Memorandum Submitted by Tenant Farmers
Association (CAP 23)
INTRODUCTION
1. The Tenant Farmers Association (TFA)
welcomes the opportunity of providing written evidence to the
Environment, Food and Rural Affairs Committee as part of its inquiry
into the Government's "Vision for the Common Agricultural
Policy" report. The report is a detailed piece of work and
necessitates a detailed response. However, the TFA acknowledges
the constraints the Select Committee needs to impose on those
submitting written evidence and has therefore attempted to keep
within those limits in preparing this paper. However, we would
hope to have the opportunity of expanding on this written evidence
in an oral evidence session with the Committee.
CONTEXT
2. It is important to bear in mind the context
for the report which the TFA believes to have been the EU budget
debate on-going through the British Presidency of the European
Union through the second half of last year. The UK's firm position
was that a commitment by Member States to further CAP reform was
a necessary prerequisite to a full budget deal. The document was
hastily prepared in order to allow Ministers and in particular
the Prime Minister to answer questions from other parts of the
Union on what the UK meant by further CAP reform particularly
as the EU had just been through the most major CAP reform in its
history.
3. What resulted was a commitment only to
a review of the CAP in 2008-09 which, we understand, is already
built in to the 2003 reform in any case. Therefore little was
gained through the publication of this document in any real political
sense.
4. Despite the fact that the primary goal
of the document failed it remains in our view a very important
document. This is not because it breaks new ground in fact the
TFA finds little which is new within the document. The themes,
policies and proposals are those with which we have become well
acquainted in our on-going discussions with Defra and wider Government.
However, we believe for the first time, the document goes into
a greater level of detail than ever before enabling us to have
a clearer view of the Government's deeper thinking and to have
a more informed debate with the Government about the future of
the CAP.
QUALITY OF
LIFE
5. The report starts with the premise that
the aim of any change in the CAP must be to improve the quality
of life "for all" (paragraph 1.2). This is a high goal
to which to aspire and one that the TFA supports to a point—but
we should not underestimate the difficulties in achieving it.
It means that farmers, consumers, taxpayers, and populations in
third countries should all benefit from any change. At the very
least the TFA would want to be assured that any change in policy
would not be to the detriment of the farming community as has
so often been the case with past reforms. The farming community
has experienced a significant reduction in quality of life of
late through, amongst other things, the increasing burden of regulation,
reduced returns and longer working hours. Looking further into
the Government's document we do not believe that it will be possible
for the Government to achieve its aspirations without causing
greater hardship the farming community. This is partly due to
the naivety of some of the assumptions made by the Government
and partly because of the Government's unwillingness to tackle
issues such as regulation, supermarket dominance and the lack
of a free and fair market place.
6. We are also, somewhat concerned with
the concept that the quality of life of existing generations should
be constrained to ensure that we do not compromise the quality
of life of future generations. The TFA does not necessarily share
the view that the quality of life for future generations needs
to be given a higher priority than the quality of life of existing
generations. We do not know what technological advances will be
made to benefit future generations and we should not be judging
their needs against the technology that exists today.
GLOBALISATION
7. The report claims that the CAP is out
of step with the need for Europe to respond to the challenges
of globalisation (paragraph 1.4). However, this is not the only
challenge that Europe currently faces or will face in the future.
It is written here as if it is perhaps the most important challenge,
however in the view of the TFA there may be more important challenges
above it. In particular the challenge of feeding a world population
which is set to see exponential growth over the next 50 years.
It seems strange to be reducing the EU's food producing capacity
(as these reforms will do) in the face of such an immediate challenge.
8. There is also the concern about increasing
global terrorism and the surety we have in our supply lines in
the face of threats to our nation and its food security. The Government
seems little concerned by potential problems of food security
(see paragraphs 3.41 to 3.50 of the report). In a footnote to
paragraph 3.44 the report states that the current level of self
sufficiency in indigenous food and drink in the UK is 76.9%. The
report does not set out the level of self sufficiency that would
worry the Government. The reforms envisaged by the report will
lead to a large reduction in UK and European agricultural production
which will lead to a worsening of the self sufficiency ratio.
