CAP Reform

HL Deb 12 February 2004 vol 656 cc1240-53

1.28 p.m.

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

My Lords, with the leave of the House, I shall now repeat a Statement being made in another place by my right honourable friend Margaret Beckett. The Statement is as follows: With permission Mr Speaker, I would like to make a Statement. Last June I had the pleasure to announce that we had secured the most radical reform of the common agricultural policy since its inception. I return today to make a Statement on how I propose to implement key features of that groundbreaking reform in England. To place those proposals in context, it is—as I said to the House at the time—hard to overstate the importance of the reform in transforming the core elements of the CAP and laying down a new direction for its future evolution. Crucially, the link between the subsidy paid to farmers and the level of production has been broken—so-called 'decoupling'. That means farmers' activities will no longer be dictated by what the subsidy regime requires them to produce with all the costs and bureaucracy entailed, but frees them to farm for what the market wants. Decoupling also reduces the environmental impact of farming both by removing an incentive for intensification and overproduction and by making subsidy dependent on compliance with a range of environmental standards. However., decoupling of subsidy from production reduces the trade-distorting nature of the common agricultural policy and paves the way for a deal in the current round of world trade negotiations. The challenge before us now is how best to maximise the potential benefit of the reform with our approach to implementation. In particular, which of the options that are available to member states should we take up? How far should we decouple? How should we apply the new decoupled scheme—the single farm payment? We consulted widely in the autumn of 2003 on these issues and received over 800 responses. I have given careful consideration to the arguments put forward, which advocated a wide range of different approaches. In reaching my decision, I have been guided by several key principles, namely coherence with the Curry commission's report and our own sustainable farming and food strategy launched in 2002, in particular with the emphasis in both on bringing the industry closer to the market and on the increasing importance of environmentally-sensitive farming; consistency with our wider objectives for the CAP, including greater simplicity, transparency, minimal bureaucracy and as few deductions as possible from the basic payment available; and the need to attract the widest possible support of the stakeholder community, for ongoing payments to farming which requires us to move towards a system in which public money is delivering public goods. I was also determined to give as many details as I can at this stage of the scheme, so as to give the industry a clear path of adjustment so that farm businesses can plan. Those principles led me to a conviction that the more fully support is decoupled, the greater the degree of freedom farmers will be given in respect of their own business decisions. I have, therefore, decided that in England we should fully decouple all direct payments in 2005, including the new payments for milk producers. A single farm payment will replace the plethora of existing ones and simplify the bureaucracy associated with them. The exact form of the payment is also important. The options available included a straightforward allocation of available moneys on the historic basis of an individual farmer's receipts in the reference years 2000–02; and allocation of different flat rate payments on the basis of whether land was under grass or under crops in 2003. I have concluded that we can avoid a situation in which subsidy was allocated solely on the basis of past activities undertaken in the context of production-linked support policies. For England, I do not believe that it would be right to adopt a purely historic approach. I do not believe that we can justify to our public a situation in which at the end of this decade or later farmers would continue to receive aid wholly based on business decisions taken 10 years ago or earlier in a very different policy context. Instead, guided by the principles that I outlined earlier, and having listened carefully to the many compelling and carefully argued cases put to me by the NFU, CLA. RSPB and others, I propose to exercise the option in the agreement to adopt a flat rate payment per hectare. A fully flat rate system paid immediately in 2005 would have been the simplest and cheapest to implement. However the redistribution, and the immediate impact on some incomes that would result would be too destabilising. Most importantly, it might act against the sort of behavioural change that we want to see in helping the industry to become fit for purpose in getting closer to the market. In order to mitigate these effects, I propose to introduce the flat rate progressively and to divide England into two regions: land in the severely disadvantaged areas, SDAs, of the less favoured areas; and all other land. Different flat rates will apply in those two regions. During the transition years—and it would be the same period in both regions—a steadily increasing proportion of the funds available would be directed towards the simple flat rate payment, with most farmers receiving an additional but diminishing payment related to the subsidies that they received in the reference period of 2000–02. I have also decided that the period for phasing in of the flat rate payments will be eight years, starting in 2005 and ending in 2012. The proportion of the available funds to be allocated on the flat rate basis in each year will be: 10, 15, 30, 45, 60, 75, 90, 100. My intention is that the flat rate payment element should be low in the early years to allow farmers time to adjust and plan for the situation that will appear by the end of the decade. I recognise that the framework that I intend to implement will involve some redistribution of current subsidies between farmers and between sectors and areas. This will be introduced over a reasonably extended period of time allowing farmers to adjust during the transition. We will end up with a system that is increasingly equitable between farm types, much more market-focused and with a much more simplified bureaucracy, which delivers a better landscape and environment and a more sustainable long-term future for English farming. There are many related issues which will need to be addressed over coming months. I do not propose to take advantage of the option for so-called 'national envelope' measures in England. Although in certain circumstances these could offer potential benefits, I judge that the accompanying complexity and loss of transparency outweigh these advantages in English conditions. As to cross compliance, conditions would be attached to the subsidies payable, and we will be consulting on the approaches to be taken in respect of these so as to ensure that they are implemented effectively, proportionately and with the minimum of bureaucracy—an approach which I take to all forms of regulation. In addition, I am keen to ensure our implementation of cross compliance fits into the approach of the whole farm model for regulation, currently being piloted in England. I believe that this approach constitutes a forward-looking package of measures, which fits the principles that I outlined earlier. It is a decisive and irreversible shift, which offers huge opportunities to the industry. I know that many in the farming industry would have preferred the Government to adopt the approach of allocating aid on the basis of historic subsidies received, but many others took a different view—as did some members of the wider stakeholder community. I must take all of these views into account in developing a workable system. I and my department will work with the industry over the coming months to implement these decisions in the best possible way and in the spirit of partnership and co-operation with all stakeholders that has run through the Curry commission and our own sustainable food and farming strategy on both the central issues here and on any other measures that might be helpful in due course. All in the farming community told us that they sought clarity in the direction of policy and simplicity and transparency with less bureaucracy and that they hoped that we would not implement all the options for deductions from the basic payment that were available to us. We are heeding those calls. I have set out today a basis for payment which I believe to be the fairest, because it moves us in the direction that public money goes to support public goods across the whole of farming". My Lords, that concludes the Statement.

