Memorandum submitted by the Food and Drink
Federation
IMPLEMENTATION OF CAP REFORM IN THE UK
OVERVIEW
The Food and Drink Federation (FDF), which represents
the UK food and drink manufacturing industry, welcomes this opportunity
to respond to the Committee's Inquiry. Whilst we may be not in
a position to comment in great detail on specific aspects raised
by the Committee, we want to emphasis the importance of this agreement
from the point of view of trade, which should enhance the competitiveness
of "UK plc". FDF is concerned that this critical strategic
aspect tends to be all too readily overlooked when examining the
detail of the agreement
— Each year the industry purchases
some £11 billion worth (some two thirds) of UK agricultural
produce but also imports a further £7 billion worth of produce
for processing; UK food and drink exports, which have risen again
this year, reached nearly £9 billion in 2002.
— We welcome the agreement reached
on 26 June on reform of the CAP and pay tribute to Ministers and
officials for this immense achievement.
— This agreement is a positive step
towards a more market-oriented CAP.
— It should encourage an efficient
and viable supply base for UK food and drink manufacturers and
therefore continued industry investment in the UK.
— Many FDF members welcome in particular
the agreement on decoupling direct payments from production. We
believe the method of implementation of the Single Payment Scheme
will have a fundamental effect on the future of farming in the
UK and would stress that it is essential that implementation of
the scheme does not disadvantage the UK compared with our competitors
elsewhere in the EU. Therefore we believe that a hybrid approach
must be fully considered.
— We very much regret the maintenance
of milk quotas until 2014.
Question 1
What principles and method should the United
Kingdom use to implement the proposals adopted at the September
2003 Council meeting?
1.1 We believe that this Agreement offers
a significant step towards a more market-oriented CAP. Although
it tends to be regarded as an issue primarily for the agriculture
sector, it should have major significance for the competitiveness
of UK food and drink manufacturers and for the continued attractiveness
of the UK for inward investment. Companies increasingly make investment
decisions on a regional and global basis, not least as the EU
enlarges. Without such continued investment in the UK farmers
could, in time, lose a significant proportion of their existing
markets.
1.2 The ability to source locally in the
UK can also be beneficial in ensuring food quality, aiding traceability,
and auditing of guarantees of food products and of quality assurance.
However, manufacturers must also be able to continue to import
necessary raw materials from third countries without undue impediment.
1.3 The principles that should be adopted
in implementing the proposals should therefore be market-oriented,
not disadvantage us against our EU competitors and be aimed at
increasing competitiveness along the UK food chain.
FDF COMMENTS ON
SPECIFIC AREAS
Regionalisation
1.4 Given that the Single Payment Scheme
in the UK is to be implemented on a regionalised, devolved basis,
it is essential that this should not lead to distortion of competition
within the UK, nor undue bureaucracy for farmers. For this reason
we would not welcome any differentiation between regions within
England.
Decoupling and Single Payment Scheme
1.5 As most FDF Members are in favour of
full decoupling, we welcome both the introduction of the Single
Payment Scheme in the UK at the earliest possible date, 1 January
2005, and the decision by DEFRA to reject partial decoupling.
Implementation of the Single Payment Scheme
1.6 FDF is fully aware that this will be
the biggest and most difficult decision that has to be made and
that the outcome will have a fundamental effect on the future
of farming in the UK.
1.7 A major reason for food and drink manufacturing
companies to locate in the UK is the UK's prime location for many
agricultural sectors and—of those covered by the June 2003
agreement—in particular for dairy, beef and cereals (sugar
and fruit/vegetables were of course not so covered). It is most
important that implementation of the SPS does not disadvantage
the UK in these areas compared with our competitors in the EU.
1.8 FDF members are fully aware that different
sectors, among which are found our major suppliers, hold differing
views as to whether Single Payment Scheme should be implemented
on the basis of individual historic claims, or alternatively by
means of a regionalised average payment. Essentially this is a
debate about how the payments should be shared within the UK.
1.9 Whichever option is chosen, there are
likely to be a substantial numbers of farmers who will feel that
they would lose out. FDF notes that, for example, beef and cereal
farmers strongly favour a historic claims approach. Growers of
potatoes, vegetables and other unsupported crops, however, are
believed to be particularly vulnerable to market distortion that
might result if allocation of entitlements were based on historic
claims, notwithstanding the limited protection provided by the
negative list. This potential for competitive distortion within
the UK would be exacerbated were a number of other Member States
and/or Accession States to adopt a system of regional average
area payments, which would result in potato and vegetable growers
in those countries receiving decoupled aid.
