Common Agricultural Policy Prices

HC Deb 22 March 1984 vol 56 cc1271-309

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Garel-Jones.]

Relevant documents: European Community Documents Nos. 4326/84 and Agenda Nos. 1, 2, and 3, Commission Proposals on the fixing of prices for certain agricultural products: 4266/84, Report on the agricultural markets 1983: and unnumbered paper on the import of maize by-products.

Mr. Speaker

Before we begin the debate, I must inform the House that no fewer than 18 hon. Members have indicated their wish to take part in the debate. It is a three-hour debate, and I hope that hon. Members will keep their contributions relatively brief, so that all may be called.

10.1 pm

The Minister of Agriculture, Fisheries and Food (Mr. Michael Jopling)

I welcome this opportunity for a debate on the Commission's proposals for 1984–85 common agricultural policy prices. We last had a full debate on the CAP on 1 December. We were then primarily concerned with the reform proposals put forward by the Commission following the Stuggart summit in June last year. They form the basis for many of the proposals now before us.

The financial pressures on the CAP today are every bit as great as when we discussed the last. The need to rectify the wrong decisions taken in the past by the Agriculture Council is as great as ever. It is of small consolation to us that my predecessors as Ministers consistently argued at the time for restrictive price policies.

In the Agriculture Council we have already made substantial progress on a package covering both the 1984–85 CAP prices and the CAP reforms. I believe that there will be a wish to continue the momentum of that at the next meeting in Brussels on 26–27 March. I hope to secure overall agreement then on a package of that kind.

I understand that before the Council meeting the Commission will, as is usual, be putting forward amendments to its proposals to reflect the degree of agreement that has been reached.

In the discussions in Brussels, I have consistently argued that the CAP must live within its means and that the measures adopted must not discriminate against the United Kingdom. In particular, the package must bear evenly on producers of both temperate and Mediterranean products. The package that I expect we shall be discussing on Monday goes some way to meet my criteria, but there are still certain areas where I shall be seeking further improvements, and I shall come to those later.

It would not be appropriate for us to spend too much time tonight analysing the recent meeting of the European Council. But I would like to comment on suggestions from the National Farmers Union that the failure earlier in the week to agree on restructuring of the EC budget has left British agriculture deeply vulnerable. I believe that this is misconceived. There has never been any formal suggestion that more money could be made available for the common agricultural policy in 1984 than has already been provided for. Even if it had been agreed at the summit this week that the 1 per cent. VAT ceiling was to be raised, it has always been recognised that this could not take effect before 1985 at the earliest.

While the CAP is crucially important for agriculture, agriculture is affected, like other industries, by the general economic climate. The measures recently announced in my right hon. Friend's Budget will have had beneficial effects on the finances of the agriculture industry. First, the abolition of the investment income surcharge and the changes to capital transfer tax will be particularly welcome in helping to make lettings of farmland an attractive option. The president of the Country Landowners' Association has said: The abolition of the surcharge coupled with the reduction in the top rate of Capital Transfer Tax will provide just the fillip to new letting that will be needed when the Agricultural Holdings Bill reaches the Statute Book". Farmers will welcome the abolition of the national insurance surcharge, which is estimated to save the agricultural industry £16 million in a full year. Other recent changes in our economic climate include the reduction in interest rates. The latest reduction of 0.5 per cent. is worth about £20 million to the industry in a full year. The steady downward trend of interest rates has been of great cash advantage to farmers in recent years.

The House knows that I take a personal pride in the recent extension of the less favoured areas to include 1.2 million hectares of marginal land. Taken with the statement that I have already made about the Government's intentions concerning grants and compensatory allowances in those areas, that will benefit no fewer than 28,000 farmers by between £8 million and £12 million a year. Those are all important and favourable points for agriculture.

We are concerned tonight with problems of the CAP. I turn to specific commodities. It is appropriate to start with cereals. Cereals represent an important basic raw material as part of our own agricultural production, and cereals feed is a large component in the costs of most livestock enterprises. I have constantly drawn attention to the major weakness of the CAP, which is the unsatisfactory balance between grain and livestock production. Our 1983–84 annual review of agriculture, published some weeks ago, shows the effect of this imbalance on farm incomes. Over the past few years, incomes in the intensive livestock sector have dropped significantly in real terms, while there has been a considerable increase in income on cereal and other arable farms.

It is part of the Government's policy to seek to redress the imbalance. We have been pressing for a significant reduction in cereal prices, both to reduce the costs of this sector and as the best means of bringing about the improvement of the livestock-arable imbalance.

It is now envisaged that for most cereals a small price reduction should be made in the year 1984–85 rather than the price freeze originally proposed by the Commission. Slightly bigger price decreases are now envisaged for oilseeds than for cereals, and this is welcome, given the very substantial costs of the oilseeds regimes. A price freeze is now envisaged for sugar. One must remember that a price freeze represents a significant reduction in real terms, especially in countries such as France and Italy with far higher inflation rates than our own. It is at times like this that farmers get real advantage from living in one of Europe's low inflation states, as our farmers do.

I come now to the livestock sector, and especially to milk—the most important sector—as it represents 30 per cent. of the cost of the CAP. I began by saying how conscious I was of the difficult problems that face our milk producers today, but like other Community milk producers they are forced to pay the price for the Community's folly in recent years, persisted in in the face of constant advice in that Council by my predecessor as Minister of Agriculture, Fisheries and Food.

I reported to the House on 14 March that substantial progress has been made towards agreeing that a quotasuper-levy system should operate for the 1984–85 marketing year. The House will recall that since last July we have said that much the best way of dealing with the current milk production surplus, and the massive intervention stocks of 1.75 million tonnes in the Community, is by price. But as that has proved to be unnegotiable, as I warned the House last year, it was absolutely vital, given the limited market outlets and the inexorable rise of production in recent years, that we went to a super levy system.

Without drastic action, the financial prospects for the Community were truly horrendous. The imposition of the scheme will save the Community more than 1 billion ecu—more than £600 million—of expenditure in a full year, and will prevent any increase in the surplus over the five years of the scheme. At the same time we have managed to avoid the highly discriminatory controls in the Commission's original proposals for the so-called intensive levy, which would have been so damaging to United Kingdom farmers.

Before dealing with the detail of the super-levy, I should like to comment on the suggestions regarding the possibility of securing a three-year transitional period. We have secured one intermediate step of one year so as to prevent the industry from having to face up to the full rigour of the basic quantity immediately. We did that at the request of the NFU, which spoke to us about not moving into the full rigours of the scheme at once.

But we must not lose sight of the magnitude and urgency of the problems of the milk sector, where each extra 1 million tonnes on the quota costs at least 275 million ecu—more than £160 million. We must recognise that a longer transitional period, or even a transition down to a larger total quota, would have had enormous financial implications for the Community at a time when the cash simply is not there.

The main issue on the super-levy still to be decided is the Irish claim for exemption. Although the levy is necessary, its imposition will hit many of our producers. In those circumstances, we could not accept the permanent exclusion of any member state from the system. That factor is especially important to us, given our proximity to Ireland and the potential effects on our market for milk products of expanding Irish production if our own were to be held back.

We must admit that dairy production is more important for Ireland than for any other member state. Milk production represents 3.5 per cent. of GDP in the Republic, and nowhere else does it exceed 1.5 per cent. of GDP. Member states in the Community seem to be disposed—that is one of the impressions one gained earlier this week from the Council—to make some special provision for Ireland in recognition of that fact. Our position is that all member states must be brought firmly within the system and that the claims of Northern Ireland must be given equal consideration with those of the Republic.

Many other details on the quota will need to be worked out.

Mr. Geraint Howells (Ceredigion and Pembroke, North)

I am sure that the Minister is well aware that during the past 10 years successive Ministers of Agriculture, Fisheries and Food have said from the Dispatch Box to dairy producers in Britain, "Produce more." The dairy producers have accepted that challenge gracefully. They produce 90 per cent. of our requirements. Does the right hon. Gentleman agree that the dairy producers, through the National Farmers Union, are making a reasonable request for three years to adjust their farming methods so that they can survive within the Community?

Mr. Jopling

The hon. Gentleman should recall the basic figures—in 1982, we were producing 131 per cent. of our solids not fat requirements and 91 per cent. of our butter-fat requirements. We are close to becoming self-sufficient in dairy products. I have already explained why it has been impossible to arrive at a three-year transitional period. Many farmers have said to me that it is better to get through the difficult period faster than to prolong it for too long.

Mr. Nicholas Winterton (Macclesfield)

If my right hon. Friend is making a case for justice for the British dairy farmers, how is it—my right hon. Friend has said that this year we shall almost be self-sufficient—that the French farmers, who are over-producing, will take a cut in production of about 2.5 per cent.? The British farmers are expected to take a cut at least three times that of the French, more than the Dutch and considerably more than our major competitor, which, as my right hon. Friend pointed out, is the Republic of Ireland.

Mr. Jopling

My hon. Friend does not have those facts right. Under the basis we have agreed, France will be expected to take a lower cut than Britain. If—I ask the House to consider this carefully—we had been intent on forcing a larger cut on France, our share of the market would have remained virtually constant. The two options would have meant basing the split either on 1981 or 1983. It would not have made much difference to us one way or the other, but it would have made a great difference to France. If we had sought to clobber France in that way, which would not have helped us, I would not have been able to negotiate the abolition of all the exemptions that the French were so keen on, namely, the intensive levy, the French demand to exempt all small farmers, to which I shall come, and the French desire to exempt from the super-levy sales of milk direct to customers, and not through the dairy. These were major negotiating pluses that we extracted from the negotiation which we could not have done if we had made the French reduction greater, at no advantage to ourselves. I must say to my hon. Friend that I was concentrating more on getting the best deal for Britain than on clobbering the French. That seemed to me of secondary consideration compared with getting the best deal for the United Kingdom.

Sir Geoffrey Johnson Smith (Wealden)

I think that all hon. Members are appreciative of the fight that my right hon. Friend has made.

May I take my right hon. Friend back a little, because I suspect that Conservative Members may have misheard what he said about the attitude to Ireland? Could he explain again the attitude, not only of this country, but of the rest of the EEC to the Irish position?

Mr. Jopling

I hesitate to repeat what I thought I had explained fairly carefully. I said that it had to be admitted—and this is a fact—that milk is a more important part of the gross domestic product of Ireland than in the case of any other state. It is more than twice as important to Ireland as it is to any other state. I made clear, and I repeat, our position that all member states must be brought firmly within the system of the super-levy, and that the claims of Northern Ireland must be given consideration equal to the claims of the Republic.

I must now get on, because many other details of the quota still need to be worked out. We are having urgent discussions with all those interested in the milk sector to work out the best solution to these difficult problems.

One point on which I should like to comment again is the base year. As I told the House on 14 March, although the allocation of the total Community quota among member states is to be on the 1981 basis, the national quotas which derive from that can be split among producers on the basis of their 1983 production. A 1983 base year for producers has the advantage that it reflects closely current patterns of production, and does not ignore the natural evolution in milk production patterns that have taken place since 1981. It is, therefore open to us to choose the best and fairest base for arriving at individual quotas, which we shall need to do in any event; and we are, as I said earlier, discussing this with all the interests concerned.

The number of cases of hardship would be considerably lower if we used a 1983 base—which we can still use, although we shall still have to examine carefully the position of those with real problems. There has been some misunderstanding about that, but this factor meets our main objection to the Commission's original proposal to use the 1981 base.

Mr. Robert Hughes (Aberdeen, North)

I am following the right hon. Gentleman closely, because he is answering a substantial point. Will he go further in his explanation? Is he saying that the quotas for individual producers can be based on 1983 production figures when the gross quota for Britain must be based on 1981 figures? How does he square the two and come to the same total?

Mr. Jopling

As I tried to explain, that does not make much difference. It makes a minute difference to the United Kingdom whether one arrives at our national share by using 1981 or 1983 production patterns. That is why I said what I did a few moments ago to my hon. Friend the Member for Macclesfield (Mr. Winterton).

A further improvement of the system which we have succeeded in negotiating is the coverage by the super levy of direct sales of milk and milk products off farms, as well as milk delivered to dairies. That is vital to ensure that the growth of non-dairy sales does not undermine the system and has important implications for the degree of cutback in total production that individual member states will sustain. Countries such as Italy, Belgium and France, which have a relatively high proportion of direct sales, would have escaped with less than their fair share of the restrictions if only deliveries to dairies had been covered. The United Kingdom, with a much lower percentage of direct sales, would have been unfairly penalised.

