Examination of Witnesses(Questions 1-19)
MR BEN
GILL AND
MR MARTIN
HAWORTH
TUESDAY 29 OCTOBER 2002
Chairman
1. Mr President, we are all hoping that you
may have some shafts of illumination for us since we are all trying
to find out what actually happened over the last couple of days
and what the implications are for the future of CAP and where
it leaves the Fischler proposals. I understand that you do have
a text<fu1> which you might share and I ask that you serve
that as a starter in order to try and at least elucidate some
of the facts of the situation. Is that the case?
<fo1> Not printed.
(Mr Gill) Yes, we do have a text. It
is our own writing, it is our own analysis and it is therefore
taken at face value because there is a good deal of confusion
still about the implications of what has been decided, but we
thought if we shared with you a copy of the briefing assessment,
which has literally just been completed in the last few hours,
it might give you some help to understand what we believe happened
towards the end of last week at the Heads of State summit.
2. I wonder whether the sensible place to start
might be on page 2, "Agreements regarding the enlarged EU"
of a financial ceiling. Would you like to talk us through what
you think is there and then we will move on to the rest of the
document.
(Mr Gill) Chairman, you will be well aware that the
budget was already fixed up to the end of 2006 and that the Commission
had found from within its own resources the necessary expenditure
to meet the costs of enlargement. Up until the end of that period,
they had been 25, 35 and 40 per cent of the payments due. The
agreement last week sought to determine the agricultural budget
beyond 2006 and you will see at the bottom of the second page
the figures for 2007 to 2013. We have in the first column put
them down at the fixed 2006 prices. The original concept that
had been anticipated was that these would be inflated each year
by a 2 per cent inflation factor. The outturn has been that the
Heads of State, after a lot of shenanigans, eventually came down
to 1 per cent per year, which gives you the second figure therefore
which has inflated the 2006 prices and what will be the physical
limit. It will not be percentage income, it is a physical limit,
and this pertains to the direct payments and market related expenditure.
It does not pertain to that expenditure that is in the Rural Development
Regulation which, at the current stage, has no cap on it. That
does not mean to say that at some later stage, there may not be
an attempt to limit it, but that is a point that has not escaped
the attention of Dr Fischler's Cabinet and he made that very clear
too. What we then have to do is two things. One, in the second
table at the bottom of the second page, is deduct the increasing
requirements for new Member States and you will see there that
they are identified in two separate categories: direct payments
at current prices and then put into market related expenditure
at current prices as well, the two separate elements. The summation
of those two is deducted from the current prices at the other
part of the table to leave what money is left for the current
EU 15 and you will see that the 1 per cent inflation figure, as
far as we can tell, delivers sufficient funds to retain a current
budget figure of there or around 42.5 to 43 billion euros per
annum. Can we deduce, if that is sufficient? It is important to
understand that the bulk of these prices are not inflation related
inasmuch that the payments, for example, are fixed in euros, the
livestock payments are fixed in euros and certainly with the sheep
annual premium now determined at an absolute level, that is fixed
in euros. So, it does give you some degree of comfort on that
basis. Where it does not give you the comfort is in the market
related expenditure because who is to know where we are to go
in terms of any future intervention purchases or indeed export
subsidies of one sort or another and that is the unknown. The
unknown is particularly relevant in that we cannot predict the
dollar/euro relationship which has been exceptionally kind to
the European Union budget on agricultural expenditure in recent
times, but could just as equally turn the other way in the years
ahead and therefore add to the budget.
3. Just interrupting you there, what you are
saying is that the bottom line could be that they could be fairly
benign figures in the right circumstances but that, if a number
of factors turned against them, they could turn out to be much
tougher in practice than appears at first sight.
