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ANNEX B

PARTIAL REGULATORY IMPACT ASSESSMENT FOR SCOTLAND ON COUNCIL REGULATION ( EC) 21/2004 ESTABLISHING A SYSTEM FOR THE IDENTIFICATION AND REGISTRATION OF OVINE AND CAPRINE ANIMALS

Author: Alistair Henry
Version: 1.1
Issue Date: 11 August 2005

Table of Contents

1. Title of Proposed Council Regulation
2. Purpose and intended effect of measure
2.1. The objective
2.2 Background
2.3 Risk assessment
2.4 Benefits
2.5 Business sectors affected
3. Description of options
4. Brief Assessment of options
5. Costs for business, charities and voluntary organisations
5.1 Compliance costs
5.2 Option
5.3 Government costs
5.4 Costs for 2 typical businesses of implementing Options 1 and
5.5 Issues of equity and fairness
6. Consultation with small business: the "Small Firms Impact Test"
7. Competition assessment
8. Enforcement
9. Monitoring and review
10. Consultation
11. Summary
12. Regulatory quality declaration
13. Contact persons for this RIA

Annex 1 Detailed calculation of sheep Identification costs - Option 3
Annex 2 Summary of annual costs for the sheep industry in Scotland
Annex 3 Cost comparison - current costs and present values
Annex 4 Graph to show differences in costs between options
Annex 5 Option and cost summary - Sheep
Annex 6 Small business litmus test

1. Title of Proposed Council Regulation

1.1. Council Regulation ( EC) 21/2004 ("the Regulation") establishing a system for the identification and registration of ovine and caprine animals and amending Regulation ( EC) No 1782/2003 and Directives 92/102/ EEC and 64/432/ EEC. The Regulation applies throughout the United Kingdom. This RIA applies only to Scotland (see paragraph 2.3.4.).

2. Purpose and intended effect of measure

2.1. The objective

2.1.1. To provide an improved system of identification to aid traceability of sheep and goat movements and to link rules to the payments of EU subsidy.

2.1.2 Devolution: This is a devolved matter which affects all parts of the UK. Separate, but parallel, legislation will be needed in England and Wales. Northern Ireland may apply a different system and will have to draft and implement legislation accordingly.

2.2. Background

2.2.1. The Foot and Mouth Disease ( FMD) outbreak which occurred in the UK in 2001 demonstrated the need for improvements to the identification and traceability rules that applied to sheep and goats at the time. Scotland was the first area to bring the outbreak under control and consequently came under pressure from industry to relax some of the movement restrictions that had been introduced to deal with the emergency situation. Industry was keen to allow animal movements to begin so that the normal production processes could be resumed and farmers could move their livestock. However the State Veterinary Service ( SVS) would not consider this until an improved identification and traceability system was introduced which had the full support of industry. The elements of a new system had to be both practical and enforceable.

2.2.2 Around this time we became aware of emerging views from the Commission which focussed on establishing an identification and registration system for ovines and caprines (sheep and goats). The basic EU requirements were considered and discussed with industry to see how we could establish a system featuring the broad outlines of what was likely to become a legal requirement in the coming years. Following intense discussions with industry representatives on our Sheep Industry Stakeholder Group ( SISG), major enhancements to the pre- FMD identification and traceability requirements were made. This resulted in the current domestic identification and batch traceability system - introduced in February 2002 - which provides the main platform for meeting (and in some cases exceeding) the objectives of this new EC Regulation.

2.2.3. One of the basic objectives of the Regulation is the tracing of animals which is of crucial importance in the control of contagious diseases. The original proposal stated that 'It must be possible to determine rapidly and conveniently the place of origin of an animal or carcass and its movement throughout the Community. Animals must be adequately identified and registered according to the same requirements throughout the Community.'

2.2.4. SEERAD was represented during the EU Working Group meetings in Brussels where the UK fought hard to secure some vital concessions to elements of the original proposal which were unworkable for the UK sheep industry. The most important one was the option to apply for a derogation which would allow us to continue with our current batch system.

2.2.5. In December 2003 the Regulation was adopted. This requires Member States to double identify all sheep and goats born on or after 9 ^th July 2005, except those intended for slaughter at less than 12 months of age and those not intended for export or intra-community trade. There is however a provision under which the Commission may allow Member States to maintain their existing national identification system providing traceability between holdings can be demonstrated. If such approval could be obtained, our existing system of identification could - with minor modifications - be retained until 1 ^st January 2008 when electronic identification ( EID) becomes mandatory (although there is provision within the Regulation to review this date in June 2006). The Regulation also requires movement documents to be completed and to accompany the animal during transit, for keepers to maintain holding registers and for the Competent Authority to maintain a central database of holdings from July 2005 and movements from January 2008. Our current system already meets most of these requirements; only minor modifications will be required to comply.

