Rural Economy Strategy

STATES OF JERSEY

r

RURAL ECONOMY STRATEGY

Lodged au Greffe on 21st June 2005 by the Economic Development Committee

STATES GREFFE

PROPOSITION

THE STATES are asked to decide whether they are of opinion

to re f er to their Act dated 7th July 2004 in which they approved the Fiscal Strategy and agreed that a target

for economic growth of 2% per annum should be set for the period 2005 to 2009, and requested the Economic Development Committee, in conjunction with other Committees as necessary, to bring forward, for approval by the States, a strategy for the delivery of this growth by February 2005; and to refer to the States Strategic Plan Objective 1.2.3To develop a strategy which will explore and promote new opportunities for the rural economy, Objective 4.1.3To protect and promote Jersey's environment as one of its most important assets, and Objective 1.3.1To reduce unnecessary regulation and bureaucracy in the Island, and –

to r e c ei v e th e Rural Economy Strategy entitled "Growing the Rural Economy", as set out in the

report of the Economic Development Committee dated 2nd June 2005, and in order to give effect to the recommendations made in the strategy –

( i) t o a gree that, in order to stimulate the rural economy and to encourage innovation and

entrepreneurship –

  (A  ) t h e E c o n o m  ic Development Committee should take the necessary steps to establish

a Rural Initiative Scheme that is consistent with the approach of the Economic Growth Plan to encouraging enterprise;

  ( B ) t h e E  n v ir o n ment and Public Services Committee and the Economic Development

Committee should take steps to encourage small-scale entry into the agricultural industry by recognising a new category of agricultural land occupancy, the Smallholder, who would be eligible for area support payments.

( ii ) t o agree that the Environment and Public Services Committee should review current

planning policies, with the aim of facilitating enabling or linked' development in the countryside, in order to ensure planning gains, environmental improvements and reinvestment in the rural economy, and bring forward for debate appropriate recommended changes to the countryside policies in the Island Plan.

( ii i) t o a gree that, in order to reduce bureaucracy, simplify administration and lead to more

effective government intervention –

( A ) t h e E c o n o m ic Development Committee should consolidate the present range of

agricultural crop subsidies into a Single Area Payment;

  ( B ) t h e E  c o n o m ic Development Committee and the Environment and Public Services

Committee should work together to establish a one-stop shop' approach to rural policy and delivery.

( iv ) t o a gree that, in order to support the transition of the High Value Glass and the Dairy

sectors into more efficient operations that are less dependent on Government intervention –

  (A  ) t h e E  c o n o m ic Development Committee, supported by the Finance and Economics

Committee, should roll forward the planned subsidy payments for the High Value glass sector for the period 2006 to 2008 in to a single payment made in 2006 with the level of support thereafter should be reduced to the basic Single Area payment;

( B ) th e E c o n o m ic Development Committee should, in addition to the Single Area

Payment make available additional, but transitional, support funding, to be known as the Quality Milk Payment;

  ( C ) th e E n  v ir o nment and Public Services Committee, together with the Economic

Development Committee, should work with the dairy industry to identify a mechanism that can operate within the context of a closed herd and still allow very strictly controlled exceptions to the general ban on the importation of cattle semen so as to allow the importation, under licence, of highly selected genetic material of Jersey lineage to increase the efficiency of the Island's milking herd.

(v ) t o a g ree that, in order to protect and promote the environment, the Economic Development

Committee, working with the Environment and Public Services Committee, should establish a system of standards for basic environmental performance of the agricultural industry and that the payment of agricultural subsidies should be made conditional upon the achievement of these standards.

ECONOMIC DEVELOPMENT COMMITTEE

Note:  The Environment and Public Services Committee has been heavily involved in collaborating with the

Economic Development Committee in formulating this strategy and therefore wholeheartedly supports it.

GROWING THE RURAL ECONOMY

Rural Economic Strategy

An Economic Growth Plan Sectoral Strategy

2 JUNE 2005

ECONOMIC DEVELOPMENT COMMITTEE ENVIRONMENT AND PUBLIC SERVICES COMMITTEE

Rural Economic Strategy

Contents

Page Introduction.................................................................................................. 6

1. Strategy Objective, KeyAimsand Desired Outcomes.......................... 7
2. Government Approach....................................................................... 8
3. Strategy Definitions........................................................................... 9
4. Importance of the Agriculture Industry withinthe Rural Economy......... 11
5. Key Sector Analysis and Proposals..................................................... 13

5.1 Arable Sector.................................................................................... 13

5.4 Dairy Sector...................................................................................... 15

5.7 Protected Crops (Glasshouses and Polythene tunnels).......................... 18

6. Diversification................................................................................... 19

6.2 Agricultural diversification.................................................................. 20

6.7 Other Land-dependent Activities........................................................ 22

7. Rural Initiative Scheme (RIS)............................................................. 23
8. Countryside Stewardships.................................................................. 24
9. Planning............................................................................................ 25
10. Legislation......................................................................................... 27
11. Delivery Mechanism.......................................................................... 28
12. Measures of Progress........................................................................ 29
13. Budget Forecast................................................................................ 30
14. Conclusion........................................................................................ 31
15. Appendix – Summaryofquestionsand responses................................ 31

Introduction

Jersey's countryside is a strategic asset. Successive tourism surveys have shown countryside quality to be a principal decision factor in choosing Jersey as a destination. Extensive evidence also exists to show that the appearance and ambience of a location is a significant factor for locating businesses and attracting the quality of staff that they need.

