Common Agricultural Policy (EUC Report)

HL Deb 10 June 2003 vol 649 cc152-86

4.34 p.m.

The Earl of Selborne

rose to move, That this House takes note of the Report of the European Union Committee on Mid-Term Review of the Common Agricultural Policy: External Implications (10th Report, HL Paper 62).

The noble Earl said: The emphasis of the report is very much on "external implications", because the committee looked specifically at the implications that this rather unexpectedly massive reform of the common agricultural policy will have on trade liberalisation, the applicant countries to the European Union and developing countries—and, indeed, on our commitment to the Doha development round.

I start by declaring an interest as a farmer and by saying how grateful Sub-Committee D was to its specialist adviser, Mr Brian Gardner, who has been involved for many years with tracking the common agricultural policy and matters agricultural in Brussels. As always, we are also deeply grateful to our Clerk, Mr Tom Radice.

The common agricultural policy has been in existence since the early 1960s. It is recognised that its focus for much of its existence has been on achieving a fair standard of living for agricultural producers, and of course also achieving food security. Basically, in so far as the subsidies over many years were to try to obtain a fair standard of living for agricultural producers, the CAP was singularly ineffective. Subsidies have failed to stop farm incomes from declining relative to those of the rest of the population. Price support is a relatively inefficient way of bolstering farm incomes. The OECD estimates that for every 4 dollars spent on subsidies, farm incomes go up by only 1 dollar. Therefore, it is not surprising that farm incomes seem not to have benefited from the considerable costs of the common agricultural policy.

That fact was recognised by MacSharry in the early 1990s, in that the reforms of 1992 cost more: they cost 13 billion euros for direct subsidies to compensate for 6 billion euros of market intervention costs. Nevertheless, it was a helpful introduction. It was seen as a way of establishing a programme, which it was hoped would continue for some years, for scaling down support, increasing the competitiveness of European agriculture and targeting state subvention on income support for the less-favoured sectors of the rural population.

The Berlin Council of March 1999 was part of this progression; the Agenda 2000 reforms of the CAP came out of the Berlin Council. This introduced the rural development regulation, which was widely welcomed and which is known as the second pillar of the CAP. The Berlin Council further lowered market support.

Nevertheless, the outcome was deeply disappointing to many countries, particularly to the UK Government and others. The reformists recognised that the Commission's objectives had been railroaded, the reforms being nothing like as far-reaching as had been hoped.

One concession was that there should be a mid-term review, and that is precisely what we are now conducting. The debate comes on the eve of the critical meeting of the Council of Ministers; it meets tomorrow, I think, and I have no doubt that it will be meeting for several days afterwards, because this is indeed, unlike what was expected at the time the concession was made in Berlin, turning out to be a major reform. For that, Commissioner Fischler and other commissioners deserve congratulations on the radical nature of the original proposals of June 2002, which was the subject of our report.

By January 2003 seven draft Council regulations had been published by the Commission, which retained the thrust of the original proposals but also embraced significant changes, partly in modulation and partly in dairy reform and other aspects. Nevertheless, it can be seen that the pressure exerted on the Commission has been, as in Berlin, to reduce the effectiveness of its radical proposals. If there is any doubt about the strength of the opposition from the majority of the Council of Ministers, I would refer the House to box 4 of our report, a letter to the Financial Times from a number of Ministers. I shall quote one sentence which is apposite to our report: Some also claim that the CAP is responsible for causing hunger in developing countries. Nothing could be further from the truth". That is breathtaking complacency. Certainly, that bald assertion is not borne out by the evidence that we took.

As I said, the mid-term review is much more ambitious in its programme of changes. I remind the House that it introduced decoupling—the single income payment based on crop subsidy payments received over a period in the past. That is, indeed, a truly radical step and very important as it removes the incentive to produce more in order to get more grant. It gives hope that we can reconcile the common agricultural policy with something which might be compatible with the Doha development round and with other free trade movements.

Although decoupling is widely to be welcomed, I am very nervous of the concept of partial decoupling, which may well be the sort of fudge that comes out of the Council this week. We shall have to see whether that materialises. While the CAP continues to offer support—the amount of money that continues to be offered to the existing 15 member states is by no means insignificant at 40 billion euros or more—there will be higher production as a result, but, as I say, farmers are no longer incentivised to produce more.

We have to recognise that European farmers are doing astonishingly well out of the proposal. It is a long way from the sort of proposal that MacSharry might have expected to come forward at this stage of the reform. I have seen one analysis which suggests that United Kingdom farm income might benefit significantly from the total package, possibly by up to half a billion pounds a year. Economists can run those figures in all sorts of directions, and I do not wish to be held to that, but I nevertheless make the point that once you get a single payment without having to produce any more or any less, you are in a position of much greater flexibility. We have to bear in mind that European farmers are lucky to get that very generous support.

The support is to be modulated, which is European Union jargon for saying that it will be cut over a period. But, again, the more recent proposals have slightly modified those degressive cuts, and they will effectively not start for three years. It will take up to 10 years for them finally to hit.

As regards cross-compliance, one may think that it is not an unreasonable proposal that if one is going to get these massive payments there should be a degree of environmental and other compliance. However, it is fair to say that while it is extremely important to audit these payments, there is a danger that a bureaucratic nightmare may emerge. It is by no means clear whether there will be robust, simple proposals which would prevent that happening.

I believe that noble Lords would agree that, building on the Berlin initiative of the second pillar rural development budget, the measures that we are discussing should be grabbed immediately as it gives an opportunity to use the CAP to benefit the rural economy and widen the base of support. As I say, it disentangles us from the difficulties we have with the WTO and others.

I refer to changes in the dairy policy, some of which are extremely unhelpful. One of the latest proposals in January this year was that the quotas should continue until 2014. Try to reconcile that with the message to European farmers to be more competitive. Quotas are a way of providing a pension for people who have given up producing. You have to buy or lease someone else's quota if you want to expand or if you are a new entrant. That is highly unhelpful and, so far as I am concerned, unexpected.

There is a reduction in EC skimmed milk prices. It is calculated in the Government's response that by 2008–09 skimmed milk prices might be consistent with world market prices, although butter prices still remain 12 per cent higher. That step must be welcomed, if not the speed with which it is being implemented. Paragraph 67 of the report states: Jamaica's skim milk powder imports from the EU have almost quadrupled during the past 10 years … These imports have been used largely to replace fresh milk originally supplied from local farms". That is an example of how the European Union's subsidised exports undermine the local economies of countries with a far lower standard of living than our own. I am absolutely clear in my own mind that European farmers do not want and do not expect to have a form of support which undermines others who are far less capable of coping with this unfair competition.

I say again that Commissioner Fischler is to be congratulated on having put forward ambitious proposals, which were certainly not expected by the majority of Council members, particularly on decoupling most of the support from production.

Having said all that, it would be churlish to say that that is not good enough, but that is effectively what our report says. I recognise that the following proposal is totally unrealistic given that the majority of the Council of Ministers is so traditionalist and defensive of the support that has been provided for so long, but nevertheless it is important that we look at the remaining dairy export subsidies so far as impacts on the third world are concerned. Reform of the sugar regime will also have to be tackled.

We considered the accession countries and recognised that, had the reform been completed before they joined the Union, there would not have been any need to compensate them for support that they never had in the first place. But that is effectively what will happen. It would be far more appropriate for the rural development budget of pillar two to tackle such problems as rural social cohesion. We regret that the reform has taken so long to be determined and that some of the applicant countries are already putting in place all the worst aspects of the CAP. I fear that the lobby in the Council of Ministers which supports the traditional CAP will be strengthened in part by the stance taken by the applicant countries.

But the wider issue is the need to reconcile support for European agriculture with our responsibilities to developing countries and trade liberalisation. I quote from the recent report on globalisation of your Lordships' Select Committee on Economic Affairs, which states at paragraph 76: We consider that developed countries' protectionism (mainly in the United States and the European Union) with regard to agricultural and textile products in particular is wholly objectionable and unjustifiable: developed countries' protectionism places an unfair burden on developing countries and is in stark contrast to the protestations of the leaders of the rich nations that they are committed to helping the world's poor". We were particularly concerned at the level of import duty on processed food, for example, chocolate.

Let us make no mistake. European farmers are entitled to a common agricultural policy which assists them to move progressively from a heavily protected to a more competitive environment. The case for rewarding farmers' contributions to food security, countryside stewardship, food safety, the rural economy and much else is self-evident, but the question is how one has a policy which makes good sense to the taxpayer and which fulfils our obligations to the developing world and, for that matter, to the applicant countries. In recognising that the CAP reform is very much more generous than would have been expected some years ago, it is perfectly possible to take out its objectionable elements and to leave in place support which will reward European farmers justly for what they deliver.

Logically, once you have moved funds from Pillar 1 to Pillar 2, you will not need to have import tariffs or to subsidise exports. The trouble is that we see a very modest movement of funds to Pillar 2, and that is really the burden of our report. Having come up with the strategy of Pillar 2 in Berlin some years ago. let us now have the courage to fund it properly. Relying on modulation—effectively cutting support that would otherwise have gone to production support, via Pillar 1, and using that for Pillar 2—is not enough. There needs to be a much more imaginative switch of funds. That will prevent agriculture being criticised by the rest of industry in Europe for causing a blockage in trade liberalisation, and preventing all the benefits in terms of employment and national wealth that might accrue from it.

