Examination of Witnesses (Questions 353-391)
JOHN BRIDGE, TIM BENNETT AND JONATHAN TIPPLES
1 FEBRUARY 2011
Q353 Chair: Good
morning, gentlemen, and welcome. It is a particular pleasure to
welcome you to the Committee for this session as part of our inquiry
on Common Agricultural Policy reform. Mr Bridge, can I invite
you to introduce yourself and your colleagues for the record?
John Bridge: Certainly,
Madam Chair. My name is John Bridge. I am Chairman of the Agriculture
and Horticulture Development Board, which is an NDPB (non departmental
public body) within Defra. To my left is Jonathan Tipples,
who is the Chairman of our Cereals and Oilseeds sector. To my
right is Tim Bennett, who is Chairman of the Dairy sector.
The six sectors we have all have a chairman who sits on our main
board, so they are sitting on the AHDB Board as well as representing
their sectors.
Q354 Chair: I
know you are all particularly well qualified. We have obviously
invited you with your brief to focus on the science and the research
that you do. With that background, do you think there is one particular
option of those before the Commission that lends itself to a solution
that would be good for Britain?
John Bridge: I
think we have all had a great deal of time to study the evidence
that has been presented to this Committee from a very wide range
of people. As far as AHDB is concerned, we need to be able to
be satisfied, through the evidence that we secure through our
research and knowledge transfer work, that there is a system for
the future that will provide the stability in the farming sector
as well as allow us to achieve our objective of getting a more
efficient and productive sector for the future. Therefore, we
simply would like to see a solution that would deliver that very
strong platform that we need to support the levy payers who we
provide services to.
Q355 Chair: Thank
you. Are you at all concerned, particularly with the larger units
that we have in our British farms, that some of the terms that
the Commission is using, in terms of public goods, income forgone
and less favoured areas, may discriminate against British farming?
John Bridge: Obviously
the size of farms across Europe varies enormously, as the evidence
has shown. As far as we are concerned, one of the pieces of evidence
that we do have—and it is referred to in our written evidence—is
that larger farms by and large tend to be more sustainable farms;
they tend to introduce new production methods and they tend to
be more productive. As a result of that, they usually have an
opportunity to make those farms more sustainable from an environmental
point of view and they normally have per hectare a lower emission
of GHGs (greenhouse gases). So I think the conclusion we would
draw from the evidence that we have to date is that large farm
units can be a major contributor to the solutions that we are
all seeking.
Tim Bennett: I
think there is an agenda that goes above CAP reform at the moment.
If you look at all the evidence from around the world, we have
to be able to produce considerably more food while using less
of the planet's resources. So I think being able to do that and
being able to do it competitively is almost an agenda that should
run through the next CAP reform, because that is quite a challenge.
In British agriculture—certainly from the dairy sector,
if I may say so—we feel we are really well placed to respond
to that challenge and we would not want the CAP reform changes
preventing the British dairy industry responding to that challenge.
So it is about competitiveness.
Q356 Amber Rudd:
Could you take us through any modelling you have done to help
Defra decide how best to position itself regarding CAP reform?
John Bridge: As
far as we are concerned, we are normally looking at evidence drawn
from sampling and evidence drawn from basic research that tells
us the environment in which farmers operate at the present time.
Just to re-emphasise the point that my colleague Tim Bennett
has made, we see that we need to deliver services into our levy
payers that allow them as individual farm units to understand
what the information is and therefore become more efficient and
more productive over time. That is our major purpose; it is our
mission and it is established very, very clearly within our corporate
plan. It is well understood by Defra. Defra attend our board meetings
as observers. We meet them on a regular basis; we have very recently
been invited to have a workshop with them on future strategy within
Defra and we have a whole series of less formal ways of maintaining
very close contact. They fully understand the role that AHDB plays
within the agricultural sector and are very supportive of it.
Q357 Neil Parish:
Carry on talking about the competitiveness of British agriculture.
Did the previous reforms of the CAP actually help British agriculture
to be competitive or do they hinder it? The New Zealand dairy
farmers manage without subsidy—why shouldn't we?
John Bridge: In
my introductory remarks, I should have said that I have sitting
to the left and right of me people who have roughly 70 years'
farming experience between them. So if I may could I defer to
them to respond?
Neil Parish: Yes, I was
targeting Mr Bennett there.
Tim Bennett: If
I may respond to that, to come back to this competitiveness argument,
it is a common agricultural policy and sometimes there has been
a tendency of reforms to move away from that common aspect. If
you are in a single market and you develop over time wildly differing
aspects of that common subsidy system, then it can possibly work
against you in terms of competitiveness. As I say, we are relatively
well placed if you look at the demand for food in the world, and
I think the most important thing from an evidence-based point
of view—and from an AHDB levy payer point of view at the
moment—is that this reform should not get in the way of
British agriculture responding to those signals from food production
for the next 30 years.
