Mr Claus SØrenson and Ms Christina Borchmann

3 MARCH 2005

  Q500Chairman: That is over the period.

  Mr SØrenson: Yes. The 8.8 million which is in the Commission's proposal is not up for discussion.

  Q501Chairman: The minimum figure is fixed but anything beyond that is not. At the present moment, what do you think will most likely give way?

  Mr SØrenson: We are waiting now for the Luxembourg Presidency to come forward with their famous toolbox in the negotiation. If we are not careful it will come out skewed because of misconceptions.

  Q502Chairman: Skewed?

  Mr SØrenson: Yes, skewed. We have a political problem which is of an historical nature, that the credibility of our agricultural expenditure has not been very high because some of the expenditure has been used in a trade distorting manner or to produce for production without thinking about the consumer. This legacy in the minds of many people makes it very easy to go and hammer the agricultural expenditure. This is a political problem. We will try to argue that the reform has changed the name of the game considerably, that agriculture is now much more decoupled, that the farmers can actually produce and react to market signals. We have not seen the whole impact of that yet, it is still to be seen out there in the fields and in the shops, but it is much easier today to defend our Common Agricultural Policy. The message has not yet been fully understood and this is the problem.

  Q503Lord Livsey of Talgarth: What do you mean by "skewed"? Is it that this could be unscrambled from the original 2002 almost by accident if the Luxembourgers do not get it quite right?

  Mr SØrenson: No, I do not believe what was agreed in 2002 under Pillar 1 can be unscrambled.

  Q504Lord Livsey of Talgarth: That is sacrosanct.

  Mr SØrenson: Except if Jacques Chirac suddenly gets a brick in his head or something like that. They are pretty firm on that and there is a constituency inside all Member States to keep that. The skewing comes in when people start chopping off under different headings and inadvertently they could chop off a lot in rural development and I would not like that to happen. It is difficult for me to be more precise because I would not like them to chop off too much under other headings either but what I see is if we are not good at defending our corner then we will be at risk in the process.

  Q505Lord Plumb: I am rather intrigued at your words to "beef up" the Rural Development Fund. I think I understand what you are saying. Where is that money coming from? What I am really getting at is, following your last comment, if you are beefing it up from taxpayers' money, the taxpayer has got to understand that this is money that is going to improve the countryside, if you like, this is rural development funding, and there is a massive exercise in explaining that this is a beefing up process in their interests and not giving more money to the farmer, which is what it may be seen as, as part of the CAP. Where do you see the beefing up coming from?

  Mr SØrenson: I think in overall amounts there is an increase in the volume. It is true that if we look at the biggest increase it will obviously go to some of the new Member States, let us be frank and honest about that. That is also where the need is the biggest. In the old Member States, we keep a little bit of what we had and there will be a bit of an increase but it is not something to be bragging out. The overall figure is increasing because we are extending this policy to some of the new Member States. If you look at all the expenditure going to agriculture, market support and rural development, the relative weight between these two pillars is shifting and with modulation it will shift even more. The question is would the taxpayer prefer to have the money in their pocket. If you ask them like that they will always prefer that but then we can send everything back to them and we will see what happens. I do not think that is reasonable. The important thing for us is to be able to demonstrate that this money will be managed in a way that will produce diversification, that will help not only the farmers and their immediate families but their village structure, the rural communities that would make them nice places to live so that, in a way, the schoolteacher who is thinking about moving to the next biggest town would think twice because there is a little transport network, there is broadband access, there is a kindergarten for his or her children to be taken care of, there is a livelihood there that gives them a perspective for the future. You may say this could be catered for under the regional policy and that is a fair point. We could have done it in the box dealing with cohesion, however because it was part of the reform of the CAP and because very often we would like to see it in connection with what happens to the farming community, we thought it was better to drag it away from the cohesion policy a little bit and subject it to the same financial control mechanism and the same planning mechanism as we know from the Common Agricultural Policy, so we have better synergy. At the same time we, and especially Christina who used to work in the Cohesion Fund before, will do our utmost to make sure the rural development money works in synergy with the regional funds. Let us be clear about it, the Regional Funds deliver the motorways, the electricity grid, they build the highways system and the big school, vocational training centre and so on. The problem is that regional fund money tends to forget the rural areas because the votes are coming from the urban and peri-urban areas. The Regional Funds have a tendency to cater to the needs of that group of the electorate and that is where we have a deficit. There is a financing deficit in the rural communities between the specific market support for agriculture and the regional policy going to urban and semi-urban areas. That is where the rural development policy comes in.

  Lord Plumb: What about the Structural and the Cohesion Funds together.

  Chairman: Let us deal with rural development first and then we will come back to the Single Farm Payment and so forth because it leads on exactly from what you have been saying and I know the Countess of Mar would like to follow that up.

