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The Minister for Rural Affairs and Local Environmental Quality (Alun Michael): It is always a pleasure to respond to the right hon. Member for West Dorset (Mr. Letwin) because he always raises issues that relate directly to his constituents' interests, and the House is always at its best when hon. Members relate policies to their constituents. He raises such issues in a questioning and challenging way, not in a confrontational way. I hope that I can help him with some of the issues that he raises, but he needs to wait a little longer on others because, of course, it is only 10 days since we achieved a hard-won decision after long negotiations late into the night over several days.
I endorse the right hon. Gentleman's point about such issues being complicated, but there is complication not so much in the settlement reached in the CAP discussions, but in the CAP on which those negotiations were based, so expecting a clear and simple statement of where the settlement leaves individual farmers is a little way down the road. He rightly acknowledged that a great deal has changed since he originally sought to initiate the debate. Indeed, just 10 days ago, we had considerable success in the negotiations, but I accept the point that these are complex issues.
The right hon. Gentleman referred to farmers taking a long-term view, and I acknowledge that that is the case. Those who have spent several generations in the industry are looking at a period of major change. Indeed, it is fair to say that the farming industry can look forward, with more hope than has been the case for many years, both to the opportunity of being truly competitive and to having its competitiveness and efficiency recognised, and CAP reform is a part of the move in the right direction.
One of the most important contributions in recent years was, of course, the report by Sir Don Curry and the commission on a sustainable future for farming and food, which looked at how to make farming competitive and recommended ways in which individual farmers can take decisions that will increase their returnsthe farm-gate prices, as they are describedfor the work that they undertake. I point to the seminal importance of that report and the way in which it prepared the ground for the CAP reform.
As the right hon. Gentleman said, some farmers have recently acquired farms, but they could have been in no doubt about the way in which this country wanted to reform the CAP. I believe that I am right in saying that he wants the way in which the regulations result from the reform to be considered. There will be consultation on those regulations, when the issue that he raises can be considered, but the rule of caveat emptorlet the buyer bewareapplies, and any purchaser in recent months, or even the last couple of years, must have made a purchase in the knowledge that attempts were being made to reform the CAP. If the results are complex, they are hardly more complex than the situation in which farmers have had to operate for a number of years.
Mr. Letwin: I may not have made myself clear. I do not at all ask the Minister to protect the successor from the effects of the change in the grant regime. I wholly subscribe to his view that purchasers should have been aware that the grant regime would change. The question is whether the new grant will be paid to the new owner, or whether, as has been feared, the grant may in some
Alun Michael: I am not sure that I can give the right hon. Gentleman a complete answer, but let me try. Certainly, some flexibility exists on a national basis to deal with some issues, as we will do once we have examined fully all the options open to us. I believe that the situation is that once farmers have claimed at least 80 per cent. of their entitlement, they are free to transfer some or all of it to another farmer within the same member state, with or without land. However, entitlements may only be leased along with the equivalent number of hectares. Details need to be consulted on, but in principle a capacity exists to respond to some of the issues that the right hon. Gentleman raised.
A national reserve will provide additional means of obtaining entitlements. Those eligible to apply will be defined in Commission implementing rules, so, clearly, we need to examine the detail to know how to respond to them. But they will include new entrants, those who inherited or bought land from 31 May 2003 which was leased during the reference period, those who took on a lease during the reference period and could not adjust the terms of the leasewho could not negotiate a lower rentand developers who bought land or otherwise made investments to increase production during the reference period. Entitlements received from the national reserve cannot be transferred for five years. I am not sure that that general framework necessarily answers the question in relation to the situation of an individual farmer, but I hope that it does something to illustrate the sort of issues that we will have to consider and responds to some degree to the concerns raised by the right hon. Gentleman.
It is worth looking at the situation in Dorset, and West Dorset in particular. It is an area of mixed farming containing predominantly medium-sized livestock and dairy farms. The right hon. Gentleman rightly expressed concerns that those sectors would be affected. The area will be affected in particular by the introduction of the new single farm payment and further reform of the dairy regime. The detailed impact on farms will depend on how the package is implemented, which will be the subject of consultation. That will be the point at which some of the right hon. Gentleman's concerns, and the concerns of farmers in his constituency, can be raised. Much will also depend on how farmers respond to the new challenges and opportunities that present themselves.
