Examination of Witnesses (Questions 320
- 333)
WEDNESDAY 18 OCTOBER 2006
MR PETER
KENDALL, MR
MARTIN HAWORTH
AND MS
CARMEN SUÁREZ
Q320 Mr Drew: Presumably they did
not take the practice from Accenture, but we will pass on from
that quickly. In terms of decoupling (and what I asked Mrs Fischer
Boel), the difficulty I have is that one could understand if the
EU was a static organisation and you could move all the vehicles
on the track eventually in the same direction, but it is not a
static organisation. We are, by definition, now about to see another
group of new entrants coming in who have a view, at least initially,
on getting support, direct payments to their farmers as an incentive
to enter into the EU. How can we pretend that we can see, within
the foreseeable future, full decoupling? She was very honest and
said 2008 will be a mixture of review and it will be exactly that,
there will be no principal alterations, but she then qualifies
that by saying we will get to full decoupling, but how and when
and where is the evidence that this is going to start moving quicker
rather than at the very slow rate at which it is happening at
the moment?
Mr Kendall: I think it is easy
enough to do. I do not see because we are an expanding EU that
should be break-off point. We have always had countries that have
joined the European Union, we have accession periods. What we
do have is a single market where we have single regulations. We
do have tariff protection around the whole European Union. That
is what makes it so important that we do have a single set of
rules within that European market. We know that as countries join
the EU they sometimes have a six or eight year period of transition
where they have a chance to adapt to our CAP rules and regulations.
So, I think we should set a bold target when we move to full decoupling.
As a country (and we have had it in the United Kingdom) that has
absorbed full decoupling, I would like that to be sooner rather
than later, and I think we should encourage all the Member States
to do that. The accession countries would obviously be given time
to adjust to that as their payments increase.
Mr Haworth: Could I add a supplementary
as well. I do not see the enlargement of the European Union as
making it more difficult to get to a common policy; indeed, I
would say it would make it easier because eight of the ten new
Member States have got an even more decoupled system than we have,
the two new Member States coming in next year will also have that,
and the direction of travel is clearly that, in fact, all Member
States will move over to the system which is now being implemented
in the new Member States. That is the only way in which you are
going to get back to a common policy. The question really is one
of timing, when that can be achieved. I think you have to acknowledge
that the new Member States have got a far more decoupled policy
than even we have in this country.
Q321 David Taylor: Two brief questions,
Chairman, to Mr Kendall, I think. I hope I am not going back too
far. You referred to the dilemma that your Welsh members will
encounter. Are you at this point actively promoting or hoping
for a cut in those area payments for your Welsh members so as
to achieve uniformity and parity with their English counterpart?
Mr Kendall: No, we are not. We
have a relationship with Wales where they have their own policy-making
council, but I certainly acknowledge their concerns about moving
to a flat-rate system. I think they acknowledge that, in the fullness
of time, they will make adjustments to their system to receive
payments based on 2001-02 history. When we get to 2013 it is going
to become increasingly untenable, so they accept that at some
point this debate will have to occur. At the moment, and you can
understand their real concern, they see a system implemented in
England that gives them absolutely no confidence whatsoever that
this is realistic or even welcome, particularly when you see in
England we had 40,000 new claimants, which has acted as an absolute
bottleneck to the delivery of a single payment this last year.
Q322 David Taylor: I take that as
a, "No", then. There is obviously quite a wide range
of single payment models and rates of modulation across the EU.
Does the existence of that position significantly affect the production
decisions of your own members and, if so, how?
Mr Haworth: One thing that is
absolutely certain is that, once you have got lots of different
systems operating across a single market, there is a strong perception
that these things are affecting competition. It is actually often
quite difficult to pin it down. There are some things that certainly
do affect production, and the clear ones here would be different
levels of cross-compliance where some countries have much more
onerous levels than others, there would be differences in that
some countries have decoupled fully and some have not. These are
clearly distortions. You come into more difficult territory where
you have got single farm payments being implemented in a different
way which, on the face of it, probably seem to advantage some
people and disadvantage others in some Member States and against
others. From an economic point of view, it is quite difficult
to pin that down and say this is definitely a distortion, but
certainly all farmers across Europe think there are distortions,
and maybe that amounts to the same thing. For that reason alone,
we are keen to get back to a much more common system.
Q323 Chairman: I think I sense that
you think that farming in the United Kingdom could not survive
without any kind of Pillar 1 support. Is that right?
Mr Kendall: I think I tried to
point out that while the rest of the world is supporting its agriculture,
we would not want to see the UK agriculture thrown to some New
Zealand—
Q324 Chairman: When you say "the
rest of the world", the Cairns Group might take issue with
that statement, might they not?
