Mr Stefan Lehner, Mr Marco Pecci-Boriani and Ms Eleanor Brooks

3 MARCH 2005

  Q480Countess of Mar: There have been some objections raised about having it as regional spending because people are saying the urban and semi-urban conurbations will have more power to attract money because of their sophistication and the organisations that are used to gaining funding.

  Mr Lehner: Yes. In any case rural development funding has always been a distinct part of total structural funding. Let us say, a grab of these funds away from more rural areas has always been more limited because there are boundaries between the two, but I do understand that the new instrument may permit this more.

  Q481Chairman: This morning one of our colleagues expressed some concern that in Commissioner Fischer Boel's statement of Brussels 19 January she included the words, "We will facilitate innovation and research in rural development". I think there was some feeling of is this not really taking it too far, is the   EU Commission really capable of making appropriate judgments in this area?

  Mr Lehner: I must say that I would be hard pressed to say whether the range of activities, this whole catalogue, which we are proposing to the Member States at the margin would also permit financing some research activities. Probably it would have to be research related to farming or rural activities, including the productivity of agricultural production, but it would clearly have to happen within the rural areas themselves. That is at the margin of my knowledge.

  Ms Brooks: They have added some measures on rural development. The rural development regulation is split into three, so it has got competitiveness, land management and then wider rural measures. It is under competitiveness, so it is very much linked to farm competitiveness. The idea is to try to link the rural development regulation into the general Lisbon objectives of greater competitiveness within the EU as a whole. That is the thinking behind it in terms of the Commissioner. As with all of the measures in the rural development regulation, it is up to the Member State to select what it wants to do in terms of its individual programme. It is still optional.

  Countess of Mar: One of the problems with this rural development business is the rather fractured nature of it. If you want to keep people in the rural communities you have got to have housing for them and nowhere is there any allowance for housing here. You talk about keeping the farmers' sons in the area but if all the houses have already been bought by people who are very much richer they cannot afford it. There has got to be affordable housing linked in with all of this. It is very important. It may be that is a problem in the UK only, I do not know whether it is a common problem.

  Q482Lord Livsey of Talgarth: Certainly in Germany it is true that most housing is rented still, is it not?

  Mr Lehner: Yes.

  Q483Lord Livsey of Talgarth: Which is a totally different type of economy in housing. It is a very specific problem in the UK.

  Mr Lehner: I seem to recall that part of the funds could be used for renovating housing.

  Q484Countess of Mar: That is no good if the houses are already gone.

  Mr Lehner: One would presume if there was the possibility for gainful employment in the rural areas for rural populations they would be able to finance the housing which they need out of their income. That is completely outside our discussion. You have mentioned Germany and there is, indeed, the issue of second homes there in particular in areas which are particularly attractive for tourism where a lot of houses are bought up by people from the city and they only go there four weeks a year, but there is the possibility of a local tax on second residences.

  Chairman: We have it in Britain already.

  Countess of Mar: It does not make much difference though, does it?

  Q485Chairman: I do not know. I would not totally agree with that.

  Mr Lehner: I mention it because I happen to know about it from Germany but it is outside the EU remit.

  Q486Lord Plumb: I was amused this morning when the word "innovation" came up because there is not a farm in the land that I do not know that is not innovative in one form or another, and has to be in order to keep up with the times and try to be ahead of the times. I think this becomes clearer as we listen to experts, but to what extent do you see the application of subsidiarity in some of the development areas here for rural development in particular? Every country is different, every region is different, and every region is different in that respect. I would have thought that the application of this could be fairly flexible without too much rigid control and that we could apply subsidiarity in a very positive way.

  Mr Lehner: I was willing to give you a fully positive reply until you mentioned the word "control".

  Q487Lord Plumb: I oppose controls, you see.

  Mr Lehner: My understanding is that the new proposal for rural development gives much more margin for manoeuvre to the Member States than the existing rules, so there is an inbuilt step towards subsidiarity. Also, I have to stress that we want to maintain a Common Agricultural Policy and a common market for agricultural products, so we still have to have some remnants of a level playing field. Farmers must be able to compete with each other under comparable terms somehow. While Member States get a certain sum allocated under rural development and they can use it as they best see fit, and some may make better use of it than others and some farmers may get ahead of others, therefore this is a normal competitive process in this context, but if it gets too skewed in the sense there is a free-for-all it becomes very difficult to defend that there is still a common market with open borders for agricultural products. There is a limit, a line that has to be drawn where we maintain some community coherence on this. That is why we are still discussing very intensely with Member States whether there should be a minimum structure in our rural development proposal, whether they should have some minimum percentages used for certain tasks or whether there should be an even less centrally organised structure and more margin for manoeuvre. I think it is all moving towards subsidiarity and there has to be a limit with regard to the level playing field, but not on control. On control I think we have to have even stricter co-operation with the Member States and the payment agencies because any nasty experience with an abuse of money will fall back not only on the Member State or payment agency which missed it but also on the European Community which gave the money in the first place. In fact, we will try to have a clearer and better and more efficient and effective system of control in the future than in the past. That is an aspect where we intend to remain in the game.

