HC Deb 17 December 1986 vol 107 cc1213-28

4.3 pm

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

With permission, I will make a statement on the outcome of the meeting in Brussels of the Council of Agriculture Ministers, which covered 90 hours of negotiations, including two all-night sessions, and ended yesterday afternoon. My right hon. Friend the Minister chaired this meeting and I represented the United Kingdom.

Important decisions were made which involved major reforms to the milk and beef sectors. On milk, the agreement will result in a reduction in production of 9.5 per cent. over the next two years. This is to be achieved first by the permanent reductions in milk quotas of 2 per cent. for 1987 and a further 1 per cent. in 1988 as agreed last April; secondly, by a temporary suspension of quota by 4 per cent. in 1987 and a further 1.5 per cent. in 1988; and finally by a further 1 per cent. reduction which results from a tightening up in the operation of the quota system. I insisted throughout the negotiations that the necessary reductions in production had to apply to all member states, and that was agreed.

Our aim will be to achieve as much of the permanent reduction as possible in the United Kingdom by the voluntary outgoers scheme. I am pleased to say that the maximum rate of Community compensation under the scheme will be increased by 50 per cent. from 2.6p per litre a year to 3.9p per litre a year over seven years.

Compensation from FEOGA for the temporary suspensions of quota will be paid at 6.5p per litre per year, and this rate is guaranteed for two years.

Changes are to be made next year in the arrangements for implementing the supplementary levy in order to make it more effective in discouraging production in excess of national quotas. We succeeded in our aim of retaining formula B and article 4a, which contribute to ensuring the flexible operation of the quota arrangements within the United Kingdom.

As part of the arrangement, changes are to be made in the intervention arrangements. They are designed to prevent excessive recourse to intervention, which has been noticeable in the Community particularly over the past year.

The Council took note of a Commission paper which sets out its plans for a major disposal of existing intervention stock, designed to reduce it to more manageable levels by 1989. The cost of this programme of disposals will be financed over the four years beginning in 1989.

On beef, the Council agreed substantial reforms in the intervention system. They are designed to reduce both the cost and the volume of intervention buying. They involve a reduction in the price levels at which intervention buying will operate. It will take place only when the average price in the Community is below 91 per cent. of the intervention price and when at the same time the average price in a particular member state or region is below 87 per cent. of the intervention price.

Alongside those changes in intervention, various premium arrangements were agreed. They include a new premium worth £16 per head payable on male animals only on specialised beef enterprises up to a limit of 50 head per farm. This particular premium was totally unacceptable to the United Kingdom, and we shall not be applying it here. Instead we succeeded in retaining our existing variable premium arrangements on the existing terms, which are much more favourable. The maximum rate payable averages at about £45 per head and covers heifers as well as steers and young bulls. Moreover, the 50 head limit does not apply to it. In addition, the rate of Community funding for the suckler cow premium is being increased. It will be possible in 1987 to pay up to a maximum of £33 per head. The decision on the actual rate will be taken later.

Those changes to the beef system represent a major shift away from dependence on intervention towards a more market-oriented policy. This is in line with the approach which we have followed in the United Kingdom under our variable premium system. The beef arrangements have, moreover, been agreed until the end of 1988. They will therefore provide an important element of stability for beef producers during a period when the adjustments to milk production, and the effects of that on the beef market, will be felt.

In response to the request that we made last September, the Council agreed to devaluation in our green rate of 6 points for beef and 3.2 points for sheep. Those changes, which take effect on 5 January, will result in support prices in those two sectors being increased by around 5 per cent. and 1.5 per cent respectively. That will be worth an additional £50 million to farmers in a full year. The devaluation will also help towards restoring our meat traders' position relative to Ireland.

Other green rate devaluations were agreed at the same time: for France in the same two sectors; and for Greece. Portugal and Spain in the sheep sector alone. The Council broadly approved in outline a package of socio-structural measures and agreed that detailed decisions on them would be reached by the end of February.

One major aim of the arrangements is to help tackle the surplus problem. Member states will be required to offer aid for the extensification of production and conversion to non-surplus output, and also to operate an early retirement scheme for farmers who want to abandon production on their farms. These schemes will be able to cover afforestation as well as fallowing. Member states will have a wide measure of discretion on how they will be applied.

The measures will help the southern countries in the Community to restructure their farms. There is provision for Community-funded schemes for environmentally sensitive areas. This is, of course, an important concept which has been introduced into Community legislation as a result of the pressure from the United Kingdom, and in particular from my right hon. Friend the Minister.

The Commission originally proposed a limit on the financial contribution to compensatory allowances for livestock, which would have severely discriminated against some farmers in this country. I succeeded in securing a form of words in the final document that is acceptable to us and to them.