2.2.6 Commission officials visited the UK in January 2005 to assess our current system and the minor proposed changes we planned to introduce. On 5 July they announced that the UK had secured a temporary derogation until 30 April 2006 but that they would re-visit in December 2005 to ensure we had introduced the changes that were required and to assess compliance levels. If satisfied, a full derogation would be given until (at least) January 2008.

2.3. Risk assessment

2.3.1 This risk assessment only considers the period between July 2005 and December 2007. It does not consider the possible introduction of EID from January 2008. There are still a number of unresolved issues surrounding EID and further discussion at EU Council level is expected to take place mid 2006. Another RIA will be produced to consider EID as soon as it is practical to do so and at a later date a further consultation exercise will take place covering the introduction of EID.

2.3.2. The Regulation is intended to standardise and improve the identification and traceability of sheep and goats across the European Union. It is intended that it will provide an effective identification system that enables animals to be traced quickly and effectively back to their holding of origin (birth). Double tagging helps ensure the identification of an animal's birth holding as it is unlikely that both tags will be lost at the same time. However the main measures to ensure the effective tracing of animals movements do not come into effect until EID becomes mandatory in 2008. Therefore in the period July 2005 - December 2007, the Regulation does not impose an effective system of traceability between holdings. This is a particular risk in Scotland where animals may make many movements in their lifetime. SEERAD believe it is more critical to be able to trace all the movements made by an animal than to be absolutely certain about its holding of origin. It was largely for this reason that the UK negotiated to include in the Regulation a derogation from double tagging that would enable Member States to continue with their existing systems until 2008. Following FMD, measures were taken to improve our national system and we now consider it to be more effective than the measures - including double tagging - required by the Regulation.

2.3.3. When EID is introduced it will greatly assist in the control measures in the event of disease outbreaks such as FMD. This is because it introduces the recording of individual animal movements - a measure that is not practical in Scotland without EID because of the large number of animals and movements. Failure to trace animals quickly and effectively during an outbreak of disease will mean that the number of disease cases is likely to increase and the cost of eliminating the disease will be higher. This would in turn mean greater movement restrictions being placed on industry, and may result in them being unable to carry on with their day-to-day business. There was also a significant impact on other aspects of rural life during the 2001 FMD outbreak and any measure to reduce the length and severity of any future disease outbreak will be of benefit to the wider rural community.

2.3.4. The United Kingdom is required to implement and enforce the Regulation when it takes effect in July 2005. The Regulation however provides Member States with a number of options for implementation, including crucially the option of applying for a derogation from double tagging until 2008. This RIA describes the options available to Scotland for the period October 2005 - December 2007 (prior to the proposed implementation of EID) and compares the impact of each on the industry in Scotland and on the Scottish Executive. England, Wales and Northern Ireland ( DARDNI) will be consulting their industry on the basis of their own Regulatory Impact Assessments. DARDNI have decided to implement the legislation in a different manner to the rest of the UK, based more on the identification system adopted in the Republic of Ireland. Applications for a national derogation from double tagging were made separately in respect of GB and Northern Ireland.

2.3.5. In ensuring that the chosen implementation option is both workable and practical the Scottish Executive recognises the need to take account of the size of the sheep industry in Scotland (8.1 million just after lambing), its stratified nature and the large number of sheep movements. However failure to implement European Union legislation could lead to the initiation of a case against the UK Government in the European Court of Justice, and affect our ability to trade with other Member States. There is furthermore a risk of disallowance at national level if a Member States fails to implement in full the provisions of this Regulation as it is a cross compliance measure of the Single Farm Payment Scheme ( SFPS).

2.4 Benefits: Minimal as current system already provides (and in some situations exceeds) the traceability that 21/04 desires.

2.5 Business sectors affected: All sheep and goat keepers including those with only one animal . Markets and slaughterhouses handling sheep and goats will also be affected. There are estimated to be 22,000 sheep keepers and 800 goat keepers in Scotland. There are 29 (some seasonal) livestock markets in Scotland and 32 abattoirs which deal in sheep and goats.

3 Description of options

3.1 Three options were identified for possible implementation in Scotland. One option (2) would give keepers the choice of implementing the Regulation in full i.e. allow the application of double identification (primary ear-tag plus either another ear-tag or a tattoo or an electronic identifier or [for goats only] a pastern mark). Following Legal advice and discussion with members of SISG it was decided that Option 2 should not be offered as it would lead to confusion with Option 3 and mean that two very different identification and traceability systems would exist in Scotland after October 2005. Ultimately this would reduce the level of traceability that currently exists in Scotland. Consequently only 2 options have been identified as suitable for implementation of the Regulation in Scotland. These have been numbered Options 1 & 3 to correspond with the Options in the Defra RIA and avoid confusion when industry discuss both RIAs

Option 1 - Continue with present system with minor changes

Option 2 - Not considered suitable for Scotland

Option 3 - Introduce the Regulation but secure the national derogation which would allow us

to continue with a system similar to the one currently operating.

