The Common Agricultural Policy after 2013 - Environment, Food and Rural Affairs Committee Contents

Examination of Witness (Questions 170-199)

Witness: Dacian Cioloº, European Commissioner with Responsibility for Agriculture and Rural Development, gave evidence.

[This evidence was taken by video conference]

Q170   Chair: Good morning. You're most welcome, Commissioner. I am the Chairman and I welcome you. Can we start with the questions?

Commissioner Cioloº: First of all, I would like to apologise for my delay. I just came from Parliament; I was invited for a discussion in a committee discussing the future of the European Union, so this is why I was a little bit delayed.

Q171   Chair: You're most welcome, Commissioner. Could I just start by asking this? In your mission statement, you have potentially conflicting objectives that you might find it difficult to achieve through the reform; in particular, there is the objective of delivering high environmental production standards while, at the same time, ensuring a fair standard of living for the agricultural community. Are you confident that your reforms will deliver what you hope to achieve through your mission statement?

Commissioner Cioloº: Thank you very much for the first question. Of course, the challenges that you have raised regarding agriculture are several. You talk about delivery of public goods and the standard of living of farmers. This is why I think that the first Pillar—[Interruption.] There's just a little bit of a problem[1].

Q172   Chair: Could we turn down the volume at this end? We are doing that, Sir. I caught most of that, and it will be recorded, Commissioner. Thank you. Carry on.

Commissioner Cioloº: When we talk about agricultural policy for the future, first of all I think we have to take into account the Treaty of the European Union. One of the most important objectives of the Common Agricultural Policy is to ensure a good standard of living for farmers, but I think also the Common Agricultural Policy has to integrate current challenges more and more. These current challenges are grounded in the production and delivery of public goods around good management of natural resources. This is why I think that the direct payment, which was in the CAP, needs to remain to stimulate production[2], because direct payments were coupled with production. With the last reform in 2003 and the new reform that we propose, we will reorient the objective of that payment in order to, first of all, ensure a minimum level of income for farmers—ensure a minimum stabilisation of the income of farmers—and, at the same time, use this direct payment to stimulate farmers to produce public goods and to link a part of these direct payments to the delivery of public goods. Of course, I don't think there's a contradiction between these two objectives, but it will depend on the resources that we have for the Common Agricultural Policy.

Chair: Thank you. Commissioner, can we just break for one moment to resolve a technical difficulty?

Commissioner Cioloº: Okay, thank you.

Q173   Chair: Commissioner, can I just ask one of your technicians to listen for one moment? We've turned the volumes down at this end. We understand the volumes at your end are too loud, or possibly you might be too close to the microphone, Sir. How does that sound to everybody? Commissioner, if I ask you just one last question before I turn to a colleague: it looks from remarks you've made that you prefer Option 2 of the Options you outlined. Is that the end point of the reform, or an intermediate step towards more radical reform, such as Option 3?

Commissioner Cioloº : It will depend on the objectives that we have in the future with the Common Agricultural Policy. If we still want to ensure a good supply for our markets of products with a high level of quality standards, as well as safety standards and diversity, and at the same time we have not only cross-compliance rules but also new attempts for our farmers regarding the delivery of public goods, I don't see how our agriculture can, at the same time, be competitive in the international market and have higher level of standards than farmers in other parts of the world. This is why I think that if the expectation of European society evolves, of course the CAP will evolve also, proportionally.

If not, we have to make a choice. Do we want to maintain our production capacity in the European Union with our specific high­level standards, also taking into account what is happening in the world now with food security and food supply? At the same time, do we need agriculture for 10 million farmers to play a role in the management of natural resources? This delivery of a public good means higher costs of production for our farmers, so there is the issue of competitiveness and, at the same time, the delivery of a public good only in Europe—not, at the same time, in the United States, Latin America, Asia and other parts of the world, in order to be on the same level of competitiveness. If we have this specific request for our farmers in Europe, I think we also have to maintain the instruments. Maybe these instruments can evolve; maybe in the future we can use more and more of the money to stimulate innovation, to stimulate farmers to invest in innovation and modernisation. Maybe some categories of farmer will need less direct payments than others. We have already started this process with this reform. Generally speaking, we have to have a proportion between our requests and our capacity to support this policy financially.

