The Impact of Common Agricultural Policy Reform on UK Agriculture

Written evidence submitted by the Agriculture and Horticulture Development Board (AHDB) (CAP 23)

The AHDB is the independent levy board with a pivotal role improving industry efficiency and competitiveness. We are funded by the agriculture and horticulture industries through statutory levies. We represent about 75% of total UK agricultural output. Our statutory functions encompass meat and livestock (cattle, sheep and pigs) in England; horticulture, milk and potatoes in Great Britain; cereals and oilseeds in the UK. AHDB’s role is providing the industry and government with objective analysis on how forthcoming proposals might impact on farmers rather than comment on the policy.

Executive Summary

1. It has been well documented that the EU/world faces some significant challenges over the next few decades. As described by UK Chief Scientist Professor John Beddington this "perfect storm" of increasing population and climate change will lead to an increased need for energy, water and food. This will place significant demands on EU agriculture both to use increasing precious resources efficiently whilst producing food and other crops for a growing population, but also to mitigate any contribution it is making to Climate Change. Therefore if we wish to meet this challenge, as stated by many in the agricultural industry, we should seek to take this opportunity of CAP reform to design a CAP to assist the EU/UK agricultural sector become as competitive and sustainable (economically and environmentally) as possible, producing as much food as the market wants, in an efficient and environmentally sustainable way.

How will the Commission’s proposals affect the ability of UK agriculture to be competitive in a global market?

2. A reformed CAP should ideally support all of the activities listed below. Some of the proposals may help if well designed, but without sufficient detail it is difficult to undertake a full assessment. However, it appears possible that some of the proposals could hamper the ability of the UK agricultural sector to be competitive in both the EU and global market e.g. providing additional support to farmers who have naturally less advantages due to factors such as climate, size etc.

3. Key to continued/increased competitiveness of UK agriculture are:

a. An incentive to be competitive – i.e. adequate, but not excessive, competitive pressure

b. Investment: in R&D, in capital projects and in people and skills to improve productivity and sustainability

c. Clear market signals and confidence in those signals to encourage adequate investment through the supply chain

d. Compensation for additional costs (or public goods) imposed by regulation on UK farmers which are not imposed on farmers from other countries who are able to compete with UK farmers through trade

e. No distortion of competition through subsidies for farm types that are naturally less efficient

f. Facilitation of effective risk/volatility management

Do the proposals ensure fair competition for British agricultural products within the EU?

4. It is crucial that a common market has common rules if it is to operate efficiently. If nation states have too much flexibility in implementation of the CAP, there is the potential for distortion of competition. Any support for "small farms", for "specific regions" or for "specific natural constraints" should be designed in such a way as to not be able to distort competition, or limited in size.

5. However, proposals for rural development to have a more strategic approach, with quantified, outcome based EU targets, with flexibility in how to achieve those targets could be positive in supporting competitiveness, depending on the detail.

Will the proposals achieve the correct balance between productivity and sustainability?

6. To answer this question we have to define what the correct balance is. AHDB would propose that the correct balance should be determined by the market place in terms of food supply, and in terms of sustainability, various standard methodology indicators/outcomes should be identified depending on the policy aims. Much, if not all, the evidence we have is that in terms of Green House Gas (GHG) emissions farms that are more efficient, e.g. produce the most output from a given amount of input have both a lower GHG impact and lower costs i.e. are the most competitive. Therefore promoting competitive farms should often also improve sustainability.

7. However, there may be potential tradeoffs between reducing GHG emissions and biodiversity, e.g. taking high quality agricultural land out of production as set aside may create valuable wildlife habitat in that location, but if a greater amount of less productive land elsewhere has to be used to produce the same amount of food than would have otherwise been produced on the set aside land, this is likely to increase total GHG emissions. In addition, the UK is predicted to be less impacted on by climate change than many other countries meaning that our contribution to total food and crop production may potentially need to be greater in the future than at present. This means creating the right balance may be challenging.

8. It should be noted that on many areas of environmental science/sustainability there is still some way to go to understand the complex interactions in agriculture. Therefore it is possible that any "greening" of the CAP with prescriptive regulations may actually create perverse and unintended consequences. Again the detail of the proposals are key in this area.

Do the proposals place the UK in a good position to help meet future food supply challenges?

9. Generally speaking exposure to the market place will lead to the greatest efficiency in terms of food production. However, where there are externalities (or public goods) which are not currently priced/valued by the market or through regulation/taxation on a standard basis across the world, UK farmers need to be supported to compete on an equal footing if we are not to merely export food production to countries where welfare or environmental standards are lower. Therefore farmers must be fully compensated for any costs due to higher compliance standards brought in to "green" the CAP if we are to have a competitive food supply.

Will the proposals redress the imbalance in support to different sectors created by the historic basis of payments?

10. A more uniform basic income support payment could reduce differences across the EU. However, if there is significant flexibility for member states in many areas then this could counteract those differences being reduced.

What aspects of the proposals should be made a common policy and which is best left to Member States?

11. If the aim of CAP is to support the development of a competitive and sustainable EU agricultural industry it is important that food is produced in the EU where it can be done so most efficiently. For this to happen as much as possible should be common across the EU to avoid market distortions. There is probably some scope for the second pillar to be more discretionary, but the framework should be the same across the EU. If there are common EU strategic outcome based targets it may be that the most effective way of achieving those targets is best left to member states.

Can the proposals be implemented simply and cost-effectively, within a short time-scale?

12. The key for simple cost effective implementation in a short timescale is to have simple, consistent proposals. Until the detail of the schemes is available it is difficult to comment accurately, but it would appear greater complexity is potentially being proposed.

December 2010