Select Committee on Environment, Food and Rural Affairs Ninth Report

CHAPTER 7 - LIST OF CONCLUSIONS AND RECOMMENDATIONS

Main lessons of our inquiry

(a)  It is evident that production subsidies and direct payments to farmers - in other words, support for farmers for being farmers - will be reduced over a period of years, even if they do not disappear with the inevitability some have predicted and that export subsidies will ultimately have to go. We strongly welcome that development (paragraph 9).

(b)  The main lesson of our inquiry is that it is the primary role of farmers to produce food that consumers want, and to do so in a competitive and open marketplace free of production or trade-distorting subsidies, and without undue restrictions on their freedom to operate. We believe that such a situation presents the best way for farmers to reconnect with their market, and to become competitive, profitable and confident (paragraph 9).

(c)  We therefore strongly support moves towards reducing restrictions and cutting subsidies. The more the marketplace for farmers can be liberalised, the better able they will be to respond properly to signals from it, as is already the case for pig, poultry and horticultural producers who currently have no support from a subsidy regime (paragraph 10).

(d)  As a rule, we would expect new policies to be phased in or support for agricultural production to be phased out in a manner that had been announced well in advance of any change. In general we believe that any further assistance would be unnecessary. If, for any reason, adequate notice is not given or new developments cannot be phased in, we believe that the case for short-term degressive transitional aid should be examined (paragraph 11).

(e)  In our view, interventions in agricultural markets, whether in the food or non-food sectors, in the future should be made within the following framework:

·  an assessment of the problem the intervention is addressing should be made, whether or not a short-term problem or structural issue is being tackled should be made clear;


·  the desired outcome of the intervention should be made known and clear approaches detailed to allow an assessment of the effectiveness of the intervention;


·  if financial support is made available, clear indications must be given about the length of time for which such support will be available;


·  there must also be absolute confidence that reform is consistent with our international obligations;


·  while it is unrealistic to expect every policy instrument to be mirrored elsewhere in the European Union, reform should allow for the international competitive environment within which much of United Kingdom agriculture operates;


·  any interventions should, as far as possible, be consistent with fostering an entrepreneurial culture - competition for support and rewards for effectiveness are legitimate features of programmes; and


·  there needs to be an appreciation of the impact on the wider rural economy (paragraph 12).

(f)  In the light of the economic and other factors affecting the future of farming the Government should commission an annual financial assessment of the state of British farming which goes beyond simply looking at farm incomes. Its production should involve representative bodies from across the food chain, as well as the industry's bankers. Such a document could form an objective basis against which to judge and assess the possible effects of future policy proposals (paragraph 44).

(g)  We believe that the Government should underpin its objectives with a commitment to ensure that its actions do not undermine British farmers within the European market place and policy environment in which they operate; and also that entrepreneurial farmers are not penalised by bureaucracy and regulation not faced by other businesses (paragraph 110).

Domestic matters

(h)  The Government should outline the progress that has been made on all the recommendations of the Red Tape Working Groups, particularly in respect of those which required negotiations at European level. It should now offer the Working Groups a further opportunity to comment on progress against their recommendations (paragraph 105).

(i)  We recommend that the Government indicate how, if at all, it intends to take forward the recommendations of the Hills and Inputs Task Forces (paragraph 106).

Agri-environment

(j)  The phrase 'public good' tends to be used as if its meaning were self-evident. Politicians speak of what 'the public' or 'the consumer' will or will not put up with. The fact is that 'public goods' are, in practice, defined by pressure groups which each have their own definition of what the public good is. They are not necessarily compatible with each other. Nor is it easy to set a price on a public good and to establish mechanisms for the delivery of such goods which permit both a light-touch management and meaningful measurement. We are extremely sceptical about the way in which the term 'public good' is used to justify public support for an array of different schemes and projects (paragraph 153).

(k)  We do not accept the arguments of those who argue that losing farms and farmland is inherently bad: the cost to the public of continued financial support must be balanced against the loss of whatever 'public goods' the farm may provide and the benefits that alternative use might bring (paragraph 154).

(l)  We support payments to farmers to convert to organic farming provided that the payments made are 'one-off' or for a very short period of time, and provided that the decision to switch to organic methods is justified by a strong business case. Any ongoing payments should be related to a farmer's participation in other schemes linked to specific outputs and not to being an organic producer. Although opportunities remain for farmers in the organic sector, conversion payments should not be used to permit inefficient and unprofitable enterprises to stay solvent. Above all, organic production should not be seen as a panacea for the ills of British farming (paragraph 140).

(m)  The Government should publish an annual report [about agri-environmental schemes] detailing their take up and evaluating their effectiveness (paragraph 143).

