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

Examination of Witnesses (Questions 435-502)



Q435   Chair: Good morning and welcome. Minister, would you like to introduce yourself and your colleague for the record, please? Could everyone turn their mobile phones off? £5 penalty, rising to £15 on the second offence.

James Paice: I am Jim Paice, the Minister of State for Agriculture and Food, and on my right is Martin Nesbit from the Defra team which heads up our European affairs issues.

Q436   Chair: Excellent. Thank you very much for being with us. We have, obviously, before us your UK response to the Commission Communication. When is the Department intending to release a formal position paper on the CAP?

James Paice: We do not have any intention at the moment of so doing. As you say, Madam Chairman, we have responded to the Commission's proposals and the next issue will arise at the March Agricultural Council, when the first set of preliminary conclusions will be made by the Council.

Q437   Chair: In terms of negotiations, this is the first occasion on which the European Parliament will have the power of co-decision. Does that colour your view as to how you think the negotiations and the process will proceed?

James Paice: I am afraid I did not bring my crystal ball with me, Madam Chairman. I don't think any one of us can answer that. Clearly, as a consequence of the Lisbon Treaty it is going to be a much more drawn-out process, and it is the first time it has been done with 27 Member States, so those are two extra factors. If it is done by the end of 2012, I think we should have done very well. People are hoping we can do it by that point, which gives us to 2013 for Member States to work out the details, but I can't be held to that.

Q438   Chair: Thank you. Just in terms of the direction of travel of the UK Government, in your response, paragraphs 24 to 25, you talk about the future allocation for both Pillars. My understanding is that, currently, Pillar 1 is providing payments for direct support and I think you are saying here that there should be an increasing focus on actions on Pillar 2—

James Paice: Correct.

Chair: —which provide the public goods that the market cannot deliver. Obviously, that would be a move away from direct support, so would it not have implications for more matched funding on the part of the Department and has that been allocated in future spend?

James Paice: It certainly could have an impact on co-financing. Matched funding is not quite the right term because they are not all at 50:50, so it is not exactly a match. At the moment, in the current RDPE—and of course we cannot foresee what the future one might be—there are a range of different levels of co-financing, from 9:1 at one end to, I think, 40:60 at the other. There is a whole range; by matched funding, most people think 50:50.

You are absolutely right that there will be a shift if we were to succeed in our objectives, from Pillar 1 to Pillar 2, and that would have an implication for matched funding, but we have recognised the implications of that. It is why we have made in the response—and I know it is in the response you have had from the Treasury—the reference to much better value for money from Pillar 2 expenditure because we believe that is the transparent system of payment for public goods and more important in the long term than continuing to maintain direct payments at their current level.

  Chair: My understanding is that we have not had a response from the Treasury, so perhaps we should pursue that separately.

  James Paice: Okay.

Q439   Chair: Am I correct that we currently have a lower allocation, just 1.3%, as opposed to other Member States? So it would require a redistribution, which I think is just confirming—

James Paice: Yes, we are talking about two slightly different issues here. Firstly, within the whole CAP across the 27 Member States, we believe there should be a shift of resources from Pillar 1 to Pillar 2. Secondly, as you rightly say, we believe the UK should receive a much fairer distribution of the totality of Pillar 2 payments. As you say, it is extremely low at the moment; it is one of our principal objectives to get a better deal. Indeed, it was apparently on the table in the 2005 round, but it was lost as part of the then negotiations. The Commission, we know, are sympathetic to our position.

Q440   Chair: The Commission's mission, since the CAP was created, has been to secure a standard of living and a guaranteed income for farmers. Does it worry you that by focusing perhaps more on Pillar 2 than Pillar 1 that we will not be delivering a fair standard of living for farmers in the future?

James Paice: This is probably one of the key areas about perception and vision for the future of the CAP. We take the view that the CAP is predominantly an economic policy these days and we should be using it to help the farming industry become more competitive and, therefore, more profitable, seen against the dramatic global changes expected over the next 40 years, during which we expect commodity prices to rise considerably. We think that is the right background to be trying to drive the industry towards a greater income from the marketplace and less dependence on direct payment.

There are others within the European community, though, who still see it very much as a social policy—as a means of supporting small farmers. Some of the Eastern European new Member States have very large populations of very small farmers with only a couple of acres or so. That is a major issue that we are trying to address. The British Government's view is that that sort of income support role is not the role of the CAP in the 21st century.

Q441   Chair: Figures published last week showed that farm income was down in just about every sector, with the notable exception of cereals. My understanding is that if they had not been in receipt of direct farm payments, many of those cereal growers would have also been in negative income. This is just a personal opinion, but if you remove the direct payments, then that one sector that is currently doing well—also because the world prices are very high—would also find it hard to make a return.

James Paice: That is entirely correct. I would entirely agree with you, which is why we are not proposing to end direct payments tomorrow. What we are saying is that we have this CAP round to run us to 2020. We think that over that period of time all the projections for the global market indicate that there will be greater opportunity to earn from the marketplace, and we think should be using this opportunity to move in that direction.

Q442   Chair: Who are our natural allies in the negotiating process in terms of other Member States?

James Paice: We have a number of natural allies: the Scandinavian countries, predominantly, Sweden, Denmark; and The Netherlands; a couple of the new Member States like Latvia and the Czech Republic; and, very similarly, Germany. They have one or two slightly different issues, but that group of us all have very similar overall objectives and I should add that both the Secretary of State and I are spending a lot of time trying to build on those relationships, and develop new relationships. We are able to do that because we are taking a very different approach from our predecessors to negotiations—a constructive, at-the-table approach—and we have dropped the rather daft proposition that Single Farm Payments should end tomorrow, which was never going to get us any credibility.

Q443   Neil Parish: Good morning, Minister. I welcome your negotiating because I think it is essential. On the CAP negotiation, you negotiate as the UK as a whole, so what steps are you taking to reach a common position with the Devolved Administrations?

James Paice: Thank you, Mr Parish. Although a lot of recent publicity about the devolved Administrations' separate letter to the Commissioner has focused on the size of the budget—and perhaps you may wish to come back on that—actually once you move away from the totality of money to how it is spent in the structure of the CAP, there is a great deal more synergy between us and the devolveds. We all want the same thing and I feel very strongly that the Secretary of State and I will be negotiating for the UK as a whole, not just for England.

Q444   Neil Parish: I think as well the delivery of the Single Farm Payment is slightly different, in that one is done more historically and one more regionally, but I think that is probably more for us as UK plc. One of the issues on which I imagine you do not necessarily see eye to eye is coupled payments?

James Paice: You are absolutely right. We take the view that England, as you know, decoupled all payments immediately in 2005, and we are moving through a transition away from the basis of historic payments altogether. Scotland, it is quite true to say, still believe that there should be some element of coupled payments, particularly headage payments for cattle and possibly sheep. We do not believe that is the right way forward; we want to see total decoupling across Europe. We believe that if we are moving, as the 2005 reforms did, towards a much more market-oriented system and farmers depending on the market for their income, then directly coupled payments, which are a subsidy on production, should disappear. So you are perfectly correct. That is an issue where there is some difference between us. Depending on the outcome of the overall reforms, it may or may not be to the discretion of Scotland whether they continue with it.

