Academic Advisory Panel: FMEC recommendations for Agriculture Reform

Introduction

 

The First Minister’s Environment Council (FMEC) is an advisory board comprising a diverse group of experts from academia, environmental consultancy and international organisations.  Its role is to advise the government on international best practice and keep Scotland at the forefront of tackling the climate emergency and ecological decline.

At the meeting held in May 2025, FMEC made the following recommendations on the agricultural reform program: (i) a greater share of support payments should be targeted at smaller and most vulnerable farming communities, (ii) budget should be targeted towards high environmental benefit schemes, (iii) farmers/crofters and land managers who farm uneconomic and unproductive land should be supported to return the land to nature. Ministers noted FMEC advice and requested a consideration of the recommendations by the Academic Advisory Panel (AAP) for Agriculture Reform Implementation Oversight Board (ARIOB).

This note summarises discussion held during the AAP meeting on 4 July 2025 with Prof Ian Bateman (FMEC member) and Prof Sir Ian Boyd (FMEC co-chair). It should be noted that the suggestions coming forward from FMEC were primarily derived from experience of how pre- and post- Brexit agricultural support operated elsewhere in the UK. Hence the discussion at AAP reflected the difficulties associated with superimposing such an approach on policy developments and decisions already taken in Scotland. The views expressed in the note are those of the academic panel members and do not represent the position of the Scottish Government.

Key Summary

The Academic Advisory Panel (AAP) agrees that:

• effective targeting of agricultural support to meet policy objectives has to simultaneously target multiple goods and services with a few policy instruments and a finite land resource – a major challenge
• there is a need for better targeting of agricultural payments to achieve greater environmental benefits. This is challenging due to IT systems limitations, higher administrative costs, and geographic variations
• small farmers and crofters face challenges of relatively higher costs for compliance with policy requirements
• significant public benefit may arise from larger and wealthier land managers exploiting their economies of scale to deliver value for money from agricultural support linked to public goods
• all farmers face challenges from climate extremes that will increase over time
• djustments to the Scottish Agricultural Reform Programme could address the issues of improving environmental outcomes of farming and value for money for taxpayers, taking account of particular needs of the Scottish sector

The Panel recommends the following:

• consider agricultural support schemes that explicitly separate and balance economic, environmental, and social objectives, ensuring alignment with the Land Use Strategy and the Good Food Nation (Scotland) Act 2022

• determine how the balance of support payments can be enhanced for Tiers 3-4 over Tier 1, to deliver greater value for money for environmental goods and ecosystem services. This can be achieved by gradual capping or tapering of Tier 1 payments to prioritise delivery of public goods, while conducting risk assessments to safeguard farm business viability and ensure a just transition
• evaluate how support process for smaller producers can be simplified including tailored engagement and reduced administrative burden to ensure their continued viability and improving engagement in higher-tier schemes
• explore support models for farm business resilience against climate extremes and rising pest/disease threats, using international exemplars
• investigate outcome-based payment schemes, recognising that effective monitoring and improved land parcel classification are critical to their success.
• establish an effective knowledge exchange framework to help farmers and crofters to assess and understand the ecosystem services they deliver and how thesecould be sustained and enhanced. Co-create management pathways with land managers to ensure practical and locally relevant implementation
• investigate possibility to extend support to include ecosystem service delivery, including long-term funding for land restoration and biodiversity management on currently ineligible land
• carry out analysis to redefine current three payment regions to support better delivery of ecosystem services and investigate possibility of moving support in rough grazing regions towards environmental support schemes

Cost efficiency should be a key focus of any agricultural support changes, balancing food production with environmental protection and rural welfare, while clearly distinguishing between social, environmental, and economic objectives. Reduction and reform of Tier 1 payments should enhance value for money for public goods, but risks to farm businesses need to be evaluated. Care should be taken to avoid sudden, major changes to farm support, as the long-term nature of farming means such shifts could destabilise the sector. A just transition is essential. Agricultural policy should be developed in partnership with farming communities to ensure long-term fairness and should align with wider policies like the Land Use Strategy and the Good Food Nation (Scotland) Act 2022.

Farming suffers from weather extremes and these are forecast to increase under climate change, alongside changes in pests and diseases. Supporting businesses against climate risks will be vital for resilience and adaptation. Adjustments in support towards business stabilisation should be explored, recognising the huge variation in farm businesses in Scotland. Such approaches are deployed in other countries, linking farmer and government investment into stabilisation funds.

