Examination of Witnesses (Questions 334
- 359)
WEDNESDAY 18 OCTOBER 2006
MR GEORGE
DUNN
Q334 Chairman: On his own, I think
for the first time, before the Committee, Mr George Dunn, the
Chief Executive of the Tenant Farmers Association. Somebody had
the temerity to suggest, George, that in some way there might
be brevity in the TFA's evidence if you were on your own. I conjectured
that this would definitely not be the case on the grounds of your
extensive knowledge and ability to respond to any question that
we put to you on the basis of your previous very helpful performance.
Mr Dunn: That is very kind of
you.
Q335 Chairman: Can we send our best
wishes to Reg for his recovery and hope that his sure footing
is quickly restored and that we have the pleasure of him coming
before us again. In the meantime, can I thank you very much indeed,
not only for your initial written evidence but also the supplementary
evidence which you have sent to us to bring us up-to-date about
developments since the first item was written. I would like to
start our questioning in exactly the same way as I did with the
National Farmers' Union and to combine two questions. Obviously
it would be useful for you to put on the record a short statement
about your reaction to the `Vision' document and, secondly, perhaps
to follow that up with your answer to the question I posed about
what do we think is currently the purpose of the CAP. George,
welcome again. The floor is yours.
Mr Dunn: Thank you, Chairman.
Can I say how sorry I am that you are short-changed today and
that you do not have my national Chairman, who wanted to be here.
He has given me his short statement, which he has required me
to read on his behalf. So, if you would indulge me, I will read
his statement and then I will answer your question. Chairman,
Committee members, I am grateful for the opportunity you have
afforded the TFA to address you as part of your inquiry into the
Government's CAP `Vision' document. Whilst our own intelligence
informs us that the Treasury is not minded to take your inquiry
particularly seriously, I am at least pleased that the Select
Committee has chosen to look carefully at this document, as I
am sure, as you have in the past, that you will produce insightful
conclusions that we would all, Government included, be foolish
to ignore. The issues addressed by the Government's CAP `Vision'
go to the very heart of the future of my members and the tenanted
sector as a whole. To put it bluntly, we in the Tenant Farmers
Association reject the Government's vision. It is unviable, dangerous
and not in the best interests of our nation. I say this not because
it uses the results of outdated survey work, predating the current
reforms, or because it lacks any concern for food security, or
that it will allow us to export our environmental problems, or
even that it is selective about what is considers to be public
benefits, all of which are true, but that it is naive in thinking
that we can simply roll back the current support systems and allow
the free market to sort out the consequences. The Government does
not appear to understand the basic truth that the market to which
our producers will be exposed will be far from free, in the economic
sense, and certainly far from fair. Recently experience in the
milk and sugar sector should act as an important wake-up call
in that regard. Whilst the Tenant Farmers Association is not saying
that the Common Agricultural Policy is not broken, neither are
we saying that it is beyond repair. It is less intellectually
challenging to tear down, even if that takes place over a period
of time, than to build up and we would ask that the Government
needs to think again.
Q336 Chairman: Would you like to
go on and respond to my second question. What do you actually
think is the purpose now of the CAP?
Mr Dunn: The purpose of the CAP
has a number of elements that we need to take into consideration.
Firstly, as economies grow it is very clear that consumers spend
less of a proportion of their growing income on food products,
and, therefore, those individuals who are responsible for producing
those food products get a declining share of national income spent
on what they are doing, which means they do not have the ability
to take advantage of economic growth in the same way that other
sectors of society can. Secondly, which I think is a more modern
conundrum, is that the marketing of food has become very difficult
for our producers. They face a very concentrated processing sector
and a very concentrated retailing sector, and that leads to problems,
and in some sense the CAP at a European level needs to deal with
those. Also, the CAP should deal with matters of food security,
and we note within the Treasury's document that they do not appear
to be concerned about food security in temperate products, from
our own resources which is currently about 76%. We have failed
to get from the Treasury when they would start to get concerned.
