Plenary, 12 Feb 2004

Meeting date: Thursday, February 12, 2004

Official Report 704KB pdf

---

Common Agricultural Policy Reform

The next item of business is a statement by Allan Wilson on common agricultural policy reform. The minister will take questions at the end of his statement, so no interventions should be made.

The common agricultural policy reform agreement of June last year provides key flexibilities in the policy's operation. For the first time in more than a generation, we in Scotland can influence the direction of agricultural policy in Scotland and tailor support arrangements to our circumstances and strategic objectives.

The consultation exercise on the implementation of CAP reform in Scotland has been completed and received 292 responses. A summary of the outcome has been sent to all those who responded and is available in the Scottish Executive library and on the Executive's website. I am pleased to report that most respondents embraced the objectives of the partnership agreement and "A Forward Strategy for Scottish Agriculture", which of course reflect the widely agreed strategic focus for the future of agriculture and rural areas in Scotland.

The Executive has now reached decisions on the key high-level implementation issues. Our decisions make full use of the flexibilities that are available to advance our objectives. We will support the more rapid development of environmentally sustainable farming that provides consumers with quality products. We will shift subsidies away from merely supporting production to recognising the economic, social and environmental contribution that agriculture makes to rural development. We will use this opportunity to develop land management contracts to deliver reformed CAP support that takes account of the diversity of Scottish agriculture and its economic, social and environmental impact. We aim to do that by fostering a spirit of partnership and involving all interested parties in future decision making.

The essence of the CAP reform agreement is decoupling, which is the separation of the receipt of subsidy from the need to produce. In Scotland, the decision is for full decoupling. That means that we will not take up any of the options to retain the existing support schemes. The decision also extends to early decoupling in the dairy sector from 2005, which is in line with the position in other sectors.

The decision for full decoupling is the single most important step in achieving our strategic objectives. The first and most important outcome is that producers will make decisions in response to the market rather than in response to subsidy scheme rules or incentives. That will encourage sustainable farming. The second outcome, which is also important in its own right, will be a reduction in bureaucracy. The form filling and bureaucracy that is associated with the current six main support schemes will be reduced with the introduction of the single farm payment. The payment will be based on subsidy receipts during a reference period, which will be 2000-2002 in most cases—the so-called "historic basis". That is the standard system envisaged in the European Union legislation. It will provide vital stability for farmers so that they can adapt to the major changes that full decoupling will bring.

Payment will be conditional on recipients adhering to environmental standards and sustainable farming practices. Such so-called "cross-compliance" will include the requirement to maintain land in

"good agricultural and environmental condition".

We have worked closely with environmental experts and land managers to develop cross-compliance standards that are appropriate to Scottish circumstances. I will initiate consultation on those standards very soon.

Our work to develop cross-compliance standards will ensure that farmers must comply with demanding but fair environmental requirements in return for subsidy. The new standards are important. My hope today is that all those who are involved in responding to the consultation will view the standards positively. We need to recognise that the delivery of environmental benefits and sustainability are crucial.

There is an issue about the long-term rationale for the single farm payment. As currently drafted, the legislation does not provide for a review date, but we will press for one. It is also worth remembering that, although the CAP reform provides Scotland with considerable flexibility to operate policies in ways that are suitable to Scottish circumstances, the basis for support payments is still determined by EU legislation. Hence, the long-term rationale for the payments is not for us alone; it must be addressed at EU level. For our part, we will stress the link between the payments and the public benefits that accrue by keeping our land farmed.

Some respondents to the consultation have raised questions about the undesirable consequences of the tradeability of entitlements. The suggestion is that consideration should be given to ring fencing certain areas in order to prevent entitlements from coming into or going out from those areas. That issue will be considered once the implementing legislation has been agreed in March or April. Decisions on whether we should pursue ring fencing will be taken in the light of further analysis of the position at that stage.

Let me turn to the national envelope provisions in the reform agreement, which provide us with the ability to top-slice the single farm payments and to use the money for specific types of farming that are important for the protection or enhancement of the environment or for improving the quality and marketing of agricultural products. Our intention is to make use of those provisions only in the beef sector to support quality calves for beef production. However, final decisions on the detail of the scheme that will be introduced will follow further discussion with the interested parties. The details will also depend on the provisions of the EU implementing legislation, which will not be finalised until March or April.

