Scottish Government

3. Policy Drivers and Context for the Next Steps Strategy

In this relatively large section, European and Scottish Executive policies that impact upon, or influence the direction of, the Next Steps Strategy are reviewed to provide the context for later assessments and to identify associated pressures and synergies. Reviewed policies include:

• EU Common Agricultural Policy ( CAP) and CAP reform (Council Regulations ( EC) No 1782/2003 - 1788/2003),
• Cross Compliance including Statutory Management Requirements ( SMR) and Good Agricultural and Environmental Conditions ( GAEC),
• Rural Development and Modulation,
• EU Rural Development Regulation ( RDR) (1698/2005),
• Scottish Rural Development Programme ( SRDP) 2007-13
• Strategic Environmental Assessment of the SRDP 2007-13
• Strategic Environmental Assessment of the Scottish Forestry Strategy ( SFS)
• Biodiversity - International and National Commitments
• Forward Strategy for Scottish Agriculture and the Next Steps Strategy

In the last part of this section (3.12), a summary review of links to a wider range of related plans, programmes and policies is provided, including the EU Water Framework Directive and related Scottish legislation, including the Water Environment and Water Services (Scotland) Act 2003, the WEWS Act, and associated Controlled Activities Regulations, the CAR Regulations, with a complete review supplied in Appendix A. Figure 2.1 below, outlines a simplified overview of the policies (grey boxes), financial mechanisms and environmental feedback loops affecting the Next Steps Strategy.

Figure 3.1 Overview of policy & mechanisms hierarchy

3.1 EU Common Agricultural Policy ( CAP)

The basic principles on which the Common Agricultural policy was built were set out in the Treaty of Rome, which was signed by the 6 original member states of the European community in 1957. Article 39 of the Treaty of Rome set out the objectives of the CAP as follows:

• to increase agricultural productivity by promoting technical progress and by ensuring the rational development of agricultural production and the optimum utilisation of the factors of production, in particular labour;
• thus to ensure a fair standard of living for the agricultural community, in particular by increasing the individual earnings of persons engaged in agriculture;
• to stabilise markets;
• to assure the availability of supplies;
• to ensure supplies reach consumers at reasonable prices.

From the mid 1960s and throughout the 1970s financial assistance was provided for the restructuring of farming: aiding farm investment to ensure that farms developed in size, management and technology skills so that they adapted to the economic and social climate of the day. Some human and territorial elements were introduced in the form of assistance towards early retirement, vocational training and specific support measures for less favoured areas ( LFAs).

By the 1980s, the EU had to contend with almost permanent surpluses of the major farm commodities, some of which were exported (with the help of subsidies), others of which had to be stored or disposed of within the EU. These measures had a high budgetary cost, distorted some world markets, did not always serve the best interests of farmers and became unpopular with consumers and taxpayers. The 1980s also saw the further introduction of regional measures to assist specific areas with particular problems. In Scotland, the Western Isles Integrated Development programme was adopted in 1981. In 1992 important reforms were agreed which involved reducing support prices and compensating farmers by paying them direct aids. Several rural development measures were introduced, notably to encourage environmentally sound farming and production limits helped reduce surpluses. Farmers had to look more to the market, while receiving direct income aid, and respond to the public's changing priorities.

This shift of emphasis in the CAP entered a new phase with agreement in 1999 on the 'Agenda 2000' reforms. These reforms reinforced the move to make farmers more reliant on the market and improved incentives to farm in an environmentally sensitive way. They added a major new element - a comprehensive rural development policy encouraging many rural initiatives whilst also helping farmers to diversify, to improve their product marketing and to otherwise restructure their businesses. The budget available to the CAP was set out for the period 2000 to 2006, allowing farmers to plan ahead with more certainty. The budget was also capped to reassure taxpayers that CAP costs would not escalate. ³

3.2 CAP Reform - 2002-03 Mid-Term Review

The trend of the last two major reforms which took place in 1992 and 1999 was to cut spending on supporting the price of farm products, and compensate farmers with direct payments. The reforms also made support for rural development in agriculture a new "Second Pillar" of the CAP although spending on this 2nd Pillar accounts for only 10% of the overall CAP budget. In June 2003, the Council of Agriculture Ministers reached a political agreement on CAP reform. The Regulations which implement this agreement were adopted at the Agriculture Council meeting on 29 September 2003 (Council Regulations ( EC) No 1782/2003 - 1788/2003). The 2002-03 Mid-Term Review was initially intended to make minor technical changes to the 1999 reforms, but turned into a wholesale CAP reform in its own right. The main driver of the reform was the need to change the CAP to help the EU in WTO negotiations on agricultural trade and farm support. The other issue which drove change was the 10 country enlargement of the EU due in 2004. The reforms gave Member States more freedom to decide on agricultural policy than they had for forty years, and the UK Government and Devolved Administrations decided at an early stage that the CAP reforms would be implemented regionally in England, Scotland, Northern Ireland and Wales.

The 2003 CAP reforms introduced the Single Farm Payment from 2005, which replaced previously separate subsidy payments based on production, commonly known as 'decoupling', and was the most important change introduced by these reforms. The single payment was intended to be much simpler for governments to administer, once entitlements had been established. The reforms also introduced compulsory modulation of farm payments, which redirects money to rural development budgets, and a financial discipline mechanism which stops farm spending breaking an agreed budget ceiling. ⁴

Following an extensive consultation process in 2003/4, Single Farm Payments were introduced in Scotland in 2005. Payments are made on an historical basis, based on the average amounts farmers received in the 2000-02 reference period; farmers will no longer be tied to keeping the same number of animals or growing the same crops, giving them a 'freedom to farm'. The Scottish Executive kept the option of using a national envelope in the beef sector to address the possible short-term consequences of decoupling. National Modulation together with compulsory EU modulation is applied at a combined rate of 10%, and may be further increased subject to allocation of more money by HM Treasury for match funding. Modulation is a term used to define the reallocation of funds, in this case, removing some of the money allocated through Pillar 1 of the CAP (and therefore direct payments to farmers) and redirecting the amount to Pillar 2 to further fund rural development support, such as agri-environment schemes.