At the same time changes are occurring in the agricultural industry as it responds to a changing marketplace and, in the longer term, to a changing climate. The Governmental framework of control on the Agricultural sector also needs to move on. There is a compelling case for a thorough review of agricultural policy – but carried out as part of a wider review of the countryside and the rural economy.

The States Strategic plan charged the Environment and Public Services and the Economic Development Committees with a range of tasks that collectively amount to a strategic development plan for the rural economy. These tasks are nested within the overall States' Economic Growth Plan that seeks to grow the Island's economy and to nurture and manage its important natural assets.

A balance is needed between economic stimulation and the preservation of the environmental and  cultural heritage. We are not in favour of unfettered development but we do want to encourage innovative and diverse activity that strengthens the rural economy whilst respecting the landscape and the environment.

This Strategy has been produced jointly by our Committees as the issues it addresses are cross-cutting and need joined-up solutions. It builds on many of the policy concepts that were agreed in the 2002 Agriculture debate and goes on to address the challenge of developing the rural economy in a way that both recognises external trends and that is realistic about future Government support.

The Strategy has been improved by taking into account the results of an extensive consultation exercise that has involved presentations to and discussions with States' Members, States' Committees, organisations and individuals. In addition, over 300 copies of the consultation document were distributed to interested parties – yielding further written responses.

The consultation process revealed widespread support for the contents of this strategy. It appears that we have found a formula that is right for the Agricultural industry, right for the stakeholders in the broader rural economy and right for the people of Jersey. We have no hesitation in putting the Strategy forward for formal adoption by the States.

Economic Development Committee Environment and Public Services Committee

2 June 2005.

1. S t r ategyObjective,KeyAimsand Desired Outcomes

1. T o develop a rural economicstrategywhichpromotesgrowth, efficiencies and diversification within the countryside andwhichprotects and enhancesJersey's natural environment.

T h is addresses the following key aims in the States Strategic Plan –

2. Implement an economic development policy to encourage economic growth. (O  b je ctive 1.1.1)

A i m –

• S u s t ained economic growth in real terms.

A c h ie ved by –

• H  ig h er efficiency, market returns and profitability.

• L e s s reliance on direct government support.

3. D evelop a strategy which will explore and promote new opportunities for the rural economy. (Objective 1.2.3)

A i m –

• W  it h drawal of production-led subsidies for agriculture.

• A  w i der range of rural enterprises.

• L e s s labour-intensive and higher value jobs in the rural economy.

A c h ie ved by –

• I n c re ased diversification, enterprise and innovation within the countryside.

• M  a rk et-driven business activity.

4. Protect and promote Jersey's environment as one of its most important assets. (Objective 4.1.3)

A i m –

• A  w e ll-kept countryside.

• D  ev e lopment of environmental Improvement and rural enterprise initiatives.

• D  iv e rsified land-use which ensures protection of green-land.

• I n c re ase in the proportion of publicly accessible lands.

A c h ie ved by –

• I n c re ased implementation of basic environmental practices and compliance with Codes of Good

Agricultural and Environmental Practice.

• I n c re ased implementation of environmental initiatives that enhance the environment and increase

public access.

• E n v i ronmentally sustainable development that protects and enhances the environment.

5. T he desired outcomes above will also meet the States Strategic Aimof

R e d u ce unnecessary regulation and bureaucracy in the Island. (Objective  1.3.1) T h e S trategy recognises E.U., U.K. and States of Jersey legislation and will –

• M  e e t all current legislation.

• N  ee d minimal regulation and control – light touch government.

2. G  o vernmentApproach

1. T hegovernmentapproachtotheruraleconomy has been characterised by the provision ofproduction-led subsidies to the agricultural industry, a lack (as notedby the Scrutiny Panel) ofrobustbasic information to underpin policies andno adopted environmental initiatives. This hascontributedto a decline in the agricultural sector, a piecemealresponsebygovernment and increased concernregarding the countryside.
2. T o achieve the desired outcomes setout in thepreceding section this strategy proposes to encourage appropriate diversification, removeproduction-based incentives, broaden the distribution of aid within the agricultural sector and implement a Rural Initiative Scheme to supportnewruraleconomy initiatives. It

further proposes that direct aid payments will be conditional upon the achievement of basic environmental

performance and will complement the Countryside Renewal Scheme to achieve an increased uptake of enhanced environmental initiatives.

