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

Memorandum submitted by the Department for Environment Food and Rural Affairs (A 54)

  The Secretary of State negotiates on behalf of the UK in the European Community's Agriculture Council. Since agriculture is a devolved competence the devolved administrations are involved in the process of establishing and developing the UK's stance on CAP issues.

  The Government welcomes this inquiry. We understand the challenges our agriculture industry faces and the challenge also faced by Government. Government must evolve from subsidy provider: we must develop our role as facilitator to industry, continue to strive for good quality outputs for as wide a range of stakeholders as possible, and to work closely with our European and global partners to deliver positive change. This is recognised in the Department's new objectives where we commit ourselves "to promote sustainable, diverse, modern and adaptable farming through domestic and international actions and further ambitious CAP reform". This memorandum summaries the Government's stated policy on CAP reform, identifies some of the key drivers and opportunities for change, and outlines our thoughts on how best to manage that change.

  The CAP costs EU taxpayers 40 billion euros each year. The OECD estimate that the CAP also costs EU consumers a further 48 billion euros through artificially inflated prices. But despite these huge sums of public money being pumped into the industry the CAP is failing to deliver on at least two of its objectives: ensuring a fair standard of living for the agricultural community, and ensuring supplies reach consumers at reasonable prices. Furthermore, it distorts markets, isn't always compatible with environmental best practice, causes friction with our world trading partners and discourages farmers from taking business decisions directly related to market needs.

  The Government's approach is to reduce the overall burden of the CAP on consumers and taxpayers, wants to see environmental and animal welfare concerns reflected more effectively, and wants agriculture policy to deliver a better deal for farmers by encouraging and helping them to be more responsive to their customers' requirements and to environmental goals. Government has a responsibility not only to ensure public funding delivers value for money to taxpayers and consumers, but that it also delivers the best spread of outputs to a broad range of stakeholders.

  In terms of policy objectives, the Government's approach is to press for significant change to the CAP's "first pillar" policies, arguing in favour of "degressivity", the phasing out of market price support and production controls (in 2000 respectively costing 10.8 billion and 25.5 billion euros). We also want to see a parallel "decoupling" of livestock headage payments and other production linked aids in order to reduce the incentive to overproduce and damage the environment. Changes in first pillar polices should be complemented by a shift towards the "second pillar"' of the CAP (in 2000 second pillar policies accounted for 4.2 billion euros of the CAP budget), expanding resources available for targeted supported for rural development and agri-environment schemes.

  Momentum for change is building and it is clear that over the next five years the CAP will need to be modified. However, there are a number of dynamics influencing this process and we cannot gauge clearly at this stage how much change will be secured, what form it will take and precisely when it will be delivered.

  But the signals are encouraging. The WTO Ministerial at Doha in November agreed a commitment to "substantial improvements in market access; reductions of, with a view to phasing out, all forms of export subsidies; and substantial reductions in trade-distorting domestic support.". Whilst this should not be interpreted as a guarantee of rapid or extensive progress of our CAP reform objectives, it sends a strong signal of the medium term direction of CAP reform.

  The enlargement process also adds to the case for reform. The EU's Financial Perspective to 2006 does not include provision for direct payments to new Member States. The EU will need to take some difficult decisions, taking account both of the need to maintain budget discipline, and the need to ensure fair competition for acceding Member States.

  The mid term reviews (MTRs) of key CAP commodity regimes provide an opportunity to press the case for reform. Scheduled reviews include cereals, milk quotas and CAP finance. We also expect beef, olive oil, and possibly sugar (over a longer timescale) to feature in the package. The Commission is expected to start the process in June 2002, with negotiations likely to take at least a year.

  It is too early to say what the Commission will table and how proposals will be received by Member States. Whilst all Member States recognise that pressures are increasing the momentum for change, there is no consensus on what form that change should take. Most Member States would support a shift of resources to the second pillar of the CAP, but there is only limited (if firm) support for the UK's position on price support and direct payments. Nevertheless, we will continue to press for changes that secure progressive removal of market price support and direct payments and continue to argue that direct payments should be decoupled from production.

  If the MTR proposals seek to deliver changes in line with the UK Government's radical approach to CAP reform, then not only farmers but also Government and a wide range of stakeholders will face a number of opportunities and challenges. Progress towards a diverse, market-driven, sustainable agriculture industry will inevitably entail structural changes. Farmers will develop more responsive links with consumers and the emphasis of Government involvement will also need to evolve to help secure effective delivery of policy objectives.

  The following all demonstrate the emphasis on finding new and improved means of facilitating change:

    —  the Government's commitment to redirecting funds from the first to the second pillar of the CAP which has enabled the implementation of an England Rural Development Programme (ERDP) with a rapidly expanding budget over the seven-year Programme;

    —  the establishment of the Policy Commission (which will have reported by the end of January);

    —  the development of a sustainable agriculture strategy; the Department's provision of the Rural Development Service dedicated to ERDP work;

    —  the promotion of woodlands as a sustainable land use delivering a range of benefits as set out in the Government's Forestry Strategy for England. Woodlands are already the second most important rural land use after agriculture, and have a significant potential to improve the quality of the rural environment and help to provide a broader income base for farmers and landowners. Some specific examples of the social, economic and environmental benefits that woodlands provide are included in the Annex.

  Such initiatives are fundamental to the success of delivering the Rural White Paper's vision of a countryside built around sustainable local communities in an improved environment. But more work is required. New policies must be developed to assist farmers' participation in a market-driven industry, and in parallel to develop the means through which to provide incentives and rewards to farmers for their contribution to environmental and animal welfare, public goods whose importance must not be undervalued in the market environment. One important strand of this will be our review of agri-environment schemes, which will be looking for ways to simplify the schemes and improve customer focus while maximising their contribution to delivery targets such as reversing the decline in farmland birds and improving the condition of Sites of Special Scientific Interest. The Government would encourage everyone to contribute to these processes, as many have done through the Policy Commission. We hope this process of positive engagement continues when the MTR proposals emerge next summer. We will need the broadest possible input from all our stakeholders in order to deliver an economically, socially and environmentally sustainable agriculture industry.

9 January 2002

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