Q174   Richard Drax: Commissioner, good morning. Just to quote you, if I may, you said recently that you felt there was a need to "renew the legitimacy and credibility of the CAP". Both a public consultation and the Eurobarometer have indicated that the public think the CAP is going in the right direction, so why do you need to legitimise it?

Commissioner Cioloº: I don't think that the public debate is that the CAP goes 100% in the right direction. The conclusion was that a large majority of European citizens want and are ready to support farmers in the European Union, but with some conditions, and not all these conditions are already met by the current CAP. The citizens in Europe want to be sure that food is safe, is diverse enough, is of high quality and is at good prices.

At the same time, citizens want agriculture to deliver more public goods in terms of management of natural resources. Citizens also want agriculture to be maintained even in Less Favoured Areas, because it's the only economic activity in some rural areas. People think that we have to have more balanced support between several categories of farms, that the level of payment for very big farms is too high, and that there is not enough chance for the small farms to play a role in some important areas, in terms of the delivery of diversity of food and quality of food. In reaction to this, we have to make that reform. To conclude, the message that I understood was this: we still need the Common Agricultural Policy, but this Common Agricultural Policy has to be more in line with the expectations of the citizen. The Common Agricultural Policy has to integrate with all of the other expectations, like those regarding the environment, climate change and territorial cohesion.

Q175   Barry Gardiner: Commissioner, good morning. I think it's difficult to see how you resolve the tension, in that you seem to be facing both ways. On the one hand, you said earlier this morning in your response to the Chairman that we have to ensure a good standard of living for farmers but then, at the same time, we should be paying public money only to secure public goods. There is this tension between those two aims; it is reflected in the tension regarding competitiveness, and the need for the improved competitiveness of the industry, and also in your remarks just a moment ago about the need to maintain cohesion and about small farmers. These tensions seem to be pulling the reform apart; intellectually, they are not coherent. Now, single farm payments allow more inefficient businesses to continue. They don't improve conditions or competitiveness and they don't necessarily deliver the public good for that public subsidy. How are you going to resolve those tensions?

Commissioner Cioloº: I don't think that there is a tension in the CAP between ensuring good standards of living of farmers and the delivery of public goods if the first Pillar of direct payment is reformed, because more than 90% of the direct payment is decoupled from production. These direct payments already have a role in maintaining the minimum level of payments. Anyway, this minimum level of income for farmers is not enough for a farmer to live on if he is not competitive at the same time. Now, the first objective for a farmer is not to try to have more and more direct payments from the CAP, as it was in the past. His production choice is not in this direction—to have more and more payments—because payments are decoupled from production. His objective now is to be more and more competitive, to answer more and more market signals. This is the result of our market instruments and the decoupling of direct payments. But if we don't have this minimum support for income and compensatory payments, the risk is that a lot of farmers who can be competitive without the cross­compliance rules that we have in Europe but not in other parts of the world—who in normal situations can be competitive—will not be competitive. This is why payment is justified to maintain a minimal level of standards, but not all the level of standards that a farmer needs.

An important part of this level of standards is recovered through the market, by farmers. As for the delivery of public goods, we ask our farmers to do more than is set out in the basic regulations in Europe regarding the environment or animal welfare. This delivery of public goods has a cost that is not internalised by the market price. We have to cover this type of complementary cost with this supplementary payment. In the first Pillar that we propose for the future Common Agricultural Policy, we will have a clear separation between the part of payment to support this minimum level of income and another part of payment stimulating the production of public goods—in all Europe, not only Less Favoured Areas. This is the difference between the greening in the first Pillar and agri­environmental methods in the second Pillar. In the second Pillar, regions or Member States can decide to use this for some categories of farmers or some categories of measures but now, in the first Pillar, all Member States and all farmers will need to take into account these good practices in order to have part of the payments. This is why I think that it's not real tension. We tried to make these pillars so that there was not contradiction but complementarity between these two objectives.

