Environment and Rural Development Committee, 21 Apr 2004

Meeting date: Wednesday, April 21, 2004

Official Report 200KB pdf

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Common Agricultural Policy Reform Inquiry

I welcome everyone back to the meeting. This is the final evidence-taking session in our inquiry into the implementation of common agricultural policy reform in Scotland. I welcome the Deputy Minister for Environment and Rural Development, Allan Wilson, and his officials and I thank them for turning up slightly early. We got through our initial business swiftly and effectively this morning.

Before we start taking evidence, I ask members to declare any relevant interests.

I am a member of the Scottish Crofting Foundation.

I am a member of the Scottish Landowners Federation.

I am a member of the Scottish Crofting Foundation.

I invite the minister to say a few words as an opening statement on CAP reform.

When I spoke to the committee on 3 March, at the start of the inquiry into CAP reform, I explained the key decisions on its implementation in Scotland that I announced to Parliament on 12 February.

Briefly, by way of summary, the three main decisions were as follows: first, full decoupling, with the single farm payment being based on the historical approach; secondly, the use in principle of the national envelope provisions, for the beef sector only; and thirdly, 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 on match funding are known. Obviously, further decisions are required in each of those areas.

I will update you on the substantial progress that we have made on taking the matter forward. Industry involvement continues to be a key feature of that further work—as, indeed, it was during the consultation process—which builds on the valuable input that we got from the CAP reform stakeholder group. We established that group with the aim of providing strategic input across the various strands of work that are in hand, and we have also set up a number of working groups to examine in more detail the particular issues that arise.

The detailed European Community implementing legislation was agreed to on 31 March following two months of intensive negotiations, and the final text will be published by the end of April. Department officials were closely involved in the discussions at European level and they held informal consultations with relevant organisations on aspects that are of particular importance to us in Scotland. The implementing legislation requires some further decisions to be taken in Scotland in areas such as the operation of the national reserve and entitlement trading. Those areas are technical, but they are nonetheless important, and further discussions will take place with all relevant parties in a formal consultation exercise that is likely to be carried out shortly.

We are also pressing ahead with the construction of an information technology system for the new scheme, which will extract the relevant information from the historical reference period. That system, which is at an advanced stage, will allow us to write to farmers and crofters in June to set out basic information about their reference years and to give an estimate of their likely future payments. That will provide the first opportunity for producers to let us know whether the information that we have on the system is accurate or whether it should be changed. We will write to farmers again in the autumn to clarify that information further.

My final point on this area is that, as the committee will be aware, we are consulting on cross-compliance and the measures that farmers will need to take to adhere to the requirement to keep land in good agricultural and environmental condition. In parallel with that, departmental staff are speaking at public meetings throughout Scotland to explain the details of cross-compliance to farmers. The consultation closes on 21 May, and we aim to provide final information to farmers during the summer to enable them to make practical decisions about their land for next year.

Another area of work stems from the decision to make use of the national envelope provisions in the beef sector. We are working on the design of a scheme to meet our environmental and quality objectives and the concerns that were raised with us during the earlier consultation. Again, that is a matter of interested parties being closely involved in the follow-up work. The timescale is such that we have to inform the EC about such a scheme in August.

Lastly, we are considering the measures to be funded under the additional national modulation. We confirm that, as I said, the decision on modulation will be subject to review later this year once the provisions on match funding are known. Part of that work involves the further development of the land management contracts model, and it is important to develop a relevant mix of measures with appropriate incentives and payment rates, together with arrangements that will permit wider access to funding. Again, all the interested parties are fully involved in the process to discuss the priorities for investment—obviously, there will be such priorities with any pot of money—and the vehicles that are best suited to deliver our objectives. Formal public consultation is also likely over the summer, to ensure that amendments to the Scottish rural development plan can be submitted to the Commission later this year to reflect those developments.

