefore have three primary elements:30
(i)There is a requirement to maintain permanent grassland. In the first place, member states must designate permanent grasslands that are environmentally sensitive in areas covered by the EU Habitats Directive of 1992 or the Wild Birds Directive of 2009.31 Farmers must not convert or plough permanent grassland in areas thus designated.32 An additional, and more generally applicable rule is also applied in that the ratio of areas of permanent grassland to the total agricultural area declared by a farmer must not decrease by more than 5% compared to a reference ratio to be established by each member state in 2015.33 In other words, not more than 5% of the permanent grassland on a holding may be converted to intensive agricultural use. The member states have the option to apply these obligations at national regional or sub-regional level; in the UK the applicable ratio has been fixed at regional level.
It follows that the restrictions on conversions will not apply if less than 5% of grassland is converted regionally.(ii)There are also requirements to maintain crop diversity. A farmer will have to cultivate at least two crops when his arable land exceeds 10 hectares and three crops when it exceeds 30 hectares (the ‘two crop rule’). And the main crop so grown may cover no more than 75% of the holding’s arable land area, with (if 3 crops are required) the two main crops covering not more than 95% of the arable area on each farm34. This rule does not apply where more than 75% of the arable land is used for production of grasses or other herbaceous forage or for the cultivation of crops under water for a significant part of the year or crop cycle, or is subject to a combination of these uses – proved that the area used does not exceed 30 ha.35 ‘Crops’ are given a wide definition for this purpose, and can include a culture of any of the different genera defined in the botanical classification of crops, a culture of the species of Brassicaceae, Solanaceae and Cucurbitaceae, land that is lying fallow and also grasses or other herbaceous forage.36
(iii)In addition to these requirements, each farm with an arable area exceeding 15 hectares must maintain at least 5% of its arable area as an ‘ecological focus area’.37 The ecological focus area can encompass field margins, hedges, trees, fallow land, landscape features, buffer strips, areas of catch crops or green cover, areas of short rotation coppice, areas with nitrogen fixing crops, and afforested areas and forest margins (if any) on the farm.38 The requirements to keep ecological focus areas will be reviewed in 2017 and may be increased to 7% subject to further legislative proposal being submitted by the Commission and adopted.
(c)Cross Compliance
15.14 Receipt of payments under the basic payment scheme is conditional upon the observance of ‘cross compliance’ rules set out in the 2013 Horizontal Regulations.39 These require that farmers must observe certain land management requirements in order to qualify for the payment.
There are two basic requirements:(i)A farmer receiving direct payments must respect statutory management requirements established in EU law in relation to: environment, climate change and good agricultural condition of land; public, animal and plant health; and environment and animal welfare,40 and
(ii)The member states must ensure that all agricultural land is maintained in good agricultural and environmental condition. The relevant minimum requirements are to be defined by member states at regional or national level, taking account of the specific characteristics of the area concerned including soil and climatic conditions, existing farming systems, land use, crop rotations and farm structures.41 It is a condition of receipt of the single payment that the farmer observes the standards established in national law for maintaining land in good agricultural and environmental condition.
15.15 The statutory management requirements (‘SMR’) established by EU law, and the standards of Good Agricultural and Environmental Condition of land to be established in national law (‘GAEC’), are both set out in Annex I of the Horizontal Regulation. This established 13 sets of SMRs and 7 GAECs. The SMRs incorporate legal rules of a number of existing Directives, including the Habitats Directive and Wild Birds Directive,42 the Nitrates Directive,43 and the Food Safety Directives and Regulations.44
15.16 The GAECs required to be established by the member states cover such matters as establishing buffer strips along water courses (GAEC 1), ensuring compliance with authorisation procedures for abstracting water for irrigation (GAEC 2), protection of ground water (GAEC 3), maintaining minimum soil cover (GAEC 4), minimum land management reflecting site specific conditions to limit soil erosion (GAEC 5), maintenance of soil organic matter levels (through banning stubble burning for example) (GAEC 6), and retention of landscape features including for example hedges, ponds, ditches, trees in line, and prohibitions on cutting hedges during the bird breeding and rearing seasons (GAEC 7). The SMRs do not include management requirements under the Water Framework Directive45 and the Pesticides Directive.46 Instead, the European Parliament and Council appended a joint statement to the Horizontal Regulation inviting the European Commission to monitor the transposition of these Directives by the member states, and once they have been fully implemented, and ‘the obligations directly applicable to farmers’ have been identified, to bring forward a legislative proposal to ensure that the relevant provisions in both measures are included in the system of cross compliance.
15.17 Although the statutory management requirements reflect management standards that are already required under European environmental law, they provide an additional enforcement mechanism to secure appropriate land management – namely the reduction or withdrawal of subsidy (the single payment) in cases of non-compliance.47 The statutory management requirements and standards of GAEC that must be met by farmers in receipt of the single farm payment are set out in separate regulations for England48 and Wales.49 These are discussed further below.
(d)Transfer of Funds between Pillars I and I
15.18 The member states are given discretion to transfer additional funds from Pillar I to Pillar I (rural development) in order to make available additional support for rural development programmes financed by the EAFRD under the Rural Development Regulation between 2014–2020. Member states may decide to transfer up to 15% of their annual national ceilings under Pillar I to Pillar I to support rural development schemes. The transfer can work both ways: member states also have the option to transfer up to 15% of their national ceilings under Pillar I to Pillar I (in the case of England and 11 other member states this limit is 25%).50 This discretion has been exercised differently in England and Wales respectively. In England a transfer of 12% of the national ceiling from Pillar I to Pillar I to support rural development measures has been implemented, with a review scheduled for 2016 and possible increase to the full 15% in 2018. In Wales, the full transfer of 15% of the national ceiling to Pillar I has been implemented from the outset of the Basic Payment Scheme.