  Q506Countess of Mar: I was just listening to what you were saying about the schoolteacher staying in the village. Our county council is responsible for deciding on schools in the county. I live in a small village of 350 people. The county council's policy is to close the village schools and bus the children into towns, so you are losing a whole community. There is a conflict between our national policy, and it has got to be a national policy working its way down from central government, against this rural development policy. How do we overcome that? Are you going to tell the British Government that they must stop closing their schools or they do not get this funding?

  Mr SØrenson: I would not be so naive as to believe that we can finance all the village schools in the British countryside, let alone in the Polish countryside by Rural Development Funds. What I am saying is some of the money for rural development could come in and help support civic community groups, for example, or linking up community groups from village to village doing some village renewal or helping them build up some basic services, God knows what. That can give a bit of an extra push to getting a livelihood there. If Member States believe that is a stupid policy then they should cut that part of the rural development policy and just make it a purely environmental policy or purely restructuring policy. But I belive it is clever, so this is part of the proposal on the table of the Council at the moment. Frankly, I believe that in its very many forms, because our Member States are not all the same, there may be those who would prefer to keep more population in these areas and may wish to use the money to link up a village on broadband that unfortunately the Regional Funds could not fund. So rural development can add a line for 20 miles or something like that. They may wish to do that and other Member States may wish to go in the direction your Government has chosen and they can choose other elements of the policy. It is a question of philosophy, what do we want from our countryside? Do we want to depopulate it and simply have the big farms which are the order of the day and they cater for themselves and then we have a provincial centre, and that is it, or do we want some kind of livelihood in attractive villages that may also receive urban people doing the work.

  Q507Countess of Mar: Do you want it like a chocolate box? I am talking about Britain in particular because we have chocolate box scenery. Do we want it preserved so that the townspeople can come out and look at these chocolate box pictures rather than it being a working environment?

  Mr SØrenson: I do not know if looking at a chocolate box is pejorative or a positive connotation. It depends if there is any chocolate inside, of course.

  Chairman: I think both of my colleagues would very much like to come in on this.

  Lord Plumb: If a lot of people were listening to your description at the moment they would be quite impressed thinking there is going to be money there for help for rural development in the countryside, and that is fine, but we have got the Regional Fund, we have got the various objectives in various areas coming in different categories. My friend here is from Wales and there is a vast amount of money going into Wales.

  Lord Livsey of Talgarth: Do not believe it.

  Q508Lord Plumb: We have got the Regional Fund, the Structural Fund, the Cohesion Fund, we have got a new development where so much is going to be seen going to agriculture and so much for rural development, and all of us are totally in favour of further rural development, we want to see that taking place and we want to see the results of Europe's investment in rural development. It has been suggested to us if you were to put the Structural and the Cohesion Funds together it might make a lot more sense in both administrative terms and also in terms of a better understanding of what Europe is doing in order to do more than help highways and help to build the factories or airports or whatever, to really try to improve those villages and village life generally.

  Mr SØrenson: It depends where you are in Europe. I do not believe we can let go of the Structural Funds because there are places in Europe where they do need this capital injection to get their basic infrastructure and the big projects right. Something has to be given there to support it. We may discuss how much and we put in a cap of 4 per cent of their GDP on the new Member States but we also know what happened to the Structural Funds in Ireland way back, they got up to six and a half per cent and it was way too much, an over-financing. Then you have other Member States where they do not get that much from the Structural Funds but they will get something from the Rural Development Funds because they are not limited to the famous old Objective 1 areas. They can and may go to areas that have a little bit more of an income but which are nevertheless rural. This is the situation. What I hear you say is we bloody well have to make sure if the two funds are operating more or less in the same region it has to be well co-ordinated. We do not want one project dragging us in one direction and another philosophy dragging us in the other direction. This is precisely why I asked Christina to join me because she comes from that different "regional policy" world. Secondly, we have asked the Member States, this is at least what we propose, that they make sure they describe very clearly in the national plans how the two funds operate together. Obviously if we speak about a specific programme or a specific project they have to make a choice. We do not want them to get the money from the two taps at the same time and put it in the same pot. They have to choose whether they take it from this shelf or from another shelf. This is built into the system. Will it work? Could it be done differently? Maybe. But this is what we have put on the table. I think the problem has been recognised.

  Q509Lord Livsey of Talgarth: I am encouraged by what you say about the specific rural objective in what you are pushing. I come from Mid Wales where 17 per cent of people are still on the land and 25 per cent of the population get their income from activities associated with agriculture, which might be machinery or whatever. That is very unusual in the UK. We are much more like Ireland. Where we do not get Structural Funding Objective 1, it might be Objective 2 and going away from Objective 2. Decisions on those Structural Funds tend to be taken in urban centres a long way away from the rural areas and the application of these funds is a bit piecemeal and is not always what people in those areas wish would happen. Unfortunately, some of my colleagues have had to go back home who may disagree fundamentally with what I am saying.

