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Common Agricultural Policy (EUC Report)

Volume 702: debated on Thursday 5 June 2008

rose to move, That this House takes note of the report of the European Union Committee on The Future of the Common Agricultural Policy (7th Report, HL Paper 54).

The noble Lord said: My Lords, the report that we are debating this afternoon was published in March this year. Since then, we have received the Government’s response, which deserves full and thorough reading and, recently, the Commission’s legislative proposals on the health check. It is fair to say that anyone reading the report in the past few days would have been struck by how quickly, over the past few months, the global context of agricultural policy has changed. We are living in very fast-moving times indeed. Over the past few days, we have had the UN summit on world food security in Rome and on Tuesday the director-general of the Food and Agriculture Organisation told heads of states and governments gathered in Rome that no one understands why rich countries have distorted world markets with the £138 billion that they spend on supporting their own agriculture, clearly to the disadvantage of many developing countries. That is a fact that we must always take into consideration.

The UN secretary-general has suggested that United Nations members should plan for a 50 per cent increase in food production by 2030. Rich countries are being urged to put more development aid into agriculture in developing countries. Things are changing and if, as a global community, we do not live up to the challenges that we face in ensuring food security, perhaps some of the social and political unrest that we have seen manifest itself in countries across the world in recent days and weeks will unfortunately become a more frequent occurrence.

Global change has created opportunities and challenges for European agriculture. The central issue is how the common agricultural policy should develop to ensure that European agriculture is best placed to secure the benefits of those new opportunities. We must all consider that point.

I turn briefly to the Government’s response to our report before considering the Commission’s legislative proposals. Let me say straight away that the Government and the Select Committee are not only in broad agreement on the general direction of policy but are also in agreement on many of the policy specifics. We both want a more market-oriented agriculture that is sustainable and makes a significant contribution to the environment, particularly in the area of climate change. I shall quote from our report. At paragraph 212 we write:

“We believe that the drive towards a more market-oriented agriculture should continue. In the long term, the CAP should aim to foster a farming sector that is capable of standing on its own feet, competing in open international markets without subsidy or special protection. We acknowledge the likelihood of greater demand for agricultural commodities in future, and believe that this presents an opportunity for the European farming industry. The distorting effect of subsidies will in our view hinder the EU agriculture sector’s ability to respond to, and profit from, the expected increase in global demand for agricultural products. The CAP should instead aim to steer the industry towards a position from which it can take full advantage of a future boom in commodities prices. In our view, this means moving away from the distortions that a managed and protected internal market for agricultural commodities creates and sustains”.

That is our guiding principle against which we will judge all future legislative proposals for the reform of the common agricultural policy. We are in agreement with the Government on the future of direct payments, moving away from the historic basis, while they exist, and, more importantly, looking forward to their ultimate disappearance.

On page 61 of our report, at paragraph 222, we write:

“In the longer term … we are not convinced of the justification for maintaining direct payments under Pillar I, as the market and environmental objectives that we regard as the appropriate long-term aims of the CAP can in our view be pursued adequately with the instruments available under Pillar II. We therefore recommend that a progressive flattening of payments systems in the aftermath of the Health Check should in due course be accompanied by a phased reduction in direct payments over the course of the next Financial Perspective”.

There is a host of other examples where the Select Committee and the Government, through their response, are in agreement, but I should perhaps identify two areas of disagreement. The Government reject our argument that European farmers should be required to produce only to the same SPS standards as their competitors exporting into the EU market. The Government take the view that the, let us face it, relatively high production standards demanded of farmers in the EU are not disproportionately costly compared to other variables that have an impact on the competitiveness of farmers. However, we take a different view on this. We take the view that the imposition of higher internal standards distorts competition. I think that ought to be recognised. On another issue, the Government do not agree with our argument that the application of voluntary modulation in the United Kingdom causes competitive distortion. We think it does. These are disagreements of some substance, and there is no point pretending that they are not. Nevertheless, they should not distract from the wide agreement between the Select Committee and the Government.

The points of agreement on the Commission’s legislative proposals are, again, easy to identify. We very much support the abolition of set-aside, we welcome the fact that milk quotas will be phased out, and we support the proposal that historical payments should no longer be the basis for single farm payments. We also welcome the simplification of cross-compliance, as we do the increased flexibility given to national envelopes, the introduction of minimum payment levels for single farm payments and the increase in the funds for rural development. On those points, we agree with the Commission’s proposals that have come out of the health check. We also strongly support the EU’s decision to commit itself to the removal of export subsidies that distort trade and particularly work to the disadvantage of developing countries. That will be a major achievement when it finally happens.

There are, however, disappointments in the outcomes of the health check. We are opposed to the introduction of additional modulation for larger farmers, which in effect is a penalty on efficiency. I am sure that in many countries in which it is applied it will only increase the income of solicitors as they try to develop means by which artificial, smaller farm units can be established. Surely that is in no one’s interests. Although we welcome the extension of decoupling, we are disappointed that it has not been completed.

Overall, what is the judgment? I suspect that the committee will take the view that, so far as it goes, the Commission’s proposals are going in the right direction, but that in terms of placing European agriculture in a position to take full advantage of the opportunities that now exist, the proposals are simply too timid. There is no recognition of, let alone enthusiasm for, the fact that to be successful European agriculture must engage fully with the market and the consumer, rather than continually reflect the interests solely of the producer.

The Government deserve to be congratulated on securing important reforms of the common agricultural policy in the past 10 years or so, often in the face of stiff opposition. For the future, we must continue to work towards the elimination of tariff and non-tariff barriers and always be on our guard against their being introduced via the back door. Above all, however, what is needed in the Commission’s proposals—I am afraid it is missing—is a clear signal of the end of direct payments. The time has come, the situation is right, and it is sad that the opportunity has not been seized. I beg to move.

Moved, That this House takes note of the report of the European Union Committee on The Future of the Common Agricultural Policy (7th Report, HL Paper 54).

My Lords, it falls to me to congratulate the noble Lord, Lord Sewel, and his committee on the thoroughness with which it has conducted its inquiries and the fund of information which it has unearthed. I have even heard some outside this building saying that it is a textbook for anyone wishing to understand what is happening in the common agricultural policy. I also congratulate him on obtaining the opportunity for us to discuss these findings today, even if he had to wait a little before it became possible to do so.

As noble Lords will be aware, it also gives us a chance to look at what the EU Commission has come up with in what it has described as its health check. It should not be surprising that it contains many similarities and enough was known about the general direction of the health check to inform some of the findings of the report. But it is very clear, all the same, that neither report has reached the point where the findings will be put directly into practice. As the noble Lord, Lord Sewel, said, the EU report seems to lack a certain amount of vigour, which, in this country, we would like to have seen. Perhaps an indication of the sort of battle that is in store can be seen in a press report yesterday: in the effort to secure a yes vote in the Irish referendum on Lisbon, the Irish Prime Minister announced that he would use his country’s veto to block any liberalisation plans in the current round of WTO talks.

