Scottish Rural Development Programme 2014-2020: Evaluation of Capital Grant Schemes: Annex A - Sector overview

1. Programme and Policy Context

Introduction

This section sets the scene for the evaluation, including consideration of the capital grant schemes within the context of the development of the Scottish Rural Development Programme (SRDP) 2014-2020, its focus, priorities, strategic alignment, and finance. The information presented in this chapter is based on a review of key background documentation, and in particular the SRDP programme document.

The section then considers the transition period to 2024 as well as Scottish Government (SG) ambitions to provide support for farming and food production in Scotland to become a global leader in sustainable and regenerative agriculture from 2025 onwards.

Rural Development Programme finance

Rural Development Programmes (RDP) in the European Union (EU), including the SRDP 2014-2020, were co-financed by the:

• EU through funding available to member states from the European Agricultural Fund for Rural Development (EAFRD) which was part of European Structural and Investment Funds (ESIF).^[1] The EAFRD was funded through the EU CAP Pillar II which supported rural development initiatives including agri-environment schemes, payments to compensate farmers and crofters in areas of permanent disadvantage,^[2] skills and training, woodland creation, diversification, and community projects.
• domestic funding from national and regional Managing Authority (MA) or Responsible Authority (RA) – the SG in the case of the SRDP 2014-2020.

The SRDP 2014-2020 had an approved budget allocation of around £1.3 billion, of which:

• £20 million was originally indicatively approved for the New Entrants Schemes, of which the New Entrants Capital Grant Scheme (NECGS) was one of.
• £20 million was originally indicatively approved for the Small Farms Grant Scheme (SFGS) and Crofting Agricultural Grant Scheme (CAGS).^[3]

While the European Commission (EC) approved and monitored RDPs, decisions regarding the selection of projects and the granting of payments were handled by the MA.

Policy context

The SRDP 2014-2020 operated under a strategic framework aligned to the EU 2020 Strategy – this outlined three thematic priorities or objectives to help focus the Strategic Interventions (SI) enabled through the use of European funds, comprising:

1. Smart growth - developing an economy based on knowledge and innovation.

2. Sustainable growth - promoting a more resource efficient, greener, and more competitive economy.

3. Inclusive growth - fostering a high-employment economy delivering social and territorial cohesion.

Flowing from the EU thematic objectives were the EU rural development priorities, which directed the focus of funding through the EAFRD towards priorities for rural areas. The six EU priorities for rural development which guided the types of activity that could be funded over the programme period to 2020 were to:

1. foster knowledge transfer and innovation in agriculture, forestry, and rural areas.

2. enhance the viability and competitiveness of all types of agriculture and promote innovative farm technologies and sustainable forest management.

3. promote food chain organisation, animal welfare and risk management in agriculture.

4. promote resource efficiency and supporting the shift toward a low-carbon and climate resilient economy in the agriculture, food, and forestry sectors.

5. restore, preserve, and enhance ecosystems related to agriculture and forestry.

6. promote social inclusion, poverty reduction and economic development in rural areas.

The EU priorities for rural development were broken down further into 18 specific Focus Areas – the three capital grant schemes were programmed under Priority 2 and Focus Area 2A.

Priority 2: Farm Viability and Competitiveness.

Focus Area 2A: Improving the economic performance of all farms and facilitating farm restructuring and modernisation.

Target indicator: T4: Percentage of agricultural holdings with RDP support for investments in restructuring or modernisation.

Target value 2023: 16.35%

There was also an expectation that CAGS would contribute to Priority 1 and Focus Area 1A and 1B.

Priority 1: Knowledge Transfer, Cooperation and Innovation

Focus Area 1A: Fostering innovation, cooperation, and the development of the knowledge base in rural areas.

Focus Area 1B: Strengthening the links between agriculture, food production and forestry and research and innovation.

The cross-cutting objectives were also set for RDPs: innovation; environment; and climate change mitigation and adaptation.

At a Scotland level, the SRDP 2014-2020 thematic objectives were developed to align with EU as well as Scotland’s policy focus and priorities, most notably:

National Performance Framework (NPF) outcomes: all SG policy continues to align with the overarching NPF which sets out the direction and ambition for Scotland – “to create a more successful country, with opportunities for all of Scotland to flourish, through increasing sustainable economic growth”.

Priority 2: Farm Viability and Competitiveness.

(Original) National Outcomes:

We are better educated, more skilled, and more successful, renowned for our research and innovation.

We realise our full economic potential with more and better employment opportunities for our people.

