Agricultural Sector (EUC Report)

Baroness Scott of Needham Market Excerpts

Tuesday 22nd November 2016 Lords Chamber

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[Baroness Scott of Needham Market]

That this House takes note of the Report from the European Union Committee Responding to Price Volatility: Creating a More Resilient Agricultural Sector (15th Report, Session 2015–16, HL Paper 146).

[Baroness Scott of Needham Market (LD)]

My Lords, I am grateful to have the opportunity this evening to debate our report on such an important issue for our farming sector. In one way I rather regret that it has taken so long to find an opportunity to debate this, but the fact that our report predates the referendum adds a different dimension to our work. I had the privilege to chair the EU Energy and Environment Sub-Committee for three years, and I can honestly say that it was the most rewarding work I had done in my 16 years in the House. I therefore thank each of the members with whom I served, including those who, like myself, have been rotated off. However, I will mention two noble Lords in particular.

First, I thank the noble Lord, Lord Boswell of Aynho, chairman of the European Union Committee. His leadership and encouragement on the main Select Committee was invaluable, and I am certain that he will continue to be as supportive to the current EU sub-committee chairs as he was to me. His wisdom and experience will be much needed by the House as we approach this immensely complicated challenge of withdrawal from the EU. Secondly, my noble friend Lord Teverson is now chairman of the sub-committee. I have no doubt that as chairman he will lead it through these challenging times and ensure that it plays its proper role in informing the debate on Brexit. I also place on record my admiration of and thanks to the committee clerks, policy analysts and committee assistants with whom I worked. Without their skill and total commitment to the role of this House, we would not be able to function. Finally, special advisers are often the unsung heroes. In this case I thank Dr Dylan Bradley and Professor Berkeley Hill.

As your Lordships may know, the remit of the sub-committee I chaired includes not only agriculture but fisheries, environment, energy and climate change. While the topic of this report was agriculture, it went much further. Like many of the inquiries we undertake, it was cross-cutting, and the evidence led us to think as much about the environment and rural development as it did about farming.

The report was published on 16 May and its title, Responding to Price Volatility: Creating a More Resilient Agricultural Sector, summarised the motive for conducting the inquiry and our main findings. Our headline recommendation was that the European Commission should consider restructuring the common agricultural policy and focus it mainly around the provision of public goods, aiming for an eventual merger of the two pillars that currently govern direct payments on the one hand, and rural development on the other. We were of the firm view that wherever possible, agricultural policy should facilitate the provision of public goods, such as a well-managed environment. Those conclusions hold as well for life outside the EU as they do for life in it.

We found that price volatility is an inherent feature of agricultural commodities markets, and that adverse effects at farm level are caused much more by unanticipated periods of sustained low prices than by increased levels of volatility. This was a significant conclusion because it leads to different recommendations. We examined the issue of direct payments and found that although they continue to provide a degree of financial stability, helping farmers to withstand protracted periods of low prices, they can also reduce incentives for innovation and efficiency gains.

We drew another significant conclusion on insurance. We heard from some that the US insurance model could be adopted in the EU as an alternative to Pillar 1 arrangements under the CAP. I was perfectly open to this possibility, as I think other members of the committee were. However, having heard all the evidence, we strongly concluded that while insurance undoubtedly has a role to play in unexpected and catastrophic events, the case for a wider application—as a replacement for Pillar 1 or as a future outside the EU—was simply not convincing.

We highlighted that much more work needs to be done by the UK Government and the European Investment Bank in developing and adopting appropriate financial instruments, which may help farmers access much-needed finance. Significantly, we also drew attention to the desperate need to equip farmers with improved business skills and the expertise to calculate and manage their production costs and overheads. We also recommended that the UK Government work to identify the main barriers which prevent farmers exiting the sector.

The official response from the European Commission was received in July, and the Commissioner described our work as,

“a valuable input to the upcoming discussion on the Common Agricultural Policy post 2020”.

The fact that he wrote that after the referendum suggests that it really was positive, whatever the future for British agriculture. The Government’s response noted that, following our vote to leave the EU, the Government would work with the industry to,

“look at a future package of measures and support for farmers and the environment”.

Their response continued:

“It is premature to say what that might look like, but the Government will be mindful of the Committee’s recommendations as we develop a new policy and funding framework for UK farming”.

This is encouraging for the committee. I would be grateful if the Minister shed further light on how this new thinking has developed some five months later.

We were also encouraged that the response included an agreement that an agricultural policy must deliver public goods, and the assurance that the management of natural resources will be considered when the Government begin to,

“look at the future of farm support in the UK”.

It was also acknowledged that the Government recognise the concerns about barriers to exiting, as well as to new entrants to the sector. I am also told that the Minister of State, George Eustice, has since written to the committee explaining that the Government will use some of the so-called exceptional adjustment aid made available under the CAP in response to the persistent challenges faced by dairy farmers, and that they will be trained in new risk management tools and benchmarking skills, as the committee’s report suggested.