(n)  We recommend that existing agri-environmental schemes are simplified, making it as easy as possible for farmers to benefit from them (paragraph 169).

(o)  Animal welfare concerns can rightly be addressed through policy mechanisms; but, if society is really concerned about the issues there will also be responses in the marketplace. These are best facilitated through obligations to provide better consumer information in­store and on labels (paragraph 175).

(p)  Agriculture has the potential to assist society in terms of reducing carbon dioxide emissions, for example, through the production of 'green' bio-fuels. The issue is whether this can be done at a reasonable cost. The Government should consider the role that agricultural production can play in reducing carbon emissions in the Energy White Paper (paragraph 96).

The Policy Commission

(q)  We need particular reassurance that the introduction of a 'broad and shallow scheme', open to all farmers, will not mean that farming ends up no more able to respond to its marketplace than it is now. The introduction of a broader definition of the role of agriculture in the rural economy should not blur the continuing need for farmers to produce food and other crops which consumers want (paragraph 164).

(r)  Given the widespread support for Pillar II measures from non-agricultural non-governmental organisations, and the increasing support from within the farming industry, we fear that Pillar II could over time become as insensitive to the need for change as Pillar I. Pillar II measures must be constructed in such a way as to be consistent with and support, if possible, entrepreneurial farming (paragraph 164).

(s)  The Policy Commission set out to make recommendations on the basis of the current level of public support going to farmers. Given the relatively brief time it was given to report in this was perhaps inevitable. However, it is not clear that the cost of providing agri-environmental 'goods' will, or should, be exactly the same as the existing costs of supporting agriculture. In shaping its response to the Policy Commission we wish to see the Government set out clearly what it means by 'public goods' and how it assesses the demand for them, and their costs, as well as the role that the marketplace and regulation should play in their delivery (paragraph 165).

(t)  The Government has said that it will conduct trials of the 'broad and shallow scheme' before the full project is 'rolled out'. These trials really must be attempts to see if the project delivers value for money, environmental gains, easier administration, and the ability to be flexible as circumstances change. The Government must make clear that one of the consequences of the trials could be to abandon the project as failing on the above counts (paragraph 170).

(u)  We recommend that during the pilot of the 'broad and shallow scheme' the Government regularly analyse and publish the results of the scheme. It should set out at an early stage the criteria against which its success or otherwise can be measured. 'Rolling out' the scheme should not be automatic, but should instead be determined by whether or not it has proved to be good value for money (paragraph 250).

(v)  If the 'broad and shallow scheme' is supposed to 'save' agriculture then it is in danger of providing support which substitutes itself, in part, for the marketplace. If it is set at a minimalist level it is difficult to see how it will represent real 'public good' value for money or make a real difference to farm income. We therefore believe that the approach to achieving good farming practice suggested by the Environment Agency - one-off or short-term payments in order to obtain particular improvements which are then maintained through regulation - be thoroughly evaluated alongside the proposed 'broad and shallow scheme'. However, we recognise that increased permanent regulation can be as much a barrier to market concentration as subsidies. Such an approach is, we believe, entirely compatible with the proposals relating to cross-compliance made by Commissioner Fischler in the Mid-Term Review (paragraph 166).

(w)  Cross-compliance rules could form the bottom tier of an environmental scheme without the costs and whole-farm audit requirements of the 'broad and shallow scheme' (paragraph 168).

International trade issues

(x)  Protecting trade on the grounds of ensuring self-sufficiency in food production is an outmoded concept in a globalised world. The Secretary of State should continue to assert within the European Union that the best way of ensuring food security is through improved trading relationships (paragraph 93).

(y)  The European Union should reaffirm its commitment to maintain the Doha timetable for liberalisation of world trade in agricultural products (paragraph 120).

(z)  We condemn the passage of the United States Farm Security and Rural Investment Act as making the liberalisation of farm trade more difficult. It represents a clear policy of providing production subsidies, moving in precisely the opposite direction to the way we would want the world to go and the way the European Union is proposing in the Mid-Term Review proposals. The Act will give comfort to those within the European Union who oppose serious CAP reforms and will dismay developing countries who have a vital stake in world trade liberalisation in agricultural production. We urge the Government to continue its representations to the United States setting out concerns about the Farm Act in the most unequivocal terms. Equally we urge the Commission to continue to argue that developments in the United States give the European Union an opportunity to set the agenda for liberalisation for the first time in an international forum rather than being dragged into accepting the need for change as happened in the Uruguay Round (paragraph 115).

