The Royal Society of Edinburgh (RSE) is pleased to respond to the Scottish Executive Rural Affairs Department's discussion document on a forward strategy for Scottish agriculture. The RSE is Scotland’s premier Learned Society, comprising Fellows elected on the basis of their distinction, from the full range of academic disciplines, and from industry, commerce and the professions. This response has been compiled by the General Secretary with the assistance of a number of Fellows with substantial experience of agriculture and land use.

The RSE welcomes the Department's development of a long-term strategy for Scottish agriculture. This is an urgent need not only to address the pressing problems of the industry but also to allow the progressive development of a well-rounded rural policy. The strategy will, however, need a clear definition of the term 'Agriculture' - what is included and what is excluded. For example, the discussion document appears to include horticulture, but fails to explore the place of other land uses, such as forestry.

The different sections of the discussion document are addressed below:

Section 1: Rural Profile

The document appears to treat the agricultural industry as a simple activity limited to the supply of raw materials. Certainly there is some reference (p 8) to what is called the 'indirect contribution to the rural economy'. However, the overall thrust is of a strategy being directed towards raw materials production with little reference to their subsequent transport, processing, packaging, marketing and sales. With such a narrow approach it will be difficult to attain a properly focused strategy whose objective should be to achieve an overall integration of those activities for the greatest economic benefit to Scotland.

The agriculture industry also has an important part to play in the management and conservation of the wider countryside. While there is reference to agriculture's contribution to the environment in terms of protection of Sites of Special Scientific Interest (SSSI's), agri-environment schemes and waste management, the influence of agriculture on the management and care of the wider countryside goes beyond this.

Section 2: Future Challenges and Opportunities

With regard to world prices, it will be difficult for Scottish Agriculture to compete on the World Commodity market because of fiscal and environmental constraints. Scottish agriculture could therefore concentrate on: (a) local produce for supplying local communities; and (b) speciality added-value products with a high-quality label, so that it can be successful in markets both within and outwith Scotland. The production of many commodity materials (grain, beef, sheep, milk, pig meat, poultry meat, eggs, etc) are unlikely to be profitable for Scottish Agriculture. In fact, some of these commodities, such as sheep, are exported to England for the value-added processing and packaging and then imported back to Scotland for retailing.

There is also much evidence to suggest that there is a range of deficiencies in education and training across the land-based industries. Any strategy for the land-based sector, including agriculture, should highlight the need for education and training. In addition, there should be recognition of the problems Scotland faces in being peripheral to mainland Europe and having a difficult climate.

In terms of the opportunities for the Scottish farming industry, the paper rightly draws attention to better marketing but could say more about the opportunities to use the "clean environment" as a positive factor.

Section 3: The Way Ahead

3.1 What do we in Scotland want from our farming industry of the future? Are farmers simply private businesses making a profit where they can or do we want other economic, social and environmental benefits?
Because of the importance of agriculture in rural development and natural heritage management, there must be public policy recognition of its wider economic, social and environmental role. In addition, agriculture cannot be debated in isolation from other industries/activities and should be set against such relevant areas as forestry, education, environment, fisheries, recreation, tourism, food processing, distribution and sales, transport, service and supply industries. In other words, we urgently need a much more holistic approach to matters affecting the rural economy.

However, national governments are no longer in a position to isolate themselves, or any industrial sector, from the effects of the global economy. Thus it is important that agriculture is not overburdened or overly restricted in ways that disadvantage its international competitiveness. While wider recognition and support should be given to the role of farming, sensibly pursued, in influencing and enhancing the rural landscape and improving the environment of Scotland, in the current economic climate farmers' responsibilities to the environment will be difficult to fund. Therefore, at least in the short-to-medium term, environmental elements of agricultural management will need to be subsidised.

