Examination of Witnesses (Questions 1040-1059)
RT HON
MARGARET BECKETT
MP, LORD WHITTY
AND MR
ANDY LEBRECHT
WEDNESDAY 15 MAY 2002
Phil Sawford
1040. For the future of food and farming, in
the report from the Policy Commission, there are obviously difficulties
and there are those who would suggest that one of the problems
of the past 50 years has been the subsidies, in that they are
more of a problem than a solution. So a simple question: why do
farmers need subsidies at all? Should we continue to pump taxpayers'
money into that industry?
(Margaret Beckett) As you rightly say, that has been
the approach for the last 50 years. Farmers have been encouraged—indeed,
I think, you could almost even say that the structure of the industry
and the framework of legislation and so on, has forced farmers
to agree to the position where that was their relationship with
the support provided from the state. There are increasing numbers
of farmers who are less than happy with that relationship, who
would like something different and more productive and who recognise
that farming needs to become profitable; it is not necessarily
assisted in becoming profitable by the maintenance of a structure
of subsidies, particularly of the kind and nature that comes through
the CAP. I think it is just one of those historical realities
that we all have to recognise. That is the basis on which farmers
have been encouraged to run farming.
1041. The nature of the subsidy will have to
change.
(Margaret Beckett) We certainly want to see in the
proposals for mid-term review, or for reform of CAP generally,
subsidies decoupled from production. We want to see those subsidies
reduced and, as we have said at the beginning, there are those
who argue that the structure has been damaging, and that is certainly
what the Policy Commission argued. They said that the existing
framework and structure of CAP has been actively damaging to the
environment and, in the long-term, to the interests of farmers
because it cuts them off from the marketplace.
1042. The other key issue when we have talked
to farmers is that they are particularly concerned about the strength
of the pound and the effect that that has through the exchange
rate mechanism. Do you accept that that is a problem for the British
farming sector? Also, do you regret that the Policy Commission
made no comment on whether or not we should joint the euro? You
probably would not want to go along that route but I will ask
the question anyway.
(Margaret Beckett) First of all, yes, I recognise
that the exchange rate is a source of difficulty for British farming;
perhaps to a certain extent even more than for manufacturing because
everything is structured in euros. So I accept that is a difficulty.
Do I regret that the Policy Commission did not say more about
it? Frankly, no, because if the Policy Commission had said something
dramatic about the euro nobody would have covered any of the other
things that they said.
Mr Jack
1043. Secretary of State, do you consider that
there are any sectors of UK agriculture that are too generously
support by the current subsidy regime?
(Margaret Beckett) I think we would take the view
that we would like to see subsidies reduced, wherever they are
paid. There are, of course, some sectors which are no longer supported
because support has gradually been removed, so in general terms
we would like to see all subsidies phased out and removed, and
the market-distorting subsidies, in the way that they are paid
at the present time. We do recognise that there are some things
which are in the public good, such as the environmental good,
where there is not a market rate and which the market would not
support but where there is a legitimate case for saying that if
the public wants those things then the public should find some
way of supporting them. In terms of a particular commodity that
requires support, I could not say that I would single one out
and say there is a different approach to that commodity.
1044. What modelling has DEFRA done to look
at different scenarios of the effect on UK agriculture of either
the gradual or sudden removal of subsidy? If so, can you tell
us what the economic effects might be?
(Margaret Beckett) I have not got it at my fingertips.
I do not know if either of my colleagues have it.
(Lord Whitty) We have recently produced a study in
relation to—not exactly the production subsidy but—the
removal of quotas in milk, for example, just in the last few weeks.
Chairman
1045. The market has got there already!
(Lord Whitty) Which indicates that British agriculture
would do relatively well in a European context out of its removal
of quotas over a phased period. Similarly, of course, it depends
over the time-scale and quite which subsidies are removed first,
and in what manner they are phased out. In general, our belief
is still—despite the distortion as a result of the parity
issue—that UK agriculture would do relatively well within
Europe against a phasing out of production subsidies in the CAP.
Of course, we are still talking, as Curry is still talking (your
namesake here rather than you, Mr Chairman), of shifting the degree
of support into an area which is basically supporting land management
and environmental objectives. So there would still be some support
into those sectors of agriculture.
(Mr Lebrecht) May I just add one point, which is to
say that we are doing the work that Lord Whitty has referred to,
but what we have not done is look at the question of overnight
removal of subsidies, because that is not the policy.
