Milk Supplementary Levy

HC Deb 20 February 1985 vol 73 cc1151-71 12.47 am

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

I beg to move, That this House takes note of European Community Document No. 4421/85; and supports the Government's intention of securing administrative modifications which in the light of experience would enable the milk supplementary levy to operate more efficiently and fairly throughout the European Community. As the Ministry's explanatory memorandum makes clear, tonight's debate concerns proposals for three Council regulations brought forward by the Commission. The proposed regulations are an attempt to satisfy requests from various member states for amendments to the present Community rules on milk quotas to cater for problems that have emerged in implementation. The regulations are—like the quota system itself—rather technical. However, the Scrutiny Committee has rightly identified them as being of importance in some of the changes that they make to the impact of quotas. The proposals were first outlined at the January Council of Agriculture Ministers and I referred to them in my subsequent report to the House.

Discussions have been taking place since then at official level between representatives of the member states and the Commission in Brussels. This is to enable texts to be prepared for consideration and I hope that we shall be able to agree them at the February Council on Monday 25 and Tuesday 26 February. But I have to tell the House that several member states still have important reservations and it may be that the proposals will be difficult to agree in advance of this year's price-fixing negotiations. I shall certainly be pressing for the earliest possible adoption of the measures.

The first of the draft regulations contains four proposals to amend Council regulation 857/84, which is the main regulation on milk quotas. The first of these proposals would allow 1980 to be used as an alternative base year for the purpose of allocating milk quotas to producers affected by exceptional events.

At present the regulations provide that a producer whose production has been adversely affected during 1983 — the base year for determining milk quotas in the United Kingdom — by one of the exceptional events listed in article 3(3), can apply to have his quota determined on 1981 or 1982 production instead. The new provisions would allow 1980 to be chosen as well. I am bound to say that we would not welcome this proposal, as all producers would, quite naturally, want to be able to reconsider their positions. It would mean reopening tribunal and local panel cases which were already decided and going back to scratch in calculating individual quotas.

Mr. John Home Robertson (East Lothian)

indicated assent.

Mr. Teddy Taylor (Southend, East)

I fully support what my right hon. Friend has said, but will he tell the House roughly how many cases have been considered by the tribunals and what has been the total cost of running them and paying the enormous costs of those who have taken part in them? Will he give us an assurance that he will resist the proposal which could reopen the matter?

Mr. Jopling

I shall be coming to that point. I shall be resisting the proposals. Speaking from memory, I think the tribunal has been considering between 9,000 and 10,000 cases. Of course, I cannot say how much the affair will cost, because the tribunal has not finished its work.

As I have just said, we have made it clear that we would not want to apply the provision at this stage. Most other member states are in a similar position. Indeed, the Germans, who originally asked for this change last summer, have now, like us, progressed too far in implementing the rules for the change to be of any help to them. Against that background, I understand that the Commission has now said that it is its intention to withdraw this part of the proposal.

The next proposal in the first of the Council Regulations is in two parts. The first part deals with the problem of producers who have both direct and wholesale quota. Under the Commission proposals, a producer who, for example, had not enough direct sales quota but too much wholesale quota for his needs could simply transform some of his wholesale quota into direct sales quota. Thus, so long as he did not sell more than his total quota, of both types, he would not be liable for levy.

Unlike the existing swap shop arrangements, a producer is not limited in the amount of his spare quota that can be transformed in this way. Since the Community legislation lays down the national totals of direct and wholesale quota on a continuing basis, the switch to which I have referred would take place for no more than one year at a time. Formally, one would revert to the previously allocated quotas for the next year, although the switch could be made again if necessary.

That proposal was brought forward as a result of the strenuous efforts that I have been making to get changes to help mixed businesses in this country. If adopted, it would prove extremely useful to our producers in removing unnecessary restrictions on direct sales. I am pleased to report that some other member states see that problem in much the same way as we do. But there are other member states that are not so clearly in favour of the proposal.

Although we can administer the proposal effectively here, there is real concern that it could result in a weakening of controls in some member states. I shall be doing all I can to meet those criticisms and to persuade all the other member states to accept it. In order to forestall the many questions which I am sure hon. Members will have about how the mechanism will work in practice, let me say only that the technical arrangements and the wording of the proposals are still very much under discussion. The proposal is likely to undergo yet further changes before it is adopted. For the moment, we have made clear to the Commission and the other member states the nature of the problem and will be insisting that any regulation adopted will tackle the problem effectively.

A second feature of the change to article 6 of the regulation is a proposal to permit member states to use the calendar years 1982 and 1983 adjusted by a percentage to keep within the overall quota instead of calendar year 1981 plus 1 per cent. for the purpose of establishing direct sales quotas. That proposal would allow the same choice of base year for direct sales as presently applies to wholesale deliveries.

Although the arrangements would have been desirable had they been introduced at the start of the scheme, it is difficult to envisage adopting them in the United Kingdom now, when the work on allocating direct sales quotas is virtually completed. As with the first of the proposals which I have already described, it would entail starting the system again from scratch with new parliamentary regulations, completely new applications from producers and a repeat of the appeals procedure. Therefore, we have obtained an assurance from the Commission that the proposal will be optional and if it is adopted we would not make use of it here.

The next proposal is an amendment to article 7 of regulation 857/84 to meet a problem in Germany where 40 per cent. of the land is let on short-term leases. They feel that when the tenancies come to an end, tenants could be in an unfair position in negotiating new leases, as the landlord could demand much higher rents if the tenant had no other way of acquiring quota.

The provisions could provide some protection for tenants in those circumstances, but would be optional for the member state to apply. Again, this text is being examined carefully because it may not meet the difficulties in Germany adequately.

Of course, in the United Kingdom, short-term lettings are very much the exception as a result of the lifetime security of tenure provisions in the agricultural holdings legislation. As the proposal is both limited and optional, we have said that we would not wish to stand in the way. We do not see it as prejudicing our own position for the future, which we are currently considering in discussions with the industry.

Mr. William Ross (Londonderry, East)

Is the right hon. Gentleman aware of the Conacre system in Northern Ireland? Has that been taken into account during his consideration of the German position and short-term lettings?

Mr. Jopling

As far as I am aware, the position in Northern Ireland is not relevant to this point, but I shall have another look at the matter and if there is something in it, I shall let the hon. Gentleman know.

