Memorandum from British Agrochemicals
1.1 The British Agrochemicals Association
(BAA) is the United Kingdom trade body representing those companies
engaged in the manufacture, formulation and distribution of pesticide
products for agriculture, forestry, horticulture, gardening, industrial,
amenity and Local Authority uses. The Association's members account
for more than 95 per cent of sales in the UK crop protection market
at manufacturer level and approximately 80 per cent of the market
at distributor level.
1.2 The BAA is an active member of the European
Crop Protection Association that represents the industry within
the European Union and the Global Crop Protection Federation that
has a similar role world-wide.
1.3 As the voice of the crop protection
industry within Great Britain, BAA's aims and objectives are in
line with the Government's policy of optimising the use of crop
protection chemicals for the effective control of pests whilst
protecting food, human health and the environment.
1.4 The crop protection sector is a dynamic
part of the UK chemicals industry and has close connections with
the pharmaceuticals and fine chemicals sectors. Member companies
had total sales in 1998 of £480 million and significantly
contributed to foreign earnings with export sales of £1,096
million. Member companies employ a total of 8,000 staff. The crop
protection sector is innovative and has always been at the forefront
of technical developments. It maintains a close and vibrant relationship
with Universities and other research institutes both in the UK
2.1 In their last administration the Conservative
Government started to examine the concept of taxing pesticide
usage and commissioned some research. This report, "Economic
Instruments for Pesticides Minimisation" ECOTEC 1997 was
subsequently published as a supporting document for the government's
consultation paper, "Economic Instruments for Water Pollution".
2.2 Following the 1997 General Election
the Labour Government issued a statement of intent on environmental
taxation. In November 1997 they published the consultation paper,
"Economic Instruments for Water Pollution". Although
there was no formal response to this consultation the DETR then
decided to commission a further study from ECOTEC Research and
Consulting Ltd on the design of a tax or a charge for pesticides.
This was published in March 1999 and HM Treasury opened a second
consultation on matters arising from the study.
2.3 Since the Government have undertaken
only one study of the tax proposal most comments in this evidence
refer to the ECOTEC study.
3. GOOD TAXATION
3.1 The Government's criterion for good
environmental taxation is premised on ensuring that economic growth
is environmentally sustainable. To this end Government specify
that environmental taxes must:
Be well designed, to meet objectives
without undesirable side-effects;
Keep dead-weight compliance costs
to a minimum; and
Ensure that distributional impact
is acceptable; and that care must be had to implications for international
3.2 We believe that the proposed economic
instrument (as described in the ECOTEC study) does not meet any
of these criteria. First, it is poorly designed. In addition to
its potential complexity, precise measurable objectives
have not been defined. Given this, it is difficult to judge whether
it will meet its aims. Moreover there is potential for undesirable
side effects. Research by ADAS Consulting Ltd has shown that a
tax may encourage farmers to consider techniques, which lead to
increased risks of water pollution by nitrogen, less than optimal
use of pesticides, and increased use of the currently less regulated
group of chemicals known as adjuvants. Other research highlights
the adverse effects of cultivation on soil fauna and soil erosion.
In addition it is likely to be costly to administer. On a related
point, we are concerned that there has been no detailed evidence
provided on the cost of compliance, administration or enforcement.
3.3 The distributional impact of the tax
is likely to be inequitable. The economic burden of the tax will
fall on arable and horticultural farmers so that certain crops
and food processing sectors will be badly affected.
3.4 It will damage growth and employment
in the agricultural industry, its supply sectors and the food
processing industry. This will certainly reduce the UK's international
competitiveness as well as its sustainability. Increases in input
prices will mean that, where increased costs can be absorbed,
UK farmers will suffer reduced incomes. Where this is not possible
UK competitiveness may be adversely affected. Food imports may
then increase, reducing our balance of payments. This is contrary
to the aims of CAP reform and a wider European debate would be
4. THE ROLE
4.1 We believe that the consideration of
this proposal has exposed deep divisions between the two principal
Government departments. In essence this epitomises the divisions
in public opinion between those who understand the role of crop
protection in food production and those more fundamentally opposed
to the use of pesticides for mainly philosophical reasons.
4.2 MAFF have an excellent understanding
of UK agriculture and the requirements of crop protection within
the UK cropping sector. MAFF are responsible for pesticide safety
matters and operate the regulatory system by which pesticide usage
is primarily controlled. The Minister of Agriculture has clearly
stated his opposition to the tax proposal throughout the past
year. Not only does he understand the depths of the present farming
crisis but he also appreciates the broad range of measures used
by his department and the farming industry to ensure the safe
use of pesticides in a way that minimises environmental impacts.