Is it at 70%, 60%, 50%, 40%? There does not seem to be any understanding
of where that level is. Also, I do not think that it is easy to
factor into the market place the benefits of high animal welfare,
high environmental standards in terms of price that people are
willing to pay for their commodities. I have evidence of this.
If you look through some of the food assurance schemes, the crop
assurance schemes, the dairy assurance schemes, all they have
really done is protect the previous historic prices. Those people
who have not been able to meet those standards have not received
a lower price, they simply cannot sell their products going forward.
Also there is a lack of awareness amongst consumers about the
difference in quality of products that they are consuming. They
think that a piece of beef, whether it is produced in Brazil,
in the UK or in Ireland is exactly the same, they are absolute
substitutes, which, of course, they are not, so the CAP needs
to have some element of education in it as well. Those are the
major elements we consider to be appropriate and important in
any CAP going forward.
Q337 Chairman: Those mirror points
one to five in your supplementary evidence. It might just be worth
spending a moment or two to examine those. You said at the beginning
that farmers as a group find it difficult to reap the benefits
of economic growth enjoyed by others in society. There is a whole
potential industry for bio-crops, and one might say that demand
for fuel is a reflection of economic growth. Farmers have an opportunity
to take advantage of that, but you conjecture that somehow, and
your remarks are predicated with a focus on food, farmers cannot
take their part in the dynamic market place and that somehow the
CAP is going to fix it. Well, how?
Mr Dunn: Dealing with the issue
of food and fuel first, I have been around this industry now for
a number of years and the issue of the ability of the farming
community to provide fuel for our nation has been held up as the
saviour of the sector for a very long time, and I have yet to
see it actually come to fruition. Certainly in recent times there
have been some moves forward, including government policy commitments
on fuels, and also the plan that it is now looking to develop
some bioethanol from cereal production. So we are beginning to
see some green shoots now in that field, but I would suggest they
are still green shoots and we still remain to be convinced that
that is going to be an important market for farmers going forward;
but, yes, I agree that there are some elements within that that
may prove beneficial for the farming industry.
Q338 Chairman: To tease you out,
in a reformed CAP, should the CAP be more aggressive in the way
that it encourages the development of these new opportunities
and, if so, how should it do it?
Mr Dunn: The CAP cannot do it
by itself, because obviously there is a taxation framework within
which decisions are made in terms of fuel choice and other aspects,
such as planning matters, that need to be brought into consideration
when you build a new plant, et cetera. So, there is a whole
range of issues that need to be thought about very carefully.
I guess the CAP could perhaps be geared more towards providing
support for individuals who want to go down that route, but there
are wider issues that need to be brought into consideration which
have not yet been properly resolved.
Q339 Chairman: Let me bring you on
to the second point you make, which is about the structure of
the food market place. How should the CAP be modified to address
that issue? Is it the right vehicle for it?
Mr Dunn: If it is what we have
had in the past, certainly not; but what we believe that we need
to look at in relation to the CAP going forward (and I know it
is not particularly politically correct and I know it is not particularly
well thought of in some circles), is that it is time for a food
regulator to be appointed under European rules to ensure that
the market place that farmers and processors and retailers operate
in is fair and is reasonable and that there is a reasonable sharing
of rewards within the market place.
Q340 Chairman: How are you going
to define terms like "fair" and "reasonable"
in this context, or have you not got to that level?
Mr Dunn: To be perfectly frank,
we have not yet got to that level of understanding, but it is
an element which needs to be considered. We have regulators in
other sectors which consider what is fair and reasonable. We should
certainly hold a debate within UK agriculture and European agriculture
about where those levels are. What we have had up to now is encouragement
to get closer to our processes and the end suppliers. That is
a bit like saying to somebody that is being bullied in the school
playground, "You have got to get closer to the school bully",
because we are finding that the closer we get to these individuals
the less benefit we have from them.
Q341 James Duddridge: When you talk
about having a regulator, what other marketplaces have you seen
which have effective regulators where you would like to transpose
those benefits on to the food marketplace across Europe?
