Examination of Witnesses (Questions 40-59)
DEPARTMENT FOR
THE ENVIRONMENT,
FOOD AND
RURAL AFFAIRS
(DEFRA)
13 OCTOBER 2004
Q40 Mr Curry: So it would help diversification,
it would make it less of a complicated issue to go into, perhaps,
if one could look at these under a more collective fiscal nature?
Sir Brian Bender: I would think
it would. I am not well sighted on the point but I would think
it would.
Q41 Mr Curry: One of the differences
between the schemes in England and the scheme in, for example,
Ireland is we do first come, first served and I understand in
Ireland, according to the report of the Audit Commission, people
go and say "Which are the most vulnerable sort of farmers
who might benefit" and they try and sell the policies to
them. Do you think there is some merit in using this very self-consciously,
proactively as it were, to try and help those who might otherwise
be the most vulnerable?
Mr Nesbit: We do not operate a
first come first served system. It is a selective system based
on public benefits but, you are right, we do not have the same
level of intervention very early in the process. What the NAO
research has done is throw up some very interesting examples of
how other Member States have tackled that issue. The Irish example
to which you refer involves a degree of cold-calling on farms,
and I suspect the insurance costs of that could be quite prohibitive
if we tried it in this country, but the general message of the
NAO Report that we need to help farm businesses think through
their choices much more effectively is one that I think we could
take on board.
Q42 Mr Curry: The Irish, you might say,
see this as a sort of welfare, or playing a role in welfare, but
you are saying that basically you see this as part of an economic
development programme?
Sir Brian Bender: Largely. We
see the role essentially of these schemes as helping farmers work
out what is right for their businesses, possibly in co-operation
at more than one farm.
Q43 Mr Curry: One could argue that if
the purpose of decoupling is to put farmers closer to the market
place then there is a contradiction in saying that, on the one
hand, you are going to get closer to the market place and, on
the other, here are lots of grants to help you do it. Is there
not some merit in the American scheme of loan guarantees which
is a market-placed system; perhaps it can lever in different sort
of capital; and even if you had quite a high default rate surely
that would come out as a lower cost to the public exchequer than
pure grants which are, in any case, a pure disbursement?
Sir Brian Bender: We have not
so far issued loan guarantees, as the Report said, for a number
of reasons, but the primary reason is we have not had any evidence
of need and little evidence of demand for farming organisations,
for example, even from tenant farmers. The Tenancy Reform Industry
Group did not raise this last year. The Small Firms Loan Guarantee
Scheme of the DTI has provided a very small number, about three
dozen, loans to agricultural businesses in 2003-04. But we are
looking at it, not least in the light of the NAO Report, and will
have discussions with DTI on how the DTI scheme might be applied,
taking into account the recent Graham review of the loan scheme
that was published earlier this month, so again it is something
we are looking into but not against the background of a clamour
of need.
Q44 Mr Curry: The Report finds that there
is a significant degree of deadweight cost and replacement in
these grants. Given that all grant schemes have elements of this,
this does seem quite a high figure, does it not?
Sir Brian Bender: It does. I think
the crucial sentence from a survey that was done as part of our
own evaluation report, rather than the NAO's own work, said that
for about half of the successful applicants, and this is for the
Processing and Marketing Grant, their project would have gone
ahead anyway albeit on a smaller scale or longer time-scale. Our
judgment is that last part is key, because the crucial question
of whether there is sufficient public benefit needs to take account
of whether the grant achieves something of worthwhile difference
to the scale, speed or ambition of the project. So I think the
figure of half is potentially misleading. But we have actually
rejected, I think, about 18 cases and it is something that we
look at.
Q45 Mr Curry: Equally, when we look at
the schemes which have gone towards support for the supply chain
they have been some of the less successful schemes with perhaps
not so much money going back towards the producer. One could argue,
to take Mr Trickett's point, if we are talking about Tesco, Tesco
is not short of a bob or two. Should they not be supporting these
supply schemes? Why should we be helping Tesco's business?
Mr Nesbit: Certainly the primary
aim of the Processing and Marketing Grant is to ensure, to get
back to Mr Trickett's line of questioning, that a greater percentage
of the value added goes back to the farm businesses, so there
will always be conditions on Processing and Marketing Grant awards
to ensure that the raw materials for the processing business come
from farmers in the region or area concerned.
