Common Agricultural Policy
We move on to item 7. We have allocated time until 1 o'clock for this subject, which the committee has been keen to hear about. The minister wrote to us during the summer. We are particularly keen on hearing about the process for engaging in the development of the Executive's proposals on the common agricultural policy mid-term review, so that we can have the most widespread consultation and receive input from all the key stakeholders. We also want to get the minister's initial thoughts on how he will drive forward the process and on the content of the review.
Over to you, minister.
As briefly as I can, I will do another quick canter through the main elements, which will pick up where I think the key issues are.
Clearly, the first element is the prospect that the scheme will provide for a single payment. Decoupled payments will be central to the new support system and, obviously, will cut the link to production. The new decoupled scheme, which is to be implemented from January 2005, will be a single payment, which will replace the separate payments under the main sectoral schemes in the arable, beef and sheep sectors. Slightly different arrangements apply for dairy, but decoupling is capable of being applied to all those sectors.
The single payment will be based on the direct aids that the farmer has received during an historic reference period, which will be the years 2000, 2001 and 2002. Farmers will be allocated a number of entitlements based on their reference period. They will need to match each entitlement with a hectare of eligible land to claim the payment. Special arrangements will apply in cases where a farmer has no track record.
The single payment will have quite an important element of conditionality, which will be applied through cross-compliance. The conditions will relate to environmental, food safety, animal and plant health and animal welfare standards. Although farmers will not need to produce to receive the single farm payment, they will have to take steps to ensure that they keep land in good agricultural and environmental condition. It is for us to define what good environmental condition means in Scotland in a way that meets our particular requirements, but the definition must be based on the underlying European Union regulation. Farm advice is another element, but we in Scotland have already taken that forward under our forward strategy.
For the first time, there will also be compulsory modulation at an EU level. As members will be aware, modulation is the transfer of money from the market support part of the CAP budget to the rural development part—in simple terms, from pillar 1 to pillar 2. That is crucial for us, as it allows rural development money to pay for agri-environment schemes, such as organic aid and other measurements in the Scottish rural development programme.
The modulation agreements will apply rates of 3 per cent in 2005, rising to 5 per cent in 2007 until 2012. The rates will be applied to the single farm payment, with an exemption for the first €5,000 paid to all farmers. The money will then be surrendered to an EU pot to be distributed to the member states through a formula that will ensure that no member state receives less than 80 per cent of the funds that it contributes.
There are special transitional arrangements to take account of the fact that the UK in particular—as well as another two countries—already applies national modulation.
There is also a new financial discipline mechanism, which will ensure that expenditure remains within the agreed budgetary limits. In future, any new expenditure under the sectoral schemes would have to be accompanied by proposals for funding. If that expenditure would threaten the ceiling, the Council of Ministers would have to take action straight away.
The flexibilities that we negotiated in the package are options that are at our behest. We arranged for them to apply both nationally and regionally, so they apply to the UK and to Scotland. We can use national envelopes in each sector. They are created by reducing farm payments in a sector by up to 10 per cent and could be used to encourage types of farming that protect or enhance the environment or to improve the quality and marketing of agricultural products. We could also make better use of national voluntary modulation to transfer larger amounts of money.
I will describe briefly the crucial consultation process. The reforms are major. The arrangements that were made in Luxembourg set the framework clearly, but one should not seek to impose tablets of stone on the environmental community or the agricultural community. Therefore, I have planned an extensive and inclusive consultation process on the strategic options to ensure that everyone who is engaged has an opportunity to be involved in the process.
The consultation will involve a number of aspects. A formal consultation will begin in October and will last for three months. We will launch that at a stakeholder conference with the intention of making it as inclusive as possible. We are also committed to involving as wide a range of stakeholders as possible throughout the consultation process and have had an extensive range of meetings with about 10 of the main stakeholder organisations. We intend to establish the stakeholder group on CAP reform, for example, which will inform the consultation process. I hope that membership of the group can be balanced and spread across the various interest groups. We are also seeking advice from the Scottish Civic Forum on how best to engage the wider public interest.
We plan to hold a series of regional meetings, which will involve the same range of interests as are on the stakeholder group. They will try to establish a local and regional dimension to the issue. We are also preparing information to send to individual groups, which will set out the main elements of the agreement and offer them the opportunity to comment. We will hold regional focus groups, particularly with farmers. Although we will deal with all groups, farmers have a particular difficulty. They are knowledgeable about the current raft of regulation, but they will have to understand the major change in administration, so we intend to hold group meetings for them to explain the situation.