Hon. Members may recall that some countries, particularly France, sought total exemption from the super levy for their small farmers. I am glad to say that we managed to kill that proposal which, again, would have discriminated severely against our own farmers.

Mr. David Penhaligon (Truro)

Will the right hon. Gentleman give way?

Mr. Jopling

I have given way a lot and I have taken far too long already.

Mr. Penhaligon

How accurate are the European records vis-a-vis sales straight from the farm?

Mr. Jopling

I think that they must be made accurate because of the weapon that the Commission is using for disallowance. We have had some problems and threats about that. It is a real weapon used by the Commission to impose proper control and to ensure that the levies are properly paid.

The outline agreement on the super levy allows the option of applying quotas at dairy or individual producer levels. The choice is not simply between a more lax and a more stringent system. There are advantages and disadvantages on both sides. For instance, the farm quota involves a 75 per cent. levy and the dairy quota a 100 per cent. levy. The dairy levy quota might allow extra freedom to take up the slack between producers delivering to the same dairies so that no part of the quota is wasted. Much will depend on the detailed rules which the Commission has only just produced.

The Government will need to consider all factors carefully before taking any decision about the type of system that we wish to apply in the United Kingdom. We are talking to all the major interested bodies to decide the best way forward.

The NFU argues that there must be no increase in the co-responsibility levies. Our general views on that are well known and do not differ greatly from those of the NFU. As a long term measure that is clearly inferior to straight price cuts and the enforcement of realistic production levels. The one percentage point increase that we are prepared to accept for one year only is for 1984–85 and is designed to meet the budgetary costs of the extra l million tonne quota for this year. A transitional measure of this kind was asked for explicitly by the NFU. We should remember that.

Turning to other livestock products, a 1 per cent. price decrease is now envisaged for beef compared with the increase of 1.5 per cent. originally proposed by the Commission. It is clear that there is no market within the Community for any extra production at this time. The price of the beef regime has been mounting steadily, the cost has more than doubled over the last five years and over 400,000 tonnes are now in intervention storage.

One unsatisfactory feature is that no provision has yet been made in the Commission's proposals for the continuation of the beef variable premium. I am convinced of the benefits of the premium for both producers and consumers. I believe that the system saves the Community money, although the Commission denies this. The House should know that I shall continue to press our case resolutely at the Council next week. We are alone in this request, but, in spite of that, I intend to persist with this case.

A 1 per cent. reduction is also envisaged for sheepmeat rather than the increase previously proposed by the Commission. Next week I shall be seeking further amendments to the proposals for changing the methods of calculating the ewe premium which, as currently drafted, could bear unfairly on our own producers.

Finally, I turn to the esoteric subject of monetary compensatory amounts. It is envisaged that fixed positive MCAs should be eliminated over a three-year period while the creation of new fixed positive MCAs would be avoided by basing prices on the strongest currency for a three year period. As now envisaged, this scheme fully protects the position of floating currencies and we would be under no obligation to revalue the green pound. We have, therefore, virtually achieved one of our principle objectives in this year's price fixing. The House will remember that the achievement of this objective satisfies the NFU's principal concern about the Commission's original price proposals for this year. I think that I am entitled to claim considerable credit for this step which strangely has not been given outside the House. As proposed, United Kingdom producers would have had to face a 4 per cent. price cut which was worth £260 million a year to the farming industry, and we have been able to kill it.

My main reservation about the new system is that it could prove costly in budgetary terms and inflationary also because of the devaluation of the newly created MCAs that would arise, especially at subsequent realignments of the European monetary system. I shall be seeking assurances on this aspect at next week's meeting.

These are complicated and important matters. In summary, we are now within striking distance of putting a halt to the runaway increases in common agricultural policy expenditure in recent years. If we manage to do so, we shall have taken a large step towards securing a more rational CAP. In the process, as is inevitable although I regret it, our producers will face very difficult times. At this stage I can do no better than refer to what my hon. Friend the Member for Torridge and Devon, West (Sir P. Mills) said last week about these measures; he acknowledged that it has to be done.

I am sure that the drive and resilience that the industry has shown in the past will continue to be demonstrated in the future. I am confident that British agriculture, such a vital component of our national life, will continue to develop successfully in the new environment once this difficult period is behind us.

It will be my task and the Government's task to seek to ease the difficulties, as best we can, within the limited scope available in doing what has to be done.

10.35 pm

Mr. Robert Hughes (Aberdeen, North)

I listened with care to the Minister and, as I go through my speech, I shall comment on some of the points that he made. First, however, I wish to make it clear that my hon. Friends and I object to this debate taking place at this time of night and to its being so short, only three hours. Given the importance of agriculture in all its aspects, the matter should be properly debated.

Sir Geoffrey Johnson Smith

Is the hon. Gentleman aware that his complaint would carry more weight if he were sustained by the weight of numbers on the Labour Benches?

Mr. Hughes

Precisely the reverse is the case. There is no escaping the fact that the Minister has brought the debate forward at this hour because he knows that he can—[Interruption.]—seek to evade criticism.

Mr. Speaker

Order.

Mr. Hughes

If Conservative Members continue to barrack they will only prolong my speech and leave less time for them to speak.

What is the point of having a meeting of the Council of Agriculture Ministers next week? The Minister has been told by the Prime Minister more or less what to do. Will there be any real negotiations? I cannot see how there will be a settlement of the dairy package—I will come to that in more detail later—given the enormous gap between the demands of the Irish for a 40 per cent. increase in production over five years and the proposition, made in the package, for a reduction of 13.66 per cent.

The Irish walked out of the EEC summit this week on the basis of being unable to agree on the milk issue. I cannot believe that, having made that dramatic move—which, we understand, had a provocative effect on the final breakdown of the summit—less than seven days later they will return and agree to what is on the table concerning their reduction. If, when the package finally emerges, it is relatively unscathed and unaltered and is virtually as it was prior to the summit, that will represent a lamentable failure on the part of the Minister.

I regarded the right hon. Gentleman's written answer in Hansard of 19 March at column 355 as a gross discourtesy to the House, not because it was made in written form—I understand the reasons for that—but, frankly, because it failed to tell us what was in the package as set before the summit and reported on by the President to the European Council.

Before coming to specific points I will explain why, in our view, the Minister has failed. It is interesting to note over a period of time how the Government's language has changed on this issue, even in recent months. At one stage Ministers were speaking of a fundamental reform of the CAP. That became controlling the budget cost of the CAP by dealing with among other things, surplus production.

Interwoven in the various remarks was the encouragement given to United Kingdom farmers by the Minister's insistence that he would protect british interests. On all those counts the right hon. Gentleman has failed lamentably because the Government have regarded the deficiences of the CAP, and sought to remedy them, as a budgetary problem requiring budgetary solutions. That is why there are no fundamental reforms in the Ministers mind.

Our objections to the CAP have much in common with the objections of others in that we are opposed to the growing level of surpluses, to increasing the cost of the CAP budget and to the proportion of the total community budget which the CAP absorbs. Our objection to the common agricultural policy has been that it produces food at a price that is too expensive for the consumer.

We have one other major objection to the CAP which, if it became a priority reform, would assist greatly in resolving the difficulties—dificulties that will increase as the years go by. The disparity of income between rich and poor farmers in the different regions of the European Economic Community has become greater rather than smaller. The gap has been widening all the time, and the Commission documents make it perfectly clear that the CAP has failed in its objective of trying to reduce the disparity.

It is this problem which should have priority in discussion. If we were to begin seriously to discuss this we might begin to try to understand such disparities, and if we sought to close the gap it would pay rich dividends in our relationships in the EEC. If we simply go ahead on the basis that we are only out to reduce prices, to reduce the budget, this is one of the reasons why countries within the EEC are unwilling to discuss the costs with us in the way that we would expect.

The Minister has said that he had settled the levels of dairy production for the next five years. He has, to some extent, contained the size of the surplus, but the truth of the matter is that, by the agreement that he has apparently reached, and about which I shall have more to say later, he has institutionalised surplus production of dairy products within the EEC. We know that the consumption of dairy products is declining. In a sense, it is like the way in which the Government have dealt with the problem of people who exceed the speed limits on motorways. The Government's answer is to increase the speed limits. It is precisely what the Minister is doing here. He is saying that there are problems with surpluses but, in order to deal with them, we will raise the production levels and institutionalise them.

During the course of the day I have had meetings with many representatives of the National Farmers Union from several areas. They tell me a totally different story from the one that the Minister has sought to present at the Dispatch Box. He gave the impression that, relatively speaking, all was sweetness and light and that dairy farmers were reasonably happy.

Mr. Albert McQuarrie (Banff and Buchan)

He never did.

Mr. Robert Hughes

That was the impression that he gave, and there is no point in denying it.

The NFU representatives have, without exception, told me that this agreement will have devastating effects on them, and especially on small producers. They all accept—and have reached this conclusion over a period of time but, I am sure, with some reluctance—that production cannot continue to expand. They all accept the need for some limitation. They are, however, unanimous in saying that the package has been arrived at, and must be implemented, far too quickly and that the 1981 production levels are the wrong ones on which to operate.

The Minister has sought to say that there are means, within the choosing of the datum line, of altering that situation in relation to the quotas, but I am advised that the result of his proposals—that is, the price freeze and the increase in the co-responsibility levy, and taking into account the effects of inflation—will, in terms of gross income to the farmer, mean a loss of about £100 per cow per annum.

The reduction in gross income can, of course, be offset by reducing costs. If there were a major reduction in the price of cereals it could be discounted at the other end, except that there has not been a major reduction in the price of cereals and, if the dairy production were mainly on grassland, such a reduction would not make a great deal of difference. The effect of the reduction on dairying is already being felt, even before the agreement is finally announced. I am advised that in Carmarthen and in Aberdeen in the past week the market price of a heifer has fallen by as much as £100. That is a lot of money. We believe that the same thing is happening in other places too. Farmers have told me that they are extremely worried by the size of their bank loans and overdrafts; it is a matter of constant concern to them. They have asked me to make a special plea to the Minister to discuss with the banks their concerns so that the banks do not make a quick call for early repayment. I think that he will have to give us an undertaking that he will do that.

Mr. Robert Jackson (Wantage)

Will the hon. Gentleman accept that he cannot have it both ways? He cannot call for fundamental reforms of the CAP and then complain that the reforms which are being made, which I would describe as fundamental, are beginning seriously to bite.

Mr. Hughes

Fundamental reform of the CAP does not mean playing about with the price mechanism. If I had more time I would go into the ways in which we could reform the policy. The major fault of the CAP is that it does not and cannot take care of the problems of large producers and small producers at the same time. Every time a change is made to the price mechanism without trying to take account of the incomes of small producers, the problems of small producers become even worse. I hope that the hon. Gentleman is not saying that he does not want the Government to do what they can to ensure that bankers do not foreclose in some instances because of their concern about retrieving their money.

What is the status of the dairy agreement which the Minister described in his statement of 14 March? He reported that he was glad to tell the House that a substantial measure of agreement had been reached. He talked earlier this evening about the "agreement which has been reached". Is the package, to all intents and purposes sealed, signed and delivered? Is it the position that it cannot be altered fundamentally? If that is so, he will have to bear the consequences. As the full effects of the dairy proposals are examined and discussed within the dairy industry, I think that the Minister will find that the sector is grossly dissatisfied with them. The consequence of the way in which he has dealt with the package in terms of budget and price considerations is that next year he will have even greater difficulty satisfying the industry. As each year passes, he will find it more and more difficult to arrive at a package that satisfies it.

As the right hon. Gentleman said, there are three basic proposals for beef. First, there is a 1 per cent. reduction in price support. Secondly, there is strong pressure for the termination of the United Kingdom variable premium scheme. Thirdly, there is the retention of the suckler cow premium at existing rates of payment. It is the possible termination of the variable premium scheme which causes us the greatest concern. I share the Minister's view that the premium, which was negotiated by Fred Peart in 1974, has been of great benefit to consumers and producers alike. It helps to increase beef consumption. If the Minister chooses to go further down that road in respect of other commodities, there might be a greater measure of agreement.

