Milk Production (Hansard, 18 May 1984)

§ Mr. Peter Hordern (Horsham)
I have a book at home by Arthur Young, the celebrated agriculturist and traveller, called "The Agriculture of Sussex". It was written, he said, for the Board of Agriculture, which then, as now, was an advisory service for farmers. The book was published in 1793.
The Weald of Sussex, where my constituency is, was once a forest. Arthur Young said that the soil of the weald is an excessve, stiff calcereous loam on a bottom of clay: it adheres so much to the share and it is so very difficult to plough that it is not unusual to find ten, twelve and, sometimes, fourteen oxen at work upon it". The clay of the weald remains just as difficult now as it ever was. It is no good for cereals. It is good only for grassland for dairy herds. What is more, the dairy farmers on the weald are often tenant farmers, some of them having farmed there for generations. They have gained nothing from the increase in the price of land. It is not open to them, therefore, to sell out if prospects look grim, for they have only their stock to sell and the value of their stock is diminishing fast.
In this House we deal with large questions. We debate the future of the European Community, and we talk about butter mountains and wine lakes. Many of us who are warm supporters of the EEC deeply regret that it seems to be concerned only with farm prices and regional support rather than with defence and education, for example, which would benefit from a European Community approach.
As it is, the common agricultural policy is the major form of common expenditure in the Community and its excesses have deeply damaged the perception of the Community both from within and outside.
There is no doubt that something has to be done about these excesses. The Minister of State told us the other night that the cost of dealing with the dairy surpluses amounted to £3,000 million last year and that the savings introduced this year would amount to about £1,000 million. He told us that we are fully self-sufficient now in dairy products—which will come as a surprise to many dairy farmers.
The cuts are expected to reduce milk production from 106 million tonnes to 100 million tonnes, but consumption within the Community looks like being only 86 million tonnes. There will still be a substantial surplus to finance.
The surpluses have increased considerably recently, but they have been around for many years. Our dairy farmers are now told that they should have seen the crisis coming and that they must have known that their position was too good to last. But I do not not think that that is so. What the farmers saw was that the net price to the producer was consistently increased year after year. In 1981 the price for milk was 12.7p per litre. In 1982 it was 13.7p, and in 1983 14.8p. Indeed, the campaign guide issued to all Conservative candidates a year ago claimed that we had maintained the level of milk production by ensuring regular price increases.
In our election manifesto we said: We have launched successfully the 'Food from Britain' campaign, which should help us sell far more of our products both at home and in the rest of the Community". 657 Not every farmer reads our election manifesto, but we do. In view of what we said less than a year ago, I have no doubt that we have an obligation to our dairy farmers which we must properly discharge.
I have yet to meet any farmer who does not admit that excessive agricultural surpluses in the EC must be dealt with by one means or another, but he is entitled to expect that the terms of the CAP—which aim to ensure a fair standard of living for the agricultural community, while also ensuring that supplies reach consumers at reasonable prices— are kept. Therefore, the recent agreement in Brussels must meet certain tests. Given that the excesses must be reduced, is the agreement fair between one product and another? Is it fair between one farmer and another? Is the method chosen the best that can be provided?
I need hardly say that any criticism of the agreement is criticism of the farming Ministers as a whole, and not especially of my right hon. Friend the Minister. It is abundantly clear that each Minister was pursuing his national ends rather than those of the Community as a whole. I understand that my right hon. Friend was satisfied with the agreement he reached, and I am sure that there must be some farmers — notably cereal farmers and, possibly, beef producers — who have reason to be grateful to him.
Was the agreement fair between one product and another? It was certainly very generous to the cereal farmers. While the cost of supporting cereals is nothing like as high as supporting milk, there is a greater proportionate surplus in cereals than in milk. Net farm income for British cereal farmers in real terms, taking 1977–78 as 100, is forecast to be 160 in 1983–84. That is allowing for the increase in the cost of living. It is clear that the price of cereals is much higher than it should be and that cereal farmers are better able to stand a cut than dairy farmers. Indeed, perhaps the reason why pigs and poultry farmers have done so poorly—their income in real terms is only 25 per cent. of what it was in 1977–78 —is precisely that they have had to pay so much for their feedingstuffs.