If the ratio fell to under 50% should this not be cause for concern?
9. The Government sets out its vision for
agriculture over the next 10-15 years (paragraph 1.5) and food
security/self sufficiency does not feature. Whilst the TFA would
accept that there is a need to ensure that European agriculture
is internationally competitive, it is also important to ensure
that strategically we have the basis upon which to secure our
food supplies into the medium and long term.
CONSUMER COSTS
10. The report often makes the assumption
that consumers will benefit from cheaper food prices through CAP
reform (for example paragraphs 1.6, 1.11 and 2.10). We disagree
with the view that substantial costs are incurred by consumers
through the CAP. Whilst we accept that tariff barriers keep international
prices artificially higher than they would otherwise be, the TFA
believes this is not transferred into higher consumer costs. Retail
prices are hammered down by the operation of the retail market
within Europe and in particular the UK such that prices to the
consumer are already at unsustainably low levels in comparison
to the costs of production. The TFA does not believe that loss
of the CAP would lead to a reduction in consumer prices.
11. However, there may be a greater degree
of price volatility if we have to rely more heavily on a fickle
world market where structural shifts in demand or supply due to
weather, war or other unpredictable events impact on both supply
and demand.
12. Paragraph 1.17 develops further the
idea that consumer prices are maintained at artificially high
levels by virtue of the CAP. However, even a cursory glance at
recent figures shows that international factors do have a great
bearing on the prices of some of the major internationally traded
commodities including cereals, beef and sheep meat. It is incorrect
to say that much of EU agriculture is "largely insulated"
from world market forces.
13. Therefore, the TFA does not share the
conclusion as set out in paragraph 1.6 that CAP reform will necessarily
lead to cheaper, more diverse and better quality produce. The
Association believes that the linkages between support, production
and consumption are more complex than that and are worthy of a
more detailed analysis than provided for in this report.
ENVIRONMENTAL COSTS
14. We also disagree with the statement
made at the end of paragraph 1.4 that the CAP still has a negative
impact on the environment. It is too easy for the Government to
use such a throw-away remark without providing a more detailed
analysis of the interaction between support and the environment.
This theme is repeated throughout the report (for example paragraphs
1.9, 1.25, 1.26 and 2.32 to 2.48). The TFA believes that increasingly
it is becoming apparent that agriculture support through pillar
1 has a major plus factor on the environment. This is most aptly
demonstrated in hill areas where the loss of coupled subsidy on
livestock is leading to producers making decisions to de-stock
their hill farms. Environmental groups are now becoming increasingly
concerned about the environmental damage that that may be caused
to sensitive upland landscapes. The TFA shares these concerns
but believes that it was the fault of too much anti-CAP propaganda
by environmental organisations that has led us to where we are.
If there were any environmental costs being incurred by the CAP
then decoupling has dealt with them. It is only in the light of
that that some of the major benefits of pillar 1 funding to the
environment have become clear.
15. In paragraph 1.26 the report quotes
the misleading line, promulgated by the RSPB that there has been
a 50% decrease in the population of farmland birds in the UK between
1977 and 2003 (this is repeated in paragraph 2.38 and by Chart
2.5). In fact, the RSPB has focused on only a small handful of
bird species (19 in total) that use agricultural land. When all
species of bird that use agricultural land are taken into consideration,
the picture shows that there has been an increase in the amount
of birds on UK farmland. The Government must be careful not to
accept and then to use such partial statistics when justifying
its policy stance.
MARKET AND
ECONOMIC ISSUES
16. Paragraphs 1.13 and 1.14 argue that
the CAP is inefficient in providing support to farmers because
much of it does not reach them as it is capitalised into land
values and taken by others who supply inputs to farming. The TFA
accepts that this is an issue. The TFA has long argued that the
CAP does create a high cost environment within which production
decisions are made. In particular we are greatly concerned about
rental costs for land. We have already seen that decoupling has
created situations where grass, for example in the South East
is being let by owners for zero rent as farmers no longer see
the benefit of having extra grazing if their subsidy is no longer
dependant on taking that extra ground.