Mr Dunn: The problems that we
have with the regulators in other sectors—from our look
at things like energy and water and others—is they are there
primarily to benefit the consumer only. We are talking about a
regulator which is looking at the relationships between players
on the supply side: the producers, the processors and the retailers.
From our perspective there is not yet a model that could be used
adequately to slot into place but the debate needs to happen.
Q342 James Duddridge: Does any other
European country have such a regulator?
Mr Dunn: If there is I am not
aware of it, but that does not mean to say that there is not.
Chairman: There are some regulating markets
in places like Italy for the price of coffee and bread but that
is about the limit.
Q343 Mr Drew: The problem is, George,
that our national situation, which we have talked about privately
on many occasions, is very different from elsewhere in Europe.
Largely it becomes that we tend to be a bit of an anomaly. I want
you to wear your tenant's hat because I think there is a great
benefit of having tenant farming, I have always believed that,
because it gets movement on to and off of the land which is not
true where you have got complete private ownership or an estate
having control and deciding to some extent who the tenants are
going to be. We have got some greater opportunities to have some
choice in that. Where do we fit in to a revised CAP in terms of
the role that tenant farmers in particular could play? Can we
export the idea? We have not been very successful so far. Are
there any countries where they would see the value of the more
diversified marketplace that we have rather than just seeing tenant
farmers wither on the vine, being crucified on the one hand by
too low prices and on the other hand by the price of land continuing
to rocket and then being particularly disadvantaged?
Mr Dunn: I am unashamedly parochial
in my view that I represent tenant farmers in England and Wales
and that is my concern. Whenever we approach an issue like the
CAP or any other policy we look at the differential impacts of
that policy depending on whether you are a tenant or an owner
occupier. Of course in terms of the forward vision that Mariann
Fischer Boel has set down, moves to flat rate area payments across
the whole of the EU would be disastrous for our members because
that would immediately increase the costs to them of access to
land. We are already seeing that within the scheme which we have
in England now where land with entitlement goes for a higher value
when it is rented than land without entitlement. Land which has
been given to someone to farm under some form of licence where
the owner is holding on to the entitlement to claim virtually
goes for nothing or very low levels of rent. That sort of movement
in the CAP would be retrograde as far as we would be concerned.
We would want the maximum decoupling and that means decoupling
from land completely.
Q344 Mr Drew: Which I had the opportunity
of rehearsing with Madam Fischer Boel, again the difficulty is
where is the coalescence of use that we could begin to build to
get some greater support because, in a sense, our agricultural
sector, despite the problems we are going through at the moment,
has many advantages, but the continental system has never seen
this. Okay, they have in theory at least a much more diversified
system of many more smaller farmers but they are all owner occupiers
in name at least and then, of course, they have also got many
big farmers which they do not tend to talk much about. It does
not really appear at all. There is a mention about tenant farming
in the Vision document but it is a sort of superficial, "Well,
we have that but that is something where we are a bit different".
Mr Dunn: We were just glad to
get a mention.
Q345 Mr Drew: There is always some
hope! We have to get out there and do some proselytising because
otherwise as one of the number of different EU states, we would
get so far down the road. How would you sell the idea of this
different approach to farming given this Vision document really
looking at a much more marketised system.
Mr Dunn: You mean how would we
convince the rest of Europe to go to a landlord/tenant system
that we have in this country, is that the question you are asking?
Q346 Mr Drew: Yes.
Mr Dunn: I think it would be inherently
very difficult to go to the rest of Europe and say, "What
you need to do is roll back the revolutions that you have had
over many years and create some large landlords and allow them
to lease the land out". The UK has been held in aspic to
a certain extent because it has not had that sort of revolution,
we still have large landlords who are still willing to let. I
think it would be very, very difficult to replicate the landlord/tenant
system abroad. However, having said that, there is a great concern
within the Commission about producers and they are keenly aware
that producer does not always mean landowner and they are clearly
aware of flying flocks and things like that in other parts of
the Union. In the past we have had very good engagement with the
Commission, particularly with the 2003 reforms when they originally
were considering an area payment. In our conversations with them
we believe we were partly responsible for convincing them to move
away from an area payment on a flat rate basis to allow for a
producer payment. Okay, it got somewhat changed over time in the
final regulation, but it is still essentially a producer payment.
