Examination of Witnesses (Questions 160-179)
SIR BEN
GILL AND
MR MARTIN
HAWORTH
21 JANUARY 2004
Q160 Mr Wiggin: Can I follow up on another
point you made, which is that you would hope these changes will
see younger farmers coming in? Is there not a risk that these
payments will be a barrier, because new people will not get them
and therefore you will again have a two-tier pricing system?
Sir Ben Gill: No, I do not think
that is necessarily the case. It is quite possible in one scenario
that farmer A decides, "I want to take life a bit easier,
but I want to live on the farm. So I have got to do the cross-compliance,
I have got to submit a schedule to show that is happening and
so will allow young Joe here to come and farm my land, and he
may only pay a nominal rent, or I may pay him £5 an acre,
say, in recognition of the fact that I will be deriving the premium
payment for doing that." So you are paying him to do the
cross-compliance for you, which allows him to focus on the market
place. That is a fundamental possibility. It comes to back to
the point the Chairman made at the start. On what basis should
you determine your economic activity? You should determine it
solely on the market place. For those who talk about the problems
of buying a right to further underline this point, I cannot conceive
that if somebody goes into a business outright why they would
want to buy the right? What are you doing? If you have got a sum
of money that you would need to have to buy the right, all you
are doing is buying a right to a discounted cash flow, actually
a very uncertain discounted cash flow because you do not know
how long it is going to be time-limited, you do not know the levels
of modulation and financial discipline or any other deductions
that may come about. I suggest you might be far more secure taking
that capital sum and investing it with an appropriate financial
institution to give you an income stream, or, indeed, in more
land or a different business.
Q161 Mr Mitchell: What system for the
single farm payment are the other parts of the UK likely to chose?
Mr Haworth: As far as we know,
in Scotland they have not made a decision yet but have indicated
very firmly that they will adopt an historic approach. In Wales,
again they have not made an announcement. We believe they are
not likely to do that until mid February, but the minister Carwyn
Jones has publicly said several times that he personally favours
the historic approach and would need to be persuaded, with very
strong arguments, to take any other approach. In Ulster there
seems to be a general consensus in favour of a very complicated
hybrid system. We do not need to go into the details of that,
but it is important to understand the reasons why they are in
favour of that. Of course, Ben has been going on all along that
one of the problems with the hybrid system, or any regional averaging
system, is that it takes away the money from the tenant and gives
it to the landlord. Of course in Ulster they do not have landlords
and tenants because of Gladstone's reforms in the nineteenth century,
so there is no class of landlord and no class of tenant. What
there is is a number of people who rent land informally for a
less than a year, the conacre system. An historic system would
have a great difficulty in dealing with that because it is very
complicated to work out who was farming the land in any given
period. So the regional approach in their case is an easier one
and they have adopted a very complicated hybrid system, but that
is done, I would have to say, on the basis of pretty near 100%
consensus amongst all the parties in Northern Ireland. In England,
well, we know the situation. The rest of Europe, you also ask?
As I mentioned before, in the negotiations we know, and we have
always known, that Denmark and Germany were attracted by a regional
averaging system. Those are the two countries that have declared
that they will do that. In Germany it is again an enormously complicated
system. It would involve going to a total averaging system on
the arable side straight away, going to a partially average system
on the livestock side and gradually phasing in a totally average
system; but it will be done over a long period of time and, crucially,
it will done on a regional basis, on a lender basis, so each of
the individual German lenders will have their own system. In order
to reach that agreement between the federal ministry and the regional
governments, they had to accept that the there would be a mechanism
in place to prevent a redistribution of more than 5% plus or minus
between each of the lend. So you have there a recipe for a fantastically
complicated system. Denmark again is, I suppose, more parallel
to Northern Ireland. There is a consensus in favour of a hybrid
model, but that hybrid model also involves only part of the decoupling
in some sectors, notably in the beef sector, so it is not a totally
decoupled system. The other thing about Denmark which differentiates
it from England, and is also true, by the way, of Northern Ireland,
is that there is a very, very small area of unsupported crops
in Denmark. So it is not such a big issue in Denmark as it is
in England, this area of unsupported crops. That is also true
of Ulster. In the rest of Europe all the other countries as far
as we are aware, but in most cases they have not made a firm and
final declaration, will adopt the historic approach. If you look
at the ten new Member countries, the ones that are going to come
in in May of this year, eight of them will immediately go to a
totally regional approach. Two of them at the moment have already
set in train the mechanism to start paying individual payments,
so it looks likely that those two countries will start off on
something like an historic approach but very quickly move to a
regional approach. Again, it is not surprising that that is the
decision of those new Member States because, of course, they never
had any direct payments, so it would be strange if they adopted
an historic approach given that they historically never had any
payments. So that is the situation.
