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2 RATIONALE FOR PILLAR 1 AND PILLAR 2 FROM 2014 ONWARDS

2.1 The view of the UK Government is that CAP reforms should aim to eliminate Pillar 1 payments (such as Single Farm Payments) along with other measures which will bring substantial cuts in the CAP budget. Funds would be moved to Pillar 2 measures, for example the Scottish Rural Development Programme ( SRDP).

2.2 There were 49 replies to the consultation question which asked " 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)?"

2.3 Twenty-seven respondents, from across all categories, wanted to retain some form of Pillar 1 payments; either by keeping the current measures or revising them in some way.

2.4 Only two environment stakeholders, one wider interest and one special interest organisation specifically commented that Pillar 1 payments should abolished:

• subsidies should be paid for public benefits, phase out Pillar 1 and transfer funds to Pillar 2 (special interest);
• phase out Pillar 1, transfer land management funds to Pillar 2 and fund a sustainable land management policy (environment);
• post-2014 CAP should be reformed into a new system based on delivery of public benefits, decoupled Pillar 1 no longer has a policy objective so is not justified, need for a sustainable land use policy for Europe and for clear policy objectives to maintain support for rural land management (environment);
• phase out Pillar 1 but ensure continuing agricultural support and genuine emphasis on Less Favoured Areas ( LFAs), ensure land management is funded primarily for the provision of environmental benefits, rural policy must take account of all people not just farmers and land managers (wider interest).

2.5 A farming stakeholder felt that in order to guarantee that payments reflect the value of public goods and services (both market and non-market) policy objectives as well as the purpose of payments need to be agreed before the EU budget is set. This respondent commented that Pillars 1 and 2 may not be suitable to deliver the CAP after 2014 and that a radical approach might be needed in order to face the challenges of food and environmental security.

Link to agricultural activity

2.6 A supply chain/livestock stakeholder also saw the need for an imaginative approach; this respondent felt that Pillar 1 payments should be linked to agricultural activity with a defined purpose and must be an incentive to produce. They cautioned the need to ensure any changes do not disadvantage primary producers. A local authority felt direct payments linked to activity would help secure food production and also maintain public goods.

2.7 Two respondents from the farming sector also commented on this subject; one said that the SFP should not be treated like a commodity, it must be tied to land and payments should be based on activity. A farming stakeholder wanted direct support payments which pay for what is delivered (including non-market goods such as environmental benefits, higher production standards, supporting jobs in secondary industry, rural infrastructure and quality of life); this should straddle both Pillars 1 and 2. They also wanted consideration given to a contingency payment which could be activated in case of a dramatic price fall.

2.8 A wider interest organisation also wanted to see payments linked to activity; they acknowledged the need for greater funding for the SRDP but also wanted a base level of direct support payments in order to maintain activity in more disadvantaged areas.

Provision of public goods

2.9 One environment stakeholder commented that there is merit in retaining Pillar 1 at base level where it would be worth land managers claiming and so retain their land in cross-compliance. An individual also wanted to see a base level payment retained to maintain care of the countryside while an agribusiness organisation wanted to ensure farmers who look after the environment do not see their payments reduced.

2.10 Two special interest respondents made similar comments:

• funding should be paid for the provision of public goods, the target of halting loss of biodiversity by 2010 won't be met and a significant increase in funding will be needed to reach it in future;
• increase funding to Pillar 2 but ensure land managers are paid for maintaining the landscape and environment, the move to SFP has blurred the distinction between financial support and rural development funding, need to focus on public benefit, tie all payments to cross-compliance conditions and specified outcomes that support the rural environment and communities.

2.11 A farming stakeholder wanted to see Pillar 1 retained for payment of specific public goods (animal health, bio-security, soil, water and habitat management measures, climate change mitigation and food security).

Viability

2.12 A wider interest stakeholder said that any changes need to take account of the importance of Pillar 1 payments to the profitability of farm businesses; three other organisations from the wider interest group commented that without Pillar 1 support many businesses might not be viable. One commented "The major part of the public environmental benefit derives from the ongoing management of the countryside, rather than focussed localised measures designed to draw down Pillar 2 support" while another described SFPs as the "bedrock".

2.13 A farming stakeholder commented that the profitability of Scottish farming depends on SFP and that without it the sector will be in severe difficulty, especially those businesses where agriculture is the main source of income. Another farming stakeholder commented on the need for continuing direct support for businesses which depend significantly on the SFP; especially for tenant farmers who experience difficulty diversifying. This respondent pointed out that the rural economy is underpinned by agriculture and so it is essential that support remains after 2014.

2.14 Eight other respondents mentioned problems that could be caused by eliminating Pillar 1 payments and these included:

• have as much funding as possible remain in Pillar 1, Scottish farming is still not sustainable without support as cost of outputs has not kept up with inputs (supply chain/ livestock);
• the SFP gives stability to continue in agriculture even when it is not viable (local authority);
• need to maintain and increase productivity and competitiveness so need more funding for Pillar 1, not Pillar 2 (individual);
• need to assure sustainable production of food and management of land, market forces alone cannot do this (research/ education).

2.15 Another local authority wanted to retain Pillar 1, otherwise there would be a risk to livelihoods especially in marginal areas and consequently a risk of land abandonment. Similar comments on the risk of land abandonment also featured in another five responses.