Under the reformed CAP, 'decoupling' removes the link between the need to produce agricultural goods and the receipt of support payments therefore, instead of having to produce particular products to obtain subsidy, farmers are better able to choose what to produce. The idea is that by removing the incentives created by some of the previous subsidy schemes, e.g. headage payments for sheep, farmers will align their production more closely to market requirements, because they no longer need to keep more animals than they would otherwise, solely to claim the subsidy on them. The Council of Ministers of the European Union also recognised that farmers in receipt of subsidy have important responsibilities towards the protection of the environment, animal health and welfare, and public health. The CAP Reform Agreement therefore requires farmers to observe certain conditions in these areas in return for receipt of the Single Farm Payment subsidy, known as "Cross Compliance".

3.3 Cross Compliance

The Mid-Term Review aimed to reform the CAP to make it more environmentally friendly and to respond to consumer concerns about animal welfare, and food quality and safety. It does this by transferring funds through modulation from direct payments to rural development, and through the introduction of compulsory cross-compliance for receiving farm support payments. Cross compliance was first introduced for set-aside payments in 1992 and for rural development payments in Agenda 2000. Now it is extended to cover all direct payments.

In order to continue to receive subsidies farmers must comply with 18 pieces of existing EU animal and plant health, animal welfare and environmental law, known as Statutory Management Requirements ( SMRs). Farmers must also keep their land in Good Agricultural and Environmental Condition ( GAEC). These latter conditions are mainly designed to ensure a minimum use of farm land, but Scotland has gone further than the minimum requirements by developing various codes of good practice.

In Scotland, in order to receive payment for claims under the

• Single Farm Payment Scheme
• Protein Crop Premium
• Energy Crop Scheme
• Scottish Beef Calf Scheme
• Nuts Aid Scheme

farmers must meet the following Statutory Management Requirements ⁵ (there will also be a further three SMRs covering animal welfare introduced in 2007):

Good Agricultural and Environmental Condition ( GAEC) ⁶ for Scotland is based on the framework established in European legislation and has been developed to reflect Scottish conditions and the wide variability of soils, habitats and farming systems found throughout Scotland. GAEC focuses on:

A full listing of the legislative framework for the focus of Scottish measures on Cross Compliance is provided in Appendix B.

It is worth noting that Cross Compliance (including GAEC) does not currently cover action to control diffuse pollution. The Code of Good Practice for the Prevention of Environmental Pollution from Agricultural Activity ( PEPFAA Code) ⁷ is a practical Guide on avoiding pollution covering the main agricultural activities giving rise to pollution and describing some of the management practices that avoid, or minimise the risks while allowing economic agricultural practice. There is a consultation on diffuse pollution currently underway that addresses the introduction of national General Binding Rules ( GBRs) on the control of diffuse pollution. ⁸

3.4 Rural Development and Modulation

Currently, rural development spending makes up around one-tenth of the CAP budget. Compulsory modulation augments this, but only to a limited extent, and rural development spending is still greatly outweighed by spending on direct payments to support farmers' incomes. Rural development spending supports farm forestry and agri-environment schemes, and now provides incentives for quality food production and animal-welfare friendly farming.

Modulation provides a method of redirecting support between the two pillars of the CAP, from Agricultural Market Support payments to rural development. At the moment, Member States can modulate up to 20% of farm payments. A transitional arrangement was negotiated which allowed Member States to use national modulation over and above the compulsory EU-wide modulation. Members will be able to continue with national modulation after 2006 to fund spending commitments made before 2006. While money from the compulsory EU wide modulation can be used to support any of the eligible measures under the Rural Development Regulation, national modulation can only be used for "accompanying measures" (Less Favoured Area ( LFA) support, agri-environment, early retirement payments for farmers and farm woodlands). The UK introduced national modulation of payments at a rate of 3.5% in 2004, which rose to 4.5% in 2005.

Changes to the measures which can be supported under the Rural Development Regulation have also been made as part of the reforms. New measures eligible for support are:

• Help for farmers to meet standards imposed by EU law.
• To improve food quality, payments for farmers who take part in quality assurance schemes.
• Payments for farmers who make animal welfare improvements which go beyond minimum statutory requirements.
• Support for farmers to help them with the cost of using farm advisory services.

The funds from EU modulation could be used to support these measures. Member States could also support them by re-allocating existing rural development spending. The Scottish Executive decided on an option, where national and EU modulation are combined at a total rate of at least 10% by 2007. The Executive has said that it would consider applying a higher rate of modulation if it can obtain the money needed for match-funding through the UK spending review.

These higher levels of modulation should be directed towards supporting wider rural development and environmental improvement under the EU Rural Development Regulation ( EURDR) and the Scottish Rural Development Programme ( SRDP). Changes brought in through the Mid-Term CAP Review are well suited to delivering support to farmers through the system of Land Management Contracts ( LMCs), which the Scottish Executive committed to in the Partnership Agreement. ⁹ However, the full implementation of LMCs cannot happen until decisions are made at EU level about the Rural Development elements of the CAP and associated funding regimes. ¹⁰

3.5 EU Rural Development Regulation ( RDR) (1698/2005)

The EU regulatory framework for supporting rural development between 2007 and 2013 is provided in the Rural Development Regulation ( RDR) (1698/2005). Following reform of the CAP in 2003, rural development funding in the 2007-13 programming period will be delivered through the European Agricultural Fund for Rural Development ( EAFRD). The EAFRD will be used to support three strategic priorities representing Axes in Regulation 1698/2005:

(i) Improving the competitiveness of agriculture and forestry by supporting restructuring, development and innovation (Axis 1 - articles 20-35 of the RDR).

(ii) Improving the environment and the countryside by supporting land management (Axis 2 - articles 36-51 of the RDR).

(iii) Improving the quality of life in rural areas and encouraging diversification of economic activity (Axis 3 - articles 52-60 of the RDR).

The RDR supports a fourth Axis to enhance the use of the LEADER approach which is a bottom-up, locally-driven approach to innovation and development administered by local partnerships. Axis 4 (articles 61-65 of RDR) can be delivered across any one, or a combination, of the three main Axes.

