Common Agricultural Policy: Financing (EUC Report)

– in the House of Lords at 4:59 pm on 20th October 2005.

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Photo of Lord Renton of Mount Harry Lord Renton of Mount Harry Conservative 4:59 pm, 20th October 2005

rose to move, That this House takes note of the report of the European Union Committee on The Future Financing of the Common Agricultural Policy (2nd Report, HL Paper 7).

Photo of Lord Renton of Mount Harry Lord Renton of Mount Harry Conservative

My Lords, it is delightful to see so many speakers this evening on the arcane but very important subject of the common agricultural policy. I remind noble Lords of my interest, as chairman of the South Downs Joint Committee which looks after the South Downs stretching from Winchester to Lewes. I thank all my colleagues on sub-committee D who took part in this very interesting inquiry.

Thanks also to our Clerk, Suzanne Todd, Charlotte Granville-West, our committee specialist, and Brian Gardner, our special adviser, all of whom gave us great help and who prepared the tables and boxes that I hope ease the way into understanding how the common agricultural policy works.

Our present inquiry is on the Commission's proposals for reform of the EU sugar regime. That has been a long-term problem. Defra has estimated that it costs the EU taxpayers some €7 billion a year. The net cost to the Euro budget is about €1 billion and the EU protected price is around three times the world open price. We are therefore hoping to produce some ideas before the Council of Agriculture Ministers meets in mid-November and before the Commission's proposal for reform goes to the World Trade Organisation at the important Hong Kong meeting in mid-December.

Only 10 days ago, some of us had a meeting with Commissioner Fischer Boel in Brussels to discuss the subject. She told us that she was going for a 39 per cent cut in the EU price while giving up to 60 per cent compensation to sugar beet growers. She thought that that was a bold step and so did we. The EU price, at the end of the day, I would still be twice the world price. That same afternoon we met with a number of ambassadors from the ACP countries. They did not like what the Commission had proposed at all. Some of the poorest thought that it would drive them out of growing sugar cane altogether. Others wanted to keep the protected quotas. Yesterday, we had Tate and Lyle in front of us at our inquiry. We were told that, if the commissioner's proposals went through as is currently suggested, Tate and Lyle would probably have to close its refinery in east London. It employs a thousand people in a rather deprived area. That made one realise just how extraordinarily difficult it is for a commissioner to come up with a solution to an accepted problem that everyone agrees to.

To digress for a moment, I have been reading a very good biography of Martin Luther, the 16th century architect of the Reformation. Noble Lords will remember that he pinned his famous 95 Theses on Castle Church in Wittenburg, to protest against the growth of indulgences—money given to the Church to save you from hell. Apparently a popular slogan at the time was "a penny in the box; a soul out of purgatory". Luther thought that he was doing something that not only he believed in but that would have Papal approval. He was quickly excommunicated three times—by his own order, by the Emperor Charles V, and by Pope Leo X, because funds for building the new St Peter's in Rome were just too important.

Sympathetically, therefore, last night I compared Luther with an agricultural commissioner for the sheer difficulty of coming up with the right solution and getting everyone to agree to a problem that everyone sees. The difference is that Luther and the Reformation could break up the Rome-based Church without destroying it. However, I doubt that one could break up the CAP, which is such a major supplier of support to the rural community—including Britain—throughout Europe without breaking up the European Union.

The view that our report took, therefore, was that there was a need for further reform. We eventually reached—not without difficulty—the conclusion that the single farm payment, just introduced this year, would have to go by the year 2013. That day, Peter Riddell of the Times summed up our report of 50 pages in 500 words. His piece had a nice title,

"Lords have set out map to keep European Union on the road", which was a very pleasant compliment. But we realise that if the SFP went, there would be great difficulty for farmers, and farmers on small farms in particular; and I have no doubt that other noble Lords will speak about that subject later in this debate.

I remind noble Lords that we thought that when the SFP had gone, it would have to be replaced by two new funds, both coming under Pillar 2 of the Commission's budget and both concerned with restructuring the rural areas, and that we thought that that was of paramount importance. Of the two funds, one would focus on environmental objectives—the non-production services of farmers, such as maintaining bridges and ponds, rebuilding stone walls, and taking care of animal welfare, wildlife and wild flowers. Those are all things that farmers are involved in but for which they do not get direct payment by the market. That fund could be backed up by national money. The other fund would concentrate on rural development, especially available to meet the question of rural poverty in the 10 new entrants to the Union. We felt that their needs were not adequately covered in the 2003 Luxembourg agreement.

Witnesses from Romania, Slovenia and Poland gave us evidence, which I found the most worrying part of the evidence that we took. I shall give your Lordships two quotations, the first from Mr But, the state secretary of Slovenia. He said that,

"an average farm in Slovenia is at least three times smaller than the average for the EU. On average, a Slovenian farm would be 7.5 hectares. We never had any so-called collectivisation as in the other new Member States. There was a prohibition on increasing the level of hectares. The normal procedure in the old EU of 15 was frozen for 40 years in Slovenia".

The Secretary of State of Romania, which will join the EU in 2007, in two years' time, said:

"Romania has 22.5 million people as inhabitants. In terms of agriculture, we have a very poor standard of technology and very small farms. I would say in 4.7 million farms half of them have less than a hectare, which means most of them are producing just for their family, not goods for the markets. 32 per cent of active people are working in agriculture".

That is an emphasis on what is expected financially from the EU, and not in a sense unreasonably, by the 10 countries that have entered recently, which will be followed by Romania and Bulgaria—not to mention Turkey and Croatia later on.

That leads me on to the budget. As we all know, the budget from 2007–13—for the next EU period—has not yet been resolved. The UK and five contributor nations want to reduce the EU budget to 1 per cent of gross national income per annum as opposed to the 1.14 per cent that the Commission wants. That would be a reduction of some €130 billion to €210 billion, depending on which definition you take of the budget. At the same time, Defra and the Treasury, in their answer to our report, which was kindly circulated by the noble Lord, Lord Bach, say:

"The Government has been clear that any change must take account of the legitimate needs of farming communities and happen over time".

But how do you do both? How do you both cut the budget and take account of the legitimate needs of farming? That is the agony about CAP reform at the present time—you simply cannot have your cake and eat it.

No doubt some part of the cut to the budget of 1 per cent of GNI from 2007 onwards would fall on the CAP, and from that the Pillar 2—the rural development pillar—might well be the one most to suffer, because that is the one for which no specific figure has yet been named. We calculated, and we say in our report, that in those circumstances there could be a 55 per cent reduction in the Pillar 2 budget over the period. Yet listening to the very pleasant meeting chaired by the noble Lord, Lord Bach, last night about the Natural England Bill which will start in this House in a few days' time, I was prompted to ask Jim Knight, the Minister for Rural Affairs, where the money would come from for his ambitious plans and he said, "Well, we are looking towards Pillar 2 of the EU to produce the money".

I know that other colleagues are going to talk, as I said, about the sustainability of British agriculture in the tighter circumstances that I have mentioned. I should like to say just a word about the World Trade Organisation, the Doha development round and the meeting that starts in Hong Kong in eight weeks' time. There are very great hopes for that meeting, as we know. Free trade is the goal eventually, especially for the 24 poorest countries—free trade in everything but arms. As far as the CAP is concerned, we could say that the battle has already opened between the EU and the USA. Both are promising—and this generates some optimism—substantial reductions in trade-distorting subsidies: 60 per cent in ceilings on upper limits, says the USA; 70 per cent on domestic subsidies, says the EU. But those figures are immediately rejected by officials. The EU says that the US's proposals are "excessively ambitious", whereas the World Bank economists say that 92 per cent of the benefit to the poor world's farmers from rich nations' liberalisation will come from tariff cuts, not lower subsidies.

Politicians are already objecting. Mr Chambliss, chairman of the Senate Agriculture Committee, insists on counter-cyclical payments to compensate US farmers for low prices, and Christine Lagarde, the French Trade Minister, has surprisingly rebuked Peter Mandelson for already going,

"beyond the conditions and principles of his mandate".

In conclusion, I have to ask two questions. Can we achieve the fair free trade which we all talk about and want in a way that will help the least developed countries to increase their agricultural exports and thus earn more foreign currency so that they do not run up more debts? Can we reform the CAP in such a manner that will keep good EU farmers in business, deal with the genuine needs of the new entrants, improve our environment and at the same time cut the budget? The answer to neither question is clear, but it certainly seems to me that in the move forward both the EU and the USA will have to throw a lot of inherited inhibitions out of the window. Will it happen? I hold my breath in anticipation.

Moved, That this House takes note of the report of the European Union Committee on The Future Financing of the Common Agricultural Policy (2nd Report, HL Paper 7).—(Lord Renton of Mount Harry.)

Photo of Lord Whitty Lord Whitty Labour 5:13 pm, 20th October 2005

My Lords, this is the first time that I have spoken second in a CAP debate; I usually have the luxury or the difficulty of winding up. In this case there is no reply. It is particularly difficult because I agree with a lot of this report. It is a sober assessment of the situation and the political realities of the situation. It is clear that Pillar 1 will be under substantial pressure, and rightly so in terms of the other priorities of the European Union. Less fortunately, Pillar 2—which most of us largely agree with, support and would like to see more resources for—will be under particular pressure because it is not protected by the Berlin or the Brussels ceiling.

I think, however, that the combination of those pressures, the WTO pressures and the pressures on the budget to which the noble Lord, Lord Renton, referred, could result in a shorter timescale for other reforms to the CAP than the report perhaps implies. In particular it has to be recognised that there has already been—I keep making this point—a very major reform in terms of decoupling. Decoupling, and its cutting-off of the level of production from the level of support that the Community gives to farming means that some of these issues can be squared. It means that what is good for farming and farmers is not necessarily the level of subsidy but the degree to which they are forced by circumstances to face the market and to succeed in being competitive in the market while at the same time meeting various environmental standards which the EU and society now demand of them.

The noble Lord has already referred to other outstanding business in the sugar regime. I do not want to go into that in vast detail because it is extremely complicated but it shows that although simple liberalisation may not benefit the poorest in the world nevertheless the present regime is utterly indefensible. We therefore need to have some progress on the sugar regime. I also think that we ought to have another look at the tobacco regime. The deal that has been done on decoupling tobacco subsidies does not really have full effect until 2010 and yet it is probably the least defensible part of the whole of the CAP policy. We could return to that if we are short of money and there is pressure on the money.

I also think that between now and 2013, certainly at the review period in 2008, we could reopen how much money is being put into Pillar 2 through compulsory modulation. The committee rightly says that the UK is going further than the compulsory modulation. I personally am in favour of that whereas it casts some doubt on it. However, if we raise the level of compulsory modulation, we could get it into rural development rather than simply into across-the-board subsidies.

I refer to other pressures such as the WTO. I have not been known always to be a great supporter of everything that Mr Peter Mandelson says. However, on the other hand, he has now got himself free of any obligation to the Agriculture Council and the French attempt to try to pin him down to not reaching a deal in Hong Kong or beyond which reopens agriculture issues. Some flexibility is needed there. The political reality—which I believe the committee underlined—is that the settlement that was made in 2003 will not be completely unravelled. There is not a political majority for that. Nevertheless, it could be improved at the edges in the ways that I have suggested.

