House of Commons - Environment, Food and Rural Affairs

Select Committee on Environment, Food and Rural Affairs Fourth Report

6 ANALYSIS OF ASPECTS OF THE VISION

31. We now turn to a detailed analysis of the contents of the Vision paper. In the first chapter of the report, the Government lays out its "Vision for Agriculture", describing how a sustainable CAP should comprise:

a free, fair and level playing field throughout the EU for farmers to produce and market their goods in a single market, as in other sectors of the economy;
central to this, the integration of agriculture within EU competition policy on the same basis as for other sectors with rules set at the EU level;
a clear framework, set at EU level, to define the goals of EU agricultural policy, focussing in particular on maintaining the environment and promoting sustainable rural development, particularly in the more environmentally sensitive regions of the Union;
within this framework and in the long-term, targeted, non production-distorting measures defined and applied at Member State, regional and local levels to achieve these goals in accordance with local priorities and consistent with EU competition policy;
import tariffs for all farm sectors progressively aligned with the much lower level prevailing in other sectors of the economy;
no price support, export refunds or other production or consumption subsidies;
social and welfare benefit support as determined by the Member States available to farmers on the same basis as other members of society but with no income or production support payments which treat agriculture differently from other sectors; and
EU spending on agriculture based on the current Pillar II and supporting these objectives as appropriate, allowing a considerable reduction in total spending by the EU on agriculture and bringing this into line with other sectors.[47]

Expenditure on Pillar 1 of the CAP

32. Defra and HM Treasury acknowledged that an "important component" of the Government's Vision was an end to Pillar 1 CAP expenditure, as detailed in the later elements of the above list.[48] Pillar 1 expenditure includes market support mechanisms, such as intervention buying and export subsidies, as well as direct payments to farmers under the Single Payment Scheme. Defra / HM Treasury noted that "direct payments could be phased out in a number of different ways", with the remaining EU spending on agriculture being based instead on the current Pillar 2, which is designed to support rural development and fund agri-environment schemes.[49]

33. It is this objective of the Vision, which looks towards Europe's agriculture being in 10 to 15 years' time "internationally competitive without reliance on subsidy or protection" to which Commissioner Fischer Boel took most exception when giving oral evidence.[50] She argued that under the liberalised scenario, as advocated by the UK Government, with no direct payments and no market protection, "most European farmers will be kicked out of the market".[51] We analyse below the relative advantages and disadvantages of eliminating Pillar 1 support. We also consider the possible options for executing this policy change.

ASSESSMENT OF THE ADVANTAGES OF ELIMINATING PILLAR 1 EXPENDITURE, AS ADVOCATED BY THE VISION

34. Clearly, for a Member State such as the UK that is a net contributor to the EU budget, there is an obvious advantage in reducing the overall expenditure on the CAP. In his letter to the Chairman of the Committee of 16 January 2006, the Prime Minister noted that "the CAP remains expensive" and that "it is inadequately geared towards protecting and enhancing the environment".[52] This conviction, that the CAP consumes too great a proportion of the EU budget, underpinned the UK negotiating position during the debate on the Financial Perspectives throughout the latter part of 2005. The Prime Minister used his address to the European Parliament at the start of the UK Presidency to highlight the importance of increased spending on items such as research and development, before describing how "a modern budget for Europe is not one that 10 years from now is still spending 40% of its money on the CAP".[53] The UK Government's Vision for the CAP points the way to how a more balanced budget might be achieved, proposing that "a very significant reduction in the CAP budget" could be achieved by phasing out spending on Pillar 1 of the CAP to leave all future support directed exclusively at Pillar 2.[54]

35. Not only would the Vision's proposals rebalance the priorities of the general EU budget, but they would also shift the emphasis within the CAP budget heading itself. The Vision foresees that, as Pillar 1 expenditure is phased out, at least some of the resultant savings could be devoted to agri-environment measures and other rural development schemes. However, while suggesting that the reform dividend could be "considerable", or even "very significant", the Vision stopped short of actually quantifying the saving that might be possible.[55]

