The Impact of Common Agricultural Policy Reform on UK Agriculture

UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE    To be published as HC 671-ii

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

 Environment, FOOD and Rural Affairs Committee

The impact of Common Agricultural Policy reform on UK agriculture  

Tuesday 11 January 2011

Mr William Worsley and Professor Allan Buckwell

Mr Peter Kendall and Mr Tom Hind

Evidence heard in  Public Questions  75 - 169

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Oral Evidence

Taken before the  Environment, Food and Rural Affairs Committee

on  Tuesday 11 January 2011

Members present:

 

Miss Anne McIntosh (Chair)

 

Richard Drax

Barry Gardiner

Neil Parish

Amber Rudd

 

________________

 

Examination of Witnesses

Witnesses: Mr William Worsley, President, Country Land and Business Association, and Professor Allan Buckwell, Director of Policy, Country Land and Business Association, gave evidence.

Q75 Chair : Good morning everybody, and a particular welcome to our guests. Happy new year to everybody. Just a little bit of housekeeping, if I may: as this is a report on the Common Agricultural Policy, in the spirit of openness, we’d like to declare those of us who are in receipt of any Single Farm Payments and I have declared on the Register a half share in a smallholding in the upper Pennines, on which I believe we do receive Single Farm Payments. I don’t know if any other colleagues do so.

Richard Drax: Yes, I am in receipt Single Farm Payments.

Neil Parish: I have a farm, but it’s let, so I don’t directly receive the Single Farm Payment. It goes to my tenant, but the land is in receipt of a Single Farm Payment.

Q76 Chair : Thank you very much. Now if I can warmly welcome William Worsley and ask William if you would introduce your colleague?

William Worsley: Very good morning, Chair. I have to declare that, as a farmer, I’m also in receipt of the Single Farm Payment. I am the president of the CLA; I am also a farmer in North Yorkshire. With me is Professor Allan Buckwell, the policy director of the CLA.

Q77 Chair : Thank you. Let me just ask at the outset what you would hope to achieve as an organisation in this round of CAP reform.

William Worsley: I think what we would like to see is an adequately funded Common Agricultural Policy that is far better justified in the eyes of the public and the taxpayer; one that helps sustain the ability of the European Union to feed itself and, indeed, contribute to global food security, but which also makes clearer and better provision for rewarding farmers for the public goods they provide and, in short, I would suggest it should be a Common Agricultural Policy for food and environmental security.

Q78 Chair : Thank you. In the balance between food production, and you’ve touched on feeding ourselves-being self-sufficient, presumably-and also the relationship with the sustainable environment and the sustainable farming, bearing in mind that the mission statement of the Directorate-General for Agriculture in the European Commission is to promote "a robust and competitive agricultural sector which respects high environmental and production standards, ensuring at the same time a fair standard of living for the agricultural community", where do you believe this balance would best lie?

Professor Buckwell: Yes, this is the $64,000 question-judging the balance. I don’t think anybody disputes that for both elements of a competitive, productive and profitable agriculture, and an agriculture that provides the environmental services the public wants, the trick we’re trying to play is to put these together and balance them better. If you ask us what’s the direction of change on that, our perception of that is that there is still more to be done on the public good provision. As global markets have become more buoyant in recent years and, we hope, will stay that way, then farmers get more of the reward from the market, and that in a sense will increase the incentives for them to intensify production and potentially threaten the environment. Therefore if society wants the environmental goods then we have to take care that we make provision that farmers are paid the full costs of providing those public goods. Therefore, that’s why if there’s a change in balance, it’s a slight-we don’t want to overstate this because a core part of the CAP is ensuring productive agriculture-drift in the direction of sustainability, hence this greening of the CAP.

Q79 Chair : Are you comfortable that the definitions that the Commission is bandying about are sufficiently well understood, particularly their definition of active farming and, as you’ve just mentioned, public good?

William Worsley: No, I think the definitions are pretty unclear. On the point about active farmers, we’re unconvinced that there’s anything wrong with the existing definitions in the single payment scheme regulations of who is the farmer and what qualifies as farming, and what is eligible land. There’s talk about airfields and golf courses, and all these things are perfectly possible to be dealt with under existing regulations, so we think this concept of, "Who is an active farmer?" is a little bit of a red herring.

Q80 Chair : We’ll revert to that. We often take evidence from yourselves and the National Farmers Union together. What would you say were the main points of difference of opinion between the two or indeed the three leading organisations if you take the Tenant Farmers Association as well?

William Worsley: We spend a lot of time, obviously, debating these issues with the NFU and, indeed, I note that they’re sitting in the audience-

Chair : They always are.

William Worsley: They are listening to what I am saying and, indeed, I shall be doing the same for them.

The answer is that firstly we have a number of things in common in what we’re talking about. We have big areas of agreement. We’re both arguing for a strong, adequately funded agricultural policy; the need for competitive, proactive agriculture; and fairer terms to farmers in the food chain. But there are some areas where our members are, perhaps, willing to contemplate more reform, and I particularly look towards that farmers can produce the suite of public environmental goods and that they should be paid for according to what they cost to deliver. I think perhaps we go slightly further on this than our colleagues in the NFU do.

Q81 Chair : Are you concerned at all that we may be discriminated against as a country in the next round of reforms, compared with other member states?

William Worsley: I think it’s extremely important that our Government fights very hard on our behalf and actively engages in debate to ensure that we are not discriminated against. We have gone further as a nation than most countries towards environmental management. Through the ELS and the HLS, we’ve done much more than many others, and it’s very important that in the work that’s done we are not discriminated against. This is why we argue very strongly for a common agricultural policy and not for one where it is left too much to each every individual nation to do what they want with it. I personally believe that land management is all about balance and it’s a balance between productive land management and stewardship, and it’s getting that balance right.

Chair : Thank you very much.

Q82 Neil Parish: Considering the comment you made about "adequately funded", do you think that it’s overfunded at the moment? What does adequate mean?

William Worsley: We believe that by arguing for both food and environmental security we can justify the current funding of the CAP. The current funding of the CAP is 0.4% of European gross national income. We believe that that is a justifiable amount to pay to achieve both of those things. The productive agriculture, to a large degree, is paid for by the market, but the market has tremendous volatility. You’ve seen the variation of prices of wheat, for example, over the past four years; it’s gone up and it’s gone down and it’s gone up again and it’ll go down again, so farmers need support on that. But also there’s public goods for which farmers deliver for which there is no market, and that is another major part for the CAP, and that is why we believe, by arguing for both food and environment, and support of both, that the size of the Common Agricultural Policy is justified. Perhaps Allan could add to that.

Professor Buckwell: Can I just add that the UK, funnily enough, has done a lot of research on this area, as to what a reasonable cost for delivering the environmental services that we’re asking from our farmers? There was a study that was published two years ago that showed that those costs were about three times what we’re currently devoting explicitly to environmental programmes-the Pillar 2 agri-environment schemes. There’s comparable research now being done at an EU level that is coming out with similar indications. That’s the right way to do it. We should be deciding what we want the policy to do, trying to get some estimates as to what it will reasonably cost farmers to do that and then scaling the budget accordingly, rather than picking a budget figure out of the air and saying, "That’s what you’ve got, fellas."

Q83 Barry Gardiner: Professor Buckwell, you’ve just alluded to the €20 out of the €950 subsidy that the families are paying towards the Common Agricultural Policy that is directly targeted to specific environmental policies. What in your view would be the right figure?

Professor Buckwell: At the UK level, I’ve seen estimates that the costs of delivering the current level of environment-and incidentally we’re told by the Government’s Environment Agency, Natural England and Government that we’re not delivering sufficient environment; we could have a discussion about that, but this amount is insufficient-is of the order of £2 billion per annum. In other words a very large proportion of the existing expenditure, and I have no reason to suspect that it’s different across the rest of the Union.

Q84 Barry Gardiner: Yes, but with respect that’s not the question I asked you. Of the €950 subsidy per family that each family contributes in the UK towards the CAP, only €20 goes directly to targeted environmental additional public benefit policies that you were talking about. What I’m asking you is what do you think would be a better figure than the €20? You’ve said that you believe that there are additional public benefits that farmers should be providing and, in terms of that €950/€20 split at the moment, what’s the sort of split that you think would be reasonable?

Professor Buckwell: A very large part of it, but to be honest I don’t know if-

Q85 Barry Gardiner: A very large part, so more than half?

Professor Buckwell: Oh, yes. Yes.

Q86 Barry Gardiner: And that should be targeted to specific environmental benefits?

Professor Buckwell: It could easily be justified as an order of magnitude, yes. To be honest, I don’t recognise your €950 and €20. I’m not familiar with those particular figures.

Barry Gardiner: In Britain we’re providing-

Neil Parish: In Britain is it 20 million families? It’s now €10 isn’t it?

Q87 Barry Gardiner: It’s from the Treasury’s Vision for the CAP and it points out that what the CAP is costing to taxpayers via the EU budget and to consumers via higher food prices: in 2005 the average cost to an EU family of four was estimated at €950 a year with only around €20 of this spent on targeted environmental programmes.

Professor Buckwell: And since then global agricultural prices have rocketed, and so the €950 will have changed. European prices are no longer systematically above world prices, where they were-I don’t deny that-and so that figure has changed. On the justifiable amount to be spent on public good provision, what I’m suggesting is that the figure you quoted is unreasonably small; it should be bigger and much, much bigger-orders of magnitude bigger. The CAP is not there just to pay for environmental services; it’s also there because we have a situation in Europe where consumers don’t pay the full cost of their food production and where we ask for standards to be adhered to in Europe that are not adhered to in other major exporting parts of the world. And so, if we didn’t have some kind of arrangements of agricultural policy, we wouldn’t have an industry and we’d be importing from countries that are more environmentally destructive.

Q88 Barry Gardiner: Indeed. I understand all of that, but just for clarity: your view is that over half of the monies that we’ve talked about should or could be specifically devoted to targeted environmental programmes?

Professor Buckwell: Could be justified in terms of paying for public goods that farmers provide, yes.

Barry Gardiner: Thank you very much.

Q89 Amber Rudd: In your view is the Commissioner sending out clear enough signals about the changes that are going to come to CAP for farmers and investors to plan?

William Worsley: I think at the moment he’s giving signals-the signals as a guidance towards what he calls, perhaps, option two-but they’re not clear yet. It’s still very much for debate. Are people going to invest at the moment on what the CAP is producing or will deliver in 2014? No, because we don’t yet know what it’s going to be. It’s very much in debate. There are, therefore, conflicting messages coming out of Brussels; they’re taking views of people at a time of exactly that.