Among the consultation responses, there was almost no support for use of the envelope provisions in sectors other than beef. Even the support for a national envelope in the beef sector was guarded and qualified. A number of respondents argued for use of the provisions as a short-term measure to be replaced after a period by a specific environmental scheme for retaining suckler cows in peripheral areas under the rural development regulation.

In the medium to long term, the future of the beef sector, crucial as it is both at farm level and in downstream processing and marketing in Scotland, will be to respond to market signals under full decoupling, as in every other sector. The problem is that, in the short term, we do not have a stable market position. The export arrangements continue to be highly restricted. Hence, the beef sector, more than any other, remains vulnerable to short-term uncertainty.

Aside from those market issues, however, there are widely held and well-founded concerns about loss of cows from certain areas, which would have environmental and social implications. Our intention is to consider a scheme from the envelope moneys that addresses both the short-term market issues and the environmental and social issues. Whether the envelope arrangements can be used on a transitional basis will remain uncertain until the implementing legislation is finalised—we will be exploring that possibility as the negotiations on the legislation proceed. Our intention is to address as fully as possible the short-term issues before deciding to discontinue the national envelope provisions.

Finally, I turn to modulation. Our intention is to move to a combined rate of at least 10 per cent by the end of 2007. That includes both EU compulsory modulation, which will be at 5 per cent in 2007, and additional national modulation. However, our intentions, including the possibility of a higher rate, will be clarified once we know the outcome of the 2004 United Kingdom spending review. That is because European rules mean that modulation moneys cannot be spent without a member state contribution. Currently, that contribution is £1 match funding for every £1 raised through modulation. We will know the future position on match funding by early summer or midsummer 2004.

In the consultation responses, the greatest divergence of view arose over the level of future modulation. The rate of modulation determines the amount of funding available for rural development measures designed to purchase the range of outputs—economic, environmental and social—that the public want. It also determines the speed of development of the land management contract model, which is our strategic approach to the delivery of payments for the different outputs.

The increase in modulation by 2007, subject to decisions on match funding, represents more than a doubling of the modulation funds that are currently available. Our intention is to press at European level for better European funding for our rural development measures in the next EU financial planning period—2007-2013. Decisions on whether to go beyond 10 per cent will depend on future match funding decisions, on further work with all interested parties on the options for rural development investment and on the wider sources of possible rural development funding.

In the consultation responses, various measures and priorities were suggested for rural development spending and the use of additional modulation moneys. We will initiate work quickly with all involved to develop those ideas and proposals and to identify priorities for support. That engagement will also look at developing the work already undertaken on land management contracts with the firm objective of using that approach as the main vehicle for support payments in the future. As set out in the partnership agreement, there is a lot of work to be done in that area and we need to get down to it quickly. We also need to maintain the sense of close co-operation between interested parties, which was apparent during the consultation exercise. The future has to involve partnership, which is a key agriculture strategy theme.

The decisions today represent only the start of a process. Apart from further decisions on the use of additional modulation funding and on the national envelope for beef, several important decisions will need to be taken and further consultation exercises will arise as a result of the EU implementing regulations, which are likely to be finalised in March or April. There will be key decisions on the use of the national reserve, the need to consider the transfer arrangements for entitlements and the question of resolving the basic entitlements in the first place, including appeals arrangements. Again, that will require close engagement with interested parties. We are considering how best to engage in the most productive and least burdensome way.

The decisions that we have taken within the flexibilities available in the CAP reform agreement are radical and will greatly advance the achievement of our strategic objectives as set out in the partnership agreement and the agriculture strategy. We will have to take more decisions on the detail, particularly when the EU implementing legislation is finalised, but the decisions that I have announced today set the basis for a sustainable future for Scottish agriculture and rural areas more generally.

The minister will now take questions on the issues raised in his statement. I intend to allow 20 minutes for the questions, after which we will move to the next item of business. It would be helpful if members who wish to ask a question pressed their request-to-speak buttons now. A considerable number of members wish to ask questions, so members should remember to ask questions rather than make statements.

