Examination of Witnesses(Questions 40-59)|
TUESDAY 29 OCTOBER 2002
40. If I may just conclude by asking about the
way in which you measure this. The CPRE talked about farm audits
as a way in which you could measure if a farm is reaching the
desired outcomes and that you receive this decoupled income if
your farm plans are able to show that you have adhered to these
standards. This sounds bureaucratic but also actually quite difficult
to measure unless you have some supra-European agency.
(Mr Haworth) Again, the idea of audit in the Commission's
mind is that it is supposed to be something that is of assistance
to the farmer. It is not supposed to be part of the compliance
or regulatory process. You could have this audit or you would
have this audit which would be subsidised or wholly paid for out
of public funds which would help you to draw up on your own farm
what the risk points are, where you were not complying with regulations
and help you to draw up a plan which would enable you to make
sure that you did. It is not, as I say, supposed to have any penalising
effect or any regulatory or compliance effect. That is the Commission's
idea. However, it would appear from the discussions that have
been taking place so far that the audit is the most unclear part
of the proposals and also the one which has the least support
amongst different countries because they all have a different
idea of what it should be.
(Mr Gill) The concept was that it would be paid for
at least 50 per cent from the modulated funds and there is real
concern that it could become a bureaucratic nightmare. I emphasise
"could". It depends what they are talking about. Some
discussions I have had with Dr Fischler suggested that he would
like to see much more of a light touch, more of a description
of what we have done in the United Kingdom in terms of farm assurance,
for example, and that, if something was farm assured, that would
be designated as meeting your farm audit requirements. If that
is what he means, that is one thing. If it means that you have
to go through complex paper based systems of chases, then I become
violently opposed to it, and it is finding something that is in
the middle or not necessarily something that is in the middle
but something that is practical.
41. I think there is a lot in the notion that
it has to be light touch and I think there is a lot in the notion
that, in a sense, the land owner or farmer does most of the work
on it. The notion of audit actually means that you are getting
value for money and this idea that you are going to have an audit
has no real purpose, which is what Mr Haworth was telling us,
but there is a peculiar notion of audit, is there not? If decoupling
does take place and people are paid on, in a sense, a historic
legacy, if that were the way of auditing, it is money for old
rope, is it not?
(Mr Gill) Yes.
42. "Yes", I think you said.
(Mr Gill) No. We could get into the "yes/no"
debate. What I would say is that we have to be careful in attributing
too much to the use of the word "audit". I am not sure
what the original language was.
(Mr Haworth) It was German and it does not translate
very well, that is the problem.
(Mr Gill) I suspected that to be the case; we have
come across this many, many times, that there are loose translations
in there with other meanings.
43. In broad terms, you would go ahead despite
the language with the notion of a whole farm approach to auditing
with some outside assistance being paid for in part by the public
(Mr Gill) I am not sure that you wanted to suggest
I had said something otherwise.
44. I am trying to get it clear and use your
(Mr Gill) What I said was that what we would see as
something that could be debated very positively was the concept
that if someone was already farm assured, then they met the criteria
that was required and that they could have some assistance towards
that cost of it and it is a box tick: are you farm assured? Yes.
Then you have done it.
45. I just take you back to this notion of good
agricultural practice because there is a peculiar sense that,
in environmental terms, in the Spanish example you gave us, leaving
land set-aside has real agri-environmental benefits and it may
be people would be supportive of that in a wholehearted way. I
am not entirely clear how you would define good agriculture practice
because your own example within the UK made it very clear that
there were different practices in parts of Yorkshire, for example,
or Yorkshire versus the Dales, for example, and it seems to be
an enormous piece of work in trying to define what that would
(Mr Gill) Indeed so and all too often it has been
done over-simplistically, particularly when you look at stocking
densities. I have heard time and time again over many years successive
Government Ministers berate the livestock industry for being overstocked.
If you take the total number of stock and divide it by the acreage,
they are not overstocked. The problem is that there may be localised
overstocking because of the pressures on the farming community
to cut labour costs with the lack of labour for feeding purposes
in the autumn, winter and spring periods and it is teasing out
these points that it is absolutely critical to understand and,
in terms of good agricultural practice, I think the point is made
already that there are sufficiently strong horizontal welfare
regulations across the European Union. The point I was making
on variability is the different climatic factors because, whether
we like it or not, the climatic factors of Crete are fundamentally
different to the climatic factors of the frozen tundra north of
the Arctic Circle.
