Examination of Witness (Questions 277-326)
GEORGE LYON MEP
26 JANUARY 2011
Q277 Chair:
Thank you very much for agreeing to be with us on this side of
the channel. Just for the record, George, if you'd say who you
are and describe yourself.
George Lyon: I'm
George Lyon, and I'm the Liberal MEP for Scotland. I sit on the
Agriculture Committee of the European Parliament, and I was appointed
Rapporteur to write the first report from Parliament. I think
also it would be useful if I put on the record that I have no
financial interest in agriculture or agricultural activities at
all, as of last November.
Q278 Chair:
Excellent. I own half a share of two fields in the north of England—half
a farm—so I have a farming interest. We had a very useful
visit when we were over in Brussels, and one of the people we
met was from the Cabinet of the Budget Commissioner. Do you think
that spending on farming, going forward, is going to be the same
across the European Union?
George Lyon: In
terms of the budget debate, there are going to be three main drivers.
One is the need to see the European budget in its totality either
constrained or possibly even reduced. We have the letter from
the five Prime Ministers that seems to indicate that at least
flat rate seems to be where it might end up. We have the second
driver, which is, of course, the need to find money for some of
the other priorities that the European Union now has competence
over, as a result of Lisbon. The third one is, of course, the
big push by the new member states for more equal distribution.
So there are serious budgetary issues. I don't think that we
are likely to see any increase whatsoever in the Common Agricultural
Policy budget. Indeed I think it's more than likely that it will
start to decrease over time. The question is not "if";
it is a question of "when". It will be down to timing.
Q279 Chair:
In the European Parliament you're in a very privileged position,
for the first time, having co-decision this time. What do you
think the priorities of the next stage of reform of the CAP should
be?
George Lyon: I
think we should look at the challenges first, because it's important
to try and answer two fundamental questions: what is the CAP for
going forward, and what is its relevance in the 21st century?
That seems to be the starting point on this one. I think that
the single biggest challenge we face going forward is global food
security, which is linked to the growth in world population and
the rising economic wealth of developing countries. The FAO (Food
and Agriculture Organization) is predicting somewhere between
70% and 100% growth in demand over the next 40 years, through
to 2050. Now, in the past we've met similar demand—from
postwar right through to today, we've doubled output. Unfortunately,
the constraints this time around will rule out the good old solutions
of the past, where you threw lots of energy at land with the help
of new crop varieties and—lo and behold!—you produced.
Plentiful land and plentiful water went hand in hand with that.
That is not going to be possible this time around.
Unless we want to cut down the rest of the rainforest,
I don't think there are going to be huge, extra tracts of land
around coming into production. Water's already a serious issue
in many, many countries; we use 70% of the world's water in food
production. Energy is going to be a major constraint as well.
On top of that we've got the need for agriculture to play a role
in climate change, and we need to start seeing a move towards
a more sustainable agriculture. The current model, which is based
on cheap energy prices and cheap inputs, is not fit for the future,
and it will not deliver the expected increase in production that
we need. I think that's the fundamental challenge that the CAP
has to face up to, and that Europe has to face up to. We have
to look at how we incorporate sustainability, and the drive towards
a new, more sustainable and more competitive agriculture should
be at the heart of that reform. So I think that's the first point
to make.
There are two other points that are still important.
One is a fairer CAP—I have referred to the new member states
wanting a fairer distribution of the moneys. There's also a need
to ensure the farmers are in a better place to command a better
market price, and that's about fairness in the food chain. I
think the third issue that's still a very important issue is whether
we want to see agriculture still continue across Europe. There
are great fears in many member states—I come from Scotland,
so I know a fair bit about this—that if we see support disappearing
away, food production will move out of much of the less favoured
areas of Europe, because it's uneconomic. I think local communities
want to see local food production and therefore that is a priority
we must still address in the future. Less favoured areas still
have a very important role to play in the production of local
food for local communities, as well as the many other functions
and public goods that they provide as well.
Q280 Chair:
You expressed a view at the Oxford Farming Conference, where the
Secretary of State expressed her view that we should end our reliance
on direct payments. Do you think that's a good view to hold?
George Lyon: I
don't see us being in a position to end direct payments at this
time. I think we have to look at the global context when we start
discussing this. Every developed country supports its agriculture.
The US, a great free trade nation, pumps billions of dollars
in every year through its food schemes for those who are less
well off and the direct support it offers to its industry. It's
also directed at a very aggressive export policy; it's looking
to secure markets around the world. So I think, if we are going
to be sensible about this, we need to negotiate reductions through
the WTO agreement. In the meanwhile, in preparation for reducing
the level of support in the future, which I think is likely because
of the outcome of the budget discussions in CAP, I think we need
to start looking at how you target the direct payments. It's
interesting that both the Commission and the European Parliament
have opened the door for the first time to the idea that you might
actually start to target payments at specific objectives, rather
than just a handout that has no objective at the moment other
than supporting incomes on its own.
Q281 Chair:
Could I just ask you, when you mention less favoured areas and
public good, do you think those terms are sufficiently well understood,
both in this country and across the European Union?
George Lyon: I
think that less favoured areas and areas of natural disadvantage
are well understood. I think that society, and the public in
general, support the notion that we should keep food production
in these areas, because they not only deliver food but they also
deliver a lot of other public goods. It is a managed landscape;
there is nothing that is natural about the landscape that we currently
see. My grandfather, my great grandfather, and everyone else's
who was involved in agriculture, shaped that landscape through
their agricultural activities, whether it be with cattle, sheep,
felling of woods, you name it. It is a managed landscape, always
has been, and I don't think that people, or society, would wish
to see that completely abandoned and walked away from. If you
asked that question in the United States I suspect you would get
a different answer to it. There would be a shrug of the shoulders
and they'd say "Well, that's just the way it is. We don't
really care." I'm not convinced that in Europe that's the
case, or indeed in the UK.
