European Standing Committee A

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Mr. Paterson: The documents make it clear that, should there be a shortfall in the Community budget, the Community will not make up the funds; it will be down to member states to do so. In that case, can the Minister guarantee that the single farm payments will be protected? As he has already said, they are ring-fenced and will not be impacted by the European agricultural fund for rural development payments. Will he also confirm that the Government will guarantee EAFRD payments?

Alun Michael: I am not sure that I can into that sort of detail. As the hon. Gentleman knows, the negotiations are not part of my brief, but lie with my colleague, Lord Whitty. I am dealing with some issues with which I am very familiar and others with which I am less familiar. My understanding is that the financial discipline mechanism at the EU level is meant to achieve the required outcome, but the matter is complex and I am happy to write to the hon. Gentleman to clarify it further.

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Andrew George: In relation to the Minister’s response to my question about the Government’s priorities, I do not wish to name-drop, but only a couple of weeks ago I was in Brussels meeting Commissioner Mariann Fischer Boel and the Commissioner for Regional Policy, Professor Danuta Hubner. It is clear that the Commission will fight the 1 per cent. club to retain the budget for the EU of 1.14 per cent. of GNI. If, as the Minister indicated, a decision has to be reached in the negotiations before June, which of those items—rural development and regulation, the budget rebate, or other matters—are the Government willing to trade to accept a 1.14 per cent. budget, and what impact will that have on the trend towards increasing pillar 2 payments?

Alun Michael: There is some support for the 1 per cent. ceiling from Germany, France, Austria, the Netherlands, and Sweden. As the hon. Gentleman suggests, that will be the subject of interesting discussions during the remnants of the negotiations.

On the question of whether the budget target will affect rural development, I make two points. First, it depends on the level of allocation from the rural development budget. Secondly, we have flexibility for modulating to provide funding, and we are looking for further flexibility.

As regards the UK share of rural development funding, which is, of course, key to the size of the pot with which we are able to deal, the Commission has promised further discussion papers on the allocation criteria. That will be crucial to how much progress we make. There appears to be some support in the negotiations for our position, which goes against the use of historical expenditure, particularly from some of the new member states.

The hon. Gentleman will know that, in the first instance, our relatively low level of national expenditure on rural development was what gave us such a limited allocation from Europe. The 1 per cent. budget would give a 6.5 per cent. increase in the EU budget, which we believe is realistic and affordable—much more so than the increase of something like 34 per cent. that the Commission proposes. Of course, that is to compare current financial perspectives with a future one, which is not always easy.

Mr. Francois: When pressed, the Minister attempted to help the Committee regarding timings by saying that the Luxembourg presidency hopes to get this concluded by June, with the caveat that that may not be possible. We appreciate that he has at least tried to give us some kind of a steer. Does he agree that we have a problem this afternoon, which is often the case in Committees of this type? Our role is essentially to advise Ministers, on behalf of the House, on negotiations on draft regulations to help to inform their negotiating position. However, because many of these matters are sensitive, the relevant Minister, whoever it may be, ends up in the invidious position of having to say to the Committee again and again, “This is all being negotiated, and there is only so much that I can say about it.” Procedurally, we often find ourselves between a rock and a hard place. That is one of the
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many weaknesses in the House’s ability to comment on and scrutinise much of what comes from Brussels these days. Does the Minister accept that that is a flaw in our procedures? He almost said as much about five minutes ago.

Alun Michael: That is an interesting point. Sometimes we get to a point at which hon. Members ask questions, through which they genuinely seek to establish firm information, when there is no firm information to be given. We Ministers try to be as open as possible about what we are trying to achieve, but the trouble is that our comments are sometimes then nailed down—they are taken down and may be used in evidence against us, because it is a failure if one does not achieve everything that one has been seeking to achieve in negotiations.

The important thing is for us to be clear about our negotiating objectives. In general, the ones that we have achieved so far include moving from excessive dependence on finance for continuing inappropriate production to being able to support a farming industry with a long-term and competitive future. Both the changes in the CAP and the time scale of tapering, which gives farmers some certainty for planning, are positive steps.