As for competition, I don't think there is a contradiction here if we want to maintain agriculture, even in Less Favoured Areas. If we decide to produce only in the good areas for agriculture, we don't need support for Less Favoured Areas, but that would mean that, over the next years, we would not have farmers in a lot of regions in Europe and we would concentrate production in very favourable regions only. In the short term, it could be a solution, but I think in the long term we risk having a problem of pressure on resources—soil and water—in these regions, more problems of pollution and also problems of diversity of food and, especially, problems regarding the management of the landscape, because small farms in some areas have an important role, a separate role, in the management of landscape, not only in production. That is why, if we want to have a Common Agriculture Policy for 27 Member States, we have to take into account the diversity. Of course, there are some clear European objectives. That is what we try to do with this reform.

Q176   Thomas Docherty: Good morning. You attended the Oxford farming conference last week, and your speech was well received by quite a lot of the people who were there. Do you agree with the Secretary of State for Defra that the current CAP is morally wrong?

Commissioner Cioloº: Morally wrong?

Thomas Docherty: Yes.

Commissioner Cioloº: I cannot concede that all the Common Agricultural Policy is morally wrong. Why could it be wrong? First of all, the current Common Agricultural Policy has evolved a lot, if we compare it with the Common Agricultural Policy of 20 or 15 years ago. I just want to underline the fact that export subsidies represented last year, in 2010, only 1% of the total budget of the CAP, so how can we say that the Common Agricultural Policy has an influence on agriculture in other parts of the world? 90% of the direct payments are decoupled. We eliminate and we reform a lot of market measures with the role of the market. Of course, the Common Agricultural Policy needs to evolve, but I don't think we can say that it's morally wrong, because we ask a lot of our farmers and it is normal that we pay those farmers for that. It's the only sector, I think, in Europe that has to play an economic role and plays a part in the market but, at the same time, has to integrate a lot of rules imposed by society. The automotive industry, the textile industry and other industries do not integrate a lot of expectations from people in the way that agriculture does. This is why I think it's not morally wrong to support agriculture when we have specific expectations from agriculture.

Q177   Thomas Docherty: I'll just quote what the Secretary of State specifically said at the conference: "The CAP continues to distort trade by maintaining high EU prices. This gives rise to high import tariffs and the use of export subsidies to clear market surpluses—all of which undercuts production in developing countries." Do you agree with that?

Commissioner Cioloº: I would like to give you just one example. This year, the world price for sugar, for example, was higher than in the European Union. We had market intervention in the milk sector because we had these prices, and we put on the European market this surplus of production, currently during 2010, without affecting the price on the market. This is why, with the reform of some farms and the reform of direct payments, I don't think that we can now say that we influence the level of prices in countries in the south. I also want to remind you that European markets import more food from these countries in the south than the United States, New Zealand, Australia and Japan together. This is also the result of the openness of our market.

I don't think that you can say that we have a very high level of protection in the market. It was the case 20 years ago, but we have a new policy now. Policy has been reformed in the last 20 years a lot in this direction. I also remind you that the discussion in Doha was not blocked because of the resistance of the European Union, but because of the resistance of the other partners; they tried to play it, in media communication with the world, that their position was more open than the European Union's, but that is not the case. If we look at the figures, I think it's clear that the CAP is now adapting and does not affect the decisions of production in the countries from the south. That is why I cannot agree with this position.

Q178   George Eustice: Thank you, Commissioner. You talked earlier about competitiveness and how some of the requirements for production standards that we put on farmers actually affect their competitiveness. I wanted to ask you whether there was anything more proactive that the reform of CAP could do to make our farming more competitive, in particular looking at research and development, where there is a lot of evidence in the last 20 years that its status has declined and the levels of research we're doing are not high enough. Secondly, ought the Rural Development Funds to have a greater emphasis on business development, rather than environmental schemes?

Commissioner Cioloº: Regarding research, development and innovation, even yesterday, I had a good discussion with the relevant Commissioner on this, and we now work together in order to ensure that in European research policy, agri­food industries and agriculture will have an important position, an important place. At the same time, my objective is to create in the Common Agricultural Policy financial instruments in order to encourage farmers and the agri-food industry to take the results from the research and to put them into practice. We think now of a common framework for research and innovation, of creating a network and partnership between research and development institutes and the farmer organisations of the farming industry, and of doing more preparation in order to ensure the transfer to practical results.

