The following letter was issued to interested organisations on 10 January 2000. Views are also welcome from members of the public - see paragraph 9 for how to reply
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To: Interested Organisations |
Pentland House Telephone: 0131-244 6180 10 January 2000 |
1. The Scottish Executive invites your comments on a proposal to use Article 4 of EU Regulation 1259/99 "Horizontal Measures" to recycle into the new EU Rural Development Regulation a proportion of the money which currently comes to farmers in direct EU subsidy payments. The aim of this proposal is to use this money, matched pound for pound with additional funds from the UK Government, in ways which directly assist the long-term sustainability of the farming industry in Scotland and the fragile rural areas in which it is based. Views are invited on how the money could be spent to achieve this aim.
2. This proposal is being brought forward in response to the challenges facing the agriculture industry and the widespread acknowledgement that action is required if the industry is to adapt successfully to the challenges ahead. Agriculture is vitally important to the economic, social and environmental well-being of much of rural Scotland, but the mainstream Common Agricultural Policy commodity support regimes alone can no longer ensure a healthy and sustainable future for the industry - or the rural communities in which it is based.
3. The challenges facing those communities are widely acknowledged. A combination of structural and cyclical problems mean that farming communities are experiencing low incomes and, in some instances, uncertainty over future demand for their produce. This has led to increasing pressure for greater efficiencies, a search for new and more profitable markets, and the need for additional/alternative sources of income. The Rural Development Regulation contains measures to assist with these changes. It also recognises the need for those communities to develop in ways which sustain and improve the environment, providing various measures which can assist with this process. In addition, the forthcoming WTO Round is likely to continue the move away from open-ended agricultural production subsidies, evident since the 1992 CAP reforms and the subsequent GATT Agriculture Agreement in the Uruguay Round. While these matters are still the subject of WTO negotiation, it is likely that the more a support measure is decoupled from production, the more acceptable it is likely to be in future. This points towards more support measures which involve quotas or ceilings on the area of land or numbers of animals subsidised, making production-linked payments degressive, paying on an area rather than a production basis, or designing future schemes to address social and/or environmental objectives. Modulation, together with the type of measures in the Rural Development Regulation, would go some way to meeting a number of those objectives.
4. The new Rural Development Regulation EC 1257/99 was introduced as part of the Agenda 2000 measures agreed by Agriculture Ministers in March 1999. It can be financed both from direct funds provided by the Commission and Member States, and by using Article 4 of the Horizontal Regulation to ‘modulate’ or transfer some EU money from direct subsidy schemes (the Sheep Annual Premium, Suckler Cow Premium, Arable Area Payments and Beef Special Premium Schemes). The Regulation is designed to complement the reforms agreed in the agricultural market sectors and is an acknowledgement that the challenges facing the agriculture sector throughout Europe are best tackled by a twin approach - continuing to support agriculture directly whilst recognising the range of roles which farming plays in rural areas.
5. The Scottish Executive welcomes this acceptance that a range of tools is needed to assist farming communities, and some £98 million per year has already been made available by the EC, Scottish Executive and other public sector bodies in Scotland to finance schemes under the new Rural Development Regulation. Because of the difficulties currently being encountered by the Scottish farming sector, and a view that the sums to be raised by modulation on its own would be insufficient to make a real difference, the Executive has, until now, not proposed the introduction of modulation or recycling. In recent weeks, however, following discussions between the Agriculture Ministers in England, Scotland, Wales and Northern Ireland and the UK Exchequer, it has been agreed that the UK Government will match pound for pound any money generated through modulation. This adds significantly to the funds available to Scotland, while maintaining a low level of modulation. As a result of this agreement, the Executive is now proposing the introduction of a limited rate of modulation, applying to all direct EU subsidy payments made to Scottish farmers. The money, set out in the table below, would be available for use under the Rural Development Regulation. Views are invited on this proposal.
