Common Agricultural Policy

HC Deb 26 March 1981 vol 1 cc1091-160

Mr. Speaker

I have selected the amendment in the name of the right hon. Gentleman the Leader of the Opposition.

4.15 pm

The Minister of Agriculture, Fisheries and Food (Mr. Peter Walker)

I beg to move, That this House takes note of the European Community Documents Nos. 5091/81 and 5091/81 Addendum I on Common Agricultural Policy prices 1981–82; 5191/81 on the Agricultural Markets Situation 1980; 12271/80 on Reflections on the Common Agricultural Policy; and the Ministry of Agriculture, Fisheries and Food's unnumbered explanatory memorandum of 17 March on the development of livestock production in Ireland; recognises the contribution United Kingdom agriculture makes to the national economy and the need to obtain adequate returns for United Kingdom producers; and supports the Government's intention to seek an agreement designed to reduce production of structural surpluses where these exist, to contain the cost of the Common Agricultural Policy and to take account of the interests of consumers and of food processors. I have no particular objection to the Opposition amendment, although I shall be interested to hear from the right hon. Member for Barnsley (Mr. Mason) his definition of phrases like the need to hold down prices". I interpret it as a request that on those items in surplus there should be prudence in prices and a holding down of prices in real terms rather than in money terms. There can be no doubt that recently farm prices generally have been severely held down.

We discuss the motion on the Order Paper and the various associated documents in an atmosphere in which British agriculture has experienced financial restraint and difficulty. As the White Paper I published shows, there was a reduction of 10 per cent. in incomes in money terms during the last year, which means, in real terms, a reduction of 24 per cent. This is reflected in the substantial increase that took place in bank advances during this period. The increase in bank advances was not caused by an increase in capital investment. It was mainly due to the needs and requirements of farmers in terms of working capital and maintenance of their incomes. The reduction, in real terms of, 24 per cent. covers a considerable disparity between one type of farmer and another and between one region and another. That reduction in income occurred, perhaps fortunately, in a period when we enjoyed for the third successive year a record cereal harvest.

The burden of this restraint on incomes, partly for reasons of skilful work and partly because of good climatic conditions, fell less severely on cereal producers and more severely on livestock producers. It was, therefore, more severe in Scotland and Wales and particularly in Northern Ireland. I hope that the House will join in recognising the considerable contribution made during the last couple of years by the farming community towards the battle against inflation.

I object to various suggestions made from time to time that our farming community has been overpaid. Its contribution has been quite remarkable. During this last year the increase in non-food items in the retail price index amounted to 14 per cent. The increase in food prices amounted to only 9 per cent. During the same period wages increased by 19 per cent. Comparing those figures with an increase in farm gate prices of only 6 per cent., I suggest that few sections of the community have made a bigger contribution towards the battle against inflation than the farming community.

Alas, that contribution has been at the price of a reduction in investment. I suggest to those who are concerned about unemployment that it is of no use to pursue an agricultural policy which reduces capital investment in equipment, machinery, tractors and buildings, with a resultant deterioration in the productivity of British agriculture and the many ancillary firms connected with it. Therefore, it is against a background of some depression in farm prices that we look at the position today.

In their amendment the Opposition refer to the overall cost of the common agricultural policy. Those like myself who are concerned about the overall cost of the CAP should be pleased that, as compared with the last year of the Labour Government, when the cost of the CAP went up by 26 per cent. in one year, the cost during 1980 increased by 10 per cent. Since the Conservative Government came to power the rise in the cost of the CAP has been more than halved.

It is in that climate that I turn to the main proposals that we are discussing, the prices put forward by the Commission for the coming annual price review. I find completely unacceptable the Commission's proposals for an overall price increase averaging 7.7 per cent., with a massive devaluation of the green pound. The Commission proposes an overall increase of 1.4 per cent., in money terms, in British farm prices for the coming year. That would mean a massive further reduction in farm incomes, with all the adverse effects that would bring on farm production and all the industries connected with that production. With the level of price increases advocated by the Commission, there is no way in which I would agree to a revaluation of the green pound.

It is surprising that the countries—seemingly with the support of some right hon. and hon. Gentlemen on the Labour Benches—which are in favour of a revaluation of the green pound are the very countries which rejoiced when, during the period of the previous Government, we had enormous negative MCAs.

Mr. Tony Marlow (Northampton, North)

In answer to a written question last week my right hon. Friend the Secretary of State said that MCAs of 18 per cent. would add to the net budget contribution, over and above that which was negotiated last year, anything up to £240 million. My right hon. Friend says that he will not agree to a revaluation of the green pound because it would affect farmers' incomes, but would it not be possible to allow that revaluation and at the same time support our farmers to the extent of £400 million out of our money, in the same way as the French support their farmers?

Mr. Walker

We all know my hon. Friend's views—his general hostility to Europe as a whole. In my answer to his question I stated that there was an enormous margin between the costs, but in phasing his comment he quoted the highest possible figure. It would have been far less impressive if he had quoted the lowest figure in my reply. This manner of extracting just one figure out of context gives a totally false impression to his argument.

Hon. Members on both sides of the House should reflect upon why, during the period of the Labour Government, when for two years we had negative MCAs never less than 24 per cent. and sometimes as high as 45 per cent., Denmark, Holland and Germany rejoiced because they were taking a bigger share of the British market. Those countries were then great defenders of the MCA system. Now that we are enjoying positive MCAs—this eradicates the disadvantage of a high sterling exchange rate for certain food products—those same countries are pressing hard for their elimination.

There is no evidence of any substance as to the degree to which a reduction in the MCAs benefits the British consumer. I mentioned earlier this afternoon that during the past year, when we have had positive MCAs, food prices went up by 9 per cent. In the years of the Labour Government, when there were enormous negative MCAs, on average food prices went up by 17 per cent.—hardly an illustration that negative MCAs are a great advantage to the British consumer, or that positive MCAs are a great disadvantage to the British consumer. Negative MCAs were a great disadvantage to our food industry and our manufacturing and processing industries and a great advantage to the profits of foreign exporters. Positive MCAs at their present level and in their present form are a great advantage to British agriculture and to full employment.

Mr. Douglas Hogg (Grantham)

Does my right hon. Friend agree to the proposition that if the green pound were to be revalued as proposed by the Commission it would almost certainly lead to substantial unemployment in the countryside, particularly among farm workers?

Mr. Walker

I certainly agree with that proposition, but I believe that unemployment would extend further than my hon. Friend suggests. There are substantial industries connected with agriculture—machinery and tractors—and already, because of the recession in farm prices, substantial redundancies have occurred in fertiliser factories, for instance. I do not find it logical for any politician who claims to be fighting the battle of unemployment at the same time to wish to undermine British farm prices, with all the effects that my hon. Friend described.

We shall look at each item on its merits and endeavour to see, as the Opposition amendment suggests, that there is a sensible measure of restraint and an attempt to tackle areas where there are surpluses. Before considering some of the individual items in the proposals I want to say a little more about the trend of farm incomes.

Several measures have been announced recently which will affect farm incomes during 1981 and which are not reflected in the farm income position illustrated in my White Paper. All who are connected with agriculture will be pleased at the 5 per cent. reduction in the minimum lending rate. The burden of high interest rates falls particularly hard on the farming community, and the downward trend in interest rates has been welcomed by it. The effect of that 5 per cent. reduction by a series of smaller reductions will primarily come through during the calendar year 1981.

There is a recognition in many spheres of the substantial improvements that will be made to incomes as the result of negotiations that have already taken place. The negotiation of the sheepmeat regime will bring a substantial improvement in guaranteed income for sheep producers, without any adverse effect upon housewives and consumers. The benefit of that was not realised last year because the regime came in too late. This year's lambing season will be the first to benefit from the new regime. The figures show a substantial change from a couple of years ago. Compared with the lambing season of three years ago there is an improvement in the guaranteed price on the premium system of about 50 per cent.

Similarly, in the beef sector, which is one of the most difficult sectors, the 1981 projections, taking the suggested target prices and therefore the relationship with the premium scheme, are that the figures will be about 50 per cent. better than they were in the calendar year 1978.

The Government can claim that in spite of the difficult conditions, high feeding costs and the difficulties of one particularly bad lambing season, they have been very positive in their attitudes towards the hill farming areas. Checking up on the grants for which we have responsibility, the hill farm subsidies, where we have made the decisions, I am very pleased to say that, compared with the last year of the Labour Government, the cost of the improvements that we have made for the hill farms is 80 per cent. up on what it was in 1978. The income benefits will tend to come through during the calendar year 1981 and will assist in meeting the substantial increases in input costs that are still taking place.

As for input costs for 1981 in the United Kingdom, it is obvious that the input costs of interest rates will be lower. It is also true that the input costs in a number of other areas will be higher. Certainly the world price of oil and its linkage with fertiliser prices is still a worrying concern. Although there was a substantially lower increase in the agricultural wage this year compared with the year before, it was still a very substantial increase, which will have to be met out of this year's farm incomes.

Therefore, I hope that when we talk about restraints in farm incomes on a particular commodity we shall be thinking in terms of the relationship between the input costs and the increase in price and not just making a straight calculation of the increase in price irrespective of a substantial increase in input costs that is taking place.

I turn now to some of the general proposals and first to one of the major proposals affecting this country, that concerning milk. In general, we welcome the fact that the Commission has promised a continuance of the butter subsidy that we negotiated. I think that is essential and also sensible for the Community as a whole as well as being of benefit to British housewifes.

It is important to continue the school milk subsidy, and I hope that the arrangements we are about to complete with the Commission will enable the administration of that scheme to be simple and manageable and will result in a substantial increase in the amount of milk consumed in our schools.

When it comes to the proposals, there should be restraint in terms of the price increases here, balanced against the increased input costs. Because of our substantial dependence upon the liquid milk income, increases in the basic price are of importance in building up the yields obtained by the farmers from the manufacturing price of milk.

I hope that during the next few years we shall improve our performance in the manufacturing of dairy products, because that is where the scope for improvement lies. This is an area that had no chance at all with the operation of negative MCAs in the years before we came into office. Now we are seeing an improvement in our share of the domestic market in butter and a similar improvement in cheese, but this is an area in which it will take several years to make real progress, to put in the capital investment and to obtain the necessary markets.

As regards the retention of the doorstep delivery service in this country, I believe that I speak for both sides of the House when I say that we consider this to be a very important priority, for social reasons, for employment reasons and certainly for the dairy industry. But we must face the fact that the one limitation upon the continuance of the doorstep delivery service would be the escalation of the costs of that service to such a degree that the market would no longer stand the price involved. That is why it is important to ensure that the income of the producers is in the coming years built more upon the income from the product side so that we can exercise for the consumer of liquid milk the restraint in the liquid milk price which will enable consumption to remain at its present level.

Mr. Stephen Ross (Isle of Wight)

I fully support the right hon. Gentleman's views on the brief. Is it not the case that farmers could be encouraged by ADAS and others to produce lower quantities of milk with lesser inputs of feeding stuff and fertiliser—in other words, cheaper milk from lower-yielding cows? Is not that one way in which they could get a bigger profit?

Mr. Walker

ADAS, as the hon. Gentleman knows, gives advice in this sphere and I think that a number of dairy producers increased their input costs to such a degree that it became a less viable proposition. It depends, however, on the nature of the farm and of the capital investment and a whole range of other criteria. But as a general approach I think it is an area in which, on the best technical advice available, each farmer has to be left to make his own decision.

I turn now to the question of the levies suggested by the Commission in its proposals. On the basic co-responsibility levies, we generally hold the view that it is better to keep down the price than to increase the basic co-responsibility levy. On any of these levies we totally oppose any suggestion which will result in discrimination against the United Kingdom dairy producer.

One such suggestion is that there should be an increase in the basic levy on farms which deliver more than 15,000 kilograms per hectare, and that would mean that a percentage of the most efficient British dairy producers would be penalised by that increased levy. It would also mean that in most other countries virtually no producers would be penalised by the levy.

Mr. Anthony Nelson (Chichester)

Would it not also result in the paradox that many of those dairy farmers who had been in receipt of grants recently to expand their production would find that the feasibility of those schemes, which rests on a return which would be uninterrupted by a supplementary levy, would find themselves negated—a paradox which would be quite unacceptable?

Mr. Walker

I agree with my hon. Friend. The basic attitude of Europe in general to agriculture has been a desire to improve efficiency, and since that has been the case for some years it really would be monstrous if we moved to a system of clobbering those who had been the most successful in becoming more efficient. Since, as a country, we are top of that league, I have no intention of accepting levies that discriminate in that way.

Mr. Nicholas Winterton (Macclesfield)

I think that this is a fascinating way to develop this debate. Could my right hon. Friend indicate which countries within the EEC support this super co-responsibility levy and on what grounds, bearing in mind that, as he quite rightly said, we are at the top of the league in dairy production and the EEC wants to see increased efficiency? How can this super levy possibly encourage farmers to increase their efficiency?

Mr. Walker

May I say something about the use of the expression "super levy"? What I am talking about is a proposal that where there is intensive use of land for dairy farming the basic levy should go up to a flat 6 per cent. instead of a flat 2 per cent. I believe that there is no argument for that at all, and, as I believe that and we are in a Council where there is a power of veto, there will not be any such levy. On the other levy there are differing views, and the National Farmers Union supports the Government's view that there is a case for a super levy by which those countries that continue to increase their production still further should pay on that further increase a levy equivalent to the cost of disposing of the surplus milk. My judgment is that in the present situation that levy would not be adverse to British agriculture and would be favourable to restraining the common agricultural policy. The National Farmers Union, in an official statement, has said that it, too, has come to that conclusion. But the countries which are continuing, some of them with national aid, substantially to increase their milk production are directly opposed to the levy. Therefore it is highly unlikely that it will succeed, although certainly a number of countries and the Commission will continue to press that argument.

In regard to the milk sector, with the continuation of the high rate of sterling it is important that our manufacturing side and the butter and cheese production side should be assisted by the continuation of the MCA system. We shall reject any co-responsibility levy that discriminates against the United Kingdom. We consider that price increases should be upon the basis of being substantially below the increase in input cost as a general restraint in this sector.

To turn to an associated sector, beef, in terms of British agriculture it is one of the most difficult areas and the one that has suffered most. The Commission has eradicated from its proposals the variable beef premium scheme. It is essential that that scheme should be reinstated. In terms of the United Kingdom, it is a scheme which is less expensive to the Community than intervention. It is comprehended by our farmers. It has been operated successfully. It was of immense importance to them during the period of depressed prices in this past year. Therefore, we shall be negotiating for that scheme to be reinstated.

The suckler cow subsidy, which was negotiated last year, is to continue, and we approve of that. There is a suggestion that there should be a special suckler cow subsidy for the Irish Republic. Indeed, it is suggested that there should be an overall package for the Irish Republic because of the very substantial drop in incomes that has been suffered there during the past year. I have sympathy with the position there, but it would be quite unacceptable for such a package to be proposed for the Irish Republic and nothing for Northern Ireland. The drop in incomes in Northern Ireland has been even greater than that in the Irish Republic. Therefore, it is important that the Commission should recognise that if it comes, rightly or wrongly, to the conclusion that a particular region or country in Europe has suffered more during the past period and introduces a scheme to rectify that, it would not be acceptable unless such a scheme was extended to Northern Ireland because of its unique circumstances and many difficulties in agriculture.

Dealing with the other livestock sections, we are currently negotiating with the Commission changes in the clawback system for sheep in order to try to improve the export performance. Already we have succeeded in getting the Commission to drop the clawback for exports to third countries. We have got it to agree to increase substantially the range of animals upon which the premium was paid before the clawback. But in our view there are still matters connected with the clawback which are to the detriment of some European consumers as well as our producers and exporters and could be successfully altered. We are currently negotiating that.

We obviously want to continue with the variable premium scheme as agreed last year. We agree the type of revisions and the prices that the Commission is suggesting.

Turning to some of the other major items affecting the United Kingdom, the House will know that already we have negotiated a package which restrains the beet sugar.

Mr. Wm. Ross (Londonderry)

The right hon. Gentleman will be aware of the peculiar problems of the operation of two different sheepmeat regimes in the island of Ireland. Is there any possibility of moving to a uniform system throughout the Community?

Mr. Walker

I do not think so. There is an option for any country. I do not believe any country would like to give up that option. If the rest of the Community would like to move to our system, I should be very happy to persuade them to do so, but I think it unlikely that they would. Certainly I am unwilling to move to their system. To have the option is right. We have freedom and if we wanted to move to the system in the Irish Republic we could do so, but I do not think it would be in the interests of British producers to do so. I recognise that real difficulties are created by the border.

On the question of sugar, which is a very important crop in the United Kingdom, we have negotiated lower quotas. Nevertheless, I think that they are sufficient for British agriculture and the British sugar beet industry. This has not been verified finally by the Italian Government, but probably, after the revaluation of the lira, Italy will find it possible to go ahead with the package previously negotiated. If we have that we shall have the continuity of a decent return from sugar beet production, which is of great value and one of the most important rotation crops for British agriculture.

On the various proposals for co-responsibility levies other than for milk, there is a need, whether we call it a co-responsibility levy or a limitation of expenditure, to look at other areas where there is clearly either an existing surplus or a position where production is nearing surplus. We have to look very carefully at the proposals on olive oil, processed fruit and vegetables and tobacco.

On the cereals front, we have to make sure that we do not move to a position of expensive surpluses whilst safeguarding very carefully the cereal supplies of Europe. It would be wrong to have too great a surplus but nowhere near as wrong as to have a shortage of cereals in Europe. We have to get the balance right. In these negotiations we are willing to consider carefully the arrangements that should be made.

There is also a Council commitment to apply co-responsibility to wine by strengthening the early season distillation arrangements to remove low quality wine from the market. Looking at the potentiality of wine production in Europe, that is a sensible move, which again we would want to study while endeavouring to have appropriate arrangements.

In terms of the overall cost of the package, it is difficult for the Commission or for anybody else to project accurately the trends of costs in agriculture. If world sugar production fell, due perhaps to weather conditions or crop failure, dramatic changes could take place in the European budget. If the Soviet crop in any one year were successful, although I am beginning to doubt whether that will ever happen, it could have a dramatic impact on the common agricultural budget. We would want to ensure that the growth of the guaranteed expenditure in 1982, taking account of the revised price proposals, was markedly less than the rate of growth of the own resources base. Within that limitation we can continue to see agriculture operating in a prosperous way throughout Europe.

I come now to the price negotiations which will take place next week. Obviously they will be complicated and difficult. So far the rounds of discussion have shown considerable disagreement on a whole range of items. It is important for the farming community as a whole that we should endeavour to come to a sensible conclusion as speedily as possible. Uncertainty is bad, but we could not come to a speedy agreement unless some of the basic matters which I have mentioned today were agreed as part of the package.

In the period in which the United Kingdom takes the Presidency, in the second half of this year, if the main price fixing difficulties have been settled and are out of the way and there is no great difficulty on any particular regime, which might be the case by the second half of the year, I would hope that the Council of Ministers could pay attention to the importance of trying to develop some longer term policies instead of the year-by-year policies, particularly for the major items which are in surplus, such as milk. In farming it is possible to shift production rationally and to make changes in the structure only if it is done over a period; we should not attempt to do it suddenly, with all the discontent and considerable damage to the economic and social fabric that that would create.

In regard to United Kingdom agriculture during the past year, whether it is benefiting from positive MCAs, benefiting from the closer relationship that we are establishing with our retailers, benefiting from the successful campaigns to buy British in major supermarkets, or taking part in the major dialogue that the five marketeers whom I appointed have engaged in round the industry, I am pleased that during this period there has been a considerable increase in attention to marketing.

Britain has possibly one of the finest, if not the finest, agriculture systems in the world. It has a record of investment, innovation and good labour relations which, if copied by the rest of British industry, would have made Britain the post-war success of all times. Moreover, it is an industry which, in its closer links with retailers, manufacturers and processors, creates the foundation for an important part of our future economy.

The French Government have decided that their role in the 1980s is that of the great food provider for Europe, and possibly the world, for agricultural, manufacturing and processing products. Britain should not just stand aside and watch with interest. We should recognise that France has identified an important area of economic growth. We already have good manufacturing and processing industries, as well as a good farming structure, and we should therefore ensure that, by better marketing and more investment, the 1980s is the decade in which our agriculture and our food industries obtain bigger shares of the markets at home and abroad.

4.51 pm

Mr. Roy Mason (Barnsley)

I beg to move, to leave out from "exist" to the end of the Question and to add instead thereof: and stresses the need to hold down prices on those products in structural surplus and to submit proposals on common agricultural policy reform which will be designed to reduce the costs of the common agricultural policy which will take account of the interests of food processors and consumers. The House will remember that a year ago, when we debated the 1980–81 agriculture price proposals, I drew attention to the growing disillusionment within the national States, and not only the United Kingdom, about the worsening image of the European Economic Community. During the past year that image has been besmirched even further. There have been arguments about the budget, who pays and who benefits, and squabbles at the summit last year and at Maastricht this year. Nearly all the Member nations were in conflict last year about fishing policy—the Germans, the Danes, the Dutch, the French and the British.

Within agriculture, the depression in incomes is causing widespread concern and the common agriculture policy is again under attack. The operation of high positive MCAs by Germany and Britain is also an irritant.

What is most deplorable—I say this more in sorrow than in anger—is that Common Market sales of subsidised butter and butter oil to the Soviet Union increased by 60 per cent. last year, in spite of a clear commitment to hold down sales in support of the food trade embargo—an extra 90,000 tonnes, using back-door techniques and, it is suggested, using Third world countries to get it into Russia. That revelation has to be taken with the recent report that, at home, Eton College received subsidised butter at half price—40p for a 250g pack. How can that be defended when we have nearly 130,000 tonnes in stock? Our pensioners and unemployed people with large families pay the Common Market price which the right hon. Gentleman negotiated. We pay a subsidised price, but even that is causing falling consumption at home. What a farce that Moscow and Eton come before our pensioner and unemployed. It is no wonder that the Common Market is criticised so much and so often.

