House of Commons - Farming in the Uplands - Environment, Food and Rural Affairs Committee

Farming in the Uplands - Environment, Food and Rural Affairs Committee Contents

4 Future funding for upland farming

33. Farming in the uplands can be a precarious profession. The 2009-10 Farm Business Survey states that for LFA grazing livestock the average net farm income was £15,600 and average farm business income (in essence the same as Net Profit) was £22,200, compared to £31,500 and £43,300 respectively for all farms.[72] The CRC's November 2010 report Poverty amongst farming households: Achieving sustainable livelihoods noted that "...LFA grazing livestock farms had the lowest average household income (£27,500)" compared to a mean farm household income over £50,000. As an example of the economic plight of upland farms, the Poverty amongst farming households report stated that:

In 2006 Farm Business Income from agriculture alone demonstrated that Peak District farms made a loss of £14,843. It was in fact income from agri-environment schemes, the Single Farm Payment and diversification that raised their total [Farm Business Income] to £11,167".[73]

The decline in the viability of hill farming is due to a range of factors—much of our evidence identified the introduction of the Single Payment Scheme as a principal cause, while falling prices for livestock, higher input costs and currency fluctuations were also referred to.[74]

34. Defra argued that while hill farmers tend to enjoy a lower income than lowland farmers the principal issue relates to the economics of grazing livestock farming rather than to upland farming. The department's memorandum illustrates the similar levels of income for grazing livestock farms in the lowlands and the uplands.[75] Defra does acknowledge that "...without support from the Single Payment Scheme (and the former Hill Farm Allowance), many upland farmers would, at current (or recent) input and output prices be making a loss on average on their farm business activities".[76] That additional support is provided to hill farmers to compensate for the particular difficulties associated with farming in those areas. Defra therefore appears to be arguing that although livestock grazing in the uplands generates a lower income than lowland livestock grazing, the fact that hill farmers are compensated for that lower income means that the principal issue relates to grazing livestock rather than doing so in the uplands. The Farm Business Survey 2008-09 found that LFA Grazing Livestock farms had the lowest average household income (£27,500). These household income figures include income from diversification and off-farm activities.[77] One of the difficulties for hill farmers is that there are fewer opportunities to diversify or seek off-farm income.

35. Will Cockbain, uplands spokesman for the NFU, explained that hill farmers are restricted in their business choices due to the limitations of climate and environment. He added that as hill farmers were at the end of the livestock production chain they were "very vulnerable" to price fluctuations and had nowhere to pass on any increases in their costs.[78] Upland farms are also relatively poorly supported by the Single Payment Scheme, under which the per hectare payment rate broadly reflects the old production-linked subsidy level.

36. The Minister told us that hill farmers deserved extra support because of the additional challenges of farming in the uplands, but added that any additional funding would have to come from existing resources.[79] He explained that there were obstacles to providing additional funds through environmental stewardship schemes and therefore they would have to "...come out of the Rural Development Programme money and, yes, that means something else will be cut".[80] Sources of additional income for hill farmers fall principally into three categories: farming activities; diversification (such as tourism); and developing additional land-based sources of income (such as carbon storage). While acknowledging that grazing livestock farming is currently almost always economically unviable without public payments, Defra argued that the upland environment provides farmers with business opportunities both through diversification into tourism and the development of markets for public goods.[81] In this context public goods means mainly environmental and landscape benefits that farmers provide and that the public value; but for which traditionally there has been no market mechanism through which farmers can generate an income.

37. William Worsley, President of the CLA told us that in the uplands, while other business opportunities may exist in certain areas, livestock farming was the "bedrock".[82] Similarly, Mr Cockbain told us that "You have to recognise that it is profitable farming that is the start and everything else is on the back of that."[83]

38. Farming should be the primary activity of hill farms. The Government's forthcoming uplands strategy must address how, as the first priority, farming activities can be enhanced and made more efficient to increase hill farm incomes. We accept that farming will not necessarily provide sufficient income for some hill farms to continue. The Government's uplands strategy should therefore consider the barriers to diversification and new markets and how best to enable farmers in the uplands to exploit those business opportunities.

Single Payment Scheme

39. In 2005 the UK introduced the Single Payment Scheme (SPS)—the main source of EU subsidy for UK farmers. Under the scheme the previous production-linked payments were replaced by the Single Farm Payment (SFA), which is based, in England, on the area of farmland. The SPS therefore 'decouples' payments from production. Payments under the SPS require a farmer to 'cross-comply'—a requirement to keep land in good agricultural and environmental condition and to meet certain environmental and animal health and welfare standards. Decoupling payments from production was intended to encourage farmers to make farming choices driven by market conditions rather than simply to qualify for production-based payments.