The dairy farmer's income in real terms in 1983–84 is forecast as 65, as against 100 in 1977–78. That figure disguises the effect of favourable price increases in recent years. Thanks to those price increases, for which we took full credit at the time, the dairy farmer's net income in real terms rose from 65 in 1980–81 to 93 in 1982–83. It is the speed of the fall from 93 to 65 in 1983–84 in one year that is so damaging, and it is upon that figure that the new and drastic cuts in quotas have been imposed.
I have asked to see the accounts of some of my farmer friends. I have sent some of those to my right hon. Friend the Minister, and shall shortly send more. He will then see the losses being made by the farmers. He will also see how some of them applied for and were given substantial farm and horticulture development scheme grants in exchange for an undertaking that they would expand their herds. They signed a contract, but the Brussels agreement means that they will not be allowed to produce the milk that they undertook to do in the agreement. I am sorry to say that I think that is an intolerable intervention.
I know that the Government have set aside 2.5 per cent. of the quota for compensation, but that is nothing like sufficient. I ask my hon. Friend the Parliamentary 658 Secretary to comment on the quota and how far she thinks it will go, given the number of schemes that have attracted the FHDS grant.
I know that my right hon. Friend the Minister believes that there has been an advantage to those whom he describes as efficient farmers. I remind him that the position of those farmers very often is not only that they have taken advantage of the capital grant through the FHDS, but on the back of that grant they have gone to their bankers and borrowed a great deal of money for a specified investment scheme. The bankers have seen the schemes properly set out and have approved them on the basis that expansion would follow. That is the serious nub of the problem. Those farmers have undertaken a commitment to expand, on a settled scheme approved by both a Government body and their bankers. Any scheme set out in that way, which is then upset by an outside event or by intervention, must be treated seriously, especially if the body responsible for that intervention is the Government, through the European Community. I am blaming, not the Government, but the European Community. But a special responsibility bears upon the Government for the consequences that will fall on those who have undertaken expansion.
What about the farmers who have not expanded their herds? If there is to be a cut, why was it not done by price rather than by quota? Given the need to cut Community surpluses, this is an inept way of doing it. My strictures apply to all the European Community farm Ministers—I am not singling out my right hon. Friend for special treatment. I have no doubt that he has done a great deal for Britain, especially for beef producers. He has played his part for the cereal farmers, to such an extent that they might collectively be described as the fat farmers' friends.
The Germans have a national scheme to support their farmers who wish to leave the industry. I understand that the French have a similar scheme for their wine producers. We must do the same—we must have a national scheme that will allow dairy farmers to leave farming without loss if they wish to do so. That is the least we can do. For the dairy farmers of the Weald of Sussex, it is an essential requirement which, I trust, the Government will meet.

§ Sir Geoffrey Johnson Smith (Wealden)
I congratulate my hon. Friend the Member for Horsham (Mr. Hordern) on choosing this subject for the Adjournment debate. I am grateful to him for making it possible for me to intervene briefly. I warmly support what he said.
As a co-opted member of the east Sussex National Farmers Union executive, I hear about farming at first hand from the farmers. The public should not be misled by the beauty of the countryside, which too often they take for granted. It is very beautiful in the weald. It may look lush, but it is not easy farming country.
The backbone of agriculture in east Sussex is dairy farming, which, as my hon. Friend said, has been dealt a body blow by the EC's decision. We must give dairy farmers a fighting chance to survive. If we do not, two things will happen. First, we shall find ourselves importing other countries' surplus milk. Secondly, the beauty of the countryside — which our dairy farmers have done so much to conserve at their own expense—will be grievously harmed.
659 Therefore, we look to our Government to help that dedicated and hardworking section of our community through these difficult times.

§ The Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food (Mrs. Peggy Fenner)
I welcome this opportunity to discuss the milk industry. My hon. Friend the Member for Horsham (Mr. Hordern) mentioned cereals as well as milk. He also said that price would be a preferable alternative to quota. He will be aware that a few years ago we tried—but were outvoted —to secure a lower price for cereals. My right hon. Friend has often said from the Dispatch Box that he would have preferred the price alternative.
In another Adjournment debate earlier this week the hon. Member for Truro (Mr. Penhaligon) raised the question of milk quotas and the supplementary levy system. This subject, not surprisingly, also figured in my hon. Friend's speech this afternoon. In responding to the various points that he raised, my remarks will inevitably tend to repeat what the Minister of State said on Tuesday. I shall also try, in the time available, to comment on the special factors affecting dairying in the weald, which are of particular concern to my hon. Friends the Members for Horsham and for Wealden (Sir G. Johnson Smith).
