The Scottish Government

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1. Introduction

1.1 The Scottish Government's overarching purpose is sustainable economic growth. Agriculture can contribute to this, for example by increasing its gross value added from £800 million ¹ towards £1 billion per year by 2016. At the same time, Scottish agriculture should play its part in achieving our target of an 80% reduction in greenhouse gas emissions by 2050. Agriculture is an important part of the rural economy and society, and has a significant place in the landscape and ecology of Scotland.

1.2 The growing global concern about food supplies gives added weight to food production as the core purpose of agriculture, with Scottish farms supplying over one-third of raw material inputs for Scotland's food processing industries. Tourism and hospitality industries, as well as food retailers, also benefit from having ready access to high quality, fresh local produce. The Scottish Government's national food policy will highlight the importance of these positive linkages.

1.3 Farmers and crofters manage nearly three-quarters of Scotland's land. Woods and forests cover a further 17%. Compared with the UK as a whole, a higher proportion of Scotland's land is designated as Special Areas of Conservation or Special Protection Areas. Food production from agriculture is sustained by healthy ecosystems rich in biodiversity, and environmentally sensitive farming can in turn increase the areas of high quality habitats. The regulatory framework and codes of good practice help prevent environmental damage that can occur, for example through diffuse water pollution or soil erosion.

1.4 Nearly 70,000 people are employed in Scottish agriculture, and many more work in associated businesses, including hauliers, auctioneers, vets, agricultural suppliers and food processors. A thriving agricultural sector can help make rural Scotland a place where young people and young families will want to live and work.

1.5 Against this background, the CAP has an important role, bringing nearly £0.5 billion per year in European Union ( EU) funding to rural Scotland. The 2003 reform of the CAP aimed to improve the market-orientation, competitiveness and sustainability of European agriculture. Key features of this reform were:

• decoupling, in order to meet World Trade Organisation ( WTO) requirements and break the link between support payments and levels of agricultural production;

• cross-compliance, which made the Single Farm Payments ( SFP) conditional upon observing statutory management requirements ( SMR) in respect of the environment, food safety, animal health and welfare, as well as maintaining land in good agricultural and environmental condition ( GAEC);

• the distinction between "Pillar 1" of the CAP (support payments made directly to farmers and crofters) and "Pillar 2" (payments to land managers and others in rural Scotland funded through Rural Development Programmes).

Within this EU-wide framework, decisions were taken in Scotland to:

• base SFPs on levels of support received during the historic reference period 2000-2002;

• participate in a UK wide national reserve (funded through a 4.2% scale-back of SFPs) in order to deal with certain situations caused by the switch from the coupled to decoupled subsidy regimes;

• introduce a Scottish Beef Calf Scheme ( SBCS) funded through a national envelope created by annual top-slicing of 10% from beef sector SFPs;

• use additional voluntary modulation, as well as EU-wide compulsory modulation, to help fund the Scotland Rural Development Programme ( SRDP) with money transferred annually from SFPs.

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