THIRD SPECIAL REPORT
The Agriculture Committee has agreed to
the following Special Report:
The Committee has received the following memorandum
from the Ministry of Agriculture, Fisheries and Food, constituting
the Government's Reply to the Third Report from the Committee
of this Session, The UK Beef Industry, made to the House
on 18 February 1998.
* * *
CONCLUSIONS AND RECOMMENDATIONS (PARA
55-56)
The Government welcomes this report, which acknowledges
the unenviable inheritance of the present Government in relation
to BSE when it took office.
The Government also recognises that beef farmers
have a right to a sympathetic hearing. Nevertheless, it is important
to recall that by the end of the current financial year nearly
£2.5 billion will have been spent on BSE related measures.
In addition, beef producers are receiving around £500 million
each year in normal beef subsidy payments. An additional £85
million has been distributed to livestock producers in agri-monetary
compensation payments.
Since the report was published the Government has
announced that the entire start-up costs and first year running
costs of the new British Cattle Movement Service will be funded
by the Government. In addition, the Government decided that the
charges for implementing new Specified Risk Material (SRM) controls
on cattle, sheep and goats will not be recovered from industry
from 1 April 1998, as previously planned. These decisions represent
a total saving to the industry of around £70 million; £35m
each for the BCMS and SRM charges.
In the circumstances the Government considers that
it has addressed the needs of the sector while bearing in mind
the need to keep a tight reign on public expenditure.
The report agrees with the Government that restructuring
of the industry is necessary if its economic fortunes are to be
revived. When the Government announced the £85 million aid
package for livestock farmers in December it expressed its intention
to consult the industry about possible restructuring measures,
including the EU's early retirement scheme. The Government has
now launched this consultation exercise. The consultation paper
outlines a number of measures which might be used to help achieve
the Government's aim of ensuring the long-term viability of livestock
farming.
We recognise that restructuring must be undertaken
in parallel with similar restructuring in other Member States.
Reform of the EU beef regime is desperately needed, and it is
clear that this will be one of the major dossiers to be handled
by the current UK Presidency. Producers across Europe will have
to meet this challenge. We do not underestimate the problems for
those who cannot, but with their natural advantages such as an
abundance of grass, good breeding stock and a wealth of technical
expertise at their disposal, UK producers should be in a position
to lead the way.
Finally, since the report was published, the Government
has secured a European Council Decision to amend the export ban
which would allow exports of meat and products from animals slaughtered
in Northern Ireland under an Export Certified Herds Scheme (ECHS).
This breakthrough comes nearly two years after the ban was first
imposed. The Government considers that lifting the ban for herds
in Northern Ireland is the first crucial step towards lifting
the ban for other parts of the UK. The EU Commission is also currently
considering our proposals for a wider lifting of the export ban
under a Date Based Exports Scheme and has undertaken to present
a proposal in a matter of weeks. This demonstrates that the approach
of this Government is getting results, to the benefit of farmers,
and the entire UK beef industry.
OTHER PRINCIPAL CONCLUSIONS AND RECOMMENDATIONS
(PARA. 57)
THE GOVERNMENT'S POLICY ON SUPPORT FOR
THE BEEF INDUSTRY
Agriculture Committee conclusion (a): We recommend
that the Government should review its plans for expenditure on
BSE in the next two financial years in the light of the prevailing
circumstances of the beef industry. In this review, the Government
should seek to ensure that support reflects the balance of difficulties
between the beef and dairy sectors (paragraph 31).
The Government notes the Committee's recommendation
and confirms that MAFF is currently reviewing BSE expenditure
up to and including the year 2001/02 in consultation with the
other Agriculture Departments and the Treasury. This review is
likely to feed into the Government's Comprehensive Spending Review,
the results of which are expected to be announced this summer.
OVER THIRTY MONTHS SCHEME
Agriculture Committee conclusion (b): We consider
that the Government should now explicitly link the phasing-out
of the OTMS to the Date-Based Export Scheme, and push this matter
up the agenda of its discussions within the European Union. We
also consider that, in any further revisions to the structure
of compensation payable under the scheme which may become necessary
for budgetary reasons, the unfortunate discrimination against
specialist beef producers which has arisen as a result of the
560kg weight limit should be redressed. Indeed, we see no reason
why there should not be a differential in compensation rates in
favour of beef breed cull cows (paragraph 36).
