WEDNESDAY 17 OCTOBER 2007

Dr Helen Phillips and Mr David Young

  Q160  Viscount Brookeborough: You suggest that there is a lack of statistics. What do you personally believe is happening out there, in some of the farms? I live in Northern Ireland—I accept that you are England—and we are seeing quite a big change in what people are doing. You suggest that maybe the inertia is partly as a result of Single Farm Payments. I would put it the other way: the very fact that Single Farm Payments are there is allowing quite a lot of change to take place. We are definitely seeing people go out of milk—although I think their decision to go out of milk was about two weeks before the price rise! However, people did cut down on the number of stock immediately. I accept that they may not be your statistics, but is this not happening in England and only happening with us? Or are we simply not collecting the information that we should be? Things will change, or we are seeing them changing very quickly, from the point of view that the markets have dictated that there will be 0% Set-Aside. That will produce 1.6 million hectares of extra land. This will distort all these lovely plans that people have in place for decoupling Single Farm Payments and whatever, will it not?

  Mr Young: You have rightly identified that there are significant variations in the way in which people are responding across the country. If we compare the uplands with the arable areas, for example, the capacity of the upland areas to respond to the price signals is limited by the fact that the prices have not changed a great deal for farmers in the uplands; whereas there have been very substantial changes in arable areas. On the face of it, therefore, there will be significant differences, overlaid, from our point of view, with where the environmental benefits are that we want to secure. They are often separated. We might want to secure the environmental benefits in an area where there is no incentive to change, whereas we are less interested in areas where there are major changes being driven through by the decoupling. There are these two different, competing issues. You have this floor price, if you like, created by the Single Farm Payment, which clearly buffers price signals from the market and then, in some parts of the agricultural sector, you now have these very substantial price increases which are pulling people towards changing their cropping, and things of that nature. They are complex things to model, and we are doing some work with Defra on that at the moment. As Dr Phillips said, it is very early days to be able to see where it is heading. We think that it is likely to go in two ways. One is a high degree of extensification—high volume, low inputs; and, at the other end, moving towards niche markets. We are only just picking up signals, as you are, and I do not think that the evidence base is clear in the UK, let alone across Europe.

  Dr Phillips: The other thing related to that, which is very important, is that we must not lose the support of the UK taxpayer or the European taxpayer. If they see that they are subsidising the achievement of basic operating requirements at the same time as paying a higher price for their food, it makes it rather a bitter pill to swallow. 80% of the taxpayers who live in cities and towns are getting enormous benefit from what farmers are producing. Unless we can make that very direct connection between what the money is going for and what the benefits are, we will find it very hard to support a programme for which we find it very difficult to see that, for the foreseeable future, we will not have a need.

  Q161  Viscount Brookeborough: So we have to be more flexible in the areas that we can support?

  Dr Phillips: Much more flexible, and a much more direct link about what a public pound has been spent in return for.

  Q162  Lord Plumb: Modulation is very much related to Pillar I. You want to get rid of Pillar I. You will not get rid of Pillar I until 2014, at best. I think we need to face that, because it has hardly started. A lot of farmers are just beginning to understand what Pillar I is about. A lot of people have not yet been paid. I think that it is rather early days to be saying that we get rid of something, before it has been seen to be properly operating. You want to see an increase in modulation on Pillar I. Is this fair to the United Kingdom? Is it not very much related to structure? If you take the average-sized holding in Romania, for instance—three hectares—how will that relate, if you have a modulation that is increased, to the structure of farming and to the individual farmer?

  Dr Phillips: I think that we need to take modulation as compulsory modulation and voluntary modulation. We know that Commissioner Fischer-Boel is obsessed with compulsory modulation and the increase in it, and is very anti voluntary modulation. In our view, compulsory modulation is a good thing on a number of fronts. One is that it gets more money out of the Single Farm Payment and into looking after rural development, in particular buying environmental goods and services. However, we would be anxious about compulsory modulation being sold to the CAP Health Check in such a way that it said that voluntary modulation was not required. As I have already mentioned, 50% of the Environmental Stewardship programme in England is supported by voluntary modulation. As to the funding formula—which I will not endeavour to describe to you, but no doubt David will be able to—every pound of compulsory modulation will not equate with a pound reduction in voluntary modulation—

  Q163  Lord Plumb: I accept that.