I welcome the minister's statement, which goes a considerable way towards addressing some of the key questions and problems raised by a number of sectors in the industry, notably the beef sector. However, I note that a considerable number of issues remain unresolved and much uncertainty remains. I wish to question the minister on a few specific issues.

First, the door is obviously left open for the modulation rate of 10 per cent to increase, but a great deal is dependent on the availability of match funding and I presume that that depends in turn on the United Kingdom's 2004 spending review. Does the minister have an ideal percentage target in mind? How confident is he that match funding will be made available? Indeed, how confident is he that he will even be able to maintain the proposed 10 per cent rate?

Secondly, the minister indicated that he wants to press for a review date for the single farm payment. Does he have a date in mind? If so, what is it and how confident is he of success in achieving it?

Thirdly, I note that a number of final decisions are still to be made, one of which involves consultation on cross-compliance standards. Does the minister have a timescale for completion of that?

I thank the member for welcoming my statement. On her point about cross-compliance standards, I hope that Jim Wallace and I will shortly make an announcement on a consultation. We will look forward to hearing the member's views and those of others on that. On the negotiations with the UK Treasury, in which we will engage with our colleagues in the Department for Environment, Food and Rural Affairs, it would be inappropriate for me to set a timescale or a target because the negotiations are obviously continuing and the timescale will become clearer as they ensue. Equally, on the EU developments on the single farm payment, I cannot set a particular target for when we would want to return to the matter. However, we intend to return to it during the discussions with the EU.

I am John Scott in another guise.

John Scott has more hair.

The member is quite right; John Scott has a touch more hair.

I thank the minister for his courtesy in making the statement available in good time prior to his delivery of it in the chamber. In general, Conservative members welcome the commitment to full decoupling, including in the dairy sector, the adoption of the historic basis for the single farm payment and the opting at this stage for the maximum permissible amount of modulation. However, within that general acceptance, I have three questions for the minister.

First, what will be the reference period for decoupling the dairy sector? If it is to be 2005 or later, can the minister explain why it cannot be retrospective, as it is with other sectors? Does he agree that a future reference date can only play havoc with an already distorted quota market and lead to an inflated price for quota that may be worth absolutely nothing in 2006?

Secondly, the use of a national envelope for the beef sector seems to be inconsistent with the clarity and simplicity of the rest of the statement. Does the minister agree that a far better method of support for quality beef calf production would be through pillar 2 support under the rural development regulation? Will he confirm that any use of the national envelope will be for the briefest possible length of time?

Finally, on modulation, can the minister confirm that the first €5,000 of support is not to be modulated? Will he ensure that—in line with his recognition of the economic, social and environmental contribution that agriculture makes to rural development—farmers will have the first call on the recirculation of modulated funds? Will he assure members that, if the Chancellor of the Exchequer is not to continue the match funding that he currently provides on modulated funds, the Executive will not increase the burden on farmers to compensate but will reduce it to a degree that is similar to the chancellor's reduction?

Dairy farming decoupling is determined by EU regulations. I am happy to go into the detail of that with Alex Fergusson afterwards.

On the two more general questions about historic payments, I am glad that Alex Fergusson welcomes our decision, which I believe provides vital stability for farmers to adapt and respond to market signals. Decoupling will already involve a considerable change in thinking. To have done other than we did would have been to create an unnecessary additional burden on the agricultural community.

On modulation, we have said that we intend long-term growth of rural development measures beyond 2007. Of course, funding for that and how that money circulates within the agricultural community will depend on a number of factors, including changes in the EU budget for rural development and discussions with the UK Treasury on match funding. Those moneys will allow us to make considerable progress on rural development measures, to achieve agricultural strategy objectives and to advance the land management contract model by which we set such strategic store. I hope that, by that process, progress in rural development will ensure that the modulated funds return to the wider rural community. That will, of course, include agricultural businesses, which form a vital part of our rural development.

The new arrangements will enable applications for agri-environment funds to benefit a wider group of people than those who currently benefit. In Scotland, we have a much higher percentage of agricultural businesses benefiting from agri-environment schemes than is the case south of the border.

I welcome the minister's statement, as will farmers throughout Scotland, who can now look forward to throwing off the crippling burden of bureaucracy and form filling that has beset the industry since the 1992 McSharry reforms.