The Government appreciates the apparent logic behind
an OTMS exit strategy linked to the DBES. Aside from this apparent
logic, such a link might also minimise the risk of oversupply
on the UK market by progressively releasing OTM meat onto the
market in parallel with the export opportunities generated by
the DBES. This could therefore offer the possibility of an orderly
OTMS exit strategy and a steady decline in OTMS expenditure. However,
the DBES as currently proposed would apply only to animals under
thirty months of age. The prospects of markets being found for
the OTM meat released by this linkage might therefore be less
certain, with the possible consequence being a less orderly OTMS
exit strategy. The Government's policy here, however, has to be
led by the science (as reflected in the advice of SEAC) rather
than by market considerations. Therefore, in the absence of new
SEAC advice on this question, the Committee's recommendation here
can be seen by the Government simply as an appealing one rather
than one it can fully support.
The Government agrees with the Committee's analysis
on the balance of difficulties between the beef and dairy sectors
and therefore sees, as the Committee does, a case for a differential
in OTMS compensation rates in favour of beef breed cull cows.
This has been the Government's position since the 560 kilogram
compensation weight limit was introduced in August last year.
However, implementation of differentiated compensation rates remains
fraught with difficulties and a workable and cost-neutral method
of doing this has not been found. The Government has considered
a range of options, including ideas submitted to it by farming
organisations. The options include, for example, either separately
identifying cull cows of beef breeds or identifying those which
had benefited from Suckler Cow Premium (SCP) payments. Separate
identification of beef breeds would be resource-intensive to implement,
probably imprecise, and potentially could encourage fraudulent
behaviour. Identification of animals which had benefited from
SCP payments, on the other hand, would be even more resource-intensive,
could lead to payment delays, and would in any case not benefit
all suckler cows as a proportion of these do not attract SCP payments
due principally to quota restrictions. Even were a workable and
cost-neutral option to be found, there would of course be no guarantee
that it could be introduced because policy in this area is determined
by the European Commission in the Beef Management Committee, not
by the Government.
The lack of a viable option for differentiating OTMS
payment rates in favour of beef breed animals was a factor in
the Government's decision to seek European Commission approval
to pay £72.5 million in agrimonetary compensation to suckler
cow producers. The Government welcomes the Committee's acceptance
(para. 48) that this aid package has been correctly targeted towards
suckler producers.
CALF PROCESSING AID SCHEME
Agricultural Committee conclusion (c): We support
the Government's decision to align compensation rates for dairy
and non-dairy breeds under the CPAS. Our principal concern about
the operation of the scheme is that the UK is bearing the brunt
of an EU-wide need to reduce beef over-production, to an extent
which may compromise the future prospects of the UK beef industry
when conditions approaching normality return. The scheme is also,
of course, highly distasteful and for that reason is likely to
lose what public support it has (paragraph 38).
The Government has pointed out to our Continental
partners (and to the Commission) that the UK is bearing a disproportionate
share of the EU effort to reduce beef production. However, our
options are limited in the short-term by the obligation on all
member states to operate the CPAS and/or an Early Marketing Scheme
for veal, the latter scheme being unsuited to UK market conditions.
That obligation ceases in December and we shall shortly be consulting
the industry and other interests on the future of the scheme.
SELECTIVE SLAUGHTER
Agriculture Committee conclusion (d): The Government
has made modest progress on the selective slaughter scheme, and
we look to the Government to maintain its efforts (para.39).
The Government is continuing to treat the selective
cull as a high priority. All 1,461 Northern Irish-born cull animals
have been slaughtered. In Great Britain, 67,500 cohort animals
had been slaughtered by 10 April. Of the 118,000 cohort animals
sold out of the natal herd and subject to tracing, 49,000 had
been found and 40,000 had been determined untraceable, by this
date. There are in addition 17,000 animals where tracing could
not be initiated due to poor movement records on the natal herd.