Option 1

3.2 Do nothing. The domestic controls on sheep and goat identification were reviewed following the FMD outbreak. The existing domestic requirements go further than the previous EU requirements contained in Council Directive 92/102/ EEC and already implement many of the changes required by EC Regulation 21/2004 (i.e. movement documents, holding registers, central database recording holdings and movements). However, the current system does not include double identification - it is based on a single means of identifying each animal. Even allowing for the granting of the derogation, the current Scottish batch system is lacking some of the required elements of Reg 21/2004 e.g. the need to tag animals no later than 9 months after birth. For this reason minor changes would be required anyway to ensure we do not risk cross compliance disallowance under the SFPS.

Option 3

Sheep

3.3 Introduce the Regulation, but apply for and obtain a national derogation from double identification until 1 January 2008. This option requires the Member State to have demonstrated that its national system provides traceability between holdings before the Commission will consider granting a derogation from double tagging. In this event the Member State is allowed to continue using its national system until 1 January 2008. In order to gain approval from the Commission however, it will be necessary for Scotland to make minor changes to the existing Scottish system to ensure we can deliver the required traceability.

3.4 The main requirements of the current system are:

• Keepers must ensure that any location keeping sheep or goat/s is registered with the local Animal Health Office
• Animals should be identified with a baseline ear tag or tattoo before they leave their current holding
• Any lost tags are likely to require a Replacement tag to be applied
• For certain types of moves, keepers will also have to apply Movement tags
• The keeper at the departure location must ensure that a Movement document is completed and accompanies the animal/s on their journey
• The keeper at the receiving location must forward a copy of the details on the Movement Document to the central database within 3 days
• Details of movements on and off the location must be recorded in the flock register

3.5 Changes required to the current system to meet the requirements of Regulation 21/2004:

• Tattoos can no longer be used as the primary means of identification
• Animals have to be identified no later than 9 months after birth if kept in extensive or free-range conditions - 6 months if kept in intensive conditions.
• Only officially approved ear tags can be applied.
• Issuing of tags will be controlled by an Ear Tag Allocation System ( ETAS) to ensure manufacturers only issue tags with unique numbers - similar to the cattle system.
• Minor changes to the movement document are required including details of the haulier involved. (Currently these details are not mandatory).
• Additional information has to be kept in the location's flock register including details of the person transporting animals from the location
• Keepers will be required to record the CPH (County/Parish/Holding) of the location they receive animals from in the location's flock register.
• Keepers are required to make an inventory of the animals kept at the location on a set date annually. This data must then be sent to SEERAD within 30 days. SISG are involved in deciding the best method of this data being forwarded by the keeper to SEERAD.

3.6 We have also identified one area of the current system which is causing confusion amongst keepers and after discussion with SISG intend to make the following change which will give increased traceability between locations. From 9 July 2005, Movement tags will have to be applied for all moves from non- HOB locations. This includes moves to grazing/wintering and all moves direct to a slaughterhouse - previously Movement tags were not required for these types of moves.

3.7 Subject to further discussion at Council level in June 2006, mandatory EID is scheduled to be introduced in 2008, as required by the Regulation. A further RIA and consultation exercise will follow prior to the introduction of EID.

Goats

3.8 Option 3 would require goat keepers to apply ear tags (rather than tattoos) to goats born after 9 July 2005 as the primary means of identification. The cost of purchasing and applying a single long-life ear tag is £0.84 as opposed to the approximate cost of £1.00 for applying a tattoo, giving a possible cost reduction.

3.9. The issue for goat keepers however is more about cost than welfare and any resulting welfare problems with eartags may offset the small savings achieved. There is anecdotal evidence that keepers inexperienced in applying eartags can experience higher levels of welfare problems. Guidance will be issued on how best to apply eartags, but this may be a welfare issue, particularly in the short-term.

4. Brief assessment of options

Option 1

4.1. This option maintains the status quo. Like the Regulation it provides a batch system of traceability, but it would not meet all the requirements of the new legislation. Failure to fully implement the Regulation is likely to result in infraction proceedings against the UK Government and could affect our ability to trade within the EU. In addition, as the Regulation is a cross compliance regulation for SPFS there is a near certainty of disallowance at national level if its requirements are not fully implemented.

