Select Committee on Environment, Food and Rural Affairs Minutes of Evidence


Examination of Witnesses (Questions 360-379)

8 MARCH 2004

LORD WHITTY AND MR ANDREW SLADE

  Q360 Mr Wiggin: So you agree it actually penalises the most efficient?

  Lord Whitty: "Penalise" is not the word I would use. The most efficient will be the most competitive and the most able to face up to the new challenges. If you are looking at a static position and see a farmer with so many cows per hectare, with so much production per hectare now, with so much subsidy particularly as the direct payments come through, if he remains absolutely static at the end of that will he do less well than somebody slightly smaller or somebody in a different sector? Of course, the whole point of the reform is to get everybody more market orientated, so they are engaged in a process of restructuring the industry which will end up with a more competitive sector, so there is no point taking somebody in 2003 and then somebody in 2013 in a totally static position—if they have any nous, and many of these farmers have quite a lot of nous in terms of the more progressive elements in dairy farming, they will put themselves in a position to benefit from the market orientation.

  Q361 Mr Wiggin: So we all want market orientation, we all want to bring different parts of the dairy sector together to talk to one another, yet the way the Government sends out that message, and it is different in Wales and it is different in Scotland, is to say, "If you are the most competitive, you have to face the toughest time". It is an interesting way of delivering your ambitions, is it not?

  Lord Whitty: What we are delivering is a continued and definite level of support for farming and an ability for farmers themselves to adapt to the market. If you were talking to entrepreneurs in any other sector, they would say, "That is exactly what we want."

  Q362 Mr Wiggin: I am not sure they would.

  Lord Whitty: Well, I think they would actually. I think most entrepreneurs in most parts of the industry would say, "What we want is certainty about what Government is going to do and freedom to meet the market for our products on our own decisions."

  Q363 Mr Wiggin: I am sure they would agree with that part, I am not sure they would agree with the—well let's talk about the difference with Scotland and Wales. Certainly in my constituency on the Welsh borders there are real difficulties with competitiveness now. To what extent do you think English dairy farmers are going to be disadvantaged in comparison with their neighbours across the border because of the way the Assembly has chosen a different type from you in terms of the Single Farm Payment scheme?

  Lord Whitty: All parts of the United Kingdom will be decoupled.

  Q364 Mr Wiggin: I know that.

  Lord Whitty: So that means there is no additional subsidy for any additional pint of milk or additional number of sheep. So in one sense they are all equal. In marketing decisions or whether they will increase or decrease production, that is the relevant thing. I appreciate that psychologically if you are getting a closer amount to your historic payment one side of the border as against another, you may feel better off, but actually the decision facing you is based on the fact you are now in a decoupled world, and there should therefore not be any market advantage to being on different sides of the border. Obviously, I would have preferred if all parts of the United Kingdom had taken roughly speaking the same decision, but that is one of the consequences of devolution and people take decisions accordingly. There are parts of the likely Welsh position which will be less welcome to the Welsh side of the border; they may well be using national envelopes, for example, which we have decided not to.

  Q365 Mr Wiggin: There is a real problem though with severely disadvantaged areas which in my constituency are classed as such because of their altitude, they are not moorlands, they are just one side of what is the other side a Welsh mountain, and yet those farmers are going to receive a third of the flat rate payment which their neighbours on the other side and probably their neighbours further down the hill get. You have created with this scheme some extremely peculiar situations for farmers going forward. Do you think it needs to be looked at again?

  Lord Whitty: When we proposed, suggested or hinted pretty broadly was that we were likely to favour a system which moved towards an area payment rather than an historic payment. There were a lot of grumblings from some parts of the industry and a lot of support from other parts of the industry taken across the board, but one thing they were united on was that if we do that we would have to do two things. One was to ensure it is phased in over a reasonable amount of time and the other is that you avoid the most substantial redistribution. The first was met by having what was probably the longest transitional period we could conceive of which was eight years, the second was by dividing England between two areas so effectively there was not a huge movement of the money, if you like, up the hill. In order to comply with Brussels rules you have to have an area which has some legal certainty about it, you cannot simply define it by current structures of ownership or terrain, and the SDA border is one recognised in European and British law, English law, and which was the most obvious way of stopping the most drastic of the redistributive effects. It still means the money within the SDA area will be the same in total as it ever has been. The distribution within the SDA area, as for distribution in the non-SDA area, will of course change but the total amount of money in the SDA area will be the same. This does have some anomalous effects. I know the beef sector in particular is very concerned about the differentiation of those who happen to be classified as SDA farms in part or in whole and those pretty much adjacent. We have received representations from particularly the beef farmers and other local groups of farmers who are involved in that and clearly before we finalise these regulations we will have to take those representations into account, but wherever you draw the line there will inevitably be some anomalies. The bigger issue was if we had gone for a single area for England the redistribution which you and the dairy sector are complaining about would have been significantly greater.

