UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 671-i

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Environment, Food and Rural Affairs Committee

The impact of Common Agricultural Policy Reform on UK Agriculture

Wednesday 8 December 2010

Jenna HEGARTY, GARETH MORGAN and IAN WOODHURST

GEORGE DUNN and GREG BLISS

Evidence heard in Public Questions 1 - 74

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Environment, Food and Rural Affairs Committee

on Wednesday 8 December 2010

Members present:

Miss Anne McIntosh (Chair)

Tom Blenkinsop

Thomas Docherty

George Eustice

Mrs Mary Glindon

Neil Parish

Dan Rogerson

________________

Examination of Witnesses

Witnesses: Jenna Hegarty, Agriculture Policy Office, Royal Society for the Protection of Birds, Gareth Morgan, Director of Agricultural Policy, RSPB, and Ian Woodhurst, Senior Rural Policy Officer, Campaign to Protect Rural England, gave evidence.

Q1 Chair : Good afternoon, ladies and gentleman. May I first of all welcome you very warmly indeed. I am going to ask first of all Mr Morgan to introduce himself and his colleague, and then Mr Woodhurst to introduce himself for the record.

Gareth Morgan: I’m Gareth Morgan and I’m Head of Agricultural Policy at the Royal Society for the Protection of Birds. I am accompanied by my colleague Jenna Hegarty, who is one of the Agriculture Policy Officers who works alongside me.

Ian Woodhurst: I’m Ian Woodhurst; I am the Senior Rural Policy Officer for the Campaign to Protect Rural England.

Q2 Chair : If I could just ask each of you a very brief question. I particularly pay tribute to the work of RSPB in my own area and I have been out to see the project. It was a particularly wet day but the recreation of the wetlands and the contribution that that’s making is obviously very important. Working with the local farmers, it was a joy to see. If I could ask the RSPB first and then Mr Woodhurst afterwards, do you think we’re focusing a little bit too much on the environment in this round of reforms; too much on the birds and the environment and perhaps not enough on people and earning a livelihood? Bearing in mind that if you look at the mission statement of Commissioner Ciolos on his website, it is about a secure and stable income and livelihoods for farmers.

Gareth Morgan: Thank you for that question. You’re not going to be surprised by the answer. If I could deflect it slightly, if we do end up in a polar debate about the environment versus agriculture and competitiveness, I think we are lost in this round of the CAP. We really have got to move forward on a twin-track approach. One of the ways in which the RSPB would characterise is that our long-term food security and farming industry is inextricably linked with the good health of the environment, and that it is in our long-term interests and the long-terms interests of the farming industry. I think when you talk to the farming unions, who I know are going to be following us, I think a lot of them share the same view that we do; that if we end up talking about it as being a debate of one or the other then we are going to have serious problems. Clearly we are going to be putting forward a strong case today that the environment needs to remain at the heart of the CAP and if anything become stronger within in.

Ian Woodhurst: I would agree with much of what Gareth has just said. From CPRE’s point of view, we recognise that the environment is intangibly linked to the social make-up of rural areas and the economies of rural areas. The base of that is the environment and behind all that is the landscape, and the quality of the landscape is very important for a whole range of rural businesses. Obviously from CPRE’s point of view it is essential to maintain that. We think the best way of doing that is through environmental measures.

Q3 Chair : Mr Woodhurst first, in terms of maintaining the biodiversity of the countryside, and all the different interest groups that you and we all represent, do you think there is a "one size fits all" policy or do you think that we need a menu of policies?

Ian Woodhurst: The United Kingdom has had a very strong track record in delivering those biodiversity benefits, the landscape benefits, in terms of maintaining both habitats and landscape features. I don’t really see anything wrong with the approach we’re taking at the moment and that is recognised throughout Europe as being a very good approach to the use of rural development money.

Gareth Morgan: I think the debate about the extent to which the CAP should remain a common European policy is going to be at the heart of the discussions we are about to go into. Deciding what needs to be retained at a European level in the policy and what is most appropriately devolved down to national and sub-national level is absolutely crucial. Clearly there is no point in Brussels dictating what sort of agri-environmental policies, for example, are appropriate in the south-west of England. Equally, if we lose sight of a common policy I think both the environment and potentially the farming industry has got a lot to lose. How we strike that balance should be one of the major talking points in the next 18 months, but, unfortunately, it is a little bit of a taboo topic still.

Q4 Chair : You referred earlier to the farming unions coming in. You’ll be aware that not all farmers are members of any particular organisation. Do you think it’s necessary that financial support be paid to all farmers to achieve the environmental benefits, such as biodiversity or rural landscapes, or could this be delivered through more explicit and targeted environmental schemes?

Gareth Morgan: I think what we have established in England could form the basis of a really strong European policy. The fact that every farmer is entitled to an environmental payment should become a Europe-wide concept. Not all farmers will want to avail themselves of that but I think it’s absolutely vital, and one of the principles of the entry level scheme is that all farmers should be able to access that money. In the longer term it will be helpful for those farmers who are going to operate in the market to receive a clear signal at this point that the income support they receive is in some sense time-limited.

One of the major problems at the moment with the Commission’s proposals is that it doesn’t have a very clear destination and so farmers are left in a limbo about this. I think it would be excellent if there was a clear signal in 2014 about those groups of farmers that were going to receive income support in the long term, for example upland farmers and marginal farmers, and those farmers who should be looking to the market but who should be able to access environmental payments if they want to make that part of their business mix.

Ian Woodhurst: Again I would agree with that. As has been said, we have a very good model in the UK for agri-environment schemes and that has been recognised in Europe and could provide a model for the rest of Europe. I think we do need to think about the push for intensification, the push for restructuring and how we deal with that because that will have quite significant impacts on rural landscapes and the way that the countryside is managed overall. Again, I think to have the option of the biggest recipients of Single Farm Payments being able to do something to ameliorate some of those impacts would be essential.

Chair : It would be remiss of me not to acknowledge the work that you do in areas such as North Yorkshire as well, for which we are very grateful.

Q5 George Eustice: I wanted to ask how much you thought was going to be possible to achieve in this current round, because clearly people talk about CAP reform, and it’s been talked about with reform as the tag for as long as I can remember. It is a very slow process and very wide range of views. You are on the perhaps more hawkish, reformist end of that in terms of putting the environment into it. How much do you think is actually practical to achieve?

Ian Woodhurst: I would hope that the Commission and Governments of the Member States would be as ambitious as possible because, as you said, this has been going on for a very long time. We are still seeing major declines in biodiversity; we are still seeing landscape quality being degraded; we still haven’t dealt with some of the problems with water; we have possibly got massive problems in the future to deal with the effects of climate change. This is a golden opportunity to make a real difference to the way the countryside is managed in Europe and it should be seized as much as possible to make the changes that are necessary. I think it will be a shame if farming unions don’t recognise that, because it is in their and their members’ interests as well as in the taxpayers’ interest and the people who are paying these monies to the farmers for environmental outcomes. I think we will need to seize that change.

What we are really talking about is seen as radical but I don’t know how radical it really is to ask for more sustainable land management given the changes that are ahead and the amount of funding that will be needed. So yes, we are pushing a very pro-reformist agenda that some might see as extreme, but I think it is absolutely essential that we take this opportunity at this time, otherwise we will be back here again in seven years’ time asking why are we still suffering biodiversity declines and the same problems that we have now, but probably with the added problems of climate change.

Gareth Morgan: Let’s not beat about the bush. The two primary foci for the debate that we are going to have over the next 18 months are the budget and the way that the money is carved up between Member States. That is an inevitability. I think the tragedy would be if that was the total extent of the debate, and there is a great danger it could be. That’s one of the reason we have been working, for example, with the CLA and the European Landowners Organisation to try and make clear that on balance I think the environmental and farming interests need to get together in this debate to make sure we have a slightly more elevated discussion than just about who gets what out of the budget. That is why in our evidence we suggested it should be about who gets what for what. That’s the interesting part of this debate that could easily get lost.

Q6 George Eustice: The CPRE talk about getting rid of Pillar 1 altogether, or certainly weighting things quite heavily into Pillar II on environmental schemes. Do you think that’s something that is realistic in this current round?

Ian Woodhurst: Our position is as a signatory to Wildlife and Countryside Link’s Beyond the Pillars document, in that we want to see the CAP reformed away from its two-Pillar structure into a single policy and a single funding mechanism. We want to do away with a lot of the complexity and administrative burdens that this kind of architecture that’s evolved since the late ’50s has constructed. We think there is a lot of value in looking at greatly expanding Pillar II along the lines we have said, and run in the way that we do in terms of agri-environment schemes in the UK. CPRE does recognise that there is a need for some kind of support elements, perhaps as an income support measure, for those farming activities, and management practices which are delivering environmental outcomes or environmental public goods. That doesn’t necessarily have to be the traditional ones we see at the moment; we and the Commission have identified additional needs to recognise and award farmers for carbon storage, for water flow management from the uplands down to the coast areas. A lot of famers have a role in that, but some farmers have a greater role than others. I think we need to focus the payments on those farmers who are delivering the most for environment and providing support for them if they need it in some form.

Q7 Tom Blenkinsop: In your evidence you express support for the Commission’s option three and you said, "We believe that the Commission’s option three for reform, which is explained in more detail in the Commissions impact assessment document, has considerable but as yet untapped potential to provide a clear, justifiable and sustainable vision for CAP reform." The scale of 2020 impacts of these trade liberalisations and the abolition of the single payment scheme would lead to land abandonment in marginal areas and intensification on productive areas. Do you agree with that and do you think that there would be any potential negative consequences for biodiversity and sustainability of resources?

Jenna Hegarty: A number of studies that have been done in recent years looking at the impacts of the loss of the Single Farm Payment from both a farm-viability point of view and also the impact on the way land is used in the UK and wider in Europe. The effects are quite nuanced. Whilst more productive areas are likely to intensify and less marginal areas may well extensify to the point of being taken out of production, although not necessarily to the point of land abandonment as is being seen in the wider EU at the moment, we would also probably see a further simplification of agricultural practices; so larger areas of single crops and a further shift away from, say, cattle to sheep in upland areas. Those possibilities have been quite well mapped out.

