Examination of Witness (Questions 140-159)
PROFESSOR JOHN
MCINERNEY
WEDNESDAY 30 JANUARY 2002
Chairman
140. Professor McInerney, you are on your tod,
as it were. Thank you very much for sending your written paper,
which personally I found extremely helpful, and I think my colleagues
did. Can I ask you, very rapidly, this is not a post mortem
or a diagnosis of the Curry report, because we will have Sir Don
here in a couple of weeks to answer for himself, but, just in
the traditional, one-minute burst, no hesitation, repetition or
deviation, could you give me what your first sort of epigrammatic
reaction is, to the report?
(Professor McInerney) Yes; based on what
I have read about it in the Western Morning News and The Independent
this morning, because I have not seen it.
Diana Organ
141. It should be unbiased then, should it not?
(Professor McInerney) One has to say, a lot of it
is pretty unarguable, much of it what we economists have been
saying for years, that, from an economic point of view, from the
economics of the industry, so many of those things have to come
about. The idea of CAP reform and reduction of production subsidies
is hardly novel. It has to be said again and again and again,
I think, before the message sinks in, that it is actually a real
message. There is a lot of emphasis, there are 100 recommendations,
I gather, some of which—somebody did say, which I thought
was very clever, that it was a typical curry, a rehash of yesterday's
leftovers, spiced up, or something. It is full of good things,
and major things and minor things. What I find interesting about
it is, I think, the event itself, that, for the first time, there
has been a major attention, if you like, on somebody sitting down,
or a group sitting down, and declaring what ought to be the future
for UK agriculture. And it may just be that it is very influential
because it gets that amount of attention, by raising all sorts
of issues in a structured and coherent way, and things will happen
as a result of it which have not happened before, because of the
sort of way it has gone.
Chairman
142. So its major service then may not be to
contain some grand new idea, but it is a coherent compilation
of received wisdom, but put together in a way which perhaps compels
more political action than otherwise it would have done; is that
so?
(Professor McInerney) Yes. You said, in less than
a minute, what you wanted me to say.
Mr Mitchell
143. You say that the public's attitude to farmers
and farming has grown increasingly negative since February, since
February, I think there was a big period before that when it was
growing negative, and their view of the way modern agriculture
works, to the extent that it is understood, you said, seems to
have become strongly disapproving. Is that an impression on your
part, or is there survey evidence for this?
(Professor McInerney) When I wrote that, I was actually
responding to a massive amount of public comment in the press
that arose because of FMD, and articles saying, "Why are
we subsidising these guys; and what are they doing, carrying livestock
all over the place?" And letters to the editor, saying, "Well,
why don't we import all our food?" And much more noticeable
public condemnation of agriculture, from general journalistic
commentators and the "disgusted of Tunbridge Wells",
as opposed to the lobby groups, the environmental lobby groups,
or the welfare lobby groups, who complain about modern agriculture,
and have been consistently for a long time. It just seemed to
me this discontent was much more widespread amongst the general
public because they had noticed agriculture suddenly.
144. That has been going on for a long time,
with BSE, which was regarded as the fault of the farmers?
(Professor McInerney) Yes.
145. Do you deduce, from that, that the public
is going to be increasingly hostile to subsidising the farmers
that have behaved in this fashion and have done this?
(Professor McInerney) I suspect so. I am not a political
analyst, but I suspect that, the more members of the public discover,
or read, figures like "it is costing you £65 a year,"
or £165 a year—
146. They have been reading that, "it has
been costing you £20 a week," from the average farm,
coming forth from the Consumer Council, they have been reading
that for years?
(Professor McInerney) I am not sure they have been
reading it, in the sense of taking it on board.
147. I have been telling them for years?
(Professor McInerney) I think a large majority of
people do not know what agriculture is costing them, and do not
stop and think about it, and probably have this feeling, "Well,
we can't do without food," or sort of empty statements like
that, and then pass on.
148. Yes, but it is going to be more difficult
for Government to subsidise in that climate?
(Professor McInerney) Yes, I would guess so.
149. You say also that there were a number of
signals, that agriculture had got to adjust, and you say that
those who never saw those signals were either not looking or not
wanting to see. A lot of those signals are hypothetical, actually,
are they not, there are changes to come from the WTO, from the
widening of Europe, the admission of other states, and all this
kind of thing; farmers would be well justified, in that situation,
in keeping their heads down, claiming the money and carrying on?