According to some estimates, the ending of the premium will mean a rise in beef prices of as much as 9p a pound. There is no doubt that the scheme is extremely valuable. There is no doubt also that it is less expensive than the straightforward intervention scheme. The Minister said in his written answer on 19 March: As well as a reserve on the outcome as a whole, I maintained specific reserves on beef and sheep."—[Official Report, 19 March 1984; Vol. 56, c. 355.] I hope that the Minister will make it clear beyond a peradventure that it is not only a reserve that he has in mind. He said that he will strongly resist the removal of the variable beef premium, but how far will his resistance go? Will he make it clear that the maintenance of the premium is a matter of vital national interest and that he will use his veto to preserve the status quo? Nothing else will do. He must tell us that he regards the issue as being of such importance that he will use the veto.

Mr. Nicholas Winterton

The hon. Gentleman suggests that the British Government should use their veto over the variable beef premium. Will he also ask the Government to use their veto if there is a proposal to grant anything like what the Irish Government have requested in respect of dairy produce?

Mr. Hughes

The position there is not that the British Government would use their veto, but that the Irish would use theirs, so I cannot do what the hon. Gentleman asks.

Mr. Jackson

rose——

Mr. Hughes

I have already taken up some time, and I wish to be fair to those hon. Members who wish to speak.

How will decisions be reached on Monday and Tuesday? There are strong rumours and much speculation that the orders went out from the summit that agreement must be reached on Monday and Tuesday on the basis of majority voting. If that is true, we shall lose all along the line. I hope that the Minister will give us a specific assurance that, in the national interest, he will not abandon the veto.

I should have liked to discuss many detailed points this evening, but time is marching on. If I have missed anything, no doubt my hon. Friend the Member for City of Durham (Mr. Hughes) will pick them up.

However, I must refer briefly to the pig industry, which is important to Scotland and to many other areas. My friends in the National Farmers Union of Scotland have impressed on me the severe difficulties faced by the pig industry, not just in Scotland, but throughout the United Kingdom. They believe that the crisis has been caused by the inadequacy of the pigmeat regime. They have suggested several ways of resolving the crisis—[Interruption.] I do not know whether to be pleased or sorry that the hon. Member for Macclesfield (Mr. Winterton) has crossed the Floor of the House to join us.

Mr. Nicholas Winterton

It is in the national interest.

Mr. Hughes

One way in which the crisis can be resolved is by a derogation on changes in MCAs, which the French have had for some time, and which we need. The quickest and easiest way to inject cash into the pig industry would be to provide producers with some money to help with the programme of eradication of Aujeszky's disease. It has cost them about £16 million to £18 million, whereas the Ministry estimated that it would cost only £6 million. That estimate was based on a return of 70 per cent. of slaughter values, but because of arguments about weaners the Government's expectation of what might be derived from slaughter has not been met. Without asking for EC approval, and without bending the rules, the Government could quickly inject money directly into the pig industry, which would be of immense benefit to it.

The Minister said that several countries have put reserves in the Budget, as has Britain. We must operate on the basis that, by and large, the budget will be about the same as expected, although there might be some minor changes here and there. The Minister said that he wishes to contain costs. It has been suggested that the overall package will be about £2 billion. Those who are keen on the EC speak about sums of £2 billion as though they are a mere bagatelle.

The truth is that that money is not available. We must therefore ask the Minister how the budgetary cost of the CAP is to be paid for. It cannot and must not come from any other EEC budget. There would be outrage if the social fund, for example, were robbed to pay for this. It also cannot and must not come from a tax on oils and fats. I hope that the House is unanimous in saying that we shall not tolerate such a tax, because we thoroughly disapprove of it in principle. In the short term, at least, the money also cannot come from an increase in own resources. As the Minister said, even if agreement had been reached the increase could not have come into operation in time to provide more money for the CAP budget this year.

The next question is whether the additional costs will have to be met from national budgets, each country finding its own share. If so, that is a halting step towards repatriation of farm support from EEC funding to direct national funding. It would not, however, be a repatriation of decision making, which many people would like, so as to bring flexibility into the CAP package. If we are to move away from the system of arguing out one package a year within the EEC to a more flexible system with more local decision making, that must be planned for and carried out properly. It cannot be implemented in a piecemeal fashion.

I believe that the Minister knows in his heart of hearts that the package of proposals, to the extent that he has given us details of them, do not carry the House or the country. He cannot claim that he has the approval of the House for the proposals. There is widespread disappointment at his failure. He has failed because of his narrow attitude. He has arrived at the wrong solutions because he has addressed himself to the wrong questions.

10.57 pm

Mr. Colin Shepherd (Hereford)

I am grateful for the opportunity to intervene so early in the debate. I am disappointed but not surprised at the negative and derogatory attitude taken by the Opposition spokesman on this difficult issue, although I appreciate that he must not disappoint his massed cohorts of three supporters who have been interested enough to turn up. To give them their due, they are the three most regular Opposition contributors to these debates, but it is disappointing to note that there are so few of them present even though it is late on a Thursday evening.

Listening to the hon. Member for Aberdeen, North (Mr. Hughes) I wondered where he had been between 1974 and 1979 as he suggested that the Conservatives had made food more expensive than the consumer could afford. During the period of the Labour Government the price of food increased by at least as much as the rate of inflation, if not more. If the hon. Gentleman compares the increase in the food price index with that of the retail price index he will discover that in the past few years the former has been about half of the latter. He must therefore recognise that food is cheaper under the Conservative Government in real terms according to people's ability to pay.

Mr. Robert Hughes

Will the hon. Gentleman repeat that? Is he saying that food is cheaper now under the Conservatives than it was under the Labour Government?

Mr. Shepherd

The hon. Gentleman clearly has no idea what inflation is. He cannot possibly know what it is, because his party presided over 100 per cent. inflation when in office. In real terms, relative to people's ability to pay, food is cheaper now than it was in 1979. If he goes away and thinks about it and learns about inflation he will find that out.

The farming industry has not been receiving a good press recently. Indeed, it has received a far worse press than it deserves. It has made a remarkable contribution to the economy of this country and to the recovery of this country. It has responded well to the stresses and strains that have been put on it. It has invested well and increased its expertise well. But it is sometimes depicted as a sector of our industry which is money-hungry, absorbing all the resources that we can pour into it.

To those who sometimes put forward the case that we should have stayed on a deficiency payment system, I would say that deficiency payments are made in straightline proportion to output. Since output has been going up since 1972 and the support levels have been staying the same, more or less, in real terms, the actual support related to output has been decreasing. So the farming industry has returned well the taxpayers' investment in it over the last four years, and over the last 10 years since entering the Community we have had continuity of supply. In fact, the country has not been served all that badly by the common agricultural policy. It is in that context that we must look at the problems we have today—because it is true that we have problems.

My right hon. Friend and my hon. Friend the Minister of State were dealt, through no fault of their predecessors but by virtue of the changing circumstances, which came about very quickly, a very difficult hand of cards, but through these very difficult negotiations they have produced a remarkable number of tricks.

Mr. Robert Hughes

Dirty tricks.

Mr. Shepherd

Nobody can expect to pick up a blind hand and secure all of the tricks, which is what the hon. Member for Aberdeen, North is seeking. It is his prerogative to ask for that, of course, but we have to recognise and give credit for what has been achieved. In early February, my right hon. Friend gave an assurance to the House that the agricultural industry would not be disadvantaged by any realignment of the green currencies, and that is what he is delivering. That is good.

I have one question on that. If we have developed the concept of the green European currency unit, that is going to require a substantial amount of money, because the baseline has been moved up. I am wondering what that is costed out at and where that will come from, because if my calculations are correct it is a quite substantial sum of money to be found from the Budget. I would welcome some indication of how sanguine my right hon. Friend is about being able to achieve this as part of the package. Or will another direction have to be found which does not disadvantage the United Kingdom producer in terms of his institutional prices?

Turning to the milk question, I congratulate my right hon. Friend on the way he has fended off the intensive levy, dealt with the proper inclusion of direct sales, made quite certain that the small producer cannot be exempted and recognised the significance of 1983, a base year, as a potential basis for the calculation of quota in exceptional circumstances. These are very important achievements and I believe that, on reflection, the dairy industry and the milk sector in this country will recognise them for what they are.

It is difficult for the milk sector at this particular time to take on board this change. The hon. Member for Aberdeen, North gave the same figure as I give, more or less—a loss of income of £100 per cow—but it is not sufficient to say that. We have to see what the loss of net income is going to be. That is a figure that has not yet emerged, but it is not so dramatic as the £100 per cow. In fact, for an agricultural college in my constituency which runs a herd of 110 cattle the loss of income from milk is going to be about £10,000, together with an additional payment of £1,000 of co-responsibility levy. It will put on its thinking cap on how to readjust its business to reduce the input and protect the margin. That challenge will lie in front of the dairy industry.

It has worried me for some time that the industry has become too highly geared. The requirement is to achieve a drop in gearing without necessarily detracting from profitability. We have identified the challenge, and. I have full confidence that the dairy industry will know how to rise to it.

I am glad that my right hon. Friend dealt with the question of Irish milk. I have been perturbed, because the Irish have the habit of sending their milk to us, if they can. I shall watch carefully, together with the dairy industry, to see how that problem is dealt with.

At the meeting between Herefordshire farmers and myself this afternoon, we discussed the knock-on effects of the changes in the dairy industry. I wonder what work has been done on the financial consequences of that. If we take an estimated 150,000 cows out of production, a logical extension is that less feed will be required from the cereal sector, which means more cereals left to be disposed of elsewhere. Fewer beef calves are coming on to the market because they are a byproduct of the industry. That will mean a loss of income to the dairy sector also. In turn, the beef position is distorted.

I am wearing the tie of the Hereford Herdbook Society—it shows a lovely white-faced beast that is known from one end of the world to the other as being a base unit of beef production. My part of the world has a deep interest in the future of beef. I hope that my right hon. Friend can take with him to the negotiating table next week the unanimous feeling of the House that the variable premium scheme should continue. It is logical and sensible and does not put beef into cold store. It puts beef on to people's plates, and they eat it. That cannot be bad; it must be logical. [Interruption.] I am talking about the variable premium scheme as it currently operates. It is a partial deficiency payment scheme, but it serves the sector well. It is important for underpinning the sector and is important for Herefordshire and other beef rearing sectors. We must recognise that, even with the variable premium at its maximum value, the commodity in the markets is not even approaching its target price. Further to undermine that by the loss of the variable premium would not be helpful in any way.

My right hon. Friend has entered a reserve in the sheepmeat sector. The Community is only 74 per cent. self-sufficient in sheepmeat. There is scope for those dislodged from dairy and beef to turn to sheep to redress their incomes. I hope that it will be made clear to the Council of Agriculture Ministers that the variable premium scheme for sheep is good for the industry and the Community. It forms an escape valve for the United Kingdom agriculture industry to take the opportunity to sort itself out and find a mechanism for getting out of the arable sector and into the livestock sector through sheep.

Mr. Robert Hughes

The hon. Gentleman and I agree about the variable beef premium. Will he join me in insisting that we obtain a clear assurance from the Minister that he will use his veto to preserve it?

Mr. Shepherd

I expressed the sentiment that I hoped that my right hon. Friend would appreciate that he had the full support of the entire House and the entire industry. That should be enough to give power to his elbow. He is the one who has to do the negotiating, but it is up to us to make him aware of what we feel.

My right hon. Friend did not refer to this point, but I understand that, as a result of the negotiations, the bread wheat making premium has been halved for intervention. I should like the rest of it to go as well. It has been causing stress in the cereal sector and damaging the poultry interest—another important sector which is not often sung about. I hope that in the second part of the negotiations my right hon. Friend will be able to complete that good work.

I wish my right hon. Friend well in the continuation of his negotiations next week. The team will have the best wishes and the good will of the House, and I hope that the industry will recognise what has been achieved so far in difficult circumstances.

11.12 pm

Mr. Gavin Strang (Edinburgh, East)

As we debate these proposals, the Community is in crisis. The crisis is caused by the disproportionately large net contribution which the British Government has to make towards the EEC budget. The CAP is at the heart of that problem, because that policy accounts for the vast bulk of EEC expenditure, and this country derives significantly less benefit from expenditure on agriculture than other EEC countries.