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2001/02 |
2002/03 |
2003/04 |
2004/05 |
2005/06 |
2006/07 |
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Rate of modulation |
2.5% |
3.0% |
3.5% |
3.5% |
4.5% |
4.5% |
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Funds from modulation |
£10.3m |
£13.4m |
£15.6m |
£15.9m |
£20.7m |
£21.1m |
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Funds from UK Government |
£10.3m |
£13.4m |
£15.6m |
£15.9m |
£20.7m |
£21.1m |
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Total available |
£20.6m |
£26.8m |
£31.2m |
£31.8m |
£41.4m |
£42.2m |
6. As noted in paragraph 1, the purpose of this proposal is to assist the long-term sustainability of the farming industry in Scotland and the fragile rural areas in which it is based. As such, the key to its success would be ensuring that the money raised through modulation and provided in match funding is used to best effect. The Executive views this as an opportunity to invest between £20 million and £40 million per year in the future development of Scotland’s farming communities but it has to be done in a way which contributes to the long-term economic, social and environmental well-being of those communities and the areas in which they are based. Views are sought on how the Rural Development Regulation can best be used to meet this aim.
7. The Rural Development Regulation offers a wide range of mechanisms. These are listed at Annex A, together with a brief assessment of each measure. In accordance with the requirements of the Regulation, the Scottish Executive has already drawn up Rural Development Plans for the Highlands and Islands and the rest of Scotland. The Highlands and Islands Plan was submitted to the European Commission in October as part of the Highlands and Islands Special Programme and the Plan for the rest of Scotland was submitted at the end of 1999. Those Plans, drawn up in conjunction with a wide range of social and economic partners, including farming industry representatives, contain a variety of measures for the period 2000-2006 (see Annex B for more detail).
8. These measures necessarily reflect the current funding available, so comments are invited on, if there is modulation, whether other measures should be introduced to the Plans and the extent to which existing measures should receive additional funds. In any case, there is a statutory obligation to ensure that Plans provide a balanced menu of measures.
9. Any comments on this paper should be submitted to Ken Gray, SERAD, Room 251, Pentland House, 47 Robb’s Loan, Edinburgh, EH14 1TY (Tel: 0131-244-6180) (ken.gray@scotland.gov.uk) by Monday, 21 February 2000. Further copies of this document can be requested from Mr Gray. It can also be found on the Scottish Executive Website at: http://www.scotland.gov.uk.
10. Unless you indicate that you want all or part of your comments to remain confidential, SERAD will make them publicly available in order to assist informed debate. Copies of the responses received will be made available from the Scottish Executive Library, K Spur, Saughton House, Broomhouse Drive, Edinburgh, EH11 3XD (Tel: 0131-244-4552).
Scottish Executive
Rural Affairs Department
The Rural Development Regulation allows for investments in agricultural holdings with the general objectives of facilitating the development of the agricultural sector, improvement of agricultural incomes, and improvements to living, working and production conditions on agricultural units. In particular, any investments under this heading must help to reduce production costs, improve and redeploy production, increase quality of agricultural products, preserve and improve the natural environment, hygiene conditions and animal welfare standards, or promote the diversification of farm activities. As with other measures included in the Regulation, the economic viability of a holding for which assistance is sought must be demonstrable, and applicants must comply with minimum standards of environmental care, hygiene and animal welfare. Simple replacement of existing buildings, machinery, etc would not be eligible.
Over the years, the Executive has administered and funded several agricultural capital grant schemes, but it has progressively moved away from wide-ranging capital grant schemes towards ones which are targeted on businesses which wish to restructure, diversify or engage in new collaborative ventures. There is no specific grant scheme under this heading in the new Lowland Scotland Plan, although there are other schemes in the Plan designed to encourage diversification, etc. A specific capital grant scheme has been included in the new Highlands and Islands Plan. It is for consideration whether more money should be put into the existing scheme, whether new ones could be developed, and what the objectives of any new schemes would be.