I have two specific points, one of which has already been raised by my colleague Alex Fergusson. First, there is a real debate about the proper way of addressing the industry's rightful concerns about beef production in Scotland. To make the right decision on whether the national beef envelope is the way forward or whether we should look to the rural development measures to address that concern, we need good, hard information. Can the minister guarantee that the Scottish Executive is gathering the appropriate information on who currently produces high-quality beef calves and on the geographic nature of where their production takes place? Without that information, it will be difficult to come to a decision on the right way forward.

Secondly, I plead with ministers to ensure that the linkage between the payments and the public benefits that we expect farmers to deliver should be based on the principle of the carrot rather than the stick. I fully believe that the right way of encouraging farmers to provide those public benefits is to ensure that they are rewarded for doing the work rather than penalised for failing to do it. I plead with the minister to adopt that principle, so that the carrot rather than the stick is used to deliver those benefits.

I am not known for my use of the stick, it has to be said.

On the objectives of a national envelope for beef, final decisions on the scheme obviously depend on further discussion with all concerned, which clearly includes the producers. I shall ensure that the best advice is available to civil servants on the detailed provisions in the implementing legislation and I assure George Lyon and Alex Fergusson that those discussions will include all the relevant organisations representing farming interests.

Where public subsidy takes the form of a single farm payment and is no longer related to production subsidy, and where we seek public benefit in terms of environmental improvement and future rural development, cross-compliance ought to include—and must include—penalties for failure to deliver on that public agenda. We have to acknowledge that that is the proper way in which to proceed, although the proposals will be incorporated into the cross-compliance consultation when we deliver on that. However, that does not mean that we will look to use the penalties as a first resort as opposed to a last resort. I do not expect that we would wish to use the penalties to ensure cross-compliance except in the event of a producer's failure to deliver on the public benefit that modulation gives us the opportunity to take forward in respect of better rural development.

Before I call Sarah Boyack, I remind members that they are supposed to ask questions. I would like to fit in the 11 members who have a question for the minister, but I will not be able to do so if members make statements, which is unfair to colleagues.

As a Labour member, I welcome the minister's statement. This is the beginning of the end for the common agricultural policy, against which we have campaigned for years.

Will the minister confirm that 10 per cent modulation will deliver £40 million of new investment for our rural environment in Scotland, which will bring huge public policy benefits across the country? What plans does he have to manage the transition period after 2007 to move us to a position whereby spending on agriculture is founded on the needs of Scottish rural communities? Will we deliver a much more integrated approach than the one that we have at the moment, so that we can link up a regional focus on the key priorities such as organic farming and forestry management and create much more environmentally sustainable and integrated rural development? Will he say something about the clear and measurable public objectives that will be needed if we are going to spend this public money in a totally different way?

As a Labour minister, I am of course proud of the fact that the announcement that we have made today, in concert with our Liberal Democrat partners, takes forward full decoupling and increased modulation. The announcement is indeed a watershed in respect of future agricultural development, better environmental management and rural development as a whole. I can indeed confirm that the combination of EU modulation plus match funding—less current plans—means that the additional, new money that will be available for rural development in 2007 as a result of our decision to go for a rate of 10 per cent modulation is £40 million. That is a considerable sum of money. I believe that, properly utilised for better agricultural and environmental management and better rural development, it will make a real difference in our rural communities.

I welcome the statement. However, will the minister give us a flavour of how he sees the national envelope working to support the quality beef sector, given that the short time that he referred to in his statement is of an uncertain length and during that time the market for quality Scottish beef will remain highly vulnerable? Is he prepared to guarantee that the national envelope will be used for as long as is required to support the vulnerable communities that rely heavily on the sector?

I thought that I had said as much in my statement. The important point is that the national envelope will provide short-term stability for the beef market until the export position is normalised. The fact that the beef sector remains open to short-term uncertainties led to our decision, which I believe is the right one, on the use of the national envelope. That is a Scottish solution for Scottish circumstances.

The national envelope provides an incentive for cattle to be retained in our more peripheral areas for environmental reasons as well as for the social reasons to which I referred in my statement. That is important for the area that Rob Gibson represents. I take the point that Opposition members have made about the transitional nature of what I announced today. It is our intention in the longer term, whether by the national envelope or another mechanism, to ensure that the beef sector is protected, not only for the benefit of agricultural beef protection, but to retain the social and environmental benefits of keeping cattle in peripheral areas.