The changes, particularly in the milk sector, will, of course, cause serious problems of adjustment for many individual farmers, but they will be sizeably compensated. But the package agreed at the Council on milk and beef fits in well with the best interests of the United Kingdom industry. [Interruption.] Hon. Members who care about the farming industry might listen to what comes next because it matters to farmers. In particular, the cut in milk production will be applied across the Community and we have retained flexibility in the system; we have kept the beef variable premium and an improved suckler cow premium; and we have secured the green rate changes, which will greatly benefit our livestock sector.

The Agriculture Council has, I believe, under the British presidency, taken an historic step forward in tackling the problems of surpluses, which will bring substantial savings to the Community budget. Twelve nations have together found the way forward in agriculture—despite differences so big that once they could have caused wars—[Laughter.] Is it not marvellous how Opposition Members will not give credit to the Common Market when it brings home the bacon? It is in the interests of all of us, farmers, consumers and taxpayers alike, that decisions have been taken that put the common agricultural policy on the right road for the future.

Mr. Brynmor John (Pontypridd)

I am grateful to the Minister of State for making his statement and, in particular, avoiding any temptation to go into hyperbole about what was achieved. However, the agreement is complicated and the House will want further clarification of what the right hon. Gentleman has just said.

I welcome the three points on which I believe both sides of the House were united in a recent debate on this subject. First is the retention of the B formula, which I presume will have its system of setting off deficits and surpluses unchanged. Second is the retention and extension of the beef variable premium. I am glad to see that other countries now appreciate the value of some such premium. I hope that, whatever standardisation occurs in future, we shall insist that the dual benefits to both the producer and the consumer are retained. Third is the improvement of the milk outgoers scheme. Will the Minister tell the House what thought has been given by the Council to the use of any outgoers money for entry into the beef or sheep sector?

On surpluses, the Minister has announced measures which, if they work, will represent a sizeable step towards reducing surpluses in one of the most notorious areas of surplus, the dairy sector. When does the right hon. Gentleman estimate that, with the benefit of the scheme, production and consumption will be matched? As no less than 5.5 per cent. out of the 9.5 per cent. saving is to be achieved by a two-year temporary set-aside scheme, what will happen to such production after the two years have elapsed? Does the land come back into dairy production, or will it be a permanent loss, based on what was originally a temporary basis?

Will the Minister confirm three points about the green pound? First, the effect of lower intervention prices for beef, even when the 6 per cent. devaluation is taken into account, is to lower beef intervention prices by 8 per cent. net, and United Kingdom farmers will not have the advantage of headage payments to set off against that. What effect will that have on the smaller specialist beef producer?

Secondly, will the 6 per cent. devaluation eliminate, rather than work towards restoring, the advantage that the Irish farmers had recently over their British counterparts, to avoid the incident that occurred recently in Wales?

Thirdly, with the United Kingdom and French devaluation for sheepmeat, is there a guarantee that our perfectly legitimate trade in lamb will not be disrupted by French farmers in future?

I revert to the dairy sector. It is clear that some producers will come out of the sector, and I should welcome the right hon. Gentleman's estimate of the number. However, the point was put to him forcibly, again by both sides of the House in the recent debate, that others will be forced out of that sector by the reduction—farm and creamery workers will be displaced by the structural change. Yet there is no word of them in the statement. And is there not yet time for the Government to secure a better deal for those who, unavoidably and through no fault of their own will find themselves without a job?

The chief area about which I am unhappy concerns the importance of not overstating what has been achieved. For example, even if the dairy problem is conquered, that is merely the most notorious of several surplus regimes. There is no mention of cereals in the agreement, for example. Tackling the problem on the basis of a bit at a time, as we have done in the Agriculture Council, does the Minister accept that in other sectors, most notably beef, if outgoers use their money to set up in that sector, by the killing of dairy cows, estimated at 1 million or more in Europe, they are depressing beef prices and building up the 600,000-tonne beef mountain?

Does the Minister further accept that a number of acres—[HON. MEMBERS: "Too long."] No! Conservative Members may be satisfied with the hype in the Daily Telegraph but the House is entitled to ask legitimate questions about the agreement. When we are chastised for not taking an interest in agriculture, let the farmers note that the impatient ones are Conservative Members who just want to hurry through the statement so that they can go to their social functions.

Does the Minister further accept that a number of acres—perhaps he will tell us how many—will be left idle by the disappearance of dairy herds? Will not the temptation be to put sheep on them, thus accelerating the time when sheepmeat moves into surplus? The right hon. Gentleman will know that many sheep farmers do not have the luxury of switching, and they need protection to be kept in the sheep farming. Will they get it? Chief, however, among the lessons is that the impetus now created must not be lost. The Agriculture Ministers must not let events back them against the wall before they act on the common agricultural policy. Once started, the House should now insist that we look comprehensively at the CAP so that the policy may be reformed thoroughly in all spheres.

Mr. Gummer

I am sure that the hon. Gentleman is right in his final words. However, he must agree that it would hardly be right to suggest that the agreement is doing things merely a bit at a time. There were those who suggested that we should stick with dairying. If we could manage to do that, it would be a huge achievement. Others said that we must concentrate on beef, and others said that we should content ourselves with the special work on the structures package, which was particularly helpful at the beginning of the set-aside scheme for cereals. That would pave the way for the others.

