HC Deb 28 November 1973 vol 865 cc539-50

10.14 p.m.

Mr. Cledwyn Hughes (Anglesey)

A critical situation has developed in the agricultural industry over the last 12 months, mainly as a result of the exceptional increase in the cost of feeding stuffs. We have had some exchanges on the subject at Question Time, but the implications of the problem for the industry, for the consumer and for the national economy are such that I felt it essential that the House should have the opportunity of a fuller discussion. I regret that this will be such a short debate, because I know that many hon. Members would like to speak on the subject.

I do not believe that any over-statement of the case will help the industry or anyone else. I do not want the charge levelled at me that I started Mr. Wallace Day marching again. If he marches when the interest rate is 7 per cent., one can only assume that when it is up to 13 per cent. he is too stunned to rise from his chair.

Let us look, therefore, at the facts and the general implications, and the Government's reactions to them. In a Written Answer to me on 9th October, the Under-Secretary gave details of the average cost of feeding stuffs, for each October since 1970. For cattle and calf, they were £42.30 per ton in October 1970 and £70.80 per ton in October this year. The figures for pigs were £44.80 and £83.10, and for poultry they were £47.50 and £87.30. The big increase has taken place during the last 12 months. The Prime Minister was mistaken when he told me at Question Time on 15th November that the increase over the last year was 50 per cent. It was about 80 per cent. He was wrong to say that I was exaggerating the position when I said that costs had nearly doubled in three years. It was the Prime Minister himself who was underestimating the gravity of the position.

Furthermore, it is misleading and wrong to argue, as Ministers have argued, that the increase is due solely to the increase in import prices. That is a major factor in the sum, but it is not the whole truth. The cost of sugar beet pulp, for example, which is produced in this country, has also risen. It was £22 per ton in October 1970 and £43 per ton last October. When I asked the Minister about this on 12th November, he gave a remarkable reply. He said that the British Sugar Corporation, as an independent company, is free to determine its selling prices subject to the requirements of the counter-inflation programme. It —that is, the corporation— has concluded that sugar beet pulp falls within the group of agricultural products on which price increases do not have to be notified to the Price Commission. The Minister then said The corporation has, however, informed the commission of its action and is making returns of its profit margins."—[OFFICIAL REPORT, 12th November 1973; Vol. 864, c. 45–46.] It seems, therefore, that the corporation, regardless of phase 2 and phase 3, can do just what it likes. The corporation's actions should be scrutinised carefully. I hope that the Minister will say this evening that this will be done forthwith.

I turn to the effect of the increase on the agricultural industry and its prospects for the future. The Government are committed to a policy of expansion. I believe that that is right. Our membership of the Community and our worsening balance of payments difficulties make it imperative that expansion should continue.

Production and productivity in the industry since the end of the war has been impressive. It has increased net output by an average of 4 per cent. per annum in recent years. If it can be encouraged to continue it will make significant contributions towards resolving our overseas payments problems. A loss of momentum or a cut-back in production will not only worsen this problem but will also result in further increases in food prices. That is something which hon. Members representing urban constituencies will wish to bear in mind.

Let me give one significant figure. In the first nine months of this year imports of food and feeding stuffs amounted to £2,000 million, nearly 18 per cent. of our total import bill. In the corresponding period last year, it was just over £1,500 million. The importance of increased home production is, therefore, evident to every hon. Member.

I understand that the Minister has accepted that the livestock and milk producers are in difficulty but that the Government are looking at the industry as a whole and that the general level of profitability is good. But the Minister knows perfectly well that this argument is very weak. The livestock sector, which accounts for 70 per cent. of our total agricultural and horticultural output, is the one which has been directly injured by the rise in feed prices. What he is saying, in effect, is that cereal farmers have done well and therefore the industry is doing well. That is the weakness of the Government's argument at present. That is nonsense, and the Minister of State knows it perfectly well.

Two-thirds of all milk producers grow no cereals and the same is true of many pig producers. The Minister knows that about 80 per cent. of the dairy cows in England and Wales are held on specialist dairy and mainly dairy farms, and that all these farms account for only 14 per cent. of the cereals acreage. These farmers are dependent on bought-in feed and they have not benefited from high cereal prices. As hon. Members know, milk is the most important single commodity produced on our farms and accounts for more than 20 per cent. of the returns from farm sales. The Milk Marketing Board has stated recently that the margin per cow is 60 per cent. below that for 1972–73, and in real terms this is the lowest since the end of the last war.

