Examination of Witnesses (Questions 142
- 159)
WEDNESDAY 17 OCTOBER 2007
Dr Helen Phillips and Mr David Young
Q142 Chairman:
Dr Phillips, thank you very much indeed for finding time with
your colleague to come and talk to us about the CAP Health Check
and the way forward on CAP reform. Perhaps you would like to say
a few opening words, setting the scene of how you see the future
developing, and then we will go through a question and answer
session if that is okay.
Dr Phillips: That would be great. Thank you
for that opportunity. We are going to be slightly disgraceful
in our few opening words, hopefully giving you the hooks for some
of the key recommendations we would like to see flow from your
report, and also to indicate some of the key areas where we think
we might have a fruitful discussion later in the session. As you
will be aware, Natural England is just over a year old. We had
our first birthday at the beginning of October. One of our roles
is the delivery of Environmental Stewardship. It means that we
will be administering £2.869 billion pounds' worth of CAP
funds, which is the bulk of the rural development programme for
England between now and 2013. However, in our role also as champion
of the natural environment it means that we have a much wider
interest in the Common Agricultural Policy. We want to ensure
that it supports environmental protection and improvement but,
at the very least, does not act or work against it. We see three
main opportunities now for securing reform of the CAP. The first
is the current review of Environmental Stewardship. Flowing from
that, we would like to see the securing of better environmental
outcomes through this investment of public money and also a better
understanding of what has been achieved with the public money
invested to date. That primarily will be around improved targeting
of Higher Level schemes, getting better geographic literacy on
the Entry Level schemes, and also making sure that we get an environmentally
useful successor to the Hill Farm Allowance. That is the first
one and, I realise, very current and slightly outwith your interest
in today's session. The second is the CAP Health Check, which
clearly offers the opportunity to make adjustments to the current
framework between now and 2013. A good example of the things we
would like to see flow from this is in Set-Aside, where we have
seen a policy measure that is a sensible policy measure of itself
but with rather clumsy implementation, and where we have real
concerns about the environmental degradation that will flow from
that decision. On 26 September 2007, European Union agriculture
ministers approved the Commission's proposal to set the compulsory
set-aside rate at 0% for autumn 2007 and spring 2008 savings.
We would therefore like to see the opportunity taken to adjust
that within the context of the CAP Health Check. Also, for a very
clear direction of travel to be set out, in terms of going away
from income support and subsidy to farmers for meeting that would
be basic operating requirements in any other industry, and all
the investment which goes into that, to payments of public money
in return for public goods and environmental goods and services.
Also, an increase in compulsory modulation, but one which does
not undermine voluntary modulation; as you will be only too well
aware, 50% of the English requirement for agri-environment funds
comes from voluntary modulation. More compulsory modulation would
be a good thing because it would get us away from Pillar I towards
Pillar II; but, by the same token, we recognise that we do not
have similar starting points across Europe in each of the different
countries. If we want to keep the notion of a Common Agricultural
Policy, therefore, we do need to reflect the fact that people
may need to progress at different speeds towards that common policy.
Last but by no means least, the EU Budget Review provides the
opportunity for a much more fundamental review of spending priorities.
If we think about some of the other challenges that are coming
now that we have not had in previous programmes, there is, for
instance, adequate funding for climate change and the impacts
of climate change; a substantial reduction in income support,
reinforcing that direction of travel away from Pillar I towards
Pillar II, and that coming much more to the fore; also, a fair
distribution of rural development funds, recognising what is fair
and sensible rather than having to live with historical accident.
Beyond that, and perhaps more controversially given the fact that
we have a number of you around the table who are already in our
agri-environment schemes, how, in the longer term, we secure these
environmental goods and services in perpetuity, rather than find
ourselves in the position of renting them for a certain period
of time, and often that benefit can be lost once the scheme stops.
That is a canter round some of our aspirations for the short,
medium and longer term, in terms of CAP reform.