(Mr Gill) That is correct, Chairman, but it does not
cover the second point to which I was going to refer. There is
currently before the WTO a challenge of the sugar regime emanating
from a challenge from the United States. If the sugar regime is
to be reformed, this would, under current procedures, require
a significant amount of direct payment expenditure for which there
is no provision in this budget and that is the more urgent of
the two major elements. The second major element is the reform
of the dairy regime and while there is some limited provision
in years 2005-06, there was an anticipated requirement of up to
3 billion euros per annum post 2006 in terms of the phasing out
of the dairy quotas and the introduction therefore of compensatory
payments offsetting the old regime. There is no such provision
in here for either of these two regime changes or indeed a number
of other smaller regime changes that are deemed necessary such
as in the rice sector or the tobacco sector. Therefore, this places
enormous pressure on the budget if it is to be capped within these
limits and would have considerable consequences, we would fear,
if there are to be reforms in terms of degressivity on the existing
periods.
4. Do you conclude from that that the sugar
regime, providing that is not challenged within the procedures
of the WTO, so whatever the outcome will be on that, and these
figures make the reform of milk quotas even less likely because
of their budget implications?
(Mr Gill) I do not necessarily think they make them
less likely, although I believe the French Government would like
to think that to be the case. I think what they do is place an
enormous financial stranglehold on the reform of where the Commission
is going to raise the money from. Remember that even with the
existing regime, there is a liability that falls on the Commission
in terms of, as we have seen in the last 12 months, significant
expenditure that has taken place in market related aspects of
intervention purchases of butter and skimmed milk power and, in
the case of export sub-restitutions that have been going on, there
is a trend therefore on the budget. What we believe from the dialogue
with Commissioner Fischler's cabinet, which took place over the
weekend, is that the Commissioner intends to reflect very quickly
on the implications of all this for his mid-term review proposals
and, within a matter of weeks, come forward with new proposals.
I think there is a determination on his part to go ahead with
the decoupling element of the proposals, which of course then
puts pressure on the reform of the dairy regime itself because
it is very difficult to conceive decoupling in some centres until
you have one major sector outwith that decoupling scenario.
5. It seemed to me listening to the Prime Minister
yesterday and looking at the communique«s that a number of
Member States were all spinning what one might call different
narratives about this agreement which is really rather common,
indeed in many ways it is essential to the community working at
all. On one side was the argument that in practice what this does
is to minimise the whole scope for Fischler reforms, minimise
the scope Europeans have for the Doha offer and basically being
as close to keeping the lid on as you can be. On the other side,
there is the argument that none of this precludes Fischler's reforms.
If Doha comes along, we have to re-open the whole box, as it were.
What is your judgment of quite where this leads us?
(Mr Gill) First of all, I would make the comment that
I found it absolutely extraordinary that Heads of State choose
to focus on a very specific subject such as agriculture expenditure
and from the information I have to hand, which may be incorrect
but I do not think so, the relevant Commissioner was excluded
from those discussions, so there was no potential dialogue as
to whether this was feasible or not. I find that just incredible
and something that I think is to the detriment of the mechanisms
of the European Union and perhaps reflects as much as anything
the positioning taken by the French President Jacques Chirac who
was on a mission to stall the mid-term reform to see his term
of office out over the next four-and-a-half years that he has
left and go on from there. What we believe there to be is an overwhelming
need to reform the CAP to make it much more market orientated,
to remove the bureaucratic cost and restraints that are not only
causing considerable additional cost in the farming community
but are not allowing us to become properly focused on the marketplace
and hence not achieve the best returns from the marketplace in
a variety of outcomes and we believe, that being the case, the
reform is still needed. Furthermore, we believe that it would
be far better, given the other dynamics in the World Trade talks,
that, if the European Union were to pick up on and debate the
proposals that Dr Fischler had put forward, not all of which we
would agree with, I would be quite clear on that, then we could
be in the driving seat in terms of the WTO talks rather than falling
into the position we did last time round in the unifying round
of being on the back foot all the time with the Americans taking
the lead.
6. There is a line of funding for the new Members
States but in fact those negotiations are not completely tied
up because things like level of entitlements, quotas and headage
payments are not yet finally agreed, so presumably, though there
may not be a great deal, there could be some adjustment in that
line.
