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CHAPTER 5: INFORMATION ON THE AXES AND THE MEASURES PROPOSED FOR EACH AXIS AND THEIR DESCRIPTION

5.1 General requirements

This chapter provides an overview of the measures that will be supported in the 2007-13 SRDP. A full description of the measures that will be supported, and supporting information on payment rates, is given in Annex 4 to this document. The indicators and targets that will be used in monitoring and evaluating the Programme are presented in Annex 3.

The 2007-13 SRDP brings together wide-ranging measures into a single programme of support. The programme will contribute to each of the three objectives set out in Article 4 of Regulation 1698/2005:

• improving the competitiveness of agriculture and forestry by supporting restructuring, development and innovation (Axis 1);
• improving the environment and the countryside by supporting land management (Axis 2); and,
• improving the quality of life in rural areas and encouraging diversification of economic activity (Axis 3).

The selection of measures is also based on the need to implement a broad and balanced Programme in line with the minimum levels of expenditure under each of the Axes that has been stipulated by the EU.

The aim of the SRDP is to deliver an integrated set of measures that deliver outcomes across the three Axes. There are three key components to the Programme:

• Rural Development Contracts ( RDCs);
• The Less Favoured Area Support Scheme ( LFASS); and,
• LEADER.

In addition, crofting grants and larger-scale, non-farm-based processing and marketing grants operate as 'stand-alone' schemes under the Programme. Further, it is important to note that funding for the new Programme will support sizeable multi-annual commitments from agri-environment and forestry measures made under the 2000-06 Programme that run into the 2007-13 Programming period.

Rural Development Contracts

Rural Development Contracts ( RDCs) represent the central part of the integrated approach to the 2007-13 SRDP. RDCs link support under Pillar 1 (the Single Farm Payment) with support under Pillar 2 (the SRDP) of the Common Agricultural Policy and, therefore, enable Pillar 1 and Pillar 2 to be considered together. They combine economic, social and environmental measures under single 'contracts' of assistance to land managers and other businesses, groups and individuals. RDCs provide a simplified approach for businesses by providing a 'one-stop-shop' for applicants to seek advice on and apply for measures under the scheme. This innovative approach shows how different types of measures can complement each other in delivering outcomes. RDCs incorporate measures from each of the Axes of the RDR.

RDCs comprise three tiers of support:

Tier 1 is the Single Farm Payment and Cross Compliance and secures a basic level of income, environmental protection, food safety and animal welfare. It is part of Pillar 1 and, therefore, not part of the 2007-13 SRDP.

Tier 2 was introduced in 2005 as the LMC Menu Scheme and provides support for the provision of economic, social and environmental improvements across rural Scotland. It is a non-competitive scheme.

Tier 3 is a new component introduced for the 2007-13 Programme and delivers higher levels of benefits using a targeted approach. It is competitive and brings together and builds on a range of previous schemes, both within and outwith the 2000-06 SRDP. Tier 3 has been designed to deliver outcomes that are tailored to the needs and aspirations of local communities. As indicated in Chapter 4, regional priorities will be set to ensure that resources are directed to areas of greatest need. This is a major change of approach for the new Programme and is intended to recognise that support is carefully targeted to maximise its effectiveness.

Tier 3 will integrate under a single mechanism a wide range of measures that were previously supported through a number of separate schemes. These schemes include:

• the Farm/Agriculture Business Development Scheme;
• the Rural Stewardship Scheme;
• the Natural Care Scheme;
• the Organic Aid Scheme;
• on and near farm projects under the Processing and Marketing Grant Scheme; and,
• the Scottish Forestry Grants Scheme.

RDCs complement the two other main parts of the SRDP; the Less Favoured Area Support Scheme ( LFASS), and the LEADER initiative. These schemes have integral roles respectively in the Programme in sustaining land management in less favoured areas and in involving local communities in delivering development projects.

