Select Committee on European Union Minutes of Evidence


Examination of Witnesses (Questions 340 - 359)

WEDNESDAY 21 NOVEMBER 2007

Mr Dai Davies, Mrs Mary James, Dr Nicholas Fenwick, Mr Derek Morgan and Mr Andy Robertson

  Q340  Baroness Jones of Whitchurch: If we were going to rationalise the CAP then surely one of the things we should do is put a lot more money in Pillar II, if we listen to what you are saying about the needs in your environments. If it is about environmental protection, which I am sure we all think is very important, then there should be other sources of money that we should tap into to pay for that. It should not come out of the CAP which, as you say, over the years has grown like topsy and perhaps it has lost its core purpose.

  Mr Robertson: I think the CAP has changed a lot. It is a lot smaller in total terms than it was as a percentage of EU spending. I think we can get too hung up on Pillar I versus Pillar II. One of the things I would hope we would able to do from 2013 onwards is say forget about Pillar I and Pillar II, what is it we want the CAP to do? To my mind it needs to do a number of things. One is to support that basic farming core business because there is clear evidence that by keeping farmers farming there are other benefits. The second bit is to say, if there are extra things we want farmers to do over and above which are of benefit to the environment or a benefit to local economies or whatever, then actually let us have specific measures that encourage farmers to do these things. We have perhaps got far too hung up on the fact that there is a Pillar I and a Pillar II and the whole concept of modulation, which to me is the most incredibly obtuse way of transferring money from one budget to another. If we want to put more money in a budget then we should just do it.

  Mr Davies: I am very interested in this other pot of money that is floating around. Perhaps we can speak afterwards!

  Q341  Baroness Jones of Whitchurch: For example, the Government is just announcing large sums of money around the climate change issues. There might be big potential there.

  Mr Davies: Thank you. I am even more interested now! As far as the expenditure on CAP is concerned, it is falling. We now hear that it is around 50% whereas it was at 60%. As far as production is concerned, there are serious constraints on production methods in the UK. As far as the population in general is concerned, they seem to expect certain standards from farmers. If you deny us the support then certainly hand in hand with that the constraints have to disappear as well and I am not sure if the population out there would like to see efficiency being driven into the rural areas of Wales. We have to remember that the farm structures in Wales are very similar to the time of the Enclosure Acts, the field structures are very small. If you are talking about efficiency then you will have to give us the freedom to remove some of these hedges and have vast areas we can run using mechanisation efficiency, and I am not too sure that the tourists coming into the heartland of Wales want to see that. They want to see traditional methods, traditional structures and the environment being very high on the agenda. For us to be able to do that we certainly need their support.

  Q342  Chairman: What is the difference between the CAP Pillar I funding coming into Wales and the profits from the tourist industry in Wales?

  Mr Davies: As far as Wales is concerned, if you look back over the last year, milk production contributed about a third of the GDP.

  Q343  Chairman: That is not quite what I asked. I asked about the funding from the CAP and the returns in tourism. You are defending the CAP as supporting the Welsh tourist industry.

  Mrs James: Perhaps I can come back to you with the figures.[1]

  Q344  Viscount Brookeborough: I come from Northern Ireland and we have quite similar problems albeit with the weather or whatever. I was interested in what was maybe a throwaway remark when you said that the Welsh language seemed to be important to your agricultural industry and whether or not the people who were speaking Welsh spoke English as well.

  Mr Davies: I did not say the Welsh language was important to the agricultural industry, I said the Welsh language seemed to be very important as far as the culture of Wales was concerned and what Welsh people want to preserve, it is the heartland of the Welsh language. The majority of people involved in agriculture—and it is the only industry—are still Welsh speakers.

  Q345  Viscount Brookeborough: Welsh only?

  Dr Fenwick: Bilingual in the main.

  Q346  Viscount Brookeborough: I am involved in tourism. I was interested in what appeared to be a contradiction because the tourists might like to hear a bit of Welsh or Irish or Gaelic but they communicate in English.

  Mr Davies: My first language is Welsh but I can struggle through with a few words of English!