Taking untraceable animals into account, tracings have now been
completed in respect of almost 80% of the cohort animals sold
out of the natal herd.
At the beginning of the cull, the Government estimated
that 100,000 animals would be slaughtered. This forecast was an
estimate only, and as time passes a greater proportion of the
animals found will be already dead. Thise estimate has now been
revised downwards to 80-85,000, which means that at least 80%
of slaughterings have now been completed. Although. The original
forecast was an estimate only, and as time passes a greater proportion
of the animals found will be already dead. Although work on the
cull is nearing completion its conclusion, progress these last
stages will inevitably become slower, as it focuses on tracing
animals sold out of the natal herd, which often occur singly.
Nevertheless, we hope to complete the cull by late
autumn.
OTHER SUPPORT FOR, AND COSTS TO, THE INDUSTRY
Agriculture Committee conclusion (e): Many of
the extra costs faced by the UK industry are not shared by their
EU competitors. The Government's inability to supply more than
sketchy information on the arrangements made in other Member States,
specifically on charges for SRM controls and cattle traceability
systems, leads us to the conclusion that Ministers cannot have
been able to assess the effects on the UK industry's competitiveness
of their decisions in respect of these matters. This is of serious
concern to us, especially in the industry's current difficult
circumstances. The Government should prepare a comparative analysis
of charges levied across the EU level on the framework for charging
within the EU. The aim should be a genuinely level playing field
(paragraph 40).
The Government announced on 25 February that the
charges for implementing the new Specified Risk Material (SRM)
controls will not be recovered from industry as from 1 April 1998
as previously planned. In addition, the entire start up costs
of the new British Cattle Movement Service will be funded by the
Government. These measures will together represent a total saving
of £70 million to the industry.
The Government has sought information from other
Member States on the charges levied across the EU for systems
similar to CTS. Many of the systems are under development, so
the position is not yet fully clear. However in most cases it
appears that Governments are paying for the set up costs of the
system, as is the case in Great Britain. The position Member State
by Member States, where known, is as follows:
Member State
|
Who pays set up costs?
|
Who pays running costs?
|
Austria
Belgium
|
Government
Government
|
Government
Industry
|
Denmark |
Government
|
Government and Industry
|
Finland |
Government and Industry
|
Government and Industry
|
France |
Government and Industry
|
Government and Industry
|
Ireland |
Government
|
Government (consideration being given to introducing charges to offset some element of operational cost).
|
Italy |
Government
|
Government and Industry
|
Luxembourg |
Government
|
Government |
Netherlands |
Government
|
Government and Industry (mainly the latter)
|
Spain |
Government
|
Government at first, then Industry
|
Sweden |
Industry
|
Industry |
Agriculture Committee conclusion (f): Given that
the circumstances which initially gave rise to the rendering subsidy
have not materially changed, the Government should review the
decision taken by the previous Government to terminate the subsidy.
We recommend that the Government maintain a degree of financial
support for the rendering industry until market conditions for
beef by-products have become more favourable (paragraph 41).
The Government's objective in financially supporting
renderers was to avoid the immediate disorderly collapse of the
meat supply and waste disposal chain in the aftermath of the BSE
crisis. This was achieved. The Government carefully considered
representations made by a wide range of interested bodies last
July before confirming the previous Government's decision to phase
out support for rendering as originally intended. The Government
recognises that withdrawal of support clearly imposes costs on
the industry which do not have to be borne by their competitors
in other Member States. However, the reinstatement of support
would be tantamount to giving a blank cheque to the industry.
No government is in a position to give such cover. It has to be
recognised that we are not in the same situation as when the support
was introduced. The phasing out of support has allowed businesses
to adjust over a period of time.
TRACEABILITY
Agriculture Committee conclusion (g): We wholeheartedly
support the present Government's actions in introducing a computerised
Cattle Tracing System (CTS), building upon the existing cattle
passports database (paragraph 43).
