Common Agricultural Policy — Debate

– in the House of Lords at 11:37 am on 18th November 2010.

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Moved by Lord Greaves

To call attention to proposals for reform of the Common Agricultural Policy; and to move for papers.

Photo of Lord Greaves Lord Greaves Liberal Democrat

My Lords, this is a good opportunity to start a parliamentary debate on the reform of CAP, which is clearly going to last over the next two to three years while the decisions are being made. Today is particularly opportune, as we understand that the Commission will publish its proposals today.

The long and tortuous history of the common agricultural policy is approaching one of its periodic turning points. A new phase in the CAP to the end of the decade is due to start in August 2013. The details of that have not yet been agreed in any shape or form, so the next two years are going to be interesting. In introducing the debate, I want to give a fairly broad-brush overview. I am not going to talk about much of the technical detail. I am grateful for all the briefings that have come from various organisations and bodies and I hope that other noble Lords will fill in some of the detail. I want to put forward a series of propositions with which I have considerable sympathy and which I think should form the basis of a great deal of the discussion that is taking place.

The European Parliament has already agreed its position, based on a report from my Liberal Democrat colleague, George Lyon MEP. I am grateful for the many insights of what I am saying now, which are based on discussions with him. The Commission communication is due out later today. There has been a well leaked draft from commissioner Dacian Ciolos and I have no reason to doubt that the communication will be based on his views. However, there could be changes, so I do not want to talk about that in detail until we see exactly what is said.

Legislative proposals are due in 2011. There obviously will be interesting discussions during that time in the Council of Ministers. The CAP is subject for the first time to co-decision between the council and the European Parliament. Decisions have to be made by the end of 2012 or in early 2013 in order for the new system to come into operation in 2013. Clearly, a major part of deciding what will happen will be the overall European budget and the size of the pot, which will be decided by member states in the mean time.

My first major issue is the urgency for the United Kingdom Government, working with the devolved Administrations in Scotland and Wales, to negotiate. It is clear that the line that was taken by the previous Labour Government has been abandoned-rightly so, because it isolated this country in the discussions on the future of the CAP within Europe. Will the Minister give me some idea of what the Government see as the timetable for coming to views on UK government policy with a view to negotiation and discussion with the other European countries and, as part of the Council of Ministers, with the other European institutions?

In trying to give an overview of the position, I will try to avoid using as much Euro-jargon as I can. It seems to us that sustainability and fairness have to be at the heart of a new CAP. The CAP has to be economically and environmentally sustainable at global, European and local levels. It needs to be socially sustainable, particularly in what Ciolos calls,

"areas with specific natural constraints", which may be the new Euro-jargon for less favoured areas, or it may be a little wider than that.

Food security is increasingly important and it has to be politically sustainable across the EU. In particular, we need to refocus CAP towards creating a sustainable agricultural system that meets the challenges, first, of climate change and other environmental challenges and, secondly, of the increased demand for food, which will occur across the globe and will require a large increase in food production. All that will be within a highly imperfect global market in which the patterns of demand and need for food are at variance with each other and in which the systems and patterns of trade reflect the demand rather than need.

Climate change makes the necessary increase in production more difficult due to scarcity of new land, water and energy. Increased demand is due to more people, an estimated 9 billion of us by 2050-or 9 billion others, because I do not think that I will be around in 2050-and demand for more varied and westernised diets.

George Lyon has identified four key areas of fairness: fair trade with major trading partners, most of whom support their agriculture; redistribution of direct payments under CAP to meet demands of new member states; support for local food production for local communities in less favoured areas or areas with specific natural constraints, as we might now call them, particularly upland and more remote areas throughout Europe and in this country; and a fair food chain through the strengthening of the negotiating power of farmers against multiple retailers.

My second proposition is general and relates to the way in which CAP has evolved in the decades that it has been in existence. Should we continue to phase out remaining export subsidies, as the Commission and the Parliament are suggesting? To what extent should we continue to phase out the remaining elements of market intervention? Most of them have gone and we do not have beef mountains or wine lakes any more. Also, to what extent should we attempt to get rid of coupled direct payments altogether, or should that be an option for member states? If the last two are to remain in place to some degree, at what level and on what basis would that be acceptable? This is fundamental to reform in the next phase.

The third proposition is the clear need to move towards a fully area-based system throughout Europe by 2020. Payments under the present phase have been decoupled, but in many places they are still being paid on an historical basis, so that, although they have been decoupled from existing levels of production and stocking, they are still linked to former levels. The longer that goes on, the more unfair it is. It does not represent the current realities.

The fourth proposition is the redistribution of payments in Europe. There has to be a rebalancing of area payments away from the old members of the EU-if I can put it that way-particularly in western Europe, to the new member states, which are mainly in eastern Europe. When the new member states joined, it was on the understanding and belief that, over time, there would be a more equalised system of area payments. A useful graph in the Lyon report from the European Parliament sets out the 2008 payments. If we ignore Greece, which is right at the top, but look at western European countries, we see that Belgium and the Netherlands received payments that averaged over €400 per hectare. Germany received over €300, France around €300 and the United Kingdom over €200. Romania and two other countries received less than €50 per hectare, while Poland, the largest of the eastern European countries to join, received around €80 per hectare. That is clearly not fair, as it denies countries in eastern Europe funds to support the restructuring and modernisation of agriculture that for many of them is absolutely necessary. People used to talk about inefficient French farmers, but they do not do that any more because in the 1950s and particularly the 1960s France reorganised substantial parts of its agriculture, as did southern Germany. That kind of process now has to take place in eastern Europe.

My fifth proposition is that there has to be a significant further greening of the system. Both the Lyon report and the Ciolos paper substantially go along with that. Is it not clear that the purpose of farm support-the reason why it exists-is to support the producers of food? It does not exist to achieve environmental public goods, but those goods are vital, so green outcomes need to be embedded throughout the system. Different ways to further strengthen the greening of the CAP are set out in the two documents. I do not want to go into those details at the moment, but other noble Lords may do so. However, whether that is done by amendments to the two existing pillars or in some other way, it has to happen.

That leads to the last two fundamental propositions. The first is the absolutely vital need to maintain a common European agricultural policy and to resist nationalisation of the CAP either by the patriation of significant parts of it or by resistance to further moves towards co-funding. These are simply attempts to undermine the whole basis of a very necessary system.

The final proposition is the size of the budget. If the aims set out in the Lyon report and what we expect to see in the Commission report are to be achieved-indeed, if the CAP is to do what it has to do-it will not possible to make any significant further reductions to the proportion of the EU budget that is allocated to the CAP from 2013. It was 75 per cent in 1984; it is now about 43 per cent, while the projected level for 2013 is 39.6 per cent. However, if we are serious about food security in Europe, climate change, fairness to eastern Europe and all the other issues-never mind sorting out the political problems-the projected level in 2013 is probably inevitable. My advice to the Government is to accept that, more or less. They should not spend their energies arguing about it; they should argue about the important thing, which is what the CAP has to do. I beg to move.

Photo of Lord Plumb Lord Plumb Conservative 11:51 am, 18th November 2010

My Lords, in declaring my farming interests and involvement with agricultural policy and development over many years, I welcome every opportunity to look to the future-recognising, as I hope we do, that farming is part of a global industry as well as a major part of our national economy.