  Q347  Viscount Brookeborough: On rural redevelopment, I am not sure that you both seem to agree on Pillar I and Pillar II. Mr Robertson said he was not too worried about the effects because it depended on what results you were getting. In Wales, are you clinging on to Pillar I and not wanting things to be moved to Pillar II?

  Mrs James: We are not advocating a shift from Pillar I to Pillar II. We see the signals emanating from Europe and from Government that seem to suggest that we are going to see a shift of emphasis away from Pillar I to Pillar II. I think it is trying to predict what we are going to see come 2013. That is not to say we are advocating that. We would certainly prefer to be getting the major resource through the SFP arrangements with them obviously cross-complied.

  Q348  Viscount Brookeborough: I understand that if money goes down through Pillar I and through the farms one could consider it might cascade into the community, but it does not always necessarily work like that. There could be better ways of doing it. Mr Davies said that if it works okay then it does not need to be fixed and I accept that entirely. However, certain things are going to change and therefore perhaps one should be more forward looking as to how you would really wish them to go, accepting that fact rather than just defending the past. How do you really see that rural development might continue to go on and come out of these changes?

  Mrs James: We can actually see a situation where re-diverting the resources away from primary producers causes them to become unprofitable and they leave the industry as a result of it. There are no benefits in creating alternative opportunities if on the one hand you are taking the profitability and the livelihood away from the farming industry on the one side merely to create another alternative opportunity on the other. In terms of the cascading down or the multiplier effect as we would know it, there is some independent evidence in Wales to suggest that for each farming job there are ten full-time equivalents produced in rural areas. They may be in the processing sector, the food areas, tourism, whatever, but certainly there is a very significant multiplier effect there.

  Mr Robertson: Can I just re-emphasise that? In Scotland, government figures have split it into 123 industry groups and agriculture is ranked 28 out of the 123 as far as multiplying for employment and it is ranked 17 when it comes to output. It is a pretty higher multiplier effect. The money you put into agriculture is recirculated and comes out in other sectors. There is some recent work which shows it is much higher than, for instance, in the hotel and catering side and also on the retail side. Agriculture is a good multiplier. We cannot just sit there and say this is what we have always done, therefore we have got to carry on doing it. I think we can get too hung up on the fact that historically Pillar I has been the direct support and Pillar II has been the rural development. What we need to say is okay, what do we need to do to keep farming businesses viable and active? There is clearly a gap between what the market requires at the moment and what is required to make these businesses viable and active. That is the support bit. It may well be that that support has to have a different justification than it has done in the past. In the past it was always very much linked to what you produced. It may well be linked to what we deliver in the wider sense. Then you have to look at what other things can agriculture do to the benefit of the wider rural community and the wider rural economy. That is where, for instance, encouraging diversification may well be a very relevant thing to do and that may well help the farming business itself too. If in fact the core business is not sufficient to employ the whole family or the current labour force then some sort of diversified activity may well help not just the business but also the local economy and you will then get that multiplier effect.

  Q349  Viscount Brookeborough: Would you like to tell us about diversification in the countryside as it affects you? We have heard about tourism and so on, but there are other things, ie where farms have not been able to support the whole family, where people have attempted to diversify and there are problems such as planning, even where a farm building may not have its appearance changed from outside. Natural England gave us evidence to say that they were largely against that sort of diversification but that tourism was all right. When we asked why they were against it they said it is things like traffic on the road, but tourists are traffic on the road. What are the issues for you in terms of diversification?

  Mr Davies: You mentioned diversification and tourism. As far as tourism and agriculture are concerned, they should go hand in hand. So many farmers have gone into tourism. The huge problem we have in Wales is the fact that there is a large proportion of Wales that is National Park and it is a case of hands off, do not touch National Parks. The other huge problem we have is that Wales seems to be quite attractive as far as people from the South East wishing to retire are concerned because it is a tranquil place and a green and pleasant land. As far as the younger generation is concerned, they are not in a position to compete with these people coming in well established and having enjoyed fairly lucrative employment standards in the South East. There is severe difficulty in the fact that we cannot build affordable housing in rural Wales to support these people and to enable them to work on local farms and carry on the traditions. It is a major, major problem which needs to be addressed at some stage or other.

