Select Committee on Environment, Food and Rural Affairs Ninth Report


263. On 10 July 2002, Commission Fischler, European Commissioner for Agriculture and Rural Development, unveiled the European Commission's proposals for the Mid-Term Review of the Agenda 2000 reform of the CAP.[489]

264. The widely-held view of the proposals is that they are "radical".[490] In the long-term, if the package is agreed by member states, farmers would be paid a single aid payment per farm calculated on the basis of past payments made, thereby 'de-coupling' aid from production. The level of the direct payment each farmer received would be determined by average total payments in previous years. A link to the area of the farm would be maintained, by calculating a rate of payment per hectare for each farm, to allow for land transfer in the future.

265. Aid payments would be subject to far more cross-compliance requirements, including an annual audit for 'professional' farms - those previously in receipt of more than euro 5,000 per annum in direct support payments - to address concerns about the mis-spending of CAP in the past. Other standards, relating to the environment, food safety and animal welfare, would have to be met to qualify for aid. In order to achieve these, under 'new accompanying measures', the Commission proposed two measures. First, that assistance should be available to "help farmers to adapt to demanding standards based on Community legislation in the field of the environment, food safety and animal welfare". It proposed including the "possibility to pay temporary and degressive aid to farmers to help them implement [those] demanding standards". The Commission said that such aid should last for five years and start at a maximum of euro 200 per hectare in the first year.

266. Additionally, under the agri-environment chapter it proposed "the possibility to offer animal welfare payments for efforts that go beyond a mandatory reference level in line with agri-environment schemes".[491]

267. Commissioner Fischler has also proposed that the set-aside rules be changed, turning it into an environmental scheme rather than one intended to limit production. Land would be set-aside for a ten year period. Participation in this environmental set-aside scheme would be one of the cross-compliance pre-conditions for the receipt of the annual direct payment.

268. The Commission also proposed 'dynamic' modulation. All direct farm payments would be cut by three per cent per year until total payments have been reduced by twenty per cent. Aid payments to farmers receiving less than euro 5,000 would be exempted from the modulation proposal. The money 'saved' by the process of dynamic modulation would be retained in Brussels and used in a rural development budget, being allocated across the European Union according to need. This may result in the United Kingdom becoming a greater net contributor to the European Union. It is also worth noting that in future there would be no requirement for domestic Treasuries to match monies received from this source.

269. The Commissioner's proposals also envisaged a cap on payments of euro 300,000 per farm per year, with payments foregone passed back to the rural development budget of the country where aid has not been given under the rule. This proposal is unlikely to find favour in the United Kingdom, where large farm sizes are more commonplace than elsewhere (except perhaps Germany), and, as a result, a higher proportion of farmers receive larger payments.

270. No significant changes were proposed to the existing commodity market support arrangements, except a reduction in the cereal intervention price to the level originally proposed by the Commission at the start of the Agenda 2000 process. In line with the Agenda 2000 agreement, 50 per cent of the price cut would be added to the cereals' area payment to compensate for the price cut. The Commission paper described this as "completing the reform process" in the cereals sector.[492]

271. The dairy regime will operate in its current form until 2006. We are disappointed by the failure of the Commission to make concrete proposals for its reform (although they were not obligated by Berlin until 2003), particularly in respect of milk quotas. We firmly believe that now is the ideal time to bring forward proposals to change the dairy sector policy so that dairy farmers can operate in a marketplace unencumbered by quotas and have an adequate period of transition to a new regime.

272. We are also disappointed that the sugar regime is not mentioned in the Mid-Term Review proposals. The implications for European farmers of the laudable Everything But Arms proposals, to allow greater access to European Union markets for sugar imports from developing countries, must be properly examined.

273. Initial reactions to the proposals in the United Kingdom have generally been positive. The Secretary of State for Environment, Food and Rural Affairs said

    "to help secure profitable and sustainable farming ­ and a better deal for consumers and taxpayers ­ we need radical proposals for change. Today's proposals are consistent with much that we and Sir Don Curry's Policy Commission want to see.

    "We fully support the Commission's vision of a CAP which delivers economic viability and integration with our environmental and rural development objectives, while removing its trade­distorting aspects, especially those which damage developing countries.

    "They are on the right lines, and I welcome the proposal to shift the emphasis of support from production­linked aid to measures that promote wider rural development. However, the proposals do not go far enough. In particular, they do nothing to control the burgeoning growth in the budget because they simply recycle money in the agriculture budget. We need year on year savings in the cost of the CAP.

    "We will be looking to build on the positive elements in the proposals. There is some hard bargaining ahead and the United Kingdom will be playing an active and constructive role. We want to hear what stakeholders across the United Kingdom think, as our negotiating position will be formulated in consultation with them".[493]

The Tenant Farmers Association said that its immediate reaction was that "there is much of merit in the package announced by the Commission", although it was concerned that making the de-coupled payments on an acreage basis "would only serve to add value to land, increase rents and therefore provide no benefit to the farming community".[494] The National Farmers' Union has been guarded, and has asked for greater details of many of the proposals. It viewed "the establishment of a franchise for small farms and labour use, the mechanism for redistributing the modulated funds, and the apparent lack of national match­funding as issues of very serious concern".[495] On the other hand, the Farmers' Guardian reported that "a broad alliance of consumer, environment, international development and animal welfare groups has called for reform of the Common Agricultural Policy to go further than the radical proposals put forward".[496]

274. The core of these proposals - commuting payments into a single sum - has a long pedigree, not least in ideas developed in the United Kingdom by agricultural economists such as Sir John Marsh and Professor David Harvey for a bond of entitlement to be issued to farmers. The idea of the cut-off point is also familiar terrain designed to address the complaint that the big farms get the big money. This ceiling is certainly negotiable. The degressivity is a welcome part of the proposals (it will be fiercely resisted by some European Union Governments) though the United Kingdom would like to see the possibility of more extensive reductions. The proposals are compatible with a pro-active stance in the WTO talks and will probably assist the process of enlargement where the European Union 'offer' to accession states is based on a single payment to farmers. The Commission dismisses somewhat unconvincingly the criticism that payments - based on area - will serve to buttress the inflation of land values above their inherent worth.