The fact is that Britain went for all three together. Most European countries thought that it was impossible, but we achieved it. This is the largest package that we have achieved together. In recognition of what the hon. Gentleman rightly says, farming is indivisible, and if one does not make the changes across the board, one pushes some of the problems on to other sectors. But one cannot do more than what is humanly possible in the period available to deal with the matter. I am pleased that no one suggested that we should cover anything else in the marathon that we went through.

We must take the hon. Gentleman's point about impetus. I agree with him that it is important. One cannot overstate how important this part of it is. The agreement is important because it is a major change in the way in which the Community deals with agriculture. If we build on that, we can make a difference. However, the hon. Gentleman is right about the B formula. Its mechanism is unchanged. What has changed is that those who overproduce after the mechanism has operated will receive a considerably greater penalty. That must be sensible because otherwise it is not fair on those who keep within the production targets.

I am glad that the rest of the Community is to learn the benefits of premiums. I have always believed that, once one has a premium system, farmers will understand how successful it is and it will be much more difficult to get rid of it. That is why it has been resisted so stoutly by those who believe in intervention as the only system. If one deals with surpluses on the system that we have used, of course the hon. Gentleman is right. We have called the system a temporary cessation of the quota. However, I think that he will agree that it is likely that that amount will continue thereafter. We were not prepared to support a fixed amount of compensation, which would go on into the distance. It seemed to us that a digressive system was more sensible, because one's initial costs are particularly high as it is then that one is likely to be restricting the number of animals that one has.

I do believe in having a temporary system because we have to get other dairy producers in the world to reduce their production in a similar fashion so that the world dairy market returns to a sensible basis. We want to be in the business of exporting on a reasonable instead of a highly subsidised basis. That means that we must all make reductions. It is not fair to ask British and other European farmers to reduce their production if other countries do not do the same.

In relation to the green pound, we never sought a greater benefit than that which the Irish had been given through the reduction of their green punt. Britain does not believe in changes in the green pound between price-fixings. We were so angry about that decision because it was taken on behalf of one nation on grounds that clearly applied absolutely in the same way to the neighbouring nation. That is why we felt that it was wrong that it had been held up for so long. We still believe that this is a welcome, if late, decision. It will not remove all the advantage from Irish farmers because some of that arises from other currency movements not affected by the decision.

I have a real concern about the problems faced by creamery workers and I was part of the United Kingdom delegation that raised that point with the Commission. The Commissioners have still not given us an answer on how to consider the matter.

Sir Richard Body (Holland with Boston)

Has my right hon. Friend made any estimates of how many dairy farmers in this country may have to go out of business as a result of the decision?

Mr. Gummer

That sort of estimate is difficult to calculate. The truth of the matter is that, when quotas came into operation, it was thought that more dairy farmers would have to go out of business than happens year by year. That turned out not to be the case. I do not believe that the changes will mean that dairy farmers will have to go out of business. We will give those who wish to go out of business the opportunity to do so and those who do not wish to do that will be properly compensated for the fact that they perform an important job in producing the nation's food and conserving the countryside.

Mr. Richard Livsey (Brecon and Radnor)

Although I welcome the retention of beef variable premiums and the green pound devaluation, will the right hon. Gentleman press for further green pound devaluations at the next negotiations, which I regard as absolutely essential? What effect will the settlement have on the income of the average-sized dairy farm in the United Kingdom? What plans does he have should the market valuation of quota exceed the value set for the outgoers scheme? What will he do if that happens?

Mr. Gummer

It would not be proper now to decide what our arguments and balance should be within the price-fixing arrangements that have still to come. However, the hon. Gentleman will know that, in the past, the United Kingdom has secured proper changes in the green pound that must be balanced against the extra cost to the Community budget. There is a mix to achieve and we must consider other arrangements before we can make a decision.

With regard to dairy farmers income, there is no doubt that compensation for the cut in quota of the temporary scheme is such that it should replace the profit that would otherwise have come from producing that milk—and, indeed, should more than replace that profit. There is, in the package, sufficient to support British dairy farmers without producing a product that cannot be sold. Even those of us with large numbers of farming constituents know that farmers do not want to produce food that is destroyed or sold at impossibly low prices. They want to do a proper job. They want a restriction on the amount that they can produce rather than to continue packing it into butter and then destroying it at the end of the day.

Mr. Colin Shepherd (Hereford)

Does my right hon. Friend agree that eventually he will be commended by the agricultural industry for coming to terms with and forcing his colleagues in the Council to accept the underlying instability of agriculture?

Does my right hon. Friend accept that one sector of British agriculture that is feeling particularly squeezed and nervous is the small stock farmer in the hills? Can he spell out how that sector can be reassured by the negotiations in which he has been involved during the past week? Finally, can my right hon. Friend comment on the figures of a loss of £50 to £60 per head of beef animal that have been quoted in the national press?

