COMMON AGRICULTURAL POLICY

HC Deb 13 December 1978 vol 960 cc845-71

12.25 a.m.

The Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food (Mr. Gavin Strang)

I beg to move,

That this House takes note of EEC Document No. R/3126/78 on the Implications for the Common Agricultural Policy of the European Monetary System.

The proposals we are considering deal with the way the Commission suggests that the instruments of the common agricultural policy should be adapted when a new European monetary system enters into force on 1st January. The reason why such an adaptation is necessary at all relates to the detailed functioning of the existing system of monetary compensatory amounts. It therefore involves highly technical questions, and I hope that the House will bear with me if I begin by a description of them because I think that this will contribute to a proper understanding of the purpose and effect of the Commission's proposals.

I appreciate that such a description may be tedious to some hon. Members, but I believe that an accurate and, I hope, lucid statement of the position will be of benefit to the House and to others outside who take an interest in these matters.

The support prices set under the common agricultural policy are expressed in units of account. Legally speaking, the unit of account is still defined in terms of gold, but this gold value is no longer of practical significance. The effective value of the unit of account in each of the currencies of the Community is given by the Council regulations. These lay down the rate of exchange for each currency with the unit of account.

These rates, the so called representative or green rates, are not automatically adjusted as the currencies themselves fluctuate in value. Thus, the green rates do not reflect the market rates of exchange between Community currencies. Therefore, although there is now a single set of common prices set in units of account, the support prices applied in the various member countries are not equal compared at market rates of exchange. In fact, the common agricultural policy is now divided into seven different support price areas, with a gap of over 40 per cent. between the United Kingdom at the bottom and Germany at the top.

If this situation were combined with complete free trade, the natural result would be that agricultural products from all over the Community would be attracted into Germany to take advantage of the support prices operated there. To prevent this happening and to allow market prices in each country to be broadly consistent with the level of support prices provided by the green rate, monetary compensatory amounts; are applied in trade.

For the monetary compensatory amounts to operate effectively, they have to be linked with Community currencies in a way which allows them to alter with market exchange rates. There are a variety of ways in which this could be done. Since 1973, the link with currencies has been provided by the mechanism of the European joint float. This system has its own unit of account, the European monetary unit of account. Each member currency has a central rate in relation to this unit. These central rates therefore define the rates of exchange between the member currencies which are maintained within narrow margins on the exchange markets.

The common agricultural policy makes use of the joint float by using the percentage differences between central rates of exchange with the European monetary unit of account and green rates of exchange to calculate monetary compensatory amounts. For countries which are not members of the joint float and, therefore, do not have central rates, the system provides, in effect, for market rates of exchange to be calculated. This is done by using exchange rates between their currencies and the currencies within the joint float. At present, Denmark is the one country that has a central rate of exchange which is the same as its green rate. It therefore applies no monetary compensatory amounts. Four countries—Germany and the Benelux countries—have central rates which are above their green rates. They apply monetary compensatory amounts as levies on their imports and payments on their exports—what we call positive MCAs. Four countries—Ireland, France, Italy and the United Kingdom—have market rates which are below their green rates. They apply monetary compensatory amounts as levies on their exports and payments on their imports.

Therefore, in all Community trade in the products covered by the MCA system, except trade with Denmark, two MCAs are applied, the MCA of the exporting country and that of the importing country. Taken together, the two MCAs cover the difference between the support prices for the product concerned in the two countries.

Because the European monetary unit of account has been used as the means of calculating MCAs, it has also come to be regarded as the true measure of the value of common prices. In consequence, Denmark has tended to claim that, because she is the only country applying no MCAs, she is the only country applying the common price. For the same reason, the Council has usually followed the convention that any member could move its green rate towards its market or central rate with the European monetary unit of account, hence moving its prices towards Danish prices. But no one has ever been allowed to move its green rate away from its central or market rate.

When the new European monetary system enters into force on 1st January, the European monetary unit of account will cease to exist. It is necessary, therefore, to find a new basis for calculating MCAs. This new basis will, like the European monetary unit of account, also be regarded as the measure of common prices.

In the new European monetary system, the part played in the joint float by the European monetary unit of account is to be taken by the European currency unit, the ECU. The ECU is to have the same definition, initially at least, as the European unit of account, the EUA. As many hon. Members will recall, just over a year ago the Commission suggested that the EUA, as it contains all member currencies, would, in principle, be an appropriate unit to use for the common agricultural policy. It is natural, therefore, that it should propose that the ECU should take over the role of the European monetary unit of account in the CAP, just as it has in the monetary system itself.

Changing from one unit of account to another as the basis for the calculation of MCAs does not affect the level of support prices in national currencies. This depends entirely on the numerical value of common prices and the green rates used to convert them. Nor will it affect the total MCAs paid or levied in trade which depends on the difference between the support prices in the importing and the exporting country. But it can affect the point on the scale between the lowest-price country and the highest-price country which is regarded as being the common price. It can, therefore, affect the distribution of MCAs. Whether it in fact does so depends on the rate of conversion between the two units which is applied at the time of the changeover.

Essentially, there are two ways in which the conversion rate could be determined. Either one could attempt to find the ideal common price—that is to say, the level of price towards which all member States should, ideally, move their national price—or the determination of the ideal common price could be left to the annual price negotiations, with the conversion between one unit to the other being made on the straightforward basis of the market exchange rate between them.

