Examination of Witnesses (Questions 20
- 39)
WEDNESDAY 4 JULY 2007
Ms Sonia Phippard, Mr Andrew Lawrence and Mr Simon
Harding
Q20 Viscount Ullswater:
I am concerned about the finance. Will some of the finance for
Pillar I be transferred to Pillar II? Is that phased? Or is it
discreetly financed by different parts of the budget?
Ms Phippard: The limits on CAP expenditure apply
to Pillar I and Pillar II. We are transferring money from Pillar
I to Pillar II by modulation, both the compulsory modulation which
applies to all the old Member States and, in the UK and Portugal,
voluntary modulation. The Commissioner has made it clear that
one of her ambitions both for the Health Check and looking further
ahead is taking that process further. In the Health Check they
are looking to increase the rate of compulsory modulation over
the next few years and the UK has made it clear that it supports
that ambition. I think the question as we look further ahead,
beyond 2013, is whether you look rather more radically at both
Pillars and, instead of quite a complicated system of effectively
top-slicing each Member State and indeed each farmer, you actually
look at the financing of the two Pillars afresh and start again
with new sums dedicated to the specific funding pots within the
overall CAP that fund Pillar I and Pillar II. But this is a Budget
Review-level discussion rather than a Health Check discussion.
Q21 Chairman:
Can I push you a little bit on the co-financing of Pillar I? It
could be argued that one of the benefits of co-financing is that
National Treasuries have to pick up the direct cost and that creates
the opportunity for a little bit of financial discipline.
Ms Phippard: That obviously depends very much
on the rules for co-financing. It would certainly enhance Finance
Ministries' interest in the cost, particularly Finance Ministries
in Member States who are net recipients rather than net contributors—which
is why I said that we would not automatically rule it out if it
was on a route to somewhere. My suspicion is that there will be
quite a lot of pressure from Finance Ministries anyway, given
lots of aspirations for the EU budget, to look pretty hard at
Pillar I and possibly quite hard to get a measure of agreement
on co-financing for it. It does risk being something of a distraction,
although it is not something we should ignore and certainly not
completely rule out.
Q22 Lord Cameron of Dillington:
The Rural Development policy has got four Axes and we seem to
focus mainly on the Environment Axis. I have always seen rural
economic development as a way of taking the dependence of farmers
away from their food production into other businesses, or even
the whole rural economy and employment, and that would seem to
me to be a very good Axis to focus on. Are we not interested in
the other three Axes?
Ms Phippard: I think the answer is that we are
certainly interested in rural development in its broadest sense
and driving forward innovation, diversification, et cetera. There
is no lack of interest and we have both consulted and taken very
seriously the opportunity in Axes 1 and 3. In England we are doing
3 and 4 together. I think the question as we go forward is, certainly
in our economic situation and the economic situation of most of
the older EU Member States, whether this is the only and the best
focused way of achieving those outcomes. The sums—and I
am very conscious of it from previous responsibilities for the
sustainable farming and food strategy in England—available
through Axes 1 and 3, although welcome, are trivial compared to
the sums available on the whole skills agenda through funding
for Learning and Skills Councils or the funds that still flow
to old Member States through structural funds, so we need to make
effective use of those and indeed national funding to the RDAs
in England and equivalents elsewhere in the UK. It seems to us
that the question about those Axes is not their desirability as
outcomes but whether it is the best use of scarce CAP funding.
Our assessment in England was that for the environmental needs
to be met through agri-environment schemes, et cetera, under Axis
2, we needed to put as much as possible in there. That said, it
looks rather different as you go east. We said in the `Vision'
document and would still firmly stand by the fact that in those
countries that have a major rural restructuring/reskilling task
ahead of them every possible channel needs to be open to them
for at least a transitional period, probably quite a long transitional
period looking at experience elsewhere in Europe. CAP rural development
funding is an effective lever. Again, however, we need to make
sure it is well targeted and works sensibly with those other levers.