The RDR, and the funding that it provides through EAFRD, along with linked domestic funding, represent a significant incentive to achieve public policy goals, through land management and business and community development across rural Scotland. Contained within the RDR Axes are 42 measures which provide a broad menu of the types of activity that it is possible to fund in the 2007-13 Scottish Rural Development Programme ( SRDP), which will be constructed around these measures: ¹¹

Axis 1 Improving the competitiveness of the agricultural and forestry sector

(a) Measures aimed at promoting knowledge and improving human potential through:

1 vocational training and information actions, including diffusion of scientific knowledge and innovative practices, for persons engaged in the agricultural, food and forestry sectors;

2 setting up of young farmers;

3 early retirement of farmers and farm workers;

4 use of advisory services by farmers and forest holders; and,

5 setting up of farm management, farm relief and farm advisory services, as well as of forestry advisory services.

(b) Measures aimed at restructuring and developing physical potential and promoting innovation through:

6 modernisation of agricultural holdings;

7 improving the economic value of forests;

8 adding value to agricultural and forestry products;

9 cooperation for development of new products, processes and technologies in the agriculture and food sector and in the forestry sector;

10 improving and developing infrastructure related to the development and adaptation of agriculture and forestry; and,

11 restoring agricultural production potential damaged by natural disasters and introducing appropriate prevention actions.

(c) Measures aimed at improving the quality of agricultural production and products by:

12 helping farmers to adapt to demanding standards based on Community legislation;

13 supporting farmers who participate in food quality schemes; and,

14 supporting produced groups for information and promotion activities for products under food quality schemes.

(d) Transitional measures for the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia concerning:

15 supporting semi-subsistence agricultural holdings undergoing restructuring; and,

16 supporting setting up of producer groups.

Axis 2 Improving the environment and the countryside

(a) Measures targeting the sustainable use of agricultural land through:

17 natural handicap payments to farmers in mountain areas;

18 payments to farmers in areas with handicaps, other than mountain areas;

19 Natura 2000 payments and payments linked to directive 2000/60/ EC;

20 agri-environment payments;

21 animal welfare payments; and,

22 support for non-productive investments.

(b) Measures targeting the sustainable use of forestry land through:

23 first afforestation of agricultural land;

24 first establishment of agro forestry systems on agricultural land;

25 first afforestation of non-agricultural land;

26 Natura 2000 payments;

27 forest-environment payments;

28 restoring forestry potential and introducing prevention actions; and,

29 support for non-productive investments.

Axis 3 The quality of life in rural areas and diversification of the rural economy

(a) Measures to diversify the rural economy, comprising:

30 diversification into non-agricultural activities;

31 support for the creation and development of micro-enterprises with a view to promoting entrepreneurship and developing the economic fabric; and,

32 encouragement of tourism activities.

(b) Measures to improve the quality of life in rural areas, comprising:

33 basic services for the economy and rural population;

34 village renewal and development; and,

35 conservation and upgrading of the rural heritage.

(c) Training, skills acquisition and animation

36 training and information for economic actors operating in the fields covered by axis 3; and,

37 skills acquisition and animation with a view to preparing and implementing a local development strategy.

Axis 4 Leader

38 implementing local development strategies with a view to achieving the objectives of one or more of the three other axes;

39 implementing cooperation projects involving the objectives selected under point 38; and,

40 running the local action group, acquiring skills and animating the territory as referred to in Article 59.

Technical Assistance

41 provision for the European Network for Rural Development; and,

42 provision for a National rural network.

3.6 Scottish Rural Development Programme ( SRDP) 2007-13

The SRDP 2007-13 is being produced in accordance with the EU Rural Development Regulation ( RDR) 1698/2005 and will be financed through the European Agricultural Fund for Rural Development ( EAFRD), with co-financing by the Scottish Executive and modulation of Pillar 1 funding in CAP (Single Farm Payments) to Pillar 2 funding (Rural Development). Voluntary modulation will add to the resources for the SRDP; however the level of resources available through each of these sources is expected to reduce over time as EU funds are redirected from CAP and rural development spending to supporting new EU Member States in Eastern Europe.

In the recent consultation document, "Rural Development Programme for Scotland 2007-2013 - The Strategic Plan" ¹², the Scottish Executive proposed structuring the SRDP around three themes that reflect the EURDR Axes, but which address the priorities and challenges facing rural Scotland. The document proposed that these themes be linked to a series of outcomes for rural areas, and that a series of priority actions be identified to achieve these outcomes. Each of the themes and associated outcomes are detailed below and further information can be found in the consultation document: ¹³

Theme 1 - Underpinning performance and quality in the agriculture, food processing and forestry sectors

Actions under Theme 1 should contribute to the following outcomes:

• agriculture, forestry and agri-food sectors that are competitive in international markets and that meet the needs of rural Scotland;
• exploitation of market opportunities and provision of quality products from sustainable, traceable sources;
• an integrated supply chain that adds maximum value and quality to Scottish products;
• a land-use sector that is environmentally sensitive and that capitalises on local distinctiveness and "sense of place", by developing new markets for both food and non-food products and services;
• effective product development and promotion through quality branding and assurance; and
• a skilled and confident workforce that embraces new opportunities.

Theme 2 - Enhancing rural landscapes and the natural environment

Actions under Theme 2 should contribute to the following outcomes:

• Scotland's natural resources (including farmland and forestry) conserved or enhanced for the long term, with biodiversity as an integral component of actions across rural Scotland;
• well maintained landscapes benefiting people and business;
• land management practices that protect and enhance water and soil quality;
• well treated and healthy farm animals; and
• climate change mitigation and protection of communities from other environmental hazards.

Theme 3 - Promoting a more diverse rural economy and thriving rural communities

Actions under Theme 3 should contribute to the following outcomes:

• a progressive rural economy characterised by a culture of learning and skills to encourage entrepreneurship;
• rural enterprise benefiting from diversification of agriculture and forestry, and capitalising on local assets;
• businesses deriving added value from the distinctive natural and cultural resources of rural Scotland, through local markets and further afield;
• access to outdoor recreation for local populations and those living in towns and cities;
• tourism businesses profiting from well maintained landscapes and Scottish food and woodland products; and
• thriving rural communities underpinned by secure cultural heritage.

