APPENDIX 17
Memorandum submitted by the Meat and Livestock
Commission (A22)
1. INTRODUCTION
Despite recent setbacks, farming continues to
make a substantial contribution to the rural economy, in terms
of employment and guardianship of the countryside. In many areas,
its significance to the community goes beyond its economic value.
Farming has an important social role to play in terms of bringing
communities together and providing a social network, and its fate
is closely linked to the morale and mood of rural communities
and their economies. Livestock production provides particular
biodiversity benefits, especially imperative to birdlife.
It is estimated that, 600,000 people are employed
directly in the livestock and meat sector in Great Britain. The
farm gate value of livestock amounts to about £4 billion,
and total consumer purchases of British red meat are valued at
over £11 billion. The red meat industry is part of a food
chain, which accounts in overall terms for almost 10 per cent
of GDP.
The UK agricultural sector has faced continually
changing conditions over the past century, and it has adapted
in response to the changing demands put upon it. However, the
past few years have seen a succession of poor or negative returns
for livestock enterprises. Today, farming stands at a crossroads.
The gradual shift away from production support payments to structural
and environmental payments is going to be a continual trend within
the Common Agricultural Policy, underpinned by the forthcoming
WTO and EU enlargement discussions. The decisions taken now will
be vital in influencing whether or not British agriculture, and
the rural economy in general, has a viable future. With the right
guidance, leadership and encouragement, we firmly believe it can.
2. PROSPECTS
FOR PRODUCTION
SUBSIDIES AND
QUOTAS
Although levels of support to EU agriculture
declined during the 1990s as a result of the negotiated reductions
under the GATT Uruguay round, average amounts for many sectors
remain relatively high as reductions in market price support have
been partially offset by higher direct income payments. The following
table shows changes in the value of cattle and sheep production
in the United Kingdom and the proportion accounted for by farm
measures.
The farm support element in UK production
| |
1998 | 1999
| 2000 |
| | £million
|
| Value of cattle production | 1,982
| 2,058 | 2,011
|
| Of which: farm support | 923
| 913 | 897
|
| % accounted for by farm support | 47
| 44 | 45
|
Value of sheet production | 1,130
| 1,001 | 982
|
| Of which: farm support | 479
| 408 | 349
|
| % accounted for by farm support | 42
| 41 | 36
|
EU pig meat production is much less subsidised than cattle
or sheep. Most of the support element has come in the form of
export refunds, the majority of which are not now being applied
(although they still exist).
Changes in global and EU policy are reflecting the fact that
priorities for major industrialised countries are less concerned
with conventional, production of food. This trend is reflected
by shifts in priorities for the subsidisation of primary production.
There is also a widespread perception that the CAP is too costly,
rewards the wrong producers and requires reform.
There is a willingness to subsidise primary production so
long as this results in goods and services that match the changing
needs of society. It could be argued that many of the CAP schemes
distort market signals and reduce transparency in the marketplace.
However, it is essential that any changes made are applied across
EU countries and not applied unilaterally in the UK.
Over the next 10 years there will almost certainly be further
significant declines in the production subsidies. There will be
three over-riding causes driving these changes:
— Further reductions in subsidies negotiated under
the Doha WTO round will kick in, probably from around 2005-06.
— The enlargement of the European Union to Eastern
European nations will allow entry to countries where agriculture
still represents a substantial part of the economy, and which
will still employ a large proportion of the population. I the
medium term these countries will provide exceptionally low cost
competition. Clearly prices in the present EU must fall closer
to the candidate countries' price levels, or the internal EU market
will be inoperable. In addition, the cost of applying existing
subsidy regimes to acceding nations would be prohibitively expensive.
— A shrinking share of EU GDP accounted for by agriculture
is likely to mean increasing pressures from urban consumers to
ensure spending is more in line with needs of the majority of
society.
3. DIFFICULTIES FACED
BY AGRICULTURE
The difficulties caused by the scaling down of agricultural
subsidies are impossible to evaluate precisely as they will depend
on many factors including the speed of change, whether there is
partial or complete elimination of production subsidies and to
what extent structural and environmental subsidies offset the
drop in production subsidies. Nevertheless there are a number
of areas where we can minimise any potential difficulties caused
by transition:
— Borrowing by the agricultural sector has, to a
large extent, been influenced by expectations of future subsidy
earnings. This should be borne in mind when considering any move
away from production subsidies to other types of support, or indeed
the gradual phasing out of support all together;
— A basic change in support measures will inevitably
result in short-term dislocations. It is important to minimise
these by structuring changes over time. When Less Favoured Area
(LFA) payments moved from headage to area-based payments, for
example, there were a number of winners and losers. There needs
to be careful consideration to assessment of the effects of redistribution.
