Common Agricultural Policy

HC Deb 24 November 1987 vol 123 cc190-229

7.2 pm

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

I beg to move, That this House takes note of European Community Documents Nos. 8250/87 on Common Agricultural Policy reform, 8761/87 and ADD 1 to ADD 4, and 9066/87, on implementation of agricultural stabilisers and 6116/1/87, on agricultural income aids; and endorses the Government's objective of securing effective control of Community agricultural expenditure which is in the interests of the farmers, the taxpayers and the consumer. Our debate concerns a number of European Commission documents on agriculture—in particular on wide-ranging changes proposed to the existing operation of the CAP to make it subject to much tighter budgetary discipline. The debate is timely because we are in the middle of crucial discussions on the paper that is the most immediately important—the one dealing with agricultural stabilisers.

I shall endeavour to walk a tightrope between giving the House as much information as I can on the state of the negotiations and avoiding talking for too long. I hope that all hon. Members will be able to raise all the points that they wish to raise. If I can catch your eye, Mr. Speaker, I intend to wind up the debate—first, to enable me to respond to hon. Members' contributions, as I am very much involved in the negotiations, and secondly because my right hon. Friend the Minister of State is still in Brussels.

Let me begin with the background. The exercise in which we are currently engaged was effectively launched in June when the European Council called for a review of adjustments already made to the common agricultural policy and for the identification of further measures needed to complete the process of reform, including measures to ensure that budgetary discipline is fully observed. The Commission's report, document 8250/87, entitled "Review of action taken to control the agricultural markets and outlook for the common agricultural policy", which is before the House, formed the first step in its response to that request.

The report covers four main issues. On the first, which is the review of reforms, the Commission notes that the process of reform is only one of the factors influencing farm incomes. It points out, too, that the present exercise is a continuation of reform rather than a beginning. It is important that the House should note that the savings from reforms since 1984 will have risen to a figure for 1987 of 6.6 billion ecu or £4.2 billion. If the measures starting with dairy quotas in 1984 and the other steps taken since —in particular, steps taken in various price reviews and in the Council on dairy and beef products last December—had not been taken, agricultural expenditure would have been even more severely out of control. That suggests that reforms work.

Mr. Teddy Taylor (Southend, East)

How much of that saving is the consequence of transfers of responsibility for spending from the Community to member states?

Mr. MacGregor

I shall endeavour to give my hon. Friend an answer at the end but, off the cuff, I should have thought that it was only a very small proportion.

Reforms are having their effect, but it remains true that guarantee expenditure has risen by more than 40 per cent.

in money terms in the same period. Therefore, although difficult measures have been taken, causing difficulties for our farmers and the farms elsewhere, guarantee expenditure continues to soar. While acknowledging that external factors such as the world market and the dollar can significantly influence budgetary expenditure, the Commission presses the firm need for further savings if we are to get proper budgetary discipline. Much remains to be done, and not just for budgetary reasons. If we do not take measures now, the risk is that agricultural expenditure next year will be £3 billion over the guideline.

The House and the farming community know that, in addition, there is the problem of surpluses. Unless we take action, the cereal surplus could reach over 100 million tonnes in a few years' time. Although butter stocks are decreasing, they still represent 223 days' supply throughout the Community and the figure for skimmed milk powder is 170 days. There are considerable problems with rapeseed, too, as production has increased by 65 per cent, this year alone, with large increases in support costs as a result.

On the second issue—the control of production and expenditure—the report notes the measures that have already been taken to reform the CAP, citing the introduction of milk quotas, restraint on prices of key commodities at recent reviews, the limitations on intervention buying, the introduction of guarantee thresholds in some sectors, and the application of co-responsibility levies, to which, of course, we were and remain opposed. These actions have had a marked effect on stock levels. For example, United Kingdom stocks of butter, although still high, have fallen by 20 per cent, in the past 12 months. Stocks of skimmed milk powder have fallen by as much as 85 per cent. The Commission outlines its plans for stabilisers in the various commodity sectors and I shall discuss the detailed proposals later.

On the third issue in the document—the preservation of the European pattern of agriculture and the outlook—the report acknowledges that account needs to be taken of the effects of CAP reform on the rural environment. That is becoming increasingly important and I am glad to say that the United Kingdom has been playing a leading role in persuading the Community and Council of Agriculture Ministers to recognise that CAP reform needs to be carried out in environmentally friendly ways and accompanied by measures to help farmers to adapt to the necessary changes. I recall that, as Minister of State, I took part in one of our first debates on the environment and agriculture when we were taking the lead in pushing the concept of what are now known as environmentally sensitive areas. That is increasingly a part of our discussions.

