APPENDIX 19
Memorandum submitted by the Country
Land and Business Association (H21)
INTRODUCTION
1. The majority of the 45,000 members of
the Country Land and Business Association (CLA) derive a significant
proportion of their income from agriculture. Thus the CAP Mid-Term
Review is of considerable importance to them, and their views,
and their potential response, are of direct relevance to this
inquiry.
2. CLA has publicly recognised that change
in the CAP will not be avoidable, in the light of the pressures
on the EU Budget, the implications of EU enlargement, the likely
outcome of the next WTO round and demographic developments within
the EU. Not all UK farming businesses relish the prospect of further
CAP change, given the low levels of farming incomes in the UK,
and an international background in which the EU's greatest competitor,
the United States, has announced plans to increase the support
it gives to its farming industry, very significantly.
3. Nevertheless, CLA and the European organisation
to which it belongs, the European Landowners' Organisation (ELO),
are submitting detailed views to the European Commission on how
such changes might best be made—in the interests of European
consumers, agriculture and the environment. The points made in
that submission are in line with this.
4. This submission follows the same order
of questions as that in the Select Committee's statement, announcing
its inquiry.
Will the MTR liberalise EU agriculture? What impact
would the reforms have on the negotiations on the enlargement
of the EU?
5. The European Commission's MTR proposals
are a noteworthy initiative to redirect CAP support, particularly
against the background of the US Farm Bill. At a time when the
US appears to be turning its back on its own bold initiative in
the 1996 "FAIR Act" to decouple support from production,
the Commission has proposed that the EU should pursue the course
of decoupling—at least in the main commodity regimes in
which the EU has already moved towards direct payments.
6. It is proposed that the direct payments
in Pillar one should be decoupled from their current bases of
crop areas and animal numbers and paid as "a single decoupled
income payment per farm". We refer to them hereafter as Decoupled
Direct Payments (DDPs). These payments would be conditional on
"statutory environmental, food safety and animal health and
welfare standards (cross compliance)" and, for arable farms,
enrolment in long-term, 10-year, non-rotational environmental
set-aside.
7. It is proposed to decouple payments for
cereals, oilseeds, proteins, beef, sheep, grain legumes, starch
potatoes and dried fodder. The dairy sector, sugar, olive oil
and some fruit and vegetables "could follow later".
Certain premia for durum wheat and proteins are to be expected
from the decoupling. The Commission is silent on wine, tobacco
and textile crops.
8. Although the exemptions listed above
mean that significant areas or agricultural support will not be
subject to change under the MTR proposals, nevertheless, the decoupling
that is proposed does represent a move towards liberalisation
of EU agriculture. If implemented, the proposals would mean that
individual farmers would be able to take decisions based on market
circumstances rather than considerations of the support they would
receive.
9. The extent of this liberalisation is
qualified by a proposed rule in the proposals to prevent farmers
from moving to pastoral to arable farming within the new support
system. In the view of the CLA this is illogical and unjustified.
10. The relative areas of arable and pastureland
should reflect the relative market demands for arable and livestock
crops, plus any publicly supported pastureland managed specifically
for environmental outputs. Whatever mix of arable and pasture
emerges from these processes, there must be due attention paid
to good environmental land management. There are already controls
on the conversion of permanent grassland to other land uses.
11. Other direct payments, such as those
in Less Favoured Areas and under Agri-Environmental Schemes, for
Organic Farming and stimulating Farm Woodland are, rightly, not
to be decoupled. This is because they are already, in effect,
payments for non-market environmental services.
12. The Commission is at pains to avoid
describing "decoupled farm income payments" as attached
to the land. However, it recognises that if the land is transferred
in whole or in part, then the whole or part of the payment must
go with it. The CLA believes both for reasons of principle and
practicality the decoupled payments should be attached to land.
13. Liberalisation of agriculture in the
EU 15 is, overall, necessary to facilitate the enlargement of
the Union to absorb 10 new applicant countries, let alone any
further accessions in the future. The current CAP could not be
applied to the applicant countries, even over a transitional period,
without serious burdens on the EU Budget on the one hand—which
would not be accepted by many EU member states—and serious
distortions to the economies of some, if not all, the applicant
countries on the other. That must mean that further change in
CAP is needed if enlargement is to become a reality, and also
that CAP support, taking account of such changes, cannot be applied
to the applicant countries except over a transitional period.
