HC Deb 03 April 1984 vol 57 cc935-42

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Donald Thompson.]

12.12 am
Mr. Ivan Lawrence (Burton)

I hope that I shall not be accused of tedious repetition if I raise again the question of the EEC review and its effect upon farming incomes. When, five weeks ago, I first entered your ballot, Mr. Speaker, in order to raise on the Adjournment of the House the subject of the decline of farming incomes, I did not know that the impending EEC price review would deal such a blow to the expectations of the coming year's farming incomes in the dairy sector. I wish to speak mainly about that sector, because most of the farmers in my constituency are dairy farmers. I hope that I shall have time to refer to that blow, because this most recent development greatly aggravates the problem of farming incomes.

I chose this subject for debate because for years people in my constituency have been saying — doubtless because they believe it to be so—that all farmers are making money hand over fist, or that farmers are always moaning about their profits, but that every farmer drives a big Mercedes—or perhaps a big Rolls-Royce, though never a Rover or a Granada. People say that they have never seen a poor farmer. Recently they have added that the subsidised farmers do not know what economic recession is, and that all they do it mess up the countryside, pull down the hedges, burn stubble so that smoke blows all over the motorways and moan all the way to the bank.

No doubt there are some farmers who fit that description, but there are many farmers—there are some in my constituency — who are poor. Some of them would have been going out of business even without the price review. I thought that the House might like to hear, or to read in the Official Report, about the declining income of a more or less typical dairy farmer in my constituency. I say typical, but he is one of the better-placed farmers. His farm is comparatively large, with 700 acres. Most of the farmers in Burton and Uttoxeter are much smaller and less well diversified, and therefore in greater difficulty.

Let us call the farmer Mr. Brown, to preserve his anonymity. He is a good farmer—he has been a farmer for over 30 years — and he has never known such worrying financial figures. Last year his profit on an investment of £320,000 was £30,000. This year he expects a total deficit of £56,845, to be financed out of last year's profit.

Let us examine the increase in his costs and then the decrease in farm prices. First, costs. During the past 12 months the cost of dairy cake has increased from £142 a tonne to £167 a tonne. His cows eat 432 tonnes, so the extra cost will be £10,800. However, the cost of barley fed to the cows has decreased by £12 a tonne, so the 200 tonnes that he uses will cost £2,400 less. The overall cost increase of dairy cake will be £8,400. The bought feed for the young stock has increased by £25 a tonne; they eat 120 tonnes a year, so the increased cost is £3,000. This year the cost of fertiliser has increased by £20 a tonne for the 140 tonnes used, which is an increase of £2,800.

Last year Mr. Brown's seven workers accounted for £50,000; assuming a 5 per cent. increase this year, the increase will be £2,500. There has just been a settlement of a 33 per cent. increase in the farm rent. That was arrived at by the landlord assuming a price increase of 11 per cent. a year during the past three years; at £30 to £40 an acre, the increase is £7,000. It looks as though there may be a 5 per cent. increase in the other overheads of rates, insurance, electricity, telephone, machinery, repairs, etc., which will be an additional cost of £2,000. In all, his costs will increase by £25,700.

How will those increased costs be paid for? Out of increased prices? No, Sir. The likely price figures are as follows. The milk price is expected to average, he believed at the time, 0.5p a litre less than last year; 250 cows give 6,500 litres, which means a reduction of £8,125 in milk returns. Fifty cull cows, which are making £100 less in the market, down to £350, represent a reduction of £5,000. Fifty surplus heifers, which are worth £100 less at £550 a head, mean a reduction of £5,000. The herd produces 150 week-old calves which are sold in the local market, last year at £60 and this year at £30, which means a reduction of £4,500. The farm produces 350 tonnes of barley each year; last year it sold for £108 a tonne, but this year's price is quoted at £96 a tonne. That is another reduction of £4,200. Similarly, 270 tonnes of wheat, which was £114 a tonne, is now quoted at £98 a tonne, which means a further reduction of £4,320. In all, there will be a reduction of £31,145 in the prices that Mr. Brown can expect to receive.

Is that not an appalling reduction in farm incomes? The reducion will be about £56,845 in one year, or £26,845 over two years if one takes into account Mr. Brown's profit. How long can farmers in such circumstances—my local NFU assures me that those figures are pretty general in our area—afford to stay in business? Perhaps in the past such a fanner did well, and perhaps farmers, being proud people, pretend that things are going well and put on a good face. But there is no arguing with such statistics. The image of the over-paid, over-subsidised, profit-ridden farmer is all too often, alas, just a myth.

