Memorandum by the Tenant Farmers Association
INTRODUCTION
The Tenant Farmers Association (TFA) welcomes
the opportunity of providing written evidence to their Lordships
as part of the Sub-Committee's Inquiry into the future of the
Common Agricultural Policy (CAP). As far as possible, this evidence
is presented in accordance with the issues set out in the sub-committee's
call for evidence where the TFA believes it is able to assist
their Lordships with there deliberations.
OVERVIEW
In the TFA's view, the long-term policy objectives
for the CAP should be as follows:
1. To ensure that farmers and growers receive
a fair standard of living.
2. To ensure that Europe achieves food security.
3. To protect animal welfare and the environment.
4. To ensure a common framework of rules
and incentives across the whole of the EU.
5. To minimise market distortions from policy
intervention.
6. To contribute to Europe's energy security.
These objectives are expanded below:
1. To ensure that farmers and growers receive
a fair standard of living
The objective of ensuring a fair standard of
living for farmers and growers is a key part of the current CAP
and should continue to be so. There are two principal reasons
for holding this view. Firstly, farmers are both price-takers
with regard to their production and on the purchase of their inputs.
Experience over recent years has shown that reductions in farm
gate prices do not lead to commensurate reductions in input prices.
Many of the inputs used by agriculture are oil or chemical based
and the prices of those inputs reflect more what is happening
in global oil and chemical markets than they do markets for agricultural
commodities. Other costs including those for labour and land also
show little correlation with the profitability of agriculture.
Taken together with the increasing concentration of processing
and retailing capacity, farmers are unable to pass increasing
costs to consumers and are therefore stuck in a cost-price squeeze.
Secondly, economic theory clearly expresses
the general position that as economies develop and incomes grow,
consumers spend a decreasing proportion of their growing income
on food and food products. This means that producers of food see
a declining proportion of national income being spent on their
production and they are therefore unable to keep pace with economic
growth which necessitates transfer payments from those who are
able to gain from economic growth to those who are not.
2. To ensure that Europe achieves food security
Food security is becoming a major issue for
all countries of the world. Against the back-drop of exponential
growth in world population, global terrorism and climate change,
it seems sensible that Europe should have a long-term policy which
seeks to provide food from its own resources. The Government however
seems unconcerned by issues of food security as evidenced by their
"Vision for the Common Agricultural Policy" produced
at the end of 2005. Although the UK provides some three quarters
of its domestic food needs in temperate products, it is declining.
The Government has made no announcement about the level at which
it would begin to get concerned about self-sufficiency. The TFA
does not rule out the benefits of international trade but we do
not believe that we should become complacent in accepting that
our ability to trade globally today will necessarily continue
into the long term.
3. To protect animal welfare and the environment
Animal welfare and environmental issues are
of importance in agricultural policy. However, they need to be
balanced against other demands and objectives. The TFA is concerned
that the dominance of animal welfare and environmental objectives
in existing policy frameworks is unhelpful and self-defeating.
High levels of regulation and cost faced by domestic producers
for environmental and animal welfare purposes can and do drive
domestic producers out of business when they face competition
from imported commodities which are not produced to the same high
animal welfare and environmental standards. Within the framework
of the CAP, there needs to be recognition that we should not be
exporting our animal welfare and environmental problems.
4. To ensure a common framework of rules and
incentives across the whole of the EU
A common approach across all Member States of
the EU is vital given the doctrine of free trade that exists within
the EU. It is unfair that one part of the EU is afforded greater
incentives or fewer regulations in comparison to another in the
context of a free trade environment. This is most aptly viewed
through the policy on voluntary modulation where producers in
the UK face markedly higher rates of modulation than any other
producer in the EU, and even within the UK differential rates
apply which will distort the economic advantage internally. Problems
of a distorted policy framework can also be viewed through the
different mechanisms that are employed to implement the Single
Payment Scheme across the EU. The ability to maintain an element
of coupled support and the ability to choose different methods
for implementing decoupled payments cause economic distortion
and should be avoided in future policy.
5. To minimise market distortions from policy
intervention
A major criticism of the CAP in the past has
been the extent to which it has distorted both domestic and international
markets. It will be important to ensure that future CAP policy
seeks to minimise those distortions. With this in mind, the TFA
would support a move towards a fully decoupled bond scheme to
support producers. Greater emphasis needs to be given to how this
might be integrated with the CAP at its next fundamental review.
