87. The Committee understands the attractions of a method of agriculture which returns to many of the more natural practices of an earlier age, while plainly demanding much hard work and arguably greater skills than much conventional farming today. The organic system is also a useful demonstration of what can be achieved without agro-chemicals. The products of organic farming are in great and increasing demand at the time of writing this Report, and the signs are that this trend will continue. We consider that the consumer should be able to choose between a wide range of both conventionally and organically produced food. In view of this consumer demand, the Committee would like to see a flourishing organic sector. The question is whether assistance is required from government to ensure this.

88. Some witnesses argued that, because organic farming produces desirable outcomes such as the improvement of biodiversity and the maintenance of soil structure, the Government should set a target for the amount of UK farmland which should be farmed organically by a certain date. These targets ranged from the Royal Society for the Protection of Birds' 5% by 2005 (Q 402) to Friends of the Earth's intermediate 25% by 2010 as a step on the way to making all agriculture organic by 2050 (p 274). The Soil Association's suggestion was 10% by 2005 (Q 29, see also pp 231, 283, 325). Other witnesses disagreed. Organic Farmers and Growers Ltd. said that given Government policies and market conditions "the target will set itself" (Q 61), and the NFU thought that it would be extremely difficult to hit a target, given the 2-year conversion period and the fact that demand for organic produce has in the past been cyclical (Q 95). Mr Morley MP (Minister with responsibility for the Countryside) added that "if you set a target, some people will say it is too low and therefore the Government is talking down the importance of organic" (Q 625). As stated in paragraph 20, however, the Welsh Organic Industry Group have recently set a target for the Welsh organic sector.

89. The Committee does not think that it makes sense to set an arbitrary target the achievement of which will be dependent on factors outside the Government's control - such as the state of the conventional farming sector and the strength of demand for organic food. Setting a target might distort Government policies: if the target was set at 10% of UK farmland, then the Government might be tempted to concentrate on converting large swathes of grassland while ignoring products which take up a small amount of land, such as fruit and vegetables - the result of which would be oversupply of meat and undersupply of fruit and vegetables. Nor would it be possible to set a target based on the value of production; that would invite policies to concentrate on high value products and ignore the others. Having said that the Government should not be tied to an arbitrary target, the Committee does consider that organic farming brings benefits, and that Government support is justified (see paragraph 65). The following sections investigate what sorts of assistance might be appropriate.

ONGOING SUBSIDY

90. Several witnesses from within and outside the organic sector thought that the United Kingdom should make payments available to all organic farmers, partly because of the desirable outcomes of organic farming, partly to make them less dependent on the continuation of high prices for organic produce, and partly to enable them to compete on a more even footing with their European competitors (the majority of Member States operate organic farming schemes which are open to all organic farmers: see paragraph 19). In this respect, it was noted that a larger UK organic sector would be able to supply more of the UK market and so reduce the high level of imports. It was also argued that conventional farming is responsible for imposing costs on others (such as the removal by water companies of pesticides from water which organic farming largely avoids, and that a subsidy for organic farming could be justified on the grounds that it took account of these wider costs. Other witnesses stated that subsidies for less productive systems would be more likely to survive the next round of trade negotiations at the World Trade Organisation (QQ 40, 91, 272, 293, 417, pp 231, 235, 244, 252, 295, 303, 307, 314, 325).

91. Having considered the arguments, we do not think that the Government should introduce a new scheme which provides ongoing subsidies exclusively for organic farmers. A high level of imports is not in itself evidence that a particular sector should be supported instead of other sectors (where there may also be high imports) (QQ 593, 610, 627). It may be that other organic subsidy schemes are more generous, but it is impossible to equalise all conditions across all countries. Farmers in other Member States may, for example, have to pay higher taxes, or farm in less favourable conditions, or not have easy access to the same premium prices as in the UK.

92. One of the strengths of UK organic farming has been its self-sufficiency and the way it has built strong links with consumers (Q 1). Mrs Browning identified "an entrepreneurial spirit and a desire to deal with the consumer, which has perhaps not been the case in conventional agriculture overall" (Q 261), and Milk Marque Ltd. cautioned that "care needs to be taken to prevent a supply driven culture developing" (p 291). The Minister (Elliot Morley) characterised ongoing organic payments as being a form of production subsidy, which the Government are committed to ending rather than extending (Q 605). Furthermore, the Committee is not convinced that organic farming is the only way to achieve environmental and other benefits; there is a large amount of evidence that it is possible to produce similar outcomes using different farming systems (paragraph 39). Organic farmers will of course always be strong candidates to be accepted onto existing agri-environment schemes, such as Countryside Stewardship and the Environmentally Sensitive Areas. An excessive targeting of funds towards organic farmers can only reduce the amount of money available for the achievement of environmental and other goals in the farming community in general.