Assistance can be provided to establish young farmers, who are setting up for the first time, and who are under 40 years of age. Applicants should have adequate occupational skills, and their agricultural holdings must be viable, and must also achieve minimum standards in terms of the environment, hygiene and animal welfare. Applicants can, however, be given three years grace, from the date of establishment, to fulfil these conditions.
Establishment aid can comprise either a single premium up to a maximum of 25,000 euro or an interest subsidy on loans taken on by applicants to cover the costs arising from establishment. The capitalised value of the interest subsidy may not exceed the value of the premium, ie 25,000 euro.
Special assistance for young farmers is not new, but it has not been adopted in the past in the UK. In an earlier consultation on the prioritisation and programming of the Regulation in Scotland, there was little support for this measure, unless it was integrated into a package containing early retirement and training for new entrants to the industry. Views are now invited on whether modulated funds should be used for this purpose.
The Regulation allows for the investment of funds to support the vocational training of those engaged in agriculture and forestry, eg to improve their land and forest management skills, to improve management of the environment, animal welfare, hygiene standards, etc.
Changing policies for agriculture will increase the need for rural industry to be innovative and highly competitive. This will place renewed emphasis on education, training and research and the transfer of technology from research into practice. Increasing rural diversification will require training in new skills to allow the rural population to maximise its economic and social opportunities in the period ahead and offset pressures towards rural depopulation and rural disadvantage.
In a market place which is increasingly driven by greater consumer choice, greater consumer awareness in relation to animal husbandry and welfare as well as general food safety issues, producers are faced with the challenge of being able to present a positive and professional image of their industry and its products. A key element within this is the importance which individual sectors assign to the training and development of their workforce. This requires an investment in terms of the expertise that individuals are able to bring to their businesses. It is essential that rural businesses are able to compete in the market place which is increasingly subject to both external and internal pressures.
A wide range of training is already funded through the public sector, which is why it is not included in existing Rural Development Plans. It is for consideration whether modulated funds are used to augment these.
The Rural Development Regulation permits the setting up of an early retirement scheme for farmers (and workers on those farms). To qualify for this scheme, a farmer has to stop commercial farming, be between 55 and the normal retirement age, and have farmed for at least 10 years. The land must be transferred to another farmer or to a non-agricultural use. The Regulation permits payments of up to 15,000 euro (about £10,000) per year, to a maximum of 150,000 euro. Farm workers can receive up to 3,500 euro (around £2,300) per year, up to a maximum of 35,000 euro.
In devising the Rural Development Plans already submitted to the EC, the Executive did not include an early retirement scheme as it had doubts about how effective such a measure would be in helping to make the industry more sustainable.
It is for consideration whether a scheme could be devised which meets the objectives set out in this consultation paper and, if so, whether funds raised from modulation should be used for it.
Under the Rural Development Plans already submitted to the EC, this measure will attract the highest level of funding. It is for consideration whether this should be supplemented by modulated funding.
Because of physical, climatic and topographical constraints, 85% of Scotland is classified as Less Favoured Area. These constraints limit the potential for agricultural activity and mean that extensive livestock production is the predominant activity in these areas. Up until now, support for farming in the LFA has taken the form of Hill Livestock Compensatory Allowances (HLCAs) which have been paid to around 14,000 farmers and crofters each year. A recent independent evaluation by Edinburgh University concluded that HLCAs (which in a normal year account for around 40% of average net hill farm income, but most recently the percentage is much higher due to falling hill incomes) have delivered real social, economic and environmental benefits. More specifically, the evaluation concluded that HLCAs have contributed very usefully
The proposed new area-based LFA scheme will continue to deliver social, economic and environmental benefits to much of Scotland. Moreover, the decoupling of LFA support payments through the move from a headage to an area-based approach, means that the new scheme could act as a model for future, longer-term support for farmers and crofters as further reform of the CAP unfolds.