Q358 Neil Parish:
The aspects of the reforms coming out of the Commission really
are talking quite a bit about smaller farms and labour requirements.
Now that for me rings alarm bells, because they do not mean smaller
farms in a UK context. So what is your view of that aspect of
the CAP reform?
Tim Bennett: Well,
I think defining small farms is always interesting, because a
small farmer in one Member State is a relatively large farmer
in another Member State. I will go back to my original answer:
if you have a Common Agricultural Policy that can end up discriminating
against the ability of the most efficient to emerge, then that
creates difficulties for those very efficient farmers.
Jonathan Tipples:
But if I may, I think there is almost a philosophical question
to be answered first and that is: what is it that you wish the
CAP to do? There are those within Europe that will wish it to
be there to keep people on the land to preserve a type of rural
idyll, as they will see, and there are those that will see it
as a means of addressing the sort of problems that John Beddington
has been highlighting of global food security. They are two entirely
different aims, and until the policymakers have decided which
way they want to go in the future, I think we are not in a position
to judge what the possible effects might be, because they will
go in absolutely different directions.
Q359 Neil Parish:
Is CAP reform taking it in that direction or is it taking it in
the opposite direction? That is what I rather fear.
Jonathan Tipples:
I don't know yet.
Q360 Neil Parish:
Okay, but certainly the proposals from the Commission to me are
slowing up reform rather than speeding it up. Would that be your
analysis or not?
Jonathan Tipples:
I think we would certainly wish to see a simpler CAP. The more
complicated it is, the less competitive you are likely to be in
the world market.
Q361 George Eustice:
We have had a lot of conflicting evidence about the impact of
direct payments and in particular what the impact would be on
different farms in different Member States if you were to reduce
those. Have you got a view on what that might do to the viability
of UK farms?
John Bridge: I
will start with a slightly general response to that and perhaps
ask my colleagues to look at it in some detail. Obviously, direct
payments are important in the context of farming in the UK at
the present time; there is a substantial subsidy sitting next
to the net value of farm output. If, in the process of trying
to make farms more efficient and more productive over time, there
is need for less subsidy, then that seems to me to be a very laudable
objective. But you can't do it overnight, because there will be
serious exposure if something were to happen very immediately.
So the transitional arrangements that would need to be put in
place would need to ensure that, if we as an agricultural sector
in the UK are set on a particular path, we should be able to achieve
that.
Jonathan Tipples:
As an observation more than evidence, if all direct subsidies
to support production agriculture were to be removed, it would
seriously hamper the policymakers' ability to have any effect
on the environment, because in order to claim the single farm
payment one has to comply with crosscompliance. If the single
farm payment disappears, the requirement to comply with crosscompliance
would disappear along with it and it seems unlikely to me that
that is a route that will be fully gone down.
Q362 George Eustice:
Some would say the alternative is that if you put more into Pillar
2 and more emphasis on environmental schemes, you would not need
as much in Pillar 1 and would not need these direct payments.
Jonathan Tipples:
The only compulsory part of the environmental schemes is crosscompliance
and that is only compulsory if you are in receipt of the single
farm payment. If you cease to be in receipt of it because it is
no longer there, then you are left with a lot of voluntary environmental
schemes.
Tim Bennett: When
the Pillar 1 and Pillar 2 concept was developed in the CAP many
years ago, we were in a world where people thought that food would
be there, we would never have to worry about food security and
that we would be a nation that could import as much as we wished
because we are wealthy enough to compete with everyone else for
that precious food supply. In a sense the world has now moved
on, in that the real challenge is, as I have mentioned before,
how we produce enough food in a sustainable way. I am not talking
about the policy, but the evidence base suggests that talking
about whether we do the environment or whether we produce food
is an oldfashioned agenda. The new agenda is how we merge
those two and manage to reduce our impact on the planet and respond
to the need to produce food not just for the UK but for the world.
Q363 George Eustice:
In terms of farming competitiveness in the long term, I think
the term you used was it is a "laudable" aim to reduce
direct payments. Of course we are now in this slightly odd situation
where the only reference point for the single farm payment is
historic activity on a farm from a decade or more ago. What would
be a realistic timescale if you were to say it is a laudable aim
and over time, done in a transitional way, it would improve competitiveness?
What would be the timescale?
John Bridge: This
is a question we were discussing between the three of us before
we came in and it is an extremely difficult question to answer
in any unambiguous way, because to a certain extent, the body
being what we are, we would react to a policy decision. All we
would say is that the period certainly cannot be immediate, for
the very simple reasons that my colleague has pointed out. How
long it would take to move to a position where you had so much
robustness within your own agricultural sector that this would
be less and less of an issue I really can't say at the present
time.
