Examination of Witnesses (Questions 220
- 239)
WEDNESDAY 12 JULY 2006
RT HON
DAVID MILIBAND
MP, DR SIMON
HARDING AND
MR ANDREW
LAWRENCE
Q220 Lynne Jones: In an environmentally
friendly way?
David Miliband: I would not want
to calculate the carbon footprint, never mind the human footprint
of the trail of dust that we left on the way there! There is no
point in pretending that we are in the same position as the French
government on the CAP and its reform. He set out the French position
in a very clear way, I set out ours, but we had a good dialogue.
I hope I was able to explain to him that we were not just a bunch
of desiccated calculating machines who did not care about either
the countryside or about people who live there or about farming
communities, and I think he was able to explain to me that he
was not stuck in the mud, unwilling to think about the future.
Q221 Chairman: What do you think
that this health check should be about?
David Miliband: I think it should
be about the organisation and finance of agricultural policy in
Europe.
Q222 Chairman: Have you found anybody
else who agrees with that definition?
David Miliband: There are a number
of like-minded souls who want to see that. I think there will
be a good debate in the Agriculture Council about how to take
that forward.
Q223 Chairman: Do you have as a strategic
objective the production, as the French did, of a paper which
indicates at some point a coalescing of a view with which you
can find sympathy for further change?
David Miliband: Which French paper?
Q224 Chairman: This was issued in
March, the one to the Council.
David Miliband: I see. We have
not taken a strategic or a tactical view that we want to publish
a new paper. Obviously we will bear that in mind.
Mr Lawrence: The mid-term review
of 2003 became rather more than a review, as we know, so the Commission
are being careful about how they present this, and they are not
being particularly drawn on what it might include, but it is a
review of the CAP mechanism which exists following the 2003 reform,
and so that would cover things like decoupling and modulation
and so forth. They are not being drawn yet, but I think it is
quite interesting, particularly in terms of the debate we are
hoping to stimulate, that the Finnish presidency have said that
the topic for discussion at their informal council in September
will be challenges for European agriculture, challenges ahead,
and our vision is quoted as a reference document in the paper
they have produced, as is the French one and a Dutch one. Mariann
Fischer Boel will be invited at that point to give a presentation
to spark the discussion off. I suspect she will not want to say
very much publicly before that event—I am sure of that—but
it is quite possible that at that event she will start to signal
where she thinks this health check will end up, and we do expect
the Commission to come forward with something more fundamental
on paper next year. They will probably have to, given the time
frame.
Q225 Chairman: It would be your objective
to try and influence the way in which the Commission are going
to evaluate the effect of the 2003 changes?
Mr Lawrence: I think that is a
fair way of putting it, yes.
Q226 Mrs Moon: I have a number of
questions, Secretary of State, in relation to Pillar 2. I wonder
if we can start by looking at the UK presidency and the setting
of the budget. We set a budget just short of €70 billion
for rural development. The Commission, however, on a conservative
estimate, suggested there was a need in fact for round about €89
billion. Does the setting of this lower budget and the cut to
Pillar 2 spending reflect a lack of government commitment to rural
development and agri-environment schemes?
David Miliband: No, I think is
the answer to that. Of course, these are seven-year figures, are
they not, the €69.7 or something billion? What it reflects
is the Government's commitment to ensure that the overall EU budget
was contained within limits. That is the reason why we were not
happy with the June proposals this time last year, at the European
Council this time last year, and we worked very hard under the
British presidency, obviously bearing the responsibility not just
of articulating our own views but of having the presidency, to
deliver a budget deal, which many people thought was not going
to be possible. I think the benefits of that have been significant.
As I said to Lynne earlier, I think it is slightly unfair to say
it is a cut. You can say it is a lower figure than a figure that
had been put forward but had not been agreed, so it is not a cut
in the existing budget from €89 billion to €70 billion
over seven years.
Q227 Mrs Moon: The UK Government
has taken up the ability for voluntary modulation to facilitate
and move to Pillar 2. Has the Treasury put forward any new money
to co-finance that move and to allow future moves to Pillar 2
to increase in the UK?
David Miliband: Obviously, there
is a single government position that we are going to be discussing
with the European Commission in the run-up to November, when there
has to be a final conclusion of the position for the 2007-13 period.
