Rural Development Committee, 25 Jun 2002

Meeting date: Tuesday, June 25, 2002

Official Report 234KB pdf

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Rural Development Programme

We move to agenda item 3, on the rural development programme. The minister has been joined for this item by John Hood from SEERAD, whom I welcome.

Members will be aware that the Minister for Environment and Rural Development has issued a consultation paper on possible amendments to the operation of agri-environment schemes. The paper has been circulated, and we understand that the consultation recently closed. Members also have among their papers an Executive press release that outlines proposed changes for 2003 to the less favoured area support scheme.

When proposals for the schemes are finalised, a package of amendments to Scotland's rural development programme will require submission to the European Commission for approval. It is expected that that will occur during the parliamentary recess. As the recess starts at the end of this week, we must today ask the minister any questions that we have. We expect to deal with the subordinate legislation that will give effect to any changes, but we were anxious to hear from the minister at this stage, before the proposals are finalised. I again invite the minister to make some opening remarks before we proceed to questioning.

I am grateful to have the opportunity to bring the committee up to date on the consultation exercise. This meeting is an opportunity for me to hear the committee's views before—I stress before—I come to final decisions. The consultation has just closed, but we must still assess the responses. This is therefore a timely meeting.

As things stand, it is quite difficult sensibly to manage the agri-environment programme, because I do not have discretion about which applications I should fund. As a consequence, some organic aid scheme applications are taking up money that might be better spent on the rural stewardship scheme. I will return to that matter.

The proposals in the consultation paper are intended to improve the operation of the organic aid scheme and other schemes. The consultation paper was issued to 227 individuals and a total of 63 responses have been received. [Interruption.] Perhaps that is a late response. No—it is Jamie McGrigor's phone.

The responses are now being analysed, but I can say at this stage that there appears to be a broad consensus in favour of the changes. I remind members of the reasons for those changes: to achieve better targeting of organic aid scheme resources to provide environmental and market benefits; to enable increased funding for rural stewardship scheme capital items; to strengthen the contribution of the rural stewardship scheme—RSS—to the control of agricultural diffuse pollution; and to improve management of the costs of existing environmentally sensitive area scheme arrangements.

The most significant change that is proposed in the consultation paper is that, from this year, organic aid scheme applications should be funded selectively. Let me put that proposal into context. I want to give more support to the organic sector, because I think that it has the ability to produce goods that consumers want and which would otherwise need to be imported. If it is well done, organic farming can bring environmental benefits. I believe that it is only part of the overall picture of market-oriented, environmentally friendly farming, and that non-organic farming methods will remain as a way in which we produce food while respecting the environment. Against that background, I believe that it is fair to propose that organic aid scheme applications be funded only if they lead to significant environmental gain and to the production of marketable organic food.

Constructive and helpful discussions have been held with the organic sector bodies in Scotland to agree criteria against which organic aid scheme applications can be ranked for this year and next. I hope that it will be possible to publish agreed criteria following consideration of the responses to our consultation paper. Those arrangements, the agricultural diffuse pollution arrangements and revised arrangements for managing the costs of current environmentally sensitive areas scheme arrangements could be introduced at the Executive's hand without European Union approval, should I decide to do so. I await the comments of the committee and the responses to the consultation paper.

The proposed changes to the funding of the RSS capital items will enable the cost of capital to be spread over several years and to be spread between EC and domestic budgets. That will enable more capital works, such as hedgerows and ponds, to be funded. The change will require EU approval; any agreed changes will be submitted to Brussels later in the year. I hope that our proposals will secure early approval from the STAR committee—the committee on agricultural structures and rural development—and that the regulations will be agreed in time to implement the changes by spring 2003. Other changes to the Scottish rural development programme will include revised payment rates for the environmentally sensitive areas and countryside premium schemes.

During consideration of rural stewardship scheme regulations, the Rural Development Committee expressed concern that only a small number of the applications that were submitted in 2001 would—as a consequence of the EU's decision to remove our ability to place a limit on agri-environment scheme payments—receive funding and that most of the money would go to a small number of applications for large projects. It is fair to say that those concerns did not materialise. Of the 380 farms, crofts and common grazings that were offered funding, 33 are of less than 10 hectares, 11 are of between 11 and 20 hectares, 36 are of between 21 and 50 hectares and only 65 farms are of more than 500 hectares.