Mr. John Watson (Skipton and Ripon)

What does my right hon. Friend have in mind as regards short-term tenancies in Germany? Would that have any applications to the British market? Might the amendment to article 7 enable us to install in the United Kingdom a more realistic form of transferability of quota and a recognition of the rights of ownership of quota which ought to belong to the tenant who has invested in the infrastructure of the farm?

Mr. Jopling

My hon. Friend raises a difficult and important matter. The NFU is coming to see me in the morning to discuss the subject. I do not think that the Commission's proposed amendment is likely to affect the vast number of tenancies in this country and we do not see it as prejudicing our position for the future, which we are considering in discussions with the industry.

The last of the proposals in the first regulation would amend article 12 of regulation 857/84 to enable groups of small dairies to be treated as a single purchaser. The proposal has been brought forward to deal with problems in mountain areas in France. They say that the pattern of sales in those areas varies as a consequence of the weather conditions and whether the cows can be fed in the mountain pastures or need to be brought down into the valleys and this affects the uptake of these dairies. By banding together and pooling their quotas, they would be better organised to operate within quota.

An alternative for France, at least in principle, would be to set up regional milk marketing boards which offer producers and consumers a range of advantages. But in the context of a satisfactory package of amendments to the quota regulations, we would not be opposed to that element.

The second draft regulation would allow Belgium to switch 25,000 tonnes from its national direct sales quota to wholesales. As a similar regulation was adopted last May to deal with a statistical problem in the United Kingdom, I feel that it would be right to accept this modest proposal for Belgium.

The last of the draft regulations has been undergoing drafting changes since it was put before the Scrutiny Committee, although the intention behind it has not changed. It is to allow member states, for the first year of the quota arrangements, to switch unutilised quotas between producers and purchasers in the same region and between different regions. We have made it clear that the proposal must apply to direct sales as well as wholesale deliveries.

The effect of the proposal would be similar to treating the milk industry of each member state as if there were a single purchaser applying formula B. In the United Kingdom it would permit a temporary movement of quota between the milk marketing boards. If adopted, it would reduce levy liability both where formula A applied and where formula B applied.

So far as wholesale producers in the United Kingdom are concerned, this proposal would probably remove all liability for levy this year, since spare quota from Great Britain will become available to offset the present liability in Northern Ireland. I am sure that the hon. Member for Londonderry, East (Mr. Ross) is pleased to hear that.

I can see advantage to the United Kingdom in this proposal, although I am bound to say that the Germans and Dutch have very strong reservations about it. The Dutch see it as undermining the fundamental purpose of quota arrangements, which is to curtail milk production by penalising those who over-produce. The Germans say they would find it embarrassing, given the lengths to which they have gone to implement the regulations to be in a position of having to refund levies they have already collected. Some other member states might, without such a measure, find it difficult to apply the quota system in its first year.

I consider it most important that the quota system is applied effectively. Milk production must be contained, and I would not wish to undermine this. We want the levy to be applied effectively throughout the Community as soon as possible. This measure could help in that and provide some alleviation in Northern Ireland, and I am sure it is right to support it for application this year.

These proposals are a package with some elements of important value to the United Kingdom. They are as yet subject to further negotiations and some member states have significant difficulties with some elements. I regard it as the highest priority to ensure that the United Kingdom's interests are secured in the way I have described and shall press for adoption of the measures at an early stage. On this basis, I can commend the proposals to the House.

1.2 am

Mr. John Home Robertson (East Lothian)

We are asked to take note of yet another European Community document and to support the Government's intention to make the superlevy system work more efficiently and fairly. I am reluctant to take note of anything at this time of night after the events of the past couple of days, but we are always willing to support good intentions to make European Community schemes operate more fairly and efficiently. I speak as an increasingly disillusioned pro-European.

As the Minister knows, we have been critical of the Government for the way in which they were stampeded into accepting a quota system on terms which are manifestly unfair to British milk producers. I do not like to embarrass the right hon. Gentleman, but I remind the Minister of State that on 1 March 1984 in a written reply he said: The Government consider that the preferable route to achieve a better market balance in the milk sector is through price policy. But the necessary price cuts to achieve a balance in the market have not so far proved negotiable in the Community."—[Official Report, 1 March 1984; Vol. 55, c. 327.] Evidently not, because the Minister of Agriculture, Fisheries and Food came back two weeks later, on 14 March, not with a package of price cuts, but to announce the immediate introducion and imposition of milk quotas on the dairy industry.

For some time the Labour party has been advocating a quota mechanism to control dairy production. We have consistently stated the case for a fair distribution of quota between member states and a reasonable period to allow the industry to adjust.

Mr. Jopling

I apologise to the hon. Gentleman for interrupting him in full flight. He referred to statements by myself and my hon. Friend the Minister of State. I ask the hon. Gentleman to look at a speech that I made in the House on 1 December 1983, when I made it perfectly clear that we might have to accept quotas instead of our preferred option of price control.

Mr. Home Robertson

I understand why the right hon. Gentleman is a little sensitive about this issue. We know that he did not want this system, but he was saddled with it, and the industry is now saddled with it. We have consistently said that there is merit in the principle of a quota system, but we would like to ensure that the distribution of quota among member states is seen to be fair and that our industry is given time to adjust.

What happened was different from what we would have liked. It was agreed that the scheme would reduce EC milk production by 4.1 per cent., but for reasons best known to the right hon. Gentleman, he surrendered 6.2 per cent. of British production, despite the fact that the United Kingdom was not contributing significantly to European overproduction. Our producers were pitched headlong into panic measures to cut their production during the current year. The consequence has been a disgraceful and damaging shambles, without the original objectives being achieved.

British production is likely to fall significantly short of the quota. That demonstrates the turmoil into which our industry has been pitched. Incidentally, that is in marked contrast to what is happening in other member states. The EC is still producing far too much milk — 20 million tonnes more than is required. That excess costs the Community taxpayer £2 billion. Our dairy industry has been put through all that agony, yet we are nowhere near achieving the original objective of bringing production near to the level of demand.

