Written evidence submitted by the Scottish
Agricultural College (SAC)
INTRODUCTION
SAC (Scottish Agricultural College) welcomes the
opportunity to contribute to the Environment, Food and Rural Affairs
(EFRA) Committee Inquiry into the impact of Common Agricultural
Policy (CAP) reform on UK agriculture.
SAC is an innovative, knowledge-based organisation
that supports the rural sector through research, education and
expert consultancy services. SAC wishes to see, and contribute
significantly to delivering, a sustainable agricultural and rural
land use sector in Scotland. SAC staff work in a broad range of
areas (for more information see www.sac.ac.uk) and our responses
to the questions below reflect this broad expertise, but draw
on specific research projects where appropriate.
Several SAC staff have contributed to this submission
which has been co-ordinated by SAC's Rural Policy Centre (www.sac.ac.uk/ruralpolicycentre/).
GENERAL COMMENTS
ON THE
COMMISSION'S
PROPOSALS
The Commission's Communication proposes three different
options for the future of the CAP which can be summarised as:
Option 1 which introduces further gradual changes to the current
policy framework; Option 2 which captures the opportunity for
reform and makes major overhauls of the policy; and Option 3 which
involves more far-reaching reform of the CAP with a strong focus
on environmental and climate change objectives. The Communication
does not offer a great deal of detail on any of the three options,
or how they might be implemented. Some initial comments:
Option 1 seems to suggest only minor changes to the
current CAP and it is likely that following this approach will
simply delay inevitable reform. Farmers across Europe are expecting
the 2013 reforms to bring major changes and it seems the Commission
could take advantage of that and make some crucial changes in
setting the future direction of the CAP, which will help to satisfy
the wishes of both producers and consumers.
Option 2 shares some similarities to the recent Pack
Inquiry in Scotland (see http://www.scotland.gov.uk/Topics/farmingrural/Agriculture/inquiry).
Option 3 represents a more radical shake-up of the
CAP which would create significant economic, environmental and
social implications as rural business managers attempt to adapt
to the type of regime that would result from implementing this
option.
In terms of responses to the Commission's proposals
and to the Committee's specific questions, SAC would refer the
Committee to the recent Pack Inquiry and its Report into the future
of agricultural support in Scotland. The report includes a large
amount of background information about the agricultural industry
and current levels of support in Scotland, and sets out one possible
approach to tailoring financial support to agriculture and rural
development in Scotland post-2013. The Inquiry's interim, short-term
recommendations and final reports, and background evidence papers,
are all available via the Inquiry website at:
http://www.scotland.gov.uk/Topics/farmingrural/Agriculture/inquiry.
How will the Commission's proposals affect the
ability of UK agriculture to be competitive in a global market?
All three options imply an underlying requirement
for increasing productivity and efficiency on farms. There is
a wide variation in performance across farms in the UK within
farm type and even within size bands and all three options would
help to focus attention on improving resource usage. This is perhaps
most explicit in the second option whereby the New Zealand experience
suggests that market reform may lead to an improvement of efficiency
with little loss of farms (although ancillary industries may suffer).New
Zealand is generally considered an exemplar for withdrawal from
public funding for agriculture as, since 1987, the farming sector
has operated under no public subsidies, aside from money allocated
towards supporting research and development. Whereas some structural
change occurred after the removal of subsidies, it is notable
that agricultural productivity increased by an average of 5.9%
per annum since the removal of subsidies, whereas before, gains
were around 1% per year.[22]
This has to be treated with caution, however, as the UK (or Scotland)
is not New Zealand, but some residual effect must lead to reducing
the variance in performance.
In recent research work on efficiency,[23]
SAC found there is a great deal of efficiency to be realised within
size bands (ie. smaller farms could get more efficient without
changing size). Hence Option 1 on redistribution may promote this
if it were structured to support resource use efficiency.
The recent Pack Inquiry in Scotland argued in favour
of maintaining direct payments to enable Scottish farmers to remain
competitive in the global market. Until decoupling is adopted
across the global agricultural market, Scottish (and indeed UK)
farmers will not be able to compete.
Overall, a strategic approach is required to policy-making
that promotes a more competitive, market-oriented agricultural
sector at the same time as addressing environmental and other
concerns, including the operation of food supply chains that often
prevent farmers from receiving a fair share of the added value
of their products.
