Examination of Witnesses (Questions 140-159)
SIR BEN
GILL AND
MR MARTIN
HAWORTH
21 JANUARY 2004
Q140 Mr Wiggin: I think we know the answer
to this but it is the reasons I am concerned with. Which option
for implementing the single farm payment is favoured by the NFU
and why? That is the bit that we are really looking for.
Sir Ben Gill: You may have seen
in my statement I made yesterday forming my quarterly national
Council meeting we took a very clear vote on Monday and it was
60 in favour of the historic payment, four against and for the
record four abstained.
Q141 Mr Wiggin: You have not answered
"why?" which was the key question.
Sir Ben Gill: I was getting round
to that. To be honest when you look at the options, originally
we started with historic only and then the regional averaging
came in. There is no simple solution, there is no one solution
whether it is historic, regional averaging or hybrid version that
solves the problems. If you look, basically they are two extremes
regional averaging and historic. There are benefits from regional
averaging but there are big down sides, equally with historic
there are some problems there with the supported sector. Many
have added to that the problems of the interregnum issues and
said that the interregnum issues to which the changed farming
patterns between the base period and the starting point are a
problem by themselves that would be addressed if you gave everybody
the same amount of money. But they are not intrinsically a problem
consistent with historic they are a problem because the out-turn
was not consistent with the proposals that we have made, which
would have meant that the rights were determined by the average
in the base period but payable to the person in occupation or
farming the land at the start that would have occupied that. It
seems from recent dialogues and statements from the Commission
as recently as last Friday the Commission are seeking to mitigate
these effects. If the wording can be tightened up, which we believe
is possible, then all of those who have sold on land will not
be able by devious schemes dreamed up by certain professional
advisers, who shall remain nameless, to try and draw back the
rights from those who sold them, never expecting they were going
to have a right again. That being the case those rights will pass
on very easily to the person who is farming today.
Chairman: We will now adjourn for a minimum
of ten minutes; we will be as quick as possible.
The Committee suspended from 4.03 pm to
4.13 pm for a division in the House
Q142 Mr Wiggin: Under the historic option
how many farms will be calling on the national reserve to address
problems caused by changes in the structure since the start of
the reference period? How could the new regulations have been
better designed to reduce the administrative problem?
Sir Ben Gill: It is impossible
to give any estimate of the number of farms because it involves
a complex of not just the farms that have changed ownership but
changed farming arrangements. It could be very significant, depending
on how creative or not other people involved can be. How can it
be addressed? It can be addressed by first of all ensuring that
individuals who disposed of their farming interests during the
reference period or between the reference period and the start
date are not by devious ways allowed to try and claim eligibility
for the base premium, although they would not be able to claim
the premium itself, hence it is held in abeyance for three years
until it is confiscated and paid. Given there is a finite area
of land in the country then that would ensure that there is a
maximum amount of land that will be redistributed and passed on
to the people who are farming the land of the day. Given the statement
by the Commission in the regulation proposed last Friday they
tend to prioritise those people for the national reserve that
should help a long way. We would have preferred a simpler system
that we put forward together with the CLA and the TFA to the Government
and hence to the Commission, as I said earlier, whereby the entitlement
was created in the base period but was paid to the person farming
it on 15 May in the period to which the reforms start.
Q143 Mr Wiggin: Earlier you talked about
the historic solution; can you do anything for producers growing
unsupported crops?
Sir Ben Gill: I have spent more
time on this particular issue since the proposals came out about
a year ago now trying to find a way through this problem. We export
a number of options and I did in April last year have discussions
with Commissioner Franz Fischler on the concept of what we call
a positive and a negative list. That has not been deemed appropriate
for a variety of reasons that I was not party to in discussions
but we have ended up with a negative list which I think for many
is seen to be giving the best of both worlds. Essentially if you
look at the unsupported sector I think the sector that really
gives most concern is the exposure of growers who are under requirement
on annual contracts say for freezing who have lost their negotiating
right because they have no ability to say, if you will not give
me a price I will go back into cereals because they are at a disadvantage
without them. We would like there to be some ability to address
that issue if one decides they wish to go out of unsupported crops
for a determined period to have been eligible, assuming the land
was eligible and registered under the IACS regime to do so, to
have done so and have had some recognition of the national reserve.