I regret that it was not possible, given the resources at my disposal, to fund all the applications fully. Had I funded applications fully, 44 of the 476 applications would have received funding and only one would have been in the Highlands and Islands. The area covered by the agreements would have been 14,000 hectares. In contrast, my decision to part-fund applications has resulted in a financial commitment of £11.5 million to 312 farmers, crofters and common grazings, covering about 148,000 hectares. That represents a substantial commitment to agriculture and the environment.

Nonetheless, we have been keen to learn from last year's experience and to consider whether we can introduce changes to make the agri-environment programme work better for the benefit of people and nature. The proposed changes are designed to improve the operation of the agri-environment schemes in order to enable us to secure the maximum conservation benefit and the best value for money from the finite resources that are available.

Am I right in saying that the consultation is on the alteration to the rules, rather than on whether current funding to agri-environmental schemes should be increased or decreased?

Yes. The consultation is on the rules that govern the operation of the schemes.

At paragraph 2.7, the paper states:

"All agri-environment commitments entered into from 1 January 2000 are funded from a combination of modulation and domestic resources."

Do you believe that the current rate of modulation should be altered?

As I said, my problem is that we are now in a much trickier situation. I agreed to the current scheme of modulation as a direct consequence of having secured in negotiation the offer of matched funding from the UK Treasury. It seemed that given the levels of modulation that were being postulated at that time that Scottish rural development would, on balance, benefit from modulation, in particular if that would secure additional matched funding.

The current situation should be considered in the light of the fact that the Commission might propose different rates of modulation under the mid-term review. I am very cautious about modulation as an instrument—it is a bit blunt. I suspect that Fergus Ewing shares my view that if, for example, we want to give a subsidy to Alex Fergusson, we should not give it to Mike Rumbles first, modulate it and then pass it on. I find that a difficult concept.

The present proposals for modulation are satisfactory. My difficulty—which I expressed in evidence earlier—is that we might be faced with a more compulsory form of modulation as a result of the mid-term review, which I would have to explain to the committee. We must remain alert to what might happen in Europe on that phase.

From what I gather, the enthusiasts for further modulation are few and include possibly Mr Fischler, certainly Lord Whitty and presumably Margaret Beckett, but not the vast majority of Scottish farmers. Are you concerned that, if the Department of Environment Food and Rural Affairs pursued a pro-modulation policy—even up to 20 per cent, which is a figure that has been mentioned—that would take Scottish agriculture down the wrong path? Would SEERAD be able within EU rules to pursue a different policy by instituting variable modulation rates?

A number of member states—not just Mr Fischler's—are minded to seek a substantive change from pillar 1 to pillar 2 and have not closed their minds to doing so through modulation. The real issue is not whether there is disagreement between ourselves and our counterparts in England about the way in which we apply the policy, but whether modulation becomes the policy of the European Commission because it is favoured by a majority of member states. There are two serious considerations for me, as a Scottish minister. First, I would not want that modulation to be in addition to the current domestic arrangements. Secondly, as I have explained at length, it is important to me and to Scottish interests that the prescriptions that are available within the rural development regulations are suitably expanded to allow us to use the moneys that become available within pillar 2 for the benefit of more farmers and, I hope, to facilitate the implementation of instruments such as land management contracts.

We have been talking about agri-environment schemes. Can we move on to talk about less favoured areas?

Yes. Let us do that.

My concern is about the organic aid scheme. It is suggested that the organic aid scheme should be limited to hill farmers who have already identified a market for finishing their stock. That would be off-putting to many hill farmers, given the fact that it takes several years to transfer a business from ordinary farming to organic farming. To say that farmers must, before they can even start to go down that road, identify someone who will buy their stock, is asking them to do something that is nigh impossible. Nobody would be willing to draw up a contract with a farmer at that stage, when they are so far from the goal of having organic produce to sell. Have you given any thought to ways in which that problem could be overcome? What assistance will be available from the Executive to put hill farmers in touch with new applicants to the organic aid scheme, who would be involved in finishing? Will that be left to the farmers, which would create a huge barrier?