Many noble Lords will remember that the UK's farm policy changed from the price guarantee and efficiency payment system when we joined the European Union in 1973-a policy which farmers were beginning to realise was creaking at the seams as production and costs increased-and moved, in six steps over a period of five years, into the common agricultural policy. The CAP has faced a lot of flak over the years, and some of the criticism has been justified, but those who wish to scrap it should understand, as my noble friend Lord Greaves has recognised, that it operates in the long-term interests of consumers.

The CAP has been regularly reformed over the past 50 years and, despite its often perceived failings, reliably fulfilled its primary role of providing high-quality food throughout Europe. It has also delivered the current standards of environmental management, food hygiene and animal welfare. However, this more modern food and farming industry has become energy intensive, requiring oil to produce fertilisers, agrochemicals and fuel. Agriculture uses 70 per cent of the world's water and is responsible for 14 per cent of global greenhouse gas emissions. Agriculture and the food industry-which now employ 14 per cent of our nation's workforce-are therefore very much part of the global climate change problem. The demand for more renewable energy sources also means that the food processing industry now has to compete with the biofuel industry, which uses sugar, maize and wheat, for example, for raw materials. As that demand increases, the cost of food will rise.

Before I raise the issues that the reformed common agriculture policy will have to confront, your Lordships may wish to consider the reply I received from my noble friend Lord Sassoon in response to questions I posed, following the spending review debate, about Defra's position. After recognising that Defra's running costs would be reduced by £174 million, he stated that, by the end of the spending review period, a saving of £66 million will be made right across the rural development programme for England. The document which my noble friend supplied said:

"However, by making the most effective use of the European funding available to the programme and by taking advantage of movement in Euro/Sterling exchange rates, funding on the Higher Level Scheme will rise by 83% by 2013-14".

Where hedging risks from exchange rate movements represented good value for money,

"Defra, Natural England and the Rural Payments Agency will work to ensure RDPE payments are made promptly and accurately".

I welcome that.

The CAP will be reformed in 2012-13. As to its cost, many figures are quoted and misused, but they are spread across the lands of 500 million people, and I am told that €50 billion-£40 billion-is equal to 23p per day to consumers.

A reformed CAP has to confront five new issues; my noble friend has already mentioned them. They include food security, price volatility, climate change and rural degradation. The intensification of farming, as it has changed over the years and continues to change, threatens the viability of extensive regions of moorland and forest. There are three conflicting demands: the price of food against the background of budget control and the effect of the recession on consumer spending; globalisation and the liberalisation of world trade as we try to feed 9 billion people in the world; and the long-term trend in energy costs and the incentives for growing energy crops. The Commission's proposals as we have read them in their leaked form are a little like the curate's egg.

With all the development that is taking place, I am optimistic about a future in which science and technology, including GM crops, will become more important. In order to feed the world's growing population, we need to double the output of food. We need a progressive common agricultural policy. It should be clearer, simpler and less confusing. It should involve less risk and be more market-focused and competitive in spirit. It should offer incentives to improve environmental performance. Above all, a common agricultural policy has to maintain productive capacity.

I hope the Government will oppose a renationalised policy giving more flexibility and possible co-financing by member states. I hope the Minister will also look further at the regulation payment rates for agri-environment schemes, as set out in his letter following our debate on the Prince's Countryside Fund.

Photo of Baroness Trumpington Baroness Trumpington Conservative

My Lords, before the noble Lord sits down, may I ask him whether he includes the valuable research done under the heading of "general agricultural policy", which is of benefit to the entire world?

Photo of Lord Plumb Lord Plumb Conservative

Of course I value the tremendous research done both privately and publicly. Without it, we would not have seen the growth that has been delivered through science and technology. That development is not only important but has been taken on with enthusiasm by people who realise that, in the long term, the food industry is probably one of the most important industries that we have in this country and throughout the world.

Photo of Lord Wills Lord Wills Labour 11:59 am, 18th November 2010

My Lords, this issue is of considerable importance, not just to the agricultural sector but to consumers and taxpayers throughout Europe, as well as to developing countries and to all those who cherish our countryside. I start by congratulating the noble Lord, Lord Greaves, on securing this debate. As he said, it is a timely one, and I join him in hoping that this will be the first of many occasions on which the House returns to this subject as this latest bout of reform unfolds, in what will undoubtedly be a long and tortuous process. Although the subject is of such importance to so many people, it is an opaque, complex and technical one, which therefore often does not receive the proper scrutiny that it should. I see a list of distinguished speakers with a great deal of experience in this matter, so I shall confine my remarks to a plea to the Government for greater transparency in the way the policy operates.

As is well known, Europe has gone through profound changes since the end of the Second World War. We have seen Germany divided and reunited and the Union grow from the original six members of the EEC, almost inexorably, to the current 27 members of the European Union. Globalisation has transformed the world economy with great social and political consequences, yet in the midst of this profound change-one of the most profound and rapid periods of change in human history-this one institution sails on. Occasionally it is buffeted by reforms, and it has changed quite considerably from the original conception, but it is still recognisably the same institution. Its flaws have been well rehearsed, and I do not want to go into them in great detail today, but it is worth just remembering that the combined costs in the most recent estimate that I have been able to find for the British family of four is £10.40 a week in terms of a direct subsidy with the increased costs to the consumer.

This policy still occupies more than 40 per cent of the European budget. The OECD has estimated that the cost to the European consumer in higher food prices due to the CAP is around £39 billion. The policy has done considerable damage to developing countries in the past, although I recognise that there have been considerable changes in recent years which have mitigated those problems. The figures are very complex and it is difficult to secure any kind of unanimity on them, and the impact on developing countries clearly depends on where the countries are and what period we are talking about, but it is generally accepted that this process of agricultural subsidy has done great damage in the past to some of the world's poorest people.

The CAP has not really even benefited the farmers that it was most meant to protect. Because payments remain linked to production, 85 per cent of aid still goes to the top 17 per cent of recipients. In 2008, Prince Hans Adam of Liechtenstein got nearly €1.6 million in subsidy, while Prince Albert of Monaco got €250,000. In 2009, Tate & Lyle received more than £250,000 in subsidy. As with all agricultural subsidies throughout the developed world, these represent a form of welfare for agri-businesses. This flawed policy costs a great deal of money to administer-about €175 million. For 2004, which is the latest year that can be considered as finalised, which is a statement that in itself speaks volumes, around €100 million was taken up with fraud and so-called irregularity. So far as we can tell from the leaked documents, it looks as if support will continue to be linked to the size of the farm rather than to incomes, so this kind of skewed distribution is likely to continue.

I hope that these remarks, which will be familiar to all Members of this House, will not be construed as me attacking farming. They certainly should not be, because I believe that agriculture is far more than just another business. Among other things, it sustains our countryside, which is so precious in so many ways to all of us. The need for food security is indisputable, and I see the need for some form of stable support. All I would ask is whether this antiquated system of centralised, bureaucratic state subsidy is really the best way forward. I suspect that the noble Lord, Lord Greaves, and I will have occasion to return to this debate in the coming months.

Before I move on to my final point, I recognise that there have been significant improvements in this policy over the years. Every bout of reform has seen considerable improvements and I pay tribute to the huge efforts that have been required, as everyone in the House will recognise, from large numbers of dedicated public servants across the European Union. Yet all of that effort has still been what I regard as a patch-and-mend operation on what remains, at root, a flawed policy. If I am right about that, how is it that such a policy, which costs so many people so much, has persisted without really radical reform for so long?

It is a textbook example of how the politics of subsidy work. There are institutional handouts and bureaucracies that perpetuate themselves managing them, obfuscating the process and making it opaque for the general public-the voters-to understand. Above all, the fundamental problem is that the costs of this policy are spread thinly across all the people of Europe, whereas the benefits are concentrated on a happy few so that they have a far greater incentive to keep the system going than those who pay the price, largely in ignorance of what is being done to them.