  Dr Phillips: . . . because of the complexities of the way in which it works. I think that we need to be very careful. The other thing we need to do is get away from this mantra that high levels of voluntary modulation are some kind of English peculiarity. We talked earlier about the need for a Common Agricultural Policy and, if we still believe in driving towards commons standards for sustainable agriculture across the EU, it is not a level playing field; everyone has not started from the same place; there are a lot of historic accidents as to how funding is distributed; and I think that we need to accept the reality that different economies are in a position to move at different speeds. The fact that you could have a substantial sum of voluntary modulation, with the ability to do that kind of flexing in terms of the speed at which different Member States move towards this common view, is an important tool that can be used in just that way.

  Q164  Lord Cameron of Dillington: One of the new aspects of land management generally since the last CAP reform is the whole question of climate change. It is a new card that has to be played. I wonder how you feel that any CAP reform could influence the quite considerable impact that agriculture has on climate change in terms of greenhouse gases, and whether perhaps it ought also to look at mitigation concerning the impact of climate change on the natural environment—or maybe that has nothing to do with CAP.

  Dr Phillips: Very much so. As you say, there is a very considerable impact of agriculture on climate change. It is accountable for 9% of greenhouse gas emissions across the EU and the second-highest producer of methane in the UK after the energy industry. It is a big impact. It is therefore very important that we think about what the contribution of agriculture is on two fronts. One is mitigating the rural impact in terms of contributing towards climate change. For me, that is all about sustainable practices; for instance, less use of fertilizers, more sensible use of agricultural wastes; but also thinking about what contribution agriculture can make, both in terms of mitigating and adapting to climate change. I think that there is an absolutely and utterly unique role here for agriculture; it is a very important one and one that no other sector can play. If we think about mitigation straight off, there is the better management of peat soils. We have just had a piece of work done, in collaboration with Durham University, which shows that, if you let peat soils continue to degrade at the current rate, we will have a net contribution of carbon emissions of 400,000 kilotonnes a year. Yet, if we were to embark on a programme of peat restoration, we would have a net sink of carbon of 40,000 kilotonnes a year. Peat restoration costs millions of pounds, but it does not cost tens of millions of pounds. When you come from the environmental sector, you can begin to talk yourself into what a lot of money this is. When you think about the investments in some other carbon management and mitigation measures, it is actually a very cost-effective way of going about carbon mitigation. There is also the role of adaptation. If you think about species and habitats' requirements to move in the face of new climate change scenarios, a landscape-scale response will be required. It is not just about what can be achieved on a particular farm or a particular holding; it is about how, for example, we can get wildlife corridors established in such a way that we can see migration either northwards, or eastwards, or uphill. That will involve co-ordination, joint working, and investment in it in a way that we have never invested in it in the past. If you think about the Climate Change Bill and the requirement to report on climate change adaptation every five years—a pretty mild measure but nevertheless we are glad to see it—we will have to be able to point to what some of the land use responses to that have been, and agri-environment schemes would lend themselves terrifically to making that a reality. It is something we could point to on a map that we have managed to do in terms of joining up these landscapes and these habitats. As I said in an earlier answer when I gave you what the additional requirement is, that is without factoring in that requirement. We must think about that not only in terms of the economics of CAP, but also in the economics of the investment we are making in carbon management more widely.