As the noble Lord, Lord Sewel, has pointed out, there can be no doubt that we are now entering a very different period in agricultural markets where world price levels are approaching those that we have maintained in the EU. Can the Minister tell us if there are commodities which, in the past three months, have required export refunds other than perhaps a form of export guarantee? If we have reached that point, it would make it much easier to reform EU policy to the point where there are no export subsidies, which, as the noble Lord, Lord Sewel, said, is one of the central aims in his report.

A rather more difficult area must be tariffs. Any reform of tariffs will have an immediate effect on commodity prices within the EU, as it also will on third-world countries for which the EU provides preferential tariffs. I can appreciate that the purpose of this report was to review the internal workings of the CAP. I have looked, perhaps all too briefly, at the report, but I have not found any mention of these external effects of CAP policies. None the less, it is a consideration that will have to be taken up, which should not go unmentioned today, and will require to be reviewed along with all the other policies.

I should declare my interests: I am a livestock farmer, a member of the Scottish National Farmers Union and a member of the Scottish Rural Property and Business Association. Given my interest in things north of the Border, it will not be a surprise to those who served on the committee that I come back to a topic that was raised in the evidence given by the Scottish Rural Property and Business Association representative; namely, the requirement with some commodities to retain a certain critical mass in vulnerable areas. That is largely because of the difficulties in maintaining downstream processes and businesses.

As we can see, this rationale has been used as an excuse in a number of other countries for maintaining an element of their commodity support payments and not fully decoupling. It is one of the weaknesses of the health check programme that it requires that no one who has not maintained these payments should be allowed to reintroduce them. But it does not propose to bear down on those who are applying these payments at present and perhaps doing so indiscriminately. It also contains the proposal that it should be possible to direct assistance to fragile areas, which surely should be the threshold that should be used in considering any commodity or other connected payments. This kind of support—I think that the noble Lord, Lord Sewel, pointed it out too—requires to be looked at largely as social and environmental support. Does the Minister consider that this support could be entirely moved into Pillar 2 and not create the distortions which cause the problems with our negotiations with the WTO?

It is very encouraging for us to know that a reduction in the conditions required for cross compliance is in consideration, but there are other aspects of EU regulation that will need careful review. The most recent that I have come across is in haulage regulations. I know that the Minister does not have responsibilities north of the Border, but it might be as well for noble Lords to be slightly aware of some of the problems.

The movement of livestock from the islands and the west coast of Scotland is a highly seasonal affair, largely taking place for two months in the autumn. One of the main livestock hauliers in the area has just sold up his business because the cost of compliance and the sternness of the regulations make it uneconomic and too frustrating for him and his employees. The EU regulations state that for any animal involved in a journey that from start to finish lasts from eight to 12 hours, the lorry must be fitted with a watering system. At least half of the animals being transported are sheep, who have no idea about drinking bowls or nipple drinkers. The ferry from Uist to Oban can take up to seven hours before any onward journey is considered, and once the time has been exceeded, both the lorry and the trailer require climate controlled forced ventilation and satellite tracking. This may not be quite the same challenge for areas in Cumbria or Wales, but all these areas are also affected by the lack of small-scale slaughterhouses nowadays, which has increased the difficulties for the animals and the hauliers.

The noble Lord, Lord Sewel, said that the EU is still looking at bearing down on making large payments to larger farmers. There was a proposal to cap single farm payments which would have had a disproportionate effect on UK farmers, but now that same idea is being targeted at increased modulation. Again, from the Scottish point of view, where more than 85 per cent of the land is in less favoured areas that tend to comprise huge acreages or hectarages of land, although not necessarily huge businesses, this would be felt very heavily. It will discourage the development of larger units. We have all seen that if agriculture is to move forward, some small-scale units need to be amalgamated so that larger and more efficient businesses can be put in their place. The aim of the agriculture commissioner, Mariann Fischer Boel, is of course to increase food production in order to stem rising prices, so to introduce a policy that would actively discourage an increase in food production seems absurd.

In their response the Government ask if they can channel aid to these areas in a more focused way to help with unemployment, but that would require innovative thinking. I do not know whether the Minister can give us an indication of how that might be done. They will have to come back to the fact that a certain amount of what might loosely be called agriculture will be needed for the management of the vegetation, and as time goes on, some sort of useful production in order to supply the increasing demands of the world’s population will be needed.

My Lords, I congratulate the committee on producing an excellent report. I can tell by the amount of detail that an awful lot of hard work went into it. The health check has come at the right moment for this debate. This is a time of great turbulence for food production, with price hikes and food riots, while the discrepancies between supply and demand have sent the price of food upwards. This follows a long period of stable low prices in the UK and I believe the report has to be read in that context.

I can well remember saying in lectures 30 years ago that food represented 27 per cent of the disposable income of an average family. Add to that the 33 per cent of income that went on housing and you had already got rid of 60 per cent of disposable income. Until the end of 2007, food purchases represented only 11 per cent of income and there was a steady increase in the purchase of luxuries such as holidays. We have now had a reality check. Over the past 18 months, Tesco alone has made a profit of £2.5 billion, £1 billion more than the entire UK agriculture industry. Those days are behind us as well. We have had a situation where farmers had poor profitability, particularly in the uplands where their incomes have been lower than the national minimum wage. There is a huge dynamic change going on.

Now everyone else, other than just farmers and agriculturists, is starting to talk about food security. In the past 10 years food security in the UK has decreased by 16 per cent, from 86 per cent to 70 per cent. At least a quarter of our food is imported, so what impact will that have on our balance of payments?

In the past lean 20 years many farmers have said, “Thank God for the CAP”—we have certainly said it in Wales—and “Thank God for the French farmers”, who have ensured that all EU farmers have had a positive income. The UK Treasury would never have given us that kind of support. I am afraid that that is a fact of life.

Why is it that complaints about high food prices do not always focus on the commodity markets, for example, where doubtless at this very moment bets are being placed on the future price of wheat—which has doubled in the past 12 months—and impacting on the current sale price? That is having an effect, too, on the ability of the poor to buy food. A lot of factors are involved in this which cannot be ignored and the report should be set against that background. It is like an academic exercise in some respects: “Reform of the CAP—discuss”. We could still be doing that at midnight, so I shall try to get through only some of it.

I partly blame the Treasury for some of the misdemeanours that have occurred in the agricultural industry. It is interesting to note that only last week the Chancellor said that he felt that direct subsidies should be scrapped. Unfortunately he did not put that remark into context and some journalists interpreted that as if it was going to happen tomorrow. Fortunately the report, and even the Government’s response to it, does not reflect that kind of immediate way of dealing with the problems.

We have the report, the Government’s response and the EU proposals. Unfortunately, I have time to look at only one or two issues. As an ex-member of the committee, I am not going to be a good boy because I do not agree with some of the things that it says. Pillar 1—the single farm payment—has, in the context of agricultural economics, many different interpretations. For those of us who have studied agricultural economics, the three classic principles are land, labour and capital. On the land issue, grade 1 agricultural land has many options; you can grow as many as 25 to 30 different crops, for example, with differing values. Even grade 2 or grade 3 land will do that, but with grade 4 land you have fewer options, and when you get to grade 5, all you are left with is beef and sheep. That has to be recognised in any CAP policy.