1.37 p.m.

Baroness Byford

My Lords, I thank the Minister for repeating the Statement made in another place this afternoon. There will be disappointment among the farming community that there will be different systems within the UK, which will cause problems. Some obviously will welcome it. As the Minister pointed out, there will be winners and losers. They will be grateful that the allocation of tapering in the changes has been extended from five years, the Government's original consideration, to eight years. That will be welcome.

I would like to raise several issues with the Minister. He said that the decoupling of subsidies from production reduces the trade-distorting nature of the common agricultural policy. That would be true for England, but what happens in Wales, Scotland and Northern Ireland, which are under a different system? What happens to other countries, such as France, which are not going to do anything anyway?

The Statement said that the Government consulted widely on these issues in the autumn of 2003, and that they received over 800 responses. How many of those respondents voted for historic, how many voted for regional, and how many voted for a hybrid system? It is important that the Government should reflect that. The Statement went on to say that the Government are looking for greater simplicity, transparency and the minimal bureaucracy. What financial assessment was carried out on each type of system before they took their decision to go down that route?

Will the Minister explain his reference in the Statement to deciding that in England we should fully decouple all direct payments in 2005, including new payments for milk producers? Will he also explain more about the section of the Statement that dealt with different flat rate payments on the basis of whether the land was under grass or crops in 2003? That is not clear in the Statement. Later on, the Minister said that the English public would not justify continuing payments as they have historically been made. What makes the right honourable Lady, Margaret Beckett, believe that our public would take a view different from the view that will be held in Scotland. Wales and Northern Ireland, which are going through a different system?

