Examination of Witnesses (Questions 39-74)
GEORGE DUNN AND GREG BLISS
8 DECEMBER 2010
Q39 Chair:
Thank you very much indeed for joining us. You are most welcome.
I understand that Mr Dunn will be joining us. If you will bear
with us, there may be a vote, in which case we will have a very
short interruption. If you are happy that we proceed, may I ask
you to introduce yourself and, in his absence, Mr Dunn, who I
am sure will join us just as soon as he can.
Greg Bliss: I am
Greg Bliss. I am the National Chairman of the Tenant Farmers
Association. We are the body in England and Wales that works
solely for tenant farms and those who work within the tenanted
system of agriculture. George Dunn is my Chief Executive. He
is the real expert on tenancy law. I am the farmer and layman,
really.
Q40 Chair:
You are very welcome. Just at the outset, both in the present
CAP and looking to the Commission Communication for Future Reform
do you think that we have the balance right? Do you there is
too much focus on the environment and the birds, and perhaps not
enough on farmers, in the measures that the Commission is proposing?
Greg Bliss: As
the Tenant Farmers Association, we certainly worry about the greening
of the CAP. I think we need to look very hard at what we are
trying to produce. If we are going to produce enough food and
achieve the food security to feed us, we do have to be careful
that we get the balance right between food production and environmental
protection, or this basket of public goods that we talk about,
which includes all of these things. I think there is a risk that
we might lose sight of food production, particularly in the way
it balances amongst the other EU members, in terms of the way
they work to their own budgets in terms of modulation and that
sort of thing. We could find ourselves disadvantaged in this
country if we do not have the right balances.
Q41 Chair:
I know that you have previously said that the landlord tenant
sector is unique to England and Wales. Do you believe that is
an issue going forward in the current proposals for current CAP
reform? Do you think the concept of landlord tenant, as we understand
it here, is one understood by the decision makers in Brussels?
Greg Bliss: I do
not think it is particularly well understood. We have had some
communication into Brussels and we have a specific case. However,
in this country, the landlord tenant system works in such a way
that there is quite a large risk of the landlord taking quite
a lot of benefit from the payment in this country, through whatever
measures he puts in place in terms of the tenancy that we work
under in this country. In Northern Ireland and Scotland the rules
are different, but in England and Wales there are several situations
where benefit from the CAP can bypass the active farmer and go
straight to the landlord through clauses written in the tenancies.
We are very clear that we want the active farmer, that is the
tenant, the man who is taking the risk, to take the payment that
comes out from the CAP.
Q42 Chair:
Excellent. May I just pause to welcome Mr Dunn. You are not
late; we are early. Thank you for allowing us to continue, George.
You are most welcome.
George Dunn: No
problem.
Q43 George Eustice:
One of the things that I know the Commission is looking at in
this current reform is the tightening up on the definition of
an active farmer. I wondered if you could say what you think
an appropriate definition of an active farmer would be.
George Dunn: I
will start with the premise that we are looking at people who
are involved in an agricultural activity or keeping land in good
agricultural or environmental condition. We would then say that
in order to identify the person who should be the recipient of
the CAP support, they have to meet three criteria above that.
Firstly, that they are in occupation of the land concerned; so
they are not a contractor and they are not providing a service
to the owner. Secondly, that they are in day-to-day management
control, and that means taking the decisions about what happens
on the land over the year. Again, this means that it is not a
contractor who is taking the decisions from the owner. Thirdly,
and most importantly, they are taking the entrepreneurial or business
risk of operating that land; so they are not just taking a fixed
fee or a rent, they are actually taking a risk in operating that
land.
What we would say is that we are not expecting there
to be a great amount of information provided at the time the application
is made to prove that you are this individual. It should be self-assessed
criteria by which people are then aware that they will be open
to inspection upon at a later date, should they be selected for
an inspection. It would create the circumstances within which,
agents, for example, who are advising people on their applications,
would be very conscious of their own PI cover if they were advising
people to do things that make them fall outside that criteria
of an active farmer. Therefore, it is not something that we would
see as a great regulatory burden up front.
Q44 George Eustice:
Do you think that it should exclude people that do not actually
earn their living from the land, or even directly engage with
agricultural production? I know earlier when we spoke to the
RSPB, they were saying that there had been some discussion of
whether their field was for butterflies or sheep, which affected
the definition.
George Dunn: The
CAP was developed as a mechanism to support the farming community
and to provide food security and other environmental benefits.
We would absolutely say that it is right that the applicant should
be the person who is carrying out the agricultural activity of
keeping land in good agricultural and environmental condition.
That rules out things like golf courses and football pitches
at one end, but also people who are simply involved in biodiversity
management. It has got to have some aspect of agricultural activity
to it.
Q45 George Eustice:
Yes. Do you think there would be a case for restricting farmers
only to one or two of the Pillars, so that people who are not
active farmers might be eligible for benefits in one of the others?