I recognise that there is no possibility of scrapping the CAP and starting again from scratch. The political costs of any such transition would be impossible. But if we are to see progress in reforming this policy, in the direction in which I think most people would want to see it reformed, we need to have a much better informed public debate. Transparency is absolutely central to that. That is why I read with some depression a judgment by the European Court of Justice, published on 8 November, which said that the current EU laws and regulations on disclosure of beneficiaries of farm subsidies are "invalid". Those regulations about transparency have been responsible for the pressure continuing for reform of this policy. Whatever the legal justifications for this decision, it is clear to me that the public interest must lie in greater transparency.

It must be right that the public understand, as fully as possible, the policy for which they are paying. It is a safeguard against fraud, which has been endemic in the operation of this policy. It should also enable the public to see the counter-balancing advantages of this policy, which previous speakers have already described. I know that the coalition Government are in favour of the Freedom of Information Act. Their Bible, the coalition agreement, says:

"We will extend the scope of the Freedom of Information Act", to promote "greater transparency".

To conclude, what steps are the coalition Government going to take to persuade the European Commission to change the way that its obligation to transparency is discharged in a way that is compatible with that European Court of Justice ruling earlier this month?

Photo of Lord de Mauley Lord de Mauley Lord in Waiting (HM Household) (Whip)

My Lords, I respectfully draw the attention of noble Lords to the fact that Back-Benchers' contributions are time-limited to seven minutes. If they exceed that, they may limit my noble friend's ability to respond to their questions.

Photo of Lord Dykes Lord Dykes Liberal Democrat 12:08 pm, 18th November 2010

My Lords, I thank my noble friend Lord Greaves for initiating this debate with what might be really perfect timing, in view of the impending announcements. We will obviously have to study the Commission's proposals in great detail and very carefully indeed. My thanks also go to the noble Lord, Lord Plumb, the great expert on this subject, for his wise words. The noble Lord, Lord Wills, was perhaps a bit too gloomy because there is a general feeling everywhere that there needs to be thorough reform to have a modern structure for the CAP for the future, in the next financial perspective period.

I think I am right in saying that anyway, on the latest figures, the United States farm support system, overall, and the Japanese one cost far more than the CAP. The CAP is reducing both in absolute amounts, in certain sectors, and relatively. I have noticed a general will everywhere, in Brussels and Strasbourg and in member states, that it may go down to about 35 per cent eventually-at least, in the foreseeable future. The budget restraints that all national member states, including Britain, are obliged to follow nowadays because of the financial crisis mean that there is general public opinion in support of this. It therefore has to be structured in a modern way.

I have some questions for the Minister which I hope he will have time to answer in this debate, because we are reaching towards sensible, rational conclusions. However, they have not been reached yet. First, should all farm-support outlays be CAP-only or partly national? I know that it is a difficult question and that there are differing opinions. If it is national, should it be just for the non-farm aspects such as carbon emission reductions and environmental improvements?

Secondly, I agree with others that we need to progress to more market-driven policies, as the noble Lord, Lord Plumb, said, especially to avoid artificial overproduction. I agree with the noble Lord, Lord Wills, that excessive payments to large farmers should be avoided in the modern system; it is objectionable that it produces the amassing of extra wealth as a result of the support, and that is not the real intention behind it. The United Kingdom is in an embarrassing position because we have a number of very large farmers who get huge amounts of subsidy, whereas in France the total is greater but the support for individual farmers is much smaller. I declare an interest in that I live in France, and I notice how the farm sector there has reduced, as my noble friend Lord Greaves, said, to almost the same proportion of the population as in this country now.

Farmers require public funds if they are enhancing the collective public environment, especially where they allow footpath access to their sites. The issue of healthy food needs separate public funding when budget pressures allow in coming years, although there might be a period of restraint before we reach that.

I strongly agree with the intervention by the noble Baroness, Lady Trumpington, who has now left the Chamber, when she stressed the importance of R&D. The noble Lord, Lord Plumb, endorsed that as well in his response. It is legitimate for part of the EU budget to be used to fund agricultural R&D. One cannot just leave it to the private sector-technical companies and the farmers themselves.

On the attitudes of the European Parliament, there appears to be strong support in that institution for the main First Pillar payments to be preserved, especially because of food security as well as efficiency without overproduction, and I agree with that. However, the objective criteria for any national payments in all countries to maintain the genuine single market have to be very carefully worked out by Governments, and again I would welcome it if the Minister felt able in today's debate to reach any provisional putative conclusions on this extremely complicated and, to some people, provocative subject.

I welcome the ideas that have been mooted in various places, such as in the NFU briefings that we have received and among other bodies in Britain that are concerned with the future of this whole complicated area, about the notion of the staged convergence of current payments per hectare, to be reached, I hope, over the next prospective period that we are talking about, which ends in 2020. Real social dislocation and political unease arise when manifestly unfair differential payments are being made in different countries, particularly to the newer, poorer member states. The example of Poland has been mentioned, where there has been a great deal of understandable indignation. If we change the basis of the LFA payments, would they be pushed into Pillar 1? Would that be the logic? I imagine that that could possibly be the response of the British Government as these ideas unfold.

It is important psychologically for the British Parliament strongly to support the putative proposals as they are brought out and the final decisions that the Commission reaches in Brussels after the Council of Ministers has had time to discuss these matters and the Agricultural Council in particular reaches its own conclusions. That is important because of the unfair press in Britain about Europe in general-we remember with affection the legendary tabloid headline 50 years ago, "English student killed by German thunderstorm" to underline that position-and it is getting worse now among the tabloids, particularly the Murdoch ones. I include the Times in the category of "tabloid" nowadays, only without so many photographs. Their position is totally unfair, usually based on supposition and pretence rather than on actual fact. This poison of anti-Europeanism is affecting us in all sectors, and the CAP in particular has always been the whipping boy. If the UK Parliament, particularly in the other place, can show the courage to support enthusiastically the new, modern, reformed CAP structure, that would be a good thing.

As I said, if the proportion is going to fall, the amounts of money will still gradually rise once the present period of austerity has passed over. That means that some scientific and careful decisions have to be reached over the coming years. I believe that this debate today will help to guide some of our colleagues and experts in the other place as well to reach the right conclusions.

Photo of Lord Williamson of Horton Lord Williamson of Horton Crossbench 12:14 pm, 18th November 2010

My Lords, I declare an interest as I spent many happy years in the Ministry of Agriculture, Fisheries and Food and some years also in the European Commission. Some of what I say will be of historical interest, but it is important to know how we came to where we are if we are to consider what changes and improvements we might seek.

The noble Lord, Lord Greaves, is right to refer to the reform of the CAP because that phrase is widely used. However, I would not wish to assume, as many people do, that there has been no effective reform of the policy. On the contrary, the EU's agricultural policy bears little resemblance to the policy we adopted when we entered the European Community 37 years ago. To a large degree, the CAP as imagined by its critics is ancient history.

The CAP which became our policy when we entered the Community was designed to keep up and increase production, and to create a single market. With some difficulty, mainly because of currency, the single currency was achieved. Where it was not achieved-sheep meat, for example-it was subsequently achieved. The UK is the principal beneficiary of the Common Market for sheep meat; we are a substantial exporter to other member states. It is worth noting that, from the historical survey before we entered the Community, British national policy was to increase production. We had subsidies to take out hedges, convert grassland and so on.