6. To contribute to Europe's energy security
Energy policy is becoming increasingly important
particularly with the experience of global destabilisation in
gas and oil markets. Whilst the TFA is sceptical about the impact
of reducing our dependence on fossil fuels on stemming inevitable
climate change, from a pure energy security viewpoint, it would
be important that the CAP is used to encourage farmers to produce
fuel crops which can replace a proportion of our fossil fuel demand.
THE REFORMED
CAP
The basis of the European Commission proposals
which led to the eventual CAP reform agreement of June 2003 was
sound. The TFA supported the concept of a move away from coupled
support payments towards a decoupled payment on a historic basis.
It seemed sensible to be breaking the link between subsidy and
production decisions whilst ensuring that farmers maintained a
fair standard of living. However, the TFA feels that the process
of negotiation which led to the June 2003 agreement significantly
undermined the potential benefit of the CAP reform agreement in
a number of ways. Firstly, it allowed Member States to maintain
coupled payments for differing periods and at differing rates
depending upon the sector. This has led, inevitably, to efficiency
distortions across the EU and allowed some producers in some Member
States to compete with others on an unfair basis. The TFA believes
that Member States should not have been given the option of maintaining
coupled payments. Secondly, the TFA believes that the introduction
of various models for decoupling has led to significant problems.
The UK is a good example of those problems as we now have two
parts of the United Kingdom (Wales and Scotland) using the historical
model only, one part (England) using a dynamic hybrid and another
part (Northern Ireland) using a static hybrid. This has led to
administrative and economic problems.
The TFA however, is not na-ve in thinking
that a CAP reform without those distortions would have been easy
to achieve in June 2003; but we do believe that the distortion
significantly undermined the benefit of what was agreed and that
more time and effort should have gone into creating a package
with fewer distortions.
In that many of the compromises were added to
the text of the final agreement at a very late stage and therefore
were not given much thought, the full implications of their impact
were not thought through properly. For example, the allowance
of a dynamic hybrid scheme which combined historic and area payments
with a minimum application size of 0.3 hectares caused a major
influx of new applicants particularly in England with people who
were previously unconnected with the agricultural industry. This
has, in turn, had knock-on effects for the ability of the Rural
Payments Agency (RPA) to administer payments under the Single
Payment Scheme on an efficient basis.
One of the areas within the Commission's original
package of proposals which remained as part of the final package
which the TFA did question was the retention of set-aside within
the Single Payment Scheme framework. We used the analogy of a
car by asking why we had to keep one foot on the break when we
had removed our other foot from the accelerator.
THE SINGLE
PAYMENT SCHEME
Whether or not the Single Payment Scheme is
a good basis for the future of EU agricultural policy is immaterial
to an extent that it is the current policy and it will be from
here that any new policy will have to be developed. The TFA believes
that it would be difficult and costly to unravel the Single Payment
Scheme before 2013. That does not mean that changes could be made
to make it work more efficiently. Some examples are given below:
Firstly, whilst it was necessary to go through
the process of creating fruit, vegetable and potato (FVP) authorised
entitlements to ensure that historic receipts were not spread
over large areas of new land and to people who had not received
payments in the past, the TFA is pleased to note that the Commission
has now decided to bring FVP entitlements to an end and we hope
that the UK Government will make the necessary changes as quickly
as possible.
Secondly, given our thoughts about set-aside
set out above, we do not see any future for set-aside within the
Single Payment Scheme and we are therefore pleased that the European
Commission proposes to abolish set-aside as part of its health-check
proposals for the CAP reform in 2008-09.
Thirdly, the TFA believes that there should
be a higher minimum area for applications under the Single Payment
Scheme. The current 0.3 hectare limit provision has allowed too
many very small "pony paddock" type claims to come into
the Single Payment Scheme and the TFA believes that the Commission's
proposal to have a 3 hectare minimum size limit is sensible. At
the same time, the Commission should look again at the possibility
of introducing a maximum ceiling on payments so long as the excess
funds can be retained within the Member State concerned and used
for rural development spending.
Fourthly, in the longer term, the TFA believes
that the EU should investigate how the SPS could be turned into
a bond scheme, fully decoupled from land.
MARKET MECHANISMS
We have already noted the wish to see the end
of set-aside and we would also be happy to see the end of milk
quotas so long as there was a robust economic analysis which showed
that the negative impact of their demise, particularly in small
producers, was minimised.
The TFA believes that the EU should maintain
its suite of other market measures to protect it against international
dumping of cheap products on EU markets and to allow it to sustain
its objectives for food security and maintaining high animal health,
animal welfare, phytosanitary and environmental standards within
the global context. The TFA believes that the EU should not shy
from using market mechanisms to keep out products which fail to
meet the high standards required of producers internally.