A significant part of that period covers the next Spending Review
period and we are working very closely with the Treasury to make
sure that we get the right outcome.
Q228 Chairman: Can I just interrupt
and say that I want to probe you a little bit more about that?
You negotiated on behalf of the United Kingdom the ability to
have a 20% voluntary modulation, which effectively, I presume,
reflects the fact that historically we never got as much money
as we would like out of the CAP for our rural redevelopment programme.
So if you have that 20%, what is the track to using it?
David Miliband: The current level
of compulsory modulation, I think I am right in saying, is 5%,
and our rate of voluntary modulation is six. We have got to get
the balance right between our position and the amount of flexibility
that we use that has been put in. I think it is helpful to have
the flexibility that is there but obviously we have to judge the
environmental and the income impact.
Q229 Chairman: How are you going
to form that judgment? I am interested to know what work you are
doing that is going to inform how you exercise that flexibility,
because effectively, with having a budget of up to 20% which you
can top-slice off what farmers were getting to spend on things
that will benefit the rural economy, it is clearly, in the nicest
sense, a rather cheap way of getting a rural redevelopment policy,
but it has some implications on the farm balance sheet. What work
is being done to evaluate that effect?
David Miliband: Fortunately, there
are publicly available a large number of statistics on farm incomes
and on incomes from farming, which of course are not the same
thing. We are obviously drawing on those. This is something of
a Rubik's Cube—I date myself rather as a child of the Eighties
by referring to a Rubik's Cube. There are a rather large number
of squares that have to be got into the right level. You are right
that there is an issue about voluntary modulation; there is obviously
an issue about co-financing; there is obviously an issue, just
before Roger comes in, about different regional impacts, and how
the system is operated across the UK; there are issues to do with
what is known as the axes minima, because you referred to the
rural economy. That is obviously axis one, but the environmental
stewardship, axis two; the social support, axis three. You have
a pretty big Rubik's cube already. We are trying to draw on as
much data as possible to get the right judgment and obviously,
we have to agree our proposal with the European Commission. That
is obviously an important part of the discussions.
Q230 Chairman: You have been very
good at learning the language, and I congratulate you that in
eight weeks you have all the buzz-words, but what I am not quite
certain about is you say you have to agree a policy with the European
Union, but what you are describing is quite a fundamental further
change internally to the way in which those living in rural England
are going to obtain their money. I deliberately side-step the
use of the word "farmers" because there are land owners
now who have access to funding for various reasons under the new
decoupled arrangements. But what kind of dialogue is there going
to be with the farming industry about this? Is the programme that
you have just given us the headlines of going to manifest itself
in some kind of document where we can see the evolution of the
policy that you want to agree, and over what time scale is this
going to be done? Have you decided any of that yet?
David Miliband: A lot of this
is not for us to decide, in that we have to submit our programme
for rural development to the European Union and it is agreed in
November or by November. That will have the full workings.
Q231 Chairman: It is for you to decide
because you are going to decide what you submit by definition.
David Miliband: It is, but we
equally have to agree the rules by which the game is played, so
to speak, with the European Union.
Chairman: That is very true.
Q232 Lynne Jones: If I can just ask
about farm incomes, my recollection is in the document it says
something like the average farm income is 150% of the average
UK income. Is that net income or does that include any expenditure
being disbursed on the business?
Dr Harding: The figures that we
have given for farm incomes are to do with disposable income,
so it is income in the same sense that you or I would understand
it.
Q233 Lynne Jones: A lot of people
have expressed amazement that it is so high.
David Miliband: I am afraid I
did not learn my lines as well as I should have done. The current
rate of compulsory modulation is 4%, not five. It goes up to 5%
next year.
Q234 Mrs Moon: I am intrigued about
this whole debate, whether in fact you feel that you have made
life a little bit more complex for yourself—and I appreciate
it was your predecessor's decision and not yours—by the
move to an area-based system for single farm payments. Has that
made it actually more difficult to move to further reforms, to
move to Pillar 2, and to argue that Pillar 1 is not sustainable
when there has been so much trauma with the single farm payments?