In terms of the impacts of SPS loss on farmer incomes, the UK does not come out particularly well in the EU but what is very interesting in all these studies is that none of them argues for the retention of direct payments as a solution to these issues. What they argue for are targeted measures. If income support is determined to be a key objective, then who should that go towards? At the moment it is targeted at everybody, but is that really a meaningful way of targeting public money? In terms of environmental effects or impacts, again, targeted measures, whether through broad and shallow agri-environment or more targeted HLS-type approaches, could be considered. Whilst the removal of this system would inevitably have impacts, there are solutions to those impacts that can work in favour of the environment and farming incomes.

Gareth Morgan: Perhaps I should make absolutely clear we are not talking about a big bang type approach as they used in New Zealand. It is essential that any change is phased in. I think some of you have been to visit our own arable farm, Hope Farm, in Cambridgeshire. One of the reasons we are running that is to look at a real farm example of how this works. Most of our profit at that farm consists at the moment of the single payment. We are acutely aware that just taking away the rug of the single payments from farms at the moment would have a devastating impact on farm businesses. It wouldn’t mean that farming stops; this is why we are stressing the need for a clear route map that might take 10 or 20 years to reorder the way that public support is given. Unless farmers are given a clear signal about the destination, it is extremely difficult for them to plan for that.

Ian Woodhurst: I don’t really have anything to add. As I said before, we recognise that in some cases, particularly, we will need to increase support payments or provide some level of support to the farmers producing particular environmental outcomes. Other farmers may not need that level of support that some sectors might do, or some farms in some areas might do. To avoid being back here in seven years’ time, I still say that we need to have a clear path to a different way of rewarding farmers and making sure that we get the environmental outcomes that we need.

Q8 Neil Parish: Do you consider food production to be a "public good"? How do you want to balance environment and food security; do you think they compete with one another?

Gareth Morgan: Sadly we didn’t bring our economist, who I am sure would have enjoyed a debate with you on that. The way I look at this is that food security is a legitimate public policy objective. It would be crazy if the CAP didn’t secure food security for its citizens. The real issue is how it sets about doing that. The evidence seems quite clear that giving farmers a decoupled payment is not a particularly efficient way of achieving food security. Clearly we need to proof the CAP against its impact on food security, otherwise we would be running a huge risk. The more interesting question there is how we support farmers in a way that ensures food security whilst freeing up as much money as possible so that they can be rewarded for the environmental services they can provide. I didn’t quite answer your question straight there, but that is how I see it.

Ian Woodhurst: It is always very difficult to know what people mean by food security. Are we talking self-sufficiency?

Q9 Neil Parish: A security of food supply then, if you like.

Ian Woodhurst: Are we talking about resilience then or the capacity to withstand food shocks or are we looking at capability to produce? I think we have to be clear as to what we mean by food security. We can’t produce food unless we have some form of environmental security. We need to make sure that the soil resources are there and haven’t been degraded; we have water issues to think about, water quality and so on. I always wonder, in terms of England’s role in meeting the food security change, if we are looking at such a massive increase-the Commission Impact Assessment talks about a 70% increase to meet the 9.2 billion population increase-given the size of the United Kingdom and the land use pressures on it that are so immense from all different areas whether developmental, military training grounds, food production and the need to have a sustainable environment, what role can we expect to play in that? First of all we need to be sure and be clear about what we mean by food security and what role we see for the UK in either export or meeting our own needs. The basis on all food production is going to be the quality of the environment.

Q10 Neil Parish: Can I come back on this because there is no doubt that with either climate patterns or climate change, whichever it is, northern Europe/Britain will have to do its fair share of food production in the future. How do you see that? My idea would be that you’d let the productive land almost be more productive, and that land that is in environmental schemes get more out of it for the environment. I just feel that in some ways, for argument’s sake, if you’re going to reduce production on the very productive land in East Anglia, where are you going to make up for that reduction? I think that your environmental schemes come in on the less favoured areas and on the difficult-to-farm areas. You will need livestock and all those things. How do you view it going forward, because we do have to have food production, don’t we?

Gareth Morgan: The RSPB is intensely relaxed about the notion of a food and environmental security common policy which is one of the reasons we decided to produce a joint statement with the Country Land and Business Association. We don’t see those two aims as opposed. I agree with you that there is no point in looking at every piece of land as equal in terms of what it can do in terms of food production and what it can deliver for the environment.

Having said that, our experience of working with farmers, for example in the Fens, is that there is plenty of scope in intensive areas for environmental services to be produced. The Fens are full of rare and threatened bird species; you can find farms with plenty of skylarks and hares on them. There is no reason you can’t do that at the same time as farming intensively. Equally, we want to see farming continue on the marginal areas. It is essential, not just in the UK but countries like Romania and Bulgaria, where there is low-intensity farming systems that would otherwise be abandoned if they weren’t supported. We need to see farming continuing in those areas to produce food alongside the environment goods. But I accept your premise: we have got to be intelligent about the way in which we use different bits of land and we shouldn’t expect them all to deliver exactly the same.

Q11 Mrs Glindon: Related to the effectiveness and sustainability, what are the main risks involved with focusing on producing a more competitive European agricultural sector?

Jenna Hegarty: It depends what you mean by competiveness. I think some might interpret that as producing more, or is it just making a better return from farming? There are plenty of ways that improved competiveness in farming can either be environmentally neutral or environmentally positive. There are a number of ways you can add value to commodities by either communicating the environmental credentials to consumers and getting a higher price for it or doing more and doing the same. I think that the UK’s strengths are producing high-quality agricultural commodities and it should focus on this more rather than on a race to the bottom in terms of cheap and trying to out compete. Whereas some might view factoring in the environment at all stages of production as a risk to UK competiveness in terms of either increasing costs or making things uncompetitive compared with others outside the EU, I think this should be seen as an opportunity in terms of added value, certainly for the UK farming sector.

Ian Woodhurst: Again I would agree with much of what Jenna has said. We have to ask are we trying to compete or continue to compete in terms of low food prices without internalising environmental costs. Are we going to compete to maintain those prices so that we can continue to have massive amounts of waste food, so that we can continue to have serious health problems caused by obesity, and so on? We need to think about on what grounds we want to compete, and I think our strengths will lie in high-quality food and I think the UK farming industry should play to that strength.

Q12 Mrs Glindon: Going on from that, are there any suggestions for what practical steps could be taken so that farmers could be both competitive and maintain sustainability as well?

Gareth Morgan: There is a phrase I use that is maybe a little bit glib, which is "environmental modernisation of farming". It seems pretty clear to me that farming is going to look different in 20 years’ time; for example, if it is going to meet its commitments on greenhouse gas reduction and if we are going to meet the biodiversity targets that we recently agreed at Nagoya and our obligations under the Water Framework Directive. The role of investment in competiveness, to my mind, is to enable farms to make that shift between the way that they are operating now and the sort of infrastructure they are going to need to invest in to be able to perform at a different environmental level. Now that could just be left to the market but it seems sensible to me to use the resources that we have under the CAP to enable farmers to make that shift at the moment. To some extent, that would seem to me to square the circle.

Q13 Chair : Are you not worried about us not being as self-sufficient in production as we were? We are importing a whole lot more that we were five, 10, 20 years ago.

Gareth Morgan: "As we were when?" is the first question about that. Self-sufficiency has clearly fluctuated enormously over the centuries and I think one of the reasons we’re not self-sufficient now is that we like eating avocados and tomatoes in the winter and the rest of it. We are never going to be self-sufficient in those commodities at that time of year.

Neil Parish: Maybe with global warming.

Gareth Morgan: Maybe with global warming we might do more. You can grow bananas on Everest if you try hard enough.

Chair : As long as we can still have our Brussels sprouts for Christmas.

Gareth Morgan: Part of our food security as a nation is about the trading networks in which we are engaged. If I remember rightly, last year a diet was tried out in Fife, and people there ate what was available within Fife-rather them than me to be honest.

Chair : I wonder if we should move on here. You might have a more luscious diet in Witney.

Q14 George Eustice: Just on Fife, I wanted to broaden that idea. In terms of the idea of capitalising on our higher animal welfare standards and higher environmental standards, we are signed up to the WTO and we are in a global agricultural market. How feasible do you think it is to achieve those standards? The farmers will say it is all well good, but there is a symmetry here in that you have introduced legislation that forces us to do these things and when we ask how we can afford to do that, you say we should market our production as being of a higher standard. But they are not making that choice; if they were to choose to have higher standards and market their production on those higher standards, that is one thing, but there is a symmetry in that you are forcing them to do it. What do you say to that? How feasible do you think it is in an international market?

Ian Woodhurst: From our experience at the CPRE with the work that we have been doing on local food and mapping local food webs, I wouldn’t agree that farmers are being pushed into producing higher quality; I think that is what a lot of farmers want to do. The farmers who have done that have seen significant benefits in terms of income through providing that sort of food. It has the additional benefit of creating public interest in foods, but I am not suggesting local food at farmers’ markets is going to be the answer to quality because quality obviously, even at large scale through supermarkets, is very important. I think whenever we look at competiveness we see this push towards restructuring and consolidation, and we see that in places such as Thanet Earth for example, which offers a very extreme way of producing horticultural products. We are seeing it come through in terms of the Nocton mega dairy. All of that suggests that quality is the way to go, and consumers have been giving quite strong messages previously on other food items-chicken or pig meat-that they want to see much higher quality and higher welfare standards. I think farmers have benefited from producing food in that way, and I don’t see why they shouldn’t want to continue down that route rather than the lowest common denominator route.

Q15 George Eustice: Just to push this point, with the WTO, do you think their remit should be changed so that they could actually look at issues like animal welfare in international trade negotiations? At the moment, as I understand it, food safety is the only grounds on which free trade can be affected. Do you think it would be a positive step if issues like environmental and animal welfare standards were recognised?