Mr. Gummer

The reasons for the United Kingdom presidency being so determined that we should deal with dairying and beef production together were exactly as my hon. Friend explained. It is impossible to exclude one from the other, as there is a knock-on effect on the number of cows in the market.

The package helps very considerably. First, there is more than 400 million ecu put aside to get further exports of beef as the cows come on to the market. That will reduce the number of cows in the market.

Secondly, the introduction of premium generally in Europe should have a lowering effect on the price of beef in the rest of Europe, which should be a direct help to consumers. That should mean greater consumption in Europe and a knock-on effect on stocks elsewhere.

The increase in suckler cow premium goes directly to the specialist beef producer. The retention of beef variable premium for this year and next means that the producer has real confidence to a point at which we would expect the major effect of extra beef coming to the market to be a reduction in price. There are no grounds whatsoever for the figures that have been circulating. It is impossible to calculate such figures. There is no way of estimating how the market will operate with the change in intervention. I am sorry that people take an excessively gloomy view when it is such an extremely good deal.

Mr. Eric Deakins (Walthamstow)

By how much will CAP expenditure be reduced in 1987 and 1988 as a result of the measures that have been taken? Will the temporary suspension of quotas automatically end after two years?

Mr. Gummer

The answer to the second part of the hon. Gentleman's question is no, they will not end automatically. The only thing that has been fixed for two years is the exact amount of compensation. The milk package will save the Community about £1,200 million over three years and the beef arrangements will save £120 million. That package has taken into account the extra money that is to be paid out.

Sir Hector Monro (Dumfries)

I welcome this agreement. Few people thought it possible to achieve an agreement of such magnitude and importance in Europe, and all credit should go to my right hon. Friend. Is he aware that, in the light of surpluses, his agreements on milk, the green pound and the reduction in beef premium are very good indeed? Will the increase in suckler cow subsidies be adequate to increase incomes in the beef sector?

Mr. Gummer

There is no doubt that there is an argument that the suckler cow subsidy is the way in which we can most properly direct help to the specialist beef sector. I still believe that it is a reasonable increase, although it is certainly not as big as some would have liked. Taken with the other measures, the beef producer must accept that this is a much more satisfactory agreement than anyone would have thought possible. Those who read the comments of the National Farmers Union must understand that the agreement achieves very much more than the NFU expected and meets all of its priorities.

Dr. Roger Thomas (Carmarthen)

What advice has the Minister about diversification for all the ex-dairy farmers who will exist in south-west Wales in the next two or three years?

Mr. Gummer

I do not believe that there will be those ex-dairy farmers. The arrangements that have been produced mean that those who have to reduce quota will be very properly compensated for that reduction. It will be the same kind of contribution to their income as they might have expected elsewhere. The hon. Gentleman knows that I am on record as having proposed a whole range of examples of diversification to assist the part of the country about which both he and I care.

Mr. Eric Cockeram (Ludlow)

Has my right hon. Friend considered paying part of the compensation under the outgoers scheme to landlords in view of their reversionary interest in the cancelled quota?

Mr. Gummer

The arrangements have been discussed and negotiated throughout Europe. I do not think that anyone regards the present structure as unreasonable. We have protected the landlords' capital interest in the arrangements for outgoers, but when there is a temporary cessation of this kind, we believe that the money should go to the people who actually suffer the cut in milk production.

Mr. John David Taylor (Strangford)

As the net result of the arrangements announced by the Minister will be terrifying for farmers in the United Kingdom and will lead to a reduction in farm incomes, more bankruptcies and certainly more unemployment in rural areas, how can the Minister defend a policy that sacrifices British farmers because of surpluses produced in other countries?

Mr. Gummer

The hon. Gentleman has got it entirely wrong. This country put the second largest amount of butter—98,000 tonnes—into intervention last year, so it is quite wrong to suggest that we should not share the burden of surpluses. We have achieved a fair deal across the board. The hon. Gentleman would do the Province more good by fighting for the package rather than attacking it.

Sir Paul Hawkins (Norfolk, South-West)

Only hours before the settlement was reached, I was with Sir Henry Plumb and the president of the National Farmers Union, who had never believed that such a good settlement could be obtained. I congratulate my right hon. Friend and the Minister on their stamina and on the tremendous success of the presidency, which I hope will be promulgated throughout the country. People in Great Britain are always denigrating their own country. The agreement is a whole-hearted success for both consumer and producer. Will my right hon. Friend ensure that the true story is put over to the British people?

Mr. Gummer

I am sure that it will help a great deal to know that my hon. Friend, with his long experience of farming, shares our view that the settlement is a good one. Sir Henry Plumb, who is certainly a good judge, regards it as a success that no one could have expected. The way to inform the people of this country is to give them just the facts rather than the scare stories being put about by people who have no interest in the future of agriculture.