That brings me to the issue of area payments versus historic payments. Does one size really fit all? Probably the greatest epoch-making agricultural legislation in the UK, the Agriculture Act 1947, was headed by Tom Williams, a West Yorkshire miner who saw the need for food security and for designating land as less favoured areas—which, in socio-economic terms, were poorly off—and the Treasury in those days was willing to fund that kind of policy. The socioeconomic needs of the less favoured areas are important, in my view. When the chairman, the noble Lord, Lord Sewel, quotes the FAO chairman—or director, I cannot remember which—about the £130 billion shortfall, we must not forget that the Americans are putting $200 billion into agricultural support in the States, which is distorting the whole of world trade, yet they are going on about the WTO and all the rules it breaks. We must be careful about where we put the blame when the EU is reducing its budget on agricultural expenditure.

I agree with what the noble Lord has said. We certainly need to scrap milk quotas, set-aside and export refunds, which are a horrific distortion of trade and impact badly on third-world countries. Historic payments, however, are a totally different situation. When we try to apply area payments right across the UK, for example, in the form of the CAP, my concern is that on that basis land may be traded as a commodity because of the area payments that are on that land. I can see that as a possibility. On the other hand, if you look at historic payments as they are in Scotland, Wales and Northern Ireland, you find 80 per cent less favoured areas—80 per cent of areas that can really produce only beef or sheep. There are hills that have had a certain number of hefted stock every year for the past 200 years. That is real history, isn’t it?

We cannot ignore the less favoured areas, and I am pleased to see that in its summary the committee has paid due concern to the poorer areas in the Common Market, in the EU. They need support. What kind of support do they need? I am alarmed by the Scottish evidence here that a 5 per cent reduction in modulation—I am quoting this off the top of my head, so I may not be close enough in accuracy—results in a 19 per cent reduction in farm income. That is a graphic illustration of the importance of historic payments. They may have to be phased out over a long period, but if that is done then something has to replace them. The income streams and disposable incomes in the uplands need to receive support from Pillar 2, as the report rightly says, because we need diversification from those income streams. Very often the farm income is supplying only 50 per cent of the net disposable income of the family, and the rest is coming from elsewhere. That has to be encouraged. Pillar 2 is undoubtedly the way to do it, but I have reservations about whether the British Treasury in matched funding will have the resolve to support rural areas in that way, not just in Britain but throughout the European Community.

My Lords, I thank the noble Lord, Lord Sewel, for giving us the opportunity to debate this issue. Although I have nothing to do with the report, as I am married to a farmer I thought I might make a few comments, because I help her with the regulatory paperwork side of the business. It is an interesting report that helped to explain some things. I was interested in the government response and astonished myself by agreeing with quite a bit of it. I liked the objective of continuing to produce the majority of the food we consume, but my worry is whether we will end up doing that.

We live in a complex system and a complex world. Agriculture is even more complex, and we have complex interrelationships with nature. A rules-based system does not work properly. In an ideal world, the market will work, but the trouble is that one cannot predict things well enough. We cannot predict what is going to happen to farming in a few years. We cannot assume that prices will continue to go up, particularly for Europe. Many different things could change. Zimbabwe could sort out its problems and start producing a proper harvest again; Ukraine might do the same; Australia may get some years of rainfall; and suddenly our wheat and grain would be totally uneconomic again. On the other hand, the people who still have some cattle left will like that. Those interrelationships are difficult to predict.

People forget also that farming had some very tough times while the prices were down. Overdrafts have increased. Now that farmers are trying to make some profits, they probably have to give 40 per cent of them to the Treasury in a really good year. It is therefore quite hard to get the overdraft back down again before the next bad time comes along. If the Government are this year modulating 18 per cent of money that could go to help pay off the overdraft, it does not help because it is yet another tax.

Competing in open international markets sounds like a wonderful idea and is a great aspiration. However, let us suppose that nitrogen costs go too high—that assumes that we can get nitrogen because no predictions have been made on whether any will available in one or two years. There is huge pressure to stop producing it. It is energy-intensive and people want us to stop putting so much nitrogen on the ground. The trouble with that is that one’s yields will drop, at which point we all suffer and enter a more difficult cycle. Since our underlying and infrastructure costs are higher, we will make a loss if we do not have a fairly high yield off the farm. The cost of fuel is going up, as are many other production costs. The report is wrong in stating that regulation of emissions will not have an effect on costs. Merely complying with those regulations is bound to have a cost—one should not kid oneself otherwise.

Defra’s desire to simplify the regulations is sensible. There are many stupid inconsistencies at the moment. A more common-sense approach is needed and decisions need to be taken more rapidly—particularly as the time to submit SP5 forms approaches—so that people really know where they stand. I give an example of a ridiculous regulation this year related to planting wild bird cover. Maize is technically a combinable crop, so one can fertilise, spray and look after it. It thereby flourishes and helps the wild bird population. A mixed crop, which would be better for the wild birds, is not harvestable. It therefore comes under GAEC 12. You are not allowed to fertilise or spray it; your crop will die; and the wild birds will have nothing to feed on. It is just stupid. Why can Defra not get its act together to say something about that early enough? Instead, it says, “Oh, no, we’re bound by the rules from Europe”. It should get its act together.

Adding water costs to the SMRs and GAECs will make life more complex and difficult. At the end of the day, the farmer faces a whole lot of rules which state that one should do something on certain dates as if the world were a perfect place and they could predict everything. But they are coping with the weather, which is unpredictable and changing. Their machinery may break down at the wrong moment. Their contractor may decide to move to a different farm at that date. Their livestock may go ill. One cannot predict what is going to happen. It is not like running a great factory. Most of those businesses are not run with lots of spare capacity, machinery and manpower; they are small, tightly knit organisations which are run close to the bone, so one cannot do it.

It is said that the bigger businesses will benefit from all this regulation because they will be able to deal with it. I agree with those who say that the payments should not be capped. Just because the businesses are bigger does not mean that they are making a lot more profit—all kinds of other inefficiencies will exist. One has to find out whether they are profitable before one can start saying that one is going to remove their income. All that would do is bankrupt agriculture generally. It is not the income that matters, but the bottom line.

Interestingly, if we move to bigger units, it will help people who worry about set-aside disappearing. Now that set-aside has been removed in the past year, I have noticed that a lot of fields that my wife popped into set-aside she does not want to remove again. Why? The machinery has become too big. It is not worth turning something of only 2.5 hectares back into wheat. You lose too much around the edges anyway; you have to have 5-metre margins around the watercourses under the pesticide regulations and you will not be able to get the table for your combine. By the time you have got it into the field and put the table on, it is time to take it back off again. So they are not worth farming any more. Some of these things are going to be permanently set aside. If you have a larger unit, the machinery will be bigger so you have de facto set aside. So you should go for bigger units.

The Pillar 2 redistribution is a very good idea. It is what the public want and there is a lot of environmental benefit from it. I enjoy seeing wildlife back, although it has always been around. It has just been shifting around—and, yes, there have been some problems. But with Pillar 2, it is a case of where the money is going to end up. There is a suggestion that some of it should really be going into regeneration schemes, rural development schemes and other things that are not to do with land management. At the end of the day, I thought that this whole area was about land management, and it is the land management that will suffer. If you put big money out there and pop it with some quangos to decide where it is allocated, the farmers will not be the ones sitting on the committees because they will not have the time or the inclination for the bullshit that goes around in those committees, and they will not understand it—

Sorry, it is a technical term. They will not have the time to try to understand how the thought processes go on that regulatory stuff. So the money will probably not end up where people think it is going to end up—in good environmental schemes that will help the land.

