April 20th, 2000

SCOTTISH LANDOWNERS' FEDERATION 2000 CONFERENCE - NAPIER UNIVERSITY

Rural Scotland is valued by rural people for its quality of life and for its special way of life. Most important of all, it provides their livelihood -whether Duke in his castle or shepherd in his bothy. Rural Scotland is valued by our town, city and suburban neighbours as their ventilation hole in the ice, for their sometimes idealised picture of the landscape, for a sentimental view of the simple life. Less and less is the food production role given much importance. Indeed it is increasingly viewed by them with suspicion as inimicable to their priorities. This is not peculiar to Scotland. It is happening all over Europe - if at varying speeds and to varying degrees. There are therefore challenges facing the rural areas of Scotland and Europe and those who live and work there. I can but give you a quick overview of the trends which I see, what European policy is and what we should try to do about it.

Globalisation and liberalisation of world trade, consumer-led food safety and quality demands, environmental and animal welfare concerns, the need for recreation space, technology and political developments (such as the collapse of communism and the resulting opening to East and Central Europe) are the new realities facing us today. These changes will affect not only agriculture but all aspects of our rural life. What happens in and to the countryside matters to an increasing portion of the European population, even if food supply is not their prime concern. So agriculture and rural politics have an important place in European politics even now and even if the balance of influence has shifted significantly from country dweller to town dweller.

The future of rural Europe and of rural Scotland is still an important political issue at the European level.

With the relative reduction in population tied to farming and rural occupations, so has the political clout of the countryside (or more specifically farming) declined. At the same time Friends of the Earth, Compassion in World Farming and like organisations are gaining political clout and mobilising it very professionally and effectively. So rural life is changing as rural Scotland becomes subject to the impact of big technological, political, social and economic forces. European policy cannot stop these changes but it can help to set the framework within which rural areas may adjust. This is an ongoing process in which the SLF, SNFU, countryside interests and individual farmers and landowners need to keep well informed and well involved.

The European institutions are accessible and open to constructive lobbying. There is a will to get things as right as possible and, even with diminishing clout, the farming and rural lobby still has much greater force at the European level than it seems to have at the UK and Scottish levels. We must use it.

We have seen the gradual move over time from a focus on securing food supply, through an agriculture and food production focused CAP, to a broader rural policy. The current framework for rural policy at the European level has its roots in the 1950's in the Mansholt Plan, drawn up at that time for 6 Member States. There was a clear view then of what the countryside was for, and as there were so few Member States, it was easier to ensure a consensus to support this view. Agriculture was perceived to be the primary function of rural areas and, consequently, was the key economic sector. Agriculture's primary role was to ensure security of food supply in the immediate aftermath of war and deprivation, when food shortages were the norm - or at least a very vivid memory. There was a secondary purpose concerned with ensuring the socially smooth transition of the rural population into the towns as the balance of employment shifted. As we start the new Millennium, this transition is pretty well complete.

Indeed there has been something of a move back to the country - a process which brings its own particular problems but also new blood and new money.

New challenges are in store for rural Europe and Scotland. Social and economic trends have produced a fundamental change in views as to what the countryside is for and in the electorate's values and priorities for public policy.

What are the dominant forces in European rural policy now?

Agriculture Farming has shaped the face of Europe's countryside and is largely responsible for the environment, which we take for granted today and which is so prized by townee as much as countryman. Therefore, increasing the competitiveness of farm produce has to live alongside preserving the diverse environment of the countryside. Agenda 2000 takes account of these considerations and is an important step towards reaching this compromise of interests. This reform puts particular emphasis on sustainable production and promoting competitiveness in external and internal markets. Rural development has become the second pillar of the CAP and the multi-functional role of agriculture is strengthened.

The central objective of CAP reform is to increase the market orientation of agriculture. This is seen as an essential precondition for a viable European agri-food sector in the context of greater environmental emphasis and broader rural development.

While we had become used to centralised implementation of European agricultural policy, subsidiarity is now the watchword. Thus measures which have been decided in broad outline at the European level now have to be implemented at national and regional levels.

Unfortunately, the implementation of these changes comes at a difficult time for EU agriculture and UK farmers in particular. The BSE crisis has taken its toll, not least on the Exchequer, but also on farmers' capital. The strength of sterling has also reduced international competitiveness and squeezed margins in terms. The Government has already been called upon for emergency payouts. Will it be as generous as other Member States in this new devolved environment? History is not encouraging.

As to the single currency, I do not see much likelihood of the UK joining for at least five years and probably ten - if ever. Even if a referendum immediately after the next general election were positive and the Government applied to join there are several preliminary steps required. First, we have to meet the entry criteria, which include at least two years in the ERM with an exchange rate and interest rate which are stable vis--vis the Euro.

