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

Examination of Witnesses (Questions 1040-1059)



Phil Sawford

  1040. For the future of food and farming, in the report from the Policy Commission, there are obviously difficulties and there are those who would suggest that one of the problems of the past 50 years has been the subsidies, in that they are more of a problem than a solution. So a simple question: why do farmers need subsidies at all? Should we continue to pump taxpayers' money into that industry?
  (Margaret Beckett) As you rightly say, that has been the approach for the last 50 years. Farmers have been encouraged—indeed, I think, you could almost even say that the structure of the industry and the framework of legislation and so on, has forced farmers to agree to the position where that was their relationship with the support provided from the state. There are increasing numbers of farmers who are less than happy with that relationship, who would like something different and more productive and who recognise that farming needs to become profitable; it is not necessarily assisted in becoming profitable by the maintenance of a structure of subsidies, particularly of the kind and nature that comes through the CAP. I think it is just one of those historical realities that we all have to recognise. That is the basis on which farmers have been encouraged to run farming.

  1041. The nature of the subsidy will have to change.
  (Margaret Beckett) We certainly want to see in the proposals for mid-term review, or for reform of CAP generally, subsidies decoupled from production. We want to see those subsidies reduced and, as we have said at the beginning, there are those who argue that the structure has been damaging, and that is certainly what the Policy Commission argued. They said that the existing framework and structure of CAP has been actively damaging to the environment and, in the long-term, to the interests of farmers because it cuts them off from the marketplace.

  1042. The other key issue when we have talked to farmers is that they are particularly concerned about the strength of the pound and the effect that that has through the exchange rate mechanism. Do you accept that that is a problem for the British farming sector? Also, do you regret that the Policy Commission made no comment on whether or not we should joint the euro? You probably would not want to go along that route but I will ask the question anyway.
  (Margaret Beckett) First of all, yes, I recognise that the exchange rate is a source of difficulty for British farming; perhaps to a certain extent even more than for manufacturing because everything is structured in euros. So I accept that is a difficulty. Do I regret that the Policy Commission did not say more about it? Frankly, no, because if the Policy Commission had said something dramatic about the euro nobody would have covered any of the other things that they said.

Mr Jack

  1043. Secretary of State, do you consider that there are any sectors of UK agriculture that are too generously support by the current subsidy regime?
  (Margaret Beckett) I think we would take the view that we would like to see subsidies reduced, wherever they are paid. There are, of course, some sectors which are no longer supported because support has gradually been removed, so in general terms we would like to see all subsidies phased out and removed, and the market-distorting subsidies, in the way that they are paid at the present time. We do recognise that there are some things which are in the public good, such as the environmental good, where there is not a market rate and which the market would not support but where there is a legitimate case for saying that if the public wants those things then the public should find some way of supporting them. In terms of a particular commodity that requires support, I could not say that I would single one out and say there is a different approach to that commodity.

  1044. What modelling has DEFRA done to look at different scenarios of the effect on UK agriculture of either the gradual or sudden removal of subsidy? If so, can you tell us what the economic effects might be?
  (Margaret Beckett) I have not got it at my fingertips. I do not know if either of my colleagues have it.
  (Lord Whitty) We have recently produced a study in relation to—not exactly the production subsidy but—the removal of quotas in milk, for example, just in the last few weeks.


  1045. The market has got there already!
  (Lord Whitty) Which indicates that British agriculture would do relatively well in a European context out of its removal of quotas over a phased period. Similarly, of course, it depends over the time-scale and quite which subsidies are removed first, and in what manner they are phased out. In general, our belief is still—despite the distortion as a result of the parity issue—that UK agriculture would do relatively well within Europe against a phasing out of production subsidies in the CAP. Of course, we are still talking, as Curry is still talking (your namesake here rather than you, Mr Chairman), of shifting the degree of support into an area which is basically supporting land management and environmental objectives. So there would still be some support into those sectors of agriculture.
  (Mr Lebrecht) May I just add one point, which is to say that we are doing the work that Lord Whitty has referred to, but what we have not done is look at the question of overnight removal of subsidies, because that is not the policy.