The latest proposals appear to accept the continuing burden of overproduction in Europe, most of which is coming from other Community countries. The Minister has excelled himself. He has accepted a deal which does the maximum damage both to British producers and to British and European taxpayers. He has even managed to fall out with the National Farmers Union. He is bound to have noticed, as other hon. Members have, what the president, Sir Richard Butler, said at the annual general meeting last week. He is not renowned for attacking the Conservative party, but he said: The British government has added to our misfortune. It has been ineffective in negotiation in Europe. It has been inept in administration at home. And it has not thought enough about the future. Amen to that. The Opposition want a quota system that will work and be fair. The present signs are that the system is neither working nor fair.

The first proposal will apparently be withdrawn by the Commission. It would have made it possible for 1980 to be treated as an alternative base year for calculation of primary quota, in addition to 1981, 1982 and 1983. That might have been eminently sensible if it had been suggested in the first place, but to introduce it into the calculation now would be plain daft. It would encourage producers to return to the tribunals to appeal again, it would prolong the agony, and it would achieve little. In passing, it should be said that the whole tribunal procedure has been discredited, because producers are being allocated less than two thirds of the extra quota that has been recommended by the tribunals. I agree that we should probably do more about special cases, but the proposal would not have made sense. Therefore, I am glad that it is unlikely to see the light of day.

The second proposal provides for interchangeability of quota between direct sales and wholesale categories. We support that form of flexibility and cannot understand why it was not permitted in the first place. I hope that it will come into effect as soon as possible. I shall be grateful if the Minister will tell us in his reply whether the proposal will be made effective for levy collection purposes for the current year.

The Minister made it clear that the third proposal was entirely for the benefit of short-term lets in Germany. It could create potential for new rights for tenant farmers in respect of their quotas. If so, we would wholeheartedly support that objective, not least because of evidence that landlords in parts of England have been abusing their powers over tenants with regard to quotas in the outgoers scheme.

The proposal also raises the issue of transferability of quota. I shall take this opportunity to comment on the responses that the Minister has received to his consultation paper on that subject. There seems to be a general consensus that quota should be transferable. We agree with that. However, obviously there is no merit in keeping quota on farms that are not using it, when other farms desperately need additional quota.

The question seems to be whether quota should be transferred by sale or lease in a free market or in a regulated market, or whether it should be done through a purely administrative scheme. We recognise that a purely administrative scheme would not work, because there would be no incentive for producers to relinquish quota, but we are equally unhappy about the idea of a free market in the new commodity of quota.

If we are to have unregulated buying, selling and leasing of quota, it will inevitably follow that bigger dairying concerns will be able to pay the price to acquire whatever quota might come on the market, while small farmers and people coming into the industry will find it increasingly difficult to obtain additional quota. By the same token, there is a risk that quota which might come on to the market in the less prosperous areas will be bought by producers in the richer areas. The Welsh quota might tend to be purchased by English dairy farmers.

I notice that in its submission to the Government the English Milk Marketing Board said: The Minister should have powers to limit the rate of movement of quota between areas and to limit the acquisition of quota by an individual business but these powers should only be invoked if monitoring of quota transfers showed it was necessary to do so. That sounds a little like shutting the buyer door after the cows have gone. Powers should be established at the outset to control the price of quota and to prevent excessive accumulation of quota in some areas or businesses.

Mr. William Ross

The hon. Gentleman mentioned the excessive accumulation of quota. In modern farming practice, what would he consider to be an excessive number of cows and an excessive quota?

Mr. Home Robertson

I am not foolish enough to be drawn into defining what is and what is not excessive. I am not qualified to do so. Someone in authority who can consult the various parts of the industry should have the power to make such an assessment and to regulate that kind of thing.

In its submission to the Minister on that point the National Farmers Union said: All transfers would take place through a central industry authority with powers to safeguard the structure of the industry and to provide assistance to young new entrants. That is the objective, and I think that there will be consensus that that is what the Minister should seek to achieve. The proposals from the Farmers Union of Wales on that point seem to be helpful and relevant. I am attracted by its proposal, which is aimed at creating a pool of quota for distribution to people coming into the industry.

While we accept the principle of flexibility and transferability within the quota scheme, we believe it essential to ensure that those movements are subject to reasonable control in the interests of the whole industry and the people who work in it.

We also agree with all involved that a system for transferring quota should be established as soon as possible. I hope that the Minister will take the opportunity to say something about that.

The final proposal to which I wish to refer and about which the Minister spoke would make it possible, at least for 1984–85, for under-used quota, for example in England and Wales, to be transferred to areas of overproduction within the same member state; for instance, Northern Ireland. The Minister, as we know, has created such a degree of alarm and despondency in British dairy farming that production has fallen much further than even he intended, and we are now likely to fall 200 million litres below quota in the current year.. That is the equivalent of a year's production by 40,000 cows. In those circumstances, it would be perverse to require farmers in Northern Ireland to pay superlevy while the United Kingdom as a whole is well below its quota restriction.

Some commentators are unhappy about that proposal. The Financial Times on 16 January described it as a move dangerously close to the institution of national quotas". So what? It seems to us perfectly logical to fix quotas for individual nations and to penalise those nations which over-produce. Some hon. Members have been advocating that kind of strategy all along. The Commission should make sure that the quotas are enforced and the levy collected as soon as possible in those nations which are over-producing.

The Minister must realise that he has got the dairy industry into a fine old mess. He has given away too much, he has created mayhem in the British dairy industry, yet, despite all that, there is still massive over-production in the European Community.

We are not impressed; nor, indeed, is the industry impressed. Nevertheless, we recognise that the measures represent some gestures in the right direction, so we accept them for what they are worth. The Minister will have to try much harder in the coming months if he is to impress us, and harder still if he is to impress the NFU.

1.15 am

Sir Peter Mills (Torridge and Devon, West)

I welcome the regulations and the opportunity to debate them. It is important that we do so. The saga of milk quotas continues with all its problems and difficulties, although I do not think it is as bad as the exaggerated views of hon. Opposition Members suggest. These small proposals will help and will bring about some advancement. I am sorry that the Minister thinks that there should be some delay in putting the regulations into operation. I hope that he will urge them forward. They are an advancement, so let us go forward and help the industry as quickly as possible.

I also regret, although it is not unexpected, that the hon. Member for East Lothian (Mr. Home Robertson) took the line that he did. I thought that his arguments were particularly weak. I am sorry that he brought in the president of the NFU. I thought that the president of the NFU used rather unfortunate rhetoric, and we know why.

