§ 10.16 p.m.
The Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food (Mr. Gavin Strong)
I beg to move,That this House takes note of Commission documents R/1125/7 and R/1149/77 and, while welcoming the opportunity which the proposal in R/1125/77 would offer for reducing monetary compensatory amounts for pigmeat, considers that the scope and criteria for its application in other sectors ought to be more clearly specified.The green currency system is of great importance to the United Kingdom and, indeed, to all member States of the Community. Clearly, therefore, it is right that proposals affecting its basic functioning should be very carefully examined, and I welcome the decision of the Scrutiny Committee to recommend these two documents for debate. I am also grateful to it for setting out so clearly in its reports the complicated technical implications of the proposals.
We have often in this House debated the quesiton of the green pound. These proposals, however, are not just about the green pound. They are about the green currency system as a whole. Before looking at the proposals in detail, it is worth recalling the basic aims of the green currency system. CAP support prices are converted into national currencies at fixed exchange rates. If fluctuating market exchange rates were used for this purpose, support prices expressed in national currencies would vary daily. This would conflict with the basic CAP objective of providing stable prices.
But the effect of having special exchange rates for CAP purposes is that support prices are not the same throughout the Community. In countries whose real currencies have appreciated, such as Germany, CAP support prices are relatively high. In countries whose real currencies have depreciated, such as France or the United Kingdom, they are relatively low. If this situation were combined with full free trade, CAP commodities would be attracted to the high-price countries. This would put the intervention arrangements in those countries 1880 under impossible strain, and it would, of course, be harmful to consumers in the lower-price countries.
Monetary compensatory amounts are, therefore, applied to imports and exports of the main agricultural commodities in order to bridge the gap between the differing real support prices being applied by the various member countries.
Against this background, the Commission proposal in Document R/1125/77 may sound revolutionary. If it were accepted, the Commission would be able to set MCAs at a level which was less than the full difference between intervention prices in the various member countries. In a sense this is contrary to the basic objective of MCAs. In practice, however, it has already been found that there are circumstances in which the full gap does not need to be bridged. For example, in the beef sector the Council agreed in 1975 to a reduction in MCAs to cope with the situation in which market prices can be below full intervention prices.
There is also a more general precedent. The MCAs of countries such as France or the United Kingdom whose currencies are floating have to be reviewed each week in the light of developments on the currency market. Even so, they can only reflect past performance of the currency, not its exact situation on the day in which the MCA is applied. An MCA which is somewhat less than the full gap between intervention prices has been found in practice to be reasonably effective. Our MCAs and the MCAs of other floating currency countries are abated by 1.5 percentage points.
We recognise the reasons for these precedents. I need hardly remind hon. Members that we have also argued strongly on pigmeat that MCAs should not cover the difference in intervention prices. The basic justification for this is that public intervention is almost never used in the pigmeat market. MCAs need do no more than offset the differences in cereal feed costs, just as they do for poultry and eggs. We do not, therefore, quarrel with the principle of the Commission's proposal, and we welcome this recognition of the strength of our arguments on pigmeat.
1881 The text of the amendment proposed by the Commission, however, may need more clarification. Indeed, the view that the amendment is too widely drawn is shared by many member States. Several of them also argue that they cannot consider a detailed change in the system separately from more fundamental reform. They refer to the long-term proposals which the Commission made at the end of last year for changes in the green currency system. These proposals involved automatic adjustments of green rates based on the size of each country's MCAs.
These matters were discussed on Monday, and it was interesting to see in the Council the line-up of the various member States. On the one hand, the Benelux group, with Denmark, strongly took the view that we should not agree to this proposal without more radical changes in the green currency system, by which they meant something like the automatic adjustments originally proposed by the Commission last year. On the other hand, there are countries, such as Italy, France and the United Kingdom, which see some merit in this proposal, provided that it is reasonably tightly drawn, to enable some adjustments to be made by the Commission to certain MCAs. Ireland tends to go with the Benelux countries on this, and Germany seems to be in a position of its own, in that it is generally opposed to any change in the MCA system and is certainly unhappy about the proposal to give the Commission the power to fix MCAs on the basis of prices lower than the current intervention prices.
Hon. Members will recall that these proposals were discused by this House in the course of the debate before this year's price package. My right hon. Friend then made clear the Government's opposition to them, and the House, in the motion adopted, endorsedthe Government's view that decisions on whether Commission proposals for changes in a member State's representative rate should be accented are primarily a matter for that member State."—[Official Report, 16th March 1977; Vol. 928, c. 417.]
§ Mr. Neil Marten (Banbury)
Were the countries in favour thinking nationally? What, for example, did the countries that were against it think of it? What is the Community answer to this problem?
§ Mr. Strang
If the hon. Gentleman is talking in terms of the conventional 1882 policy of the Commission, the attitude is against MCAs, because the thinking of the Commision and of the proponents of the system, as it were, the idea being MCAs, and they are still seen by some people as a sort of temporary noise in the system, as it were, the idea being that we should return to a position in which we do not have MCAs. Indeed, when this issue was raised during the original United Kingdom negotiations, we were informed that we did not need to worry about MCAs because they were temporary and would have gone by the time we acceded to the Common Market. However, perhaps I may continue with my speech.
The second document before us tonight, R/1149/77, is a communication from the Commission which shows that it is considering very substantial modifications to that proposal—by which I mean last year's proposal to make radical adjustments in MCAs. The communication is only in very general terms and, before it could be acted upon, a legislative proposal would have to be prepared. This would be submitted to the Scrutiny Committee in the normal way, and I have little doubt that, in view of its importance, the House would wish to have an opportunity to debate it. I know that this is of particular interest to my hon. Friend the Member for Newham, South (Mr. Spearing).
What we have before us tonight is simply an indication of the way in which the Commission is now thinking. It suggests that its new proposals, when it is made, will be based on three ideas.