1. D e liveryMechanisms

T h e s trategy –

• G iv e s a clear picture to businesses in the rural economy of government support until 2010.

• R e p laces the present production-led subsidy system with an all inclusive Single Area Payment which will underpin business activity in the countryside, promote market responsiveness and lead to increased self-reliance.

• I n t ro duces a Rural Initiative Scheme that will stimulate rural economic growth by providing support to innovative developments.

• M a k es the receipt of direct aid payments conditional upon achieving basic levels of environmental performance.

• E n h ances the environment and increase public access to the countryside through the new Countryside Renewal Scheme.

2. R e moving the link between aidandproduction

2.2.1  I n order to drive the rural economy forward the strategy proposes to introduce a Single Area Payment to replace the current system which gives variable payments for a narrow range of crops and livestock (only dairy cows). This will remove any intervention between market price and production costs, allowing the Industry to respond directly to market forces and encouraging diversification (decoupling).

3. T h e Single Area Payment

1. T heSingleAreaPayment is designed to underpin a base levelof farming activity in the countryside to ensure that its unique character is maintained.
2. T heareapaymentwillbemadeannuallyto the personresponsible for managing the land. The area payment will remain the same irrespective ofwhat type or howmanycrops are grown. This will remove any notionofthegovernment offering support at different levels for particular crops, leaving the industry free to respondtomarketdemands and opportunities.
3. T he introduction of a Single Area Payment will discourage thosecropswhich are only grown because of the subsidy they attract, andencouragemarket-led diversification into crops and livestock someofwhich currently receive no subsidy. Therefore the Single Area Payment will include all land used for agricultural activity as long as the land user is either a bona fide agriculturalist or a Smallholder (section 3.2).
4. This broader base of support will encourage the industry to be more market driven, increase diversification in the countryside, promote the increased use of agricultural land and give a clear indication offuturegovernmentsupport leading to greater self-reliance.
5. R eceipt of the Single Area Payment will be conditional oncompliance with the basic levels ofGood Agricultural and Environmental Practices (e.g. Water Code, Animal Welfare codes, etc.) and the provision ofbasicfinancial data relating to production costs, overheadcostsandmarketreturns.

4. R u ral Initiative Scheme

2.4.1  T he proposed Rural Initiative Scheme (Section 7) will be available to all rural enterprises and provide support to innovative projects with sound business plans. This scheme will be funded by the consolidation of a range of current grants to provide an annual fund worth in the region of £480,000.

5. C o untrysideRenewalScheme

2.5.1  A nnual funding of £600,000 for the Countryside Renewal Scheme was allocated in the 2005 budget debate. The scheme is providing part-funding to projects designed to protect and enhance the visual attractiveness of the landscape; provide greater access to the countryside for the public; protect and enhance biodiversity; adopt further measures to reduce diverse pollution and to develop less intensive farming systems. (See Section 8)

6. " O ne-stop Shop"

2.6.1  W ithin Government we will reorganise responsibilities within Departments so as to create a "One-stop Shop" to give clarity to those seeking advice, assistance, and access to support funding in respect of the rural economy.

3. S t r ategyDefinitions

3.0.1   T he Rural Economic Strategy takes an inclusive view of the rural economy which encompasses all agricultural and land-dependent activities in the countryside. In order to understand the scope of this strategy it is helpful to define the following terms –

1. R u ral Economy –

1. The cumulative revenues from business activity derived from the use of agricultural land and the countryside (i.e. businesses which derive their income from land-dependent activity). This consistsof 2 sectors –
2. A gricultural economy –

R e v e nues derived from primary agricultural production;

3. O ther land-dependent economic activities –

R e v e nues derived from other land-dependent activities including soft development businesses with no

permanent infrastructure such as camp sites, motor cross, and paint-balling.

2. A g riculturalist andagricultural activity

1. T hereis a need for a new definition of agriculturalist to allow Smallholders (i.e.small and part-time farmers) to benefit from Government support and to gain entry into the industry. Currently an agriculturalist is defined as someone who is mainly or wholly employed in agriculture or horticulture. New definitions are thereforeneeded to determine –

• T r e a tment under Planning legislation

• E l ig i bility for support payments,

• A  g ri cultural occupancy and land use,

T h e n ew definitions are as follows –

2. A bona fide agriculturalist is someone employed in land-dependent primary production, obtaining income from agriculture or horticulture which meets a target level of economic activity as defined by the Strategy (see below).

