The 2023 CAP and smallholder farmers; lessons for establishing Scotland’s agricultural rural support plans?

By Lin Batten - posted on 30 June 2024

Background

Almost two thirds of all farms in the European Union are less than 5 hectares in size, and in Scotland specifically almost 20,000 holdings are under 20 ha. But these small-scale farms have been in steady decline over the past 70 years, in part due to the EU’s agricultural policies and subsidy payments favouring large-scale and specialised farms. How can the subsidy system support small-scale farms better, and what type of legal mechanisms are there in place to do so?

Led by Mirta Alessandrini, and co-authored by Edwin Alblas (both from the Law Group at the University of Wageningen), we published ‘Smallholder farms in the sustainable food transition: A critical examination of the new Common Agricultural Policy’ in the Review of European, Comparative & International Environmental Law. In this article, we analysed firstly through what types of measures the 2023 Common Agricultural Policy (CAP) of the EU targets small farmers, and secondly, how these measures are integrated into the National Plans of 10 specific EU Member States. On 18 June 2024, the Scottish Parliament passed the Agriculture and Rural Communities (Scotland) Bill, and is about to shape and create a financial framework of support for Scotland’s farmers and crofters. What can these policymakers learn from the 2023 CAP, if anything, to support (financially or otherwise) small scale agriculture?

Introduction

After visiting a small organic market garden in the Highland Council area, I was amazed at their efficiency of food production. With only 0.3 acres (0.12 hectares) and two polytunnels, they produced enough food for 70 vegetable boxes per week (for 10 months of the year), supplied three local restaurants and supplied vegetables to another local veg box scheme. The couple running it employed themselves full-time and receive the minimum wage – a real feat to be able to pay your own labour costs for a farm that size. But, it did not (and never has) received any form of government subsidy payment because they are, in a sense, too small to be eligible for such payments as the Scottish Government requires the farm to be at least 3 hectares.  

The important role smallholder farms play for food production, landscape and biodiversity stewardship, rural development, and cultural heritage has consistently been neglected or actively discouraged in the history of the CAP, which Scotland was (up until recently) adhering to. This has caused a steady decline over the last 70 years in small and micro farms, such as this one in the Highlands. To illustrate, between 2005 and 2016, the number of farms in the EU has reduced by 4.2 million, of which 85% were smallholder farms of less than 5 ha. In the same period, the number of farms larger than 100 ha increased by almost 20% through land consolidation. This decline in Europe is also reflected in the skewed balance of agricultural subsidies often described as the 80/20 ratio: 80% of CAP subsidies go to approximately 20% of (mostly large-scale) agricultural producers.

This is a promising time, in which Scotland is shaping its own agricultural financial support system through the Agriculture and Rural Communities (Scotland) Bill – passed on 18 June 2024. Measures benefitting small producers, if introduced, would fall under the ‘rural support plan’ – a piece of secondary legislation still to be set out by the Scottish Ministers. The purpose of this blog is to see what kind of inspiration the Scottish Ministers might be able to draw from the 2023 CAP, and particularly on creating a more level playing field for smallholder farmers in the agricultural landscape.

The 2023 CAP and Smallholder Farmers

Smallholder farmers are and ‘should remain a corner stone of Union Agriculture’ and ‘[play] a vital role in supporting rural employment and contributing to territorial development’ – as quoted from the 2023 CAP.

As of 1 January 2023, the CAP ‘Strategic Plans Regulation’ (Regulation (EU) 2021/2115) has entered into force. This repealed the former CAP Regulation 1305/2013 and Regulation 1307/2013. What is worth mentioning, is that the new CAP objectives (found in Article 6 of the Strategic Plans Regulation) state that the aim of promoting a more balanced distribution of support for farmers, referring to the 80/20 ratio, and reducing the administrative burden for beneficiaries of small amounts of subsidies, which are mostly smallholder farms.

The unique aspect of the 2023 CAP Regulation is that the EU Member States are given flexibilities in translating the Regulation in their own framework. These are called the National Strategic Plans (NSPs), and these are in turn transposed into national legislation. This allows for a degree of freedom to adapt the CAP to local agrarian and rural contexts. A farm in Bulgaria does not have the same challenges and rural economic landscape as one in Ireland, as an example. Though that flexibility can cut both ways. Some Member States have taken this as an opportunity to be at the forefront to challenge the subsidy and supply chain disparities for smallholder farmers, whilst others have implemented the bare minimum requirements (as will be discussed later in the blog post).

In effect, there are three main sets of financial interventions, under Pillar I (direct payments) of the CAP, which can directly and indirectly affect smallholder farmers.

The first financial tool is ‘Complementary Redistributive Income Support for Sustainability’, or CRISS. This is an income support tool which requires Member States to redistribute direct payments from large to smallholder farms. The CRISS measure is the only mandatory requirement that may benefit smallholder farmers specifically. Most of the Member States examined proposed to ringfence 10% of the direct payment's ceiling for CRISS, which is the minimum legal requirement.

A second measure is the ‘Basic Income Support for Sustainability’, or BISS. This is a form of decoupled direct payments aims to support the viability and sustainability of the farming sector. This means the amount of subsidy received is not coupled with the amount of produce grown, but is connected to a set amount per hectare of land. The BISS is directly linked to two types of financial mechanisms that may contribute to redistribution of financial support towards small farmers, namely, capping and degressivity (gradual reduction) of payments. Capping does what it says on the tin: it sets an upper limit on the amount of direct subsidy payments that farmers can receive. For instance, in the Irish NSP, it sets the limit at €66,000 so no farmer can receive more than that for subsidies. Degressivity concerns the reduction of the rate of subsidy as the size of the farm increases.