CONVERSION SUBSIDY

93. The Committee does, however, think that there is a strong case for continuing to provide support for farmers converting to organic methods. The farmer's produce cannot be described as organic for two years after the start of conversion, and during that period it does not attract any premium on the price. It was also emphasised that conversion imposes particular costs on a farmer: for example, the conversion of a cereals farm to a mixed organic farm may involve purchasing livestock and dairy quota, constructing new buildings, erecting new fences and hiring additional labour. Yields in the first few years are often lower as the soil's fertility recovers and the farmer improves his knowledge of organic farming methods. Aid for conversion would also help UK producers to meet UK demand, and therefore reduce the need for imports (QQ 109, 148, pp 244, 258, 268, 276, 286, 308, 313, 314). If there were no support during conversion, farmers might be prevented from converting by the temporary extra costs involved. Once through the conversion period, organic farmers should expect to rely on the prices they receive through the market, and any extra payments through general agri-environment schemes. Time-limited subsidy schemes are also more likely to prove WTO-friendly than ongoing ones[57].

ORGANIC FARMING SCHEME

94. The recent increase in payment rates was welcomed by witnesses, but there was criticism of the overall budget for the scheme[58], which they said would be wholly inadequate to meet the number of applicants (pp 44, 231). It was suggested in April this year that there was already by then a queue of 29,000 hectares of land for conversion grants[59]. The Government admitted that it might not be possible to accept all suitable applicants onto the scheme this year, but said that the unlucky ones would be held over to next year, when the budget would be higher, and that their payments would be backdated (QQ 606, 612). This might be an acceptable explanation were it not for the fact that farmers must enter conversion before they can apply to the OFS. This means that they must commit themselves to incurring the costs of conversion before they know whether they are going to receive any payments. One converting farmer said that he had convinced the partners in his farm to agree to convert part of the farm to organic after the announcement of the new scheme last year, but that when the land was already in conversion he discovered that there might not be enough money to accept it onto the scheme (QQ 233, 238).

95. Another aspect of the scheme which deeply concerned some of our witnesses was the fact that where land is already entered into agri-environment schemes such as Countryside Stewardship or the Environmentally Sensitive Areas OFS payments are reduced on the grounds that both are intended to achieve the same benefits; in other words, farmers would otherwise be receiving payments twice for the same activities (Q 238). Where there is overlap, the highest rate payments are reduced from £450 to £402 per hectare, and the middle rate payments are reduced from £350 to £261 (the lowest rate payments are not reduced).

96. Double funding cannot be justified if it means paying twice for the same activity. The crucial question is therefore for what, exactly, is the organic conversion grant being paid? If it is meant only to cover the extra costs of conversion, any existing environmental payments should remain unaffected. However, the fact that it is paid under the agri-environment Regulation implies that (a) conversion is paid for at least partly to obtain environmental benefits and (b) the money for both conversion and other environmental schemes is coming out of the same fund. That is why the Minister (Elliot Morley) said that the payment of money under both schemes at the full rates was defined as involving double funding and was not allowed under the agri-environment Regulation (Q 617). Although the Committee did not examine the subject of double funding in depth, we are concerned that the rules could result in disproportionate, even unfair, reductions in payments to some farmers, and we ask the Government to seek ways to avoid this happening in future.

97. The Committee welcomes the new Organic Farming Scheme but regrets the confused circumstances of its launch, and hopes that appropriate lessons are learnt for the future. In particular, potential applicants need to have sufficient information about when money will be available and what other grants they may lose, well in advance of the need to make a decision to apply.

98. Paragraph 19 and Box 1 (page 14) stated that some countries offer different rates of payment for different kinds of farming: eg. lower than average rates for extensive grassland, higher than average for fruit and vegetable cultivation. This is intended to reflect the different costs to the farmer of conversion and organic cultivation. Mrs Deane explained that fruit and vegetable cultivation usually took place on a relatively small amount of land, which reduced the amount of subsidy available, and that the investment needed to start the enterprise was considerable (QQ 200-1, see also pp 279, 303). To a degree the OFS already acknowledges that organic farmers in different sectors face different conversion costs. The full rate of £450 per hectare is available only for land which is eligible for the Arable Area Payments Scheme or which is under permanent crops; improved land not eligible for the AAPS attracts £350, and unimproved land attracts only £50. The Committee recommends that when MAFF next review the scheme the organic sector should be consulted to determine whether there has been a failure to attract certain types of farmland into the scheme, resulting in under-supply of the market in certain products. The payment rates for different kinds of land or types of farming could be adjusted to take account of any discrepancies. For example, it might well prove necessary to offer a higher rate for fruit and vegetable producers, as much of the land now entering conversion is grassland.