At the same time, we are developing our own thinking alongside that of other UK Administrations on the shape of the new rural development regulation post-2007. One issue that is uppermost in our minds is that of securing an increase in the allocation of funding from the Commission to reflect better the rural development needs of the UK and Scotland.

That covers all the various consultations, thinking and development work that are on-going. I have a keen eye on the progress of the committee's own inquiry, which I see being a critical contributor to the process. I am happy to answer any questions and perhaps to develop some of the issues, themes, arguments and debates in more detail.

It is good to know that much has happened since your first announcement a couple of months ago. We have been watching what you have been doing over the past couple of months to take the agenda forward. Many issues have come up in the discussions that we have had with a range of key stakeholders from the farming community, rural business interests and consumer and environmental groups, so we have a huge number of questions. We may not put them all to you today, but we will try to focus on the key themes.

I want at this early stage to address perspectives on the proposals. As the committee carries out its investigation, naturally a large number of people come forward with alternative ideas and with objections to some of the things that have been happening. When I talk about perspectives, I mean the fact that the proposals have been well received, and a great many organisations have spoken positively about them. Does the minister believe that the proposals have, as they have developed, been as well received as they were initially? Can he put into perspective for us how the proposals have been received by the industry? What are the proportions of objections and positive receptions?

The short period during which I deputised for the Minister for Environment and Rural Development during his recent absence was fairly frenetic. I addressed the annual general meeting of NFU Scotland in St Andrews which, as Alex Johnstone will be aware, reflects the broad spectrum of producer interests and many others besides, such as environmental and other interests. The meeting took place shortly after we had made the announcement and I was subjected to close scrutiny on the decision-making process, the consultation process that preceded it and our intention to engage further with all interested parties in the aftermath of the decision.

I can genuinely and honestly say to you that at that gathering our decisions were very well received not only by producer interests, but across the spectrum, because I had taken the time, trouble and effort to consult more widely with environmental non-governmental organisations—Scottish Environment LINK and others—in the run-up to the decision-making process in order to ensure that the interests that they genuinely represent in terms of the wider environmental and rural development agenda were also addressed.

As with all such processes, one is required to strike a balance—actually, a balance is not required and is not a necessity, but a decision is taken based on the weight of argument and how that sways one. I believe, to this day—nothing has happened in the intermediate period to shake my belief—that we took the right decisions on the three areas that I mentioned: the extension of national modulation; full decoupling; and the beef envelope, which is the most controversial area. I have been watching the committee's deliberations in that regard with great interest. We took the decision on the beef envelope because we wanted to stabilise the market and protect the environment in the more remote and rural parts of the country. We made the right decision for the right reasons and we developed, along with interested parties, a scheme that would do that.

Do you agree, in respect of the change in the regulations, that although it is extremely important that we concern ourselves about Government money and how it is utilised in the system, we must also remember that the more significant part of the effect of the proposal is the release of rural industry, especially the farming industry, from the constraints of the coupling that took place in the past? Do you also agree that many of the benefits that the proposal will generate relate not to how we spend Government money but to how we release businesses from coupled activity?

Absolutely—Alex Johnstone and I have discussed the matter many times over the years and I know that he has an honourable history of supporting decoupling. He understands, as do we, that full decoupling will release the power of the market to enable the producer to respond to the demands that it sets. I believe that that is a better approach to agricultural production than has historically been the case.

I accept the point that the matter is not simply about subsidy, about how modulated funds are distributed for rural development purposes or about how to secure environmental improvement; it is also about releasing the potential of the market to benefit the interests of the producers and the consumers.

I want to ask about the beef envelope because there seems to be some confusion about how it is going to work. Many witnesses who spoke to the committee were not clear about how long it would last, how it would work and what would replace it when it was finished. They felt that it needed to be in place for at least one three-year beef production cycle. People who raise cattle in peripheral areas stressed that the beef envelope should be targeted at peripheral areas. However, as no one has a handle on what is happening, could you clarify the situation?