David Miliband: "Trauma"
is a good word to use, an appropriate word to use, and I understand
exactly where you are coming from there. I do not think it has
made more difficult the shift from Pillar 1 to Pillar 2. It has
just been very difficult and traumatic in and of itself. I do
not see a direct impact there, but I do not seek to minimise and
have never sought to minimise at all the difficulties and the
hardship that have been associated with the problems with the
single payment.
Q235 Mr Williams: If we accept the
figures on farm income as disposable income and on the same basis
as other incomes are calculated, what calculation have you made
about the residual farm income if there were no subsidy paid to
farming businesses?
David Miliband: Let me just pick
up one thing and then I will let Simon talk about the working
he has done. As with all averages, you have to be very careful
of it. You have to be very careful when you are talking about
a farm, because one farm and another farm can be very different;
one is a multi-million pound business, the other is a family business
that is just about keeping going. I do not want to seek refuge
in averages that neglect the huge tale that exists in this area.
Q236 Mr Williams: What I am looking
for is the net profitability of English agriculture if there were
no subsidy payable.
Dr Harding: We have not actually
done that calculation because we feel it is not really a practical
calculation to do at present. What we would expect to happen in
relation to a reform programme as ambitious as this is that there
would be a series of adjustments going on in agricultural markets
which would see farmers reducing their use of inputs and being
willing to bid lower amounts for land rents and for land purchases
and so on, and there would therefore be ongoing adjustments that
would take place in other sectors of the economy upstream of the
agriculture sector itself, and that in the end all those things
would net out to some new level of farm incomes. The likelihood
perhaps is that it is a little bit lower than at the moment, but
even then you cannot tell, because in New Zealand, for example,
where a similar kind of reform took place, I understand that incomes
actually rose as a result of the reform process.
Q237 Mr Williams: But after large-scale
restructuring of the industry.
Dr Harding: Exactly.
Q238 Mr Williams: The reason why
I ask is because in France we encountered huge scepticism about
how farming incomes could be maintained by moving support from
Pillar 1 to Pillar 2, in the sense that Pillar 1 money goes to
the farmer, whereas Pillar 2 is for engaging in other activities
which would be a cost to the farmer before a net income was achieved.
The message then from our French colleagues who we talked to was
that there were large areas of France that were not going to be
farmed in the future. I know you have previously expressed the
view that that would not happen in Britain but perhaps you could
take us through the reasons why you do not believe it would happen
in Britain.
Dr Harding: I think it is true
to characterise Pillar 2 in that sense. Obviously, Pillar 2 is
a scheme that pays money to farmers in return for doing something,
whereas Pillar 1, putatively at least these days, is a scheme
for giving money to farmers for doing nothing, and therefore,
from their point of view, Pillar 1 would seem to be preferable,
but what we do know from a lot of research done by the OECD that
when income support is given to the farming sector, very little
of it actually stays in that sector, and most of the support actually
flows through that sector like a sieve and ends up in other sectors,
chiefly the land owning sector and also suppliers to agriculture,
such as the machinery sector, the agro-chemical sector, veterinary
services, fuel, etc, where those kinds of industries are more
capable of capturing the economic benefits than the highly competitive
farming sector itself, which is generally composed of very small
businesses. I think the basic point is probably broadly right
that Pillar 2 will always have a larger cost to the farmer than
Pillar 1 does, but let us not be very sanguine about the benefits
of Pillar 1 itself, because most of those do not end up in the
pockets of farmers, and particularly not in the pockets of tenant
farmers, which I believe are very numerous in France.
Q239 Mr Williams: One of the problems
with Pillar 2 as well is that not only is there an element of
investment required from the farmer, so the benefits accruing
to the farmer are less, but of course, administering Pillar 2
is more expensive as well, in order to ensure that what is required
from the farmers has been achieved. Have you made any estimate
about the cost of changing from Pillar 1 to Pillar 2 in increased
administration?
Dr Harding: I believe we have.
I do not have those figures at my fingertips, but we have previously
done evaluations of past schemes which are similar to the present
stewardship scheme, and those do show fairly high proportions
of administrative expenditure for the reasons that you cite there.
But obviously those are schemes that are producing real benefits
for the community in terms of the environment and so on, rather
than just dishing out money in helicopter fashion.
| 