  Mr SØrenson: That is democratic.

  Q510Lord Livsey of Talgarth: As soon as you start melding together urban and rural areas, the rural areas always lose out. The attraction of what you are putting here that I see is the fund has been targeted into the rural areas and the decision making will take place on the basis of their priorities and not somebody else in a building like this somewhere a long way away. If that could be achieved and there was not a double funding issue, which you talked about when you were responding, we would get quite a long way in rural development.

  Mr SØrenson: What I can say to that is this is the philosophy. We have asked Member States to use a bottom-up approach in establishing their various plans. We cannot avoid the fact that it will have to pass by London or Madrid. We deal with Member States, this is inevitable, but it is important for us to make sure that we cater to the wishes of the people who are out there and the way in which the regulation has been designed is to identify objectives and results that we would like to see happening that fit with the local agenda. This is very important. We have given it a boost and we will see how it turns out. We will be watchful to make sure that it benefits that constituency.

  Q511Lord Livsey of Talgarth: Just to sum up, it is your vision that these are not competitive with Structural Funds but they run alongside?

  Mr SØrenson: The moment we reach agreement on the distribution of the sums in the negotiation under the financial perspectives then that money is ring-fenced, but it is not ring-fenced today at this very hour because the negotiations are going on. That is where I come back to my worry that if the toolbox and the Luxembourg Presidency want to give too many gifts to the 1 per cent club then the result may be skewed because inevitably it will be rural development that will be hammered.

  Q512Chairman: That is a very important point for us to hear from you. Coming from where we do, we hope that will not happen but, in a way, for us making a report at the present time that is the key point. You are saying if 1 per cent GNI remains, the burden of that on the CAP project is that the rural development policy will be the one that suffers.

  Mr SØrenson: Yes.

  Q513Chairman: I think it is very good for us to have such a clear view.

  Mr SØrenson: This is really what I believe. I think you believe it also, do you not?

  Ms Borchmann: Yes.

  Mr SØrenson: So we are two.

  Countess of Mar: We have heard quite a lot of others who believe it too.

  Q514Chairman: In your judgment, looking ahead, and perhaps time is getting on and we should move on to the Single Farm Payment—

  Mr SØrenson: I must say I have a problem because I have just been called by my Commissioner and she is in Nairobi. She wants to speak to me before four o'clock. If I could just pop out. Christina is right on the ball, so just ask her exactly the same types of questions and then I will come back as soon as I can.

  Q515Chairman: I came back from Nairobi only 10 days ago so please give her my good wishes and say I hope she is enjoying the weather.

  Ms Borchmann: I imagine she is inside in the negotiations. It is a mini-ministerial on the Doha Round with Mandelson.

  Q516Chairman: Look ahead now beyond 2007-13, longer term how do you see the division of the CAP budget between the Single Farm Payment and rural development? Do you take it almost as granted that Pillar 2 will grow more or less continuously at the expense if Pillar 1?

  Ms Borchmann: I think that is how it is being seen after the CAP reform. With the decoupling there are so many handles on the direct aids and you can say it is easier to cut it down, there is even a budgetary discipline instrument to do it. The idea is that the farmers will become more competitive and there are the WTO negotiations. If the next seven years show that competitiveness is going up there is this possibility and, as the Commissioner likes to say, rural development is the future, she sees the rural development instrument as the real future of agriculture policy.

  Q517Chairman: Do you regard WTO as being the principal driver of this change or is it also popular public opinion that Single Farm Payment is a straight subsidy to farmers that it becomes less and less explicable to the populace?

  Ms Borchmann: Absolutely the two. We even experience it within the Commission. When you start talking about the financial perspectives nobody thinks that you can keep on defending that agriculture is half the budget of the European Union. It was a policy which came into force to ensure that we had the food we needed to eat but this is no longer the case, so this is definitely driving it.

  Q518Chairman: What about the counter-argument that even in this global world we—Europe—should remain self-sufficient in food production?

  Ms Borchmann: Europe is not just self-sufficient, it is over self-sufficient.

  Q519Countess of Mar: This morning when we were talking to COPA they were very concerned about the effect on our competitiveness in world markets with our requirements for the environment and animal welfare and what they kept stressing was these environmental and animal welfare costs are everyday costs, they are continuous, they are not a lump sum, so where rural development is to help them to be competitive it is not going to meet the need because that cost is ongoing and everyday you have got to make sure your pigs are kept in the right conditions and those sorts of things. They felt that Pillar 1 was some sort of compensation for it so it should not be eroded.

  Ms Borchmann: I do not think that it will disappear but it is like a handle. One thing that was not mentioned is we all talk about the Brussels ceiling but I am sure you have heard people in Brussels mention that one is not so sure what will happen with Romanian and Bulgarian expenditure vis-a"-vis the Brussels ceiling.