The Less Favoured Area Support Scheme (Scotland) Amendment Regulations 2019: EQIA

The Less Favoured Area Support Scheme (Scotland) Amendment Regulations 2019: EQIA

Title of policy/ practice/ strategy/ legislation etc.	The Less Favoured Area Support Scheme (Scotland) Amendment Regulations 2019
Minister	Fergus Ewing
Lead official	John Kerr
Officials involved in the EQIA	name	team
	Kirsten Beddows Shirley Graham Michael Wilson Harriet Houlsby Frederick Foxton John Stuart	SRDP SRDP SRDP RESAS RESAS RPID
Directorate: Division: Team	Agriculture and Rural Economy (ARE) ARE: Agriculture and Rural Development Scottish Rural Development Programme (SRDP)
Is this new policy or revision to an existing policy?	Revision to existing policy

Screening

Policy Aim

The policy objective for the Less Favoured Area is to maintain funding for 2019 and 2020, at least at 80% of the current funding levels, with a desire to reach 100% of current levels if possible. The policy objective of this amending regulation is to have the legal powers to deliver the maximum amount possible through the Less Favoured Area Support Scheme (LFASS). Any balance of funding will be delivered separately to LFASS.

Regulation (EU) No 1305/2013 ("the Rural Development Regulation") provides for an area based support scheme for Areas Facing Natural Constraint (ANC). If Member States do not move to an ANC scheme they are permitted to continue Less Favoured Area (LFA) support for 2019 and 2020 but with reduced payment rates and the introduction of degressivity.

The purpose is to amend the Less Favoured Area Support scheme (LFASS) to ensure compliance to allow for the continuation of LFASS for payment years 2019 and 2020.

Under European Union Rural Development Regulations, people farming in areas facing natural or other specific constraints may be eligible for an annual income support payment. LFASS provides this in Scotland. The scheme funding is intended to support the following aims for less favoured areas in Scotland:

• allows farmers and crofters to continue to run viable businesses
• avoids the risk of land abandonment
• helps maintain the countryside by ensuring continued agricultural land use
• maintains and promotes sustainable farming systems

LFASS is part of the Scottish Rural Development Programme (SRDP). The SRDP 2014-2020 was subject to consultation and as part of the development process a Business and Regulatory Impact Assessment, Strategic Environmental Assessment and Equalities Impact Assessment were prepared.

The SRDP operates under a broad strategic framework agreed by the European Union (EU), termed the EU 2020 strategy. This outlines thematic objectives to focus the strategic interventions. Linked to these are Scotland's National Performance Framework outcomes. This work is still applicable but we note recent revisions made to Scotland's National Performance Framework, which is mapped to the United Nations Sustainable Development Goals, and provide an update on the National Outcomes that LFASS will support:

Communities - We live in communities that are inclusive, empowered, resilient and safe.

Culture - We are creative and our vibrant and diverse cultures are expressed and enjoyed widely.

Economy - We have a globally competitive, entrepreneurial, inclusive and sustainable economy.

Environment - We value, enjoy, protect and enhance our environment.

Fair Work and Business - We have thriving and innovative businesses, with quality jobs and fair work for everyone.

Poverty - We tackle poverty by sharing opportunities, wealth and power more equally.

Who will it affect?

LFASS supports around 11,300 farming and crofting businesses in less favoured areas of Scotland. 85% of agricultural land in Scotland is classified as being less favoured area with support worth in the region of £65.5 million per year.

The reduction to payment rates for scheme years 2019 and 2020, and the inclusion of degressivity, is required by EU law. All eligible applicants will continue to receive a minimum payment of £385, as this is not being reduced. The minimum payment would apply to around 1,480, or 13%, of applicants.

Payment Rates

• Scheme year 2019 at a maximum payment rate of 80% of the 2018 rates
• Scheme year 2020 at a maximum payment rate of 40% of the 2018 rates or €25/hectare

The Rural Development Regulation sets a minimum payment rate of €25/hectare. The SRDP uses a set exchange rate of £1 = €1.20. For 2020, when payment rates are reduced to 40%, one rate (of £13.64) falls below €25/hectare. To meet the Rural Development Regulation minimum payment rate this would increase to £20.83 (€25). The introduction of the €25/hectare minimum payment would affect approximately 4,000 applicants with land of standard quality and grazing category C+D, reducing the impact of payment reductions in 2020.

No applicant would be impacted negatively by the introduction of the €25/hectare minimum payment and the application of it does not have a redistribution effect as no money is taken from one group to give to another. However the overall share of LFASS spend by category would change as a result.

