Examination of Witnesses(Questions 142-159)
MR JOE
WALSH TD
TUESDAY 3 DECEMBER 2002
Chairman: Welcome, Mr Walsh. We always try and
be ecumenical in our meetings and make sure we collect opinions
from as wide a field as possible and we do remember with pleasure
when we were in Dublin and the hospitality offered to us when
we were doing our report into what is now called the Rural Payments
Agency and the mechanisms for the distribution of grants. We had
a very pleasant lunch, I recall, and some very useful conversations.
Mrs Shephard, who used to be Minister for Agriculture, has an
education statement coming next, so I am going to ask if she will
open the batting rather than myself, and then I will pick up some
of the points. There will be ample opportunities, I am sure, to
express your views fully.
Mrs Shephard
142. I think what we would all like to know
is what your take is on the Franco-German axis on blocking CAP
reform. Our own Secretary of State has, as is the wont of others,
made very brave statements about the need to reform, the fact
that it is in the bag and so on and so forth, but the press is
full of blocking comments from the French and Germans and you
and I both know that such an axis is not unknown in the conduct
of affairs in the Council of Ministers. What is your take? We
would love to hear it.
(Mr Walsh) Chairman, first of all, I
am very pleased to be here and to have an opportunity of discussing
issues relating to farming and agriculture which your Select Committee
is investigating, and I am pleased that you have found your visit
to Dublin and meeting the parliamentarians there useful. I think
interaction like this is very important. I would say, though,
that we have a slightly different approach maybe to agriculture
and farming to your good selves maybe because farming and agriculture
still make up a very important part of the Irish economy. Approximately
10% of the workforce are engaged in farming and agriculture and
it is even more so and more striking when exports are taken into
account because about 25%, a quarter, of our exports are made
up of agriculture and food. We have some beverages in that as
well, of course, like alcoholic beverages—Guinness and whiskey
and things like that—
Mr Mark Todd
143. We never taste those!
(Mr Walsh) In relation to the Mid-Term Review and
the blocking or otherwise of it, I invited Commissioner Fischler
to Dublin, and he did attend a week ago, and explained very fully
that the Mid-Term Review was still in place—still very much
in place—and any of the unofficial reports of a Franco-German
arrangement or agreement were greatly exaggerated. The practical
situation, though, is that the heads of government last month
did agree on the financial framework up to 2013—in other
words, support for agriculture is fixed up to the year 2013—and
I do not think that would have happened without an understanding
between France and Germany. There is no doubt whatever that Mr
Chirac and Mr Schroder did have an interesting conversation
in relation to the future of the CAP, and it did I think colour
the outcome of the heads of government agreement which put the
financial framework in place. But Commissioner Fischler was adamant
that the Mid-Term Review, decoupling, modulation and other aspects
of it are still on the table for negotiation.
Mrs Shephard
144. You do not want to add anything more colourful?
(Mr Walsh) I do not want to become embroiled in any
undiplomatic expressions.
145. Thank you very much. I hope you will excuse
me if I withdraw?
(Mr Walsh) I understand these matters very well.
Mr Jack
146. You made an interesting comment—you
said that whilst the Review was still on the table, what I think
is an interesting question to ask is what do you think the attitude
of the French and the Germans—particularly the French—is
going to be to the proposals which originally formed the Mid-Term
Review because the impression certainly from France was, "Well,
we do not really want any change and we certainly do not sanction
any diminution of money as far as our farmers are concerned",
and inevitably in any of the changes that were part of the original
Mid-Term Review there are going to be some winners and losers,
and it is not clear to me how the winners and losers argument
is being fought and just how much of the original package is going
to be the subject of, if you like, the political agenda. The Commission
at this stage are being very brave in saying it is still on the
table, but there is a lot of difference between that and getting
agreement to made progress. What is your read on that?
(Mr Walsh) Well, I think Commissioner Fischler wants
to make his mark and have efficient official reform of the Common
Agricultural Policy, and he is being brave about it and there
are some bold initiatives on the table. There are two main aspects,
as you know, to the Mid-Term Review—one modulation and the
other decoupling—and I think, reading between the lines,
that it is still very much an objective of Commissioner Fischler
to push through decoupling. On modulation, the body language I
would suggest means he has mellowed or is a little bit weaker.