  Dr Fenwick: In terms of the trickle down effect, we have recently seen a critical time due to the foot and mouth outbreak, with farming incomes falling through the floor and particularly lamb prices going down to very, very low levels. The number of businesses in rural Wales that have unpaid bills that they are not even going to bother to chase up until early December is phenomenal. We have come under that pressure when farmers are up against the wall. We had a similar experience during the problems that England experienced. We had businesses that are on the Welsh/English border phoning us up that had connections with agriculture but were not farming businesses to ask when English payments were going to be made because they were under such extreme pressure from their banks and so on and so forth. In terms of the contribution of farming to the environment and the link between tourism and the environment, that link is not coincidental. Tourism in Wales is a direct product of agriculture in Wales and that is something that has to be borne in mind. We cannot detach the two. In terms of diversification, the vast majority of diversification is in terms of niche markets and niche markets by their definition are niche markets. Not everyone can go into that type of business. I think we have seen the peak in terms of bed and breakfast businesses. There was a huge growth in farms that did bed and breakfast and they are very obvious when you drive along the road and you see all sorts and you might suddenly get the idea that every farm has got a bed and breakfast business, but the percentage of farms that run those sorts of businesses is very low. The numbers that would be able to be established on that type of diversification or perhaps diversification in general are very low.

  Q350  Chairman: Nowadays with Broadband you are not restricted to bed and breakfasts, you can become a stockbroker!

  Mr Robertson: Can I just pick up that point about planning because I do feel quite strongly that the planning system has not kept pace with rural development policy. The planning system is still stuck in a situation where it is almost in a bit of a NIMBY mode which says we want to keep everything as it was. There are huge opportunities for diversification, renewable energy is one and there are all sorts of renewable energy projects, whether it be wind power, hydra power or whatever. These are all things that farmers are well placed to do, they have got the resource, they have got the land, but if in fact we are going to run into difficulties with objections to planning permission then that is going to kill us stone dead. I know wind farms are a very controversial subject and beauty is in the eye of the beholder, but that is one very clear example where there is scope for diversification, but on the other hand the planning system may prevent it.

  Viscount Brookeborough: Space wise Wales is an RAF training area. The RAF complains about governance. It appears if you do not want to get attacked by this country you put up wind farms!

  Q351  Earl of Dundee: The FUW is against further concessions if made during current WTO negotiations. They believe these would undermine UK agriculture. Do you agree with that? If so, which concessions made by the EU in the current trade talks would prove to be most damaging?

  Mr Robertson: We do see there are really big potential dangers there. There are three aspects of the WTO. One is the internal support and most of the EU support has now been decoupled, it puts it into the Green Box and therefore there is not any great issue as far as CAP support is now concerned. The big issue there is whether other countries, such as the USA, are going to bring their support into line with ours. The second issue is export refunds. Export refunds are pretty unpopular. They are deemed to harm the economies of developing countries and so on. It is pretty well certain they are going to go. Mariann Fischer Boel has said they are going to go regardless of whether they have a WTO agreement or not. There is not a huge direct effect. There is an indirect effect because if a country which is currently getting an export refund, for instance, selling beef to the Middle East and it does not get that export refund then in fact there will be a knock-on effect because that beef may well come into this country and pull down the market. We have to watch that we look at the indirect as well as direct effects. The real danger is on import tariffs. There is currently a range of import tariffs. For instance, let us just take one example on beef from Brazil. Beef from Brazil is currently subject to a range of import tariffs. The EU proposal was that these tariffs would be substantially reduced. If they are substantially reduced then obviously Brazilian beef becomes much cheaper and it will drag the market price down in this country very substantially and it will do severe harm to an industry which already is being paid a price which is well below what is needed to meet their costs of production. That is where the big danger is, it is from the import tariffs. If we make too many concessions then we will end up not just cheaper but, crucially, with a product which is not produced to the same standards, whether it be animal welfare standards or whether it be environmental standards. One of the real weaknesses of the WTO is it does not take account in any way of production standards. We run the risk of tariffs being dismantled and product coming in which is inferior and undercutting us.

  Q352  Earl of Dundee: After further credit liberalisation what different forms do you expect Scottish and Welsh agriculture to take?