Professor Buckwell: Just to add to that, I really think the Commissioner has genuinely difficult job at this point. In previous reforms there was a very clear problem with the CAP and a pretty clear solution. We used to support commodity prices and we’d got markets that were way out of touch with the reality, so we had to reduce price supports-that’s back in the ‘90s. We then set up direct payments and it was clear that the direct payments were incentivising production, again not justified by the market. They had to be decoupled-that was a clear message in the 2004 reform. So, the problem was clear; the solution was clear.

Now, I think it’s genuinely difficult. We are trying to strike, as our chairman said, a very difficult balance between sustainability and competitiveness. We want both and they’re both complicated things to measure and to work on, and so it’s not surprising that there’s a less clear message. What in this reform the Commissioner is suggesting is that if there’s more to be done on public goods, and that’s certainly what we read into his communication, it should be done in Pillar 1, not Pillar 2. More modulation was the way we were going, but they’ve now backed away from that. I think we support that-we weren’t very fond of modulation, especially when it could be differentiated. He’s also signalling perhaps that we should be doing more for farming in the marginal areas that have more to deliver on the environment. Again, that’s a difficult and sensitive balance to strike, but one which we think definitely has to be debated.

Q90 Amber Rudd: So while these conversations are going on, is it significant, do you think, that investors are presumably waiting to see what the outcomes are?

Professor Buckwell: Yes of course, but luckily the farmers are smart people. They know that the current system will operate through to 2013 more or less as it is, and so we’re talking about the changes thereafter, so they can plan their businesses on that basis. The volatility-to be honest, there’s much more volatility in the markets-is what’s disturbing them rather than the political volatility at the present time.

Amber Rudd: Okay. Thank you.

Q91 Neil Parish: There are two parts to my question; they’re almost contradictory really. First of all, what are the main risks if you reduce direct payments to farmers in Pillar 1? The other part of the question is: does the Single Farm Payment actually make farmers less globally competitive? So they’re almost two contradictory questions, but I’ll put them to you together.

William Worsley: I think-sorry, remind me of the first one?

Neil Parish: The first one is what are the risks of reducing the direct payments to farmers in Pillar 1 and the other side of it is, by giving Pillar 1 payments, are you making British agriculture and European agriculture less globally competitive?

William Worsley: I think if I can say that, looking at farm businesses large and small, they are hugely dependent upon the Single Farm Payments. I look at my own farm business: if I didn’t have a Single Farm Payment, I would make a small surplus, but I would not pay my depreciation; therefore I would be out of business within five years or so. So I think that the risk of reducing the Single Farm Payment is significant. It would be hugely detrimental. What would happen is that you would end up with agribusinesses farming the pick of the land, leaving the less productive bits of land unfarmed.

Does Pillar 1 make European agriculture less competitive? It was very interesting at the Oxford Farming Conference, where there was a fascinating lecture given by an Irishman with a massive agribusiness in Argentina. I was hugely stimulated by it and was very excited by what he was talking about and everything else. When I went away I thought deeply about it as I drove home and it’s totally different; he is farming vast acreages with virtually no environmental benefit at all. We’re farming-depending on where you are in England-relatively small farms with relatively small fields, with considerable environmental benefit given. My average field size is about 20 acres, his is probably 2,000 acres-it’s completely different scales of agriculture. It is that sort of thing that we need to support our European farmers, because the counter is that you get what’s happened, for example, in the Paris Basin where if you fly to Paris you fly across acres and acres of land where all the hedges have gone and it’s just pure agribusiness with very little environment with it. I think that, as I go back, that farming land management is about balance and you want a bit of both.

Q92 Neil Parish: Yes, you’ve just fallen into my trap there for the simple reason that those farmers in the Paris Basin-some of the best arable land in Europe-are getting some of the highest payments under CAP. You talked about how, if we took away the Single Farm Payment, the only land that would be farmed would be that that’s very productive, so is there an argument to reduce significantly the payment that goes to the very productive land and push that more towards the margins?

William Worsley: If I look at the figures-looking at UK agriculture-we’re talking to some big Lincolnshire farmers and they were saying that without the Single Farm Payment their businesses wouldn’t make any money either, so it’s not as simple as that unfortunately.

Neil Parish: Okay, I’ll leave it there.

Q93 Chair : What would happen if the Single Farm Payment monies were not so much reduced but could be applied through Pillar 2? Would that have the same impact?

William Worsley: One of the risks of Pillar 2 is that it’s co-financed and therefore there is much greater political risk and lack of commonality between the two. We aren’t particularly hung up between Pillars 1 and 2. We believe you can certainly deliver both through Pillar 1. One of the problems with Pillar 2 is the complexity of it and the fact you have a means of getting less of a common policy, and we believe this would be disadvantageous to British farmers.

Professor Buckwell: Could I add that the problem with shifting the policy to Pillar 2, which was the drift of the last decade-to create the two-pillar CAP and slowly move resources from Pillar 1 to Pillar 2; that was the Fischler concept-was that the opportunity was offered to the member states with voluntary modulation, and all but the UK ignored it because they didn’t want to put any additional money into matched funding, into the co-financing. So, whilst we might be in principle in favour of co-financed Pillar 2 measures, the political reality is that there isn’t the money to do it. We’re therefore suggesting take the good aspects of Pillar 2-multi-annual, voluntary contractual schemes-and integrate them in Pillar 1 to avoid this co-financing problem.

Can I just take us back to this issue about the role of the single payments and the effect of reducing that, but also of their scale? The single payments for cereal production in the Paris Basin are not as generous, I suspect, as was being suggested. It tends to be the livestock producers in certain livestock systems that have the highest payments per hectare, whereas cereals are around the average. They’re not especially high, it’s just that they’re operated on a big scale, so it’s a big payment. The point is if you reduce the single payments, then in the marginal land there’s a risk of land abandonment, but in the non-marginal land of course that isn’t a problem. The land will still be farmed, but its structure may well be different.

This is the genuine question that we all have to ask ourselves: does the European public want and expect that its agricultural land is farmed South American-style, in estates of tens of thousands of hectares with 50 combines in a field? Is that what Europe wants and expects its food production to look like? Do we want our dairy production to be taking place in units of tens of thousands of animals? We each have our own personal view on that. Some will say, "If it’s cheap and efficient and high quality"-which it can be, and I’m not saying that those things are bad quality-"then bring it on." But others will say, "No, that’s not the European way of doing it," and we’re trying to find a balance in there. We will have some large farms, I hope, but I think Europe wants smaller farms, so that’s part of it. And so these payments, do they make us less competitive globally? It’s partly to compensate our farmers for the fact that they are required to farm in structures and according to standards that are not applied in other parts of the world. Quantifying that margin is not a simple thing either, but that’s at least part of the justification for the payments-and, of course, the bigger the farm, the more those additional costs are.

Chair : Very briefly, Neil Parish.

Q94 Neil Parish: Yes. Can I come back to you, Professor, because the way the Single Farm Payment is set is because of the historic cleanse made between 2001 and 2002. I don’t agree with you that those farms in the Paris Basin don’t receive a lot of support, and they receive support through co-operatives and other things all done by the French Government, but that’s another issue. The key to it is that, surely, as we move to 2013, the historic element of what was being produced on those farms has to be shifted somehow or other. I’m not arguing about the principles of the Single Farm Payment, but I think the way it’s distributed surely has to be challenged because at the moment there’s still too much money going to very productive land, in my view.

Professor Buckwell: I’m not sure about the last sentence, but the CLA were very happy to be alongside the arguments to move towards area payments back in 2003-04, so we’ve seen for a long time that if we’re restructuring the way we’re supporting our farmers, it should be land-based, paid to the guy who’s doing the job and we have to argue about the scale of those payments according to what’s being delivered. So those principles don’t worry us at all.

Q95 Barry Gardiner: Can I just be clear? You like conditionality, but whether you like it or not, you accept that most people in Europe don’t like co-financing and therefore you’d like to see conditionality taken from Pillar 2 and pushed into Pillar 1, so that far more requirements are placed upon landowners to deliver environmental and public benefits in return for the money that they receive under Pillar 1. Is that correct?

Professor Buckwell: I wouldn’t have used precisely that language, but broadly speaking yes.

Barry Gardiner: Please use the language that you would like to use. I wouldn’t like to misquote you.

Professor Buckwell: We genuinely believe that farmers are primarily in business to produce food, but because they manage the bulk of the territory, they’re the only businesses out there who can supply biodiversity, landscape management, water protection, climate protection over a wide scale, and in principle they’re willing to do this, but they want to see it as a business. Therefore, talk about voluntary contractual arrangements, where you’re saying, "Here’s the price for delivering carbon sequestration. Here’s the price for delivering flood protection, for delivering biodiversity. Sign up to a contract," because farmers are businessmen and they’re very happy to see it in that way. Whereas if you use the language of, "We’re going to come at you with a big stick and a book this thick as to the conditions and the requirements," and so on, you get into a negative tailspin about, "Oh, more blooming bureaucracy."

Q96 Barry Gardiner: We regulate other areas of industry as well, so it’s not to say that that sort of imposed regulation shouldn’t exist, but broadly you are saying, "Give a menu and a price list and allow the farming community and landowning community to deliver public benefit at a known price for its Pillar 1 payments?

Professor Buckwell: Yes.

Barry Gardiner: But it’s performance based.

Professor Buckwell: Yes, and recognise that if agricultural prices go up then of course the price of environment will go up too, because the opportunity cost of delivering it has just gone up, and that’s something we haven’t got our heads round at all, which is why we say, "Don’t throw the budget away before you realise what it’s going to cost you to buy the environment you’re seeking."

Q97 Richard Drax: I’d just like to say that farmers are the most overregulated industry already-I’d just like to make that point. If I may ask you, your evidence suggests the Commissioner is not proposing any new measures to help competitiveness. What would you suggest can be done at an EU level to increase competitiveness in farming, in particular, obviously, in the UK?

William Worsley: Sustainable food production is that which involves both economic/social as well as environmental aspects. Again, I go back to my point about balance. We have to talk about food and the environment both in the same breath because our food producers, as Allan has just said, are important environmental managers. What we are arguing is that the CAP should be supporting that part that the market cannot pay for. I think that we need to encourage farmers to be competitive and that will involve some restructuring of farm businesses to push the way forwards, but I think that the key thing is to support farmers to run their businesses efficiently. I’m not sure I’ve answered that question particularly well.

Professor Buckwell: Just to build on this, what the CAP does for competitiveness is a series of measures: there’s some help for restructuring of farms; there’s some help for producer organisations; there’s help for better marketing and for certain kinds of investments; and there’s also help for knowledge and skill acquisition. The CAP has not traditionally been a vehicle through which you fund research. I think there’s an interesting question as to whether it should be. We’re not pushing it particularly hard; we’re saying that there are other routes through which research funding is organised.