We therefore suggest that payments to farmers should be capped—not a proposal which will go down well in the United Kingdom, because the farmers in the United Kingdom are larger than the average and this impacts on the larger farmers. Equally, if you are to try to distribute money widely and you are relying on modulation only, it will eventually mean that you are short of funds for Pillar 2. Were it possible to do a massive switch without relying on modulation, then perhaps capping would not be necessary either.

The present anachronistic formula of determining what country gets what for Pillar 2 is one of these problems we suffer from in this country where, lacking matching funding, we do not by any means get what might be considered a due proportion of Pillar 2 funds. I think that we get 9.8 per cent of the EU modulation pot. Clearly this is a further grievance that British farmers rightly have. If they could see more money coming into Pillar 2, which they would bid for competitively, then this would be very much more satisfactory.

European farmers cannot expect their income to be shored up at the expense of third world producers. The mid-term review was a brave, ambitious programme of overdue reform, already diluted and in great danger, I suspect, of being diluted still further this week. The message coming from this debate today to our own Ministers, and to those who support the minority on the Council of Ministers, must at all costs be to ensure that we do not have what happened in Berlin, which was pressure from heads of government and others to dilute very sensible measures coming from the Commission.

I say again, these are measures which are radical, but they are overdue and they deserve our support. They cannot be diluted any further.

Moved, That this House takes note of the Report of the European Union Committee on Mid-Term Review of the Common Agricultural Policy: External Implications (10th Report, HL Paper 62).—(The Earl of Selborne.)

4.53 p.m.

Lord Desai

My Lords, it is a genuine pleasure to say that I very much welcome this report. I do believe, as we have often thought in the past, that publications by your Lordships' House are so good that they ought to he much more widely disseminated. If the powers-that-be could make it possible to have the 30 pages of the main report issued separately, it would become a very good and informative textbook on how the CAP—I should not say "works", because it does not—affects both the European economy and other economies.

I confess that I find it very hard to speak on the CAP without foaming at the mouth. It makes me angry just to think that it exists, so I shall try to be restrained if I can. The report is a very well-balanced account of all the major defects that the CAP has, and the committee is to be congratulated on the restraint it has shown in telling us what those defects are.

It is a policy which is inefficient in terms of production. It is regressive both among the farmers of Europe and also internationally, as between Europe and the third world. Whenever attempts have been made to reform it, the reforms have been blunted by all sorts of pressures from Ministers in the Council of Ministers.

My noble friend Lord Barnett, speaking in the globalisation debate last week, said that he wished that developed countries could do better regarding subsidies and so on, but he was very pessimistic. He said that democracy is a problem. I do not think that democracy is a problem. After all, farmers do not form a large proportion of the electorate. In terms of its contribution to the total economy, agriculture is not a large sector in most of the 15 European economies. Poland is another matter. However, here in Europe and in America agriculture exercises a disproportionate influence on decision-making. It is very hard to understand why that is so. Why we urban consumers tolerate this I do not know. Maybe, after all the subsidy, food is so cheap for us that we cannot be bothered.

The cost of the CAP, as shown in the report—41 billion euros now, 46 billion euros in 2006, and so on—is a very large cost. Think of it. It more or less equals the total overseas development aid from OECD countries to third world countries. It is about 50 billion dollars. Given the way the exchange rate is moving, there is not much between 45 billion euros and 50 billion dollars. CAP alone costs as much as all of the OECD countries give to the third world.

I am very grateful to the committee for two things: for publishing a glossary of technical terms and also for re-publishing in Box 4 that splendid letter from agriculture Ministers across Europe. It only costs 1 per cent of GDP and they think that is not very much. It is quite a lot.

The logic of the CAP is very clear from the letter. It starts by saying that in the 1960s Europe was not self-sufficient in food. It could have been imported. The whole logic is so opposed to trade—which is a very efficient way of satisfying consumption—that the CAP was constructed as a massive obstacle to liberal trade. It continues to be a massive obstacle to liberal trade, not only in preventing more efficient entrants from exporting to the European Union but also in its dumping effects, again very nicely detailed by the report. In its dumping effects it positively harms the economies of the third world by ruining their chances of entering a liberal, or at least a substantially freer, trade regime.

In a sense, it represents quite a large damaging force in international affairs. I have been quoted as saying that the CAP is a crime against humanity, and I do not mind repeating that. It is the least that one can say about it.

There is a very interesting problem with the reform which is now emerging, as the noble Earl, Lord Selborne, said very succinctly. The Fischler reforms, welcome as they were, have been blunted. Even the blunted reforms are worth having, but they have been greatly blunted. If the Fischler reforms had been put through, we would not have had a complete solution to the bad effects of the CAP, but at least it would have been a beginning.

Decoupling is absolutely essential. It is at the heart of these reforms. It is ironic that, if decoupling happened, UK agriculture would go back to the nice situation we had before we joined the EEC, as it was then, whereby farmers are supported through an income support scheme and not through a scheme tied to production.

I am not sure whether this cross-compliance and Pillar 2 are not seen outside as excuses which the EU has thrown up in order not to reform the CAP. I hope that it is sincere in saying that it will give money for environmental improvement, rural development and so on. However, I think that measures on those were thought up to give Mr Pascal Lamy a better case to present at the WTO round in Doha. I am not at all hopeful that good environmental effects will follow, because the measures do not seem as though they will be implemented.

Those are barriers to reform, as the committee says very well in paragraph 74. People trying to export agricultural products to Europe have to meet certain production standards, which are non-tariff barriers. There are non-tariff barriers to entry of products, and barriers, whatever we call them, to reform of the CAP. Those two types of barriers make it very difficult to know which way we will go.

The UK Government have tried very hard to reform the CAP. I hope that our debate and the report itself will strengthen the hand of the Minister. We will have to unite with all the other reforming countries and try once again very hard. As the report states, we should have reform of the CAP before enlargement. We should certainly have not given the newly-entering countries the hope that they would get compensation of anything like the extent of that of the existing CAP. The horse has now bolted, as countries such as Poland very much depend on getting substantial support payments. That will distort their agriculture so much that, when it comes to real reform later, they will say, "We cannot afford reform because that will ruin our agriculture".

We are in a vicious circle of bad situations. I wish my noble friend, if he is going to Brussels tomorrow, all strength to his elbows and every other part of his body to see that the CAP is reformed. I very much welcome the report.

5.2 p.m.

Lord Hannay of Chiswick

My Lords, the words "reform of the common agricultural policy" tend to elicit from the average British commentator, whether pro-European or Euro-sceptic, a mixture of despair, anger and weary cynicism in about equal measure. Let us hope that those not very useful emotions will be absent from this debate on a report that seems to be calm, rational, compelling in its conclusions, and exceptionally timely as the European Union prepares to enlarge substantially and to engage in the critical phase of the Doha development round of world trade negotiations. The sub-committee and the noble Earl, Lord Selborne, are to be congratulated on their work, as, for the most part, are the Government for their response.

The heart of the report and of the Commission's mid-term review proposals, as others have said, is the breaking of the link between the level of subsidy and the level of agricultural production. It is, after all, that link that has led to the distortion of world agricultural markets, the failure to allow market forces to have any impact on the supply side of the equation, and the undercutting of third world farmers in their own and their prospective export markets by European Union producers. It is that link that even now results in the European farm industry, alone among Europe's industries, being protected from the impact of the rising value of the euro against other currencies.

If I may be forgiven for digressing for a moment, I recall that it was a former Leader of the House, Lord Soames who, when he got to the Commission in Brussels in 1973 and was put in charge of the Tokyo round of trade negotiations—I worked for him at the time—first pointed out the urgent need to decouple the subsidisation of farmers from the level of production, thus avoiding the encouragement of surpluses that had to be sold expensively overseas and many of the other trade-distorting effects of the common agricultural policy. He was quite simply laughed to scorn. How could he, a newcomer, be so naive as to suppose that European farmers and their political backers in the Council of Ministers would ever countenance such a revolutionary idea?

Well, it is an idea whose time has come—better late than never. No doubt attempts will be made in the negotiations that lie ahead, within both the European Union and the World Trade Organisation, to water down the proposals. I hope that the Government will commit themselves to resisting that with all the means at their disposal.

It is surely correct, as the report points out, that the decoupling of production and subsidy is also crucial if the new member states are not to become hooked on the present system, which will then become even more difficult to reform. We must be careful to avoid mixing up the budgetary and trade implications of the Commission's proposals. As others have pointed out, the proposals will not save the European Union's budget much money—perhaps not any at all, at least in the short and medium term. Does that discredit them? I do not believe so.

We must be careful of squeezing the budgetary pips so hard that support for the proposals in the new member states in particular erodes, and we must be aware of budgetary arguments related to the proportion of the EU budget that goes on agriculture. Those arguments have always been pretty spurious given how few major spending policies in Europe are financed out of the European Union budget. After all, we are talking about a proportion of European revenue capped at 1.25 per cent of gross domestic product, and that at a time when each member state is nationally spending a lot more than that on health, education and even, although reluctantly, their armed forces. We will not get common agricultural policy reform on the cheap, but we need it.