99. Witnesses agreed that some aspects of the CAP - such as the use of voluntary set-aside during the fertility-building phase - helped organic farmers and some - such as the fact that the fertility-building crops are not eligible for arable area payments - hindered them (QQ 187, 229, pp 82, 285). Two witnesses noted the perversity of some policies having the effect of encouraging intensification, and others then being introduced to try to mitigate the effects (QQ 229, 679). We look forward to the day when EU agricultural policy is not so blatantly contradictory, and the inefficiencies of the production subsidy system are removed. In general, the direction in which the CAP is (very slowly) moving, with the redirection of support towards environmentally beneficial practices, should benefit organic farming[60].

100. The vast majority of research and development in the organic sector is funded by MAFF[61], and several witnesses said that the proportion of the MAFF budget spent on organic research should be increased, perhaps to 10% or more of the total budget (QQ 37, 106, 254, 370, p 243). They argued that a lot of research and development aimed primarily at the organic sector would also be useful for the conventional sector. Examples included reducing reliance on antibiotics to control mastitis; the development of husbandry solutions to deal with parasitic disorders; making conventional farmers more aware of the importance of sowing dates; and the use of biological control methods (QQ 44, 106, 254: see also Q 190 and p 334). VEERU characterised organic farming as "a very important area of innovation within agriculture" (Q 457). It can, however, be argued that organic farming stands to benefit from virtually all conventional fundamental research. Witnesses stated that MAFF should take into account the historically very low levels of funding for organic R & D, and the rate of growth in the sector (QQ 37, 370, pp 243, 312, 336). While agreeing that the budget needed to be increased, Dr Lampkin counselled caution, saying that it should be raised gradually to avoid money being thrown at projects which had not been carefully thought out (Q 274). It is not always recognised that experience gained in organic farming can benefit conventional farmers, especially in learning how to control pests, diseases and weeds without the use of large quantities of agrochemicals. This may become essential to reduce input costs and respond to public concerns. The Committee agrees that the organic research and development budget should be steadily increased. Given the relative youth of the sector, its recent growth, and the potential for organic research to cross-over into the conventional sector, we think that the proportion of the overall research budget devoted to organic farming should be increased until some, at least, of the evident gaps in current scientific knowledge have been filled.

101. UKROFS prepared and has recently updated a list of the priority topics for organic research and development. Several witnesses made suggestions as to which of the subjects were particularly important. The Soil Association mentioned research into food quality, a cost-benefit analysis of different types of farming, the physical and chemical composition of and biological interactions within soil, and the husbandry-related aspects of organic agriculture (Q 37). VEERU identified a need to find breeds which would be more successful in free-range conditions, "more emphasis on preventive strategies, health strategies, rather than treatment strategies", and mastitis control and treatment (Q 451). Mr Hassett said that there needed to be more research into both organic production and processing (Q 576), and the Elm Farm Research Centre's priorities included finding new strains of plants and breeds of animals, and research into food quality and health (Q 371).

102. The UKROFS' priority list is an excellent idea, as witnesses recognised, and should help to improve the co-ordination of research into organic production and processing (QQ 37, 492). However, it is not UKROFS but MAFF that determines how the organic research and development budget is spent. It was argued that this could act to the detriment of the organic sector, as MAFF's priorities were not always the same as those of the organic movement (p 119). In order to ensure that the available funds are spent in the best possible way, the Committee recommends that well in advance of any funding decisions MAFF should consult the UKROFS research committee on what projects should be supported.

103. Organic farming places a premium on the skills of farmers and the people who support them (such as vets), and so it is essential that all of those entering the organic sector - and those who have been in it for some time - should have ready access to full information, advice and training so that they are not overwhelmed by the challenges with which they are faced.

104. The Organic Conversion Information Service in England, and similar services in Scotland, Wales and Northern Ireland, provide an excellent service for farmers who are considering converting or who are in the process of converting. However, it seems to be much more difficult for organic farmers to obtain tips and general advice on the practicalities of organic farming, as distinct from the process of converting. One example of this was given by Mr Stopes, who said that many converting farmers still saw intervention in the crop by, for example, mechanical means, as a primary method of weed control, whereas in the organic system it should actually be a last resort. Under an organic system the frontline methods of weed control ought to be planting at the right time, good crop husbandry, and well thought out rotations. Mr Stopes spoke of an "ongoing process of nurturing and assisting farmers" which was currently lacking (QQ 392, 394). Other witnesses also identified a need to provide more help for organic farmers: the Royal Agricultural College said that "education and training courses are now being provided in some Colleges and this should be encouraged" (p 303), and Mrs Browning said that "we need much more training and advice going into the organic sector to ensure that farmers who have just specialised in one particular crop are able to broaden their expertise and move into a more mixed farming scenario" (Q 221).

