WEDNESDAY 5 DECEMBER 2007

Mr Reimer Boege

  Q583  Chairman: First of all, can I repeat my sincere thanks to you for finding time to meet with us and help us with our inquiry. If I can say initially who we are and what we are doing. We are a Sub-Committee of the House of Lords Select Committee on the European Union, which is a scrutiny committee. We are carrying out an inquiry into the Health Check but also looking forward to the Budget Review and possibly the evolution of the CAP. For us, this is a formal evidence taking session so there is a shorthand note. The transcript will be available in due course which will be submitted to you and you can make any corrections or revisions you think necessary. I wonder if the best way is if you wish to make a brief opening comment or we go straight into questions and answers. What would you prefer?

  Mr Boege: Let me say first that it is a real pleasure to be with you again. I think it is now three or three and a half years since I was in London at the European Affairs Committee in the House of Lords together with my former colleague, Terry Wynn, who was President of the Budget Committee at that time. We were talking about the Financial Perspective which we had to negotiate. There are now two or three elements on the table. We are facing the review of the Financial Perspective and I am still the rapporteur of the Budget Committee on this issue. At the same time, the Agriculture Committee is preparing an initiative report on the so-called Health Check. I think you are seeing the President of the Agriculture Committee as well, so I will not say a lot on that. We are facing real challenges on one side. On the other side, I think it is important to find a balanced approach because having a multi-annual financial agreement until 2013, which has to do with primary law of the European Union as far as the accession agreements are concerned, we have to see that European policy does not change within one month, there is a phasing in and phasing out. It will be very interesting after the ratification of the Reform Treaty to see what the Reform Treaty means also for the European budget facing new policy areas such as immigration policy, climate change and so on that come about. Do we wait for the budget implications until 2013? Does it have an impact on the review already? In the Budget Committee we will work on some working documents on the implementation of the Reform Treaty first and the next working document will come from my side as the rapporteur before the Commission has this conference on the review at the end of May next year. These are the next steps we are preparing.

  Chairman: Thank you very much. I wonder if I could open the questioning by inviting Lord Cameron to start us off.

  Lord Cameron of Dillington: I wanted to start by addressing the resource allocation between Pillar I and Pillar II of the CAP. In 2004 the European Parliament indicated that they were concerned that Pillar II was pretty low and I think they used the words "a bare minimum" and—

  Chairman: It has got worse!

  Q584  Lord Cameron of Dillington: --- subsequent to that it got worse. We, on this side of the table, most of us anyway, think Pillar II is a much more sensible solution to dealing with most of the rural problems throughout Europe. I wonder what you thought (a) the implications of that decision were and (b) whether in the current budget round you feel it might be reversed?

  Mr Boege: Of course, it was a political declaration knowing that between the Member States and the European Commission at the very beginning of the deal there was a pre-agreement on agriculture as far as the direct payments were concerned and there was also certain guidance that the Category 1B structural funds could not really be touched. We saw the danger from the very beginning that within this political struggle, not to spend more than 1% of GNI, there would be certain sectors that could suffer more than others. It happened like this and it was very clear that rural development could be one of the victims and the amounts in the final agreement were reduced. This was our worry in the relationship between structural funds, whatever that means, and rural development. In the talks on rural development, but also Category 4, the EU as a global partner and security and defence policy, it was not discussed sufficiently and we have a chronic deficit in those areas.

  Q585  Lord Cameron of Dillington: Are you going to be able to reverse that? Are you going to change that?

  Mr Boege: The problem today is in talking about the review, personally I think we have to talk about three pillars. Pillar I is where are the leftovers or those policy areas which are not supported sufficiently from the European budget. We just solved the problem on Galileo with a reasonable result for everybody. We know that CFSP is chronically under-financed. It is clear that within the review this will play an important role. We have just decided in the conciliation procedure to spend 70 million from the flexibility instrument otherwise the new missions will not be financed at all from the European budget. This is a permanent problem because there was an under-estimation of the real needs and costs in the long-term perspective. On the programmes, it is very difficult within the first three years to evaluate and see where the amounts are that are really spent and where we have an over-estimation of the real needs. There is always a time lag between commitments and payments, especially in structural funds and also in rural development and trans-European networks as well. I would say we need two or, even better, three budget years to see within the existing system where we can reprioritise between programmes. If structural funds are not really spent, are there other political needs not to ask for higher ceilings, or if trans-European networks are not spent as planned maybe there will be more students going abroad to be educated abroad visiting other universities. For these structural fund programmes and rural development programmes we foresee a mid-term review analysis in 2010-11. Then, of course, there will be a sort of competition and we will possibly have to adjust the figures. It is too early now, we have just started. We negotiated more than 50 European programmes in the co-decision procedure. We need these two and a half or three years.

