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5.2.1.2.3 Adding value to agricultural and forestry products
PROCESSING AND MARKETING GRANTS (Rural Priorities)

Article 20(b)(iii)

Measure Code (123)

Rationale for Intervention

Sustainable and profitable production is a core activity of the land-use sectors and supports economic activity in rural areas. Business support can assist diversification and development of farm and forest holdings and incentivise local and national supply chains more effectively, thereby adding value in local communities. Adding value to food and other primary products is a critical factor in achieving viable businesses and will depend on identifying and exploiting a range of business and market opportunities.

This measure responds to this strategic need by providing assistance to develop facilities to process and add value to primary products, including on-farm and in-forest processing units, to ensure that more value is retained by both land-holders and rural communities. The measure encourages innovation and new product development, adding value and co-operation to exploit new markets. It aims to link producers with processors, and supports the development of employment opportunities in rural communities, thus retaining wealth and developing local services. The scheme incentivises entrepreneurs to undertake processing projects by providing assistance towards project costs and enabling development. Many of the potential beneficiaries receiving assistance are micro and small to medium enterprises ( SMEs) that find it very difficult to secure capital funding. It is noted that, in the case of forestry, support is limited to micro-enterprises and that adding value to forest products shall be limited to operations prior to industrial processing.

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 Processing & Marketing scheme will be different and therefore there will be no double funding.

Objectives

The objectives of the schemes will be to:

• guide production in line with foreseeable market trends and encourage the development of new products or outlets for primary products;
• strengthen local supply chains through support for processing and marketing of locally produced food, other agricultural and forestry outputs;
• share resources and experience to control costs and increase incomes;
• increase co-operation among operators in the food sector;
• improve or rationalise marketing channels or processing procedures;
• improve the profitability, efficiency and transparency of the supply chain;
• improve the presentation and preparation of products or achieve the better use or elimination of by-products or waste;
• assist with treatment and disposal of waste;
• apply new technologies and/or innovation;
• improve quality beyond normal accepted standard; and,
• support consumer education.

Scope and Actions

There will be a twin approach to potential beneficiaries accessing the scheme:

• An on farm/near holding measure will be delivered through Rural Development Contracts, providing support for land managers, farmers and small rural businesses directly linked to production units to develop new, and improve existing, primary product processing projects (and drink projects where the primary inputs are covered by Annex I to the Treaty). This measure will provide an option as part of a holistic package available to land managers in this sector to develop land-based and rural businesses.
• Applications from other rural and urban businesses involved in the processing of primary produce covered by the provisions of the RDR will not be treated as part of a Rural Development Contract but will be assessed according to the same criteria. These projects will deliver benefits to the wider rural community through lasting economic benefits.

The primary product sectors covered by this measure will be products covered by Annex I to the Treaty (except fishery products), and forestry products. It is expected that the following sectors will benefit from aid for processing and marketing: red meat (in particular beef, lamb and venison); pigmeat; 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 food products which involve the processing of newly developed crops . Assistance will also be delivered to the processing and production of drink products where they involve Annex I products e.g. fruit drinks. Assistance will also be given to facilitating co-operation among operators in the food sector.

This measure will be implemented within a national framework, with the potential to deal with differing regional issues using regional priorities. There will be scope within the project assessment procedure, and in the selection process which will be considered at regional level, to target those sectors identified as a priority.

Beneficiaries

Eligible beneficiaries will include individuals, groups of primary producers and companies.

Eligible costs

Support will be awarded to provide assistance towards tangible costs. Eligible costs will include the erection of new buildings, the refurbishment of old buildings, the purchase of new (and second-hand where permissible) equipment, waste minimisation and disposal, computer hardware and software and directly related general costs such as architects, engineers and consultants fees (to a combined maximum of 11% of total eligible costs).

Support will be available towards costs of intangible projects. Eligible costs will include feasibility studies, product development, branding and design and the development of web sites.

Cross compliance requirements for Regulation 1782/2003

Not applicable

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

Food processing and marketing is an important part of the vision expressed in A Forward Strategy for Scottish Agriculture: Next Steps which seeks to encourage a prosperous and sustainable farming industry that benefits communities across rural Scotland. 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.

This goal is underpinned by the Strategic Plan which sets a priority to improve the performance of processors by investing in the development of an efficient, innovative processing sector that is able to adapt quickly and deliver quality Scottish-grown food and forestry products into the market place.