3.2 If it is the latter, what are these extra benefits? Do we want the existing benefits to change? Do they vary in different parts of Scotland, depending on the economic, social and environmental needs of each area?
There is a case for the existing benefits to be more explicitly recognised by farmers, by the public and by public policy. This in part is a feature of the Scottish Land Reform process and it is also recognised in the ongoing CAP reforms, such as Agenda 2000. However, there is a need to maintain momentum in the reform process and to develop a framework of clear and transparent policies within which the industry can plan its long-term future. It must be recognised that agriculture suffers from a long time scale of change, thus abrupt or enforced short-term changes can be very damaging.

In effecting more transparent public policies, it is essential that emphasis (and payments from public funds) should be based on the principles of compliance, rather than on the principles of ‘cross-compliance’ or so called parallel measures. The latter approach is inefficient and potentially contrary to natural justice. Subsidies must also be carefully targeted if they are to achieve their desired ends.

There are distinctive ‘extra benefits’ in some areas of the country and these should be recognised. They are already recognised through some existing designation schemes or area management agreements and these provide a sound approach. However, over-burdensome restrictions and bureaucracy should be avoided. Enhancing the environment has obvious benefits for conservation and biodiversity but it also has benefits for tourism as well as hidden effects on the economy by improving the rural habitat as a good place to live and work in.

3.3 How do we reconcile competing demands? How much do we value the economic benefits provided by farming compared with environmental and social benefits which may require different decisions? What about the UK's need to comply with European environmental requirements? Can we develop approaches which give us more of everything?
Competing demands have been reconciled on many farms in many areas of the country. Reconciliation requires a balanced approach, and also public funding support for conservation or environmental management operations that are seen as of general public benefit and which have a negative impact on agricultural competitiveness. However, EU requirements on environment and agriculture can create potential barriers to the development of local solutions. Hard decisions will need to be made, with the acceptance that in some instances improving environmental or social benefits will necessarily have a negative impact upon agricultural income.

3.4 What are the main structural issues limiting the viability of the industry? Do we understand them properly? Is it sensible/feasible to address them?
During its recent crisis many of the industry’s expressed concerns have focussed on ‘external factors’ such as exchange rates, transport costs, costs of the BSE measures and the collapse in the international trade in skins and wool. However, whilst the effects of the external factors have been significant, many of the underlying problems of Scottish agriculture are structural and long term.

In general, the Scottish industry suffers from the weak bargaining position of primary production in the food chain and this constrains the levels of return from the market. As in the remainder of the UK, this is exacerbated by the size and market strength of the multiple retailers and by the fragmentation of the small businesses that make up the primary production sector. As a consequence, there is a failure in the efficiency and effectiveness of the food supply and marketing chain, which operates to the primary producer's disadvantage.

It is sensible and feasible to address the issues, but the initiatives required must come from the farming industry as well as from Government. Indeed in many instances the role of Government can only be facilitative.

With reference to transport, an integrated transport system would assist the development of a robust strategy which does not leave the products at the farm gate but includes consideration of the measures needed to bring those products from 'plough to plate'.

3.5 What is the best means of tackling these issues - individual farmer's decisions; collective action by farmers; better information or advice for farmers;action by Government and its agencies?
There is no single route of action that will address all the problems. Rather, what is needed is action across a range of fronts. This includes actions by individual farmers, farmer’s co-operatives (both formal and informal) and Government and its agencies.

3.6 Some farmers look to be more successful than others. How can they learn from each other?
There is a legacy of benchmarking and knowledge transfer in Scottish agriculture that had its origins in the expansion and development that took place after the Second World War. Over the last twenty-five years this has fallen into substantial decline. It should now be rekindled with the express purpose of effecting the transformation of the Scottish industry that is required to meet the future.

Luckily, the Government Agency that possesses the skills and experience of agricultural development, the Scottish Agricultural College (SAC), continues to exist. With the appropriate public resourcing for the task, SAC could effect the benchmarking and knowledge transfer that is required. Unfortunately, the current insistence on charging for all advice which can be of direct financial benefit for the farmer concerned means that there is now more reluctance by some farmers to pass on useful information to neighbouring farmers who have been unable or unwilling to pay for advice. This means that the traditional 'top down' pattern of communicating useful information is now less efficient than it was in the days when agricultural college advice was freely available.

