Select Committee on European Union Minutes of Evidence


Examination of Witnesses (Questions 900 - 919)

WEDNESDAY 23 JANUARY 2008

Lord Rooker and Ms Sonia Phippard

  Q900  Baroness Sharp of Guildford: Perhaps that explains why the Commission feel they do not have enough funds to carry this one through as they would wish to.

  Lord Rooker: Yes.

  Q901  Viscount Ullswater: Perhaps I could turn to what might come up in May with Article 69. The Commission look as if they wish to reopen this particular argument, where you can via 10% spent on these various sectors for direct payments, as long as the money is kept within the sector. Do you suspect that in May the Commission might come forward and say, "Actually, you can spend this on other sectors" and are you in favour of that? What is the view of the Government on that particular matter? It could become quite wide, could it not?

  Lord Rooker: We want to understand more about the Commission's views on this. We are not particularly clear ourselves. As I said in my opening statement, whatever they do seek to clarify, in terms of where the national envelopes might be used, we would be very keen to make sure that they are not used as a back-door method of production support. It would be so easy to make a case, in different parts of different Member States, for all kinds of schemes which, when looked at, are basically supporting something that is inefficient and which perhaps should not be going on. We do not want new distortions, therefore. I understand the national envelopes might be used to address different activities, whether it is water management, climate change or biodiversity. There is a range of issues but, until we know more about their thinking, I am not in a position to give a view. As I say, we are not against it but we will be very watchful. 10% is a lot of money, because you are dealing with big budgets here. Scotland has taken advantage of the current arrangements, but—

  Q902  Viscount Ullswater: Which I take it they would not like to give up?

  Lord Rooker: No, I am absolutely certain they would not like to give up. However, we are watchful. First of all, we want to know more about the Commission's thinking. Secondly, we would not want it to be used as a back-door method of production subsidies.

  Q903  Chairman: Does not a lot of it, in the southern states, go into olive oil producers? The argument being that, if you do not support the people to produce olives, you will get desertification. That is the old argument—but it is a straightforward production subsidy.

  Lord Rooker: It is, but then you have to see whether it is a production subsidy in that sense or—and I do not know the issue in detail—would it be part of an environmental benefit? I do not know whether or not southern Europe will become a desert under climate change, but these are issues that will have to be dealt with in the future in terms of the environment. However, that is our general principle on this. First of all, we do need to watch this, to be careful about the way they could be misused; but we are not saying that they do not have a purpose.

  Q904  Baroness Sharp of Guildford: The same argument could be levelled at hill farmers, could it not? If you are going to have to pay to keep the olives in the landscape—

  Lord Rooker: Precisely. The economics in the hills particularly—a really severe disadvantage in any definition of farming—isolated communities; but without millions of sheep on the hills the landscape will be transformed. As I keep saying, the first people to complain about that will be the city-dwellers, who use it as their playground and their green lung. When they say, "Where's it all gone?" we say, "You didn't buy the lamb. The industry collapsed", and therefore there is an argument for maintaining it; but how do you do it? Do you subsidise it as meat production or do you subsidise the pure environmental goods or the individual families in those areas? It is a very difficult decision, but the principle is exactly the same.

  Q905  Lord Plumb: Voluntary modulation has not been very popular with producers here, believing that there is competitive disadvantage with their competitors from other parts of Europe. We understand, of course, that if that is reduced it does not necessarily follow that compulsory modulation will be increased—although we know that the Commission are bidding for an increase. Would it mean that, if it is increased, you would reduce the amount of voluntary modulation to make up the difference? Also, we understand that environment organisations say, and have told us, they rely on some of these funds for many of their activities. We wonder, in that event, whether the reduction in voluntary modulation accordingly would help in the overall use of funds.

  Lord Rooker: I have to say that I find modulation an incredibly complicated issue to get my head round. The long and short of it is that, first of all, there is only us and the Portuguese making use of voluntary modulation. You say it is unpopular. Without it, though, we would have far less money for our Rural Development Programme. There is an historical element to this as to why we need voluntary modulation, simply because we had very small programmes in the past. Also, I understand that there is a mechanism where we swap from voluntary modulation to relying on compulsory modulation. At the present time, we get far more bang for our buck out of voluntary modulation than we would do if we swapped over. Pound for pound, we would lose 20% to start with, because there is some mechanism with the compulsory modulation. There is no mention of voluntary modulation in the health check document. We are not really certain, therefore. There is obviously a discussion to be had there. We think that it is good value for money, but I understand that it is unpopular amongst the farmers who are seeing their single farm payment top-sliced, as it were. There is a benefit to the rural economy, and there is no question about that. At the moment, there is a greater benefit from voluntary modulation than the straightforward compulsory. We get a bigger bang for our buck, as it were.