A little further on, the Statement refers to the division of England into two regions. It says that different flat rates will apply in the two regions. Having listened to and read the Statement—I thank the Minister for letting us have it in advance—I am not sure whether that means that we will have four different rates and schemes. We will have two different regions and we will have different rates for crops and grass, but we will have different flat rates as well. Is that four lots of different rates? It is not clear.

In the paragraph that dealt with redistribution, the Statement says: We will end up with a system that is increasingly equitable between farm types". That will be true in England, but it will not be true in the other devolved areas that have to compete against us. I shall come to that in greater detail shortly.

I want to ask the Minister some direct questions as well. What analysis was undertaken on the financial side of the implications for farmers in England, compared with those for farmers in Wales, Scotland and Northern Ireland? Obviously, having a different system throughout the UK means that there will be disadvantaged farmers. Did the Secretary of State take into account the fact that farmers in Wales compete against farmers in England and farmers in Scotland? How much financial assessment has been made of that? Was there any assessment of the financial impact on individual sectors of the farming community? For example, with Wales going down the historic route, people producing non-subsidised crops will not gain anything in the long term because, as I understand it, the historic payments will be kept up for a long time, whereas some other producers will be entitled to payments as the taper kicks in. Potato growers in Wales will be at a serious long-term disadvantage to producers in England. I should like to hear a comment on that.

Will the Minister comment on the effect on the store market trade? Many calves are reared in Wales and come across to England for fattening. Our Welsh colleagues are worried that there could be repercussions for their prices.

Have the Government really taken on board how much farmers in the UK compete with one another? The Statement did not make that clear. I do not think that the Government have allowed for that. What rationale was there for their decision? Franz Fischler was in the country last Friday. He wrote to each member state recommending that it go down the historic route. Why did our Government decide to go against that recommendation? What was the rationale for that? Will the historic payments go to the occupier of the land or tenant farmer, or will they go to the owner of the land? Yet again, that is not clear in the Statement.

Does the Minister think that it will be important to continue to have discussions? I am thinking of three issues in particular. One is the position of tenant farmers, although the Minister's answer may clarify that. Their situation is different from that of owner-occupiers. Also, does the Minister think that the milk and sugar regimes need special consideration?

I have posed a lot of questions, but it was inevitable that there would be a lot of questions. As the Minister rightly said at the beginning of the Statement, it is a huge historic change. My one concern—I am not having a dig at Defra, although I would be free to do so—is that having such different systems in place, even within the UK, will add to the confusion. In the long term, that will not be of benefit. Obviously, things will evolve, but there are still many questions to be answered. I should be particularly grateful for comment on the position of tenant farmers.

1.45 p.m.

Baroness Miller of Chilthorne Domer

My Lords, I thank the Minister for repeating the Statement made in the other place and letting us have copies well in advance. That was welcome, as it was far in advance of the usual 10 minutes that we get. It was helpful.

We have long supported CAP reform, and we welcome further steps down that road. We support public payments for public goods. The Statement and the questions asked by the noble Baroness, Lady Byford, give some examples of how complicated the system will be. The first thing that I would ask is whether we could see the Government's reasoning for arriving at their decisions. I have not been aware of anywhere that one could see the full assessment of the likely impact on different sectors. It is difficult to respond, when one has no idea of what the impact will be on the different types of holding and on whether they are owned or tenanted. How will cross-compliance work in the transitional period? How will the whole shift mesh with the entry-level and higher-tier schemes proposed under the agri-environment payment schemes?

That brings me to one of my two main questions. It will be a complicated time for farmers, and clear, early information for the whole farming community is essential. Given that, how does Defra intend to implement a single advice point on both payments and farm management? I know that the Government have spoken of it before. With all the other factors that farmers must take into account—new directives coming on line, the new way of working of the Environment Agency and so on—and, as we move towards single-farm payments and, rightly, towards single-farm inspections, how will the whole come together? Parliamentarians could do with a guide as well. I hope that, in a fairly short time, we can have a debate in government time, when the more detailed questions can be considered.