It is now fairly generally accepted throughout the country that the CAP represents a monstrous misuse of resources. It is disproportionately costly and stems from the initial decisions taken by the original six members of the Community, and in particular from their decision to fix the prices of cereals at levels that were way out of line with world prices. Since then, new and more costly regimes have been developed and the supporting of agricultural production through open-ended State intervention—a philosophy which one would have expected to be anathema to a Conservative Government who are in favour of market forces. One might have expected such a Government to oppose a State commitment to buy a product which may not be needed by the consumer.

Successive British Governments—including the Labour Government of whom I was a member—have set out to reform the CAP, but in the event they have not had the determination to see it through. The Labour Government secured a significant renegotiation in advance of the referendum, but the referendum was conducted at a freak time when EEC prices were comparable to world prices. World prices were then disproportionately high. It was possible for Mrs. Shirley Williams to claim that EEC food prices were lower than food prices outside the EEC. That was not true, but it was possible to make that claim.

Mr. Robert Maclennan (Caithness and Sutherland)

As a member of that Government, the hon. Gentleman must know very well that the figures upon which Mrs. Williams based her assertion were supplied by his own Department.

Mr. Strang

The hon. Gentleman is too sensitive. Mrs. Williams was right to the extent that world prices and EEC prices were relatively close, but that was a freak period. In reality, EEC prices have been maintained at a level much higher than that of world prices. That is the fundamental reason for the huge cost of the CAP. The last Labour Government failed to secure radical reform of the CAP. Invariably, we allowed ourselves to be bought off by concessions for the British people—for example, an enlarged butter subsidy.

The same is true of the previous Conservative Government, who made great speeches about how they would reform the CAP. In the event, they, too, accepted what we can call national bribes, which were really payments and ways of using the CAP to meet the short-term British position. That policy did not tackle the CAP' s fundamental problem.

I have always believed that the CAP is not the best way of supporting continental agriculture. The farming lobby in the Community seeks to defend that policy because it is worried that, if the CAP is dismantled, it will have no effective system of support. The farmers in the Community could be supported more cost effectively by a different policy. The present policy is colossally wasteful. Thousands of millions of pounds are spent.

Sir Nicholas Bonsor (Upminster)

The hon. Gentleman was a Minister responsible for agriculture. He must know that in 1970–71 the true costs of the support policies were in real terms the same as the costs of the present CAP policies. The hon. Gentleman must supply chapter and verse of his proposals.

Mr. Strang

The hon. Gentleman is referring to the cost of supporting British agriculture, but I am talking about the cost of the CAP as it affects agriculture throughout the Community, which is a different point.

Other hon. Members wish to participate in the debate, so I shall discuss the general agricultural position. For many years, this has been the one general debate of agriculture although it focuses on EEC price proposals. I agree with my hon. Friend the Member for Aberdeen, North (Mr. Hughes) that it is unfortunate that we are forced to debate this important subject at this time on a Thursday night.

It must be appreciated that we have been lobbied by two separate lobbies from the agriculture industry—the National Farmers Union, and the Transport and General Workers Union, on behalf of the farm workers. The farmers are becoming increasingly worried at the publicity directed against their industries. Many hon. Members could criticise the farming community's policies and attitudes, but the agriculture and food industries are enormously important. Some of the comments made have been singularly ill-advised. We have benefited from agricultual expansion. It is strange that, although we are all in favour of producing more steel or cars, there is not the same support for producing more milk, pigs or cereals. The expansion in the agriculture industry has created not additinal jobs on the land, but value added in the economy and many important jobs throughout Britain as a whole, which must be retained. That can be done only by sustaining our present level of agricultural production in milk and other commodities at its present level.

The Government are in danger of threatening British agriculture. The cuts in agricultural research and development are justified on the grounds that the Government want to spend more money on other types of science, research and development. It is fair enough if the Government want to spend more money on information technology or food research, but there is no justification for the severe cuts in the spending on agricultural research. I do not doubt that our agricultural industry's success and advances in productivity stem considerably from the valuable work done in our agricultural research stations.

The second lobby today was on behalf of the farm workers. In passing, I should say that my hon. Friend the Member for Sheffield, Brightside (Miss Maynard), who would normally be in her place tonight, is unable to be present. If my hon. Friend were here, she would be making a strong case for the farm workers. It must be recognised that the farm workers are deplorably badly paid. Just as successive Labour and Conservative Governments have failed to reform the common agricultural policy, so, under the last Labour Government and the previous Conservative Government, there was no closing of the gap between the average earnings of farm workers and the earnings of workers in other industries. If one compares the average weekly earnings of adult male manual workers in 1974 and in 1983, one finds that, in 1974, the agricultural worker's wage was about 81 per cent. of the wages paid to industry and service workers. In 1983, the figure had slipped to 77 per cent. In 1974, the average earnings in other industries were just over £43 a week, a difference of an agricultural worker was just over £35 a week, while the earnings of approximately £8. In 1983, the corresponding figures were just over £110 for farm workers, and just over £143 for workers in other industries, a gap of no less than £33. That is a scandal, when one takes into account the fact that farm workers are highly skilled. No group of farm workers, whether they work in livestock or in husbandry, with technology or with sophisticated machinery on arable land, deserve a wage less than the national average. It is time that we faced up to that situation. No matter how well the farmer or the agricultural industry is doing, it is never the right time for the National Farmers Union to give the farmers the rate that they deserve. Parliament must accept responsibility for this state of affairs, and it is high time that it was changed. Not only does agriculture require skilled workers, but it is a dangerous industry in which to work.

Mr. Geraint Howells (Ceredigion and Pembroke, North)

I agree entirely with the hon. Gentleman that farm workers should be properly paid. Would he not concede that successive Tory and Labour Governments in the country have recouped farmers' costs only three times in the last 25 years?

Mr. Strang

One has to recognise that there have been major advances in agricultural productivity. In the last two or three decades, I would say that the agricultural industry as a whole has not done too badly in this country. The House debate the case for trying to make more farms available to new entrants only two or three weeks ago. The fact is that more people want to be fanners than there are farms available. This is a reflection of the relative prosperity of the industry, which is to be welcomed. I hope that we never go back to the days when it was difficult to find people to let farms to, as happened at the beginning of the century.

I wish to comment on the proposals before the House. We must support proposals to reduce the overall cost of the common agricultural policy, and to end the monstrous misuse of resources, particularly in the costly milk sector. However, we have a right to insist that these measures are even-handed. There should be no question of British agriculture bearing a disproportionate share of the cuts. The milk cuts could have been worse from the point of view of the hon. Member for Hereford (Mr. Shepherd), but I am not happy that British industry is being asked to bear too large a share of the cuts envisaged in the measures. As I understand it, the situation is up in the air at present, because of the recent walk-out that occurred. I hope that, in subsequent negotiations, a cut in the milk regime will be achieved that is less unfavourable to the British dairy farmer.

Five or six years ago we went through the same process with the beef premium. We thought that it was established, worked well and was to the benefit of the consumer and the Community. Every year we are forced to argue for it. It is used as a bargaining tactic to make us accept some other unpalatable proposal. We are forced to concede on other issues to obtain that premium. We must keep it because it is a valuable means of supporting our beef industry.

It is unsatisfactory to have such a debate at this time of night. Important decisions are involved. We must achieve changes in the CAP, but we must protect our agriculture industry.

11.26 pm

Mrs. Ann Winterton (Congleton)

I have listened to the debate with considerable interest, because the CAP price proposals are important—if not vital—to the country as a whole, to the future of the EEC and to my constituency in particular because it includes many efficient, well-run dairy farms. People involved in the milk industry fully realise and accept that the surpluses in Europe have to be curtailed, although in Britain, as many hon. Members have said, we are just about self-sufficient in dairy products and about 90 per cent. sufficient in liquid milk.

The whole emphasis since the last war has been for successive Governments to encourage our fanning industry to become more efficient and to produce more in the national interest, thereby ensuring reliability of supply in the food that we can produce ourselves and making substantial contributions and savings over the years to the balance of payments.

Now it seems that that policy is to be turned on its head. Almost the whole of the milk sector is united in its opposition to the present package, which it finds totally unacceptable. Farmers accept that quotas must be introduced, but believe strongly that certain conditions must be met. First, they believe that any agreement should be fair and equitable among member countries of the EEC and that the British dairy farmer must not be penalised.

It is unacceptable, for example, that Eire should be granted a special deal or be excluded in part or in whole from any agreed scheme. I need hardly remind the House that last year, after a cold, wet spring, followed by a drought, we produced just enough liquid milk in July, August and September to supply our own market. If we depress our future production by 10 per cent., as suggested, we shall have to import liquid milk at such a time. That would open the door to further imports and to the demise of the doorstep delivery. It would certainly rub salt into the farmers' wounds if we punished them for being efficient and then had to import liquid milk from, for example, the Irish Republic, France or Holland.

The farmers in my constituency believe that the co-responsibility levy should not be increased by the 1 per cent. proposed, as that would turn the screw even tighter. In their opinion it should be left as it is.

Most important is the time factor. It is simply impossible to turn an industry round in such a short time—in less than a fortnight—in view of what is involved. Farmers have to plan well ahead; perhaps two or three years ahead. One farmer to whom I spoke today is committed for three years breeding replacement stock because he has a pedigree herd. At the same time, the quality of the stock has been improved by careful, selective breeding so that it produces more milk. To cut the supply by 10 per cent. would mean that more than 10 per cent. of the herd would have to be got rid of and sent to market. That would enormously distort the livestock market, and it has not so far enjoyed a good year.

To add to the problems, the future of the valuable beef premium is still in some considerable doubt. I agree with the hon. Member for Aberdeen, North (Mr. Hughes), who spoke about the price of dairy cattle. I know from my contacts in my constituency that they have dropped approximately £100 during the past week. At my local cattle market at Congleton on Tuesday the number of dairy cattle to be sold was considerably higher than normal.

With all this completely understandable chaos, confusion and uncertainty, to prevent further panic selling the Minister must insist that a transitional period of at least three years should be implemented. During that period the industry would have time to adjust and adapt to the new proposals.

The industry has always proved to be adaptable in the past, and I know that it will do its utmost to fall into line this time, but it must be given the time now so that it can make plans for the future. If it fails to get that time, I dread to think of the number of bankruptcies that might occur among those farmers who have not the kind of land with which they can diversify. Those who have come into the industry relatively recently have been positively encouraged to do so by EEC schemes.

We must all remember that most livestock farms, particularly tenanted farms, are not like industrial or commercial companies. If the farmer goes into liquidation, he and his family are left without a home and the means to make a living.

The knock-on effect, as several hon. Members have said, for the ancillary industries must not be underestimated at any cost. They play an important part in the economy and employ many people. The economy and structure of rural areas will be affected unless the Government are prepared to think again in the national interest.

I urge the Minister, to think again, and tell him that the message from the majority of those involved with the milk industry is that he will carry this package through next week at his peril.

Several Hon. Members

rose——

Mr. Deputy Speaker (Mr. Paul Dean)

Order. Before I call the next hon. Member, the House will wish to know that the winding-up speeches from the Front Benches will be restricted to 10 minutes each. With the co-operation of the House that should help me to call many of the large number of Back Benchers who wish to speak.

11.32 pm

Mr. James Nicholson (Newry and Armagh)

I wish to change the subject slightly and talk about how the proposals affect Northern Ireland. As has been said, the proposals create great problems for many parts of the United Kingdom, but nowhere do they create more problems than for those of us who come from Northern Ireland and have to make a living from agriculture.

These proposals will not just affect agriculture but also Northern Ireland as a whole. Our dependence upon agriculture as our main industry is well known. Any collapse of that industry would have far-reaching repercussions throughout agriculture and the ancillary and support industries.

Agriculture in Northern Ireland has changed from being mixed farming to being intensive and specialised. We have been forced into that change by Common Market policies. We have been encouraged by the inducements offered by the Department of Agriculture to build silos and go into dairy and beef production. The farmers heeded that call and now find, after all the money that they have spent and all their hard work, that the carpet has been pulled from under them by the people who induced them to start.

Our farmers in Northern Ireland are as efficient as farmers anywhere else in Europe. All that we ask is that we receive a fair and equal opportunity to produce our product without one hand tied behind our back. The present proposals could place our agriculture industry in a serious position. I and my party are prepared to accept that we cannot continue to produce surplus food and add to the present mountains. However, we also make it clear that it is not the United Kingdom farmer who is responsible for the surpluses, but our so-called European partners.

