WEDNESDAY 5 DECEMBER 2007

Mr Walter Duebner

  Q403  Chairman: Thank you very much indeed for finding the time and coming to talk to us and helping us with our inquiry. Can I explain what we are doing? We are a Sub-Committee of the House of Lords Select Committee on the European Union. We are carrying out an inquiry into the Health Check and also looking beyond the Health Check into the future of the CAP. Technically this is a formal evidence taking session, so there will be a transcript of the proceedings. When we get back we will give you a copy of that when it is available and you can revise it in terms of any errors or mistakes. Thank you very much for coming. The best way is if we just have a conversation across the table. We have got various questions we would like to cover, if I could start. Your minister was saying that German agriculture is "booming" but just about everybody is booming at the moment, are they not. Could you give us an idea of how Germany implemented the 2003 reforms? The boom is partly a function of world prices and a fact of what has happened to commodity prices in the world, but have those reforms and the way you implemented them enabled you to take advantage and have they contributed to the boom? Are there losers as well as winners in Germany in terms of what has happened?

  Mr Duebner: Thank you, my Lord Chairman, for giving me the opportunity to highlight the German position on the Health Check and other detailed questions you will ask. In answer to your first question, I was quite impressed with how intensively you read the speech of my minister. I must say that he did not make any link with the 2003 reforms in his speech. It was at the Farmers' Day of the Farmers' Union, which is a great event in Germany every year, and he highlighted, naturally, the efficiency and great efforts of German farmers. He mentioned the reliability of the government and its performance during the German Presidency, which was the main point. The 2003 reforms were adopted when Mrs Künast, a Green minister, held office and we implemented the elements of these reforms very early starting on 1 January 2005. That means we decoupled nearly all premiums from the very beginning. We had a very complicated decoupling model. The starting point was the so-called hybrid model which you apply in Great Britain as well.

  Q404  Lord Cameron of Dillington: I hope yours is more successful than ours!

  Mr Duebner: I had to read it again yesterday to be able to give you some more detailed information on how we implemented it. First, the premium for arable crops was transferred to the arable areas of the regions. In total we have 13 regions. The slaughter premium for cattle and other minor premiums were transferred to the grassland regions and all other premiums in the animal sector were transferred directly to the farms on an historical basis. These entitlements were equally distributed in relation to the hectares of the farms. That means that the system leads to different payment entitlements per hectare for each farm in the starting phase. We want to abolish these different payments in the second phase from 2010-13. The aim is to establish a so-called regional model with a unit payment entitlement per hectare for arable land grassland in every region. In addition to that, the different levels of payment entitlement from one region to another will be aligned. We have some regions with very high entitlements and other regions with lower, so we want to align them.

  Q405  Chairman: Is there a connection between those sorts of reforms? As you said, your minister did not make the connection but do you think there is a connection between the reforms you made and the boom in German agriculture? Were the reforms helpful for the economic development of German agriculture or completely separate?

  Mr Duebner: Mostly it is separate. The minister did not say anything about that, that is my personal opinion, but the farmers got a lot more market oriented with this reform. In all sectors you have world market prices more or less, especially now in the cereals sector, and you have another production line which are the renewables, the non-food commodities. In the US, for example, a third of the maize production is used for renewables so there is an immense increase in prices on the world market in these cereals. That is the main point.

  Q406  Chairman: Winners and losers?

  Mr Duebner: My Minister did not talk about this. Do you want my personal opinion as to who are the winners and who are the losers?

  Q407  Chairman: Just give us some idea if you can.

  Mr Duebner: It is quite clear that specialised farmers in the intensive production of male bovines and cows in regions where arable land is dominating will lose money because it is put on the arable land. On the other hand, extensive production systems on grassland where there have been no premiums before will be on the winners' side. That was wanted by the former government. The timescale for the implementation of the regional model has been chosen very carefully to enable the farmers to adapt. This will have an effect only from 2010-13. At the moment farmers do not feel this decrease in premiums because that will be in the second phase.

