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Session 2003 - 04
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European Standing Committee A Debates

Common Agricultural Policy: Reform of the Tobacco, Olive Oil, Cotton and Sugar Sectors

European Standing

Committee A

Thursday 29 January 2004

[Janet Anderson in the Chair]

Common Agricultural Policy

[Relevant Documents: European Union Document No. 14295/00, Special Report No. 20/2000 by the Court of Auditors concerning the management of the Common Organisation of the Market for Sugar; European Union Document No. 13111/03, Commission Report on evolution of the hop sector; and European Union Document No. 14991/03, draft Council Regulation establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers; and draft Council Regulation on the common organisation of the market in olive oil and table olives.]

2 pm

The Minister for Rural Affairs and Local Environmental Quality (Alun Michael): I am delighted to have the opportunity to speak to the Committee and to open the debate on what I believe is your first occasion in the Chair of the Committee, Ms Anderson. While welcoming your accession to the Chair, I know you well enough to realise that I must not try to get away with anything. I am sure that your chairing of our proceedings will be fair, but firm. I am also grateful for the opportunity to discuss these important proposals on further reforming the common agricultural policy.

Last June, against many people's expectations, we secured agreement to a radical reform of the CAP. The key elements of what was agreed then set the context for today's discussion. Most important was the agreement to break the link involving the subsidy paid to farmers for what they produce, which is called decoupling. That means that farmers' activities will no longer be dictated by what the subsidy regime requires them to produce, but that they will be free to farm for what the market wants. It also reduces the environmental impact of farming by removing an incentive for intensification and over-production and by making subsidy dependent on compliance with a range of environmental standards.

The agreement also makes more money available for wider rural development and environmental objectives—the so-called pillar 2 of the CAP. Finally, the decoupling of subsidy from production reduces the trade-distorting nature of the CAP and paves the way for a deal in the current round of world trade negotiations. However, while last June's reforms covered the bulk of subsidy under the CAP, they did not extend to all sectors. Today we are discussing the European Commission's subsequent proposals for reforming the sugar, cotton, tobacco, olive oil and hops regimes.

The Government very much welcome such an extension of last June's reforms and we believe that it is important that that should be consistent with what was agreed then. We are analysing the responses to a

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consultation exercise on the proposals. We are particularly pleased with the proposal for the full decoupling of tobacco subsidy from production. It has always been perverse that European Union taxpayers should subsidise a product that is so damaging to people's health. Full decoupling would put an end to such specific subsidisation. We also welcome the prospect of being able to decouple fully the subsidy for hops. That will give hops farmers the same market freedoms as those in other sectors of UK farming.

As for olive oil and cotton, we are disappointed at the proposal to decouple only 60 per cent. of subsidy. That is not consistent with last June's reforms. That agreement gave member states the option to decouple 100 per cent. of subsidy with some derogations for retaining coupled payments, but only up to a maximum of 25 per cent. That is particularly important in respect of cotton, where a bold reform would send a strong, positive signal in the context of the world trade negotiations and therefore directly help developing countries. We have been pressing that point in negotiations.

Sugar is also important in the world trade talks, but the position is different and, in many respects, a good deal more complex. The Commission has not yet tabled proposals on sugar reform, but it has floated three options for discussion: the extension of the present regime beyond 2006, reducing price support and the full liberalisation of the regime. The Government's aim remains to achieve reforms in line with what was agreed in other sectors—in other words, a simplified, market-based approach consistent with our sustainability policies.

Mr. Douglas Hogg (Sleaford and North Hykeham) (Con): Will the Minister give way?

The Chairman: Order. I am afraid that no interventions are allowed during the Minister's opening remarks.

Mr. Hogg: I apologise. I was unaware of that.

Alun Michael: Like the right hon. and learned Gentleman, I am learning about the procedures in this Committee, too. I understand that questions are asked after the opening statement. I assure him that he will not have to restrain himself for too long.