40. Many of our witnesses identified the introduction of the Single Payment Scheme as a turning point for hill farming. The South West Uplands Federation considered that the introduction of the SPS removed "the incentive to farm the moorland".[84] Dartmoor National Park Authority echoed that view, quoting research by the University of Exeter and Duchy College in 2008 that identified the Single Payment Scheme as the main cause of decline in economic viability of hill farms in South West England.[85] These views are supported by data that indicates that prior to 2005, when the SPS was introduced, LFA grazing livestock farms had higher farm business incomes than lowland grazing livestock farms.[86]

41. The TFA argued that the SPS had led to the reduction in livestock numbers in the uplands and in particular the loss of suckler cows.[87] The Association explained that:

The Suckler Cow Premium and Ewe Premium (and their LFA supplements) provided an essential base line level of support to cattle and sheep breeders in hill areas. The rationale for removing them was that the breeder should look to the market place for his return. However, the reality of the situation is that no extra return has been gleaned from the market place following the removal of the breeding premiums which has led to the contraction of cattle and sheep numbers in the hills which has in turn led to inevitable implications for the natural environment including the incursion of bracken and other evidences of under grazing.[88]

42. The Association advocates a return to direct payments linked to production based on the numbers of livestock, known as headage payments, for suckler cows and ewes, with appropriate environmental criteria.[89] Mr Dunn argued that such payments could deliver agri-environment outcomes where loss of livestock had led to environmental degradation.[90] He told us:

First, we want direct income support because of the profitability of farming in the uplands, but, secondly, we want that direct income support to do other things for you in terms of environmental management. It is only when you have profitable businesses that they can then invest in walls, watercourses and everything else that you want to do in that area. Rather than have a very prescriptive approach we need an outcome-based approach that you can tailor to each individual circumstance.[91]

In contrast, Peter Barfoot, Head of Conservation at North York Moors National Park rejected any return to headage payments and asserted that "...there is no doubt that the availability of uncapped headage payments resulted in environmental damage in the uplands". [92]

43. The European Commission's communication setting out proposals for Common Agricultural Policy (CAP) reform in 2013 noted that:

In order to take account of specific problems in certain regions where particular types of farming are considered particularly important for economic and/or social reasons, voluntary coupled support, may continue to be granted, within clearly defined limits (with support based on fixed areas, yields or number of heads).[93]

There is some flexibility in the CAP for Member States to allocate money to particular sectors. About 15 of the 27 countries in the EU implement either directly production-coupled payments for cows and ewes, or extra support for sheep and cows under 'Article 68'. Article 68 allows countries to divert up to 10% of their national funding to support for 'vulnerable sectors', this would considerably outstrip the current sum that the England spends on Uplands Entry Level Stewardship. In July 2010, the UK was the only country not to use any form of Article 68 measure.

44. Successive Governments have resisted a return to headage payments because of the potential environmental impact of overgrazing that can occur when farmers increase livestock numbers to maximise their subsidy payments. Another principal reason for the Government's opposition to headage payments is that they consider them market distorting. Defra's evidence to our inquiry into CAP reform expressed reservations about the Commission's proposals to retain voluntary coupling:

Defra is concerned the Commission's proposals do not tackle the remaining distortions in the single market. In particular, by mentioning voluntary coupled support under Pillar 1 "to take account of specific problems in certain regions", the Commission indicates no plans to complete the decoupling begun in 2003. This […] needs careful scrutiny (although the Communication does state this has to be within clearly defined limits). This type of payment is particularly damaging to competition and with Article 68 payments running at some €800m, this is an issue which we expected the Commission to tackle.[94]

In oral evidence the Minister of State confirmed that the Government remains opposed to a return to production coupled payments and he did not want "to turn the clock back".[95]

45. However, there are arguments in favour of the approach. In The Road Ahead For Scotland: Final Report of the Inquiry Into Future Support For Agriculture, commissioned by the Scottish Executive, Brian Pack, recommended the re-introduction of headage payments in LFA areas in Scotland to support vulnerable parts of the farming industry.[96] The Pack Inquiry supported the European Commission's Option 2, under which, in certain situations, coupled payments would be justified.[97] The final report argued that in respect of Scotland:

The primary aim of the coupled payments in the LFA would be to stabilise cow and ewe numbers on marginal land thereby securing the basis for delivering public goods, recognising the challenges of maintaining livestock production on this land and avoiding the risk of land abandonment. It is considered essential that headage payments do not encourage the keeping of breeding stock solely to collect the subsidy cheque as happened pre-decoupling, particularly with ewes. It would be essential that the total budget for each type of coupled support was set at the outset.[98]

46. The Tenant Farmers Association advocate a return to headage payments. Successive governments have resisted such a move. We are not convinced by the Government's arguments for dismissing this option. We recommend that the Government look again at the arguments for and against headage payments and explain the evidence base and grounds for opposing this method of supporting hill farmers in limited and specific circumstances. We recommend that it set out under what conditions it would consider supporting a re-introduction of headage payments.