  Q408  Earl of Arran: Understandably you have got concerns about the capping of Single Farm Payments, particularly from the point of view of the former East Germany farms, et cetera, where unemployment is already high. Do you have particular worries or situations which you are sceptical towards or, indeed, positive towards?

  Mr Duebner: First of all, I must say we have the impression that we are heading in the right political direction. That is what the minister said in the Council last week and we want to stick to this direction because we think the reforms will strengthen the competitiveness of the European agricultural sector. The Health Check should fulfil two main tasks. First, it offers a good opportunity to eliminate certain deficits which arose during the implementation of the agricultural reform and, second, it should be used to free farmers and the administration from further red tape. We made an attempt during our Presidency in this direction concerning cross-compliance and we want to carry on with this path. We consider the idea of capping payments based on farm size to be unacceptable. Germany would be the main country affected and the effects would be very considerable. The rates of reduction discussed would cost the larger holdings in Eastern Germany approximately €300 million in income. This would mean they would have to bear almost half of the cuts in the whole of the EU. Approximately 5,700 holdings would be affected and 96% of these are in the new Länder, the eastern part of Germany. We would endanger a large number of jobs in areas which are already structurally weak and that must not be our aim. The cuts in direct payments also go against the principle of a regionally uniform area premium and the aims of the 2003 agricultural reform, a principle which is accepted in Germany and is finding increasing acceptance throughout the EU, as I have already explained. Under these aims the area premiums should also be granted as compensation for general farming stipulations which go beyond the international standard and as remuneration for the fulfilment of social requirements. That is the main point. These are the arguments to say that capping is a no-go for us. As I understand from David Barnes, you are thinking in the same direction.

  Q409  Chairman: It is a slightly different argument but it comes to the same conclusion.

  Mr Duebner: We have another problem with modulation. You are more in favour of modulation than we are. We do not want to call into question the high status of the second pillar of the CAP but we must weigh up some different considerations. On the one hand, the second pillar would profit from the modulation being increased but, on the other hand, the increase of modulation to almost three times the amount would cut funds for holdings in Germany by an additional amount of approximately €375 million. That is €300 million through capping and €375 million in addition concerning modulation. Another aspect is an increase in compulsory modulation would bind further national co-financing funds. With this in mind we reject the increase in modulation for the current fiscal period proposed by the Commission but should an increase in some form be unavoidable the funds would have to be used for agriculturally linked measures and the returns to the Member States would have to amount to 100% and we would have to be assured that the Member States will not be subjected to additional burdens arising from co-financing.

  Q410  Chairman: Would it not be sensible in terms of the eastern Länder where you have still got problems of agricultural and structural reform to actually go down the second pillar route because it would give you more opportunities to fund rural development in the eastern Länder rather than putting it directly into agriculture?

  Mr Duebner: We have already spent a lot of money in Eastern Germany and if the industry does not want to invest you can spend a lot of money from the taxpayer and the result will not be very satisfactory. We think that additional money will not solve the problem. It is better to keep the money on the farms because sometimes they have more employees than they would need if they had a sophisticated structure. (The answer continued off the record)

  Q411  Lord Plumb: I just wonder, my Lord Chairman, on that last point, which is very interesting, if I could ask a question. In the light of the development of some of the large co-operative farms in East Germany, and you said you are against capping and I was delighted to hear you say that, you are going to retain those farms and not split them up because not capping will help those larger farms and yet see more developed. Is that the way the structure of farming is going if that is the situation? Relating that to modulation, you said that our Government was in favour of modulation but that is voluntary modulation, of course, not compulsory modulation, and there is a vast difference. Taking evidence from the people we have been taking evidence from, there are those who see this as a hindrance and those who see it as a help, particularly those who see an advantage in moving money to Pillar II, which is an issue that I think we need to discuss with you because it has been very much an issue in the evidence given. On the Single Farm Payment, you have already referred to the fact that decoupling in the medium-term is on the way and you want to see decoupling continue, and that I can well understand in connection with the reform itself. Is this the end goal, total decoupling? Do you see that as a matter that we should strive for in other countries? In that context, may I ask how you see the balance of agriculture because decoupling to the arable farmer at the moment would be entirely satisfactory because of the current price of grain but in our country it is the livestock farmer who is suffering, and suffering very badly, because of the total imbalance in the whole of agriculture which has suddenly happened.