Q445   Neil Parish: Playing devil's advocate, how does Scotland and the Scottish Administration believe or think that their views might be taken into consideration when you are making negotiations in the Council of Ministers?

James Paice: We have close contact with the Ministers in all the devolved Administrations, not just Scotland. I was on a telephone conference with all of them last night. We have plenty of contact. The tradition is that, before any Council meeting, all of the devolveds meet with me or the Secretary of State, whoever is attending that Council meeting, to go through the position that the UK Minister will adopt. It is perfectly true to say we are never going to agree on everything, not least because at the moment, as you are probably aware, the other three Ministers come from parties that would rather not be part of the UK, which does slightly complicate issues.

Q446   Neil Parish: Yes, absolutely. Final point: when it comes to doing negotiations, will it be a mixture of the Secretary of State and yourself doing the negotiations with the Council of Ministers? How will it work?

James Paice: Well, the Secretary of State obviously leads and I suspect, although we have not made any ultimate decisions, as the pressure of the negotiations heat up she will be doing more and more of it. She has the advantage that she is multi-lingual, which I'm afraid I am not.

Q447   Chair: Apart from French, which other languages does she speak?

James Paice: German.

Q448   Amber Rudd: Good morning. The Commission outlined various objectives for the CAP, including food production, territorial balance, protection of the natural environment and a fair income for farmers. How would you prioritise these different objectives?

James Paice: I think I would probably put the income for farmers at the top very close to the issue of protection of the natural environment, but when I say income for farmers, I must stress I am not talking about a subsidy. That comes back to the earlier question from the Chair, because we believe that the CAP should be targeted at enabling farmers to get as much if not all of their general income from the marketplace together with the targeted payments that would come under Pillar 2 for payment for public benefits. Obviously, that would vary dramatically depending on what an individual farmer was providing as public benefits. Income is important, otherwise the industry will collapse, but we do believe the bulk of the income should be coming from the market and that the policy should be aimed at enabling farmers to do that.

Q449   Amber Rudd: So that will presumably lead to higher food prices?

James Paice: That is not necessarily the case. You only have to look at the point that the Chair raised a few minutes ago: grain prices, which are largely operating on the world market, are now at an all-time high and totally unsupported by any form of subsidy. It is highly questionable whether getting rid of Single Farm Payment would necessarily lead to higher food prices. Economists, and I am not one, will tell you that actually that support could work either way, but as I say, the current grain situation is completely without any form of subsidy.

Q450   George Eustice: You talked earlier about the difficulties of having 27 Member States all with conflicting interests. Do you think, when we get there in 2012, that we are going to end up with an optimum agricultural policy for Europe or is it just another step on the way?

James Paice: If you mean, Mr Eustice, do I think that there won't need to be a round in 2020, the answer is no. I think that is very wishful thinking. No, this will be another stepping stone towards whatever will be and there will obviously be disagreements about what the optimum policy should be anyway. One of the points I would make is that I have always believed, long before being a member of the Government, that direct payment support, market support for farmers, will end eventually. It is a view I have had for 20 or more years and I still believe it is an inevitability. We are not going to see it happen in this financial perspective, but I think it will happen and I think the challenge is to help the farming industry face up to that day whenever it comes.

Q451   George Eustice: When that day does come, will that remove the need for a Common Agricultural Policy on a pan-European level?

James Paice: It would not remove the need for payment for public benefits. As to whether that needs to be done as a common policy across Europe, I suspect there would still need to be a common framework to ensure that there was not some form of unfair competitiveness issues between Member States, and obviously the formulas about co-financing or whatever would still need to be thrashed out. It would be a much more minimalist approach though.

Q452   George Eustice: I suppose the point I am making is that the thing that has come across most strongly to me, having looked at the CAP and spoken to lots of people, is there is this problem of the lowest common denominator—that you move forward very slowly. It almost feels that there is a danger that it just stifles policy innovation. If you look at any other policy area, like education, the Government looks at what happens in other countries, learns from successful ideas in other countries and builds a policy that it thinks is right. It does not seem to happen as much in agriculture because everything is about the art of the possible in the negotiations between 27 countries.

James Paice: I think I'd largely agree with you. Negotiating anything between 27 countries is extremely difficult. At a Council meeting, if we do what is known as a table round, so that every Member State may have their say, even if we are limited to four minutes—work it out for yourself—it takes two hours. The opportunity for real debate and discussion in formal Council is very limited. Much more, I am sure, is going to happen in ranges of bilaterals and small group meetings and meetings with the presidency of the day to try to thrash out solutions.

But I also agree with you that there has been, and probably will continue to be, an element of the best available compromise between some very polarised views about the format of the CAP. No Member State is going to be satisfied with every aspect of what comes out of this. Of that I can be certain.

Q453   George Eustice: Is the end game then—not in this round, clearly, but long term in the next 10/20 years—that you might have a common framework where there might be agreed parameters and limits to which countries can support their farmers for instance, but that there would be elements of it that are repatriated to national Governments so that they can pursue an agenda that suits their own circumstances?

James Paice: If you look at the structure we have today, Pillar 2, which is for payment for public goods, has a very considerable amount of national discretion about what those payments are for but the amounts are constrained. We talked about co-financing earlier, and we are actually proposing more discretion. We want to see Pillar 2 to become payments for more multifunctional activities and that is the way that we would see the longer term. Obviously, there will be a different Government and certainly a different Minister negotiating in 2020, but I would foresee that we will be continuing to look at a multifunctional Pillar 2 with laid down contributions from Europe and an element of co­financing from the Member State, but with a lot of national discretion about how it is applied.

Martin Nesbit: If I could just add that in Pillar 2 you get a lot of that Member State innovation and then learning from each other that you were describing in your initial question. That is the area of the CAP where you get that sort of experimentation and development of new policy and ideas.

Q454   Chair: Could I just ask: should the EU be seeking to end market support unilaterally or should we be seeking to end subsidies multilaterally by ending global subsidies?

James Paice: The Government feels it is both. We want to see the Doha round come to a conclusion. Already on the table for that—I'm aware the whole thing has been in suspense for some time—was the proposition to end all export subsidies from Europe, which we think is right. That has major impacts on the developing world and we think it should stop. There is also the proposition in principle to phase out import tariffs and controls. That is a longer-term issue and they are all forms of market support, but yes, Doha is about moving away from all forms of market support. We would want to see all countries that are members of the WTO addressing that and taking it forward, but I do not think it should stop us beginning to plan to move in that direction as well.

Q455   Richard Drax: Minister, good morning. Just before I ask this question, may I follow up another quickly? Is it your view that the CAP aim should be that all farmers should make a profit?

James Paice: No Government can guarantee, whether we talk about the British Government or the Commission or the European Council, that every farmer should make a profit any more than any other business should do so. Our job must be to create the economic environment in which a successful business can make a profit.

Q456   Richard Drax: Okay, and on that point you have said many a time that you hope to release farmers from the burden of red tape and give more responsibility to them.

James Paice: Correct.

  Richard Drax: By moving the money to the multifunctional Pillar 2, to quote you, that is going to take money from direct payments, which will affect profitability, and put money into an area that needs policing, which means more interference with the farmers, does it not?