In relation to the French, their attitude generally in relation
to farming and agricultural matters in the EU is close enough
to our own because they have a big farming population as well,
and they do not support fundamental reform of Agenda 2000 or the
Common Agricultural Policy because they feel that the 1999 agreement
on Agenda 2000 is only being put in place now. Some aspects are
not yet in place. It runs up to 2007 and therefore any fundamental
change in that would not have the French support, and that is
where that stands. On the face of it, decoupling where direct
payments would go directly to farmers rather than forcing them
to produce product in order to obtain those direct payments, makes
some degree of sense and some logic. The difficulty about it is
that the recipient countries, or the countries who gain most from
direct payments might find it a bit difficult or awkward in a
few years' time when the net contributors ask, "Well, why
are we subsidising farmers in other countries for literally doing
nothing, or little enough". At present at least there is
some output from the farms for which they are getting the direct
payments. So I think there is going to be quite an interesting
debate and for my money I think there will be a formula arrived
at that will provide for a degree of reform of the Common Agricultural
Policy, but there will be little enough of that reform before
the end of Agenda 2000 which runs up to the end of 2006.
Chairman
147. Could I ask you about the French letter,
if you would permit me to refer to it like that, signed by six
and a half agricultural ministers—or perhaps 6.4, I am not
quite sure. It was quite fulsome about the Common Agricultural
Policy. What was the genesis of that? Who thought up the idea,
as they say on the quiz game?
(Mr Walsh) Firstly, I can assure you it was written
on Belvedere Bond, the highest quality notepaper possible! I think
it was not so much dreamed up but formulated by like-minded Member
States.
148. What was the language of origin?
(Mr Walsh) The language of origin was French.
149. I thought so. I wonder if I could quote
one paragraph from the letter and then a paragraph from the
Financial Times, if I may? The letter says, "Some also
claim that the CAP is responsible for causing hunger in developing
countries. Nothing could be further from the truth. Agriculture
in some of these countries, particularly in Africa, is primarily
concerned with promoting self-sufficiency in food. This is seriously
undermined by destruction of traditional agriculture in favour
of cash crops, which encourages an increase in imports and in
the indebtedness of these states. Production of crops such as
cocoa and coffee depends on the markets for primary products,
which have nothing to do with the CAP". I now look at an
article by Mr Martin Wolf who is the economics editor of the FT,
which I have to confess is my old newspaper going back in my past,
and the part of his article which is pulled out is, "Europe's
Common Agricultural Policy is progressive, wasteful, damaging
to food quality and an obstacle to trade liberalisation".
There is really quite a strong school which does say that not
just the CAP but support by all industrial developed countries
does have damaging effects upon the ability of Sub-Saharan Africa
in particular to be able to feed itself and to be able to earn
earnings on the world market place. Do you subscribe at all to
that? Would you regard that quote to be true, partially true or
wholly false? To what extent would you attribute damaging consequences
of support in industrial countries? Does that have as a consequence
damaging the interest of developing countries and, if you think
there was any element, what should we do about it?
(Mr Walsh) Firstly, all developing countries and stronger
economies do support their agriculture and their farming population
and that, of course, allows those countries to export to a number
of countries, including developing countries. The international
media generally tend to suggest that the EU is more grievously
to blame in that regard than any of the other economies, and I
do not go along with that and I do not think it is true. I think
the chief economist of the Financial Times and The Economist
magazine exaggerate slightly the degree to which the European
Union is responsible for difficulties in under-developed countries
and the poorest countries in the world, Sub-Saharan Africa, as
you said, because of the fact that the EU is the largest importer
of food in the world: it imports a very substantial amount of
food from those countries and. As you will be aware, in the "Everything
But Arms" arrangement, it did agree to import all food products
from the least developed countries without tariff of any kind,
and I believe if a number of the other trading blocs had the same
degree of responsibility towards developing countries as the EU
has, then developed countries would get a much greater opportunity
to develop their own agriculture. As well as that, in the reforms
that have taken place of the Common Agricultural Policy over the
years—as you know the Common Agricultural Policy emanated
from shortages after the Second World War and there were great
surpluses then in the 1980s and we had intervention of various
kinds and we had beef and dairy products and so on in intervention
storage—the 1990s reform, called the MacSharry reform, did
reduce the beef mountains and the butter and dairy product mountains
very substantially and, in fact, in the last five or six years
we have had little or no intervention and little or no storage
of food products. As well as that, export refunds or export subsidies,
which are sometimes regarded as subsidies to dump products in
developing countries, have declined very considerably and the
amount has gone way down and I know that in some instances at
least food exported from the EU is literally imported by developing
countries to feed their urban poor especially, and this high quality
food—because there is this very high degree of quality and
safety now on all aspects of food production—is very important
to their economies. So I think if the whole Common Agricultural
Policy regime is looked at intensively, if the whole EU as a trading
bloc is looked at and the amount of food they import from those
countries and the opportunity they get, especially looking intensively
at the "Everything But Arms" arrangement, then I do
not think the EU is damaging to those developing countries as
outlined in the excerpts which you read out, Chairman.
