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9 NATIONAL ENVELOPE

9.1 The 'National Envelope' concept originated as a means by which to effect full decoupling. In Scotland, this Article option has been used to fund the Scottish Beef Calf Scheme ( SBCS) but a drop in calf numbers suggests that SBCS cannot maintain all Scottish beef enterprise over the long-term.

9.2 The National Envelope concept is being developed further under Article 68 with measures that are designed to increase its flexibility in light of CAP reforms.

9.3 Thirty-seven respondents commented on the question "What are your views on proposals for increased flexibility in the use of the National Envelope? How should this increased flexibility be used in Scotland?"

9.4 The focus of many responses to this question concerned the decline in livestock numbers, most especially in hill and upland areas, and the consequent effects on grazing and environmental issues.

9.5 Fourteen respondents specifically voiced support for increased flexibility in National Envelope conditions, others gave more general responses.

9.6 A farming stakeholder felt the increased flexibility in the National Envelope needs to be targeted at where decoupling has had adverse effect while an environment stakeholder blamed the lack of flexibility in current National Envelope conditions for the limited success of the SBCS.

Concerns over the SBCS

9.7 A stakeholder from the wider interest group felt that the current use of a National Envelope in the beef sector highlighted the difficulty of pitching payments at levels which change behaviours and achieve policy objectives; they felt that this may limit a wider use of National Envelopes.

9.8 There were a variety of comments on the SBCS itself, which many respondents saw as too inflexible and which they felt had shown limited success against a background of financial losses. The majority of respondents commenting on this issue saw the SBCS as contributing to the decline in numbers of cattle, especially in hill and upland areas.

9.9 One special interest stakeholder commented that current conditions are too restrictive and that the SBCS has had limited success, they added that this is a huge concern in some areas.

9.10 Two local authorities wanted to see increased flexibility and the removal of EU budgetary constraints for envelopes in order to maintain the Scottish beef herd. These respondents felt that the SBCS is not effective; another local authority commented that the SBCS is not sufficient.

9.11 Both a farming organisation and a local authority commented that the sums required to provide targeted support to Scottish beef herds are in excess of the value of the SBCS and wanted to see a National Envelope funded at a realistic level to provide this support.

9.12 One farming organisation felt that the SBCS has discouraged farmers from keeping livestock because of low returns and increased costs. They felt the National Envelope could be used to reverse this trend and added that rising fuel costs should be taken into account.

9.13 One individual wanted to see provision for farmers and crofters struggling because of loss of coupled livestock payments which are not matched by SBCS payments.

9.14 There was support for the use of National Envelope provisions from one environment stakeholder, however the SBCS should be replaced as, this respondent felt, it is too limited and has no specific environmental conditions.

9.15 A local authority acknowledged that there is a problem with the SBCS and added that as the National Envelope does not provide benefit to arable farmers it should not be retained.

9.16 There was some support for retaining the SBCS:

• the SBCS needs to be retained and packaged with other policy tools to provide sufficient support to hill and uplands (farming stakeholder);
• the SBCS should be retained under the National Envelope and support for disadvantaged livestock producers should come from the LFASS (farming stakeholder);
• need to retain the SBCS and therefore Article 68 needs to be retained within the legislation (supply chain/ livestock stakeholder);
• in favour of keeping the SBCS at present level and not in favour of a new National Envelope (supply chain/ livestock organisation).

9.17 A supply chain/ livestock organisation stressed their concern over the decline in quality beef animals and wanted to see the use of all measures, including Article 68, to encourage beef production and avoid more imports.

Ceiling

9.18 One farming stakeholder was concerned that if a 2.5% limit is applied at the Scottish Single Farm Payment Budget Ceiling this will further diminish benefit from using a National Envelope and mean the SBCS would become totally ineffective. This respondent thought that if use of this tool is required then the ceiling rule must apply to the UK ceiling level.

9.19 An environmental stakeholder also felt that the rule should apply to the UK ceiling. Their comments included that the SBCS will become even more ineffective if payment rates are reduced due to a 2.5% ceiling. This respondent welcomed the additional flexibility but commented that the ceiling and 10% linear deduction rate could lead to there being insufficient funds; this led them to conclude that the added complexity of using a National Envelope with little available funds may not be worthwhile. They felt that it may be better to transfer additional amounts to Pillar 2 in order to fund appropriate environmental measures linked to particular farming systems like upland and hill livestock.

Combination of measures

9.20 A stakeholder from the wider interest group thought that, while it might be possible to use National Envelopes more flexibly under Article 68, this has to be considered in tandem with a review of the LFASS; although these are under different Pillars they should be considered together to maximise benefits to hills and uplands. Another stakeholder, from the same group, also felt discussions on use should be considered alongside reform of the LFASS.

9.21 A local authority, while acknowledging that the decline of livestock on hills is an issue which needs addressed, felt a National Envelope would only be part of a solution and that it should be used alongside other tools such as the SRDP and the LFA scheme. This respondent was concerned that using National Envelope provisions to provide decoupled support to crofters and farmers in LFAs before the review of the LFASS takes place might actually undermine the viability of both arable and dairy farming in the south of Scotland and not actually do much to reverse the decline of livestock in hill and upland areas.