We live in a Scotland that is the most attractive place for doing business in Europe.

The latest refresh of the NPF (2018) places a more explicit focus on ‘increased wellbeing, and sustainable and inclusive economic growth’. The original National Outcomes were subsequently revised to encompass a broader range of National Outcomes and indicators to measure Scotland’s performance in both economic and wellbeing terms. This provides a more holistic picture of the extent to which Scotland’s economy and society is resilient and thriving.

Scotland’s Economic Strategy (2015): the SRDP 2014-2020 firmly and clearly sat within the priority of ‘inclusive growth’ which aimed to create opportunity through a fair and inclusive jobs market and place and regional cohesion to provide economic opportunities across all of Scotland.

The ambition was to deliver more equal growth across the country, including rural areas. Scotland’s Economic Strategy recognised the:

• diverse nature of Scotland’s rural economy and the challenges rural communities face relating to their geography (for example, accessibility, connectivity) and their fragility.
• important contribution of rural areas to Scotland’s economy, including being home to significant activity in sectors such as tourism, farming, fishing, food and drink, and renewables. As well as an identified need for continued support to enable the future growth of key sectors and those sectors identified as critical to local and regional economies.
• the importance of supporting businesses in all sectors, as well as recognising the contribution of targeted business support for industries including farming, given its long history, tradition, and presence at the heart of rural communities.

Process for developing the SRDP 2014-2020

SG undertook various consultation exercises to inform the development of the SRDP 2014-2020, including:

• a broad consultation on the underpinning principles for programme in May 2013.
• a follow-on consultation in early 2014 which set out proposals for how SG expected to use the funds, including an outline of proposed priorities, schemes, and budget allocations.

The main purpose of the ex-ante evaluation (June 2014)^[4] was to contribute to the development of the SRDP 2014-2020 – ensuring alignment with both Scotland’s national needs and wider EU priorities, as well as informing delivery, monitoring, and evaluation. It included a Strategic Environmental Assessment (SEA) which referred to the wider New Entrants Scheme and helped to shape the final SRDP 2014-2020.

The SEA identified the potential for the New Entrants Scheme to deliver a range of environmental benefits highlighting, however, that the scope of these benefits would depend on how support is targeted (for example, focusing on cleaning-up poorly managed holdings may result in the most positive environmental outcomes). To ensure that the environmental benefit of the scheme was maximised, the SEA recommended that a specific mechanism be utilised to ensure that poorly managed holdings were addressed. This included wider implications for related schemes in terms of training and information provision, for example, through the Knowledge Transfer and Innovation Fund and Advisory Service schemes.

The Scottish Government have highlighted how it would be challenging to target New Entrants support according to the SEA recommendations. However, it may be the case that New Entrants support is enhanced through the activities of the Advisory Service (for, example, specific input on business planning). In addition, capital support for agriculture will be targeted on crofts, small farms and new entrants as opposed to large scale, existing enterprises. As a result, New Entrants support may end up targeting the types of holding that are in need of support (for example, in terms of improved systems, infrastructure, technology).

SRDP 2014-2020

After extensive negotiations the SRDP 2014 to 2020 was formally approved by the EC on 26 May 2015. The Agriculture and Rural Economy (ARE) Directorate within SG is the MA for the SRDP 2014-2020 – this role spans policy lead for the programme and overall responsibility for the AIR.

The SFGS now sits within the Agricultural Holdings and Women in Agriculture Team, NECGS sits with the Agricultural Development Team and CAGS sits within the Crofting Team in the Agriculture Policy Division.

Management and delivery

The SRDP 2014-2020 implemented a diverse range of economic, environmental, and social measures to support the sustainable development of rural Scotland, including the three capital grant schemes which were managed by the Rural Payments and Inspections Division (RPID) whose key responsibilities are:

• payment of CAP scheme grants and subsidies - around £650 million per annum.
• inspection of agricultural land and livestock to ensure compliance with regulations.

RPID has around 600 staff across 16 area offices throughout Scotland providing a range of services (Table 1.1) – some in the offices cover administration and policy development, while others out in the field update maps or conduct inspections.

Table 1.1: Area offices by region

• Highlands and Islands (H&I)
  • Benbecula
  • Golspie
  • Inverness
  • Kirkwall
  • Lerwick
  • Oban
  • Portree
  • Stornoway
  • Thurso
• South Western Scotland
  • Ayr
  • Dumfries
  • Hamilton
• Eastern Scotland
  • Galashiels
  • Perth
• North Eastern Scotland
  • Elgin
  • Inverurie

The capital grant schemes were just a small part of what the RPID area offices do. In relation to the schemes, RPID headquarters were responsible for: marketing and promotion of the grant schemes; producing application forms and guidance; appraisal scoring criteria; making grant payments; and identifying projects for post completion inspection.