Promoting environment-friendly farming and rewarding farmers for their contribution to that end is also very much at the heart of what we want. Obviously, simple good husbandry and good farming practice also contribute to the environment, and farmers have always been keen to underline that contribution, but other things incur costs and require effort from farmers.

It is clear from both the entry-level scheme and the higher-level scheme that greater emphasis on rewards over time is very positive for the industry, for its competitiveness and for the protection of the environment. Beyond that, and getting into some of the detail, of course Opposition Members will want to probe the matter so far as they can. They may well have farmers among their constituents who will want to probe them and who have expert knowledge about the last halfpenny incurred by particular decisions. All we can do is try to be as open as possible and to respond to hon. Members. Where I cannot respond in Committee to very detailed considerations—this is an industry with very specific concerns in different areas—I offer to write to Members and to be as open as possible in explaining how we seek to pursue our objectives.

As I am sure the hon. Gentleman accepts, one goes into negotiations with a set of things that one wants to achieve and starts to build up support for some of them, but others are objected to passionately. It is a trade-off. There is a frequent meeting of minds in Agriculture Council sittings, and I have great confidence in the negotiating skills of the Secretary of State for Environment, Food and Rural Affairs and my noble Friend Lord Whitty. I believe that they can do the best for us. There is also considerable expertise among our officials, although it does not do to boast
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too much about that because that could reduce the impact in future. We have, however, been very successful in the negotiations up to now.

Matthew Green: The Minister will know that an effect of the Fontainebleau agreement was that successive Governments reduced discretionary expenditure to increase the budget rebate that Britain received. An effect of that is that, because EU pillar funds are based on historical claims, the budget rebate for the UK is very low, only 3.2 per cent. That is probably why, almost uniquely, Britain has made use of the Agenda 2000 facility to modulate funds from pillar 1 to pillar 2. Does the Minister therefore believe that there is any chance of successfully arguing for a larger share of rural development regulation funds to avoid the outcomes that are possible if the overall funds fall because of the attempt to reduce the 1 per cent. budget?

Alun Michael: The overall allocation to rural development in the next financial perspective, as proposed by the Commission, is a real-terms increase of 25 per cent., excluding modulation, compared with the current financial perspective. We do not believe that that is justified; rather, we agree that any additional funding for rural development should come only through transfers from pillar 1.

We would, as the hon. Gentleman understands, like a fairer allocation to rural development funding between member states based on more objective criteria of need rather than the historical expenditure, the method used for the current financial perspective. Again, if we are successful on that matter—there seems to be a degree of support for the use of objective criteria—that will certainly be more favourable to the UK’s position post-2006. I cannot predict the outcome of that element of the discussions until we are a little further down the road.

Mr. Paterson: How much of the €88.75 billion of the EAFRD will come from the UK?

Alun Michael: I honestly do not think that I could put a figure on that. Off the top of my head I do not know; I shall have to look into that question further and see whether I can give the hon. Gentleman some indication.

Andrew George: The question and answer session, and my question to the Minister, focus on the hieroglyphical nature of the debate in this rather policy-wonk area. Given that we must grapple not just with LEDA, the ERDF, the EAGGF, the EAGF, the EAFRD, modulation, digressivity, agri-environmental schemes, national reserves and national envelopes, and when one considers the budgetary context of the debate, it is possible that we may lose sight of the real picture.

Does the Minister share my concern that the new payments structure is panning out in such a way that farmers in some of the marginal and difficult lands, particularly to the west of the country, and in smaller,
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traditional family farm settings, who do not have opportunities to diversify, are left struggling for their future, whereas those with larger, more arable-based farms in the east of the country may prosper in the new setting? Is there a way that levers can be pulled in the hieroglyphical policy-wonk system to try to rebalance things?

Alun Michael: I greatly admire the hon. Gentleman’s command of the language of CAP reform. I thought his contribution was a classic, which should be quoted by anyone venturing into this area of debate to show why these matters are not easy to discuss.