Less Favoured Area Support Scheme

LFASS compensates farmers and crofters for permanent disadvantage and will continue to support land management in primarily upland and remote areas. Appropriate management of this land is required to enable the delivery of wider environmental and social benefits. The scheme is an interim arrangement, pending the outcome of an EU-wide review in 2008 and the introduction of a new scheme in 2010.

LEADER

The LEADER initiative is a community-led approach that supports projects that meet development needs at a local level, and is managed by partnerships of local stakeholders (Local Action Groups). It draws on local knowledge in developing innovative development projects. Considerable experience in LEADER has been gained in Scotland since its inception at the beginning of the 1990s. It previously operated under the Structural Funds (and was managed by the then Enterprise, Transport and Lifelong Learning Department) but will now form an integral part of the SRDP.

The incorporation of the LEADER approach in the SRDP will bring added value in encouraging innovative, bottom-up solutions to local development needs. It provides added potential for collaborative approaches to rural development among all interests in local communities, including land managers, businesses, other individuals and community groups.

5.2. Requirements covering all or several measures

Ongoing commitments

Correlation table for measures provided for in Regulation ( EC) No 1257/1999, Regulation ( EC) No 1268/1999
and Regulation ( EC) No 1698/2005

State aid

Top up state aids will cover the element of any payment that exceeds the annual ceiling on co-financed payments for the land type concerned as specified in the Annex to Council Regulation 1698/2005. A list of these options together with details of their justification is attached at Annex 5.

Cross-compliance

As required under Article 39(3) of the RDR (1698/2005), new agreement holders from 1 ^st January 2007 will be required to meet the Scottish standards of Good Agricultural and Environmental Condition ( GAEC) and to comply with Statutory Management Requirements ( SMRs) relating to the natural environment, public health, plant health, animal health and welfare, and livestock identification and tracing. Further information on the standards relating to GAEC and SMRs can be found at http://www.scotland.gov.uk/Topics/Agriculture/grants/Schemes/ccompliance. These requirements match the conditions of cross-compliance that apply to the Single Farm Payment and are a baseline for which no payments are made. Agri-environment payments are only made for actions that go beyond these standards, in accordance with Article 39(3) of the RDR (1698/2005).

Targeting investment

Targeting of investment under the Programme will be undertaken at a regional level, within the framework of priorities and outcomes set out in Scotland's Strategic Plan. It will therefore vary between regions, reflecting identified regional priorities. It may include:

Geographical targeting, for example

• on areas of economic underperformance
• high levels of deprivation

Sectoral targeting on certain types of activity, for example:

• Bio-energy/renewable energy
• Food chains

Thematic targeting, requiring projects to demonstrate characteristics, for example:

• collaboration
• innovation
• knowledge and technology transfer
• combinations of the above

Controls, Sanctions and Penalties

The following financial controls and sanctions will be applied to meet the requirements of the Controls Regulation 1975/2006. These procedures will apply in particular to land-based measures relating to agriculture and forestry. The administrative structure of the paying agency separates the three functions of authorisation, execution and accounting for payments. There is also separation between officials responsible for administrative checks, and those who carry out physical inspections. Each measure under the RDR will be subject to a Scheme Implementation Plan. The Scheme Implementation Plan will summarise the responsibilities for all the elements within the Directorate with a role in administering the scheme.

Computer controls

Access to the computer system used for processing claims will be protected and controlled in such a way that:

(i) all information entered onto the system is properly validated to ensure that input errors are detected and corrected;

(ii) no data will be entered, modified or validated except by authorised officials to whom individual passwords are given;

(iii) the identity of each official entering or modifying data or programmes will be recorded in an operations log;

(iv) where documents relating to the claims authorised are retained by other bodies, procedures will apply so that access is provided for the paying agency staff who deal with the claim, the paying agency internal audit service, the body that attests the paying agency's annual declaration and mandated officials of the European Union.