James Paice: I hesitate to use your word policing, because although Pillar 2 is payment for public goods, so it is perfectly transparent—the taxpayer can see what it is they are getting for their money—we are also, alongside this, as you know, working on the whole concept of deregulation and changing the whole culture about how we implement and enforce regulation. I have appointed Richard Macdonald to head the taskforce; we are expecting his report in May and I am really confident that that will lead to a substantial shift away from a huge amount of interference by process to simply judging whether farmers are delivering the outcomes. I accept the principle behind your point, but I think there are ways of ensuring that the burden of it is much less than it has certainly been so far.

Q457   Richard Drax: Now on to my question, if I may: what are Defra's aims for this round of CAP reform and how does that tie in with the Commission's three options, if indeed it does?

James Paice: You have seen, as the Chairman said at the beginning, our response to the Commission's communication. Overall, we believe that the communication is insufficiently ambitious. We are concerned about a number of the proposals. Firstly, we are very wary of the idea of complicating Pillar 1. Although certainly we want to see a very green CAP, we are not convinced that greening Pillar 1 payments, as they propose, is the best way forward. We certainly do not support the idea of capping; we certainly do not support the idea of extra payments or high payments for small farmers. There are some good bits in it, but overall our view is that it is not sufficiently ambitious in terms of driving up productivity and competitiveness, which is where we think the emphasis should be, as we have made clear in our response. The direct answer to your question is that it is somewhere between their options two and three—closer to three, but three implies doing it all tomorrow, which, as I've already said, we accept is not realistic.

Q458   Richard Drax: Will there be a clash, do you think, with the cries for food production: "More food, more food; a billion mouths to feed in x years time"? How are we going to produce all this food and put more emphasis on the greening element? I am talking really back to Pillar 2 here. How are the two going to sit comfortably beside each other?

James Paice: The Secretary of State has used the phrase "sustainable intensification", and I think that sums it up. We certainly are going to need to produce a lot more food. I want to see a halt to the decline in British production, and I believe we can do that alongside very successful environmental care. There are a lot of farming businesses around the country, some I have been fortunate to visit, who have developed farming systems that are profitable and highly productive, and yet are also very green—environmentally friendly to biodiversity. So it can be done. Actually, it has to be done. I do not think there is any doubt. Your question also begs the question of how we move on, which is about research, developing new technology and, indeed, spreading that technology out into the farming industry. One of the things that we would like to see from the CAP is the opportunity to use more of the Pillar 2 money in that regard.

Q459   Chair: If I could just return to comments I made earlier about the Single Farm Payments and the viability of farms, Defra's own study into farm viability in the European Union found that about half the currently profitable farms in the UK would go out of business without the Single Farm Payment. If you want to reduce reliance on the Single Farm Payment, which you said you do, how can you ensure that the farms that are unprofitable without the Single Farm Payment stay in business, particularly in the uplands?

James Paice: I have to emphasise, Madam Chairman, we are not proposing to end the Single Farm Payment today. We readily accept, and I could not be more aware of the fact, that for a lot of farmers today the Single Farm Payment is an essential part of their income. Of course it is, but if you look at the Foresight Report published a fortnight ago by the Government's chief scientist, Sir John Beddington, which involved 50 different reports produced by experts all over the world—the World Bank, the Food and Agriculture Organisation and many others—it projects very significant price rises over the coming years because of population change, prosperity and climate change.

If you are operating against a background of rising prices, then it seems to me self-evident that that is the opportunity for farmers to get a greater share of their income from the sale of whatever it is that they are producing. Therefore, their reliance on the Single Farm Payment becomes less. Let me just use the current example and offer a hypothetical scenario: if wheat prices stay around £200—and they may well fall back dramatically—any decent grain farmer is going to make a reasonable profit without the Single Farm Payment. If that were to be the situation for years to come, I do not think it would be very reasonable for any grain farmer to argue that they should still have a subsidy, a direct payment, if they are selling grain at that price. We do not know what that market is going to do; it might collapse back to less than £100 within months. It could do—that is the volatility that we now face—but overall, we are seeing lots of projections of rising prices.

Q460   Chair: Given the background, if you look at sheep prices, dairy prices and cattle prices, all those products that give farmers an income in the uplands at the moment are down. The cost of fuel and the cost of feed are up, so I completely accept you are talking about a transitional period towards the removal of direct payments, but you have to explain to us as a Committee what practical measures you are going to introduce to ensure that there will still be farmers in these upland areas and other areas where the returns at the moment are so low.

James Paice: The proposals from the Commission—and it is one of the things we do not fully understand yet because it has not been explained—specifically refer to what we would call our uplands, I've forgotten the precise term they use, but it relates to the areas that have suffered from disadvantage. The proposition is that there should be measures in both Pillar 1 and Pillar 2 to provide that support. We do not know precisely what they mean by that; it sounds a bit complicated, but we agree that there should be measures within in it, preferably in Pillar 2, to support those farmers in the uplands and in the hills.

It comes back to our earlier point about Scotland. I think about 85% of their farmland is in disadvantaged areas. We entirely support the need for recognition of that. We think it should be predominantly through the provision of environmental benefits, but as I said earlier, we also want to help them become more competitive and innovative and, overall, to maintain their income. The final point I would make is that in the current situation, the coalition Government is committed to publishing an uplands policy document, which we are proposing to do. I know you are doing a separate report on it. We are proposing to do that fairly shortly now, when I hope we will be able to demonstrate how we want to see our uplands communities, particularly the farming communities, survive.

Q461   Chair: I know Mr Parish wants to come in, and I don't want to focus too much on the uplands, but where they are all tenant farmers it is not always in their gift to negotiate these schemes, and you and I have discussed that. Are you just talking about reducing the reliance on direct payments for lowland productive farms, or are you saying that in the transition phase it is across the piece?

James Paice: In terms of the Single Farm Payment, it is across the piece, but we think in terms of the uplands there are alternative ways, more transparent ways, of providing extra assistance to those areas.

Q462   Chair: What sort of timescale are you looking at when you talk about transition towards removal or phasing out of direct payments? What is the timescale? The next round again of CAP reform?

James Paice: I cannot foresee what the following round will be, but we have made it clear in our response to the Commission that we believe that during this seven-year period, from the beginning of 2014 to 2020, we should be moving in that direction. In an ideal world, yes, we would like to see them end soon after that, but I have my doubts that that will be a realistic achievement. We do think we should be setting out in that direction.

Q463   Mrs Glindon: Cross-compliance is a different aspect, perhaps, of the use of the single payment, which you obviously cannot phase out now. Do you think this allows the Government to have greater control over the environmental protection—the animal welfare standards that the farmers now have to come into cross-compliance with—than it would if the farmers were totally unsupported?

James Paice: It is perfectly true the public does get something from cross-compliance; on animal welfare, the return is very little because it is all based on legislation. Frankly, cross-compliance, as far as animal welfare is concerned, basically says you just have to comply with the law on animal welfare. So there has been a feeling in the farming industry for a long time that it is a double whammy because if you breach a legal obligation, such as animal welfare—there are others—you are not only prosecuted under that legislation—the Animal Welfare Act, for example—but you also lose your Single Farm Payment, so you are penalised twice. That is a slightly separate issue, but it demonstrates that the law on animal welfare is there anyway, whether you are receiving the Single Farm Payment.

