Plenty to talk about at Ingliston this weekend

No doubting what the main topic of conversation will be among farmers this morning (Thursday) as they gather at Ingliston for the opening day of the four-day Royal Highland Show.

Last week’s announcement by Cabinet Secretary, Richard Lochhead, on the future of the Common Agricultural Policy will be uppermost in most farmers’ minds as they try to work out how the reforms will impact on their own farm businesses.

Overall, the package announced by Mr Lochhead is something of a masterstroke and he has managed to tick all the boxes which farmers were hoping for, although not as generously as they would have liked. The final outcome is more or less as predicted in this column last week.

The five-year transition period rather than moving from the current historic basis of calculating Single Farm Payment (SFP) to an area based system overnight on January 1 next year will be welcomed by most farmers although new entrants will be unhappy that they will have to wait five years before being treated on an equal basis with established farmers.

But Mr Lochhead has honoured his pledge to ensure that they will be supported from day one of the new regime with a payment based on the regional average of the new CAP.

The downside of the five-year transition is that it could leave the door open for continued support for so-called slipper farmers – something Mr Lochhead, with the support of the industry, has vowed to stamp out – although they will now have to meet a still-to-be-defined minimum farming activity requirement.

The move from the historic to the area based system at 20% a year will also reduce the historic support and make it less worthwhile to make the effort to meet the criteria. Mr Lochhead insists he has closed the loophole by ensuring that land with no farming activity will get no Pillar 1 payments.

“This package tackles slipper farming,” he says.

“We will make every effort to target every pound at genuine activity by targeting those who wear dirty wellies and not comfy slippers.”

Greening under Pillar 1, where 30% of support must be linked to environmental measures, will hit many arable farmers hard and the issue of farmers being required to grow a minimum of three crops, which will hit specialist barley growers in particular producing malting barley for the whisky industry, has still to be resolved.

However, farmers will welcome the decision that existing measures, such as buffer strips, fallow, field margins including hedges and ditches, catch and cover crops and nitrogen-fixing crops, will count against the 5% Ecological Focus Area requirement.

The one big surprise in the package was the “sweetener” for beef producers with £45 million of additional funds having been found from other non-agricultural budgets to fund a three-year improvement package.

The details of the hoops farmers will have to jump through to qualify for support will be revealed at the show this morning by Jim McLaren, chairman of Quality Meat Scotland, but it will be welcomed by intensive beef producers, many in the North-east, who are going to find their SFP decimated by as much as 40-50% - and maybe more in some cases – by the move from a historic to an area based system of support.

The overall package will see a 9% reduction in direct payments under Pillar 1 support by 2019 after allowing for a transfer of 9.5% from Pillar 1 to Pillar 2 (rural development). The reduction is likely to be even more as the 3% allocated to the national reserve will have to be increased to deal with support for new entrants.

As expected, Scotland is being split into three payment regions with likely support, including greening, estimated at E200-220 (£160 - £176) per hectare in Region 1 (arable and temporary or permanent grass), E35 (£28) in Region 2 (rough grazing in non-LFA and LFA grazing categories B, C and D) and E10 (£8) in Region 3 (rough grazing on LFA category A land and unclassified LFA land).

A coupled payment of E25 (£20) per ewe is estimated for ewes in Region 3 and beef calves will be front loaded at E170 (£136) per calf for the first 10 calves and E85 (£68) for all subsequent calves.

The North-east is likely to see total support reduced by almost E30 million (£24 million) to E94 million (£75 million) by 2019 compared with 2011.

The importance of EU support to farming was highlighted earlier this week by Roddy McLean of RBS, the long-time main sponsors of the show. He points out that of the total income from farming in Scotland of £829 million in 2013, SFP and the Less Favoured Areas Support Scheme payments accounted for £445.9 million.

“The reduction in these support payments will have a significant impact on profitability,” he warned.

“It is a sensible approach to have a five-year transition period to provide businesses with time to adjust in an orderly manner. The key for all farm businesses will be technical efficiency and cost control.”

Farmers, he added, need to get more adept at managing volatility as they will be more exposed to global prices as support is reduced.

The potential for this year’s cereal crop to yield well looks good, provided we get favourable weather between now and harvest. World cereal stocks are marginally up but buffer stocks are not high if adverse weather around the world results in a reduced crop of wheat and maize this autumn.

Downward farmgate prices have taken the gloss off the favourable spring but farmers can take comfort from lower feed costs – down 10-20% – and diesel down 6%. Fertiliser prices are, however, 10% higher.

The ex-farm milk price is also lower as a result of increased global production – 7% up in New Zealand, 2.5% in the USA and 11% in the first two months of this year in the UK – and beef prices have collapsed by 15% in recent weeks as a result of a 25% increase in Irish imports.

Prices may recover in the autumn as supplies tighten but are unlikely to reach the dizzy heights of last year.

Yes, there will be plenty to talk about in the nooks and crannies of Ingliston this week-end.

It will be interesting to see if the current uncertainty will result in farmers leaving their cheque books at home.