3.7 What are the strengths of the Scottish agricultural industry? Can they be turned into future success stories?
Scottish agriculture has a tradition of technical resourcefulness and innovation, allied to a consumer image of quality. This has traditionally allowed the industry to operate at comparatively high technical efficiency and to provide goods to the quality end of the market. However, the industry has suffered a long-term failure to develop value added processing. As a result it has progressively become a largely commodity supplier. This trend must now be reversed. More effort must be directed into developing value added processing, and achieving supply chain developments that will claim a greater return of consumer expenditure for the primary producer.

This presents a considerable challenge, but since the industry is starting from such a low base there are substantial opportunities for ‘success stories’.

3.8 Are there new opportunities appearing, perhaps as a result of new technology or customer trends?
Yes. Recent IT developments, leading to internet marketing, and the surge of public interest in quality assured speciality food and new ‘retail models’ all offer significant opportunities. Possibilities, in the short term, also lie in the development of new markets and more, perhaps novel, value-added products and the increasing demand for "naturally-produced" and "non-intensive" meat. To this might be added meats from other species and livestock products (e.g. home-produced cheeses, specialist fibres for high value products, sold perhaps from farm shops and farm craft centres). The above prospects tend to relate to quality products with added value targeted to high-income buyers. However, added-value niche markets are, by definition, small in number. If too many people follow the lead of one successful 'niche market operator' the niche will lose some or all of its profitability. Clearly the quality product market for high-income buyers has its limitations for this reason.

3.9 What do the industry and other organisations involved with the industry have to do to take advantage of this?
The underlying need is for co-ordinated action and for sufficient government funding to facilitate the co-ordinated initiatives required. A Government agency approach will be needed initially to drive the initiatives forward, but many would become self reliant in a relatively short period of time.

Whilst some existing organisations, such as the Scottish Agricultural Organisation Society, could assist, they might be too much part of the existing industry to lead the kind of step shift in co-operative initiatives required. Rather it would be better to set up a small ‘task force’ organisation.

3.10 Should the new strategy say anything about the likely future shape of the industry - the size of farms or the output produced by them?
There is a long history of Government policy trying unsuccessfully to second-guess market developments Any statements about farm size or output would therefore be regarded with scepticism. The reality is that total farm business sizes historically have always tended to increase, and they will continue to do so. Whether this will be through a process of increased farm size, or through co-operative working between independently owned smaller landholdings, is not of great concern.

3.11 Do answers given to the other questions in this section have implicit consequences for industry structure?
Implicitly, the industry must develop a greater structural strength in the primary sector, and must seek value-added processing opportunities and supply chain mechanisms for increasing returns to producers. Structurally this either means a smaller number of larger, business orientated farmers or a greater degree of ‘collective’ working through co-operatives or farmer owned businesses. Probably both will occur. It should be remembered that farmers in Scotland, and the UK in general, are far less inclined to support voluntary co-operative organisations than most of our EU competitors.

3.12 What changes are needed to take account of the increasing trend towards part-time farming?
Potentially, there are a number of areas where legislation or application of regulations could be modified to assist part-time farmers. Many of these would also assist self-employed people, part-time workers or small businesses generally. Some examples would be the reduction in bureaucracy in the operation of grant schemes and better public funding arrangements for small business training. In general, support needs to be given toward increasing profitability as at present the income from part-time farming in no way approaches that which can be achieved from part-time work in other areas.

3.13 What are the main advantages and disadvantages of the way the current support mechanisms operate? Do we understand them properly?
The main advantage is that the costs of the measures are quantifiable by Government at the outset. Therefore expenditure is well controlled and accountability of expenditure is good.

The main disadvantages are that the mechanisms are widely seen by the public as ‘undeserved’ and therefore of questionable merit. In reality the funding is not always well targeted towards the farmer’s delivery of public goods and services. In some cases payments also counteract market forces for agricultural change. This is probably to the long-term detriment of the industry.