3. A Smallholder (part-time or small-scale agriculturist) is a person actively participating in land- dependent primary production which meets a reduced level of economic activity compared with a bona fide agriculturalist.
4. T hemeasurementof economic activity will bebasedonthefarm'sTotalGrossMarginwhichwillbe calculated using average industrygrossmargins for each crop/livestock enterprise onthe unit. Taking into account the viewsexpressed during consultation the economic activity required to qualify as a bona fide agriculturalist isproposedtobe£40,000totalgrossmargin* per annum. This threshold will be metby approximately 35 dairycowsor 57 vergées Jersey Royalpotatoesor90 vergées ofcourgettes.The lowe threshold to qualify as a smallholder is proposed to be £5,000 total gross margin* per annum. By introducing the category of Smallholder the Strategy introduces a new entry route into theindustry.
5. T he difference between the entitlements of a bona fide agriculturalist and a Smallholderwillbe –

• O n ly  bona fide agriculturalists using the above definitions will be considered as agriculturalists in respect of the Island Plan and development control considerations.

• B o t h bona fide agriculturalists and Smallholders can occupy agricultural land under the

Agricultural Land (Control of Sales and Leases) (Jersey) Law 1974. However, taking into account the views expressed during consultation, Smallholders will be restricted by only being allowed to occupy up to 20 vergées of land. Beyond this they will be required to occupy any additional land under a temporary licence and this must be linked to a business plan that is designed to move them up to the category of bona fide within 3 years.

• U n d ertakings below the £5,000 gross margin threshold can only occupy agricultural land covered by the 1974 law under a temporary licence. They will not qualify for the Single Area Payment.

• I f a business or person in either category falls below the appropriate minimum annual threshold they would be given a further 2 years to achieve the appropriate gross margin and retain their

status.

6. A Smallholder can become bona fide by providing 3 years trading accounts for their business(which show atleastone year in profit) with the final year of trading demonstrating they have achieved the required levelofeconomic activity to qualify as a bona fide agriculturalist. The clarification ofthese definitions will –

• E n c o urage new entrants into the agricultural industry.

• E n a b le Smallholders to benefit from subsidy payments.

• P r o v ide a clear route for a smallholder to become a bona fide agriculturalist.

• D ri v e the creation of new businesses and diversified activity.

• L i m i t area payments to active agricultural businesses.

* Gross Margin is a measure of the value of the crops and livestock produced less the variable costs involved in producing them. This is an industry-wide measure for which there are standard values which can be applied.

4. I m  portance oftheAgricultureIndustry within theRuralEconomy

4.0.1  T he agricultural industry has traditionally been at the heart of Jersey society and remains an important part of the economic, social and environmental fabric of the Island.

1. V a lue

4.1.1.  Although farming in Jersey has declined in economic importance, today accounting for less than 2% of GVA[1] (The U.K. GVA is 1.6%[2]), farming still covers about half of Jersey's land area (48.9% in

2003) whilst employing about 4% of the active workforce.

4.1.2 As well as generating revenue from direct sales, agricultural activity also generates revenue for companies involved in ancillary activities such as supply merchants and export organizations. For example, vegetable exports amounted to 41,340 tonnes in 2003, with harbour dues paid estimated to be in excess of £390,000. The cost of fuel used in 2004 by tomato and pepper growers was in the region of £2 million. The import of animal feedstuffs is estimated at over £1.5 million per annum. These are examples of indirect contributions to economic activity within the Island.

2. P r essureson the Industry

1. T hefarmers' share ofthe retail foodprice has declined significantly becauseof increased competition selling into centralised markets. There are nowmoremarket entrants following E.U.expansionand their lowerwage costs are acting to pull downmarket prices.
2. The modern consumer demands a wide range of value-added products. People now have higher disposable incomes and are demandingmore choice, higher quality and greater convenience.In the U.K. 95% of food isbought from supermarketsand a third of food is consumed outside the homeand this proportion is expected torise in the future.
3. C ompetition in the retail sector is increasing and prices are likely to fall, therefore putting even greater pressure onfarm incomes. Inorder to survive in this globaleconomy, farming will need to becomeeven more businesslike, competitive and market/consumer orientated. There will be opportunities for progressive businesses to successfully adapt to these changes,for example by investing inprocesses which add valueto primary production, thoughitis recognised that this maybe easier to achieve forlocal consumption than for exports due to the nature oftheexistingsupply chain.

3. C o untrysideCharacter

4.3.1  T he Island's countryside character has been shaped by agricultural activity both past and present. This character underpins other areas of economic activity such as tourism, leisure and ancillary businesses as well as contributing to the quality of life for the Island's population.

