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higher rates of payment, including specific provisions for a long term organic stewardship scheme, covering both conversion to and continued organic production.

In Wales, a similar review of agri-environment schemes is taking place, with proposals for integrating organic and conventional producers in an entry level scheme. Pilots for this are due to be run in 2004, following a consultation on the proposals. The current Welsh proposals do not involve the points system planned for England, at least for the entry level scheme, although aspects of the current Tir Gofal points system may be carried over into the higher level tiers.

In both Wales and England, the introduction of organic maintenance payments at a relatively low rate compared with other EU member states, is seen as an interim measure, pending the wider reforms currently being planned. The expectation is that producers will then be eligible for higher levels of support, but with some additional

environmental requirements attached.

The changes are to be supported through modulation of Pillar 1

payments, and were a key focus of the UK government negotiations over the CAP Reform in Luxembourg. The UK has already implemented the voluntary modulation option as its spending levels for Pillar 2 measures were based on previously very low historical levels: 2% of the £3.4 (4.9 €) billion of CAP financing was previously directed towards agri- environmental measures. The current plan is to increase the modulation rate incrementally from 2.5% in 2001 through 3.5% in 2003 up to 4.5% in 2006. However, one of the key findings of the Curry report was that greater funding should be transferred from direct subsidy payments to Pillar II rural development with the suggested rate being 10% from 2004. The government position on modulation and funding for the new agri- environmental schemes following the Luxembourg agreement was not clear at the time of writing.

5.8.4

Summary and Conclusions

Organic farming is increasingly acknowledged as supplying

environmental benefits in the UK and as a consequence the Organic Farming Schemes were accounting for approximately 15% of agri- environmental expenditure in 2001, a marked increase since 1997 when it was less than 1%. By 2002, 1,631 agreements covered 224,000 ha in England and Wales, at a total cost of £17.4 million (25.2 million euro). However, until reforms in 2003/4, organic farming scheme payments were only made during the conversion period and whilst they are seen as important as an inducement to convert, it is clear that price premiums are a vital element for organic farm financial performance. Whilst maintenance payments have been introduced in England in 2003 and Wales in 2004, these are at a relatively low level and will remain so pending further agri-environmental reforms in 2005/6.

Support for organic farmers is essentially through direct payments for a five year conversion period with payments front-loaded to the first two

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years when organic producers are unable to access premium prices. Conversion is further aided though the Organic Conversion Information Service (OCIS) which supplies 1.5 days free advice in preparation for conversion, and approximately 900 € per farm available for training and advice as part of the Organic Farming Scheme. In Wales there is a Organic Centre funded by Objective 1 and 2 and RDP and other sources, with a total budget of ca. 600,000 € per annum.

Under Rural Development Programming, organic farmers in Less Favoured Areas can receive specifically targeted supplementary

payments provided they are not part of the Organic Farming Scheme. In Wales, organic food processors are being specifically targeted under the Small Processors Grant scheme under the rural economy measure (Art 33) but at this stage there is no data to indicate to what level organic farmers are being supported. Whilst there is evidence to suggest that organic farmers, when compared to conventional farmers, are better able or suited to attract other RDP measure payment such as processing and marketing grants, there is no specific targeting of organic farmers in the measures.

Whole farm gross margins have declined in both conventional and organic and all sectors over the period (1999- 2001), with the decline being more dramatic in the organic sector as conventional margins stabilised following previous serious declines in 1996-1998. However, based on the model calculations presented in this study, organic farming still presents higher per unit area whole farm gross margins that similar conventional farm types, provided that premiums prices can be achieved. The recently introduced maintenance payments make little impact to restoring relative financial performance if premium prices are not obtained.

Expansion of organic farming in the UK has been as a result of two main factors, increased payments under CAP Reform and changing consumer attitudes to food brought about by various food scares in the 1990s, culminating in the BSE crisis of 1996/7 and the consequent collapse in conventional prices. Much of the policy support for organic farming has been directed at increasing supply with far less of a specific focus on developing the demand for organic produce, although recently dialogue and initiatives are beginning to address this issue.

Previously, relatively high price premiums for organic produce were seen as sufficient financial support for farmers after the conversion period. However, the general decline in price premiums available, especially in the dairy sector with its over supply conditions, combined with a growing acceptance of the environmental benefits from organic farming, have led to a change in policy support to ongoing maintenance payments,

bringing the UK into line with most of the rest of the EU. However, these maintenance payments are set at a low level and are very much a short- term measure with wider agri-environmental reforms and increasing funding through modulation of Pillar 1 payments possibly leading to greater support for organic farming.

In the longer term, there needs to be higher levels of support which are based on the environmental and other public good benefits of organic farming, and less directly linked to the market. It should not be assumed

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