Speech to The Countryside Forum, Claremount Hotel, Blackpool

October 8th, 2001

The CAP is a monolith. It currently devours more than half of the entire funding of the European Union.

Net farm incomes have fallen disastrously during the past year to an average of around £3,800 (6000 Euros) with hill farmers earning a fraction of that sum.

The BSE crisis, the swine fever outbreak in late 2000 and the disastrous foot and mouth outbreak, coupled with the strong British pound and the weak Euro, have seriously damaged the UK farming sector. The past five years have witnessed a collapse in farm incomes to levels almost reminiscent of the earlier part of the last century.

A recent National Farmers Union survey of more than 5000 farmers painted a stark picture of life on a knife-edge, with the majority of farmers desperate to get out of the industry but unable to afford to retire. The capital value of their assets has been overtaken by the size of their bank borrowings.

More worryingly, 66% of farmers' children said that they had no intention of following their fathers and mothers into the family farm. The long hours, burgeoning bureaucracy, dire financial returns and gross instability of the industry have completely overwhelmed them. The burning pyres of more than 6 million animals slaughtered during the foot and mouth epidemic was for many farmers the last straw.

Everywhere in the industry one sees a picture of stress, worry, overwork and depression. And the UK agricultural industry is not alone in suffering under the CAP.

Add to this equation the on-going difficulties involved in resolving international trade disputes under the WTO, together with the looming enlargement of the European Union and you can understand why many EU farmers face a sombre backdrop against which they must judge the industry's future. Those who will survive must chart a new way forward. That is why the mid-term review of the CAP, due next year, will now become a vehicle for wholesale reform.

Many farmers regard EU enlargement as a threat. They consider it likely that the accession of up to ten East and Central European countries to the Union will trigger an end to farm subsidies, dairy quotas, set-aside, intervention and a plethora of agricultural support mechanisms. They feel that structural funding will drift inexorably from the West to the East and that the new Member States will use their growing economic prosperity and increased productivity to flood the West with cheap produce.

There may be some truth in this; however, EU enlargement will provide many benefits and opportunities as well as challenges for the EU farm sector. But it is only one of the forces now driving the need for radical reform of the CAP. The BSE and foot and mouth crises have seriously undermined consumer confidence. There have been dramatic falls in meat consumption - up to 50 or even 60% in some Member States. Clearly, a new direction has to be found if the EU agricultural industry is to survive.

THE COST OF THE CAP

The unravelling of the bloated CAP will be an enormous task and exposure to the full blast of market forces will have a huge impact on a farming sector long grown accustomed to a cushion of grants and subsidies. But we cannot afford to duck this issue any longer. The CAP now devours 49 billion Euros each year; much of it still spent on storage and distribution of food surpluses and market protection measures. According to the Americans, the CAP accounts for roughly 80% of all agricultural subsidies world-wide. According to Franz Fischler, US farm subsidies account for 80% of agricultural subsidies world-wide. No matter which figure you believe, the CAP provides gigantic aid to the farm sector.

Why then, has it left a trail of destruction and impoverishment in its wake? 50 years of manic regulation, red tape, market distortion and grand illusion has ended in the blazing bonfires of diseased livestock which we have seen in Britain, France, The Netherlands and Ireland. The CAP is a cartel, more reminiscent of an old Soviet 5-year plan, but even more bureaucratic. It all has to change. EU farming will need to become lean and mean to thrive and prosper in the new competitive marketplace.

Recently, the CAP embarked on a new approach based on two core elements: lowering institutional prices for key products and offsetting the impact of these cuts on producer incomes by means of direct payments.

In other words de-coupling subsidy from production, in line with WTO regulations.....or, to put it another way, subsidising the shepherd rather than the sheep. The trouble is, while the European Commission has rigorously applied the policy of de-coupling in the livestock sector, in the arable sector and particularly in the Southern Member States, production-linked subsidy is not only still the order of the day, it is also being actively promoted by the European institutions.

