Mr Claus SØrenson and Ms Christina Borchmann

3 MARCH 2005

  Q520Countess of Mar: We have had several ideas on that.

  Ms Borchmann: I will not say ideas but the question is, is it included or not and the Commission view is it is not included, that is why the Commission's proposal sets aside eight billion extra for them. If somebody was to decide they were part of the ceiling that would mean an additional cut in 2013 of 8.8 per cent for EU15 farmers in their direct aid, just to say that the handle is there. It is 8.8 per cent in 2013 for EU15 farmers only.

  Q521Chairman: As far as the new 10 entrants, how dependent are they on Single Farm Payments and what is their general attitude to what you are saying, what you and Mr SØrenson have been saying to us for the last half an hour? Do they really expect farmers in those countries to go on getting Single Farm Payments or the equivalent of them forever?

  Ms Borchmann: I think farmers are getting used to that already. The latest figures show that farm income has risen enormously in these countries. In Poland it was something like a 50 per cent income rise and even more after they became members. That is not only because they receive the Single Farm Payment but because they are allowed to use some of the rural development money to pay the top-up. Some of these countries, like Slovenia, used to have this support anyway, and the maximum they can pay top-up is normally 40 per cent but if they paid the subsidy before it goes up to 70 per cent. They have farmers who are used to it and they have calculated into it that they will get this subsidy.

  Q522Countess of Mar: Have their markets opened up as well?

  Ms Borchmann: They have not been members for that long. I have not seen any analysis on that.

  Q523Lord Plumb: We have been encouraged in hearing the views of several people while we have been here to hear the word "simplification" which has been coming to the fore, saying "Let us make things more understandable and more transparent so that everybody knows what they are doing", but we are moving into a wider area of rural development and the Single Farm Payment people will begin to understand as it starts to operate there are certain problems around that, but nevertheless. How do you see the administrative costs on both sides? Administration of a Rural Development Fund, or the various funds that are going to assist in rural development, could be quite expensive, could it not? How does that compare with the administrative costs of the Direct Farm Payment?

  Ms Borchmann: We do not have exact figures on this because all the administrative costs are borne by the Member States. We have asked our services but we do not have figures on that. We are hoping that the rural development simplification will bring savings because we no longer have the Guarantee side, which had one structure, and the Guidance side, which had a different structure. You could say the Guidance side had the same as the other Structural Funds but our experience was that the Guidance was not handled by the same people who were doing the Regional Fund or Social Fund in the Member States. Now Guarantee and Guidance will be handled in the same way, so that should give simplification. Hopefully the same is true of the Single Payment Scheme because we are no longer expecting to count animals on farms. I have also worked in DG Agriculture and I have been going around counting animals, in the UK as well, and it takes a lot of resources to go out to 10 per cent of the farmers who have applied for a premium. That will no longer be necessary. From my own hands-on experience, hopefully the administrative costs will fall.

  Q524Lord Plumb: Do you see the possibility of an increase in fraud, because we know that fraud does exist from time to time in one form or another? If it is simplified yet more, if more subsidiarity takes place because the situation is different in every region and in every country, do you see the possibility of the extension of fraud? It is a very difficult question and one does not know. Is there an area of doubt there?

  Ms Borchmann: I have spent the last 11 years controlling EU expenditure in the different Member States and I would say there is a huge advantage for rural development. The eligibility rules are going to be clearer, which is one thing we hope for. That has been a problem in the Structural Funds, that you do not have clear eligibility rules, and then—I do not call it fraud—it becomes easier to go into the grey zone of whether it is eligible or not. There is one thing we may have to look at in world development. If you look at the Single Farm Payment scheme or the direct aids, there we have administrative sanctions so if you go out and find they have said they have so much and only have so much, you do not just do a linear cut, there is a percentage cut or sanction in that and we have not had that in the Structural Funds. It has been for the Member States to set those sanctions but many have not done that, so they have been free to over-declare and if it was found this was not correct they still got paid for what they had done. There is an area for improvement there.

  Q525Lord Livsey of Talgarth: Just a factual question: disregarding the 10 new members, what basis is the Single Farm Payment calculated on for the 15? We know what the situation is in the UK. Do many of them go on the historical basis of payments or is there a different approach on area?

  Ms Borchmann: Some of them go on an historical basis, I do not know how many it is. It is only 10 Member States who are implementing this year, there is another 10 next year and then in 2007 it is everybody. I do not know the figures but that is something we can get for you.

  Q526Lord Livsey of Talgarth: It would be useful to know what basis they are on.

  Ms Borchmann: We can get the figures.

  Q527Chairman: Time is getting on, I am afraid. Could we just talk about the further reform of CAP. Do you think that pressures on both the dairy and the cereals industries are likely to be further reforms because of the need for further savings? Particularly there is the question of the sugar reform. Do you think that committing ourselves to what has already been promised under the sugar regime is likely to be budget neutral or is it going to cost the EU more?

  Ms Borchmann: The proposal which was put forward last year from the Commission, which I know was rejected, was budget neutral. The idea is that the one which we hope to put forward after the appellate body on the WTO will be budget neutral. There is the aspect of the ACP countries, the ones that have a legitimate expectation, everybody knows they will have to be paid some compensation and that will be an additional cost.

  Q528Chairman: What drawer in the budget would that come out of?

  Ms Borchmann: There have been some proposals that it should come out of the European Development Fund but that does not seem to be very likely. The Commission has just published its annual policy strategy for 2006 and it would have to be applicable from 2006 if we do get the proposal adopted by November, as we hope to. There is

40 million foreseen for this compensation and that would come from the flexibility instrument, not from the EDF but simply from the reserve that is still in there. That is all I can say at the moment because it is still up for negotiation.

  Q529Chairman: It is not a huge sum.

  Ms Borchmann: No.

  Q530Chairman: Finally, going back to Single Farm Payment for a moment, if you were to project yourself forward to 2013, what would be your best guess of the likely reduction of the Single Farm Payment at that time?

  Ms Borchmann: I would not dare to make a guess. That would be purely a political choice and would not just come from the Commission. Obviously Chirac will not be President at the time but it depends very much on which people are in the seat at that time. As Claus said, the Brussels Ceiling was decided in a hotel in Berlin, it was not decided within a meeting room. We are talking of personalities here.

  Q531Chairman: I had no idea that Jacques Chirac had been so much the man behind this. We were told this at our previous meeting.

  Ms Borchmann: The same happened in 2000-06 in Berlin when they made the agreement, this was not made in the room, it was Chirac and Schröder going—

  Lord Plumb: And the one before that.

  Q532Chairman: That is democracy.

  Ms Borchmann: Yes, it is democracy, but you do not know who democracy will put in the driving seat in 2011 or 2012.

  Chairman: I understand that.

  Q533Lord Livsey of Talgarth: It is sometimes a trade-off between one interest and another.

  Ms Borchmann: I do not see direct aids disappearing or the Single Farm Payments disappearing as from 2014.

  Q534Lord Livsey of Talgarth: You do not?

  Ms Borchmann: No. The market measures are the ones that are under pressure but that is linked more to WTO. Like the refunds, there are no deadlines on the phasing out.

  Q535Chairman: There are no deadlines set for that?

  Ms Borchmann: No, but the deadline will be set in Hong Kong.

  Q536Chairman: Are there any more questions? Thank you very much indeed.

  Ms Borchmann: You are welcome. I am sorry Mr SØrenson had to leave.

  Q537Chairman: It has been extremely interesting. Thank you for finding the time to talk to us, it is much appreciated.

  Ms Borchmann: I will let you have something about which Member States do what.

  Chairman: That would be very interesting. Thank you.