CAP SHG – Modelling update paper
This paper sets out further detail on the current round of modelling being carried out
by the James Hutton Institute (JHI). For the purpose of administering direct
payments, the draft direct payments regulations allows us to define payment
“regions” (for example, based on areas of land of a similar quality which we have
defined in some way) and also to identify criteria to divide Scotland’s direct payment
budget between these regions.
This is a theoretical modelling study, which compares the relative merits of several
possible payment regimes. The research will show the way in which payments might
change within sectors or in the different geographical regions if we were to use
different options for identifying payment regions and for assigning funds to these
regions.
At the present time we do not know what Scotland’s future budget for direct
payments will be, what Pillar 1 funding we might want to transfer to Pillar 2 or what
funding we might have to set aside for the other possible Pillar 1 schemes (young
farmer payments, the small farmer scheme, ANC payments and voluntary coupled
support payments). The modelling is therefore illustrative, showing what sort of
effects we might expect to see under the different scenarios for regions and budgets.
Regions
Early work in this project has focused on discussion about the criteria Scotland could
use to define the payment regions. Annex A shows the final list of the 10 methods
that will be evaluated for defining these regions in Scotland. The top five “Farm
Level” methods shown in the table, pull together into a single region land of a similar
type, no matter where that land is in Scotland. In this case, the regions will not be
contiguous areas of land and land within a business may be assigned to more than
one payment region depending on its type. The bottom five “Parish” methods take
account of local geography and assign all the land in all of the farms in a parish to a
region based on the overall land type of the parish.
The initial work at the JHI has been to assign agricultural land in Scotland to all these
different regions. The land that has been assigned is all the eligible land declared on
the Single Application Form (SAF) by current recipients of the Single Farm Payment.
Budgets
Having identified what land belongs to each of the regions in each of the 10 different
methods listed in Annex A, the second step has been to consider how Scotland’s
budget for direct payments should be distributed between these regions. As with
designing regions we need to use criteria that are objective and can be justified.
Again a number of different methods are being evaluated by the JHI research and
these are set out below. For each of these budgetary options, the initial funding pot
for each payment region must be calculated and then this baseline sum needs to be
divided by the total area of eligible land in that region to give a final area rate (€/ha)
for each payment region, when direct payments are 100% area based, including the
Greening payment. As already explained, the modelling does not take account of
any other Pillar 1 schemes that might need to be funded or of the effect of any
transfer of funds to Pillar 2.
Three main ways of dividing Scotland’s direct payment ceiling that are being
investigated in this round of the modelling are: 1) historic, 2) economic output and 3)
weighted land area.
1) Regional budgets based on historic entitlement values
The draft direct payments regulation sets out a transition to area-based payments.
The first type of budgetary split to be investigated is therefore based on the current
share of direct payments in each of options for payment regions. For each business,
the highest value entitlements have been assigned to the best quality land to enable
a “Progressive baseline” to be calculated.
This is a change from on the earlier work done for the Brian Pack Inquiry where the
sum of the entitlements were simply averaged out over all the eligible land in the
business. The modelling done for the Pack inquiry showed how flattening out
payments moves money up the hills. The progressive baseline attempts to limit
some of this within business redistribution by taking account of differences in
payment values.
Having assigned funding to the land in this way, the total funding in each region can
be calculated and final 100% area rates calculated and compared back to current
SFP vales for sectors and for geographic regions.
2) Regional budgets based on share of economic standard output
A second way to identify and assign budgets is to try and take account of the relative
quality of the land by considering the farm gate, agricultural output value. The
standard output can be calculated, assigned to the land and regional totals worked
out. Scotland’s direct payment budget would then be divided between the regions to
reflect each region’s share of the total standard outputs.
3) Regional budgets based on share of land area
Regional budgets could also be allocated on the basis of the relative amount of land
in a region. However this would in effect give a common flat rate across all of
Scotland. This option, allows a number of different weighting factors to be
considered and each will influence how funding is distributed between the regions in
a different way in order to reflect different sorts of possible policy outcomes
A wide range of weightings is possible so the current JHI modelling will focus on:
1. Ratios – For the two region LCA model, funding will be distributed between
regions to achieve a funding ratio of 1:10 between the poor and good land.
This would provide a model which takes account of agricultural productivity/
agribusiness activity.
2. Olympic Podium – Weightings would be used to allocate lowest per ha rate
to poorest quality land, a higher per ha rate on the best quality land and the
highest per ha rate on the intermediate quality land. This will provide a model
that helps explore what could happen if funding was targeted at intermediate
land where farming options are starting to be reduced and where returns from
the market may not always adequately compensate farmers for the
challenges they face when farming this type of land.
3. Adjusted Historic – Weightings would be used to adjust the rates on the
poorest quality land. For example, the historic ceilings could be adjusted to
reflect environmental outcomes from say LFA land.
Next steps
This round of modelling explores the possible effects of designing various types of
regionalised area payments schemes. The data being entered is our best estimate
at the current time based on what we know, however, for the purpose of the
modelling we have had to make a number of assumptions, for example over how
much land there may be in the future scheme. In addition, the regulations are still
being negotiated and further changes may be introduced into the text which we will
need to factor in.
The results from this study will show the sorts of effects that we might see if we
developed payment systems along the various approaches and what happens when
we vary some of the factors, for example, by introducing weighting factors to achieve
different policy aims.
The initial results from this study will be presented at the special CAP stakeholder
meeting on 25th March in advance of the conference on 17th April.
Annex A
Regions for Evaluation
Regional Model
Number of Regions
LCA Farm Level 1a
2
LCA Farm Level 1b
3
LCA Farm Level 1c
4
LFA
3
Land Type Farm
Level
3
LCA Parish Level 1a
3
LCA Parish Level 1b
9
Description of Regions
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Historical SFPSParish
9
Land Type Parish
3
Parish-Econ Output
3
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1 – 5.3
6.1 – 7
1 – 3.1
3.2 – 5.3
6.1 – 7
1 – 3.2
4.1 – 4.2
5.1 – 5.3
6.1 - 7
Non-LFA
LFA
LFA-HIE
Arable (incl. Temporary Grass)
Permanent Grass
Rough Grazing
1 – 3.1
3.2 – 5.3
6.1 – 7
1 – 3.1 (Dominance = >75%)
1 – 3.1 (Dominance = 50-74%)
3.2 – 4.2 (Dominance = >75%)
3.2 – 4.2 (Dominance = 50-74%)
No Dominant Class (but most
land is 1 – 4.2)
5.1 – 5.3 (between 50 and 74%
in terms of dominance)
No Dominant Class (but most
land is 5+)
6.1 - 7 (Dominance = 50-74%)
6.1 – 7 (Dominance = >75%)
€1-<20; €20-49; €50-99; €100149; €150-199;
€200-249;
€250-299;
€300-349; €350+
Arable (incl. Temporary Grass)
Permanent Grass
Rough Grazing
To be confirmed