Pillar 2 or Pillar 1 could be reserved just for farmers.
George Dunn: I
think you would have some difficulty in making that distinction
between the two Pillars, because obviously a lot of what you do
in Pillar 2 relies upon there being a fundamentally basic agricultural
activity going on in that holding, to which you are adding particular
management criteria to provide biodiversity and keep land in good
environmental condition. We can absolutely see that there may
be individuals outside agriculture per se who need public support
for other types of activity, but we do not think CAP is the place
within which they should necessarily sit.
Q46 Neil Parish:
I think you have partly answered the question. I am going to
ask you a slightly different question. In your Vision for
Agriculture, you said: "Measures must be put in place
to ensure that support payments do not become capitalised into
land values." That is very laudable, but how do you stop
it? Because once the landlord knows that the payment is coming
to the tenant, he or she is going to want that reflected in the
rent, I would have thought. How do you want to get this vision
across, and do you see anything in the Commission's proposal to
help you in that?
George Dunn: The
Commission proposal lacks the necessary detail for us to be able
to answer your question precisely, on that aspect. One would
expect it not to have too much detail at the moment. It is difficult
to see which way the Commission document will go once we have
the legal texts in draft next year. However, there are two specific
things that could be done to assist. The first is that, if it
is absolutely clear that the only applicant for Pillar 1 or Pillar
2 is the sort of applicant who I have been describing, the landlord
has to then enter into a proper negotiation with that tenant about
how the rewards of those schemes are going to be provided. Currently,
the marketplace in agricultural tenancies is very slim, and there
are many more people seeking land—and Greg will tell you
about his area, I am sure—than there are offering land.
Even if landlords are able to take the SPS benefit and the Pillar
2 benefit, people are still willing to pay very high rents simply
to get access to land. By putting the tenant farmer in the prime
position to be the applicant will immediately change the necessary
negotiating ethos.
The second thing is that we need to put rules
in place to stop individuals from acquiring SPS entitlement rights,
or whatever comes next, over and above what they need for their
application. We are already aware of many landlords who are asking
tenants to give up Single Farm Payment entitlement at the end
of their tenancies, for little or no compensation, and then renting
that back. We believe that that should be outlawed, as well as
stockpiling entitlement to rent out with land elsewhere. Those
two things, particularly, could help sufficiently. It is not
going to take all the value back.
Q47 Neil Parish:
You would say that the entitlements belong to the tenant then,
would you?
George Dunn: The
entitlements belong to the tenants, yes. That was a battle that
was fought over the 2003 reforms when we were looking at whether
the entitlement should be a land-based entitlement that needs
a farmer to activate it, or a farmer-based entitlement that needs
land to entitle it. We plumped for the latter, but we would very
much see the entitlements remaining in the hands of the active
farmer.
Q48 Mrs Glindon:
This is not quite a wish-list question, but what would your organisation
hope to achieve in this round of CAP reform?
George Dunn: I
think that is a wish-list question, isn't it? It is quite interesting
that this reform is being conducted against a very different basis
to previous reforms. There is not really the WTO impetus that
there was in the last reform, or the reform before that. I know
that the budget issues are still important, but they are not as
important as they were when the CAP budget was more than half
the total amount of spending in the EU. We think this is going
to be a much more principled reform than we have perhaps seen
in the past, particularly with the involvement of the European
Parliament and a greater degree of democratic control over the
decision making. There could be much more of a principled approach
to the whole CAP reform debate. I think our key messages are:
food security; benefits to the active farmer so that he is recompensed
going forward; issues to deal with volatility in both output markets
and input markets; and help for competitiveness structural issues,
including retirement and new entrants. These would be the key
messages.
Q49 Mrs Glindon:
What are your views on the feasibility of the Commission's three
options?
George Dunn: The
Commission often do this, don't they? They give you three options
and go for the middle one. I think that is exactly what we have
got this time. The Commission is quite clearly not wedded to
options one and three; they want option two. From our perspective,
the document is broadly welcomed, because it seems to have a great
resonance with what we have said in our 2020 Vision report, which
Mr Parish referred to earlier. A lot of the concepts that are
in the Commission's communication, we were talking about a few
months before in our 2020 Vision document. Therefore, option
two seems to us to be the most appropriate way forward.
Q50 Neil Parish:
Regarding policies at the EU level: what is there that would enhance
the competitiveness of agriculture, especially in the UK? Also,
what is your position on capping of the larger farms? Would that
make agriculture more competitive, or how do you see it affecting
the tenanted sector?
George Dunn: I
will take competiveness and you can talk about capping, Greg.
On the competitiveness issue, the Commission's document is very
helpful when it talks about the problem that agriculture has to
be a strong player in the marketplace and its own supply chain,
because of the concentration in the retail and the input supply
sector. Competition is about how agriculture provides itself
with a fair return in its own supply chain; that is part one.
