Ms Shelby Matthews and Mr Simon Michel-Berger

3 MARCH 2005

  Q400Lord Plumb: How do you see Europe handling that? What you say is of concern to everybody. As you say, people are concerned about animal welfare, people are concerned about cutting down the forests in order to grow more, but if a housewife goes into Tesco or Sainsbury or wherever and they see a chicken that is 35 per cent coming cheaper in from Brazil—they probably do not know it has come from Brazil anyway—should they know it is coming from Brazil, that is 35 per cent cheaper than those produced at home, are they going to buy the one that is 35 per cent cheaper even though they may be told the conditions under which that bird has been produced are very different from the regulations that are laid down for animal welfare? In other words, how do you see the phytosanitary measures working if no-one is implementing them? Might I ask a second question because it is not unrelated. I am sure you hear in this room often enough about the importance of trying to get a level playing field. We have never had a level playing field in the United Kingdom so we cannot expect it in Europe, but there are vast differences in currency values. Do you see this levelling out in the longer term? All of these are issues if we are going to apply the measures of a Single Farm Payment and the measures that are necessary under a different form of structure in order to keep farmers in business and, if that is so, how on earth can this lot be implemented in a wider Europe which is still expanding?

  Ms Matthews: You raised the question of a consumer in the supermarket and it is a big concern to us that the politicians are taking measures on animal welfare, environment and so on, which do reflect genuine concerns on the part of society, that is quite clear, but there is this fact that when people go into the supermarket they go for the cheapest price.

  Q401Countess of Mar: Does that not depend on their budget?

  Ms Matthews: Yes.

  Q402Countess of Mar: I do not go for the cheapest price because I have got quite a good income but when I was younger and I did not have quite such a good income I went for the cheapest price.

  Ms Matthews: I am sure you are right. I am sure you know more about this than I do but I did see on television at one point where they interviewed people coming out of a supermarket and asking what were the prices and people had absolutely no idea of the prices of the goods they were buying.

  Chairman: Perhaps we can get back to our questions. This is a general discussion that interests us all but—

  Lord Haskins: Very interesting though.

  Q403Chairman: Extremely interesting, and we hear your views reflected in NFU in London and so forth. We have also to write a report about future financing of the CAP and what is going to happen and so forth and in essence you are saying—to put words in your mouth—it is inadequate. If there were real pressure on it, what do you think would get sacrificed by the Commission? Would it be Pillar 1, Pillar 2 or what?

  Ms Matthews: For us, the agreement in Brussels in 2002 was a commitment up to 2013. Are you looking beyond 2013?

  Q404Chairman: No, we are very much looking at what is going to happen over the next year or two in essence. The point has often been made to us that they do not want to change these commitments but in a way we are saying what if that is necessary because the money is not there.

  Ms Matthews: First of all, I have to say we consider that a commitment and it was linked up to the reform measures and we do not think you can suddenly come back on that. The Commission has taken that view and we hope they will go down that route. If you do maintain that ceiling obviously it is the other measures in the budget that would be under pressure and it is clear that rural development would be under pressure. If they do not stick to that ceiling are you saying what will they reduce?

  Q405Lord Lewis of Newnham: If we take the 1 per cent situation, indications are that there is not going to be enough money and there are going to be pressures on various areas and it does seem possible—I will not say probable—that agriculture will be one of the areas on which pressure will come for the very reason that our Chairman has been talking about of public opinion. As you said, if you do not take it from there you have got to take it from somewhere else. It does seem to us that the probability is that there will have to be a certain acceptance that agriculture will be one of those areas that will suffer.

  Ms Matthews: From our point of view, this is quite difficult to accept because the main push behind the reform was WTO and that was a decision taken to follow what was necessary in WTO, that was to reduce support prices and shift from price support to budgetary support, and now you are telling us there is no budget.

  Lord Lewis of Newnham: I am not telling you that.

  Q406Chairman: We have to examine the likelihood of what is going to happen. We have had the Financial Secretary of our Treasury come to us and say, "No, 1 per cent of national income is an appropriate sum to go into the EU budget and that is what we are going to fight for", and then equally we have the NFU saying, "Unless you get 1.14 per cent, which is a 10 per cent increase, there is going to be a real problem about the commitment to CAP". In a sense, that is at the heart of our inquiry at this early stage. It is not saying it does not pose huge difficulties for the farming industry but the slight wonderment is what is likely to be the course of events.

  Ms Matthews: If you start reducing on the ceiling the biggest one to reduce is direct payments and you can also reduce export refunds, for example, but they are so low now that is going to have a very marginal impact. The only way you are going to get any substantial reduction is if you tackle direct payments. As I said, if you go down that route then you are going down the route of a huge structural change in agriculture.

  Q407Earl Peel: I think we were all a bit surprised to discover that the budget for Natura 2000 had not been built into these figures and, therefore, if the CAP is expected to finance a large proportion of this, inevitably this is going to have an effect on the overall budget available for direct payments and also for the agri-environment schemes. That came as a shock to us.

  Ms Matthews: That is right.

  Lord Lewis of Newnham: This is about 6.1 billion.

  Chairman: Admittedly, Mr Demarty, who we heard yesterday evening was saying Natura 2000 was included in the budget.

  Lord Sewel: He was saying from the amount available for Pillar 2 you should be able to finance Natura 2000 obligations under Pillar 2. It is a take it or leave it basis.

  Lord Lewis of Newnham: If there are any developments that must be taken out of the national cut.