Business development is one of the seven key themes of the Scottish Forestry Strategy, contributing to the outcome of competitive and innovative businesses supporting economic growth in Scotland. The Strategy seeks to increase the contribution of forestry to rural development. The 'timber' key theme highlights opportunities to develop new markets for timber products, including in the biomass sector, and seeks the development of local wood markets to reduce transport of unprocessed timber, and to increase local added value.

The scheme also supports employment in rural areas. In 2003, 50,000 people were employed in the Scottish food and drink industry. This represents 2.2% of total employment in Scotland and 20% of jobs in Scottish manufacturing. In 2003, rural Scotland accounted for 40% of food and drink manufacturing employees.

The scheme will operate on a competitive basis. Each eligible application will be subject to detailed appraisal and then assessed in comparison with others, in order to determine those projects that best meet national and regional priorities, and that represent value for money. This approach will provide an effective stimulus for well considered, high quality and innovative proposals.

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

The Scottish Executive will use the following criteria in assessing projects for which support is sought.

Economic benefits for primary producers - This will be assessed by considering: the country of origin of the raw material; the volume of raw material to be used, the volumes of material provided prior to the start of a project and their anticipated volumes of supply once the project is complete and fully operational; and value to be added through processing and number of jobs protected or created.

Criteria to demonstrate financial viability - Potential beneficiaries will need to demonstrate that the projects are financially viable. The assessment of the economic viability of the potential beneficiary will be made by the Scottish Executive on the basis of 3 years of annual accounts, where these are available. Where the assessment indicates that the business is not viable, grant aid will not be awarded. Potential beneficiaries will also have to explain why the project could not proceed without grant support and must indicate how the project can be expected to be profitable.

Requirement to comply with minimum standards regarding environment, hygiene and animal welfare - All potential beneficiaries will be required to declare that they will comply with the requirements of national and EU legislation on the environment, hygiene and animal welfare as minimum standards. The Scottish Executive will seek expert advice, where required, on these aspects during the assessment of applications and will confirm compliance with relevant national and EU standards before awards of grant are made. Compliance will be ensured through the normal inspection regimes during the lifetime of projects.

Assessment of normal market outlets - As part of the procedure for assessing and selecting projects, the Scottish Executive will where necessary seek expert technical advice that normal market outlets exist for the products concerned. All potential beneficiaries will be required to provide detailed information on the market outlets they have identified for their products; such information may range from the results of feasibility studies to letters of intent and contracts with new or established customers. This project-specific information, and information on the market in general for the product in question, will be used to establish the existence of a normal, viable market outlet. If such an outlet is not available, grant aid will not be awarded.

In conducting individual assessments of whether adequate market outlets exist, account will be taken of market trends. For example, in the food sector the growth in food service places different demands on the nature and packaging of products, increasing segmentation and consumer choice in the market, technological developments, greater emphasis on traceability and local sourcing and consumer demand for organic and ready prepared food. The detailed assessment of market outlets will thus be made on a case by case basis for each individual project.

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 tangible investments such as the upgrading of facilities and purchase of plant and equipment and non tangible investments in support of non capital processing projects such as feasibilities studies and development of the market.

Types and size of the beneficiary enterprise

Support shall be limited to micro, small and medium sized enterprises within the meaning of Commission Recommendation 2003/361/ EC. In the case of forestry, support is limited by the RDR to micro-enterprises. For enterprises that are not covered by Article 2(1) of that recommendation with fewer than 750 employees or with a turnover of less than €200 million the maximum aid intensity is halved.

Designation of the standards for which a period of grace can be granted to micro enterprise in order to comply with newly introduced Community standard

Micro enterprises must meet the Community standards in a period not exceeding 36 months from the date that the Community standard becomes mandatory.

Type of support and aid intensities

The maximum rate of total aid will be up to 50% of total eligible cost in convergence areas and up to 40% in non convergence areas. Aid can also be delivered to projects by the Enterprise network in Scotland and by Local Authorities, however the total cumulative aid will not breach the maximum rates allowable.

The Community contribution under this measure will be up to 50% of total eligible public expenditure.

Quantified targets for EU common indicators

^ Non-lead baseline objective indicator on gross fixed capital formation in food industry (objective 11) under development
# Impact indicators will be estimated based on output and result indicators

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