I will restate the objectives, which are to enhance the quality of the suckler cow herd in Scotland and to provide an incentive for people to keep cows in fragile areas where they are of environmental benefit. The current consultation is designed to develop a scheme that achieves those objectives. Some stability was needed in the beef sector in the short term—given the constraints that it faces, such as export restrictions—but we did not want the scheme to introduce new complexities or rigidities in that process.

The scheme cannot be used as a transitional support mechanism, neither can it be targeted geographically in the sense of there being differing rates in different regions. However, it is possible to vary over time the combination of environmental and quality incentives under the existing legislation in order to take account of impacts in different regions. The implementing legislation does not specify how the funding will be distributed at the end of the scheme; that is a matter for discussion.

We are considering all the elements in our attempt to design a scheme that meets all our objectives and which takes us forwards rather than backwards. Jim Wildgoose is closely involved in that process and can supplement what I have said.

I could give the committee a little bit more detail. A working group of key interests has had two meetings already, and will almost certainly have a third meeting, to consider possible regimes and the balance between quality production and the environment. The environmental consideration relates to keeping suckler cows in the more remote areas. The question is how to devise schemes, within the rules, that meet the two objectives. As I said, we have some fairly advanced ideas in that regard, but they require further work, which is being done by the working group.

It is not, in the envelope provisions, possible to pay different rates to different areas, but it is possible to pay higher rates on, for example, a certain number of cows per business. That would give some form of targeting.

It is not possible to delay the implementation of the scheme. We cannot decide once we have introduced it to remove it. The provisions will be subject to a European Community review. If, by August, we do not decide to implement the scheme, we will lose the possibility of implementing it. Those are quite important issues in terms of decision making; we are well advanced in that regard.

I understand that the scheme cannot be targeted at particular areas, but there is room for flexibility in that allowance is made for specific types of farming to be supported. That means that it should be possible to make a distinction between specific types of cattle farming and to target peripheral areas by that means.

The interpretation that has been given in Brussels to that provision has been that it relates to distinctions between beef farming, dairy farming and sheep farming. It would be extremely difficult to control the situation if more specific definitions were used. However, I am not saying that that idea has been ruled out.

Another element is that we have defined systems that work very much within the grain of the existing arrangements, so we are not inventing or introducing new levels of bureaucracy. That is another important objective.

It will be possible to refocus direction flexibly over time if that is required to take account of factors that have been mentioned.

There is a concern that peripheral areas will lose cattle farming—Highlands and Islands Enterprise has predicted that that will happen. The figures that we have been given for the predicted reduction in cattle numbers in the Highlands suggest that, over the piece, all the cattle will be moved to the Black Isle or Easter Ross and the peripheral areas will lose out. We want to try to find a mechanism by which that can be prevented.

As I said, that was one of the two principal reasons why we opted for the national envelope. When Rob Gibson and I visited Assynt, I received representations from local producers who argued precisely that point. The same argument applies in parts of the northern isles, Western Isles and other more remote rural areas. The representations that were made to us were among the reasons why we opted to make use of the national envelope. The challenge now is to ensure that the scheme delivers on the objectives; that will require some development.

I want to take the beef national envelope argument a wee bit further. We are having to work quite hard to make it deliver the objectives that we want from it. Are we fully committed to going down that route to achieve our objectives, or has thought been given to whether there are different ways of achieving them without using the beef national envelope?

The short answer is yes. That may be a possibility, although probably not in the short term. That was, as I said to Maureen Macmillan, the thinking behind the decision to go for the national envelope. We can examine priorities for rural development regulation spending and we are doing so with the interested parties. As Nora Radcliffe will know—not least from her own evidence—there is no shortage of people out there who are vying for access to funding.

The national envelope is a measure that we took specifically to stabilise the beef market and to protect beef production in the more remote rural communities to which I have referred. That does not rule out using, as you suggest, other measures in the medium to longer term to produce the same effect.

Do you still see the envelope as the mechanism that will produce the objectives quickly in the short term?

Yes.