The old CAP was based on market management, through which prices paid by consumers were sufficient to ensure broadly that agricultural producers received the support prices that Ministers had decided. Direct payments for farmers played little or no role in the product market system. When I was in Brussels I once had in front of me practically all the officials responsible for running the CAP. I asked them if they had ever seen a cheque to a farmer. They had not. There were no cheques to farmers. Prices were maintained at the level decided by the Ministers through variable import levies-sometimes high, sometimes zero, depending on world market prices-through export refunds to clear the market and, most importantly, through purchases of a number of major products such as wheat, butter and skimmed milk powder by the intervention agencies.

What really mattered, of course, were the prices set by the Ministers. I believe that I attended about 100 meetings of the Council of Agriculture Ministers and about eight price-fixing marathons. Despite evidence of surplus or incipient surplus, the Governments, through their Ministers of Agriculture, were absolutely and obstinately determined to hold price levels up. I speak from personal experience, as I was present.

Of course, if Ministers had agreed some reduction in prices, there would have remained some disadvantages for consumers-as prices were still perhaps too high-and some distortions of world trade as a result of levies and export and refunds. However, the budget costs would have been substantially reduced because of the elimination of stocks in intervention. In any event, it was clearly the way to go. That was recognised in the European Commission from an early stage.

Then the steps were taken to get us where we are. First, elements of market support were reduced in 1992. Farmers were compensated by direct grants. In subsequent years, support prices were frozen or reduced. Land was taken out of production by set-aside. Agricultural surpluses fell. Farm incomes rose. The important Uruguay round of trade talks was successfully completed, partly because of the reduction in EU export subsidies.

With the arrival of the new member states, the substantial part of their workforce being in agriculture-and for other reasons, too-Heads of State and Governments kicked off again in March 1999. Prices were again cut, with compensation through direct payments for farmers. Support prices for wheat, other cereals and beef were cut by more than 15 per cent. Our then Government estimated that the overall economic benefit to the United Kingdom of the full-price cuts was about £1 billion.

In 2003, of course, we had the single farm payment. This marked a definitive change, away from support linked to the quantity of a product to a system of financial support directly to farmers, with requirements related to the environment, animal health and so on. Whatever problems we have had in England on the payment of the single farm payment, in policy terms this decoupling is a measure that reversed the philosophy and practice of the former CAP. We are now firmly set on this course. Already, by 2008 90 per cent of EU producer support was separate from any decision as to how much to produce. That is the last year for which I have figures; it is probably higher now. Thus the market distorting element has largely disappeared. This continued with the proposals in 2008 which involved lifting tariffs on imported cereals, abandoning set-aside and scrapping milk quotas as a change in the world market situation influenced decisions.

It remains true that direct payments to farmers may be more expensive than the former system when there is an upward movement in world prices. There is some disadvantage to that degree. However, it is important-this is my final point-to keep in perspective the cost of the agriculture and food policy as it has now developed in the EU. The total budget of the EU in the most recent year represented 2.1 per cent of the public expenditure of the member states and less than 1 per cent of Community gross national income. The agriculture element-what is generally referred to as the CAP-represented slightly less than 1 per cent of public expenditure. I am talking not about GNP but about public expenditure by the member states. That is not bad value, although we should always try to keep unnecessary expenditure down.

As to the future, we should continue broadly on the line on which we are set. We should continue to phase out the things we set out to phase out. There is still some room for greater differentiation in favour of the less favoured areas, some of which are under pressure. Generally, we have set ourselves on quite a good track and we must not go backwards.

Photo of Earl Cathcart Earl Cathcart Conservative 12:22 pm, 18th November 2010

My Lords, I declare that I farm a few hundred acres in Norfolk and therefore receive the single farm direct payment and environment grants.

My first point is that this is a common agricultural policy, but it is not common in the sense that all 27 states are not treated financially equally, as has already been said by the noble Lord, Lord Greaves. The EU 12-that is, the last 12 countries to join the EU-received only around 25 per cent of the subsidy on joining, with the amount increasing until they are fully phased in by 2013. Even then, the EU 12 states will still average out considerably below the EU 15 states. This has led to demands from the EU 12 for an EU-wide flat-rate payment from 2013 onwards. However, those original EU 15 states, which have been getting a larger slice of the cake, believe they should continue to do so. It will be interesting to see who wins.

The Common Market was set up originally to have a level playing field for trade. Here we have the largest single expenditure item of the EU so I cannot see how anything other than equal treatment for all member states can be the answer. However, the French farmers are excellent negotiators and they, no doubt, will argue that some states are more equal than others. We will have to see.

Secondly, this is primarily an agricultural policy. The most important thing that a farmer does is to grow food. As such, food production must be the top priority in any CAP reform. Having said that, alongside food production can come the environmental role, including development and climate change schemes. Britain and Europe must improve their self-sufficiency in food production and food security. With the explosion in the world population in our lifetime, there is an ever increasing need to produce more food. The top priority for CAP reform must be improved efficiency in food production.

My next point, or rather question, is: will Pillar 1-the direct payments or the single farm payment, call it what you will-continue post-2013? I believe that they will as they are seen as a very important safety net for farmers by the vast majority of member states and their MEPs, who now, for the first time since the Lisbon treaty, have to vote to approve the CAP reform package post-2013. But not all member states take this view. It is interesting that President Sarkozy of France wants a return to support payments according to the volume of food produced rather than direct payments. If that happens, we may return to food mountains and wine lakes. The journal Agra Europe wrote:

"The President's argument has little to do with maintaining the incomes of small, poverty-stricken peasants and all to do with maintaining the incomes of France's large agribusiness industry... In income terms French agriculture is dominated, not by small peasant farmers of popular myth, but by large scale cereal, dairy and beef farmers".

Perhaps Sarkozy has started the awkward phase of France's negotiations already.

Last month the Commission's draft document The CAP Towards 2020 was leaked, as has been mentioned by my noble friend Lord Greaves. There are two things in it that I find curious. In fact, there are lots of things but I will mention only two today. First, the document considered limiting support to active farmers. What is an active farmer? We need the Government to keep an eye on what the definition of "active" is. Am I an active farmer if I engage in contract or share farming arrangements with my neighbour? Although I supply the land and pay for the input costs, I do not actually sit on a tractor on a day-to-day basis. If this is the definition, it will catch out a great many British farmers. Or is "active" meant to exclude the owner of land that could be used for farming but who chooses another non-farming use?

The second thing that I found curious was the reference to payment ceilings. This presumably means that no one farmer can receive more than, say, €100,000. I know that my noble friend Lord Dykes and the noble Lord, Lord Wills, argued the other way, but the contra argument is that this is illogical as the larger the farm, the larger the successful food production, which is what we need, but also the larger the capital outlay, the larger the overheads, the larger the cost of production, and, all in all, the larger the risk, and, therefore, it would follow, the larger the payment. Farmers are not fools, and they will reconstruct their businesses to avoid this ceiling. For example, if a farmer now receives €300,000 from the single farm payment, rather than be capped at €100,000, he might divide his farm into three separate legal entities and businesses-one part he farms as a sole trader, the second in partnership with his wife, and the third in partnership with his children, thus ensuring that he continues to receive the ful1 €300,000 as before.