I should begin by setting out the key facts which the Council of Ministers had in mind when it decided to adopt the quota system. First, as my hon. Friend acknowledged, it was faced with a large and growing bill for the disposal of dairy surpluses. Last year the cost of that was £3 billion, reflecting the fact that surpluses can be disposed of, whether at home or abroad, only by means of subsidies at the expense of the taxpayer. The new arrangements will reduce these costs by cutting back deliveries over the next 12 months from an estimated 106 million tonnes to approximately 100 million tonnes. As my hon. Friend pointed out, we consume about 86 million tonnes. So that although this will save the taxpayer £1 billion, Government support for dairy farmers will continue at a high level.
It is also necessary, as part of the factual background, to bear in mind that the United Kingdom industry has been so successful in increasing its production in recent years that we are now contributing to the Community's surplus problem on a significant scale. For example, last year, and taking New Zealand imports into account, we were 103 per cent. self-sufficient in butter fat, and this year we shall be almost self-sufficient in butter fat without New Zealand. For solids—not fat—we are already 131 per cent. self-sufficient. Moreover, our surpluses are contributing to the level of intervention stocks. We have 144 days' supply of butter at intervention stores and 692 days supply of skimmed milk powder, which is growing daily. These are the hard and uncomfortable facts against which the Council of Ministers had to reach its decision.
These figures have not emerged overnight. The writing has been clearly on the wall for a long time. Last October my right hon. Friend the Minister pointed out that EEC farmers could not go on producing more and more food. Before that the Commission had tabled its quota proposal, which has since been debated at length in public and in the Council of Ministers. It is simply not the case that these restrictions have come out of the blue.
660 I recognise that, although the principle has now been agreed by the Council, there are various detailed aspects still requiring clarification. We have pressed, and shall continue to press, for early resolution of outstanding questions, in particular in relation to direct sales.
On other fronts, the situation is already becoming clearer. Producers selling to the milk marketing boards have been told their provisional allocation and we are now engaged in discussions with the industry on the arrangements for allocating additional quotas from the 2.5 per cent. reserve which has been set aside. We are also considering, in consultation with the various interests, the possibilities provided for in the regulations of giving additional quota or financial aid to certain categories of producer, including smaller producers.
In particular, we are considering carefully the possibility of assisting producers who wish to give up milk production. This is provided for in the regulations in the context of restructuring the industry. We are discussing urgently whether any such arrangements would be suitable in our circumstances. I cannot say more about that at present, but we shall announce the outcome of our deliberations shortly. We are also discussing arrangements to apply after the system has started to operate, including reallocation arrangements.
We are having to conduct these consultations, and make the necessary arrangements, at great speed, and this imposes its own problems, but I am sure that the industry as a whole wants these crucial decisions taken quickly so that it can plan ahead.
My colleagues and I are grateful for the helpful and constructive attitude that has been shown by leaders of the industry during these difficult discussions. I hope that we shall be able to continue to keep in close touch with them and that they will help to ensure that the industry's response to the system is sensible and constructive. I am sure, in particular, that they will wish to ensure that there is no threat to liquid milk supplies as a result of the quotas, which are set at a level far in excess of current liquid consumption.
The special considerations affecting dairy farmers on the weald were examined in a recent report by the Ministry's agricultural development and advisory service, and if my hon. Friends wish I shall send them a copy of the report. The weald's problems arise particularly from the effects of soil type and climate, which sometimes, though not always, combine to shorten the grazing and growing season. In particular, the risk of poaching of the land in the spring and autumn means that cattle must be turned out later in the spring and brought in earlier in the autumn than is the case on lighter soils. In addition, the wooded nature of the countryside makes it difficult for dairy farmers to diversify into other enterprises.
Despite those factors, there are a number of examples in the weald of large successful dairy enterprises which have developed efficient low-cost systems based on silage. These enterprises are run by farmers of proven management ability, and I know that they are already making plans to deal with the quota system.
Indeed, one such herd featured in an ADAS promotional event last week, when a number of approaches to the quota system were demonstrated to a large and appreciative audience of local dairy farmers. The demonstration covered possibilities such as two-year-old calving, sward management, paraploughing to aerate the heavy wealden soils and various aspects of cow feeding.
661 I am sure that the dairy farmers of the weald will continue to respond positively to the challenges which they currently face and will thus set an example to dairy farmers elsewhere as we enter this necessary period of adjustment.