Our dependence on the grass-based sectors has become more pronounced since the intensive sector was decimated. Milk and beef are now the main farming enterprises in Northern Ireland, and our climate and soil do not allow us to shift to cereal production. It has been proposed that milk and beef producers should change to mutton or sheep production. That is all vey fine, but the rest of the United Kingdom has the added option to change to cereal production. We are confined to the three main sectors of milk, beef and sheep. That inhibits us from changing.

The milk industry in Northern Ireland is the backbone of our agriculture. The present quota proposals, whether one talks about basing them on 1981 or 1983 percentages, do not make a difference to the people in Northern Ireland. Many farmers will face serious difficulties. If the proposals are implemented, our farmers will be poorer to the tune of £19 million. That will be a terrible cross for them to bear, and will break many of them.

If we have to add to that any change in the co-responsibility levy or in the price for the support of butter or skimmed milk powder, or if there is a tightening of the skimmed milk powder standards, that could add another £6.5 million of losses to those of the Northern Ireland dairy farmer. The total losses are £25.5 million. That is too much for the industry. We should have had a policy of consolidation rather than of annihilation. We need a more gradual downturn in production rather than this drastic cut within 14 days.

I ask the Minister to inform the House whether he has any proposals to allow young farmers to enter into the milk industry, and to assist those who have entered the industry since 1981. Will the producer who, having been given encouragement to do so, purchased extra land and bought extra cows in the hope of paying for the farm, receive any allowances?

The beef industry also plays an important role in Northen Ireland agriculture, which cannot be ignored. I was pleased to hear the Minister's remarks about the variable premium, which is extremely important in Northern Ireland at present. We would be gravely hit if that premium disappeared. I welcome the stand that the Minister proposes to take. If there is any danger of the premium disappearing, the Minister should use his veto to make sure that it continues. We need it for many reasons. The country most opposed to the continuation of the premium is the Republic of Ireland. It has a vested interest in getting rid of the variable premium of which it has been jealous for years. The Minister should remember that it would be to the advantage of the Republic of Ireland if that premium were withdrawn.

The Irish Republic has taken a foolish attitude to the negotiations. For years it has milked the cow. Now that the cow is going dry, the Republic finds it difficult to face the consequences.

Mrs. Elaine Kellett-Bowman (Lancaster)

Will the hon. Member agree that it is grossly unfair that the Irish have increased the number of their cattle from 1,124,000 in 1970 to 1,513,000 in 1982? They have taken advantage of the situation. Does the hon. Member see any reason why they should be exempted from the consequences of their own action?

Mr. Nicholson

I have made clear my views about the Irish Republic.

The Minister should consider the interdependence of the milk and beef sectors. How much worse will the position of the milk producer be if the price for calves drops substantially? We have heard that there has been a fall in cattle prices throughout the United Kingdom because of the uncertainty. If the price of what we call in Northern Ireland the fat cow or the cull cow drops, that will seriously affect the milk producer as well as the beef producer. The Minister should remember that these sectors depend greatly on each other.

When I came to the House one of my objectives was to bring before the House at every opportunity the terrible problems of the intensive sector. The plight of the pig and poultry industries has been considerable in recent months. They have been the subject of wide-ranging discussions. My hon. Friends and I from Northern Ireland initiated a four or five hour debate in the House recently so I do not propose to harrow what I have sown earlier, other than to ask the Minister to bear in mind the great relief it would be to the intensive sector in Northern Ireland if we had greater access to intervention grain. That is the one measure that would go a long way to solving our problems.

I implore the Minister to pay special attention to Northern Ireland's needs in his future negotiations. It has been a bone of contention for a long time in Northern Ireland that when the Minister negotiates on behalf of the United Kingdom he is also negotiating for Northern Ireland without the presence of a Northern Ireland Office Minister in his team. Is it not time that a Minister from the Northern Ireland Office was present to represent the interests of the Province? Like many people I feel strongly on this. We are told that meetings take place between the Minister and officials from the Northern Ireland Office. Those meetings may be helpful to the Minister. As the negotiations proceed, changes are taking place from day to day, even from hour to hour, and it would be wise to have there a Minister with knowledge of how whatever is agreed will affect the producers of Northern Ireland, and the same could be said of the producers of Scotland, Wales and other parts of the United Kingdom. I hope that the Minister will take that suggestion to heart and will, when he negotiates, have on his team a Minister resonsible for agricultural matters in Northern Ireland.

11.46 pm

Mr. John Watson (Skipton and Ripon)

No purpose is served by a lengthy debate on whether this is a good or bad settlement. I confess that my initial reaction to it was that Britain had agreed to accept a reduction of 7 per cent. in output and a freeze on prices; that the French had accepted a 3 per cent. reduction in output and a significant increase in prices; that the Germans seem to have got away with a facility to increase their national aids; and that the Irish appeared to have the possibility of opting out completely.

I do not know that raking over the coals of the settlement is likely to do any good. I believe that it is the settlement, that it is likely to be ratified, and that it is the one with which we shall have to reside. I can understand it if my right hon. Friend and the Minister of State feels that it is slightly impertinent for Back Benchers such as myself, who have not been involved in the detail of the negotiations, to pontificate on whether a good outcome has been achieved.

For dairy farmers generally, the impact of this settlement will be bad rather than good. That is important because dairy farmers in the last 10 years have shown a fine example to other sectors of industry by the productivity increases that they have achieved, yet their standard of living now is little different from that o f 10 years ago and is markedly lower than that of two years ago. If, as a result of this settlement, we consign them to a standard of living in the next couple of years yet lower than it is now, we have reason to be concerned.

The issue does not concern only dairy farmers, for dairy farming is the staple industry of many rural areas and all the rural services of schools, shops, pubs and rural transport depend more heavily than is customarily realised on the continued prosperity of the specialist nature of farming in those areas.

Dairy farmers are now facing a price freeze and a reduction in output. If we adopt as one of our objectives the maintenance of their standard of living, we must address ourselves to those aspects of the package which are still to be negotiated, in particular those which concern the input costs of dairy farmers, and in this context I have a few constructive suggestions which may help my right hon. Friend on his way. If a reduction of 1 per cent. or 2 per cent. in cereal prices can finally be agreed, that is unlikely to cause terrible hardship to cereal farmers but is likely to be of considerable assistance to dairy farmers.

There is no need this year for there to be a major increase in rents for tenant farmers. The abolition last week of the investment income surcharge will enable the landlord of a 150-acre dairy farm to have an after-tax income of £1,000 more than he previously received. I hope that that will remove the upward pressure on farm rents this year.

The emphasis throughout this debate has been on reducing the cost of the common agricultural policy by reducing the amount paid for intervention stocks. Very little mention has been made of the cost of storage of these stocks. The CAP last year cost £9.7 billion. Of that total, 8 per cent.—almost £800 million—was the cost of storing dairy products. If this package is successful, it is reasonable to assume that those storage costs in future years will be a lot lower than at present. Based on the United Kingdom dairy herd, our share of those storage costs seems likely to be £105 million or thereabouts. If that sum in future years can find its way into direct assistance for the United Kingdom dairy farmers by way of help with their input costs, it will greatly alleviate the burden.

There is one aspect of the marginal lands scheme that can be of specific assistance. Many dairy farmers are in areas now designated as marginal land. There is widespread expectation that on 1 January next year my right hon. Friend will announce a marginal lands scheme of assistance which will give beef and sheep allowances of about 50 per cent. of the current hill livestock compensatory allowances. If there were any possibility of the announcement of that scheme being brought forward from 1 January next year to 1 June this year, it would help to sweeten what is otherwise a very bitter pill.

I emphasise to my right hon. Friend that 1983 minus 6 per cent. is considerably better for most small dairy farmers than 1981 plus 1 per cent. In my constituency, the people who have gone heavily into dairy farming in the past two years are those who are younger in age and who work smaller farms and who, at the same time, are more highly geared to their bank managers than are those who have a more stable history of dairy farming over the past 15 or 20 years.

If my right hon. Friend could bear in mind these suggestions, which I hope are constructive in nature, when he replies to the debate, I would be most grateful.

11.51 pm

Mr. David Penhaligon (Truro)

The debate tonight is in many ways quite remarkable. I recall few Thursday nights in the Chamber when at nine minutes to midnight there have been so many Members who represent seats so many miles from this House present and active in the debate. That is a good indication to the Minister of just how important the debate is, as I am sure he does not need me to tell him. What has been said already must have given him something on which to reflect.

Let us start with common ground. There are few who would do other than recognise that the milk surplus in Europe required some reaction. There is a general recognition that the Minister had to do something. We have a tremendous surplus in Europe and anyone who even occasionally glances through Euro-documents on milk production cannot help but see that frightening graph that has existed for Europe since 1974 of relatively constant consumption and a quite dramatic increase in production.

I have, therefore, recognised, and have always told my farmers in the south west, that a problem existed. I have always believed that its solution would cause difficulties for some and anger for a few. I have envisaged the possibility that the solution might push a very few who were near it over the financial brink.

I had little sympathy for the Minister until he reached that dramatic line in his speech where he referred to the constant advice from his predecessor. It was at that moment that I lost the sympathy that I had so far felt. One of the great delights of the calendar in my part of the world is an invitation to the annual meeting of the county National Farmers Union. Since I have been a Member of the House I have missed just one. It is a good meeting, where I talk to people who are actually making and doing something in life. It is always an enjoyable opportunity to meet people who are, at least in my area, the backbone of the economy.

In January 1983, the county meeting had the great honour of having present the then Minister of Agriculture, Fisheries and Food. The more perceptive members of the audience asked him questions. One particular gentleman received an answer, the words of which, I suspect, will ring in his ears for a long time. He said to the Minister, "The surplus is as it is and is increasing. What do you want us to do? What do you advise the agriculturalists in this room to do?" I nearly fell off my chair in sheer disbelief at the reply. It was, "Produce, produce, produce." That was the reply given at a select agricultural meeting in an area like mine where farming is so important to the economy. The only justification for such an argument only 12 months ago last January was that the Minister believed that that approach would result in a high production figure from which we could negotiate a good final solution within Europe. In fact, it did not help one iota. The base for the year in question did not include the period when the Minister gave such foolish advice to my constituents, which will cost many of them thousands of pounds and may push more than a few over the line. There is outrage in my constituency over that advice. The problem will not go away next week or next month; it will remain with the agricultural industry over the next four or five years.

Britain is one of the few countries in the EC that does not produce a surplus of agricultural products, but the Minister's achievement is that he has managed to obtain one of the largest cuts. It is reported in The Times that the average cut is 5.3 per cent. and that Britain's cut will be 7.32 per cent. There are some who argue that the cut will be greater than that but no one argues that it will be less. France negotiated a cut of 2.97 per cent. I told the farmers in my constituency that although Britain was not producing a surplus it would be expected to make a contribution to reducing the Community's surplus. But I never expected that Britain would be asked to make a greater contribution to reducing the surplus in Europe than any other member state that was in deficit.

Mr. Allan Rogers (Rhondda)

rose——

Mr. Penhaligon

No, I shall not give way. The Minister presents his "great triumph" when he has negotiated a greater reduction in production for our farmers than the farmers of any other deficity-producing state. He justifies this result by saying that he has managed to close some of the obvious loopholes of which the French were taking advantage. Those loopholes had to be covered if the outcome was not to be a running joke of the first order. The fact that the Minister presents the outcome of the negotiations as a triumph is something that is beyond belief.

Agriculture is the largest industry in the county which, in part, I represent, and the milk sector accounts for 80 per cent. of the industry. The hon. Member for Newry and Armagh (Mr. Nicholson) talked about the milk that is produced in his constituency. I must tell him that the area that he represents is not unique. There are many high rainfall areas in which there are alternative forms of agriculture but there is no great desire on the part of the fanners to take them up.

What can the Minister do? He is already committed to a considerable extent. I suspect that it would be somewhat difficult to embark on a renegotiation of the package next week. However, he should demand a longer period of adjustment. If he did so, I believe that he could obtain it, especially as we are making such an enormous contribution to reducing a surplus that we do not play a significant part in producing.

Mr. Bill Walker (Tayside, North)

Is the hon. Gentleman aware that the farming community, although not necessarily speaking with one voice on the timescale, is in part looking for as quick a settlement as possible? The Scottish NFU would like to see matters settled as quickly as possible.

Mr. Nicholas Winterton

That is about 5 per cent. of the industry.

Mr. Walker

The Scottish NFU is saying that we should achieve the reduction quickly and not spread it out.

