FACTORS AFFECTING THE UPTAKE OF BEEF CATTLE EXTENSIFICATION PREMIUM IN A LESS FAVOURED AREA (LFA): A CASE STUDY IN SHROPSHIRE, ENGLAND  

Graham Tate and Julian Park*

Management School, Harper Adams College, Newport, Shropshire, TF10 8NB
*Department of Agriculture, The University of Reading, Earley Gate, Reading, RG6 2AT

The issue of farming intensity and the EU livestock subsidy system is discussed and illustrated. The evidence shows that Extensification Premium was a relatively small sum of money when compared with other potential forms of subsidy and that its relative value is set to decline if the proposals under 'Agenda 2000' are implemented. As a result its influence in promoting environmentally friendly cattle production may fall in favour of a renewed emphasis on headage payments and more intensive production systems.

Introduction

The balance between the intensity of hill and upland grazing and the conservation value of livestock farming has been acknowledged for sometime (Webster and Felton 1993). Problems with overgrazing, particularly with respect to subsidy claims, have received official attention which can lead to such claims being reduced (MAFF 1992). The EU provision of an incentive to livestock producers to extensify production was not unexpected. Extensification Premium was introduced in the EU via the Beef Support Regulation 3886/92, amended by subsequent regulations (CAP Monitor 1997).

At present in the UK it is only cattle that are eligible for Extensification Premium, the payment being made to producers claiming Suckler Cow Premium Scheme (SCPS) payments and /or Beef Special Premium Scheme (BSPS) payments in cases where farmers are thought by the UK Ministry of Agriculture, Fisheries and Food (MAFF) to be farming in an extensive manner. Both of these payments are subject to 'regional ceilings' to prevent overproduction in specific parts of the EU. Farms in both Less Favoured Area (LFA) and non LFA districts are eligible for Extensification premium.

Livestock support payments

The rate of payment for SCPS is 144.9 ECU (£117.36) per cow and for BSPS 108.7 ECU (£88.04) per male animal respectively (Nix 1997a). The total grazing density for all grazing livestock on the available forage hectares must not exceed 2.0 LU/ha and only the first 90 head of cattle are eligible for BSPS. Farmers keeping stock in severely disadvantaged parts of the LFA are also eligible to receive payment of Hill Livestock Compensatory Allowances (HLCAs) on appropriate breeds of stock at the rate of £97.50 per cow and £5.75 per ewe.The maximum payment in these areas is £121.49/ha (Nix 1997a). Extensive production is determined by the overall stocking rate on the farm of both beef and sheep- see Table 1.

Table 1: Livestock Units for Cattle and Sheep (source: MAFF 1997)

The overall stocking density determines whether the Extensification Premium is paid to a producer. If the stocking rate is less than 1.0 LU/ha then the higher rate of 52 ECU per animal (£42.12) is paid, otherwise farming between 1.0 LU/ha and 1.4 LU/ha will allow a payment of 36 ECU per animal (£29.16). The premium is only payable with respect to beef cattle. Sheep production is excluded from payment and female cattle less than two years old are neither eligible for BSPS nor used in the calculation of stocking density. Any number maybe kept without affecting subsidy claims.

Table 2 illustrates the potential gross margins for a farm which stocks suckler cows at three levels of intensity. This takes into account the level of payment of subsidies and market receipts the farmer may accrue.

Table 2: Beef gross margins on a suckler farm at 3 different stocking rates (figures rounded to the nearest £)

There are several issues arising from the data presented in Table 2. Firstly there is a reduction in gross margins with the extensification of the farming from £544/ha at 2.0 LU per hectare to £351/ha at 1.0 LU per hectare. Second, the low level of Extensification Premium will not improve the level of income for more extensive farm businesses. Third 'Agenda 2000' states that headage payments will be increased with the SCPS increasing by 70 ECU from 145 to 215 ECU and BSPS increasing 123 ECU from 109 to 232 ECU (European Commission 1998). These data suggest that current policy may be discouraging extensification.

The next step in the paper is to apply similar payments to an actual farm which was surveyed and recorded in 1997 to see how the payments will have effect in a real farm business. To explore this issue a case study is described below in which the effect of beef and sheep payments on the farm business are discussed.

Case Study

Extensification premium has only been payable to livestock farmers since April 1994 when the first payment was made to producers. Access to the Extensification payment is determined by the farmer in that the farmer chooses the overall rate at which the farm is stocked with sheep and beef cattle. There is a some conflict between the operation of the Extensification premium and the headage based schemes in that farmers must operate the farm business within one of the stocking rate levels referred to above in order to successfully claim the relevant payment. It is this which has been examined in a farm case study carried out between July 1996 and February 1997.

A stratified randomised sample of 43 wool producers farming within the severely disadvantaged area of the Shropshire Hills Environmentally Sensitive Area (ESA) (MAFF 1996) was selected. On farm visits were carried out to establish the type and intensity of farming. The holdings ranged from 1ha to 546 ha with a mean of 72ha. All of the holdings kept sheep and 30 out of the 43 farms kept beef cattle, including 24 farms with suckler cows.

Farmers were asked to confirm both the number and type of livestock on their farms, together with the cropping, fertiliser applications and grazing systems practiced and whether or not they rented other land or bought and sold fodder. As a result of this the grazing densities of the 43 individual holdings were calculated and the eligibility for livestock sudsidies determined, assuming that the production quotas were held where these were necessary-see Table 3.