For how long are we committed to having the envelope? Will it be in place until 2007 if we introduce it?

The review clause in the legislation says that a review would happen two years after all the members of the Community had implemented the arrangements—it has to be done by 2009, but it may be earlier than that.

Would you like to say a little bit about whether you see trading of single farm payments happening, the effects that might have and whether any measures should be taken to put any sort of cap or control on that?

That is a good question.

As you know, tradeability is a feature of the new support system; the agreement does not allow entitlements to be tied to the land. Some people, including myself in a different context, have expressed concern about leakage of entitlements out of areas and about competition from entitlements coming into areas. I know that Mr Finnie examined the implications of all that before his time off. All those issues have been closely examined and we will soon consult on whether to use ring fencing as a means of addressing some of the concerns, or to use the siphon provisions here in Scotland. We will consult on the issue very shortly.

I will ask a quick question about modulation. Would it be your intention to go for the maximum modulation that we can, if we were going to get match funding for it?

It was perhaps the other way about in that we went for the 10 per cent modulation but added a caveat that that was dependent on our securing the match funding that went with it. Those matters are currently being discussed with the Treasury.

Would you allocate differently the modulated funds and the match-funding element that you get through the process? Would it be fair to apply the modulated element of the funds more directly to agriculture and to apply the match funding element more widely?

The short answer is no. I would examine the totality.

You would treat the money as one pot.

Yes.

That is Nora Radcliffe's last question—she got in three topics.

I return to the beef national envelope. I am interested to hear what has been said about the potential to provide appropriate levels of support directed at the first 10 animals, for example, as a means of supporting smaller producers. Given that the turbulence of changing the system will most affect them, can you say a little more about your thoughts on that issue?

We have been considering a range of possibilities. Although we are not able to have separate payment rates for different areas, the kind of targeting to which the member refers is available. I cannot provide the committee with figures today, but we are considering actively arrangements such as those that have been described. We must be careful when we set limits because we might find that there are people on either side of the limit in different places, which creates its own form of distortion. We are considering carefully how that problem may best be handled. We are considering a range of different limits to make best use of the £18 million. The issue has been considered at two meetings of the working group and it is almost certain that a third meeting will take place soon to consider further issues. The kind of scheme that Rob Gibson suggested will be discussed at that meeting. As I have said, there are pros and cons associated with such a scheme, but it provides a form of targeting.

Does the minister want to comment on the fact that providing environmental benefit—public good—is not incompatible with using quality incentives in the beef national envelope? If the envelope is intended to address the most crucial aspect of the changes in agriculture, it is necessary above all to focus on people in fragile areas.

I made that point in response to a question from Maureen Macmillan. Although it is not possible to have rates that vary between regions, it is possible over time to vary the combination of environmental and quality incentives, in particular. Under the terms of the legislation, we are entitled to do that. Such an approach will give us the wherewithal to take account of regional variation by changing incentives, as the member suggests. I do not believe that environmental and quality incentives are necessarily incompatible, but flexibility is important because it gives us scope to address regional and environmental issues. We want to do that—the point of setting up the beef national envelope was to protect such interests.

How can you vary the scheme over time to change the balance between environmental and quality incentives?

The basic Council regulation stipulates that there are two objectives that can be combined. Each year, it would be possible to say that we wanted the balance between environmental and quality production to be changed. For example, after three years we might decide to pay on the first Y rather than the first X cattle. Essentially, that kind of change is possible under the legislation, provided that our objectives meet either a quality or environmental objective.

The environmental objective would be to maintain the presence of grazing cattle in remote areas.

I cut in on Rob Gibson's question because I wanted to capture that point. Does Rob Gibson want to continue?

That was an important point. I want to tease out how the Executive envisages things developing. Clearly, the problem with the beef special premium scheme was that it caused difficulty for the producers. How does the Executive intend to capture the benefit of what is basically a transitional measure for the producers rather than for the fatteners?