Q282 Chair:
Could you just be more specific when you said that you wanted
to target specific projects? This is something we may expand
on, but could you be more specific on what you mean?
George Lyon: Well
if you look at the proposal the Parliament put forward, it suggested
that you start to aim the direct payments. We suggested three
different categories and there's actually a fourth one. There
was a basic direct payment linked to crosscompliance. You
had a second payment on top, which was linked to sustainability,
to try and drive that whole change in the type of food production
systems we have. You had a third option on top of that, which
was LFAs; bringing them into the direct support. Fourthly you
had still the use, in extreme circumstances, of the coupled payments
linked to the WTO agreements that you can't use any more than
3.5% of your total national ceiling to do that. In quite a number
of countries—for example, Finland—they value that
ability to do that in order to keep any kind of livestock industry
in place there.
The Commissioner has gone further in his one and
he's introduced something called the small farm scheme, which
is an interesting development. It's something that needs to be
explored a little further, because I think there are a series
of questions that need to be answered as to what he actually means
by the small farm scheme. As I understand it, it's about simplification
and reducing the bureaucracy and cost of delivering the CAP.
The figure that he quoted to us, in some of the private discussions
I've had, is the 6 million, out of the 13 million EU
farmers, who currently receive less than €2,000. As this
Committee is no doubt well aware, in this country it can be close
to €2,000 to deliver and administer one payment. So there
does seem to be some merit in looking at that. I think the real
question is whether it ends up actually supporting small farmers
to stay small farmers all their life, and also how do you define
that, member state to member state? Or do you define it as someone
who's in receipt of a small amount of single farm payment, because
there could be a huge organisation that only claims a very small
amount. There are so many questions where I am unclear as to
what he actually means by that.
But for the first time we are actually seeing a debate
about how you have a stratified direct payment system. Given
the UK Government's position for many years that has argued for
targeting, albeit through a different route, I think it's a door
that's opening up that I'd be surprised if they weren't keen to
try and walk through.
Q283 George Eustice:
For as long as I can remember, the term, "CAP", has
been followed by the word, "reform". Do you think this
current round is a reform to end all reforms, or is it just another
incremental step along the way?
George Lyon: Well
I've been involved in CAP reform since 1992, first as a lobbyist
with the National Farmers Union, and now as a legislator. No,
I think what you've got to recognise is the Common Agricultural
Policy has changed in response to demands that it move to meet
society's particular issues at the time. If you look at the history
of the Common Agricultural Policy, 80% to 90% of the funding went
to export restitutions and intervention purchases, and that was
the system that they first came up with. Now, that system failed
completely, it created surpluses, it blocked off the marketplace
and farmers didn't respond to market signals. In 1992 Mr McSharry,
the Commissioner, introduced the first of a series of reforms
that moved us away from that system of supporting end price to
one where we now have a pretty liberalised CAP, where the market
by and large determines what people grow. The last significant
reform was the decoupling of payments to make them nontrade
distorting.
It's interesting to see we have moved from that position,
where 80% to 90% of the budget was spent on what you would term
as market distortions and measures that harmed the third world
markets and developing country markets, to one today where we
spent less than 1% on export restitutions last year, which I hope
are phased out completely by 2013, and the market intervention
measures, i.e. intervention buying, were below 10% of the total
budget. So there's been a huge transformation, and during that
time Rural Developments also started to play a significant role;
it didn't exist before 1992.
So CAP has evolved over time. Is this reform going
to end it? No, I don't think so. It's like one of these super
tankers—it ain't going to come to an end. I think the question
for us all is to try and reform it to face up to the challenges
that we now face. In the document that was published this week
by Defra, "The Future of Food and Farming: Challenges and
Choices for Global Sustainability", some of the answers about
where we need to go in the future are very pertinent. It should
be taken into consideration in deciding where we go in the longer
term with this policy.
Q284 George Eustice:
One of the striking things, having studied this now for a while
in this Committee, is how there are lots of competing interests,
as always with these things. There is therefore the sense that
you can end up with the lowest common denominator incremental
change that everyone's happy with. If that wasn't the case and
you didn't have that, what would an optimum farming policy look
like, if there wasn't the historical situation that we've got
and you started from scratch?
George Lyon: If
you didn't have a historical one, first, you would have fair distribution
between member states. I think, as I set out at the beginning,
in the context of where we are today it seems to me that the fundamental
challenge in farming policy is delivering sustainable agriculture
that will meet the growing worldwide demand for food. You can
argue that Europe should have no role to play in that; after all
we've got full bellies, we're very wealthy and we'll always be
able to purchase the food anyway. But I do think we have a leadership
role, and given that there is not a lot of extra land lying around,
Europe will have to play some sort of role in contributing to
that demand. There is not a large amount of land that is going
to come into production over the next 30 to 40 years, unless you're
advocating cutting down the rainforest, and I don't think anyone
here would do that.
So it seems to me that sustainability should be at
the heart of any agricultural policy going forward. I think both
sustainability and competiveness as well, because that's the other
part of the equation. There are some who will argue that sustainability
and competitiveness are actually in conflict. I believe they're
compatible with each other. A sustainable agricultural production
system, I believe, will be a very economically competitive agricultural
system as well.
Q285 Richard Drax:
You've expressed broad support for the Commissioner's ideas, but
you were critical of the lack of detail. What are likely to be
the key areas of debate during the negotiations between Parliament
and the Council?