The Scottish Executive has proposed that the following schemes provide the main building blocks for the delivery of the SRDP¹⁴:

Less Favoured Area Support Scheme ( LFASS)

LFASS falls within Axis 2 of the new RDR and contributes to the maintenance of economic activity and traditional agricultural landscapes through continued use of agricultural land. Less Favoured Areas ( LFAs) are an important feature of land-use in Scotland, where they cover 85% of agricultural land. The active management of this land will continue to be necessary as a foundation for the delivery of many of the actions identified under the three themes of the SRDP, including economic and community goals.

Land Management Contracts ( LMCs)

The reform to the CAP in 2003 provided the opportunity to introduce a new approach to delivering support to rural Scotland, namely Land Management Contracts ( LMCs). LMCs will occupy a central role in the 2007-13 SRDP. Their full introduction should contribute to a sustainable, prosperous land-based sector which plays a key role in rural development and achieving high standards of land stewardship. LMCs will support the delivery of environmental, economic and social benefits.

In developing the LMC scheme, a number of guiding principles were followed:

• An integrated approach to land management leading to a one stop shop for land managers and a joined up approach to the administration and delivery of land management related funding by SEERAD and its agencies;
• Means of delivering existing environmental, social and economic policy objectives e.g. Biodiversity Strategy, Water Framework Directive, Agriculture Strategy, Forestry Strategy, Smart Successful Scotland etc;
• Focus on sustainable land management and delivery of public goods; and
• Open to all land managers e.g. farmers, foresters, sporting estates - whoever is best placed to deliver desired outcomes.

The full LMC concept has 3 tiers:

• Tier 1 - Single Farm Payment and Cross Compliance - securing a basic level of environmental protection, food safety, animal welfare and income through Statutory Management Requirements and Good Agricultural and Environmental Condition requirements for eligibility.
• Tier 2 - LMC Menu Scheme - delivering widespread benefits throughout Scotland, leading to economic, social and environmental improvement.
• Tier 3 - under development for 2007 - providing tailored benefits according to priorities, leading to economic, social and environmental enhancement.

The Tier 1 Single Farm Payment provides support that is 'decoupled' from food production, as discussed earlier, and is designed to encourage farmers and crofters to make business decisions in response to market conditions. Tier 1 does not form part of the SRDP and is managed separately by SEERAD for agricultural payments under the Forward Strategy for Agriculture and Next Steps..

The aims of Tiers 2 and 3 are to provide support for a broader range of land-based activities, including the farmed environment and forestry, and to support other sustainable activities in rural communities. The Executive propose to move to a system where LMCs become the principal gateway to support for land management, business development, diversification and wider rural development measures. Their aspiration is that LMCs enable the Scottish Executive to deliver many of its broad-ranging priorities for rural areas and to achieve a cross-cutting approach to implementing actions across the Axes of the RDR. As such, the Executive has been working closely with partners, including Forestry Commission Scotland and Scottish Natural Heritage, to implement a common integrated approach.

A suite of national objectives for LMCs has been developed, based on existing policies and the stated strategic outcomes of SEERAD. The objectives fit within the objectives for the SRDP and provide the framework for Tiers 2 and 3 of LMCs. ¹⁵ .

The Executive are reviewing existing schemes for their potential to be incorporated into the LMC system, including those addressing agri-environment, forestry, business development and diversification, processing and marketing and wider rural development objectives. Bringing these into LMCs, in whole or in part, and with suitable adjustment, would provide more flexibility in developing applications for support that provide multiple benefits. It would also mean an easier approach for applicants and more efficiency in delivery. Rationalisation would allow a wider LMC approach to better meet the policy objectives of the new SRDP and improve the delivery of related strategies, including the forestry and agriculture strategies. The specific schemes which are being considered, all or in part, for incorporation into LMCs include: ¹⁶

• Rural Stewardship Scheme;
• Organic Aid Scheme;
• Farm Business Development Scheme;
• Agricultural Business Development Scheme;
• Scottish Forestry Grants Scheme Farmland Premium;
• Scottish Forestry Grant Scheme (in part);
• Scottish Natural Heritage Natural Care Scheme (in part);
• Crofting Counties Agricultural Grant Scheme;
• Crofters Cattle Quality Improvement Scheme;
• Crofting Counties Development Scheme;
• Agriculture Processing and Marketing Grants;
• Scottish Rural Partnership Fund.

LMCs may not be an appropriate mechanism for certain schemes and actions, for example, SNH will still undertake individual management agreements with land managers, in particular where compensatory or one-off arrangements are necessary. Other schemes may be less directly concerned with land management; for example, agriculture processing and marketing grants include support for facilities in urban areas (drawing on Scottish food production from elsewhere) and may sit more comfortably outside LMCs. Further, Forestry Commission Scotland will continue to administer stand-alone measures within the SRDP including the Strategic Timber Transport Scheme.

LEADER

LEADER is a locally-based approach to economic and community development within rural areas. It is a bottom-up local engagement process through which resources are targeted at those rural areas identified as most in need, as a result of socio-economic and demographic factors including levels of employment, population levels and the age profile of local communities. Remoteness and/or fragility also play a significant part. The LEADER approach may enhance some of the objectives of LMCs, by providing support for wide-ranging, innovative and community-led projects that come within the scope of the three Axes in RDR 1698/2005. LEADER is currently administered by Local Action Groups ( LAGs) which comprise local partnerships of government and non-government organisations and individuals active in local development processes. Currently, LEADER is not intended to deliver additional funding for agricultural purposes but for community projects led by the Local Action Groups.

3.7 Strategic Environmental Assessment of the SRDP

In 2005, Royal Haskoning conducted an SEA as part of the ex-ante evaluation of the SRDP. The SEA considered the environmental implications of differing mechanisms for funding across the Axes of the RDR in Scotland. The SEA also considered the environmental implications of the objectives for Land Management Contracts outlined within the SRDP consultation document ¹⁷.

The SEA concluded that five main actions were identified as having potentially negative impacts:

1. Increased production of feedstock and energy crops for renewable energy production.

2. Construction of renewable energy plants within rural Scotland such as the construction of wind farms and hydropower schemes.