Tim Bennett: Milk
quotas is an example where the Commission have decided to abolish
a key plank of the Common Agricultural Policy and they gave many,
many years of winddown to that so industries—not just
farmers but also the processing industry—could adapt to
that. So it is very clear signals and definite timelines. If you
start talking about winding down subsidies, you have to give very
clear signals, because the industry and the supply chain have
to have considerable adaptation to be able to cope with it. In
other words, you would not want a sudden shock, because we have
a very sophisticated food supply system.
Q364 George Eustice:
I just want to push you on this point. Are you saying that it
is a laudable aim that cannot really be done while there is cross-compliance—while
you are having expectations on our farming industry for the environment?
Or are you saying that you could still have that crosscompliance?
Jonathan Tipples:
You can do anything you like.
George Eustice: But to
still have a viable industry.
Jonathan Tipples:
Yes, I am purely making the point that if the Government or the
Commission want some level of control over the environmental standards
on farms, the only compulsory control they have is through crosscompliance,
which is dependent on the farmer receiving a subsidy.
Q365 George Eustice:
And you are saying that is—yes.
Jonathan Tipples:
If you removed that, all you would be left with are what is in
Pillar 2, which are voluntary schemes.
Q366 George Eustice:
And by doing that crosscompliance it adds costs to production
and therefore it is illegitimate?
Jonathan Tipples:
Indeed it does.
Q367 George Eustice:
So while that remains you say that there should still be direct
payments.
Jonathan Tipples:
Well, there are payments for in receipt of public goods, which
are delivered through crosscompliance.
Q368 Dan Rogerson:
Just to sum up the discussion we have just been having,
taking into account the current structure of the farming industry—as
you talked about briefly—and that level of environmental
regulation, do you think it is possible for British farming to
be competitive without Common Agricultural Policy subsidy?
John Bridge: I
think the broad response to that question must be yes, for the
very simple reason that if you set yourself an objective to have
a much more competitive and productive sector, you must be able
to say at some point we should be able to be subsidy free. It
is an argument that would apply in many other sectors of the economy,
so I do not see why agriculture should be exempt from it. All
we are saying is that we need to have the evidence, from our point
of view, to proceed in the right direction and we need to have
the support of others to buy into what I think is a very important
debate about the role of food in the UK economy. That includes
not just ourselves; it includes the supply chain, it includes
consumers and obviously it includes Government.
But I think everyone does recognise that food is
moving up the political agenda, food is important and food is
possibly in a slightly more precarious position than it was, say,
five or 10 years ago when it was just assumed that it was relatively
easy to produce food. We are in a much more challenging environment
and I think as far as AHDB is concerned, we need to ensure that
levy payers particularly are given the tools to improve their
businesses and to make them more sustainable.
As I say, making your farm more sustainable and more
productive usually has the benefit of reducing your greenhouse
gas emissions and increasing your environmental opportunities.
So really there is a win-win situation in there, but it does take
time to achieve it. I think all parties have to sign up to the
fact that in the long term, if that is the solution you want,
then we have to push very hard to get sensible timescales.
Jonathan Tipples:
I think policymakers would need to take care that there is still
some protection in the system to allow people to continue producing
when prices fall away. In 2007, cereal prices peaked at a very
high level and there could have been an attraction at that point
to say, "If we took direct payments away from arable farmers,
then they could probably survive at these prices." That was
probably true for that one year. The following year, because across
the world we produced the biggest crop of grain the world has
ever seen, prices collapsed back to about £95 per tonne.
At that level, it is unlikely that anybody would bother growing
cereals, because, as you will be aware, you can be in receipt
of the single farm payment without actually producing anything—you
just have to manage the land. So the option would have been to
grow nothing, in which case the world would starve. This is not
just the UK price—I am talking global prices; the cereal
market is a global market. We know that when prices go up, the
world will produce big crops of grain. We demonstrated it in 2007
and I bet we will demonstrate it again this year. So if you take
away all level of support—if you take away the safety net—the
outcome could be catastrophic.
Tim Bennett: It
is interesting, because in terms of CAP reform, people major on
the aspects of the direct subsidy, but there are still aspects
of intervention and safety net that operate. I guess consumers
and the public would think back and remember the butter mountains
and skimmed milk powder mountains, but perversely the system now
works very much as a safety net and actually can reduce the volatility
as commodity prices trade.
I will give you an example in the dairy industry,
in that in the past there used to be, if you go back to the 1970s
and 1980s, mountains of powder that were then sold at distressed
prices. In the last couple of commodity price spikes and falls,
the Commission have bought skimmed milk powder at safety net prices
and have managed the market volatility and have then sold the
skimmed milk power at more than they paid for it. So in a sense,
that is a good deal for the taxpayer and the consumer as well,
because it takes out some of the volatility to some extent and
they can turn a margin on selling the product on the rising market.