Q162 Joan Ruddock: I think at one point
Ben said it would be rather disastrous if the UK was out of synch,
other countries adopting simplistic methods and we developing
a very complex method. We have obviously just heard some more
suggestions and comparisons with Germany, Denmark and the UK.
How do you think the different implementation decisions could
actually affect UK producers? In which of the sectors will we
be disadvantaged, do you predict, and how?
Mr Haworth: I think that is very,
very complicated. Suppose England were to adopt a regional average
approach and suppose most of our competitors had an historic approach,
then it would follow that there would be some sectors that would
find themselves in England at a competitive disadvantage and some
at a competitive advantage. It would vary from sector to sector.
If we, for example, had a regional average and if we took a hybrid
such as the hybrid favoured by the CLA, it would mean we would
immediately give a lot of money to potato growers who previously
had no support whatsoever. Therefore you would have an immediate
competitive distortion between potato growers in England and Wales,
if they had a different system, and Ireland and France. Vice versa,
our cereal farmers would find themselves disadvantaged against
their main competitors, which are the French. Equally, the beef
sector would be one of the sectors that would lose out under an
averaging system. You would find that beef farmers in England
would be at a disadvantage compared to Scotland, who plainly are
not going to go on an average system, and also against Wales,
France and Ireland, who would be our main competitors. So there
would be swings and roundabouts, but it is those competitive disadvantages,
or advantages and disadvantages, that we feel mean that it would
be better for England to adopt the system which most of the rest
of Europe is going to adopt; and if we are going to move eventually
to a different system, maybe a regional average system, that should
be done at a regional level. I am picking up the point that Ben
made earlier.
Q163 Joan Ruddock: You say that some
are advantaged and some are disadvantaged. In terms of the big
picture of UK agriculture, what kind of balance is there between
disadvantage and advantage?
Sir Ben Gill: I think you would
say that the advantage is spread very thinly and so is very minimal,
but in some of the cases we could see a serious disadvantage.
The sectors that currently receive the highest level of hectarage
payment, and hence historic payment, would be the beef sector
and also the dairy sector as it slowly graded up into the decoupled
payment system. For example, the dairy sector is scheduled to
receive in total—I think it is 3.5p per litre compensation.
So if you have a stocking rate of, say, two cows per hectare at,
say, 7,000 litres, that is 14,000 litres per hectare, 3.5p per
litre, that is going to work out at about just under £500
per hectare. That is quite a significant variation from the payments
received, say, in the arable sector, which is about half of that.
What you would find is that the people who would suffer would
be the entrepreneurial young farmers—the people who have
developed their businesses, expanded it, they have a bigger quota,
they are more intensive—and they would suffer quite significantly.
That would then be spread. So the benefits would be obviously
those unsupported sectors, the fruit and vegetable sector, but
also the sugar beet sector, because there is no reform of the
sugar beet sector at all at the moment. I am a sugar beet grower;
I would benefit. In fact, because I am also a sheep farmer as
well as a cereal farmer, net I would benefit by going down the
regional averaging system; but I believe it is morally wrong because
I do not see the right of affording me additional remuneration
when I have done nothing new. I just do not see it is right. I
feel that quite strongly. I make that point to the Government:
how do you justify, on the basis of what we are doing, simply
to make you feel a little bit more comfortable, that you are going
to give me more money? I cannot see that is right.
Q164 Joan Ruddock: You have both indicated
that there would be problems with the four countries in the UK
adopting different methods. Is that more significant or less significant
than how England compares with other European states?