Linking agricultural payments to measurable outcomes, private sector conditionality and prioritising schemes with clear environmental benefits can help maximise the value of public spending. Payments based on environmental impact should consider context, location, and outcomes. Robust measurement and high-quality data will be essential for monitoring and evaluation of outcomes and providing farm-specific information. A multi layered approach, for example that combines LiDAR, satellite imaging (Copernicus), on-the-ground sensors  (soil sampling, eDNA) will give the best, cost-effective chance of understanding biodiversity and creating predictive models for ecosystem health and function. Soil health monitoring is a particular challenge that must be addressed to provide useful, meaningful, cost-effective information with characterised baselines,  that is contextualised, for example for soil type, and land-use history. Data collection must be matched by refined land parcels classifications beyond current broad categories to reflect management practices, and ecosystem service delivery.

Currently, farm support is tied to active agricultural land use, meaning land restored to nature often becomes ineligible for support payments. The Agriculture and Rural Communities Act 2024 has flexibility to change support structures and redefine agricultural activity. Restoration activities, such as tree planting, can take years to generate income, but provide important public goods. Long-term, stable funding should be considered for farmers who choose to focus on delivering ecosystem services rather than agricultural production. Existing valuable habitats also require active management, for instance to support waders, so biodiversity practices should be integrated across all land including land currently excluded as ‘ineligible’ for agricultural support.

Scotland’s current three payment regions, based on historic production patterns, do not reflect the diversity of farming systems or ecosystem services, limiting targeted conditionalities. These regions should be redefined as (i) rotational arable, (ii) permanent grassland, and (iii) rough grazing. Rough grazing support should move into environmental policy, potentially using Less Favoured Area Support Scheme (LFASS) funds—to better align payments with environmental objectives and land-sparing principles.

Small farms/crofts lack economies of scale, leading to challenges with bureaucracy and capacity for engagement with support schemes (e.g. Tier 3). Therefore, approaches should be considered to support and engage small farmers/crofters using simpler methods and training.

Key discussion points

1. Targeting greater share of support at smaller, and most vulnerable farming communities:

• the Agriculture and Rural Communities (Scotland) Act 2024 sets out overarching objectives of agricultural policy, which include supporting food production, and protecting the environment. These objectives should guide how the agricultural payments are designed. There should be clear distinction between social, environmental, and economic aspects of agricultural policy, with measures to address rural poverty being considered alongside wider welfare policies
• designing targeted payments requires segmenting land managers into categories, which is data intensive and complicated process. Smaller producers face relatively higher compliance costs per unit for administrative work, environmental requirements, and animal welfare standards. These costs can affect the viability of small farms and crofts and may increase the risk of losing small producers from the sector. Small family farms can be particularly exposed to these challenges (the ‘squeezed middle’). Larger farms, on the other hand, may require more workers, which can also influence overall profitability. Flat-rate payments may overcompensate some producers while providing limited incentives for others. Policies could consider adjusting agricultural payments to help address cost differences and support the stability of agricultural businesses of all sizes. While fully customised farm-level plans would be ideal in theory, they are currently infeasible due to limited administrative resources
• specific support for small farmers is important and should be considered as a part of agricultural support, to ensure they remain engaged with government. However, we recognise that ‘small farmer’ is not the same as a ‘poor farmer.’ Research indicates that wealthier smallholders often do not seek farm support due to the administrative burden involved in accessing it. Research should explore the potential routes to support smaller producers and their value for money. Redistributive support would align Scottish Government with EU priorities
• the Panel agrees that hectarage-based agricultural payments, in their current form, are not achieving the best value for money, and deliver limited environmental benefits. However, operational alternatives are limited. The EU eco-schemes are still largely area-based with few exceptions of performance-based payments. The current system would benefit from improvements. This could take the form of a cap on Tier 1 payments, or a tapering of support above a specified farm size. This approach would allow a gradual reduction in Tier 1 payments, opening up the potential to move a larger proportion of the support payments into Tiers 3-4, supporting the delivery of environmental outcomes. This should be considered alongside potential interaction with support for agricultural production
• the conflation of efficiency and equity needs to be avoided in policy making. If some rural residents suffer deprivation, that is best addressed directly via mechanisms other than agricultural or environmental policy, the focus of which should be firmly on least cost provision of desired ecosystem services (including cultural heritage). Some larger or wealthier land managers may be able to exploit economies of scale and/or scope to receive significant public funding in exchange for significant public benefit. Equity concerns about such transfers should be handled via taxation
• relying on calorie counts oversimplifies agricultural production and food system evaluation. Better metrics could include nutritional value, bioavailability, or economic value. Broader considerations like market failures and strategic food security should be integrated into policy design, particularly under Scotland’s Good Food Nation agenda
• flat-rate (undifferentiated) agricultural payments fail to account for the diverse cost structures and behaviours of land managers. This results in overpayment to some and insufficient incentives for others, undermining value for money and policy targeting
• there should be consideration of business stabilisation options to help farmers manage unexpected difficulties or challenges. Enhancing business stability will be increasingly important as farmers face a higher incidence of extreme weather events. For example, the Canadian approach allows farmers to save for the future at attractive (highly subsidised) rates, providing a useful tool for managing risks. AgriStability - Agriculture Financial Services Corporation is based on the principle that farms will be profitable at least some of the time. This type of measure aligns with a policy focus on supporting sustainable businesses by enabling farmers to make sound business decisions