Q23 Baroness Miller of Chilthorne Domer:
In answer to the question before last you mentioned starting afresh
with rural development funding, which would obviously be quite
good for the UK as we have had a rather bad deal recently because
of the fact that successively we have had a very low historical
base to go forward on. If we were to start afresh, what do you
think the objective criteria would be as a basis for any funding?
Again, how much commonality is there between different States
on those criteria? Is that even a horizon document at the moment?
Ms Phippard: The Commission did develop, and
there was agreement on, objective criteria for allocating the
proceeds of compulsory modulation. That allocation key depended
on agricultural land area, agricultural employment and GDP, so
measures of current competitiveness and agricultural land need,
which seemed to us the sort of place to start and there obviously
already has been a measure of agreement around that. If we stick
with our present 3—Axes Rural Development Programme, you
need to capture something which is about land area, rural disadvantage
and environmental value. So you have agricultural employment and
need on the one hand and then the wider rural need. Is there general
agreement around it? Well, it is quite hard when some people are
sitting on disproportionate gains from the current system. At
the moment I do not think we could expect the Austrians or the
Finns to vote with alacrity in that direction. I think we have
to have that debate. The Commission, and the Council, has already
agreed that at least some measure of debate needs to happen in
the context of the Health Check and it clearly needs to happen
in the run-up to the next Financial Perspective, because for us
and for some others to have a rural development share based on
patterns of spend in the early Nineties will by 2010-2011 be completely
ludicrous. We would argue that it is fairly ludicrous now.
Mr Lawrence: It is worth adding that the new
Member States of course were entitled to so-called SAPARD funding—the
Special Accession Programme for Agriculture and Rural Development—and
they did not have a historic reference period which the EU could
use by which to judge what they should get. So there is another
model potentially there. Sonia has mentioned the compulsory modulation
work but there is another model in the way in which the criteria
are put together for new Member States to access that money.
Ms Phippard: The other point to make about the
new Member States is that they will be very strong allies of ours
in having another thorough look at all of this because they are
very conscious that a lot of money was put into old Member States.
Q24 Baroness Miller of Chilthorne Domer:
Can I just push towards this ultimate end point. If you did get
to that point where the SAPARD view of the world did come to be
accepted within the EU, what sort of a tool would we then use
or develop to see whether value for money was being delivered?
We have already mentioned that there are 94 different rural development
plans, and obviously it will be important then to say "Well,
actually, you have developed your rural area, so in future you
should not have as much of the funding." That is going to
be immensely contentious, so it is going to need immensely strong
tools to actually measure so that people can come to an objective
agreement. Do you see that work being done by the Commission at
all?
Ms Phippard: It is beginning, but you are right
to hint that it is complex. It is difficult stuff. The European
Court of Auditors have begun to make a start and provide some
reporting and thinking around the evaluation of agro-environment
measures and investment support, the two main aspects of Pillar
II. The other thing we can do is, for all Member States, all their
regions, all 94 rural development programmes come in, to look
at the scope of what is in there and the tools there are now to
evaluate the type of measures that people are using. The evaluation
is getting better, in my view; but we have a long way to go. Rural
development in its current form is still relatively young by EU
standards and it is complicated stuff. We have quite a lot of
work in hand within the UK to try to understand better environmental
benefits and their value and the contribution of any specific
scheme to that benefit. It is not easy, but I think there is a
very real will at both European level and certainly domestically
to enhance that, and a slight tension with our European Commission
colleagues to ensure that they do not make excessive demands for
extra statistical information, which acts as a burden on all Member
States, but do have the evidence base that they need really to
get a stronger handle on value for money and the contribution
of rural development. So yes, it is very much on their agenda.
Q25 Lord Palmer:
I have two questions, the first of which you have almost answered
when answering Lord Greaves and Lord Cameron's supplementary.