Also, we will use the financial instruments that we have in the second Pillar more and more to stimulate investment in the modernisation of the farmer or in trading, so that there is an innovation component—to try to innovate in order to be more competitive in terms of production, but also in terms of diversity of products on the market. I also want to remind you that the agri­food industry in Europe is the first exporter of food in the world. We export not commodities, like the United States, but specially elaborated products; high added­value products. We have to go in this direction, but this needs more investment in innovation. We will do this in rural developments. My answer to your second question is that, in the second Pillar, we will have more instruments and it's our objective to promote more instruments in order to support the business development of the agriculture and agri­food industries in two directions: the reduction of production costs with good, sustainable management of natural resources, and the diversification of production for the market.

Q179   Dan Rogerson: In the communication, you made it clear that you would like to focus support on active farmers and, indeed, that you would seek to define who is not an active farmer. Clearly, there would be some concerns among people who are currently in receipt of money about that. Are you able to define a little more clearly for us what you mean by the groups you wish to exclude—whom you would define not as active farmers?

Commissioner Cioloº: The objective of this definition is also to answer a request of European auditors, who think that it is not morally right, to take an expression one of your colleagues used, for the Common Agricultural Policy to pay landowners who don't use this land to produce—for agriculture. A farmer produces products for the market and a public good, and I think both objectives have to be covered by a farmer, so the objective is to try to eliminate for the time payment for non­agriculture, and to focus more of these payments on the farmers who produce not only food and agricultural products for the market but also a public good. That is the objective. It's clear that we have very diverse situation, with regard to who is a farmer in Spain, the UK, Poland, Sweden, Italy, France and so on. The idea is not to eliminate these farmers, but to try to eliminate the farmers who request the same level of payments only because they have a certain area of land.

Q180   Dan Rogerson: In the United Kingdom we have, for example, some environmental charities that are large landowners, and their focus is on things such as biodiversity. There may be some production, but that would be incidental to the aims of those charities. What view would you take towards them and do you think they should still be in receipt of money under Pillar 1?

Commissioner Cioloº: First of all, if it's agricultural land, and it's not productive land but is only maintained in good agricultural condition, I think maybe we have to take into account this area with payments, but maybe not the same level of payments as those for productive farmers. We are now realising an impact assessment for several different situations, in order to see what answer we could give in this specific situation.

Q181   Dan Rogerson: So you haven't decided yet whether there must be some agricultural production on all of that land?

Commissioner Cioloº: If this land is used for agricultural production and, at the same time, it's maintained for the production of environmental or public goods, I think it will be integrated in our definition of agricultural land. My objective is not to have a restrictive definition at European level, because it's rather impossible to take into account the diversity. Our objective is to give, in the European regulation, some elements that the Member States will have to take into account when they define the specific situation of active farmers at the level of Member States.

Q182   Dan Rogerson: Just to confirm, you would expect some agricultural goods to be produced for someone to be defined as an active farmer?

Commissioner Cioloº: Yes. If not, we cannot talk about agriculture or the farmer.

Q183   Dan Rogerson: In England, there is a large tenanted sector. Would you agree, for our understanding of your definitions, that the tenant would be the active farmer in those circumstances?

Commissioner Cioloº: Yes. I think it's a juridical problem of the contract between a landowner and the farmer who produces on this land. Even now, we are clear that the beneficiary of payments is the farmer, and he can benefit from these direct payments for his own land or for the contracted land that he works. I think even now, that's the situation. I don't want now to go into this detail, because I don't know the juridical situation in the UK very well, but even now, Member States have enough flexibility to take into account this specific situation. If a farmer has worked the land, it's normal that this farmer has the right to payments.

Q184   Dan Rogerson: That's your starting point, and then there are some clarifications. A final question: how would you expect Member States to audit this process of determining whether someone is an active farmer or not? What evidence would you expect them to look for?

Commissioner Cioloº: We had the first discussion at the Agriculture Council of Ministers on that subject, and the conclusion was that we have a diversity of situations, and we have to integrate around this diversity of situations. We can't expect to have a common definition at European level. This is why now the objective of the Commission is to come with, let's say, a negative definition—who is not an active farmer—and then the Member States will define who is an active farmer, taking into account the specific situation at national level. Of course, we have some Member States that find that this definition could be complicated. I have not understood, however, that the majority of Member States reject this idea of a definition of active farmers, because it's also the main request concluded by the public debates. As Commissioner for Agriculture, I think I have to give an answer in the proposal for the reform of this treaty. Then the Council and the Parliament, which have the power of decision on the reform, will decide, but I think we have to find a solution to this, if we want to be credible with the utilisation of public money.