Mrs. Gwyneth Dunwoody (Crewe and Nantwich)

How does the Minister intend to convince creamery workers who are to lose their jobs in January that this is a good package? How can he simply say that the Commission has not given a reply? When will he do something for people who are losing their employment now?

Mr. Gummer

There is a real problem when people are producing something that no one wants to buy. It may therefore be necessary to reduce the number of creameries. Sometimes the reason is simply that they are out of date and need replacement. The arrangements for workers who are made redundant are more generous than the national scheme. The hon. Lady knows that I take an interest in this, and I shall continue to do so.

Mr. Robin Maxwell-Hyslop (Tiverton)

Will my hon. Friend, representing the Government rather than just his own Department, see that creamery workers who are made redundant by these quota arrangements receive the same sort of redundancy payments that steel workers received when they were made redundant owing to steel quotas imposed by the EEC? Secondly, will Britain be paying next year the optional 1.6p per litre on 4 per cent of the quota reduction or will she not?

Mr. Gummer

The arrangements as to the optional matters—those that are national decisions—are made by the Government as a whole. There has not yet been time for the Government to reflect on the matter and to make a decision. No doubt my hon. Friend will be among the first to know when the decision has been made. As for the creamery workers, my hon. Friend is quite right that comparisons could be made with the steel industry, but comparisons could also be made with the textile industry, in which no extra help was given. The answer that I gave to the hon. Member for Crewe and Nantwich (Mrs. Dunwoody) is as far as I can go at present.

Mr. Robert Maclennan (Caithness and Sutherland)

Does the Minister accept that this extensive and major package shows that common agricultural policy techniques are more variable than opponents of the policy sometimes suggest? To enable us to take a more balanced view of the impact of the package on those affected by it, will the Minister be a little more specific about the milk quota compensation arrangements and say whether he believes that they will be equivalent to less or more than the value of the quota? Secondly, how do the Government intend to exercise their discretion with regard to the socio-economic structural package? In particular, what order of magnitude do the Goverment have in mind for the cash to be made available under the scheme for farmers cutting their farming commitment?

Mr. Gummer

The hon. Gentleman is right to draw attention to the socio-economic package which, despite its unfortunate name, contains some important measures aimed at the poorest farmers, not just in southern Europe but in the Highlands, in Wales and in other difficult areas of this country. We have not yet reached the stage of detailed discussions about the money that will be available. One reason for that was simply time. We made the essential political decisions, so there is clear guidance as to what the package will contain. We hope that the package itself will be worked out before the end of February. This is a major change and I shall certainly ensure that our policies and principles, which were partly behind the Agriculture Act which introduced the environmentally sensitive areas and other elements, will be shot through the scheme. Much of the pressure for it has come through new ideas from the United Kingdom, which is taking the lead in farm diversification.

As for dairy farmers' income, it is much more difficult to measure this according to the value of quotas, because the figures given for the value of quotas vary considerably. However, the pence per litre compensation for the reduction in quota in the temporary cessation system is rather more than the profit that the farmer could expect to make if he produced that litre of liquid milk, so the arrangements defend the farmer's income.

Mrs. Elaine Kellett-Bowman (Lancaster)

is my right hon. Friend aware that my farmers will be especially pleased at the retention of the beef variable premium for two years and the intention to try for the 6 per cent. devaluation of the green pound, which our right hon. Friend the Minister announced in my constituency on 29 September? Does my right hon. Friend agree that, taken together, these measures will go a long way towards restoring the stability of the beef market which has been lacking in our part of the world in recent months?

Mr. Gummer

My hon. Friend has not allowed the Ministry to forget the needs of her beef farmers and I am sure that she is very pleased at the success of the policy that she has supported.

Mr. Dennis Skinner (Bolsover)

Is the Minister aware that some Tory newspapers today have forecast that, as a result of this great marathon success story, which has turned out a little flat the more questions the Minister has answered about it, beef and milk prices will fall? When does the Minister expect those prices to fall, and by how much?

Mr. Gummer

I think that the hon. Gentleman is probably wrong in his assessment of the way in which the package has turned out the more people have learned about it. I believe that as people have learned more about it they have found it more satisfactory than they had thought. I cannot be responsible for statements in newspapers, but it is certainly true that in most EEC countries which did not previously have the premium the price of beef will fall because the premium will have that effect. We already had the premium. That is why beef prices in this country are lower than in the rest of Europe anyway.

Mr. Richard Shepherd (Aldridge- Brownhills)

Following these negotiations, will the common agricultural policy cost less in 1987 than in 1986?

Mr. Gummer

As I have said, the cost of the agricultural part of the CAP will be substantially reduced in successive years as a result of the negotiations.

Mr. Dafydd Wigley (Caernarfon)

Is the right hon. Gentleman aware that a recent survey showed that, in west Wales, one in four dairy farmers are teetering on the brink of bankruptcy and that this package will only make their worries even worse because their responsibilities are long term and the two years will not be enough to bail them out? When the United Kingdom is importing substantial quantities of dairy products, they cannot understand the Minister selling them down the river in this way.