46. I want to move to the quite difficult to
understand areas of capping of the dynamic modulation which are
currently in the existing proposals. One of the things that I
have struggled to understand is who the winners and losers would
be because so far we have only our own national scheme in its
embryo stage to draw experience on. There is a lack, from what
I can see, of any kind of economic modelling, certainly in the
evidence we have so far, just to give you a feel as to how it
would work. The RICS produced their report entitled, "The
Impact of Modulation" and having gone through at the levels
of the farm a lot of it seems to say farmers affected by it will
lose out and there is no matched analysis as to who might gain
via the recycling of the money through some form of rural development
grant. Can you give us your feel for winners and losers and whether
we all need to understand a bit more clearly how the money flows
round UK farming in whatever model of modulation might ultimately
(Mr Gill) Winners and losers need to be looked at
in the European context as much as the UK context. If we take
the capping proposal as such, we estimate that there are about
600 of our members who would receive in excess of 300,000 euros
per annum. That may not sound a lot but these are sizeable businesses
employing a sizeable number of people, either directly or indirectly
through contractors or whatever. I would juxtapose that against
Greece where from memory there are three who receive over 30,000
euros per annum. It may be five but it is less than two handfuls.
It is either three or five. You can immediately see where the
bulk of the capping figure is going to come from for the United
Kingdom and also the former East Germany and the Federal Republic
of Germany will put money in as well. The question is how is that
money redistributed? Is it kept within the country? The indications
are that it should be kept within the country and then the question
comes as to what schemes it will go into. Will the schemes be
enlarged to include areas that do not include farmers? Will it
allow you to go to the village shop for new rural activities generally,
to encourage the tourist industry, for example? Will it encourage
other diversification measures outside the farm remit? These are
factors yet to be determined. There are those who suggest that
these moneys should be allowed to go in there as indeed any element
from the decoupling should be as well.
47. You are against capping. One of the questions
that does not seem to be answered by the mid-term review is whether
it is a question of rearranging the way the money goes to farming
and rural industries to be compatible with the WTO or whether
it is about trying to improve the efficiency of European farms
in a world where Europe inevitably will be more exposed to the
forces of competition. I do not see the latter view prevailing
at the moment.
(Mr Gill) My analysis would be that the significant
part of the proposal that is relevant to the WTO is the decoupling
element. It is pertinent to coming away from the market place.
If it is decouplingand I have already made commentsthat
could detract from that in the proposals. In terms of the second
part, there is concern particularly that the element of funding
that is available for agri-environmental packages is woefully
inadequate. Some of that is directly into agri-environment; some
of it is more into structural funds and we see this desperately
so where Britain's farmers are trying to improve their marketing
structures but do not have available to them the sort of aid from
regional development funds that other countries in Europe have.
Part of this stems from the historic factor that we have, virtually
from year one, refused to claim structural funds in this country
so that our national allocation of 3.5 per cent of EU funds
is still substantially under-allocated and a more appropriate
figure would be of the order of nine to ten per cent. There
is a big shortfall which is one of the reasons I believe this
government is very keen to introduce modulation in any case unilaterally
to give funds to start doing the work that should be done in any
case and which is drawing this country back so sadly at the moment.
48. You are against overall capping but what
about the idea of some kind of tapered reduction in moneys in
relation to farm size past a certain point?
(Mr Gill) What I become frustrated about is when we
start doing this we start making matters more and more complex.
At what level do you do it? It depends from one country to another.
How do you find something that is fair and equitable? The concept
of tapering comes into its ultimate element when you introduce
the proposal to have a 5,000 euro franchise. Is there no basis
for those 5,000 euros being a requirement of cross-compliance
for less than 5,000 euros? We know that while that accounts for
80 per cent of farmers it is still accounting for 20 per
cent of production and the need to have cross-compliance and
good animal welfare practices and disease practices within those
herds is just as important, not just for farmers but for the food
industry, as it is within the vast majority of livestock areas.
We believe that trying to split between the two is divisive. Furthermore,
I could argue that the bulk of people who will receive less than
5,000 euros are doing that because they are receiving significant
other, non-farming income. They are not full time farmers and
there is no justification therefore that they do not need to have
a cut in their support payments.
49. One of the things that is interesting about
the modulation proposals in the mid-term review is that, in terms
of the alternative uses for the modulated moneys, the slices,
they do not have to be matched, as is the case in the UK at the
moment, with Member States' own funds. Can you first of all refresh
my memory? How was it determined? What was the logic that, in
the case of the United Kingdom modulation scheme, we had to match
the money and now, all of a sudden, when we get the prospect of
a Community wide scheme, we do not have to do that? Is it envisaged
in the Community wide scheme that that would be top sliced back
to the Commission, who would then distribute it? Take the first
bit about the UK and match funding.
(Mr Gill) The current regulation requires match funding
from the Member State. The inhibitor to that is that the poorer
members of the 15 do not have the national resource to do the
match funding and therefore were not prepared to consider the
introduction of modulation.
50. Why, because you have a complete change.
You have DIY domestic modulation. You put money in. Community
wide modulation, you do not have to put money in.
(Mr Gill) This is because when you say "DIY"
it is still modulating European funds.