The Commission has made proposals for the speed of this transition,
and until the MTR negotiations have been completed, CLA is not
in a position to comment on whether the Commission's proposals
in this regard are sensible and realistic.
14. That said, it would be wrong, in CLA
(and ELO's) view, for the burdens of enlargement to be placed
disproportionately heavily on the agricultural sector of the EU
15. Enlargement is more than an exercise in trade liberalisation—it
is a huge political commitment. For that commitment to work across
an EU of 25, all sectors of the economy, and all populations of
the EU, including the rural and land based populations must be
able to benefit. An enlargement that concentrated on transferring
support from agriculture in the EU 15 to the applicant countries
would fail this test.
15. The MTR will not come soon enough to
ease the finalisation of the negotiations with the applicant countries,
given that the intention is to conclude negotiations in the next
few months, and the MTR is about changes in the CAP from 2003-04
at the earliest. The conditions for application of the CAP to
these countries—ie how quickly the CAP is to be applied—are
more critical to the finalisations of the accession negotiations.
16. Whilst liberalisation of CAP support
is necessary to enlargement from the EU 15's point of view, it
is less welcome within the farming constituencies of those applicant
countries, especially Poland, which retain a large agricultural
sector and where agriculture is still of political and electoral
importance. Liberalisation at too fast a pace will make it more
difficult for the governments of such countries to seek a popular
mandate for accession to the EU.
How will the proposals affect UK farmers? What
will be the impact of capping aid to larger farms and decoupling
subsidies from production levels?
17. The proposals go further than decoupling.
They would also:
— Reduce decoupled direct payments
by 3 per cent per year, beginning in 2004, with further cuts until
a total cut of 20 per cent had been reached by 2010.
— Introduce a "franchise",
equal to
5,000 of CAP direct support. Payments within this
franchise would not be cut.
— Introduce a maximum direct support
amount of
300,000 per holding, known as "capping".
CAPPING
18. Estimates vary as to how great would
be the effect of the Commission's proposals to cap support to
larger farms. In terms of numbers of farms, the figures are likely
to appear relatively small, but in terms of the share of production,
and thus the average level of support received per hectare in
the UK as against other EU member states, the figures are considerably
more concerning.
19. Nearly all the farms affected in the
EU would be in the UK and Germany, with France possibly left unaffected.
The arguments against capping are strong and numerous, and apply
not only in the UK but elsewhere in the EU too:
(i) It is a profoundly anti-competitive measure,
which contradicts the first declared objective of the exercise
"a competitive agricultural sector". It will slow and
may even reverse some desirable restructuring, encouraging very
small part-time units not to restructure for fear of payment cuts.
This will be especially damaging in the applicant states in Central
and Eastern Europe.
(ii) The proposal is discriminatory against
a few Member States, particularly the UK and Germany, which for
historic reasons have some very large farming structures. This
discrimination is all the more important because the Commission
proposes to change the rules on modulation requiring funds cut
from pillar one payments to "revert to Brussels" for
redistribution. Whilst the proposed criteria for redistributing
the funds to Pillar two have some objective relationship to the
purpose of pillar two measures the proposed modulation has no
such objective basis.
(iii) The use of labour units in scaling
the franchise makes no economic sense. It will be difficult to
administer. It will have to be able to cope with the use of contract
labour, which is increasingly used on larger efficient farms.
It provides a direct incentive to discover labour that does not
truly exist. It will be open to fraud. It will result in gross
unfairness when, for example, two farms of similar area, receiving
identical direct payments for their arable crops, are very differently
treated because one has a highly intensive horticultural enterprise
employing 20 people and the other does not. This could result
in one being subject to payment cuts and the other not, and thus
one receiving lower payments.
(iv) The imposition of ceilings is particularly
punitive and crude. The size of the penalty rises with the scale
of the farming operation. The largest farming units, employ a
significant portion of the employed farm labour force, and are
often responsible for the management of some of the finest landscapes
in the countryside. These farms are usually engaged in environmental
schemes, they manage many sensitive habitats, they are vertically
integrated in the food chain, and they are active in collaboration.