Mr Jack
1046. The reason I ask that question is that
I tabled some Parliamentary questions a while ago to try and get
some idea of, for example, the movement of moneys from one area
to another in the context of modulation, which is an internal
arrangement of subsidy payments. What disappointed me was that
after a long period of time nobody could provide me with that
answer. The only answer I could get was payments made from different
regional payments centres. You seem to have no idea of how the
money is currently allocated within UK agriculture and how it
might move about, either with reference to your modulation proposals
or in the context of a gradual reduction of subsidy basically
to determine who the winners and the losers would be. I think
some kind of economic modelling would be helpful in giving a greater
understanding of the impact on UK agriculture of any changes in
the subsidy regime that may come, for example, from the mid-term
CAP review.
(Margaret Beckett) I take your point, but to be honest
it seems to me it would be highly speculative. I am not sure it
would tell us very much at this moment in time because it all
depends on the shape of any likely proposals. We might have a
better idea after we see what Commissioner Fischler proposes.
Chairman
1047. Lord Whitty, you said that if subsidies
were moved British agriculture would do fairly well. What level
of the pound against the euro do you feed into that equation?
(Lord Whitty) Mr Chairman, you are not going to get
me into that area, I fear.
1048. This is not about whether we should join
the euro. As you know, British industry, which is simply in the
marketplace, fares differently because of the exchange rate. There
has been a significant amount of manufacturing, for example, in
my part of North Yorkshire, which has found it very difficult
to compete with the present parity relationships. If we are going
to make the statement that agriculture should compete, you must
surely have some idea as to the sort of pound/euro relationship
which would permit that to happen. The Secretary of State mentioned
that some sectors were unsubsidised. We have seen some of those
unsubsidised sectors, like the intensive livestock sector, suffer
significant migration of the industry offshore to places like
Brazil, and the currency factor is one of the significant factors
at work. You must have to make some assumption.
(Lord Whitty) The milk study makes a range of assumptions
about the pound to euro relationship but it does not assume a
single optimum level of parity, and the results of that relate
to assessing the impact at that range. More generally, we have
not approached this, as Mr Lebrecht was saying, on an across-the-board
basis because you can only really get a snapshot effect of removing
all the subsidies at a particular rate. The rate would vary over
the period in which you were phasing them out, so it is not a
very easy calculation to make. As the Secretary of State said,
we have got a position where we will, in a few weeks' time, have
a proposition from the Commission for, hopefully, some changes
in the subsidy regime in different sectors. We can then make a
proper assessment as to whether that would be beneficial to UK
agriculture or not. I think we need the proposition before we
can effectively test it out in the way I think you are suggesting.
1049. Your working assumption is that the removal
of support, which you believe in any case would be beneficial
to British agriculture, whatever, within sensible reason, the
level of parity, including present parity.
(Margaret Beckett) The working assumption, as much
as anything else, goes back to the proposition of the Policy Commission,
which is that it is in the interests of the long-term health of
British agriculture to move it away from subsidy and to encourage
it to look at how it prospers in the marketplace. That is the
basic principle of the approach. Then, of course, as and when
we get a set of propositions, we will have to look at how you
can steer the best possible course in that particular direction,
if that is what comes out of the Commission's proposals.
Paddy Tipping
1050. You have told us you want to reduce the
subsidies on production, and that is commonly agreed. It is generally
accepted that there is about £3 billion coming in from CAP
at the moment. The notion will be to, perhaps, in the longer term
make payments for environmental goods. Would the £3 billion
be the right level of spending, or do you want to reduce that
£3 billion?
(Margaret Beckett) I think that there is much to be
said for the examination of whether or not such a level of payment
would in any event be justified. I think it is inconceivable that
any finance ministry in the European Union would allow consideration
of major changes of this kind without also having consideration
of whether that level of support should continue to be paid and,
if not, what level of support there should be, based on a different
set of premises about what it is you are supporting.
1051. So a longer-term reduction in payments.
. . .
(Margaret Beckett) Whether or not that is achieved
remains to be seen, but we think it would be very unwise to say
that we can rule that out—because, after all, the basis,
as I understand it, of the first agreement was that we were seeking
to cap and reduce agriculture spending.
1052. Within the present system and within the
£3 billion, the policy is to move from Pillar I to Pillar
II?
(Margaret Beckett) To be allowed to move some resources
as much as we can, from Pillar I to Pillar II, yes.
1053. What is your target? What are you shooting
at?
(Margaret Beckett) My target at the present time is
to encourage those who have to put forward propositions to behave
radically. I do not want to pre-judge what is likely to be the
outcome of that and set a target that we cannot possibly meet.
