On behalf of the committee, I welcome Mr. Aidan O'Driscoll, assistant secretary, and Ms Bríd Cannon, principal officer, at the Department of Agriculture, Fisheries and Food. The purpose of this meeting is to get an update on the health check of the CAP reform and I thank everybody for attending. While members of the committee have absolute privilege, this does not apply to witnesses appearing before the committee. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or mention an official by name or in such a way as to make him or her identifiable.
Mr. Aidan O’Driscoll
I thank the Chairman. It is a pleasure to be here with the committee. I will make an opening statement, of which members have copies, and then we will open up the discussion.
Current reviews of milk quotas and the implementation of the single payment scheme, both due in 2008, have been amalgamated into an overall health check of the CAP. A Commission communication on preparation for the health check was published on 20 November and was presented to the November Agriculture and Fisheries Council. In addition to covering the above mentioned reviews, it looks at market management measures and it raises issues on what it calls "new challenges" facing the CAP. The communication is the first step in the process. Following discussion over the next few months it is expected that legislative proposals will be produced by the Commission in the spring of next year, with the aim of reaching agreement by the end of 2008. The Commission is holding two stakeholder conferences on the health check, one of which took place last week. In introducing the communication, Commissioner Mariann Fischer Boel has emphasised that the health check is not intended to be a fundamental reform of the CAP. The communication claims to fine tune the 2003 reforms.
The three main elements in the Commission communication are as follows: a review of implementation and simplification of the single payment scheme; a review of market management measures, including milk quotas, with a view to improving market orientation; and a response to the new challenges of risk management, climate change, bio-energy and the strengthening of pillar two of the CAP, namely, rural development. Many ideas in the communication are presented only in outline form and need detailed examination before their full significance can be determined.
I will refer to some of the major issues covered by the health check. Although the objective of simplification is emphasised, the communication does not identify particular operational aspects of the SPS that might usefully be simplified, but it says this is a suitable time to adjust and simplify the implementation of the scheme. As a means of simplification, the Commission has signalled its preference for a movement towards full decoupling. It proposes a case-by-case analysis of coupled payments to identify potential risks of full decoupling, taking into account the needs of specific disadvantaged regions. When the SPS was introduced, member states were allowed to opt for various models of payment. Ireland and several other countries opted for what is known as the historic model. The communication suggests that payments based on historic entitlements will become more difficult to justify as time goes by. It therefore contemplates allowing member states to move away from the historic SPS model to flatter rates, probably on a regional basis.
Other ideas include imposing progressive reductions on payments over certain ceilings and fixing a minimum payment or raising the minimum eligible area. By way of example of what the Commission has in mind on ceilings, the communication suggests payments over €100,000 might be reduced by 10% with higher rates of reduction for payments over €200,000 and €300,000. The Commission acknowledges that experience has shown a clear need for simplification of cross-compliance. The communication notes the work that is already going on in this area, and suggests that the health check should address the scope of cross compliance by examining and amending the present list of obligations on statutory management requirements, SMRs, and good agricultural and environmental condition, GAEC.
On market management measures, the communication says reflection is required on the future of the "old CAP instruments". The Commission intends to reassess the validity of existing market management tools. More specifically, it moots the possibility of a gradual reduction to zero of cereals intervention with the exception of bread wheat. It also envisages the permanent abolition of set-aside, and the possible introduction of agri-environmental rural development measures to preserve the environmental benefits of that system.
On milk quotas, it is preparing a soft landing for the proposed expiry of milk quotas in 2015. The communication suggests a gradual increase in quota could best prepare the ground for the ending of quotas, the level of increase to be based on ongoing analysis. It mentions the possibility of adjustments to the super levy and intervention to assist the transition. It raises the possible need for mitigating measures in mountainous regions and suggests the use of rural development measures or the introduction of specific support measures under a revised Article 69 of the SPS regulation. Under this article 10% of SPS funds can be reserved for specific additional measures targeted at preservation of types of farming and protection of the environment.
