§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Neubert.]
§ 9 am
§ Dr. Roger Thomas (Carmarthen)
Farming is very important in many parts of the United Kingdom, but in no part is it more important than in south-west Wales. Although I welcome the presence of the Under-Secretary of State for Wales, and am agreeable to having this debate with him, in Dyfed and throughout Wales there will be disappointment that the Secretary of State, who normally handles agriculture questions in respect of Wales, is not here to reply to the debate.
In five of the six districts in south-west Wales, now known as the old county of Dyfed, one in five people directly or indirectly depends upon agricultural production for his livelihood. Because of topography and rainfall, agriculture on the western side of the United Kingdom relies heavily upon grassland enterprises. There is little scope for diversification into other types of farming. The activity must be exclusively or predominantly dairy.
The Agricultural Development and Advisory Service, in a recent report to a bankers' seminar, revealed that fully half of our dairy farms have serious financial problems, which were defined as low profitability and increasing debts. Profitability has still not regained the levels of the early 1980s. Overall in Dyfed, 8 per cent. of people are employed directly in agriculture, compared with 2.4 per cent. for Wales and 1.6 per cent. for the remainder of the United Kingdom.
The expansion in the dairy industry in the decade up to 31 March 1984 happened in Wales far later than it did elsewhere in the United Kingdom. Between 1981 and 1983, Welsh milk output expanded by 25 per cent.—two and a half times the average British increase. Therefore, the House will understand that when quotas were introduced on 1 April 1984 the effect was disproportionately catastrophic in those areas of south-west Wales. Cuts averaging 6.2 per cent. were imposed in the first year, and a further 1 per cent. cut followed in 1985–86, because the base year chosen for the calculation of quotas—1981— was disastrous climatically for the United Kingdom, and we suffered one of the largest cuts in Europe. That seems especially unjust since the United Kingdom is still not self-sufficient in milk products, and countries producing considerably more than their market requirements suffered lower cuts.
Sudden policy changes allow no transition and no adaptation, and the British Government do not appear to use their discretionary powers to ameliorate the suddenness of policy changes, whereas the Governments of other member nations certainly do.
In December 1986, the Council of Ministers' package, hailed in the House by the Minister of Agriculture, Fisheries and Food as an important breakthrough, acceptable to and accepted by all member nations, was confined mainly to milk, beef and agri-money. The Council of Ministers agreed that between April 1987 and March 1989 we would have further quota cuts and reductions of 9.5 per cent. The Minister will be aware that there has not been a widespread welcome in south-west Wales. On the contrary, this has come on top of two and a half years of widespread and serious financial difficulties, with many farmers forced out of business and others 406 struggling through bleak, tempestuous times, with the knock-on effects producing austere prospects for an already depressed rural economy.
The late 1986 package will add appreciably to an already critical position, for Welsh farmers are adamant that solutions to the problems of overproduction weigh far too heavily upon those innocent of their creation. As a consequence, milk production in England and Wales in 1988–89 will be only 4 per cent. above the level of 1973 when we joined the EEC. By contrast, German milk production will be 14 per cent. up, Netherlands production will be 23 per cent. up and the Republic of Ireland will be 63 per cent. better off with regard to milk production than in 1973.
Because the domestic markets for liquid milk, cheese and other products must still be supplied, the main impact of the cuts in milk output falls now upon butter milk production. It is estimated that the latest package of quota cuts will reduce the current England and Wales milk supplies by 1.5 billion litres by the end of 1989. That is equivalent to a cut of 40 per cent. in the volume of milk currently being used for butter manufacture. I need hardly remind the Minister that cheese creamery production in south-west Wales disappeared with the closure of Newcastle Emlyn just after the 1983 election and the subsequent closure of the cheese creamery at Johnstown. Now we are concerned about the future of the butter creameries in south-west Wales. In one there has been considerable investment and expansion and in the other, which is just outside my constituency, there are great fears for the future.
The direct loss to the rural economy will be of the order of £280 million, with knock-on effects estimated at another £200 million. Butter factories are traditionally situated on the western side of this country where they are close to the milk supplies and, generally, they are situated in the smaller rural Ćommunities rather than in the major conurbations.
A total of 56 per cent. of Welsh milk production will go into butter making and the corresponding figure for England and Wales as a whole is around 30 per cent. One will realise, therefore, the predicament we are in and the fears that we have in south-west Wales. A further cut in milk production will undoubtedly affect farmers' returns. Eighty per cent. of milk is produced by 20 per cent. of producers. Therefore, there is a likelihood that cutbacks in production could be substantially greater than the 10 per cent. envisaged. The package will have an immediate effect upon producer returns.