Possibly a political arrangement could short circuit this, but the story of our previous ERM experience, when we doggedly refused to adjust, is not a good augury. With an independent Central Bank, the Government only has fiscal policy available to it. In any case, there will be much argument in the UK and with our neighbours as to what is the correct permanent exchange rate.

There will also be fears that the UK will destabilise the whole box of tricks, if we don't serve our full apprenticeship. We missed our opportunity to enter at the outset, so now we are the suppliant - if indeed there is the wish and the will in the British people to join and give up the pound. At the moment, the opinion polls would indicate that this is not the case.

But back to Europe's rural and agriculture policy. The Agenda 2000 deal, reached at the Berlin summit last year, offers increased national discretion to deploy CAP resources through the new Rural Development Regulation (RDR).

Member States can redirect additional resources to the RDR by "modulating", that is by reallocating up to 1/5 of the compensation payments that are paid to farmers as a result of the 1992 and 1999 CAP reforms. This is an option which attracts the present UK and Scottish administrations. But modulation means that these redistributed monies must be matched with additional funds from the UK Treasury. Each Member State decides how to spend the money in the RDR budget and this decision has been effectively devolved to Scotland. The idea is that modulation should be considered as a way of redirecting resources away from production-related payments towards measures that enhance the country-side, such as agri-environment schemes, forestry and promoting the adaptation of rural assets such as disused farm buildings or picnic areas. I am aware that the SLF has been actively involved in lobbying for a sensible approach to reforming agricultural support payments as part of a move towards a broader rural policy. It is surely the sensible way to go, so long as most of it ends up with farmers and landowners for retirement schemes, hill farm support or restructuring purposes and is not squandered in politically correct rural good works such as renovated community centres.

One important facet of current European policy is that Member States should present proposals for rural development which are formulated at the most suitable regional level. Member States and regions have been asked to choose those measures which best meet their needs and priorities from the range of options provided by the new Rural Development Regulation. Scotland submitted its own Rural Development Plan in December 1999 with further necessary documents submitted in January when the formal process of analysis began.

One of the key European measures concerning rural areas is the regulation of May 1999 concerning support for rural development by the European Agriculture Guidance and Guarantee Fund.

The principles of rural development which it sets out are:

• multifunctionality of agriculture, i.e. the varied role over and above the production of foodstuffs;
• a multisectoral and integrated approach to the rural economy in order to diversify activities, create new sources of income and protect the rural heritage;
• flexible aids for rural development based on consultation at regional, local and partnership level;
• transparency in drawing up and managing programmes, based on simplified and more accessible legislation.

Europe has also allocated Scotland 970 million over the next 7 years via the Structural Funds - the Regional Development and Social Funds. This funding can be a big help in facilitating the diversification of rural businesses.

For example, the Highlands and Islands have been equipped with ISDN telecommunications which makes working from home in the most varied and modern occupations a possibility. Roads, airfields, ferries and ferry jetties have been provided or upgraded, thus reducing the costs and hassles of transport. There is finance for training and retraining in local further education colleges so that rural people can develop new skills for different employment or to set up their own businesses. A major programme of this sort is currently being developed for the Borders and Dumfries and Galloway and distance learning (of special benefit in rural areas) will be part of this.

Environment Environmental strategies require the development of a broad range of policy instruments so as to deliver policies which are sensitive to rural needs, again in line with subsidiarity. This means dealing with specific projects at the most appropriate level. The hope is that this will result in a rural policy which protects and enhances the environment, while at the same time also creating new economic opportunities, which are appropriate for that region.

Since 1992, the European Community has purposely supported agricultural production methods which respect the environment and biodiversity. Rural development policy in the 21st century confirms the essential role which farmers play in providing environmental services. In the new generation of rural development programmes, agri-environment measures are the only obligatory element for Member States (although they remain optional for farmers). The aids are available to farmers who undertake agri-environmental commitments for a minimum period of five years. This aid is granted annually and calculated according to the income loss and additional costs resulting from the undertakings.

Enlargement of the EU to 21 and possibly 28 countries is one of the main challenges of the future. It will be one of the priority tasks for the next few years with the objective being to make accession successful for both sides: the current 15 Member States and the applicant States.

Enlargement negotiations with the six first wave countries were formally started in March 1998. Although some chapters have been opened for negotiation, the Agriculture chapter still has to be opened. With the remaining six candidates, the negotiations were formally launched on 15th February and the first chapters will be opened shortly.

Enlargement, in terms of agriculture, will substantially increase the EU's production potential. Bearing in mind the structural adjustments still to be made by the applicant countries and the transition process, this increase will not be apparent immediately. The EU is the largest importer of agriculture products in the world. Full integration of these countries into the single market will provide new market outlets for products from these countries. This will mean more competition in certain sectors for our producers, while their market potential for absorbing our food products will be slower to develop. There will, however, be opportunities as time goes on and their standards of living come up to EU levels for high quality and added value products.