If I have a doubt about the Government's approach to the Commission's proposals, it lies in their answer to paragraph 78 of the committee's report, which is on the desirability of capping the amount of income subsidy to individual holdings. I think that I can detect in the Government's negative reaction a flaw that has so often undermined Britain's support for CAP reform in the past; namely, a determination to fight against any distinction between small and large farmers. In my view, that makes neither economic nor tactical sense.

After all, we do not refuse to make a distinction in many aspects of our fiscal and state-support systems between small and large economic operators. Why not in this case, too?

The tactical argument is even more compelling. If we devote our efforts and energy to removing what we see as discrimination against large producers, we end up weakening our support for the Commission's reform efforts overall. Alas, that has happened all too often in the past. I hope that the Minister will assure the House that we will not allow it to happen on this occasion.

If I have a doubt about the committee's approach, it lies in the somewhat cursory way in which it handled the issue of sugar, in particular in so far as it affects developing countries. Of course the report is right to underline the need to reform the European Union's internal sugar regime and to reduce the excessive production from beet sugar that results in exports damaging exporters of cane sugar in developing countries.

Another aspect is not touched on in the report much, and is merely hinted at in the testimony offered by the representative of the African, Caribbean and Pacific Secretariat in Brussels, who gave evidence to the committee. That is the very significant contribution that the European Union makes through its purchases of ACP sugar at prices linked to the EU price, and not to the world market price, to the economies of a whole range of developing countries, many of them members of the Commonwealth.

Great care is needed in handling the issue. Not long ago, we saw how abrupt change to free market rules could damage the economy of developing-country banana producers who had relied on privileged access to the European Union market. We should not repeat that experience. Perhaps the Minister will say how the Government propose to reconcile our support for reform of the European Union's internal sugar regime with our commitment to developing-country sugar producers in the ACP, which was a cornerstone of our own terms of accession to the European Union.

The topicality of the debate relates to the decisions to he taken later this week by the EU Council of Ministers on the negotiating mandate in the run-up to the World Trade Organisation's Cancun meeting in the autumn. It is of the greatest importance that that mandate gives the European Union negotiators more flexibility than does the present one. The present one is more of a straitjacket than a mandate. It would be good to hear from the Minister what he thinks the prospects are for a reasonable outcome later this week. Surely one thing needs to be avoided: a botched and inadequate compromise which leaves the European Union unable to provide the World Trade Organisation with the leadership that the European Union's position as the largest world trading power requires of it. Deadlock in the European Union would be regrettable, but surely less so than getting locked in an unnegotiable position. A period of tension between European Union member states is not something we should work for or welcome, but is surely a price we should be prepared to pay in order to get a decent mandate.

Why does this matter so much? Quite simply because if we cannot sharply improve the development content of the Doha round, if we cannot thereby convince developing countries that trade liberalisation is in their interest and not just ours, then there will not be a successful Doha round and we will all be the poorer for it.

In previous rounds we have marginalised developing countries, we have offered concessions on agriculture and textiles that have then not materialised. We have spoken loudly of our commitment to their well-being and not put our money where our mouth was. But that will not work again, nor should it. If we are to offer the developing countries the open markets that they desperately need if they are to make their way up the development ladder, which in the long term will he of far greater value to them than any amount of aid, and if we are to answer the more defensible of the criticisms of those who are disenchanted with the consequences of globalisation, the European Union is going to have to make a major effort and put its global responsibilities before the narrowly defined self-interest of its farming communities.

5.12 p.m.

Lord Plumb

My Lords, I begin by declaring an interest as a farmer, but a farmer who welcomes this report. I join with others in congratulating the noble Earl, Lord Selborne, on getting together his committee, taking the views of the various witnesses and putting them together so well and so constructively in the report that we have before us. This follows the Commission's proposals, and the views on them that have been expressed by those witnesses. The proposals were set out fully in Box 2 of the report, on which, as we well know, Ministers are due to deliver, starting their proceedings tomorrow. It is therefore timely that we give an opinion on the report. It is a mid-term review report, and some of the views expressed seem to be outdated because of the updating of some of the proposals that the Ministers are currently considering.

The proposals have therefore moved quite a long way since last year. In that sense, my noble friend's committee may well have to meet again to review its findings after Ministers have debated and deliberated. If they follow the pattern of history in an endeavour to reach a compromise and offer each country something, we face all kinds of difficulties. The evidence is based on a mid-term review which now becomes a CAP reform. Some of the proposals have changed: one concerning farmers in this country is that the notion of a cap on payments of 300,000 euros has fallen by the wayside. The future is by no means clear. Many current proposals are being considered for withdrawal or have been withdrawn. Whatever the outcome, ultimately, as I see it there are three guiding principles for which we should aim. The first, which everyone would welcome, is a significant simplification of the existing support arrangements and the removal of a large proportion of the regulatory bureaucracy which they produce in an attempt to police the current complex systems of support. Policing is seen to be more flexible in some countries than in others. How often do we hear it said that we obey while others have not heard of the rules? That is not strictly true, but nevertheless that is a feeling that many people have. This should be done to minimise the redistribution of funds between those who currently receive support and those who may be beneficiaries in the future.

At the same time, reforms should be carried out with the key objectives of allowing the farmer or the grower of products to focus clearly on the needs of the marketplace and respond clearly to the signals of demand coming from consumers and customers. That point is set out clearly in the report.

I believe there are encouraging signs. Farmers' markets are developing, farm shops are being created and anyone who visited, for instance, the Royal Cornwall Show last week would have seen in the food hall a fine example of a taste of the West: good quality food and in great demand. Therefore the example is already set, small though it is.

In so doing, the primary producer will benefit from the removal of all the inefficiencies in the chain that have been built up and built into the machine by successive adaptations and changes in the common agricultural policy which have added significant additional costs or price penalties. Many of those costs and increases, and the input that goes into the total funding—which has understandably been severely criticised today—do not reach the farmer. How is that we hear that some £2.40 per head of every cow in Europe is an on-cost? The farmer reacts when he is receiving 15p a litre from his milk and the cost in the shop is 75p. You cannot say that that is "coming from Europe"; it is properly market-oriented.

I am pleased that the report makes it clear that the revised CAP should be less complicated, less bureaucratic and less centralised. The principle of decoupling, of removing direct support payments from production, and concentrating policy on more environmentally friendly farming is welcome. Ministers will have a tough time in persuading their European colleagues to support the full Commission proposals. I would be very concerned if we accept partial decoupling, as my noble friend Lord Selborne said. It is all or nothing and that is the way we have to go. If we had a flat rate decoupling option of between, say, 70 and 90 per cent across all sections, with the remaining funds allocated to a national envelope, that could then be used at the discretion of each member state or region to target specific sectors.

I could spend, as others could, the few minutes that I have in this debate on the proposals for further decoupling, for cross-compliance, for the Pillar 2 policies and for modulation, on all of which I agree entirely with what my noble friend Lord Selborne has stated in his report. The problem to which I always return is to make them simple and workable.

The CAP is accused of encouraging over-production, as it has. Yet agri-environment measures are working. Many are taking advantage of the countryside stewardship schemes and marketing groups are increasing. Since the last full reform in 1992, the changeover to more sustainable farming has been steady. Therefore substantial surpluses are a thing of the past. There is an ever-increasing level of imports, mostly from countries where labour is cheap.

Now, as we move towards a more tariff-free and less subsidised trading world in food, incorporating many developing countries, we cannot ignore the proposals and the rules that will apply under WTO. Yet, as we see it, most of our trade is with the European Union, bringing greater risks for competition, as we have seen in the past two or three years as the European Union expands.

When the Minister replies he may consider some of the points of concern about that where exports have fallen from 58 per cent to 53 per cent since 1999, mainly due to the monetary disadvantage of the pound and the euro. The output loss shows a staggering effect of over £800 million a year since 1999 through that issue alone.

The controversial area of debate relates to land that has changed hands since the beginning of the reference period and which has been perceived as totally unfair. I hope that Ministers in their deliberations can agree a solution whereby the calculation of payment entitlements can be adjusted in cases where permanent transfer of land has taken place in order for future payments to reflect the size of holding at a time when a new scheme comes into force. I hope that is an issue that can be dealt with here because the landlord/tenant system that applies in many other European countries is totally different from ours. Therefore, member states need some discretion on how to tackle those consequential issues.

The report endeavours to cover a very wide range of complex issues and rightly highlights the importance of enlargement of the EU and the significance of WTO and the Doha round. If we are to help or to see help given to developing countries so that they can help themselves in the form of production, the areas of concern are import access and export subsidies. Replacing a tariff regime in the grains sector with tariff quotas will make WTO negotiations more, not less, difficult and will not necessarily help more developing countries to help themselves and to improve their position or their standard of living.

Generally my views support the report. I thank the committee and, in particular, its chairman for presenting it to us.

5.24 p.m.

