Overview of costs and benefits associated with regulation in Scottish agriculture

4. Best practice in the implementation of regulations in agriculture in other countries

4.1 Performance of the overall regulatory environment

The World Bank Group has devised the Doing Business index, which ranks countries according to how conducive their regulatory environment is to the operation of business (see: www.doingbusiness.org). The index averages the country's score on 10 topics: Starting a Business; Dealing with Licenses; Employing Workers; Registering Property; Getting Credit; Protecting Investors; Paying Taxes; Trading Across Borders; Enforcing Contracts; Closing a Business. The rankings in table 4.1 are from the Doing Business 2009 report, covering the period June 2007 to June 2008. Although many of these regulations fall out with the scope of this report and are not specific to the agriculture sector, it does provide an overview of the overall regulatory environment across all industries.

Table 4.1 Doing Business ranking and Admin Burden reduction target for selected countries
	Doing Business Ranking a	Admin Burden Reduction Target b
Singapore	1	Not known
New Zealand	2	No target
USA	3	Not known
Hong Kong	4	Not known
Denmark	5	25% by 2010
UK (central Govt)	6	25% by 2010
Ireland	7	Not known
Canada	8	Not known
Australia	9	25%by 2011
Norway	10	No target
Sweden	17	25% by 2010
Belgium	19	Targets to be set in 2009
Germany	25	25% by 2011
The Netherlands	26	25% by 2011
Austria	27	25% by 2010
France	31	25% by 2012
Portugal	48	Not known
Spain	49	30% by 2012
Italy	65	25% by 2012
Czech Rep.	75	20% by 2010
Poland	76	25% by 2010
Argentina	113	Not known
Brazil	125	Not known
a. www.doingbusiness.org b. http://www.administrative-burdens.com

The UK's high placing in the Doing Business rankings would seem to suggest that the UK (and Scotland, which shares much of the UK's business legislation) has a relatively benign regulatory environment. This is consistent with Le Roux et al (2008), which looked at environmental regulations specifically, who concluded that Scotland has "...a high quality regulatory regime, low costs of compliance for industry and a mixture of moderate to high environmental quality".

Also shown in table 4.1 are the admin burden reduction targets. Many of the national targets are broadly in line with the Commission of the European Communities (2007) Action Programme For Reducing Administrative Burdens target of a 25% reduction by 2012. The admin burden reduction targets should be treated as indicative as they do not all use the same criteria, e.g. in terms of policy areas included, or what the reduction is measured against, i.e. relative to a baseline year or counterfactual scenario. Also, it is worth noting that the admin burden reduction targets focus on regulatory quantity but tell us little about regulatory quality, a complex concept based on notions of good governance (for further discussion of regulatory quality see Radaelli and De Francesco (2005)).

4.2. Regulation of agriculture

A recent study (Defra 2007) of the admin burdens in European agriculture found that:

• a short list of regulations are consistently burdensome for some farmers across Europe: Single Payment Scheme, Livestock Identification & Movement, Welfare of Farmed Animals, Nitrates, Veterinary Medicines, Pesticides, Rural Development / Agri-environment schemes, and Pollution Prevention and Control.
• Inspections, keeping records and reading guidance were areas identified as being particularly burdensome.
• In general, it seems that 'newer' regulations are perceived to be more

burdensome than those which have been on the statute books for some time. This is likely to be because of the burdens associated with familiarisation with new regulations, or with changes to regulations.

• There is clearly a lot of variability in administrative burdens across Europe. Within a country, the impacts of regulation will vary according to farm size and type; between countries, levels of burden will be affected by implementation by that government, and by regional differences in agriculture sectors.
• Overall, responses from old Member States indicate higher levels of administrative burden than responses from new Member States, especially with respect to inspections and reading guidance. This may be due to different implementation in new Member States, or to use of procedures which have had the benefit of seeing best practice in other Member States.

The last point may partly explain the frequent complaint that the regulation of agriculture in Scotland is more stringent (and therefore costly) than elsewhere. For example, the NFUS have argued that "There is a strong perception, and evidence, that European Directives are implemented more strictly in the UK than elsewhere in the EU and, in some cases, more strictly in Scotland than elsewhere in the UK" (Scottish Parliament 2006). While this is a common perception, the evidence that Scotland, or the UK, consistently "gold plates" regulation relative to other EU members is not conclusive (MacLeod and Bevan 2007). The results presented in Defra (2007) would seem to indicate that the administrative burden on UK agriculture is low compared to some other countries (see table 4.2). However, these results should be treated with some caution due to differences in the cost measurement methodologies. In addition the evidence is mixed and much of the debate rests on anecdote or business surveys of limited rigour. While it is possible to highlight individual regulations that have been implemented more stringently, the overall picture is less clear.

