Examination of Witness (Questions 800-819)
MR ERHARD SCHWINNE
WEDNESDAY 17 APRIL 2002
800. Herr Doktor Schwinne, thank you very much for coming to talk to us. We are extremely grateful. We have been very anxious to collect the opinions of our European partners, but there are such a lot of elections taking place, it has actually been quite difficult to persuade people to come and talk to us. We are conscious that you also have an election in Germany, and we will try not to lead you to say anything which may hazard your employment in any subsequent government! Could I start with this question. We have always tended to see Germany's attitude to agriculture as being just about the most die-hard, defend-the-system, being traditional supporters of the CAP, with all its knobs and whistles, in Europe, largely Bavarian inspired. Then suddenly we get the present Minister, Renate Künast, and we think, "What has happened?" She is talking about organic farming, talking about a totally different sort of agriculture, talking about fundamental changes. Is the present Minister an aberration or does she represent something more deep-seated happening in Germany about the way politicians and industry are thinking about agriculture?
(Mr Schwinne) Mr Chairman, I will answer the question, but before that I must say I am not a doctor. I think you suppose that everybody who has studied in Germany is a doctor.
801. I always take that precaution, because on the whole it is better to over-endow than to under-endow.
(Mr Schwinne) It is true for Austrians but it is not true for Germans! To come to your question, it is true that agricultural policy has changed in Germany after 1998 with Minister Funke and even more with Minister Künast now. It has gone in two directions, one, more towards sustainability, which includes an emphasis on biological agriculture, but also in the direction of reducing the exceedingly high payments across the Community to farmers. This has been the position of the government since 1998, and is still the position of the government now. We gave you a paper on the mid term review, and it is included there. On the other hand, the idea that Germany's agricultural policy was a die-hard protectionist policy in the past is true to some extent but, on the other hand, Germany's agricultural policy was always directed to helping rural areas. The idea of multi-functionality, at least in some of the German Länderand you mentioned Bavariais very important. We spent money on rural development in the Sixties, Seventies and Eighties, long before there was this emphasis on rural development that we have now.
802. You heard the previous witnesses, so you will know that there is a major debate in Britain about sustainability, the environment, trying to get public goods out of agriculture. At the same time, if you look at the external circumstances of agriculture, we have embarked upon a new World Trade round, we are looking to enlargement of the European Union, we have a financial framework which could turn out to be relatively constrictedhow would you reconcile trying to achieve a sustainable agriculture which gives the public the value for the money it is paying with a competitive, more globally integrated agriculture? Do you see a difficulty there, or do you think it is inevitable that we have to move closer to the market as international agreements reduce the protectionism that has been part of the mechanisms in many parts of the world?
(Mr Schwinne) As we have said in our paper, we have to move much more in the direction of the market in a number of respects, such as quality management. We need better quality management. It is also for being competitive against imports, which will increase in the next round of the WTO and through the free trade agreements we are negotiating with other countries. We have to be much more market-oriented. This concerns conventional production and also biological production. They have to be market-oriented, and it has to be with much less aid from the Community than it has been in the past. What needs to be improved is rural development, the development of the rural areas for agriculture, in respect of agriculture but not only in respect of agriculture, because agriculture is only one occupation in rural areas, and everywhere in the Community the number of farmers is decreasing. We calculate that in 10-15 years' time we will have one-third of the farmers we have now. If we take out the part-time farmers, we now have about 230,000 full-time farmers, and in 10-15 years, because we do not have successors in sufficient quantities, the farms will be bigger, and the farmers will be more professional. We have to move our agricultural policy in the direction of this structure which is developing. We have to do something about the environment they live in, not only the natural environment, but the way farmers work and live in it. We have to try to get them into another philosophy, that they have to produce for the market, and the market is not directed by state or Community; it is the demands of consumers that they have to meet, not intervention so that they can sell whatever they produce.
803. The Minister has said that a Union of 25 cannot function like a Union of 15. What are the implications of this for agricultural policy, where, after all, consumer preference differs sharply from member state to member state?
(Mr Schwinne) They do differ, but they differed in the past much more than they do today. There is more conformity, thanks more to the American influence than anything else. For instance, I have learned that many people no longer need a kitchen: what they need is a fridge and a microwave. There are big differences in consumer preferences, but the biggest problem for the countries that join the Community is to have common minimum quality standards. This we are trying to achieve, and it is one of the big problems of enlargement. As we know from the unification of Germany, consumer wishes will adapt very quickly to what we have in the West. They will still have their preferences, of course; the Hungarians will eat their products as in the past. There will still be differences, but there will be more uniformity. This is up to the market. We cannot influence it, except by security of food and quality control.
