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LESS FAVOURED AREA SUPPORT SCHEME (LFASS) 2003

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Dear Producer

LESS FAVOURED AREA SUPPORT SCHEME (LFASS) 2003

You may know from coverage in the press over the summer that SEERAD proposed changes to the arrangements for the LFASS. These changes were only one part of a comprehensive modification to the Scottish Rural Development Plan that covers changes to our LFASS, Agri-Environment, and Forestry support measures. These changes required the approval of the EC's Agricultural Structures and Rural Development (STAR) Committee and that was obtained on 18 November 2002.

My purpose in writing, therefore, is to let you have a brief summary of these changes, how they will be implemented and how they will affect payments. Explanatory notes are being prepared and you will receive a copy early in the New Year. These will be more detailed and contain more examples of how specific scheme conditions can work. Some of these will only apply to a small number of producers but the attached is relevant to all those claiming under the scheme. A version of the explanatory notes will also be published on the Department's website ( www.scotland.gov.uk)

Details of the Scheme are included with this letter, I hope you find the information useful. Please note, the scheme depends on a grazing category in a reference period and SEERAD aims to inform applicants about their grazing category in the New Year.

If you have any questions, please contact your Area Office.

Yours sincerely

Brian Endicott

INFORMATION NOTE ON THE LESS FAVOURED AREA SUPPORT SCHEME FOR 2003

Do I need to complete a separate claim form?

No. As part of the process of completing your Area Aid Application (AAA) 2002, you were asked at Question 9 whether or not you wished to claim under the LFASS 2003 scheme.

Your claim for LFASS 2003 is only valid, however, if you meet certain conditions (which were detailed in the Declarations and Undertakings Section of the AAA form). These are:

• you must be at least 16 years of age;

• farm at least 3 hectares of eligible forage land in the Scottish Less-Favoured Area (LFA) and which meets the definition of forage area for the purpose of the IACS 2002 AAA (as governed by Regulation 2419/2001), as at 15 May 2002.

You must also maintain at least one of the following eligible agricultural activities:

• herd of suckler cows eligible under the Suckler Cow Premium Scheme (SCPS) 2002;

• flock of sheep eligible under Sheep Annual Premium Scheme (SAPS) 2002;

• dairy herd in the ring-fenced dairy quota areas;

• farmed deer breeding herd or

• herd of goats or alpaca for fibre production.

What about stocking densities? Does SEERAD propose any changes to existing requirements?

Yes. SEERAD is still required by EC regulation to avoid over-compensation and considers that stocking densities are still the best way to achieve that. There will be restrictions for businesses where stocking densities are below 0.12 livestock units (LU) and also for those businesses with stocking densities above 2.0 LU per hectare. In both cases, the restriction will work by scaling back payments. In the case of the minimum stocking density the actual hectares will be arrived at by dividing your LFASS eligible LU by 0.12 LU per hectare. Businesses above the maximum will have their payments scaled back by multiplying their hectares by a factor arrived at by dividing the maximum stocking density by the actual stocking density of the business.

Will the livestock units used to calculate my stocking density be the same as last year?

Whilst livestock unit values will remain unchanged (e.g., 1 breeding ewe = 0.15 LU), the animal numbers we will use have changed, as follows:

• for SAPS claimants we will take the greater of: either the ewes and gimmers declared in the flock composition part of the SAPS claim; or the total animals claimed within quota;

• for SCPS claimants we will take the greater of: either the cows (but not heifers) declared in the herd composition part of the SCPS claim; or the total animals claimed within quota;

• for sheep and/or suckler cow producers ineligible to claim under the premium schemes; and deer, goat and alpaca producers, animals maintained throughout the scheme year and declared separately; and

• for dairy farmers, livestock units based on litres of milk quota as at 31 March.

These livestock definitions will apply to: the stocking density calculation we will use to assess your grazing category (on the basis of eligible land and activity in 2001 - see below); the stocking density we will use to assess whether your eligible land will be restricted for the purposes of the minimum and maximum stocking densities (on the basis of eligible land and activity in 2002); and the livestock units we will use to assess your enterprise mix, if appropriate (see below).

How will my payment be calculated under SEERAD's LFASS 2003 Scheme?

The principle behind the scheme is to identify eligible hectares according to designated grazing categories, followed by, if appropriate, adjustments to account for minimum or maximum stocking density restrictions, and the influence of cattle on the holding. Having arrived at a number of hectares, payment is made at a rate reflecting the degree of fragility of the area in which the main holding is situated. The following describes these stages in more detail:

• the grazing categories will be found by calculating the average stocking density of the holding on the basis of your eligible land declared and agricultural activity undertaken in 2001. From this we will determine the eligible hectares payable under LFASS 2003;

• the application of minimum or maximum stocking density limits (see comments above) will determine any adjustment to hectares payable;

• the mix of livestock maintained (the balance between eligible cattle and other eligible livestock) will determine if the number of hectares is to be enhanced and to what extent; and

• the location of the main farm holding will determine the payment rate.

Each of these steps is detailed below.

Step 1 - Grazing Categories / Eligible Agricultural Activity Undertaken in 2001

In order to provide an appropriate relative level of compensation across the LFA, SEERAD will allocate each business a grazing category as a means of reflecting production potential. This will mean categorising each business according to the following table;

This will enable the LFA hectares as at 15 May 2002 and registered on your IACS AAA form to be multiplied by the appropriate hectare value to give a number of hectares upon which to base payments. SEERAD aims to inform claimants about their grazing category, as established in the reference period, in the New Year.

