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However, there is one point that I feel the report failed to address but should have done—that is, the huge inhibitors to the free market created by nitrate vulnerable zones and things such as the pesticides directives. Somehow or other, we have to try to stop the generation of restrictive and inhibiting ideas from the Community if farmers are to play their full part in boosting agricultural production in this country.

As if to reinforce these distortions that come into play, the report concentrates on the use of Pillar 1 for social purposes. Channelling funds through Pillar 1 may not be the best way to tackle these problems—the committee was right to draw attention to that—but I disagree with the noble Lord, Lord Livsey, in that I am not sure that support through production prices or production subsidies is the right way to deal with the social problems of disadvantaged areas. Pillar 2 is the right vehicle for that activity.

Environmental benefits are very important, and farmers are properly recognised as agents in providing a landscape and an environmentally attractive background to the lives of all citizens in this country. However, I am not sure that the cost to industry is always recognised. The benefits can lead to a number of market disadvantages. For example, we are rightly in favour of things such as animal welfare but within the market these can lead to distortions, particularly on a worldwide basis. If in these areas we repatriate scheme management and funding to national Governments, I hope that there will be ways in which we can balance out the disadvantages. I suspect that a key element will be proper labelling on foods of the country of origin. The Community has been slow to recognise that that is one way in which it can support consumers and also support producers in maintaining high standards and have them clearly recognised on the shelves.

The report goes into some detail on the single payment scheme and it must have been right to do so. The scheme has caused a great deal of difficulty and has lost farmers a lot of money over the past couple of years because of its complexity—as it operates within England at any rate.

The English authorities were right to undertake an area payments system. Historic payments, as the committee suggested, will have to be phased out if we are to avoid ending up with more distortions than we

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currently have. It was also right in what it said about the costs of small payments and the need to eliminate, on a de minimis basis, smaller claims and not to be diverted from seeking to cap payments. It is important to try and facilitate partial payment, as the health check recommends, so that where there is some concern about the precise exactitude of a claim, at least a fair percentage of it could be paid to the farmer, avoiding the huge financial problems that some farmers have had trying to get their payments paid on time.

One difficulty that farmers face—the noble Earl, Lord Erroll, was absolutely right—involves the bureaucracy that goes with so much farming today. The burden of overregulatory cost compliance is very negative; it has had an enormously negative effect on the way in which farmers view the CAP. It is often overegged and the inspection requirements are far more demanding than they need to be. Many farmers are prepared to maintain very high standards. I have to declare an interest as a member of LEAF, which sets standards—it is a quality mark. We need facilities whereby membership of such organisations reduces the necessity of having a double-whammy inspection system.

I hope that, notwithstanding the thrust of the report on the production side, there is also an important role for the common agricultural policy in maintaining rural communities. The report addresses that but stretches beyond the immediate problems of the CAP. It requires us to try to maintain the social fabric of rural communities, which involves the provision of post offices, health service reorganisation and the resolution of transport difficulties—all of those feed into strengthening rural communities. That involves not just Governments—I am not seeking to make an assault on the Government—but also the commercial banking sector, retail organisations and the whole area of retail planning, which have made the survival of rural communities very difficult. I believe that the CAP can be an agency for trying to ensure that we have sustainable communities in rural areas in future.

I suspect that the key, as the report suggests, is the liberalisation of the system. This objective has a moral imperative. We must seek to provide food for our country’s citizens that is of a fair quality and at a reasonable price. We must all be prepared to meet this challenge. If we are to take the industry with us, we must take every opportunity to get bureaucracy off farmers’ backs. The noble Earl, Lord Erroll, spoke eloquently of the hassle factor, which so annoys farmers. We must recognise that in a world where food markets are changing fast, the need to provide good quality food at reasonable prices is a major challenge. To do that we need investment in science and technology. I hope that we shall be able to debate that aspect in the future because I am sure that a programme of modernisation is necessary if we are to achieve full productive capacity with our farming resources in this country. We need to encourage new farming techniques and we need a proper linkage between pure science and its application.