804. You stressed the importance of the rural economy and the way it is changing. The number of farmers, you told us, will decline to a third of what it is now over the next 15 years. That implies that we need to put money into the rural economies in different ways from Pillar 1 production support to Pillar 2, agri-environment and further investment in the rural economy. Do you have a timescale in mind for how that can be achieved? Clearly, it depends on discussions with other partners, but how quickly do you think we will be able to move on that?
(Mr Schwinne) That is a very good question. Our opinion is that we should start now in the mid term review, and we should devote more of the money used for Pillar 1 issues to Pillar 2. It is difficult, of course, because other states which are not so convinced will say the decision of the European Council at Berlin was that all the funding rules will stay in force until 2006 and after that we will decide on new rules, which will probably happen in 2004-05. It is our intention to get a decision to do it earlier. We are waiting for the Commission's proposals and we are hopeful that the Commission will put something into their proposals. We would also need a decision on financing, of course, and if you are not to transcend the limits set in Berlin, which you cannot, you will have to take the money from somewhere else. Then you come to degressivity; cutting down premiums you pay now would be the only way to finance it.
805. So you are keen to make early progress in the mid term review.
(Mr Schwinne) Yes.
806. You think we should move above the 20 per cent limit on modulation. There is also an issue around at the moment that modulation should not just be voluntary but that it should be compulsory across the Community. There will be some strong arguments about that. How would you assess the situation?
(Mr Schwinne) Our position is that modulation should be compulsory. We know the problems of introducing modulation. The only country which did it in a simple way was Britain, just cutting the premiums down for everybody without franchise. This was very easy. Being a federal state, our discussion on how to cut the premiums, how much the franchise should be and how many premiums should be included took quite a long time and was very difficult to decide. It has now been decided, so we too will have modulation. One of the problems of obligatory modulation is laying down Community rules on how it is done. I think this will be very difficult. We know from the discussions on the rules for modulation that it is almost impossible to fix common rules in Europe for all member states on how to do modulation, so there may be needs for a margin for member states to do this, but the percentage of how much is taken from the premiums in the way of modulation must be fixed, say 2 per cent for the first year, 4 per cent for the second and so on. Whether we can go beyond 20 per cent is another matter. We have to take into account also that at least our finance ministers want, beyond modulation, degressivity in order to pay for other measures of the European Union, or to get it back in their national budgets to save money there. There are quite a number of interests in using the money from the premiums.
807. The ideal situation would be, in your view, to have compulsory modulation, to achieve as high a target as you can over a period of time, but within that, to allow member states to have their own systems that meet their own needs.
(Mr Schwinne) Yes, I agree.
808. Can we tease out some of the issues to do with the mid term review that the German Government is suggesting? I am interested in some of the details to do with this. You are talking about moving away from production-related payments to a grassland premium payment. Can you explain how that will work, and will it create its own dangers? The problem with any subsidy is that it starts for the best of intentions, but over time you get this gradual problem of being unable to reduce it, and inevitably it increases.
(Mr Schwinne) We have been discussing for years how to change the premiums to a more simple system, a more adequate system which conforms better to WTO regulations, which is better for the sustainable and reasonable use of land. We have always thought about a grassland premium because quite a lot of Germany is grassland, not only in the north near the coast, but also in the mountainous areas. This idea has always been there. The grassland option is part of the proposals of the Commission in Agenda 2000. There were the envelopes, and it was made possible to use it as a grassland premium for member states. For Germany this envelope was over
300 million for animals for beef and milk production. This envelope was cut down during the negotiations in order to have a higher special premium for male animals, and the higher suckler cow premium was cut down to something like
85 million. We calculated that we would pay this envelope as a grassland premium, we would pay, at that time, DM30 that is
15 euros, which was not worthwhile administering. We would have had a grassland premium if we had had a bigger sum per hectare, because Mr Funke at that time was very keen to have it. The idea was just born from the Agenda 2000 proposal of the Commission. We think it is reasonable to introduce a grassland premium, but we know we cannot do it from one day to the next because there would be structural shifts which need their time. This is true for Germany and most other countries. The intensive production of animalsin Germany it is mostly young bullswill be affected heavily. Introducing a grassland premium while keeping a correspondingly lower level of the animal premiums for some time, would enable us to shift slowly to another form of production, and give enterprises time to change. It would also mean that we shift production of beef from some regions in Germany to others, from Westphalia, for example, to the north and to the south.
809. Will the rates differ in different parts of the country?
(Mr Schwinne) We did not go into detail. Before I came here this morning I had a discussion in DEFRA about these matters, and when I was asked this I said "We can think about it." The Commission has a proposal. The problem with the rules of the Community is that member states and everybody else who looks at the rules complain that they are too complicated. They always say it is the Commission that makes them complicated, but it is the member states who say they have to have special rules and so on. Of course, if necessary, if you cannot for special reasons introduce a higher intensity in Wales and a lower intensity in Scotland and the north of England, why should we not have special rules and discretion to apply them differently? There is always the point that there has to be some kind of supervision by the Commission so as not to create too sharp distortions of competition.