It is possible that this will be the constant nature of the beast. Perhaps we shall have to live with this continuous conflict, with a periodic scarring of the face of the Community caused by its own members and, worse still, showing that face to the rest of the world. I hope not. I do not share that view. This year's agriculture price proposals, and particularly the paper reflecting on the CAP policy, shows that the Commission is of the same mind.

Mr. Gundelach's last act was to have a retrospective analysis prepared to encourage changes in the CAP that would introduce fresh ideas into the annual review and be a forerunner to the major study of CAP reform called for by the Council of Ministers on 30 May 1980, and to be ready for ministerial discussion by the end of June. This will be the first major opportunity for a British input into the make-up of the CAP, occurring, coincidentally, at the same time as the enlargement of the Community.

With the entry of Greece, then Spain and Portugal, there will be quite a transformation. The population will increase by 20 per cent. The agriculture work force will double. Indeed, there will be a 50 per cent. increase in the Community's fishing fleet. In view of the type of agriculture that the Common Market will have to absorb, particularly that of the Mediterranean countries, I hope that we shall not go through another phase of agriculture policies operating against us, as has happened since the accession, because of the structural difference between our farming and that of our Continental neighbours. This time, therefore, and this year, there must be a serious reform of the CAP.

In that context, the Gundelach paper is most honest and revealing. It criticises the open-ended or open-handed guarantees to increase production. It criticises the fact that there is no control over output. It criticises the surpluses that are created and the resultant dumping at subsidised rates on the Third world markets. It registers concern that the support arrangements of the CAP have unduly benefited the larger producers. Indeed, experience has shown that because of national social reasons and periodic political interference by member States national subsidies have been given, particularly blatantly in the case of France.

Most worrying and noticeable is the admission that the operations of the CAP have widened and not reduced the gap between the richer and the poorer nations of the Community, and that those differences increased during the 1970s. Generally, the richer Community regions produced cereals, milk and sugar, and received more financial support than areas producing fruit, vegetables and wine. The report says that not enough attention has been paid to areas with economic and natural handicaps. No doubt that will be a major issue in recasting the CAP when the three Mediterranean countries are fully involved.

One final criticism that the report makes of the CAP is about the disproportionately large share of the common agricultural policy budget—over 70 per cent.—and the tendency to retard the development of other common policies. The report says that it is well known that the Community's expenditure is now approaching the limit of its resources in their present form, and the CAP must take account of that.

The Government reaction to the Commission's reflections on the CAP has been to give them a qualified welcome. They agree that the Community can no longer afford open-ended guarantees for agricultural production at their present levels. If the extension of co-responsibility is agreed—that is, the principle of producer financial coresponsibility—and if the measure is intended effectively to cut the budgetary cost of the CAP and help to correct the imbalance of supply and demand, that, too, would receive the Government's support.

The Government have now stated their position. They oppose the creation of structural surpluses. They say that they will not favour any measures designed to discriminate against larger producers by reducing their unit returns. From the point of view of the United Kingdom, with its larger, efficient units, that is a logical view to take. However, the Government must be held to their proclaimed view, and the unanimous declaration of this House which, on 20 March last year, stated that the Government's intention is to seek an agreement which is aimed at reducing the production of surpluses and the cost of the common agricultural policy".—[Official Report, 20 March 1980; Vol. 981, c. 651.] That must be a continuing commitment.

I turn to the price review. Some of the irritants which might bedevil the negotiations are—subject to Italy's agreement, if it gets its sugar quota—being removed. Some credit must go to the Minister for that. The butter quota for New Zealand is agreed for the next two years. The sugar quotas for the Common Market poducers are settled for the next five years. However, I fear that the sugar mountain will be recreated in that time.

Extra financial assistance is to be given to the farming communities in Northern Ireland and the Western Isles of Scotland. The Minister must constantly bear in mind the plight of Northern Ireland farmers. They have never benefited as much as their southern neighbours. The Minister must strive for more benefits for Northern Ireland farmers.

There must be a recognition of the farmers' plight in the main negotiations. Manufacturing industry in the United Kingdom is already going bankrupt. Farmers are in great difficulties. Many are involved in misery, borrowing from the banks just to live.

In recent years inflation, rising oil prices and the increasing costs of machinery, fertilisers and cereals have been made much worse by high interest charges. That combination of factors is hitting farmers hard. Price rises are inevitable. It is right to save the biggest and most basic industry in the United Kingdom. The question is: at what level should it operate?

Throughout the Common Market food prices have risen less than the average inflation rate. That is not generally appreciated by critics of the Common Market but it is essential that that should remain so. It is also essential that the Common Market budget should be kept under restraint.

The National Farmers Union and the European farmers union, COPA, want a 15.3 per cent. increase in average prices. The Commission recommends 7.8 per cent. It resembles old-fashioned collective trade union bargaining. The employer wants the minimum and the employee the maximum. In this case the Commission is fighting the farmers and the Agriculture Council is the haggling arbitrator. The problem of this year's package of proposals for Common Market prices was described in The Times recently as an ingenious attempt to reconcile two essentially conflicting objectives. The conflicting objectives are the demand by the farmers for a considerable rise in prices to offset a Community-wide fall in real incomes and the need to restrict Community spending on agriculture to avoid the possibility of the Community going bankrupt and to release a greater proportion of the Community budget for non-agricultural spending such as on the regional and social funds. That the conflict has to be resolved is undeniable. Whether the proposed package or, more important, the final settlement, will resolve the conflict, is doubtful.

Mr. Hugh Dykes (Harrow, East)

Does the right hon. Gentleman therefore suggest that the European Parliament proposal for a compromise 12 per cent. increase is appropriate?

Mr. Mason

No. That is too broad a generalisation. How would a 12 per cent. increase affect butter, sugar, milk, beef and veal? One must consider all the items. That is why it is not possible, even in the debates prior to the package being determined, to go into detail. Many prices will change. Everybody knows that the 7.8 per cent. increase will not be accepted. On previous occasions the prices have risen, but we do not know to what extent they will rise this time. It is interesting that the Agriculture Committee of the European Parliament denounced the 7.8 per cent. and called for a much higher figure.

Mr. Colin Shepherd (Hereford)

The right hon. Gentleman has expressed concern about the depression of incomes in the farming industry. Is he aware that the farming industry is anxious to know where the Labour Party stands on incomes for next year? Will he enlarge on his attitude to MCAs?

Mr. Mason

I shall deal with MCAs when I deal with the green pound and the revaluation of the MCAs. I do not duck that issue. Because we do not know what the average price rises will be—we know that they will not be as low as 7.8 per cent.—it is not possible to put a figure on the revaluation of MCAs.

The major elements of the package are price increases ranging from 4 per cent. to 12 per cent. for the various products, with an overall average increase of 7.8 per cent.; a strengthening and extension to a wider range of products in the co-responsibility system; and the proposal to phase out green currencies with Britain being asked initially to revalue the green pound by 5 per cent.

The Commission estimates that the package will raise consumer prices in Britain by more than 2½ per cent. That will be offset to a certain extent by the proposed 5 per cent. green pound revaluation. Commission proposals have a reputation for being rejected by the Council of Agriculture Ministers, almost on principle. There is no reason to believe that this package will be treated differently. Early sounding of the Ministers suggest that the final average price increases will be much higher than the proposed 7.8 per cent.

The most striking aspect of the proposed price increases is that there will be increases in the price of products in structural surplus. It would be folly to encourage still further increased production of goods with which the markets in the Community are saturated and for which the only outlet is dumping on the volatile world markets. The recent but temporary upturn in the world price of sugar has given the Community a short respite and eased the immediate threats of bankruptcy, but the long-term view, with the fear of sugar mountains, is not encouraging.

Mr. Robin Maxwell-Hyslop (Tiverton)

Does the right hon. Gentleman apply the same argument to coal? Does he think that there should be no increase in the price of coal while that is in surplus?

Mr. Mason

Is the hon. Gentleman referring to the coal mountains in Britain?

Mr. Maxwell-Hyslop

Yes. I asked the right hon. Gentleman a straight question and I want a straight answer.

Mr. Mason

Is the hon. Getleman unaware that coal mountains are paid for by the consumer and the Coal Board, which stocks the coal? The complaint about stocking coal is that we have to pay for it ourselves when it is subsidised in Community countries. That is the unfair competition. We are paying for the stocking but we do not have the benefit of subsidies on stocking as do our European counterparts. It is not a fair analogy.

The Community is aware of the damage that has already been done to its heavily tarnished image. The Community has sought to improve its standing by reducing the scandalous size of the food mountains. In the recent past it has made great efforts to cut back surplus stocks. Yet, in spite of its efforts, at the end of last year the Community still had massive stocks of surplus produce. It had 268,000 tonnes of beef, 141,000 tonnes of butter, 232,000 tonnes of skimmed milk powder, 5 million tonnes of wheat, 1,100,000 tonnes of barley and 500,000 tonnes of rye.

I recognise that there is always the possibility of producing surpluses of products in the Community. Would it not be wiser for the Community to reduce the real level of intervention prices so that they cease to act as guarateed wholesale prices for all that a farmer is able to produce? We have demanded that the prices of products in surplus should be frozen until the structural problems are eliminated. During last year's review the Minister supported the Labour Party's policy of a price freeze on products in surplus. The structural problem is not less severe this year, and we are concerned that the Minister is likely to go for a higher price than even that which the Commission is recommending.

The success of the Commission's package is dependent on its ability to persuade the 10 Agriculture Ministers to accept the co-responsibility proposals. The Commissioner, in explaining the proposals, stated: If output exceeds certain quantities, the producers are subject to share the financial burden of disposal of these surpluses. There are a number of variants. However, the differing rates for A, B and C sugar quotas did not restrict production and were an extra burden on the taxpayer and the CAP budget.

The Commission has proposed a continuance of the 2 per cent. flat rate tax on dairy production with a new super tax of 30 per cent. on production that exceeds the average of the previous two years. Co-responsibility is to be extended to other sectors. There will be a 1 per cent. tax on each 1 per cent. of cereal production over fixed ceiling up to a maximum tax of 5 per cent. Co-responsibility is to be introduced to beef and veal by restricting intervention to certain types of animal and to certain times of the year. It is also proposed to extend co-responsibility to tobacco, olive oil and fruit and vegetables.

Co-responsibility has operated in the sugar sector for some time through different prices for various quotas. That should be proof enough that it is not a solution to the CAP structural problems or to the Common Market's budgetary mess. What a mare's nest. The major wrangle over all these proposals is likely to delay the review. We must stress, however, that any co-responsibility measure must have as its main objectives a cut in the budgetary cost of the CAP and a correction of the imbalances between supply and demand. That means that it does not operate on the basis of price increases alone.

Positive MCAs, especially of 14 to 18 per cent., are taxing our food imports and causing the food price index to be about 3 per cent. higher than necessary for most families.

Mr. David Myles (Banff)

What is the level of positive MCAs now, bearing in mind the recent change in currency rates in Europe?

Mr. Mason

In the next 24 hours the positive MCA of the United Kingdom will be falling further while those of some other European countries will be rising. This might be of benefit to the Minister when he considers revaluation. However, it will not be to the benefit of farmers. The other member States that have negative MCAs may be able to use the change in currency rates and its effect on the green pound as an argument for further devaluation, and thus help their farmers.

High positive MCAs of 14 to 18 per cent. are having an effect on our food imports. They are causing the food price index to be about 3 per cent. higher than necessary for most families and are swelling the Community budget. The positive MCA acts as a supplementary levy on food imports from third countries alongside the ordinary import levies, both of which are paid into the Common Market budget as part of our own resources.

In intra-Community trade the positive MCAs are collected by Customs and Excise and paid into the intervention board to defray the cost of operating the CAP in the United Kingdom. That means that our receipts suffer. The adverse effect of positive MCAs is partly to increase the United Kingdom's gross contribution to the budget and partly to reduce our receipts.

We have, therefore, eased the problem of the Common Market and enabled it to avoid hitting its budget ceiling. We have slowed down the urgency and drive for CAP reform. Over the period of positive MCAs we have forced our consumer to pay higher food prices. We have undermined the budgetary deal that the Prime Minister achieved and we have helped to fuel inflation at home.

One can argue whether there is a dear food policy and whether that benefits the farmers. However, the farmers could have benefited, with an 18 per cent. positive MCA, by up to £500 million in one year.

I do not think that the Minister will be able to resist the pressure for a percentage revaluation if average prices rise in the review much beyond 7.8 per cent. I noted that the right hon. Gentleman said, in terms of the present proposals, that he would not agree to a massive revaluation. How are we to strike a balance? I have always suspected that the Minister has resisted demands for revaluation to enable him to use that resistance as a bargaining counter in negotiations. I recognise that the 6 per cent. devaluation of the Italian lira and the currency adjustments that have coincided with it may have eased the right hon. Gentleman's revaluation problems. Those factors have had a subsequent effect on European currency units and on positive and negative MCAs.

The United Kingdom MCA could fall by about another 2 per cent. In the past three weeks we could well have seen it fall from 18 per cent. to 12 per cent. The Minister might rightly say that the Commission already has what it wanted. We must wait to see whether prices rise by 7.8 per cent. on average and whether there are further demands made for revaluation.

One factor that flows from the devaluation of the lira and the currency adjustments is that some countries will have an increase in their negative MCAs. They will have the opportunity to devalue and to give their farmers added benefit. That may curb some of the wrangling over price increases. That is why the press is commenting that it believes that the Minister and the Council may be able to make quicker progress on price proposals this year than in the past.

We want the Minister to take into account the fact that the problems of the farming industry that are caused by the present economic climate and his Government's policies should not be solved at the cost of long-term consumer interests and the interests of the whole community. If major price rises are agreed—no doubt they will be higher than 7.8 per cent.—and if there is no revaluation, the United Kingdom's consumers will bear the full cost of the increase.

It is not only the Opposition who call for some revaluation, for the Minister to take notice of consumer request and for him to take a consumer interest. United Kingdom consumers call for it, as do European consumers, the Agriculture Committee of the European Parliament, the Food Manufacturers' Federation, the food and drinks industries, the United Kingdom Provisions Trade Federation and the Canned and Preserved Food Importers and Distributors. There might be something in it for those organisations but, after all that clamour, if there were a revaluation we should expect to see it reflected in food prices at home.

Mr. Peter Walker

Basically the right hon. Gentleman makes a strong attack on positive MCAs. However, I am still not clear about his position. Is he saying that with the current proposal of a 7.8 per cent. increase the Opposition would be opposed to any revaluation of the green pound?

Mr. Mason

I have made my position clear enough. I am asking the right hon. Gentleman to bear the consumer in mind and to have regard to his views when he goes to Europe. I have said that we consider that the green pound should be revalued to reduce prices to the consumer and to boost consumption at home, which would help the farmers too.

Mr. Peter Walker

rose——

Mr. Mason

I know that the Minister argues against that proposition, but we believe that consumers should get some benefit. We have had an 18 per cent. positive MCA and there is no doubt that consumers have suffered. The right hon. Gentleman has always argued that the benefit would not be passed on and that it would be taken through increased profits by the companies that were importing. The simple answer to that is that we should let in trade and see what happens.

Mr. Peter Walker

The right hon. Gentleman's Government tried, and had negative MCAs. The price of food rose twice as fast as it has done under this Government. With the 7.8 per cent. increase in prices, is the right hon. Gentleman in favour or against the revaluation of the green pound? The farmers in this country want to know.

Mr. Mason

I spelt out our position and the right hon. Gentleman understands it full well. He has never had the consumer in mind during his two years as Minister of Agriculture, Fisheries and Food. Throughout his term he has devalued, moved to positive MCAs and considerably helped the farmers at the expense of the consumer. We cannot put a figure on a revaluation because we do not know what average price rise will come out of the review. The right hon. Gentleman knows that too. Although he has resisted revaluation of the MCAs he has always said that it would not be passed on. He has the chance to prove it. Let us put all the people to the test. The right hon. Gentleman has the opportunity, let him do so.

The Commission's package is wholly unacceptable as a reform of the CAP. It does nothing to solve the underlying problems of the CAP. Its acceptance might disguise the need for fundamental reform. It might delay us in getting on with the inevitable. This year there must be some fundamental reform of the CAP. Far from easing the Community's budget problems, it might induce more severe problems. It does nothing to ease the current plight of British farmers or to solve the underlying problems of the CAP, because it leaves the solution of structural surpluses with its ill-conceived co-responsibility policy. At the same time, it goes back on its policy of the last two years by sanctioning price rises for those products in structural surplus. The package does nothing to shift the balance between northern and southern products. It does not tackle any of the many problems of the CAP, as the Gundelach papers suggested.

As a result of the Tories' general economic policies, Britain's farmers suffered a massive drop in real income of over 20 per cent. last year despite agricultural production rising to its highest level. The inflated value of sterling caused the price of many inputs to rise disproportionately, while high interest rates added an increased burden.

The recent Budget did nothing for the industry. While the cuts in MLR might help the industry to the tune of about £50 million annually, the increase in petrol tax will be crippling. Farmers, farm workers and rural communities will be badly hit by the 20p a gallon increase in petrol duty and the increased road fund licence. All the organisations serving agriculture, including road haulage to and from the farm, will be affected. Higher costs will be passed on to the farmers.

The National Farmers Union may spend time trying to persuade the Prime Minister and the Minister of Agriculture, Fisheries and Food to get the Council to agree to higher Common Market prices. They should instead be urging the Government more strongly to rethink their general economic policies and to bring down the rate of exchange to a more realistic level. They should he urged further to reduce interest rates and increase public expenditure, especially in rural areas, and they should be urged to take measures to reduce unemployment.

It is only in the context of a revitalised economy that Britain's agriculture industry will be pulled from its slump. This year's review will not solve the industry's problems. It will necessitate a major change in Government policy. Therefore, the NFU should use its massive lobby to change those tight economic policies, because the palliatives of price review will not stop the rot.

5.26 pm

Mr. Peter Mills (Devon, West)

For once in my life, I am almost speechless. Over many years I have listened to agriculture debates. I may not hear many more. However, the speech made by the Shadow Minister, the right hon. Member for Barnsley (Mr. Mason), takes the biscuit. It was extraordinary that he never faced the facts and the difficulties of British agriculture and the consumer and of being in the Community. That was where he utterly failed. His speech was an extraordinary attempt to wriggle and not to face facts. Many people want to know exactly what is the view of the official Opposition in these difficult circumstances. We have not heard it. The right hon. Gentleman was bowled out middle stump by my hon. Friend the Member for Tiverton (Mr. Maxwell-Hyslop). It was a beautiful ball, and there was no answer from the right hon. Gentleman.

British agriculture is in a difficult position. The price review is crucial for it, and therefore for the consumer, for the processor and for all who work in agriculture and its food industry. The figures point to a serious position, although, to be fair and honest, it must be said that many farmers are still doing reasonably well, particularly those who are growing cereals and who do not have a heavy burden of large overdrafts, and so on.

Inputs have increased sharply. Some are due to worldwide factors beyond the control of the Government. However, there are some areas in which the Government could help. I refer particularly to the increase in fuel costs and petrol. It is not always possible to recoup everything from a price review. We must carefully consider the input and Government policy on those matters.

Unless recoupment starts, production will continue to fall. I can envisage the time when in some areas, such as in Scotland and some of the poorer areas of farming in Wales and in the South-West, many fanners will go back to the dog-and-stick era. That is not good in the long run and it is certainly not good for the country as a whole. It will be of no benefit to the housewife.

Perhaps later the Opposition will give a clearer picture of what they would advise or encourage the Government to do. What would they do about revaluation? A marvellous smoke screen was put up, with phrases like "We do not know this" and "That might happen". We should like to know whether the Opposition would revalue. We should like to know about end prices, which are crucial.

Mr. Maxwell-Hyslop

The right hon. Member for Barnsley (Mr. Mason), only a few weeks ago at Question Time, pressed for a 5 per cent. revaluation. Unless he disowns that request we are entitled to assume that he still stands for 5 per cent. revaluation.

Mr. Mills

I was hoping that the right hon. Gentleman would make his position clear. Farmers would like to know.

Mr. Douglas Hogg

My hon. Friend is right in saying that the right hon. Member for Barnsley (Mr. Mason) has put down a smokescreen over revaluation, but he stated clearly that he would freeze institutional prices for products in structural surplus, which include cereals and milk.

Mr. Mills

Exactly. That was one clear fact that emerged from his speech. It would mean no increase in the price of milk or cereals—and I hope that all dairy farmers are listening. Workers in the milk plants in the South-West will be interested to know that the Labour Party does not want a reasonable increase in milk prices to cover increased costs, which will result in more people being laid off and less milk. I can foresee a great movement from the Labour Party to other parties in my part of the world.

Mr. Hogg

Where are the other Opposition parties?

Mr. Mills

I shall come to that.

Mr. Mason

I have never in my life heard anything so pathetic. Get on with the debate.

Mr. Mills

We have exposed the nonsense of Labour policies on agriculture. My right hon. Friend is keen to have advice and help and to have the House behind him. It would be interesting to know the Liberals' view.

Mr. Hogg

Where are they?

Mr. Mills

Where are the Social Democrats? Will the Lib-Lab pact continue? Does agriculture not mean anything to those parties?

Mr. Colin Shepherd

It would be easier to find out if the Liberals or Social Democrats were present.

Mr. Mills

That is right. We wait with bated breath to hear what the Lib-Lab pact will produce for British agriculture. The new party shows a lack of interest by its absence.

Turning to the price review, I should like to see nothing less than 10 per cent. or perhaps 11 per cent. overall increase and certainly no revaluation of the green pound. The beef premium and the butter subsidy should continue. School milk aid should be increased. Only the super co-responsibility proposals are suitable. They would be to our benefit and would penalise countries producing excess milk.

