Examination of Witnesses (Questions 567
- 579)
WEDNESDAY 5 DECEMBER 2007
Mr Pekka Pesonen
Q567 Chairman: Good
afternoon. We will try and get the best use out of the time that
remains. Thank you very much for getting here. We had some concerns
about your health and wellbeing but you are here. Let me explain
briefly who we are and what we are doing. We are a Sub-Committee
of the House of Lords Select Committee on the European Union.
We are conducting an inquiry into the Health Check and looking
forward to the future of the CAP as it evolves. In our terms this
is a formal evidence session, so a note will be taken and a transcript
will be available in a little while. You will get a copy of that
so you can make any adjustments or changes that are necessary.
The best way of proceeding is if we go across the table and have
a conversation around some of the topics we have identified. In
order to try and make the best use of the time we have linked
some of the questions together, so I hope that is not too confusing.
If I could start with the obvious simple question which most likely
produces a very difficult answer. Looking to the Health Check
and beyond the Health Check to Budget Review, what do you see
should be the overarching principles and objectives that underpin
the future development of the EU agriculture policy?
Mr Pesonen: First of all, thank you very much
for the invitation, I am deeply honoured on behalf of my organisation,
COPA-COGECA, and personally. Secondly, in answer to your question,
we have formulated our first reaction vis-a"-vis the Health
Check and at the moment are preparing more detailed analysis and
another document of a long-term nature, post-2013. However, we
have already had a fairly extensive discussion amongst our member
organisations, 78 of them. It is not that simple to reach a conclusion
sometimes but we work hard on that. In that particular discussion
we have identified two items that are of relevance so far. Especially
when we talk about the Health Check it is a matter of stability.
In 2003 we had reform and it has only been implemented fully in
most of the Member States for perhaps one or two years and we
are still in the process of adapting to reforms that go together
with the 2003 reforms. By this I mean sectors like wine, cotton,
and fruit and vegetables, for instance. When we talk about more
long-term aspects, it is a matter of our farmers in the agriculture
sector and our farm businesses fulfilling the expectations of
society and the consumers. Clearly these two issues are on the
table: stability and expectations to be fulfilled.
Q568 Chairman:
Could you say a little bit more on that. If you say stability
often enough and loud enough it actually means no change.
Mr Pesonen: No.
Q569 Chairman:
What are the farmers' expectations?
Mr Pesonen: I have to remind you that this is
not a formal position but we have identified these issues. When
we talk about stability it does not mean that we have to freeze
everything. We see opportunities in various sectors. Coming from
the market we have introduced bio-energy, for instance. It has
more to do with the political framework. If the farmers were told
now, two or three years after the implementation of the last reform,
that we were going to have another one in another direction that
would be detrimental to the agricultural continuation and motivation
of the farmers to fulfil those expectations that are already there
in the short-term. What it means in more precise terms is that
we expect there will be some sort of safety mechanisms in place
to the Common Agricultural Policy in the whole of Europe. We fully
support the continuation of the Common Agricultural Policy framework.
We talk about the detail of what should be there and what is necessary
or perhaps not that necessary, and this is why we have a detailed
analysis on the Health Check. We have identified a number of issues
that are of relevance, for instance, to British farmers and not
necessarily as much to Italian farmers or Swedish farmers. Sometimes
we have some friction between our member organisations in terms
of what highlighting means. When I say market management, for
instance, that means we should maintain market management tools
in the marketplace. A very good example is the recent crisis in
the pig meat sector. We clearly identified the difficulty that
was out of reach of the farmers themselves and it was society
who decided that there had to be a level of control on imports
and there had to be some requirement fulfilled to import raw materials,
for instance GMO. We do not take a stand on whether GMO is good
or bad but in the reality if the European Union society at large
expects that we fulfil the requirements of society, namely not
using GMOs extensively and not without authority from the European
institutions, this has to be reflected in terms of safety mechanisms,
market management, when we talk about the cereals market and the
recent experience that we had in the pig meat market. Prices stagnated,
costs spiralled and farmers were suffering and going out of business
to the detriment of the European consumer because the pig meat
we have to import would most probably be fed with GMO feed. Clearly
we feel there is room for safety mechanisms, especially market
management tools in the future.
Chairman: I wonder if we could go over
to Single Farm Payments.
Q570 Lord Cameron of Dillington:
The Commission seems to be indicating that in the long-term Single
Farm Payments based on an historical basis is going to be an untenable
position and, as you know, in England they are working that way
and Germany are proposing the same. What do your members feel
about this? Have you got any views on the conversion of the Single
Farm Payment to area payments based on a regional basis?
