Examination of Witnesses (Questions 1
- 19)
WEDNESDAY 14 JUNE 2006
MR DAVID
FURSDON, PROFESSOR
ALLAN BUCKWELL
AND DR
DERRICK WILKINSON
Q1 Chairman: Good afternoon, ladies
and gentlemen. Welcome to our first evidence session on the Committee's
inquiry into the UK Government's vision for the Common Agricultural
Policy. We welcome old friends of the Committee, the Country Land
and Business Association, and in thanking them very much for their
comprehensive and interesting written evidence we welcome David
Fursdon, their President, Professor Allan Buckwell, the Chief
Economist and Head of Land Use, and Dr Derrick Wilkinson, their
Senior Economist. Gentlemen, one of the things which has been
going through my mind as I have looked at the evidence for this
inquiry was—and indeed the Committee had the pleasure of
visiting Poland and Romania last week in pursuit of further background
for this inquiry—what actually do we think the purpose of
the Common Agricultural Policy is, because the "Vision"
document is strong on drawing up lists of what a reformed Common
Agricultural Policy might look like and it lists some of the things
it would like to see coming out of it, but it made me ask myself
the rather more fundamental question, what should this Common
Agricultural Policy's purpose now be? Perhaps you might like to
supply me with an answer?
Professor Buckwell: Thank you,
Chairman. If I could kick off on that one, in a word, changing.
The purpose of the CAP is changing and that is the difficulty
in a sense and the reason we are having a debate. The objectives
are laid down in Article 39 of the Treaty of Rome, which is all
to do with agriculture, food production and ensuring the standards
of living of those engaged, stabilising supplies, and so on. Those
were objectives which were absolutely understandable in the late
fifties, early sixties, when it was set up and even for one or
two decades thereafter, but what has happened since then is that
we have added significant other demands which society places on
its rural areas and its agriculture, and that increasingly involves
delivering environmental services. So this did not figure at all
in the original Articles, but it is now a core part of the current
and future purpose of the policy, whilst at the same time trying
to stimulate and encourage the industry to deliver food supplies,
because that is what the fundamental job of agriculture is, and
to improve quality, to improve marketing, and so on, but now increasingly
to deliver these wider what I would call environmental and cultural
landscape objectives.
Q2 Chairman: Do you think it is quite
important in a way that before one gets into the detail, the delivery
mechanisms—which is what the "Vision" does in
its long, what I call shopping list analysis—I looked around
to see if they could define with some degree of clarity what the
CAP's purpose actually is and it is very fuzzy. I could not quite
get to the definitive paragraph. I have lists of what it might
look like, but they talk about, in paragraph 1.32, "Against
this background a sustainable CAP would comprise," and then
there is a long list of what it would comprise of, but you are
still left asking the question, what is the purpose?
Professor Buckwell: We felt exactly
the same, what is the purpose of this document? It is not a vision
for agriculture, it is not a vision for land management or the
countryside, which is where you might have thought we would have
started with our vision for that and then said, what policy do
we need to deliver that? This document does not provide this.
To our reading, this is a list of what the Treasury and some Defra
officials think is wrong with the current financing of the CAP.
It is a rather narrowly focused document about the financing issues,
and there is a very strong thrust in this that they want to significantly
reduce the public expenditure cost of the countryside, which we
think would be a huge mistake.
Q3 Chairman: Did you make a cockshy
yourself at remedying that failure of the document? I know you
have produced your evidence, but you have been kind enough, if
you like, to follow the mantra we laid down and answer the questions
we put down. I just wondered if you had come back to a simple
question of what is the purpose of the CAP? You have talked about
the delivery of environmental goods—and we will come on
to discuss that in some detail—but everybody talks about
these environmental goods as if there was a pre-determined list
of what it was we wanted.
