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CHAPTER 3: SCOTLAND - ANALYSIS OF THE CURRENT SITUATION

This chapter sets the context for the 2007-13 SRDP, and provides evidence to support the content of the Programme. It is structured according to guidance in Regulation 1974/2006 laying down rules for the implementation of the new Rural Development Regulation ( RDR) (1698/2005).

3.1 Analysis of the current situation including strengths and weaknesses

The current situation in rural Scotland is analysed under five subsections:

• the socio-economic context;
• the performance of agriculture, forestry and food sectors;
• environment and land management;
• rural economy and quality of life; and,
• LEADER.

Current economic, social and environmental trends in rural Scotland are reviewed, noting regional differences across rural areas, in particular between areas closer to urban settlements and those in more remote locations. Each sub-section provides data on the key issues, which relate to baseline indicators used in the Programme, as well as a summary of strengths and weaknesses. This section draws on information from the Ex ante Evaluation, the Strategic Environmental Assessment and the Regulatory Impact Assessment of the programme carried out under Article 85 of the RDR.

3.1.1 General socio-economic context of rural Scotland

3.1.1.1 Current Situation

Definition of rural areas

Defining rural areas across the EU provides a basis for consistent data collection and analysis and helps to show where support through Rural Development Programmes should be targeted. However, different definitions exist. The OECD classifies rural areas according to population density, using two steps: first, small areas (municipalities) are classified as rural if the population density is below 150 inhabitants per square kilometre; and, second, regions are classified according to the percentage of the population living in municipalities with fewer than 150 inhabitants per square kilometre. This methodology results in regions being classified as:

• Predominantly Rural regions: more than 50% of the population living in rural areas (with less than 150 inhabitants/km ²)
• Intermediate Regions: 15% to 50% of the population living in rural areas (with less than 150 inhabitants/km ²)
• Predominantly Urban regions: less than 15% of the population living in rural areas (with less than 150 inhabitants/km ²)

Under this designation, 54.4% of Scotland's territory is predominantly rural, 40.6% is intermediate regions, and 5.1% is predominantly urban. This highlights Scotland's rurality. The OECD methodology is based only on population density and does not take account of remoteness. Remoteness is a particular feature of Scotland's rural areas. For this reason, the Scottish Executive's urban-rural classification ¹ is adopted as the main definition in this Programme. This uses settlement size and remoteness to classify small areas as rural. Rural areas are defined as settlements with a population of less than 3,000. Based on analysis of drive times to larger settlements, rural Scotland is then split into:

• Accessible rural areas: those areas with a less than 30 minute drive time to the nearest settlement with a population of 10,000 or more; and,
• Remote rural areas: those areas with a greater than 30 minute drive time to the nearest settlement with a population of 10,000 or more.

Where statistics are not available by this classification, alternative definitions of rurality are used and are noted. Figure 3.1 shows Scotland using the Scottish Executive definition of rurality.

Demography

Rural Scotland has a relatively sparse population of 16 inhabitants per km ² compared to 65 inhabitants per km ² in Scotland as a whole. Population is heavily concentrated in several major urban areas. In 2001, rural areas of Scotland accounted for 98% of the land mass but only 19% of the population. However, the population of rural areas has been growing in recent years, as shown by a 3.9% increase between 2001 and 2004. Population growth has been particularly evident in accessible rural areas where there was a 4.3% increase in this period. These figures hide some trends at a more local level, however, including declines in population in localities in both remote rural and accessible rural areas.

These trends are supported by data on net migration (number of in-migrants minus the number of out-migrants). The net migration figure for rural Scotland was 21,157 in 2004, of which 70% was in accessible rural areas. Rural areas experience positive net-migration for all age groups from 25-29 onwards, meaning that these age groups move into rural areas for a variety of reasons including lifestyle choices.

The population of rural areas has an older age profile than elsewhere in Scotland, particularly in remoter areas. Data from 2004 show that 18% of the rural population is aged 0-14, 65% of the population is aged 15-64, and 16% of the population is aged over 65. In remote areas, the population over 65 years was 3% higher than the rest of Scotland. There has been a trend of younger people leaving rural Scotland; in 2001, the percentage of the population in the age group 15-24 years was 3% lower in rural areas than in the rest of Scotland. The gender profile of rural areas is slightly more tilted towards males than in urban areas. In rural areas, 49.6% of the population is male (2001 figures) compared to 47.7% in the rest of Scotland.

Figure 3.1 - Rural Scotland using the Scottish Executive's definition of rurality

Income

Income disparities exist between rural and urban Scotland. Using the OECD classification of rural areas, rural Scotland ² accounted for 31% of total Gross Value Added ( GVA) in Scotland in 2003. It should be noted, however, that some of the intermediate rural areas used in this classification include urban areas. The true proportion of income that is generated in rural areas is, therefore, less than this figure. Incomes in rural Scotland are lower than the average for Scotland, and have tended to show lower (although stable) levels of growth. For example, from 2000 to 2003, GVA per capita (in current prices) increased from £9,519 to £10,911 in the Western Isles and from £9,519 to £10,945 in the Scottish Borders. For Scotland as a whole, GVA per capita increased from £13,312 in 2000 to £15,523 in 2003.

Labour market

The labour market is relatively strong in rural areas overall compared to the rest of Scotland, although pockets of unemployment exist. Rural Scotland accounts for 19.7% of employees in Scotland. In 2005, the employment rate (the number of people employed as a percentage of working age) was 79% compared to 74% in the rest of Scotland. Of those employed in rural Scotland, 75% worked full-time in 2005 compared to 76% in the rest of Scotland. Unemployment rates are significantly lower in rural areas (3% compared to 6% in rest of Scotland in 2005) and rates of self-employment are higher (16% in rural areas compared to 8% in rest of Scotland) (2005 figures). Self-employment rates are particularly high in remote rural areas (22% in 2005).

Higher employment rates are also evident among the older category of the working age population. For those aged between 50 and state pensionable age (59 for females and 64 for males), the employment rate was 73% in rural Scotland in 2005 compared to 68% in the rest of Scotland. A higher employment rate was also evident, using 2005 data, for males (82%) than females (75%) in rural Scotland, and these rates are also higher than in the rest of Scotland. These figures reflect, in part, the lower male employment rates in urban areas.

The primary sector supports a relatively important contribution to rural employment, but is substantially outweighed by that of the secondary and tertiary sectors. Data for rural Scotland in 2004 show that primary activities accounted for 11% of employment, secondary activities for 30% and tertiary activities for 43%.

Although employment rates in rural areas are high, commuting out of rural areas for work is common, particularly in rural areas close to urban areas. Over 50% of people living in accessible rural areas commute outside their area of residence to get to work (2001 figures).

Land Use

Much of rural Scotland is characterised by mountainous terrain and harsh climatic conditions. Agricultural land covers 6.12 million hectares or almost 80% of Scotland (2005 figures) but difficult physical and climatic conditions limit the uses to which much of this land can be put. Most agricultural land is rough grazing, and 85% is classified as Less Favoured Areas (see Figure 3.2). The area of land used for crops, fallow and set-aside represents only about 10% of the total agricultural area. The livestock sector is of particular significance to Scottish agriculture, including a significant area of dairying in south-west Scotland. Appropriate and carefully managed livestock densities also play a critical role in the environmental integrity of upland areas. Figure 3.3 shows the different types of farming activities across rural Scotland.