Perhaps I can ask Mr Lawrence this one. If we think last time
the CAP was reformed back in 2003, it was of course before the
recent enlargement. What changes, if any, does the Government
consider ought to be necessary to accommodate the needs of the
diverse agriculture situations in the new Member States? And,
my particular concern, what about any future enlargement?
Mr Lawrence: As you say, the 2003 reform was
before enlargement, although it was pretty clear that enlargement
was going to happen, so it was certainly in light of and in anticipation
of that. I think our vision pretty much answers the question about
what you could and should do and I think there have been inquiries
in this Committee, and others as well, looking at the impact of
enlargement and how the CAP should adjust and that is very much,
as Sonia has explained, the focus upon restructuring and modernisation
of their agricultural systems. I know I was in Romania not long
ago and the challenge put to us was that they have 4 million farms,
of which 2 million need to find something else to do.
Q26 Lord Greaves:
Only 2 million!
Mr Lawrence: That might be Step One. That is
the sort of level of challenge and, as Sonia said, that is what
our vision is really trying to look towards as we look towards
future enlargement with Croatia and Turkey, to make sure that
the CAP is structured such that we can help this change happen
rather than, as Sonia has described, having a system around Pillar
I which potentially keeps people on the land, puts land prices
up, and makes it more difficult for people to start and to move
and to change.
Q27 Lord Palmer:
I ought perhaps to declare an interest in that I am a farmer in
Scotland and am therefore in receipt of a Single Farm Payment,
but a recurrent theme of critics of the CAP over the years is
that it is not `common'. They point to the different situation
for farmers where the Single Farm Payment is historic and, of
course, others where it has been replaced by the regional flat
rate payments to continue partial coupling in some Member States,
to rural development programmes that seem to provide differing,
competitive benefits and differences in administrative rigour.
How much importance in reality does the Government attach to the
notion of—dreadful expression—the level playing field?
Ms Phippard: The answer is that a level playing
field is certainly important to avoid distortion of competition
and there are various aspects of the distribution of funding under
the current CAP which are inequitable and will need to change
over time. But that does not necessarily mean uniformity. The
different approaches that have been taken to the distribution
of Pillar I funding do not seem to us seriously to alter the level
playing field, at least in the medium term, because they are by
and large decoupled, even where there is a measure of coupling
aiming to maintain production in a certain way. Those farmers
are arguably disadvantaged by the fact that they also have to
stick with a lot of the old bureaucracy that went with the old
coupled payments. So there are some things that need simplifying
and levelling out and there is little doubt that the Commission
have that very much in mind as they look ahead. They are not particularly
happy with the diversity of approaches to Pillar I that there
are. They have a problem they know they have to tackle between
the new Member States, who are on the SAPS scheme (the area payments
scheme) and the old Member States, and a couple of the new ones
who are on the single payment scheme; and they rather prefer the
philosophy behind the new Member States' scheme, which is the
area-based sort of approach that England is moving gently towards,
and one or two of the other old Member States have approached.
I suspect the Commission will come up with some thinking around
some fairly drastic simplification but that will be as they look
to post—2013, and I think our view on that would be slightly
similar to my comments on co-financing. In principle, yes, fine,
let us explore it but let us make sure it is not a huge distraction
when the general direction of travel is to reduce the sums available.
As we know, redistribution is extremely painful, so looking at
the relative impacts of likely reducing funding in Pillar I and
redistribution, we will have to look at the detail.
Mr Lawrence: That is what I would have said.
Q28 Lord Plumb:
Since you obviously recognize the importance of a level playing
field, one area, of course, where there is no level playing field
is in the field of money and the gap of 20 per cent between the
value of the euro and the value of sterling—and there are
other countries, of course, who have not necessarily adopted the
euro but they do not have the gap that we have in this country.
What would you recommend a farmer to do? Should he take his money
in euros or not?
Chairman: You have to get this into CAP reform
somehow!
Q29 Lord Plumb:
Chairman, it is right in the middle of CAP reform. If you give
me the right answer, I will leave now.