Q98 Richard Drax: Can I interrupt you? Sorry, but that is actually my next question to you. So, while you’re on that point, what can be done in R and D as far as CAP reform is concerned?

Professor Buckwell: Our view is: not a huge amount. In other words, it’s hard to see how you could create a separate and different European research funding apparatus that’s distinct from the existing DG research budget, through which research on all subjects is done, which already includes biotechnology, food production and the environment. They have very active programmes in those areas, quite rightly. We’re not suggesting that the CAP and the CAP budget is the right mechanism through which to do that. I think arguments can be made that that should be done, but the COA has not chosen to push in that route. So we’re saying the things that the CAP can already fund are things like knowledge and skills training, and there’s more that can be done there. We don’t underestimate the importance of more R and D and more activity in getting the R and D out into practice on farms, but to be honest some of the critical issues in that area are national issues rather than CAP issues-the fact that we don’t have a well developed extension service now and we’re still struggling to get the systems we do have in place working better.

Q99 Richard Drax: Could I just go back to the competitiveness point and just pose a question from the farmers’ point of view? I’ve met many farmers. Many say to me that to meet this new competitive world that they’re living in, with all the regulation and so forth and environmental stuff that’s being chucked at them, they need grants to upgrade their farms to meet all these requirements. Would you say there aren’t enough capital grants, particularly for the tenant farmers, to invest in their farms to buy expensive bits of equipment to ensure they can reach these levels that are being imposed on them? I.e. and then make them more equally competitive.

William Worsley: There are very few grants available now; also the tax system has changed, so you no longer get agricultural building allowances and everything else. So from the tax point of view and the grant point of view there’s very, very little money. Going back, historically, to the agriculture and horticulture development scheme and the like, which is what a lot of farmers used to upgrade their drainage systems, their farm buildings and so on, they’ve all gone. I believe that there is a significant build-up of lack of capital investment in infrastructure for farming, and I think this a problem that will come and hit us before too long.

If you look at most drainage schemes in the country, they were done in the ’60s, ’70s and perhaps early ’80s, after which they really pretty well stopped. Drainage schemes on the whole have a lifespan of about 30 years, plus or minus, and I’ve certainly seen the schemes I did on my own farm beginning to-well, my farm has certainly got wetter over the past few years. Also if we look at farm buildings, the like, and I think there is an intrinsic problem there. There is also the point that could be made that many farmers have too much expensive machinery; that perhaps they over-invest in the machinery compared with a lot of other parts of the world, but I think there is a major problem with the lack of ability to invest in capital. When you've been farming on £70 to £80 a tonne of wheat, actually it’s jolly difficult to find money to put aside. Most farm businesses struggle to meet the depreciation costs, and I think that is quite a problem building up for the future.

Professor Buckwell: I think when Europe comes at us with pretty heavy regulation, for example, in nitrates and water protection, some assistance on enabling farmers to make the investments in slurry storage and so on to deal with this is not unreasonable, to find some sharing of the costs there.

Q100 Barry Gardiner: Can I just ask you about a quote that the Farming Minister made? Jim Paice, in previous evidence to the Committee on the uplands inquiry said that, "Subsidies allow farmers to continue farming who probably should not be." Do you think it’s fair to say that the same might be said of landowners: that subsidies allow landowners to continue being landowners who probably should not be? And given your remarks earlier about payment for performance, do you think that there should be a cap on the amount of subsidy that landowners receive, particularly, obviously, large landowners?

William Worsley: I think perhaps I ought to take this in two parts. Should there be people farming who perhaps shouldn’t? I think that, as every industry develops, people should look at their businesses and question whether and how they’re running their business, and I think that there are people who are farming that actually would be much better to sit back and get other people to farm their holdings for them-i.e. mergers. We talk about contract farming arrangements, share-farming arrangements, FBTs and the like, but there are quite a lot of people who perhaps may run unviable businesses who should be looking at partnerships, other ways of running their business. With regard to capping, no we oppose capping and we oppose this for the reasons of both principle and practicality. Firstly, it would hit most severely the most productive and commercially viable farming operations. It would also attempt to adjust employment and it would create a disincentive for improving labour productivity.

Q101 Barry Gardiner: Sorry, I don’t want you to answer a question that I’m not trying to ask, and forgive me if I’ve misled you in the way I’ve stated the question. Let me put it more specifically. In Professor Buckwell’s earlier comments to the Committee, you were looking to a much greater proportion being in Pillar 1, at it being performance-based, and the money that people receive being performance-based in return for a public benefit. Your own opening remarks to the Committee focused on public subsidy should be for public benefit quite clearly in that context. So if it were the case that that transition of greater conditionality did not occur-did not occur-given the situation that we’re in, from the CLA’s point of view, those landowners who are simply landowners but not actually engaged in producing increased public benefit are not farming-the clue is in the title, Common Agricultural Policy-and if they’re not providing those additional public benefits, environmental benefits that we would’ve wanted to see put into Pillar 1, why should they not be capped? Why should there not be a system that says, "Look, you don’t just get a lot more money for owning land. You get a lot more money for doing something with it that is a public benefit."?

Professor Buckwell: It seems to me an odd question in that we’re not aware that people who are neither farming nor producing any public goods are getting substantial payments. In order to get a payment you have to be in management control of the land, you have to have the land at your disposal and the people who are doing this are taking the business decisions about the land use. They may not be sitting on a tractor; they’ve devolved that and they’re paying for those services from people who are more equipped to deliver them. That’s a normal business process. So we’re not clear that there’s a widespread category out there of people who are doing absolutely nothing in the way of farming or environmental management who are getting large payments, because we wouldn’t make the case that they should be.

Q102 Barry Gardiner: But with respect, I’m not making allegations or accusations that there are and therefore you don’t need to defend those people if they exist or if they don’t. What we’re talking about is principle. We’re talking about the principles: the principles of subsidy and the principles of receipt of subsidy. Given that what you said is about public subsidy being given in return for pubic benefit, it’s not simply the fact of owning land that should actually entitle you to receive that subsidy, should it?

Professor Buckwell: Yes. No problem with that.

Q103 Barry Gardiner: And beyond a certain level, it’s clear that it is possible under the current circumstance for people who, by virtue of owning land, without providing those additional benefits, will receive, under Pillar 1, subsidy.

Professor Buckwell: That’s the bit I’m questioning.

Q104 Barry Gardiner: You think that’s not possible?

Professor Buckwell: As far as I’m concerned where people are not doing the farming because they’ve got tenant farmers in place, it’s the tenant who’s claiming the money, and there is an arrangement between the owner and the tenant as to who’s doing what other functions. So sometimes it can be the case that the tenant is claiming the single payment and the owner is claiming some environmental money because he’s arranging the environmental stewardship.

Q105 Barry Gardiner: So why has the Tenant Farmers Association said maybe it’s time to think about capping?

Professor Buckwell: Well, you should ask them that.

Barry Gardiner: I’m asking you for your view.

Professor Buckwell: To be honest we don’t understand what the problem is that they’re pointing to because they haven’t detailed it. This whole issue about active farmers: we keep asking the Commission, "What’s the problem that it’s addressing?" and all we hear talked about is golf courses and airfields. That’s a problem about eligible land, and I don’t think Heathrow and Gatwick get single payments, as far as I know. This isn’t a problem in the UK because we have a perfectly adequate description of what is eligible land and what isn’t. Eligible land for this is land that’s producing agricultural commodities or environmental services.

Neil Parish: There is an argument that golf courses actually deliver a very good environmental system because it’s not being disturbed, other than by playing golf on it. I’m just playing devil’s advocate now. If you’re actually talking about land management, then the Commission has got itself into a real problem over this and I think it’s something that we and our Ministers have to face up to very strongly.

Q106 Barry Gardiner: Just to try and make this point. You have agreed that subsidy should be in return for benefit and you’ve agreed that we should be pushing more conditions into Pillar 1. You said the majority of the money should be for targeted policies delivered under the Pillar 1 structure. My point is this: at the moment, although you have the good agricultural and environmental condition as the condition in Pillar 1, most of the money in Pillar 1 gets delivered without the delivery of those additional public benefits. We agreed on that earlier. And, therefore, without the reform that you and I would both wish to see, should there not be a cap on the amount of Pillar 1 payments that a landowner can obtain because, ipso facto, unless that change that we both want to see comes about, they would be receiving much more money without delivering the environmental benefits?

William Worsley: If I can say, firstly, I don’t think in talking about public benefits we’re talking solely about environmental benefits. I think food security is a very important part of it. The second part is that if we’re talking about attaching the payments to land, which is what we believe is the right place to be, it’s irrelevant whether you’re farming 20 acres, 100 acres or 1,000 acres because the management requirement is the same. If we cap, it will be regressive; it will stop our industry modernising and reforming. So I don’t think that a cap is right or relevant because I think it will frustrate moving businesses forward and what you will find is that the large farming businesses will just divide themselves up into smaller, more inefficient units. Whilst payments and support is on an acreage basis, I don’t think capping is the right way to be looking at it.

Professor Buckwell: We’re arguing that the policy should move towards justifying some of the single payment for environmental benefits; therefore, that removes the logic for the cap. But in addition, as William Worsley says, part of the payments are compensating for the higher costs, and bigger producers incur more higher costs.

Chair : I think we need to move on because we have another set of witnesses very shortly.

Q107 Neil Parish: Yes. Really, the Commission is in a bit of a false dilemma because they talk about competitiveness and then talk about sustainability. Can they have both? And also your evidence also says that you feel that producers are being overloaded with environmental requirements, so can you give us a bit more detail on that?

William Worsley: Farmers are hugely regulated, as are land managers. You can’t do anything. The only industry that’s probably more regulated than farming is forestry, which for an inefficient, incredibly unprofitable industry is staggeringly regulated; you can’t do anything without getting consents for this that and the other. Sorry, I’ve lost my thread.

Neil Parish: Yes, about the competitiveness and environmental control. Is there too much regulation on environment at the moment or too little?

Professor Buckwell: Obviously, commercial producers of food would like to see most of this regulation disappear, but unfortunately-and the rest of society would say fortunately-it’s not going to disappear. In Europe we want very high standards of management of our water, of the atmosphere and of biodiversity; these are things that people campaign about and this kind of regulation, if anything, is going to increase. We’re still fighting off a soils directive and we’re almost certain to have further regulations on farming to deal with greenhouse gas emissions and climate change. These are the realities, and so what it seems to me that the rational society is trying to do is say, "Yes, we want competitive agriculture that has to be able to compete with parts of the world that are less rigorous about these standards, but we’re expecting in the fullness of time these environmental standards will have to apply there as well. In the meantime, we don’t want our agriculture to disappear overseas and then ask for us to import environmentally destructive produce."

