Scottish Government

PROPOSALS FOR CHANGES TO AGRI-ENVIRONMENT SCHEMES IN SCOTLAND

5 March 2003

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1. Introduction

1.1 This consultation paper seeks views on proposals for changes to Scotland's agri-environment schemes. Specifically, it seeks views on:

• the options for continued agri-environment support for farmers and crofters leaving the Environmentally Sensitive Area (ESA) Schemes on completion of their 10 year agreement (paragraphs 2.6 to 2.11);
• proposals for improvements in the Executive's support for conversion to organic farming, following publication of the Organic Action Plan on 4 February (paragraphs 3.1 to 3.18); and
• changes to the Rural Stewardship Scheme as part of the Executive's response to the recommendations in "Custodians of Change" (paragraphs 4.1 to 4.10).

Purpose of Agri-Environment Schemes

1.2 The agri-environment schemes aim to help farmers and crofters to build a financially and environmentally sustainable future. The Scottish Ministers are committed to the schemes doing this through:

• paying farmers to carry out management actions or capital works which go beyond the normal requirements of good farming practice in protecting and enhancing the environment, biodiversity, the landscape and Scotland's archaeological heritage; and
• supporting the conversion of land to organic status to provide significant environmental gain and lead to the production of marketable organic goods.

1.3 The Scottish Executive's agri-environment schemes contribute to the attainment of the 4 key elements of the vision for Scottish farming set out in "A Forward Strategy for Scottish Agriculture".

• They are a key part of ensuring that farming is "a leading player in the protection and enhancement of our environment".
• Through helping maintain farming activity and skilled employment they help attain the vision of farming which " plays a major role in sustainable rural development and helps to maintain the prosperity of our rural communities".
• Through the Organic Aid Scheme we help farming to be open, "focussed on producing food that the customer wants".
• The Schemes help farmers to "embrace change and new opportunities".

Scope of Current Consultation

1.4 This consultation paper proposes changes which can be introduced in the short-term to improve the operation and effectiveness of the existing agri-environment schemes.

1.5 More far reaching changes are possible in future years. To help deliver the "Forward Strategy for Scottish Agriculture", the Scottish Executive is currently developing proposals for "land management contracts" which would provide payments for farmers and crofters to provide a range of social, economic and environmental benefits. The mid-term review of the Common Agricultural Policy which is currently underway will involve a debate about the balance between support for agricultural production and support for rural development measures, including agri-environment schemes. Any wider changes to agri-environment schemes in the light of the evolving policy environment will be the subject of separate consultation.

1.6 In the meantime, the Scottish Ministers believe there are ways in which the current schemes can be made to operate more effectively. Accordingly, this consultation paper proposes a range of improvements which could be introduced progressively in 2003 and 2004.

2. Options for Continued Support for ESA Scheme Leavers

Background

2.1 The ESA Schemes have operated in Scotland since 1987. The first five designated areas were augmented by a further five areas following the CAP reforms of 1992 and the introduction of the EC's agri-environment Regulation. Participants in the ESA Schemes entered into a 10-year agreement with Scottish Ministers. The agreement comprises 2 x 5 year conservation plans. The first raft of 10-year agreements will expire in May 2003. During the course of 2003, a total of 29 ESA Scheme agreements will come to the end of their 10 year duration.

2.2 The ESA Schemes closed for new applications on 31 December 2000 and have been replaced by the RSS. There are currently 2734 participants in ESA Schemes and annual expenditure is around 10m. For so long as the ESA Schemes operated, all eligible applications were accepted for funding. This means that ESA Scheme participants have had unfettered access to agri-environment funding for a period of more than 10 years.

2.3 The Executive recognises that agri-environment schemes have delivered environmental and socio-economic benefits to farmers, crofters and the rural economies in many different parts of Scotland.

2.4 Although the uptake of ESAs was slow (x% of current participants applied in the final 2 years of operation of the Schemes), overall participation has been healthy, averaging around 70% across all of the ESAs. The pattern of uptake suggests that uptake has more or less reached saturation point. Certainly, it is the case that those farmers and crofters who have any interest in joining an ESA Scheme have had ample opportunity to do so.