810. Is there some logic in actually extending these grassland payments into what could be termed a basic area payment across the whole of the EU? In other words, you just pay for the land rather than what goes on on the land, and even the quality of the land?
(Mr Schwinne) We were very modest when we suggested the grassland premium, but our final idea is to have one premium for all land used agriculturally. I do not know whether one should go so far as to give premiums for people just being on the land; they should do something on the land; they should keep it for some reasons. There is this debate about multi-functionality, which I think is very important, but the most important function of a farmer is to produce products which can be consumed.
811. Is all this compatible with the WTO or is this going to be a battle?
(Mr Schwinne) A grassland premium would be more green than these animal premiums because it is not so production-geared as a special premium for male animals, or a suckler cow premium. If you just had a premium for land, with no indication of use, it would be green.
812. Is this part of the movement to a more extensive Level 2? Clearly, that must be so, but within that, is there some assumption that you will want to nationalise some of the decision-making? For example, if Germany, chose to go for a grassland premium whereas Britain may make some payment for animal welfare improvements, is that something the German Government will countenance?
(Mr Schwinne) Let me say, I have not asked the German Government this question yet so I do not know what the German Government would answer! It very much depends. If you ask the governments of the Länder, they will say, "We want to renationalise. We want to have a say in what we do. When we co-finance, we spend money, and we want to have a say." I am rather sceptical about too much renationalising. There is also a discussion now on the Convention and what it is necessary to keep as a competence of the Community. It is the Common Market, which means you have to avoid any subsidy which could affect the market, which distorts competition. This must remain with the Community. Beyond that matters can be for the member states, mostly in relation to Pillar 2. Pillar 2 it is said is always non-trade distorting. I doubt it from time to time. We now have a discussion about aids for nuts and other fruits, the Spanish problem. The aids have been prolonged for one year, and they may next year come under Pillar 2, but if you continue to pay premiums for trees and hectares where these products are produced, you are not green any more; you are as blue as the premiums we now have, so you also have to check what you do under Pillar 2, whether it is trade-distorting or not.
813. Let us come back to the idea of consolidating all the various premia into a single payment. In a sense, that is what we are offering the new candidate member states as a transitional agreement. You are lumping together what are currently production subsidies with headage payments, with environmental subsidies, and you said, I thought slightly optimistically, "Of course, they would all be green." I have to say, if I were in the WTO negotiations, I would wish to disinter them fairly strongly, just to make sure you were not wrapping up production aids in that, but I think what might persuade me is if you said, "Yes, we are going to do this, but they will then be degressive, so that they are the mechanism eventually to take us out of the subsidy business." I might be much more interested. How would you react to that?
(Mr Schwinne) My answer is very simple. You are completely right. If I were in Australia in the negotiations I would say, "Whatever premium you give, it is trade-distorting" if it is not exclusively laid down in the green box as it would come out in the next WTO round. But degressivity helps, and I think degressivity in the sense of modulating into a specific green box measures and saving some money for helping to finance other politics in the Communityenlargement or whatever we do for further integration in futureis very important. It is good for WTO reasons, but it is also good in itself. We need it anyway, because if you increase the powers of the Community, which is necessaryand there are a number of aspects to this " we cannot continue with 50 per cent of the budget in agriculture.
814. Can I come back to the rural development issue? In your very first remarks you emphasized the importance of rural development. In the context of modulation, at the moment there are proposals, which the British Government is studying, to have a much more extensive programme of modulation, but one of the difficulties is that the present rural development regulation is very restrictive on the uses to which modulated money can be put. Do you think that if modulation were to become a much more general instrument of rural development, the regulations which govern it need to be more liberal themselves, and the range of activities which they can support in the rural areas needs to be more extensive?
(Mr Schwinne) It is quite clear that the rules we have now for the use of modulation are too restrictive, and one thing we should do as a first necessary step is that all the money used by member states for modulation should be used for all possibilities of rural development as laid down in the regulation on rural development. If you look into the regulation on rural development, there is this famous Article 33, and if you look at all the possibilities for spending money on rural development in this article, you see there is a lot of scope for spending money. You can spend it on small traditional enterprises in rural areas which are not agricultural enterprises. It does not say they have to be related in some way to agriculture. This is all laid down in Article 33, but the interpretation by the Commission is very restrictivewhy I do not know. It may be because the money available for rural development in the second pillar is not very much.