Q143 Chairman:
I think that my opening question follows on quite nicely from
what you have said. You argue in your evidence that you have the
impression that Pillar I has lost its original purpose and has
not really found a new one. You go on to say that in the longer
term the CAP should be to "help secure the future of the
rural environment by paying farmers and other land managers for
forms of land management that are vital for maintaining and restoring
environmental features . . . which cannot be secured . . . through
the market". It is therefore a market failure role that is
available. Would you like to talk more about that?
Dr Phillips: Yes. We did use rather mouthful
terms there! As we see it, the original purpose of the CAP was
to secure a stable supply of safe and affordable food, reasonable
standards of living for UK farmers and, at the same time, allow
the industry to adapt, modernise and develop. Since then, agriculture
has changed beyond recognition and I do not think that we can
any longer depend on a high-quality environment as a by-product
of commercial farming. That is before you factor in new changes
such as climate change and the fact that we need a more resilient
countryside as part of our adaptation response; also, I suppose,
where it is you view the arguments around food security and whether
or not food security equates with food self-sufficiency; and,
of course, the improved commodity prices bringing great fortune
to some sectors of the agricultural industry but by no means all.
Given those changes, we think that the EU policy should be directed
towards securing environmental goods and services that are not
rewarded by the prices paid for in our food. We therefore talk,
perhaps a bit romantically, about a new social contract between
farmers and the rest of society: one where farmers see one of
their primary roles as the protection and stewardship of the countryside,
in return for which taxpayers are willing to make that investment
in the longer term—I suppose also coupled with more economically
and environmentally sustainable food production practices, where
those externalities are captured in the price of that commodity
and that people are willing to pay a fair price.
Q144 Chairman:
Could I be a bit brutal and say, Yes, that is a very attractive
argument which you develop for the maintenance of support through
the CAP. But, as you said when you started off, originally the
CAP was there to secure a plentiful supply of relatively cheap,
safe food. It has done that. We do not need it. Why not abolish
the CAP and, if we want environmental programmes, go through a
totally different support mechanism?
Dr Phillips: We need to think about the restructuring
of CAP in the wider sense. Our focus is very much on rural development
and sustainable agricultural practices. You have to think about
land use in the wider context. There is a lot of pressure on land.
There is pressure on land for food, for fuel, for development,
for a whole range of things. It is about the extent to which we
need to see some intervention in that use, so that we can secure
goods and services we need now but also the goods and services
we might need in the longer term.
Mr Young: There are new challenges that have
emerged, climate change being just one of them; there is also
global trade liberalisation. One of the great benefits in Europe
is that CAP has enabled liberalisation of markets in Europe whilst
protecting environmental standards. That is something the EU can
be proud of. Further trade liberalisation will require consistent
standards across the world; so it is important that the EU maintains
its mechanism for ensuring that food production is subject to
appropriate standards, including those for climate change protection,
and ultimately advocates them globally as a universal standard
to which all countries can aspire.
Q145 Chairman:
That is justification for keeping the CAP, is it?
Mr Young: There will be a continued wave of
trade liberalisation. A consequence of not having a CAP is that
we place at risk all of those public goods that will not be delivered
by the market mechanisms. That is the practical reality.
Chairman: We may come back to that at
some stage.
Q146 Lord Plumb:
Following on My Lord Chairman's question, and related to trade
liberalisation, you said earlier that there is ample evidence
that modern commercial farming can no longer be relied on to deliver
a high-quality rural environment as an automatic free by-product.
At a conference yesterday, your Vice-Chairman was trying to tell
us that it is possible and he sets that example. In fact, at this
very moment, he is showing round his farm colleagues from various
countries of the world, and showing them that you can have 600
cows on your commercial farm; that you can produce food, fibre
and fuel, all from crops on that farm, and it can still be environmentally
friendly. That is a point he was emphasising yesterday to people
from South America, North America, and indeed from all over the
world—not from Africa. When we talk about liberalisation
of trade, therefore, you say that it has an environmentally positive
impact within the European Union but you think that it then becomes
more complex when it is global. I would like you to expand on
that a bit. Are we talking about China? Brazil? Are we talking
about the areas that are sending in these vast quantities of products?