4.3 In contrast the DETR have a role as
guardians of the environment. They appear to have a more superficial
understanding of many of the physical, external and cultural processes
that impact upon UK farming. The Minister for the Environment
is the clear champion of the pesticide tax proposal. His department
appear to have taken few steps to gain an understanding of the
crop production process. Mr Meacher is on record as saying that
his department have "residual concerns" about the regulatory
process for pesticides although they are a part of it. It is interesting
that the DETR does not appear to have entered into dialogue with
MAFF over their concerns about the regulatory process
4.4 It is widely accepted that the UK regulatory
system is one of the best in the world. Thus the industry remains
somewhat puzzled by the stated position and by the failure of
Government to communicate effectively and impartially the high
standards of the MAFF/PSD system. In order to identify the "residual
concerns" the Government should undertake a thorough review
of the issues surrounding these fears and how best to communicate
on the effectiveness of its policies.
5. THE CONSIDERATION
5.1 The key element of the tax consideration
appears to be the study conducted for the Department of the Environment,
Transport and the Regions by ECOTEC Research and Consulting Ltd.
For an issue so important to UK farming it appears odd that a
Government department has contracted the assistance of an organisation
with few apparent strengths in the fields of agriculture, crop
protection or agricultural economics.
5.2 The fulcrum of this proposal is the
ECOTEC study. Although the BAA has made detailed comments to officials
at H M Treasury and other key departments, the following points
summarise our observations.
5.3 We are of the opinion that Part A of
the report which sought to lay out the rationale for a tax, is
poorly researched and written. The rationale is over-dependant
on a few references and makes no attempt to differentiate between
information derived from different countries. The types of crops
and methods of growing them differ between countries. For these
reasons it is not appropriate to assume that data from countries
like the USA, on issues such as pesticide residues on food, are
relevant to the UK. Further the general coverage of Part A is
rather biased towards the disadvantages of pesticide use and does
not present any information relating to the benefits of pesticide
5.4 It is pertinent that much of the extremely
valuable information about trends in pesticide usage derived by
the Pesticide Usage Survey collected by scientists at the Central
Science Laboratory of MAFF have been omitted.
5.5 The ECOTEC report makes frequent reference
to the supposed effect of pesticides on the environment without
offering any substantive evidence. We believe that existing policy
and voluntary measures already being undertaken by the industry
are the most effective means of allaying concerns over pesticide
use and achieving further improvements in environmental quality.
Current policy measures are already delivering significant improvements
in general environmental quality.
5.6 In order for the crop protection industry
to improve current policy measures still further, Government needs
to be more precise about its objectives and how it intends to
measure improvements in pesticide risk and hazard reduction. Only
then can the industry put forward specific suggestions to enhance
the effectiveness of existing policies.
5.7 The ECOTEC study appears to completely
overlook the fact that, within the UK, the regulatory system grants
approvals to products and not active ingredients. It not only
takes account of the intrinsic properties of the active ingredient
but also the effects of the formulation, label advice, packaging
and the way in which the product should be used.
5.8 The report also ignores the high economic
burden placed on manufacturers by the UK and European regulatory
system. Data requirements for new and existing products are becoming
ever more stringent and costly. The typical research and development
costs for a new pesticide are £30-40 million. This requires
8-10 years of investment prior to commercialisation. This investment
has to be recouped in the remaining 10-12 years of patent protection.
In addition, following product registration, a typical company
will continue to invest in further research costing around £1-3
million per annum for their current product portfolio.
5.9 The reality is that pesticide use is
price inelastic and so the intended consequences will not be achieved.
Prima-facie it may seem that a tax banded by environmental hazard
might be a good idea, particularly if the tax design was to encourage
product switching. This has worked well in the case of petrol
with the switch from leaded to unleaded. However, with over 450
active ingredients, over 3,000 crop protection products and at
least 4,300 crop/pest situations, the complexity of a banding
system would be such that inevitably perverse effects would arise.
Moreover the methodology used in the ECOTEC report is based on
hazard and not risk. While hazard is an inherent property
of the product, risk only occurs when the product is used
and harm may take place if the product is used inappropriately.
In many situations whilst the product has hazards, it is used
in situations where the risks are minimal or where harm will not
occur. The ECOTEC methodology means that farmers who use pesticides
in a way which minimises risk and without causing harm would nonetheless
be taxed on the intrinsic properties of the product. This is manifestly
5.10 The practical application of a tax
is dependant on placing pesticides into "bands" of toxicity
or hazard. The tax banding mechanism in the proposal is so flawed
that it will not deliver any significant environmental benefits.
There are inherent problems in the processes used to arrive at
each pesticide's tax banding. The two put forward in the ECOTEC
study tried to boil down into a single numerical rating the many
and various impacts of an active ingredient on different life
forms. One process used complex mathematical formulae which were
dependant on having good data. The mathematics were also problematic.
The ranking and weighting system used meant that even substances
commonly thought to be benign, such as water, could get a positive
5.11 The other was based on risk phrases
on product labels. This approach is implicitly dominated by operator
safety which as the ECOTEC report states is not an issue in the
UK. Insufficient discussion had been given to the issue of alternatives.