George Lyon: I
think the biggest and most difficult issue is the budget, and
how you distribute it. As I have said, you've got the twin drivers:
a likely smaller budget in the first place, and the second one,
which is this issue of fairness. So how do you deliver both?
In terms of the EU old 15 member states, which by and large,
apart from the UK, have an above average number of euros per hectare,
if you choose to look at it in that way, the bottom line is that
any cut, and then any redistribution, will mean transferring money
from their budget to someone else's. So, as you well know as a
politician, that's one of the most difficult issues to sell back
home. Therefore, I think the biggest debate will be around this
whole issue of fairness.
I think the second one will be about this notion
of greening the Common Agricultural Policy and, for the first
time, introducing targeting as a concept. Already I can see the
backlash in our Parliament from those who would love to see the
status quo. They're thinking, "Now we seem to see a wee
bit of light as to what the overall EU budget is like, and therefore
maybe the pressure's not quite as great as we thought, and we
can somehow slip back to defending the status quo." I think
that's the other great area where there are going to be real arguments.
I hope that the UK's actually in the vanguard of arguing that
we need radical reform and that this is the way to do it. There's
a door opening that hasn't been there before.
Q286 Neil Parish:
Isn't there a danger that the Parliament will try and support
the status quo?
George Lyon: Well
given that the Parliament's first report actually managed to argue
for reform and the opening up of this opportunity, I think we're
in a strong position to argue for reform. What I'm saying to you
is, there are no two doubts, and you'll know this from experience
Neil—by the way, my colleagues send their good wishes to
you—that the forces of conservatism are quite strong in
the Parliament, and we have to be very careful that in the next
report we produce we don't actually see an argument to go back
and hold what they've got. I'm certainly doing everything possible
to make sure that does not happen, but we shall see. It's going
to be an interesting debate, which will reflect the debate in
Council as well. There will be some who say, "Greening?
Let's just do a little bit of light touch and stuff that doesn't
really mean very much." I think, given the challenges that
are set out in this document—those of us who know agriculture
well understand these are the real challenges for the future—it
seems to me that the starting point must be how we make a new
agricultural model that's more sustainable and can deliver for
the future.
Q287 Barry Gardiner:
Mr Lyon, can I just try and tease something out? If you could
help us to try and understand the position of the Parliament,
as well as your own position, because the Parliament, as I understand
it, has said that it's essential that the CAP is at least maintained
at current levels. Now, in your preliminary remarks you said
that over the longer term you saw the budget diminishing. Then,
when asked about direct payments, you said they should not end
"at this time". There's a St Augustine plea here—"Lord
make me virtuous, but not yet." What I'm trying to tease
out is precisely what your own position on these two is; does
it vary somewhat from the stated position of the Parliament?
If you say "not yet", then what are the criteria and
the actions you wish the European Commission and national governments
to take, to ensure that we can move through to the "Yes,
now is the time" scenario.
George Lyon: To
answer your first point, you've got to remember that the voted-through
report contained quite a number of compromises. The compromise
position that the Parliament eventually came to was a stand on
budget at 2013 levels, which is actually a 4% cut from where we
are today. It takes us down to 39.3%. My view was that that
was an opening negotiating position, to be bluntly honest. I'd
be very surprised if we could actually hold that over the period.
I think, given the pressures and the depth of public spending
cuts around Europe, I think it's very, very difficult to argue
that the Common Agricultural Policy should not take at least some
of the strain in that debate as well. In some ways, that's for
Finance Ministers to decide.
Coming back to your last point about when it will
end, first, I think for us ever to see a complete phase-out, you've
got to talk about two different types of agriculture here. If
you look at the Defra report, "Farm Viability in the European
Union", which analyses what would happen if you withdrew
farm support, the five countries that are most affected are the
UK, France, Germany, Finland and Sweden. What are the sectors
that are most affected by it, where the most damage would be done?
It's the extensive livestock sector. It takes me back to my
original point that we need to think seriously about targeting.
Where are those producers and types of farms that are going to
need support in the longer term, and where could we maybe see
reductions take place which will not affect profitability? If
you look at some of the farm income figures from around, for example,
Scotland or Wales, you will see that the level of farm support
far exceeds the actual income. I don't see how in the longer
term, or certainly in the medium term, we are going to be able
to see these farms become sustainable without support.
That takes you back to the question of whether, if
Europe were to phase out, we would need to see the rest of the
world phasing out, too. I'm not sure it's a sensible argument
to say, "Well, we're going to end then regardless of what
the rest of them are doing." I think we need to see a proper
WTO discussion on that one. That's the way you actually take that
argument properly forward.
So, first, I think the Parliament's view is an opening
negotiating position at trying to hold at around 2013 levels.
My view is that you're going to need support, certainly at targeted
areas, for the ongoing future, and I think there's an opportunity
for where you could start to target that support at those who
maybe need it more than others.
Barry Gardiner: Thank
you, that's extremely helpful.
George Lyon: I
hope that clarifies my point.
Q288 Barry Gardiner:
No, indeed. In a sense, in answering the last part of my question
you've answered the mirror image of it, but not the question itself.
That was about what the actions are that you would wish our Governments
to take in order to be able to say, "Yes, now's the time
when actually we can do away with it."
George Lyon: I
think that the most fundamental thing that we need to do, coming
back to my original point, is to make sure that we drive the sustainability
agenda and competitiveness agenda. These are the two that I hope
will make farming more able to stand on its own two feet in the
longer time. Clearly a more competitive agriculture does help
you to be able to stand on your own without support, but you can't
do it while the rest of the world's still piling support into
their agricultural industries. So, as a question, it is similar
to "How long is a piece of string?" I think the first
thing is that governments around the world need to start entering
into a serious discussion in the WTO.
Barry Gardiner: So it's
the WTO.
