CAP SHG0 - 05
CAP Stakeholder Group
– Workstream 1 – Regionalisation
Introduction
The draft proposals from the European Commission (EC) set out an area-based
Basic Payment Scheme (BPS) in which the payment rate per hectare is based on a financial ceiling divided by the number of eligible hectares.
The EC’s draft Regulation requires that in Year 1 of the new BPS, at least 40% of the
BP ceiling must be allocated on an area basis. It allows Member States to allocate the remaining 60% of the BP ceiling in a way that takes account of a farmer’s historical SFP. The area component of a payment would increase each year so that by 2019, 100% of the value of a farmer’s payment was an area payment.
The Regulation should also allow Scotland to regionalise Basic Payments. In this case, the regulation requires that any regions to be defined based on “objective and nondiscriminatory” criteria, giving specific examples of these as:
 their agronomic and economic characteristics;
 their regional agricultural potential; and/ or
 their institutional or administrative structure.
It is important to note that these sorts of criteria are of a general nature and not production related and therefore preclude the option of any form of region that would in effect recouple payments.
Once regions have been defined, the funding which has been allocated towards the
BPS would be divided between the regions (based on objective and nondiscriminatory criteria) and used to fund the Basic Payments in those regions. The
Commission requires that initially at least 40% of these regional funds go towards area-based payments with the option to use up to 60% of the funds as historical top ups.
In these circumstances, in Year 1, the initial Basic Payment rates would vary across a region depending in part on historic payments. By 2019, however all Basic
Payments in the region would have the same value. An average value in one region could differ from the average value achieved in a different region. If Scotland chose not to have any regions then there would be a common rate across Scotland in
2019.
One of the first steps in WS1’s work on regionalisation, was to consider a rationale for defining regions which could be used for the allocation of the BPS in Scotland.
Given the diversity of land and farming in Scotland, a single payment rate across all of Scotland would seem to be inappropriate in the Scottish context. For example, a payment rate that might be considered right for prime arable land in the South East of Scotland would be unsuitable for rough grazing land in the North West that can only support livestock grazing at low stocking densities. Regionalisation of the BPS
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CAP SHG0 - 05 in Scotland should therefore enable better tailoring of payment rates to help take account of Scotland’s agricultural diversity.
WS1’s work has therefore focused on trying to identify the most appropriate basis for defining regions in Scotland. Since the Commission will allow regions to be defined in a variety of different ways, it is possible that regions may not be contiguous areas of land. Depending on the basis used to define a region, regions could include land that is quite widely distributed across Scotland. Indeed it is possible that a farmer’s land although contiguous could be allocated to more than one region.
As well as wanting to allow payment rates to take account of land and farming diversity across Scotland, it is also necessary to assess any potential methods for defining regions against the following criteria:
 they must be conducive to the European Commission and Scottish
Government’s objectives for the BPS in Scotland;
 they must be objective, non-discriminatory and they cannot create a direct link with production in contravention of WTO rules on agricultural support;
 they must be feasible in terms of data availability, cost, and coverage of the relevant geographies and agricultural land/ production.
WS1 assessed a wide range of approaches against these criteria and shortlisted five that were taken forward for further scoping:
1) Administrative Boundaries (e.g. parishes, agricultural regions;
2) Standard Labour Requirements (SLRs);
3) Land Capability for Agriculture Classification;
4) Less Favoured Area (LFA)/ Areas of Natural Constraint (ANC);
5) High Nature Value Farming (HNVF).
At that stage, although other methods such as Farm Income, Farm Output, and
Stocking Densities were considered, they were excluded from further scoping because of conceptual and/or practical limitations to their use. However, WS1 noted that some of these other methods may be used at a later stage, as secondary criteria in defining regions.
At the present time, WS1 is continuing work to scope out the feasibility of the shortlisted options for defining regions in Scotland. We need to be confident in the suitability and feasibility of whatever method is selected before going on to look at how funding would be allocated to the regions, and what the potential impacts of this might be, at a regional or business level.
The next sections summarise some of the issues relating to the 5 shortlisted approaches to defining regions.
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Potential Approaches to Defining Regions for the BPS
1) Administrative boundaries (parishes)
Scotland has 891 agricultural parishes which are used to aggregate census data.
These are established geographical and statistical boundaries in Scotland which are familiar to farmers and acceptable to the Scottish Government, UK Government and the European Commission. The map below shows the 2009 average entitlement value in each parish across Scotland.
Our analysis pointed out that, given the very large number of parishes, in order to define regions based on them it would be necessary to group them according to some objective and non-discriminatory criteria.
