BIM55126 - Farming: Basic Payment Scheme (BPS): Overview/Explanation of Terms

Background
The Common Agricultural Policy (CAP) of the EU has undergone many changes in its lifetime.  The main regulations for direct payments from 2015 to 2020 were published on 17 December 2013 with subordinate EU legislation following in 2014. The Single Payment Scheme (SPS), introduced in 2005, has been replaced by BPS with Greening and other potential payments.

While the basic framework for the new regime is set out by those EU regulations, they offer many areas of national discretion in its implementation.  In the UK, this discretion is exercised separately by England, Wales, Scotland and Northern Ireland, each of which has done so starting from the different ways in which they operated SPS and have now diverged further.

Overview of the direct payments regime
With the exception of Scotland's livestock payments, direct payments to farmers are not linked to production, hence the term "de-coupled".  In effect this means that a farmer can cease to produce agricultural products altogether and still receive financial support provided they carry out an "agricultural activity" as defined in the EU regulations.
Unlike SPS, the BPS offers a multi-layered payment, with all parts of the UK seeing:
i) the Basic Payment (BP) available to those who have payment entitlements, eligible land and meet other tests;
ii) a Greening payment for particular land management rules;
iii) a young farmer top-up;
     and may also optionally offer:
iv) a redistributive payment available as a supplement to BP on an initial number of hectares of a claim, an option
     which has been adopted  by Wales;
v) a payment for those in Areas of Natural Constraints (ANCs), likely to be similar to Severly Disadvantaged Areas
    (SDA);
vi)  limited coupled payments, an option taken by Scotland for suckler herds throughout Scotland and sheep
      in the poorest payment area.

Explanation of Terms
In order to receive BP in 2015 and in subsequent years, farmers must:
i) be a "farmer" undertaking "agricultural activity", both as defined by the EU regulations,
ii) not fail the 'active farmer' tests (which, within the overall EU provisions, differ between the UK governments)
    for the calendar year,
iii) have the minimum amount of 'eligible land' as set by the relevant government at their disposal on 15 May in
     that year,
iv) hold entitlements to the payment which need to be matched against an equivalent area of qualifying land in
     the same payment region, and
v) comply with a series of standards, collectively called Cross Compliance conditions.

Failure to meet the cross-compliance rules can result in penalties ranging from nominal amounts to 100% of the BP in serious or deliberate cases.  The penalties for breaching the eligibility rules are more severe.
The EU regulations require the use of or transition towards a flat rate unit value for each BPS Payment Entitlement (PE). While England had already reached standard area payment rates by 2012, the other parts of the UK have opted to phase the transition from 2015.  The length of the period of transition has been decided by each territory's government.  BP above €150,000 (but not other payments under the regime) will be subject to reductions and can be capped.  Different decisions have been taken around the UK on these points. 

BPS PE were allocated/confirmed on the basis of the 2015 application forms.  The two possible approaches were to cancel the SPS PE and make a fresh allocation of BPS PE (as in Scotland, Wales and Northern Ireland) or to maintain the existing SPS PE but rename them as BPS PE (as in England).
Subject to other conditions being satisfied, the EU regulations provide for BPS PE to provide income support until the end of 2020.  In general, anyone who did not establish/confirm entitlements in 2015 but wished to receive BP had to buy, lease or otherwise acquire PE from another farmer, although qualifying claimants may have also applied to the National Reserve and be allocated BPS PE.  Once allocated/confirmed, BPS PE would be fully tradable by sale and lease but only for use within the payment region in which it was allocated/confirmed - England and Scotland have even been divided into three regions, Northern Ireland and Wales are each a single region.  These payment regions are not administrative or geographical regions but decided specifically for BPS by each territory's government.  England has used SDA boundaries and moorland vegetation to distinguish those areas from each other and the remaining land, while Scotland has used differing types of rough grazing for this purpose.

In England, a farmer had to hold a minimum of 5 hectares of 'eligible land' to be able to make a claim.  Claimants' existing allocations of SPS PE in 2014 were carried forward into the new system for 2015 as BPS PE.  BPS PE that were not matched to eligible land on the claim form as at 15 May 2015 have been lost.  England remains divided into 3 payment regions: moorland, other SDA and the remainder.  A flat rate was already paid in each region and there was no phased transition to the new rates.  The payment rates for SDA and lowland were aligned for 2015 and subsequent payments.  New farmers may receive BPS PE from the national reserve.  The excess of BP over €150,000 (but not other payments) will be reduced by 5%.
In addition, in England, a farmer must have declared in 2015 sufficient qualifying land to match the number of BPS PE brought forward from the SPS regime.  If the farmer did not declare sufficient qualifying land, the excess of BPS PE would be taken back for the national reserve without compensation.  This only applied for 2015.