(aa)  We cautiously welcome more recent proposals by the United States Government which appear to recognise the damage done by the Farm Act and to position the United States again as on the side of reform. These proposals warrant close inspection, however, to ensure that they will lead to the level playing field sought by all sides in the World Trade Organisation negotiations, since crude comparisons of levels of support do not necessarily give a clear idea of the degree and quality of state backing for farming (paragraph 117).

The marketplace

(bb)  The world market for agricultural products has changed, and is increasingly volatile. But there will be opportunities for British farmers in the future if they adapt to the needs of the marketplace ... It is for Britain's farmers to develop a closer knowledge of developments in their marketplace - particularly in the European market of 375 million consumers (paragraph 201).

(cc)  The key question then is how British farmers can become more intimately involved in the food chain and ultimately secure more value for the product they produce as a result of better integration within the food chain (paragraph 205).

(dd)  It is a mistake to argue that the United Kingdom can never compete in a free marketplace with North American producers: Kansas cannot feed the world, and there is room for efficient European producers in the world market - although the success of British farmers will be affected by the regulatory regime in which they operate, and their adoption of new technologies in an increasingly competitive market success requires innovation, flexibility and fleetness of foot, not the inertias and rigidities of a production system distorted by subsidies (paragraph 242).

(ee)  We believe it is essential that links and trust between farmers and those intermediaries, particularly retailers, are restored and reinforced . Messages to farmers are delivered mainly by the supermarket chains which need to respond rapidly to the preferences of consumers. We saw for ourselves, both in New Zealand and more importantly in East Anglia, that even though it is not possible for farmers to control the market for food it is possible for them to gain a good understanding of what consumers want, to respond to that and be rewarded for it, although this necessarily involves taking risks (paragraph 244).

Adding value and communication

(ff)  The Rural Enterprise Scheme has a role to play in the development of local food initiatives, but it remains the case that the true basis for success is producing something that the consumer wants. Creating regional or national food brands may be a more fruitful way of exploiting local identity, though producer organisations like co-operatives have traditionally lacked the financial muscle to be able to develop and promote new national brands (paragraph 210).

(gg)  Selling local products either to retailers or directly at farmers' markets will benefit farmers. But local food initiatives are not a universal panacea (paragraph 245).

(hh)  There may also be considerable merit in building up regional or even national brands. Doing so may allow more value to be passed to the farmer. Such projects are likely to be easier to pursue if a more sensible attitude is taken to collaboration and co-operation between farmers. Too often a regional product is defined as one with a purely local circulation. The real meaning should be a product on national (or international) sale which has a clear regional identity which earns a premium - a high proportion of home-produced foodstuffs in fact have a national sale on the basis of a strong regional identity, including many cheeses, and some meat (paragraph 245).

(ii)  We hope that the Food Chain Centre will find a way of communicating information fully and in a useful way to farmers and to all other participants in the food supply chain (paragraph 225).

(jj)  We accept that the Food Chain Centre needs to get off the ground but believe that would be far easier if the all those involved in establishing, steering and running it knew what the Government wanted it to achieve. It is also important that the Department for Environment, Food and Rural Affairs has a clear system in place to assess whether it is getting good value for the public money it is investing. Therefore the Department should set out how it will judge the success of the Food Chain Centre and what criteria it will use to decide whether or not to continue funding the Food Chain Centre, if it is permitted to do so by the European Commission (paragraph 226).

(kk)  If robust systems for traceability continue to be put in place in this country the United Kingdom will enjoy a competitive advantage over countries which are slower to ensure that traceability is of central importance (paragraph 227).

(ll)  It is quite possible that United Kingdom agriculture is better equipped to ensure reliability of supply than competing industries in other countries. This may provide an opportunity for British farming to exploit in partnership with customers and other suppliers (paragraph 228).

(mm)  Assurance schemes offer another opportunity to British farmers. If properly promoted they can be very effective as marketing devices, allowing consumers to understand better the products that they buy. However, it would be helpful if there were common standards to the various elements to aid both transparency and compliance (paragraph 230).

(nn)  Some rationalisation of the number of farm assurance schemes would be welcome. Farmers themselves will need to reach decisions on how many and which assurance schemes they want to participate in, but to do so they will need adequate information about the costs and benefits and consumer perceptions of such schemes. We believe the provision of such information is something that either the Food Chain Centre or the English Collaborative Board could undertake and suggest that the whole food chain initiates such a study (paragraph 248).

Collaboration

(oo)  It seems to us that both the CAP and the European single market mean that decisions about competition issues should at least take account of the wider European market rather than just the domestic market (paragraph 215).

(pp)  It is important that Government look at farming co-operatives in the light of global rather than domestic circumstances, and in particular on the basis of the resources and capabilities of other European co-operatives (paragraph 221).