No decision will be taken on the strategic options until that process is complete. I expect and hope to make an announcement by February or March next year. The committee has had an opportunity to see the broad spectrum of how I propose to engage in the process. In more detailed discussion, we can agree on how the committee can make its contribution and plug into that process.
Thank you; that was useful.
From 1 May next year, the number of farmers in the European Union will increase by 50 per cent. We are talking about CAP reform at the same time as the European Community's borders are being extended. How will your department help Scottish farmers and others who are involved in agricultural production to realise the opportunities that EU extension will afford? How will it help them to deal with the challenges that will arise?
On the challenges, I hope that the consultation process will not only give us a huge amount of information on people's general concerns about this major change, but allow and inform the course of action that I recommend. We will accumulate detailed information on the issues, which will not be dumped when the consultation is over—we will have to act on that to assist people in the rural community.
On EU extension, I attended a rural futures conference in the Borders. Quite a lot of work has yet to be done to ensure that the opportunities that are opened up by the accession member states are realised. We should regard those states as providing trading opportunities. Although the thrust of the question was about agriculture, those opportunities should be seen more widely. We have to progress that work.
Our resources have been somewhat tied up in trying to get to grips with the detail of CAP reform. As a result, we have not done a huge amount of work on EU extension. The preliminary work that we have done with stakeholder groups has been quite time consuming. The two points that Mr Morrison raised will form part of our agenda. I hope that we can take forward both aspects.
I am really just looking for information. I get the impression that what is in people's minds is monoculture—we know what the sheep, cattle or arable farmers want. However, where I live, a lot of mixed farming goes on. The farmers raise sheep and cattle and grow barley, oil-seed rape and so on. How will the measures affect those involved in mixed farming? Given that mixed farming is probably more environmentally friendly than monocultures, will the measures support farmers who want to carry out that kind of farming?
There is no reason why not. After all, as I said in my opening remarks, if we go down the full decoupling route, the amount of the single payment is calculated by reference to the three-year reference period. The farmer will continue to receive a broadly similar aggregate sum of money, subject only to the impact that might or might not result from compulsory modulation. Therefore a disincentive to engage in mixed farming does not immediately arise.
Particular issues arise in respect of livestock farming. I am thinking in particular of the potential benefits of downsizing some of the particularly extensive farming activities. That said, when one looks at Scotland plc, there is a danger that that process could swing a little too far. Those are the kind of issues that the consultative process will be designed to draw out.
No sudden impediment appears as a result of the CAP reform that would worsen the conditions for mixed farming. Indeed, there is no change. Jim Wildgoose might like to add to what I have said.
Jim Wildgoose (Scottish Executive Environment and Rural Affairs Department):
In point of fact, the issue is the other way round. Decoupling will allow producers to produce what they want and what the market demands. Therefore, the tendency will be for people to produce what the market will bear, and mixed farming encourages that approach. The incentive is the other way around. There will be no incentive for monoculture farms, but there will be an incentive for farmers to utilise their resources towards the best means of production.
Bearing in mind the partnership agreement aim to support the more rapid development of environmentally sustainable farming that provides consumers with quality products, how does the minister see the position of small producers in the Highlands and Islands? I am thinking, for example, of cattle farmers on the islands. How does the minister view the situation for them in respect of the discussion about retaining 10 per cent of payments to establish a national envelope that will assist transition and encourage specific types of farming?
Will the minister be able to give the committee detailed regional definitions of his approach at an early stage in the consultation, or at the outset of the consultation? It is important for people in the Highlands and Islands to get a flavour of how the minister will treat people in the least favoured areas.
The question addresses two issues, but I am not sure that we can subdivide them. We can separate the national envelopes within Scotland and we can operate national envelopes within each sector. Beyond that, we get into some difficulty about our ability to regionalise. There is concern about certain environmental configurations. Perhaps it would be beneficial environmentally and for the sustainability of agriculture if we were to utilise the national envelope to assist in that process.
We are discussing how to set out the material that we intend to issue without making it grotesquely complicated—we are attempting to set out the available options in reasonably simple terms. We are doing that because people who live in remote and rural areas should be clear about the prospect and possibilities of using the national envelope route if they desire to do so. People might have different views on how the national envelope should be used, but we need to put our material out in any case.
We are wrestling with the question of getting the consultation material out in advance. I do not want just to dump it all on everybody's tables—apart from anything else, there is my environmental commitment not to tear down every forest to produce a consultation document: I might get into a bit of difficulty were I to do that. We cannot simply state what the EU regulations say and then ask people to give us their views. The whole purpose of the current discussions with a range of environmental and crofting representatives and other stakeholders is to ascertain what the key issues are. The task then will be to take those key issues and present them in a consultation document in a manner that will be easily understood.