STOCKING RATES

47. The upland environment can be highly sensitive to the density of grazing livestock, with both too many and too few grazing animals leading to environmental damage. The CRC's report states: "opinions about the benefits or otherwise of destocking vary widely, with environmental scientists seeing it as a necessary step to protect biodiversity and hill farmers expressing concerns that it can do more harm than good."[99] The CRC recommended that:

Decisions on stocking rates should be made locally to reflect the distinctive needs of each place, local climate and the balance of public goods appropriate for particular areas. We are recommending a rapid review of the policy and its effects—informed by whatever monitoring evidence and scientific evidence is now available—to understand more about what is happening on the ground.[100]

48. The Federation of Cumbria Commoners "wholeheartedly agree" that stocking rates should be decided locally. The Federation's memorandum states that "Current stocking rates as prescribed in the schemes are reducing our ability to actively manage the commons. As a result we believe that the majority of commons are now undergrazed while some remain overgrazed." Similarly, the South West Upland Federation notes the lack of local flexibility, stating that "Attempts to impose grazing regimes, designed for the northern hills, have reduced stock numbers to an unsustainable level and damaged those unique farming techniques".[101]

49. The Campaign to Protect of Rural England (CPRE) sounded a note of caution. While accepting that upland farmers would be keen to "capitalise on any rise in prices for their produce", the CPRE warned that that "should not lead to restocking at levels that means the re-emergence of overgrazing".[102] The Minister of State argued that "some areas of the uplands have been overgrazed and have suffered in the past. There is now increasing evidence that some areas are being undergrazed".[103] He told us that he would wish to see greater local flexibility in agri-environment schemes, "so that schemes can be devised that are more appropriate for the local area".[104]

50. The CRC did refer to the need to make use of monitoring and scientific evidence when making stocking rate decisions, but it did not provide more detail on the process or who would take the decision. The Minister said he was working towards "…an approach whereby local NGOs, working with the conservation bodies […] working with the local farmers or commoners, […] and of course Natural England [...] will come to an agreement about the appropriate one for that area".[105] He explained that agri-environment schemes should be moving from "prescription to outcome".[106]

51. We recommend that stocking rate decisions should be based on an agreed environmental outcome, for example achieving a set sward length rather than prescribing the number of livestock and the grazing season. Stocking rate decisions should be taken locally and involve local farmers.

Uplands Entry Level Stewardship Scheme (UELS)

52. Since 1 July 2010, hill farming has been fully integrated into the Environmental Stewardship part of the Common Agricultural Policy (CAP), with the introduction of the Uplands Entry Level Stewardship (UELS) scheme. Under the scheme, upland farmers are paid a higher single farm payment in return for "maintaining and improving the biodiversity, natural resources, landscape and historical value of England's uplands, and to contribute to climate change mitigation and adaptation, by supporting the land management practices which deliver these benefits."[107] According to Defra "Farmers' interest in Uplands ELS has been growing rapidly in recent months with more than 3,000 hill farmers and land managers having applied for the scheme, accounting for more than 500,000 ha of the uplands".[108] However, the TFA told us that, according to Natural England, there are about 9,000 potential applicants which suggests "a little less than two-thirds would appear to be outside the scheme".[109]

53. The TFA identified the move from the hill livestock compensatory allowance (HLCA) to the hill farm allowance (HFA) and the subsequent move from the HFA to the UELS as having badly affected hill farming.[110] The Association stated that 70% to 80% of farmers who had previously received HFA have not been able to get into UELS and that they had suffered a significant loss of income as a result. The Association argued that tenant farmers were vulnerable to exclusion from the UELS due to the terms of tenancy agreements or to landlords claiming the payments directly.[111] George Dunn, chief executive of the TFA, explained that the average tenancy agreement is for three and a half years duration, but for a tenant farmer to be accepted into the UELS they would need at least five years' tenancy security, or the landlord's agreement that the tenant enter the scheme, which was seldom forthcoming.[112] The TFA have put forward several proposals for correcting the situation, including modifications to the tax system to encourage longer-term tenancies. Mr Dunn explained that under the current European regulations it would be possible to direct payments to those in day-to-day management control of the land.[113]

54. The UELS was also identified as a problem for commoners. The Federation of Cumbria Commoners states that the UELS guidelines:

...do not set out clear eligibility criteria about who can join, deliver and gain reward from the scheme. This lack of definition lays the foundation for conflict between commoners (holders of rights to graze common land and often neighbours) as it allows for different interpretations of the roles and contributions of active graziers, non- graziers and land owners in delivering UELS.[114]

