Mr Wladyslaw Piskorz, Mr Dariusz Laska and Mr Wieslaw Moldawa

9 MARCH 2005

  Q660Lord Plumb: You said that prices had risen by 50 per cent. From what to what?

  Mr Piskorz: The prices for milk have increased by 30 per cent, but they are still about 10 to 15 per cent below the prices paid in Germany. It means that we are not yet at the EU average. The prices for beef are still about 20 to 25 per cent lower than most of the EU-15. The reason why the milk prices did not align is because milk production is concentrated on the east part of Poland, so the transportation costs are quite high. In the western part of Poland, the German dairies are coming and buying our milk, but there is not much milk produced. It means that prices remain lower. It means that there is room for manoeuvre and prices may increase. The other side of the situation is that prices of consumer goods and of food have increased. This was one of the impacts of our accession to the EU.

  Q661Lord Lewis of Newnham: Thank you very much indeed, Minister Counsellor. I found your summary extremely interesting. Perhaps I may ask a supplementary question which, from what you have just said, I think that you will find difficult to answer. What sort of percentage of your population is involved in farming?

  Mr Piskorz: There are different estimates. In the past, the statistics showed that 25 per cent of the total labour force were engaged in agriculture.

  Q662Chairman: 25 per cent?

  Mr Piskorz: 25 per cent. However, if you calculate how much time people are working on the farm and count this in terms of a full-time work force, then this figure will be reduced to 16 per cent. This is still a lot, if you compare it with the share of agriculture in the gross domestic product, which is below 3 per cent. Sixteen per cent in employment, 3 per cent in GDP, means that the productivity in agriculture is very low. In general, I would say that this is very inefficient. There is one other astonishing figure. You see Poland as a big agricultural country but, if you look at the value added created by Polish agriculture, it is comparable to the value added created by the agriculture of Greece—which is a much smaller country, and with more severe conditions for agriculture.

  Lord Haskins: In the context of Romania's figures, it is 60 per cent rural—four times the Polish figure.

  Q663Lord Lewis of Newnham: Perhaps I could continue with the point that my Lord Chairman has been making. If there are strains on the agricultural budget, where would you expect the main pressures to come from?

  Mr Piskorz: I think that we will face the difficulties, the debate, which you also have in the UK. Our farmers do not want direct payment, single farm payments, to be cut. It is easier money, it does not require co-financing, and there will be pressure. For us, the government will not support this. We were observers when the reform was decided in Luxembourg, and it was decided to introduce modulation—to lower direct payment in order to increase rural development money. We would not see a reduction of rural development as justified. There is a discussion in some old Member States about the possibility of introducing co-financing of the direct payments. We do not think that this is a good idea, but in fact 10 new Member States apply co-financing of direct payments. Poland has added from national budget to the direct payment in 2004 the same amount of money which we received from Brussels. So it means that, in effect, we are doing that national co-financing. I think, though, if we need to reduce EU budget, this will be a big loss for the entire EU because the enlargement of the EU was a big historical achievement for the EU and now we are saying we would like to have enlargement for a very low price. It is not compatible.

  Q664Lord Haskins: You probably heard us say that we visited Dr Fischler yesterday. He made three points which I would like to pursue. First of all, he said that he did not think a lot of the problems you were talking about relating to Eastern Poland and Southern Poland are best dealt with through the CAP. He said categorically the CAP reform is not there in the business of dealing with that. Secondly, he said very controversially that the new countries—something which surprised me—were getting a better deal than Spain did 20 years ago. I would like you to comment on that. Thirdly, as part of all that, in the negotiation of the budget are you not best interested to be looking at reforms on the non CAP side, in other words the structure of funds? They are the ones that you really must hold on to, because I firmly agree that the transfer of funds from the richer states to the new states has got to be a fundamental part of the budget, but that is best done outside the CAP rather than inside the CAP?

  Mr Piskorz: Thank you for those questions. I could agree that we will not be able to solve this problem which we have in rural areas in Poland only on the basis of the support for rural development, because, as Sophia Davidova said, rural development is first pushing on agriculture. The Commission is saying this is a second pillar of CAP, and you will find very little measures, instruments, which are supporting non-agricultural activity and this is witnessed. In many Polish rural areas we do not have to find the future for those people in agriculture, we need to provide jobs outside of agriculture, and with the rural development it will not be possible and it will not be easy. But, coming back to Mr Fischler's statement, please recall that this was Mr Fischler's proposal for the new Member States to offer support for so-called semi-subsistence farms up to 1,250 euros per year over five years for farms which will make the transition from semi-subsistence into commercial. We have already received 57,000 applications for such support, but from the economic point of view it is not sustainable. If you have a farm with two or three hectares, they will receive, over five years, 1,250 euro. Do you believe that they will make the transition into commercial farm from three hectares? This is not realistic. Usually it may be necessary to increase farm size up to 100-150 hectars in order to recognize it as viable. It means it was the kind of social support in order to prolong the existence in the sector. Therefore Mr Fischler's statement, I think, reflected that with this instrument we will not restructure agriculture—that is true—and the Polish Government's position is that the solution for the problems in the rural areas are not within agriculture. This is depending on the performance of the economy. This is where we are focusing, and we are observing that accession to Europe gave impact to the Polish economy. The Polish economy is developing. In 2004 the gross of the domestic product increased by 5.4 per cent, and the European Commission predict that in this year it will increase above 5 per cent and this rate will give some hope that we will be able to help also rural areas.