Mr. Gummer

I am sorry, but the hon. Gentleman cannot say that with any truth. We import Danish and New Zealand butter, for example, because the British housewife wants to buy those butters and chooses not to buy British butter. New Zealand and Denmark have access to our market but we do not guarantee them a market. I believe that the British housewife ought to have a choice. I hope that the hon. Gentleman is not suggesting that Welsh housewives should be forced to buy Welsh butter. I think that Welsh butter is extremely good and always buy it when I do not buy English butter. The hon. Gentleman cannot complain about Britain taking some of the cost of reducing—

Mr. Wigley

You should tell my farmers that.

Mr. Gummer

I would tell them that, because I would tell them the truth. If the hon. Gentleman does not tell them that, he will not be telling them the truth.

Mr. Patrick McLoughlin (Derbyshire, West)

My right hon. Friend is right when he says that farmers do not like money to be spent on food that is being put into intervention. What reassurance can he give small dairy farmers in the 200,000–litre category today, who will be especially hard hit by any reduction in quota? Has his attention been drawn to early-day motion 310, which deals with that point?

Mr. Gummer

I hope that we have met my hon. Friend's reasonable concern for the small dairy farmer. The compensation for suspension will be paid at the rate of 6.5p per litre per year, whereas the average profit on milk is between 3p and 4p per litre. That will mean that there is a margin to cover the increase in cost which arises when there is a lower throughput. It is about the right amount to ensure that my hon. Friend's dairy farmers have some guaranteed support for their income, which is especially necessary in his part of the world, where dairying is perhaps the only thing which farmers can do effectively. That is true of other areas, but it is especially true of my hon. Friend's constituency, which I have known well.

Mr. James Lamond (Oldham, Central and Royton)

Although we must all be grateful to the Minister for his efforts to prevent another war in Europe by these negotiations, even if he murdered the English language to tell us about it, why has he mentioned the consumer so little today? Can the consumer look forward, now that there is such a large surplus of dairy products, to an early reduction in the price of milk, rather than the continual increases that they have experienced—or has the law of supply and demand been completely repealed in favour of farming?

Mr. Gummer

The hon. Gentleman ought to remember that the rise in food prices under the present Government has been less than the average rise in inflation. That is noticeably different from what happened when Labour were in government, when food prices rose very much faster. The hon. Gentleman might remember that, as he is a member of the Labour party, he should be on the side of those who do a good day's work getting a reasonable return for their Work. I am anxious to support farmers to ensure that they have a reasonable living.

We have always fought for changes in the system which are directed at the consumer. Therefore, we have the beef variable premium for a further two years, which is of direct help to the consumer. We also have a premium throughout Europe which is of direct help to European consumers. The Government have supported such policies, which favour the consumer directly. As for dairy products, almost every consumer in Britain is a taxpayer, whether directly or indirectly, and the fact that the tax bill will be so hugely changed must affect all consumers.

Mr. Alexander Pollock (Moray)

I congratulate my right hon. Friend, and especially welcome the devaluation of the green pound, which will improve the trading climate for beef, not least in relation to the unfair Irish price differential. I urge my right hon. Friend to keep the slaughter premium at a realistic price to ensure that there is continuity of confidence in the beef sector, especially when there is an added threat in the shape of the cull of the national dairy herd.

Mr. Gummer

I am sure that my hon. Friend is right. The beef producer will not have the easiest time for the next two years while the dairy herd contracts. Thereafter, as he knows, the indications are that the beef market will become much more stable as supply and demand come much more into line. The Government have tried to be careful with the needs of beef farmers during the next two years.

Mr. David Penhaligon (Truro)

Will the Minister confirm that, even when we include New Zealand in our production levels, Britain is no more than just in surplus in dairy products? We consume as much dairy produce as we produce. Can the Minister therefore explain to the counties of Devon and Cornwall which have today seen one tenth of one of their prime industries close down why the height of the Ministry's ambition was to cut our production by the same percentage as that by which other countries are in phenomenal surplus? What intentions, if any, does he have to skew this arrangement to the advantage of small farmers? That is within his power if he chooses to do it, but he has not mentioned it so far.

Mr. Gummer

The hon. Gentleman, who is, after all, a member of a party which supports our membership of the European Community, ought to remember that these arrangements are made fairly across the whole of Europe. We are all taking the same burden. Last year, we put 98,000 tonnes of butter into intervention. We imported considerably less than that—

Mr. Nicholas Winterton (Macclesfield)

No, we did not. We imported 135,000 tonnes.

Mr. Gummer

My hon. Friend need not be too upset, because, if I have got the figures wrong, I shall apologise to him. There is no need to be upset about it.

Mr. Skinner

You are just a wart on Thatcher's nose.

Mr. Gummer

The hon. Gentleman made that joke last week and it was not funny then.