I must declare an interest as a Somerset county councillor with a considerable farm estate in the county. The position of tenant farmers is at the top of our mind. As a representative of tenant farmers and as an estate holder, I am sure that that will be the case for a great many people throughout England. I hope that the Minister can give us some guidance on that today.

In the Statement, the Minister said nothing about how the system would work to encourage new entrants into farming. That is an issue that especially concerns us. There must be some encouragement for new entrants. I know that the Minister will tell me about market forces and so on, but I hope that the Government will give some extra thought to what new entrants will do. If we are to have the sort of vibrant farming community that Curry talked about, we will need a good business climate to encourage new entrants. They will need some help and support. I hope that the system will give them that.

Finally, the Minister emphasised that public payments for public goods would be involved. My second main question is about the ceiling on payments. At the moment there is no such ceiling, so an individual landholding can receive upwards of £50,000, £100,000, £200,000 or £300,000. Do the Government intend to introduce a ceiling on CAP payments during the transitional period? If so, at what level, and if not, why not? The Statement was remarkably silent on that issue.

I realise that the Minister will not be able to answer hundreds of questions today but I hope he will come back to us in Government time so that we may have a much fuller debate and have our questions answered in much greater detail.

1.50 p.m.

Lord Whitty

My Lords, I am grateful to the two Front Benches for their informed questions and general welcome for at least aspects of the announcement.

The noble Baroness, Lady Byford, asked a number of questions about devolution. One of the consequences of devolution is that different regimes in different parts of the country take different decisions, even in relation to policy which is determined and allowable to be decided at sub-nation-state level in Brussels. I cannot answer, in this House, for their decisions. I would obviously prefer it if they followed the same logic in this respect as the Government did for England. There are, however, different patterns of farming; in Wales and Scotland, in particular, there is a different pattern of SDAs against other areas of farming. In Northern Ireland, of course, they have to pay attention to what is happening in the Republic of Ireland. There are different patterns which probably lead to different conclusions.

I nevertheless think that the first criterion, that of eventual public acceptability, is closer to our model. I have quoted—although possibly not in this House— my Hungarian opposite number saying that you cannot expect the public to agree to a move from a situation where you used to pay a farmer for having 10 cows to paying him for having 10 cows 10 years ago. We are now focusing on the environmental outcome of farming and allowing farmers to make their production decisions not on the basis of subsidies but on what the market really wants.

The noble Baroness, Lady Byford, referred to redistribution, as did the noble Baroness, Lady Miller of Chilthorne Domer. There is redistribution between farmers. The total amount, even at the end of eight years, will be a redistribution of 15 per cent of the total package. That does not mean that for every farmer the arrangement will not be more severe ones. Some sectors, such as dairy and livestock, will lose more, and others, including those which were previously unsupported, will gain. The size of the redistribution should not be exaggerated; it is less when dealing with the SDAs separately—there will be redistribution within both areas—than if we had taken the country as a whole. We have therefore mitigated the effects of our original analysis which suggested flat-rate payments across the country and also the extension of the period of transition.

The noble Baroness, Lady Byford, asked about our position in relation to the other devolved administrations and other member states. Every member state is involved in decoupling; the Welsh, the Scottish and the Northern Irish have decoupled. Therefore, there are no production-related subsidies in that sense. Even in France, they were only allowed to recouple a small element by the final compromise, which was reached in June. But the bulk of European agriculture will be fully decoupled. What I announced today is only the way in which the decoupled payment will be made.

In terms of the simplicity of approach, we are moving from 21 different regimes to a single regime. It is admittedly taking a bit of time to get there, but it will be a single regime. A farmer will receive a single payment—fairly soon, I hope—on the basis of a single form, in a single amount, rather than pursuing 21 different regimes in some cases.

The noble Baroness asked about the milk sector. One problem is that milk is going through the earlier period of reform at a later stage than the other regimes. Therefore, there are new payments in the pipeline which have not yet arrived which will need to be subsumed within this scheme, whereas the rest of the payments are those which have historically been made. We believe in bringing milk into that regime although we recognise that some of the dairy sector's particular problems will need to be taken into account.