150. Do you think that exports from the European
Union of food to developing countries—for example, canned
tomatoes, which are after all under heavy subsidies—have
an impact on damaging the ability of local farmers to produce
and to find external markets themselves, perhaps in other developing
countries? One of the key development planks in a sense is to
boost trade and to remove the protections which lie between developing
countries themselves?
(Mr Walsh) I think a far greater retarding effect
on the ability of developing countries is the regimes in a lot
of those countries. An awful lot of the structural support for
natural resource industries in those countries, as you know, has
been dismantled and countries which have very good natural resources
are not able to feed themselves, literally. I also make the point
that in a good number of those countries their main products are
tropical type products, and here in the northern hemisphere, at
any rate, the type of products we export are not typical of the
products produced in those countries. But we in the EU have in
"Everything But Arms" and as well as that in the banana
regime been quite helpful to the developing countries in the EU
and taken cognizance of the state of their economies and allowed
them to produce from their own raw materials and natural resource
industries.
151. As I think we discovered when we were there,
one of the secrets of Ireland's success was in developing programmes
which made the country a very hospitable place, for example, to
American investment. There has been a large amount of American
investment in Ireland and your training and education programmes
have in many ways been framed so as to attract those investors,
so your relations with the United States are very close. What
do you think is a reasonable offer from the European Union in
order to maintain the World Trade Organisation progress, in order
to sustain the Doha process? The Americans are talking about export
subsidies as one of the key elements of the negotiation, but what
do you think is a reasonable position for the European Union to
adopt in that, and how far should it go towards removal of what
are known in the trade as trade distorting subsidies?
(Mr Walsh) You are correct in what you say about the
States and their investment in Ireland—it is extremely important
to us. More than 300 of the major multi- national US companies
are in Ireland—it makes up a huge part of our work force.
The downside is that when there is a problem in the US and their
economy becomes depressed we feel it very quickly and abruptly,
particularly at the moment in that we are introducing our budget
tomorrow and the minister for finance will not be the most popular
person in the whole of Ireland tomorrow evening because there
have been fairly severe cutbacks in the estimates for expenditure
and in the budget as well. In relation to the WTO, it is my belief
that the WTO will have far greater impact on the future of farming
and agriculture than anything in the Common Agricultural Policy.
The WTO is really the big one. Commissioner Lamy and Commissioner
Fischler—Commissioner Lamy leading the EU's case—will
have to decide tactically and in timing what to offer and when.
In relation to agriculture, for example, one of the positives
put forward for decoupling is that it decouples payment from production,
and you might very well say that is a very good thing because
it shifts direct payments from the Blue Box to the Green Box and
therefore we should get a good concession in the WTO talks for
that. But in my experience in negotiations, if you offer something
early in negotiations it is usually pocketed by the other side
and you might not get a response in kind. So the timing and the
tactics are going to be very important. As you know, the US, before
we got the Doha hat on, during the summer introduced a very substantial
farm bill and they very substantially support their farmers. On
the figures by the OECD, the EU support their agriculture to the
tune of about 1.3% of GDP and the US about 1%, so there is not
all that much difference. As far as exports are concerned, of
course, they have a less transparent system of exports in that
they have export credit and a number of issues like that which
we do not have in the EU. I might say as well that in the WTO
the EU has not been complained about by developing countries in
relation to those exports, so to get back to the main nub of your
question I think of course there will be greater liberalisation
of trade as a result of this round, and the Doha terms of reference
state that there will be greater liberalisation of trade and export
refunds and direct payments will come under threat there, but
what concessions are made and when they are made will be a matter
for the negotiators. But of course they will have, in the spirit
of compromise and getting a deal at the end of the day, to make
concessions.
Mr Mark Todd
152. When I looked at the list of signatures
to the letter, I must admit I was somewhat surprised to see your
name at the bottom of it because I would have imagined that Ireland,
being a highly competitive effective agricultural producer, would
welcome the opportunity of a more liberal regime which would allow
freer trade and allow the competitiveness it undoubtedly enjoys
to take a greater market share within Europe, for example by addressing
the issue of dairy quotas which I would have thought Ireland would
benefit from. So I puzzled as to this apparent denial of your
own self-interest with a lot of high-minded, Gallic twaddle that
seemed to me to be in this. Whatever motivated you to put your
signature to the bottom of it?