This second method is the one that the Commission recommends. It has proposed, in the instruments we are considering tonight, to take the market exchange rate between the EUA and the European monetary unit of account as the conversion rate to be used to convert prices in units of account into prices in ECUs. It therefore proposes that 100 units of account should equal 121 ECUs. To prevent change in the nominal value of common prices affecting prices in national currencies, the Commission is proposing equivalent adjustment to all green rates. The effect of these changes, taken together, will be to preserve the existing distribution of MCAs, the existing levels of national prices and the existing common price.

Shortly after making this proposal, the Commission also made clear, in a paper presented to the European Council, the way it believed the common price itself should evolve over the next few years. Its ideas are very close to our own. It wants to see support prices frozen next year and a rigorous price policy to continue as long as surpluses exist.

The discussions in the European Council showed that this method of proceeding was a realistic one. It was clear from those discussions that no agreement could be reached on how the problem of the immediate impact on the CAP of the EMS should be resolved other than on a purely neutral basis. The Council concluded that the EMS should not of itself result in any change in national prices or the distribution of MCAs.

The Commission's proposal achieves this objective and puts the MCA system from 1st January on a firm legal basis. If the EMS develops into an equitable and durable system, it should be a better and more representative basis than the one which has operated hitherto. It is to this question of the representative nature of the unit of account that the amendment to the motion refers.

I look forward to hearing the views of the House both on the Commission's proposal and on the amendment, but it may be helpful if I make clear now that the Government are happy to accept the amendment.

12.37 a.m.

Mr. Michael Jopling (Westmorland)

We are grateful to the Parliamentary Secretary for coming to the House at this late hour after such momentous events to explain what he described as highly technical matters which arise with regard to the common agricultural policy from the establishment from 1st January next of the European monetary system.

We are grateful to the hon. Gentleman for explaining a good deal of the background. I hope that I shall not be giving away some of the matters discussed through the usual channels if I say that we are also grateful to the Government for agreeing to split this debate from the previous one, because it covers a very different area. We are happy that the Government agreed to our request to discuss the agricultural implications of the EMS separately. It is important that we should have a separate debate because it is right to remind ourselves that the CAP absorbs over two-thirds of the whole of the Community budget. It is right, therefore, that it should have our special attention.

The hon. Gentleman has given us some answers, but because the EMS is such a new matter which in some aspects, par- ticularly the agricultural, is still in the process of being worked out, I guess that there will be many questions tonight, and I hope that the hon. Gentleman will muster them all and that we shall give him enough time to reply adequately.

First, I comment on the European currency unit—ECU. That is the basis of the EMS itself. We are told that it will be identical in value to the European unit of account—EUA—at least at the outset. We have always supported a move to the so-called basket of European currencies being used as the basis for agricultural trade. We therefore support the move to the ECU, knowing that it will be based on the basket through the EUA.

There is, however, one phrase in the statement which has been issued as a result of the meeting of the Council when the EMS was agreed to which I wish to refer, and that is the phrase to the effect that the value of the ECU at the outset will be the same as that of the EUA. We must have an explanation from the Government of the way they see this matter developing. I hope that we shall not see the Commission come with great plans early on to change this method of valuing the ECU to any other basis than that of the basket of currencies.

We should also like to know what the position will be for countries such as Ireland and the United Kingdom if we find ourselves outside the EMS. Does this mean that countries which are not fully participating in the EMS will be prone to find that the ECU is no longer identical in value to the EUA? I can envisage problems arising from that.

Another important matter will arise over the change in currencies of the poorer nations, as we have to describe ourselves and Ireland at this stage. I understand that there has been a suggestion, especially from the Germans, that the currency levels of the poorer nations are likely to be frozen as from 1st January next in the calculation of the ECU. I know that these matters are now being discussed and worked out, but it would be helpful if the Parliamentary Secretary could apply himself at the end of the debate to these important matters.

I wish to refer to the implication for the common agricultural policy of introducing ECU, which, as the Parliamentary Secretary has told us, is valued at 21 per cent. lower than the agricultural unit of account which we have been used to dealing with.

Most of us. in looking forward to taking part in this debate, will have seen some of the diagrams produced showing that the breadth of MCA percentages will be considerably narrowed as a result of moving to the ECU. The Parliamentary Secretary referred to the fact that the span between the highest currency, that of Germany, and ours, at the lower end, stands at 41.6 per cent. but that when we move to the ECU, when the United Kingdom MCA percentage will drop from minus 30.8 to minus 6, we shall see the spread of MCA percentages drop to 31.7 per cent.

That is on the figures I saw quoted in Farmers Weekly recently. That implies that the spread of MCA percentages will drop on 1st January by about 25 per cent. While that narrows the gap and is welcome for that reason, I should like to ask the Parliamentary Secretary what effect it will have on the total cost of operating MCAs within the Community budget.

I know that to some extent the question I ask is hypothetical, because it is proposed to introduce coefficients which will tend to take things back to the position we are in now, but it would be helpful if the Parliamentary Secretary could tell us what will be the impact on the total Community budget of operating MCAs under the ECU system rather than the present system.

Mr. Nigel Spearing (Newham, South)

I am grateful to the hon. Member for giving way, because I think he has got to the heart of the significance of this matter, although I do not necessarily agree with his calculations. He mentioned diagrams, which, of course, would be helpful. I do not think that they appear with the draft regulations or the explanatory memorandum. Will the hon. Gentleman be good enough to tell the House, because it would be useful to other people who are trying to fathom this extremely complicated matter, where they are and whether they are authoritative?