One option we considered for grouping parishes was by their average SFPS entitlements (as shown on the map). For example, the map indicates that higher parish average rates are found towards the east and in the south of Scotland, where we know land with greater agricultural potential and the more intensive kinds of agriculture that have traditionally attracted support are found.
However, we identified several limitations to this approach. To some extent they would mimic the existing distribution of payments and this could be difficult to justify to the Commission, which has been explicit that one of the intentions behind the
CAP reform is to move away from the historical method. Another issue is that the parish distribution of entitlements in the map only shows us the parish where the farm business receiving the payment is located, rather than the land on which the payment is being activated. This means we have to be cautious in using average
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CAP SHG0 - 05 entitlements to group parishes, as they don’t take account of SFPS being claimed by a farm business located in one region but being activated on land in another.
These issues don’t rule out other objective and non-discriminatory methods being used to group parishes together. WS1 will continue to assess the feasibility of this way of defining regions, and some of the issues emerging include:
 using parishes with an agricultural economic indicator such as SLRs is likely to be technically feasible, and could allow regions to be defined with similar agri-economic characteristics; and
 there is concern that many parishes include land of varying agricultural quality, for example better land in valley bottoms and poorer land on the surrounding hills. Therefore, it is not necessarily safe to group parishes together to receive a single payment rate on the assumption that, since they receive similar levels of payment, they must contain similar land/ farming systems. Further work will be required to determine the extent of this problem.
2) Standard labour requirements
Standard Labour Requirements (SLRs) provide an estimate of the labour input required by a farm to carry out its activities. They are based on labour requirements under typical conditions for farm enterprises of average size and performance. It could be argued that using SLRs would be in li ne with the Commission’s policy objective of viable food production. The map below (2011 data) shows that areas with the more intensive farming (arable, dairy and intensive livestock) tend to be associated with higher SLRs values. In contrast, lower average SLR/ hectares are seen in North West Scotland where extensive agriculture predominates. In some ways therefore it appears there may be some connection between SLRs and land quality.
Since SLRs tend to favour more labour intensive farming systems (e.g. dairy) they might not be regarded as being non-discriminatory. Given that they are a production-linked indicator, further clarification would be needed that they are permitted under WTO rules. It is possible that if they were used in a way that reflected a historic crop/livestock pattern that it might be possible that they could be part of the mix that Scotland could consider when defining regions.
To use SLRs in a way that established regions that would encourage farmers to alter production patterns cl early wouldn’t be possible as it would be seen as recoupling and WS1 will continue to consider the feasibility of SLRs.
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3) Land Capability for Agriculture (LCA) classification
One of the methods for defining regions suggested by the Commission is regional agricultural potential and Brian Pack’s Inquiry spent a long time considering the use of LCA when making payments in Scotland. The Land Capability for Agriculture classification produced by the James Hutton Institute, formerly Macaulay Land Use
Research Institute (MLURI), classifies land by agricultural potential.
LCA classifies land in a way that can be considered objective and non-discriminatory as it is based on the physical characteristics of the land and climate, with no preference given to any particular land or activity type. The scale of potential ranges from LCA class 1 (land with the highest agricultural potential) to class 7 (very limited agricultural potential, for example, mountains). The map below shows that Scotland is dominated by classes 5 (grassland) and 6 (rough grazing) with smaller areas of the classes with greater agricultural potential (classes 2 and 3) along the eastern side of Scotland.
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Brian Pack’s Inquiry showed that using LCA as a basis for regionalising Scotland was not straightforward, for example, its position on how to treat land in LCA 5.1 changed between the interim and the final report.
It is tricky to know how to deal with this issue in terms of Scottish regions because although LCA 5.1 land has the potential to be highly productive when improved, in practice it is often used only for rough grazing with a capacity for only low stocking rates. Work presented later in this paper shows how the proportion of rough grazing increases throughout the three LCA 5 classes.
WS1 has been undertaking work scoping the feasibility of LCAs for defining regions for the BPS. We’ve identified a number of issues as follows that have prompted further work:

LCA only captures potential not actual land use, so we need to further understand actual land use associated with different land classes;
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 the LCA classification is robust but there can be less precision at the level of very small areas
– we, therefore need to assess whether it is precise enough to define regions in a robust way; and
 a mapped area is given a dominant class but it can also contain land of either higher or lower potential.
In order to use the LCA classification to define regions we have to establish whether it can feasibly allow us to create regions with similar agricultural characteristics. The ongoing work on this is covered later in this document.