The Lord Bishop of Hereford

My Lords, I thank the noble Earl, Lord Selborne, and the members of the sub-committee for what is an excellent report. It is a matter of hideous complexity. I approach it with the utmost diffidence. This is an area where angels, and no doubt bishops even more so, should fear to tread.

There are some very important moral and environmental considerations to which I shall refer briefly and which are brought out very clearly indeed in the evidence given by the assistant secretary general of the African, Caribbean and Pacific Group of States on pages 23 to 27 of the minutes of evidence. That contains some very worrying material indeed and a great deal of uncertainty is also expressed on the part of those states.

Basically, I agree strongly with the approach of the committee. Decoupling is essential; modulation needs to be at higher levels than is presently proposed; and degressivity is right. All such changes must be carried through if the European Union is to have a credible negotiating position with the WTO. I would like to see written clearly on the bottle, "Do not dilute".

What do we want to see? As far as I am concerned, we do not want to see unbridled free trade; certainly not the dumping of EU or US products on fragile agricultural economies in the developing world with catastrophic results for local producers. Reference has already been made to some examples. It is truly shocking that Ministers could write the letter in Box 4 on page 14. It shows quite remarkable dishonesty and complacency about the dire effects of EU subsidised food dumped on developing countries, especially wheat, dairy products, sugar and, from the United States in particular, rice with devastating effects on the rice production of Ghana and Haiti. As referred to in the NFU evidence, that is US hypocrisy, although, as the NFU points out, that is partly because of the separation of legislature and executive in the United States. If that is the reason given in the United States, what is the reason for the European Union dumping?

I have to admit that I have a sneaking sympathy, here and there, with some of the points made later in the letter in Box 4 about sufficient numbers of contented producers with confidence in the future maintaining the diversity of our landscape. I would not argue entirely with what Ministers are saying, but in particular with what they say about the effects of European Union policies on the poorer countries.

The moral maze of the trade justice debate is utterly bewildering. Some of the NGOs urge more opportunities for poor countries to gain access to our markets with their primary products. Some of that trade is highly desirable; some of it is essential if such countries are to earn the wherewithal to buy from the developed world the technology that they need to raise standards of living for themselves and to achieve the standards of quality, consistency and reliability that are needed if their export businesses are to be successful. But I believe that there are still strict limits to what we should encourage in terms of trade.

Both the United States and the United Kingdom Governments have been guilty of some extraordinary and, I believe, unacceptable attitudes. I quote from John Block, former US agriculture secretary, as long ago as 1986. If this is an attitude that has informed United States' policy since then, can we be surprised? He says that the, idea that developing countries should feed themselves is an anachronism from a bygone era. They could better ensure their food security by relying on US agricultural products which are available, in most cases, at much lesser cost". Much more recently, our own Clare Short said: old ideas that focus on national self-sufficiency in food, rather than national capacity to purchase the food that is needed, are deeply outdated". I think both those statements are deeply regrettable.

Some trade is positively undesirable if it reduces self-sufficiency or what has come to be called food sovereignty: the right of every nation to produce as much of its own food as it wants, needs and reasonably can produce, given climatic constraints. Parts of Kenya are suitable for intensive dairy farming, but for Kenya to export its dairy products to the United Kingdom and to Europe would be as nonsensical as it would be for us to dump our surplus dairy products on the Kenyans.

I find the attitude of some NGOs a little surprising. They are campaigning hard to persuade the EU and the WTO to make it easier for the developed world to import much more food from relatively undeveloped countries, seeing that as a matter of trade justice, which it is on any reasonable analysis. But that begs the question whether such increased trade is desirable. Is it good to introduce industrial and intensive agricultural methods in developing countries? Is it good to add food miles, all of which are environmentally damaging? There are already serious problems of overproduction of coffee, for example, low returns and a consequent treadmill effect of ever-increasing production and ever-diminishing returns. I do not believe that we want to see that process replicated in the case of other primary products.

There are real difficulties over monoculture crops such as bananas. It is vital for the European Union to continue to defend, to some limited degree, protection in specific cases, probably for limited periods. But the overriding principle should be of food sovereignty, which is in turn an important step towards food security. I would want to reverse absolutely what was said by John Block and Clare Short. The reform of the CAP, which originated in a strong desire to protect small-scale local production within Europe, should continue to have as a guiding principle the ideal of food self-sufficiency, the undesirability of needless food miles and the real benefits for developing countries of the sensible, flexible growth of traditional local food production, not the imposition on such countries of agribusiness methods. For all their benefits in increasing production levels, those methods have had the unhappy consequences of environmental degradation and the breakdown of rural communities.

I have one final thought—more about the long term, but, I suspect, not as long term as many seem to think. Increasing world population and the progressive impact of climate change will pose very serious problems for world food production. The area of cultivable land will change. What are appropriate crops today will not be so in the same places in 50 years' time. Some countries will become better able to be self-sufficient in food; others will become much less able to achieve that. On any reckoning, we shall need to increase world food production well beyond present levels, but without causing unacceptable environmental damage.

Solving the problem of achieving successful and equitable food distribution will become a matter of such complexity as to make the reform of the CAP look like the proverbial vicarage tea party. But I believe that the United Kingdom Government, in all our present negotiations on CAP reform and the Doha development round, should take account of that longer-term context.

5.32 p.m.

Lord Williamson of Horton

My Lords, this debate relates to the external implications of the mid-term review of our agricultural policy; it is not a general debate about reform of that policy. I shall therefore concentrate my remarks on the 10th report of the Select Committee so clearly presented by the noble Earl, Lord Selborne, and its recommendations on how the mid-term review should be best used to improve the effect of the policy outside the Union. Some of the recommendations are clearly helpful. I am glad to see the Government's response and hope that they will follow it up in the imminent negotiations.

To put the recommendations in context, however, I wish to stress some features of the agricultural policy as it is today and not as it was yesterday. I sometimes think that commentators do not believe those who say that there have been important changes in the policy, but if they do not believe it they are wrong. The original common agricultural policy, created long before the United Kingdom joined the Union, was a system of market management for a number of major products. It maintained the level of prices by intervention, public purchase or similar mechanisms in the market, and the system of import levies and export refunds. It was a brilliant conception, but prices were set too high, and agriculture Ministers were not then willing to bring them down. The result was that agriculture thrived, consumers paid above the odds and stocks piled up because farmers were just too good at producing at those prices, and the costs and difficulties of disposal were great. In those distant days, I remember asking agricultural officials of the Commission whether they had ever seen a cheque paid to a farmer. The answer was "No", because there were little or no direct aids to farmers. Everything hinged on holding the market prices at or about the agreed level.

The reforms, to which there have been quite a number of references today, starting with the MacSharry reforms of 1992–93, reduced the impact of intervention in the market. That was done either by reducing support prices—the Select Committee's report refers in paragraph 12 to a net 34 per cent reduction in cereal intervention prices—or by making the intervention mechanisms less rigid and therefore less effective. But the member states could accept the cuts in the support for agriculture only by introducing some compensatory payments direct to farmers. That is why the Select Committee, in the report that we are debating today, has the dilemma of dealing with the potential effect on third countries both of the now reduced market mechanism and the direct payments to farmers. As I understand it, we have created a double problem.

That is the background against which the Commission has proposed the next set of changes in the mid-term review. I share the view expressed in the Select Committee's report at paragraph 16 that the review proposes, a much more ambitious programme of changes than was originally envisaged in the original undertaking to conduct a mid-term review". That is good.

From the point of view of the external impact, the key elements for me of the mid-term review package are, first, a decoupling; that is to say, the replacement of direct compensatory payments with a single farm payment independent from production. That seems absolutely crucial. The second key element is linking the payments to environmental, safety and other conditions; the third is some increase in resources for rural development, as there are not enough; and the fourth is further revisions to market policy for some products. There are other proposals, which have been referred to, for cutting payments to large farms and degressive modulation. They are certainly important limitations for the United Kingdom and are opposed by the National Farmers' Union of England and Wales. I shall not deal with those because we are looking mainly at the external aspects.

The proposal for decoupling is clearly positive for trade liberalisation. It will be helpful in the negotiations on the Doha round, which is extremely important for the Union since, as the world's biggest trading power, we have important objectives in the Doha round in other sectors. We need to maximise our firepower to reduce barriers in other countries to our trade and commerce in all sectors. Beyond that, I think that Defra is right to make the following general point in its memorandum at paragraph 16: Although essentially a domestic measure, the decoupling of direct payments (and, within that, the proposals on modulation) would have a significant external impact by making production more sensitive to market demand and theoretically the word is rather carefully chosen— eliminating the need for surplus disposal measures and market price protection". Broadly speaking, I believe that the change will set our agricultural policy on a more sustainable track. The Select Committee adds that it is essential that decoupling is agreed and applied before the eastward enlargement of the Union next year. It thus recognises the potential attractiveness of the present policy to some new member states and the potential stimulation of production that might arise there. I take this opportunity to congratulate the Polish people on their extremely high level of acceptance of the proposal to enter the European Union.

