Select Committee on Agriculture Minutes of Evidence


Examination of witnesses (Questions 120 - 139)

TUESDAY 14 JULY 1998

MR REG HAYDON AND MR GEORGE DUNN

  120. Can you tell us anything about their relative affluence compared with the owner/occupier sector?
  (Mr Dunn) Obviously tenant farmers have to pay a rent as well as to make a profit, but it has been said that the tenant's rent is the owner/occupier's interest payment, so on average they are not that much different. But, typically speaking, you find that the tenant farmers' incomes would be lower than their counterparts in the owner/occupier sector.

  121. Briefly, on rent levels, is there anything you would like to say about the levels that are being set at present?
  (Mr Haydon) Rents, at the moment, are under pressure. We have seen during a period of comparative affluence in, shall we say, from about 1994, 1995 onwards, that farm incomes rose and rents rose with them as they always do. They tend to rise rather quickly. Now incomes are in very fast, free-fall, big decline. We are seeing farm incomes in various sectors dropping anywhere between 50 per cent down to 30 per cent. Rents tend to follow them down somewhat slower. The cycle is a three-year cycle. It is fair comment to say that we have seen very little movement of the rents downwards until perhaps this autumn. We have many members who are coming up for rent review this autumn. We have a team of valuers who work for us. They will be trying very hard this autumn to get rents down, in view of the financial situation the industry faces.

  122. Is there evidence that some of the land agents, acting for the bigger institutional landlords, are being more robust on rent levels?
  (Mr Haydon) I think they have always been robust, so we need to be taking them on all the time. Certainly, in terms of decline of income, we need to fight the corner even harder than we would normally do.

  123. How many of those tenant farmers do you represent? What is your total membership?
  (Mr Haydon) Our membership is approaching 4,000.

  Chairman: Thank you very much indeed. Mr Mitchell.

Mr Mitchell

  124. You commented in your evidence on the draft Rural Development Regulation. Can you tell us, first of all, what your position is. Are you for it or against it?
  (Mr Haydon) We would generally say we are for it. We have some reservations about various aspects of it, things like cross-compliance, modulation, area payments, and the retirement scheme. They would be the four things we are not happy about at all. The rest of it, broadly based, is a reasonable assessment, but there is a feeling within the industry that Agenda 2000 will be very quickly followed by Agenda 2001, 2002 and 2003.

  125. Doing what?
  (Mr Haydon) I think that whatever gets settled for Agenda 2000 will be quickly out-of-date and will need to be revised.

  126. But broadly you think the draft has the right balance between agri-development and rural development measures?
  (Mr Dunn) I think that we were very concerned before the draft was produced, that we might find ourselves in a position where we went too far down the rural development and agri-environment route. What Committee Members may not understand is that tenant farmers, particularly those under the 1986 Act, have to be farmers by the nature of the legislation and by the nature of their agreements; so they do not have the same opportunity to participate in the environmental schemes or rural development schemes as our owner/occupier brothers. We find the regulation that has been drafted does provide, at the moment, a reasonably fair balance between agriculture and environment, rural development and the environment. Taken together with the broader Agenda 2000 proposals, we must be careful not to see this in isolation with the whole package. I think there is a fair and reasonable balance, so long as it is reasonably implemented by the Member State governments.

  127. That is a fair and reasonable balance, bearing in mind your tenure position?
  (Mr Dunn) Correct.

  128. If that tenure position is going to inhibit alternative development, because people have to be restricted to farming to inherit, if that is changed would it be more welcoming to rural development?
  (Mr Dunn) Well, we have just had a significant change in the tenure legislation in the 1995 Agricultural Holdings Act. That was supposed to bring forward a greater freedom for tenants to participate in activities on their holdings. What we are finding in practice is that landlords, who unfortunately still have the upper hand in negotiations, are forcing tenants to consider only agricultural options. Very often I have seen schedules to farm business tenancies, which were created under the Act, which specifically state the enterprise choice that the tenant has to go under. So it might be arable, milk or whatever. There has been a fundamental change in the legislation already but still that is not providing—

  Chairman: We will come to some of these specific legalities later in our evidence session.

