§ Mr. Roger Freeman (Kettering)I am pleased to have the opportunity to introduce a brief debate on prospects for the beef cattle industry, and I am fortified by knowing that it will perhaps reach a wider audience.
The Economist of 7 April described the 31 March EEC agricultural settlement for the coming year in these terms:
An EEC farm reform that has enraged fanners in virtually every member country of the European Community cannot be all bad.The beef industry in the United Kingdom is not enraged, but it is concerned for the future. I speak on behalf of my constituents in Kettering, Northamptonshire—my constituency includes part of the rich grassland of the Welland valley, which traditionally has been used to finish cattle bought in from the dairy herd—and beef farmers generally in the United Kingdom, who currently graze about 1.3 million head of beef cows, which compares with the British dairy herd of 3.4 million.The EEC farm reforms—in part secured by the contributions of British Ministers, including my hon. Friend the Minister of State who will reply to this debate—will be broadly welcomed as helping to ensure a sensible future for the EEC. However, the details, particularly as they affect the beef cattle industry, bear further review. I understand that the Government hope that the economic returns of the beef industry in the coming year will be no lower than in 1983–84. The House will be anxious to know what proposals Ministers have to ensure this, because, on the basis of the 31 March settlement reached in Brussels, the industry, certainly in my constituency, looks set to suffer a 10 to 15 per cent. cut in its real income. Perhaps I am being unduly pessimistic and exaggerating the case. I shall be interested to hear from my hon. Friend what hope he can give the industry.
It may help the House to appreciate the present state of the industry before considering its prospects. In recent years United Kingdom domestic sales of beef have been relatively stagnant, despite a vigorous campaign by the Meat Promotion Executive, to which we should pay tribute. For about half the weeks in the past marketing year, 1983–84, the market price, plus the maximum slaughter premium—that is, therefore, the return to the farmer—was below the target price.
In the first three months of this calendar year the shortfall was about 5p per kilo, and without exports, which amounted to about 10 per cent. of total clean beef production in this country, the shortfall would have been bigger. Therefore, the industry has not enjoyed recent prosperity, and I draw my hon. Friend's attention to the fact that in the last quarter of 1983 the slaughter of calves doubled compared with the same period in 1982. That shows a growing lack of confidence in prospects for the industry.
The 31 March settlement looks, on balance, to make matters worse for the industry, for three reasons. The first is that the cutback in the United Kingdom dairy industry, which will reduce milk output by, say, 10 per cent. on what was originally planned for the coming year, is bound to have an effect on the prices of beef. Although farmers may reduce feeding quantities to their dairy cows to reduce milk yields, many dairy cows and clean dairy heifers will come on to the market. That is inevitable. I understand that 676 the National Dairy Producers Association has predicted that 10,000 dairy farmers in the United Kingdom will go out of business in the next three years.
Secondly, there is the potentially depressing effect on the income of beef cattle farmers of the proposed reduction of 1 per cent. on average of the target price and, more importantly, of the maximum beef premium. Finally, there is the introduction of clawback on the slaughter premium on exports to the EEC and worldwide, which will harm the domestic market. That will happen because exports will be re-directed back to the domestic market. As I have said, about 10 per cent. of the output of clean beef in the last marketing year was exported.
Before examining the terms of the settlement reached in Brussels it might be useful to consider the basic principles that should apply to price regulations and support within the beef cattle industry. I suggest that three basic principles should apply that will be in the interests of the consumer, the housewife, the producer, the farmer, and the taxpayer. The first principle is that the price of beef to the housewife should be kept attractive so that beef can compete in relatively difficult economic times with its many competitors. Hence I support the continuation of what, in effect, is our traditional deficiency payment system in support of industry, which is the beef premium I welcome its continuance.
The second principle is that the industry should be kept intact and efficient and that its overall economic return should remain unaltered. The third principle is that any cost of support to the taxpayer must be rigorously controlled. The financial impact upon the taxpayer should be seen to produce real benefit to the nation. I understand that our premium system cost about £110 million for the year that has just ended. The House will know that 60 per cent. of that is paid by the United Kingdom and that the balance of 40 per cent. is paid by the EEC. Indirectly, the United Kingdom pays a proportion of the 40 per cent. that is met by the EEC.
The Buckler cow premium cost about £17 million in the marketing year which has just ended. Other costs are relevant, such as the net cost of intervention and the cost of export rebates. I do not have accurate or meaningful figures for those two costs, but, overall, the costs are modest for a system that achieves good prices for the housewife and ensures that quality food is available at all times in our shops.