In short this group are leaders in precisely the areas of agricultural
and environmental development which society wants. Many of these
advances will be imperilled by the proposed ceilings
(v) The imposition of ceilings will distort
support on adjacent and similar land. For all farms subject to
the capping there will be a dramatic drop in the payment per hectare,
which increases with the size of the farm. This can bring about
the anomaly that adjacent land on farms below and above the payment
ceiling could have payments per hectare with a six-fold difference:
60/ha to
360/ha.
(vi) In particular, the proposed payment
ceilings will penalise co-operatives which are large IACS claimants
(both in the West, and prospectively in the East of Europe).
(vii) It makes no sense in principle to impose
payment ceilings when it is policy to transform the purpose of
direct payments into payment for environmental and cultural landscape
services. It might be possible to argue that there are some economies
of scale in the delivery of these services, and this could justify
some tapering in rates of payment per hectare, there are some
examples of this in existing agri-environment schemes. But it
makes no sense to suggest that above a certain threshold there
are zero costs of delivering these services and thus no payment
is justified.
THE FRANCHISE
20. CLA is opposed to the concept of a franchise,
because farms below the franchise threshold will be exempt from
progressive cuts in Pillar one support—20 per cent over
seven years, referred to in the proposals as "dynamic modulation"—and
the requirement for a whole farm audit (see paragraphs 29-30 below).
21. The franchise means that UK agriculture
will be subject to a much greater absolute extent of modulation
than its competitors. Since funds saved through modulation are,
unlike capped funds referred to above, to be retained by the EU
and only then redistributed through Pillar two, UK agriculture
is likely to suffer a very large reduction in overall support
in a way that our competitors will not.
22. If the UK were unable to raise its share
of Pillar two funds from the current 3.5 per cent level, the deficit
between those funds modulated and those funds subsequently redistributed
to the UK via Pillar two could be very great indeed. The amount
"saved" by modulation of UK payments could amount to
£600 million per year. Even if the UK were to raise its share
of Pillar two to nine or 10 per cent, the amount to be redistributed
in the UK through Pillar two might be £400 million, ie a
deficit in the order of £200 million per year.
23. At current exchange rates, UK agriculture
is already experiencing lower levels of support and prices than
its EU counterparts. These proposals—unless the cap and
the franchise could be removed, modulation ameliorated and the
UK's share of Pillar two dramatically increased—would bring
about a further significant weakening in the competitiveness of
British agriculture.
ENERGY CROPS
AND CARBON
CREDIT
24. This particular proposal could benefit
British agriculture and the environment. With the appropriate
incentives and fiscal arrangements land management can play a
very important role in reducing greenhouse gas emissions by supplying
renewable energy (from biomass, bioethanol and wind power) and
by sequestering carbon in soils and forests. Creating a scheme
of carbon credits is therefore an idea the CLA strongly supports.
More work is necessary in devising practical ways of measuring
and monitoring the carbon balance of land management systems.
25. The CLA is involved in such work and
looks forward to working with the Commission to develop it further.
We welcome the recognition of the special role for land in managing
the carbon economy in the form of the proposed inducement (
45/ha) for energy crops. However, this issue requires
considerably more attention and discussion before we can agree
the proposed rate. Also the distribution of any aid for energy
crops amongst the Member States should relate to the potential
for these renewable energy developments and the CO2 reduction.
26. CLA has further, more detailed points
on the Commission's proposals on decoupling support. These are
set out in detail in the Annex to this submission.
What will be the practical effect of the new cross-compliance
conditions? Do these adequately balance environmental and commercial
concerns?
27. If overall CAP policy is to be coherent,
direct payments must be subject to environmental conditions. In
fact this is already the case. In the Agenda 2000 Horizontal Regulation
(2059/99) Article three states that direct payments are conditional
on respecting "general mandatory environmental requirements"
and most member states have interpreted this as referring to respect
for existing environmental law and codes of good agricultural
practice. The MTR proposal is therefore essentially to implement
the existing regulation in a common EU framework. Whilst agri-environment
schemes under Pillar two are the right way to enhance the environment,
conditions under Pillar one are the right way to maintain the
environmental quality of the landscape. Thus these conditions
should remain as they are, at the legal reference level.