3. Increasing the number of processing facilities in rural Scotland by the construction of new buildings.

4. The creation of recreational and tourism attractions which require land take.

5. Changes in the infrastructure of communities in rural Scotland.

All five actions could result in a range of environmental impacts including the potential loss of land supporting biodiversity interests and priority and/or protected habitats and/or species, impacts on soil quality and quantity, impacts on the water environment and impacts on air quality and the release of greenhouse gases into the atmosphere. However all options offer potential environmental benefits and mitigation measures to minimise or negate these impacts while still allowing the actions to proceed were identified.

Mitigation measures suggested included the development of a National Renewables Strategy for Scotland which would identify those areas where wind farms, hydropower schemes, biofuel plants (and associated biomass cropping sites), and marine and coastal renewable schemes should be permitted and those areas where, due to a number of reasons such as the sensitivity of the environment and/or the remoteness of the site from the National Grid, renewable plant development should not be permitted. With regard to biomass cropping, mitigation included interspersing areas of monoculture biomass crops with new hedging, biodiversity crops or other habitats to break up the visual impact on the landscape and increase biodiversity levels, as well as the introduction of crop rotation to prevent large scale harvesting and the associated negative environmental impacts.

The Environmental Report ( ER) also recommended the establishment of Regional Project Appraisal Committees (outlined within the SRDP to assess applications for funding on a regional rather than national basis), based on river catchment boundaries within the Scotland River Basin area and that the use of river catchments as the geographical areas for guidance would provide a coherent and integrated system for the delivery of the SRDP.

The ER suggested that this would, in addition, offer the potential for the Regional Rural Development Guidance to feed into the development of the River Basin Management Plans, and could address issues relating to monitoring and data storage. Data relating to grant applications and funding, and monitoring for compliance with the SRDP objectives and the SRDPSEA objectives could be collated on a GIS system compatible with the one for the Scotland River Basin Management Plan which is being developed by SEPA in accordance with the Water Framework Directive.

The SEA recommended that a number of additional environmental assessments may be required once the comments from the consultation for both the draft SRDP and the SRDPSEA Environmental Report have been received and also once the SRDP 2007 - 2013 has been implemented. Areas of likely future assessment include the full-scale review of the Agri-environment support system when incorporated in to the LMC Schemes, the establishment of Regional Project Appraisal Committees ( RPACs) and the development and geographical scope of Regional Rural Development Guidance.

Finally, the ER highlighted the need for an assessment to be undertaken when considering each application for funding, or each block of applications for funding within a region to ensure there is no imbalance of actions being funded such that environmental impacts accumulate, e.g. the conversion of large areas of land within an area to a monoculture of biomass crops or a mass expansion of hard infrastructure development in an area. The benefits of the implementation of a range of actions within an area will offer significant potential for environmental enhancement and the implementation of mitigation as part of the application process will enhance these benefits.

3.8 Strategic Environmental Assessment of the Scottish Forestry Strategy

The Scottish Forestry Strategy ( SFS) is one of the key elements for the overall direction of rural development and industry in Scotland, in conjunction with the Scottish Rural Development Plan and the Next Steps Strategy for agriculture. However, at the present time, each of these elements is considered separately, with distinct strategies and departments with distinct responsibilities. The SFS is the responsibility of Forestry Commission Scotland, whereas the Next Steps Strategy is the responsibility of SEERAD. The vision (2025 and beyond) which underpins the SFS is as follows:

" Scotland's trees, woodlands and forests are a central part of our culture, environment and economy. People are benefiting widely from them, actively engaging with and looking after the resource for the use and enjoyment of generations to come."

The vision reflects the continuing emphasis within the SFS on the three key strands of sustainability; social, environmental and economic. This is supported by the principles of sustainability, social inclusion, and forestry for and with people. The three key outcomes of the SFS are:

• Improved health and well-being of people and their communities;
• Competitive and innovative businesses contributing to the growth of the Scottish economy; and
• High-quality, robust and adaptable environment.

The first SFS was introduced in 2000 and, in 2005, Forestry Commission Scotland engaged the services of Land Use Consultants to complete a strategic environmental assessment in conjunction with the review process for updating the SFS. ¹⁸ It is worth including a summary of the key SEA findings at this point as a reference for the assessment of the Next Steps Strategy:

• Sustainable development underpins most national level policies across the full range of sectors, with an emphasis not only on environmental objectives, but also economic growth, and social and environmental justice.
• There are numerous environmentally-focused plans and programmes which provide both a statutory requirement and non-statutory guidance of relevance to the forestry sector in Scotland. This includes the need to protect sites which have been designated under national and international legislation, and the importance of recognising and supporting the Scottish Biodiversity Strategy.
• Contextual analysis shows that there remain policy concerns that some environmental resources are continuing to be degraded, including water, soil and some habitats. This is illustrated by a lack of progress towards meeting some of the key national indicators for sustainable development. This also suggests that a more proactive approach to environmental protection and enhancement is required across all land uses, including forestry.
• Biodiversity policies also emphasise the importance of not only protecting and enhancing key habitats but also raising awareness of them and seeking to create more complete forest habitat networks.
• Rural development is a key policy priority in Scotland, with diversification, and economic development (including through tourism) being important aims which sit alongside environmental protection and community development.
• Forestry should be considered within the wider context of rural land use and decision making. Woodlands can contribute to, and be supported by, farming practice, and deer management also provides a related policy challenge.
• Sustainable transportation is a key national policy aim, to which the forestry sector has the potential to contribute.
• There is a need for the forestry sector to recognise its role as a steward of the historic environment, and to reflect on the cultural heritage significance of trees and woodlands in their own right.
• Climate change adaptation and mitigation provide both a challenge and an opportunity for the forestry sector. There is a need to ensure that the sector contributes as far as possible towards mitigation targets, through both short- and long-term projects that aim to reduce carbon emissions. This reflects the importance of balancing different mitigation strategies; for example, long-term carbon fixing compared to relatively short-term high gain projects such as renewable energy schemes. Indeed, climate change policy in Scotland provides a major challenge for most other policy commitments, including forestry.
• No significant adverse effects were identified in the assessment of the SFS, although a number of minor negative effects were identified in the initial assessment. As a result, scope for mitigation was explored, but in many cases a wider review of the SFS as a whole found that the need for additional measures was reduced by coverage under other outcomes and themes. The only area where additional mitigation may be required relates to the role of forestry as part of sustainable deer management. More detailed consideration of this issue may help to reduce uncertainties identified by the assessment.
• There are a number of opportunities where SFS objectives and themes could achieve additional benefits through enhancement. These include supporting the integration of SEA themes to achieve wider benefits such as promoting the growth and management of trees which provide multiple benefits by providing both economic and natural heritage value.