It will be left to farmers. The genuine disappointment is that we appear to be spending considerable sums from the organic aid scheme on certain hill farms where, frankly, the existence of other inputs is difficult to discern. In other words, it is almost impossible to identify which practices had to change on certain heather hills where no artificial fertilisers were used. It is not clear what environmental benefit is gained from that.

I am not asking for a guarantee that the product will be sold; there is no requirement to say that the product can get to market. If we are talking about lamb, the fact that the producer has not liaised with, discussed with or entered into an arrangement with someone on the low hill for finishing organically means that we would end up with public funds being used to gain organic accreditation without any serious environmental benefit being obtained, because much of the land is already natural. A lack of liaison with the finishing side results in the product not being sold as an organic product. It is difficult to justify giving support from the public purse to organic conversion when the end result is not an organic product. That is the point that we are driving at.

If people do not have land for finishing, we want them to tell us that in their applications. We would be willing to assist with the next bit of the chain, if those producers cannot find partners. We seek to ensure that we grant aid in the round and that the end product will be an organic product. At the moment, we have no guarantee of that, which makes it difficult to justify public funding. That situation does not make a great deal of sense. If people are considering conversion to organic methods, we want to push them to consider the whole production process and to have arrangements for that, so that they meet our criteria. We are not asking for a guarantee that the person in the market will buy the end product, but we want to ensure that the end product will be an organic product that is available for sale.

Is it your intent to focus on the lower-ground farmer—the arable farmer?

No. If it can be proved that there is a requirement on any farm, we will listen. We are not excluding people, but we are slightly concerned about the way in which things have developed. If the relevant society—the Soil Association, for example—says to someone on an upland farm that it is not prepared to give organic accreditation and that a conversion period will be required, we look at that. We want to be clear that there is a genuine environmental issue to be addressed—in other words, that there is evidence of the use of non-organic material. If that is the case, it is fine. The farmer will qualify. We are saying that we are not content to spend money and to get halfway down the hill, only to discover that there is no linkage and that the product is sold as a non-organic product. That does not represent value for money for the public purse.

I want to pursue the matter. As you know, most hill sheep are usually sold at local markets to dealers who move the sheep on to lowland farms for finishing. How do we address that situation? You talked about helping hill farmers to identify lowland farmers who could work as part of a chain. How far are you willing to go to help them to do that? That is where the barrier arises. If the hill farmers do not receive assistance because they do not usually have contact with the finishers, as that is usually done through a dealer, how can we put the chain together?

I do not have a precise answer. We are wrestling with that issue. We cannot have a situation in which someone wants to sell an organic lamb and simply puts in on the market. We must find people in the marketplace who are interested in dealing in organic lamb. We must identify those people before identifying which part of lowland land we need to direct assistance to in the conversion period, which is the other side of the equation that must be solved to complete the chain. It is not easy, but I hope that you recognise that the situation at the moment is extremely unsatisfactory and is not producing the amount of organic product that we should be producing.

I understand that. I do not have a problem with the aim but, unless we intervene to put people together, the effect of the policy will be to discourage people and create a barrier to conversion. We need to change the way that the market works for organic farming to get those people together. If we do not do that, we might as well forget about developing organic farming in upland areas.

We are keener on sorting out the other end than on abandoning the whole enterprise. I am much keener to get downstream and find people on the lowland ground who will deal with upland dealers and will allocate ground and have that ground converted for the purpose of producing organic produce. We have some work to do in that area. As I said, we have had constructive discussions with the societies responsible for organic accreditation, and that is beginning to generate some ideas on how we can deal with the issue. When I present my final proposal, I will have to fill in that bit.

Remembering my former employment, I recall that the most successful organic producers of lamb and beef deal directly with the supermarkets, buyers and abattoirs, rather than going through the traditional store market chain.

I have a question about the new LFA proposals. I understood that the idea was to disengage subsidy from production and to move from headage to hectarage. I must admit that I have not fully studied the new grazing categories, but it appears that category A and category B, which have the lowest stocking densities, will be very much worse off than farms with high stocking densities. That appears to be counterproductive to your original aims.

