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3. Interim LFASS (2007-09)

Current scheme

3.1 The SRDP 2007-13 (approved in February 2008) acknowledges that the LFASS scheme for 2007, 2008 and 2009 would be an interim measure, pending the major changes in EU-wide rules which were then expected to come into force from 1 January 2010. The following outline of the interim scheme is intended to assist consultees, but it does not cover every detail. Details of the scheme are set out in a Scottish Statutory Instrument ⁹ and Explanatory Notes ¹⁰.

3.2 This interim LFASS scheme is based largely on the previous model operating until 2006. However, payment levels are calculated on the basis of historic rather than current levels of production, in order to meet the conditions of the WTO Green Box. Thus, the key features of the interim scheme are that:

• it is historically based, derived from data used in the calculation of 2006 LFASS payments;
• payments are made to the occupier of the land who must be actively farming; applicants must respect cross-compliance, including maintaining the land in Good Agricultural and Environmental Condition ( GAEC). No payment is made where land is abandoned.

LFASS payments

3.3 LFASS payments are made on eligible forage land in LFAs. As in the previous scheme, there are three zones within the LFAs, namely:

• "very fragile" areas, which attracts the highest payment, and cover all islands;
• "fragile" areas, which comprise mainland areas in the Highlands of Scotland;
• "standard" areas, which is all remaining land in the LFA and attracts the lowest payment.

Payment rates are varied to reflect the greater vulnerability of producers with poorer quality land, with a higher rate being paid on the more disadvantaged land. These payment rates are:

These payment rates are applied to a number of hectares which is adjusted to reflect the very diverse nature of land quality in Scottish LFAs. The adjustment factors are based on stocking densities in 2001 and are as follows:

In addition, under the interim scheme, further adjustments are made to reflect stocking densities above 1.4 or below 0.12 livestock units per hectare used for LFASS 2006 and to reflect the ratio of cattle to sheep used for LFASS 2006. A minimum payment of £385 is available to everyone eligible for LFASS in recognition of the costs associated with running even the smallest farms.

3.4 The previous scheme encouraged farmers and crofters to keep cattle by including an uplift of 1.35 if at least 10% but fewer than 50% of eligible livestock units were cattle; and an uplift of 1.7 if 50% or more were cattle. This approach of directly coupling payments to animal numbers was not continued because of the need to comply with WTO Green Box requirements. Thus, the minimum/maximum stocking densities and the cattle/sheep ratio used for LFASS 2006 were "frozen" at that level for the interim scheme. This change also meant that data on animal numbers no longer had to be collected and verified.

Active farming

3.5 To ensure that payments are only made to those who are actively farming the land and observing cross-compliance measures, to avoid over-compensation and to prevent payments where land is abandoned, a risk-based inspection process is being used to assess activity. Data from Single Application Forms ( SAF) is used to identify farms where there appears to have been a significant reduction in agricultural activity. Inspectors then make professional judgements on the level of activity. Where (subject to any appeal) it is determined that there is land that is not being actively farmed, that there are cross-compliance breaches or that there is potential over-compensation, the LFASS payment is reduced or cancelled.

3.6 Under the interim scheme, the majority of payments for 2007 were made shortly after the SRDP was approved in February 2008. Payments for 2008 will be made early in 2009; and payments for 2009 will be made early in 2010.

3.7 Concerns have been expressed about the loss of the direct link between LFASS and livestock-related activity that had existed under the previous scheme. The previous scheme rewarded the environmental and socio-economic benefit of maintaining cattle in LFAs, and encouraged beef production, by making £20 million of LFASS payments as cattle "top-ups". Now that the production link has come to an end, there is concern about continuing these payments to those who have significantly reduced cattle numbers. There have also been calls for:

• more explicit links between LFASS payments and delivery of environmental benefits;
• further redistribution of payments away from standard areas to the very fragile areas;
• an increase in the minimum payment.

Anomalies

3.8 Concern has also been expressed that the interim scheme has led to a number of anomalies where (for example) those acquiring or renting land that did not attract LFASS in 2006 are not eligible for LFASS payments in the future. In theory, the ineligibility for LFASS should be reflected in land price or rent, but in practice factors such as land shortage can prevent the market from working in this way. To date, 72 "new" applications have been refused because the land had not attracted LFASS in 2006.

3.9 The Report of the Committee of Inquiry on Crofting ¹¹ has made a number of recommendations relating to LFASS. These include a review of rates to make them more reflective of the provision of public goods, as well as the introduction of mountain area designation and elimination of constraints that militate against newcomers.

Monitoring and review

3.10 The SRDP 2007-13 includes a commitment to monitor the impact of the interim scheme and to review it to ensure that, taken in the context of the wider programme, it achieves the aim of improving the targeting of measures aimed at improving the environmental quality of grazed land, while decoupling support from production. The SRDP set a target of maintaining or increasing the number of LFA farms with mixed cattle and sheep grazing (against a 2006 baseline of 5,931 farms), and of ensuring that, wherever, possible the grazing regime is best suited to the particular habitat. The SRDP states that measures will be revised if necessary, including if the number of holdings with mixed grazing farms drops by more than 20% against the 2006 baseline and in relation to the qualitative elements (ie suitability of particular grazing regimes for particular habitats).

3.11 Accordingly, and in discussion with LFA stakeholders, the following objectives have been set for monitoring and reviewing of the interim scheme:

• to assess the impact of the interim scheme on the environmental benefits associated with continued livestock farming in the LFAs;
• to assess the impact of the interim scheme on the social benefits associated with maintaining agriculture in the LFAs;
• to assess the impact of the interim scheme on the economic output from agriculture in the LFAs;
• to assess the geographic distribution of the environmental, social and production (economic) impacts of the interim scheme;
• to make proposals for changes in LFASS, bearing in mind the requirements of the RDR (including changes from 1 January 2010 onwards), the commitments in the SRDP, and relevant implications of the CAP Health Check.

Annex 5 sets out the methodology for this exercise, which will be completed by November 2008 when data for 2008 will be available. This work will be overseen by the LFASS Stakeholder Group and will include making proposals for the redesign of LFASS, taking into account the legal requirements of the RDR, commitments that have been made under the SRDP 2007-13, relevant conclusions from the CAP Health Check and responses to this consultation exercise.

3.12 Annex 6 sets out baseline data and recent trends relating to the selected indicators for monitoring and review of the interim scheme.

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