Sir Ben Gill: I think on balance
it is more significant, although it depends on the sector and
it depends where your major competitors are. In beef it would
be very significant with the Republic of Ireland, but it would
be also significant with Scotland and Wales. In cereals, obviously
the Republic of Ireland would not be a major factor; neither would
Wales and Scotland, but France would be the major competition,
not forgetting that they will have a lower level of modulation
anyway. So there will be a significant availability of extra resource
going elsewhere into the industry and not available within the
area of the arable sector to help go through the transit period.
Q165 Joan Ruddock: Do you think there
is any prospect of the four countries in the UK coming to some
agreement?
Sir Ben Gill: I think in terms
of Northern Ireland, no, because they have the separate tenure
arrangements which are fundamentally different, and they have
a totally different balance, being essentially based on grass
land economy. I think there is a very clear possibility that the
three home countries, England, Wales and Scotland, could agree,
but it would have to be on one solution only, and that would be
historic.
Q166 Chairman: What is your latest estimate
as to when some formal announcement is going to be made on this?
Sir Ben Gill: Thank you for the
question, Chairman. I would hope that we could have a decision
as soon as possible, but bearing mind it needs to have gone through
all the processes to ensure that unforeseen circumstances have
been anticipated, I would have every expectation that it could
be available within the next 27 days.
Q167 Chairman: I admire the precision
of the envelope with which we can now surround ourselves on this,
and we look forward to the twenty-seventh day.
Sir Ben Gill: The twenty-seventh
day, Chairman, is the 17th February.
Q168 Chairman: Indeed. It sounds very
interesting. I want to move on to the issue of the national envelope
and deductions. I wanted, first of all, to ask you a methodological
question about the basis upon which the various deductions, if
there is a national envelope, will be made and the modulated payments.
If a farmer has, for example £100, for the sake of ease of
calculation, and there was an envelope which it is suggested could
have a maximum deduction of 10%, would the 10% be deducted from
the £100 or would it be in terms of modulation: do you start
with 3%, 4%, 5%? Let us say you got down to 95. Do you knock the
10% off the 95? How does it work?
Mr Haworth: The modulation comes
first and then the national envelope comes after that.
Q169 Chairman: The deduction is on the
amount that you arrive at after the preceding deductions have
taken place?
Mr Haworth: Yes.
Q170 Chairman: That is how it works?
Sir Ben Gill: As currently construed.
Q171 Chairman: I am grateful for that.
In your evidence, in paragraph 29[7],
you say, "The administration of the national envelope appears
horrendously complicated." I would just like to say, before
complexity sets in, have we any idea what the UK Government would
do with its national envelope if it exercises that option?
Mr Haworth: The British Government
has—it is very complicated saying things like "British
Government" because this is an English issue.
Q172 Chairman: Let us stick with the
English and Welsh!
Mr Haworth: No, because England
and Wales is different. These will be made at a devolved level.
The Government, let me put it like that, has asked an independent
group of consultants to come up with some ideas. I think they
have come up with a first set of ideas—I think there are
about ten—that if there were to be a national envelope,
these are some of the things that could be used. I cannot remember
off the top of my head what they all are, but the two which, were
there to be a national envelope, would seem to be the most likely
or most favoured would be something like a scheme to help extensive
beef production in some form or another—whether that would
be across the whole country or whether it would be targeted on
specific areas would be second-tier questions—and the second
would be a scheme to in some way aid or help organic production.
Those seem the most likely.
Q173 Chairman: Forgive me, because I
am still grappling with the complexity of this, but my understanding
of the way the envelope worked was that you had to spend the money
that you took from a sector within the sector. So how do you like
the idea almost of a rob Peter to pay Paul policy?