First, existing MCAs should be gradually reduced, but this process should be carried out in a way flexible enough to deal with any economic and political difficulties which it might cause.
Secondly, new MCAs should normally be eliminated at each price-fixing.
Thirdly, the European unit of account, EUA, should perhaps be used for the common agricultural policy.
The last idea is the most novel. MCAs are now calculated on the basis of market rates of exchange with the currencies in the European joint float. This is convenient technically because the MCAs of countries in the joint float are fixed and change only on the rare occasions when these countries change either their green 1883 currencies or the value of their real currencies in comparison with all other members of the joint float.
It has, however, the perverse effect that movements in the joint float as a whole show up in the MCAs of non-joint float member countries. This does not matter so long as MCAs are used only for bridging the gap between intervention prices. But it matters a great deal if MCAs are to be the criterion for changing green rates. We made this point very strongly in Brussels when the Commission proposed its automatic adjustment mechanism.
§ Mr. Nigel Spearing (Newham, South)
Since this is a technical matter, I hope that my hon. Friend will forgive this apparent naive interruption. Is he now referring to what I, and some of my hon. Friends, call the "burst snake" effect— in other words, using the calculation after the "snake" has changed? If he can confirm that that is so, it will be helpful to some of us who get rather lost with some of these mathematical calculations.
§ Mr. Strang
My hon. Friend is, in his own words, describing what I am referring to. I am referring to the fact that the agricultural unit of account is based on an unrepresentative basket of currencies because the United Kingdom, France and Italy—three major countries—are all excluded from the joint float.
Returning to the point that I was making before my hon. Friend intervened, I am glad to see from this communication that they recognise its validity. If MCAs were based on the European unit of account and, hence, on all member currencies, as the Commission now seems to be suggesting, the MCA system would not be discriminatory between joint float and non-joint float countries. Even, however, if the system itself were corrected in this way, we should still need to consider very carefully our attitude to any automatic adjustment proposals.
The EUA is certainly the most interesting point in the Commision's communication. I can be briefer on the rest of it. The Commission is suggesting that it would be possible to find a way of gradually phasing out existing MCAs which takes account of the political and economic difficulties involved. This can be properly judged only when we have 1884 details of the Commission's proposals. The same must also be said of the idea that new MCAs should normally be eliminated at the price-fixing.
§ Mr. Andrew Welsh (South Angus)
What time scale does the Minister foresee for this event? The Commission has used the phrase that it wishes to see future MCAs eliminated within "a short time". How does the Minister see this coming to pass? What is the time scale?
§ Mr. Strang
The Commission document refers on the one hand to existing MCAs and on the other to new MCAs which would develop subsequent to the introduction of the new policy. The idea is that it would like to see the new MCAs phased out at each price-fixing. I cannot answer with regard to existing MCAs, because no one knows until the Commission brings forward proposals. That should not be before October, and as yet we have no idea. It may well be that those proposals will not spell out the time scale because it is common in the Community, and in Government generally, that such things take longer than originally intended.
There is obvious sense in linking decisions on green currencies, which determine what common prices mean in each individual member State, with decisions on common prices themselves On the other hand, anything which removed an element of flexibility from the price-fixing process could make the job of finding a generally acceptable price package even more difficult.
Clearly, therefore, the Commission's proposals will need very careful scrutiny when they are available. I cannot do more now than indicate the principles against which we think that the proposal should be judged when it is made. First, in so far as it affects the green pound, the Government's attitude will be to judge whether it implies any changes which are contrary to our national interest. This is exactly the same basis on which we have judged individual proposals for changes in our green rate. Secondly, as it affects other green currencies—and it is worth reminding the House that it affects other green currencies as much as it affects our own—we shall wish to bear in mind the need to avoid introducing a system under which the fixing of support prices in the currencies of the various 1885 member States is so rigid that it fails to take account of their differing economic situations. Thirdly, we shall want to form a view on whether the proposals would help or hinder the process of holding down the real level of common support prices or would be neutral.
We cannot apply these criteria until we see the proposals in detail. That is why I recommend that the House simply takes note of this communication from the Commission, which is not itself a proposal for legislation. I need hardly add, although it is not, strictly speaking, relevant to the debate, that it is still the Government's view that common support prices in general are fixed at too high a level in the Community. It will continue to be our policy to maintain a moderating influence on the level at which the prices are fixed in future.
I hope that I have said enough to give the House an indication of the Government's approach to these issues. I shall, of course, be happy to answer particular points which may be raised in the debate.
§ 10.32 p.m.
§ Mr. Michael Jopling (Westmorland)
First, I must declare my interest as a farmer in these matters. I repeat and endorse what the Under-Secretary of State said in expressing our gratitude to the Scrutiny Committee for dealing with these matters in its customary way and drawing our attention to these two most important proposals.
The Minister has given us an unusually detailed helpful explanation of what is implicit in the proposals. I am grateful to him for giving what we do not hear often enough—namely, an explanation of how some of our colleagues in the Community are lining up for or against the various proposals that come forward. It is helpful to know what problems are being met in negotiations on these issues.
When we consider the documents it is wise to recall the origin of MCAs. It is as well to remember that they arose because within the common agricultural policy we are not able to have a single European currency with which to back the various price structures and support systems. We on the Opposition Benches still regard it as our aim as members of the Community to arrive at a single European currency.
§ Mr. Spearing
Is the hon. Gentleman saying that official Opposition policy is entirely backing a common European currency within as short a time as possible?
§ Mr. Jopling
I did not say that. If the hon. Gentleman will hold himself in control for half a second he will hear what I intend to say in my next sentence. He will recall that we when we joined the Community a timetable was allowed, which has since foundered, to arrive at a common European currency. Although that is still our aim, we realise that its fruition is some years away. However, we must not forget it.