Mr Pesonen: First of all, this option was given
as part of the package in 2003, the historical reference. Some
Member States have traditionally been very much in favour of such
an approach. Another thing is how long we are going to continue
with this historical reference. I have had some experience of
this from the Finnish Farmers' Union. Even with the conservative
groups, like the dairy producers in Finland, they identified the
need to have some sort of transitional period for the historical
reference in Single Farm Payments, I imagine the length of this
transitional period is a matter of importance.
Q571 Lord Cameron of Dillington:
So you accept it has got to change eventually?
Mr Pesonen: This is up to member organisations
and Member States because clearly there is a link between each
individual Member State and their system and their reference.
For instance, in Ireland I see their justification for the historical
reference, the historical link with their strong bovine sector,
and since they had economic difficulty with that particular sector
in early 2000 it was clear that at the same time this was a safety
net for the farmers. It is not up to COPA-COGECA to say it is
wrong for you or you should change that, it is up to the Member
States to decide whether or not that is relevant. That is escaping
the responsibility, but this is clearly something that—
Q572 Lord Cameron of Dillington:
As part of the Health Check there are going to be statements about
the need to change eventually.
Mr Pesonen: This is what the Commissioner has
indicated.
Q573 Viscount Ullswater:
The introduction of the Single Farm Payment was quite a radical
reform. I would like to hear your views on decoupling. Do you
welcome complete decoupling? On capping should there be upper
and lower limits in the support levels? On cross-compliance, are
the arrangements working?
Mr Pesonen: First of all, in terms of decoupling
I have to admit that most of the member organisations of COPA-COGECA
in 2003 were rather reluctant to adopt this new approach because
of the clear risks involved. I have to say on my own behalf, that
is a welcome change for the agricultural sector for the better.
By this I mean that the market forces will be more transparent
and influencing the decisions of the farmers. However, we have
identified a number of products that will suffer in relative terms
if we decouple totally. We have used the expertise of our working
parties and identified certain sectors, like durum wheat, rice,
seeds, flax and hemp, shelled fruit and tobacco. They are minor
products on the scale of the European Union but if we decoupled
shelled fruit eventually that would mean that would more or less
totally disappear because of the relatively high cost of production.
Here again we have the expectations of society. I admit that sometimes
it is difficult to interpret what the expectation is but we feel
when we have diversified European agriculture to the extent we
have now we should have some sort of guarantee that we have the
possibility to continue with particular products. This is our
first reaction but we are of the opinion that until 2013 we should
maintain the possibility for Member States to keep this coupling
effect. In general that only represents a minor share of the total
direct payments which are well above 80%, already decoupled. The
overall experience from this decoupling effect has been positive
from the European farmer's point of view; not 100% but generally
speaking. I know this myself from the market experiences that
we have had.
Q574 Viscount Ullswater:
On capping? This is really a proposal, is it not?
Mr Pesonen: We have to identify the two extremes,
whether we talk about the lower level of payment for farm size
or the maximum. Clearly politically these are interlinked. I would
imagine that many of the Member States use this as a package in
total. When we talk about capping, COPA-COGECA are not in line
with the Commission in terms of introducing a strict line for
maximum farm size and maximum direct payment because we feel that
in many of these cases there are issues that are relevant to the
agricultural activity as such. I know, for instance, in the UK
there have been references to environmental matters, that it is
the hectares that are the basis for cost. In new Member States
we have identified the need for the inclusion of labour intensive
working methods or operation methods. Quite recently, I visited
a Czech Republic private limited company that employed 200 people
and they had several thousand hectares of arable land, 1,400 dairy
farmers, and on average it was a joint venture for a lot of smallholdings
in general. This has to be taken into account and that is why
we do not share the view of the Commission that there should be
a ceiling. We note that the previous approach with the single
ceiling maximum limit of €200,000 per holding was abandoned
and now we are talking about various thresholds and the percentages
that are going to be used. At the lower end of the scale we are
supportive of simplifying schemes in administration to replace
the additional administrative cost that is involved with small
scale farms. The Commission justification for the introduction
of this lower limit is the administrative cost is overwhelming
in comparison with the income to farmers through direct payments.
We feel that this could be simplified in terms of using a three
to five year period, for instance, where farmers commit themselves
in order to get a relatively small amount of money. In certain
Member States this has significance in political terms. We are
looking for wider acceptance of the Common Agricultural Policy,
like most of the Member States, and this is going to be one of
the examples of that particular approach. When it comes to cross-compliance,
generally speaking we are of the opinion that cross-compliance
is a crucial element of the first pillar of the Common Agricultural
Policy. Cross-compliance is a pre-condition of direct payments
and, in fact, the Commission is underlining the importance of
cross-compliance by possibly proposing new measures under cross-compliance
as a pre-condition to first pillar payments once again. We are
against this approach, we do not feel it is good for the motivation
of the farmers, especially when we talk about the overall approach
to the Common Agricultural Policy, that we all repeatedly include
new items to the package without taking into account the fact
that at some point the farmers will say, "This does not add
up, I will just get out of the business", so society will
lose the aspects they are looking for. It is a double-edged sword
as to whether you should use it but at the same time you have
to be prepared to justify inclusion of new policies.