George Lyon: Yes,
it has to be.
Q289 Chair:
It's taken 10 years and they've not got anywhere.
George Lyon: I
think that shows just how difficult an issue it is to overcome.
For Governments around the world—for the free market US,
which believes that the market is everything—where is the
stumbling block in the WTO? It has always been around agricultural
policy. So I'm sorry, that's the real world we live in, not some
pretend parallel universe. There are serious vested interests
by politicians in every one of those countries. First, they want
to make sure they can protect their ability to feed their own
people. Secondly they like cheap food policy, and by and large
if you strip a lot of the support out, you're going to see a rise
in prices; I don't think there are any two doubts about that.
And thirdly that, if you actually see that rise in price, it's
going to create a lot of poverty and hunger in certain sections
of society, which leads to political instability. Food and fuel
are the two things that, where they're in short supply and very
expensive, have the recipe for real political instability in individual
countries. That's why agriculture's always been a very difficult
issue to try and resolve in the WTO, because there are politicians
around the world in every developed country who think there are
good reasons why we need to protect our capacity to feed ourselves.
Q290 Barry Gardiner:
So, just to get it on the record, you support Monday's Foresight
report, "The Future of Food and Farming", which states
that the key elements are trade liberalisation and the abolition
of agricultural subsidies.
George Lyon: Well,
I think we'd certainly support the trade liberalisation, yes.
Well, dare I say, you need one before you get the other.
Q291 Barry Gardiner:
Right, but are both of them ultimately necessary?
George Lyon: Ultimately,
if you can get all countries to agree to reduce support barriers,
yes I think you would get to that position. I'm not convinced
enough in some of our disadvantaged areas, where you might actually
be able to see them rely on the marketplace; I think that is just
not going to happen. Society then has to take a view: do you want
them there or do you want to abandon them? I think society's answer,
certainly in Europe, would be that we do want them to be there,
to not only deliver local food for local communities but also
to deliver all the other public good that they do at the same
time.
Q292 Barry Gardiner:
That, perhaps, could be delivered in different ways.
George Lyon: Yes,
it could be, but it would be a policy of some kind. Whether you
would call it the Common Agricultural Policy or what, but right
now that's the vehicle that we have at the moment, and it's one
that we want to see continue to support those areas.
Q293 Neil Parish:
You raised an interesting point on America, which I think always
get away with murder on agriculture policy. They actually support
their prices, whereas Europe has at least moved away from that
position. The question that I want to ask you really, and you've
talked a bit about it, is that many member states want the CAP
to be greener but they also want the farmers to be more competitive.
Do you think that sometimes the Commission, and all of us, perhaps
look in two different directions? So what sort of tools would
you like to see in a reformed CAP to increase our competitiveness?
George Lyon: The
tools we need, I think, are a serious driver in the direct payments
that actually takes us towards a more sustainable farming system
where we use precision inputs, measure nutrients and do nutrient
plans. All those things will actually allow you to reduce the
inputs while still maintaining outputs. There's a whole series
of them that you could list. Most importantly, they will play
into the climate change agenda, which will help to reduce carbon
emissions as well. If you examine them in some detail, they are
a bottom line issue as well. They make farming more profitable
and these individual businesses more profitable and, I would argue,
more competitive. So I think that's one.
I think the second one is the use of the rural development
for farm modernisation, for R and D and for trying to develop
some of the new tools that are going to be needed to take us into
a more sustainable farming system. So Rural Development has a
very big role to play there. Also they need to add value as well.
That's most importantly away from commodity, which is too often
the first port of call for the farming industry. It would be
useful to see us actually trying to develop greater added value,
especially in those areas such as LFA where the local food for
local communities is quite a strong driver in the marketplace.
Q294 Neil Parish:
I agree exactly with what you say, but I don't see much evidence
of that in the Commission or in any of the Commission's proposals.
George Lyon: I
think that's the challenge. I think that's where the Commission's
report and our own tended to differ. Our focus was very much
on sustainability linked to competitiveness, not just a general
greening that could end up making us very uncompetitive. That's
one of the serious concerns I have about how you define what this
greening is. The doors are open; in actual fact there's a role
for governments and Parliament to try and start to find what you
mean by that. My view is that it has to make sure it's about
sustainability and competitiveness, and they're not in conflict
as a concept.
Q295 Mrs Glindon:
Following on from that—there was an argument that the single
farm payment prevents the EU farming sector from becoming more
globally competitive because income support enables unprofitable
farmers to stay in business. Do you agree with that statement?
George Lyon: You
could argue that most of the developed world is in the same boat.
If every country is subsidising its farmers apart from the Cairns
Group,[1] then I'm not
convinced it necessarily means that you're any more or less competitive.
I think the things that really make us uncompetitive are access
to some of the new technologies, access to some of the tools that
other countries have, and you've also got to be very careful and
think about the kind of restrictions, regulations and rules you
put on, as to whether that makes you uncompetitive. There are
no two doubts that if you want higher welfare standards and higher
environmental standards, the market won't pay for that. So the
public and society would, because in every test of public opinion,
UK and European consumers do want to see higher welfare and higher
environmental standards. Now, that comes with a price and therefore
I think it's only right and proper that the agricultural policy
should help make sure that that price is met, because it won't
be met out of the marketplace.
Q296 Mrs Glindon:
So do you think that potentially, if everything was equal, that
there wouldn't be unprofitable farmers?