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I end by repeating my congratulations on an excellent report. I hope that the committee has similar success on fisheries. I also hope it returns to agriculture as the debate moves on. This is a fast-changing scene and I believe that continual interaction between this House, its committees and the policy is very important.

There is a consensus on much of which we speak; there is a tide which we can catch; it is a time of challenge to feed the citizens and the world; it is a time of change for farmers and politicians; and it is a time of opportunity which we should welcome.

5.45 pm

Lord Davies of Oldham: My Lords, I am grateful to my noble friend for introducing his committee’s report and for the trenchant points he made in covering the main issues. The committee’s report, for which he can take great credit, represents a substantial amount of work.

The noble Lord, Lord Dykes, said he regretted that the noble Lord, Lord Rooker, for good reasons, could not be here. His regrets are as nothing compared with mine in dealing with these issues, particularly as I thought we were moving towards a fairly gentle consensus. In fact I am grateful to the noble Lord, Lord Taylor, for emphasising just how great that consensus is. I also welcome the constructive comments that were made from all parts of the Chamber, with those little reservations that one comes to expect from a thoughtful House. But then the noble Lord, Lord Pearson, appeared. Gentle consensus is scarcely the order of the day in those terms. From what I can see, most of us have been concerned about whether we can move successfully from Pillar 1 to Pillar 2, but the noble Lord, Lord Pearson, wants to bring them both down and the whole of the temple with it. I congratulate him on being able to present that position in the four short minutes permitted. I shall deal with those more general points in a moment but I want first to respond to the main issues of the debate, which are in the report.

It is certainly a very timely initiative. Recent legislative proposals published on 20 May by the European Commission for the next round of CAP reform—the so-called health check—covered elements outlined in the Commission’s communication on 20 November 2007. The health check will review the 2003 reforms and contribute to discussion on the future shape of the CAP. Noble Lords have participated in this debate on the assumption that we can be optimistic about the capacity and certainly the need for change of the CAP, but they are also optimistic about the extent to which we can effect change with the sole reservations introduced by the noble Lord, Lord Pearson of Rannoch. In a moment I shall indicate why we should be optimistic about certain changes which certainly need to take place. We shall consult stakeholders before reaching our final position for the negotiations, but this is a good chance to comment on the overall direction of travel.

As the House will have appreciated from the government response, we very much welcome the committee’s report. It offers a thorough analysis of the common agricultural policy’s strengths and

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weaknesses. We share the key planks of the committee’s conclusions on the directions of future policy. We want the health check negotiations this year to play an important part in the reform process by reducing regulatory burdens and giving farmers greater control over their business decisions, a point emphasised by the noble Lord, Lord Taylor, and introduced by the noble Earl, Lord Erroll, in his contribution. We want to reduce the trade and market-distorting nature of the CAP and direct public spending more towards the delivery of clear public benefits which we would all share. In parallel to this, the EU budget review provides an important opportunity to examine how the CAP should be reshaped beyond 2013 and—a more distant perspective—to ensure that it is fit for purpose and delivers maximum value for EU taxpayers’ money.

There is no doubt but that the committee’s report offers a valuable contribution to both those debates. My noble friend, with his customary perspicacity, emphasised the obvious fact that we also need to recognise the changed context in which we are operating, even in the months during which the report was being compiled. It is clear that the change in the world situation—the rapid escalation of food shortages—means that we need to direct our immediate attention to those who are worst affected.

Food is becoming increasingly unaffordable for poor households around the world, and humanitarian agencies have a great deal to do. Every day 25,000 children die because they do not have enough to eat. We are calling on all countries, particularly those in the developed world, to respond generously to appeals from the World Food Programme. DfID has announced our contribution of a £450 million aid package to help the poorest countries in the current crisis. The Prime Minister has written to the Japanese Prime Minister, who is chair of the G8 and hosted a food summit on 22 April, to emphasise that we need a coherent and holistic response from the international community. As important as this debate is to all those in Europe, particularly in Britain, who depend upon the countryside for their living, those who require us to guarantee food production need to recognise the wider context of the world crisis that we are facing.

