Memorandum submitted by Country Land &
Business Association (CLA) (CAP 16)
1. The Country Land & Business Association
(CLA) is the premier organisation safeguarding the interests of
those responsible for land, property and business throughout rural
England and Wales. CLA members own and manage more than half the
rural land in England and Wales and we are committed to the positive
development of the rural economy.
2. We are pleased that the EFRA Committee
is undertaking a full inquiry into the joint paper issued by HM
Treasury and Defra last December: "A Vision for the Common
Agricultural Policy". The purpose of the paper is not clear.
It was produced with no forewarning in the midst of an intense
debate on the EU Budget in which the Government decided to make
CAP reform a central issue. Yet there was no attempt to carry
stakeholders either in the UK or in the rest of the EU along with
their vision. It seemed neither to engage with the principal current
CAP issue—viz the implementation of the 2003 reform with
which the Government is already struggling—nor is it very
sensible timing to launch a debate about the next reform which
is not due to get underway until 2008-09.
3. In our view the paper is severely unbalanced
in four major respects.
4. First it contains no analysis of the
impacts of the vision on: UK farming structure, employment and
output; on the upstream and downstream effects of these changes;
nor on the environment. The style of the report is to document
a series of well-known economic impacts of the CAP and then to
assume that if the present supports were withdrawn the problems
would all disappear and implicitly there would be no undesirable
knock-on economic or environmental effects. This is a big mistake.
5. Second, the paper goes to great lengths
to portray perceived problems with the CAP, but saying nothing
about the successful development of agriculture across Europe
whilst the CAP has been in operation—this is principally
the production of wholesome food, in bewildering variety, reliably,
consistently and plentifully available all year round, whilst
releasing a large pool of labour to contribute to other aspects
of economic development.
6. Third the paper reviews a range of evidence
of environmental harm caused by modern farming, while it presents
no evidence of the wide range of environmental benefits provided
by farmers—for example, maintenance of landscape and heritage,
the preservation of biodiversity, and the stewardship of natural
resources. A collection of independent estimates of the values
of these positive externalities has been sponsored by DEFRA and
published in its own reports, yet not a whisper of this is included
in this report.
7. Fourth, this is a very British report.
The CAP is only reformed when a qualified majority of the EU Council
can be persuaded of the case for, and direction of, reform. In
its preparation, its launch and since, we are aware of no effort
by the sponsoring departments to take along other views of the
CAP or to explore how their vision might be taken forward. Unfortunately,
if critics of the CAP merely point out what is wrong with it,
and ask for it to be dismantled in this take-it-or-leave-it way,
then most will choose to leave it.
8. Farming in the EU over the post-war period
has not been without its problems but, on balance, we would argue
that it has been a story of great success; a story of which the
Government paper makes no mention. Achieving ever increasing production
efficiencies, European farming has provided consumers with a wonderfully
varied and wholesome food supply, produced to the highest quality
standards in the world. At the same time, it has continued to
provide the beautiful landscapes that are rightly famous around
the world. All this has been achieved in one of the most difficult
environments in the world, the densely populated and ancient lands
of Europe. While most other major food producing regions can separate
food production areas from areas of natural wilderness and biodiversity,
European farming must balance the interests of high production
business and the important need to maintain and enhance environmental
quality and landscape character. At the same time, due in part
to a number of food scares over the past 15 years, European consumers
place a particularly high emphasis on assurances about the provenance
of their food. Assurances that EU farmers provide. Achievements
like these should not be undervalued; they can easily be lost,
and would be very difficult to regain.
9. The report contains contradictions in
what it says about the importance of the CAP. In paragraph 1.9
the report says that the CAP "significantly distorts the
overall EU economy", while in paragraph 2.6 it says the CAP
has only "a perceptible impact on the UK's and EU's economy."
The welfare costs it says (para 2.8) are conservatively estimated
to be about 0.2% of EU GDP, and maybe this should be inflated
by 20% to allow for dynamic effects, to 0.24% of GDP. It also
makes reference (para 2.11) to estimates of impacts on price inflation
of 15%, this seems inconceivable if the economic impacts are so
small. In addition there has been an opportunity to test the relation
between farm-gate price support and retail price inflation in
the period since 1992 when support prices for cereals, oilseeds,
beef and diary produce have all been substantially reduced. How
much of this has been transmitted to consumer prices?
