Response to the Committee's specific
conclusions
1. Further reform of the CAP is both necessary
and inevitable. However, we conclude that the Government showed
a naivety in believing that its Vision for the Common Agricultural
Policy document could be its catalyst to a reform agenda when
it was introduced so near to the end of its Presidency and without
any programme in place to gain support for its British position.
Not only did this approach subsequently damage its prospects for
Pillar 2 development, it may well have undermined the UK Government's
ability fully to influence the reform agenda in the future by
antagonising the European Commission and the other EU Member States.
We call on the Government to provide an assurance that any future
reform proposals will be developed in a more thorough and considered
way.
11. Further reform of the CAP is very necessary.
However, for British ideas to succeed, it is important that the
UK adopts a less naive approach to its agenda than when it launched
its Vision document on an unsuspecting audience and without prior
effort to prepare the farm ministers for its arrival. This approach
was counterproductive and caused a negative reaction. A more consensual
approach must be developed if success for the British reform agenda
is to be secured in the future.
14. We welcome the recent accord signed with
Italy on the future of the CAP and encourage the UK Government
to make further attempts to establish alliances with likeminded
Member States, as these will be essential in attempting to achieve
the most far-reaching reform possible. Despite assurances from
the Prime Minister as to the balanced nature of the argument,
the majority of the evidence suggests that the political consensus
currently lies closer to those wishing to preserve the status
quo than with the reformist camp of those sympathetic to the UK
Government's Vision for the CAP. However, political changes in
influential Member States, such as France, combined with a build
up of pressure for reform going into the 2008/09 budget review,
have the potential to shift the balance in the other direction.
20. There is a widespread acceptance in the
EU, including in some quarters that have traditionally supported
the old style CAP, that the status quo is not a sustainable option.
There is also an increasing acknowledgement among farmers and
politicians in the EU that further agricultural reform is an inevitable
consequence of increasing budgetary pressure and the liberalisation
of agricultural markets.
Publication of the vision in December 2005 was a
careful judgement designed to support our position in the EU Budget
negotiations, in particular by answering the question which had
been put to the UK about what we meant when we called for further
reform of the CAP.
There is no doubt that its publication, and the Government's
subsequent engagement in the EU, have provoked constructive debate,
much sooner, and in respect of much more fundamental reform, than
would otherwise have been the case. Indeed the Committee's report
acknowledges (para 99) that "even if the European Commission
had been antagonised by the publication of the Vision, there seems
little doubt that the report encouraged it to engage with the
UK over its support plans for reform".
We reject the claim that there was no programme in
place to gain support for our position. On the back of the vision's
publication, an intensive programme of engagement was launched
by Defra, Treasury and the Foreign and Commonwealth Office to
take forward debate about the long term future of the CAP. That
engagement continues today and has included contact with every
Member State (including at ministerial level with more than half),
frequent contact with the Commission at all levels, seminars,
conferences and articles in the European press.
Far from undermining our influence, several other
countries have followed our lead and published, or are debating,
long term perspectives of their own. Agriculture Commissioner,
Mariann Fischer Boel, has similarly signalled the intention to
set out her long term vision for the future CAP. Crucially, that
represents a real shift from the short term "quick fix"
which has tended to characterise CAP reforms of the past and is
a significant factor in why, as the Committee acknowledges, there
is now a widespread acceptance in the EU that the status quo is
not sustainable.
We continue to work closely with the Commission,
Member States and stakeholders to build alliances and consensus
on the detail of the reforms ahead.
2. We believe there are several instances
where some clarification would have enabled a more balanced representation
of the statistics, where information could have been nuanced to
alert the reader to the fact that some data predated the most
recent reforms, and where it would have been helpful to have noted
the assumptions upon which the analysis was based. The Government's
lack of analysis to underpin its proposals was both a practical
and intellectual failing. We require the Government to explain
why it thought it right to publish a document which has been so
heavily criticised for its lack of rigour and up-to-date statistical
data by key groups whose support for CAP reform was vital. We
recommend that Defra publish a full impact assessment of the consequences
of its proposals, as requested by Commissioner Fischer Boel, in
time for the CAP 'health checks'.
