Present
Brookeborough, V
Cameron of Dillington, L
Sewel, L (Chairman)
Ullswater, V

Witnesses: RICHARD LOCHHEAD, Scottish Cabinet Secretary for Rural Affairs; PETER RUSSELL, Rural Director, Scottish Executive; CORNILIUS CHIKWAMA, Economic Adviser—Agriculture, Scottish Executive; and DR ROSI WATERHOUSE, Head of CAP Reform and Crop Policy, Scottish Executive.

1.  Lord Cameron of Dillington: Noted that the Health Check is designed to review the implementation and effectiveness of the 2003 CAP reforms. Asked how Scotland had put those reforms into practice, and what their impact had been.

Mr Lochhead:

• Stated that he was very keen to ensure that Scotland's voice is heard.
• Mentioned that the Scottish Government is about to embark on a series of meetings with industry on this subject.
• Suggested that the 2003 CAP reforms are viewed as having been implemented quite effectively in Scotland, and that Scottish rural interests are content with the historical basis adopted for the allocation of Single Farm Payments.
• Noted that there were some small issues about access still to be dealt with.

2.  Lord Cameron of Dillington: Noted that Scotland has chosen to allocate Single Farm Payments on an historic basis. Asked whether the Scottish Executive welcomes the suggestion in the Commission's Communication that there should be moves towards a 'flatter' system of payment, and if so, what such a system might look like in Scotland.

Mr Lochhead:

• Noted that this proposal causes anxiety in terms of how quickly such a change might be implemented, but recognized that there will come a time when 2002—the approximate reference period for the allocation of Single Farm Payments—is a long time away, and it would therefore perhaps not be sensible to keep allocating payments on this basis.
• Stressed that the transition would be important, and that it would take time to get there, not least because Scotland's geography and topography are very disparate, so that a flat-rate payment would be unpopular and difficult to justify. Any solution would thus have to take these factors into account.

3.  Lord Cameron of Dillington: Asked whether the Scottish Executive envisaged introducing any reform in this regard before 2013.

Mr Lochhead:

• Stated that the Scottish Government's preference is for reform later rather than sooner.
• Pointed out that the language in the Health Check Communication is permissive, and that the Scottish Government would like to keep it that way, with no element of compulsion.

4.  Viscount Ullswater: Asked whether if keeping the current system until 2013 won't mean introducing a really big change after that date, rather than phasing it in slowly.

Mr Lochhead:

• Accepted that this was a fair comment, and suggested that he will have to try and think about how Scotland might get there. This is an issue that needs to be discussed with industry.

5.  Viscount Ullswater: Asked whether, if funds are moved from Pillar 1 to Pillar 2, this would make it more difficult to implement any change.

Mr Lochhead:

• Stressed that he would not want to introduce two massive changes at the same time.

6.  Lord Cameron of Dillington: Asked whether there isn't a danger that rural development cannot by carried out by farms alone, and that therefore more money is needed in Pillar 2.

Mr Lochhead:

• Suggested that it was fair to say that we are already quite far along the road of changing the emphasis of the CAP.
• Pointed out that Scotland's proposed Rural Development Programme is radically different, with a much bigger budget (£1.6 billion over 7 years). Added that the Scottish Government's contribution will be 70 per cent, higher than elsewhere, and that this was a sign of its commitment to rural development.
• Concluded that there is already a huge emphasis on rural development.
• Mentioned that farmers now say that there is too much money going into rural development, but pointed out that they too can apply for rural development funding, so that money is not being taken away from them.

7.  Viscount Brookeborough: Noted that European funds are rarely taken up in their entirety, and asked whether the Scottish Executive was placing an emphasis on this.

Mr Lochhead:

• Accepted that under-spending was a challenge.
• Pointed out that the Scottish Government was changing the way in which it would deliver schemes. It is introducing a system of regional priorities.
• Explained that the schemes that were oversubscribed last time around were agri-environment schemes. This time, pre-application advice will be available, so that applicants can check whether they are likely to qualify for assistance and don't waste time. In consultation with a government advisor, applicants will be able to choose among schemes, and a tailor-made package can be put together for them.

8.  Lord Cameron of Dillington: Asked about the diversification of Scottish farming businesses, and whether the planning system ever posed obstacles to this.

Mr Lochhead:

• Responded that farmers in Scotland have been very successful at diversifying, such as into biogas and farm shops.