The hon. Gentleman, as I feared, asked a simple question to which there is only a complicated answer, although I acknowledge that it is the right question to be asking: what will the actual effect be, and how will individual farmers in different parts of the country be affected? The hon. Gentleman suggested that some farmers may not be able to diversify because they have less flexibility than, for instance, arable farmers in the east. I am not sure that that is necessarily true. There may be more of a monoculture in some arable farming areas where, certainly, benefits of scale may allow farmers to be more competitive and market-oriented and achieve more sustainable profitability in the long term. However, a series of opportunities exists for farmers, and we cannot produce a magic wand that provides the same opportunities to all.

The DEFRA economic analysis suggests that farm incomes will increase by about 5 per cent. as a result of the June 2003 reforms to the CAP. That must be a beneficial outcome. However, I acknowledge that different sectors and, therefore, different parts of the country will be affected to a different degree. It is also the case that breaking the link between subsidy and production removes the incentive for farmers to over-produce. Over-production sometimes has an impact on prices and on the competitiveness of the industry in this country.

The DEFRA farm business survey shows that in 2003–04 farms that diversified had an average annual income from their diversified activities of £10,400. One cannot assume that that is totally additional income, but it is certainly income that the farms would not have received had they not diversified. It is also true that the nature of diversification is very varied. The hon. Gentleman will know well from his experience of Cornwall, as I do from my experience of Wales, that people have always had two or three jobs; farming has been only one part of their work. My grandfather farmed his own smallholding and worked for a couple of days a week for another farmer to sustain himself—he was not sustainable in isolation. With the advent of things such as broadband and the increase in tourism and leisure activities in rural areas, people have more opportunities. Several farmers have told me in recent weeks that they intend to continue farming because they want to do so, but they recognise that they have
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to have other employment too. One of my nephews is taking up plumbing, which seems to be a profitable undertaking compared with farming.

There is a series of decisions to be taken; there is no magic wand. We must do the best that we can for each sector, so that we give it the chance to be competitive. At the same time we must provide opportunities for diversification, and support and encourage people so that they recognise that taking up those opportunities increases their chances of long-term sustainability. There is no single answer to the question.

Mr. Francois: I listened carefully to the Minister’s opening statement. He stressed the complexity of the regulations, telling us that the documents were the sort that caused one, having read them, to want to go and lie down in a dark room for a while. I suspect that many farmers experience a similar sensation when they see drafts of these documents. On that basis, and bearing it in mind that the Minister also intimated that he has been discussing these matters with the NFU, how does his Department plan, once we have a final draft of the document, to promulgate the outcome of the negotiations and to explain the directive in simple language to farmers throughout the country? Will it do it under the auspices of the NFU, hoping that the information will trickle down through its network, or has it a communications strategy that will allow it to pass a summary—and as far as possible a plain English explanation of the implications of the two directives—directly to farmers so that they can read about them for themselves? I give the Minister notice that one of my reasons for asking is that it will be helpful to have an idea as to whether the second option exists, because an incoming Conservative Government might need to act upon it.

Alun Michael: If the hon. Gentleman thinks that an incoming Conservative Government will need to bother with these items, he is even more pessimistic than I was about the time scales involved, as that will be a long way in the future. I thank him for bringing a little light relief to this discussion.

When I talked about the opaque nature of many of the documents, I was referring specifically to the England rural development programme, and the way that the rural development regulation places requirements on the member states that almost drive one in the direction of incomprehensibility. After three or four years of engaging with officials in DEFRA, I can say that there is a great will on their part, as well as on that of Ministers, to communicate in the most limpid of ways. That is extremely difficult to do in this field. Although I was talking about the England rural development programme, I acknowledge that elements of complexity apply to the whole issue and to farm payments.

I would, however, make a number of points. First, we cannot explain what we knows until we know it, so until we have an outcome, we have to talk about options. As soon as we do that, however, things becomes more complicated again, because if we move something, that will have an impact. That gives us a
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problem all the time. We are trying to keep communication with stakeholders in the farming industry—be it direct representatives of the NFU, the CLA and the Tenant Farmers Association, or farmers more widely—as transparent as possible, but we cannot talk in terms of certainty. That is a problem, especially when journalists or representatives of one part of the industry seize, understandably, on things that seem to go against their main preoccupations. There is a problem with the whole relationship. I welcome the fact that the hon. Gentleman asked the question in the way that he did.

