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The seeds of dissent

SPRING may seem a long way off to most of us, but the lambing season is getting under way in parts of the countryside.

It starts in the next couple of weeks with indoor pedigree breeds like Texels and Suffolks, before moving outdoors a few weeks later to lowland pasture areas with the so-called mules, which are crosses between Cheviots and blue and black-faced Leicesters. In April, weather permitting, the likes of the pure Cheviots will follow them on the hillsides, by which time large numbers of calves will have been delivered too.

This period is fraught enough at the best of times, but there is added anxiety this year. Farmers are slowly getting to grips with changes due next January that are arguably the most far-reaching since Britain joined the Common Market in 1973.

For many in the beef and sheep business, traditionally a relatively happy hunting ground for nationalist politicians, the consequences are looking disastrous.

If the Scottish Government fails to come up with a deal that makes the best of a bad situation, there could be untold trouble in the run-up to the independence referendum on September 18.

The upheaval concerns the farm subsidies that Scottish beef, dairy, grain and sheep farmers receive through Europe's Common Agricultural Policy (CAP). Last year this amounted to about £660 million, nearly half of the estimated economic output of the farms.

Farmers and the Government all believe that without this money, a large number of the farms would not be viable, particularly those in charge of Scotland's 6.5 million sheep and 1.5 million beef cattle. While no-one is talking about taking it all away from them, they are certainly going to get less than before under new rules that will apply between 2015 and 2020.

The EU is cutting the CAP from 41% to 39% of its overall budget to free up funds for other activities - and it has more members to share it around than a decade ago. The UK and Scotland recently learned their subsidies would be coming down by 1.6% in cash terms, or well over 10% once you factor in inflation.

The EU is also making good on long-standing commitments to the rest of the world to change the way subsidies are doled out. Back in the days of the fabled butter mountains and wine lakes, when the CAP led to the gross over-production of European food and drink, farmers were paid under a system known as headage. This meant that the more goods you produced, the more you received, giving the perfect incentive to make more than anyone needed to consume.

Headage was scrapped in 2005 in favour of basing subsidies on the amount of ground someone farmed. But some administrations, including Scotland, though not England, took advantage of concessions to set up a hybrid system that essentially meant the previous subsidies could continue. Known as historic receipts, this calculated payments from a combination of a farm's area in hectares and the amount of production that took place there between 2000 and 2002.

This allowed the same large-scale production to continue. It also made it possible for farmers who had been heavily active in those three key years to stop farming and claim the same money.

This came to be known as slipper farming, since you could in theory just kick back and keep your slippers on. Better still, you could buy the subsidy entitlement from someone else, buy the necessary hectares and draw an income without ever going near a farmhouse at all.

In future, historic receipts will not be permitted and Scotland is having to move to a system more like England's, where the size of the farming area is king. This means smaller farms which farm intensively will get far less than before. To make matters worse, the spoils are having to be shared between other farming sectors, including deer, pigs, poultry and soft fruit, for the first time.

Industry sources reckon many of the current beneficiaries will lose 30% to 50% of their annual payments. With sums like £250,000 a year not uncommon among bigger beef farms - the average is around £50,000 - some will be facing a hammer blow. Many beef farmers are sufficiently near the knuckle that this could make the difference between profit and collapse.

Jim Brown is a beef farmer based near Airdrie with 320 acres and hundreds of cattle. He is on the finishing side of the industry, which buys younger animals from other farms and rears them through to slaughtering.

"I am looking at a 50% cut in my single farm payment," he says. "We would have to take some pain, although we could operate without it. That's because we're big and we do finishing. It would halve this year's profit.

"But I've just been at Ayr auction mart. One guy with 250 cows and 1200 ewes was saying that if this goes through, come early 2015 he'll drop down to 50 cows and 400 ewes and make two guys redundant."

Sybil MacPherson, chairman of the National Sheep Association in Scotland and a major sheep farmer in North Argyll, says: "The sheep industry is in an equally perilous position. I would have a very real fear that a lot of sheep farmers would be forced out of business."

As far as these farmers are concerned, the UK and Scottish governments have both managed to make the EU changes worse. Because two-thirds of Scotland's farmland is lower-quality rough grazing, it gets much less in subsidies per hectare than the European average.

