HC Deb 15 May 1984 vol 60 cc334-42

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

4.7 am

Mr. David Penhaligon (Truro)

It is seven minutes past four in the morning, but I welcome the opportunity to talk about the implementation of the EEC milk quota agreement and some of the difficulties that have been drawn to my attention in the weeks that have passed since the deal was made.

This is the first opportunity that the House has had to discuss the deal since the agreement was made, although we had a debate the Thursday before that fateful day when some of us had the opportunity to express outrage.

I shall concentrate on the details of implementation as opposed to the scheme's virtue. I can, for all that, tell the Minister that there is genuine anger among the dairy farmers in my part of the country and elsewhere about the deal. Local farmers find it incomprehensible that the United Kingdom Minister should agree to such a large reduction in our milk production, given that France, with its enormous surplus, was required to reduce production by less than half of the figure to which we agreed. We look enviously at the skill which the southern Ireland Minister must have demonstrated at the meetings. Not only did he manage to avoid any reduction in quota, but he obtained an addition to the historic figure. Farmers in my area cannot help but compare the reality of what has now been imposed upon them with the rhetoric of not so many months ago. I recall, as they will, the visits of the previous Secretary of State to my part of the country, when, in answer to questions about the future of milk in our country, he replied firmly that his advice to the farmers was to produce, produce, produce. His observations will be remembered, and my hon. Friend the Member for Ceredigion and Pembroke, North (Mr. Howells) has evidence that as recently as March this year the Ministry was still encouraging farmers to produce extra milk.

However, there are other more pressing issues. Such is the magnitude of the tragedy that I suspect that the House will discuss it again at intervals throughout the coming months and years. My argument can be summed up in the delightful question "How?" That is the question that farmers in my area are asking. I recall that on one occasion the Minister said that the details of the agreement would be made public in mid-May. Today is 16 May, and we believe that it is time that the farmers of Britain were told precisely where they stand, so that they can make judgments about their businesses and make the necessary adjustments.

Despite the discouraging answers given to parliamentary questions, my hon. Friends still want the quotas to be skewed to the advantage of the small producer. We believe that it would be possible for herds of fewer than 50 cows to be totally exempted from the quotas when those herds represent more than 75 per cent. of the added value of the farm in question. We see no reason why an exemption could not be given in that area. Our own observations and our conversations with our constituents make it clear that it is the small farmer who will be most troubled by this deal. In particular, the small tenant dairy farmer will suffer. Many believe that they will be bankrupted. A few believe that they are bankrupt already. Their only real hope is that the Minister will make it clear now that the Government are willing to give, out of our own resources, some special help or dispensation, in view of the difficulties that have been created.

I want answers to some specific points. I am concerned about the appeals procedure for hardship cases. The relevant questions are, "Who? How? When, and on what basis?" Who will be given that rotten task? How will the arbitrators be selected? Will there be that all-important independent element among them? How will the procedure work? Will there be only written evidence, or will people have a chance to make oral observations? When will people be able to expect final decisions? The agreement has, after all, been in existence for seven weeks, and it is clear that many weeks will pass before final and absolute decisions are obtained. One question is even more important than the others. Under what criteria will the review be carried out? My constituents would also like a firm answer to the following question. In the final analysis, will the Secretary of State be responsible for those decisions?

Will it be possible for hon. Members to argue individual hard cases with the Minister via correspondence if there is not always an opportunity for us to do so in debate?

Like my hon. Friends, I have spent some time studying the various EEC documents that have been produced. I have noted that one of the criteria is concerned with private investment plans. All the evidence that I have been able to collect suggests that the 2.6 per cent. that has been put aside for cases of hardship will not be sufficient. I have farmers with 70 or 80 cows and no quota and others who are producing three times their quota. There are obvious cases of hardship when development plans have been agreed, on the basis of financial encouragement. Such people will expect special allowances to be made. I have the near amusing case of Cornwall county council having obtained a farm for educational purposes — it must therefore have a dairy element—but its quota is zero litres.

If the 2.6 per cent. is insufficient, from where will the further quota be obtained? Many of my farmers are only too well aware that the details that they have received are marked provisional. They wonder what it means. Does it mean that if the hardship appeal procedure requires more, the figure will be further reduced?

The producer-retailers are still not clear where they stand. That is probably an understatement. Farmers have noted the German Government's response. Out of their own resources they are putting aside about £200 million to buy out some of their milk producers so that the spare quota can be reallocated. Many people believe that something similar is our only hope. People are asking why, if that is good enough for the Germans, a similar scheme cannot be introduced here. The Minister should at least announce that the Government will introduce a similar compensation scheme. It would help to stabilise matters. The price of cows is down £200 and many cows are going to slaughter while in calf.