William Worsley, however, told us that the CLA was aware of "...one or two disputes, but we have no evidence that this is a problem of any scale [...] On the whole, this is agreed on a case-by-case basis between landlord and tenant and seems to work satisfactorily."[115] He told us that there was agreed guidance by the Tenancy Reform Industry Group (TRIG) for the resolution of disputes.[116] Mr Cockbain, uplands spokesman for the NFU, agreed that there had not been many cases but cautioned that "... where we have such cases they could lead to dangerous precedents, put farmers off applying for agri-environmental schemes on commons and also attract very adverse publicity to the general public about how money is spent".[117] In relation to disputes between tenants and landowners, the Minister confirmed that it had been discussed in the Tenancy Reform Industry Group. He said that "emotively" he agreed that landlords should not unreasonably prevent tenants entering environmental stewardship schemes.[118] However, he said:

I don't think Government should be heavy-handed and go in and start interfering in that commercial relationship. I don't think it's the job of Government to set, to create or to intervene with a mediation approach.[119]

55. High ground, high potential was published as the UELS was being introduced. The report comments: "Although the scheme's intentions appear to be valid, it remains to be seen whether or not it brings the desired benefits, and we consider that a review by 2012 will help to ensure that it is achieving an appropriate outcome".[120] The NFU points to the importance of "specific research on who receives UELS payments" given the "higher proportion of tenants in the uplands, use of common land and short term grazing lets", which can lead to "the land owner rather than the active farmer [benefitting] from the support mechanism".[121] The NFU has therefore called for "...a prompt and continuing review of the uptake and beneficiaries of the Upland ELS scheme."[122] The department acknowledges that the UELS has been criticised, particularly by tenant farmers and commoners and state that it will be monitoring uptake by tenant farmers as part of the overall monitoring programme for Uplands ELS.[123] We recommend that the Uplands Entry Level Stewardship be reviewed before the end of this year. The review should consider the challenges faced by tenants and commoners in accessing the scheme. If the review finds that they are so disadvantaged, we recommend that Defra bring forward proposals to remove the barriers to accessing the schemes, to include a mediation or dispute resolution mechanism accessible to land owners, tenants and commoners.

Common Agricultural Policy reform

56. The CRC published High ground, high potential before the European Commission set out its proposals for CAP reform in 2013.[124] In its report the CRC identified two main requirements of this round of reform. First, farmers and landowners should be rewarded for "...the valuable, varied and wide ranging public goods generated..." in the uplands; and second, the current limited basis for payments for public goods should be revised to reflect the cost to the farmer of staying in business.[125] Professor Shucksmith added that he would wish to see a reduction in the administrative burden for farmers and greater support for upland communities through more rural development funding.[126]

57. Under current CAP rules, environmental scheme payments to farmers are limited to the extra costs incurred in complying with the schemes requirements—known as 'income foregone'. The current method of calculating income foregone is therefore limited to the agricultural income the farmer would otherwise have received from producing agricultural goods rather than environmental goods.[127] The National Trust stated that: "Current funding mechanisms based on income foregone and calculated according to averaged loss of agricultural productivity do not reflect the actual costs or benefits achieved through land management changes or incentivise and reward positive change".[128] Similarly, the NFU argued that 'income foregone' was a "crude measure of public value"; and added that:

In many situations (not just the uplands) farmers' agri-environment measures yield multiple benefits for which payment is calculated only on the theoretical foregone production. The complex methodology involved does not promote innovation in environmental delivery and performance. A different approach is required to enable agri-environmental payments to offer real and consistent incentives to farmers and to take account of the benefits delivered rather than the income foregone.[129]

Dr Clark confirmed that a revised approach to income forgone should apply to all agri-environment schemes.[130] He said

In terms of income forgone, we have been quite critical of it for a long time because it sends the message to the farming communities that, no matter what they do and what the benefits are, they will be paid only to put them back to where they would have been had they not participated in the agreement. In those terms it is a very strange incentive regime. We think that a better approach, which would still be within the WTO rules, would be to take greater account of opportunity costs of participating in an agreement. You look not just at the costs of management and some of the fixed costs; you look at what farmers might otherwise have been doing.[131]

58. In High ground, high potential, the CRC recommended that "Defra should broaden its concept of 'income foregone' to include the full costs of the farmer staying in business, in line with some other EU countries".[132] Many hill farmers make a loss on their agricultural activity, as the CRC's Poverty amongst farming households report showed. For farms in that situation any calculation of income foregone based on loss of agricultural productivity would therefore not produce a sufficient level of income for the farm to be viable. The Minister seemed to be sympathetic to these arguments. He noted that the "fundamental point" was that "the economics of upland farming are pretty thin anyway, the income foregone tends to be very thin".[133]