  Q366 Mr Wiggin: Let me start by saying I am grateful for the fact you are still considering. Can I also say there is another worry which is, if you are in of these severely disadvantaged areas you will have to increase your production to maintain your income, and therefore you may not have moved the money up the hill but you may have moved the cows up the hill.

  Lord Whitty: That is one of the issues we need to assess as to how important that might in practice be, because that could have in some circumstances at least some environmental downside as well as rather distorting the pattern of production.

  Mr Slade: In certain parts too few cattle is a problem environmentally, just as much as in other areas within the SDA too many is a problem.

  Q367 Chairman: The grazing implications.

  Mr Slade: Yes.

  Q368 Paddy Tipping: The real issue in upland areas has been over-grazing and I am pleased to hear the Minister say, "We think there may be some environmental consequences of this and we are mindful of this and need to look at it." Part of this could be looked at as a result of the hierarchy of agri-environmental payments.

  Lord Whitty: That is one way of dealing with it, certainly both the entry level scheme and higher level schemes could perhaps provide some help to farmers in those situations.

  Q369 Chairman: Just before I bring in Mr Jack, you have obviously been lobbied by the beef industry, unless I am misunderstanding this you are going to be heavily lobbied by the dairy industry on the way in which the English Single Farm Payments are going to be made. This was the part of the industry, certainly in the South West, which was adamant it had to be historic, it could not be area based. Okay, we have a historic compromise, I could say, in that it is moving from one to the other, but that industry is going to be very unhappy.

  Lord Whitty: I have already received, and would anticipate further, representations from the dairy sector in the South West. I would not be too disparaging if I say I rather expected that whatever proposition we have put out. Just to be clear on the nature of the redistribution, we are talking about a period where at worst the large dairy farms would have over eight years of reduction of up to 17% in their support, whereas the smaller and medium sized farms would actually have an increase, the smaller ones a significant increase. When we talk about the South West in particular, bearing in mind they do tend to be on the vociferous side, there are actually more small to medium sized farms there than in many other parts of the country who might actually have a better case to complain about the redistributive effect.

  Q370 Mr Jack: Could you explain to me, because I really do not understand, how it is that the SDA areas have such a low level of support? Up to now, when if you like we had domestic control over payment for disadvantaged areas, we did it the other way round, we looked at the special characteristics and we made some additional payments to compensate for the problems of farming in the least able areas to sustain agriculture. But looking at the Farming Today interview, which I am sure you must have heard on 2 March, we have the complete reverse. Could you just explain to me how does SDA end up with effectively the lowest level of support when there are still tremendous structural problems in those parts of the country?

  Lord Whitty: The current payment, the historic payment, in the SDA area is entirely based on the production SDA areas, and the number of sheep per hectare in some of those upland areas can probably be counted on the fingers of a single hand. If you are basing it on the historic payments then it is sparsity which is the answer as compared to lowland areas. Of course that calculation does not take into account the HFA which is unaffected by all these calculations.

  Q371 Mr Jack: Just for the record could you refresh our memory about HFAs?

  Lord Whitty: The Hill Farm Allowance, which is made on an area basis in most of the SDA areas, is unaffected by any of these calculations. So that, if you like, national pillar two finance part of the equation, remains the same. It is a diminishing absolute figure but it is not altered by these changes.

  Q372 Mr Jack: Looking at the Farming Today interview it may be a partial position in terms of the total amount of support which could be made available, and I would very much like a note to try and make certain I have a proper view of what is going on. The discussions centred on Mr Robert Gosling who had 320 dairy cows—which going back to some evidence earlier is actually a large herd, so here we have somebody who is twice the level which we are told is large and therefore efficient—produced 2 ½ million litres of milk every year, 7,000 litres a day, which all sounds very good news, but then you turn over in the transcript and this particular farmer is going to be some £24,000 a year worse off than a comparator in a non-SDA area. I was not certain what the basis of those numbers was but it does not seem to be quite the picture of trying to assist farming. The difference is that the Single Farm Payment is about £20 per acre, £60 per acre less than the £80 attracted in the non-SDA land. That just seemed to be the wrong way round and I do not understand how those numbers had come out, and why the SDA seemed to get the worst deal.

  Lord Whitty: The total amount of money within the SDA does not alter as a result of this.

  Mr Wiggin: What do you mean by that?

  Q373 Mr Jack: If it does not alter, if it is a different label on giving some of it back to the farmer, just explain it in money terms. Here we have, according to the numbers we have been given falling out of this Farming Today interview, a £60 deficit per acre if you are in a severely disadvantaged area. Is that order of magnitude difference right or wrong?