36. Other witnesses were similarly reticent in attempting to estimate the scope for savings by redirecting support from Pillar 1 to Pillar 2. However, Natural England did helpfully disclose that it was working on the basis that between £500 and £700 million per year would be needed to fund agri-environment agreements with English farmers by 2013.[56] While acknowledging that this was considerably lower than the total SPS fund in England of £1.5 billion, Natural England was quick to point out that more work was required to refine its estimate and that only "the basic requirements in terms of biodiversity and natural resource protection" could be provided within that budget. Delivering additional Biodiversity Action Plan targets would require extra resources, as would a contingency to mitigate any negative impacts on biodiversity caused by climate change. Furthermore, Natural England agreed with the NFU when it said that much of the benefits that could be derived from developing Pillar 2 in the future might only be possible if the farming infrastructures were retained through Pillar 1 support.[57]

37. Another potential advantage in eliminating Pillar 1 support stems from bringing to an end what the Vision described as the inherent inefficiencies of existing CAP support. The Vision paper quoted figures from the Organisation for Economic Co-operation and Development (OECD) when arguing that much of the value of direct payments is capitalised into land prices, so that the benefits accrue mainly to the landowner rather than the farmer, noting that the benefits of market price support and direct payments linked to land "accrue primarily to the initial landowners, quota-holders, entitlement holders and owners of other inputs used intensively in agriculture, whilst those wishing to enter farming subsequently and farmers who wish to expand their husbandry are disadvantaged as they have to buy their way into the support system".[58] Ironically, one negative side-effect of pursuing a policy of enhancing the funding of agri-environment schemes based on land management criteria is likely to be the capitalisation of a proportion of these Pillar 2 monies into land values.

38. Eliminating all Pillar 1 CAP expenditure would also significantly improve the EU's position with respect to the ongoing multilateral trade negotiations. While the 2003 CAP reform eased the pressure on the EU in terms of its World Trade Organisation (WTO) commitments on domestic support, the other elements of its international trade commitments are more problematic. The EU has already pledged to end agricultural export subsidies by 2013, as part of the Doha Development Agenda talks, and the ability to make further concessions on market protection might also go some way to breaking the current impasse in the trade negotiations.

ASSESSMENT OF THE POSSIBLE DISADVANTAGES OF ELIMINATING PILLAR 1 EXPENDITURE

39. Numerous witnesses highlighted concerns regarding the possible threat to food security arising from the Vision's proposals. This fear, that reducing agricultural domestic support levels would result in a decrease in both domestic production and production capacity, and hence a further reliance on imports, is tackled head-on in the Vision document. The report summarised the Government's position as follows:

Food safety and food security benefits for the EU are often cited as a justification for the CAP. But the evidence suggests that a combination of EU regulation and international standards assists in protecting the EU from unsafe imports, and would ensure that further CAP reform would not diminish these standards.[

40. The argument is expanded further in written evidence from Defra and HM Treasury. In their submission, the two departments stated that:

The Defra / HM Treasury evidence went on to suggest that "the number of farmers or farms is not a direct indicator of food security or self-sufficiency", since "80% of UK food production now comes from just one quarter of all farms, with the largest 10% of farms producing over half of total food output".[61]

41. The NFU, however, described some of the arguments in the Vision document concerning food safety and security as being "misplaced".[62] It argued (without offering any specific prescriptions) that "recent developments in areas such as climate change, geopolitical events and pandemic health scares, should be kept under close review and need to inform any potential policy review". The NFU concluded by saying that "food security concerns also need to play a role in the design of any future agricultural policy".[63]

42. The TFA also criticised the UK Government for its apparent lack of concern regarding food security. The TFA picked up on a footnote in the Vision report, which noted that in 2003 "the UK was 76.9 per cent self sufficient in respect of 'indigenous type food and drink'",[64] and asked how low this proportion would have to fall before the Government started to worry.[65]

43. Food security was also a subject of discussion during our visits. Officials at the French Ministry of Agriculture stressed to us the importance for French people of the origin of their food and wider concerns about dependency on other countries for food and energy. During the Royal Agricultural Show evidence session, Roger James, a hill farmer from mid-Wales, described the figure of €950 a year that the Vision report quoted as the average cost of the CAP for an EU family of four as a legitimate expense in order to "provide an insurance policy to put food on the table".[66]