  Mr Davies: The other issue which concerned us was the fact that as far as the UK is concerned we are not in the Eurozone, and as far as the pound is concerned we have experienced a very strong pound for the last few years and, being involved in the dairy industry, we have found difficulty in exporting our dairy produce. We seem to be sucking in a lot of cheaper products from abroad. As far as Welsh agriculture is concerned, what we have been trying to do is capitalise on our PGI status, the product of geographical indication, and produce a branded product to try and add value to it. The ideology is fine but at the end of the day the vast majority of products sold abroad are sold on a price basis and we would face some severe difficulty. We can brand a product, we can take advantage of our high standards and capitalise on that, but at the end of the day it is only a small section of our production that we can sell in that way.

  Mr Robertson: You asked what would happen. There has been some work done by the Queen's University at Belfast which has a model, I think it is called FAPRI, which models the agricultural economies across the world and has a specific model for the UK and the four distinct parts of the UK. It has modelled the effects of reducing export refunds, and indeed dismantling import tariffs, and therefore an assumption that there would be greater penetration by imports, and it is quite frightening. It shows 20-30% reductions in prices and equivalent reductions in production, so if nothing else changes this model would suggest that it would have a really decimating effect on agriculture in this country. That is why we would argue very strongly that it is irresponsible not to include production standards in WTO negotiations because we would then be left with an industry which is producing to a high standard because it is required to do so, partly by regulation and partly by consumer demand, and is being undercut by inferior products, so we really have to play hard to have production standards included in WTO negotiations.

  Dr Fenwick: If I can just add examples of the differences between those production standards, Food and Veterinary Office missions to Brazil have consistently over the last four or five years found problems such as animals not being tagged until 90 days before slaughter, animals being moved from foot and mouth infected areas to foot and mouth free areas, the liberal availability of growth hormones, badly labelled drugs that do not have withdrawal periods written on them, which is very important in terms of protecting human health. The list is seemingly endless and many of those problems that they found would quite possibly land British farmers in prison and yet they are at liberty to import products that are produced to significantly lower standards and compete on a level playing field as far as the supermarkets are concerned.

  Q353  Earl of Arran: Just on another point on the CAP, I am supposed to be objective on this Committee, and indeed I shall be and am, but I am married to a farmer in Devon in dairy and her cries at night as she tries to come to grips with the CAP bureaucracy and regulatory system could certainly compete with the barrack room. The point is, how do you think the rules might be simplified when at the same time you have to satisfy the auditor that the funds have been used for legitimate purposes? Mr Robertson, in your submission here I quite agree that to "alter the penalty system to differentiate between deliberate intention to defraud and genuine error" is a very important point. Would you expand on that, and indeed would you expand briefly on your other possibilities for simplification?

  Mr Robertson: Let me give you one example of what we are talking about there. The suckler cow premium scheme in 2003 required people to keep cows for six months. If a heifer calved that heifer had to be replaced by another one, and in the vast majority of cases the farmer already had that animal on the farm so there was no question of not being able to keep the requisite number of animals. They were also required to notify the department that one animal had calved and been replaced by another one. If they failed to notify the department of that they suffered a penalty, not for not keeping the right number of animals but simply for not sending a letter and—the real irony in this—for not telling the department something they knew already because they could access the BCMS cattle database and find out that that was what had happened. The penalty for that was 50% of the entire subsidy. We would all accept there have to be checks, we would all accept that if somebody does not meet the conditions of the scheme and keep the requisite number of animals and do the right bit of environmental work or whatever, fine, they should not get the money, nobody would argue with that, but when somebody is being penalised for not writing a letter to tell the department something they knew already seems to us to be absolutely mad. That is what we mean by simplifying some of the bureaucracy. We think that there are other things that we could do. I have talked about abolishing set-aside. Set-aside to us seems to be an anachronism now. In a decoupled era there should not really need some kind of artificial restraint on the extent to which people can grow crops, nor quotas. Modulation, as I say, is a very obtuse way of transferring money from one budget to another. Here we have at EU level two big budgets running into billions of euros. Instead of shifting money from one to the other at the headline they let it all go down to individual farm level and then they take a small percentage from each farmer and transfer it across and back up into that budget. That is an incredibly bureaucratic and complicated way of doing things. If we want to move money we should just move it.