From my knowledge of the industry, I know that there has been the closest co-operation between the Minister and the NFU and, indeed, consultations are always taking place. The NFU has said that it wishes those consultations to take place in future before any hurried decisions are made. I put the hon. Gentleman's attitude down to his ignorance of what goes on behind the scenes between the NFU and the Minister.

The hon. Gentleman, in his remarks about the failure of the Minister with respect to the drop in milk production, omitted to mention the weather, which I would have thought was obvious to everybody. Has not the weather played a part in this? Of course it has. Indeed, the drop in production was mainly due to the weather.

The amendments to articles 5 and 6 are to be welcomed, and are essential. But much more needs to be done. I hope that we can move forward so that there will not be any penalties applicable to producer-retailers for the past year.

Here we come to the nub of what ought to be done. At a time of large surpluses, the objective must be to get rid of them, for people to consume them, and not to store them away in intervention. The consumer should have the benefit of the surpluses. If a producer-retailer has the opportunity to get rid of these surpluses, I believe that he should be encouraged in every way and there should be a switch from wholesale to retail outlets.

In the south-west, we want to take advantage of this with our famous Devonshire cream which can be sold at the farm gate. We want to see some of the surplus Devonshire and Cornish cream sold at the farm gate.

Sales are increasing. It is important for our holiday industry that we provide the facility of cream, farmhouse cheese, yoghurt and the various products that farmers can produce and sell over farm gates and on retail rounds. That is the right way forward, rather than products being put into storage and intervention, finally to be sold to the Russians or others at knockdown prices.

We must move forward in that area, and the whole House should support the Minister in these proposals. Indeed, because of his efforts in Brussels, many of the movements that I have described have been started. [Interruption.] Do any Opposition Members wish to intervene? Would the hon. Member for Pontypridd (Mr. John) like me to give way? Of course not. He has nothing to say. He cannot even sit upright in his seat.

I assure Opposition Members that I do not belong to a fan club for the Minister, though he has been one of my best friends for a long time. We appreciate what it means to be loyal to each other, which is more than can be said of hon. Members on the Opposition Benches.

As for the proposal affecting Northern Ireland, speaking as a former Minister with responsibility for that part of the nation, I welcome what is proposed, which will be of great benefit to Northern Ireland.

The amendment to article 7 is intriguing because it refers to the quota attached to the holding being retained by the outgoing tenant. We might be able to build on that. The Minister should see whether it is possible to use that to assist with the whole problem of landlord and tenant in relation to quotas.

I welcome this small move forward and hope that the Minister, using his strength and power, will endeavour in Brússels to build on what has been achieved so that we can avoid the stupid business of putting dairy products into storage and intervention. If those products can be sold and consumed, that must be the best way forward.

1.22 am

Mr. William Ross (Londonderry, East)

As the Minister spoke of the difficulties that were being faced by every European country, I reflected that at least some of us foresaw that they were bound to arise as Europe moved from food deficit to food surplus. Once we entered the Common Market, the United Kingdom found itself in that position, and many of the problems that have arisen can be attributed to that occurrence.

Milk, from the cow's udder to the teapot, is tightly controlled in every way. It was not possible for the milk industry to go into reverse in the way in which it was asked to do in the last year without severe difficulties being caused for every producer. The Minister said that he was afraid that we would have to go in for quotas. I have never been able to understand why, if the Government were aware — as they must have been — of that possibility, they did not signal those fears more clearly to farmers by starting to withdraw the grants that were being paid to enable production to go on at an ever-increasing pace. Had the Government taken that action a year or so earlier, fewer people would have gone into production and many of the difficulties that we now face would have been avoided. Many of those who have been hurt, and those who have yet to be hurt, would have come out of it in a much better position.

As the Minister pointed out, we started with two different systems, one for Great Britain and one for Northern Ireland. I understand that some farmers in Great Britain wish that they had adopted the Northern Ireland system. That is the case only because Britain ended up with 200 million litres less. I believe, as a practical farmer, that that will cause considerable difficulties for farmers in Britain when we come to work out the quotas and incomes for individual farmers.

We are all glad about the progress that has been made and hope that the Minister will continue with the good work. When the matter is brought to a satisfactory conclusion, we will have a common system of quotas throughout the United Kingdom. I do not think we can reach a reasonable end result without a common system.

It is all very well for folk to say that there is some leeway but, as the hon. Member for Torridge and Devon, West (Sir P. Mills) pointed out, much of that was because of the weather and the rest was the fault of the farmers who took panic measures and cut production too much. I am pleased that the Minister will use that leeway to sort out Northern Ireland's problems, if only for this year.

I ask the Minister and the farming community to look further ahead. The quota system has severe shortcomings. I fear that it will last only for a short period. So many points of friction are built into it that I cannot see it lasting for more than a few years. At the end of the way we will have a system of price governing production. If that is tied to national standard quantities, so much the better. I will be much happier; I am glad to see that the Minister agrees with me.

1.26 am

Mr. Teddy Taylor (Southend, East)

It is unfortunate that we are spending time at this late hour discussing possible amendments, which will probably not be agreed in Brussels, to a scheme which is not working and which is not achieving its objective. Even if the scheme were to work, we all know that we would still have a horrendous surplus which it will be impossible to dispose of, even with the aid of the remarkable and costly subsidies through which we are trying to dump the surplus abroad. It is sad that we are discussing, in effect, a sick joke which was put forward as the first move towards restraint of production at a time when the Government were promoting plans to put an extra 40 per cent. of public expenditure into the Common Market.

In view of the reference which has been made to the National Farmers Union and to Sir Richard Butler, and the attempts by my hon. Friend the Member for Torridge and Devon, West (Sir P. Miles) to draw a distinction between the bad Sir Richard and the good NFU, it is only fair to point out that at its annual conference the NFU passed unanimously a motion which blamed the structural imbalance on the Minister, but it did not put forward one specific, constructive proposal as to how the horrendous problem of over-production and the vast amount of public funds being put into surplus disposal could be tackled.

We cannot regard this as a small matter at a time when, in all our constituencies, health authorities and councils are having to cut expenditure. It is outrageous that the NFU should not have put forward one specific proposal about how to deal with the problem. It is costing us £100 million every single week simply to store and dump abroad surpluses, with the Russians and the east Europeans being the main beneficiaries.

