Chapter 13 Rural Economy
The Rural Economy portfolio budget seeks to support some of the most marginalised and fragile communities in Scotland that are situated in coastal and rural areas and on islands. It does this through the Scottish Rural Development Programme; EU-supported Common Agricultural Policy (CAP) financed farming, environmental and rural development programmes; Highland and Islands Enterprise (HIE); and, from next year, also through the South of Scotland Enterprise agency (SoSE). It also allocates the European Maritime and Fisheries Fund (EMFF) to support coastal businesses, infrastructure and communities. The Rural Economy budget also provides funding for Forestry Commission Scotland and to support woodland creation and maintenance; allocates support for food processing and manufacturing; and invests in food- and drink-related activity. Through our membership of the EU, the Scottish Government receives an income of £560 million from the EU, and it will distribute £900 million in this portfolio (made up with a further allocation of £355 million from the Scottish exchequer). The Rural Economy budget seeks to support the specific challenges associated with living in remote, rural, coastal and island communities, and to support the needs of particular groups, as well as key rural sectors.
Key Inequalities of Outcome
Rural communities face a range of unique challenges around access to services, higher rates of fuel poverty, lower productivity and constrained economic development. Many communities also face ageing population structures and some also are at risk of depopulation, which can severely threaten local economies and service provision. The enterprise agencies, which are funded from this budget, aim to address these deep-seated issues in rural areas and coastal communities. These issues are also addressed through the EU co-funded LEADER rural development programmes, which support the Community Led Local Development model (CLLD). However, the action of many other portfolio budgets also address inequalities in rural areas. For example, fuel poverty is addressed through the Communities and Local Government portfolio budget and access to services is addressed through the Transport Infrastructure and Connectivity portfolio budget.
This portfolio addresses issues around rural disadvantage, which is not defined in terms of protected characteristics, where, other than for age and gender, there is little data. It does this through supporting traditional rural industries including agriculture, forestry and fishing, and through direct funding to community groups to support rural development across Scotland. Support for farmers also reduces the costs that farmers need to cover. This may help in keeping food prices affordable for low income households, though the evidence is limited for this, and some may be capitalised instead into inflated land values and rent. This portfolio has also invested resource in supporting women and young people across the rural economy to become more active, productive and engaged with their sectors.
Payments to farmers are split into two parts. Pillar One direct payments (through the EU basic payments scheme) support farm incomes and entail some responsibilities for environmental management (greening). Pillar two schemes are those which recipients must apply for and meet certain criteria, such as age for Young Farmers grants or poor land quality for Less Favoured Area Support Scheme grants (LFASS). Overall average farm income is £26,402 and without direct payments subsidies these farms would make an average loss of £8,081 (as the subsidy from direct payments is on average £34,483). This income, by being tied to land, ensures farmers remain on the land and it remains in use, thus helping to support rural communities and ensure a productive landscape.
Key Strategic Budget Priorities
The overarching priority is to ensure economic opportunity applies equally to Scotland's rural, island and coastal communities. This is done by delivering a reformed Common Agricultural Policy; enabling and encouraging sustainable development, enterprise and investment in the rural economy; building on current success in our world-class food, drink and forestry sectors; and by tackling depopulation and empowering rural, coastal and island communities.
Equality Implications of the Scottish Budget 2019-20
Overall the main picture is one of very little change. This stability is a direct consequence of the long-term nature of EU funding to create a programme over six years, which forms the majority of the portfolio. This means that the budget is one year of the 2014-20 Common Agricultural Policy and Scotland's Rural Development Programme. After allowing for accounting changes, the portfolio has only changed by a net £3 million, less than half of one per cent on an overall spend of £801 million across CAP, Forestry and EMFF. However, there are some minor movements within this portfolio. This also reflects the long-term nature of the land-based sectors, including agriculture and forestry.
The largest elements of the budget within this portfolio are Common Agricultural Policy (CAP) payments through a variety of schemes to around 18,000 farm businesses each year. £262 million is paid as direct income support payments to farmers and £132 million is paid to farmers as part of Greening support for farmers' environmental responsibilities. The terms and conditions of these schemes are agreed by the EU with which the Scottish Government is required to comply. Funding levels are therefore largely unchanged from previous years.
A further £27 million is allocated for grants under AECS, the agri-environment scheme, which is also supported with the EU's finance. In addition, there is £52 million in support for farms and crofts in Scotland's more challenging agricultural areas (such as mountains) through the Less Favoured Area Support Scheme, with around 12,000 recipients. The CAP also supports a co-financed £19 million support in 2019-20 direct to rural community organisations through the LEADER programme.