Professor Buckwell: You are absolutely
right, Chairman. That is a complicated question to answer, if
you want to start it now, but in terms of the purpose of the CAP
there is a requirement—it is perfectly reasonable and sensible
that the largest economic block in the world, the European Union,
would want to have a policy for secure, stable supplies of its
food, of high quality and food safety, and so on. So it is not
at all surprising, particularly within a single market, that the
European Union would want to have a policy covering that area.
This is the basic needs of the population. When you add to that
that Europe is unusual in many parts and most regions of the world
in that its rural areas are also its playground. A huge amount
of tourism and recreation takes place in the countryside. It is
a managed countryside very largely, particularly in this country,
less so in some of the other Member States but still to a high
degree, and so of course this policy nowadays, given what society
expects from the countryside, we would expect to have a very significant
element of how that countryside is managed. I do not just mean
agriculture, but of course that includes agriculture.
Q4 Chairman: I suppose what was at
the back of my mind was how common the policy needed to be, because
one of the things which comes out from a lot of the evidence is
that when you had a CAP which was production-focused then a common
approach had some appeal. But now you have decoupled, if you like
"doing your own thing" becomes more appealing as opposed
to acting on commonality.
Professor Buckwell: There are
two reasons why we would be very cautious about that. First of
all, as more of the policy is justified in environmental terms
and as most of that environmental regulation is European—these
are European standards, rightly, within a European market because
you are regulating businesses within an open market—that
is part of the justification. A huge element of these environmental
concerns is trans-boundary. Insects, birds, and so on, do not
respect national boundaries and water flows across national boundaries.
These are the fundamental reasons why a very strong element of
commonality is justified, but likewise we would be suspicious
because there is a much stronger taste in other Member States
to put public expenditure into agriculture per se, but it is necessary
to have a common policy to hold the ring for competition reasons
within the single market. Therefore, it is vital, in our view,
that we cannot just simply walk away from a common policy, from
where we are now within the European single market with all its
regulation.
Q5 Chairman: This document sort of
came a bit like a bolt out of the blue. Why do you think it was
produced when it was produced?
Mr Fursdon: It was very surprising
to us the way it arrived, the fact that it arrived without any
prior consultation, without any obvious attempt to take the stakeholder
group with them on this, and it was produced at comparatively
short notice for us during the period of the UK presidency, and
no doubt there were lots of political reasons why it came out
in the way it did, but for us that was one of the big problems
with it. Allan has already said that it was not a document about
a vision for the future of agriculture, but for an awful lot of
people in agriculture to suddenly have this document appear at
the same time as—they had just gone through the mid-term
review and the proposals from that—the Prime Minister was
taking every opportunity to say that we needed further reform,
when we had just been through it, this actually was part of the
problem. It just heaped one sort of set of difficult circumstances
on another for the farming industry. So it was a strange emergence
for the paper, I have to say.
Q6 Mr Williams: For the sake of clarity,
I would like to put on the record that I am a member of the Country
Land and Business Association, but I hope that will not deflect
me from the questions I am going to put to you. You are critical
of the paper for a number of reasons, but one in particular is
that there is a lack of analysis as to the effect the "Vision"
will have on the UK farming structure, employment, output, on
the upstream and downstream effects of these changes and what
will happen to the environment. Although you are critical, actually
when we talked informally to the authors of the paper they felt
that actually all the literature tended to show that the effects
would be fairly minimal. How would you react to that?
Dr Wilkinson: I wish they had
put that evidence in the document then. It is clearly not here.
There is a chapter, chapter 3, the implications of further CAP
reform, which I assume is where their analysis on the consequences
of their view lies. Let us, for example, talk about the upstream
and downstream linkages, the implications for the rural economy.
In paragraph 3.34 they begin by citing an OECD study of the region
in England which concludes that agriculture has strong rural links,
and then with the sleight of hand of a magician in the next paragraph
suddenly in fact OECD available evidence says that this is all
fairly stable or even increased in a number of Member States.