(Professor McInerney) Yes. Again, there has been a
collection of new signals; the WTO is a relatively new signal.
The pressures for CAP reform, or the pressures of EU enlargement,
are relatively new signals that have come over the horizon and
are creating, in a sense, more and more threats, if you like,
for greater adjustment in agriculture. But the real signals that
I was trying to get at there were the underlying ones that agricultural
economists have been talking about since I was a student, which
is just the general, long-term evolution of agriculture, that
says it has to decline, the productivity developments mean fewer
and fewer people can expect to live out of this. And we must learn
to talk about an agriculture not as, "We've got this many
farmers; what is this group of people going to do?" It is
a matter of distinguishing between agriculture as a national industry,
a group of people who manage, or an industry that manages the
land base of this country to satisfy whatever society wants from
it, and a particular sub-population in society, who now call themselves
farmers, and, in a sense, as individuals, try to see themselves
as being sustainable, but collectively that whole group is not.
I often use the analogy of a lifeboat, with ten people in it,
and it is going to sink; but if you throw three people out of
the lifeboat the other seven are in great shape. And so the real
problem is, for every one of those ten people in the boat not
to become one of the three that has to go out, but three people
have got to get out of the boat.
150. Of course, there have been similar warning
signals in a whole range of British industries, steel, coal, engineering,
car production, whatever it might be; your argument is that agriculture
has not seen, or has not responded to, these signals because it
has been sustained by subsidy, it is cushioned?
(Professor McInerney) It has adjusted, obviously,
but more slowly than the underlying forces would suggest it should
have done. And that is partly because support measures have encouraged
people to go in, or to stay in, who otherwise would not have,
and partly because of just the difficult mobility of people out
of agriculture, for all the well-known reasons. But the simple
arithmetic says agriculture creates roughly 1 per cent of the
value added in the economy, and there are 2 per cent of the working
population trying to share it out; and, not surprisingly, therefore,
it shares out as a below-average income per head, and there are
too many people trying to live on what agriculture can generate
in the modern economy.
151. So what is the solution; open the door
and let the cold winds of competition blow through, take away
the subsidies and force them to rationalise and reorganise in
the way that all the other industries have been hit?
(Professor McInerney) The economic solution, in a
step sense, is to move to a position where one does not have major
social problems of low income within agriculture, which is often,
actually, either a regional problem or a structural problem, because
it is sub-sets within agriculture who are struggling; that is
the economist's partial equilibrium analysis, that we need to
get to position B.
152. That would require subsidy, would it not?
(Professor McInerney) But, as always, it is the mechanism,
how on earth does one get from where we are now to where, in the
end, the situation has got to be; and the more you prevent the
normal economic forces operating, the more you are just damming
up a stream of water that ultimately has got to find its way out.
153. The question really then becomes, can one
get from A to B without further subsidy and without further cushioning?
(Professor McInerney) You can. New Zealand did it.
It may not be a very politically-acceptable way of doing it.
154. Why should it be less acceptable here than
in New Zealand?
(Professor McInerney) That is a political judgement,
as to whom it is more or less acceptable. Clearly, it is possible,
and it is possible because it has happened in other industries,
who have gone from A to B quite dramatically; we do not seem to
want to confront, as a society, that kind of dramatic change in
agriculture.
Chairman
155. Professor McInerney, obviously modulation
is moving to the centre stage; it has become curiously transformed
in its meaning since I first encountered modulation, which was
really hitting the big farms, the small farms, was the original
meaning, we used to oppose it ferociously, because it would be
said to disadvantage Britain's type of agriculture. But, this
new form of modulation, we have chosen to apply a flat-rate levy;
the French have chosen a far more complex system of application,
which depends on levels of support you get from Brussels, so it
is not universal, it starts at a high threshold. What do you think
of the pros and cons of the way we have chosen to apply it, and
will the arguments change if the size of that levy itself increases?