3. The future credibility of the Vision document
depends on the Government now committing itself to providing a
full and detailed evaluation of the impact of these proposals
on biodiversity, the environment, the markets for agricultural
goods and individual farm enterprises. We call upon the Government
to publish this by the middle of 2008. This analysis should be
informed by the publication, by the end of 2007, of an evaluation
of the effects on UK agriculture of the 2003 CAP reform. The Government
must also provide an analysis outlining the effects on UK and
EU agriculture of the elimination of Pillar 1. Without this, its
assertions as to the value of removing Pillar 1 support will have
little credibility amongst our EU partners.
4. …the Vision's failure to address the
potential redistribution effects of modulation should also be
rectified through the publication of an impact assessment.
In preparing the paper we used the most recently
available and relevant figures, and believe they provide as robust
an assessment of the overall costs and benefits of Pillar 1 and
its removal as anyone has so far provided. Indeed the OECD's
Director of Food, Agriculture and Fisheries, Professor Stefan
Tangermann, wrote to the EFRA Committee shortly after the paper
was published to commend our accurate use of OECD data. Other
independent academics have given similar endorsements in their
evidence to the Committee. Whilst the memorandum from Professor
Tangermann appears at page 142 of Volume II (oral and written
evidence) of the EFRA Committee's report, the Government notes
that it is not referred to in the Committee's report itself, especially
in the light of the profile which the Committee gives to criticisms
of the way that data is presented and used in the Vision Paper.
As the Committee's report notes, Defra provided a
very detailed response to the criticisms made by a number of interested
parties, pointing out the misconceptions and misunderstandings
on which those criticisms were founded, but also acknowledging
that the Vision could have averted some of those by giving fuller
explanations in one or two places.
We will urge the Commission to publish a full evaluation
of the impacts of Pillar 1, and will shortly publish a more detailed
assessment of our own of the impacts of eliminating it. We have
already established in 2005 our Agricultural Change and Environment
Observatory programme, the purpose of which is to monitor the
impacts of reform, particularly the 2003 and 2005 reforms, on
farm management practices and consequential environmental impacts.
The Observatory published its first Annual Review in December
2006 and continues to publish reports from time to time on emerging
issues.
However, we urge the Committee to accept that evaluation
of our proposals for future reform and of the 2003 reforms should
be wider in scope than just their likely impact on the farming
sector. Whilst we accept that it is important to understand the
effects on farm businesses and landowners, it would be unbalanced
not also to take account of benefits to consumers and taxpayers.
We are continuing our own analysis of the impact
of a range of reform issues and will publish that work over the
course of the next year. That will include an impact assessment
of the Commission's "healthcheck" proposals once they
emerge in 2008.
4. Properly targeted schemes delivering public
goods and services and representing better value for the public
money that is expended on them are clearly desirable. The Vision
document suggests this is the direction down which the UK Government
would like EU agricultural policy to travel. However, the Vision's
argument has been weakened by a lack of detail on the development
and agreed outcomes of Pillar 2, as Pillar 1 is progressively
dismantled. A clear statement from the European Commission on
the environmental and social objects of Pillar 2 should be sought
by the Government.
7. The only long-term justification for future
expenditure of taxpayers' money in the agricultural sector is
for the provision of public goods. Payments should represent the
most efficient means by which society can purchase the public
goods—environmental, rural, social—it wishes to enjoy.
For these payments to remain publicly acceptable, it is essential
that they relate directly to the public goods provided and that,
in turn, these public goods are measurable and capable of evaluation.
Defra should harness the power of the internet to consult as widely
as possible with the rural community about the type of rural policies
which should be developed in the context of the 2008 'health checks'
and subsequent CAP reform debate.
