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2 The SCOTLAND rural development programme and its context

2.1 Introduction

This section provides a brief description of rural Scotland and provides an overview of the origins of the rural development programme, a summary of the content and impacts of the existing Rural Development programme for Scotland, and finally details the main requirements of the SRDP.

2.2 Rural Scotland

Scotland covers an area of 30,414 square miles (78,772 km ²) and has a population of just over 5 million, according to the 2003 Mid-Year Population Estimates. Rural Scotland covers 89% of the Scottish landmass and is home to less than a third of Scotland's population. Within Rural Scotland, agriculture accounts for 80% of the land although it accounts for only 2.8% of Scotland's economic activity, while Forestry which covers 17% of Scotland's land mass accounts for 0.5% of Scotland's economic activity. In addition Rural Scotland supports wider activities including conservation and tourism which is undertaken on agricultural and afforested land and contributes to the economic activity in Scotland.

Map 2.1 below details those areas of land in Scotland which are officially designated as rural. However the classifications shown on the map, although providing a framework for indicating the types of area in which most recipients of SRDP funding are likely to be located do not preclude SRDP finding to be awarded to businesses out with the rural areas identified in this map.

In general, recipients will be in either remote or more accessible rural areas (refer to Map 2.1), but also possibly in small towns, and some even in an urban area. Eligibility for support is generally more to do with the type of business rather than where it is ( LFA is a major exception, having a clearly defined geographical area). Potentially, someone could have an agricultural holding (and therefore be eligible) but may occupy land in what is classified as an urban area. For example city farms may be eligible for all the SRDP delivery mechanisms to Land Managers and processing plants in urban areas which provide increased benefits to rural communities as a result of a greater demand on raw materials may also be eligible for funding.

Map 2.1: Map showing Rural and Urban Scotland Areas

2.3 Driver for the development of the Scotland Rural Development Programme 2007 - 2013

The existing Scotland Rural Development Programme ( SRDP), which was determined under EC Regulation 1257/1999, is due to expire in 2006 and will be replaced by the SRPD 2007 - 2013.

The SRDP 2007-2013 is being produced in accordance with the EU Rural Development Regulation ( RDR) 1698/2005, support for rural development by the European Agricultural Fund For Rural Development ( EAFRD)¹⁰ which was published in 15 July 2004.

This Regulation requires that for the period 2007 - 2013, rural development should be brought under a single funding and management framework, (the revised rural development programme 2007 - 2013) and that this programme, under 3 axes, should aim to:

• Improve the competitiveness of the agricultural and forestry sector (axis 1 - articles 20-35 of the Regulation);
• Improve the environment and countryside (axis 2 - articles 36-51 of the Regulation); and
• Improve the quality of life in rural areas and diversification the rural economy (axis 3 - articles 52-60 of the Regulation).

These three axes represent a broadening of support and a greater focus on sustainability and effectively represent the three, generally agreed, components of sustainability - economic, environmental and social aspects. Further, a fourth axis relates to LEADER (Articles 61-65 of the Regulation), where the principles of local action, partnership and a bottom-up approach aim to be integrated into the rest of rural development support. This fourth axis effectively strengthens the link between social aspects and the other two components of sustainability - a link that has been historically difficult to make.

The new regulation aims to push home the sustainability message by the introduction of minimum funding thresholds for each axis, thereby ensuring that Member States fund measures under each axis. This should result in more sustainable and holistic rural development plans across the EU.

The axes detailed in the RDR contain 42 'measures' which show the types of activity that may be funded using the EAFRD. Despite the more prescriptive nature of European Regulations than of Directives, these not all of these 42 measures require to be implemented in member states and funded, and additional measures, provided they fall to be considered within the scope of the axes within the Regulation can be incorporated into member state rural development programmes provided the minimum funding thresholds in each axis are met.

The SRDP will be financed from the European Agricultural Fund for Rural Development ( EAFRD), through co-financing by the Scottish Executive and through modulation. Money received through compulsory modulation by the European Union forms part of the EAFRD allocation. In addition, there will be voluntary modulation which will add to the resources available for the SRDP. The levels of resources available through each of these sources is yet to be finalised and will depend in part on the EAFRD allocation to the UK that will be agreed by the European Union. Measures financed under the SRDP may use different proportions of these sources of finance, although the new Rural Development Regulation (1698/2005) sets upper and lower percentage limits for the contribution from EAFRD. The SRDP will be financed from the European Agricultural Fund for Rural Development ( EAFRD), through co-financing by the Scottish Executive and through modulation. Modulation enables Member States to redirect Common Agricultural Policy resources to rural development measures. Money received through compulsory modulation by the European Union forms part of the EAFRD allocation.