Ian Woodhurst: I think that would be a step in the right direction, definitely in terms of environmental quality and environmental sustainability. I don’t see any reason why, given the global challenges-and biodiversity is a global challenge, climate change is a global challenge-that the WTO shouldn’t recognise that as being added value to farmers’ produce.

Jenna Hegarty: I think the criticism that we, as a member of the EU, get is that this is just protectionism dressed up under another name. I think if we were going to go down that route, which I agree I think would be positive, there would have to be some global project to support countries outside the EU to improve their standards to bring them up to our level because we are all in it together in terms of biodiversity.

Q16 Neil Parish: Carrying on this theme about the fact that we need to improve farmers’ returns from the food chain, and we also want to encourage organic, free range, eating the landscape, as we talk about, and being cynical, how do we get the public to pay for it? They sign up to it all but then they don’t necessarily buy it. Have you any magic solutions for that one?

Gareth Morgan: I have every sympathy for farmers and their position in the food chain on this. The supermarkets talk the talk on this but everything we hear about it, particularly the mid-range and the lower-range supermarkets, is that they go back to the farmers and expect the farmers to bear the increased cost that that entails. I think there are some encouraging signs of change. I am not sure if it is Hovis or Warburtons that is currently making a big play about using British wheat for their products, but we need to move beyond that to making clear that the customer is potentially going to have to pay a bit more for that. I think we also need to move beyond just "buy British". I think it would be great if Hovis said, "We’re supporting British farmers who are in the entry level scheme and doing great things for the British environment," and putting that message onto the packs so that people know that they are buying into that and that they are going to have to pay a bit extra for that. But I wouldn’t underestimate the supermarkets and the way that they are going to play this.

Ian Woodhurst: Precisely. If we look at things like the milk supply chain, there is obviously something not working in terms of that and our supermarkets, which is why the National Farmers Union and the Women’s Institute, recently launched a campaign to get greater transparency in that supply chain for milk. Absolutely, we need to make sure we’re clear about whether the consumers are being given a choice. Are consumers getting what the supermarkets give them or is it, as the supermarkets say, "We are just supplying the customer." ? In terms of the CAP, it’s hard to know the proportion of the effect that can be achieved through what it can dictate and that which can be achieved by adjustments to the supply chain in terms of the power of the supermarkets and purchasing power.

Q17 Neil Parish: The point I was going to make is that we are putting in this new food adjudicator-food ombudsman; it might be useful if both your organisations could help in that because one of the problems I see is that some of the farmers and farming organisations aren’t necessarily going to want to put their heads above the parapet to get shot by the power of the supermarket. I know you do work very well with farmers; it might be a way of joining forces.

Chair : Nodding of the heads in agreement. That is very good, thank you.

Q18 Thomas Docherty: I probably should declare that probably until about 10 minutes ago I was a member of the RSPB.

Chair: Have you not paid your sub?

Thomas Docherty: After that crack, I might ask for my money back. Can I ask you both: obviously the Commission wants to green Pillar I of the CAP, but are you convinced that the Commission’s proposals will deliver genuine environmental benefits?

Jenna Hegarty: Obviously, the Commission have set out a number of options and it doesn’t take a genius to figure out that option two seems to be their favourite, which is a bit of a middle ground approach. I think there are some really promising steps in the right direction in terms of what they have proposed particularly the new compulsory greening payment under Pillar I, which explicitly links direct payments to some tangible environmental outcomes. Obviously, it all boils down to the detail. All we have got so far is some suggestions including crop rotation and ecological set-aside, so how beneficial this will be will depend on what they look like on the ground. That is where organisation like us excel in terms of populating detail.

We were quite disappointed that for all the talk of greening Pillar I there really was only one new proposal under it that actually linked payments to environmental outcomes. The rest of the payments are either basic income support or support measures for small farmers or marginal areas. I think what is necessary in the next round, because of the increasing public scrutiny on where the money is being spent, is that this money needs to have environmental conditionality attached to everything. That in turn will act as a means of income support and stabilisation for farmers. It’s a way of demonstrating that public money is being used for tangible societal benefit. I think the Commission’s proposals could go a lot further along the lines we highlighted and which option three has potential for but hasn’t as yet explored.

Ian Woodhurst: We’ve tried to green Pillar I through cost compliance but I don’t think it has really delivered that much and neither does CPRE in terms of the good agriculture environmental condition; there is no guidance really from the European Commission on what cost compliance really should do beyond the statutory management requirements. I’m also a bit confused why, when the Commission is seeking to reduce the amount of complexity within the next CAP reform and the farmers’ unions are also very concerned about adding the complexity, we are going to try and do something that seems to be very complex and could add more. Surely the most simple measure would be to go for the more radical option of not having a two-Pillar structure and making sure that all the money therefore goes into environmental public goods and ecosystems services provisions. The danger is that with green Pillar I we would just end with probably not much more than we have got right now.

Q19 Thomas Docherty: I think it would be fair to say that you would suggest that they are not consistent with simplifying the way that the CAP works, but do you think they would deliver real reforms by greening the Pillar I?

Ian Woodhurst: As Jenna has said, there would have to be a much stronger push for real environmental public goods, much stronger guidance and perhaps there would have to be more targets focusing on proper outcomes. I think there is a danger that we could have some sort of green wash of Pillar I. That won’t serve the purposes of what we need to do in the next seven years in Europe in environment terms.

Gareth Morgan: I really wrestle with this simplification issue. As you are probably aware, the RSPB is a significant farmer in its own right. We have several tens of thousands of hectares of land on which we claim. We have had a cross-compliance check on our holding, and I wouldn’t say it was a nightmare-it is perfectly legitimate and it is right that it is done-but it took dozens of inspectors many weeks in order to check our estate was in order and we had to jump through endless hoops to do it. We have seen it from both sides.

Having said that, it must be right that if we’re spending £40 billion a year of taxpayers’ money in Europe, we are clear about what the taxpayer is getting in exchange for that transaction. We need to find ways of satisfying the taxpayer that they can be sure that it is a good investment without strangling the farmers in red tape and we’re obviously not there at the moment.

Q20 Thomas Docherty: There’s obviously a concern that by greening Pillar I it will simply divert resources away from Pillar II. Do you think that is a fair assessment of the danger ahead?

Jenna Hegarty: I think that is certainly a risk. Whilst there’s a clear need to improve and inject, where absent, the environmental delivery of all CAP payments, there will always be a clear need for targeted Pillar II-type spend-whether it is called that or something else-under agri-environment schemes. There are certain species and habitats that will never do well under a broad-brush approach that may deliver resource protection objectives or more simple environmental outcomes. But going back to the 2020 biodiversity target, agri-environment schemes will be critical in meeting that and managing our protected site network.

One thing that is interesting to point to is the Land Use Policy Group did a study on the scale of needs in terms of the financing necessary to achieve the environmental objectives already set out for the UK, and they came up with a figure of between £1 billion and £3 billion, which is significantly more than the current Pillar II budget. It is actually more in line with the direct payment budget. I think there is a robust evidence base for the need to spend more on targeted environmental measures, whereas, as far as I know, there is not the same robust evidence base for continuation of direct payments in their current form.

Q21 Chair : On the issue of simplification and complexity of the current arrangements, how much is due to the CAP itself and how much down to gold-plating and implementation by DEFRA?

Gareth Morgan: As you are probably aware, the RSPB operates as part of a European-wide partnership, Birdlife International. We hear quite a lot about gold-plating, and I think in fairness the UK is not particularly at one end of the spectrum or the other on this; we are about mid-range. I don’t think DEFRA routinely looks at legislation and decides to embellish it. I think it is fair to say a lot of this is actually embedded in the CAP itself. You are also aware that a review of farm regulation is going on at the moment, and we’re very pleased to see that the emphasis on that is not about reducing the environmental benefits that come from farm regulation; it is about seeing if we can get those benefits in ways that impose less of a burden on farmers, and I think that is the right emphasis for that investigation.

Q22 Tom Blenkinsop: Are you campaigning for retention of the CAP budget at current levels?

Jenna Hegarty: Going back to my previous point about the Land Use Policy Group study and the scale of needs for environmental measures, the RSPB, as a science-based organisation, will always argue that the CAP needs tangible objectives, and we would argue for a public money for public goods principle to underpin it all, and then a budget that is commensurate with that objective. I think a significant amount of work needs to be done on building on top of the LUPG study to determine what that is in terms of the environmental objectives we need to achieve to underpin long-term viability of the farming sector. I would wager that to meet those environmental outcomes the CAP budget would not be less than what it currently is, although I appreciate there is considerable pressure for all Member States to reduce spend.

Q23 Tom Blenkinsop: Just one point: you were quoting the Land Use Policy Group figures. In its communications the Commission made no mention of the level of the budget, and the Commissioner said that they trusted that the Parliament and Council would agree a budget commensurate "with our ambitions". In those ambitions it fails to mention agri-environment schemes at all. Does that concern you?

Jenna Hegarty: Yes. I think the lack of specific reference to agri-environment in the communication and then the impact assessment is worrying, but through all our engagement with various officials, both at Commission level and here, we hear, "Agri-environment is safe; of course it will be in the next CAP." I think we would feel much safer if we saw that in writing. Agri-environment is a core part of the CAP; not just Pillar II but in terms of the concept of rewarding farmers for sustainable land management and recognising what it is that they deliver on their land. But yes, the budget issue is sadly a game of politics, and we would like to see the environmental objectives retained as a key priority within the process of determining the level of the CAP budget full stop. Then what level of spending is allocated to targeted agri-environment spend must form part of the next CAP.

Ian Woodhurst: Just from CPRE’s point of view, yes, we do think that we need at least what is currently in the CAP. The problem is that there has never been a real evaluation across Europe of what is needed when we are talking about the European funding stream and policy. We know that, if we are looking at future challenges, the Lawton Report-looking at landscape-scale conservation and protection measures-suggests a figure of around £600 million to £1.1 billion would be needed to establish that network in the first place, on top of costs for the water framework directive to improve water quality, on top of the biodiversity costs, and on top of the need to restore landscape, which is not just about maintaining landscape features but about our need to restore some of those traditional farm buildings. I really think that the money we are looking at in European terms is at least going to be equal to the CAP and will probably need to be a lot more because this is land management funding. At the end of the day this is money to manage land and to protect the countryside and to maintain and enhance it, which is what the citizens of Europe and the public have asked farmers to do. So my short answer to that is: yes, we probably will.