Mr. Mason

It would mean a 5 per cent. increase in food prices.

Mr. Mills

What I have said is in the interests of British agriculture, the consumer and the country. We have not had similar suggestions from the Opposition.

My right hon. Friend is right to place emphasis on end prices in the livestock sector. A serious imbalance is developing in British agriculture. Less and less stock is being produced and more and more cereals. We are almost dividing the nation into those who grow cereals, which are still fairly profitable, and those who seek to produce livestock, which is not so profitable. I back my right hon. Friend's desire to correct the imbalance.

Mr. Stanley Newens (Harlow)

The House has considerable respect for the hon. Gentleman's knowledge, but he is making a cheap, knockabout speech. Does he not recognise the responsibility that he and his colleagues have for the difficulties, because they voted for entry to the EEC and for acceptance of the CAP. What right does he have to attack people who have consistently opposed the policies and who have been proved right?

Mr. Mills

I have heard that gramophone record many times. It is a bit cracked.

The package deal that the Irish Government are seeking would be unfair to Northern Ireland. I hope that my right hon. Friend will watch it closely. If a special package for beef producers comes about, Northern Ireland must be included.

National aids are a major problem. France's cheating is doing untold damage to the Community and its agricultural policies. I hope that my right hon. Friend will continue vigorously to try to put a stop to them. In the Conservative Back Bench committee on agriculture we yesterday listened to the French representative's arguments. He made it clear that France would continue to support its agriculture, just as we support British Leyland and other industries. However, the difference is that nearly all agricultural products are paid for, which is not so with kettles, wheels, cars, and so on. National aids are severely distorting and upsetting the CAP.

British agriculture has a problem with bank commitments and overdrafts. I understand why interest rates have been high, but my right hon. Friend must carefully consider agricultural credit, which would not take too much time and energy. Farmers' indebtedness to banks has risen alarmingly. A review might help, particularly in considering whether we should change to subsidised interest rates instead of capital grants.

Mr. Dykes

Does my hon. Friend agree that many senior bankers consider that interest rates should be even lower?

Mr. Mills

That would be extremely helpful to farming interests.

Because of the cost of supporting the sheepmeat regime, the Community may have a large bill to find. Unless there is an adjustment in clawback, the cost to the Community in supporting the deficiency payment system will be enormous. That matter must be vigorously pursued. I wish my right hon. Friend all the very best in seeking a small reduction in the clawback when we export our lamb to the Community.

This has been an interesting debate, in that we have heard clearly what my right hon. Friend intends to do and the policies that he wishes to see pursued. In my own small way I have made clear where I stand with regard to the price review. Regrettably, we have had no statement from the Opposition to take back to our constituents to tell them that that is what they would do if they were in power. I am glad that a Liberal Member has returned to the Chamber. I believe that men are searching up and down the Corridors of the House to find a Social Democrat to give a view on agriculture, but that may take a long time.

This is an important debate. Many farmers are watching and waiting, and wanting to know. I wish my right hon. Friend every success in the negotiations in Brussels.

5.41 pm

Mr. Douglas Jay (Battersea, North)

I am always glad to agree with the hon. Member for Devon, West (Mr. Mills), having been a habitué of West Devon even before he was.

Mr. Peter Mills

Oh, no.

Mr. Jay

As I knew the area well in 1912 and 1913, I think that what I say is probably correct.

Mr. Peter Mills

I apologise to the right hon. Gentleman. I was not there then.

Mr. Jay

I rather suspected that the hon. Gentleman was not. There is no need for him to apologise, however, as I was about to assure him that I entirely agree with what he said about both the Social Democrats and the French.

The hon. Gentleman and his hon. Friend the Member for Tiverton (Mr. Maxwell-Hyslop) referred to coal. Some people might welcome it if the EEC Commission were willing to buy all the coal produced by the NCB at a high price, whether or not any consumer required it, and if, in addition, the Germans were prevented from buying Polish coal at a price lower than that laid down by the EEC Commission.

More seriously, however, I welcome what the Minister of Agriculture, Fisheries and Food said today about British farming. Such criticisms as I have are not of British agriculture but of the CAP. I prefer not to get tied up with green pounds, MCAs and the rest of these crazy short-term devices, but to stand back a little and direct attention to the cost that the CAP is now inflicting upon the British economy, as compared with our previous system of deficiency payments.

The EEC Commission now proposes still further price increases, averaging between 6 per cent. and 12 per cent. Whether one agrees with it or not, it seems that the principle of no further price increases for commodities in structural surplus, which was promised to us, has now been abandoned not merely by the Commission but by the Minister and the British Government. But that principle was about the only morsel of reform in the CAP that was repeatedly promised to the British public.

A rise of 6 per cent., 9 per cent. or 12 per cent. in food prices may not sound much, but it comes on top of the large excesses in EEC prices of some 50 per cent. to 300 per cent. over world prices. That amount is added to what the British consumer would have to pay if we were supporting agriculture by deficiency payments rather than by the present extreme form of agricultural protectionism.

The EEC Commission's own report on agriculture last year has not been quoted by the Minister. It contains the latest, extremely revealing figures on the excess of EEC food prices over the world prices for 1979–80. It shows that EEC wheat prices averaged 63 per cent. above world prices, and that barley was 61 per cent., maize 90 per cent., sugar 31 per cent., beef and veal 104 per cent.., and butter 311 per cent. above world prices. Those are the EEC Commission's own figures. They are the background against which we should judge some of the changes this year and last year and those now proposed. It is not much comfort to be told that prices will rise by only 3 per cent., 4 per cent. or 6 per cent. if they are already 100 per cent. higher than the prices that one would pay if we were able to buy freely on world markets.

It is sometimes said that food prices would not be lowered by percentages anything like those if this country were outside the CAP and the Common Market and returned to a deficiency payments system, because, it is said, our demand on supplies in the non-EEC world would tend to raise world prices. That is a pure delusion. If the United Kingdom bought more food from non-EEC countries it would buy approximately the same amount less from the EEC. The EEC surplus, which would be greater to the same extent, would have to be sold on the world market, thus depressing world prices. There is therefore no sound reason to expect that world prices would be substantially different.

Mr. Douglas Hogg

Perhaps the right hon. Gentleman will help me on this matter. I have listened to his argument with considerable interest. If we were exposed to world prices in the way that he suggests, and if the figures that he quoted are correct, the British farmer could not compete at all and would be unable to market any of his products. If that is so, would not withdrawal from the Common Market be wholly disastrous for British agriculture?

Mr. Jay

Surely the hon. Gentleman understands that the farmer would receive a deficiency payment which would raise his returns from the level of world prices to whatever guaranteed price the British Government chose to select. The hon. Gentleman speaks as though he has never heard of that system.

Mr. Hogg

I am very glad to hear the right hon. Member make that point. It suggests that the cost of deficiency payments to the British Treasury would be astronomical.

Mr. Jay

Not at all. The hon. Gentleman seems unaware of two things. Deficiency payments would relate only to food produced in the United Kingdom. They would not raise the price of all the food bought by the British consumer. [Interruption.] If the hon. Gentleman persists in asking questions, I must ask him at least to listen to the answers. Secondly, he appears to be unaware that deficiency payments are not paid across the exchanges, so there is no balance of payments cost.

Last summer, in a written answer, the Minister himself estimated the extra amount that the British public at the retail stage now have to pay for food as a result of our importing food at EEC prices rather than at world prices. He put the figure at about £3,000 million per year. That is about 20 per cent. of this country's total expenditure on food at the retail stage before the increase. As that applies to all foods, the increase as a percentage of CAP food prices must be greater. I judge that to be a fair estimate. It is not surprising, as the levies now being imposed on imports represent a tax of 100 per cent. or more on certain commodities.

Mr. Dykes

Is the right hon. Gentleman not in danger of misleading the House, at least slightly? That official answer was based only on the assumption that the foodstuffs would be alternatively available at world food prices. However, that was not conceded as a reality. As the right hon. Gentleman and other hon. Members know, the amount of foodstuffs available at the world market price is small. Most of those foodstuffs are based on long-term contract arrangements or medium-term contract arrangements at much higher prices. Should not the right hon. Gentleman make that point clear before misleading the House?

Mr. Jay

I have just explained to the hon. Member for Grantham (Mr. Hogg) why that is not true; the hon. Member for Harrow, East (Mr. Dykes) cannot have been listening to the point that I made.

In the past year, farmers' costs have risen in money terms. If agriculture is to continue, farmers must be compensated for that either by deficiency payments or in some other way. That is not in dispute.

Mr. Dykes

rose——

Mr. Jay

But we are not so often told that the increase in farmers' costs is largely due to EEC levies on feeding stuffs—notably maize and barley—which are imposed by the EEC itself. Under the deficiency payments system, the British farmer could buy barley and maize at the world price. According to the Commission, he now pays 61 per cent. more for barley and 90 per cent. more for maize, which are two of the most important feeding stuffs used by British agriculture.

According to document 5091/81, that is what the Commission calls, in Euro-jargon, a fresh spiralling of input prices". In plain English, that means a further rise in the EEC price of maize and barley.

Not content with that, in its earlier document 12271/80—the so-called "reflections"—the Commission proposed a reform in the CAP by calling for more controls over imports of certain animal feeding stuffs". It is thoroughly characteristic of the Commission's attitude that in the guise of a solution it should propose a further turn of the screw of agricultural protectionism, which is bound to make things worse by making feeding stuffs even more expensive for the British farmer. Again in plain English, it of course proposes this, because the French produce a great deal of maize, whereas we do not.

The hon. Member for Devon, West mentioned the French. I should like to quote an almost comically revealing sentence from Commission document 12271/80: Would France have agreed to high prices for cereals and sugar if it had had to meet the expenditure itself? The answer is clearly 'No. I heartily agree. It is a revealing comment.

I can also quote a fine example of the effect of these high grain prices on my own constituency. Up to three months ago, Messrs. Gartons employed 600 workers who manufactured starch and glucose—the Minister referred earlier to our wonderful food industries—out of maize, which for more than 50 years had been imported direct at the world price from the United States. As one of the blessings of Common Market membership, the EEC imposed a 100 per cent. import tax on maize. After a considerable struggle, production at Gartons became uneconomic, and the plant was closed down last December, throwing another 600 people out of work.

Inevitably, as a result of these policies, prices are to increase further all along the line. I notice that maize and barley are scheduled to rise further by about 6 per cent. or 9 per cent. this year. Next year we shall be told that other food prices must rise further because the cost of feeding stuffs has risen. That will go on as long as this system continues. Costs will always rise and will never come down. Indeed, the one thing which no one in Brussels ever suggests—it would be almost blasphemy—is that the price of anything should be reduced.

That is why what we have come to miscall "surpluses" have come into existence. Even now, we have a mountain of United Kingdom-produced grain of several hundred thousand tonnes stored in airfield hangars and elsewhere. It consists of wheat and barley that is too dear for consumers or farmers to buy.

Of course, those surpluses are not real surpluses, in the sense of being surplus to what people would like to consume if they could. We are not really producing too much milk in the world. They are artificial surpluses caused by the fact that the price is too high and consumers cannot afford to buy them, unless they happen to be the Soviet Government, who get them heavily subsidised.

The surpluses are created by the high price. It is a wonderful system when the Soviet Government, subsidised by the British taxpayer, can buy British-produced grain at half the price charged to the British farmer for his feeding stuffs.

Mr. Teddy Taylor (Southend, East)

Does the right hon. Gentleman accept that there is no evidence to suggest that the Soviet Government sell that cheap food at cheap prices to their consumers? They sell it in their State shops and make vast profits, which can help to finance the invasion of Afghanistan and horrible Soviet oppression throughout the world.

Mr. Jay

I would only add that a considerable amount of the profit goes to a certain French Communist millionaire, who acts as a middle man. I have forgotten his name, but he is a well-known character.

The thirteenth report of the Scrutiny Committee speaks of "unprecedented quantities of butter" being sold to Russia up to January 1981. According to yesterday's Financial Times, from which my right hon. Friend the Member for Barnsley (Mr. Mason) has already quoted, sales of subsidised EEC butter and butter oil to the Soviet Union rose in the year 1980 by 60 per cent. Is that true? It would be interesting if it were, because the invasion of Afghanistan occurred in December 1979. I find it hard to believe, even of the EEC, that its response to that invasion was to increase by 60 per cent. its export of subsidised food to the Soviet Union.

It is also typical of the Brussels restrictionist mentality that, faced with the so-called surpluses, the Commission proposes not lower prices but a "co-responsibility levy" which will be applied to a number of commodities. That is the Commission's main new constructive idea. However, the prices are too high for two reasons—because they encourage excessive production and because they reduce consumption. The co-responsibility levy certainly lessens the incentive to produce, but, unlike a lower price, it does nothing to encourage a higher consumption. I have no doubt that the reason why the Commission prefers the levy to a reduction in price is that the levy diverts the proceeds to the EEC budget rather than to the consumer. It thereby increases the resources and power of the Commission. But why not let the consumer—for once—receive the benefit of the proceeds, even if he does not live in Soviet Russia?

For all these reasons, the CAP has a serious effect on the British economy. The wildly excessive price that we must pay for our food imports burdens the balance of payments, raises retail food prices and the retail price index, intensifies upward pressure on pay rates and, as a result, damages the competitive structure of British industry in exporting and competing with imports. Every year it inexorably raises the total amount of EEC budget expenditure. Let us remember that the relief gained by the Prime Minister's recent renegotiation of the budget will continue only until 1982. This week's edition of The Economist reminds us of that point.

In the long term, the CAP will inflict immense and growing damage on the British economy. In addition, it is seldom mentioned that the United Kingdom no longer receives the relief that it used to receive from falling food prices in times of world deflation or recession. That was a major relief and was one cause—in 1932 and 1952—of the recovery in the United Kingdom's economy. But now food prices in the United Kingdom can no longer fall, no matter how deep the world recession may be. That is one reason why far more violent internal deflation is needed today—in comparison with 1932 or 1952—if we are to check the rise in the retail price index.

In the past year our prospects have further worsened. Despite all that the Minister has said he cannot deny that in the past 10 years we have been repeatedly promised that if we stayed in the EEC we would be able to reform the CAP from within. We have constantly been told that. This year, two developments have shown that such a prospect is little more than an illusion. First, the Government refrained from putting forward any proposals of their own for reforming the CAP. Secondly, the Minister has been forced to abandon—as is almost inevitable under this system—even the promise to resist price increases for goods in structural surplus. The Commission's own paper is described as "Reflections on the Common Agricultural Policy", but it is an apology for the CAP rather than a proposal for reform. Not surprisingly, this week' s edition of The Economist—which is not exactly an anti-Common Market journal—states: The price of backing non-reform now will be another British crisis next year. Next year, the present budget relief will come to an end.

It is therefore more obvious than ever that the CAP will not be seriously reformed in the foreseeable future, and as long as it is not reformed there is little prospect of full recovery for the economy of Britain.

6.3 pm

Mr. Colin Shepherd (Hereford)

I am grateful for having been called so early in the debate. I hope that the right hon. Member for Battersea, North (Mr. Jay) will forgive me if I do not entirely take up his points. He may recollect that I generally approach the subject of the EEC from the point of view that we should try to improve it rather than attempt to destroy it. Generally, the right hon. Gentleman's contribution was a veritable tour de force of destructive criticism. I accept that there is room for an enormous amount of improvement and that such improvement will not be made quickly. Nevertheless, we should apply our thoughts in that direction.

I am sorry that the right hon. Member for Barnsley (Mr. Mason) has left the Chamber. I should have liked to address my remarks to him. He is depressed about incomes in the farming sector. To say the least, his answers were elusive. When he replied to my intervention I wrote down "He is twisting and turning; nay, he is shadow boxing". We listened to a long exposition about his "position", which was as ephemeral as anything that one could imagine. The public would say that he gave a typical politician's reply. The right hon. Gentleman must have given some thought to the future of farm incomes. I hope that his colleague, the hon. Member for Edinburgh, East (Mr. Strang) will give us more of a clue.

The industry will be disappointed. The right hon. Gentleman drew attention to the high input costs that have been added to the industry from United Kingdom sources. He should bear in mind that one reason for those high costs is the inordinately high spending programme that was indulged in by the Labour Government throughout their period of office. If there had not been a change of Government the public sector borrowing requirement would probably amount to about £23 billion. Only 10 days ago the right hon. Member for Stepney and Poplar (Mr. Shore) asked for a further increase—over and above the Chancellor's increase—of £4.5 billion. That would have appalling consequences for the community. It is wrong to call for more public expenditure. We should be thinking in terms of less public expenditure.

If the right hon. Member for Barnsley reads the report of our debate he may like to accept an invitation that I should have given him personally if he had been in the Chamber. I invite him to come to my part of the world and look at some farmers' books. I wonder what he would then have to say about farm incomes and the prospects for agriculture in Britain. I shall refer to Herefordshire, because I represent that part of the world. I make no apology for representing my constituents as best I can on such an important matter. However, the purpose of the debate is to let the Minister take a sounding of the House before he goes to Brussels for the next stage of the negotiations on farm price policies.

In my part of the world the combination of agriculture and related industries is a major factor in the totality of economic life. The stresses that are being imposed by reducing farm incomes and investment are telling in an unfavourable way. In an area such as Herefordshire more people are dependent upon the general health of agriculture than probably realise it. If agriculture in the county were to collapse, or to take a nosedive, virtually everyone would feel it in one way or another, although probably fewer than the national average are directly employed in agriculture.

The country is predominantly involved in the livestock sector of agriculture, although there is a fair representation of all the other sectors. Therefore, we are interested in all the aspects of the settlement. This year's White Paper sets out a challenge to the Government. The figures set out in table 24 show the net incomes for different types of farms and reflect experience in Herefordshire and other parts of the country.

If the average drop in farm incomes is 10 per cent.—or 24 per cent. in real terms—the situation of the dairy, cattle, pig and poultry sectors will be that much more serious. Grain and the purely arable sector have not done so badly. There is stress in the livestock sector, particularly in Herefordshire. Indeed, Herefordshire is a microchosm of the country.

Ten days ago, at a meeting in Hereford, representatives of all the different sectors of agriculture came together. Auctioneers, farmers, machinery manufacturers, feedstuff suppliers, bankers and representatives of the chamber of commerce met to discuss what was happening on the agricultural scene. A regrettable tale of woe emerged—one that reflected quite accurately the none too encouraging story of the agriculture industry as shown in the White Paper.

Bank borrowing is on the increase. That is visible and measurable, but the auctioneers reported that they were acting as additional bankers. Credit was going up and they were carrying more and more paper from their customers. They suggested that the amount was increasing weekly. The feed merchants reported that they were facing the effect of a drop in livestock numbers and that their credit facilities were being more and more taken up. That is an increase in borrowing in another immeasurable sector. My hon. Friend the member for Devon, West (Mr. Mills) suggested that in his remarkable speech.

On another side, the abattoir operators reported an unacceptable squeeze on profitability, which was undermining their ability to stay in business. It can be of no benefit to a producer if there is only one abattoir in an area. He needs competition. The agricultural contractors reported that down times due to breakdown were becoming longer as spares were becoming too expensive for dealers to keep. Agricultural equipment suppliers told of dwindling sales and poor markets. That is the totality of the picture, and is what agriculture faces throughout the country.

At the end, there is the tie-in with the consumer. The representative from the chamber of commerce reported that trade in the city of Hereford was palpably being hit by the lack of prosperity in the farm sector. It spills over and is a fundamental fact.

I do not suppose that the city of Hereford and Herefordshire are different from any other agriculture area that has a leaning towards the livestock side of the industry. It is probably typical. However, it demonstrates the stress and the interdependence of the system between the producer of foodstuffs, the processor and the consumer.

I pause for a moment to congratulate my right hon. Friend on what he has done during the past two years to develop a better harmony between producers, processors and consumers. His marketing efforts have shown real results at a difficult time.

Hitherto, I have considered the balance to be rather too much in favour of the consumer. I give that as a balanced judgment, bearing in mind that in my constituency I have substantially more consumers than I have producers, but I must put it across as I see it. As consumers we have, nevertheless, a natural reluctance to spend more on food. There is the stress. The Minister wears both hats, as a producer and a consumer, and has to tread a delicate path of even-handedness between both. But failing to come to terms with the proper needs of the producer will have far worse long-term effects than will the short-term difficulty of an increase in the retail price index.

To put the matter into perspective, if the proposals of the National Farmers Union or of the Committee of Professional Agricultural Organisations were to be accepted in full—I am not necessarily saying that they should be—it would add about 1 per cent. to the retail price index. That may be too high for some, but I do not think that it is a massive increase. In the context of a decreasing change in the RPI brought about by other Government policies, it should be possible to sustain that kind of increase.

The motion recognises the contribution that agriculture makes to the national economy and the need to obtain adequate returns for United Kingdom producers. That must be a priority for the United Kingdom in the farm price negotiations. The contribution of the agriculture industry over the past few years has been truly amazing. There has been an increase in United Kingdom growable foodstuffs from 6.3 per cent. to 75 per cent. in 1980, but it has been achieved for dubious reasons. The continued squeeze on farm incomes has made it imperative to produce ever more, just to survive. That is a kind of whip technique, rather than a carrot. It is not a sound basis upon which to continue, because it saps the long-term confidence of the industry. I am worried that the price of that may be too high in the long term.

It is agreed that the contribution to the balance of payments in import savings is important and has been significant. It is a magnificent record, but the industry is now becoming too highly geared. That is demonstrated by the increase in bank borrowing, which is so alarming, and the utilisation of other sources of credit, which makes the system even more unstable. The country will not be well served if we overstress the system and cause a domino-effect collapse. That is taking it right to the end of the line, but I do not know how close we are to it. This year the emphasis must fall on the livestock sector in terms of the balance of settlements. Whatever final average figure the Minister negotiates, the weighting must favour the livestock sector, at least to the extent of halting the decline in real farm incomes and checking the increase in borrowing, also in real terms.