We cannot use the envelope as a transitional support method, but we can take account of the environmental objective that we seek to achieve. We have the flexibility to adjust the balance between the stated objectives to provide for that. There is more than one way to skin the proverbial cat.

Let us not go there.

Is that not a politically correct term?

Certainly not. We will deal with animal welfare later this session.

Eleanor Scott has a number of questions.

Some witnesses who gave evidence to our committee were quite keen that pillar 2 moneys be used beyond the farm gate to provide infrastructure to allow value to be added to farm produce. Some people have suggested that the moneys should go even further beyond the farm gate and that they should be spent on community projects. I appreciate that we do not know how much pillar 2 money will be available because we do not know the extent to which modulation will be match funded or the amount of EU rural development moneys that we will receive after 2007. However, what are the Executive's priorities for the use of pillar 2 money both immediately and in the future?

Obviously, we set out our longer-term priorities in a number of publications, which range from "A Forward Strategy for Scottish Agriculture" to the change documentation and so on.

I hold to the need for a balanced approach that maximises the potential benefit for wider environmental improvement and wider rural development beyond the farm gate. The importance of the wider contribution that agriculture makes to the economy of many of our rural and remoter communities should not be underestimated. I do not underestimate the importance of having a vibrant and profitable agricultural sector, but one reason why we took the decision to extend modulated funding was to ensure that the additional resources that accrue could be used to further our wider rural development agenda. That is certainly part of the process.

In the early stages, will most of the pillar 2 money be used to fund land management contracts or will it be possible for other rural development measures to make bids for that money?

As I said, our long-term vision has been set out in "A Forward Strategy for Scottish Agriculture", "Custodians of Change" and "Rural Scotland: A New Approach". We want to see a prosperous farming industry that plays a major role in sustainable rural development. In the light of the forthcoming review of the rural development regulation, we need to give consideration to other sources of support for rural development to ensure that we have an integrated approach that helps to achieve those objectives.

When the existing rural development regulation is replaced in 2007, the new regulation may well have a wider range of measures available, which we will want to discuss in due course. The land management contract model, which is in the early stages of development, based on the pilot, is an important contribution towards that. I read with interest the representations that the committee received from NFU Scotland and others about the introduction of that model and the opportunities that it creates. We want to ensure that there is integration of existing rural development policy; there will be a regional element to land management contracts, and we are in wide discussions with industry interests and beyond on those matters. There will be a full consultation on this year's changes to the Scottish rural development plan and the further changes in 2006 when we know the rural development regulation in detail.

We are anxious to ensure that our wider rural development objectives are secured. Having a prosperous, sustainable, profitable agricultural sector is central, but that is not our only objective; wider environmental and rural development measures are also objectives.

That is an interesting answer. The idea that there might be a regional prospectus when you pursue the rural development angle came up in one or two of the submissions that we received. It is interesting to hear that you will consult on that issue. Will you say a bit more about that?

We seem to have endless working groups, but we have a working group to consider some of those issues and plan out further work—indeed, the group meets tomorrow. A lot of work was done on the land management contract model until a year or 18 months ago, but it had to await the outcome of the CAP reform before it could be taken forward. The work that we have in hand will be based on that model and it will identify various measures that might be introduced at an early date next year. It will not be possible to introduce the full thing from next year; there will have to be a stepped approach.

We will consult widely on the extensive measures. As the minister said, we do not know the detail of the new rural development regulation in 2007, but it looks as though it will give wider possibilities. There are provisions in the current rural development plan to allow support outside agriculture—they are quite limited, but they are there. It may well be that wider things can be done under the new regulation, but all those matters are being discussed with interest at working level to see how best to develop that modelling.

I am glad to hear that. One of the representations that we received talked a lot about the development of local co-operative organisations, particularly between small, specialised farmers, to ensure that they have the capacity not just to produce food but to market it, to make the most of the high-quality niche market that they are in and to work with each other locally. That could come about through the work on the rural development plan.