The level of disadvantage experienced in Less Favoured Areas in Scotland is especially severe in a UK context; in addition to poor soils, a northerly location and often high altitude, there are problems of remoteness. In these areas, support is needed to ensure the viability of land management businesses. Maintaining this land in active management plays an essential role in sustaining land-use systems that contribute to local communities and that are able to deliver environmental benefits (through for example agri-environment schemes) including biodiversity targets and landscape character.

Average farm size is 101 hectares which is large compared to the rest of the UK and the European Union. However, a substantial proportion of holdings are small, particularly in the north and west where crofting is important (see below); 39% of holdings have less than 5 hectares of utilised agricultural area. Data on economic farm size underline this, with 63% of holdings having a farm size of less than 2 European Size Units ³. Very large holdings are rare, only 2% of holdings having a European size unit of over 100.

A particular feature of land-use in Scotland, and one of major cultural importance, is the crofting system. There are approximately 770,000 hectares under crofting tenure, representing about 10% of the land mass of Scotland. A croft is a small agricultural holding situated within one of the seven former counties known as the "Crofting Counties": Argyll, Inverness-shire, Ross and Cromarty, Sutherland, Caithness, Orkney and Shetland. Crofting is a system of land tenure regulated through the Crofting Acts. The croft usually provides grazing rights in an area of common grazing shared with a number of other crofts. A crofter is normally the tenant of a croft, and pays rent to the landlord of the croft. In 2005, there were around 17,785 crofts in Scotland with around 14,000 crofters.

At the start of the 20th century, woodland cover in Scotland was just 5%, and less than a third of that was native woodland of semi-natural origin. Today, forests and woodlands cover 1.33 million hectares or 17.1% of Scotland, which is higher than in the UK as a whole (11.6%) but significantly less than the average for the EU25 average (36.3%). A substantial proportion (35%) of forests and woodlands are under state ownership ⁴ and managed by the Forestry Commission. The remaining 65% is owned by private individuals, voluntary and charitable organisations, and other public sector organisations. The size of the Forestry Commission's estate has fallen since the 1980s, from 742,000 hectares in 1985 to 656,000 hectares in 2004.

Compared to the rest of the UK, Scotland's forests comprise a relatively large proportion of exotic conifers for commercial production, particularly on land under state control although broadleaved woodland on Forestry Commission land has risen notably since the 1980s (from 4,000 hectares in 1985 to 25,000 hectares in 2004). The types of woodland cover across Scotland are shown in Figure 3.4.

Figure 3.2 Less Favoured Areas in Scotland

Figure 3.3 Farming activities in Rural Scotland

Figure 3.4 Woodland cover in Scotland

3.1.1.2 Strengths and weaknesses of the socio-economic context of rural Scotland

Based on the evidence provided above, Table 3.1 summarises the strengths and weaknesses of the socio-economic situation in rural Scotland and notes the implications for the Scottish rural development programme.

Table 3.1 Socio-economic context of rural Scotland: Main strengths and weaknesses

3.1.2 Performance of the agricultural, forestry and food sectors

3.1.2.1 Current situation

Competitiveness, structure and human capital in agriculture

After a period of growth between 1998 and 2003, total income from farming in Scotland declined in 2004 and 2005 by 11% (in real terms) to £436m. This mirrors the trend in the rest of the UK. Average farm incomes in Scotland have also declined in recent years, to just over £13,000 ⁵ in 2004/05. Farming has received substantial financial support through the CAP, especially under Pillar 1 for which total expenditure in 2004 was £399 million (on approximately 50,000 holdings).

There is a substantial variation between the best and worst performing farms in Scotland with the bottom quartile demonstrating poor efficiency in terms of input use and costs. For example, average net farm incomes were £64,330 in 2004/05 for the top 25% of dairy farms but were negative for the bottom 25% of dairy farms (average loss in net farm income £5,417).

Scottish agriculture accounts for a relatively small proportion of economic activity in Scotland. In 2004, it generated 1.2% of Scottish GVA although its importance is much greater in some regions of rural Scotland. There are around 51,000 farm holdings across Scotland but there has been considerable consolidation in the agriculture industry in recent years. The estimated number of farm businesses in Scotland has fallen by 10% since 1998.

In terms of human capital, Scottish agriculture employs around 45,000 full-time equivalents. This represents 2.2% of the total workforce in Scotland, or 5% of the rural workforce. Since 1998, the number of full-time employees has fallen significantly and employment of part-time and casual/seasonal employees has increased. The workforce is ageing, with 51% of working occupiers aged over 55 years (of which 24% are over 65 years) in 2005. With regard to training and education, the percentage of farmers with attainment in basic and full education in agriculture was 26% in 2005. Basic training refers to any training course in agriculture. Labour productivity in Scottish agriculture has increased in recent years to £37,918 per agricultural work unit in 2003. Significant opportunities exist to build on existing skills in the sector, and to encourage new entrants and entrepreneurial expertise into farming.

Diversification provides a means of generating income to supplement that from farming. Such activity typically includes the use of farm buildings, machinery and labour for non-farm purposes. However, levels of on-farm diversification are relatively low in Scotland. In 2005, nearly a quarter of farms engaged in some form of on-farm diversification activity. Of these, tourism accommodation and leisure, equine activities and shooting were the most common activities (6% each), and renewable energy was the least common activity (1%). Diversification has been a more prevalent adjustment strategy among smaller farms.

Increased collaboration has been recognised increasingly as a means of improving competitiveness in the sector, and is advocated as an important objective in A Forward Strategy for Scottish Agriculture: Next Steps. Further effort is needed to increase rates of collaboration, both between producers and among producers and processors in the food chain.

Further opportunities exist to enhance innovation in the agriculture sector, both through restructuring of farm activities and through diversification. A key asset in achieving such opportunities is Scotland's reputation for high-quality produce, underpinned by its outstanding natural heritage and the 'sense of place' that can be attached to agricultural production.

Competitiveness, structure and human capital in forestry

Scottish forestry makes a slightly smaller contribution to the economy than agriculture. Wood production, wood processing and manufacturing of paper products contributed 1% to GVA in 2003. Despite significant increases in production by volume, the economic contribution of forestry planting and harvesting has declined in recent years, reflecting the impact of low prices for raw materials, although the processing sector has been more buoyant. Wood production in Scotland increased by 33% from 5.2 million m ³ in 2000 to 6.9 million m ³ in 2004. Investment in processing capacity was £60 million in 2005, around the same level as in 2000. Scottish wood's share of the UK market (by value) is 4.1%, a slight increase of 0.1% from 2000, reflecting an increase in Scottish timber production. In 2003, the number of businesses in the primary part of the forestry sector (forestry, logging and related services) was 837, a slight decline since 2000.

There were 19,000 employees in the manufacturing in the forestry sector in Scotland in 2003. This figure includes employment associated with forestry, logging and related services, as well as the manufacturing of wood, wood products and the manufacturing of pulp/paper products. It does not include employment associated with forest recreation and tourism although recent research (Hislop et al. 2006 ⁶) indicates that forests and woodlands have important employment effects through these activities. Labour productivity in forestry (forestry, logging and related services) was £20,000 per employee in 2004. The Scottish Forestry Strategy 2006 underlines the importance of improving the skills base in the forestry sector, and the critical role that workforce development plays in enhancing business competitiveness and productivity.

There is a substantial proportion of small-scale grower and processor businesses in forestry although, in terms of processing volumes, the sector is characterised in large part by large-scale operators. Timber production stands at approximately 7 million m ³ per year. Many woodland owners struggle to obtain sufficient direct returns from their woodlands. This is affecting their ability to undertake desirable silvicultural operations, such as thinning.

