Select Committee on Environment, Food and Rural Affairs Appendices to the Minutes of Evidence


Memorandum submitted by the Farmers' Union of Wales (A37)


  1.  Since its creation, the Common Agricultural Policy has been continuously adapted and reformed in order to meet changing circumstances. The principles of the CAP were decided in the Treaty of Rome which established the European Community in 1957.

  2.  The central objectives prescribed for the agricultural policy under Article 39 of the Treaty of Rome are to ensure a fair standard of living for the agricultural community, stabilise markets, ensure reasonable prices to consumers, take account of the social structure of agriculture and of the structural and natural disparities between the various agricultural regions (The evolution of the CAP is shown at Annex 1).

  3.  The CAP was created at a time when Europe was in deficit for most food products. The strategy devised was aimed at redressing this situation, and mechanisms were implemented to support internal market prices and incomes, either through intervention, border protection, or through deficiency payments.

  4.  During the 1970s and 1980s, the prices and guarantees provided through intervention and production aids stimulated output at a rate beyond which the market could absorb production which resulted in the build-up of costly stocks. It led also to the EU having to dispose of surpluses onto the world market, with heavy export restitution payments.

  5.  Income support depended almost exclusively on price guarantees and the level of support was largely proportional to the volume of production so that the larger and most intensive farms tended to be the major beneficiaries of support, with, in the FUW's view, insufficient attention being paid to those with the greatest need within the agricultural industry.

  6.  By the late 1980s, the cost of the unreformed CAP was placing a major burden upon the budget without having a commensurate benefit in terms of protecting the interests of farmers. An analysis of Commission statistics for FEOGA Guarantee spending in 1990 indicated that less than 6.4 billion ECU of the total 26.527 billion ECU actually spent was paid directly to producers, the bulk of the budget—some 76% of the total—being paid to down-stream intervention operators or on export refunds.

  7.  Against this backdrop, the FUW recognised that the status quo was not tenable and that reform of EU agricultural policy in 1992 was inevitable. It was for this reason that the MacSharry proposals were perceived by the FUW as a basis for fundamental reform, and it favoured the principle of support price reductions coupled with reasonable compensation modulated in favour of smaller and more extensive producers, supplemented by supply control measures. Whilst the general principles of the package were retained, the final outcome reflected the various pressures on the Commission for compromise. The Agenda 2000 agreement has virtually eliminated market support in the beef and cereals sector and has enhanced the IACS based payments introduced in 1993.


  8.  Agriculture is regarded by the FUW as a core activity in rural areas with one in five jobs dependent on the sector. A viable agricultural industry is, in the Union's view, critical to the survival of Wales' rural areas and to the maintenance of the countryside. A further deterioration in the agricultural industry will exacerbate adverse socio-economic, environmental and cultural consequences. Support for the industry should be multi-functional.

  9.  80 per cent of the land area of Wales is designated by the EU as less favoured and the range of primary products is small based largely on milk, beef and sheep production, and the scope for diversification in these areas to other products is limited. Whilst the FUW recognises the decline of this traditional industry, it considers that a combination of measures to limit this deterioration, in tandem with a rural development programme aimed at creating both on-farm and off-farm employment opportunities compatible with other rural activities, will be essential if the fortunes of Wales' rural areas are to be reversed.

  10.  The FUW does not, however, accept that the agricultural industry should be perceived as an industry destined to decay and contract but that, increasingly, market orientated policies should enable it to take advantage of the increasing prosperity of Third Countries and the increasing demand that will emanate therefrom.

  11.  Whilst there is an understandable reluctance on the part of tax-payers to under-pin market price support, the FUW considers that decoupled support in the form of socio-economic support and support for environmental goods will be essential if the environment is to be maintained and if the well-established linkages with ancillary industries dependent on a viable agriculture are to be retained. The multiplier effect of agriculture on the rural economy is approximately 150 per cent. In the future, however, the FUW considers that there has to be reorientation of support—this should not be used as an avenue to reduce support—with it better targeted at the most vulnerable. The general objective should be to maximise the number of viable agricultural units, and to inhibit the polarisation of farms into very small and large amalgamated units, thus retaining the pattern of the Welsh countryside.

  12.  Supply and processing industries can only exist if farming continues. The recent foot and mouth crisis has also highlighted the dependence of tourism and recreational activities on a vibrant agricultural sector. Agriculture has a major multiplier effect since income generated by both farmers and ancillary industries is spent in the rural economy on goods and services provided locally.

  13.  Provided agricultural resources are effectively targeted and deployed, the FUW continues to believe that they can be an effective measure in combination with other methods of under-pinning rural communities.

  14.  Regional development programmes have an important role in sustaining the rural population, but as we have already emphasised, agriculture has to remain an integral part of this strategy.

  15.  The demise of Welsh agriculture would see not only the loss of agricultural employment but also the loss of potential employment opportunities both down and upstream of primary agricultural production. The FUW is committed to the creation of additional job opportunities consistent and conducive to rural areas created off the back of a viable agricultural industry and not the replacement of jobs lost to an agricultural industry left to decline. In this regard the FUW is concerned that, in the absence of other income-generating activity, the emphasis should not shift away from decoupled support expenditure which could further prejudice agricultural incomes.