  Q586  Lord Cameron of Dillington: What are your three pillars that you were talking about?

  Mr Boege: The first pillar was the leftovers, the second pillar the evaluation of the new programmes, because in all categories we have new programmes, structural funds and rural development, and the third pillar is the preparation of the next Financial Perspective after 2013.

  Q587  Viscount Ullswater: Perhaps we can revert to Pillar II under the CAP. If there is insufficient money for rural development within that second pillar, to what extent might increases in the other budget lines, the European Regional Development Fund, the European Social Fund and the Cohesion Fund, be extended in order to fill in some of the gaps? Is there a possibility that might be considered?

  Mr Boege: It may be possible to consider this because the financial rules foresee that if we need certain amounts for special programmes, first we have to see whether there are unspent amounts in the same budget category or in other budget categories, so to respect ceilings and make transfers between programmes or categories. To have this debate before the ratification of the Reform Treaty the political price will be too high. We all know that most of the cohesion countries were not using those amounts that were foreseen in the multi-annual programming. We have a special case with Spain and Italy, for example. This idea of spending 4% maximum of the GNI via structural funds and support from the European budget was a political dream and desire but never a reality. For me, it is not only a question of what is the amount but also what is the quality of the programmes Member States and regions are developing. Coming from Schleswig-Holstein, the northern part of Germany, I know good and bad results and how Member States are using these new three pillars in the rural development programme. On the other side it is very important to say that structural fund regulations today are more flexible than they were in the past. Member States have more flexibility to decide whether they are going to support clusters, whether they will go more to the regions or even rural areas. There is a natural competition between national ministries and administrations and there is always a danger that rural areas will not get those supports because the real problems in society today are more in the urbanised areas.

  Q588  Viscount Ullswater: Where do you believe that the environment should be funded from? Should it be funded from agriculture or a regional or rural development fund? There seems to be a debate now as to whether agriculture should carry the environment or the environment should be considered as a separate identity.

  Mr Boege: In reality we have both elements today. Within the so-called cross-compliance rules many of them have to do with hygiene and environment standards, so part of the justification why we have this decoupled system of direct payments is linked to those higher standards that some competitors are not obliged to fulfil. I believe that with these minimum pillars as foreseen in rural development, whether you go to direct investments for the farmers or spend something for environmental purposes or go to rural development and so on, to give certain space for the Member States it is a wise decision to insist on minimum standards and to include these so-called former LEADER initiatives so that people from the regions can take certain initiatives. Very often there is wonderful brainstorming that you will never get in the ministries or administrations sometimes, I am sorry to say, because people are involved. This is one of the big advantages. The situations in rural areas are so different that it was a wise decision to have these three pillars with minimum percentages to be spent. In Germany, the south is very different from the north. In the north you need more direct investment from the farmers because there are full-time farmers and in the south you have more part-time farmers and that is connected to tourism and their rural development and other sectors are more important. This also has to do with the principle of subsidiarity that many of us support and sometimes complain that we do not follow these rules.

  Q589  Chairman: In a way are we asking too much of the Common Agricultural Policy in that we are asking it to deliver not only agricultural outputs but, as Lord Ullswater indicated, to deliver environmental outputs, rural development outputs, and theoretically it is not the most efficient vehicle to deliver the non-agricultural outputs? Is there a case to say use the CAP for what we know it can do best and devise other vehicles to deliver these other outputs?

  Mr Boege: Being a farmer myself I am quite convinced that direct investments in the farms based on certain standards and criteria are more often giving the chance to a mayor to build a third or fourth street for cyclists. We have had some examples like this. If farmers get these amounts they will invest them. We have this emotional debate that the contribution from the farming industry to environment and sustainability is very often under-estimated in a society which is more and more linked to big cities. This is one of the problems that we are facing, what is the best way to spend and support sustainability in the agricultural sector and the rural development as well.