There are two things that have not received nearly enough prominence and which the Government should ensure are given a much higher profile post-2013. The first is forestry, which seems to be almost forgotten in the commissioners' thinking altogether. Britain imports 90 per cent of our timber needs and there are vast forestry interests in mainland Europe. The CAP should support the planting of woodland and responsible forest management so that people are encouraged to enhance the environmental value of forests. Secondly, as has already been mentioned, not nearly enough attention is being paid to science, research and development, not just for food production but for horticulture. My noble friend Lady Trumpington asked a very good question, which was ably answered by my noble friend Lord Plumb: if Britain and Europe are to produce more and more food because we need to feed an ever increasing population, then we forget science, research and development at our peril. There should be a level playing field for member states financially; food production should be the priority for the CAP, post-2013; direct payments will remain, because most member states want them to; and let us not forget forestry and science.

Photo of Lord de Mauley Lord de Mauley Lord in Waiting (HM Household) (Whip)

My Lords, I regret having to intervene a second time in this debate, but we are already six minutes over time at this relatively early stage. This debate will end at 1.23 pm, so we are now substantially constraining my noble friend's ability to answer.

Photo of Baroness Miller of Chilthorne Domer Baroness Miller of Chilthorne Domer Liberal Democrat 12:30 pm, 18th November 2010

My Lords, I declare an interest as the half-owner of a 40-hectare vineyard for which we do not receive any subsidies. I am very grateful to my noble friend for not only bringing this debate before us but his broad-brush approach. I am also grateful to the noble Lord, Lord Williamson of Horton, for reminding us of some of the history, especially given his insight into it.

I want to concentrate my remarks on why I believe that the greening of the CAP is not just an option, but an absolute necessity. There should be a mandatory greening component of direct payments right across Europe. That is essential because the CAP is supposed to enable us to move towards a future with food security, but all the threats to that security lie in four areas: soil; water; plant and animal diversity, and hence resilience of species; and pollinators.

We need area-based payments that recognise the urgent need for land management that can serve and build on the ability of land to continue producing food-not just in 10 or 20 years' time, but in 100 years. I shall talk first about soil. Historically, soil management was maintained by techniques such as crop rotation and using manure, which allowed soils to regenerate naturally. I was disturbed at the call by the noble Earl, Lord Cathcart, for farms to grow larger and larger and be more monocrop-based, because I believe that to be one reason why we have such difficulty with our soils. Over time, technological advances such as artificial fertilisers and huge compacting farm machinery have allowed production on poor-quality or degraded soils. That approach, as Defra now recognises in its soil strategy, published last year, is no longer sustainable in the long term-not only because the cost of inorganic fertilisers has increased steeply but because our soil is washing straight off the land into streams and rivers at an alarming rate. Can the Minister provide the latest estimate of soil loss in this country?

As I have said, Defra has made a good start with its soil strategy, but there is an awful lot more that the CAP could do to underpin the cross-compliance approach. We are in the very early stage of this. Under the entry-level scheme, a farmer has to do his own assessment of his soil and say what he is going to do to solve the problem. He receives a 52-page soil protection review assessment form, which states:

"Please note that you do not have to return your completed SPR"- the form-

"to ... Defra. You must keep your completed SPR on farm. You will be asked to show this to an Inspector on an inspection".

The difficulty with that approach is that it leaves very much in the air Defra's assessment of what is happening on each farm, but, worse, it does not provide the urgency that is needed for new thinking and training for farmers to put into practice essential soil management techniques.

I turn to the issue of water. Of course, the CAP is not designed to address any of this, but nevertheless, catchment management-now recognised as being essential to the quality of our water-is all about land management. The truth is that land management equals water management. Without a certainty of water supply, food production will not be possible. Intensive irrigation has led to very poor soil, and the issues of soil and water are so intertwined that they must be addressed equally.

When you consider climate change and you discover that UK soils contain 10 billion tonnes of carbon-more than all the trees in the forests of Europe and equivalent to 50 times the UK's current annual greenhouse gas emissions-you realise that well managed soils have the potential to sequester more carbon than we can imagine. However, much more needs to be done to understand and optimise this process. The CAP needs to be linked into the EU's efforts on climate change. We cannot regard it as being simply for food production, when the land itself will be such a key element in our fight against climate change. Of course, climate change will drastically affect our ability to produce food.

I do not believe that there is much time to get round to the enormity of the changes needed, and the CAP needs to be designed to lead to agri-ecology, as opposed to agri-industry.

Photo of The Earl of Erroll The Earl of Erroll Crossbench 12:37 pm, 18th November 2010

My Lords, I, too, shall hurry to get us back up to time. I do not have many points to make, but I should first declare an interest because I am married to a farmer, whose farm is medium-sized. As support has moved from production-Pillar 1, as the noble Earl, Lord Cathcart, said-to Pillar 2, the environmental stuff, she has taken land out of economic production and moved to high-level and entry-level agri-environment schemes and so on. That shows that, if you put incentives in the right place, people will respond. That is the important thing. If you had a bit more carrot and bit less stick, you would get a better response. It is also a lot easier to administer; it is how we used to do things.

I read some of the discussion about this issue. There is a very good section of the Defra website, which is full of laudable and good intentions. How could we fault the provision of something that states aims such as,

"internationally competitive without reliance on subsidy or protection ... rewarded by the market for its outputs ... and by the taxpayer only for producing societal benefits ... environmentally sensitive ... socially responsive to the needs of rural communities"?

All of that is up there on the web if you want to read it; it is good stuff. However, the problem is how you translate that through a bureaucratic system and inspire lots of people across Europe. There are different cultures and objectives, economic differences, differing awareness of the rule of law and different levels of willingness among people who run the system to co-operate with the farmers.

I listened, for instance, to the point made by the noble Lord, Lord Greaves, about fairness to eastern Europe and providing a flat rate. We are going to transfer money from our taxpayers to eastern European landowners. I think that I shall get myself a bit of land out there and then sit back and get all that lovely money for doing very little. I do not know if that is what will happen, but if you do not get your incentives in the right place, you can end up with unintended consequences. That is the biggest danger of doing things that way.

The biggest cost is in administration. I was delighted to read that the Luxembourg farm council in late June heard calls from member states,

"for EU rules to be simplified across all legislative areas affecting farming-including health, food safety and environmental rules".

They stressed the need for the simplification of EU regulations. That is one of the most important things.

At the sharp end, farmers used to be people who loved the land and loved their animals. That is why they farmed. It was not because they wanted to sit and read papers. Why should a farmer need a degree in paperwork-you now need one-to run his farm? To release ourselves from paperwork, we need someone with the mindset of an auditor, accountant or actuary. They must be very precise, because they must reconcile large areas to 0.01 of a hectare. They must make sure that all the boxes are ticked correctly. When they have cows that live out all year round because they are a native breed and very hardy, they must know how to respond to questions such as, "Do you have animal housing?". The answer is no. They are then asked: "Do you have adequate ventilation in your animal housing?". If they answer no, they fail; they have to tick yes to say that they have adequate ventilation in their non-existent housing. There are many such things. Someone who is used to ticking boxes can do it, but farmers cannot, because they think properly and logically and deal with the real world.

Every two or three years, thick booklets are issued. They get bigger and bigger. It is a challenge to wade through them and spot the changes. A lot of it stays the same, but there is always change. It does not make it easy to plan and manage. With uncertainty, you cannot plan. You read up on new schemes, but will the money be there? The goalposts move and suddenly there is no money. If you do not get into a scheme by such and such a date, you will not get the money. Is it worth trying to change? We were lucky. We got on with it just in time and hit the window by a few days. You cannot get into the HLS scheme until early or mid-spring of next year. The money that is being taken out of modulation is going into that. Where has it gone? Probably in administration.