4) Areas with Natural Constraints (ANC) (Less Favoured Area (LFA))
The Less Favoured Area classification is being considered as a potential method for defining regions because it is an EU designation of agricultural (physical and socioeconomic) disadvantage. It is well known and generally accepted and has been used by other Member States and regions to regionalise their current Single
Payment Scheme, for example, England uses this designation currently to differentiate area based payment rates.
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Brian Pack’s Inquiry thought that LFA could be a sound basis for differentiation of payments given that it can distinguish between broad land types, it is a recognised designation across Europe and is mapped within Scotland with reasonably robust boundaries. Brian Pack proposed funding being allocated in different ways to the non-LFA and to LFA, with an additional vulnerable area category being identified within the LFA class. Since this is the model recommended in the Inquiry’s report this is one that WS1 needs to consider further.
Currently, discussions in Europe are agreeing changes to the precise definitions of this sort of land, using a more objective and non-discriminatory set of biophysical criteria to identify land known as “Areas with Natural Constraint”. A key difference in this new designation is that it doesn’t include socio-economic criteria which are currently part of the LFA designation.
At present agricultural land in Scotland designated as LFA is further categorised in terms of its degree of disadvantage and its fragility, which takes account of geographical location and distance to and from markets/supplies. Over 85% of agricultural land in Scotland is classified as LFA. Although some rotational cropping takes place on LFA land, most of it is either permanent grass or rough grazing which means that farming operations in these areas have very little choice in what they do.
WS1 is continuing to assess the feasibility and appropriateness of this method for defining regions for the BPS in Scotland, and further work on this is outlined later in this report.
5) High Nature Value Farming (HNV farming)
WS1 considered Nature Value (HNV) farming as a potential method for defining regions since it is in line with the desire for sustainable use of natural resources and indicators for HNV farming have been developed for Scotland.
HNV farming can include low intensity (ie extensive) farming systems which have a high proportion of semi-natural vegetation or agricultural land with a mosaic of low intensive agriculture and natural and structural elements such as hedges, walls, woodland, scrub etc. HNV farming can also include agricultural land supporting rare species or which has a high proportion of European or world populations. Around
40% (over 2.2 million hectares) of Scottish farmland has been classed as HNV in this way. The map below shows that the majority of HNV farming activity tends to take place in LFA areas but there are also HNV farms on other land types.
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Although Europe recognises the concept of HNV farming and encourages the identification of suitable indicators, few Member States have effective indicators.
Scotland is ahead of the game on this, having a map showing the distribution of HNV farming, however it is not clear that our current mapping is sufficiently robust to define regions for the basis of payment allocation and, therefore, that the
Commission would accept our current criteria as mapping tools. Indeed, at one time the Commission seemed to be considering HNV farming within Greening and their decision not to include it may suggest some doubt over the robustness of the criteria although it could also be that there is doubt about their robustness across all of
Europe.
Even so using HNV indicators to identify regions is not automatic since indicators such as “ grassland not rotated for 10 – 12 years ” or “> 70% rough grazing ” or “ low
(<0.5LU/ha) stocking densities ” were not developed as mapping tools. Instead these indicators were designed more as tracking tools or baseline indicators to monitor rural development measures which aimed to preserve and develop HNV farming and forestry systems.
Not only is there an issue about whether these indicators are appropriate for mapping land, a bigger concern over their potential use is whether they would result in double funding (P1 and P2) of HNV objectives. At this stage therefore, although it is possible to map HNV status, these maps are not as robust as those for LFA and
WS1 does not propose to explore HNV status as a basis for regionalisation in
Scotland at this stage.
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Further Work exploring the potential for LCA as a basis for regionalisation in
Scotland
WS1 has also reviewed published information to assess how land in the different
LCA categories is used. The LCA classification assesses both the capability and potential of land for agriculture. It is not based on current use although there is often a strong relationship between the two. The table below, based on 2007 data, highlights the extremely large area of land in Scotland classed as LCA 6.3 (land with low grazing value capable of being used only as rough grazing).
2.5
2
1.5
1
Spring Cereal
Winter Cereal
Energy Crops
Horticulture
Forage Crops
Other Cropping
Grassland
Shared and Common Grazing
Rough Grazing
Environmental Management
Woodlands and Forestry
Other Land
(blank)
0.5
0
1 2 3.1
3.2
4.1
4.2
5.1
5.2
5.3
6.1
6.2
6.3
7
LCA Class
An area for particular attention is in Class 5. An LCA 5 classification indicates land with the potential for being improved pasture (shown dark green) whereas, as shown above, the actual land use in LCA 5 classes is often rough grazing (shown in purple).