Application processing

Detailed written procedures will guide the procedures for the receipt of applications, the processing of applications and of claims. Each official responsible for authorisations will use a detailed check-list setting out the verifications that are required and will attest that these checks have been performed. Exhaustive checks will be completed, in accordance with prevailing requirements and the IACS Regulations ( EC Regulation 796/2004), between applications and claims under the land based schemes and IACS, both as an anti-fraud measure, and to ensure that expenditure under one scheme does not frustrate or duplicate expenditure under another. Checks undertaken and the results of those checks will be evidenced on registered files together with details of the checking officer.

Each valid application for an agreement/undertaking will, unless the application is withdrawn or rejected (in which case the reason for rejection must be specified), be considered in accordance with prevailing instructions and UK/ EC Legislation with regard to financial limits and targets where appropriate.

Apart from initial administrative checks, assessment of applications (including, where appropriate, pre-approval inspections) will be carried out by professionally qualified officers, who will provide advice on applications and provide an assessment to assist in decisions on which applications may be successful.

Agreements or approved applications will refer to the precise prescription(s) and conditions with which the agreement holder/applicant needs to comply and the areas of land subject to the proposed undertaking. For an agreement or undertaking to come into force it must be signed by the agreement holder or applicant, and authorised by a duly authorised official of the Scottish Executive or other government official. In deciding the levels and persons to whom this authority is delegated, due regard will be paid to the duration/nature of the agreement/undertaking, and the sums committed by the agreement/undertaking.

Claims Processing

Claims received will be processed promptly so that payments to agreement holders/approved applicants can be made within published timescales. Payment will only be made in respect of land or items specified in an agreement/undertaking that are compliant with the scheme rules and regulations. Individually named officials will be given authority to authorise claims for payment.

The databases used for processing claims record which items are co-financed and the relevant EU ceiling so that any potential breach can be identified when a claim is entered on the database. For areas under agreement/undertaking which receive payment for more than one measure, the two payments will be added together to ensure they do not breach the area payment ceiling. Any excess over the ceiling will be paid as a state aid. Where linear features are included in an agreement/undertaking and are co-financed, these will be claimed on an area basis.

Payments

There will be procedures in place to ensure that payment is only made to the claimant, to his/her bank account or to his/her assignee. There will be procedures in place to ensure that monthly and annual declarations are complete, accurate and timely and that any errors or omissions are detected and corrected in particular through checks and reconciliations performed at intervals not exceeding three months. The paying agency will recognise amounts due to EAFRD and record these sums in a debtors ledger.

On-the-spot checks/risk analysis

On-the-spot checks will be carried out to ensure that the conditions of the measures are being met by agreement/undertaking holders in accordance with EC Regulation 796/2004. Spot checks will cover at least 5% of beneficiaries each year. The selection of these beneficiaries will be based on a risk analysis that will take into account representativeness, the amount of aid involved, the number of parcels of land and area concerned, changes from the previous year, findings from previous checks and other relevant factors.

There will be a standard report for each type of on-the-spot control/measure covering the reconciliation with beneficiaries records, the method of counting or measuring or weighing or analyses applied, the quantity or area that was checked, the respect of other conditions relevant to the scheme and the results compared to the details declared.

In addition to those inspections, further (targeted) inspections may be carried out for a specific purpose; for example, if a particular problem is identified. These inspections will be undertaken in the same manner as other inspections, although they will be recorded separately. They will not be taken into account in the analysis of inspections in relation to the on-the-spot checks requirement. The results will be recorded in the usual way.

Once an inspection has been selected, it cannot be de-selected and claims under the selected agreement/undertaking must not be authorised for payment until a satisfactory inspection has been completed. All failures (non-compliance) found during an inspection must be reported by inspecting officers. The inspection will also involve an inspection of farm records where necessary. If the rate of significant irregularities exceeds a specified level, the inspection rate will be increased.