In practice, label restrictions and differences in relative efficacy
severely restricted product choice and even when alternatives
exist there was no guarantee they would be in a lower hazard band.
This lack of real alternatives will severely restrict any environmental
benefits which could accrue from such a tax.
5.12 Insufficient discussion is given to
the existence of real alternatives for many pesticides. In practice
label restrictions and differences in relative efficacy severely
restricts the choice of alternative products. Even when alternatives
do exist there is no guarantee that they would be in a lower hazard
band than the original choice.
5.13 Continuing pressure on farm incomes
means that farmers are re-evaluating their inputs to achieve the
right economic balance. Pesticides are a costly input which farmers
only use out of necessity. Such behaviour is unlikely to be altered
by the introduction of a tax.
5.14 Farmers already use a wide range of
techniques to achieve satisfactory crop protection, a profitable
enterprise and a marketable product. These approaches have been
developed from initial research to the current best available
practical standards such as "integrated farming systems".
5.15 It is disappointing to see that the
ECOTEC report does not explain the complex decision tree that
the farmer or his advisor has to follow when making a decision
concerning which product to use. To a layman all pesticides are
the same but in practice the analysis of the options is the same
as the process a doctor might follow when reviewing a patient's
symptoms and the appropriate treatment. Rationalising from the
4,000 crop protection products to the 2-3 potential candidates
is a matter of technical knowledge and experience. There are many
factors that have to be assessed before deciding whether to treat
and what product is most appropriate.
5.16 The report fails to recognise that
in the majority of crop x pest x season scenarios there is a very
limited range of products that can be used. Even when there is
a choice between two products these are very likely to belong
to the same chemical group and thus be taxed at a similar level.
For more than 1200 crop/pest situations, farmers will not have
a choice and the very viability of growing that crop will be questioned.
5.17 We do not believe that the 1996 data
used in the study are relevant to the current economic climate.
Farm incomes have changed significantly from that time and 1998
data would give a more realistic picture of current and future
5.18 The BAA commissioned two reviews of
the ECOTEC study by CEAS Consultants (Wye) Ltd and these have
been submitted to the Environmental Audit Committee separately.
The main conclusions are that:
The ECOTEC report does not consider
the impact of a banded tax mechanism (ie, a more efficient form
of taxation from an environmental and health cost perspective)
in any detail. It initially states that analysis has been undertaken
that focuses on the development of six different tax scenarios
(ad valorem tax, tax per dose and tax per kg on the unbanded and
banded products respectively). However, in most cases, the analysis
presented is largely limited to the scenario of an ad valorem
tax on unbanded products.
The analysis is based on assumptions
on own-price elasticities and a series of assumptions on the pass-through
of the tax. This approach produces a wide spectrum of results.
The analysis does not consider the important issue of cross-price
elasticities and thus overlooks the possibility of post-tax
substitution by farmers between different products and even other,
non-pesticide inputs. As a consequence, the impact of the tax
on aggregate sales is likely to be over-estimated.
The method by which the analytical
tools (ie, own-price elasticities) are applied in order to assess
the impact of the tax is not described or discussed in detail.
This leaves many unanswered questions as to how the impact of
the tax was estimated.
The analysis of the impact of the
tax is not consistent. Different assumptions are utilised to quantify
the impact on different sectors. For example, whilst own-price
elasticities are used to assess the reduction in pesticide use
and the impact of the tax on aggregate sales, the analysis of
on-farm income ignores the existence of elasticities. It is based
on the assumption that farmers will not reduce their use of pesticides
at all. As a consequence, the analysis of the impact on farm income
is clearly inconsistent with the analysis of the impact on aggregate
The ECOTEC report appears to confuse
the inherent income instability of the arable sector with the
magnitude of the tax impact.
5.19 The philosophy supporting the tax proposal
appears to suggest that adverse environmental impacts result from
pesticide use and that in particular these have a significant
impact on the quality of water. This appears to be behind the
unstated objectives of the tax. In order to clearly identify these
objectives and to show how they could be measured we would propose
that the Government should undertake a co-ordinated programme
6.1 It appears that the entire consideration
of this proposal has been based on philosophical dogmas and a
basic misunderstanding of UK farming practices. Trends in the
use and application of crop protection chemicals appear to have
6.2 We conclude that the ECOTEC report has
failed to show that there are any environmental hazards associated
with approved pesticides that cannot be addressed by either the
UK approvals system or appropriate management during handling
and application. The proposal is constructed upon a "banding"
system and charging mechanism that are flawed at almost every
level. The implementation of a tax based on such incomplete mechanisms
will only serve to reduce farmer incomes and cause confusion amongst
pesticide users. It may also distract attention away from continuing
work to improve the efficient use of pesticides in UK crop production.