Select Committee on Environment, Food and Rural Affairs Minutes of Evidence

Examination of Witnesses(Questions 40-59)



  40. If I may just conclude by asking about the way in which you measure this. The CPRE talked about farm audits as a way in which you could measure if a farm is reaching the desired outcomes and that you receive this decoupled income if your farm plans are able to show that you have adhered to these standards. This sounds bureaucratic but also actually quite difficult to measure unless you have some supra-European agency.
  (Mr Haworth) Again, the idea of audit in the Commission's mind is that it is supposed to be something that is of assistance to the farmer. It is not supposed to be part of the compliance or regulatory process. You could have this audit or you would have this audit which would be subsidised or wholly paid for out of public funds which would help you to draw up on your own farm what the risk points are, where you were not complying with regulations and help you to draw up a plan which would enable you to make sure that you did. It is not, as I say, supposed to have any penalising effect or any regulatory or compliance effect. That is the Commission's idea. However, it would appear from the discussions that have been taking place so far that the audit is the most unclear part of the proposals and also the one which has the least support amongst different countries because they all have a different idea of what it should be.
  (Mr Gill) The concept was that it would be paid for at least 50 per cent from the modulated funds and there is real concern that it could become a bureaucratic nightmare. I emphasise "could". It depends what they are talking about. Some discussions I have had with Dr Fischler suggested that he would like to see much more of a light touch, more of a description of what we have done in the United Kingdom in terms of farm assurance, for example, and that, if something was farm assured, that would be designated as meeting your farm audit requirements. If that is what he means, that is one thing. If it means that you have to go through complex paper based systems of chases, then I become violently opposed to it, and it is finding something that is in the middle or not necessarily something that is in the middle but something that is practical.

Paddy Tipping

  41. I think there is a lot in the notion that it has to be light touch and I think there is a lot in the notion that, in a sense, the land owner or farmer does most of the work on it. The notion of audit actually means that you are getting value for money and this idea that you are going to have an audit has no real purpose, which is what Mr Haworth was telling us, but there is a peculiar notion of audit, is there not? If decoupling does take place and people are paid on, in a sense, a historic legacy, if that were the way of auditing, it is money for old rope, is it not?
  (Mr Gill) Yes.

  42. "Yes", I think you said.
  (Mr Gill) No. We could get into the "yes/no" debate. What I would say is that we have to be careful in attributing too much to the use of the word "audit". I am not sure what the original language was.
  (Mr Haworth) It was German and it does not translate very well, that is the problem.
  (Mr Gill) I suspected that to be the case; we have come across this many, many times, that there are loose translations in there with other meanings.

  43. In broad terms, you would go ahead despite the language with the notion of a whole farm approach to auditing with some outside assistance being paid for in part by the public funds?
  (Mr Gill) I am not sure that you wanted to suggest I had said something otherwise.

  44. I am trying to get it clear and use your words.
  (Mr Gill) What I said was that what we would see as something that could be debated very positively was the concept that if someone was already farm assured, then they met the criteria that was required and that they could have some assistance towards that cost of it and it is a box tick: are you farm assured? Yes. Then you have done it.

  45. I just take you back to this notion of good agricultural practice because there is a peculiar sense that, in environmental terms, in the Spanish example you gave us, leaving land set-aside has real agri-environmental benefits and it may be people would be supportive of that in a wholehearted way. I am not entirely clear how you would define good agriculture practice because your own example within the UK made it very clear that there were different practices in parts of Yorkshire, for example, or Yorkshire versus the Dales, for example, and it seems to be an enormous piece of work in trying to define what that would be.
  (Mr Gill) Indeed so and all too often it has been done over-simplistically, particularly when you look at stocking densities. I have heard time and time again over many years successive Government Ministers berate the livestock industry for being overstocked. If you take the total number of stock and divide it by the acreage, they are not overstocked. The problem is that there may be localised overstocking because of the pressures on the farming community to cut labour costs with the lack of labour for feeding purposes in the autumn, winter and spring periods and it is teasing out these points that it is absolutely critical to understand and, in terms of good agricultural practice, I think the point is made already that there are sufficiently strong horizontal welfare regulations across the European Union. The point I was making on variability is the different climatic factors because, whether we like it or not, the climatic factors of Crete are fundamentally different to the climatic factors of the frozen tundra north of the Arctic Circle.