The area offices were responsible for: undertaking eligibility checks; assessing grant applications; liaison with clerk of works regarding applications for agricultural buildings; issuing grant award letters; processing grant claims; and undertaking validation inspections.

Geographic focus

The geographic focus for the SRDP 2014 to 2020 was rural areas in Scotland^[5] - defined as:

• home to some 982,000 people or 18.5% of the total Scottish population.^[6]
• comprising 95% of the total Scottish land area.^[7]
• being made up of significant agricultural land - 85% is currently designated as Less Favoured Area (LFA) (remote and constrained rural areas).^[8]

Four priorities were agreed for the SRDP 2014-2020, and these align closely with or map onto the EU priorities as follows.

Table 1.2: EU and SRDP 2014-2020 Priorities

EU priorities

• Enhance the viability and competitiveness of all types of agriculture and promote innovative farm technologies and sustainable forest management.
• Promote food chain organisation, animal welfare and risk management in agriculture.

SRDP priorities: Protecting and enhancing natural assets.

EU priorities

• Foster knowledge transfer and innovation in agriculture, forestry, and rural areas.
• Promote resource efficiency and supporting the shift toward a low-carbon and climate resilient economy in the agriculture, food, and forestry sectors.
• Restore, preserve, and enhance ecosystems related to agriculture and forestry.

SRDP priorities: Adapting to, and mitigating, climate change.

EU priorities: Promote social inclusion, poverty reduction and economic development in rural areas.

SRDP priorities: Sustainable economic growth.

EU priorities: Promote social inclusion, poverty reduction and economic development in rural areas.

SRDP priorities: Vibrant and sustainable economic communities.

The Programme operated under the Rural Development Regulation (RDR).^[9] The regulatory base for a wide range of physical investments is Measure 4 - Article 17 (Investments in physical assets) of Regulation (EU) No 1305/2013 of the European Parliament and of the Council on support for rural development by the EAFRD (see box below for more information).

Physical investments should be carried out to improve the economic and environmental performance of agricultural holdings and rural enterprises, improve the efficiency of the agricultural products marketing and processing sector, provide infrastructure needed for the development of agriculture and forestry and support non-remunerative investments necessary to achieve environmental aims. Investments could be supported in four key areas: improving the overall performance of the farm; processing, marketing, development of Annex I farm products and cotton (the output of the process can be a non-Annex-I product); infrastructure related to the development of agriculture and forestry; and purely environmental improvements ("non-productive" investments) linked to the achievement of agri-environment-climate objectives.

In relation to the three capital grant schemes, under Measure 4, SG provided capital funding support for agriculture, focussed on crofting and small farms, in particular to address issues identified in the strengths, weaknesses, opportunities and threats (SWOT) analysis for Focus Area 2A within the ex-ante evaluation such as:

• developing small agricultural holdings into economically viable businesses and improve their efficiency with respect to mitigating climate change and enhancing the environment.
• developing virtual and physical infrastructure.

There have been various amendments to the SRDP 2014-2020 Programme Document over the programme delivery period. This has included editorial amendments, amendments to some Measures to provide clarification for the support offered, some updates to State Aid conditions, revisions to the co-financing rate and to the financial plans. These modifications have resulted in a decrease to the overall indicative Programme budget due to a reduction in the SG contribution, while still allowing the full allocation of EU funds to be accessed.

The last payment run to draw down EC co-financing for SRDP 2014-2020 was 20 December 2023. This was to meet timescales for the final EC drawdown of funds by 29 December 2023. The Programme is now closed.

Transition period to 2024 and beyond

SG set out its proposals for future agriculture funding in its ‘Stability and Simplicity’ consultation (June 2018) which set out the approach for future rural policy until 2024. This consultation focussed on:

• what might be done to provide stability in the period immediately after Scotland might have to leave the EU in 2019.
• short-term simplifications that could help current claimants of CAP-related support and improve or enhance the delivery of policy goals.
• how best to support and integrate agriculture into the broader rural economy over the transition period and beyond.
• how pilot projects might be developed and used to test different approaches.