4. E n vironmentalImpact

1. T hewide variety ofhabitatsand the attractiveness of the Jersey countryside historically owesmuch to the activities ofgenerationsof farmers who created the patchworkof fields, hedges, walls andcopseswhich characterise Jersey today.The most cost-effective wayof managing the rural landscape in future is by ensuring the active use of agricultural land by viable andsustainablebusinesses.
2. Farmers and landowners are seen as the custodians of the countryside and some have taken this responsibility seriously by investing in environmentalimprovements;however,positive expenditure for the benefit of the environmentisgenerally curtailed by the low profitability within the industry.
3. A gricultural practices canalsohave a numberofdetrimental effects on the environment. Agriculture contributes significantly tothe high nitrate levels inourwatersthough the industry hastakensomesteps to addressenvironmentalconcerns in recent yearsandrecentwateranalyseshaveshown a downward trend in nitrate levels. In addition pesticides are detected in surface watersas a result of poor application or excessive rainfall soon after application – for instance in February 2005 pesticide contamination of streams feeding into Grand Vaux reservoir caused major problems in the public water supply. Soil erosion as a resultof inappropriate cultivations orheavy localised rainfall can alsohave a detrimental affect onwaterquality. Criticism isalsomadeof the negative visual impact that glasshouses,polythene tunnels and dumps ofusedpolythene have onthelandscape.
4. This strategy promotes rural diversification, enterprise and innovation ensuring there is active managementof the countryside to maintain its unique character, whilst protecting and enhancing the

environment.

5. K  ey Sector Analysis and Proposals

1. A r ableSector

1. T hearable sector is generally showing a decline in profitability and is now heavily reliant on a single crop (the JerseyRoyalpotato). This has been due to a numberoffactors, including: increased competition, category management, globalisation, a change in consumer requirementsand a high localcost base. Government financial supportto the arable sectorhas been basedon a narrowrangeof crops with each crop receiving a different level of aid dependanton its costs of production.
2. This system of government support has influenced some businesses to grow specific crops thereby inhibiting innovation and diversification inresponse to market forces. When the profitability ofthese specific cropshas fallen theindustryhas generally looked to the government to increase aid payments rather than respondingto the changingmarket.
3. T hearea planted to the Jersey Royal potato declined from 19,176 vergéesin1999 to 14,240 vergéesin 2004. Theindustryhasalsoseen a decline in the numberof farmers and the concentration ofmarketing function into a smallnumber of organisations. Second crops following the harvestof Jersey Royals have also declined meaning many growers are dependant on potatoes alone for their livelihood.
4. P rimaryproductionofcommoditycrops is unlikelytosucceed in Jersey because oftheeconomiesof scale andlower cost base oftheir competitors andit is only bylookingto high value, niche products or adding value that the industry can hope tosucceed.The Jersey Royal Potato is unique; it cannotbegrown and marketed as such from anywhere else in Europebecauseitis protected by a Protected Designation of Origin (PDO).

2. P o licies

1. F inancial support will bedecoupled from crop production bymoving to a Single Area Payment in 2006 with the various crop-based payments being replaced by a £35 per vergée per annum Single Area Paymentby2008. This will simplify the existing system ofsupport and isconsistent with theE.U. approach in separating support payments from production. This also removes any bias in Government support, leaving the industry free to respondtomarketdemands.
2. T he clear majority oftheresponses to the Strategy Consultation agreed with the introduction of a Single Area Payment as a more equitable means of government support that would help to stimulate diversification and innovation. Detailed analysis for every groweroftheimpactofimplementingthe £35 per vergée Single Area Payment shows that the majority ofgrowers (86%) would actually beadvantaged in netpayment terms. The following graph shows the effect of the change from the present system to a Single Area Payment,basedon present cropping patterns, ontheamount of aid receivedbycommercial arable growers.

3. D  iversification and innovative responses to market opportunities will be encouraged by support from the proposed Rural Initiative Scheme(Section7).

Key Sector Analysis and Proposals

4. D a iry Sector

1. T he dairy industry's profitability over the last few yearshas been atan historic low and this has led to a low  level  of on-farm  investment.  The current  viability  of the  industry relies  on a  high level of

Government direct aid payments, the Jersey consumer paying a high milk price compared to the U.K., and the

maintenance of a law prohibiting the import of liquid milk. In addition there is also increasing demand by Government and the general public that the industry should play an enhanced role in the environmental management of the Island.

2. T heGovernment has soughtas much aspossible to support the dairy industry. In 2002 the dairy industry, because of the collapse oftheminipotexportmarket, received extra States funding of £0.8 million to restructure theindustry,involvingtheremovalof4.5 million litres of milk productionand 1,071 cow from the Island herd.Inaddition, despite the above drop in cow numbers the total level of direct aid paymentto dairy farmers was maintained at the samelevel leading on average to a 25%increasein the support level per cow.
3. T he recent improvements at Jersey Dairy, together with the efficiency gainsmadeby individual dairy farmers, was discussed and acknowledged during the consultation process. In addition the industry indicated itisconsidering the following –

• T h e relocation of the Dairy to increase efficiency and reduce current overhead costs.

• I m p r oving value for their consumers whilst maintaining the price paid to the diary producer.

• I m  p roving profitability for both the producer and the Dairy enabling them both to develop and invest in a sustainable future.

• E  n h ancing the Rules of Supply including an audited animal welfare and environmental scheme which supports its value-added products and market objectives.