Calculations of payment rates

As set out in Article 27 of the Implementing Regulation (1974/2006), payment rates have been calculated on the basis of income foregone and additional costs incurred by recipients in complying with their commitments and, where appropriate, transaction costs. The Scottish Executive commissioned an independent verification of payment rates for measures under Articles 31, 38, 39, 40 and 43 to 47 of the RDR (1698/2005) in accordance with Article 48(2) of the Implementing Regulation (1974/2006). This work was carried out by ADAS, a private firm of independent consultants, with support from the Institute of Chartered Foresters for some of the payments relating to woodlands. ADAS checked for "principles" and "assumptions" underlying calculations and the "accuracy" of the payment rates. ADAS endorsed the calculations although recommended some minor adjustments to several payment rates. These changes have been made. Payment rates may be subject to further review if required, but any revised rates would be applied to new rather than existing agreements.

Intervention rates

Intervention rates shown in Annex 3 are in accordance with the RDR (1698/2005) and will be treated as maxima. We will vary intervention rates beneath these maxima in order to target resources most effectively. For example, lower intervention rates may be used in lower priority situations or to manage excessive demand for measures in the Programme. For some measures based on standard costs, we may invite applications based on actual costs in special situations where it can be shown that payments based on standard costs are inadequate. This is most likely in priority areas for biodiversity conservation (with Natura or SSSI designations) and for woodland investments in peri-urban areas where there may be special management requirements.

Breaches and Penalties

Financial support from the European Agricultural Fund for Rural Development will be provided in accordance with Commission Regulation ( EC) No. 1975/2006 which lays down rules for the implementation of the Rural Development Regulation with regard to control procedures as well as cross-compliance. Applications for support and subsequent payment claims will therefore be handled in a manner which ensures effective verification of compliance with the various conditions for granting support.

The verification of the eligibility criteria will consist of both administrative checks and on the spot checks. Where non-compliance with the conditions for granting support for land based measures is identified we shall take action in line with Commission Regulation ( EC) No 1975/2006. The action to be taken will depend on the extent, severity and permanence of the breach.

In general terms, the categories of extent for land based measures will be determined by the extent of the managed area covered. The categories of severity will be determined on an operation by operation basis on the impact on the objective of the criteria which have not been respected. The permanence of the breach will be determined by the timescale the breach can be rectified in if at all.

The Scottish Executive retains the flexibility in exceptional or unforeseen circumstances to allow operations being carried out by an agreement-holder to be suspended or stopped altogether; for example, where such operations would cause damage to a protected species that had migrated into the area during the agreement period.

In case of use of interest rate subsidies and capitalisation systems thereof, the arrangements in accordance with Articles 49 to 52 of this Regulation

The interest rate subsidy to be used in the New Entrants measure will be in accordance with Article 49 of the Regulation. The subsidy will be equal to the interest actually paid by the farmer in each year of the loan (for up to 5 years), subject to a maximum of 3.5% above the Bank of England base rate and an overriding maximum of€40,000 over the term of the loan.

5.3. Information required for Axes and measures

The 2007-13 SRDP will provide support using the following Articles in the Rural Development Regulation (1698/2005). A detailed description of these measures is provided in Annex 3.

Axis 1 - Improving the Competitiveness of the Agricultural and Forestry Sector

The SRDP will address the Community objectives of Axis 1 by providing support for the measures shown in Table 5.1.

Linkage of proposed measures with national/sub-national forest programmes or equivalent instruments and with the Community Forestry Strategy

Forestry related measures within this Rural Development Plan are deigned to help deliver the Scottish Executive's forestry strategy ( http://www.forestry.gov.uk/forestry/infd-6aggzw) published in 2006. Each of the strategy's three principal outcomes are supported by measures in this Rural Development Plan.

The Scottish Forestry Strategy recognises the cross-cutting nature of many forestry actions and hence focuses delivery through seven key themes:

• Climate change
• Timber
• Business development
• Community development
• Access and health
• Environmental quality
• Biodiversity.

The Scottish Forestry Strategy recognises the role of the EU Forestry Strategy and the development of an EU Action Plan for Sustainable Forest Management. The Scottish Rural Development Strategy demonstrates how the Scottish Executive is linking forestry and other land-based activity within the vision of 'joined-up' delivery of rural support focused on priority national and international outcomes.