  Q906  Lord Plumb: It is very difficult to explain that to farmers who have just had a 17% reduction in their single payments through modulation.

  Lord Rooker: Yes, it is to an individual farmer, directly. It is not easy to paint the greater good of the rural community, because obviously they are seeing it in the bank balance. On the other hand, people have to make connections—with families and networks in rural areas. In the rural economy, not everybody depends on farming. Members of families work in different businesses and are involved in different kinds of organisations, some of which are supported through Rural Development Programme measures. But they see it directly, and I fully accept that. They see it on the cheque that comes in. It is not as though it is a surprise to them. We discussed this thing fully before we did it, and we have ended up, as I say, with a large programme for rural development. We think that is for the greater good and, basically, the farmers have to be encouraged, and they are being encouraged, to get closer to the market and be more competitive.

  Q907  Lord Plumb: It is difficult to explain it to them on Sunday mornings.

  Lord Rooker: It certainly is. I find it not easy to explain when I am up a six-mile, cul-de-sac valley, where there is no end; where there are a couple of farmhouses; when they are looking at whether the offspring want to stay in farming, and what the future of the hamlet is. It is incredibly difficult. I fully accept that. I have been there. It is true, and I grieve for your difficulties on Sunday mornings—but they are nothing as compared to mine!

  Q908  Chairman: Is not the root of the problem in the need to rely on voluntary modulation to fund a Rural Development Programme the historic low level of funding?

  Lord Rooker: Yes.

  Q909  Chairman: Is there a way of tackling that historic low-level base?

  Lord Rooker: We made the case in Brussels. We have 12% of the viable land of the 15 Member States and we get 3½% of the money. I think that is the reality. However, I freely admit that there is a historical issue here of the UK—and this goes back under both governments—not paying sufficient attention to rural programmes. So when it came into Brussels and someone had the bright idea of doing this, they had to look at the historical cut-off point of what Member States were doing and then apportion the money based on what had happened in the past. We were actually at an incredibly low level. It was in 1990, or something like that. That is a long time ago. We ought now to be saying, "Let's look at, say, even the last five years. Let's reapportion this amount of money". We would end up getting a lot more than 3½%.

  Q910  Chairman: That is a live issue now.

  Lord Rooker: It is a live issue, yes.

  Q911  Earl of Arran: My Lord Chairman has already touched upon this, and I am suspicious of what the answer might be. So far, the Treasury have felt disinclined to come and talk to us about how the CAP will feature in their policy on the forthcoming EU Budget, saying that their policy was still being formulated. I suspect that is the answer you might give, Minister, but I would be interested to hear what your answer is.

  Lord Rooker: I have not come here to cause problems between myself and the Treasury! The fact is that the size of the CAP as a percentage of the EU Budget is enormous, and it will be a really big issue. There is no question about that. The Treasury is in the position of formulating what the response is going to be. No decisions have been taken, and that is why the Treasury were obviously quite content for me to come here and say that rather than a Treasury minister. Your Lordships' House does not have a Treasury minister, as you know. I cannot recall whether there has ever been one, but it is not as though you have a captive member of the House who is a member of the Treasury team. I have no explanation, other than what you have had in the letter from the Economic Secretary.

  Q912  Earl of Arran: Would you hope that, when indeed they have formulated their policy, they might come to talk to us?

  Lord Rooker: I think that when people have really good policies that they are proud of, they ought to take every opportunity of coming to Parliament to boast about them. That is my view.

  Chairman: Then we look forward to seeing you again, Minister!

  Q913  Earl of Dundee: We note that you were concerned about the possible introduction of new EU risk management measures. We also know that these reservations are shared by the EU Trade Commissioner, Peter Mandelson. Why do you take this view and where do you see risks?