Table 4.2 Estimated Admin Cost in Agriculture (billion euros)

	Admin cost (bn euros) 1	Admin cost (bn $ 2007)	GDP (ppp $bn 2007) 2	Agriculture % of GDP 2	Value of agriculture ( PPP $bn 2007)	Admin cost as a % of agricultural production
Denmark	0.14 (2004)	0.20	203.7	1.5	3.1	6.5%
UK	0.21 (2006)	0.29	2137	0.9	19.2	1.5%
Sweden	0.07 (2004)	0.10	334.6	1.4	4.7	2.1%
Netherlands	0.43 (2002)	0.63	639.5	2.1	13.4	4.7%
Czech Rep.	0.64 (2005)	0.91	248.9	2.8	7.0	13.1%
1. Defra 2007, p7; Figures in brackets are the years of measurement
2. CIA World Factbook ( https://www.cia.gov/library/publications/the-world-factbook/)

While the regulatory regime in the UK imposes costs on business, these need to be viewed in light of the significant benefits it provides to business by, for example: protecting the natural resource base; strengthening the competition regime; protecting consumers; encouraging people to take paid employment; and reducing the costs of accidents and ill health (Keter 2004, p43).

4.3 Comparison of the regulation of agriculture in Scotland with New Zealand and Denmark

Two brief country studies were undertaken to identify any examples of best practice that might be applicable to Scotland. New Zealand and Denmark were chosen as they are similar to Scotland in terms of population, but provide interesting contrasts in terms of their approach to regulation and the structure of their farming sectors. The case studies are in Appendix C, and key features are outlined in table 4.3.

Table 4.3 Comparison of Scotland, New Zealand and Denmark

		Scotland	New Zealand	Denmark
Population		5,116,900	4,115,771	5,484,723
GDP ( PPP2: US$ bn 2007)		172	106.9	203.7
GDP per capita ( PPP: US$ 2007)		33,680	26,200	37,400
GDP by sector (%)	- agriculture - industry - services	1.2 26.8 72	4.3 26.9 68.8	1.5 26.0 72.4
Main agricultural sectors		By value of output (net of subsidies): Beef, dairy, barley, potatoes, sheep and lamb.	Sheep, beef, dairy	Barley, wheat, potatoes, sugar beets pork, dairy products.
Key regulatory issues		Marginal profitability, managing change in uplands, loss of biodiversity, diffuse water pollution in some areas	Concern about environmental regulations limiting competitiveness, key areas relate to climate change and access to water. Also concern about new employment and animal welfare regulations	N and P pollution of the North Sea; drinking and surface water becoming polluted from animal wastes and pesticides
Are RIAs used?		Yes	Yes	Yes
Estimated admin burden for agriculture (billion US$ 2007)		0.04** (est.)	No data available	0.20bn*
Admin burden reduction target		No target	No target	25% by 2010
Is SCM Used?		No	No, but has been piloted	Yes
Sources: The World Factbook 2007 ( CIA), Scottish Economic Statistics 2007; Economic Report on Scottish Agriculture 2006, Wikipedia *Defra 2007 **Assuming that admin burden is proportionate to GVA, and the GVA of Scottish agriculture is 14% of UK (Defra 2007; Scottish Government 2008)

Summary of New Zealand v Scotland Comparison

New Zealand's regulatory environment is widely considered to be of a high standard. This is frequently commented on by business people operating in multiple jurisdictions and endorsed by international surveys such as the World Bank study Doing Business. New Zealand's ranking of second in the World Bank survey continues into 2008. The New Zealand government recognises that quality of regulatory frameworks and the regulatory environment play a key role in determining business growth, productivity and innovation. The government is committed to the continuous improvement of the regulatory environment as a key part of achieving New Zealand's economic goals. The perception that New Zealand has a high quality regulatory environment makes it an useful country to study in order to identify examples of best practice.

The policy development process is broadly in line with the approach used in Scotland. Much work has been done recently in reviewing the process and looking for ways to establish the burden on various sectors and streamline regulations where possible.

Quality Regulation Review 2007

The New Zealand government completed a review of the quality of New Zealand's regulatory frameworks, the findings of which were released in September 2007.