Ms Phippard: I think he should support the reduction
of the Pillar I payments very speedily, so that he no longer faces
this difficult dilemma.
Q30 Lord Plumb:
But surely there are payments through Pillar II also.
Ms Phippard: There are Pillar II payments.
Mr Harding: From an economic perspective, they
can already have their payments in euros if they want to, and
the sensible thing to do, if 16% of your income comes in foreign
currency, is to make sure that 16% of your outgoings are in a
foreign currency as well. There are ways in the market that that
can be achieved. It requires a level of sophistication that a
lot of farmers do not yet seem to possess, but it is possible.
Lord Plumb: Chairman, I am aware of the procedures.
I wanted an answer.
Chairman: You are not getting one!
Q31 Viscount Brookeborough:
My Single Farm Payment may not be big but it certainly looks better
in euros! You have already mentioned briefly sugar, fruit and
vegetables, and wine, which are at different stages of conclusion,
although they are by no means actually reformed in practice yet.
Would you like to comment on the progress and on what you feel
about them, and to indicate to what extent the Health Check should
actually look at them, accepting that some of them are so new
at the moment that there is not going to be much to say?
Ms Phippard: As you say, they are all three
at rather different stages. For sugar: the reform was done, although
I think everyone recognized in 2005, when the reforms were agreed,
that it was a staging post and would need to be returned to in
due course, but `in due course' is well beyond the likely Health
Check timing. The issues around sugar at the moment are about
the fact that the EU was spectacularly over-producing and had
serious trade challenges. The Commission and the Council concluded
that we needed to take out around 6 million tonnes of EU production.
The first two years of the restructuring scheme have only seen
the achievement of about a third of that, whereas it had been
hoped that we would be well over halfway in Years One and Two.
So the discussions that are going on now and will be concluded
before the Health Check are about how to get that reduction in
EU production back on track.
Q32 Viscount Brookeborough:
Knowing where you are at the moment, do you think this next stage
is going to succeed?
Ms Phippard: I think the Commission's will is
pretty clearly that it will, and the nature of the original reform
package is such that, if the Council do not reach agreement now
on amendments to the restructuring package, there will be uncompensated
quota cuts across the board at the end of the four-year process.
So I hope very much—and I am sure here we are completely
at one with the Commission—that against that background
all Member States will agree to something which allows that quota
reduction to happen with compensation in the next two years.
Q33 Chairman:
Would you agree that at the moment the burden of the sugar reform
has fallen almost entirely on the ACP countries?
Ms Phippard: I am not sure that I would agree
with that. What I would say is that what has happened so far in
sugar reform has been some of the change in European production
that we all wanted to see and mostly in the areas that everyone
anticipated it happening. So it is true that that has been not
desperately burdensome because it has been well compensated, but
there has been some real will to change—the Italian approach,
for instance, has taken it seriously. There are, however, a number
of Member States where sugar beet does not look like the natural
local product where movement has been rather slower and finding
ways of ensuring that the reduction happens is important. In terms
of EU sugar refining, there was an important element of the package
which is about enabling our refiners also to remain competitive
and a measure of protection for them during the transition period.
That has worked to an extent but there obviously has been an impact.
We have our continued import obligations and we will continue
to honour those; we have no choice. But that is now widely recognized
around Europe and calls, for instance, which there were from some
of the beet producer organisations simply to cut the refining
allowed as though you could just do that have actually been modified
in the light of commercial trade law reality.
Q34 Viscount Brookeborough:
What about fruit and vegetables, very briefly?
Ms Phippard: Fruit and vegetables, we think,
basically is concluded, at least at political agreement level
and is a good outcome. Obviously, it has to be carried through.
Good news because it leads to full decoupling of those aids over
a transitional period but the various calls that there were along
the way for certain sectors within fruit and vegetables to be
completely ring-fenced and maintain coupled payments were defeated
in the final decision with sensible transition to the new single
payment. The risk and crisis management elements, which we look
at with a certain wariness, because certain Member States promote
risk and crisis management in a way that looks to us remarkably
like market support by the back door, are actually all firmly
in industry hands; they are all owned by the producer organisations,
effectively co-operatives of fruit and vegetable producers. They
are 50-50 funded, so there is serious industry funding for them.