10. Overall, we found the economic analysis
throughout the report lacked any real understanding of the realities
and practicalities of the farming and rural economies. It refers
in a number of places to the inflationary effect of subsidies
on land prices, but fails to consider the impact on farming businesses
and the rest of the rural economy of a collapse of land prices
if supports were removed at the speed seemingly advocated by the
report. With farm incomes naturally more volatile than in other
sectors and our Government's refusal to support income stabilisation
programmes,[1]
it is often the asset values that a farmer can show his banker
that allows him to secure the credit facilities needed to bridge
the income gaps that inevitably arise, or to raise the finance
required for a business expansion. Similarly, the report repeatedly
distinguishes disapprovingly between land owners and farmers—and
quotes a number of inconsistent figures in reference. Sadly, the
report shows no recognition of the importance of land rental for
tenant farmers[2]
and for varying production capacities.
11. The report advocates a farming industry
that is internationally competitive and "treated no differently
from other sectors of the economy" (para 1.29). This might
be acceptable if farming was like other sectors of the economy
but it is not. In economic terms it is a fragmented sector squeezed
between highly concentrated businesses up-stream and down-stream
and cannot pass on additional production costs, for example, such
as those induced by high regulatory standards. Also as this industry
manages over three-quarters of the UK landmass, over which there
are a growing range of environmental concerns, it has to be treated
differently than other industries.
12. The antipathy toward farming apparent
in the report is worrying enough, coming as it does from the two
Government departments most directly responsible for the development
and implementation of policies affecting farming and rural businesses.
More worrying is that they do not even seem to be aware of the
historic changes to farming and countryside policies that they
themselves have recently developed and are now in the process
of implementing!
13. The report is all the more disheartening
in that many elements of the vision for agriculture detailed in
paragraph 1.5 of the report are supported by the CLA. But promoted,
as in this report, within such a negative view of farming it makes
it very difficult for the CLA to accept.
14. The Efra Committee have indicated that
they are particularly interested in four main sets of issues.
We will respond to each in turn.
EXPENDITURE ON
"PILLAR 1" OF
THE CAP
Food security—does the Government remain
committed to UK food production?
15. Currently UK farmers and growers provide
63% of all food consumed here, and 74% of all indigenous food.
The main exceptions are with fruits and vegetables that cannot
be grown in this country. Certainly UK producers are doing all
they can to remain competitive, but the increasingly cosmopolitan
tastes of consumers create a market challenge that is hard to
meet. At the same time, producers question the Government's commitment
to the food industry when they are required to carry the extra
costs of a growing weight of UK and EU regulation at farm level,
while being increasingly exposed to international competition
from products often produced to much lower production standards.
16. The CLA believe that security of food
supplies should be a strategic priority. Recent events have highlighted
public concerns about reliance on imported energy supplies—often
from unstable areas of the world. While concerns about possible
reliance on imported foods are based on quite different issues,
the potential problems are no less worrying. Food production is
uniquely vulnerable to shortages due to climate change and greater
climatic volatility, and to the increasing ability of disease
to spread rapidly around the world. Allowing UK food production
capacity to be exported to the current lowest cost producers,
as the Government seems willing to contemplate, may have short
term advantages but it also carries risks.
17. The CLA agrees with the suggested policy
that the first line of defence for our food supply is by diversifying
our food sources within an open, liberalised international trading
system. In today's globalised world, more than ever, no country
can, or indeed should try to, isolate itself. But, in moving to
this policy from where we are now, we should proceed with caution.
There are very real dangers that a rapid liberalisation of trade
would facilitate over-specialisation and concentration of food
production in certain regions, which could increase vulnerability
to shortages in the medium term. We are thinking for example of
the huge environmental risks which would be associated with a
further dramatic expansion of Brazilian agriculture. A sensible
debate is needed to find the optimal balance between European
and imported food sources.
Potential distortions and inequality of treatment
of farmers across the EU
18. We are not aware of any substantial
evidence that the Government have given this issue much thought
at all. We have seen little evidence that the competitive effects
between EU member states has been analysed either for the tendency
for the CAP to become a less common policy, or indeed with respect
to the most recent or prospective enlargement.
Possible environmental consequences of the proposals
19. The CLA is shocked at the complete lack
of analysis of the environmental impacts of the proposed removal
of all Pillar 1 supports and all border protection. We have argued
elsewhere that a significant part of the direct payments under
Pillar 1 are environmental payments in waiting. Our position is
that the quantum of support currently offered under pillar 2 (even
with the new Stewardship scheme fully rolled out) is still significantly
below what it will have to be in the absence of Pillar 1 supports.