The second important point relates to the amount of consultation and work that has gone on. I took part in some of the early discussions on the single farm payment. In the pilot areas, we looked at the forms that would be produced and the options that farmers would have. A key element of that approach was to make things much simpler, and the farming industry and officials have achieved a great deal in that direction.

The third element is the move to simplified computer-based electronic systems to get away from many of the problems that we have had. I know from correspondence that the time taken to deal with issues and the loss of documents have plagued farmers’ relationships with the Department and the Rural Payments Agency. Over the past year or so, there has been a significant drop in the number of such problems because of the time and effort that has been invested in reforming the way that we do our business. Many in the farming industry and many Members of the House will have witnessed those improvements.

I say to the hon. Gentleman that we want to explain things as simply as possible, but there is a difficult balance to strike between doing that, based on certainty, and trying to give people an early indication of where we think things are going. There is certainly more than one strand to our approach; there is a communications strategy, which involves speaking directly to the lead representatives of organisations. The whole ministerial team regularly meets people such as the president of the NFU, Tim Bennett, and the president of the CLA, Mark Hudson. We also speak to the Tenant Farmers Association because it has a slightly different set of preoccupations.

We cannot rely only on communications with representatives, important though they are. We undertake communications through the farming press and direct mail-outs to all farmers so that they all get the information; those are both parts of our strategy. There is a great commitment to making things as simple as possible. One of our biggest motives in trying to make the decisions that come to us from the Commission as simple as possible is that it makes it easier for us to convey them to others.

I am sorry that that was a lengthy answer, but the hon. Gentleman asked a very important question about the way that we communicate. Several hon. Members have rightly commented on the difficulty of discussing uncertainty, but negotiation must, by its
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very nature, be uncertain. I hope, at least, that in my responses on behalf of the Department, I am being as clear as I can be in the circumstances.

Matthew Green rose—

Mr. Paterson rose—

The Chairman: Order. Two Members wish to catch my eye. I propose calling both of them and then moving on to the debate. I call Mr. Green.

Matthew Green: Thank you, Mr. Cummings. The Minister agreed earlier that the overall budget could be between 1 per cent. and 1.4 per cent. of GNI, depending on the outcome of negotiations. He also admitted that the legal basis of the UK’s unilateral modulation beyond 2007 is still up for negotiation, and we are still negotiating whether we can increase our share of pillar 2 from 3.2 per cent. through whichever mechanism is used.

Given all that, does the Minister now agree that, after all the negotiations, the UK could find itself with less money for rural development in 2007 than it will spend in 2006? He said previously that that would not be the case, but given that all the bases for that figure are up for negotiation, I struggle to see how he can be so confident.

Alun Michael: I was expressing confidence; indeed, we should not be as pessimistic as the hon. Gentleman suggests. It is unlikely that we will come to the position that he described, although he would be right to describe it as a theoretical possibility.

We should remember that the UK contributes to the budget as a whole rather than to specific parts of it. It is too early to predict our share of its financing in 2007 because of the complexities of the system and the considerations to which the hon. Gentleman referred. Historically, the UK share of financing has been 12.9 per cent. after abatement; that is the average between 1995 and 2003. Enlargement will reduce that share a little, as 25 countries rather than 15 will be financing the budget. However, I do not believe that the outcome will be as drastic, not even in the most pessimistic circumstances, as the hon. Gentleman suggests. He is right to say that I cannot be certain, but I should give him the best and most confident assessment, which is to be more optimistic, not less.

Mr. Paterson: Does the Minister have an idea of the expected receipts from the EAFRD?

Alun Michael: I am not sure that I can give the hon. Gentleman a figure immediately without its being misleading, but I shall give the best estimate that I can in writing, and I shall send copies to the other members of the Committee.

Motion made and Question proposed,

    That the Committee takes note of European Union Documents No. 11557/04, draft Regulation on the financing of the Common Agricultural Policy and No. 11495/04 and ADDs 1 to 9, draft Regulation on support for rural development by the European Agricultural Fund for Rural Development; and supports the Government’s objective of encouraging and sustaining development in rural areas through diverse, competitive and sustainable farming methods, in line with Common Agricultural
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    Policy reform already agreed in June 2003 and consistent with the wider EU’s shared rural development and environmental priorities.—[Alun Michael.]