I note with interest that the Government’s response gives an assurance that they will consider the recommendations emerging from the Commission on access to financial markets and risk management tools when developing domestic alternatives to the CAP. That task force has now reported, so I would be grateful if the Minister clarified the Government’s response to that work.

There is no doubt that there are immense challenges ahead for the agricultural sector. There is uncertainty about the new UK agricultural policy and about what a trading regime for agricultural and foodstuff products with the EU and the rest of the world will look like. Together, these two concerns underline an immediate need for UK farmers to develop better resilience to future price shocks and market developments.

Reviewing and replacing the CAP could be an opportunity for the UK to develop an agricultural policy which promotes competitive and environmentally sustainable farming. It could be an opportunity to move away from direct payments towards a system that gives farmers subsidies to deliver certain public goods, such as environmental stewardship and high animal welfare standards, as suggested in the committee’s report. It could also be an opportunity to think afresh about how to create a more resilient, innovative and effective agricultural sector. There are real concerns for farmers: some 55% of total UK farm income comes from CAP support. Farmers and rural communities across the UK receive substantial and essential funding for agri-environment projects, farming and infrastructure projects from both Pillar 1 and Pillar 2. These will all need to be replaced by similar UK schemes, or they will fall away once the UK withdraws. I welcome the Chancellor’s statement on 13 August, in which he guaranteed that current levels of support would remain until 2020. That gives some short to medium-term comfort, but of course, it does not address the longer-term problems in an industry already beset by volatility.

Another challenge is that of trade in agricultural goods once the UK has left. Nearly two-thirds of UK agricultural exports measured by value go to the EU, while 70% of agricultural imports measured by value come from the EU. Food supply chains are immensely complicated nowadays. Some components of processed food products start their life cycle in the UK, are processed in another member state and then return to us for consumption. Any change arising from those trade patterns is bound to impact on UK farmers as well as the wider food processing industry.

In leaving the single market, we will leave the rules that govern our current trade arrangements with the EU and with the world. The EU’s external tariff barriers on agriculture and food are high, and in the absence of a preferential trade agreement with the EU, the UK agriculture and food sector could find itself subject to high import tariffs and reducing exports. In fact, tariffs affect the whole supply chain because they cover both imported products and inputs such as machinery, feed and fertilisers. I do not underestimate the potential for negotiating future trade agreements with the wider world but as recent examples have shown us, free trade agreements take a very long time to negotiate and are immensely complicated, particularly in the area of agricultural goods. Therefore, there will be added uncertainty for UK farmers about the future of their imports and exports post-Brexit.

The agricultural and farming sector is vital to all of us. As a society, we are dependent on a secure, affordable and high-quality food supply, as well as on the public goods which farmers deliver. Rural communities across the UK are still sustained by the agricultural sector, the funding it receives and the jobs it creates. So now, more than ever, the agricultural sector needs certainty and political clarity to strengthen its resilience. I encourage the UK Government to deliver on these points as a matter of urgency.

--- Later in debate ---

[Baroness Scott of Needham Market]

My Lords, I thank everyone who has participated in this debate. I had not thought about it until my noble friend Lord Teverson mentioned it, but this might be the last proactive report of the sub-committee. It has been a tribute to the huge amount of farming experience that exists both in this House and in the committee. Nowhere could that be better seen than in the noble Lord—who I will describe as my noble friend, because I think he is—Lord Curry of Kirkharle, without whom I think our committee report would have been much poorer. Unfortunately, he was unavoidably detained on his way to the debate this evening and was unable to take part. I think we are the poorer for that.

I was very heartened to hear about the Government’s commitment to the agritech strategy because this general theme of the importance of research, data-sharing, knowledge transfer and innovation was recurring through every speech. When members of the sub-committee went on a site visit to see a young farmer brimming full of ideas and innovation, we asked him where he was getting them and learning and he said “YouTube”. His ideas are coming from around the world. It is a very good example of the importance of good rural broadband and what you can do with it, as opposed to broadband which takes eight hours to download a two-minute video. Good, superfast broadband is essential.

With regard to financial measures, I hear and have a lot of sympathy with the point made by the noble Earl, Lord Kinnoull—that most farmers are small businesses and complex financial instruments are simply not going to be of help to them. On the other hand, there may be others that do, so it is about the appropriate level of tools. It is certainly almost an extension of the tax-averaging into something like a New Zealand, Australian or Canadian deposit system, which seemed to have support from around the House on the Joseph’s lean-and-fat-years principle.

The Minister has heard the very strong feelings from across the House about the need to integrate the 25-year environment and farming plans. It does seem odd that the same department cannot integrate the two plans, because to us they are inextricably linked. That is particularly important as we move into the post-Brexit environment. If farmers are to receive considerable financial support from the public, the Government will have to make the case and explain why the money is going to them rather than the health service, education or anything else. That can only be done by framing the debate within this whole question of public goods. The Minister will have heard the very strong views about that. I again thank the Minister and everyone else for participating in this debate.

Motion agreed.