Mr. Jopling

One of the diagrams appears in Agra Europe of 8th December and the other on page 60 of Farmers Weekly of the same date. I hope that the Parliamentary Secretary understood the question I was putting to him about what will be the total cost of running the MCA system to the whole Community budget as a result of moving to the ECU system.

I understand that the coefficients constitute a formula for maintaining the status quo with regard to the common agricultural policy as it is now. We could see serious disadvantages arising for all countries if the coefficients were not introduced. For instance, without the coefficient system there would be a fall of 21 per cent. in Germany's agricultural prices. We can get into a muddle between 21 per cent. and 17 per cent., because it all depends on what it is a percentage of. I hope that the Parliamentary Secretary will not trip me up if I say 21 per cent. and, by a different method of making the calculation, it conies to 17 per cent. I see the hon. Member for Southampton, Test (Mr. Gould) nodding his head in agreement; it looks as though he has experienced this problem.

In regard to Germany, we are in favour of drastically curtailing prices in some of the high-priced sectors and in areas of the Community where large surpluses are being produced at prices which are miles higher than the British farmer enjoys. Clearly, it is not a practical possibility to reduce prices in Germany by 21 per cent., and the coefficients have to be used. As we in Britain have an MCA percentage of minus 6 per cent., this would provide far too little leeway. We should be able to devalue the green pound then by only 6 per cent. before we reached common prices. Any further devaluations would not provide us with further opportunity to use the green pound to achieve prices to which Conservative Members believe that British agriculture is entitled.

The burning question is, how does all this change the British Government's policy to devalue the green pound from time to time? Will it be more convenient for a British Government so to do after 1st January than it is now? Conservative Members have said consistently that British farmers were promised that they would be able to have fair competition with their European counterparts when we joined the Community, but for a variety of reasons this has not happened. We have made it clear on several occasions that we think that British farmers should be able to compete on fair terms with their counterparts in the rest of the Community.

That can be done partly by green pound devaluations, by bringing our prices up to the European levels. It is my belief, however, that this could also be done partly by bringing down some of the high prices in other parts of the Community to our levels. Therefore, what I ask the Government to consider is whether we might use the coefficients in the future in order to try to bring down the prices of some of the countries in the Community which are producing huge surpluses. Could this not be done by seeking to reduce the coefficient to a figure below 1.21, at which it is proposed to fix it?

Whilst we see absolutely the need to use the coefficients at the outset, we believe that we should aim to achieve a degree of reduction in their levels in the years ahead. This would serve a dual purpose in giving us an opportunity to increase our prices here through green pound devaluations while at the same time reducing over-high prices in other countries in the Community, provided, of course, that they revalued their green rates at the same time.

As things stand now, it could be of considerable benefit to us if we were to do this, and it would certainly do a great deal, if we were to use the coefficients in this way, to control the surpluses which currently are bedevilling agricultural policy in Europe. If we could look forward to the coefficient being reduced over the years ahead from the figure of 1.21, together with the appropriate green currency changes, that would be something at which it would be worth while to aim.

As I have said, these matters are currently being worked out. They are still somewhat vague. It may be that, as things turn out, my suggestion may not be of practical use. However, I throw it out as an immediate reaction. I should be grateful if the Government would consider it. In our view, it is certainly a practical way to get prices down in the high-cost areas where the surpluses are being built up.

I now ask about a number of other matters. I must ask the Parliamentary Secretary about the position of the nonparticipating countries. I have already referred to Ireland and the United Kingdom. We have all been fascinated by the fact that within the last two days there has been a tremendous change in the attitude of Italy. Do the Government have any reason to believe that some sort of private deal has been offered by the strong currency members of the Community which has allowed Italy to change its mind so dramatically?

I must also ask the Parliamentary Secretary another question, which I hope he will not merely say is hypothetical. We shall not have another chance of discussing these matters for quite some weeks. If within the next very few weeks there is a similar change of attitude in Ireland and Ireland decides, like Italy, that she is able to join the EMS, that will present this country with tremendous problems, particularly concerning Northern Ireland.

I imagine that if Ireland were to join the EMS Britain could find herself with a very large, increased bill to support the employment subsidies in Northern Ireland which the Government have been applying, which is a consequence of the differing green rates between Ireland and the United Kingdom. That could present us with huge difficulties before the House meets again. It would be helpful if we knew the implications for us if Ireland joined the EMS.

We are disappointed that we have had to stand outside the EMS. Again, we feel that great moves are being made in Europe to achieve the goals in which many hon. Members on both sides of the House believe. We are concerned that as long as we stand outside the EMS new developments may take place within the Community over which we shall have less influence than if we were members of the EMS.

Last week showed dramatically that this country has become one of the poor men of Europe. What emerged from the Heads of Government meeting the week before last clearly showed that this country has become one of the poor men of Europe. Labour Members must know that it was a more eloquent statement of the Government's failure than anything we have seen for a very long time. I hope that we shall soon be able to reverse this decision and to play our full part in the EMS. Perhaps the earlier events of this evening will be a first step, to be followed by a more resounding second step at 10 o'clock tomorrow night, cowards a change in the fortunes of this country.

12.56 a.m.

Mr. Bryan Gould (Southampton, Test)

beg to move, at the end of the Question, to add but urges Her Majesty's Government in discussing the application of the European Monetary System to the Common Agricultural Policy to press for the adoption of a more representative unit for the expression of common agricultural prices ". As the two Front Bench spokesmen have said, this matter is extremely complex. But, as is so often the case with Common Market affairs, the highly technical nature of the subject conceals its importance both of substance and of presentation.

