Written evidence submitted by the Scottish
Government
The Scottish Government welcome this opportunity
to present evidence to the Environment, Food and Rural Affairs
Committee as part of their Inquiry into the impact of Common Agricultural
Policy (CAP) Reform on UK agriculture.
The European Commission's recent Communication,
The CAP Towards 2020, signals the start of a process of discussions
and negotiations to reform the CAP for the future. The CAP plays
a vital part in supporting Scotland's agriculture sector where
85% of our agricultural land is classified as Less Favoured Area
(LFA) and two-thirds is suitable only for rough grazing. These
reforms will therefore have a major impact on Scotland.
The Scottish Government's purpose is to
create a more successful country,
with opportunities for all of Scotland to flourish, through increasing
sustainable economic growth. This is underpinned by our National
Performance Framework which sets out strategic objectives, targets
and outcomes to help us deliver our purpose. As part of the national
framework we produced our Vision for Scottish Agriculture which
aims to optimise the productive use of our natural resources and
achieve the right balance between producing for the market and
delivering public goods.
Our vision is underpinned by four
principles;
1. Our agriculture sector should be market
based, producing in line with consumer choices in an environment
of free and fair competition.
2. However, farming also provides a range
of public goods for which market mechanisms do not always exist
to reward the farmer sufficiently: for example, protecting the
environment, sustaining communities in remote areas and maintaining
a national food producing capacity. These should be supported
by public funds.
3. These public goods should also be
delivered with maximum efficiency through a contract between farmers
and society.
4. An appropriate level of regulation
should continue to play a role in delivering public goods, using
as light a touch as possible to generate the desired outcomes.
In order to deliver these policy objectives,
the Scottish Government asked Mr Brian Pack OBE, former Chief
Executive of ANM Group, to chair an Inquiry looking at all aspects
of future support for Scottish agriculture. The Inquiry published
its final report "The Road ahead for Scotland"
in November 2010. A copy of the report has been sent to the Committee
and Mr Pack will also be giving oral evidence to the Committee.
The Scottish Government is working closely
with Mr Pack and stakeholders to further develop some of the analysis
and recommendations, before taking a formal position on them.
We have nonetheless identified certain principles, which we see
as flowing from the Pack Inquiry's Final Report, that are of particular
significance.
At the outset it must be recognised that
appropriate funding is essential to deliver the objectives of
the CAP including its primary purpose of encouraging food production.
It is therefore vital that Member States and Regions receive a
fair and proportionate share of the CAP budget. The new Member
States have made well-publicised demands to improve their low
allocations from the Pillar I budget, but it should be noted that
the Pillar II budget allocations are also based on historic and
arbitrary criteria, leading to unfairly low allocations for the
UK as a whole and for Scotland in particular. This unacceptable
situation must be redressed in the future CAP, via the adoption
of fair and objective allocation criteria for both Pillar I and
Pillar II budgets. Fair allocations should remove any need for
adjustment mechanisms such as modulation.
Given the special challenges Scotland
faces, particularly in our LFA area, we consider there is an ongoing
justification for Pillar I Direct Payments, which includes the
fact that they underpin the delivery of valuable public goods
through active land management on a territory-wide basis. They
also help sustain rural economies and enable producers to meet
the cost of complying with the higher production standards required
by European society.
Direct Payments should however; be reformed
to phase out the historic basis for payments which can no longer
be justified. Instead they should become more clearly linked to
the delivery of public benefits and farming activity. We are
therefore open to the European Commission's idea of "greening"
Pillar 1 payments which is worthy of serious consideration, albeit
whilst aiming to avoid unjustified increases in complexity.
As previously mentioned, Scotland has
a high proportion of land that is LFA. This includes many valuable
landscapes and habitats, where farming is characterised by inherent
low profitability and, in some areas, the risk of land abandonment.
On the other hand farming in lowland Scotland faces other challenges,
such as the cost of complying with production standards imposed
by Europe, and can contribute significantly to public benefits
such as reducing greenhouse gas emissions. We therefore need
the future CAP to be sufficiently flexible to enable us to tailor
measures to meet Scotland's needs.
Specifically, the Pack Inquiry report
points out that the application of area-based payments in Scotland's
LFA could raise important issues around the effectiveness of payments
and the relationship between the level of payment and the public
benefits delivered. This is because in those areas, the quality
of land varies hugely, as does the level of farming activity which
in some cases is very extensive indeed.
For these reasons the inquiry has suggested
an alternative model, under which area-based payments in the LFA
would be supplemented by a Top-Up Fund which makes payments for
public goods using Standard Labour Requirements, rather than land
area, as the indicator of the amount of public benefit delivered.
Although we have not yet taken a formal
view on the Top-Up Fund proposal, pending further detailed work
between Scottish Government and stakeholders, we accept the inquiry's
analysis that area-based payments on their own could have substantial
flaws. At this stage we would wish both the Commission's "greening"
ideas and the Pack report's Top-Up Fund proposal to be investigated
in detail.
We are also keen to pursue other ways
of addressing the issue of effectiveness of payments, such as
improving the "active farming" conditions. This issue,
which is about how the land in question is being managed, is related
to but separate from the issue of what nature of businesses should
or should not be eligible to receive CAP payments, sometimes called
the "active farmer" issue.
In order to guard against undesired outcomes
such as land abandonment in the most vulnerable areas, we see
the use of limited coupled payments in specific circumstances
as necessary. Scotland currently uses the option available under
Council Regulation (EC) 1782/2003 Article 69 to provide coupled
payments under the Scottish Beef Calf Scheme, with the key objectives
to support both the supply of quality Scotch beef and the environment.
The Pack Inquiry recommends that this should be retained but in
a more targeted manner, and also recommends that a lamb headage
scheme be developed. The Inquiry suggests the aim of these coupled
payments 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.
Changes to the CAP should not undermine
the drive to increase market-orientation. Farmers' business decisions
should be increasingly guided by market signals and consumer demand
rather than public subsidies. However, given the volatility of
agricultural markets, the CAP must remain sufficiently strong
and flexible to provide a genuine market safety net provision
for dealing with price volatility and collapse. We also support
the proposal that further work be done on the ways in which the
CAP can support the development of more effective risk management
measures for the sector.
A cap on direct payments would be at odds
with the justification for the payments and would almost certainly
prove ineffective. Businesses likely to be affected would almost
certainly be split into multiple businesses, and any attempt to
prevent new businesses could have serious repercussions for genuine
new entrants.
The future Rural Development regime must
continue to support sustainable economic growth, competitiveness
and diversification as well as agri-environment and community
projects. The balance between these objectives should be at regional
discretion and reflect regional priorities.
Administrative costs for farmers and Governments
should be kept to the minimum necessary to deliver the policy
objectives. The CAP must therefore be simplified in order to reduce
the administrative burden and this should be reflected in all
future policy proposals.
The current EU audit system needs to be
reformed with the aim of achieving controls on CAP payments which
are proportionate and represent value for money. The true costs
and benefits of control mechanisms must be recognised. The use
of flat rate penalties and corrections should be replaced with
a system that is proportionate and targeted.
This is a summarised position, detailed
analysis of the evidence base and argumentation is set out in
the Pack Inquiry's Report and accompanying documents on the Scottish
Government website at www.scotland.gov.uk/BrianPackInquiry.
January 2011
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