(Mr Gill) I think that is a very valid point, Chairman,
and, in one of my other roles as Chairman of the Federation of
European Agriculture which embraces not only the 15 States but
all the 10 countries coming in, I can tell the Committee that
the level of people in some of those countries, most notably Poland,
for whom the current offer is just not acceptable, is very, very
strong and seems to be significantly under-estimated or perhaps
under-appreciated by those in the decision making positions within
Europe and within the Member States. The approach of, `like it
or lump it, we are giving you this so you can't complain' I think
is remarkably shortsighted. We must not lose sight of the fact
that the farming constituency, for example, within the country
of Poland still accounts for over 20 per cent of the electorate,
some would have it at nearly 30 per cent, and that should they
decide to campaign therefore against it, there could well be a
substantial derailment of the enlargement process. It adds to
the point which I think I made, Chairman, that to make these decisions
at this stage without discussion of the implications and before
the points are finalised seems quite bizarre to me.
Mr Borrow
7. One thing that I am not clear of either from
the documents which I have seen before and the document you have
just circulated is whether the amount for direct payments is frozen
as being for direct payments or whether, through the mid-term
review and through the negotiations on the Doha round of the WTO,
it would be possible to transfer some of the direct payments within
the budget into other rural/agricultural supports which would
not be direct payments and therefore would not have the same effect
in terms of our negotiations within the WTO. Is that interpretation
that there is that flexibility correct or have we already cast
in stone as a result of the European Council on Friday that these
direct payments will continue for x number of years in the future
and therefore we cannot negotiate those away as part of the WTO
negotiations?
(Mr Gill) As I understand it, there was certainly
no discussion at the Heads of State meeting last week on the details
of modalities of the CAP. Furthermore, the original mid-term proposal
that Dr Fischler put forward was his so-called dynamic modulation
which sought to reduce the direct payments by 3 per cent per annum
up to a limit of 20 per cent and reallocate those by a variety
of means into the structural funds element, the element you are
talking about, with an initial complementary introduction of a
300,000 euro individual cap and a 5,000 lower franchise. The question
is—and this is the unknown—will the Commission now
drop this element of their original proposals? There is some suggestion
from preliminary discussions I had with the Commission that they
may have to consider doing this, the reasoning being that the
necessary reforms that I have talked about that they perceive
as necessary, i.e. dairy, sugar and the other more minor regimes,
will mean that they will have to take money out of the 45 billion
CAP figure and require money to come from the existing regime
supports: beef, arable, sheep and so forth. So there will be an
element of degressivity in those direct payments on those regimes
that will have to be re-introduced and, to add to that further
by a 3 per cent dynamic modulation figure could create sufficiently
large strain marks in the whole regime as to make it unstable.
That is just one line of thinking that is being debated at the
moment and it is not a conclusive decision, but that is a possibility
as a result of these decisions. Does that answer the question?
8. I think it answers the question to the extent
that you are probably slightly wiser than I am, but I am not sure
that I am a great deal wiser as to where we are at the moment
on this issue.
(Mr Gill) I would agree that nobody is specifically
wise when you have one person taking decisions without consulting
the people who have to implement it.
Mr Drew
9. May I just look at the mechanics at this
end because clearly there are a number of unhappy people over
the outcome at the weekend, but that is inevitable because there
are going to be some losers and it is the degree to which the
level of losing really strikes home. What I am interested in is,
if the new entrants bite their tongue until they are in but then
really do say, "This is just undeliverable. You are going
to crucify our agriculture by trying to protect and giving out
this amount of support while you still have that amount of support",
is this not a recipe for some real conflict over the months of
the entry and thereon in?