Forestry is increasingly recognised as a tool for regeneration in areas of industrial decline, which exist in accessible rural areas of the central lowlands of Scotland. A recent analysis for Defra of forestry policy concluded that 'enhancing the environment and thereby improving quality of life factors may increasingly provide the cutting edge to enhanced competitiveness' and put a public benefit of up to £2.5 million/ha on woodlands in and around urban areas.

The Scottish Forestry Strategy 2006 emphasises the need to enhance business development in the forestry sector. Limited information exists on levels of diversification in forestry but there are opportunities for forestry businesses to diversify into value-adding activities such as local timber processing. Such opportunities also apply to farming businesses, although current levels of on-farm diversification into wood processing are low, with 3% of holdings undertaking wood processing in 2005. Woodlands also form an important backdrop to the tourism industry and there is significant potential for more businesses to benefit from the links between forestry and tourism.

Competitiveness, structure and human capital in food

Food manufacturing in Scotland generates slightly higher levels of GVA (1.6% of the Scottish total in 2002) than agriculture. Beyond food manufacturing, the food service sector in Scotland is increasing in size and importance. Food service refers to hotels, restaurants, bars and canteens. In 2003, GVA in food service was £2.2bn, double that of food manufacturing.

Employment in food manufacturing (excluding fish processing) was 28,700 in 2003, representing just 1.2% of the total workforce. Labour productivity in Scottish food manufacturing (as measured by GVA per employee) has increased in recent years to £39,220. About a third of employees are in rural areas, representing 1.5% of the rural workforce in Scotland. Employment has been falling in recent years, consistent with the general trend in manufacturing in the UK. The food service sector employs 161,000.

The food manufacturing sector (excluding fish processing) comprised around 850 businesses in 2003, having declined from just over 1,000 businesses in 1998. Approximately, 15% of these businesses are engaged in meat processing. The food service sector is again much larger than the food manufacturing sector, supporting around 14,000 businesses in 2003.

Job vacancies is one indicator of how well the labour market is performing. The average vacancy rate in Scottish food and drink manufacturing was 4% in 2004, similar to other sectors in the Scottish economy. Compared with the rest of the economy, the food and drink sector is characterised by a similar proportion of vacancies that are the result of skill shortages (52%) and a smaller proportion of vacancies that are hard-to-fill (30% as opposed to 46% in other sectors). Migrant labour is increasing in this sector and may explain lower rates of hard-to-fill vacancies. Labour turnover in the food and drink sector is slightly higher than turnover in other sectors (27% compared with 23%).

Scottish food manufacturing is strongly linked with Scottish agriculture, sourcing 36% of all its inputs from Scottish agriculture in 2002. However, levels of on-farm diversification into processing of farm products are low. Approximately 3% of holdings undertook food processing activities in 2005, and further scope exists to build capacity in this area. Increased integration among producers and processors in the food supply chain is needed to improve the viability of the agriculture and food sectors and increase their economic contribution to rural Scotland.

3.1.2.2 Strengths and weaknesses of the performance of the agricultural, forestry and food sectors

Based on the evidence provided above, table 3.2 below summarises the strengths and weaknesses of the performance of the agricultural, forestry and food sectors and notes the implications for the Scotland Rural Development Programme.

Table 3.2: Performance of the agricultural, forestry and food sectors: Main strengths and weaknesses

3.1.3 Environment and land management

3.1.3.1 Current situation

Biodiversity and landscape

A combination of arctic, alpine and Atlantic influences, a varied geology, offshore islands and an indented coastline contribute to a unique range of wildlife habitats, flora and fauna in rural Scotland. There are an estimated 50,000 land species including 42 mammals and 242 birds, which is half of the species of birds regularly occurring in Europe. Outstanding features of Scotland's biodiversity include extensive peatlands, particularly the area dominated by heather, breeding populations of seabirds, geese and wading birds, lichens and lower plants (particularly mosses and liverworts), a large (and expanding) population of otters and wet oakwoods on the west coast. Much of Scotland's biodiversity has developed in close association with long-established patterns of land-use. Non-intensive livestock farming plays an important part in maintaining wildlife habitats and the character of the Scottish landscape. The high quality of Scotland's biodiversity lends an important role to high nature value farming in many areas and to sustainable forest management.

A range of international, national and local designations protect Scotland's biodiversity. As elsewhere in the UK, Special Areas of Conservation ( SACs) and Special Protection Areas ( SPAs), which form the Natura 2000 network, are almost all designated as Sites of Special Scientific Interest ( SSSIs). SSSIs also protect many of the plants, animals and habitats that are priorities in the Scottish Biodiversity Strategy. Scotland has 1,455 SSSIs, covering over a million hectares (13% of the land area). SSSIs also include most of the 238 SACs ⁷ (covering approximately 963,000 hectares) and 142 SPAs (630,000 hectares). These designations overlap to a considerable extent.

Significant levels of support have been provided to support the Natura 2000 network and SSSIs through the Natural Care programme administered by Scottish Natural Heritage and through agri-environment and forestry schemes administered by the Scottish Executive and the Forestry Commission. Approximately 70% of SSSIs are subject to management agreements with Scottish Natural Heritage through Natural Care which, in the 2000-06 programming period, operated as a State Aid. Natural Care also supports the management of the few Natura features (such as geese, rivers and some areas of peatland) that are not covered by SSSIs. Support from agri-environment and forestry schemes has been provided primarily through the Rural Stewardship Scheme and the Scottish Forestry Grants Scheme. Along with Natural Care, these schemes will be incorporated in the 2007-13 SRDP. Support for Natura sites and SSSIs will, therefore, form an important part of the 2007-13 SRDP. Scottish Ministers have set a target of bringing 95% of SSSIs into 'favourable condition' by 2010, in support of the objectives of the 6 ^thEU Environmental Action Programme ('to protect and restore the functioning of natural systems and to halt the loss biodiversity in the European Union').

Other important designations relating to biodiversity include 51 RAMSAR sites (established under the 1971 Convention on Wetlands signed in Ramsar, Iran) covering 313,670 hectares and 63 National Nature reserves covering 111,000 hectares. There are also two National Parks in Scotland, at Loch Lomond and the Trossachs and in the Cairngorm mountains. Set up since 2003 they provide major opportunities to achieve an integrated approach to land management, the natural and historic environment, and business and community development.

The Scottish Biodiversity Strategy, published in 2004, embodies the commitment of Scottish Ministers to achieving biodiversity targets. Its Action Plan includes 226 priority species and 41 priority habitats identified at UK level (through the UK Biodiversity Action Plan). There are also 32 Local Biodiversity Action Plans which aim to ensure effective delivery on the ground of the UK targets as well as raising awareness of local biodiversity.

Bird populations are well studied and are an important indicator of the changing biodiversity of Scotland's habitats. The number of waterbirds rose between the mid-1980s and mid 1990s and numbers have stayed relatively stable subsequently. Seabird numbers fell by one third between 1991 and 2004. While the number of terrestrial breeding birds has risen since 1994, this follows declines, particularly in farmland birds, in earlier years. (See Figure 3.5)

Figure 3.5 Bird populations in Scotland, 1975-2004

Scotland's landscapes are a major asset, contributing to its national and regional identities, adding to the quality of many people's lives and providing attractive settings which help to promote social and economic development. Its coasts, mountains and moorlands are particularly renowned.