Mr. Penhaligon

I admire the Scottish NFU for that contribution. Perhaps we should organise the cuts so that it contributes to the problem in one year and the rest of us have three years in which to deal with it. I suspect that when the Scottish NFU was considering who to approach in this place, I was not the first person who came to its mind, living a whole 28 miles from Land's End. The Scots, for once, are willing to be the first to give away cash. This is a unique experience for me during the time that I have been a Member of this place. I congratulate the hon. Gentleman on drawing that to the attention of the House. I trust that the Minister will bear that in mind when next week's discussions take place.

Can the Minister tell me whether it would be legal for the Government, out of their money, to organise a compensation scheme for what I suspect will be many genuine hard cases? Secondly, what does this agreement mean in relation to milk production? Will it be the 7 per cent. as reported in The Times or will it be nearer the 10 per cent. figure that my farmers expect? Thirdly, how will the agreement be organised? Some say that it will be dairy-based or farm-based, or that it will be based on 1981 or 1983 prices. I see the advantages of using 1981 as a negotiating base. Who will make the final decision about the organisation? Will the Minister set up an appeals procedure so that an independent voice is involved in the decisions that will be make-or-break for many farmers?

The last question that my dear farmers wished me to ask the Minister is one for which I always admire them. They wish to know who will pay for the administration of the scheme, because they fear that they will have to pay for it as well. The Minister was too vague about such matters in his speech, given that he is likely to sign such an agreement next Tuesday or Wednesday. I cannot believe that he has not thought about it more than he appeared to do in his speech.

What power of veto will the Minister have next week? If the Minister wishes to nod or shake his head in response, I shall report it now so that Hansard gets it on the record. "Paralysed" is the answer; either the Minister does not know or he is not telling me. I hope that it is the latter, because since he has the job next Tuesday I should like to think that he knows, although none of my farmers do.

The theory is obvious. If farmers cannot produce milk, they will produce something else, so the surpluses will be transferred from one product to another. Are we moving into a period of quotas for everything?

Mr. Allan Rogers

Why not?

Mr. Penhaligon

Why not, indeed? It is a fair point. Such a scheme works well with potatoes. If we are moving towards quotas for everything, I hope that the Minister will tell us.

The Minister has not done a brilliant job for agriculture. I have always sat in Opposition in the House, but as a result of this debate there will be a bigger swing towards the alliance in rural areas. If a Labour Government were presenting this solution to the House, the anger that I hope I have expressed on behalf of my constituents tonight would not be a patch on what I know some Conservative Members would have said. I do not know how the Minister can sit there and believe that he has got a good agreement for Britain. I recognise that he made some progress, but this is a pretty poor way to have made it, and it is vastly inferior to what Cornwall's farmers reasonably expected.

12.3 am

Mr. Jim Spicer (Dorset, West)

It is extremely difficult to follow a speech such as the one we heard from the hon. Member for Truro (Mr. Penhaligon). What would he do if he were in a position to do anything? The pass has already been sold, because only today the leader of the alliance, the right hon. Member for Plymouth, Devonport (Dr. Owen), said that he would have settled in any circumstances last week, and I am sure that he would continue to do so across the board. We must listen to this rhetorical nonsense against that background.

Mr. Penhaligon

Will the hon. Gentleman give way?

Mr. Spicer

I will not. Sit down. As you made clear, Mr. Deputy Speaker, you wish us to be brief in this debate, and that is what I intend to do.

I wish to make some brief points to my right hon. Friend. Although he may not be able to answer tonight, I know that he will bear in mind all that has been said in this debate when he meets his European colleagues next week.

If the dairy farmer in this country is anything, he is above all a realist. For many years, every dairy farmer has understood that we could not continue with unlimited output. This was best summed up by Sir Henry Plumb who said at the Oxford farming conference last year that it was a question of discipline or disaster. We must have discipline, and discipline is never pleasant.

At the same time, over the past five or 10 years politicians, be they commissioners or Ministers, have played their part in encouraging more investment in the dairy sector, because the incentive of the 40 per cent. grant has been almost irresistible. Even today many dairies are being reconstructed to build up the milk side, with the result that there will be severe hardship to many. I join the hon. Member for Truro on this one point. There will certainly be cases of hardship and I hope that they will be dealt with sympathetically both within the Community and by our own Government by every means possible.

As for the base year, I agree that 1983 minus six is better than 1981 plus one, but it is on the margin. I still cannot see why we could not have the mean of the three years. 1981 was not a very good year, 1982 was a very good year and 1983 was a bad silage year, as my farmers in west Dorset have stressed to me today. Why did we not try harder for the three-year mean average, which might have produced a better result?

The starting date of 1 April is a major problem for the dairy industry. The Milk Marketing Board says that the quota will start on that date, but there is still utter confusion about how it will operate. If even a short period could be allowed beyond that date it would help the industry to put its house in order.

Whether we like it or not, the impact of this package will be dramatic in all areas, but especially in Dorset, which is one of the most prolific and best milk-producing counties in the land.

Mr. Nicholas Baker (Dorset, North)

It is the most highly productive dairy county.

Mr. Spicer

My hon. Friend the Member for Dorset, North (Mr. Baker) supported me on the last occasion and has supported me again today.

I am worried about the way in which this goes down the line from the dairy farm. We have just seen a limited recovery on the agricultural machinery side. I am afraid that these measures will have a major impact there and throughout the rural community. I need not emphasise that our overdraft total is over £5 billion and rising, and a substantial part of it relates to the dairy sector. A 1 or 2 per cent. reduction in grain prices will have no impact. Why cannot we have lower grain prices to help us over this and move to denaturing as we have in the past when other commodities have been in surplus? I do not understand it, most farmers do not understand it and we need an explanation.

On the additional costs of the package, last week in Strasbourg we were given a base level of minimum of £600 million to £700 million and a maximum of £1,000 million or more. Where is that money to come from? Will it be a direct charge on the individual nation states, or will it be found somewhere in the Community by somehow washing money that already exists?

We need to rebuild confidence within the dairy industry and to make it clear that the total impact of this will not be disastrous. Equally important, we must end the confusion that currently exists in the industry.

12.10 am

Mr. Allan Rogers (Rhondda)

As the Member for the Rhondda, I must admit that I participate in this debate with some trepidation. I know as much about farming as hon. Members on the Government Benches know about mining, so my views in this debate will be just about as considered as their views normally are on matters relating to the National Coal Board and the National Union of Mineworkers. I participate, however, on the basis that the people in my constituency are a part of the triangle that so many people forget about—they are consumers. It is significant, I suppose, that there are so many hon. Gentlemen present on the other side of the House tonight. I should like to see the Register of Members' Interests in relation to farming. I would like to tot it up.

The hon. Member for Dorset, West (Mr. Spicer) mentioned Sir Henry Plumb and his advocacy, as the chairman of the democratic group in the European Parliament, and of course Sir Henry Plumb, as a former president of the National Farmers Union and, as a fairly substantial farmer in the Thames valley, has a particular vested interest. [HON. MEMBERS: "It is Warwickshire."] Is it Warwickshire? Well, he has slid over the border, then. That is the trouble with very big estates; you are never quite sure what county you will land up in. If the hon. Member for Banff and Buchan (Mr. McQuarrie) will keep his grouse under control, I will proceed.

As a Member for the Rhondda valley I have a vested interest in representing consumers, and that may be of interest to the hon. Gentleman who is making peculiar signals. As the hon. Member for Truro (Mr. Penhaligon) said, the farmers in this country—and I do have a great deal of sympathy with the small farmers in this country—have been told time and again to produce, produce, produce, in the same way as under the Common Market regulations and treaty obligations, the coal miners are told to produce, produce, produce. Then, when they reach a point of overproduction, we shall see the hon. Member for Banff and Buchan, who is speaking while I am speaking, saying that the coal mines should be shut.

Should I say that we should shut the farms, close down the cows, cut off their udders? Perhaps we hould have the same medicine for the farmers as some hon. Gentlemen would like to dole out to the coal miners. Close a farm and there is a great problem. Close a coal mine, with 1,000 people depending on it for their living and that of their wives and children, and that is of no concern to the hon. Gentlemen.

I have more concern for the farmers than hon. Gentlemen have for the coal miners, because they are in a difficult position. Quite frankly, as other hon. Members have said during the debate, they have been sold out by this Government—sold out particularly last summer, and sold out now.

Every hon. Member when he searches his heart knows that farmers have been sold out in this deal. The deal that comes out has nothing to do with farmers, the efficiency of the farmers, the well-being of the farmers. It has to do with getting the rebate for Britain. They will sell out the farmers as long as the Prime Minister can come back with a bunch of money in her arm and say, "Look what I have screwed out of Europe". And the farmers will be sold down the road in the same way as we sold our coal miners and our steel workers.

They say they want to put quotas on the farmers, but I say "Beware, you farmers, when you go down to the quota road". They did it to the steel industry, but did the Italians take their quotas? Did the Germans take their quotas? No. They gave a very rude signal to the European Commission. Perhaps our farmers should give it a rude signal as well, just as the French farmers do.

The problem is that our farmers will play the game on quotas, because we have a good policing system in this country, as can be seen when they come out in Nottinghamshire. The French and the Germans give a little sign to their Governments, and the Governments look the other way. Mitterrand will not sell his small farmers down the river in the same way as the Prime Minister and the Minister will sell our small farmers down the river.

I am concerned about the small farmers—especially the hill farmers and those who exist in the south Wales valleys. Some farmers came to see me today. I admit that I do not know a great deal about the subject——

Sir Peter Mills (Torridge and Devon, West)

The hon. Gentleman does not need to tell us that.

Mr. Rogers

All right, but at least I acknowledge my ignorance—perhaps the hon. Gentleman should do the same sometimes.

A farmer explained to me how he bred his cows and built a milking parlour. If he plans for 100 cows and is then told that he can have only 50, that causes great problems. The farmer is a simple man who tried to explain the problems to me because I have no knowledge of the subject. He only earns £4,000 a year. I looked at his hands—they were not the hands of a gentleman farmer; they were thick and calloused. He had been fencing yesterday and had ripped apart his hands on the fence. He had the hands of a miner.

That farmer works hard for his £4,000 a year. Now he will be told that he has to put down some cows because of a regulation from Europe. He has to change mid-stream. He cannot produce, produce and produce because he has to put down his cows and cut back his production. He is wondering what he can do. He is genuinely confused. Unlike those who have had a more sophisticated education, that farmer does not know what to do. The Minister should consider the problem not from the view of how it will affect big business farmers, but how it will affect small farmers.

The knock-on from that is how it will affect the consumers. The common agricultural policy was supposed to be about self-sufficiency in Europe—which was desirable after the war—about having a good deal for farmers—there is nothing wrong with that, farmers work to earn their living like other workers—but it was also about having a good deal for consumers. The British consumers have been sold down the river by the CAP and the implementation of its various aspects.

Mr. Robin Maxwell-Hyslop (Tiverton)

The hon. Gentleman says that the consumers have been sold down the river. What major product has not increased in price in real terms during the past five or six years, other than food? Yet the hon. Gentleman calls that selling the consumer down the river. That is nonsense.

Mr. Rogers

If the hon. Gentleman wants to go back in history, as Conservative Members so often do, I could go back to Disraeli. I am talking about now, not the historical perspective. At the present time there is absolutely no doubt that we could buy certain of our foods far cheaper in the world market than in the European Community. The hon. Gentleman cannot deny that. We cannot isolate European prices; they must be related to world prices.

Mr. Maxwell-Hyslop

rose——

Mr. Rogers

No, I shall not give way to the hon. Gentleman again. He will have his chance to speak, if he has not already spoken.

We must realise that the farm prices and the farm deal are part of a package. The Prime Minister wanted a cash rebate. In return for that, there is an increase in VAT and a sell-out in the farm sector. The proposals for price reduction, to which the Minister bent his arm in the olive oil sector, are of great importance to the people of the Rhondda and the farmers in Cheshire who have a surplus of olive oil. They will be very pleased about the deal that has been struck there, but they are not so concerned about the deals struck in other sectors. There is a substantial gap between EEC and world prices. The freeze in the milk support price is welcome, but a price cut would have been much better and would not have been particularly damaging to the small farmers. It would not have been beyond the wit of the right hon. Gentleman to have protected our small farmers in that sector. The proposed levy and quota system may well result in a price increase to consumers.

