HC Deb 22 June 1973 vol 858 cc1070-83

Order for Second Reading read.

2.45 p.m.

The Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food (Mrs. Peggy Fenner)

I beg to move, That the Bill be now read a Second time.

The purpose of the Bill is to give effect to the International Cocoa Agreement, which was presented to Parliament in April. This Agreement is the fruit of many years of effort by successive Governments of both parties.

It has been the policy of Her Majesty's Government to support international commodity agreements where these are appropriate and are sought by the producing countries. Cocoa is certainly a commodity which justifies such an agreement. It is subject to severe price flucuations. In recent years the average monthly price has varied from under £100 per ton to some £500 per ton; such fluctuations are excessive by any standards. Moreover cocoa is a crop on which some developing coutries, and in particular the major producer Ghana, are heavily dependent. Some of these countries have for many years been seeking through UNCTAD arrangements to bring greater stability to the world cocoa market. Indeed, in recent years many developing countries have come to regard cocoa as a test of the ability of UNCTAD and of the willingness of developed countries to achieve positive solutions in the commodity field. For these reasons the Government are very glad that the United Kingdom was able to take a leading part in the successful conclusion of the negotiations last autumn.

The Agreement seeks to reduce excessive price fluctuations and to assure supplies at prices equitable to both producers and consumers. It seeks to achieve this by means of two devices. The first is a system of adjustable export quotas which would apply to exports from member countries while prices were below a specified level. This level has been fixed at 29 United States cents per pound or about £250 per ton—well below current prices. Quotas would be adjusted during the year in accordance with movements of price below this level with the object of preventing the price falling below 23 cents per pound or about £200 per ton. Secondly, the agreement provides for a buffer stock to buy up cocoa in exporting member countries surplus to their export quota and domestic requirements. This cocoa is stored in order to be resold when the price reaches a maximum of 32 cents or about £280 per ton. Ideally, therefore, the Agreement would serve to keep prices within the range broadly of £200 to £280 per ton.

This is not an immediately attainable objective with world prices currently substantially above the top of the range envisaged in the Agreement, and with no buffer stock in existence to draw on. Indeed, it is a common criticism of international commodity agreements that they are better fitted to moderate price falls than price rises. There is inevitably an element of truth in this criticism since surplus supplies can always be kept off the market by an effective export quota system, whereas in times of real scarcity supplies cannot be created if they do not exist. Nevertheless, the present situation might well have been somewhat different had this Agreement been in operation a year or two ago. The very low level of prices which obtained during parts of 1971–72 would have been moderated by the operation of export quotas under the Agreement. At the same time, the consequent sales of cocoa to the buffer stock could have provided a reserve which would have gone at least part of the way towards meeting the heavy deficit expected this year, which is a main cause of the recent very high prices.

For this reason, whatever the current market fluctuation, I have no doubt that the Agreement is in the long-term interests both of producers and consumers. No one benefits in the long run from cyclical swings of very low prices, leading to falling production, followed by very high prices leading to falling consumption. It is therefore in the interests both of consumers and producers to provide, as the Agreement does, the assurance of reasonable price levels necessary to enable producers to develop production to meet the expanding world demand for cocoa and cocoa products. This assurance is particularly necessary in view of the fairly long-term cycle of cocoa production and the past history of cyclical price movements, which is bound to be very much in producers' minds.

It is equally in the interests both of consumers and producers that there should be machinery to moderate, so far as possible, the inevitable price fluctuations caused by variations from one year to another in the relation between supply and demand—fluctuations due generally to the unpredictable vagaries of the weather.

The Agreement is one, therefore, in which exporters and importers can work together for their mutual benefit. It operates initially only for a three-year period, but the concept is continuing and long-term and the Agreement envisages renegotiation before the end of its term.

Under the Agreement both exporters and importers assume obligations. One of the principal obligations affecting both sides relates to the financing of the buffer stock. This is to be achieved by means of a contribution charged, at least in the first two years of the Agreement, at the rate of 1 US cent. per pound per annum —about £9 per ton—on cocoa and cocoa products first entering international trade. It is the responsibility of exporting members to ensure that no shipments of bulk cocoa leave their shores without the presentation of a certificate showing that the contribution has been paid or secured. Similarly, there is an obligation on importing members to ensure that all imports of bulk cocoa, whether from members or non-members, are accompanied by such a certificate.