  Mr Duebner: Concerning decoupling, we want to decouple all the premiums because we need equal terms of competition for all Member States, especially in the animal sector where a lot of premiums are still coupled in other Member States. In Germany we only have a few specialised sectors, like potato starch, dried fodder and tobacco, which are partly coupled; all the other products are decoupled.

  Q412  Chairman: Are you still doing tobacco?

  Mr Duebner: Yes, there is production in Germany. We are checking with the sector as to how we can decouple these aids in the medium-term.

  Q413  Chairman: You would like to see other Member States going in that direction as well to decouple their payments, would you?

  Mr Duebner: We would like them to do that, yes, but I do not know if they really want to do it. You will have my colleague from France in front of you in one or two hours so you can ask him, but I have heard that France has very complicated systems and perhaps they want to get rid of it, I do not know. We would like to have decoupled aids all over the European Union, that is our aim because of the distortion of competition.

  Q414  Lord Plumb: We are very interested in the fact that Germany and Britain apply not entirely the same but a similar hybrid system which caused a lot of confusion in our country. Many of us use the example of Germany saying, "Yes, they went down the hybrid route too but at least their farmers were paid out on the day", whilst a lot of farmers from 2005 are still waiting for payment. Only a very few but, nevertheless, there has been a lot of confusion and it has caused trouble. You now say that in order to mitigate the distributional effects of moving straight to area-based payments this is a different situation. I wonder at what speed you want to see that change taking place. We fully complain and believe that if we had started with an historic system it would have been much simpler but starting where we did has now caused confusion. You, of course, had a part-historic system and part-hybrid system which was complicated but how has it worked in Germany and why has it not worked in Britain?

  Mr Duebner: I cannot answer why it does not work in Britain, I do not know your system.

  Q415  Lord Plumb: I will tell you afterwards if you like!

  Mr Duebner: As I have already said, we are starting the second phase heading to the regional model in 2010 and then we will see how farmers react. Until now they have been quite satisfied. I have not heard any criticisms from the farmers and the prices are high now. What will happen in 2010 nobody knows. For example, if a farmer gets €400 per hectare and the level of the premium in the region should be €300, he will lose €100 per hectare from 2010-13 and I do not know what his reaction will be.

  Chairman: He is hardly likely to say "wonderful", is he?

  Q416  Lord Cameron of Dillington: You are changing over three years, are you? It is not 2010, it is gradual, is it?

  Mr Duebner: Yes. Or he gets more, if he has grassland: starting with €200 per hectare in 2010. He will get €300 in 2013. So he will be happy.

  Chairman: Are you finding that some of the farmers are now saying, "2010 is a bit too soon, can we push it back further and further?"

  Q417  Lord Plumb: Farmers would not do that.

  Mr Duebner: We took the decision that we would start in 2010. Farmers have not realised yet but when it begins to affect them it will be a different situation.

  Q418  Lord Plumb: Does this mean that farmers may be taking more interest perhaps in using funding from Pillar II than Pillar I if, as they see it, in 2010 there is the start of a reduction on the Single Payment System? Is there a growing interest or a greater interest, therefore, in environmentally friendly farming and using various schemes that are applicable under Pillar II and not under Pillar I that farmers may pick up thinking, "Well, if the money is going there then we may be able to use it better" and perhaps change their system of farming?

  Mr Duebner: We have already supported the organic farming in—

  Q419  Lord Plumb: I am not talking about organic. It could fit into it but I am really talking about maintaining the hedgerows, cleaning the watercourses, developing some of the areas so there are areas around the arable area which are protecting wildlife and so on.

  Mr Duebner: We have programmes in this area but they are managed by the Länder in Germany. Some Länder do not have enough money to co-finance these agri-environmental measures so farmers cannot apply for any support. That differs from one region to another so I cannot give you an exact overview on that. Especially in the eastern part the Länder do not have much money to co-finance these measures.