  Q665Chairman: Thank you.

  Mr Piskorz: I did not answer it actually about the constraint in the budget also. It is right that we are very intensively discussing on the structure of farms and how the EU support for agriculture should be used, what instruments should be financed. This is our focus and we try to involve the stakeholders on this. I would like to say that we did not lose time like some other countries in the first year of accession. We already absorbed a lot of the money available for structure funds; we already absorbed a lot of money available for CAP. I am not able to compare the conditions for us with the conditions given to Spain. You remember that we were not happy during the accession negotiations that the conditions that were given to us in the accession negotiations, but at the end of the day, I think, we came to the conclusion that it is still better to be absorbed in the European Union under the Common Agriculture Policy than being outside, because the solution at that time was either we wait until you will be able to provide us full direct payments—nobody knows how long we have to wait—or we join now and be part of the club, and we decided to be part of the club.

  Chairman: That is a good answer. I think we will move on to the Single Farm Payment now for a moment or two. Lord Plumb.

  Q666Lord Plumb: Firstly, Lord Chairman, may I say you have joined at a most interesting time. To become a member of the Club of 25, I think, is not only interesting, but obviously, you have said already, it is proving to be beneficial. I know of the very warm welcome Poland has received in joining and I certainly personally join all those who offer such welcome. You therefore have the ten-year period before you are fully in from the CAP point of view. We went through that sort of period in this country. When we joined we took six steps in five years getting away from the system that operated at that particular time. You are in a different position because of the number of people involved, and so on, and you have already said it is most interesting. The single farm payment is of importance to Poland as it is to everybody else. Do you therefore see this as a permanent feature, or do you see it as part of the transition?

  Mr Piskorz: I have to say that even before the Single Farm Payment was decided in Luxembourg new Member States were offered a simplified area payment scheme. At that time nobody was sure that a similar system would be decided for the EU 15, for other countries. We decided on this simplified payment because it was easier for us to implement CAP, and it was good for us that later the EU decided to apply a system which is similar to a simplified area payment scheme. Therefore, for us it was also important that we did not have huge support for agriculture before joining the EU, and, if we were to introduce support, it is good that it was possible to introduce decoupled systems. Our position is that we will need cash, a flow of money to the farming sector for some years in order to give impetuous for the development of rural areas. Therefore, we hope that the Single Farm Payment will be a stable instrument supporting agriculture. It is something new for our farmers; that is true. I myself met many farmers before we joined the EU, and some traditional peasants did not trust it, they did not believe that anybody would give them money for free—it was never in the past, so this would not be in the future—but this is the reason why we have seen such a radical change in the attitude of farmers towards the EU. When we had the accession referendum in 2003 only 40 per cent of farmers were in favour of accession to the EU. Now opinion polls are showing that this figure is 75 per cent. I think it was important for the political situation because we had a very strong political grouping which was against our membership of the EU and now is losing support.

  Lord Haskins: Which means you win the referendum vote!

  Q667Lord Livsey of Talgarth: First of all, Mr Piskorz, I am very pleased to meet you. I come from an area of mid Wales where almost identically the same number of people (16 per cent) work on the land or are associated with agricultural industries; so in asking you this question I can almost anticipate your answer. We have received evidence suggesting that there might be scope for greater modulation from Pillar 1 in order to support Pillar 2. Do you believe that this is a realistic thing to do given the historical resistance to reductions in Pillar 1 support?

  Mr Piskorz: We were upset when in Luxembourg it was decided about modulation. We were hoping that money from modulation would be distributed in order to help those who have the biggest needs, but the decision was that 80 per cent of money will stay in the countries from which it was generated, and now some Member States are saying that rural development money is not for cohesion objectives so it should not be redistributed. Either the modulation will lead to such a result as it is now. Probably Poland will not object to this. For us it will be probably be easier to promote rural development as we now see positive results of investment in rural areas. I mentioned SAPARD. Fifteen thousand farmers have benefited, but there are another 15,000 beneficiaries, mainly in local rural areas, and you start to see the results because you see the sign with the EU, you see better roads and it means that there is a bigger support for investment, for the wider community, not only for farmers. The farmers are benefiting from better prices, from direct payments, and therefore I think we are not so heavily dependent on that support. We are in that particular situation because as a result of negotiation our farmers are every year receiving more direct payment from the EU.