  There are other aspects of cross-compliance outside the animal welfare arena, such as the obligation to keep your land in good agricultural and environmental condition, where it is arguable that there is a small public benefit from it. But I think most farmers would argue, and I do not want to put words in their mouths, that that is only what a good farmer ought to be doing anyway. So I think the issues of cross-compliance are relatively minimal. Don't forget that at the present time the Single Farm Payment is optional. If a farmer does not want to carry out cross-compliance obligations and not claim the Single Farm Payment, they are not obliged to do so.

Q464   Mrs Glindon: Your personal view is it would not be too much of an issue; that there is not so much of a direct relation between having the single payment and adhering to the various welfare and environmental obligations.

James Paice: Where there are clear legislative obligations, such as on animal welfare, such as on issues to do with pollution, then frankly cross-compliance is of no real added value. However, in terms of looking after the land, for example, there is some added value. I would suggest it is not very great and I would prefer overall to see that achieved through Pillar 2, public benefits payments, in the long run. If the question behind your formal question is, "If we lose the Single Farm Payment and we lose cross-compliance, have we lost control of what farmers are doing?", I think the answer is no because I would rather do it through Pillar 2.

Q465   Neil Parish: Farmers in this country, and across Europe, are asked to produce to higher welfare standards than those in much of the world, so there is an argument that there is a need for Single Farm Payment to deliver that. It is also a fact that countries such as India have hiked huge tariffs on products coming into India, and the Americans support their agriculture. What is your view as to what Europe should do in order to maintain EU farmers' competitiveness in the world market? Do you think they do need the Single Farm Payment? How would you target it?

James Paice: I certainly think they need the Single Farm Payment at present. I do not think anybody should be under any illusion about that, but one of our criticisms of the Commission's communication is that it is inadequately ambitious about making the industry more competitive. That might mean, in some countries, mergers of farms; it might mean more co-operative working in some areas; it might mean investment in more modern buildings or equipment, or whatever. It is not for governments to determine that sort of detail. We think the policy should be directed at actually encouraging, enabling and promoting competitiveness rather than the—I hesitate to use the word—slightly more relaxed view of, "Well, we have a guaranteed income through the Single Farm Payment."

Q466   Neil Parish: The argument of decoupling is right, but because the original Single Farm Payment originates from coupled payments from production, at the moment most of the higher Single Farm Payments are going to the most productive land. I cannot really see in the Commission's proposals any sort of redistribution of that payment. You made the point that if the cereal prices remain high, then the cereal farmers will not necessarily need that subsidy. The problem with it being a decoupled payment is they will get that payment irrespective of whatever the price of grain is, and yet the livestock sector will be hugely disadvantaged on the other side.

James Paice: As things stand in the present CAP and as proposed by the Commission, that is how it would be.

Q467   Neil Parish: Would you be putting forward some ideas about how you can actually support those areas that are more difficult and have a greater environmental need for production?

James Paice: The difficulty you have if you start to distinguish between commodities in that way as opposed to concentrating on specific issues like the uplands, where we know there is an inbuilt disadvantage, is that the policy then has to be very flexible. You will know yourself, Mr Parish, as a farmer, that three years ago wheat was about £70 a tonne and livestock farmers were able to make a significant margin. The pig industry, the poultry industry and the intensive beef sector were all able to make significant margins because the wheat price was so low. Arable farmers, at that stage, needed the Single Farm Payment. There is a serious risk that if you try to say, "Well, these need it and these don't," that, by the time the wheels of Europe have turned and done that, the boot is on the other foot.

Q468   Neil Parish: Yes, I do not disagree with you there, Minister, but because of the historic basis of the actual level of payment, you still have the highest payments going to the most fertile land, and that will carry on. That could be allowed from 2000 to 2013, but surely that should not be allowed to carry on from 2013 to 2020 and beyond. Surely there has to be a levelling of the payment across the types of land as well as across the country.

James Paice: I entirely follow your reasoning; it does imply reverting to the idea of the payment as some kind of income support. I would argue that actually the marketplace and economics will sort out a lot of that, because if you are on poorer land you will need more of it and the market structures will appreciate that. I do not know whether Martin wants to add anything to this idea that you would vary the payment depending on the type of land.

Martin Nesbit: One thing to note is that the Commission are talking at the moment in terms of a shift away from a purely historic basis within Member States for allocation of payments and towards a much more area-based system, which is of course the move that we have already been through in England. That will create potentially quite significant transitional problems for a number of other Member States, perhaps less in terms of problems within England, and potentially some difficulties in other areas of the UK. But the Commission are already thinking in terms of moving away from a system of allocation of direct payment receipts that is based on a pattern of subsidy receipts, which, by the time we are at 2013, will be 10 years old.

Neil Parish: That's right, and by the time we get to 2020, it will be 20 years old.

Q469   Amber Rudd: Minister, you referred to the Foresight Future of Food and Farming Report earlier. It not only suggests that food prices are going to be higher in the future but also that there is going to be more volatility. Do you think that we will get pressure from other Member States for this type of market management of food that we are trying to move away from as a result of that volatility?

James Paice: The answer is yes. There are some Member States that see the issue of addressing volatility as one of their primary objectives in the reform of the CAP. The Commission refer to "risk-management tools" in their communication without really giving us much more information on that. We think it is well worth considering. We do not believe that it is a justification for maintaining high levels of direct Single Farm Payment, but we do fully appreciate that risk-management is important. As I say, it is very unclear what the Commission mean by it yet, but we are certainly not against the proposition of it being one of the tools that we should consider. Do not forget of course that there are a number of measures that many farmers already use; futures markets, selling forward and all those things, and contracts with their customers are relatively commonplace anyway, so these are all forms of risk-management, but if the Commission come forward with other proposals, we will look at them constructively.

Q470   Amber Rudd: But what about exports subsidies and quotas?

James Paice: We believe export subsidies should stop. We believe they are seriously damaging, particularly to the developing world. In the longer term, we believe that import measures should also be eliminated, but over time, at a speed our industry—the European industry—can accommodate. Some of them are almost irrelevant now; there are controls on sugar, but they are becoming irrelevant because the world price of sugar is so high. Yet if you look at beef, where we still have a fairly significant tariff on imports, there is no doubt that if that was abolished overnight, our beef producers would be left—

Amber Rudd: Collapsed, yes.

James Paice: —devastated. But looking longer term, we think these things all have to be looked at.

Amber Rudd: Okay, thank you.

Q471   Neil Parish: Given that previous attempts to transfer more of the budget into Pillar 2 have failed, under what conditions would you accept the greening of Pillar 1 as an alternative to transferring more of the budget into Pillar 2?

James Paice: I am not sure that it is an issue of "under what conditions" because we cannot be that specific. Our concerns about the greening of Pillar 1 are firstly that we do not understand the Commission's logic for doing that and also having greening measures in Pillar 2. It sounds over-complicated. Secondly, we are far from persuaded that this would create any added value for taxpayers' money. If it is simply a means of paying farmers for some green activities that they are already doing, then frankly there is no justification from the public expenditure point of view for doing it. Thirdly, of course anything beyond a single, flat-rate payment is more complicated, both for the farmer and the Member State who has to apply it, and goodness knows we have enough experience of those problems.