Yet again, as an association we need to roll that bandwagon and
get our views heard in Brussels, but creating a landlord/tenant
system in Europe I think is beyond even us.
Q347 Mr Drew: You have heard the
previous session where obviously NFU were talking about the danger
of abandonment. Surely in terms of a fully privately-owned system
with very many small farmers who just do not need any more to
raise money from the land there is a greater danger of abandonment
there than there is under our system where tenant farmers in the
main are always looking to increase their holdings provided the
price of land is right?
Mr Dunn: It is very interesting,
Mr Drew, if you were to look at the South East of England in terms
of grassland when we moved to the decoupled system—and we
have seen a reduction in the amount of livestock, in the amount
of sheep that are available to graze—it is very difficult
for some landlords to find anybody to come and graze their land
at all, even at zero grazing rent. You go to other parts of the
country, like Cheshire or Devon, where there is heavy dairy presence
and, of course, yes, two or three neighbours can bid the price
up quite high. In a sense, although I am not as keenly concerned
and do not believe to the same extent that there will be an issue
of land abandonment per se, we are already seeing in some
circumstances that the land is economically unviable to farm now
under the current system and we are already seeing in hill areas
that people are destocking at an extent which is worrying not
just to TFA, not just to the NFU but the National Trust, the Environment
Agency, the RSPB and others. We are already seeing a reduction
in production which is beginning to look worrying.
Q348 James Duddridge: George, can
I say you are absolutely wonderful; I want to set up your fan
club. All too often we get people here who, I do not think, are
completely open and honest. When you say you are taking a parochial
view, and you are blunt and I think that is brilliant and we invited
you here to give us that view. All too often I think we are treated
as stupid and people come before us to represent the views of
their organisations but purport to be looking into the common
good for the environment, food and rural affairs arena generally.
It is brilliant to have that blunt honesty.
Mr Dunn: I am waiting for the
"but".
James Duddridge: I do not necessarily
agree with absolutely everything you said, but I appreciated it.
Chairman: This is page one of the Duddridge
blog for today!
James Duddridge: Now I have put that
on record, we will move to food security. You have made it very
clear that you do not believe—and this is in written evidence—the
market can effectively deal with our long-term food issues, but
to what extent do you think the Common Agricultural Policy should
play a role within food security or do you think it is a separate
issue?
Q349 Chairman: Can you tell us what
you think the risks are to our food security in the context of
that question?
Mr Dunn: The risks are many. For
example, we have concerns about global warming and what that will
do to production patterns in Europe and the rest of the world.
We have an increasing world population which will want to be fed
and where will they source their food from. We have increasing
concerns about global terrorism and what that might do to our
ability to feed ourselves in the long-term. We do not have a handle
on those issues properly yet. Certainly in our own little office
we have not got a handle on it but there are some serious issues
we need to address in terms of the risks to our own food security.
Looking at how the CAP can help, I am not necessarily suggesting
that there should be a food security subsidy or something like
that, but there needs to be within the framework of the CAP the
ability and even the requirement that Member States in the EU
should look to their own food security and develop policies for
their own food security long-term which are set within certain
parameters. We believe that should be an element of the CAP, that
Member States should be allowed to look at their own situation
within the context of Europe and develop its security policies.
Q350 Chairman: Can we move through
the analysis that you have put forward about the implications
to UK agriculture of the ending of Pillar 1 payments as prefaced
by the Vision paper. It would be useful to have your observations
as to how you might see that impacting particularly on the tenanted
sector and perhaps take us through then into some discussions
about Pillar 2 and the importance that will have on the rural
economy, whether it be from the point of view of the production
of environmental measures or the general economic development
of the rural economy.