George Lyon: There'll
always be unprofitable farmers, because it's all down to individual
ability to manage. What I can say, despite the Common Agricultural
Policy, we've probably seen the greatest shake out in the number
of farming businesses in the last five to 10 years that I've seen
in my lifetime. Where I used to farm, say 15 years ago, we had
40 dairy farms, and that's down to 13 now, and I think in three
or four years it'll be down even less. So I don't think you can
argue that's because they're inefficient. They are running, working
seven days a week, 365 days a year, most on their own labour,
no rented labour on the farm at all, and still they can't make
a return from the marketplace.
It takes you back to one of the other issues about
fairness, which I think is going to be part of this reform. It's
about how on earth we make sure that the farming community can
exert a better return from the marketplace. In some ways they're
caught with these two gigantic forces, you get five or six major
retailers as your buyers on the one hand, and you've got a couple
of dozen large multinational suppliers on the other hand supplying
all the inputs, and you're kind of crushed in the middle of all
that. It's very hard to try and get the necessary clout to extract
a better return from the marketplace, and I think that's fundamental
to seeing the future profitability of farming continue.
Q297 George Eustice:
Some of the evidence we've had from economists has questioned
the argument of food security for direct payments, in particular
it said that actually it's food on the supermarket shelves that
counts more than a capacity to produce food as a nation. Therefore
trade liberalisation was perhaps a better way to secure food security.
Have you got a view on that?
George Lyon: I'm
not sure I have a philosophical view on that. It comes back to
the fundamental question of why all developed countries have a
view that supporting agriculture is still a priority in the 21st
century. I do think it comes back to this view that food is one
of these key consumer goods that, if it's in shortage, or if there
is a big rise in prices, political instability can fall on the
back of that. There is this notion that we like to try and retain
the ability to feed our own people from our own resources, maybe
not in its entirety. I think if you moved to the position where
you're utterly reliant on imports then that's a very dangerous
position to be in, and some countries might end up in that position
if the market was to determine completely and utterly where the
farming took place.
Q298 George Eustice:
The other angle on this is that separate studies have shown that
you could reduce the direct payments quite significantly without
having too much of a knock-on impact on production. I think there
was the Scenar 2020 report. Have you got a view on that particular
piece of work?
George Lyon: I
think that's one of the reasons that I argue that targeting is
the right way to go in this one, because there is no doubt that
there are some who might be able to cope better without as much
direct support. There are others, as I've argued, in the less
favoured areas, the extensive livestock producers, who I don't
think that's going to be possible for. So you have to think seriously
about targeting the support, but also what the public goods or
benefits are that you also want from that support. That's where
I think the whole sustainability agenda fits into this, because
the reality is that, when it comes to arguing to do away with
the direct support, the UK and Sweden are out on the extreme on
that one; you are not going to win that argument. I think the
cleverer argument is to think that the door's now open to some
sort of targeting, and this is the better approach to take at
this particular time, especially with some of the challenges that
I explained earlier on.
Q299 Barry Gardiner:
Can I just again move to get clarity here? You are saying targeting
within direct payments, perhaps to achieve a better use of resource.
The Scenar report suggested that you could actually reduce direct
payments by 30% without impacting what you call the philosophical
aim of food security against, I think you said, rising demand
globally. Philosophically I think we're all there, but looking
at it, to achieve that 30% reduction that the report said was
possible in direct payments, where would your targeting be and
who would suffer? Which farmers would not be getting the direct
payments?
George Lyon: The
study here will actually tell you who might survive better than
others. It's those who previously were in the unsupported crops;
it's probably those who produce grain on some of the best land
we've got in Europe. These are the ones who possibly could do
with a little less, who could survive with less. So, it comes
back to what your priorities are, and society has to decide that.
Q300 Barry Gardiner:
I absolutely agree with you. You're our witness; what are your
priorities? Where would you make those calls? Which sectors
would you say no longer require that?
George Lyon: Well,
as I say, my view is that traditionally unsupported sectors and
those on the best land at least have options and choices, which
those in the less favoured areas and upland areas do not. So
I think that's self-explanatory.
Q301 Tom Blenkinsop:
I think you've alluded to this already, but what's your definition
of an active farmer?
George Lyon: That's
a very good question, and one that I have to say is not easily
answered. It's interesting that the Scottish Government had tried
to do it through the use of the crosscompliance rules, where
they were going to introduce an extra category of minimum stocking
rate allied to inspections to see if there had been grazing of
the land and activity on it. This fell foul of the EU auditors
and had to be dumped about a month ago. I think the starting
point is to look at article 28 of the health check regulations,
which, as of January 2010, for the first time gave member states
the power to take away single farm payments from those who had
no agricultural business activity whatsoever, as a first step.
I think that's the starting point for trying to build on something
like this. The great worry in all this is always unintended consequences.
I think article 28, which I take it you've had a look at, is
the starting block for that. No member state has used it so far,
and during the whole debate in Scotland, I was encouraging the
Scottish Government to try and use it. So it might be worth your
while taking evidence from them as to why they chose not to use
that and use the alternative through crosscompliance rules,
which unfortunately, as I understand, has fallen foul of the EU
Auditors, who said it was illegal; basically, they would lose
a court case.
Q302 Tom Blenkinsop:
Are we in danger though, if there are certain products or projects
that are to be targeted, that it could be prescriptive, and that
farmers could not be following the market but could be following
prescriptive measures?
George Lyon: I
don't think so. No, I think you have to make it an optin
system, so they would decide whether they want to buy into the
sustainability agenda and do the things that are required—if
they don't, they don't. It's as simple as that; it's a business
decision. I very much prefer the carrot to the stick in all these
things, so you put some value on it and people will decide if
it is in their interest to do it or not. That's my view, and
it always has been. Society then places a value on it, because
it is a public good so therefore you have to put some value on
it that says it is in the public interest to move in this direction,
so either let's incentivise it or otherwise. Indeed, paragraph
6.2 of "The Future of Food and Farming: Challenges and Choices
for Global Sustainability" states that that's one of the
areas that we need to look at.