The industry is thankful that the variable beef premium remains following the agreement that was settled in Brussels. In March the Minister said:
the scheme has served producers and consumers well."—[Official Report, 1 March; Vol. 55, c. 325.]On behalf of the industry I congratulate my hon. Friend the Minister of State and my right hon. Friend the Minister of Agriculture, Fisheries and Food on resisting demands for the abolition of the variable slaughter premium. However, the House will wish to know that, on average, 1 per cent. has been taken off the target price The maximum premium payable has been cut by 20 per cent. from 10.76p per kilo live weight to 8.74p per kilo. Secondly, the Government have agreed to operate what is called a clawback mechanism. This will have to be agreed in detail by Ministers over the coming weeks, but it will apply to exports of our beef which originally qualified for the slaughter premium. The clawback is the price that the Government have had to pay to keep even the reduced slaughter premium.677 Thirdly, the suckler beef premium has been doubled from £12.37 per cow to £24.74 per cow. That is most welcome. It helps to encourage breeding from the better quality herds as opposed to the dairy herds, which will inevitably diminish in numbers. The industry appreciates that the increased cost of the suckler premium is coming from the British taxpayer and not from the EEC.
One proposal notable for its absence, thank heavens, from the Brussels settlement is for quotas to apply in the dairy sector. I believe that the imposition of beef quotas would be unjustified.
I would welcome comments from my hon. Friend on the requests for help from the industry. Four requests make much sense and are practical and modest. They are designed to ensure the preservation of an efficient and fairly remunerated sector, which is important to our rural life and the agriculture industry.
First, we want an assurance from the Government that for the coming marketing year, through a combination of intervention by support arrangements and the premium system, the farmers return price will achieve the target price. As the House knows, and as I have said, that did not happen for part of the marketing year 1983–84. With the lower slaughter premium for the coming year, it is even more important that intervention should work effectively. The industry would like the intervention system to operate in a more flexible and a more thorough-going fashion at all times of the year, and without limitation to the parts of the carcase. We would like the intervention systems to operate in conjunction with the variable slaughter premium, so that the farmer can achieve the indicated target price.
It might be helpful to remind the House that, according to Hansard of 30 March 1984, there are only 20 days' supply of beef in total EEC intervention stores, compared with 188 days' supply of butter and 219 days' supply of skimmed milk powder. The country has nothing of which to be afraid from the intervention system for the beef cattle industry. I regret the 20 per cent. cut in the variable slaughter premium and the inevitable need for the Government and the EEC to rely on intervention to play a much bigger role if the fanner is to get his target price.
I read with great interest the Select Committee report from the other place in March 1983 on the EEC beef regime. The Select Committee got it right when it said that it wanted the variable premium to play a much bigger part in relation to the intervention system. Unfortunately, because of the Brussels settlement, we have gone the other way and, inevitably, must place greater reliance upon the intervention system and, sadly, less on the premium. The Select Committee got it right when it supported greater reliance on the premium, because in that way market forces will have a much greater role to play in determining supply and demand.
The second request to my hon. Friend is that the exceptional extra supplies of meat resulting from the slaughtered dairy herds should go into exports outside the EEC, as far as possible, with the help of an improved export subsidy scheme. I suggest that my hon. Friend should consider the idea that one way of reducing the degree of slaughter of the dairy herds would be by the payment by the Government of a flat grant of, say, £100 a head per dairy cow taken out of milk production and put 678 to suckle calves. That would be a sensible way of removing the pressure on the meat export market and, possibly, the domestic meat market.
The third request is that the clawback system should be modified to exclude our exports to non-EEC countries. I refer in particular to the contracts which some United Kingdom exporters have carefully built up to supply not just third countries, but NATO bases within western Europe. They would fall outside the definition of an EEC country, and hence if some amendment could be made to the proposed clawback system it would benefit those farmers who have long-term supply contracts with those NATO bases.
It is ironic that we have just seen renewed vigour in the Food from Britain Campaign designed to improve our beef exports, at the time when the clawback system is likely to be introduced which will significantly hit our beef exports.
Irish exporters of beef to the United Kingdom have long enjoyed being able to qualify for our variable beef slaughter premiums. Now that we have accepted the concept of clawback, albeit with the amendments and modifications that I have suggested, the Irish, in my judgment, should be encouraged to switch their exports from the Republic away from the United Kingdom domestic market to other countries.
I hope that my hon. Friend will take my remarks constructively. The industry believes—I certainly speak for my constituents—that my hon. Friend and my right hon. Friend the Minister have also been constructive. We are all worried about the growing imbalance between cereal and livestock production. I hope that we can ensure, through sensible modifications to the Brussels proposals, that we do not encourage our beef farmers to put part of their farmland under the plough.