44. Professor Tangermann, the head of the OECD's Food, Agriculture and Fisheries Directorate, acknowledged that any Government would want to make sure its people are fed and so should plan for every eventuality, in terms of a military conflict or a failure of logistics. However, he stressed the need to focus on defining the potential threat to food security and argued that every plan devised would almost certainly be able to cope with lower than existing levels of food production in the EU. A similar point about being well prepared for a wide range of eventualities was made by the Food Ethics Council. It was most concerned about problems that could affect imports in general, rather than issues affecting only specific importing countries, with rising oil prices being given as an example of something that could severely disrupt international supply chains.[67]

45. Other alleged disadvantages of eliminating Pillar 1 expenditure include possible negative environmental consequences, including land abandonment, as farmers' businesses in more marginal areas become unviable, causing an exodus from the countryside. The CLA felt that it was "a big mistake" for the UK Government to assume that if the present supports were withdrawn there would be no undesirable knock-on economic or environmental effects.[68] The CLA illustrated the potential economic problem with UK figures, noting that the current financial support under Pillar 1 was about £2.5 billion, almost identical to the Total Income From Farming (TIFF). It said that the removal of this support (even if phased over a period of years) would produce a very differently structured agricultural industry than we have now.[69]

46. The Campaign to Protect Rural England (CPRE) stated that farmers' "ability to deliver their conservation activity depends on the continued viability of their farm businesses" and claimed that "the success of farming for wildlife will, therefore, depend on the survival of a substantial number of farmers remaining in business". It also argued that "it is impossible to disengage the future of farming from the future of the character of English landscapes or the future of most of our wildlife habitats".[70] The RSPB also argued that "the environmental consequences of the proposals depend on two factors which are not made explicit in the Vision: the funding available for Pillar 2 activities, and the degree of integration of environmental objectives with mainstream farming and economic policies in the future".[71]

47. Natural England noted that grazing in some habitats in England (most particularly low-intensity meadows and heaths) had been assisted by the CAP incentives to keep livestock. It also suggested that "Pillar 1 of the CAP appears to have allowed the maintenance of beneficial farming practices in valuable High Nature Value (HNV) areas and other cultural landscapes at danger of abandonment (such as Alpine meadows and the Spanish dehesas)".[72] Commissioner Fischer Boel also confirmed that land abandonment was a real concern of the Commission. She suggested that farmers in mountainous regions would not be able to compete in the absence of direct payments and import protection.[73] The Commissioner's calls for further impact analysis (as discussed in paragraph 28 above) were echoed by Natural England, when it highlighted the need, in developing the Government's Vision further, "to identify how any negative environmental impacts from reform will be addressed and how it will avoid the export of environmental production problems outside the EU as a result of changes to patterns of production arising from greater global trade".[74]

48. In a brief section of Chapter 3, the Vision document sought to address the 'food miles' debate, which it described as being "concerned with the environmental and social costs associated with transporting food from where it is produced to where it is processed and then consumed".[75] Among other evidence, the UK Government noted that "82 per cent of food miles in the UK food supply chain are generated within the UK", and suggested that this raised questions about whether the 'food miles' debate really constituted an environmental case against agricultural liberalisation and an expansion in agricultural trade.[76] However, both the Environment Agency and the RSPB suggested that the Vision's analysis of 'food miles' was incomplete, citing the need to take account of the "significant environmental and social implications of air freighting (as opposed to shipping)" and produce guidance on how food miles, and their negative consequences, could be reduced.[77]

49. Witnesses also suggested that the Vision's advocacy of the elimination of Pillar 1 expenditure exposed its whole raison d'étre, which was simply to save money. Steve Cowley, a contributor to the evidence session at the Royal Agricultural Show, felt the Vision was "driven purely by financial concerns" and the CLA characterised the HM Treasury / Defra report as being "just hell-bent on reducing public expenditure on the countryside".[78] The Woodland Trust echoed these sentiments, describing the Vision as "simply a money saving exercise with insufficient thought given to how much money will actually be required to deliver the sustainable, attractive, biodiverse countryside that society requires". "There seems to have been little thought given to this except that the vision is for a substantial reduction in the agricultural budget", it concluded.[79] The RSPB similarly felt that "the value of the Vision document will be compromised if it is seen as the justification for a cost-cutting exercise".[80]

POSSIBLE WAYS TO ELIMINATE PILLAR 1 EXPENDITURE

50. Defra and HM Treasury were careful to stress that their Vision paper was focused on where the UK Government felt EU agriculture needed to be in 10 to 15 years' time, and why, rather than setting out a detailed route map for getting there.[81] While the paper did set out some broad parameters of how its Vision could be achieved in practice, particularly in paragraphs 1.33 to 1.37, these were only general guidelines and were not at all prescriptive about the policy approach that was required.