105. Farmers considering whether to convert to organic farming seem to receive a good service from the OCIS and its Scottish, Welsh and Northern Irish counterparts, and also from the sector bodies, and we hope that MAFF will match any long-term increase in demand for the information services with an increase in funding. There is, however, a gap in the provision of information, advice and training for farmers and their farmworkers once they have converted, and the Government and the organic sector should consider how that gap can be filled. One solution would be the establishment of appropriate training courses for those in the organic sector which could be part funded by the EU under the new Rural Development Regulation[62].

106. The lack of infrastructure for the processing, distribution and sale of organic products was identified as a serious problem (pp 231, 245, 259, 300, 309, 326). It was argued that the UK was spending far less than countries such as Denmark in this respect[63]. One witness predicted that farmers would be able to reduce costs as the market grew by achieving economies of scale in distribution, processing and marketing (Q 174). However at present the lack of a properly developed chain for the processing, distribution and sale of organic products is clearly an impediment to the growth of the organic market. Freshlands, an organic food retailer, said that in Canada and the US groups of farmers have joined together to share staffed storage, distribution and marketing facilities, adding that the adoption of this method of organisation in the UK would make their job as a wholesale purchaser of organic produce much easier (p 269). In relation to meat, it was thought that there was a need for a network of small abattoirs; many of the existing abattoirs were being forced to close down under the pressure of new hygiene regulations, but if animals had to travel further to get to the place of slaughter, then they got dirtier, animal welfare might suffer, and there would be adverse implications for human health and the quality of the meat. The closure of local abattoirs would also have a detrimental impact on local rural economies as a whole (QQ 50-54, 87, 226). The Committee considers that the Government should do all in its power to alleviate the pressure on small abattoirs. For organic producers, the formation of co-operatives with specific brand names will help to build consumer loyalty and reduce packaging and distribution costs, and the Committee hopes that the Government will assist their development.

107. In general, the supermarkets were more enthusiastic about organic produce than the organic sector was about the supermarkets. Organic Farmers and Growers Ltd. thought that supermarkets would "try to divide and rule the organic movement" (Q 89) and the supermarkets looked forward to increasing the proportion of their sales which were organic, adding that in future they would try to source more of their organic products from their traditional major suppliers (Q 164, pp 242, 315). The importance of the supermarkets cannot be denied; over two thirds of organic food is already sold through them[64]. It was said that organic farmers should try to sell more of their produce through farmers' markets, box schemes, and other forms of direct links with the consumer (pp 228, 319, QQ 89, 263). The Committee agrees that such schemes are useful ways of selling organic products and should be supported. But it is also inevitable that some, perhaps most, organic farmers will have to deal with the major retailers, and the formation of co-operatives should enable them to obtain better deals by being able, for example, to ensure continuity of supply.

58   £6.2 million for 1999-2000 and £8.5 million for 2000-01. For purposes of comparison, the UK agri-environment budget for 1999-2000 is £77 million (Q 619). Back

59   Farming News 16 April 1999; see also Farmers Weekly 23-29 April 1999, which was scathing about the launch of the OFS. Back

60   See our Report: House of Lords European Communities Committee, A Reformed CAP? The outcome of Agenda 2000 (8th Report, Session 1998-99, HL Paper 61). Back

61   As noted in paragraph 21, the organic budget is £1.5 million in 1998-99, and is £2.1 million for 1999-2000. MAFF's total research and development budget is around £130 million. Back

62   Under the agri-environment Regulation training courses could be part-funded by the EU. The Commission's own report on the agri-environment Regulation recommended that "Member States should be encouraged to provide training courses within agri-environment programmes" ((Com(97)620 final), section 4.2.8). Similar schemes will be permitted under the new Rural Development Regulation. Back

63   The Government gave evidence that organic groups have received £1.3 million in marketing grants under the Marketing Development Scheme and the Processing and Marketing Grant Scheme (this latter scheme applies to Scotland, Wales and Northern Ireland only) (pp 196, 199). Back

64   p 215. The Aberdeen University Centre for Organic Agriculture also estimated that 19% came from direct sales and 14% from health food shops. Back