The noble Baroness asks whether we are running four different systems. No, we are not. The reference to crops and grassland having differential payments was an option we rejected. That does not operate here. The distinction I am making is between SDAs and non-SDAs. There will be the same time scale and the same trajectory of change operating in each area but it will be on a different basis because the money in the existing areas is calculated and redistributed separately. There will therefore be a higher figure per hectare in the non-SDA land.

Commissioner Fischler's letter has been somewhat over-interpreted during the past few days. Commissioner Fischler was simply pointing out to member states that the central proposition—if you like, a default position in the reform—was the historic payments and that any departure from the historic payments has to be justified, rational, equitable and defensible. He was not querying us or giving us advice. In fact, noble Lords may have heard him on "Farming Today" early one morning explaining that he is not interfering in the decision to go for something different from historic payments. However, the area payments option has to be justified in its own terms because the default position is that of historic payments.

It is true that roughly two thirds of those replying to the consultation were in favour of some form of historic payment and the remainder were in favour of either area payments or some sort of hybrid. Clearly, the Government have wider issues to take into account, including public acceptability.

Both noble Baronesses mentioned tenant farmers. Clearly, tenant farmers are extremely nervous about a change based on area. It will be the occupier of the land, the producer, who has the entitlement. The producer is defined in terms of the area part of the payment for 2005 and, in terms of the diminishing historic part, in relation to what was going on between 2000 and 2002. There will be some difficulty in identifying that, which will need defining. If tenant farmers are on the land in 2005 and received historic payments in 2002, they will be beneficiaries. However, there is a deeper anxiety among tenants that this might alter the balance between tenant and landowner. I do not believe that it will in the long run, but some short-term problems may need to be considered and we will be consulting the tenant farmers.

The noble Baroness also mentioned sugar. It is not part of this change. We believe that radical reforms of the sugar regime are necessary, and proposals will be considered at European level later this year.

In reply to the additional points made by the noble Baroness, Lady Miller, some of the Government's reasoning is set out in the Statement, and background documents, including some further analysis, will be produced with it.

The noble Baroness asked about cross-compliance in the transitional period. Cross-compliance would apply from the beginning, whatever system we chose or whatever any member state, Scotland, Wales, or anywhere else chooses. Whatever system of payment there is, at whatever point in the transition, the cross-compliance arrangements laid down by the regulations, with some interpretation in relation to good agricultural and environmental condition, will apply from the word go and will cover the main environmental outcomes of this policy.

As for the relationship of cross-compliance to the entry level scheme and the other higher tier agri-environment schemes which are paid for out of pillar 2, we would have liked to have seen, in the European deal, a bigger element of pillar 2. It is a hierarchy. Cross-compliance is required to be met by everybody. Those who go into the entry level scheme will meet a level of environmental outcome for which they will receive additional payment. Then there will be specific higher tier schemes for environmental and other outcomes later.

I agree with the noble Baroness that advice and information on this is necessary not only for farmers and Members of this House but also for Ministers. They need a clear idea of the various schemes. My noble friend Lord Haskins suggested a great simplification of the machinery for delivering these proposals. I very much hope that the whole farm approach of advice, planning and regulation will be part of this scheme. Not all of that will come on stream at once, but it must be part of the total picture.

We resisted the proposition of ceilings because it would have greatly disadvantaged UK farming. The total amount for delivering this change in agriculture would have been less had we accepted ceilings. Accordingly, we see no reason for proposing a domestic ceiling. This is an environmental and agricultural policy, and in a sense, a regional policy, but it is not a social policy or a policy for redistributing land ownership. Therefore, we do not see a role for a ceiling in this respect. There is an opportunity for every hectare of land in this country that is used for agricultural purposes to be covered by this new scheme. We should all support that outcome.

2 p.m.