9.  Lord Cameron: Asked how the Less Favoured Areas scheme works.

Mr Lochhead:

• Noted that one of the distinctive messages the Scottish Government wants to get across with respect to the Health Check is the ongoing need for support for Less Favoured Areas. Such support delivers social benefits and wider public benefits, and is thus not just about food production.
• Stressed that the Scottish Government was fighting to maintain that kind of support, and hoping to promote links to environmental benefits. Explained that it was under pressure from the EU to show that environmental benefits could be secured in this way.

10.  Lord Cameron of Dillington: Asked whether LEADER projects are also carried out on a regional basis.

Peter Russell:

• Explained that these are carried out by LEADER action groups, and that there is a single payment agency for the whole of Scotland.

11.  Viscount Ullswater: Asked whether there had been any problems with the implementation of cross compliance.

Peter Russell:

• Noted that there is always some low-level rumbling, but that there has been no huge outcry. On the whole, the Health Check is seen as taking cross-compliance in the right direction by addressing, among other things, disproportionate penalties—e.g. for mistakes when completing forms.

12.  Viscount Ullswater: Asked whether cross compliance was delivering the intended environmental benefits?

Peter Russell:

• Responded that from the Scottish Government's perspective, it was doing so.

Mr Lochhead:

• Added that cross compliance was extremely popular with NGOs, who have put a lot of effort into measuring its benefits.

13.  Viscount Ullswater: Asked whether the witnesses could say more about the concept of Land Management Contracts, and the respects in which they have been more and less successful.

Peter Russell:

• Explained that they are now called Rural Development Contracts. Whereas previously, separate schemes were available, the Scottish Government is now trying to offer a single framework that is as open-ended as possible.
• Stressed that the term 'contract' is not accidental, and that there is no question of an entitlement. Instead, the idea is to invite proposals. The Scottish Government will then enter into a contract with the bidder if their proposal provides them with more public benefits than alternative, competing proposals.

14.  Lord Cameron of Dillington: Asked how this might be measured.

Mr Lochhead:

• Suggested that the administration had sought to learn lessons from the schemes previously in place. After one year, budgets can be changed if a particular scheme has proved too popular.

15.  Viscount Ullswater: Asked whether the Scottish Executive views these Rural Development Contracts as a substitute for Pillar 1 in the long term?

Mr Lochhead:

• Replied that it does not.

16.  Lord Cameron of Dillington: Asked how Rural Development Contracts are funded.

Mr Lochhead:

• Explained that 70 per cent of funding came from the Scottish Government, 6 per cent from the EU, and the rest from voluntary modulation.

17.  Viscount Brookeborough: Asked whether the 70 per cent figure was ring-fenced?

Mr Lochhead:

• Explained that is committed as part of the overall spending review, and is thus ring-fenced as far as the overall rural development programme is.

18.  Viscount Ullswater: Drew attention to the Commission's proposals to end all sorts of 'partial' coupling so that aids meet WTO rules, and asked how Scotland was planning to deal with this, referring specifically to its Beef Calf Scheme.

Mr Lochhead:

• Explained that he agrees that legacy schemes should end, but stressed that some kind of flexibility for coupling is something the Scottish Government would like to retain. It wishes to protect at least part of the livestock, and in particular the beef sector, and doesn't want to see that sector—or the associated processing industry—disappear.
• Suggested that national envelopes might provide a way of securing these aims and therefore supported the proposal in the Health Check that the system of national envelopes be continued.

19.  Viscount Ullswater: Asked whether Pillar 2 might allow Scotland to continue to protect its livestock sector.

Mr Lochhead:

• Stressed that Pillar 1 is important in giving confidence to livestock producers.
• Noted that sheep have been disappearing, and that this has prompted concern over declining livestock numbers.
• Noted that he is keen to explore how Scotland can retain some flexibility to protect these sectors under Pillar 1.
• Suggested that the pendulum of opinion was now swinging back, as a consequence of the realization that with decoupling, some sectors could be more fragile than had been anticipated.

Peter Russell:

• Stressed that cattle grazing preserves the Scottish landscape, and that it was a question of whether capital can be made out of that, the answer to which was yes, by producing quality beef.
• Recognized that Scotland couldn't win a head-on battle with Argentine or Brazilian beef, but that is could preserve its market niche for high-quality produce.

20.  Lord Cameron: Pointed out that on most measures, quality of life in rural Scotland is infinitely better than in urban areas, and asked how this might develop in the long term.

