Common Agricultural Policy Budget Allocation

Part of the debate – in the Scottish Parliament at on 12 November 2013.

Alert me about debates like this

Photo of Richard Lochhead Richard Lochhead Scottish National Party

I am grateful for this opportunity to update Parliament on developments relating to farm payments and rural development funding from 2014 following the United Kingdom Government’s announcement on 8 November on the common agricultural policy budget allocations for the devolved Administrations.

I know that the chamber appreciates that Scottish farming is deeply dependent on European payments to help our farmers compete and remain viable, to support our rural economy and, of course, to put food on our tables and to care for Scotland’s environments. The CAP budgets also support wider rural development and environment schemes the length and breadth of Scotland.

Earlier this year, the European Union set its seven-year budget framework for 2014 to 2020. That included member states’ allocations under the common agricultural policy’s direct farm payments, which are known as pillar 1, and rural development payments, which are known as pillar 2. At the time, the Scottish Government was deeply disappointed with the deal that was negotiated by the United Kingdom, given Scotland’s demands for a fairer share of the EU budgets. However, once we knew the wider CAP budget at the EU and UK levels, all that remained was for the UK to announce the internal UK split of that budget.

For pillar 1, Europe adopted a formula called external convergence. That increased the payments per hectare for all member states in which payments were below a threshold that was set at 90 per cent of the EU average. In addition, Europe said that no member state should end up with an average payment of less than €196 per hectare. Had Scotland been a member state, Scottish farmers and crofters would have received the full benefit of external convergence, which would have been an extra €1 billion—£850 million pounds—over the seven years, because our average payment per hectare is well below the EU threshold. However, while Scotland is part of the UK our low average payment is offset by the average payments in England, Wales and Northern Ireland. As a result of that, the UK as a whole received only €223 million—around £190 million—from external convergence. Nevertheless, despite our historically low share of funding, there was a chink of hope for Scotland. The average payment levels in England, Wales and Northern Ireland are all above the EU’s threshold. It was, therefore, clear that the UK’s uplift was a direct result of the low payments in Scotland. Were it not for Scotland, there would be no uplift for the UK; therefore, in the interests of justice, 100 per cent of the UK’s convergence uplift should come to Scotland.

In a debate here on 1 October, it became clear that other parties shared that view. On 14 October, in an unusual step that illustrated Scotland’s unassailable case, rural affairs spokesmen from Labour, the Conservatives and the Liberal Democrats joined me in writing a letter on the matter to Owen Paterson at the Department for Environment, Food and Rural Affairs. However, in his announcement last Friday, Mr Paterson delivered a slap in the face to Scottish agriculture by deciding that the uplift would not be allocated to Scotland after all. Instead, he divided it among all parts of the UK even though the average payments in England, Wales and Northern Ireland are already above the EU’s threshold.

As a result of that decision, Scotland’s pillar 1 budget—direct payments for farms—will fall from €597 million in the current scheme year to €580 million in 2014 before recovering slightly to €587 million in 2019. That is a drop of 1.6 per cent in cash terms between 2013 and 2019, and it is an even bigger drop in real terms. Scotland will now receive just over 16 per cent of the external convergence funds rather than 100 per cent of them, which will leave us with an average payment of €128 per hectare in 2019. We are starting with an average payment of €130 per hectare, which is the lowest level in Europe, and we will be even further away from the EU threshold by 2019.

The rest of the external convergence money will go to England, Wales and Northern Ireland, even though, in 2012-13, the average payment in Wales was €247 per hectare, which is 26 per cent above the minimum of €196 per hectare and 90 per cent above the average payment in Scotland; the average payment in England was €265 per hectare, which is over twice as much as the average payment in Scotland; and the average payment in Northern Ireland was €339 per hectare, which is more than two and a half times the average payment in Scotland.

During my time in this job, there have been many examples of UK policy undermining Scottish agriculture. I thought that Hilary Benn’s decision a few years ago not to compensate sheep farmers for foot-and-mouth disease was a low point, but this is even worse than that. The decision goes against the intentions of the EU, it defies the wishes of the Scottish Parliament and it takes away from Scottish farmers and crofters resources that should be theirs and on which their livelihoods depend. It is no surprise that Scottish farming and crofting leaders are bitterly disappointed by Mr Paterson’s decision.

