Rationale for Government assistance
71. Before determining how best to offer financial
assistance to organic producers, it is essential that the Government
be clear as to the rationale for doing so and the objectives it
wishes to achieve through this expenditure. These objectives must
be tightly defined and made public. There is, of course, a
perfectly reasonable case against any aid for conversion. After
all, if the market really is expanding, if retailers are anxious
to provide more organic products and if organic produce commands
a premium, why should the state intervene? The only argument to
do so is that other countries assist organic production and that
the UK has a broad economic interest in trying to satisfy as much
demand as possible from domestic sources. More specifically, this
argument can be broken down into three factors which can be put
forward to justify public support: the gap between supply and
demand, competitiveness and the pursuit of specific public goods.
72. First, on the gap between supply and demand,
we recognise that the growth in the organic sector has been largely
market-driven but that the costs of conversion are such that they
deter most would-be organic farmers from taking the step without
some form of subsidy. Some farmers have converted without public
assistance but the evidence is clear that the numbers slumped
when Government money was not available.
Of course, this also has its down-side: support could lead to
a distortion of the market and might be harmful to those who are
already operating in the industry.
In the prevailing economic circumstances, it is also possible
that subsidies will attract farmers who will not be able to follow
through the conversion of their land to organic production and
who are motivated by the hope of finding a way out of existing
problems rather than by a well thought out vision of sustainable
organic production. However, the yawning gap between demand and
supply, even in products capable of being grown in the UK, indicates
that there are market opportunities here which, as we have seen,
may not be wholly addressed by the private sector.
73. Second, there is the question of the competitiveness
of the UK industry, extending beyond primary production to processing
and marketing. When schemes in other Member States, in particular,
are more generous, UK farmers are disadvantaged both in terms
of their ability to offer organic goods and in terms of the cost
of production and hence the price of their produce. Mr Morley
accepted that the Government "should look at what other European
countries are doing in relation to their support regimes"
because "It has an impact on competitiveness".
This is also the case where schemes differ within the United Kingdom.
For example, more financial assistance has recently been made
available in Wales. Clearly, the National Assembly of Wales has
the absolute right to take such action but it leaves a disparity
of funding between the territories of the UK which inevitably
has implications for competitiveness.
74. Third, there is justification for supporting
organic farming with public money if it contributes towards wider
benefits which the Government wishes to achieve. Most of those
arguing for further Government assistance did so on the basis
that organic farming provides public goods beyond the immediate
effect on the farmer. The Soil Association claimed that large
amounts of public expenditure could be saved through expansion
of organic farming
whilst Dr Lampkin listed many public goods in terms of social,
environment, animal welfare, rural development, food quality and
Of course, many of these claims are disputed and we also heard
opposing arguments over supporting organic farming per se.
Professor Sir John Marsh advised us that "Rewarding a particular
system, which is defined in terms of an inflexible system of rules,
is not helpful".
He believed that "Policy will make a much more positive impact
if it identifies and rewards the specific outcomes it seeks."
75. In written evidence MAFF was anxious to assure
us that Government support for organic farming was predicated
not upon the more doubtful claims made for public goods but on
the contribution it could make to the wider Government aims of
a "prosperous, forward-looking and sustainable" farming
sector, which was "competitive, and flexible enough to respond
quickly and effectively to market changes and consumer needs".
The exception to this was that Government support "takes
account of evidence that the organic system of farming leads to
certain environmental benefits".
In oral evidence, Mr Morley clarified that he believed that "there
are a range of benefits, economic, social and environmental, that
organic farming brings" and that Government support was justified
for these reasons, as well as for issues of consumer choice and
He emphasised that "there are benefits, particularly environmental
benefits, which organic farming gives, which we do recognise as
a public good."
The question remains whether these same benefits could be achieved
by other means at a lower cost to the public purse. We believe
that the benefits to be secured by organic farming need to be
far more closely defined so that the Government can set measurable
and achievable objectives for its financial assistance to organic
farming. In the absence of other evidence, we recognise that
the greatest claims that can be made for organic farming are environmental
benefits. We believe that the OFS needs to be more closely focussed
on these benefits so that farmers are paid for delivering recognisable
public goods, rather than merely for converting to organic farming
as a good in itself. It also means that aid for organic farming
could eventually be assimilated to other schemes based on payment
in return for specific outcomes or practices like, for example,
countryside stewardship. We examine below suggestions for how
this could work.