  16.  The FUW recognises the increased priority being accorded to environmental objectives. The rural environment of Wales has been largely created and maintained by farmers, and it is the output of good farming practice of which people and livestock are essential management tools. Unless livestock production is profitable and incomes are reasonable, then the rural environment will be prejudiced.

  17.  Statistics show that the number of agricultural holdings in Wales is in long-term decline. Although this decline has stabilised in recent years, this masks a shift, at the one end of the size distribution, towards larger farms, and at the other end, towards smaller, part-time farms. Since 1980 the number of holdings of less than 10 hectares has grown by over 40 per cent and the number of holdings greater than 100 hectares has grown by nearly 60 per cent. During the same time period the number of holdings between 10 and 50 hectares has fallen by 30 per cent.

  18.  The EU Commission has acknowledged the need to reflect on how certain aspects of CAP policy management might be better shared within Member States. This recognition stems from an awareness that production systems vary widely both within and across Member States, a trend which may accelerate in the event of EU expansion. The FUW firmly believes that any national discretion should be devolved to regional administrations in order to ensure that the evolving CAP framework better reflects the particular circumstances which exist in the different regions of the UK.

  19.  The FUW is concerned that there has been a persistent failure domestically to assist young farmers in meeting the establishment costs associated with obtaining a foothold in the agricultural industry. This contrasts sharply with the position in other EU Member States. Clearly this distorts competition and places young farmers in the UK, who are the life-blood of rural communities, at a significant disadvantage when compared to their counterparts in other Member States. Installation/investment aids or subsidised interest rates have been a common feature of support for young entrants on the Continent and, given the traditional low return on capital invested in agriculture, have provided meaningful and tangible support at a time when young farmers can face a substantial burden of establishment costs.

  20.  The appreciation of sterling and the failure of successive Governments to provide agri-monetary compensation, to which Welsh and other UK farmers have been fully entitled, has left the industry contending with support prices down by as much as a fifth and with adverse trading conditions in both import and export terms. During the past 10 years, farmers have also been forced to contend with an increasing burden of paperwork and controls which are not always applied with the same vigour in other EU Member States.

  21.  Whilst household expenditure on food is increasing, the gross output of agriculture in proportion to the expenditure on food by households continues to decline. This phenomenon is clearly shown by retail price spreads which illustrate the declining share of consumer expenditure on food which returns to the primary producer (Annex 2). Of those foods which can be produced in the UK, 70 per cent of the raw materials are supplied by UK agriculture. This compares to the period before the Second World War when over 70 per cent of such food was imported.


  22.  The 1998 reform of the structural funds was the beginning of a more integrated approach to regional development, a policy move which had significant consequences for the EU's rural communities. Assistance to priority regions was channelled through national or regional programmes agreed between the Member States and the Commission. Rural development measures were integrated into these programmes. In 1993 the special needs of rural areas received further recognition in the Treaty of Maastricht which stipulated that, "the community shall aim at reducing disparities between the levels of development of the various regions and the backwardness of the less favoured regions, including rural areas".

  23.  Rural areas make up some 80 per cent of the EU's total land area and are a home to a quarter of its population. The Agenda 2000 reforms brought about a major re-think in the way rural development programming was organised at a community level. EU funding is now available for rural development programmes everywhere in the community, instead of being only available in designated regions, as in the past. A second new feature of the rural development programme is that all Member States must now operate agri-environmental schemes.

  24.  The EU's contribution to Rural Development in individual Member States was based on historical take-up of the rural development budget (Annex 3). The UK Government's unwillingness to take advantage of these measures has cost the industry dearly as the UK share of the EAGGF/guarantee section is a mere

154 million or 3.5 per cent of the total budget. This compares with

315 million in Ireland (7.3 per cent of the budget) and

760 million in France (17.5 per cent of the budget). By way of contrast, the UK generates 8.7 per cent of the EU's final agricultural production (1999 figures) as compared to a figure of only 2 per cent in Ireland. The FUW believes that this allocation should be the subject of urgent review and EU funding should be distributed more equitably between Member States.

  25.  The lack of available funding has resulted in modulation being applied across the board on CAP support scheme monies paid to UK farmers. This money is match-funded by the Treasury. However, the European regulation states that modulation should only be applied if:-

    —  The labour force on holdings falls short of limits set by Member States.

    —  The overall prosperity of holdings rises above the limits set by Member States—expressed as standard gross margin corresponding to the average.

    —  The total amount of payments under support schemes exceeds limits set by Member States.

  26.  These criteria suggest that the blanket reduction in subsidy payments is contrary to the spirit of the EU's policy of allowing Member States to stabilise the employment situation and overall prosperity of holdings.

  27.  The FUW is particularly concerned that whilst the "top slicing" of subsidy payments may generate substantial levels of funding for accompanying measures in areas where the farms are larger and less subsidy dependent, the situation in Wales is one in which modulation has a significant impact on farm income. Welsh agriculture is, by its geography, climate and topography, subsidy dependent and thus in LFA areas every 1 per cent reduction in direct farm subsidy reduces net farm income by 1.5 per cent.