The national reserve will be limited and whether or not there
will be an ability in there to avail of that sort of option is
somewhat speculative.
Q144 Mr Wiggin: That is really your wish
list. What you are saying is it sounds nice but it is not available,
isn't it? There is not any facility to support somebody in the
position you just described at this stage.
Sir Ben Gill: There is not at
this stage, it just depends on how the Government chooses to prioritise
matters once it has made the first decision on what methodology
has been adopted for the payment of the historic payment.
Q145 Mr Wiggin: There is another problem.
Essentially the thinking behind the change is that the money should
be more environmentally driven and therefore the historic option
does not really address what the ministers who put this together
actually wanted.
Sir Ben Gill: I do not believe
that is the case. I believe the payment is essentially an economic
instrument, the environmental option will come under Pillar II
measures. Yes, there is to be a gradual increase in redistribution
from Pillar I to Pillar II as the modulation rate increases in
wider Europe from 3% to 4% to 5%. It is likely, however, that
the Government will take advantage of the national derogation
and choose to implement a higher rate in the United Kingdom on
the back of plans that were agreed and proposed two or three years
ago at the start of last plan with the Treasury and with the Commission
which could result in a United Kingdom modulation rate approaching
10% or somewhere of that order, I am purely speculating, and it
could well grade up over time, which will put us at a disadvantage.
That will allow the money to go into the environmental schemes,
particularly the so-called entry level scheme that is currently
under trial.
Q146 Mr Wiggin: Why do you believe the
greater scope for trade and entitlement is a positive feature
that the historic option offers?
Sir Ben Gill: I was not aware
that it was a positive feature in reality. If we have put that
in our statement I must review what we said.
Q147 Mr Wiggin: Paragraph 17[6].
Sir Ben Gill: Let me see.
Q148 Mr Wiggin: Why do we not come back
to it.
Sir Ben Gill: I will get an answer
in a second. What we need to have, and I am guessing now, the
context was that would allow the redistribution between those
who had gone out of business and those who are in business, paragraph
17. I see the point it is making there. The particular point there
is that if you go for a regional averaging payment system because
everybody has got it so it is not trading per se it will tend
to be capitalised in the land of value and hence will move to
the landlord because he has it anyway and it will be in the rental
feature therefore or in the capital value. It was a clear intention
laid down by Commissioner Fischler when he changed his outline
from the proposals that came out in the summer of 2002 to the
formal proposals a year ago that he moved away from being attached
to the landowner to the farmer, and that is a fundamental principle.
Q149 Chairman: The Committee has received
evidence to indicate, if I have understood it correctly, that
there is some work being done by some land agents to make future
renewals of leases, for example rental agreements, subject to
them having contracted to them the payment by whatever route is
ultimately decided. Have you picked up any intelligence about
actions of land agents like that?
Sir Ben Gill: I did refer a few
minutes ago to the behaviour of certain groups of individuals
and the methodologies they are suggesting might be implemented
to avail of access to monies that we do not believe are rightfully
theirs. I think their attempts in the future will be fundamentally
undermined by the reality in that the market place will determine
the more so you go down the historic route because then if you
determine the land rentals it will be on the basis of the economic
earning capacity from the market place and the not the payment
itself which will be attributable and payable to the working farmer.
