THE REAL CAUSE OF BRITISH AGRICULTURE'S DECLINE

The following speech was delivered by Dr Richard North at the Cardiff
Conference for Real Democracy, organised by Ian Phillips and the
Campaign
Against Euro-Federalism, on 9 May 2002 at the Holiday Inn, Cardiff.
 
It was  transcribed by Alistair McConnachie and published in the May 2002 issue
of
SOVEREIGNTY. CAEF can be contacted at  57 Green Lane, Merseyside CH45
8JQ
It is on the SOVEREIGNTY website at:
http://www.sovereignty.org.uk/features/articles/cap.html
 
If you want to know why both the CFP and the CAP are in such a mess, the
answer is that the democratic system has failed. The principle attribute
of
democracy - arguably accountability - is essentially non-existent.

We all know that agriculture is in crisis. Foot and Mouth precipitated
an
immediate crisis, but long before that, UK agriculture was in serious
trouble. It is the common assumption that the problem is the CAP.

Even Tony Blair, when he is not blaming supermarkets has joined that
condemnation, and last year in a speech to the World Wild Life Fund for
Nature he declared that the policy was "bad for consumers, bad for the
environment and ultimately bad for farmers".

However, we've still got it! That in itself should teach us something.
Tony
Blair is simply the latest in a long line of commentators who have
condemned
it.

Nobody could improve on the last government's view of the CAP, delivered
during the Conservative administration and expressed in a memorandum by
MAFF
to the House of Lords European Communities Committee in 1995. It said
thus:
"The huge cost of the policy to taxpayers and consumers far outweighs
any
benefit to them . such large transfers into agriculture represents a
major
misallocation of resources and thus damage the economy as a whole . the
policy is extremely complex in detail, hence difficult and costly to
administer and giving scope for fraud."

Yet, despite reforms, spending on the CAP has continued upwards, and
British
farming has deteriorated to crisis point.

The core of the CAP is subsidies. It is easy to attack subsidies, but it
is
very hard to make a case that subsidies are necessarily wrong. It is
not,
therefore, necessarily the case that the CAP is wrong in principle
because
it gives subsidies to farming.

It may well be that it is the wrong type of subsidies, paid in the wrong
way, to the wrong people. For instance, 5% of British farmers get 80% of
the
subsidies. But there are powerful arguments for farmers receiving
subsidies.
The simple fact is that in the USA and in almost all countries in the
developed world - with the exception of Australia and New Zealand -
agriculture is subsidised.

And of course, when you come home and look at the EU 15, including the
UK,
all these countries are subsidised because we are under a Common
Agricultural Policy.

ONLY BRITISH FARMING IS IN CRISIS
What is vital to appreciate is that, of the EU 15, it is only UK
agriculture
which is at crisis point. That crisis point is measured in terms of net
income.

In a 5-year period 1995-2000, agricultural incomes in the EU increased,
using '95 as a base of 100, to 114. That is a 14% increase. Some
countries,
such as Finland and Ireland, increased beyond this, however, the UK
dropped
42%. The average farming income in the UK is now #4,500 a year. Now
that,
ladies and gentlemen, is a crisis!

Why, if we have a Common Agricultural Policy which applies to all 15
countries which all receive subsidies, should British agriculture be the
only one in crisis?

Continental agriculture - while not doing very well - is nevertheless
doing
not badly. If you drive around northern Germany, southern Germany,
eastern
France, Belgium, you see a picture of contentment and prosperity. New
tractors, well kept buildings, neat farms, modern equipment in the
farms,
and brand new cars out front. Here in Britain there is, in some places,
abject poverty. Why?

Now clearly logic would dictate that if you had a Common Agricultural
Policy
and only one country out of 15 was suffering then the problem might not
be
rooted strictly or solely in the Common Agricultural Policy. And that,
as a
working thesis, is something to consider very seriously and very hard.

FOREIGN PRODUCERS UNDERCUT HOME MARKETS
Some commentators point at supermarkets. Mr Blair did so. I believe that
gets him off the hook! Some say, "If only supermarkets would pay us
realistic prices for our products then everything in the garden would be
rosy". It is true that the UK has the best developed supermarket system
in
the EU, if not the world, and it is true that the supermarkets hold a
great
deal of power.

However, at the sharp end, you can see how the mechanism works. Take
eggs.
You have 6 major packers in the UK. The supermarket tells them the
price.
Say, 43p a half-dozen. You, the producer, go along to the supermarket
and
say "We can't live on 43p." They say, "Fine, we are not paying you any
more."

"Well", you say, "we will withdraw our trade." "No problem" say the
supermarkets, "sitting in the next room we have a Dutch supplier who can
undercut you."