Mr Jack

  1046. The reason I ask that question is that I tabled some Parliamentary questions a while ago to try and get some idea of, for example, the movement of moneys from one area to another in the context of modulation, which is an internal arrangement of subsidy payments. What disappointed me was that after a long period of time nobody could provide me with that answer. The only answer I could get was payments made from different regional payments centres. You seem to have no idea of how the money is currently allocated within UK agriculture and how it might move about, either with reference to your modulation proposals or in the context of a gradual reduction of subsidy basically to determine who the winners and the losers would be. I think some kind of economic modelling would be helpful in giving a greater understanding of the impact on UK agriculture of any changes in the subsidy regime that may come, for example, from the mid-term CAP review.
  (Margaret Beckett) I take your point, but to be honest it seems to me it would be highly speculative. I am not sure it would tell us very much at this moment in time because it all depends on the shape of any likely proposals. We might have a better idea after we see what Commissioner Fischler proposes.


  1047. Lord Whitty, you said that if subsidies were moved British agriculture would do fairly well. What level of the pound against the euro do you feed into that equation?
  (Lord Whitty) Mr Chairman, you are not going to get me into that area, I fear.

  1048. This is not about whether we should join the euro. As you know, British industry, which is simply in the marketplace, fares differently because of the exchange rate. There has been a significant amount of manufacturing, for example, in my part of North Yorkshire, which has found it very difficult to compete with the present parity relationships. If we are going to make the statement that agriculture should compete, you must surely have some idea as to the sort of pound/euro relationship which would permit that to happen. The Secretary of State mentioned that some sectors were unsubsidised. We have seen some of those unsubsidised sectors, like the intensive livestock sector, suffer significant migration of the industry offshore to places like Brazil, and the currency factor is one of the significant factors at work. You must have to make some assumption.
  (Lord Whitty) The milk study makes a range of assumptions about the pound to euro relationship but it does not assume a single optimum level of parity, and the results of that relate to assessing the impact at that range. More generally, we have not approached this, as Mr Lebrecht was saying, on an across-the-board basis because you can only really get a snapshot effect of removing all the subsidies at a particular rate. The rate would vary over the period in which you were phasing them out, so it is not a very easy calculation to make. As the Secretary of State said, we have got a position where we will, in a few weeks' time, have a proposition from the Commission for, hopefully, some changes in the subsidy regime in different sectors. We can then make a proper assessment as to whether that would be beneficial to UK agriculture or not. I think we need the proposition before we can effectively test it out in the way I think you are suggesting.

  1049. Your working assumption is that the removal of support, which you believe in any case would be beneficial to British agriculture, whatever, within sensible reason, the level of parity, including present parity.
  (Margaret Beckett) The working assumption, as much as anything else, goes back to the proposition of the Policy Commission, which is that it is in the interests of the long-term health of British agriculture to move it away from subsidy and to encourage it to look at how it prospers in the marketplace. That is the basic principle of the approach. Then, of course, as and when we get a set of propositions, we will have to look at how you can steer the best possible course in that particular direction, if that is what comes out of the Commission's proposals.

Paddy Tipping

  1050. You have told us you want to reduce the subsidies on production, and that is commonly agreed. It is generally accepted that there is about £3 billion coming in from CAP at the moment. The notion will be to, perhaps, in the longer term make payments for environmental goods. Would the £3 billion be the right level of spending, or do you want to reduce that £3 billion?
  (Margaret Beckett) I think that there is much to be said for the examination of whether or not such a level of payment would in any event be justified. I think it is inconceivable that any finance ministry in the European Union would allow consideration of major changes of this kind without also having consideration of whether that level of support should continue to be paid and, if not, what level of support there should be, based on a different set of premises about what it is you are supporting.

  1051. So a longer-term reduction in payments. . . .
  (Margaret Beckett) Whether or not that is achieved remains to be seen, but we think it would be very unwise to say that we can rule that out—because, after all, the basis, as I understand it, of the first agreement was that we were seeking to cap and reduce agriculture spending.

  1052. Within the present system and within the £3 billion, the policy is to move from Pillar I to Pillar II?
  (Margaret Beckett) To be allowed to move some resources as much as we can, from Pillar I to Pillar II, yes.

  1053. What is your target? What are you shooting at?
  (Margaret Beckett) My target at the present time is to encourage those who have to put forward propositions to behave radically. I do not want to pre-judge what is likely to be the outcome of that and set a target that we cannot possibly meet.