  Q590  Earl of Dundee: The European Parliament says that it is not bound by the Brussels ceiling; at least it said that in 2004 when considering the 2007-13 funding plans. Nevertheless, the European Parliament respects the deal struck at that time. Might then the Brussels ceiling become revisited during the forthcoming Budget Review?

  Mr Boege: We said it like this within the resolution tabled by Terry Wynn in April 2004 just before the European elections to say we are not bound to certain pre-agreements knowing, of course, under the existing treaties agricultural expenditure is compulsory expenditure where Parliament is not integrated in the process of co-decision which will be different with the new Reform Treaty. This was a political declaration based on certain principles that Parliament is never happy about deals which are done beforehand by the Member States just taking away, let us say, 0.75% of the total European budget and the rest we can negotiate. Normally Parliament will stand up and not accept this whether it is agriculture or has to do with other areas of policy. What will happen now within the review is this deal which was done to come to an agreement in December 2004 says everything and nothing. If you read the sentence the review can cover everything, including the CAP and other elements, you have to find a way in the Council to change things with unanimity. Do not forget, as far as the so-called new Member States are concerned, the integration of the new Member States up to 100% of the existing premiums in 2013 is linked with the primary law of the European Union and they can see how this will develop for them from the transfer point of view. On the other side, it is clear that we are facing a situation based on the international development of the international food markets where there will be a debate as to how support in agriculture should take place in future. We say in Germany one swallow does not make a summer. We have these two pillars again, direct payments and the market development, and there are some debates which are neglecting the European balance because if you change the guideline and the transfer to certain Member States it affects the total agreement on payments and the money Member States are getting back. This will be a very hard exercise for a review. The reality in Europe is that you always have a certain phasing in and phasing out period. In agriculture the situation is changing totally if you see the situation in France and Spain. France is becoming more and more a net contributor and for Spain the agricultural budget will become more important than cohesion policy because they are phasing out.

  Q591  Earl of Dundee: During the forthcoming Budget Review, and for good reason, the European Parliament might decide to not say very much and wait for others to speak. On the other hand, you might see fit to give a clear message. Would you like to comment on that position?

  Mr Boege: I think the clear message will be, "Let's concentrate on a sufficient and ambitious review", as I have just explained with the three pillars, to be realistic and to prepare as a second step the elements which are needed for the next Financial Perspective after 2013 or maybe after 2015. I say this because connected with a sufficient review to solve certain of our deficits and then to have certain decisions on time, it might be good to have a parallel between the Financial Perspective which should be five years as a minimum but to connect it also with the mandate of the European Commission and European Parliament. From the parliamentarians' point of view we are negotiating a Financial Perspective which will not enter into force within our mandate but within the mandate of the next incoming Parliament and this is a very complicated situation for us. What is coming in the Agriculture Committee now to talk about elements of modulation opens certain doors but in a modest way, an acceptable way, not as extreme as the Commission is proposing, and this could have an impact on the agricultural guideline as well. We have to be aware that within an enlarged Union we also have to take into consideration these other elements and we should not do too much within the review otherwise there will be no review, and I know some Member States would like no review at all.

  Q592  Earl of Arran: As ever, continuing with budgets, the most recent Financial Perspective made provision for a reduction in the proportion of the Community budget spent on agriculture between 2007 and 2013. Do you regard this as a trend that is likely to continue or get even worse?

  Mr Boege: There is very often a misunderstanding because agricultural policy is going down from, let us say, 47% to 35% in 2013. It is the only category in absolute terms which is not growing. All those programmes linked to the Lisbon Strategy, growth and jobs and so on, are growing in some way. On the other side, we cannot compare agriculture with research, there is always a comparison that we do not spend enough in research and we spend a lot in agriculture. You have to put together those figures from the national and the European levels to come to a fair comparison. The future development in the agricultural guideline is related to the political agreement as to how much money we are ready to spend through the European budget. We will vote next week on Budget 2008, second reading, with 0.96% on payments. The ceiling is 1.06 in commitments within the multi-annual framework. It is based on budgetary discipline. If there is an agreement not to spend more than 1%, to spend a lot for structural funds to face new challenges, CFSP, foreign affairs policy, international programmes, neighbourhood pre-accession and so on, the pressure on structural policy and agricultural policy will grow. This is very clear to everybody. Then we have to talk about international development again and how our agricultural system will develop after 2013, but we should avoid having a situation where at the end there will be no direct support for European farmers and at the same time we maintain the nice standards from cross-compliance which are very high. We will face a very difficult debate in our Member States.