  Q668Countess of Mar: Do you believe that it is possible to include Bulgaria and Romania in the proceedings set in 2002 or should further funds be made available?

  Mr Piskorz: Following from the position that we should find additional budget to include spending for Pillar 1 for Bulgaria and Romania, as it is clear that in 2002 it was not included, the Commission did not include it, the spending necessary for Pillar 1 for Bulgaria and Romania, otherwise we will face serious problems, there will be bigger needs for applying financial discipline. As you know, new Member States are exempt from financial discipline until they reach the EU level of direct payment, but after 2015 the cuts will be very serious also for us, and I would like to repeat my statement that enlargement is such an important political historical event that we should not have behaved like an accountant. We are all benefiting politically and economically from enlargement and we should not try to squeeze the budget.

  Countess of Mar: Thank you very much. That is an interesting view on it?

  Q669Chairman: You said Minister Counsellor that it is clear that the funds for Bulgaria and Romania were not agreed in the 2002 ceiling. Is not that the problem at the moment, that it is frankly unclear whether this 1.1 billion euros a year was in the 2002 ceiling or not? This is unfortunate, but I think there are those who think it is clear?

  Mr Piskorz: My understanding is that the Commission did not include it in the calculation, the spending necessary for Bulgaria and Romania, but I think the best way is to clarify this with the Commission.

  Q670Chairman: It is quite a big figure to be unclear about.

  Mr Piskorz: Yes.

  Chairman: Before we get on to rural development again, we are going to have a question on the Doha round from Baroness Maddock.

  Q671Baroness Maddock: Minister Counsellor, we are wondering what you expect will be the outcome of the Doha development round, particularly as far as the European agricultural sector is concerned? Secondly, do you think that the eventual agreement could lead to further modification of the Common Agricultural Policy and do you think that perhaps this might have budgetary advantages?

  Mr Piskorz: Our position is that the European Union with the reforms of CAP in 2003 and 2004 made a very good position in the Doha round, and we are told by the Commission, and we believe that this is the case, that those decisions should be sufficient to meet the requirements of the Doha round agreement, with the exception of sugar which is now debated and we hope to get the agreement reached before December. There is one sector where we are not sure what might be the consequences. Part of the deal would be the gradual removal of export refunds. In the milk sector export refunds are playing an important role. If there will be no export refunds for the dairy sector, there will be a significant surplus of dairy products on the EU market and then a reform might be unavoidable, but other than that we see there is no need for an order of reform because of Doha.

  Q672Chairman: Are you hopeful—and I think my colleagues were talking to Dr Fischler about this yesterday—about the position of the United States in relation to the Doha round, the WTO, that it might be possible to persuade them to take a different view about subsidy and access?

  Mr Piskorz: I know that the position of the European Union is that there should be a parallelism between the removal of exported refunds and the removal of other instruments facilitating export—like export credits, and it will not be easy for the Americans to meet this challenge. Therefore, I think our decision to remove the export subsidy will be spread over time. I do not expect that our partners will challenge our Single Farm Payment. It was prepared in the way that it should meet the requirements of green box

  Chairman: Thank you. We come back, finally, to rural development again for a few more questions. Lord Sewel.

  Q673Lord Sewel: I fully understand your emphasis on rural development and the need for rural development to reduce the agricultural sector and the agricultural workforce. What I cannot quite get hold of is the extent to which rural development under Pillar 2 will help you achieve that objective, because it seems to me that your problem in scope and scale is so much greater than anything that Pillar 2 would enable you to come close to. In general that is my question, but there is a specific element which is what will you use Pillar 2 rural development for? What are the sorts of projects that you think are useful?

  Mr Piskorz: My Lord Chairman, I agree that the range of instruments available within rural development is not adjusted to the specific needs of rural areas in new Member States and rural development is still focused as a second Pillar of CAP and linked with agriculture. At the current programme period we observe a big interest in investment in farms and investment in food processing but specifically in adapting to the EU standards in the area of food safety. There are big needs also in investing in meeting standards. There is a special instrument available for new Member States and during the last six months, since the starting of the rural development programme, we already received 55,000 applications for instruments meeting standards. It means those are the measures like helping farmers to protect the leaking of sewage into the soil, to improve buildings for animals in order to meet the requirements of the directives, and so forth. We have a very big interest also on this one instrument in rural development. Support for less favoured areas. There are 628,000 applications for less favoured areas currently.

  Q674Lord Sewel: Applications?

  Mr Piskorz: Applications and payments.

  Q675Chairman: Individual applications?

  Mr Piskorz: Yes.

  Q676Lord Sewel: That beats the Highlands of Scotland.