Part two is about how agriculture in the EU fights its corner
against third-country agricultural systems, within the context
of the WTO, where perhaps things are not being produced to the
same environmental, animal welfare or water quality standards
to which we are producing at home.
There is another question about the extent to which
British agriculture is competitive, as opposed to the other 26
Member States of the Union and their agricultural systems. So
we will try and take those three. The Commission's document,
with which we agree, indicates that the reason why we continue
to need a Pillar 1 is that agriculture has a weak position in
the supply chain and is unable to really have its costs of production
properly covered, with an element of profit, in the supply chain
which exists. Pillar 1 is vital to ensuring that farmers can
remain competitive in their own supply chain. However, we also
see the need for some form of ombudsman adjudicator to be able
to parachute in to supply chain situations, and look at whether
or not that supply chain is acting in a morally or ethically efficient
way.
In terms of the position with regard to the
rest of the world, again the Commission's document recognises
that other countries are perhaps able to export commodities into
the EU that are perhaps not produced at the same high standards
that we expect at home, but consumers find it difficult to distinguish
between the two products. Therefore, again, Pillar 1 support
in that market, border support, is important for competitiveness
in global terms. If we are going to have these higher standards,
we need to protect those higher standards and not undermine them
by exporting our environmental and animal welfare issues abroad.
That is very important.
In terms of the British agriculture against other
Member States, we are quite pleased that this document has not
considered it appropriate to have considerable renationalisation
of agricultural policy, because that would lead to a large degree
of different levels of payment. We would see that we need equal
levels of modulation, equal level of cross compliance and equal
levels of decoupling across the EU to prevent a particular Member
State from having a particular advantage in an area because it
decides to favour that area. We know that there are other reasons
why other Member States will have more or less competitive agricultural
systems. That can be because of the taxation regime that they
are operating under or because of the planning system that operates
in those countries. However, in terms of the CAP, the more that
we have agreed at an EU level, from our perspective, the better.
That is perhaps not a straightforward answer to your question,
but we see those elements as all very important.
Greg Bliss: If
you look at Pillar 1, when you look at how many agricultural producers
are actually producing, and living, below the official poverty
line, it just makes you realise just how important Pillar 1 is,
particularly in the tenanted sector, where they have to pay a
rent before they take any drawings. Take Pillar 1 away, and I
think you take you snatch the rug from a huge proportion of the
tenanted sector. The tenanted sector needs encouragement rather
than being drawn back.
In terms of capping, the TFA are ambivalent over
whether to cap or not to cap. This is the third time that it
has come up in CAP reform; the time for it has maybe come. I
guess it would encourage a splitting of businesses, and we do
have some larger members who might be affected; but generally
within the TFA's membership, they would all be below a cap, if
you guess that cap is going to be at somewhere around the €300,000
mark. Therefore, capping would not be a huge issue for the TFA,
but in terms of how it reacts with the structure of agricultural
businesses in the UK, then it would have a bearing on us in terms
of how it affected our members who were involved with those businesses.
George Dunn: The
figure of €300,000 is what was floated.
Neil Parish: I think that
is right. I think that is the existing one. It will probably
come down from that, I expect. It is still probably €250,000,
anyway.
Q51 Chair:
Can I just return to what you said there about the poor position
of farmers in the food supply chain and making the farmer remain
more competitive? You mentioned, in particular, the role of what
is now called the Adjudicator, previously the Supermarket Ombudsman.
Do you believe that there should be a role for the CAP? Do you
believe you are being disadvantaged in this country by not having
a mechanism at EU level to protect the place of the farmer in
the supply chain?
George Dunn: The
debate is, firstly do we need an adjudicator? We have all learnt
the new acronym, GSCCOP, the Grocery Supply Chain Code of Practice
adjudicator, have we not?
Chair: It just trips off
the tongue!
Neil Parish: It is very
catchy.
George Dunn: Yes,
it is. We believe that we do need an adjudicator. The question
is at what level that adjudicator should be introduced. Up to
very recently, we know that the political masses in this country
were not particularly keen on having a formalised role for such
a person. We are now pleased to see that is firmly on the agenda.
We are expecting a draft Bill for that. Effectively, we are
much further ahead in the UK than we would be within Europe.
However, it was not very long ago that Europe was probably ahead
of the game in terms of where we were when they were thinking
about these issues, when our Government was well behind the game
on that front. So, we don't really mind where it comes so long
as it is a fit for purpose individual with the teeth to be able
to get into the issues that we need to see changed.
Q52 Chair:
What about the question of a potential complainant being worried
about, or losing, their anonymity if they make a complaint?
George Dunn: We
would suggest that the organisation, or the adjudicator, operates
less in a reactive role and more in a proactive role, in the sense
that it can decide on a Monday morning which supply chain it wants
to look at and which particular retailer or processer arrangement
it wants to dip into. It should have the ability to say to that
processor or retailer, "We are coming to see you on Tuesday.