In Wales, a farmer needed to hold a minimum of 5 hectares of ‘eligible land’ to have applied for a new allocation of BPS PE and make a claim for payment. BPS PE were to be allocated on the basis of the eligible agricultural land declared in 2015 to farmers who successfully claimed SPS in 2013 (or could demonstrate they were carrying out agricultural production on 15 May 2013 or used the available Private Contract routes) and did not fail the “active farmer” tests in 2015. Wales is a single payment region with entitlement payment values being phased to a standard rate of payment for 2019. That phasing started from an underlying initial payment value based on the payment value of the entitlements held (owned) by the claimant on 15 May 2014. Payment rates on BPS PE allocated to a farmer who did not hold SPS PE on 15 May 2014 were phased in from an underlying nil value.
An additional redistributive payment, (again phased in) was made to each claimant on up to 54 hectares. New farmers may receive BPS PE from the National Reserve. The excess of BP over €150,000 was subject to increasing reductions, starting at 15% for payments before being capped at claims of €300,000.

In Scotland, a farmer needed to hold a minimum of 3 hectares of ‘eligible land’ to have applied for a new allocation of BPS PE and make a claim for payment. BPS PE was allocated for 2015 to a farmer who successfully claimed SPS in 2013 (or could demonstrate he was carrying out agricultural production on 15 May 2013 or used the available Private Contract routes) and did not fail the “active farmer” tests in 2015. The allocation was on the basis of the area of eligible agricultural land declared in 2015. Land whose use did not meet the Scottish minimum activity rules were not eligible. Scotland has been divided into 3 payment regions based on land use. BP payment rates are being phased to a standard figure for each payment region by 2019. That phasing started from an underlying initial payment value based on the payment value of the entitlements held (owned) by the claimant on 15 May 2014, though if the area claimed had changed substantially this could be subject to a loss of value under the windfall clause adopted in Scotland. New farmers and others may receive BPS PE from the National Reserve. Payment rates on BPS PE allocated to a farmer who did not hold SPS PE were phased in from an underlying nil value, increased by annual increments of 20 per cent from 2015 to 2019. The excess of BP over €150,000 (but not the greening, young farmer or coupled payments) were reduced by 5%. Where BPS PE were transferred without land, half of the BP payment value was taken by a siphon for the Scottish National Reserve. Scotland also offered Voluntary Coupled Support payments for beef calves through Scotland and ewes in the payment region with the most difficult rough grazing.

In Northern Ireland, a farmer needed to hold a minimum of 3 hectares of ‘eligible land’ to have applied for BPS PE and to make a claim. BPS PE were allocated on the basis of land area to a farmer who activated at least one SPS PE in 2013 and did not fail the “active farmer” tests in 2015. Northern Ireland is moving towards a single flat payment rate of BP but will not have fully reached it by 2020. That phasing starts from an underlying initial payment value based on the payment value of the entitlements held by the claimant in May 2014. Payment rates on BPS PE allocated to a farmer who did not hold SPS PE were be phased in from an underlying nil value, increased by annual increments from 2015 to 2020. New farmers may receive BPS PE from the national reserve. BP (but not the greening or young farmer payments) will be capped at €150,000.

As with SPS, to receive BP the farmer must first hold BPS PE and then match each BPS PE against an eligible hectare of land that is at the farmer’s disposal on 15 May in the claim year, provided the farmer has at least the minimum claim area. The farmer will not be paid if he fails the relevant “active farmer” tests and cannot requalify. To secure full payment the farmer must also carry out the ‘greening’ requirements where applicable and comply with a series of cross compliance conditions.

It is worth noting that BPS PE is not linked to any parcel or area of land. For example, a BPS PE may be matched against one parcel of land owned by the farmer in year one and a different parcel of land in year 2, provided both are in the same payment area.  That matching (activation) of PE against eligible land gives rise to payment.

A farmer must activate all of the BPS PE they hold in the same calendar year at least once every two years. This means that if a farmer holds more BPS PE than eligible hectares then the farmer will need to transfer the excess BPS PE to another person or the excess BPS PE will be taken back for the national reserve without compensation.

Greening
BP claimants are obliged to meet the requirements of Greening on all their agricultural land.  Subject to various exemptions, this obliges them: 

i) where land has been in grass without an intervening crop for five years or more, to keep it as grass, though the
   control for this is at national, not farm or field, level;

ii)  on other land, according to its area to grow more than one or two crops;

iii) on other land if over 15 hectares, to manage sufficient land within the options approved by the relevant
     government for Ecological Focus Areas. 

Scotland introduced additional options from 2016.

30% of the direct payment money is paid for ‘greening’ but this may be paid either proportionately to the BP (for England, Wales and Northern Ireland) or at a standard area rate for that payment region (for Scotland). The farmer isnot able to opt out of ‘greening’ and failure to meet the conditions means that the greening payment may be reduced or withdrawn, with further penalties in future years, depending on the level of non-compliance. The payment is not subject to capping or degressivity.

Young Farmer Payment
A limited young farmer top-up payment available for up to five years to farmers claiming BP who:

i) are not more than 40 years old in the year they first apply, and

ii) have management control of the business.

The payment is not subject to capping or degressivity.

Coupled Payments: Scotland Only
It is making a payment on qualifying beef calves throughout Scotland and on ewes and hogs on farms having 80% of their land in the most disadvantaged payment region.  BPS PE will not be required to claim these payments.