Then you come on to the debate about the role of farmers. Do we actually want people who enjoy and love the land, who understand and will work with the vagaries of nature and who do not have a nine to five mentality? You cannot have that mentality when you are dealing with the countryside, the weather, livestock and stuff like that. Those people do not like paperwork and they do not like being treated like idiots either. If you think that someone who has done an environmental studies course in university, who has done one farm walk and then starts producing books telling you how to run a farm, knows what they are doing, you have got another think coming. I would love to know how many people who write these regulations actually possess a pair of Wellington boots. I should not think that it is very many of them.

Then there is the necessity of supporting certain markets. If you want to have grassland and parkland still and have it properly done—and under the countryside stewardship scheme, some of it must be managed that way, quite correctly—you must have some cattle left. Of course, there is a big problem about how you keep cattle, the types of cattle, and what happens if cattle become totally uneconomic. In some parts of the country, it is very hard to find lawnmowers to come and eat the grass in countryside stewardship schemes. So we may need to distort things there to ensure that the environmental side is looked after properly.

The last thing I have to say is on the character of the farmer. The reports from Defra and other places glibly say that the farmer should learn about risk management and should join co-operatives and selling groups, and so on. Well, the co-op made a nasty mess of selling its wheat this year, so it does not always work. The large buying and selling groups can make just as many mistakes as the small farmer, so you cannot rely on that.

As for options and futures, they are quite dangerous financial instruments. I have a friend who is a potato farmer who went heavily bust on that a few years back, thinking that he was hedging against losing his potato crop. There would not be so much money to be made out of them in the City if they were not also high risk. At the end of the day, if there is a high reward there is a high risk behind it. The sort of person who is managing land is probably not the sort of person who is interested in that sort of risk or that sort of business or intuitively knows it. If you release half the active sellers—I am trying to think of another word for those with sharp practices—or the financial advising people on to the farms, you will again have some disasters.

It is all very well saying to farmers that they should diversify but, again, you come back to character. A lot of them do not want to run bed and breakfasts or hotels. And then you have the problem of planning. If you want to get a composting unit on to your farm, or something like that, which is nice and green and environmental, everyone will object because they will say that it smells—and then it will take one and a half or two years to get planning, if you get it at all. So it is not easy. You have to get capital for this; you probably have not been making money, so where is the capital going to come from? It is a different kind of business person you want. Is that the sort of person you really want running the countryside and land management in future? Perhaps it is—I do not know—but I am not sure that some of the people who are there are the people that you are making the right recommendations to.

My Lords, I serve on Sub-Committee D on Environment and Agriculture. I declare an interest as a farmer and landowner. I must also declare that for more than 20 years I have been lobbying to get the CAP reformed so that it addresses the problems of rural areas and represents all their population and not just the farmers. Even in the predominantly rural regions of the EU, agriculture’s share of gross value added is only 5.8 per cent. On average it is even less, and if you include the more urban regions it is much smaller still.

I believe that government should not interfere with the management and control of the nation’s businesses. That is not efficient. An administration trying to control aspects of agriculture in 27 countries should limit itself to regulation and ensuring fair competition. However, the sad thing is that far too many people on the Continent treat agriculture as part of their cultural heritage rather than a business, and believe that every farmer should be protected because what he is doing is part of some sort of sacred duty. In reality of course he is no more part of the cultural heritage than the village cobbler, the butcher or the baker, who get no support.

The landscape might be part of our culture, but not the farmer, so let us buy the product and not subsidise the man. That particularly applies to our less-favoured areas, where farming is mainly about landscapes, and landscapes are mainly about farming. In these remote and often mountainous parts, it is important for social and environmental reasons that land managers of some sort are encouraged to stay in place.

Anyway, as a result of this near spiritual approach to farming in some continental countries, when the Commission approaches the reform of the CAP it is as much a political exercise as it is a rational examination of the future needs and requirements of a massive, and massively diverse, food industry. The question that should be asked, and is really not, is: “What do we want from our agriculture in 10 to15 years’ time, and how do we ensure that we get it?” The answer should be that we want to have an environmentally sustainable industry, which produces high-quality, good-value and sufficient food in a way that does not endanger the environment or the needs of future generations. The way to get there is to improve the infrastructure and help create a competitive industry that responds to market signals and not to political ones; an industry that is not dependent on taxpayers’ financial support, or on protection from the rest of the world; and an industry that does not utilise 40 per cent-plus of the EU’s budget in order to keep it as it is now. In other words, agriculture desperately needs the commercial pressures in order to keep it constantly changing in tune with market signals. That is how it will thrive and produce the food that Europe needs.

However, the Commission, and now the Parliament, has to consider the vested interests. I might say that these vested interests do not only include farmers. It was interesting that when New Zealand did away with its agricultural subsidies in the 1980s fewer than 4 per cent of farmers went under, while I believe that over 50 per cent of its Ministry of Agriculture staff were made redundant. I will not go further down that road. Suffice it to say that these vested interests seem to have political clout, and even when you get some reform a new set of vested interests seems to appear. Real reform is thus very slow.

One of the more interesting interviews that we had during our inquiries was with the European commissioner for financial programming. As noble Lords might imagine, she can think of a lot of better things to do with 40 per cent of the budget than to give it all to farmers. One of the things she said in passing which caught my attention was that in giving eastern EU farmers their very small equivalent of the SFP, we were only really helping the Chinese and Japanese economies. She paused like I am pausing now. She went on to explain that this is because many of the small farmers were just using this money, which was new to them, to go out and buy TVs and microwaves which they had never before been able to afford, while just carrying on farming in the way they had always done. So one has to ask: “Is this money helping them modernise their industry or making them more efficient in producing more and cheaper food for the EU taxpayer, or is it just the start of getting them hooked on a way of life dependent on government handouts?” Furthermore, if that is a justifiable question applying to them, might it not also be true in connection with western EU farmers? What does the single farm payment actually achieve for EU taxpayers outside the less favoured areas?

There is no doubt that in eastern Europe farmers need help in restructuring their agricultural industry, but at present Pillar 1 is remarkably badly equipped to do this. Certain rural areas in western Europe also need help, but why pick only on farming as the conduit for support? The CAP could be described as being monotheistic in that it blindly worships farmers at the expense of others in the countryside. However, if we want to create wealth and employment in the countryside let us foster new cutting-edge businesses which will not need ongoing support once the right infrastructure is in place such as more commercial workspace or good broadband and transport links. If you want landscapes or habitats, then by all means pay farmers to produce them, but leave the food market alone. Encourage co-operatives, and above all encourage or even pump-prime insurance schemes so that both farmers and consumers can cope better with the bad years, but do not go down the route of the disastrous recent French proposals to make the EU food industry even more protectionist. That is reverting to the failed policies of the 1980s and will ultimately lead to an inefficient industry where the supply of food is gradually reduced and becomes more expensive than ever.

