Examination of Witnesses (Questions 240-259)
LORD WHITTY,
MR TOM
EDDY AND
MR PETER
MURIEL
TUESDAY 10 DECEMBER 2002
240. That farmer's costs on world markets are
less because he is getting an annual payment.
(Lord Whitty) On an average basis but not on a marginal
basis in the sense that at the moment you get so many euros per
every extra sheep you produce and if you are competing with Australia
and New Zealand then you have got that subsidy in the market.
That will go.
Chairman
241. I am still not clear whether this payment
is attached to the holding or to the farmer, you will know, but
there is a significant percentage of dairy quota now held by people
who do not farm, it sort of replaced Equitable Life as a sort
of pension scheme. Is it intended that this payment which is not
going to be degressive is going to be attached to the holding
and could somebody then retire and keep the payment? Is it clear?
(Lord Whitty) This is one of the areas where clearly
we need more detailed Commission proposals, but I think Commissioner
Fischler has made it clear that it is attached to the land and
not to an individual.
242. Do we know how long that payment would
last? You set up a payment which is based on an historical pattern
of production. How long does that payment continue based on an
historical pattern of production? And once farmers have connected
with the market and all that, does that payment continue as a
bonus?
(Lord Whitty) I think you are asking me to look too
far into the future, Chairman. Theoretically, at least, the whole
of the system of subsidies could end at the end of this financial
perspective, so nobody has total security, but I suspect that
whatever is agreed on decoupling is likely to last for the next
financial perspective or at least the changes in it will already
be known, but beyond that I think we are in a different world.
Mr Mitchell
243. I bet Corus wishes it could get a deal
like that to make government payments compulsory and set them
in concrete for a couple of years. We are told Defra has done
research into the implications of decoupling. What is that research
addressing?
(Lord Whitty) It will have to be based, to reach its
definitive stage, on what exactly the Commission is proposing.
Peter, if you come just outline the general principles of it.
(Mr Muriel) At this stage we have commissioned research
to look at the implications for farm businesses of decoupling
payments to see what impact that would have on production levels
and price levels and we have commissioned work on the cereal side
and on the livestock side, that is the main area of the research
underway.
244. So socially it is going to make the whole
business of subsidies to farming more transparent. This is going
to be happily viewed by the rest of the nation as Farmer Jones
is getting so much per year for doing nothing, is it not?
(Lord Whitty) I think the rest of the population regard
the whole of the subsidy on farming with some suspicion under
its present arrangements and do not understand the way farmers
are subsidised. I think in political terms and presentational
terms it is easier to justify continued support for delivering
environmental outcomes and countryside landscape—
245. That is not what it is for, it is just
setting payments in answer to that farmer.
(Lord Whitty) Provided he keeps the land in appropriate
condition. It is not an open-ended cheque for land you can then
concrete over and move out of farming or open country entirely.
You have got to keep it in reasonable condition and with reasonable
environmental outcomes in order to get the payments, so it is
not as though it is for nothing.
Chairman
246. If you then went in for significant environmental
enhancements so that a significant part of the land was taken
out of productive potential and into some sort of environmental
use a payment which was still based upon its production would
persist for a period, would it not?
(Lord Whitty) Again, we would have to look at the
details of the Commission's proposals, but for those sectors which
previously received the payment then the answer to that is yes
and they may be able to get some enhanced environmental scheme
for the development of the environmental side as well.
247. If the payment attaches to the land, not
the producer, and, as you say, you can only assure those payments
over the period of a financial perspective, could you speculate
as to what would happen to the market in agricultural land as
we approached the end of that financial perspective and it became
unclear as to whether or not that payment would persist?
(Lord Whitty) I think you have asked me to speculate
a lot, Chairman.
248. It is a seriously important question. We
want to see land change hands, we want a market in land, we want
people coming in and doing new things to the land, but if there
is a chunk of land and let us say for the sake of argument there
is a
250,000 annual payment attached to that land and
you do not know whether that is going to be there in two years'
time, you are going to think hard about whether you will buy that
land or not. It will have an impact on the market.
(Lord Whitty) If you are talking about two years'
time, the expectation now is that there will continue to be a
support system of the size that was agreed in Brussels and subject
to all the changes which may or may not happen in the Mid-Term
Review. The impact of the immediate changes on land prices is
virtually nil. I expect the total amount of money going into land
management is going to be of that order. What the situation will
be in five years' time when we are approaching the end of the
next financial perspective I do not know and I would not wish
to speculate. It would depend then on whether there was an expectation
that we were about to do a New Zealand type removal of all support
systems or whether in some form or another there would continue
to be some support for land management or farming. That is a bit
too far off for me to speculate this morning.
249. I think we will leave the pigs flying scenario
just for the time being. On modulation, we have had discussions
as to what extent dynamic modulation is alive and kicking or not,
but for the moment let us suppose it is. The British Government
has said that it wants "annual, degressive cuts in direct
payments, in line with the `dynamic modulation' model, but with
some, rather than all of the money saved being recycled into the
second pillar". Can you carry on for the next two or three
sentences of that, please? How much and which bits do you want
to save? This is a contribution saving mechanism. Can you tell
me what is the thought process behind that?