Again, care is needed in transition;
— In terms of animal welfare standards it is particularly
important that the UK does not unilaterally introduce new standards
which make us uncompetitive against other countries, either within
the EU or internationally;
— If, as is likely, the overall impact of lower
production subsidies and higher agri-environment subsidies is
a lower level of total subsidy, farm incomes are likely to come
under increased pressure unless businesses diversify;
— This may contribute to further reductions in employment
on farms but an integrated response from all agencies is required
(see Table 1). It is important that encouragement is given to
facilitate alternative employment opportunities in other areas,
through re-training or re-skilling. Vocational training money
available through the English Rural Development Programme is a
good example of how this can be achieved.
— On a macro-economic basis, liberalisation of trade
is likely to involve lower domestic production and an increase
in net imports from lower-cost producing countries. There will
therefore be a cost in terms of the balance of payments.
4. OPPORTUNITIES FOR
AGRICULTURE
Although the move away from production subsidies could create
some potential challenges it can also be perceived as a springboard
for opportunity.
British livestock farms are generally larger and potentially
more efficient than those in many other EU countries (particularly
for sheep).
But a major problem facing the farming and food industry
across the European Union is the fact that primary producers,
particularly in the ruminant livestock sector, respond as strongly
to the availability of their farm support payments, as to market
signals. Clearly, therefore, a move away from the subsidy system
should help remove the culture of subsidy-dependence and could
encourage the agricultural sector reacting more directly to economic
fundamentals and to consumer demand trends.
Overall two major long-term opportunities arising from the
move away from production subsidies are:
— More responsive production systems able to respond
more precisely to changes in consumer demand. This is becoming
more vital as demand becomes ever more fragmented;
— A tighter, more technically-efficient supply chain
which will take costs out of the system and which should improve
the competitiveness of British meat.
What do consumers and taxpayers require from British farming?
There is undoubtedly a different frame of reference for urban
and rural dwellers faced with debates over the future of farming.
Both could reasonably expect a rural environment that is pleasant
to live and work in, and to travel to and from. Both could also
expect a rural economy that can support employment for those who
wish to live and/or work in the countryside, although this is
obviously more pronounced for those in the rural community. Increasingly,
we are seeing a desire for an environment that supports biodiversity,
and there is also growing awareness of global warming and other
environmental issues.
MLC consumer research shows that consumers expect the livestock
farming sector to:
— produce safe, nutritious, wholesome red meat;
— provide a diverse variety of acceptable livestock
production systems (without a frame of reference on which to base
these judgements);
— offer the choice between organic and traditional
farming methods, and between free range and more cost-efficient
methods, both of which should comply with guaranteed animal welfare
standards.
Consumers expect a wide choice of food products offered in
a variety of settings in cost, ease of preparation and taste.
They want value, safety, traceability and service.
Citizens could also expect those involved to receive a return
from farming and food production that reflects the investment
of effort made, and the opportunity to compete on a level playing
field within the European Union.
Regional products are becoming more and more popular as consumer
demands for choice and traceability increase. Regional products
can provide choice and added value for ever more demanding consumers.
As far as taxpayers are concerned, they expect good value
for money from the farming and food sectors. With the proposed
enlargement of the EU and the next WTO round, this issue is likely
to become more important and require further fundamental reform
at EU level.
Assistance to achieve the long-term goals
to help achieve these goals, both government and the Meat
and Livestock Commission need to act to promote change.
Responsibilities for Government
— To provide clear signals to the industry on future
policy changes;
— to support increased traceability right down the
supply chain;
— to ensure that competition is as fair as far as
possible throughout the EU, particularly in such areas as environmental
and animal welfare legislation;
— to incorporate £ sterling into the Euro at
a competitive rate for the industry (if the public vote for membership);
— to make use of EU support measures to encourage
change in industry practice (eg to encourage uptake of quality
assurance schemes);
— to review the educational needs of the younger
generation in the areas of food technology, preparation, storage
and safety;
— to ensure an effective import policy operates
to enforce food safety and animal health standards, and that this
is rigorously enforced.
MLC's Vision
"Within five years the industry will be part of a world-class,
trusted and efficient supply chain delivering a product preferred
by consumers."
This can be realised:
— by integrating the product and process specification
across the supply chain:
— enhancing product quality and consistency;
— developing a culture of risk assessment, risk
management and risk communication;
— strengthening sustainability, consistency,
traceability, welfare and disease control;
— building assurance across all sectors.
— by improving competitiveness through use of best
practice:
— supporting national, regional and local supply
chains;
— encouraging transparency and integrity in
supply chain relationships;
— encouraging co-operation and exchange of best
practice;
— delivering IT solutions to streamline paperwork
and bureaucracy;
— championing cutting edge technology and processes.
— by differentiating meat from Great Britain so
that consumers can make appropriate choices:
— developing and vigorously promoting key attributes;
— building brand values at home and abroad.
— by building business at home and abroad:
— keeping up the pressure to lift export bans;
— providing support to exporters to rebuild
businesses;
— developing new markets for British exports;
— business development in the food service and
manufacturing sectors.
A more detailed explanation of MLC's proposals is attached
in the Appendix [not printed].
14 December 2001
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