Q150 Mr Drew: Thank you, Chairman. Can
I pull the two areas we have been questioning you together and
look at the politics of this, with the best will in the world
you have handed the Government a hospital pass here, it was hoping
you would come up as a compromise with the CLA and TFA, who we
saw last week, and you have come down on the side of the TFA,
is there any compromise? We are going to look at the hybrid in
a minute so I do want to go into that in terms of detail. Lord
Whitty goes to Oxford and people want answers. He is sat on the
fence and has come up with this wonderful idea of a dynamic hybrid
largely because he thinks if the three organisations could possibly
move towards one another, TFA are saying historic or we do not
talk to you, CLA are saying if you do not go towards some regional
payment we are out of the equation and we are looking to the NFU
for this wonderful role of political compromise and you have not
done it, what do you tell Lord Whitty now?
Sir Ben Gill: I therefore deduce
that I have failed my country!
Mr Drew: It is a bit like the Government
over top up fees. You know, we are looking for an historic compromise!
Q151 Mr Breed: Total failure!
Sir Ben Gill: I can now rest assured
I shall go out on a real low. Thank you for that.
Q152 Mr Drew: That might even be taken
back!
Sir Ben Gill: I could make comparisons,
but I will not. Can I just go back and remind the Committee that
the basis of the reform was to decouple the payment. Whatever
route you take to allocate it, it is inevitably artificial, but
you have to have some bench mark within which to locate that payment
lest you affect or exacerbate the tensions that will inevitably
come about from the frictional change that has to be developed
in the farming industry. So the logic, which was the logic originally
put forward by Commissioner Fischler, is that you use the historic
basis. It was only late on in the negotiations, principally at
the request of Germany, who had their own peculiar political raison
d'etre, which you may want to question me on if you wish.
I will leave that until later.
Q153 Chairman: The language or the pronunciation!
Sir Ben Gill: Thank you, Chairman.
The concept of regional averaging came into play. As for where
other organisations are, we are in the business of representing
to our members what we think the present kinds of options are,
articulating them and asking for their response. We will do that
faithfully, and we have come to that conclusion. I think the point
that Lord Whitty is making is somewhat different to the position
of the Country Land and Business Association. They have sought
a compromise which actually delivered the worst of both worlds.
From the dialogue I have had with Lord Whitty it would suggest
his primary concern is that you start with historic, but how do
you justify that bench mark in a period of X years down the road
when four or five years end. That is a very different concern
from the concern that preoccupied the land owners, who have been
obviously focused, and understandably so, on seeking to devise
a system that minimised the redistribution but still had significant
redistribution and allowed them at the same time to claim the
value of the money back into the land owners' pockets. I think
it would be rather ironic if the current Government chose to evolve
a system that benefited the landlords rather than the working
farmers.
Q154 Mr Drew: Some of us would be surprised,
but that is a statement on internal Labour Party policies. Can
I tease out from you so that we have got a very clear picture:
if historic wins, do you think that the winning side will not
get as much as it thinks it might get out of this, so there is
a possible compromise in the sense that the losing side will not
be losing as much as it anticipates it will be getting, or not
getting out of this?
Sir Ben Gill: I would prefer not
to look upon it as a winning or a losing side, I would prefer
to look upon it as finding a solution that goes through and delivers
the objectives of the reform. Obviously, if the Government chooses
to go down the historic version, then we would immediately, indeed
we have done some preparation, seek to analyse how we can mitigate
the problems that have not been resolved by the historic version,
or the interregnum issues that would still need to be resolved,
by looking at how they can be best categorised and then addressed.
There is some preliminary work that we have done in trying to
draw that together, but obviously we cannot take it further until
the final decision is taken by the Government.
Q155 Mr Breed: Can I try to build on
that? You said earlier on, in fact, that both historic and regional
averages had pros and cons, although you indicated that historic
had more pros than cons and the reverse of the other. Why therefore
is the NFU so antagonistic towards the whole process of a hybrid
in that sense, because I think David was trying to point to the
fact that we are trying to get to some sort of compromise, but
you seem to be as equally against any hybrid alternative as you
are against regional averages?
