The submission by Orkney Islands Council to the Scottish Executive on proposed CAP reforms paints a bleak picture of the future for the farming sector and those who work in it, writes chief reporter, Margaret Carr

Agricultural policy reform could have a catastrophic effect on the county, according to Orkney Islands Council.

In its submission to the Scottish Executive on reforming the European Common Agricultural Policy (CAP), the council says a productive and viable agriculture industry is central to a successful Orkney economy.

“The redistribution of money out of the Orkney economy, the potential reduction in production and subsequent drop in economic activity could have a catastrophic effect on Orkney,’’ the submission says.

The value added to the Orkney economy by the agricultural sector is estimated at around 14 per cent – more than eight times the corresponding figure for Scotland as a whole.

Of a total Orkney workforce of about 8,100, the agricultural workforce is about 2,200.

The submission quotes a study by Scottish Agricultural College which suggested that Orkney would lose 20 per cent of its cows and 60 per cent of its fattening cattle under a fully decoupled scheme.

A study by chartered accountants J. & D. Oddie looked at figures from farms covering more than 8,000 cows (28 per cent of the total) which suggested that in 2002 the support payments received in Orkney added up to 120 per cent of the net farm profit.

This would mean Orkney beef farming was being subsidised by £30 per head of cattle, which would total £900,000.

“Rational businessmen will not indulge in a non-profit-making enterprise indefinitely,’’ the submission says. “They will make decisions to cut production or reduce costs to protect their businesses.

“The reforms will also result in a net loss of subsidy to each unit of approximately 8-10 per cent as a minimum.’’

The effect on the isles will be amplified because farmers there have fewer options to diversify, have extra costs and tighter margins of profitability.

“The push to reduce costs will have a serious impact on the supply chain with agricultural merchants and suppliers being particularly hard hit.

“Hauliers, markets, slaughterhouses will also be hit badly as a result of less cattle being handled by the units.’’

The submission describes the effect on employment in the isles as devastating.

“Since the farms operate in areas with few alternative sources of employment, the supply chain cannot readily diversify to other activities...and these jobs would simply disappear.

“This economic degeneration of the islands would carry through to the Mainland of Orkney, thereby exaggerating existing problems relating to social degradation of these islands.’’

The submission says health services, schools and other infrastructure on many islands are already under threat.

“Without viable economic activities on these islands, these proposals will accelerate the point at which such services become undeliverable.

“The critical mass of cattle is directly related to the critical mass of people and the costs of service delivery in the islands.

“The marketing of Orkney through the ongoing development of an Orkney brand is based on the values of a vibrant rural community, producing quality products to recognised quality standards in a clean, pristine environment.

“Tourists and visitors, whether coming for archaeology, birdwatching or a fiddle school, expect people to still populate these areas.

“A desolate landscape cannot deliver any of these aspirations.’’

The council urges the Executive not to choose the option of paying a single farm payment at a flat rate across Scotland rather than on the historical record of the individual farm.

Seerad estimates payments to Orkney farmers would halve, losing them £6 million a year in total, under a flat rate system.

The entitlement to single payments will be tradeable, with Orkney farmers’ entitlements higher than the Scottish average. This would be attractive to farmers on the Scottish mainland and could result in the loss of the entitlements from Orkney.

The council’s submission suggests ring-fencing the Orkney entitlements in the same way as the current milk quota is ring-fenced.

Orkney Meat would go from making a £300,000 profit to making a £9,000 loss if 20 per cent of its throughput is lost, says the submission. That is without taking into account any drop in the beef price which is widely expected to follow the implementation of the CAP reform.

“Such a drop will be devastating for Orkney Meat and the 30 employees currently working at the plant.

“Orkney Meat feel a sense of betrayal in that they have taken on board the aspirations and ethos of the Forward Strategy yet within a couple of years of the strategy being developed the business is threatened by a change in farming support policy totally beyond the company’s control.’’

Orkney Auction Mart believes it will be one of the first businesses to be hit by the reforms.

“It is thought that the younger generation of farmers, which are the future of the industry, will come out of beef production if it is unprofitable with no signs of an improvement.’’

Projected figures show that one year under the reforms would turn the Mart’s £48,000 profit into an £88,000 loss.