The Select Committee goes beyond the mid-term review proposals in recommending the abolition of market intervention and export subsidisation. That is clearly radical. We have had it before our eyes many times and we have not succeeded. It would mean shifting the balance of our agricultural policy entirely, not gradually as we have been doing, from the market to a system of grants per farm, supported by some environmental and rural development measures. It is not, in my view, negotiable, but it may serve to continue pressure for the changes that will certainly be made as a result of the review and in later years.

It is worth noting that for some products—notably cereals—where the support prices have been cut most sharply, the relationship with world prices is, taking one with another, very much closer. For example, exports of wheat and barley from the Union were competitive enough in the second half of 2000 to be made without any refunds at all. It is also reflected in the way the agricultural budget is now spent. The latest report on the agricultural situation in the European Union shows that only around 18 per cent of the agricultural budget was spent on export refunds and storage of products, whereas 71.52 per cent was spent on aids to producers.

The Select Committee report also looks at the relationship between the mid-term review and trade with less developed countries. A number of noble Lords have referred to that important point. The question goes a little beyond the proposals in the midterm review because least-developed countries have totally free access to the Union's markets except for three products, two of which, sugar and bananas, were excluded for the present in order to protect the position of other less developed countries which have preferential access.

The 70 or more African, Caribbean and Pacific countries, from whom the European Union imports around 7 billion euros of agricultural products each year, have special access at favourable and higher than world prices for some of their products, notably sugar. If the Union's own sugar regime was dismantled—there is much to be said for that we would have to see how to maintain some advantage for those countries. They would be in serious difficulties. The noble Lord, Lord Hannay, also referred to that important point. The principal beneficiaries of a more open sugar regime would not be those countries. The West Indies, Mauritius and so on would be the losers from opening up the market completely. The countries that would mostly gain would be Brazil, Thailand, India and Australia .

The Select Committee refers also to the milk and milk products policy. The Union is one of the world's biggest and most efficient milk producers. The milk quotas, which are highly undesirable economically, were introduced to restrain production at price levels decided by Ministers. They will have to go earlier than is now proposed. However, the Commission is right in the review to propose price cuts going much beyond those agreed in Agenda 2000. Any significant change in the milk and milk products regime would benefit Australia, New Zealand and Argentina, but I am not sure that that would have any significant effect for less developed countries. As to the possible damaging effect of the current export regime on less developed countries' agriculture, it is regrettable that the recent French proposal to pay no export refunds on all agricultural exports to Africa has apparently run into the brushwood. That would have a real value in judging the consequences of such a course and is setting an example for other action. I hope that that can be revived.

In conclusion, there are valuable recommendations in the Select Committee's report and the Commission's proposal on the mid-term review should be broadly supported. Changes and reductions in agricultural support are needed, but I like to keep in mind—I have had such a long time in the public service that I feel that I should be balanced—first, that the European Union is the largest importer of agricultural products; secondly, that the Union imports about 27 billion euros—a big figure—each year of agricultural products from the ACP countries, South Africa, the ASEAN countries, India, Pakistan and Bangladesh, South American countries in Mercosur and those in the Mediterranean basin; and, thirdly, that while the cost of agricultural policy is too high, it is still less than 1.2 per cent of public expenditure in the Union. I am not talking about GDP but public expenditure. The remaining 98.8 per cent is spent on more—or less—useful areas.

5.44 p.m.

Lord Renton of Mount Harry

My Lords, I joined the sub-committee that produced the report in December, about half way through its deliberations. That still gave me time to experience the very able chairmanship of my noble friend Lord Selborne. He was effective and incisive and there was also the great advantage that when he told us at the start of the morning that the interrogation of the witnesses was to end at noon, it did. That is something that all members of sub-committees will appreciate.

I do not wish to repeat the comments that have already been made by other noble Lords about the contents of the report, although I agree particularly with the right reverend Prelate the Bishop of Hereford on the very damaging effect of CAP subsidies on the agriculture and exports of less developed countries. I have an elder son working for Oxfam and the right reverend Bishop will understand that that is a subject upon which I receive considerable lobbying whenever my son is at home.

I learned quickly after joining the committee about the accuracy of Box 1 in our report, where we say under the heading "The language of the CAP": It is commonly agreed—even among those with professional interests in 'playing the game'—that the illogicality of the CAP is matched only by the impenetrability of its jargon. How true. One of the prevailing and constant messages that has come through in this afternoon's speeches is that whatever happens in relation to the reform of the CAP and the switching of money from Pillar 1 to Pillar 2, about which I shall say more, it is essential that that should be in language that the average farmer understands. Small farmers are already overwhelmed with forms from DEFRA—so often the language is too complicated for them.

As other noble Lords have said, the great development ahead of us is the joining of the 10 European countries to the European Union—and the effect of that on the demand for subsidy of one sort or another, including whole farm payments from the CAP budget to the incomers to the Union. I was gloomily struck by an article in the Daily Telegraph three days ago. It was headed: No EU silk purse for the Polish pig farmers". That was before the vote in Poland which I am glad to say was massively in favour of joining the EU. However, the article quotes a farmer who has a 100 acre breeding farm in Poland, saying: Mr Janecki said that only one thing is certain after Poland joins the European Union on May 1 next year: he will be paid pounds 10 an acre in subsidies from the Common Agricultural Policy, while German farmers nearby will receive four times as much.". That is just the sort of inequality and problem that the CAP has to live with and deal with over the years ahead with the new entrants into the EU.

The section of the Select Committee report that I shall talk about for a few minutes is on page 23, paragraphs 82 to 93: The effect of proposals on sustainability of European agriculture". I declare an interest as chairman of the Sussex Downs Conservation Board, wrongly described in the register of interests for the report as "Sussex Downs Conservative Board". It is as a result of that chairmanship and the fact that I live on the South Downs that my own direct experience of British agriculture is concentrated on two different parts of the United Kingdom—the South Downs and, 650 miles away, the little Hebredean island of Tiree. Funnily enough, sometimes the problems of agriculture in those areas are much the same. They both have working farmers who rely substantially on sheep production for their incomes. In both cases the smaller farmer, who has perhaps a holding of 150 to 200 acres, or a croft of that size in Tiree, has seen his income fall in real terms over the past five years, particularly with the massive fall in sheep prices. That presents a problem with the reform of the CAP. I very much approve of the contents of the report, and I agree with the note of optimism in it that has been echoed this afternoon. However, at the same time, one has to think about how the move from cereal production and headage payments for sheep and cattle will work out for the small farmer who does not have very much more to offer or to do other than to graze sheep or cattle on his land.

I very much hope that that area will be carefully thought about and further developed because I find that, so far, in relation to both those areas, if one tells someone that reform of the CAP will help them, most people simply look cross-eyed. It has been talked about so often and people do not know whether reform will happen, and, if it does, they do not know whether it will benefit them. It is rather like talking about the Arab-Israeli conflict. Everyone thinks that something should happen and that the CAP should be reformed. There is an awful lot of talk, but what actually happens in the event that is explicable to those who are in need of support?

As I look at the conclusions on sustainability in our report, I hope that, as it states, the cross-compliance measures of the move from Pillar 1 to Pillar 2 will be sufficiently effective to ensure that the small farmer who is told to stop intensifying his produce does receive substantial alternative possibilities of income onto his farm. If that does not happen, the movement of money from Pillar 1 to Pillar 2 could be ineffective in its result.

In that context, although the Curry report is referred to in this volume, I do not believe that DEFRA or the Countryside Agency have yet been dynamic enough in putting over to farmers in this country how they can use Pillar 2 money—money for agricultural environmental improvement—in an effective way. My noble friend Lord Plumb referred to country stewardship schemes, and I am also aware of the environmentally sensitive area schemes in the South Downs. However, the number of farmers who actually benefit from those is very small. We need wider, imaginative schemes to help the farmer who will now be told that he is not going to get more money for having more sheep or cattle, which is his normal reaction. He must be helped to find other agriculturally and environmentally suitable ways of producing more income. This is an area that needs a great deal of thought and help from DEFRA in making the ideas that come forward from the European Commission work practically.

We all welcome what Commissioner Fischler has suggested. We hope that his proposals will not be modified too much in the negotiations that start tomorrow in Luxembourg. It is noticeable that the letter in Box 4 to which others have referred is signed by seven agriculture Ministers, so there will be a lot of argument and debate in Luxembourg. I hope that the Fischler proposals will be accepted to a large measure. I noticed that one noble Lord in the debate this afternoon—it may have been the noble Lord. Lord Desai—used the words, "France is moving". Let us hope that that is the case. If France is moving, we will see really effective reform of the CAP that will help small farmers in this country.

5.54 p.m.

Lord Walpole

My Lords, I need not declare that I am a retired farmer as I do not get income from farming any more. I thank the noble Earl, Lord Selborne, the chairman, for the wonderful way in which he led the team in producing the report.

The time of publication of the report is good for the Minister. I am pleased with the Government's response to it. It is vital that the common agricultural policy be reformed before the new members join the market. The common agricultural policy was set up at the beginning of the Common Market in the 1960s by people who had personally experienced the horrors of a genuine lack of food—even starvation—in Europe during the Second World War. They were determined that that would not happen again, and they envisaged virtual self-sufficiency in temperate climate food supplies. They aimed at encouraging higher and more efficient production through production subsidies and direct market support, as the noble Lord, Lord Williamson of Horton, said. I knew that, if he spoke before me, he would say that.