Perhaps the only beneficial effect of the EMS is that the new unit of account—the ECU, which is at the heart of the system —will henceforth be used as the unit of account for CAP prices. That is a welcome move in the direction of common sense, because the old unit of account, which was based on the snake, had become unrepresentative. As the snake currencies moved up in value, the unit of account become over-valued in terms of CAP prices and other currencies. The new unit of account, based on the basket of EEC currencies, will, in my view, reveal more clearly and accurately the true structure of CAP prices.

Unfortunately, the Commission has proposed two draft regulations which will have the effect of nullifying this advantageous development.

Mr. John Roper (Farnworth)

My hon. Friend said that the regulations would nullify the effect of this advantageous development. Is there a difference between the immediate compensation and the long-range trends? Surely, the fact that the system is now based on the whole basket of currencies will ensure that further distortions do not take place.

Mr. Gould

I assure my hon. Friend that I shall be dealing with that point later in what I hope will be a short speech.

As has been explained, the Commission proposes that coefficients should be used in respect of common prices and representative rates to ensure that no change occurs. If we agree to these proposals, we thereby lose the great advantage, which I shall explain, of moving to a more representative unit of account.

What freedom of action and decision do we still retain on this matter? Are we free to reject these proposals, or was some form of assent given to them in Brussels last week? If we have already assented in some form to these proposals, of what duration are they? Are they permanent in effect or do they have some limited life?

It is clear that if the new unit of account were to be used and substituted for the old unit of account the effect would be to reduce common prices, I was about to say by 21 per cent., but the hon. Member for Westmorland (Mr. Jopling) rightly pointed out that it should probably be 17 per cent., since that is the difference between the value of the ECU and the old EMUA.

It is probably, although regrettably, unrealistic to expect other Common Market countries to accept overnight, as it were, a substantial reduction in the level of common prices of that sort. But that is not in itself an argument for accepting these coefficients, because there is nothing in the new unit of account and its use as a means of expressing common prices which would necessarily affect the level of national prices. All that would have to be done to maintain national prices would be that the representative rates and the monetary compensatory amounts would have to be recalculated.

This would have a very important presentational effect, which the Commission itself points out in its document. If common prices were expressed in terms of the new unit of account but the Germans wished to maintain national prices as they are at the moment, they would have to do so by recalculating the representative rate for the green mark. If they did that they would maintain their national price, but it would then emerge, as the Commission itself points out, that the green mark would be out of line to the extent of 25.7 per cent. rather than 10.8 per cent. as it appears at the moment.

On exactly the same basis, our own green pound—a subject on which we have suffered so many attacks from the Conservative Party over the last few years—far from being 30.8 per cent. out of line, as it appears at present, would be only 6 per cent. out of line. Indeed, every other country, with the exception of Italy, would be more out of line with the true level of common prices than we are, and we should be the only country using green rates to hold prices below the common level of prices, whereas every other country would be shown to be using green rates to push prices above the common price.

This presentational change, which would not alter national prices at all, or do anyone any harm, would nevertheless have the inestimable advantage of demonstrating quite clearly who is responsible for pushing up common agricultural prices, and who is responsible for creating ever-growing surpluses. It would also dispose once and for all of the nonsense, which we hear repeated over and over again, that in some way we in this country are receiving substantial subsidies from the CAP fund, in some way through the operation of monetary compensatory amounts.

If we could use the new units of account without the coefficients suggested by the Commission, we should hear no more of the sort of charge levelled by the Danes earlier last week, and by the European Commission, in which they accused the Prime Minister of getting his figures wrong in his Guildhall speech and said that his figures on this country's contribution to the budget should be seen in the light of a £500 million subsidy through monetary compensatory amounts. Under the system which I think ought to he applied, we should then see monetary compensatory amounts for exactly what they are, namely, a subsidy from EEC funds to inefficient producers who wish to hold their prices higher than the common price level.

But if we were to resist the Commission proposals and simply express CAP prices in terms of the new unit of account, the changes would not just be presentational. I am sorry that my hon. Friend the Member for Farnworth (Mr. Roper) has left the Chamber, because I am about to deal with the point that he raised with me. In the longer term, the use of the new unit of account without the coefficients would, in my view, have a real effect on the development of CAP price levels.

The Commission's stated objective is, as we all know, to eliminate and phase out the use of green currencies. But if it could be demonstrated, as it would be if we were to use the new unit of account, that green currencies were used by every country, except ours, to push prices up—that these were a means of bringing prices up rather than pulling them down—the Commission's stated objective of phasing out green currencies would have the entirely beneficial effect of reducing a common price level. As that is also the stated objective of the British Government, and if we are serious in trying to secure this objective, it is difficult to see why we are not opposing the Commission's proposals this evening.

The use of the ECU would have the salutary effect of forcing the Common Market Agriculture Ministers to come clean on what they are doing about price levels under the CAP. They would no longer be able to shelter behind movements in the exchange rate, especially behind the upward movement in the value of the mark, to do the work of increasing prices for them. They would no longer be able to agree to relatively small increases in common price levels and then, because most of them under the present system have green currencies that hold prices lower, devalue their green currencies to secure greater real price increases. That would have a long-term effect of holding down CAP prices.