The Government and the British media must recognise that you cannot get the complete defence of the British rebate and radical reform of the common agricultural policy at the same time. There may be a trade off at the edges but basically you have to choose which is your main objective. That is what the negotiations will do. You may be able radically to reform the budget, although I doubt that you would do that in a very short time scale, which then has implications for the CAP, but you cannot use the tail to wag the dog—you cannot change the CAP to deliver a radical reformation of the total budget.

I turn to the other longer term issue on which the committee does not fully focus. However, it looks at the period beyond 2013 to see what changes may be made. It is likely that the single farm payment in its present form will not survive, certainly at the level at which it was set in 2003. The pressure of the renegotiations on the budget and the other pressures may lead to some degree of repatriation to national level of parts of the common agricultural policy. In my view that would be to the good. We need to retain a single market and single rules in terms of quality and safety throughout Europe, but some of the support that society gives to farming and to the rural community as a whole would be better delivered at the national level. I say that as a long-standing pro-European. We ought to be moving towards that strategic objective. It would benefit British farming but it would benefit more the British environment and our competitiveness and it would remove most of the objections to society giving the form of subsidy that it does at present.

While I am totally in favour of decoupling there is still some major distributive effect of the way we pay the subsidy at the moment which is indefensible. I was instrumental in ensuring that we put into the public arena under the freedom of information measure how much each farmer and enterprise received. One of the strange things is that, if you analyse the two places where I live by constituency, the Cities of London and Westminster receives a larger amount than North Dorset. That is ludicrous and reflects the large farmers benefiting disproportionately from what is primarily now, and ought to be in future, not a food production policy or a policy in support of any particular industry, but a social and environmental policy. That is what the CAP was originally formulated to be in the very early days of the common market.

Photo of Lord Livsey of Talgarth Lord Livsey of Talgarth Spokesperson in the Lords, Welsh Affairs, Spokesperson in the Lords (Agriculture), Environment, Food & Rural Affairs 5:20 pm, 20th October 2005

My Lords, it is a great privilege to speak in the debate as a member of Sub-Committee D. I congratulate the noble Lord, Lord Renton of Mount Harry, who pushed through the report. Its arrival is timely. I would also like to be associated with his remarks about the staff of the committee and our advisers. It is an excellent report—thorough, well informed, well researched, informative and a good analysis of the situation. It makes practical proposals for the future and is realistic.

There are no quick fixes for solving the challenge of reforming the financing of the CAP budget. I feel a little like Woody Allen, who said that he had taken a speed- reading course, read War and Peace in 10 minutes and could say that it was about Russia. One cannot possibly cover the whole of this subject in six minutes, and I shall not attempt to. I shall try to concentrate on one or two issues.

The glib statements made by the Prime Minister and the Chancellor along the lines of "1 per cent of GNI or die" are, frankly, not sustainable. There are only five other net contributor countries to the EU; they hold a similar but less strident view. The remaining 19 EU countries stand by the Brussels ceiling set in 2003 of 1.14 per cent of GNI, which they say is not negotiable. We have an interesting situation in front of us. Perhaps the worst feature of it is that no proper financial EU provisions were made for the admission of Romania and Bulgaria into the EU in 2007. The CAP will pick up most of the tab—at least half of it, as the noble Lord, Lord Renton, said. He has gone through the state of Romanian and Bulgarian agriculture, and it is a huge financial challenge that will come on the CAP budget. Who do you hear talking about that? That is a social question about the cohesion of the EU as well. Glib statements will not solve the problem.

The report states that: the pressures on Pillar 1 will increase; the Brussels ceiling should not be reopened because of further instability; enlargement will be the main pressure facing the 2007–13 budget; financial discipline mechanisms will prevent the overrun of Pillar 1 spending; and single farm payments will reduce from 2007 to 2013. I have already covered enlargement. There is justification in the report for Pillar 1 spending. The fact that it is now decoupled helps us in our negotiations with the World Trade Organisation, and puts many of the support measures into the green box.

One of the main issues is to try to secure environmental objectives, and there is a strong case for a continuing Pillar 1 in the short term. The single farm payment is being used as a vehicle for radical reform of the CAP. Is it merely transitional, or will it continue? That is a big question. The noble Lord, Lord Whitty, covered Pillar 2 and the rural development review, which is extremely important so far as achieving vital objectives in rural development.

Rural development clearly must not damage the environment. A rural development budget heading is recommended, and has to be effective and give value for money. Can it survive without Pillar 1? The report agrees with moving funds to new member states, and recommends that countries should seek to supplement rural initiatives through their own national budgets. Indeed, the success that we saw with regard to, for example, LEADER schemes with small rural projects impressed us greatly. They need to be maintained through a separate rural development heading, but if we stick to a 1 per cent ceiling, we will not achieve any of that in Pillar 2, and that is the nub of the situation confronting us.

There will be a further review in 2008, and the Commission should identify how rural development targets will be set and reviewed. The major conclusion of the report is that market support and direct subsidies will decline and that export subsidies will be phased out. But the restructuring of rural areas is of paramount importance. Indeed, the new rural development policy, which the report covers, looks at rural poverty, supporting the least advantaged areas, tackling poor infrastructure and the protection of the rural environment.

To sum up, I would like to see an examination of the situation confronting the agricultural industry when single farm payments are phased out in 2013. I certainly believe that, with global pressure on world commodity prices, and with the downward pressure of supermarket monopolies in the UK, prices for agricultural products will not sustain our family farms in the UK. In that scenario, I do not see how Pillar 1 can be phased out because it is the safety net which will keep the agricultural industry and the population in the countryside going. That, combined with Pillar 2 concerning rural development, should be the way ahead. There will many interesting challenges before us in the EU, the WTO and the UK.

Photo of The Earl of Erroll The Earl of Erroll Crossbench 5:27 pm, 20th October 2005

My Lords, this debate is very welcome because it raises some sharp-end issues that people would otherwise not think about. The CAP is very expensive, and everyone has been saying for a long time that it is in need of reform. Particularly nowadays, it is sensible to move to Pillar 2 and to environmentally linked payments, but what about the people at the sharp end whose livelihoods will be affected? That concerns me because the effect may not be the one that is expected. It depends what you want and what you are going to get out of it.

Part of the trouble stems from the ceiling placed on the amount of money available. The EU is enlarging, and there is also the Pillar 1 financial discipline mechanism. When I read the details of it, I realised that, from what Defra put out a year ago, it was going to try to see farmers through the period of change. That change was going to be quite heavily modulated—in other words, it would be taxed by the Government in order to do other things with the proceeds.

Interestingly, having realised that that would be a problem, the other EU countries are not carrying out their additional voluntary modulation, as it is called. They are paying far less than we are in this country. I seem to remember that the figure is something like 3 per cent compulsory, and we have added an extra 2 per cent in the first year to make it 5 per cent. For the second year, I think that the figure is 4 per cent compulsory, and we have added an extra 6 per cent to make it 10 per cent. There is talk of going higher after that because Defra does not think that there will be enough money in the pot. On top of that, there will be a financial discipline mechanism, which may reduce the overall pot even further, and that is not taken into account. So there will be a great deal less money available to see us all through the transitional period.

I should explain that I am not a farmer, although I am married to one. I have ended up having to do all the work in the evenings—usually until two or three in the morning—sorting out the paperwork. The paperwork is referred to in the report, which states that it should not be too burdensome. That is nonsense. I shall come to that in a moment if I have enough time, but the amount of paperwork is terrifying.

I want to ask what, finally, we want. Who do we want to carry out the farming? Do we want people who have been farming the countryside for a while and know about it, or do we want new industrialists or people who have made money in the City or whatever who will buy the bankrupt farms for their amenity value, paying high prices? They will then be nicely controlled by Natural England, dancing to Defra's tune. People who have carried out environmental studies will tell them all about the puddle police and how they must not have puddles in their fields. They will be told how they must let their hedges grow long and leggy, not cutting them too often, because it is nice for the birds which nest high up in them. However, they do not realise that there could be problems for ground-nesting birds. I shall not go into the detail because it will be interesting to see what happens.

However, I do not believe people realise that you cannot go back 50 years to the point when you had low inputs and also low outputs. When you were getting less than one tonne per acre, you could afford not to put on lots of fertilisers and sprays. The trouble is that one tonne to the acre does not pay the wages, let alone the compliance costs, let alone the overheads of doing all the things you have to do in a modern business. You therefore have to increase the yields and once you do that you have to use fertilisers and sprays. Then you get into problems and you have to aim at four tonnes per acre—about eight to 10 tonnes to the hectare. That means that you farm in a completely different way, but you have to farm efficiently.

The other problem which emerges is that farmers were heading for that, were geared up to do so and were doing quite well. However, the price you get for your wheat has halved over the past few years. On a 200-hectare farm, say, your income will be down £100,000 to £150,000. What goes out of the window, therefore? It is your advisers: the agents who advised you and the management. You take out all the tiers and you use contractors where you can. Suddenly, everything comes down on the poor old farmer—back to the paperwork issue. I have got so fed up with it, and that is why I want to speak in the debate.

People need to remember what is said at paragraph 51 of the report: that,

"witnesses stressed the need to compensate farmers for the non-production services which they provide to the community".

By the way, I would say to the noble Lord, Lord Whitty, that a large estate—we do not have a large estate—must of course receive more money because it has more miles of hedgerow and ditches to maintain, margins to keep up and so forth, according to the new rules. Just because it is bigger does not mean to say that it does not have to spend the money on doing the work. People do not realise what is involved. I notice that there is a mistake in the report because according to page 46, farmers are required to establish a protection zone measuring two metres. Actually, if you are growing wheat and you look at your pesticides regulations, you will realise that if you are going to use a category A pesticide—and you must if you get flea beetle, say, and you want to save your crop—you need to have a five metre zone as a wet water course and you cannot reduce that even if you do a LERAP—local environmental risk assessment for pesticides. I am afraid that the amount of regulation just goes on and on.

I shall wind up because we have only six minutes. I will not bother to list the two pages of things that I have worked out we have to know about. There is everything from farming; forestry; health and safety; visitors, both invited and uninvited; disabled access; property, commercial and other; building regulations; planning consents; the administration accounts; VAT; payroll; getting stuff through Government Gateway on the Internet; the employment law, including grievance procedure, maternity, sick and holiday leave; and equal opportunities. I presume that in your farm offices you will know about the VDU seating requirements; Internet policy; work/life balance; and the insurance for the contractors who come on to your land. Finally, we get down to all the Government's single farm payments, single payment systems and entry level and they cannot even get the maps back to us. All this money is supposed to be in the system and we are supposed to get this entry level stuff, but they cannot get the maps to us. We have been trying to apply for entry level for six months, since August. The whole thing is in chaos. You cannot get the money because the money is not there.

To conclude, to give your Lordships an idea, farming is a business and we must explain to the bank why we are getting no income this year. Under EU law, farmers should have been informed of their provisional entitlements by 31 December 2005. They will not now be informed until shortly before receiving payments next year. This is a contravention of the EU law and court proceedings can result. I expect that some farmers can be involved.