Chairman: Thank you very much.
Q46 Mr Steinberg: Could I quote from
page 10, paragraph 1.7? "Although farming has been in decline
for years, and now employs less than 2% of the United Kingdom
workforce and accounts for less than 1% of the economy"—"less
than 2% of the workforce and less than 1% of the economy".
One could draw a completely different conclusion from this Report
than the NAO do. My conclusion would be why do they get any subsidy
at all? They do not need it. Why can they not work in the free
market and those that are successful would be very successful
and those that would fail would fail, just like any other private
enterprise? Why do they need these huge subsidies?
Sir Brian Bender: Our ministers
did ask this question in the run-up to the publication of our
own Sustainable Farming and Food Strategy, as I mentioned earlier.
What is the difference between farming and the coal, steel, shipbuilding,
vehicles industries, and the answer is they look after 75% of
the land mass. Therefore, even in a perfect world where we could
decide freely exactly what we wanted to do, there is a public
good in terms of the additional cost and burden of looking after
the environment effectively that is worth the spend of some taxpayer
money. So that is the primary difference. There is also a secondary
question of vibrancy of rural communities and the role that farm
businesses may play in that, but I note that 94% of people employed
in rural areas are not employed directly in farming.
Q47 Mr Steinberg: Following on, you have
basically mentioned the next point I was going to make because
further on it does say, "maintaining an attractive landscape,
keeping natural resources like water and soil in good health,
and preserving wildlife habitats", and the total subsidy
is £3 billion a year into the farming industry. It is a hell
of a lot of money to pay. Presumably it could be done a lot cheaper
than that?
Sir Brian Bender: Quite a lot
of the subsidy, at least until next year when the decoupling happens
has, as I said earlier, been directly linked to what a farmer
produces. That sort of argumentation is why the government some
years ago decided to use this device of modulation, and take some
of that subsidy and use it on environmental benefits, and it is
why, in response to Mr Curry's line of argument, the government
decided to introduce rather more rigorous requirements on this
thing called cross-compliance, which a farmer has to do in order
to get the new decoupled subsidy, than planned in Scotland and
Wales. So the government is very conscious of that and is trying
to address it within the constraints of the regulations.
Q48 Mr Steinberg: The Chairman mentioned
New Zealand and I was on a CPA visit in New Zealand at the beginning
of the summer, and this question of subsidy was discussed there,
and the problem was it needed a political decision. Somebody had
to have the nerve and the audacity, if that is the right word,
to bring this policy in because clearly the New Zealand farmers
at the time receiving subsidy did not want to lose it, but once
somebody grasped the nettle and made that decision and after the
interim period of problems which you always get when you have
a dramatic change, everybody now is in favour of it including
the farmers. I have farmers in my constituency, one who I am particularly
friendly with, and believe it or not he is very supportive of
the New Zealand way. He says he does not want to have these dammed
subsidies, and he would prefer not to have them and work within
the free market.
Sir Brian Bender: But I wonder
whether your farmer you spoke to would be happy to do that if
France did not, because one benefit New Zealand has is it is a
relatively isolated market. It has Australia next door, and clearly
what we do has to have regard to what other close trading partners
do, so we need to co-operate. We have something called the Common
Agricultural Policy, but whether or not we had it we would need
to operate in a framework of what our major trading partners are
doing as well.
Q49 Mr Steinberg: Will there ever be
a move towards the abolition of total subsidy?
Sir Brian Bender: I think the
World Trade Organisation negotiations, if successful, will get
an end-date for export subsidies and that will be hugely important
and will open up more access for developing country markets as
well. The ceiling for overall subsidy was set up to, I think,
2012 by the European Council a couple of years back so we are
on a long path here to zero.
Q50 Mr Steinberg: Moving on, the next
point I wanted to ask you about was regarding the grants themselves.
Do you intend to continue to give grants in the next rural development
schemes when they are introduced?
Sir Brian Bender: I might ask
Mr Nesbit to respond in more detail but I would expect us to have
some grant schemes. I think exactly what we apply would depend
on what the regulations allow and what our experience is, but
I would be surprised if we moved completely away from some grant
schemes for business development.