In an oral reply on Monday the Secretary of State talked aboutacross-the-board compulsory reductions in quotas".— [Official Report, 23 March 1987; Vol. 113, c. 10.]because of the failure of the outgoers scheme. It would have been in the general interests of the milk industry and the majority of producers who wish to remain in milk production that the 3 per cent. quota reduction be achieved from a successful outgoers scheme. One asks what has to be done further to make the outgoers scheme succeed. It is essentially a redundancy payments scheme.
In the industrial context, in south-west Wales over the past nine years or so we have been dealing with redundancy payments in the steel industry and in the coal and other heavy industries. The farming community is wondering why it cannot be given equal treatment with a redundancy payments scheme. We have a redundancy 407 payments scheme of 27p per litre. That is insufficient. It is also insufficient in that it is paid over seven years. If the outgoers scheme was such that there would be an immediate lump sum payment to cover the first three or four instalments, people would have a sufficient amount of cash flow in order to diversify into other forms of industry, within farming and outside it, now that they have to leave dairy farming. Such a scheme could be used to assist farmers who have been badly treated by the milk quota schemes, rather than provide quota, as has been happening, for Northern Ireland.
The industry is fully aware of the advantages of a quota transfer scheme. However, the current scheme is causing problems in respect of the movement of quota away from south Wales. The rate of loss escalated during the latter months of 1986 and the early months of 1987. Therefore, there is a limit on the amount of quota that can be purchased in future in Dyfed.
The current price of the quota, at more than 30p per litre, is a disincentive to the outgoers scheme. Current schemes involving the transfer of quota, especially the "grass let" system, needs detailed policing. Illegal transfers of quota are strongly opposed. All future transfers of quota should be administered by the milk marketing board and profiteering by auctioneers and quota agents should be prohibited.
The initial England and Wales quota should be brought in line with that administered to other member states on the basis of the ratio of production to consumption. The initial quota allocation to England and Wales is inadequate.
There is concern about the suspension of intervention, which will have a detrimental effect on the wholesale producer price. More information is needed about the workings of intervention throughout the EEC. In future, intervention buying should operate as a safety net, in terms of seasonal surplus production, and not as a market regulator. We agree that the level of intervention stocks in the EEC calls for an urgent and immediate disposal policy. Details of such schemes are urgently needed. There is a need for producers, Government and farmers to enter into schemes to promote the consumption of milk and dairy products.
The discrepancy in the agri-money system was fully highlighted in the December 1986 package. The Government should be more prepared to adjust the green pound to support British agriculture and especially family farms in what is a competitive market.
Current interest rates have been reduced, but bank charges still place farmers in impossible financial situations. Interest rates in the United Kingdom should be more competitive with those that are now available in other parts of the EEC. Our interest rate is 10 per cent. whereas West Germany's is 4 per cent.
As I have said, the Brussels package is designed to cut milk production by 10 per cent. However, the knock-on effects on other sectors of the industry will be devastating, especially in the grassland sector. The package will mean off-loading 600,000 tonnes of cow beef. That can be translated into 25,000 barren cows being off-loaded in the market area of Dyfed alone. That off-loading of cow beef will affect the already depressed beef market.
A 10 per cent. reduction in production is bound to affect the creamery capacity in Dyfed. How many 408 creameries can the industry effectively support in that part of the world? The United Kingdom beef cow herd is already in decline. Without a substantial increase in the suckler cow premium the decline will continue. The headage premium on beef cows in less favoured areas should be raised to the maximum allowed under the EEC directive. All EEC countries will now have a production premium, but only the United Kingdom is charged clawback on its exports.
If an EEC policy directive appears harsh and politically explosive, certain member states are all too ready to support their agriculture and farmers by national means. Farming in the United Kingdom is worthy of similar treatment to keep its competitiveness. However, there is an extreme reluctance on the part of the Government to support agriculture and the rural economy. It should be noted that the Commission continues to make further proposals for the milk sector, hence the great fears that lie ahead for the farmers of south-west Wales. It is already resisting a further realistic devaluation of the green pound. If such measures are implemented and supinely accepted by our negotiators in Brussels, it will have further serious effects on the dairy industry and the rural economy.
Dyfed believes that it is vital that the Government should recognise those consequences and take whatever steps are necessary to mitigate them. The Government should help others whose employment has been affected adversely by EEC measures by paying appropriate compensation to farm workers, creamery workers and workers in the cattle-feed industries.
In Dyfed we already have evidence that the amount of feed accepted by farmers is decreasing. Since the 1982 quotas there has been an annual loss of £13 million in incomes in Wales as a result of the changes, and 1,700 jobs have been lost. If the changes of 1986 are implemented, there will be a further £11 million annual loss of oncome in south-west Wales and a further loss of 1,100 jobs. This haemorrhaging of the economy and work of the area cannot be allowed to continue.