Q575 Viscount Ullswater:
Are you finding amongst your members that some of the rules of
cross-compliance are a little too tough and people are getting
money withdrawn for rather technical reasons?
Mr Pesonen: I do not think that farmers in general
think the rules are tough but the administration is overwhelming
and that makes a lot of difference. It is existing legislation
and how to implement it. A very good example is this ear tag business
which we think is ridiculous, that we have an obligation to have
two ear tags on a bovine animal where the animal is perfectly
identifiable with one tag, especially if there is documentation
that goes with it. We feel there are a lot of things that we could
simplify in administration in order to motivate the farmers to
fulfil the legal requirements. We are not asking for alleviation
of the rules themselves but the administration is overwhelming.
Q576 Viscount Ullswater:
Could you just give a further comment on the discontinuation of
those supply mechanisms, set-aside and, in due course, milk quotas?
Mr Pesonen: COPA-COGECA, together with some
member organisations, actively proposed setting the set-aside
rate on the obligation level to zero. This was proposed by the
Commission and has been accepted by the Council already and we
welcome that move. That will alleviate the availability of feedstuffs
for next year, for instance. At this stage, however, we feel that
we should not abolish the system of set-aside because it is one
of the very few remaining market management tools. We see that
as a supply management tool but if we do not have anything else,
and originally this tool was introduced to lower the supply of
cereals in the European Union market, we ask for maintaining the
possibility of returning to this question and we ask for a zero
rate. This is the approach of COPA-COGECA. We can come forward
in terms of what to do in relation to that in the future but at
this stage we recommend the continuation of the existence of the
scheme. When we talk about milk, politically this is a top priority
for all Member States and all member organisations in the European
Union. In relation to wine, for instance, this is a totally different
scale of matter. The same applies to sugar. All Member States
are extremely interested in milk, it is a basic commodity, and
they are really interested in how to organise that in the future.
This is the background from where we started last spring to organise
ourselves in terms of position-taking and we identified three
things. First of all, the overall quota regime has worked in favour
of the sectoral balance, generally speaking, farm income, the
stability of the market and general predictability. In doing so
that is most welcome but at the same time we identified two particular
issues. First, the market has developed and there is more potential
for the marketplace to be exploited by the dairy producers and
this is clear, prices have gone up. Our fear is once they go up
drastically they usually come down drastically and that is what
we want to avoid. Secondly, politically the message has been particularly
clear. The Commissioner has said repeatedly very clearly that
she is not going to propose any kind of continuation. Of course,
you could argue that her term is coming to an end but, nevertheless,
generally speaking this is the opinion of the Commission at the
moment. The Commission is not proposing and most probably the
Member States are not going to create a Qualified Majority in
favour of the Commission's non-existent proposal. The political
landscape has changed. We have identified these three items and
have come to the conclusion that the most important factors to
European agriculture and milk sectors are stability, predictability
and regional distribution of production. That does not mean that
we have to freeze that but there have to be certain elements in
place so we can continue producing milk in areas like mountainous
regions where you do not have any other agricultural activity
that remains if you lose milk. Also, the employment factor is
there and we need to have another look into that. In short, we
are working on the particular approach vis-a"-vis the quota
regime as to whether we are in favour or against the quota continuation
but at this stage it looks like our members are divided more or
less into two groups. We have the more market-oriented, probably
the most competitive regions in the farmers' union, and then smaller
Member States in general and they are in favour of some sort of
system being continued.
Q577 Lord Cameron of Dillington:
In terms of the Commission's proposal to remove all intervention
from arable areas apart from this safety net for bread wheat,
what are your views on that?
Mr Pesonen: As I said, we would support an approach
where we have some sorts of measures if we have a crisis. We have
had certain turbulence and volatility in the marketplace and you
know better than I do that there have been certain comments coming
from consumers and citizens when we have had higher prices for
foodstuffs. In fact, the price increases have been rather modest,
2 or 3% at the most, but all of a sudden in Italy we have had
a strike against pasta price increases and the relevance of the
price increases to their economic system. We feel that if we have
a management problem, especially when we are faced with international
actors like Russia, Ukraine and their active involvement in terms
of introducing export tax, for instance, which clearly undermines
the livelihoods of European producers through the market, and
then we have the GMO issue with the Americans and a lot higher
prices in South America, drought in Australia, all these aspects
together, especially put into the same pot with climate change,
it appears that we have a need for some sort of mechanism to be
maintained and this is what we are in favour of.