Again, we had the WTO as well as the World Bank represented yesterday
and so all of these things were coming out, loud and clear. It
is perfectly obvious that, when you start talking about environmentally
friendly farming, we are talking one language and it seems that
the rest of the world is talking another. I am all for setting
examples, but if we are going to go on importing those products—and
more products come from developing countries than from all the
other countries put together—it is a different world that
we are in. We have to accept what is, not just what we hope could
be. I would like to hear a little more on that.
Dr Phillips: There are almost two elements to
that. You start with the very positive example of Mr Christensen
and the way in which he farms. We would like to see all farmers
farming in an environmentally—
Q147 Lord Plumb:
He is not alone, you know. There are a lot of them.
Dr Phillips: Absolutely. At the end of the day,
we do not by any manner of means want to be paying for every environmental
good and service we want. If we get ourselves into that position—let
us be frank—there will not be enough money to go round.
Farmers look after 75% of the land area of Europe; they look after
over 70% of the land area of England. It is about that partnership;
it is about what it is that farmers are willing to do in terms
of how they look after the land which, absolutely and utterly,
underpins the partnership we have with them in terms of agri-environment
schemes and what flows from that. There is a very interesting
dynamic happening at the moment in Set-Aside and the discussions
we had with some of the farming unions in that context. Perhaps
I could paraphrase them. They ran along the lines of, "Higher
commodity prices are great. They have been a long time coming.
Not sure that you are actually going to be able to entice us into
agri-environment schemes any more, because it is more profitable
with wheat at £110 per tonne. Don't be asking us for cross-compliance
measures, because we don't want more regulation; we want less
regulation, please". Somewhere in that cycle, we need to
think about how we procure at a fair price those environmental
goods and services that only farmers can provide for us and that
we do need to have. How that has been achieved in Europe, is effectively,
to say that, with the kind of liberalisation across Europe, there
has been a public investment in buying some of those goods and
services. You could say that they are variable but, by and large,
there has been something of a fairly level playing field in terms
of environmental standards set out. I think that the challenge
is the one of scaling that up. We do not have a lot of evidence,
frankly, about what is the offset issue when you are buying more
food from other parts of the world, but it does not take a genius
to work out that we are eating more or less the same, or more;
that we are producing less and it is coming from somewhere else,
possibly somewhere else with lower environmental standards; and
that we are going to see environmental degradation. It is often
not going as far afield as China. We want to make sure with the
new Accession Countries that some of the implications of CAP will
not mean more intensification and/or land abandonment in what
are pretty high-value nature farming areas with low resilience.
I think that it is about how the Common Agricultural Policy, either
in its current manifestation or in the direction in which we would
like to see it go in the future, becomes a blueprint for sustainable
agriculture. That, in turn, flows into standards, and those standards
can be set at a global level. Our view is that the World Trade
Organization will have limited objection to that, because it can
be shown to be non-trade—distorting, and environmental standards
are an important matter at a global level.
Q148 Lord Palmer:
Your written evidence suggests that cross-compliance has been
applied in a variety of different ways among European Member States.
Could you give us some examples of what you see as good and less
good applications? You go on to suggest that cross-compliance
should become a means of establishing baseline standards for good
farming within the United Kingdom; but, if Pillar I were to be
phased out, would not the incentive which the Single Farm Payment
provides for compliance also disappear? How then do you envisage
the baseline standards being met, and indeed enforced?
Dr Phillips: It is important to consider cross-compliance
in its two facets: the Statutory Management Requirements—which,
when I am being unkind, I call "money for nothing"—and
Good Agricultural and Environmental Condition. A very good example
is Requirement 14—I am sorry to be slightly nerdy—of
Good Agricultural and Environmental Condition, which prevents
the roots of hedgerows being churned up and which also protects
diffuse pollution going into watercourses. There are some other
less good examples; for example in Denmark, where, through some
of the Single Farm Payment measures, the cross-compliance does
not actually require good landscape protection measures. The issue
is that we must not continue to pay farmers for meeting basic
environmental requirements. There are legal requirements that
are effectively being paid for through the Single Farm Payment.