The minister mentioned that the appeals process is still to be determined and consulted on. Will he ensure that the impact of the foot-and-mouth outbreak in 2001-02 on historic stock levels is taken into account in that process? Will the appeals process enable an appeal to be made on that basis?

I asked officials that question when we looked at the 2000-02 reference period as the basis for the historic payment. As David Mundell said, issues such as the national reserve and appeals mechanisms still have to be decided on, but I am determined to ensure that nobody will be disadvantaged as a consequence of the events to which he referred.

Does the minister agree that opting for a low level of modulation effectively sends a message to Scottish taxpayers that they must not only subsidise overproduction and overgrazing, but pay further to tackle pollution, such as agricultural run-off, in order to comply with, for example, the tighter standards that are to be imposed under the Water Environment and Water Services (Scotland) Act 2003?

No, I do not. The member should be patient and await the outcome of the consultation on cross-compliance and the requirement to maintain land in good agricultural and environmental condition, which is a fundamental part of our proposals. If I thought that our proposals would in any way damage future environmental management of our rural areas, we would not pursue them. As for the additional moneys to be made available through increased modulation, the £40 million to which I referred will make a substantial difference to better environmental management in our rural areas. The Scottish Green Party should welcome that.

I recently attended a meeting of the National Farmers Union Scotland at Gartmore. Much of what the minister said will please its members, particularly in relation to decoupling and form filling, which we talked about at the meeting. I will follow up Alex Fergusson's comment on the dairy industry. Recently, John Kinnaird—[Interruption.]

Do we have a question?

Yes, we do, if the Opposition is ready to listen.

Recently, John Kinnaird, the president of the NFUS, stated that an independent report on the UK dairy sector would inform the debate on the future of the sector after the reforms. Will the minister indicate how the industry will proceed following his announcement today?

I know Gartmore well and I am sure that today's announcement will be welcomed there, as it will be in farmyards throughout the country. As for the effects on the dairy industry, the only specific decision in today's announcement is early decoupling in the dairy sector. I trust that that will be welcomed by people who work in the sector, because it will bring dairy into line with other sectors. Other decisions on the dairy side, as I said to Alex Fergusson in response to his question, will be announced separately.

The minister said that the beef sector has to be treated carefully, but will he undertake to do that with a light hand, because one of the greatest environmental benefits that the changes could facilitate would be the movement of cattle down off the hills and back into the environmental deserts that have been created in the east by the CAP over the past 20 years? Will he give an undertaking that money that has been accrued through modulation will be redistributed through the rural development regulation in such a way as to begin to eat away at the prejudices created by a system that taxed the many and rewarded the very few?

Alex Johnstone will find, if he reads the Labour Party constitution, that we are all about rewarding the many and not the few. I discussed the issue that he raises with the Secretary of State for Environment, Food and Rural Affairs. We share the view that a light touch is needed in respect of the regulatory regime. It is important to take that approach, which we will discuss with the NFUS and others. As we have outlined today, the national envelope is designed to bring stability to the beef sector and environmental improvements to our rural and peripheral areas. As members might imagine, these issues are finely balanced, but I am sure that on balance people will agree that we took the right decision, which will help to restore stability in the market.

I have two brief questions. First, the minister talked about seeking a review of the single farm payments. How soon after they come into force would he like a review? Is he talking about one, two or three years? For what timescale will he be pressing? Secondly, on the national beef envelope, given all the uncertainty surrounding the reforms, does he have full authority to make adjustments at any time that he sees fit or are there obstacles that prevent him from intervening?

That is of course a devolved matter, but we have to introduce the schemes to comply with EU regulations. There are and will be discussions between the devolved Administrations, the UK Government and the EU commissioner on the final outcome of all the responses to decoupling and modulation issues. I answered the question on setting timescales for discussions when I responded to Richard Lochhead's colleague Roseanna Cunningham. With respect, I announced the decisions only today, so to start talking about when we should review them is a bit premature.

I apologise to the members whom I did not call to ask questions.