Mr. T. H. H. Skeet (Bedford)

The I US cent per pound per annum will not be payable by the Americans because American consumers are not signatories to the Agreement.

Mrs. Fenner

No. We hope that the United States Government will consider this point and become members. The purpose of this Bill is to provide the powers to enable Her Majesty's Government to fulfil this obligation. The Bill accordingly provides that imports of cocoa beans and cocoa products—essentially cocoa butter and cocoa paste—would be authorised only under a licence granted by the Secretary of State—in practice, the Secretary of State for Trade and Industry—who may include among the conditions of the licence presentation of evidence to Customs that any contribution chargeable under the Agreement had been paid or secured. The intention is that imports of these products from member countries of the Agreement should be authorised under an open general licence. This means that imports from these countries, which provide directly or indirectly over 98 per cent. of our imports of cocoa and cocoa products, will continue to he imported without quantitative limitation or other restriction, apart from the requirement of evidence that the contribution due has been paid or secured. Under the proposed economic rules of the Agreement it will be for exporters to provide this evidence to importers along with the shipping documents.

The open general licence would not apply to imports from non-member countries. These imports, which represent under 2 per cent. of our supplies of cocoa and cocoa products, would be authorised only under individual import licences. This is because imports into member countries from non-member countries will be subject to quotas based on past imports and which member states must observe when the world price is below 32 cents per pound—£280 per ton. A similar system has been operated in the case of coffee and sugar in the context of the International Sugar and Coffee Agreements. When the price is below this level the individual licences will be issued only within the limits of the quotas, but in all cases imports will be subject to the same conditions as operate under the open general licence.

The administrative arrangements for applying the International Cocoa Agreement have been worked out in close co-operation with the cocoa trade and industry. I should like to pay tribute to the unstinting help they have given to the British Government over many years by way of technical advice and expertise, both in the long negotiations for the Agreement and, more recently, in the detailed preparations giving effect to its provisions. The success and effectiveness of the Agreement, when in operation, will be due in no small measure to their efforts. The House will also wish to know that Her Majesty's Government have offered London as the site of the permanent headquarters of the International Cocoa Organisation when it is set up. We very much hope this offer will be accepted.

An interim committee, comprising representatives of all the signatory Governments, is meeting in London this week to conclude preparatory work for the coming into operation of the Agreement. The hope and aim of all the signatory Governments is that this Agreement can be set fully in operation in time for the beginning of the 1973–74 crop year on 1st October next. Only in this way would it be possible to maintain the impetus achieved at and since the negotiations and to enable the machinery of the Agreement to be established and settle down before it is subjected to the stresses which would arise with the downward phase of the price cycle. If this objective is to be achieved, however, it would be essential for Her Majesty's Government to obtain before that date the powers set out in this Bill. Meanwhile, the United Kingdom has undertaken to apply the Agreement provisionally. We hope that not only the United Kingdom, but the other member States of the European Economic Community and the Community as a whole will be in a position to apply the Agreement on time.

The licensing provisions for which the Bill provides constitute the small contribution that the United Kingdom is asked to make to set on foot the first international agreement for a new commodity for over 10 years. The concept of international commodity agreements is currently passing through a testing time. The future of the International Sugar Agreement is currently under renegotiation. The International Coffee Agreement, which operated so successfully for nearly 10 years, has recently experienced serious difficulties and can be continued, at least for the time being, only at a much reduced level of activity. The successful launching of the International Cocoa Agreement at this juncture would therefore give a much needed fillip to the concept of mutual co-operation between exporters and importers on an international plane. I hope that the House will show support for this concept by giving this Bill a speedy passage.

3.0 p.m.

Mr. Eric Deakins (Walthamstow, West)

We on the Labour side of the House warmly welcome and support the Bill and the International Agreement to which it seeks to give effect. Perhaps I could express the hope that our provisional acceptance of the Agreement will become a definite acceptance as quickly as circumstances permit.