If we say that is a flawed philosophy in this day and age, how
do you protect the additional requirements such as the Good Agricultural
and Environmental Condition ones? My view is that it will become
a qualifying criterion for those who wish to enter into agri-environment
schemes and that, for those who do not, the basic and huge suite
of things that has been secured through cross-compliance will
be secured through regulation. I do not mean heavy-handed regulation;
in fact, I may mean considerably lighter regulation than we currently
experience, much of which is quite input-focused, but more risk-based,
proportionate regulation.
Q149 Viscount Ullswater:
When you look at Europe and all the different conditions for farming
in Europe, are you suggesting that each country should have its
own view about how cross-compliance works? I think that what you
have described is very current for the UK, but when you go to
Poland and see some of what we would describe as very rural areas,
where a lot of the work is done by hand and machinery has not
got in in quite the same way that it has here, is it not right
that they should be able to create their own standards and not
have a common standard throughout the CAP?
Dr Phillips: I would be arguing for a slightly
more radical step than that, which is that we should not be having
Pillar I. We do not want to be either subsidising or consequently
inflicting undue regulation on people for meeting basic operating
requirements; and I would say that those basic operating requirements
should be common, as enshrined, as they currently are, in EU directives
and other legislative mechanisms.
Q150 Lord Bach:
First of all, I played a small part in setting Natural England
up and I am delighted that it is doing so well and has so many
staff who can come here today.
Dr Phillips: They are not all ours!
Q151 Lord Bach:
Are they not? How do I tell! However, I want to come back to what
My Lord Chairman was asking you at the start, and it is a fundamental
question. If I agree that Pillar I has served whatever purpose
it once had, is there not a question about where that money goes
to? In other words, if we agree that farmers should not be paid
for producing what they produce, why should farmers be paid by
the taxpayer for doing what they ought to do anyway in terms of
environmental protection? Are there other groups in society who
are so protected if they offend against environmental good practice?
Dr Phillips: Hear, hear! I entirely agree with
that assertion. The issue, then, is what is it we want to pay
farmers for, that have a price and are not going to be delivered
through other mechanisms? Currently—and this is a very up-and-down
picture in terms of how the flow of agri-environment funding goes—if
you were to average it out, there is £414 million a year
going out of the door to farmers, through Environmental Stewardship.
We reckon the need—and this is very much a finger-in-the-air
estimate—is somewhere between £500 and £700 million
a year. That factors in, for example, Biodiversity Action Plan
requirements, but it only partially factors in water Framework
Directive requirements and does not estimate or cost out climate
change and climate change adaptation requirements. There is therefore
a substantial number of environmental benefits that need to be
bought. If you think that the Single Farm Payment is seven times
the amount of money that goes to farmers through agri-environment
schemes, you can see that there could be a substantial shift of
monies from Pillar I to Pillar II, whilst at the same time probably
making it quite possible for Treasury to have a reform dividend
in that process; albeit, I should say for the purpose of completeness,
that that £500 to £700 million is quite a loose estimate.
There is quite a lot that has not been added in to it. It is also
based on the premise that we must recognise that a lot of the
environmental goods and services farmers currently deliver are
in effect propped up. God bless it! It is the one good thing about
the Single Farm Payment, namely the infrastructure support that
goes through the Single Farm Payment. We would therefore need
to recognise the fact that that would no longer be for free, and
there would need to be some adjustment to reflect that cost to
the farmer.
Q152 Lord Bach:
How do you work out what should be paid to the farmer for environmental
purposes and what should not? I know it is a very rough figure,
the half a billion that you mentioned; but what is it about that
that farmers should be paid for and paid for by the taxpayer,
and about the rest of the environmental considerations that the
farmer should look after himself? How do you draw those distinctions?
Dr Phillips: The funding formula at the moment
is interesting territory. It is based on income foregone. It is
something that we are beginning to give some consideration to.
In many ways, it will be quite difficult to get away from income
foregone. Imagine that you are a farmer standing in a field: it
is the mental calculation you do in your head about, "What
is it that can come from this land that is in front of me?".
