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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