The Minister emphasised the importance of this Agreement to some of the poorest countries in the world. Most of those producing cocoa have gross national products of less than 400 dollars per head per year, which is very low indeed. Some have even less than 100 dollars per head per year. Two of the major countries, Ghana and Nigeria, are Commonwealth members.

The hon. Lady talked of price fluctuations from year to year and gave some appalling examples. It is a fact that cocoa appears to have had the most unstable price record of any major internationally traded commodity since the war. The Agreement obviously aims to reduce these fluctuations and to reduce them not only in the interests of consumers but also in the interests of exporters. These fluctuations must have had an adverse effect on the domestic economies of the exporting States, upsetting and probably inhibiting their medium-term planning for economic development.

We must therefore look for some form of market regulation discipline and this the Agreement embodies, so that exporting countries can rely on a more regular supply of export earnings from cocoa. The Bill shows that as a major importer we are prepared for the necessary discipline to achieve that end. I believe that even the most ardent advocate of free enterprise in commerce must admit that poor States, almost entirely dependent on cocoa exports, cannot be left any longer to the tender mercies of the free market.

The financial aspects of this Agreement are complicated. There is the financing of the buffer stock arrangement by three separate methods—partly levy, partly by deferred payment and partly by IMF support. It is interesting to note that the Explanatory Memorandum says that there is to be no financial burden on the British Exchequer.

The Agreement ought to come into force at the end of this month. Time is pressing. It must do so, as the Minister pointed out, because the world cannot at this juncture afford another failure of an international commodity agreement. However, there seems to be some doubt about this. First the fact that the United States is not yet a signatory is a factor which could wreck the Agreement almost before it is started, unless the United States, without being a signatory, is prepared to co-operate with the member countries on the price that it will pay for cocoa.

Can the Minister say something about whether the Government are putting mild pressure on the United States, asking it to abide by the principle of the Agreement even if technical and other domestic reasons prevent it from becoming a signatory at present?

My second doubt concerns West Germany and Holland, both affected by the position of the United States. Are they, as partners in the Common Market, likely to ratify this Agreement by the end of June'? If not, I wonder whether the Government will make every effort, official and unofficial, to try to persuade them to do so. because it is very important.

This raises the prospect of the Agreement coming into force at all. Perhaps the Minister will not want to say anything at this stage but I wonder what action the Government are contemplating if it does not. Would they, for example, press for a reconvening of the International Cocoa Conference under United Nations auspices? One thing is certain—if this Agreement does not work we cannot afford to wait another 16 years before there is a prospect of a viable international commodity agreement in cocoa.

The Agreement is the test of international co-operation to help the poor countries. Ultimately, trade between rich and poor is much more important than any conceivable volume of aid from rich to poor. This Agreement is a major step forward to international sanity in trading relations between rich and poor states. We should use every endeavour on all sides, in the House and outside, to see that it begins to operate and that when it does it operates effectively.

Even with the Agreement in operation for a minimum of three years, there will still be difficulties for exporters because of the vagaries of weather and disease, but this at least is a step forward to reducing and resolving their trade problems. The Agreement is an example of what should be done for other primary commodities which have also suffered wild price fluctuations in recent years. The United Kingdom has played a valuable part in the tricky and lengthy negotiations leading up to the conclusion of the Agreement. I hope that we will keep up this good work by expressing our independent views in negotiations for future international commodity agreements, without regard to our membership of the Common Market.

The United Kingdom has much to contribute in these matters from its long experience as an international trading nation, and it is vital that in future our views continue to be expressel directly in the world-wide forums of the United Nations trading conferences and the General Agreement on Tariffs and Trade where these issues are discussed from time to time.

Finally, I hope that we can speed the Bill on its way as a sign to the world that the United Kingdom at least is taking this important international obligation very seriously.

3.7 p.m.

Mr. T. H. H. Skeet (Bedford)

The Minister has made a very good case, which I support entirely, except for her reference to the Agreement being in the interests of producers and consumers. Certainly, it is in the interests of producers but not necessarily of consumers. Prices today are very high and this Agreement will do nothing to prevent them rising to excessive levels. It simply provides a bottom end below which prices will not fall, at which the stop will come into operation and buying will start on the open market.