59. The Minister believed that if we genuinely value public goods, "...then personally I don't have a problem with the farmers being able to make a margin out of that, just as much as any other activity.[134] However, he suggested it would be difficult to find additional funding through changes to the concept of 'income foregone', not least because of the restrictions imposed by EU rules, but also because of the complexity of the method of calculating the payments.[135] Support for farmers for environmental programmes is further complicated by World Trade Organisation (WTO) 'Green Box' rules that require payments to be 'decoupled' from current production levels. The WTO restrictions limit the extent to which farmers could be compensated for loss of income.[136] The Minister told us that he intended to revisit the relative allocations of Rural Development Programme for England (RDPE) funding under the three axes to enhance funding for competitiveness.[137] The argument that the current rules for calculating income foregone result in too low a payment for hill farmers has some merit. However, extending the definition to include the full costs of running the farm, or applying the rules to all agri-environment schemes is not feasible.

60. The current rules for calculating 'income foregone' provide insufficient compensation for uplands farmers and discourage more from joining agri-environment schemes. We recommend that Defra set out how the definition of 'income foregone' can be extended for farmers in Less Favoured Areas only to reflect the costs of running the farm. One of Defra's aims for the current round of CAP reform should be a more transparent system of paying farmers for the benefits being delivered through agri-environment schemes.

Alternative sources of income

61. Defra acknowledge that without support from the Single Farm Payment many upland farmers would struggle to maintain a viable business. Rather than subsidising production, the department advocates funding farmers for the provision of public benefits, such as: provision of clean water; carbon sequestration; access to land for recreation and tourism; preservation of biodiversity; and maintenance of cultural heritage. The Minister told us:

We have to look at the public benefits in terms of the water retention in the uplands, the carbon sink that is in the peat bogs, obviously the flora and fauna of the uplands—all those things. Indeed, the water retention feeds through to reducing flooding risks further downstream. I think we probably need to do more to put better values on those public benefits, as the means of channelling more funding in.[138]

Defra also notes that that the uplands are "prized natural assets and a favourite tourism destination"; thereby providing a business opportunity for hill farmers.[139]

62. While the uplands may possess the natural environments that make these opportunities possible, hill farmers may be constrained in their ability to extend their businesses. The department noted that diversification opportunities are often more limited in the uplands due to the sparse population and, for a number of areas, longer distances to large population centres. The CRC's 2010 Poverty amongst farming households report noted that for tenant farmers it is often difficult to access capital as they do not own sufficient collateral and tenancy agreements can be a barrier to some kinds of diversification activity.

63. Like Defra, the CRC advocate hill farmers seek new sources of income from the provision of public goods. In High ground, high potential the CRC conclude that:

Current funding mechanisms will not unlock the potential of the uplands and as part of the CAP reform in 2013 and 2020, Defra and its agencies (and the EU) should develop a new approach to rewarding farmers for managing national assets in harmony with developing businesses and market enterprises.[140]

The NFU supported this concept:

Combining a more profitable income from farming with other revenue sources is key to farming's viability. As yet, the markets for public goods are nascent; nonetheless payments for ecosystem services represent an opportunity...However, viable mechanisms must first be developed that are capable of gaining industry confidence.[141]

The CLA was also highly supportive of the development of new environmental markets:

Climate and water regulation are two areas that offer the greatest prospect of encouraging private finance into upland areas and would help to reduce the dependence on public supports. [142]

64. However, the CRC also recognised that the transition from farming to providing public goods could be problematic:

Many farmers are finding the transition from being food producers to stewards of the land and deliverers of public goods difficult. They understand farming in terms of production and experience considerable stress and low self-esteem when confronted with the prospect of being, as some see it, reduced to "park keepers" [143]

The CRC was particularly enthusiastic about the opportunities that might flow from developing markets for water and carbon, although their report provided little detail of how such development would be achieved .[144]

CARBON MARKETS

65. In the UK the mandatory, or compliance, carbon market is the European Union Emissions Trading Scheme (EU ETS). The EU ETS is a cap and trade scheme whereby companies are allocated a carbon allowance (a cap) and can either reduce their own carbon emissions, purchase allowances from elsewhere, or invest in emission reduction projects in developing countries.[145] The voluntary carbon market has developed independently of the compliance market. It enables companies, NGOs or individuals to 'offset' carbon emissions to generate 'offset credits'. In an 'offset' scheme there is no overall cap on emissions; participants in the scheme can receive offset credits in return for making an investment in carbon emission reduction projects. Offset credits may contribute towards formal carbon reduction obligations, including cap and trade scheme obligations, or be part of voluntary schemes.[146]