In the last Annual Price Review, prices for milk were fixed on the assumption that feed prices were expected to fall. That was the assumption on which the Minister and his hon. Friends based their calculations. In fact, there has been this astronomic rise, and if we look at costs for the current year I do not think I shall be far short if I say that they will be around £500 million—possibly a little more. The mind boggles. I used to worry in 1970 when costs were around £60 million. I am surprised that the Minister of State has any hair at all on his head when he contemplates the position. But of this figure of £500 million, about £400 million relates to feed costs alone, and I think that puts in perspective the problem which we are discussing.

The Minister of State may still try to argue that the industry has done well and should absorb the costs. My reply to him is that any increase in the average income is on the cereals and not on the livestock side. If he is to sustain this argument, he must tell the House what he estimates the increased income will be not only in the cereals sector but in the livestock sector and the milk sector separately.

I should also like him to comment specifically on the effect of phase 3 on dairy producers. As I understand it—and I am open to correction, because I am not in possession of the facts which the Minister of State has at his disposal —controlled reduction of manufacturers' profit margins by refusing price increases is limited to 10 per cent. Yet dairy producers will have their profit margins cut by 60 per cent. following feed increases which have been approved by the Price Commission. Does he think that that will encourage the expansion about which the Government have been talking for the last three years?

I have met the dairy farmers of Anglesey and spoken to many others in various parts of England and Wales, and I am bound to say to hon. Members on all sides of the House that they are deeply worried men. The vast majority, in response to exhortations from the Minister of State and his right hon. Friend and Ministers from the Scottish Department of Agriculture, have ploughed back their profits into the business so that they can achieve the expansion for which they have been persuaded to aim. Many have borrowed money to improve their farms and, with interest at 13 per cent., how does the Minister of State expect them to live, let alone have confidence in the Government?

I have met young farmers, and especially small and medium farmers in Wales, who are desperately worried about their position. It is a classic example of falling, and in many cases non-existent, profits, and that discourages investment—a situation which phase 3 is supposed to avoid. The national beef and dairy herd has been growing satisfactorily over the last 10 years, and this is a policy to which all parties in the House have subscribed. It would be a major tragedy if there were now a reversal, at the very moment when an advance is essential for all the reasons I have given.

The position of pig producers is also serious. It has been estimated that by next month the net margin of pig producers will have fallen by less than half of what it was in 1972–73. Pig slaughterings have increased ominously and the future there does not look bright at all. I am sure that the Minister does not want to see a cut-back in production, but he has been making some over-optimistic statements. Both he and the Prime Minister have refused to accept the need for interim measures to help livestock farmers over the immediate crisis. I understand that he is to speed up the review procedure this year, and perhaps he will say a word about it. It will, however, not help solve the problem. It is not enough for him to say that he is now precluded from introducing a special review, which is what he and the Prime Minister have said to farmers' representatives. There is nothing to prevent him bringing forward special measures to meet a critical situation. A short-term subsidy to meet quite exceptional circumstances could not be objected to in Brussels or anywhere else.

Would the Minister say a word about farm costs in relation to the Fourchette arrangements? Would he agree that costs are now so enormous that the amount needed to recompense them is greater than the steps which we are allowed to take under Fourchette? Is it not essential that he should now do something so that his freedom of manoeuvre at the Annual Price Review is not constrained by Brussels? This is an important point and we shall watch the position carefully.

I hope I have said enough to prove that a good deal is at stake in this feed crisis : the expansion programme of the livestock sector, the livelihood of the farmer, the cost of food to the consumer and the industry's contribution to the balance of payments. I do not want to undermine confidence in the industry by anything that I say. I know to my cost how much confidence was damaged by some hon. Members opposite when I was Minister of Agriculture, and I do not want to repeat the mistake which they made. I have felt it my duty to lay the facts before the House, and I hope the Minister will be able to announce some constructive interim measure which will set the industry on course once again.

10.27 p.m.

Mr. Goronwy Roberts (Caernarvon)

I intervene briefly to support my right hon. Friend in his concern for the plight of the dairy farmer in many parts of the country, and particularly in North-West Wales. He and I represent adjacent farming counties in which the milk producer is a very important person indeed.