Q185   George Eustice: I wanted to ask you about the issue of capping direct payments in Pillar 1. I think you suggested a cap for larger farms at €300,000. As you said earlier, the rationale for those direct payments under Pillar 1 is that those farms deliver public goods and protect the environment. Isn't it the case that even a large farm may do as much for the environment as a small one? Why is it justified to place a cap on those large farms?

Commissioner Cioloº: The objective for this direct payment is to support a minimum level of income for a farmer; with very large and big agricultural societies it is difficult to discuss a minimum level of income of a farmer. When we have a turnover of several hundred thousands of euros, even millions of euros, we don't talk about the level of income of a farmer, but rather about the remuneration of capital invested in a business. This is why I think that to use public money to support the remuneration of capital for these kinds of big farms is not justified, and is not in line with the Treaty, which asked from the Common Agricultural Policy a good standard of living for farmers. I have in my country, in Romania, farmers who have 1,000 hectares. It is difficult for me as Commissioner to explain to the taxpayer that we will give €1 million or €2 million a year as subsidies to these farmers to support their minimum level of income. This is why I think we have to put a limit on these payments. I don't know if it will be €200,000, €300,000 or more, this maximum level of payments. There is already an amount to cover, partly, increasing production costs for these farmers, because they respect several norms and rules. Even these farmers will be eligible for some payments, I think. We started to limit this part of the payment in the Pillar. If this farm is delivering public goods, they should be remunerated for these public goods.

Q186   George Eustice: A final point on that: is there a danger that the larger farm holdings will simpler reorganise themselves into smaller holdings to get around any cap? Therefore, what you'll end up with through doing this is simply a larger number of smaller holdings still owned by the same landowner, but you will still have to pay out those large payments.

Commissioner Cioloº: You know, I'm an agricultural engineer, and I know that a manager in agriculture, when he takes a decision to concentrate the land, does so to make some economies of scale. I don't know if a farmer will decide on the size of his farms only to ensure a payment. Here we have a problem with economic logic in agriculture. Especially with big farms, I don't think their objective is only to have a big amount of payments from public money. I don't think that we will have a very important phenomenon of the splitting or separation of farms only to have payments. I think a farmer uses other logic when he decides on the structure of production and farms, and is thinking not only about having a level of direct payments. Although direct payments could be important at a certain level, I don't think they're the most important objective of a farmer when he decides on the level of farms and the structure of production.

Chair: Commissioner, are you able to stay two minutes extra at the end?

Commissioner Cioloº: I can stay until 12 noon—11am in London.

Q187   Chair: Turning to your proposed reforms and rewarding environmental activities in Pillar 1, can you clarify whether the mandatory greening component that you describe would be an additional requirement on farmers, just as cross­compliance is, or do you intend it to be more like a reward for carrying out the additional activities to benefit the environment?

Commissioner Cioloº: Cross­compliance and eco­conditionality are the result of environmental regulation in the European Union. This regulation already exists, and we only link the direct payments in respect of this regulation. With the greening, we propose that our farmers do more, in terms of the management of natural resources, the quality and fertility of soil, and biodiversity, and we will use part of direct payments as an incentive in order to do more production of public goods.

What does "mandatory greening" mean? It means that we will propose in the regulation six or seven measures for all of the European Union, like rotation of the type of agriculture and maintaining pasture—we gave some examples in the communication. The Member States will be obliged to propose this to farmers, so this is mandatory. It's not voluntary for the Member States, as with some agri­environmental measures in the second Pillar. It's mandatory, because it's compulsory for Member States to propose the implementation of the CAP to the farmers: two or three from this menu of six or seven measures most adapted to the specific situation in this Member State. The farmer who respects this new norm will have a complementary payment.

Q188   Chair: Thank you. Could you tell us why you opted for greening Pillar 1, as opposed to allocating more funds to targeted programmes under Pillar 2?