  Mr Piskorsz: And there may be other figures. We actually have an absorption capacity for rural areas.   We received 23,000 applications for early retirements, we received 22,500 applications for young farmers, first-time young farmers, so it is evidence that we are able to absorb, even if this has not always been solving our problem. I have to add one thing which is not related to the EU. We had an instrument to support farmers with a state subsidy for farmers' social security and pension. From state budget we are spending on this more than three billion euro per year. Three billion euro is four times more than we are receiving as a Single Farm Payment from the EU, and this is done in order to support a minimum level of income for pensioner farmers, and this is a kind of social security. There have been, as you illustrated, almost two million farmers, small farm. They were not able to contribute to the pension fund because their income was very low. Now, 95 per cent of the cost of the pension and retirement for older farmers are subsidised from the state budget.

  Q677Lord Sewel: Given the scale of the restructuring that you are clearly aware of and grappling with, you have actually got to be very careful how much money you put directly into agriculture, have you not, because you run the risk—and I think this is what the previous witness was hinting at in some ways—of fossilising and slowing up adjustment rather than facilitating adjustment. I suppose that really depends what the rest of the economy is doing.

  Mr Piskorz: I agree with you, and even some instruments offered for the new Member States will have the impact of slowing down restructuring. If you are giving money for semi-subsistence farms it will help them to stay a few years more in the business. Normally they will go out, but this is a kind of social support, because we are not ready with the jobs for those people and it is better socially to keep them as farmers then keep them on the street. I would have to say that peasant families are sound families: they take care of children, they have good neighbourhood relations, and so on, and this is important. We have serious problems with the former workers of state farms in some places. If state farms collapsed, all the people lost jobs, and in those villages, cities, the state farm collapsed 13/14 years ago, but there are still people in poverty there and it is catastrophic. There are a lot of problems. It is much worse than in the small peasant farms which are not efficient, but they live decently.

  Countess of Mar: The social benefits.

  Lord Livsey of Talgarth: Social cohesion.

  Q678Countess of Mar: Can we go back to the Doha question for a moment? One of the things we heard when we were in Brussels last week, quite frequently, was that the payments were to compensate farmers for having to meet higher standards for animal welfare and environmental factors. Are you going to be able to meet these standards in time to be able to cope with Doha, the competition from Brazil and that sort of thing?

  Mr Piskorz: New Member States have this system of a simplified area payment scheme, and they could apply the system up to five years, which means up to the end of 2010. During this time the obligations apply from the accession treaty, which means they should only make sure that the land is kept in good agricultural condition respecting the requirement of environmental protection. The cross-compliance obligation will be obligatory at the end of a simplified area payment scheme. If you will decide to keep this simplified area payment until the end of 2008 it means that the inspection on cross-compliance will be obligatory from 2009. We are starting to prepare for this already now because we have to have an inspection system verifying if farmers are respecting those 18 directives, but we will need to have inspection in almost 20,000 farms and this will be an enormous undertaking for us. As part of the negotiations we received a transition period for farmers to adjust to the requirements of the directives in the dairy sector, and this was three years. We have 380,000 farmers which are selling milk and a big part of them benefit is from that transition period, and so the sum of money from rural development is going to those farms helping them to adjust, but there is also a lot of deadlock, as Sophia said, because we invest money in the small farms with three, four cows, but it is not sustainable. They will have to go out anyway.

  Chairman: That is a very interesting story you tell, and, indeed, quite reminiscent of France perhaps. Lord Haskins.

  Q679Lord Haskins: I think you have answered the question I was going to ask you about the national capacity to take up the scheme. You have done that more, perhaps, than other members have done and so I leave that to one side. Can I come back to the budget. The budget is going to be very controversial about how it is going to be settled. One option that is being considered, and Dr Fischler was sympathetic when we mentioned this to him yesterday, is the possibility of re-nationalising Pillar 2. I know the new countries are very anxious about that, but if there was an adjustment in structure and cohesion funds to compensate, it has a lot of attractions from our point of view, but it would be a way around getting out of the rebate problem that we have, and, as long as the interests of the new countries were not disadvantaged by repatriation, would you have any difficulties?

  Mr Piskorz: For me this is a difficulty in the capacity of the presenting of Polish authorities to have their statement on this. I will still stick to the official position that we are not considering the changes which have been agreed in Luxembourg in 2003.

  Lord Haskins: That is a very revealing answer. Thank you very much.

  Chairman: Do you want to come back on that?

  Lord Haskins: No, I think the answer Mr Piskorz gave is exactly the right answer. It was an encouraging answer.

  Chairman: Countess of Mar, do you want to come back on rural development projects?

  Countess of Mar: I think the question has already been answered about the infrastructure. It is very clear that you are happy with the infrastructure and you are doing very well.