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
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
9 January 2002