(Mr Gill) I would agree with that observation. Indeed,
in some circumstances, it could go further than that. When I was
in the Czech Republic in April, there was a specific example given
to me of the sort of problems that are being faced at the moment
and the Czech Republic, in anticipation of membership, has already
introduced milk quotas and what we had seen was one specific example
of a dairy farmer whose milk quota allocation had meant that he
had had to reduce his dairy herd from 80 to 50. At that time—and
it has been changed a little since then—on the basis of
what was proposed by the Commission, he would have had to go from
50 down to about 20. His unit was made unviable: 80, 50, 20, just
unviable. The Commission recognised that there were mistakes in
there. The reason I use that illustration is that there is tension
there because, even if he gets his 50, there is a lot of bad feeling
against this backdrop. Having said that, there is of course the
advantage that the acquis communautaire is not going to
be fully represented in spite of what has been said in 2004 and
it seems to me that there will be some time after that before
quite critical parts in some countries are fully implemented,
which means the cost structure consequent with much of what we
have does not fully bear on those farmers or those involved in
the food chain. Of course there are already exemptions built in
certain sectors, particularly in Poland, to allow those delays
in the implementation of the acquis communautaire, but
I do believe that much greater thought needs to be given to many
aspects of the social consequences and the social strains that
could accrue along the lines we have been talking about and indeed
of the sort that I think I may have mentioned before, the ultimate
free movement of labour that is going to be a factor of the free
market. This is not to say that I have been dragging my feet at
enlargement because I do strongly believe that it is the correct
way ahead, but I am equally concerned that, if we do it, we go
into it with our eyes open, trying to assess the problems in advance
and seeing where we can stand them off in advance rather than
just waiting for them to become the sort of problem that you have
described.
Mr Jack
10. Can you fill us in a little on your understanding
of the politics that led Chirac and Schroder to do what
they did. Was it, if you like, domestic politicians, or was it
your counterparts in terms of farmer representatives in France
and Germany that lobbied powerfully behind the scenes to get the
politicians to do what they did? I am trying to establish a little
more clearly in my mind as to what the true attitude is in France
and Germany about the original Fischler proposals, the mid-term
review. That is the first matter. Secondly, do you think that
the stance which Schroder and Chirac took in effectively
I will not say totally torpedoing but putting a large hole in
the side of the Fischler proposals, enabled them to take comfort
from the American format because, in global cash terms, because
this thing has been argued out in money terms, Europe was said,
even with this current position, to look quite good compared with
the American position? So, do I deduce from that that they thought
they could ride out, if you like, a bigger tack in the WTO on
the current structure of the CAP because of what the Americans
did and that therefore they thought it was OK to scupper mid-term
review?
(Mr Gill) In answer to the first question, I think
it is quite clear that, in the case of France, the rural lobby
and indeed the approach of the general population is definitely
more orientated towards the needs of rural communities or the
perceived needs of rural communities. With regard to the short-term
needs, what we see all too often, and we see this particularly
in Germany, is the rise of populistic policy determination rather
than having to bite the hard things. There is no doubt in my mind
that, particularly because of the financial situation of the farming
community, there is a real fear of change. That is common. My
members in Britain fear that change very really, but they equally
recognise that sticking with the status quo because of the peculiar
pressures in the UK, i.e. the value of sterling against the euro
which has fallen so heavily on incomes, and the way we have been
regulated and increasingly regulated and taxed over time has meant
that we have a different perspective to the whole and we must
recognise the need to embrace that change and seek to turn it
to advantage in a much more positive way. In the German situation
from the dialogue I have had with my German opposite numbers and
indeed within the German Government, I would say that the situation
is different. The accord between the German people and the farming
community following on BSE and not just BSE but various other
food scandals—and I use the word scandals with inverted
commas around it because they have not really been scandal events—has
built a chasm of confidence between the farming community and
the Central Federal Government. Indeed, following the first case
of BSE in Germany, I understand that the German Chancellor, Gerhard
Schroder, personally blamed and held responsible my opposite
number publically on television for the whole problem, which was
quite stupid. It was ridiculous, aside from the fact that the
man had only been in post a shorter time than I had. It was ridiculous
to do that, but it was a populistic trend that we have seen rather
going that way. The German Government is clearly faced with the
financial problem and it needs to cut back on its expenditure
and that was overriding and was seen. Now, when you talk privately
to German farmers, you will find that there is a greater recognition
of the need to change and for simplification than there would
be in the French situation. What you had here was a mixture of
the two coming together: the French wanted to cut a deal to try
and they thought maintain CAP until at least the end of 2006 getting
closer to Chirac's end of office though perhaps I am being cynical,
and the Germans wanted to cut a deal that at least the French
would agree to some reform at some stage in the future and cap
the budget. There is some disagreement as to whether the Germans
really understood what they had agreed to with the French and
I think that has become clear in the descriptions of what went
on in the subsequent council meeting and I think that is quite
possibly the case, in which case everybody has come out of this
looking, I think, rather naive in some respect leading to some
anger. What I think has angered people widely is that two countries,
even though they are senior members of the European Union, can
come together and dictate what the other 13 will or will not do
or think.