A recent report in the European Parliament recommended that support for the olive oil industry should be calculated on the number of trees an olive farmer grows. So much for de-coupling! The report even went on to recommend the introduction of special grants for table-olives. In an industry which swallows over 2.4 billion Euros annually in subsidies and which has been at the centre of fraud allegations again and again, this is completely unacceptable.

It is also horrifying to note that the European Commission pays over 1 billion Euros in subsidy every year to the tobacco growers of Greece, Spain, Italy and France. We claim to be at the cutting-edge of health reform in the EU and yet we dish out this enormous subsidy to an industry, which kills half a million EU citizens every year.

KEY OBJECTIVES OF THE CAP

It is worth reminding ourselves of the key objectives of the remodelled CAP as set out at the 1999 Berlin Summit:

(a) A competitive agricultural sector which is capable of exploiting opportunities existing on world markets without excessive subsidy, while at the same time ensuring a fair standard of living for the agricultural community;

FAILED

(b) Production methods, which are safe and capable of supplying quality products that meet consumer, demand;

FAILED

(c) The maintenance of vibrant rural communities, capable of generating employment opportunities for the rural population;

FAILED

CAP WINNERS AND LOSERS

I think it is plain to see that the CAP has failed in every single one of these key objectives. And who pays for this disastrous policy? The winners are France, Spain, Portugal, Greece, Ireland and Denmark. The losers are Germany, the UK, The Netherlands and all the other Member States who pay more into the CAP than they get back.

Let me give you a few examples: France contributes 6.9 billion Euros a year to the CAP, but gets back 9.4 billion Euros. Spain contributes 3 billion, but gets back 5.2 billion. Meanwhile, Germany contributes a massive 10.4 billion Euros but only gets back 5.8 billion. The UK gives 5.5. Billion and gets back only 4 billion. So you see, there is far from being a level playing field in terms of financing the CAP.

There is a clear North-South divide between the winners and losers in the funding battle, with the South enjoying a relatively prosperous agricultural economy; much of it financed by the North. While farmers in many Northern Member states are facing their most difficult period in almost a hundred years.

The biggest farmers are also the biggest gainers from the CAP, with 20% of all the farmers in the EU receiving more than 75% of the total CAP budget. The Spanish Government has milked the CAP so successfully; they have now told the Council of Ministers that unless they receive a guarantee of continued funding at the present levels, they will block EU enlargement. Portugal and Greece have done likewise and now even Ireland has voted against ratifying the Nice Treaty in a referendum.

RADICAL REFORM

What an awful mess. Clearly something has gone badly wrong. So the time has come to revisit these core policies and start again. Chancellor Schroeder has said that he might even consider repatriation of the CAP, dispersing the annual budget to Member State governments to spend on supporting their own agricultural industry and countryside as they wished. As the biggest net contributor to the budget, we should listen very carefully to what Schroeder is saying. He appointed a Green as Agriculture & Consumer Protection Minister. She is now calling for a switch from industrial-scale farming towards more sustainable, ethical, environmentally friendly agriculture.

Italy has also appointed a Green as Agriculture Minister last year and both Germany and Italy have joined Britain, Sweden and Denmark in the reform camp. Even the Dutch are showing signs of becoming sympathetic to reform. Margaret Beckett has said she favours doing away with farm subsidies altogether and in the short-term, Lord Haskins has said that he wishes farms to be categorised as green or blue. Green farms in his book will be the smaller enterprises following g a more sustainable type of farming. They will receive the lion's share of subsidies in the future. Blue farms will be the bigger, more commercially viable enterprises. They will have to stand on their own feet, largely without subsidy.

Against this background, it is not surprising that Agriculture Commissioner Franz Fischler has acknowledged that the tide has turned and the time for reform is overdue.

He says that while the EU has recognised the social role of agriculture, it has also determined that future policy should focus on care for the environment and the countryside as well as on safe and welfare-conscious food production.

THE FUTURE FOR FARMING

So what does the future hold for Europe's farmers? The long-term solution must inevitably be found in the marketplace. We cannot continue the dependency culture. The market is king. The market drives everything. For far too long European farmers have been lulled by a sea of subsidies into producing commodities that the market did not want, or already had in abundance.

