Report on Reducing Water Pollution from Agricultural Sources – The Farm Nutrient Management Scheme

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Executive Summary

Introduction

1. With over 25,000 active farm businesses covering around 75% of the total land area in Northern Ireland, agriculture plays an important role in the protection and improvement of the environment. The agricultural industry, however, has been one of the principal contributors to a number of serious water quality problems that currently affect the groundwaters, rivers and lakes of Northern Ireland. The largest and most widespread of these is nutrient enrichment, which results in a phenomenon known as eutrophication. This causes accelerated growth of algae, excessive plant growth and consequential reduction in oxygen levels.

2. The introduction of the 1991 Nitrates Directive by the European Commission was intended to improve the use of nutrients on farms and, as a result, improve water quality throughout Northern Ireland. The Directive requires all Member States to prepare an Action Programme which, in Northern Ireland, includes a minimum storage capacity for manure (22 weeks for cattle and sheep) and a Closed Period during the wettest months of the year (mid-October to the end of January) when the spreading of manure is not allowed.

3. To help farmers comply with the Directive, the Department of Agriculture and Rural Development (DARD) introduced the Farm Nutrient Management Scheme (FNMS) in 2005. This provided 60 capital grant support, up to a maximum grant of £51,000, towards the cost of building the additional storage required. Almost 4,000 farmers proceeded with a project, at an average grant per farm of some £31,000. In 2007, the programme budget was increased to £144 million, to ensure that all applicants could be funded. Overall, the total grant paid amounted to £121 million, making this the largest capital grant scheme ever run by DARD. The Scheme was completed in December 2009.

Overall conclusions

4. The Committee's overall conclusion is that, in a number of key aspects, the Farm Nutrient Management Scheme was poorly planned and badly managed. As a result, it cost many millions of pounds more than should have been necessary to ensure compliance with the European Commission's Nitrates Directive. Combined with the fundamental uncertainty over the extent to which the Scheme is actually contributing to the improvement of Northern Ireland's water quality, the Committee can only conclude that the Scheme provided poor value for taxpayers' money.

5. The Committee acknowledges that FNMS represented a major undertaking for the Department. However, as the largest capital grant scheme it had ever managed, FNMS demanded the highest standard of planning and implementation. Instead, the Department appears to have adopted a piecemeal approach, with the Scheme being subjected to a succession of uncertainties, delays and revisions.

Planning and funding of the Scheme

6. Problems were apparent from an early stage. DARD was slow to respond to the 1991 Nitrates Directive, taking eight years to begin its designation of Nitrate Vulnerable Zones. This was despite the European Commission having set a two-year deadline. With the risk of infraction proceedings by the Commission, this was far from satisfactory. Full and prompt compliance with all Commission directives is essential.

7. The quality of the Department's Economic Appraisal, on which the planning of the Scheme was based, was far below the standard required — assumptions on cost and uptake turned out to be significantly different from the actual figures. Part of this stemmed from the Department's reliance, when planning the Scheme, on seven to eight-year-old sample data on existing farmyard storage capacity. The lack of up-to-date data undermined DARD's planning process and led to a number of the difficulties experienced during implementation. It is essential that the assumptions underpinning appraisals are rigorously tested and confirmed.

8. The Department has an obligation to minimise the cost to taxpayers. When designing capital support schemes such as FNMS, it should always apply the well-established principle of additionality. This ensures that public funds are only applied where necessary and that the level of support is the minimum required to bring about the desired objectives. In the case of FNMS, however, the Department failed to do so. There was widespread use of the more expensive underground storage facilities, with over four out of five farmers opting for this approach. The additional cost to the taxpayer amounted to £49 million. Moreover, DARD's declaration of a total territory approach forced those farmers in the 17 of Northern Ireland's land area that is not judged sensitive to eutrophication to participate in the Scheme. This added a further £10 million to the Department's costs. And grant was paid at a flat rate of 60, irrespective of means or the size of a project.