With a view to managing the new challenges of climate change, bio-energy, water management and biodiversity, the Commission focus is on strengthening rural development measures in pillar 2 of the CAP, as well as examining the scope of cross-compliance.
To address the availability of funding in pillar 2, the Commission is suggesting an increase in compulsory modulation from the existing rate of 5% to 13% in four equal steps from 2010 to 2013. It envisages the introduction of risk management measures by adding them to the menu of eligible measures in the rural development regulation. It is also suggesting a review of the aid available for energy crops and a possible redirection of resources to second generation biofuels.
Turning to the Irish position on these issues, as I said, many of the ideas expressed in the communication are presented in outline form and need detailed examination before a final position is taken. The Minister has established two consultative groups, one on milk quotas and the other to deal with all other aspects of the health check, to allow stakeholders to contribute to the evolution of the Irish position as the negotiations progress. Ireland sees the health check as an opportunity to pursue further our objective of reducing the administrative burden on farmers by simplifying the requirements of the single payment scheme and cross-compliance. The communication supports the aim of simplification but a strong and specific commitment is needed on the issue. The Minister will be submitting specific ideas in this regard and has encouraged other Ministers to do likewise. We will need to scrutinise closely any proposals to adjust the scope of cross-compliance to ensure they would deliver genuine simplification.
We do not favour the proposed additional modulation which could transfer funds from agriculture and Ireland to non-agricultural uses and other member states. However, I must emphasise that Ireland strongly supports pillar 2 of the CAP. Unlike many other countries, the Irish Exchequer provides a high level of national funding for rural development.
On milk quotas, a recent FAPRI study suggested Irish farmers would do well out of a gradual increase in quotas up to 2015. We are examining quota policy with stakeholders and will carefully consider all dimensions of the issue before adopting a definitive position.
On the SPS, Ireland has no plans to move from the historic model and we note that the proposal made in the communication would not require us to do so. Ireland is fully decoupled and would welcome a move in a similar direction by others. We are concerned that the upper limits suggested could act as a disincentive to useful structural change such as farm amalgamation and partnerships. The demand for lower limits arises from anomalies in the operation of the regional model of SPS which is not required for Ireland’s historic system. We see no reason to refuse small farmers such payments.
The market management mechanisms play a useful role as a safety net at a time of change. The recent decision on set-aside in 2008 and the likely decision on 2008 milk quotas show that these instruments can be adapted to market developments as required.
Ireland pays and tops up the energy premium which is seen as useful in kick-starting energy crop production in this country.
In the first discussion of the communication at the November Agriculture Council, the Minister for Agriculture, Fisheries and Food, Deputy Coughlan, signalled Ireland's strong opposition to proposed increases in modulation. She emphasised the need for additional simplification of the single payment and cross-compliance systems and undertook to present specific proposals in this regard. She also confirmed that Ireland had no plans to move from the historic model of single farm payments.
I thank Mr. O'Driscoll for his presentation.
I welcome Mr. O'Driscoll and his colleagues and thank him for his presentation. It is the first such presentation I have received and outlines the issues involved in understandable language.
Irish farming has become accustomed to challenges coming down the tracks almost every second year at European level. More than anything else, it has been crying out for a degree of certainty for a period of years. There was a sigh of relief when the last reform programme for the Common Agricultural Policy was concluded. Farmers believed they would be left alone up to 2013, but that has not been the case. I suspect that, even if we conclude the CAP health check in 2008, it is unlikely to remain free from further interference until 2013. That is regrettable because this is an industry that needs certainty to encourage on-farm investment. Farmers are willing to invest in their enterprises if they receive an indication of certainty in the marketplace and can justify the required financial investments.
Is Mr. O'Driscoll in a position to elaborate on the Irish position on the milk quota issue? The Minister established a group to ring-fence herself from criticism of decisions taken. In the context of management of milk quotas, at European level the talk is of soft landings and the end of quotas. Is it time to consider all of the quota management regimes we have put in place, in particular the ring-fencing of milk quota transactions and leases and sales within co-op areas? If we are considering an open market up to 2015, should these issues be on the table nationally if changes of such significance as ending quotas are on the agenda at EU level?