(Lord Whitty) The position behind that is that we
originally ideally were looking for some degressivity in the total
Pillar I payments. The Brussels agreement means that there is
not a degressivity in the Pillar I payments. We hoped that degressivity
was going to be achieved in two ways. One, by shifting money out
of Pillar I into Pillar II through modulation and, two, by an
actual cut. The actual cut, except in so far as one per cent is
less than inflation, is not going to happen to the extent that
we would wish it to happen if we stick with the Brussels ceiling,
so the degressivity would be achieved either by some new mechanism
or by dynamic modulation or something like it.
Mr Jack
250. If dynamic modulation is dead in the water,
which seems to be the consensus—
(Lord Whitty) No, that is not the consensus.
Mr Jack: Let us put it this way, going back
to what Mr Walsh told us last week—
Chairman: It is like the Royal Navy's destroyer,
it is on a sort of mother ship being brought home just at the
moment.
Mr Jack
251. That is right. What is going to happen
to the Curry Commission's proposals for modulation if the Commission's
proposals do not happen?
(Lord Whitty) There is already a mechanism for modulation
which the UK Government has taken up. The Curry Commission's proposals
were made before Commissioner Fischler's proposition, which would
be for compulsory modulation. Provided that the ways in which
the modulated money could be spent were sufficiently flexible
to meet UK requirements we would want unilaterally to go down
the Curry proposition.
252. All the way to 20 per cent?
(Lord Whitty) The initial stage of that is one year
behind what Curry originally proposed as a result of the spending
round 2002, that we would start implementing in 2005-06 rather
than the previous year and move on beyond that, which would have
been roughly in parallel with what the Fischler proposals were
suggesting on a compulsory basis. How far we would go, I think
we would have to judge on how far the Pillar II technicalities
met our objectives.
253. Can you just flesh that out a bit more
so that I understand exactly?
(Lord Whitty) At the moment there are only a limited
number of things that you can spend Pillar II money on. Some of
them, like entry and exit schemes, are not appropriate for UK
agriculture, whereas if we are trying to modernise and orientate
towards the market and make it more environmentally sensitive
there are schemes which would be appropriate to some sectors of
British agriculture which at the moment are not allowable under
Pillar II. We would want to see a greater degree of flexibility
both on the scope and on the degree to which you could operate
perhaps different schemes for different sectors in different parts
of the country. Provided that happened then the Curry proposition
seems to us still to be attractive to do on a unilateral basis.
It would have been better if we were to do it on a compulsory
basis or some mixture of compulsion and unilateral flexibility,
and that may still be the case because, whatever the Irish may
say, frankly the British and the Germans have rather more votes
than the Irish. At the end of the day I do not believe dynamic
modulation is dead, or some form of it is still revivable. If
we did not get it at all then, yes, the answer is we would like
to go down the Curry lines but only if we get some flexibility
on spending.
254. If the Commission's proposals on modulation
remain in place, what would happen to the existing programmes
under the English Rural Development Plan which have been started
and drew down their funding from the modulation to which we have
just alluded? How would you keep them going if, in fact, modulation
from the Commission came in?
(Lord Whitty) Do you mean the existing schemes?
255. Yes.
(Lord Whitty) Most of the existing schemes are for
a number of years and, therefore, any commitment under that would
continue. There would have to be some transitional arrangements
to a new scheme. If you are involved in a seven year scheme, that
seven year scheme will be honoured and there may indeed be some
premium environmental scheme which will continue and replace that.
In Curry terms there would be what he called a broad and shallow
scheme, what we are now trying to call an entry level environmental
scheme, to which most decent farmers could get access, but over
and above that there will continue to be higher premium schemes
under Pillar II money.
Chairman
256. Just picking up on dynamic modulation,
at the moment under our present schemes, which as you say are
done under the European programme where we are now the only people
doing it because the French have stopped it, the Scots of course
do their own thing, do they not?
(Lord Whitty) Yes.
257. The rates are UK-wide?
(Lord Whitty) The rates are UK-wide, yes.
258. But the purposes of the money can be decided
nationally within the UK.
(Lord Whitty) Within the EU rules they can be, but
that is part of the problem. We would like more flexible EU rules
which would allow greater flexibility to England and to the devolved
administrations.
259. The reason I ask the question is that representing
a northern constituency we are seeing increasingly situations
where farmers on different sides of the hill are subject to different
regimes because some are in Scotland, some are in England, and
the level playing field issue does emerge within the United Kingdom.
The national envelope in the sheepmeat regime, for example, is
being applied differently on the two sides of the border. My question
is are you concerned that there should be some sort of framework
beyond which one does not go so there is not too much of a dislocation
in policies on the two sides of the border? It is about an entente
cordiale with the Scots.
(Lord Whitty) Without going so far as an entente
cordiale, or the cordiale bit anyway, the relationship
with the devolved administrations obviously needs to be kept very
close. We do not want to do things which undercut each other or
undermine each other. One of the consequences of devolution, and
indeed the different structures of agriculture in the four countries,
is that there will be slightly different decisions taken provided
that is allowable under EU rules, that is the nature of devolution.
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