Common Agricultural Policy Reform
Agenda item 4 is consideration of reform of the common agricultural policy. We must leave the chamber by half past 1. I suspect that members would also like to go for lunch at some point.
We agreed at a meeting in January to invite the minister to give oral evidence on the implementation of common agricultural policy reform in Scotland, which slots in comfortably with the beginning of our inquiry into CAP reform. That inquiry will include scrutiny of the 2005-06 budget process.
We are looking for thoughts from the minister on the issues that relate to the implementation of CAP reform, options that are available to the Executive and the implications of the selected options. The minister has made an announcement about the initial stages of where we are going. We have Scottish Parliament information centre briefings on the implementation of CAP reform and rural development, which have been circulated to members.
I welcome the minister and his officials and invite the minister to lead off.
Thank you. Obviously, I am conscious of the time.
I suppose that you can be relatively brief, for all our sakes.
That is a fair point, of which I am conscious. The problem is that CAP reform is a complex matter. Arguably, it will influence the future direction of agriculture policy in Scotland and its strategic objectives for generations to come. For that reason, the issue is important.
We announced three main decisions. The first was full decoupling, with a single farm payment based in most cases on the subsidy reference period 2000 to 2002. That includes early decoupling in the dairy sector. The second was the use in principle of the national envelope, although for the beef sector only. The third was the intention to move the total rate of modulation—European Union compulsory and national combined—to at least 10 per cent by the end of 2007. That decision is subject to review later this year, once the provisions of match funding are known. I added that caveat at the time that the announcement was made.
I will discuss each of the three decisions briefly. Full decoupling is not easy to say, but it was an easy decision to take—probably the easiest of the three. Agreement on the issue was reached fairly early. A consensus was quickly achieved that full decoupling was the way forward. It is also the most important element in the package. It will mean that, instead of responding to scheme rules and all the accompanying bureaucracy, farmers will respond to market signals and consumer requirements. That is a fundamental underlying objective of our wider strategy.
We have decided that the payment should be calculated on an historic basis. We reflected on the alternatives—as members know, there was no consensus on how the payment should be calculated—and came down in favour of using the historic base, as opposed to an area or hybrid base. A transitional period from historic payments to area-based payments is possible, with different regimes for different regions; that is the route that colleagues south of the border took. However, we have a different structure and different types of agriculture from those in other parts of the UK. Our decision was based on the need for short-to-medium-term stability and the avoidance of a radical redistribution of payments. Not everyone necessarily supports that approach, but the overwhelming majority of people will support the use of the historic reference base. I can go into that issue in much more detail, if members wish.
I turn to the second issue—that of the national envelope. There has been less than universal support for use of the envelope, even in the beef sector. However, I argue that the beef sector faces some short-term uncertainties, not least continuing export constraints. There may be a longer-term need to support beef, for environmental purposes as much as anything, because the grazing of beef cattle is important for maintaining habitat and environmental features, especially in fragile areas of the north and north-west.
Many respondents to the consultation wanted the scheme to be funded under the rural development regulation. However, when it comes to a specific environmental scheme for cows under the RDR there are questions about the availability of funding and contention for support, given all the other measures that are vying for rural development support. It remains unclear whether we will be allowed to operate the envelope provisions on a short-term basis, although we will press for that in the on-going negotiations on EU implementing legislation. Consequently, final decisions on the shape of the national envelope scheme for beef will be taken in the light of further discussions with interested parties and after EU implementing legislation has been agreed. We are consulting the European Commission on the issue. That is a brief synopsis of the current position.
Modulation is probably the most controversial issue and has given rise to most discussion among everyone involved. The decision to aim for a combined rate of at least 10 per cent by the end of 2007 will mean—as I said in response to a question from the convener—that around £40 million of additional money will be available through pillar 2 in 2007. Modulation provides an underlying rationale for agricultural support, because through well-designed schemes we get the agri-environment and rural development measures that allow us to target resources better. The key is how that additional money is spent. We must build on the progress that we have undoubtedly already made, and I argue that we must improve access to the funding. We must ensure that measures are opened up to modulated funding and that we maximise the outputs and develop delivery systems that will widen that access. In that context, the land management contracts model is the preferred method.
As many members will know, on 19 February we announced a three-month consultation on the cross-compliance arrangements for Scotland, which relate to the environmental and good farming conditions that farmers must meet to receive the single farm payment. Those arrangements are obviously critical to delivering improvements in the general environmental standard in farming practice. The legislative requirements under cross-compliance include existing EU rules on the environment, identification and registration of livestock, public, animal and plant health, and animal welfare in areas such as the protection of calves, pigs and other farm animals.
