Organic Aid (Scotland) Amendment Regulations 1999 (SSI 1999/107)
Item 1 is a negative instrument and has been circulated to members with an explanatory note. We have with us today Mr John Hood of the Scottish Executive rural affairs department, who can advise us on the details of the instrument and answer one or two questions, if members think that that is necessary. Would members like to hear from Mr Hood?
Yes.
In that case, I will ask Mr Hood to come forward. I should point out to members that this instrument came into effect on 29 October and was laid under the negative procedure. That means that the Parliament has the power to annul the instrument by resolution within 40 days—in this case, by 30 November. Any MSP may lodge a motion to propose to the lead committee that the instrument be annulled. As we have said before, it is important that we understand statutory instruments before we allow them to stand. Mr Hood, would you like to say a few words on the instrument and the explanatory memorandum that accompanies it.
Mr John Hood (Scottish Executive Rural Affairs Department):
It might be useful if I explain the background to these regulations and the purpose of the organic aid scheme over the past two years or so.
The scheme was launched in 1994, but there was very little interest in it for the first few years—after two or three years we had about 40 participants, which was considerably fewer than we had in the other agri-environment schemes that operated at that time.
In 1997, the House of Commons Agriculture Committee recommended that agriculture departments review the operation of their organic aid schemes. Along with the other agriculture departments, we undertook such a review, which ended in September 1997. We consulted on proposals to revise and improve the scheme to increase uptake, and received 23 replies. We also considered ways of improving the uptake of the five other schemes in the agri-environment programme.
In November 1997, ministers agreed that we should consult on proposals to merge the schemes, with the objective of improving uptake by making it easier for farmers to understand what was available. We consulted on that in January 1998. The proposal for merger included a suggestion that the organic aid scheme be incorporated into the mainstream agri-environment schemes. That had been suggested during the previous consultation, in particular by environmental bodies and by Scottish Natural Heritage. Their rationale was that, as organic farming was seen as a fringe activity rather than as mainstream farming, farmers were not paying much heed to the organic aid scheme, although they did recognise the other agri-environment schemes. The proposal was to merge the environmentally sensitive areas scheme, the countryside premium scheme and the organic aid scheme. It was intended that the merged scheme would operate by spring 1999.
The outcome of the consultation exercise was general agreement that we should merge the scheme. However, a number of influential players including conservation and farmer bodies thought that we were proceeding too quickly with merger and that we should give the countryside premium scheme, in particular, more time to operate, as it had been launched only in 1997.
Ministers agreed that we should proceed with merger but that we should do so over a longer time scale, and that we should work towards introducing a new scheme under the umbrella of the European Commission's Agenda 2000 proposals, which were then being developed although they were far from their final form. We realised that if we had launched a new scheme in the spring of this year, it would probably have had a shelf-life of only one year. We thought that we could produce a more widely acceptable merged scheme if we used the extra time that the ministers' decision gave us to undertake further bilateral dialogue with farming, crofting and conservation organisations. We have done that, and now plan to launch a new scheme under Agenda 2000 sometime next year.
One outcome of that process was that we had to consider the organic aid scheme separately, as it was still a free-standing scheme. Outside factors were conspiring to increase interest in that scheme: there were food scares and farmers were finding it hard to find a market for their produce. Many farmers recognised that agri-environment schemes could provide a guaranteed income stream for five years or longer.
We reconsidered the responses that we had received in the original consultation after the UK Parliament's review, and decided to adopt the recommendation to increase payment rates. The result of that process is what is before you today. We worked out payment rates, changed payment categories to reflect more accurately the types of farming enterprise that we have in Scotland, and put proposals for revised payment rates for the organic aid scheme and ESA schemes to the Commission in April this year.
The Commission approved the organic aid scheme changes in the summer. The regulations were made and passed in October. The purpose of what we have been doing all along has been to try to improve the uptake of this scheme and to maximise opportunities for farmers who want to convert, with the help that this scheme provides.
Thank you very much. I will use the prerogative of the convener and ask the first question.
From the explanatory note, it is clear that the rates of payment will be slightly less in Scotland than in England. The explanatory note also suggests that there will be an upper limit in Scotland, which does not exist in England. At the end of paragraph 3, the explanatory note says:
"The differences are marginal and reflect the different conditions which apply north and south of the border."
