DEFRA’s announcement on Rural Development funding following the recent agreement in Brussels on Voluntary Modulation will lead to significant reductions in Single Payment support for farmers says Jonathan Armitage, Farm Business Consultant of Strutt & Parker.

David Miliband’s triumphant announcement that he had reached an agreement for the UK has been seen amongst many as a good result not least because it paves the way for the UK to finalise the new Rural Development Programmes including a continuation of the ELS and HLS agri-environment schemes.

Voluntary modulation is the deduction the UK government are permitted to make from the Single Payment Scheme to be put towards the rural development budget and is applied in addition to the 5% compulsory modulation levied by Brussels. The agreement only applies to the UK and Portugal as the only two member states interested in applying it, and as a result, the effects are to be monitored closely by the EU Commission.

In order to fund the escalating costs of the Environmental Stewardship Schemes in particular, DEFRA have announced that increased rates of Voluntary modulation will apply starting at 12% in 2007 and increasing to 14% by 2009. DEFRA’s agreement to co-fund the Rural development scheme for the national exchequer has at least meant that the deductions are less than the 20% permitted under the EU regulation but still a significant increase on the 6% which applied in 2006.

For farmers this means they will see further deductions from their Single Payment Cheques from 2007. On average the total modulation deductions for English lowland farmers will amount to about £35/ha (£14/ac) rising to about 39/ha (£16/ac). On a 200 hectare (500 acre) farm that could mean a total deduction from modulation by 2009 of £7,800. That’s about £3,600 more than the deductions applied last year.

Bearing in mind that the Entry Level Scheme will pay £30 per hectare it is clear that farm businesses will need to do more to recover these deductions.

The future funding for Rural Development is to be included in the CAP “Health check” next year.