Mr Nesbit: Yes. Certainly I would
expect the future rural development programme to be heavily focused
around grants. There are questions about whether you focus those
grants on capital expenditure or advice or facilitation. I think
that is one area we ought to look at very carefully.
Q51 Mr Steinberg: I was moving on to
the fact there are two ways of looking at this. If you give grants
to successful innovations, one could argue and say, "Well,
they would have been successful anyway so why give grants to something?"
On the other hand you could argue and say, "Well, you should
only give grants to those who are less well off and not doing
so well", but if you argue that why should public money be
given to people who are inefficient and are failing to be successful?
Sir Brian Bender: We are dealing
with an industry going through potentially massive change and
massive transition, so the question is what is the role of the
public taxpayer subsidy to help them through that, and if we can
get them through that process, through the single payment process,
to look at their business better, to invest in different ways,
to invest in innovative ways, that is of benefit over this period
of massive transition.
Q52 Mr Steinberg: I come out on the side
that one should perhaps reward those who are the most successful,
and if there is an innovation then support that innovation to
ensure it is very successful but one should not be giving grants
away willy nilly to those who are basically not providing a successful
business?
Sir Brian Bender: But it may be
more than innovation—
Q53 Mr Steinberg: What I am saying is
why should the taxpayer subsidise just somebody for the sake of
subsidising them, which appears to happen in many cases in the
farming industry?
Sir Brian Bender: The business
development schemes here are selective, rather like Regional Selective
Assistance which I am sure you are very familiar with, and issues
arise as to whether they are creating jobs, whether new products
are being created—
Q54 Mr Steinberg: Give us some examples
of where that is happening, can you?
Sir Brian Bender: I can give you
examples of innovation, and I shall read from my briefing, if
you will forgive me, "using membrane technology and reverse
osmosis to capture waste, processing hemp into industrial fibre
products, using new solar-powered hot water system and wind turbine
energy in a dairy processing business . . . "—
Q55 Mr Steinberg: Are these creating
all new jobs or just sustaining jobs that are already there?
Sir Brian Bender: Well, there
will be a mixture. The figure I have in front of me is that by
March of this year the Processing and Marketing Grant scheme had
resulted in over 5,000 jobs being created or safeguarded.
Q56 Mr Steinberg: Moving away from that
now to something that David actually touched on but I do not think
you responded. At page 34, paragraph 4.10, David mentioned regional
development agencies and that Lord Haskins had suggested that
there be decentralisation. It seems to me that whether you like
it or not, and I am not sure but I suspect, there is going to
be a "yes" vote in the north east of England for regional
government and presumably if that happens and you do decentralise
then regional government is going to be responsible for what the
regional development agencies were. Have you planned for this?
Sir Brian Bender: We are planning
for it—present continuous. That is to say, you are right.
If the vote is yes, One North East will become a body of the elected
regional assembly, and therefore our relationship, instead of
being with One North East, as it is at the moment, will need to
be with the elected regional assembly.
Q57 Mr Steinberg: You say you are looking
into this and working it out; you must be further down the road
than just doing that because it is not very far away now, is it?
The referendum is early next month. Presumably you are not going
to have much time after that. Are you saying that regional government
will take over the total role of the regional development agencies
in terms of agriculture and rural communities?
Sir Brian Bender: Firstly, the
Regional Development Agencies in these areas have a single pot,
as you probably know at least as well as I do, and what is going
on in Whitehall at the moment is to work out what is called a
tasking framework to ensure that the way they use that money reflects
central government objectives. In the case of Defra we are ensuring
that, within that tasking framework, sustainable development,
rural communities and sustainable farming and food is reflected.
That will pass to the north east assembly.
Q58 Mr Steinberg: Lastly, David said
there were four different systems in the country, or there will
be in the United Kingdom when all this is settled. Will there
actually be five different systems?
Sir Brian Bender: In one respect
there will be eight or nine, because it will be up to each Regional
Development Agency—
Q59 Mr Steinberg: Once you have an elected
assembly and you have politicians taking over the running of something,
they are not going to be told by Whitehall, are they?
Sir Brian Bender: No, but nor
is local government. Local government has its own—
| 