As I have said in other speeches to your Lordships, we are going to need a really competitive and productive European food industry in years to come. There could be world food shortages and it is inevitable that at times food prices will go up. However, as has been said, food as a percentage of the household budget in much of western Europe has fallen during the past 50 years from more than 30 per cent of household spend to some 10 or 11 per cent now, so here at least there is some slack in the system.

I believe that farmers and food would be so much more appreciated if the market was not distorted by the political interference of the CAP. I also believe that farmers in Europe can in future supply the food that Europe needs, and can even keep others further afield well fed, but only if they are exposed to the realities and pressures of the marketplace and not cocooned by the comfort of the present CAP. Meanwhile, a well funded Pillar 2 could do so much more for our countryside and those who live there.

My Lords, I came along to listen to this debate because we were enjoined to do so yesterday during our proceedings on the Lisbon treaty when we discussed reform of the CAP. Having listened to the debate I join all other noble Lords in congratulating the noble Lord, Lord Sewel, and his committee, and the staff who supported them, on the very high quality of their report. That is not in doubt and never is with your Lordships’ European Select Committee reports.

Indeed, all your Lordships’ Select Committee reports are of the very highest quality and many of them go on to be very influential in the areas which they cover. However, I intervene to ask what I and others asked yesterday: how much difference can any reports from your Lordships’ Select Committee on the European Union make to policies which are now dictated by Brussels, however much the Government may agree with them? Virtually none, I submit. I am fortified in this fear by a series of recent Written Answers to the noble Lords Lord Vinson and Lord Tebbit, who asked what effect any of your Lordships’ European Select Committee reports have had on EU policy over the years.

Having tried and abandoned the disproportionate cost defence, so far the only answer the Government have been able to give came on 19 February this year, which stated:

“The Select Committee’s recommendations on a restricted scope and the country of origin principle were incorporated into the Audiovisual Media Services Directive (amending the Television Without Frontiers Directive)”.

When pressed on this paucity of hard achievement, the Government have fallen back on extolling the general quality of your Lordships’ European Select Committee reports, with which, of course, we all agree. The questions my noble friends and I were asking yesterday, and which I repeat today, are fortified by the Minister revealing during Committee stage on the Lisbon Bill that only some eight of the 27 other countries support the UK’s call for radical reform of the CAP and, indeed, of the even more infamous common fisheries policy.

As I understand it, the French and their allies have blocked any meaningful reform until 2013 and are threatening to do so well beyond that. So what chance is there of such reform? What difference does it make if the British Government agree with the report? None, I fear. Is not the only answer for us to repatriate our agriculture and fishing policies? Why do we not do that? We could then control our agriculture and fish, without being part of these truly wicked policies. I apologise to the Minister for trying his well known courtesy and patience so far, but I look forward to his reply.

My Lords, it is deeply moving to see the noble Lord, Lord Pearson, here today as a surprise appearance in the gap. He has added lustre to the quality of the debate, but his remarks were very predictable. I am sure that the Minister will deal with some of them. They always reach a fundamental existential conclusion, and we know what it is. It is not really part of this debate. I imagine that most other participants today are anxious for us to remain enthusiastic and active members of the European Union, which is an increasingly successful entity in a difficult and complex world, with more and more opportunity to help other parts of the world, not least in food production.

We have had the benefit of some very expert views. I think of the sagacious comments of my noble friend Lord Livsey, and I note what he rightly said about the expense of the United States farm support system. Other experts such as the noble Earl, Lord Erroll, and the noble Lord, Lord Cameron, have spoken, and we are due to hear from a great expert on agriculture and horticulture; the Conservative spokesman. Above all, I echo the thanks of previous speakers to the noble Lord, Lord Sewel, and his colleagues for a very arresting and radical report, which needs much careful attention.

This debate has arisen at the same time as the Commission has produced its preliminary draft health check proposals, of some complexity, and there is a lot more to come in the negotiations. Paragraph 211 of the report sums up the great difficulties of getting the balance right between the legitimate and growing single market in food and farm products and the pressure to repatriate partially some of the differences and variations in complicated national policies. That is an intricate exercise for the future, and we wish all member Governments and the Commission well in trying to get the best system for post-2013.

Britain takes less in total in CAP support payments on recent statistics than, say, France, but its average take is much higher because of the relatively high incidence of giant farms and large estates. Yet when the Commission tried, rightly, to apply a cap on CAP payments, the UK Government and wealthy UK estate-owning farmers protested vigorously, somewhat ironically. However, everyone knows that large farm estates have to be helped somehow to preserve and enhance the local environment for the general good. That is the reality. So the European Commission needs sympathy and help in its often abstruse and hard-to-grasp searches for solutions for post-2013.

The planned scrapping of set-aside will inevitably reduce the subsidies to the largest entities anyway, and those funds can then be deployed in smaller farms, especially where pro-environment objectives are encased in the overall activity. Meanwhile, the old world of excessive CAP support for excessive production is over—which is welcomed by most people—and few will lament that major change. The next few years will, however, reflect the global change to booming demand and food shortages in many developing countries.

It is fascinating also to observe the changes in French thinking in recent times. The presidency period that it will inherit on 1 July will reveal a much greater willingness in France to accept radical new objectives, which is a major adjustment. So if France can change in the future, Britain needs to as well, armed as we are with our famous obsession for free markets and the survival of some of the most skilful asset-strippers. I say that slightly tongue in cheek, but people will know what I mean. Of course, the big German farms could also suffer if the 7 per cent reduction at over €100,000 is implemented by the member states by the November deadline for the package to be agreed.

I trust that this target can be reached, because there is a wide range of views among the 27 about future modernisation priorities, from the acceptance of some interventionist support at one end, to the total scrapping of present-day subsidies, which seems to be the view in Sweden. Meanwhile, the French agricultural population is now down to 4 per cent and many small farms in France have ceased to function. This makes the task of modernisation easier, not harder. I declare an interest, as I live in France and I am surrounded by some of the remaining small farms. I am glad that the Danish commissioner, who has been praised in this debate several times, has advocated the use of unspent funds within the CAP support nexus to help third-world farmers, showing once again the powerful example that the EU can set as a provider of investment aid to underdeveloped countries, rather than short-term handouts to prop up.

The relatively high free-market view is endorsed in the sub-committee report, with its advocacy of the farming sector,

“capable of standing on its own feet, competing in open international markets without subsidy or special protection”.

I hope that the committee clerks, when they read the Hansard of this debate later, will send a copy to the United States and Japanese farm support agencies where subsidies remain the highest in the developed world, much worse than the CAP.

I hope that the European Commission will heed the committee’s later suggestion that the other available funds, such as cohesion, structural and regional funds, as well as CAP Pillars 2 and 1 can better be used to deal with the weaknesses of the rural economies in many sub-areas of the member states. The Commission in Brussels, like sub-committee D, is anxious to get the balance right between the logical availability of common support mechanisms post-2013 with the localised national and regional decision-making within each member country to secure the focused policy effect of cash help, plus incentive cash for innovative measures if farmers enhance the environmental benefits as well. This acceptance of permissive flatter payments being used by the members is surely a highly desirable objective if it can be practical, fair and transparent. That is of course a big “if”, but it must be achieved.