When the Labour Government were in office our livestock industry suffered badly from the effects of negative MCAs. These have been discussed. They assisted importers by undercutting United Kingdom production. Our pigmeat industry took a hammering from the Danes, the Dutch and the Germans, who increased their production to supply the United Kingdom market. I applauded the Conservative Government when they took office and grasped the nettle of green pound devaluation. They wasted no time about that. The effect was palpably not as forecast and there was not a massive increase in food prices as a result. Indeed, as my right hon. Friend demonstrated in his evidence to the European Legislation Select Committee, the greatest increases took place while there was the greatest green pound differential. He mentioned that earlier, and it is an important fact to take on board.

Now that the tables have been turned I want United Kingdom agriculture to have a chance to rebuild what it lost while MCAs were negative. It was not the farmers' fault that they lost the markets. They were doing their best, but against a 45 per cent. green pound differential they did not stand a chance and they lost. The present positive MCAs provide that opportunity. I urge the Minister to sustain his declared intention not to revalue the green pound as part of the package.

I concur with my right hon. Friend's assessment that a devaluation of the green pound will not necessarily lead to a corresponding drop in the food price index. I shall touch on the co-responsibility levies part of the package later.

In assessing the final level of percentage settlement, there is an additional element that I trust the Minister will take into account. Since the Commission published the first proposals the Chancellor has presented his Budget and has seen fit to seek to raise about £270 million from derv. I understand the Chancellor's dilemma. I mentioned it earlier. I have strong reservations abut the effects of that step because I feel that there have been a number of competitive pressures to keep price increases pent up, and those may now have been enabled to be released. There will be a surge in price increases, which will eventually find their way through to the consumer in an amount that will reflect the derv element in the product or service.

Apart from the consumer, the only sector that will not be able to recover its increased costs will be the farm sector. Those costs are set by the negotiations that we are discussing. That must be taken into account. Since we took up our first negotiating position there has been an additional identifiable element of cost on the bottom line, which must be accommodated. It is essential that the settlement should take that into account.

I have not left myself time to indulge in detailed comment on the interesting document "Reflections on the CAP", except to refer briefly to the cries of "Reform the CAP", which we hear so often during agriculture Question Time and debates. There have been few constructive suggestions about how the CAP should be reformed, even though it seems to be such a simple thing to shout about. The fact that we have not heard many suggestions shows that it is a complex matter to reform or reshape the CAP.

My right hon. Friend touched on one significant point this afternoon that should never be overlooked when proposals are suggested, namely, that we must take into account the means of transition between the CAP as it is today and the CAP as it may emerge in future. Failure to do that could cause tremendous damage to the structure of certain sectors.

There is a need to develop longer-term thinking—the right hon. Member for Battersea, North (Mr. Jay) set out to do that—to deal with the ever-increasing output of European agriculture. The co-responsibility levy concept is part of that, but it is symptom-bashing. It is, in essence, a short-term approach, which sets up more enormous stresses and worries, as we have seen. European and United Kingdom farm incomes have been squeezed, and the writing is clearly on the wall. In no time at all we can confidently expect to be a surplus producer of every commodity, and not only some. That underlines the need to tackle that matter.

The gearing will become even higher and we shall find ourselves on another crazy treadmill of producing ever more with ever higher inputs of energy, fertilizers, and so on. If we put pressures of price on one sector to discourage production, that displaced effort will find some other way to restore the lost income. I put forward no solutions to the problem, except to say that I do not see the totality of surplus production yet being taken into account in the consideration of the changes necessary to handle what we can produce in Europe. The potential is frightening. If France and Germany reach the output potential of Britain we shall have real problems. We must come to terms with that.

In its own quiet way the countryside of the United Kingdom has taken a similar pasting to that sustained by the urban areas. Because our countryside is so beautiful and ever different, that is not always apparent. In its own way, it understands the traumas shaking the big traditional industries and views them with considerable sympathy. With its quiet determination, the countryside will continue to play its successful part in the nations's economy.

The rural areas must not be taken for granted. The continued and sustained health of the countryside is an essential element in the revival of Britain. The danger signals are there and must be recognised. Remedial action must be taken. The time for that is now.

6.24 pm

Mr. Geraint Howells (Cardigan)

I declare an interest as a part-time farmer and vice-chairman of one of our marketing boards. Although I was not in the Chamber at the start of the debate, I am delighted to note that we have not heard any pro-Market or anti-Market speeches tonight. Like many hon. Members on both sides of the House, I hold the view that the position of our industry is serious. We must be constructive in our approach and not attack Opposition or Government Members with responsibility for agriculture.

It has never been disputed that agriculture in Britain is highly efficient, yet there is a serious recession in agriculture today that bodes ill for Britain if steps are not taken to rectify it. Hon. Members mentioned the steep decline in farm incomes in recent years. Let us consider some of the figures and the state of the industry. It is well known that farming income fell in real terms by 19 per cent. between 1978 and 1979 and by a further 24 per cent. in 1980—a fall of 43 per cent. in two years. That cannot continue. Bank borrowings increased by 30 per cent. to almost £3,000 million, most of the increase being needed by farmers to continue business.

The volume of total gross fixed capital formation in 1980 will probably show a decline of 10 per cent., with new investment in plant, machinery and vehicles falling by 23 per cent. Matters are serious in the industry. While producer prices increased by only an average of 6 per cent., farming input costs increased by an average of 14 per cent.

The net farm income position in Wales, as given in the official farm management survey, reveals a grim picture for 1980. Average net income for all dairy and livestock rearing farms taken together fell by 34 per cent. The net incomes of mainly dairy farms fell by 31 per cent., of low-land livestock farms by 35 per cent., of hill and upland mixed cattle and sheep farms by 45 per cent., and of hill and upland sheep farms by 58 per cent. Something must be done about that in the foreseeable future.

As a farmer myself I am only too aware of the difficulties—rising costs, high interest rates, and so on. I know that many farmers are having to borrow heavily to continue in business—not only in Wales but in other parts of the Kingdom. That borrowing does not represent investment in the farm; on the contrary, in a number of cases it means borrowing to pay off interest already accrued. I have been told that for some new entrants into the industry their interest charges amount to more than their total farm incomes.

In Wales, we are especally worried about the livestock sector. We are seeing a draining away of confidence, together with a serious decline in livestock numbers. The damage being done to our national herd is incalculable. Future production is bound to suffer and ultimately we shall have to rely even more heavily on imports. I am sure that hon. Members are aware that when agriculture suffers, so do related industries. The whole of the rural economy comes under threat.

Production costs have escalated seriously during the past couple of years. Britain has not been helped by the high interest rates that have prevailed. The most recent blow to farmers, together with other rural dwellers, has been the savage rise in petrol and diesel tax, which will inevitably have its knock-on effect on production costs and food prices. It is important that the Minister of Agriculture, Fisheries and Food should be aware of the industry's real worries. I am sure that farmers will have expressed their fears to him and his colleagues. I hope that he will take a clear message back to Brussels that British agriculture, because of our present economic difficulties, needs special consideration.

A 7½ per cent. increase in farm prices in this year's price review is not enough to prevent a further deterioration in the industry and will not even bring us back to the level of a few years ago. The Minister must insist on the higher increase, as recommended by the European farmers' organisation—COPA—of 15.3 per cent. Even this figure only brings us back to the 1979 level. As spokesman for the Liberal Party, I feel justified in supporting COPA and its demands for a reasonable increase of 15.3 per cent. Coupled with that increase, the Minister must resist the revaluation of the green pound. In our circumstances, it would depress farm incomes even further, put the United Kingdom at a definite disadvantage in relation to our European partners, and result in unfair competition.

The right hon. Gentleman must also resist the super-levy on milk production in the United Kingdom. This country has a good record in that sector and production went up by only 1½ per cent. last year. The Commission has proposed that co-responsibility levies should be extended to other products but I believe this to be unnecessary. The principle of co-responsibility levies should not be an instrument of control over farming activities as it would, in essence, discourage diversification in the industry.

The Government must display a positive attitude towards agriculture as one of our foremost and most reliable industries. They must never fail to realise that farming is vital to our efforts to reduce imports. The industry as a whole has an excellent record for efficiency and production. Through no fault of its own, it is going through a bad time and needs substantial support and encouragement so that it can compete on an equal footing with other European countries. Farmers must have money to invest and expand. It is the Government's duty to take steps to make this possible. Our interests must be safeguarded at all costs in Europe.

The sheepmeat regime has turned out better than expected. I hope that the Minister, in his wisdom, will try to persuade his counterparts in Europe to change the clawback system, which is having an adverse effect on our slaughtermen and slaughterhouses. I have already declared my interest as vice-chairman of one of the marketing boards. Many sheep farmers are worried about wool production during the coming year. I do not want the Minister to divulge the increase that will be given this year, but I should like an assurance that there will not be a decrease in the guaranteed price for wool this year.

The hon. Member for Devon, West (Mr. Mills) made an interesting point—it does not matter what he said about me before I came into the Chamber—about the capital grant scheme, which is of great importance to many people. Farmers in this country take full advantage of the scheme but farmers in Europe have cheaper, lower interest rates. I wonder whether the Minister would consider allowing farmers in this country to opt for either the scheme or lower interest rates. The suggestion is worth considering. I have been advocating for many years that the Minister should examine the possibility of setting up a land bank in this country to help young farmers. These farmers, especially the young entrants, need help.

Many hon. Members have blamed the Community for the state of the common agricultural policy. Many have urged that the policy should be reformed. I wonder, at this late stage, after Britain has spent many years as a member of the Community, whether it is not time to look at the method of selling surpluses. A child could sell butter to the Russians for 20p or 25p. It would be worth spending money on research to discover a better market for selling surpluses. The possibilities are great.

If British farming is to survive and responsibilities are to be shared with farmers in Europe, we shall have to co-operate—sooner rather than later. We should discuss our problems as they are debated in this Chamber. For the first time in the three or four years, I am delighted that hon. Members on both sides of the House are talking about the situation in this country without indulging in anti- or pro-Market speeches.

6.36 pm

Mr. Robert Hicks (Bodmin)

It is a pleasure to follow in debate the hon. Member for Cardigan (Mr. Howells). He brings a genuine knowledge to the House and inevitably speaks with much good sense. The content of his speech, delivered as spokesman for the Liberal Party, was in marked contrast to that of the official spokesman for the Labour Party, the right hon. Member for Barnsley (Mr. Mason). The hon. Member for Cardigan made clear where his party stood on the key questions of the amount of increase in prices for the various products and revaluation, unlike the right hon. Member for Barnsley.

It will be evident to the House and indeed to the country that for the past 12 months agriculture has had a difficult time. 1980 followed a difficult year, because 1979 was not a good one either. Irrespective of the criteria used for measuring the economic performance of our farming industry, the results can be described only as depressing. Farm incomes in Britain fell by 24 per cent. in real terms in 1980, compared with 18½ per cent. for the European Economic Community as a whole. Bank borrowings are up. They are estimated at almost £3,000 million in 1980—an increase of 30 per cent. over the corresponding figure for 1979. The level of investment in agriculture has fallen significantly. Whether we examine the investment in buildings, farm machinery or, most worrying of all, livestock breeding herds, we find that investment has fallen.

The fall in the size of the livestock herds is a source of great concern. As my hon. Friend the Member for Devon, West (Mr. Mills) said, there is a danger of an imbalance occurring between the livestock sector and cereals. One has only to travel between London and Cornwall, as I do, and look at the landscape from the train window to see fields that were recently pasture land being ploughed. That pattern is repeated throughout the United Kingdom. Areas which were automatically assumed to be permanent pasture land when I first became the Member for Bodmin 10 years ago are now being ploughed.

I was pleased that the Minister recognised the problems that could result from this imbalance. What he said confirmed the statement he made to the Select Committee on European Legislation a fortnight ago. It is important that, whatever is the final figure of the price increases, the largest increases should be paid to the livestock producer. The continuation of the suckler cow premium is welcome, although I doubt whether the proposed 8 per cent. increase is sufficient to meet the producers' increased costs.

I regret that the Commission has not proposed the continuation of the variable premium scheme for beef. It is an important component part of the support arrangements for beef. If the scheme is discontinued the smaller herds characteristic of West Country farms will be in considerable difficulties. I emphasise the need to retain this aid. It is important to the economies of the smaller farm units characteristic of the West Country, which are predominantly mixed but have an emphasis on livestock.

The Commission has proposed price increases for products varying between 6 and 12 per cent., averaging 7.8 per cent. The European farming unions have called for a 15 per cent. average increase. No doubt the eventual average figure will be somewhere between the two.

In coming to our individual assessment of the final figure we must not forget that the economic climate of the Community as a whole is far from healthy. The disposable incomes of the consumers are unlikely to grow much during 1981. We also have high unemployment. Therefore, whatever price is eventually agreed it must be pitched at such a level that its effect will not price the producer out of the market.

In that context there is a need to examine the composition of the input costs of producers. There are areas where our Government have a direct influence. Interest rates, thankfully, are beginning to fall, although some of us believe that they have not fallen sufficiently. Another area where our Government have a direct influence over input costs is in the price of fuel. I withdrew support from the Government over the Chancellor of the Exchequer's 20p increase in the duty on petrol and derv.

On one aspect of the Commission's proposals I am certain. The Minister must oppose any suggestion of a revaluation of the green pound. Given the serious deterioration in the level of farm incomes in the last two years, the Commission's suggestion that the average price increase of 7.8 per cent. should be offset by a green pound revaluation of 5 per cent. is totally unacceptable and must be vigorously opposed.

If it were to be implemented it would mean that the average farm price increase in the United Kingdom would be less than 1½ per cent. That would destroy confidence, jeopardise future domestic output and place our producers at a disadvantage compared with their European counterparts. We have only to witness the massive State aid programme in France to see the potential danger of France's production coming into our market if our producers have any unnecessary handicap placed upon them. It would also be harmful to our balance of payments position.

I was worried by remarks attributed to the Chancellor of the Exchequer, who was reported as seeming to favour in principle the Commission's proposal to revalue the green pound. I hope that the Minister and the Minister of State will be in no doubt of the feeling of Government Back Bench supporters that there must be no revaluation of the green pound, irrespective of the Treasury view.

The co-responsibility levy proposals cause me concern. It does not make economic sense to penalise the more efficient and successful producers. I am pleased to hear what the Minister said and I am sure that he will carry the support of the House and of the farming community in his determination to oppose any extension of co-responsibility levies which discriminate against the United Kingdom.

Finally, I make two general observations. I welcome the fact—to which the hon. Member for Cardigan referred—that this debate has not deteriorated into a discussion of whether we should remain within the European Economic Community. It is fashionable to attack our membership of the Community. It is fashionable for far too many people, both outside and in the House, to use Europe and our membership of the EEC as a scapegoat for our poor economic performance in other areas.

Mr. Nigel Spearing (Newham, South)

Does the hon. Gentleman agree that using the word "fashionable" implies that it is a done thing without any basis in fact or logic? The hon. Gentleman will know that many of us who opposed our entry and continue to oppose our membership have never used it as a scapegoat. Will he agree that the others who are now seeing it as such have good reason so to do?

Mr. Hicks

I do not want to enter into a discussion with the hon. Gentleman on the definition of the word "fashionable". I think that he understood the point that I was attempting to make when I used it. I resent people jumping on the anti-European bandwagon as a means of covering up our poor industrial performance, which has nothing to do with our membership of the EEC.

It is significant in the context of British agriculture that the level of United Kingdom farm support for agriculture in January 1973, which was subsequently incorporated into the common agricultural policy, was £370 million. At today's figures that would be in excess of £1,200 million. I suggest quite sincerely to the House that, given the Government's policy of reducing the rate of increase of public expenditure, the figure of £1,200 million would be subjected to considerable pressure, not least from Treasury Ministers, if we were still responsible for supporting British agriculture ourselves. I for one am pleased that it has been taken out of our hands and is a European responsibility.

Secondly, it is important for the House to remember that although we are debating farm prices today, in practice we are not only talking about the level of farmers' incomes and the supply of food from the national farm but considering the future stability of the countryside. My hon. Friend the Member for Hereford (Mr. Shepherd) made this point vividly in his important contribution when he said that farm incomes contributed directly to the preservation of our rural areas since farming is the principal economic activity in the countryside. We can encourage forestry, tourism, and suitable light industry, which are, of course, important, but they are secondary to agriculture.

For a number of reasons, rural areas are under threat. Because of population movement, lack of employment opportunities, lack of transport, possible closures of village primary schools, and changes in the system of assisting village post offices, the stability of the countryside is in many ways being threatened. I believe that the nation as a whole wishes to retain our countryside, but if we are to do that we must make certain that the viability and confidence of the farming industry are both maintained and encouraged. As my right hon. Friend the Minister said, in the past year the farming community—indeed, the countryside as a whole—has made a major contribution to combating inflation.

For these and the other reasons that I have outlined, I believe that this year's farm price increase should be as generous as possible.

6.55 pm

Mr. Thomas Torney (Bradford, South)

It is with great regret that I have to disappoint the hon. Member for Cardigan (Mr. Howells). Arguments for and against the Common Market are bound to enter into what I have to say. The hon. Member, for whom I have great respect, understands farming and has a great interest in it, but he says that he is pleased that this debate has so far been concerned with farming and agriculture at home rather than in Europe. I must point out that because Britain is a member of the Common Market and is so vitally affected by the common agricultural policy we cannot discuss agriculture in Britain without also saying something about agriculture in the rest of the EEC. One is affected by the other; both are affected by the CAP.

I am one of those who believe that it was a criminal act for Britain to enter the EEC with the common agricultural policy as it then was and, give or take the dotting of an "i" or the crossing of a "t", still is. That is simply because, as I have said many times before but as I think is worth repeating, this country does not produce all the food that it needs; we have to import a large proportion of our food needs. The EEC, particularly in the CAP, is geared to giving the greatest protection to those that produce all or most of their own food needs, and perhaps surpluses as well. For that one vital reason we should not have gone into the EEC in the first place.

A few years ago, in the referendum, a colossal campaign was mounted by the people who supported an affirmative answer. Everyone had a leaflet through his door from the "Yes" campaign people. The "No" people did the same, I agree, but the "Yes" people had far more financial aid behind them, some of it European money.

The "Yes" leaflet said that British jobs would be more secure, that food costs would fall, and that many other things would happen. We all know that it is difficult to say which has increased more quickly—unemployment or the cost of food. We were told that these things would not happen if we went into the Common Market, but we have all seen what has happened to jobs and food costs.

Mr. Myles

Does the hon. Gentleman concede that food prices in this country, as a proportion of income or in relation to inflation of other prices, have actually gone down?

Mr. Torney

I cannot concede that. I do not have the figures to prove it, but I do not think that food prices have fallen in relation to income. If we are to argue about the cost of food we must remember that a rise in the price of foodstuffs affects the lowest income groups far more than rises in the price of other commodities. We have to buy food of some kind every day, or at least every week; we do not need to buy many of the other items in the index so frequently. With the present mass unemployment and the growing poverty that it brings in its wake, action should be taken by the Government or the EEC, or both, to help the fixed income and lowest income groups.

We cannot divorce the problems of agriculture from a general attack on the Common Market as a whole; I have not just got on this bandwagon. My right hon. Friend the Member for Barnsley (Mr. Mason) rightly said that 70 per cent. of contributions by all member countries go to the Common Market agricultural fund. That is a colossal figure. Various hon. Members have said that the only way to save the countryside and British farming is to push up the price of the nation's food. That is an indictment of the EEC and of the common agricultural policy.

We cannot stand by and see British agriculture collapse but it is a crying shame that the only way to save it is to make food more difficult to buy when there are vast surpluses in the Common Market. Pushing up the price will only ensure that less is consumed. That is also an indictment of the policy. We know that the EEC itself is partly responsible for the higher prices because the British farmer has to pay much more for things such as feeding stuffs than he would have to pay if we were not a member of the Community. Of course, Government policy means higher taxation of items which the farmer needs, such as petrol, and higher interest rates.

How much better would it be for this country and our farmers if we relied, as we did before we entered the EEC, on deficiency payments fixed by the Government by means of guaranteed prices. My right hon. Friend the Member for Battersea, North (Mr. Jay) and other hon. Members have referred to deficiency payments. We are paying dearly for surpluses which we do not create. The bulk of the surpluses of farm produce are found elsewhere in Europe—in France and perhaps in Germany. Those are the countries which are benefiting greatly from the massive contributions which we and others make to the EEC.

The Prime Minister was instrumental last year in securing a reduction in our net contribution to the Common Market fund. Let us remember that in 1980 we were contributing £3,000 million to that fund. Because the bulk of that money was going to support Common Market agriculture, I have the right—I do not apologise for using it—to attack something that is bad for Britain.

Deficiency payments have been attacked. It has been said that colossal payments would have to be made if we returned to that system. But we would be paying our farmers to bring their returns up to the market price. The payments would be made not across the board but where there was a need, and they would go only to British farmers, whereas through the common agricultural policy we are now paying for the surpluses that the French are producing and not for surpluses produced by Britain. I must emphasise that our net contribution of £800 million is still too high, despite what the Prime Minister did last year.

Mr. Geraint Howells

Just for clarification, the deficiency payments scheme is still operating in this country for beef and lamb but we call it the variable premium scheme. It is a wonderful system. That is what we were advocating for many years, and we still have it.

Mr. Torney

Some Conservative Members have said that we should not suggest any alternative or reforms to the common agricultural policy. In the first place, reforms are impossible. The suggestion is pie in the sky, because the French would never agree to reforms. If I were a Frenchman I would not agree; why should I agree to a suggestion from Britain or anywhere else that would take away some of the income that the British taxpayer was kind enough to give me for the surplus that I had inefficiently produced? Of course, the French will never agree to reforms. Because it is not possible or feasible to reform the common agricultural policy, all that we can do is get out of the Common Market.

