House of Commons - Environment, Food and Rural Affairs

Select Committee on Environment, Food and Rural Affairs Fourth Report

7 WHAT KIND OF A CAP DO WE WANT?

76. The evidence sessions and other meetings held in connection with this inquiry were particularly useful in canvassing what witnesses thought should be the future purpose of the Common Agricultural Policy.

Evidence from the Royal Agricultural Show

77. Three main themes arose from the evidence session at the Royal Agricultural Show (RAS): the importance of food and fuel security; the dominance of the supermarkets; and the absence of a 'level playing field'.

78. Ensuring food security was cited by many witnesses as an important objective of the CAP. Mrs Chris Thomas, a beef farmer from Wales, described food security as "a very, very important issue" and underlined the threat to food imports posed by terrorism.[122] Gillian Herbert, a livestock farmer from Herefordshire, was struck by the "complacency" of the assumption, contained in the Vision document, that food would remain in abundant supply. To emphasise her point, she noted the implications for food security of the inherent time lag in bringing food to market.[123] Tony Keene criticised the Vision document for inadequate analysis of renewable energy, which was a subject developed by Andrew Brown.[124] He thought the CAP should be encouraging farmers to grow biofuels and energy crops, although he sounded a cautionary note when he described the consequences of global warming leading to "a situation where we are going to have to choose between growing food and growing fuel".[125]

79. The power of the food retailing sector was another subject referred to regularly by the witnesses at the RAS evidence session. The Reverend Robert Barlow, an agricultural chaplain from Worcestershire, summarised the situation in the UK food chain as having "countless must-sell-producers and a handful of might-buy-buyers".[126] He also felt that the power exerted by the handful of supermarkets had much more of a distorting effect on the market place than policy mechanisms, such as import and export subsidies.[127] The power of the supermarkets was also an issue explored by Jilly Greed in her evidence and Hugo Marfleet described how supermarkets had imported "inferior products" and employed "bullying tactics" to further the demise of UK agriculture.[128] This criticism was also echoed by Jamie Blackett, who asserted that the structure of the food sector was skewed in favour of the retailers, with "a supermarket cartel" dictating prices to producers which meant, particularly in the case of the dairy industry, that farm produce was selling at less than the cost of production.[129]

80. The absence of a 'level playing field' in terms of the relationship between UK farmers and their competitors in the rest of the world was another central theme running throughout the evidence session. Gillian Herbert thought it naive of the Government's Vision to talk about a "free, fair and level playing field throughout the EU", as the new Member States had a long way to go to catch up with the efficiencies of farmers in the rest of Europe.[130] Essex farmer Guy Smith also felt that policy makers ought to recognise that British agriculture had higher structural costs "in terms of high labour costs, high land costs and in terms of regulation on the environment, welfare, and food safety". Owing to these relatively high costs, Mr Smith thought UK farmers would "struggle to compete on a free global agricultural market".[131] The burden of extra regulation on the UK farmer was something raised by Steve Cowley. He accused Defra of 'gold-plating' every EU directive and implementing them "with a fist of iron very, very slowly".[132] The Reverend Barlow thought the current absence of a 'level playing field' could also lead to some domestic production being transferred to countries where animal welfare and environmental standards were not as high. He felt this equality of treatment was so highly valued by the farmers he met that they would be prepared to accept an end to all subsidies if it could be secured.[133] However, Roger James, a hill farmer from mid-Wales, believed UK agriculture was "completely reliant on subsidies" and without them, there would be very few farmers left in the hill areas.[134] This sentiment was also echoed by other witnesses. Carl Atkin felt that, for some, the elimination of Pillar 1 support, as outlined in the Vision document, "would be a nightmare", while John Turner described the "devastating effect" on local communities if the fate of farming mirrored that of the UK shipbuilding, mining or steelmaking industries.[135]

Other evidence

81. The HM Treasury / Defra paper seemed preoccupied with what a reformed CAP might look like, without stepping back to ask the fundamental question of what the CAP should actually be for. Answering this question proved harder for witnesses than might have been expected. Even the Secretary of State remarked that it was sometimes "quite difficult" to answer "in diplomatic terms" the question about what the purpose of the CAP now is. However, he then went on to describe, in simple terms, what it should provide: "a regulatory framework and a financial framework for agriculture in the European Union".[136] The regulatory framework would involve issues of "animal health and welfare" and the "environment", while the financial framework would be solely "directed towards the delivery of public goods".[137]