Mr Kendall: I am sure they would.
Q325 Chairman: You cannot say "the
rest of the world", some bits of the world.
Mr Kendall: Absolutely correct.
I am sorry.
Q326 Chairman: There has been a lot
of emphasis on movement into Pillar 2. Do you think that the environmental
payment structure as currently constituted is going to be sufficiently
robust to address the land abandonment issue that you mentioned
in your opening remarks?
Mr Kendall: We are still awaiting
a review of the HFA scheme which is currently being talked about
within Defra. I am not aware of what the full implications will
be of agri-environment schemes for the hill farming areas, so
I cannot really comment. I do think we now have a problem with
funding of Pillar 2 and the agri-environment schemes and I do
not see it necessarily is a key part of preventing land abandonment.
I think the hill farming replacement scheme would be absolutely
critical and how we can find ways of supporting production in
more remote areas, but I think for tourism and land management
they deliver very real public goods. That is the challenge we
are going to face.
Q327 Mr Drew: Just answer the question.
Does land abandonment matter, in the sense that we are talking
about very isolated land, because otherwise, by its very nature,
there will be alternative uses? Have you done any work on the
implications for farmers who remain of the impact of land abandonment?
Ms Suárez: I think that
there are two issues that we need to distinguish. One is what
is the implication of land abandonment for the countries that
do stay in production in those areas? There you could argue that
it is going to be lack of access to facilities of production,
lack of infrastructure, and so on, that would actually make things
more difficult for the people that stay in production. In terms
of what is the actual social and environmental value of maintaining
land in production, there have been studies that have been done
by Defra and other government departments, and that informed the
revision of the HFA Policy Review, that have put a value to that
land and to that land being maintained in production. I suppose
that the short answer is, yes, we do believe that land abandonment
does matter.
Mr Kendall: The figures I have
seen certainly indicate the value of rural tourism is rated at
about £14 billion, and I think that is a big indication of
the way the land is managed and looked after. I see certain parts
of the country. In my part of the world I have seen where set-aside
has been poorly managed and the papers are full of criticism of
land being managed in a laissez-faire manner; so I do think
we produce a fantastic British countryside, as farmers, and that
is valuable to the tourist industry.
Ms Suárez: There is another
issue also. Land is not an input of production that you can switch
on and off. To some extent there are some consequences of land
abandonment that would be quite difficult to rectify later on.
I think, because of that, any policy decision that may lead to
land abandonment has to be considered with special care.
Q328 Chairman: Could we move on to
your assessment of the move towards Pillar 2. First of all, the
United Kingdom, until fairly recent times, was not wildly interested
in rural development activities. It now is, and you are presented
with the UK proposal to have up to 20% voluntary modulation as
a way of funding, as I see it, the deficit in the rural development
budget. Given the emphasis in the `Vision' document on Pillar
2, it would be interesting to have your observations, if you like,
on the short-term over the 20% modulation issue. The second one
is perhaps to give us a flavour of how the NFU sees the overall
rural development programme. I recently had a look at the 2005
report, and I think that my initial concern was limited amount
of jam spread thinly, particularly when it came to economic activity
other than those programmes which were specifically focused on
environmental outcomes. The question really is: is Pillar 2 a
viable vehicle for helping to sustain the rural economy in England
and Wales either (a) in the way it is presently funded or (b)
taking into account the kind of modulation proposals the Government
has or (c) Mrs Fischer Boel's idea of an increase in modulation
but a statutory one up to 10%?
Mr Kendall: I certainly favour
Mariann Fischer Boel's view of going to 10%. Of course the European
uniform level, what level it is, is to be determined by our partners
in Europe. What bothers me about 20% modulation is, I have talked
already about disparity between systems, between favouring one
country against another, and if I could see an English farmer
having 20% modulation and on a regional trajectory, he could find
himself receiving half the payment of a farmer doing exactly the
same in the Paris basin, for example. That is a big distortion.
You talk about whether the Pillar 2 money is the correct way forward.