Option 3

4.2. This option involves implementing the Regulation, but applying for and obtaining a derogation from double tagging until 1 January 2008. This would mean the continuation of the existing system in Scotland until 2008, with minor amendments in order to meet the requirement of the Regulation. The derogation would protect farmers from double tagging until EID is introduced in 2008. This would represent a saving to most of the industry, but represent additional cost to others. (see Section 5.4.1. below).

4.2.1 There are minimal changes required to the current system for sheep keepers. These have been listed at 3.5 and 3.6 above.

4.2.2 There are minimal changes to the current system for goat keepers. However tattoos can no longer be used as the primary means of identification for kids born after 9 July 2005. This is likely to be seen as problematic by some goat keepers but there are numerous examples of herds which successfully use eartags without experiencing welfare problems.

4.3. This option complies with the Regulation (should the Commission grant the derogation requested), so the risk of disallowance is minimised.

5. Costs for business, charities and voluntary organisations

5.1. Compliance costs

5.1.1. We have not costed Option 1 because it does not comply with the Regulation and the risk of disallowance and infraction proceedings resulting in daily fines as a result of non-compliance is considered too great. The following costs are therefore for option 3 only and show the increased cost over and above operating the existing system (Option 1).

5.1.2. Costs are calculated as accurately as possible but quantifying numbers of animals for certain movement categories has been difficult as this type of data is not generally available. It is also not possible to break down the proportion of animals which would still be on the holding on which they were born at 9 July 2005 or moved off after then. Estimates are generally based on 2003 figures which are the latest available and follow discussions with industry sources.

5.1.3. Estimates and assumptions have been used to inform the development of the policy and to understand the potential scale and nature of the impact of the Regulation. It should be noted however that costs are sometimes based on estimates rather than established facts. It should therefore be borne in mind that there may be a substantial margin of error applying to the final figures.

5.1.4 Goats: As explained earlier there are minimal additional material costs. It is even possible that Option 3 will reduce some costs for goat keepers.

5.2 Option 3

5.2.1 The identification system introduced under Option 3 would be similar to the existing system. However there are a few minor changes that would be introduced to tighten up on visual traceability. These changes are as follows:

• Sheep not on their baseline location and moving direct to an abattoir will require to have a Movement tag applied before the move commences. Under the current system a temporary mark is sufficient; however temporary marks will not be recognised as an official method of identification after October 2005.
• Sheep not on their baseline location and moving to another location for grazing, wintering etc. will require to have a Movement tag applied before the move commences. This applies even when the animals are returning to the original location. This is not an additional cost as the animal will have to be movement tagged before it leaves the holding the next time including if moving to a market or abattoir.

These changes now mean that before the animal leaves its non-baseline for the first time for any type of movement it must have a Movement tag applied.

5.2.2 There are approximately 3.9 million Scottish sheep slaughtered annually. Industry estimates are that 15-20% (585,000- 780,000) move direct to a slaughterhouse. Under this proposed change it is difficult to identify approximately how many of these would now require a Movement tag if they are moving from a farm which is not their holding of birth direct to a slaughterhouse. Taking a figure of 10% of the total killed annually then an additional 390,000 Movement tags need to be applied annually for sheep moving direct to slaughter from a location that is not their holding of birth.

5.2.3. It is therefore estimated that an additional 390,000 Movement tags will be required under Option 3, compared to the current system. It is assumed that these would be made using cheaper tags that can be purchased from tag suppliers. The average cost of purchasing and applying a short-life tag is £0.64 (a long-life tag would cost £0.84). Therefore the total cost of applying the additional Movement tags is approximately £250,000 (390,000 x £0.64) It is worth noting the cost of applying Movement tags would fall disproportionately on finishers as opposed to breeders.

5.2.4. These Movement tags would be replacing temporary marks for this type of move. The cost of applying a temporary mark is approximately £0.11 (material and labour), so using the figures above there is a potential saving of £42,900 (390,000 x £0.11).

5.2.5. Therefore the approximate cost of £250,000 for additional movement tags would be offset by a possible saving of £42,900 giving a net increased cost of approximately £207,100.

5.2.6. Under this option, sheep or goats born after 9 July 2005 and intended for intra-community trade would need to be double identified. However since numbers are relatively low (<10,000 animals), and it is not possible to determine at which location the animals will be double (as opposed to single) identified, these animals have been left out of the calculations.

5.2.7 Sheep moving between Scotland and Northern Ireland - in either direction - should comply with the ID requirements of the country of despatch. Those transiting NI en route to or from the Republic of Ireland will require to be double identified if born after 9 July 2005.

5.3 Government costs

5.3.1. To ensure that sheep and goats are allocated unique individual identification numbers it will be necessary to set up a new Eartag Allocation System ( ETAS) alongside the one already operating for cattle and run by the British Cattle Movement Service ( BCMS). This system would be developed for the whole of GB, so costs would be apportioned based on the number of animals in each country. Consequently, Scotland pays 24% of total GB costs.

