Professor Alan Matthews:

There are three parts to my opening statement. As this is the committee's first opportunity to begin to look at this issue, I thought it might be useful to highlight the timeline as I understand it.

We are aware that the Commission has indicated in its annual work programme that the Directorate General for Agriculture and Rural Development, DG AGRI, should “take forward work and consult widely on simplification and modernisation of the Common Agricultural Policy". DG AGRI seems to be taking this as an open-ended invitation to consult on the possible changes to the CAP in the period after 2020. It has promised a public consultation, which I understand may take place over a three-month period launched towards the end of February. Based on the responses to that, there then will be an impact analysis of the different options. The Commission will come forward with three, four or five different options and will look at the implications of those. Then, towards the end of the year, we might expect a communication setting out its preferred options and the reasons for its choice. There will obviously be reactions to that, including from the Council of Ministers and from the Parliament, which eventually, possibly in the spring of next year, would lead to legislative proposals from the Commission. As everyone is aware, there is a particular timing issue in that the current Parliament probably will have its last sittings in the spring of 2019 while the Commissioner will be there until October 2019. Whether there would be enough time for the co-decision process to allow any firm conclusion to the discussion that might begin next year is an open question. While there will be a lot of discussion, whether it will actually result in legislative changes is something which the committee might want to bear in mind.

Second, I will comment very generally on the types of issues I would expect to see raised in the public consultation and in the impact assessment. I have grouped these under the three headings we were familiar with from the last CAP reform. There certainly will be economic issues. Here I would expect discussion on measures to help farmers better manage price and market volatility, to strengthen the competitiveness of EU agriculture and to improve the position of farmers in the food chain. The Commissioner has promised to try to persuade his colleagues, particularly in the Directorate General for Competition, to come forward with proposals on that issue, but it might well be wrapped into a more general reform of the CAP.

We then have the environmental heading, which of course was a key change in the last CAP reform with the introduction of the greening payment. There is quite a discussion as to whether this has been an effective instrument to achieve environmental improvement and we will see some discussion on that. We will also see the importance of the climate agenda, both in mitigating greenhouse gas emissions and perhaps in looking at the role of agriculture in terms of sequestering carbon and contributing to renewable energy.

Then you have the social dimension, where we will see a focus on young farmers, generational renewal and more broadly, as part of the Juncker priorities, the creation of jobs and economic growth in rural areas. It will be a very broad-ranging public consultation and it will raise all the issues followed very closely by many members in the last CAP reform.

I will highlight some of the changes in the political context. The first is that, since the last reform, the EU has signed up to the UN sustainable development goals, SDGs, and the 2030 agenda for sustainable development, which includes climate. The Paris climate agreement can be seen as the first step in implementing the climate goal in those SDGs. The Commission is taking this very seriously. In the last reform we were trying to fit the CAP into the Europe 2020 strategy, which was the overarching strategy of the time. I think for 2030 it is very much these sustainable development goals. That will mean more emphasis on environmental issues than we have seen in the past. There is a concern, not least in the light of Brexit, to try to show that whatever the EU is doing contributes to EU added value and that it is not trying to replace activities and policies which member states themselves could better implement. It is a question of whether it is possible to demonstrate that what we do in agriculture is contributing to European added value and is not simply substituting for what member states do.

The Commissioner has made simplifying the CAP his main objective in his term of office. It is extremely difficult, because agriculture and land management is complicated. The committee is aware of that. We can have different views as to how successful simplification has been but it is certainly going to be a recurring motive in the next reform.

Then of course the fourth issue, which we have already touched on, is the budget and how much money may be available.

The final part of the statement was really just to draw the attention of the committee to a report which I had prepared for the European Parliament's Committee on Agriculture and Rural Development. It is one of three reports. The other two looked at the Common Market organisations and at rural development.

I was asked to talk about the future of direct payments. I summarised some of the conclusions from that report, which was designed and help the Committee on Agriculture and Rural Development to identify some of the key issues. We can take it from a rather conservative position, one where we roll over the existing CAP structure with its two pillars, the greening payment and the direct payments, and even there I think we will see a number of issues which were quite contentious on the previous occasion. These issues include the external convergence, which is the expectation of the newer member states that their payments will continue to increase up to the average level. This has implications for the internal convergence, which is the question as to whether we should have a uniform payment across all farms. This was very contentious in Ireland in the last reform. There was a link made between the internal convergence formula and the external convergence formula, so if one is changed in the next reform, we might expect the other to be changed. The question was asked whether the capping of payments, which really has had no serious impact, will be reviewed? Even taking a very conservative view, there are some quite contentious issues which I think will be addressed.

There are those who would like to go further. Some people point to what has been happening in the United States. In their last farm bill they actually eliminated direct payments. They were the first to introduce them, but they eliminated them and decided instead to put the money into what they call their farm safety net. This comprises two main policies. One is counter-cyclical price support and the other is crop insurance, which despite its name actually covers some livestock products too. I would not recommend taking the route of counter-cyclical payments. We could discuss whether that is a good idea or not. In terms of the broader issue of risk management and insurance, it is worth looking at whether that has the potential to help farmers to manage risk better. I am a little bit sceptical. I think that farmers prefer to self insure, to use their savings or to draw on bank credit and tax averaging schemes to manage variability. There may well be a role for strengthening risk management instruments. The Commission has emphasised in particular this income stabilisation tool, so maybe that is something which should be further pursued.

Some of the committee members may not be surprised to hear me say that, although I am extremely aware of the fact that direct payments are very important to many farmers, I have never been a great fan of them. Looking at it partly from a taxpayer point of view but also from a farmer's point of view, I find it hard to justify paying a decoupled area-based payment per hectare of land without any evidence of return. I realise it will be controversial, but I have suggested that we would be better off, in a sense, taking some of that money and putting it into more targeted payments where we set out some objectives we want to achieve. These could be environmental objectives, risk management objectives, improving competitiveness or helping farmers address the climate challenge. It is to have more targeted payments rather than these generalised area-based supports which benefit the larger farmers within the Union because it is paid on a per hectare basis, and the more hectares one has, the more support one gets. At the end of the statement I summarise some of the principles which I recognise would be quite controversial, but perhaps I will leave it at that, and I am happy to take any questions.