§ The Parliamentary Under-Secretary of State for Wales (Mr. Mark Robinson)
I fully recognise and acknowledge the concern of the hon. Member for Carmarthen (Dr. Thomas) to ensure that the House is made fully aware of the problems facing grassland farmers in Wales and in Dyfed in particular, and the constructive thought that is being given to resolving their difficulties by the Dyfed coordinating committee and local union representatives.
The hon. Gentleman went into the difficulties of overproduction and the history behind today's problems. I do not share his view that the Government have been lackadaisical in their support for farmers. He will be the first to accept that the problems of overproduction and surpluses are difficulties that the Government have had to tackle. I remind him that when quotas were introduced the Labour party criticised the Government, saying that they were not doing enough to tackle the surplus problem.
I also welcome the recognition implied in the hon. Gentleman's remarks that changes have to take place in farming due to the immense forces of technological progress, surpluses and costs. I congratulate him, too, on his good fortune in securing an Adjournment debate on a day when the House has been up all night, and when there was a fixed time for its conclusion, thereby allowing him and me a few hours' sleep.
409 In opting to have a debate on this subject, I am sure that the hon. Gentleman shares my anxiety that there should be wide public discussion on the comprehensive and far-reaching measures recently announced by my right hon. Friends the Agriculture Ministers and the Secretary of State for the Environment.
Those proposals attempt to get to grips with the problems facing farmers and to tackle some of the problems that the hon. Gentleman illustrated. The initial announcement on 9 February, unfortunately, gave rise to much ill-founded and misleading criticism, particularly in relation to the guidance issued on the future planning regime for agricultural land. However, the package of documents issued on 10 March shows that these misgivings were misconceived.
The steps we have already taken and the new proposals we have announced contain provisions to encourage alternative use of farmland, increase diversity on farms and in the rural economy generally and to enhance environmental protection. These measures will help and encourage farmers to farm in a way which is sensitive to conservation and also provide an alternative source of income to offset the pressures to reduce agricultural surpluses. I am sure such policies are well in accord with the hon. Gentleman's arguments.
To reflect the present situation of commodity surpluses and facilitate diversification, the Government also intend to issue new guidance to local planning authorities in England and Wales for development involving agricultural land. My right hon. Friends the Secretaries of State for Wales and the Environment issued a draft circular for consultation last month. The new guidance stresses the need to consider the agricultural implications of proposals in conjunction wth environmental and wider economic aspects. Planning authorities will continue to use their power responsibly and the Department will retain the right to object to specific developments.
On 1 March this year we introduced the environmentally sensitive area scheme in the Cambrian mountains. This will enable farmers with land in the ESA — of whom there are more than 450 — with 300 in Dyfed—to enter into management agreements for the protection of semi-natural rough grazing, hay meadows, broadleaved woodland and archaeological features. We see this new concept—which, as a result of our initiatives, has now been adopted by the European Community to its socio structures package — as a valuable means of protecting some of our most beautiful landscapes without detriment to the well-being of the farmer.
It is now widely accepted that technological progress and the incentives provided under the CAP have created levels of production for many commodities which are far outstripping demand. The cost, of providing, storing and disposing of surpluses have mounted to unacceptable levels. At the same time CAP policies have also resulted in farming in this country and the rest of the Community becoming highly dependent on public financial support.
The annual review of agriculture White Paper published in January this year shows that expenditures, even excluding those on items such as research, animal disease, advice and education averaged £1.7 billion per annum in the five years to 1986–87. I believe that that is evidence of our support for the farming community. The published figures for planned expenditures also show the continued commitment of this Government to the agriculture industry.
410 The contribution made by grants and subsidies to grassland farming in Dyfed is amply demonstrated by the available figures. In 1985 and 1986, capital grants paid in Dyfed totalled £13.2 million out of which £2.4 million was for grassland improvements. In the 1985 marketing year, sheep annual premium amounted to £5.9 million and suckler cow premium payments in the 1985–86 scheme year totalled just over £500,000. Although figures for beef and sheep variable premium are not available on a county basis, it is evident from the amounts paid out in Wales as a whole that these are also important elements of support for the beef and sheep farmers of Dyfed.
In addition to these grants and subsidies, headage payments in the form of hill livestock compensatory allowances are also vital to many farmers in Dyfed, particularly since the extension in the less favoured areas which we secured in 1984. An additional 44 per cent. of the county was given LFA status then and 397,000 hectares or 81 per cent. of Dyfed is now in the LFA. In 1986 HLCAs paid to Dyfed farmers amounted to almost £6 million. These rates have in effect doubled since 1979.
Farming in Dyfed and elsewhere has also benefited from our success in curbing inflation. I am sure the recent fall in interest rates will also be welcome by all farmers. I note that the hon. Gentleman referred to the effect of high interest rates in his county.
