Scottish agriculture has a bright future and a strong argument for continuing public financial support as it delivers against Scottish society's needs said Brian Pack, Chairman of the Inquiry into Future Support for Agriculture and Rural Development at the launch of its Final Report.

Our view of a bright future stems from the belief that Scottish farming and society have a common goal in requiring a more sustainable Scottish agricultural industry. We defined this as: "an agricultural sector that is innovative and competitive, and has food production as its primary purpose, but...also delivers a range of other benefits which help to meet the global challenges of food security, climate change, water and energy supply and biodiversity."

The Report identifies that the key function of Scottish agriculture is to produce food and that this justifies public funding but now Scottish society needs farming's help in addressing the other global challenges and, in particular, its contribution to reducing carbon emissions in line with the Government's target. Pack said that "we recognise that a move to increased sustainability is essential to Scottish farming's long term future as it is to Scottish Government's purpose of increasing sustainable economic growth".

Coupling farming and society's need for food production with improved sustainability to the fact that many Scottish farming businesses have a high reliance on direct subsidy payments (Single Farm Payments) the Inquiry reached the conclusion that Scotland's future requirements from agriculture would be best served by maintaining the budget for direct payments post 2013 but to expect more in return. Part of the direct payments would be paid as Top Up Funds in return for a commitment to improve the business's sustainability and deliver against the global challenges.

Brian Pack said "the key to delivering this new exciting concept is the development of the requirements for the Top Up Fund and we recommend that an expert group is formed to shape these with the clear objectives that it should be light touch and get producer buy-in to the concept of improved sustainability to the benefit of all.

The Final Report confirms the Inquiry's concern expressed in the Interim Report namely, that area payments do not work for large areas of Scotland, particularly permanent pasture and rough grazing, and it accepts the representations made to it concerning the limitations of using Macaulay Land Capability for Agriculture as a method of defining different regions for SFP.

Brian Pack said that after much head scratching and thinking out of the box, they had identified a solution to these various issues, namely, future support based on Scotland divided into two regions - Non-LFA and LFA - with different support mechanisms for each. The Non-LFA - with its choice of what to produce and therefore its ability to be market focussed - fits the EU model of area payments which is the route recommended. The area payments are in two parts - two thirds direct payment and one third Top Up Fund.

The LFA, in the main, characterised by limited choice of enterprise and heavily dependant on ruminants with widely varying production levels, has three streams of support recommended - a low area payment, coupled beef calf and lamb schemes and a Top Up Fund based on a business's ability to contribute to the Global Challenges - it is proposed to use a business's Standard Labour Requirement as a measure of this. The Report provides an allocation of a budget, equal to the current one, to the two regions and five schemes. But Pack points out that "the values are given to enable readers to get a feel for what could be but any debate should centre on the policy - the actual rates we used to test our assumptions do not form part of the recommendations".

Included in the Report is a robust argument for the maintenance of the Pillar 1 budget and why Scotland has nothing to fear from the EU looking for better equity between member states as regards direct payments. It portrays a similar argument for the maintenance of Pillar 2 funding in Scotland.

The Report covers a wide area of agricultural support policy issues and provides 18 recommendations to the Government on what needs to be negotiated with the EU (and UK) and 22 that are believed within the Scottish Government's power to implement. Included in these is a recommendation to transfer nearly two thirds of the LFASS budget to Pillar 1 and use it to increase the Top Up Fund for the LFA. The balance would remain in Pillar 2 and be paid out to an area suffering from greater natural handicap to be defined by a set of biophysical criteria identified by the Inquiry.

The Report concludes by providing guidance, as requested in its remit, on future budget allocation in the event that the overall CAP budget is greatly reduced.