MCAs were originally introduced in the 1960s as a temporary expedient to follow a devaluation of the French currency and a revaluation of the German currency. As Document 1149/77 says, they were originally intended to be temporary and not to become permanent features, costing huge amounts, as they seem to have become in the last few years. They have grown recently to mammoth proportions in trade with the United Kingdom— basically because of the catastrophic fall in sterling. That has given rise to a large green pound discrepancy, because of what the world sees as the Government's economic failure. If the Government had taken the proper steps three years ago to control inflation, our currency would not have fallen so much and we should not have had these massive problems with MCAs.
The considerable increases in food costs because of the slumping pound would have been avoided because it would be worth more. The massive devaluation last year made our food prices shoot up— for example, sheepmeat, tea and coffee. Apart from world shortages, those rises were caused by our devalued currency and had nothing to do with membership of the EEC. The MCAs have been a welcome buffer to those rising prices.
§ Mr. Marten
My hon. Friend is now advancing into areas of economics. Is not the fall in the value of sterling invariably due to the balance of trade position? Does he not agree that part of 1887 the cause of the fall in sterling is that in 1971, before we joined the EEC, our deficit with the eight other countries was £180 million, whereas in 1976 it was £2,300 million and is still running at that rate?
§ Mr. Jopling
I do not agree. The fall has been much more due to the Government's failure to control inflation. The MCAs have acted as a welcome buffer to food price increases following devaluation. It is a paradox that those who are most passionately opposed to our membership of the EEC seem to be the most passionate advocates of making the green pound system and the MCAs permanent. We cannot expect high MCAs to continue as a permanent feature of life in the Community. As Document 1125/77 says in the explanatory memorandum:High MCAs could create distortions of competition.I think that is the understatement of the debate. The present pig crisis distortion is caused by high MCAs. Because of this distortion we find ourselves in a situation in which the pig breeding herd has slumped by about 10 per cent. in the last six months. If we do not want to see a repetition of the pig crisis and potential crises in other sectors of food production, something will have to be done to avoid the high levels of MCAs.
The high level has caused an increase in heavily subsidised imports and the ruining of our domestic markets. Those who do not understand this should talk to beef farmers and find out about their experiences last winter. This leads to cuts in production at home, as in the pig sector, which leads to a loss of home-produced food, which means high prices for the housewives, and we are all trying to avoid that.
These two documents move towards the end of trying to reduce high levels of MCAs rather than coping with them, as is the present position. Document R1125/77 proposes to lower them by lowering intervention prices on which most are based, or by widening the franchise, which now runs at 1½ per cent. below the intervention price, thus lowering the percentage used to arrive at the MCAs. The Secretary of State's explanatory memorandum left out the second alternative, and I hope that in future 1888 these memoranda will be more comprehensive.
We do not quarrel with that concept, but we wonder which of the two proposals the Government prefer. How much do they anticipate they would be prepared to accept in the reduction of intervention prices, so widening the franchise?
Are the Government satisfied to have these matters controlled—as the document proposes—by management committees. Does the Parliamentary Secretary think that it is wise to take these matters out of the responsibility of Ministers? That seems rather doubtful, and I would be somewhat dubious about seeing these matters in the hands of management committees.
I agree with the motion, which says, while taking note of the document, that there should be more clearly specified proposals before we can come to a final solution. But, in general, Document R/1125/77 is on the right lines, and we approve it.
§ Mr. Jopling
If the hon. Member will contain himself, I shall come to this in dealing with the next document.
Document R/1149/77 follows with wider issues of existing and future levels of MCAs and the methods of dealing with them. I know that the Government have set their face against the original proposals of Commissioner Lardinois to have automatic reductions. The proposal in this document is a compromise away from that situation. It is first of all intended to freeze the present discrepancies. While accepting the national political and economic problems—which means goodness knows when the existing discrepancies will be reduced—the Government have set their mind against automatic changes, and it would be absolutely catastrophic to food production and industry in this country if the present level of MCAs were abolished too quickly. In terms of milk consumption, I think that the worst thing we could do would be to reduce the present level of MCAs too quickly.
I like the proposal to remove systematically any new MCAs which may 1889 arise due to currency fluctuations in future. It is a good idea to take the view "We have this discrepancy at the moment, but let us be sure that any others that arise in the future will be dealt with". We should not allow the problem to build up, and we would not quarrel with such an approach.
The Minister said that the proposal to remove annually any new discrepancy that arose would remove flexibility. That is true, but when the value of sterling is fluctuating anyway the cost of a great many foodstuffs goes up and down consequent on the changes of sterling without any flexibility, and there is nothing much we can do about it. To include in that sector of food supplies ones which are affected by MCAs is not, as the Minister seemed to imply, a fundamental step.
We do not quarrel with the proposals in Document R/1149/77. A good deal in those proposals is vague. Some Community countries have criticised the proposals for being piecemeal. I share with the Minister a feeling that many of our colleagues in the Community are unlikely to accept either of these proposals while they think that there is a chance of getting a much more fundamental approach through automatic procedures to deal with MCA levels and green pound discrepancies.
I think that the Government are wrong to dismiss out of hand any automatic adjustment. It may be a good thing for us to examine carefully the possibility of having a system of automatic adjustment, one which, I stress, does not reduce the level of the MCAs too quickly, otherwise this would have the devastating effects I described earlier.
The European unit of account is a most interesting development. I would say to the hon. Member for South Angus (Mr. Welsh) that I do not think any of us know enough about it. It is not spelt out in enough detail for us to be able to appreciate the implications, particularly countries such as the United Kingdom which find themselves outside the snake.
In the short term we want to know how these measures could be brought in to help the present crisis in the pig industry. The Government have presided over the present decline in the pig industry, which is a very important sector. 1890 They missed the boat in October in altering the methods of calculating the MCAs for pigmeat. Secondly, they brought in a 50p subsidy which had little effect on declining profits in the industry.
§ Mr. Jopling
Since the hon. Gentleman is muttering so much from a sedentary position, perhaps he would like to make an intervention standing up.