Does our industry have the capacity to process additional milk and the required investment for increased production? Do we need to encourage greater rationalisation and efficiencies in the processing industry? Do we need more capacity for processing? Do we have spare capacity or headroom to deal with quota increases of the order envisaged?
Will Mr. O'Driscoll revisit the issue of cross-compliance, as I am not familiar with some of the jargon used by him? I recall that in the course of the general election the IFA had a document with 1,500 questions in which it was alleged cross-compliance was the work of the Department rather than EU obligations. Where does responsibility rest for improving cross-compliance obligations?
I also thank Mr. O'Driscoll for his contribution. It is difficult from a layman's perspective to interpret the language of the European Commission in its communication document of 20 November on the health check. The presentation sets it out clearly and concisely. Having read the Commission document, I had grounds for concern on what the Irish position might be on the issue of modulation as it pertains to rural development. I am concerned that additional modulation could potentially result in a loss of funding to agriculture or farmers directly, even if the aim is to increase the rural development aspect. I do not know whether this concern arises from a lack of understanding of what is proposed. I hope my question makes sense. Perhaps it was answered in paragraph 3 on page 3 of the submission.
I am glad the document has clarified the matter of upper and lower limits. I was concerned about the permutations of the lower limits, in particular, for farmers with smaller holdings. It is early days. However, it would be useful to have steering on what way the legislative process will pan out ultimately and how long it will take but perhaps this may be difficult to ascertain. Have other EU member states adopted a similar position to Ireland on modulation, in particular?
I thank Mr. O'Driscoll for his presentation which explained some of the proposed health checks we may expect. To put the proposal in layman's terms, it will divert funds from the Common Agricultural Policy to other areas. It can be dressed up in the term "health check" but it amounts to diverting funds agreed as part of reforms made in 2003. As I informed the Minister, Ireland accepted a 5% reduction in CAP funding as part of the decoupling initiative. The proposals on the table will result in a 2% reduction in funding in each of four years, which amounts to 8%, plus a further 5%, which gives an overall reduction of 13%. The 2003 to 2013-14 funds under the CAP are not index-linked. While I am not certain that the money diverted from CAP will be allocated to rural development, I oppose the measure.
I welcome the Irish position of opposition to modulation, as proposed, which would result in reductions of 2% in each of four years. Some positive proposals have emerged as part of pillar 2 of the CAP and these are open for discussion. I fully support the Irish position because the primary purpose of the proposals is to divert CAP funding to other areas.
I welcome the firm Irish position, as set out by Mr. O'Driscoll. To put another way a point Deputy Aylward made, when the single farm payment was set in 2003, no provision was made for it to be index-linked or increased in line with inflation. Arguably, therefore, it loses some of its real value with every year that passes. To accept modulation would be to cut its value further in real terms. As far as I recall, politically the idea of a health check was, I hope, to throw a placebo in the direction of the British who always oppose the Common Agricultural Policy at European Councils. There are cases in other European partner countries - Britain is a case in point - of some beneficiaries of the CAP receiving several million euros or pounds in payments. I am not aware of any beneficiary in this country who is in that category. If a ceiling were placed at a sufficiently high level, would it necessarily be against our national interest or those of any of the producers?
I welcome the position on modulation set out by the Minister and Mr. O'Driscoll. The Irish position at the outset was to agree to decoupling with 5% modulation.
On the issue of cross-compliance, is the Irish position to push for the introduction of 14 days notice of inspection? Approximately 1,500 measures must be complied with. Even if this figure is refined, the onus is on farmers to ensure compliance with all measures. Is it proposed to give them time to rectify minor discrepancies? The national car test is probably the closest analogy one can draw in this regard.
What is the Irish position on the proposal for total abolition of intervention? In an environment where certain factors can affect food supply in a growing world economy and population, is it wise to consider total intervention at this stage? A point was made with regard to not having total intervention for wheat for bread. However, wheat and rice, in one form or another, are probably the staple diet for most people on the planet. One of the founding principles of the EU, or the EEC as it was then, was the security of food supply. While there is no doubt that we ran amok with the principle of intervention in the 1970s and 1980s, just because there were abuses does not mean the system was totally wrong.