In relation to the right hon. Gentleman's comments about people wanting to continue in the farming industry for many years to come, I am struck by the commitment of many farmers, including young farmers, to the industry, and the imaginative way in which many are finding methods of marketing their product, finding niche markets or banding together through co-operative marketing to make sure that they get a better return. I am also impressed that the predictions are that the reforms through the CAP negotiations are likely to help to increase average farm incomes by some 12 per cent. in this country and possibly by more over a longer period.
For the milk sector, lower intervention prices are likely to feed through to lower farm gate milk prices. Compared with the Agenda 2000 agreement, however, the rate of compensation for price cuts has been improved. Furthermore, those payments are now being phased in faster than the support price cutsover three years compared with four years of price cuts. That will provide dairy farmers with aid during the important transition period. It is likely, however, that overall the income of the typical dairy farmer will be reduced. Concerns existed about the ways of dealing with dairy reform, particularly the failure to cut prices and end quotas sooner. We would have liked more progress on milk, and particularly an end to quotas. As we have warned, the EU may be forced to return to the matter sooner because of the failure to be more radical. Useful further steps are being taken along the reform path, however, and welcome flexibility exists for member states to take early action on decoupling in the milk sector. We will consult shortly on using that option once we have had further clarification from the Commission on the implications. I am sure that the right hon. Gentleman will agree that we need to be clear about the working through of the decisions taken by the Commission to make sure that we do not introduce unintended consequences in the way that we implement the decisions, especially in relation to early decoupling. The dairy industry has certainly faced immense difficulties during recent years. The right hon. Gentleman explained the situation so courteously that I shall not spend time taking him back through the history of decisions taken by the past Conservative Administration.
The new arrangements on the decoupled single payment will have several advantages. Farmers will be freed from the need to grow specific crops or keep specific numbers of animals because they will instead be allowed to gear their production to the market. There is no doubt that there are examples of farmers who have broken though the system of subsidy and support to engage with their market, sometimes very productively. The arrangements will reduce the negative impact of the CAP on the world's poorest farmers by cutting overproduction of subsidised food, and the incentive to intensify production and damage the market will be removed. The EU will be allowed to engage positively in World Trade Organisation discussions with a significant offer on agricultural trade.
It is hard to overstate the importance of the agreement, which transfers the core elements of the CAP and sets a new direction for its future evolution. In the short term, an increase in farm incomes is predicted. Liberalising the market will reward the efficiency of British farmers and offer them an opportunity to gain benefit from the efficiencies that they have demonstrated for several yearsin some ways, they have perhaps been penalised for that due to the way in which the system has operated.
I sympathised with the right hon. Gentleman when he mentioned complexity. Simplifying the CAP will reduce the burden on farmers and will lead to a substantial shift of support from production to a wider range of rural and environmental activities. It is worth making the point that the fact that Britain has taken the lead on modulation has brought forward rural development that is the envy of many other countries in many ways. There is a need for diversification of the wider rural economy but enabling farmers to diversify and allowing their families to move into other areas has had many benefits. I could cite a long list of examples of farmers and farm families in Dorset who have taken advantage of such opportunities.
Breaking the link between farm subsidies and production to reconnect farmers with their markets and reducing damaging environmental impacts and bureaucracy are at the heart of our approach on sustainable food and farming. The CAP has moved in the direction that the Government and the Curry report flagged up. Cross-compliance so that subsidies are dependent on meeting standards for key areas such as the environment and animal health and welfare is also important, as is the reduction of support prices for butter and rice to bring them closer to world prices, which will benefit consumers.
It is fair to say that the deal includes elements that go beyond the Commission's initial proposals, such as the national envelopes enabling schemes that will promote sustainable farming. There will be a further switch of resources to the second pillar and an earlier start for modulation. The second pillar package is more than a third larger than that in the January proposals. We have succeeded in protecting UK farmers from the immediate threat of an unfair settlement as part of the financial discipline process by varying the terms of modulation.
The new single farm payment may be used to replace the plethora of existing bureaucratic direct payment schemes and to free farmers to produce the safe, high-quality food that the market wants. Many of the approaches on marketing in this country are starting to produce results, and it is probably fair to say that that has been more successful in the south-west than in any other part of the country. A clear profile of food from the west country has been developed and the profile of individual countiesSomerset, Devon, Cornwall and Dorsethas been maintained within that. That can only be good for the link between agricultural production and benefits through tourism such as the use of local products by restaurants and the hotel trade, and it will lead to an increasing virtuous circle among the products of the farm economy and a variety of other aspects, such as the wider economy of rural tourism.