Incomprehensibly, Ministers have agreed that there will be a 12 per cent. surplus of about 11 million tonnes. If we were dealing with coal or steel, they would want to reverse in their tracks immediately. If the United Kingdom butter subsidy is phased out, there will still be a net increase of about 3p per 250 gramme pack.

Mr. Jopling

indicated dissent.

Mr. Rogers

The Minister shakes his head. Perhaps he will explain why I am wrong, but I should like to hear the logic of the figures that he will present.

There is now a surplus of three and a half billion packs of butter in the Community, and a surplus of over one million tonnes of skimmed milk powder.

Mr. Jopling

The hon. Gentleman had admitted that he does not know much about the subject. On butter prices, the proposal at the moment is that there should be a 75 per cent. reduction in the butter subsidy. The effect of that would be almost exactly taken up by a reduction in the intervention price for butter. Hence the net effect of the package would be that butter prices would not rise in the United Kingdom.

Mr. Rogers

The housewives of the United Kingdom will wait with bated breath to see what happens in the next few months. The Minister says that the effect will be almost exactly taken up. We shall have to wait and see what "almost" means.

The freeze in the cereal sector is a start, but EEC prices are still 25 per cent. higher than prices in the United States. In the beef sector, surpluses are expected this year to be worth £800 million—far more than any surplus in any other manufacturing sector in this country. In the sugar sector, production is still running at about 35 per cent. more than demand. All MCAs work as a tax on United Kingdom food imports and raise United Kingdom food prices.

The other Commission proposals on the oils and fats tax, the imports of cereal substitutes, and beef and lamb premiums will all increase prices to the consumer. Conservative Members are not concerned about that. They have a strong vested interest in farming. They are more concerned about the production side. That is where they belong. The Conservative party has always protected its own vested interests. Conservative Members should admit honestly that they are looking after their friends in the industry and do not give much for the interests of the consumers.

12.24 am

Sir Peter Mills (Torridge and Devon, West)

After that speech by the hon. Member for Rhondda (Mr.Rogers) I should declare an interest. Comparing the coal industry with agriculture means getting into deep water. Every farmer I see would like to get out of the industry and receive £1,000, or £35,000, which is the sum sometimes given to miners to get out of the mining industry. The average subsidy given to the coal miners is much higher than the average subsidy given to British farmers. The hon. Gentleman should be careful when comparing coal mining with agriculture.

This is not a happy day for British agriculture. I fully accept the criticisms made by British agriculture against politicians, especially those in the Commission. Over many years, farmers have been encouraged to produce a great deal of food. We are suffering because of the failure of Council Ministers to deal with the problem. The previous Minister of Agriculture, Fisheries and Food tried, but failed, to awaken the Council of Ministers to the dangers ahead.

I do not agree that this is a good deal for British agriculture, but it must be done, in the interest of the dairy fanner and the future of British agriculture. It is surgery, and it hurts, but it must be done. If we do not reach an agreement on this subject next week—because of the Irish problem, and I hope my right hon. Friend will remain firm on this matter——

Mr. Jackson

Will the hon. Gentleman give way?

Sir Peter Mills

I shall not give way, because other hon. Members wish to speak—eventually there will be no more money to provide the intervention funds required for the British dairy farmer. Intervention and subsidies to the British dairy fanner are costing about £1 million a day. We must take action to protect the dairy industry in the long run. I did not like it when, for the first time, our Back-Bench committee had to say to the NFU president that we could not go on increasing producton, and that we must go into reverse. These are sad and hurtful times. As the Minister has rightly said, this action must be taken.

I think I am entitled to say something about the Minister, because for many years I have been the friend of British agriculture and of my right hon. Friend. We entered Parliament together. I deplore the attacks made on him by many people, the press and, I regret to say, a few hon. Members. Some of the criticisms have been ridiculous. The present Minister is batting on a different wicket from the former Minister. My right hon. Friend has had a difficult task to achieve his objectives. I am greatly upset that many of those people attacked him in the press and other places but did not have the guts to do so during the NFU council meeting some weeks ago or at other times when speaking to him. Let us have none of those attacks in the future. We should be encouraging my right hon. Friend in his difficult task. We wish him all the best in the coming week. Of course, we must criticise him in a pleasant way and urge him on to stand firm on certain matters, and I do that constantly. We must point out where he is going wrong, but there should not be the type of criticism we have had from some quarters, including the press.

The many pluses have not been highlighted. My hon. Friend the Member for Hereford (Mr. Shepherd) and other hon. Members have talked about those factors. The preservation of the MCA was the first thing the NFU wanted to achieve. My right hon. Friend has achieved that objective and that is a major plus. The beef and sheep objectives I believe we can achieve, although there may be some slight adjustments in the latter. The hill cow subsidy has been achievable, as has marginal land, and the Government have reduced interest rates. I believe that feed costs will come down, particularly because of the world situation, with so much grain being planted up in America, together with the reductions in this country. That should help the stock farmer.

I believe that my right hon. Friend will continue to remain firm on the exemptions that were tried on by the Commission, and by other countries. I wish to see the 1983 system applied, on a dairy basis. It will give more flexibility, and it will help where some farmers are unable to produce enough, or want to get out to let others in.

I urge the National Fanners Union and the Milk Marketing Board to discuss fully with the Government ways of achieving what is best for British dairy farmers, and to take notice of some of the excellent points that have been raised in the debate. Flexibility is necessary. The 1983 system on a dairy basis I think will help.

It would have been better for the Minister, and for British agriculture, if we could have had a united lobby from the NFU and the MMB. If farmers had been guided better to decide what is right, that would have been of great benefit. Being at sixes and sevens did not help the cause, and I believe was a disadvantage to the Minister. In future discussions, particularly regarding the direction in which to go on quotas, I hope that we can be more united. We should seek a fairer solution for the dairy farmers. We must work our way through this unpleasant situation.

I am not a happy man tonight because of what I have been able to say. I believe that the Minister and the Government are right, because this has to be done. Any further delay would make matters even worse for the future of British dairy farming.

12.32 am

Mr. Albert McQuarrie (Banff and Buchan)

Time does not permit me to take issue with some of the points raised by my hon. Friend the hon. Member for Torridge and Devon, West (Sir P. Mills).

The main concern of the agriculture industry is that the breakdown in talks must not cause further damage to British agriculture. The debate is not what we would have wished, because it is taking place against a background of uncertainty, with no clear guide as to what the future holds for this important sector of the British economy.

I hope that no hon Member will take offence if I concentrate on the effect that the Brussels price review will have on the Scottish farmers, for whom I speak. The National Farmers Union of Scotland recognises the importance of the future pattern of support for the milk sector. It favours the introduction of a quota supplementary levy scheme, but suggests that the Commission's proposals should be amended by providing assurances that there will be no exemptions to the levy, with the base period amended to take account of the 1983 pattern of production, to provide assurances in relation to the quota quantity, and to encourage voluntary incentives to curtail production.

The Scottish NFU accepts that the support price increases for cereals should be at a lower rate than those for livestock, but the acceptance of this principle is conditional upon the fact that action must be taken to limit the imports of cereals substitutes from the Community. At the same time, the union rejects the Commission's proposals that the EEC cereal prices should be aligned with those in competing countries, because production conditions are completely different. The Scottish NFU strongly opposes the proposals to tighten quality standards for intervention and for export, as this would further depress prices in the United Kingdom and discriminate against United Kingdom producers.

Scotland will be particularly affected by the proposals because of its climatic conditions. I hope that my right hon. Friend will consider the NFU's proposals for the introduction of differential support prices for feed wheat and barley to reflect their different feed values, and also its suggestion on how to improve access to and the availability of cereals held in intervention. That would be of great value to the pig and poultry sections of the industry, which are suffering severely because of the high cost of cereals.

Beef is an important sector in Scotland. Farmers there are adamant that the Government must not yield one inch in their declared stand to maintain the variable premium system. The Commission's proposal will do nothing to meet the rising production costs or to assure the future supply of beef to the United Kingdom. The Scottish farmers reject outright the proposals to abolish the United Kingdom variable premium and demand that in negotiations we should seek its full retention.

The suckler cow premium is another factor. For some years there has been a steady decline in the suckler cow herd. To arrest that decline, it is essential for the suckler cow premium to be increased. Unless there is a movement upwards, the suckler cow herds will continue to decrease dramatically, to the detriment of producers and consumers.

The sheepmeat regime has involved one of the most successful subsidies by this Government and the EEC. Although it is not strictly involved in the 1984–85 price proposals, it is important for Scottish farmers. The Commission's proposal that the variable premiums be limited to 25 per cent. of the guide price and that any shortfall in the premium payments arising should not be incorporated in the amended ewe premium is wholly unacceptable. Such a move would discriminate against United Kingdom producers, because they alone would not have the assurance of returns which are currently extended to all EEC producers under the regime. I ask my right hon. Friend to reject the proposals, which can only do lasting damage to the farming industry.

The pig industry is facing total collapse due to the Government's record of indifference and unwillingness to exploit even the most modest opportunities which the EEC pigmeat regime could offer to alleviate the now desperate situation facing pig farmers who are still in business. Many pig farmers have been forced out of business in the last few years.

Reports from Brussels show that a solution on MCAs is likely to be found which would, in itself and as a result of the green pound currency system, avoid changes in United Kingdom support prices in sterling terms. Scottish farmers have urged that, but they understand that there could be an opportunity for increases in support prices in a number of other EEC countries. That is a matter of concern because of its possible impact on the competitive advantage within the Community.

The firm belief of the farming industry in Scotland is that despair is creeping in at the lack of understanding by the Government about the magnitude of what is at stake for the whole of the agriculture industry. I implore my right hon. Friend to heed urgently the pleas of the people who have backed the Government and their Members in the constituencies. No industry has done more for the economy than the farming industry. We cannot fail to heed the farmers' cry for help in their time of need. If we fail them, we fail ourselves and we fail the future of a great industry. Our determination must be that, whatever the cost, we shall back the industry to the hilt. I look to my right hon. Friend to give a firm assurance to the House and the country tonight.

12.39 am

Mr. Mark Hughes (City of Durham)

There has been a curious gap in the debate, because nobody has mentioned horticulture. It is a major element in British agriculture, but it has been overlooked. The package contains nothing about the desperate plight of horticulture. I deeply regret that. It would have been better if the Minister and other hon. Members had included mention of that sector in the debate.

We have concentrated upon milk and beef production, but primarily milk. It is clear that most milk producers are faced with a loss of income of about £100 per cow per year. What is much more important—this is where a politician is on dangerous ground, but I should he the last to say that this was a self-fulfilling prophecy—during the past week the capital value of the collateral of bank loans against dairy cows has dropped by £100 per cow. Many farmers in Pembroke, Cheshire, Cardigan, Devon and Cornwall have suddenly found that the capital value of their collateral has declined. A friesian in-calf heifer which was worth £750 two weeks ago is now worth £650, and it will be lucky to make £500 in a week's time.

We must ensure that before the Government introduce these draconian cuts on 1 April they make the arrangements necessary to inhibit the pressures on the cash flow for dairy farmers which will follow.

Labour and Conservative Governments encouraged the farmers to go into milk production and it is therefore incumbent upon the House to make certain that they do not end in Carey Street because they have seen their collateral collapse. We must ensure that the value of the monthly income of dairy farmers is maintained in the short term while they adjust.

Our objection to the scheme is not that we must reduce dairy production, but that it is being done too quickly. One cannot announce to dairy farmers on or about 10 or 12 March that their incomes will be cut from 1 April. That gives them insufficient time to make proper arrangements to continue their business. Unless the Government make adequate proposals for a bridging arrangement, great anger will be felt by the dairy sector, and rightly so.

The Opposition accept the need to limit the budget and control expenditure, but not if it means bankrupting farmers because Her Majesty's Government decline to make the necessary transitional arrangements. That is what I find unacceptable about the proposals.

The next stage down the line is that in two years about 75 per cent. of the beef on the butcher's slab will come from the dairy herd. Unless we can guarantee the throughput of that beef from the dairy herd, the British consumer will have a shortfall. That follows as night follows day. If one cuts back one's dairy herd, one will not have the cull calves to put through as beef animals.