17. However, whilst we note the Government's
concerns in this area, it is somewhat surprising to us since the
Government chose a system to implement the Single Payment Scheme
(SPS) which relies more heavily on the linkage to land than others.
The TFA argued long for the simple system based on history whereas
the Government has chosen a hybrid which, the TFA is concerned,
will lead to some of the benefit of the SPS passing to landowners
through the link to land and rents.
18. It is because of these land effects
that the TFA's preferred policy choice is a bond scheme where
farmers are provided with a completely decoupled bond which they
can either sell in the market place or retain to receive annual
payments over a set period of time. The TFA believes that this
way of reforming the CAP should have been given more prominence
in 2003.
19. The TFA is comfortable with the concept
of farmers being rewarded by the market so long as the market
is fair. However, we know all too well that this is not the case.
Certainly in terms of processing and retailing, farmers face two
very concentrated sectors as well as a concentrated supply sector.
This therefore does not lead to the sort of market movements that
would be associated with a more competitive market. This leaves
agriculture at a competitive disadvantage in the chain.
20. The authors of the report appear to
be operating under a misapprehension that the agricultural sector
should be treated no differently to other sectors of business.
There appears to be a belief that as agricultural returns reduce,
the costs faced by agricultural producers will fall and a new
equilibrium level of production will be found. However, this is
not the case. Farmers are both price takers on their production
and on their inputs. Reductions in farm gate prices do not lead
to commensurate reductions in input prices. There has been no
objective analysis anywhere which proves otherwise. Many of the
inputs used by agriculture are oil or chemical based and the prices
of those inputs more reflect what is happening in global oil and
chemical markets than they do global or domestic agriculture markets.
Other costs include labour and land and their levels too have
little to do with the profitability of agriculture. Farmers are
unable to pass on increasing costs to consumers and are also largely
unable to reduce their input costs in the face of declining returns.
This seems to be completely missed in the Government's document.
21. The vision of a sustainable CAP as set
out in paragraph 1.32 of the report falls down on its very first
premise. It requires a free, fair and level playing field throughout
the EU for farmers to produce and market their goods in a single
market as in other sectors of the economy. The TFA believes that
this is unachievable for the reasons set out above. We will only
begin to approximate a situation where this occurs if we have
a major reduction in regulation in Europe, a major levelling of
the environmental, animal welfare and public health considerations
on a global basis, regulation of supermarkets and reformed competition
laws which enable farmers to club together in meaningfully sized
marketing groups.
22. The TFA is interested in the remarks
made in the report (paragraph 1.33) concerning the regulation
of land markets. The report does not go into any detail as to
the nature such regulation may take. The TFA believes that the
Government may be considering some form of regulation through
the agricultural tenancy system. The TFA would welcome a further
discussion with the Government about what it intends by its suggestion.
23. The TFA is greatly alarmed that the
Government should be quoting research which is now quite dated
to justify its position that the CAP creates economic and fiscal
costs on society (paragraphs 2.6-2.11). It quotes research dating
from as early as 1985 and as recently as only 2001-05 to 20 years
behind the current day situation and certainly pre the last major
reform of the CAP in 2003. The position at the end of 2005 when
the report was drafted was very different to that viewed by the
researchers quoted here.
24. In terms of the adjustment process,
we have already noted that the market for agricultural commodities
does not work in the same way as the market for other commodities.
There are also structural issues which need to be borne in mind.
Looking at the UK, the report correctly identifies that as much
as 45% of the land area of the country may be farmed by individuals
who do not own the farms that they run. Many of these individuals
will be in rented accommodation which they could not very easily
do without if they had decided to give up their businesses. The
TFA believes that there are many individuals on farm tenancies
that are stuck in farming. As they do not have the necessary resources,
they are unable to make the rational economic decision to leave
farming. Housing is a particular problem in this regard. That
is why the TFA has long supported a retirement scheme which would
help with the transition of getting older, perhaps less efficient,
farmers to leave the industry with dignity whilst providing opportunities
for new entrants.