Mr Lochhead:

• Suggested that agriculture plays a vital role in Scotland, and not just rural Scotland. The Scottish Government wants to protect that, and promote the notion of farmers as food producers, so that Scotland is well placed to benefit from future changes in food supply.
• Identified a number of challenges for the future. A first set of challenges are short-term issues that can sap confidence, such as disease, or concerns over anti-competitive practices in the food chain. A second challenge is the age profile of the sector. On paper, the opportunities for young people are few, but Mr Lochhead stressed that he had met more young people than the statistics would tell you were there in the farming sectors. He drew attention to the new entrants scheme that formed part of Scotland's rural development programme.
• Among other challenges, he cited market returns for products, while noting that some farmers were doing very well in this respect at the moment.

21.  Viscount Brookeborough: Asked about the Commission's proposal to end compulsory set-aside and phase out milk quotas, and whether these changes would be welcomed in Scotland.

Mr Lochhead:

• Welcomed the relaxation of set-aside, while noting that its environmental benefits might be lost.
• Also welcomed the phasing out of milk quotas, which have outlived their usefulness. Added that dairy farmers were on the whole of the same opinion.

22.  Lord Sewel: Asked how Scottish agriculture might adapt to, and help address the challenges posed by climate change.

Mr Lochhead:

• Emphasised that there is a lot more work to be done on this, and that the agriculture sector needed to be brought into the climate change debate.
• Noted that Scotland's Rural Development Programme includes support for renewable energy, including biomass and biogas projects. From the energy side, there is thus rising interest.
• As regards forestry, he explained that the Scottish Government wants to take forestry cover to 25 per cent, up from 17 per cent.
• With respect to soil use, he noted that carbon is wrapped up in soils, and that land use in Scotland is the second biggest sector in accounting for carbon emissions.

23.  Lord Sewel: Asked whether the Scottish Executive envisaged Pillar 1 funding remaining at the same level, or was anticipating a progressive transfer of funds to Pillar 2.

Mr Lochhead:

• Noted that the administration saw benefits in increasing the level of funding for Pillar 2, but given Scottish circumstances, want Pillar 1 to continue to provide support in the short- to medium-term.

24.  Lord Sewel: Pointed out that there were pressures on the CAP budget, and that it might thus be expected to fall over time, raising the issue of where cuts were going to come from.

Mr Lochhead:

• Recognized that it was inevitable that the funding available under Pillar 1 would decrease over time, but emphasized that the Scottish Government's concern was over the pace at which that happens.

25.  Lord Sewel: Asked whether there were any aspects of the Lisbon Treaty relating to agriculture, fisheries or the environment that posed particular concerns for the Scottish Executive, or that it particularly welcomed.

Mr Lochhead:

• Explained that the Scottish Government had not really debated this issue.

Peter Russell:

• Argued with respect to co-decision that the relevant changes were a strong motivation to get the Health Check sorted before they come into effect.

26.  Lord Sewel: Asked about the Farm Business Development Scheme.

Mr Lochhead:

• Explained that the scheme was being continued.

Peter Russell:

• Pointed out that the separateness of the scheme had been done away with, and that it is now part of the Rural Development Contracts. Noted that the old scheme was considered to have been successful and had led to some very innovative developments in areas such as tourism, and local, healthy food.

27.  Lord Cameron: Enquired about the percentage of rural development funding that the witnesses envisaged going into on-farm activity.

Mr Lochhead:

• Suggested that this would depend on the energy and imagination shown by farmers themselves. Explained that farmers were being asked to see themselves as part of a bigger picture. They could apply for support for land-management activities only, but were being encouraged to take a wider, more ambitious perspective and consider doing other things too.

Peter Russell:

• Added that the Scottish Government was hoping to encourage more collaboration and integration, for example with respect to flood risk management.

Mr Lochhead:

• Suggested that regional priorities were expected to reflect the government's national priorities, such as climate change, the promotion of local food, etc. and that increasingly addressing these issues would deliver off-farm benefits.

Mr Chikwama:

• Pointed out that Scotland had placed a particular emphasis on Axis 3 of the EAFRD, and thus on addressing social objectives in rural areas.

29.  Lord Sewel: Asked what the witnesses would make of the proposal to keep only a minimalist Pillar 1, and to move everything else into Pillar 2, where more imaginative and comprehensive projects could be supported.

Mr Lochhead:

• Suggested that the crux of the debate was to address the concerns of those who question why money needs to be taken away from land managers and food producers in order to achieve these wider goals.