To put this another way, and to illustrate with UK figures, the
current financial support under Pillar 1 is about £2.5bn
which is almost identical to the Total Income From Farming (TIFF).
Removal of this support (even if phased over a period of years
would produce a very different structured agricultural industry
than we have now (not analysed by DEFRA either). If at the same
time the border controls were removed too (as proposed), then
there is no way the bulk of the existing production could compete—whilst
maintaining the current countryside outputs (landscape and biodiversity
features). That there is no recognition or analysis of this point
is the most shocking aspect of this report.
The extent to which the proposed changes to the
CAP would result in lower food prices and (through reduced public
spending on the CAP) a lower level of taxation
20. In our view, the current CAP reforms
will have no noticeable affect on either consumer prices or on
levels of taxation. Food prices are already very low and falling
as a percentage of consumers' spending,[3]
and we do not expect the reform of the CAP to have any significant
effect on retail prices. In the case of meats and cereals, for
example, the farmgate produce is often a small proportion of the
total value of the retail product.[4]
This is increasingly the case as consumers demand ready meals
and other high value-added prepared foods. Likewise with catering
and restaurant meals, which account for about 50% of consumer
spending on food. Certainly the suggestion that the CAP is responsible
for pushing up food prices is not supported by the evidence. While
the all items RPI has risen by 25% over the past 10 years retail
food prices have risen by only 11% and the farmgate share of the
retail price has fallen by 30%. Similarly, with taxation, we have
no reason to believe that any budgetary savings that may be found
will be returned to tax payers. Indeed, to the best of our knowledge,
HM Treasury has been very careful to avoid making any commitments—or
even vague indications—that CAP reforms will give rise to
any savings for tax payers.
How such a revised CAP would enable the EU's farmers
to be more competitive
21. The CLA have long understood the need
to decouple farm support from production decisions. By doing so,
producers are freed from having to undertake unprofitable production
in order to get the additional support needed to provide them
with an income. Indeed, we believe that the over-production that
resulted from coupled farm support was an important contributor
to the extremely weak markets that producers have faced over recent
years. Under the new regime, producers will be free to refocus
their businesses on more profitable activities, secure in the
knowledge that they will have some financial support during the
difficult restructuring phase.
22. Of critical importance, however, to
a successful future for farming in the UK, is that Government
understands that farmers cannot continue to carry the increasingly
onerous burden of costly regulation, while facing ever more open
global competition. It needs to be recognised that farming is
subject to all the regulation that all other businesses face,
while—as managers of 77% of the UK's land—it is also
subject to an increasing volume of environmental regulation. Farming
carries the cost of these regulations because it is unable to
pass them through to consumers, as most other industries do. This,
combined with the great environmental and landscape benefits routinely
provided by farmers without any proportionate return, strongly
suggests a key role for Government. In our view this should come
largely through a well-funded Pillar 2 budget.
How proposals would differently affect the tenanted
and non-tenanted sectors across the EU
23. Since the decoupled payments are made
to the farmer, we see no significant difference in the effect
on tenants as compared with land owners.
The implications of the proposals for the applicant
countries to the EU
24. We assume that you refer to Bulgaria
and Romania. Regardless, without a clearer view of the budget
available for the period 2007 through 2012, the implications for
those countries is very difficult to determine.[5]
Certainly it seems reasonable to assume that whatever budgetary
resources may be available, their accession to the EU will mean
additional development resources and market opportunities for
them.
THE RURAL
ECONOMY
25. The implications of the report's proposals
for the rural economy are difficult to judge. This report provides
no recognition of the knock-on effects for employment in UK farming
and the rest of the food chain, the implications for the wider
rural economy, or the consequences for the landscape and natural
environment. These concerns are all the more important in less
favoured, upland areas where farming is most vulnerable to reductions
in support and where its importance in the local economy is often
greatest.
26. In the CLA vision, where there is encouragement
and facilitation for farmers to market environment-related high
quality premium products and services, and full support for the
non-market outputs provided by private managers that cannot be
paid for via this user-cost route, the consequences for the rural
economy would be positive. Agriculture may be a small part of
the economy in many areas, but land management, and farming in
particular, is the indisputable foundation of rural tourism and
many other rural businesses. More generally, the landscape that
is such an indispensable part of the attractiveness of rural life
for many people is a manmade landscape; it is the product of people
working and living in the countryside. Government must understand
that our countryside heritage is both a "shop floor"
and a place for recreation and enjoyment. With the right programmes,
well implemented and properly funded, it will continue to be a
vibrant and beautiful place to work, live and visit. Our concern
is that the Government vision significantly underestimates the
scale of support necessary under Pillar 2 to deliver what society
wants from its rural areas.