5.3.2. The development of a new web-based ETAS system would cost approximately £1.1m. There would also be a £50,000 set up cost incurred by the BCMS. Scotland's share of these costs would be £276,000.

5.3.3. There would be ongoing annual maintenance and staff costs to operate this system. These are estimated to be in the region of £700,000 p.a. for BCMS and £100,000 for IT maintenance. Scotland's share would be £192,000.

5.3.4. In addition, an eartag approval system will also be required. A specification for the approval of sheep tags will need to be drawn up. This is estimated to cost in the region of £40,000 (£ 9,600 for Scotland). Staff costs are expected to increase by around £26,000 p.a. (Scotland's share £6,240).

5.3.5. There will also be additional enforcement costs, but as the inspection and enforcement rules have still to be established, these costs cannot yet be quantified.

5.3.6. SEERAD currently has access to a central computerised register of holdings and will be linked to a GB movements database ( AMLS 2) in the near future. However both of these databases require upgrades as additional data fields are required by the new Regulation. It is estimated that for Great Britain there would be initial set-up costs of £60,000 and running costs of £168,000 p.a. Scotland's share of these costs would be £14,400 for set-up and £40,320 p.a. running costs

5.3.7. Because the Regulation is a cross compliance requirement under the SFPS there is a risk of disallowance if farmers do not comply fully with the requirements. The amount of any disallowance would depend on the degree of failure to comply by the industry or Government. £57.61m was paid in direct sheep subsidy payments to claimants in Scotland for 2004.

5.4. Costs for two typical businesses of implementing Options 1 or 3

5.4.1. The costs for two typical farm businesses of implementing Option 1 have not been calculated as the level of disallowance under SFPS for failing to meet this cross-compliance requirement cannot be accurately calculated.

5.4.2. The costs for two typical farm businesses of implementing Option 3 have been calculated using 2 different farm types with the following profiles.

Farm A:

A typical medium sized upland holding with 600 home-bred ewes. The lambing rate on average is 125%; therefore 750 newborn lambs are produced annually. 80% (600) of the newborn lambs are moved on for fattening with 20% (150) being retained to replace the breeding stock. A similar number (150) of breeding stock are moved off for slaughter each year. It has been assumed that 150 animals are moved to grazing/wintering. Under Option 3 there is no obvious annual cost increase for this type of business.

TABLE 1 - ESTIMATED ANNUAL COST INCREASE FOR MOVE FROM CURRENT SYSTEM TO SINGLE TAGGING UNDER THE DEROGATION

Farm B:

A typical medium lowland holding with 1000 ewes. The lambing rate is 165%; therefore 1650 lambs are born annually. 85% (1400) of the newborn lambs are moved off for fattening with 15% (250) being retained to replace the breeding stock. A similar number (250) of breeding stock are moved off for slaughter each year. The keeper also buys in a further 1000 lambs each year for further fattening for about six months before later going for slaughter.

TABLE 2 - ESTIMATED ANNUAL COST INCREASE FOR MOVE FROM CURRENT SYSTEM TO SINGLE TAGGING UNDER THE DEROGATION

5.4.3. These figures show that the impact of Option 3 on Farm B is more significant. This is because it buys in 1000 lambs each year for further fattening which - if being sent direct to slaughter - will require to have Movement tags applied. Under the current system this is not required.

5.4.4. The differences in the impact on these two farms illustrate how different business types will be affected depending on the nature of their operation. Breeding businesses will be least affected and those that buy in many or all of their animals will be most affected.

5.5. Issues of equity and fairness

5.5.1. The Regulation is directly applicable in all Member States. Its aim is to improve on the existing requirements with regard to the identification and traceability of sheep and goats. The most difficult and controversial changes will be introduced in January 2008 when EID becomes mandatory (though the Council will review this date in June 2006). However, this RIA is only concerned with the changes prior to the introduction of EID.

5.5.2. The major concern for the sheep and goat industry with the provisions that come into force in October 2005 is the requirement for double identification (which would mean double tagging for every breeding sheep and goat born after 9 July 2005). Separate applications have been made in respect of GB and Northern Ireland for a derogation from double identification until 2008 on the basis that the existing national system provides the required level of traceability between holdings that the Regulation seeks to deliver.

5.5.3. The UK has the largest number of sheep of any Member State and also moves each sheep more times on average than any other Member State. 22.5 % of the UK sheep flock is located in Scotland. Given that this Regulation is a cross-compliance requirement of the SFPS, it is critical that Scottish sheep keepers comply with the chosen system when implemented.

5.5.4. As mentioned above in paragraph 5.4.2 the impact of Option 3 will be greater for those keepers that move a lot of animals and have many movements onto and off their premises. Therefore non-breeders will be disproportionately affected. Breeders will be least affected and hill and upland keepers are likely to be less affected than lowland keepers.