We want your books open and we want to see your arrangements
with your suppliers."
Q53 Chair:
Without naming a company, we all know that if you take potatoes
and a contract for chips, or apples, or whatever the product is,
it is the supermarkets that hold the power. Do you believe that
the mechanism is there? It was put to us last week in our briefing
session in Brussels that there is this fear that no supplier in
their right mind wants to make a complaint because they will lose
their contract if that comes out. I was in DG IV as a stagiaire
and we used to read about these dawn raids. Whoopee, it gets
a lot of publicity and then everyone goes back to sleep. But
someone could lose their potential contract, so do you have a
view as to what the solution could be?
George Dunn: We
do not see it as being a complaint-driven operation. We believe
that this should be a much more proactive operation, so that all
retailers and all processors know that they are subject to inspection
by the adjudicator, on the terms of the Grocery Supply Code of
Practice, at any time within a short notice period. That puts
retailers, processors and others in the food chain on notice that
they could have someone coming to look at their books and arrangements
within 24 to 48 hours. You would get a better operation of the
Supply Chain Code of Practice across the piece, rather than dealing
with a particular point where there is a single complaint from
an individual, who, as you rightly say, would be nervous about
putting their head above the parapet.
Q54 Chair:
Would you accept that it should perhaps be proactive the other
way, by swooping on producers and asking how their negotiations
are going and what contracts they have in place?
George Dunn: They
will obviously want to take evidence from whomever they like,
but we think we will protect individuals if it is not a complaint-driven
operation but is a proactive engagement of the Supply Chain Code
of Practice and how retailers and processors are implementing
that.
Chair: Thank you. That's
very helpful.
Q55 Tom Blenkinsop:
The long-term investment sustainability for farmers, whether it
be predominantly retail or commodity speculation, by which farmers
originally used to try to maintain long-term investment in the
industry, has not borne out. Would you say insulation from market
signals through a risk management toolkit would reduce the competitiveness
of the agricultural sector?
George Dunn: Well,
maybe Greg, as an active farmer, could speak a little bit about
the volatility that he has experienced in both input and output
prices over the past few years. He can give you an idea of the
sort of issues that we are facing, and then we can see how those
might fit into a risk management toolkit.
Greg Bliss: A lot
of people have talked about risk management. In terms of running
a business, wheat has traded from £95 a tonne to £206.50,
or £211 as I heard the other day for January. In this season
alone, fertiliser started off at £160; it is now back in
the £300s. In terms of supermarkets again, if you have got
a supermarket contract delivering, then people are held to that
contract, even with the weather that we have been having recently.
If people cannot deliver their contracts, then they are bought
against. The supermarkets are bumping prices up and I would say
that they are profiteering on the basis of the weather and none
of that money is trickling back. It is very difficult to plan.
We use all the tools that we can, but with extra volatility you
get extra cost. The means that we have in terms of options and
forward contracts are very expensive, with the cost of insurance.
For example, people are not willing to insure wheat for 20% of
the cost of a tonne, as it may be. If you deal in vegetables,
you cannot buy an option in a tonne of vegetables; you have got
to actually own the contract and buy it. Then you have got all
the risks of call-up costs as the market alters until you come
to sell.
We have very little time to do that sort of thing,
and if you are sitting on a tractor and not sitting in front of
a screen, you miss the chance. This is where the CAP, as it was,
worked so well in terms of intervention. Everything was simpler
and it smoothed the whole thing out. In terms of working for
the EU as a whole with regards to cost, it did not work; but it
certainly worked for agriculture. Somewhere between the two there
has got to be a balance, I think.
George Dunn: I
did have a meeting today with a member of the Commissioner's Cabinet
and asked, "What is in this toolbox, apart from intervention
and insurance?" The answer was, "That is it at the
moment: intervention and insurance." I don't think that
there has yet been a great deal of thought being put into what
those tools look like in the toolkit. Certainly we have seen
insurance markets operate to a lesser or greater extent in America
and other parts of the world. We have had intervention before;
it may not be WTO compatible to continue with some forms of intervention.
There is a great deal of work to be done on that issue, but we
believe that volatility is a big concern. We always said that
when we moved from the direct payments that we had under the old
system of CAP, towards the decoupled system, that the farming
activity itself would be subject to a much greater degree of volatility.
As Greg has explained, boy, have we seen that over the past five
years, and that is only likely to continue. We need to find some
system that provides for the buffers to be put on, so that investment
decisions can be made long term.
Greg Bliss: It
is where you put the value of food security, I think. If you
support farmers and you smooth the volatility out for them, it
keeps farmers in agriculture and keeps them producing, so you
have got your food security. You may never have a particularly
profitable agriculture, but you have got happy consumers because
they have got a cheap food policy and it keeps ticking over.
