November – 13/11/2008

It is my privilege and honour to have been invited here this evening to this highly prestigious event. I am a former student of SAC West of Scotland Agricultural College at Auchincruive and a great admirer of the work of the SAC. I am also a long-time political ally and friend of your esteemed Chairman Jamie Lindsay, so it is a double pleasure to have been asked to address your annual dinner.

Well, we live in interesting times. After the collapse of the banking system last month, I had the delicious irony of recalling how, as a farmer, I had to go cap-in-hand to the bankers every year pleading for more money. Now that I’m a politician the bankers are coming cap-in-hand to me with the same request!

Let me first of all set the scene. I spoke to the European Commission last week to get the latest figures on the number of farms going out of business in Europe. I was horrified to be told that 270,000 registered farm holdings went bust in the past 12 months. That’s one farm going bust every two minutes! So times are tough and your conference on ‘Food Security in a Climate of Change,’ is timely. Agriculture in Europe is on a roller coaster. In the European Parliament right now, the big debate in the Agriculture Committee is the CAP health check. The report from our rapporteur was adopted last month.

This debate is taking place against the background of a food security crisis, rising prices in the shops and the failure, yet again of the Doha round of WTO talks. An estimated 850 million people in the world today suffer from hunger. Of those, about 820 million live in developing countries, the very countries expected to be most affected by climate change. We are acutely aware that any policy decisions we take must bear these facts in mind.

Nevertheless, I was deeply concerned last month when Jose Manuel Barosso, President of the European Commission, announced his plan to hand over one billion Euros of under-spend in the CAP budget to poor farmers in developing countries in Africa. Of course I have great sympathy with the plight of the developing countries and their farmers, but I also have considerable difficulty explaining to our own hill farmers in Scotland who are struggling to survive, why more than a billion Euros of their money is being diverted from the CAP budget to Africa.

There is no legal basis for such a budgetary transfer, which some people have dubbed the Jose Manuel Barosso Memorial Fund! Legally, if there is any under-spend anywhere in the EU budget, then the money must be returned to the Member States and they can decide what they want to do with it. They can give it to poor farmers in Africa if they like, or they can use it to help their own beleaguered farmers. At least you can hold your own government to account through the ballot box. The same cannot be said for the European Commission.

I should point out that the CAP under-spend was mostly accrued from currency fluctuations, un-used export subsidies and intervention and technical matters and was not the result of a deliberate attempt to cut the EU farm budget. I can report that we successfully killed off this proposal and the under-spend will, after all, be returned to the Member States.

Having said that, it is worth noting, that in terms of its importance, the CAP has been knocked off its perch at the top of the EU budget, where it used to absorb over 70% of all EU funding – up to 50 billion Euros a year. CAP expenditure is now in second place behind structural and cohesion funding. The CAP now accounts for just over 40 billion Euros a year. So the budget is shrinking even as the EU is expanding to take in more and more countries. And that is against a background where more and more of the budget, particularly after 2013, is heading East to countries with vast, subsistence farming sectors like Romania and Poland.

The CAP is a monolith which successive Commissioners have been determined to cut down to size. As we all know, the Mid-Term Review implemented by Franz Fischler in 2003, ended almost all production-led subsidies and introduced instead the Single Farm Payment.

Under Marian Fischer-Boel the SFP will be routinely trimmed. Ultimately, if the French ever agree, farmers will be left to produce for the market place in a virtually subsidy-free environment, but there is a long, long way to go before we achieve that goal and considerable resistance from the French. The French Resistance lives again!

In addition, farmers have to deal with the invidious modulation system which is geared towards taking more and more out of the Single Farm Payment and diverting it to rural development, with the Commission aiming to exact stiffer modulation penalties on bigger farms.

The UK has the biggest average holdings in the EU at 67 ha, so this is quite simply a tax on efficiency and one which we have fought strongly to curb.

But as far as the health check is concerned we need to conclude the legislative procedure by the end of this year. Farming is a long-term business and farmers need the certainty of knowing what the future holds in order that they can plan ahead.

As for the rest of my wish list, I believe we need to tackle the imbalance in power between the big supermarkets and food producers. We need to reduce the regulatory burden on farmers, and we need to ensure that our primary producers operate on a level playing field with their competitors from outside the EU.

It is madness that we apply more stringent red tape and regulation to our own EU producers than we apply to our competitors outside the EU. Our farmers are bound hand and foot by red tape and yet we import vast quantities of foodstuffs produced under welfare and hygiene conditions that would constitute a criminal offence in the UK.