2.5 The increased interest in agri-environment schemes since the Countryside Premium Scheme (CPS) was launched in 1996 and the introduction of the EC's Rural Development Regulation, with its requirement for agri-environment expenditure to be programmed for the period up to 2006, have substantially changed the background against which schemes must operate. Even without the introduction of the Rural Stewardship Scheme (RSS), which is now the Executive's main scheme for supporting environmentally-friendly farming, it would not have been possible to have continued to operate the ESA Schemes on a non-discretionary basis. In a climate where agri-environment scheme funds are limited, it is necessary for Ministers to have a mechanism to enable them to balance supply and demand. Without the option of operating schemes on a discretionary basis, the only option open to Ministers would be to close schemes to new applications when the available funds run out. The situation now is that all applications to join agri-environment schemes must be considered on their merits in order to ensure that the finite funding available is targeted to the applications judged likely to deliver the greatest conservation benefit.

Options for Continued Support for ESA Scheme Leavers

2.6 It will be a decision for each individual farmer or crofter leaving an ESA Scheme after 10 years whether he/she wishes to continue with conservation management on their holding. For those who decide that they wish to continue with environmentally-friendly farming practices, the options for continued support are centred around participation in the RSS.

2.7 In common with the ESA Schemes, the RSS provides for annual payments to farmers and crofters who undertake environmentally-friendly farming practices. There is a very wide range of options available to farmers and crofters (much greater than that available through the ESA Schemes) and there is no limit on the payments which may be received through the Scheme. Unlike the ESA Schemes, there is no Tier 1 payment associated with RSS participation and the financial support for preparation of an Environmental Audit is made by way of a one-off capital payment, rather than through the annual Tier 1 payment.

2.8 The Executive considers that there are three options open to ESA Scheme leavers who wish to receive continued support for environmentally-friendly farming:

(i) ESA Scheme leavers compete for entry to the RSS;

(ii) ESA Scheme leavers are guaranteed access to the RSS; or

(iii) ESA Scheme leavers receive a "leg-up" to join the RSS.

These options are discussed below.

ESA Scheme Leavers Compete for Entry to the RSS

2.9 Under this option, ESA Scheme leavers would be free to apply to join the RSS (as they can at the moment) and would compete on a level playing field with all other applicants. They would gain the points available through the ranking system for participation in an environmental scheme but there would be no guarantee of entry to the RSS. This approach would mean that the finite funding available for agri-environment agreements would be more likely to go to those proposals likely to deliver the greatest environmental benefit. There is, however, a risk that some ESA Scheme leavers may be unsuccessful in their application to join the RSS and this would bring with it the risk that environmental benefits built up over 10 years' participation in the ESA Scheme could be compromised.

ESA Scheme Leavers are Guaranteed Access to the RSS

2.10 Under this option, ESA Scheme leavers who apply to join the RSS would be guaranteed entry to the Scheme. The benefits of this option are that, for ESA Scheme leavers, it provides certainty about the future availability of funds for conservation management. It also means that there would be no risk to the environmental benefits accruing from previous participation in the ESA Scheme. The potential disbenefits of this approach are that there is no guarantee that, on a national basis, the finite funding available will go to the proposals likely to deliver the greatest conservation benefit. It also means that, to the extent that finite resources continue to be allocated as of right to a particular group of farmers and crofters, the opportunities for other farmers and crofters to access agri-environment scheme funding are diminished.

ESA Scheme Leavers Receive a "Leg Up" to Joint the RSS

2.11 Under this option, ESA Scheme leavers would be free to apply to join the RSS but would not compete on a level playing field with all other applicants. They would be awarded an agreed number of points through the ranking system on account of their previous participation in an ESA Scheme. The number of points to be allocated would be in addition to points earned by the application through the ranking system and would be such as to significantly improve the chances of an application succeeding, without providing an absolute guarantee of access to agri-environment funding. An alternative approach to delivering the same outcome would be to increase by a fixed percentage the number of points gained by the application through the ranking system. The benefits of this option are that it provides some degree of incentive for the farmer/crofter and his/her adviser to produce the best conservation proposals possible for the farm or croft and has the potential to deliver an improved range of conservation benefits in comparison to the option outlined in the immediately foregoing paragraph. This option also means that other farmers and crofters applying to join the RSS have an improved chance of gaining access to the funding available.