(qq)  The Government should clarify what it considers to be the marketplace for British farmers. It must then address the nervousness felt by farmers about the attitude of the competition authorities towards co-operative enterprises, making clear that it looks at farming co-operatives in the light of global rather than domestic circumstances (paragraph 246).

(rr)  The speed with which the farming industry has responded to the recommendation to take forward the English Collaborative Board is commendable. It is crucial that the industry has ownership of the solutions to its problems and believe that the positive but very limited involvement of the Government in this initiative is helpful (paragraph 247).

(ss)  Should an English Collaborative Board be established it should have clear objectives and appropriate governance rules reflecting its industry accountability which can be monitored. It should analyse both best practice and failure (such as amelca) and disseminate its findings (paragraph 221).

Reducing risks

(tt)  With appropriate attention to detail farmers could benefit from selling their livestock on a contract basis: doing so is likely to bring them far closer to the marketplace, and will reduce risks (paragraph 233).

(uu)  As we have said, the best way to reconnect farmers to their market is by reducing the number of links in the food chain. In such circumstances it is inevitable that livestock, for example, will be increasingly sold directly by farmers to retailers or processors in a long-term contractual relationship. The need to improve and maintain biosecurity through measures such as the 20-day standstill (which is heavily contested and subject to different approaches in Scotland and England which the Government has signally failed to explain) also suggests that fewer sales will be made at livestock markets (paragraph 254).

(vv)  The Meat and Livestock Commission should monitor total annual returns to livestock farmers selling on a contract basis with those selling at market (paragraph 254).

(ww)  We therefore recommend that the Government explore, with the European Commission and other European Union Governments, whether the registering of keepers of livestock (for example, through imposing cross-compliance conditions on farmers and through the proposed audit of farms) could play a role in creating a new confidence between consumers and farmers (although we recognise that some keepers of livestock are not subsidised and that therefore not all aspects of these recommendations could be accommodated through cross­compliance) (paragraph 256).

(xx)  We further recommend that the agriculture industry is consulted about the design of assurance schemes which would incorporate the proposals of the Royal Society (paragraph 256).

(yy)  We believe that discussions over insurance should move forward as quickly as possible, and that they should explore all possible routes of funding disease insurance packages, such as levies and fixed compensation payments (as is already the case for BSE, for example). There may be a legitimate role for some public sector contribution toward establishing a market in these products, reflecting the substantial human and animal health concerns of the public. In the case of changing market risks, which have arisen because of policy changes, we believe that ultimately it should be the responsibility of individual farmers to decide how to manage the market risk they face (paragraph 239).

(zz)  We are cautious about endorsing the Policy Commission's call for a safety net, even at European Union level. If, as we envisage, marketing of agricultural production is increasingly to take place on the basis of long-term contracts between producers and processors or retailers, risk will be reduced. Furthermore, the intervention system that led to the build up of expensive stocks was originally designed with similar objectives (paragraph 240).

Scientific research

(aaa)  We support the Royal Society's recommendation that an additional £250 million be spent on livestock research over the next ten years, and strongly endorse its call for a strategic review of how livestock disease research is managed. We believe that while DEFRA should play an important part in this review it should be led from outside the Department. We also support the proposal that research spending be directed towards possible future risks, many of which, it appears, currently are minimally researched (paragraph 258).

(bbb)  The Government should examine how it can improve the attractiveness of the State Veterinary Service, and particularly how it can better support education relating to the veterinary care of farm animals (paragraph 259).

(ccc)  We welcome the establishment of the Chief Scientific Adviser's Group. Arrangements concerning the role of the group should form part of future contingency plans (paragraph 260).

(ddd)  It is important that we gather as much information from this mass of data as we can, and that the data is shared as rapidly as possible with the wider scientific community so that we can continue to learn from our experience. Government has not always had a satisfactory record in allowing access to its data. It is critical that this is not the experience of those seeking to research aspects of this outbreak. The Government should define, in partnership with both scientific and farming stakeholders, the data that would assist in the analysis and management of any future outbreak (paragraph 261).

(eee)  It is important that the Government, as part of its planning for infectious disease control, has rapid access to a full range of potential models and to the expertise needed to make appropriate use of them, and that it invests in the development of these tools (paragraph 262).

Spending review

(fff)  We note the money allocated to the Department for Environment, Food and Rural Affairs in the recent spending review. However, we are not clear that it is adequate to cover the cost of the Policy Commission proposals (paragraph 250).

