New Rural Support Scheme development - evidence: outputs summary

W5 'Actively Farmed Hectares' - Data analysis and policy considerations

Authors: Steven Thomson, Keith Matthews, Douglas Wardell-Johnson, Dave Miller, and Andrew Moxey

Ref: RESAS/005/21 – W5

The Report is available in the supporting documents of this publication.

Key Points

'Actively Farmed Hectares' (AFH) is a proposal from NFUS that would replace the current 3-region Basic Payment Scheme model with a single 'flat rate' region across Scotland. NFUS's proposal is that all land eligible for AFH payment must attain 0.8 livestock units per hectare (LU/Ha) and that grazing area is scaled back till the AFH threshold is attained.

3.8 million hectares were used to activate entitlements in 2019. After stacking LUs on scaled back land to attain the AFH threshold it is estimated that 1.7 million hectares would be eligible for payment. 89% of the 2019 rough grazing area would be ineligible for the AFH payment. 74% of 2019 recipients did not meet the AFH LU/Ha threshold.

Assuming a £405 million budget (BPS, Greening, and Financial Discipline – excluding coupled payments and Young Farmer Premium) this would result in a AFH payment rate of £236/Ha for all hectares eligible for support. This would lead to a windfall gain of c. £15/Ha for non-grazing land so if crop payments were kept at £221/Ha and AFH payments only eligible for grazing areas the AFH grazing payment rate would increase to £243/Ha.

There is considerable redistribution between individual farms and crofts. 9,403 businesses gain £59.6m (15% budget) from AFH payments whilst 8,325 businesses lose £59.6m. The smallest businesses lose a disproportioned large proportion of their 2019 budget allocation (-£15.3m or 24% reduction) as does Eileanan an Iar (-£0.8m, -18%) with net gains to Sheep & cattle combined (£8.1m, +17%), Specialist dairying (£4.4m +9.4%), and Specialist cattle - rearing & fattening (£4.1m, +4%). In comparison, the 2014 CAP reforms resulted in c. £233m redistribution over the 2014-2019 period amounting to 51% of the budget.

AFH offers an opportunity to move from the current 3 region BPS model and embed the principles of supporting active farming/crofting, whilst removing the need for SUSSS support. However, the term 'actively farmed hectares' may lead to confusion as land ineligible for AFH remains important for grazing and in delivering biodiversity, landscape and climate change objectives.

Various unintended consequences would need to be avoided in a AFH scheme. There would be a need to use an under-declaration penalty to remove any incentive for businesses to dispose of 'ineligible' hectares to reduce the reach of policy and any compliance burden. Quota may be required for AFH to be considered 'blue-box' as there is likely an incentive for some businesses to increase LUs to maximise AFH support payments. Those exceeding 0.8LU/Ha may have incentive to buy entitlements and rent 'naked acres' to use 'excess LUs' to increase AFH payments.

Stocking densities remain a crude metric. Work on improving LU calculations for contemporary Scottish agriculture is required to mitigate legal challenges that may arise out of policy decisions based on existing metrics.