So it is important to recognise that intervention operated completely
differently from how it would have done 20 years ago.
Q369 Neil Parish:
You cannot always guarantee that in intervention you can buy it
cheap and sell it dear, so if you are going to spend the money
from the CAP, my view is that you can only spend it once. So from
your perspective, do you actually want to see that money go directly
to farmers in the form of the single farm payment or do you want
more measures to manage the market? That would be reversing a
lot of the way the reform has gone.
Jonathan Tipples:
As individual farmers, Tim and I would have a view on that, but
as AHDB we should not have a view on that, because we should not
want anything; we are purely here to react to what we get, which
is what we will do. So I can't really answer your question there.
All I would say is that as far as cereals are concerned, the intervention
system has effectively ceased. I have seen nothing in the current
proposals that suggests bringing it back, although I have heard
some MEPs talking quite fondly about the old intervention days.
But I certainly have no indication at all that there is any move
by the Commission to reintroduce market intervention in that way.
Q370 Neil Parish:
The dairy sector was slightly different.
Tim Bennett: Yes,
but I was not advocating intervention; I was just trying to point
out that the tools that exist within the CAP are perhaps used
in a slightly different way in the world that we are entering,
where you have commodity prices tending to be tracking up with
volatility rather than tracking down as we faced for 30 years
up until about five years ago. I will be careful on this because
it is obviously not for me to put a personal opinion here, but
in general, farmers will respond to the marketplace and produce
the right product if they are not paid to produce. So going back
to the days of, "You will have a subsidy for producing something,"
will get in the way of the way British agriculture has developed.
I think that is as far as I can go on policy.
Q371 Richard Drax:
We hear a lot about removing subsidies from farmers or not giving
them so much or whatever it may be. Do you not think, when people
say, "Will they ever go?" the answer to that is probably
not, in the sense that politically, subsidies allow farmers to
produce food at a relatively cheap price? As I understand it from
some research that my office has done, if the wheat price had
been allowed to go to the free market you would now be looking
at about £700 a tonne. Our costs have increased and the price
stays low and even when you are getting wheat prices of £180
a tonne, which to the public seems a lot of money, it is in effect
not a lot of money. So to remove the subsidies altogether probably
is a totally unrealistic option. I just wondered what your view
on that is.
John Bridge: Again,
I suppose we have to be careful as to where we start the argument.
As far as we are concerned, what we are pushing very hard for
along with many others is to try to achieve that higher level
of capacity within the UK agricultural sector, where a number
of things come together in terms of efficiencies and productivity,
but also, as I say, in terms of environmental sustainability and
greenhouse gases—to achieve all of that, but with a very,
very clear recognition that we will, as we move into the future
from today, be operating in a much more volatile set of markets
as far as prices are concerned, whether it be at a global, European
or even at a UK level. So even if you become very effective and
very efficient, it is highly likely that there are going to be
circumstances where you would want to intervene in the market
to smooth out some of that volatility, because you knew that if
you did smooth it out, you would bring the model that you are
trying to develop forward to its next stage. So I can see, on
a personal level if no other level, that there would be a strong
prima facie case for trying to retain some capacity, however defined,
to intervene in the market from time to time if that then served
the bigger cause, to have a much more efficient and productive
agricultural sector.
Jonathan Tipples:
The evidence is historically that governments like to have some
control over their supply of food, for fairly obvious reasons.
As a case in point, over the last 10 days the amount of grains
that have been bought by North African countries has been quite
extraordinary. Political instability is not a good thing and that
is why a government will always want to have some control over
its food supply and therefore its farming. The obvious way it
can do that is to have a level of subsidy where it can then point
the subsidies in different directions to achieve different results.
That is what history tells us.
Q372 Dan Rogerson:
Just following up on that point about how the commodity
markets worked, you have already talked about the difference between
dairy and the leadin times and the ability for cereals perhaps
to respond more quickly to what is happening. Does the policy
need to be sophisticated enough to cope with that—that where
it is looking for more competition on the global market, it has
to reflect the differences of the sectors within agriculture?
Jonathan Tipples:
Well one of the things that we certainly do and, we think, do
very well is we provide a lot of market information. In fact,
we do quite a lot of the statistical work for Defra. So we do
a lot of horizon scanning. We will be trying to forecast what
is going to happen in the following harvest; we will be trawling
in information from around the world. We do that all the time
and place that in the public domain; that is available on our
website and we are all doing it through our market information
departments. So we would hope not to be surprised by something,
but we can always be overtaken by an event such as the Russian
drought this year, which none of us spotted until quite late in
the summer.
John Bridge: Almost
as a point of detail, you used the phrase "across all sectors"
and we have obviously looked at the cereal price and it is a very
clear example of what we are talking about. However, an increase
in cereal prices will start to impact on the livestock sector
in terms of feed stocks and so on. So very, very quickly, you
can see that spikes in one sector may in the long term need to
be controlled over a much wider range of sectors.