RURAL DEVELOPMENT
The concept of a rural development policy for
the EU is sound although we fear that the way in which it is being
implemented in the UK is causing problems.
Firstly, the decision to allow implementation
through regional bodies has led to confusion, complication and
administrative burden. The TFA believes that the policy should
be controlled centrally with regional or local options as necessary
to ensure that there is proper co-ordination, consistency of treatment
and accountability. We are too small a country to be trying to
administer the rural development plan through regional governance
structures.
Secondly, there are significant barriers to
entry to schemes; particularly the HLS which requires a costly
evaluation before applications can be made. The uncertainty over
funding does not sit well with a scheme which requires individuals
to invest so much upfront.
Thirdly, because the UK's share of EU funding
for agri-environment and rural development programmes is relatively
low, it argues that it needs to take a greater degree of money
from the SPS through voluntary modulation. This is "sold"
to the farming community on the basis that the money will be coming
back through ERDP schemes. However, this is not the case. Many
participants in schemes are finding that the cost of being in
the schemes outweighs the benefits on a financial basis and this
is therefore causing confidence in voluntary modulation and the
schemes it seeks to support to be undermined.
The TFA believes that there should be one level
of modulation applied across the whole of the EU together with
a fundamental review of how agri-environment funding takes place
across the whole of the EU to provide a thorough basis for all
concerned. Member States should not be permitted to go beyond
the compulsory level of modulation set within the EU rules.
ENVIRONMENTAL PROTECTION
AND CLIMATE
CHANGE
The TFA believes that the regulatory framework
within which environmental protection decisions take place in
the UK and in the wider EU produces some of the most potent benefits
to animal welfare and environment anywhere on the globe. Cross-compliance
has certainly contributed towards this even though it is much
maligned by the environmental community as being no more than
adherence to existing legislative standards. The vast majority
of farmers are acutely aware of their responsibilities towards
animal welfare and the environment and seek to deliver significant
output in both these areas in the context of making a sustainable
economic return from their businesses—this is not always
straightforward. However, the EU needs to be extremely careful
about adding further, uncompensated restrictions upon farmers
and growers through, for example, the Nitrates Directive, Water
Framework Directive and Habitats Directive. The TFA believes that
there is a real danger that the extra costs associated with such
regulations could cause major economic problems for the farming
community across the EU.
As far as climate change is concerned, there
is no doubt that our climate is changing. Farmers know this better
than anyone. However, the climate has always changed and will
always change. That change will not always be in the same direction.
However, our response should be in focusing our resources on investments,
research and development which give us the flexibility to deal
with any change in climate, whatever its ultimate direction, rather
than attempting vainly to mitigate climate change through carbon
reduction projects and programmes.
There is a building, scientific momentum questioning
the perceived wisdom that reducing the amount of human induced
carbon in the atmosphere will make a measurable difference to
climate change into the long-term. Increasing evidence seems to
suggest that solar activity, ocean-atmosphere cycles, volcanoes
and the earth's tilt all contribute more to climate change than
carbon induced from human activity. Indeed recent data from ice-core
samples indicates that, in periods of warming, temperature rises
as a prequel to concentrations of atmospheric carbon.
The TFA therefore believes that we should be
putting our efforts into policies which allow us to adapt to the
climate rather than attempting to change climate ourselves. This
is why the TFA is concerned about long-term food security and,
connected with that, the number of farmers who are currently leaving
the industry across Western Europe. The CAP should be contributing
to providing research and development into new crop varieties
which can cope with the outcomes of a changing climate and new
techniques for cultivation which do likewise. The efficient use
and storage of water will become key as we head into the future.
CONCLUSION
The current debate about the future of the CAP
takes place within the context of provision of "public goods".
The TFA would argue that we must be careful not to confuse what
we might consider "public goods" today against what
might be considered "public goods" in the future. Within
the European context there has been a very significant change
in the definition of "public good" within a very short
period of years and who is to say that it will not change back
again—particularly in the context of climate change, global
instability and a growing world population. We need to be sure
that we are not restricting ourselves from meeting our long-term
policy aims by pursuing short-term options.
The TFA believes that the CAP should be maintained
within the suite of EU policies, that it needs to take a proper,
long-term risk based approach and be allowed to be free from what
might be considered "politically correct" in today's
terms only.
Much criticism is placed at the cost of the
CAP but given that it is central to helping meet objectives as
diverse as feeding our people and managing and maintaining our
countryside, it is not unreasonable to expect that it is funded
properly.
June 2007
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