Another thing that I have noticed is that on the whole there should be light-touch inspections, unless you have caught someone who is deliberately abusing something-tearing it to pieces and trying to make too much out of it. Most mistakes are inadvertent. Someone is ill, ear tags fall out of cows and calves, things happen and people get muddled, but for minor infringements there are now heavy fines, because the EU is fining Defra for not enforcing hard enough. That is madness, but the bigger madness is fining Defra, a government department that has budgeted to produce an administration in order to run this thing efficiently. What happens? The first year, the EU fined us £70 million or £80 million, which was taken from flood defences. What happened a few years later? We had flood problems.

What happens now? We have too few people on the mapping side. I suspect that money has been taken from there. I have just redone the mapping for the fourth time since 2004. The first lot of mapping was when things went digital-we covered just the cropped areas. Then we spotted that environmental stuff was going on, so we remapped the land to the field boundaries-the ditches and hedges-because we were going to get paid for that. Two years later, the decision was made to go for a more accurate master-map system, so we remapped all the areas because it had been decided that all the field sizes had changed slightly. Last year, the EU changed the definition of boundaries, which led to fields being amalgamated changed around. It sounds great, but we have to change fields and field names and synchronise with the agronomy system, as we use agronomists. Multiple systems are involved and it is a nightmare. I still have not finished doing it properly.

I have another point. We are encouraged to make the single farm payment online, but when we want to make sure that we do our entitlements properly-under Defra's "use it or lose it" principle-we have to do it on paper and make sure that it gets in on time by snail mail. It is dotty. Why is there not another box on the end of the form? If Defra cannot get the systems right, it should fire the people who are writing them-and fast. My advice is: keep it simple, stupid-or KISS.

Photo of Lord Gardiner of Kimble Lord Gardiner of Kimble Conservative 12:44 pm, 18th November 2010

My Lords, I thank my noble friend Lord Greaves for initiating this debate and declare my interest as a board member of the Countryside Alliance, a member of the National Farmers' Union and a partner in a family farm. It is intriguing that the European Commission communication on the future of the CAP has been published while your Lordships have been speaking today.

The CAP began more than 50 years ago. It was set up to increase agricultural productivity by promoting technical progress, to ensure a fair standard of living for the agricultural community, to stabilise markets and to ensure the availability of supplies at reasonable prices to consumers. While the CAP has undergone substantial and radical reform since its creation, the founding principles are as relevant today, and will be in the future, as they were 50 years ago.

Farming is undeniably important to the British economy. It utilises three-quarters of the land area of the UK, employs 500,000 people and in 2009 contributed approximately £6.2 billion to the UK economy. New challenges facing the agricultural sector, such as food security, climate change and the ever increasing need for energy, are likely to be even greater in future. It is estimated that farmers worldwide will have to produce more food in the next 50 years than they have in the past 10,000 years. Goodness knows what we were hunting then, but it is a sobering thought.

British farmers are capable of playing an important role in meeting this demand and increasing agricultural exports. They will also need to ensure that domestic food supply is secure and that they can continue to deliver affordable produce to consumers. The CAP remains important in aiding farmers to meet these new challenges and is valued by farmers. A recent survey of NFU members showed that 90 per cent of respondents indicated support for retaining a common EU agricultural policy, with 88 per cent indicating that the CAP was important to their business.

Over the past 50 years, the application of science to the production of food has enabled farmers to feed rapidly growing populations and it will be crucial to increasing future food yields and enhancing environmental protection. I take this opportunity to recognise the excellent review on agricultural research and development undertaken by my noble friend Lord Taylor of Holbeach. It is important to remember that, while funding for scientific advancement is needed for farmers to meet future challenges, British farmers are already expected both to produce food to some of the highest standards in the world and to maintain the landscape for which Britain is famous. Our farmers have had more regulations imposed on them than non-EU producers. If we want high-quality food and we also want farmers to maintain the countryside and biodiversity and meet the challenges of climate change, energy supply and food security, we will need to back them.

While we all aspire for farmers in the future to be less dependent on public support, we must not forget that the single farm payment is often a lifeline. It is crucial that the CAP retains this element of support. I was therefore concerned that early analysis of this report, in particular from the National Farmers' Union, suggested that the proposals announced today could create a more complicated, less market-oriented and less common agricultural policy.

We should remember that in the forthcoming negotiations we in Britain need to secure a common policy, where agriculture remains at the heart of any changes, with farmers across the member states competing on a level playing field. British farmers already comply with many regulations and reforms, which ensure that we have the highest animal welfare standards and environmental benefits in Europe. The CAP should be a mechanism to help farmers to prosper in the world market; it should not hinder them. I am confident that, with a fair policy, British farmers will rise to the challenge and meet the many demands that we place on them.

Photo of Lord German Lord German Liberal Democrat 12:49 pm, 18th November 2010

My Lords, I congratulate my noble friend Lord Greaves on the timeliness of this debate. There cannot be many people who can co-ordinate a major announcement by the European Commission and a debate in Parliament on the same day and almost to the same hour.

My understanding of the agricultural community in Wales leads me to counterbalance some of the comments made by the noble Lord, Lord Wills, about the current nature of agricultural payments. I refer also to the comments of the noble Lord, Lord Gardiner, about the need for payments to be a central part of the future CAP for farmers because of our interest in food security. By way of illustration, in 2008-09 almost 90 per cent of average farm income in Wales was provided through the single farm payment-the reason being, of course, that we have a large number of hill farms and less-favoured areas, and the average age of farmers is increasing, with their sons and daughters saying that it is not worth farming and the consequent danger of land abandonment. In addition, there is the burgeoning of other industries in a rural economy to match the changes that are occurring in our rural environment. Looking across the European Union, it is interesting to note that the share of subsidies in total agricultural income, in both old and new member states, is between 30 and 40 per cent, whereas in regions and countries with an extensive livestock sector, it is close to 100 per cent. Therefore, we must be capable of having a policy that distinguishes between need and future food security.

As we have heard today, the central arguments on the future of the common agricultural policy are coming nearer to a conclusion. We have heard from the Government of a future decision on the overall European budget, and the Commission is currently putting forward proposals on the overall architecture of the future programme. However, what will remain unclear for some time yet is the size of the slice of the cake that the common agricultural policy will have within the overall budget. Although it might be tempting to dwell on that, it is likely that it will not become clear until the ink is finally dry on the overall budget. It is worth noting, as other noble Lords have mentioned, that the gradual reduction in the size of the CAP's slice of the budget is expected to continue. That is certainly the view of officials in the Commission.

It would be interesting to dwell on those issues, but I should like to spend a few moments developing the arguments about the architecture of a future common agricultural policy. We know that this will be a much more complicated exercise than in past spending rounds because the final decisions will be made by co-decision between the Council of Ministers and the European Parliament. That will be a complicated political process-perhaps one of the most testing and demanding of the co-decision-making processes that we have seen in the current round. Different national and regional policy interests will need reconciliation. Of course, it is only by being at the heart of the debate that the UK Government can exert their influence. I should be interested to hear from the Minister what level of discussion is currently taking place between the UK Government and the European Parliament on trying to find common ground.

The current debate centres around the policy's core aims and objectives but there are reformers in this debate who would like to see further objectives in addition to the original ones, such as the provision of environmental security, so ably discussed earlier by my noble friend Lady Miller, with a move to a land management policy focused on the delivery of social and environmental goods.

