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Is digressivity worse than modulation and will the 2nd Pillar be supported by the WTO?

In the UK we have seen the direct result of this in the conversion of the HLCA (Hill Livestock Compensatory Allowance) into Tir Mynydd. This means that the additional support upland farms receive for farming in difficult areas is now primarily based on area payment rather than per animal (headage) with stock reduction being an important element in the new arrangements.

Significantly more important, in terms of the amounts of money involved, is the EU's painful attempts at reducing its EAGGF (agricultural in the main) Budget usually addressed as the Common Agricultural Policy (CAP) payments.

This can be undertaken in different ways. One option is a general reduction in direct payments to farmers for produce - digressivity. This does not find much favour in agricultural (or other) circles. The preferred option is to top-slice the agricultural budget and divert that money into alternative rural activities other than pure production.

This top slicing is called 'modulation'. According to EU regulations, up to 20% of CAP money can be redirected to rural development and things like agri- environment measures. However, the UK has not been taking much advantage of this change. Historically, only about 2% has been redirected. Now, there is talk of modulation rising to 4% or even 10%.

This bring us up to the 'pillars'. Pillar 1 is the 'traditional' support - through direct payments i.e. per animal or headage payment or indirect payment i.e. import tariffs, export subsidies and intervention (bailing farmers out if the price of the product fails through the floor). Pillar 2 is the alternative activities, such as rural development and environmental measures. This is funded from the modulation percentage but has to be match-funded by the UK Government- and that's the rub. For every œ1 spent on Pillar, a œ1 has to be contributed from HMG (Her Majesty's Government) and, believe it or not, HMG is not too happy about this!

Cwm Rhiwbarth

But before long, all of this is subject to much more radical changes and the CAP may not fit quite so snugly!

Basically, after 2006, the European Union will have to decide how to absorb the impact of new states (the Accession Countries) on its economy - the enlargement. But the enlargement, in any case, it going to take place in the context of new rules from the World Trade Organisation (WTO) which are currently being negotiated. The WTO wants free trade and who do you think is going to benefit the most - the EU or the USA? Whichever way you wish to cook the figures, the end result is going to be less money for agriculture. The WTO is insisting that agricultural subsidies in the EU have to be reduced and the money that will be left in the kitty will have to spread through more countries. As the overall aim of the EU is to bring all member states up to same level of overall posterity, then who do you think is going to benefit the most, the UK or Lithuania? In the context of the UK, where do you think is going to be worse off - east Anglia or west Gwalia?

And there is more. Much store is put on building up the Pillar 2 element but what we must remember is that W'TO rules are quite clear that such money should not be seen, in any way, to support agriculture - that would distort trade - but must be for purely environmental work.

Hence, the question:

Public money into agriculture is going to continue to decline and some is going to be redirected into rural development and environmental activity. Under these circumstances, will we be able to maintain the small family farm unit that is so characteristic of rural Wales?

Perhaps there are clues to some of the answers in this edition of Rural Wales.

Merfyn Williams

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