In addition to the legislative requirements, farmers will be required to maintain land in good agricultural and environmental condition. In line with the discretion that is allowed within the European framework, we have been developing a draft set of conditions that are appropriate for Scotland. We believe that the conditions that we have developed with stakeholders are demanding but fair. We have adopted a practical, commonsense approach by providing a clear set of measures for land managers, as well as for regulators and others with a wider interest in rural development and environmental standards.
Future farm payments require a rationale for succeeding generations. Improving environmental standards through cross-compliance is an important element of that rationale. Those developments—high environmental and good farming practice standards—are here to stay and will be an integral part of the land management contracts process.
As I have already said here in the chamber, the announcement on CAP reform represents the beginning rather than the end of the process. During the next few months, we will be finalising the implementing legislation, developing and amending the Scottish rural development plan in consultation with interested parties and continuing with the development of the land management contract model and the detailed development of the national envelope scheme to which I referred briefly. As a preamble to all that, we will write to all producers this spring to start the process of establishing entitlements.
Given the constraints on time, I have provided a brief résumé. I will be happy to answer questions on any of the aspects that I have discussed, or even on matters that have not been mentioned.
Thank you very much. A forest of hands has popped up instantly. I will let Alex Johnstone ask a question, because he has said hardly anything so far today.
We are on to my subject now.
I know that, in effect, all developments in CAP management have been time limited, even if that was not the case at the outset—history shows us that they have not lasted very long. For how long do you anticipate that the structure of the single farm payment to farm businesses will last? When will the process of adjusting that structure take place? The paper that we have on the subject indicates that it would be ridiculous for us to reach the stage at which we were basing everything on something that was 20 years out of date, but I have a farm business at home that is still hamstrung by quota regulations that are based on a 21-year-old snapshot, so I know from personal experience that that can happen. What views do you have on the future management of the new structure?
I suspect—indeed, I know—that my views are very similar to yours. In coming to a conclusion on whether to opt for an historic or an area-based system of payment, or for a hybrid of the two, the big question was for how long into the future we anticipated that the single farm payment would continue on an historic basis without any reference to the area of land under jurisdiction. That question was about how long a piece of string is.
As you said, in theory, the system could go without review until 2012 or thereabouts, which is a long time from now. We are in the Commission's hands, but it is fair to say that we expect a mid-term review, because the same questions are being asked in other member states throughout the EU, especially because of enlargement. We expect a mid-term review and will argue with other member states for such a review, but we are in the Commission's hands.
Will that review be driven by political will or simply by budget problems?
The review will probably be driven by a combination of those factors. The overall availability of farm support finance or rural development measures in the EU might decline because of enlargement. Allied to that, the concern that member states might have that the historic reference period was less relevant as time passed would lead to pressure for a mid-term review.
Jim Wildgoose (Scottish Executive Environment and Rural Affairs Department):
We are in touch with the Commission, which is charged with producing reports on various matters, such as cross-compliance, before 2009. In producing those reports, the Commission is likely to take a more general look at what is happening. A date has not been set formally for a review, but the Commission will have to produce reports on how various aspects of the proposals are working. The main impetus for the timing of a review is likely to have more to do with how the fundamental changes work in the next three or four years. As I said, the changes are big. Historically, a review has taken place roughly after five years. However, that is not written down in detail.
I will follow up Alex Johnstone's point about the historic system versus the area-based system. Will the Executive consider doing different things in different parts of Scotland? For example, could a different formula be used in the Scottish islands from that which is favoured on the mainland?
Schemes that were relevant to different parts could be developed. Our decision about whether to go for an historic or area-based scheme instead of a hybrid scheme was designed partly, as I said, to ensure that Scottish concerns were addressed in the interim, such as peripherality in respect of the national envelope and the large amount of land that has less favoured area status.
The decision to go with the historic arrangement applies throughout Scotland, but opportunities arise from the detailed arrangements within the national envelope and from the modulation money to take measures for different regions. That work has started and will continue intensively in the next few months.
I have heard Jim Walker from Quality Meat Scotland say slightly mischievously that what he calls the bottom third of the beef sector is unsustainable and should be out of business—that has received a mixed response from assorted farmers. How do you see the decision on the national envelope for beef working, minister? What exactly do you want to do? Do you agree with Jim Walker that more serious issues need to be addressed?