If you are going to make profit in agriculture and
have a competitive agriculture, that is probably not the answer.
I do not have a silver bullet to do that; it has to be somewhere
between the two where people can pick the top of the market, but
there is a certain amount of luck involved in that at the moment.
I am not just farming: I am a currency speculator and I have
got to deal with the soft commodity speculators and all the people
in between who are taking what is generally a fixed margin.
George Dunn: There
are certain things that we can do domestically as well, without
having to bother with CAP. For example, if you are a tenant farmer
in a modern context, your average length of term today is three
and half to four years. In a marketplace as volatile as it has
been, this is not a very safe place to be. Whereas, if we had
tenancy agreements that were 10 or 15 years in duration, then
individuals would be able to ride the bad years with the good
years. We are certainly talking to the Government about how we
can encourage landlords, through the taxation system, to let longer
term and to provide that greater period of time over which to
deal with volatility. Because if you are on a three-year farm
business tenancy, and you have had two bad years because of harvest
and your price goes down or fertiliser goes up, you are going
to come out of that arrangement as not a very happy tenant farmer.
Q56 Tom Blenkinsop:
Do you support the retention of voluntary coupled support in Pillar
1?
George Dunn: We
would not support the retention of it being voluntary on Member
States, because we think that would lead to the sort of competitive
issues that I have mentioned to Mr Parish. If different Member
States are providing differential levels of support, then it could
lead to serious problems within the internal market for how those
commodities are traded. We would not want those to be voluntary;
we would want everybody to have the same level of decoupling across
the piece.
Q57 George Eustice:
I want to just pick up on this issue about insurance not being
cost-effective. I am just curious as to why we have not got more
developed markets in hedging or futures contracts in some of those
other sectors. If you look at coffee and sugar and other international
traded commodities, there is a very, very efficient futures market
that allows people to hedge their bets and protect their income.
Is it just that, because of the CAP, perhaps traditionally there
has not been a culture that you need to defend yourself against
volatility, and so it has just not developed? Or is it just the
case that it would never be a big enough, or liquid enough, market?
Greg Bliss: I think
when you are talking about things like coffee and sugar, you are
talking about some very big players. When you are talking about
wheat at the farm gate, then you have only got to look at all
the options for fair trade coffee: there is the same issue. These
guys are selling a small amounts off the farm into a world market
and getting very little for them. I think you have a point when
you say we have been used to wheat being a set price into intervention,
and it being balanced by that.
Certainly as a tenant farmer, I am in a situation
where I have some land that is half of my holding. In five years'
time or in three years' time I might not have the security of
that tenancy. What happens if I sell wheat forward and then I
do not have the land? If you have an annual renewing tenancy
you can only afford to sell a year ahead, so in that way, you
are more or less bound to take the market and you have to be a
prudent tenant. You have got to pay your rent, and so you might
have to sell something early for cash flow reasons, which does
not allow you to perhaps take advantage of a future price that
you may think would be considerably better. There are a lot of
other issues with short-termism in tenancies that preclude us
from taking a much longer term view.
George Dunn: I
do not think that it is all sweetness and light in the sugar and
coffee sectors. It was not that long ago that we were looking
at the African, Caribbean and Pacific countries that got a reasonably
good deal under the EU Lomé agreements, saying that because
of the WTO case against the EU on sugar, they were no longer going
to be competitive in the world market against the likes of Brazil
for selling their sugar. There are some very big players who
are playing the market very well, and cornering the market, but
that does not mean that it is absolutely okay for everybody in
the market place. There are a significant number of producers
in both those two sectors who are losing out.
Q58 George Eustice:
The other thing I just wanted to ask you about is how important
you think food security is as an element to be considered in the
discussions about CAP reform. There has been some dispute. You
have obviously got some groups who are still pushing very hard
for the greening of Pillar 1 and much more emphasis on Pillar
2 and agri-environment type schemes, and you have also got this
Scenar study that suggests that you could actually remove direct
payments altogether and it would not have a huge impact on the
amount of land that was farmed in Europe. Have you got an idea,
at your end, of how big a consideration it should be in this current
review?
Greg Bliss: I think
food security has always been a fundamental plank in what we have
been saying in terms of the basket of public goods that we provide.
I know that a lot of people have said it is not, it is the environment,
but I think that it is a fundamental part and a mainstay of that
basket of public goods that agriculture provides. Without food
security and the ability to do as much as we can to support ourselves,
you can't eat butterflies and birds. I know that they are important,
but you do need to have a balance. It seems to me that if you
do not have a certain amount of production, the environment is
very soon forgotten when you have issues with shortage; for example,
there have been food riots in other parts of the world. People
can soon forget the environmental side of things when it is driven.
I think if you have a much more balanced approach, the environment
does not get pushed aside, because we have a vibrant and productive
agriculture that is pushing towards a good chunk of our own food
security.