I still see, as a priority, profitable agricultural production
as being important vehicle. So, to take money off a farmer who
is doing exactly the same in the same market place (the European
market) as a competitor I see as a dangerous move that could risk
us losing production within that market place. However, the entry
level scheme and the higher-tiered scheme, I think, are delivering
real benefits. They are certainly now a part of a lot of our work
on managing nutrients more effectively, on reversing the decline
in certain farmyard bird numbers; so we see the entry level scheme
and higher tiered scheme as valuable tools. But it does worry
me, because of historic rural development funding, because of
the fact that money now does not have to be match-funded because
of the bad CAP budget deal that was done prior to Christmas—we
can have 20% take-up for the UK with no match-funding—that
is very worrying. So, as to your point about the Commissioner's
proposal of uniform modulation to fund Pillar 2, it is certainly
beneficial. I think, because of historic rural development funding,
we cannot do the additional work you talk about where the jam
is being spread thinly. We cannot do that because of our poor
historical allocation, but we should be able to fund, I hope,
our agri-environment schemes, which I see as being very important
to the plans we have for agriculture.
Q329 Mr Williams: The Single Farm
Payment goes straight on the bottom line of farmers' accounts.
Pillar 2 expenditure is not so simple. We know how much is spent
on Pillar 2, but have you done any work estimating how much sticks
to farmers' profitability in terms of the percentage of the total
expenditure?
Mr Haworth: You are right to say
that there is a much bigger cost involved in Pillar 2 than there
is in Pillar 1. So, yes, less of it goes to the bottom line, but
the agri-environment schemes, so long as co-funding is maintained—I
would emphasise that—we do think there is a net benefit
to the farmers involved here.
Mr Kendall: As somebody who is
engaging at the moment on looking at entry level schemes—I
still have not been accepted into an entry level scheme, but we
are doing the work—in the early years the costs are more
significant. Preparing margins in a good and fit state: they actually
want managing pretty intensively for the first year—the
seed the planting and all the rest of it. I do not see any positive
gain from my entry level scheme probably until year three, and
so I think it is a very valid point that Pillar 1 does stick to
the bottom line and is helping contribute to my income.
Q330 Mr Williams: Have you any plans
to try to estimate what the effect on profitability of Pillar
2 expenditure is?
Mr Haworth: We have done some
work and Carmen may want to comment on it, but by and large I
would say the costs involved to a farmer in Pillar 1 are probably
around 5%, in Pillar 2 they would vary, and, as Peter said, they
are probably higher in the earlier years, but we would say that
they would not be higher than 40%.
Ms Suárez: The other issue
that is probably quite interesting to point out is that, as you
have indicated, Pillar 1 goes to the bottom line of the business
and as such the existence of Pillar 1 supports itself and makes
the uptake of Pillar 2 programmes more likely, i.e. if Pillar
1 payments were not there in the first place people would not
be signing up to an entry level scheme, to a higher level scheme
at the same level of payments and at the same level of uptake
that we have right now. So the separation in the `Vision' document
between Pillar 1 and Pillar 2 payments is to some extent simplistic
because there is a connection between Pillar 2 payments and the
delivery of public goods and services.
Q331 Chairman: In other words, you
cannot have one without the other.
Ms Suárez: You cannot have
one in its present form without the other. If so, one of the things
that is quite interesting, for lack of a better word, in the document
is that it does talk about the delivery of public goods and services
through Pillar 2, but it does not define what is the kind of Pillar
2 that we are likely to have in place by then, and it does not
indeed define what is understood by public goods and services.
How do we define them and how do we go about rewarding for the
provision of public goods and services?
Q332 Chairman: We have made this
point in our reports before. Defra, as I understand it, has made
some attempt to quantify the value that non-agricultural people
put on these public goods, but I am not aware of any effort to
define what the public good output should be, how much of these
things that we want and, therefore, how much should we pay for
them. Do you think that there should be an exercise to try and
answer that question in the context of developing Pillar 2 activity?
Ms Suárez: I have not got
any exercise whether it derives to an act or a number or not and
whether there are going to be questions around that number, but
I think that is an intellectual exercise. It will, indeed, be
very valuable and I think that it will help to focus the debate
about the original document, because at this stage it is very
difficult for us to talk in very general terms about public goods,
public services, Pillar 1, Pillar 2, without having more detail
of what it implies.
Mr Haworth: Your question is a
very good one, and what we must avoid is to repeat the mistakes
of the old CAP, where people were encouraged to produce physical
goods which actually there was not a market for. We do not want
to make the same mistake, encouraging people to produce what are
called non-market goods for society which actually society does
not value. So, I think it is a very important point that you made.
Q333 Chairman: Forgive me; I am going
to stop your evidence session at this stage. We have got two other
sets of witnesses we have to get through and I am very conscious
that, if we do not try and squeeze everybody in by about half
past five, we are going to find ourselves in a series of votes
which will disrupt everything for the rest of the day. Thank you
very much indeed for your contribution and also for your supplementary
evidence which I think brings up to date some of your commentary
on particularly the remarks that Mrs Fischer Boel will be making,
so thank you very much for that.
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