I suppose the final point is this, and it is fairly fundamental: the Commissioner's declared objective is to, I think his word is, legitimise the Single Farm Payment, which I take to mean he wants to enshrine it forever and a day. He thinks, by what I can only see at the moment appears to be a bit of tokenism, that by greening it a bit he is achieving that. We would rather see the Single Farm Payment eventually disappear, as I have described, and the greening be done through Pillar 2 for all those benefits. But it's not issue of whether or not we want the CAP to be green; we do. It is just finding the best mechanism.

Q472   Neil Parish: One of my old chestnuts, as you know, is that if you need suckler cows on a particular type of grassland, isn't there an argument that perhaps that environmentally beneficial production could be actually paid for via Pillar 1 rather than Pillar 2? Because it is production but it is environmentally beneficial, and I think you could argue it as such.

James Paice: But a lot of Pillar 2 payments, particularly under the Higher Level Stewardship, already require grazing of certain types of grassland. Because the HLS has a wide range of options, it can stipulate the type of stock, it can pay you an extra sum if you use native British breeds. I think we have already that process in place, at least in this country. I do not think it is necessarily—

Neil Parish: It will just give you greater funds, that's all.

James Paice: Well, that takes us back to the earlier question about the balance of funds between Pillars 1 and 2. We want to see a much bigger balance in Pillar 2.

Q473   Chair: May I just come back to the competitiveness aspect?

James Paice: By all means.

Chair: I used to represent, in my original constituency, two turkey producers, and they have both gone; they would probably argue that was because of unfair substandard imports from countries that you can imagine, notably Brazil and other such countries. Do you believe that there is action that we can take to stop this—some form of subsidy to allow EU farmers to compete globally?

James Paice: Well, no Government could guarantee that any producer can compete. All the Government can ever do—and do not forget, the turkey industry, to use your example, is completely outside the CAP; there is no support or—

Chair: They had pigs there as well.

James Paice: Well the pig industry is largely outside as well; there is a little bit of support coming in imminently. The Commission have announced this. They will introduce private storage aid for pig meat, but turkey and poultry is outside completely. Clearly there are issues to do with standards of production. There is no lawful way in which we can prevent the import of any foodstuff that is produced to standards that we could not use in this country; it would be illegal. On welfare standards I should say; you can prevent such imports on human and plant health issues, but not on animal welfare grounds. But I would say, and not everybody might appreciate this, that all the evidence is that the standard—you talked about poultry production in Brazil—is extremely high. The supermarkets, or their middle-men, who are the main people who bring in that sort of poultry regularly inspect their supply chains and, frankly—not that I have done it myself—I am advised that they are state of the art systems.

Q474   Chair: It is just that the evidence we took from Dr Moss, Professor Swinbank and indeed Peter Kendall of the NFU was that a lot of this production, albeit outside the EU, is being heavily subsidised by those local producers in non-EU countries. So if they are receiving subsidies, or if they have lower environmental and animal welfare standards than we would normally accept in this country, would you and the Department agree that some form of subsidy is needed to allow our farmers to compete?

James Paice: I am sorry; I misunderstood your question. You are talking about if they are subsidised by their own Governments. Clearly, that does put a different complexion on it. I cannot sit here and say we would introduce a subsidy where one does not exist. No, I do not think that is a realistic proposition. Particularly in today's world, it would be going backwards. But it brings us back to our desire to see the Doha Round concluded, because that is the way to ensure that no other countries are providing direct production subsidies in the way that you describe.

Q475   George Eustice: I want to come back to the issue of the WTO. If the long-term aim is to remove direct payments from farmers, we had a lot of evidence that said that payment is almost a recognition of the fact that we have generally higher welfare and environmental standards. Is it time to actually revisit the WTO and how it works alongside reducing those direct payments? For instance, one of the academics told us that the old GATT Agreement that predated the WTO, and is technically still in force I think, did allow countries to prevent imports that came from other countries that had lower welfare standards—it was slightly different from the current WTO rules—and actually if you push the point, you might be pushing at an open door.

James Paice: Certainly we would like to see the WTO Doha Round—it will not be this round because it is in train—addressing the issue of animal welfare, yes. But we know that there would be considerable resistance to it from some countries who would see it as a means of preventing them from entering our markets, undercutting, being more competitive, whatever phrase you wish to use. So whether we'd actually get agreement is another issue. But no, the Government is certainly, in principle, supportive of animal welfare standards and all standards of food production. If you want fair trade across the world—open, fair and free trade—there has to be some set of rules about what constitutes how those goods are produced. We already have it in things like child labour, for example.

Q476   George Eustice: Quite, but do you think that considerations about fair trade should trump the environment and animal welfare in an issue like this?

James Paice: Well if you do not have trade, firstly you are seriously jeopardising the country's ability to generate wealth and profit, because trade itself generates wealth. That is not just a selfish issue about the UK, but it is also about the developing world. Many countries in the developing world will be operating to standards that we would not allow in this country, but it is their way of developing trade and developing their wealth. So hopefully they can, as we have, over time improve their standards. If you say to them, "We are not importing your chickens or your turkeys"—or whatever it may be—"because your standards are not high enough,' and they have not got the income to invest by which to raise their standards, you are effectively preventing them from progressing.

Q477   George Eustice: I understand that point, but you said earlier for instance that standards in Brazil on some poultry farms are actually very, very high. The RSPCA say the same about chicken production, for instance, in Thailand—they are native to that country—and actually, if you had more extensive farming systems in under-developed countries, they would not necessarily be barred on animal welfare grounds. The type of production that would be barred is highly intensive systems. So it is not something that is aimed at stopping the developing countries continuing to develop, it is just about getting fairness in world trade.

James Paice: If I am following you correctly, there is nothing to stop a developing country going for free-range turkeys or anything like that, which might require a lot less investment. I cannot speak for the RSPCA as to whether they would be classified as freedom foods if they are in a different country, but there is certainly no reason why any of our big retailers or food chains could not contract with a producer in some other country to produce lower intensity, lower input production. We already import a lot of organic produce from overseas, from countries that might be considered developing countries.

George Eustice: Okay. Just to be clear: long term you would like to see animal welfare as a consideration in WTO negotiations?

James Paice: I have to be clear because it is your Committee. The Government itself has not got a policy on it. Personally, the answer is yes.

Q478   Amber Rudd: Just to continue on that point of animal welfare. Looking at the Foresight Report again, it does suggest that there might be a conflict in the public's view of animal welfare and the need for food production. It cites for example some of the more intensive farming methods that some people might question in terms of animal welfare, and yet it also puts on the other side the need to produce food or people will starve. There are some quite shocking statistics about the food supply in 2007 and 2008 causing another 100 million people, I think they said, to go into hunger or starvation, which is a long way from the Millennium Development Goals. Do you have any view on how we are going to try to reconcile those two very conflicting issues?

James Paice: You are absolutely right. There are a number of very important issues there. From the consumers' point of view, they are entitled to be properly informed about what it is they are buying, and then the consumer should make their choice, which is why this Government has made great efforts to improve the standards of food labelling. I will not go into all the detail now, but we think it is hugely important. Then the consumer is in a better position to judge value for money, whether price is their sole guiding factor and they do not care where it has come from—which in reality is actually what the majority of consumers do consider—or whether it is the more discerning consumer who wants to choose organic or free-range or one of the higher standards. That is a matter for the consumer.