  Lord Rooker: Our view is that farmers and those working on the land, looking after the landscape, are really businesses. Let us not put too fine a point on this. There is the odd hobby farmer, and I suppose there are others who do not do it themselves. However, they are all businesses, and all businesses are duty-bound to take cognisance of the risks that are involved in the business they are running. I am not quite sure where the issue of risk management comes in. It could be potentially—and I only say "potentially"—another area where back-door subsidies will be the order of the day. Other businesses—non-farming, non-agricultural—have to take account of the risks of running their business, whether it is manufacturing, petrochemicals, woodworking, whatever. They are duty-bound to do that as part of running the business. We see it as no different for farms; so we are a bit suspicious of the concept of, let us say, a new scheme of risk management—because anything with the word "scheme" in usually has a pound sign or a euro sign at the end of it. In other, narrower areas, particularly in disease control, we are having discussions and have just published a consultation paper, where those who look after food production animals have to be fully aware of the risks involved in that and take account of it. We are not certain that every animal-keeper is fully aware of the risks that are involved. We know that from the recent outbreaks, frankly. Therefore, we try to bear down on making sure that companies are taking account of the risks. We do not have a great push for this. Getting insurance, I fully understand, is not easy. Crops in the ground cannot be insured. I have talked to insurance companies about insuring food animals. It is not easy; though it can be done at the margins. In terms of bearing down on managing the risks, we see that as a matter for the industry, not for Brussels to come along and impose some scheme or some regime of risk management—when other industries cope with it perfectly well, and from professional point of view as well. This is not us, by the way, saying that we are not interested or saying that it is not our responsibility. We are clearly saying it is the responsibility of the industry.

  Q914  Earl of Dundee: On your suspicions and caveats here, how much solidarity do you expect to get from various of our EU partners, such as the German Government perhaps?

  Lord Rooker: I do not know about particular governments. Maybe very little. We are trying to modernise and trying to avoid mistakes of the past. It may be, in trying to explain to some of the accession states, we say, "Actually, we did it this way in the past and it didn't work. It is best that you don't spend 20 years creating the same kinds of problems that we had with the CAP to start with". I am not certain about individual countries, however. This is something that will have to be discussed. I am just giving the UK Government's view on this: that this is one where we do not want issues brought in to distort trade, distort competition, and to be used as a back-door method of further subsidies. Sonia can provide the German position. You asked about Germany, so something must be known about Germany.

  Ms Phippard: It is simply to confirm what the Germans said at the Agriculture Council on Monday, which was that they can see that Member States might want to use Pillar II mechanisms to encourage risk management provisions where they are not there at the moment; but they are completely opposed to using Pillar I for risk management, which is where the French, for instance, are coming from.

  Q915  Chairman: The Pillar II approach would be to help the industry set up its own mutual insurance scheme, would it not?

  Ms Phippard: Yes.

  Q916  Lord Plumb: Which Germany has at the moment. They have an insurance scheme; they have a stock insurance scheme, which started years ago.

  Ms Phippard: They do in certain parts of Germany. In Bavaria, I believe.

  Q917  Viscount Ullswater: Perhaps I could go back to your risk assessment analysis, Minister. If it is a single business, if it is your own business, you can comprehensively understand the sort of risk that you are likely to take; but sometimes you are overwhelmed by things, particularly like foot-and-mouth, which is not of your own choosing, or bluetongue, which is a new risk that I do not think people could have taken into account. Although that particular disease might not have struck you personally, it can destroy the marketplace for your animals, because of movement restrictions or whatever it is. Is there a way that the industry could be encouraged, with government's backing, to set up insurance schemes, if there is not to be any form of direct replacement values given by the Government?