Mr Mitchell

  129. It is, therefore, not a further change in the tenancy regulations, it is a change of attitude towards landlords?
  (Mr Dunn) Certainly landlords must be more willing to give their approval when tenants wish to do things on their holdings beyond traditional agriculture. Sometimes we are seeing that is not occurring.

  130. They would put the rent up if other businesses were profitable?
  (Mr Dunn) Yes, but they want to make sure that they keep the agricultural status of the holding.

  131. Okay. Your expression about the Commission not being more visionary. What do you mean? What visions would you like to see it have?
  (Mr Dunn) As Mr Haydon has said, we may see Agenda 2000 being replaced very quickly. There are many people who are saying that the current package of reforms for Agenda 2000 and rural development will not take us beyond the next stage of the WTO negotiations. What we would like to see is a situation where agriculture becomes less dependent on subsidy and freer from regulation. We are finding that agriculture is being forced continually to make changes to the short and medium term merely to cope with political expediency or the fad of the day. What we should be looking for is a long-term commitment so that agriculture can look ahead to the future with some confidence, where regulation is less onerous and subsidy is less important.

Mr Curry

  132. On that point precisely your paper is aspirational. It says: we are here, we would like to be there, but there is a great gap in the middle as to how we get from here to there. You say: "What is needed is for governments both at home and abroad to set a future goal where agriculture can be freer from regulation and less dependent on subsidy." We all say amen to that. You then move to the next paragraph. You cannot have complete liberalisation because all of these factors means that there has got to be some element of support. I would like to hear from you what you think the Commissioner ought to be doing. If you were writing the reform document, what policies would you actually introduce? Otherwise, unless we can fill in the gap between the two storeys, we put the staircase in place but no-one gets from one to the other. How do you see the shape, the geometry of the system, to fulfil that aspiration?
  (Mr Dunn) I agree with you entirely. It is a very difficult thing to get from the position we are now, to the aspirational goal we would all like to see. My concern is that the aspirational goal has not yet been set. Okay, we have very much a United Kingdom position, which is that we would like to see: less subsidy, freer from regulation, and a more market oriented approach; but we are still being asked to produce the non market benefits, the environmental benefits, the animal welfare benefits, the consumers' benefits, all the way along. We would like to see this goal where we do not go through this hiatus every five years of a great upheaval; where we know in ten or 15 years' time where we will be; and we have a stepped process of getting there so that the politics are taken out of the whole thing.

  133. What sort of steps would you have? Let us take a couple of concrete examples, which are relevant to your hill farm in Wales and most of my farmers in North Yorkshire, for example. They will be benefiting from the headage payments for sheep. They will be benefiting from suckler payments, all of which are modulation in one shape or form, as a matter of fact. When you say less subsidy, do you think headage payments should be less? Do you think the amount on which it is payable should be less? Would it be a combination of the two? Do you think it would be combined with more vigorous regulations on stocking rates, for example? I am anxious to explore what you mean by the expression "less dependent on subsidy". What do you mean by that?
  (Mr Dunn) Before I let Mr Haydon jump in about the practicalities of sheep farming, the two things must go together: less regulation and less dependence on subsidy. We cannot just have less subsidy because we still have the regulation very much in place. So the two must go hand in hand. My concern for our farming community is that every five years or so we have this great upheaval, great uncertainty about where things are going. Even now we have a package of reforms that we do not know, as yet, whether they will become the new CAP, as we know it. People know very well; they are saying that in two, three, five years down the line we are going to have another set of reforms. So I am not unhappy necessarily with the direction the reform takes us in this step, but there is no aspiration for the future to say this is where we want to get to. This is a step along the way. However, there will come a time when there will be less regulation and you will be freer from subsidy as well. That is my concern. I am not unhappy with the individual steps; some of the individual steps that we are taking. It is just that we have no future goal.