§ 12.46 pm.
§ The Minister of State, Ministry of Agriculture, Fisheries and Food (Mr. John MacGregor)I am grateful to my hon. Friend the Member for Kettering (Mr. Freeman) for providing this opportunity to debate the prospects for our beef cattle industry and also for his understanding, welcome and support for the reforms of the common agricultural policy, which, as much informed comment has shown, moves us considerably in the direction of a more sensible, justifiable, realistic and secure basis for the future of European agriculture.
As my hon. Friend said, the livestock sector represents one of our major industries. The beef cattle industry is the major component of that sector. It is estimated that in 1983 United Kingdom production of fat cattle and calves was worth over £1.8 billion. Consumers' expenditure on beef and beef products amounts to some 8 per cent. of their total expenditure on food. It is clear from those few figures that our beef cattle industry is of major importance, and my hon. Friend has spoken of how important it is to his constituency.
It is equally clear that the industry has been having a difficult time of late, here and throughout the European Community. The balance between supply and demand has grown out of kilter. Stocks have risen fast, having doubled from 200,000 tonnes to 400,000 tonnes in 1983. Expenditure has risen fast, too, having increased by 50 per cent.—that is subsidy expenditure—to £1 billion in the same period.
The European Commission was forecasting that the imbalance between supply and demand would worsen for 679 as far ahead as it could see. In other words, although my hon. Friend referred to days' supply being much less than in the dairy sector, the important point is that surpluses are piling up and, without corrective action of the kind that we have had to take, would have gone on piling up.
The United Kingdom can expect to see home production rise above last year's level to the point where we are likely to be in surplus. It would not take much extra production before we reached that position. In the last annual review White Paper it was forecast that home production of carcase beef and veal in 1983 would amount to 98 per cent. of total new supply.
I agree with my hon. Friend that the position is far more serious in the rest of the Community, where almost every member state is contributing to the surplus, but we are in a common market and one cannot just consider individual areas or parts of the Community in isolation, as I know my hon. Friend would agree. We have to consider the position in Europe as a whole. Clearly, on that basis, the Council of Ministers should not be pursuing policies which enable European producers, including ourselves, to produce ever more beef for which there is no economic market inside the Community and fewer and fewer possibilities of disposing of the surplus outside.
It is against that background that we must view the Council's decision that the management of the Community beef market had to be brought under stricter control and that the common support prices had to be reduced. That meant restraint this year.
In the light of the budgetary position—I mean the overall Community budget and the fact that the money was running out; I am not referring to the question of budget refunds to Britain—the restraint had to be applied to all commodities, including beef. Those were the circumstances in which decisions had to be taken.
My hon. Friend referred to some of the decisions and I shall summarise them quickly. First, as he said, the common support prices were reduced by 1 per cent. It was the first time in the history of our membership of the Community that the beef support prices were reduced, but I have explained, in relation to the surpluses and the costs of those surpluses, why it was necessary.
Secondly, it was agreed that intervention would be based on the carcase classification grid, that after a transitional period of two years the same intervention prices would be paid for the same qualities of beef throughout the Community, and that the old special arrangements for particular member states would disappear. That should be to our advantage.
For certain member states—especially France, Italy and Greece—there will be a considerable reduction of intervention prices. For Ireland—this is important in view of what my hon. Friend said about Ireland—there will be a considerable reduction of intervention coverage. For us there will be a modest increase in support prices and better intervention coverage. That is of considerable importance to our industry.
The end result should also be that the Commission will be able to manage intervention buying more efficiently and effectively, which is, of course, in our financial interest as well as the Community's.
Thirdly, I agree with what my hon. Friend said about the advantages of the beef variable premium scheme, but the opposition within the Community to the renewal of the scheme was universal and intense. It was only after the 680 most tenacious and determined battle that my right hon. Friend was able to secure its renewal for yet another marketing year.
I have already referred to the need for restraint on all commodities, and it was for that reason—because it was applying to all commodities and to all member states in their different ways—that we had to agree to a slight reduction in the maximum amount payable on the beef variable premium scheme. That still leaves it higher than it was in 1982. But the other member states absolutely insisted on an end to the absence of clawback on our exports of beef to their markets or to others. They pointed out that clawback already applied to our exports of live cattle and in the sheepmeat sector as well. Therefore, they saw no reason why it should not apply to beef. They argued that it was disruptive to their markets and amounted to what they saw as unfair competition. Some of them even wanted it to apply to all our beef exports, but we were able, quite rightly, to get agreement that it should apply only to beef that had benefited from the premium.