What is the position with regard to second generation energy crops? Has there been discussion with regard to investing funds, whether modulated, in research and development? Some 28% of greenhouse gas emissions come from the agriculture sector. Existing technology and research suggests this can be significantly reduced, particularly with regard to bovine emissions, which are the main contributor. Are measures being considered to bring forward this research and transmit it to dairy farmers in particular? It is estimated that a 20% reduction in methane gas emissions could be quite easily achieved. The research is taking place in Maynooth. In the European context, are second pillar measures envisaged with regard to addressing climate change?
I welcome the officials from the Department and thank Mr. O'Driscoll for his presentation. My colleagues have asked the main questions. The CAP health check is an examination of how one would manage the allocation of a total amount of resources within a certain scale of European agriculture. In the past ten or 15 years a political decision has been taken at European level and agreed domestically as to how much food Europe would produce and how much funding would be allocated to this. In one sense, the health check is only a debate as to how that money is spent in the production of more or less the same quantity of food, although I understand there are thoughts of expansion with regard to the milk quota.
Many policy documents and reports are now available with regard to world food supply and what is becoming a serious threat of food shortages, not just in a global sense but closer to home in Europe. Deputy Doyle referred to the debates at Oireachtas and European level, and in the media, ten to 15 years ago with regard to milk and wine lakes and butter and beef mountains, which are a thing of the past. The next food debates we will have could well relate to scarcity.
While in a sense the CAP health check is important from an administrative perspective with regard to how we spend an already agreed sum of money on a certain level of production, is the broader context being considered? Are we giving serious consideration to planned expansion of European food production because expansion may be necessary in the context of returning to the position of 30 or 40 years ago, when we knew Europe was producing enough food to feed its people.
The statistics clearly show this is an emerging problem, perhaps even a crisis. We must take a fresh look not just at defending CAP but perhaps returning to old-fashioned thinking as to expanding it and increasing production. I would like to know if that debate is being examined as it is important in the broader, medium-term context.
Mr. Aidan O’Driscoll
A number of issues have been raised and I will try to address as many as I can. First, as regards the points raised by Deputy Creed, our perception is that there has been a series of regular challenges, as the Deputy put it, concerning changes in the Common Agricultural Policy over the years. Two of the biggest changes were the MacSharry reforms in 1992 and the 2003 reforms which introduced decoupling. It is also our view, like the Deputy's, that a period of stability is now needed to allow farmers to adjust to the possibilities created by decoupling to adjust their production to the market. That is the point we will be making throughout the health check debates.
As I said in the opening statement, Commissioner Fischer Boel does not see the health check as being about fundamental reform. We might take the view that some of the things covered in the communication are a bit more fundamental than we would like. I will not get into the debate on ring-fencing and milk quotas. I am sure that members of the committee will debate that with the Minister in due course. I note, however, that increased production possibilities will be discussed within the consultative group on milk quotas. Those quotas have played an important role in stabilising the European market up to this. Undoubtedly, the world market situation and the European market situation for milk products has changed dramatically. I will come back to that point later concerning some of the points Senator Bradford raised. In any case, inevitably, we are required to look at the whole quota issue because the existing quotas run out in March 2015, unless some proposal is made to extend them. These decisions will have to be made therefore and that is why there is a discussion on it regarding the health check.
On who is responsible for cross-compliance, it is important to understand that specific requirements have been laid down by the EU. Most cross-compliance concerns what are called SMRs or statutory management requirements. There is terrible jargon around all this and I sympathise with people who have to read these documents. The SMRs are a list of EU laws that apply to farmers and everybody else who is obliged to obey them. What is distinctive about cross-compliance is that the single payment depends on one's compliance with those existing laws. I do not wish to wash my hands of responsibility for cross-compliance because the Department has an important role to play. However, the requirements of cross-compliance - what one is required to comply with - are clearly laid down within EU law. That is one of the reasons we see an opportunity in the health check to address the issue of simplification of cross-compliance and of the operation of the single payment system.