I have three questions for the Minister. First, does he welcome the extension of the transferability of quotas by means of a market mechanism, whether through a central agency or not? Is there not something squalid and very un-Conservative in the buying and selling of quotas which are simply giving people the right to produce at substantial cost produce which nobody wants and which cannot be disposed of? Has the Minister inquired about how the income from the selling of quotas will be regarded? Can we regard it, for example, as earned income for taxation purposes, because the quotas are being given and can be sold? Will it be unearned income, or will it be subject to capital gains tax? I ask the Minister that simple question on the transferability of quotas.

Secondly, will the Minister back up the regulations in the discussions on Monday by resisting at all costs, in accordance with the Conservative manifesto, any increase in the price of milk which could disrupt the arrangements in the regulations? The Minister knows what was in the manifesto. Can he give us this clear assurance on price?

Thirdly, will the Minister say whether, on balance, the proposed amendments will have the overall effect of increasing or reducing milk production? It has been clear that we expected an underspend or under-production. Will not these amendments have the effect, while not increasing quotas, of increasing production?

Finally, as regards the possible changes to the tribunal organisation which would stem from the adoption of the amendment to article 3, can my right hon. Friend say what has been the cost to date of the operation of the tribunals and who is to pay for it? Does it come from the British taxpayer or from Community funds?

The regulations, like the arrangements on the quotas, which are not working because we know what is happening in other countries, will have exactly the same result as happened with steel production, when we carried out our obligations in more than halving the numbers employed on steel production while other countries increased their capacity. We know what is happening, and it is absurd to give the impression that if these amendments are adopted, somehow the scheme will work and be effective. We all know in our hearts that it will not.

The regulations and the milk quotas themselves demonstrate to British agriculture, which up till now has done pretty well out of the common agricultural policy, that it will not be possible to solve the problems of European over-production without doing immense damage to British agriculture. It is becoming more and more clear — those engaged in agriculture are just beginning to realise it—that it will be possible to solve the problems of agriculture within a United Kingdom framework but that if we are to solve the problems of over-production in the EEC it will only be done by having a violent and pretty vigorously deflationary effect on agriculture in Britain, which will do us immense damage.

1.33 am

Mr. Paddy Ashdown (Yeovil)

I join other right hon. and hon. Members in welcoming the general objective of the amendments, though perhaps with not too much enthusiasm.

The amendment to article 3 gives us the opportunity to use 1980 as an alternative base year for producers affected by an exceptional event. I welcome the Minister's statement that he regards the possibility of reopening the topic of special cases as one which would not be welcomed by him. However, in the brief from the Minister of State, we read that this one may be withdrawn or it may be optional. The Minister said that he regarded it as most likely that it would be withdrawn, but that it could be optional.

I think that we may take it, from what the Minister said, that if it was optional it would be the Government's policy not to apply it.

Mr. Jopling

indicated assent.

Mr. Ashdown

That is the most sensible way forward, and it would help the House if the right hon. Gentleman would make it quite clear that if it was optional he could not see the Government applying it.

As for the amendments to articles 5 and 6, I think that we can take some pleasure from obtaining interchangeability between direct and wholesale quota. I was almost tempted to join the hon. Member for Torridge and Devon, West (Sir P. Mills) in congratulating the Minister on his achievement, because he has striven very hard to get something along these lines. All that stops me congratulating him as fulsomely as the hon. Gentleman is that those of us who read the Select Committee report will recall that the Committee was of the view that the right hon. Gentleman did not get it in the first place because he had not asked for it, and that he might have obtained interchangeability earlier if he had asked for it.

Can the Minister clarify one matter? At one point he said that it was possible for some of the quota to be exchanged as between direct and wholesale, but I believe that later he said later that it was possible for all of it to be exchanged. There is a slight contradiction there. May I assume that there is no limitation on the amount of quota that can be exchanged? It seems unlikely that someone would want to interchange 100 per cent., but I would be grateful if the Minister could clarify what he meant.

We have always made it clear—as, I believe, has the NFU — that we would have preferred a single quota covering milk production, whether wholesale or direct sale. However, though second best, a system that allows the farmer to choose at the end of every marketing year is welcome, and I believe that that is what is proposed. Again, I would be grateful if the Minister could confirm that, under the Commission's proposals, each individual could choose at the end of every marketing year about the interchangeability.

The hon. Member for East Lothian (Mr. Home Robertson) called for an assurance that such proposals would be made effective for levy collection purposes in the United Kingdom during the present marketing year. It is important that that should be put on the record.

I very much agree with those hon. Members who have expressed the hope that the Minister will view the amendments to article 7 as amendments which, if not totally applicable to Britain at present— one wonders whether that is the case—might enable a much more effective structure to be built up in future. However, I believe that the amendments reveal what the Minister has strenuously denied for some time, namely, that quota is not viewed by the Commission as being immutably attached to land. Many of us believed that that was so, and we are now proved to be right, whereas the Minister's judgment has not been entirely correct.

The amendments provide some basic recognition of tenants' rights to quota, and they are welcome for that, but I still believe that the wider question of the ownership and transfer of quota has been tackled in a somewhat superficial way. The NFU has produced a comprehensive package on ownership and quota which would provide a proper framework for the consideration of the interests of landlords and tenants, and could provide the framework for the future development of the industry. It would be useful if the Minister could make clear his general attitude to the NFU proposals.

It would be preferable for quotas to be owned by producers and to be transferable separately from the land by sale or lease, perhaps, as I believe the NFU proposes, through a central industry authority. I believe that in the end we will need a mechanism to arbitrate between tenant and landlord in order to ensure the proper recognition of the genuine interests of both parties.

We can support this measure as a first step towards solving the immediate crisis. We hope that the Minister will be able to build on it. It is the first step towards putting together a more permanent structure capable of accommodating changes in ownership and transfer arrangements that will be necessary if the industry is not to become trapped within unchangeable regulations, in a way that would permanently damage it.

Mr. Jopling

indicated assent.

Mr. Ashdown

I am delighted to see the Minister nodding. I hope that there will be some development on those lines.

Quota not used by Great Britain at the end of the first year will be able to be transferred to other areas—in this case, Northern Ireland. We can all rejoice with the Northern Ireland industry in the hope that that arrangement will help it over some of its own immediate problems.

I believe the Minister said that the arrangement would be operated on a year-by-year basis an that the long-term structure of the quotas of the two areas would not be influenced. It would be useful if he could confirm that that is so.