  Q165  Lord Cameron of Dillington: One of the problems is that food is an international commodity, and you were talking about the difference between food security and food self-sufficiency. In the future, there will be a real problem with world food security. The IPCC has just produced a report saying that northern Europe is probably one of the best places to produce food for the world because every other area will be very badly affected by droughts, flooding, storms, and so on. If we stop producing food because we have a greater priority for the environment, are we not exporting the climate change problems elsewhere? In China, the Yellow River now fails to reach the sea for a large part of the year because there is so much irrigation and production going on in that area. I think that one has to look at it in a world situation.

  Mr Young: It brings us back to our earlier point about the need for fully international standards that are accepted globally for sustainable agriculture. Simply because we do not have that level playing field at the moment, we have to be very careful that we do not walk away from appropriate standards for the natural environment in Europe. As I mentioned before, we think that there has been a very considerable effort to allow agriculture to adjust structurally to be more responsive to markets, to expand its production, while retaining those environmental standards. It is really important, therefore, that that continues to be a core part of the purposes of CAP or its successor and, as Dr Phillips said, becomes something of a blueprint for sustainable agriculture globally.

  Dr Phillips: There are the very practical things that we need to see. We could do lots about our 2010 target or our 2050 target by contracting agriculture in the UK. That is clearly not the answer if it is going to go somewhere else. However, there are at least three ways to reduce emissions: production methods with a lower greenhouse gas contribution; practices which encourage the retaining of carbon in soils; but, equally importantly, food prices that reflect the externalities.

  Q166  Lord Cameron of Dillington: Touching on another area, the question of biofuels, you talk about international accreditation, which we certainly supported in our report on that subject. How would you see that international accreditation working?

  Dr Phillips: Biofuels can make an important contribution to energy security and to environmental protection, if it is done in the right way. If we take the example of biofuels from wheat, you can see a net greenhouse gas saving of somewhere between plus-77% to minus 7%, depending on what the production pathway has been. That is just one of a number of examples. It totally underlies the fact that any accreditation system needs, for us, to be based on two central planks. One is what the total greenhouse gas coefficient is; the second is what the other elements of the sustainability of its production are, not least of all biodiversity. However, in that regard we need to make sure that we avoid production subsidies for biofuels, because, with that, we will see all the things that we do not want, such as very big monocultures of biofuels. I think that the mechanism that the EU immediately has at its disposal is to make sure that no bio-energy, other than those produced in accordance with this standard, is accepted as part of the contribution to the UK target on bio-energies.

  Q167  Viscount Ullswater: Perhaps I could go back to these agri-environment schemes. I think that originally the agri-environment policies evolved from policies concerned primarily with agricultural production. Dr Phillips, in your evidence as well as in what you have told us today, you were concerned about renting them rather than buying them. We have not moved to the stage of buying them yet. I would like to hear what you think about the future, because I notice also from your written evidence that you said that Natural England would lead on developing new agri-environmental schemes. Is your concept to develop the SSSIs, to develop the SPAs, to give your wildlife corridors or landscape features? How will you buy these? How will they be secured, in the sense of having purchased them for future enjoyment of the landscape?

  Dr Phillips: I wish I knew the answer to how to get them in perpetuity rather than rent them. I suppose that it is just being faced with the awful reality of the expiry of the classic schemes. We have had some fabulous environmental benefits from, for example, the Countryside Stewardship Scheme. Needless to say, we have to model when those schemes fall out of payment. When you look at the schemes that will be coming out and you try to see what the options are for those schemes in the future, there is only a portion of them that will be suitable for Higher Level Stewardship and some of them that will be suitable for Entry Level Stewardship. You think that there is something very wrong in a situation where, almost overnight, you can reverse the effect you will be having on that landscape. Of course that will not always be the case because, as Lord Plumb said earlier, a lot of agri-environment payments are actually about winning hearts and minds, and once these practices are established they continue. However, it is not always the case. We therefore need to give some serious consideration, in the context not only of the Health Check but of the wider suite of CAP reforms, to how we get some mechanisms to do that—but in a way that does not frighten farmers from participating in these schemes in the first place. Nobody wants to think that their land is being nationalised by the back door, but it is a ripe area for further consideration. If I understood the second part of your question about SSSIs, SPAs, and the linking of that to the climate change adaptation point, it is a very helpful prompt. We certainly do not think that the only way in which we can get climate change adaptation is by applying incentives to farmers and land managers. We were very actively considering what our role in landscape designation could be in that regard—so that we designate areas of outstanding natural beauty, national parks, and so on. They have done spectacularly well in terms of their original purpose. However, if we were to say in a similar way that we maybe should not be thinking about what some of the modern pressures and requirements of those are, are the criteria for designation actually achieving the full suite of objectives in the same way? It is not that we are suggesting that farmers should be single-handedly charging to the rescue on that, but looking at what the other options are and how we could augment and support it.

