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5.3.1.2.4 Co-operation for development of new products, processes and technologies in the agriculture and food sector and in the forestry sector
CO-OPERATION (Rural Priorities)

Article 20(b)(iv)

Measure Code (124)

Rationale for Intervention

A Forward Strategy for Scottish Agriculture: Next Steps identifies that Scottish food producers, food processors, retailers and the food service sector should work together to identify, inform and meet market demand, drawing on business advice and sharing resources and experience to control costs and increase incomes. The Scottish Forestry Strategy highlights the need to promote local co-operation and clusters to secure new markets and increase the business potential of woodland-related activity. This measure provides support for such actions in order to improve co-operation among producers, processors and others in the supply chain in order to identify or access new markets and add value locally.

The fact that payments under Pillar I of the CAP are no longer linked to production makes farmers more market-oriented and competitive since they have the freedom to produce what the market wants. The processing and marketing grant scheme under Pillar II is consistent with the principles of pillar I. The scheme recognises that some farmers do not always have access to the necessary capital to allow them to invest in the equipment to add value to their produce and improve their competitiveness. The scheme also provides financial support to off farm food processing businesses which, in addition to improving the competitiveness of the food industry overall, aims to ensure that there is a critical mass of food processing to provide a market outlet for farm produce. Again, this is consistent with the Pillar I aim of making farmers more market oriented.

There will be no overlap between payments under Pillar I and discretionary payments under Pillar II. Eligible costs under Pillar I measures and the Co operation scheme will be different and therefore there will be no double funding.

Objectives

The measure will:

• link producers and processors with market opportunities;
• guide production in line with foreseeable market trends and encourage the development of new products or outlets for agricultural and forestry products;
• improve or rationalise marketing channels or processing procedures;
• improve the profitability, efficiency and transparency of the supply chain;
• disseminate new technologies and/or innovation;
• support consumer education and market development; and
• provide overall strategic guidance to the food and non-food products industries.

Examples of activity to meet objectives for food sector;

Distribution

Issue: Some small food companies cannot afford, or do not have access to, efficient and cost-effective channels of distribution to fulfil available market opportunities. While it may be possible to have small quantities delivered, this is at a disproportionate cost to the value of the product.

Potential Solutions:

• develop a new route to market through establishing a dedicated trading company and developing a supply chain network;
• a group of companies purchase/lease appropriate premises/van to jointly share the risks and costs of distribution; and
• a group of distribution companies look at ways of working together more efficiently and effectively to consolidate loads and widen their reach.

Benefits:

• companies gain access to markets which they were unable to access alone;
• reduced distribution costs; and
• sales growth, greater product penetration, wider availability of Scottish produce.

Market Access

Issue: Companies may be unable to access a market directly on their own, due to a lack of scale, or the potential customer being unwilling to increase the number of suppliers or be actively reducing the number of suppliers.

Potential Solutions - a group of companies work together to:

• offer a portfolio of complementary products;
• develop a range of products to market jointly;
• achieve economies of scale;
• establish a joint trading company;
• respond quicker to market signals;
• develop supply chain links and local food opportunities throughout the chain; and
• work with other existing suppliers to broaden their product offering.

Benefits:

• companies gain access to markets which they were unable to access alone; and
• sales growth, greater product penetration, wider availability of Scottish produce.

Quality, Efficiency, Improved Resource Utilisation

Opportunity - Looking at the performance of the chain as a whole, rather than at individual components, offers opportunities to improve the overall quality of the product, ensuring that it meets the needs of the customer, while at the same time reducing the levels of waste. Improving resource utilisation throughout the supply chain through the establishment of business rings can also lead to significant cost reductions, maximise efficiency and ensure effective capital usage

Potential Benefits:

• agreed product specification, resulting in fewer rejections and improved product quality;
• improved information flow resulting in better product forecasting, matching of production with demand, more efficient stock management, less product wastage, targeted new product development, shorter lead times; and
• shared investment in new techniques and equipment that could not be afforded individually, targeted where it is most needed.

Continuity and Consistency of Supply

Issue: Increasing constraints on the availability of certain raw materials may encourage companies to establish more long term collaborative relationships to achieve a consistent, sustainable supply. An additional driver is the push towards local sourcing of raw materials.

Potential Benefits - Working collaboratively

• brings producers closer to the consumer, allowing them to focus production more directly to consumer demand and requirements;
• provides producers with the stability of a long term customer and reduces price fluctuation and uncertainty;
• provides processors with continuity of supply;
• provides customers/consumers with the products they want; and
• potentially provides greater margins for all parts of the chain.

Adding Value

Opportunity: Adding Value can be achieved in several ways, including quality improvement, new product development, range extension and developing a brand identity. It is vital to ensure that the product is based on a consistent, informed product specification. To maintain the value requires commitment from all partners within the supply chain, building on a consumer/market focused approach.