Would it be possible for you to give us an explanation of that?
Certainly. I should point out that not all our payment rates are lower. We are paying £370 for improved grassland, whereas the rate from the Ministry of Agriculture, Fisheries and Food is £350. As the explanatory note acknowledges, the differences are marginal.
The differences to which paragraph 3 refers are alluded to further on in that paper. Both the MAFF scheme and our scheme had a 300 hectare limit when they were launched. Our experience was that the limit bit in every case. The vast majority of land that has been brought into conversion in Scotland is rough grazing, and the average size of farm that is converting is around 600 hectares.
In England, the experience is quite different. Much less upland farmland is being brought into conversion; typically, small lowland units such as dairy farms or intensive cropping farms are being brought in. I do not have to hand a figure for the average area of those units, but somebody in MAFF mentioned to me, at a meeting, that the average size of farms in England that are applying for conversion is about 10 hectares.
In our situation, removing the limit and increasing the payment rate so substantially would have meant making very large payments available to individual farm businesses. The payment to a farm of 1,000 hectares would be £450,000, which is a very large sum.
Despite the slow start-up of the aid scheme in 1994, it must be recognised that organic farming is the only sector in agriculture that is thriving, and that it deserves more support than is available to it in this statutory instrument. You have been able to estimate the number of applications that are in the pipeline. Are you able to estimate how much they are likely to cost and what percentage of the agri-environment budget of £18.8 million might be assigned under the new scheme?
I cannot answer that question precisely, but I will do my best. I think that I understand where you are coming from.
I would just like to know how it will sit alongside the other schemes.
The method of calculating payment rates is set down in EU regulation. We must calculate those payments on the basis of income that is forgone. We do not have any leeway on that score.
I want to put the expenditure into context. Two years ago, the scheme spent £90,000. Last year, the expenditure was £200,000. I guess—and it is only a guess—that this year's expenditure will be in excess of £1 million.
I will explain how we operate the agri-environment budget, which is just below £19 million for this year. All eligible applications that we receive for the organic aid scheme and the environmentally sensitive area scheme, both of which are non-discretionary, must be funded. That continues to be the case.
The third scheme in the agri-environment programme is the countryside premium scheme. It is a discretionary scheme and we fund the number of applications that we can approve, after we have met the demands from the organic aid scheme and the environmentally sensitive areas scheme.
The agri-environment schemes in Scotland were one of the few programme areas where additional money was allocated following the comprehensive spending review. That may allow a further expansion of the programme than would otherwise have been the case.
I will put the expenditure on the programme in context. About four years ago, the expenditure was about £1 million per annum. Last year we spent £13 million and provision is for £19 million this year and £22 million next year, so expenditure is rising sharply.
The motivation behind the demand for entry to agri-environment schemes is something of a mystery to me. In the early days, we probably received applications from farmers who were interested in conservation. The range of motivations that persuade farmers to apply to join is now probably different. Many farmers see it as a guaranteed stream of income as they are looking for an alternative to supplement falling incomes from the commodities that they produce. I suspect that the trend of increased demand for schemes will probably continue.
If the applications for organic aid exceed your expectations by a considerable amount, as seems to have been the case in some other schemes, the first thing to go would be the countryside premium. Are you saying that if total applications exceed the budget, you will still have to pay farmers and find the money elsewhere? Is there no question of saying that the scheme is oversubscribed?
I will explain the mechanics of what would have to be considered in that eventuality. We have received legal advice to the effect that we could not refuse an application because of lack of funds. In that circumstance, the options open to the minister would be to find more funds or to close the scheme.
You would have to fund all applications that you had received up to the date of closing the scheme?
That is correct.
If there are no further questions, we must decide how we wish to proceed on this matter. It has to be said that the scheme that has been put before us is desirable and will benefit farmers in Scotland. If there are any reservations, it may be appropriate to consider those in the longer term in the context of long-term support for organic farming.
Are members content with the proposal?
Members indicated agreement.
We conclude that the committee does not want to make any recommendation on its report to Parliament.
That is approved unanimously.
Thank you, Mr Hood.