Photo of Lord Anderson of Swansea Lord Anderson of Swansea Labour 5:34 pm, 20th October 2005

My Lords, I last made a maiden speech in 1966 as Member of Parliament for Monmouth. I then had an unwelcome sabbatical, was returned for my home city of Swansea and was on the Front Bench for most of the Opposition years. For eight years, I had the honour to chair the Foreign Affairs Committee in another place—the city and the world. Another chapter now opens. I thank the staff of this House and my many friends from all parts of the House, some of whom have expressed their good wishes on this occasion, who have already made me feel at home.

I welcome the opportunity to contribute to this debate. I have long held the reports of this House, especially those of the EU Committee, in the highest regard because of the great reservoir of expertise that is available here. This report is no exception. The Government's response shows that there is a substantial consensus in the UK. Unhappily, that consensus does not extend to a number of key partners in the Union. Other noble Lords have mentioned the current contretemps with Commissioner Mandelson, where the French government and others are seeking to control his negotiating brief in Geneva and prior to the Hong Kong World Trade Organisation summit in December. That shows the real problems that exist.

However there have clearly been significant reforms within the CAP. Its share of the EU budget has fallen; there is a new distribution within that budget; there is a new emphasis on the environment; and so on. I congratulate the Government on assisting in the Fischler reforms of 2002–03 but, as the committee points out, the facts of the World Trade Organisation, the first enlargement from 10 to 25 and the subsequent enlargement show the need for radical reform. It can be argued that we, as a country, sold the pass in 2002 by accepting that perspective until 2013. I concede that there was a let-out clause in paragraph 12 of the Brussels communiqué: without prejudice to future decisions. Notwithstanding that, we are clearly not in a strong negotiating position.

It is not only that for many the CAP is seen as the Ark of the Covenant, the high-water mark of integration, but national interests are mightily mobilised. France, for example, has a successful, strong agricultural sector producing 23 per cent of EU agricultural output and would be the main loser from cuts in tariffs and subsidies. The current political context may not be encouraging. We have the presidential election in France in 2007. In Germany, we have a highly weakened government in the coalition, with the agricultural lobby from the CSU strengthened. Even in the accession states, Poland, for example, shows that Euro-scepticism is evaporating as farmers and the countryside generally benefit from EU subsidies. Notwithstanding that, all of us have an interest in the success of trade liberalisation. Perhaps the report would have been improved if it had showed a greater attention to that political dimension.

Briefly, I ask the Minister three questions. Realistically, are the pressures for change in the CAP strong enough to overcome the entrenched agricultural interests within a reasonable time frame? For example, is there not a case, now that we have had the US proposals and the counterproposals from Commissioner Mandelson on behalf of the EU, for seeking to align the US and EU position, as I believe that the Government seek to do?

Secondly, what are the Government's ambitions within that sector during the remainder of the presidency? Even if there are no prospects for radical CAP reform—save, perhaps, in sugar—will there at least be agreement on starting a review of EU expenditure? In that process, the UK rebate must be on the table. Bluntly, does the Minister agree that we will not make poverty history unless we make a substantial part of agricultural protectionism against the third world history as well? We have done well in interest reduction and aid but the great gap is progress on the agricultural side.

Finally, the committee is right to point out that ultimately the CAP needs drastic reform; right to state that the 2002 reforms failed adequately to anticipate enlargements; and right to call for the phasing-out of direct payment to farmers from 2013 with a corresponding encouragement of a broader range of countryside activities. Those are all sensible aspirations but some commentators, such as Peter Riddell of the Times, have called the recommendations a "road map", perhaps unintentionally inviting comparison with the Middle East road map—sensible in concept, agreed in principle, but alas largely stalled by massive political road blocks.

Photo of Lord Biffen Lord Biffen Conservative 5:40 pm, 20th October 2005

My Lords, it is my happy task to congratulate the noble Lord, Lord Anderson, on his maiden speech. He comes to this House with a reputation as a committed Christian, but above all he will be recognised as having been chairman of the Select Committee on Foreign Affairs in the House of Commons, where his robust conduct in that post earned him an enviable reputation. I am sure that we all look forward to his continuing contributions in this place.

I congratulate my noble friend Lord Renton of Mount Harry and Sub-Committee D on a report that I found immensely instructive in the information that it imparted, as well as in the modest and measured recommendations that it made. Before I consider it, I mention a modest agricultural interest, which is recorded in the Register. Much more, I have a deep emotional interest that derives from both sides of my family having been farm workers or tenant farmers on the Somerset levels and on the Mendips. I bear the imprint of that, even though I have strayed from my native county these many years.

Given the short time available, which is an indication of the interest that this subject has created, I have three what I will call "sound bites". First, there is the single farm payment. I am pleased that mention is made in the report that it should be a transitional feature. I cannot believe that it would be a sound basis for agriculture to have single farm payments perpetuating well into the future. I have to offset the plea for the transitional character mentioned by the report against what is written on page 24:

"We were told by Dr Fischler that the single farm payment will be a reality for European farmers for at least the next 15 years".

It is rather an Augustinian view of life; to make one perfect but not yet a while. I hope that this House and the British position generally will try to emphasise the transitional nature of the single farm payment.

Secondly, I should like to make a reference to Pillar 2, which will encompass rural development and also the environmental considerations, which have already been mentioned. The potential for great spending here is considerable, although my noble friend has mentioned that at the moment there will be pressures to try to contain it. It pleases me that paragraph 125 of the report states:

"Richer Member States should fund a higher proportion of their own rural development programmes".

That echoes the remarks made by that great Europhile the noble Lord, Lord Kerr of Kinlochard, in his maiden speech:

"The beauty of the French countryside is a wonderful thing, but it should be paid for by the French taxpayer".—[Hansard, 6/6/05; col. 679.]

I look forward to a situation where Pillar 2 is increasingly seen as a national responsibility to be catered for by national judgments and financed by national treasuries.

On my third sound bite, I wish to pick up points made by my noble friend who introduced the debate. There is a certain unreality, above all the arithmetic and assumptions that run through the report, reflecting the views of the European Commission and the debate generally. I do not see how all those things can be reconciled. Obviously there are the problems of the social character of the agriculture sector of eastern Europe, which accounts for around 20 per cent of states' national workforce, compared with 4 per cent of national workforces in western Europe. That is a social challenge. Above all, we should not overlook the fact that there is a potential output challenge in eastern Europe. As an aside, the report mentions that in 2003–04 cereal production in the new states increased by 40 per cent. Although climatic conditions govern that, we should realise that the imbalance between agriculture production and agricultural consumption will be exacerbated by the development of eastern European membership.

There will be an increasing demand for continued and renewed reform. Sub-Committee D makes that point when it says:

"The disparity between the agricultural needs of the EU-15 and those of new Member States is only likely to grow wider. That reason alone justifies the need for further substantial CAP reform".

In the context of possible Ukrainian membership, all that is then written in spades.

All those points illumine the difficulties of the European Union and the much wider issue of the extent to which its political activities, and the financing and monitoring of those activities, must increasingly be seen in the context of the nation states and their traditional disciplines. If we continue to drift in an ever-larger European context, as my noble friend said, the fortunes of the common agricultural policy could begin to engulf those of Europe itself.

Photo of Lord Cameron of Dillington Lord Cameron of Dillington Crossbench 5:47 pm, 20th October 2005

My Lords, I, too, congratulate the noble Lord, Lord Anderson, on his maiden speech. I am sure that he will continue to make many such valuable contributions to the work of your Lordships' House.

Since its inception, the CAP has had enormous influence on our countryside—some good but some bad. On the bad side, the environment springs to most people's mind, but I also believe that the long-term viability of our agriculture is not greatly assisted now by the drug of subsidy, which is Pillar 1. I say that as a farmer, and declare an interest as such. The problem remains how to get from a highly subsidised regime to one of greater economic reality without threatening the lives of those businesses that have to go through cold turkey. As the noble Lord, Lord Whitty, said, decoupling is a very good start.

At the risk of teaching my grandmother to suck eggs, I remind noble Lords that the CAP was originally designed as a social programme to stop large numbers of continental farmers from abandoning the land and turning up in towns, where there was neither employment nor housing for them. As such it was very successful. But if one translated that aim into today's slightly more positive political language, it might be said that its purpose still is, or should be, to maintain economically and socially healthy rural communities while ensuring that our countryside, its towns, villages, landscapes and so on are sustained to a high quality for us and our children.

So if the original purposes of the CAP, which are still valid today albeit in a slightly amended form, were looked at afresh, they would be approached very differently from how they were approached in the 1950s and 1960s. Agriculture is not so important to rural economic life. Even in the predominantly rural regions of the EU 25, agriculture's share of the gross value-added (GVA) is only 5.8 per cent. In the UK, even in the wholly rural districts, agriculture represents less than 4 per cent of employment and GVA. In the EU 25, as in the UK, over 90 per cent of GVA comes from services and industry. In the UK there are more manufacturing businesses per head of population in our countryside than there are in the towns.

If we intend to attack rural deprivation and provide the profits to maintain our rural fabric, including the landscape, we should be looking at pump-priming, though not subsidising, businesses other than agriculture—everything from manufacturing to high-tech businesses—that can now thrive in the 21st-century countryside. If you think that landscape can depend only on farmers, I would say yes, but the survival of nearly all farming families today depends on there being a non-agricultural wage or income coming into that household. Other rural jobs are therefore needed to save those families and maintain our landscapes.

In the context of our debate today, it is obvious to me, as to the authors of the report, that it would be of far more long-term benefit to rural Europe to ensure we have a good strong Pillar 2 budget, rather than Pillar 1. This is especially important for some of the central and eastern European countries where agriculture is practised at or near subsistence levels.

All the politics and the vested and entrenched interests in the 25 member states, however, indicate that it is Pillar 1 that will be sacrosanct, and that Pillar 2 will be chipped away at over the next few years. This will continue to be the case until the financing arrangements for Pillar 1 are changed to be more in line with those of Pillar 2. Pillar 1 is currently financed entirely from the EU budget. Pillar 2, on the other hand, is co-financed by member states. This is because the Pillar 2 purposes—namely, rural development and the agri-environment—were or are regionally defined and differentiated, and it was thought there should be more local decisions made as to how much should be spent, and on what. That means that the politics of cutting Pillar 2 is now much easier than that of cutting Pillar 2. Changes to Pillar 1 have to be agreed by all 25 member states, and any budgetary pressure tends to be at one remove from the actual decision-makers, the Council of Ministers of Agriculture.

Why should Pillar 1 remain centrally financed, though? It is no longer largely commodity-orientated, which required it to be universally applied in order to avoid trade distortions. In fact the Commission is now claiming to the World Trade Organisation that the single farm payment is definitely not trade-distorting. So if it is not distorting international trade, how can it distort internal trade? Also, if the long-term rationale behind the single farm payment is for environmental management—and I have heard it described as "environmental payments-in-waiting"—surely, as with Pillar 2, a more localised decision-making process would be appropriate.

The co-financing of Pillar 1 need not be at 50 per cent, as is currently the case with Pillar 2. It could only be at 20 or 25 per cent to start with. If that happened, however, we might before long get a more rational and sensible approach to the long-term financing of our rural areas.

