Industry Eye: Challenging times lie ahead as impact of spending review hits home

It has been a big month for British agriculture. The implications of Chancellor of the Exchequer George Osborne's Comprehensive Spending Review are stark for rural communities; the long term impact may remain to be seen but the road will undoubtedly be hard.

For farmers, the CSR follows the leak earlier this month of the draft EU proposal, The Cap Towards 2020: Meeting the food, natural resource and territorial challenges of the future, on changes to the Common Agricultural Policy to the concern of much of the farming industry on the future of direct payments.

Environment Secretary Caroline Spelman insists the coalition Government will be the "greenest government ever" but Wednesday's announcement revealed a hammering for the Department for Environment, Farming and Rural Affairs (Defra).

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With a reduction of around 30 per cent over the next four years, it faces the third biggest cut in departmental spending. Its resource spending will be cut by 29 per cent, its capital spending by 34 per cent and its administration budget by 33 per cent.

We may not have expected agriculture and the rural economy to be at the forefront of the Government's agenda but the cut in Defra funding suggests we are far from being ruled by the greenest government ever. Such substantial cuts will not help that objective with UK farm payments, which amounted to about 170m in 2009-10, likely to be a target.

Defra will also take advantage of EU match-funding rules and reduce its contribution to rural development funding by 66m although it claims environmental stewardships schemes will "remain open to all farmers". Defra will prioritise environmentally-beneficial schemes and increase the Higher Level Stewardship (HLS) Scheme by 80 per cent which I welcome. News from the Department for the Environment and Climate Change (Decc) is that feed-in tariffs (FITS) for small-scale renewables have not been cut, as was feared, although the current rates will be reduced after the review in 2013 and refocused on the most cost-effective technologies. Environmental schemes such as on-farm anaerobic digestion could suffer here.

Renewable Heat Incentive (RHI) escaped the chop. The Chancellor committed 860m to ensure farmers and other operators will be paid at a premium for every unit of renewable heat they produce in order to stimulate a 10-fold growth rate in the sector. This is good news and suggests the Government is serious about the UK's renewable energy sector. There will also be a 2bn "major improvement" in flood defence and coastal protection.

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The announcement that a large proportion of the cuts lie in administration rather than front-line services is heartening for farmers, while elsewhere, higher profile departmental cuts at Whitehall leave me wondering whether reductions in higher education and welfare budgets and the loss of public sector jobs and apprenticeships will breathe new life into the agricultural sector.

All of this comes shortly after the industry was shaken by the publication of plans for a "greener" Common Agricultural Policy (CAP) after 2013. The proposed capping of direct payments and mandatory environmental measures have the potential to make a complicated system all the more complex are likely to provide a challenge to UK farmers.

It will take a while for the dust to settle but it is clear challenging times are ahead.

CW 23/10/10

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