Commissioner Cioloº: In Pillar 2, agri­environmental measures take into account a specific situation in an area, in a region. We finance some agri­environmental measures for some farmers who decide to do this, but taking into account the specific situation. The production and delivery of public goods is not to as high a level as it would be if we had this greening of the production of public goods in all the European Union, for all Member States and for all farmers. This is why we propose introducing a part of these agri­environmental measures of greening in the first Pillar—in order to have more linkage of these direct payments to the production of public goods, but in all Europe, and with the same metric for all states, in order not to create a disturbance in the market between some farmers and others.

Q189   Amber Rudd: Good morning. How do you envisage money being shared between the two main elements of the new direct payments—that is, basic income support and the greening component?

Commissioner Cioloº : How will we divide the budget in the first Pillar between the support of income element and the greening? That is the question?

Amber Rudd: Yes.

Commissioner Cioloº: It's difficult now to say exactly what will be the percentage for greening. We are analysing several scenarios, but I think we can go up to maybe one third of the direct payments being linked to the production and delivery of public goods of greening.

Amber Rudd: One third?

Commissioner Cioloº: Yes. It will depend; that may be the proposition of the Commission, but you are aware that the final decision on the reform is taken by the Council and by the Parliament. I hope to have arguments for going up to this level, with the part for greening.

Q190   Amber Rudd: Are you considering basing the payment for greening activities in Pillar 1 on objective criteria, such as the additional cost of delivery or the environmental benefit?

Commissioner Cioloº: I can see that this part of the greening payments is exactly the level of the production costs for a farm that decides to integrate this measure. The objective, in fact, for us is to use this part of the payments to incentivise a farmer to do more, not only to have a payment in exchange. The interest is to have a good level of fertility of soil, for example, or good biodiversity or good management of water. The farmer does this not only to have payments for public goods in exchange, but also because it's in his economic interest. If he wants to have a good level of production per hectare, he needs to have a good level of fertility of soil or good quality of water. To use a part of these direct payments as an incentive instrument is already a good start in reorienting the Common Agricultural Policy in another direction—and, I hope, in a good direction.

Q191   Neil Parish: Good morning, Commissioner. I have lived through all the reforms of CAP and the historical element of the payment, where the old 15 Member States received their payment due to the amount of production they had on that land during 2001 and 2002. New Member States, like your own of Romania, are paid on an area basis. You are committed to changing this. I wish you well, because of course you're going to have to spread money, with Latvia on €70 a hectare and Greece on €550. How do you intend to sort this out over the next period?

Commissioner Cioloº: First of all, I am happy to see you again. We had the opportunity to work together when Neil Parish worked for COMAGRI in the Parliament. I'm happy to see that you're still very active in the field. To answer your question, of course it's an ambition to propose a more equitable system of payments; another is a realpolitik emphasis—the political realism at European level to obtain this. As a Commissioner, I have to propose this and then make a proposal that could be politically acceptable to the Member States, in order to reduce these discrepancies between several Member States. The idea is to propose, at the end of this transitional period, a common system for all 27 Member States. Now, as you mentioned, we have two different systems. One is based on historical reference per farm or per region, and the other is an area­based payment without technical detail about the specific situation.

The idea is, at the end, to have a mixture of area­based payments and some regional­specific situations, and also to propose, during the transitional period, a reduction in the payment in Member States where the level of payment is higher than the European Union, and to increase the payment for the other part. I am also very aware that it will depend on the level of the total budget of the CAP. If we reduce the budget, we will see how much it will be reduced by, and which Member States would be affected by this. It's very possible that part of this reduction of payment for some Member States will be done by an eventual reduction of the budget of the CAP. This is why we have to take into account all these elements when we calculate and propose a methodology for the criteria for payments.

Q192   Neil Parish: Thank you, Commissioner. My theory is that in a single market, you have to have a reasonably uniform level of payment across the whole of Europe. Otherwise, the payments given to farmers in different Member States distort the market. I do think it's important for you to deal with this.

Commissioner Cioloº: Yes. In a common market we have to ensure that the same categories of farms are treated in the same direction, with the same criteria. We have to recognise that farmers work with a certain level of fertility of soil, and a certain level of production costs or standards of living. We have differences between Member States, taking these criteria into account, and we also have to take into account the different occupations of farmers.