For this to work we need an up-to-date snapshot of business activity and it was decided that stocking densities calculated on the basis of your eligible land and activity in 2001, provided an acceptable basis. Stocking densities will be calculated according to the following formula:

Please remember, the categories of animal (maintained in 2001) that we will use to calculate your livestock units in the above formula are described in more detail on page 2 of this letter.

Note - The remaining steps in the payment calculation use the land information as at 15 May 2002 (from AAA form 2002) and livestock numbers from separate declarations, SAPS 2002 and/or SCPS 2002, as appropriate.

Step 2 - Minimum or Maximum Stocking Densities

Having adjusted your eligible hectares to take account of the grazing category at Step 1, SEERAD will make further adjustments where producers fall either below or above the minimum or maximum stocking densities. Please remember, the categories of animal (maintained in 2002) that we will use to calculate the livestock units we will include in your LFASS 2003 stocking density, are described in more detail on page 2 of this letter.

Step 3 - Mix of Livestock Maintained

SEERAD believes that it is right to encourage quality beef production and reward the environmental and socio-economic benefit of maintaining cattle in the LFA . For the LFASS 2003 scheme, the categorisation of producers and the stocking thresholds at which these additional payments start will be simpler. There will be two levels of enhancement to the number of adjusted hectares according to the following table:

*eligible for the purposes of LFASS.Please remember, the categories of animal (maintained in 2002) that we will use to calculate your total livestock units for the purposes of the enterprise mix are described in more detail on page 2 of this letter.

Step 4 - Location

SEERAD aims to recognise the variation in the costs faced by farms and crofts across Scotland's LFA. There will be three basic area payment rates:

To find out which rate applies to you, look at the list of parish codes shown on the final page of this letter. Your parish code is the first three numbers of your main farm code number. (Remember: it is the location of your main farm code that determines the rate of payment.)

What about an example of how the payment will be calculated?

Suppose a producer's business involves a total of 300 hectares based around a main farm holding in the Fragile (Mainland) area. The producer had an overall stocking density in 2001 of 0.14 LUs per ha (that is, Category A) and currently maintains 20% of the business' livestock units as suckler cows. On this basis, the payment would be calculated as follows:

If the producer in the example had no suckler cows, his payment would be calculated as follows: 50.1 adjusted ha X 42.50 = 2129.25

That's all very well but what if I acquired more land between AAA 2001 and 2002?

Land acquired will not change a business' original grazing category (established on the basis of eligible agricultural activity in 2001). The idea of grazing categories is that they will be fixed at field level on the basis of eligible land and activity in 2001, so those producers acquiring land will know the grazing category of the land bought or rented, from the outset.

Suppose a producer's eligible agricultural activity in 2001 involved a total of 300 hectares. The overall stocking density in 2001 was 0.14 LUs per ha so that the land supporting the original business is classified as Category A. The producer acquires 40 hectares in time for it to be declared on his / her AAA 2002. The acquired land supported a higher number of livestock in 2001 and, therefore, was classified as Category B. The producer currently maintains 20% of the business' livestock units as suckler cows. The main farm holding is in the Fragile area. On this basis, the payment is calculated as follows:

What if my stocking density in 2001, the year used as the reference period for setting grazing categories, was unusually low? Can I ask to have my grazing category reassessed?

Yes. SEERAD recognises that, for example, some businesses will have been affected by FMD and the aftermath. Producers who consider their stocking density was atypical in 2001 will be able to make representations to their local area office to have their grazing category reassessed.

Will there be a minimum payment?

Yes. Under arrangements for 2003, no eligible claim will be worth less than 350.

Does SEERAD intend to keep the safety net to help producers through the change from one scheme to another?

Yes. Producers will receive either: their LFASS 2003 payments as calculated as above; a sum equal to 50% of their HLCA 2000 payment; or the 350 minimum payment, whichever is the greater. LFASS 2003 is the third and final transitional year of the safety net.

How will payments be made?

In line with all the other IACS Schemes, LFASS claims will be paid using the Bankers Automated Clearing System (BACS). SEERAD already has the bank details of LFASS claimants previously in receipt of HLCA or any other IACS Schemes. If you wish to alter your nominated bank account, you should obtain and complete a form BACS (1) and return it to your local SEERAD area office.

When will payments be made?

Our aim is to start issuing payments next Spring, with the majority of claims being paid by the end of March 2003.

How were the terms and conditions of LFASS 2003 developed?

The Scheme is the result of regular discussions within the Joint SEERAD / Industry Working Group and, more widely, a public consultation exercise. We have kept the European Commission informed of the work that has led to this stage and discussed with officials at a senior level the shape of the revised scheme.

Will there be any further changes to the scheme conditions for 2003 or payment rates in 2004?

The rates and the scheme conditions approved by the European Commission will be the basis of payments next year. Beyond that, SEERAD will keep the rates of payment, etc under review, to ensure that the Scheme continues to meet its objectives. Hence, the future rates may be subject to change.

LFASS 2003 - FRAGILITY MARKERS FOR PARISH CODE NUMBERS

Very Fragile = Dark Gray Fragile = Light Gray Standard = No shading