  Mr Curry: Before Mr Haydon answers, if I might just give a steer to your answer. As you know, the Commission wishes to replace certain forms of direct subsidy with compensatory aids. British Government—in fact, this Committee before I joined it—said it was regressive. Now, there is an argument for saying that we should move from production subsidy but we need to introduce a different form of support for farming which is much more related to environmental benefits so, if you like, there is a sort of menu there to which a farmer can subscribe: maybe better methods of husbandry, looking after the land. In that form they would be permanent, they would not be production related, so cross-compliance issues would not be relevant in the way they are at the moment. Is that the way you are thinking and how do you see these steps being constructed?

Chairman

  134. Answer in quite general terms because Mr Curry is moving into areas of other Members of the Committee, so do not be tempted to answer too specifically.
  (Mr Dunn) When you look ahead, certainly we agree that the way ahead is for more environmentally related subsidy. We would not be unhappy with that so long as there is sufficient opportunity for all those, regardless of tenure, to participate. For example, if I can just throw one example. Tenants cannot plant trees. They become the landlords'. Tenants cannot get planning permission on disused buildings as a landlord can serve a Notice to Quit. So long as there is a sufficient menu of options, which will enable all to participate, we have no great difficulty with the move in that direction so long as the regulation on the other hand is also dealt with, with the subsidy.

Mr Hurst

  135. I am a little concerned about this aspiration of less subsidy, less regulation. It sounds to me like a recipe not only for farming disaster but an environmental disaster as well. I can well understand that the idea of switching subsidy from product to environment might be an aspiration but, of course, if it is hailed, will it not by its nature be regulation? The concept of less regulation is fundamentally unsound as a way forward. Mr Curry was moving towards asking you to itemise how we might move to a different kind of subsidy or support but with different regulations. Would you agree with the concept that I am now putting forward: that this is the aspiration rather than perhaps the free market reforms?
  (Mr Dunn) I do not agree with you that it is unsustainable. The farming community is being urged all the time to become more competitive, more market driven, more cost production orientated, co-operative marketing, etcetera, etcetera. We are always being told that we should be looking for the competitive edge. When you are also being told that we want to make sure that there is a high degree of animal welfare, a high degree of environmental management, a high degree of traceability, all those things have their cost. What we would like to see is a situation where agriculture is allowed to respond more to the market signals that are given. Beside that, that there is a menu of options, which are properly priced, so that farmers can say: I will dip into that and take money for providing that environmental option, that animal welfare option, that type of production system, that type of rural development. So the regulation is not enforced with the subsidy. It becomes a choice for the individual to decide whether he wants to do that or not.

  136. I understand that. You say you are always being told that we have to be more competitive. We are always being told that but it may be that we are not being told correctly. In other words, it may be a false advice that all of us are receiving. In the end, is there not an inherent contradiction between you becoming more and more efficient and intensive—and animal welfare, environmental protection, the menu you have listed—to concluding it would actually be right for you to choose from the menu or not when, in fact, the public themselves are supporting prices to that end?
  (Mr Dunn) Clearly there is a problem about what signals you are receiving from the government or from the marketplace, and deciphering the ones you have to follow. I am not saying: ban the regulation totally. Obviously, as we said in our written evidence, there will need to be a body of written regulation. Where we need to have more regulation, that needs to be identified in the system of support we have. Of course, we want higher animal welfare standards. We want environmental standards to be high. We want to have lovely countryside. We want to have people visiting our rural areas. All these things do not come without cost. We are competing in a world market where other countries of the world are perhaps not producing to the same sort of standards that we are. We have to address that balance somewhere.