Sir Ben Gill: I do not like the
idea of robbing Peter to pay Paul. I believe that the concept
of national envelope was introduced into the negotiations in June
in Luxembourg, as an interim stage to try and find consensus instead
of partial decoupling. It did not transpire that it was sufficient
to buy over those voters who wanted partial decoupling and should
have been removed from the final script because it is a concept
that is fundamentally flawed. It is, in effect, nothing other
than a means to partially decouple—to recouple—but
it is a partial decoupling concept. It is the same. It was interesting
that I saw a paper given by the Scottish Agriculture College who
had studied in detail the wisdom of one of the two options that
Mr Haworth has just referred to, which is the beef sector, that
you top-slice all the beef payments by 10% and then pay it back
to a suckler cow, a payment in the form of a suckler cow premium.
Their conclusion was very clear. It was a waste of time, money
and resources. It would have no pertinent effect on the business
decision taken by the farmer, it would just create a bureaucracy
to deduct the money and then reapply it to the farmer with all
the constraints that would have to be put in place. I come back
to another point that I have repeatedly made, which we did not
include in a fundamental principle but I think has always been
our objective. We have agonised how you go from A to B for a long
time, and maybe you can find some partial elements, but we have
come to the conclusion that the best way is cold turkey. Go there
the whole hog and keep the payments steady to give some people
comfort for a period of time, recognising that that will have
to be reviewed at a period to be determined.
Q174 Chairman: In your evidence in paragraph
31 you have added up the deductions to a possible grand total
of 23%. Could you give us a breakdown as to how that number was
arrived at? If it is difficult now, drop us a note.
Mr Haworth: Yes. Well, we are
just looking here. We know that there is bound to be a national
reserve, and that has to be made by deductions from everyone's
payments, and that is likely to be up to 3%, but 3% is the maximum
it could be. There is modulation which has now been introduced
on a compulsory European basis that starts at 3% and rises to
5% in the European basis, but there is also the possibility of
a national modulation. We in the UK are the only country in Europe
who now has a national modulation. It is currently at the level
of 3.5% in the UK. It will automatically rise to 4.5% next year,
but there was an agreement made that if a government had decided
schemes which required funding through national modulation and
those were in place by 2005, then they could increase their level
of national modulation up to 10% and could continue to do that
as long as they needed the extra money to finance the schemes.
It is likely, in England at any rate, that that could happen because
the Government does intend to introduce a new measure, the entry
level scheme, which would require national modulation, possibly
about 7.5% in total, so we would then move to a modulation which
would be at least 10%. National envelope could be another 10%,
so that gives us 23%.
Q175 Alan Simpson: When you were answering
questions earlier you said that the CAP reform as—I am not
sure whether it was yourself or Martin—was designed to be
compensation for farmers, not payments in the round. You have
also said in your submissions that you see the CAP reform and
the sustainable food and farming strategy as being mutually reinforcing.
You also said, quite specifically, decoupling will allow producers
to focus on real market needs. It will remove the perception that
support policies have encouraged unhealthy types of production.
I am just an urban hick on this, so you will have to bear with
me, but I would like you to spell out for me how exactly you see
the decoupling working to reduce chemical inputs, strengthen local
and regional markets, deliver fresher produce for people, shorten
links between the producer and the consumer and reduce food miles.
Those are the sorts of issues that have been critical, from a
consumer point of view, about our whole approach to sustainable
food.
Sir Ben Gill: The problems we
have with the existing system is that the complexities of the
system have meant that I have had as a farming business to become
focused excessively on the constraints of obtaining the various
premiums, without which I cannot farm. Can I give you a simple
example? I run about 500 breeding ewes. I have to apply for the
annual premium on those ewes, which has to be in each year before
February 5th. I am then constrained to keep those 500 ewes on
my premises, or, if I move them off my premises, I have to notify
where there they have gone, for a period of 100 days, which runs
to the middle of May. You may say that is a minor inconvenience,
but problems can arise. Lambing is a notoriously difficult time
where ewes have a propensity to die. You can suddenly find yourself
below numbers, you have got problems through no bad management,
you have got bad outbreaks of abortion, whatever. There are further
points in the market place. Historically, because of certain of
the market places, particularly with ethnic markets, there has
always been a demand for cull ewe meat around Easter. That period
of Easter falls right in the middle of that retention period.