In reply to the hon. Member for Cardigan (Mr. Howells) I know that there are deficiency payments. What I should like to see is the return of deficiency payments for dairy produce, milk, and so on, instead of having the completely ridiculous situation that we have today.

Mr. Dykes

rose——

Mr. Torney

I am going to finish what I am saying. Not only do we have to pay the French farmer for producing his surplus of dairy products; we also have to pay——

Mr. Dykes

rose——

Mr. Torney

I will not give way. I will carry on a little longer if the hon. Member insists on interfering in this way.

The common agricultural policy ensures that we not only have to pay the French farmer for producing surpluses in dairy goods; we also have to pay on this side, because our farmers are being forced out of the dairy industry even though we did not have a surplus. It is stupid and ridiculous. Hon. Gentlemen opposite talk of silliness. What can be sillier than what I have just described? We pay for somebody else's surplus and then cut down our own production when we did not have a surplus to begin with. That is extremely silly. If the hon. Member for Harrow, East (Mr. Dykes) thinks that I am silly to say that, there must be something wrong with his thinking.

Mr. Dykes

rose——

Mr. Torney

I shall not give way. Despite the apparent sadness of Conservative Members earlier and the distress that they displayed on behalf of farmers, we must get down to the rudiments of the vicious Common Market, which constantly reacts against the British people and farmers. It is no laughing matter. It is no joke when people in my constituency have to pay high prices for food and farmers are not getting a fair crack of the whip.

I want to defend British agriculture. I do not want it to fade away or be weakened, but it should be remembered that the farmers have asked for what they have got. They could not join the Common Market quickly enough. Now they are suffering from their foolhardiness in pressing the Government, as the NFU did, to join in the Common Market.

I am proud of the dairy industry, but also concerned about it. It is an excellent and efficient industry, from the farmer who produces the milk to the distributor and the roundsmen who bring the "pinta" to our doorstep each day. I never fail to express my concern in the House for the industry. Because of the CAP and the EEC, it is in danger and will continue to be in danger until there is no question of any French milk coming into Britain. We do not want to lose our daily "pinta". I am sure that the Minister of Agriculture will do his utmost to defend it and to protect our dairy industry from the import of cheaper French UHT or other milk.

The fact that our dairy industry can be threatened in this way is another indictment of the CAP and the Common Market. Perhaps we should withdraw from the CAP, support our own industry, let the French and the Germans support their industries, and pay no levies on food coming in from third countries. But would the French or the other member States allow that? I hardly think so. If the CAP were abolished the Common Market might not be such a bad organisation to belong to. At least we could look after our interests, and the French and the Germans and the rest could look after their interests. That would be a more equitable way of dealing with our food and farming industries. Our farming would no longer be in the state that hon. Gentlemen say it is today.

7.14 pm

Mr. Geoffrey Johnson Smith (East Grinstead)

After the tirade of the hon. Member for Bradford, South (Mr. Torney) against the Community, it is difficult to know where to start. I had not intended to say much about the EEC, nor had I intended to defend it, but in view of what the hon. Member for Bradford, South said I must say a few words. I hope that my hon. Friend the Minister will back my general argument with some statistics to complete the final demolition of the hon. Member for Bradford, South, who, basically, does not want us to belong to the EEC for agriculture or for any other industry.

Mr. Torney

It does no good for textiles, either.

Mr. Johnson Smith

The chauvinistic approach that the hon. Gentleman epitomised with such distinction and vigour is as dead as the dodo. If he wants to fight along with other dodos in his party he is entitled to do so, but it will do no good for British agriculture, industry or employment if this country comes out of the EEC. Indeed, most top trade unionists in this country know that. Let the hon. Gentleman trot out his arguments in Bradford, South and see how far he gets.

Does the hon. Gentleman imagine for one moment that if this country were outside the EEC and we tried to buy at world market prices we would get cheap food? It is not lying around. He knows that as time passes more and more countries want to consume that which they produce. He knows, too, that more and more countries in Africa are crying out for food.

Let us take one example, butter. The United Kingdom's annual consumption of butter is equivalent to two-thirds of the available butter at world prices on the market. If Britain and the rest of the EEC entered the market, does the hon. Gentleman imagine that that world price would remain the same? Of course it would not. The price would shoot up.

No one denies that some aspects of the CAP can be criticised. Does the NFU, which knows far more about the matter than the hon. Gentleman, want this country to come out of the Community? Of course it does not; and its members know what they are talking about. The hon. Gentleman treated us to a series of worn-out platitudes. I do not take him seriously, but he is entitled to his opinion.

In considering the costs of the CAP we must bear in mind that as a proportion of our national income, or as a proportion of the national budgets of the different countries, they are not large in themselves. Seventy per cent. of the Community's budget goes on agriculture. It is no good imagining that if there were no EEC we would have vast savings in the amounts devoted by the different nations to the cost of supporting agriculture. There is no cheap way.

One criticism that is justified is that the CAP is not as well designed as it should be, and that it helps to create too many surpluses. That is why some of us hope that it will be reformed. It could be suggested, for example, that where there are super surpluses the national Governments should pay for them. Similarly, it could be argued that EEC funds which are used by countries to support agriculture for social reasons, as the Germans do in Bavaria, should come out of the social fund and not out of agriculture. We expect that in time reforms will give better value for money. I have little doubt that no solution will be found outside the EEC.

I turn to constituency matters. I apologise for dwelling on the problems of farmers in my constituency, but I represent an area that is still primarily rural—the Weald of Sussex, stretching into Kent. I bring these problems to the attention of my right hon. Friend and the Minister purely to reinforce the arguments that they will adduce when they go to Brussels. The position is critical. Statistics show that some sections of the dairy industry face serious financial problems.

With colleagues from Sussex constituencies, yesterday I met local farmers, and I had a personal meeting with them in my constituency. They appreciate that they cannot be insulated from the effects of a world and national depression. They appreciate that, like others, they must bear the burden. They recognise that there is a limit to what Governments can do. They appreciate that, where possible, the Government can and will help. In the poultry industry, which is strong in Sussex, there is an appreciation of the way in which the Government help to tide farmers over the difficult period which results from some EEC countries not carrying out poultry hygiene inspection. There is a general appreciation and understanding of the Minister's and the Minister of State's valuable role and of their determination to stand up for legitimate interests in negotiations in Brussels.

I emphasise that farmers are not making a general moan about what could be done or is being done. However, we hope that the Minister will achieve greater success when he goes to Brussels.

The small farmers on the Weald farm land which, compared with that in East Anglia, is poor quality—grades 3 and 4. However, their efficiency is higher than that achieved by Continental farmers. What would happen if we were to let farmers move out of the dairy industry? To what other sectors could they turn? They could turn to growing cereals. Some have already done that, and others have gone into beef.

The chairman of the East Sussex branch of the NFU told me yesterday that we must consider the overall effect of such moves on the balance of farming in the county and on the nation as a whole. If we continue to allow livestock to decline at the present rate it is bound to have a knock-on effect on farmers who grow cereals. An imbalance will have serious effects on other parts of agriculture. People who farm the less good land and concentrate on livestock have legitimate needs.

I turn to the question of costs. I elicited some figures from pig farmers in my constituency. Taking 1975 as 100, the cost of energy and oil in 1980 was 250. Veterinary and medical services now cost 204. Feedstuff has increased to 185 and livestock to 146. I hesitate to say that the 8 per cent. increase will be enough.

A man who farms a larger than average farm in my constituency recently sent me his trading account. He achieved an increase in income of about £10,000 in 1980. That is a sizeable increase. His income increased from £86,000 to £96,000. In spite of that increase, his profit dropped by £4,000.

One must consider the effect on investment. One farmer in my constituency told me that until recently he spent, on average, £7,000 a year on capital improvements and the machinery to run the farm. In 1978–80 his expenditure fell to about £1,000 a year. He has refused to increase his investment and has dropped it further because he is unwilling to increase his overdraft.

Another typical example is that of a farmer who wrote to me saying: As I said in my previous letter, despite expansion our financial books show us to be breaking even at present, though this hides a substantial loss, since we have spent next to nothing on new items or maintenance of existing buildings and machinery … My employer, who has hundreds of thousands of pounds invested in the farm takes not a penny in interest from it. All profits, such as they are, are ploughed back in. If this isn't subsidising the EEC housewife, I do not know what is. The knock-on effect on investment is serious. If it is allowed to continue in the next few years the much-vaunted lead that we have in farming efficiency in relation to our Continental competitors will narrow.

I turn to the question of the levy and super levy. I agree with what has been said, particularly by my right hon. Friend the Minister. Will the levies exclude additional deliveries of fresh products to dairies? I refer, for example, to the additional deliveries of cream and yogurt and other products that cannot go into intervention. I hope that the levy will be charged on increased production in the milk marketing area as a whole. I know that the detailed proposals have not yet been worked out. However, the Minister believes it to be reasonable to suppose that even if the levy were to be applied specifically to individual producers who increase production, allowance would be made for those who have moved to larger farms.

I turn to the question of the suckler cow premium. One of its disadvantages is that if one farms a dairy farm and owns another farm on which beef is produced one does not qualify for the premium. Anyone who also produces milk is therefore not eligible. The old British scheme allowed participation if an enterprise was on another farm or run as a separate unit. A number of farmers in my constituency are involved in such farming. They believe that the system is unfair, particularly as 65 per cent. of the beef comes from dairy farms, where no subsidy is paid until market prices fall below the cost of production guarantees. I hope that the Minister of State will comment on that.

I turn to marketing. I welcome what my right hon. Friend said about the work that he has done since he took office. Marketing forms an indispensable part of a successful agriculture industry. Unfortunately, it has been one of the weakest aspects of British agriculture. There is a danger that in advancing the cause of marketing we are likely to create the impression that we are interested in setting up yet another bureaucracy. In short, the requirement to market must lead to a better marketing of the marketing system. It is necessary to convince those concerned that they need to engage in marketing. If they are not convinced there is the danger that they will consider marketing as merely another layer of bureaucracy.

There is confusion about what marketing really involves. For example, at one time the Milk Marketing Board did not really market; it merely collected milk and sold it as a monopoly supplier. It has now become much more a marketing board. It has set up special divisions to convert milk into value-added products and to go into the market place to sell those products in competition with imported products as well as with products sold by the private sector. That is marketing, and I welcome the change.

There are those who have promoted British products by means of advertising campaigns and the like. That is not in itself marketing. No advertising campaign can succeed on its own unless product outlets have been planned and there is a proper delivery system. I suspect that we have far too many organisations which are good at telling the public that we have a product but which are not good at ensuring that the product is sold and marketed successfully at the right place, at the right time and at the right quality.

It was Mr. Hoyn who said at the Oxford farming conference that when it came to penetrating the American market recently the way that the French went at it was in marked distinction to the way that we went at it. The French had a well consolidated group that was determined to reach the right wholesalers and to ensure that a proper method of distribution was established. On the whole, we are content to have a number of different groups that do not go into these matters in such detail and are far too scattered in the effect that they have.

The need for marketing is understood by some in general terms but the details of what is involved are not normally sufficiently appreciated. The concept must be sold before it is fully accepted, as I think it should be.

Mr. Nicholas Baker (Dorset, North)

Did my hon. Friend examine the way in which the French apple producers studied the British market, engaged in a marketing campaign and produced exactly what the British housewife wanted, as they assessed the market? That demonstrates how important it was for the British apple producer to mount a counter-offensive, which, alas, was introduced many years too late.

Mr. Johnson Smith

I am grateful to my hon. Friend. I had that example much in mind. The campaigns that we have seen have been of the generic sort. For example, there have been campaigns mounted with slogans such as "Eat more British apples" or "Consume more British beef". There was a bacon campaign that was supposed to encourage British bacon consumption. It merely made the public more aware of bacon generally. It benefited Danish bacon exporters as much as British bacon producers. These general exhortatory campaigns—I speak as someone involved in advertising—are not worth very much money. They lead to an awareness of the product, but they need a much more professional follow-up, and that is what we have lacked.

I congratulate my right hon. Friend on the initiative that he has taken, and especially on the way in which he has tackled the formidable problems that have faced him. I am glad to note that in the detailed negotiations that he has undertaken during the past two years he has persisted in upholding our interests in a way that is to be firmly praised and has never lost sight of the need for us to operate in farming as in other matters to do with the British economy, in the wider context of the European Economic Community.

7.35 pm

Mr. Wm. Ross (Londonderry)

It is my intention to limit my remarks to the memoranda of 17 March, which relate to the development of livestock production in Ireland. Before doing so I shall take up two issues that have been raised by right hon. and hon. Members during the debate.

Milk production in Europe was referred to by the Minister of Agriculture, Fisheries and Food and by the hon. Member for Devon, West (Mr. Mills). We are always grateful to the hon. Gentleman for his interventions on agriculture in Northern Ireland. The right hon. Gentleman and the hon. Gentleman drew attention to the increasing efficiency of milk production in Europe and to the difficulties that that is causing. However, neither of them suggested any means of enabling the British Government to deal with the problem in the EEC.

At some stage a decision must be made to reduce the number of cows in Europe. The greater the efficiency and the higher the production the more cows must go. That solution has been tried before. It has been more or less a continuing process in one European country after another. What success has there been to date and what new measures will have to be dreamed up to deal with the problem posed by the policies of the French, German, Belgian and other producers?

A wider problem is the steadily increasing efficiency of all farming on the Continent of Europe. At some stage we shall have a surplus of all agricultural products. If the money is available there is no good reason why that should not be so.

The right hon. Member for Battersea, North (Mr. Jay) drew attention to the attitude displayed by the French. France is not the only country in Europe which produces politicians who look after their own national interests. Recently we had a visit to Northern Ireland of a certain Mr. O'Kennedy. During his visit he said that the importation of grain was the importation of acres and that therefore it was bad for us. Northern Ireland has a highly intensive pig and poultry industry, which was entirely dependent on imported grain until we entered the Common Market.

In effect, Mr. O'Kennedy was saying "I want to see the Northern Ireland intensive sectors disappear". If they disappeared, those who would fill the gap would naturally be the nationals of Mr. O'Kennedy. It appears that all the other nations in Europe are looking after their own interests. The Government Front Bench, regardless of which party is in power, should keep that very much in mind whenever negotiations take place in Europe.

I turn to the development of livestock production in Ireland. It is among the papers that are before the House tonight because of the backwash effect that it has in Northern Ireland. It is an indication of how policies that are being sought by the United Kingdom can have a backwash effect in France, Germany and elsewhere.

The Dublin Government justify the package which they seek by reference to the fall in the incomes of the farming community in the Irish Republic. I applaud the Minister of Agriculture, Fisheries and Food, who said in a Select Committee in the other place on 18 March and again this evening that the Government could approve such a package only if a similar package were available for Northern Ireland, where conditions were worse than in any other part of the United Kingdom. The hon. Member for Cardigan (Mr. Howells) quoted the fall in income not only for the global farming industry in Wales but for individual enterprises. The highest fall to which he referred was 56 per cent. over the past two years. The fall in Northern Ireland agriculture in the same period was 80 per cent. The figures for Wales seemed to be the equivalent of a bright and sunny day. That gives a fairly clear picture of the gloom—if gloom can be described as a clear picture—in the Northern Ireland farming industry.

I am deeply troubled by the package which is being sought for the Irish Republic, because the frontier problems to which I referred in my intervention to the Minister are many. There is much illegal movement backwards and forwards across the frontier, as the Minister knows. We should not add to those difficulties. If the package goes through, however, they will increase. The internal problems of agriculture in Northern Ireland are also many. To add to them a further burden of subsidised competition from the Irish Republic will not be helpful.

Roughly £1½ million—£ sterling, not punts—will be made available for progeny testing. That is not a large sum. However, the Northern Ireland Exchequer has always had to pay that out of the funds available to Northern Ireland. There is to be an allowance for artificial insemination. The package is supposed to be for beef cattle, yet that AI package is for 1½ million cows. There are only half a million beef cows in Ireland. So, where is the rest of the money going? If it has to be used for AI, evidently it will have to be used not only in the beef herd but in the dairy herd in the Republic. That amount cannot be spent on the existing number of beef cattle. The sum which is available is a benefit equal to about half the cost of the insemination of each animal. That is a considerable saving. The idea that it should be handed over and forgotten about is not acceptable.

It is proposed that there should be a £2 subsidy per tonne of lime for application on agricultural land. The theory is that the lime will be applied to grazing land used by the beef herd. Anyone who would believe that story would believe any story. Even if the lime were initially put on land so used there is no reason why that land should not be ploughed the next year and sown with barley, sugar beet or some other crop that would benefit from lime. Again, there is a use for production subsidies beyond the original intention.

The subsidy for making silage is supposed to be applied to first-time makers and to the first 50 tonnes. If there is no silage pit, will there be a grant or subsidy for erecting such a pit? That matter causes deep concern, because many people make silage. One wonders how the money will be spent if it is restricted to the remaining farmers who would become first-time makers.

There is also subsidising of the documentation of the movement of TB and brucellosis-tested cattle in the Republic. That cost has always had to be borne either out of the Northern Ireland Exchequer or by the farming community. The reason why it is so important in the Republic is the high incidence of TB and brucellosis in cattle in the Republic. The farmers and the authorities there never seem to be able to get control of it. There are many outbreaks in the national herd of the Irish Republic which have not been resolved. The United Kingdom funds had to bear those sums whenever, in Northern Ireland, we tried to free our herds of those two diseases.

There is a proposal to pay an increase in the suckler cow premium. At present, half that cost is borne directly in the EEC budget. The proposal is that the rest of it will be so borne that 100 per cent. of those sums will come direct from Europe rather than from national funds. Perhaps the Minister will confirm that it is not the intention of the Irish Republic to pay that money and that what is being received is a bit of icing on top of the cake. The increase would be designed to cover three-quarters of all beef cows in the Irish Republic. That is a considerable input, which must reflect adversely on farmers in Northern Ireland.

There are a number of policy implications. The principal one is that if the money comes direct from Brussels, as it is designed to do, we have to pay for it. In other words, we are being asked once more to buy the knife which will cut the throats of our farmers. That will not be acceptable to anyone in Ulster.

The Minister of Agriculture, Fisheries and Food said that he wanted equivalent treatment for Northern Ireland. If he is to obtain those additional funds for Northern Ireland he will run into all the hullabaloo which surrounds the additionality rule in the processing of EEC funds into any sector of the British economy. If it is going to be equivalent, total public expenditure in Northern Ireland will have to be raised. It will have to be directed straight to the agriculture sector in Northern Ireland.

Will the Minister tell us how those sums will be applied? The only way in which they can be applied easily is by raising the present limit of public expenditure in Northern Ireland and by making use of the problems which are now being experienced by the upland producers, not only in Northern Ireland but throughout Great Britain. The only ways it can be used there are either by raising the present premium on the upland and beef herds, or, even better, by extending the less favoured areas. As the right hon. Gentleman knows, the survey in Northern Ireland was completed long ago, and there is no reason why the proposal should not go ahead, except that the remainder of the United Kingdom would want the same treatment—and why not? Other areas are also experiencing considerable difficulties.

The Secretary of State mentioned the desperate state of Northern Ireland agriculture. What he said today and what he said to the Select Committee a few days ago shows that he is aware of the position, but understanding does not help unless he takes action. What action do he and the Secretary of State for Northern Ireland intend to take this year and next year?

I have a farming background, and I know that farmers have been living on savings and capital tax allowances in the past year or two in order to maintain their standard of living. They save money by not buying machinery. The Agricultural Machinery Dealers Association states that sales of new tractors dropped by 41 per cent. between 1979 and 1980. In the first two months of 1981 sales were down by 50 per cent. compared with the previous year. If the trend continues, tractor sales will be down to 30 per cent. compared with two years ago. The rundown in farming carries through to suppliers, and so on. It cannot continue. Something will have to give.

The tremendous increase in per capita and per acre production since the end of the war has a limit. We cannot overwork land and people too much. Production cannot be pushed up for ever. Farmers and the nation have a limit on the money that they can put into production. We may already have reached the technological, biological and labour limit. Perhaps we reached it some time ago. The rate of decrease in manpower and the increase in production per acre will flatten out.

We may soon have to spend a greater proportion of our income on food, with a shift in the emphasis on the family budget. An hon. Member denied that the price of food had dropped. He is wrong. The price has been dropping for a long time. A change is overdue. I am concerned about British farming—about its future and especially the situation in my Province. I hope that the Minister can give us hope that action will be taken to bring about an improvement.

Several Hon. Members

rose——

Mr. Deputy Speaker (Mr. Bryant Godman Irvine)

I point out that nine hon. Members wish to speak before the Front Bench speeches start.

7.54 pm

Mr. David Myles (Banff)

I hope that I can change the accent of the debate. I declare an interest. I receive hill livestock compensatory allowances, sheep deficiency payments, the ewe premium, the suckler cow premium and capital grants, and I also have an interest in lower interest rates. However, I do not plead the cause of the farmer or point out the dreadful drop in incomes, as did the hon. Member for Cardigan (Mr. Howells) and my hon. Friends the Members for Hereford (Mr. Shepherd) and Devon, West (Mr. Mills). They are not promoting their interests, so their pleas may do more good.

The debate is about the CAP. It has become the whipping boy of politicians. The call for reform has become a parrot cry when people can think of nothing more constructive to say. The adaptation of the CAP for the 10 nations must continually evolve and constructively improve to suit changing circumstances. We should not scrap previous constructive work in case we are left only with empty ideas to fill the void.

