Professor Alan Matthews:

Again, a wide range of issues have been raised. I thank the Deputies for their questions. I will make a preliminary statement.

Given that the direct payments are so important, particularly for beef and cereal farmers, I certainly hope changes would not take place overnight such that we would be thinking of what happened in New Zealand, for example. I will come back to Deputy Jackie Cahill's point about direct payments being the cornerstone of the MacSharry reforms, but it is hard to continue to find justification for direct payments. It would be better to plan for that change and try to look at what we might want to see put in place, rather than put our heads in the sand and simply say we have clearly benefited from these benefits in the past and want to hold onto them because clearly we do not want to give them up. I can completely understand this. I think we need to take into account the budgetary context. This is the first question that has been raised about what the impact might be on the budget, but I would not like to put a figure on it. I believe, however, that the budget will be smaller simply because I see the European Union being concerned about the other challenges of migration, security and, to some extent, job creation, although it can be argued that agriculture and the food industry will play a role in that regard.

The European Commission will come forward by the end of this year with its initial proposals in respect of the next multi-annual financial framework. Some voices argue that it should be brought forward sooner because if Brexit takes place in 2019, perhaps we will need a revised financial framework as and from 2020 rather than, as we now expect, 2021. There are suggestions we should simply roll over the existing medium-term budget because of the timing problem, with European Parliament elections due to take place in 2019. It may well be difficult to get it through before it breaks up.

People see value in the maintenance of the family farm and smaller farms. Recognising this, if we can try to quantify or identify that value, can we support the activities engaged in rather than the size of the farm? I am not a great fan of supporting farms simply because they are small. I think Deputy Jackie Cahill is absolutely right in that regard. Small farms differ enormously in terms of their income and many farmers have an outside income. That is one of the reasons I do not think capping direct payments would provide for greater equity because the income position of such farms is very different. Because they are small and less intensive, can we actually make payments to support their involvement in more extensive farming? I would see this as a targeted payment. I am not worried if a farm is small or large. If a farmer is farming more extensively and producing more - it could be bio-energy if engaged in forestry - that is something the public can recognise and would be willing to support, as opposed to giving him or her a payment per hectare without requiring a return, although I know that there are cross-compliance conditions attached.

There is not really any evident return to the taxpayer from that per-hectare payment. If the farmer is involved in a short supply chain, supplying the local farmers' market, for example, and we could support that directly, not the fact that the farmer is small but that he or she is doing something the consumer wants, I would see a value for payments. That is why I am a great supporter of the Pillar 2, which provides us with a framework. I would like to see it enlarged and strengthened because it gives us more flexibility to provide these targeted payments. I understand the reluctance to see land moving out of farming into forestry, which is probably the most likely land use but we do have a policy objective to increase the rate of planting. It has a role in helping us meet our climate targets. The planting carried out now is more environmentally sensitive than was the case in the past when there were acres of conifers. I can completely understand why people objected to that. I have walked in the forests of Denmark, which date from the 19th century when there was a replanting scheme. The German forests also date largely from the 19th century. They are replanted forests. I look forward to the day when we could have a larger forest stock. I realise there are different views on that but I am more positively inclined to see it as an option.

The key point is in the question about the decoupled payments. They were not initially decoupled, they were partially coupled under the MacSharry reform and were decoupled a decade later under the Fischler reform. They were introduced to compensate for that price reduction. We need to rethink the basis on which we are asking the taxpayer to continue to provide that transfer to farmers. We are maintaining land and landscape in difficult farming areas. I have absolutely no problem in supporting payments for areas under natural constraint. We are doing things for the environment, protecting biodiversity, habitats and so on, which is absolutely a clear case for support. That is the direction I would like to encourage people to think about moving. It will be more difficult to maintain the area payments. That is not to say that farm groups will not fight to do that.

Earlier, we discussed what UK agricultural policy might look like after Brexit. It will be interesting if the UK follows through on what many of us felt was likely to be the case, it is going to be an interesting case study to put it mildly, how farmers respond in a situation with lower support. There is a case that at least a fair proportion of the direct payments leak out of the sector. There is no doubt that conacre rents and the price of rented land are higher because people know there are direct payments they can access. I am pretty sure input costs are higher than they would be if we did not have the direct payments. There are ways in which the agricultural sector would automatically adjust to lower payments over time and given the space and time to do that.