66. In High ground, high potential the CRC recommended that the Department for Energy and Climate Change work to "develop effective carbon markets and ensure that future reward for land carbon management comes through that market".[147] Professor Buckwell, director of policy at the CLA, told us that uplands land managers could contribute to carbon storage through peat restoration, afforestation and agricultural practices.[148] The CRC emphasised the importance of peat in mitigating carbon loss and suggested that restoration of peat land for carbon storage could be the basis of a carbon market in the uplands.[149] In evidence the CRC remained enthusiastic about the potential financial benefits for hill farmers from a carbon market that rewarded restoration of peatland but provided little information on how such a system would operate.[150]

67. Our evidence indicated an appetite for developing a carbon market.[151] The Aberdeen Centre for Environmental Sustainability advocated removing policy barriers to enable a functioning carbon market to drive peatland restoration. They propose introducing a UK Peatland Carbon Code to the Greenhouse Gas Accounting Guidelines to take advantage of corporate social responsibility activity; creating a registry for peatland restoration projects to access voluntary carbon markets; or Defra integrating peatland restoration into existing agri-environmental schemes.[152]

68. The NFU welcomed the CRC's recommendation but noted that a carbon market was likely to be volatile and that it would take some time before it would provide a "meaningful income source for farmers".[153] The CLA pointed out that there was a regulatory barrier to expanding the voluntary carbon offset market to include peatland restoration. The CLA explained that companies wishing to earn tradable offset credits (credits that could count towards compliance requirements) could not do so by investing in UK projects as such credits could only be earned from investment in projects in developing countries.[154] The CLA recommended that:

... if companies could finance carbon reduction projects in the UK without the need to take ownership of a tradable carbon credit they would be encouraged to invest in peatland restoration projects, if they were confident that they will deliver quantifiable greenhouse gas benefits. Such an approach would need to make clear that companies will not earn tradable carbon credits from their investment.[155]

Professor Buckwell, director of policy at the CLA, thought it would take a decade or longer to establish a working carbon market that would benefit the uplands.[156] He added that it would require both technical advances and the political will to provide incentives for companies to purchase carbon storage.[157]

69. Under the Climate Change Act 2008 the Government set legally binding ceilings on UK carbon emissions based on the UK's share of the EU's overall target to reduce greenhouse gas emissions. The UK Low Carbon Transition Plan, published in July 2009, sets out carbon budgets for each sector of the UK economy. Each Government department is responsible for delivery of the carbon reduction emissions to meet its sectors' carbon budget. Agriculture is therefore within Defra's carbon budget. The UK Low Carbon Transition Plan puts an emphasis on farmers adopting "more climate friendly" processes, such as improving the effectiveness of fertiliser application.[158]

70. The CRC recommended that the Government establish a functioning carbon market, but appeared to have little to add apart from their enthusiasm. A carbon market is unlikely to be established for some time and therefore Defra should concentrate on the short-term benefits to the uplands first. We do not anticipate carbon markets making a significant contribution to the uplands economy for some time. A functioning carbon market operating in the uplands is an important long term goal. We recommend the Department for Energy and Climate Change work with Defra to identify a mechanism by which the uplands could participate in a carbon market, what regulatory barriers need to removed and what the likely return to farmers would be from participating in the market. This work should consider how peatland restoration could be incorporated into a carbon market.

71. Restoration of peat can contribute to increasing carbon storage as well as having wider environmental benefits. We recommend that Defra explore how peat restoration projects could contribute to Defra's carbon budget obligations.

WATER MARKETS

72. In High ground, high potential the CRC recommended that

Defra and its agencies should use good practice (such as SCaMP and catchment sensitive farming) to develop models for public-private investment that secures multiple objectives in upland catchments, maintains water quality, reduces flood risk and potentially provides income for hill farmers and land managers.[159]

The CRC went on to explain that the uplands not only provide a substantial proportion of the UK's clean drinking water, but can also have "an important role in mitigating the flood risk downstream."[160] Despite the complexity of upland hydrology,[161] Professor Buckwell described the uplands as being able to provide public water storage, filtration and discolouration removal services.[162] He said that there were examples of upland land managers being paid for these services.[163] The Minister also told us that currently "some water authorities are already working with farmers in their catchment areas to develop the management of the uplands in a way that helps the water companies.[164] He described this approach as a "win-win situation" as both flood risk and pollution could be mitigated.[165]

73. Defra provided us with details on a number of research projects commissioned by the department into barriers to developing this work.[166] The department also explained that it was considering "whether there are practical and unnecessary barriers to economically justifiable investment in upstream measures as part of the current review of Ofwat, and in developing policy for the Natural Environment White Paper and Water White Paper."[167] However, the department noted that the economic regulator, Ofwat, will ultimately determine how such issues might be included in the price review process.[168]

74. The Environment Agency is involved in several projects investigating the impact of land use change on flood risk management and water quality. For example the Agency is involved in the "slowing the flow" project in Pickering, North Yorkshire, led by Forest Research, which is investigating how land management can help to reduce the potential for flooding.[169] The Environment Agency and water companies are involved in a range of water management projects in the uplands. Hill farmers and upland land owners seem to be more likely to be able to benefit from water management schemes than from a nascent carbon market. Investment in water management schemes is also likely to provide financial returns more quickly than investment in carbon storage schemes.