We look forward to your wrestling results.
Indeed; we look forward to them as well.
We will be watching.
First, what are the circumstances particular to Scotland that the minister is considering when deciding on the package for Scotland? How might they differ from the circumstances of the rest of the United Kingdom?
My second question is on cross-compliance. In the past, we have encountered problems with different member states implementing different standards. As definitions of good environmental and agricultural conditions are to be made at a regional level, have the implications for Scotland been considered if the definitions differ from those in other EU countries? How will the minister ensure that Scottish farmers are not placed at a disadvantage?
On the first question, on where I think things will be different, that is what I am trying to avoid saying. I am trying to avoid dictating what I think to be the solution, although I have views about certain elements of it. Broadly speaking, the consultation process will be genuine and will embrace as wide a range of stakeholders as possible. It will go far beyond farmers and crofters; it will reach environmental groups and will have to take into account the views of producer groups, consumers and a range of other people. Our action will depend on the consultation—on what route the emerging body of evidence indicates we should go down. If that is different from the solution that is being applied in England, so be it. That seems an essential aspect of devolution.
There would not be much point in spending three weeks in Luxembourg achieving derogations at regional and national levels if we were not open to applying different solutions. I am not saying that we will necessarily act differently; I am saying that we will be different if the conclusion of the consultation process points strongly in a different direction. If there was a strong body that viewed a given measure as a threat, danger or difficulty, we would have to fashion the policy instrument to take account of that issue—which relates to what Rob Gibson was saying.
I acknowledge that the definition of good agricultural practice has caused some anxiety and difficulty, but the fact that policy is to be implemented at a regional level presents an opportunity. I invite Jim Wildgoose to expand on where our thinking lies in that regard.
The regulation contains specific provisions that indicate the conditions that have to be met throughout the Community. In essence, the exercise is one of taking the provisions and translating them into prescriptions that are suitable for Scotland. That will involve quite a bit of technical work. There will be consultation on the issues once the technical work has been done. Some of the principles that are involved are soil erosion, organic matter structure and the minimum level of maintenance required to avoid degradation in permanent pasture. Those issues require some technical input, which has started, but there will be subsequent consultation on them. The idea is to get a set of principles that will apply throughout the Community, but which will also be tailored to individual situations. That is the balance in the approach.
The minister's letter mentions that money from the national envelope could be used for marketing. To what extent could national envelope money be used for rural infrastructure? I am thinking of slaughterhouse facilities, for example.
There are two separate issues. We have an instrument for providing food-processing grants. Again, this will depend on the consultative process. I will have to check the regulation, because one slightly sticky issue is that whereas the moneys that we use for food processing have been transferred from pillar 1 to pillar 2 and so have ceased to be a direct agricultural subsidy, even if we move to a single payment under the present proposal and whether or not we apply the national envelope to it, we will still be dealing with moneys that are essentially an agricultural subsidy. Frankly, the marketing aspect is peripheral to that. We want to apply the scheme as flexibly as we can to achieve the correct result.
I cannot add much to that. The existing marketing and processing scheme allows facilities in the chain to receive subsidies for particular projects. The text of the envelope mentions improving the quality of produce and gets into the legal interpretation of that wording. The minister is correct that the context is agricultural support. I emphasise that money is available for processing and marketing projects through another scheme.
There are precedents. For example, it could be argued that the less favoured area support scheme should be pillar 1, although it is pillar 2. I would have thought that downstream processing is somewhat further away from direct agricultural subsidy than other schemes that are considered to be pillar 2.
There is cohesion in that argument, but the difficulty is that all such matters are set within the framework of EU regulation. The LFASS is a pillar 2 payment. We have been trying to make the concept a little more simple and applicable across Scotland by developing management contracts, but we remain constrained by the amount of money which we in Scotland and the United Kingdom receive from pillar 2. Eleanor Scott will be aware that our allocation is, I think, 3.5 per cent, but, on anybody's analysis, by reference to our land, land use and land quality, it ought to be about 9.3 per cent. However, that argument was lost in 2000, at the last settlement, and the issue remains a difficult one for us.
We have processing grants to try to promote better food-processing facilities. Eleanor Scott might want to write to me separately on that issue because I am not sure that the issue is confined exclusively to the reform, although the reform has ramifications for it.
I want to follow up on the point that Eleanor Scott has been digging round. We have dived into the detail, which is hugely important, but perhaps we should stand back from the process and think through the opportunities that arise from it for investing in an integrated approach to rural areas.
We need to consider whether there is any crossover to the Scottish rural development plan. How might the plan change and what other opportunities might come through the plan from your discussion on the reordering of the CAP subsidies? I ask that having visited a farm in Perthshire last week, where the point was made very articulately to me about the real challenge that exists.