I do not think that that is right. As part of a wide-ranging consultation process, we found unanimity throughout the country that the former highland upland and lowland and southern upland and lowland classifications did not make sense and were not transparent to farmers in relation to how they recognised their own land. The scheme that is proposed addresses the carrying capacity of the existing land. The advisory committee drew up that new classification and believed that it was a fairer and more accurate reflection of the division of land within Scottish agriculture. Once those categories are drawn up, the percentages for the carrying capacity of the land can be applied. If you study those rules carefully, you will see that the proposal certainly does not disadvantage farmers in an obverse way.

I was talking to one or two farmers who thought that they could work out at this stage what their levels were going to be, and they appeared to be very much worse off than they would have been under the previous set of proposals. Bearing in mind the fact that the initial talk was about not having winners and losers, I was extremely worried by the latest set of proposals, particularly as they affect those in the Highlands and Islands.

I would have to see specific examples before commenting. When we made the proposals, we produced models illustrating the extent of winners and losers. Our modelling, by area office, indicated not only that the proposals were more specifically targeted but that they reduced, both in quantum and in amount, the total number of winners and losers. In addition, the proposals put quite a severe cap on the number of big winners at the top end. One of the objectives was to achieve a greater degree of equity and fairness throughout the country. In so doing, we narrowed the range of both winners and losers.

The matter is out to consultation. If Jamie McGrigor has specific examples, I will have to deal with them. From the model that we produced at the time, that was certainly not our understanding of how the scheme would ultimately work out. One or two people on the working group ran through the numbers on that.

If I may speak as a South of Scotland MSP, one of my concerns about the original LFASS, which is backed up by the figures, was that it had the capacity to move a certain amount of input from the south of Scotland to points further north. I accept that the fragile area was designated for a reason, but will there be further shift of capital from the south and east of Scotland to the north and west, or has equilibrium been reached?

There will certainly not be any further shift. There was an inevitable shift in attempting to deal with the more fragile and remote areas. In the south of Scotland, because of the stocking densities and the rather different upland-lowland distribution, I believe that the new land classifications will go a long way towards addressing the anomalies that used to obtain. Perversely, people in the upland areas of the south seemed to be more disadvantaged as a result of the removal of the consideration of stocking densities. The introduction of land classifications that relate to the carrying capacity of the land, although not specifically to stocking densities, will go a long way towards addressing the problem.

I want to come back to the LFASS. Unlike Jamie McGrigor, I have not had the opportunity to run through the figures, but I welcome the building in of fragile areas. That is a great step forward. Why is a base reference period required, given that the scheme could be updated year on year? Do you want the moneys that are available from the scheme for each farm to remain constant? That might mean that no change in farming practice is required or that changes might be made that are not in keeping with the scheme.

I have a clear idea why we want the base reference period, but given the specific nature of the question, I will take the question to avizandum and reply to the committee. I have a niggling doubt about the last part of the question.

Members have no more questions, so I will wrap up the session. I have a question on the rural stewardship scheme and capital expenditure. Last time around, in order to spread the money as far as possible, you removed items of capital expenditure from the scheme. In your introductory remarks, you mentioned that, to facilitate that, you would try to spread capital payments over a number of years. Will the likely number of applications to the rural stewardship scheme allow you to do that, given the limit on the amount of money that will be available for the scheme? Will the restrictions on the organic aid scheme free up enough money for the rural stewardship scheme?

The organic aid scheme is unlikely to free up money. I aim to focus and target that scheme so that it gives better value for money. Rhoda Grant raised the fundamental issue of how that can be done. The intention is not to reduce the funding that is available through that scheme, but to deliver better outcomes. Although there have been additions to domestic funding and an increase in the funding that is available from modulation, demand has also increased.

I do not hide from the fact that one of the reasons for consulting on the changes is that we need to spread the capital payments if we are to avoid being perpetually faced with the situation with which I was faced last year, where only a small number of applications were successful. That situation will be problematic as long as Europe refuses to allow us to cap the amount. That is an unhelpful development. There is a problem relating to the ability of a larger unit to comply with the points system for a variety of reasons and there would be an unfair distribution throughout Scotland. I can only hope that our proposals to take account of capital over a period will allow us to distribute funds more fairly over a longer period.

I share that hope, minister. I thank you and John Hood for the large amount of time that you have spent with us this afternoon.