28. The MTR tries to take cross-compliance
further. First, it is suggested that the conditions should be
applied to the "whole farm". The environmental rationale
for this is plain, but it follows that if the environmental conditions
and obligations apply to the whole farm then the payments must
also be deemed to apply to the whole farm. In CLA's view it is
right in principle to attach the decoupled payments to the whole
agricultural area. However, this invites more discussions about
the definitions of the land included within cross-compliance obligations—especially
where so-called "un-used" land is concerned. This question
is pursued in more detail in the attached Annex.
29. The Commission proposes to establish
a community-wide system of farm audit including "material
flows, on-farm processes and equipment relating to environment
animal welfare and occupational safety standards". The audit,
if it is to be useful, will ultimately have to include all the
most important elements of sustainable land management. However,
it will take time to get to this position. It must therefore be
based on a modular and flexible structure and allow self-assessment.
It should embrace economic as well as environmental and social
aspects. To provide a basis for area-based payments and to incorporate
satisfactorily the various environmental elements the aim should
be, ultimately, to link it to digital mapping.
30. Considerably more detailed discussion
is required to agree the components embraced and how the new audit
fits into other comparable systems (eg for NVZs, Crop Protection
management plans and Assurance schemes). Clumsily done, this has
the capacity to duplicate other efforts, to be extremely confusing,
and therefore to be highly counter-productive. There will be a
great temptation—which must be resisted—to include
too many and too detailed aspects in these audits at the outset.
The CLA does not accept that these audits are only necessary for
full-time "commercial" farms. Many environmentally important
areas are farmed by small, part-time operations and it is vital
that they are not excluded from the consciousness-raising benefits
of whole farm audits—this underlines the necessity for simplicity
at the first stage.
31. The proposal to retain the existing
(10 per cent) set-aside as an EU-determined, long-term environmental
measure is unacceptable. The logic of separating Pillar one and
Pillar two is to arrange for delivery of environmental services
in the second Pillar agri-environment schemes. As the Commission
proposes to switch funds from Pillar one to Pillar two one of
the principal ways of using such funds in most Member States will
be to enrol more land into broad-application, entry-level, agri-environment
schemes. One of the core requirements in such schemes will be
to provide improved management of biodiversity, landscape and
resource protection (especially of water) through measures including:
certain proportions of non-cropped habitat, wide field margins
and more secure margins alongside water. It is for Member States
and regions to decide the place of environmental set-aside amongst
such schemes. This is the correct way to provide the environmental
land management, not through arbitrarily imposed, crude, EU-wide,
set-aside targets.
Will the proposed re-allocation of funds from
direct payments to farmers (Pillar one) to rural development (Pillar
two) provide sufficient resources to achieve environmental goals
and support rural areas?
32. The Commission proposes to redistribute
the "amounts saved by modulation" on the basis of three
criteria: agricultural area, employment and a prosperity criterion.
The idea to distribute Pillar two funds on a more objective basis
is welcome. The logical basis is the demand for agri-environment
services and investment in rural development. The suggested criteria
are, of course, proxies for the demand for environmental services
and for rural development actions. It would be easy to criticise
the crudity of these indicators, but it is hard to suggest alternative,
consistently measured, variables which could apply on a comparative
basis for all Member States. CLA therefore accepts the principles
for making this redistribution.
33. However, the points in paragraphs 20-23
above are as apposite in relation to the availability of funds
for agri-environment and rural development as they are in terms
of the effect on the competitive position of UK agriculture.
34. Detailed, legislative proposals, expected
later this Autumn, will give a better indication of the possible
effect of the Commission's plans on the UK although it is very
unclear whether the negotiated outcome of the MTR will resemble
the Commission's proposals. Until the EU as a whole determines;
— The balance between cross-compliance
in Pillar one and agri-environment in Pillar two.
— The rate of "dynamic modulation"
from Pillar one payments.
— The levels at which any "franchise"
on modulation and any capping of support to larger farms will
be set.
— The criteria for the redistribution
of funds to member states under Pillar two.
— Whether a "Safety Net"
of support should be maintained under Pillar one to protect EU
agriculture from the more extreme effects of fluctuations in world
commodity prices, weather events, currency movements and shifts
in support policy among the EU's major competitors.
It is not possible to make a reasonable assessment
of whether the UK will receive an amount from Pillar
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