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Earl Peel: My Lords, I thank the noble Baroness, Lady Miller, for introducing the debate and I declare an interest as an owner of land in the north of England.

My remarks today were largely triggered, curiously enough perhaps, by a letter written by the Minister to my noble friend Lady Byford in response to questions raised in the proceedings on the Natural Environment and Rural Communities Bill. Under the paragraph in the noble Lord's letter referring to the funding of the new agency Natural England and its various responsibilities to deliver agri-environment schemes, the Minister made clear the Government's intentions to siphon off money from Pillar 1 to Pillar 2 through the process known as modulation. There is nothing new in that. We have known that that was going to
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happen and indeed is happening. What caught my eye particularly was the use of the words "Pillar 1 subsidies". I appreciate that some 20 per cent or so of Pillar 1 funding is still inextricably tied to agricultural production and export subsidies, but the remaining 80 per cent or so is now in the form of the single farm payment, which is open to all farmers subject of course to certain environmental and animal welfare conditions—a process known as cross-compliance.

My question to the Minister will not come as a surprise to the noble Lords, Lord Cameron and Lord Lewis, because they sit with me on Sub-Committee D and have heard me raise this before. Did he mean to use the word subsidy and does he acknowledge, as I do, that the single farm payment is in fact a payment to farmers in return for complying with the new environmental and animal welfare conditions? It is worth recalling that the architect of the common agricultural policy reform, Franz Fischler, made it quite clear that it would be unjust for EU farmers to be economically disadvantaged in trade because of those new responsibilities.

Subsidy has become a dirty word, a word that conjures up all the distortions of the past. It is important that it is used only in its correct context. I seek from the Minister a qualification as to whether Pillar 1 payments are in his view a subsidy or a payment in return for the delivery of certain environmental goods. We have known for some time that Pillar 1 payments will be cut through modulation between now and 2012, but no one seems to know by how much, which is extremely unsettling for those involved in farming, who are looking for stability above all. It is also clear that the level of funding under the rural development regulations will be reduced. We have heard some pretty alarming figures.

Furthermore, it has not been determined how those reduced funds are to be distributed among the member states. Everything seems to be up for grabs at the moment. It is important that the Government fight the UK corner, on the grounds not simply of historical payments but of need—my goodness, there is plenty of that around, especially in disadvantaged areas in my part of the world. It has become increasingly clear that because of the Government's lack of confidence in securing a healthy settlement, they have committed themselves to the maximum modulation rate to help to fund their rural development projects from the single farm payment. That is another way of robbing Peter to pay Paul.

I simply ask the Minister—although it is not a simple question, as he will understand—two specific questions. Will the 20 per cent modulation rate to which the Government have committed themselves be subject to matched funding by the Treasury, as under the rules—and, if not, why not? Secondly, is the Minister satisfied that the Government are likely to have sufficient funds to meet their obligations under the rural development programme—and, if not, where are the cuts likely to be made?
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As has been said, the European agriculture industry—for want of a better term—has been going through what is probably its biggest revolution since the war. Huge changes are taking place. Some will adapt, some will not. These are difficult times. The people of this country want from our countryside, from our farmers and land managers, safe, traceable food and a countryside of which we can all be proud. But that begs the inevitable question: what is the point of imposing all those conditions and restrictions on our producers if they are undermined by imported goods produced under conditions far short of the standards by which our producers must abide? That presents a real problem, but it is a top priority to be addressed. I would be interested to know whether the Minister shares my concern and, if so, what the Government can actually do about that. What mechanisms are in place to prevent those activities?

Returning once again to the payments that our farmers and land managers receive for environmental delivery, it is worth reminding ourselves that if we want a countryside that is well cared for, coupled with a rich array of wildlife, it must be paid for; it does not simply happen. The truth is that there is no real competitive market in environmental management and wildlife conservation, except in special circumstances. Access is largely free at the point of delivery in exactly the same way as is the National Health Service. Green tourism, which is part of our modern culture, comes at a price. That will inevitably fall on the public purse if we are to ensure that the infrastructure of an attractive countryside is to be maintained and managed. Inevitably, that role will fall on those who own, farm and manage our landscapes.

It is also important that taxpayers are provided with good value for money. There is no point in throwing large sums of money at conservation schemes if they do not deliver. Far too often, too little scrutiny is applied to the success or otherwise of these agri-environment schemes and habitat restoration projects. A habitat that is restored does not necessarily imply that the associated species will automatically appear. Specific management requirements are often called for and too often discounted.

The countryside is changing. Tourism is now the leading industry—as the noble Lord, Lord Cameron, has pointed out—and new businesses are emerging. These are vibrant times. Yes, there are great challenges—there is climate change, and there is rural housing, to name but two—but the backdrop to all this is the landscape itself and the way in which it is cared for. I have said it before, and I will say it again: it is largely the farmers and land managers who have the responsibility to deliver the aspirations of the majority, and we must all acknowledge and rise to that challenge.