§ Mr. John Ellis
I am grateful to the hon. Gentleman. I understood that at the time the Conservative Front Bench supported the 50p subsidy. Therefore, it is a little rough for the hon. Gentleman to denounce it now. He had better go and check Hansard.
§ Mr. Jopling
It is late at night and perhaps the hon. Gentleman has not been listening. What I said was that that subsidy had had little effect. While that subsidy was in effect, losses to pig producers continued. It did not put a stop to the losses that they were incurring.
The Commission has produced a scheme for the diminution of the MCAs which is a transitional arrangement, and, again, these would have a minor effect. Because of the high level of MCAs, pig producers are now in a state of total gloom. I know that the Government appreciate this. Matters have not been helped by the Minister saying that a devaluation of the green pound would not help pig producers. That has been vehemently denied by many farmers. It seems, from the speeches I have heard from farming interests, that the Minister has not considered the price differential between the market price and the support price of the cereal content of the food input. The devaluation of the green pound would lift the support price and reduce the differential, while market forces would still dictate the market price. That point has been put graphically and persuasively by farmers, and I hope that the Parliamentary Secretary will refer to this serious difference of opinion between the Minister's statement—particularly at the Bath and West Show—and the response from farmers. We are entitled to know the Government's response to the strictures that have been put on the Minister's conclusions by farmers' leaders.
1891 These documents attempt to deal with the principal reason why British agriculture has declined so steadily during the last two or three years. The industry has had to put up with lower productivity and lower farm incomes. Food producers have the right to feel that they are moving into a position where they will be competing with European farmers on a fair basis. Apart from anything else, that is in the best interests of the consumers at a time when plentiful long-term supplies of food are in serious doubt around the world. I hope that these proposals will mark a start, before too long, in moving in this direction. Such proposals are, in the long run, in the interests of the whole nation.
§ 10.53 p.m.
§ Mr. John Ellis (Brigg and Scunthrope)
I have listened to such debates for a considerable time on other occasions. I shall be critical of the Minister, but, because Hansard is read outside the House, we ought to spell out the matter as simply as possible. The reason why I start with the Minister is that a study of the Which? document on the common agricultural policy is instructive, and it is possible for us in the House to do better. The same applies to the hon. Member for Westmorland (Mr. Jopling).
Having listened to the speeches that have been made, it seems that, while there is some criticism, the main point is always missed. We should not be in this position had we not joined the Common Market and got into the CAP. I am sorry if hon. Members think that I am being over-simplistic, but if one talks to farmers throughout the country one realises that there has been a boom in agriculture since the war because of deficiency payments —the name of Tom Williams is always mentioned—which put agriculture back on its feet. One can theorise about the Common Market in many ways, but the CAP has been a disaster for farming, and there is no gainsaying that.
§ Mr. John Ellis
We had a deficiency payments scheme that put agriculture in such a position that were able to work out our own policies in this country whether for hill farming, marginal land or good land. We had the agricultural reviews. We could do all these things. 1892 If the Opposition cannot see this, they are missing the main point. This always happens in these debates. Hon. Members always miss the main point. If we get the principle wrong, it does not matter how much we mess about with it, because we shall not be able to put it right.
This document is dependent on what happens in negotiations. We do not know details of the amounts involved or the timing, and the pig industry is still in serious difficulties. If the hon. Member for Westmorland had wanted to launch a serious criticism of the Minister, he should have stressed the fundamental point that we must get the principles right.
We do not know when the measures that we arc debating will come into operation. It will certainly not be tomorrow or next month. Hon. Members have always said that we need to make long-term plans for agriculture. What are our pig farmers supposed to do? They are faced with changes, but they do not know the amounts involved or the timing. What plans can they make for the future?
In France there are more people on the land and they have greater political pull than their counterparts in this this country. But we have the most efficient agricultural industry in the EEC. In any system, these diametrically opposed facts will be reflected in the policies of individual Governments. In agriculture, as much as in any other subject, policies will be divergent because member States do not have the same interests at heart. We shall not be able to look after our own best interests as we have done in the past.
I appreciate the impatience of hon. Members opposite when my hon. Friends and I talk about fundamental principles, as we always do in these debates. They say it is the same old song, but sometimes the old songs are the best, and we insist that if the principles are wrong the dilemmas will remain.
As always, I wish the Minister well in the negotiations. He will be trying to get an agreement that is in the best interests of this country even though he is not master in his own home. He was most successful when he took arbitrary action and made what the hon. Member for Westmorland sneeringly referred to as 1893 illegal payments. The Opposition welcomed those payments when they were made, and I support my right hon. Friend in any measures designed to protect the interests of our pig farmers or any other sectior of our agriculture. Support for such measures would not necessarily come only from this side of the House.
It is a gloomy picture which faces pig farmers; it was gloomy before the debate and will be after it. It is not the fault of hon. Gentlemen on either side who have criticised the principles of this, because it is inevitable under the system.
The Member for Westmorland and his hon. Friend, who has been smiling throughout, may think they are informed in these matters, but if the hon. Member for Devon, West (Mr. Mills) can hold his hand on his heart and swear to the House that he can get these EEC documents from the library and understand every jot and nuance, he is remarkable. He would be hard-pressed to say that.
In one matter hon. Gentlemen opposite have to agree with me, that this regulation does not immediately make the way plain for the pig farmers of this country. Even if the hon. Member for Westmorland were the greatest exponent of these regulations and welcomed them, he would have to agree with me that the fundamental principle that the pig farmers have a right to expect from this House is that we should be able to take measures and let them know what the measures are and what the results of them are.
Those who support the Common Market are in no way in a position tonight to tell the pig farmers that next month, or the month after, or the month after that, they will have all the basic knowledge they need, as people living in a Community, to tell them what their future will be.
That is the tragedy of the Common Market, and will continue to be so, while we slavishly follow the dictates of the people who have no responsibility but seem more tied to the bureaucratic farce which these documents always represent.