When you start thinking about the global situation and, as you rightly say, the spikes, and we are in one now—well, we do not know whether it is a spike or whether it is a permanent arrangement; we are at the top now—then the most effective thing that we could do is to increase transparency in terms of world stocks. One of the major reasons for food spikes is the fact that we do not actually know where a lot of the food in the world is, and if we did, it would be much easier for the markets to assess where the fair price ought to be. One of the reasons some people think that the price of wheat is so high at the moment is it is chasing very little wheat.

Amber Rudd: Right.

James Paice: But we do not know, because we do not actually know. So transparency in world stocks is something that we really need to be driving forward, so that the whole world can see more clearly what we have available. I think that would lead to a decrease in volatility—it would not eliminate it because of other factors such as climate, the seasons and everything.

Q479   Amber Rudd: Some of our witnesses used the pressure of food security as a reason to justify European subsidies. Do you think that is a reasonable justification?

James Paice: No. I feel very strongly about food security, but the argument I have been trying to make is that food security is only an issue now because of concerns that changes in the supply and demand balance—that demand could exceed supply—will drive up the prices, which is why I would contend that in the longer term there will be less, if not no need, for taxpayer support.

Q480   Amber Rudd: We had a quote from the European Parliament that "Europe cannot rely on other countries in case of political instability or disease outbreaks." Does that give further reason to concentrate production in Europe, rather than looking at the global situation, because of political instability?

James Paice: I think it is very important that we retain the capacity to produce food. Whether you are actually doing it at the moment, frankly, will be led by the market, and we know that increasing amounts of crop are, for example, going into road transport fuel. We know that there are alternative biomass plants being produced around the world. We know that some sugar beet is now going into transport fuel as well. But all that could reverse if the market was there just for food, so the capacity to produce is what is more important. Secondly, all the projections on climate change indicate that actually, northern Europe will be increasingly the bread basket of the world, to use a rather hackneyed cliché, because we will be least affected. Indeed, some of our colder areas, in Scandinavia and Scotland for example, will become more farmable.

That is hugely important, but do not forget that overall Europe is self-sufficient. It is massively over-sufficient in some commodities. We export a lot of food out of Europe, quite rightly so. If the barriers came up all round Europe for whatever reason—it is difficult to imagine one—Europe won't starve.

Amber Rudd: No. But you would agree that is in the EU's strategic interest to increase capacity?

James Paice: I agree. Yes it is.

Q481   Chair: May I just revert to something you said, Minister, about the labelling of foods and refer, in particular, to my hobby-horse about animal welfare. One of our academic witnesses said that the EU should actually go further and should try and impose import restrictions on animal welfare grounds. In the old days it used to be called Article 36 of the original Treaty of Rome, which shows how out of date I am. Could we stop these imports on the grounds of public health if they were thought to be a threat?

James Paice: Yes.

Chair: Do you think it is worth a try? Have we not been sufficiently courageous in trying to ban these imports?

James Paice: We still can stop imports on the grounds of public health, as I said a few minutes ago. There is no evidence that low standards of welfare are automatically a problem for public health.

Q482   Neil Parish: Yes. I do not think it is recognised by the WTO, is it? That is the problem. If we could get welfare recognised by the WTO, it would be a lot easier.

James Paice: Yes. If we could get welfare recognised, we would, but as it stands—

Neil Parish: As it stands, no you are right.

James Paice: —if somebody does not treat their chickens or their pigs very well, it does not mean it is a risk to my health if I eat the meat.

Q483   Chair: But it is just unfortunate that we have banned sow stalls and tethers, both in this country and the EU.

James Paice: We did, but that was nothing to—

Neil Parish: But we did it in advance.

Chair: And other non-EU countries have not.

Neil Parish: Or EU.

Chair: It is a matter of interest.

James Paice: You are right. We banned them some years ago; the legislation came in 1992 if I remember rightly. I am not sure if it is this year or next year that they will be banned throughout Europe, and most of our pig meat does come from within Europe, so we have had this very long 20-year period of being competitively disadvantaged in that regard. But again, that is purely to do with pig welfare as opposed to public health.

Chair: Okay. Well we will see what happens in Doha or the next round.

Q484   Richard Drax: Minister, what support are you receiving from other Member States or the European Parliament on this question of the CAP budget?

James Paice: On the budget?

Richard Drax: Should it be reduced? What support are you getting on that?

James Paice: As I said earlier, we are quite close to the Stockholm Group. Different countries have slightly different views, but even the Commission's first communication on the financial perspective is referring to the continued decline in the CAP as a share of the European budget. Certainly it is a view shared by most, if not all, of the rest of that Stockholm Group, so the answer is we have a reasonable amount of support.

The reality of course is that it will not be decided by Agriculture Ministers. The fact is that the heads of Governments and Finance ministers will decide together on the overall EU budget, and if history is anything to go by—and I think it is absolutely sure—they will also decide on the totality of the CAP budget. So Agriculture Ministers will be faced with "a budget", and our job will be to create the structure of how to use it, not to actually effect it, because it will be set by others.

Q485   Richard Drax: If there is a reduction on this budget, how will this affect Defra's ability to reach its targets on agri-environmental schemes?

James Paice: We would argue very strongly that the bulk of the reduction, if not all the reduction, should fall on Pillar 1, as I tried to explain.

Richard Drax: Right.

James Paice: Not on Pillar 2.

Richard Drax: Thank you.

James Paice: Which is the reverse of what happened in 2005, when Prime Minister Blair went to the Berlin Summit promising to slash payments to farmers and he ended up losing some of Britain's Pillar 2 money. It was a real backfire.

Q486   Chair: In your evidence, Minister, there is criticism of the Commission for their lack of clarity on measures to increase competitiveness.

James Paice: Yes.

Chair: What new or reformed policy tools are you calling for to enhance the competitiveness of UK agriculture?

James Paice: I think I tried to explain that earlier, Madam Chairman. We want to see Pillar 2 enhanced in terms of total share of the overall resources, and for the UK to have a better share of it, but then instead of this current three—some would argue four—separate axes of different categories of expenditure, we do not really see there needs to be any. There should just be one single fund available for much more multi-functional investment so that farmers could come to the Government with a proposition, for example, that would be environmentally friendly, would be green, may aid biodiversity and may be involved perhaps with generating renewable energy. Maybe it would involve some investment to improve the productivity of a farmer's pig unit or whatever. I can see all sorts of synergies between different aspects of farming that would make the business more competitive and more profitable. We want to see greater flexibility in how we use the resources, because we feel very strongly that this is where the Government can really make a difference in helping the industry face what is frankly inevitable, which is a decline.

Forget for a moment if you wish my long-term prognosis of an end of the Single Farm Payment and indeed the Government's view that that should happen. It is blatantly obvious it is going to reduce, because there is going to be greater pressure on the budget from the new Member States, and it is odds-on that whatever happens post-2013, even if this Government does not get any of its objectives—and I think we will—the Single Farm Payment for British farmers will probably go down significantly. So we have to try to help the industry face that day.

Q487   Chair: You said quite a lot about transferring money to Pillar 2. Just to be clear, does Defra want to see more money for environmental benefits or more for competitiveness under Pillar 2, because the two aims appear to be competing for the same pot of money within Pillar 2?

