CAP Health Check and Rising Food Prices

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The Chairman: Order. Before we start the next round of questions, can I make a plea that they are related to those magic words “health check”?
Kelvin Hopkins: I should point out that we are discussing food prices as well as the CAP—we have a two-pronged subject—and my question is about the former. The CAP, allegedly, makes food prices for an average family of four £20 a week higher than they would be if there were no CAP and a genuine free market in food. Poor families spend a much higher proportion of their income on food than rich families. Does my right hon. Friend accept that the CAP has a malign effect on food prices for working families in Britain, and that that ought to be at the forefront of any debate on the health of the CAP?
Jane Kennedy: Current high food prices are a reason to reform the CAP, but not to return it to a production-based policy. DEFRA published a discussion paper in July that clearly made the same point as my hon. Friend. Paragraph 3.29 on page 13 of the document states that
“the EU continues to apply high import tariffs to many agricultural commodities. While the average tariff for non-agricultural goods is 4 per cent., for agricultural goods it is around 20 per cent.”
The next paragraph states that the
“tariff and subsidy regime under CAP keeps prices for consumers artificially high in the EU”.
Mr. Paice: The right hon. Lady referred to the Government’s welcome for the proposals to abolish milk quotas and set-aside. If I heard her correctly—I am sure she has her text in front of her—she said that one reason for that was to allow farmers to make their own business decisions. Will she confirm that, in the abolition of set-aside, the Government are not proposing to reintroduce compulsory set-aside through cross-compliance?
Jane Kennedy: I can confirm that.
Jane Kennedy: As the right hon. Gentleman says, there is not unanimity of view on the direction of reform that the UK is promoting in the EU. Some countries seek to turn the clock back to a system whereby funding is used directly to support producers and food production. He asks for the precise position on milk quotas. If he will allow me, I hope to have an answer for him when I respond to the debate.
Tim Farron: Will the Minister reflect on the fact that removal of CAP pillar one payments to farmers does not create a free, and certainly not a fair, market? State intervention is not the only cause of market distortion. When there are thousands of producers and a handful of processors and supermarkets, distortions in the market still exist. What can she do to ensure that farmers receive a fair price for their produce, while also ensuring that prices do not rise in the supermarkets?
Jane Kennedy: I am becoming increasingly aware of the tensions that exist in the UK food supply chain. For example, I have received representations from supermarkets against the Competition Commission’s recent report, but equally I have received strong representations from farmers saying that they want the report implemented, particularly with regard to the introduction of an ombudsman office to facilitate a better understanding of the relationship between the big retailers and the food producers. Another area on which I hope to turn the spotlight in terms of public policy is the food services industry. Producers of food are caught between some very big chains—global chains in some circumstances. Therefore, their power to negotiate is affected in the way that the hon. Gentleman describes. That will bear closer scrutiny, and I hope to be engaged in public debate on it.
Mr. Paice: One area in which there is significant difference between this document and the original health check document that we discussed in Committee in the summer is modulation. Previously, the Commission was proposing an increase in compulsory modulation, but at the same time it was suggesting overall caps, or a degressive level of payment, in relation to the payments for larger farms. That has been replaced in these proposals by what is described as a “progressive modulation”, which means that larger holdings will pay a larger level of modulation. The other big difference is that this time it is proposed that at least 80 per cent. of any modulated money will be retained by the member state, rather than going back to EU funds.
The Government’s paper, which was produced by Lord Rooker, is extremely evasive about the Government’s attitude to that proposal. Will the Minister tell us the Government’s attitude to the proposals on progressive modulation and whether the Government have calculated, if the Commission’s proposals were to go through, how much money that would mean in the English or possibly the UK context?
Jane Kennedy: I am grateful for the question. The Commission sees progressive modulation as a way of improving the public perception of the CAP, so there is talk about higher rates of modulation on larger farms—that goes back to a earlier question. However, the CAP is not a means-tested benefit and the size of a farm is not an accurate indication of the income of the owners or employees. If our aim was to encourage farms to become more competitive globally, it would be perverse to put incentives in place that discouraged them from expanding and achieving more competitive structures through economies of scale.
The hon. Gentleman is right that the term is “progressive modulation”. I am amazed and impressed by the jargon—I thought that the Army was bad enough with jargon when I was at the Northern Ireland Office. Progressive modulation would add greatly to the complexity of the payments system. There would be no benefit to farmers or taxpayers from introducing a system that left farmers paying accountants and lawyers to split up their businesses.
A better way to improve the image of the CAP, if that is the objective, would be to phase out pillar one payments altogether and focus on delivering public benefits through pillar two. I hope that I have given the hon. Gentleman a clear indication, but I am sure that we will discuss the matter at length.
Mr. Paice: I come to the second part of my question. I am grateful for what the Minister said, and I entirely agree with her, but if the proposal was to go through—it might still do so, because we know how these things work—how much money would it mean in the English or the UK context? Perhaps she would add to that by commenting on the proposed increase in the basic 5 per cent. compulsory modulation of 2 per cent. a year for the next few years, which I suspect she would endorse. Is it the Government’s intention that the increase in compulsory modulation should be deducted from the current level of voluntary modulation as applied to English farmers?
Jane Kennedy: That is a good but detailed question. I would not wish to give the Committee figures that might be inaccurate due to my inability to draw them out of the excellent brief that was provided for today’s debate. I shall seek to give that sort of detail in my reply to the debate. As for the final point on which the hon. Gentleman seeks clarification, the answer is yes.
Kelvin Hopkins: In answer to my earlier question, my right hon. Friend referred to tariffs against producers outside the EU. Those tariffs might be beneficial to the health of rich farmers in some of the richer countries of the European Union, but in a very real sense they are not beneficial to the health of poor farmers in developing countries. Will my right hon. Friend undertake to argue the case for a reduction, or even the abolition, of tariffs against producers in poorer countries, which would have a beneficial effect on their living standards as well as those of working people in Britain and the rest of Europe?