The situation varies across the three LCA 5 classes. In LCA 5.1 it is relatively easy to establish and maintain swards whilst in LCA 5.3, although the land still has the potential for improvement, sward maintenance can be difficult.
It is also possible to look at land use across the LCA classes in terms of the prevalence. The second table below suggests that for LCA 5:
 there is a limited amount of cropping in LCA 5.1 (map scale issues that mean small areas of higher quality land can be included within a higher LCA class) ;
 the proportion of grassland decreases from LCA 5.1 through to 5.3;
 rough grazing is more prevalent in LCA 5.2 and LCA 5.3 than in 5.1.
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100%
90%
80%
70%
60%
50%
40%
RLUS Land Uses by LCA Class (SAF 2007)
2.5
2
1.5
1
Spring Cereal
Winter Cereal
Energy Crops
Horticulture
Forage Crops
Other Cropping
Grassland
Shared and Common Grazing
Rough Grazing
Environmental Management
Woodlands and Forestry
Other Land
(blank)
30%
0.5
20%
10%
0%
1 2 3.1
3.2
4.1
4.2
5.1
5.2
5.3
6.1
6.2
6.3
7
0
1 2 3.1
LCA Class
The third table below, which is based on 2009 data from a number of sources, shows that most (around 1.5 million hectares) of rough grazing is located in the Highlands, with significant areas (300,000 to 400,000 hectares) found in Argyll and Bute and in
Tayside but with the highest relative area of rough grazing being seen in Eileanan an lar.
3.2
4.1
4.2
5.1
LCA Class
5.2
5.3
6.1
Mapped Areas (2009)
6.2
6.3
7
Data Sources: IACS, JAC, Dec Survey, Crofters Commission
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Identification of initial regionalisation models for further scoping work
The work set out above supports the Brian Pack Inquiry
’s views that the two methods with greatest potential for regionalising Scotland are LFA and LCA.
However, as the Inquiry found there is no straightforward way of using either LCA and LFA and further work is needed before WS1 can make any recommendations on how Scotland could be broken down into smaller regions as a basis for allocating future Basic Payments.
The previous two sections show that mapping within the LCA 5 category can be particularly difficult because the LCA classification represents the overall land capability and on a piece of land and one area of LCA 5.1 land can look very different to another area of LCA 5.1 land. The same is true for land in LCA 5.2 and
5.3 designations.
For this reason WS1 thinks that, initially, two types of potential LCA model should be considered further.
The first model we should consider in more depth is a two region model based on
LCA 1-5.3 and LCA 6-7. A grouping of this kind would ensure that all land that is capable of supporting crops and grass which can be improved is grouped together in one region. Land suitable for only rough grazing would be treated differently. In addition, WS1 have noted that including all LCA 5 land (18% of agricultural area) with higher quality land could help avoid some of the high redistribution effects that were of concern to Brian Pack’s inquiry.
However this seems very broad brush and it could be questioned why grass, in particular unimproved grass, should be considered in the same way as crops. For this reason WS1 is considering a further LCA scenario. This would be a 3-region
LCA regionalisation model: LCA 1
– 3.1, LCA 3.2 -5.3 and LCA 6.1 – LCA 7.
Introducing a middle category in this way could help define a region where livestock farming predominates.
The first tranche potential regionalisation models selected for further investigation by
WS1 therefore are:
 an LFA-based model as suggested in the Brian Pack Inquiry report;

A simple two region LCA model (LCA 1- 5.3 and 6.1
– 7);

A more complicated 3 region LCA model (1-3.1, 3.2
– 5.3 and 6.1 – 7).
Further work
Up to this point, WS1 has been considering the evidence base, administrative viability and criteria for defining regions. Once this is established it will be possible to begin developing additional criteria which could fine tune these regions or which might be considered as a basis for allocating funding between the regions.
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We are working to establish the evidence base for any regions to be defined. This involves processing the 2011 IACS and Census holding level data to allow for analysis alongside LCA and other potential criteria for regionalisation. This is considered important as the EC proposal makes explicit reference to 2011 as the reference year for many of the specific proposals.
JHI are currently undertaking work processing the data and assessing what LCA land type land is being used where and for what purpose. JHI will also identify the number of holdings and businesses that are split by the LCA 5.3 to 6.1 divisions and are considering characterising split holdings by region, farm type, size etc.
Further work is being commissioned to map the 2011 SFPS baseline and to examine how this is apportioned across any proposed regions. It will also be important to consider the evidence base for setting regions alongside information on the additional area that might become eligible for the BPS and other payments under the reformed CAP.
28 Jun 2012
WorkStream 1 – Direct payments
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