Overview of costs and benefits associated with regulation in Scottish agriculture

Appendix B Case Studies of regulation in Scotland

1. Scottish Statutory Instruments 2004 No. 518 The Common Agricultural Policy Schemes (Cross-Compliance) (Scotland) Regulations 2004

In order to receive direct farm support, farmers and crofters must comply with a range of requirements covering environmental protection, public, animal and plant health plus animal welfare. Cross compliance comprises of two sets of regulations - Statutory Management Requirements ( SMR) and Good Agricultural and Environmental Conditions ( GAEC) - with the former covering rules previously in existence. GAEC, however, established new rules for managing soils and protecting landscapes. The Scottish Executive Environment and Rural Affairs Department ( SEERAD) completed a brief RIA in 2005, but this did not assess the costs and benefits of cross compliance. No RIA was deemed necessary for the amended regulation introduced in 2007. However, a number of studies assessing the impact of cross compliance have been undertaken in recent years. These studies generally conclude that cross compliance has a very limited cost for farmers (and crofters), even though the cost of meeting the underlying legislation may be significant. Indeed for many farmers the administrative cost of CAP related form filling has eased for most farmers where a country has decoupled income support from production. A 2007 study for the EC based on five countries, not only confirmed the low cost of cross compliance, but also looked at options for further simplifying associated paperwork. Stakeholders also voiced limited concerns about cross compliance with the exception of duplication of inspections. However, the establishment of SEARS has significantly improved the inspection process. While immediate concerns with cross-compliance legislation is limited, the need for such regulation long term should be based on the direct benefits that arise from this regulation.

1.1 Introduction

The mid term review of the CAP in 2003 resulted in a major change in farm support across the EU. With the aim of helping EU agriculture become more market orientated, member states were given the opportunity to decouple subsidy support from the beginning of 2005. For Scottish farmers and crofters, the change meant that support income previously gained on livestock numbers and crop areas were combined into a Single Farm Payment Scheme. However, the Energy Crop and Protein Crop Schemes were retained and a new livestock scheme (the Scottish Beef Calf Scheme) was introduced. Some farmers and crofters also continued to receive direct support through the Less Favoured Areas Support Scheme.

In return for receiving money through these schemes, Scottish farmers and crofters have to comply with a range of requirements. Cross compliance was established by the Scottish Statutory Instrument 2004 No. 518 - The Common Agricultural Policy Schemes (Cross-Compliance) (Scotland) Regulations 2004. A small number of changes to the original legislation were introduced in The Common Agricultural Policy Schemes (Cross-Compliance) (Scotland) Amendment Regulations 2007, which came into force in March 2007. Importantly, many of the requirements gathered under the cross compliance regulations were already in existence.

In short, two sets of regulations were contained in the combined legislation.

The Statutory Management Requirements ( SMR) covered a number of existing rules that farmers and crofters already had to meet on; the environment, public and plant health, animal health and welfare, and livestock identification and traceability. The specific SMRs are:

1. Conservation of wild birds;
2. Protection of groundwater against pollution;
3. The use of sewage sludge in agriculture;
4. Protection of water in Nitrate Vulnerable Zones ( NVZs);
5. Conservation of flora and fauna;
6. Identification and registration of animals - pigs;
7. Framework for the identification and registration of animals;
8. Identification and registration of beef animals regarding the labelling of beef and beef products;
   
   8a Identification and registration of animals - sheep and goats;
9. Restrictions on the use of plant protection products;
10. Restrictions on the use of substances having hormonal or thyrostatic action and beta-agonists in farm animals;
11. Food law
12. Prevention and control of transmissible spongiform encephalopathies ( TSE);
13. Control of foot-and-mouth disease;
14. Control of certain animal diseases;
15. Control of bluetongue;
16. Welfare of farmed animals - specific requirements for calves;
17. Welfare of farmed animals - specific requirements for pigs;
18. Welfare of farmed animals.

The Good Agricultural and Environmental Conditions ( GAEC) sets out a number of rules for managing soils and protecting the landscape and habitats, even if land is not being used for agricultural production. The individual conditions are set out under four broad categories.

A. Soil erosion:

1. Post-harvest management of land;

2. Wind erosion;

3. Soil capping;

4. Erosion caused by livestock;

5. Maintenance of functional field drainage systems;

6. Muirburn code.

B. Soil erosion:

7. Arable crop rotation standards;

8. Arable stubble management.

C. Soil structure:

1. Appropriate machinery use.

D. Minimum level of maintenance:

10. Undergrazing;

11. Overgrazing;

12. Ploughing pasture of a high environmental or archaeological value;

13. Protection of rough grazings/semi natural areas;

14. Application of lime and fertiliser on rough grazings/semi natural areas;

15. Field boundaries;

16. Non-productive landscape features

17. Historic features;

18. Encroachment of unwanted vegetation

To ensure that farmers and crofters meet their cross compliance obligations, 360-370 farm businesses are inspected annually. This number is based on targeting 1% of farms inspected for Pillar 1 schemes and 1% of farms inspected for Pillar 2 schemes, with efforts made to combine inspections where possible. The Scottish Government Rural Payments and Inspections Directorate, the Scottish Environment Protection Agency ( SEPA), Scottish Natural Heritage ( SNH) and the State Veterinary Service ( SVS) complete these inspections.