The main national landscape designation in Scotland is National Scenic Areas ( NSAs). These are areas of land of national significance which, due to their outstanding scenic interest, require conservation as part of the country's natural heritage. They have been selected for their characteristic features of scenery comprising a mixture of richly diverse landscapes including prominent landforms, coastline, sea and freshwater lochs, rivers, woodlands and moorlands. There are currently 40 NSAs in Scotland, covering a total area of 1,001,800 ha.

Areas of Great Landscape Value ( AGLVs) may be designated by planning authorities for the purpose of safeguarding regionally or locally important areas of outstanding scenic character or quality from inappropriate development. In addition, some authorities have also identified areas of regional scenic significance. Scottish Development Department ( SDD) Circular 2/1962 provides advice on the definition of AGLVs in development plans and the framing of policies for the control of development within them. These local designations complement NSAs and play an important role at the local level in developing understanding and awareness of the landscape features and qualities that make particular areas distinctive and that give communities a sense of place.

A landscape character assessment of Scotland identified changes in farmland; woodland; mountain and moorland; freshwater; and the coast line areas within Rural Scotland. Some of the key changes recorded during the assessment were attributed to changes in farming practice (such as conversion of grass land to arable land, and the loss of field boundaries), large scale coniferous afforestation, and loss of vegetation due to recreation in upland areas.

The UK has signed and ratified the European Landscape Convention. In addition to NSAs, protected landscapes in Scotland include the World Heritage Sites of St. Kilda and the heart of Neolithic Orkney. Scotland also has 346 landscape areas registered on the Inventory of Gardens and Designed Landscapes, and approximately 7,800 Ancient Monuments scheduled as being of national significance.

Water

Scotland has a highly indented coastline with many sea lochs, particularly in the north and west. Just over 2% of Scotland's land area is covered by inland water, including large lochs and many smaller lochans in the Highlands. Rivers are generally relatively short and fast flowing. The Tay is the longest river in Scotland, stretching a distance of 120 miles. Water is a major asset for land-use and other economic activities, including recreation and tourism.

Seasonal flooding presents difficulties in some areas, particularly in some eastern areas where rivers flow through flatter terrain. The Scottish Executive provides support for Local Authority proposals for projects to address flooding and coastal defence. Under the Flood Prevention Scotland Act (1961), 72 flood and coastal defence schemes have been approved. Forty-two flood warning schemes are in place. The latest available information suggests that 78,000 properties (3%) are at risk from a 1-in-200 year event. Climate change forecasts predict further and more severe flooding events in the future.

The quality of Scotland's water environment is generally good. The Scottish Environment Protection Agency ( SEPA) estimates that 78% of Scotland's freshwater surface waters (rivers and lochs) and 99% of Scotland's coastal waters were of good or excellent quality in 2005. The river length which is classified as poor or seriously polluted has fallen from 927km in 2000 to 780 km (3% of the total) in 2005, the latest year for which data are available. However, SEPA has estimated that some 30% of Scottish river water bodies are at risk of not meeting Water Framework Directive objectives due to diffuse pollution, principally from agriculture or forestry.

The Nitrates Directive requires legally binding rules, called Action Programmes, to be put in place to reduce the leaching or runoff of nitrate from agricultural land where nitrate concentrations exceed, or are liable to reach, the level set in the Directive. The Scottish Executive has designated four Nitrate Vulnerable Zones in Scotland covering 14% of the land area. These relate to intensively farmed arable and beef areas on the east coast of Scotland, and to a dairying area in south-west Scotland. The current Scottish Action Programme was introduced in 2003.

The Scottish Action Programme has been reviewed, taking account of a study of it by the Scottish Agricultural College. In November 2006, the Executive published for consultation a set of proposed amendments to the Action Programme. These will further limit the quantities of fertilisers that may be applied, increase the length of closed periods, and introduce measures to increase efficiency in the use of manures including slurry. The aim is that these changes come into force in 2007. Extended controls on manures and other fertilisers, including the restrictions on the spreading of fertilisers, especially slurry, will be accompanied by an increased requirements for slurry storage capacity. The requirements for farmers to have a manure and fertiliser plan with risk assessment procedures will be enhanced, and will also help secure improvements in the efficiency of the use of manures, as well as greater protection of the water environment. The SRDP will provide support for improved management (including storage, handling and application) of slurry and manure.

Climate change

Emissions of greenhouse gases including carbon dioxide, methane and nitrous oxide are contributing to changes in global climate. Activities in rural areas make a contribution to greenhouse gas emissions, but these will in turn be affected by changes in the climate as action is taken to adapt to changes in growing conditions. Land use changes are especially important in a Scottish context due to the large store of carbon in forests and soils (over half of UK soil carbon reserves are in Scotland) which can be enhanced through practices such as expansion of forest areas (although this is dependent on the original land use) and allowing agricultural land to revert to a more natural state, and appropriate management. Practices such as cultivating moorland can lead to a depletion of soil carbon.

The land use sector, particularly agriculture and forestry, acts as both a source of greenhouse gas emissions and as a carbon sink (by removing carbon from the atmosphere either through uptake of carbon by growing plants and trees or by storing carbon in soil organic matter). This sink function is very important in the Scottish context: removals of carbon by Scottish forests generated 62% of UK removals in 2003, and suitable management of agricultural soils helps to maintain organic matter and is a key theme in the proposed Scottish soils strategy.

In 2003, direct green house gas emissions from agriculture were 12% of total emissions in Scotland (excluding removals). For carbon removals, 16% of Scotland's emissions are removed (via the carbon sink) due to land use change and forestry. Land use change and foresty includes land converted to forestry, cropland and grassland. Overall, Scotland is a net sink (removals minus emissions) through land use change and forestry.

The main gases emitted by the agriculture sector are methane and nitrous oxide, with only a small amount of CO2 emissions from energy use. Agriculture is the largest source of methane emissions in Scotland (73% of all methane emissions). Agriculture is also responsible for most of Scotland's nitrous oxide emissions (83%) although between 1990 and 2003 these emissions have fallen by 17%.

Bioenergy

The energy produced from biomass feedstocks is termed 'bioenergy'. Biomass energy development is part of a portfolio of renewable energy systems that could be exploited in Scotland - to reduce greenhouse gas emissions as well as to contribute to future energy security. The Biomass review study ⁸ in 2006 looked at the environmental and economic aspects of the growing and use of biomass in Scotland, both as a renewable energy source and as a transport fuel. Biomass has advantages compared to other renewable energy sources: it is a potential source of heat as well as electricity; it produces energy continuously without problems of intermittency: it provides a local raw material supply base; and, it is an effective stimulus to the rural economy due to relatively extensive supply chains. Drawbacks of biomass include the costs of producing certain feedstocks, the often dispersed nature of biomass resources (which can make supply chains more challenging to manage) and the low energy density of biomass feedstocks (relative to fossil fuels) which increases transportation and storage requirements.

There are three main types of biomass feedstock: (i) wood and woody residues from forestry and wood-processing industries (ii) agricultural residues and by-products and (iii) purpose-grown energy crops. Wood fuel output from Scotland's forests is the primary feedstock in Scotland. There is also a potentially significant resource that could be available from secondary processing industries (recycled wood) but estimates of the amount that would be available for biomass energy use need to be refined. Information on the availability of other feedstocks for bioenergy, such as straw and animal slurry, is less precise, although these are expected to play only minor roles in the development of bioenergy in Scotland. Short rotation coppice is believed to hold the most potential of other purpose-grown energy crops, but limited commercial experience in Scotland means that it is difficult to predict yields with accuracy and doubts remain about the its economic viability in Scotland.