Photo of Lord Giddens Lord Giddens Labour 5:53 pm, 20th October 2005

My Lords, I congratulate my noble friend Lord Anderson on his polished and elegant maiden speech. It did not sound like a maiden speech to me—or at least not like mine, which was nervous and hesitant, and completely different from the one we have just heard. He is going to be a marvellous addition to your Lordships' House.

I also congratulate the noble Lord, Lord Renton, and his committee on their report. In common with the report last week on the services directive, I thought it was of high standard, comprehensive and well-argued. That having been said, as noble Lords have remarked, it is tactful, cautious and marked by political realism. For me it is too tactful and cautious, and, if that is political realism, what we need in the future is a dose of radicalism.

Young man Luther has been mentioned, as has Woody Allen. Let me mention the White Rabbit. I will take you on a trip on the other side of the looking-glass where it resides. The White Rabbit is the Minister for Crazy Schemes. He has instituted a range of crazy schemes in the magic kingdom. For his last pièce de résistance, he is asked to devise a crazy scheme for managing the agrarian resources of the kingdom. First, he devises a scheme that consumes well over 40 per cent of the budget of the kingdom while supporting only 3 per cent of the labour force. Secondly, he devises a scheme that favours intensive farming, with the widespread use of fertilisers and pesticides. The first harms the countryside, and the second probably harms human beings. Pesticides have been shown almost certainly to harm human reproduction. The low fertility rates in Europe are possibly connected with the biological effects of the use of pesticides. Anyone who doubts that should read the book called Our Stolen Future.

Thirdly, his scheme heavily favours large, rich farmers at the expense of smaller, poorer ones. Some 40 per cent of farms in the kingdom are small ones, but they receive only 8 per cent of the subsidies. Fourthly, his scheme has well known adverse effects on developing countries, in spite of the fact that the kingdom is supposedly devoted to helping developing countries. Fifthly, his scheme produces monotonous countryside, as it favours large farming, rather than countryside that is rich in diversity. Sixthly, rather than bringing down prices for consumers, the White Rabbit's scheme elevates prices. A family of four has to pay £9 extra on its household bills under his scheme. Seventhly, it benefits one state in the kingdom far more than any other. Finally, it is designed so that there is not enough money in the scheme to give to new entrant communities that have been encouraged by the kingdom to join up with it. The scheme is so obviously divisive that the White Rabbit decides to call it the common agricultural policy.

Let us suppose that the scheme has been set up and that all those faults are well known, as is certainly the case in Europe. What should one do about it? Well, we could reform it a bit, in order to mute criticism of butter mountains because you cannot go skiing on butter mountains. We will reform it a bit more because we need to get the scheme past the WTO and we need to get it into the green box. Europe has a growth rate of just above 1 per cent; the United States has a growth rate of 4 per cent; and the developing countries with which Europe must compete have growth rates of 10 per cent or more. Europe needs investment in technology, investment in education and investment in infrastructure, and those things have to be led by the Commission. What will we do about it? We will make some reforms in 2002 and 2003, but essentially we will wait until 2013 and then we will decide what to do.

I speak as a pro-European; I am not making those criticisms from a Euro-sceptic position. I feel strongly pro-European, but Europe stands at a crossroads. There is a tsunami approaching Europe, a rolling wave of change to which Europe must respond. Although I feel sympathetic towards what the report says, I feel more sympathetic towards the Government's response to it. The Government say that they do not believe that the EU should spend 40 per cent of the budget on the CAP and that they believe that Europe cannot wait 10 years or more for change: I say "Yes" to that. The Government agree that the Doha development agenda is a high priority and will require further reform: "Yes" to that too. The Government agree that separate funds should be set aside for environmental objectives: "Hurrah" to that. However, I want to ask the Minister the same sort of questions that other noble Lords have asked. How committed are the Government really to reform of the CAP? Is it just a convenient whipping boy? Would the Government be prepared to go against, for example, farming interests in considerable sections of the country in order to reform the CAP? Secondly, is there not a whiff of hypocrisy—I think that my noble friend Lord Anderson of Swansea referred to it—in that the Government seemed to go along with the reforms in 2002–03 and started to make a big hoo-ha about the CAP when they were asked to return some of our refund.

Finally, against that backdrop, is the only situation one of political realism such as the report suggested? I do not think that that is feasible for Europe. Europe needs more radical reforms. Somehow, these must be made to have purchase within the CAP as well as in reforms of Europe welfare systems too.

Photo of Earl Peel Earl Peel Conservative 6:00 pm, 20th October 2005

My Lords, I declare an interest as a member of Sub-Committee D and an owner of land in the north of England, most of which is let. I pay tribute to my noble friend Lord Renton for not only introducing this debate but also for the very efficient and patient way in which he chaired our deliberations on this rather complicated subject. The reforms of the CAP that took place in 2003 were certainly radical and complex, but most of us very much welcome the change from agricultural support to payments for environmental management.

The Government showed great enthusiasm when the negotiations were finally concluded. One statement to illustrate that enthusiasm was that,

"the agreement today delivers what we wanted—real change . . . the . . . radical and most important element in the package is the . . . Single Farm Payment".

So, given that clear and unequivocal support for the reforms, it came as quite a rude awakening to the rural communities, which I am bound to say are craving stability at the moment, when the Prime Minister suddenly launched a ferocious attack on the common agricultural policy, condemning it and insisting on further and fundamental reforms.

It is important to appreciate that by far the largest part of the Pillar 1 contribution is delivered through the single farm payment. That payment has attached to it certain environmental conditions known as cross compliance. As Dr Franz Fischler, the main architect of the recent reforms, put it:

"The Single Farm Payment is justified because EU farmers could not compete on a global basis and still conform to the EU Regulations on animal welfare and environmental management without such payments".

So it is important to recognise that the bulk of Pillar 1 payments are not a subsidy but more a payment to farmers for their rural management obligations.

Furthermore, I believe that I am right in saying that the single farm payment represents about 78 per cent of the total of Pillar 1's contribution, which means that only 22 per cent is still dedicated to what my noble friend Lord Renton described as trade distorting subsidies. We all agree that those must be phased out as soon as possible in order to meet the World Trade Organisation objectives. Of course, the report reflects that. But my question to the Minister is: when the Prime Minister attacks the common agricultural policy and calls for further reform of the subsidy system, is he referring to the 22 per cent of the Pillar 1 which is dedicated to subsidies, or is he going further and attacking the whole edifice on the assumption that he believes that the whole of Pillar 1 is regarded as one big subsidy, including the single farm payment. If that is the case, I regard that as having very serious implications.

I am not against reform of Pillar 1. But in the absence of a genuine alternative, I remain somewhat loyal to it, as my noble friend knows only too well. Having said that, I was very interested in the comments made by the noble Lord, Lord Cameron, when he talked about co-financing Pillar 1 and the single farm payment. That idea emanated through the Country Land and Business Association. I very much support it because it would help to concentrate minds. First, it would save on the EU budget as more of the expenditure would be met by member states. Secondly, it would redistribute the budget costs from the big net contributors to the big net beneficiaries—France and Spain. I am fairly certain that that would help to concentrate what I might describe as some prevaricating minds on further reform. I hope very much that the Minister will give very serious consideration to what the noble Lord, Lord Cameron, suggested.

It is clear, as the report reflects, that the Government consider that the future of European agriculture lies within the growth of Pillar 2. I have some reservations about this due to the rather vague nature of Pillar 2 objectives and the inconsistency in delivery, vitally important though many of these schemes are. Clearly, some eastern European countries see Pillar 2 as a means of coming to terms with very big social problems in rural areas where there is high unemployment and many people are living at subsistence level. As one of our witnesses, Dr Sophia Davidora, put it:

"The priority is, if possible, to take these people out of agriculture and to provide some employment in the vicinity, so that the countryside is not unpopulated".

These are real problems and I in no way underestimate them. But I believe that a useful streamlining of the system could be introduced through the creation of a single rural development fund, completely separate from any other agricultural objective, as recommended in the report. This would ensure a clearer divide between the particular needs of the new member states and the other environmental and agricultural objectives.

With the membership of the EU expanding all the time, the CAP can never be all things to all people. It needs to be more focused, with responsibility lying more on each member state. I was very interested when the noble Lord, Lord Whitty, said that more responsibility should lie with member states. I think the noble Lord is absolutely right. I believe that rich member states will inevitably end up having to fund a higher proportion of their own rural development programmes.

In conclusion, the press release that accompanied the launch of this report on 15 June stated:

"The CAP is near breaking point".

I am sure that is true. But what the rural community needs is stability, clear guidance and a just reward for the services that it provides.

Photo of Lord Hannay of Chiswick Lord Hannay of Chiswick Crossbench 6:07 pm, 20th October 2005

My Lords, the subject of this debate is highly topical and it could not be more timely. The noble Lord, Lord Renton of Mount Harry, and his committee are to be congratulated on producing it just when it was most needed. I should like to add my congratulations to the noble Lord, Lord Anderson, on his maiden speech and on having brought to this House the skills that he displayed for so long as chairman of the Foreign Affairs Committee in another place.

The common agricultural policy, in spite of the very considerable reforms of recent years, remains far from being in a sustainable or acceptable shape for the period ahead. Its financing—still planned to absorb between 40 per cent and 50 per cent of the EU budget for the period 2007–13—is at the heart of the problems that prevented a decision on the future financing of the EU at the European Council meeting last June and which now present Britain's presidency with a major challenge.

First, I suggest that it is important to recognise that the European Union does need a common agricultural policy, even if it does not need the common agricultural policy, which was formulated in the 1960s and which has been so painfully and, so far, so inadequately reformed. There is much loose talk of repatriating or renationalising agricultural policy, as if that would somehow be in all our interests. I am convinced that it would not be. How long would it be in such circumstances before a whole rash of non-tariff barriers began to spring up at national frontiers to deal with animal and plant health problems, to compensate for fluctuations between euro-zone and non-euro-zone currencies or to offset perceived state aid distortions? What would then be left of the single market on which so much of our prosperity and economic activity depends? So whatever changes are made to the CAP, it is important that the bodies we have set up to guard over the operation of the single market—the Commission, the Council and the Court—should have full regulatory authority to ensure that that does not happen.

When the financing of the CAP was first settled in 1970, it was envisaged that by far the greatest part of the expenditure would go towards buying-in agricultural surpluses, supporting the level of prices for each commodity agreed at Community level and subsiding exports when the EU price level—as it has almost invariably been ever since—was above world market prices. The amounts allocated to structural expenditure were modest and, in any case, the costs of these projects was shared with member states.

In those circumstances, the 100 per cent commitment of the EU budget to the market measures was logical given the virtual impossibility of identifying national financial responsibility within a single market where agricultural products moved freely. But that logic no longer exists. The buying-in of massive surpluses is a thing of the past; and the subsidisation of exports will, we must hope, soon be so. The main thrust of the massive agricultural expenditures foreseen for the next budgetary period, 2007–13, is what would be classified as structural, environmental and social. As such, they are allocated geographically. The basic case for 100 per cent European Union financing has thus disappeared.