Where a farmer or crofter fails to comply with SRM or GAEC, a reduction in support income may be applied, even if the non-compliance occurs on land not used to draw down support. In addition, failure to meet many of these rules may also result in prosecution and fines. Therefore, cross compliance largely acts as a positive incentive to farm properly rather than address specific issues of market failure.

While farmers and crofters that do not draw income under one of the direct income support schemes, are not subject to GAEC, they are still obliged to meet the SRM.

1.2 Analysis

This section reviews a number of studies undertaken to assess the impact of cross compliance regulations in Scotland and the UK.

Scottish Regulatory Impact Assessments

SEERAD completed a Scottish RIA in 2005, though this aimed to assess the overall impact of the reform of the CAP rather than specifically cross compliance. A sub-assessment of the Scottish Beef Calf scheme was annexed to this RIA. No RIA was deemed necessary for the amendment regulation introduced in 2007.

Consequently, no RIA covering the introduction of cross compliance in Scotland has been completed. Subjective assessments of the costs and benefits of cross compliance are given in tables 1 and 2.

Table 1 Subjective assessment of the costs of cross-compliance ³

	Action	Scale of cost
Admin	Co-operation with inspections	Low
Policy

Table 2 Subjective assessment of the benefits of cross-compliance

	Action	Scale of benefit
Private	Compliance with good farm practice resulting in potentially lower costs and extra revenue.	Low - medium
Social	Potential improvement in public goods provided by agriculture "over and above" that provided by regulations that underlie cross-compliance.	Uncertain

EC administrative cost study (2007)

The EC commissioned Ramboll Management to assess the administrative burden on farms caused by the 2003 reform of the CAP. The study examined the impact on five countries - Denmark, France, Germany Ireland and Italy - which implemented the reforms using a range of models. Of these the model used by Ireland (full decoupling based on historical payments) is probably closest to that applied by Scotland.

The overall conclusion was that the extra paper work caused by cross compliance was very limited for all the countries examined. Of the five countries, cross compliance was most onerous for Danish, yet only accounted for 4.3% of administrative costs in 2006. For Irish farmers the figure was 2.46%, while for Italian farmers it was just 0.3%. ⁴

The report also considered options for simplifying paperwork and the findings are being used to help formulate proposals in the CAP health check.

Defra study on cost of farm administration (2005)

Defra commissioned Promar International to investigate how the reform of the CAP agreed in 2003 would affect English farmers' paper work. An important part of this study was an assessment of the administrative time needed to satisfy cross compliance requirements.

The report found that English farmers will benefit from a significant fall in form filling because of the replacement of a range of subsidy application forms with the a "single farm payment" application. However, in the initial couple of years the demands of meeting cross compliance conditions would involve extra paperwork, though this would not be onerous. Moreover, the demands of cross compliance were expected to be much lower in subsequent years.

However, the change in administrative effort would vary between farm types. Beef farmers would benefit most markedly given the number of schemes previously applicable. While the unsupported sectors - pig, poultry and horticulture - faced extra paper work mainly because of cross compliance demands.

Impacts of cross compliance on farm costs (2007)

The Institute for European Environmental Policy completed this report to examine how cross compliance might affect farm costs based on experience in a number of EU countries. In short, the report argues that in most cases any increase in farm costs is not attributable to cross compliance, but the meeting of the underlying legislation (eg, the Nitrates Directive). Only in the case of the GAEC standards, which previously did not exist or were not compulsory for farmers to comply with, could extra farm costs be attributable.

Based on evidence collected in this report, it was concluded that the majority of farmers in the countries examined, faced only minimal costs due to cross compliance.

Cross-Compliance - A Policy Options Paper (2007)

Cumulus Consultants Ltd completed this report to provide the Land Use Policy Group, which represents UK statutory conservation, countryside and environment agencies, with a policy options paper for cross compliance. Essentially, the report examined how cross compliance could be developed by examining the experience to date in a number of EU countries.

The report stresses that the impact of cross compliance is still difficult to gauge because it was only implemented at the beginning of 2005. Consequently, the basis for evaluating potential future developments was limited. Furthermore, the potential impact of the CAP health check also added a degree of uncertainty to an options evaluation.

The report also included a section identifying the most common breaches of cross compliance. Animal identification and registration was the most common breach, though compliance with the nitrates, habitats, groundwater and sewage sludge directives also proving problematical.