The proposed sale of Crossnacreevy

9. One of the most disturbing aspects of the Department's handling of this Scheme was its £200 million valuation of the Crossnacreevy site. Although described at the time as an "initial informal valuation", it was nevertheless the means by which the Department managed to secure £89 million of additional capital funding from the Department of Finance and Personnel (DFP). Subsequently, a formal valuation by Land and Property Services put the actual site value at between £2.28 million and £5.87 million.

10. The Committee finds this astonishing. It is highly questionable whether the potential sale of Crossnacreevy, particularly as a building development opportunity, was a realistic proposition at that time. This should have been obvious to all concerned. Crossnacreevy is situated in a greenbelt and the possibility of obtaining a change in planning permission had not even been explored. DFP's failure to effectively exercise its oversight role in this issue is very disappointing — it should have insisted on a formal professional valuation, prior to ratifying the increased capital budget for the Scheme.

11. Following the Committee's first evidence session on 15 June 2011, additional information was requested from the Department on the Crossnacreevy issue. In reviewing this data, the Committee noted important details that had not previously been disclosed by the DARD witnesses. As a result, the Accounting Officer was recalled. In the wake of that second evidence session, the Committee's disquiet over DARD's handling of the Crossnacreevy issue has substantially increased. Particular concerns include:

• DARD's failure to disclose key information on the Crossnacreevy valuation to DFP;
• the unreasonable delay by DARD in establishing a proper valuation for the property and determining its potential for sale;
• the implausibility of a number of DARD's explanations to the Committee.

12. Overall, the Committee's impression is that the Accounting Officer's evidence on Crossnacreevy lacked frankness, openness and credibility. This is unacceptable. The Committee expects the full co-operation of departmental witnesses in its drive to expose poor practice and highlight important lessons for future application. It should not have to engage in a cross examination. Earlier this year, in its report on Northern Ireland Water, the Committee made clear that witnesses must answer all questions accurately and not omit relevant and important facts. Regrettably, this clear and unequivocal message failed to register within DARD.

13. It is a matter of profound disappointment that, after such a short period of time, this issue should again have to be highlighted to an Accounting Officer. The Committee views this matter with the utmost seriousness and, in the circumstances, has decided to draw its concerns to the attention of the Head of the Northern Ireland Civil Service and the DFP Accounting Officer, through separate correspondence.

Eligibility and grant uptake

14. Almost 7,000 of the 11,000 farmers who had initially expressed an interest in the Scheme did not proceed. Worryingly, DARD has no information on what alternative steps, if any, these farmers have taken to become compliant with the Nitrates Directive. Given the risk of non-compliance, this is an issue which the Department must address as a matter of urgency.

Impact of the Scheme

15. Contrary to best practice, the Department failed to set performance measures and targets for the Scheme. It also failed to set up a performance information database at the outset. Poor quality management and performance information in a major programme like this is unacceptable. It weakens accountability, undermines the effectiveness of policy review and compromises decision-making. The Department must ensure that all of its programmes have effective data systems built in from the start.

16. There is a fundamental uncertainty over the impact of FNMS on water quality and thereby the Scheme's value for money. The Department conceded that it has no evidence to demonstrate the extent to which FNMS is making a difference to water quality in Northern Ireland. Nor can it differentiate between the impact of FNMS and that of other factors, such as restrictions on the use of phosphate-based chemical fertilizers, the development of phosphate-free fertilizers and the massive investment programme by Northern Ireland Water on projects like sewage outflows. In the Committee's view, this raises a key question as to whether FNMS was necessary on the scale laid down by the Department. The Committee is left wondering, therefore, whether a much-reduced Scheme, specifically targeting those areas where eutrophication problems were greatest, might have proved a more cost-effective option.

17. Despite the Department's huge investment in providing the industry with additional storage facilities, inspection visits by the Environment Agency have detected a significant proportion of farms in breach of the Nitrates Action Programme. This even includes 68 farmers who received grants under FNMS to provide additional storage. It is clear, therefore, that much more needs to be done to tackle non-compliance, through improved education and publicity and increased levels of inspections.

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