4. T he construction of a new dairy specifically designed and built tomeet the industries' future needs will significantly reduce the Dairy'srunningcosts. Milk supplieswhichare currently manufactured into bulk butter and skim milk will then be used to producevalue-added products generating higher returns to the Dairy. These efficiency savings and higher returns will enable Jersey Dairy to provide better value to the Island consumer whilst maintaining and improving the price paid to the milk producer. The milk producers can alsoimprovetheir profitability by introducing further efficiency measures ontheirfarms which significantly reduce production costs – including the improvementof herd genetics.
   5. P o licies

1. T hedairyindustry has identified efficiency gains that will flow from, for instance, the relocation of the dairy. It is proposed that current levels ofdirect aid are maintained until2007 during this initial transition phase. Thereafter the overall leveloffinancial aid (including support service payments) will bereduced.
2. F inancialsupport will be decoupled from productionby removing current headagepaymentsandmoving to a SingleAreaPaymentof£35/vg in 2006 in line with other sectors of the agricultural industry.Whilst the dairy industry adapts an additional Quality Milk Production scheme payment will be made of approximately £196 per animalin 2006 reducingto approximately £155 per animalby 2010. This scheme will bebasedon audited inspections carried outunder the Dairy's Rules ofSupply.
3. T he importation ofsemen from genetically superiorsiresfortheIslanddairy herd mustalsobeconsidered because it has considerable potentialtoreduce costs of production in the longerterm.The full effects of this genetic improvement will be realised over a 10 to12 year period with the maximumbenefitsonly being achievedtowardstheend of this period. Scientific evidence points to major efficiency gainsbeing inevitable if there is access to traceable semen from pure-bred Jersey bulls from outside the Island. Government therefore intends to work with theDairy industry to identify a mechanism that can operate within the context of a closed herd and still allow very strictly controlled exceptions to the general banon the importation of cattle semensoasto allow the importation under licence of highly selected genetic material of Jersey lineage to increase the efficiency of the Island's milking herd.

4. T hedairyproducers, and theindustryas a whole, will also be able toapplyforsupport from the Rural Initiative Scheme to improvetheirbusiness, diversify, improve efficiency and add value to their products. Grants will be available underthe Countryside RenewalScheme for increased slurry storage capacity – almost half the valueoftheCountrysideRenewalScheme will be allocated to this environmental priority in the years 2005to 2008.
5. T he policies for the dairy industryin the Rural Economic Strategy will therefore –

• S u p p ort the Industry's future plans and require that planned efficiencies are delivered.

• F u l ly decouple direct aid payments from production.

• P r o m  ote quality milk production and environmental improvements including greater slurry store capacity.

• P r o v ide funding for diversification and value-added initiatives.

• E n c o urage the industry to greater self-reliance.

Key Sector Analysis and Proposals

7. P r otected Crops(Glasshouseand Polythene tunnels)

5.7.1  T he protected cropping industry for the purposes of this strategy has been considered to consist of a high value, high cost and high subsidy sector namely the tomato and pepper growers (High Value sector) and, with a few exceptions, a relatively low value, low cost and low subsidy sector consisting of the remaining growers (Low Value sector).

8. H  igh Value sector

1. T he tomato and pepperindustryhasbeen at the cutting edge of production for a numberofyears, anticipating and leading in the developmentoftrends such as biological control and the move away from roundtomatoestovineand cherry tomatoes.Despitetheentrepreneurial skills whichhaveserved the industry well to date, it cannot indefinitely achievemarket differentiation and will struggle tocompeteon a commodity basis because of high fuel, shipping and labour costs. Tomatoes are now traded as a commodity and retailers will continue to source the lowest cost product, provided the quality and continuity meettheir criteria.
2. This sector currently receives 90% of the support payments made to the protected crops industry. However, High Value growers have recently experienced several loss-making years and foresee an irreversible decline in their profitability. Both the government and representatives of this sector of the industry acknowledge that current or even extra States aid will notsolve their problems.

9. L o w Value sector

5.9.1  T he remaining producers (Low Value sector) are also subject to variable profitability due to increased competition and a high cost base. This sector only receives 10% of the total payments but again these are linked to production subsidies relating to a limited number of crops with the actual subsidy received being dependant on the crop grown.

10. E nvironmentalImpact

5.10.1 The presence of glasshouses and polythene tunnels detract from the amenity value of the countryside and have no positive contribution to the character of the Island's rural landscape.

11. P olicies

(1 ) R e structuring payment for the High Value Sector

1. The government has committed to the current level of support to 2007 which thereafter would be modulateddownto the Single Area Paymentby 2010. Howeverdueto the acknowledged irreversible decline in the profitability of this sector it is futile to continue thesepayments in the long term. A better approachwouldbeto help the growers to adaptby either re-investing, diversifying or leaving the industry completely.
2. Therefore followingconsultation with the industry it has been agreed that there shouldbe a one-off payment in 2006 to this sectorby rolling forward 100% of the payments for long season tomatoes and peppers that wouldotherwise have been made in the years 2006, 2007and 2008. This wouldbe calculated on theaverageof the areas planted in the 2004 and the 2005 season.By bringing forward expenditure Governmentachieves a net saving after 3  yearswhilst at the same timeenablingeconomic activity to continue inthesector through investmentand diversification.
3. Development

In th e eventuality that a site is developed or sold for development within the next 3  years the government

reserves the right to recover part or all of any payment made to the individual or business.