Other people are involved. What about those who work in milk factories? The one thing that the Minister has announced with which I concur is that it would be foolish to reduce the amount of liquid milk sales because the whole burden of cuts in milk production would be carried by the manufacturing sector. Not much less than 20 per cent. less milk will go to our factories. What will the Minister do—close every fifth factory? Does he intend to reduce the output of every factory by one fifth? Whichever way we look at it, we are talking about some 9,000 jobs. I have milk factories at Hayle, Davidstone, Lostwithiel, Torrington, north Tawton and Lifton. I am well aware that my hon. Friends here—the hon. and learned Member for Montgomery (Mr. Carlile) and the hon. Members for Ceredigion and Pembroke, North, for Orkney and Shetland (Mr. 'Wallace) and for Yeovil (Mr. Ashdown) — face similar circumstances in their constituencies. Many factories are in areas where the hope of finding alternative work is a fantasy. They are often the major work providers in their respective communities.

Mr. Paddy Ashdown (Yeovil)

Perhaps I can add a little flesh to the argument for the benefit of the Minister. Last night I held a meeting of 450 farmers in my constituency. They voted by about 445 to five in favour of the Minister of Agriculture, Fisheries and Food resigning. At the meeting, the chairman of the Milk Marketing Board predicted the closure of no fewer than 30 of the board's major manufacturing plants, directly as a result of the quota system.

Mr. Penhaligon

I respect the view advanced by the president of my hon. Friend's local farmers. It appears that the Minister is more popular in Somerset than in Cornwall because I cannot imagine even five people voting against such a motion in my area.

The main thrust of the debate is a simple question. Are the Government willing to give some of their own resources? If not, why not? Hundreds of family businesses want to know the answer to that question. In many cases, a lifetime's work revolves around the Minister's decision. If the Minister should let down the farmers he will bear the burden on his shoulders for a long time.

This is a serious matter. I have outlined several questions. The one that I want an answer to most of all is: Will the Government help with their resources? If the answer is no, we can only hope that the details of the decision will be of real significance. Without some relief, there will be a tragedy in the areas that are heavily reliant on the dairy farmer.

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

I welcome this opportunity to discuss the implications of the introduction of the milk quota and supplementary levy system. The subject is naturally the focus of intense interest and debate throughout the farming community—

Mr. Ashdown

Will the Minister give way?

Mr. MacGregor

I have hardly said anything, but I shall give way.

Mr. Ashdown

I am most grateful to the Minister. I am sorry to interrupt him so early, but he said that he welcomed the debate. Can we take it from that that he would welcome a fuller debate at which more members of the Conservative party were present—[HON. MEMBERS: "There are none present now."] There is the Government Whip. In such a debate, we could discuss the matter in full detail rather than at 4.20 am, with such a thinly attended House.

Mr. MacGregor

The time of the debate is the reason why it is so thinly attended, but Adjournment debates are in any case generally thinly attended. I hope that the hon. Gentleman will not intervene again because I want to reply to the questions asked by the hon. Member for Truro (Mr. Penhaligon). I had hardly finished my first sentence when I was interrupted.

I was saying that I welcome this opportunity, and the subject is naturally the focus of intense interest and debate throughout the fanning community. I was about to say that we shall come back to the subject — at a more reasonable hour, I hope.

I spent a great deal of my time both before the final decisions on 31 March and since then meeting the farming community. I have spent the past two days meeting dairy farmers in Herefordshire and Shropshire. Clearly, some dairy farmers are facing tough decisions. I wholly understand and sympathise. The decisions that had to be taken in Brussels were tough. That was agonisingly difficult. Because of that, time and again throughout the long negotiations, as we faced up to the problems, I felt acutely that if only the Council of Ministers in earlier years had faced up to the obvious and increasingly huge problems that were piling up in the dairy sector, of the surpluses and the cost of disposing of them, it would have been possible to have a gentler transition to the new arrangements, which many dairy farmers would have wished.

That is what the Government would have liked, but it was not possible because the money was no longer there. Had we not taken the decisions in March, the real danger was that there would have been no pay cheques for any farmers from about September onwards. What would the dairy farmers and others have said to us then if we had once again fudged the decisions in March? That was the difficult problem that we had to face.

I should like to deal with the main questions. Why were those decisions necessary? Why quotas? What about the French and the Italians? What happens now? The first question is: Why were the decisions necessary? I am afraid that tough decisions this year were simply unavoidable. They have been spelt out to dairy farmers, and I find that they understand why they had to be taken, although, naturally, they are very worried. These are the key facts, and it is important to put them on the record. First, the cost to the European taxpayer simply of dealing with and disposing of our dairy supluses is now huge, and rapidly rising. Last year, it was about £3,000 million. We cannot get rid of those surpluses at home at cost of production or abroad at world market prices, except through vast subsidies from the taxpayer, and even now, with the decisions that we have taken, we are left with rising stocks in intervention stores that nobody is taking.