9.22 A farming stakeholder suggested that a combination of policy measures could deliver the level of incentives required to encourage farmers to retain stock. They supported a combination of SBCS, Land Managers Options and LFASS support payments as "no one policy in isolation can deliver the necessary incentives but if packaged together it may be possible to achieve the desired results". They had concerns over whether the SBCS is itself sufficient to support beef production.

9.23 A supply chain/ livestock stakeholder voiced support for using the option to address disadvantages for farmers in certain regions specialising in the dairy, beef and sheep sectors; this should be in addition to payments under the LFASS. A wider interest organisation saw LFA support as of paramount importance in Scotland.

Less Favoured Areas ( LFA) and areas of High Nature Value ( HNV)

9.24 Respondents especially acknowledged the need for support in hill and upland areas and the importance of grazing systems both economically and environmentally.

9.25 A respondent from the environment group felt that a properly designed and targeted livestock envelope has the potential to be an important part of an integrated package of support for hill livestock farmers. Designing the National Envelope in a way that would encourage high value farming systems and address the decline of both livestock and agricultural activity in marginal high value areas was suggested by one farming organisation that saw a "strong rationale for subsidising farming systems that are economically marginal, but deliver significant public benefits". They felt that payments should be separate from SFPs and LFAs.

9.26 Another respondent, from the environment group, commented that if National Envelope funding is used then it should be targeted at upland and hill livestock farmers "and should be linked to high environmental and welfare standards including measures to address diffuse pollution from grazing livestock and to protect carbon stocks in soils." Two farming respondents also agreed that a National Envelope should be used to support livestock numbers especially on hills and uplands.

9.27 Two organisations from the wider interest group suggested the use of a National Envelope to support herds and flocks in vulnerable regions, one was particularly concerned with the livestock sector in fragile and remote areas of the Highlands and wanted to see support for High Nature Value farming; a local authority also voiced similar comments.

9.28 The need for a revised beef National Envelope targeted at the preservation of grazing systems in areas of High Nature Value was suggested by an environment stakeholder. A research/ education also saw the possibility of using a National Envelope to provide support for High Nature Value areas but commented "the degree to which the national envelope should be used to target such problems will depend on the degree to which they are addressed through Pillar 2, especially agri-environmental support and LFASS. If they are addressed through other means, national envelope funds could be directed elsewhere". This respondent stressed that objectives and priorities would have to be clearly determined.

9.29 The loss of grazing and its effect on the environment was discussed by a special interest organisation who said that appropriate grazing management is vital for some species of bumblebee and saw the use of a National Envelope, especially in hill and upland areas, as a key mechanism in addressing biodiversity loss and climate change.

Other livestock

9.30 There were several suggestions that any new scheme or National Envelope should cover other livestock with nine respondents suggesting that measures are needed to protect sheep numbers and quality as well as cattle. An environment stakeholder suggested that a National Envelope is needed for mixed livestock and that this should include environmental conditions.

9.31 Other comments from stakeholders included:

• use funds to prioritise the growth of Scotland's Food and Drink and to maintain its beef and lamb image by supporting beef and sheep sectors "to improve the quality and marketing of agricultural goods" (wider interest);
• specific measures to improve the quality and marketing of Scottish beef and sheep-meat (supply chain/ livestock stakeholder);
• assistance for deer farming through a National Envelope "on the grounds of its potential for providing additional rural employment, benefits to tourism, more local and healthier food production, etc." (supply chain/ livestock).

Other uses

9.32 Some respondents wanted to see consideration given to the use of National Envelopes in other sectors. A special interest stakeholder wanted to see the increased flexibility in the National Envelope used to increase public benefits. One environment stakeholder felt that this could become a key mechanism to address challenges such as biodiversity loss and climate change. Another saw the need for a National Envelope for the arable sector to fund habitat management (especially for farmland birds).

9.33 This respondent was also in favour of using the National Envelope in cases of disaster which threaten industry but not in cases of established plant or animal disease. A farming organisation wondered how co-financing of schemes for plant health reasons would work; they suggested that if this was not used across the EU it could have an effect on competition and trade.

9.34 Using a National Envelope to "encourage production that promotes employment and use of home grown produce in the food chain" was suggested by one farming organisation. A farming stakeholder commented on the need for appropriate levels of support for home grown fodder; especially since transport costs are likely to continue to increase as "need to recognise the strong economic disincentive in many areas for maintaining livestock and the low yield/ difficulty associated with home fodder production".

9.35 One local authority stressed the need for clarity of objectives; taking money out of SFPs to provide support in other areas would need to be justified.

Other comments

9.36 A farming stakeholder wanted to see improvements to National Envelope provisions targeted at cattle managed in extensive systems and in smaller herds "with a supplement for native and 1st cross native breeds". Both a farming organisation and a local authority mentioned the need to support native breeds or 1st cross breeds; the local authority wanted a supplement for these cattle in order to stop the decline in numbers of all but 'trendy' native breeds in Scotland.

9.37 A farming organisation saw real opportunities with the increased flexibility of the National Envelope and wanted to see a review of support for crofters keeping cattle.

9.38 A farming stakeholder wanted to see the SBCS altered to allow calves from dairy herds sired by beef bulls to become eligible - "this will recognise the contribution that dairy farms make to the beef sector in Scotland".

9.39 An agribusiness organisation saw the proposals as reasonable but commented on the need to ensure that implementation is not construed as breaking World Trade Organisation ( WTO) rules.

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