Q59 George Eustice:
How important do you then think the Pillar 1 direct payments are
to ensuring that food security? To be a devil's advocate, there
are those who would say, "If you look at New Zealand in the
'80s, they just took away all of their subsidies altogether, and
the farms adjusted and were able to compete in world markets without
support."
George Dunn: New
Zealand is often cited as an example of where subsidies were removed,
but New Zealand also did quite a lot of other things, including
devaluing their currency and altering their banking system and
everything else. There was almost a big bang; it wasn't just
about agriculture in New Zealand. I think if you were to talk
to New Zealand farmers today, they would tell you what a tough
environment it is to be farming in today's terms. It is not just
all about the quantity of the food; it is about the quality of
the food, which we have talked about before. Certainly there
is a clear demand for animal welfare, higher environmental standards,
food of local provenance and so on. From our perspective, Pillar
1 provides that return to farmers that is not available to farmers
in the marketplace, because it is very, very difficult to price
those costs into the goods that you buy on a supermarket or retailer's
shelves, yet we are expected to bear them. So, Pillar 1 is vitally
important to that.
If you take a sector like the dairy industry, for
example, we have seen a great exodus of dairy producers in Great
Britain over the past 10 years or so, and most of those decisions
are made on the basis that when they come to the point of reinvestment,
there is not enough in the game for them to be able to make a
return on the investment; to be able to make a return on the investment
you have got to put in a new parlour or a new dairy, and so on.
If you remove any support that we are getting from the single
payment scheme from that equation, they would go much earlier,
because milk prices only just match the day-to-day costs of running
those businesses in most cases. In a lot of cases it is below,
unless you are a dedicated supermarket chain. We would see a
rapid removal of a lot of farmers.
Q60 Mrs Glindon:
I just want to go on a bit more about competitiveness, the sustainability
issue and greening. The Commissioner said that there is a false
dilemma between being competitive and sustainable. Do you think
both are possible to achieve?
George Dunn: A
false dilemma is an interesting phrase, because if you are requiring
individuals to be farming to a certain level of standard, and
you are not properly recompensing them for the costs of those
standards, that is not sustainable. You need to have a transfer
from another part of society—and that happens to be the
CAP and the public purse at the moment—which supports that
level of production. We already have cross-compliance. People
would argue that statutory management requirements are only obeying
the current law, but we have also got the good agricultural and
environmental conditions (GAEC) requirements, which go beyond
the current law, and we have got Pillar 2 payments as well. All
those elements are important to support the fact that direct payment
is needed, so that individuals can get a proper return from their
production.
If you look at economic theory, it will tell you
that as economies grow, less of a proportion of the national income
is spent on food, because we only have a certain size of stomach
and we can only eat so much. We tend to spend our growing incomes
on other things. Okay, we might eat higher quality or eat out
a bit more, but in terms of the basic foodstuffs, less and less
of a proportion of the national income is spent on the basic foodstuff
elements. That means as economies grow, farmers are always going
to be behind the curve. They are not going to be able to take
advantage of the economic growth in other parts of the economy.
If you want them to be able to sustain their businesses into
the long term, there has got to be transfer payments from society,
and that is what direct payments effectively are. Unless you
want to see a fundamental change in the way that we do farming
in this country, so that it is ranched or is based around single
operators in large areas with potentially lower quality produce
because of the way that it is done, then we need to retain the
systems that we have got.
Greg Bliss: That
was going to be my plank: if you look at the way people would
make money in the situation that George explained, you lose everything.
You would lose quality of food, you would lose quality of environment
and you would lose employment and people living in the countryside,
because the jobs would not be there and it would be run on a completely
different basis.
Q61 Mrs Glindon:
What green measures do you think could be included in Pillar 1
that would improve the environmental sustainability, but would
not have an adverse affect on the agricultural competitiveness?
George Dunn: If
you don't mind, I would not start where you are. We do not think
that Pillar 1 needs further greening from the extent that it already
is greened. I know that the Commission thinks otherwise and they
want ecological set-aside and permanent pastures introduced.
However, Pillar 1, from our perspective, already has a large green
element with the cross-compliance requirements. We believe that
to add anything more into that situation would tip the balance
too far towards the environmental and away from the food security
argument, which would cause real detriment to the industry.
Greg Bliss: The
other issue with that, of course, is if you are on a tenancy paying
a rent, every acre of land or every hectare of land that you have
to take out of production is a loss of income to you and the viability
of your business, given that you are paying rent on that land.
Suddenly, if there were ecological set-aside of 10%; that is
10% of your land that you are paying a rent on. You do not get
a decrease in rent on that, regardless. It would be anti-competitive
for tenant farmers. It would be a big bash to their business.