Key messages from business community that came out of the review are listed below:

• Duplicated or excessive reporting requirements as well as requirements that are considered to be overly complex (the strongest frustrations arise when there is no explanation of the purpose for collecting information)
• Inconsistent treatment across regions, particularly at the local authority level, resulting in a lack of "fairness" and impressions of either over- or under-enforcement
• Regulation that is disproportionate to the real level of risk or that disregards prior track records (e.g. in relation to licensing requirements)
• Absence of safe harbours in the regulation resulting in a lack of certainty over what is required to reach compliance with the law
• A need for more effective guidance or information to assist compliance
• Regulation and regulators perceived as acting as barriers to business development and growth
• Delays and uncertainty in the processing of regulatory requirements

In going forward, the New Zealand Government will use the experiences from the Review to inform the future work programme on quality regulation. The government's approach will focus on four key objectives:

1. Ensuring the quality of new regulation
2. Improving the quality of existing regulation
3. Developing a culture of good regulatory practice
4. Building the capability of regulators and business

The need to consider the stock and flow of regulation, as well as all stages of the regulatory lifecycle was highlighted in the review. A whole government approach would be needed to address concerns about the cumulative impact of regulation on business. This will require agencies to be innovative and open-minded in their approaches to working together with other stakeholders. Agencies will need to be aware that f ixes for poor regulatory outcomes are diverse, with no "one size fits all".

The importance of i mplementation will also be emphasised as a number of the issues raised by business during the Review related to the way regulations are implemented, rather than the regulation's purpose or design.

The government intends to build on the work already undertaken in the review and develop a programme of annual sector studies. The studies will focus on one sector or one piece of cross-sector legislation each year. They will provide an in-depth analysis of the key regulatory issues affecting sectors, including the productivity, innovation and global connectedness of firms, and focus on finding solutions to these issues.

In addition to sector studies, the government intends to build on other initiatives undertaken during the Quality Regulation Review. This will include considering ways that the RIA requirements could be further enhanced. A website dedicated to business consultation on compliance costs could prove to be a useful resource ( http://www.businessconsultation.govt.nz/). One area that will be considered carefully is the process around the development of policy proposals for the implementation, monitoring and review of regulatory proposals.

The Ministry of Economic Development is also looking at a two year trial of a Business Cost Calculator to quantify the compliance costs of regulation. The Business Cost Calculator is similar to the SCM, but includes a wider range of costs (and includes policy costs as well as admin costs) and focuses more on ex ante estimates of costs for new regulations. The Business Compliance Cost Calculator was launched by the Government in April this year to help government departments assess the cost of new regulation before it is implemented. The calculator will also help improve consistency in the way regulatory decisions are made and create opportunities for greater international comparison on key pieces of regulation. The government is considering whether a fast track legislative vehicle could be used as a permanent mechanism for quickly remedying failures in regulatory frameworks.

Regulatory Impact Assessment

A review of the RIA and RIS process was conducted in 2008. The report suggested that there were weaknesses in terms of problem definition, assessment of the size of the issue and analysis of the costs and benefits. Consultation is a strength and it was also found that there was more analytical substance behind proposals than was being communicated.

New Zealand Case studies

The feedback from the major reviews suggests that while there is room for improvement, the regulatory environment for businesses is in fairly good shape. There are however concerns that the burden on farmers is increasing in the form of government regulations as well as industry and market requirements - particularly in the environment area. Three areas were looked at more closely: water issues, animal transport and Tb.

Water issues

By international standards, freshwater in New Zealand is both clean and in good supply, however some aspects are getting worse in areas dominated by intensive land use.

Under New Zealand's Resource Management Act 1991 ( RMA) regional councils prepare of objectives, policies, and methods to achieve integrated management of the natural and physical resources of the region.

Under the RMA regional councils prepare integrated management plans - this is a work in progress in terms of water issues and as the case study illustrates different areas are at different stages.

The case studies also highlight the degree of industry involvement in self regulating or partnering government initiatives through programmes such as the clean stream accords and 10 by 10.

Measures being considered and implemented include land use controls to decrease nutrients entering waterways. Rule changes to make resource consents for farming a requirement is under consideration in some areas. Requirements to have nutrient budgets and on-farm mitigation measures for example riparian planting, bridging and fencing are part of the tool box.