Q24 Tom Blenkinsop: So in terms of the whole problem, how do you think the budget should be allocated between Pillar I and Pillar II, and between the income support and the environmental measures elements of Pillar I.

Gareth Morgan: As you probably picked up from the tone of our answers to date, we would like to see a much clearer focus of the resources on the second Pillar. In relation to this overall budget question, I think Mr Ciolos has got this. He knows that unless he can make a really convincing case that the CAP does things that European citizens value, then saying that we need £40 billion, £50 billion, £60 billion per year to the budget Ministers isn’t going to work. My worry is that not all the farming unions have woken up to this yet. Unless collectively we can make a convincing case in the next six months for these recourses on the grounds that they do good things for the environment whilst providing food security and underpinning sustainable farm businesses, that budget is going to be severely reduced. When push comes to shove from our side of things, we are going to want the focus to be on environmental payments if we are in the situation of a reduced budget. I would rather be in a position alongside the farming unions of making a case for CAP resources at the current level, but unless some of them end this slight air of denial about this current financial situation, that is going to be problematic for us.

Q25 Chair : In terms of encouraging and incentivising farmers to do more for the environment, do you think mandatory payments are the best way forward? Mandatory payments for the environment. Is that the best way to incentivise?

Ian Woodhurst: It depends what you mean by mandatory. Do you mean they would be for a percentage of land to be managed under environmental terms?

Chair : They would make it much more linked to the environment. It’s option two of the Commission; one of the things they are proposing is a direct payment.

Ian Woodhurst: I think the problem is that we are not quite sure exactly what a direct payment is for. There needs to be an existing amount of money to manage the land and to produce the environment outcome we need. I am not really sure if I would go down the line of forcing farmers.

Q26 Chair: To a certain extent Mr Morgan has already answered it because he said the Commission prefers option two. Can I just ask, if the budget was not agreed this year, and the Commission was to proceed by twelfths, would that impact on yourselves?

Ian Woodhurst: It would definitely impact on the ability to deliver the environmental outcomes we need. Inevitably any delay would have a knock-on effect, as we have seen in the past when budgetary negotiations have taken longer. With the current rural development programme for England, it took a lot longer to get some of the other measures in place and to get them moving; I think that did have a knock-on effect on farmers and consequently on the environment.

Gareth Morgan: Not wishing to be flippant but for the RSPB, from a very self-interested point of view, it wouldn’t make much difference because our single payment usually arrives about three years late.

Chair : We won’t go there on this occasion

Q27 Chair : Talking in terms of active farmers and the discussion there, do you think, particularly the RSPB-being a major recipient-limiting payment to active farmers would have an impact on your organisation and environmental benefits to other non-Governmental organisations.

Gareth Morgan: You have to be quite careful about trying to distinguish our self-interest in this as an organisation and the broader interest in this. I think this is an entirely distracting debate and I am not sure who wants to have it or why. The pejorative term in Scotland at the moment is "Slipper Farmers", which no one has satisfactorily defined, and we could spend at least a year having arcane discussions about who is a real farmer and who isn’t.

Q28 Chair : Do you have any tenant farmers?

Gareth Morgan: Yes, in fact we have assigned a significant amount of our single payment directly to our tenants because they are the people doing the work on the farm. I understand the debate to the extent that the payment is not intended to go to investment companies that own land. In practice as soon as you have farm payments the money slips up the chain and ends up with landlord however you do it. It does less so for agri-environment payments. It certainly does so aggressively for direct payments. It’s capitalising into land and into rents and it is very hard to get around that problem.

I don’t think we need a long debate about whether the RSPB is a proper farmer or not: we have 15,000 animals; we have wheat fields like everyone else. You could say that we don’t need the money in income terms and others do. For example, Butterfly Conservation had a visit from the European auditors to work out whether the sheep fields they had were for sheep or for butterflies. I don’t really think this matters. The whole point is this is multi-functional agriculture, trying to maximise the benefits for ecosystem services whilst undertaking agricultural activity. For me that’s the end of the debate, and I hope that we are not going to get ensnared in what I would regard as an entirely distracting discussion, but there are those out there who would love to have 12 months discussing it.

Q29 Chair : I just think for certain tenants it is an appropriate discussion to have. Do you have a view Mr Woodhurst?

Ian Woodhurst: I agree for certain tenants it is probably a problem. I don’t think it’s insurmountable and I think it shouldn’t be beyond the wit of the either UK Government or the European Commission to find a way round it. Yes, it could be distracting because what we want to see is the outcomes really, and who provides those outcomes should obviously be the people who receive the payment. If that’s not working, and other people are receiving payment who are not doing the management or undertaking the work or trying to up the standard environmentally, then that needs to be dealt with.

Q30 Neil Parish: I think you are right, wherever the payment goes it will be recognised either in the rent or whatever because the landlord is not going to let the land for less that what the payment is and it all adds to it. My question really is on less favoured areas on hill farming. Are you happy that the less favoured areas should be defined by a bio-physical indicator? Also the Tenant Farmers Association and the NFU would quite like headage payments in some places because they feel there is destocking, especially of suckler cows. I know from what has been quoted here that the RSPB might not be in favour of that. What is your position on this?

Gareth Morgan: The RSPB remains vehemently opposed to recoupling payments. I had the good fortune to have lunch with the Agricultural Attaché from the French Embassy today, who was enthusiastically explaining why recoupling payments would be a good idea, which I have to say, although I like him, makes me very worried about the proposal. I think it is a slippery slope. I can understand why the Tenant Farmers Association are attracted to it, but it’s a short cut and it would take us back to the days of the 1980s and 1990s of milk lakes, grain mountains, wine lakes and the rest of it. A little bit of recoupling sounds to me like being a little bit pregnant. You either have a system that is about supporting famers for what they produce or you talk about supporting them for the benefits they produce for wider society. It’s quite hard to envisage a system where you have a bit of one and a bit of the other.

Q31 Neil Parish: If you restricted it in particular areas, then I think your beef mountains and milk lakes are probably not going to really affect the global picture. The Republic of Ireland have a special payment linked loosely to suckler cows and to do with the type of grass and grazing because there is a problem, especially in the hill areas, of having enough suckler cows in particular because they are replaced by sheep and they don’t do the same job. So would you be open to considering perhaps thinking slightly outside the box?

Jenna Hegarty: Is that the Burren project you’re thinking of?

Neil Parish: Yes.

Jenna Hegarty: I think that’s a really good example. I think it was previously a LIFE project but it has now been turned into a national envelope type approach. I think what’s critical with these issues is that it is about supporting the systems of farming that produce food and these environmental benefits. I think coupled payments are an incredibly blunt tool that could risk ticking all of those boxes in terms of cows being on the hills or coming off the hills and becoming meat, but might miss everything else and might even end up with environmental dis-benefits. I think with some not even particularly in-depth thinking there is a way of capturing all these benefits and recoupling is not the answer.

Q32 Dan Rogerson: The communication is a little bit sketchy on the details in Pillar II and about how that development can be used. I know that is an issue that both organisations have raised concerns about. Do you agree that measures to help farmers to work together on green infrastructure are needed, and what shape those might take?

Jenna Hegarty: The issue is how we would interpret green infrastructure as a kind of landscape-scale approach to a lot of the environmental challenges that are facing us. You might have heard of the RSPB’s Futurescapes Project, which is effectively looking outside protected area networks and ways that land managers can work together; having a big-picture vision for wider countryside using, particularly, agri-environment schemes. I think taking a landscape-scale approach through targeted environmental measures is critical, and again makes me wonder why agri-environment was not pinpointed as one of the key tools for green infrastructure delivery.

Q33 Dan Rogerson: Coming back to what we were saying about targeting active farmers for example, what you are suggesting would presumably potentially go beyond that because it would looking at other people in the landscape as well, so bringing those together.

Jenna Hegarty: Farmers and their managers, yes.

Q34 Dan Rogerson: When the Commission talks about preferential aid intensity rates for improved targeting, what is your understanding of that and what effects do you think that might have?

Ian Woodhurst: I think your understanding is probably as much as my understanding. It’s not clear what they are intending to get out of that really and how it operates. I think that will be up for negotiation. That’s my way of saying I am afraid I don’t really have an answer to that question because there is not enough information.

Dan Rogerson: It’s the same questions you’re asking effectively as organisations ?

Ian Woodhurst: Exactly. What do they want to achieve?

Q35 Dan Rogerson: In the Uplands Inquiry that the Committee’s been doing we identified the problem that the income-forgone payments in agri-environment schemes aren’t really sufficient to make farming in these areas viable; the sorts of issues that Mr Parish was talking about. Also, they don’t even incentivise better delivery of agri-environment schemes. What scope do you think there is in CAP reform to effect that issue?

Ian Woodhurst: I think the Commission’s European Institute Report has already identified the fact that there’s additional and currently undervalued and unrewarded activities that farmers are either doing or could do in terms of carbon management and water flow management that would provide ideal opportunities for the CAP to address. That would then also look at the fact that we would keep our peatlands, which are very high in biodiversity and have very high landscape value as well as storing carbon. I think we need to maintain the multi-functional approach in particular areas, and the uplands is definitely one of them.

Q36 Dan Rogerson: Do you the think some of the other Members States would be interested in that as well, or is that something that we are talking about here that isn’t being talked about in other places yet?

Ian Woodhurst: I think it doesn’t necessarily have to be upland areas but in parts of Spain and Romania there are probably the same sorts of issues, where they are currently looking at marginally economic areas that will need support to maintain those environmental benefits. I think there is definitely a role for the CAP.