Tim Bennett: Cereals
are widely traded and based on very large export volumes, but
in the dairy industry—and this is why the statistics are
important to inform us of how people can react—the majority
of milk that is produced around the world is consumed in the country
in which it is produced. So about 5% or 7% of the world's total
output is tradable. About onethird of that is from New Zealand
and that is only slightly bigger in milk production than we are
in this country. So it gives you an example that when you have
only that small amount tradable, one half a percent either way
and you get extreme volatility. So that is why anything that can
manage that volatility, right through to consumer level, is relatively
important. You are bound to get spikes when you are trading such
small volumes. One other statistic to throw in, having just come
back from the World Dairy Congress, is that dairy consumption
is growing at about 3% a year, obviously driven by Asia, and so
you can immediately see the challenges in terms of being able
to produce enough dairy product in the next decade, let alone
the next 30 years.
Chair: We are coming on
to price volatility in a moment.
Q373 Dan Rogerson:
Just to finish off my original line of questioning, having said
that you think it is possible for greater competitiveness to be
achieved, what tools do you think would allow that in a reformed
Common Agricultural Policy?
John Bridge: As
far as we are concerned, we need to ensure as AHDB—and I
am being a little bit pedantic here—that we understand the
sorts of problems and issues that individual farm units are trying
to resolve. We need to direct our research and development expenditure
and the money we spend on knowledge transfer and market intelligence,
and then package that very effectively so that we are providing
individual farms with an ability to react very positively to what
is being done. So if you looked at it exclusively from AHDB's
point of view, we have out there levy payers who in their turn
account for something like 75% of British agriculture. So we do
have an ability through the programmes that we deliver—quite
a significant leverage on the sector. So if we can do our job
very, very effectively and we get more productive farm units,
then I think some of the bigger issues that we have just been
discussing here become that much more manageable.
Q374 Amber Rudd:
Precision farming enables farmers to use inputs like fertilizers
more efficiently. What is preventing farmers from doing this already
and what could we try to include in the CAP reform to encourage
them to do so more?
Jonathan Tipples:
What is being done about it? Within the cereal sector—and
I think we are at the forefront of this—we have done quite
a big piece of work. We ran a campaign called Be PRECISE; we ran
a whole twoday research and development conference on precision
farming. It is at quite early stages of development. We have about
three different systems out there that seem to struggle to talk
to each other and that is certainly not helping. I think we are
at the very early stages. There are certainly some people in your
constituency that I know that are involved in it. There are certainly
quite a lot of people on Romney Marsh; the whole of the Romney
Marsh is now covered by a satellite network, which enables tractors
to pick up and position themselves exactly where they are. So
there are some quite exciting developments going on. There is
quite a high cost at the moment. That will come down as they become
more available and as some second-hand stuff comes on the market
it will enable some smaller operators to get into it. But we have
done quite a lot and I would be very pleased to make that work
available to you if you would be interested.
Q375 Amber Rudd:
Yes, we would be. Thank you. But what about other, in a way, more
traditional forms of precision farming like crop rotation? Do
you think they are being used sufficiently?
Jonathan Tipples:
I think farmers who have farmed on their farm for a long time
have always been precision farming, because they know exactly
where the wet hole is, where the tough bit of ground is; they
know exactly where things work well and where they do not. So
I think they can manage their own farms very precisely. Where
precision farming comes into its own is as we see farmers expanding
and taking on extra land and we see companies like some of the
big farming companies taking over farms that they are not at all
familiar with, they can pick up the signals from the growing crop
and through various sensors really very quickly, without having
the local knowledge. So I would be more than happy to make as
much information as you would like available to you.
Q376 Chair: I
just want to say the word legume. What is wrong with good oldfashioned
crop rotation involving sugar beet? Now, for example, that they
have closed the York sugar beet factory, what is in it for the
farmers to produce it? It is lowtech and it is fairly cost
effective.
Jonathan Tipples:
As far as I am aware, all farmers use crop rotations. You would
run into enormous disease and pest issues if you did not. I do
not wish to be insulting, Madam Chair, but my grandfather used
to remind me that a decent arable rotation lasts longer than any
Government.
Chair: That wouldn't be
difficult.
Jonathan Tipples:
I do not know of anybody that does not use crop rotations. There
are some people growing continuous wheat, but that is pretty limited.
So crop rotations are very much part of arable production and
are likely to become increasingly so as the chemistry to control
some problem weeds becomes less and less available. It is likely
that cultural techniques will become more important still.
Q377 Chair: If
that is the case, why have the Commission not included it in their
greening proposals? Would you argue that they should?
Jonathan Tipples:
I can't possibly tell you. I don't know why they haven't.