Modulation

51. The UK Government's Vision is, however, unequivocal about its desire to see existing expenditure on Pillar 1 of the CAP phased out, with future spending being devoted exclusively to the current Pillar 2. 'Modulation', in CAP terminology, is the process of switching funds from Pillar 1 to Pillar 2 of the CAP and it involves the top-slicing of farmers' direct payments so that these monies can be redirected to agri-environment and rural development measures. The 2002 deal, struck between the French President, Jacques Chirac, and the German Chancellor, Gerhard Schröder, to protect CAP Pillar 1 spending until 2013, proved very resilient during the last budgetary negotiations.[82] This inflexibility in the Pillar 1 budget heading makes modulation seem a particularly useful tool in pursuing the UK Government's objectives, at least in the short term. It is, therefore, surprising that the only mention of the word 'modulation' in the Vision document appears in the final paragraph of Annex A.[83]

52. The Agenda 2000 reforms gave Member States the option to apply modulation on a voluntary basis, but the UK was one of only a very few to take it up. In the reforms agreed in 2003, however, modulation became compulsory, with Member States being obliged to reduce all direct payments by 3% in 2005, 4% in 2006 and 5% per annum from 2007 onwards, in order to finance additional rural development measures.[84] At least 80% of the modulated funds are retained within the Member State from which they came and expenditure financed from modulation is match funded by the national exchequer.

53. Through a UK initiative, the European Council agreed in 2005 to allow additional voluntary modulation from 2007 of up to 20% that need not be match-funded. Commissioner Fischer Boel has, however, been outspoken in her criticisms of this plan, which was set out as part of the agreement on the Financial Perspectives for 2007-2013. She told us that she was "not in favour of voluntary modulation" on the grounds that it could lead to Member States opting to modulate differing amounts of money, thus creating a degree of inequity between farmers.[85] The European Parliament's Agricultural Committee also vehemently opposed the proposals for voluntary modulation, stating that the plan "entails the abandonment or re-nationalisation of the CAP and abandons the principle of solidarity enshrined in the CAP".[86] This opposition from the European Parliament caused a protracted delay in agreeing the detailed arrangements for voluntary modulation. This has only recently been resolved through a compromise which reduced the flexibility of the original provision of the December 2005 European Council agreement.

54. It is unfortunate that the European Commission continues to base shares of the overall rural development budget on historical expenditure in the mid-1990s, since the UK's lack of interest in rural development schemes at that time has left it with a legacy of a disproportionately small allocation in comparison to other Member States—only around 3.5% of the core budget for the old EU-15.[87] This small allocation, combined with the UK's ambitions for expanding its agri-environmental schemes, make it understandable that the Government has pursued so diligently the freedom to reallocate funds that had originally been earmarked for direct payments under the Single Payment Scheme. However, the drawn-out saga over voluntary modulation, which took around 15 months to resolve, has not endeared the UK to either the European Commission, the European Parliament, or its fellow Member States. It is also an example of the UK succeeding in obtaining a small change in the CAP, but without the enthusiasm of the European institutions or its fellow Member States. This may add to their scepticism about any CAP reform proposals presented by the UK in the future.

Co-financing Pillar 1 payments

55. Co-financing is where budget contributions towards CAP funding are shared between the EU and the national exchequers of each Member State. Moves to co-finance Pillar 1 payments have been resisted by those anxious to cling to the principle of financial solidarity, which was one of three tenets adopted at the 1958 Stresa Conference that was so influential in shaping the original CAP. However, advocates of a co-financing structure for Pillar 1 of the CAP argue that if Member States made a direct contribution towards the costs of a Community policy, it would raise their awareness of the expense and might motivate them to explore ways of improving efficiency. Moreover, it could be argued that the move away from a market support policy towards direct decoupled payments has eroded the justification for not co-financing Pillar 1. As the CLA explained, when market support predominated as an aid instrument, it was essential that it was funded centrally because the actual costs would be incurred wherever the surplus product appeared, and yet the benefits were felt throughout the Common Market. Now that support is based on decoupled payments, that justification has disappeared.[88]

