Scottish Government

5. Developing a second interim scheme - background considerations

Sustaining farming and crofting activity

5.1 As demonstrated in Annex 6, there is a general trend of declining suckler cow and breeding ewe numbers, particularly in north west Scotland. Compared to the 2005 baseline, the number of suckler cows in 2007 had fallen by 5.2%. The cumulative decline in breeding ewes was faster with a 7.8% decline by 2007, compared to the baseline 2005 figures. The observed trends in suckler cow and ewe numbers are influenced by a number of factors in addition to changes made to LFASS. These factors include changes in market conditions and levels of support and design of other agricultural support schemes. In particular, the influence of the 2003 CAP reform, which saw the decoupling of payments from production, is likely to have been a major driver in the observed production indicators. Further evidence and analysis of these trends is provided in the SAC report "Farming's Retreat from the Hills" 2008 ¹³. SAC have also recently carried out an evaluation of the Scottish Beef Calf Scheme ¹⁴ which concluded that, despite current levels of support, net margins for suckler cows are negative across a range of farming types, suggesting that suckler cow production systems would not be sustainable in the long run.

5.2 At present, farmers and crofters in LFAs receive support through a number of different measures, many of which are available throughout rural Scotland. These include Single Farm Payments ( SFP) ¹⁵, payments under the Scottish Beef Calf Scheme, payments under the Crofting Counties Agricultural Grants Scheme, as well as LFASS payments and other SRDP payments. In addition to these direct support measures, the Scottish Government is helping farmers and crofters in LFAs in other ways - for example through its investments in food processing and marketing; through the support it has given QMS to find ways to make more effective use of the "fifth quarter"; through the assistance it will give farmers and crofters to meet the costs of vaccination against blue tongue; and through the payments it makes to SAC to ensure that there is a comprehensive advisory service throughout the country, including the most remote areas.

5.3 In its draft legislative proposals for the CAP Health Check ¹⁶, the EC proposed changes in the use of the "national envelope", which is used to fund the Scottish Beef Calf Scheme. At present, countries can retain up to 10% of a particular sector's component of the national ceiling for measures related to the protection or enhancement of the environment or for improving the quality and marketing of agricultural products within that sector. The Commission is now proposing flexibility to move this money between sectors. In its consultation on the CAP Health Check ¹⁷, the Scottish Government sought views on future use of the national envelope, which offers a potential opportunity to provide additional support for livestock farmers and crofters in LFAs.

Securing environmental and other public benefits

5.4 Sustained livestock-related activity in LFAs brings important public benefits. These include environmental benefits flowing from the intrinsic link between livestock production and the farmed upland environment. Other public benefits, which also depend upon appropriate management practices, include retention of traditional agricultural landscapes, and the social benefits of the continuing presence of farming and crofting communities.

5.5 It is essential that these benefits are maintained. As a pre-requisite, LFASS recipients have to meet the conditions of cross-compliance. In addition, the presence of active farmers and crofters is necessary for uptake of agri-environment measures, a number of which are specifically designed to promote grazing regimes appropriate to particular habitats. However, as noted in paragraph 3.7, concern has been expressed about a reduction in environmentally-beneficial mixed grazing regimes following the end of the cattle "top-up". It has been suggested that LFASS could secure greater environmental benefits if there were a closer link to livestock-related activity, together with stronger environmental conditions, going beyond the requirements of cross-compliance. These could be based (for example) on managing a minimum area of grass for hay; growing a minimum area of fodder crop; or maintaining a minimum percentage of grassland in permanent pasture.

5.6 It has also been suggested that there would be merit in additional targeted payments, for example through increasing agri-environment payments in LFAs, or developing new measures to create further opportunities for take-up of agri-environment schemes in LFAs.

Ensuring value for money

5.7 In order to demonstrate value for money, it is important to have evidence that:

• additionality is generated. In other words, LFASS should provide public benefits which would not otherwise be provided. This can be demonstrated where support is vital for farmers to continue farming in the LFA areas, and, without LFASS, there would be a significant decline in appropriate agricultural activities, with associated loss of public benefits;
• it is worthwhile to provide support via the scheme. That is, the benefits delivered by the scheme will exceed the costs;
• funding is the most appropriate approach, and that payments to compensate farmers' additional costs and income foregone relate to the handicap for agricultural production in the area concerned. EU legislation outlines the minimum and maximum payments;
• there is no duplication of funding from other sources, including Single Farm Payments, payments under the Scottish Beef Calf Scheme (or other national envelope measures that may arise from the Health Check) and other payments under the SRDP.