Comment on the relevance of the SRDP & SFSSEAs for the Next Steps Strategy

Each of the three strategies were produced as stand-alone documents and as such, it was considered appropriate to conduct the initial SEA review of the Next Steps actions independently of the SRDP and SFS reports, in order to identify effects particular to the agriculture strategy. However, both of the SEAs carried out for the SRDP and the SFS present valid comments, many of which are equally applicable to the retrospective analysis of the impacts of the Next Steps Strategy.

In the later sections of this Environmental Report, the identification of impacts mirrors some of those identified in the SRDPSEA, and the discussion on policy analysis in the SFSSEA is equally relevant.

3.9 Biodiversity - International and National Commitments

At the Rio Earth Summit on Sustainable Development in 1992, world leaders agreed on a comprehensive strategy for Sustainable Development, often defined as meeting our needs while ensuring that we leave a healthy and viable world for future generations. One of the key agreements adopted at Rio was the United Nations Convention on Biological Diversity ( CBD), which over 150 Governments including the UK Government signed up to and ratified.

This pact among the vast majority of the world's governments sets out commitments for maintaining the world's ecological underpinnings as we go about the business of economic development. The CBD establishes three main goals:

1. The conservation of biological diversity.

2. The sustainable use of its components and natural resources.

3. The fair and equitable sharing of the benefits from the use of genetic resources.

The EU has been committed to nature conservation for a long period. This commitment is embodied in the EU Birds Directive (1979), the EU Habitats Directive (1992) and the Natura 2000 network of protected areas under these Directives.

In 2001 EU Heads of State and Government reaffirmed their commitment at the Gothenburg Summit by pledging themselves to "halt the decline of biodiversity by 2012". This commitment complements the agreement by world leaders in 2002 at the World Summit for Sustainable Development ( WSSD) to "the achievement by 2010 of a significant reduction in the current rate of biodiversity loss at the global, regional and national level". ¹⁹

The UK Biodiversity Action Plan process provides the key framework within which activity to conserve biodiversity is undertaken across the UK. Scotland is a key partner within the UK Biodiversity Action Plan process and at a national level, much of biodiversity activity will be informed by the Scottish Executive's Scottish Biodiversity Strategy.

Scottish Biodiversity Strategy

The Scottish Biodiversity Strategy, "Scotland's Biodiversity: It's in Your Hands" which aims to conserve biodiversity for the health, enjoyment and wellbeing of the people of Scotland now and in the future, was published by the Scottish Executive in May 2004. This strategy was developed in close partnership with the Scottish Biodiversity Forum, a broad based partnership of public, private and voluntary organisations.

The strategy also draws from a set of documents published by the Forum in 2003 under the collective title "Towards a Strategy for Scotland's Biodiversity: Biodiversity Matters". It represents Scotland's response to its obligations under the Convention on Biological Diversity and to the UK Biodiversity Action Plan, along with the Scottish Ministers' desire to put biodiversity at the heart of our national identity and culture.

At the local level, the Local Biodiversity Action Plan process ensures effective delivery on the ground as well as raising awareness of local biodiversity issues and action. The strategy covers the period up to 2030. The aim is to conserve biodiversity for the health, enjoyment and wellbeing of the people of Scotland now and in the future. The vision which the strategy works towards is that by 2030, Scotland is recognised as a world leader in biodiversity conservation. Everyone is involved and everyone benefits.

There are five strategic objectives which underpin work on the Scottish Biodiversity Strategy:

1. Species & Habitats: To halt the loss of biodiversity and continue to reverse previous losses through targeted action for species and habitats

2. People: To increase awareness, understanding and enjoyment of biodiversity, and engage many more people in conservation and enhancement

3. Landscapes & Ecosystems: To restore and enhance biodiversity in all our urban, rural and marine environments through better planning, design and practice

4. Integration & Co-ordination: To develop an effective management framework that ensures biodiversity is taken into account in all decision making

5. Knowledge: To ensure that the best new and existing knowledge on biodiversity is available to all policy makers and practitioners.

Note on consideration of Natura 2000 obligations

Directive 92/43/ EEC on the Conservation of Natural Habitats and Wild Fauna and Flora - the 'Habitats Directive' - provides legal protection for habitats and species of European importance. Article 2 of the Directive requires the maintenance or restoration of habitats and species of European Community interest, at a favourable conservation status. Articles 3-9 provide the legislative means to protect habitats and species of Community interest through the establishment and conservation of an EU-wide network of sites known as Natura 2000.

Natura 2000 sites (also known as European sites) are Special Areas of Conservation ( SACs ²) designated under the Habitats Directive and Special Protection Areas ( SPAs) designated under the Conservation of Wild Birds Directive (79/409/ EEC). The Natura 2000 network provides the ecological infrastructure for the protection of sites which are of exceptional importance in respect of rare, endangered or vulnerable natural habitats and species within the European Community.

Articles 6(3) and 6(4) of the Habitats Directive sets out the decision-making tests for plans or projects affecting Natura 2000 sites. Article 6(3) establishes the requirement for Appropriate Assessment:

" Any plan or project not directly connected with or necessary to the management of the site but likely to have a significant effect thereon, either individually or in combination with other plans or projects, shall be subject to appropriate assessment of its implications for the site in view of the site's conservation objectives. In the light of the conclusions of the assessment of the implications for the site and subject to the provisions of paragraph 4, the competent national authorities shall agree to the plan or project only after having ascertained that it will not adversely affect the integrity of the site concerned and, if appropriate, after having obtained the opinion of the general public."