A key concern for farmers is how farming is classified under the RMA as this will dictate what activities are permitted and whether a resource consent is required. Resource consent applications can be both expensive and take a long time to complete depending on the particular consultation requirements. The RMA was cited in the quality regulations review as a potential barrier whereby a single objector, who can be a direct business competitor, can block a development. In working at the regional level, there can be issues of consistency of measures with councils using different approaches and classifications. This is avoided to an extent under the Scottish regulations for NVZs given that areas are either vulnerable or not. However, the New Zealand system does allow flexibility in who is regulated, and how, to best fit the particular circumstances of a water catchment area.

Bovine Tuberculosis (Tb)

The New Zealand system for TB control appears to be effective and farmers recognise the need and benefits of compliance. The key difference in the New Zealand case is the non-protected status of wild vectors, primarily possums, in spreading infection. There are close to 130 infected cattle herds, and 18 deer herds. Some industry lobby groups are pushing for an eradication strategy and it is claimed that this has a 95 percent probability of success. Currently, all deer and cattle are given a Tb status tag. The frequency of testing and movement restrictions depend on Tb risk in the area.

Scottish regulation is comparable with England's but is more stringent in terms of post movement control. The nature of the devolved relationship means that another layer of complexity is added as Scotland doesn't have full control of enforcement. In New Zealand, the Animal Health Board has taken back responsibility for vector control programmes from local councils to allow for a more coherent national strategy.

Animal Transport

Animal welfare in New Zealand is governed under the Animal Welfare Act 1999. The Act makes specific provision for the transport of animals. The person in charge of a vehicle in which an animal is being transported is responsible for ensuring that the animal's welfare is properly attended to and, in particular, that proper and sufficient food and water are supplied.

Codes are developed under the Act and set out the recommendations and minimum standards. A voluntary Code for the Welfare of Animals Transported within New Zealand currently exists and this will be replaced with a new code of welfare for animal transport, currently being developed. The current code contains detail on loading densities, food and drink requirements, journey duration, rest periods and stock handling amongst other things. Codes expand on the principles of the Act. Recommended best practices in the codes are not legally binding, but minimum standards are - failing to meet a minimum standard can support a prosecution under the Animal Welfare Act 1999.

The Ministry of Agriculture and Forestry is trying to develop the code to be as outcome based (i.e. animal based) as possible. The focus is on fitness of the animal for that particular journey and what consideration should be given, rather than prescriptive details such as maximum journey times, or food and water requirements. It is important to note that this is possible within New Zealand given that travel times and climatic extremes are minimised.

New Zealand has an outcome-focused and scientifically-based domestic animal welfare systems that are highly-regarded internationally. An outcomes based approach allows for flexibility that can mean the most effective ways can be employed to avoid excessive costs for industry, however these approaches can also be difficult to monitor.

A 2006 New Zealand proposal to establish the EC/New Zealand Animal Welfare Cooperation Forum, to formalise and improve information exchange on key animal welfare matters formalised this relationship. The Forum is very much an "equal partner/mutual benefit" arrangement.

Lessons for Scotland

The number and range of reviews undertaken in recent years highlights the New Zealand government's commitment to ensuring an open and fair commercial environment and enhanced performance of the economy.

The reviews contain recommendations that can be applied universally. Although some of the recommendations may appear to be common sense, the value lies in finding out from the business community, and government agencies, where the key issues are and provide focus for implementing remedial measures.

The recommendations will also lead to real benefits throughout the regulation process - from clearer guidance on design and assessment, to more efficient communication with affected parties. Benefits in the implementation of regulations should also increase as duplication is reduced and systems streamlined.

The outcome of work regarding the use of the standard cost model will be of interest to other countries. A more user friendly, targeted tool that is scalable depending on the economic impact of any proposed regulation would be a useful tool in compiling a RIA and assessing the change in compliance cost burden over time. Other innovations such as the two year trial of a business compliance cost calculator and the business consultation website could be applied in other jurisdictions.

Scotland v Denmark comparison

Denmark and Scotland share many similarities. They are small, temperate, northern European countries. They have populations of about 5 million, and market economies with high GDP per capita. Agriculture has played an important role in the economic development of both countries, but now represents <2% of economic output. They also differ in important respects; for example Scotland's landscape is dominated by upland areas that limit agriculture to mainly pasture based systems. In contrast, Denmark is a low lying country well suited to arable production. This is reflected in the main agricultural outputs (see table 4.3). Production in Denmark is dominated by the pig and dairy sectors and the water pollution associated with these is one of the challenges facing their regulator. The strengths and weaknesses of Scottish agriculture compared to Danish are outlined in table 4.4.