It is not only the level of common prices that is producing surpluses. It is the real price that is paid to the farmer in each individual country that is producing the surpluses. As long as we have a system that allows most national Governments to increase prices nationally to a higher degree than is permitted by the common price level, we shall have ever-increasing surpluses.

There is surely no reason for Britain to accept the Commission's proposals which would deny the logic and the equity of using a new and more representative unit of account. The maintenance of a fiction would encourage ever higher CAP prices and would mean that we were placed unfairly in the dock. I hope that my hon. Friend will tell us what action the Government propose to take and what freedom they still retain to take a national view of these problems.

1.7 a.m.

Mr. Peter Mills (Devon, West)

It has been an interesting debate. The hon. Member for Southampton, Test (Mr. Gould) is moving towards accepting that we are in the Community and that there is a real need to accept some of the measures that the Commission has brought forward. I welcome that. The hon. Gentleman's speech was responsible. It was not part of the battle being fought all over again to get us out of the Community. The hon. Gentleman appeared to accept reality and seemed to be seeking to make improvements to the Commission's proposals. I go along with him quite a long way. His comments were a welcome change from the views that have been expressed by other anti-Marketeers.

We have missed an opportunity again as a country. It is sad to see us once again dragging our feet. Britain—especially the Government—is like someone swimming in a pool with a great weight tied to his feet. We are in the European pool, whether we like it or not. Unfortunately, the Government have heavy lead weights attached to their legs as they swim in the pool. It is the anti-Marketeers who are fighting the battle all over again. However, for the first time the hon. Member for Southampton, Test indicated that he is slowly coming to accept these matters.

I believe the House will accept that if EMS produces stability for agriculture, that is to be welcomed. I am no expert on these matters, but, surely, stability would come about if we had EMS. That is why I am sorry that we have missed this opportunity.

The agriculture industry would welcome stability. At least, it would know where it was. We want MCAs to be dealt with, but they must be stabilised. Those who import feedingstuffs would know where they are. Stability would be there. The gap would be narrowed without agriculture being brought back to the same unsatisfactory position as the pound started to fall. There is not much point in devaluing and trying to close that gap if the pound drops. Stability and EMS would lead to common prices. That is needed desperately in the Community. It would mean that products would be produced in the areas most suitable for that production. If we move into EMS, there will be fairness. British farmers feel strongly that the situation is unfair at present. Stability would come if we fully participated in EMS.

What will be the effect of EMS on this year's agricultural price review? It will be an interesting price review. The correction factor brings us back to square one and we shall not get the basket that most of us want. Most people agree that end prices in the price review must reflect consumption. That, and prudent intervention, will lead to bringing surpluses under control.

If we are to have an influence, we must be better Europeans. We must be pro-Europe to achieve the changes that are necessary. But we have a Minister who is anti-Europe, anti-CAP and, in some sense, anti-producers. That does not create the climate necessary to achieve what we need. We must have a European attitude. We must be seen to be pro-European to gain the necessary co-operation.

The Government have shown that they are not that way inclined. They are trying to swim in the European pool with an enormous weight dragging them down and stopping them from co-operating because some Labour Members are still fighting to get out of the Community. Of course, they will fail.

I agree with the argument about using co-efficients to adjust prices. That is worth looking into. I congratulate my hon. Friend the Member for Westmorland (Mr. Jopling) on drawing that to the attention of the House.

The Irish situation cannot be left as it is. I believe that the Republic will receive the aid that it requires to join the EMS. In a few weeks' time it will go in, after Italy's decision this week. This leaves us in a difficult position. The export of meat from Southern Ireland to this country will be unfair—far more unfair than it is today. We should have a clear explanation about the Irish situation. We must have a clear answer from the Minister about the Irish situation. I refer not only to Northern Ireland producers, but to producers here.

Once more, I believe that we have missed the chance. It is a sad reflection on the Government, who are always just putting their toes into Europe but are never prepared to go in fully to contribute. I hope the day will soon come when we have a Government who are prepared to be a real partner in Europe. Only then shall we get the changes that are so necessary.

1.16 a.m.

Mr. Nigel Spearing (Newham, South)

It is always a pleasure to follow the hon. Member for Devon, West (Mr. Mills), because he addresses the House in such an apparently reasonable way. I have high hopes that one day he will travel the road to Damascus and see that things are not as he imagines. The hon. Gentleman made some remarkable statements. He addressed many of his remarks to the principle of EMS. He says that it will lead to stability. Surely he is aware that all the economists, even the German ones, realise that exchange rate stability is as much a reflection of other factors in nations' economies as it is the result of trying to tie them together by some mathematical formula.

One aspect of this which has not been mentioned in our debates—and I wonder to what extent it has an effect—is that large sums of money are sent round the world. There has been an electronic revolution among exchange rate dealers in the City who can now be plugged into Tokyo, New York and all the other exchanges in the flash of an eye. I wonder whether some of the instability in world money markets is not contributed to by the rapidity of communication. That is possible.

The hon. Gentleman said that common prices were desperately needed in the EEC. But German prices are about 40 per cent. above ours. The mean price, at exchange rate level, of food and agricultural produce on the mainland of the EEC is at least 30 per cent. higher than here. Is the hon. Gentleman seriously advocating that wholesale agriculture prices in this country should rise by such a percentage? That is the only conclusion to be drawn from his remarks. It is an extraordinary statement to come from any Member of Parliament who represents producers and consumers.