Q303 Tom Blenkinsop:
If money is then being targeted to actively producing farms that
produce agricultural products, as opposed to land owners who manage
for environmental purposes, do you see an increased bureaucratic
burden?
George Lyon: Well,
for a start you can't target them at someone who's producing agriculture,
because they're decoupled, so you can't do that. This comes back
to how you define an active farmer, which is very difficult. I
think the starting point is asking whether there is any agricultural
activity whatsoever in the business. If there's not, then that
gets rid of those who've sold up and who are basically putting
it on to another farmer's land and taking the payment. This is
more prevalent in Scotland, because we've got huge amounts of
unused acres.
Q304 Tom Blenkinsop:
Do you see a bureaucratic cost in having to follow that up though?
George Lyon: There's
always a bureaucratic cost in some ways, in these measures. The
key question is whether we can design something relatively simple
that actually works. That, as I say, is most difficult. I think
article 28 in the health check regulations is at least a starting
point; it gets a finger in the door and starts to say, "Let's
do that and see how that works." As I have said, it would
be interesting for your Committee maybe to take evidence on why
the Scottish Government rejected that view and rejected that course
of action. Brian Pack actually alluded to it in his report, so
it might be well worth asking him.
Q305 Chair:
We asked the Scottish Government, and we've been offered Brian
Pack, so we will ask him.
George Lyon: Is
Brian Pack now a Minister?
Chair: No, no. Stranger
things have happened.
Q306 Neil Parish:
This is another thorny issue. I'm going to take you into something
you said earlier on. You were talking about the payments to the
good land, such as East Anglia and the Paris basin. If you look
at the overall level of payments in the old 15 member states,
that's really how they get their payments. They got it on the
level of payments they were getting for arable aid in 2001. It's
got to be redistributed in the end because the 15 old member states
may be wealthier, but they can't carry on getting the higher payments
while the new member states get lower ones. So, if you have an
area payment, because that's what, I think, all the new member
states are on, what objections have you got to having a uniform
area hectare payment, and what criteria would you put into that,
if you didn't object to it?
George Lyon: You
mean an area payment decided at European level?
Neil Parish: Not necessarily
at a European level, but I think when you've got Latvia on €70
a hectare and Greece on €550, because of their dodgy tobacco,
basically, something's got to be done. You see, I don't belong
to the politically correct.
George Lyon: Well,
there are two issues you highlight there. One is how you redistribute
between the old and new member states, because as I say, there's
going to be pain for the old member states in that and gain for
the new member states. Interestingly, if you look at the graph
of rural development, it's the reverse: old member states are
not as high in terms of the amount of money they get per hectare,
so that has to be taken into consideration as well. Some of the
suggestions have been that you use GDP and cost and reduction
figures as well in trying to do any redistribution. But that would
only be an interim measure, because if you move to a more targeted
direct payment system, the amount of LFA land moved into doing
the sustainability or green stuff, allied to the basic direct
area payment, would actually redistribute on its own. So there's
a question of how do you get from where we are to there, given
that member states will demand at least another seven years to
change over to an area-based payment system. The only two countries
that have done it out of the old Member states are England and
Germany, and it was a pretty painful process here.
Q307 Chair:
And farm incomes have gone down in England, proportionally.
George Lyon: Yes.
So, that's a very difficult one, and I don't have an easy answer
to that, but there has to be a movement. If you look at the Commissioner's
paper, he's suggesting that you have some form of minimum payment
or minimum allocation per hectare to each country. That doesn't
answer the question of who gives up. At the end of the day, as
you well know, Neil, this will be a political deal at some stage;
absolutely a political deal. There is no mathematical formula
that can tell you how this is going to come out, but what it will
do is make sure that the graph which accompanies it—with
Greece at one end and Latvia at the other—will level.
Q308 Neil Parish:
Yes, but what you can't do is, when you get to 2013, you can't
be paying a farmer for what he was producing back in 2001, in
my view. Especially as you move towards 2020 you're talking of
nearly 20 years later. So, you talk in the Parliament about a
fair distribution of CAP payments. It's easier to make that statement
than to carry it out. How do you see it? Do you see it being
distributed over a certain period of time? I understand you can't
do everything in five minutes, especially in Europe.
George Lyon: On
that one we got agreement about the fairer distribution; the hardest
job is getting an end date. That's where the biggest fight took
place, where there were seven European countries, older Member
state countries, that were utterly against any end date whatsoever.
But there has to be an end date and we have to move away from
the historic system. It just does not stand up to scrutiny whatsoever.
So that's absolutely essential. The reason why agricultural
ministers in Member states are so worried about it is because
of the redistributive effect inside their own countries, when
you move from a historic to an area system.
You'll be speaking to Brian Pack later, who did a
piece of work about how it would be implemented in Scotland.
He did a series of public meetings, about 20 or so, and the figures
he quoted to me were that he found about 13,000 losers in totality
out of every meeting, and only found three people who admit to
benefitting from the redistribution. Given it's a zero sum gain
just shows you how politically difficult it's going to be. That's
why there is intense pressure from the old Member states to try
and grant a longer timeframe to phase it in.
Indeed, if you look at the decoupling, France has
only recently finished decoupling this year. The beef payments
have just been decoupled; their arable payments were only decoupled
last year as well. It's quite interesting to see the French model.
They took money from the arable people, when they decoupled,
and put it back up into the grassland and livestock areas, much
to the arable lobby's disgust in France. They used that opportunity
to redistribute money to where they thought priorities should
be, and it was to the grass-based livestock industry.
Q309 Neil Parish:
Having taken you down that route, would you support that idea?