Like him, in the last few weeks, I have received deputations and have met the unions on the question of the escalating prices of feeding stuffs and the swingeing increases in overdraft charges from which so many dairy farmers in particular suffer. It is true that the farming community as a whole has suffered from increased production costs and from the rise in bank charges, but the housewife has come to the rescue over most of them in that she has paid greatly increased prices for food, so that as a whole the farming community has not suffered to anything like the degree that the milk producer suffers. While the charges in every respect have gone up in his case, his net receipt for milk has hardly changed. Certainly in the last year it has hardly moved.

I think the figures given to me by the Minister of State on 6th November are very revealing on this point. He said, as reported in c. 124 of the OFFICIAL REPORT of 6th November this year, that the average net price for milk received by wholesale producers in the United Kingdom in 1972–73 was 20.2p per gallon and in 1973–74 the forecast was 21.7p. The average cost of dairy feed stuffs in Great Britain was £50.5 per ton and the cost projected for 1973–74 was £56.3.

His projection is therefore that there will be an increase of about 11 per cent. in the next six months in the cost of feeding stuffs to the producer but that there will be a net increase in receipts of only 7 per cent. per gallon of milk. He will therefore fall behind increasingly during that period.

Ministers have expressed the hope and belief that in the next six months world conditions will improve so that more cereals will be available at a lower price. However, their projection as given to me in that answer suggests that in spite of the prediction of better world conditions, dairy farmers will face an increase of as much as 11 per cent. That point is causing dairy farmers a great deal of concern.

10.31 p.m.

Rear-Admiral Morgan-Giles (Winchester)

Will my hon. Friend the Minister answer two questions which will interest farmers generally? First, has he taken into account not the immediate future but the long-term outlook for liquid milk should the producers allow the size of their herds to run down? Secondly, has the Department calculated what would be the percentage rise in the cost of living if the retail price of milk rose by ½p a pint?

10.33 p.m.

Mr. John Mackie (Enfield, East)

I rise to support my right hon. Friend with some concrete figures which I think will interest the Minister. These figures have been calculated and checked by ICI and compare October this year with October last year. For the 100-cow herd, milk last year was 8,530 gallons ; this year 8,445—less than 100 difference. Price last year was 22.41p ; last year 24.27p—less than 2p difference. That 2p was meant to cover the price rises before the price review and the Minister knows well enough the enormous increase that has taken place since the price review over and above feeding stuffs.

Cash taken in last year was £1,911 ; this year £2,049—an increase of only £138. Concentrates last year were 340 cwt. at 13 to 14 per cent. protein and this year 380 cwt. of the only sort they could afford—11 to 12 per cent. protein. The price last year was £40 and this year £61.20, making a total difference of £482 compared with the increase in milk of £137. For one month the difference for the 100-cow herd is £345. For six winter months it could be worse because there could be a demand for more feeding stuffs and we do not know how the price will go. The difference is £2,070. I do not want to suggest that I shall not survive, because I have a large cereal acreage, but the Minister should think of the West Country farmers with half that herd and a £1,035 difference in six winter months' milk. To that must be added the extra cost referred to by my right hon. Friend—the 18 per cent. overdraft costs and so on. The Minister of Agriculture must take a second look at what the Government intend to do and not wait until February.

Mr. John E. B. Hill (Norfolk, South)

Will the hon. Member and his hon. Friends support an increase in the retail price of milk of ½p per pint?

Mr. Mackie

Will the Minister support such an increase?

10.34 p.m.

The Minister of State for Agriculture, Fisheries and Food (Mr. Anthony Stodart)

I very much welcome this debate. There cannot often be assembled so many Opposition Members who speak with such interest and genuine authority on the matter.

I wish that the sympathy they have expressed on behalf of the producer were more often expressed on Thursday afternoons, when the Opposition's major interest seems to be the prices being paid by consumers rather than the incomes being received by farmers. I may be wrong about that. Let me try to pacify the right hon. Member for Anglesey (Mr. Cledwyn Hughes), who seems to have taken offence at what I have said, by saying that his heart has always been with farming. I quite understand his allusion to Mr. Wallace Day. It has been a sore subject with the right hon. Gentleman for a long time and he has my sympathy. The right hon. Gentleman has been guilty of no overstatement tonight.

When the right hon. Gentleman asked us to scrutinise the activities of the British Sugar Corporation with great care, he was venturing on to rather thin ice. I say that with great feeling, because the Scots and the Welsh never quarrel, other than at Cardiff Arms Park. I speak with particular feeling, because the right hon. Gentleman's party was in power when the corporation did something very hurtful to the country from which I come, and I cannot recollect that it did any great scrutiny of what was going on in the corporation then.