Question

• Which of the three options outlined above do you prefer?
• What are your reasons for preferring the selected option?
• If your preference is for the third option, would you prefer the approach of awarding an agreed number of additional points, or of applying a percentage increase to the points earned by the application?
• Are there other options for continued support for ESA Scheme leavers you would wish the Executive to consider?

3. Proposals for Changes to the Organic Aid Scheme (OAS)

Background

3.1 As a consequence of concerns by Ministers about the extent to which the OAS was delivering the desired environmental and market benefits, the Executive's consultation paper of March 2002 on improvements to the operation of agri-environment schemes included a proposal that the OAS should operate on a discretionary basis to allow the finite funding to be targeted to those conversion proposals judged likely to deliver the greatest environmental benefit. Following the outcome of the consultation exercise, applications to join the OAS have been ranked against selection criteria prepared by the Executive with the assistance of organic sector bodies. The criteria are intended to enable Ministers to make informed choices on the allocation of resources.

3.2 With the assistance of the Organics Stakeholder Group (which was established in September 2002) the Executive has published an Organic Action Plan which sets out the Executive's intentions for future action to support the development of the organic sector in Scotland. One of the main strands in the support for the sector is the OAS which, since 1994, has provided financial support for farmers and crofters wishing to convert to organic production methods. From its inception up until 2001, the OAS operated on a non-discretionary basis i.e. all eligible applications were accepted for funding. Since 2002 the OAS has operated on a discretionary basis with applications being appraised against published selection guidance intended to ensure that the finite resources available are targeted to those proposals likely to deliver the greatest environmental and market benefits. It is intended that the OAS will continue to operate on a discretionary basis.

3.3 The Executive's aim is to support accelerated growth of organic farming where this can make the best contribution to environmental sustainability and in particular to achieve expansion of the area of arable land and improved grassland in conversion or production, with a view to these areas comprising 30% of Scotland's organic area by 2007. The Executive also wants to see organic fruit and vegetable production expand substantially from its current low base.

3.4 To achieve this aim the Executive seeks views on the options outlined in paragraphs 3.5 to 3.18 below on changes to the OAS.

Revised Payment Rates for Organic Conversion

3.5 The current rates (detailed below) have been in force since 1999, and have resulted in a substantial increase in the number of scheme participants:

3.6 Although the area of AAPS eligible land and improved grassland brought into conversion has increased since these rates were introduced, it appears that the rate for conversion of AAPS eligible land in particular (and to a lesser extent) that for improved grassland are too low to offer a sufficient incentive for more farmers to convert. On the other hand, it appears that the payment rate for conversion of rough grazing/unimproved grassland is generous. We believe there are likely to be greater environmental gains from the conversion of arable land and improved grassland, and conversion of these types of land is also likely to do more to help Scottish agriculture to meet demand for organic products which is currently met by imports.

3.7 As currently structured, the OAS does not specifically provide for conversion of land for fruit and vegetable production. These are sectors where there is substantial demand for organic produce and where organic conversion may have a particular effect in reducing pesticide and herbicide usage. Inclusion of payments for land for this type of production is therefore likely to bring the environmental benefits which the OAS is intended to deliver as well as opening up market opportunities for producers and providing consumers with home-grown produce.

3.8 Payment rates for agri-environment schemes are required to provide the producer with compensation for income foregone as a consequence of adopting environmentally friendly farming practices and meeting scheme requirements. The payments are not intended as income support, but they can include an incentive element (of up to 20% of income foregone) if this is needed to secure farmers' participation.

Questions

• Do you agree that the current payment rates for organic conversion should be reviewed?
• Do you agree that it is desirable that revised rates should particularly incentivise conversion of AAPS eligible land?
• Do you agree that a new payment for conversion of land for growing fruit and vegetables should be introduced?

Advisory Support for Farmers/Crofters Converting to Organic

3.9 The Executive provides financial support for "public good" advice to the agricultural industry through the Scottish Agricultural College. For those considering converting to organic production methods, this includes a telephone helpline, a website with technical and market advice, and demonstration farms. So far as agri-environment schemes are concerned, the Executive has provided financial support for advisory services in a number of ways, for example through the Tier 1 payments made to ESA Scheme participants and through the grant paid to CPS and RSS Scheme applicants for preparation of a Conservation or Environmental Audit. There is, however, no equivalent support from the Executive at present for farmers applying to join the OAS, although one of the Scheme requirements is that the applicant should have a conversion plan drawn up and agreed by the approved sector body with whom he/she is registered.