Cattle numbers in the UK have fallen dramatically from over 12 million in 1996 to just over 10 million today. We are only 66% self-sufficient in beef and the trend is downwards. It is a similar situation in the EU with a declining level of self-sufficiency and an increasing reliance on imports.

Swapping energy dependency for food dependency is a very dangerous development and one which would place the people of Europe at risk from sudden disruption of the food chain by natural or man-made disasters. We must not allow this to happen. Food security is every bit as important as energy security or even security against terrorism. That’s why we recently agreed in the Agriculture Committee, to abolish support for energy crops. Fuel crops will have to compete with food crops on the market place if they are to be a success.

But our propensity for attacking our home producers to the direct advantage of non-EU competitors doesn’t stop with the beef sector. Right now the EU seems hell-bent on killing off Scotland’s sheep sector. The Agriculture Council agreed in December 2007 that mandatory electronic identification should be introduced across the EU for sheep and goats by 31st December 2009. This may well constitute the last nail in the coffin for our beleaguered sheep farmers, few of whom can afford to fit every animal with expensive microchips and buy costly electronic scanners.

Such technology may well be appropriate in the sun-kissed uplands of Andalusia, but would be totally unworkable in horizontal sleet and rain on a Sutherland hillside! As our sheep sector dwindles, once again the EU will have to rely increasingly on imported lamb from countries out-with the EU, who pay no attention whatsoever to the rigorous regulations and controls we impose on our own farmers.

This is why our national flock in the UK has fallen in the past decade from 20 million to under 16 million sheep – still the biggest flock in Europe but not, I fear, for much longer.

The report recently published by SAC’s new Rural Policy Centre – ‘Retreat from the Hills’ eloquently outlined the looming disaster that our hill and upland farmers are facing, showing a 23% drop in sheep numbers and an 11.7% reduction in the beef breeding herd over the past ten years. The situation is even more dramatic in parts of the north and west of the country. Spiralling feed, fuel and fertiliser costs and a market price that has failed to meet the real costs of production has driven many farmers to sell off their stock or give up farming entirely.

The NFU in Scotland has also launched proposals to stop the exodus of cattle and sheep from our hills and uplands, warning of the huge social, environmental and economic impacts that this will cause, in fragile and peripheral areas of our community. The NFUS has pointed out that they are not seeking new public funds to help Scotland’s hill farm sector, just better utilisation of existing funds.

I agree with them entirely and share their view that we need to see funding targeted at those who are clearly engaged in delivering positive social, environmental and economic benefits to our hill and upland areas. Let me return to this later when I look at the future for coupled payments under the Health Check.

But first let me wind up Mike Russell by looking at the question of bio-technology. We really need to get our act together in Europe on the question of GM production. Our farmers are facing a huge escalation in the price they have to pay for feed, while we dither about GM approvals for varieties that are commonly used by our competitors outside the EU.

Our policy of virtual zero tolerance for unapproved GMs in feed and seed is totally unsustainable and simply hands an advantage to our direct competitors who are laughing all the way to the bank.

Food security in Europe means looking after our home production and not always handing a commercial advantage to our non-EU competitors. I believe that we need to revisit our attitude to GM foods and accept that scientific advances in biotechnology offer the best way to avoid a global famine.

Diets are changing radically in nations such as China, India, Brazil and Russia, where economic growth has boosted meat consumption. The demand for meat from across all developing countries has doubled since 1980. This in turn, has increased global demand for cereals and at least for a time, caused a sharp rise in prices, although these have begun to settle back again.

Arable farmers in Scotland who were looking forward to bumper crops and bumper prices were more than a little disappointed with the appalling weather and their subsequent returns, although they still have to deal with fertiliser costs which have more than doubled and fuel costs which, although they have dropped sharply from their summer peaks, still constitute a considerable burden. The volatility in the cereal market has almost matched the plummeting financial sector. Wheat, which was selling at around £180 per tonne in the late summer of 2007, is now struggling to make £90 per tonne, following bumper harvests in the US and Canada. The EU has responded to this downturn by imposing an import levy of €12 per tonne for wheat and €16 per tonne for barley, to try to defend the interests of our own cereal farmers, in direct contravention of WTO objectives to end all trade barriers.

Demand for food is rising along with the increasing world population. At the same time, an area the size of the Ukraine is being taken out of food production every year because of drought – or climate change. In addition, millions of hectares are being taken out of food production to meet the growing demand for bio-fuels. All of this will force up the price of food to consumers.

On the specific issues in the health check, I believe that we should seek to simplify the single farm payment scheme and support the Commission proposal to pay farmers in two separate installments. I believe that we should overhaul the cross compliance rules to help farmers meet the necessary standards we have set, rather than continue with the current system of spot checks and draconian infringement penalties which seem designed more to trip farmers up and catch them out than help them to comply.