There is a good example, for instance, with our SSSIs. We have
a PSA target to get SSSIs back into favourable condition; we are
struggling massively to do that. We should be at 83% by the end
of this year. With a fair wind, we will be at 81%, and that is
because it is getting harder to do. The further you get in the
programme, the more expensive the measures and the more difficult
to achieve. It is about what the cost of that is. Do we actually
want to be doing a deal with farmers that says, "What is
the cost to you of securing this environmental good and service,
together with the profit you require?" Or is it on the basis
of income foregone, with all the implications of that when commodity
prices go up? The implications of that, if prices go up, is that
you have either to change the areas in which you are buying the
benefit—so classic horn-and-corn territory—and, having
said that, the environmental goods we need, for example the habitats
we want to protect, are not necessarily transferable from one
area to another. You may therefore have to face the almost inevitable
reality that you can buy less in periods of high commodity prices.
Q153 Lord Greaves:
Or pay more for it?
Dr Phillips: That would be nice, but that is
a predication on the total available funding for the Common Agricultural
Policy. We would love that as a recommendation.
Mr Young: I think that behind your question
is a deeper point. You could assume that the environment is in
a good, healthy condition now and that we need some basic, light-touch
regulations, and it will be all right. However, the reality is
that the environment is highly degraded; it is highly fragmented.
With the advent of climate change, there will be significant new,
additional risks to the natural environment. The question is what
is the share of the cost to secure the natural environment for
the future? Can we realistically expect farmers to pay for it
all?
Q154 Lord Bach:
Or the taxpayer to pay for it?
Mr Young: Or indeed the taxpayer. Nonetheless,
it is our position that we believe absolutely that the natural
environment should be secured for the future and we need to find
a partnership as to how that should be delivered.
Q155 Chairman:
In the rest of the planning system, people who find that they
do not get planning permission for activities that they wish to
engage in could well argue that that is income foregone; that
they are being penalised. But we do not give them any compensation
for that; we just say that it is counter to planning policies.
Why should farmers get compensation for income foregone, if it
is in fact delivering a planning objective?
Dr Phillips: If you think about a simple example,
if somebody wants planning permission to build a hotel, the profit
that comes from that hotel goes to them. It is not that we are
trying to secure the hotel as a public good and service for society
or the community more widely. We are actually talking about buying
things that society needs, such as clean water, improved habitats,
reducing flood risk, connecting habitats in the face of climate
change. You could therefore argue that there is more benefit to
society than there is to the individual who is producing those
benefits on behalf of society.
Q156 Baroness Jones of Whitchurch:
We could turn that argument round. You picked a hotel, but you
could say that house-builders are meeting a social need. They
make a profit out of it. We do not pay them necessarily in that
way.
Mr Young: I think that there is a difference
as well. The planning system aims to allow and permit various
forms of development. We do not have a planning system at this
stage which articulates a vision for the natural environment.
The natural environment is not embedded properly within spatial
planning in this country. We do not have systems where we identify
where we need those environmental goods and services in different
parts of the country suited to different regional needs. If we
did, I think we would be supportive of your argument; indeed,
it is something we might argue for. However, at this point in
time we do not and therefore there is no effective planning of
environmental protection for the future.
Q157 Lord Greaves:
Farming is more or less excepted from the planning system—not
entirely but very substantially. The argument being put, I think,
is that farming ought to be part of the planning system; but I
think that argument was lost, if it was an argument, 45 or 47
years ago and it would be very difficult to bring it back now.
I want to go back to the basic level, the Pillar I stuff, the
cross-compliance. If that is to be abolished, then what you are
suggesting is that there should be some form of regulation which
farmers are subjected to but not paid for. The farmers I talk
to about cross-compliance at the moment tend to shrug their shoulders
and say, "Yes, in principle it's OK. We've got to do it and
we do it because we need the Single Farm Payment". Whether
or not they think it is a good thing, they accept it because they
can see the sense, in that they are delivering something for the
money that they get. That seems to be a widespread point of view.
If you continue to require cross compliance-type measures from
farmers but no longer pay them anything for that, first of all
you have a problem of convincing farmers that it is a good idea
and, linked to that, you have a real problem of enforcing it.
You said "a much lighter regulation regime"; I think
that you will need to have a much stronger regulation regime,
to make sure that whatever it is that you are asking for—whether
it is the present cross compliance-type measures or whether it
is other things altogether—will be carried out.