Do the proposals ensure fair competition for British
agricultural products within the European Union?
Option 2 outlines the introduction of more equity
in the distribution of direct payments between member states.
This would contribute towards fairer competition between British
agricultural products and the EU. However, market distortions
exist between countries as a result of other factors, including
variations in animal welfare standards and other legislative requirements.
More broadly, it is essential that across the food
supply chain, a more equitable and stable distribution of value
is obtained.
Will the proposals achieve the correct balance
between productivity and sustainability?
Option 3 focuses on greening the CAP whereby efficiency
and productivity become part of a wider suite of indicators. Option
2 may be the reverse of this as it may encourage farms to become
larger which would certainly have an impact on social sustainability.
However, Option 1 may provide the opposite, and perhaps redistribution
may lead to support for High Nature Value farms (which are usually
small by standard criteria) and hence ecological improvements.
On the other hand, this approach may undermine the UK's ability
to respond to future food security concerns.
Work by SAC staff in collaboration with partners
in 2008 explored the environmental impacts of Pillar 1 reform
and the potential implications for Pillar 2 funding.[24]
The report of this work can be provided on request.
More generally, a competitive and sustainable agricultural
industry is important in underpinning rural communities across
the UK, but particularly in some of the more remote communities
of Scotland where agriculture remains a critically important industry,
in both economic and social terms. Taking into account the diversity
of the industry across both Scotland and the UK, CAP reform in
line with Option 2 (which includes a greater emphasis on targeted
measures and encourages the addressing of economic, social and
environmental challenges) might be perceived to be the preferred
option.
Do the proposals place the UK in a good position
to help meet future food supply challenges?
Again, the focus on productivity would help this.
Future food supply challenges very much depend on what happens
elsewhere around the world. However, there is growing consensus
that population growth, climate change, diminishing resources
(especially water and oil), differential economic development
around the globe and interactions between these factors will increase
pressures on food supply. This situation will increase market
and production risk in agriculture, potentially exacerbating the
problems. Agricultural policy has traditionally addressed the
particular risk management problems that farmers face, creating
a more stable business environment that encourages investment
and thus maintains consistent supply. The challenge of increasing
risk in future food supply must be competently addressed by policy.
There is a danger of this aspect being given inadequate provision
in all policy options, arguably more so in those that focus away
from food production. Promoting global free trade in agricultural
commodities at a time of rapid change without attendant market
volatilities and associated crises will be a key objective for
future policy. It is therefore essential to expand on the details
of the "risk management toolkit" proposed by the Commission,
examine all the options involved and ensure that the concept is
underpinned by on-going research and development.
The recent Pack Inquiry highlighted the dependence
of Scotland's agricultural industry on direct payments. In broad
terms, SAC believes that the principle of decoupling as a means
of freeing farmers to react to the market is sound. There may,
however, be situations where some form of coupled support is the
best and most efficient way to deal with a particular problem
and to maintain the profitability and competitiveness of farms.
If the working of the market led to the collapse of the livestock
sector in an area, coupled payments might be justifiable to ensure
food supplies or to support the sector and ancillary industries
in a period of transition.
A recent report (2008) by SAC ("Farming's Retreat
from the Hills")[25]
has highlighted the potential economic, environmental and social
impacts of the decline in livestock numbers in the hill and island
areas of Scotland. There are potentially negative impacts on local
communities of livestock depopulation and while there are a variety
of ways for dealing with these problems, one option could be some
form of coupled payment.[26]
More broadly, it is critical that funding for science
and innovation in universities and other research organisations
and institutes is maintained to underpin actions to meet future
supply challenges. This research is critical across numerous areas,
including the production of crops and livestock but also wider
issues such as climate change, biodiversity, water quality etc.
Will the proposals redress the imbalance in support
to different sectors created by the historic basis of payments?
It is unclear if by sectors, the Committee means
enterprises. If so, it could be argued that Option 1 aims to achieve
this, whilst Option 2 with more market reform could lead to the
opposite.
More generally, SAC would reiterate arguments made
by others (including the Pack Inquiry) that the further we move
away from the reference period that underpins the historic model,
the more difficult it is to justify such an approach to direct
payments.