4. The dangerof sites just beingabandonedis covered byexisting planning legislation which can require the site to bereturned to its former condition if it becomes derelict.

(2 ) O n going financial support (High and Low Value sectors)

5. In the future, financial support will bedecoupled from crop production by moving to the Single Area

Payment for both sectors. The Single Area Payment would be achieved in 2006 for the High Value sector and

through a managed transition of the payment rate by 2010 for the Low Value sector.

6. By staggering the move to the Single Area Payment over 5 years the Low Value sector will have sufficient opportunity to shift to uses that do not require the current level of subsidy.
7. Support for innovative projects and diversification would be available through the proposed Rural Initiative Scheme(Section 7). In addition further support will be available throughcomponents within the Countryside RenewalSchemesuchas energy audits.

6. D  iv ersification

1. G  rowing the ruraleconomy

1. W hilst somegrowth will be achieved through greater productivity in existing businesses weexpect the majority of the 2% growthtargettobe delivered by innovative diversification – into new land uses, new markets and new formsofaddedvalue. Such a transition will be enabled by the broader basedsupport provide by the SingleAreaPayment, a more flexible use of agricultural land andthemeasurescontained within the Rural Initiative Schemedescribedin section 7.
   2. A g ricultural diversification

1. A gricultural Statistics from 1970 to 2003show a 26%reductionin the amountof agricultural land farmed in Jersey. While detailed information hasnot been collatedit is apparent that someof this loss canbe explained bypermanentdevelopment, natural reversion of marginal land andchange to otheruses such as community projects.
2. T he agricultural statistics also show a decreaseof approximately 5,000 vergées in theareaof Jersey Royal potatoes being cultivated between 1999 and 2004. In addition, in2002over 1,000 dairy cowswere removed from the Island dairy herd again releasing approximately 2,500 vergées of land for other purposes. Whilemostof this land has been takenupby active farmers to enhance their businesses,there has been a general decline in the amount of land farmed.
3. W ith the active managementof agricultural land seen as vitalto the maintenanceofthe unique character of the Jersey countryside there is obviously a need for diversification intheruraleconomy.
4. T he present subsidy system is restrictive asit only supports milking cows and a limited numberof crops. The proposed Rural EconomicStrategy encourages an increase in diversification by the introductionof the SingleAreaPayment,whichwill support the greatestrangeoflivestockandcropping. Further support will beavailablethroughtheproposedRural Initiative Scheme (section 7).
5. T hereis a considerable potential foraddingvalueto locally produced foodstuffs by processing raw produce into preparedorpre-packedproducts or producing new higher valuefoodstuffs,which could either be marketed to the local consumeror sold aspremium products for export.

3. E x ample 1 – Vegetables andsalad

6.3.1  L ocal expenditure on vegetables and salads is around £12.5 million per annum. Much of the products required for this market are imported. Whilst some are basic commodities, a large proportion are value- added prepared products. An example of the changing market is the £1 million plus spent by local consumers on imported prepared salads and stew packs which are prepared in the U.K. with some of the ingredients originating in Europe. Currently the local agricultural industry lacks the infrastructure and market awareness to benefit from these added value products.

4. E x ample 2 – Meatproduction

6.4.1  T he local meat market is worth at least £21.5  million per annum (without counting visitor consumption) but Jersey currently produces a tiny percentage of this market. An outstanding example of the potential for meat production in Jersey is the lamb market. Currently local farmers produce around 250  lambs per year. However the total imports of lamb are at least 15,000 per year. An increase in the production of local lamb therefore  has  great  potential  but  will  require  investment,  training  and  infrastructure  and marketing skills to make it a success. Lamb is only one possibility; beef, pork and chicken have equal potential for the future. The increase in local meat production would also see a greater throughput at the abattoir, thus spreading fixed running costs which are mainly met by States funding. Feasibility studies to assess how meat production on the Island can be geared to satisfy local and export demand are underway.