Deputy Sherlock raised some issues concerning a possible loss of funding to agriculture, as did Deputy Aylward. This is one of the concerns about modulation. What they laid down here may seem clear in terms of increasing, as Deputy Aylward said, by 2% per year from 5%, up to 13%. However, there is a lot of detail that is not in the communication, and which will only emerge as we go along, as to how exactly those funds that would be modulated in that way would be divided up. For example, it is not clear how much of it would remain in Ireland and how much of it might be lost to Ireland. It is clear that it should be moved to rural development in Ireland or in other countries. Again, I apologise for this terminology but there are three axes within the rural development regulation, two of which relate primarily to agriculture. The third relates almost exclusively to non-agricultural rural development measures. There could be a diversion, even within Ireland, to non-agricultural rural development measures. What is intended in that regard is unclear. There will be much debate on that as the health check proceeds.
I refer to the lower limits. In some of the countries which have adopted a flat rate regional model - that is, a flat rate payment per hectare throughout a region - payments have, in some cases, ended up being made to non-farmers and, essentially, to people with large gardens. This has led to a certain amount of ridicule. This is part of the reason lower limits have been proposed. However, because we adopted the historic model, all our payments went to people who were active farmers because they would have to have had coupled payments in order to get an historic payment. We do not have that problem. I agree it is at a very early stage, as Deputy Sherlock said.
I was asked about the position of other countries and modulation. Quite a number of countries, particularly older member states, indicated opposition to increases in modulation at the initial discussion. However, it is at a very early stage and people can move position when it suits them. We will not make any assumptions there.
As Deputy Mansergh said, it is true that the SPS is fixed in nominal terms and, therefore, reducing in real terms. That is again part of the reason modulation is not attractive. To have modulation on top of that, increases would be very difficult.
On ceilings being set at a higher level, the proposal in the Commission communication was in a footnote, which was an unusual place. It is very specific but is given as an example in a footnote, that is, the proposal to have cuts of 10% over €100,000 and so on. I imagine that ceiling will increase as the discussion goes on. A number of countries will oppose this tooth and nail.
Britain.
Mr. Aidan O’Driscoll
Britain, in particular, will oppose it but so too will some eastern European countries which have inherited these old, large state farms which are now operated in other ways. They have this tradition of large farms. Germany, for example, will strongly oppose it in regard to eastern Germany.
Deputy Doyle asked about 14 days' notice, proposals on how to deal with minor discrepancies in cross compliance and so on. These are being dealt with in a different process. There is another simplification process being undertaken on which there were Council conclusions last June that addressed some of these issues. These are now being brought to the legislative stage in discussions both in the Council of Ministers and in the management committee under the Commission's responsibility. Both these issues are already on the go and Ireland is taking a very active role in pushing its fairly well known positions on them.
The communication does not quite indicate the total abolition of intervention but we have laid down a very strong marker. As has been said by Deputy Doyle and Senator Bradford, even though prices are good now, this is not the time to abandon the old market mechanisms referred to as the old CAP instruments in the communication. Things can change and we believe they should remain in place. From what I have gleaned so far, there is quite strong support for that position from other member states.
It is unclear what the proposal is on second generation biofuels. There is an implication that it wants to kill off the existing premium for energy crops. It has referred to reviewing the position and to using the money for second generation biofuels. We will, therefore, be obliged to give careful consideration to that about which they are talking. We use that premium and we are of the view that it is an appropriate method of trying to encourage or kick-start biofuel production in this country.
The national development plan included funding of €641 million for research and development in the agrifood area. I am not in a position to indicate the level of work being carried out in respect of the reduction of greenhouse gas emissions in agriculture. However, I would guess that work is being done in that regard. A significant funding boost has been provided in respect of research and development in the sector.