275. Any changes to the CAP should not lose sight of the need for Europe to have a cost efficient farming industry. In drawing up its reform proposals the Commission must show that it recognises that the size of a farm can have a marked effect on the cost of production and so schemes that might be biased against larger British farms may damage prospects for European agriculture as a whole.

276. We believe that the RSPCA is right to call on the European Commission to explain how the green box could be used to encourage high animal welfare and welcome Commissioner Fischler's acknowledgement of the importance of this issue. Such an approach may help to demonstrate to our negotiating partners that the policy is addressing a particular demand from society and is not a means of agricultural protection. In the meantime, given that the European Union internal market is still protected against foreign competition by considerable tariff barriers and market prices are above those prevailing outside the European Union, we believe that there is already a justification for delivering higher animal welfare standards across the whole of the European Union. If such an approach is followed now, there must be discussion about how those higher standards can be maintained as European Union tariff barriers are reduced.

277. The Mid-Term Review proposals overtake in some respects the recommendations of the Policy Commission. For example, the Policy Commission said that its 'broad and shallow scheme' should be funded through moving quickly to modulating 20 per cent of direct payments to farmers. Commissioner Fischler has proposed compulsory modulation increasing by 3 per cent each year until it reaches 20 per cent across Europe. The proposals made by Commissioner Fischler in respect of modulation move in the same direction as the recommendations of the Policy Commission, although using different and more radical mechanisms. We are strongly in favour of compulsory modulation in order to maintain the framework of a common policy within the internal market.

278. However, the Government must address three issues relating to modulation. First, increasing modulation may lead to changes in the enterprises pursued by farms, which may in turn affect the United Kingdom's entitlement to direct payments. The Government should study the impact of changing levels of direct payments on the attractiveness of enterprises which do not receive direct payments under various scenarios of modulation. Second, we are concerned about the competitiveness of the United Kingdom within Europe if different rates of modulation are applied. Rules relating to modulation must be promptly and properly enforced. The Government should strongly support the proposal for compulsory modulation across the European Union but not the centralisation of the Rural Development budget. If, at the end of the Mid-Term Review process, compulsory modulation is not agreed by member states, attention needs to be paid to the effect increasing modulation rates unilaterally will have, including differences of approach within the United Kingdom. Third, the Government should produce a clear indication of the redistributive impact of modulation within England and seek the same information from the devolved administrations elsewhere in the United Kingdom.

279. Commissioner Fischler's proposals have similar objectives to the recommendations of the Policy Commission on the Future of Farming and Food, but they are more radical and will apply across Europe. They are designed to represent a significant shift from producer support to rural development. The proposals are clearly intended to have an eye on the enlargement of the European Union: the conversion of individual supports to block grants in existing Member States would sit alongside the Commission's proposals for support for agriculture in accession countries. It would be difficult to proceed to a full implementation of the Policy Commission recommendations without a clear idea of their relationship with the policies which will emerge from the long and complex negotiations of the Mid-Term Review. However, the differences in timetables of the Mid-Term Review and the Policy Commission would give the Government the opportunity to conduct trials on the basis of the 'broad and shallow scheme'. It has already announced that it will pilot the 'broad and shallow scheme' over the next two years. We recommend that the pilot project be used to examine what the practical impact of the scheme would be, and whether it was value for money, with an aim to have derived preliminary conclusions before any European schemes are brought forward.

280. We share the Government's view that CAP reform should be rapid and it should be radical. In order to open up for farming the full benefits of the market, however, CAP reform must go well beyond the reduction of subsidies. Restrictions and distortions caused by the CAP, such as quotas, the impact of 'set-aside' payments on land prices, and their effect on input prices, must also be addressed. We trust that the Government will put down markers on these issues in the Mid-Term Review process, although we accept that the Review itself is limited in scope and that Commissioner Fischler has already pushed it well beyond most expectations.

281. The Mid-Term Review proposals will now be considered by member states. Discussions of them will continue until agreement is reached next year. Negotiations over the proposals will inevitably prove to be difficult. We have already begun our own analysis of the proposals, and we will report on them in due course. They are obviously of vital importance in shaping the future direction of farming in the United Kingdom.

489   See "Towards sustainable farming": Commission presents EU farm policy Mid-Term Review, Commission News Release, issued on 10 July 2002; the press release can be viewed on the internet via the Europa website, at:|0|RAPID&lg=EN&display=. Back

490   See, for example, Commission tables radical blueprint for single CAP aid payment, Agra Europe, 28 June 2002. Back

491   Mid-Term Review of the Common Agricultural Policy, pp. 24-25. Back

492   Mid-Term Review of the Common Agricultural Policy, p. 13. Back

493   DEFRA news release 275/02, 10 July 2002. Back

494   CAP reform proposals could be made to work, TFA Press Releases, 12 July 2002. Back

495   Mid-Term Review (MTR) - Initial Proposals of the European Commission, see: Back

496   Reforms must go beyond 'tweaking', Farmers' Guardian, 12 July 2002, p. 4. Back

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