10. The name, the 'Common Agricultural Policy'
is now an anachronism. It should be replaced by a new 'Rural Policy
for the EU'. The separation of the funding mechanisms for Pillar
1 and Pillar 2 represents a significant obstacle to re-tuning
the balance of rural support measures in the EU and should be
re-evaluated as part of the 2008/09 budget review. The UK should
also use its influence in Europe to encourage other Member States
fully to integrate their agricultural and environmental policies.
The Government could point to the advantages that have flowed
from such policies in England being the responsibility of a single
department.
The Government welcomes the Committee's agreement
that future agricultural subsidy should be directed at public
goods. We are lobbying extensively in the EU on the merits of
that.
On publishing our vision paper, Margaret Beckett
and Gordon Brown were clear that they had "not set out a
route map for getting there. That must be the subject of inclusive
debate across Europe over the next few years and achieved through
a carefully planned process and to a manageable timescale".
The objective was to open up debate, not shut it down by setting
out a detailed plan.
That is not to say that we do not already have a
good story to tell nationally, which we commend to others in the
EU. There are now around 28,000 Environmental Stewardship Agreements
in place covering nearly 4 million hectares of the country. The
new Rural Development Programme for England provides £3.9
billion over its seven year life, more than double the budget
for the last programme. £3.3 billion (virtually the maximum
share of the programme possible under the current rural development
regulations) of that will be devoted to schemes that enhance and
protect the natural environment. That includes transferring (or
modulating) up to 14% of the budget from Pillar 1 of the CAP to
help fund environmental land management schemes, and providing
over £700 million of national co-financing to accompany those
modulated funds during the period 2007-13.
We are keen to take that debate forward at EU and
national level, including in the context of the current review
of our stewardship schemes, in order to review what public goods
should be delivered in future by agriculture and how best to do
that.
We are keen that the EU Budget Review starts from
first principles in examining every aspect of the EU budget, including
the whole of the CAP.
5. The UK Government's calls to increase the
importance of Pillar 2 have been further undermined by its involvement
as the Presidency of the EU when a budget deal was struck providing
significantly less resources for Pillar 2 than in the original
European Commission proposal. Those reductions in the rural development
budget are inconsistent with the UK Government's stated objective
of enhancing funding levels in this area. The UK Government should
not call for cuts in Pillar 2 funding as part of its wider demands
for CAP budget cuts, as this sends mixed signals to other Member
States and the Commission.
The UK Government did not call for cuts in the Pillar
2 budget as part of the 2005 budget deal. The agreement we achieved
was the best available, given the level of opposition from other
Member States to a switch in resources at that stage from Pillar
1 to Pillar 2 of the CAP. The agreement still provides broadly
the same level of funding for rural development at EU level over
the next financial perspective as over the preceding one.
Our position has remained consistent and we continue
to favour a shift in emphasis from Pillar 1 to Pillar 2. We are
doing that in the UK via the mechanism of voluntary modulation,
backed by a significant sum of national co-financing, putting
our own money where our mouth is.
6. The Vision document gives insufficient
coverage to the potential international consequences of its proposals.
The arguments used lack balance and important issues, such as
the potential erosion of trade preferences for poor countries,
do not seem to be taken sufficiently seriously. We recommend that
further analysis be undertaken by Defra, in collaboration with
the Department for International Development and HM Treasury,
to provide evidence to underpin what at present amounts to little
more than an overview of these international aspects in the existing
Vision document.
The Government has championed the needs of developing
countries and it remains one of the key reasons why we are seeking
reform of the CAP along the lines of our vision. Agriculture
is very important for developing countries, especially the poorest,
where it accounts for 40% of GDP, 35% of exports and 50-70% of
total employment. Economic modelling shows that the welfare benefits
of CAP reform for developing countries would range between $24-43
billion annually)[7].