Senator Bradford raised an incredibly important point in the context of where we are going with agriculture. I completely agree that there has been quite a transformation in the past year or two in how agriculture is perceived internationally and in Europe. If one had suggested five years ago that food security would be a significant issue for Europe, one would have been laughed out of court in a number of places. However, that is no longer the case. People are changing their minds. They are beginning to see that in a world where the demand for food is rapidly rising - the rate is expected to double in the next 30 to 40 years - particularly in China, India and other Asian countries, where various extreme weather events, which may be related to climate change, are hitting production in important zones and where the demand for biofuels is beginning to compete with that for food, a blasé attitude to food security, whatever limited merit it might once have had, is unsustainable.
Many people are, as the Senator noted, waking up to the importance of food security and to that of agriculture and its role in addressing some of the important environmental issues we face. In this context, I refer to the production of biofuels to offset the shortage in fossil fuels and agriculture's role in soil and water conservation and other areas. These are major issues and they are beginning to come centre stage. Perhaps they are not yet reflected in the health check but they provide an important backdrop to the debate on the future of the CAP in general, particularly in the period beyond 2013.
As regards the SPS, people were traditionally paid on the basis of the historical model. One of the proposals for the future is that this should take place on a regional basis. Will it be the case that Ireland will be classed as a single region or will payment be made on the basis of the various regions within the country? What will be the position as regards flat rates? What will be the consequences for Ireland?
On research and development, perhaps training should also be included. Mr. O'Driscoll's comments referred to a changing agricultural environment. This matter may have arisen at an opportune moment because we are on the verge of losing a generation of trained young people as a result of the existence of other more attractive opportunities. We must look at the tax regime relating to land ownership, shared farming and the deal whereby people may become entrepreneurs and businessmen who produce food.
The Minister made a commitment on the use of the historical model in respect of payments, which is what one would expect at an early stage. There is a note which states that this model is more difficult to justify as time passes. Is major political pressure being exerted in respect of this matter? Will the Minister hold firm or are we beginning to consider other options?
I wish to point out to Mr. O'Driscoll that I have heard a senior industrial figure, a well known household name, say that we must look to agriculture to reduce emissions. There is a great deal of waste generated in other sectors of the economy. Therefore, we must be vigilant to ensure that agriculture is not made a victim of environmental concerns, while supporting any research that may help in this area.
Mr. Aidan O’Driscoll
On the issue of the historic and regional model, a number of countries, including Greece, Spain, France, Ireland, Italy, Netherlands, Austria, Portugal and others, operate on that model. Therefore, there are a number of potential allies in terms of pressure to move away from the historic model.
The communication, as worded, refers to allowing member states to move to a flatter system between now and 2013. It does not imply a compulsion. We will have to wait and see what emerges as the discussion continues. A number of the historic model countries may be considering movements to different models. Again we will have to wait and see whether that becomes a practical reality. I do not want to go into the question of political pressure. I will leave that for the committee to debate with the Minister.
On Deputy Aylward's question, we are not sure what might be involved. Given what has been done in other countries, the likelihood is that the Commission would probably be open to any proposal we would make. If we wanted to move to a regional model and if we opted to do that, although this is not the case, the Commission would probably leave it to us to decide whether to have one or two regions or to use the eight planning regions.
Would this have consequences for Connacht as a region, as against, say, Munster? It would have consequences unless the area was considered as a country.
Mr. Aidan O’Driscoll
Yes, the consequences of a move to a regional model - I repeat that the Minister has clearly said that she has no plans to do this - would vary depending on how the regions would be divided up. That is all I can say because this would then be a policy decision, which I do not envisage being made, as to which regions would be adopted.
On the training and emissions points, I will simply note the points made as I do not consider that a response from me is required.
On behalf of the committee, I thank Mr. O'Driscoll, Ms Cannon and Mr. Corkery for attending today. I thank them for their presentation and for responding to the queries raised by members.
We will adjourn until next Tuesday when representatives of the Irish Grain and Feed Association will appear before the committee.
The joint committee adjourned at 5.45 p.m. until 3.30 p.m. on Tuesday, 18 December 2007.