Mr Jack

  46. I want to move to the quite difficult to understand areas of capping of the dynamic modulation which are currently in the existing proposals. One of the things that I have struggled to understand is who the winners and losers would be because so far we have only our own national scheme in its embryo stage to draw experience on. There is a lack, from what I can see, of any kind of economic modelling, certainly in the evidence we have so far, just to give you a feel as to how it would work. The RICS produced their report entitled, "The Impact of Modulation" and having gone through at the levels of the farm a lot of it seems to say farmers affected by it will lose out and there is no matched analysis as to who might gain via the recycling of the money through some form of rural development grant. Can you give us your feel for winners and losers and whether we all need to understand a bit more clearly how the money flows round UK farming in whatever model of modulation might ultimately result?
  (Mr Gill) Winners and losers need to be looked at in the European context as much as the UK context. If we take the capping proposal as such, we estimate that there are about 600 of our members who would receive in excess of 300,000 euros per annum. That may not sound a lot but these are sizeable businesses employing a sizeable number of people, either directly or indirectly through contractors or whatever. I would juxtapose that against Greece where from memory there are three who receive over 30,000 euros per annum. It may be five but it is less than two handfuls. It is either three or five. You can immediately see where the bulk of the capping figure is going to come from for the United Kingdom and also the former East Germany and the Federal Republic of Germany will put money in as well. The question is how is that money redistributed? Is it kept within the country? The indications are that it should be kept within the country and then the question comes as to what schemes it will go into. Will the schemes be enlarged to include areas that do not include farmers? Will it allow you to go to the village shop for new rural activities generally, to encourage the tourist industry, for example? Will it encourage other diversification measures outside the farm remit? These are factors yet to be determined. There are those who suggest that these moneys should be allowed to go in there as indeed any element from the decoupling should be as well.

  47. You are against capping. One of the questions that does not seem to be answered by the mid-term review is whether it is a question of rearranging the way the money goes to farming and rural industries to be compatible with the WTO or whether it is about trying to improve the efficiency of European farms in a world where Europe inevitably will be more exposed to the forces of competition. I do not see the latter view prevailing at the moment.
  (Mr Gill) My analysis would be that the significant part of the proposal that is relevant to the WTO is the decoupling element. It is pertinent to coming away from the market place. If it is decoupling—and I have already made comments—that could detract from that in the proposals. In terms of the second part, there is concern particularly that the element of funding that is available for agri-environmental packages is woefully inadequate. Some of that is directly into agri-environment; some of it is more into structural funds and we see this desperately so where Britain's farmers are trying to improve their marketing structures but do not have available to them the sort of aid from regional development funds that other countries in Europe have. Part of this stems from the historic factor that we have, virtually from year one, refused to claim structural funds in this country so that our national allocation of 3.5 per cent of EU funds is still substantially under-allocated and a more appropriate figure would be of the order of nine to ten per cent. There is a big shortfall which is one of the reasons I believe this government is very keen to introduce modulation in any case unilaterally to give funds to start doing the work that should be done in any case and which is drawing this country back so sadly at the moment.

  48. You are against overall capping but what about the idea of some kind of tapered reduction in moneys in relation to farm size past a certain point?
  (Mr Gill) What I become frustrated about is when we start doing this we start making matters more and more complex. At what level do you do it? It depends from one country to another. How do you find something that is fair and equitable? The concept of tapering comes into its ultimate element when you introduce the proposal to have a 5,000 euro franchise. Is there no basis for those 5,000 euros being a requirement of cross-compliance for less than 5,000 euros? We know that while that accounts for 80 per cent of farmers it is still accounting for 20 per cent of production and the need to have cross-compliance and good animal welfare practices and disease practices within those herds is just as important, not just for farmers but for the food industry, as it is within the vast majority of livestock areas. We believe that trying to split between the two is divisive. Furthermore, I could argue that the bulk of people who will receive less than 5,000 euros are doing that because they are receiving significant other, non-farming income. They are not full time farmers and there is no justification therefore that they do not need to have a cut in their support payments.

  49. One of the things that is interesting about the modulation proposals in the mid-term review is that, in terms of the alternative uses for the modulated moneys, the slices, they do not have to be matched, as is the case in the UK at the moment, with Member States' own funds. Can you first of all refresh my memory? How was it determined? What was the logic that, in the case of the United Kingdom modulation scheme, we had to match the money and now, all of a sudden, when we get the prospect of a Community wide scheme, we do not have to do that? Is it envisaged in the Community wide scheme that that would be top sliced back to the Commission, who would then distribute it? Take the first bit about the UK and match funding.
  (Mr Gill) The current regulation requires match funding from the Member State. The inhibitor to that is that the poorer members of the 15 do not have the national resource to do the match funding and therefore were not prepared to consider the introduction of modulation.

  50. Why, because you have a complete change. You have DIY domestic modulation. You put money in. Community wide modulation, you do not have to put money in.
  (Mr Gill) This is because when you say "DIY" it is still modulating European funds.

  51. True.
  (Mr Gill) It is taking European funds and saying, "We have modulated it. The government must add some match funding to it." The financial resources of the southern countries, particularly Greece, Spain and Portugal—to a lesser extent the Republic of Ireland nowadays which seems to have done a marvellous volte face in Dublin—were such that they did not have the resources to do match funding. Therefore, the only way the Commission could see a way forward was to say that match funding was either not needed or optional on the Member State.