While some (generally middle income) developing countries
may lose in the short term from higher food prices or from preference
erosion, they are in a minority, and our vision is clear that
transitional assistance should be provided. There has been much
research on the impacts of preference erosion and the cases of
ACP (African, Carribean and Pacific) banana and sugar exports
to the EU are known to be particularly problematic. The Government
has been successful in securing EU transitional assistance to
help ACP producers deal with new market arrangements. Aid for
trade will also provide resources to support trade adjustment.
Ultimately, such assistance must help those countries
move away from a dependence on preferences since they are an inefficient
mechanism for transferring resources to developing countries,
carry substantial administrative burdens, and leave local economies
distorted and vulnerable by encouraging dependence on a small
number of commodities.
8. Moving towards specifically targeted policies
under Pillar 2 of the CAP will inevitably entail greater national
discretion than exists at present. Under this scenario, the Government
must ensure that the UK does not once again become the poor relation
in the area of rural development policy by conceding negotiating
ground which could place our farmers and rural businesses in a
position of comparative disadvantage compared to those of other
Member States. In this regard, it is vital that the Government
is successful in pursuing its case for a fairer, objective based
method of allocating Pillar 2 funding during the EU budget review.
The Government agrees that using objective criteria
is a more effective means of allocating rural development funds
than historic expenditure and it is regrettable that the Commission
did not use more objective criteria as the basis for allocating
funding last year. Nevertheless, the European Commission and
Agriculture Council have already signalled their intention to
pay attention to the financing of Pillar 2 in the context of the
Healthcheck and we will want this to include a clear commitment
to review the methodology for allocating funding.
9. The objectives of the CAP have remained
unchanged for the last 50 years and now seem dated. European agricultural
policy has moved on since then, encompassing issues such as rural
development, protection of the environment and animal welfare.
The UK Government should begin negotiating, at the earliest opportunity,
for a redrafting of the existing Article which lays out the objectives
of the CAP—Article 33(1) [of the Treaty of Rome]—with
the new text reflecting the wider context of modern rural policy.
The Government agrees that a new, rational objective
needs to be defined for the CAP and our vision provides one.
We would look favourably on any proposals to reconsider the Treaty
of Rome's objectives in this respect, but we believe our vision
can be achieved without such change. In recent years, for example,
the EU has decoupled support from production and established the
rural development pillar of the CAP and the principle of cross-compliance,
without the need to revisit its original Treaty basis.
12. For all its revolutionary rhetoric, the
Government's paper was ultimately disappointing. It merely described
an evolution of the existing policy, primarily motivated by budget
savings, rather than presenting a truly revolutionary vision,
directing the debate towards scrapping the existing CAP and replacing
it with a 'Rural Policy for the EU'. The failure of the Government
to consult stakeholders prior to the launch of the Vision, or
to debate its proposals on the floor of the House, or to encourage
a wider debate after the Vision's publication, represents a regrettable
lost opportunity for engagement. We, therefore, believe that the
Government should publish, as soon as possible, a Vision 'mark
2' to address the deficiencies in the original document outlined
above and to redirect the debate towards a more visionary replacement
for the existing, outdated policy.
17. The Government must also take a lead by
deciding what a policy for a rural Europe should be, taking account
of all relevant factors. These could include environmental and
biodiversity protection and enhancement, promotion of employment
and economic development, support for biocrops, and compensation
for less favoured areas. In order to be politically sustainable,
financial support mechanisms within a 'Rural Policy for the EU'
would need to support wider public benefits. Otherwise the costs
of such a policy would be unlikely to be justifiable to the majority
of people in this country and the EU who live and work in urban
or semi-urban areas.