The hon. Gentleman spoke also of imported feedingstuffs. He said that he wanted to get rid of the green currencies. Hansard for 9th November shows the common levy on milled maize, a most important constituent of imported feedingstuffs, to be £65 a tonne. But the hon. Gentleman and other British farmers have to pay only £41, thanks to the green pound. A few years ago the hon. Gentleman would have regarded even £41 as extraordinary and unacceptable.

The hon. Gentleman says that we should be pro-European and show ourselves to be in favour of what is happening. Then, he says, we shall get some changes.

The right hon. Member for Sidcup (Mr. Heath) was so much in favour of going into the Common Market that he negotiated nothing except the transitional terms. He did not change the Treaty of Rome one iota, and I do not think he changed any aspect of the common agricultural policy. Yet nobody could be more pro-Market than the right hon. Gentleman. If the hon. Member for Devon, West advocates such a policy, I can only say that we do not have a very fortunate example from the past.

The regulation before us is R/3126/78, but the explanatory memorandum says that there are two regulations. One of them, no doubt, will reach the Council of Agriculture Ministers in due course, having been discussed by the European Assembly. The second proposal has not to go before the Assembly because it arises under article 103.

I hope that the Minister will tell us more about this. If the coefficient scheme is to be set up, as it has to be, on 1st January, what difference will sending the second document to the Assembly make? Even if the Assembly comments on it, I presume that the machinery will be in place. Is this being done just to get matters right? Where there is no time to canvass the Assembly's view, it would be possible for the Commission to spring other surprises on us and to use article 103 in a similar way.

There are probably only a dozen people in the country who understand these matters. Each time I turn to this subject I have to start from scratch. I could not follow everything said by the Minister. Only a bold Member would claim that he has this issue at his fingertips. I suspect that my hon. Friend the Member for Southampton, Test (Mr. Gould) is virtually in that position, but few others in the House can match him, though I leave out of account my right hon. Friend the Minister of Agriculture. I suspect that matters of this kind are discussed at Heads of Government meetings. The horse-trading that takes place at those meetings must involve questions relating to the CAP. I doubt whether this is the way to run the Community.

I wish to ask the Minister about the power of a member State to devalue unilaterally, because I am not sure that I understand the present position. My hon. Friend said that there were seven price systems within the Community. He said that their freedom to devalue or revalue is related to the difference of their prices compared with the central rates.

I tabled a Question on this subject and it was answered on Tuesday 12th December. I asked whether the Minister of Agriculture, Fisheries and Food would tabulate in the Official Report the weighted average increase of EEC prices of commodities covered by the common agricultural policy since 1st April 1978 and those increases in each member State arising from respective revaluation of green currencies on or after that date. In other words, while people at large believe that the common agricultural prices are set annually by the annual review, one must look at the two-decker position here. On top of the annual review, one must add the degree of devaluation of other member States. The reply from the Minister of State was: Changes in representative—' green '—rates agreed at the same time caused an offsetting fall of 0.23 per cent. in national support prices in the Federal Republic of Germany and further increases of 7.61 per cent. for pig-meat and 3..73 per cent. for all other sectors in France, 5.29 per cent. in Italy, and 6.38 per cent. in Ireland. It appears that there were considerable increases in these countries over and above those agreed by the Council of Agriculture Ministers. Indeed, the final sentence of the answer says: This produces an overall weighted average increase of about 4½ per cent."—[Official Report, 12th December 1978; Vol. 960, c. 162.]

This is possible only because of the difference from central rates. I suspect that the ability to depart from those central rates is much less if one uses the ECU pure than if one uses the ECU coefficient.

Mr. Gould

My hon. Friend is correct. The only country that could use green rates, or the devaluation of green rates, to produce a price increase, if we were to use the ECU, would be this country. The option would not be available to any other country.

Mr. Spearing

That makes my hon. Friend's case even stronger. It means that by accepting ECU coefficients—and our amendment presses the Government not to do that—we shall lose a very valuable means of checking the increases in prices in other countries by the devaluation formula. Here we have the opportunity to keep prices down, and it seems that we do not intend to use it. However, in view of the complexity of these matters, I am not altogether surprised that we might have lost an opportunity.

I hope that the Minister will say, in accepting the motion, that he will take the opportunity at the next Agriculture Council meeting—I presume that there will be one before the regulation is accepted—to press the case that my hon. Friend the Member for Southampton, Test and I are making. Even if the Minister cannot take it all the way, he will at least be able to point out to all those who claim to be subsidising consumers in this country not only that this is not the case, but that in real terms it is not Britain that is out of step but the Community. If he feels driven to accept this coefficient adjustment, he will be able to tell them, as I am sure he will in any case, that the mere fact of having to accept the coefficient is an admission of this truth. I hope that our amendment will enable him to force that home good and hard.

Some of the people at that Council may well not have quite understood this point, as many people a year ago had not understood the phenomenon of the burst snake, as some of us called it when we managed to unearth it. The snake will have disappeared from 1st January, and we have to substitute the ECU. It is a curious beast, and the ECU coefficient is even more curious.

The CAP is a complex enough mechanism in physical terms, with the import levies, export restitutions, intervention buying and all the mechanics of centres of demand and transport costs that go with it. We are now adding to it an enormous and complex financial operation which is related to the common prices. We have the pound sterling, the ECU coefficient rate, the ECU pure and the basket, from which it is all derived. That basket can vary by 2½ per cent. each way before changes are triggered off.

