This paper uses a case based analysis to assess the income foregone as a result of participation in the Entry Level Scheme (ELS). The seven case study farms were all located in the uplands of Teesdale, County Durham and were chosen from a list of all farms in the Less Favoured area of Teesdale participating in ELS.
The study not only looked at ELS’s impact on farm profit, but the also at the differences between the actual costs and income foregone and those assumed by the Department for the Environment, Food and Rural Affairs (Defra) in setting ELS payment rates. Jones (2006) has been the only previously published work that has used the same methodology in assessing agri-environment scheme payments.
ELS is part-funded by the Common Agricultural Policy (CAP) and payment levels are subject to limits set out in the Rural Development Regulation (RDR). Directive 1698/2005 stipulates that agri-environment payments cannot exceed the aggregate of income foregone, costs incurred and transaction costs.
Income foregone is the term used for any income lost as a result of entering into an agri-environment scheme, i.e. both net revenue loss and net additional costs. Member states must submit budgets to demonstrate that payments do not exceed these expected amounts.
Directives in force at the time ELS was submitted for approval by the EU Commission, 1257/1999 and 445/2002, made it possible for member states to include an ‘incentive’ element which was capped at 20% of the income foregone.
This is no longer possible under Regulation 1698/2005 which now permits recovery of ‘transaction costs’ but does not allow for an incentive. ELS budgets never made use of the incentive component in payments and therefore ELS cannot in theory make a positive contribution to farm income as it only covers income foregone and costs. Any positive income contribution can therefore only be achieved if actual income forgone is lower than the theoretical figures.
In the study the income foregone of participation in ELS was calculated on a prescription by prescription basis on the case study farms. If this was less than the payment then it not only demonstrates that a profit can be made but also that the income foregone was smaller than that forecast by Defra.