Second, even with the new quota arrangements, there will continue to be substantial surpluses each year—certainly this year—somehow or other still needing to be disposed of. Without urgent action, deliveries to dairies in 1984 are expected to be 106 million tonnes, while consumption looks like being only 86 million tonnes. The aim of the supplementary levy is to cut back deliveries over the next 12 months to just over 100 million tonnes.

Thirdly, the new arrangements save the taxpayer £1,000 million, but, even so, there will still be an enormous subsidy to the dairy sector this coming year of at least, over £2,000 million, including the heavy financing costs of keeping the large intervention stocks. So, there is still enormous Government support for dairy farmers.

Fourthly, the United Kingdom dairy industry has been so successful in increasing its production in recent years that we now play a big part in contributing to the problems of surpluses. The old argument that we are far from being self-sufficient no longer holds true.

It is important to spell that out, because outdated statistics are being bandied about in the farming press and elsewhere. The hon. Member for Truro knows that self-sufficiency in dairy products is calculated by looking at butterfat and solids-not-fat.

The estimate for last year was that in butterfat, taking New Zealand imports into account—which we must, as under our special arrangements they come only to this country—we we were 103 per cent. self-sufficient. Even without New Zealand, we are likely to be nearly self-sufficient this year. For solids-not-fat we were 131 per cent. self sufficient.

Even more important, we now contribute handsomely to the stocks in intervention stores—in other words, the products which we could not sell on the market. These are the real surpluses which are causing a good part of the cost to Community funds. The latest figures show that we have 144 days supply of butter in intervention stores in this country, and a staggering 692 days supply of skimmed milk powder—well above the Community average. The latter has been increasing in recent weeks by almost an additional day's supply going into stores for every day that passes.

We had to face the fact that we make heavy use of intervention stores because the industry cannot find markets for all our milk products. The figures tell their own story. The position had become extremely difficult throughout the Community, as had been known for many months. It would have been much worse if we had delayed facing up to those facts for another year, because the decisions that we would have had to take, would have been much more severe.

The hon. Gentleman referred to the virtues, or otherwise, of quotas. I knew that I would have to grapple with many of the difficult issues that he raised, which reinforced my view that it is much better to avoid a quota system if that is possible. After the Commission's July 1983 proposals were announced, the Government set out to solve this difficult dairy problem by price alone. It became clear early on — we made no secret of this during debates before Christmas—that we were almost on our own and that the majority of member states were turning to a quota solution. That is why we concentrated on making the quotas as fair as possible to Britain.

That brings me to the hon. Gentleman's points about France and Southern Ireland. Many of the issues that were extremely important to France in the Commission's original proposals are not in the final solutions. They include the exemption for small producers, which would not have affected many of our small producers, but was especially important to France; the intensive levy, which would have hit us hard but not France; and the exclusion of direct sales, of which France has a higher proportion than we have. Those issues were changed during the negotiations in ways which were helpful to us and detrimental to France.

The one difference was the use of 1981 as the base year. Again, as the hon. Gentleman knows, it is not possible to get a proposal on to the table in the Community unless the Commission proposes it or the Council of Ministers unanimously puts forward an alternative. The Commission resolutely refused to move from its proposal of 1981 as the base year, arguing that that was when the problem of surpluses was very clear and warnings were being given. It was also clear that the Council of Ministers would not agree unanimously to the use of 1983 as the base year. The base year chosen was thus 1981. The reason why France had a moderately smaller reduction than ours in its quota compared with 1983 was that it had expanded its production a good deal less than we had since 1981. It is worth pointing out, however, that both the Germans and the Dutch face larger reductions than we do.

I am grateful, too, for the opportunity to spell out the position with regard to Southern Ireland. We consistently opposed the Irish Government's original request to be exempt from the super-levy altogether and that was not included in the final proposals. Nevertheless, a majority of member states felt that because dairy production accounted for a far larger proportion of GNP in Southern Ireland than in any other member state, some special treatment would be fair. In the final analysis, only one member state apart from the United Kingdom was prepared to vote against a special addition for Southern Ireland and we should not have won the vote, because we did not command enough support to defeat the qualified majority.

Had we insisted on a vote on that issue, there would immediately have been a vote on the variable beef premium scheme and we should have lost that vote. We should thus have had the doubtful satisfaction of being able to say that no one could blame us for the special arrangements for Southern Ireland because we had opposed them throughout and voted against them but that we had lost the variable beef premium scheme. That is the reality of the matter.