  Lord Rooker: In some ways that is the very issue we want to discuss with the consultation document that we put out in December on cost and responsibility-sharing. That is the very issue. There are some practical difficulties, but we are consulting on the issue and not on a policy, because we then want to formulate a policy. Europe itself is discussing these issues, particularly regarding disease in animals, to formulate a policy. But you are quite right, because I discovered during the foot-and-mouth outbreak that, where it first started, the three farmers who were first affected—the two who had foot-and-mouth and the other one where we slaughtered on suspicion—were model farmers. They were doing everything that the UK Government would expect from farmers. They had diversified; they were running other businesses; they were getting value-added. They were model farmers. One of them was even insured for interruption of business. Unfortunately, the small print made it clear that it did not work when it was foot-and-mouth. The interruption of his business was his farm shop. If it had burnt down or a lorry had gone into it or it had been flooded, he was covered for loss of his goods and stock and interruption of the business while it was put right. Because it was foot-and-mouth, he was not covered. I think that is outrageous, in a way. It was not as though it was his animals. He may have been a farmer and not affected; he could have been the next-door farmer. That is the very issue that we want to discuss with the consultation on cost and responsibility-sharing. Only about 15% of animal and crop farmers in the UK carry any kind of insurance, some of which is there only to top up—in other words, it is fixed in with the government compensation for slaughter of animals. Obviously we pay compensation where we slaughter compulsorily. Bluetongue is a different issue. The issue of bluetongue for later this year, which we fully expect to come back, will be serious. Once we classed bluetongue as being there, we did not slaughter. Because we do not slaughter, we do not compensate. That is a thorny issue, and we are in ongoing discussions with the industry regarding bluetongue over this very issue of what farmers do. I was at a farm in Lincolnshire post-floods, to have a look at the consequence of flooding. The destruction of the crop in the fields was terrible to see. One of the farmers had an ancillary business of potatoes. He had a large factory, preparing, scrubbing and washing, and all kinds of things. As he said, if his factory had been struck by lightning or had burnt down, he was fully insured; all his risks were covered for that. The crop in the field—nobody will insure him for that. He wanted to cover the risk but could not; there is no mechanism for that. As you can well appreciate, the cost of disease control can be enormous. This is something we have to discuss with the industry, therefore. That is what we are doing now. It is a narrow part of it, in terms of animals; but, with climate change, new diseases coming and, I might say, endemic diseases—we still have the issue of bovine TB—with the exotic diseases, where we have different policies for operating, we want to share the risks and the responsibility with animal-keepers. That work is ongoing now, quite separate to the health check, quite separate to this analysis. However, our experience will form part of our discussions in Brussels, as and when a proposal has come forward from the Commission.

  Q918  Lord Palmer: Before we leave risk, you would accept, would you not, that farming is completely different to any other sort of business when it comes to risk, in that you have this problem of the weather? For a purely arable farmer, the right weather at the right time can make an entire difference in yield—which, particularly with wheat at £160 a tonne, can mean an enormous amount of money. You would accept that, would you not?

  Lord Rooker: I accept that agriculture is different to many other businesses and industries. When you have a factory that is stable in one location—goods in and goods out, people turning up at the same place—it is also quite different to, let us say, the construction industry, where you have a peripatetic workforce and you never know where you will be working. There are differences there. The weather affects a lot of businesses. It is difficult to mitigate it because the landscape is not covered, for a start. I have met farmers who quite rightly say to me, "Jeff, we expect this land to flood in the winter. We take account of it with what crop we put on there. We are now in the middle of July and it is under three feet of water. We don't normally expect it to flood in the growing season. This is a bit of a problem for us, you must appreciate"—and I certainly do. Because in this country the primary producers do not, as in other countries, have a big enough stake in the rest of the chain—by co-operative marketing and advance preparation—they are extremely vulnerable, both to the weather and also to the market. We have seen that in the summer. To that extent, I do accept that it is completely different to any other industry, yes.

  Q919  Lord Palmer: Could you expand on your reservations about capping? Do you think in reality that these proposals will continue, bearing in mind the strong opposition that they face, not only from our own Government but also from the German Government?

  Lord Rooker: We are very opposed to upper limits. All that will happen—and we are beginning to see this anyway in the threat of capping of the single farm payment—is that people will spend money on lawyers, dividing up their businesses. For some it will be very difficult. I do not want to go into individual details but, for the largest farmer in the country, it is almost impossible but not completely out of bounds, and actions are being taken. This is not a good use of resources. It is barmy. We are opposed to it, and therefore we hope that it will not see the light of day. I have not come with a figure of the distribution. There are some incredibly large payments. Everybody knows; the figures are all published anyway. The largest recipient of the single farm payment is the Co-op—the largest farmer in the country, almost by definition. There are very few large ones. There is a big bloc in the middle and, of course, there is this huge tail. We are certainly opposed to capping at the upper limit but we certainly want to have a bigger de minimis at the lower level, if you like—to chop out a few tens of thousands of recipients, which I consider to be a complete and absolute waste of money, of resources of my department, in the structures that we have had to set up to make those payments. Hopefully, the penny will drop that simply capping will not have the effect that those who propose it may think. All it will do is cause land parcels to be divided up; and the only people gaining out of that, as far as I can tell, will be the lawyers, preparing the necessary documentation.

  Chairman: It may now be an appropriate time to move into a more off-the-record, informal session, Minister.






 
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