Mr. Skinner

It will be in Hansard now. I have been trying to get it in for two months.

Mr. Speaker

Order. I did not call the hon. Member for Macclesfield (Mr. Winterton).

Mr. Gummer

It is quite impossible to ask the rest of the Community that we should take a smaller cut while we are costing the whole Community the price of putting 98,000 tonnes of butter into intervention. The hon. Gentleman must tell his constituents that as well.

Several Hon. Members


Mr. Speaker

I will now call Mr. Winterton.

Mr. Winterton

My right hon. Friend is aware that I have strongly opposed and deplored the way in which the Government have treated British dairy farmers, bearing in mind the fact that they do not contribute year in, year out, to the surplus in Europe of liquid milk or dairy products. We imported 135,000 tonnes of dairy products last year. We are a net importer. Does my right hon. Friend accept from me, as a critic of the Government, that I warmly support the package that he has announced today? It is far better than could ever have been expected by me, as a strong opponent of the Government on dairy matters.

Does my right hon. Friend agree that he does his cause no good by giving the type of abrasive answer that he gave the right hon. Member for Strangford (Mr. Taylor)? Will he direct his attention to perhaps the most important thing in agriculture today—how the small dairy farmers of Macclesfield, east Cheshire, west Derbyshire and north Staffordshire are to look to their future? In what way, will the Government advise, should farmers and others in agriculture manage and fund land which, to date, has been funded by producing food, but which will in future not be used for that purpose because dairy products and liquid milk, which are their only products, can no longer be produced?

Mr. Gummer

I must say to my hon. Friend that it is not the Government who have imported those milk products; it is the housewife who has chosen to buy them. We in the agriculture industry must accept that, if we are to compete, we must enable people to want to buy our products. So long as we cost the whole Community large sums through intervention butter and considerable over-production of cereal products compared with our needs—

Mr. Penhaligon


Mr. Gummer

—we cannot suggest that we should be excluded from fair cuts across the board in milk products. We are putting milk products into intervention.

I hope that my hon. Friend will agree that when one makes any announcement on agriculture, part of the House says, "Why on earth should farmers receive this help?", and another part says, "Should not the farmers have some more?". Therefore, my hon. Friend should say to his farmers, "We have tried to create more confidence in the market by ensuring that there are long-term dates so that people know of even a temporary cessation over two years and, again, there is a beef variable premium over two years. We have gradually enabled future planning, so that people can make their decisions." He can tell his farmers that every one of them will be compensated for the compulsory cuts and that that is more than they could have expected to gain in profit on the pints of milk that they produce.

In the long term, this is the only European Government who are taking as a basic part of their policy a programme of set-aside. That will enable us to bring production more closely into line with demand, if we can do it on a European basis.

Mr. Tony Banks (Newham, North-West)

Does the Minister recall that, when Opposition Members have suggested that the beef and butter mountains should be distributed free to our pensioners, we have been told that, because of the arrangements, it would merely result in more beef and butter being brought into intervention? Since we understand that "vigorous" steps will be taken to reduce the intervention stores, is it not time for the Government to say that, if the new system will work, beef and butter stores will now be given free to our pensioners? What better time to announce that than immediately before Christmas?

Mr. Gummer

The hon. Gentleman must accept that he would not want us to distribute a good deal of the butter in intervention to our pensioners because it has been in intervention for a long time. If we distributed the butter that he might wish us to distribute, those who normally buy butter would not buy butter. It is no good pretending otherwise, because we had a Christmas butter scheme which showed that.

Therefore, the butter that those people would have bought will go into intervention. We would spend large sums spreading free butter round the country and taking more butter into intervention in its place. That is not sensible. If we could find a way of increasing the market for butter and of helping the least advantaged, we would follow it. I am committed to that, but I have not yet found a way of doing it.

Several Hon. Members


Mr. Speaker

Order. I shall call those hon. Members who have been standing, but I ask for brief questions.

Mr. Andy Stewart (Sherwood)

There is much to be commended in my right hon. Friend's statement. However, the beef package is causing grave concern among beef producers, especially as informed sources are saying that it will cost about £50 per head in reduced subsidies. That is because wholesale butchers have based their bidding price on the present intervention price. If that is reduced by 13 per cent., it will reduce the subsidies by the sum I mentioned. If that fear is founded, will my right hon. Friend take steps to correct it?

Mr. Gummer

My hon. Friend should accept that those figures cannot reasonably be held in the circumstances of our action. They do not take into account our action to stop the full effect of the calf and dairy cows coming on to the market. Nor do they take properly into account the effect of the continuation of the various premiums. Moreover, with the growing firmness of the beef market, we shall be able to see that beef producers pass through these two years more effectively than they suggest. But none of us can be sure, and I am not suggesting that the position will not be tougher than we anticipate.

With this package we have addressed ourselves to the problem in a way which we think will be successful, but obviously we shall keep a close eye on its effect on beef farmers.