The Commission is very keen to move away from the historic payments model, as the report of the noble Lord, Lord Sewel, emphasised. It also expresses support for full decoupling and full abolition of set-aside, which must surely be pragmatically inevitable in the global village context if the advanced countries are to set an example. WTO rules also favour non-subsidy models for locally weak and impoverished farming zones, as well as normal units. I see that the National Farmers’ Union strongly argues for all arable support to go, not for keeping it for suckler cows and ewes, for example.

I believe that the Commission is more and more committed to the full abolition of export subsidies and the eventual elimination of milk quotas and cereal intervention payments. We have five years to go before this brave new world has to start, which is an adequate transitional period for normal healthy farm units to accept. Even after 2013, some support mechanisms could be retained pro tem on a tapering basis. In fact, the sub-committee report advocates this approach in paragraph 245.

On these Benches, we also welcome the report’s strong adherence to the co-financing of Pillar 2 outlays, as it enhances the subsidiarity of national efforts to secure local aims with efficient spending norms. We also welcome the proposal that member states could pay the SPS in two doses, which would mean that hapless farmers here would not have to wait an excessive time for full verification of claims. We would save some of the embarrassing comparison of other member states with the efficiency, or not, of what has happened here. I pay tribute to the noble Lord, Lord Rooker, who is not here for understandable personal reasons, for his honest admission of the difficulties with the department’s system in that regard.

I was glad to note that the National Farmers’ Union campaigned to get rid of the permanent pasture restriction, or the irritating “use it or lose it” rule. I very much agree with that. The NFU also worries about the distorting effects of Article 68 or 69—or is it the other way round?—payments under the 10 per cent procedure, and this certainly needs to be thoroughly sorted out and clarified into a tangible model system for 2013.

I understand also that the NFU—and I do not act as its agent, it just happens to have made a number of good suggestions on the health check—is concerned that the Article 68 schemes could produce the opportunity for member states’ agricultural ministries to slip into the habit of introducing quasi-modulation discounts. In paragraph 239 of its report, the sub-committee strongly supports the plans to get like-for-like reductions in voluntary modulation in return for increasing compulsory modulation. I would be grateful, therefore, if the Minister responded to this specific point in his wind-up speech, including the proposed modulation tabulation from the 3 per cent, the 6 per cent and the 9 per cent matrix of reductions onwards to the final outcome likely for 2012. I observe that the national modulation systems in, say, Portugal or Britain will reduce the payment against the increases in EU modulation, presumably to produce the same net effect, but how will all that work in practice? That is an important question. There are bound to be some uncertainties in those areas pending the working-up of the final reform package, but it would help to have the Government's preliminary thinking, while we fully accept that there is still a maximum of negotiating water to flow under the CAP bridge.

Finally, I would be most grateful if the Minister were able to say something on the latest unrest among dairy farmers, which has been mainly manifested in Germany, Holland, Austria and a little less in France. However, I feel that the debate has been useful and timely, and that the report of the noble Lord, Lord Sewel, is a tremendous generator of important and radical thought.

My Lords, I declare an interest as I am active in my family farming and horticultural business, and am a member of and active in a number of organisations connected with it. I join other noble Lords in congratulating the noble Lord, Lord Sewel, and his committee on a first-class report. The competence of those involved shines through, and it is well written, clear and straightforward. It is more than a layman’s guide in the sense that it provides definitions of those strange words that the CAP uses, such as “decoupling” and “modulation”, which are not normally used in the language. It can also be used as a textbook by experts, as my noble friend the Duke of Montrose suggested.

I read the report thoroughly, as I had it with me while I was overseas sheltering from the rain last week. I tried to read between the lines to see whether I could detect any subtleties. I do not see any; I see a pretty unanimous committee working on a strong consensus. Accordingly, it has been able to produce a report that has not had to blunt its thrust, and has had good interaction with many witnesses. I found myself compiling what I want to say today with far too many notes, because the report is detailed and the various recommendations are worthy of comment. I have to edit out some of what I say, as I am sure the noble Lord, Lord Dykes, had to as he tried to encapsulate all his points.

Events have moved on since the report, as the noble Lord, Lord Sewel, said and as we discussed last night. The health check has arrived. It is only in draft, but it contains the structure for substantial reform. Although Commissioner Mariann Fischer Boel said that it was not reform but that reform awaited the budget review, we can see that the concept of having one vision and two steps incorporates a serious attempt at change. The report is right to have anticipated that. There is a coincidence of argument between the report and the health check, and the Government’s response. There are areas of difference but, generally speaking, there is consensus. As the noble Lord, Lord Sewel, pointed out, the events of the past few months have, if anything. highlighted the urgency of change and the need to maintain momentum for it. This week, the United Nations summit in Rome has drawn attention to the need for food security to be high up the political agenda. We have an opportunity to keep the topic to the fore.

One interesting thing about the report is that it reveals the tension that exists between commonality and subsidiarity, and I do not think that these matters are easily resolved. There is also a tension between the more productive areas of agricultural regions—the areas where I am fortunate enough to farm—and the less favoured areas of which my noble friend the Duke of Montrose and the noble Lord, Lord Livsey, spoke. The report leans towards a resolution through greater control by member states, particularly in the environmental and social fields in Pillar 2. I think that that must be right, but it still shows that there is a tension between protectionism and the free market. That may be inevitable but, pace the noble Lord, Lord Pearson, we did not solve that problem in the pre-CAP days. The noble Lord, Lord Sewel, is right to say that there must be a move towards removing subsidy and facilitating the freeing of the market. There remains a strong necessity to liberalise markets where we can, and the report recognises that.

However, there is one point that I feel the report failed to address but should have done—that is, the huge inhibitors to the free market created by nitrate vulnerable zones and things such as the pesticides directives. Somehow or other, we have to try to stop the generation of restrictive and inhibiting ideas from the Community if farmers are to play their full part in boosting agricultural production in this country.

As if to reinforce these distortions that come into play, the report concentrates on the use of Pillar 1 for social purposes. Channelling funds through Pillar 1 may not be the best way to tackle these problems—the committee was right to draw attention to that—but I disagree with the noble Lord, Lord Livsey, in that I am not sure that support through production prices or production subsidies is the right way to deal with the social problems of disadvantaged areas. Pillar 2 is the right vehicle for that activity.

Environmental benefits are very important, and farmers are properly recognised as agents in providing a landscape and an environmentally attractive background to the lives of all citizens in this country. However, I am not sure that the cost to industry is always recognised. The benefits can lead to a number of market disadvantages. For example, we are rightly in favour of things such as animal welfare but within the market these can lead to distortions, particularly on a worldwide basis. If in these areas we repatriate scheme management and funding to national Governments, I hope that there will be ways in which we can balance out the disadvantages. I suspect that a key element will be proper labelling on foods of the country of origin. The Community has been slow to recognise that that is one way in which it can support consumers and also support producers in maintaining high standards and have them clearly recognised on the shelves.