3.10 While there are many factors which farmers and crofters need to weigh before taking the decision to convert to organic production methods, the Executive agrees with the views expressed by the organic sector bodies on the Organics Stakeholder Group that the absence of financial support for professional advice may be a disincentive for some farmers and crofters considering conversion to organic production methods. The Executive's view is that it would be equitable to offer financial support on a similar basis to that available for applicants to join the RSS i.e. a payment of up to 300, or 50% of cost, if this is less, for the cost of professional advisory help in producing an organic conversion plan.

Questions

• Do you agree that the Executive should introduce financial support for the costs of producing an organic conversion plan?
• Do you consider that a payment of up to 300, or 50% of costs where this would be less, is a reasonable contribution to these costs?

Conditional Approval of Organic Aid Scheme Applications

3.11 With the change from a non-discretionary to a discretionary system for considering OAS applications, applicants are no longer guaranteed access to the finite funding available for agri-environment schemes. Uncertainty as to the outcome of the application process may make some farmers reluctant to embark on the road to conversion and it is recognised that applicants to the Scheme may incur significant costs to register with an organic sector body and to produce the conversion plan which is required as part of the OAS application process. Under the new operating arrangements for the OAS, such costs may be incurred without result if the application for OAS assistance is ultimately unsuccessful.

3.12 In order to remove what may be a barrier to further expansion of the organic sector, the Executive proposes to modify the OAS to allow farmers to apply in advance of registration with an approved sector body. Under these arrangements, applicants would be advised whether or not their conversion proposals would be accepted for funding were they to register with an organic sector body. Provided that the applicant registers within a reasonable period after he or she has had an application for OAS assistance accepted (probably 3 months) the approval will stand. If the applicant fails to provide within a reasonable period of time documentary evidence that he/she has registered with an approved sector body, the approval would lapse.

Questions

• Do you agree that the Executive should introduce arrangements for conditional approval of OAS applications?
• Do you consider that 3 months after approval is a reasonable period within which applicants should be required to have registered with an approved sector body to prevent the lapsing of the approval?

Expert Appraisal of OAS Applications

3.13 Scottish Executive staff are well trained and accustomed to identifying the environmental benefits likely to flow from conservation management of particular features and habitats on agricultural land, as provided for in other agri-environment schemes such as the Countryside Premium Scheme and the Rural Stewardship Scheme. Although the Organic Aid Scheme is an agri-environment scheme, the farming methods which it is designed to reward differ from the types of measure supported under the other schemes. Organic farming is concerned with the nature of the farming system across the entire holding rather than with specific management of areas of habitat of conservation value across or around cropped or grazed areas. In addition, Scottish Executive staff do not have the market knowledge and expertise required to determine whether individual conversion proposals are likely to lead to the production of marketable organic goods, and thus contribute to achievement of the objectives of the Executive's Action Plan for Organic Farming.

3.14 The Executive is working with organic sector stakeholders to devise an appropriate means of engaging external expertise in the appraisal of future OAS applications.

Question

• Do you agree that, in order to secure the best use of finite funding the Executive should, with the help of stakeholders, seek to devise means of engaging external expertise in the appraisal process?

Capital Costs Associated with Conversion

3.15 There can be considerable capital costs associated with conversion to organic status where this requires a major shift in the nature of the farming system. Other agri-environment schemes have provided support for capital measures required in order to support conservation management, and where the capital items themselves have an intrinsic conservation value. Examples of capital measures which may be funded under the other schemes are fencing to facilitate management of livestock grazing, planting of hedges as field boundaries and building or restoration of stone dykes. The intention is that the rates of payment, and the method, should be the same as those which apply to farmers participating in the RSS.

3.16 Although the provision of funding for such items will add to the pressures on the agri-environment budget, the Executive considers that provision of such support may help to encourage producers to consider conversion, especially from non-organic arable farming to mixed arable and livestock farming. Capital items, particularly dyking, can be expensive and can quickly absorb significant amounts of the finite funding available for agri-environment schemes. This in turn would restrict the funding available for conservation management payments. To try to avoid an undue proportion of the funding available being absorbed by the costs of capital works, the Executive proposes, as with the other agri-environment schemes, that there should be a limit (say 25% of the total cost of the proposed OAS payments) to the amount of capital work which should be assisted.