George Dunn: It
seems so strange that we are expecting this industry to supply
things to the general public on a free of charge basis, which
is effectively what we are saying should happen. Currently farmers
get recompensed to a certain level for making food to high standards
within the environment that they are producing in, and now we
want them to do something else, but we are going to do that by
not giving them any more recompense to provide that. We are expecting
them to simply bear that themselves for the public benefit. We
would not expect any other industry to provide that sort of model,
in terms of providing those goods.
Q62 Mrs Glindon:
Is including environmentally friendly measures in the direct support
payments the most effective way of improving sustainability in
farming?
George Dunn: We
argue that they are there already. The current CAP mechanisms,
with Pillar 1, the cross-compliance and the elements from Pillar
1, matched with Pillar 2 with all the various schemes for ELS
and HLS, are already in place. We do not need to over-egg that
pudding any more than has already been done.
Q63 Dan Rogerson:
In your evidence you did not really talk about the budget. Are
you campaigning for the budget to stay the same?
George Dunn: Yes,
we have not got any particular view that the budget should move
one way or the other. We cannot see necessarily that the budget
is skewed too much one way or the other, so our view would be
that it is sustainable at the current level.
Q64 Dan Rogerson:
Would you be concerned if Defra do what do what they say they
are going to do at the moment, and look to reduce the budget?
George Dunn: Yes,
we would, absolutely. Definitely.
Q65 Dan Rogerson:
Finally, you have talked in general terms about your views on
the Pillars. How do you think the budget should be allocated
between Pillar 1 and Pillar 2, and then within Pillar 1, between
income support and environmental measures?
George Dunn: Let
us take Pillar 1 and Pillar 2 first, and that will differ between
Member States because of historic reasons as to how much money
they have in their direct funding. The UK has always come out
unfavourably in terms of the amount of direct funding it has had,
and therefore it has had voluntary modulation to prop it up.
There perhaps needs to be a greater degree of consistency across
the EU about the percentage of the budget that goes into Pillar
2. From our perspective, we are certainly concerned that farmers
are expected to be modulated to a higher degree than other Member
States, apart from Portugal, which is using it to a certain extent.
But intrinsically, this is an area where we do not have too much
skill, in terms of the budget area. We are not campaigning for
it to change either up or down.
Q66 George Eustice:
When it comes to Pillar 2, is there an issue in that it is something
that is much harder for tenant farmers to access? A lot of the
schemes tend to be more geared towards owner-occupiers or landowners.
George Dunn: There
are a number of aspects and I do not want to bore you for too
long in relation to my answer, because it is a particular hobbyhorse
for the TFA and us at the moment. The first place is that the
rules on management control are a problem, in that if you are
a landlord and you are able to pass scheme conditions through
a contract or tenancy to a tenant farmer who is farming your holding,
has occupation over it and taken the entrepreneurial risk, then
you can do that in this country. You cannot do that in Wales,
but in England certainly. We think that is wrong. There are
many landlords who are claiming agri-environment scheme money,
because they can do it by contract or tenancy. Secondly, there
are those tenants who are on agreements, as I explained earlier,
of less than five years. Most agri-environment schemes require
at least a five-year commitment, if not longer. If you are on
a tenancy agreement of less than five years, you need to get your
landlord's countersignature on your application. Those
countersignatures are not always easy to come by, because
of the landlord's unwillingness to bind himself to something beyond
the end of your tenancy. Then we have got the problem, which
we have had in the Uplands, for example, where you change the
scheme from Hill Farm Allowance (HFA) to Uplands ELS, and you
change the nature of who the applicant is, because the landlord
has traditionally claimed for ELS on some land in the Uplands.
The tenant loses HFA payments, and he cannot get into Uplands
ELS, because the landlord is already in ELS on that ground, so
he's stymied from getting in.
Yes, you are right, there is also an element
of the interests of the Pillar 2 schemes being about the capital
of the holding: the hedges, the ditches, the features and the
trees, which tend to be the ones that are excluded from the tenancy
agreement in terms of the tenant's responsibility. There is a
concern that they are not always geared towards the active farmer.
Q67 George Eustice:
Would it almost be better for you if you put more money in Pillar
1, but made it greener? So you did do the greening of Pillar
1.
George Dunn: Yes,
but that is not going to happen. Politically, that is simply
not going to happen.
Q68 George Eustice:
Should it happen? You probably would like that to happen.
Greg Bliss: I think
we would much rather have the active farmer. The sensible conversation
is that the landlord's income and his recompense is always within
the rental agreement. The active farmer takes advantage of all
the schemes and then has a grown-up conversation with the landlord,
and the landlord takes his income through the rent, rather than
taking everything away from the active farmer and him being just
left with his own income. That is by far the simplest way of
doing it, rather than turning it around and trying to move things
from Pillar 1 to Pillar 2. I think it is best to have an active
farmer arrangement where he can access all these schemes and then
the landlord and he, within their tenancy agreement and their
rental, divide it on that basis. Rather than the landlord having
sway over it, he can do it in a sensible rental agreement.