Jane Kennedy: I have a great deal of sympathy for the point that my hon. Friend makes, and I shall try not give too long an answer to his specific question, Mr. Chope.
Increasingly, we are seeing consumers—our constituents—looking to buy food that they can be assured was grown locally. Retailers tell us that consumers often exercise their power through their supermarket purchases. Consumers are motivated to buy local produce for a range of reasons. The present environment—things have changed dramatically—gives UK agriculture an opportunity. My hon. Friend was right to say that we and the EU have a responsibility to ensure that our farming polices do not militate against emerging agricultural economies in the way that the CAP does. That is why I strongly believe that the UK, as part of Europe, must move away from the pillar one style of support for production to a system that enables our farmers to compete. I believe that the UK farming industry is well placed to compete strongly in the world, as agricultural products will become increasingly important in the years to come.
Mr. Jack: When the Environment, Food and Rural Affairs Committee last went to the Commission for a briefing on the state of play in the negotiations, it was made clear that the Commissioner was resolute that decoupling would be a universal concept, with the exception of those countries that wanted to keep a degree of coupling for suckler cows, sheep and goats. Will the Minister update us as to whether now, in late October, the Commissioner’s resolution remains the same?
Jane Kennedy: The Commission’s view remains the same and this country remains strongly of the view that that is the right position. I hope to have the answer to the right hon. Gentleman’s question about suckler cows when I respond to the debate.
Tim Farron: Going back to the issue of tariffs, I commend the Minister’s comments about fair trade and allowing developing countries and their farmers fair access to our markets. The complication is that British farmers lead the world in animal welfare, and the Minister rightly touched on that matter earlier. High animal welfare standards are not cheap and competitors often have poor standards that allow them to compete unfairly. Given that animal welfare is such an important part of the Minister’s brief, what reflections can she offer on the possibility of using tariffs or other measures to ensure that British farmers compete with other producers on a fair playing field and that animal welfare is sacrosanct?
Jane Kennedy: That is a good question and I largely agree with the hon. Gentleman’s remarks. What is interesting—I have learned about this even in the past week, although I suppose I should be cautious about speaking from a fortnight’s experience—is how difficult it is for consumers in supermarkets to be sure that the produce that they buy is British beef, lamb or pork. The farmers whom I have met so far have a case when they say that they do not necessarily reap the benefit of a better price from the retailer to reflect their investment in better welfare for their livestock. I am not yet convinced that when people go into a supermarket to exercise their power as consumers, they can make a judgment based on the information before them.
Mr. Paice: Hear, hear.
The right hon. Lady has given me two or three very straight answers this afternoon and has just said something that I think all Conservative Members will thoroughly endorse. I look forward to her staying in her job, at least until the next general election—[Interruption.] I have got her worried now.
I wanted to pick up the point that my right hon. Friend the Member for Fylde was moving towards about the proposals in the health check to change existing article 69 of the CAP—articles 68 to 70 under the proposals. The issue is the proposed ability of member states to put up to 10 per cent. of their single farm payment pot into the “national envelope” and use it for such things as crop insurance, mutual animal health funds and, indeed, the sheep and suckler cow headage payments to which my right hon. Friend referred.
Will the Minister expand not just on the issue of using that money for sheep headage or suckler cow payments—that happens not only elsewhere in Europe but even in Scotland, where there is still a retained headage payment on some beef cattle—but on the matter of crop insurance and mutual animal health funds? When I read the document, I could imagine someone on the financial side of DEFRA with his eyes flashing, because that might be the solution to the cost-sharing problems with animal health. Will the Minister tell us the Government’s attitude to the proposals and assure us that anything done on the animal health front will be in addition to, and not a replacement for, what the Government are currently spending?
Jane Kennedy: In the health check, the Commission proposes decoupling most of the remaining coupled payments, which I applaud. That includes full decoupling in 2010 for arable crops, durum wheat, hops, seeds, tobacco, hemp and a number of other products. It also proposes transition to full decoupling by 2012 for male beef premium, adult slaughter premium, calf slaughter premium, rice, fruit and vegetables, and soft fruit.
A further two proposals include transition to full decoupling by 2013 for long fibre flax and potato starch, and a transition to full decoupling by 2014 for sugar. However, the Commission proposes the option of retaining coupled payments for suckler cow premium—the right hon. Member for Fylde asked me about that earlier—ewe and goat premium at 50 per cent., and cotton, and national direct aids in the new member states.
There is concern about the impact of such proposals. Compensation would be added to claimants’ entitlement through the single payment scheme. We are disappointed that the Commission did not propose suckler cow decoupling and we are pressing hard to achieve that, but we are facing strong resistance.
In relation to article 68 and the national envelope measure, we are concerned that there is risk that the measure might be a retrograde step. It has the potential to reverse some of the important CAP reforms that have been implemented since 2003 and could introduce new coupled payments. The Commission may allow more than €1 billion a year of European Union taxpayers’ money to be spent on measures that are deemed by the World Trade Organisation to distort trade and compensation. It may also reduce by some 25 per cent. the net benefit that would accrue from the reduction in EU trade, distorting support that is expected to result from the changes envisaged under the health check.
Of particular concern is the fact that since the CAP budgets vary substantially between member states, the amount available to the Commission to provide additional subsidy to specific sectors also varies widely. It could lead to some substantial new market distortions in the EU. The proposed rules would allow Spain to make an article 68 payment of €136 per head of dairy cattle a year, while competing farmers across the border in Portugal would get a maximum of only €49. We are working very hard to get the constraints in place, and I acknowledge the hon. Gentleman’s concern.
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