Article 6(4) goes on to discuss alternative solutions, the test of "imperative reasons of overriding public interest" ( IROPI) and compensatory measures:

" If, in spite of a negative assessment of the implications for the site and in the absence of alternative solutions, a plan or project must nevertheless be carried out for imperative reasons of overriding public interest, including those of social or economic nature, the Member State shall take all compensatory measures necessary to ensure that the overall coherence of Natura 2000 is protected. It shall inform the Commission of the compensatory measures adopted."

The Environmental Report prepared for any assessment under the SEA Directive must discuss "Any existing environmental problems which are relevant to the Strategy including, in particular, those relating to any areas of a particular environmental importance, such as areas designated pursuant to Council Directive on the conservation of wild birds [the 'Birds Directive'] and the Habitats Directive".

Section 4.3.2 of EC guidance on Article 6 of the Habitats Directive ²⁰ states that,

"… a distinction needs to be made with 'plans' which are in the nature of policy statements, i.e. policy documents which show the general political will or intention of a ministry or lower authority. An example might be a general plan for sustainable development across a Member State's territory or a region. It does not seem appropriate to treat these as 'plans' for the purpose of Article 6(3), particularly if any initiatives deriving from such policy statements must pass through the intermediary of a land-use or sectoral plan."

European sites are critically important biodiversity assets. As such, their protection (and enhancement) is a key component of sustainable development and should be included within the environmental objectives of the Strategy development and implementation process. SNH and SEERAD have agreed that an actual Appropriate Assessment is not required for the Next Steps Strategy. This does not mean that the process of consideration should not be recorded in the SEA just that an AA need not be undertaken.

The first stage of consideration relates to whether the Strategy is a plan or project; as the Next Steps Strategy is regarded as a policy document detailing the general political will of the Scottish Executive, it does not provide direction or planning guidelines for land management measures on specific sites and as such, does not require to be treated as a plan or project for the purpose of Article 6(3) of the Habitats Directive. Effective appropriate assessment will be conducted at the local/ farm/ site level for any project or programme of works that may impact upon the integrity of a European site, European Protected Species or Natura 2000 interests in the wider countryside ²¹.

Note on the Nature Conservation (Scotland) Act 2004

Section 12 of the Nature Conservation (Scotland) Act 2004 relates to the exercise of functions in relation to sites of special scientific interest ( SSSI) specifically applying to "the exercise by a public body or office-holder of any function on, or so far as affecting, any land which is or forms part of a site of special scientific interest".

Section 12 (2) states that the body or office-holder must-

(a) consult SNH in relation to the exercise of the function,

(b) have regard to any advice given by SNH, and

(c) in exercising the function, take reasonable steps, so far as is consistent with the proper exercise of the functions of the body or office-holder, to-

(i) further the conservation and enhancement of the natural feature specified in the SSSI notification, and

(ii) maintain or enhance the representative nature of any series of sites of special scientific interest to which the SSSI notification contributes.

In developing the Next Steps Strategy, SEERAD consulted a wide of range of stakeholders including SNH, and the implementation of Next Steps Strategy actions will also be guided by consultations with SNH in the event that proposed works are expected to impact upon the integrity of SSSI sites.

Note on the Animal Health and Welfare Strategy

The Next Steps Strategy document makes specific reference to the Animal Health and Welfare Strategy, which sets out a ten-year vision for improving animal health and welfare standards. It recognises that healthy animals are more productive and result in better quality food, which benefits producers and enhances Scotland's reputation as a quality food producer. The Strategy has established targets for eradication of endemic diseases, the reduction of avoidable conditions such as lameness and sets out a framework for preventing outbreaks of exotic diseases. Delivery of the Strategy is being overseen by the Scottish Animal Health and Welfare Advisory Group (comprising representatives from the industry, vets and the Executive) and nearly 4,000 farm businesses have taken up the option of Animal Health and Welfare Management Programmes under Land Management Contracts. In addition, the Animal Health and Welfare (Scotland) Bill provides for enhanced powers to respond to exotic disease outbreaks and the Executive's Biosecurity Code sets out a series of practical steps that can be taken to limit Scotland's vulnerability to any future outbreak of animal disease. ²²

In light of this strategy, which is designed to improve and maintain standards of animal health and welfare, the decision was taken not to develop SEA objectives specifically relating to livestock issues.

3.10 Summary of Extended PPP Review

Due to the wide-ranging nature of a national strategy for agriculture, there are many documents and policies that could impact upon the direction taken by the Implementation Sub-Groups. A complete appraisal of related plans, policies and programmes is provided in Appendix A; however it is useful to identify the key documents and issues considered during the SEA process at this stage of the report. Table 3.1 provides a summary of the highlights of the review.

Table 3.1 Summary of related plans and issues affecting the Next Steps Strategy

3.11 A Forward Strategy for Scottish Agriculture and the Next Steps Strategy

In 2001 the Executive published 'A Forward Strategy for Scottish Agriculture'. With 54 Action Points, it was designed to achieve the vision of a:

"…prosperous and sustainable farming industry, one of Scotland's success stories, which benefits all the people of Scotland."

The guiding principles for the vision are that the strategy should be:

• focused on producing food and other products for the market;
• a major driver in sustaining rural development, helping rural communities prosper;
• a leading player in the protection and enhancement of the environment;
• a major contributor to key objectives on animal health and welfare and human health and well-being;
• keen to embrace change and market opportunities."

The achievement of its aims were complicated by many difficulties in the five years since the strategy's launch including foot and mouth disease, a beef export ban, foreign exchange movements which have hindered international competitiveness, and most importantly the uncertainty of CAP reform and the introduction of the Single Farm Payment. However, many of the 54 Action Points have either been successfully implemented, are ongoing, or have led to further research being commissioned by SEERAD. A progress report on each of the 54 actions is available on the SEERAD website at http://www.scotland.gov.uk/Topics/Agriculture/Agricultural-Policy/17289/13971.