Questions

• Do you agree that the Executive should introduce payments for capital items associated with conversion to organic status?
• Do you agree that the finite assistance available should be targeted towards fencing where this is required for livestock management and to provision of hedges and dykes where these would provide biodiversity and landscape benefits?
• Do you agree that, as with other agri-environment schemes, there should be a limit on the amount available per application?
• Do you agree that 25% is a reasonable proportion?
• Do you agree that the rates of payment, and the method of payment, should be the same as for RSS?

On-going or Maintenance Payments

3.17 A number of EU Member States currently make continuing payments to at least some organic producers after the initial conversion period in recognition of environmental benefits provided by organic farming and of the potential for organic producers to revert to more productive but less environmentally-friendly methods after the payments during the conversion period, come to an end. This potentially disadvantages producers in Member States where subsidy ceases after the conversion period. In considering the options for introducing ongoing payments, the Scottish Ministers have to take account of the perceived benefits of ongoing payments against the overall financial pressure on the agri-environment programme and the possibility of ongoing payments masking market signals to which organic producers must respond if the sector is to be sustainable.

3.18 The Executive recognises the case for assistance beyond the conversion period where this can secure significant environmental benefits which might otherwise be lost. The Executive considers that there are three options for payments for organic producers beyond the 5-year period for which OAS payments are made. The options are:

(i) to spread the existing payments (subject to any revised rates introduced following the payment rate review) over a longer period;

(ii) providing ongoing payments for all organic producers (whether or not they have previously been participants in the OAS) beyond the 5-year period; and

(iii) providing environmental payments on a selective basis to organic farmers beyond the initial 5-year period.

Questions

• Do you consider that the Executive should introduce continuing or maintenance payments for organic producers beyond the 5-year period for which OAS payments are currently available?
• Should such payments be available to all organic farmers, regardless of previous participation in the OAS?
• Should this be achieved by spreading existing payments over a longer period?
• Should continuing payments be selective in recognition of delivery of continuing environmental benefit?

4. Rural Stewardship Scheme (RSS): Collaborative Applications

4.1 The RSS and its predecessor Schemes have been substantially beneficial in promoting and sustaining environmentally-friendly management on individual farms and crofts. The RSS has also, to a modest degree, encouraged farmers and crofters to collaborate to secure environmental benefits over a wider area by supporting joint management of boundary and riparian features such as hedges, water margins and flood plains.

4.2 "Custodians of Change", the report of the Agriculture and Environment Working Group, identifies support for local collaborative action as a key means of securing bio-diversity, diffuse pollution control, and landscape benefits across wider areas of the countryside, where these issues need to be addressed.

4.3 The benefits of local collaborative action include, for example:

• management of important bio-diversity features which depend on action by more than one farmer croft e.g. wetland or raised bog areas which straddle farm boundaries, or are sensitive to changes in management on an adjoining or nearby farm;
• co-ordinated action to farm in a way which protects particular catchments from pollution and eutrification;
• the delivery of landscape-scale visual impacts; and
• creation of "wildlife corridors" across the countryside, in addition to "hot spots" of biodiversity-friendly farming.

4.4 To encourage and support local collaborative action to secure increased environmental benefits, the Executive propose that farmers or crofters on adjoining holdings should be able to submit a collaborative application to join the RSS, and that the arrangements for ranking such applications should be designed to encourage this approach.

4.5 The Executive proposes that the collaborative application should have to be supported by a single environmental audit for the entire area covered by the individual holdings covered by the application. The environmental audit should identify the additional biodiversity, pollution control and landscape benefits which would be secured through the collaborative proposal over and above the benefits which individual applications from the same farmers would be expected to deliver. In order to obtain an informed and balanced view on whether collaborative applications meet the criteria set out above, the Executive proposes that such applications be assessed by local SEERAD- chaired committees whose membership would comprise all of the relevant environmental interests (e.g. SNH, SEPA, LINK body ) not involved in drawing up RSS applications. Those applications assessed as likely to deliver additional biodiversity, pollution control or landscape benefits would be accepted by the Executive and the proposals from the individual farmers or crofters concerned would be considered on the basis outlined in paragraph 4.7 below.