Gareth Morgan: We are acutely aware that the income forgone and basis for argi-environment payments does disadvantage more marginal farming systems because there is often not a lot of income to forgo unfortunately. This relates to Mr Parish’s question about LFAs; we have tried to introduce this concept of high nature value farming into the debate. There are many farmers who are producing environmental services at a least the level that they are producing food services for the market. Trying to identify those farming systems and ensure that we are targeting the support that is on offer to those farmers, so that they are maintained to continue their farming in order that they provide those biodiversity and wider environmental benefits, could be a way in which we could get around this problem. It would potentially also enable us to have a simpler support system for those farmers, because many of them find the paperwork that surrounds agri-environment quite challenging. For example, in Romania, there are effectively many peasant farmers who do not read and write, so going to them with a high-level scheme handbook is out of the question. We have got to find imaginative new ways of supporting those farmers who are doing so much for the environment.

Q37 Dan Rogerson: Certainly during my time as an MP the feedback on the high level scheme is that it has been improved in this country. It was not very successful in terms of getting take-up earlier on, but it has got better now. Should the CAP include measures to increase consistency in the quality of the implementation of agri-environment schemes across the Member States, so that we get a similar approach and we can have confidence that we are achieving results across Member States?

Ian Woodhurst: That will come down to the regulation and negotiations on the regulation. It is a tricky balance, is it not? You want to make sure that people are applying things consistently, but then you also want to make sure that you are able to target and pay for the things you need in each Member State and in each area of each Member State. It is a difficult balance, but I do not think there would be any harm in regulations perhaps being a bit more stringent about the sort of things that the European Commission expects Member States to produce, which may get round some of the issues in terms of gold-plating regulation sometimes.

Gareth Morgan: Agri-environment is actually a great British success story. It is something that we should be out there selling in Europe. We have got a lot to offer. That is why we were so delighted that the high level scheme was largely spared the spending cuts axe, because it really benefits things. It does good things for things like skylarks, cirl buntings and marsh fritillary butterflies and landscape features too, and we have got evidence that it really works. We have developed this and I think we have got a good case to go out to Europe. The European Auditors are about to produce a report on agrienvironment. I am a bit fearful because there are some bad examples of agrienvironment out in Europe, which include states giving out money without checking that the farmers actually do what they are meant to be doing.

Q38 Tom Blenkinsop: It is slightly off what we have been talking about as it is about the timing of this round of CAP reform. Obviously, the UK has been put in a position where it might have to make policy trade-offs with other EU Member States in EU CAP reform. What impact do you think that these possible trade-offs between CAP and other elements, such as the rebate, might have on CAP reform?

Gareth Morgan: We saw a suggestion of a leaked conversation about this between President Sarkozy and David Cameron. There could be a deal about the UK rebate in exchange for leaving the CAP alone. I suppose that goes back to my initial point: it would be a shame if this CAP reform becomes reduced to an issue of political trade-offs about the budget. There is a real golden opportunity in this reform to do some great things not just related to the farmed environment but to enable us to achieve the targets on biodiversity recovery that we have set ourselves in Nagoya. The farmed environment will be crucial to that, and it will be incredibly disappointing if we throw that opportunity away just on the basis that there was going to be a trade-off between the budget and the CAP.

Ian Woodhurst: I think there are issues in terms of our allocation because of historic spends on rural development money, for example, which has resulted in some of the horse-trading that has gone on in the past with regards to the budget. I think that there wouldn’t be any harm in looking at need, at least in land area terms of what needs to be done environmentally if we are going to move to a much more environmentally focused policy. I do think that we need to avoid horse-trading at the final stages. We need transparency in negotiations over the budget to ensure that everyone knows and is clear about what is trying to be achieved by the reform.

Chair: Thank you very much indeed. We are most grateful to you, thank you very much for being here to answer our questions and sharing your thoughts with us. I am sure we will be in touch again.

Examination of Witnesses

Witnesses: George Dunn, Chief Executive Officer, Tenant Farmers Association, and Greg Bliss, National Chairman, Tenant Farmers Association, gave evidence.

Q39 Chair: Thank you very much indeed for joining us. You are most welcome. I understand that Mr Dunn will be joining us. If you will bear with us, there may be a vote, in which case we will have a very short interruption. If you are happy that we proceed, may I ask you to introduce yourself and, in his absence, Mr Dunn, who I am sure will join us just as soon as he can.

Greg Bliss: I am Greg Bliss. I am the National Chairman of the Tenant Farmers Association. We are the body in England that works solely for tenant farms and those who work within the tenanted system of land tenure. George Dunn is my Chief Executive. He is the real expert on tenancy law. I am the farmer and layman, really.

Q40 Chair: You are very welcome. Just at the outset, both in the present CAP and looking to the Commission Communication for Future Reform do you think that we have the balance right? Do you there is too much focus on the environment and the birds, and perhaps not enough on farmers, in the measures that the Commission is proposing?

Greg Bliss: As the Tenant Farmers Association, we certainly worry about the greening of the CAP. I think we need to look very hard at what we are trying to produce. If we are going to produce enough food and achieve the food security to feed us, we do have to be careful that we get the balance right between food production and environmental protection, or this basket of public goods that we talk about, which includes all of these things. I think there is a risk that we might lose sight of food production, particularly in the way it balances amongst the other EU members, in terms of the way they work to their own budgets in terms of modulation and that sort of thing. We could find ourselves disadvantaged in this country if we do not have the right balances.

Q41 Chair: I know that you have previously said that the landlord tenant sector is unique to England and Wales. Do you believe that is an issue going forward in the current proposals for current CAP reform? Do you think the concept of landlord tenant, as we understand it here, is one understood by the decision makers in Brussels?

Greg Bliss: I do not think it is particularly well understood. We have had some communication into Brussels and we have a specific case. However, in this country, the landlord tenant system works in such a way that there is quite a large risk of the landlord taking quite a lot of benefit from the payment into this country, through whatever measures he puts in place in terms of the tenancy that we work under in this country. In Northern Ireland and Scotland the rules are slight different, but in England and Wales there are several situations where benefit from the CAP can bypass the active farmer and go straight to the landlord through clauses written in the tenancies. We are very clear that we want the active farmer, that is the tenant, the man who is taking the risk, to take the payment that comes out from the CAP.

Q42 Chair: Excellent. May I just pause to welcome Mr Dunn. You are not late; we are early. Thank you for allowing us to continue, George. You are most welcome.

George Dunn: No problem.

Q43 George Eustice: One of the things that I know the Commission is looking at in this current reform is the tightening up on the definition of an active farmer. I wondered if you could say what you think an appropriate definition of an active farmer would be.

George Dunn: I will start with the premise that we are looking at people who are involved in an agricultural activity or keeping land in good agricultural or environmental condition. We would then say that in order to identify the person who should be the recipient of the CAP support, they have to meet three criteria above that. Firstly, that they are in occupation of the land concerned; so they are not a contractor and they are not providing a service to the sector. Secondly, that they are in day-to-day management control, and that means taking the decisions about what happens on the land over the year. Again, this means that it is not a contractor who is taking the decisions from the owner. Thirdly, and most importantly, they are taking the entrepreneurial or business risk of operating that land; so they are not just taking a fixed fee or a rent, they are actually taking a risk in operating that land.

What we would say is that we are not expecting there to be a great amount of information provided at the time the application is made to prove that you are this individual. It should be self-assessed criteria by which people are then aware that they will be open to inspection upon at a later date, should they be selected for an inspection. It would create the circumstances within which, agents, for example, who are advising people on their applications, would be very conscious of their own PI cover if they were advising people to do things that make them fall outside that criteria of an active farmer. Therefore, it is not something that we would see as a great regulatory burden up front.

Q44 George Eustice: Do you think that it should exclude people that do not actually earn their living from the land, or even directly engage with agricultural production? I know earlier when we spoke to the RSPB, they were saying that there had been some discussion of whether their field was for butterflies or sheep, which affected the definition.

George Dunn: The CAP was developed as a mechanism to support the farming community and to provide security and other environmental benefits. We would absolutely say that it is right that the applicant should be the person who is carrying out the agricultural activity of keeping land in good agricultural and environmental condition. That rules out things like golf courses and football pitches at one end, but also people who are simply involved in biodiversity management. It has got to have some aspect of agricultural activity to it.

Q45 George Eustice: Yes. Do you think there would be a case for restricting farmers only to one or two of the Pillars, so that people who are not active farmers might be eligible for benefits in one of the others? Pillar II or Pillar I could be reserved just for farmers.

George Dunn: I think you would have some difficulty in making that distinction between the two Pillars, because obviously a lot of what you do in Pillar II relies upon there being a fundamentally basic agricultural activity going on in that holding, to which you are adding particular management criteria to provide biodiversity and keep land in good environmental condition. We can absolutely see that there may be individuals outside agriculture per se who need public support for other types of activity, but we do not think CAP is the place within which they should necessarily sit.

Q46 Neil Parish: I think you have partly answered the question. I am going to ask you a slightly different question. In your Vision for Agriculture, you said: "Measures must be put in place to ensure that support payments do not become capitalised into land values." That is very laudable, but how do you stop it? Because once the landlord knows that the payment is coming to the tenant, he or she is going to want that reflected in the rent, I would have thought. How do you want to get this vision across, and do you see anything in the Commission’s proposal to help you in that?

George Dunn: The Commission proposal lacks the necessary detail for us to be able to answer your question precisely, on that aspect. One would expect it not to have too much detail at the moment. It is difficult to see which way the Commission document will go once we have the legal texts and draft next year. However, there are two specific things that could be done to assist. The first is that, if it is absolutely clear that the only applicant for Pillar I or Pillar II is the sort of applicant who I have been describing, the landlord has to then enter into a proper negotiation with that tenant about how the rewards of those schemes are going to be provided. Currently, the marketplace in agriculture tenancies is very slim, and there are many more people seeking land-and Greg will tell you about his area, I am sure-than there are offering land. Even if landlords are able to take the SPS benefit and the Pillar II benefit, people are still willing to pay very high rents simply to get access to land. By putting the tenant farmer in the prime position to be the applicant will immediately change the necessary negotiating ethos.