The Regulation provides for payments to compensate farmers for costs incurred, and income foregone, as a consequence of having to operate their businesses under environmental restrictions. These restrictions must have come about as a result of the implementation of EU environmental protection rules. The maximum payment is 200 euro per hectare, and Member States must implement arrangements to avoid over-compensation, particularly where payments in Less Favoured Areas are also being made.
This is a new EU measure which has not been taken up in the current Plans as Scotland already has various mechanisms for payments of this type, including Sites of Special Scientific Interest, various agri-environment measures and the payments made in Less Favoured Areas. Furthermore, the Regulation would not permit payments which duplicated existing arrangements. It is for consideration whether there are other ways in which modulated funds should be used.
Agri-environment measures are the only mandatory element of the RDR and must be operated throughout Scotland. They are a major part of the Plans already submitted to the EC. Only agricultural land can be included in agri-environment schemes. Under existing schemes, two types of payments are available to participants - annual management payments on a hectarage basis and one-off capital payments for measures such as fencing, dyking or hedge planting which also have a conservation benefit.
Expenditure on agri-environment schemes can deliver a variety of environmental, economic and social benefits. There is a need to identify more ways in which environmental improvements can also help the financial viability of farming communities, but experience to date highlights some comments on agri-environment schemes:-
A disadvantage is that participation in agri-environment schemes requires a financial commitment of up to 10 years - running beyond the period covered by the modulation proposals.
The Regulation refers to activities which lead to the improvement and rationalisation of processing and marketing of agricultural products, and which contribute to increasing competitiveness and added value of such products. Support can be given to investments which:
Enterprises must be able to demonstrate economic viability, and compliance with minimum standards with regard to the environment, hygiene and animal welfare. Investments must contribute to improving the situation of primary producers, and must guarantee producers an adequate share in resulting economic benefits. Applicants must also demonstrate that market outlets for the products for which assistance is sought have been identified. Investments at retail level, and investments in processing or marketing of products from third countries are prohibited.
Schemes of this type have operated in Scotland for some years, improving financial returns to food companies and the associated farmers and crofters, and adding value to their products by capitalising on the quality image of Scottish agricultural produce, through more local processing and improved marketing. The Executive and other public sector bodies in Scotland will contribute funding for these measures in the new Highlands and Islands Structural Funds Plan and the Lowland Scotland Rural Development Plan, working in partnership with the industry to focus and target resources as effectively as possible, and seeking to avoid overlap and duplication of activity.
Views are invited on the prospects of increasing funding levels and, if so, on the type of projects which may be given highest priority.
Forestry measures form an integral part of the Rural Development Regulation. In addition to the afforestation of agricultural land (which is an accompanying measure), there is support for other measures relating to developing the economic, environmental and social potential of forestry. Incentives for creating and managing woods and forests are currently available through the Woodland Grant Scheme (WGS). In addition, the Farm Woodland Premium Scheme (FWPS) compensates farmers for loss of farming income after agricultural land is planted. The Regulation also makes provision for support to improve certain aspects of wood harvesting, processing and marketing, as well as forestry-related training.
Arguments in favour of increased funding for forestry stem from the environmental, economic and social benefits that well-designed woods and forests can bring. In addition to producing wood for processing, well-managed forestry brings environmental and biodiversity benefits and a viable alternative to agricultural production. Local communities value forestry most where it brings opportunities for employment and recreation (including tourist facilities). There is the added benefit of carbon storage, contributing to net reductions in greenhouse gas emissions. Increased forestry activity will create new opportunities for development of forestry businesses and associated agricultural diversification.
However, forestry is not an option everywhere. Some land may be unsuitable for tree planting, or may need to be retained in its current use (eg to protect prime agricultural land or important conservation areas). Another problem, for the FWPS, is that it involves commitments to fixed annual payments for up to 15 years - well beyond current modulation plans for seven years. To be able to use modulation funds for FWPS, resources will need to be available for the full period of commitments.