Before dealing with specific aspects of milk quotas, it might be helpful if I remind the House about the scale and urgency of the problem. The hon. Gentleman discussed the problem of dealing with surplus stocks in Community intervention stores. Even with milk quotas in place, the Community has an extremely serious milk surplus — estimated by the Commission at 9.5 million tonnes or 9.5 per cent. even after allowing for the continuation of heavily subsidised exports as well as expensive disposal schemes on the Community market. If these were taken out, the surplus would be more than 20 per cent.
Last year the EC's funds were increased by 40 per cent. but this has already been spent and we are facing a prospective overspend in 1987 of some £2,500 million, almost entirely because of agriculture.
Half the total financial budget of the Community is spent on storage and disposal of surpluses which have to compete for a share of a diminishing world market. It is not only the EC's stores which are full and not only farmers in Europe who face the problem of vast overproduction. Faced with such stark facts, the choice was and is painfully simple—either spending on Community agriculture is controlled, or the Community heads for early bankruptcy, which would help nobody. The difficulties which that would produce are clear for all to see.
The CAP must be reformed to bring supply closer towards what available markets can absorb. This is, however, a long-term task requiring persistence and sensitivity. I am only too well aware of the long-term nature of much livestock production, and for many years we have argued long and hard in Brussels for reasonable price restraint as the method to bring milk and other surplus production back into line with demand. I still believe that this would have been the best solution for the milk industry but, sadly, our community partners were not willing to go down this road and, as a result quotas had to be introduced.
I know that there is a view in the industry that, because we are not fully self-sufficient in dairy production, quota 411 cuts are unfair, but the fact is that the United Kingdom makes a significant contribution to the milk surplus. The hon. Gentleman mentioned the problems of creameries in his constituency. We currently hold the second largest stocks in the Community of both butter and skimmed milk powder: In 1985, 46 per cent. of all butter made in the United Kingdom was sold into intervention. Moreover, in 1985 domestic production was equivalent to nearly 90 per cent. of butterfat consumption in the United Kingdom and 113 per cent. of solids-not-fat, the other main component of milk. In these circumstances, there is no justification for the United Kingdom not to share equally with other member states the burden of solving a common problem.
Faced with quotas cuts, some have argued for a reduction in imports from New Zealand, but there is no link between the special arrangements for the import of New Zealand butter and cheese and the quota system. I thought that I should take this opportunity to make that point.
Quota transfers have enabled individual farmers to make better use of their resources, but I am well aware of the concern about the sale of quota out of Wales. It is important to see this issue in perspective. The net movement is very small. During the period 1 April 1985 to 17 February 1987, the movement of quota in and out of Wales, as recorded by the milk marketing board, showed that overall Wales had a net loss of only 8.3 million litres, or 0.54 per cent. of the total quota allocated to holdings in Wales.
It would not be to our advantage to break our England and Wales quota into smaller, fixed, regional quotas. Most, if not all, other member states envy our being able to treat England and Wales as one single dairy, and we would be loth to lose that advantage. All transfers of quota are registered with the milk marketing board which maintains the quota register.
Action to reduce surplus stocks is taking place on three fronts—first, a reduction in output through the agreed cuts in quota; secondly, amendments to the intervention system to reduce it to its proper role of a safety net support for the market; and, finally, special stock disposal 412 measures. These disposal measures are designed to reduce intervention stocks of butter by 1 million tonnes over the next two years and will then considerably ease the financial burden which they have imposed on the Community budget.
On beef, the December settlement reduced the industry's wholly unrealistic dependence on intervention. This was the right decision. No one can defend 700,000 tonnes of good beef in cold stores. The effect on the United Kingdom will be much less than elsewhere. We succeeded in retaining the beef variable premium scheme for two years. That was a very considerable achievement.
As for sheep, I can understand the fears of sheep producers about milk producers switching to sheep production as an alternative form of income to offset quota cuts. I am aware that the industry is considering quotas on sheepmeat, and it is right that it should consider such possibilities, but the issues involved here are complicated and we are still a long way from self-sufficiency in this sector. The problems of quota are well known. They inhibit the enterprise and rational development of an industry, and the industry needs to be clear what it is proposing when it discusses this difficult issue.
As part of the December package, we also secured a hard-won devaluation in the green rate. We continue to keep the level of the green rate under review and are mindful of the disadvantages of the present large MCAs for our farmers and traders.
These are important and complex issues which the hon. Member has brought before the House. I hope that I have reassured him both of our commitment to reforming the CAP and to helping the industry adapt to the changes which farming must face if the CAP is to be put on a sounder long-term footing. The package of measures announced on 10 March and our continued vigilance to ensure that measures agreed in Brussels do not discriminate unfairly against our farmers will go a long way towards securing this objective.
§ Question put and agreed to.
§ Adjourned accordingly at twenty-nine minutes past Nine o'clock on Wednesday morning.