Lord Carter

My Lords, in putting a question to my noble friend, I should declare a non-pecuniary interest as president of the Royal Association of British Dairy Farmers. My noble friend will be aware that dairy farmers have been particularly concerned that they would be disadvantaged if the individual and historic entitlement system were not chosen. I am still not clear about the situation. Will my noble friend explain exactly how dairy farmers will be affected, especially those who have enlarged their herds and have recently invested heavily in new equipment and buildings? To sum up, my noble friend said that there would be winners and losers. Will he tell the House who wins and who loses?

Lord Whitty

My Lords, because the dairy sector is in transition from the previous phase of reform, there are payments under the dairy system that dairy farmers have not yet seen. The proposal is that that payment will be included in the decoupling payment, which is then spread. Because of the particular difficulties in dairy farming, there are some complexities in doing that. In terms of winners and losers, on average, dairy farming would lose roughly speaking 10 or 11 per cent under this deal. Different parts of the dairy sector will be affected in different ways and some will actually gain, but to some extent we will move away from the more intensive form of dairy farming.

Lord Livsey of Talgarth

My Lords, I would like to ask an additional question and in so doing declare an interest as president of the Brecknock Federation of Young Farmers Clubs. The position facing new entrants, as my noble friend Baroness Miller said, is acute. Their payments are not always forthcoming and their situation is very complicated. Can the Minister offer some succour as regards young people entering the industry, because in some parts of the country the average age of farmers is 57?

Lord Whitty

My Lords, I have looked at the statistics and the average age of farmers has been 57 for a long time. I do not quite understand why. Certainly, we want new blood in farming—young and slightly older. It is important that we remove any barriers to that. This system provides those who would not previously have been able to go into farming with the opportunity to regard farming as something that can create environmental goods, and also be an ordinary business. They can create their own markets and value-added products rather than looking through the bureaucracy and subsidies to see how many sheep they would need to produce or how many acres needed to be under grain for that year to deliver a reasonable existence. Even in the good years, that was detrimental to farming and distorted the output of farming. We therefore need to move to a more dynamic system of farming, which will begin to attract young people and other entrepreneurial, creative and environmentally-oriented spirits into this important sector.

Lord Plumb

My Lords, as someone who has been involved in agricultural politics for well over 50 years, I regard a 57 year-old farmer as quite a young man. However, it is the new entrants who are of concern. The colleges are already beginning to show problems, with many young people not wishing to go into agriculture. Whether these proposals will help is debatable.

I generally welcome the Statement. At least it removes some of the uncertainty that many farmers have had in recent months and years. We all welcome the fact that the common agricultural policy will be reformed. However, we need to see in that reform a policy that will really work in the interests of those who are producing. When we hear people say, for example, that milk is heavily loaded in subsidy and that the farmer gets 16p per litre for his milk which is being sold for 75p per litre, one begins to wonder where the subsidy is going. That has been the case with many export subsidies in the past. Who benefits from these things?

My noble friend asked several questions and, although the Minister gave general answers, some points need clarifying. Farmers certainly want clarification and transparency, but they also want simplicity. The major problem that we have at the moment is that the whole thing is getting so complex that we are getting too far removed from the methods of production. The problems that tenants and landlords face in today's world need clarification. Having said that, at least this is a very welcome step— a statement of intent—which I hope will proceed.

I am particularly pleased that farmers themselves will have the opportunity of listening to the Minister and hearing for themselves about the situation at their national annual meeting next week. We should be grateful that the Statement has been made today.

Lord Whitty

My Lords, I thank the noble Lord for his comments. It has been clear over the past few months and even years, when the radical nature of the mid-term review became apparent, that farmers needed clarification and certainty. This will give a large element of certainty over a period of eight years. Although it is a changing certainty, it is one that gets them closer to being able to forget about the exact level of premium given this year from Brussels and to look at the long-term market for quality British agricultural produce. That is important.

Other issues affecting agriculture also need to be addressed, such as value-added products down the food chain, which is exemplified by the noble Lord's reference to milk. I have just come from a conference, two years on from the Curry Commission report, at which we addressed that very problem. This is part of the solution for farming, but it is only part.