That applies across the board to most commodities. Our EU neighbours can
undercut the market and still make money and still turn out an overall
increase in income over a 5-year period. Why?

The problem is that there is a policy within a policy. It is easy and
superficial to blame supermarkets, and the CAP and the EU, and the
wicked
bureaucrats sitting in Brussels engineering the downfall of British
farming,
but nothing is that straightforward.

Basically, you have to consider two parallel points: The first, is
subsidy
levels, and second is international trading conditions.

HIGHER LEVELS OF SUBSIDY IN THE REST OF THE EU
Take the supermarkets. If they can buy cheaper from abroad on commodity
products, it will be the EU import price which sets the market price.

If our EU competitors get more money outwith their product sales, that
is,
if they have an extra stream of income over and above that of British
farmers, and if they have free access to our markets - without tariffs
or
quotas - then they will undercut the markets, and that is precisely what
is
happening.

Although it is a Common Agricultural Policy it is not a common subsidy
base.

If EU competitors are paid higher levels of state subsidy than our own
industry, and have free access to our markets then they will have a
lower
cost base and they will be able to offer lower prices, while maintaining
their own profitability.

For British farmers to compete in this environment, they must match
those
lower costs and if their cost base is higher, they can either reduce
overheads by increasing 'efficiency' or reduce their incomes, or both,
or go
out of business.

HOW THE CAP SUBSIDY SYSTEM WORKS
There are 3 levels of subsidy. The broad fund which pays the money is
called
the European Agricultural Guarantee and Guidance Fund, or EAGGF.

It is split into two areas: Most of the money goes into, firstly, "non
discretionary funds" which are direct support payments to farmers. If
farmers comply with the EU rules, they receive the funding directly from
their government, which reclaims the full amount from the EAGGF.

Secondly, included also in the EAGGF are the "discretionary funds",
which
are rural and environmental payments and other schemes, where it is up
to
the "discretion" of the central government of each member state to
decide
how much to take out of the fund. Crucially, discretionary funding has
to be
co-funded by an equivalent amount from the member state.

Thirdly, there are the funds specifically for non-euro members, which
ceased
at the end of last year. This is the agri-money intended to level out
fluctuations in the non-euro currencies in relation to the euro

However, non-discretionary funding comprises the main tranche of
agricultural subsidies.

You would think that if it were a Common Agricultural Policy then all
farmers would get the same funding throughout the EU. Not so. Even in
this
non-discretionary area of expenditure, there are disparities which are
difficult to reconcile. Britain appears to do well.

It produces 8.4 % of the EU's agricultural goods yet claims 10.1% of the
EAGGF budget (1995-1998).

However, Ireland, our major EU competitor in beef and milk products does
much better. Accounting for only 2.1% of total EU production - but 6.9%
of
the beef, exactly the same as the UK - it draws down 4.5% of the budget.
This is effectively 70%, pro rata, more than Britain. If each country's
EAGGF receipts were exactly linked to their percentage of EU
agricultural
production, Ireland's drawings in 1998 would have been 0.8 billion ecu
--
approx #0.56 billion -- instead of the 1.7 billion ecu it actually
received.
To maintain financial equivalency, the UK should have drawn down 6.3
billion
ecu, rather than the 4.4 billion ecu it actually received -- around
another
#1.3 billion or so.

UK GOVERNMENT NOT SUPPORTING ITS FARMERS
Disparities are being and will be magnified considerably as a result of
CAP
reforms agreed in 1999, as part of "Agenda 2000". Their basis was that
producer aid and market support should be reduced and more funds should
be
channelled into discretionary schemes such as rural development,
intended to
support farm modernisation projects, assist young farmers, and
compensate
less favoured areas.

Unlike the non-discretionary producer aid and marketing support, these
schemes require "matched funding" with member states making direct
contributions. Member states can decide, within limits, how much money
they
allocate.

The current rural development programme covers the seven years of
2000-2006,
for which member states have already made commitments. Significantly,
the
Irish -- with a population of under 4 million -- have set up schemes
costing
an average of #500 million per year. The Irish government's contribution
is
55 percent, the balance being made up by the EU. Germany has committed
to
#1.1 billion a year, taking up 16 percent of the Community's rural
development budget, while France leads the field with #1.2 billion a
year,
calling on 17.5 percent of the budget.

The UK government, however, has a record of parsimony when it comes to
matched funding schemes. This is indicated by its uptake of the scheme
for
encouraging young farmers, by way of cheap loans and development
funding.
While the French gave assistance to 11,952 young farmers between
1990-1997,
the Spanish 6,005 and Portugal 2,365 -- between them spending 249
million
ecu -- the British assisted a mere 27, with a paltry 152,000 ecu.

