Select Committee on Agriculture Minutes of Evidence


Examination of Witness (Questions 60 - 79)

TUESDAY 29 FEBRUARY 2000 (Afternoon Sitting)

RT HON NICHOLAS BROWN

  60. You covered the point about the idea of having the tiered payment.
  (Mr Brown) The administrative costs are very high. The harder it bites to get the same sum of money you would have to increase the rate of modulation for those who are paying and thus provide an even bigger incentive for behaviourial change, the breaking up of holdings, and this notion to avoid the effect of the higher rate of modulation. It is very important.

  61. There is one other part. With modern technology it seems to me that the information you would need to implement the scheme is no different from the information you would need to have from the farmer.
  (Mr Brown) It is done manually at the moment.

  62. It does not need to be.
  (Mr Brown) I know that. Indeed, we have two reports. A report from Price Waterhouse to the Government, who have looked at this whole issue about how we make payments, which recommends a radical change. One of the three new review groups that we set up, the one under Don Curry, also covers the same area and in principle recommends moving to electronic transfers.

  63. With that, would it be possible to have a tiered system without too much difficulty?
  (Mr Brown) We have not got it.

  64. We have not but you were arguing—
  (Mr Brown) Nor can I assure the Committee today that we are getting it. Again, there are discussions going on within Government.

  65. You said that one of the key reasons for not doing so was the administrative difficulty.
  (Mr Brown) I see what you are getting at. It is not a clinching point with me. The clinching point is to have a clear model, a United Kingdom model of degressivity, which can apply in our own country and which we can show to our partners in the EU as a workable model, and a way forward they might want to consider as a EU model when we have to look at further reform of the Common Agricultural Policy. I said to the Committee before, it is my view that this current structure will come under enormous pressure well before the six-year period that it is supposed to be endured for.

  66. So am I right in assuming that you positively prefer the flat rate rather than a tiered system?
  (Mr Brown) The honest answer to that is yes.

  67. Very briefly, to come to a couple of other points. You have already basically said who you think will be the winners and the losers.
  (Mr Brown) Clearly it depends on the applications that we receive, but the modelling work we have shows every sector the winner because of the effect of the matched funding with the modulated element—of course that is new money—and because of that the sum available to farmers is higher than it would have been otherwise; so our modelling shows every sector as a winner except for what is described as general cropping. The reason for that is that it is pretty difficult to see how you could put an environment scheme in on a general cropping operation.

Chairman

  68. So will this have a redistributive effect of everything going towards the hills?
  (Mr Brown) No, all sectors gain. Clearly some more than others. If there is a change, and remember this all depends on applications, there are probably small trends toward the livestock sector, towards the smaller farm business, and away from the arable sector and the larger farm business, but even allowing for that the arable sector is a winner under these proposals because of the extra monies.

  69. I understand that but in so far as the yield of your modulation on the arable sector will be higher than your yield from the livestock, the applications from the livestock country are likely to be more susceptible to be approved than applications from East Anglia, so then there will be some regional redistribution within the area.
  (Mr Brown) We have tried very hard to avoid redistribution within the regions. I am very keen to make sure that all sectors are winners under this. We cannot quite get that with general cropping.

  70. It is not incompatible—?
  (Mr Brown) No. I am not sure that is right but, in any event, I do not want regional winners and losers.

Mr Öpik

  71. But between the sectors, for clarity, do you perceive what is your view about a redistributing between the sectors?
  (Mr Brown) If there are no losers some sectors might win more than others but frankly it depends on the take-up of the environmental measures. More than any other single factor.

  72. In principle, you are not opposed to a distribution between sectors?
  (Mr Brown) Let us see how the bids come in. I am also not opposed to bids crossing regions if regional boundaries are at the borders, as you know very well.

  73. I would not argue against that!
  (Mr Brown) To some extent they are artificial. People do not say, "Gosh, here is the Midlands boundary. I must not organise anything with people living in that village." That is not the way it works in practice. I want this to be as open as it possibly can, as collaborative with other Government Departments that we can possibly make it, and to encourage bids which are rational in themselves. The whole purpose of this is to try and get farm businesses through difficult times in as economically a rational way as we can. That means getting them closer to the market place.

  74. That also means that in principle, okay, accepting that the outcome will be determined to some extent by the applications, in principle you do not have a problem with redistribution between sectors?
  (Mr Brown) I would not want any region or any large industry sector to be a clear loser. We are seeking to avoid that. I think in fairness the character of the environmental schemes that come forward from areas where one type of farming dominates will of course be different from the nature of schemes that come forward from areas with very different parameters for Countryside Stewardship Schemes.

  75. Finally what would be the impact on United Kingdom competitiveness if our EU friends choose not to introduce modulation?
  (Mr Brown) This is an interesting point. It is marginal. That is one of the reasons for introducing modulation at a very low rate. You could argue it both ways. You could say that very active modulation provides a market incentive. That is not my view but there are those who argue it. I think it is a particularly harsh thing to argue when farm incomes are low. I do believe that the matched funding and the large increase in percentage terms, but relatively small in monetary terms, we have got from the European Union is being spent in the best possible way to help the United Kingdom farming industry get through. Changing these measures from the old production supports on the supply side, as the Committee itself pointed out in a previous report, is absolutely the right way forward in the longer term. Will all of this will help enormously to make United Kingdom farming more competitive, I do not know, but certainly closer to the market which is not quite the same thing. Not because the compensation payments are being modulated but because the money is being well spent.

  Mr Öpik: Chairman, thank you for your patience.

  Chairman: Mr Todd?

Mr Todd

  76. What have other EU States chosen to do on modulation?
  (Mr Brown) This is very interesting. The French have also decided to modulate but they have a different model from ourselves. Ours is essentially based on the United Kingdom model for reform of the Common Agricultural Policy compensation payments. The French model does have a ceiling and it does apply modulation right the way up to 20 per cent in theory to the large farm businesses, but there are clawbacks which the farmer can use if they meet certain labour content tests and other tests that have been set by the French government and at the other end the method of providing support to the farm businesses, as I understand it, is a fixed payment to the smaller farm businesses. In other words, they have made use of what they call a franchise, in other words an exclusion, and these fixed payments are for compliance with a series of environmental tests which have been set essentially by the French government but carried in primary legislation through the French Parliament. That is in summary my understanding of it, but I am not an expert.

  77. That would appear to be rather more aggressive modulation than the way we have taken but with the opportunity for derogation effectively by saying, "We will not take quite so much off you if you do certain things."
  (Mr Brown) The history of all this is different in France and farm types and structures of ownership are different so it is not surprising that they have devised a different model, but the underlying principles are not that dissimilar to our own.

  78. What other models have emerged so far?
  (Mr Brown) A range of conversations among ministers, a few flat refusals to use modulation and quite a lot of expressions of interest both theoretically and some enquiries from states that have not quite submitted their own returns yet. It is very mixed. Let me add one point to that. The reason why it is very mixed is that all the other states had a history of making use of these measures before they were consolidated into the Second Pillar of the Common Agricultural Policy. So there is not as much that is left undone as there is here in the United Kingdom because of our history. The French approach is, as I say, very French and, frankly, very interesting and imaginative.

  79. Because it is "very French" does not make it wrong.
  (Mr Brown) I used to think that, but go on!


 
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