3.14 What are the main changes which would assist the commercial viability of the Scottish industry?
Should we stop supporting some activities and give more encouragement to others?
The main change that would assist the commercial viability of the Scottish industry would be for primary producers to achieve the return of a greater proportion of the end-value of their produce. This implies less commodity retailing, more local-added-value and better producer management of the supply chain.

There is no present basis for the public justification of increased funding for agriculture. Therefore if new initiatives are to be taken they will need to reflect some redistribution of existing funding. This is an area where the close ties of domestic policy to EU policy may create barriers to progress.

3.15 Support can take various forms - subsidy, grant, loans, advice - which may or may not be linked to conditions or requirements. Should we change our existing approach to any of these?
All forms of public support should be targeted for clearly identified purposes. These purposes should be defined by the terms of public policy and should involve linked conditions and requirements as necessary to achieve their objectives and to provide proper public accountability.

3.16 What changes would assist the industry to provide the environmental, social and other economic benefits asked of it? How far should we be prepared to pay for these benefits?
There must be greater efforts by Government to be clear and open about what it expects industry to provide. It would then be possible to determine what those benefits are worth to the community. However, experience in a range of sectors suggests that once ‘public benefits’ are closely specified and priced there is a ‘market expectation’ that their supply will always be purchased. Thus what was once available ‘free’ becomes a saleable item.

There could, however, be some move away from production-based support, towards support that rewards positive management for the public good, for example, for biodiversity protection and enhancement and good landscape management.

3.17 Do these need to vary in different parts of the country? Should we be taking a more holistic approach?
It would be sensible to move to a system of area support which can then cater for a range of rural activities and effectively target assistance. It could, however, distort trade land values by requiring a landholder to shoulder different social or economic responsibilities towards the community from those incurred by a landholder in another area. In general, however, a move to a more holistic approach is essential (see 3.1).

3.18 What are the main links between agriculture and wider rural development policies? What are the consequences for these policies of the changing nature of the farming sector?
The agriculture industry makes a ‘small’ direct economic contribution to Scotland, providing about 2.2% of GDP. However, it makes a major contribution as a supplier of raw materials to the Scottish manufactured products industry, which accounts for about 13% of GDP. Some 89% of Scotland’s land area is classified as ‘rural’ and almost all of this is cultivated or managed land, used for agriculture or forestry. The rural areas provide about 27% of Scotland’s national employment, and on average some 12% of rural employment is in the land-based sector. In the more remote and economically fragile areas of the country this figure can rise to well over 30% of employment. Finally, but very importantly, agriculture and forestry provide the main inputs into the management of Scotland’s rural areas and rural environment, and as such have created and maintain the distinctive landscapes and habitats that make such a contribution to Scotland’s natural heritage.

In short, a national strategy for agriculture is essential to underpin the national rural strategy and the national strategy for natural heritage. As a consequence, farming decline (and in some areas land abandonment) has severe rural policy implications. There is no simple way that these implications can be addressed. However, if a major restructuring of agriculture takes place, it may ultimately become necessary for Government to take a more direct role in the purchase and management of land in the more remote and economically vulnerable areas, as a means of stabilising the local economy.

Additional Information
In responding to this inquiry the Society would like to draw attention to the following Royal Society of Edinburgh response which is of relevance to this subject:

Towards a Development Strategy for Rural Scotland (March 1998);
Review of SOAEFD Agriculture-Related Scientific Research Programme (November 1998);
National Parks for Scotland (November 1998);
People and Nature: A new Approach to SSSI Designations in Scotland (November 1998);
Foresight for Agriculture, Horticulture & Forestry report on Forestry and Wood Products (January 1999);
National Scenic Areas Review (April 1999);
Non-Food Crops (May 1999);
EU policy on Biodiversity (May 1999);
Developing Scotland’s Clusters (June 1999);
Study of Environmental Planning (October 1999);
The National Parks (Scotland) Bill (March 2000); and
Royal Commission Study of Environmental Planning (July 2000).

Further information is available from the Research Officer, Dr Marc Rands