So from one paragraph to the next they have got this sort of sleight
of hand. Their entire analysis of the upstream and downstream
linkages is, what, five short paragraphs and it cites three studies,
only one of which relates to England, notwithstanding the fact
that Defra has commissioned a lot of studies and it is quite capable
of commissioning the relevant studies. They go on to talk about
the consequences for the environment. We are treated to, what,
four paragraphs on the environment where they do not seem to quite
know whether or not they think that further CAP reform would lead
to further intensification or not, but they certainly do not cite
any work one way or the other. So we are talking there about the
consequences of their vision for the rural economy, the English
landscape and countryside, and we have got a total of nine paragraphs
out of this entire document. I do not think that that is an appropriate
analysis, quite frankly. What they are suggesting, if we have
a look in here, is that agricultural spending should be reduced
to the current levels of Pillar 2 funding, that is to say a 90%
reduction in support over a 10 to 15 year period. What are the
consequences of that? Absolutely no analysis whatsoever. That
seems to me, if it is not too strong, a dereliction of their duty
as a department to put forward policies which are based upon careful,
well-thought out and balanced analyses. This, sadly, is lacking.
Q7 Mr Williams: So what would your
assessment be of the impact if the "Vision" was implemented
as far as the CAP is concerned?
Dr Wilkinson: Quite clearly the
CLA does not have the resources of Defra and the Treasury combined,
so we are not in a position to offer you a clear analysis of that.
What we could say, I think, at this point is that we do understand
the imperatives in terms of the budget and the changing needs
of society, and so forth, but we also understand that the Pillar
1 funding, the support, if you take that away from farmers right
now—the core business of farming lost £500 million
last year. It loses money year in and year out, that is the core
business, without support. We all buy into the fact that farming
needs to be better connected to the market, it has to find market
opportunities for a sustainable future, but over a 10 year period?
Is there any analysis anywhere which suggests that market returns
to farmers, whether from commodity production, from diversified
activities, or even indeed from the new non-food opportunities,
are going to provide an increase of, let us say, two to £3
billion a year on a stable basis over the next few years? I have
not seen any of that analysis. What we would like to do is engage
in that discussion to see some of that work being done and to
have a sensible debate about what the future for farming and the
countryside is.
Q8 Mr Williams: I think some of the
models which were put forward by the academics were of countries
where agricultural support had been eliminated or greatly reduce,
that there was not much effect really on agriculture?
Dr Wilkinson: Indeed.
Q9 Mr Williams: I guess we are looking
at New Zealand?
Dr Wilkinson: Correct.
Q10 Mr Williams: Could you suggest
any other countries?
Dr Wilkinson: No. New Zealand
is an interesting example on several counts. First of all, it
is a small country. Nobody else has ever done it or even tried,
or even contemplated it. We have to remember, when we are talking
about New Zealand, it is different. There are differences and
those differences are not often brought out. For example, when
they did their overnight liberalisation, withdrawal of support
if you will, they also did a number of other things. They did
provide exit grants for those who wanted to leave, but—and
this is crucial, and interestingly not mentioned in here when
they went on at some length about New Zealand—if you have
a look at the exchange rate (and remember 90% of New Zealand's
farm output is exported so the exchange rate is critical), as
you lead into that it was very, very low. The New Zealand dollar
was very low, so farm incomes were reasonably good. It then peaked
in about 1988 when they did this liberalisation. Quite how they
timed it, I do not know, but it was brilliant timing. They had
this lovely run-up of good farm incomes up to a peak and then
it went right down again. There was about 15% devaluation within
12 months, which stayed there until only about two years ago.
So the exchange rate really worked for them. They also have a
government and a ministry which supports them, which is actually
proud of them and tries to help them. It has got a competition
policy which allows their companies to grow up to world-scale,
such as Fonterra, where we do not have that here. So there is
a number of differences which need to be borne in mind. Yes, as
I said, we do understand that farming needs to be more engaged
with the market and get better market returns, we all want that,
but we have to be realistic about it.