The Government welcomes the Committee's endorsement
of its decision to develop the CTS, and understands the Committee's
disappointment that the previous Government did not act on earlier
recommendations. The Government attaches the highest importance
to CTS, which is now planned to be launched on 28 September 1998.
Agriculture Committee conclusion (h): We agree
with the Government that a computerised cattle traceability system
will be of substantial commercial benefit to the industry in the
long term, and we accept that the running costs of the system
should probably be met by producers in the medium term. At the
same time, we consider that there will be administrative and veterinary
and public health advantages to the Government. The Government
should therefore bear the start-up costs of the CTS and phase
in charges to farmers for the running costs as the financial position
of beef farmers improves. We expect the Government to compare
the CTS costs with those of the equivalent system in Northern
Ireland, and to keep these costs to an absolute minimum. We recognise
that there are considerable logistical and administrative difficulties
in transferring passport data on to the British Cattle Movement
Service (BCMS) data base (paragraph 44).
The Government has listened carefully to the representations
farmers have made regarding the financing of the CTS. On 25 February
1998, the Minister announced that the Government had decided it
would meet the costs not only of setting up the CTS, but also
of running and enforcing it during its first full year of operation.
As explained above, this means that the Government will be bearing
costs of the order of £35 million on behalf of the industry.
PROMOTION AND ASSURANCE SCHEMES
Agriculture Committee conclusion (i): We agree
with the Government's basic position that "expenditure on
promotional campaigns is solely for the meat industry". However,
this position may have to be modified when the export ban is lifted
to assist the UK beef industry in the difficult task of regaining
sales in its previous export markets outside the EU (paragraph
45)
The Government will closely monitor our third country
exports as and when they are able to take place. However, whilst
the Government appreciates the importance of these exports, they
are unlikely to be moved from the opinion that the industry is
best placed to fund promotional activity.
LABELLING
Agriculture Committee conclusion (j): We welcome
the rapid introduction of the Beef Labelling Scheme by the Government.
However, we see it as a partial solution to current difficulties
on the home market and one which may not prove helpful to the
UK industry's efforts to re-establish its exports to other European
countries once the export ban is lifted (paragraph 46).
The Government recognises there is, at least, a short
term benefit in that the arrangements will favour domestic product.
If, as expected, the labelling scheme becomes compulsory on 1.1.2000
all beef will have to be identified by country of origin wherever
it is marketed. British beef exporters could therefore initially
encounter some degree of resistance from consumers preferring
to buy domestic product. However, British beef has qualities which
make it highly marketable and the labelling rules, which are designed
to promote consumer confidence, are unlikely to inhibit Britain's
ability to market quality products abroad.
22 DECEMBER SUPPORT PACKAGE
Agriculture Committee recommendation (k): Although
this aid package has been correctly targeted to suckler producers,
the cornerstone of the UK's beef industry, we are puzzled by the
Government's reluctance to seek the full £77 million for
beef producers, given the industry's current serious problems.
The effect of the Commission's refusal to accept additions to
HLCAs has been to rebalance the package away from hill producers
to a flat rate of £44.20 payable on all suckler cows: this
may even be preferable to the distribution of aid originally envisaged
by the government. We are concerned, however, that farmers might
not receive aid under the package until Easter 1998. It is essential
that this aid reaches producers as soon as possible. Should circumstances
be the same this time next year, the Government should be sympathetic
to the plight of the industry (paragraph 48).
In constructing the package of compensatory aid,
announced on 3 February, the UK drew down a substantial proportion
of the compensation then available for payment to the beef sector.
The payment of agrimonetary compensation carries significant additional
costs for the UK Exchequer and this package of aid, totalling
£85 million to the beef and sheepmeat sectors, represents
substantial additional support for this sector. It was an exceptional
response to the circumstances facing the livestock sector.
Agrimonetary compensation was paid at the earliest
opportunity following the receipt of formal approval of the Government's
plans from the European Commission. In the event, almost all of
the additional aid was paid before the end of March.
HLCAs
Agriculture Committee recommendation (l): If HLCA
rates are to be frozen, then an alternative strategy is required
to provide financial security and stability for hill farmers.