(Mr Gill) It is taking European funds and saying,
"We have modulated it. The government must add some match
funding to it." The financial resources of the southern countries,
particularly Greece, Spain and Portugalto a lesser extent
the Republic of Ireland nowadays which seems to have done a marvellous
volte face in Dublinwere such that they did not
have the resources to do match funding. Therefore, the only way
the Commission could see a way forward was to say that match funding
was either not needed or optional on the Member State.
52. Why in the first place did they think it
was a requirement? They made it a requirement for the UK model
that the UK had to match fund. Why was there a need for match
(Mr Gill) Originally, it was not a requirement for
UK funding. The original scheme was set for the whole of Europe.
It was the fact that only Britain initially chose to take it up
and latterly France came along and took up the scheme but only
short-lived because they had so much money left in their rural
development regulations and in their modulated funds that they
did not know what to do with it.
53. It was a permissive thing?
(Mr Gill) That is correct. I beg your pardon; I should
have used that word.
54. I now understand. Like all of these things,
there is not any logic. It was the French saying, "We have
to get rid of some cash. Give us the tick in the box. We would
like to do that." You have touched on this with smaller farms.
There still does not seem to be any sense of trying to improve
the overall efficiency of European farming. It still seems to
me that there are different ways of maintaining the status
(Mr Gill) I cannot see how modulation, either dynamic
or otherwise, is in any way a predisposition towards increasing
the efficiency of farming. To increase the efficiency of farming,
the industry must be allowed to become more market focused and
have direct contact with the market place and be allowed to have
the signals passed back very clearly. That must be the basis of
the reform proposals, I would suggest.
55. What about modulation with the funds all
going back to the Commission? Is that a model which you would
find favour with or do you still think it should be left to the
Member States to distribute in the context, say, of our English
Rural Development Programme the moneys that are freed up by modulation?
(Mr Gill) What frustrates me about all this is that
the Commission play along with words. If they want to have price
cuts, let them say so. Let them use the money and give it in the
areas where they need to give it. Why do they have to go through
all this charade of saying, "We are going to have three per
cent modulation" and match it and put it in there? Why
not do it, if they think that is the right way to do it? As to
your specific question of giving it back to the Commission, of
course that is degressivity. It is a factor of reducing the payments
to farmers and that may have to come in any case for the reasons
we have articulated earliernot that I welcome it, but one
of the consequences, if unchanged, would be that we have to have
56. Can I finally ask for some guidance? I have
struggled to get a mental picture as to how not just the dynamic
modulation but the capping, the degressivity, the direct payments
are all going to work. I suppose it is partly because I have been
brought up on the CAP as was and X per cent off how much
you get for a suckler cow premium or Y off sheep annual premium
I can see adds to the bottom line on a farm but this is of a wholly
different order. One of the things I observe is very little attempt
to try and produce any kind of whole farm analysis, country analysisanything
that gives you an idea of how you would get from where we are
now to where these various models could take us. I feel I am in
a fog. I cannot get a feel overall for this. I would appreciate
your observations. The government's own paper to us does have
some tables and numbers in it but it does not give any attempt
to say, "Yorkshire will gain. The south west will lose. East
Anglia will be neutral." There is nothing like that at all.
(Mr Gill) I think the reason you feel you are in a
fog is simply because there are so many variables in there. The
variables can be either antagonistic or complementary. It depends
how the Commission choose, for example, the sort of decoupling
procedures they go on with, the sort of cross-compliance they
have, the level of modulation, dynamic or otherwise, the degree
of refocusing of that, whether it is clawed back into the Commission
or not, whether it is repatriated or not, the level of repatriation,
whether there is a level of capping of 300,000 or whatever. We
are all in a fog.
57. You know how the Commission works. The Treasury
here has a very complex model of the British economy and it publishes
it. If you want to play being a Chancellor, you can do, at home.
Is there such a thing as a model of the European agricultural
economy, because if there is not some kind of dynamic attempt
to show the effects of these policies how on earth does the Commission
dream up these various schemes? I do not understand how, all of
a sudden, Fischler wakes up one day and says, "Ah, here is
a plan. We will have a bit of direct payment here, a bit of modulation
and capping there and here we are." Somebody must have given
a lot of thought to this. Tell me a bit about the process of it.
(Mr Haworth) There is such a thing. In fact, there
are several. There is a German model and there is a French model
which are used quite a lot in the Commission. In the case of these
proposals, the Commission is able to do quite a detailed analysis
with the German model, which will give a lot of answers about
what the effect will be on production and what the effect will
be on different countries and different regions. That is going
to be published at around the same time that their more detailed,
specific proposals come out at the end of this year. You could
ask the question did they do the analysis before they made the
proposals or did they make the proposals and then do the analysis
on the proposals? I think the latter is the case. I suspect that
is also the case with what the Treasury does.
58. Are the French and German models vastly
(Mr Haworth) They work in a different way and I am
not an expert on these. They are both mathematical models.
59. Obviously it is not the detail but how they
work. We end up with different interpretations.
(Mr Haworth) You end up with different answers. Since
we have not seen the answers either of them give, I cannot tell