Mr George

  137. I would like to push you a little bit further on questions regarding the levels of support that farmers should have in future under Agenda 2000. Some of the questions I will ask have already been covered to an extent, although from a tangential point of view. If we start from your contention, your argument, "that agriculture remains the backbone of rural communities", I wonder how you could justify that in the context where in most if not all rural areas, including mine, although it has clearly dominated the landscape and the countryside, it does not actually dominate the economy. Most assessments put it at about 10 per cent to 15 per cent of the workforce in GDP in the area.
  (Mr Haydon) Could I come in there, Chairman. Surely we have seen, in recent months, that the downturn in agriculture is producing an equivalent downturn in the rural infrastructure. We have prime examples of many agricultural businesses, machinery dealers, livestock hauliers, livestock auction marts—two very big ones have closed recently—and it is all a knock-on effect of the importance of the farming industry and the farming community. If we are doing badly all the people who live off us—if that is the right word—are also going to do badly. You only need to have been at the Royal Show last week to have seen the doom and gloom of the machinery lines from that section of the industry. A live, vibrant farming industry: the rest of the rural community depend on it. Many other industries, above and below us, depend on us. The catering industry, the consumers, the retailers, all those types of industries depend on agriculture being prosperous. In the present situation they are now beginning to suffer as we have been suffering for the past nearly 18 months, two years.
  (Mr Dunn) If you look at the BSE crisis, if there is a silver lining to the very black cloud that BSE has produced, it has showed the upstream and downstream links that agriculture does have. In the early days following March 1996, and in the months that followed it, there were many businesses in the catering sector and the retail sector which went by the bye on the strength of what was going on in the beef sector. The links upstream and downstream became very apparent; if you look at the impact on the tallow side, on people who were using tallow in their products which we could not use any more. Agriculture provides a great resource for industries to take up and add value to. It is, we believe, still very much the backbone of our rural economy. It is difficult to define what the rural economy is and put a boundary round it. However, as you travel the country I think it is easy to see that agriculture still provides that support.

  138. Let me push it a little bit further. As you rightly say, it is difficult to put a boundary on it or define how far you define the rural economy and rural development but surely, for example, last year in many rural areas we saw a prosperous tourist industry operating in many rural areas. Service industries continue relatively untouched by the upturns and downturns of agriculture in many rural areas. Over time, as we have seen the shedding of employment from agriculture, you have seen in many rural areas—I cannot say mine but certainly in the south of England especially—very prosperous rural areas, despite the fact that it has become a declining interest in rural areas. How can you justify what you have said?
  (Mr Haydon) Would it not be fair to say in the example you are quoting that in a lot of those industries the tourists are very seasonal? They operate with great success throughout the summer and early autumn but then they die a death throughout the winter. Certainly a lot of farms, which do bed and breakfast, depend on that as the icing on the cake to keep them going throughout the winter when the harsh realities of falling incomes are hitting them. So the tourist industry is not a full-time thing. It is part-time.
  (Mr Dunn) It is also extremely geographical. There are large swathes of rural Britain where a tourist would not want to set his foot. I think you need to be very specific when you talk about the tourist industry.

  139. Also pointing out that many of those areas that experienced an upturn in tourism last year are experiencing a downturn this year. The important point I want to move on to is that you have tried hard to define the rural economy and the agricultural economy in the broadest terms possible. That surely means that in terms of Agenda 2000, you would also need to accept that in terms of EU funding and structural funding support for the shift from agricultural production support, you would need to broaden that support to, in fact, a very wide economy. Would you not agree? How far would you say that this distribution of funds and support should go?
  (Mr Dunn) Certainly we are not in the business of saying it is only farmers and only tenant farmers who should receive any state support. There are many other bona fide sectors out there that do require support. However, when you look at agriculture in the round, it takes up 80 per cent of the country. It provides the landscape and the countryside that we enjoy, that the tourists want to go and see, so there are many factors together which make agriculture still a very important sector.


 
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