Among other things, it also sought views on:

• creating a defined transition period of approximately five years to 2024 with minimal changes to current funding and payments in the earliest stages.
• how to reduce the administrative burden on a range of steps in the payments system and process, including inspections, mapping and scheme rules.
• how to protect and enhance long term future support for Less Favoured Areas.
• proposals to streamline and synergise some of the Pillar II schemes.
• where SG should be piloting new approaches, expanding on activity we want to continue into the future and testing fresh ideas and innovation.

Following EU exit, SG had a period where some schemes, such as Less Favoured Area Support Scheme (LFASS) were totally funded using domestic funds from 2021 onwards. For other schemes such as CAGS, Agri-Environment Climate Scheme (AECS), etc. SG had a period where contracts agreed pre-Brexit were still co-funded whereas contracts agreed from 2021 onwards were funded using 100% national funds. SG is currently delivering the proposals set out in the ‘Stability and Simplicity’ consultation to continue the majority of CAP schemes in the transition period to 2024.

The SFGS continued issuing contracts until February 2023 (formally closed to new applications in November 2022), and the last payments (still to be made) are part of the transition period to 2024. In partnership with the Scottish Agricultural Organisation Society (SAOS) and agriculture, small holding and food industry stakeholders, SG set up an industry-led steering group to co-design a replacement fund to the SFGS.

The Small Producers Pilot Fund aims to help individual small producers increase their resilience and enhance their contribution to the rural economy. The revenue based fund will improve access to training, skills, further processing, and food supply chains – helping producers enhance their value and become more sustainable.

The NECGS is not in the transition programme as the budget was exhausted. A range of support for new entrants continues to be funded by SG. These largely focus on training, advice, knowledge transfer, freeing up public land, and a policy group governing these outputs and thinking creatively about existing and future new entrant support.

The Crofting national development plan (2021) touches on the establishment by the SG of a CAGS Focus Group to look at possible improvements that could be made over the 2021-2024 period, and beyond. Following an internal review of the scheme, the Group explored three areas, including:

• access and eligibility criteria - whether the scope of the CAGS should be widened to include those crofters who are not engaged in agricultural operations, and whether the list of eligible works should be extended.
• preparatory work required by the crofter before submitting an application – applicants need to provide at least two competitive quotes when submitting an application (three when total costs exceed £10,000). The Group considered whether standard costs should be introduced as this would do away with the need for quotes.
• payment process and timings - the CAGS payment (like other capital grant schemes) is processed once the project is complete, and the Group considered advanced payments. For example, providing a percentage of the grant to the applicant in advance of the work being carried out, with the remainder paid to the applicant on completion.

Some of these issues were also raised during the evaluation process.

It is our understanding that some changes that the SG plan to make to the CAGS will require legislative change and will require time. A commitment has been made to widening the scope of the CAGS to allow those crofters who are not engaged in agricultural activities to apply, and to explore the introduction of standard costs.

Feedback to our farmer and crofter grant recipient survey confirms support for standard costs as well as advanced payments. Advance payments, however, runs contrary to the guidance in the Public Finance Manual which sets out the statutory, parliamentary and administrative requirements on the proper handling and reporting of public funds.

As touched on in the grant recipient survey feedback, while farmers and crofters identify a need for revenue support in the future, much of what they need funding for is in line with what was eligible for support via the capital grant schemes.

Any future grant support schemes also need to be considered in the context of the SG Agriculture and Rural Communities (Scotland) Bill.^[10] This outlines how government aims to reform support for farming, food production, forestry and rural (and island) communities, in line with its ambitions for the Vision for Agriculture (March 2022). There may be different forms of support as the mechanisms which are developed as part of the Agricultural Reform Programme take shape.

We will transform how we support farming and food production in Scotland to become a global leader in sustainable and regenerative agriculture – Vision for Agriculture (2022).

Work is ongoing to develop a framework to underpin Scotland’s future agriculture support regime from 2025 onwards – with a focus on supporting farmers, crofters and land managers maintain thriving rural and island communities. The support framework will deliver: high quality food production; climate mitigation and adaptation; nature restoration; and wider rural development.

The resulting five-year Rural Support Plan will provide details and priorities for farming, forestry, and rural development support, and will give Scottish Ministers the power to form a new support framework to replace the current CAP and to provide financial and non-financial assistance.

It will also be important to keep a watching brief on progress with the Rural Delivery Plan which is being led jointly by the Deputy First Minister and the Cabinet Secretary for Rural Affairs, Land Reform and Islands as part of a wider Ministerial Working Group.