With those provisos, and hoping to receive those clarifications, I welcome the amendments.

1.39 am

Mr. Charles Wardle (Bexhill and Battle)

I welcome the amendments to articles 5 and 6 and should like to illustrate the practical problems facing farmers who operate a mixed business of retail and wholesale production.

On 10 January, when he moved that the Milk (Cessation of Production) Bill be read a Second time, my right hon. Friend the Minister reminded the House that the outgoers scheme was only one element in the Community supplementary levy arrangements. He made it clear, as he has done several times in the past year, that there are several steps to be taken if the urgently needed restrictions on the Community's milk output, which were necessarily introduced in some haste, are to be implemented effectively and continue to run sensibly.

On Second Reading, several right hon. and hon. Members raised, and my hon. Friend the Minister of State responded to, aspects of the supplementary levy other than the terms and conditions for outgoers. High on the list of priorities were the problems facing dairy farmers with a mixed selling base—part retail, part wholesale. For that reason, I welcome the Commission's proposals to amend articles 5 and 6 and wish my right hon. Friend every success in persuading other members of the Council of Ministers that the changes are required urgently, at least in Britain.

We have an entirely unreal and impractical distinction between the two types of quota, because we have a milk distribution system which is entirely different from that of the rest of Europe and the origins of which are to be found in the Agricultural Marketing Act 1931. After the Hop Marketing Board, the Milk Marketing Board was the second distribution mechanism to be set up—in 1933. Since then, it has provided a much more sophisticated milk marketing structure than is to be found anywhere else in Europe. It has enabled our unique doorstep delivery service of milk to continue.

Not many farmers have set up as retailers as well as wholesale producers and there are perhaps a dozen in the south east, but those who have done so have found it difficult to take the supplementary' levy regulations seriously. When they received their direct sales quota—that took a little time in some cases—they realised that any business initiative that they took to capture a larger share of their local doorstep markets would incur a penalty immediately which would be applied much more directly than any penalty which might accrue to their wholesale production.

Whereas wholesale producers have to wait upon national output statistics before the levy is assessed, the enterprising retailer knows from the outset that retail success above his existing quota brings a penalty for his own account. In practice, as a constituent has shown me, to avoid the extra levy, the enterprising retail operator has either to get on to the Milk Marketing Board and buy extra volume or to forgo the opportunity, although he has milk to spare from his herd, which is separately designated as wholesale production.

To complicate matters further for the small retailer, the Milk Marketing Board is often reluctant to deliver less than a full tanker load at a time. The small retailer with additional daily doorstep sales of less than a full tanker load has to forgo his market opportunity or to buy in more milk than he needs, which clearly does not make a great deal of business sense. That is supposed to apply even when he has extra milk on his wholesale side.

The present regulations are nonsense for the smaller British farmer retailer if he wants to expand or get rid of surplus milk production. By merging, or at least making interchangeable in some way, a farmer's direct sale and wholesale quotas, we shall remove a bizarre obstacle from the present complicated supplementary levy arrangements and provide a ray of hope to all dairy farmers who feel that they have been tied in knots by the Community's red tape that sanity will prevail.

1.45 am

Mr. David Penhaligon (Truro)

I wish to mention one or two points that are not unrelated to the one that has just been made. The case I have in mind is rather worse than the one that has been drawn to the attention of the House by the hon. Member for Bexhill and Battle (Mr. Wardle), because his constituent realised the trap into which he was walking. However, in the south-west farmers did not realise the trap into which they were walking. Perhaps they should have done so, but they did not. There are farms where the holding is below the total allowable milk production quota. Because too large a proportion of their milk production, which is below the total global quota, has gone into direct sales, it is possible that these farmers will incur a very severe financial penalty this year.

To be fair to the Minister, he was most encouraging when I last had the opportunity to raise this problem. He said that he hoped it would be possible to alleviate it. However, I believe that these regulations will not solve the problem for farmers this year. They relate to next year. That is to be welcomed. There will be great relief on a number of farms in the west country. However, will the alteration have any effect on milk quotas for this financial year?

May I also mention the problem created by late applications. The original regulations stated clearly that farmers had to apply by a certain date, but many farmers are not too keen on reading bits of paper, especially if they think they will be told things they would rather not know. One or two farmers would, I know have been given a quota if they had appealed, but because they applied too late they were told that their quota was zero. I should like to know whether that problem could be examined in a humanitarian way. Undoubtedly there are one or two very difficult cases.

Although one is inclinded to agree with the regional movement of quota, it must be made absolutely clear that it should apply only for one year. If it rains next year in the west country we want our full quota. We do not want to be told that we have lost some of it because the weather did not favour large-scale milk production. I hope the Minister will be able to reassure me on that point.

The problem for this year relates to direct milk sales and late applications. I hope that the Minister will consider these points very carefully.

1.48 am

Mr. Nicholas Winterton (Macclesfield)

I am very pleased to be able to speak after my hon. Friend the Member for Bexhill and Battle (Mr. Wardle) and the hon. Member for Truro (Mr. Penhaligon). They have posed very succinctly a number of questions to which I hope the Minister will reply. I want to make it perfectly clear that there will be no praise from me for the Government, who have got the dairy industry in this country into the right mess it is in today. I do not believe that the Minister of Agriculture, Fisheries and Food has anything to be proud of, given the disgraceful way he has treated the dairy industry. I shall not follow the line of my hon. Friend the Member for Torridge and Devon, West (Sir P. Mills) and say that the Minister has been a friend of the industry for many years. I do not admire somebody who has decimated an industry which has been urged by him, by the Government and also by the European Community to produce milk and then, within 24 hours, has been told to put the clock back.

Will my right hon. Friend give us reassurance— it can certainly be said that none was forthcoming in his speech—that these modest amendments will be accepted within the Community? Every word that my right hon. Friend uttered was hedged around with reservation and he highlighted the opposition that the proposals would receive from several countries within the European Community. Will he fight for the benefits and interests of the British dairy producer? I have my doubts about that. I doubt also whether the dairy industry will benefit from the proposals that he has announced because I do not think that the Community will accept them. My right hon. Friend will have, perhaps, to make a statement in future, or give a written answer to a parliamentary question, to explain that, sadly, some of the proposals have not been accepted.