In addition, as the House knows, the Government are taking a range of actions along the lines set out in the documents on farming and rural enterprise published in the spring. We are following up those actions now in the Farmland and Rural Development Bill, the diversification scheme and in the further tranche of environmentally sensitive areas, the terms and conditions applying to which I hope to announce shortly. As a further example, the United Kingdom has been pressing for an additional study by the Commission on the utilisation of agricultural land—one of the key decisions that we succeeded in achieving in the price review earlier this year. There has been a great deal of discussion in the Council during the past few days on set-aside, to which I shall return.

Another issue covered in document 8250 is external relations. As hon. Members will be aware, a new round of multilateral trade negotiations is now under way in the GATT—the Uruguay round—and agriculture will be one of the key issues in those negotiations. As promised in document 8250, the Commission subsequently submitted an outline of the approach that it wishes to pursue in the GATT round.

Member states have, with inevitable differences of emphasis, endorsed the overall approach and the paper has been tabled in Geneva. It is not a mandate from the Council but a broad indication of approach, and we took the view, as did others, that it was important that the Community should have something on the table early for discussion in the GATT round. Although this is not the time to dwell on the detail of that approach, I underline the fact that it contains a clear commitment to reducing the level of support for agriculture. In the United Kingdom we broadly favour that approach. We will have reservations on details, but the approach will allow much greater play of market forces and will encourage the development of more rational policies for agriculture worldwide.

Document 9066/87 includes a rather detailed proposal to implement the agreement at this year's price-fixing to include Clementines and satsumas within the intervention system with guaranteed thresholds. The proposal would also include nectarines within the intervention system and it will establish a guaranteed threshold for mandarins, which are already covered by intervention arrangements. Broad agreement has already been reached on those proposals, subject, of course, to clearance by the House.

I wish to say a word about the present state of negotiations. As the House knows, in June the European Council gave a mandate to the Agriculture Council to draw up proposals on agricultural stabilisers, designed to ensure proper budgetary disciplines for introduction into the various commodity regimes. The starting point is document 8761. We have made it clear throughout—the Prime Minister has constantly stressed this—that we would be prepared to consider measures for the future financing of the Community only if an effective set of stabilisers could be agreed to prevent the continual overruns in agricultural spending.

Mr. David Heathcoat-Amory (Wells)

Has my right hon. Friend seen the latest news sheet from the European Democratic group, of which the Conservative party is a member? It was published and sent out by Central Office and asserts in an unqualified way on page three that the VAT limit will rise to 1.6 per cent, in 1988. Will my right hon. Friend tell us whether the Conservative group in Europe knows something that we do not, or are the British Government still committed to 1.4 per cent, for the foreseeable future?

Mr. MacGregor

That is not a matter for me, but I think that I have made the position clear. At the forthcoming European summit, we will be prepared to consider measures for future financing only if we can achieve some of the other matters we have mentioned, including effective control over stabilisers.

Following earlier discussions, Agriculture Ministers met again on Monday last week with the aim of completing our discussions on the Commission paper on stabilisers and reaching decisions to be put to the European summit at the beginning of December. After several rounds of discussions on the key issues and on the proposals for all the individual commodities, we adjourned around Wednesday lunchtime. While I recognised that some Ministers had inescapable commitments—I had plenty myself—during the the rest of the week, I was very critical of the decision not to return to Brussels until yesterday morning, because it seemed to me that this simply did not give us enough time to resolve our differences, and so it proved. I believe that we should have worked through the weekend at least.

On the basis of a presidency paper, we met almost continuously from yesterday morning until 7 am today, but failed to reach agreement. A report to that effect was put to the Foreign Affairs Council this morning by the Danish President, and Agriculture Ministers were given one last chance to see whether we could reach agreement. That discussion was resumed this afternoon and has been going on since. I felt it right to come back and report to the House so my right hon. Friend the Minister of State has stayed behind to continue the negotiations from our point of view. I heard a short while ago that those talks have broken up without any further progress and we will be resuming tomorrow evening, following a programme of work to be drawn up by a high level group tomorrow morning. I shall be returning tomorrow, and that is why this debate is so timely.

We have approached the discussions throughout in a constructive spirit, keen to reach conclusions. The talks have been detailed and we have certainly made some progress. However, there are still substantial disagreements and gaps. We continue to seek a successful outcome.

Mr. Geraint Howells (Ceredigion and Pembroke, North)

Is the Minister in a position to tell the House which countries are not willing to toe the line?

Mr. MacGregor

We are dealing with some complex matters and there are difficulties for some member states. There are items in the proposals that we do not like. Therefore, I do not wish to cast aspersions on individual member states. The talks are difficult and it is important for the future of the Community that we do everything we can to reach a conclusion, and that is what we are endeavouring to do.