It seems that there is no inherent conflict between the original and the proposed objectives. Food security and environmental security go hand in hand-they are dependent on each other in many ways. By contributing towards both, farmers can both increase and diversify their income, particularly in areas considered to be less favoured. The common agricultural policy is one of the main mechanisms for providing strong incentives for good environmental behaviour. Therefore, the current debate provides an important opportunity to deliver on many of the social and environmental goals that the United Kingdom and Europe share.

Placing those two goals into separate funding pillars, therefore, seems to be an artificial division. Surely it is possible for agri-environmental and less-favoured schemes to sit alongside the single payment scheme, perhaps with a new enlarged Pillar 1. I understand the complications and difficulties involved in that, especially in relation to matched funding, but those are technical arguments. We should concentrate our arguments mainly on the objectives and policies that we want to see, and the architecture should be led by the policies which seem to work and which would make those objectives much more favourable.

The issue of modulation tends to become the argument by moving between Pillar 1 and Pillar 2, rather than the overarching use of the resources available. Concentrating too much on the structure results in an artificial and unhelpful distinction between agricultural support and rural and environmental development. In fact, it can lead to polarised opinion and an unfortunate skewing of the debate. Perhaps an extended Pillar 1 would lead to a clearer Pillar 2.

In conclusion, the Government and the European Commission need to do far more to promote the purpose and benefits of the CAP. It undoubtedly has a bad name, typified by the commonly heard statement that it is simply about subsidies for farmers. However, there are powerful arguments in its favour, not least of which is food security in a world where shortages are anticipated. However, it is also a system that has given us strong local and regional diversity, developing small producers and primarily ensuring high-quality produce. I would welcome such support from the Minister for promoting the CAP in his reply to the debate. After all, the CAP is not just for farmers; it is for our citizens as a whole.

Photo of Baroness Quin Baroness Quin Shadow Spokesperson (Environment, Food and Rural Affairs) 12:55 pm, 18th November 2010

My Lords, I, too, congratulate the noble Lord, Lord Greaves, on introducing this debate today. Like many noble Lords, I agree that it is timely, although it might have been even timelier tomorrow after having a chance to look at the Commission's latest communication. However, as the noble Lord, Lord Plumb, and others have reminded us, we helpfully had a leaked version of the paper some time ago. I do not know whether the Minister can inform us how similar the new document will be to the old one, but I imagine that there is a great deal in the leaked version that will continue to be in the version published today.

It has also been a very well informed debate with many Members of your Lordship' House showing their knowledge of the subject, which in many cases goes back a long way. There has been reference to the past and the history of this policy. The noble Lord, Lord Williamson of Horton, gave us a particularly knowledgeable account of that. Certainly, he reminded us of some of the worst aspects of the old policy, particularly in terms of export subsidies, which harm third-world countries, surpluses and the environmental negative effects of many of its aspects.

We know, of course, that some farmers benefited very much from the old policy but I am also aware that many farmers in sectors such as the pig and poultry industries and horticulture not only did not receive support but frequently found themselves exposed to the full blast of EU competition rules limiting state aids and so on. Therefore, traditionally one aspect of the policy was that it was highly discriminatory, even within agriculture, and that often had very unfortunate effects.

My noble friend Lord Wills quite rightly said that often there is insufficient opportunity to scrutinise the policy as much as we would like. I certainly share the frustration of some noble Lords that, particularly in certain parts of the press, the debate seems not to have moved on at all and that the policy is frequently described as though it has not changed, whereas in fact many considerable changes have taken place over the years. Some of those changes have involved a significant switch away from production support-the decoupling process that has been referred to-and the emergence of the Second Pillar. That was a very important development in shaping people's attitudes towards how the CAP might evolve in the future-certainly in terms of it being more of an agricultural and rural development policy, a way of rewarding and incentivising good environmental practice, supporting modernisation and diversification, helping farmers to develop new markets, bringing farmers closer to existing markets through marketing and commercialisation help, promoting energy crops and alternative energy systems, and in general promoting agricultural and rural development in a way that did not discriminate against certain sectors of agriculture and did not have the ossifying tendencies that the old agriculture system certainly had. We have also seen a reduction in export subsidies, although some of those regrettably persist and have negative effects. We have also seen a declining share for agriculture in the overall EU budget, and I hope that that process will continue.

We have to look at the Commission's proposals in the current context, the first aspect of which is the financial crisis and the budgetary crises that Governments across Europe are facing. I think that the public are willing to pay for environmental and countryside policies, but they want to see clear benefits and a clear delivery of public goods in the process. Obviously they want a policy that helps meet the overall environmental commitments that we have entered into. Food security is another important issue, as the noble Earl, Lord Cathcart, said; and the need for increased food production if world food needs are to be met is a very important aspect of this debate.

In the few minutes that I have, I would simply like to press the Government on their view as they approach these negotiations. I rather agree with the noble Lord, Lord Dykes, when he says that people's ideas on the future of agricultural policy are increasingly coming together. I think that there is more consensus than there used to be, and looking at some of the briefing provided to us today by the NFU, the CLA, the RSPB and so on, I was struck by many of the common aspects. There are certain differences, but there is more of a common approach than I recognise from the past. The Minister is therefore in a more fortunate position in starting these negotiations and finding an outcome which we hope will suit the UK and its needs.

In the leaked document-and I think it is likely to be maintained in the document today-there are basically three options, moving from an approach of very little change to one of more radical change. To which of the three approaches are the Government attracted at the moment?

Like one or two other speakers I would also like to raise the issue of co-financing. I understand that there is nervousness among our own farmers as well as farmers elsewhere that it could mean that if Governments do not put in their own share, funding could be at risk and there could be discrimination between countries of the EU. Yet at the same time we have seen some co-financing of regional and other schemes in the EU that can be successful. What is the Government's thinking on this issue?

A number of noble Lords referred to large farms. I believe that we have to consider this question in a fairly subtle way. It is not just a question of big farms versus small farms but also of whether the subsidies to particular farms can be justified given the overall circumstances. I agree with my noble friend Lord Wills and the noble Lord, Lord Dykes, about what the public regard as unfairness in excessive payments. At the same time I would not want to say that it is the fault only of large farms as such. We have to look at this in a more subtle way and decide what should be supported and what should not.

I agree strongly on the point about agricultural research which a number of noble Lords mentioned. I hope the Minister will address that point. I would also like him to address the future for hill farmers and the LFA, a subject which I know is of great interest to the noble Lord, Lord Greaves, and many others around the Chamber. We would like the Government's view on whether these new areas of natural constraints are the same thing, or whether this is a definition that might go wider. I would also like to say very strongly that we do not want any of the environmental payments to be jeopardised. I hope that the funding cuts for Natural England which the Government are introducing will not undermine the good work that Natural England is doing with farmers in delivering environmental benefits.

I wish the Government well in these negotiations because they are important to our consumers, our farmers and indeed to all of us who love and value our countryside and who want to see a thriving rural economy within the overall economy of our country.

Photo of Lord Henley Lord Henley The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs 1:05 pm, 18th November 2010

My Lords, I join others in offering my compliments to my noble friend Lord Greaves on his timing of this debate. As has been mentioned, it is only today-it has just been published-that we have seen the real, and not leaked, document on the common agricultural policy from the Commission. I am advised that it has considerable similarities with the leaked document, but I cannot comment on that now as I have not been though it in detail as it was only published this morning. I offer my compliments to my noble friend on having this debate but suggest that it might be somewhat premature. No doubt there will be comments that I can address.