Article 33 contains a wide range of agricultural and "off farm" rural development measures from which Member States can select their priorities. The measures are:-
(a) land improvement: support could cover, for example, reseeding, improvement of soil quality, removal of boulders, bracken, etc;
(b) reparcelling: support could be granted to facilitate the transfer of plots of land among producers to help with the establishment of better structured and economically viable holdings. Legal and survey costs could be assisted;
(c) setting up of farm relief and farm management services: support can be given to agricultural associations or other bodies to help with the costs of establishing and operating farm relief services (eg where a farmer is unable to operate his/her unit) or farm management services (eg providing management and staff to operate a unit);
(d) marketing of quality agricultural products: the main marketing and processing measure in the Regulation focuses on supporting capital costs, but this measure could assist with revenue costs, eg market research, feasibility studies, quality improvement measures and promotional material and campaigns (subject to European Commission rules on the promotion of agricultural products). These activities have already been incorporated in both the draft Highlands and Islands Plan and in the draft Plan covering Lowland Scotland;
(e) basic services for the rural economy and population: although the European Commission has not provided a detailed definition of activities which might be supported under this heading, we understand that provision or improvement of basic services such as water, sewerage, roads, mainstream public transport, etc would not be eligible. It is possible that support could be given for smaller-scale activity such as the provision of business advice, help with financial planning, especially in an area affected by changes to the farming industry;
(f) renovation and development of villages, and protection and conservation of the rural heritage: activities under this heading could also, in principle, be supported from the European Regional Development Fund (ERDF) in eligible areas;
(g) diversification of agricultural activities, and activities close to agriculture to provide multiple activities or alternative incomes: support for diversification projects by farmers and crofters is already proposed in the draft Highlands and Islands and Lowland Scotland Plans. In principle, however, this measure could also assist enterprises or individuals with some linkage to agriculture to widen their business activities, and to benefit from new sources of income. It would, of course, have to avoid supporting projects which displace or threaten existing businesses or which lead to over-supplied markets. Drawing on the expertise and experience of local agencies and organisations would be essential to avoid these pitfalls, and to dovetail activities and funds with local strategies and priorities. Activities under this heading could also, in principle, qualify for support from the ERDF;
(h) agricultural water resources management: this could cover drainage projects, irrigation, flood prevention measures, etc. Assistance towards field drainage projects has been available under the Objective 1 Agricultural Business Improvement Scheme (ABIS) and the Crofting Counties Agricultural Grants Scheme (CCAGS). The CCAGS can also assist arterial drainage projects. Environmental considerations would play a key role in any new arrangements, as would wider agricultural policy factors, eg the need for land to be kept in (or brought into) agricultural production given the over-supply position for most commodities;
(i) development and improvement of infrastructure connected with the development of agriculture: as for heading (e), there is no detailed prescription of eligible activities under this heading. It is understood, however, that the establishment of machinery and labour rings could be supported, as well as capital projects intended to maximise the benefits of collaborative ventures (eg lairage facilities) to assist the agricultural sector. Again, it is doubtful whether large-scale roads, water or sewerage projects, or subsidies for transport, fuel costs, etc would be eligible for support. In principle, activities under this heading could also be eligible for assistance from the ERDF;
(j) encouragement for tourist and craft activities: largely self-explanatory. The involvement of local agencies in project selection and assessment would be essential to ensure synergy with local strategies and priorities, and to avoid displacement of existing enterprises;
(k) protection of the environment in connection with agriculture, forestry and landscape conservation as well as with the improvement of animal welfare: both the draft Highlands and Islands and Lowland Scotland Plans already include activities under this heading. The draft Lowland Plan also includes reference to the possibility of developing a scheme of assistance for the disposal of fallen stock. The agri-environment programme will remain as the main source of support for farmers and crofters who wish to manage their land and businesses in environmentally-friendly ways, but this heading provides scope for a wide range of projects and activities to benefit the environment and to improve animal welfare. Comments and suggestions would be welcome, particularly where some economic benefits to the agricultural and forestry sectors could also be demonstrated;
(l) restoring agricultural production potential damaged by natural disasters and introducing appropriate prevention instruments: this heading could help with the costs of restoring agricultural land and buildings (linked to production) damaged by natural disasters, eg flooding. Removal of debris, boulders, etc and restoration of the productive potential of land and buildings could be supported. The costs of preventative measures, eg floodbanks, could also be eligible for assistance. This measure is intended to help with the aftermath of significant (ie small-scale, localised damage would be unlikely to qualify) natural adversities, and the linkage with agriculture means that, for example, flood prevention schemes for towns and villages would not be eligible;
(m) financial engineering: this heading covers, for example, low cost loans, venture capital and other mechanisms to provide financial support to rural enterprises. Involvement of local agencies would be important to dovetail with existing business support arrangements, and to avoid double funding.