Mr Dunn: Let us start with the
Pillar 1/Pillar 2 dichotomy. Pillar 1 is almost a swear word,
Pillar 2 is almost treated as a holy text. I am concerned that
there are elements within Pillar 1 which provide public benefit
which we do not recognise. I think some of the decoupling that
occurred in 2003 indicated some of the environmental good that
Pillar 1 payments were doing. The rolling back of those payments
have caused some environmental damage in the hill areas which
I said earlier were a case in point where people took decisions
to destock and that had environmental impacts. I do not necessarily
think we have got the balance of public benefit right between
Pillar 1 and Pillar 2, there are probably benefits within Pillar
1 which we need to identify. I think Pillar 1 support is going
to be essential going forward for a large number of years. I have
just been to some of our members' farms in East Anglia and some
of those farms are quite sizeable units. It was quite depressing
for me to look at some of the sets of accounts they were producing,
and these farms are barely washing their faces with the Single
Payment in their accounts. If you take the Single Payment away
they are making massive losses and there is no money there to
re-invest. If we are unable to gain our return from the marketplace,
which I believe is the situation at the moment, and we do want
to retain an industry in this country—there is a question
mark, from my perspective, and that is do we want to retain it
or not—Pillar 1 payments are going to be essential going
forward.
Q351 Chairman: Those nice people
in the Treasury, who are not going to take any notice of what
we say, is your advice to them that they ought to be working on
a further extension of their vision to quantify the effects on
the rural economy of land abandonment, the further degradation
of the agricultural sector, so that they have some idea of the
economic impact to the extension of the argument that you have
just put to us? Do you think they should be doing that?
Mr Dunn: I think absolutely they
should be doing that. The vision is a tunnel vision and it is
a vision which we have heard many times before, all they have
done is expanded the previous rhetoric in more detail. They have
not thought about the wider concerns or the wider issues, they
have not really looked at how the marketplace operates today,
let alone tomorrow, and they have looked at analysis in a static
way. They have not been dynamic about the way they have looked
forward. Much, much more work needs to go on before we understand
this properly.
Q352 Chairman: I know you are a very
discreet man, so in whatever way you might care to do, perhaps
you could point us in the right direction to your interlocutors
in the Treasury so we might engage them in some way or another.
Mr Dunn: I could suggest you invite
Rebecca Lawrence and Brendan Bailey to come and speak to you.
Chairman: Indeed.[9]
We would want to tease out a little more from them, their perspective
on our activities and the excellent quality of information that
we are receiving.
Q353 Mr Williams: At the previous
meeting of this Committee taking evidence I asked an official—I
am not quite clear in my memory whether it was a Defra official
or a Treasury official—what would be the effect on profitability
of UK agriculture without the Single Payment. He said that was
a rather silly or pointless question because in that circumstance
his farmers would be farming much more efficiently and in a much
more business-like manner.
Mr Dunn: You tell that to the
members that I have seen around East Anglia over the past couple
of days and they would lynch you. It goes to the very heart of
the profitability of the businesses of my members still today.
They have not properly addressed the thing going forward. They
talk about efficiency, the number of members I have spoken to
in the past couple of days who have shed labour, who are sharing
machinery, who are using contractors more because it is more efficient,
who are trying to earn money doing other things, and yet the farmers
are still only washing their faces financially. It is not a silly
question at all, it goes to the heart of what we are talking about.
Q354 Chairman: For the benefit of
the Committee, I would like to ask you to say a little bit about
the effect on the tenanted sector of the process of capitalisation
of the current Pillar 1 type payments into land values. Obviously
they have a profound effect on farming, the opportunity of the
tenant, the rent level that they pay, because the next thing that
I want to probe with you is your bond idea. I would rather you
stopped at the boundary of the bond, but talk to us about the
capitalisation impact from the tenanted sector point of view.
Mr Dunn: It is true that when
you make a payment to an individual to carry out some economic
activity, in this case farming, a substantial amount of the benefit
of that will go to individuals who have supplied that economic
business because they can foresee that there is a greater need
for their services. Certainly those who have the most inelastic
supply are the ones who gain most and those are the landowners.