Chair: Legume is a French
word, after all.
Jonathan Tipples:
Yes. I don't know.
Chair: Okay, we will take
note and we will pursue that. Thank you very much indeed.
Q378 Tom Blenkinsop:
Back to research and knowledge transfer, the Royal Society recommended
that at least £2 billion should be invested over the
next 10 years in agricultural research, yet little detail is given
by the Commission that refers to this apart from knowledge transfer
under Pillar 2. Should more of the CAP funding go to research
and knowledge transfer?
John Bridge: I
think you could respond on two levels here. First of all, you
need to recognise that there is a very changing R and D and KT
(Research and Development and Knowledge Transfer) environment
within the UK itself. For instance, AHDB over the last four or
five years has become a much more significant contributor to R
and D and KT, but that is purely a relative situation, because
there are others who are contributing less, for a variety of reasons,
including both the public sector and industry. So I think there
is a very big challenge for the UK as a whole—and the Royal
Society report pointed this out—that we need to have an
agenda that a lot of people can agree to and that therefore will
lead to more collaborative research and far more people getting
involved in trying to tackle some of the very critical issues
that we face. I do know that there have been various responses
to the other level of your question, which was should CAP money
be put into R and D. I have heard people say yes and people say
no. I think it would be wrong for us to offer you a firm opinion
on that issue. All I would say is that science and technology
is a very, very important part of the answer to the questions
that we are trying to solve. It is not the whole answer by any
stretch of the imagination, but it is a very important starting
point, and I think we do have to recognise in this country that
if we want to achieve stability and growth in our food sector,
then we are going to have to apply science very, very cleverly
and very effectively.
Q379 Neil Parish:
Before I ask my question, there is science and technology out
there called biotechnology and there are blight-resistant potatoes
coming through the supply chain and there are crops that will
use less nitrogen and less pesticides. Is Europe and Britain holding
itself back by not using these technologies? Because that is very
much science.
John Bridge: We
have, both in our main AHDB board meetings and within the margins
of some of those board meetings over the last year or two, discussed
precisely the issue that you pose. On this particular issue, we
have produced a statement—a policy statement—as far
as AHDB is concerned. Some people reading it may see it as being
slightly bland, but inevitably it is trying to steer a course
through a very difficult environment. All I would say—and
I guess this is almost from a personal point of view—is
that it seems to me that if you want to prove that science can
help you, then you have to prove the science. What that means
is that, for instance, within the UK and Europe as a whole, field
trials of various genome strains need to be tested, otherwise
how on earth can you go out to the public and say, "This
is something which is safe and will do all of the things you expect
it to"? So to an extent, if you compare the European position
with the rest of the world, both in terms of consumer acceptability
and, of course, in terms of direct output, particularly of soya
beans, Europe is well behind in those issues. Now, Europeans generally
may take the view that that is a very comfortable position to
be in. My instinct is that if we are going to grow more food on
less land with less critical inputs, then we are going to need
technologies to help us and my instinct is GM should be one of
those technologies, but not the only one.
Q380 Neil Parish:
I will not press you further; it is very controversial. The Commission
refers to the need to address imbalances of power along the supply
chain to ensure better return for farmers. What is the UK position?
Have farmers got enough power in the supply chain or not?
John Bridge: I
could give you, for starters, a more general response to that
and then perhaps my colleagues could chip in in terms of the detail.
I came into this job as Chairman of AHDB as an outsider, someone
who had not had experience in the sector, and I think those who
appointed me thought that that was probably a sensible position
to be in. I have to say I agree with them, because it does allow
you to bring different skills and different thoughts to the industry.
One thing that puzzled me at a very early stage was,
what is this industry? Of course, the bit that we were focusing
on and still do focus on is the first bit of what in fact is a
very, very complicated and very substantial food chain. So if
you then add in—and these are obviously facts you are all
very familiar with—the fact that food processing is the
largest manufacturing sector in the UK, if you then add in the
very sophisticated and complicated distribution systems that we
have and also look at the retail sector as a whole and all the
industries associated with it, then you are talking about extremely
large numbers.
I do think we have to concentrate our minds on that
much bigger picture, because we are just the starter point. If
we get the starter point wrong, then quite a lot of things could
be very good in the food chain and they will not work. But what
we do observe, I think, from sector to sector is that the responses
within the food chain are different and that I think needs to
be rectified. Responses may be good or they may be bad; either
way, they create uncertainty if you are not careful and we need
to be sure that there are appropriate messages being passed up
and down the food chain so that the whole works a lot better than
the constituent parts. To me, as a personal observation, it looks
like constituent parts; it does not look like the whole. But there
are experiences.
Tim Bennett: Picking
up on the dairy supply chain, which is subject to some work in
the Commission at the moment and the highlevel group, can
I turn it around from using the word power in the supply chain?