Soil Quality

Soil is a non-renewable resource essential for supporting agriculture, forestry and ecosystems. SEPA have identified three main pressures affecting soils: industry; agriculture and forestry. With agriculture and forestry accounting for 80% and 17% respectively of the land area in Scotland, these sectors have an important role to play in promoting soil quality. Soil losses from agricultural activities are estimated at 780,000 tonnes a year, with a further 13,000 tonnes a year from forestry.

Impacts from agriculture include the use of inorganic fertiliser and pesticide application. Inappropriate or mistimed use of fertilisers may cause nutrient enrichment and eutrophication of waters. Since 2000, overall phosphate application rates have been relatively stable (42 kg per hectare in 2000 compared to 41 kg per hectare in 2004). Overall nitrogen application rates have declined from 118 kg per hectare in 2000 to 108 kg per hectare in 2004 reflecting a longer term reduction in application rates to grassland and a recent reduction for tillage crops.

Recently published research on the State of Scottish Soils⁹ reviewed the evidence on the state of, and threats to Scottish soils. The study highlighted that soils are a valuable and often fragile natural resource, and that the range of environmental services they provide to society is often underestimated. The research found that Scottish soils are generally in good health, with the most important threat being soil organic matter loss and the impacts of a changing climate. The study also highlights a lack of reliable data that can provide information on trends in soil quality throughout Scotland. Development of a soil monitoring system in Scotland is now underway.

3.1.3.2 Strengths and weaknesses of the Environment and Land Management

Based on the evidence provided above, Table 3.3 summarises the strengths and weaknesses of the environment and land management and notes the implications for the SRDP.

Table 3.3: Environment and Land Management: Strengths and Weaknesses

3.1.4 Rural economy and quality of life

3.1.4.1 Current situation

Rural economy

The rural economy in Scotland comprises a broad range of activities. There has been diversification away from the primary industries of agriculture, forestry, fishing and energy, and growth in the contribution of other activities, particularly in the tertiary (service) sector. In terms of income, 69% of GVA in rural areas (based on NUTS 3 areas that are "predominantly rural") is derived from the tertiary sector and 4% is derived from the primary sector. The tertiary sector also accounts for a substantial proportion of rural employment, supporting 43% of jobs compared to 11% in the primary sector and 30% in the secondary sector.

Small firms (those with 0-49 employees) are characteristic of rural Scotland, particularly in remote rural areas where they support 84% of employment. This compares with 61% of employment in accessible rural areas, and 33% in the rest of Scotland (2004 figures). Business start-up rates per head of population are higher in rural areas, suggesting that they are relatively entrepreneurial. Rural areas accounted for 48% of all business start-ups in Scotland in 2004.

Accessible rural areas show a greater dependency on secondary activities, manufacturing accounting for 22% of all employees. Services are also important, in the form of education and health (16% of all employees) and financial services (14% of all employees).

Remote rural areas still rely significantly on primary industries which, in 2004, accounted for 21% of all employees. However, other sectors are also important, notably the services sector - wholesale, retailing and repairs (16% of all employees) and education and health (14% of all employees).

Recreation and tourism also play a significant part in the rural economy. There are over 200,000 tourism-related jobs in Scotland (almost 9% of total employment), and many of these are in rural areas. In 2005, 71% of all visits to Scotland (17.3 million) were to areas outside Edinburgh and Glasgow, and 65% of total tourism spend (£4.2 billion) took place in these areas. The outstanding quality of rural Scotland's natural and historic environment have underpinned opportunities to develop rural recreation and tourism, and have played an important part in diversifying the land-based sector; for example, through the provision of accommodation, marketing of local products and access and recreational facilities. Further opportunities exist to develop the tourism sector and bring added value to the rural economy. Recreation activities include passive enjoyment of the countryside and active pursuits such as hill-walking, climbing, skiing, cycling, mountain-biking, horse-riding and water-based activities.

Access and Recreation

Access in the countryside is widely enjoyed by the public for passive recreation and active pursuits. Approximately 200 million visits are made to rural Scotland annually ¹⁰ by Scottish residents. A substantial proportion of these visits (approximately 50 million) are made to forests and woodlands which provide major access and recreation opportunities.

Public access to and enjoyment of the countryside has been reinforced by recent legislation (the Land Reform Act 2003) that provides for a responsible right of access to most land and inland water across Scotland. The Act also establishes new duties and powers for local authorities and National Park authorities, including upholding access rights, planning a core paths system, and setting up local access forums. Guidance on the responsible exercise of access rights, and responsible land management is set out in the Scottish Outdoor Access Code, approved by the Scottish Parliament in July 2004.

The emphasis of the Act is on the local management of access. Access authorities have a duty to plan for core paths, which will be a major element in enabling all members of the public to exercise their right of access and in managing access. Access authorities have a duty to create local access forums, with a membership of recreational and land management interests, which will provide advice to access authorities in discharging their new duties and powers. The exercise of access rights does not increase the duty of care of landowners towards those exercising access rights. A National Access Forum, consisting of a voluntary association of interested organisations convened by Scottish Natural Heritage, has been formed to keep the Scottish Outdoor Access Code under review and to encourage responsible management of land and water in relation to access.

Access and recreation facilities require careful planning, construction and management to avoid environmental damage that can, for example, result from erosion. Further work is needed to facilitate public access through clearly marked and well maintained paths, tracks and other facilities. Land managers have an important role in the development and management of paths and other facilities for access, and in enhancing public enjoyment and understanding of the countryside, including the contribution made by agriculture and forestry to the rural environment and communities.

Quality of life and access to services

There is evidence that people in rural communities generally enjoy a good quality of life. Recent research shows that rural areas receive higher approval ratings of "neighbourhood as a place to live" than urban areas. When surveyed in 2004, 73% of people living in remote rural areas rated their neighbourhood as very good compared to 66% of those in accessible rural areas and 49% of those in the rest of Scotland.

People living in rural areas are more likely to be involved in their communities than those in urban areas. In 2004, 35% of those in remote rural areas gave up time to help as an organiser/volunteer compared to 30% in accessible rural and 22% in rest of Scotland. This willingness to engage in the local community suggests that continued capacity building in local communities may bring further benefits for rural development.

Nevertheless, rural deprivation does exist in Scotland, although this is sometimes less concentrated and is "hidden" within relatively affluent areas of the countryside. It can, therefore, be difficult to identify. Deprivation is most commonly associated with poor access to services.

In general, there are poorer levels of access to services in rural areas than in the rest of Scotland. Nearly 20% of remote rural areas are more than a 15 minute drive away from their medical General Practitioner (compared to 0% in the rest of Scotland) and around 30% are more than 15 minute drive away from a petrol station (compared to 0% in the rest of Scotland).

Car ownership is higher in rural than urban areas. However, 17% of households in both remote rural and accessible rural areas do not have access to a car which, given the lower provision of public transport, such as less frequent bus services, makes it more difficult for people in rural areas to access services.

In 2005, 21% of households in rural areas had a broadband internet connection and 56% of households in rural areas had home access to the internet. Increasing access to the internet and broadband has improved connectivity of rural areas and access to services more generally.