6. Consultation with small business: the "Small Firms Impact Test"

6.1. A GB consultation exercise has already been conducted with small businesses, based on the original Commission proposals which involved double tagging of all animals, including lambs, and manual recording individual animal movements. A small business litmus test was sent out to a number of business owners to gauge the potential level of impact on the sheep and goat keeping industry as a whole. The test comprised of 11 questions designed to cover all eventualities. The number of recipients was 25, with 7 completed returns. See Annex 6 for details.

6.2. The responses indicated that recipients were primarily concerned about high costs and the additional time taken with record keeping. SEERAD was very concerned about the original proposals and following representation from and discussion with industry, the UK was successful in negotiating out the most unacceptable parts. Consequently the final Regulation only requires animals born after 9 July 2005 and intended for breeding or for export to be double identified, does not require individual animal recording until EID is introduced. However it does provide Member States the option of applying for a national derogation to continue using the current domestic system until 2008. The UK applied for a derogation to retain its current system and recently received a temporary derogation until April 2006. EC Auditors will re-visit the UK in December 2005 and assess whether a full derogation can be granted - this would last until January 2008 when EID is due to be introduced.

7. Competition assessment

7.1. The competition filter was carried out on sheep premises in GB. The results suggest that the proposed legislation is unlikely to have a negative impact on competition in this sector. The cost of compliance with the proposed legislation will be greater for larger sheep and goat units because they keep more animals. Headage costs should be broadly similar for all sizes of units.

7.2. Costs will also be higher for businesses that are buying in and selling a lot of animals. The cost of movement recording is more significant than primary identification costs. However, although the Regulation may result in some changes to the number of holdings, it should not lead to significant changes in the structure of competition within the market. (It is likely that the SFPS will have a bigger impact than changes under this Regulation).

7.3. A preliminary assessment indicates that the impact on costs varies significantly depending on the nature of the business. For keepers buying in many animals it is likely to be high when compared against the average net income for sheep keepers. 2003/04 net farm income figures from a limited SEERAD survey of businesses suggest that net income for specialist LFA sheep farms is £9,894 and for cattle and sheep lowland farms is £18,538.

8. Enforcement

8.1. The Regulation will be enforced by domestic legislation, which in Scotland replaces The Sheep and Goats Identification (Scotland) Regulations 2000 as amended.

8.2. It is proposed that responsibility for enforcing the new Regulation will rest with Local Authorities and SEERAD Agricultural staff. The new legislation is expected to result in increased enforcement costs, but at this stage they cannot be quantified.

9. Monitoring and review

Feedback will be provided by the industry and by the enforcement bodies when the Regulation is adopted and implemented in Scotland - scheduled for October 2005.

10. Consultation

Within Government

10.1. Colleagues in the devolved administrations and Northern Ireland have been and will continue to be fully involved with progress in implementing Council Regulations 21/2004.

Public Consultation

10.2. The main industry organisations have been invited to provide their views on options 1 and 3. Every effort will be made to ensure that the final package of measures is practical and workable for the Scottish industry.

10.3. This RIA provides estimates on the basis of the best information available and will now be issued for formal consultation with the main stakeholders. Should the results of the consultation exercise indicate that changes to the RIA are required a further RIA will be submitted to the relevant Committees for consideration.

10.4 A further RIA will be produced and another public consultation exercise undertaken before EID is introduced in 2008.

11. Summary

1.3 See annex 6 for responses from the small business litmus test

11.4. The Regulation, adopted in December 2003, introduces in two stages the individual identification and movement recording of sheep and goats. From 9 July 2005 sheep and goats born after that date must be individually identified by two marks, and the primary mark must be an eartag. However, Member States can apply for a derogation from double tagging until 2008, if they can demonstrate that their existing system provides traceability between holdings. UK has applied for a derogation from the need to apply two marks and has requested authorisation to continue using its national system of identification at least until January 2008. The other measures which come into effect in 2005 won't have much impact in Scotland as they are already being applied. In January 2008, electronic identification is due to become mandatory for sheep together with the recording of individual animals on the movement document and the on-farm register. There is no requirement to individually record animal movements until 2008 - at the earliest. The January 2008 implementation date will be reviewed in June 2006.

11.5. Two options are described in this document:

Option 1 - Do nothing to change our current system

Option 3 - Apply for and secure a derogation from double tagging until EID becomes mandatory in 2008 (earliest) and make minor changes to our current system to ensure we meet the requirements of the Regulation which fall outside the derogation.