And, although in some cases some of the measures do not seem to
us ideal, nonetheless the firm industry ownership and responsibility
seems to us to be a good outcome. Wine—we wait to see the
Commission's proposals.
Q35 Chairman:
I thought you had them.
Ms Phippard: They have been quite widely leaked
and I think there our view is broadly to welcome the direction
of travel but there are certainly some aspects we will want to
explore fairly carefully, especially at some of what they can
do in the national envelopes—and national envelopes are,
alas, not national spend but EU spend allocated to individual
Member States. We will want to be very sure that—the risk
and crisis-type point I was making a moment ago—we are not
introducing market support measures by the back door through that.
We also have a small UK—England and Wales—interest
in all of this and one significant concern, which is that we remain
below the radar of the EU regime. We are at present, but we are
incredibly close to the bottom and, because they have extended
the planting ban till 2013 in the latest proposal, there is a
high risk—depending on the weather, a near certainty—we
would go over it, so we need to try and ensure that that does
not happen, because the last thing we want is our small but promising
wine sector disadvantaged
Q36 Viscount Brookeborough:
But it is true that the planting that has taken place and is taking
place this year will put us over in three years' time?
Ms Phippard: Yes—unless it all gets washed
away . . . ..
Q37 Lord Greaves:
Proposals to get rid of the milk quotas and Set Aside. The whole
of the history of the CAP is littered with bureaucratic interventions
in the market to try and patch things up which by and large do
not work. Set Aside did not stop production subsidies continuing
to rise on cereals, for example, and milk quotas have not maintained
adequate milk prices to producers and so on. The whole thing is
perverse, but dismantling them once they are in existence causes
all sorts of other problems on the way. What problems do you see
from getting rid of them? What on earth is the justification for
Set Aside in the context of a Single Farm Payment? There is absolutely
no logic at all. It is just crackers. What problems do you see,
what effects do you see on agriculture throughout Europe of doing
away with this?
Ms Phippard: That is precisely what we have
argued in terms of the relationship between Set Aside and the
single payment, and I am glad that that now seems to be generally
recognised. There is a lot of anxiety round the removal of Set
Aside, much of which seems to us to be misplaced, and the anxieties
are basically that instantly all those Set Aside areas will be
in full production and that some environmental benefits, which
have definitely accrued from having a Set Aside system, will all
be lost. Actually, our evidence suggests that in fact farmers
removed from coupled subsidies generally are taking some sensible
decisions about productive and fallow land and leaving unproductive
land fallow above and beyond compulsory Set Aside. By and large
they choose as Set Aside areas their least productive land. Moreover,
the whole theory that Set Aside provides a magic protection for
certain land for environmental purposes has been completely undermined
by the decision to allow non-food crops on that land, so it is
not a total protection now; it is a de facto protection
for some of the compulsory Set Aside land. What we are doing is
obviously talking to our environmental stakeholders, advisers
and so on, to try and make sure we really have understood the
problem, rather than the slight scare stories around it. As I
said, I think our assessment is that there is not a major catastrophe
about to happen but we are making sure that we have looked at
the specific impacts and have the measures, possibly through cross-compliance,
possibly through environmental stewardship, if there are risks
of very specific losses. A lot will, of course, depend on the
market and the price for cereals generally, both for food and
non-food uses. I am afraid it is back to monitoring and making
sure we have got the measures that may be needed, but I do not
think I am in crisis mode. The UK Government assessment is that
it is not a major crisis but we are talking to the Commission,
we are talking to other Member States; indeed, we are going to
do that informally next week to a number of them to see what their
assessment is. Milk quotas—again, as you say, this is something
which was generally opposed by most of the industry when it arrived
and is now regarded, at least in some Member States, as an essential
part of life as they know it. Our own industry has, by and large,
now come firmly and publicly to the view that the time has come
to end the system as planned in 2015. We have a good deal of analysis,
both done and in hand, and in discussion with industry, about
price impacts and so on. But actually the important thing seems
to us to be to have a debate about how we get there rather than
trundling along to 2015 as if it is not going to happen or it
might be postponed and then everyone falls off a cliff. Again,
there are quite a number of Member States—a larger list
than my list of our allies on all other subjects—who fully
agree that, and our Dutch colleagues are holding a seminar in
Brussels next week precisely to talk about the so-called soft
landing, the various options for managing an end to quotas, probably
looking at options like increasing the quantity of quota; cross-border
trading is one option which people canvassed, not one we are so
keen on; how the super levy applies; should some of those controls
come off gradually over the period.