It is noted the minimum payment change will only support the better quality LFA land. The overall policy intent and the Cabinet Secretary for the Rural Economy's aim is to achieve 80% of LFASS funding in 2020. Utilising the minimum payment will help to mitigate the funding cut and will be used in combination with other measures to help achieve the overall aim.

Degressivity

EU regulations stipulate that "Member States shall provide for degressivity of payments above a threshold level of area per holding" from scheme year 2019. The intent is to avoid over-compensation and to address extreme cases linked to very large holdings by reducing payments based on the size of the eligible area.

To achieve this the eligible land an applicant has over 4,000 hectares will be reduced by 10% for the purpose of calculating LFA support. The eligible land an applicant has over 10,000 hectares will be reduced by 25%. The relevant reduction is apportioned across each grazing category. The threshold is calculated with reference to eligible land as adjusted for the stocking density restriction.

• Less than 4,000 hectares payment on 100% of eligible hectares then
• 4,000-10,000 hectares payment on 90% eligible hectares then
• More than 10,000 hectares payments on 75% of eligible hectares.

Guidance on this is available on the scheme website. The individual LFASS recipients who will be impacted by degressivity (less than 1%) will be individually contacted once they have been identified following their claim submission for 2019.

There will be a financial impact on farmers and crofters who apply for LFASS funding due to the payment rate changes and the inclusion of degressivity. If the revision to the policy was not made the scheme would not be compliant with EU law and would have to cease. An unexpected end to LFASS would have an impact on applicants which could cause business volatility which would run the risk of land abandonment, socio-economic and environmental impacts in the less favoured areas of rural Scotland.

LFASS provides support to around 11,300 farming businesses.^[1]

In some cases LFASS is a significant proportion of their subsidy:

• For around 14% of farming businesses who receive LFASS, LFASS makes up 50% or more of their subsidy (including Pillar One payments)
  • This has a particular impact on those with the status "Very Fragile", for 20% of whom LFASS makes up 50% or more of their subsidy^[2]
  • Shetland is the most impacted region, where for nearly 30% of farming businesses, 50% or more of their subsidy is LFASS^[2]
  • For Enterprise Mix, the most affected group is 1.35 at 21%. This may suggest that mixed cattle and sheep farming would be the most affected by loss of LFASS ^[2]
• The average farm in Scotland has a Farm Business Income (FBI) of around £33,000 (above rural Scottish average), of which LFASS makes up around £4,500
  • LFA Sheep farms would be impacted more than most – the average LFA Sheep farm has a Farm Business Income of around £23,000, of which around £14,000 is LFASS^[3]

For some, this may even lead to farming businesses becoming unviable, or reduce incomes:

• Considering LFASS as proportion of FBI, farms at risk could be LFA Sheep (62%), LFA Cattle (31%) and LFA Cattle and Sheep (33%)^[5]
• Considering FBI, farms at risk could be Sheep and Cattle in North Eastern and West Central Scotland^[4]

Because LFASS is based on hectares (ha) of LFA land, it is likely to have more impact on farmers working on less productive land – and in Scotland this is a larger proportion of land than in most UK regions.

This is reflected in a survey conducted by National Farmers Union of Scotland. The body surveyed members who received LFA support in 2018 when the case was made for a derogation from Council Regulation (EU) No 1305/2013. Respondents expressed concern about the potential loss of direct LFA support and the impact it could have on businesses, particularly those with sheep and cattle. Those respondents also mentioned the potential for stock reduction in an effort to retain business viability.

It is noted the demography of rural Scotland differs from that in urban areas (see Stage 2) but as LFASS eligibility is land based and 85% of agricultural land is classified as being LFA it is not considered to positively or negatively impact on any particular group.

What might prevent the desired outcomes being achieved?

The amending SSI not being laid before a no deal Brexit:

The primary power to allow this amendment is the European Communities Act so, in the event of a no deal Brexit, Scottish Ministers would have no power to amend after 29 March and LFASS payments would cease as the principal Regulation would not comply with EU law.

No action taken resulting in the SSI amendment not being made:

The no deal Brexit scenario outlined above is an imposed deadline but in every possible outcome, including staying within the EU, the amendment is required to ensure LFASS is compliant with EU law or it will cease.

These situations would reduce the level of support provided to rural areas of Scotland and impact on the delivery of the National Outcomes listed previously. It would likely to lead to land abandonment which would result in socio-economic and environmental impacts.