Therefore, both the competiveness and the sustainability argument comes around to: what is a workable and affordable way of compensating our farmers for the impositions that we put on them to abide by higher standards than apply in many other parts of the world? That’s why we keep coming back to: how do you do that? That’s why we think it’s a mixture of Pillar 1 and Pillar 2; let’s build in the broad-brush stuff that should apply to most farming in Pillar 1 and leave the higher level and more regionally adapted environment schemes to Pillar 2. I think there are reasonable reasons to do that sort of thing, but the argument is about the resource that it is reasonable to spend to help farmers achieve those high environmental standards and still make a living producing food.

Q108 Neil Parish: But do you consider that there is enough attention paid to food security? There is a balance between how much you dedicate your land towards the environment and how much towards food production. I agree there’s a balance to be hit here.

Professor Buckwell: And the answer is that, until recently, anyone who mentioned the words "food security" was pooh-poohed in this country, but thank goodness things have changed in the last three years. That’s to do with a long-term agenda about research and development, but it’s also-and this is a European question, but it’s not a CAP question-are we or are we not going to allow our farmers to use the fruits of 20th century biotechnological research. At the moment we’re saying no and so we’re just going to drive a bigger and bigger wedge between our own farmers and the farmers abroad, and also we deprive ourselves of the ability to employ crops and animals that would be less environmentally harmful, too. The way we regulate pesticides has elements of the same problem. We are a bit over-precautionary in Europe on these issues.

Q109 Amber Rudd: Do you have any suggestions of practical steps to enable farmers to become more competitive and sustainable, combining those two requirements?

Professor Buckwell: Practical steps. To be more sustainable, the farmers who are taking that seriously, and lots are, are doing it through the schemes that we’ve developed. This has been a Government industry activity. We and the NFU are fully engaged with DEFRA and Natural England in developing these schemes and trying to make them practical. It’s hard work, but farmers who pay attention to those issues and get engaged in those schemes, in a sense, in that process learn about biodiversity and landscape and rural protection. A lot of farmers already know it; this isn’t brand new, but the more we’ve encouraged farmers to just focus on production then I think there is a reorientation of views needed. On competitiveness, ever since I’ve been in agriculture, for 40 years, we’ve been asking or encouraging farmers to do their accounts, to get engaged in benchmarking, to know what their costs are, to compare themselves with like farmers and find ways to improve, to work together in machinery rings and collaborative investment and equipment, and so on, and to market their produce. These are slow processes though. I don’t think there’s any new magic bullet that we haven’t invented. It’s just constantly pushing those sorts of activities.

Q110 Amber Rudd: Do you think that a climate change mitigation top-up, as proposed by the European Parliament, would be more successful in achieving this competitiveness/sustainability balance than the mandatory green measures proposed by the Commission?

Professor Buckwell: The problem is that the top-up and how it’s to be scaled and the conditions that would apply to it have not been spelt out. I think everyone’s agreed that in this next reform we have to pay more attention to climate change and that means helping farmers to reduce their emissions, which means using their fertilisers and their feeds more efficiently. Well, farmers want to use their fertilisers and feeds more efficiently; they don’t want to spend a penny more on fertilisers than they have to, so this is part of the knowledge transfer and those functions that we have to constantly work on.

Q111 Amber Rudd: And on this issue of the debate around annual payments or multi-annual payments, your evidence refers to an "an obsession with annual payments for multi-annual commitments in Pillar 1."

Professor Buckwell: Yes, we do think that if you’re pushing the environmental debate, which is a long-term process, that it makes sense, we would’ve thought, both in the administration and for the farmers, to set up a five-year or a seven-year or whatever period contract where each side knows what’s to be done, what’s to be delivered, what the price is for it, then get on with it instead of filling in forms every year and having inspections every year. This could be a significant simplification, and so we don’t quite understand why, given we’re working those principles quite well in Pillar 2, we can’t extend them to Pillar 1. What’s the legal or other objection to that is the question we keep posing, and we haven’t had a very satisfactory answer.

Q112 Amber Rudd: So it’s driven by simplification and by working with what seems to work?

Professor Buckwell: From our perspective.

Amber Rudd: Yes, which it should be.

Professor Buckwell: Yes, exactly.

Chair : Thank you very much. Barry Gardiner?

Barry Gardiner: Sorry, Chair. I wasn’t expecting come back in.

Q113 Chair : If the Commission wants to green the first pillar, do you at the CLA think that the proposals will deliver genuine environmental benefits?

Professor Buckwell: They’ll have to.

Q114 Chair : How will you force them to?

Professor Buckwell: Whichever pillar the greening is done in, it must deliver some public benefit. If it doesn’t and people are being paid to deliver this, then of course the whole system collapses. There can’t be any doubt about that, and so the question is practicality and workability. I mean, what’s the difference between the two pillars? It’s to do with where the funding has come from. How does that affect whether it works or not? The critical thing is to design the schemes in a way that takes account of local knowledge, so the farmers buy into them and don’t see them as heavy-duty regulation. Then I think they will deliver, because they are delivering.

Q115 Chair : I think you answered this earlier, but do you think that environmental benefits can best be delivered through the universal measures in Pillar 1 or targeted measures in Pillar 2? You touched on that earlier.

Professor Buckwell: The answer is both. There will be the broad-brush measures-the sorts of thing the Commission is talking about-and the sort of things that we do in entry-level stewardship are relatively straightforward, don’t require massive set-up work, which higher level stewardship does require, so there’s scope for both. Some things can and should be achieved in those relatively straightforward ways of identifying the elements that farmers have to abide by and then for higher delivery, for more sophisticated land management, you have to get a much more active programme set up that is suited to the farm.

Q116 Chair : On the green aspect of Pillar 1, do you think that what the Commission is proposing is consistent with simplifying the CAP?

Professor Buckwell: To be honest, we think it’s not a smart thing to say, "We want the objectives of the policy to get more complicated,"-i.e. you have to learn how to do sustainability, which is a pretty complicated process wherever it’s applied-and then pretend that the policy’s going to get simpler. There’s nothing simpler than dishing out single payments based on how many cows you had in 2002, but the problem is it wasn’t very justifiable. If we’re trying to deliver landscape biodiversity, water and climate protection, those are not simple things. So I think we’re generating unreasonable expectations if we’re encouraging farmers to think that the future is going to be simpler than the past. It’s unfortunately not.

Q117 Chair : And creating a carbon sink? Is that something that would benefit?

Professor Buckwell: It would benefit mankind that land management can sequester carbon in soil and trees and should do. This is an area where the money doesn’t necessarily have to come from the public purse, if we’re smart about this.

Q118 Richard Drax: Would direct payments to farmers or trade liberalisation be the better way of ensuring Europe’s citizens have access to sufficient quantity, quality and variety of food in the future?

William Worsley: Certainly with cereals, we are in a world market as it is. The problem is, of course, that you have countries like Russia that suddenly close the doors to exports and create terrible problems. On trade liberalisation in agri-products, the problem is, as we have said earlier, that you have some countries in the world that are operating on completely different rules than we are: far greater scale, far lesser environmental management. That creates a huge difference between that and the sort of farming we’re doing in Europe, where we very often-not always-have small fields, have much greater difficulties with economies of scale, there’s far more people around, and therefore the ability to farm the way that you can, for example, in Argentina or New Zealand or wherever means there’s just not a level playing field. The scale of farming in North America, again, is fundamentally different from the scale of farming in Europe and this creates a huge differential. If we want to protect the landscapes, protect the farming systems, protect farmers, European farmers have to have a form of support. After all, there’s no farming or very few areas that don’t have some form of support.

Q119 Richard Drax: We all assume, though, that this is all done in the EU. Do you as an organisation see that, if we ever left the EU or reorganised our role in Europe, British farming would be better looked after within national confines that international confines?

Chair : That’s a personal view of Mr Drax.

Amber Rudd: I think you can safely say that.

Richard Drax: It’s just an observation. I’m just asking, as an observation, do you see a future for British farming outside the EU in some way or other?

William Worsley: I think that British farmers have hugely benefited from the EU because they’ve been recipients of the Common Agricultural Policy.

Chair : And it’s also given them a market.

William Worsley: And it’s given them a huge market. I believe if we were outside the EU, we would have to persuade our Government to support farming in exactly the same way that it’s been supported through the Common Agricultural Policy, and I would question whether the British Government would do that. The second thing is we’d have to make sure that we have the markets because, if by moving outside the EU we closed off the markets that are currently available to us, it could cause us great deals of difficulty as British farmers. So I think that we’re probably better off in the EU and with the CAP than being outside, from a farming perspective.

Q120 Neil Parish: I think with trade liberalisation the key would be that you may be able to get the quantity of food, but it’s whether you’d actually be able to get the quality and the different types of food. Brazil will plough up more savannah and cut down more rainforests and it can produce as much sugar and beef, probably, as we would require, but at added environmental damage. I think those are the keys that we have to get over and I think that is something that is probably not talked about enough. I would suggest the threat to farming and the environment in this country is probably almost greater by trade liberalisation than probably-I’m speaking as a heretic now-in anything else.

William Worsley: I think that one of the real risks is that we’d just export the problem if we buy from the cheapest common denominator. It’s much cheaper to produce crops in South America or whatever because there are none of the constraints that we have. If we want our food, quality food, from sustainable sources we have to look after our farms to be able to do that, because we set our farmers hugely high standards within which to operate. If they are trying to compete against those who have fundamentally lower standards, we will find it almost impossible to compete. Therefore, what we would effectively do is export the problem overseas and I think that is an irresponsible way as a nation to behave.

Professor Buckwell: But in fact the trade liberalisation talks-the Doha round that has been grinding on for a decade now getting nowhere-are negotiating relatively simple things, such as tariff barriers and agricultural subsidies. When we get into negotiating non-trade concerns-these environmental issues-that’s when we hit the really difficult stuff. So we’re not going to solve this problem very quickly, in my view. Therefore, in the meantime, it’s absolutely right that Europe ensures it has a support system that brings about the land management and the food production that suits its citizens and that they’re paying for. I think that’s why it’s a perfectly healthy debate that we’re having.

Q121 Chair : Can I just ask your reaction to the Commission’s thinking on restricting payments to active farmers and the view of your members?

William Worsley: We don’t think there’s anything wrong with the existing definitions in the single payment regulations as to who is a farmer and what qualifies, so I think that this is perhaps what I might call a bit of a red herring. I don’t see that there’s a problem in the definition of active farmers. We’re talking about the user of the land, the active decision maker and the person who’s taking the business risk. I think we have to be very careful not to define that in an incredibly prescriptive way because I think that it will just create huge difficulties in the administration of the payment. We must go for something that’s simple and straightforward. There are currently definitions of what farmers are who are the recipients of the Single Farm Payment; I don’t see a problem with that. I just see this as being unnecessary.