As Maureen Macmillan pointed out, farms may be doing not just one type, but a variety, of agricultural work. They may also be involved in forestry. How will we bolster our rural communities and create rural jobs from the opportunities that are provided by slipping money from pillar 1 to pillar 2? How can we build that into the rural development plan to provide other things, such as the slaughter facilities that Eleanor Scott mentioned or the marketing of quality produce that other members have talked about?
All of us sense real nervousness in the agricultural community about the big change that is taking place. I think that we need to give clear messages about what will be possible, so that people will have a sense of the money that will be made available and that can be followed. We do not want a vacuum in which people do not know what will come next. To what extent is there scope for doing that through the consultation process, rather than just saying, "Over to you—what do you all think?" Perhaps the Executive needs to lead the discussion a bit more strongly down that route.
There are some things that we need to remember. There are several pluses to the process but, as I said to Eleanor Scott, one of the biggest constraints is that we actually start with an agricultural subsidy. Even with the CAP reform, the definition has not changed, so the single payment starts life as an agricultural subsidy. There are opportunities to have more funding for rural development, but the only way that we can achieve that is first of all through the mechanism of compulsory modulation, which is set out in the reform. In addition, the reform provides that—as Scotland has done for the past few years—we can continue to operate national modulation.
In the consultation, we need to see both the extent to which we can get consensus about whether there is a need for more pillar 2 funding—if I may use that shorthand term—and the extent to which some broader agreement can be arrived at about the extent to which we should proceed to increase the rate of national modulation. There is no option other than to utilise the compulsory modulation. Those areas will be part of the consultation process.
On the potential for increasing the amount of funding available for rural development through the rural development regulation, I can confirm that that will be possible. It depends where one starts from, but if we start from the proposition that decoupling will involve the potential to move from the various sectoral schemes—indeed, some sectors have several schemes—to a single payment that is not related to production, the next consideration will be some of the issues that were raised by Karen Gillon, Maureen Macmillan and Rob Gibson. As they mentioned, we will then need to decide whether we wish to take advantage of the flexibilities, either by retaining some of those schemes or by utilising the provisions of the national envelope. There is also the fact that there is the opportunity, either within compulsory modulation or national modulation, to enhance the amounts available for funding schemes within the rural development regulation.
To come back to the point that I made earlier, we need to ensure that everyone understands the wide ramifications of the change and we need to do so without making the issue too complex, while explaining in sufficient detail so that people grasp what it is all about.
I take this opportunity to draw members' attention to my entry in the register of members' interests, where it is noted that I run a farm business. What we are discussing could impact on that business—it remains to be seen whether that impact is positive or negative.
I have a number of points to put to the minister. Is it okay if I go through them one at a time, or will I list them?
I ask you to run through them all.
My first point is a specific one. I understand that, in certain quarters, it is believed that the proposals might pose a threat to the less favoured area support schemes. Are we sure that the LFAS schemes that are currently in place—which we know may be varied through negotiation with the European Union—will not come under threat as a result of the process, and that they will remain in place and unaffected?
Secondly, I am interested in degressivity. I assume that the proposals under the scheme will begin the process of transferring funds from areas where they have been used traditionally to some of the new areas of the EU, where responsibilities under the CAP are about to extend. What time scale is likely to be applied for the reduction of funds spent in Scotland and for the subsequent transfers? What is the likely level at which such transfers would take place?
Finally, the options for retaining coupled payments—or production support payments for certain sectors—have been set out in detail in the letter that the minister sent with the details of the proposals. When such options come along, there is always a danger that people will look at the list and see how they can exploit it, making an assumption that, as the opportunity to retain coupled payments exists, they should exploit them to the maximum. Will the minister give a commitment that he will, when dealing with the consultation, keep open the possibility that none of the options will be used, and that the full support mechanism will be passed to the decoupled payment?
The reform of the CAP as it has been agreed—even once the detailed regulations are fully published—will in itself pose no threat to the LFASS. We need, however, to be aware that the LFASS and all elements of the rural development regulation and the various schemes and mechanisms within it might be considered at European level at the impending review of the regulation next year. Members will find at European discussions references being made to reports by audit and other committees on the effectiveness or ineffectiveness of LFAS schemes in various member states. That is not necessarily a threat, although questions might be raised. The LFASS is not fundamentally threatened by anything under the CAP reform.