18. Some of the key issues the UK Government
must address in devising and pursuing such a rural policy for
the EU should include:
- The prioritisation of objectives (for example,
between environmental and rural development considerations)
- The degree of subsidiarity embodied in the
new policy
- The relative advantages and disadvantages
of financing such a policy—at least to some extent (i.e.
co-financing)—at the Member State level
- How much of the current expenditure on the
CAP would be required to fulfil the policy objectives chosen
- How best to manage the transition from the
current CAP to this new 'Rural Policy for the EU'
- The extent to which this new rural policy
can contribute to the mitigation of, and adaptation to, climate
change
The Government disagrees with the Committee's criticisms
about the nature of the CAP vision. Indeed, there is an element
of inconsistency in the Committee's view that on the one hand
the vision was not sufficiently revolutionary and on the other
that its publication antagonised the Commission and Member States
(conclusion 1).
The fact is the CAP has already been evolving in
the right direction and our vision is about taking that process
to its logical conclusion, so that Europe has a policy which is
fit for modern global realities. The vision represented the most
radical and far sighted concept for the CAP of anything proposed
in the EU, advocating the complete end of Pillar 1 and a cut in
import tariffs to the levels in the rest of the economy. It is
hard to imagine that the European Commission or any other Member
State would view that as anything other than a radical shift from
the basis upon which the policy was developed 50 years ago.
The Government strongly defends financial savings
as a worthwhile motive for further CAP reform; the CAP costs EU
taxpayers €53 billion per year directly through the EU Budget,
plus a considerable amount of additional funding from national
budgets to cover both the costs of administering the CAP and co-financing
under Pillar 2. The bulk of that spending is ineffective, unnecessary
and wasteful.
We reject the implication that we do not have a clear
idea of what will replace the CAP. In the first place, much of
what is proposed is about taking away, without replacement,
substantial elements of a policy which has been so damaging.
Our vision is clear that what remains, in terms of public funding
for agriculture, should be directed solely at the delivery of
public goods. In that regard the Government has set out extensively
a comprehensive vision for the future of farming which includes:
- the Government's Strategy for Sustainable Farming
and Food, published in 2002, which set out a clear route map for
achieving a farm sector which was profitable and sustainable;
- the Environmental Stewardship schemes, established
over the past few years, part of the Rural Development Programme
for England which has £3.9 billion allocated to it for 2007
to 2013;
- David Miliband's speech to the Oxford Farming
Conference in January, which set out an ambitious, long term vision
for English farming to deliver a net positive environmental contribution,
particularly with respect to climate change.
We will continue to debate with stakeholders and
across the EU the issue of public goods and the best means of
their delivery. We will disseminate our emerging thinking in
due course. Indeed, a review of Stewardship is already underway
to improve delivery and take account of new priorities arising
from further CAP reform.
13. Defra's problems in introducing the Single
Payment System in England and its demands for the ability to modulate
voluntarily funds between the two CAP Pillars in the absence of
match-funding may be perceived by some as having a direct relationship
with its impatience to move the CAP reform process on at a faster
rate. This is unfortunate, as it may well have undermined the
Government's negotiating position on further CAP reform as we
enter what will be a crucial time for the development of future
EU policy. The UK Government must also recognise the differing
priorities of many of the new Member States and the need for major
restructuring of their agricultural industries.
The Government believes it is right that the UK should
show leadership on the CAP reform agenda by using the flexibility
provided by the EU legislation to move the CAP in a direction
which is less market distorting and which provides greater public
benefits for public money. Rather than undermining our negotiating
position, we believe that approach reinforces our message by demonstrating
to others in the EU that we have belief in our vision and by providing
a tangible demonstration of the benefits.
The Government does, nevertheless, acknowledge with
regret the significant administrative difficulties experienced
with the delivery of the new Single Payment Scheme.
It is important that Member States are given the
choice over whether or not to match-fund voluntary modulation.
Forcing them to do so would act as a disincentive in those countries
which could not afford the cost, thus losing benefits that might
accrue from spending such money under Pillar 2. With respect
to England, the Government has boosted the funding available for
environmental schemes by match-funding voluntary modulation used
to fund such schemes at a rate of 40%.
Pillar 2 of the CAP has the advantage of giving Member
States much more discretion to use funding to target their specific
needs. That is why we believe our vision is right for the new
Member States as much as it is for us.