82. Many other witnesses answered the question by citing reasons for maintaining support to the agricultural industry. The NFU was not alone in referring to the constraints its members faced when farming in the EU as a justification for continued protection of the Community market.[138] The Royal Society for the Prevention of Cruelty to Animals (RSPCA) and the British Veterinary Association both agreed that the market alone could not compensate domestic producers for the higher costs associated with maintaining animal health and welfare standards.[139] These were arguments for which Commissioner Fischer Boel had sympathy. She cited animal welfare standards in the EU, along with higher wages and higher environmental standards as reasons for maintaining a certain level of direct payments, for what were described in the context of WTO negotiations as "non-trade concerns".[140]

83. A more direct answer came from the countryside and environmental organisations. The CPRE thought the purpose of the CAP henceforth "must be to maximise the sustainable management of land to public benefit".[141] Natural England thought the purpose should be:

142

In the long-term, Natural England thought that CAP reform should establish a "sustainable land use funding stream".[143]

84. In considering the possible justifications for existing Pillar 1 support, the Centre for Rural Economy (CRE) helpfully identified the following four rationales:

Compensation payments for policy change
Economic adjustment aids
Social assistance payments
Public good payments.[144]

The CRE thought that under the first two rationales, payments should be finite and time-limited otherwise they threaten to perpetuate the dependency and distortion that they were intended to overcome. The rhetoric of past reforms was that the new payments were compensatory payments. They were not particularly effective as economic adjustment aids because they did not target the farm workers and those in the upstream and downstream industries who bore the brunt of shifts from production to land-oriented payments. Moreover, CRE thought the third rationale might be legitimate in countries where farmers were not eligible for unemployment or retirement support. However, this was not the case in the UK. This rationale also raised questions about the inequitable distribution of existing payments in relation to need. The fourth and final rationale was thought to remain a long-term justification for continuing payments, although they should not be considered an entitlement and must be related to the public goods provided.[145]

OUR CONCLUSIONS

85. Historically, agriculture has always been regarded as having a special place in the economic and social structure of the EU. Agricultural policy in the EU has sought to foster this status, as well as protecting the industry from some of its inherent problems, such as the cyclical nature of production and the vagaries of the climate. Going forward, however, we agree with the evidence presented to us that suggested that the only long-term justification for future expenditure of taxpayers' money in the agricultural sector is for the provision of public goods. Witnesses described the bundle of public goods provided by agriculture as including: catchment management for soils and flooding, water resources, biodiversity conservation, access provision, landscape features, and employment.[146] Payments should represent the most efficient means by which society can purchase the public goods—environmental, rural, social—it wishes to enjoy. For these payments to remain publicly acceptable, it is essential that they relate directly to the public goods provided and that, in turn, these public goods are measurable and capable of evaluation. Defra should harness the power of the internet to consult as widely as possible with the rural community about the type of rural policies which should be developed in the context of the 2008 'health checks' and subsequent CAP reform debate.

Commonality of EU agricultural policy

86. The proposals in the Vision paper are sufficiently radical to question the common nature of the future CAP it envisages. The final paragraph of Chapter 1 proposed that:

There would continue to be a common European policy but one very different from that now in place. It would allow Member States a greater measure of discretion than at present—for example, in determining their agri-environmental priorities—but it would preclude unfair competition between Member States, and EU spending on the common policy would be significantly lower than now.[

147

87. Such proposals, allowing for a greater degree of national discretion in agricultural policy matters, were not welcomed by the NFU. Concerned that its members in England and Wales might be disadvantaged in relation to other farmers elsewhere in the EU, it insisted that any change to the CAP needed to be undertaken at an EU level and implemented in the same manner by all Member States.[148] Professor Wyn Grant noted that a "creeping re-nationalisation" might result from the UK Government's Vision, something he felt was, to some extent, already embedded in the most recent reforms.[149]

88. Commissioner Fischer Boel alluded to the potential distortions and inequality of treatment that would face farmers across the EU when she described her concerns regarding the re-nationalisation of agricultural policy. Using fairly agri-centric language, she suggested it would become "a competition between ministers for finance more than a competition between agricultural ministers on how much to subsidise your farming sector", before concluding that "this would be devastating for the possibility of maintaining a common policy and trying to find the right balance in the support for the agricultural sector".[150]

89. Natural England was keen to draw a distinction between competitive distortion and equal treatment for landowners in all Member States. The former it agreed must be avoided, but the latter was something which could not be achieved owing to the legitimate desire of Member States to employ different approaches. Pursuing this idea specifically in relation to voluntary modulation, Natural England concluded that "if differential reduction of the Single Payment is shown to have a distorting effect, the payment itself must be scrutinised, not the attempt to modulate it".[151]

