2. Developments across the EU
2.1 The key European legislation for support in LFAs (also known as "natural handicap payments") is EC Regulation 1698/2005 on rural development. The preamble to this Regulation states (in paragraph 33) that:
"Natural handicap payments in mountain areas and payments in other areas with handicaps should contribute, through continued use of agricultural land, to maintaining the countryside, as well as to maintaining and promoting sustainable farming systems."
2.2 In 2003, the European Court of Auditors recommended a review of the existing classification of LFAs and an overall evaluation of the scheme. As a consequence, EC Regulation 1698/2005 contains a number of provisions that change the basis for LFA support, as compared with the previous Rural Development Regulation ( EC Regulation 1257/1999), but Member States decided to delay implementation of some of these changes until 1 January 2010 6 pending further review by the EC. Thus, certain provisions relating to LFASS under the previous Rural Development Regulation ( EC Regulation 1257/1999) continue to apply 7.
2.3 In May 2008, the EC published a consultation paper relating to their EU-wide review of the LFA Scheme 8. They requested comments from stakeholders by 30 June 2008. The EC consultation confirms that Community support to farmers in LFAs has contributed to the continuation of farming in marginal areas, but also notes that LFA support has undergone a significant evolution. Instead of explicitly addressing rural depopulation, payments now have a stronger focus on land management which should contribute, through continued use of agricultural land, to maintaining the countryside and to maintaining and promoting sustainable farming systems. The socio-economic criteria previously used for classifying 'intermediate LFAs' are no longer considered relevant by the EC. Thus it states that, in line with the European model of agriculture, LFA support should sustain agriculture which delivers public goods, such as valuable landscapes, biodiversity and soil conservation in areas where farming is difficult; the risk of abandonment of agricultural land in these fragile areas is seen as a crucial issue. The key points in this consultation paper are summarised in Annex 2.
2.4 In consulting on the "second interim scheme" for LFASS, the Scottish Government is assuming that EU-wide changes to LFA designation and implementation of the changes set out in EC Regulation 1698/2005 will be further delayed, probably until 2014. It is, however, necessary to think ahead to the prospect of change at the EU level, particularly in relation to (i) LFA designation and (ii) the basis of payments. For this reason, views are sought on how these issues should be handled as and when EU-wide changes are introduced.
LFA designation
2.5 At present all LFAs in Scotland are designated for EU purposes as "intermediate areas", affected by significant handicaps. However, if the EU review leads to significant changes in the classification of "intermediate areas", it could be advantageous for Scotland to make use also of "mountain area" designation and "specific handicap" designation for islands. Further detail on this is given in Annex 3. Such a change would require negotiation with the EC about precise criteria to be used, followed by detailed work implementing the change in Scotland.
Q1 What are your views on the use of "mountain area" designation and "specific handicap" designation for islands as outlined in Annex 3?
Basis of payments
2.6 At present, EU legislation requires that LFASS payments should "make an effective contribution to compensation for existing handicaps and avoid over-compensation". However, under the new provisions (that have not yet come into force) payments must be degressive and the payment per hectare will need to be fixed on the basis of "farmers' additional costs and income foregone related to the handicap for agricultural production in the area concerned". The LFASS Stakeholder Group has considered possible ways in which the basis for setting payments per hectare could be changed, and this is set out in Annex 4. Such a change would require a considerable amount of detailed work prior to implementation.
Q2 What are your views on the approach to calculating payments set out in Annex 4? Do you have alternative suggestions?