INTRODUCTION

  1.  NFU Cymru represents the majority of farmers in Wales and has some 15,000 members. We are pleased to be given the opportunity to submit written evidence for the Committee's consideration. This submission deals with the issues raised by the Committee, in chronological order, and are given from a Welsh perspective.

OVERVIEW

  2.  The CAP was introduced with a view to providing food security and ensuring a fair standard of living for those who derive their income from the land. The objectives of the CAP are now, in our view, much broader and complex and involve in combination, issues of food, energy and environmental security. In order to deliver on these wider facets, there is a need for a broader and more flexible approach, but which does not detract from the need for simplicity, and a common and consistent approach to its application. NFU Cymru considers a fair standard of living still to be an important objective and it is a matter of concern that profitability and viability in the livestock sectors is under severe pressure with implications for infrastructure and the wider rural economy.

  3.  In the longer term, provided the industry can survive the financial strain, then economic growth particularly in Asia and the growing demand for energy has the potential to strengthen the demand side of the demand: supply ratio. It is important however that during the interim, the productive capacity of the farming industry in Wales is not compromised.

  4.  In terms of the main pressures on the CAP, NFU Cymru considers that the budget will continue to be an issue with the ever increasing size of EU; the diversity of Member State interests and needs will be a challenge in policy terms; demands for greater subsidiarity to meet Member States diverging interests have the potential to distort competition and maintaining production levels to take advantage of expanding markets whilst respecting environmental obligations will be testing.

THE REFORMED CAP

  5.  NFU Cymru supported proposals to decouple payments from production during the 2003 CAP negotiations. This has now provided farmers with greater freedom to farm and made market prices more transparent but has placed the EU in a stronger negotiating position in terms of the WTO. NFU Cymru was a strong advocate of decoupled payments being made on an historic basis and applauded the Welsh Assembly Government's decision to adopt this approach, which generally has served the industry in Wales well. Single Farm Payments have been made early in the window for payment since the introduction of the SPS and most of the difficulties have arisen for cross-border claimants where the Welsh Assembly has had to resolve issues with the RPA. NFU Cymru supports the continuation of the historic approach.

  6.  NFU Cymru is concerned that the RPA's performance in England has exposed the UK to the risk of budgetary disallowance, the ramifications of which are bound to impact on Wales, despite the fact that the Welsh Assembly's performance in terms of making payment has not been found deficient.

  7.  Severing the link between production and payment means that the inadequacy of market realisations is more visible and farmers are no longer prepared to cross-subsidise low market prices with production support. There appears to be a tardy realisation amongst food processors and retailers that future supplies will be contingent upon farmers being able to make a reasonable profit on their produce that allows them to reinvest for the future.

THE SINGLE PAYMENT SCHEME

  8.  NFU Cymru considers the Single Farm Payment as a non trade and market distorting policy is a good basis for the future of EU agricultural policy. NFU Cymru believes agriculture as an industry to be strategically important and deserving of a dedicated common agricultural policy but acknowledging that it delivers on wider social, economic, environmental and cultural objectives.

  9.  Next year's CAP Health Check will be an opportunity to ensure that those Member States who are continuing to operate coupled support implement the spirit of the reform agreement. NFU Cymru also sees this as an opportunity to iron out some of the unnecessary complexities that currently surround the regime, particularly in terms of cross compliance. The Council of Agriculture Ministers in June 2007 adopted EC proposals, to allow tolerances for minor non-compliances, the closing of files without further inspections if farmers take immediate action to rectify minor breaches, scope for participation in assurance schemes to determine selection for farm inspection and abolition of the 10 month rule.

  10.  In the context of the 2008 Health Check, NFU Cymru is seeking:

—  The abolition of set-aside which is inconsistent with the move to a decoupled system.

—  An increase in the financial ceilings to provide entitlement for fruit, vegetable and potato growers now that the negative list has been removed.

—  Abolition of partial decoupling.

—  A consistent approach to the minimum area eligible for Single Farm Payment, Tir Mynydd (LFA) support (increased from 0.3 hectares to 6 hectares)

—  To resist capping of support which ignores labour employed and would merely lead to a legal division of holdings.

—  To oppose voluntary modulation which discriminates against farmers in Wales vis a vis their European counterparts.

—  To have the exchange rate for the calculation of Single Farm payment into sterling based on the average for September rather than on a single day, given the vagaries of financial markets.

MARKET MECHANISMS

  11.  NFU Cymru considers the 10% rate of compulsory set aside should be abolished as a further move towards a market orientated CAP and as a major element of simplification given the added complexities of set aside entitlements.

  12.  The EC has signaled that milk quotas will not be extended beyond 2015. NFU Cymru believes that there has to be a transitional period agreed as part of the 2008 Health check during which the dairy industry can adjust to unfettered production.

  13.  The EU is committed within the Defra round to eliminating export refunds by 2013, whilst this is unlikely to have direct implications for producer in Wales, in terms of beef production particularly, there is the potential for the home market to become depressed, if production as a result of beef from other countries which would normally have been sold to Third Countries with export refunds, remains on the EU internal market. NFU Cymru can see the need for private storage aids to continue as a management tool and to provide short-term relief in exceptional circumstances.