The hon. Member for Bradford, South (Mr. 'Forney) said that the NFU advocated entry into the EEC. I am a former office bearer of the NFU in Scotland. We did not recommend entry. We put the arguments on each side and told members to please themselves. No recommendation was made then, but now that we are in and have the benefit of the supports, the recommendation is to stay in.

I repeat the three principles on which the CAP is based. The first is freedom of trade and Community preference. A great number of people do not like the Community preference. The second is the creation of market organisations based on common prices. We have not yet achieved that, but are moving towards it. The third is sharing the cost of the common policy. We are arguing about equitable sharing.

How far have we achieved the objectives of article 39 of the Treaty of Rome? Paragraph 1 states' The objectives of the CAP shall be (a) to increase agricultural productivity by promoting technical progress and by ensuring the rational development of agricultural production and the optimum utilisation of the factors of production, in particular labour". That objective is continually being met. The section continues: (b) thus to ensure a fair standard of living for the agricultural community, in particular by increasing the individual earnings of persons engaged in agriculture. Sadly, that has not been met to any great extent.

If support prices in Europe are frozen, as has been Advocated—I shall return to this later—far from maintaining the earnings of individual persons engaged in agriculture, the real income of those people will be greatly eroded, as it has been over the past three years in the whole of Europe and particularly in Britain—by 24 per cent. in real terms in the past year.

Objective (c) in the paragraph is to stabilise markets". I contend that market stabilisation has been achieved to a great extent by the fact that there has been surplus production.

Objective (d) is to assure the availability of supplies". There is no queston but that supplies have been available.

Objective (e) is to ensure that supplies reach consumers at reasonable prices". This depends, of course, on how one defines "reasonable". Many hon. Members may say that prices of agricultural products in Europe are too high for the consumer, but we have already seen that a fair standard of living for the agricultural community has not been achieved. The prices paid by the consumer have not increased in line with inflation or with other commodities. As has been pointed out, prices for agricultural products rose by 9 per cent. in the past year, whereas other prices rose by 14 per cent. and wages by 19 per cent. Those are the official figures. The hon. Member for Bradford, South seems to prefer to ignore the figures and merely to select statistics, as perhaps we all do.

The second part of article 39 is also interesting. It provides that In working out the common agricltural policy and the special methods for its application, account shall be taken of:

1. (a) the particular nature of agricultural activity, which results from the social structure of agriculture and from structural and natural disparities between the various agricultural regions."

I contend that that has, to a degree, been achieved, especially if we take account of the less favoured areas directive which is of such great benefit to hill and upland areas in Scotland, England and Wales, although I agree with the hon. Member for Londonderry (Mr. Ross) that Northern Ireland requires rather more. I also agree that we must be very careful about the disparity that the injection into Eire's farming economy will create and the effect that it will have upon agriculture in Northern Ireland and, indeed, the rest of Britain.

Paragraph (b) of the second part of article 39 refers to the need to effect the appropriate adjustments by degrees". That is thoroughly sensible. We should be seeking an evolved, constructively amended, agriculture policy.

Paragraph(c) refers to the fact that in the Member States agriculture constitutes a sector closely linked with the economy as a whole". As has been said on many occasions, agriculture is a fundamental source of all true wealth. The continuing basic production that can come from agriculture has formed the basis of the economies of many countries in the world. We must not lose sight of this basic and important industry. [Hon. MEMBERS: "Hear, hear".] I accept the "Hear, hears" from behind me, although I am doubtful as to their source.

You will be pleased to hear, Mr. Deputy Speaker, that there is not time for me to go into detail on all the factors contributing to agricultural policy or to embark on a whole series of suggestions as to where economic solutions may be found.

I should, however, mention one or two areas in which there is much misunderstanding. Support prices are exactly what the term implies. They indicate the level to which the EEC will support the market. But that does not mean that the market price will be the same as the support price. The support price is only the base below which the market price should not fall if the support systems are working properly.

I cite an example to show how support and market prices are not mechanically linked. In 1975–76 the national support price for potatoes in the United Kingdom was £40 per tonne, but, due to scarcity, the market price to the consumer was more like £200 to £300 per tonne. It must be recognised that if the support price is set extravagantly high there will certainly be overproduction, which will mean that embarrassing surpluses will be produced and taxpayers will be required to pay for their disposal unless export markets can be found. I see no reason why we should not look for export markets for agricultural produce at the cost of production.

Mr. John Carlisle (Luton, West)

The hon. Gentleman talks about exporting surpluses. Let us take the example of the high support price of cereals. This means that we produce grain at far higher prices than the rest of the world. How can we export the goods that we produce, particularly cereals, without enormous subsidies having to be given to the grower against the world price?

Mr. Myles

If the hon. Gentleman had been patient a little longer, I would have dealt with that. I shall suggest that cereal prices should be reduced, which may please him.

I wish to speak of the consumer with regard to these surpluses. The taxpayer will have to pay if there are the surpluses, but the consumer will always benefit, because if there is a surplus the product will be cheaper than if there is no surplus. If there were no surplus butter there would be no butter subsidy. That is the truth.

Equally, if the support price is set extravagantly low, confidence among producers may be so eroded that they cease production of the commodity. Scarcity might then ensue, and no matter what action the Government took, prices to the consumer would certainly rise.

I hope that I have demonstrated that low support prices may cause higher prices for the consumer but that high support prices may produce lower prices for consumers. There is great difficulty in striking the correct balance. The variety of efficiency in agriculture throughout the Community contributes to this, as do variations in climate and the great differences in soil structure and fertility.

This huge problem must be tackled. We must ensure that those on rich land close to the markets do not cream off all the benefits so that those in remoter areas with poorer climates and soils are forced into bankruptcy. As I said earlier, the less favoured areas directive goes some way towards restoring the balance. Given the enormous dificulty which the CAP must face, rather than being condemnatory we should marvel at the advances which have been made, and which, given good will and co-operation, can continue to be made. It would be a tragedy if the achievements already secured were swept away on a tide of foolish nationalistic bickering.

Many people say that we should return to national financing. However, does anyone believe that national financing will maintan the support levels, even at the present low level, for home agriculture? That is amply demonstrated by the fact that even this Government, who are sympathetic to the problems of farmers——

Mr. Teddy Taylor

My hon. Friend does not trust the British.

Mr. Myles

I do not particularly trust my hon. Friend with regard to support for agriculture.

Mr. Taylor

Is my hon. Friend seriously saying that a British Parliament and a British Government would not give proper priority to the needs of agriculture?

Mr. Myles

I am certainly saying that, and I shall give an example to support that claim. Our own national support price for sheepmeat was 155p per kilogram, and we are the largest producers of sheepmeat. When we entered the EEC we got a support price of 181p. per kilogram.

Mr. Geraint Howells

Perhaps I can help the hon. Gentleman. He is developing a good argument. Before we joined the Common Market, successive Governments supported British agriculture only twice in 25 years to help it recoup the cost of production.

Mr. Myles

I agree with the hon. Gentleman. As he has congratulated me, I congratulate him on putting his case so well.

There must be a common pricing policy as well as a sharing of the cost of that policy. That does not mean that policies on every commodity must be exactly the same in every country. The sheepmeat agreement is a good example of how a commodity can have common pricing without the same systems working in every country. I should like to see the same sort of systems for beef. Our variable premiums scheme is valuable in that it supports the market to an extent, although many argue not to a great enough extent. It does not deprive the consumer of cheaper meat when surpluses in the market occur.

There is also the suckler cow premium. If we support our agriculture to such a great extent, why do we not double up the £12.37 suckler cow premium as many other European countries are doing? That is another indication that the political pressures put on British Members of Parliament do not allow us to support our agriculture to the degree which is required.

The grain market is suitable for an intervention system. That would be a suitable way in which to support our grain growers. The support price for grain could be fixed rather lower in order to encourage livestock producers who rely to a great extent on secondary grain for livestock feeding products.

The greatest surpluses occur in the milk and milk products sector. It is also the sector in which the greatest difficulties occur in controlling those surpluses. It is a fallacy to say that the high input milk producers are inefficient. They can produce the cheapest milk. That can be seen from economic returns, which show that those who contribute the greatest input get the largest income margin. We must expose producers of milk surpluses to the cold wind of reality of competition in the market place, so that the Community's resources are not expended on disposing of these surpluses.

A super co-responsibility levy and quotas could be applied in that sector. However, we must be careful to ensure that if a super co-responsibility level is applied to all milk which goes for manufacture, some of our Continental partners do not increase their liquid milk production and export it to this country, thereby forcing milk into manufacture which will attract a super co-responsibility levy.

We must become more competitive and aggressive in our marketing, as the hon. Member for East Grinstead (Mr. Johnson Smith) pointed out. In that regard, I welcome the initiative and leadership shown by my right hon. Friend the Minister of Agriculture, Fisheries and Food and the other so-called "Marketeers", as well as the stimulation which they have given to the promotion and marketing of our own agriculture products, both at home and abroad. Every encouragement should be given to self-financing and to promotional and marketing projects. But we must remember that they are not the same. Effective marketing implies a discipline in production. We must discover what the market wants and gear our production to fit demand.

I turn to the green pound. Perhaps the Minister will give the true position, following the recent currency changes in Europe. We at present enjoy positive MCAs—and I say "enjoy" deliberately. Every European country in which positive MCAs operate has fought to retain them in the interests of that country as a whole. It is entirely mythic al to suggest that if those MCAs were reduced artificially the British consumer would benefit. The European producers would accept with great delight the gift that we had put into their hands and would continue to sell on the British market at the same price.

The Opposition's solution appears to be to lower the value of the pound. Everyone knows that if this country were again so unfortunate and misguided as to elect a Labour Administration, the pound would almost certainly decrease in value. Back would come negative MCAs.

There was a lengthy article by the hon. Member for Edinburgh, East (Mr. Strang) in The Aberdeen Press and Journal. He said that a Labour Government would return to negative MCAs and would then devalue the green pound in order to help our farmers. It is strange that they did not do that when they were in power. Even if that were a solution, continuous devaluation of our currency cannot go on for ever. It is only a short-term expedient.

8.19 pm

Mr. Nigel Spearing (New ham, South)

I enjoyed some of the ingredients in the Scotch broth of the speech of the hon. Member for Banff (Mr. Myles), but they were too many and too varied for me to respond. At the start the hon. Gentleman referred to parrot cries from those of us who disagree with the CAP. I think that he will acquit me of being a parrot, just as I acquit him of being one.

As a farmer, the hon. Gentleman is in the CAP' s cage. The speeches by responsible Front Bench spokesmen on both sides of the House did not offer much hope or provide any solutions, because any United Kingdom Government would find themselves in that cage. It is no use the hon. Member for Banff talking about the merits of article 39. It does not give a full account of the agricultural policy that a country should try to create. Still less does it provide any guidelines or determinants for the method by which such a policy could be achieved. The problem with article 39 and the CAP is that principles, objectives and methods are in a hopeless jumble. They have never been worked out as a logical whole. Each country has put in the ingredients that it thinks will suit it. As a result, we have got the worst of most worlds.

There has been some discussion about the merits of a deficiency system. A Conservative Member said that if we were to return to it the Treasury would have to find £1,200 million a year to sustain it. Cmnd. 8187 is the Government's statement of our financial position as regards the EEC. It shows that apart from the Prime Minister's £600 million of supplementary measures, we contribute £1,335 million net. For that, we lose control of our agriculture.

Therefore, if we were not in the EEC considerable sums might be available to assist deficiency payments, which have the tremendous advantage of uniting the interests of producer and consumer. The method of intervention buying and high prices divides the interests of town from country—producer from consumer. It divides the interests of the poorer consumer from those of the better-off.

The situation is even worse than that. Unfortunately, the hon. Member for Bodmin (Mr. Hicks) is not in the Chamber.

Mr. Myles

I do not quite understand why that discriminates between the better-off and the less well-off. I agree that a deficiency payment system equally subsidies the well-off and the poorer because of the amount of food they consume but I do not understand how the intervention system does.

Mr. Spearing

I am glad that the hon. Member has intervened, because I am afraid that he has shown his basic misunderstanding of the common agricultural policy from the consumer's point of view. A cheap food policy, which this country had until 1973, meant that people could benefit from world prices when they were low and farmers could benefit from higher prices when they were given deficiency payments. That is the best of both worlds. However, that meant that the proportion of income that a family was obliged to spend on food, especially basic food—not fancy, manufactured stuff—was lower than it otherwise would have been. That is incontrovertible.

The hon. Member for Bodmin noticed the growing acreage of cereals on his journeys to the West Country. I imagine that large areas of upland, such as Bodmin moor and parts of Devon and Cornwall—I see that other hon. Members from that part of the world are present—are probably being used for cereal production when they should not be. Thus, a common agricultural policy also prevents national Governments from inducing and encouraging the agriculture which is best for the natural conditions of their countries. It can encourage bad husbandry.

The "Annual Review of Agriculture 1981", Cmnd. 8132, contains some interesting figures on cereal production. It shows that the United Kingdom wheat production average in 1969 to 1971 was about 4 million tonnes. It is now 8 million tonnes. Barley production was at 8 million tonnes and is now at 10 million tonnes, nearly 6 million tonnes of which are fed to animals. Barley grown in this country, by and large, is not for human consumption. It goes for cattle feed. Thus, the trend mentioned by the hon. Member for Bodmin certainly exists.

Of equal importance is the disequilibrium in incomes which has been referred to particularly by the hon. Member for Londonderry (Mr. Ross). He may well say so, because the White Paper contains an extraordinary table—No. 24—showing the difference in percentages of farm incomes of different types between the seasons 1978–79 and 1979–80. They present an alarming and disturbing picture. In England the numbers of what are described as hill and upland cattle and sheep were reduced by 54 per cent., and of lowland cattle and sheep by 62 per cent. What is called general cropping—I take it that that includes arable crops and cereals—increased by 9 per cent. In Scotland "specialist dairy" decreased by 46 per cent. and "general dairy" by 56 per cent. and in Northern Ireland "mainly dairy" by 91 per cent. LFA cattle and sheep decreased by 77 per cent.

Those are serious figures. Either the sampling is badly adrift or things are much more serious for some farmers than even the NFU handouts would have us believe. Its figure is 24 per cent. generally.

I emphasise the great disequilibrium among different types of farmer. The present common agricultural policy is ill-suited not only to the consumers in the United Kingdom, but to the farmers. Instead of general policy being evolved by conversations outside and inside the House and finally being expressed in the annual price review produced by the Government for United Kingdom farmers and consumers in United Kingdom conditions, we have an imposed set of prices that are generally arbitrary and that apply in principle from Sicily to Shetland. Those are causing a disequilibrium in British agriculture that we should not have. It is against the interests of British farmers, just as it is against the interests of consumers.

Mr. Carlisle

The hon. Gentleman must realise that Common Market pricing allows revaluation for certain commodities. Not all commodities necessarily come under the same price. Surely he must realise that that mechanism exists; it may be one small advantage of the present system.

Mr. Spearing

I doubt that. The great anomaly of the Common Market, and especially the CAP, is that it begins with one principle—a common price and a common market for everything—then immediately decides that there must be exemptions because of certain conditions, because that man has a wooden leg or because someone has always been fishing in a certain place. In almost every sphere of the Common Market rules take account of the special conditions of this, that, or the other party. It ceases to be a common market and becomes an argument about exceptions and protections. Those arguments continue day after day, week after week and month after month. They sometimes escalate into the sort of position that now confronts the German and Canadian fisheries.

The hon. Gentleman said that we must balance grain and livestock prices. I understand that, but he is really saying that the CAP is unworkable and unsuited to the needs of our people. I am obliged to him. While it is possible for such a mechanism to be applied—I hope that the Minister will tell us why he thinks that it is not possible—the very fact that it is possible and that the hon. Gentleman is calling for it shows that the CAP is not suited either to agriculture or to the consumers.

My right hon. Friend the Member for Battersea, North (Mr. Jay) estimated that if we returned to world prices we could reduce our retail prices by between 15 and 20 per cent. He was challenged by one Conservative Member who said that we could not get all that reduction in the low world market. If we transferred what we now import from the EEC to imports from the world market, the proportionate increase in world purchases would be relatively small.

The effect is arguable, but let us consider some of the levies that we currently pay. A written answer to me on 19 March detailed the common wheat levy at £49 a tonne, maize at £46 a tonne, butter—other than New Zealand for which there is a reduced rate of levy—at 55p per pound and cheese, when we can obtain it, at 51p per pound. That is the measure of the difference between British and world prices. If the difference on which the levy is calculated is wrong, the levy itself is wrong and should be adjusted.

We need a British agriculture policy that suits the needs of both the consumers and the producers, wherever they are. Gradually, but slowly, people are realising that that is necessary. I am sorry to note that a group of people who have recently emerged in the House are too busy elsewhere to be here this evening. Among their 12-point programme they advocate the decentralisation of decision making. Yet every one of them now advocating decentralisation is advocating the adherence of Britain to the Treaty of Rome, and to the CAP in particular. They did not stand on such a belief in the general election of 1979. That was not part—any more than proportional representation was part—of the Labour Party manifesto. I cannot understand how those people can reconcile their view of decentralisation either with sending the powers of this House to Brussels and the Treaty of Rome or with the manifesto on which they were elected to the House.

There is only one real answer for both Front Benches. I appreciate their problems. They are wriggling about doing an impossible balancing act. The only way out for them, for British agriculture and for the British people, is to say to our friends in Europe, "We do not want the Treaty of Rome. We give you a year's notice that we are getting out. We do so in support of British ways, for Britain, and to suit the needs of consumers and producers alike".

8.35 pm

Mr. Tony Speller (Devon, North)

Today being Thursday, it is market day in South Molton, where the farmers of Exmoor come down. They will be interested in the remarks of the hon. Member for Newham, South (Mr. Spearing) about cereals. To the best of my knowledge, the only truly profitable serial on Exmoor is Lorna Doone. There are some occasions, as today, when those hon. Members on the periphery of the country speak, by and large, in favour of agriculture while those representing urban areas speak, by and large, in favour of consumerism, neither perhaps realising how much one depends on the other.

I am glad that the debate has revealed a community of interest in which all agree that agriculture in Britain is probably the most efficient of our industries. It is certainly the most efficient user of labour and machinery. It is recognised that farmers' real incomes have gone down considerably over past years while their indebtedness to the friendly bank manager has gone up. The end product, sooner or later, will be that one is out of business, and that will be a disaster.

Many more people than farmers live on the back of agriculture. One sees in the country areas a sad decline in firms selling plant and vehicles. There has also been a decline in the prosperity of a number of shops in small towns. Far from decentralising, people are shopping in large central areas. There is a strong tendency now for the farmer to sell out rather than to hand on the business. This is one of the more disturbing factors. The price of land has been so high for so long that the only method by which a farmer can get rid of the millstone of debt around his neck is to sell out. Farms are no longer passing to a son or a son-in-law or, indeed, to a daughter or a daughter-in-law. Increasingly the buyer is the bigger estate with the ready money and ability to pay. When this happens, something else good goes out of the small business sector.

I cannot pretend that I am able to offer any support whatever to the Government over the total increase in the petrol and diesel tax. It is the old business of the countryside being penalised twice for being the countryside. One is penalised in the first place by the distance from the market, and one is penalised by the distance that one has to travel to work. It sometimes seems to us in the West Country that budgets are devised by centralised civil servants dealing perhaps with Ministers whose constituencies are far nearer the urban centres than the rural fastnesses. There is no doubt that the problems to be reaped in the countryside as a result of the changes in petrol and diesel tax will be far reaching and, in many cases, totally damning to the future of small firms and to the man who drives long distances and has to spend relatively more on petrol because he cannot afford a new Mini Metro and has to rely on an old banger. He is driving 30 or 40 miles further than the town man and therefore faces increased costs.

My hon. Friend the Member for Banff (Mr. Myles) talked about article 39. Like so much of the Treaty of Rome, article 39 is perfect in principle but imperfect in practice. The strangest and saddest factor is that all can agree about the truth, beauty and goodness of article 39, but this is not enough. As one of the men, rightly or wrongly, in the centre on this issue, I tend to divide the extremists on both sides of the House into Euro-nuts and Euro-bolts. To the Euro-nut, everything in Europe i s Wunderbar and the hills are alive with the sound of music. To the Euro-bolt, on the other hand, the hills are mountains and the mountains are the products in surplus. Whether the surplus would last a week, a month or any longer is immaterial. If it can be called a mountain, it must be bad. I would rather have a mountain of food at my door than empty stomachs inside.

Here again is the problem of the farming world appearing to be at variance with the consumer. Farmers must eat as well, and so must their families, and many people are able to eat only because of the agriculture industry.

Can we ever make a system work when everyone seems to cheat? If I ask a sheep farmer at South Molton market what he thinks of the French, the answer comes in unparliamentary language. If a French milk producer is asked what he thinks of the British, the same applies, as it would if a British horticulturist were asked what he thought about the Dutch subsidised fuel. I wonder how long it will be before we totally revise our CAP. I am not saying that we should remove ourselves from Europe, but years ago I worked overseas for produce marketing hoards which operated over several countries in West Africa with different languages and very primitive communications. It occurs to me that perhaps we could remove the individual, petty, nationalist in-fighting over products by introducing, let us say, a European sheepmeat marketing board which marketed all the available produce of acceptable quality not just in the EEC but in the world. The world is a bigger market than is the EEC, and there must be benefits in being able to use both. I know not whether this is a possible or could ever be a popular theory, but if we continue fighting our way trench by trench—the battle of the Somme, the battle of the bulge, always a new battle—our CAP will get nowhere and sooner or later the EEC, which in principle is perfect, will fall to pieces.

We have peace through the EEC; we do not necessarily have prosperity, but we should have. Grinding my own parochial axe, I cannot say other than that the prosperity of a most efficient industry—agriculture—must be safeguarded. To do irreparable damage to it or to destroy it in the name of consumerism may or may not be of some short-term advantage to our country. It would be long-term madness and we could be held to ransom when the lean years come; rather a surplus, even a big surplus, than the smallest of deficits in food.

