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12 Feb 2003 : Column 973—continued

Mr. Deputy Speaker (Sir Michael Lord): I must tell the House that Mr. Speaker has selected the amendment in the name of the official Opposition.

6.52 pm

The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Mr. Elliot Morley): I beg to move,

The European Commission's proposals on common agricultural policy reform, published on 22 January, give us a real opportunity to set down a sustainable basis for European agriculture policy. As we said in response to the Commission's initial discussion document last July, the Government strongly support the direction of those proposals. They will enable us to lay the foundations for a sustainable and internationally acceptable CAP, which will command the support of all stakeholders in the enlarged European Union. However, we have some significant criticisms of the package—I will come to them later—but we believe that, in general, the reforms are going in the right direction. Of course there is much work to be done before we can be sure that we have fully evaluated those proposals. Finding a fair, practical and acceptable outcome will not be easy.

Against that background, there are three key points on which I want to focus: the importance of securing changes to the CAP that bring real benefits to all our farmers; the importance of the EU taking a strong and

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forward-looking stance in the World Trade Organisation negotiations; and the need to take account of the wider international context.

We must take this opportunity to reform if we are to avoid further environmental damage, regenerate our rural areas and support our farmers in ways that allow them to plan ahead with confidence. There are real benefits to United Kingdom farmers in those proposals. In particular, decoupling support from production will be a massive advance for us, not least because it will improve the financial position of farmers. They will continue to receive much the same level of support as they do now, but they will no longer have to stick to certain production patterns to do so. As a result, they will be free to optimise, rather than being driven to maximise, their output. Of course they will have a great deal of flexibility in their businesses.

Decoupling will have wider benefits, too. Our farming will come closer to its markets, and it will be more efficient and more environmentally sustainable, as well as being more profitable. Research commissioned by my Department and by the Commission concludes that incomes will rise as a result of decoupling. The CAP will be simpler to administer because of the major reduction in bureaucracy that will follow these proposals. Reducing the overregulation of farmers is a key outcome that we should aim for.

Decoupling will lead to changes in farming practices. In some cases, those changes may be significant, or have significant effects on upstream or downstream activities. The implications for extensive beef production in some parts of the European Community—including the less favoured areas—are one area of concern. We will have to explore flexibility in the regulations as a way of dealing with specific sectoral or regional problems.

Agriculture is both the prize and the stumbling block in the WTO Doha development round. The EU should seize the initiative and put pressure on the United States and others to change their protectionist policies. A good outcome on agriculture will unlock a wide range of opportunities for developing countries. By contrast, stalemate in agriculture could put the round in jeopardy and therefore deny us the gains that we could make in agriculture and in other sectors. Delay, evasion and prevarication are not in our interests. We must acknowledge that September's WTO ministerial meeting in Cancun is a real deadline. We must prepare for it accordingly.

David Taylor (North-West Leicestershire): The Minister refers to the widely welcomed change in direction that will lead to decoupling of payments. However, there are risks associated with that, as I am sure the Minister would agree. One particular risk is land abandonment. How might that risk be tackled?

Mr. Morley: My hon. Friend asks a reasonable question. If there are direct payments, issues to do with stocking arise. I think that my hon. Friend is alluding to that. We can deal with such problems through our agri-environmental approach. On some issues, such as upland management, the agri-environmental approach can be a more appropriate management tool than

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production support, which can distort markets and cause all sorts of problems. I assure my hon. Friend that we will take his concerns into account.

Andrew George (St. Ives): Will the Minister give way?

Mr. Morley: Briefly. I want to keep my contribution brief because this is a brief debate.

Andrew George: I appreciate the Minister's willingness to give way. Following the previous intervention, I wonder whether the Government have made any assessment of the impact, on tenant farmers, rents and land values, of decoupling and direct payments to the farm simply for being a farm. Is the Minister concerned that there could be a hike in rents and land values that would put many tenant farmers in difficulty?

Mr. Morley: Some of the effects of decoupling are unknown. It does not necessarily follow that there will be a sharp hike in rents. There are changes in the proposals that would benefit tenant farmers. I am sure that we will touch on them in the debate. We will have to think carefully about certain issues and I accept that the proposals contain some unanswered questions. We will continue to debate such points among ourselves and in consultation with farming representatives.

We must not overlook the wider international dimension of CAP reform. Seen from the point of view of developing countries, our policies—and those of the US and other developed countries—deny them the opportunity to exploit their natural competitive advantages and trade their way out of poverty. CAP reform has to be part of the EU's efforts to help the poorer countries of the world to improve their lot. For all those reasons, the Government broadly welcome the proposals. However, we have a number of significant concerns that need to be addressed. I will run through them.

Mrs. Gillian Shephard (South-West Norfolk): Will the Minister give way?

Mr. Morley: I will, but I will make this the last intervention.

Mrs. Shephard: The Minister knows the concerns of sugar beet farmers. He is talking about careful negotiations at the WTO. What words of comfort has he for sugar beet farmers—on alternative uses of sugar beet, for example? Sugar beet production may be phased out in this country.

Mr. Morley: As the hon. Lady knows, changes will inevitably occur in the sugar regime. The agreement on the sugar regime means that it will run until 2006. However, we cannot ignore the implications of decoupling for the sugar regime. I agree that there is an important role for sugar in industrial crops, such as ethanol fuels and in other forms of industrial production. I know that research programmes at the Central Science Laboratory have been examining the whole issue of industrial crops, and I agree that we need

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to consider how we can broaden the opportunities for farmers and, in particular, for those who are involved in the sugar sector. I take that point seriously.

Although we support the general proposition that there needs to be a switch from the first to the second pillar of the CAP—from production-based support to agri-environment and rural development measures—we feel that the proposals should go further in that direction than the EU is proposing. I also support the view that the existing system needs to be considerably simplified. The proposals being made are very complex.

We also have problems with the specific approach proposed by the Commission. It appears to put the burden of reductions very heavily on a minority of member states, including the United Kingdom and Germany. That cannot be right in relation to how the reforms should be put in place. Their impact should be much more fairly distributed. Moreover, some of the proposals would put the burden of change on some of the more efficient farmers that have a viable long-term future. We run the risk of turning the clock back and driving farms to split up into less competitive units.

At the January meeting of the Agriculture and Fisheries Council, my right hon. Friend the Secretary of State argued that we needed a simple system that applied the same rate or reduction to everyone. It must be fair and easily understood by farmers, and easy for our administrative systems to cope with. He also explained our serious problems with the Commission's proposed distribution key for the reallocation of rural development money between the member states as a result of the proposed modulation. This takes no account of the fact that the existing budget is not distributed on anything like a reasonable or equitable basis. The Commission proposals do nothing to correct this. We shall certainly want to press that point very hard.

It is ridiculous that a member state with an agricultural and rural sector as large as that in the United Kingdom receives only 3.5 per cent. of the current rural development budget. The Commission proposals would make the situation even worse. That is clearly not acceptable to us. The distribution of money raised through modulation must, at least, start to redress historic funding inequalities in the allocation of pillar 2 resources

We are also disappointed that the Commission proposals do not start modulation until 2006. If there really are barriers to an earlier start to the new system, I believe that more needs to be done to encourage member states to take better advantage of the existing voluntary system and to provide more flexibility within the system. One way or another, the rates of modulation need to be pitched so that they allow continued implementation of the rural development programme that we are developing in the application of modulation and into which we are putting more money.

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