Those days are gone. To survive, farmers must identify niche or, in some limited areas, global marketing opportunities and produce goods that the consumer wants and needs. They can do this collectively or individually, through marketing co-operatives, producer organisations or similar bodies.

Agenda 2000 must be viewed only as a temporary stopgap measure. It is a means of utilising taxpayers' money to cushion the rapid downsizing of the farming sector to a lean and mean, marketing machine. Farming will not survive unless it can rise to meet the challenges of enlargement, globalisation and the liberalisation of trade.

Reforms of the CAP will need to be geared towards protecting both consumers and farmers. There will need to be stricter controls of the production process and a move towards building quality-based competitiveness into the industry. Farmers will have to become less dependent on subsidy and on market intervention and focus more on high quality regional markets. Environmental protection and sustainable rural development must be key parts of the reform package.

To achieve these new objectives, subsidies will have to be re-directed towards rural development and away from any link to production. The challenge will be to match supply to consumer demand. In other words, to satisfy the age-old law of economics. No longer will farmers be able to rely on such absurd policies as 'set-aside' which reward producers for non-production.

Nor, particularly in the context of enlargement, can we seriously consider it likely that the current system of milk quotas, income support and intervention can be allowed to continue. Indeed Franz Fischler has said that although there is no support in the Council of Ministers to abolish EU milk quotas before 2008, thereafter, they will have to be phased out.

DIRECT MARKETING

Farmers and growers produce a wide range of high quality agricultural outputs to high environmental and animal welfare standards. However, a similar level of competence in marketing does not always match their production skills. For many producers, a greater understanding of the operation of the food chain and the significance of customer/consumer demand in driving market change, and the requirement of today's major buyers, are essential for future competitiveness.

It is important to recognise that farmers in the EU are responsible for around 80% of the total landmass of the Community. Their primary role is to supply high quality and fresh foodstuffs while at the same time, preserving and protecting our landscape heritage.

Safeguarding and strengthening our domestic and international market position for agricultural products will mean placing ever-greater emphasis on quality. An important part of future marketing campaigns will involve labelling, ensuring that consumers have a clear knowledge of the source, production methods and quality of the goods on offer.

Direct marketing of agricultural produce and the stimulation of regional market services will play an important role in developing and securing new outlets for farm produce. Farmers, hoteliers, restaurateurs, butchers and shopkeepers will all benefit from the strengthening of the market.

New opportunities of income growth result first and foremost from farm-based direct marketing programmes and from accommodation of guests, from organic farming, from the production of plants for energy generation and from assuming communal services.

The most common form of farm-based direct marketing are farm shops, farm-gate sales and farmers markets. Although there is increasing evidence of growth in this area, scope exists for considerable further expansion. It is commonplace in France, for example, to find leaflets in most village shops advertising every individual local commodity from cheeses, garlic, and foie gras to bread and wine. Farms and shops offer 'tastings' and guided tours, thus benefiting from exploitation of the tourist potential from food production.

All of this is a far cry from the traditional farming methods we have traditionally pursued in the UK, where most farmers regard their role as primary producers and care little what happens to their produce once it has left the farm or been sold in the mart.

Diversity, based on agricultural and extra-agricultural activities is the reality of many farm systems throughout Europe. For example, the co-operation of agriculture with the tourism industry and the catering trade increases the attractiveness of the countryside in many areas of the EU. The production of regional specialities, combined with direct marketing, has proved very popular with visitors.

Marketing associations and producers' groups increase the effectiveness of farm-based supply and are necessary prerequisites for the long-term success of alternative forms of marketing.

So we must do everything possible to promote and encourage the entrepreneurial spirit of our farmers. If we are to secure a sustainable future for the EU agricultural sector then we must give a high priority to protecting the interests of those who live and work in our rural areas. Only by so doing, can we hope to lead the world in producing high quality food in a healthy environment and a beautiful countryside.