15. We believe that the CAP 'health checks'
are a vital opportunity for the UK Government to pursue its agenda
on the future of the CAP. If the policy is to be developed in
advance of the financial negotiations that will set its budget,
the debate on its future direction cannot wait until the later
step of the mid-term review of the Financial Perspectives. Advance
warning of the future EU agricultural policy for the period post-2013
would help farmers prepare for their new policy environment and
help facilitate a resolution in the ongoing multilateral trade
negotiations. There seems to us no reason why decisions could
not be made in 2008, during the process of the 'health checks',
and then implemented in 2014, on the basis of a financial agreement
reached in the budget review. The logic of this approach seems
compelling, and we urge the UK Government to grasp the opportunity
of the forthcoming negotiations to push hard for a new policy
that better reflects the modern-day objectives of Europe—a
'Rural Policy for the EU'.
The Government is pleased that the Agriculture Commissioner
has set out her intention that the 2008 CAP "healthcheck"
will be first in a two step process towards more fundamental longer
term reform.
The healthcheck allows the EU to make a detailed
assessment of CAP mechanisms and to take decisions which will
help farmers cope with the changing context they will face over
the years to 2015-2020.
The Government would like to see the healthcheck:
- Complete the process of decoupling over a manageable
timescale by removing any remaining coupled subsidy and eliminating
constraints on production, such as quotas and set-aside. That
would allow farmers to respond fully to market signals, boosting
farm incomes and simplifying the CAP to a significant degree.
- For as long as Pillar 1 exists, to continue to
use compulsory modulation to shift resources from Pillar 1 to
Pillar 2 to secure improved public benefits.
- Focus rigorously on simplification of the CAP,
for example by reducing the burdens of cross-compliance and eliminating
anomalies within the single payment scheme. That should bring
real reductions in the burdens faced by farmers, reduce administrative
costs and foster greater competitiveness.
- Avoid introducing any new distortions or complexities,
such as the capping of direct payments or market distorting risk
and crisis management measures.
16. We note a distinctive shift in definitions
of Defra policy regarding the CAP. Defra must now confirm that
HM Treasury is in tune with this, as there is no guarantee that
securing environmental goods and services is going to be less
expensive than the old Pillar 1 dominated CAP.
19. In putting forward our recommendations
for a "Rural Policy for the EU", we acknowledge the
serious and inherent difficulties in making a clear move away
from the entrenched position of the existing CAP. This is made
particularly difficult by the inertia of the EU policy process
and the close connection of the CAP with the overall budget of
the EU, which Member States will be reviewing again in 2008/9.
However, the prize of CAP reform is worth the Government devoting
all its persuasive power and negotiating effort to push for such
a move.
21. There is a historic opportunity for the
Government to persuade other Member States and the EU institutions
of the positive case for fundamental reform in the coming years.
This may require the UK to decide if CAP reform is a prize worth
having, even if the price that has to be paid is an erosion of
the British rebate.
Currently only 20% of the €53 billion CAP budget
is directed at rural development. The rest is a legacy of its
historic goal of stimulating production. There is, therefore,
no correlation between the size of that budget and the cost of
delivering public goods. On the contrary, there is every reason
to believe that a policy targeted much more effectively on public
goods would be considerably cheaper.
The CAP vision paper was produced jointly by Defra
and Treasury and states clearly that "spending on agriculture
would be based on the current Pillar 2". That remains our
position. In all policy areas, and looking ahead to the EU Budget
Review, the Government believes that spending through the EU Budget
should represent value for money, should add value compared to
spending through national budgets, should be proportionate, and
should be properly managed.
The rebate is necessary because of the imbalances
created by EU expenditure policy. There is now a range of so-called
correction mechanisms applying to different Member States' EU
contributions, all of which are subject to review, alongside the
rest of the EU budget in 2008/9. The Government will be putting
full effort into negotiating the best outcome from that process.
Department for Environment, Food and Rural Affairs
27 July 2007
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