For me, the objective is that farmers working with the same conditions, as regards the fertility of soil, level of production costs or standard of living, have the same treatment. Here we can have a distortion in the market if categories of farms have different treatment. We have a difference between cereal production, for example, and animal production; and milk production and fruit and vegetable production. We have to take into account these differences because, if we give the same levels of payment for permanent pasture, for example, and an area of vineyards, we have a problem, because the level of production costs and also the benefits in a hectare of vineyards or a hectare of cereals are also different. We have to take into account this difference, but then apply the same criteria in all the European Union; that is the ideal situation.

Q193   Neil Parish: That leads me quite neatly to my final question, and that's on decoupled payments. As you know, England in particular has got rid of all coupled payments. Some Member States still have coupled payments, which could distort the markets, especially in the beef sector. Are you committed to getting rid of coupled payments?

Commissioner Cioloº: We propose to generalise decoupled payments in all Europe and to maintain coupled payments only in some specific regions, for some specific products. We also have to recognise that, in mountain areas for example, without coupled payments, we used to not have milk production. Milk production is important not only for the production of milk, but also for the maintaining of the landscape and maintaining the population in this area. I don't think that we will have a disturbance in the market if we have these partially coupled payments for those specific situations. We have very clear rules, regarding the utilisation of coupled payments, to apply the same rules in all of the European Union.

Neil Parish: Thank you, Commissioner. It's good to talk to you again.

Q194   Richard Drax: Commissioner, we're almost there. I just, if I may, want to ask a couple of last questions on small farms. What's the best way, in your view, of supporting small farms? Is it by direct payments, or what?

Commissioner Cioloº: Even now, we have direct payments for small farms and we also have support for the modernisation of these farms. We have to maintain these two instruments. The idea of direct payments is to ensure, like for the other farms, a minimum level of income for farmers, in order to stimulate the farmer to produce more for the market, to invest more, to innovate and to develop their competitiveness. What I propose is to have simplified direct payments for these small farms. Taking into account the level of the farms, I think we can reduce the bureaucracy for small farms a little, in order to give small farms access to these direct payments.

The objective is to increase direct payments for small farms not only because they are small farms. The idea is to attract these small farms to the market and to stimulate them to invest and make credit, in order to mobilise and to develop their competitiveness. Now, in a lot of regions, that is not the case, because of the starting budget that small farms need. We think these basic direct payments, simpler for small farms, can be used in order to stimulate small farms to be more integrated in the market. I know that some people think that the idea of the Commission is to pay small farms only because they are small farms, and I also agree that this payment, if it's too high, can stimulate the small farms to do nothing to modernise themselves. The idea is not to increase direct payments for small farms, but to make them simpler, and then to propose a lot of instruments—like training, investment and organisation of production groups—in order to integrate the small farms more into the market than at present. In a lot of regions in Europe, we have a lot of small farms that are not integrated in the market. It's subsistence production. The objective relates to the Common Agricultural Policy and investment, but this basic payment can play a role in this direction.

Q195   Richard Drax: Commissioner, lastly, bearing in mind that the definition of "small farm" is so different right around Europe—different sizes, different cultures, lots of differences—do you think these sorts of direct payments to farmers could distort the market?

Commissioner Cioloº: No. If we look, the level of production in the European market is not affected by the small farms. Small farms produce especially for local markets, and the level of production for these small farms is not at a level that would disturb the market. I think the question is: do we want to maintain these small farms, which are essential for a lot of regions, and which could also play an essential role in the diversification of production at regional level; or do we want to eliminate farming for a lot of regions, which have social problems and other problems? With the level of payments that we seek to propose for these small farmers, taking into account the specific economic and social situation of these small farms, I don't think that we will create a disturbance in the market but, of course, we are now undertaking an impact assessment to see what type of impact these measures can have on the market and on the social situation in some regions.

Q196   Chair: Can I just ask you about the budget before you go? In your communication, particularly under Option 2, you seem to increase the number of objectives to be delivered by the Common Agricultural Policy. How do you hope to achieve this on a reduced budget?