Mr Mitchell
11. That has always happened.
(Mr Gill) It may have always happened in the past
but I think, as the community enlarges, they cannot expect to
have the dominance that they had when the community started as
a community of six and, after all, we have moved on. The German
economy a decade ago was the motor of Europe; it is no longer
the motor that it was. It is faced with outdated practices that
need to be reformed which successive German Governments have refused
to tackle head-on for a variety of reasons of which I am sure
you are well aware.
Mr Jack
12. And the American situation?
(Mr Gill) I took part in a discussion in Northern
Italy at the end of last week and one of their speakers was the
renowned Professor Stefan Tangermann. He did not take very kindly
when, in my section, I did give a quote from Disraeli when I said
that he had often said there were lies, damned lies and statistics.
That of course, as we well know, is the fact. The way American
figures are presented is always to their advantage. The reality
is that the farming expenditure in the arable is greater in the
States as a result of the consolidation in the recent Farm Bill
than it is for the European situation. There are selective quotations
from there that are the case and I cannot be sure but I do not
believe that that was necessarily an element of thinking in there
because it was purely domestic politics coming in that were driving
it forward.
Chairman
13. If you look at grain futures, you will see
that the price is stuck at around £52, £53, £54
pounds a tonne because of the expansion in American plantings
because of the support for the Farm Bill.
(Mr Gill) I hesitate to disagree, Chairman; it depends
which crop you are talking about.
14. Wheat.
(Mr Gill) If you are talking about wheat, the current
price on the Chicago ... I have not seen it for a week or so and
I hope it has not dropped dramatically in the last few days, but
it was trading at around 150 to 155 US dollars per tonne. This
arises from the fact that the US wheat harvest this year was the
lowest one from memory from since 1971 or 1973.
15. I was talking about 2003.
(Mr Gill) There is some speculation that they may
increase their plantings for 2003 but, with the other drivers
that have been put into the Farm Bill and from dialogue I have
had with American colleagues in the last two weeks, they discount
that quite considerably. There has been a massive incentive within
the Farm Bill to plant maize for example, but there is also the
pronounced effects of the drought which, in some of the areas,
has gone on for several years.
Mr Jack
16. Do you think that Schroder and Chirac
took comfort from exactly that statistical analysis in saying,
"We do not need now to radically change the CAP" in
the context of the WTO because, as I have understood it, part
of the mid-term package was to give us some defence against attacks
on direct payments etc by reformulating the way that money went
to rural communities, if you like putting some defence lines into
the reformed CAP. Given the figures you have given as to the size
of the American farm budget, did Chirac and Schroder say
to themselves, "Whoopee, there is our line of defence, then
QED, we do not have to change the CAP"?
(Mr Gill) I do not believe that would be the case.
I think it might be disrespectful to say that it forms too detailed
an analysis of those people involved and perhaps I should not
say that, perhaps I should withdraw that statement.
Chairman: I think you may have to withdraw it
in respect of Chirac; I think he knew what he was doing all along.
. .
Mr Mitchell
17. Did you say with regard to the table on
the second page, direct payment on current prices to new Member
States, that that was going to be financed by the Commission out
of its resources?
(Mr Gill) Are you looking at the table at the bottom
of page 2?
18. Yes.
(Mr Gill) That is the total budget from the years
2007 on to cover all EU 25, assuming 10 come in. That is the total
budget for direct payments and market related expenditure and
it is inflated by 1 per cent per annum as you can see along the
second line of the payment.
19. But that is financed by the Commission rather
than coming out of the agricultural budget.
(Mr Gill) That is part of the EU budget, yes; it comes
out of the 1.27 per cent of GDP elements and the other elements
that go forward and is a part of the total EU budget, yes.
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