Evaluation of less favoured area support scheme

Report to help inform preparations for the transition from Less Favoured Areas (LFAs) to Areas of Natural Constraint (ANCs).


1. Although FIDS within IACS do relate to individual parcels of land, they offer no information on management and thus cannot help to identify the extensive margin - the point at which marginal land is being entered to or withdrawn from farming. Agricultural census data do provide some information on management, but only at a farm holding not a parcel level and only in terms of reported livestock and labour numbers.

2. Land reported under the main farm holding (i.e. in a given parish) can physically be in different parishes.

3. Although care has to be taken in interpretation since whereas poorer quality land no longer claimed is probably abandoned, better quality land no longer claimed may have switched to a usage such as cereal (e.g. barley) production that is not eligible for LFASS support. Some farmers may also potentially forgo claiming but choose to retain land in production (at low management intensities) if payment rates are low and perceived regulatory burdens high

4. Anecdotal incidences of this were noted following the introduction of supplementary payments for extensive grazing in that additional land was claimed but not necessarily grazed. Hence when extensification payments were abolished, the land was no longer claimed but saw no change in its management. This is an example of the problems caused by using average rather than parcel-specific management information.

5. Inspection of parish-level and BRN-level data suggest that this may be a statistical artefact of how data are reported, with new land and livestock for some expanding farm businesses being reported against the parish within which the BRN is located rather than where the land and livestock actually are. In addition, LFA farms are reported as being all LFA if the majority of their land is LFA, again meaning that changes in land composition could lead to under or over-reporting of actual areas.

6. The relationship between in-bye and other land is an important consideration here, with abandonment in one location potentially having implications for land elsewhere (a so-called "halo effect").

7. Other possible explanations: include lack of awareness of actual profitability; a focus on gross rather than net margins (e.g. by mortgage-free owners); and, a belief that margins will improve over the longer-term.

8. SG BPS figures presented for evaluation are estimates and may be subject to revision if payment rates and/or claimed areas are different.

9. Within this, the estimated share attributable to the enterprise mix (rather than basic area payment) fell slightly overall, but by more in the remoter, Very Fragile areas.

10. Inspection of BRN-level claims data and of different land cover types at the parish-level suggest that this may be true in at least some cases.

11. The SG (Project 4) figures also show increasing net worth for tenant farmers. This needs clarification since it may include some land values if tenants actually have a mix of rented and owned land, but otherwise will reflect (e.g.) the value of breeding livestock.

12. Median Scottish household net worth was estimated at around £150k in 2008; the lowest farm net worth (for sheep farms) is reported at over £600k.

13. Although the same applies to other small businesses.

14. "Travel to Work Areas" ( TWAs) are one example manifestation of regional labour markets.

15. But leads to interesting questions about whether, for example, a household deriving its income solely from a large-scale farming enterprise is more or less of a priority for support than a household engaged in small-scale farming but with high off-farm income. Debates about the share of funding going to particular types or sizes of farm need to make explicit which policy objectives are being considered (e.g. income support, land retention etc.).

16. By contrast, where a constraint is imposed on an existing system, the additional cost and/or income forgone may be more readily calculated. For example, as with organic farming and agri-environment schemes (although various other estimation issues do arise).

17. Problems arising from heterogeneity of cost structures across farms are not unique to LFA/ ANC policy.

18. Although the implications of EC requirements for "fine-tuning", adherence to administrative boundaries and adjustment for "land improvements" (e.g. drainage) will add further complexity. "Fine-tuning", excluding sites where natural constraints have been overcome by land improvement (e.g. drainage), is itself symptomatic of the conceptual problems with seeking to compensate for negatives rather than reward postives.

19. Farm performance is usually reported by farm type and/or crude location such as upland or lowland. It is not usually reported by, for example, Grazing Category or LCA class. Moreover, given that the FAS sample is not designed on the basis of finer spatial categories, current attempts to match FAS data to such categories is unlikely to yield representative samples (although the exercise is still worthwhile).

20. This is essentially the process for any payment calculations based on additional costs or income foregone, albeit that in this case there are some particular issues to address. Given the conceptual and empirical problems identified, it seems unlikely that other Member States will be presenting more robust estimates - in which case there may be some scope for flexibility in calculating and defending payment rates.

21. Although the basis for paying only a proportion of calculated additional costs is unclear, other than perhaps to pragmatically reflect budget constraints, interactions with other support arrangements (i.e. Pillar I) and uncertainty over additional cost calculations.

22. Implicitly, degressivity acknowledges that costs or "need" for support depend on scale as well as biophysical considerations, although (again) the basis for calculating the appropriate degree of payment reduction is not stipulated. In addition, excluding some land that happens to be managed as part of a large unit may not be entirely consistent with seeking to encourage land management and avoid abandonment overall.

23. Other Scottish commentators have already queried why highly similar decoupled payments operate in parallel under both Pillar I and Pillar II (e.g. Pack, 2010). Merging into one scheme would offer administrative savings to government and recipients whilst also avoiding the need to refer explicitly to additional cost calculations. Due consideration would need to be given to claimants currently in receipt of LFASS but not the BPS, and to how overall funding allocations between Pillars I & II would be managed (e.g. use or not of Pillar I ANC option, full or partial transfer of existing budget, interaction with modulation etc.).

24. For example, by extension, given geographical variation in solar, wind and water resources, ANC logic implies that farmers in less sunny, windy or riparian locations should be compensated for income foregone from constrained renewable energy production.


Email: Eilidh Totten

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