Potential Benefits:

• adds value to what may previously have been a commodity product, resulting in greater product profit margins;
• encourages market focused new product development activity;
• stimulates effective partnership working to deliver the components that make up the end product; and
• generates new ideas and added value marketing concepts.

Cross Sector Collaboration, Technical Support and Services

Opportunity - Primary producers or processors can work together to address common efficiency or service provision issues across the horizontal level. Examples may include box sharing schemes in the Seafood Sector, or sharing of technical or NPD resources amongst processors. This can also be implemented vertically throughout the chain.

Potential Benefits:

• cost issues addressed across the sector, improving efficiency;
• access to specialist skills and services that some producers or processors could not afford on their own;
• increased added value and NPD opportunities; and
• responsiveness of sector to respond quicker to market signals.

Scope and Actions

Support will be provided to promote co-operation between primary producers, the processing industry and third parties. The measure will encourage innovation and new product development, adding value, co-operation to exploit new markets and shorten the supply chain by linking producers with processors. Support will be directed to two or more producers, processors and a third party (possibly in the science sector) who are involved in co-operation within the supply chain. The new products, processes and technologies must not displace existing products or businesses within the Scottish land-based sectors. However, where there are significant opportunities for co-operation on a strategic basis, a single body may be responsible for delivering the outcomes.

The sectors of basic agricultural production which will be covered by the measure will be products covered by Annex I to the Treaty except fishery products. Forestry products will also be covered. It is expected that the following sectors will benefit from aid for processing and marketing: red meat (in particular beef, lamb and venison); pig meat; milk and milk products; eggs; poultry; cereals; oil producing crops; fruit and vegetables (including potatoes); wood and timber products. This list is not exhaustive as support may be delivered to new and innovative products including the processing of newly developed crops . Assistance will also be delivered to the processing and production of drink products where they involve Annex 1 products e.g. fruit drinks.

Beneficiaries

Applications will be open to individuals, groups of primary producers or companies. Two or more producers, processors and or third parties (within or connected to product supply chain) should be involved in the project. These could be individuals, businesses or co-operatives. However where there are significant opportunities for co-operation on a strategic basis, a single body may be responsible for delivering the outcomes.

Eligible costs

Support will be available towards resources to support co-operation, collaboration and development within the supply chain. Specific areas include product development, market research, development of marketing plans, organisation and development of a sector and facilitating vertical integration.

The payment rate is variable up to 100% of actual eligible costs and subject to the limits set out in Regulation 1698/2005.

Support will only be available through this measure for operations prior to commercial use.

Evidence that investment measures support is targeted on clearly-defined objectives reflecting needs and structural disadvantage

A Forward Strategy for Scottish Agriculture: Next Steps expresses a vision of a prosperous and sustainable farming industry, one of Scotland's success stories, which benefits all the people of Scotland. It should be focused on producing food and other products for the market inter-alia. Actions intended to help achieve this vision include improving the availability and use of market information by farm businesses to help identify market opportunities, target profitable areas, encourage innovation and promote local processing and marketing in line with the Scottish Food and Drink Strategy.

The Strategy's goal in relation to food production and marketing is that Scottish food producers, food processors, retailers and the food service sector should work together to identify, inform and meet market demand, drawing on business advice and sharing resources and experience to control costs and increase incomes.

Business development is one of the seven key themes of the Scottish Forestry Strategy, contributing to the outcome of competitive and innovative businesses that support economic growth. The Strategy identifies increased co-operation as a key opportunity to stimulate innovation, reduce costs and improve the economic sustainability of the forestry sector, which has been subject to a sustained period of downward price pressure.

The integrated structure of the delivery mechanism of Rural Development Contracts will enable regional funding priorities to be identified and ensure measures are prioritised, dependant on local needs.

Description of the requirements and targets with regard to the overall performance of the enterprises

The Scottish Executive will use a number of criteria to establish that a satisfactory level of economic benefit, predominantly for primary producers, will result from investments supported under this measure. These will be taken into consideration during the assessment and selection of applications and will include: the range of businesses involved in the enterprise; the increased level of co-operation and the benefits that delivers; the volume of raw material to be used and the benefits to the primary sector and value to be added and retained by the primary sector.

Primary production sectors and types of investments (tangible-intangible)

All primary agriculture production sectors listed in Annex 1 to the Treaty are eligible, as well as forestry products. Projects will include intangible support towards resources which will encourage co-operation and collaboration to ensure the development of new market opportunities. Examples of projects are the development of marketing plans a reorganisation of business to exploit a market opportunity, costs of collaboration work between producers and processors and the development costs of a new product where a known market outlets exists. Costs will be exclusive to where new co-operation and collaboration is taking place and will not replace existing costs in respect of current business practices. Where capital assistance is required assistance will be considered through the Processing & Marketing Grant Scheme.

Eligible applicants will be required to respect existing Community standards.

Quantified targets for EU common indicators

^ Non-lead baseline objective indicator. Non-lead baseline objective indicator on economic development of food sector (objective 13) under development
# Impact indicators will be estimated based on output and result indicators

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