• in general, the largest, most profitable farms are more likely to have identified successors. Care should be taken that significant changes in how support payments are calculated do not negatively affect generational renewal
• better understanding how profit, supplemented by farm support payments, translates into full time salaries is required. It would also be valuable to examine how depreciation and other costs related to substantial farm assets are accounted for. A detailed income analysis of the top 25% of farms receiving the largest share of support payments would help inform the decision-making process

AAP advises:

• investigate the potential for capping or tapering Tier 1 payments, ensuring base support for farms, but allowing funds to be delivered in increasing amounts to Tiers 3-4, meeting the FM’s goal for a 70:30 split (Tiers 1 and 2 : Tiers 3 and 4). Monitoring of outcomes in Tier 3 has to be addressed to support adoption and value for money
• investigate the potential to deliver support for business stabilisation against climate extremes and rising pest and disease threats, exploring international exemplars
• support for small producers should be evaluated and simplified, to meet their challenges for compliance
• avoid sudden, major changes in how farm supports are delivered. A gradual approach to shifting payments towards smaller businesses or environmental outcomes is vital for a just transition that will help farms adapt more effectively to these changes

2. Targeting budget towards high environmental benefit schemes:

• linking payments more closely to measurable outcomes and prioritising support for schemes that deliver environmental benefits tracked against result indicators (e.g. soil health, biodiversity) can help ensure better value for public spending. Support payments also support environmentally friendly farming practices. Reducing these payments could increase environmental pollution, soil degradation, biodiversity loss, and greenhouse gas (GHG) emissions and soil carbon loss due to greater reliance on more intensive, potentially harmful practices, including application of more inorganic fertilisers and pesticides
• agricultural policy should focus on cost-effective delivery of public goods. Additionally, any changes should be developed in partnership with farming and crofting communities and include safeguards to ensure long-term stability and fairness. New proposals should also align with broader policies, such as the Land Use Strategy and the Good Food Nation (Scotland) Act 2022
• outcomes generally take many years to take effect and be evidenced. Paying for modelled outcomes is not very different from paying for actions. Actions are usually based on some form of Theory of Change – an idea of how those actions will lead to the desired outcomes. Using formal models can help make these connections clearer and more dependable, but there will always be some uncertainty involved. A previous AAP Advisory Note on “Potential Delivery Models for Agricultural Payments” should be considered for additional details, including on outcomes-based approaches
• to deliver against environmental goals, the focus should be on linking payments to farm location and the impact of interventions. Farm size is a poor proxy for environmental outcomes. If payments are based on outcomes, these outcomes must be measured accurately, rather than estimated through models alone. Models and other Decisions Support Systems have limitations due to data imperfection and ecological uncertainty. Measuring environmental benefits is complex, requiring collection of high-quality data to support monitoring and evaluation of policy objectives
• ata collection must also be accompanied by a more refined way of describing land parcels in terms of their condition and contribution to outcomes. The current broad land-use categories (arable, grassland, rough grazing) should be expanded to capture variation in relevant land management practices (e.g. stocking rates, regenerative methods) and ecosystem service delivery
• Support for cultural ecosystem services and strategic food production capacity should be given greater consideration and possibly stronger state interventions
• many farmers rely on support payments; without them, some may close, causing job losses and losses of livelihoods. Rapid change in support payments could lead to further unintended consequences of decreased food production, potentially increasing food prices due to lower supply in Scotland, and increasing Scotland’s reliance on imported food. These changes could contribute to rural economic decline, harming local businesses and services, and exacerbate risks of food poverty more widely across Scotland. However, shifting support payments towards environmental benefit schemes can have positive consequences if managed well. These schemes can help address environmental challenges by building climate resilience, discouraging unsustainable  intensive farming on marginal land, while encouraging businesses to become more market-oriented, efficient, and innovative. Effective environmental management is challenging because of its complexity and the need to take an ecosystems view
• the amount of land a farmer or crofter owns or manages inevitably affects the level of support they can receive. However, removing, or capping area-based payments carries risk that large farms shift their focus to producing environmental goods primarily for their own benefit. For example, large landowners could use public environmental support to create high amenity environments that mainly serve private interests. Delivering public goods at scale across Scotland will require close engagement with larger landowners.
• a diverse range of farm sizes and structures is essential for a resilient agricultural sector and for delivering public goods from land use. It is important to ensure that a system targeting environmental benefit schemes continues to support farms of all sizes, particularly in landscape scale activities supported by Tier 3. Larger and wealthier land managers can exploit their economies of scale to deliver value for money from agricultural support linked to public goods
• the practical details of environmental outcome-based payments must be carefully designed. A comprehensive assessment of both expected and unintended consequences is essential. For example, some farms may not be viable if they rely solely on environmental support. Also, anecdotal evidence from other countries shows instances where farmers have cut down healthy forests to replant new trees to qualify for payments. Another example is New Zealand’s carbon trading system NZ ETS, which led to the planting of low quality, unsuitable forests – trees planted in unsuitable locations – ultimately requiring changes to the system
• if we are genuinely in an emergency then a case can be made for radical Defence of the Realm Act type responses (e.g. land acquisition for UK forestry beginning in 1916), or at least greater consideration of regulation, direct state provision and the role of different forms of land manager entities beyond the current incumbents