Stakeholder Feedback

Stakeholders expressed limited concerns about cross compliance. Farmer representatives, on the whole accepted that cross compliance simply formalised good farming practice. And given the potential risk to direct payments, especially the single farm payment, farmers had a strong incentive to comply.

The main concern from the farming industry involved inconsistency of standards by inspectors regarding overgrazing. However, it was recognised that on issues like overgrazing, some differences between inspectors has to be expected because of the criteria was so subjective. It was also apparent from feedback that SERPID was generally helpful in both the organisation of visits and attitude during inspections. The inference was that every effort was made to guide and help farmers rather than simply impose penalties. Nevertheless, many farmers were fearful of the inspection process and the potential loss of income that might result.

The recent establishment of Scotland's Environmental and Rural Services ( SEARS) is a positive step towards addressing many of the concerns regarding inspections.

By comparison, a key environmental stakeholder highlighted that the current enforcement regime heavily favoured the farmer on environmental matters. Given that environmental neglect can often only be proved over years, the current onus on proof within a year that a farmer has caused incontestable harm, is difficult to achieve. Consequently, only in clear cut cases such as poisoning of birds of prey, have fines resulted.

As to the long term future of cross-compliance, one stakeholder questioned what would happen (to cross-compliance) if the Single Farm Payment was phased out or detached from land. Assuming that support was switched mainly from the Single Farm Payment (Pillar 1) to Pillar 2 schemes, the inference is that farmers, crofters and landholders would be directly paid for contracting to provide the public goods that society wanted. With the retention of the polluter pays principle (ie, prosecution) for anybody who fails to meet the standards set out in the legislation that covers environmental protection, public, animal and plant health plus animal welfare.

1.3 Conclusions

Has a RIA been done?

One Scottish RIA was completed by SEERAD in 2005, though this aimed to assess the overall impact of the reform of the CAP rather than specifically cross compliance. A sub-assessment of the Scottish Beef Calf scheme was annexed to this RIA. No RIA was deemed necessary for the amendment regulation introduced in 2007.

Consequently, no RIA covering the introduction of cross compliance in Scotland has been completed.

Does the RIA quantify costs?

Not applicable.

Does the RIA quantify benefits?

Not applicable.

Does the RIA demonstrate that benefits exceed costs?

Not applicable.

Data required to improve assessment of costs and benefits

Not applicable.

Recommendations for improvement

Concerns with cross compliance regulations are limited. Farmers and crofters generally accept the objectives of cross compliance as consistent with good farming. Moreover, they have a strong incentive to comply because failure to comply may reduce their direct subsidy support. The recently announced move to streamline inspections by collaboration of agencies under SEARS has also been welcomed by the agricultural industry. Environmental stakeholders also broadly welcome cross compliance, though note that environmental damage is very difficult to prove within the timescales currently allowed.

It is with regard to the future development of cross compliance that a study specific to the needs of Scotland may be warranted. Critically, this study must address the costs and benefits directly attributable to cross-compliance, not those caused by any underlying legislation. Such a study will help inform the debate on how future support should be balanced between Pillar 1 and Pillar 2.

Does it meet the Better Regulations guidelines?

Transparency: High. Farmers and crofters recognise the regulations as indicated by the low level of non-compliance.

Accountability: High. While the basis of cross compliance regulations come from the EU, their design and implementation by the Scottish Government is recognised. Stakeholders were consulted as part of this process.

Proportionality: High. The cost of cross compliance is very limited and even where breaches are identified, farmers and crofters often have the opportunity to correct the breach before action is taken. Indeed, the overall administrative burden resulting from the 2003 CAP reforms has decreased for many farmers and crofters. Further simplification is expected as part of the current health check.

Consistency: Medium. The main cross compliance regulations were introduced in 2005 with a number of additions added since. The framework is now well established and provides a basis for how the CAP may evolve in future. Specifically, if the intention is to transfer funding from direct support (Pillar 1) to paying farmers and crofters for providing public goods and services, the basis now exists.

Targeting: Medium. In principle, because the potential loss of direct support is a key reason for compliance, individuals not in receipt of such payments may not comply.

References

Common Agricultural Policy Single Farm Payment Scheme and Support Schemes (Scotland) Regulations 2005 - Regulatory Impact Assessment. Scottish Government.

Cumulus Consultants Ltd (2007). Cross compliance: a policy options paper. A report for the Land Use Policy Group completed in association with the Institute for European Environmental Policy ( IEEP).

Farmer, M (2007). The possible impacts of cross compliance on farm costs and competitiveness. Institute for European Environmental Policy.

Promar International (2005). Impact of single payment scheme on farm administration (2005). Defra.

Ramboll Management (2007). Study to assess the administrative burden on farms arising from the CAP. Directorate-General for Agriculture and Rural Development.

Wills, B & Manley, W (2006). Costing cross-compliance. RICS research paper presented at RROTS rural research conference Wadham College, Oxford.