I hope my hon. Friend will be reassured by the fact that, as by far the greatest proportion of our exports of beef consists of cow beef, most of our exports should escape the charge altogether. For those who have received the premium, however, there will be no exemptions and that has already been agreed.
I know that many would have liked to see our exports to third countries exempted from clawback, as is the case with the sheepmeat regime, but the two situations are not comparable. With lamb, we are virtually the only important Community exporter. With beef, we are in direct and intense competition for very limited world markets with virtually all our Community partners. Therefore, they were simply not prepared to grant us exemption for our third country exports. We shall be trying to exempt existing contracts. I can, however, give no guarantee that we shall succeed. Our officials are now working in very close co-operation with the industry to set up detailed arrangements which will apply from a date yet to be decided, but in all probability from next month.
My hon. Friend mentioned Irish exports to our markets. I should make clear the position on this. First, it was by no means the Irish alone who insisted on clawback As I said, most other member states were equally determined to resolve the matter since they saw it as a disruption of their export markets and the penetration of their domestic markets by our subsidised exports. There was a general view in the Council that there was no reason why our exports should continue to benefit from this subsidy, and there was no way in which we could have commanded enough support to retain it.
Secondly, it has from the outset been, and continues to be, a condition of Irish agreement to our having the beef variable premium scheme that their exports to us should also qualify for it. They argue that our market is their biggest export market and say that their beef could not sell in competition with ours in our market if ours is subsidised and theirs is not. That is a fact of political life in the Community. However, there is no reason why they should get a penny more than British producers would get by way of subsidy; and we shall be making doubly sure that arrangements for the payment of subsidy to the Irish are as tight and rigorous as they should be.
The other decisions taken on beef in the price-fixing settlement—this emphasises the point that general cuts are significantly affecting all member states—included a 681 60 per cent. cut in the FEOGA-funded calf subsidy, which will substantially reduce the benefit that Greece, Italy and Ireland have been getting from the Community. The subsidy will be similarly reduced in Northern Ireland, but there the improved intervention arrangements which will give it parity with the South for the first time should be of considerable benefit.
The decision on the milk super-levy will, as my hon. Friend said, have repercussions on the beef sector. My hon. Friend knows well the reasons why the Council had to act in the milk sector and why, ultimately, the least unattractive option that we could agree was the milk super-levy. The surpluses in the dairy sector are huge, and the subsidies to which the United Kingdom is contributing substantially are equally huge and increasing. It is too early to forecast exactly what the impact will be, because much will depend upon the detailed arrangements for the application of the levy, which have yet to be finally decided, although I hope that we can announce them soon. It will also depend upon the reactions of individual producers. Some of the instant reactions in the press about what is likely to happen are much exaggerated, and I should not expect the impact to be on anything like that scale.
The agricultural development advisory service will be available to help producers in making the right decisions in relation to their circumstances, but, clearly, as my hon. Friend said, we must be prepared for an increase in the amount of beef available on our markets, which will in the short term tend to depress prices. Once that process has been completed, however, producers should be able to look forward to more stable and better-balanced conditions.
682 As I said at the outset, we recognise that the beef industry has not had an easy time, despite the considerable assistance that we have given to it during the past year. My hon. Friend said that a key factor was that the cost to the taxpayer must be rigorously controlled and must be seen to produce a real benefit to the nation. I agree with him on that, but it is worth underlining the fact that our assistance amounted to nearly £270 million in 1983. One of the worst affected sectors has been the specialist beef herd. That was why we decided to double the suckler cow subsidy to £24.74 per head, which is the maximum permitted under Community rules. I heard what my hon. Friend said about this, but he must agree that that is a substantial increase which takes us to the limit of what the Community permits. That decision should help the specialist beef sector, and has already been widely welcomed in the farming industry, as it was by my hon. Friend this morning.
We recognise that the process of getting supply and demand into better balance in the milk and beef sectors of Europe as a whole involves some difficult but necessary adjustments. However, in all the circumstances, and relative to other member states, what we have managed to secure this year is undoubtedly a good deal for British beef. The beef variable premium scheme substantially remains, and the changes in the intervention arrangements, our support to the market and the doubling of the suckler cow premium will considerably help the specialist producer. We believe that the measures we have taken will set the beef cattle industry on a course towards a healthier future in a better balanced and more realistic market. I am sure that this is an outcome which all of us who are involved with this important industry earnestly wish to see.