5. E x ample 3 – Other agricultural diversifications

1. E xamplesofother agricultural activities that couldbe and are being considered bylocal farmers and new entrants include equine livery, cereal production foranimalfeedsor local bread supplies, protein crops for animal feed,essential oils forcosmetics or other therapies.
2. T helocal horse industryislarge with around1,200-1,500horses on the Island and anestimated consumer spend of £8.5 million notincluding stabling and grazing costs. It is estimated the local consumer is purchasing between 8,000 to 10,000 loaves ofbread per day with none of the wheat these loaves contain being produced in Jersey. The dairy industry and other livestock owners import large volumes of concentrated feedstuffs valuedat over £2 million per annuminordertosatisfy the demandsof their animals. Pet and wild bird feeds purchased in Jersey are again virtually all imported at high cost. Jersey Lavender and La Mare vineyards have shown that successful businesses canbedeveloped from niche high valuecropsgrown in Jersey.
3. T heabove are just some of the examples of the large potential for diversification in Jersey but itshouldbe remembered that it is notthe role ofGovernmentto pick andchoosewinners but to provide supportand advice in order to encourage entrepreneurs. Funding under the Rural Initiative Scheme for market research will highlightother potential opportunities.
4. T he cost ofproviding infrastructure maybe a barrier to business start-ups if undertakenbyindividual businesses. The Rural Initiative Schemeacknowledges this possibility and contains the option to cover the part-fundingofcommon infrastructure to act as a catalystforbusiness development.

6. P o licies

1. W hile thereappearsto be goodpotential for diversification inthe agricultural economy, in orderto succeed businesses will need to –

• C o n d uct market research and feasibility studies

• R a i s e capital for investment and operating costs

• D  ev e lop infrastructure and relevant skills

• D  ev e lop products that meet their customers' demands

2. I ndividualfarmers,companies, new entrants and group/cooperative ventureswillbeaidedby –

• D  el i very and funding of advice and training

• A  cc e ss to the Single Area Payment system

• P r o v ision of support through the proposed Rural Initiative Scheme (section  7)

• T h e Small Business Development Service and the Small Firms Loan Guarantee Fund.

Diversification

7. O  ther Land-dependent Activities

T o u r ism and Leisure

1. T ourismis an important part of the economyandunderpins many of the services such as seaand air travel that both visitors and residents rely on. Indeed manybusinessesalso rely on the spending generatedby tourism.
2. T hereis a need to encourage tourism basedonthe quality of the Island environment, especially where it relates or adds to, the Island's distinctive landscape, or its cultural or historic character.
3. At present traditional farmhouse accommodation is limited with few new developments. A high proportion of visitors are elderly and overallnumbers are declining although this trend may have levelled out in 2004.Asin the traditional farming sectors the Tourism and Leisure Industryhas a high cost base and faces increased competition from other destinations. However there is an increased demand for leisure and activity facilities by locals and tourists.
4. T ourismhasdeveloped a strategy basedon attracting first-timeyounger visitors, activity based holidays with a lower cost base andmodern attractions. At the same time thereis a need toincreasethe availability and rangeofaccommodation from traditional Bed & Breakfast, to cabin style, self-catering farm stays combined with activity holidays such as golfing, walking and cycling. However these need to be accompanied by improved access, footpaths, bridle pathsandother facilities and infrastructure.

8. O  ther activities

1. T ourism is only onepossibilityfor diversification away from agriculture that couldbeconsideredas part of the rural economy.There are a wholerangeof businesses that couldbeencouragedto locate inrural parts of the Island as long astheirimpacton the locality is not detrimental. Examples could be alternative uses for redundant agricultural buildingsand/or land such as documentstorage, fulfilment companies, service industries and manufacturing. This list isnotcomprehensiveand a flexible approach to business activity inthe countryside is required in ordertoencourage entrepreneurial activity and the growthof the rural economy.
2. It is proposed that the Rural Economic Strategy will help diversification from primary agricultural production byproviding support and encouragement through the Rural Initiative Scheme.

7. R  u ral Initiative Scheme(RIS)

1. T he underlying principle of the Rural Initiative Scheme (RIS) istopromotegrowth in theruraleconomy by supporting appropriate diversification, enterprise andinnovation. Another prime consideration is that these new ventures will meet environmental and social objectives by reversing the decline in land- dependent activity and therefore helping to maintain andenhance the character of the Jerseycountryside. The RIS is intendedto help bring about a step changein the performance of the ruraleconomy over the next 5  years.
2. B  usinesses in the agriculture sector can pose a high investmentriskdueto the uncertaintyof production and the volatile marketplace inwhich they operate.Coupled with high levels of existing debt it is harder for them to raise capital and access conventionalborrowing as they are perceivedas a relatively high risk by banks and other mainstream lenders.
3. N  on-agricultural industries withintheruraleconomymaybeseenas a relatively lowerriskandmaybe able to secure commercial funding which agricultural businesses could not. New start-upsmayhowever lack sufficient equity against which to secure borrowing.
4. T he RIS will be consistent with the overall approachtaken by the EconomicGrowth Plan to encouraging enterprise in the economyandcould operate through a combination of mechanisms –

• P r o v iding an additional Small Firms Loan Guarantee Scheme for the rural economy.

• O ff e ring rural specific advice within an expanded Small Business Service in the Island.

• S u p p orting market research, demonstration projects and scoping studies.