  Mr Davies: Nobody wants to protect criminals, but I have the privilege or misfortune in that we have an appeals panel as far as Wales is concerned to look into discrepancies. We call it an appeals panel but as far as the bureaucracy is concerned it is either black or white; there is no grey area. In reality, of course, we deal in grey areas all the time. We had an instance the other day where a chap keeping 2,500 ewes was 16 ewes short and he lost £32,000 out of his subsidy. If that man had been a criminal he would have made sure, by borrowing a few ewes from his neighbour or whatever, that he had the count. He certainly would not have faced a £32,000 loss. As far as the bureaucracy is concerned, tagging is a major issue as far as the agriculture industry is concerned where you will have the local authority coming out this week and you will have AH coming out the following week doing a TB test. Surely common sense tells us that these inspections can be combined into one. There is a welfare issue of farmers involved here as well as the welfare issue of animals. Bureaucracy gone mad as far as I am concerned is the issue of the certificate of competence which is being introduced, or should have been introduced this January, where you expect experienced people that have been in the industry for 30 or 40 years to turn up at some institution or other to look at a computer screen and put little ticks in boxes, and by putting those ticks in the right boxes he is deemed to be a competent person in handling livestock. I would have thought a far better scheme would have been to accept farm assurance, where they visit your farm and they see the individual walking between his animals, how he handles them. That can give a far better idea to an individual how competent that person is than him looking in front of a screen and wondering to himself, "What sort of answer do they expect? In which box do I put the tick?", and that is the reality of life at the moment.

  Q354  Viscount Ullswater: I think both Mr Davies and Mr Robertson have said that if product prices were sufficiently robust for an economic return you would rather work and farm and do your business in that situation, but probably the reality is, certainly at the moment for animal production, for sheep and cattle, that that is not the position and because of the fragility of your rural communities you need the single farm payment. Of course, you do not exactly have the freedom to farm as you used to because there are so many more environmental standards that have to be adhered to as well as the animal welfare standards. When you are looking at market mechanisms I note from your evidence that you still want to have some form of storage aid and I think the NFU in Scotland also want to have the opportunity of some contingency payments if prices fell dramatically. I am just wondering if you could elaborate on the circumstances where you felt that storage aids might be needed, especially as you have already said that you like the move from product prices to single farm payments, and with product prices I include storage aid, intervention and all those sorts of things.

  Mr Robertson: I think it is a very important point that you raise, and again I would quote the Commissioner from her speech yesterday, that this sort of thing should be a genuine safety net and not used to set market prices. I think what went wrong with intervention, if you go back 20 years, is that people were producing and almost producing to put into an intervention store, and that was madness. We are talking very much about a safety net where we have a complete crash in prices. If we go back to 1996, the infamous 1996 announcement in the House of Commons about BSE, the beef price absolutely crashed. That is the kind of circumstance that we are talking about—and I suppose we could also look at what has happened to the pig sector and the sheep sector very recently in the wake of foot and mouth—that if things go really badly wrong somehow or other there is a floor, and we are talking about something well down here, not the norm; we are talking about a floor or a safety net which says that if things get absolutely awful then there is some way of dealing with that. It must not become something which can be factored in, because there is no question that in the past when there has been some sort of level of support that has been factored in by the rest of the supply chain and all that has happened is that the subsidy has been given to farmers, or an intervention price or whatever, has been used to justify paying less to the farmer, and so we must make sure that this is only a thing that is used in exceptional circumstances and not something that can be factored in by retailers or others.

  Q355  Viscount Ullswater: The CAP is EU-wide. What it sounds like is that you are arguing very specifically for a single area like Scotland or Wales rather than the EU, so where would you think that money should come from? It sounds as if you are thinking it should come from the British Government rather than from the EU if it really is just supporting a particular thing which is happening within the country rather than within the Community.