On 16 January, we concluded a consultation exercise on the options for sugar and we are considering the responses. However, we have made it clear that we support the European Commission's analysis that the status quo cannot continue, especially in light of the current round of trade negotiations, and of the challenge to the regime launched in the World Trade Organisation last year by Brazil, Thailand and Australia. The EBA—everything but arms—agreement of 2001, which will allow unlimited, duty-free access to sugar imports from the least developed countries by 2009, adds further pressure for reform.

The European Scrutiny Committee has drawn attention to the impact of the EBA agreement, and in particular to the Government's view of it now compared with three years ago. My noble Friend Lord Whitty has provided a supplementary explanatory

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memorandum clarifying that position, but I should outline the key points.

Back in 2000, we faced an imminent review of the EU sugar regime and had to consider the implications of the EBA agreement for that regime. We believe that some industry estimates of possible import levels from EBA countries were unrealistically high—several million tonnes per year within a very short period. Ministers from the Department for International Development and the Department of Trade and Industry made that point to the Committee at the time, pointing out supply constraints and that the total production from least developed countries was only around 2 million tonnes.

The final EBA agreement included transitional arrangements for sugar over eight years, with a year-on-year increase to ensure orderly introduction. However, the Government stressed at the time that, for the longer term, the sugar regime had to be reformed to take account of the EBA agreement. The 2001 sugar reforms merely scratched the surface and the regime was extended until 2006—that was the outcome at that time.

Three years later, we are faced with the need to make fundamental reforms to create a sustainable and competitive sugar sector beyond 2006, and indeed beyond 2009, when EBA is fully implemented. The least developed countries have the potential to gear up their sugar industries to increase imports in the longer term, and they will do so if EU prices remain two to three times the world price, which is the situation at present.

Hence, in light of the lack of progress on reform to date, we must recognise the fact that the EBA agreement could fundamentally undermine the current EU sugar regime, if that is not reformed. The view of the Government and the European Commission is that those two issues are inextricably linked.

Clearly there are issues, such as the current preferential access arrangements for certain developing countries, that have to be addressed carefully. However, the full effect of EBA by 2009—on top of other pressures such as the wider world trade negotiations, EU enlargement and reforms of other parts of the CAP—means that no change is not an option for the current anachronistic sugar regime. I hope that that clarification assists the Committee in its deliberations.

The Chairman: I thank the Minister for his opening statement. We now have until 3 o'clock at the latest for questions to him. I remind the Committee that questions should be brief, and asked one at a time. There is likely to be ample opportunity for all Members to ask several questions.

Mr. John Whittingdale (Maldon and East Chelmsford) (Con): I join the Minister in welcoming you to the Chair, Ms Anderson.

The Minister, like the motion, refers to the need for a more sustainable system of agriculture in the European Union. How does he define the word ''sustainable'' in relation to sugar?

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Alun Michael: Essentially, being able to produce and compete at prices that the market will sustain—in other words, meeting the requirements of the market.

Lawrie Quinn (Scarborough and Whitby) (Lab): As a full and permanent member of the Committee, Ms Anderson, I welcome you on behalf of all the permanent members. We hope to see you at the Committee on many occasions. In view of the subject before us, I am sure that, in true Mary Poppins style, you will ensure that the Committee goes well and that a spoonful of sugar helps the medicine go down.

Will the Minister comment on the potential threat to people involved in sugar beet production, particularly in North Yorkshire, which is my part of the world? In the light of enlargement, there could be a big impact on the prosperity of many of my constituents as a result of eastern European countries, particularly Poland, joining the EU. The Committee would like a reference point on those important issues.

Alun Michael: Nobody would suggest that the present situation is comfortable for sugar producers. As I indicated in my opening comments, the current situation is unsustainable in the light of CAP reform, the pressures of the world trade round and the arrangements already agreed by the UK and Europe in terms of the EBA agreement. That is why we have had the consultation, and we are looking at the response so as to agree our position regarding the three options set up by the European Commission and to try to see the way forward.

 
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