Agricultural transition in Scotland - first steps towards our national policy: consultation analysis

3. Capital funding

This chapter presents an analysis of responses to questions about capital funding i.e. funding which allows farmers and crofters to invest in the items they need to make improvements. The consultation explored whether capital funding should be linked to reducing emissions, the role of match funding, and what capital funding should be given to

Q2.1: Should capital funding be limited to only providing support for capital items that have a clear link to reducing greenhouse gas emissions? If not, why not?

Q2.1: Should capital funding be limited to only providing support for capital items that have a clear link to reducing greenhouse gas emissions? If not, why not?

Among all (314)	Yes	No	Don't know	No answer	No. of comments
Number	83	200	22	9	242
%	26%	64%	7%	3%

Almost two thirds (64%) disagreed with only funding capital items which have a clear link to reducing emissions - the highest level of disagreement seen in the consultation. A majority of individuals and organisations disagreed (60% and 73% respectively). However, it is clear from open responses that respondents did not disagree with reducing emissions; they disagreed as they felt the need to address a wider range of environmental issues.

Funding required for biodiversity and other environmental issues

By far the most common reason for disagreement was that a focus on greenhouse gas emissions is too narrow, and that capital funding should be provided for items which positively impact other environmental issues. Many expressed a view that funding should be made available to support actions which improve biodiversity. Beyond this, respondents raised a variety of areas which capital funding could address, including soil health, water quality and animal health. A full list is provided in Appendix B

Other uses for capital funding

The second most prevalent theme was for capital funding to address a range of sectoral issues, not necessarily related to business efficiency (see below). Many respondents suggested areas which could benefit from investment. Most common were: sustainable food production and food security; improved farm safety; and support for young farmers to address a labour shortage. A list of other areas is included at Appendix B.

"There are equally strong arguments in favour of support for capital spending that boosts broader ecological objectives (biodiversity enhancement for example), and also capital spending that helps facilitate sustainable production of a better mix of high quality, nutritious foods. Indeed, these three areas are inter-connected." - Individual

Capital funding to improve business efficiency and productivity

Several respondents argued that capital funding was needed to fund business efficiency and productivity. Most made general calls for items that would help this. Others shared specific requests, the most common being for investment in infrastructure (e.g. buildings, roads, fences, cattle handling facilities) or in improved business management.

"It is likely that Scottish farming will be undergoing radical changes over the coming years, with farmers working in a less subsidised more market facing world. In many cases this will require significant modernisation which in turn will require significant capital investment." – Rare Breeds Survival Trust

Establishing a clear link to reducing emissions

Many respondents questioned how a clear link to reducing emissions would be defined and measured. A few felt the difficulty in demonstrating a clear link means flexibility and common sense should be applied to funding decisions. Several shared examples of actions which could indirectly reduce emissions; most commonly these described the secondary impact of business efficiency measures, in particular higher productivity leading to fewer food imports and reduced food miles. A few respondents noted that improving efficiency would give farmers and crofters more time to focus on other environmental improvements. Some argued that improvements to biodiversity, soil health and animal management and health would indirectly reduce emissions in the long-term.

"While capital equipment for improving animal feeding and health and to improve performance of grassland or crops or the use of smart farming/precision farming technologies in the arable and livestock sectors would drive production efficiencies, such improvements to production would almost certainly also reduce GHG emissions intensity." – NFU Scotland

No capital funding for primarily business measures

Another theme, advocated mostly by a groups of respondents who submitted a similar response, was that capital funding should not be used for items which primarily benefit business economically. Some argued that capital funding should deliver value for public money and should be limited to actions which deliver positive outcomes for the environment; other items could be funded through loans, for example.

Reflecting the diversity of Scottish agriculture

Some called for capital funding to reflect the variety of farm types in Scotland. They expressed concerns that smaller or remote businesses could miss out on capital funding as they do not need, or cannot implement, the larger items which are eligible for funding. A few criticised the items available under the Sustainable Agriculture Capital Grant Scheme (SACGS) pilot, or felt the list of capital items in the consultation paper was insufficient; they called for a range of items to be funded to suit different farms, crofts or areas.

Ensuring positive impact

Concerns about the effectiveness of funding schemes were raised by some respondents. A small number argued that funding should not be used to add climate-friendly items to farms with high carbon emissions and cited the importance carbon audits. Small numbers each commented that funding should be considered holistically and that actions to improve the envionment should not be counter-intuitive.

Q2.2: What role should match funding have in any capital funding?

Q2.2 asked respondents to consider how match funding could be used alongside capital funding to farm businesses - where government asks businesses to match a proportion of capital funding that is being invested. Across the 251 open comments, key themes were the eligibility for, and benefits and challenges of using, match funding.

Match funding eligibility and rates

The most frequent theme in responses to Q.2.2 was the eligibility criteria and rates of match funding on offer. Several respondents proposed the level of match funding requested of businesses should be based on the extent of public benefit or business gain. For example, businesses contribute less match funding for investments which have a public good or positive environmental impact. But, if a business benefits from support, they should contribute a greater proportion of match funding i.e. invest more themselves.