Mr. Michael Fallon (Darlington)

May I welcome what is obviously a significant step down a long road? Has there been an improvement in the arrangements for securing and policing quota compliance by other member states?

Mr. Gummer

My hon. Friend is right that there is no point in having quotas if we do not ensure that they are adhered to. Several things happened during the discussions which have ensured that that will happen. By the changes and tightening in the arrangements for formulas A and B and their supervision by the Community, countries which have not been as tough on quotas as others—others have been as good as we have been on that—will find it much more difficult to evade the rules.

Mr. Robert Hicks (Cornwall, South-East)

Has my right hon. Friend made any assessment of the impact that the introduction of these measures will have on the structure of the countryside, given that farm incomes form the basis of the economic and social well-being of rural areas?

Mr. Gummer

My hon. Friend has put his finger on the area with which we are most concerned. That impact is the reason why we insisted on proceeding as far as we could with the structural measures in the Community discussions. There were those at home who suggested that Britain should be concerned only with beef and dairy, but we felt that it was right also to deal with the structures measure. My hon. Friend is right—that, as the production ability of British and European farmers increases, so the amount of land needed for food decreases. The whole structure of the countryside, dependent as it is on agriculture incomes, becomes much more fragile. Therefore, we are anxious to accompany these measures with changes such as we have often outlined previously, especially in the set-aside area, which will enable us to ensure that there is a proper basis for a thriving rural economy.

Mr. Nicholas Budgen (Wolverhampton, South-West)

Will my right hon. Friend be generous with the truth in describing the reduction in the cost of the CAP? If he is right, as he hopes us to understand, there will be no need for any increase in contribution from VAT—

Mr. Teddy Taylor (Southend, East)

No supplementary budget.

Mr. Budgen

—and no supplementary budget to the EEC. If, however, we have misunderstood my right hon. Friend's words, we shall be deeply disappointed in future.

Mr. Gummer

My hon. Friend knows that I am careful never to be economic with the truth. [Interruption.] Therefore, I have given him the exact figures. They are that the changes in dairying will mean a reduction in the budget of £1,200 million over the next three years and in beef of £120 million. We have not finished yet. First, the continuing effect of that will be even greater savings and, secondly, the United Kingdom Government are determined now to reduce the cost in other areas.

Mr. David Heathcoat-Amory (Wells)

I congratulate my right hon. Friend on this first stage in the reform programme. The overall package will be welcomed generally in Somerset, which is the second biggest milk county. The farming community recognises that the continuing surpluses are doing great damage to the image of British farming and are a monstrous imposition on European taxpayers. Will he give an assurance that the changes in the milk regime will be enforced equally throughout the Community? There has been evidence that in the past the West German Government have allocated more milk quota than was allowed under the rules.

Mr. Gummer

I am sure that my hon. Friend is perfectly right about that. That is why I resisted strongly the West German Government's proposal to change the rules about the suspension of quota and the operation of formulas A and B, which could have legitimised a practice that is clearly illegitimate. We stopped that, with the help of our other Community partners.

Mr. Teddy Taylor

As, sadly, previous Common Market agreements have not always worked exactly as planned, will my hon. Friend publish in the Official Report before Christmas the detailed figures showing how, despite the additional subsidies, pensions and premiums, the planned CAP spending will be cut by £1,200 million in 1987? Does national flexibility on disposal, which he mentioned, mean that there will be any transfer of the cash responsibility for disposal froth the Common Market to national Governments? Does he not think that it is an appropriate time to publish a report showing what went wrong with the previous quota scheme, which was designed to curb mountains and spending but actually increased both?

Mr. Gummer

The previous quota scheme was never sufficient to solve the problem and it was not sufficient to solve the problem of the growing ability to produce. We have two problems. One is the amount that we can produce at present and the other is a tendency to increase productivity and for the population to decrease its consumption of milk products. These two problems work in opposite directions from the aims of the quota. That is why I am so keen about the very large change that we have made, although it has hurt many of my hon. Friends' constituencies. It would have been much better and much easier if we could have made the change over a longer period. The British Government have always been opposed to the fact that we did not make these decisions earlier and more forcefully, when they would have been more to the benefit of the farmer.

I shall be happy to publish clear breakdowns of the figures, which my hon. Friend can then work over.

Mr. Tony Marlow (Northampton, North)

Given all the difficulties that my right hon. Friend has faced, may I unreservedly congratulate him on courageously and effectively grasping some particularly awkward nettles? Could my right hon. Friend tell the House that, after the cutbacks in milk, we will still be secure in our liquid milk market?

Mr. Gummer

My hon. Friend is most kind to make those comments, because I know that he perhaps starts considering these matters from a different angle from me. The liquid milk production is as important to his non-farming constituents as to the farmers who produce it. Liquid milk production is easily covered by the large amount of butter that goes into intervention. Even if all the milk came out of butter production, there would still be more butter going into intervention unless we could improve our proportion of the market. I am keen that we should sell more of our butter and cheese on the British market against foreign competition.