Picking up on what Alex Johnstone said, I have a forward-looking question about EU funding. We have long held the view that France, Germany and Spain get the lion's share of CAP reform money and that the CAP is of most benefit to those countries. Indeed, the table in one of the Scottish Parliament information centre briefings shows that in pretty stark terms. You have said that you will press for better European funding for rural development measures. What will your arguments be on the subject in the future? Two aspects are involved: the issue of the UK in Europe and that of Scotland in the UK. I will be interested to hear what you have to say on the subject.
I will take the question about the national envelope first. Like Roseanna Cunningham, and perhaps Jim Walker, I share the concern that the effect of the introduction of the national envelope was to break the decoupling effect of our move away from subsidising production and making it more market oriented.
The corollary of that argument is the environmental and peripheral benefits that areas of the north and west would have lost without the provision and the desire to have short-term sustainability for the beef sector. The latter argument played with Mr Finnie prior to his departure. He wanted to ensure that the beef market was sustainable in the short term and that we were able to meet our short-term market demands for the product, which might otherwise have been jeopardised. We made our response to secure sustainability in the beef market and, from my perspective, to ensure that cattle production was maintained for sound environmental and other reasons in the peripheral north and west.
On the big questions that Roseanna Cunningham and Alex Johnstone raised, I am not sure that I am in a position to speak on what is likely to happen in the EU over the piece. We discuss those matters with our UK counterparts. We did so in advance of coming to the decision in effect to do something different in Scotland.
I do not think that we expect you to say what the outcome will be. Given that you have stated that your intention is to press for better funding, how will you argue our case? Will you make the argument in the UK only, as a case for a share of UK funds, or will you press for the case to be made in Europe—or is it both?
Alastair Sim (Scottish Executive Environment and Rural Affairs Department):
The UK has recognised collectively that its share of rural development funding from the EU is unfair. That share was based historically on what we spent on rural-development-type measures way back in the 1980s and 1990s. The Scottish Executive and the UK Government are keen to have that position redressed. We are knocking hard on the Commission's door, saying, "Look, next time round, in the period that begins in 2007, can we get an allocation that is a fairer reflection of our aspirations to spend more on rural development measures, which is where we see our sustainable future going?" We do not know what the outcome will be. It is a bit of a zero-sum game: if we get more, someone else will get less. However, we are knocking on the door pretty hard.
The Executive's position, with which I am sure Roseanna Cunningham would agree, is for long-term growth in rural development measures beyond 2007. That will depend on a host of factors: the French and German positions, among others; changes in ensuing EU budgets; and, of course, the future of match funding. As the committee knows, at the moment we get pound-for-pound funding from the UK Treasury.
The single farm payment based on historic assessment was broadly welcomed in my area. You rightly said that it would give us a period of stability, but we should use that period for giving some serious thought to how we support agriculture. How are you engaging the industry in that? People have raised the matter of equivalent industries in other EU countries. On the historic farm payment, is there a mechanism for people to appeal the level of the single farm payment in individual cases where there might be exceptional circumstances in the reference years? There was qualified acceptance in my area that it might be necessary to use the national envelope to support the beef sector. Is there a way of monitoring whether that will be necessary and phasing it in? How can it be phased out? There is some anxiety that, if the scheme is not necessary, it should not be used. How will you evaluate whether it is necessary, and how long for?
I am pleased to hear that the single farm payment was welcomed in your part of the country. I went to the National Farmers Union Scotland conference, where the decisions that we came to were well received by the industry and by a wide spectrum of the people who were represented there. I recognise that, in the longer term, there should be an objective basis for agricultural support payments, and not simply an historic basis. Payments should be based on buying outputs—such as wider rural development or better environmental management—that wider society wants and not only on producer interests. We will be reviewing the decision on the historic approach at the earliest opportunity.
That takes us back to an earlier question. Yes, there is provision for appeal. My colleagues here are already busily engaged with producers, as they were at the conference, to ensure that the process goes as smoothly as possible—it could go horribly wrong if we do not have proper mechanisms in place. Generally speaking, the mechanisms will be the same as the ones that we had in place for the previous schemes, which provided for internal review and external appeal. However, there are a lot of people out there—not too many, I hope—who may wish to question, if not appeal, the basis on which their historic payment has been calculated.
The envelope was a short-term measure. We are engaged in discussing with the Commission, the industry and others exactly how it will work. We are conscious of the views out there about the efficacy of the measure.
First, can the minister advise us how discussions are progressing with Her Majesty's Government on the amount of modulation? Is there a timetable for those discussions? The previous year's budget referred to £22.8 million, which had been ring fenced to cover spending commitments based on a 10 per cent modulation. Has that funding been confirmed? I think that the minister mentioned the matter briefly, but I would be interested to hear a little more about that.