This debate is about issues that concern us all directly. The noble Lord, Lord Cameron, said that we ought to have a clear perspective, a vision for farming. It is necessary that the CAP should be directed towards clear objectives so that changes can be effected that set a new pattern for the future. I can only emphasise that the Secretary of State sought to set out a clear vision for farming in the conference last November. He foresaw that we need an industry that earns its rewards from the market for the quality, safety and environmental and animal welfare standards of the food and other products it produces and which is profitable and competitive domestically and internationally. He foresaw an industry that works collaboratively to meet the challenges it faces and that manages risks. I take on board the contributions made by several noble Lords. The noble Earl, Lord Erroll, particularly emphasised risk management by farmers. We need an industry that embraces its environmental responsibilities—that tackles climate change and manages water and the

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soil, seeing them as essential to its long-term economic success rather than as a threat to it—and that is valued and rewarded by society for all the environmental services it provides, including managing the landscape and enhancing biodiversity.

CAP reform is a key element to our achieving those goals. At present, the CAP is expensive, wasteful and inefficient. The report identifies where necessary change should be effected, and all contributions this evening have emphasised that change. I will come in a moment to the one or two reservations that were expressed about certain aspects of it.

The CAP distorts global markets, weighs farmers down with regulation and acts as a disincentive for farmers to maximise their market competitiveness. Our long-term vision is to see the elimination of Pillar 1 of the CAP altogether, leaving public subsidy targeted at specific public benefits such as environmental enhancement through Pillar 2.

Good progress has been made in reforming the CAP in recent years, although that progress has not been rapid enough; the Government have been frustrated in some respects. Much more clearly needs to be done. Indeed, the report identifies the essential reforms that are needed to boost farm competitiveness, to improve value for money and to address concerns about food prices. In particular, we want the health check to cut distortion and shift the emphasis of the CAP even more towards protecting the environment.

Beyond the health check, the EU budget review provides an important opportunity for the EU as a whole to examine the CAP closely and to consider how it should be reshaped. It is worth stressing that the CAP costs EU taxpayers a substantial amount of money. In 2005, Pillar 1 cost the EU budget more than €42 billion, and the CAP placed an additional €42 billion burden on consumers. We will engage with other member states, the Commission and our stakeholders in the coming years to ensure that the negotiations on the next EU financial perspective address these concerns.

Can we hope for success? We all know the barriers to success. Noble Lords in the debate have identified some of the difficulties and have voiced possible reservations. These issues will need to be confronted. The noble Duke, the Duke of Montrose, asked whether the higher world food prices mean that the EU no longer needs its export refunds. I certainly agree, as do the Government. High prices mean that it is totally unjustified for the EU to maintain its price support systems. I have a word of solace; we are pleased that the EU recently set cereal import tariffs to zero, so the noble Duke’s point is appreciated.

The noble Lord, Lord Livsey, expressed a note of reservation that we will need to continue to support farmers in less favoured areas, such as upland areas. We both recognise that issue and agree that certain types of farming, which clearly benefit society, should continue to receive support. That support will, however, have to be more targeted than it is under the existing CAP provisions. We want it to be done through Pillar 2 of the CAP, not through the untargeted, blanket direct payments that have obtained until now.

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The noble Earl, Lord Erroll, talked about the burdens on farmers, particularly the red tape, and the fact that farmers should not be subject to burdensome regulations that have no real significance. We are concerned to simplify the CAP for those very reasons. However, the noble Lord, Lord Taylor, would be quick to challenge me if I did not enter the caveat that we need proper controls over the use of these substantial sums of money. We are not arguing for a lack of accountability with regard to these issues.

The noble Earl, Lord Erroll, talked about wild birds and specific regulations relating to them. We will consider this issue, but neither my notes nor my background equip me in any way, shape or form to cope with it now. Even my membership of the Royal Society for the Protection of Birds does not help me, so I will have to write to him after the debate.