Will that picture improve with the new Community price agreement? First estimates are extremely worrying. A 0.6 per cent. reduction in money payment for milk, added to a likely increase in costs of 6 per cent., means a reduction in real income of about 7 per cent. This has been estimated as leading to a drop in production of about 10 per cent., with 5,000 British dairy farmers going out of production and the slaughter of 500,000 dairy cows.

What I am not sure has got home to everyone, at present reeling from the blow of a sudden overnight quota restriction as well, after being encouraged especially by subsidies to over-invest and over-produce in the years leading to this one, is that the measures will save only £1,000 million of the £3,000 million overspend that is the problem with the surplus of milk production in the EC. The question is: will the other £2,000 million be cut and, if so, when? Can the milk producer expect further savage cuts next year, or the year after, or the year after that? In the meanwhile, since the EC Commission has had to concede the loss of certain payments it expected before the Irish arrangement, will there have to be a supplementary price review before next year, perhaps after 14 June? If my hon. Friend could give reassuring answers to those questions it would help to prevent the onset of dithering uncertainty that might well sound the death knell to intelligent investment in and planned production of dairy herds.

Even the dairy farmer knows that this settlement was not all bad and that my right hon. Friend put his heart into trying to secure a better deal for the British farmer. We have agreement, which is better than disagreement and uncertainty. From this agreement may come a speedier and more constructive reform of the whole EC budget, for the way is now clear to concentrate on that and that would be to the benefit of every taxpayer, including the farmer.

The food and drink industry, which I also represent in my constituency, seems well pleased with the settlement, if the warm welcome accorded to the deal by the Food Manufacturers Federation is anything to go by. There have been such achievements as retaining the beef premium, albeit at a rate reduced by 20 per cent., the increase of 5p on wool which will help the sheep industry, the doubling of the suckler cow premium and particularly stopping the devaluation of the green pound. These are substantial benefits and my right hon. Friend should be congratulated on them.

Furthermore, because of our small farming community compared with, say, France we were having to pay more towards the CAP budget and more for the import of foodstuffs in which we were not in surplus. So, as The Guardian helpfully pointed out: Both Mr. Jopling and Mrs. Thatcher deserve congratulation for keeping their eyes first and foremost on Britain's national rather then sectional farming interest. Nevertheless in the longer run the decline in farming incomes is unlikely to be all that good for the nation.

Mr. David Maclean (Penrith and The Border)

I apologise for interrupting my hon. and learned Friend when he has been delivering such a strong case. Will he take it from me that unfortunately the case of Farmer Brown is by no means unique? I too have hundreds of farmers in similar circumstances. Has my hon. and learned Friend seen the table that was published in Hansard last week in response to a question that I put to the Minister, which gives frightening figures for those sectors of agriculture involved in the dairy industry, in cattle and sheep and in pigs and poultry? Has he seen that from a base of 100 in 1977–78 it is forecast that in the current year dairy farmers will be down to an index of 65, cattle and sheep farmers to an index of 64 and pig and poultry farmers to only 25? These are the percentages of what they were earning seven years ago.

Mr. Lawrence

I have indeed seen those figures because my hon. Friend was good enough to show them to me in the Lobby before I came into the debate. They are appalling and should be sent to everybody who has anything to do with the farming industry to alert them to precisely the problems facing farmers.

Mr. Matthew Parris (Derbyshire, West)

I have great sympathy for the notional Farmer Brown whom my hon. and learned Friend has described. Will he accept that, great as Farmer Brown's problems may be on 700 acres, he at least can diversify, but that Farmer Green in Monyash or Flagg, 35 miles north of my hon. and learned Friend's constituency, on 70 acres, who depends on dairying and for whom it would be difficult to diversify, is in an even more desperate situation?

Mr. Lawrence

My hon. Friend's devotion to the cause of agriculture in Derbyshire, West is well known and I have difficulty in keeping ahead of him in my concern for the farmers. To his Farmer Green I could add Fanners Black, White, Brown and practically any other name of farmer in my constituency, who suffers precisely that problem.

Mr. David Lightbown (Staffordshire, South-East)

indicated assent.

