Leading the way in Agriculture and Rural Research, Education and Consulting The impacts of CAP reform on Scottish farms Shailesh Shrestha, Bouda Vosough Ahmadi, Andrew Barnes and Steven Thomson Policy, Innovation and Behaviours Team Land Economy, Environment and Society Research Group 150 th EAAE Seminar, October 22-23, 2015, Edinburgh, UK

Background CAP reform post 2015 –Internal convergence - redistribution Scottish farm payment –Historically based –Higher payments to more intensive farms than extensive –4.6 m ha eligible land (5.6 m ha of agricultural land) Implemented at MS level 2

Livestock sector Scottish beef and sheep production –34% of total agricultural output –91% of agricultural farms –Wide diversification Scottish dairy: –15% of agricultural output

Livestock sector  Farm payment support contributes a major share of farm margin  Many beef and sheep farms uneconomic without support; less incentive to maintain stocking rates  6% exit happened in period due to decoupling of payments  Implications for: environment, rural communities, farming families and animals

New payment scheme 3 regions payment scheme –Three rates of payment Region 1: arable land, temporary grassland and permanent grassland Region 2: rough grazing land LFA category B, C D & non-LFA Region 3: rough grazing LFA category A –Voluntary coupled payments ( Calf + Ewe payment) 5

Impact on farms Redistribution of payments >85% of land – LFA, majority of which are extensive farming systems Effect at farm level could be severe especially for intensive farms Impact will vary across farms The regional distribution would be significant 6

Scottish farm types 7

ScotFarm – an integrated farm level model Linear programming –optimising profits: revenues +subsidy payments - costs –Limiting farm resources Farm system analysis –Replicates farm activities –Financial and physical parameters –Relationship between activities –Decision makings External models –crop, grass, feed, market models imeframe yearly runs with month as a subset Modules – livestock, crop, grass, feed ScotFarm is run under a baseline scenario (current condition) and CAP reform scenario (future condition) 8

ScotFarm – an integrated farm level model 9 Crop rotation model Feed model Grass model Price projections

ScotFarm – an integrated farm level model Dynamic –Runs over 15 year timeframe –yearly runs with month as a subset Model run –Baseline scenario (SFP) –CAP reform scenario (BPS) 10

Data input (FAS) Scottish Farm Accountancy Survey 500 farms per year data used Physical data: size (land, animals), labour Production level: milk, crop and grass yields Financial: revenues, GM, payments, costs Management: feeding, land use, stocking rate 11

Data input (others) Coefficients: LU, feed requirements, labour requirements Costs and prices Management decisions: housing, feed supplements, scenario based Price projections: –PE models FAPRI, CAPRI 12

Results: Dairy farms 13

Results: Beef farms 14

Results: Sheep farms 15

Results: Crop farms 16

Regional distribution 17

Regional distribution 18

Change in farm profitability 19

Regional distribution 20

Regional distribution 21

Change in farm profitability 22

Regional distribution 23

Regional distribution 24

Change in farm profitability 25

Summary Dairy farms showed the highest reduction in farm payments A majority of beef farms reduce profitability but still stay in business Sheep farms are the largest benefiters under new payment rates Overall redistribution of payments from intensive to extensive regions Spatially payments can be seen moving from one region to another 26

Limitations on data survey limits farm > €25,000 of output and no part time farmers) The small and croft farms not represented Information on soil very limited Off-farm incomes (and subsequent impacts on viability) is limited Price projections 27

Acknowledgments  The Scottish Government for funding  The Quality Meat Scotland (QMS) for data This research was undertaken within the Scottish Government Rural Affairs and the Environment Portfolio Strategic Research Programme , Theme 4: Economic Adaptation.

Leading the way in Agriculture and Rural Research, Education and Consulting