James Paice: They are not necessarily because sometimes to be more competitive actually involves more sustainable use of resources; the two are not necessarily in direct competition. But certainly that is why I say we believe there should be one pot of money from which individual Member States can set their priorities, and our two priorities will be the environment and competitiveness. But as I have said, we also believe there should be a bigger pot of money for that taken by a combination of transfer from Pillar 1 at a European level, and a better share of overall Pillar 2 resources for the UK.

Chair: But as we discussed earlier, that will help co-financing.

James Paice: Yes indeed.

Q488   George Eustice: I just want to pick up on that as well; I know we discussed the greening earlier. A lot of the farmers have said it will undermine their competitiveness globally if you have too much greening in Pillar 1 and too many other requirements for greening in Pillar 2. Is that something you would recognise?

James Paice: I certainly recognise that it is what a lot of farmers say and I certainly recognise that you could go too far, but I do not think I would want to accept that it is a principle that should stop us wanting to see both more sustainable intensification, to use that phrase again, but also more care for our environment. We know that there are a lot of natural resources that are becoming more and more limited, and yet at the same time they could aid us to be more productive.

Let me give you a couple of examples. Precision farming techniques in arable production are really getting going. A lot of progressive farmers are using them; you place the fertiliser right next to the crop, and it is the same with different forms of applying pesticides. They score on all grounds. You use a lot less fertiliser, so it is conserving resources. You use less pesticide so it is greener; there is less risk, if you like, to the environment. It is also more profitable; because you are using fewer inputs, the farmer is more competitive. So these things are not necessarily in some sort of direct conflict.

Q489   George Eustice: Yes, okay. I know the European Parliament made a separate set of proposals that were similar to the Commission's, but they specifically talked about having top-up payments to encourage lower carbon use in climate change. It proposed broader environmental benefits. Have you a view on that?

James Paice: We certainly believe that climate change and all things related to it should be considered within the CAP, but again, within the Pillar 2 framework rather than as a complicating factor in Pillar 1. The report you refer to I presume is the Lyon Report produced by George Lyon MEP, who of course is a Scot and so unsurprisingly his views are close to that which the Scottish Government are proposing as well. There are many aspects of George Lyon's report with which this Government would agree, but we do not believe that Pillar 1 should be over-complicated by adding lots of top-ups to it.

Q490   George Eustice: Right. You would accept some top-ups? If there were to be an element of greening of the Pillar 1 direct payments, where should the balance lie between income support and—

James Paice: Well you say I would accept some top-ups; no, we would rather not.

George Eustice: Right.

James Paice: In an ideal world we do not believe there should be top-ups to Pillar 1. We think it should be a flat-rate payment moved away from historical to an area-based payment, and that all public benefits, of which greening is key, should be dealt with through Pillar 2. But as for the Commission's proposal for a green top-up to Pillar 1, at the moment we do not know what it really means, and we have said we are looking for clarification of it. So no, in an ideal world we do not want top-ups, but we are not against it as long as it is simple and there is genuine added value for the taxpayer.

George Eustice: Yes, okay, thanks.

Q491   Neil Parish: The Pack Report found that headage payments were a more sensible way of targeting support in Less Favoured Areas than a per-hectare basis. Do you agree that within strict limits there is a role for coupled payments and targeting support in a particular kind of agriculture, specifically where that agriculture production can provide other public benefits? So it could be argued that a very limited amount of the budget spent, say, for argument's sake, on suckler cows in the uplands and Less Favoured Areas could offer a benefit not only for production of grassland but also probably from a tourism point of view—to make sure that those areas are scenic for those going to visit them.

James Paice: I entirely agree that livestock are an essential part of the uplands. The uplands are in their present landscape format because of livestock farming over hundreds if not thousands of years. The Government entirely supports the need for livestock on our hills. I have met with Brian Pack a couple of times to discuss various aspects of his proposals, but I do not think you have to go as far as actual headage payments in the way he is proposing. If you actually look at our current HLS scheme, which we touched on just now, and the Uplands Entry Level Stewardship scheme for that matter, there are grazing obligations within it.

Now we are, as a separate issue, looking at whether there are ways we should refine some of those grazing arrangements. But if you were to say Mr Upland Farmer is receiving a stewardship payment for public benefits, predominantly to do with the environment, that includes, in my view, maintaining that grazed landscape that has given it its character. That means you have to lay down some sort of criteria about the amount of stock that the farm carries, and it may be we do not have that quite right yet. I am the first to accept that. Maybe it needs to be more flexible. That is a way of guaranteeing you have the stock on the hill, but it would be classified as a decoupled payment. I think you can—I hesitate to use the phrase "have your cake and eat it", but I think you can achieve the same aim, which is to keep the stock on the hills, with an environmental measure rather than a direct production support like a headage payment.

Q492   Neil Parish: Right, and so you are actually looking at the Higher Level Entry scheme to see if you can add part of that to it?

James Paice: We are reviewing all stewardship schemes to see whether they need to be altered in some way.

Neil Parish: You have the payments in Scotland for suckler cows.

James Paice: Yes you have.

Neil Parish: What is the difference between Scotland and the north of England, in some ways?

James Paice: As you know, back in 2005/06, after the last big reform of the CAP, it was a devolved issue, and countries—Scotland, England, Wales and Northern Ireland—could choose their own approaches.

Q493   Neil Parish: You mentioned George Lyon MEP and his position we know is closer to the Scottish position perhaps, but he described the position that Defra was taking as "unwinnable" in a European context. I have the argument here that the UK alliance may have around 75 votes in the Council and the Franco-Spanish alliance may have 87 votes, and then you have Poland and others that I suspect will row in more towards the Franco-Spanish perspective than they do ours. What is your view on the negotiations within the Council?

James Paice: Well Mr Parish, you are as experienced on the European front as I am in forming alliances with other Member States, and, as I said earlier, both the Secretary of State and I are actively involved in trying to form alliances with other Member States. I think it is terribly early days to start working out likely voting decisions in probably 18 months, if not longer, which is why we are working together with other countries to try to put together packages that we can agree to. As I said earlier, I do not believe it is going to come down to one group getting everything they want and another group getting nothing they want. It will be some sort of mass compromise, and as you rightly imply, there is the European Parliament aspect to it as well, where you not only have national groups but you have political party groups as well. I am not prepared at this moment to work out whereabouts they are all going to sit.

Neil Parish: Yes, because the trouble with Parliament is, and I have direct experience of that—

James Paice: Indeed.

Neil Parish: —is you have a huge vested interest in agriculture across the European Union, so they will take their country's position, which you would expect them to do. Can I say that I very much welcome what you and the Secretary of State are doing in involving yourself early in the process, because one of the criticisms I had of the last Government was they did not involve themselves enough through talking to the other Member States. It is no good going there the last day and throwing your rattles out of the pram and saying we do not agree with all this, because the other Member States have spent perhaps years negotiating it. So I wish you well. I think it will be interesting how the votes stack up in the end.

James Paice: You will not be surprised that I agree with you. Thank you.

Q494   Mrs Glindon: In your response to the Commission's public consultation, you called for "an objectively designed future allocation key for both Pillars." Can you explain how this would work?