The way should therefore now be open for serious consideration to be given to the possibility of substantially increased co-financing—a point referred to by previous speakers—by individual member states, which would finance some of this expenditure without in any way undermining the rationale of a common agricultural policy. Co-financing should not be confused with re-nationalisation, although its critics—and, I suspect, some of its supporters—would no doubt try to do so. It is nothing of the sort. The policies would still be, in outline, decided in common. The compatibility of their implementation with the state aid and other provisions of the single market would be watched over by the Community institutions. But their financing would fall more than now onto the member states. If it was so desired, the figure for member state financing could be set—perhaps for a limited period of time—at a different and higher level in the 15 member states of the pre-2004 Union, the richer ones, than in the new member states that joined in 2004 or later. That would be consistent with the way the other structural spending is being directed to narrow the gap between the new and the old member states.

It is often argued against co-financing that it would not necessarily reduce the overall level of agricultural spending in Europe; that it might, indeed, even increase. That is theoretically true, but over the medium and longer term I am convinced that the transfer of a greater degree of financial burden back onto national budgets, taken in conjunction with the prospective pressure on those budgets from other demands, would exercise real downward pressure on overall agricultural spending.

But there is another powerful, non-agricultural argument in favour of an increase in co-financing. It would directly address the justified but somewhat anomalous aspect of the Union's budgetary arrangements—that is, the British abatement. For one thing it would reduce the level of that abatement without applying an arbitrary cap. It would also begin to move the European Union towards a situation whereby its expenditure policies did not have major unintended distorting effects on any member state. The case for special arrangements such as the abatement and its attendant mini-abatements would be far less compelling. But it cannot be repeated too often that as long as more than 40 per of the budget is allocated to a policy which does have such a distorting effect, there can be little prospect or justification for tinkering with the abatement.

It was the failure to recognise the ineluctable logic of that situation which led to the débâcle last June. It was bad enough to have locked in such a high level of agricultural spending for seven years ahead, as was done—unwisely, in my view, in the context of enlargement—but to combine that with an onslaught on the abatement was sheer folly.

The way ahead for the British presidency and beyond is neither clear nor easy. I hope that we will hear something from the Minister at the conclusion of the debate on how the Government plan to make progress. I hope, too, that the Government will put neither too little nor too much emphasis on getting a settlement in this presidency. Not too little because in 1992 the then British Government showed that it can be done, and well done, with Britain in the chair; not too much because a failure to reach agreement in the remainder of 2005 would be well short of a disaster. In 1987–88 it took three runs at European Council level to get a deal, and it was an excellent deal too when it was finally achieved.

What is needed now, I suggest, is a coherent picture for the period ahead, both for the CAP and for overall spending, and one which appeals to all member states more than any alternative. One of those alternatives, of course, might have to be not agreeing at all. The right honourable gentleman the Prime Minister made a good start at this in his speech to the European Parliament in June, but since that not enough has been done to flesh out an approach better for the Union as a whole than the one on offer in June.

In the meantime, would it not be a wise move to lift the anxieties of the new member states about their structural fund spending by guaranteeing that, in any conceivable circumstances, from 2007 onwards EU budgets would not contain less for them than was provided for in the Luxembourg presidency's June compromise?

Photo of Lord Grantchester Lord Grantchester Labour 6:15 pm, 20th October 2005

My Lords, I, too, enjoyed the contribution of my noble friend Lord Anderson and congratulate him on the wider perspective he brought to our debate. I join with others in showing appreciation to the chairman of the committee for the clarity of its report and for so admirably undertaking a forward-looking inquiry. So often your Lordships' House seems to undertake inquiries into matters past.

I declare an interest as a dairy farmer in Cheshire, a past president of the Royal Association of British Dairy Farmers and a director of Dairy Farmers of Britain.

CAP reform debate is enduring. Agreement to radical reforms of the CAP was reached in the summer of 2003 and was hailed as a watershed, as agricultural payments would no longer be linked to production and farmers would in future align production to the marketplace. The commission's position in the pace of change is in the middle ground, between the French, who still have 25 per cent of coupled production, and the UK and others, who seek further reforms.

In this debate, the success in achieving change is repeatedly underestimated. It must also be said that transition takes time, and that farmers and markets need time to digest and respond to change. The reforms introduced are both radical and complex. The Government chose a dynamic system for England, with the most complicated implementation as compared with other parts of the UK and, indeed, the EU. This implementation is still under way, with every prospect that the new payments to farmers will be delayed. In these circumstances, to be opening the prospect of further far-reaching reforms on the back of the debate concerning the UK rebate is inappropriate. It is also rather meaningless to make comparisons between agricultural share of the EU budget and its share of GDP, as CAP is the only sectoral policy under EU competence. The cost of farm support has reduced over a 10-year period from the insignificant 0.61 per cent of the EU's GDP to 0.43 per cent.

However, that is not to deny that debate still needs to take place on the longer-term future of the CAP, not least as it affects the UK rebate, but also to encompass future enlargement. The single farm payment, with its elements of cross-compliance, moves funds from the trade distortion of Pillar 1 into the green box. This is subject to the EU rates of modulation which require match funding from individual member states. Perversely for rural development, where this modulation funding is not fully utilised, the UK—or, more specifically, the Treasury—receives extra rebate. This means that there is an incentive to reduce the uptake of funds. However, further voluntary modulation, as undertaken in the UK, does not require match funding and does not affect the UK rebate. Can my noble friend confirm, on behalf of his Ministry and the Treasury, that EU modulation funds will be fully utilised in the future?

One practical way in which a change in agricultural policy arrangements could help deal with the impasse over the EU budget is to change the financial arrangements for CAP and agree a compulsory co-financing of Pillar 1. This point has been made very adequately by the noble Lord, Lord Cameron, and others, but I would restrict this further to the elements in Pillar 1 that are still in the blue and amber box. Crucially, it would redistribute the budget costs of the CAP from the big net contributors to the net beneficiaries such as France and Spain which, incidentally, have not fully decoupled.

To return to Pillar 2 payments for rural development and environmental benefits, public money needs to be focused and targeted on public goods to include outcomes not readily identified by the market. That requires a far greater clarity on policy objectives. Should allocation focus on physical criteria such as landscapes and distance from the market rather than economic criteria such as relative incomes and rural enterprise, or be used as a cohesive instrument driving development? This will result in greatly differing patterns of expenditure and acceptability.

One area of concern is that the schemes for rural development and diversification tend to concentrate on small-scale outcomes and deny funds to the larger farmer co-operatives that, by definition, can do more to support the rural economy and bring their members nearer to the market in terms of value-added products. There needs to be clarity between structural funds and Pillar 2 expenditure. Furthermore, these structural funds should not only be used in the most disadvantaged areas but sensitively to help markets reconstruct with training and skills.

Agreement for change is difficult. The likely future enlargement of the Union is the most significant pressure post-2013. A more fundamental review of the entire EU budget, including CAP, is still necessary and the recommendations of the report and the Government's response should be considered in that context.

Photo of Earl Ferrers Earl Ferrers Conservative 6:20 pm, 20th October 2005

My Lords, I should declare an interest in that I have been involved in agriculture all my life. I would like to congratulate the Members of the sub-committee on their report on this very complicated subject. More personally than that, I would like to congratulate them on understanding what they are talking about. I warmed to the report when it said that terms such as cross-compliance, modulation and de-coupling pepper the papers that the agriculture committee received from Defra. There is even a glossary on all the funny language that is used in the report at the end, and that was very helpful. The trouble with the European Union and the common agricultural policy is that they are filled with unintelligible jargon. To those who are not fully in the know, talking about the European Union or the common agricultural policy is rather like looking into a goldfish bowl. The fish, food and plants all swirl around inside and you just wonder how on earth they all get on and what is going on.

The report reminds us how the common agricultural policy started with six countries. The noble Lord, Lord Cameron, who is not now in his place, said that it was to stop people leaving the French countryside. I thought that its purpose was to modernise the agricultures of the common market countries, which indeed it did. However, the common agricultural policy now has 15 states with the addition of Bulgaria and Romania in the future. As the report says, the common agricultural policy takes 50 per cent of the EU budget, but only five per cent of the workforce in those countries is engaged in agriculture. That obviously cannot be right.

Eight central and eastern European countries have 21 per cent of the workforce engaged in agriculture, and Romania has 42 per cent engaged in agriculture, yet these countries are going to join the European Union. The report then says that the European Union could grow to 27, 29 or even more member states. Where will it all end? Are there no limits to this? Indeed, what is the purpose of the European Union? Is it just like a fat man who continues to eat until he bursts? There must be a purpose and a limit to these things. This is not being insular, but one wonders why the European Union wants to spend its money on other countries who, having modernised their agricultures, will only increase the level of European Union agricultural production leading to further pressures on the common agricultural policy. That point was made in Paragraph 32.

I have never understood why the common agricultural policy is essential for the European Union to work. People always say that it is necessary—the noble Lord, Lord Hannay, said that it was necessary. The common agricultural policy is certainly ruining the European Union and ruining the agriculture of the European Union because the common agricultural policy and the European Union are trussed up in a mycelium of bureaucracy, red tape and government grants. When the noble Lord, Lord Whitty, was in the Government, he said that the Rural Payments Agency could come onto your farm and say, "You've got a heavy piece of machinery there that is wrecking the soil structure, so you will not get paid". That is gross interference and I do not know how a bureaucrat knows about soil structure, which is supposed to be the province of the farmer.

The noble Lord, Lord Bach, said the other day about the single farm payment scheme—and with a certain amount of pride—that there had been 32 road shows and 1,000 videos produced to tell people how to fill out a form. I am not picking on those two noble Lords, but it so happens that they have both occupied the hot seat. But I wonder what kind of crazy system it is that we must have 32 road shows and 1,000 videos to tell people how to fill out forms. As noble Lords may know, there is a directive called the Physical Agents (Vibration) Directive, which was created because, apparently, if you sit on tractor seats the vibration is bad for you. Somebody is supposed to count the vibrations and then, if you have had too many, if you sit on the tractor seat any longer you have committed an offence. We have a derogation from that directive until 2009, but what about Poland? They do not have that derogation, and they have old enough tractors which must vibrate a great deal more than the modern ones.

What on earth is going on in the European Union and the common agricultural policy? That is bureaucracy gone mad—it would be farcical, if it were not a fact. The fact is that if you set up a regulating body, the regulators will regulate. Somebody said the other day that birds fly, fish swim and regulators regulate. Apparently nobody can stop it, but it is ruining so much of agriculture and the countryside. Those people make laws that bind us all, and nobody can stop them.

There is a paradox here. The agriculture in which I was trained at university has gradually slid into insignificance and its output is now less than that of the sandwich industry. Yet the population of the world will increase four-fold in the lives of some of us, from 3,000 million in 1960 to 12,000 million in 20 years' time. The common agricultural policy is not an ideal but a mirage. You try to get over one appalling hump, only to find a bigger one further on. Nobody knows what is the objective to which we should all aspire. I admire those who, like the members of your Lordships' Sub-Committee D, try to understand and grapple with the appalling problems and jargon that the common agricultural policy imposes on us. But I end with expressing the simple, if controversial, view that agriculture in the United Kingdom would be better if we were not part of the common agricultural policy.