56. The possibility of co-financing Pillar 1 of the CAP was aired numerous times during the negotiations on the EU budget, during 2005. The European Parliament Temporary Committee on the Financial Perspectives explored the budgetary impact of the EU only partly reimbursing Member States for their direct payments to farmers, so that 25% or even 50% would be funded by the Member State themselves.[89] The House of Lords European Union Committee also thought co-financing was a possible option, although it was keen to emphasise that it was not an alternative to fundamental reform of the CAP, but merely an adjunct.[90]

57. More recently, strong support for the concept of co-financing Pillar 1 payments has come from the Netherlands. The Social and Economic Council published a report in July 2006 advocating the use of co-financing.[91] That was followed later that year when the recently deposed Minister for Agriculture, Cees Veerman, presented his own vision for the CAP in which he concluded that "there must also be some combination of regional and European funds, in other words co-financing".[92] Commissioner Fischer Boel was able to respond publicly to the co-financing proposals when sharing a platform with Veerman at a conference in Wageningen, in February 2007. She said, "I don't think that this sort of re-nationalisation of the first pillar is the right road for us to go down. We would be taking the risk of seeing very different support levels, which could be dangerous in the WTO".[93]

Bond scheme

58. Both the report from the Dutch Social and Economic Council and Cees Veerman's own vision for the CAP also floated the prospect of introducing a bond scheme. This intellectually attractive idea, first articulated by Professor Stefan Tangermann in the early 1990s, envisaged that a guaranteed stream of fully decoupled future payments could be capitalised using the financial markets (hence the term 'bond'), thus providing the farmer with a lump sum to invest in the business, or to use as an early retirement fund. Payments would be time limited—10 to 15 years for instance—and the relationship with the land would no longer exist, thus extending the concept of decoupling to its maximum.

59. The bond scheme is, in fact, very similar in nature to the "time-limited payments" proposed in the UK Government's own 'Vision' document. In section 1.33 of the report, it is suggested that "time-limited payments to producers to compensate for income foregone, or to compensate for reduced asset values could be considered". The report continued by noting that "in both cases, de-linking such payments from land would better facilitate adjustment".[94]

60. Professor Alan Swinbank felt that completely decoupled payments of this kind would be acceptable under WTO rules.[95] The TFA also praised the idea, describing a bond scheme as its "preferred policy choice".[96] In his written evidence, Professor Wyn Grant noted the "strong case for replacing subsidies by a bond" due to its ability to serve as a capital asset or generate an income stream, thereby protecting against "economic, social and environmental sustainability in rural areas" that could be caused by a "too rapid reduction in subsidy and protection".[97] When the Committee visited Brussels, at the end of January 2006, we also heard a passionate case in support of the bond scheme during a meeting with Terry Wynn, who, during his time as a Member of the European Parliament, chaired both the Budget Committee and the Land Use and Food Policy Intergroup.

61. When asked in oral evidence about the possibility of introducing a bond scheme, Commissioner Fischer Boel did not rule it out completely. Instead, she encouraged all ideas to be put on the negotiating table for a full discussion in the context of the mid-term review of the Financial Perspectives in 2008/09.[98] She did, however, highlight what she regarded as "serious disadvantages" of adopting a bond schemes approach, when addressing the Wageningen conference, earlier this year, including the demise of the cross-compliance conditions that are currently attached to the existing direct payments.[99]

62. One other significant advantage of the bond scheme approach is that it would give farmers a clear indication of the timescale involved, rather than the uncertain policy environment they have had to cope with in recent years. It would also encompass a "transitional strategy" and the concept of 'phasing out' Pillar 1 direct payments, as referred to in the Vision document.[100] The Prime Minister recognised that "further radical changes to the CAP cannot happen overnight" and given the political sensitivities involved in eliminating Pillar 1 payments a gradual, phased approach would clearly be required.[101] Obviously the timescale for change is significant—the Vision talked of 10 to 15 years—but of equal importance, in the view of Professor Harvey, is the period of notice given to farmers to allow them to adapt to an unsupported market. "Sudden, but reliable change will induce rapid and viable responses; gradual change is much more likely to produce mal-adaptations and responses", he concluded.[102]