I think it is important to have more transparent supply chains
and what we have been working on from AHDB in terms all our market
information is to make sure that we have very good statistics.
We have tried to do pieces of work on where margin is low within
the chain, which is sometimes controversial, but that is our job;
we are independent in the way we put the evidence out. If I can
make the comment, I think there is some good practice there in
the dairy supply chain. It needs to be more transparent; lack
of transparency is damaging confidence. The fact that the market
response this year does not seem to have followed the rest of
Europe is damaging confidence and I guess if that supply chain
was more transparent and debated a little better, then we might
get away from some of the short-term views. I think what we have
to get in the dairy industry is an understanding of how the chain
works now so we can have a long-term strategy to develop the British
dairy industry, which frankly has some huge opportunities once
it sorts its supply chain out in the short term.
Q381 Neil Parish:
Talking about transparency, will the Groceries Code Adjudicator
help with this transparency or will he or she have enough teeth?
What is your view on this matter?
John Bridge: I
think it is Government policy, isn't it, so I am not making a
comment on that.
Q382 Neil Parish:
Can I press you further on the policy?
Chair: I think they are
here to discuss the science and the research, so if you do not
want to express a view—
Tim Bennett: No,
that is a political—
Q383 Chair: No,
you were very clear at the outset. I am sure we will have other
opportunities to discuss that. Can I just come back to some comments
you made earlier about price volatility? I am particularly mindful
of the comments you made about political instability, but what
are the best tools? How can a government best manage price volatility?
Is market management an effective tool?
Jonathan Tipples:
Well, if I can take it from a grains perspective, price volatility
has worried governments across the world recently and there have
been some moves to try to control the activities of some of the
fund managers. There was a feeling that the funds were causing
prices to spike to very much higher levels than they would otherwise
have done through natural forces. The IMF carried out a survey
and did quite a lot of work on this and failed to find any evidence
at all. The US and the UK regulators have tried to do the same
and I understand that the EU was due to publish a report last
Wednesday into the activity of fund managers and the effect on
grain prices and that report was pulled for some reason; I know
not what. None of them have managed to find any real linkage between
fund activity and prices and so it would appear from the evidence
that we have that that is not a route to pursue to control volatility.
The other method that governments could use to control
volatility would be intervening in the market—and we talked
about intervention a little while ago—and holding buffer
stocks. But quite how big those buffer stocks would need to be
in the size of the world grain market is unclear. But when one
thinks that the public got fairly unsettled by having grain mountains
of 2, 3 or 4 million tonnes, and in order to have an effective
buffer against the sort of slump in world wheat supply we have
seen this year through Russia not being in the market, you would
probably need buffer stocks of a magnitude of five times that,
I think the public would not find that particularly acceptable.
They are probably the only two ways that I can think of that you
can otherwise intervene in the market.
Tim Bennett: I
made a comment that a small amount of market management within
the CAP can be beneficial, looking at the evidence of the last
five years. You can also do something within your own supply chain
to take out that volatility. You can have longer term contractual
arrangements for the product you are selling, which make sure
that everyone gets a margin in the chain. To some extent—sorry
to quote the dairy industry again, but we have some contractual
arrangements with retailers through to farmers—that longer
term arrangement takes out the extreme volatility. What it cannot
take out, of course, is the volatility of the inputs to those
farmers. So you can only mitigate it with long-term valueadded
contractual arrangements; you cannot take away completely from
the volatility in the inputs—for cereals going into dairy
farmer rations, for example.
Q384 Chair: Would
the Commission proposal for an EUwide insurance scheme work
in this country? The futures market that the Commission is proposing
seems terribly complicated, particularly for small farmers. Do
you have a view on either of those?
Jonathan Tipples:
I have seen it work in the States and it certainly works there.
Chair: Which aspect?
Jonathan Tipples:
Sorry, the insurance side of it. It certainly works there, but
only with a pretty massive injection of cash from USDA (United
States Department of Agriculture); it is very heavily subsidised.
It certainly works and I can see no reason why it wouldn't work
in Europe.
Q385 Chair: You
mentioned prices collapsing. When food prices go up, does it increase
profitability on farms? What is the best way of coping with a
scenario where food prices might collapse?
John Bridge: We
do have some evidence on that, but I guess a lot of it is anecdotal.
Q386 Chair: Not
sciencedriven?
John Bridge: It
would very much depend upon the transparency within the food supply
chain, because if there are dominant suppliers in one part of
the chain and less dominant farmers, then you are not necessarily
going to get that trickle-down effect, so it very much depends
on the relationships between the producers and the suppliers and
the consumers. It does vary from sector to sector; there is anecdotal
information where it can work and sometimes it does not work.
Tim Bennett: If
you have a supply chain that is built around valueadded
products, you cannot respond instantly to the commodity surge.