Photo of Lord Plumb Lord Plumb Conservative 6:27 pm, 20th October 2005

My Lords, I do not see the noble Lord, Lord Harrison, in his place, so I assume that I follow the noble Earl, Lord Ferrers.

Photo of Baroness Farrington of Ribbleton Baroness Farrington of Ribbleton Government Whip

My Lords, I apologise to the noble Lord. There was a revised speakers' list, and perhaps the noble Lord, Lord Harrison, is still on it, but he had indicated, as did the noble Lord, Lord Desai, that he could not speak. I apologise because it is my fault that the noble Lord, Lord Plumb, was not properly informed.

Photo of Lord Plumb Lord Plumb Conservative

My Lords, I thank the noble Baroness.

It is always a pleasure to follow the noble Earl, Lord Ferrers. We all sit up and listen when he speaks, and indeed he speaks with a feeling that many people may have in the country—particularly with regard to the form-filling business. It gets to a stage when it becomes nothing short of ridiculous.

It is a privilege, as other noble Lords have said, to serve on Sub-Committee D under the very able chairmanship and guidance of my noble friend Lord Renton of Mount Harry. As he said, we are very fortunate to have a very good clerk and specialist staff and we enjoy a remarkable degree of unanimity in our work.

I speak and react as a farmer and conservationist. We are all aware that the CAP, in spite of what has been said, has been radically reformed. Farmers say that the form-filling in order to meet the requirements of the single farm payment has been nothing short of a nightmare. If we qualify for the benefit of environmentally friendly farming through cross-compliance, many farmers can be forgiven for saying, "But that is what we've always done".

The stewardship scheme provides some incentive for change, but we must never ignore the fact that we are first and foremost food producers. The agreement between 25 countries is set until 2013 and yet our Prime Minister—as my noble friend Lord Peel reminded us—and the Chancellor still call for further cuts in the budget. If that is what they want I can only say that it will cause yet more confusion among those trying to grapple with the complications of the problem at the moment.

We know that producing food is hardly an exact science, and it is by nature a very long-term business. It is totally misleading to assume that 40 per cent of the EU budget goes only to farmers. CAP reform has resulted in a shift of support, as we have already heard, from Pillar 1—so-called direct payments—to Pillar 2, rural development. In principle, assuming an efficient allocation of Pillar 2 funds, that should be budget-neutral for the rural economy at the European Union level. But the impact at national level will vary. It is fascinating to hear comments about co-financing, which may be something for the future.

It is evident that there are growing difficulties in applying single farm payments consistently across all those countries. The potential for competitive distortions becomes even more worrying because of the unfavourable exchange rate that British farmers face. The current strength of sterling against the euro affects not only the amount of support payments but also influences the level of domestic prices and the competitiveness of British produce in international markets. In recent years exchange rate fluctuations have explained some two-thirds of the changes in agricultural income and management instruments remain out of reach for most farmers as a result.

The situation is becoming increasingly serious particularly because in recent years British farmers have experienced a sustained decrease in farm-gate prices and the continually increasing cost of inputs. For example, while farm-gate prices have decreased on average by 19 per cent since 1995, the cost of inputs has increased 9 per cent. When we link those facts to the increase in regulatory pressures and the skills shortage, the result can be only severe pressures on the farming community despite the fact that farming incomes per capita in 2004 were 45 per cent lower than they were in 1995. In fact, farming income levels in recent years have been similar to income levels in the mid-1980s. This situation is alien to any other sector of United Kingdom business. The situation can be put into context by comparing it to the increase in per capita income during the same period, which is about 200 per cent.

A reduction in farm-gate prices has not been reflected in reduced food prices. While farm-gate prices between 1996 and 2004 decreased on average by 17 per cent, food prices increased during the same period by more than 8 per cent. Does the Minister agree that, according to Defra's own figures, the farmer's share of the retail price for a basket of food items has decreased by 47 per cent to 35 per cent since 1988?

So while we welcome the change to the common agricultural policy, and I fully support the report as so well outlined by our chairman, it will make farmers more market focused. We have to analyse the extent to which market signals can function properly given the high market concentration and power in the processing and retail sectors. We must also focus on the future and the different strategies that can contribute to increased prosperity for the farming sector. Institutional support is therefore vital. We can neither abandon nor abolish its role. Perhaps the Minister can explain why the Scots receive their first tranche of money in December but we do not get ours until February.

So while the cost of the CAP has been the subject of much demagoguery, this figure needs to be put in context. The CAP is the only common expenditure of the European Union and the EU budget represents just over 1 per cent of the European Union's gross national income—as a result, agricultural support represents less than 0.5 per cent of GDP.

Obviously in the challenge for change that farming is going through, many changes will be made. Some will be difficult to face but I believe that farmers can face them. However, they at least need the satisfaction of knowing that we face stability rather than more frustration.

Photo of Lord Inglewood Lord Inglewood Conservative 6:35 pm, 20th October 2005

My Lords, like many other speakers I begin my remarks by welcoming this important and timely report on the future financing of the common agricultural policy. I congratulate my noble friend Lord Renton of Mount Harry and the committee on producing it. However, before embarking on the rest of my remarks I should declare an interest as a farmer and a non-executive chairman of Carr's Milling Industries Plc, which, among other thing, is one of the country's largest agricultural suppliers.

In many ways this report very usefully complements the work recently done by Sub-Committee A, of which I am a member, on the future financing of the European Union as a whole. It is obvious that one cannot seriously consider the Union's finances without considering agriculture and vice versa.

I want to look at this report in the context of the report produced by Sub-Committee A because it seems to me that there is considerable cross-fertilisation between them. In particular I want to look at agricultural expenditure in the context of European Union expenditure as a whole. I should have liked to look at the rationale for agricultural spending in the 21st century, but given the time constraints I shall omit doing that on this occasion.

In the report on the future financing of the European Union we endorsed the proposition which was, I believe, originally expressed in a political context by the Chancellor Gordon Brown, that European Union spending on the structural funds should be focused on the recently joined countries and Greece and Portugal. The other member states, the argument runs, are properly placed to fund their own regional and structural spending. I believe that is an essentially sound approach because, as I have frequently said, the European Union is not primarily about budgets and money, it is about laws and regulations. I am coming to the view that the European Union budget should become a financial clearing house, a kind of mechanism which transfers monetary help from the richer to the poorer member states within the discipline of the single legal and economic area. In this report, I think quite rightly, the possibility of a somewhat similar approach to agricultural expenditure was touched on briefly but then put on one side. That is right because for now it is a step too far. However, for the medium term I believe that it merits serious consideration. The process of that consideration should, in my view, begin now.

As the report correctly recognises, enlargement poses serious problems for the European Union budget in general and for the agricultural budget in particular. What money there is in the budget is under pressure in terms of what we are doing now, and that pressure will increase with further enlargement.

In my view one of the characteristics of the common agricultural policy that is most misunderstood in this country is the almost sacramental quality which is accorded to it, especially by the founder members of the Union. We all know why the common agricultural policy was placed at the heart of European Union spending for reasons which are entirely understandable and may well have been justifiable 50 years ago. But it seems to me that we should not be afraid to question those reasons, and their relevance, today.

I digress briefly with regard to France. Of course, France is a major beneficiary of the common agricultural policy. Lucky France, say I. As we point out in Sub-Committee A's report, it is a matter of the French rebate. Indeed, it is probably more than that. It is as if one had some wonderful benefactor who annually paid a large sum towards one's annual unavoidable expenditure. If I were the French, I would fight every inch of the way to maintain the existing common agricultural policy financial structure. Of course, that is what Jacques Chirac does. He deploys logic, false logic, mysticism and assumed mysticism to that task. But it is simply no longer sustainable. It is, in the words of my old friend the late Viscount Whitelaw, bosh.

In terms of contemporary Europe, I see no justification for the rich European countries not fully funding agricultural expenditure in their own land. As I have already said, in the least well-off countries, there is a similar argument to that which we have been arguing for European Union involvement in the structural funds. We should bring forward the case to bring the present system of agricultural funding to an end, and institute a serious debate not only in this country but elsewhere—all across Europe—about that proposition. At least some of the richer countries may be losers, but the one thing that we can be sure about is that the less well-off will all be winners.

All that is of course dependent on a new common agricultural policy being put in place, one more akin to current industrial policy than to the existing CAP. That point was made by the noble Lord, Lord Hannay. We need to be absolutely clear that even if much agricultural spending is repatriated, it does not mean that European Union involvement with the policy is cast on one side, any more than it has been with, say, industrial policy. That provides a perfectly good and entirely communautaire precedent for repatriating agricultural spending to member states, subject of course to state aid rules and a general series of overarching common rules. In turn, those rules would be underpinned by funding support for the poorer member states, in recognition of the cohesion of the single market.

This report, which I warmly endorse, has within it—lurking in its evidence, reasoning and conclusions—some interesting, challenging and very important questions, which require much more further thought and consideration than can be given to them in only one short debate in your Lordships' House on a Thursday afternoon in October. The best interests of rural Britain, rural Europe and Europe as a whole will be served well by long and careful consideration of them, both in this country and elsewhere.

Photo of Baroness Miller of Chilthorne Domer Baroness Miller of Chilthorne Domer Spokesperson in the Lords, Environment, Food & Rural Affairs 6:42 pm, 20th October 2005

My Lords, from these Benches, I join others in congratulating the chairman of Sub-Committee D and the sub-committee on producing the report. Although I am now back as a member of Sub-Committee D, I can claim absolutely no credit for any part of the report, having not been a member when it was drawn together. My congratulations are given with that in mind.

I agree with the noble Lord, Lord Inglewood, that the breadth of the subject and the interest that there has been in hearing the different arguments this afternoon means that the House should very shortly have another debate on the subject, bringing in other colleagues who expressed an interest in speaking but could not be here today, colleagues with an interest in international development, and so on. There is a large and sweeping scenario to cover.

In his introduction the noble Lord, Lord Renton, gave us a good picture of where we stand, poised with the next WTO round at Doha in the wings. We have great hopes, but there are some enormous threats too. Whether the United States is likely to translate its words into action is a really big question. I agree with the noble Lord, Lord Whitty, who said that we could move further on modulation. It is one matter highlighted by the report, and bears much further consideration. I might urge caution among noble Lords who argued for repatriation or much more extensive co-financing.

I want to talk more about Pillar 2 shortly, but I shall deal with the repatriation issue. National governments including our own—perhaps our own in particular; I have more experience of them, including this Government and previous administrations—have a remarkably poor record when it comes to funding rural areas and rural development. They have invented quangos that hand out small amounts from time to time, but rural areas, and especially remote rural areas, have benefited enormously from the relationship with Europe and from the knowledge that they can approach Europe for funds and that they are bidding on the same basis as other regions in Europe. It would be extremely foolish to move quickly to relinquish that.

As I started on the rural development road, I shall continue on it before coming back to comments from other noble Lords. Paragraph 91 of the report, which suggests that there might be a 55 per cent reduction in rural development funding, is particularly worrying. Perhaps the Minister knows whether the UK Government are now thinking of negotiating on a budget which is substantially reduced compared with Pillar 2. I gather that they are, and that that budget might be at around the 50 per cent level. However, the Minister is frowning so perhaps he will correct me.