1. The Structural Funds and Rural Development Regulations require Member States to include certain rural development measures within Structural Funds Plans for Objective 1 and transitional areas. These measures will continue to be funded from the Guidance Section (ie a Structural Fund) of the European Agricultural Guidance and Guarantee Fund (EAGGF), whereas outwith Objective 1/transitional areas the same measures would be funded from the Guarantee Section (ie the source of EU funding for the Common Agricultural Policy). The CAP accompanying measures (forestry, agri-environment, early retirement for farmers and workers, and support for Less Favoured Areas) will be funded from the Guarantee Section throughout the EU.
2. In Scotland, this means that a range of Guidance-funded measures (see below) have been incorporated in the draft Highlands and Islands Structural Funds Plan, and the measures incorporated in the draft Lowland Scotland Plan will be funded from the Guarantee Section. In addition, the Lowland Scotland Plan includes our current proposals for implementing the accompanying measures (Guarantee funded) which we intend to operate on an all-Scotland basis - these measures are agri-environment, forestry and support for Less Favoured Areas. Representatives from the agricultural industry were involved in the preparation of both draft Plans, along with officials from the Executive, local government, the enterprise companies, environmental bodies and the voluntary sector.
3. The draft Highlands and Islands Plan includes three separate EAGGF measures. The first measure is headed "creating conditions for regional competitiveness: enhance and maintain the environment, forestry and rural heritage". The objectives of this measure are to:
4. It is intended that EAGGF support should be available for a wide range of activities to enhance and develop the natural and built environment, and the forestry sector. These activities include:
5. A sum of 16.8 million euro (approximately £10.5 million) has been notionally allocated to this measure by the Highlands and Islands Plan Team. This sum will have to be matched from domestic resources, resulting in total public expenditure of around 33 million euro over seven years.
6. The other two measures for which EAGGF support is sought are headed "rural development and fisheries: investments in agricultural holdings, diversification and co-operation" and "rural development and fisheries: improving the marketing and processing of agricultural products". The first of these measures will provide grant assistance to help farm and croft businesses to:
7. The measure also proposes that the current Objective 1 Crofting Township Development Scheme should be continued in the new Plan.
8. The second measure is designed to improve the quality, increase processing activity and strengthen linkages in the food chain in the Highlands and Islands with a view to adding value to local primary produce, to improve returns to primary producers and to create employment opportunities in local communities. It is also proposed to assist marketing and promotional activities which capitalise on the quality and environmentally-positive nature of Highlands and Islands products.
9. It is intended that support will be available for:
10. A sum of 24 million euro (around £15 million) has been notionally allocated to these two measures by the Highlands and Islands Plan Team. This sum will have to be matched from domestic resources, resulting in public sector expenditure over the seven years of the Plan of some 48 million euro (around £29 million).
11. As indicated in paragraph 2 above, the Lowland Scotland Plan includes proposals to implement CAP accompanying measures across Scotland. These are:
In addition, there are measures applying solely to Lowland Scotland:
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