Early March 2006 saw the publication of the new updated strategy, 'A Forward Strategy for Scottish Agriculture: Next Steps', which was produced with the help of a wide range of stakeholders to build on the strengths of the original strategy and continue working towards the original vision. The revised strategy is broader in scope, with more emphasis on food, sustainability, rural issues and diversification, and there is a strengthening of the linkage between farming, food production and marketing. Key desired outcomes for the industry are described as:

• being competitive in markets,
• being a driver of sustainable rural development and,
• being renowned for high environmental standards.

The most important difference is that Next Steps is much less prescriptive than the original strategy. ²³ Instead of the original forward strategy's action points approach, there are a set of goals with broad 'actions' set across four strategic priorities:

• Food Production and Marketing.
• Rural Development.
• Environment.
• Communications.

The practical actions to be put in place, and who will do what, are yet to be fully determined. In this sense, the Minister for Environment and Rural Development is seeking a genuine 'stakeholder' strategy, with farmers, rural communities, and the full array of organisations, such as the Enterprise Networks, National Farmers Union of Scotland ( NFUS), Scottish Agricultural College ( SAC¹), Scottish Agricultural Organisation Society ( SAOS), and Quality Meat Scotland ( QMS), amongst others, helping to design and implement the Strategy. Consequently, this time around there is recognition that there needs to be more engagement with stakeholders to raise awareness, generate action and influence behaviour. This less prescriptive and more collaborative approach, with a number of existing agri-rural support activities being drawn into the strategy's implementation, means that the operation of the strategy will develop over a period of time with the guidance of the Agricultural Strategy Implementation Group.

For reference, the Next Steps Strategy Strategic Goals and Actions are outlined in Table 3.2.

Table 3.2 Next Steps Strategic Goals and Actions

Next Steps Glossary

Monitor Farms: Monitor Farms are based on one working farm, which is representative of a local area, opening up their business to scrutiny by other farmers in order to improve business efficiency. Each project encourages farmers to discuss ideas on how performance could be improved. Through sharing detailed records on breeding rates, feed regimes and prices, informed decisions can be made to improve performance and profit. Monitor Farms ( MF) were created in New Zealand as a means of sharing best practice amongst groups of farmers, learning from each other. In contrast to demonstration farms, the focus is to improve the financial and physical performance of the businesses of those involved. A Community Group ( CG) is formed to concentrate on a single farm and the CG discusses all major management decisions before they are taken, guided by the farmers stated objectives. There are currently eight Monitor Farms in Scotland. SAC¹ facilitates the projects in Easter Ross, Banff and Buchan, North Argyll, Wigtownshire, Borders and Perthshire. There are two other monitor farm projects in Bute and East Ayrshire. Discussions are ongoing to develop Monitor Farms for arable and organic systems and more examples in conjunction with Quality Meat Scotland ( QMS).

Whole Farm Review: As part of the Farm Business Advice and Skills Service ( FarmBASS), financed by SEERAD, the Whole Farm Review is designed to help farmers and crofters develop sustainable and more profitable businesses. The scheme is open to any farmer in receipt of a Single Farm Payment and provides an opportunity to take a fresh look at their business, with the help of an accredited farm business adviser. The adviser will provide an overview of where the business currently stands, what are its main strengths, weaknesses, opportunities and threats and develop an Action Plan to improve business performance. The adviser will look at the whole business and help farmers make the most of all their assets - business, environmental and skills. Advisers are accredited by Lantra (acting on behalf of SEERAD) to ensure that they have the necessary skills and competence to deliver soundly-based advice. SEERAD will cover up to 80% of the cost of the review (up to a specified ceiling amount), which farmers claim back from SEERAD. Farmers select their chosen adviser from Lantra's accredited list and must devote sufficient time and provide information to discuss their business and aspirations with the adviser. Some extra grant funding towards the cost of more specialised advice and training is available.

Planning to Succeed: Working closely with young farmers, Planning to Succeed is a comprehensive programme of support designed to assist farmers improve and in some cases establish their business and management skills. The programme aims to make farmers more aware of the market and environment they operate in and provide them with the necessary skills to assist them to move away from a culture of subsidy towards a sustainable and market focused rural business. The programme seeks to establish groups of young enthusiastic farmers across the Scottish Enterprise Network, who will work together to improve their skills and the performance of their businesses. The project is aimed at younger farmers, but more mature farmers who are willing to embrace change are not excluded. Scottish Enterprise are working with Highlands and Islands Enterprise to roll out across Scotland. The EURDR allows Member States to offer aid to young entrants, and the European Council of Young Farmers' publication demonstrates widespread uptake across Europe.

Further information on these programmes is available on the following websites:

SEERAD

http://www.scotland.gov.uk/Topics/Agriculture/Agricultural-Policy/17289/asigmeetings/14August2006paper6#_Toc139273269

Scottish Agricultural College ( SAC)

http://www.sac.ac.uk/consultancy/livestock/beefandsheep/monitorfarms/

Quality Meat Scotland ( QMS)

http://www.qmscotland.co.uk/analysis/developments.php?category=farms

Scottish Organic Producers Association ( SOPA)

http://sopa.org.uk/news_sopa.php?id=76

Scottish Enterprise

http://www.scottish-enterprise.com/sedotcom_home/news-se/news-fullarticle.htm?articleid=29979

Lantra

http://www.lantra.co.uk/Scotland/index.asp

3.12 Synergies Between Next Steps Actions and EURDR Measures

An appraisal of the actions in Next Steps against the finalised SRDP measures would be appropriate to consider the quality of the 'joined-up' thinking and linkages in the distinct policy development processes. However, at the time of writing, the proposed Scottish Rural Development Programme 2007-13 has been submitted to Brussels for approval on the measures, and strategies, developed by the Executive, to meet the requirements of the EURDR.

Therefore, as the SRDP is not finalised and passed by Europe, an appraisal of the Next Steps actions against the 42 measures of the EU Rural Development Regulation (listed in Section 3.5 and which effectively guide the development of the SRDP) was considered appropriate. Table 3.3 outlines a simple format which matches each Next Steps action with a range of applicable RDR measures; the rationale being that if the Next Steps actions are compatible with EU measures, it follows that they will be similarly compatible with the SRDP, demonstrating greater integration between the two strategies.

Table 3.3 Synergies between Next Steps Actions and EURDR Measures