INTERNATIONAL ISSUES
27. This section could well have been written
by a campaigning NGO. It discusses at some length concerns about
the barriers to the EU market but that discussion is entirely
one-sided. A few facts not mentioned in the Government paper:
The EU is a net importer of agricultural goods, and is the world's
largest importer of agricultural goods. The EU is the world's
largest importer of agricultural goods from developing countries—importing
more than the US, Canada, Japan, Australia and New Zealand combined!.
The EU imports some 85% of Africa's agricultural exports, and
45% of Latin America's. Under the "Everything But Arms"
initiative, the EU unilaterally provides duty and quota free access
for the 49 poorest countries in the world. A total of 142 developing
countries benefit from preferential access to the EU's markets—by
far the highest level of preferential access provided by any industrialised
country.
28. The report is inconsistent when it quotes
approvingly from the report of the Commission for Africa: "barriers
and subsidies are absolutely unacceptable; they are politically
antiquated, economically illiterate, environmentally destructive
and ethically indefensible. They must go."[6]
No mention, however, is made of the fact that it is the developing
countries themselves who impose by far the highest tariff barriers,
and that it is those barriers, together with their poor governance
and lack of capacity[7]
that are the principal causes of their underdevelopment.
29. When it comes to who would benefit from
the sort of trade reforms the report seems to support, again the
arguments are weak. It accepts that the main winners will be the
large producers—such as Brazil—and that most others
will not benefit without substantial internal reforms. Similarly,
the report does acknowledge that many countries will suffer as
a result of the erosion of their preferential access. In neither
case, however, does the report deal with these concerns seriously.
For example, it makes no mention of the large environmental subsidies
effectively provided as a result of weak environmental management
in Brazil, or indeed the large subsidy provided to Brazilian sugar
producers through the mandatory ethanol inclusion programme. Nor
does the report give any thought to how those countries lacking
the internal structures needed to compete internationally will
cope with the international regime advocated by the report. It
is important to note that some of the strongest supporters of
the EU import systems are the developing countries themselves,
and it seems to us to be patronising to suggest that we know what's
better for them than they do themselves. Likewise, the dismissive
remarks about the concerns of the net food importing countries,
for whom higher international food prices would be a real problem,
betray the clear bias of the report's authors.
THE WIDER
DEBATE ON
FUTURE FINANCING
OF THE
CAP
30. For the CLA this is the most important
question. We believe that some of the key mechanisms needed to
achieve the vision that we share with the Government are already
in place. Crucial was the decoupling of payments in Pillar 1 from
production decisions. Equally important is to ensure that the
funding available in Pillar 2 is sufficient to deliver the environmental
and rural development objectives that we all share. In the debates
about the European budget, there is diminishing support for the
Pillar 1 budget. Many, especially northern European taxpayers,
are asking why so much money is being provided to farmers, and
the newly acceded countries have not much interest in defending
Pillar 1 as they have little expectation of benefiting from it
on an equal basis with EU15 member states. An ongoing shift of
funding from Pillar 1 to Pillar 2 seems inevitable.
31. In our view, there are three reasons
for substantial support to farmers and other land managers that
are both economically and politically justifiable. The main one
is for the provision of payments for environmental and land management
services (Axis 2 of Pillar 2). The other main reasons are assistance
for wider rural economic development (Axis 3 of Pillar 2) and
for helping with the structural adjustment and modernisation of
the farming industry (Axis 1 of Pillar 2). Given their level of
development, the larger proportion of their population in rural
areas, and the higher share of national GDP accounted for by the
rural economy the new member states in particular stand to benefit
significantly from enhanced Pillar 2 funding.
32. The process of switching funds from
Pillar 1 to Pillar 2 has begun. It is currently composed of two
main elements; compulsory EU level modulation, and voluntary national
modulation. At present both are match-funded by national governments.
The UK is alone within the EU in using the facility for national
modulation. The European Council, meeting last December, through
a UK initiative, agreed to allow additional voluntary modulation
from 2007 of up to 20% that need not be match-funded or subject
to the agreed rural development guidelines. We have yet to see
how this is embodied in detailed regulations. How the system of
Pillar 2 funding develops over the coming years is pivotal to
the success of the farming and other land-based industries, to
the management and development of rural society, and to the maintenance
and preservation of our natural heritage.
33. Historically, the UK has received only
some 3.5% of funds for Rural Development, far less than it should
have received if the allocation had been on objective criteria.