  Q488Countess of Mar: On the point of control, does the cost of the control come out of the total rural development budget because I can see a bureaucracy building up massively at the expense of—

  Mr Lehner: There are some activities related to control, for example evaluations, which can be financed out of the rural development budget and that is very helpful because it gives us objective assessments of how things are working, but then control is undertaken by the local, regional, national and EU institutions—the European Court of Auditors, OLAF—and they all have their own budgets.

  Q489Countess of Mar: If you come to Member States, and obviously they must exert controls on the ground, does that come out of this budget?

  Mr Lehner: No, it does not come out of this budget. I suppose they are controlling their payment agencies and so on already. For example, we are working very closely with the European Court of Auditors to have the so-called single audit concept, meaning that they can rely on audits which are undertaken by national audit institutes so there is no duplication of controls between them. However, that requires that there are certain commonly agreed quality standards for controls and that there is full trust between the different levels of controls community-wide. They are working very hard on that and that would reduce costs.

  Q490Chairman: Could we just go back to question eight, further reform of the Common Agricultural Policy, and the very difficult sugar question. Our Committee will probably propose to do a short paper on this later in the year when we are a little further down the line to knowing what is going to happen, but it would be very helpful for us to know at this stage whether you think the effect of reforming the sugar situation will be budget neutral.

  Mr Lehner: It is a very good idea to come back to this later because at the moment there has only been a communication which the Commission has put out and there are lots of reactions coming back, not all of them are finalised, and there is the WTO process going on. I think the Agricultural Commissioner intends to come back to this in the summer. First of all, if there is budget neutrality it should be understood that it is budget neutrality from the point of view of first pillar agricultural spending. If there is compensation for ACP sugar suppliers—and I say if—then this has to come out of a separate budget, this comes out of the development budget, for which some provisions exist and that would be extra, outside the term of budget neutrality as we understand it. In the communication of last year which laid out the sugar reform when it said that it would be budget neutral it meant against some kind of status quo scenario in the agricultural area, so it would be neutral to agriculture spending but if there was extra compensation for ACP producers that would be on top.

  Q491Chairman: That would be your present reading of it.

  Mr Lehner: That is my current understanding of the term "budget neutral".

  Chairman: That is interesting to know.

  Q492Lord Plumb: If there was compensation for sugar beet growers and various schemes, where would that money come from?

  Mr Lehner: We would eliminate export subsidies, so we are saving on those, and we would pay compensation to the producers. There are many other elements in this package but these are the two key ones.

  Q493Lord Livsey of Talgarth: That would fit in very well with WTO?

  Mr Lehner: Yes, I think it must. Everything we want to do in the agricultural area is very much intended to fit in with the WTO green box requirements. My personal experience is very short in the EU compared with yours, but if I think back only 15 years I had to go to OECD meetings as a young economist representing the EU Commission in those meetings and at every meeting I was hit over the head with `EU subsidies distorting world trade' and we were totally out of sync with the discussion. We had a very defensive position and we often said "It is our privilege to protect our farmers and so on". Fifteen years later with these reforms we go so far that we can go on the offensive in the world trade talks and put something on the table and say, "Let us stop all agricultural export subsidies."

  Q494Chairman: That is very satisfying.

  Mr Lehner: That is an enormous change which I have personally experienced. It is a limited time period but I am struck by this change.

  Q495Countess of Mar: I think it is Jamaica that subsidises its sugar production, could they be forced to take their subsidy off because they are poor enough as it is?

  Mr Lehner: I could not say anything on that.

  Chairman: We have a meeting with Mr SØrenson in 10 minutes or so. Thank you so much, both to you and Mr Pecci-Boriani, for coming today, we do appreciate it. It was very helpful from the financial point of view of these difficult exercises. If we have further questions we might come back to you in writing, it would be very much appreciated. Thank you both very much indeed for coming.