On the wider issue, or the big picture, a lot of people talked in their representations about their worries about how the move to the new system will be managed. We explored the timescale with quite a few witnesses. Is it two years? Is it three years? Should farmers be engaging in the agenda now? How will you manage the process? It came across to us that many representatives are not sure whether they are expected to continue doing what they do at the moment, albeit that the money will come through differently, or whether they will be expected to reach different or higher environmental standards. They are not sure whether, in exchange for that, they will get the same amount of money that they get now or whether there will be more money to bid for.

That is a policy issue, which is set out clearly in "Custodians of Change" and the "Organic Action Plan". However, some people were not clear whether you would expect them to do more and exactly what the Executive's policy objectives are. Would you like to come back on that issue?

We are actively engaged in developing co-operatives. Match funding has the potential to increase significantly the money that is raised through modulation. Undoubtedly, some would argue—with some justification—that the primary beneficiaries are the farmers, but there is scope for measures that have wider applications; for example, you referred to smaller co-operatives. We intend to develop those ideas and the scope for wider application over the piece.

I literally lie awake at night worrying about how all this is going to be administered.

I am glad that you are doing that on our behalf.

I know. I suffer for the nation.

It is a concern. As I said, we hope to get a letter out in June to crofters and farmers, and in the autumn to keep them informed on how we have calculated their historic entitlement and how we intend to pay it. All that is required to be in place by 1 January 2005, so cross-compliance and the basis for the historic payment and the payment of the historic entitlement will all take place then. Officials face a significant task between now and then, not least because of the provision for appeals. We should not underestimate that task, which is substantial.

I can understand people being unclear. We are doing what we can to make them clear about their entitlement—within the constraints that we are placed under in terms of developing the regulations and applying them—through a consultative process that seeks to be as inclusive as we can make it. I am conscious of the point that the convener makes, and which others have made to her. The task is mammoth, but officials tell me that they are on top of the job. I have no reason to disbelieve that.

That is very reassuring.

I have a final question on how the information will be disseminated. The issue of training was raised, particularly by one of our academic witnesses. There is an issue about what is required under cross-compliance and what new matters will need to be addressed. There is also the issue of responding to business. You and Alex Johnstone agreed earlier about being freed from the current system, but there is also the issue of how the new system works. What opportunities will the farming community have? Who will take the lead on training, and how will it be delivered?

You have just done for Alex Johnstone's political career by saying that.

I thought that I would get it on the record again.

There are a number of issues. With the single farm payment and the whole business of getting the right figures for people, we will have to deal directly with individual producers. That will happen through letters and through the area office network, to resolve national reserve issues and straightforward entitlement problems.

The cross-compliance provisions are out to consultation at the moment; that consultation does not finish until 21 May, after which we will reach decisions on the position. We will have to have dissemination arrangements; it will be done mainly through correspondence, but we might also have some meetings. We are thinking about the best way to handle the dissemination.

On further measures for modulation funding, for example, and perhaps other agri-environment measures and other measures, there will have to be an arrangement to communicate with producers on the details. Such communication will be partly paper based, but there might well be meetings, and the internet might also be used.

In terms of the support, we have had a pilot project running on advice to farmers. The results of that study are being analysed and, by all accounts, it has gone well. The plan is that it will be rolled out in June. We are aware that there is a need for training and are addressing that issue.

We expect to make an online process available. We want there to be a greater uptake by farmers of the Environment and Rural Affairs Department's services online, as that can be more effective for producers. It helps us as well.

I asked earlier about the communication between SEERAD and individual farmers. It is obvious that previous systems suffered from communication problems. It would be good if you could give us a worked-through example or two of how communication between SEERAD and farmers will work in practice in the system that will be introduced. That would help us to evaluate the system.

Any system is subject to system failure. It should be possible to provide you with a worked-thorough example of how the system would work in relation to an individual farmer or crofter.

It would be useful if you could think that through and get back to us.

Thank you for answering our questions. We could have asked many more but, given that we have only limited time, I would like to move on to deal with the budget.