Mr. Cledwyn Hughes

An entirely different subject.

Mr. Stodart

I am not so sure that it is. It affects the British Sugar Corporation, anyway.

The present food prices situation has arisen because of a temporary—I emphasise "temporary"—world shortage of proteins and cereals. Proteins are short very largely because of the failure of fishmeal production in Peru and restrictions on exports of soya from North America.

Restrictions on soya have now been lifted. Supplies have returned to more normal levels, and therefore, although it is always dangerous to prophesy, the worst of the protein shortage seems to be over. The price of soya has fallen from a peak of about £260 a ton in mid-July to about £100 a ton now, which is just about what it was a year ago.

The rise in grain prices is mainly due to the poor harvests in the Soviet Union and some other countries and heavy buying by Russia and China as a result. This led to substantial reductions in stocks.

The grain situation is still worrying, in spite of this year's good harvests throughout the Northern Hemisphere. There have been reports of record harvests in Russia and China, but prices have only dropped slightly from their highest levels, and fears that a shortage of oil may cause shipping difficulties have been causing prices to firm again within the last few days.

If grain prices come down over the coming months, they will clearly not fall enough in time to affect feeding stuffs significantly in the near future. There is no use pretending that they will.

These increases have inevitably caused difficulties for livestock farmers, but for many of them there have been compensating increases in returns from the market. I shall come in a moment to the most hard hit of all, the specialist dairy farmer.

But the situation of pig producers, who were in some difficulties in August, has substantially improved. What was, I hope, the first silver lining in these rather dark clouds appeared last week, when one of our leading compounders announced decreases of £2–£3 a ton in the prices of its main pig and poultry feeding stuffs. That at least is a step in the right direction. Since mid-August the prices of fat pigs have increased on average by about 20 per cent. from £3.78 to £4.61. Pig producers' profits should now in most cases have returned to satisfactory levels.

The exceptions to the general picture are the dairy fanners. That I totally accept. Particularly concerned are the specialist dairy fanners who cannot make up in other directions the reductions in the margins on milk. Such farmers have not been able to benefit from increased returns from the market. I recognise fully the difficulties that the high feed costs have created for them.

I ask the right hon. Gentleman to put the problems into perspective. I have said, and I say it again, that the rise in feed costs is temporary. Farming in this country has had three good years. The Government have encouraged expansion. The weather has been kind. The political views of the Almighty cannot be in doubt. Farmers generally have responded by making major efforts to expand. I see that the right hon. Gentleman agrees with me wholeheartedy.

Dairy farmers have shared in those developments. The figures of specimen net incomes collected for the Ministry by universities and published in the Annual Review White Papers give some indication of that. The figures show that the incomes of specialist dairy producers in the sample for England and Wales rose by 26 per cent. in 1970–71 over the previous year, and by a further 78 per cent. in 1971–72. I should be surprised if another increase not far removed from that of 1970–71 is not recorded for 1972–73. Over the three years, the experience of specialist dairy producers in other parts of the United Kingdom—for example, Scotland and Wales—is likely to have been much the same.

I agree that the rise in feed costs in the past four months has reduced dairy farmers' margins. It would be absurd to argue about that. However, the rise is not as large as is claimed by the right hon. Gentleman. I note that when the right hon. Gentleman questioned my right hon. Friend the Prime Minister he said that the price of feed costs nearly doubled in the past three years. The right hon. Gentleman is a member of the legal profession and he will appreciate that we must be careful about what we mean by "nearly". The average price of all compounds in November, 1970 was £46 a ton. Today it is £78.50. That is a rise of 70 per cent. That is quite a distance from 100 per cent. I am sure that the right hon. Gentleman would wish me to get it right.

All the same, without the compensation of increased returns from the market, dairy farmers have been going through a difficult and unhappy time. However, it is a temporary setback and future prospects are extremely good. The Community's present target price is 26.86p per gallon. That compares with an estimated pool price in the United Kingdom of 21.7p in 1973–74. By the end of the transitional period producers can expect to receive at least the common target price. That should lead to substantially higher profits. That is why—

The Question having been proposed after Ten o'clock and the debate having continued for half an hour, Mr. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at sixteen minutes to Eleven o'clock.