Table 4.4 SWOT analysis of Scottish agriculture compared to Danish (adapted from Bevan 2007)
Strengths	Weaknesses
-Good farm structure compared to Denmark. -An agricultural brand image, especially regarding beef, that is world class. -Reputable assurance systems that provide high product status, though Danes set exceptional standards.	-The relatively low inherent productivity of much of Scotland for purely agricultural purposes. -Productivity at the farm level that is well behind the standards set by Denmark. -The structure, balance and conduct of most of the Scottish agri-food industry has understandably been shaped by the old CAP, Scotland is probably at the beginning of the adjustment process. The Danes, with their focus on pigs and dairy, are much better adjusted. -Compared to the supply chain efficiency set by the Danish pig industry, most Scottish supply chains appear anarchic
Opportunities	Threats
-There is considerable room for improvement. Pillar 2 (especially Axis 1) funding to improve the competitive position of Scottish agriculture is paramount. A light regulatory touch will also be important. Allowing Scottish agriculture to adjust to market signals will be important. Good use of technology will be key.	-Further CAP reform that leads to the reduction of Pillar 1 support for production agriculture is understandably viewed as a major threat. -Further trade liberalisation (globalisation) resulting in reduced protection for Scottish beef producers. Competition from Irish beef imports is also an issue. Even the Danish pig industry has concerns about the potential of the South American pig industry. -Because of the single market, Scotland should not lose competitiveness against Denmark as a result of regulation.

Bevan (2007) concluded:

"It is perhaps Denmark that Scotland should be most trying to emulate agriculturally. The Danes are basically very market orientated. Yet they also appreciate the limitations of market forces in developing globally competitive products, and the power of collaboration in overcoming those limitations."

In terms of the overall performance of their regulatory landscape (across all business sectors), Denmark sits in fifth place in the 2008 Doing Business rankings, just one above the UK (see table 4.1). It shares the same target for reducing admin burden as the UK (25% by 2010), and was an early adopter of the SCM as a means of measuring admin costs. In terms of SCM usage and admin reduction targets, it differs from Scotland, which is adopting a mainstreaming approach to improving regulation (see chapter 5).

Administrative Costs

In 2004 Denmark used the SCM to measure the administrative cost of government regulation. This exercise estimated the administrative cost of agricultural regulation to be 0.14bn euros (Defra 2007). This is equivalent to 6.5% of agricultural production (see table 4.2). In contrast, the UK had the lowest admin cost of the five countries in the study at 1.5%. This difference is likely to be due to differences in regulation and in mix of farming types. However, some caution should be exercised when making comparisons between countries as:

"agriculture is difficult to define in this context. The nature of the methodology for reducing administrative costs is that it measures costs based on the activity of a Ministry or government department, rather than on a business sector. The distinction between activities is different in different countries" (Defra 2007, p7).

The measurement exercise revealed that 80% of the administrative costs were wholly or partly the result of international obligations (mainly EU) (Danish Ministry of Food, Agriculture and Fisheries 2005) compared to 67% in the UK (Defra 2006). In Denmark, the following five orders were responsible for 71% of the total administrative costs:

• Order no. 821 of 23 July 2004 concerning direct support to the farmers based on the single payment scheme. Information obligations in this regulation totals yearly administrative costs of 311 million DKK.

• Order no. 676 of 16 July 2003 concerning the agricultural use of fertilizer and concerning vegetation during the plan period from 2003 to 2004. The yearly administrative costs for this order total 198 million DKK

• Order no. 892 of 9 October 1996 concerning keeping of log etc. involving yearly

administrative costs of 86 million DKK.

• Order no. 181 of 19 March 2003 concerning payment of premium for livestock. The yearly administrative costs that are ascribed to the Directorate for Food, Fisheries and Agro Business total 72 million DKK. Another 72 million DKK have been attributed to the Ministry of Family and Consumer Affairs, as a number of other information obligations in the regulation are of veterinary origin.

• Order no. 492 of 7 June 1994 concerning spray journals and inspection of spray equipment in agriculture. The information obligations of this order totals yearly costs of DKK 64 million."

(Danish Ministry of Food, Agriculture and Fisheries 2005, p5)

While this is similar to the situation in the UK, where most of the admin costs result from a small number of regulations, comparison with table 2.5 (see Appendix D) shows that there are differences in the regulations responsible for the admin cost.