Sir Ben Gill: Before I specifically
answer the question, I think it almost falls into the parallel
of those who sought to compromise in the reform proposal. We have
the camps for decoupling, the camps against decoupling, so the
brilliant person came up with, "Let us do partial recoupling."
That is the compromise. I think, increasingly, when people looked
at it, although they originally thought, "This is a brilliant
option", they have come to recognise it as the worst of both
worlds, and you get the best of none and the worst of both. I
fear that with many of the hybrids that have been put about this
is the case. You will, for example, with the hybrid system that
has been purported—I think it is HARC—you still have
the problems that the payment will essentially be capitalised
into the landlord's ownership. Furthermore, even with the minimal
redistribution that is conceptualised in that hypothetical solution,
you are going to see significant redistribution of the payments
still in the livestock sector but in the arable sector as well,
because the estimates are that within the acreage of arable crops
in the United Kingdom the unsupported sector, together with the
area of crop land that is currently counted as forage—I
am thinking of cereals that are used for silage—amounts
to something in excess of 14%, and we believe there is another
significant area of land which will be used, say, on dairy farms,
who are not subject to HARC's amount and have not been claiming
down for growing maize or fodder beet, which would logically,
because they are both arable crops, be able to claim the arable
premium. In the HARC system, because you have a differential between
the arable payment, the area payment and the livestock, of course
everybody would be seeking to get into the arable payment as much
as possible and with the big reservoir of so-called temporary
grass land and with no record on many dairy farms, pure dairy
farms, or, indeed, pure sheep farms, I could see there would be
great difficulty in identifying which land was arable and which
was not in those base periods, in the relevant period.
Q156 Mr Breed: So you do not believe
that there is any hybrid model that you could think of which is
preferable to any other? In fact, the whole concept of a hybrid
is pure fudge. It has been seen to fail in the past, because we
have tried to get these compromises, and therefore this is such
an important moment in time that they have to have a more purist
rather than compromised situation. Therefore you would not actually
consider any hybrid model as being preferable to another?
Sir Ben Gill: To say I would not
consider them would be incorrect. I have spent a long time considering
them and looking at variations and trying to find solutions and
our economists under Martin have worked very hard to try and find
ways through this, but to date nobody has provided a solution
that will best address those four principles. Shall I repeat them
just to keep them fresh: simplification, minimal redistribution,
market focus, payment to the working, the practising, farmer.
The problem with any degree of hybrid is that you are losing the
ability to pay to the working farmer and you are affording significant
redistribution from the start.
Q157 Mr Breed: If we cannot commence
with a hybrid system, supposing you started with an historic system
which then was reviewed fairly swiftly, perhaps four or five years?
Sir Ben Gill: I think, and have
said publicly, that I recognise that, once the system has bedded
in, there will be a need to review how the payments are being
made and whether or not there needs to be some reassessment of
that; but I am also anxious to point out that I believe there
will be, because of the market place working with a degree of
freedom, a redistribution of the absolute levels of payments because
land does change hands, and that degree of land, the amount of
land that changes hands in the first year or two, will be enhanced
because there is a pent up demand because people have not been
transferring land in normal quantities in the last 18 months.
Furthermore, because of the flexibilities that will be delivered
by decoupling, I think there will be more land changing hands
anyway because it will facilitate the younger farmer coming in.
That being the case, there will be an averaging of the payments,
which in itself will be affected by the increasing numbers of
modulation, the potential inclusion or introduction of financial
disciplines, which always, when they are on a percentage basis,
will deduct more from the bigger levels of payment than the smaller
ones. But, I think, even given those points, it is perfectly reasonable
to say we should review that, but we should review that, I think
importantly, from a European base. A concern I have is that we
will do something in Britain that creates a complex system which
is out of synchronisation with others in Europe. The absolute
perversity would be that if we in Briton, who I would like to
think would be accepted to have been the champions of decoupling,
end up with a complex system, while others such as France and
Ireland, who were officially significantly opposed, end up with
a simplistic system that they can benefit from because they have
gone down the historic route. That really would be most ironic
and particularly infuriating for myself.