The second thing is that we need to put rules in place to stop individuals from acquiring SPS entitlement rights, or whatever comes next, over and above what they need for their application. We are already aware of many landlords who are asking tenants to give up Single Farm Payment entitlement at the end of their tenancies, for little or no compensation, and then renting that back. We believe that that should be outlawed, as well as stockpiling entitlement to rent out with land elsewhere. Those two things, particularly, could help sufficiently. It is not going to take all the value back.

Q47 Neil Parish: You would say that the entitlements belong to the tenant then, would you?

George Dunn: The entitlements belong to the tenants, yes. That was a battle that was fought over the 2003 reforms when we were looking at whether the entitlement should be a land-based entitlement that needs a farmer to activate it, or a farmer-based entitlement that needs land to entitle it. We plumped for the latter, but we would very much see the entitlements remaining in the hands of the active farmer.

Q48 Mrs Glindon: This is not quite a wish-list question, but what would your organisation hope to achieve in this round of CAP reform?

George Dunn: I think that is a wish-list question, isn’t it? It is quite interesting that this reform is being conducted against a very different basis to previous reforms. There is not really the WTO impetus that there was in the last reform, or the reform before that. I know that the budget issues are still important, but they are not as important as they were when the CAP budget was more than half the total amount of spending in the EU. We think this is going to be a much more principled reform than we have perhaps seen in the past, particularly with the involvement of the European Parliament and a greater degree of democratic control over the decision making. There could be much more of a principled approach to the whole CAP reform debate. I think our key messages are: food security; benefits to the active farmer so that he is recompensed going forward; issues to deal with volatility in both output markets and input markets; and help for competitiveness structural issues, including retirement and new entrants. These would be the key messages.

Q49 Mrs Glindon: What are your views on the feasibility of the Commission’s three options?

George Dunn: The Commission often do this, don’t they? They give you three options and go for the middle one. I think that is exactly what we have got this time. The Commission is quite clearly not wedded to options one and three; they want option two. From our perspective, the document is broadly welcomed, because it seems to have a great resonance with what we have said in our 2020 Vision report, which Mr Parish referred to earlier. A lot of the concepts that are in the Commission’s communication, we were talking about a few months before in our 2020 Vision document. Therefore, option two seems to us to be the most appropriate way forward.

Q50 Neil Parish: Regarding policies at the EU level: what is there that would enhance the competitiveness of agriculture, especially in the UK? Also, what is your position on capping of the larger farms? Would that make agriculture more competitive, or how do you see it affecting the tenanted sector?

George Dunn: I will take competiveness and you can talk about capping, Greg. On the competitiveness issue, the Commission’s document is very helpful when it talks about the problem that agriculture has to be a strong player in the marketplace and its own supply chain, because of the concentration in the retail and the input supply sector. Competition is about how agriculture provides itself with a fair return in its own supply chain; that is part one. Part two is about how agriculture in the EU fights its corner against third-country agricultural systems, within the context of the WTO, where perhaps things are not being produced to the same environmental, animal welfare or water quality standards to which we are producing at home.

There is another question about the extent to which British agriculture is competitive, as opposed to the other 26 Member States of the Union and their agricultural systems. So we will try and take those three. The Commission’s document, with which we agree, indicates that the reason why we continue to need a Pillar I is that agriculture has a weak position in the supply chain and is unable to really have its costs of production properly covered, with an element of profit, in the supply chain which exists. Pillar I is vital to ensuring that farmers can remain competitive in their own supply chain. However, we also see the need for some form of ombudsman adjudicator to be able to parachute in to supply chain situations, and look at whether or not that supply chain is acting in a morally or ethically efficient way.

In terms of the position with regard to the rest of the world, again the Commission’s document recognises that other countries are perhaps able to export commodities into the EU that are perhaps not produced at the same high standards that we expect at home, but consumers find it difficult to distinguish between the two products. Therefore, again, Pillar I support in that market, border support, is important for competitiveness in global terms. If we are going to have these higher standards, we need to protect those higher standards and not undermine them by exporting our environmental and animal welfare issues abroad. That is very important.

In terms of the British agriculture against other Member States, we are quite pleased that this document has not considered it appropriate to have considerable renationalisation of agricultural policy, because that would lead to a large degree of different levels of payment. We would see that we need equal levels of modulation, equal levels across compliance and equal levels of decoupling across the EU to prevent a particular Member State from having a particular advantage in an area because it decides to favour that area. We know that there are other reasons why other Member States will have more competitive, or otherwise, agriculture. That can be because of the taxation regime that they are operating under or because of the planning system that operates in those countries. However, in terms of the CAP, the more that we have agreed at an EU level, from our perspective, the better. That is perhaps not a straightforward answer to your question, but we see those elements as all very important.

Greg Bliss: If you look and Pillar I, when you look at how many agricultural producers are actually producing, and living, below the official poverty line, it just makes you realise just how important Pillar I is, particularly in the tenanted sector, where they have to pay a rent before they take any drawings. Take Pillar I away, and I think you take you snatch the rug from a huge proportion of the tenanted sector. The tenanted sector needs encouragement rather than being drawn back.

In terms of capping, the TFA are ambivalent over whether to cap or not to cap. This is the third time that it has come up in CAP reform; the time for it has maybe come. I guess it would encourage a splitting of businesses, and we do have some larger members who might be affected; but generally within the TFA’s organisations, they would all below a cap, if you guess that cap is going to be at somewhere around the €300,000 mark. Therefore, capping would not be a huge issue for the TFA, but in terms of how it reacts with the structure of agricultural businesses in the UK, then it would have a bearing on us in terms of how it affected our members who were involved with those businesses.

George Dunn: The figure of €300,000 is what was floated.

Neil Parish: I think that is right. I think that is the existing one. It will probably come down from that, I expect. It is still probably €250,000, anyway.

Q51 Chair: Can I just return to what you said there about the poor position of farmers in the food supply chain and making the farmer remain more competitive? You mentioned, in particular, the role of what is now called the Adjudicator, previously the Supermarket Ombudsman. Do you believe that there should be a role for the CAP? Do you believe you are being disadvantaged in this country by not having a mechanism at EU level to protect the place of the farmer in the supply chain?

George Dunn: The debate is, firstly do we need an adjudicator? We have all learnt the new acronym, GSCOP, the Grocery Supply Code of Practice adjudicator, have we not?

Chair: It just trips of the tongue.

Neil Parish: It is very catchy.

George Dunn: Yes, it is. We believe that we do need an adjudicator. The question is at what level that adjudicator should be introduced. Up to very recently, we know that the political masses in this country were not particularly keen on having a formalised role for such a person. We are now pleased to see that is firmly on the agenda. We are expecting a draft Bill for that. Effectively, we are much further ahead in the UK than we would be within Europe. However, it was not very long ago that Europe was probably ahead of the game in terms of where we were when they were thinking about these issues, when our Government was well behind the game on that front. So, we don’t really mind where it comes so long as it is a fit for purpose individual with the teeth to be able to get into the issues that we need to see changed.

Q52 Chair: What about the question of a potential complainant being worried about, or losing, their anonymity if they make a complaint?

George Dunn: We would suggest that the organisation, or the adjudicator, operates less in a reactive role and more in a proactive role, in the sense that it can decide on a Monday morning which supply chain it wants to look at and which particular retailer or processer arrangement it wants to dip into. It should have the ability to say to that processor or retailer, "We are coming to see you on Tuesday. We want your books open and we want to see your arrangements with your suppliers."

Q53 Chair: Without naming a company, we all know that if you take potatoes and a contract for chips, or apples, or whatever the product is, it is the supermarkets that hold the power. Do you believe that the mechanism is there? It was put to us last week in our briefing session in Brussels that there is this fear that no supplier in their right mind wants to make a complaint because they will lose their contract if that comes out. I was in DG IV as a stagiaire and we used to read about these dawn raids. Whoopee, it gets a lot of publicity and then everyone goes back to sleep. But someone could lose their potential contract, so do you have a view as to what the solution could be?

George Dunn: We do not see it as being a complaint-driven operation. We believe that this should be a much more proactive operation, so that all retailers and all processors know that they are subject to inspection by the adjudicator, on the terms of the Grocery Supply Code of Practice, at any time within a short notice period. That puts retailers, processors and others in the food chain on notice that they could have someone coming to look at their books and arrangements within 24 to 48 hours. You would get a better operation of the Supply Chain Code of Practice across the piece, rather than dealing with a particular point where there is a single complaint from an individual, who, as you rightly say, would be nervous about putting their head above the parapet.

Q54 Chair: Would you accept that it should perhaps be proactive the other way, by sweeping on producers and asking how their negotiations are going and what contracts they have in place?

George Dunn: They will obviously want to take evidence from whomever they like, but we think we will protect individuals if it is not a complaint-driven operation but is a proactive engagement of the Supply Chain Code of Practice and how retailers and processors are implementing that.

Chair: Thank you. That’s very helpful.

Q55 Tom Blenkinsop: The long-term investment sustainability for farmers, whether it be predominantly retail or commodity speculation, by which farmers originally used to try to maintain long-term investment in the industry, has not borne out. Would you say insulation from market signals through a risk management toolkit would reduce the competitiveness of the agricultural sector?

George Dunn: Well, maybe Greg, as an active farmer, could speak a little bit about the volatility that he has experienced in both input and output prices over the past few years. He can give you an idea of the sort of issues that we are facing, and then we can see how those might fit into a risk management toolkit.

Greg Bliss: A lot of people have talked about risk management. In terms of running a business, wheat has traded from £95 a tonne to £206.50, or £211 as I heard the other day for January. In this season alone, fertiliser started off at £160; it is now back in the £300s. In terms of supermarkets again, if you have got a supermarket contract delivering, then people are held to that contract, even with the weather that we have been having recently. If people cannot deliver their contracts, then they are bought against. The supermarkets are bumping prices up and I would say that they are profiteering on the basis of the weather and none of that money is trickling back. It is very difficult to plan. We use all the tools that we can, but with extra volatility you get extra cost. The means that we have in terms of options and forward contracts are very expensive, with the cost of insurance. For example, people are not willing to insure wheat for 20% of the cost of a tonne, as it may be. If you deal in vegetables, you cannot buy an option in a tonne of vegetables; you have got to actually own the contract and buy it. Then you have got all the risks of call-up costs as the market alters until you come to sell.