§ Mr. Deputy Speaker (Mr. Oscar Murton)
Before I call the next speaker, I remind the House that less than 45 minutes remains, including time for the Minister to wind up if thought necessary.
§ 11.2 p.m.
§ Mr. Richard Body (Holland with Boston)
Deficiency payments are permissible and exist for two commodities. They are only a means of subsidising and supporting farmers if the Community is in the position of importing food. As, however, the Community is not only self-sufficient but often in surplus in most commodities, deficiency payments are not available as a useful mechanism for supporting the incomes of farmers.
Although it might be permissible of practical, if we had our own agricultural policy, to go back to deficiency payments, that would be unworkable and unhelpful for farmers while we are locked inside the common agricultural policy. A policy of deficiency payments would be of no use to our farmers inside the common agricultural policy.
I agree that the hon. Member for Brigg and Scunthorpe (Mr. Ellis) was pretty well right about the pig industry. I got out of pigs just after the referendum because I knew that the price of feeding stuffs would rocket if we stayed inside the CAP. None of my hon. Friends, however euphoric about the EEC, could deny that if we were outside the Community feeding stuffs would be considerably cheaper than they are now. I have argued this on many occasions, and nobody can fault my conclusion that feeding stuffs would be £25 a ton less outside than they are now inside.
§ Mr. Body
More, considerably more. I am not talking about soya and fish meal. We know that they have gone up. I am sure my hon. Friend knows that the world price is now down to £57 a ton. He shakes his head. If he looks it up in the Financial Times on almost any day, he will see that I am absolutely right. Indeed, the United States Department of Agriculture in its recent report has expressed alarm about how to market its wheat. Countries such as India, 1895 for example, do not know where to store surplus wheat and are asking other countries to accept it. There is no problem about obtaining supplies on the world market.
I do not want to go into this matter in detail, because Mr. Deputy Speaker has indicated that time is short. But the fact is that feeding stuffs would be markedly cheaper—I say by £25 a ton, but it could be a little less—if we were able to buy cereals on the world market. Of course, we are no longer able to do that, despite the mounting surpluses which are apparent to anyone who reads the reports of the FAO and other bodies.
I want to return to the fears which have been expressed about this draft regulation. I listened carefully when the Parliamentary Secretary listed the criteria. I go along with him to some extent, but he was being a little complacent about how MCAs are now working and seriously distorting trade. That is happening in three ways. I emphasise that if the regulation goes through as it now is these three elements will be made worse, to the disadvantage of importers and exporters in this country and, therefore, at the end of the day, of British agriculture.
First, MCAs introduce a speculative and arbitrary element into trade. If the Parliamentary Secretary doubts that, I suggest that he ask his officials to obtain for him a copy of the International Currency Review dated, it is true, January-February 1974, but every word is valid today. The article in question is entitled:Monetary Compensatory Amounts: How MCAs create disorderly marketing conditions.It sets out in a responsible and restrained way allegations about how the MCA system is distorting trade. It reaches a crescendo towards the end when it describes the speculation, bribes, frauds and fortunes which can be made by people who understand the MCA system and are willing to speculate. That is serious for us as farmers.
I used to export when I was in farming, because I was in a large enough way of business to do so. I could not start dabbling in the business now. Only large firms can afford to take the risks which are inherent in the present MCA system because of its speculative and arbitrary nature.
1896 This wretched MCA system was institutionalised in the 1970s. I am not talking about the early days when it applied on a small scale and France and Germany were affected. Since we joined the Common Market, the MCA system has become an important element in intra-and, to some extent, extra-Community trade. There is no doubt that the smaller firms have had very worrying times in calculating the figures. We have been told throughout the years by the Comission that we cannot have MCAs permanently fixed; they must be calculated, as they are now, on a weekly basis. This results in three serious distortions of intra-Community trade.
Having studied these documents as best I could, I am convinced that this proposal will make things much worse. I repeat that a speculative element is introduced. I am appalled to hear of the astonishing certificate called the "advance fixing certificate". If one is a speculator, one can get a fix. It is a little bit of jargon picked up from the drugs business. If one lodges sufficient security with the Intervention Board in Reading, one can obtain one of those certificates even though one does not intend to trade. If one is a speculator and thinks that the currency will go up or down, one can sell the certificate. I am told that there is quite a market in the certificates.
One can, if one is canny, make a calculation and have a gamble. If we arc to have this draft regulation, with all the uncertainty, with no clear criteria, with so much power handed over to the Commission, surely we shall add to the speculative element. I should have thought that the Parliamentary Secretary and other Socialists would be on the rampage against making it possible for more speculators to come into this kind of dabbling, legitimate though it may be, within the law, but an undesirable practice which no hon. Member on either side of the House would tolerate.
The other distortion—this is something that the Parliamentary Secretary may not appreciate—is that the system is so complex that the smaller firms are no longer trading. When we listen to representations about these matters, we are liable to hear views from the trade associations, the views of the larger firms. There are large firms engaged in the importing and exporting of food that positively like this 1897 MCA system. The more complicated it becomes, the more they like it, because they know that only a very few, an elite few, really understand it. This is acting as a non-tariff barrier. It is having the effect of making it impossible for the smaller firms to take part in the amount of exporting and importing that used to be the speciality of so many small firms.
The other objection to the MCAs— and this will be exacerbated by the new proposal—is that the MCA can never be quite accurate, except by a fluke. It can never truly be the correct position. It is either too much or too little.
I hope I have persuaded the Parliamentary Secretary that we must examine the proposal very carefully and make sure that the interests of smaller firms and firms which have exported food over the years to Third world countries are safeguarded. This applies also to certain firms, particularly in Holland, dealing with countries which believe in a rigid system of price control. There are many countries with a system of price control that is absolute. Important food items have a fixed retail price and nobody can sell them for more. Therefore, retailers and importers in those countries must know exactly what price they will pay.