  Mr Robertson: Unfortunately, I have been around this industry long enough to remember how the old intervention system worked, and there were two tests. One was that the European price had to fall and the other was that the price had to fall within the Member State, and you had to pass both those tests for intervention to kick in. I think what we are thinking is that you still have, if you like, that double test, that if there is a local problem then it kicks in. If I am absolutely honest we have not really got through all the thinking on this. You could argue that there is an EU pot of money which then can be accessed if you get a particular problem in a particular area. It may well be that we have to think of other ways of doing that. It either could become something that is a Member State issue or it could even be something for which farmers have some sort of insurance policy. It is a difficult one. Hopefully it is not something that will kick in very much at all.

  Mr Davies: The way it is set up obviously is important for us, but the ability to have that in place if we need it is probably more important. The fact is that if the ability to purchase, to go to intervention, all that is removed, what you are doing is exposing us totally to the world market, and I think that is a very dangerous route and we need some mechanism, a temporary mechanism, which can be introduced at some stage or other if or when prices collapse.

  Q356  Chairman: This is in addition to the single farm payment, is it?

  Mr Robertson: Yes.

  Viscount Ullswater: That is the key.

  Q357  Lord Palmer: One of your major concerns, and indeed I share it and I think probably most of us round the table do, is the lack of a level playing field across the European Union and the lack of commonality even across the United Kingdom. You are all particularly concerned about the impact of voluntary modulation, and indeed this was touched on earlier, and are sceptical about co-financing arrangements because you believe that the UK Government would indeed be less generous to farmers than other member governments. Therefore, which aspects of the CAP do you believe should be the same across all Member States and which provisions might more appropriately vary?

  Mr Davies: One instance which I would like to quote as far as that is concerned is the blue tongue issue at the moment. There is provision in the Commission for us to source funds for purchasing vaccine, 100% for sourcing a vaccine, and 50% for carrying out vaccination. At the moment the UK Government seems reluctant to source that fund. They would rather turn to the industry to be paying for it themselves. I think probably the background is that we are net contributors to the EU budget and that we would have to send more money out to Europe than we would get back, but it does concern the industry that our Government is prepared to support European farmers but deny the same access to funds to us.

  Mr Robertson: In very broad terms, to answer your question, we think that the way the CAP is financed should be the bit that is common across the EU. When it comes to the detailed implementation of rules and things I think we have to accept that we have got an enormous Union now; it is 27 Member States, and the way in which the detailed schemes are implemented must be able to take account of the different conditions in different Member States. The modulation one is an absolute classic example of this. There are only two Member States in the whole of the 27 which are applying voluntary modulation, the UK and Portugal, which means that in practice UK farmers and Portuguese farmers are having their direct support reduced to a level which is significantly below that for farmers in the rest of the EU, and, given that one of the whole points of having a single market is that people are trading on level terms, that immediately to us seems to undermine the principle of a free market.

  Q358  Earl of Arran: I understand all the problems that you are talking about. Out of interest, how lies the situation across the board with new entrants into the farming industry?

  Dr Fenwick: The Welsh Assembly Government is run by a coalition, as you know, between Plaid Cymru and the Labour Party and they have published what they call the One Wales document, which has declared that they will establish a new entrant scheme in Wales, and so things are looking up. The main problem facing new entrants, however, is the fact that there is not the money in the industry or the prospects within the industry to encourage people to go into it. There are people who are taking those steps. There are some very innovative and exciting young people going into the industry, but when you compare the incomes of perhaps their uncles and aunts who may be farming already with the incomes of their friends who maybe have left school and gone to work for British Telecom, that is hardly encouraging, and that is one of the major problems, raising the incomes of farms, and anything that would help that would be a bonus but the primary aim should be to raise incomes.

  Q359  Earl of Arran: And Scotland?

  Mr Robertson: Very much the same. We have an oft-quoted statistic that the average age of farmers is 58. I am never quite sure about that.

  Earl of Arran: It is rather like the House of Lords.


1   £211.9 million was released in Wales under the Single Payment Scheme in 2006. Expenditure by UK and overseas staying visitors to Wales in 2004 was over 31.8billion. Additionally, leisure day visits to Wales could account for a further 31.4billion. In 2001, tourism represented 12% of all employment in rural Wales. Back


 
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