Q11 Mr Williams: When the Committee
visited Brussels recently, senior members of the European Union
Commission were critical of the "Vision" document in
the sense that it did not give an indication of how farm structures
would be involved as a result of this implementation, if it was
implemented. That is critical to our understanding of rural communities,
particularly in some more rural countries like France, for instance.
Have you got any ideas? You have not got the capacity of Defra,
but you might have the imagination to tell us how farm structures
could be affected by these proposals.
Dr Wilkinson: Probably the beginning
assumption is that the trends in farm structures would accelerate
very, very rapidly, and those trends briefly, as far as farm size,
are that we have got a very, very rapid growth of the very tiny,
what some people call "hobby farms", and a fairly stable
number of the very large farms, although they are getting bigger.
They are the ones which produce 80% of the food supply of this
country. There are about 10,000 of them. We are losing that middle
ground, the family farms. That will accelerate under this type
of scenario. There are some 550,000 jobs, farmers and jobs directly
in farming. The loss of farmers and farm workers will accelerate.
The knock-on in the broader rural economy is that we have got
about 50,000-odd in the food supply chain—I am thinking
there of the farm suppliers and the wholesalers, just one away
from farms—and clearly they are going to get hurt as well.
So there is going to be a lot of unemployment, a lot faster unemployment,
and we have to remember that while those figures might not seem
very large in the scheme of things, this is going to be largely
out in the more rural areas where there are fewer opportunities
for people to do things there, so then they will have to leave
those areas, and again you are going to end up with all the problems
of people having to leave the countryside because they cannot
afford to be there any more, and so on and so forth. There is
a number of working assumptions we could begin with, but, as I
say, we have not been able to do the analysis. We want to see
the analysis done and we want to see the debate begin.
Q12 David Taylor: It is about 1%
of GDP, is it not?
Dr Wilkinson: It is less than
that, actually, it is about 0.7, 0.9. It depends which year we
are talking about. Farm incomes have fallen back again the last
three years in a row.
Mr Fursdon: Chairman, could I
just add one point to that? Part of what lies behind this whole
thing is that it will be better for the environment if we go down
this route, and yet you would expect also some analysis to have
been done on how the effects of these changes in structure might
affect the environment as well, and the assumption that if people
are going to have to compete in a world market they are not going
to be intensive and that the only intensive agriculture is associated
with the CAP supported agriculture is, I think, simplistic.
Q13 Mr Drew: If I could just take
up your point about your views on the "Vision" document,
the problem is that in a sense the historic contradictions of
the way in which the CAP has operated, and will operate, inevitably
means that you have got a very divergent series of countries now
within the CAP. Why is it we cannot look at options including,
on the one hand, complete repatriation of the monies to national
agriculture and, on the other hand, something to the extent that
we might have a fully integrated market where you give every encouragement
to those less developed countries to change their agriculture
rather than a dependent income and production-based scenario,
one which actually moves in the direction we all seem to want
to go, which is to pay farmers to do things which are public goods
and produce the alternatives to food production which everyone
seems to crave after? Is that something the CLA has been interested
in and done some work on?
Professor Buckwell: Yes, we are
interested in that and, yes, we have done work on this. You made
some very important points there. First of all, that there are
quite different requirements around the European Union. This is
absolutely true and it is quite hard, as the Chairman was saying
earlier, to see what is the commonality. My answer is that we
need a common framework, and insist on that, but in fact it is
not the current CAP. There has to be a common framework all the
while we are in a single market with common regulation. The point
about repatriation—and I do not like the use of that word—is
that it has been agreed, we thought, in principle, and we are
shocked at the way Defra and the Treasury threw away the principle
in December that Pillar 2, in a sense the good CAP, the rural
development, the agri-environment part of the CAP, was traditionally
co-financed and the principle was precisely because the requirements
amongst the various measures offered in Pillar 2 are different.
The different Member States choose differently from the menu there
and they should, of course, quite reasonably tip in some of their
own funds to ensure that they only go in for programmes which
make good value for money.