Professor Buckwell: This could be an administrative nightmare. They’re going to start asking farmers to keep timesheets of how much time they spend on different activities to show how much they’re spending on farming, or how much of their turnover. We’ve been encouraging farmers to be more diversified and we’re now going to penalise the ones who have 51% of their income from their non-farming diversified activity. It would be barmy. Once you define thresholds and criteria that have to apply to every business, and then all of our businesses where the farming has been through a sophisticated system of outsourcing certain operations, and who is the farmer, if we get into these sorts of arguments all these contracts have to be rewritten, this will be an immense complication, but for what problem? That is the question we keep posing.

Q122 Chair : So, just to confirm, are you saying that he or she who takes the business risk should-

Professor Buckwell: Yes. We saw the evidence that the TFA gave to this Committee and the words that they used seem not unreasonable at that level of generality at which they were speaking. The problem comes at the next stage where you have to specify what forms you have to fill in or what evidence you have to provide, or what inspections you’re subjected to to back this up. This is the sort of apparatus that we thing is not necessary.

Chair : You’ve been very generous with your time. Sorr y we’ve overshot slightly, but thank you very much indeed. It’s always a pleasure to see someone from North Yorkshire and, indeed, Thirsk and Malton , so thank you very much indeed.

Examination of Witnesses

Witnesses:  Mr Peter Kendall, President, National Farmers Union, and Mr Tom Hind, Head of Economics and International Affairs, National Farmers Union, gave evidence.

Q123 Chair: Good morning to you both. You are very welcome. Peter, can I ask you to introduce your colleague for the record?

Peter Kendall: Good morning Madam Chairman, and thank you very much indeed for inviting the NFU to respond to questions and explain our evidence to you. I am Peter Kendall, President of the National Farmers Union, a recipient of the Single Farm Payment when they get round to paying it-it has not yet been paid-and as I said, I am a farmer in Bedfordshire. I am trying to work out exactly what Tom Hind’s title is.

Tom Hind: Head of Economics and International Affairs, President.

Peter Kendall: That is what Tom’s title is. Apologies, Tom. I would like to say that I think this is an incredibly important time to be looking at how we evolve the CAP, the message we send and the influence we have, as a UK Government, on the direction it takes. We had a fascinating couple of days last week at the Oxford Farming Conference. Our presentations talked about how 85% of the world’s inhabitants live in economies that are currently growing in excess of 5%. You listen to John Beddington talking about the need to increase food production globally by in excess of 50% in the next 20 years. I think the signals that we send out within this CAP reform, the language we use and the way we address the challenges that we face, are incredibly important.

We also accept that this is done against the backdrop of incredibly tight financial constraint. The main philosophy you will see in the work we have presented is to try and get farming to a place where it depends less on direct support for farming, and not one where we have to go around justifying why we get that. We do think there is an opportunity to start that journey, and start having a discussion about what we need to do to put farming in a better place.

Q124 Chair: Do you believe we are sufficiently self-sufficient in food in this country at present?

Peter Kendall: We are very wary of setting targets about where we should be. What I have tried to do over a number of years now is to advocate to different Governments how we should have an early warning system. We should look at what is happening to production in different sectors vis-à-vis Europe, and see what is causing that decline, because I think in nearly all sectors-probably soft fruit would be the one exception-we have been declining over recent times. In our New Year’s message we highlighted the fact that in the last 20 years we have gone from being over 75% self-sufficient in indigenous products to be being under 60% now. What is important for us is we look at what is causing that, we look at where farmers are failing in that equation and where Government regulation of the environment-I meant that in the business environment-a is wrong for farmers to be competitive both in a European and global context. So we are worried by the decline, but I would be nervous about setting distinct targets.

Q125 Chair: Mindful of the comments we had from the previous witnesses, do you believe that the balance is about right in what the Commission is proposing in the next round of CAP reform between environmental measures and food production?

Peter Kendall: I think the European Commission’s narrative at the start of this document is right to put food security, in the context of what I have just said, at the start of its context setting for this current reform. I then think there are discussions within option two that takes us into confusing areas around sustainability and greening of Pillar 1 that, as yet, we do not have enough detail on to allow me to fairly answer your question as to whether the balance is right or wrong. We think it is going in a worryingly complicated area that could send some rather conflicting messages to the farming industry.

Q126 Chair: Do you believe that through the reforms the Commission will be able to meet what they have set out in their own mission statement on the website? That is, at the same time as delivering "a robust and competitive agricultural sector" with "high environmental and production standards", there will be "a fair standard of living for the agricultural community"?

Peter Kendall: I was fortunate to take Commissioner Cioloş out on the farm on Thursday morning last week, and I think what was very telling was that the ambitions he might have are constrained now by the involvement of the European Parliament and the way this discussion is going to be had for the first time. I do think that if we said, "Well this is a very fair return for every single farmer in the 27 Member States," I would say now that I think there is going to continue to be rationalisation, particularly when you look at the Commissioner’s own country of Romania for example; we cannot say that this is going to deliver a fair standard of living for every single farmer that currently exists in the EU.

Q127 Chair: Just to be personal for a moment, what about the hill farmers in North Yorkshire in 10 or 15 years’ time?

Peter Kendall: Again, we talked about the balance of how we help farmers. I think there will continue to be rationalisation. I look at younger farmers coming in who employ new technology, whether it is through electronic tagging of animals or whether it is using smart technology in scanning and handling their livestock, and I don’t see us being stuck in a single structure forever. Mr Parish and I have discussed on many occasions the benefits of being an arable farmer in East Anglia. In my farming in Bedfordshire, what has happened in the technology drive has enabled me to do in an hour what we used to do in a day, with any one of the single machines. It is quite remarkable. We see it with robotic milking now, where people become more technologically advanced. I think the challenge for some of those farms in remote areas is to help them with some of the competitiveness support, as previously discussed, to help them be more resilient, more robust, and to adapt to that challenge in the future.

Q128 Barry Gardiner: Peter, you said that at the moment the Commission was not being specific enough about what it wanted to see in Pillar 1 for you to properly answer the Chair’s question. In a sense this is your opportunity to provide that specificity. Could you tell us what you would like to see as those elements of Pillar 1, mindful of the discussion that we had earlier that you heard, but also mindful that the Commission is seeking to make, in some ways, the subsidy that the public pays more acceptable to the public-to show that, "Yes, money is being paid, but it is being paid for damn good reasons and this is what they are."? So, could you set out a sort of, "This is what they are"-that sort of element of the menu that we talked about earlier in our discussion?

Tom Hind: Let us take a couple of steps back first. As I see it, the Commission’s approach is to try to legitimise, as best as possible, the current support arrangements to try and mount a tactical defence of the policy and a tactical defence of the budget. Whether it will succeed or not I think is a matter of some debate. Our approach is to try and fight for the policy that we think is fit for purpose. Broadly speaking, as Peter outlined at the start, that policy is a policy that gets farmers to a place where they can be less reliant on public support. That requires essentially two ingredients. First of all, it requires measures that help farmers become more competitive; and secondly it requires measures to ensure that the supply chain in the food industry works correctly. In the meantime, until we create those conditions, direct support payments given as a form of income stability to help farmers weather the storm of market volatility remain an important component.

We do not share the Commission’s thinking about the two pillars. We believe that the two pillars are logical and perform separate, but complementary, functions, and we believe that it is right and proper that they should. For example, we believe that Pillar 1 is an economic policy. It is there to try and ensure that farmers can hack it in quite a difficult market situation, whereas Pillar 2 is more flexible, more adaptable, more targeted, and more suitable for helping farmers improve their performance-either improving their economic performance, or improving their environmental performance. If we share the Commission’s logic about the need to green the Common Agricultural Policy-and we do agree that it is important that the policy is legitimate in the eyes of society-we think it is better to do that through Pillar 2 than Pillar 1.

Q129 Amber Rudd: Do you agree with the Commissioner’s position that reforms such as payment capping are a necessary evil to justify and legitimise the CAP?

Peter Kendall: No. Not because I’m somebody who would be affected by that-nor Mr Parish; I would not suggest that for a moment. Actually, I look at this industry becoming competitive and dynamic in the way it structures businesses, and when I see people already listening to what the Commissioner says about how they can restructure their business, how they can employ accountants and solicitors and how they might break up family businesses, that strikes me as contradictory to helping us meet the challenges I outlined right at the start of having to produce more food while impacting less on the environment. Why would we want to send signals to people that actually breaking these up into complicated substructures would be a better way of doing it? I think it is making the mistake of saying, "We want to get the PR right, rather than have the right policy." It would complicate it. I know there are people saying it would not have any impact, but I just think it sends a message that we don’t want people to come together, make their businesses more efficient and try and get it in the right place for the long term.

Q130 Amber Rudd: What do you hope to achieve in this round of CAP reforms then, thinking of policy?

Tom Hind: From our point of view, we would like to continue the progressive path of reform that we have seen led by the two previous Agriculture Commissioners, which is about more market orientation for agriculture and facilitation and support to help farming become more competitive; the retention, and potentially enhancement, of measures that help farming improve its environmental performance, particularly with regard to climate change; and then finally, an enhancement of measures to strengthen the position of farmers within the supply chain. As I said earlier, the key challenge for us is to help farming get to a place where it can be less reliant, so the focus really has to be on helping farming become more competitive and help farmers address any concerns and problems that exist within the marketplace.

Q131 Neil Parish: Before I move on to my next question, do you not think that Mariann Fischer Boel and Fischler were different animals to the present Commissioner? I don’t see an awful lot in this Commissioner’s proposals to make agriculture more competitive across Europe.

Peter Kendall: I think that the jury is out on whether there might be some measures involved that do that, but I would share your concerns that the direction of travel and the sort of policies that will work or were being developed by Mariann Fischer Boel and Franz Fischler are not being followed. In fact, I actually asked Commissioner Cioloş exactly that question when I had him in the car on Thursday morning last week, and he just chuckled. He did not really answer the question at all and went off in a different direction.

Tom Hind: To be fair to Commissioner Cioloş, he is from a new Member State and he is dealing with reform under 27 Member States. He is also dealing with reform with the European Parliament, which in a sense has already set something of a precedent for the way that it might treat reform in the future. Therefore, his challenge, potentially, in negotiating the path of reform, might be more difficult than it was for Franz Fischler and Mariann Fischer Boel, particularly because-at least with regard to Franz Fischler-there were external and exogenous factors that were driving reform, namely the WTO.

Q132 Neil Parish: Yes, I would just say he is starting from a different position. That is all and that is what worries me. Anyway, I will move on to the next question. Do you agree with the Secretary of State’s assessment that future food prices will result in greater return to farmers, removing the need for income support payments?