As has been well-documented by the Minister himself, hill farm
incomes are in long-term crisis. Continuing the policy of gradually
diminishing income support payments will not provide a solution
(paragraph 49).
The Government maintains that HLCAs are designed
to compensate cattle and sheep producers for the permanent natural
handicaps they face in the Less Favoured Areas (LFAs). Accordingly
rates must be set on a long-term basis. Nevertheless the Government
and the EU Commission agree that a new strategy is required to
deliver support for extensive livestock farming in the LFAs and
will review the HLCA Scheme with that aim in mind, as well as
the aim of achieving greater environmental benefits. That review
will be conducted in the light of Commission proposals for the
reform of LFA support contained within the Agenda 2000 package.
The industry will be fully consulted before any changes to the
scheme are brought into effect. There is no prospect of changing
the fundamentals of the scheme for the 1999 scheme year.
EXPORT BAN
Agriculture Committee recommendation (m): The
Government has diligently and conscientiously observed its part
of the bargain under the Florence Agreement, and is entitled to
expect the European Union to do the same. It would be wholly unacceptable
if evidence arose that the validity of the Date-Based Export Scheme
(or, indeed, the Export Certified Herds Scheme) was being assessed
by the European Union on any grounds other than scientific and
technical ones. We commend the Government in imposing unilateral
SRM controls on imports from 1 January this year, and we would
support the Government in further unilateral action justified
by scientific evidence, if necessary (paragraph 52).
UK beef exports
The Export Certified Herds Scheme was adopted by
a qualified majority in the Agriculture Council on 16 March. Two
member states (Belgium and Germany) opposed the adoption of this
Scheme; two member states (Luxembourg and Spain) abstained. This
decision marks a welcome recognition by the Commission and most
European Governments of the steps which the UK has taken to control
BSE and the confidence that they have in the safety of Northern
Irish beef.
The Government is now pressing the Commission for
progress on the Date-Based Export Scheme (DBES). The UK proposals
have been considered by the Scientific Steering Committee (SSC),
which has given a broadly positive opinion on them. Further discussions
about this Scheme between the Commission and UK officials are
planned, following which the Commission should prepare proposals
for consideration by the Standing Veterinary Committee (SVC).
The Government believes that the scientific basis
of the DBES is sound and will lobby other member states to fulfil
their part of the Florence agreement and base their decisions
solely on the scientific evidence. In this respect, the Government
was encouraged by the objective and rational position adopted
by the Commission and most member states when considering the
ECHS proposal.
SRM
The continued failure of the Community to apply harmonised
controls on the use of specified risk materials is regrettable.
Unless and until such controls are agreed and put into effect,
the Government intends to retain unilateral controls to ensure
that food and feed products do not contain, and are not derived
from, specified risk materials.
RESTRUCTURING
Agriculture Committee conclusion (n): We welcome
the Government's willingness to utilise the EU early retirement
scheme to enable restructuring of the beef industry to proceed
on a planned and rational basis, but we are sceptical of the scheme's
suitability when transposed to the agricultural situation of the
UK. In particular, we note the considerable disparity in farm
size structures between the UK and other EU member states, which
places great constraints on the size of retirement payments which
could be disbursed by MAFF under the scheme's outline provisions.
There does not appear to be sufficient flexibility in the EU scheme.
Should it prove possible to devise a suitable scheme for beef
producers, we stress that it should take into full account the
need for the UK beef industry to be environmentally sustainable,
as well as economically sustainable, into the future (paragraph 54).
The Government agrees with the Committee that there
may be limited scope to use the EU's early retirement scheme to
contribute to the restructuring of the beef industry. It is because
of the limitations of the EU scheme that it has not, so far, been
used in the UK where, as the Committee points out, the farm size
structure is so different from the rest of the EU. However we
believe it right that we should explore every possible avenue
and we are consulting industry to gauge farmers' interest in the
early retirement scheme. If any scheme is introduced we will seek
to ensure that it meets the Committee's recommendation about being
environmentally and economically sustainable.
29 April 1998
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