I also think it is important that we continue to move towards the abolition of all forms of coupled support.

Coupled payments have no place in a market-led agricultural system and we should avoid the temptation to use the current food crisis as an excuse to undermine and unravel the core rationale behind the 2003 CAP reforms, which is what Michel Barnier and the French government seem determined to do.

The one exception I would make would be to phase in a change to the Single Farm Payment on an area basis for our hill and upland farmers with a requirement to keep sheep as part of a managed natural landscape strategy. I cannot see any other way of saving our hills from depopulation.

On the hot question of upper and lower limits of support, I believe the gradual reduction in payments planned under the modulation proposals according to the size of a farm are not appropriate or relevant and would simply create work for lawyers in splitting up farm businesses. We should not support the capping or banding of payments, but rather should link payments to farming and environmental benefits.

I dislike the principle of progressive modulation, but nevertheless accept that provided all monies resulting from increases in modulation stay in the country where they were generated then it is something we will reluctantly have to accept. We made absolutely clear in the European Parliament that all monies must go back to the regions where they originated.

However, I believe that it is essential (and we have now adopted it), that any increase in compulsory EU modulation is matched by a corresponding decrease in national voluntary modulation at the farm level.

On intervention and set-aside I think we should support the abolition of intervention and the conversion of set-aside entitlements to normal entitlements. And on the vexed issue of milk quotas, I believe we should support the phasing out of dairy quotas through the progressive linear increase in quota volume, ensuring that milk quotas will go in 2015 and that we implement a soft-landing. Production quotas are incompatible with a market-orientated agricultural policy and I cannot support those who plan to continue milk quotas beyond 2015.
Finally, let me say something about pesticides.
It seems to me perverse that in the middle of a food crisis when our citizens are complaining about rising costs, the Commission and the Council are proposing to ban more than 700 pesticides, herbicides and fungicides that are commonly and safely used by farmers and producers throughout the 27 Member States. The loss of these products would have a catastrophic effect on our farming industry.
The proposal is apparently based on a desire by the Commission to move from a balanced scientific risk-based approach to a hazard-based approach which is notional and fails to take into account the stringent safeguards which are currently in place.
There appears to be no substantive scientific evidence to justify this. While I fully support the need for plant protection products to be subjected to rigorous scientific risk-based approval to protect human and environmental health, the effects of such a wide-ranging ban are disproportionate to any perceived risk involved.
Such a ban would depress cereal yields by over 30% and would have a major impact on the production of potatoes and fruit and vegetables, in many cases forcing us to import these products from outside the EU, from countries who will continue to use the same pesticides which we have banned. It is this kind of Taleban approach to environmental fundamentalism that drives our farmers and producers to distraction.
The key trends in world agricultural markets are now becoming apparent. Rural areas are not stable. Spreading urbanisation, declining agricultural employment, increasing segmentation of the EU market, enhanced by the growing importance of transportation costs, further trade liberalisation and enlargement and increasing competition between food, fuel and fibre, will be the main drivers in the future. So the challenges are very real and the problems facing the agricultural sector are manifold.

It is no wonder that recruitment into our industry is at an all-time low. Many farmers want to leave the industry but can’t afford to retire. They have no private pension plans to fall back on and even those who did have seen their pensions destroyed in the current financial crisis.

In the UK 30% of farmers are aged over 65 while only 3% are aged under 35. Nevertheless it is time for farming to make way for the new generation. Despite all the difficulties that the industry has faced over the past decade, there are a surprising number of keen, dynamic young men and women ready and willing to take up the challenge. Many of them are studying in our Scottish Agricultural Colleges at the present time. But they need government support to help them get started and there is money available from the Brussels budget, but it has to be co-financed by the UK Treasury. That, of course, is where the problem arises!

There is no such difficulty in France. The French government stands up for its farmers. Young farmers in France can apply for cash hand-outs to start up in farming. Similarly, older French farmers receive retirement packages.

Young farmers in France receive a start-up premium of up to £25,000, or a subsidised loan, where the maximum is £80,000 over 10 years and the interest (around 2%) is subsidised by the state.

It is important that we bring the UK into line with the rest of the EU otherwise our farming industry, having struggled through the bad times, will not be properly equipped to benefit from the good times when they come….if they come.

So we must do everything possible to promote and encourage the entrepreneurial spirit of our farmers. The SAC has a key role to play in this process. I congratulate them on achieving Higher Education Institution status, which confirms SAC’s place alongside our great Scottish universities and certainly opens up an exciting new stream of funding opportunities.

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.