OUR CONCLUSIONS

63. Evidence to our inquiry suggested that the effect of the UK Government's proposals could be substantial, posing a potential threat to domestic food security, the environment and the structure of the farming industry. Since the Vision was published in December 2005, Defra has followed up on issues relating to food security with an in-depth study entitled "Food Security and the UK: An Evidence and Analysis Paper", which goes some way to addressing witnesses' concerns in this regard.[103] It also provided a helpful update on the food versus fuel paradox, which has been the subject of increasing debate since the Vision was first published.[104] The future credibility of the Vision document depends on the Government now committing itself to providing a full and detailed evaluation of the impact of these proposals on biodiversity, the environment, the markets for agricultural goods and individual farm enterprises. We call upon the Government to publish this by the middle of 2008. This analysis should be informed by the publication, by the end of 2007, of an evaluation of the effects on UK agriculture of the 2003 CAP reform. The Government must also provide an analysis outlining the effects on UK and EU agriculture of the elimination of Pillar 1. Without this, its assertions as to the value of removing Pillar 1 support will have little credibility amongst our EU partners.

Development of Pillar 2 of the CAP

64. The launch of the Rural Development Regulation as part of the Agenda 2000 reform introduced a new 'second Pillar' of the CAP, bringing together a range of existing agricultural, rural development and environmental measures into a single regulation. The measures included support for structural adjustment of the farming sector, support for farming in Less Favoured Areas, remuneration for agri-environment activities, aid for investments in processing and marketing, forestry measures, and aids for the adaptation and development of rural areas.[105] The Centre for Rural Economy (CRE) described how the UK Government had played a "pioneering role" in this development through its decision to apply the discretionary modulation measures to redirect a proportion of payments from Pillar 1 to Pillar 2.[106] Other witnesses recognised, however, that while a progressive shift of funds towards Pillar 2 was in the interests of all Member States, not all countries needed, or were ready, to make the journey at the same rate.[107] Indeed, Professor Ken Thomson suggested that many of the new Member States would resist such moves, since they may not be sufficiently well organised to maximise uptake of Pillar 2 payments.[108]

65. The Vision paper envisaged that "EU spending on agriculture would be based on the current Pillar II and would support these objectives as appropriate".[109] Its emphasis on "a central rather than a peripheral role for rural development measures, including those targeted on protection and enhancement of the rural environment", was welcomed by witnesses, including the Environment Agency.[110] However, the RSPB was more critical, suggesting that beyond making "headline statements" about the growing importance of environmental protection and rural development, the Vision had not gone into sufficient detail on "the role of policy in delivering the environmental and social security needed for sustainable economic development".[111] The NFU also criticised the Vision for not properly defining the public goods and services it was seeking.[112]

66. The CRE described the main "challenge" as being "to improve and reform Pillar 2 such that it becomes a viable and attractive alternative to Pillar 1". In this regard, the CRE found the Vision document wanting, describing how any strategy for achieving this challenge was "entirely absent".[113] To make up for this deficit, the CRE called for a "companion document" to the existing Vision paper to review the potential for the development of Pillar 2 and to detail what Pillar 2 would look like in a world where Pillar 1 was progressively dismantled.[114]

67. One disadvantage of moving to Pillar 2 payments is that they invariably cost more to administer and control than Pillar 1 payments due to the diverse nature of the schemes involved. Defra told us that the estimated running cost of administering the payments under the England Rural Development Regulation was around 20% of scheme payments, although costs for the new agri-environment schemes should be lower.[115] On the other hand, there are numerous advantages of Pillar 2 payments. As part of a "clearly-defined government environmental or conservation programme" and being "dependent on the fulfilment of specific conditions", agri-environment payments fall within the WTO's definition of permissible support.[116] Also, as an environmental enhancement programme, such payments are far better targeted and therefore yield far more value for money than the cross-compliance conditions attached to Pillar 1 payments.

68. Targeting was a particular theme endorsed by Professor Tangermann both when we met him at the OECD in June 2006 and later when he spoke in Helsinki at the Conference of EU Parliamentary Agriculture Committees in October 2006. Government support, he insisted, needed to be targeted directly and specifically at the objectives pursued. For example, in regions where more hedges are considered to be required to provide a habitat for endangered species, payments per metre of hedge planted are far superior to general payments per hectare of all agricultural land. Professor Tangermann's conclusion was that while decoupling had been a big step forward in overcoming the problems of past forms of agricultural support, the next major step in policy development was in targeting support to specific objectives.