The problem arose when surpluses began to appear and mountains built up. Because of the large agricultural vote in most countries, there was no political will to deal with the problem. Surpluses were dumped at low prices and import barriers raised, which stopped developing countries exporting their products to the Common Market. The CAP had become like a supertanker, and, although there was some minor tweaking of the rudder, it moved forward on its disastrous course.

In paragraph 100 of the report, we state that time is not on the side of the reformers. How true that is. There must be more radical changes before the new members join. With the WTO, Doha and the development round, we must end up with sustainable agriculture and—even more importantly—environmental protection. I am particularly concerned about further environmental degradation in this country if less money goes into agriculture and if the change from the first pillar to the second is not large enough. In the 10 new member countries, existing unique habitats may be lost because of efforts to intensify and raise production.

I shall not go through all the proposals again. We want to end up with sustainable agriculture and environmental protection leading to more prosperous food production, a better countryside and more fairness to developing countries. Do the proposals go far enough? I do not think they do.

5.57 p.m.

Baroness Miller of Chilthorne Domer

My Lords, I congratulate the committee and its chairman, the noble Earl, Lord Selborne, on an excellent report. I regret that I had to take my turn to come off the committee before it embarked on the inquiry.

As other noble Lords have said, the report is jargon-free, and it contains some good explanations. It was particularly encouraging that so many noble Lords who spoke this afternoon are not on the committee now. That shows how the committees of your Lordships' House can produce reports that widen interest in a subject to noble Lords who generally take an interest in other subjects. This is a truly cross-cutting report.

The noble Lord, Lord Desai, described how well the report examined the delicate balances that must be struck between the various interest groups and showed that interests that are seldom heard must be taken into account. The right reverend Prelate the Bishop of Hereford underlined the fact that, when Ministers from the various nations discuss the matter tomorrow, they must resist the siren calls of national interest. Such calls are not in the interest of the WTO round or of developing countries. I understand that it will be difficult for national Ministers to resist them.

The mid-term review discussed in the report is considered from four angles: what does it do to help developing countries; what does it do to help enlargement; what does it do to help the WTO round; and how does it affect our producers and our environment at home?

I welcome the conclusion in paragraph 81 that the EU and developed countries need to help developing countries. It will be no use approaching trade more freely from the point of view of tariffs and subsidies if developing countries receive no help or guidance from us on health, safety, labelling and animal welfare regulations, which they find difficult now. They will not be able reasonably to access our markets. The right reverend Prelate the Bishop of Hereford explained clearly why issues of local production, local markets and national food production are important. Nevertheless, great attention should be paid to paragraph 81.

Paragraph 115 refers to the level of subsidy receipts to individual holdings. I agree with the conclusion.

On enlargement, paragraph 47 refers to the transferring of funds from Pillar 1 to Pillar 2. Pillar 2 must be funded properly. Those countries may be in the situation we were in 30 or 40 years ago. We expect a great deal from our producers: that they continue to produce food and comply with all the environmental requirements. Paragraph 48 refers to rare habitats and species. The Government's response to that paragraph is so weak that I feel I must quote it. They said: We envisage that effective implementation of all relevant EU legislation in accession States, and not only that which relates to cross-compliance, would ensure that habitats and species are adequately protected". I do not believe that that will he the case. We must learn from what happened with our intensification. Intensification there undoubtedly will be in enlargement countries. We must ensure that those countries which still have rare habitats and exceptional species are protected. The Government should pay more attention to that paragraph.

The noble Lord, Lord Walpole, underlined the conclusion at paragraph 91. I shall not repeat it. These Benches believe strongly that the environmental issues underlined in that paragraph are important.

The WTO round failed to agree by March 2003 the agenda for the agricultural round in Mexico. The developing world might be right to call the attitude of the European Union, the United States and Japan to free trade something of an axis of evasion. We have talked a great deal about reform. Very little has happened. In the United States matters took a step backward with the introduction of the agriculture Act.

With its proposed reforms of the CAP the European Union is moving away from this evasion to a more positive attitude. That should be encouraged. It is essential that a decent agreement can be reached this week by the Council of Ministers. Given the importance that everyone attaches to such success, I was disheartened to read the briefing from the Country Land and Business Association. I wonder whether all its members would sign up to this statement. It said that, this is not amongst the strongest or most useful [report] from the Committee". It believes that undue importance to those issues as drivers of policy change is not helpful. Of course, the CLA is representing an interested body, but we must all work together to ensure that we can propose reforms for the long term that will benefit everyone.

Finally, I refer to the issue of decoupling and the single payment entitlement. The noble Lord, Lord Renton of Mount Harry, pleaded for clarity and making it understandable. It is difficult to understand what will occur under the proposals. Some examples would clarify the situation. I am unsure what the Government propose under the single payment entitlement. Will farmers in this country who are entitled to that payment receive it for as long as they choose to stay on their landholdings, even though they may not be producing anything? I understand that that is part of the reform. But they will be effectively retiring on the job. That worries me in particular because of the implications for future new entrants.

I understand that there will be a 1 per cent national reserve to deal with the problem. But the new policy must send a clear signal that new entrants can expect CAP reforms to hold something for them. Perhaps the Minister could provide in your Lordships' Library a couple of case studies on the proposed single payment entitlement about what will happen now to a farmer in his 40s or 60s, or, alternatively, one who is just coming into farming.

It is an excellent report. I congratulate the committee on grasping a difficult nettle, cutting across the different issues and producing such an understandable report.

6.8 p.m.

Baroness Byford

My Lords, I congratulate my noble friend Lord Selborne on introducing the Select Committee report. I found it challenging. The committee had to balance the needs of the less developed countries, the farmers in the UK, those in the EU and those who will join the EU. That is quite a melting pot. I congratulate the committee on producing the report. I remind the House of my family's farming interest. We are participators in a stewardship scheme.

When introducing the debate today, my noble friend said that it was a very timely event. Indeed, it is. The Council of Ministers meets tomorrow to consider these major reforms. It wishes to see a progressive move from food production towards environmental matters. How this can be achieved without continually disadvantaging less developed countries is the issue which has taxed noble Lords today. We are very aware of the needs of those countries and the requirement to overcome the unfair playing field which currently exists.

My noble friend suggested that perhaps there was not enough money to achieve the required changes. The report suggests, in the part on modulation, that British farmers are likely to be disadvantaged because, on the whole, UK farmers are bigger farmers than others. But, as the noble Lord, Lord Williamson, pointed out in his very worthwhile contribution, it is 1.2 per cent only of total public expenditure. I think that that is not publicly known. Everyone thinks that CAP is the majority of expenditure and not a tiny proportion. We should be aware of that.

In paragraph 19, the committee has listed the eight important issues where the House of Commons conclusions and recommendations coincide with those of the House of Lords sufficiently to, indicate a general meeting of minds on the main issues before this inquiry", I should like to emphasise three of those eight important issues. First, the recognition that the primary role of farmers should be to produce food that consumers want to buy. Diversification is all very well, but it must not be allowed to eclipse the need to produce for ourselves—indeed, in national countries, for themselves—the greater part of our own food requirement, to recognise health and safety standards and to ensure that fair prices are paid both to the farmer and by the consumer. Many noble Lords have referred to the failure to introduce firm proposals to end milk quotas, so I shall not go into that issue, but I, too, consider the delay regrettable.

Turning to Part 3 of the report—Analysis and Opinion—I am grateful for the opportunity to comment in some detail on some of the points raised. Generally, the report rightly states that European food is safe and of a high quality—in paragraph 32. That is important. It cannot be said of all food and, once again, there have been reports of adulterated imported chicken in processed food coming into this country. I firmly believe, as I am sure do other noble Lords, that food importers and processors should be bound by the same standards that apply to our farmers. Consumers should not be put at risk from processed food which contains adulterated product, nor should they be put in the position of buying goods produced in ways which they would abhor on our own farms. My noble friend Lord Plumb referred to this; he said that policing is patchy. I would go further; in some countries I think that it is non-existent.

Paragraph 42 contains possibly the most important statement in the whole report. It states: It is essential that the Commission's recommendations on decoupling are agreed and applied in advance of the eastward enlargement from 2004". We are already in the sixth month of 2003. Ten new member countries due to join in 2004 believe that an unreformed CAP would give their farmers higher incomes. The candidate countries applying to join after 2004 believe that an unreformed CAP would act as a spur to increased production from their farmers. I believe that a CAP still unreformed in 2004 will result in great danger to our own agricultural future and a downward pressure on agricultural earnings.

Farm incomes have been unsustainable in this country for the past three or four years. It is true that they have improved slightly during the past year, but they are still a long way from being sustainable. Recovery in many sectors has been made possible in large part because of the huge numbers that have left the industry. How do the Government propose to persuade the remaining EU countries to get on with these reforms which they currently face?