George Lyon: I
think that there will be demand for that to happen, yes. I think
Member states will want the flexibility to be able to have different
rates in different regions. If you take Germany, they've got
different rates in every Länder. Here in England you've
got three different payment bands, as I understand. I don't know
it closely, but you've got: lowland, upland and rural—
Q310 Neil Parish:
Moorland line, seriously disadvantaged and nonseriously
disadvantaged.
George Lyon: I
think agricultural ministers will demand that type of flexibility
to deal with some of the issues that arise out of the redistribution
in their countries. It's only logical.
Neil Parish: Okay, I'll
leave it at that.
Q311 Chair:
I think you said it wasn't possible to target payments?
George Lyon: Sorry?
Chair: Can I just play
back to you what Commissioner Cioloº
said in response to Dan Rogerson's question by video link? The
question was: "Just to confirm, you would expect some agricultural
goods to be produced for someone to be defined as an active farmer?"
The Commissioner replied: "Yes. If not, we cannot talk
about agriculture or the farmer." Are you consistent with
what the Commissioner's saying to us there?
George Lyon: The
Commissioner has spoken about active farmers being very important
and the need to make sure that the monies go to them. The point
I was trying to make is that that's easy to say, but in terms
of regulations the real question is how do you do it. He hasn't
answered that question, in my view. I haven't seen what the Commissioner
said, but what I'm saying to you is that there is an existing
regulation that attempts to start doing that, and it's called
article 28 of the health check regulations. I think that's at
least a starting point. Someone who is trying to claim but has
no agricultural business activity in his financial returns: then
he's out, simple as that. The advantage is that you're then able
to put it into your national reserve and give it to a young farmer
or someone who's more deserving.
Q312 Chair:
Can I phrase it in a different way?
George Lyon: You
can try.
Chair: Do you think tenant
farmers in this country are discriminated against?
George Lyon: No,
because the current payments are entitlements and they go to whoever
registered for the entitlements. So they go to the tenant farmers;
it doesn't go to the landowners.
Q313 Neil Parish:
It's slightly different in Scotland from in England.
George Lyon: Maybe
it's a different system, but certainly the entitlements belonged
to the tenant because I was a tenant farmer. If that's not the
case down South then forgive me, I don't know the system as well.
In Germany they go to the farmer there; the entitlements belong
to the actual farmer, not the landowner. That's the way it should
be: it should be those who are producing.
Q314 Chair:
I think there is an issue in England that perhaps doesn't pertain—
George Lyon: That's
something that I don't know in any great detail I'm afraid.
Q315 Chair:
We're hoping that the CAP will become simpler. Do you think that
the way the Commissioner has framed the various stages of reform,
it actually might be becoming more complex?
George Lyon: If
you take his communication at face value it's a little bit like
a Christmas tree: there's a small present in it for everyone.
The reality is that it's drawn so widely to make sure that he
got it through the interservice consultation and that, in
the first instance, there would be a welcome by agricultural ministers.
There is something in there for everyone. The real question
is how we boil that down to hard reality. What are the legislative
proposals, what do you mean by greening, what do you mean by a
lot of the other bits and pieces, such as the active farmer stuff,
that are in there? Also, what do you mean by this toolkit, which
is an interesting one, because the other big debate that is going
to be part of this reform, and we see in the Parliament, is the
whole argument about further liberalisation versus reregulation
of the marketplace. I have to say, in my report, I lost that
argument every time. If you look at the report, it's quite strong
on the need to reregulate the marketplace. I didn't put that
in, but it was forced in by my EPP (European People's Party) and
Socialist colleagues, who are very hot on that and they voted
that stuff through. So, that is going to be another big debate.
The phasing out of milk quotas is seen by some as
a very negative move, and there are real worries about how businesses
will survive in the future. I am opposed to any re-regulation.
I'd like to continue to see us liberalising the policy. I do
think there is a role for intervention as an emergency safety
net, but it shouldn't be in conjunction with the use of export
restitutions; it should be buying and selling back on to the market
at the appropriate time, and the Commission take profit on it,
as they are doing with the milk powder and grain that they had
in store from last year. So that's the kind of safety net that
should be there.
Maybe you could devise some new tools about crop
insurance, but it should be about trying to make sure that farmers
do it themselves, rather than the state doing it. I wouldn't
underestimate just how powerful is this whole agenda of, "Well,
we need to reregulate because there's lots of price volatility
now." I'm not convinced that higher prices every now and
again is not actually a good thing after 20 years of consistently
low prices, which made it very difficult to make a return on farming.
Q316 Chair:
The European Parliament resolution referred to outcome agreements.
How would they work in practice?
George Lyon: Well,
outcome agreements are about making sure that you get farmers
to sign up to some targets. When I was Deputy Finance Minister
in the Scottish Government, we looked at that to try and build
a relationship with local government and get away from the idea
of telling them exactly what they should do. What I was trying
to say about the use of outcome agreements was that we should
set the targets, agree it through agrienvironmental schemes
or whatever types of schemes you put in place, and then let the
farmer get on and deliver it. If he doesn't meet the targets
then he loses the support. I think that's a much preferable way
to a whole lot of rules and regulations because that makes it
seem like an imposition to farmers, rather than something that's
actually worth doing because there's a financial return on it.
It leaves them the freedom to design the way that they do it
rather than the state telling you how to do it.
I have to say the Commission's quite nervous about
this, and for reasons of audit. Clearly they're worried about
auditors' reports, especially in Member states where the process
is not quite as robust as it is in others. I don't think that
those that have robust audit trails in place should be held back
by the fact that others can't deliver to that same standard.
So we'll continue to push for it.