  Q408Lord Haskins: As I understood it, the mechanism that is in place is if there is pressure the pressure will have to be taken by the Single Payment.

  Ms Matthews: Yes.

  Q409Lord Haskins: But the most pessimistic figure that I got out of that was, I cannot remember whether it was either 5 per cent or

5 billion as the scale of it, but if it is 5 per cent it is serious but it is not critical. We were rather surprised how low that figure might be.

  Ms Matthews: I think it is very difficult to say at this stage. Under the estimates made by the Commission on the original Agenda 2000 we would be coming to a crunch around 2008-09 as far as the ceiling was concerned.

  Q410Lord Haskins: Forgetting Doha.

  Ms Matthews: Exactly. We have sugar reform on the table. The Commission have an apparently neutral budget at the moment but we are far from over on sugar so we do not know what is going to come out of that. Clearly there will be some shift from price support to budget, again, and then we have the WTO. I think those are the big issues.

  Q411Lord Sewel: You have got Bulgaria and Romania and further decisions down the road on funding Bulgaria and Romania.

  Ms Matthews: Yes.

  Chairman: Can we ask a bit more about the Single Farm Payment. Earl Peel.

  Q412Earl Peel: There is this figure being bandied around that if the financial discipline mechanism were to come into operation there could be a 30 per cent drop. You have partially answered that in your opinion that would have a very serious affect on farming.

  Ms Matthews: Yes.

  Q413Earl Peel: There is an issue that we were talking about last night on this question of modulation. If, during the course of the period from 2005-2013, it was decided to re-look at the whole financing of the CAP and a large tranche of money was modulated from Pillar 1 to Pillar 2, as we understand it 20 per cent of that money could go into the central pot which means that the contributor countries could lose out on quite considerable amounts. Is that your interpretation of the way it might happen which could put further pressure on countries like the United Kingdom, for example?

  Ms Matthews: If we shift through modulation—

  Q414Earl Peel: If there was modulation from Pillar 1 to Pillar 2 in order to meet a financial crisis that may well come about through sugar, or whatever particular issue it happened to be, because of this ability to move 20 per cent of that modulated figure into a central fund the contributing countries could lose out quite considerably by that amount in order to fund Bulgaria or Romania or whatever other reason there is. That was our understanding of it and it strikes me that could be a very real issue.

  Ms Matthews: Once you move money out from Pillar 1—this is our concern—there are an awful lot of places it can go to. A part of it will be bound to be lost by farmers for a start because it will go to other non-agricultural rural measures. There is huge pressure from a whole number of groups who see their eye very much on getting the money from the Rural Development Fund. I have not studied that point you have made, it is a little bit new to me that it could be used for Bulgaria and Romania. Again, from our point of view, if politicians take these decisions to shift from price to budget support, if they take decisions on enlargement, then they really should take the responsibility of following it up.

  Q415Earl Peel: Just to try and fully understand your position on this, you would be nervous about any transfer of funds from Pillar 1 to Pillar 2 for the reasons that you have just explained?

  Ms Matthews: Yes, absolutely.

  Q416Earl Peel: You see Pillar 1 as the stability that is required during a period that has been quite difficult?

  Ms Matthews: We see it as being essential in order for farmers in Europe to be competitive and still produce in a sustainable way.

  Q417Countess of Mar: The more our inquiry goes on the more I get the feeling that Europe is more interested in the environment than it is in farming. When we look at the Rural Development Fund that comes up particularly. You have just mentioned that other people want to get their fingers in the pot, do you think there is going to be enough money in the pot to create sustainable development in rural areas in order to support both farmers and the other people in rural areas who want to remain there?

  Ms Matthews: The problem is what I said at the beginning was there is a misunderstanding out there that people think if we have a rural development policy then farmers can produce in an environmentally friendly way through these measures under rural development. The rural development budget is not going to pay to cover these additional daily costs. What you will end up with is pockets under rural development policy where we will have nice environmentally sensitive areas, which are fine, but for the vast bulk of agricultural production farmers will either need these direct payments in order to produce in a sustainable way or they will go out of business. What is a little bit annoying is the fact that people say they are all for sustainability but surely they do not just want sustainable production in certain pockets, they should be concerned about the whole of production being produced in a sustainable way, and I think they are, but then they have to pay for it. We cannot pay for it through the prices and I think consumers in Europe are not madly concerned about the price level, they are not going to see very much benefit from prices going down, but, unfortunately, because of WTO we are forced to shift from price support to budget support.

  Q418Countess of Mar: It has been suggested too that the rural developing funding could also be incorporated into Structural and Cohesion funds, targeting it at a wider range of rural businesses and activities. What are your views on that?

  Ms Matthews: Our concern there is that we would see the money going out of agriculture because the pressure would be even greater for it to be used for other elements.

  Q419Chairman: So you would be against it. You would be against rural development funding being incorporated into Structural and Cohesion Funds because you think you would be more likely to lose sight of the money, is that right?

  Ms Matthews: The pressure from other parts of rural development would be even greater. Simon, you were talking about pressures on the urban areas.

  Mr Michel-Berger: Yes. Normally urban communities are more used to applying for government funding, handling the administrative tasks, and more in touch with the media so they are in a better position to communicate their needs to the media and create the image of need whereas rural communities are not so able to do all of these things and, therefore, if there is direct competition between the urban and rural areas on equal terms, so to speak, the urban areas would tend to win and the rural areas would tend to lose if there was a struggle for the money.