Q14 Mr Drew: As usual, when it came
to the budget renegotiations, it was the rural dimension which
was the main—
Professor Buckwell: It was cut.
Q15 Mr Drew: That is where all the
cuts were across the board. We in Britain were as guilty as the
traditional agriculture subsidy nations and unless you can change
that mindset—and to be fair it is totally unhelpful, going
through Romania and Poland last week, to be leading them in a
direction in which we do not want them to go, but they have to
go there to move in our direction later, which seems a completely
barmy way of undertaking policy.
Professor Buckwell: I quite agree,
which is why we put on the table for discussion last summer, when
these discussions were still at an early stage, that rather than
reducing the co-financing of Pillar 2 we should talk about increasing
the co-financing of Pillar 1, and then the Member States such
as France and Spain, who are some of the biggest beneficiaries
of it, might take a different attitude if they had to pay more
for it themselves. That is one of several ingredients which will
certainly be discussed in the next review in two or three years'
time, but the fact is that the opportunity to do that was not
taken this time and instead we have gone almost in the reverse
direction, reducing the co-financing in Pillar 2, which we are
very upset about for the same reasons as Mr Drew mentioned.
Chairman: We will come back and look
at this matter again a little later on.
Q16 Lynne Jones: In terms of reducing
the spending on Pillar 2, the Government says that that was not
their idea and it was the inevitable consequence of trying to
negotiate for a budget reduction overall and it was a presidency
compromise. Do you accept that position? If so, did the Government
have any alternative?
Professor Buckwell: It is an incredible
way of describing it. The reality was that there was a decision
to reduce the overall budget and there was an acceptance that
Prime Ministerial agreement had already been made to maintain
the Pillar 1 budget, so therefore the consequences of that was
inevitably a slashing of Pillar 2 funding. It was as sure as night
follows day that would come from those two policy decisions which
this Government took, so there can be no pretending that we were
surprised and we were not really wanting that outcome. It was
a deliberate contrivance or outcome of the decisions it had made.
So the question is, what do we do about that now? This is why
we are saying what we do not like about this whole "Vision"
document is that it is just hell-bent on reducing public expenditure
on the countryside, instead of standing back and asking the question
which the Chairman did at the outset, "What do we want the
policy to do?". We in the CLA have certainly said that the
way we are supporting the countryside has to change.
Q17 Lynne Jones: So you are saying
that the Government should have predicted that that would be the
inevitable outcome and therefore to blame the presidency is really
disingenuous?
Professor Buckwell: They were
the presidency, as far as I know.
Q18 Lynne Jones: To blame the Commission,
sorry.
Professor Buckwell: Yes, I agree.
Q19 Lynne Jones: Moving back in terms
of Pillar 1 and Pillar 2, the Government's line is that spending
directly on targeted agri-environment schemes is more effective
in providing environmental goods and services than the imposition
of cross compliance measures for Pillar 1. Do you accept that
as a point of principle?
Professor Buckwell: We accept
that the payment for public services is going to be a major part
(not the whole part, but a major part) of the enduring public
support for rural areas. The question now is, how do you do that?
The problem, as we see it, is that you would not start from where
we are, but the trouble is we are where we are. We are paying
large sums of money, roughly £200 per hectare in England,
on the Pillar 1 schemes. It is a bit less than that after deductions,
but as a round figure. We are paying £30 per hectare for
entry level stewardship, and then varying larger sums on a much
more selective basis for the higher stewardship. Those figures
do not make any sense. Had the £200 per hectare in the Pillar
1 payments not been there, you would have had to have paid an
awful lot more than £30 per hectare to have got the delivery
from the basic stewardship scheme, but the reason why you only
need £30 is because you are giving them £200. Trying
to unravel that knot is the challenge and all we are saying is
that you do not unravel that mess by just saying, "Slash
Pillar 1, end of story." We have got to find a way of either
targeting the environmental payments in Pillar 1 or switching
the money to Pillar 2, but there are all these co-financing problems
about doing that. That is the knot we are trying to untie.
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