(Mr Walsh) I was easily enough motivated because I
support the Common Agricultural Policy, whether that goes to twaddle
or to articulated pronouncements.
Mr Todd: "For us, agricultural products
are more than marketable goods. They are the fruits of a love
of the land that has developed over many generations". Dear
me!
Chairman: All you need is a harp, Joe!
Mr Mark Todd
153. Do go on.
(Mr Walsh) You are right, it is very wordy prose.
As I said at the outset, I think we approach this whole matter
of farming and agriculture from a slightly different perspective
because of the importance to the overall economy. When it comes
down to it, if the European Union support agriculture to the tune
they do, 1.3% of GDP, in my opinion it is worth it because you
have to ask yourself whether if you have that degree of support
you will retain farmers and you will retain the economies of the
countryside. If you had a regime that dispensed with quotas and
free trade, there is not any doubt that you would decimate the
numbers in farming, and do it very quickly and very abruptly,
and that has been shown all over the world. New Zealand is a classic
example where they did dispense with quotas and supports a number
of years ago and the number of farms has reduced dramatically.
154. And they have one of the most successful
agricultural economies in the world?
(Mr Walsh) That is true, indeed, but the number of
farmers they have and the devastation in the countryside and their
villages and communities is at a very high price.
155. So is our purpose to protect a lifestyle
and something that would feature in British soaps and TV programmes
in your country, or is it to generate wealth for Ireland because,
to be honest, it became obvious to me that you are the potential
New Zealand of Europe in terms of the competitive advantages in
some of your key sectors of agricultural production, yet this
letter implies that somehow or other it is all about singing songs
around a camp fire and taking handouts from the public. It does
not fit with my concept of the modern Ireland which the Chairman
set out very clearly in terms of a globally trading, highly competitive
economy with far more to sell than butter, beer and whiskey?
(Mr Walsh) Yes. As I said, that forms a very important
part of our economy, and as food and drink represents 25% of exports
then obviously 75% has to be other commodities, and I hope we
do that reasonably effectively because certainly in the last decade
the performance of the economy has been quite good relative to
other economies in Europe or the OECD. The fact remains, though,
that if you want to retain family farms or multifunctional agriculture
it has to be supported—and Ireland is a very open economy,
by the way, even in agriculture. Our exports are about 4 billion;
our imports are 2 billion in food and food products. It is very
open and that is the way we want it to be, but at present about
one third of the population of Ireland live in Dublin city, and
we want to hold on to the rural villages and towns and rural communities.
We believe that supporting farming is a far better way of doing
that than what is proposed in Europe at present. What is proposed?
Modulation. What is modulation? Reducing direct payments by 20%
over seven years and shifting that to another pillar where you
would support rural schemes of various kinds, and we believe that
supporting farming and farmers themselves in rural areas is a
far better way of doing it.
Mr Drew
156. We might as well carry on in the same vein
with this wonderful letter. I am interested in what I see as the
substantive point, the first point, talking about production systems,
and the key second sentence, "Let us also reaffirm that farmers
should be able to live on the price paid for their products and
to absorb the costs arising from environmental requirements, food
safety and food quality". I would make two observations on
that which I would welcome your comment on: firstly, farmers are
not surviving—not in this country—and I would suggest
that in most parts of Europe farmers are struggling to survive
on the prices being paid for their products, which means they
are even more dependent on the subsidy regime, but more important
than that there is a juxtaposition there which almost suggests
that you pay the farmers for the production and then they can
overcome these impositions that somebody else wants them to meet,
whereas perhaps I understood that the Common Agricultural Policy
was moving to paying them for these so-called public goods—food
safety, environmental standards—so I do not quite understand
what this is saying other than production subsidy is good and
what the Common Agricultural Policy reforms are proposing is not
the direction we want to be going in.
(Mr Walsh) As I said, the Common Agricultural Policy
has been subject to reform over a number of years and I believe
that the reforms that took place in the early 90s were important
ones that shifted support from supporting the product on an 80/20
basis to supporting the farmer, so the direct payments now go
to the farmers rather than supporting the product. In the last
few years, the Common Agricultural Policy has been helpful in
particular in relation to a number of setbacks which affected
the food industry—that is BSE, the foot and mouth epidemic,
salmonella, listeria, E.coli 0157. All shattered the confidence
of consumers in food products and yet the consumption of food
throughout the EU has recovered very substantially and now, for
example, beef and dairy products are at pre-BSE levels, where
there was a very substantial drop in them. The cost element of
all of that has been a large one for farmers because they have
to have food safety, traceability, environmental considerations
and cross-compliance—and all of those are a cost. Again,
it is my opinion that that is worthwhile because our countryside
is important; environmental considerations are important; and
animal welfare is extremely important; and no longer are people
prepared to tolerate cruelty to animals in transport and in production
systems, tethering of animals and so on, and I think that is very
good, but there is a cost involved. In food safety I know I am
criticised morning, noon and night because of the traceability
and the tagging of sheep and animals and so on; farmers have to
bring down their ewes from the mountainside to be tagged because
they need to be traced and when you go to your meat counter in
the local supermarket you want to know if the product is safe
to eat. If you do that, which is what the European Union is demanding,
then there is cost involved in it. I might say as well that this
consideration for public health has manifested itself in the last
three years in the appointment exclusively of a Commissioner for
Consumer Health and Consumer Protection, David Byrne. That is
very good but we have to pay for it.