At present, when a consignor in the Community tries to export food items, he adds into the contract that the price is subject to the MCAs at that time. Importers in this country cannot accept that condition, with the result that if the consignor is to have the export he must accept responsibility. Exporters are not willing to take that risk when MCAs are bobbing about. They might make money, but they might lose it.
These regulations will increase the uncertainty. The Commission should appreciate the difficulties of the smaller exporters, particularly when they have the problems of exporting to Third world countries where there is a rigid system of price control over food. I am convinced that the Commission will not listen to representations unless they are made as forcibly as possible. I hope and pray that the Minister will make them forcibly.
§ 11.16 p.m.
§ Mr. Nigel Spearing (Newham, South)
The speech by the hon. Member for Holland with Boston (Mr. Body) is significant for two reasons. The first is that he 1898 has told the House something of the practicalities of the matter in respect of the first document, R/1125/77. The second reason is that he has injected into the debate not merely something which is practical but something which is real.
One of the failings of politicians—of our own profession—is that we adopt grand designs and arguments but we forget the side effects which are caused by the actuality. The hon. Member has shown us some of the difficulties arising from the system. At the moment I support the MCA system, but the hon. Member has shown that it will be more difficult if the principles behind the document are adopted. It is important for the House to take that on board. I am not saying that the MCA system is perfect, but it is better than a common market and totally common prices, as I shall show in a moment. I am glad that the hon. Member for Holland with Boston agrees with me.
There could hardly be a greater distinction than that between the hon. Member's speech and that of his hon. Friend the Member for Westmorland (Mr. Jopling). For 36 hours this week the House has been obsessed with prices and price control. We debated the Price Commission Bill. It is strange that the hon. Member for Westmorland could come to the Box and say that he approves document R/149/77, which by my calculation would double the levy on wheat imported into this country if it were adopted.
What the hon. Member says shows that the official Opposition are biased heavily towards the food producer, not only among their ranks physically but in their attitude. That is not surprising, but I warn the hon. Member that if the sort of attitude he displayed tonight is continued, his party will suffer a disadvantage. Perhaps I should not warn the hon. Member, because I want his party to suffer that disadvantage. His boldness is surprising, but I must commend his frankness.
The subject is even more important than the 36-hour debate that we had amid great publicity. The difference is that this is not our own legislation. When we voted in Committee on the Price Commission Bill, the Opposition hoped that by chance, design or good luck they would change the Bill. But tonight's 1899 debate will not change anything. It is not within the power of the House to change it.
I do not suggest that our Bills are models of clarity, but at least most of us can understand them and the amendments to them. I must say—and here I agree with my hon. Friend the Member for Brigg and Scunthorpe (Mr. Ellis)—that I was a little disappointed with my hon. Friend's introduction. It might have been good in detail but it was thin in principle for the man in the street.
When Ministers come to the Box—this should be noted also by those who advise them—they should start by spelling out, in as simple terms as they can, the likely effects of regulations which are proposed, so that any reasonable mythical man in the street can, at least with care, understand what they are about. My understanding is that only about 1 per cent. of the population, if that, has ever heard of monetary compensatory amounts.
That illustrates the difficulty that we have in the Market. The complications of keeping up with the regulations, even in small professional firms, become impossible. When that situation arises, the con man and the fraud are in. That is a typical characteristic of this organisation. On almost any aspect at which one looks, it becomes virtually impossible for anyone to keep up with the mathematics, the regulations or the amendments. Only a very few people are absolutely in the know.
In that respect even the House, including, I must confess, myself, is left far behind in trying to understand these things. That is not democratic. It is wrong. It is essentially undemocratic by its nature. That is one of the many reasons why some of us do not like the organisation from which these regulations originate.
On document R/1125/77, the explanatory memorandum states:The proposal would permit the Commission, acting under Management Committee procedure"—I wonder who will be on the management committee and under what criteria it will operate; it is not even Ministers now—to reduce MCAs in certain circumstances where to do so would not distort trade".That is the criterion.
1900 Distortion of trade is a hot subject in the Community. What is a distortion of trade and what is not, and how do we judge? In the last week it appears that even the White Paper "Food from Our Own Resources" was judged by Commissioner Gundelach to be threatening the distortion of trade. He wrote to my right hon. Friend the Minister, who has put copies of the letters in the Library, saying,Public speeches by Ministers encouraging agricultural self-sufficiency may not in themselves fall within the scope of the directive mentioned above.That is the Commission directive of 22nd December 1969.But in so far as they are indicative of a consistent line of policy which the Government of a Member State intends to adopt, such recommendations must be a matter of concern for the Commission.In other words, even the adoption of the policy on "Food from Our Own Resources" threatens a "distortion of trade". Indeed, we are told that our Milk Marketing Board does that too.
Therefore, the definition of the term "distortion of trade", the criterion which is to be operated by the management committee, is very wide in scope, very indefinite and inflexible. As has been said, it is almost impossible to say which way the cat would jump in those circumstances.
I turn to the second document, R/1149/77. Frankly, I was surprised to hear the official Opposition support it almost without qualification. The document is very explicit in what it is saying. I am sorry that my hon. Friend the Parliamentary Secretary has not said something about this in the motion. I know that it is only a communication and that therefore, as he said, the matter will come back here again. But the implications of this for prices in this country are very great indeed. Perhaps that does not disturb food producers, who are rather in a minority among the people of the community, but it is of major importance to food consumers.
The explanatory memorandum states:In their communication the Commission state that they are considering the following ideas:—(a) the introduction of a system under which existing MCAs would, through adjustments to representative rates, be phased out by a set date.1901 I know it is said that this is to take account of political and economic difficulties, but at least they would be phased out. Secondly, it says that any MCAs introduced in the course of a year wouldnormally be eliminated at each annual price fixing through adjustment of representative rates.In other words, for most practical purposes the MCAs would disappear. Those are the MCAs that we are constantly hearing about which help the British consumer. I think that they do—but they help German and French producers as well.