75. There are a range of water management options that could provide an additional source of income for upland farmers. We recommend that Defra work with the water industry and the economic regulator, Ofwat, to encourage the development of water markets more widely in the uplands. We welcome the inclusion of developing water markets as part of the Ofwat review.

76. There are several examples of water companies working with upland land managers to improve water quality. We encourage the industry, supported by Ofwat, to explore greater use of the natural environment, particularly in the uplands, to improve water quality.

77. We recommend that Defra work with the Environment Agency to identify ways to encourage local partners and land managers to work together on water sequestration schemes with the goal of reducing flood risk.

TOURISM

78. The uplands are popular tourist destinations—English Heritage's evidence referred to the "...concentration of environmental assets - both cultural and natural..." which gave the uplands their "distinctive character".[170] The combination of those cultural and natural assets attract visitors to the uplands. And as the Minister told us "...the very beauty of the uplands, which attracts the tourism [...] which is of greater economic value to the uplands than farming is, is there because of farmers".[171] However, hill farmers get relatively little benefit from tourism.[172] According to the Uplands Farm Practice Survey "... a quarter of upland farms had an on-farm diversified enterprise such as a farm shop or Bed & Breakfast. The survey highlighted that over half of upland farmers with no current diversified activity felt there was either no scope or they had no plans to diversify".[173]

79. Tourism makes a substantial contribution to the uplands economy. Each year the 40 million people who visit the seven upland National Parks spend an estimated £1.78 billion.[174] The National Farmers' Union argued for a mechanism to generate more income from public access to uplands landscapes, noting that less than 30% of visits to the natural environment involve any expenditure.[175] The English National Park Authorities Association told us that several National Parks have voluntary visitor contribution schemes. Dr Stone, Chief Executive, Exmoor National Park, told us that probably the largest such scheme was in the Lake District where it generated around £100,000 a year; but he did not consider such schemes would replace other sources of funding.[176] Under the Lake District scheme, called Nurture Lakeland, tourism related businesses, such as guest houses and hotels, pledge to raise money for conservation projects in the Lake District. Money can be raised a number of ways, including a small additional sum being added to bills, which the customer may 'opt out' of paying.[177]

80. The Minister appeared to think that tourism could bring more money into the uplands but he said that it was an issue for the Department of Culture Media and Sport and the tourism industry.[178] It is disappointing that the Minister was not more enthusiastic about the opportunities tourism may provide for upland farmers. It could be argued that visitors to upland areas are predominantly drawn to those areas by the natural landscape—a landscape that farmers are largely responsible for maintaining. From the evidence that we have seen it is unlikely that voluntary contribution schemes would generate significant funds, and it is not clear how farmers would benefit directly from any income from such schemes. Tourism has the potential to be an additional source of income for upland farmers. Defra's upland strategy should set out how the Government will support farmers seeking to diversify into business activities that serve those tourists.

81. Some National Parks contract farmers to carry out specific activities to manage the land, such as maintaining paths and walls. We recommend Defra seek further ways that farmers can generate additional income, for example by being contracted to assist in clearing snow during bad weather.

FUTURE DEVELOPMENT

82. In High ground, high potential the CRC makes recommendations about research and development and improving agricultural skills.[179] The report recommends action to facilitate greater knowledge transfer, promote apprenticeships and training, and develop demonstration farms. In response to the CRC's recommendations, the NFU state that:

To support skills development, a long-term and collaborative plan for research and knowledge transfer is vital. Including colleges and demonstration farms as part of this collective resource is sensible.[180]

83. The AHDB explained that "knowledge transfer of existing and new ideas should be tailored to the needs and systems of upland producers", but that hill farmers also benefitted from "access to expertise, materials and scale from a nationally coordinated programme".[181] The AHDB added:

Whilst 'Demonstration Farms' have their uses, delivery of activity should not be focused on these alone. Demonstration farms should be used to show the challenges and benefits of practical adoption of new ideas, but these messages need to be rolled out wider and delivered locally across the region, which should involve local farm events where a specific element of best practice can be shown.[182]