Dr Phillips: There are two facets to that. In
many ways, Lord Bach put the argument more succinctly than I would
probably manage. The issue is this. If you think about process
industry regulation, it is subject to the IPPC directive, to air
quality requirements, and a whole host of waste management requirements.
We do not say that the process industry should have a payment
from somebody in order to help them meet those environmental standards
and requirements; yet that is the situation we have got ourselves
into, culturally and historically, with agriculture. I think that
we need to make sure that we do not let incentives subsidise regulation.
There are a range of levers you can use to get environmental outcomes.
There is regulation, advice, advocacy, incentives, and practical
action. At the moment, however, we know that the Common Agricultural
Policy, as you said yourself, is probably not sufficient to meet
the totality of the requirements, particularly if we need to pay
more against increased commodity prices. So why is it that we
allow some of that incentive money, which really needs to be earmarked
very carefully for buying those things that nothing else can buy,
to support and subsidise regulation?
Q158 Lord Greaves:
I accept the case that is being made. I understand that completely,
and the case Lord Bach put forward. What I am asking about is
the regulatory regime which would be necessary to enforce that.
Would that be part of Natural England's remit? Or who would do
it?
Mr Young: We mentioned earlier that, if Pillar
I was phased out and there was no Single Farm Payment, the basic
conditions, the baseline standards, would be the eligibility criteria
for agri-environment schemes. We have targets in place to achieve
60% of agricultural land in what we call our Entry Level Scheme.
That would then pick up at least 60% of the agricultural area.
In addition, as Dr Phillips mentioned earlier, we are trying to
make our Entry Level Schemes more geographically literate, which
means identifying in different parts of the country where the
most important environmental goods and services need to be delivered.
That would include the areas where it was most important that
those regulations came into effect. We would therefore be targeting
agri-environment schemes to the key areas of need, and the eligibility
criteria would be those minimum environmental conditions. I cannot
say to you that I can answer the question, "What would happen
with the remaining 40%?". It is a wider question of broad-based
regulations: the Water Framework Directive, the Soil Directive,
the Birds and the Habitats Directives, and all of those sorts
of things, some of which we administer, others of which the Environment
Agency administers. Essentially, however, we would secure those
basic standards by linking the conditions as eligibility criteria
for agri-environment.
Chairman: We are getting into an interesting
dialogue, but we have to move on, I am afraid.
Q159 Viscount Brookeborough:
Your evidence indicates that decoupling has been important. You
do not say a great deal about whether you think it has had a really
good effect or not, except that you use the word "inertia".
Presumably, therefore, you are suggesting that, if it is having
an effect, it is not quick enough. How far do you think the effect
of decoupling has been masked, or you might say almost overrun,
by the strengthening of some agricultural markets? Would you foresee
greater environmental impacts if agriculture prices should fall
to levels nearer the average of the past decade, accepting that
at the moment the grain and milk price in particular is going
in entirely the opposite way?
Dr Phillips: The first thing we have to say
is that it is pretty early days in terms of decoupling. We need
more time to see outcomes through. It undoubtedly has been complicated
by the realities of commodity prices and these will probably delay,
or possibly defer, the effects of decoupling. This effect is difficult
to estimate. Income support through the Single Farm Payment of
itself dilutes the economic signals, particularly at times of
low prices. Our partnership with the agricultural industry through
agri-environment has largely been at times of low commodity prices,
albeit we have been through one previous cycle of boom-and-bust.
It is about how we persuade good environmental practices as a
matter of course, as Lord Plumb referred to earlier, but also
how we adjust the rates to reflect the market realities. It is
whether that is a case of our having a greater quantum of money,
of our being able to offer more money to out-compete commodity
prices, or whether the implications of that are fewer environmental
goods and services, or perhaps our having to be quite counter-intuitive
and being able to almost buy the environmental goods and services
that are available to us through the market at the point at which
they are available, and sometimes having to put off for a longer
period of time some specific habitats or species or other requirements
that we might need in a specific geographic locality at a particular
point in time.
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