In Hansard for 21st June, in Part II at columns 461–62, my right hon. Friend the Minister of State has shown the existing common levies together with the existing ACAs and MCAs as at 13th June. The House might like to know that the common levy on wheat is now £78 a ton, on butter £1,483 a ton, and on boneless frozen beef £1,542 a ton. Those levies are not actually made, because at the moment they are offset by MCAs. The ACAs—accession compensatory amounts will go in addition, leaving relatively small amounts imported, with the exception of wheat, because they are designed to keep the food out and to put up the internal price.
If the MCAs are phased out over a period, instead of paying about £40 a ton levy on Canadian wheat, as we do at the moment, for our bread, which is nearly the world price anyway, we should have to pay £78 a ton. Wheat is a good example because it is emotive, and the Corn Laws are in our minds on this sort of issue. We import about 1½ million tons of wheat from outside the Community each year, for which we are having to pay about £60 million.
§ Mr. Spearing
The hon. Gentleman may not know these figures. If he does, he ought to tell them to his constituents, because at this moment there is a lot of argument about food prices in this country and people are not being told the truth. I hope that the hon. Gentleman will tell them. I also hope that he will go to his usual channels and tell them that we want—more than one and a half hours for debates such as this. If we can take 36 hours in discussing 1902 a Bill about prices—something which is in the control of this House—we ought to have more than one and a half hours for matters which are not in the control of the House and which are vastly more important.
§ Mr. Deputy Speaker
The hon. Gentleman is entitled to his views, but he might have consideration for other hon. Members who desire to speak. It is entirely in his own hands.
§ Mr. Spearing
I take the point, Mr. Deputy Speaker, but we have had many of these debates. The points I am making are matters of information which I do not believe are commonly known to Members of this House, let alone to people outside.
My hon. Friend the Parliamentary Secretary, who opened the debate, has given us a great deal of the detail, and I intend to finish before 11.30 p.m. If the ACAs and MCAs were phased out, the levy would not be £40 but would be about £80 for each ton of Canadian wheat imported into this country. As we import 1½ million tons, that would be about £120 million a year. We import 2¼ million tons of grain from the EEC. The cost of that grain is within the common external tariff and, therefore, it is higher than it otherwise would be if we could import Canadian or Australian grain levy-free.
My calculations show that if the MCAs were phased out we should be having to pay about £280 million more over world prices. Therefore, I say to those who support this second document that they should be careful what they are supporting, because if it means that the proportion of tax on imported Canadian wheat is two or three times that of the Corn Laws, the issue is certainly two or three times greater than that of the Corn Laws. But we all know that the issue at stake here is far, far greater than that.
The hon. Member for Westmorland in leading for the Opposition, declared his interest, quite properly. I declare mine—that of protecting the prices of food for the British consumer.
§ 11.29 p.m.
§ Mr. Peter Mills (Devon, West)
I must declare an interest, Mr. Deputy Speaker. I am a member of the Scrutiny Committee, I am a farmer and I am a consumer. 1903 Therefore, I have a right to say a few words.
I should like first to reply to the hon. Member for Brigg and Scunthorpe (Mr. Ellis). I really feel that if he had to look into the whole position of agriculture in the past and what is happening now, he would not make the sort of remarks that he has made concerning deficiency payments. I recall the time when the Treasury was very upset at the enormous sums of money—taxpayers' money, the hon. Gentleman's money— which was being paid out. There was also the business of the control of production through deficiency payments. Perhaps the hon. Member has never heard of standard quantities, which was the biggest method of controlling the food production of this country. Of course it was an entirely different time and system to what it is now. I ask the hon. Gentleman to look at this more carefully rather than making such wild statements.
There is no doubt at all that MCAs are absolutely crucial, given the position that we are in. If we are to get food production moving again for the benefit of the consumer, British agriculture and the farm workers we must solve the problem of the MCAs. The system of monetary compensatory amounts was designed to offset the benefits and the differences and so prevent distortions in trade. The sad thing is that it has done the exact opposite. It has caused even more distortions and even more problems.
Why is that so? It is not the fault of the Community which all these weary Willies keep on about. It is entirely the fault of the Government of the day. There is no question that if the pound had retained its value of $2.3, as it was when we were in power—now it is down to $1.7—all these problems, although there, would be nothing like they are now.
It is dishonest of Labour Members to be saying that these high food prices have been caused by the Community. The Community represents only about 3 per cent. The real nigger in the woodpile are the Government, who have allowed the pound to deteriorate so much that all the problems of the MCAs have made the cost of food rise so dramatically.
1904 The Government talk about being experts, but if they looked into this matter with an honest appraisal they would see how wrong they are. It is interesting to think what would happen if this Socialist Government had retained the pound at that value. What a difference it would have made. It would have made an enormous difference to agriculture, to the consumer and to this country as a whole. The consumers and agriculturists are suffering because of the effects of a Socialist Government who have allowed the pound to deteriorate so much. There is no doubt at all about that.
The future of MCAs is crucial to food production in this country. If the Government wish to destroy the pig industry —that is what they are doing—in the long run it is the consumer who will suffer. I believe that the price of pigmeat will rise dramatically in the autumn because so many pig farmers have gone out of production, not because of the cost of feed but because they cannot stand the unfair competition from the Danes and the rest of the Community. It is no good blaming it on the Community. It is simply because of the drop in the value of the pound and the rise in the compensatory amounts.
I shall finish because the Minister wishes to reply. But if we are to have a pig industry in the future we must do something about MCAs. They have to be reduced. I leave it at that.
§ 11.34 p.m.
§ Mr. Strang
I shall try as best I can to reply to the main points raised in the debate. I shall take them in the order in which they were raised.
The hon. Member for Westmorland (Mr. Jopling) criticised the explanatory memorandum. I must rebut that criticism on the ground that when he referred to the suggestion in the document that the adjustment could be made by reducing the percentage used in calculating monetary compensatory amounts he did not fully appreciate that that was mentioned in the document only in order to dismiss it. It is not a legislative proposal. It was preferable not to mention it in the explanatory memorandum, which aims to be as simple as possible and to provide guidance to the Scrutiny Committee.