90. A similar argument was applied more generally by Professor Sir John Marsh when he noted that provided payments were "fully decoupled and paid for from local or national budgets, they will have no impact on market prices and will not disadvantage producers in other member countries". If, however, they concealed subsidies in the form of preferential tax treatment or access to cheap loans, they should be subject to strict rules of competition. Professor Sir John Marsh concluded that "effective rules would impose penalties on offenders and offer compensation for those whose interests were damaged" and that "they should be monitored as part of competition policy".[152] Defra and HM Treasury agreed with this. They said:

153

OUR CONCLUSIONS

91. Moving towards specifically targeted policies under Pillar 2 of the CAP will inevitably entail greater national discretion than exists at present. Under this scenario, the Government must ensure that the UK does not once again become the poor relation in the area of rural development policy by conceding negotiating ground which could place our farmers and rural businesses in a position of comparative disadvantage compared to those of other Member States. In this regard, it is vital that the Government is successful in pursuing its case for a fairer, objective based method of allocating Pillar 2 funding during the EU budget review.

Appropriateness of the title 'Common Agricultural Policy'

92. Article 33(1) of the founding Treaty establishing the European Community, the Treaty of Rome, laid out the objectives of the Common Agricultural Policy as follows:

Article 33[

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1. The objectives of the common agricultural policy shall be:

(a) to increase agricultural productivity by promoting technical progress and by ensuring the rational development of agricultural production and the optimum utilisation of the factors of production, in particular labour;

(b) thus to ensure a fair standard of living for the agricultural community, in particular by increasing the individual earnings of persons engaged in agriculture;

(d) to assure the availability of supplies;

155

These objectives reflect contemporary priorities at the time the Treaty of Rome was signed in 1957. During the 50 years that have since passed, the focus of European agricultural policy has moved beyond these considerations to encompass issues such as rural development, protection of the environment and animal welfare. Despite successive Treaty revisions in recent years, the objectives for agriculture have not been amended in any way in order to reflect these new priorities and bring the CAP's foundational document up to date.[156]

93. While the NFU did not feel there was a need to change the words of the Treaty as a prerequisite to changing the policy,[157] Commissioner Fischer Boel was more amenable to the prospect of amendments being made. She recently wrote, when marking the fiftieth anniversary of the Treaty of Rome, that "the CAP is as relevant now as it was five decades ago—albeit for different reasons".[158] During oral evidence, she accepted that "the world had changed since 1957" and admitted she did not know "why it was not possible to find wording that could be a bit more modern than 50 years ago".[159]

94. The RSPB also questioned the extent to which the separation of Pillar 1 and Pillar 2 budget headings was helpful. It advocated "moving away from the Pillar systems of the CAP to a single rural fund that supports land managers to provide the environmental and social goods and services which we need and value, and minimum environmental standards for all farmland".[160] A possible merger of Pillar 1 and Pillar 2 funds into a single financing instrument was also raised in the vision for the CAP of former Dutch Minister Agriculture Cees Veerman.[161]

OUR CONCLUSIONS

95. The objectives of the CAP have remained unchanged for the last 50 years and now seem dated. European agricultural policy has moved on since then, encompassing issues such as rural development, protection of the environment and animal welfare. The UK Government should begin negotiating, at the earliest opportunity, for a redrafting of the existing Article which lays out the objectives of the CAP—Article 33(1)—with the new text reflecting the wider context of modern rural policy.

96. The name, the 'Common Agricultural Policy' is now an anachronism. It should be replaced by a new 'Rural Policy for the EU'. The development of such a policy is discussed below in paragraphs 116-125. The separation of the funding mechanisms for Pillar 1 and Pillar 2 represents a significant obstacle to re-tuning the balance of rural support measures in the EU and should be re-evaluated as part of the 2008/09 budget review. The UK should also use its influence in Europe to encourage other Member States fully to integrate their agricultural and environmental policies. The Government could point to the advantages that have flowed from such policies in England being the responsibility of a single department.

122 Q 173 Back

123 Q 121 Back

124 Q 170 Back

125 Qq 116-117 Back

126 Q 146 Back

127 Q 150 Back

128 Qq 154 [Mrs Greed], 171 [Mr Marfleet] Back

129 Q 115 Back

130 Q 130 Back

131 Q 131 Back

132 Q 169 Back

133 Q 146 Back