Q158 Chairman: Just to build on from
that, we have a system at the moment where by with the introduction
of these changes you have a certain amount of repatriation of
the CAP to Member States who can sustain some of the existing
mechanisms or go to the most extreme or pure—depending on
which word you like—version of modulation and decoupling
which the United Kingdom appears to have gone down. Are you saying
that in the future you want to see the whole of Europe converge
to a single model?
Sir Ben Gill: I suspect we will
find that others in Europe who have chosen to go down the partial
decoupling route—I presume that is what you are referring
to—will see the error of their ways. For example, if France
chooses to partially decouple cereals, I can see and I am well
aware that the cereal farmers will be up in arms that they have
copped the bureaucracy of repeated IACS applications and all the
rigmarole and bureaucracy that goes with that, while we in Britain
have not. There would be other sides to it, particularly in the
beef sector, where it will take longer for the benefits of the
proper market to come through, and that is to be regretted. I
made the point at the time of the settlement that I felt that
the options of recoupling or partial decoupling had gone far too
far, but, as a means to an end, we had to accept it.
Q159 Mr Wiggin: I am grateful for the
list of the four principles you used. It is about the fourth one
that I have difficulty. If you are looking at hybrids, redistributing
money to the farmers, which I think is what you said, it does
present presumably quite a lot of the problems that you have when
looking at the difficulties in choosing the perfect hybrid. The
reason I am bringing this up—and I have nothing against
farmers—but I understood the intention was to make this
a more environmentally sensitive payment. Therefore the question
as to whether or not the farmer gets the money is not necessarily
one of the four principles that perhaps you might be addressing.
I do not have any objection to the fact the farmer gets the money,
but I think we have to be very careful about why you have included
that.
Mr Haworth: Yes. I think it is
a mistake to say that these are environmental payments. These
were conceived by the Commission as being payments which were
a continuation of the compensation which farmers were given for
various price cuts, and in the Commission's first idea they only
had the idea of a historic system. It was because of the pressure
from a couple of Member States, i.e. Germany and Denmark, that
they introduced this regional approach, but if the intention had
been to make these entirely environmental payments, there would
have been, of course, a logic to make them average and indeed
equal across the whole of Europe. That indeed is what has happened
with our old hill payments. That is a precise analogy, where we
used to have headage payments and they moved to being at a flat
rate on a hectare basis; but that was not the intention of this
reform and I think it is a mistake to think it was the intention.
It is true that the payments have conditions imposed on them which
are environmental, but from that you cannot reach the conclusion
that these are meant to be payments for environmental management.
Sir Ben Gill: I think there is
a further point that we should not lose sight of. The various
sectors are at a different stage of evolution, and we must not
lose sight of the fact that the dairy sector is only going through
the basic reform that other sectors have gone through earlier
with compensated price cuts. So that is part of the whole and
indicates and supports the concept that the whole of pillar one
is that the economic instrument, albeit with cross-compliance,
but cross-compliance set at the level of legal need and good agricultural
practice, which we need to be doing anyway, which is saying, "We
are going to check you are doing it if you are going to get paid",
and the environmental payment should come from pillar two. A separate
argument—and it picks up on a point that, I think, Mr Breed
was just referring to—was that over time the movement from
pillar one to pillar two may well increase beyond the parameters
set in the reform documents. There is a body of opinion that that
could well be significant over time as we move on, because that
money could well be used very much to the benefit of helping improve
the infrastructural needs that you, Chairman, were talking about
at the start of getting into helping businesses develop themselves
and giving the training necessary. You could hypothecate a case,
if that were done effectively and efficiently, which regrettably
the current arrangement does not permit, but if it were done effectively
and efficiently, you could get into not a vicious circle downwards
but a virtual circle upwards because you improve the market returns,
that liberates more money to help you improve the structures which
then further helps you in the world situation to which we are
to become increasingly exposed.
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