Table 3: Shropshire LFA survey-Stocking rates and holding size(ha) of 43 farms in sample

Within this sample of 43 farms 12 were eligible for the higher rate (£42.12 per animal) of Extensification Premium on the hectares deemed to be for cattle, 16 were eligible for the lower rate (£29.16 per animal) and the remainder were farming too intensively to qualify for either payment.

A farm which reflected as closely as closely as possible the mean of the 43 in terms of size and stocking rate was selected as a case study. The farm covered 83 ha in total of which 70 ha was grassland. The stocking rate was 1.19 LU/ha with 220 ewes, 40 replacements, 5 rams, 40 suckler cows, 30 beef calves under 12 months and 30 beef calves from 12 to 24 months of age and one bull. Appendix A shows the detailed calculations of subsidy entitlement.

The farmer operating the business at 1.19 LU/ha was eligible to receive Extensification Premium at the lower rate which came to a total of £2041 on all eligible cattle. If the farmer had decided to pursue a more intensive approach (and a move to farm at 2.0 LU/ha) the Extensification Premium would be foregone. However the farmer could:

1.keep a further 379 ewes and be eligible for SAPS and HLCA payments of £7220 or

2 keep a further 56 suckler cows and be eligible for SCPS and HLCA payments of £9692.

Conclusions

This study raises several issues related to the current payment mechanisms of both the Extensification Premium and other beef and sheep subsidies in the United Kingdom.

The Extensification Premium is a relatively small sum of money when compared with other potential forms of subsidy payment. A question mark may hang over long term viability of the farm business where the farmer conciously chooses to farm in such a way to claim Extensification Premium as he appears to forego the payment of much larger sums available to more intensive producers.

The EU is set to increase the level of the livestock subsidies discussed in this paper under the reforms outlined in Agenda 2000 (European Commission 1998). The influence of Extensification Premium in promoting environmentally friendly cattle production may decline as it's value relative to SCPS and BSPS diminishes.

With few farmers attracted by the payments themselves it is surprising to find 28 farmers out of a group of 43 farming in a way that qualifies them for the payment.This group of producers in the survey were making a contribution to lower input/lower output farming. Further research needs to be carried out on the whole farm business effects of extensive farming systems and payments.

A payment mechanism that ignores young female cattle both for the calculation of stocking rates and for sudsidy payments will lead to distortions at the farm level. Further work is required on the eligibility of low input systems for sheep production as this sector is presently ineligible for Extensification Premium in the UK.

References

1 CAP Monitor (1997) Section 8A5 paragraph 18 Internal Market Support Measures, Agra Europe Ltd, London.

2 European Commission (1998) DGVI- 'Agenda 2000'- Agriculture: Full text EN. EU. Available from: http://europa.eu.int/en/comm/dg06/ag2000/text/text_en.htm [Accessed 28.01.98]

3 MAFF (1992) News Release 46/92- Government announces additional aid for hill farmers and measures to improve the upland environment, MAFF, London

4 MAFF (1996) The Shropshire Hills ESA - Guidelines for Farmers, MAFF, London.

5 MAFF(1997) The Integrated Administration and Control System 1997, 32-33, MAFF, London.

6 Nix (1997a) Farm Management Pocket Book, Wye College, Ashford, Kent 72.

7 Nix (1997b) Farm Management Pocket Book, Wye College, Ashford, Kent 61.

8 Webster, S. and Felton, M. (1993) Targeting for nature conservation in agricultural policy. Land Use Policy 10, 67-82.

Conversion rate:1.234666 ECU to the £ Sterling.

APPENDIX A - FARM No 39

220 ewes 40 replacement sheep, 5 rams, 240 lambs sold with 40 suckler cows, 30 calves< 12 months of age and 30 cattle> 12 -24 months of age and one Simmental bull. Overall stocking rate 1.18 LU/ha.

Total payments at existing stocking levels £16 189 with a payment of Extensification Premium

on top of £2041, making £18 230.

At a stocking rate of 2.0 LU/ha the farmer may keep a further 56.85 livestock units which corresponds to 379 extra ewes. This would allow the farmer to claim £5041 extra SAPS (£13.30*379) and £2179 extra HLCA (£5.75*379), making a total of £7220 higher subsidy claims.

Alternatively a further 56 suckler cows could be kept which would attract a further £6 572 of SCPS (£117.36*56) and a further £3120 of HLCA (£97.50*32), achieving the maximum HLCA payment of £121.49/ha. This makes a total of £9692 extra subsidy income from extra beef cattle.

Facteurs affectant l’attrait pour la prime d’extensification des cheptels bovins dans les zones moins favorisées (LFA): une étude de cas en Shropshire, Angleterre

Graham Tate et Julian Park

Résumé

La question de l'agriculture intensive et du système de subventions agricoles de la Communauté Européenne est discutée et illustrée. Il est montré que les Primes à l'Extensification représentaient une somme relativement faible comparitivement à d'autres types de subventions potentiels, et que leur valeur relative diminuera encore si les propositions de l'Agenda 2000 sont appliquées.

En consequence, leur rôle d'incitation à la promotion de méthodes de production animale non agressives vis-à-vis de l'environnement pourrait disparaître, au profit d'un intérêt renouvelé pour les primes par tête et les systèmes de production plus intensives.

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