As prices rise higher, there will be no stocks available to sell, prices will continue to rise, so one must assume that the consumers, both in the United Kingdom and Western Europe and in the United States, will have to pay higher prices for their chocolate. We must expect higher prices for chocolate in the High Street in future.

But having expressed some anxiety about the attitude of the United States, one has to look at their position and to ask why they have not come into this Agreement, when they control 25 per cent. of the importing market. They have adopted a rather curious line on the coffee agreement, the sugar agreement, and on tin. While it is sad that they have refused to participate in these arrangements, they have at least adopted an unofficial acceptance of at least two of these arrangements.

They put forward in the negotiations support for what is known as sales quotas rather than export quotas. I should have thought that there was an argument for this proposition which takes into account the trade before exports arise and therefore the full operation of what is known as the futures market.

The hon. Member for Walthamstow, West (Mr. Deakins) indicated that the hoped for ratification would be pursued by Western Germany and Holland and I share his hope. But because the United States is outside the Agreement, the non-signatories will be in a distinctly preferential situation. They will not pay the I per cent. levy and will have all the advantages of a free-market operation.

In current prices, the spot price for cocoa now is 73 cents a pound, in the futures market in July 65 cents,. a pound and in September 63 cents. The figure for September, 1974 is 51 cents a pound. One is led to the conclusion that there can be a revision of quotas to take into account what may happen in the market. I consider that whether the prices rise or fall will depend on the availability of the cocoa bean in the market and we are painfully aware that in Nigeria there have been extensive fires in the Western region, which have savaged the crop, and that in Ghana and the Ivory Coast, which produce a large part of the crop, drought conditions have been the worst for the past seven years. In Brazil also there has been a partial failure of the crop.

The Opposition will appreciate one point of economics—that where there is a shortage of supplies inevitably it affects prices. As there has been no sign of any abating consumption, prices will tend to rise quite dramatically. This is the most complicated commodity arrangement ever contrived in international markets and that must militate against its possible success. I am glad that we have subscribed to it. I sincerely hope that it will work.

My hon. Friend the Parliamentary Secretary to the Ministry of Agriculture may consider that this is more successful than the OPEC arrangements, in which we do not participate and in which countries in the Middle East have been able to impose on the world the prices they think fit. In this case it is different and more equitable.

Among consumer interests of the importing States, at least the EEC Commission has participated and Germany is a signatory. Indeed, all members of the Common Market have joined. I believe that the Soviet Union has done so as well, and Japan also, although Japan is a small consumer. In fact, the signatories total about 35 nations, representing about 69.83 per cent. of total importers. It is therefore rather unsatisfactory that the United States, with 25 per cent. of the market, has not come in. Perhaps my hon. Friend can give us some idea why Czechoslovakia and Poland are also in a recalcitrant mood.

I fully endorse the argument that we have to do something for the developing territories, dependent as they are upon commodity prices. Six exporting countries account for 92.9 per cent. of basic quotas. Ghana accounts for 36.7 per cent.; Nigeria, 19.5 per cent.; the Ivory Coast, 14.2 per cent.; Brazil, 12.7 per cent.; the Cameroons, 8 per cent.; and Togo, 1.8 per cent. This makes a total of 92.9 per cent.

Cocoa, of course, accounts for the principal part of Ghana's foreign exchange earnings and, therefore, the livelihood of the people of Ghana depends upon the product. Almost the same argument applies to the Cameroons and Togo. The West African producers account for about 75 per cent. of cocoa beans sent to the world market and Latin America and the Caribbean account for 25 per cent., half of which comes from Brazil.

I therefore conclude that this is a most satisfactory arrangement. I see scope for many more in the future, because this is a sensible way of moving ahead in international trade. It operates in a rather neat way, as my hon. Friend the Parliamentary Secretary explained. When the price falls to 23 cents. the buffer stock, which will ultimately be very considerable, will begin to operate. The International Cocoa Organisation will begin to buy on the world market to sustain the price. When the price rises to 32 cents. and above, free market conditions will prevail because the buffer stock sales will begin to feed the market. Regrettably, at this stage there are no buffer stocks available. From 29 cents. and below there will be mild quotas or rigid quotas as the case may be.