8.41 pm

Mr. Teddy Taylor (Southend, East)

If the common agricultural policy as it now is and its basic principles are regarded as immovable the Commission's proposals are reasonable and sensible. The Commission is saying, "Let us contain the price rises and the growth of further surpluses and make sure that we do not make the CAP a great deal worse." Unfortunately, even these modest proposals will almost certainly be exceeded at the Council of Ministers. Prices will be larger than the maximum that can be afforded and various dodges will be adopted whereby States will pay a bit extra. The Minister must surely accept that the problems of the CAP will be worse a year from now because of what will almost certainly happen at the Council of Ministers. If we accept the Commission's proposals, things will just be about the same.

My hon. Friend the Member for Banff (Mr. Myles) is the first speaker in my memory who has called for some agricultural prices to be lowered. That is a wonderful gesture towards reasonableness and flexibity, which I shall try to follow. I think everyone in his right mind must accept that in principle the CAP is nonsense. It is evil, and immoral, and in the long term it is bad for British agriculture and the British consumer. We know from the published figures that the consumers pay a great deal more than they would have to pay under a deficiency payment system. No one could argue to the contrary.

We also know that if we decided to leave the prices exactly as they are and instead of having deficiency payments had our own levies, which would go to our own Chancellor instead of into the European coffers, we should have a great deal more money to spend on welfare or reductions of tax. Financially the policy is nonsense, Of course we heard from the Minister of Agriculture that the average cost to the consumer is about £5 per week per family—or £3,000 million per year.

The second thing which the CAP does, which has not been mentioned much, is to reduce the amount of goods consumed. If hon. Members will look at Hansard for 15 December 1980, at col. 57, they will see a most revealing answer given to me by the Minister of State, in which he outlined what has happened to the consumption of food since 1960. He gave the latest figures of consumption for beef, lamb, butter and milk, which showed that the average consumer in Britain is consuming much less milk, butter, lamb and beef. There is little doubt, therefore, that the CAP reduces demand, reduces the amount of food eaten.

For milk, the latest figure is 4.24 pints a week and in 1960 it was 4.84; for butter, it used to be almost 6oz; now it is just over 4oz—a dramatic fall in consumption.

A crazy situation is created when we have to send vast surpluses of food to the Soviet Union and elsewhere. It has been mentioned today that the amount of butter which we have sent to Russia since the invasion of Afghanistan is much greater than the amount sent in the previous year. I think that hon. Members might wish to look at Hansard for 8 December, where they will see that it is not just butter. Our exports of wheat, barley, flour, malt, butter, butter oil, beef, pigmeat and poultrymeat to the Soviet Union last year were greater than they had been the previous year, despite the invasion of Afghanistan.

Mr. Nicholas Winterton

At what price?

Mr. Taylor

We sold butter in the early part of the year at 31p per lb but, sadly, the Soviet consumers did not get it at that price. They had to pay the equivalent of about £1.20 per lb, which means an enormous profit is going to the Soviet Government which can be used to help finance the invasion of Afghanistan or the other nefarious purposes of Soviet aggression which my hon. Friend the Member for Aberdeen, South (Mr. Sproat) rightly condemns. I know that I have his full support in condemning the shameful practice of sending these surpluses of food at knockdown prices to prop up the vicious Soviet regime.

This applies not just to food. One hon. Member sitting here, whom I will not name, will be interested to know what happens to wine. It is appalling that last year, after the invasion of Afghanistan, we sent 149,026,300 litres of wine to the Soviet Union at a knockdown price and gave £9 million in subsidy. This is not a fabrication from the Sunday press; it is a helpful answer given to me by the Minister of State. I wonder how many of our ordinary people in this country, how many of our pensioners who are finding it difficult to pay the present price of food, are aware that they have paid to provide the equivalent of 1½ bottles of wine for every single Soviet family at a knockdown subsidised price since the invasion of Afghanistan

. We can blame the Commissioners, but it is certainly not their fault. They are landed with the enormous surpluses because, unfortunately, the Council of Ministers cannot reform or change the CAP. Even when the Commission pleads with them for minimum price restraint to ensure reasonable prices, the Ministers ignore them and put the prices well above what the Commission recommends.

I think we condemn the Commission far too readily and do not condemn the Parliaments of the member States for not agreeing to support the Commission when it is trying to be reasonable and to contain the situation.

I want to ask the Minister a simple question. Everybody talks about reform. Everyone says that we must reform the CAP. Those who are supporters or opponents, those who do not believe in the EEC, all say that we should reform the CAP. I want to ask the Minister in what direction we should reform it. People are happy to say that we must get rid of all these surpluses, but I want to know how they would get rid of them. As long as production is rising and consumption is falling because of high prices, there is no way in which we can abolish the surpluses, unless we sink them in the deep blue sea.

What we must not do is carry out the shameful policy of undermining the poorest countries in the world by undercutting them in the world market by dumping food at knockdown prices. It is pathetic and almost horrifying that some of those who write long reports about the need to help underdeveloped countries positively encourage the EEC to dump food at knockdown prices which are ruining the poorest countries. The countries which produce sugar are being ruined by the dumping of surpluses at knockdown prices. That is shameful and wrong.

How are we to achieve reform? Some people have said that we should freeze the prices of products which are in surplus. A year ago everyone seemed to acept that that was sensible. But what has happened this year? Only 12 months have passed and it seems to be generally accepted that we will be putting up prices again, so the surpluses will probably grow. All the experience over the last five years has shown clearly that there is little prospect of a major reform of the CAP which would be acceptable to all member States and which would solve the basic problems.

When there is so much pressure from agriculture we have the clear choice of going ahead as we are doing, getting deeper and deeper into trouble, or trying to replace the CAP with national policies within the framework of article 39 which can be carried out under the general supervision of the Commission. Some people say that that would be the end of the EEC. Of course, it would not. Article 39 simply states broad principles of working for the good of agriculture, consumers, and so on. We could have national policies which were in harmony with article 39.

We will have to do this. There will be pressure from the agricultural community in one, two or perhaps three years. I do not deny that agriculture in general in Britain has benefited from the EEC so far. There have been price rises to bring us up to European levels. We have had the green pound, and now the positive green pound. Compared with other industries agriculture has done well despite the reduction in income this year.

Looking to the future, British agriculture will find it difficult to get within the CAP the price rises which it claims are necessary. When prices are put up, appalling structural and financial problems are created for the CAP. It creates vast surpluses and many other problems. There will be pressure not just from the consumers; there will shortly be substantial pressure from the farming community, who will say, "We no longer like the CAP because it is stopping us getting the price rises we want."

The problems of British agriculture can be coped with by the British Government on their own. It will be impossible to solve the long-term problems of agriculture and, indeed, of the consumer unless we operate on a national basis, by all means in co-operation with other member States of the EEC. The CAP has got to go. The debate today has shown that we have a costly, bureaucratic piece of nonsense which will continue to get worse and worse because of political pressures and because of the activities of the Council of Ministers. The only conclusion from today's debate is that some time soon the CAP will have to go.

8.53 pm

Mr. Tony Marlow (Northampton, North)

I should like to start by following the point made by the hon. Member for Newham, South (Mr. Spearing). I am surprised that the Jenkinsites, the members of the new party so-called, whose only policy that has been identified by the whole country is that of slavish support for the Common Market—have not been here for this important debate about the common agricultural policy. Not one of them has been seen in the House throughout the whole debate. It is a matter of great regret and disgrace.

Most hon. Members on the Conservative Benches, except my hon. Friend the Member for Southend, East (Mr. Taylor), have come from agricultural constituencies and quite rightly have put forward points from the farmer's point of view. I know that I take a line on the common agricultural policy that would frighten many people with farming interests, but may I just say that I am speaking as somebody who over the last couple of years has probably lost more on livestock than most compulsive gamblers lose on horses in a lifetime? So I appreciate the problems.

My constituency has, I think, at the most two farms in it, so I am sure that the House will forgive me if I look at this matter from the point of view of the consumer. I am not as concerned as my hon. Friend the Member for Banff (Mr. Myles) for the CAP, which he rather looked upon as a damsel in distress which we should do what we could to help and assist. I am looking at this purely from the point of view of national interest.

I hesitate to bandy statistics with my right hon. Friend, because his skill in their selective use makes a senior wrangler look like a playschool novice, but it is important to take a statistical snapshot of the CAP and its cost to the United Kingdom.

My hon. Friend the Member for Southend, East told us that he has had an answer from the Minister saying that the cost to the consumer in the United Kingdom is about £3,000 million a year. Whenever that is said, my right hon. Friend replies by saying that it of course assumes that world prices remain the same and that if we were not in the CAP they would not stay the same. But why not? Europe would continue to churn out the surpluses that it does now. People would not eat any more or any less, and there would be no less supply or demand. It is just that the food coming from Europe would be at world market prices rather than at the current very high CAP prices.

Mr. Peter Mills

What about sugar?

Mr. Marlow

My hon. Friend mentioned sugar. There are former Commonwealth countries that would be only too happy to have long-term contracts with this country to provide sugar at well below the present CAP prices. That would bring benefit to them, to us, and to our trade and manufacturing industry, and would build up the industries in those countries. It is a great shame that we can no longer do that.

Mrs. Elaine Kellett-Bowman (Lancaster)

They broke the contracts in 1974.

Mr. Marlow

The hon. Lady can make her own speech later if she wishes. There is another way of considering the cost of the CAP to Britain, and that is to look at it the other way round. Let us consider the position of France. In 1979 the French sold within Europe some £3,000 million net worth of agricultural commodities. Those sales were made at an average price that was twice the world market price. So, there was a benefit to France, over and above anything coming through the budget, of £1,500 million in one year. That is an indication of the vested interest that the French have in the continuation of the CAP as it is at present.

In 1979 the CAP took up 80 per cent. of the Community budget. From the Community budget, over the past three years, for every pound that Britain put in she got back 49p—a very poor rate of exchange. Last year, despite the magnificent victory of my right hon. Friend the Prime Minister, we disbursed into the budget £705 million net. The farmers in the House might be interested to know that with that sort of money we could take 15p off the price of petrol

As I said, the CAP takes 80 per cent. of the budget, and two-thirds of that 80 per cent. is spent on the disposal of surpluses. One-half of all the money sent to the Community—£1 in every £2 that we spend in Europe—is spent on the disposal of surpluses of milk and beef—a sacred cow, if there ever was one.

The basic problem for this country is that the CAP, as arranged at present, is a high-price system, and we are net importers of foodstuffs. That means that we not only pay high prices to our own farmers, which I do not resent because farmers are very important people in our economy, but we pay high prices to Continental farmers. We are sending that money across the exchanges, over and above the cost of the European budget. That message must be driven home to our people. Anyone who has the interests of our country at heart should make sure that everyone in this country realises that we are not only paying through the nose into the Community budget but are paying to fatten up the French farmer, the Dutch farmer, and the Irish and the Danish farmer. The money spent in that way is in fact more than we are spending through the Community budget. The fact is not sufficiently well known.

My hon. Friend the Member for Southend, East said how difficult it would be to reform the CAP. The obverse of that is that the vested interests of the other countries of Europe who are getting our money in this way will make it very difficult for us to prevail upon them to vary the CAP.

Given those facts it is hardly surprising that there is a large and growing movement within the Conservative Party for massive reforms of agriculture arrangements in Europe. Different arrangements are needed. We need different arrangements with the interests of the United Kingdom at heart. The current arrangements do not have the interests of the United Kingdom in mind to the slightest degree.

Our farmers produce 60 per cent. of the temperate foodstuffs that we eat in Britain. They need support. I am fully in favour of that. But we must also bear in mind the requirements and interests of consumers.

Let us examine some prices. In the middle of last year the consumer in the United Kingdom was paying twice the world market price for barley, three times the world market price for beef and four times the world market price for butter. If that is not a scandal, I cannot think of one.

The Commission's proposal is for a general level of price increases of 7.9 per cent. and a 5 per cent. devaluation of the green pound. As my right hon. Friend the Minister said, that would mean an increase of 1.4 per cent. in farm incomes. I agree that that would be inadequate.

On the other hand, given the prices that I have just set out, it is intolerable that there should be any increases at all in European price levels. We can help our farmers in a different way. There is no justification for any price increases.

I shall bring a couple of brief factors into the open. First, I shall deal with MCAs. This year so far we have had average MCAs of 15 per cent. I received an answer from the Minister of Agriculture, Fisheries and Food. I shall extrapolate from it. I shall not read it, because it would take too much time. I accept that it has certain provisos. It is not an accurate answer and my right hon. Friend does not expect it to be. MCAs at 15 per cent. For a whole year are costing us, over and above the budget which has been renegotiated, between £45 million and £210 million a year extra.

We need not have put up the price of derv in the Budget. To earn £45 million we needed to put up the price of whisky not by 60p but by 15p. It is our money and it is going down the drain.

My hon. Friend the Member for Southend, East and others mentioned article 39. Let us examine it. It says nothing about MCAs. It says nothing about threshold prices. It says nothing about forcing our consumers to pay twice as much as the world price for their food.

I recommend my right hon. Friend to do some fairly simple things. I am sure that he will be keen to do them. First, he should fight for Britain and not for Europe. Secondly, he should remember that he is Minister of Food as well as of Agriculture.

As a forerunner to the radical reform of the CAP—without which our membership of Europe is as much use to the United Kingdom economy as a lead weight on each foot—my right hon. Friend should do three things. First, he should demand a price freeze. Secondly, he should have an immediate and full revaluation of the green pound. That would save up to £210 million for the British taxpayer each year. Thirdly, he should, as the French do in providing £400 million a year, provide the direct agriculture support for our farmers that they need and that the House would support.

In that way the agriculture support for our farmers would be maintained without forcing our housewives to maintain the support of Continental farmers. In that way food prices would drop, inflation would drop, and there would be a £400 million saving to the consumer, which would more than cover one and a half times the amount that we would have to spend on farm support. There would be a saving of up to £210 million in budget contributions. That would have a beneficial effect on interest rates. It would leave more money within the country to spend on industrial activity. Because there would be more industrial activity interest rates would come down and unemployment would be reduced. We are trying to achieve all that. That would be the first stage in a long haul to get a fair deal. I am sure that my right hon. Friend, on reflection and on thinking about my argument, will be pleased to do that.

9.5 pm

Mr. Robin Maxwell-Hyslop (Tiverton)

It is necessary to recite some of the more alarming facts about the income of British agriculture because they are less widely known than they should be. These facts have implications for the level of economic activity in the engineering and chemical industries beyond agricultural areas.

Between 1976 and 1980 net farming income decreased by 21 per cent.—from £1,282 million to £1,025 million. Interest payments in the same period increased by 230 per cent.—from £139 million to £460 million. Total borrowing increased by 186 per cent.—from £1,109 million to £3,171 million. Those figures are bad enough when they are spread over the entire industry, but they are not spread in that way.

The section of the industry that borrowed is basically the one which went in for expansion programmes with the blessing of the national agricultural advisory service. It received grants from the Ministry of Agriculture, Fisheries and Food for so doing because it was believed to be compatible with the national interest.

I remind my colleagues that if they go to the Library to read the Agriculture Act 1947 they will find that section 1 has not been repealed or amended. That section sets out the basis of statutorily guaranteed Government policy towards the industry. According to the Library copy—Library copies are always amended to bring them up to date—it has not been amended by subsequent legislation, including the European Communities Act 1972. It still stands on the statute book in the form devised by Tom Williams when he was the Minister of Agriculture and Fisheries in the Labour Government. It has since been reinforced, if that is the right expression, by a series of White Papers, such as "Food from Our Own Resources". The only trouble is that the finance for carrying out the self-declared policies that appear in the Act has never been provided.

The reason why borrowing has increased by 186 per cent. in the past four years is undoubtedly in large measure an inability to pay the interest on existing borrowing. There has been an accretion to the capital borrowed. A section of the industry—one cannot know what proportion of the total, but it might be one-quarter of it—is now so much in debt that it looks as if whatever happens to interest rates, however low a level they may reach, the net income in future will be insufficient to write down its debts and will be sufficient only to service them. This could be a permanent indebtedness.

Naturally the section of the industry concerned asks why it is that British Leyland, the computer industry and other industries can have their debts written off at the taxpayers' expense while agriculture, the fair return for whose labour, investment and family labour is warranted in section 1 of the 1947 Act, has been brought to its present condition by, first, the failure of the Labour Government to devalue the green pound when they should have done, thereby generating a gross shortfall in income—which has necessarily resulted in borrowing money that it should never have been necessary to borrow—and, secondly, the high interest rates over the past couple of years.

I do not intend, in an agriculture debate, to go into the reasons for those high interest rates, although I am satisfied that the greatest single cause has been the wholesale nationalisation policy of successive Labour Governments, for which the taxpayer now must pay. Nationalisation policies were also carried out when the Liberal Party was keeping the Labour Government in office after they had lost their parliamentary majority. After the Lib-Lab pact was announced in 1977, five industries were nationalised. We now have the pleasure of paying for the shipbuilding industry, which was nationalised while the Liberals were keeping the Labour Government in office.

That immense drain on public funds has been the principal cause in forcing up interest rates, from which agriculture has suffered severely, as have other industries. Together with my hon. Friend the Member for Devon (Mr. Mills), who made such a distinguished speech at the opening of the Back Benchers' contributions to the debate, I do not believe that the indebtedness of this section of the industry, be it at 20 or 30 per cent., can be cured by its own income generation in the future. The sooner that is recognised, the better.

The horticulture side is often ignored in agriculture debates. The Dutch are persisting in subsidising their glasshouse industry after such subsidies have been ruled unlawful by the courts of the EEC as well as by the Commission. That highlights the difference between what the Treaty of Rome says and what happens, to which many of my hon. Friends have drawn attention.

That is exemplified in the poultry industry. In Britain, high costs are imposed on our poultry producers and packers by the EEC hygiene regulations, which are not enforced on the Continent. In French packing stations one can see the ashtrays which are fixed to the machines for the use of those who man them when smoking is supposed to be forbidden. In the egg packing stations, the inspection cubicles may be unmanned. The eggs are sent out without anyone inspecting them. Yet, in theory, they have conformed to the necessary EEC regulations.

Experience shows that it is impractical to make the EEC enforce its regulations in countries where regulations are never enforced anyway. Greece is another country where the mechanisms of government do not exist to enforce regulations on hygiene or anything else. Therefore, we shall have to reverse the path of the EEC and do away with those inspection regulations, relying on the commercial good sense and integrity of our own firms and relieving them of costs which they cannot bear in competition with other countries which do not enforce the same regulations. That is the path down which we shall have to go.

Therefore, if we consider the EEC in terms of giving domestic assistance where exterior factors have rendered our industry uncompetitive—our industry is not responsible for the interest rates which have tortured it—if our packing stations are free from the EEC hygiene requirements, and if we arrange, by remission of duty or by subsidy, for our glasshouse industry to be able to obtain energy at the same price as the Dutch until the enforcement mechanisms of the EEC prove effective, we shall have the true competition between producers in the member countries which is enshrined in the Treaty of Rome.

9.15 pm

Mr. Nicholas Winterton (Macclesfield)

The debate is weighty and important I am delighted to see the Secretary of State and the Minister of State in their places for what I hope will be a rousing conclusion.

I have never known my farmers so angry and concerned. On Saturday morning I attended a special meeting requested by my NFU. Having spoken in Gainsborough on Friday evening, I rushed back to be greeted by farmers not only from my constituency but from over the border in Derbyshire, Staffordshire and parts of Greater Manchester.

For the first time in my 10 years in the House my Cheshire NFU has issued what I can only describe as a panic document relating to the 1981–82 EEC farm price proposals. The House will therefore appreciate how strongly my dairy and livestock farmers feel about the situation. The document is headed: Don't let them sell out Cheshire farming. Three of the major points that it makes are: Can you afford to have your milk cheque reduced by 6p in the pound? Do you know that the revaluation of the green pound could take a further 25 to 30 per cent. of your income? United Kingdom farmers have a worse income position than anywhere else in Europe, except Denmark—the proposed Euro-package will make the position worse! The document has been posted through many doors in Cheshire, so that members of the public have been made aware of the situation.

My right hon. Friend has resolved some of the queries in my mind, and will have pleased my dairy farmers by much of what he said, particularly that he would be prepared, if necessary, in the interests of Britain and the British farmer, to use his veto in the Council of Ministers. My farmers will be greatly reassured.

The meeting on Saturday lasted for about 2½ hours. One dairy and potato farmer in the village of Siddington, outside Macclesfield, reported an overdraft £20,000 up on last year's figure. Another leading officer of my NFU reported that if he did not reduce his overdraft during the next year the bank would foreclose. In a letter that he subsequently sent to me he stated: As you know, five years ago we made a large investment to make our farm efficient. By now that investment, plus hard work, should have started to pay. In fact, our income has gone down and our overdraft has increased. If the new prices are ratified we will get less cash next year. Our input prices are and will go higher and our loss will be greater. Our answer is to cut all spending on repairs and improvements, to reduce the breeding herd. This will mean less trade for other industries and dearer food for the consumer. May I remind you that the wealth of this country is in the land. If farmers go bankrupt, so will the country. He could not have put it better. I am delighted to see my right hon. Friend the Minister nodding his head. Our farmers produce a commodity that the people need, which is perhaps much more important than coal, steel or the other industries that receive generous handouts from the Government. We cannot live without food. The letter accurately reflects the concern of the dairy industry.

Another farmer reported his profits down £4,000 from the 1979–80 figure. The county chairman, Mr. Geoff Morris, who happened to be at the meeting, reinforced the views of my farmers and those from adjoining areas. He said that the tax adviser to the NFU in Cheshire reported that at least 30 per cent. of his dairy farming clients had used the two-year tax average in 1980 as against hardly any the previous year, indicating a drop in profits of at least 30 per cent. That shows clearly the serious position that we face.