I wonder how anyone, even in the Ministry, can keep up with this. I am sure that farmers, even with the help of Farmers Weekly, must find themselves baffled, if we in the House who try to keep up with these matters do. I find myself baffled on occasions, and I have to start from scratch every time this wretched business comes up. In the organisation of the CAP we are reaching a stage where it is a disgrace not only physically but mathematically.

The hon. Members for Devon, West and Westmorland (Mr. Jopling) claim that the EEC is democratic. But for it to be a democracy it must have, to use an EEC term, transparency. This matter is not at all transparent, and therefore there are opportunities for things to go wrong without people understanding that they are going wrong. I hope that that will not happen, but I fear that it will.

That is yet another reason why we must get rid of the CAP and put in its place something much better which is not only transparent but enables a proper balance to be achieved between consumers and producers in the EEC. This system, coefficient and all, makes it vastly more complicated. I hope that my right hon. and hon. Friends will resist it in the Council of Ministers.

1.33 a.m.

Mr. Strang

We have had a useful, if short, debate. As my hon. Friend the Member for Newham, South (Mr. Spearing) has just said, this is, indeed, a very complex issue, as the debate has shown.

I emphasise that changing from one unit of account to another as the basis of calculating the MCAs does not in itself alter common prices as expressed in national currencies, nor does it alter the magnitude of the MCAs. If the ECU were to be introduced without any correction coefficient the total difference between the German and United Kingdom prices—the United Kingdom-German MCA—would continue to be about 40 per cent. of the United Kingdom price. Under the scheme that the hon. Member for Westmorland (Mr. Jopling) suggested, about 34 per cent. of the MCA would be the positive German MCA, with a remaining 8 per cent. which would be our MCA. Secondly, our power to devalue is, as matters stand, unaltered by the EMS and these proposals. I hope that I shall have a chance to refer to this later.

It is true that the European Council reaffirmed the objective of phasing out MCAs. That has always been the philosophy of the Community and the Commission. But it is also true that the European Council made it absolutely clear that any policy of phasing out would have to have some relationship to the actual common price. The United Kingdom Government have always maintained, and continue to maintain, that there can be no question of phasing out MCAs with the common price set at its present level.

The question of Ireland has been raised. If Ireland joins the EMS and we do not, the relationship between the United Kingdom and Ireland will become the same as the relationship between the United Kingdom and France, or between France and Italy. The effect from the first day under the current proposals would be zero in that the MCA on trade between the United Kingdom and Ireland would remain the same. One cannot predict how that relationship would develop, since it would depend on the movement of the currencies, with the United Kingdom outside the EMS, and on the corresponding size of the MCA. Fears have been expressed about the size of the MCA and the subsidy on CAP products crossing the border in Ireland.

I should like to turn to the point raised by my hon. Friend the Member for Southampton, Test (Mr. Gould), which is a crucial issue. He accepts that there is no way in which this alteration can change overnight the prices paid in national currencies. But the decision to maintain the present distribution of MCAs and to implement the scheme in a way that maintains the status quo means that in practice the redistribution of MCAs which could have taken place will not immediately occur.

It is worth bearing in mind that if we had done as my hon. Friend suggested this would have had an immediate effect on the prices paid to Commonwealth producers of sugar. It just so happens that these prices are determined by the common price converted at the market rate. These prices to ACP producers would have been reduced by the redistribution of MCAs. Similarly, the price of New Zealand butter is calculated on that basis, so the redistribution of MCAs would have affected that price.

Also, if we moved overnight to a system whereby almost all the member States would require a significant increase in the common price in order to lift their national prices at any price fixing, that would lead to more pressure on the common price at each price fixing. My hon. Friend is basing his case entirely on the fact that this redistribution of MCAs would bring out more clearly and more transparently, to use his word, that there is no question of the United Kingdom being, in practice, the odd man out. But my argument is that the crucial issue is the average of prices paid for agricultural products in the Community. That is what will determine the rate of production, and that is what matters in the real world.

Mr. Gould

But under the present system, which is being retained by the Commission's proposals, the real increase in prices can be fudged by national Governments, who can pay lip-service to the principle of keeping down common prices but push up real prices by devaluing their green currencies which, under the present system, are shown to be substantially over-valued when compared with what they should be. If we abandoned that system and went to the one which would obtain with the ECU without a coefficient, Common Market farm Ministers would be put to the test and they would have to accept price increases only to the extent to which they could get them on the common price.

Mr. Strang

I accept that, but in practice the important questions would be, first, what happened to the various green rates, and, secondly, what happened to the common price. The success that we would be likely to have in the future in holding down the common price might be less than it is likely to be with the present distribution of MCAs and that might in practice, in the years ahead—and we shall never know the answer—be just as likely to generate price increases as the alternative of being able to devalue one's currency—as Ireland, Italy, France and the United Kingdom can do in a very big way at the moment—and so increase national prices although there is no change in the common price.

I know that we shall not resolve this argument tonight, but it is a very important tactical and practical one.

My hon. Friend the Member for Southampton, Test welcomes the change in the sense that the ECU is a more representative unit than the EMUA. I am not surprised about that, because my hon Friend was among the first—if not the first—in this House to point out the basic weakness in the use of the snake in relation to the common agricultural policy. The reason why we are accepting his amendment is that after 1st January we shall have a unit of account which is more representative.