Some suggested specific match funding rates (e.g. 50% was often mentioned) or using the intervention rates in SACGS. However, several called for means tested match funding or for match funding proportions to be tapered. There were requests for preferential rates or exemptions for: new and younger farmers; those with limited existing financial resources; farms in less favoured or remote areas; and those on small farms. A few argued against funding wealthy or large farm businesses, estates and landowners, including charities.

To avoid excluding those with limited financial resources, allowing alternatives to money as a way to meet match funding requirements was advocated by some. Suggestions included time, labour, machinery use and tonnes of carbon sequestered.

"Where funding comes with clear public benefits - for protecting and enhancing biodiversity and fostering equity among food producers, rural communities and consumers - the percentage of required match funding should be minimal or it should be possible to make contributions 'in kind', for example, through a clear commitment of dedicated hours. Alternatively, an agreement to deliver clear project outcomes (e.g. for local food production or carbon sequestration) should be sufficient."- The Landworkers' Alliance

Other themes related to eligibility, each raised by small numbers, included:

• A call for match funding for on-farm processing, retail development and funding 'beyond the farm' gate to support short supply chains.
• Incentivising collective or whole landscape-based applications within the match funding process to encourage greater farmer co-operation.
• The need to increasingly use match funding over time to maximise uptake and ensure a Just Transition to net zero.
• Ensuring those who have already taken steps towards sustainable farming practices are not disadvantaged in the funding process.
• Requests for a simple, accessible application process to reduce the administrative burden, and associated costs, on time-pressed farmers.

Benefits of match funding

Benefits of match funding was the second most prevalent theme in responses. Match funding was seen to encourage businesses to grow and develop in more sustainable ways, accelerate the adoption of new technologies, improve efficiency and therefore help realise environmental policy objectives.

Some felt that requiring recipients to match government funding was more likely to lead to "buy in" and commitment to change. Other less common points raised included match funding: being a reasonable requirement or should be expected; offers best value for public money; allows more businesses across the sector to be supported; ensures a measured approach from businesses looking for funding; and evidences the viability of the business, and therefore, the security of the investment.

"I think it is an important part of the offering. There will be more bang for your buck with others contributing a share and more likely to have a positive outcome if "they have skin in the game". Anyone knowing that they have to contribute will be driven to make it work"- Individual

Challenges and barriers

Another recurring theme reflected concern that match funding could exclude, or be a barrier to uptake for, crofters, tenant farmers, small-scale farms, new-entrant farmers and those farming in remote or less favoured areas. It was felt these groups could experience: a lack of financial resources to raise match funds; a disproportionate administrative burden of applying for match funding; their investments being unlikely to lead financial returns; and cash flow issues preventing participation in a payment-in-arrears funding system. A few suggested ways to ensure all farm types are included in the funding process. These included: allowing 'payments in kind' to serve as match funding as outlined above, free support to assist with grant applications, and payments of grants up-front. More favourable eligibility criteria were also requested, such as low minimum land area thresholds and accepting applications from those farming unproductive land. One individual cited the New Entrant Capital grant scheme as a good example a grant scheme with effective targeting.

Some argued against using match funding more generally. They cited the additional burden that raising match funds would place on farmers, landowners, and charities, at a time when many are struggling financially. Using match funding could then deter uptake of capital funding and, therefore, hinder the transition to more sustainable farming practices.

Alternatives to match funding

While most responses to Q2.2 considered match funding between government and farmers, a small number commented on other match funding arrangements. Banks and financial organisations were suggested as providers of funding, and while private, producers and retailers were mentioned it was often unclear if they were seen as the provider or recipient of match funding. A few also suggested alternative or additional financial solutions to meet policy objectives. These included: low-interest government loans, carbon credit markets, tax relief measures, longer-term maintenance funding, community ownership schemes and regulatory reform.

Conditional use of match funding

Several respondents expressed a view that it is justifiable to ask farm businesses to raise match funding when the proposed investment will benefit the business financially, for example through improved efficiency. However, respondents argued that investment in items or actions whose sole purpose is to reach environmental outcomes should be funded entirely through capital funding i.e. a farm business should not provide match funds if they do not benefit financially.

Price increases

Three respondents at Q2.2 and one at Q2.1 described concerns that a 'shopping list' of funded items could encourage excessive demand and to suppliers inflating prices.

"The problem with any capital funding is that a grant encourages the supplier to increase their prices and therefore after the grant fund the farmer ends up contributing the same as if there was no grant funding" – Agrovista UK Ltd.

Q2.3: What capital funding should be provided to the sector to assist in transformational change, particularly given that in many instances the support called for was directly related productivity or efficiency, that should improve financial returns of the business concerned?

Q2.3 explored which types of items or actions should receive capital funding. A total of 266 open comments were received.

The relationship between funding and productivity, efficiency, and profit

A recurring theme across responses to Q2.3 was the complex relationship between funding, productivity and efficiency, and transformational change. Mixed views were expressed by respondents. Several called for funding to boost productivity, efficiency, and profits, noting gains in these areas would also lead to a reduction in greenhouse gases. Others argued that capital funding was particularly important for farm businesses if investing in environmental measures would lead to reduced productivity or profit, returns on the investment would take time, or where the cost or risk of taking action is prohibitive.