Birsay Farmers, a co-operative with 700 members and a turnover of more than £3.5 million, would find diversification difficult because of its location, distance from centres of population and lack of suitable alternative farming enterprises for its members.

“A 20 per cent dip in cattle numbers will lead to a proportionately far greater drop in inputs – a situation that would have dire consequences for the members (also owners) of the business and the nine full-time staff.’’

Even the future of businesses such as J & D Oddie is threatened, says the council’s submission.

About 80 per cent of its turnover originates from the agricultural sector and the firm has extensive financial and physical data which has been available to help analyse policy changes.

“The projected drop in cattle numbers will have a dramatic effect on this business and the experience of the eight staff employed could very well be lost to the industry at a time when it was never more important.’’

The council says any decline in the vitality of farming in Orkney would have an impact on tourism.

Visitors are attracted by the rural nature of the islands, moulded by livestock farming. The livestock shape a habitat for wildlife and a substantial proportion of farmers have diversified into tourism. The submission says about a third of the cattle produced in Orkney comes from the north isles.

Transport of livestock, fertiliser and construction materials for farms comprises the single most important trade for Orkney Ferries, so any reduction in farming on those isles would impact on the ferry company and the frequency of services.

“This would in turn hurt both local residents and the drive to get more tourists to visit the isles.’’

The council says the population decline in some isles is already alarming.

Census results from 2001 showed declines ranging from 35.7 per cent in Flotta, down to 6.3 per cent for Stronsay.

“School rolls have also declined significantly in some cases, by up to 56 per cent in the case of Rousay, Egilsay and Wyre.’’

By the end of 2004 all six of Orkney’s outer isles (those from which daily commuting to Mainland is not possible) will be designated under the Initiative at the Edge scheme established by the Executive. This aims to encourage local communities and local agencies to work together to reverse decline.

“It is clear that the impact of the reform of the CAP, unless modified to suit the Orkney situation, would make it quite impossible to achieve the overall aim of the Initiative.’’

It says Orkney embraced the Forward Strategy for Agriculture developed by the Scottish Executive in 2001 more than almost any other area.

The strategy called for a focus on producing for the marketplace, sustainable rural development, protecting and enhancing the environment and embracing change and new opportunities.

Using this strategy, Orkney developed high quality support infrastructure, says the submission. This included the abattoir operated by Orkney Meat, Orkney Auction Mart and the new Orkney Cheese creamery.

Orkney products were branded though the Orkney Quality Food & Drink group and the Orkney Marketing Scheme. These included Orkney Cheeses and Orkney Meat’s successful Orkney Island Gold brand.

Projects were started under the Agricultural Business Development Scheme and tourism projects were developed. The Hen Harrier Scheme developed with Scottish Natural Heritage and other agri-environment schemes were used.The health status of Orkney livestock was enhanced through schemes such as the BVD eradication scheme.

The local dairy industry will achieve 100 per cent compliance under the National Dairy Farm Assured standard by April 2004.

The submission says these things have been achieved because the agricultural industry formed partnerships with other bodies such as Orkney Islands Council, Orkney Enterprises, Scottish Natural Heritage and Seerad among others.

“There has been sustainable support from Orkney Islands Council and Orkney Enterprise and indeed there has been substantial involvement of EU Structural funds, especially FEOGA (the fund which finances the CAP).

“Despite embracing the vision, Orkney producers (and the local communities which depend on a viable agriculture) have not been recognised in the reform proposals. Indeed, the proposals will impact most severely on those who have taken up the challenges posed in the Forward Strategy and will have an even greater effect on the wider community.’’

The council says tools are available within the reform package which can be used to lessen the impact. The submission supports the partial recoupling option of retaining the Slaughter Premium Scheme, saying it would be the least distorting and simplest scheme to administer.

A national envelope providing payments to suckler cows would have only a modest benefit, the council says. However, if quality animals were targeted, it would benefit the environment and possibly generate £18 million.

“This, if tiered correctly, could mitigate the worst effects of the move to the single farm payment regime.

Using modulation with the funding matched pound-for-pound by the UK Treasury could raise £83.5 million. However, it is vital that a commitment is made to continuing the match funding after 2006, the submission says.

The council says land management contracts could be used, as set out in the Forward Strategy.

The submission was endorsed by NFU Scotland’s Orkney branch, Orkney Enterprise and the Orkney Tourist Board.