Peter Kendall: I regretted the way the Secretary of State expressed her views last week at Oxford. I would have preferred that she talk more about the conditions we need to put in place to make the market work properly and to make sure that we have a fair position with global trade. We have talked a lot already about different standards of products coming into the EU, etcetera. I would also have liked her to talk about the time scale for when this might occur. I think using the phrase "abolition of support" immediately makes farmers very nervous about the long-term trajectory. But do we share the ambition? I say this wherever I am with a group of farmers. Farmers do not want to be in the local public house having people say to them, "You must have had your subsidy cheque. It is your round, Mr Kendall. Get the beers in." We want to be in a place where the market returns us a fair living. We want to set a target to try to get there, rather than just say this is about abolishing subsidy.

I think it is impossible to say whether we are going to see continuing firming of global markets. Sometimes we have very benign years on global markets, where all of a sudden production clicks. However, the fact that we have now had three back-to-back record harvests in grain, particularly in wheat-we have had the third biggest wheat harvest-and we are still seeing record prices, tells me that there are some strong signals out there. There is a lot more to be done before we talk about abolition.

Tom Hind: I think we can see globally, by the analysis given, that you have got the UN FAO, the OECD, and various other organisations, predicting that compared with the previous 10 years, food prices for the next 10 years might be higher, although we have to bear in mind that within the European Union, we operate within a tariff, which is a slightly protected market. However, I think the analysis is potentially flawed for three reasons. First of all, we are seeing rises in input prices just as fast, if not faster, than we are seeing rises fall for output prices across agriculture. Markets are volatile, perhaps increasingly so, but what matters more for farmers is not the extent of volatility, but how exposed to that volatility they are. Partly because of CAP reform since the 1980s and onwards, farmers have become much more exposed to that volatility in market prices. Finally, we are seeing much more concentration in the supply chain, which helps to subject farmers to much more significant downward pressure, which of course keeps a lid on the extent to which farmers can benefit from any commodity price increases.

Q133 Neil Parish: Right, so you would be keen to see us put this adjudicator in place and hope that he or she has real teeth?

Peter Kendall: Sooner rather than later.

Q134 Neil Parish: Right, fine. I knew that would probably be the answer.

The next question is: given the budget restraints in the EU and given the fact that Greece at the moment is getting €500 a hectare and Latvia, €75 a hectare, there is going to need to be an equalisation of payments across Europe. How do you think that’s going to affect us, particularly?

Tom Hind: I think this is one of the thorniest issues that the Commission has to grasp, and I am not convinced at this stage that it has grasped it, at least as far as the communication is concerned. That might partly be because it falls into the hands of high politics. This is all down to a discussion about the future of the financial perspectives, who gets what and who puts in what in terms of the European budget. I do not think it is easy to be intellectually pure about it. You might argue that on the basis of pure agricultural eligible area, because the UK is below the average level of €271 per hectare at a European level, we might stand to benefit from some equalisation. However, we are an old Member State. We are, by and large, a net contributor to the European budget. We are a Member State that favours radical reform of the Common Agricultural Policy. Therefore, I am not convinced that we stand to gain. Equally, we do not benefit particularly well from rural development allocations-I think we get 1.3% of the core European Agricultural Fund for Rural Development. So for us, the pursuit of some sort of more objective approach to distributing support across both pillars is one that we should be looking to pursue.

Q135 Neil Parish: That leads me neatly into another part of the question. Would your members accept the reduction of the Single Farm Payment if it was offset by a greater availability of money in Pillar 2?

Tom Hind: Peter may be in a better place to judge than I am, because he is a member and I am not, but I think they will be more predisposed to accepting some change in the value of Single Farm Payment if that change was uniformly applied across the European Union. The key issue for us is fair treatment.

Peter Kendall: I think that is really important to us. I will take you through one example, if I may. When you consider how the last implementation occurred, in your part of the world, Mr Parish, intensive beef finishers would have been receiving very large payments. If you compare that with someone now in Scotland, for example, who is doing exactly the same type of job, they would still be getting an historic payment in Scotland and the person in the south-west, in your part of the world, would maybe getting maybe a third of that payment. I think we understand the need for budget constraint and the challenges we face, but I think when one farmer not that far away is receiving a significant amount more for doing a very similar job, it causes real concern. When you also get, across the water, coupled payments, which also incentivises production in those sectors, I think again you get more disquiet. For us, it is about having a common agricultural policy, and then making sure that the policy works to encourage the right outcomes.

Q136 Neil Parish: Of course, the different level of payments between Scotland and England was a Government decision of the English Government, rather than necessarily a European one, was it not?

Peter Kendall: I will be very discreet about that. Of course, at the time Margaret Beckett made the decision. It was around a very complicated set of proposals, where some talked about having historic payments for animals, and regional payments for arable or crop farmers. There were many different proposals put forward, but I think the big shame of all of it was they ultimately designed the computer systems for a historic system, and then asked the computer systems to deliver a dynamic hybrid, hence the problems we have had in England and why I think we are probably looked down upon by the rest of Europe on the delivery of this last reform.

Q137 Chair : Do you share the concerns expressed by the CLA about Pillar 2, in the sense of responding to its complexity and the fact that it has to be co-financed?

Tom Hind: I think there are some valid points. Pillar 2 is complex. It is complex because it confounds a series of axes with a series of different measures, with quite complex rules in terms of administration, authorisation and approval of payments and so on. But the response from our point of view will be to refine and develop Pillar 2 so that it becomes a much simpler policy. The point about co-financing is fair, but again, there is no preordained rule that says in future Pillar 2 has to be co-financed.

There is, from a pragmatic and political point of view, a point that we do need to bear in mind. In this time of substantial austerity across the European Union, every Member State is going to be looking for significant savings in the way that it spends money, and agriculture is not immune from that. The European budget is not going to be immune from that. The CAP in totality is not going to be immune from it, but it does make co-financing much more challenging in the future. If the UK Government continues to promote a policy of transferring more resources to Pillar 2, it has to come up with a credible plan as to how it is going to achieve that and how it is going to buy significant support across the 27 Member States and the European Parliament for that policy. I am not convinced it has been able to prepare an alternative vision as to how it is going to do that yet.

Q138 Richard Drax: The Commission talks about improving competitiveness but doesn’t seem to do much about it. What ideas do you have, by using the CAP, or the tools of the CAP if you like, to increase competitiveness in UK agriculture?

Tom Hind: The CAP already provides support to help famers become more competitive. Professor Buckwell already gave some examples of that. I think it’s partly about what the Commission could do, and what the Commission should not do. What the Commission should not do, perhaps, is overload Pillar 2 with more measures and more objectives. It seems to some extent that it is trying to do that; sometimes in good ways, sometimes not necessarily so. The second thing that we could see is much more uniformity in the way that support is allocated to the different axes under rural development. Here in England, for example, a very small proportion of our rural development budget is allocated towards measures that support competitiveness. Perhaps that should be revised in future.

Q139 Chair : Pillar 2, or did you mean Pillar 1?

Tom Hind: Pillar 2. There is a role that the CAP could play in facilitating the delivery of research and development. I agree, the CAP is not the place to fund research and development, but it could play a greater role in terms of supporting the costs of knowledge transfer. That is one of the interesting ideas that does come out in the Commission communication. But, as I said, it is also important to bear in mind what the CAP should not do to impede competitiveness; for example, capping of support, increasing the conditionality on direct payments and locking farmers increasingly into environmental programmes that not only undermine their competitiveness but also increase their longterm dependency on support.

Q140 Neil Parish: When it comes to food production, though, do you not think the reticence to embrace biotechnology is going to affect our competitiveness in Europe?

Peter Kendall: I think this is probably a debate for another occasion, but I think that when we talk about the competitiveness of EU agriculture, whether we are discussing the availability of certain molecules in pesticides, the licensing process of those chemicals, as well as plant breeding materials, is absolutely essential. I do worry that we, as a trading union, often go to the most risk-averse level rather than trying to go to national independence. To make sure that you move this forward, I think it is absolutely critical that we do not stand back. When you see the vast sums of money that are being invested around the world in smart plant technology, I think we are making a grave mistake standing out of it.

Q141 Richard Drax: We have touched on this already, but do you think the competitiveness could be better enhanced by trade policy or the CAP? We have touched on this already, certainly with the CLA. What is your view on that?

Peter Kendall: I do not think it is an either/or. I think the within the competitiveness agenda of the CAP, we can look ways of incentivising smart use of modern technology, whether it be precision farming technology, smarter buildings for housing livestock or anaerobic digestion. I think we can use Pillar 2 to make sure we help farmers. The previous Government made the decision not to use Pillar 2 funds to help farmers meet regulatory imposition. I will give you some examples. In Scotland, for example, they do receive grants for meeting the abolition of battery cages for NVZs. In England, we have taken none of those decisions. So I think we can use Pillar 2 money to help us invest in anaerobic digestion; better nutrient storage and management; soil testing; and precision application of nutrients, which would make us more efficient and competitive. However, just exposing us to international trade, of course, makes us have to worry about how we get our costs under control, but I think it would worry me if it was done unchecked. The fact is that the only times the WTO prevents trade is in endangered species or when there are health issues. Under WTO rules, you cannot keep product out because it is at a different welfare or environmental standard. When I see what has happened to our pig industry, which has nearly halved over the last 10 years, and about 70% of all the pork that comes into the UK today would be illegal by UK standards, I worry about unabated trade liberalisation. But of course, if we want food security and if we want to make sure we are matching the best international trade, we will make sure that we meet those objectives.

Q142 Barry Gardiner: In a sense you have already responded to the question I was going to ask, which was about R and D and support for knowledge transfer, so let me pick up on the theme that you have just left us with. It goes back to some of the things that you were saying earlier about Pillar 1 being needed in order to enable farmers to compete, given the international pressures and the lower standards elsewhere that their competitors enjoy. How, in practical terms, do you believe the Government could reduce the need for that subsidy in Pillar 1 and give farmers greater protection and more of a level playing field? It is very difficult, obviously, to ensure that standards elsewhere in the globe are going to be brought up to the level that we enjoy in the EU, which would imply that the only other method of doing that would be by some sort of trade barriers or tariffs. I think we do need some clarity here, because I have listened carefully to what you have said about Pillar 1 and the need to have a level playing field, but are there proposals that you would wish to make that would stop products from other parts of the globe coming in to compete with European farmers? If so, what are the barriers or tariffs that you would put in place?