Degressivity has no connection with the joining of the accession states. What is lovingly known as the Berlin ceiling was set for agricultural expenditure some years ago, not surprisingly, at a meeting that took place in Berlin. It is a bit like the Maastricht treaty—the names of such agreements are very original. Notwithstanding one or two exceptions among those who always want to spend more, the key larger member states are absolutely committed to keeping total agricultural expenditure for the existing member states below that ceiling.
Separate arrangements have been entered into with regard to the progressive accession by member states to agricultural subsidies. However, those arrangements do not, in the short term, affect the actual amounts of money involved.
The problem with degressivity is that any reform or change to the system—for example, even reform of some of the dairy or arable payments—has to be paid for from somewhere because the reform is taking place within that budget.
In my opening remarks, I gave the example of the modulation process, under which it is guaranteed that not less than 80 per cent of funds that are modulated on the compulsory basis are returned to the member state. Overruns in expenditure or, more particularly, other instruments within the agriculture framework that proved more expensive or reforms that cost money, would be paid for by the Commission in the recycling process. That means that the total amount that is received at farm level and, more particularly, in the aggregate payment that is received at national level, could be reduced.
The other threat, which I mentioned briefly, is the financial discipline of the absolute agreement that the Berlin ceiling should not be broken. In any given year from now on, if the European Commission has evidence from its own accounts that agricultural subsidy payments will overshoot, the Commission is required to report to the next meeting of the agriculture and fisheries council, which is obliged to take action to rectify the overshoot.
Given that that is the case, it is inevitable that there will be a scaling back in the level of subsidy. That said, any scaling back is more connected to the inflation that puts serious pressures on the sort of situations that I described. I say to Alex Johnstone that it would occur at that level rather than in the accession states.
The only member who has indicated a request to speak is Nora Radcliffe.
I am trying to get my head round whether the person who was receiving the money would achieve greater flexibility from funds in the national envelopes than from a single payment. The whole idea is supposed to reduce bureaucracy. A single payment sounds nice and easy, but then we start to talk about cross-compliance and about this, that and the other. Can the minister assure us that the end result will be a reduction in bureaucracy?
That will depend on the farmers, environmentalists, producers and the various others in the 12 or 13 groups who are to be engaged in the process. If one is trying to get one's head around the flexibility issue, the simplest thing would be to do what Alex Johnstone suggested, which was to sweep the whole thing away and ignore everything else. I say to Alex Johnstone that if one was to take that option—it is a big "if"—those at the individual farm level could be provided with the maximum.
The consultation process will have to tease out the answer to the question—highlighted by Karen Gillon, Rob Gibson and other members—whether environmental issues or production issues could be adversely affected in the short term by such a simple transfer. One might wish to make use of the national envelope to provide some form of alleviation while the new system beds down. That is a possibility.
If I take the beef sector as an example, one could elect to go into more or less all the current suckler cow premium regulations or the beef special premium arrangements, but not both of them. However, that decision would have to be weighed up against all the bureaucracy of the regulations, especially if the suckler cow premium was to be considered, because it opens up issues such as quota controls, the dry heifer rule and retention periods. One would have to be aware of all those considerations.
We already have cross-compliance. If a farmer receives a payment for agricultural purposes, which has a wider environmental impact, it is not unreasonable for the receipt of that payment to be conditional on the farmer's meeting certain minimum standards. However, as Karen Gillon pointed out, we have to be careful to have a standard that is clearly and transparently understood and which is applied across the field.
I want to pick up on one last point. Alex Johnstone's last question concerned the extent to which full decoupling is an option that is being actively explored, or whether it is not on the table for discussion.
No; full decoupling is absolutely part of the discussion, but it depends on where one starts. You can start anywhere. The options that are available to us—which we will lay out—are for us to have the full decoupling proposal, the opportunity within the scheme—
So—will full decoupling be on the agenda?
Of course it will. It will be on the table. The committee has that assurance. There is also the issue that certain of the schemes can be partially recoupled. Although that can be done separately, I suppose that one could also do both. One could also access the national envelope for particular purposes—that is what we are all about. I think that I have begun to illustrate the pluses and minuses in the argument about which option might be used and why it might be used. That is what this very big debate is about.
I thank the minister and his officials. We could go on for another couple of hours, but I think that we have hit the high-level issues, certainly in terms of this first exploration of the issue. I am very glad that the minister was able to come before the committee and answer all our questions.
The agenda for our next meeting includes discussion of how we will scrutinise the Executive's budget. Given that we will discuss the potential advisers who will assist the committee in that budget discussion, I suggest that we discuss that item in private. If we do so, the meeting will not have to go in and out of public session, which was a problem for us today. If we have that discussion in private before we move into full public session, we will be able to timetable the discussion properly. Is that agreed?
Members indicated agreement.
Meeting closed at 13:01.