In addition, there will be voluntary modulation which will add to the resources available for the SRDP. The levels of resources available through each of these sources is yet to be finalised and will depend in part on the EAFRD allocation to the UK that will be agreed by the European Union. Measures financed under the SRDP may use different proportions of these sources of finance, although the new Rural Development Regulation (1698/2005) sets upper and lower percentage limits for the contribution from EAFRD. This is discussed further in the draft SRDP consultation document ¹¹.

2.4 Scotland Rural Development Programme 2000 - 2006

As stated in section 2.2 above, the existing SRDP, which was determined under Council Regulation 1257/1999, is due to expire in 2006. The two key priorities for the programme are:

• To assist the future viability and sustainability of Scottish farming and forestry; and
• To encourage farming and forestry practices which contribute to the economic, social and environmental sustainability of rural areas

The SRDP 2000 - 2006 has sought to address these priorities through measures with the following aims:

• Maintenance of employment in less-favoured areas;
• Measures to improve farming and forestry practice and the environment; and
• Measures to address competitiveness and diversity of the agricultural and food sectors (including some state-aided measures for processing and marketing and farm diversification that draw on chapters of the RDR but are strictly out with the SRDP).

The programme has been delivered, mainly through support of the agriculture sector, recognising agriculture's importance in underpinning the rest of the rural economy.

SEERAD anticipate the final allocation of funds to this programme for its duration (2000-2006) to be around â'¬1185 million in total including an EU contribution of â'¬371m including compulsory modulation, the balance being funded from UK sources.

Given the limited amounts of RDR funding available, the SRDP focused on three chapters of the RDR initially. In addition, two other chapters of the RDR were funded under state-aid approval using domestic funds. Several annual amendments were made to the SRDP, the most significant being in 2004, to introduce a variety of changes and to add schemes under other, previously unused, chapters of the RDR including training, quality assurance plus the concept of Land Management Planning. This implementation of the SRDP is summarised in Table 2.1

Table 2.1 Take up of RDR Chapters in Scotland 2000-2006

From Council Regulation ( EC) of 17 ^th May 1999 - Title II - Rural Development Measures

Figure 2.1 sets out the total payments made across RDR schemes in the three key areas in 2004. It can be seen that the Less Favoured Area Support Scheme ( LFASS) took the bulk of the funds at 52% followed by the agri-environment schemes at 25% and the forestry schemes at 15%. Land Management Contracts ( LMCs) were not introduced until 2005 so are not included in this initial analysis.

LFASS is the dominant scheme, at £60m spend in 2004, its objective being to ensure that farming and other economic activity continues in less favoured areas. Stakeholders have raised the importance of environmental objectives for the LFASS but these are not currently its main objective. It reaches the most beneficiaries at 13,000 and 3.4m hectares. The mid-term evaluation highlighted that the LFASS was achieving its objectives, but the analysis conducted for the ex-ante highlights that value for money could be improved - a range or options exist to reduce the amounts of money paid with, little or no impact on the outcomes ¹³.

Figure 2.1: Payments made by RDR theme 2004

The Rural Stewardship Scheme ( RSS) & Organic Aid Scheme ( OAS) are the main means of agri-environment support in Scotland with expenditure of £28.77M in 2004. Of this, 48% was spent on maintaining ongoing commitments from the Environmentally Sensitive Areas ( ESA) and Countryside Premium Scheme ( CPS), both of which are closed to new entrants and are being run down. Funding limits meant that the RSS in 2005 was heavily oversubscribed.

There has been a definite transition in agri-environment schemes over the years from the launch of the ESA scheme in 1987 to help to conserve specially designated areas, towards a gradual widening of geography and targeting with 33% of Scottish agricultural area being subject to Good Farming Practice ( GFP) and General Environmental Conditions ( GEC). The launch of the LMC Menu Scheme, which is open to all, aims to widen environmental focus further and may partly address this issue.

Tier 1 of LMCs (cross-compliance under the Single Farm Payment Scheme ( SFPS)) covers a number of the current additional whole farm requirements placed on participants in LFASS, RSS and OAS such as the GEC and GFP. It is likely that cross-compliance restrictions will tighten during the lifetime of the SFPS. This implies that the GEC and GFP requirements under the agri-environment schemes will become less relevant and may need to be tightened to keep participants at a higher level of environmental protection. This may have implications for the 'income foregone' principle as it will effectively raise the bar on what is acceptable as 'environmentally friendly' farming.

The LMC Menu Scheme (Tier II) is in its early stages but has committed significant funds (â'¬26m for 2005). Its open access and ease of entry is to be welcomed. However, the challenge in a scheme of this nature is to achieve value for money and additionality - much of the commitment to date has been in a small number of measures and skewed towards activity where additionality might be questioned.