Conversely, several respondents argued against funding for, or solely for, productivity and growth. Some were critical of 'productivity' and 'efficiency' as goals, arguing that definitions of these concepts should be more environmentally orientated. Some respondents felt that funding should be associated with a long-term, sustainable view, promoting future economic and environmental resilience, rather than short-term gains.

"If the changes called for are indeed transformational, then producers will be expected to make significant changes to their systems of production which may well deliver better productivity and efficiencies in the longer term but will involve a significant degree of risk and mistakes will be made in the shorter term. This should be borne in mind when setting the funding rates." – Individual

Environmental outcomes

The second most prevalent theme was that capital funding be provided for measures or items that help deliver positive environmental outcomes. Respondents referenced general environmental benefits as well as specific outcomes which may result from funding such as: reducing greenhouse gas emissions, peatland restoration, rewilding and habitat restoration, increased biodiversity, less pollution and improved water quality.

"So much support needs to go to many, many businesses to drive the action needed for our industry to fulfil the enormous potential we have to reduce carbon emissions, increase carbon draw down / sequestration and support our environment / wildlife (flora, fauna & water environments). These changes will lead to improved profits, better nutrient content of foods, better flooding and drought mitigation by soils but the paradigm shift is required at such speed that the whole shift needs good management and exceptional funding." -Individual

Land, soil, and crop management

Capital funding to support changes to land, soil and crop management was the third most common theme. Some respondents specifically requested support to improve soil health through, for instance: changing crop establishment systems; improving drainage, nutrient-content or soil structure; or making more efficient use of or reducing chemical fertilisers. They argued these soil health improvements would contribute to other positive changes including carbon sequestration, improved biodiversity, increased land productivity, and assisting with flooding and drought mitigation.

Funding to increase tree, vegetation and hedgerow planting or support agroforestry was requested by some respondents. Some also asked for financial support to enable the transition to more sustainable overarching farming systems. Whole farming, regenerative, organic and agroecological approaches were suggested.

Resources for technology, equipment, and infrastructure

Another prevalent theme across comments was calls to fund technology, equipment, and infrastructure. Common examples included incentivising the adoption of smart or precision technology such as GPS systems and robotics which could reduce, pesticide and fuel use. One requested funding for vertical farming technologies. Others requested finance to increase on-farm renewable energy use or generation, or to enable the recycling of farm by-products via anaerobic digestion or biomass energy systems, for instance. A variety of other items requested included: animal handling equipment, direct drilling tools, weeding equipment, fencing, food/waste storage solutions, food processing equipment, sheds, bridges, drainage, roads and outdoor access infrastructure. A small number suggested funding for converting farm equipment to attain a lower carbon footprint, or to support reuse and repair approaches as a greener alternative to buying new. A few cautioned about investing in machinery, infrastructure or technology not yet proven in the Scottish context, or that may leave farmers in debt, or have a detrimental impact on the land.

Funding award process and delivery

Many respondents gave suggestions for the process of awarding and delivering funding. These included: measuring clearly defined outcomes to ensure accountability regarding funding impacts; using match funding or loans instead of capital funding in instances where businesses benefit economically from funding; and tapered funding rates in favour of items with clear environmental benefits. A few proposed incentivising collective or joint funding applications to encourage farmer co-operation.

Views on how funding should be targeted were mixed. While a few felt it was important that early adopters of positive change were not disadvantaged in funding allocation, others felt funding should be targeted at mid-range or late adopters to drive change. In comments, the disadvantages of a one-size fits all approach to awarding funding, given the diverse geographies and farming sectors in Scotland, was highlighted. A small number drew attention to the need to ensure the supply of capital items could meet demand, or that increased demand did not inflate prices.

Livestock management

A recurring theme was for funding to support changes to livestock management, which could benefit the environment, increase productivity and efficiency, and improve animal welfare. Examples included funding for: increased pasture-raised animals; better pasture management; the provision of handling or mob grazing equipment; methane inhibitors; improved breeding practices; testing to reduce medication use; improved manure management and feed storage solutions; free-range poultry and bee keeping equipment. A small number suggested funding to aid the transition away from livestock farming, either by reducing livestock numbers or by moving to plant-based farming.

Food production and supply

Several respondents requested funding to transform food production and supply. Some called for more localised food production to reduce food miles, increase the nutrient value of food or bolster food security. Others advocated for green supply chain investments, such as green haulage, or the financing of collaborative, shorter or direct-to-consumer supply chains. Some comments suggested 'beyond the farm gate' funding to encourage on-farm or local processing (including local abattoirs) or support supply chain businesses. One respondent highlighted how such measures would not only reduce carbon emissions but enable farmers and producers to better compete with multinationals and command a fairer price for their produce. Other suggestions included funding to strengthen Scotland's agricultural food and drinks sector, introducing food labelling according to biodiversity or food mile criteria, and encouraging more sustainable consumer choices.

Less commonly mentioned themes

A list of less commonly mentioned themes is included at Appendix B. These included funding for proposals which have social benefits, the need to support diversification and funding for education and training.