Common Agricultural Policy

Lord Williamson of Horton Excerpts

Thursday 18th November 2010 Lords Chamber

[Lord Williamson of Horton]

My Lords, I declare an interest as I spent many happy years in the Ministry of Agriculture, Fisheries and Food and some years also in the European Commission. Some of what I say will be of historical interest, but it is important to know how we came to where we are if we are to consider what changes and improvements we might seek.

The noble Lord, Lord Greaves, is right to refer to the reform of the CAP because that phrase is widely used. However, I would not wish to assume, as many people do, that there has been no effective reform of the policy. On the contrary, the EU’s agricultural policy bears little resemblance to the policy we adopted when we entered the European Community 37 years ago. To a large degree, the CAP as imagined by its critics is ancient history.

The CAP which became our policy when we entered the Community was designed to keep up and increase production, and to create a single market. With some difficulty, mainly because of currency, the single market was achieved. Where it was not achieved—sheep meat, for example—it was subsequently achieved. The UK is the principal beneficiary of the Common Market for sheep meat; we are a substantial exporter to other member states. It is worth noting that, from the historical survey before we entered the Community, British national policy was to increase production. We had subsidies to take out hedges, convert grassland and so on.

The old CAP was based on market management, through which prices paid by consumers were sufficient to ensure broadly that agricultural producers received the support prices that Ministers had decided. Direct payments for farmers played little or no role in the product market system. When I was in Brussels I once had in front of me practically all the officials responsible for running the CAP. I asked them if they had ever seen a cheque to a farmer. They had not. There were no cheques to farmers. Prices were maintained at the level decided by the Ministers through variable import levies—sometimes high, sometimes zero, depending on world market prices—through export refunds to clear the market and, most importantly, through purchases of a number of major products such as wheat, butter and skimmed milk powder by the intervention agencies.

What really mattered, of course, were the prices set by the Ministers. I believe that I attended about 100 meetings of the Council of Agriculture Ministers and about eight price-fixing marathons. Despite evidence of surplus or incipient surplus, the Governments, through their Ministers of Agriculture, were absolutely and obstinately determined to hold price levels up. I speak from personal experience, as I was present.

Of course, if Ministers had agreed some reduction in prices, there would have remained some disadvantages for consumers—as prices were still perhaps too high—and some distortions of world trade as a result of levies and export and refunds. However, the budget costs would have been substantially reduced because of the elimination of stocks in intervention. In any event, it was clearly the way to go. That was recognised in the European Commission from an early stage.

Then the steps were taken to get us where we are. First, elements of market support were reduced in 1992. Farmers were compensated by direct grants. In subsequent years, support prices were frozen or reduced. Land was taken out of production by set-aside. Agricultural surpluses fell. Farm incomes rose. The important Uruguay round of trade talks was successfully completed, partly because of the reduction in EU export subsidies.

With the arrival of the new member states, the substantial part of their workforce being in agriculture—and for other reasons, too—Heads of State and Governments kicked off again in March 1999. Prices were again cut, with compensation through direct payments for farmers. Support prices for wheat, other cereals and beef were cut by more than 15 per cent. Our then Government estimated that the overall economic benefit to the United Kingdom of the full-price cuts was about £1 billion.

In 2003, of course, we had the single farm payment. This marked a definitive change, away from support linked to the quantity of a product to a system of financial support directly to farmers, with requirements related to the environment, animal health and so on. Whatever problems we have had in England on the payment of the single farm payment, in policy terms this decoupling is a measure that reversed the philosophy and practice of the former CAP. We are now firmly set on this course. Already, by 2008 90 per cent of EU producer support was separate from any decision as to how much to produce. That is the last year for which I have figures; it is probably higher now. Thus the market- distorting element has largely disappeared. This continued with the proposals in 2008 which involved lifting tariffs on imported cereals, abandoning set-aside and scrapping milk quotas as a change in the world market situation influenced decisions.

It remains true that direct payments to farmers may be more expensive than the former system when there is an upward movement in world prices. There is some disadvantage to that degree. However, it is important—this is my final point—to keep in perspective the cost of the agriculture and food policy as it has now developed in the EU. The total budget of the EU in the most recent year represented 2.1 per cent of the public expenditure of the member states and less than 1 per cent of Community gross national income. The agriculture element—what is generally referred to as the CAP—represented slightly less than 1 per cent of public expenditure. I am talking not about GNP but about public expenditure by the member states. That is not bad value, although we should always try to keep unnecessary expenditure down.

As to the future, we should continue broadly on the line on which we are set. We should continue to phase out the things we set out to phase out. There is still some room for greater differentiation in favour of the less favoured areas, some of which are under pressure. Generally, we have set ourselves on quite a good track and we must not go backwards.