  28.  The FUW supports the National Assembly Government's position on further World Trade agreements and the need for international trading systems to have proper standards and effective labelling systems based on minimum standards of animal welfare and environmental practice. The FUW also believes that rules designed to prevent imports of meat which may be a risk to human or animal health should be strictly enforced and tightened.

  29.  The World market for food continues to grow as more countries pass through the early stages of industrialisation. This generates a tendency for larger quantities of meat products to be included in diets which had previously been predominantly vegetarian. The populations of those countries which are now moving through the early stages of industrialisation are much larger than already affluent countries. Given this scenario, a significant increase in the overall growth of world demand for food is likely.

  30.  Climatic change is also likely to have an impact on future food production. Over-dependence on imported food exposes the country to the threat of uncertain food supply given the potential damaging consequences of the global warming phenomenon. Furthermore, this factor, combined with policies imposed on farmers to reduce the impact of farming on the environment and concerns that existing technologies may not be able to sustain yield in some developing countries, all point towards less secure food supplies.

  31.  The EU is the world's leading importer of agricultural products and is the second leading exporter after the United States, with two-way trade in agricultural products exceeding

100 billion per year, or close to 7 per cent of total trade flows.

  32.  The conclusions of the 1986-94 Uruguay round provided for further talks on agricultural trade liberalisation to start in the year 2000. During the course of 2000, WTO members submitted their negotiating positions, and the EU position was agreed by the General Affairs Council meeting in December 2000.

  33.  As far as domestic support is concerned, the EU position has been that rules on domestic support should facilitate a continuous process of reform. The FUW believes that the impact on trade of the so-called blue and green box measures has proved to be less trade distorting than market price support and payments based on output or on variable input use.

  34.  The FUW believes that the role of agriculture as a provider of public goods should be recognised. In this context, the multi-functional role of agriculture, which includes its contribution to sustainable development, the protection of the environment, the sustained vitality of rural areas, and poverty alleviation, need to be taken into full account. The FUW would also support the EU proposal that specific measures, such as the use of the precautionary principle in circumstances where there are concerns about food safety and the need to ensure that trade liberalisation does not undermine efforts to improve the protection of the welfare of animals, are also integral to the next WTO agreement.


  35.  EU enlargement is cited by many commentators as a major stimulus for a reform of the CAP. However, at a recent debate hosted by the Centre for European Reform (CER), the EU Agriculture Commissioner, Franz Fischler, stated that enlargement could be accommodated within the agreed EU budget.

  36.  The EU Commission maintains that the accession of up to 10 new members in 2004 could be achieved without changing the financial framework agreed at the Berlin Summit. The 10 candidate countries preparing to join the European Union would bring with them a potential 100 million new consumers. Should all 10 accession candidate countries join, the agricultural workforce would increase by around 55 per cent and agricultural land by some 25 per cent.

  37.  The economies of the accession candidate countries are characterised by greater dependence on agriculture than is the average for the EU. Farming accounts for some 2.4 per cent of EU GNP and employs 5.3 per cent of the Union's active population, whereas the equivalent figures in the central and eastern European countries are 9 per cent and 22.5 per cent respectively.


  38.  Commissioner Franz Fischler has publicly confirmed that next year's mid-term review of the seven-year reforms agreed in 1999 is not intended to result in the wholesale overhaul of the CAP. In a recent presentation to the European Parliament, Commissioner Fischler confirmed that the reviews will focus on sectors most immediately prone to problems, namely beef and rye. The focus on the beef sector has stemmed from the increasing surpluses as a result of the BSE crisis which will result in intervention stocks climbing to around 350,000 tonnes by the end of 2001, and a predicted 560,000 tonnes surplus by the end of 2002.

  39.  The FUW is of the view that supply controls in the form of quotas are a more sensible means of combating production than free market forces. Were milk quotas to be removed, there would be a swift and substantial rise in the volume of production which would not only add to the EU's surplus but would also drive market realisations down to unreasonable levels. The typical family dairy farm in Wales would, in the Union's view, be particularly vulnerable, especially now that the market has been deregulated. In the absence of milk quota, dairy companies would seek to source increasingly from milk suppliers proximate to creameries and markets, leaving those milk producers remote and distant from the market-place without an outlet for their production.

  40.  The FUW believes that if subsidies are going to be further decoupled from production levels in the year 2006, then the revised framework must have regard to historic production. The switch from headage-based to area-based support in the LFAs (HLCAs to Tir Mynydd Scheme) has had a major impact on the economic viability of many traditional family units. Were this switch to occur with mainstream CAP support, then the consequences for the more intensively stocked family farms would be devastating.

  41.  The FUW considers that future CAP reforms must seek to secure the maximum number of viable family farms, with a view to safeguarding not just the agricultural industry but also downstream ancillary and upstream value-added activities that have implications for the wider rural community and rural infrastructure which will enable European agriculture to fulfil multi-functional production, socio-economic, environmental and cultural roles.

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