The third financial tool is the Payment for Small Farmers, according to which a Member State can provide a lump sum direct payment capped at €1,250 annually for smallholder farms. However, this is an either/or-scenario. If the farmer chooses to opt for the lump sum payment, they eschew any other direct payments under BISS and CRISS or any other forms of direct payments.

National Strategic Plans and Smallholder Farmers

In the published research, we conducted a content analysis of the NSPs of 10 different Member States, namely: Bulgaria, Czechia, France, Germany, Ireland, Italy, Latvia, the Netherlands, Portugal, and Romania. In particular, we looked at how the NSPs integrated the CRISS, BISS, or the Direct Lump Sum payment into their plan and how effective they may be. In the article, we also looked at the measures implemented under Pillar II for the rural development schemes, such as better organisation of the supply chain. The full analysis can be found in the article, but for the purposes of this blog post, it will only consider the direct payments.

Defining ‘Smallholder farmers’

There is no such thing as a ‘typical’ smallholding – especially in a region such as the European Union. Nonetheless, for the purposes of harmonisation and subsidy entitlements at least, the CAP begs for some sort of legal definition. There is none, unfortunately. While the CAP does set a legal requirement to define other key concepts such as ‘young farmer’, ‘active farmer’, or ‘new farmer’, it does not for ‘smallholder farmers’ (or analogous terms). As there is no legal requirement, none of the Member States have defined smallholder farmers as such in their NSPs. None have any form of (legal) definition regarding what a smallholder farm actually is.

Some form of definition has to be found in how the NSPs allocate their subsidies. Under the BISS, the distribution of subsidies for direct payments under the degressivity-clause gives Member States the power to decide both a minimum as well as a maximum of farm size who might be eligible for the payments.

For the minimum threshold, some countries have decided that only farms larger than a certain number of hectares are eligible to receive BISS payments, like Czechia (min. of 1 ha), Italy (min. of 0.5 ha), Latvia (min. of 3.1 ha) and Romania (min. of 1 ha). Also, income support is generally not granted for amounts lower than €100 to €500. For micro-farmers operating below these thresholds (but potentially still producing food for their communities and playing a role in local rural developments), this means they won’t receive any type of subsidy support.

The maximum threshold has, in many cases, stretched the boundaries of what can be classified as a small farm. For example, Bulgaria opted in their NSP that the first 30 ha of a farm of maximum 600 ha is eligible for additional subsidy and in Czechia, farms of 150 ha can benefit from the small farm subsidies. This sets some sort of a definition, and at least indicates who gets more subsidy payments, but it is hardly a targeted approach for smallholder farmers. What this really means is that it is not the smallholder farmers that benefit from the redistribution, but the larger farmers receive a higher rate of subsidy payments for a smaller portion of their land. This only exacerbates the already distorted distribution of subsidies, furthering the competitive disadvantage of smallholder farms compared to larger farmers.

One fundamental aspect of all three of these financial support schemes is that they unequivocally limit their definition to the traditional subsidy metric of ‘Euros per hectare’, coupling the payments with land size. This is a rather narrow sense of defining a smallholder farm, which is acknowledged by DG AGRI who provided, apart for land size, two other criteria to help define agricultural smallholdings, which are economic size (standard output) and labour input (annual working units). In our analysis, we found that only Romania has actually translated that into their NSP, defining smallholder farms as those ranging from 1 to 50 ha and with between €4000 and €11,999 standard output.

Lessons Learned for the Agriculture and Rural Communities (Scotland) Bill?

Legal reform periods always bring an opportunity for reflection. This legal analysis of the NSPs could inspire the rural support schemes under the Agriculture and Rural Communities (Scotland) Bill, which could adopt some of the financial mechanisms to support small agricultural landholdings. When implemented, the Bill will allow for a framework for payments that has the potential to be responsive to the needs of small-scale farmers.

The CRISS and BISS measures, as shown in this blog post, are not ideal measures in their effectiveness to target redistribution to small farmers (do additional smallholder farm subsidies really have to go to 150 ha farms?). But, having these measures in a fairly prominent place of the legislation serves two functions. First, it emphasises the important position smallholder farmers have in the EU’s agricultural landscape. It states that they need that additional support, and that it is important that the EU gives them that support. Secondly, it acknowledges that the subsidy payments framework has historically favoured large-scale producers and that that needs to change.

The differences between the various NSPs are far and wide when it comes to smallholder farmers, and this blog post would propose three recommendations for Scotland’s Rural Support Schemes. Firstly, there should be a financial tool included that allows for redistribution of payments. Secondly, there is a need for a strong and robust monitoring system effectively measuring that redistribution of direct payments, ensuring that these are actually funnelled to smallholder farmers. Thirdly, a clear definition of a smallholder farmer that goes beyond the metric of acreage but also includes labour and Annual Standard Output is needed.  

Acknowledging and attempting to solve these issues through these financial legal mechanisms could be the first steps needed for some radical change. One can only hope that we will see some of that change in Scotland’s rural support plans.

Lin Batten is a PhD student at the University of Strathclyde, co-supervised by Dr Brian Garvey (Department of Work, Employment and Organisation) and Malcolm Combe (School of Law)