Peter Kendall: Let me first reiterate Tom’s point. A very important part for us of making us less dependent on Pillar 1 is a properly functioning supply chain. That is really important for us. I think that could go a long way, because, for example, if you see what is happening in pig meat in supermarkets today, they actually go to a lot of trouble to demonstrate, "This is British pork; produced to British standards," not by co-mingling or badly labelling or putting product that is produced to a lower standard on the shelf and misleading consumers. That can be supported by Government and public procurement in the message right across the whole of Government to send a really strong signal that we are going to reward our farmers for meeting these standards. So, actually we would prefer a market solution to that, but as we look at future rounds of trade liberalisation, I think it is important-actually, I think it is absolutely essential-that something like climate change should affect trade programmes. If we are going to have a country that was quite open, and I do not think some of the South American countries are as bad as we paint them to be-I think there is a lot of environmental protection in those places-but I would hate to see our farming in Europe or in the UK undermined because countries were adding to climate change significantly more than we are in the UK. That is a long way off in this short term, but it is why, in the medium term, that we believe that Single Farm Payment is so important.

Tom Hind: First of all, the Government’s room for manoeuvre when it comes to trade policy is very limited, because it is set at a European level; it is a European competence. There are things that it could do. For example, in respect of negotiations on bilateral free trade deals, like the one that is under way with the Mercosur countries, it could, for example, insist that certain non-trade concerns are built into a bilateral trade deal. It is different to the WTO. I agree with Professor Buckwell; trying to get non-trade concerns into a WTO deal is pushing water uphill, but when we are talking about bilateral deals, things become a little bit more interesting. So there are things that it could do, but I am not sure that we are essentially looking for new trade barriers. If you look at what is on the cards in terms of a Doha round deal, it would be challenging for some UK agricultural sectors, but the extent to which it could be challenging could be mitigated. I think the important thing from a UK production point of view is whether we are able to compete within the European market and whether we can compete at marginal cost, not whether we can compete with the Brazilians.

Barry Gardiner: Thank you.

Q143 Chair : What about those commentators that say that farmers could develop organic products, niche products or high-value products. Do you believe that is feasible in the current global agricultural market? Is there a market? Would people pay a higher price for those products?

Peter Kendall: It remains an exciting opportunity-probably less exciting than it was a few years ago. My very simple philosophy on this is that niche products need to be demand pull, not supply push. The worst thing you can do is have either the Commission or national Governments trying to give incentives to people to revert to certain types of production when the market is not there. I think we have seen the results of that in some of the collapse of the organic market in recent times. Actually, these need to be genuine markets that have support for the long term. I think it is very dangerous not to be at least very cautious when politicians and bureaucrats try and tell people where the market is going, because we have seen in the last two or three years that dramatic decline.

Tom Hind: As an obvious necessity, niche is niche. It has its place, and so the pursuit of added value is an important strategy for all agricultural sectors, but the niche is a necessarily small part of the market. We cannot all be niche producers. For one reason or another, the vast majority of UK production is either commodity or commoditised by the nature of the supply chains that we operate in. I think we have to be realistic about the future of the sector. It is not based around a single one-size-fits-all strategy; it is based around ensuring that we have a solid, profitable and ambitious, competitive commodity production base, as well as trying to ensure that we open up and exploit market opportunities both here and indeed abroad.

Q144 Neil Parish: We talked a bit about the supply chain in this country, but what can the Commission do to strengthen the position of farmers in the supply chain, especially when it comes to trading within the single market? Dare I say it, some of our competitors across the water sometimes find ways of restricting trade, so is there something you would like to see the Commission put in there?

Tom Hind: I am not convinced that our colleagues across the water have found ways of restricting trade that have not been found out by the European Court of Justice. In fact, I recall the case against the FNSCA and the French beef organisations a few years ago, in which they were fined a significant amount of money. So it seems to me that the single market broadly works.

Neil Parish: It got there eventually, yes.

Tom Hind: It got there eventually. I think one of the arguments that is placed against our policy is that the Common Agricultural Policy cannot find all the solutions for the supply chain. I agree with that, but the CAP can provide some of the answers. It can provide support for producer organisations, including cooperatives that help farmers to concentrate supply and improve marketing. Although the fruit and vegetables regime has not been a universal success in the UK, there is an embryo of an idea behind that that is not unsensible. It can help by creating more market transparency, so that farmers understand how markets are operating in different EU Member States. It can help improve the marketing skills and competence of farmers and their representatives who are involved in selling agricultural products. It can support adding value and innovation. Finally, it can either permit or not impede the consolidation and concentration of farming businesses into larger units. We are interested by some of the ideas that are presented in the dairy package, which came out just before Christmas, which interestingly presented new proposals to give Member States the flexibility to put in place contracts that reduce the extent of exploitation that exists within the dairy industry at the moment. It might help farmers to become more competitive within the supply chain, and we certainly urge the UK Government to look with interest on those proposals.

Q145 Neil Parish: Is that the length of contract that you are talking about?

Tom Hind: It is not just about the length, Mr Parish. It is also about the terms and conditions that contract should contain, including price or price formula.

Q146 Richard Drax: The Commission has suggested introducing a risk management toolkit. How do you see this working in practice and would it reduce competitiveness in agriculture?

Tom Hind: We have some insight into the Commission’s thinking. Essentially, what it is looking to do is give Member States the ability to use a proportion of rural development funds to support the costs of revenue or risk insurance tools on mutual funds. It is similar to, but not exactly the same as, the AgriInvest Program in Canada or some of the programmes that operate in the United States. It is something that we have debated; we don’t see an awful lot of interest in it in the UK. Some other Member States may see an interest in it, and fair play to them if they choose to use it. No doubt it will be restricted to WTO Green Box rules, which limit the amount of support that can be given, therefore making it potentially less than attractive. We just think it is likely to be quite a complicated mechanism, a much less efficient mechanism for providing farmers with a degree of income stability, and a risk management tool that is efficient as a Single Farm Payment.

Q147 Richard Drax: If it is optional, could it distort the single market?

Tom Hind: Based on the information that I have about the ideas that the Commission has, I do not believe so, no.

Q148 Barry Gardiner: Do you think in Europe we should be supporting small farmers to the extent that we are and to the extent that the Commission is proposing to push more money towards small farmers?

Peter Kendall: I unashamedly bat for UK farmers, so whenever I hear the Commission talking about small farmers I always wonder what they mean, and whether that would involve any of-

Q149 Barry Gardiner: Well, the average holding in the UK is 81 hectares, isn’t it? In Poland it is 12 hectares, so I think we would be above average rather than below it, wouldn’t we?

Peter Kendall: You have more clearly demonstrated my point, but I remain nervous about the notion of small farmers. Actually, having discussed a bit of this with the Commissioner last week, there are no real details at this stage. If they talk about the simplification of how they manage rules for those small farmers, then perhaps that might apply to some of my members and some of the farmers in the UK as well. But I think at this stage, it is too early to know what they mean. Again, if for all smaller units the rules are simplified, as we have, for instance, via schemes already, that is something that we would see no objection to.

Q150 Barry Gardiner: What about capping payments to large farmers? There has been a suggestion that it should be capped at around €300,000. Is that a fair thing to do?

Peter Kendall: I made the point earlier on that I worry about where we are trying to get. There are some really good examples from my part of the world of where four or five farmers come together and share all their machinery, keep the business under one umbrella and have one set of accounts. It makes three or four go-ahead individuals much more competitive and much more efficient. They might only be drawing €150,000 or €200,000 today, but it is the principle of saying we want to get people driving synergies and trying to become more competitive long term and then telling them to go away and break all those businesses up again and become small subsets of one organiser-one business, if you like-so they can claim independently. I think it sends a message that you are almost disincentivising competitiveness.

Q151 Barry Gardiner: Can’t you be accused in your last two answers of wanting your cake and eating it? On the one hand you are saying, there should be a limit and we want bigger enterprises with the efficiency savings they can make to keep on getting the rewards or the subsidy to enable them to get those rewards; but on the other hand, you are not prepared to say, well there should not be benefits down the other end of the scale to small farmers.

Peter Kendall: No, I talked about simplicity to small farmers. I did not say specialised payments because you are below a certain size or top-ups because you are a small farmer; I talked about simplifying the rules to people who might be on a small scale, which we are happy to look at and consider. I am passionately behind helping farming, and to Madam Chairman’s question about outcomes, I want to help people be more competitive.

Q152 Barry Gardiner: Let me be more specific in the original question I was asking, then. Would you be in favour of the Commission’s suggestion that they might be putting more money towards small farmers in Europe, or would you be against that?

Tom Hind: I am not sure that is the Commission’s suggestion.

Barry Gardiner: I was asking Peter.

Peter Kendall: Going back to your example of the sizes: I want a fair deal for UK farming. We have already seen in England with the implementation last time how we have seen distortions already. If we do not know any of the rules, if it means a larger part of the budget goes to help people who probably are not making a full-time living in farming-they might be doing part-time work in a BMW factory in Bavaria, let us be provocative-I do not see that helping my members and the farming industry become more competitive and efficient in the UK. I would not support that.

Barry Gardiner: Good, neither would I.

Q153 Neil Parish: Do you accept that the increasing requirement on farmers to carry out environmentally friendly activities is a means to justify the CAP budget? Certainly that is how it has been portrayed in the last few years. What are your views? Some farming groups have tended to oppose the greening of Pillar 1 as being anti-competitive.

Peter Kendall: Again the detail is all to be explained to us in due course, but if I just pick up some of the suggestions and look at the notion of rewarding permanent pasture, green covers, crop rotation and ecological set-aside, for example-I had a very long negotiation with the previous Government when set-aside was abolished in the European Union about how we would develop the Campaign for the Farmed Environment in the UK so we did not need more regulation and we did not need to make ourselves less competitive-then putting those sort of measures into Pillar 1 strikes me as going in the wrong direction. We think there is a very justifiable reason for Pillar 1 payments while we try and make the market work better, and I think we run the risk of making it very complicated. I think again, and I have touched on this already, our experiences with the implementation of our regional hybrid within England have left me scarred about complicated implementation of CAP. This looks not only anti-competitive-it could damage our competitiveness-but it looks incredibly complicated. One of our key drivers for CAP reform from the NFU is commonality and simplicity. I do think greening could not only be complicated, it could be distorted in how it is implemented between Member States as well.

Q154 Neil Parish: Do you also think the environmental set-aside is probably the wrong direction to go? I rather feel that having strips around the field and enhanced hedgerows is much better. I do not want to go back to set-aside, but what is your view?

Tom Hind: We agree. We do not think it is the right approach, particularly as a compulsory approach. If I might say, I think it brings two additional risks that are very important, and important for the UK Government to pick up on. One is simplification: it makes the CAP a lot more complicated if it becomes a compulsory requirement for farmers in receipt of the Single Farm Payment in certain parts of the country. That is the first point. The second point is that it would do irreparable damage to our existing agri-environment schemes under Pillar 2, because of the risk of non-compliance in respect of double funding.