  Q593  Earl of Arran: I think you are saying the situation is likely to worsen?

  Mr Boege: Yes.

  Q594  Chairman: Improve, I think, is the word you are seeking!

  Mr Boege: I will give you one example. I got an offer for summer barley next year to make a contract on €25.2. There might be a certain stability for the next few years but it is not guaranteed that it will stay at the high level we have. The ups and downs will grow and this will become part of the social dimension of this question. There was a political majority to abolish the old system but now, not having this intervention price system any longer, this has an impact on farmers' prices and now they are going up. I want to see what the deal will be and if the international prices go down how the supermarkets will deal with consumer prices. The ups and downs will become more pronounced and there will be many complaints but it was the political will to have this new system.

  Earl of Arran: Volatility breeds uncertainty, which is very bad for any industry of course.

  Chairman: It is called the market.

  Lord Cameron of Dillington: He is not a farmer.

  Chairman: I am a consumer.

  Q595  Lord Greaves: I am tempted to get involved in your comments just now on cross-compliance, and there is a huge contradiction at the whole heart of cross-compliance, but I am not going to. I want to go back to the budget. You just said that the proportion devoted to agriculture in 2013 will be down to 35%. The question is, is there any way of looking at this objectively? Is 35% the right level? Is it going to go down further in the future with these other pressures you have been talking about? What is the right level? If there is a right level and it is not just a matter of political negotiation, what relationship has it to the contribution of agriculture to the economy of the European Union or, indeed, to the proportion of people working and their incomes, or is it something else?

  Mr Boege: It is very complicated to make fair comparisons. If you talk about the contribution of the agricultural sector as a whole it is a different perception of GNI than when talking about the basic production coming from the individual farms. If you take the whole agricultural sector and everything which is linked to this sector which needs the agricultural basic production you come to a different comparison. I always warn people not to compare the wrong figures with each other. The agricultural system is based on market prices and income for the farmers from the market and these additional amounts also have to do with the systems we were creating to guarantee, let us say, a certain quality, to guarantee stability for the consumers at reasonable prices. Of course, it costs a lot for the European budget but, on the other side, there were certain guarantees for the consumers. Now parts of these elements are leaving as far as the intervention system is concerned. It is very funny that some experts are talking about the idea that we need certain minimum stocks to be on the safe side if there is a situation where Australia, Russia and Ukraine at the same time have dry weather and the harvest will not function well. We are in a system and we should be very careful after two years of implementation in changing the system again and again. No industry will accept that after a political agreement you start to change things within the first year. Europe started with agriculture first, it was 75% of the European budget at the beginning, and then there was a certain interim period in the eighties where policy was reacting too late and this led to certain budgetary crises based on development in the agricultural markets, but this is over now and everybody should recognise the contribution of the farming industry to the whole economy because we have had a certain development in productivity. When I started farming in 1975 I could get four tonnes of rye per hectare in my area and I was producing 5,500 kilos of milk with my dairy cows but today my neighbours are producing 10,000 kilos and can take from the same hectares with the same input of fertilisers, spray and so on, not four but eight tonnes.

  Q596  Lord Plumb: The cows have doubled their yield.

  Mr Boege: In Germany the consumer pays 13% of their available income for food only. This means that you have a lot of room for manoeuvre for other activities, whether you go on holiday, you buy a car, a computer or whatever it is. This contribution is often under-estimated in my own country as well.

  Q597  Lord Cameron of Dillington: The German consumer pays 30%?

  Mr Boege: 13%.

  Lord Cameron of Dillington: In England it is about eight or nine.

  Q598  Lord Greaves: You are dodging my question really as to whether there is an objective ideal level.

  Mr Boege: It is very difficult.

  Q599  Lord Greaves: It is not worth talking about because in reality it is going down to 35 in the future and we all know there will be further pressures on it so it is going to go down further but you are saying it is a pragmatic matter really.

  Mr Boege: Yes, it is. When those candidates with whom we are negotiating membership join the situation will be totally different again. If you see the figures on structural funds and agriculture as far as the involvement of Turkey is concerned, for example, the figures will be totally different.