Options for consideration in
the 2003 review
76. The review of the ERDP in 2003 will give the
Government a useful opportunity to consider the objectives and
structure of its support for organic farming. In discussing criticisms
of the existing scheme, we have already touched on some options
which should be considered. These include differential rates of
aid to reflect the true cost of conversion in sectors such as
horticulture, although we recognise that research remains to be
done on establishing these costs. We recommend that in advance
of the review the Government commission such research in order
that its consideration of differential payments be properly informed.
Another suggestion is that the Government should target aid at
sectors which are lagging behind the general trend towards organic
conversion. Apart from horticulture, the obvious example here
is arable land which has implications not just for processed foods
but for animal feeds and hence the livestock industry. Yeo Valley
Organic Company put forward an imaginative scheme for encouraging
arable conversion through the use of set-aside payments.
Such targeting, supported also by the NFU, should be included
in the options for consideration, if the current trend continues.
77. A far more radical approach, which met with near
universal approval, was the restructuring of organic farming support
within an organic stewardship scheme. This would recognise that
the payments are made to farmers for the benefits they bring to
the environment and would give the Government a means by which
they can specify the benefits to be realised in each case. It
would meet the demand for a maintenance scheme in that the money
would be available to farmers after conversion as well, including
those who at the moment are disqualified from applying for OFS
because they have received organic funding in the past or had
registered organic land before the OAS/OFS started.
The Soil Association was strongly of the opinion that "an
organic stewardship approach is a better way of doing it than
a front-end loaded scheme which gives a carrot tomorrow and really
does not encourage people to think through their marketing and
how they are going to deal with their business over time".
The Organic Farmers and Growers also preferred this approach which
would ensure a steady growth in the market, rather than a sudden
surge as happened at the moment.
Finally, a stewardship scheme would represent a move away from
production payments, as we have consistently advocated should
be the trend for all farming subsidies.
78. Mr Morley was sympathetic to the principle of
an organic stewardship scheme,
although he stressed that "at the moment our priority is
to provide funds for conversion".
More recently, the Minister, the Rt Hon Nicholas Brown MP, has
expressed stronger support for such a scheme in his address to
an organic farming conference. There are many details which would
have to be worked out before the proposal could be put out for
consultation. For example, whether the scheme should be a specifically
organic stewardship scheme or whether there should just be greater
recognition that organic farming may be intrinsically better positioned
to meet the criteria of ongoing agri-environmental programmes,
such as countryside stewardship, through its delivery of environmental
benefits. We believe that both options should be explored. There
may also be a continuing need for subsidies to cover the initial
costs of conversion over and above the level of ongoing payments
in certain sectors. Another factor to be considered is the current
"profit-forgone" structure of agri-environmental support
which might need to be revisited. There are two features, however,
which we would wish to see included in any scheme. First, we
recommend that applicants to the scheme be required to produce
a business plan which is accompanied by a statement as to its
validity from a qualified adviser, such as a bank, accountant,
consultancy or agricultural organisation. This suggestion
was rejected in the Government's recent review as too bureaucratic
but we believe it is essential - the discipline of the exercise
also has value. Second, we recommend that, whatever scheme
is devised, it be flexible, locally-run and as unbureaucratic
as possible. We recognise that Governments seek administrative
simplicity but if the change in regional representation of MAFF,
with its greater emphasis on using modern information technology
flexibly, is to mean anything, it should be possible to manage
a flexible scheme responsive to local conditions without turning
it into a bureaucratic nightmare. The farmers who gave evidence
to us asked for simplicity, certainty, fairness and predictability.
These should be the hallmarks of all good administration and we
expect attention to be paid to these factors in this case. We
recommend that the Government devise proposals for an organic
stewardship scheme as the centrepiece of its review of organic
farming support in 2003, taking into account the need for clearly
defined goals and for flexibility, simplicity and predictability.
These proposals should be accompanied by a statement of objectives
and plans for the achievement of those objectives, including the
resources to be allocated to their achievement.
177 Ev. p. 34. Back
Report of the Agriculture Committee, Session 1998-99, MAFF/IB
Report 1998 and the Comprehensive Spending Review, HC 125,
para 20. Back
p. 134, paras 22-23. Back
para 22. Back
603; MAFF News Release 386/00, 2 November 2000. Back
183 Ibid. Back
p. 200; Ev. p. 19, para 17. Back
137: Ev. p. 34. Back
p. 165, para 10.6. Back
p. 19, para 18. Back
p. 224. Back
p. 35; Q 487. Back
p. 175. Back
p. 172, para 6.4. Back
p. 96, section 1.4. Back
p. 20, para 30. Back
p. 3. Back
197 Ibid. Back
p. 131, para 2. Back
p. 131, para 3. Back
p. 62. Back
p. 249. Back