The Mid-term review

(ggg)  The Mid-Term Review proposals will now be considered by member states. Discussions of them will continue until agreement is reached next year. Negotiations over the proposals will inevitably prove to be difficult. We have already begun our own analysis of the proposals, and we will report on them in due course. They are obviously of vital importance in shaping the future direction of farming in the United Kingdom (paragraph 281).

(hhh)  The dairy regime will operate in its current form until 2006. We are disappointed by the failure of the Commission to make concrete proposals for its reform (although they were not obligated by Berlin until 2003), particularly in respect of milk quotas. We firmly believe that now is the ideal time to bring forward proposals to change the dairy sector policy so that dairy farmers can operate in a marketplace unencumbered by quotas and have an adequate period of transition to a new regime (paragraph 271).

(iii)  We are also disappointed that the sugar regime is not mentioned in the Mid-Term Review proposals. The implications for European farmers of the laudable Everything But Arms proposals, to allow greater access to European Union markets for sugar imports from developing countries, must be properly examined (paragraph 272).

(jjj)  The core of these proposals - commuting payments into a single sum - has a long pedigree, not least in ideas developed in the United Kingdom by agricultural economists such as Sir John Marsh and Professor David Harvey for a bond of entitlement to be issued to farmers. The idea of the cut-off point is also familiar terrain designed to address the complaint that the big farms get the big money. This ceiling is certainly negotiable. The degressivity is a welcome part of the proposals (it will be fiercely resisted by some European Union Governments) though the United Kingdom would like to see the possibility of more extensive reductions. The proposals are compatible with a pro-active stance in the WTO talks and will probably assist the process of enlargement where the European Union 'offer' to accession states is based on a single payment to farmers. The Commission dismisses somewhat unconvincingly the criticism that the payment will serve to buttress the inflation of land values above their inherent worth (paragraph 274).

Modulation

(kkk)  The proposals made by Commissioner Fischler in respect of modulation move in the same direction as the recommendations of the Policy Commission, although using different and more radical mechanisms. We are strongly in favour of compulsory modulation in order to maintain the framework of a common policy within the internal market (paragraph 277).

(lll)  The Government should study the impact of changing levels of direct payments on the attractiveness of enterprises which do not receive direct payments under various scenarios of modulation (paragraph 278).

(mmm)  The Government should strongly support the proposal for compulsory modulation across the European Union but not the centralisation of the Rural Development budget. If, at the end of the Mid-Term Review process, compulsory modulation is not agreed by member states, attention needs to be paid to the effect increasing modulation rates unilaterally will have, including differences of approach within the United Kingdom (paragraph 278).

(nnn)  The Government should produce a clear indication of the redistributive impact of modulation within England and seek the same information from the devolved administrations elsewhere in the United Kingdom (paragraph 278).

(ooo)  The impact of such a development [increasing modulation] is something which the Government must consider, and it should produce a report showing who the 'winners' and 'losers' would be under the proposed modulation schemes (paragraph 69).

Implications for the Policy Commission

(ppp)  It would be difficult to proceed to a full implementation of the Policy Commission recommendations without a clear idea of their relationship with the policies which will emerge from the long and complex negotiations of the Mid-Term Review. However, the differences in timetables of the Mid-Term Review and the Policy Commission would give the Government the opportunity to conduct trials on the basis of the 'broad and shallow scheme'. It has already announced that it will pilot the 'broad and shallow scheme' over the next two years. We recommend that the pilot project be used to examine what the practical impact of the scheme would be, and whether it was value for money, with an aim to have derived preliminary conclusions before any European schemes are brought forward (paragraph 279).

Prospects for change

(qqq)  We share the Government's view that CAP reform should be rapid and it should be radical. In order to open up for farming the full benefits of the market, however, CAP reform must go well beyond the reduction of subsidies. Restrictions and distortions caused by the CAP, such as quotas, the impact of 'set-aside' payments on land prices, and their effect on input prices, must also be addressed. We trust that the Government will put down markers on these issues in the Mid-Term Review process, although we accept that the Review itself is limited in scope and that Commissioner Fischler has already pushed it well beyond most expectations (paragraph 280).

(rrr)  In 2006 there will be another - perhaps greater - opportunity for substantial reform of the CAP. That prospect makes it all the more important that the Government make clear to farmers what direction it envisages those reforms taking. Farmers themselves should be aware that the Mid-Term Review process will not be the end of reform of the CAP (paragraph 121).

(sss)  Any changes to the CAP should not lose sight of the need for Europe to have a cost efficient farming industry. In drawing up its reform proposals the Commission must show that it recognises that the size of a farm can have a marked effect on the cost of production and so schemes that might be biased against larger British farms may damage prospects for European agriculture as a whole (paragraph 275).

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Prepared 6 November 2002