George Dunn: It
is a much more realistic position to believe that we could get
Pillar 2 to work better and more fairly than it does now than
it would be to suggest that Pillar 2 should be abolished in favour
of a bigger Pillar 1.
Q69 Chair:
If the 2011 budget is not agreed this year, would that create
problems for your members if we proceed on twelfths?
George Dunn: Again,
I had a conversation with a member of the Commissioner's cabinet,
and asked him that question about what happens if the budget is
not there? Whilst he would not give me the technical detail,
he said, "It will be fine." Now, the EU budget arrangements
are a little bit beyond our ken.
Q70 Chair:
We thought we were quite well briefed last week. What we would
like to know is how it would impact on you if it did not proceed
by twelfths. It probably will not happen, but would it be very
bad news for your members?
George Dunn: We
have not got an answer to that question, to be honest. It is
beyond our ken.
Q71 Chair:
No, that is fine. Earlier this afternoon we heard that UK farmers
could become more competitive by selling value-added products,
which make use of higher environmental standards. Do you agree?
Do you think UK consumers would pay, even if it was labelled
up, "This is someone who has participated in an EU agri-monetary
scheme?" Do you think that would work?
George Dunn: Greg
will be able to talk to you about the commodity markets that he
is involved with and the sorts of contracts that he has got with
potato processors and so on. What I would say is that there
will always be room in the marketplace for people who want to
supply very high environmental, animal welfare, provenance foods
to a very niche market. But I am afraid the vast majority of
people, despite what we hear and see in the press, still buy on
price. The vast majority of commodities sold through supermarkets
are sold on price. There have been consumer studies done where
people have been asked, before they go into a shop, what they
are going to buy in terms of animal welfare and the environment,
and then what is in their baskets on the way out does not really
fit very well with what they said they were going to buy on the
way in. That is not necessarily because they told lies, but when
they get into the supermarket they are faced with a plethora of
choices on a shelf, they have got the kids screaming behind them,
and they lift what they think is the right thing. There may be
co-mingling of commodities so that you have got English and foreign
commodities on the same shelf. So there are lots of issues as
to why we do not necessarily think it is going to be a big issue
for most people, particularly where you are making commodity products.
Greg Bliss: I think
it is a very limited market. You seem to have a choice: you either
produce on a large scale on a small margin or you produce on a
small scale and increase your margin. You work just as hard and
your marketing has to be just as good. You will find that even
on large-scale commodity production, they will provide another
hoop for every one that you have had to jump through. Once you
get up to Tesco Gold Standard you can spend three days in your
office doing your welfare check and making sure that you have
no child labour on your farms. It is quite interesting because
you do not realise just how many hurdles you have to jump just
to get through, just in assured schemes.
George Dunn: If
you look at it in detail and take, for example, the milk market.
I challenged Sainsbury's on this the other day. Sainsbury's
have a dedicated supply chain with 300 or 400 farmers who supposedly
provide milk, and they can make great claims about that to their
consumers as they walk through Sainsbury's stores. But in fact,
all the milk that Sainsbury's get comes from a processor who is
pooling the milk with other producers. It is exactly the same
milk.
Q72 Chair:
I know George probably strayed on to this, but is there any further
action that you think is required to actually help and recognise
the system of land ownership and management that we have in this
country, in terms of CAP reform?
George Dunn: I
think at an EU level, we just need to make sure that there is
sufficient scope within the regulatory texts when they come to
identify the rightful recipient of any CAP support financing.
So long as we have this concept of the active farmer developed,
that will recognise the fact that that individual is the person
who is the rightful recipient.
Q73 Chair:
That is really helpful. Off the wall and on a different matter,
obviously my area and many other parts of the country have been
very badly affected by the weather. Have you been contacted by
your members about problems with actually feeding animals and
the cost of feeding animals, bearing in mind that this weather
normally does not happen before January and February?
George Dunn: Well,
the issue is much wider than that.
Greg Bliss: We
have got sugar beet that is in the ground and frozen that will
never get in for process, and there are thousands of acres throughout
the east that are in that same situation. That is just a loss
of income through bad luck because it was not harvested. It is
not just sugar beet; everything that you cannot get into the field
to get is just going by the wayside.
George Dunn: We
have got people who are finding it difficult to get their milk
collected and people who are finding it difficult to get out and
feed their stock. There are a plethora of issues.
Greg Bliss: With
wheat going up to £200 a tonne, the cost of feeding chickens
isn't chicken feed.
Q74 Chair:
I am particularly concerned about the sheep on the moors and that
more of them will be kept out. Of course, whether the farmers
can even get to them is another matter.
Greg Bliss: Well
the hay price has doubled and the straw price has doubled since
this weather came on, and that is if you can get it delivered.
Chair: That is helpful
information. Thank you very much for being with us, and I am sure
we will be in contact again.
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