Secondly, I would like the minister to comment on the fact that the north, the west and the various island groups have different needs. Reflecting on an earlier question from Alasdair Morrison, I think that the needs of Orkney are quite different from those of the Western Isles and Shetland. There is a range of potential rural development regulation items that we have not yet used. What thought has been given to using food quality incentive schemes, food quality promotion, agri-environment and animal welfare schemes, investment in processing and marketing, and marketing of quality agriculture produce, which is, in large part, the reason for the support of agriculture in less favoured areas?
It is certainly one reason for it. To take the last point first, we are discussing with the parties concerned the development of precisely that approach as part of the wider societal benefit that we see coming from modulation. As far as the timescale is concerned, the guarantee is until 2005-06.
That is what came out of the 2002 spending review.
We expect to be in a position to make an announcement on the next spending review period after discussion at the UK level. In July, or at least around summer this year, we will know what is proposed in the way of future match funding and we will take a decision on levels of modulation thereafter.
Rob Gibson has just mentioned quite a few of the opportunities to obtain different categories of financial support under the rural development regulation. We take few of those opportunities at the moment, so taking more of them is one possible way to go. The issue is the extent to which pillar 1 will become less important and pillar 2 will become more important over time; it is about how we maximise the opportunity of Scotland and the UK to get more money out of the EU for justifiable rural development objectives that are more integrated or more diversified and that allow farmers to do the mixed farming that we have begun to discuss, such as agroforestry.
Maureen Macmillan has raised the issue of the lack of abattoirs in the far north several times. That links into the more regionalised approach that can be seen in different areas of Scotland, but only where the rural development mechanisms and the funding sources enable farmers to go down that sort of diversified route. How does the Executive currently view the opportunities that could come from that sort of choice?
We see them precisely as opportunities for farmers to extend their activity. I was looking for the relevant statistic on that: 21 per cent of Scottish farmers are now involved in agri-environment schemes, compared with 16 per cent in Wales and 13 per cent in England. Moreover, 21 per cent of Scottish farm land is managed agri-environmentally, compared with 13 per cent in England and roughly the same proportion in Wales.
More modulation gives us the opportunity to extend agri-environment schemes. The benefit of match funding, which we have just been discussing, means that more money goes into those measures than is modulated from pillar 1 to pillar 2. Will that lead to an increase in the number of such schemes? I certainly hope so. Will it lead to an extension of those schemes? I am sure that it will with regard to developments in the organic sector, perhaps, or in forestry. Will it lead to greater participation? I sincerely hope that it will. The benefits of that will extend well beyond the producer interest to the wider interests of rural communities in general and it will promote a more sustainable system of agriculture, environmentally as well as economically.
Those are the kind of issues that prompted us to undertake the review. We looked at the budget and found it difficult to work out where the money was going, as it was effectively parked in different categories, on which the Executive did not yet have permission from the EU to spend money.
Land management contracts are clearly the way in which to deliver many agri-environment proposals. What is the timescale for introducing them? Do you need to change the rural development regulation in order to be able to introduce land management contracts? Do you see the cross-compliance approach coming directly through land management contracts?
As far as cross-compliance is concerned, we viewed land management contracts not as the sole instrument of delivery, but as a principal instrument of delivery. Regional schemes could be developed to benefit certain areas, as opposed to individuals through contracts. I invite Jim Wildgoose to speak about the rural development regulation.
We believe that we can introduce through existing legislation arrangements that will be similar to the land management contracts. However, we doubt whether it would be helpful do that in one jump. We believe that we will need a transitional arrangement from 2005 under which we can move towards land management contracts. By that time, we will have seen the shape of the RDR review. The aim then would be to develop more fully the land management contracts from 2007.
Part of that process would obviously entail us engaging with the Environment and Rural Development Committee to get members' views on the process. It is important that we do that. The process should not consist of our determining something and then passing it down. We welcome the committee's views on how the process should continue.
Perhaps we will explore that issue with the extensive range of stakeholders who will be speaking to us over the next few weeks.
Today's meeting has been good, because it has got us going on the topic. We will take up the minister's invitation to feed back to him a range of options about how we might proceed. The point of doing the report is to flush out choices and see what the different stakeholders think.
I thank the minister for coming along today and I also thank members for their patience and relatively good-humoured attitude throughout what has been an incredibly lengthy meeting.
Meeting closed at 13:31.