Q578 Chairman:
That brings us to risk management absolutely centrally, does it
not, because the Commission has drawn attention to the fact that
the more you open up the market the greater the level of risk.
Should the industry itself begin to accept greater ownership for
the management of these risks rather than always looking towards
the state and the EU?
Mr Pesonen: Yes and no. Yes because the businesses
are clearly the operators and they try to take benefit out of
the market changes. Of course, this is what I would do if I was
selling cereals. But at the same time there has to be a certain
minimum mechanism that we could use, for instance, against the
Russian activities or international development or all of a sudden
when there is a crisis in place. We have identified that, first
of all, by definition common market organisations are risk management.
They were introduced in the first place to reduce risk, reduce
volatility and reduce sudden change in the marketplace. By definition
they are there to alleviate the problems that we are faced with
in the marketplace. Secondly, of course businesses are interested
in getting involved and if they can use that as a business opportunity
then why not. This depends on the sector itself. Even in cereals
we have a slightly different situation with oats than with barley
than with durum wheat or maize, especially when we take into account
issues like GMO in importation and the risks involved in the adventitious
presence of GMO substances, for instance. Thirdly, the Commissioner
has been very much pushing us in the direction of having some
sort of risk management measures put in place and in doing so
we have to bear in mind that we have a number of tools available
at a national level. Clearly what we should do is use the experiences
that we have had and there I talk about crisis management, let
us say covering some of the unforeseen costs or damages the farmers
are faced with. They are accepted by the Commission at this stage
but we should use the existing measures to assist us in terms
of creating something at the European Union level. There are three
players basically, the common market organisations being the main
tool, opportunities are there for businesses and we should take
into account what we have experienced over the last few years
at a national level.
Q579 Earl of Arran:
Turning briefly to rural development, what view has your organisation
reached on the practical implementation of the EAFRD? What lessons
do you think can be learnt both in the context of the Health Check
and the long-term future of agricultural policy?
Mr Pesonen: I understand that this is more of
an operational question concerning the change in the financing
of rural development vis-a"-vis the first pillar payments.
We take a very positive view with regard to that. That is a clear
financial tool for rural development and for other matters in
the Common Agricultural Policy. That is the most I can say about
that. When we talk about the first pillar and the second pillar
in general it has always been the opinion of the European agricultural
lobby that we are in favour of a strong first pillar because that
is a genuine Common Agricultural Policy tool. Clearly rural development
has a role and it is a fundamental part of the global picture
of Common Agricultural Policy but we also have identified the
difficulty of having a slightly different approach in each of
the Member States, both funding and policies themselves. Of course,
the European Commission has proposed, and the Council has agreed,
measures that should be financed through rural development but
if we identify or introduce measures that are currently under
the first pillar—direct payment, cross-compliance—to
the second pillar, for instance hygiene regulations, that would
clearly be a distortion of the competition between Member States
if we did not put something in that said Member States should
implement that fully in the way that has been done before. If
the only reasoning for this change is the co-financing, which
is a matter of interest to finance ministers, we would question
this approach quite strongly. We clearly see a role for first
pillar payments. Cross-compliance has a role as a pre-condition
to direct payments but when it comes to rural development the
concept is far wider. We welcome business opportunities to farming
communities or rural communities and in certain Member States
this has a high profile role in the overall Common Agricultural
Policy but it does not bring in the benefits that we expect to
enjoy from the Common Agricultural Policy at large. This is the
general approach. When it comes to modulation, and I had the privilege
to participate in this particular work on behalf of the previous
government in the Finnish Presidency, the particular calculation
method applied in the UK was an eye-opener for me to see the complexity
of the matter and when you involved other Member States and how
they reacted to that. To my knowledge, it is only Portugal and
the UK which implement the voluntary modulation scheme and in
neither of these two countries farmers have welcomed this. There
is a different shade of grey between the two Member States but,
nevertheless, the message in some cases has been that the money
has been taken out of the reach of the farmers and this is something
that on a European Union level we feel should not be done. If
we have modulation there should be clear rules as to how we are
going to use it, not like replacing the cuts when Member State
governments introduced rural development funding through the European
Union budget in December 2005 in Brussels. We did not feel that
was justified just because the Member States did not want to commit
themselves to further rural development, which was the case. That
should not be replaced by modulated funds from the first pillar
which will de-motivate farmers by committing to these requirements
that we have already talked about and in the end endangering the
whole concept of providing society and consumers with what they
want.
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