A number of unresolved issues still need to be clarified in Brussels. Progress is being made on some of them, but on others—most importantly on direct sales, on which I fully understand the hon. Gentleman's point—matters are not moving sufficiently quickly. We have been extremely critical of the tardiness of the Community machine in reaching these decisions and we are continuing to press for a very early resolution of the remaining points. I appreciate fully the problems caused by the uncertainties and we dislike the situation as much as the producers dislike it.

Having come fresh as a Minister to the process of Council of Ministers decisions on agriculture, I have been struck by the fact that because, inevitably, it is a bargaining and negotiating process, decisions are always reached rather late in the Community year and a number of the details have to be settled afterwards—contrary to our procedure here, where we argue endlessly about Bills before finally putting them on the statute book.

I do not regard the present situation as ideal and I agree with the hon. Gentleman that it is very difficult for dairy farmers who still do not know precisely where they stand on a number of issues, but we have been doing our very best to resolve those issues as quickly as possible. It is worth stressing at this point the importance and necessity of framing our regulations in line with Community regulations agreed in Brussels, because if we do not do so we run the risk of disallowance of Community subsidies. Incidentally, that is also an important sanction for other states to abide by the rules.

The hon. Gentleman referred to announcements made by the Germans about the details of their schemes. In fact, it is still not clear whether some of those details will fit in with Community regulations. I believe that the German Government have had to go back to the Commission to try to sort out whether some of their announcements are within Community regulations. That is one of the difficulties that we face.

Mr. Penhaligon

Despite those matters of detail, the German Government have made it clear that they will give hard cash to their dairy farmers to help to alleviate the problem. Will our Government do the same, and if not, why not?

Mr. MacGregor

Perhaps the hon. Gentleman will allow me to come to that. I am trying to build up the explanation of the current difficulties as quickly as I can.

In the meantime, we have acted promptly where we can and are urgently carrying out our contingency planning and consulting the industry where we cannot yet firmly decide. Producers who sell milk to the milk marketing boards have been told their provisional initial allocations. Indeed, we were the first member state to give guidance to producers, precisely because we understood the hon. Gentlman's point that it was important for producers to have some guidance, even if it had to be provisional.

The hon. Gentleman put emphasis on the provisional point, and what we have in mind there mainly was that there will be a considerable number of producers who will qualify for the special reserve, and who will therefore find that the quota reduction from 1983 will be less than 9 per cent. A number of other details have still to be settled, which is why we had to make it clear that that was provisional. We did it—I hope that the hon. Gentleman will think that this was right—because we had to give as much guidance as quickly as possible. We are now engaged in intense and extremely thorough discussions with the industry organisations on the framing of the system to operate in the United Kingdom. It is critically important that we get this right, because it is likely to last for three to five years, depending on the review that will take place after three years as to whether there should be any changes.

In particular, we are designing the fairest system that we can for allocating additional quotas from the 2.5 per cent. quota that we have set aside to the categories of producer that can be treated as special cases under the regulations — those who were affected by exceptional events in 1983 and those who are implementing development plans. The hon. Gentleman said that he felt that the 2.5 per cent. reserve would not be sufficient for all cases, and I am not trying to mislead anyone into thinking that the special reserve will be such that everyone will get all that they want out of it. However, there was a difficult decision, because the non-expanders who argued that they had read the warning signs all the way through did not see why they should be making the sacrifices for the expanders, and therefore the decision required balance.

We are also considering in consultation with the various interests the possibilities provided for in the regulation of giving additional quota or financial aid to certain categories of producer, and to see what assistance might be most appropriate for the smaller producer. We are also discussing urgently with the interested bodies the arrangements for the management of the quota after the system has started to operate, including the procedure for re-allocation of quota from producers who no longer require it. That may possibly be helpful, depending on what we finally decide, for the small producer.

All these arrangements are having to be put in place very rapidly, and our consultations with the industry are being conducted on a very much tighter timetable than we would normally wish, but we shall nevertheless be taking full account of the views of the industry organisations, which have not, in many cases, made up their minds. We shall make the announcements as soon as possible, and on some of these issues, I hope very soon.

I very much appreciate the very helpful and constructive attitude being taken by the leaders of the industry in these difficult circumstances. It is extremely important to avoid any rash or extreme talk, which can only make it more difficult to produce a rational system meeting the needs of the dairy industry.

The CAP reforms overall provide a more realistic, justifiable and sensible basis for the long-term future of the CAP, and, in the long term, that must be in the interests of farmers. I have explained why quotas have been introduced, and I can assure our dairy farmers that we understand their problems and intend to operate the system as helpfully as we can within the regulations. That is why we are proceeding with as much speed as possible and in full consultation with the industry to deal with the detailed and often difficult decisions on a number of the matters that the hon. Gentleman raised. I hope that we shall be able to make the announcement soon.

Question put and agreed to

Adjourned accordingly at twenty-three minutes to Five o'clock am.