The report goes into some detail on the single payment scheme and it must have been right to do so. The scheme has caused a great deal of difficulty and has lost farmers a lot of money over the past couple of years because of its complexity—as it operates within England at any rate.

The English authorities were right to undertake an area payments system. Historic payments, as the committee suggested, will have to be phased out if we are to avoid ending up with more distortions than we currently have. It was also right in what it said about the costs of small payments and the need to eliminate, on a de minimis basis, smaller claims and not to be diverted from seeking to cap payments. It is important to try and facilitate partial payment, as the health check recommends, so that where there is some concern about the precise exactitude of a claim, at least a fair percentage of it could be paid to the farmer, avoiding the huge financial problems that some farmers have had trying to get their payments paid on time.

One difficulty that farmers face—the noble Earl, Lord Erroll, was absolutely right—involves the bureaucracy that goes with so much farming today. The burden of overregulatory cost compliance is very negative; it has had an enormously negative effect on the way in which farmers view the CAP. It is often overegged and the inspection requirements are far more demanding than they need to be. Many farmers are prepared to maintain very high standards. I have to declare an interest as a member of LEAF, which sets standards—it is a quality mark. We need facilities whereby membership of such organisations reduces the necessity of having a double-whammy inspection system.

I hope that, notwithstanding the thrust of the report on the production side, there is also an important role for the common agricultural policy in maintaining rural communities. The report addresses that but stretches beyond the immediate problems of the CAP. It requires us to try to maintain the social fabric of rural communities, which involves the provision of post offices, health service reorganisation and the resolution of transport difficulties—all of those feed into strengthening rural communities. That involves not just Governments—I am not seeking to make an assault on the Government—but also the commercial banking sector, retail organisations and the whole area of retail planning, which have made the survival of rural communities very difficult. I believe that the CAP can be an agency for trying to ensure that we have sustainable communities in rural areas in future.

I suspect that the key, as the report suggests, is the liberalisation of the system. This objective has a moral imperative. We must seek to provide food for our country’s citizens that is of a fair quality and at a reasonable price. We must all be prepared to meet this challenge. If we are to take the industry with us, we must take every opportunity to get bureaucracy off farmers’ backs. The noble Earl, Lord Erroll, spoke eloquently of the hassle factor, which so annoys farmers. We must recognise that in a world where food markets are changing fast, the need to provide good quality food at reasonable prices is a major challenge. To do that we need investment in science and technology. I hope that we shall be able to debate that aspect in the future because I am sure that a programme of modernisation is necessary if we are to achieve full productive capacity with our farming resources in this country. We need to encourage new farming techniques and we need a proper linkage between pure science and its application.

I end by repeating my congratulations on an excellent report. I hope that the committee has similar success on fisheries. I also hope it returns to agriculture as the debate moves on. This is a fast-changing scene and I believe that continual interaction between this House, its committees and the policy is very important.

There is a consensus on much of which we speak; there is a tide which we can catch; it is a time of challenge to feed the citizens and the world; it is a time of change for farmers and politicians; and it is a time of opportunity which we should welcome.

My Lords, I am grateful to my noble friend for introducing his committee’s report and for the trenchant points he made in covering the main issues. The committee’s report, for which he can take great credit, represents a substantial amount of work.

The noble Lord, Lord Dykes, said he regretted that the noble Lord, Lord Rooker, for good reasons, could not be here. His regrets are as nothing compared with mine in dealing with these issues, particularly as I thought we were moving towards a fairly gentle consensus. In fact I am grateful to the noble Lord, Lord Taylor, for emphasising just how great that consensus is. I also welcome the constructive comments that were made from all parts of the Chamber, with those little reservations that one comes to expect from a thoughtful House. But then the noble Lord, Lord Pearson, appeared. Gentle consensus is scarcely the order of the day in those terms. From what I can see, most of us have been concerned about whether we can move successfully from Pillar 1 to Pillar 2, but the noble Lord, Lord Pearson, wants to bring them both down and the whole of the temple with it. I congratulate him on being able to present that position in the four short minutes permitted. I shall deal with those more general points in a moment but I want first to respond to the main issues of the debate, which are in the report.

It is certainly a very timely initiative. Recent legislative proposals published on 20 May by the European Commission for the next round of CAP reform—the so-called health check—covered elements outlined in the Commission’s communication on 20 November 2007. The health check will review the 2003 reforms and contribute to discussion on the future shape of the CAP. Noble Lords have participated in this debate on the assumption that we can be optimistic about the capacity and certainly the need for change of the CAP, but they are also optimistic about the extent to which we can effect change with the sole reservations introduced by the noble Lord, Lord Pearson of Rannoch. In a moment I shall indicate why we should be optimistic about certain changes which certainly need to take place. We shall consult stakeholders before reaching our final position for the negotiations, but this is a good chance to comment on the overall direction of travel.

As the House will have appreciated from the government response, we very much welcome the committee’s report. It offers a thorough analysis of the common agricultural policy’s strengths and weaknesses. We share the key planks of the committee’s conclusions on the directions of future policy. We want the health check negotiations this year to play an important part in the reform process by reducing regulatory burdens and giving farmers greater control over their business decisions, a point emphasised by the noble Lord, Lord Taylor, and introduced by the noble Earl, Lord Erroll, in his contribution. We want to reduce the trade and market-distorting nature of the CAP and direct public spending more towards the delivery of clear public benefits which we would all share. In parallel to this, the EU budget review provides an important opportunity to examine how the CAP should be reshaped beyond 2013 and—a more distant perspective—to ensure that it is fit for purpose and delivers maximum value for EU taxpayers’ money.

There is no doubt but that the committee’s report offers a valuable contribution to both those debates. My noble friend, with his customary perspicacity, emphasised the obvious fact that we also need to recognise the changed context in which we are operating, even in the months during which the report was being compiled. It is clear that the change in the world situation—the rapid escalation of food shortages—means that we need to direct our immediate attention to those who are worst affected.

Food is becoming increasingly unaffordable for poor households around the world, and humanitarian agencies have a great deal to do. Every day 25,000 children die because they do not have enough to eat. We are calling on all countries, particularly those in the developed world, to respond generously to appeals from the World Food Programme. DfID has announced our contribution of a £450 million aid package to help the poorest countries in the current crisis. The Prime Minister has written to the Japanese Prime Minister, who is chair of the G8 and hosted a food summit on 22 April, to emphasise that we need a coherent and holistic response from the international community. As important as this debate is to all those in Europe, particularly in Britain, who depend upon the countryside for their living, those who require us to guarantee food production need to recognise the wider context of the world crisis that we are facing.

This debate is about issues that concern us all directly. The noble Lord, Lord Cameron, said that we ought to have a clear perspective, a vision for farming. It is necessary that the CAP should be directed towards clear objectives so that changes can be effected that set a new pattern for the future. I can only emphasise that the Secretary of State sought to set out a clear vision for farming in the conference last November. He foresaw that we need an industry that earns its rewards from the market for the quality, safety and environmental and animal welfare standards of the food and other products it produces and which is profitable and competitive domestically and internationally. He foresaw an industry that works collaboratively to meet the challenges it faces and that manages risks. I take on board the contributions made by several noble Lords. The noble Earl, Lord Erroll, particularly emphasised risk management by farmers. We need an industry that embraces its environmental responsibilities—that tackles climate change and manages water and the soil, seeing them as essential to its long-term economic success rather than as a threat to it—and that is valued and rewarded by society for all the environmental services it provides, including managing the landscape and enhancing biodiversity.