Lord Grantchester

My Lords, I congratulate my noble friend the Minister on the Statement. It puts into context the Government's determination to see through the recovery of agriculture post-foot and mouth and make it into a thriving sector that takes its signals on production from the market place and not the subsidies system. I declare an interest as a dairy farmer.

The subsidies system has made agriculture conservative in outlook, overburdened with regulation and highly sensitive to currency fluctuations. My noble friend rightly pointed out that progressively blending into a flat-rate system would be more acceptable to the taxpayer in the long term because it would be interpreted as a payment to maintain the countryside. Does my noble friend agree that the effect on agriculture will be to ensure that there is a noticeable improvement in the countryside, so that pillar 2 payments will be maintained? Naturally, I would expect such an outcome to be positively and accurately reported and so enhance the status of farming.

Farmers will need strong signals from the food supply chain. The Curry Commission set up structures that must enhance those signals. Will my noble friend confirm that a speedy programme will now follow on how the measures announced today will be implemented to help fanners respond?

Turning to the detail in the Statement, will my noble friend clarify the split of England into two regions and what is meant by the different flat rate systems? Will he further clarify the amount of land that will be categorised as an SDA? Will there be a compartmentalisation between SDA and other land so that there is not a migration of funding to less favoured areas?

Will my noble friend also clarify the position regarding transferability of entitlements during the transition period? Has there been any modelling to ensure that there may not be the unintended consequence that farmers may be delayed from adjusting production systems while a flurry of activity occurs to maximise payments in the early years through transfers or swaps if they judge that the migration to area payments may disadvantage them?

Finally, will my noble friend the Minister say whether he believes that these changes will enhance the competitiveness of our agriculture vis-à-vis our competitors overseas? Naturally, there are many variables in that assessment but does he agree that the better structured and more efficient UK agriculture fares well for the future?

Lord Whitty

My Lords, I agree with my noble friend regarding the acceptability of flat rate payments and the message that that is sending to English farmers. Pillar 2 payments will continue to constitute an important part of enhancing farming's environmental impact, the way in which farmers relate to the wider rural community and processing and marketing down the food chain. My noble friend will be aware that we had already announced that a large part of the pillar 2 payments would be included in the entry level scheme but other pillar 2 payments will also be maintained. Although we should have liked to see a larger proportion of the common agricultural policy going down that road, we shall certainly make full use of what is available and the UK modulation which has already been announced.

As regards the division between severely disadvantaged areas and others, it is already a fairly defined boundary in UK regulations and in European law. The money would be ring fenced within the SDA; otherwise, any redistribution would indeed lead to some money going uphill for no particularly obvious agricultural or environmental advantage. Although there will be redistribution within the severely disadvantaged area, it mitigates the redistribution elsewhere, or the damaging aspects of that redistribution.

As regards the transferability of entitlement, the producer will have the entitlement. They will be tradable but we would expect much less trading under this system than under a purely historic system. As regards transfers of land, there is always a bit of speculation going on regarding land. Most of the speculation in recent months involved refraining from engaging in land deals until the details of the system were known. I suspect that there will be a bit of turbulence in the short term but I hope that that will not occur in the longer term.

Competitiveness is a matter for the industry in a sense. In the long term we are giving it a very good basis for focusing on high value added, profitable and competitive British agricultural goods. We shall not be able to compete in all markets across the world for ever. We shall need to concentrate on those areas where we have the necessary skills and the comparative competitive advantage. The provision of a much more level playing field with public support for different sorts of farming gives the basis that farming needs to do just that.

The Duke of Montrose

My Lords, I refer to the questions that the noble Lord, Lord Grantchester, asked. I receive SDA payments. Will the redistribution within the SDA involve production grants only and not the LFA grant itself?

Lord Whitty

My Lords, I take it that the noble Duke refers to the hill farm allowance payment in England. I always hesitate with the noble Duke as he normally talks about Scottish land, on which I am much less well informed than he. In England, the payment of the hill farm allowance will not be affected. The area payment will be calculated within the SDA and the historic element will comprise the historic payments which were previously allocated to the SDA.