  52. Why in the first place did they think it was a requirement? They made it a requirement for the UK model that the UK had to match fund. Why was there a need for match funding?
  (Mr Gill) Originally, it was not a requirement for UK funding. The original scheme was set for the whole of Europe. It was the fact that only Britain initially chose to take it up and latterly France came along and took up the scheme but only short-lived because they had so much money left in their rural development regulations and in their modulated funds that they did not know what to do with it.

  53. It was a permissive thing?
  (Mr Gill) That is correct. I beg your pardon; I should have used that word.

  54. I now understand. Like all of these things, there is not any logic. It was the French saying, "We have to get rid of some cash. Give us the tick in the box. We would like to do that." You have touched on this with smaller farms. There still does not seem to be any sense of trying to improve the overall efficiency of European farming. It still seems to me that there are different ways of maintaining the status quo.
  (Mr Gill) I cannot see how modulation, either dynamic or otherwise, is in any way a predisposition towards increasing the efficiency of farming. To increase the efficiency of farming, the industry must be allowed to become more market focused and have direct contact with the market place and be allowed to have the signals passed back very clearly. That must be the basis of the reform proposals, I would suggest.

  55. What about modulation with the funds all going back to the Commission? Is that a model which you would find favour with or do you still think it should be left to the Member States to distribute in the context, say, of our English Rural Development Programme the moneys that are freed up by modulation?
  (Mr Gill) What frustrates me about all this is that the Commission play along with words. If they want to have price cuts, let them say so. Let them use the money and give it in the areas where they need to give it. Why do they have to go through all this charade of saying, "We are going to have three per cent modulation" and match it and put it in there? Why not do it, if they think that is the right way to do it? As to your specific question of giving it back to the Commission, of course that is degressivity. It is a factor of reducing the payments to farmers and that may have to come in any case for the reasons we have articulated earlier—not that I welcome it, but one of the consequences, if unchanged, would be that we have to have degressivity.

  56. Can I finally ask for some guidance? I have struggled to get a mental picture as to how not just the dynamic modulation but the capping, the degressivity, the direct payments are all going to work. I suppose it is partly because I have been brought up on the CAP as was and X per cent off how much you get for a suckler cow premium or Y off sheep annual premium I can see adds to the bottom line on a farm but this is of a wholly different order. One of the things I observe is very little attempt to try and produce any kind of whole farm analysis, country analysis—anything that gives you an idea of how you would get from where we are now to where these various models could take us. I feel I am in a fog. I cannot get a feel overall for this. I would appreciate your observations. The government's own paper to us does have some tables and numbers in it but it does not give any attempt to say, "Yorkshire will gain. The south west will lose. East Anglia will be neutral." There is nothing like that at all.
  (Mr Gill) I think the reason you feel you are in a fog is simply because there are so many variables in there. The variables can be either antagonistic or complementary. It depends how the Commission choose, for example, the sort of decoupling procedures they go on with, the sort of cross-compliance they have, the level of modulation, dynamic or otherwise, the degree of refocusing of that, whether it is clawed back into the Commission or not, whether it is repatriated or not, the level of repatriation, whether there is a level of capping of 300,000 or whatever. We are all in a fog.

  57. You know how the Commission works. The Treasury here has a very complex model of the British economy and it publishes it. If you want to play being a Chancellor, you can do, at home. Is there such a thing as a model of the European agricultural economy, because if there is not some kind of dynamic attempt to show the effects of these policies how on earth does the Commission dream up these various schemes? I do not understand how, all of a sudden, Fischler wakes up one day and says, "Ah, here is a plan. We will have a bit of direct payment here, a bit of modulation and capping there and here we are." Somebody must have given a lot of thought to this. Tell me a bit about the process of it.
  (Mr Haworth) There is such a thing. In fact, there are several. There is a German model and there is a French model which are used quite a lot in the Commission. In the case of these proposals, the Commission is able to do quite a detailed analysis with the German model, which will give a lot of answers about what the effect will be on production and what the effect will be on different countries and different regions. That is going to be published at around the same time that their more detailed, specific proposals come out at the end of this year. You could ask the question did they do the analysis before they made the proposals or did they make the proposals and then do the analysis on the proposals? I think the latter is the case. I suspect that is also the case with what the Treasury does.

Mr Lepper

  58. Are the French and German models vastly different?
  (Mr Haworth) They work in a different way and I am not an expert on these. They are both mathematical models.

  59. Obviously it is not the detail but how they work. We end up with different interpretations.
  (Mr Haworth) You end up with different answers. Since we have not seen the answers either of them give, I cannot tell you.

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