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Common Agricultural Policy: Financing (EUC Report)

My Lords, I thank the noble Baroness. It is always a pleasure to follow the noble Earl, Lord Ferrers. We all sit up and listen when he speaks, and indeed he speaks with a feeling that many people may have in the country—particularly with regard to the form-filling business. It gets to a stage when it becomes nothing short of ridiculous. It is a privilege, as other noble Lords have said, to serve on Sub-Committee D under the very able chairmanship and guidance of my noble friend Lord Renton of Mount Harry. As he said, we are very fortunate to have a very good clerk and specialist staff and we enjoy a remarkable degree of unanimity in our work. I speak and react as a farmer and conservationist. We are all aware that the CAP, in spite of what has been said, has been radically reformed. Farmers say that the form-filling in order to meet the requirements of the single farm payment has been nothing short of a nightmare. If we qualify for the benefit of environmentally friendly farming through cross-compliance, many farmers can be forgiven for saying, ““But that is what we’ve always done””. The stewardship scheme provides some incentive for change, but we must never ignore the fact that we are first and foremost food producers. The agreement between 25 countries is set until 2013 and yet our Prime Minister—as my noble friend Lord Peel reminded us—and the Chancellor still call for further cuts in the budget. If that is what they want I can only say that it will cause yet more confusion among those trying to grapple with the complications of the problem at the moment. We know that producing food is hardly an exact science, and it is by nature a very long-term business. It is totally misleading to assume that 40 per cent of the EU budget goes only to farmers. CAP reform has resulted in a shift of support, as we have already heard, from Pillar 1—so-called direct payments—to Pillar 2, rural development. In principle, assuming an efficient allocation of Pillar 2 funds, that should be budget-neutral for the rural economy at the European Union level. But the impact at national level will vary. It is fascinating to hear comments about co-financing, which may be something for the future. It is evident that there are growing difficulties in applying single farm payments consistently across all those countries. The potential for competitive distortions becomes even more worrying because of the unfavourable exchange rate that British farmers face. The current strength of sterling against the euro affects not only the amount of support payments but also influences the level of domestic prices and the competitiveness of British produce in international markets. In recent years exchange rate fluctuations have explained some two-thirds of the changes in agricultural income and management instruments remain out of reach for most farmers as a result. The situation is becoming increasingly serious particularly because in recent years British farmers have experienced a sustained decrease in farm-gate prices and the continually increasing cost of inputs. For example, while farm-gate prices have decreased on average by 19 per cent since 1995, the cost of inputs has increased 9 per cent. When we link those facts to the increase in regulatory pressures and the skills shortage, the result can be only severe pressures on the farming community despite the fact that farming incomes per capita in 2004 were 45 per cent lower than they were in 1995. In fact, farming income levels in recent years have been similar to income levels in the mid-1980s. This situation is alien to any other sector of United Kingdom business. The situation can be put into context by comparing it to the increase in per capita income during the same period, which is about 200 per cent. A reduction in farm-gate prices has not been reflected in reduced food prices. While farm-gate prices between 1996 and 2004 decreased on average by 17 per cent, food prices increased during the same period by more than 8 per cent. Does the Minister agree that, according to Defra’s own figures, the farmer’s share of the retail price for a basket of food items has decreased by 47 per cent to 35 per cent since 1988? So while we welcome the change to the common agricultural policy, and I fully support the report as so well outlined by our chairman, it will make farmers more market focused. We have to analyse the extent to which market signals can function properly given the high market concentration and power in the processing and retail sectors. We must also focus on the future and the different strategies that can contribute to increased prosperity for the farming sector. Institutional support is therefore vital. We can neither abandon nor abolish its role. Perhaps the Minister can explain why the Scots receive their first tranche of money in December but we do not get ours until February. So while the cost of the CAP has been the subject of much demagoguery, this figure needs to be put in context. The CAP is the only common expenditure of the European Union and the EU budget represents just over 1 per cent of the European Union’s gross national income—as a result, agricultural support represents less than 0.5 per cent of GDP. Obviously in the challenge for change that farming is going through, many changes will be made. Some will be difficult to face but I believe that farmers can face them. However, they at least need the satisfaction of knowing that we face stability rather than more frustration.