84. Mr Dunn, chief executive of the TFA, considered Government had a role in encouraging new entrants and improving training.[183] Defra's written evidence makes the point that "Upland farmers will need to have strong business skills and entrepreneurial outlooks. They will need to constantly seek greater efficiencies, cut costs and maximise the income from their livestock enterprises".[184] The department's memorandum goes on to list actions that some upland farmers have already taken to increase their efficiency. The list includes business management, agricultural innovations and diversification. The implication is that these sorts of actions could be taken by a greater proportion of hill farmers.[185] The Minister considered it "hugely important" to have the right skills and qualifications to work in farming and confirmed that "Defra does have a big role in that".[186] He referred to the Agri-Skills project and, in the context of the uplands, the Moor Skills project.[187]

85. Improved extension services and demonstration farms, where appropriate, need to be part of the mix of approaches that will need to be deployed to improve the competitiveness of uplands farmers. We recommend that Defra include specific reference in its uplands strategy action plan as to how it will support improving agricultural, business and management skills and schemes that enable diversification.

86. The long term future of hill farming depends not only on existing farmers having the right skills and technology, but also on young people deciding to take up farming. Succession, the progression from one farming generation to the next, has been a concern for several years as the average age of farmers has increased. The NFU state:

The marginal viability of uplands farms creates succession issues. Although 37% of upland farmers have succession secured, it is questionable for the majority. 21% of upland farms are not expected to continue beyond the next 5 years. We believe that financial uncertainty is critical to determining family members' decisions to take on and invest in hill farms.[188]

Succession has been a particular concern for tenant farmers. Mr Dunn told us that:

There are people sitting on three-generational tenancies who do not have a clue about how they go about the procedures for succession, despite the fact they are in prime positions to be able to succeed. There is a role to be played in ensuring that hill areas get access to that good advice and information. If Defra can assist in that, that will be great...[189]

87. Previously a potential successor to a tenancy had to have earned his livelihood from agricultural work on the holding from 5 out of the last 7 years in order to meet the "livelihood test". This discouraged farm tenants from diversifying as it could jeopardise a successor's chances of succeeding to a tenancy if he was carrying out non-agricultural work. Defra has confirmed that "the amendment made by the Regulatory Reform (Agricultural Tenancies) (England and Wales) Order 2006 provides that income from diversified and off-farm activities can be taken into account in the "livelihood test", where the landlord has given consent for the diversification".[190] The removal of this technical hurdle to succession is to be welcomed.

88. However, there are more fundamental concerns, such as the absence of affordable rural housing, which discourage new entrants and children of farmers from committing to hill farming. Succession is likely to remain problematic until the fundamental issues of low economic viability and high uncertainty of hill farming are addressed.

BROADBAND

89. For several years the poor provision of broadband internet access and mobile telephone communications in many of the remote areas of the UK has been one of the key concerns of rural communities. The CRC made a series of recommendations in High ground, high potential, principally addressed to the Business, Innovations and Skills department. Several witnesses referred to the importance of improving internet access. AHDB noted that across the country farm household internet access was high, although there was limited use as a business tool or a source for new information. Tellingly, AHDB had found that "access and speed of broadband technology is acutely felt in remote rural areas".[191]

90. Defra's Business Plan includes a commitment to "...deliver universal broadband at speeds of 2mbps and stimulate private sector investment to deliver the best superfast broadband network in Europe by 2015".[192] The Minister told us that Richard Benyon, Parliamentary Under-Secretary for Natural Environment and Fisheries, who leads on rural issues in Defra, was working with the Department for Culture, Media and Sport on rural broadband.[193]

91. As part of the Comprehensive Spending Review, the Government announced that super-fast broadband would be trialled in the Highlands, North Yorkshire, Cumbria and Herefordshire. The BBC will contribute £300m towards the £530m total cost of funding rural broadband. The remainder has been set aside from the surplus from digital switch-over funding. During our evidence session with the Secretary of State following the Comprehensive Spending Review, Caroline Spelman told us that "...increasingly farmers are encouraged or almost expected to provide their interaction online. A very important part of the spending review was a decision by DCMS to improve rural broadband provision, so in fact farmers can access that".[194]

92. The internet is a critical business tool. The efficiency of upland farming will be enhanced by the ability to reliably access information and transact business online. Defra should set out how and by when the super-fast broadband trial will be evaluated. Defra's uplands strategy action plan should set out where and by when the super-fast broadband trial will be extended, and what resources have been identified to fund an extension of the trial.

72 HC Deb, 30 November 2010, col 693W Back

73 Poverty amongst farming households: Achieving sustainable livelihoods, Commission for Rural Communities, November 2010 Back

74 Evs w5, w8, w14 Back

75 Ev 74 Back

76 Ev 75 Back

77 Farm Household Income and Household Composition: Results from the Farm Business Survey: England 2008/09, July 2010, Defra and National Statistics Back

78 Q 102 Back

79 Qq 170-171 Back

80 Q 171 Back

81 Ev 81 Back

82 Q 102 Back

83 Q 103 Back