Q317 George Eustice:
You talked a lot earlier about the importance of putting the environment
at the heart of the CAP. I think I'm right that in the resolution
the European Parliament passed there was a suggestion that the
vast bulk of land should be under an agrienvironment scheme.
Could you just confirm whether you envisage that being through
some kind of greening of pillar one, or are you saying they should
be under pillar two?
George Lyon: No,
if you looked at the design model we designed, we intentionally
kept the whole sustainability and climate change agenda separate
into the direct payments, because we believed it was compatible
with building a more competitive agriculture. It's pan-European;
it's a global issue, so therefore you can do it at a European
level. I believe that the biodiversity agenda, and the protection
of the environment, should be done through agrienvironmental
schemes, and what we're trying to say is that the EU should at
least have an ambition to have as much land as possible covered
by these type of schemes.
Q318 George Eustice:
So that would come out of pillar two agri-environment?
George Lyon: That
would come out of pillar two, yes.
Q319 George Eustice:
Would you be able to find the money in the current budget to do
that?
George Lyon: Well,
if we can do the UK with one of the smallest pots of rural development
money of any country in Europe, I don't know why the rest of them
can't do it. As you well know, we have £17 per hectare against
an average of £54 per hectare for the old member states and
I think it's over £110 for the new member states. So, if
we can manage to achieve quite high inclusion rates of agrienvironmental
schemes here in England, and in Scotland there's quite a high
rate as well, then I don't see why on earth these other Member
states can't do it. It's political will that's needed to make
sure it actually happens.
Q320 George Eustice:
The European Commission has talked a lot about greening pillar
one, having additional requirements. The European Parliament
seems to favour a similar but slightly different system, with
a top up payment targeting carbon, or farmers' ability to reduce
carbon. Why do you think the approach that you're taking is better
than that which the European Commission is taking?
George Lyon: I
think I'm just concerned that you get a blurring of objectives.
I mean sustainability, which I think is probably the single biggest
issue that we confront as a society for the future, because of
its importance and its panEuropean nature—therefore,
that's where it belongs—and if you're going to green the
pillar, that's the right model to use. It also plays into building
a more efficient and competitive agriculture, because environmental
efficiency and economic efficiency are two sides of the same coin.
So that's why I have concerns about the Commission's proposals
just now, which are not very clear at all, and we need to bottom
that out. In fact, some of the comments I've already made on
it have raised the question of what this does for European farmers'
competitiveness. The last thing we want is to end up making this
uncompetitive.
Q321 George Eustice:
So it's a sort of solution to the green-taping criticism that
comes from some farmers?
George Lyon: Yes.
Q322 Neil Parish:
Another nice one for you, George, is the capping of payments.
What position will the European Parliament take on the Commissioner's
proposal to cap payments for larger farmers?
George Lyon: I'm
not convinced, at the moment, they're going to support them.
I think for two fundamental reasons. One is a practical one:
any of the capping measures or measures that attempted to try
and prescribe or prevent businesses from claiming the range of
support were always circumvented by laws and accountants in the
past. I think one of the ways to solve this is about the targeting
of direct payments, where you're actually getting something for
society in return, and obviously you're starting to target those
farmers who most need it. So I think that's a cleverer way of
trying to solve some of the Prince Charles issues, or Duke of
Westminster issues. I don't believe that, in practical terms,
you can design a system that will prevent what has happened in
the past reoccurring; whether it was milk farmers trying to claim
the suckler cow premiums, there was always a way and a device
found by a lawyer and an accountant to get around it. I don't
understand how you stop that, I really don't, so that's why I'm
not necessarily convinced about it.
Q323 Neil Parish:
No, but I agree with you, especially if payments are land based,
it's about how you run that agriculture and production, and that's
why you should get a payment. How are you going to turn around
public opinion? Because a lot does go on, as you quite rightly
say, about the Duke of Westminster, the Queen and Prince Charles
claiming all these payments. How do you propose turning around
that negative publicity?
George Lyon: By
targeting the payments at particular public goods, such as sustainability
and saying that in return for getting that, that's what they've
got to deliver. So you actually answer the question of what it
delivers for society. So you take it away from the idea that
it's all about income support. I think you can reduce that argument
down to a relatively small amount of the payment and increase
the public goods and the top-ups to those areas that most need
it. So in some ways you answer that question by being able to
say that it's not only about direct support and income support,
because—while other countries may believe that's what it's
about—I think that's not sustainable in the longer term.
Q324 Neil Parish:
Do you think the Parliament is finely balanced on the issue?
George Lyon: Yes.
Q325 Neil Parish:
So I expect some things don't change.
George Lyon: Well,
the forces of conservatism, as you well know, are quite powerful.
Q326 Chair:
Could I just ask one thing finally? You've mentioned a lot about
targeting. The Commission statement says very clearly that one
of the ambitions is to maintain a fair standard of living and
an income stream for farmers. Are you saying that most of the
support should be based on farm income? Particularly looking
at livestock farmers, which obviously, representing quite an upland
area, would be of interest to me. How much of it, in your view,
should be spent on maintaining a farm income and how much should
be spent on sustainability or the greening issues?
George Lyon: Well
I would take the view that the sustainability agenda should be
at least a third of the payment. Then you would top slice some
more for the LFA, which is about income support as well. Then
you've got the basic direct support with the crosscompliance,
which is about delivering the base level public goods that everyone
expects: higher welfare standards and higher environmental standards
that go hand in hand with that.
Chair: Thank you very
much indeed for being with us. I hope we can keep the conversation
and the dialogue going but we're very grateful for you being here
in person this afternoon. We're going to have a pause while screens
appear so we can continue to take evidence from Mr Pack through
videolink. We stand adjourned for 15 minutes.
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