Overall, the EU Common Agricultural Policy financed element is not designed to, and therefore may not tend to, reduce direct inequalities by protected characteristics. For example, at present, 38 per cent of farmers are women, but women only accounted for 20 per cent of those receiving Young Farmers grants in 2017. However to address this the government is applying some resource to supporting more women into agriculture and through other budgets, supporting young people training in farming, food production and other rural enterprises to gain skills and qualifications and contribute their experiences to future policy development. While there is significant variation and disparity in the value of many farm holdings, there are some low and very low income farm households who receive payments through these schemes. In addition, payments through this funding help to contribute to the wider rural economy, supporting supply chain activity and enabling people to move to and stay in rural communities, thus supporting local facilities like schools, health services and businesses.
The Forestry Commission Scotland budget is associated with an industry that supports 25,000 forestry jobs through funding for new planting, regulation and monitoring and the management of Scotland's forests. The Forestry Commission distributes around £83 million, of which £20 million is EU funding. There has not been significant change on this budget line. This funding helps to maintain the National Forest Estate which provides access for communities and individuals to activities in forests and woodlands across Scotland, including to improve mental health and wellbeing and outdoor education, and also supports agri-environment forestry and peatland restoration schemes, contributing to our sustainable development and climate change goals.
There is also £5 million in support for the European Maritime and Fisheries Fund (with two thirds from the EU) supporting Scotland's fisheries' businesses, infrastructure and research and development to enable sustainable marine activities. This budget is unchanged. As with the common agricultural policy, generally, the main recipients of fisheries funds are older, white males and therefore it does not directly reduce inequalities. However, as outlined above for farming, fishing businesses are also likely to support the described spin-offs and impact positively on different protected characteristics depending on the composition of local communities and businesses, especially across the seafood supply chain. The spend on harbours and infrastructure may help coastal communities in remote areas, and may improve opportunities for jobs and economic growth in this area.
The largest single (non-accounting) change on the budget is the reduction in the Less Favoured Area Support Scheme (LFASS), which is reduced from £65.5 million to £52.4 million. This is a 20 per cent reduction, which the Scottish Government has been obliged to make by the European Commission because the UK's exit from the EU means that replacement schemes - Areas of Natural Constraint - are not available. This reduction was postponed from 2018-19 to 2019-20. These changes were announced in the Scottish Budget 2018-19 and so are not a new announcement. These are likely to have negative effects on farm household incomes depending on the type of farm, but overall are only a 20 per cent cut on a fund that is, on average, around 32 per cent of a farmer's income for those who receive LFASS. The average LFASS farm business income in 2017 was around £32,600, which is above the median household income for Remote Rural Scotland at around £27,000 in 2017.
On a straightforward 20 per cent LFASS reduction, Less Favoured Area sheep farms (predominantly in the uplands, highlands and islands) may face challenges. They have an average farm business income of £23,200 which is significantly below the average household income for remote rural Scotland. This change could reduce incomes for this group. These farms are more dependent on LFASS - it represented 62 per cent of their income in 2017 compared with 32 per cent of all farms in receipt of LFASS, which explains its differential impact. No data is available to understand the wider equalities impacts of the change.
There is a rise of £3 million to the South of Scotland Agency's budget, supporting the transition from the South of Scotland Economic Partnership to the full economic development new agency. This budget will change from £3 million in 2018-19 to £4.4 million in 2019-20 in resource and from £7 million to £8.4 million in capital spending. These increases should help to increase inclusive growth, reduce unemployment and assist with the specific rural disadvantage in the region that it was set up to ameliorate. This budget is designed to cover the start-up costs of this new agency, and also to make it able to support the communities and enterprises in the Scottish Borders and Dumfries and Galloway.
Both Animal Health and Veterinary Surveillance have had moderate uplifts in their budgets, reflecting increased demands for public veterinary services in this year and also different spending profiles for investment projects. Animal Health has grown from £15 million to £18 million. Veterinary Surveillance has grown from £4 million to £5 million. These are not anticipated to have significant equalities consequences.
Overall, there has been little change in the portfolio spend in the Rural Economy, with the exceptions being new costs for the creation and establishment of the new South of Scotland Enterprise agency, and reductions of LFASS. EU support for farming, coastal and rural communities has been consistent and has been the financial bedrock of many farming enterprises. The reductions in the LFASS spending are a direct result of Scotland's inability to claim replacement scheme funding due to Brexit. Countries remaining within the EU will be eligible to claim funding through the scheme on Areas of Natural Constraint, but Brexit means Scotland will be ineligible for the funding. Marginalised rural and coastal communities who receive funding for the EU LEADER programmes may also be at an especial risk of Brexit, and support schemes for rural development may help to moderate any Brexit damage.
1. Exact amount will vary due to exchange rate fluctuations as it is paid to Scottish Government in Euros.
2. This income data is taken direct from the Farm Business survey unweighted data, which represents only 48 respondents and so may vary from other published figures. However, there is no other reliable source to impute income changes hence the reporting of these figures here.
Email: Liz Hawkins