Q155 Neil Parish: I think that leads me next on to the fact that the Campaign for the Farmed Environment aims to encourage farmers to be more environmentally friendly. Does your experience of this give you confidence that these additional green measures can be implemented without reducing productivity or competitiveness?

Peter Kendall: I spent yesterday afternoon speaking to the Association of Independent Crop Consultants up in the Forest of Arden, and it was really encouraging. Although I am fighting some reticence with farmers to explain what they are doing on their farms at this moment in time, I think it is absolutely vital, without a Government extension service, that we engage with people who are on farms day in, day out. The feedback I got from the agronomists was that we can work in a much smarter way to improve some of the margins you talked about. We discussed cultural ways of using certain machines to put pollen and nectar into those grass margins and wild bird flowers, so that without taking all of that out of the middle, we can make what we have already got in environmental schemes work harder. Although I think we have a long way to go in the Campaign for the Farmed Environment, personally, and, with the NFU, we are investing a lot of effort to make sure this takes hold and we fold in the industry as much as possible, because I think we realise that paying farmers money all the time is not the only option. We have to demonstrate that we can do this ourselves, at as low a cost as is possible.

Q156 Neil Parish: So in a nutshell, you are saying that land that has been farmed for the environment, let us farm it even more for the environment, but not necessarily take more productive land out of production. Is that what you are saying?

Peter Kendall: I think the Royal Society, which has been quoted by the Secretary of State, talks about sustainable intensification. I think that actually applies to farming for the environment as well as it does for producing crops. We can do it smarter and better, such as the work Syngenta are doing at Jealott’s Hill and their Operation Bumblebee. These people are going to be doing a lot of investment now in how we can get not even win-wins, but win-win-wins, out of how we manage that environmental land.

Q157 Amber Rudd: At the start of your remarks you talked about food security and population growth and the need for additional production. We have heard global food production needs to double by 2030, as well. Do you think the Commission is taking this issue of food security seriously enough?

Peter Kendall: As I tried to explain earlier, I think in its narrative it does identify the big challenges that we face going forward. However, I refer myself to the previous batch of questions. If we look at ecological set-aside and the way we force crop rotations and green cover, I think we run the risk of overcomplicating a policy that is not focusing on competitiveness and farmers doing the right things. Again, as Tom made the points about, when you have capping being proposed and when you have other measures being thrown into the mix, we think some of the proposals coming out of the communication do not seem to be pointing towards taking the food security challenge as its core objective. I think, as Tom said, it appears to be about justifying the budget slightly more than it is about how we make sure the European farming industry steps up to the plate in production terms.

Q158 Chair : In your opening statement, you said that the Commission was correct to highlight food security. In the Commission-sponsored study that was Sonar 2020, it showed that abolishing the Single Farm Payment would not lead to reduced food production, so do you believe that food security is one of the main justifications for the Common Agricultural Policy?

Tom Hind: The CAP objectives are laid out in the treaty, and you can take them with a pinch of salt. For us, if we bring it down to absolute basics, the reason why the CAP exists is that the market fails to ensure that farmers receive profitable returns. You may argue that is partly a wider food security justification. There are other justifications associated with it as well. I prefer not to be too pure about that. From our point of view, the challenge, as we said at the start, is to help farming get to a place where it can be less reliant. We think the best way of doing that is within a Common Agricultural Policy, rather than outside of it. From our point of view, that requires a number of measures to be undertaken to get us there.

Q159 Chair : If we could turn to the budget, what is your starting point on the level of the EU farm budget?

Tom Hind: We make no recommendation as far as the agriculture budget is concerned. If I were to look at this pragmatically, I would suggest that the CAP budget is likely to fall after 2013, at least in real terms, if not massively in absolute terms, but the extent to which it will fall will be determined partly by the financial circumstances of other Member States, partly by the other priorities they have for the European budget, and partly by the situation within the farming industry. If farm incomes are on the floor in 2012, you can bet your bottom dollar that a case will be made for a stronger Common Agricultural Policy budget.

Q160 Chair : In terms of an area-based direct support payment possibly creating imbalances and distortions between the different sectors-I think you mentioned yourself, pigs and poultry-do you think the Commission should address this in reform of the CAP?

Peter Kendall: We still favour the area-based support payments. We think it is the simplest way of administering that. The problem is we see volatility. I think if you looked at grain prices a year ago today, it would have been in the high £80; today it is in the high £180. I do not know what the price will be in a year’s time. My members who are producing lamb today have had one of their better back ends in your part of the world, Madam Chairman, yet the beef producers and dairy farms are having a pretty torrid time. We face volatility. We have already talked about it, but it is very difficult to predict.

Q161 Chair : Has the bad weather that we have had, particularly in the north and the north-east of England, had a bad impact on prices, particularly of animal feeds? I understand there is not enough fodder and there are not enough bales of hay.

Peter Kendall: Yes. We think it has led to some people marketing in an unplanned way, because of the challenges they have faced. Dairy farmers have spent weeks thawing out parlours and what have you. It has been a challenging time, but the farming industry is actually incredibly resilient, and I think the message you have seen portrayed in the media has been one of, "This is business as usual. We sort our problems out and we get on with it, and by the way, we get on and help other people by cleaning the roads for them." We try and give out a positive message as to what is going on.

Q162 Chair : Can I just ask, would you suggest any objective criteria the Commission could use in terms of distributing the budget in a different way?

Tom Hind: We have taken a look at some scenarios. I know economists elsewhere, both here and in Brussels, have taken a look at scenarios. You cannot find a single scenario that is likely to buy a qualified majority within the Council of Ministers. It seems to us that the Commissioner starts from the premise of ensuring that allocations fit within the three objectives of the next reform. That might sound sensible, but how you translate that is difficult. Area is one starting point, but you have to reflect the different circumstances in agriculture, agricultural incomes, household incomes, and so on, across the community, and you have to have some form of transition in place as well.

Q163 Neil Parish: On area payments, I think we all accept that area payments are the way that probably most of Europe is going to have to go, especially the new Member States. Peter knows this, but the way in which the area payment has been distributed across England has left some livestock areas-and those happen to be partly in the south-west-actually losing money. Do you think that the way we distribute the area payment throughout England needs to be looked at?

Peter Kendall: I think there are ways in which we can do additional things to help certain areas. Mr Parish, we have disagreed on this on a number of occasions. Why? Because actually it is an average within lowland England, then SDA and then the uplands, as we have seen those area payments, and they are therefore averages. Where I think we have seen the biggest losses have been the intensive beef finishers, as I have highlighted. The extensive sheep farmers have actually benefited. As a lowland arable farmer, I have lost because we have included 40,000 new claimants in the loans, a lot of them being the keepers of horses and horticultural sectors, and now the top fruit industry. So we have seen a dilution, both in my payments in East Anglia-

Neil Parish: You can afford it. That’s right.

Peter Kendall: My point is, I think where the disparities concern me most is where people are doing similar things in your part of the world to people in Wales and Scotland who are getting potentially three times as much for operating in the same market. That bothers me. I am nervous about this, because when I look at the details, the incomes of lowland livestock farmers and incomes of upland livestock farmers are very similar, so I would be nervous of saying we are going to take money, using Article 68, from all farmers in England to give to one specific area. I think we need to look at how we help specific sectors adapt to the market more and help them as investments to become more competitive. That is the debate, but it is not simple; it is a complicated one to have, but I do not think we can just generalise and say, "East arable great; south-west having a terrible time."

Q164 Neil Parish: I agree with you, there is market distortion between devolved Administrations. There should be some mileage then in talking to Wales, Scotland and Northern Ireland about how we could perhaps reduce some of these anomalies.

Peter Kendall: I think devolution is something that is going to remain a thorn in the side of agricultural policy for some time, and I do not envy my counterparts in Scotland, because when there are winners and losers, as a representative organisation, it is very difficult as to how you manage that.

Q165 Chair : When you say that there is very little difference between incomes of lowland and upland farmers that is, of course, probably taking into account less favoured area payments. Of course, if they were to go for any reason, then there would be a big difference, would there not?

Tom Hind: Yes, it does take into account all payments, including agri-environment payments, save area payments, which are agri-environment payments.

Peter Kendall: That is why we have been so supportive of those payments continuing in a new scheme being put in place.

Q166 Richard Drax: Would you agree with the Commission that coupled support needs to be retained to protect certain types of farming in particular areas?

Peter Kendall: The NFU have become pragmatic about this. We used to be ideological and say we did not like it at all, but I think we have seen that within other Member States they are incredibly strong-willed about maintaining certain types of production in certain areas. If, through the use of Article 68 to a small non-market-distorting level that meets WTO limits as well, we can see people having coupled top-ups, there might be some people who argue for it for parts of the UK; certainly Scotland talks about using it. I understand that need for people to do that. We do not advocate it within the NFU, but we understand other people wanting to do it. As long as it is done within certain boundaries, then we are happy to go along with that.

Q167 Neil Parish: So suckler cow payments could increase?

Tom Hind: I think if we were to get technical about it, we take the view that the existing coupled supports, or re-coupled supports under the old schemes, should be abolished after 2013, but that should not preclude Member States having some flexibility to target payments using a national envelope-type mechanism, provided that envelope was very limited, and what they could use that envelope for was limited as well. Peter mentioned the livestock sector; equally, one of our big concerns amongst some of our protein crop growers is the use of Article 68, without any kind of approval mechanism in the Commission, to support protein crops in France. That is distorting the single market, and we would not want to see those measures introduced.

Q168 Chair : Who do you think your main allies are amongst the other Member States?

Peter Kendall: I think for us the Germans have to be an absolutely key ally. I work very closely within COPA, a farm organisation within Europe, and I think they are absolutely vital. I am really actually quite pleased about the way the UK Government at the moment is looking to forge those alliances. Minister Jim Paice has been to Poland; that is the sort of thing we need to be doing. We just need to be very careful on the language we use about abolition and other messages-they need allies-

Barry Gardiner: And about Bavarian BMW farmers!

Q169 Chair : You mentioned one Member State; do you have any concerns about France?

Tom Hind: I think we have to get over some of the prejudices we have about France. French agricultural policy has changed immeasurably since 2003. That is not to say that we support every aspect of France. The things that they did post the grenelle de l’environnement in 2007 are not the kind of measures that we would want to do here. We would not want to follow the approach that they went down in the health check. But if you look at some of the measures that the French are doing in their agricultural modernisation law in respect of the supply chain, there is some sense and some logic in some of the ideas that are coming out of France. My approach is: let us be open-minded.

Chair : Thank you. Thank you very much for being so generous with your time. I am sure we will have opportunities to meet again very soon. Thank you very much indeed.