I now quote briefly from a letter sent out by the chairman of the NFU in Cheshire: As the elected leader of Cheshire farmers I write seeking your support to prevent the farmers of this county being forced into bankruptcy unless the levels of EEC farm prices now being discussed are significantly improved. I do not use the word 'bankruptcy' lightly. Official data"— and this data was provided by the Ministry itself— clearly spells out the precarious plight in which our farmers and growers find themselves. Just look at a few of the facts: Over the last full farming year our incomes fell by 10 per cent.—or an even more alarming 25 per cent. when measured in real money terms. I am quoting here from people who are actually in farming and should know the position for themselves. It is vital to put this on record so that the Government know how strongly people feel. Mr. Morris continued: Because of this and the long-term nature of farming operations our indebtedness to the banks and other finance houses reached the highest level ever—and much of this was disaster borrowing. Glaring gaps are also beginning to appear in our breeding herds and this is an ominous sign and one which will affect the pockets of consumers unless the growing crisis of confidence on Cheshire farms is reversed. You might well say that other industries are also in difficulties"— indeed, we know that they are— which we do not dispute. But what I have to point out is that agriculture's crisis started several years ago and has deteriorated to such an extent that by 1980 the total decline in own real income had been down by more than half over four years. Input prices i.e. what we pay for goods and services, soared by 92 per cent. over the past five years whilst our farmgate returns rose by only 58 per cent. This matter was highlighted by my hon. Friend the Member for Tiverton (Mr. Maxwell-Hyslop).

I summarise the points quickly. I am speaking for my farmers in Cheshire and the North-West, and the dairy and livestock industry in particular. First, the industry in Cheshire is in the first stages of what I and they consider to be a serious decline. It is not particularly due to the present recession or the recent high interest rates, but to the simple fact that costs have risen at a much higher rate than returns over a period of years. Income has therefore dropped by an increasing rate and bank borrowings, to give a figure provided by the National Westminster Bank, have increased by £2,500 million to more than £3,000 million in one year. That is a dramatic statistic. Moreover, 50 per cent. of farm income now goes towards interest payments, compared with only 11 per cent. 10 years ago.

With reference to the Minister's use of slaughtering figures when I asked his him a question last week, the NFU and I consider that this was a rather unfair comparision to draw. It is my view and, I believe, that of farmers that it would be far better if he and his Department looked at the accounts of some of the farms in the area to assess the problems faced by dairy and livestock producers at this time. If he referred to Murray Smith and Company, chartered accountants, of Northwich, in Cheshire, they would gladly supply him with details of the drop in incomes of many of their clients who are my constituents.

Secondly, it follows that a substantial rise in farm prices is required, with no revaluation of the green pound—and I am delighted that my right hon. Friend indicated that he would not support such a revaluation—to offset the benefit of a rise to United Kingdom farmers. Any further co-responsibility levy must apply only to those countries which increase their surplus commodity production.

Thirdly—and I say this with every emphasis that I can muster—the national help given to other members States must be either stopped or matched by our own Government.

Fourthly, the point has been made that there is increasing resentment that other member States in the Community seem to show more determination in looking after their farmers' interests than apparently the Government have shown for farmers in the United Kingdom.

I have been reassured by many of the comments made by my right hon. Friend the Minister. He has said time and again that he is keen on promoting good marketing, but if we cannot secure fair competition within the Community surely we shall lose our own market by default. The most glaring example, which has been quoted several times in the debate, is that of the problems in the horticulture industry and the way in which the Dutch subsidise their heating costs.

I know that another of my hon. Friends wants to participate in the debate, so I shall conclude. My right hon. Friend is doing an extremely good job in difficult circumstances. I was appreciative of the amount of work that he put into preparing what he said today. I shall be happy to send a copy of that speech, with my limited remarks, to the many farmers who attended the meeting in my constituency on Saturday, many of them missing the first half of the rugby international in the afternoon as a result. I know that much of their concern will have been laid to rest by my right hon. Friend's speech.

9.26 pm

Mr. Nicholas Baker (Dorset, North)

I am grateful to you, Mr. Deputy Speaker, for allowing me to intervene briefly. I am also grateful to my hon. Friend the Member for Macclesfield (Mr. Winterton) for giving me the opportunity to do so.

I shall confine my remarks to one of the points that I wanted to make. In the last two weeks, for the first time in my political experience so far, farmers have presented me with their accounts. Even allowing for the limitation of written accounts, they revealed a serious picture. My concern is that our small farms are threatened. No doubt those farmers will have been relieved by what my right hon. Friend has said.

I have looked at the typical milk enterprise of between 150 and 250 acres which exists in my constituency and, no doubt, the constituency of my hon. Friend the Member for Devon, West (Mr. Mills). People in that sector are efficient. They are not contributing to a surplus. However, their future is threatened. Their land cannot be used for any other type of fanning except beef production, and the few people who have tried that have found themselves in even worse straits.

The picture is just as serious for the pig producer. He is efficient. But even where the food conversion ratios are at the top level of efficiency, his profitability is down to zero. In fact, 4.4 per cent. profit is relatively good, even before taking account of any interest payments. A pigmeat processor in my constituency—Case and Sons, near Gillingham—has persuaded its suppliers to take reduced prices in order to keep the factory going. That is a small but viable and efficient factory.

Small businesses are important to rural communities, because all the other facets of rural life depend on them. I know that they will take heart from what my right hon. Friend said today.

9.28 pm

Mr. Gavin Strang (Edinburgh, East)

We have had a constructive debate. In general, hon. Members have addressed themselves to the price proposals but have not lost sight of the fact that nowadays this is the only agriculture debate of the parliamentary year. That certainly applies to the last four or five years. It is therefore right for hon. Members to take the opportunity to raise some of the real issues which are now affecting British agriculture.

There have been quite a few changes in the situation since we last had a debate of this nature almost exactly a year ago, but I regret to say that the one thing that has remained constant is the enormous cost of the CAP. We must not lose sight of that. Some hon. Members were clearly a little irritated by some of the remarks made by my hon. Friend the Member for Newham, South (Mr. Spearing) and the hon. Members for Southend, East (Mr. Taylor) and Northampton, North (Mr. Marlow). However, the cost of the CAP is rising inexorably. It represents a massive misuse of resources. Let us take the milk sector. How can we justify the fact that last year about £3,000 million was spent on the milk regime alone? That is about 30 per cent. not of expenditure on agriculture but of total Community expenditure.

Since we last debated the price proposals from the Commission there have been a number of important changes. In terms of the effect of the CAP on the United Kingdom, the most important change has been the development of positive United Kingdom MCAs as a result of sterling's appreciation. For the first time since the Corn Laws of the nineteenth century we are imposing taxes on food imports from Europe. It does not make economic sense for us to apply such taxes. We are a net food importing nation. The taxes do not even go into the British Treasury. They increase our net contribution to the Community budget, thus offsetting the improvement that the Prime Minister achieved last year.

Mr. Peter Walker

When the hon. Gentleman says that it makes no sense to have such a tax, does he mean that the Opposition think that there should be a revaluation of the green pound so that the position is neutral?

Mr. Strang

I am grateful to the right hon. Gentleman for that intervention, because he has anticipated the point that I was about to make. I intend to address myself to that issue. In principle, we are opposed to positive MCAs, but we recognise that, given the present state of British agriculture, it would be irresponsible to eliminate MCAs overnight.

Mr. Peter Walker

How much?

Mr. Strang

The right hon. Gentleman did not tell us how much. He did not give any estimate of the size of revaluation that the British Government intend to accept in the negotiations. The right hon. Gentleman said that he opposed a massive revaluation. I did not understand the Minister to say that the British position was one of opposition to any adjustment of the MCAs or to any revaluation of the green pound regardless of the common price increase ultimately reached.

The revaluation must be judged against the final settlement in terms of price increases. More important, the problems of British agriculture should be tackled by national measures. Regardless of what revaluation the right hon. Gentleman manages to avoid, the state of British agriculture means that we must introduce a package of national measures.

Since we debated these issues last year there has been a major change. There has been a decline in the profitabiity of British agriculture. It is almost impossible to exaggerate the position. Several hon. Members referred to it. However, taken as a whole, the speeches of Conservative Members—particularly the speech of the Minister—did not reflect the gravity of the crisis facing British agriculture. Agricultural incomes were down 24 per cent., in real terms in 1980—the fourth successive fall in four years. The livestock sector is in real trouble. The agriculture industry buys about £6,000 million worth of goods from the rest of the British economy. A massive decline in its profitability and a cutback in investment in plant and machinery have had a serious effect on other industries. Agricultural implement firms are going into liquidation. Thousands of workers are being put on the dole as a result of a reduction in demand for tractors and the lack of investment in new machinery. The state of British agriculture must be addressed more decisively than it has to date.

I shall refer briefly to some of the more important commodities. First, production of milk, which is still our most important agricultural commodity, rose sharply in the second half of the 1970s. It is now static, at best. We are opposed to all levies. We believe that we should hold down common prices for products in structural surplus. It does not make sense to apply levies, because the history of the Community shows that in practice the price increase is adjusted upwards to offset the cost of the levy. My fear is that levies swell the Community budget indirectly and have the effect of reducing consumption of those products because prices are increased.

In the dairy industry the position is serious. The failure of the Government to take advantage of the £125 million which is available from the Community for a subsidised milk scheme in our schools is little short of a national scandal. It is no use Ministers telling us how much they are concerned about the milk sector when the consumption of milk in our schools has declined so drastically. In 1979–80 the figure was as low as 90 million litres. If we go back far enough we find that there was a time when we consumed more than 200 million litres of milk in our schools. Why is it that 70 per cent. of schoolchildren in Denmark can obtain EEC-subsidised free school milk? The United Kingdom is pursuing policies which prevent its taking advantage of EEC money and which add to the difficulties of its dairy sector.

On the subject of levies, can the levy on the A sugar quota still be reopened in these negotiations? I accept that there is no capital to be made from either side of the House on sugar. I remember when I sat in the Council of Agriculture Ministers seeking an EEC subsidy for imports of sugar because of the serious world shortage of sugar at the time. I agree the outlook for the sugar regime is likely to be one of surplus and continuing cost to the Community.

I want to raise the major issue of the closure of the Tate and Lyle refinery. The impression given by the Prime Minister when she met a large deputation from Liverpool was that she was genuinely concerned about the social consequences of the closure. I hope that Agriculture Ministers are not dragging their feet on any attempt to save that refinery. A package could be produced, with possible help from the EEC and certain help from the unions, the company and the Government, to keep the refinery in production. It would be a scandal if it were allowed to close when unemployment in Liverpool has reached such an intolerable level. My hon. Friend the Member for Liverpool, Scotland Exchange (Mr. Parry) would have made that point had he not been unavoidably absent through illness.

I followed with interest the Minister's remarks about beef. It is unsatisfactory that each year we have to renegotiate the variable beef premium. We know that the Commission excludes the premium from its proposals as a bargaining counter so that Ministers have to exhaust negotiating capital in restoring it. I hope that the Government will insist that the variable premium becomes a permanent element of the beef regime. It should be wholly financed by the Community while intervention buying is wholly financed.

I do not advocate illegal national measures to help the agriculture industry. Perhaps the French package of £350 million is illegal under the Treaty of Rome. There is enormous scope for production aids to the industry—for example, an energy subsidy for our glasshouse growers. The Commission said that that would be acceptable. We could increase the beef suckler cow premium. We could reverse the cuts in the capital grants that the Minister announced not long ago, with special reference to the cut in the lowland drainage grant. There is a case for substantial aid to the pig and poultry sectors—for example, a pig processing aid scheme. It makes more sense for the British people to pay direct aid to our industry than to pay taxes into the European budget through higher food prices. That is the basis of the Opposition's attitude to the positive MCAs.

I am not suggesting that all the problems in the industry have been caused directly by the Minister—far from it—but the high interest rates suffered during the past year and the increase in petrol and diesel tax will do real damage to its profitability. I listened carefully to the Minister. He said that he wanted the 1980s to be a decade in which British agriculture increased its production and its share of the world markets. I do not wish to be disparaging about the marketing experts and committees that the right hon. Gentleman has appointed. I do not think that they were appointed as a smoke-screen to deflect attention from some of the actions that many of us believe the Government should be taking to help British agriculture. One can appoint as many marketing experts as one likes. When investment in the industry is falling as sharply as it is now, and when, last year, more than 30,000 workers in food processing lost their jobs, it is almost peripheral to make a major issue of appointing marketing experts.

There are real problems facing British agriculture. They have to be tackled. They will not be solved in the price negotiations that are to start in earnest next week. They will be solved by taking hard decisions in the Cabinet Room in Downing Street. That is why our amendment, which I am glad the Government have indicated is acceptable to them, reaffirms our opposition to the CAP as presently constructed. There has to be reform of the policy. It is against the interests of the British people. That is why we hope that the right hon. Gentleman will succeed in holding down increases in prices and that he will succeed in avoiding a further escalation in the production of those commodities already in surplus.

There is no point in the Prime Minister achieving a net reduction in the British contribution to the Community budget if it is more than offset by enhanced contributions from the British in the form of positive MCAs and an increase in our share of the cost of escalating surpluses.

9.46 pm

The Minister of State, Ministry of Agriculture, Fisheries and Food (Mr. Alick Buchanan-Smith)

We have had an interesting debate, not least in trying to seek clarification of precisely what is the policy of the Opposition towards agriculture and food. Although there may have been a considerable degree of equivocation in the speeches from the Opposition Front Bench—I shall return to them—the British food industry, in its widest sense, can have no confidence in the line put forward by the Opposition to the effect that their interests will be represented by the Labour Party in negotiations in Europe.

As I am afraid is sometimes the case, we have had the usual run of headline-seeking speeches. The right hon. Member for Barnsley (Mr. Mason) and my hon. Friend the Member for Southend, East (Mr. Taylor) referred to the easy, headline-catching issue of sales of butter to Russia. I share their concern. I hope, equally, that they realise the part that the United Kingdom has played in endeavouring to restrict those sales. They might acknowledge the fact that at the present time there are no refunds on butter sales to Russia.

The right hon. Member for Barnsley also raised the question of ales of butter to schools such as Eton. Before doing so, he should have reflected on the fact that Eton first qualified for the purchase of butter at a subsidised rate in 1974. He might reflect upon which party was in power at the time and his position in that Government and every year thereafter. Before the right hon. Gentleman again tries to seek headlines in the speeches he makes, he might find it rewarding to carry out some research into the schools attended by his right hon. Friend the Leader of the Opposition.

Mr. Jay

I understand that this debate does not have to end at 10 pm. As the hon. Gentleman has mentioned sales of butter to the Soviet Union, will he answer the simple question that I asked? Is it true that those subsidised exports increased 60 per cent. in 1980?

Mr. Buchanan-Smith

Subsidised exports did increase. I have not denied it, I deplored it, and I hope that the right hon. Gentleman heard that. I hope also that his old school benefited from the butter subsidies.

In a debate of this nature there is always accusation and counter-accusation, but it has to be recognised—and my hon. Friend the Member for Banff (Mr. Myles) did so—that in many ways the common agricultural policy has achieved a great deal. There are several positive achievements. Those who seek to criticise it, especially the Opposition Front Bench, must get their arguments into perspective.

It is significant, for example, that the hon. Member for Edinburgh, East (Mr. Strang) spoke of restraining the growth in expenditure on the CAP. In the last year for which the Labour Government were responsible the growth in expenditure on the CAP amounted to 26 per cent. I hope that he will give the Conservative Government credit for having reduced that rate of increase in expenditure to 10.7 per cent. last year. The Conservative Government have achieved a reduction in the rate of expenditure that the Labour Government dismally failed to achieve.

The right hon. Member for Battersea North (Mr. Jay) raised the question of stocks. It is easy, when looking at Europe as a whole, to talk of mountains, but beef stocks amount to 16 days' consumption. My hon. Friend the Member for Southend, East is always referring to butter, but the stock amounts to 17 days' supply. I share the view expressed by my hon. Friend the Member for Devon, North (Mr. Speller); I would rather have a reserve outside my door than an empty belly within, and I feel sure that that view is shared throughout the country. The Opposition must realise that we cannot support agriculture and food without being prepared to devote resources to that end.

Several references have been made to the Commission's paper "Reflections on the Common Agricultural Policy." It compares the proportion of GNP which various countries in the Western world devote to the support of agriculture. The EEC devotes about 1.5 per cent. of the GNP to the support of agriculture. In the United States of America that figure is 1.5 per cent. Japan devotes 5 per cent. of its GNP to the support of agriculture. Therefore, although in absolute terms, because we are looking at Europe as a whole, the amount of money spent in support of agriculture may seem large, hon. Members, to be fair, should get their figures into perspective and realise that the amount that Europe is prepared to devote to agriculture is very much in line with, and in some cases less than, the amount devoted to it by other countries in the industrialised Western world. Hon. Members on both sides of the House should be prepared to acknowledge that.

Mr. Marlow

Will my hon. Friend give way?

Mr. Deputy Speaker (Mr. Ernest Armstrong)

Order. It is obvious that the Minister is not giving way.

Mr. Buchanan-Smith

I turn now to the question of prices. The hon. Member for Bradford, South (Mr. Torney), who is no longer in his place, made a bitter speech about agriculture, about the Common Market and about the contribution made by prices. I remind the hon. Gentleman and the House of the contribution which agriculture has made not only to the economy of the United Kingdom over the past 12 months but to the economy of Europe. Farm gate prices rose last year by 6 per cent., food prices generally by 9 per cent., non-food prices by 14 per cent. and wages by 19 per cent. Those are the figures which face us and those figures are a measure of the contribution which agriculture has made to the economy of this country over the past 12 months—a contribution which we wish to see agriculture continuing to make.

It is in the face of that contribution—the contribution that we know that agriculture can make to the economy of this country—that, given the fall in real incomes, which we acknowledge and which my right hon. Friend acknowledged at the beginning of the debate, we have to view the review of agriculture prices in the Common Market in the weeks ahead.

Here we want to know the position of right hon. and hon. Gentlemen opposite, because they go on talking in terms of price restraint in the face of those figures, when agricultural incomes in real terms have been falling so much, and all they seem to want to do is make sure that agricultural incomes fall further still.

Turning to the question of the co-responsibility levy, the hon. Member for Edinburgh, East, who wound up for the Opposition, said that he was totally opposed to the co-responsibility levy, that that was the one thing that must be opposed at all stages. I would remind him that it was his Government——

Mr. Marlow

rose——

Mr. Deputy Speaker

Order. The hon. Gentleman is not giving way.

Mr. Marlow

On a point of order, Mr. Deputy Speaker. At what time is this debate scheduled to finish?

Mr. Deputy Speaker

Eleven-thirty.

Mr. Strang

It is not my contention that the Minister is likely to eliminate the existing co-responsibility levy, but I welcome his opposition to the increased levy for intensive producers, and I still believe in principle that we who were in the Labour Government should be opposed to these levies.

Mr. Buchanan-Smith

I am interested to hear that. The hon. Gentleman has confirmed that he is in principle opposed to these levies. I remind him that it was his Government—and he was a Minister in the Ministry of Agriculture at the time, attending the Council of Ministers—who agreed to the introduction of the co-responsibility levy in September 1977 at a rate of 1½ per cent. There we have the kind of hypocrisy that we have had to face throughout the whole of this debate tonight.

I turn finally to the one issue on which I believe we have had the most hypocritical attitude from the Front Bench opposite and in the speeches of so many hon. Gentlemen. I refer to the question of the revaluation of the green pound. The hon. Member for Edinburgh, East said that it was the first introduction of a tax on food since the corn laws. I remind him that it was his Government who first introduced minimum import prices for cereals. Therefore, they, again in principle, say one thing and do something quite different. That shows the hypocrisy of the position which they are taking tonight.

I believe that those who are clamouring for this revaluation of the green pound are simply flying in the face of what is in the best interests of British agriculture and of the British economy. The right hon. Member for Barnsley said that we should test what effect revaluation would have on prices. We do not need to test it. We know what happened when the Labour Government had negative MCAs as high as 45 per cent. That was a 122 per cent. increase in prices. It has been tested already, and we know that it does not have the effect on prices which the hon. Gentleman might claim for it.

It is significant that those who are clamouring for a revaluation of the green pound are precisely those who want to get into the British market and take away opportunities from British farmers and the British food-processing industry. I think that it is significant that the Labour Party is seeking to align itself with them. It also comes strange from a party that constantly criticises the strength of sterling and the effect it has on our manufacturing industry to seek to remove the one device which helps to protect a major section of the British economy from the effects of a strong currency.

That demonstrates the hypocrisy of the position of the Opposition tonight. If they had their wish about revaluing the green pound, the only effect would be to lower farmers' incomes, to strangle the opportunity for our processors and to put at risk the security of supplies to our consumers. That is why farmers, processors and consumers look to this Government to look after their interests and those of the country.

Question, That the amendment be made, put and agreed to.

Main Question, as amended, agreed to.

Resolved, That this House takes note of European Community Documents Nos. 5091/81 and 5091/81 Addendum Ion Common Agricultural Policy prices 1981–82; 5191/81 on the agricultural markets situation 1980; 12271/80 on Reflections on the Common Agricultural Policy: and the Ministry of Agriculture, Fisheries and Food's unnumbered explanatory memorandum of 17th March on the development of livestock production in Ireland; recognises the contribution United Kingdom agriculture makes to the national economy and the need to obtain adequate returns for United Kingdom producers; and supports the Government's intention to seek an agreement designed to reduce production of structural surpluses where these exist, and stresses the need to hold down prices on those products in structural surplus and to submit proposals on common agricultural policy reform which will be designed to reduce the costs of the common agricultural policy which will take account of the interests of food processors and consumers.