  1054. Curry talks about a target of 20 per cent by 2006/07.
  (Margaret Beckett) Twenty per cent is within the present framework approach. What Curry has done is propose that we aim for that earlier. That, of course, is against a background of what he suggests we should consider doing in the UK if there is not CAP reform. If we are able to secure agreement to some overall programme of CAP reform then we would have to look at such a proposition in that context—and, also, of course, we would have to consider how we treat the advice from Sir Don Curry that even if there is not CAP reform then the United Kingdom should take steps. That is all part of what we have to consider as we look at our own strategy.

  1055. I think it is generally acknowledged that the CAP reform is difficult, it is time-consuming, but we are in a position to make some changes. If one were able to move more into Pillar II, what would be the spending priorities within Pillar II?
  (Margaret Beckett) It depends. The thing that goes hand-in-hand with a wish to remove resources is also a wish to free-up the circumstances in which those resources can be used. To be honest, we would be not nearly so enthusiastic (I would not, anyway) about moving resources if we thought that we would still be confined to the restrictions on what the money could be used for and, also, on the way in which the scheme is administered, which exists at the present time. I am moderately hopeful of getting changes in this direction because at the recent informal Agriculture Council we had a discussion on rural affairs, rural development and, with the exception of the odd person who argued that all we need is to keep the existing structure of CAP and put a great deal more money into it, pretty well everybody who spoke—I think I am right in saying—argued for a change in the bureaucracy, the administration and the restrictions on present funds. However, the two do have to go together. There is a genuine issue here and a genuine question. One of the reasons that Commissioner Fischler has spoken about the advantages of compulsory modulation across the European Union is because he put the argument that if it is only done in individual Member States (and, at the moment, it is us and France, the Germans have a proposal for a scheme to start in January and the Portuguese, too, I understand are doing something next year) there is a possibility that farmers in those Member States could be at a competitive disadvantage to other farmers because they are not having access to the same level of payments in the usual way. So there is a genuine and serious issue to be considered there, and that is why we are not rushing to judgment and we will see what the Commissioner comes up with.

  1056. Suppose you had a free choice. It would be nice, would it not? What would be your policy?
  (Margaret Beckett) My instinctive reaction is that I would be wanting to look at being able to do more on rural development and the wider rural economy and, within that, on environmental issues as well—land management and so on. To be honest, however, I do not have a fixed view as to what the priorities ought to be and whether more ought to go on one or the other. Where the money could be best used is what would interest me; I am not interested in just putting money in for not very much outcome.
  (Lord Whitty) One call on that money would be the proposition that we supported in Don Curry's report of a broad and shallow, accessible environmental scheme for land management. That would be one call on it. Broader rural development would be another call on this, I suppose, as the Secretary of State said. There is a whole issue of flexibility, both in terms of scope and in terms of variability of schemes that we would need to address in that process. There is also the issue of making sure that the UK gets its due share of that money.

  1057. There is some pressure on you to bring forward a broad and shallow approach using modulation that requires some new money, some matching money, somewhere. I wonder whether you would tell us where you are on those discussions? Presumably this is a bid, is it?
  (Margaret Beckett) We are discussing with a whole range of stakeholders what the form of the broad and shallow scheme could be and how realistically one could begin to look at it and develop such proposals. As you say, a lot of these things are linked to the outcome of the spending review.

  1058. We will wait and see.
  (Margaret Beckett) So will we.

Mr Breed

  1059. Just briefly returning to the euro, whatever the advantages or disadvantages of joining the euro at some stage, whilst we are outside that it is likely that we will continue to suffer from uncompetitiveness. With the demise of any agri-monetary compensation scheme in Europe, has the modelling taken into account any policy issue to replace that so that we recognise that whilst we remain outside the euro—which may have some advantages—there are disadvantages that agriculture is going to suffer, and therefore should be addressed by the Government whilst we, in this country, continue to remain outside the euro?
  (Margaret Beckett) No, frankly, we are not looking at any scheme to replace agri-monetary compensation. If I can remind the Committee, agri-monetary compensation was not addressed by our predecessors, and since 1997 the total sum of £785 million has been paid in agri-monetary compensation. As you say, the scheme has now expired. We are not planning to pursue the issue of an alternative and, frankly, I am not sure we would get any agreement to do it any differently.

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