Mr. Lawrence

I see my hon. Friend the Member for Staffordshire, South-East (Mr. Lightbown) nodding in agreement. I know that he, as a leading protagonist of farmers in Staffordshire, also has that sad and unhappy experience.

Mr. Maclean

Is my hon. and learned Friend aware that, despite those different coloured farmers, it is still not a pretty picture?

Mr. Lawrence

I take my hon. Friend's point, and I hope that the time will not come when he sees any of his farmers having to feed thistles to their flocks.

Farming is one of Britain's biggest employers. It has 625,000 workers, or 2.7 per cent. of the United Kingdom labour force. If farmers go out of business, there will be fewer jobs, not only in farming but in related industries such as farm machinery, fertilisers, food retailing and a thousand different jobs, which account for about 2.2 million of the working population, representing another 10 per cent. of the labour force.

If farmers go out of business they will produce less and we will have to import more, with bad effects on the balance of payments and the price of food. Many people are concerned with ecology but the countryside would suffer without the conservation efforts of farmers. Fanning is one of Britain's most successful industries, not only because it employs so many people but because its record of improving food production and its success towards achieving self-sufficiency are considerable benefits to Britain. While the retail price index rose by 76 per cent. between 1977 and 1982, the price of food produced by our farmers rose by only 57 per cent. , well below the rise in the cost of living, and that is a proud record. Yet producers' prices rose by only 42 per cent., and there lies the problem.

It is very much in the nation's interest that farming stays a successful industry. Can the Minister be more optimistic than Burton's dairy farmers are at present and say that it will continue to be a successful industry?

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

I am grateful to my hon. and learned Friend the Member for Burton (Mr. Lawrence) for raising a subject that is of considerable and understandable concern at present. I am also grateful to my hon. Friends the Members for Penrith and The Border (Mr. Maclean), for Derbyshire, West (Mr. Parris) and for Staffordshire, South-East (Mr. Lightbown) for staying to play a small part or to listen to the debate, and I have noted carefully the points that my hon. and learned Friend and others have made.

It may be helpful if, first, I put matters into a historical perspective. The industry has made great advances in recent decades, as can be seen from the White Papers which summarise the conclusions of the annual reviews during this period, and I shall return to that subject shortly.

Agriculture, as my hon. and learned Friend pointed out, is a major employer, with about 625,000 people directly engaged in farming and a similar number employed by ancillary industries. Agriculture has an excellent record of improved efficiency, technical innovation, high investment and good industrial relations. In the last 30 years, average cereals yields have increased from just above 2.5 tonnes to over 6 tonnes per hectare. In the same period, the milk yield per cow has risen by about one third.

In the last 10 years we have increased our self-sufficiency in all foods from below 50 per cent. to 60 per cent., and for those foods which it is possible to produce in the United Kingdom the figure has increased by 15 per cent. to 76 per cent. That is a dramatic increase, and I recall telling the House 10 years ago that we imported half the food we ate and that that was very costly. That increase in our ability to produce our own food and that great improvement in our self-sufficiency represent a considerable contribution to the nation's balance of payments. The food share of our nation's total import bill has fallen from 40 per cent. in the 1960s to around 12 per cent. It has been said that, had it been possible for other industrial sectors to mirror that impressive performance, the economic state of our country would be very much better.

It is true, as my hon. and learned Friend said, that farm incomes have generally fallen in real terms during the past decade. That dramatic rise of 37 per cent. in 1982 was due mainly to the exceptional harvest of that year. I recall saying at the Dispatch Box that it might be a dramatic rise, but it still represented a lower income for the farmers than the figure in the 1970s. In 1983 incomes are forecast to stay above the level achieved in 1981, although still remaining in real terms below the levels of the mid-1970s.

Those broad figures inevitably disguise significant variations in the incomes of various sectors of the industry. My hon. Friends will know that the arable sector has generally done much better than livestock, and the intensive livestock sector has fared particularly badly in recent years. They will know that during the price reviews in the past few years, particularly when we were subjected to being outvoted in Europe, we tried to secure a lower return on cereal prices because we feared what it would do to the balance with regard to the livestock sector of agriculture.

My hon. Friends will be thinking particularly of their constituents, but they will know that it is difficult for me to judge between farms. Let us look at the annual review of agriculture for 1984 and at the figure for the notional farm. That is a wider figure than the figures for individual farms. The income for the notional farm in 1981—I said that we would be back at roughly the same figure—was £1,318 million. In 1982, after the dramatic increase due to the good harvest, it went up to £1,802 million. The forecast for 1983 was £1,536 million. Therefore, it is not as good as the year before, because that was an exceptional year—that point was made often in the Chamber. The 1983 figure is marginally above 1981, but in real terms, it is not as high as it was in the mid-1970s.