The committee proposes that modulation be strengthened by increasing the percentage taken from subsidies, by making transfer to structural funds at a faster rate than currently planned and by shifting some of the transferred funds in the EU15 to the new members to build up their structural resources more quickly. The committee has also dealt with the dairy and sugar regimes in paragraphs 49 to 51, 59, 79 and 112. These are huge and very important issues for the developing countries—in particular, the sugar regime, to which other noble Lords have referred.

The committee was clearly disappointed by the Commission's lack of resolve in these areas—which I support. It wants to see an end to the delivery and production quotas, stepped cuts in support prices and a consequential stop to market support and export subsidisation. Paragraphs 60 and 75 deal with the effect of the proposed reforms on the less developed countries—for example, the African, Caribbean and Pacific group of states. I have highlighted in bold that the committee, deplores the lack of concern among Member States for their plight". That has been reflected in the whole Chamber today.

The committee concludes that to help them the EU subsidies must be not only decoupled from production, but reduced eventually to the individual producer. In his introduction, my noble friend told us that the committee was looking in particular at the effects on less developed countries, and it is right to do that.

The suggestion that the level of subsidy receipts allowed,in toto, to individual holdings be capped follows as night follows day. Indeed, we have heard that some organisations—in particular, the CLA—are concerned about that. But it is an issue that we must tackle. I know that currently the Commission has moved away from the proposed capping system—I think the Minister will confirm that later. But if the capping system is not to be involved, how will the desired goal be achieved?

Will the Government ensure that money raised from modulation stays within the UK and comes into a national envelope or will it be returned to an EU pool over which this country has no control? If the money raised has to return to an EU pool, will we be certain that an accounting system will be kept annually and audited regularly so that we shall know where the money goes? It is hugely important that we do.

In paragraph 81, the committee recommends that more emphasis should be given to the development projects which will assist less developed countries to meet the EU health and safety quality and labeling requirements. We need to take that on board because it is no use if food is produced which it is then decided is not of the right quality and is therefore banned. This particular comment made in the report is very important.

I am sure that we would all agree that the recommendation in paragraph 92—namely, that a revised CAP should be less complicated, less bureaucratic, less centralized—is to be welcomed and it has been touched on by most noble Lords today. It should offer farmers more choice in running their businesses. I welcome the committee's observation that environmental measures should be designed to encourage and reward good land management.

However, the report has left some uncertainties. The CLA, NUF and others have raised with me their concerns on the decoupled payments proposed. It is accepted that the proposed single farm payment should be paid on the historic period of 2000 to 2002. But many do not accept that this payment should be paid when the structure of the farm has changed meanwhile, nor that the payments should be tradable without land. These uncertainties are already having an effect on our land market. People are unwilling to enter into long-term tenancy agreements or land purchase because they do not know what they are renting or buying.

I wonder if the Minister would comment on this issue: such proposals to allow payments to "walk off"—the expression that I would use—the land are a threat to our environment as they undermine land-owning confidence and discourage the ability of new entrants, as referred to by the noble Baroness, Lady Miller, and they could bring CAP into future disrepute.

Does the Minister think there is a major problem in decoupling for livestock and the unsupported sector of the farming industry, in that there are no clear reference points as there is with IACS registered land? Has he considered that valuers could establish units of livestock, or whatever, for any given farm in the same way that is done when arbitrators discuss rents?

The unsupported crop growers have written to me about their concerns on the reforms with CAP. Under the new proposals, farmers will all receive a once-a-year payment, regardless of crops or cropping rotations. Farmers who grow only highly subsidised crops of cereals and oil seeds will receive the highest payment, and those who grow unsupported crops as part of their arable rotation will receive less. Those who grow only vegetables, potatoes or fruit will receive nothing at all.

I wonder whether those issues have been taken up with EU Ministers and what their views were. Perhaps the Minister can touch on that in his response.

In his speech of 10 July 2002, Franz Fischler stated that he wanted to guarantee farmers a fair income and free them from the red tape imposed by CAP. I am sure that all of us would say, "Hear, hear" to that. But at the end of his speech, he said: Farmers no longer have to present themselves as a charity case. Instead, as commercially minded businessmen working for a healthier environment and the countryside, they can request their due from the European Taxpayer with their heads held high". Those are inspiring words, but a fair income must encompass a profit. Without the prospect of profitable farming businesses, the aspirations of good environmental issues, beautiful countryside and social cohesion cannot be achieved.

We are looking for a fair deal for UK farmers and for the EU and the new countries joining it, and very much a fair deal for those less developed countries who are reliant on us. We are looking for certainty. We have a plan. We have a purpose. We have a direction. But over the years the plan keeps being changed, as other noble Lords have said.

The right reverend Prelate the Bishop of Hereford rightly touched on the impact that climate change might have on our long-term food production and the rising difficulties that that will give some countries in producing food for themselves. The noble Lord, Lord Hannay, spoke of his concern, which I share, about it becoming a botched compromise. The noble Lord, Lord Williamson, said that the proposals, if carried through, would mean major changes for our farming communities both within and without the EU.

My noble friend and his committee have produced a good report. It is controversial in parts, but I am thankful for that, too. It emphasises the many challenges that we face with these mid-term proposals. I thank them most sincerely for the quality of work and the time that they gave. I look forward to the Minister's response.

6.23 p.m.

The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Whitty)

My Lords, I thank the noble Earl, Lord Selborne, and his committee for producing a very good report. The noble Lord, Lord Hannay, described it as "calm and rational". It is also incisive and one with which, by and large, the Government agree.

The timing of the debate is both hugely appropriate and extremely difficult. It is appropriate for the House to debate it on the eve of the discussions, but difficult for the Minister to reply—certainly to do what the noble Lord, Lord Hannay, was tempting me to do, which was guess the outcome of what will be extremely difficult negotiations in Luxembourg over the next few days. How many days is not yet clear, but my right honourable friend Margaret Beckett will be leading those negotiations. I shall be here responding to the debate of the noble Lord, Lord Palmer, on the countryside and subsequently on the Water Bill, with which the two noble Baronesses and I are involved. I shall be slightly on the substitutes' bench, I suspect, as the negotiations will go on for some time.

There are different opinions in the various EU member states on Franz Fischler's proposals. His proposals are bold and clear. They have already had some set-backs, and there will undoubtedly be some negotiation and some compromise before we reach the end. The sense of direction of the radical change that Commissioner Fischler is proposing will survive. It will certainly have the strong support of the UK Government and several other member states. Everyone is moving a little as a result of those bold proposals. I think that my noble friend Lord Desai said that the French had moved. If so, it is the first shift in French policy on agriculture since Napoleon left Moscow, and is to be welcomed.

In his opening remarks the noble Earl referred to the danger of partial decoupling. Everyone who has spoken and the UK Government recognise that partial decoupling could be the worst of all worlds. It could leave us with two new systems rather than one; over-bureaucracy rather than simplification; distortion rather than clarity; and not a sufficient shift away from domestic support to do us any good at the WTO negotiations in Cancun in September.

Nevertheless there is an undercurrent of partial decoupling being discussed among the other member states. Franz Fischler is taking a strong line, and the UK Government will take a strong line, but there will be some discussion as the French, German and Danish Governments and others are talking about partial decoupling.

If partial decoupling exists in any form in the final agreement—and we hope it will be minimal—it must be clear. It must not over-complicate the outcome, but must achieve the objective set by Commissioner Fischler in terms of Europe's contributions to the WTO round and in shifting the burden of support for agriculture away from production-related subsidies towards support for land management that delivers an effective and environmentally sensitive landscape, while freeing farmers to follow the markets rather than subsidies. That is the whole point of our approach.

The noble Earl, Lord Selborne, underlined the fact that farmers would benefit. I strongly appreciate the support that, with some difficulties to itself, the National Farmers Union has given to the position taken by the British Government—and with some reservations the Country Landowners Association as well. We have strong support from progressive farmers in this country, and Franz Fischler also appreciates that. Farmers will benefit by becoming more commercially oriented, as will society if we get a more environmentally oriented agricultural system as a result.

The noble Earl and others referred to the limited degree of new money that is going into the second pillar. It is true that it is not such a large-scale modulation as was originally proposed, but nevertheless it is some additional money and again gives a clear sense of direction. Others expressed concern that the dairy regime was not a very radical proposal. I am afraid that I have to sympathise with that. The quota system, which was intended to restrict production, has turned into a system that people have to meet and a trade-all asset that distorts the way in which farmers respond to what is the real market. We should have liked to see a quicker end to the present dairy regime, but there will he subsequent negotiations.

Having said all that, where we are now, at the beginning of the negotiations, and with the clarity of Commissioner Fischler, we have the opportunity for radical reform. The burden of the Select Committee's report is on the international repercussions. It is on the development ground and the ability of Europe to make gestures to help developing countries that will begin to reduce the export refunds and resistance to access to the markets, which the traditional CAP has presented to developing countries. Much more is needed, and in the negotiations, if we accept more or less the Fischler package, we shall go into the Doha negotiations in Cancun in a relatively strong position, but not as strong as perhaps it should he. We need to recognise within Europe that we need to do more, as the right reverend Prelate said, to help the developing countries to help themselves. I do not go as far as the right reverend Prelate in casting quite as much doubt on free trade as he did. There is quite a long way to go from the current CAP to unbridled free trade. Somewhere down that road we would have a much freer trading system, subject to some terms. Some of the terms will protect agricultural production both in developing countries and in Europe and protect the consumer in terms of safety and environmental impact.