We have very little time to do that sort of thing, and if you are sitting on a tractor and not sitting in front of a screen, you miss the chance. This is where the CAP, as it was, worked so well in terms of intervention. Everything was simpler and it smoothed the whole thing out. In terms of working for the EU as a whole with regards to cost, it did not work; but it certainly worked for agriculture. Somewhere between the two there has got to be a balance, I think.

George Dunn: I did have a meeting today with a member of the Commissioner’s Cabinet and asked, "What is in this toolbox, apart from intervention and insurance?" The answer was, "That is it at the moment: intervention and insurance." I don’t think that there has yet been a great deal of thought being put into what those tools look like in the toolkit. Certainly we have seen insurance markets operate to a lesser or greater extent in America and other parts of the world. We have had intervention before; it may not be WTO compatible to continue with some forms of intervention. There is a great deal of work to be done on that issue, but we believe that volatility is a big concern. We always said that when we moved from the direct payments that we had under the old system of CAP, towards the decoupled system, that the farming activity itself would be subject to a much greater degree of volatility. As Greg has explained, boy, have we seen that over the past five years, and that is only likely to continue. We need to find some system that provides for the buffers to be put on, so that investment decisions can be made long term.

Greg Bliss: It is where you put the value of food security, I think. If you support farmers and you smooth the volatility out for them, it keeps farmers in agriculture and keeps them producing, so you have got your food security. You may never have a particularly profitable agriculture, but you have got happy consumers because they have got a cheap food policy and it keeps ticking over.

If you are going to make profit in agriculture and have a competitive agriculture, that is probably not the answer. I do not have a silver bullet to do that; it has to be somewhere between the two where people can pick the top of the market, but there is a certain amount of luck involved in that at the moment. I am not just farming: I am a currency speculator and I have got to deal with the soft commodity speculators and all the people in between who are taking what is generally a fixed margin.

George Dunn: There are certain things that we can do domestically as well, without having to bother the CAP. For example, if you are a tenant farmer in a modern context, your average length of term today is three and half to four years. In a marketplace as volatile as it has been, this is not a very safe place to be. Whereas, if we had tenancy agreements that were 10 or 15 years in duration, then individuals would be able to ride the bad years with the good years. We are certainly talking to the Government about how we can encourage landlords, through the taxation system, to let longer term and to provide that greater period of time over which to deal with volatility. Because if you are on a three-year farm business tenancy, and you have had two bad years because of harvest and your price goes down or fertiliser goes up, you are going to come out of that arrangement as not a very happy tenant farmer.

Q56 Tom Blenkinsop: Do you support the retention of voluntary coupled support in Pillar I?

George Dunn: We would not support the retention of it being voluntary on Member States, because we think that would lead to the sort of competitive issues that I have mentioned to Mr Parish. If different Member States are providing differential levels of support, then it could lead to serious problems within the internal market for how those commodities are traded. We would not want those to be voluntary; we would want everybody to have the same level of decoupling across the piece.

Q57 George Eustice: I want to just pick up on this issue about insurance not being cost-effective. I am just curious as to why we have not got more developed markets in hedging or futures contracts in some of those other sectors. If you look at coffee and sugar and other international traded commodities, there is a very, very efficient futures market that allows people to hedge their bets and protect their income. Is it just that, because of the CAP, perhaps traditionally there has not been a culture that you need to defend yourself against volatility, and so it has just not developed? Or is it just the case that it would never be a big enough, or liquid enough, market?

Greg Bliss: I think when you are talking about things like coffee and sugar, you are talking about some very big players. When you are talking about wheat at the farm gate, then you have only got to look at all the options for fair trade coffee: there is the same issue. These guys are selling a small amounts off the farm into a world market and getting very little for them. I think you have a point when you say we have been used to wheat being a set price into intervention, and it being balanced by that.

Certainly as a tenant farmer, I am in a situation where I have some land that is half of my holding. In five years’ time or in three years’ time I might not have the security of that tenancy. What happens if I sell wheat forward and then I do not have the land? If you have an annual renewing tenancy you can only afford to sell a year ahead, so in that way, you are more or less bound to take the market and you have to be a prudent tenant. You have got to pay your rent, and so you might have to sell something early for cash flow reasons, which does not allow you to perhaps take advantage of a future price that you may think would be considerably better. There are a lot of other issues with short-termism in tenancies that preclude us from taking a much longer term view.

George Dunn: I do not think that it is all sweetness and light in the sugar and coffee sectors; there’s a great debate in coffee. It was not that long ago that we were looking at the African, Caribbean and Pacific countries that got a reasonably good deal under the EU Lomé agreements, saying that because of the WTO case against the EU on sugar, they were no longer going to be competitive in the world market against the likes of Brazil for selling their sugar. There are some very big players who are playing the market very well, and cornering the market, but that does not mean that it is absolutely okay for everybody in the market place. There are a significant number of producers in both those two sectors who are losing out.

Q58 George Eustice: The other thing I just wanted to ask you about is how important you think food security is as an element to be considered in the discussions about CAP reform. There has been some dispute. You have obviously got some groups who are still pushing very hard for the greening of Pillar I and much more emphasis on Pillar II and agri-environment type schemes, and you have also got this Scenar study that suggests that you could actually remove direct payments altogether and it would not have a huge impact on the amount of land that was farmed in Europe. Have you got an idea, at your end, of how big a consideration it should be in this current review?

Greg Bliss: I think food security has always been a fundamental plank in what we have been saying in terms of the basket of public goods that we provide. I know that a lot of people have said it is not, it is the environment, but I think that it is a fundamental part and a mainstay of that basket of public goods that agriculture provides. Without food security and the ability to do as much as we can to support ourselves, you can’t eat butterflies and birds. I know that they are important, but you do need to have a balance. It seems to me that if you do not have a certain amount of production, the environment is very soon forgotten when you have issues with shortage; for example, there have been food riots in other parts of the world. People can soon forget the environmental side of things when it is driven. I think if you have a much more balanced approach, the environment does not get pushed aside, because we have a vibrant and productive agriculture that is pushing towards a good chunk of our own food security.

Q59 George Eustice: How important do you then think the Pillar I direct payments are to ensuring that food security? To be a devil’s advocate, there are those who would say, "If you look at New Zealand in the ’80s, they just took away all of their subsidies altogether, and the farms adjusted and were able to compete in world markets without support."

George Dunn: New Zealand is often cited as an example of where subsidies were removed, but New Zealand also did quite a lot of other things, including devaluing their currency and altering their banking system and everything else. There was almost a big bang; it wasn’t just about agriculture in New Zealand. I think if you were to talk to New Zealand farmers today, they would tell you what a tough environment it is to be farming in today’s terms. It is not just all about the quantity of the food; it is about the quality of the food, which we have talked about before. Certainly there is a clear demand for animal welfare, higher environmental standards, food of local provenance and so on. From our perspective, Pillar I provides that return to farmers that is not available to farmers in the marketplace, because it is very, very difficult to price those costs into the goods that you buy on a supermarket or retailer’s shelves, yet we are expected to bear them. So, Pillar I is vitally important to that.

If you take a sector like the dairy industry, for example, we have seen a great exodus of dairy producers in Great Britain over the past 10 years or so, and most of those decisions are made on the basis that when they come to the point of reinvestment, there is not enough in the game for them to be able to make a return on the investment; to be able to make a return on the investment you have got to put in a new parlour or a new dairy, and so on. If you remove any support that we are getting from the single payment scheme from that equation, they would go much earlier, because milk prices only just match the day-to-day costs of running those businesses in most cases. In a lot of cases it is below, unless you are a dedicated supermarket chain. We would see a rapid removal of a lot of farmers.

Q60 Mrs Glindon: I just want to go on a bit more about competitiveness, the sustainability issue and greening. The Commissioner said that there is a false dilemma between being competitive and sustainable. Do you think both are possible to achieve?

George Dunn: A false dilemma is an interesting phrase, because if you are requiring individuals to be farming to a certain level of standard, and you are not properly recompensing them for the costs of those standards, that is not sustainable. You need to have a transfer from another part of society-and that happens to be the CAP and the public purse at the moment-which supports that level of production. We already have cross-compliance. People would argue that statutory management requirements are only obeying the current law, but we have also got the GAEC requirements, which go beyond the current law, and we have got Pillar II payments as well. All those elements are important to support the fact that direct payment is needed, so that individuals can get a proper return from their production.

If you look at any economic theory, it will tell you that as economies grow, less of a proportion of the national income is spent on food, because we only have a certain size of stomach and we can only eat so much. We tend to spend our growing incomes on other things. Okay, we might eat higher quality or eat out a bit more, but in terms of the basic foodstuffs, less and less of a proportion of the national income is spent on the basic foodstuff elements. That means as economies grow, farmers are always going to be behind the curve. They are not going to be able to take advantage of the economic growth in other parts of the economy. If you want them to be able to sustain their businesses into the long term, there has got to be transfer payments from society, and that is what direct payments effectively are. Unless you want to see a fundamental change in the way that we do farming in this country, so that it is ranched or is based around single operators in large areas with potentially lower quality produce because of the way that it is done, than we need to retain the systems that we have got.

Greg Bliss: That was going to be my plank: if you look at the way people would make money in the situation that George explained, you lose everything. You would lose quality of food, you would lose quality of environment and you would lose employment and people living in the countryside, because the jobs would not be there and it would be run on a completely different basis.

Q61 Mrs Glindon: What green measures do you think could be included in Pillar I that would improve the environmental sustainability, but would not have an adverse affect on the agricultural competitiveness?