The UK Government tries to defend its decision by quoting figures not on a per-hectare basis, but on a per-farm basis. However, that is spurious for several reasons. Different countries have different minimum farm sizes for the purposes of CAP budgets and policy, so there is no like-for-like comparison. The quality of land in Scotland is also much lower, with 85 per cent of our land having less favoured area status, so farms here are bound to be bigger. Most important, Europe’s entire external convergence process is based on a per-hectare formula. Europe decided that, for convergence, payments per farmer are totally irrelevant.

It is ironic that, during the recent agriculture negotiations, Owen Paterson was the first to remind other member states at every opportunity that payments per farmer were a misleading and irrelevant measure. Indeed, in June he made the same point to our Rural Affairs, Climate Change and Environment Committee. However, now, when it suits him, Owen Paterson is using the opposite argument to take funds away from Scottish agriculture. Moreover, Paterson argued to cut the CAP budget even more deeply than was agreed by Europe, but he is now saying that Scotland’s cash is required to help to mitigate cuts elsewhere in the UK. That is rank hypocrisy.

Friday’s announcement contained two additional elements on pillar 1—the direct payments—that are presumably intended to sweeten the bitter pill. The first is that there is to be a review of the formula by 2016-17. However, the UK has made it clear to me that that review will look only at the next EU budget period, which starts in 2021, and that there will be no change whatever before then, so that is another red herring. In any case, what is a promise from Westminster worth when a UK general election and a referendum on EU membership are due to be held before then?

The other additional element is on voluntary coupled support, which is a part of the policy that is vital for our livestock sector. Scotland asked the UK to secure the option of using up to 15 per cent of our direct payments budget for coupled support. Unfortunately, the UK accepted an unlevel playing field—a deal that let other member states use 13 per cent of their direct payments budget for coupled support, but which limited us to a figure of 8 per cent. Therefore, with the support of the industry, I asked Owen Paterson whether Scotland could apply coupled support above 8 per cent of our budget, provided that the UK as a whole remained below 8 per cent. Owen Paterson’s reply to me merely says that the UK Government is prepared to think about increasing our level of 8 per cent. In any case, that is just damage limitation, given the unlevel playing field that we are starting with, and it would give no extra money to Scotland, as any extra coupled support would have to be funded from within Scotland’s existing budgets. That is small comfort to Scotland’s farmers in the context of the overall direct payments decision.

I have spoken about pillar 1 of the CAP, on direct farm payments, but Friday’s announcement also covered pillar 2, which is important not only to farmers, but to all those who are interested in the environment and our rural communities. Here, the European Commission started with high hopes of replacing the current arbitrary allocations with a system that would be based on objective criteria. That principle, which was strongly supported by the UK Government, should have benefited Scotland, given that under the old system—the existing system—we started out with lower pillar 2 or rural development funding per hectare than every member state.

However, vested interests resisted change and the final deal was based, essentially, on historical figures, except that 16 member states insisted on getting special uplifts. The UK could easily have argued for such an uplift for Scotland, especially given our position of having the lowest payments in the UK and Europe, but it chose not to do so.

In relation to the within-UK decision, the Scottish Government urged DEFRA to stick to its principles and to use objective criteria, but DEFRA has chosen to go with history, so Scotland will get €477.8 million of pillar 2 or rural development funding for 2014-20. That is 18.5 per cent of the UK total, which is the same as our share in 2007-13. The UK Government makes much of the fact that, in cash terms, that is a 7.8 per cent increase but, by the UK Government’s own figures, it equates to a 5.5 per cent decrease in real terms.

The overall result of the UK Government’s negotiations and decisions is that Scotland will get the lowest per hectare funding in Europe—our rate will be lower than that of every member state in both pillars of the new CAP. In pillar 1, even the lowest funded of the other member states will get one and a half times what Scotland will get per hectare. Ireland will get twice our rate and Belgium will get three times our rate.

On pillar 2—the rural development funding—the comparisons are even worse. Even the EU average is more than six times our puny rate of €12 per hectare, and member states such as Austria and Slovenia will get 15 to 20 times the amount that we will get per hectare. Our environment and our rural communities will be much worse off. The position that we find ourselves in is deeply regrettable.

As I said at the outset, we will have some tough decisions to take in the times ahead. We are talking about the future of our rural communities, our environment, farming businesses, food businesses, village facilities and other rural facilities. The issue is extremely serious for Scotland. I deeply regret the appalling budget position that we are in as a result of the UK Government not making Scottish agriculture a priority. When I meet farmers’ leaders later this afternoon, I will assure them that the Scottish Government will continue to work with them and our rural communities to make the case for justice and fairness.