Predictably, Britain has remained reluctant to commit serious money to
rural
development in the current expenditure round.

Thus, with a population similar to that of France, it has only drawn
down a
mere 3.5 percent of the budget and has allocated the paltry sum of #230
million a year. This is a fifth of that devoted by the French to their
schemes and less than half that allocated by the Irish government whose
farming industry produces a quarter of British output.

Crucially, as Ireland is our main competitor in the livestock field of
beef
and milk products, then it is with Ireland that equivalency is
important.

To maintain competitiveness, the UK would have to match the Irish
commitment. On a population adjusted basis, from a population of nearly
60
million, against less than four million in Ireland, that would bring the
British rural development fund commitment to #7.5 billion a year [factor
of
15 x Ireland's #500m].

Perhaps a more realistic basis is that we have 4 times the agriculture
output, and so if you give it a 4 times multiplier in relation to
Ireland we
would be paying #2 billion a year [4 x Ireland's #500m] into the rural
development fund instead of #230 million.

AGRIMONEY COMPENSATION NOT COLLECTED
There is a third element which leads to us being under-funded in
relation to
our EU competitors. We pay money into the EAGGF kitty in sterling.
However,
the subsidies are calculated in euros and so when the euro depreciates
against the pound, the subsidies are paid to British farmers in the
devalued
euro currency, and the farmers get less money.

To compensate farmers for the reduced value, a top-up scheme exists
called
"agri-money", to which the UK has to contribute. But this is a
discretionary
fund and it must be match-funded by the UK. For every 50p paid out, the
British government must find the equivalent. As a result, this
government,
and the Tories before it, refused to find anything like the amount of
agri-money that was due.

In the four years 1997-2000, the NFU estimates that British farmers have
been short-changed by #1.2 billion or #300 million a year, which is more
than the annual #230 million amount allocated to the rural development
fund.
A deficit of #1.2 billion since 1997, is very substantial in an industry
which only turns over #13 billion a year.

SO HERE IS THE REAL PICTURE
In relation to our EU competitors, there is chronic under-funding of
British
agriculture within the CAP, namely a) producer aid disparity, for
example,
with Ireland, b) miserly rural development funds and c) the "agrimoney"
deficit. But even this is not the full picture.

Under the EU's single market regime, British farmers have to compete
with
unrestricted imports from member states such as Ireland, whose farmers
benefit from higher levels of state funding. Despite calls from British
farmers to reduce imports from our EU partners, the government cannot
respond. It would be illegal under EU rules.

In addition, outwith the CAP there are national support systems. Just
because there are CAP payments does not stop national governments paying
money in addition. There are hundreds of such schemes. For example, if
you
are a German farmer you pay income tax, but only on 75% of your income.
Very
few Germans and Austrian farmers actually pay any tax at all. In Holland
where there is a high proportion of tenant farmers -- around 60% --
there is
a rent cap maintained at an artificially low level on all agricultural
land.

I dug out an EU report which listed all the national support systems,
and
went into page after page. When it came to the UK, it was the shortest
entry
of them all and it said "None".

Where does that put us? Yes, the CAP is a problem, but the real problem
is
in the way the UK administers it, and is able to blame "supermarkets,"
"CAP", "Brussels", indeed blame anybody else except itself for the
collapse
in the industry.

The real problem, within the context of the immediate crisis in British
farming, is not Brussels, it is Whitehall.

THE BUCK STOPS NOWHERE
Where the EU comes in, is in the broad context. Because we have this
other
level of government, because it is so complex, and because we have
shared
responsibility, nobody knows who is in charge.

When you knock on the door of the EU Commission, they say "Nothing to do
with me, gov, go and see your own Government." When you knock on the
door of
Whitehall, they say "Nothing to do with me, gov, go and see Brussels,"
and
the buck goes round and round and round.

Remember Roosevelt, "The buck stops here". The moment you develop
systems of
government where no single entity is in charge and is responsible, then
there is no single line of accountability, and there is no democratic
control.

You end up with things like the CAP, which cause disaster, and nobody
knows
exactly how and why. The whole accumulated weight of experience and
intelligence is unable to do anything about it.

So we see the whole thing sliding into the abyss and we say "Wouldn't it
be
nice if ." and next year it is all just the same.

So, the problem in a nutshell is that British agriculture is hugely
under-funded in relation to our EU competitors to around the tune of
#3.5
billion a year; the single market gives free access to our EU
competitors;
and these competitors are able to undermine our own farmers because they
are
better supported, both with CAP funds drawn down by their governments,
and
by national support systems.

In addition to this un-level playing field, we have a system of
government
which no longer works, is no longer accountable, cannot support our core
basic industries, and is so complex that nobody understands it, the
people
have lost trust in it, and our politicians get away with it.