I believe that rural development funding equates to investment in the next generation and in the whole future of rural areas. As paragraph 94 states, structural and cohesion funds are really only suited to large infrastructure projects. When we invest in the future, we need to do so on a human scale. Small local initiatives often produce far more in terms of energy from the people in the area concerned. In fact, "small" is in the nature of rural areas. The settlements are small; the businesses are small; and often the amount of funding needed to get something going is small. So Pillar 2 is immensely important. It deals with a variety of issues and, in future, it will be required to do far more of that work, dealing with diversification.

I am glad to say that the LEADER programme merits a box on its own in the report. It is an incredibly flexible programme. It puts people at the forefront in solving their community needs and, even better, it encourages co-operation between the European regions in coming up with solutions. Some of the most promising projects that I have come across in terms of what has been delivered have been the LEADER programmes. So I urge the Government to heed the words of many noble Lords who have spoken this afternoon and resist any moves to weaken substantially Pillar 2.

We have heard some of the downsides of the CAP—for example, the paperwork referred to by the noble Earl, Lord Erroll. The noble Earl, Lord Ferrers, in his usual flamboyant style, talked about over-prescriptive directives. Peers on these Benches are, of course, great Europhiles—we are supporters of Europe. But we see this as being the moment when almost everything European is up for change, and it is an opportunity to get rid of some of the over-bureaucratic approaches that have brought Europe into disrepute. So, we support a European future but we do so with the belief that there should be less paperwork and directives that do not, frankly, make a fool of Europe. It should have directives which can be interpreted appropriately at a national level but which move the agenda forward.

The speech of the noble Lord, Lord Hannay, in particular, raised issues and thoughts that I would like to have in the future. I want to think in depth about the points that he raised, and I look forward to reading his speech. He managed to put so much into his allotted six minutes that it will merit very careful study.

I turn briefly to the White Rabbit mentioned by the noble Lord, Lord Giddens. That White Rabbit has hopped not only all over Europe but all over the world. The noble Lord, Lord Plumb, was the first person to talk about food. In fact, I think that he was the first person in this debate to use the word "food". Throughout the world, the White Rabbit has had an effect on coffee prices. Headlines indicate that the effects of coffee prices have ruined countless farmers in Kerala in India. One can also look to the Caribbean and some of the Latin American countries where small producers of all kinds have been driven to the wall.

Then we come back to the UK and the noble Lord, Lord Plumb, mentioned the basket of commodities. I have different figures for different years, but the effect has been an enormous price cut for producers at a time when everyone else's income has increased. One particular figure brought it home in a real way. It came from the chairman of Devon County Council, a dairy farmer in that county. The drop in milk price alone over the past decade equals an annual cash loss of £40 million to Devon. It takes a great deal of rural development funding to make that up—in fact, it cannot be made up. We are currently playing catch-up for the drop in prices.

I appreciate the arguments that a drop in prices is good for consumers, but consumers are increasingly questioning that in terms of the quality of the food and some of the prices they are now paying for cheap food. So we are beginning to question the activities of the White Rabbit not only in Europe but all over the world.

Finally, I turn to the interesting question raised by my noble friend Lord Livsey: the fact that Europe has failed to make proper provision for Romania and Bulgaria. That is a real indictment of the institution, is it not? It is a lesson that the institution needs to bear in mind because if Europe is to look to further expansion, it cannot afford to make such a miscalculation. I want Europe to be well regarded and to be seen as a dynamic single market, but it must improve in terms of getting things right more than my noble friend's example suggests it does.

Again, I thank Sub-Committee D for producing a report of this quality. I also appreciated the suggestion of the noble Lord, Lord Inglewood, that we must keep it in the context of the Sub-Committee A report. I am sorry that I had not obtained or read it before today's debate but I certainly mean to do so.

Photo of Baroness Byford Baroness Byford Spokespersons In the Lords, Environment, Food & Rural Affairs 6:52 pm, 20th October 2005

My Lords, I, too, congratulate my noble friend Lord Renton of Mount Harry and his committee and thank them for this report. It took evidence from a wide range of specialists and, as a result, has come forward with many practical conclusions. It is good that we have had five members of that committee debating with us today. I also congratulate the noble Lord, Lord Anderson of Swansea, on his excellent maiden speech. It was most thoughtful and we greatly look forward to hearing from him in the future. Finally, I remind the House of our family's farming interests in Suffolk.

The single farm payment came into effect on 1 January this year, but it is not to be paid to farmers until February 2006. This delay is causing great anxiety among farming businesses. Can the Minister assure us that this date will not slip even further and that the Rural Payments Agency and its IT system are able to cope?

My noble friends Lord Peel and Lord Plumb spoke of the need for stability. My noble friend Lord Plumb spoke of the confusion that exists among farmers. It is important that they are paid what they are owed and are paid on time. It is unacceptable that they are experiencing this delay.

My honourable friend Jim Paice called for action on rural payments back in June and said that no farmer should be penalised because the government agencies are able to provide maps, forms and other information required to support applications. My noble friend Lord Ferrers spoke of the form filling; the burden is heavy. In particular, no one should find this year's payments delayed beyond 5 April, resulting in an income tax demand based on the receipts of two single payments in the same financial year, 2006–07.

We have had an interesting debate. It has varied widely. I should like to return to the whole question of co-financing, on which so many noble Lords spoke. The noble Lord, Lord Whitty, recognised that there is already pressure on Pillar 1, and that that will ultimately put greater pressure on Pillar 2. As I am sure that the Minister will acknowledge, the reform of the CAP is having a major impact on the organisation of UK agriculture. The committee studied the intricacies involved and made recommendations that we are debating today. I remind noble Lords that the British Government is the only country to have chosen voluntary modulation, the result of which, as we have seen, has in certain cases had an adverse impact on equity in British farming and distortion of competition noted in the report.

In its briefing, the NFU expressed its concern that the increase in Pillar 1 payments will not necessarily be accompanied by an increase in alternative funds. It fears that the distribution of the national modulation across member states will vary. The resultant impact on farming communities is unknown, but could result in yet further distortions to fair trade between EU partners. My noble friend Lord Plumb spoke in particular about food production. The whole question that we should be debating concerns long-term food production, not only in this country but throughout Europe and the world. We should not apologise for producing high-quality food and I firmly believe that we should continue to do so.

The committee recommended that the EU strive to attain a successful Doha agreement. However, by how much has the Prime Minister's call for further CAP reforms before 2013 weakened the Government's negotiating position, despite Commissioner Marianne Fischer-Boel's rebuttal? Peter Mandelson further confused the picture last Tuesday when he suggested that, during the world trade talks, he will slash EU farming subsidies even further. That does not bring stability or knowledge to farming communities. When he winds up the debate, will the Minister clarify the Government's intention and describe how they will relate to the recommendations made by the committee?

In considering future financing, the committee considered whether the expenditure planned for supporting Romania and Bulgaria's accession in 2007 was adequate. The noble Baroness, Lady Miller of Chilthorne Domer, just referred to that. I understand that the majority of witnesses felt that the current budget proposals are inadequate and could be financed only by cutting direct payments to the EU 15 via the use of financial discipline mechanisms. Will the Minister update us on current government thinking?

In addition, as has been mentioned by other noble Lords, we face reforms to sugar, dairy, vegetable and wine regimes due in 2006–07. Is the Minister confident that that can be achieved within the present financial circumstances? If not, how will it be achieved?

Support payments are Pillar 1. Pillar 2 covers rural development. Currently, they are intended to alleviate both socio-economic and physical disadvantage. Future targets are still to be decided and could have a negative impact, should they be used to assist convergence between the 15 and the new members. Should there be insufficient funds to meet Pillar 2-type expenditure across the expanded EU, either national governments will have to make up the shortfall or, especially in those countries that have received Pillar 2 funding for some time, rural projects will have to be abandoned. I must tell the Minister that that concern has been raised with me on many visits around the countryside. Some of those projects have potential for considerable benefit to rural communities, which could well be hampered. It is even possible that the abandonment of projects and a reduction in real terms of the moneys coming through our rural communities will damage their competitiveness.

How do the Government view the possibilities before us? What steps do they intend to take to ensure that the UK's share of Pillar 2 does not fall any further?

The noble Lord, Lord Hannay, raised specifically a point that was raised by many—should we expect particularly those longer-standing EU countries to co-finance some of their future expenditure? My noble friends Lord Biffen, Lord Peel, Lord Inglewood and others also raised that question. There will be an increased cost, which I am sure will not be covered in the existing arrangements, although I await the Minister's reply with interest.

I should like to pass a thought across. My honourable friend Oliver Letwin, when unveiling our party's plans in June 2005, called for three things. First, a compulsory decoupling of the single farm payment from all production across all member states, as it is in England. Will the Government undertake that? Secondly, the scrapping of all EU support for tobacco production, on which the noble Lord, Lord Whitty, touched earlier. Thirdly, in maintaining the single farm payments until 2012, but increasingly switching its fund through compulsory co-financing, will the Government consider that or do they wish to leave it for each country to decide how they will go about it? If they do decide on the latter, how will they actually manage to fall fairly within the suggestion made by the noble Lord, Lord Hannay, that you need a framework on which you have fair trade, and yet you still allow each country to do their own thing? That is a real and very difficult issue to resolve, and I would be interested to hear the Minister's response.

This has been an important and timely debate. The Minister knows well how strongly I believe in UK agriculture. I am sorry that it has not been touched on more generally, but in fairness to the committee they were asked to look at the future financing of CAP specifically, and not to reflect on the need for food and food production. In my humble estimation, you cannot separate the two; they go together.

Photo of Lord Bach Lord Bach Parliamentary Under-Secretary, Department for Environment, Food and Rural Affairs, Parliamentary Under-Secretary (Department for Environment, Food and Rural Affairs) (Farming, Food and Sustainable Energy) 7:02 pm, 20th October 2005

My Lords, I begin by first thanking everyone who has taken part in the debate, and I thank especially the noble Lord, Lord Renton of Mount Harry, and members of his committee for producing such an important and well-written report. He will not be surprised to hear that we agree with the general thrust of his report, particularly on the need for further reform of the CAP. Indeed, the fact that it is an important report is proven by the fact that as distinguished a journalist as Mr Peter Riddell devoted a column to his report, which is not something he does for every report that appears in this House.

Before I go on, I want to praise the maiden speech of my noble friend Lord Anderson of Swansea. He is an experienced and successful parliamentarian of many years' standing and a renowned expert on all matters to do with foreign affairs. Having listened to him, albeit for six minutes, one can tell exactly why he has such a high reputation. This House is extremely lucky to have him as a Member. I and others look forward to his future contributions.

While the 2003 reforms represent in our view a very good deal by creating a better policy framework for the CAP—for reducing trade distortion; for addressing some of the negative environmental consequences and freeing farmers to become more competitive and market-oriented—there frankly remains a need for further reform. In particular, as has been said by many noble Lords, there is a need to address the high cost that the CAP still poses for both taxpayers and consumers. I assure the House that the Government will continue to make that reform a priority.

