Professor Alan Matthews:

Again, I thank the members for their questions. I will respond first to the question on the US policy and why I was not too enthusiastic, particularly about its countercyclical payment aspect. This is for a number of reasons. First, it would be a step back to relating support directly to production, from which we moved away. It would require support again to be linked to products. There would certainly be difficulties in fitting it into the EU budget structure, which, as we know, is rather inflexible because it is set for seven years, although there are ways of moving money between headings. It is not an easy structure in which to try to manage a countercyclical payment policy whereby one will, by definition, have a large expenditure in one or two years when prices are quite low and, when prices go back up again, zero expenditure. Managing that countercyclical payment in the context of a relatively inflexible EU budget would be a challenge. Furthermore, prices fluctuate because they are a signal indicating that farmers and consumers need to adjust. If prices go down, it means there is oversupply, and if we prevent that signal going to farmers by telling them they will get this guaranteed price in any case, we will simply shift the adjustment onto the rest of the world. There is an aspect here of our interest in developing countries which, I feel, also argues against countercyclical policies.

The other aspect of the farm safety net is, as I said, risk management, that is, helping farmers to manage risk. One of the issues on which we have some evidence here is that because in the past European agricultural policy provided much of this risk management through the market mechanisms - variable import levies, export subsidies, intervention, support and so on - it meant that private initiatives never developed to the same extent as they did in other countries, simply because we had these public support mechanisms in place. In the academic literature we refer to this as the public mechanisms crowding out the private initiatives. When the public mechanisms were slowly withdrawn, and as we became more market-oriented in our Common Market mechanisms, we were slow to see the emergence of private replacements. It is only this year, or perhaps last, in the dairy industry that co-ops are offering fixed-price contracts to farmers. This should have happened years ago as a way of sharing a risk. There are opportunities to try to consider more private initiatives, perhaps with the support of some public funding. As I said, I am still not fully convinced farmers will see this as a really attractive option in terms of buying insurance to stabilise their incomes. As I said earlier, they may prefer to continue to do this on an individual basis, but I am certainly open to the idea that we should put more effort into considering this through pilot schemes and trying to assess the appetite of farmers for enrolling in these kinds of income stabilisation measures. We could consider that part of the American system.

Clearly, the decoupled payments were a great improvement on what went before, and I am certainly not arguing that we should move back to the past. However, the next step is to try to argue that there is a case for making transfers to farmers, that they do provide services other than food and that they should be rewarded for this. It is a question of trying to see how we can target the payments. That is really the message I am trying to get across.

The issue relating to beef is difficult. People refer to the suckler cow herd as the national asset. I have difficulty seeing this as the case. It is clear that we will continue to produce beef and that we will have a dairy herd and beef coming from that herd. The suckler herd is one of the few options for farmers in more marginal areas. It is not a very efficient system, as we know. I worry about the argument that to break even and give oneself a margin of €200 per cow, we need a price of €4.75 per kilo for beef, which is equivalent to almost another subsidy of €200 per cow, which I see some people seeking, when the industry is already surviving simply on the basis of the payments. Therefore, to say that the future of the industry is to give another €200-per-cow subsidy is simply not the way forward. I am an economist, not a livestock expert. However, I am of the view that we probably need to go back and consider more extensive systems, which probably means larger farms - larger not necessarily in terms of economic size, but in terms of area - if our stocking rates are lower, and lower-cost systems. I do not see us getting a market price of €4.75 in the near future - not with Brexit and the way markets are going.