AAP advises:

• increased investment for Tiers 3-4 payments is required to deliver sustainable and regenerative agriculture. If support budgets are fixed, Tier 1 payments need to be reduced over time and funds shifted to Tiers 3-4
• assessment of the affordability and practical limitations of outcome-based approaches as an alternative to area-based payments for delivering public goods in Tiers 2-3. Earlier AAP advice has supported the inclusion of some outcome-based approaches for delivery of agricultural support payments
• necessary investment in effective monitoring of environmental outcomes needs to be determined and co-created with land managers
• support to help small-scale farmers, crofters, or less profitable farmers to participate in environmental schemes is necessary, through training and knowledge exchange

3. Supporting farmers and land managers who farm uneconomic land to manage the land for nature:

• the AAP noted that all land is productive in some form, depending on definitions, and so AAP focused their discussion on the economics of land management and the ecosystem services produced – hence the title of this section has been adjusted from FMEC’s
• managing land for nature does not mean land abandonment but rather management of land for ecosystem services. Supporting and regulating ecosystem services deliver public goods by underpinning food production regionally (pollination, pest control), through flood protection, climate change mitigation, cultural value and so on

• the current system is derived from the historical focus on agricultural production and does not map well onto a broader range of ecosystem services, thereby contributing to our struggle to attach meaningful conditionalities to area payments. Structurally redefining the current payment regions would help to differentiate conditionalities and payment rates across different contexts. A more tractable possibility is to retain three payment regions but to redefine them as (i) rotational arable (crops and temporary grass), (ii) permanent grassland, and (iii) rough grazing
• additionally, rough grazing might be removed from the direct support processes and put in an environmental management scheme to focus on delivering other ecosystems services, linked to carbon, water and biodiversity. Scotland is relatively unusual within Europe in including so much rough grazing in its agricultural support, and a shift in this direction would help align payments with environmental goals and land sparing principles. This type of approach has been suggested previously to RESAS, RPID and policy colleagues and ARIOB members called for more formal analysis of it

• agriculture simultaneously delivers multiple ecosystem services that span across policy domains. Attempting to address these with too few instruments creates trade-offs and inefficiencies. Reluctance to acknowledge these trade-offs hinders more strategic policy design supporting delivery of a range of ecosystems services

• agricultural support is generally linked to ongoing agricultural land use. Once land is not productive for agriculture, it is no longer classified as agricultural and therefore becomes ineligible for this support. Careful consideration should be given to identifying long-term, stable income sources for farmers who choose to deliver supporting and regulating ecosystem services, rather than agricultural production
• some open, managed habitats already hold significant conservation value under existing laws and therefore require active management. There should be a strong focus on integrating biodiversity and environmental practices across all farms - including those already valuable for nature - to further enhance their ecological benefits. Training and provision of environmental information to land managers will be critical to help them achieve broader and deeper impact
• effective policy to support ecosystem service delivery will need to be co-created with land managers, to ensure practicality and delivery

AAP advises:

• nature outcomes should be evaluated for inclusion in support payments in future, allowing farmers to be paid to deliver biodiversity goals. This approach could reward farmers already delivering for nature
• consider approaches to include support to land managers to deliver regulating and supporting ecosystem services over agricultural production, for instance on current rough grazing in Scotland’s uplands
• farmers/crofters need support to assess and understand the ecosystem services they deliver and how these could be sustained and enhanced. An effective knowledge exchange process is therefore required, and management pathways co-created with land managers
• redefining the three payment regions as rotational arable (crops and temporary grass), permanent grassland, and rough grazing
• shift of rough grazing from agricultural policy to environmental policy support (e.g. this could be funded by repurposing the LFASS budget)