The Scottish Government

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3. Longer-term considerations

3.1 While many of the CAP Health Check proposals represent rather detailed adjustments to the current CAP regime, a number are more significant as they signal a direction of travel that is likely to continue during discussions on changes in CAP post-2014. These include likely or possible pressure to:

• move away from the historic model for SFPs towards flat rate payments;

• continue to transfer money from Pillar 1 ( SFPs) to Pillar 2 (Rural Development Programmes).

3.2 Looking ahead, two other important considerations are:

• the 2008/09 EU Budget Review. This is expected to be a fundamental review covering all aspects of EU spending for the period 2014 - 2020. Although spending on CAP is falling, in 2013 it will still represent 39% of EU spending. Thus, it is likely to come under close scrutiny and overall spending on CAP may well reduce further during 2014 - 2020;

• the outcome of current WTO talks. Timing remains uncertain, but it seems likely that the final agreement, while bringing benefits to the world economy as a whole, could further expose European agriculture to competition in global markets, for example by reducing tariffs. The EU has already committed to ending export refunds once overall agreement is reached in the talks.

Taken together, these pressures reinforce the importance of increasing the competitiveness and market orientation of European agriculture; this was a major objective of the 2003 CAP Reform.

3.3 The view of the UK Government ⁸ is that further reform of the CAP should aim, by 2014 - 2020, to cut agricultural import tariffs to the level prevailing in the rest of the economy; to eliminate Pillar 1 payments; and to abolish the EU price support system (export refunds and intervention purchasing). This would bring substantial cuts in the CAP budget, with future public subsidy for farming being targeted at the delivery of public goods.

3.4 Scottish agriculture differs in a number of important respects from agriculture in other parts of the UK (particularly England). In Scotland, 83% of agricultural land is in less favoured areas ( LFAs), compared (for example) to only 15% in England. A recent evaluation confirmed the environmental and social value of sustainable farming in Scottish LFAs ⁹ and the need for continued support to maintain farming activity in these areas. Although the Scottish Government intends to consult separately on details for the Less Favoured Area Support Scheme ( LFASS) in the period 2010 - 13, there is also a need to consider the longer-term role for LFASS, in 2014 and beyond, in the context of future CAP reform.

3.5 The EC has said that historic based SFPs will become more difficult to justify in the future as reference periods for payments become more distant; and that regional flat rate payments provide more equitable support to farmers, despite some initial redistribution of support. On the other hand, the considerable variation in the quality of agricultural land in Scotland raises practical problems in relation to moving to flat rate payments of SFP. Simply dividing the value of SFP by the area of agricultural land gives a flat rate of £70 per hectare, but it would be hard to justify this as a single payment for all types of land, ranging from the best arable land through to poor quality grazing land. This problem could be overcome by developing a generally acceptable rationale for differentiating payments according to land quality. The MLURI land capability classification for agriculture ¹⁰ could offer a useful starting point for differentiating payments; since regions are likely to have to cover at least 3 million hectares, there would probably be only 2-3 regions in Scotland.

3.6 Against this background, the Scottish Government would welcome views on the following questions:

Q1. What should be the rationale for Pillar 1 and Pillar 2 of the CAP from 2014 onwards? What are your views on the distribution of funding between Pillar 1 type measures (such as Single Farm Payments) and Pillar 2 type measures (such as those in the Scotland Rural Development Programme)?

Q2. Assuming Pillar 1 type support remains, do you agree that there should there be a move away from the historic model of Single Farm Payments towards flat rate payments? Yes/No

If Yes, what are your views on

(i) the rationale for flat rate payments,

(ii) the basis for determining payments, and

(iii) the time-scale for change?

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