Small business, big land - Scotland's rural economy

Written by Tom Freeman on 19 June 2015 in Feature

How small and medium-sized enterprises (SMEs) drive Scotland's rural economy

Rural Scotland comprises 95 per cent of the land area and around a fifth of the population. It has the potential, therefore, to make a huge contribution to the country’s economy, environment and culture. Over recent years, its population has continued to grow at a faster rate than the rest of Scotland.

However, rural businesses face unique challenges and are more reliant on communication services, broadband and transport to connect to their markets than their urban counterparts. 

Village pubs and post offices have closed. Rural GP practices struggle to recruit, and those that do resist the opening of local pharmacies which they see as competitors. In some areas, schools struggle to recruit teachers. Some 21 per cent of workers in rural Scotland are self-employed, while rural areas also have a greater proportion of people aged over 55 than the rest of the country.


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The Federation of Small Businesses (FSB) has campaigned for greater recognition of the role small businesses play in holding the rural economy together. Amanda Frazer, chair of the FSB in Highlands & Islands Region, says they represent the “beating hearts” of rural communities.

“They generate the income, create the employment, maintain the presence of young families and young adults and justify and attract the private and public sector investment in amenities that keep these communities alive and thriving,” she says, pointing to the fact 80.5 per cent of private sector employment in rural areas is in small and medium-sized enterprises (SMEs).
“The more remote the area, the smaller the businesses,” she adds.

The solutions to these persistent challenges lie in the public and private sectors working closely together, according to the FSB, who have successfully lobbied rural councils to look locally when making procurement decisions.

Compared to the urban economy, growth in the rural economy has been slower. Between 2010 and 2014, the rural business base increased by 5.4 per cent, compared to the urban base which grew by around 30 per cent in the same period.

Former Highland council leader Drew Hendry, who took Danny Alexander’s seat in the General Election, told Holyrood the council’s move to become a Living Wage employer was designed to create an environment which would allow the rural economy to grow. 

“Our main issue is we’ve got a low-wage economy, and if we’re talking about attracting and retaining people, one of the reasons we get older people moving here is they’re usually financially independent by the time they move here, and of course one of the reasons you get young people leaving is because the opportunities seem greater elsewhere,” he said.

However, Frazer insists more must be done. “With public sector employment shrinking, secondary school rolls declining in remote rural areas of the Highlands, and the economy still rocky, it is vital we grow the rural small business base still further,” she says.

Connectivity will be key to growth, and the Scottish Government has promised all of Scotland should have access to fast broadband by 2020. Last week, Deputy First Minister John Swinney welcomed the latest area to get fibre-optic broadband, Kinlochleven, which took the total number of premises with access to the new fibre-optic networks in the Highlands and Islands to more than 100,000. 

“Each month we see the number of rural communities with access to better broadband increasing. The roll-out of the massive fibre-optic network being built across the Highlands and Islands is one of the most ambitious broadband projects ever undertaken,” he said.

The UK currently has a telecoms USO, which entitles every property in the UK to a telephone line. However, this doesn’t contain any meaningful provision for broadband, and in recent years, Finland, Malta and Spain have all introduced a USO for broadband. 

“Broadband and mobile phone coverage are not luxuries but necessities if young families are to be encouraged to relocate and more home-based businesses to start up. Excellent transport connectivity is also essential, as is reducing rural energy costs,” says Frazer.

One place which has been perhaps less up to speed is the online Single Application Form for farmers to apply for European Common Agriculture Policy (CAP) funding.  Many farmers reported severe problems with the system website right up to the deadline last week.

Borders farmer Michele Macdonald told the Scottish Parliament’s Rural Affairs, Climate Change and Environment Committee the process had been “a nightmare”.

North-east farmer, and chairman of National Farming Union (NFU) Scotland’s livestock committee, Charlie Adam, said a “serious mess” was beginning and he was concerned repeated failures in the IT system were not being reported to government.

“If we desperately want people to take up information technology, do things online and communicate electronically, the current system is a tremendously retrograde step, because anyone who has not applied online before and is starting with this will have all their fears confirmed and reinforced,” he said. 

NFU Scotland elected Fife farmer Allan Bowie as its new president in February, and he tells Holyrood Rural Economy the sector is well used to dealing with unpredictable challenges, not least the weather.

“That old bugbear for many farmers, we have that to contend with. And interestingly, we’re now in a global market so we’re not in isolation here. There’s about six million mouths in Scotland to feed, 60 plus in the UK, but it’s a global market which affects our prices, and a lot of things are outwith our control – the currency, the globalisation of food,” he says.
Low commodity prices in the world mean farmers are reliant on European funding, he explains, and they also need the support of consumers. 

“The argument is ‘well, you’re getting money from Europe, is that not enough?’ Well, actually, it’s not. It’s getting to a place when the people sit down at the table they understand the effort, the provenance, the quality of the food, and all we can ask is for Scottish or British first. It gives us a chance to compete here. If they’re not willing to do that, and they want the least cost regardless of how it’s produced, then we’re really struggling here in Scotland.”

Investment in processing is needed in Scotland too, he says. “Currently, a lot of our lamb heads south, a lot of our chicken is processed south. It’s products like that [that] need to get the inward investment here. You really have to show the consumer it really is added value, not just a saltire on the product.”

Rural communities are “crying out” for investment, says Bowie, and farmers can be part of that engagement. He points out the problem is not unique to Scotland. 

“People in Yorkshire and Cumbria feel the rural economy is struggling as well, so there’s a bit here for the UK government to recognise,” he says.
Frazer says it can only happen when existing assets are protected.

“‘Town and village centres first’ must be the mantra for the public sector, banks and Post Office, and their rural offices should only be closed as a last resort. 
“The public sector should also recognise spending its procurement money with small, local firms results in three times more money circulating locally than that spent with large firms. ‘Re-localisation’ boosts rural economic growth and employment,” she says.

Most farmers are SMEs too, Bowie points out, and the whole rural economy would benefit from an all-of-government approach.

“We are small businesses, yet it tends to be the agriculture minister who looks after us, when actually, you know, the business minister should be heavily involved. And he was, at the recent food and drink awards, John Swinney was there, and I think that was a very good signal to the industry and to small producers and enterprises there’s another part of government who recognises what we’re doing as well. It just instils a bit more confidence, that we’re not just a silo within government,” he says.

Health, for example, is an area which could support the rural economy, he suggests. “It’s amazing what we’ve got out there. It’s a fantastic environment, healthy. Although it’s where we do our business, we produce our food, but a lot of people now are starting to recognise the health benefits of being in the country and understanding what we do. We’re trying to do a lot in the rural economy from, say, the CAP pot and other budgets and it’s pretty restrictive.”

For the FSB, it is about joining up planning decisions in remote locations. “With increasing community empowerment, we also need a more united, joined-up approach to local development from communities and their businesses,” says Frazer.

A major part of Scottish Government plans for this empowerment centre around major land reform which, although described as radical in their early stages, have drawn overwhelming support from its public consultation.

Bowie warns of “unintended consequences” of some of the themes in the proposals. “We will have to take what the parliament decides, make no mistake, but it needs to be workable, and at least understand the current dynamics in the rural economy,” he says. 

The scale and size of the land in question must come into the equation, he argues. “There seems to be a concern as to ownership of land here, and Scotland has such diverse nature of land and value, and we’ve got a lot of land which is less favoured, marginal land, and you really need to have extensive businesses. If you’re going to have sheep or cattle in these areas, it can be ten times, twenty times, what it would possibly be on the east coast in scale, so size isn’t always the issue here; it’s what you do with that land and how you contribute to the economy and communities.”

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