1054. Curry talks about a target of 20 per cent
by 2006/07.
(Margaret Beckett) Twenty per cent is within the present
framework approach. What Curry has done is propose that we aim
for that earlier. That, of course, is against a background of
what he suggests we should consider doing in the UK if there is
not CAP reform. If we are able to secure agreement to some overall
programme of CAP reform then we would have to look at such a proposition
in that context—and, also, of course, we would have to consider
how we treat the advice from Sir Don Curry that even if there
is not CAP reform then the United Kingdom should take steps. That
is all part of what we have to consider as we look at our own
strategy.
1055. I think it is generally acknowledged that
the CAP reform is difficult, it is time-consuming, but we are
in a position to make some changes. If one were able to move more
into Pillar II, what would be the spending priorities within Pillar
II?
(Margaret Beckett) It depends. The thing that goes
hand-in-hand with a wish to remove resources is also a wish to
free-up the circumstances in which those resources can be used.
To be honest, we would be not nearly so enthusiastic (I would
not, anyway) about moving resources if we thought that we would
still be confined to the restrictions on what the money could
be used for and, also, on the way in which the scheme is administered,
which exists at the present time. I am moderately hopeful of getting
changes in this direction because at the recent informal Agriculture
Council we had a discussion on rural affairs, rural development
and, with the exception of the odd person who argued that all
we need is to keep the existing structure of CAP and put a great
deal more money into it, pretty well everybody who spoke—I
think I am right in saying—argued for a change in the bureaucracy,
the administration and the restrictions on present funds. However,
the two do have to go together. There is a genuine issue here
and a genuine question. One of the reasons that Commissioner Fischler
has spoken about the advantages of compulsory modulation across
the European Union is because he put the argument that if it is
only done in individual Member States (and, at the moment, it
is us and France, the Germans have a proposal for a scheme to
start in January and the Portuguese, too, I understand are doing
something next year) there is a possibility that farmers in those
Member States could be at a competitive disadvantage to other
farmers because they are not having access to the same level of
payments in the usual way. So there is a genuine and serious issue
to be considered there, and that is why we are not rushing to
judgment and we will see what the Commissioner comes up with.
1056. Suppose you had a free choice. It would
be nice, would it not? What would be your policy?
(Margaret Beckett) My instinctive reaction is that
I would be wanting to look at being able to do more on rural development
and the wider rural economy and, within that, on environmental
issues as well—land management and so on. To be honest,
however, I do not have a fixed view as to what the priorities
ought to be and whether more ought to go on one or the other.
Where the money could be best used is what would interest me;
I am not interested in just putting money in for not very much
outcome.
(Lord Whitty) One call on that money would be the
proposition that we supported in Don Curry's report of a broad
and shallow, accessible environmental scheme for land management.
That would be one call on it. Broader rural development would
be another call on this, I suppose, as the Secretary of State
said. There is a whole issue of flexibility, both in terms of
scope and in terms of variability of schemes that we would need
to address in that process. There is also the issue of making
sure that the UK gets its due share of that money.
1057. There is some pressure on you to bring
forward a broad and shallow approach using modulation that requires
some new money, some matching money, somewhere. I wonder whether
you would tell us where you are on those discussions? Presumably
this is a bid, is it?
(Margaret Beckett) We are discussing with a whole
range of stakeholders what the form of the broad and shallow scheme
could be and how realistically one could begin to look at it and
develop such proposals. As you say, a lot of these things are
linked to the outcome of the spending review.
1058. We will wait and see.
(Margaret Beckett) So will we.
Mr Breed
1059. Just briefly returning to the euro, whatever
the advantages or disadvantages of joining the euro at some stage,
whilst we are outside that it is likely that we will continue
to suffer from uncompetitiveness. With the demise of any agri-monetary
compensation scheme in Europe, has the modelling taken into account
any policy issue to replace that so that we recognise that whilst
we remain outside the euro—which may have some advantages—there
are disadvantages that agriculture is going to suffer, and therefore
should be addressed by the Government whilst we, in this country,
continue to remain outside the euro?
(Margaret Beckett) No, frankly, we are not looking
at any scheme to replace agri-monetary compensation. If I can
remind the Committee, agri-monetary compensation was not addressed
by our predecessors, and since 1997 the total sum of £785
million has been paid in agri-monetary compensation. As you say,
the scheme has now expired. We are not planning to pursue the
issue of an alternative and, frankly, I am not sure we would get
any agreement to do it any differently.
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