Culture

Rural Scotland has a diverse and vibrant cultural heritage, reflected in its many historic buildings and archaeological sites, rich history, musical traditions and regional languages and dialects. Scotland's culture and history is a major draw for tourists. There are over 250,000 sites of archaeological interest in Scotland, of which 7,800 are designated as scheduled ancient monuments due to their special importance. In addition, there are 47,000 buildings within Scotland that are 'listed' under planning law for their national and/or local importance. In 2001, 4% of the Scottish population had knowledge of Gaelic language although this figure was 11% in remote rural areas. Land-use patterns and lifestyles associated with crofting townships (see section 3.1.2) also represent an important dimension of the cultural heritage of the remote north and west of Scotland. Despite the importance of culture in Scotland, data on its importance are relatively weak.

3.1.4.2 Strengths and weaknesses of Rural Economy and Quality of Life

Based on the evidence provided above, table 3.4 summarises the strengths and weaknesses of rural economy and quality of life and notes the implications for the Scottish rural development programme.

Table 3.4: Rural Economy and Quality of Life: Strengths and weaknesses

3.1.5 LEADER

3.1.5.1 Current situation

LEADER+ operated under the auspices of Structural Funds programmes in Scotland during the 2000-06 programming period. Almost £20m (€28m) of European funding was provided to support 13 LEADER+ areas in Scotland:

• Argyll, the Islands and Lochaber;
• Cairngorms;
• Dumfries and Galloway;
• East Fife;
• Lomond and Rural Stirling;
• Moray;
• North Highland;
• Northern Isles;
• Rural Tayside;
• Scottish Borders;
• South Lanarkshire;
• Tyne Esk (covering parts of East and Mid Lothian); and
• Western Isles, Skye and Lochalsh.

Table 3.5 Population and surface area of 2000-06 LEADER+ areas

*Source: http://ec.europa.eu/agriculture/rur/leaderplus/memberstates/uk_b.htm#

The principal aim of LEADER+ was to promote community and economic development in rural areas. Based on a grassroots approach, it encouraged and supported projects for local rural development with a strong emphasis on co-operation and networking between rural areas. The programme supported innovative and pilot projects, giving communities an opportunity to try out new approaches to improve the quality of life in their local area.

Each LEADER+ area developed a strategy, set out in a business plan for the area based on at least one of the following "themes":

• the use of new know-how and new technologies to make the products and services of rural areas more competitive;
• adding value to local products, in particular by facilitating access to markets for small production units via collective actions;
• making the best use of natural and cultural resources, including enhancing the value of sites of community interest selected under Natura 2000; and,
• improving the quality of life in rural areas.

Responsibility for each LEADER+ area rested with a Local Action Group ( LAG) which implemented the initiative locally. Local Action Groups were made up of representatives of the rural community and local organisations and agencies that operate in the rural area.

3.1.5.2 Strengths and Weaknesses

The mid-term evaluation showed significant scope to improve the implementation of LEADER+ in Scotland. While the value of the initiative has been recognised, key findings from the mid-term evaluation of LEADER+, shown in Table 3.6, demonstrate that further improvements in data collection are needed and that levels of innovation had been disappointing. However, there was evidence of good partnership working and the development of a more strategic approach. The evaluation provided useful pointers for mainstreaming this innovative initiative within existing development programmes. The main recommendations concerned improvements to administrative systems and to monitoring and evaluation processes.

Table 3.6 Key findings from the Mid Term Evaluation of LEADER +

3.2 Strategy chosen to meet strengths and weaknesses

The analysis of strengths and weaknesses in Section 3.1 illustrates the diversity of rural Scotland and shows that there are wide-ranging objectives for rural development in Scotland. The new Rural Development Regulation (1698/2005) recognises the breadth of such objectives by providing for support under three themes described as Axes. These Axes are described in more detail in Chapter 5 but concern respectively competitiveness in agriculture and forestry, the environment and countryside, and economic diversification and quality of life. Many of the objectives in the 2007-13 SRDP are cross-cutting and require an integrated approach across the Axes. A major element of the SRDP is to bring economic, social and environmental measures together under a single programme of support.

The main focus of the SRDP will be to provide support that contributes to policy outcomes which will form the rationale for the priorities in the Programme and the measures that will be used to attain them.

Based on the analysis of strengths and weaknesses, the priority in rural Scotland under Axis 1 is to support business viability in order to add value in the rural economy and enable the agriculture, forestry and agri-food sectors to adapt to market conditions pending further reform of the Common Agricultural Policy and Rural Development Programmes after 2013. Specific priorities include the need for additional or better income streams, the development of processing facilities to add value locally, and encouragement of collaboration amongst producers and processors. Access to training and business information will also play an important role in enabling businesses to improve their viability and competitiveness.

Central to our approach under Axis 2 is the implementation of a coherent and integrated approach to meeting environmental outcomes. Specific priorities include the need to address biodiversity objectives and obligations, combat diffuse pollution and mitigate and adapt to climate change. We must also meet substantial commitments that result from agreements entered into during the 2000-06 Programme. The effects of land management on the quality of landscapes, biodiversity and historic sites, also exerts a wider influence on the economic and social opportunities for rural Scotland. Collaborative approaches will be encouraged in the SRDP in order to achieve landscape-scale improvements in the countryside.

Under Axis 3, the Programme focuses on encouraging private enterprise and entrepreneurship, and improving services and infrastructure at a local level. Economic opportunities exist in developing products and services that build on the natural and historic assets of rural Scotland. Capacity-building and innovation will be necessary to ensure that rural communities identify suitable actions and are equipped with the necessary skills to carry them out. The LEADER initiative will play an especially important role in building such an approach under Axis 3 although it will also support actions under the other two Axes.

We will allocate approximately equal proportions of funding to Axes 1 and 3. Each of these Axes will receive a minimum of 10% of the relevant budget. We anticipate that almost 80% of funds will be allocated to Axis 2 in order to honour existing commitments and to reflect the critical role of land management in the quality of our countryside and in maintaining and enhancing the natural and historic environment.

3.3 The ex ante evaluation

This section briefly summarises the key findings from the ex ante evaluation, focusing on the lessons that have been learned, and summarises the priorities, using the evidence presented in the ex ante evaluation. The complete ex ante evaluation is presented in Annex 1 of this Programme document. A Strategic Environmental Assessment has also been carried out and is presented in Annex 2.

The ex ante evaluation identifies a strong rationale for the socio-economic measures and environmental measures proposed in the 2007-13 SRDP. It found, however, that it would be preferable to have had more evidence from which to draw conclusions about the likely contribution of many of the proposed schemes. For the Less Favoured Area Support Scheme ( LFASS), significant changes are anticipated from 2010 and research is currently underway to inform these changes. For agri-environment schemes, results of monitoring are not yet available although an independent review of agri-environment schemes was carried out in early 2007. For LEADER and the processing and marketing grants scheme, evaluations have highlighted issues for the future including a need for further facilitation and integration. The main ex-post evaluation of the 2000-06 SRDP will be carried out after the end of the 2000-06 programming period.

The ex ante evaluation also identifies a need to bring closer integration between the range of rural development schemes that exist. This will potentially reduce costs of delivery for both public sector and beneficiaries. Some of these schemes are sponsored by the Scottish Executive and some by other bodies so there is a need for a multi-agency approach in many cases.

The implementation of the new SRDP is affected significantly by the need to meet ongoing commitments from the 2000-06 Programme, and the need to meet minimum spend requirements under the different Axes of the new RDR. The former will ensure significant continuity between the 2000-06 and 2007-13 Programmes. The latter, however, will result in significant changes in the new Programme, whereby a greater proportion of funds are spent on measures to support competitiveness and to strengthen the economy and quality of life in rural areas.