CAP reform is a key element to our achieving those goals. At present, the CAP is expensive, wasteful and inefficient. The report identifies where necessary change should be effected, and all contributions this evening have emphasised that change. I will come in a moment to the one or two reservations that were expressed about certain aspects of it.

The CAP distorts global markets, weighs farmers down with regulation and acts as a disincentive for farmers to maximise their market competitiveness. Our long-term vision is to see the elimination of Pillar 1 of the CAP altogether, leaving public subsidy targeted at specific public benefits such as environmental enhancement through Pillar 2.

Good progress has been made in reforming the CAP in recent years, although that progress has not been rapid enough; the Government have been frustrated in some respects. Much more clearly needs to be done. Indeed, the report identifies the essential reforms that are needed to boost farm competitiveness, to improve value for money and to address concerns about food prices. In particular, we want the health check to cut distortion and shift the emphasis of the CAP even more towards protecting the environment.

Beyond the health check, the EU budget review provides an important opportunity for the EU as a whole to examine the CAP closely and to consider how it should be reshaped. It is worth stressing that the CAP costs EU taxpayers a substantial amount of money. In 2005, Pillar 1 cost the EU budget more than €42 billion, and the CAP placed an additional €42 billion burden on consumers. We will engage with other member states, the Commission and our stakeholders in the coming years to ensure that the negotiations on the next EU financial perspective address these concerns.

Can we hope for success? We all know the barriers to success. Noble Lords in the debate have identified some of the difficulties and have voiced possible reservations. These issues will need to be confronted. The noble Duke, the Duke of Montrose, asked whether the higher world food prices mean that the EU no longer needs its export refunds. I certainly agree, as do the Government. High prices mean that it is totally unjustified for the EU to maintain its price support systems. I have a word of solace; we are pleased that the EU recently set cereal import tariffs to zero, so the noble Duke’s point is appreciated.

The noble Lord, Lord Livsey, expressed a note of reservation that we will need to continue to support farmers in less favoured areas, such as upland areas. We both recognise that issue and agree that certain types of farming, which clearly benefit society, should continue to receive support. That support will, however, have to be more targeted than it is under the existing CAP provisions. We want it to be done through Pillar 2 of the CAP, not through the untargeted, blanket direct payments that have obtained until now.

The noble Earl, Lord Erroll, talked about the burdens on farmers, particularly the red tape, and the fact that farmers should not be subject to burdensome regulations that have no real significance. We are concerned to simplify the CAP for those very reasons. However, the noble Lord, Lord Taylor, would be quick to challenge me if I did not enter the caveat that we need proper controls over the use of these substantial sums of money. We are not arguing for a lack of accountability with regard to these issues.

The noble Earl, Lord Erroll, talked about wild birds and specific regulations relating to them. We will consider this issue, but neither my notes nor my background equip me in any way, shape or form to cope with it now. Even my membership of the Royal Society for the Protection of Birds does not help me, so I will have to write to him after the debate.

The noble Lord, Lord Cameron, emphasised the need for farming to be entrepreneurial and market oriented. We agree with him entirely; that is the thrust of the Government’s policy. Our Farming for the Future initiative is about helping farming to become profitable and competitive without being dependent on subsidy. I noted that my noble friend Lord Sewel, who is so much better qualified on these issues than I purport to be, was nodding in agreement with the noble Lord when he was making his forthright remarks in those terms.

I am not quite sure of the order of importance of the two issues to which I shall now turn. Perhaps the noble Lord, Lord Pearson, will take second place on this occasion; after all, he had only four minutes to deploy his case. I want to emphasise the obvious fact that other countries are following our lead on the CAP. I cannot comment on detailed negotiations and how much support we will get in crucial areas, but there is a widespread acceptance in the EU that the status quo is not sustainable, which obtains as much for France as for any other country. That is why we can—in the way in which the noble Lord, Lord Dykes, and, I think, the noble Lord, Lord Taylor, on the two Front Benches expressed themselves—have elements of optimism about what could be achieved in fresh negotiations. This report gives clear lines for the Government, who will be able to build on that.

I cannot reply to the noble Lord, Lord Pearson, in any more direct terms than this. He was disappointed yesterday and I shall disappoint him today, although I know that his disappointment will not in any way diminish his zeal for criticism, which is expressed in this House on every opportunity. He will just have to accept it when I say that I look forward with enthusiasm to the next time that I will be subject to that representation.

If the noble Lord will forgive me, the more substantial issue on this occasion, which is directly related to the report, is the position that the Government will adopt on modulation. I say to the noble Lord, Lord Dykes, that we need to target funds at rural disadvantage, which will be present in most member states for the foreseeable future. Its extent varies enormously across different environments. That will appear to point more towards structural and cohesion funds as the main source of funding outside national government spending to address such issues. The continuing role of Pillar 2 needs careful consideration against that background. That is how the Government will address themselves to this.

It is difficult for us to reach a definitive view on the modulation aspects of the health check. Much will depend on how the proposed voluntary modulation adjustment will work. However, we will be pressing the Commission to provide more information about this adjustment process in the working group discussions. It is vital that UK rural development programmes are at least protected, as the noble Lord, Lord Livsey, indicated. There is scope for the UK to do more in support of the new challenges.

The UK has 12.8 per cent of the utilisable agricultural area within the EU 15 member states, but it receives 3.5 per cent of the EU 15 core rural development budget. Unless that is addressed, the UK will continue to rely on high levels of modulation to support its ambitious and proper rural development programmes. We need to concentrate on modulation for the very reason that the inequities exist.

I am grateful to all noble Lords who have spoken and, once again, I congratulate my noble friend on having produced such an excellent report, which almost achieved complete consensus in the House.

My Lords, I thank all noble Lords who have contributed to the debate and my noble friend the Minister for his reply on behalf of the Government. He is a Jeff Rooker in waiting, perhaps. It was a particular pleasure to listen to the noble Lord, Lord Pearson of Rannoch, and I can only say that I look forward to an even more extended contribution from him when we come to discuss our report on the common fisheries policy.

I see the role of the common agricultural policy as being essentially to regulate the single market in agricultural products, full stop. If the alternative to the common agricultural policy is 27 member states with their individual, separate and idiosyncratic tariff regimes, support and subsidy regimes and protection regimes, I am afraid that you can give me the common agricultural policy every day.

The House has been extremely generous in its comments on the report but, if praise is to be distributed, it ought to go almost entirely to three people: our Clerk, Julia Labeta, our committee specialist, Alistair Dillon, and our special adviser, Professor Sir John Marsh, who yet again has provided us with an invaluable service. I thank them all very much.

That brings us to the end except for one thing. I suppose that we all look forward with quiet confidence to this agenda of reform being taken forward under the French presidency.

On Question, Motion agreed to.

House adjourned at 6.06 pm.