1905 With regard to the hon. Gentleman's point that these matters should be controlled by the Council rather than the management committee—this point was echoed by a number of hon. Gentlemen— I would make it clear that the Government substantially agree with that. We are anxious to limit further the powers which this proposed regulation would give the Commission. In other words, we think that the powers of the Commission are too sweeping, and we want to see them defined more clearly.
I do not want to get drawn again into the argument about the effect on pig producers of devaluing the green pound, but we must recognise that, if we devalue the green pound, it means a reduction in the MCA. The MCA abates the common levy. That means that the price of cereals will rise. Therefore, a reduction in the MCA, which abates the common levy, would lead to an increase in the levy. There is no doubt that a devaluation of the green pound would have some implications for the price of cereals and feed whereas altering the method of calculating the MCA now gets over that point and enables us to reduce the MCA on pigmeat without affecting the price of cereals.
I come next to the comments of my hon. Friend the Member for Brigg and Sounthorpe (Mr. Ellis). I know that he supports the Government in that he has called on a number of occasions for a recalculation of the MCA. I agree with him that membership of the Community has exacerbated our pig cycle. We always had a pig cycle, of course, when pig producers moved from a situation of high profitability into one of very low profitability. Membership of the Community has had an effect on that cycle, and the high import subsidy on imported pigmeat has made the position worse in the United Kingdom market.
It will also be said that membership of the Community limits severely the scope for our Government to take corrective action, as has been seen with the pig subsidy. But I am glad that my hon. Friend the Member for Brigg and Scunthorpe picked up the hon. Member who referred to this as an illegal payment. I remind the House that the question whether it is an illegal payment has not yet been decided. That is not what the case in the European Court was about. 1906 We shall have to wait and see what the decision of the European Court is on that when the case reaches the court.
My hon. Friend the Member for Brigg and Scunthorpe and my hon. Friend the Member for Newham, South (Mr. Spearing) both complained that I did not explain the issue in simple terms similar to those in the Which? report. We had a substantial debate for a whole day on the fundamental issue of MCAs. When we have only an hour and a half, it would be a mistake for a Minister to spend time explaining in simple terms what MCAs are. If he did that, he could not do justice to the nature of complicated proposals of this kind, especially when a number of hon. Members understand fully and take a considerable amount of time to read up on the subject in order to make informed contributions to the debate.
Having said that, I come to what I regard as the very valuable contribution of the hon. Member for Holland with Boston (Mr. Body). I should not like to give the impression of complacency about the effect of MCAs on trade. I agree with the hon. Gentleman that speculation is a real problem. However, I am sure that he will agree that, the bigger the MCA, the bigger the problem. If the MCAs are relatively small, the scope for profitable speculation is much reduced.
There is another point which should be made, although I do not make too much of it, because there are aspects of the common agricultural policy which provide additional scope for speculation. But I wonder whether we are not seeing more speculation right across the board. Today, I heard on the radio a report which said that there are now more investments in commodities than in equity shares. It may be that, with multinational companies and the development of international capitalism, greater communications and more trade, investors or speculators, whichever word is preferred, are more active in such commodities as tea, coffee and cocoa. It happens that those commodities have nothing to do with the CAP in this sense. I am not sure whether that factor is operating in the background.
I can understand the comment that these matters are complex. It is the first time that their complexity and the position 1907 of small firms have been put to me directly.
It is true that the importer will want to know precisely what price he will have to pay when engaged in external trade. The Commission is seized of that fact. That is why it is proposing to introduce the prefixing of MCAs for external credit. It argues that it will not introduce it for internal trade as that would increase the scope for speculation. It is seeking to introduce prefixing of MCAs on trade with third countries.
I agree with my hon. Friend the Member for Newham, South that the phrase "distortion of trade" is used rather loosely, especially in Commission documents. What is a distortion of trade? We agree that there is a distortion of trade in pigmeat. We want a reduction in the MCA to force up the price of pigmeat in this country. We are talking about relatively small adjustments in MCAs, but we must bear in mind that we cannot be certain in which direction we shall be wanting to move within the adjustments that are made in future.
I think that the hon. Member for Devon, West (Mr. Mills) makes the great mistake of thinking that the green pound and the size of the United Kingdom MCA dominate the whole question of the monetary compensatory amounts. There is just as much concern shown by the Danes and the Dutch about the level of protection that the MCAs give to German farmers. There are just as many worries in Italy about the excessive imports of livestock products. There is the question of French and Irish assistance and the level of MCAs imposed on their exports.
References to MCAs are made repeatedly in the Council. They are just as controversial in other countries in the Community as in Britain. We should not be on the defensive. We should not think that the United Kingdom is the great odd man out. Other member States pursue a similar policy to that pursued by Britain. If they think that a change in their representative rate is in their interests, they will press for it. If they do not think that it is in their interests, they will oppose it. That was brought out clearly in the last price-fixing.
I have tried to cover as well as I can the main points that have been raised. I 1908 remind my hon. friend the Member for Newham, South—I do not need to remind him as he is already aware of what I am about to say, but I tell him none the less —that the original proposals for perhaps automatic adjustment of MCAs and the application of the European unit of account, which I would favour for agriculture, will be important events. No doubt they will be modified in the course of discussion in the Council. It will be important to study the proposals carefully. The proposals and the draft regulations will be more important than the matters we are now discussing.
It has been a short debate but I think that it has been useful. It has brought out some of the important matters that must be borne in mind by the United Kingdom representatives in the Community.
§ Question put and agreed to.
§ That this House takes note of Commission documents R/1125/77 and R/1149/77 and, while welcoming the opportunity which the proposal in R/1125/77 would offer for reducing monetary compensatory amounts for pigmeat, considers that the scope and criteria for its application in other sectors ought to be more clearly specified.