What reassurance will my right hon. Friend give to some extremely efficient dairy farmers in my constituency who invested heavily shortly before his announcement, which was basically retrospective, and who find that their quotas, even where they have appealed to the tribunal as special cases, mean that their return will not cover their overheads? I believe that my right hon. Friend has a heavy burden upon his shoulders. He owes the dairy producer—

Sir Peter Mills

rose—

Mr. Winterton

No, I shall not give way. If my hon. Friend wants to intervene, he should realise that he had every chance earlier of doing so.

Mr. Paul Marland (Gloucestershire, West)

It is government that my hon. Friend the Member for Macclesfield (Mr. Winterton) wants to interrupt.

Mr. Winterton

I wanted to listen to everything that was said. My hon. Friend the Member for Gloucestershire, West (Mr. Marland) happens to be a Parliamentary Private Secretary and I believe that on these matters he should keep quiet. At least there are some in the House who are prepared to speak out for those who have done what successive Governments have urged them to do. Of course, my hon. Friend the Member for Southend, East (Mr. Taylor) does not have one dairy farmer in his constituency and—

Mr. Teddy Taylor

My constituents are consumers.

Mr. Winterton

And so are mine, but included among them are dairy farmers. My hon. Friend the Member for Southend, East is prepared to be critical of the National Farmers Union and its president. It is a pity that the president did not speak out sooner in the forceful terms that he used only recently. If he had done, and if the NFU had been united, I do not believe that my right hon. Friend the Minister of Agriculture, Fisheries and Food would have returned with such a disgraceful package in March 1984, which I think that he announced with some reluctance, and with my great distaste, to the House.

The NFU has done a great job for farmers. Indeed, it has done a great job for the consumer in guaranteeing him a secure supply of food at reasonable prices. I accept from my hon. Friend the Member for Southend, East that it was our joining the European Economic Community that brought about the high food prices in Britain. Prior to our joining, I am sure that my hon. Friend had little criticism of the NFU and the stand which it took.

My hon. Friend the Minister of State must give rather more reassurance than was forthcoming from m} right hon. Friend the Minister of Agriculture, Fisheries and Food. I do not think that the way in which he hedged his speech with reservations when dealing with the European documents can give very much hope to dairy producers. I welcome the limited progress that has been made but I believe that my right hon. Friend has misled the House in the past in saying that we are contributors to the surpluses within the European Community.

Other than in the byproducts of the production of butter Britain is not a contributor to the surplus. As has been said by at least one hon. Member tonight, we have had to take a bigger cutback than many other countries in the EC which are huge contributors to the surpluses of dairy products. If, by that, my right hon. Friend thinks that he has achieved a great breakthrough for the British dairy producers, he is living in cloud-cuckoo-land. He knows my strong opposition to the package. It is as strong now as it was when he announced it in March 1984.

I hope that the Minister of State will give the House a little more reassurance tonight, and, through the House, the dairy producers. Many in my constituency are living in complete uncertainty, not knowing whether they will be able to continue to farm or whether, having served the communities in which they live and the people of the area which I have had the honour to represent for many years, generation after generation, they will have to leave farming. The repercussions of that upon our countryside would be devastating for the Conservative party.

1.55 am

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

I agree with my hon. Friend the Member for Bexhill and Battle (Mr. Wardle) that the hour is late. Like him I was here until the end last night. Therefore, except on one point, I shall confine myself to the questions that I have been asked which are relevant to the regulations.

The hon. Member for East Lothian (Mr. Home Robertson) once again argued, as he has done so often in the past, that we have had a more savage cut in quotas than other member states and that the deal was unfair. I am sorry to have to remind him yet again that three member states, Germany, the Netherlands and Denmark, have had larger cutbacks in their national quotas than we have. We are the fourth because we have been the fourth largest expander in dairy production since 1981. There was no way of getting the Commission off 1981 as the base year from which the national quotas were calculated.

The plain fact is that other member states have had a much bigger cut. Perhaps inadvertently, the hon. Gentleman referred to the fact that even now there is a 20 million tonnes surplus. I am sure that he will realise that the surplus is 12 million tonnes, not 20 million tonnes — the difference between consumption and the production levels in the coming year.

The hon. Gentleman asked me about mixed businesses and whether the proposal relating to them would apply in the current year. That is important, because if it does apply in the current year it will deal with the levy collection position. I assure him that if the proposal goes through as it is intended it will cover the current year, and it is our intention to achieve that. My right hon. Friend the Minister and I have throughout pressed for that change because we have realised the importance of it in the current year.

The hon. Gentleman made many comments about transferability. The hon. Member for Yeovil (Mr. Ashdown) also referred to that, and mentioned the NFU proposals. The initiative for the proposals on transferability comes from us. My right hon. Friend put out a paper on the mobility of quota for discussion with all the possibilities laid out because we are anxious to see greater transferability and flexibility in the system. The discussion that has been taking place in recent weeks has followed our initiative.

It is too early to give our firm position on precisely what we shall be advocating because, as my right hon. Friend said, we are now having discussions with various bodies, including the NFU, on their reactions to our paper. Whatever changes we wish to advocate will have to be negotiated in Brussels with the Commission and Council. It is not yet possible to say when that can be done.

I can tonight reaffirm our determination to try to achieve as soon as possible appropriate greater flexibility over and above the proposals that we are discussing in the regulations. Transferability is a key part of that in terms of flexibility. The hon. Member for Truro (Mr. Penhaligon) asked about this year. For this year, before the end of March, we are endeavouring to achieve the proposals that are in front of us now. It may be possible to discuss the proposals for greater transferability this year, but I do not think that they would apply retrospectively to this year. I stress that there will be resistance from various quarters in the Community, but we shall do everything that we can to achieve greater flexibility.

My hon. Friend the Member for Torridge and Devon, West (Sir P. Mills) said that my right hon. Friend the Minister had mentioned that there might be some delay. It is not our wish that there should be a delay. We are anxious to see the proposals in the regulations implemented as soon as possible and we shall be pressing for their approval as soon as possible, preferably next week. Indeed, we have been pressing the mixed businesses proposal for many months. Now that we have got this far, we want to press it to a conclusion.

My hon. Friend said that, unless the mixed businesses proposal goes through, there could be super-levy penalties for producer-retailers. I agree with him about the position of the producer-retailer who is producing solely for the market, including exports, and not for intervention.