11.6. Option 1 is not recommended because it is considered politically unacceptable and too risky. Following the UKBSE and FMD crises, we cannot ignore new European legislation aimed at alleviating the risk in the event of similar disease outbreaks. There would also be a risk to exports by not implementing this EC regulation and likely infraction proceedings and there would be a near certainty of incurring disallowance.

11.7. Option 3 is the recommended way forward. It envisages that the UK secures a derogation from double tagging until January 2008. This would allow UK to continue with its current system of identification and traceability with minor changes until then. More importantly throughout the 2005-2007 period it will allow GB to continue to trace animals on a batch basis which is considered essential for the purpose of disease control.

11.8. The main drawback is the perceived complexity of the current system which some keepers appear to have found difficult to understand leading to possible compliance problems. However this is expected to improve following clarification of some elements, publicity campaigns and because the new Regulation is a cross-compliance requirement of the SFPS.

11.9. The increased cost to the industry of implementing option 3 has been estimated as £250K p.a. This is an increase of 4.6% on current costs and is mainly attributed to the extra cost of having to apply movement tags to animals going from a non- HOB direct to an abattoir. The total increased cost over the period 2005 - 2007 would be £620,000 (£595,250 at present value).

11.10. UK applied to the Commission for a derogation from double tagging in June 2004. However, before a decision was taken, the Food and Veterinary Office ( FVO) visited UK to inspect the current national system to ensure that it provides traceability between holdings. This visit took place 24-28 January 2005 and the decision to grant a temporary derogation until April 2006 was granted. The FVO will re-visit the UK in December 2005 to reassess the system and if their report is favourable a full derogation will be given. In light of the positive progress that has been recognised it is recommended that Option 3 is pursued. If we fail the December 2005 re-visit and our derogation application is rejected, then we shall have to implement the Regulation in full. If necessary a partial RIA will be produced to cover this situation.

12. Regulatory quality declaration

I have read the Regulatory Impact Assessment, and I am satisfied that the balance between cost and benefit is the right one in the circumstances.

Signed:

MINISTER

Alistair Henry
Livestock ID & Traceability Branch
Room 215
SEERAD
Pentland House
47 Robb's Loan
EDINBURGH
EH14 1TY

Alistair Henry
Telephone: 0131 244 6404
Fax: 0131 244 1946
Email: Alistair.Henry@scotland.gsi.gov.uk

Annex 1

Detailed Calculation of Sheep Identification Costs - Option 3

A1.1. Official Census figures for June 2003 indicate that in Scotland there were 8.04m sheep of which 3.86m were born in the 2003 breeding season. Around 75% (2.9m) of newborn lambs are slaughtered in their first year. The remaining 25% (0.96m) were retained as breeding stock. It is estimated that just under 1m of the breeding stock are also slaughtered giving a total of approximately 3.9m Scottish sheep slaughtered annually.

A1.2. The identification requirements in terms of applying a baseline (holding of birth) tag for all lambs born after July 2005 will be the same as the current regime, i.e. the application of a single tag. However under Option 3 certain types of moves will now require Movement tags to be applied. See A.1.5 below.

A1.3. Prices for single tags are around £0.40 (incl. VAT) and short-life (slaughter) tags for lambs cost around £0.20 (incl. VAT). Discounts can be obtained from suppliers for bulk buys.

A1.4. For labour costs associated with tagging, the following assumptions have been made:

• Tagging is a two-person operation.
• The cost of labour is £13.11 per hour (including all overheads) or £0.22 per minute.
• The time taken for two people to apply a single tag is 1 minute each. It is estimated that the labour cost of single tagging is in the region of £0.44 per animal.
• The time taken for two people to apply a temporary mark is 15 seconds each, i.e. £0.11 per animal.
• Replacement tags - the average time taken for two men to collect an individual animal and apply a replacement tag is 1 minute each for a single tagged animal. The total labour cost of tagging is estimated to cost in the region of £0.44.
• In summary, the cost of applying (tag plus labour) a short-life tag is £0.64 and £0.84 for a long-life, movement or replacement tag
• There are no additional gathering costs as tagging would be combined with a management practice (i.e. worming, castration etc). For movements on and off holdings the animals would need to be gathered in any case. These gatherings cannot be considered as an additional burden. All tagging is carried out in reasonable weather conditions.

A1.5. An additional cost incurred under Option 3 is for Movement tags applied for sheep going direct to an abattoir from a location which is not their baseline holding. There are approximately 3.9 million Scottish sheep slaughtered annually. Industry estimates are that 15-20% (585,000- 780,000) move direct to an abattoir. Under this proposed change it is difficult to identify approximately how many of these would now require a Movement tag if they are moving from a farm which is not their holding of birth direct to a slaughterhouse. Taking a figure of 10% of the total killed annually then an additional 390,000 Movement tags need to be applied annually for sheep moving direct to slaughter from a location that is not their holding of birth.