815. I have lots of letters from my constituents about the importance of organic farming, saying our Government ought to set targets for an increase in the area of farmland that is cultivated organically, but our Government is very reluctant to do that. Renate Künast is well-known as a champion of organic farming, and has highlighted in her speech to the Soil Association the 20-25 per cent increase in the cultivated area that is expected over the coming year, I think, across Germany. I just wonder what assessment has been made in Germany of the environmental benefits of organic agriculture. Is there any scientific evidence that has become available or is it anecdotal, on the level of people feeling that somehow it is better for everybody if we move to those methods?
(Mr Schwinne) The targets set are political targets; they are not legal targets. The achievement of the targets is facilitated through subsidies taken out of rural development, which allow finance for organic farming. It has been done already for quite a long time. As for scientific evidence, I can only ask the people back in Germany whether there is any scientific evidence, but in the discussion and decision on the second part of the Community regulation during our chairmanship in 1999, the use of pesticides and herbicides was, of course, forbidden or at least cut down heavily, and the use of genetically modified products also. You could debate whether this is good for the environment or not, but if you think it is good for the environment, the benefit is demonstrated. I am not a farmer myself, but I plant vegetables in my garden. I have a neighbour who sprays with pesticide, but I do not, and I feel very uncomfortable. He does not do it any more, but is it because he sees my vegetables are as good as his?
816. They are political targets, you say.
(Mr Schwinne) They are political targets, but helped financially through the rural development fund an labelling.
817. One of the other points in this connection that Mrs K ünast made in her speech to the Soil Association was about the costs to the taxpayer of cleaning up some of the problems caused by conventional farming, which has caused high follow-up costs by straining soils, water and air, and to date these costs have not been included in production costs. They are financed by the general public via tax. Our Government in this country at least has in theory a principle that the polluter pays. I wondered if you could tell us something about any work that has been done in Germany on mechanisms, for instance, to internalise those costs of pollution from agriculture so that it is not always the public purse that pays for the cleaning up afterwards.
(Mr Schwinne) It is very difficult to do this. The Minister says this very often, and it is certainly true, but it is very difficult to assess exactly how much the cost of this is. All these environmental influences through the use of pesticides are very difficult to quantify. There are some quantifications I have read, but you have to show politically what excessive use of these things in conventional agriculture in the past has resulted in, and that this has to be calculated against the higher cost of producing organic products.
818. May I say, Mr Schwinne, that it is a pleasure to hear you say that the point of farming is to produce food. You would be amazed how rarely we hear such a statement in this Committee. Most of us take that view. I want to ask you about the demand for public goods. Renate Künast's speech to the Soil Association said that modulation offered an exemplary way to introduce targeted payments for services demanded by society. How in Germany are you determining whether the environmental or public goods are being demanded? How do you measure it? What are they anyway? Would you think that the average person in the street in Berlin would be able to answer the question?
(Mr Schwinne) I think the average person in Berlin is not familiar with this terminology. It is the same question as has been posed on the other side of the mischief that came of using means which were detrimental to the environment. Another aspect is animal welfare. In Germany, if you go to the countryside, you rarely see animals. I grew up in the mountains, and I remember when the weather permitted following the winter there were always animals in the meadows and the fields. Nowadays they are kept in barns and they rarely see the light. When the door is opened they may see the light. They are better barns, and the Germans build very good barns. These are elements which you cannot calculate but which are very important for the view the ordinary person has of agriculture. There has been an estrangement between agriculture and the ordinary person. Someone living in the middle of Berlin has normally no idea how milk is produced. Schoolchildren in Hamburg, asked what the colour of a cow was, answered that it is violet, because there was a violet cow on the wrapper of a brand of chocolate. There are elements which are very important for the relation of agriculture to the consumer. Everyone is a consumer, even farmers are consumers, but most consumers have no relation to agriculture and the further processing of agricultural products. This is also one of the ideas of our Minister.
819. We accept that, because this is part of the language that is currently being used in this country as well. What strikes some of us is that it is a concept which, while admirable and desirable in every way, is not likely to be enthusiastically embraced if it means the public has permanently to pay for it, because, as you say, there is a distance. Why should society pay permanently for the preservation of something the existence of which is, as you say, a bit foggy in their minds?
(Mr Schwinne) I think society is prepared to pay for it, at least in Germany. It is a subject there is not much discussion about. There is discussion about the special premiums for beef, but I do not think we have any serious discussion about trying to keep our countryside in the traditional way. One could debate what the traditional way should be in the future, but there is not much discussion about it. These kinds of measures are rather accepted, and it is also accepted intellectually by most people that they should pay attention to how products are produced, that they should look at it and pay more for food because to produce food under better environmental and animal welfare conditions is more expensive. They understand it, but not all act accordingly.
Mrs Shephard: That is the position here. Thank you very much.