Forestry grant schemes account for approximately 15% of RDR expenditure and approximately 30% of that expenditure is taken up by grants for farm woodlands. The new LMCs will open up the opportunity for greater integration between the agriculture and forestry sectors. An anomaly will exist under the new LMCs in that while the agricultural land use will be eligible for Tier 1 payments woodlands will not be, apart from very small plantings. With an increasing proportion of forestry grants being directed at urban woodlands, the definition of what is 'rural', and eligible under LMCs, will become of particular significance, especially in Central Scotland.

For Processing and Marketing Grants ( PMGS) and farm business diversification schemes, the share of funds is less than 10%. Further information relating to the SRDP 2000 - 2006 can be found in the report ' EX-ante Evaluation of the Scotland Rural Development Programme 2007 - 2013' produced by DTZ Peida on behalf of the Scottish Executive.

2.5 Scotland Rural Development Programme 2007 - 2013

As detailed in Section 2.2 above, Regulation 1698/2005 states that Rural Development Programmes for 2007-13 should be built around three thematic priorities or Axes. These Axes contain 42 'measures' which show the types of activity that may be funded using the EAFRD. The strategic guidelines indicate that there should be consistency and cohesion within and between the Axes. The measures can contribute to more than one Axis.

The three Axes are:

• Improving the competitiveness of agriculture and forestry by supporting the priorities of knowledge transfer, modernisation, innovation and quality in the food chain, and on priority sectors for investment in physical and human capital (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 and growth of economic activity (Axis 3).

There is also a fourth Axis that uses the LEADER approach to deliver a locally-driven approach to innovation and development administered by local partnerships. Axis 4 can be delivered across any one or combination of the three main Axes.

The three Axes in the Regulation aim to deliver RDPs that balance wide-ranging objectives for rural development. Member States must allocate minimum proportions of EAFRD resources (including compulsory modulation) to each of the Axes, as follows:

• Axis 1: 10%
• Axis 2: 25%
• Axis 3: 10%
• Axis 4: 5% (within the minima for Axes 1-3)

In the recent consultation document, " Rural Development Programme for Scotland 2007-2013 - The Strategic Plan", the Scottish Executive proposed structuring the SRDP round three themes that reflect the EU axes but which address priorities and challenges facing rural Scotland. The document proposed that these themes be linked to a series of outcomes for rural areas, and that a series of priority actions be identified to achieve these outcomes. Each of the themes and their associated outcomes are detailed below and further information can be found in the consultation document ¹⁴.

2.5.1 Theme 1 - Underpinning performance and quality in the agriculture, food processing and forestry sectors

It is proposed that actions under Theme 1 contribute to the following outcomes:

• agriculture, forestry and agrifood sectors that are competitive in international markets and that meet the needs of rural Scotland;
• exploitation of market opportunities and provision of quality products from sustainable, traceable sources;
• an integrated supply chain that adds maximum value and quality to Scottish products;
• a land-use sector that is environmentally sensitive and that capitalises on local distinctiveness and "sense of place", by developing new markets for both food and non-food products and services;
• effective product development and promotion through quality branding and assurance; and
• a skilled and confident workforce that embraces new opportunities.

2.5.2 Theme 2 - Enhancing rural landscapes and the natural environment

It is proposed that actions under Theme 2 contribute to the following outcomes:

• Scotland's natural resources (including farmland and forestry) conserved or enhanced for the long term, with biodiversity as an integral component of actions across rural Scotland;
• well maintained landscapes benefiting people and business;
• land management practices that protect and enhance water and soil quality;
• well treated and healthy farm animals; and
• climate change mitigation and protection of communities from other environmental hazards,

2.5.3 Theme 3 - Promoting a more diverse rural economy and thriving rural communities

It is proposed that actions under Theme 3 contribute to the following outcomes:

• a progressive rural economy characterised by a culture of learning and skills to encourage entrepreneurship;
• rural enterprise benefiting from diversification of agriculture and forestry, and capitalising on local assets;
• businesses deriving added value from the distinctive natural and cultural resources of rural Scotland, through local markets and further afield;
• access to outdoor recreation for local populations and those living in towns and cities;
• tourism businesses profiting from well maintained landscapes and Scottish food and woodland products; and
• thriving rural communities underpinned by secure cultural heritage.

Information relating to the priorities and the actions identified as being necessary to meet these priorities and outcomes are identified for each of the three axes and detailed in section 6 of this report.

Following consideration of the responses to the consultation on the strategic approach being proposed for the implementation of the Rural Development Regulation into the Scotland Rural Development Programme, a further document, Rural Development Programme for Scotland 2007 - 2013; consultation was produced. This document contains information relating to the proposed content of the SRDP (including potential funding streams) and proposed methods for the implementation of the SRDP options for managing the programme and application processes. Further information on this current consultation can be found on the Scottish Executive's website ¹⁵.

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