SOCIAL ISSUES
25. The report argues that farm support
is not justified because farm households are not necessarily the
poorest in Europe particularly when compared with some employed
households and households without employment (paragraph 1.15).
The TFA believes this completely misses the point since farm households
are characterised by entrepreneurs, businesses and risk takers
whereas the comparison is made with those with or without employment
who are not entrepreneurs and who do not take investment risks.
Agriculture provides a basket of benefits to society and it is
a shame that the Government feels it appropriate to make comparisons
in this way which do not adequately reflect the contribution that
agriculture makes to society.
ISSUES FOR
DEVELOPING COUNTRIES
26. The report makes what is now a well-worn
assertion that the CAP damages the poorest countries in the world
(paragraph 1.20). The TFA does not accept this broad-brush analysis.
In the first instance the EU has developed a complex system of
trade preferences for some of the less well-off countries on the
globe. This is most aptly demonstrated through the sugar regime
which has now been reformed by the Council of Ministers. Many
of the least developed countries complained that their coveted
trade preferences would be seriously devalued following the reduction
in the EU's internal price. Because of this, the EU had to put
in place a complex mechanism of compensation payments to the African,
Caribbean and Pacific Countries with which they had trade preferences
in place. All this as a result of CAP reform. These countries
did not see reform in the sugar sector as a plus point.
27. The TFA has not seen any evidence which
shows the CAP has a significant impact on developing country agricultural
markets. In the light of the 2003 reforms, which will see a reduction
in EU output, the TFA believes that this is now very much a non-issue.
INTERNATIONAL EXPERIENCE
28. The report looks at international experience
and tries to draw significant parallels with the process of reform
in New Zealand in the mid-1980's. However, agricultural reforms
in New Zealand were coupled with a devaluation of the country's
currency and a massive reduction in the amount of on-farm regulation.
It was for those reasons that the reform process in New Zealand
was successful and whilst the Government is clearly keen to see
a reduction in support for agricultural activity it would be extremely
unlikely for it to want to roll back the amount of regulation
or to devalue the currency in the way that New Zealand did.
EXPORTING OUR
ENVIRONMENTAL PROBLEMS
29. The TFA is greatly concerned that in
reducing our dependence on domestic production and increasing
our reliance on imports from countries that do not sure our high,
self imposed, environmental standards that we simply export environmental
problems overseas. The report seems little concerned with this
save only in relation to those environmental costs which have
global implications (paragraphs 3.58 to 3.60). The report suggests
that creating local environmental damage in another country is
a value judgement for the Government of the country concerned
rather than for us. That seems to us to be a complete abrogation
of responsibility. If the public require a high environmental
and animal welfare standards of home produced food it is likely
that they require the same standards in imported food. If the
environmental and animal welfare implications are hidden from
consumers then they are unable to make a fair choice. It is also
unfair to make domestic producers compete with international suppliers
who do not have the costs of complying with the higher level of
regulation imposed at home.
CONCLUSIONS
30. Whilst this document gives a deeper
insight into the Government's internal thoughts on the CAP it
makes for depressing reading from a farmers perspective. It is
riddled with false illusions, rocky assumptions and dated thinking.
There are also huge inconsistencies the biggest of which is the
failure to conclude whether we want an industry that is globally
competitive or struggling under the weight of domestically imposed
legislation. We cannot have both.
31. A fundamental concern is the unrealistic
expectation that farmers could use a combination of lower input
prices, futures markets and increased technical efficiencies to
offset the full effects of the removal of the CAP. Input values
will not fall, futures markets have a role but they are overstated
by the report and technical efficiencies will not keep pace.
32. The message that the report wants to
convey is "get better or get out". However, given the
major barriers to seeing improvements, readers in the farming
community will only receive the message "get out". Is
that sustainable in any sense of the word?
February 2006
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