12.31 pm

Lord Livsey of Talgarth: My Lords, it is a great privilege to speak in this debate today on the rural economy, a debate that was initiated by my noble friend Lady Miller of Chilthorne Domer. We have already heard some excellent contributions, including
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one from the noble Lord, Lord Cameron. I was very interested in the remarks of the noble Baroness, Lady Prosser, about the social welfare of people in the countryside. I wholly agree with much of what the noble Earl, Lord Peel, has said about the single farm payment and about the production of public goods, for which, after all, the environmental payments are made for the benefit of the whole population. Our fear is how that will be financed.

Rural life varies between agriculture, added value to primary produce, farm diversification, contracting, farmers' markets, co-operation, countryside pursuits and environmental initiatives. These days, those are all underwritten mainly in the private sector by adequate access to IT, market towns with viable businesses, small businesses, adequate transport, and affordable housing, which has already been mentioned. In the public services, in particular, they are underwritten by primary and further education, and by vital rural services such as GP services, community hospitals, the education provided in play schools, care for the elderly, keeping pubs and post offices open, and a viable police force, which is under threat from amalgamation proposals.

That is a very wide canvas and, to be successful, a rural economy has to succeed in many combinations of these facets of rural life. Demography often plays a vital part because it is often skewed in rural areas to the elderly, and young people have left the countryside. It is often a case of whether enough money is circulating in the rural economy, whether businesses and local services are successful, and whether the local authority helps or hinders. Does the local authority have a good economic policy, for example? Are planning policies sympathetic to the development of rural areas, and does the rural development authority assist with progress policies itself? Is the local supermarket so big that it removes cash from the local authority, takes it straight along the motorway to the metropolitan areas and we never see it again?

We all know that the downward pressure on the primary producer—the farmer—is best illustrated by the depression in milk prices from, for example, the supermarkets. The farm gate milk price has gone down by 30 per cent in the past 10 years. Yet the supermarket margins have risen from 1.3 pence per litre to 13 pence per litre in the same period; there has simply been a transfer within the milk market from one to the other. The Milk Development Council says that 1,500 dairy farmers leave the industry every year. Even the Rural Affairs Minister in the Commons, Jim Knight, accepts that. He says that farm gate prices,

I would add that in many cases product is being sold at less than the price of production.

The situation is obviously different in different sectors, but cereals are still being marketed at exactly the same price per tonne as we were using when I lectured students 20 years ago. The Government must act and get fair play into the market place. We strongly propose there being someone at the OFT who is responsible for policing the practices of the
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supermarkets that militate against primary producers and are not even in the best interests of the consumers. There are many issues of this kind, including the one of single farm payments. In that respect, I say merely that cash flow for those public goods to which the noble Earl, Lord Peel, referred is vital in order to sustain farming businesses at the present time.

Rural regeneration is also very important, and the impact on Pillar 2 of the CAP and the cuts to it will be enormous. I could never understand why the Government argued before Christmas to put CAP funding at 1 per cent of gross national income, instead of the 0.15 per cent in Pillar 2. There is an attempt to haul the GDP of many areas up to the national average from 75 per cent of GDP per capita in, for example, Cornwall, parts of Wales and parts of the north of England, which is 25 per cent less than what the rest of the European Union is achieving for the social programme of Objective 1 funding. There is also Objective 2, of course.

Rural disadvantage is enormous. That has been referred to in this debate, and I do not wish to repeat it. I merely add to what the noble Lord, Lord Brooke of Sutton Mandeville, said about the population sparsity funding of the SSAs, in particular, which has been steadily reduced on that formula and has hit services in rural areas very badly. Housing is a crucial issue in areas where the cost of houses averages 15 per cent more than the national average. On the average wage in a rural area, it very often takes eight times the average annual earnings to meet the value of the house that a first-time buyer is trying to buy. These are all factors that push people out of the rural economy and, in so doing, a lot of dynamism is lost in the rural economy. Extraordinarily, the banks are not being socially responsible and are trying to close branches. Indeed, they have closed 4,000. In my area, we had to meet the regional manager at the regional branch and place placards outside his door to keep the branch open, because the next one was 17 miles away.

Very briefly, to finish, I have been involved in a number of initiatives both with young farmers and 50 year-old-plus people to start new businesses. Prime-Cymru—a Prince of Wales charity, of which I am a member—has started 1,000 new businesses, created by 50 year-olds with 12 business advisers in the past three years. The businesses vary between finding one's own family roots, making ice cream out of sheep's milk, dog beauty parlours, making and marketing paintings, making harps, and producing organic chickens. There are many initiatives of that kind, but they need finance, risk capital and market town initiatives in order to succeed. I could go on, but I have no more time. Many initiatives require help, and there is not enough of that at the moment from central and regional government.

12.40 pm

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