1.10 FDF members also note the environmental
arguments in favour of a regionalised average payment approach,
not least as it would spread the requirement for cross compliance.
However, it is clear that one solution does not suit all.
1.11 For this reason, FDF members urge further
consideration of a possible hybrid approach, for which DEFRA only
started to put forward the various possibilities in October. We
note in particular the detailed arguments for such an approach
put forward by the CLA. A move in this direction by other member
states could facilitate the adoption of a hybrid approach in the
UK, since the potential for disadvantage to the competitive position
of cereals, beef or any other sector would be reduced.
Set-aside
1.12 Unlike the initial Commission proposal,
the Agreement provides for set-aside to be used for non-food production,
a development which FDF welcomes. However, we would prefer the
complete elimination of set-aside, which is also easier for public
opinion to understand. Any measures introduced should not be unnecessarily
prescriptive or costly, but be in keeping with the Commission's
commitment to simplicity.
1.13 We also regret the derogation granted
exclusively to organic farms, as we believe there are other ways
of encouraging sustainable farms, for example ICM (Integrated
Crop Management).
Dairy
1.14 FDF members want to see a transition
to a more world market based economy for dairy. UK agriculture
will continue to have a strong position because it is one of the
best geographic regions for grass fed milk production. We therefore
strongly regret the maintenance of milk quotas until 2014, as
this will severely delay the essential move to a more market-oriented
dairy regime.
1.15 The existing dairy quota arrangements
mean that the UK has been only 90% self sufficient in its milk
requirements and FDF members have consistently sought abolition
of the quota system. Its retention is also likely to have a negative
effect on the UK's ability to export processed dairy products
and on the attractiveness of the UK as a manufacturing base for
exports to non-EU markets.
1.16 The proposed reductions in milk price
are likely to prompt producers to obtain the economies of scale
necessary to maintain their profitability. In that event, FDF
believes that UK farmers should receive support for restructuring.
Exit from the industry will be delayed by the reduction in asset
values caused by a fall in price. We consider that those seeking
to retire from milk production should therefore be given assistance
to do so.
1.17 The integration of dairy direct payments
into the single farm payment will take place only once the reform
is fully implemented, except in the case of regional implementation
of the single farm payment, where an earlier integration is possible.
For the UK we favour bringing forward the decoupling of dairy
premia to 2005.
Cross-Compliance
1.18 We welcome in principle proposals to
make farm income payments conditional on compliance with statutory
environmental, animal welfare and food safety standards (cross
compliance).
1.19 We welcome the farm advisory system
(compulsory from 2007) aimed at advising farmers on the enforcement
of cross-compliance requirements and support the need for an assessment
of the system in 2010 and integration with existing schemes.
Food Quality and Meeting Standards Chapters
1.20 The new Food Quality chapter will help
to maintain and enhance public trust and confidence in the safety,
wholesomeness and quality of food. Food quality is market driven
and needs to be kept entirely separate from the issue of food
safety.
Question 2
What impact will implementation have on the
agricultural sector, particularly taking account of approaches
to CAP Reform in other EU Member States.
2. Other than the comments above (as applicable),
FDF has no further specific comments to make here, although we
should like to emphasize:
— the need to sustain the competitiveness
of the UK Food and Drink manufacturing Industry,
— the need to ensure that implementation
of the Single Payment Scheme does not disadvantage the UK compared
with our competitors elsewhere in the EU, in particular for key
sectors such as cereals, beef or non CAP-supported crops (the
latter especially where growers in other Member States and/or
Accession States may start to receive decoupled aid).
Question 3
What progress has been made by the Policy Commission
on the Future of Farming and Food and how does this work mesh
with wider reform of the CAP?
3.1 The work of the Curry group overseeing
the implementation of the Government's Food and farming strategy
has now been extended for a year.
3.2 FDF members welcome the overall progress
made, but have a number of specific concerns:
— the risk that detailed decisions
on the implementation of CAP reform will come too late for farmers
to make practical decisions on what to grow in 2005. The Government
will therefore need to plan carefully to ensure that the CAP reform
measures work efficiently in the UK. It is therefore important
to have a clear roadmap to help avoid this;
— that regional implementation will
be confused because of duplication and lack of clarity; we welcome
the fact that DEFRA is already addressing this issue;
— the effect of possible budget cuts
on DEFRA's ability to implement the strategy, coupled with the
probability of considerable organisation change arising out of
Lord Haskins' report into DEFRA's delivery of rural services;
and
— slippage in preparing Key Performance
Indicators (KPIs) for a Sustainable Food Industry Strategy.
Food and Drink Federation
December 2003
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