Just suppose I had a ewe that has a single lamb and she loses
her lamb? I am constrained. I cannot sell that lamb. I have to
keep it on the farm until May 15 or notify the authorities and
lose the premium and everything else that goes with it, which
is very complex. I cannot avail myself of a higher market price,
and, what is more, you then have a flush of ewes coming on the
market post May 15. So the market drops and is depressed. So I
am losing out. If you take the beef sector, what happens there?
We have a system of premium, I will pick on one of them, which
is the beef special premium. The first instalment to be paid is
at 8 months, the second at 20 months. There is an encouragement
to keep the animals longer, a principle which originates from
the Irish concept of aged cattle who would like to keep a third
at 30 months. In terms of efficiency, this is remarkably inefficient.
To be finished most efficiently is the shortest period of time
you can get to a particular weight and confirmation, because every
day there is an overhead of the maintenance ration of the animal.
Furthermore, because you are keeping it for that second retention
period to get that payment, there are sufficient examples of cases
where people have retained it through that period, the animal
becomes over fat, the final value is devalued by the fact that
it has become over fat, so the market place suffers, the farmer
suffers, without realising it probably, and everybody is a loser.
It has got more costs, less from the market place, just for what?
All these factors come together to make us focus on the market
place. It is not quite as clear in the arable sector, but nevertheless
it will become focused as we move away from the concerns, focusing
on the IACS application period. We will have greater flexibility
to move the crops as we want, rather than worrying that we have
notified the authorities. We can reduce the acreage much more
reasonably without worrying at short notice in times of weather
extremes, etc. It will be much more focused on saying: "Right,
what does the market want? It wants these varieties of wheat or
barley", because that will encourage that to develop because
it becomes market base focused. Some of this will devolve more
automatically from decoupling than others. The livestock examples
I have given you are more automatic. The cereal example I will
give you actually will become available because market farmers
can focus on the market place, but will require implicitly the
support of the structures I have talked about of well-run co-operatives,
or co-operative type businesses, to encourage and direct the farmer
that this is a better way to go in this business.
Q176 Alan Simpson: Is this automatically
going to strengthen the growth of local regional markets or not?
Sir Ben Gill: I think what it
will allow is the substantial enthusiasm that I find around the
country of many farmers and their wives looking at how they can
develop new products and tap into local markets. It will allow
them to do so because it gives them the flexibility. If, as the
regulation says, you have not changed your farming acreage from
one year to another, then you just send in a form ticking the
box saying you have not changed, and that is all you need to do.
So you can really focus, not on retention periods, not on whether
or not you have the right amount of this, that or the other in
the plan, but get on with the job in hand, which is marketing;
and that is a tremendous fillip. In addition, this will all work
together with the other changed dynamics in the market place,
but we have that opportunity.
Q177 Mr Lepper: Those opportunities are
more likely to be enhanced by the historic basis rather than the
regional?
Sir Ben Gill: No, decoupling.
Q178 Mr Lepper: I just wanted to get
to what it is. Decoupling, or the way in which it is implemented?
Sir Ben Gill: It is decoupling
per se that delivers this benefit, but, of course, because
of the reasons I have given you of the potential frictional costs
of what is a very significant change in the procedures and the
need to get through those frictional periods, reducing to a minimum
all the dynamics that you can, we would argue for the historic.
I think there is a further dimension that perhaps I should have
referred to before, which is another factor there. I have already
highlighted the sector that would probably derive most redistribution,
but one of the sectors is the beef sector. There will be additional
friction payments in the beef sector, probably starting at or
around the time of the implementation of the reform, with the
unwinding of the over 30 months' scheme, hence the release of
redundant cows younger than those born on 1st August 1996 coming
on the market place, and we will need to integrate that into our
systems as well. So that is another period of potential change
and friction that is adding to the two, which brings us back to
the point, notwithstanding the problems in the unsupported sector,
which are real, notwithstanding all the other issues that we have
talked about, the least worst option of them all is to go down
the historic recognising that it will be reviewed in due course.
Q179 Mr Lepper: Could I perhaps finally
ask Sir Ben if we could have his choice and a prediction. Again,
you have looked forward to 17 March, I think.
Sir Ben Gill: 17 February.
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