This drags down the UK's figures to below the average and means it qualifies for what are known as convergence payments, under an EU policy to bring all its member states' subsidies roughly in line.

The Scottish Government campaigned strongly for all of this whopping £185m a year to come north of the Border. Instead, Westminster decided to share it out equally between farmers around the UK.

Alasdair Fletcher, editor of The Scottish Farmer, says: "It's not fair to spread the money out in this way. Our land is not as good [as other parts of the UK], so we need more acres to do the same farming enterprise."

But if the Scottish Government won sympathy when this was announced before Christmas, it has become less popular since it published its own consultation shortly after.

Among the complaints is growing consternation around a proposal to break Scotland into two regions: one for arable farming and permanent and temporary pastures, and the other for rough grazing.

Essentially this would mean one level of subsidy for farmland in closed fields and another for open terrain, with the former roughly nine times the latter. There are not many objections to the actual amounts, but many in the industry are saying that the rough-grazing category needs to be split in two to ­distinguish between genuine farming and new slipper farming opportunities.

"For example, sheep have a value in some grouse moors as tick-moppers," says Fletcher. "People are saying that for those who are going to farm very extensive grouse moors and big landed estates, if they put two or three sheep on, they will get the same payments as somebody that's farming for a living."

Many also believe that moving subsidies away from production is fundamentally incompatible with the EU's stated desire to end slipper farming. The Scottish Government lobbied Brussels to be allowed to use a livestock density test to prevent situations such as Fletcher describes, but was refused because it would maintain the link with production.

The Government is also coming under pressure to implement a loophole known as the Irish Tunnel. It gives governments the option to soften the blow for hard-hit farmers by only narrowing the differences between per-hectare payments rather than making them exactly the same.

The industry has until mid-March to respond to the consultation, but in the meantime there is some debate about the potential consequences.

While most agree it will be bad for beef farmers, people predict different outcomes. Fletcher suggests farmers will switch to cheaper outdoor breeds and expect calves to fend for themselves, meaning slower growth and lighter carcasses. This could affect Scottish beef's quality and quantity, contradicting the Government's desire to grow the industry.

Steven Thomson, an agricultural economist at Scotland's Rural College in Edinburgh, points to two other possibilities.

Brave beef farmers might increase their herds on the rationale that the economies of scale will enable them to cover their fixed costs. Others might start taking advantage of the fact that they will get paid the same for their hectares regardless of how many animals they rear and simply cut back.

He says: "Farmers will have to sit down, take stock and work out how to adapt their systems. I feel sorry for them. Many will have invested hundreds of thousands of pounds."

He is less convinced about the fears for sheep, arguing that they are somewhat more profitable. Their numbers might even grow from farmers increasing sheep flocks at the expense of beef herds.

Dairy is another unknown. It will be hit hard, since its farms generally take up less space than beef or sheep. But it is more profitable than beef, and has steadily managed to increase its milk output over the years through advances in technology - even though the supermarkets have continually reaped most of the rewards.

As for grain, most believe it will remain relatively constant. Its fortunes are linked to the beef industry as a feedstock for cattle, but less so than before thanks to the boom in whisky and the added option of turning some strains into biofuel.

There are also those who take a very different view of what is happening. John Fletcher, a deer breeder at Reediehill Farm in Perthshire, says: "I am of the opinion that the subsidies have stultified progress in agriculture, creating a supply of commodity that has been in demand but has not been terribly innovative.

"There is a much more exciting market to be had for niche products such as farmed venison. It's disgusting that the Scottish Government is phasing in these changes over five years rather than bringing them in immediately."

This touches on speculation that many livestock farmers maximised their subsidies in the previous regime by over-farming in 2000-2002, having been tipped off by the industry. Others say they have been aware for years of what was coming.

Meanwhile, England has not collapsed through similar changes, though it must be said areas such as Northumberland suffered badly. Other areas were propped up by a favourable exchange rate and having flexible enough land to switch to other types of farming.

Whatever the case, no-one can deny that the Scottish Government has growing numbers of deeply unhappy farmers on its hands. Developments over the next couple of months should be worth watching closely.

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Agriculture

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