Table 5.1. Measures in the SRDP under Axis 1

The measures under Axis 1 are designed to support and complement each other. For example, new entrants may be attracted by a combination of measures on skills development, modernisation of farm holdings, adding value to products and improving infrastructure. Management of run-off may be addressed by measures on Manure and slurry storage and treatment, Treatment of run off of nutrients and other pollutants and Provision of infrastructure. The measure on Co-operation will encourage higher levels of collaboration, a major objective under A Forward Strategy for Scottish Agriculture: Next Steps. It is intended to act as a catalyst in business and product development and, as such, may complement measures to modernise, improve infrastructure and add value to production and processing in the supply chain.

Axis 2 - Improving the Environment and the Countryside

The SRDP will address the Community objectives of Axis 2 by providing support for the measures shown in Table 5.2.

Table 5.2 - Measures in the SRDP under Axis 2

Confirmation that the cross-compliance requirements are identical to those provided for by Regulation ( EC) 1782/2003 All payments made under this Measure are for activities in excess of those required for cross-compliance.

All beneficiaries of this Measure must, as a mandatory condition of payment, maintain their land in compliance with Good Agricultural and Environmental Conditions ( GAEC) as set out in Annex IV of 1782/2003, and adhere to environmental legislation in force, including the current 19 Statutory Management Requirements.

All payments are for commitments which exceed the statutory requirements set out in Council Directive 79/409/ EEC on the conservation of wild birds, Council Directive 80/68/ EEC on the protection of groundwater against pollution caused by certain dangerous substances, Council Directive 86/278/ EEC on the protection of the environment and in particular of the soil, when sewage sludge is used in agriculture, Council Directive 91/676/ EEC concerning the protection of waters against pollution caused by nitrates from agricultural sources subject to the Commission being satisfied with the content of the Scottish Action Programme, and Council Directive 92/43/ EEC on the conservation of natural habitats and of wild flora and fauna.

Agreements may be adjusted in case of amendment of the relevant mandatory standards or requirements, established pursuant to Articles 4 and 5 of Regulation ( EC) 1782/2003 and its Annexes III and IV, as well as of the minimum requirements for fertiliser and plant protection product use and of other relevant mandatory requirements established by national legislation. If such adjustment is not accepted by the beneficiary, the commitment shall expire and reimbursement shall not be required in respect of the period in which the commitment was effective.

For the specific purposes of Article 39(3) the minimum requirements for fertiliser and plant protection products used and other mandatory requirements; minimum requirements for fertilisers must include, inter alia, the Codes of Good Practice introduced under the Nitrates Directive for farms outside Nitrate Vulnerable Zones, and requirements concerning phosphorous pollution; minimum requirements for plant protection products must include, inter alia, requirements to have a licence to use the products and meet training obligations, requirements on safe storage, the checking of application machinery and rules on pesticide use close to water and other sensitive sites as established by national legislation

All payments are for commitments which exceed the statutory minimum requirements set out in national legislation for fertiliser and plant protection products used, including requirements introduced under the Nitrates Directive Action Programme (which is being revised in 2007 in consultation with the Commission). All commitments also exceed the requirements set out in the Codes of Good Agricultural Practice for the Prevention of Environmental Pollution from Agricultural Activity. Although phosphorus is not specifically addressed under the Nitrates Action Programme, it is expected to have a positive impact on phosphorus pollution. There are no other specific requirements concerning phosphorus pollution in addition to those outlined above.

Plant Protection products

All Plant Protection products are authorised in accordance with the provisions of the Scottish Statutory Instrument 2005 No. 331 The Plant Protection Products (Scotland) Regulations 2005 which implement the Plant Protection Products Directive 91/414 and The Plant Protection Products (Scotland) Amendment Regulations 2006. There are no EU requirements for the training, storage or the testing of machinery. However the Plant Protection Products (Basic Conditions) Regulations 1997 set out national rules for the training of all those who use, sell, supply and store pesticides. In addition the statutory Code of Practice: the Code of Practice for using plant protection products in Scotland sets out minimum requirements for pesticides stores and how they should be built etc. There are specific rules within the code for the spraying of plant protection products close to water courses.