As the report notes, those reforms introduced the single payment scheme for farmers—I will comment on the details of that later, if I have time—which breaks the link between the bulk of subsidy and production, and makes subsidy dependent on meeting environmental and animal health and welfare standards. That means that the CAP direct payments are significantly less trade distorting and less environmentally damaging. Those changes also pave the way for a more market-oriented and competitive farming industry. I believe that, in spite of all the current problems, farming is ready for that. The level of the single payment scheme should not be regarded as permanently fixed.

That new policy direction must be followed, not reversed. We are pleased that negotiations are under way in the EU to extend the principles of the 2003 reforms to the sugar regime—the noble Lord, Lord Renton, spent some time on the subject. We would like to see them extended yet further when other scheduled reviews of parts of the CAP come up over the next few years.

Achieving reform of the EU sugar regime will not be easy, but progressing the proposals to the Commission's timetable is a top priority for the UK presidency. We have provided for an intensive work programme to prepare for decisions at the Agriculture Council in November, and work is progressing to timetable. I am well aware that it is important to beet growers that decisions be taken as early as possible, so that they can plan for the coming growing season.

However, more can be done to ensure that farming becomes more competitive, sustainable and innovative in responding to challenges such as globalisation and climate change. Globalisation brings opportunities, which we are keen to exploit. Much more progress also needs to be made on cutting the taxpayer and consumer cost of the common agricultural policy, which is estimated at around €100 billion per year—around €50 billion in taxpayer costs and €50 billion through higher food prices.

A debate has begun on the shape and size of the EU budget, and about how it can deliver best value for citizens and help the EU meet the challenges of this century, such as globalisation, continued economic growth and environmental protection. There is no secret agenda. We want to end the trade-distorting effects of the CAP policies. As part of the debate, the UK Government have called for a budget review during the next financial perspective to ensure that it delivers better value and is fit for this century. As has been said a number of times in this excellent debate, the common agricultural policy makes up over 40 per cent of the current European budget, so clearly it needs to be part of that review. The noble Lord, Lord Inglewood, made that point a few minutes ago. As with all spending programmes, we need to ask ourselves quite simple questions: whether this money is being spent as well as possible or whether it could be better spent elsewhere. We believe that the goals of a competitive, sustainable EU farming industry can be achieved at a lower cost through an updated policy framework.

We are not calling for further changes to the CAP overnight; rather, we want a debate that includes all parties involved in the EU, followed, as necessary, by a planned process of change. That is why the UK presidency has consulted member states on the future financing negotiations. The debate must be inclusive, enabling all partners and stakeholders to express how they see the future of European agricultural policy developing. Of course we will play a full part in contributing to that debate.

Following the European Council in June, it became clear that some member states wished to revisit certain areas of the overall budget. The UK and others called for any such examination—quite justifiably—to take the entire budget into account, including our abatement and funding of the CAP. Consequently, since July, we have held formal presidency consultations with each of the member and accession states, in order to ensure that we understand the views and concerns of each of them. It was right for us to do so, given our presidency, and to allow member states to step back from the heat of the negotiating table and consider the way forward. It was also right that we understood what our partners were saying.

We still believe, as a Government, that the priorities of an enlarged EU can be met within the overall budget worth 1 per cent of EU gross national income, and that, in order to achieve that, EU spending must be disciplined and effective. However, we take on board the crucial points that the committee makes in its report.

As part of our approach, we have argued that the EU structural funds, of which there has not been much mention in this debate, should be focused on the poorest member states, and that richer countries should take primary responsibility for financial regional development programmes from their domestic budgets. We are not advocating renationalisation. All member states should sign up to EU-wide objectives for regional policy. Moreover, enlargement highlights the importance of ensuring that EU agricultural spending is directed where it is most needed, and in a way that brings most benefits for rural development. We believe that the CAP must continue to change to benefit all citizens in an enlarged EU.

Where are we at present? The noble Lord, Lord Hannay, was right: we certainly need a CAP, though not perhaps the current CAP, to keep the single market going. Related to this, the Government believe that a better balance for the needs of rural development could be found by increasing the funds available under Pillar 2 by modulation of funds from Pillar 1.

Before I come back to that crucial point—and it is one that the committee supports, when it points out the problems attached to it—I was asked questions in relation to a deal on future financing. We are committed to working towards a deal during our presidency. We have called for the broader debate that I have referred to. We have no formal proposal at the moment. On the basis of the consultation that has been taking place all summer, we anticipate tabling a proposal later in our presidency.

We hope to secure agreement to reform of the sugar regime during our presidency. More widely, we are hoping to set in motion a fundamental review of EU expenditure, to report during the next financial perspective on all areas of expenditure. We have asked for a proper debate.

With regard to Pillar 2, the agri-environment schemes currently funded under the England Rural Development Programme have delivered significant environmental objectives from agriculture. They have been funded by voluntary modulation. It is essential that, in order to continue delivering these schemes, such modulation of funds from Pillar 1 to Pillar 2 of the CAP continues into the next financial perspective.

Rural development expenditure should be effective and deliver value for money. The recently adopted rural development regulation and the proposed strategic guidelines for rural development both helped to achieve these objectives. The strategic guidelines lay out clear objectives for rural development expenditure, linking them to wider shared EU priorities such as increased employment and improved biodiversity. I stress that the Government acknowledge the importance of adequate funding for rural development. We have argued, and will continue to argue, for a further transfer of resources from Pillar 1 to Pillar 2.

The Commission's original proposals, on the basis of the figure of 1.4 per cent, suggested a rural development budget of £88 billion. That represents a substantial increase on current levels, but, I repeat, we believe that with reform and prioritisation, a disciplined budget of around 1 per cent is more than enough to meet the demands of an enlarged Union.

I turn to co-financing, which has been raised today by many noble Lords. My predecessor, my noble friend Lord Whitty, first mentioned it in passing. The noble Lord, Lord Hannay, spoke about it in some detail. The noble Lord, Lord Biffen, the noble Earl, Lord Peel, the noble Baroness, Lady Byford, and others have talked about it. It is obviously a matter that we must consider carefully. It is one option among many that have to be examined. If it were to be introduced—the noble Lord, Lord Hannay of Chiswick, referred to it—it would have to be done in a way that ensured that there was no increase in total public spending in the EU. We see that as a danger—the EU budget plus the national budget. Any move towards co-financing should, of course, ensure that a level playing field is retained and should not stand in the way of further reform to tackle the economic ills of the CAP or its overall cost to consumers and taxpayers. Today, answering a question on co-financing in another place, the Secretary of State, Mrs Beckett, said:

"That is not popular with everybody but, of course, the main thing that we have to bear in mind is that whatever changes might be made at any point in the future there is a single market in farm produce and a level playing field across the EU".

I turn to a point made by several noble Lords, including the noble Earls, Lord Erroll and Lord Ferrers, the noble Lord, Lord Plumb—to great effect—and the noble Baroness, Lady Byford. The noble Earl, Lord Erroll, may be surprised to hear that I agree with some of what he said, particularly what he said about the need for simplification. It is my view and the view of the Government that, in farming, there is too much bureaucracy and too much regulation. Of course, there is an important place for regulation with regard to health and safety, but there is a drive now throughout government—whatever the noble Earl may think—to improve regulation across the piece. There is a great deal more to be done in agriculture.

The form for the single payment scheme was extremely complicated and difficult. In a sense, it had to be: it is a radical change. I am determined to try to make sure that, in future, form filling is not the hell that it is turning out to be. It is not fair on farmers; it does not need to be as complicated as it is. I am not after easy plaudits—it is more difficult to do than I am saying—but it needs to be done. Our whole-farm approach, about which, I hope, the House will hear more in due course, is an attempt, at least, to simplify what is needed to make sure that farming is successful. I have a lot of time for the remarks that the noble Earl made; perhaps, I would not have made them in quite the same way. There are points to be made, particularly with regard to better regulation.

I also took on board the point made by the noble Lord, Lord Plumb, about food. Although environmental considerations are critical to the way that the countryside looks, we must never forget that we are a country that produces very high-class food, and we have to thank our farmers for that.

I want to say a word about the single payment scheme. Of course, there have been considerable difficulties, as the House knows, with putting that scheme into effect. I am not surprised that there have been. Significant effort is being focused on ensuring that payments begin in February. Notwithstanding the important implementation steps that still lie ahead, that remains our best estimate. We have also secured EU legal provisions to make interim payments to farmers, and we are developing contingency systems that could deliver such payments in February, if necessary.

I shall say a word about CAP reform, the Doha development agreement and the Hong Kong summit in December. All of these are inextricably linked with what we have been talking about today. Within agriculture, the Doha development agreement commits us to comprehensive negotiations aimed at substantial improvements in market access; reductions of, with a view to phasing out, all forms of export subsidies, which, in my view, is a necessary policy; and substantial reductions in trade-distorting domestic support. We want to see significant progress towards that at the ministerial meeting in Hong Kong.

Negotiations are entering a crucial phase at the moment as WTO members seek agreement in key areas, including agriculture. The shift to a more serious dialogue is very welcome given our wish to see a successful outcome at Hong Kong, where we want to see a collective EU view on that. This provides us with an historic opportunity to deliver significant economic gains and, frankly, to deliver millions of people out of poverty, particularly in the developing world.

I am conscious that I have not answered all of the questions that have been asked, but, of course, I will write in the normal way. As regards the future financing discussion, I reiterate that the Government do not have any blueprint for a deal that I can announce to the House. Any proposal from our presidency will need to take into account the views of other member states, which, as I have mentioned, we have sought. We are committed to working towards agreement in December, and that remains the case today.

I thank the noble Lord, Lord Renton, and his committee again for an excellent report. I am sure that we will discuss it again, but today's debate has been very helpful.

Photo of Lord Renton of Mount Harry Lord Renton of Mount Harry Conservative 7:21 pm, 20th October 2005

My Lords, I thank the Minister for his interesting reply. It was rather franker, with more meat in it than one sometimes hears in ministerial replies. I know that we will all want to study it very carefully. On a theme that many noble Lords have said has run through this debate, under Pillar 2 especially, more should be done by national countries. There should be more co-financing and no more 100 per cent EU financing. That means more public money coming from national government. I hope that the Treasury are listening to those words sympathetically. In my experience, when money is short, I have, sadly, never found that environment was very high up the list of Treasury priorities. Perhaps the Minister will see that that is changed.

I congratulate the noble Lord, Lord Anderson, on his maiden speech. We sat on other sides of the other place for 23 years looking across at each other. I remember his wittedness and his kindness. I would say to him now that I suspect that his Welsh accent has got slightly diminished. But I am sure that the wisdom, the wittedness and the kindness will all be there in this place. I welcome him here very heartedly. I thank all noble Lords who took part in this very interesting and wide ranging debate. It would be odious to mention any names—it is not necessary. But I thank all who took part. It started a discussion which will continue.

I would just comment on a remark made by my noble friend Lord Plumb, a member of our committee, who said that we do work on the committee with a remarkable degree of unanimity. "Remarkable" is perhaps the operative word. Now that we are embarked on a report on the reform of the sugar regime, I hope that we can continue to show the same degree of unanimity.

On Question, Motion agreed to.

House adjourned at twenty-four minutes past seven o'clock.