The ex ante evaluation makes a number of recommendations on priorities for the new Programme. These are summarised in the table 3.7.

Table 3.7 Recommendations from the ex ante evaluation for the 2007-13 SRDP

3.4 Impact from the previous programming period

This section describes the measures that were funded under the 2000-06 SRDP, and draws lessons for the 2007-13 SRDP.

3.4.1 Description of the 2000-06 SRDP and the resources allocated

The regulatory basis for the 2000-06 SRDP was set out in Council Regulation ( EC) 1257/1999 under Title II - Rural Development Measures. The regulation was implemented in Scotland through schemes both within and outwith the framework of the 2000-06 SRDP, although more schemes were brought into the Programme later in the 2000-06 programming period. The SRDP focused on three Chapters of the RDR initially (see Table 3.8), with two other Chapters being funded under state-aid approval using domestic funds. A series of amendments were made subsequently. The most significant of these was in 2004 when schemes were added under the previously unused Chapters 1, 3 and 9 of the RDR. These schemes included training, animal health and welfare, quality assurance and the concept of Land Management Planning, and were introduced under Tier 2 of Land Management Contracts (see Chapter 5). These amendments represented a significant broadening of the objectives for the Programme. The use of RDR Chapters in the 2000-06 SRDP is summarised in Table 3.8. The middle column shows the schemes that were formally part of the SRDP 2000-2006. The right-hand column shows the schemes that were additional state-aided measures.

Table 3.8 Use of RDR (1257/99) Chapters in the 2000-06 SRDP

Table 3.9 sets out the total payments made across RDR schemes in the three key areas in 2004. LFASS accounted for the bulk of the funds at 52% followed by the agri-environment related schemes at 25% and the forestry related schemes at 15%. LMCs were not introduced until 2005, and are not included in this table.

Table 3.9 Payments made by RDR Chapter, 2004

Source: Scottish Executive

The introduction of the LMC Menu Scheme resulted in new commitments which amounted to £17.9m in 2005 (€26.9m based on an exchange rate of 1.5). If this additional funding is considered, the LMC Menu Scheme accounts for 13% of funds and the significance of LFASS drops to below 45%.

A major focus of spending in the 2000-06 SRDP has been on LFASS, which has an approximate annual spend £61 million. It reaches the most beneficiaries at 13,000 and payments cover 3.4 million hectares of agricultural land. LFASS supports the continuation of farming and other economic activity in Less Favoured Areas, and thus in maintaining traditional agricultural landscapes. The mid-term evaluation highlighted that LFASS was achieving its objectives, although the analysis conducted for the ex ante evaluation highlights options to improve value for money.

The other major object of spending in the 2000-06 SRDP has been agri-environment and forestry schemes. High levels of demand put pressure on the resources for these schemes, particularly in the later phases of the Programme. Total expenditure on the Rural Stewardship Scheme ( RSS) and the Organic Aid Scheme ( OAS) in 2004 was £28.8 million. Of this, 48% was spent on maintaining ongoing commitments from the Environmentally Sensitive Areas ( ESA) scheme and the Countryside Premium Scheme ( CPS), both of which are now closed to new entrants. Throughout the running of the RSS, demand has exceeded the resources available - this was most evident in 2006. Forestry measures account for approximately 15% of SRDP expenditure and approximately 25-30% of that expenditure is taken up by grants for farm woodlands. These were also heavily oversubscribed in 2006. As indicated above, Tier 2 of land management contracts (the LMC Menu Scheme) has committed significant funds. It is a non-competitive scheme and is available to all land managers within their individual allowances.

3.4.2 Key findings from the evaluations of the 2000-06 programme

This section summarises the key findings from evaluations of the 2000-06 programme (both the mid-term evaluation and the ex ante evaluation of the new programme) under the following headings:

• Less Favoured Areas Support Scheme ( LFASS);
• Agri-environment schemes;
• Forestry schemes;
• LMC Menu Scheme;
• Processing and Marketing; and.
• Diversification.

LFASS

The stated objective of the LFASS scheme was 'to maintain a viable agricultural community and thus help develop the social fabric of rural areas by ensuring a fair standard of living for farmers and by off-setting the effects of natural handicaps in mountain and less favoured areas'. Farms are designated as being in less favoured areas if the location is characterised by:

• Permanent handicaps ( e.g. altitude, poor soils, climate, steep slopes)
• Undergoing depopulation or having very low densities of settlements, and,
• Experiencing poor drainage, having inadequate infrastructure or needing support for rural tourism, crafts and other supplementary activities.

The SRDP Mid-term Evaluation (2003) ¹² found that LFASS played an important role in supporting farm business viability, and that in its absence:

"…only 4% of sheep farms, between 23-36% of mixed cattle and sheep farms and between 32-47% of specialist cattle farms would have incomes which were comparable (but low) to lowground cattle and sheep farms. Currently LFASS accounts for between 50-60% of the estimated shortfall in sheep LFA farms. By comparison, while specialist cattle farms as a group are potentially over-compensated the large performance variability experienced (by all LFA farm types) disguise the fact that for between 33-41% of these farms compensation is still insufficient. Cattle and sheep farms are intermediate in performance between the two specialist extremes."

Overall, evaluations of LFASS have concluded that the disadvantages associated with farming in LFAs are substantial.

Agri-environment schemes

The Rural Stewardship Scheme ( RSS) was launched in 2000, and in effect merged the Environmentally Sensitive Area ( ESA) scheme and Countryside Premium Scheme ( CPS). It has been the main vehicle for ongoing funding of new environmentally friendly farming practices in Scotland. Although applications for the CPS and the ESA schemes closed in 2000, contracts are for 5 or 10 years, and beneficiaries may be offered automatic transfer into the RSS when their 5-10 year contract expires. The Organic Aid Scheme ( OAS) also provided support through 5 year contracts for conversion to organic farming throughout the previous SRDP period 2000-2006, and support for maintenance of organic farming has been available since 2004. Payments are made to participants on the basis of 'income foregone' (the loss of income to the participant from farming areas of land in an environmentally way), additional costs resulting from the commitment and sometimes a degree of 'incentive' to participants for farming in an environmentally friendly manner. The mid-term evaluation of the SRDP highlighted that as at 2003:

'Some 33% of the total agricultural area in Scotland is now maintained under the Code of Good Agricultural Practice ( COGAP) and General Environmental Conditions ( GECs), though the actual area under active management is closer to 10%. This level is a substantial achievement and is set to increase further.'

Overall, the mid-term evaluation concluded that the lack of monitoring information has meant that there has not been sufficient information to measure the environmental impacts of agri-environment schemes. Nevertheless, case study information found tangible environmental benefits resulting at the local level. Initial assessments of corncrake and common bird numbers suggest that the schemes have generated significant environmental improvements.

Forestry schemes

The main support mechanism for forestry was the Woodland Grant Scheme ( WGS) until 2003. The WGS was then replaced by the Scottish Forestry Grants Scheme ( SFGS) and the SRDP revised to accommodate this change.

Support was also available to encourage the creation of new woodlands on agricultural land by offering annual payments to compensate for agricultural income foregone. This support was originally known as the Farm Woodland Scheme ( FWS), but in 1992 its name was changed to the Farm Woodland Premium Scheme ( FWPS) and, in 2003, to the Farmland Premium. Annual payments under the FWS and the FWPS are available for a period of up to 15 years from the time trees are planted .