I make one final comment about the redistribution of the MCAs. We have to bear in mind the reality of the position. Even if the British Government had favoured the course of action which my hon. Friend the Member for Southampton, Test advocated, that would, given the context of one member Government in a Community of Nine seeking to block a change which in practice was to maintain the status quo, have given rise to legal questions about what was meant by "status quo ". Secondly, if a Government blocked a regulation so that there was a vacuum on 1st January, there would arise questions about what was likely to happen in the complex world of the CAP and the trade which takes place between member countries within that framework.

As I see it, the fundamental issue remains unchanged, and again I think that I am in complete agreement with my hon. Friends. It is that the enormous cost of the CAP, the enormous misuse of resources inherent in these very large surpluses—that is where the big cost of the CAP comes from—can be ended only by restraint on common prices.

It is, therefore, encouraging to read the report of the Commission to the European Council in which it has firmly committed itself to a rigid price policy and, indeed, has undertaken to bring forward proposals in the forthcoming price fixing which will represent a general freeze on common prices. My hon. Friend seemed to imply that that did not amount to much, but it represents quite a substantial movement in the position of the Commission, a movement for which I think the Government can claim some credit.

The United Kingdom Government have been in the van, quite naturally, because of our own national interest predominantly but also because we are in a position to make a more objective appraisal of the real interests of the Community in this context, in advocating this policy. The Commission has now endorsed it, not only in principle but in practice, in relation to bringing forward a general price freeze in the forthcoming price negotiations. Of course, the Government will fight to hold on to that common price freeze.

Mr. Jopling

Would not the case that the British Government make in the negotiations in the future be backed by reminding ourselves that, over the last two years, the Opposition also have given support to minimal price increases in the annual Community price arrangements?

Mr. Strang

No, I do not think that I could accept the hon. Gentleman's claim, in that I do not accept that the Opposition have been advocating restraint in common prices for two years. Indeed, I think that that attitude has emerged relatively recently. Earlier this year the Opposition were asking that the MCAs should be phased out completely, and tonight the hon. Gentleman was almost harking back to that policy. But I accept that he made the additional point that the Opposition agreed with the Government and the Commission that the common price levels are too high.

I do not know who promised the British farmers that they would be competing on fair terms with Community farmers, and I do not know the view the farmers took at that time of the prevailing level of common prices. But what I do know is that the Government continue to take the view that the right policy for British agriculture is to seek to fix our prices at a level which gives the industry a fair return for its labour and investment and enables it to make a growing contribution to the national economy, but does not provide high prices which would promote increased production at a cost which could not be justified in the context of the efficient use of our national resources.

Of course, we have to strike a balance between the interests of the consumers and those of the producers in this country, and we do that, by and large, by devaluing the green pound when appropriate. As my right hon. Friend confirmed last week at Smithfield, that continues to be the Government's policy. That policy is not altered by the technical measures which we are discussing this evening. It has to be fully understood that that is the price that we are paying as a consequence of the CAP and its surpluses. When we talk about the reform of the CAP, the arguments will not be significantly altered in any way by the changes that we are making in EMS.

The fundamental weakness of the CAP is that prices are set too high. We have also to accept that the producers who are producing at too high prices, and producing, on average, less efficiently, are those in the Community countries which have the highest prices.

So, if we are to achieve reform of the CAP, the central objective must be to reduce the level of prices on average in the Community. In practice that can only be done, I believe, by holding down prices and allowing inflation to erode, as it were, the attractiveness of those prices to the producers.

I do not believe that it is practical politics to expect a member Government to agree to an immediate cut in prices for their producers, certainly not a Government who are dependent electorally to a significant degree on support from agricultural producers and others associated with agriculture.

We have to strive to hold down these prices. Prices have been rising throughout the Community. The common price has been rising, and, more crucially, the average price throughout the Community has been rising. We have to strive to avoid that, to reduce the level of surplus production and thus to reduce the cost of the CAP.

I have not dealt with a number of small points made by hon. Members, but I am anxious to pick up, in conclusion, one point made by my hon. Friend the Member for Newham, South (Mr. Spearing), who asked about the two regulations before us. I think he recognises that the first is temporary, so that something can be in place on 1st January without the European Assembly having had to consider the issue.

The second regulation is permanent and is the sensible way to do it, but, under the Treaty of Rome, it cannot be implemented without consultation. I emphasise "consultation" because my hon. Friend almost implied—and he would be the last person to imply it—that the European Assembly can somehow change it. It is only a question of consultation, so in practice it is not a point which should concern him too much.

I hope that I have given the House a sufficient explanation of the Government's stance on this issue. Decisions have still to be taken, at the Council of Agriculture Ministers next week, at the Council of Finance Ministers, again next week, and it has been agreed that if the EMS comes into operation there will be a review of the ECU, of the weighting of the countries in the ECU, in six months' time. So, one cannot predict with accuracy how things will develop over the next six or 12 months. It has not been possible to predict how things could have gone in the last two or three days. Only tonight we had the decision of the Italian Parliament to endorse the Italian Government's decision to join the EMS. We cannot predict the future, but it is fair to say that the Government's stance, as reflected by our acceptance of the amendment, is one which commands the support of the House generally.

Amendment agreed to.

Main Question, as amended, put and agreed to.

Resolved,

That this House takes note of EEC Document No. R/3126/78 on the Implications for the Common Agricultural Policy of the European Monetary System, ' but urges Her Majesty's Government in discussing the application of the European Monetary System to the Common Agricultural Policy to press for the adoption of a more representative unit for the expression of common agricultural prices.