157. That is very true but our competitor colleague
nations in the agricultural field, principally the United States
and the Cairns group, do not have any of that. They just see this
as non-tariff barriers. How do you overcome that scepticism which
clearly will pervade all the negotiations because we will try
and say that we feel there should be some payments for animal
welfare, as much as anything else because of our history of animal
disease in one form or another, but we are not going to be pushing
at an open door to have it slammed back in our face. How do we
deal with that?
(Mr Walsh) Certainly the European Union and the Commissioner
for Health and Consumer Protection is adamant that production
systems in all of the countries exporting food to the EU have
to have standards comparable to the standards which we have here
in the EU, and inspectors go regularly from the Commission's office
to exporting countries to ensure that production systems on their
farms and factories are up to the standard of the EU. In reports
which I get back, at any rate, the quality and the standard of
the production in their processing plants is of a very high order
and is satisfactory from the EU's inspectorate point of view.
Chairman
158. Having discussed one French text, can I
come to another one? In Le Monde of 20 November there was
an article by Jose« Bove«, who you will be familiar
with as the French peasant leader who goes around burning, beating
up, McDonalds restaurants—a radical incendiary literally
as well as metaphorically—and he said in a nutshell: Mr
Chirac, do not insult the world of peasants. The Franco-German
agreement on the agricultural policy, concluded on 24 October—which
is bad arithmetic—the details on the budget, puts an immense
responsibility on you. The decision to set a ceiling on expenses
of the Common Agricultural Policy between 2006 and 2013 at the
level reached in 2006 will mean that the European Union has to
spend the same sum for 25 Member States as it now spends on 15.
This decision to put a ceiling on agricultural expenditure, if
it is not followed by radical changes of the orientation of the
Common Agricultural Policy, will be a very heavy consequence for
the peasants in Europe, the 15, and even more so for those who
are going to join from central and eastern Europe. So what he
is saying in a nutshell is people said that the so-called Franco-German
deal figures everybody thought, "My God, they are stopping
reform of the Common Agricultural Policy, they look permissive",
and what he is saying is "This is very tough and could turn
out to be nasty indeed", and then you hear Fischler say,
"Yes, but we are probably going to need a milk and sugar
reform as well within those headlines and any reform has to come
out of those headlines". So is it your perception that those
figures set out from a budget which got the blasting, if you like,
in the British press on the grounds that this was a Franco-German
deal stitching it all up, could turn out to be a much greater
pusher towards change than perhaps we think? Did you throw your
hat in the air and say, "Whoopee" or did you say, "I
would like to get into this a bit more"?
(Mr Walsh) Firstly, I am still of the view that the
greatest driver of change for the future will be the WTO rather
than the Mid-Term Review.
159. I agree.
(Mr Walsh) And what I would say to critics of the
Common Agricultural Policy is that it is still a relatively low
sum and a low percentage in support of agriculture and farming,
given the requirement now on food safety on animal welfare and
so on at 1.3% of GDP. As well as that, since Agenda 2000 expenditure
is virtually frozen up to the end of 2006, from 2007-13 expenditure
is going to be increased by 1% per annum. That will be less than
inflation, actually, so to have a community of 25 at the level
of support that the current 15 enjoy within that ceiling is going
to be very difficult indeed, and that includes reform of the dairy
regime as well. But the economists who advise me say that we will
just about get there because of the fact that payments to the
applicant countries are going to be staggered over ten years,
and that will allow us to do that. The facts are, however, that
payment is frozen up to 2007 and then only at 1%, which in effect
is a cutback. When Commissioner Fischler visited Dublin he was
much more sanguine and felt that this was going to be fairly rough,
and that we would not be able to support agriculture and farming
to the extent we do in the current 15 with that new ceiling, and
he was adamant about that.
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