This resulted from Treasury concerns to maximise the UK's budget
rebate in the 1980s and 1990s which meant that the UK made little
use of the predecessor programmes of the Rural Development Programme.
We hope that this will be rectified with the new budget for the
post-2007 period, when a new mechanism for distributing funds
may be implemented. However, the funds available from Brussels
may not be materially more, since the UK championed the 36% cut
in the proposed EU RDP budget.
34. The report seems to think that Pillar
2 is important, yet it was the UK that negotiated a significant
cut in the Pillar 2 budget for the period 2007-13, and has reached
agreement to allow national modulation of up to 20% without match-funding
from the Treasury. Clearly, the government's strategy is confused
unless it is secretly planning to derive the bulk of its RDP funding
from national modulation, and to do so without any match-funding
from the Treasury. If so, this aspect of the UK policy was never
openly or formally announced. It was certainly not subject to
any consultation nor was it discussed with stakeholders.
35. In light of the "Vision" paper
by Defra and Treasury, and the achievements of the British Government
in the recent EU budget negotiations, we have grave concerns.
As we have already said, the "Vision" paper conveys
an unbalanced analysis of the current situation, while the conduct
of the Government in the recent budget negotiations served only
to reinforce to view that they lack an agreed, coherent strategy
for realising the vision they advocate..
36. In our view a strategy for realising
the next reform must be based on three essential elements:
36.1 It must be developed within an EU-wide
framework; in our view the transboundary nature of the main environmental
concerns addressed by the CAP in future still justify a common
policy approach. This requires a common vision that can only be
realised through engagement with our European partners, and through
clear, compelling analysis that take account of the variety of
conditions, experience and ambition within the EU.
36.2 It must provide long-term clarity and
stability. Land management for food, for energy and for environment
cannot be delivered in the "just in time" ways of the
assembly line. Land-based businesses, such as farming and forestry,
necessarily have long planning horizons and it is essential that
the policy environment within which they operate recognise that.
36.3 Finally, it must be politically sustainable
and economically robust. Importantly, this includes the proper
payment by government for environmental goods and services wherever
the requirements for properly functioning markets do not exist.
The size of such payments is difficult to estimate at this time,
but we believe that the value of the environmental goods and services
provided by land managers is substantially greater than the amounts
currently available in the Pillar 2 budget. It seems to us obvious
that the success of the overall task is critically dependant on
the adequacy of the budget available.
37. In the meantime, the strategy we suspect
the Government has in mind to switch Pillar 1 payments as quickly
as possible without match-funding by HM Treasury is entirely unacceptable.
With the exception of the very modest improvements between 2000
and 2003, farm incomes have fallen every year for the past 10
years. We are now beginning a period of historic change in farm
support with the introduction of the Single Farm Payment (SFP)
and it is simply unacceptable for our Government to seek to reduce
the support received by farmers by a further 20% without a clear,
agreed strategy for helping the industry successfully make the
structural adjustments that it needs to make and to realise the
vision we share.
38. It is time that the Government understands
that developing a vision is the easy part; developing the coherent,
balanced and well thought-through strategy for realising that
vision is where the hard work starts. Crucially, such a strategy
cannot be one that is simply imposed by Government. It needs the
contribution and commitment of all the key stakeholders both in
the UK and throughout the EU. Equally, a successful strategy must
begin with a clear, balanced and honest analysis of the current
situation and the impacts of proposed measures. Regrettably, on
these scores the Government's Vision paper fails.
February 2006
1 Even so-called agricultural free-traders like Australia
and Canada provide government supported income stabilisation programmes. Back
2
Tenant farming allows people to enter the farming business without
needing to raise the capital need to buy land at the beginning,
thus facilitating greater freedom of entry into the market than
would otherwise be the case. Back
3
Consumers spend only 9% of their disposable income on food, down
a third over the past 20 years (Source: Defra, AUK). Back
4
Over the past 20 years the farmgate share of retail spending
on beef has fallen by 33%, on pork by 36%, and on wheat products
by 35% (Source: Defra, AUK). Back
5
It is worth noting that the decision not to make extra provision
in the Pillar 1 budget for Romania and Bulgaria suggests the Financial
Discipline mechanism will require an additional cut in SFS payments
of about 8%. Back
6
The paper also suggests that poor countries suffer from the imposition
of EU customs procedures and the application of health and safety
standards. See fn 6, p 52. Back
7
Capacity includes, amongst other things, production capacity,
transport infrastructure, and legal and financial systems. Back
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