  Lord Whitty: I do not know about that individual farm clearly, but as with the rest of England if you move away from a production subsidy to a land subsidy over an eight year period then the more intensive the producers operating on a smaller acreage will lose out compared with the less intensive producers. In a sense, put crudely in probably that case, the subsidy will have moved away from cattle towards sheep in that area if that is the kind of farming which operates in the uplands.

  Q374 Mr Jack: Let us focus on this particular farmer. I am still not clear, and I will put my hands up and say it may well be my lack of understanding, and it probably is, but that is why I am just probing this. Here we have a farmer in a severely disadvantaged area, in this case in Derbyshire, looking after over 300 cows, so it is the kind of unit we might want to encourage because it is large and we hope it will be efficient. The net result is a severe reversal in terms of the support, the decoupled payment which the farmer is going to get. Bearing in mind the importance which I guess this farmer has to the rural environment in which he operates, one might be inclined to say, "We would want to find ways of sustaining this farmer given the implications to his piece of rural Derbyshire if he were not to carry on what he is doing at the moment." With 320-odd cows it ought to be quite a viable business. I do not understand how these numbers have fallen out and why you then go on to say that the total amount of money in the SDA remains the same. I do not understand how that works. Please explain it to me.

  Lord Whitty: I thought I was explaining it to you. The amount of money in the SDA area at the moment and who gets that money, is determined by how many cows you have got, how many sheep you have got. The amount of money in future will be the same amount of money but distributed at the end of this period by how much land you have got, provided you are in cross-compliance. That therefore is bound to mean somebody who has relatively small amounts of land and relatively large numbers of beasts will have less of a share of that, but the total amount in the SDA area as a whole will remain the same.

  Mr Wiggin: But are the SDA flat rate payments the same? Sorry.

  Q375 Mr Jack: One of the things which Herr Fischler said he did not want to see under the proposals put forward by Member States was substantial redistributions of monies, he was concerned about that. Clearly you have won the argument in global terms about what you want to do in the United Kingdom, but in the SDA—and I follow the logic of the argument you have put forward in relation beasts to land—are we not going to see some structural changes occurring? In the case of this particular dairy farmer it may well be—if the numbers are correct according to the radio interview, he says here and I quote, "The difference between myself at A and the farm down the road which is non-SDA and the same acreage will be something like £24,000 a year, so that is quite a major impact on our business." I would agree with him, to try and take £2,000 a month out of the costs of his business—and he is already in a difficult area anyway but he has 325 cows and seems to be doing all right—to find £2,000 per month savings is by any stretch of the imagination an awful lot of money to take out of his business. If you do not want to see a structural change in terms of farming in areas like that, how are you going to address that kind of issue?

  Lord Whitty: I have never said I do not want to see any structural change, I think the structural change should be determined by what farming in each of these areas could produce for the market. If that particular enterprise is in the long-run not sustainable at the level of support we continue to give, then clearly there will be some structural change there as elsewhere. As I said earlier, one of the ways in which you avoid huge redistribution is by saying the upland areas, broadly speaking, will be treated separately from the lowland areas, because otherwise there would be, given the vast acres of moorland you might otherwise have to enter into the equation, a very significant shift, much greater than the 10 or so % out of dairy we are talking about here, away from the lowland probably more intensive producers to the uplands. So that would be a very serious—

  Q376 Mr Jack: Let me ask you another question. What modelling have you done to assess the impact? You have said to us that perhaps you would not shed a tear if this particular farmer moved away from dairy to—

  Lord Whitty: I did not comment on this particular farmer, I said there will be some structural change.

  Q377 Mr Jack: You have talked about structural change. You have said, "We will produce what the market will require", but if I have understood you correctly livestock producers in general in the SDA are all going to face the same problem and, bluntly, in the SDA areas there is not a lot else you can do but graze things either to produce meat for the table or, in this case, milk for the bottle. So if your range of alternatives is not that great, one will see potentially farmers saying, "Enough is enough", and then you will have the difficult problem of what is going to happen to the rural environs, the landscape, et cetera, et cetera. So what modelling has Defra done to try to work out what the likely economic impacts and commercial decision-making there is going to be by farmers in this area?

  Lord Whitty: If you are saying what will be the sectoral impact area by area—

  Q378 Mr Jack: No, I asked a specific question, what modelling have you done to try and work out the impact on these areas of the policy mix which you have now decided on?

  Lord Whitty: Modelling of what? Modelling of which sector gets the money or of where the total support is going?

  Chairman: I think we are looking at the differences within the SDA area but also between the SDA areas and the non-SDA areas. Non-SDA areas seem to be doing better.

  Q379 Mr Jack: Here is the Colman and Harvey Report which talks about the future of UK dairy farming, it is a piece of economic modelling, have you got a similar document tucked away in Defra which says, "The future of farming in the SDAs"?

  Lord Whitty: No, is the short answer to that.


 
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