(Professor McInerney) I find it difficult to find
a logical basis, particularly, in any of these mechanisms. They
are arbitrary formulae for top-slicing a particular fund, to transfer
it to some other use. I think, conceptually, one has to keep separate
the two issues. One; there is a need for public funding to finance
public good activity or economic developments separate from conventional
farming activity, so there are some questions about how much money
does one want for that, what is the appropriate level of incentive
or reward that is necessary to pay landowners, in order to generate
the environmental benefits that are wanted. Then there is a question,
okay, where does that money come from; and the modulation proposal
says, "Well, let's take it away from the pot that we're already
giving farmers." But you could divorce those things completely;
you could say, "Let's deal with the pot that we're giving
farmers as a separate thing, let's decide that we're going to
abolish the pot that we give farmers completely then move directly
to unsupported agriculture, in terms of food products." Now,
let us answer question two, how much money is necessary in order
to encourage the non-food elements in land use; and you do not
need the concept of modulation, it has only come in as the kind
of device as to how to move money out of this pot to that pot.
And I do not know there is a lot of logic in one or the other,
except there will be losers and gainers, and the losers will not
like it, and the gainers say, "Well, unless you give us some
of this money, you aint goin' to get what we can offer."
156. Let us just look at that for a minute,
because the finest landscape the farmer can see is this wonderful
level playing-field.
(Professor McInerney) Nobody wants a level playing-field,
partly because it is not a game, and anyway we all want a playing-field
that enables us to exploit our best talents.
157. If you take modulation as it is now intended
to apply, so let us say we have moved to 2004, for the sake of
argument, we have got 10 per cent in the UK, and the French and
the Portuguese are still applying it; let us just add in a rogue
factor, that in Scotland and Wales they have not got anything
like that at all, so that the level playing-field sort of stops
at the Cheviots, whichever border happens to be between England
and Wales. How unlevel are things going to be, and does it matter?
To what extent will that accelerate redistribution, as it were?
(Professor McInerney) I am not sure that is an economic
analyst's question, in a way. Redistribution is a very political
matter, and the mechanism of modulation, I suppose, has efficiency
considerations; but I think it is very difficult to define what
they are and whether, if there are different rules of modulation
in England and Scotland, that is really any worse, or better,
than there being different rules on modulation between France
and the UK.
158. Let me just press you on what you said
earlier, just to be sure I understood what you said. What you
said was, okay, modulation is a tax on subsidies, a top-slice
of subsidy; in a sense, it is born of the belief that if we are
not going to get shot of the subsidies we might as well try to
subvert them to a different purpose. You would say, actually,
the sensible thing is to say, "Look, let's address the subsidy,
on the one half, then let's try to address what we want farmers
to do, on the other, and keep those as separate matters"?
(Professor McInerney) Conceptually, yes; functionally,
that may not be at all possible. But, in terms of tidy thinking,
that is where I would start.
David Taylor
159. The point I wanted to make first is, Chairman,
I referred earlier on, in our previous session, to seeing the
Newsnight programme, which obviously has had a short-term, major
impact on me, and the economist on that programme, the in-house
economist, Sean Rickard, said he broadly welcomed the Curry report,
could find little fault in it, with one major exception, that
it shied away from the core issue, which I think you brought out
in your evidence, prior to this session, and here, of the need
for tens of thousands of farmers to leave the industry, because
of an oversupply in that regard. We have been touching on it,
but how can you achieve that painlessly, in the light of the sorts
of problems and pressures and difficulties that you have heard
this morning and that you have experienced in your time here?
(Professor McInerney) I do not think this kind of
economic change can be painless at all. Indeed, the economy is
a jungle and economic adjustment leaves dead bodies everywhere,
and I just do not see that it is possible for the farming industry
to adjust to new economic parameters, any more than it is possible
for the defence industry to adjust. Down in my area, Nortel closes
down and a thousand people suddenly are out of a job, in Plymouth.
The airline production industry looks as if it is going to have
to go through some adjustments. People keep quoting steel and
mining, and why does not farming go through that. In some cases,
of course, it is easier. One should not ignore, I think, as a
society, completely, social disadvantage. It is quite easy for
some people to leave agriculture, a hired worker can give up being
a tractor driver and become a truck driver without too much difficulty.
It is a lot more difficult if you give up a 180-acre holding that
you have grown up on and have got to find a new place to live.
We know all the sociocultural problems. But there are, one can
conceive of, adjustment aids that at least ease the transition
a bit, in the same way as we try to ease economic transition for
other groups in society.
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