A long-term perspective shows that the agricultural and forestry sectors tended to operate and develop independently of each other, and were often perceived as competitors for land. The introduction of schemes in the early 1990s targeted at farmland has helped to encourage a more integrated approach to land management across the two sectors.

Overall, forestry schemes have led to an increase in wooded area and wood production, and have retained employment in rural areas. The schemes have been successful in delivering wider environmental ( e.g. biodiversity and landscape) and social ( e.g. recreational) benefits. Targeted support for processing would further improve the benefits that are generated by forestry schemes.

Land Management Contract Menu Scheme

At the time of the mid-term evaluation of the SRDP, the Land Management Contract Menu Scheme (also known as Tier 2) had not been introduced. The LMC Menu Scheme was designed to deliver economic, social and environmental benefits across a wide area of rural Scotland. Introduced in 2005, it differs markedly from previous schemes, offering a range of social, economic and environmental measures. This broadened the type of support provided in Scotland under the SRDP, including animal health and welfare measures which had never been used before in Europe.

The design of the scheme is novel: non-competitive; no approval process; standard prescriptions with no tailoring at farm level; and all farmers can participate within the limit of an individual allowance. The design is geared towards achieving high levels of uptake throughout Scotland. Participation by land managers is voluntary, as is the selection of measures. Consideration was given to some form of direction to achieve a spread of economic, social and environmental benefits although, to give land managers maximum flexibility, this type of directed approach has not been adopted to date.

Evidence from the first year of applications under Tier 2 is that the funding is skewed heavily towards measures aimed at improving access. This suggests that there may be a requirement to limit approvals on any one measure to a fixed percentage of the total funding, in order to ensure that a more balanced spread of measures is provided than would otherwise be the case.

The funding commitments made under the LMC Menu Scheme are shown in Table 3.10.

A large share of the funding within the agri-environment/animal health and welfare category is committed to the animal health and welfare management programme, management of linear features (ditches) and management of rush pasture, which together, account for 38% of total funding. The commitment for other categories is much lower: for example, the commitment for the biodiversity cropping on in-bye and the biodiversity cropping on in-bye premium amounts to less than 1% of total funding. This indicates that farmers have focused on measures that they consider more likely to give economic return by improving technical efficiency (animal health & welfare measures) and on those that they may have put into place anyway (management of linear features). Less weight is given to those areas in which farmers tend to invest less, such as biodiversity.

A similar trend is followed in relation to measures aimed at the development and adaptation of rural areas: 36.5% of total funding was committed to maintenance of access whereas only 0.32% was committed to improvement of access by bridges and culverts. One would also have expected a higher financial commitment in stiles and other aspects of improving access. This apparent imbalance will have to be kept under review if we are to achieve value for money and additional outcomes.

Table 3.10 LMC Menu Scheme 2005 commitments (€)

Source: Scottish Executive

It is too early to evaluate the full impacts of Tier 2 of LMCs. Nevertheless, its introduction has broadened the scope of rural development support in Scotland. Analysis of the take up of measures within the menu scheme shows that there uptake of some measures is high although there is an uneven take up of measures in the programme.

For the 2007-13 programming period, the term 'Rural Development Contracts' ( RDCs) will replace Land Management Contracts, in recognition of the broad range of rural development activities that will be supported.

Processing and Marketing Grant Scheme

The Processing and Marketing Grant Scheme ( PMGS) provided financial assistance to businesses in Scotland that process or market primary agricultural produce. Assistance was available toward the capital costs of projects: the construction of new buildings, the conversion of existing buildings and the purchase of equipment specifically for added value processing. Assistance was also available for a range of non-capital projects. The element of PMGS delivered in the Highlands and Islands was co-funded by EU Structural Funds. The lowland agriculture element of PMGS was funded wholly by the Scottish Executive as a State Aid. Evaluation of the Lowland Scotland Scheme in 2004 found that 74% of awards from 2001-04 were made to companies based in rural areas. Approval was given for 82 capital projects and 8 non-capital projects. Grants totalled £13.1 million, of which £12.9 million was for capital and £0.2 million non-capital. From the research, it was estimated that the funding resulted in directly attributable sales increases of £51.8 million, with the potential for a further £31.8 million increase in sales over the longer term. In terms of employment, some 536 full time equivalent jobs have been generated, with a further 241 full time equivalent positions likely to be introduced over the longer term.

Overall, the evaluation of the Processing and Marketing Grants Scheme found that it delivered significant economic benefits in terms of jobs, and increases in value added sales. The evaluation concluded that most of the projects would not have gone ahead without the grant, thereby demonstrating additionality from the scheme.

Farm/Agricultural Business Development Schemes

Two schemes were operated by the Scottish Executive under this heading in the 2000-06 programming period, with a total spend of £15.5m. These were:

• the Agricultural Business Development Schemes ( ABDS) - £2.8m in 2004 covering the Highlands and Islands Special Transitional Programme area; and,
• the Farm Business Development Scheme ( FBDS) - £2.3m in 2004 covering the rest of the highland and lowland Scotland.

The balance of £0.05m was for the Farm and Conservation Grant Scheme ( FCGS) which, though closed, had a contingency to cover projects as they came to an end.

The schemes supported farm business restructuring or diversification activities. The FBDS provided grants of up to £30,000 per eligible business covering up to 50% of eligible project costs (40% for investments in holdings outside the Less Favoured Areas). The ABDS provided funding of up to £40,000 per eligible business, as well as funding for business planning and training activities. Again, grant rates were variable and were set by Project Assessment Committees. The total allocation to this scheme for the 2000-06 programming period was £52m. The scheme was administered locally through six local project officers and five Project Assessment Committees.

A review of the FBDS in 2002 found that the objectives of the scheme were being achieved to the extent that a substantial number of farm families were being given the opportunity to enhance their incomes but it was too early to have evidence of these benefits. Furthermore, there was limited information recorded on output data.

3.4.3 Supplementary measures associated with the 2000-06 SRDP

Table 3.11 provides a summary 'snap-shot' of the full range of funding for rural development in Scotland in 2004 (and the types of beneficiary). The calculations are made on different bases and, therefore, the figures should be treated as indicative only. From the funds identified, it can be seen that the SRDP accounted for 14% of funds, about 52% of this being attributed to LFASS payments. These figures excluded the LMC menu scheme, which was introduced subsequently in 2005, and which increased the significance of the SRDP to around 16% of total funds. The Natural Care programme, introduced by Scottish Natural Heritage during the programming period, is included and is directed specifically at SSSIs and Natura 2000 sites. Annual expenditure on Natural Care has risen significantly from £4 million in 2004/05 to planned expenditure of £5.3 in 2007/08. A significant proportion of funding is aimed at rural economic and business development and tends not to be directed towards farmers or land managers. However, there is an increasing recognition in the enterprise network supported by Scottish Enterprise and Highlands and Islands Enterprise of the need to support economic development in farming.

The 2000-06 SRDP forms part of a wider suite of schemes that provide financial support to rural areas. The majority of SRDP support has been provided to land managers, but these other schemes have a wider range of beneficiaries. The Scottish Executive has a clear desire to incorporate a wide range of rural funding mechanisms under the 2007-13 SRDP to create an integrated package of support that will meet EU objectives and national strategic objectives. There is plenty of scope to do this given the large number of land-based rural development schemes in existence.

Table 3.11 Summary of significance of different identified rural funding sources

Source: DTZ Pieda Consulting

3.5 Key lessons learned from the 2000-06