4.6 Under cover of the collective environmental audit, each individual farmer croft participating in the collaborative proposal would require to submit an individual RSS application form, with the usual supporting documentation, identifying the individual management measures which the farmer/croft business proposes to undertake under the RSS.

4.7 The relevant features detailed in the ranking system across the whole multi-farm or -croft area would be taken into account in reaching a single RSS ranking score which would apply to all of the collaborating farm or croft applications. Where a qualifying feature is found on more than one farm or croft in the participating group, it would count only once towards the ranking points total. If the ranking score is above the funding threshold for the application round in question the applications from all of the participants in the collaborative application would be funded: if the score fell below the threshold, none of the individual applications would be funded.

4.8 For collaborative applications, as with applications from individual farmers or crofters, the RSS agreement would be with each individual business which is part of the collaborative proposal. Each business would be individually responsible for doing what it is paid to do under the RSS agreement and failure by any individual business to meet the Scheme conditions would affect only that business, not the rest of the participants in the collaborative proposal.

4.9 Farmers or crofters would be free to choose whether or not to submit an application as part of a collaborative proposal, but once the decision has been made whether to proceed individually or collaboratively and an application form has been submitted, it would not be possible to change the application from an individual to a collaborative one, or vice versa, in that application year.

4.10 Accepting in principle that the operation of the RSS should be modified to establish whether it can deliver, through collaborative applications, the additional benefits foreseen in "Custodians of Change" the question arises whether there are particular aspects of the RSS which, if tackled on a collaborative basis, might more readily deliver the additional benefits foreseen by the Agriculture and Environment Working Group. To take diffuse pollution control as one example, clearly the greater the number of farmers collaborating in the conservation management of riparian habitats, the greater the likelihood that environmental benefits are delivered beyond the boundaries of the individual farms participating in the RSS. Management of grassland areas for birds is another area where collaborative action might lead to additional environmental benefits beyond those which would be derived from individual farms or crofts carrying out this management. It is, of course, accepted, that the greater the "critical mass" of farms in an area participating in environmentally-friendly farming practices the greater the cumulative environmental benefit will be. However, as a means of testing whether the collaborative approach outlined above is likely to deliver the desired extra benefits, the question arises whether collaborative applications, say for the first 2 RSS application rounds after any agreed proposals are brought into operation, should be restricted to any particular areas or habitat types.

Questions

• Do you agree that the way the RSS operates should be changed so as to promote collaborative action to enhance the impact the Scheme can make to promoting biodiversity, addressing diffuse pollution issues and securing landscape-scale visual impacts?
• Do you believe there should be a minimum number of farms participating in a collaborative application?
• If so, what do you think that number should be?
• Do you agree that collaborative applications should be required to have the support of a recognised conservation body?
• Do you agree with the suggested ranking arrangements outlined in paragraph 4.7?
• Do you agree that, in the first instance, the collaborative application approach should apply only to applications which include management of riparian habitats or grassland for birds?

5. RSS: Prescriptions

5.1 The Executive has no current plans to introduce new prescriptions to the RSS, but will be considering fine tuning of some of the existing prescriptions to add flexibility and to improve their effectiveness.

6. Implementation of Changes

6.1 Scottish Executive Ministers will decide, in the light of the responses to this consultation paper, what changes should be made to the RSS and OAS. Changes which require EU approval will be submitted to Brussels for approval later this year along with any other agreed changes to the Scottish Rural Development Plan. Given the 6 month timetable for EU approval and the need for domestic legislation thereafter, it is likely to be Spring 2004 before these changes are implemented. Agreed changes which do not require EU approval will be implemented as soon as possible.

Timetable for Responses

Responses to this consultation paper should be made, by Friday 30 May 2003 in writing or electronically to:

Katy Jeffrey, Farm Business Restructuring Division, Conservation Branch, Room 116, Pentland House, Edinburgh EH14 1TY
E Mail: katy.jeffrey@scotland.gsi.gov.uk

In accordance with usual practice, responses to this consultation will be made publicly available unless respondents provide an indication to the contrary.