Planning for change

2.16 Five respondents commented on the need to ensure that businesses have adequate notice of changes. A special interest respondent wanted to see help given to businesses to plan for change and said that a reformed Pillar 1 should encourage businesses away from dependency; something which they felt SFPs and the Less Favoured Area Support Scheme ( LFASS) are not doing. A local authority made similar comments. Another local authority said Pillar 2 measures distract farmers from producing; they must be encouraged to respond to market forces.

2.17 A wider interest stakeholder cautioned against making radical decisions on the distribution of funding without greater understanding of the impact on agriculture, food supply, down and upstream industries and market behaviours. A research/ education organisation also commented on the need for evidence before changing policy.

2.18 A local authority wanted to see Pillar 1 continued in some form in order to let industry adjust to ongoing reforms and market orientation.

Distribution of funding

2.19 There were a variety of suggestions in relation to distribution of funding, with 11 respondents specifically supporting measures for Pillar 2 funding towards environmental issues or commenting that Pillar 2 measures are under funded in Scotland.

2.20 Pillar 2 payments were seen as hard to access, especially by smaller businesses; five respondents commented including one supply chain/ livestock organisation who said that the structure of SRDP, and especially Axis 3, makes it hard for farmers to access Pillar 2 funds. A farming stakeholder felt this could be addressed through a greater use of Land Manager Options ( LMOs), by increasing payment ceilings and enhancing the menu of options.

2.21 Two farming respondents wanted to see a move away from the competitive nature of current Pillar 2 measures; one wanted to see support directed at remote and marginal areas and also used to encourage positive crofting activities.

2.22 Four respondents felt that funding should be based on need; in particular a farming stakeholder said that beyond 2014 reforms should ensure that the needs of disadvantaged areas are met. Three respondents wanted CAP funding to be based on clear objectives with more clarity over why payments being made and three respondents commented on the need for evidence before making changes to the structure.

2.23 A farming stakeholder noted that most of Pillar 2 funding goes into Axis 2 (improving the environment and countryside) of the EU Rural Development Policy ( RDP) and half of that supports the LFASS. This means that support for the other axes is inadequate (especially for Axis 1, improving the competitiveness of agriculture and forestry sectors). They felt that beyond 2014 there should be sufficient scope to invest in agriculture and forestry and added that funding in Axis 2 should aim at measures that help industry contribute to the mitigation of climate change.

2.24 Increasing funding for Pillar 2 Axis 1 was seen by one environment stakeholder as a way "to develop more efficient production systems using best available techniques particularly those relevant to reducing emissions, more efficient use of resources and better marketing".

2.25 A local authority and a farming organisation wanted to see a robust RDP to deliver across the three main axes. These respondents commented that listed priorities are more to do with meeting regulations and quotas than about rural development.

2.26 A local authority felt that the markets and the environment face changing pressures and so funds must be flexible; a research/ education organisation agreed but acknowledged that this will be hard to achieve.

2.27 A local authority and a farming organisation felt receipts from modulation should be retained by the Member State in which they are generated and also regionally within Member States. They felt this would better resource social, economic and environmental measures at a regional level which they saw as very important for Scotland.

2.28 Two environment stakeholders proposed a new way of distributing the CAP budget, this should be targeted towards the provision of public goods through agri-environment schemes and funds should be distributed through Pillar 2 measures. They both commented "If our agricultural subsidies are well directed, Scottish land managers will not only have access to greater levels of funding but would also have more choice about their farming methods and could extensify farming in some areas while continuing highly productive farming for market rewards in others".

2.29 An environment organisation thought that the CAP should evolve to support sustainable land management and to address environmental challenges. They saw a need for legal compliance measures and wanted to see funds targeted at those undertaking a wide range of additional positive actions that deliver sustainable land management and public goods.

2.30 All CAP support ought to be viewed as payment for the provision of environmental and other non-market public benefits; this environment stakeholder saw no clear justification for keeping two separate Pillars after 2014 and wanted to see a move away from the Pillar model. They acknowledged that there will be a continuing need for targeted income support, but on a more restricted basis than SFPs. They pointed out that there is already scope under the RDP to pay income support payments "targeted at environmentally significant farming in specific geographical regions in the LFA measures".

2.31 Both a special interest organisation and a local authority commented on the need to consider the future role of the LFASS alongside changes to the CAP and SFPs. They mentioned that although LFASS is a Pillar 2 payment it plays a vital role in supporting agriculture in the Southern Uplands and Scottish Borders. LFA payments are important where there is no opportunity for other support; the respondents felt that reducing this support may lead to loss of agriculture from the hills which would have a significant impact on rural communities, biodiversity and on the landscape. These respondents wanted better targeted resources to protect the rural landscape and economy and felt that this would be easier to achieve through Pillar 2 measures.

2.32 A farming organisation and a farming stakeholder felt that a longer term objective of CAP policy should be to allow farmers to make a living producing food and wider environmental, economic and social benefits. The stakeholder commented that the market is sometimes distorted under CAP, as retailers use it as an excuse to reduce the price they pay to producers; they wanted to ensure that the revised system avoids this. They also stressed the need for the CAP to be common across all Member States.

2.33 A farming organisation said that a move towards Pillar 2 would lead to under utilisation of resources particularly in livestock rearing areas; they wanted to see a balance maintained between Pillars 1 and 2; a farming stakeholder made similar comments.

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