What aspects of the proposals should be made a
common policy, and which are best left to Member States?
SAC believes maintaining a common Europe-wide policy
is important, as too much discretion to member states risks creating
a system in which the design and implementation of the policy
across member states becomes hugely variable, thus increasing
complexity and potentially distorting competition. This common
EU framework is arguably particularly important in terms of direct
support and market measures (ie Pillar 1).
At the same time, it is important to recognise that
some flexibility is required, including in the use of measures
such as the national envelope whereby regions within member states
have the flexibility to target funds at key issues and areas.
The increased flexibility could potentially be used
to provide some form of additional support for livestock farmers
and crofters in High Nature Value areas (large parts of Scotland
could be classified as High Nature Value farmland). Recent work
by SAC2 has highlighted the decline in livestock numbers
and the potential impact on farming, biodiversity and communities.
The greatest changes in livestock are taking place in those areas
that also have the highest nature value, but which are also vulnerable
to wider economic pressures. The degree to which the national
envelope should be used to target such problems will depend on
the degree to which they are addressed through other mechanisms
(eg in Pillar 2).
It should also be noted that increased flexibility
in the use of the national envelope has potentially redistributive
effects with money effectively taken from all Single Farm Payments
and redistributed towards specific sectors or areas. Clarity of
objectives will be crucial in using the national envelope in the
most equitable and transparent way.
Can the proposals be implemented simply and cost-effectively,
within a short time-scale?
Option 3 suggests a requirement for more indicators
which are expensive to collect and the present system (eg using
the Farm Business Survey or Agricultural Census data) is inadequate
at capturing these effects. Option 2 may represent the cheapest
option, which could be argued to be the main aim of creating a
more financially sustainable CAP. Taken at face value, Option
1 which advocates gradual changes to the CAP is likely to be the
least costly option.
The existing CAP is a complex policy and it is important
that changes to it do not increase the burden of bureaucracy on
farmers, nor increase the costs to other stakeholders. Maintaining
common elements to the policy ensures that there is lessened risk
of costly variations in design and implementation between member
states.
More generally, it is important to reiterate that
agriculture and land management receive support and are regulated
because the sustainable production of food and management of land
cannot be left to the market alone. Governments intervene in the
sector through the CAP to deal with various forms of market failure,
such as situations when the market cannot secure food supplies
or when agricultural incomes become very low and threaten the
sustainability of food production. The CAP is therefore a tool
for dealing with different forms of market failure and, given
the importance of ensuring sustainable food production and land
management, there will continue to be a role for government intervention
in some form.
Historically the majority of CAP funding has been
channelled into Pillar 1 although some have argued for a gradual
movement of money from Pillar 1 to broader rural development and
environmental measures in Pillar 2. As the issue of food security
becomes increasingly important, securing food production must
continue to be a high priority.
In this context, assuming that all three of the EU
options retain the two Pillar structure, SAC believes that the
current structure whereby one pillar aims to secure food production
and the other aims to support rural development and environmental
measures, provides a workable model (notwithstanding criticisms
of this as creating an artificial distinction between agricultural
support and rural development). Any future policy changes to the
structure and objectives of the CAP to pursue any of the three
options outlined by the Commission will require a robust and clear
evidence base.
January 2011
22 Federated Farmers of New Zealand (2002) Life after
Subsidies: The New Zealand Farming Experience 15 Years Later.
Available online at: www.fedfarm.org.nz. Back
23
This work is currently being finalised. Some of the findings were
presented by Dr Andrew Barnes at the Defra-AES conference in December
2010. Dr Barnes' slides are available online at:
http://www.aes.ac.uk/index.php?do=events&sub=events2. Back
24
ADAS, SAC and RPA (2008) Estimating the Environmental Impacts
of Pillar 1 Reform and the Potential Implications for Axis II
funding. Back
25
This report is available online at:
http://www.sac.ac.uk/ruralpolicycentre/publs/thrivingcommunitiespublications/retreatfromthehills/ Back
26
An update of this report is currently being prepared and will
be available on the Rural Policy Centre website
(www.sac.ac.uk/ruralpolicycentre) by the end of February 2011. Back
| 