The measures under Axis 2 will have wider economic and social impacts that contribute to wider objectives of the SRDP. Thus, measures often contribute to multiple outcomes both within and across Axes of the RDR. For example, improvements to biodiversity will underpin the tourism sector, particularly with regard to the maintenance of habitats that support distinctive species that visitors wish to see. A further example is that a number of agri-environment actions in the Programme will contribute to reductions in air pollution in addition to their main environmental objectives. Annex 3, which describes the measures in detail, draws attention to such cross-cutting objectives.

A major objective of the agri-environment and afforestation measures under Axis 2 is to support effective management of Natura 2000 sites and SSSIs. Spending on these sites through SNH's Natural Care programme has been integrated with spending under Article 36(a)(iv) on Agri-environment payments and Article 36(b)(v) on Forest Environment Payments. Payments will only be made for operations that deliver environmental benefits above the level required for Good Agricultural and Environmental Condition. Benefits below this level will be achieved through cross-compliance.

The Programme contains a number of operations which have been designed specifically for Natura and other designated sites: all the remaining operations under the agri-environment and forest environment articles will also be available to support the management of these sites. Effective and targeted support for Natura sites and SSSIs will also be ensured through the arrangements for establishing regional priorities for the SRDP (see Chapter 11). Natura sites and SSSIs will be major elements of these regional priorities. Further, it is important to note that the Rural Development Contract approach regards the management of Natura sites and SSSIs as integral both to wider land management and to broader objectives of rural development, for example in relation to recreation, tourism and quality of life.

The SRDP will contribute to important targets to bring designated sites, including the entire Natura network, into favourable condition. The target is to bring 80% of sites into favourable condition by 2008 (which will remain largely SNH's responsibility under existing Natural Care agreements), and 95% by 2010. The SRDP will be the principal means for achieving the latter target.

Management of Less Favoured Areas is critical to the delivery of socio-economic and environmental objectives in rural Scotland. Livestock densities are a key influence on the achievement of environmental objectives and the delivery of LFASS is important in this regard. LFASS payments are based on historic payments - which were tied to livestock numbers - but are now decoupled from livestock numbers in accordance with the principles of the 2003 CAP reforms. LFASS requires that land is actively managed and that Good Agricultural and Environmental Condition is maintained. Controls and inspections carried out to implement the SRDP (see section 5.2) will check that appropriate agricultural management of the land is maintained to support the environmental integrity of LFAs.

Collaboration will also be an important objective under Axis 2. Collective action by land managers is critical in building viable networks of habitats and species. This builds on the approach adopted in the 2000-06 SRDP. Collaboration will be one of the criteria used in the assessment process for applications under Tier 3 of Rural Development Contracts.

Axis 3 - Quality of Life in Rural Areas and Diversification of the Rural Economy

The SRDP will address the Community objectives of Axis 3 by providing support for the measures shown in Table 5.3.

Table 5.3 Measures in the SRDP under Axis 3

Measures under Axis 3 will contribute to broad-ranging rural development objectives. For example, improvements to landscape and the historic environment will contribute to the attractiveness of rural areas as a tourism destination or as a location for businesses to locate. Axis 3 will facilitate further diversification of the rural economy and support locally identified need in relation to community services and infrastructure. A key objective is to build the capacity of communities to address local development needs and aspirations.

Axis 4 Implementation of the LEADER approach

The SRDP will address the Community objectives of Axis 4 by providing support for the measures shown in Table 5.4.

Table 5.4 Measures in the SRDP under Axis 4

In line with the RDR (1698/2005), LEADER may be used to deliver measures across each of the Axes 1, 2 and 3, although we anticipate that it will contribute mainly to Axis 3. Local Action Groups will be responsible for drawing up LEADER strategies at a local level and for selecting projects that will be supported through the LEADER approach. Further detail on the LEADER approach in the SRDP is given in Annex 3.

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