Scottish Government

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Dear Sir/Madam

USE OF SHEEPMEAT NATIONAL ENVELOPE

The EU sheepmeat Regulation approved by the Agriculture Council in December 2001 (Council Regulation 2529/2001) included provision for the establishment of sheepmeat national envelopes. The national envelope for Scotland totals around £2.75 million.

In January the Minister for Environment and Rural Development, Mr Ross Finnie, announced that the national envelope would be used in 2002 to top up the sheep annual premium. This arrangement benefited all producers and did not interfere with the application process for 2002, which was already underway. The Minister indicated that he would be consulting widely with the industry over arrangements for use of the envelope in 2003 and beyond: this letter represents the start of that consultation.

Options for 2003 and beyond

The Regulation permits the national envelope to be used in a number of ways, including

• making extra headage payments, either to supplement the basic premium or as extensification payments linked to lower stocking levels;
• making area payments;
• making payments to producers engaged in specific types of production, in particular those relating to quality, which are important to the local economy or environment protection;
• encouraging restructuring of producers' holdings or development of producers' organisations;
• supporting the improvement and rationalisation of the processing and marketing of sheepmeat;
• funding quota purchase.

The aim in determining the best use of national envelope funds in Scotland must be to encourage sustainable farming activity that genuinely seeks to respond to the needs of the market with the right quality product. In considering a range of uses for the envelope in 2003 and beyond, there are essentially two ways of directing funds. Firstly, funds can be made available to all producers, in the form of a top-up to the Sheep Annual Premium, provided that producers meet certain conditions, for example in relation to sheep health improvement or quality assurance. Secondly, support can be given to specific projects (either local or national), for example those aimed at improving the quality of sheep produced in Scotland or those encouraging production that is market responsive. Such projects would tend to benefit fewer producers but would nevertheless be of real value to the Scottish industry.

This consultation invites views on how the national envelope should be spent from 2003 onwards and seeks comments on particular options:

Schemes that will benefit all producers meeting certain conditions

• Quality assured producers scheme

Specific projects

• Quota buy-back

• Assistance for Scottish National Scrapie Plan flock owners

• Development of producer marketing groups

An outline of each of these options is contained in the attached annex.

Other options

Although it does not clearly encourage sustainable and market responsive farming activity, an alternative option might be to continue to use the national envelope as a top-up to the Sheep Annual Premium. Your views on this would be appreciated.

You are also invited to suggest other projects that might be appropriate for funding under the terms of the sheepmeat Regulation. Any proposal should support the aim of quality improvement and production for the market and might, for example, involve quality assurance, animal health or breeding improvement or producer groups or co-operatives.

Increased national envelope

The new sheepmeat Regulation enables Member States or regions to increase the amount available through the national envelope by reducing the Sheep Annual Premium by €1 (approximately £0.60). Ministers have opted not to use this provision in Scotland in 2002 but they are interested to hear your views on extension of the national envelope in this way in future years.

Responses to consultation

You are invited to comment on the options presented in this paper and to put forward ideas for alternative uses of the national envelope. Please be aware that the options for the envelope are not exclusive, i.e. it might be possible to fund more than one scheme at the same time. You are also invited to give your views on the possible increase of the envelope in future years through reduction of the Sheep Annual Premium.

To assist analysis of the responses received it would be helpful if you could address the following questions in your reply:

• Which of the 4 options outlined in the annex do you favour and why?

• Do you think that the national envelope should be used to top up the Sheep Annual Premium?

• Are there other options that should be considered, consistent with the requirements of the sheepmeat Regulation and the aim of using the envelope to encourage sustainable farming activity that seeks to respond to the needs of the market? Please provide as much detail as possible to explain your alternative option(s).

• Do you think the size of the national envelope should be increased from 2003 by taking €1 (approximately £0.60) from the Sheep Annual Premium?

Please send your replies by 16 August 2002 to:

Andrew Sunter

SEERAD

Room 262

Pentland House

47 Robb's Loan

EDINBURGH

EH14 1TW

Tel: 0131 244 6408

Fax: 0131 244 6950

E-mail: andrew.sunter@scotland.gsi.gov.uk

Your response will be acknowledged and at a later date you will receive a summary of all responses received. In line with the Scottish Executive's policy on openness, all responses will be made publicly available unless organisations or individuals clearly indicate that they do not wish their views to be made public.

Next steps

Once the consultation period is finished, the responses will be analysed and Ministers will take decisions as to what scheme(s) should be introduced. The intention is to announce in the autumn how the envelope will be used.