A.1.6. It is therefore estimated that an additional 390,000 movement tags will be required under option 3, compared to the current system. It is assumed that these would be made using cheaper tags that can be purchased from tag suppliers. The average cost of purchasing and applying a short-life tag is £0.64 (a long-life tag would cost £0.84). Therefore the total cost of applying the additional Movement tags under Option 3 is approximately £249,600 (390,000 x £0.64). (Rounded up to £250,000 in future references.) It is worth noting the cost of applying Movement tags would fall disproportionately on finishers as opposed to breeders.

A1.7. The Regulation also requires lost tags to be replaced. There are no figures available on loss rates of sheep tags but industry claim that loss rates could be in the order of 5% per year per tag. However the replacing of tags is already required under the Scottish system so there is no additional cost to keepers.

Annex 2

Option 3 - SUMMARY OF ANNUAL COSTS FOR SHEEP INDUSTRY IN SCOTLAND 2005-2007

Annex 3

Comparison of Options - Current Costs and Present Values, 2005 - 2007

Tables to show Breakdowns by Year of Option 3

*Present value is calculated using a reduction of 3.3% per annum on the Current Cost. This is a standard Government figure used in all these types of calculations.

Annex 4

The difference in annual cost to the industry between Option 3 compared to current costs

Annex 5

OPTION AND COST SUMMARY - SHEEP

Annex 6

Small Business Litmus Test.

A small business litmus test was sent out to a number of businesses to gauge the potential level of impact on the sheep and goat keeping industry as a whole. The test comprised of 11 questions designed to cover all eventualities. The number of recipients was 25, with 7 completed returns.

A summary of the overall results is displayed below:

Q.1. From the guidance that has been provided so far, have you been able to understand what effect the proposals will have on your business?

Summary: Increased costs, relating to tags, readers and boluses was tied in with an increase in time, required to carry out the new requirements, leaving less time to carry out other farming duties.

Q.2. What is your view of the overall concept of the Commission's proposed regulation?

Summary: Support the need for traceability and disease control; however Commission needs to be made aware that British sheep flocks are far larger and farmed extensively. Although the idea behind is well intentioned, it will be costly.

Q.3. How does the proposed approach differ from what you already do?

Summary: The requirement to record all individual movements, e.g. to summer grazing, winter tack etc. As well as, It will create a great deal of bureaucracy for no real gain, as the current system could be made to achieve much better meeting of all the aims required.

Q.4. If adopted, will it change how your business operates generally, and

how it relates to other businesses and consumers?

Summary: More administration costs, the people who have had this new idea, have not taken account of the time to operate this- tagging-retagging-paperwork; this will all add pounds to costs.

Q.5. Do you consider the proposals to be a challenge or a threat to your business/ the industry as a whole? Explore what challenges/threats are and reasons for this.

Summary: The challenge is for small farmers, with limited capital and time becoming computer literate, to cope with all the recording requirements.

As well as it will put people off keeping sheep.

Q.6. Who will be in a better position to exploit challenges and respond to threats - small businesses or larger organisations?

Summary: Larger farms have computers and paid staff. Smaller farms rely on family and part time labour, and are not as well equipped.

Q.7. Is the sector you work likely to expand or contract as a result of introducing the proposals - will there be new entrants or mergers?

Summary: Some older farmers may use this as a reason to retire or scale down. Younger men and women can retrain, to deal with computerised record keeping.

Q.8. What affect do you think it will have on income/profit both within the industry and your firm? What are the implications of this for your business, the industry and the consumer?

Summary: The cost of tags is too high. Farm incomes are at an all time low. It is not possible to simply pass on the cost to the consumer. This will merely suit cheap imports. As well as a great deal of cost at no extra benefit to industry or consumer. Income down, for industry and my farm. If it comes in, I will go out of business.

Q.9. How do you think your business will operate in five years time? (i.e. After the proposed measures have been operational for some time).

Summary: Will be more use of specialist contract labour, i.e. tagging. Movements dealt with via email less use of paper forms. Hopefully some form of electronic ID will be working acceptably, but no real benefits will have come from this

Q.10. Are there any other matters you wish to raise in connection with these proposals?

Summary: Animal welfare. The ears of newborn lambs/kids are small. As well as, nobody in the industry is in favour of these proposals.

Q.11 If you farm, can you tell us the:

Number of goats:

Number of sheep:

Type of Holding

Summary: The spread of farm sizes where results where given were:

99 Ewes, No Goats. Upland farm.

1100 Goats, Lowland farm.

1300 sheep, Upland (mixed) holding.

1200 breeding ewes, Upland (mixed) holding.

150 ewes, Lowland (mixed) holding

Livestock ID & Traceability Branch
SEERAD
11 August 2005

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