The swap shop proposals that we have introduced have helped the producer-retailer this year. We allowed producers to exchange direct sale quota for wholesale quota and vice versa through the swap shop by enabling them to make offers in an exchange that closed on 31 January. We always suspected that a heavy balance of wholesale quota would be offered, with much less direct sale quota. Offers of wholesale quota outweighed direct sale quota by only about five to two. That was helpful. It meant that those who wanted to exchange wholesale quota for direct sale quota got about 42 per cent. of their requirements. Those who offered direct sale quota for wholesale quota got all the wholesale quota that they wanted.

Of course we want to go further; that is the point of the proposed regulation on mixed businesses. It is clear that if we can get it through this year, it will help all the producer-retailers who, because they are likely to be over the top on their direct sales, would pay supplementary levy this year. Excess direct sales total about 10.5 million litres, with a levy liability currently estimated to be about 1.8 million if the proposal is not adopted. That shows why we are pressing so hard for the proposal to be adopted. It would be exceptionally helpful for us to get it through as soon as possible.

My hon. Friend the Member for Torridge and Devon, West also asked about article 7, short-term leases and the implications for the United Kingdom. The article 7 proposal is designed to meet a specific German problem, just as the mixed business proposal was designed to meet a specific United Kingdom problem. It is optional, and member states would be free to apply it or not, as they judged fit.

We are discussing with the industry what arrangements we should he seeking to make movements of quota much easier in the United Kingdom, for greater flexibility. We are giving particular attention to the interest of landlords and tenants in milk quotas. When we have completed our discussions, we shall be able to judge whether we could or should make any use of the proposal in article 7 and whether to build on it.

The hon. Member for Londonderry, East (Mr. Ross) welcomed the proposal that is particularly important for Northern Ireland. Let me make the position clear. We estimate that, if the proposal goes through, it will require, allowing for transfers between producers, about 8 million to 10 million litres of quota to be transferred from Great Britain to prevent liability for levy in 1984–85. The current milk marketing boards' projections suggest that production in the rest of the United Kingdom will be sufficiently below quota for that requirement to be met. I know the importance that the hon. Gentleman attaches to our achieving that. The proposal is for this year only and does not affect future years. That is the position as the Commission has put it forward.

I turn to the questions asked by my hon. Friend the Member for Southend, East (Mr. Taylor). I have noted that he welcomes the move towards transferability that we are endeavouring to achieve, but his particular points in that context are not covered by these regulations. They are much more relevant to any proposals that we may wish to put forward following consultation on the mobility of quota paper. I cannot, therefore, tell my hon. Friend what the position would be on the tax front, because we have not reached that point.

I assume that my hon. Friend the Member for Southend, East, when asking about the price of milk, was referring to the Commission's price review proposals. We do not approve of the Commission's proposal for this year, and we shall argue against it.

My hon. Friend asked also whether the amendments would increase production. The amendments will not in themselves increase production. The crucial point about all the regulations is that they do not undermine the fundamental basis of the system. My hon. Friend asked about the cost of tribunals. We are nearly at the end of the tribunal cases. I have no doubt that my hon. Friend will wish to table a question at an appropriate time so that we can give him the final answer.

Mr. Teddy Taylor

Who will pay it?

Mr. MacGregor

No doubt my hon. Friend will table a question about that, too.

The hon. Member for Yeovil asked whether we intend to implement the article 3 proposal. My right hon. Friend the Minister made the position absolutely clear, but I shall repeat it. It would not be our intention to take up the option if that proposal went ahead, although it now seems unlikely that it will.

The hon. Member raised two points about mixed businesses. The details of the proposal are being discussed this week, and we do not have the final proposal. That proposal will come before us at the Council meeting on Monday next week. On the hon. Gentleman's first point we hope that the producer with a mixed business will be able to switch within the year from direct sales to whole sales, or vice versa, without limit so long as—this is the vital condition—the overall production stays within his overall quota. The hon. Gentleman's second point was about whether this would apply at the end of the marketing year. The intention is that the proposal should be able to be applied at the end of the marketing year—not just one year, but each year thereafter — to provide flexibility. Some of the details still have to be thrashed out, but it is intended to give the producer that opportunity.

The hon. Member for Truro (Mr. Penhaligon) asked about late applications. As he will know, late applications are not affected by these regulations. They are a different aspect, going back to the regulations we passed in July 1984. In the vast majority of cases—there are only one or two occasions when there is an opportunity for late applications to be considered—we are bound by the regulations, and late applications cannot be considered. I a sure that the hon. Gentleman realises that we are all anxious to complete the process of the panels and tribunals on secondary quota applications. If one allowed late applications, there would be no end to the process.

I welcome my hon. Friend the Member for Macclesfield (Mr. Winterton) back, but I wholly reject the tenor of his remarks. In saying that my right hon. Friend put the clock into reverse in 24 hours, my hon. Friend is totally ignoring the fact that, time after time for some months, my right hon. Friend and I warned that we were having to look at the quota proposals because the price restraint option, which we would have preferred, seemed to be unnegotiable within the Community. Time and again we warned that the proposal in COM 500 was likely to come through in some form. My right hon. Friend did a tremendous job in getting the original COM 500 proposal into a shape that was acceptable to the United Kingdom.

My hon. Friend should hear what is said about Ministers in other member states. There is no doubt that, compared with original COM 500 proposals, the eventual proposals on milk quotas were much more acceptable to the United Kingdom. I totally reject his allegations that my right hon. Friend is not fighting for British interests in the Community. He undoubtedly is, and with great success.

My hon. Friend said that my right hon. Friend had some reservations in his speech. This is an important point, and perhaps the best one to finish on. My right hon. Friend's reservations were not about what we in the United Kingdom intended to achieve through these proposals, but about the position of other member states that had reservations. We are in a community and other member states also have views. My right hon. Friend has made our position absolutely clear. We intend to get the proposals through, especially those of importance to the United Kingdom, before the end of this marketing year. That is what we are setting out to achieve. I am extremely pleased that no hon. Member has suggested that we should not be doing so. We can go to Brussels next Monday with the support of the full House.

Question put and agreed to.

Resolved, That this House takes note of European Community Document No. 4421/85 and supports the Government's intention of securing administrative modifications which in the light of experience would enable the milk supplementary levy to operate more efficiently and fairly throughout the European Community.