Unless there is a significant improvement in the suckler cow regime immediately—not next January, next April, this year, next year, some time, never—I cannot see how any Agricultural Development Advisory Service adviser could advise those hard-pressed dairy farmers faced with a diminution of their income from dairying which bull they should put their heifers to. They must put them to beef bulls, with an adequate suckler cow scheme. The Minister will know that at the moment the payment is £12.37 per cow. It is within the Community guidelines and regulations to increase it by 100 per cent. As long as the Minister can get the Chancellor of the Exchequer to agree, he can do so. That would offset much of the anguish in the dairy and beef sector over this package. We have not had a whisper or a whimper of a suggestion of that.

That is our problem. We are faced with a massive closure on milk, which is too quick. In no way can the dairy producers adjust. We need two or three years to do the job. I had the pleasure and privilege of meeting the Carmarthen representatives of the National Farmers Union the other day. The accident that I could speak Welsh to them was totally fortuitous.

Mr. McQuarrie

Was there a by-election?

Mr. Hughes

No. They came to meet the hon. Member representing Durham. There is not a by-election in Durham at the moment, as far as I know.

Those people told me that in the past week, in Carmarthen alone the capital value of the dairy herd had dropped by £1 million. In the next week, it will drop by another £1 million. If Conservative Members believe that that is a recipe for winning a by-election, they should get on with it. It is their business, not mine.

On that basis, the dairy industry is teetering at the top of a terrifying downward spiral. If livestock values, land values and so on go down, we will be in difficulty. For that reason, I trust that the House will consider very carefully the subject that we are debating. We are not satisfied that the package does anything to help the agriculture industry.

12.50 am

The Minister of State, Ministry of Agriculture, Fisheries and Food (Mr. John MacGregor)

Like the hon. Member for City of Durham (Mr. Hughes), I have accepted a limited time for replying to enable as many as possible of my hon. Friends and Opposition Members to comment on the developments so far in the current price review, which is always the point of this debate. It means that I cannot cover all the points that have been raised, and also that I shall have to speak at some speed.

The first thing that strikes me about the debate is that it has been noticeable that there has been almost total agreement in all the contributions about the need to tackle the surpluses and to contain the cost of meeting those surpluses. No one has disputed that fundamental principle. There has been argument about the transitional period in one sector and about spome of the details, but not about the principle. It is important to recognise that. Some hon. Members were not prepared to face the consequences of their acceptance of the need to tackle the problem. They hoped that there was an escape hatch down which they could go so as not to face the painful consequences. I say with great regret and feeling that, alas, that option is not open to those who have to take the decisions.

I should like to make two opening points before dealing with the contributions that have been made. First, as my hon. Friends the Member for Hereford (Mr. Shepherd) amd for Torridge and Devon, West (Sir P. Mills) recognised, in these negotiations my right hon. Friend faces an exceptionally difficult situation, much more difficult than that of previous Ministers. This time there is a cash flow and a market crisis—by market crisis I mean the inability to get rid of the surpluses—as all Ministers at the Agriculture Council have recognised. If we are to have a more stable and realistic basis for the future of the industry, it must surely be right to face this problem now.

Secondly, we are in a negotiating situation that is difficult for all Ministers. My hon. Friend the Member for Skipton and Ripon (Mr. Watson) gave a description of what he thought the negotiations were like and the outcome so far for the United Kingdom compared with other member states. He should read the newspapers of other member states to find out what they are saying about the outcome so far. He would see that very often it is thought that we have got a much better deal than their Ministers. It is not possible to achieve all the national objectives that we have set ourselves and that have been urged upon us throughout the negotiations. We can only go flat. out to try to meet the problems and to ensure that we end up with a solution that is as fair to the British farming industry as it is to any other.

There is one other difference at these negotiations. I have not been at previous negotiations, but I am told that often every member state had a particular goodie, scheme or proposition which it wanted and which would involve additional expenditure or some help here or there, and that in the trading off at the end everyone got a little bit which helped to meet the national interest. That is not the situation that we are in this time. Everyone has to cut back, and this makes the negotiations much more difficult.

I was fascinated by the policies of the hon. Member for Aberdeen, North (Mr. Hughes) as he unfolded them. He made four points. First, he believed that we still had a long way to go to achieve fundamental reforms of the CAP and to cut the budget costs. The implication was that he was looking for more drastic surgery. Secondly, he wanted a redistribution between countries that would not be to the advantage of the agriculture industry in the United Kingdom. Thirdly, he pointed out, rightly, that even with the overall target that we have accepted within the Community, for the dairy quotas this year, there is still a substantial dairy surplus. There is still a surplus of 10 to 15 per cent. even with that target. He criticised the fact that we had reached that position, the implication being that he would cut back more. Fourthly, he was very critical about any possibility of going over the Commission's original budget ceiling.

Taking those four points together, I hope that all farmers in the United Kingdom will take the message that the effects on their production and incomes would be much more severe and immediate under the hon. Gentleman's policies than they will be under what we are doing.

Like the hon. Member for City of Durham I come to the issue that has mainly concerned the House tonight—the dairy industry. I understand entirely all the fears and worries of the dairy sector, and I am extremely sympathetic to it. I wish that we could have gone for a longer transition. Because I understand the problems, I am critical about the surpluses not having been tackled earlier, for, if they had been, we should have been able to achieve the kind of transition for which everyone is asking. We now face in the Community costs of disposing of the dairy surplus of about £3 billion a year, 30 per cent. of the total CAP and 20 per cent. of total EEC expenditure, and rising.

Mr. Nicholas Winterton

rose——

Mr. MacGregor

I cannot give way. I have only five more minutes and I am trying to deal with the points that were raised about the dairy sector.

Mr. Winterton

My hon. Friend is not doing it very well.

Mr. MacGregor

The surpluses, even with the current painful decisions, will still be 10 to 15 per cent. In the United Kingdom we are now self-sufficient and we have substantial stocks in intervention. We have 116,000 tonnes of butter, which is 137 days' supply, and we have 161,000 tonnes of skimmed milk powder, which is no fewer than 648 days' supply. Clearly, therefore, these matters must be tackled. It is better to tackle them now, otherwise the whole problem will be much worse later and the plight of our dairy industry will be much greater.

The hon. Member for Aberdeen, North asked about the banks. As my right hon. Friend pointed out, one aspect of our economic strategy has been helpful to agriculture as a whole. Compared with the peak point of interest rates two years ago, the difference in cash flow, with interest rates as they are now, is about £350 million to agriculture, which is a substantial figure.

Mr. Winterton

Now deal with the dairy sector.

Mr. MacGregor

My hon. Friend the Member for Macclesfield (Mr. Winterton) and I have talked about these matters a great deal recently. I have only four minutes left in which to respond to all the other points that hon. Members have made.

Being aware of the problems that were coming up, we have been instructing ADAS to get itself into a position in which it could give advice on these issues to dairy producers, because the situations of individual dairy producers differ enormously.

My hon. Friend the Member for Congleton (Mrs. Winterton)—[Interruption.]—also spoke in the debate. I am sure that she and my hon. Friend the Member for Macclesfield see eye to eye on the matter to which I now come, which is one that she raised with me. She emphasised that the ultimate outcome must be fair and equitable to Britain, and I entirely agree with that, but I should explain about the United Kingdom quota.

The 97.2 million tonnes limit is the 1981 level of production, plus 1 per cent. That was the limit agreed by the Council some time ago. The Commission therefore insisted that that should be the basis for national quotas, which gives us broadly 16 per cent. As that was also the year in which the guarantee threshold was introduced, the implication was that from then on over-production would be penalised. Looked at in one way, the United Kingdom cutback from the 1983 levels is slightly higher than that for some countries, and my hon. Friend the Member for Congleton dealt with that in relation to France, although Germany and the Netherlands face bigger cutbacks.

This is a reflection of the fact that United Kingdom production has risen faster since 1981 than it has in those other countries. Had our national quota been based on the 1983 level, the difference would have been 0.18 per cent. I hope it is clear, therefore, that we have obtained a fair deal for the United Kingdom, because we have so many other things out of the milk deal that we were seeking.

There are many other matters with which I should have liked to deal, including the points raised by the hon. Member for Newry and Armagh (Mr. Nicholson) and others, but I shall write to them. I fully understand that hon. Members in all parts of the House feel strongly about the beef and sheepmeat premium. I assure my hon. Friend the Member for Hereford that we have been arguing in the Council chamber all the points that he cogently put forward. I know, from being with my right hon. Friend, how hard he is fighting in an exceptionally difficult situation.

My right hon. Friend will have a most difficult task next week. We do not yet know what proposals and what procedures we will be facing. We do not know how the negotiations will develop and what the overall balance of any ultimate package, if we reach one, will be. am sure the House will understand that we have never revealed our negotiating position before negotiations take place. I can only say that we have left the Community in no doubt about the importance of the beef variable premium to the United Kingdom.

Turning quickly to one or two other points that were raised——

Mr. Geraint Howells

rose in his place and claimed to move, That the Question be now put.

Question, That the Question be now put, put and agreed to.

Question put accordingly, That this House do now adjourn:—

The House divided: Ayes 6, Noes 104.

Division No. 199]	[1.03 am
AYES
Body, Richard	Maclennan, Robert
Howells, Geraint	Nicholson, J.

Penhaligon, David	Tellers for the Ayes:
Winterton, Mrs Ann	Mr. Nicholas Winterton and Mr. Charles Kennedy.

NOES
Amess, David	Neubert, Michael
Baker, Nicholas (N Dorset)	Norris, Steven
Baldry, Anthony	Onslow, Cranley
Bellingham, Henry	Page, John (Harrow W)
Berry, Sir Anthony	Page, Richard (Herts SW)
Boscawen, Hon Robert	Powley, John
Bottomley, Peter	Raffan, Keith
Bowden, Gerald (Dulwich)	Rathbone, Tim
Brandon-Bravo, Martin	Rhodes James, Robert
Bright, Graham	Robinson, Mark (N'port W)
Brooke, Hon Peter	Roe, Mrs Marion
Brown, M. (Brigg & Cl'thpes)	Ryder, Richard
Burt, Alistair	Sackville, Hon Thomas
Butterfill, John	Sainsbury, Hon Timothy
Carlisle, John (N Luton)	Sayeed, Jonathan
Carttiss, Michael	Shaw, Sir Michael (Scarb')
Chope, Christopher	Shelton, William (Streatham)
Colvin, Michael	Shepherd, Colin (Hereford)
Conway, Derek	Sims, Roger
Coombs, Simon	Smith, Sir Dudley (Warwick)
Cope, John	Smith, Tim (Beaconsfield)
Dover, Den	Soames, Hon Nicholas
Emery, Sir Peter	Spencer, Derek
Eyre, Sir Reginald	Spicer, Michael (S Worcs)
Forth, Eric	Steen, Anthony
Gale, Roger	Stern, Michael
Garel-Jones, Tristan	Stevens, Lewis (Nuneaton)
Goodlad, Alastair	Stevens, Martin (Fulham)
Hargreaves, Kenneth	Stewart, Allan (Eastwood)
Hogg, Hon Douglas (Gr'th'm)	Stradling Thomas, J.
Hurd, Rt Hon Douglas	Sumberg, David
Jackson, Robert	Taylor, John (Solihull)
Jopling, Rt Hon Michael	Temple-Morris, Peter
Lang, Ian	Thomas, Rt Hon Peter
Lord, Michael	Thompson, Donald (Calder V)
McCurley, Mrs Anna	Thompson, Patrick (N'ich N)
Macfarlane, Neil	Thorne, Neil (Ilford S)
MacGregor, John	Tracey, Richard
Maclean, David John.	Twinn, Dr Ian
McQuarrie, Albert	Wakeham, Rt Hon John
Major, John	Walden, George
Malins, Humfrey	Walker, Bill (T'side N)
Marland, Paul	Waller, Gary
Mates, Michael	Wardle, C. (Bexhill)
Mather, Carol	Watson, John
Maxwell-Hyslop, Robin	Watts, John
Mayhew, Sir Patrick	Wells, John (Maidstone)
Meyer, Sir Anthony	Wheeler, John
Miller, Hal (B'grove)	Whitfield, John
Mills, Iain (Meriden)	Wood, Timothy
Mills, Sir Peter (West Devon)
Mitchell, David (NW Hants)	Tellers for the Noes:
Morrison, Hon C. (Devizes)	Mr. David Hunt and
Moynihan, Hon C.	Mr. Archie Hamilton.

Question accordingly negatived.