But it is important that increased trade is seen as part of the solution for the developing countries. It is not right simply to say that they should be self-sufficient, any more than we should maintain one of the original tenets of the European Union's common agricultural policy—that, as a prime objective of agricultural policy, we should seek self-sufficiency. That would not be good for Europe nor for the developing countries. Trade would be good for both, albeit not trade on completely free terms but trade which recognises what the European Union, in its position statement for the WTO negotiations, refers to as non-trade considerations, including safety, the environment, quality and animal welfare.

I agree with the right reverend Prelate that the United States is in the frame as well as the European Union. While I hesitate to use the term "hypocrisy" in regard to our American allies, there is an element of double-talking in relation to their approach to agriculture and the development round. Certainly the net results of the agricultural and trade policies of America give less access for the agricultural products of developing countries than does the European Union. Therefore the United States has a contribution to make as well.

It is important to get this issue clear before enlargement. Certainly it was necessary for us to ensure that the decision was taken in a timescale before we enlarge the European Union. That has meant some deals with the accession countries which, to some extent, they resent. I disagree with a number of noble Lords, including the noble Earl, the report and several others who have implied that it is inevitable that the new member states will be against reform and will want to maintain the agricultural policy as it is.

The accession countries want a level playing field—the Polish pig farmer referred to by the noble Lord, Lord Renton, makes the point crudely and clearly—and they have not got a level playing field in relation to direct payments. But they have benefits in other respects, including the price of labour and the price of land, so there are swings and roundabouts. However, although they argue for a level playing field, they do not argue that we should maintain the CAP system as it is.

I have made many visits to eastern Europe—to Poland, Hungary, the Czech Republic, Slovakia and Estonia—in the past few months. None of the governments of those countries support the CAP system as it is. Most of them are radical reformers. It is very interesting that almost all of the accession countries have decided to pay the part of the direct payments we have agreed should be received by them in a decoupled way, not in a way relating to production. That is a very positive and clear signal that they want to decouple the system; that they do not want in their systems the over-production and price distortion that most of western Europe went through.

As to some of the anxieties expressed about the environmental impact in eastern Europe, the accession countries do not want to go through the same negative impacts of intensification which occurred within western Europe. Clearly there will be some restructuring of central European agricultural—there will be some mergers where the size of farms is not sustainable—but that can be done by adopting production methods which do not repeat most of the problems that occurred within western Europe during the 1960s and 1970s.

That is largely because the regulations to which they have now signed up—and most of the accession countries have transposed those regulations faithfully—are very different from the laws which applied in western Europe during the period of intensification of its agriculture, both in regard to the landscape and biosecurity and the positive attraction of the agri-environment dimensions of the agricultural policy. None of that was there when we went through the often quite devastating effects of intensification on our landscape and wildlife.

I am relatively optimistic that the new nations will not drag us backwards but will be part of the way forward. I am also relatively optimistic that they will not repeat the mistakes of western agriculture but will join with us in creating a more environmentally sensitive agricultural system in the future.

This reform is not the be-all and end-all. As the noble Lord, Lord Plumb, rightly reminded us, this was originally simply a mid-term review. It has grown somewhat—I am very pleased that it has—but there will be further stages. As the committee pointed out, some areas have not been fully addressed.

The sugar regime has not been touched, as it was not touched in the earlier stages of CAP reform over the past 20 years, a process with which the noble Lord, Lord Williamson, is very familiar. He was right to remind us that much change has taken place, but not much in the sugar regime. Part of the reason for that is that changing the sugar regime would have some complex effects internationally as well as domestically within Europe with its large-scale beet farming.

If we were to straightforwardly liberalise the sugar regime it would have enormous implications for the cane producers who have traditionally supplied the UK market. The ACP countries which have benefited from that regime are obviously anxious that we do not immediately embrace a sugar regime which effectively would change from being one which gave them preferential access to one which transferred the benefit of the European market, at a lower price, away from the poorest to the less poor, such as Brazil, and, in some cases, to rich countries such as Australia.

There are other regimes like the sugar regime which need to be addressed, but it is not straightforward how we should address them. There are others which have not been addressed which, I would argue, should end as rapidly as possible—the most obvious being the tobacco regime. From all points of view—in terms of trade distortion and producing and subsidising a product which then imposes costs on our National Health Service and health services throughout Europe—there is no justification for the tobacco regime. But, because of the timescale of these proposals, tobacco is not covered at the moment. However, it has been registered as an area for further reform.

The process of reform and the degree to which it succeeds will be crucial when we go to Cancun and the WTO negotiations in September. It is very important that the European Union arrives at those negotiations with a clear and positive agenda for reducing both domestic and export support and tariffs. The proposals do not currently go far enough. The outcome of the negotiations needs to be sufficient for us to have met the demands on the reduction of domestic support required by the WTO.

That does not mean it will all happen overnight in the WTO negotiations. There will be phased progress, as there has been in previous WTO rounds. But in previous WTO rounds the EU was always on the back foot, partly, if not largely, because it could not bring anything on agriculture to the table. In this round of WTO negotiations, which is the development round, agriculture is absolutely central. We must therefore go to Cancun with a positive policy on agricultural trade.

Sometimes it has been politic for us not to focus on that reason for CAP reform. It does not always go down well with European farmers who see it as being more in the interests of other sectors of the economy that we should develop a more liberalised trading system than in their interests. But it is nevertheless important for all of us. It is important for the developing countries and for Europe. It is estimated that the benefits from a better system of trade will run into several hundred billion euros and it is important for the farmers themselves that they are seen as part of an international trading system and a domestic economic system and not as an arcane, obsolete anomaly.

The central problem with the CAP is how it plays with the citizens of the rest of Europe and the world. Currently, most taxpayers, however they may feel about rural and farming ways of life, resent the fact that a significant amount of the European taxpayer's money goes to farmers to produce products which are not those they as consumers want in the market. They vary in the intensity of their view, but we must move to a system in Europe where the CAP is justifiable to the rest of the citizenry of Europe. At present it is not.

Even more importantly, crucially, Europe has to have an agricultural policy that is justifiable to the rest of the world. I believe that the noble Earl, Lord Selborne, pointed to the paragraph of the views of my ministerial colleagues in other countries, to whom my colleagues will have to be nice in the next few days. But it is wrong to say that the CAP does not cause hunger in the developing world; it does. The fact that we subsidise exports to those countries replacing their own agricultural products—the Jamaican example is germane—causes poverty in rural areas in developing countries and an increase in the cost of food to people in urban areas in developing countries.

We cannot go much further into the century and hold up our heads in discussions with the rest of the world if we continue to operate a policy whose prime impact on two-thirds of the world is to cause poverty, and starvation in extreme cases. The British Government recognise that; as does the European Commission. Farmers' leaders here recognise that fact. All governments in Europe recognise it to some degree. The noble Lord, Lord Williamson, referred to the Africa initiative by the French Government, which indicates a sensitivity there as well as here. It did not go far enough in our judgment, but it was a recognition that the development impact of agricultural policy must be recognised by all EU countries.

We need to build on that recognition. The discussions starting tomorrow, this report and the Government's response published today, give an indication of the position the UK will be taking. But for Europe and the world as a whole we need a positive outcome: for our farming communities in Europe; for consumers and society in Europe; but most of all for the future relations between Europe and the rest of the world. My thanks again to the noble Earl and his committee, and to all noble Lords who have participated in this very good and, by and large, consensual debate.

6.42 p.m.

The Earl of Selborne

My Lords, the whole House will be grateful to the Minister for that helpful and thoughtful response. The debate has been characterised by a broad view about the role of the common agricultural policy and our international responsibilities—the debate illuminated just what those are.

I return to an issue raised by the Minister, the noble Lord, Lord Hannay, the right reverend Prelate the Bishop of Hereford, and the noble Lord, Lord Williamson. It relates to the specific problems of the ACP countries, which currently benefit from special access. They leapfrog across the import barriers that apply to other countries. If we demolish those import tariffs in order to help countries such as Brazil, they will lose their preferential status, which is a problem to which the noble Lord, Lord Hannay, and others drew attention.

When we come to the sugar regime, which will follow, that issue will have to be addressed. We hope by the end of the week to have the precedent of decoupled payments. There is no reason why that principle should not be applied tothe producers in the ACP countries. We have to find a way of giving support to the farmers without perpetuating something very convenient for the European farmers, who benefit from the high prices internally and say that they are doing it for the benefit of the least developed countries.

I am delighted to share the Minister's optimistic note about the applicant countries, which he believes are taking a sensible view. They will not be adding to the dead weight of those who signed the letter, which we reproduced in Box 4. I am happy to agree with him that there are excellent indications that the support will be used sensibly. All it remains for me to do is to thank all noble Lords who have participated in the debate and to wish the Secretary of State and her team every success over the coming few days.

On Question, Motion agreed to.

House adjourned at a quarter before seven o'clock.