Q38 Chairman:
This is the first time we have specifically mentioned the Health
Check. Most of our discussions had been at a more general level
of pushing the horizon out a bit. It might be useful to get your
view on what you think will specifically come out of the Health
Check.
Ms Phippard: Handily, the Commissioner has been
very clear in a number of speeches about her wish list. It seems
to us that there will be a range of issues under the simplification
banner: simplification of the single payment scheme and cross-compliance,
and that includes abolition of Set Aside, removal of things like
the ten-month rule, which was discussed and pressed for this year
but the Commissioner very firmly said, "No, that is one I'm
going to return to in the Health Check," and probably a further
round of discussion and, we would hope, some simplification around
cross-compliance conditions which again has been in discussion
under the German presidency with more to come. Further moves towards
full decoupling: we would hope to see a trajectory to 100% decoupling.
I think we will see most of that probably proposed by the Commission.
Further compulsory modulation, as we have touched upon, from Pillar
I to Pillar II. She has also suggested that even if the WTO round,
the DDA, has run into the sand, she would expect to see the EU
commit to the full end of export subsidies by 2013 and further
cuts in intervention and price support, so the end of not just
dairy quotas but potato starch quotas and so on. She will look
at things linked to the coupling point—like the energy scheme,
a little coupled payment which does not have a vast impact on
energy crops but has a lot of bureaucracy attached.
Q39 Lord Cameron of Dillington:
One of the areas of policy that has risen dramatically up the
agenda since 2003 is the whole question of climate change. In
this country farmers and foresters represent less than 1% of the
population but we produce more than 7% of the greenhouse gases.
Whilst obviously the former figure is greater on the Continent,
I suspect the latter figure is probably very similar. Is this
likely to feature as part of the Health Check, do you think? I
would hope that all the various Departments of Agriculture are
doing some thinking about how they can mitigate the agricultural
emissions of greenhouse gases. Maybe this is a separate item?
Ms Phippard: No. I think it is very much in
everyone's thinking. Obviously, we touched earlier on the fuel
issue, and that is an aspect of the mitigation debate. But the
role of agriculture and agricultural land in mitigation more generally,
carbon sequestration and so on, I think people are aware of. For
ourselves domestically, we are reviewing our environmental stewardship
scheme and are looking at the role of environmental stewardship
in both mitigation and adaptation. One of the reasons for cracking
on with that is that we anticipate that that sort of issue will
arise as we look at rural development, etc, in the context of
the Health Check. An interesting question is whether, as the Commission
looks, for instance, at further compulsory modulation, the argument
for that will be the growing climate change needs in rural development.
It is a pretty obvious driver. It is certainly one that the Commissioner
has picked up. This is an issue which I almost invariably find
I am discussing when I visit other Member States, talking about
bilateral and multilateral future of CAP issues. When you think
about public concerns and the public understanding and support
for CAP, and the longer term future, the role of agriculture and
climate change is clearly something where by and large the public
do have understanding, sympathy, active support. But again, it
is quite complicated stuff. You have to be clear about where Pillar
II can play an important part.
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