RURAL DEVELOPMENT

  14.  The Welsh Rural Development Plan has been submitted to the EC but remains to be approved.

  15.  The UK's allocation, some 3.5% of the EU rural development budget, is abysmally low and is reflected in the allotted amount to Wales.

  16.  This budgetary deficiency is reflected in the need to raise voluntary modulation over and above that which is compulsorily levied by Brussels. Whilst we welcome a devolved approach to setting voluntary modulation, which is consistent with devolved RDP's within the UK, we are opposed in principle, to the provision for voluntary modulation which leads to the distortion of competition. NFU Cymru is firmly of the view that if the decision to raise the level of compulsory modulation at an EU level is approved, then a commensurate reduction in the level of voluntary modulation raised in Wales should be effected.

  17.  NFU Cymru has been concerned that increasing amounts of money modulated from Pillar I (direct support payments to farmers) have been shifted to pillar II funding (Rural development money) and which is leaching away in favour of non-agricultural activity because of the minimum spends dictated by the EU under the various axes. Over 80% of Wales is designated Less Favoured because of the permanent physical handicaps of farming these areas. 46% of Wales is already subject to agri environment schemes/environmental designation which inevitably places a significant demand on axis 2 (land management) measures. Commitments to axes 1, 3 and 4 inevitably limit the availability of funds for land management measures.

  18.  Agriculture remains the core activity in rural Wales and supports the rural infrastructure. We believe allowing Pillar II resources to filter down to rural communities and businesses is a more efficient method of cascading down limited financial resources.

  19.  As a general point we believe that since all farmers are modulated, they should have equal and fair access to all monies delivered under the RDP without the prospect of these funds being dissipated.

  20.  Voluntary modulation was "sold" to the industry on the basis that there would be Treasury match funding and it is essential that Treasury continues to co-fund these receipts given the inadequacy of the UK rural development allocation.

WORLD TRADE

  21.  NFU Cymru believes that agriculture will end up the "sacrificial lamb" in the current round of WTO negotiations. In the process of trade liberalisation the EU is committed to eliminating export restitutions and the likelihood is that import tariffs will be further reduced thus opening up our markets to cheap imports that may not be produced to the same exacting standards. The gains to the EU economy are likely to fall outside agriculture.

ENVIRONMENTAL PROTECTION

  22.  Both agri-environmental schemes such as Tir Gofal and Tir Cynnal, in addition to cross-compliance measures, have contributed positively to environmental protection.

  23.  Some 46% of Wales is now covered by Wales" equivalent of the Countryside Stewardship Scheme, Tir Gofal and by its entry level scheme, Tir Cynnal and the Organic Farm Scheme. These measures are currently under review in the context of an evaluation of axis 2 measures in Wales. We believe that these schemes can be used to preclude further prescriptions being imposed on the industry as a result for example of the Water and Soil Framework Directives.

  24.  Whilst the scope in Wales for growing and harvesting energy crops for biofuel is perhaps less than in the other constituent parts of the UK, Welsh agriculture has a role to play in the mitigation of climate change and the control of green house gases. NFU Cymru believes that agriculture can contribute in terms of carbon sequestration and in terms of renewable energies such as wind turbines and combined heat and power plants on farms.

FINANCING

  25.  It is understood that there will be no changes to budgetary commitments agreed in the 2003 reform agreement and that the 2007-13 Financial Perspectives will not be altered. NFU Cymru is however, concerned that the need to fund the cost of Single Farm Payments in New Member States may trigger degressivity at some stage depending on the degree to which market support measures under Pillar I are utilized.

  26.  We have alluded previously cf paragraph 15 to our concern at the inadequacy of the funds based on historic allocations that have been distributed to the UK and subsequently cascaded down to the Welsh Assembly Government. The position has been exacerbated by the fact that the percentage allocated of some 3.5% was based on a significantly reduced EAFRD budget for the current programming period. This has resulted in Government subjecting domestic farmers to a rising plane of voluntary modulation with Welsh farmers facing the prospect of a combined rate of 11.5% modulation in 2011, placing them at a competitive disadvantage to their European colleagues who, with the exception of Portugal, are not subjected to this mechanism.

  27.  NFU Cymru has strong reservations about co-financing as a means of making good any EU budgetary deficiencies. It would, in our view, be difficult to get political agreement to and voluntary co-funding would result in the distortion of competition between Members States, thus undermining the whole concept of a "common" agricultural policy.

ENLARGEMENT

  28.  The accession of New Member States in 2004 and 2007, has had the effect of diluting the funding that is available to member states of the Enlarged Community but set against this has been the development of markets for high quality products. One of the most evident outcomes of Enlargement has been the availability of migrant workers particularly from Eastern Bloc countries.

SIMPLIFICATION

  29.  NFU Cymru's comments in respect of the 2008 CAP Health Check detail where the burden of regulation could be reduced and simplified.

CONCLUSION

  30.  We hope that the Committee finds this evidence helpful and would be pleased to present oral evidence should the Committee consider this appropriate.

12 October, 2007