Please note that a similar consultation exercise has taken place in England and consultation is currently underway in Wales. Each part of the UK has a separate national envelope and the funds can be used differently in the four countries.

Yours faithfully

AILEEN BEARHOP

Head of Livestock and Livestock Products Branch

Annex

OPTIONS FOR USE OF NATIONAL ENVELOPE IN 2003 AND BEYOND

The Forward Strategy recognises that one of the difficulties facing the Scottish farming industry is the current mismatch between demand and supply for lamb. Whilst in a normal year most lambs are sold, the returns are often low, especially for those animals that are sold into low price commodity markets which are particularly vulnerable to currency fluctuations and interrupted trading. The Forward Strategy underlines the need for all parts of the food chain in Scotland to achieve high standards of quality in all their markets. Some producers have difficulty in meeting the requirements of the market and there is a particular need to encourage quality production.

Quality Assured Producers Scheme

This proposal is to establish a scheme that would encourage sheep producers to engage in quality-related production practices through membership of farm based quality assurance schemes. These quality assurance schemes would require adherence to detailed production and husbandry practices aimed at improving the quality of finished stock and meeting the needs of consumers with regard to quality and traceability.

Support would only be provided for producers who are members of quality assurance schemes with independent certification to European Standard EN45011, such as the Quality Meat Scotland Specially Selected Scotch Farm Assurance Scheme for Beef and Sheep.

Breeding ewes on holdings that were covered by quality assurance would attract a top-up on the Sheep Annual Premium. The scheme would run for 2003 and possibly beyond and would require most of the funds from the 2003 national envelope.

Quota buy-back

This proposal is that national envelope funds should be used for a voluntary quota buy-back scheme. This would allow producers to sell their quota to the Executive, perhaps as part of a business restructuring plan aimed at increasing the quality of sheep produced. The details of how such a scheme might work would be the subject of more detailed consultation but it could be targeted at particular sectors or parts of the country if this were sensible. Any quota purchased by the Executive would be "frozen", i.e. it would not be placed in the National Reserve for reallocation to other producers.

The scheme would be likely to extend beyond 2003, given the budget available and the number of producers who may be expected to participate. It would almost certainly require the bulk of national envelope funds for 2003 and perhaps also 2004 and 2005.

Assistance for Scottish National Scrapie Plan flock owners

The National Scrapie Plan (NSP) was launched in July 2001 to reduce and ultimately eliminate scrapie through long-term selective breeding for resistance to the disease (PrP genotyping). Under the voluntary ram genotyping scheme, flock owners have their breeding rams tested for scrapie resistance and individually identified and certified electronically. Over time, genetic resistance to scrapie is passed down through the ram line to the rest of the sheep sector and ultimately to commercial producers for slaughter lamb production. There is an increasing significance being placed on high health status for the sheep sector in the European market place and other Member States are now implementing similar scrapie eradication plans.

There has been an encouraging uptake of this scheme amongst key ram breeders in Scotland. However, certain breeds key to the Scottish industry are less favourably placed with regard to levels of genetic resistance. This proposal would involve using national envelope funds to offer additional genotype testing, identification and certification to flock owners who have joined or intend to join the NSP before the 2003 breeding season. This would permit producers to select breeding rams and ewes with important breed characteristics and of a higher genetic potential to accelerate the levels of scrapie resistance in their flocks. Over time, the scrapie health status of the entire Scottish sheep sector would be enhanced, thereby bolstering the Scottish export trade within the European market.

The scheme would require the bulk of the funds from the 2003 national envelope.

Development of producer marketing groups

There are currently three significant producer marketing groups in lowland Scotland, i.e. Highland Glen, Farm Stock and Galloway Primestock. The major player in the marketing of finished stock in the Highlands and Islands is H&I Livestock Limited. A number of other smaller producer marketing groups also operate in Scotland.

The crucial importance of better marketing is recognised in the Forward Strategy and the recommendations of the Dewar-Durie report on the Scottish sheep industry. There are clear benefits to be gained from encouraging the development of producer marketing groups in Scotland, not least better returns to producers through enhanced market targeting.

This proposal is that national envelope funds should be used to ensure that existing producer marketing groups operate as efficiently and responsively as possible. This would be assisted through the provision of IT facilities to enhance the exchange of information between producer groups and processors, for example in relation to market prices and the success or otherwise of producers in meeting specification targets. Funding would also be provided for the employment by producer groups of advisers to interpret and disseminate the information available for the benefit of producers.

The cost of the project would be under £250,000 and therefore if it were to go ahead, the bulk of the national envelope funds would still be available for other purposes. Funding would only be required in 2003.