3.3 pm

Mr. Paterson: We have had an interesting question time, and I admired the Minister for the way in which he tried manfully to answer the questions, given that is it not his brief. He had a most interesting exchange with my hon. Friend the Member for Rayleigh (Mr. Francois), and I agree that it is most unsatisfactory to discuss something about which we do not know the details. It is rather like trying to grasp a greased piglet in the dark.

Alun Michael: It might benefit the Committee to know whether the hon. Gentleman is speaking from experience.

Mr. Paterson: I have handled many farm animals, but I usually try to do it in daylight.

We had a similar discussion on animals at a previous sitting with the Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs, the hon. Member for Exeter (Mr. Bradshaw). It is unsatisfactory that, although all three sides were in agreement on the main objectives, the Under-Secretary simply could not give us the details. What the Minister said to my hon. Friend the Member for Rayleigh is pertinent.

The motion is unsatisfactory. We are being asked to approve regulations that are clearly not finalised. The Minister kindly said that he will come back to us, but we have had no answers on some massively important details that will have a major impact on many people in rural areas. At the same time, I am not at all happy that lumped together in the motion is a provision to approve Government policies.

My main objection—it was made clear by the question from the hon. Member for St. Ives—is the spectacular complexity of what we are building. I ploughed through the 446 pages last night; I read everything except the Spanish, and I skimmed the French and German. It is excessively complex.

The reality is shown by what happened on Monday in two different parts of Europe. At the NFU conference in Birmingham the president, Tim Bennett, said in a blunt statement in front of the Secretary of State for Environment, Food and Rural Affairs that the English model is “needlessly complicated”. He focused on the problem of delayed payments in particular, which he said would be bad news for every farmer and for some would be disastrous. He asked the Secretary of State in public whether she would make an advance payment and there were also sensible questions from the floor about whether the historic element could be paid so that people knew where they stood.

As I was walking out of the hotel, I bumped into a Shropshire farmer, who I think may well be a constituent of mine, a near neighbour from Ludlow. His payment will be substantial—some £175,000—and he was in a quandary about what he should do. Should he go to the bank? The Secretary of State had
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said that she herself might go to the bank in tandem to say that they had got into a tangle and that the payments would not be ready until February, and to ask whether the bank could help. It is unsatisfactory. This extraordinary document of 440 pages contains yet more massive complication.

That is not just a problem here. I have an interesting headline from Hungary saying, “The peasants are revolting.” On Monday, 900 tractors drove through Budapest at about the same time as the Secretary of State was speaking in Birmingham and, backed by 15 farmers associations, they blocked the town centre and threatened to stay put until 8 March if their Government did not help them. The NFU was considerably more hospitable not only to the Secretary of State but to the EU Commissioner who was at the conference. However, the same problem lay at the heart. Only 9 per cent. of the 220 billion forints, which is about €950 million, in the CAP subsidy set aside for 2004 had actually been paid. The Commission has constantly pointed out that the Hungarian Government’s system is sluggish, behind, cannot cope and does not have the technology or the administrative arrangements in place.

That seems to be the reality across Europe. A sophisticated country in old Europe, the United Kingdom, is not coping and the Secretary of State has said in a very brassy manner and to the general dismay of the largest farming conference in the country that the Government will not pay until next February and that, because they have not got their systems right, it could take longer. At the other end of Europe, in new Europe, in a country where the funds are needed to improve a decrepit ex-communist rural economy, there has been a similar reaction. It seems to me that the whole system is far too complicated.

Alun Michael: I want to make the point at an early stage that, since the hon. Gentleman referred to approving these documents and the Government’s position, the resolution invites the Committee to acknowledge that it “takes note of” the documents and

    “supports the Government’s objective of encouraging and sustaining development in rural areas through diverse, competitive and sustainable farming methods”.

I want it to be clear that the motion is not asking the hon. Gentleman to sign up to an open cheque on the Government negotiations or outcomes.

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