I offer my thanks to all noble Lords who have spoken for the thought that has gone into their contributions, particularly given that we have had no time to look at the Commission's proposals. As all noble Lords will know, we have waited for them a long time and there has been plenty of discussion over the past year or two across Europe about what we hoped to see in this communication and to assess whether it meets our expectations and those of farmers, consumers, taxpayers and, of course, the environment. I endorse what the noble Baroness, Lady Quin, said. I can offer reassurance to my noble friend Lord German that my honourable friend Mr Jim Paice has continued discussing these matters at a European level. He visited the European Parliament pretty early on in his time as the Minister responsible for agriculture, has had discussions with George Lyon MEP, who wrote the report, and has engaged with others on this matter.

I shall try to respond to all relevant comments raised in the debate but there will be more time to reflect on the proposals in the coming months, and no doubt there will be other opportunities to debate these matters. I want to say from the outset that the Government are committed to ambitious reform of the common agricultural policy. We also recognised, as my noble friend Lord German, said, that it might be quite difficult. There are 27 countries involved and because of co-decision, matters become even more difficult. Although we are committed to ambitious reform of the CAP, we also accept, as the noble Lord, Lord Williamson, put it, that already a great deal has happened over the years. We no longer have the wine lakes, the butter mountains and other topographical features composed of different foodstuffs of one sort or another. However, in view of the significant challenges and opportunities ahead, we believe that reforming the EU framework so that farmers can be prepared for the future is essential. We shall continue to push for that in the coming months and years.

My noble friend Lord Greaves mentioned, for example, that by 2050 we must respond to the need to feed a world population of 9 billion people-3 billion more than at present. That means that worldwide food production must be increased by about the same amount as in the whole of last century, if not more, if we are to see an increase in living standards. That will certainly present a great many market opportunities and productivity challenges for United Kingdom agriculture. By removing unnecessary barriers to agriculture's ability to respond, such as the market distorting subsidies in the CAP, is a starting point. Alongside that we need to invest in skills, training, research, as mentioned by my noble friends Lord Plumb and Lord Cathcart, and innovation which will increase productivity and enable farmers to become resilient to future market and environmental fluctuations. Indeed, improving productivity is a central element of the challenge, delivering dual benefits. Reducing farming inputs such as fertilisers and pesticides relative to outputs is not only good for farmer profitability but would reduce the impact on the environment. Here too we believe that farmers can play an important role.

In an earlier debate in this House, I outlined the important role that farmers play in managing the natural environment. The House will be aware of that, aware of our commitment to encourage that and of the emphasis that we place on the role of agri-environment schemes delivering a range of important environmental benefits. Farmers have a key job to play in managing the land so that it can continue to produce foods sustainably as well as help it to adapt to the changing climate and environment.

Sustainable management of soil and water, as mentioned by the noble Baroness, Lady Miller of Chilthorne Domer, forest management, as mentioned by other noble Lords, and protecting the biodiversity of landscapes are just some of the interlinking components of a much larger picture within which farmers work. Future agriculture policy needs to be better focused on supporting these sorts of objectives, rather than stagnating existing structures and encouraging ongoing dependency on expensive subsidies that deliver little in the way of outputs for the investment being made. That is why we continue to see a very valuable role for Pillar 2 of CAP in the future, delivering targeted, measurable outputs that offer value for money.

This brings me to an issue that we must have in the forefront of our mind when we assess the proposals on CAP. This must be seen against the significant economic challenges that face the whole of Europe. The CAP represents over 40 per cent of the EU budget, Pillar 1 alone accounting for 33 per cent, so it cannot be immune to the hard choices that we are making elsewhere in the UK and we hope are being made in the EU. Indeed, the CAP budget in 2009 was €55 billion. I appreciate that the noble Lord, Lord Williamson, implied that this was a very small percentage-I think he used the figure of about 1 per cent-but I remind him of the quotation from the American senator:

"A billion here, a billion there, and pretty soon we are talking about real money".

That €55 billion is a rather large sum of money-roughly equivalent, I am told, to the total spending on healthcare in all the new member states. No other EU sector receives this much support.

We need to be clear about where our priorities are and where money is best spent to stimulate competitiveness, sustainable growth and environmental public goods, contributing to the wider EU economy. The agriculture and food sectors have an important role to play in that. In Europe, they are particularly well placed to respond, with their high-value, high-quality produce, if farmers have the right framework to enable this. Therefore we need to use the next period-the period we are discussing, 2014-20-to help farmers adapt to a future that will be very different from today and enable them to respond to as-yet unforeseen challenges ahead. Fossilising existing structures will not help in this process; we need a new approach.

Our responsibility, along with the other 26 member states, is to set the direction of travel for our farmers. Our clear priority for this Government, and one that must underpin the Commission's approach, will be to reduce unnecessary red tape for farmers and simplify delivery of the CAP. I give that assurance to the noble Earl, Lord Errol, in relation to his comments. The question that we now seek to address is whether the Commission's proposals establish the framework to enable this to happen.

Noble Lords raised a number of specific issues, and I would like to address one or two of those. First, the point made by the noble Lord, Lord Wills, on the impact of the CAP on developing countries. I agree fully with him that we need to pay particular attention to that and we will want to ensure that any reform focuses on that. I have taken on his concerns, but I assure him that Her Majesty's Government share them.

Secondly, noble Lords-including my noble friends Lord Dykes and Lord Cathcart, who disagreed-asked whether we should be reducing payments to the larger farms. I do not fully agree, I take the point made by my noble friend; we do need to ensure that we do not find ourselves discouraging business structures that are going to be competitive. There are also legal problems-I see that this is a debate in which many lawyers are involved-and this might be a matter where we create a lot of business for the lawyers, and accountants, for that matter, when we come to definitions and the problems of restructuring businesses to get round the CAP.

On the question raised by the noble Lord, Lord Wills, about transparency in relation to the EU judgment, we will look very carefully at it-I have not done so myself-but a new legal framework is likely to be needed and we will be very keen to ensure that it delivers greater transparency and openness, in line, as he put it, with the coalition document, which is our Bible in all these matters.

We will obviously consider these proposals in considerably greater detail and respond to the Commission in due course. Noble Lords would not expect me to make a response today, when our document was only published earlier today on the web and I have not yet seen it. We will not, at this stage, want to set out our negotiating position. I think it was again the noble Lord, Lord Wills, who sought a degree more transparency on this issue, but I think he will accept that, in terms of our negotiating position, we would not want to set our cards out on the table at this stage, facing upwards. That comes later on in the game of poker. There is still a very long way to go and negotiations are only just beginning. We will work with all interested groups, we will be listening to all Members of both Houses and all others who have an interest over the coming months, but we will continue to press for ambitious reform.

Photo of Lord Greaves Lord Greaves Liberal Democrat 1:17 pm, 18th November 2010

My Lords, it falls to me now only to thank everybody who took part in the debate with some very expert and interesting contributions. I particularly thank the noble Lord, Lord Wills, who put a very different point of view from that advocated by most speakers, including myself, which was extremely welcome. I also thank the Minister, who did his best to give a very careful response to the debate in quite difficult circumstances, because he has not actually seen the document which we were all trying to talk about on the basis of its leaked version. I thank him for that. We wish him and his colleagues well in the discussions on this matter in Europe in the next couple of years. I am tempted, slightly naughtily, to wish him well in his discussions within the Government on this matter, but if I pursue that too far, I shall get into trouble and I would never want to do that. So thank you to everybody who took part and I beg leave to withdraw the Motion.

Motion withdrawn.