George Dunn: If you don’t mind, I would not start where you are. We do not think that Pillar I needs further greening from the extent that it already is greened. I know that the Commission thinks otherwise and they want ecological set-aside and permanent pastures introduced. However, Pillar I, from our perspective, already has a large green element with the cross-compliance requirements. We believe that to add anything more into that situation would tip the balance too far towards the environmental and away from the food security argument, which would cause real detriment to the industry.

Greg Bliss: The other issue with that, of course, is if you are on a tenancy paying a rent, every acre of land or every hectare of land that you have to take out of production is a loss of income to you and the viability of your business, given that you are paying rent on that land. Suddenly, if there were ecological set-aside of 10%; that is 10% of your land that you are paying a rent on. You do not get a decrease in rent on that, regardless. It would be anti-competitive for tenant farmers. It would be a big bash to their business.

George Dunn: It seems so strange that we are expecting this industry to supply things to the general public on a free of charge basis, which is effectively what we are saying should happen. Currently farmers get recompensed to a certain level for making food to high standards within the environment that they are producing in, and now we want them to do something else, but we are going to do that by not giving them any more recompense to provide that. We are expecting them to simply bear that themselves for the public benefit. We would not expect any other industry to provide that sort of model, in terms of providing those goods.

Q62 Mrs Glindon: Is including environmentally friendly measures in the direct support payments the most effective way of improving sustainability in farming?

George Dunn: We argue that they are there already. The current CAP mechanisms, with Pillar I, the cross-compliance and the elements from Pillar I, matched with Pillar II with all the various schemes for ELS and HLS, are already in place. We do not need to over-egg that pudding any more than has already been done.

Q63 Dan Rogerson: In your evidence you did not really talk about the budget. Are you campaigning for the budget to stay the same?

George Dunn: Yes, we have not got any particular view that the budget should move one way or the other. We cannot see necessarily that the budget is skewed too much one way or the other, so our view would be that it is sustainable at the current level.

Q64 Dan Rogerson: Would you be concerned if DEFRA do what do what they say they are going to do at the moment, and look to reduce the budget?

George Dunn: Yes, we would, absolutely. Definitely.

Q65 Dan Rogerson: Finally, you have talked in general terms about your views on the Pillars. How do you think the budget should be allocated between Pillar I and Pillar II, and then within Pillar I, between income support and environmental measures?

George Dunn: Let us take Pillar I and Pillar II first, and that will differ between Member States because of historic reasons as to how much money they have in their direct funding. The UK has always come out unfavourably in terms of the amount of direct funding it has had, and therefore it has had voluntary modulation to prop it up. There perhaps needs to be a greater degree of consistency across the EU about the percentage of the budget that goes into Pillar II. From our perspective, we are certainly concerned that farmers are expected to be modulated to a higher degree than other Member States, apart from Portugal, which is using it to a certain extent. But intrinsically, this is an area where we do not have too much skill, in terms of the budget area. We are not campaigning for it to change either up or down.

Q66 George Eustice: When it comes to Pillar II, is there an issue in that it is something that is much harder for tenant farmers to access? A lot of the schemes tend to be more geared towards owner-occupiers or landowners.

George Dunn: There are a number of aspects and I do not want to bore you for too long in relation to my answer, because it is a particular hobbyhorse for the TFA and us at the moment. The first place is that the rules on management control are a problem, in that if you are a landlord and you are able to pass scheme conditions through a contract or tenancy to a tenant farmer who is farming your holding, has occupation over it and taken the entrepreneurial risk, then you can do that in this country. You cannot do that in Wales, but in England certainly. We think that is wrong. There are many landlords who are claiming agri-environment scheme money, because they can do it by contract or tenancy. Secondly, there are those tenants who are on agreements, as I explained earlier, of less than five years. Most agri-environment schemes require at least a five-year commitment, if not longer. If you on a tenancy agreement of less than five years, you need to get your landlord’s countersignature on your application. Those countersignatures are not always easy to come by, because of the landlord’s unwillingness to bind himself to something beyond the end of your tenancy. Then we have got the problem, which we have had in the Uplands, for example, where you change the scheme from HFA to Uplands ELS, and you change the nature of who the applicant is, because the landlord has traditionally claimed for ELS on some land in the Uplands. The tenant loses HFA, Hill Farm Allowance payments, and he cannot get into Uplands ELS, because the landlord is already in ELS on that ground, so he’s stymied from getting in.

Yes, you are right, there is also an element of the interests of the Pillar II schemes being about the capital of the holding: the hedges, the ditches, the features and the trees, which tend to be the ones that are excluded from the tenancy agreement in terms of the tenant’s responsibility. There is a concern that they are not always geared towards the active farmer.

Q67 George Eustice: Would it almost be better for you if you put more money in Pillar I, but made it greener? So you did do the greening of Pillar I.

George Dunn: Yes, but that is not going to happen. Politically, that is simply not going to happen.

Q68 George Eustice: Should it happen? You probably would like that to happen.

Greg Bliss: I think we would much rather have the active farmer. The sensible conversation is that the landlord’s income and his recompense is always within the rental agreement. The active farmer takes advantage of all the schemes and then has a grown-up conversation with the landlord, and the landlord takes his income through the rent, rather than taking everything away from the active farmer and him being just left with his own income. That is by far the simplest way of doing it, rather than turning it around and trying to move things from Pillar I1 to Pillar II. I think it is best to have an active farmer arrangement where he can access all these schemes and then the landlord and he, within their tenancy agreement and their rental, divide it on that basis. Rather than the landlord having sway over it, he can do it in a sensible rental agreement.

George Dunn: It is a much more realistic position to believe that we could get Pillar II to work better and more fairly than it does now than it would be to suggest that Pillar II should be abolished in favour of a bigger Pillar I.

Q69 Chair: If the 2011 budget is not agreed this year, would that create problems for your members if we proceed on twelfths?

George Dunn: Again, I had a conversation with a member of the Commissioner’s cabinet, and asked him that question about what happens if the budget is not there? Whilst he would not give me the technical detail, he said, "It will be fine." Now, the EU budget arrangements are a little bit beyond our ken.

Q70 Chair: We thought we were quite well briefed last week. What we would like to know is how it would impact on you if it did not proceed by twelfths. It probably will not happen, but would it be very bad news for your members?

George Dunn: We have not got an answer to that question, to be honest. It is beyond our ken.

Q71 Chair: No, that is fine. Earlier this afternoon we heard that UK farmers could become more competitive by selling value-added products, which make use of higher environmental standards. Do you agree? Do you think UK consumers would pay, even if it was labelled up, "This is someone who has participated in an EU agri-monetary scheme?" Do you think that would work?

George Dunn: Greg will be able to talk to you about the commodity markets that he is involved with and the sorts of contracts that he has got with potato processors and so on. What I would say is that there will always be room in the marketplace for people who want to supply very high environmental, animal welfare, provenance foods to a very niche market. But I am afraid the vast majority of people, despite what we hear and see in the press, still buy on price. The vast majority of commodities sold through supermarkets are sold on price. There have been consumer studies done where people have been asked, before they go into a shop, what they are going to buy in terms of animal welfare and the environment, and then what is in their baskets on the way out does not really fit very well with what they said they were going to buy on the way in. That is not necessarily because they told lies, but when they get into the supermarket they are faced with a plethora of choices on a shelf, they have got the kids screaming behind them, and they lift what they think is the right thing. There may be co-mingling of commodities so that you have got English and foreign commodities on the same shelf. So there are lots of issues as to why we do not necessarily think it is going to be a big issue for most people, particularly where you are making commodity products.

Greg Bliss: I think it is a very limited market. You seem to have a choice: you either produce on a large scale on a small margin or you produce on a small scale and increase your margin. You work just as hard and your marketing has to be just as good. You will find that even on large-scale commodity production, they will provide another hoop for every one that you have had to jump through. Once you get up to Tesco Gold Standard you can spend three days in your office doing your welfare check and making sure that you have no child labour on your farms. It is quite interesting because you do not realise just how many hurdles you have to jump just to get through, just in assured schemes.

George Dunn: If you look at it in detail and take, for example, the milk market. I challenged Sainsbury’s on this the other day. Sainsbury’s have a dedicated supply chain with 300 or 400 farmers who supposedly provide milk, and they can make great claims about that to their consumers as they walk through Sainsbury’s stores. But in fact, all the milk that Sainsbury’s get comes from a processor who is pooling the milk with other producers. It is exactly the same milk.

Q72 Chair: I know George probably strayed on to this, but is there any further action that you think is required to actually help and recognise the system of land ownership and management that we have in this country, in terms of CAP reform?

George Dunn: I think at an EU level, we just need to make sure that there is sufficient scope within the regulatory texts when they come to identify the rightful recipient of any CAP support financing. So long as we have this concept of the active farmer developed, that will recognise the fact that that individual is the person who is the rightful recipient.

Q73 Chair: That is really helpful. Off the wall and on a different matter, obviously my area and many other parts of the country have been very badly affected by the weather. Have you been contacted by your members about problems with actually feeding animals and the cost of feeding animals, bearing in mind that this weather normally does not happen before January and February?

George Dunn: Well, the issue is much wider than that.

Greg Bliss: We have got sugar beet that is in the ground and frozen that will never get in for process, and there are there are thousands of acres throughout the east that are in that same situation. That is just a loss of income through bad luck because it was not harvested. It is not just sugar beet; everything that you cannot get into the field to get is just going by the wayside.

George Dunn: We have got people who are finding it difficult to get their milk collected and people who are finding it difficult to get out and feed their stock. There are a plethora of issues.

Greg Bliss: With wheat going up to £200 a tonne, the cost of feeding chickens isn’t chicken feed.

Q74 Chair: I am particularly concerned about the sheep on the moors and that more of them will be kept out. Of course, whether the farmers can even get to them is another matter.

Greg Bliss: Well the hay price has doubled and the straw price has doubled since this weather came on, and that is if you can get it delivered.

Chair: That is helpful information. Thank you very much for being with us, and I am sure we will be in contact again.