  Mr Young: Also, a key part of what we are doing is focusing on where the most important areas are that will need to be secured for the future. At the moment, the agri-environment schemes are very broad-based, but we are working with the Environment Agency and other organisations to home in on where the areas that are delivering the multiple benefits for the environment are which will be compromised by climate change or other things, for which we may need new levers and mechanisms. So we are taking some of the early first steps to try to answer the questions, I suppose, albeit we do not have the perfect answers to them.

  Dr Phillips: We share with you a frightening fact. If you look at where the rural development funding has been invested over the last programme and compare it with where it is planned to invest that money for the period 2007-13, there is quite a big mismatch. What we have done for the period 2007-13 is to take regional targeting statements, which some of you may be familiar with—it is a kind of list of everything that rural development funding could possibly do for the rural environment—and to overlay those geographically. At the end of the day, it was decided that this was a multi-objective scheme for multifunctional agriculture. You think, "This shouldn't be a slavish criterion, but it should certainly inform judgments about where the funding goes". If a key requirement of that judgment is to get the most benefits in any particular location, there is only about a 50% match between where that funding is currently going and where it will go in future. That is not to say that you could do a wholesale shift, because there will be examples, for instance, where there is a particular species or scheduled ancient monument that is out there, where there is no other benefit that will come for it and where it needs to be looked after; but if you take the principle that by and large it is about getting the most multiple benefits, there is a considerable mismatch. That has been a lot of our focus in terms of the current review of Environmental Stewardship that I mentioned, about getting better targeting of HLS and targeting geographically on ELS.

  Q168  Viscount Ullswater: Do you see a balance between the East of England and the West of England—corn and horn? Do you see an equal balance between the two?

  Dr Phillips: I am not sure I know what you mean by an equal balance.

  Q169  Viscount Ullswater: Where are you looking to improve the environment? Is it in the uplands? Is it in the West Country? Or is it in East Anglia and Lincolnshire? They are two very different environments and I am wondering where the balance might be in the funding.

  Mr Young: The targeting that we are doing is being done at both a national level and at a regional level. The sorts of outcomes that we might want to secure in one part of the country will vary from others. In the uplands, there are important areas for biodiversity protection, carbon mitigation, and so on. In the arable areas, we will obviously need to pay particular attention to things, certainly in the Environment Agency, such as water quality. We need to make sure that the targeting reflects what it is we need that land to be delivering in terms of public goods. It is also giving us an opportunity to look at what we want, as well as where the priorities should be. We are doing that both nationally and regionally.

  Q170  Chairman: Can I ask you this? You may think that it is an impertinent question, and I really want a very short answer. I think that you have demonstrated quite clearly how rural development spend can contribute and does contribute to the rural environment. Can I ask you the question the other way round? How does agri-environment spend enhance rural development?

  Dr Phillips: There is some pretty compelling evidence about prosperous rural environments being dependent on high-quality environments. At the risk of being equally impertinent, I would move beyond the rural to the urban, because I think that we get very fixated about this being money for rural communities. We need to link it to the fact that it is a benefit more for urban communities often than it is for rural communities.

  Chairman: Thank you very much indeed. It has been a great pleasure.