On the other hand, the price of agricultural land has continued to rise, and there is a strong demand for agricultural tenancies. Investment during 1983 is forecast to show an increase of almost 5 per cent. in volume terms. Those factors are evidence of an underlying faith in the future of the industry by those engaged in it. I accept, however, that although the industry overall is in good heart, the experiences of certain individual farmers may be rather different. My hon. and learned Friend is making exactly that point.

Agriculture has come under fire from some quarters recently. In essence the argument seems to be that support should be withdrawn and that we should take advantage of the low food prices available on the world markets. But to do so would expose our consumers to fluctuating supplies and price instability while we would have destroyed one of our major industries. Also, if we became significantly more dependent on imports from world markets there is little doubt that prices would rise. In any event this view is quite uncompatible with membership of the EEC.

None the less, there is quite reasonable and justified concern about the cost of agricultural support in the European Community and the burden that this places on the taxpayer. Agriculture has become a victim of its own success. The costs of intervention and disposal for surplus commodities have reached levels far beyond those that can be justified to the taxpayer. We have consistently and constantly emphasised to our Community partners the urgent need to tackle this problem. The cost of the CAP increased by more than 30 per cent. in 1983 to over £9,000 million. Clearly such increases are quite simply unacceptable and cannot be sustained. Unfortunately, until very recently the Community has refused to face up to the elementary fact that we cannot continue to generate additional surpluses of foodstuffs for which there is no market. Happily there is now a much greater awareness of what needs to be done but delays in facing up to the problem mean that the corresponding adjustments will be all the harder.

It is plain both that some adjustments will have to be made to the CAP and that United Kingdom agriculture cannot be exempted from them. Some very important decisions have just been taken. My hon. and learned Friend is concerned. He says that now, at least, there is some certainty, but he is clearly concerned for his dairy farmers. This I understand.

The recent agreement on a milk super levy is expected to cut back Community production by several million tonnes per annum. On the Commission's own figures, it costs some £160 million to dispose of each extra one million tonnes of production, since there is absolutely no market for it in the Community. Of course, the process of adjustment will regrettably prove painful for some of our own dairy farmers, but I am sure the industry has the resilience necessary to adapt successfully to the new circumstances. Hard decisions have also been taken for other commodities. For example, the common prices for most cereals have been cut by 1 per cent. , which represents a significant price decrease in real terms. Perhaps I should add that my officials in the agricultural development and advisory service are, of course, always willing to give farmers impartial advice on the ways in which the profitability of their holding might be sustained or improved. They are giving such good advice. The first thing that I would suggest that Mr. Brown and Mr. Green could perhaps do, in the way of assistance for themselves, is to ensure that they get that advice from our ADAS officers.

My hon. and learned Friend was worried about what he still regards as an uncertain future. As for milk, it has been stated that the reduction in Europe will be down to the global figure of about 99 million tonnes this year and down to 97.2 million tonnes next year. So, at least for the next two years, there is some certainty in the level of what I know, and what I have admitted, to be some hardship for the dairy industry. My hon. and learned Friend was kind enough to refer to some of the achievements that my right hon. Friend the Minister has secured in the price review, so I shall not reiterate them.

Mr. Lawrence

Before my hon. Friend, who has given an interesting account of the current position, moves on, would she be good enough to comment on the second problem worrying my dairy farmers? They are concerned that there might be a supplementary review this year to make up for the shortfall on the money available to the Community as a result of having to pay out more in the review than it had budgeted for.

Mrs. Fenner

I assure my hon. and learned Friend that I see no evidence of that. There has been an extra imposition of 1 per cent. on the co-responsibility levy, which is intended to pay for reducing the milk output to 97.2 million tonnes over two years instead of doing it in one year. There is no sign of discussions on a supplementary levy.

This Government will, within the framework of the CAP, continue to foster the viability of British agriculture. I am confident that the industry will respond to the challenge of the difficult times that lie ahead and I remain optimistic about the long-term future for British agriculture. I hope that my remarks have at least allayed the worst fears of my hon. and learned Friend.

Question put and agreed to.

Adjourned accordingly at nineteen minutes to One o'clock.