The noble Lord, Lord Cameron, emphasised the need for farming to be entrepreneurial and market oriented. We agree with him entirely; that is the thrust of the Government’s policy. Our Farming for the Future initiative is about helping farming to become profitable and competitive without being dependent on subsidy. I noted that my noble friend Lord Sewel, who is so much better qualified on these issues than I purport to be, was nodding in agreement with the noble Lord when he was making his forthright remarks in those terms.

I am not quite sure of the order of importance of the two issues to which I shall now turn. Perhaps the noble Lord, Lord Pearson, will take second place on this occasion; after all, he had only four minutes to deploy his case. I want to emphasise the obvious fact that other countries are following our lead on the CAP. I cannot comment on detailed negotiations and how much support we will get in crucial areas, but there is a widespread acceptance in the EU that the status quo is not sustainable, which obtains as much for France as for any other country. That is why we can—in the way in which the noble Lord, Lord Dykes, and, I think, the noble Lord, Lord Taylor, on the two Front Benches expressed themselves—have elements of optimism about what could be achieved in fresh negotiations. This report gives clear lines for the Government, who will be able to build on that.

I cannot reply to the noble Lord, Lord Pearson, in any more direct terms than this. He was disappointed yesterday and I shall disappoint him today, although I know that his disappointment will not in any way diminish his zeal for criticism, which is expressed in this House on every opportunity. He will just have to accept it when I say that I look forward with enthusiasm to the next time that I will be subject to that representation.

If the noble Lord will forgive me, the more substantial issue on this occasion, which is directly related to the report, is the position that the Government will adopt on modulation. I say to the noble Lord, Lord Dykes, that we need to target funds at rural disadvantage, which will be present in most member states for the foreseeable future. Its extent

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varies enormously across different environments. That will appear to point more towards structural and cohesion funds as the main source of funding outside national government spending to address such issues. The continuing role of Pillar 2 needs careful consideration against that background. That is how the Government will address themselves to this.

It is difficult for us to reach a definitive view on the modulation aspects of the health check. Much will depend on how the proposed voluntary modulation adjustment will work. However, we will be pressing the Commission to provide more information about this adjustment process in the working group discussions. It is vital that UK rural development programmes are at least protected, as the noble Lord, Lord Livsey, indicated. There is scope for the UK to do more in support of the new challenges.

The UK has 12.8 per cent of the utilisable agricultural area within the EU 15 member states, but it receives 3.5 per cent of the EU 15 core rural development budget. Unless that is addressed, the UK will continue to rely on high levels of modulation to support its ambitious and proper rural development programmes. We need to concentrate on modulation for the very reason that the inequities exist.

I am grateful to all noble Lords who have spoken and, once again, I congratulate my noble friend on having produced such an excellent report, which almost achieved complete consensus in the House.

6.05 pm

Lord Sewel: My Lords, I thank all noble Lords who have contributed to the debate and my noble friend the Minister for his reply on behalf of the Government. He is a Jeff Rooker in waiting, perhaps. It was a particular pleasure to listen to the noble Lord, Lord Pearson of Rannoch, and I can only say that I look forward to an even more extended contribution from him when we come to discuss our report on the common fisheries policy.

I see the role of the common agricultural policy as being essentially to regulate the single market in agricultural products, full stop. If the alternative to the common agricultural policy is 27 member states with their individual, separate and idiosyncratic tariff regimes, support and subsidy regimes and protection regimes, I am afraid that you can give me the common agricultural policy every day.

The House has been extremely generous in its comments on the report but, if praise is to be distributed, it ought to go almost entirely to three people: our Clerk, Julia Labeta, our committee specialist, Alistair Dillon, and our special adviser, Professor Sir John Marsh, who yet again has provided us with an invaluable service. I thank them all very much.

That brings us to the end except for one thing. I suppose that we all look forward with quiet confidence to this agenda of reform being taken forward under the French presidency.

On Question, Motion agreed to.

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