The purpose of the Agreement is to bring in export quotas, a buffer stock of 250,000 tons, arrangements for diversion to non-traditional materials such as raw materials for margarine, cooking fats and soap and mechanism to maintain prices between 23 and 32 cents.

The House must welcome the arrangement. I hope that my hon. Friend the Parliamentary Secretary and her advisers will seek to ensure that the United States of America comply with the provisions, if not in the legal form, at least in the letter of the arrangement, because it is very important to the developing world that success should be achieved. I concur with the argument advanced from the Opposition that trade is the best way to sustain the livelihood of the developing economies and certainly not aid, which can be dissipated on so many occasions.

3.17 p.m.

Mrs. Fenner

I ask the leave of the House to speak for a second time.

I am grateful to hon. Members for a brief but very interesting and constructive debate. To take, first, the point raised by the hon. Member for Waltham-stow, West (Mr. Deakins) and my hon. Friend the Member for Bedford (Mr. Skeet) about the non-participation at this time of the United States, the Agreement depends essentially upon controls at the exporting end. Exporting members together account for nearly 90 per cent. of world exports.

The United States of America have declared their willingness to co-operate with the International Cocoa Organisation in any way they can. Nevertheless, Her Majesty's Government would greatly welcome a decision by the United States' Government at any time in the future to participate in the Agreement.

The hon. Member for Walthamstow, West asked also about the situation with regard to West Germany and Holland. Both countries are seeking legislation, and both hope to ratify, or give an undertaking, or make a provisional application, by 30th June.

I was also asked what would happen if there was no automatic entry. The Secretary-General of the United Nations would have to convene an urgent meeting to consider whether the Agreement could be applied in those circumstances.

In answer to my hon. Friend the Member for Bedford, it is a fact that it is not possible for the United States to control prices under an agreement to which they do not adhere.

Again, on the question of United States' non-participation, I remind hon. Members that the exporting members, who account for nearly 90 per cent. of the world's exports, will be determining market levels in accordance with the provisions and decisions of the Agreement.

My hon. Friend took up the point that I made earlier about the Agreement not being able to create supplies that are not there. However, in the longer term it should lead to avoiding extreme price fluctuations. In times of surplus it should prevent prices falling dramatically and it should help to meet or to reduce shortfalls in later years. Secondly—the hon. Member referred to producers having confidence to plan in the long term—the Agreement should provide for necessary confidence to enable producers to develop production in line with the expanding demand to which my lion. Friend referred.

Beyond those points—I trust that I have covered them all—there is little that I can add. Successive Governments have participated in all the major commodity agreements—sugar, coffee, tin, wheat, and even olive oil in which we have no significant interest as a consumer.

We support the principle of international co-operation to tackle the problems of primary commodities. That support is particularly appropriate in the case of cocoa—a point that the hon Member for Walthamstow, West made—in which there is such a strong Commonwealth interest, and presents the first opportunity to all the members of the European Economic Community to give effect to the commitment in the Paris summit communiqué to the promotion, in appropriate cases, of agreement concerning the primary products of developing countries.

For these reasons, I urge the House to give the Bill a Second Reading and a speedy passage.

Mr. Skeet

Before my hon. Friend sits down, may I point out that according to Gill and Duffus, … continuing uncertainty about the dollar and a considerable increase in the dollar price of gold may have contributed to a rush into cocoa in New York. We have a bracket of 23 to 32 cents. May we not find that there will be a revision of the price range due to the weakness of the dollar, or would my hon. Friend be prepared to support that?

Mrs. Fenner

There is provision for a review of the price range before the end of the second year, under Article 29 of the Agreement. There is also provision for consultation in the event of the par value of the US dollar or the £ sterling changing. The exporting members of the interim committee have asked for this latter issue to be discussed at the first meeting of the council. In answer to my hon. Friend, I could not anticipate at this stage what the outcome of this discussion might be.

Question put and agreed to.

Bill accordingly read a Second time.

Bill committed to a Commitee of the Whole House.—[Mr. Murton.]

Committee upon Monday next.