We have seen through the old IACS System and through the old Suckler
Cow and Extensification Payment Systems and now through the Single
Payment Scheme that we have an element of capitalisation to landlords.
I mentioned earlier that already we are seeing land with and without
entitlement being let at different levels of rent. We are already
seeing land where the landowner is claiming the entitlement being
let for something a lot less than what he would have done if he
had the entitlement in his hands. It is pretty obvious to us that
this support does become capitalised which is why—and now
I am going to stop—we prefer a completely decoupled system
which is the bond scheme.
Chairman: Before we move to that territory,
James.
Q355 Mr Reed: Can you give us an
indication of the differential in the land value?
Mr Dunn: It depends on where you
are, but if you are looking at grassland, for example, you could
be talking about the difference with entitlement paying something
in the region of £50 to £60 an acre and without entitlement
paying zero to £10 an acre. If you are looking at arable
land, you may be looking at an acre of arable land on a FBT with
entitlement letting for £70 or £80 and without that
entitlement £10 or £15 per acre.
Q356 Chairman: For the record can
you define FBT?
Mr Dunn: Sorry, FBT is a farm
business tenancy.
Q357 Chairman: Thank you. I should
immediately have leapt to answer that since I took the Bill through
the House.
Mr Dunn: Even with the recent
RRO, Chairman!
Q358 Chairman: Let us move on to
this bond scheme. From the point of view of the straightforward
tenant who provides the labour to farm the land, pay a rent and
have some entitlement to receive public monies, the idea of rolling
this up into a financial instrument, because they are directly
"the farmer", I can see that working, but we are moving
into a world where there are many different ways in which land
is now managed and farmed and there are some people who employ
contractors to undertake their farming activity, there are some
people who may well be opting out of farming and opting in to
entire units being down to environmental production, if I can
put it that way, therefore I struggle, perhaps, to understand
how you would get to a position of creating quite a complex financial
instrument against a background when the very nature of farming
itself is not homogenous. Help me to understand how your system
works against that background.
Mr Dunn: What we wanted to achieve
was the ability to support individuals who were actively engaged
in farming activities whilst attempting to completely remove the
distortions that we are told time and time again are repugnant
in terms of the distortions on land, the distortions on price,
the distortions at borders, et cetera, and the decoupled
system takes us some way, the bond system takes us the whole way.
Yes, you are right, there is a myriad of different ways in which
land can be farmed, by contractors, by share farmers, by partnerships,
by licensees or whatever, but we believe there will be more opportunities
for individuals to farm in that way if the person who had the
legal right to occupy, either by the tenancy or by owning the
land themselves, had their income stream outside the farm business
because they would be able to offer the land, as we have seen
in some circumstances already, at a much cheaper basis to a new
entrant or to a contractor or to a licensee or whatever. It would
allow for a greater extent of economic flexibility.
Q359 Chairman: Try and take us in
simple steps through how you would move from a straightforward
tenant farmer currently receiving a sum of money under Pillar
1 in terms of the decoupled payment and a sum of money for membership
of an environmental programme. So it is two streams of money,
we come along and we want to move from there to a totally decoupled
bond-type world that you have advocated. Take us through the mechanisms
that would be involved in getting from A to B.
Mr Dunn: The bond system which
we initially put forward was pre the 2003 reforms. Obviously we
now have the complication of the fact that we are on a bit of
an escalator towards a regional average payment, and moving from
where we are today to where we think we would like to be in terms
of a bond scheme would be much more difficult. Again, talking
parochially from a UK perspective, we would not believe it would
be possible to move to a bond scheme until we had got down to
the bottom of the escalator and we were on the regional average
payment across the piece so that from there you would then create
the shares, or whatever, in the bond which could go into the share
accounts. Let us not kid ourselves, today there are tenant farmers
and landlords and owner occupiers receiving Pillar 1 money and
yet they still chose to do their farming through a licensee, a
grazier, a contractor, a partner, a share farmer, so we are not
changing the ways in which people will do their farming, we are
just changing the mechanism.
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