James Paice: If we take Pillar 1, which is the direct payment, it started on a historical basis, based on what farmers were doing in the reference years 2001 to 2003. But England and Germany—and I stress England not the UK—both chose to use the seven-year period of that programme to gradually shift from that historic reference to an area-based payment. Scotland, Wales, and Northern Ireland have stuck with the historical one, as have most other Member States. So we have the issue that we believe it should be distributed on an area-based payment.

The second angle of the Single Farm Payment is the level of it, and there is a massive variation. I am afraid I cannot quote off the top of my head the precise figures, but the variation between the area payment that it would be for the highest country, which is Greece, and the lowest one, which I believe is Latvia—it is one of the Baltic states—is something like 10:1. It is almost like a tenfold variation. That is clearly unfair. The eastern new Member States all argue they want the same rate as the rest of Europe. I do not reasonably think that is achievable, but certainly we would support a move towards a closer approximation of levels of payment between the new Member States and the old Member States. So that is on Single Farm Payment, and it has to be done, we believe, on an area basis.

In terms of Pillar 2, it is a formula-based process, which is based, if I recall rightly, on spending on environmental measures back in the 1990s I think; it is not even as recent as 2001. Clearly that is historical and you cannot justify funding something in the middle of the 2010 to 2020 decade on something that was done 20 years earlier. Again, we believe there are fairer ways, and maybe an area-based system would be the best way for doing that. But there are other options that the Commission are looking at.

I would just add one other complicating point by way of information, if it is informative, which is that of course you then have to look at the totality of what any individual Member State gets. Some Member States are judging it that they want a fair share of Pillar 1, without accepting that that may have a knock-on consequence to what they get with Pillar 2. Are you actually looking at the totality of CAP receipts that a country gets, or are you looking at what it gets in each Pillar? The two may not be the same.

Q495   Mrs Glindon: So, a flat-rate per se is not feasible, but working towards the most equitable and most objective means possible?

James Paice: Yes. We are supportive. We are in a fortunate position in the UK that we are roughly in the middle, so to a degree what happens in this regard is going to have little impact on our farmers. But we certainly support the principle of narrowing considerably the tenfold gap that I referred to. The Germans have put forward one option and the Commission I think are working on another; there are various options as to how you can do that. But certainly we support the need for moving those payments closer together.

Q496   Mrs Glindon: The British Retail Consortium felt that UK farmers would be well placed to compete in markets for high quality and ethically sound products. What estimate have you made of the trends and volume of these markets in the future, and is it possible for most British farmers to move into high-end or niche products?

James Paice: I have not done any assessments or estimates in absolute terms of the prospects for the future. I agree with the overall theory that there is plenty of opportunity for UK farmers. Whether every UK farmer could move, or even English in my context, into niche products, I have serious doubts. There are some products where it is very difficult to generate a niche: grain and sugar beet—major crops—are obvious examples, and potatoes to a large extent, although some producers have managed to develop niche markets for some potatoes. So I am not sure it is possible, particularly for very large-scale producers, nor am I sure it is actually wise for the Government to be taking a view on it, because at the end of the day, a farmer is a businessman. He has to make his own judgment on what the right course of action for his business is.

Q497   Mrs Glindon: So it is not necessarily a key route to competitiveness?

James Paice: It is horses and courses. For some farmers, it is. There are farmers, relatively small dairy farmers, who have launched into ice creams or flavoured milks or something like that, who are doing very nicely out of it. Some have even gone back to the days of having their own milk round. These are all forms of niche markets and they are doing very nicely out of it. But whether a farmer with one of our bigger herds—1,000, 1,500 cows— would find it quite so easy, I am not so sure, and it is the same with the grain farmer. It is possible to supply all your grain if it is relatively small into, I don't know, an organic biscuit manufacturer, and have a niche market if you like. But if you are producing, as some farmers are doing, thousands of tonnes of grain, many thousands of tonnes of grain, there are fewer niche markets available.

Q498   Amber Rudd: Minister, one of the ways to increase yield and competitiveness amongst farmers is to build on new technology, new discoveries and new research. Do you think that the CAP payments should be directed more towards research in order to try to deliver what we have been discussing earlier, which is better, more competitive, high levels of food production?

James Paice: We certainly think that that should be one of the options for use of Pillar 2 money, yes. Very much so.

Q499   Neil Parish: Can I take you into places you probably do not want to go: biotechnology. Do you think that Europe in the long run is going to have to embrace much more of it, and are we engaging with science enough?

James Paice: As you rightly say Mr Parish, it is a controversial area. The Government's view is clearly that we have to be led by scientific advance. We take the view that, if you are referring to GM—although you are actually right to use the wider term of biotechnology, the controversial issue is GM—no GM product should be released, and we would not agree to it being released, unless it has been properly scientifically validated as safe for humans and safe for the environment. Once you overcome those hurdles, then obviously the issues of ensuring that there are proper crop segregation rules and rules regarding liability and things like that come into play. You have to judge each GM development on its merits, and you cannot take a blanket decision.

So we are cautiously optimistic. We take the view that you cannot just turn your back on science; biotechnology has a role to play in our future food supplies. It is not the panacea, it is not going to solve all our problems, but it has a role to play.

Neil Parish: A blight-resistant potato could be hugely beneficial in terms of not having to spray a potato as many times, and all those things. Provided it was fit for human consumption and people were prepared to eat it, it could have a huge economic benefit.

James Paice: Potentially I agree, but you have to prove that it is, as I say, safe for humans and the environment, and the only way you are sometimes going to do that is with a proper trial and some—

Neil Parish: And we are prepared to allow that are we?

Q500   Chair: I think we have been there and we had all sorts of problems. If I could wrap up, the last paragraph of your response dwelt on potential gains from greater rationalisation and efficiencies in delivery of some or all of the Structural and Cohesion Funds. We look forward obviously to the publication of the Macdonald Task Force. How much of an issue—you mentioned the level of the budget—do you think the reform of Structural and Cohesion Funds will be in actually reaching an agreement in this round of the CAP?

James Paice: Structural and Cohesion Funds are outside the CAP directly of course, so they are not my direct responsibility. I am not really sure I am in a position to give you a very substantive answer, Madam Chairman. Clearly they are very relevant in terms of particularly the newer Member States, the former eastern bloc countries, but in terms of precise information, I am afraid I will have to write to you on the subject because it is outside my remit.

Chair: No, that is fair enough.

Q501   Chair: We did take some evidence on the budget aspects when we were over in Brussels. The National Farmers' Union and the Tenant Farmers Association say that direct payments are essential income support to help them manage volatility and be able to invest in their business. Do you agree?

James Paice: Agree with it at the present time? Yes. But I do not believe that it should be a long-term, permanent arrangement.

Q502   Chair: Just finally, to be absolutely clear, do you agree with the Commission that there should be a greening of the CAP, be it either through Pillar 1 or Pillar 2?

James Paice: Categorically yes. I thought I had made that clear. We want to see the CAP have a very significant green element to it. But we are not yet persuaded that putting it into Pillar 1 necessarily adds value.

Chair: Minister, you have been incredibly patient and generous with your time. Thank you both, Mr Nesbit and Jim, for being with us, and for your contribution to our inquiry. Thank you very much indeed.

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