For example, you cannot suddenly switch your liquid milk and cheese
production—sorry to use dairy again—and export it
into commodities, because effectively you are part of that supply
chain into consumers. So you can respond to a certain extent to
that commodity surge, but you also have to look at the long term
viability of supplying your own consumer what you want. If you
just purely responded to the commodity surge, it would no doubt
be more profitable in the short term for farmers. That is why
the supply chain really has to work in a better way so that farmers
are better placed to continue to supply consumers with the everyday
product, rather than just automatically responding to commodity
surges.
Q387 Richard Drax:
Commissioner Cioloº
argued that a payment ceiling would not lead
to anticompetitive behaviour, because the benefits to the
farmer of increasing the size of his farm would outweigh the loss
of subsidy. Is this a valid argument?
Jonathan Tipples:
This is the question of capping.
Richard Drax: It is, yes.
Jonathan Tipples:
And it has come up at every CAP reform Bill I can remember.
Richard Drax: He is suggesting
€300,000, I think, isn't he? That is a figure out of the
blue.
Jonathan Tipples:
Yes. It comes back to the statement that I made earlier on; this
is a question of philosophy, of what the CAP is. If you believe
that it is there to promote a rural way of life, then there is
a perfectly coherent argument for capping the payment. If you
believe it is about supporting agriculture, then there isn't.
There cannot be; it makes no logical sense. Why on earth would
you wish to hamper the effectiveness of ever bigger farms? If
you are interested in competitiveness, why would you want to cap
the payment? I understand that people feel it is obscene that
somebody should be getting an enormous amount of money, but if
you are farming an enormous amount of land, what is the reason
for doing it? I suspect that if the other proposal comes through
that says that payment shall only go to the active farmer and
not the owner of the land, then that will actually cure some of
what are seen to be excesses.
Q388 Richard Drax:
We have talked about that in this Committee, and I think I am
right in saying their view is they do not want to change what
an active farmer is; it is quite complicated, is it not?
Jonathan Tipples:
Yes.
Q389 Richard Drax:
So you do not think that big farmers would restructure, for example,
to get more money? He is arguing he does not think they would—that
farmers farm for more than just earning more and more public money.
Jonathan Tipples:
I think we argued earlier on for simplification and I think it
could lead to very much more complicated farming arrangements
to get round it. I think it would just be counterproductive.
Q390 Chair: Reverting
to the profitability question we touched on, Defra have said that
rising food prices mean more profits for farmers. Would that always
be the case?
John Bridge: Again,
on an a priori basis, I am not too sure that that would apply
as a consistent argument across all sectors. I could see it being
true in some areas rather than others, but I can't see why it
should be consistently so. Equally, it would very much depend
on the price increases being sustained over a period of time to
allow some sort of sensible distribution to occur. We have heard
already in terms of major commodity prices that those spikes in
prices can occur over very short periods of time and therefore
they have very little lasting effect on the supply chain. It seems
to me that sitting in the middle of all of this is probably a
slightly different argument, although it is obviously very much
related to the question that is being asked. That is: do we need,
in the future, a very clear set of understandings between suppliers
of raw materials into the food chain as to the value of those
products and the need to ensure that there is an appropriate flow
of income back into those farm units so that, not just next year
and the year after but five and 10 years on, you have some sort
of guarantee of supply?
Now, there are very good examples where major retailers
and food processors are already getting involved in long-term
contracts—we have mentioned that very briefly—and
it seems to me that that must be one of the paths that needs to
be trodden, because the more you get some sort of long-term commitment
through long-term contracts with farmers, the more chance you
have of getting a buildup of capacity on the farm, because
there is a big incentive for the individual farmer to do more
if they know that they have some sort of guarantee of their product
being sold to whomsoever over a five-year period, as opposed to
literally over days.
Q391 Chair: Finally,
would you say that joining an agrienvironmental scheme affects
the profitability of a farm?
Jonathan Tipples:
I can comment on my own farm from my point of view. I am in an
entry level scheme and a higher level stewardship. It certainly
pays for what it delivers. With grain prices where they are today,
I would probably be better farming it rather than having it in
the environmental scheme, but certainly up to now it has paid.
On your question of farmers' profitability, it really is a very
sectoral thing. If you are producing strawberries, the strawberry
arrives in the supermarket on a very short chain and it is in
exactly the state in which it left the farm. If you are producing
grains, they never arrive in the shop as they leave the farm;
there is a whole process to go through. So they are very, very
different chains.
Chair: That is very helpful.
Tim Bennett: You
have to remember that food prices are often rising because the
cost of producing that food very often has gone up more quickly
than the price of food has risen, so actually it has reduced profitability.
There is quite a lot of evidence of that in the last year.
Chair: We are most grateful.
We thank you very much for being with us and I am sure we can
continue the dialogue. Thank you very much indeed.
| 