Commissioner Cioloº: I don't say that I propose to reduce the budget and to increase the objectives of the Common Agricultural Policy, but with the payments that we have for the Common Agricultural Policy, the Common Agricultural Policy can do more for the general objectives of the EU 2020 strategy, for example. To talk about sustainable growth, we cannot have sustainable growth in the agriculture and agri­food sectors if we don't have the Common Agricultural Policy. On the other hand, the Common Agricultural Policy can do more for sustainable growth, with greening, more innovation in the second Pillar and better orientation of support in order to have sustainable development of competitiveness.

We also have in the EU 2020 inclusive growth. For Less Favoured Areas, rural areas with agriculture, it is difficult to have another economic activity. I think that we also have a contribution to make to the objective regarding inclusive growth. Utilisation of part of the CAP budget to do more in research and innovation, and research and development, will stimulate the agri­food sector to have smarter growth. This is important, because the agri­food sector is the most important industrial branch in Europe, in terms of turnover and employment. That is why I think that the Common Agricultural Policy can have a positive impact in the development of smart growth in the agri­food sector. Of course, if the budget of the CAP is significantly reduced, we have to be clear that we cannot ask our farmers to fulfil all these requests or objectives.

Q197   Barry Gardiner: Commissioner, I certainly welcomed the part of the communication that spoke of the need for restructuring and consolidation of the sector in order to address the current imbalance of bargaining power along the supply chain. I thought that was very helpful. Again, that is in tension with what you said about support for small farms, but leaving that to one side, do you think that it may be that, while you improve the position on the supply chain, you create competitive distortions between Member States as a result of this?

Commissioner Cioloº: First of all, I don't think there is a contradiction between increasing the bargaining power of farmers and support for small farms. Increasing the bargaining power of farmers means that the small farmers can work together in order to have more power of negotiation.

Barry Gardiner: Fair point.

Commissioner Cioloº: But to be clear, we have small farms or we don't have agriculture—nothing—because in some areas we cannot concentrate on the land, work in an efficient manner and also maintain the population in these difficult rural areas if we don't have small farms. I recommend that you visit some mountain areas, not only in Romania or Poland, but in Italy, Spain or some difficult areas in Finland. You will see that we cannot have big farms. In Romania, we have big farms, but we also have small farms. We cannot have big farms only. That is why we have to take this diversity into account.

Q198   Barry Gardiner: What about the competitive distortion that may exist between Member States as a result of that?

Commissioner Cioloº: As a result of the difference in support of farms?

Barry Gardiner: No, improving the functioning of the supply chain.

Commissioner Cioloº: This is not a specific problem for one Member State or another. In the food chain, retail distribution and even the processing sector are more and more concentrated. In the milk sector, for example, we have some processors that have a network in all the Member States. They have factories or plants for processing milk in all Member States. That is why I think this issue has to be treated at the European level, this question of bargaining power. We tried to propose a solution for the milk sector, with a proposal for regulation that we put on the table for the Council and the Parliament at the end of last year. Also, this issue cannot be treated only within the Common Agricultural Policy, because it's a question of competition, the internal market and industrial policy. That is why we decided, at the level of the Commission, to work together—four Commissioners—so that we could come forward with proposals regarding negotiation and bargaining power in the food chain. To avoid disturbances between several Member States, we have to come forward with some common ideas at the European level.

Q199   Chair: Can we thank you for being so generous with your time? How big is a small farm—how many hectares?

Commissioner Cioloº: Here we have the same situation as with active farmers. We cannot impose a definition at the European level, because we have several situations. We cannot define small farms only by taking into account their area, because the area of land can be used in a different manner from that intended. That is why I think we have to have some economic criteria regarding the definition of small farms, and we are working on that. We will propose some criteria in order to define small farms.

Chair: Commissioner, we look forward to continuing our discussions. On behalf of everybody here, we thank you very much for joining us this morning.

Commissioner Cioloº: Thank you also very much for this opportunity.

1   Note by witness: Evidence was provided by video conference and there were considerable sound transmission difficulties, in particular a significant echo effect for Commissioner Cioloº while speaking from Brussels.  Back

2   Note by witness: Again, sound transmission difficulties affected proceedings. As is evident from the preceding sentence, production in this respect relates to the production of public goods. This was the meaning of the response provided by Commissioner Cioloº. Back

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