69. Unfortunately, in pursuing a move towards more targeted payments under Pillar 2 of the CAP, the UK Government has to cope with the legacy of the EU budget deal it presided over in December 2005. The CLA summed up the situation when describing the Government's strategy on Pillar 2 funding as being "confused", noting how the UK had "championed" the cut in the proposed EU rural development budget just weeks after publishing the Vision document, which stressed the future importance of Pillar 2 (see paragraphs 22-24 above).[117]

OUR CONCLUSIONS

70. Properly targeted schemes delivering public goods and services and representing better value for the public money that is expended on them are clearly desirable. The Vision document suggests this is the direction down which the UK Government would like EU agricultural policy to travel. However, the Vision's argument has been weakened by a lack of detail on the development and agreed outcomes of Pillar 2, as Pillar 1 is progressively dismantled. A clear statement from the European Commission on the environmental and social objects of Pillar 2 should be sought by the Government. In addition, the Vision's failure to address the potential redistribution effects of modulation should also be rectified through the publication of an impact assessment.

71. The UK Government's calls to increase the importance of Pillar 2 have been further undermined by its involvement as the Presidency of the EU when a budget deal was struck providing significantly less resources for Pillar 2 than in the original European Commission proposal. Those reductions in the rural development budget are inconsistent with the UK Government's stated objective of enhancing funding levels in this area. The UK Government should not call for cuts in Pillar 2 funding as part of its wider demands for CAP budget cuts, as this sends mixed signals to other Member States and the Commission.

International issues

72. The farming organisations seemed to be particularly exercised by Chapter 4 of the Vision document, which deals with "International Trade and Developing Countries". The NFU said that it was this section of the document where "some of the strongest criticisms of the paper need to be raised". It suggested the paragraphs were imbalanced and cited the fact that "there is no real examination of the issue of trade preferences and the impact of the erosion of preferences on poorer countries".[118] The TFA made similar comments regarding the treatment of trade preferences in the Vision report, while the CLA suggested that Chapter 4 "could well have been written by a campaigning NGO" and described the discussion as being entirely one-sided.[119]

73. Commissioner Fischer Boel also raised concerns about the "huge difficulties" that would be faced by the least developed countries as a consequence of following the UK proposals for zero import tariffs and free access to the EU market for agricultural products. She noted that the 50 poorest countries in the world already had free access to the EU market, so a reduction in tariffs would constitute an erosion of their trade preferences and bring with it unwelcome competition from countries like Brazil.[120]

74. The RSPB was also keen to point out the global importance, in terms of biodiversity and carbon sequestration, of some of the habitats that could be at risk from agricultural trade liberalisation. Rainforests in Brazil and Indonesia, and the Brazilian cerrado, were some of the habitats that could be threatened by agriculture expansion into these areas to meet the increased demand created by liberalisation of European agriculture. While the RSPB felt that section 3.58 of the Vision suggested the UK Government was not certain how to deal with such a threat, it was adamant that the potential negative impacts must not be disregarded.[121]

OUR CONCLUSIONS

75. The Vision document gives insufficient coverage to the potential international consequences of its proposals. The arguments used lack balance and important issues, such as the potential erosion of trade preferences for poor countries, do not seem to be taken sufficiently seriously. We recommend that further analysis be undertaken by Defra, in collaboration with the Department for International Development and HM Treasury, to provide evidence to underpin what at present amounts to little more than an overview of these international aspects in the existing Vision document.

47 HM Treasury and Defra, "A Vision for the Common Agricultural Policy", December 2005, para 1.32 Back

48 Ev 75 Back

49 Ibid, Back

50 HM Treasury and Defra, "A Vision for the Common Agricultural Policy", December 2005, para 1.32 [emphasis added] Back

51 Qq 243, 263 Back

52 Ev 140 Back

53 Tony Blair's speech to the EU Parliament, 23 June 2005 Back

54 HM Treasury and Defra, "A Vision for the Common Agricultural Policy", December 2005, para 1.29 Back

55 Ibid., paras 1.29, 1.32 Back

56 Q 368 Back

58 HM Treasury and Defra, A Vision for the Common Agricultural Policy, December 2005, paras 2.13-2.14 Back

59 HM Treasury and Defra, A Vision for the Common Agricultural Policy, December 2005, Executive summary, p 4 Back