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

Examination of Witnesses (Questions 353-391)



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.

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