Enlargement offers many opportunities to the candidate countries in helping them make the most of their agricultural potential, although there are structural handicaps which they must first overcome. The current negotiations on accession are focusing on the necessary economic, social, political and administrative challenges to be met.

According to the European Commission's working assumptions, the following scenarios have been identified.

In the milk sector, an increase in production and a slightly lower increase in consumption would increase the EU's net export balance from 2.3 Mio t in 1999 to 2.8 Mio t in 2006. Hungary and the Czech Republic are expected to have the largest potential export increases. Total beef and veal production in 2006 is expected to be at the same level as in 1998. With increasing consumption, several applicant countries could become net importers of beef.

For pig meat, the European Commission expects the applicant states, in particular Poland and Hungary, to continue to be net exporters. With regard to cereals, assuming only a slight overall increase in cereals area and a continuing increase in average yields, the total cereal production is expected to increase to almost 90 Mio.t in 2006. Domestic use will also increase but at a lower rate thereby resulting in an increase in the amount of surplus cereals available for export.

Direct payments, which were introduced to offset losses of income as a Result of the reduction in price support, are one of the most controversial issues in the context of enlargement. If the system of direct payments is extended to the applicant countries, it could lead to major economic distortions. It would be better to help these rural economies overcome their existing structural handicaps through specifically targeted policies and transitional support in the most vulnerable areas. Negotiations on agriculture are expected to start in June. Current circumstances indicate that we risk having a two-speed European agriculture policy. This makes it all the more imperative that structural reforms in the applicant countries are implemented effectively so that we can continue to have a single market in agriculture.

Enlargement is a major challenge. However, Agenda 2000 has made this more achievable.

Global

On the broader international scene, there are also many challenges which have to be met. In the context of the WTO, the EU is committed to the objective of progressive multilateral liberalisation based on non-discrimination. The EU believes that environmental considerations should be integrated into the new round of negotiations. But this is a matter of dispute and ultimately of compromise with the other WTO member states, which see this as a protectionist ruse. It is very doubtful that we will be able to impose internationally the animal welfare standards which we choose to impose on ourselves.

The EU also favours more countries benefiting from membership of the WTO and has been an active sponsor of many applicants. On the other hand, there are limits, and China is testing those. The UK has been vociferous for the reform of the CAP because of its cost. Now we have it - accelerated by enlargement and the environmental lobby. It is going to be a tougher, rougher business. While the political clout lasts, we should use it.

So what are my conclusions?

If you think life in farming is tough now - you have not seen anything yet. But there are also opportunities if we are prepared to adjust and adapt in response to the market place. Commodity products will earn you world prices and those prices will be in dollars or Euros. So this type of product will only be viable where our costs of production are world comparable after transport costs. Financial support will continue shifting away from productto direct payments related to politically acceptable objectives such as environmental and recreational functions. With food products, emphasis will have to be on specialisation, quality, added value, regional branded specialities and artisan products (but always subject to stricter and stricter food safety regulation). New co-operative and commercially viable methods of marketing, selling and distribution can provide the producer with a larger share of the product's final price. Rural ventures must become diversified in the broadest sense, open to all opportunities and sensitive to the shifts in market requirements and to public opinion. This is where the opportunities for further economic prosperity in the countryside will lie.

The Scottish landowner and farmer must be conscious of his relative competitive advantage vis--vis other world producers and even more specifically with EU producers. This applies as much to tourism and hi-tech projects as it does to forestry and food production.

While transport costs and logistical hassles are certainly a factor in this comparative advantage, the application of modern technology to Communications and product processing can shift the parameters significantly.

All these are elements which drive European policies concerning agriculture and rural development. But never forget - the EU is a political as well as an economic entity. It is very responsive to the balance of public opinion as transmitted via the Member State governments, Members of the European Parliament and the media. Even if many of the detailed decisions on priorities are being devolved to national, regional and local levels of government, it is still important that your views, the views of Scottish landowners, farmers, workers and dwellers in the countryside, should be made clear to the European bodies concerned. At the same time, you cannot afford to be bashful or parsimonious in the way you present your case in London, Edinburgh and even to your local authority. I can assure you from the viewpoint of an elected Member of Parliament that the campaigns of the more extreme animal welfare and environmental lobbies are clearly very well funded, professionally presented and increasingly gaining ground in mainstream public opinion. If we really place value on our interests in the countryside, we must be equally prepared to place our resources behind efforts to shape public opinion. And these efforts are best if proactive and positive rather than defensive and always on the back foot. One of the reasons for optimism is that we are members of an European Union which still has strong rural interest groups. Solidarity across Europe on such issues will stand us in Scotland in good stead.

It is going to be tough and rough. But there are also great opportunities if we are prepared to adapt and respond to developments. That rural ventilation hole in the urban ice pack has an increasing value. It is up to us to find ways of mobilising that potential and graduate to standing on our own feet with less and less dependence on intervention, subsidy and protection.