In document 8250 the Commission urges the Council to adopt the package of proposals that it put forward in April on income aids. The aim of the system, as the Commission saw it, was to help those economically and structurally weaker farmers who would otherwise be unable to cope with the pressures put on them by the reform of CAP market regimes. The proposals consist of a part-European Community funded scheme, a nationally funded scheme and a scheme for paying farmers over 55 years of age to give up farming. In our view those proposals are not the best way to provide complementary measures to price restraint, not least because they are at best production-neutral, and there are other criticisms of them. They do not focus on the need to get some land out of production. They have been criticised from all parts of the Council for different reasons. It is now clear that the focus on appropriate complementary measures is moving towards set-aside.

I have made it clear for some time that, given the cereals surpluses, the potential for further increased production, and the impracticability of achieving a reduction in price support sufficient to deal with that problem, complementary measures are necessary. I believe that a set-aside scheme, if we can devise an effective one that can apply across the Community, would be the best option. It would assist with the income pressures on farmers, particularly in marginal cereal areas, and it could have valuable and favourable environmental effects. The United Kingdom took the lead in getting this concept on to the Community agenda. The main focus of Community negotiations in respect of complementary measures in the cereal sector is now on set aside. We have had lengthy discussions, particularly during the past 10 days. As yet, there are no conclusions, so it is not possible to predict the outcome.

However, several important points are emerging. First, the Commission has not yet agreed a set-aside proposal, but it is actively discussing the matter. Secondly, it is likely that, with varying degrees of enthusiasm and interest, the Council of Ministers will decide in principle that a set-aside scheme should be drawn up for implementation in the coming year alongside proposals for cereals stabilisers.

In a sense, we are already committed to producing a set-aside scheme. Under the extensification proposals—another example of Community jargon—agreed earlier this year, every member State must produce a scheme for implementation by 1 April 1988, in the cereal sector, to provide payments for farmers who agree to set aside 20 per cent, of their land for cereals production. I have put a great deal of work into this, with a view to producing a consultative document for the possible United Kingdom scheme, which I had intended to publish next month. We shall have to see what progress is made in these wider set-aside discussions in the next few days, as they may affect this extensification scheme. It is important to draw a distinction between an extensification scheme for cereals, which is limited as I have described, and wider set-aside.

Thirdly, there is still a great uncertainty about the precise elements of a set-aside scheme. Some principles have been put before us in the president's paper which we have been discussing this week and I am concerned that they should not commit us to details which, as the scheme is worked out over the months ahead, we might wish to reject.

However, two points seem to be generally agreed. First, the set-aside scheme would be a complementary measure to the stabiliser proposals and not a substitute for it. That is a point on which we have insisted. Secondly, although it will be compulsory for member states, it will be optional for farmers.

One major development is that the new measures are intended to apply to all arable land. I have made it clear that this must be confined to land which is currently down to crops supported by Community subsidies. It will be crucial to have strong control arrangements to avoid abuse and to ensure that production is not increased elsewhere on the farm.

For the sake of completeness, I must tell the House that we are still considering one of the income aids to deal with early retirement of farmers. That is included in the package. I have made it clear that such a measure should go ahead only when the land comes out of agricultural production. In the original income aid proposals, there were other early retirement schemes for farmers which did not contain that condition.

Mr. Ralph Howell (Norfolk, North)

I am interested to hear that so much serious discussion has taken place about set-aside, but will the Minister tell us whether the idea of a general set-aside has been fully explored? I find it difficult to see how it could be applied only to arable lands. I cannot agree that set-aside and stabilisers are complementary. If we set aside agricultural land, incomes to farmers throughout Europe will decrease and, therefore, producer prices will have to rise. Stabilisers would do exactly the opposite, so they are not complementary.

Mr. MacGregor

On the first point that my hon. Friend raises, I know exactly what he has in mind—the difficult problem which I think will increasingly exercise our minds about the impact on other areas as there is pressure to reduce production in some sectors. As I have just said, this is a point that we shall think about a great deal more over the next 10 years, but the answer is that at present it is not being discussed in the Council because, as I am sure my hon. Friend will recognise, to start having detailed discussions on set-aside for all arable land is a major advance compared with where we were a short time ago. We will have to move in that way.

I also thought it right to report to the House in detail on set-aside because it is an interesting development in the Community. I must repeat that we are still at an early stage and no decision has been taken. I cannot yet say in what shape, when or whether a set-aside scheme will come forward.

On the second point that my hon. Friend made, again I understand why he puts it forward, but he must see that the immediate and urgent need is to contain agricultural expenditure and the explosive growth, for a reason that I will come to. I do not think that set-aside will achieve that quickly enough. So we need stabilisers, for the reasons that I am about to give. On the other hand, I believe that we need this complementary measure. That is why we are working it up to deal with the problems that farmers face as there is downward pressure on incomes and production.

The Community document deals with stabilisers in particular and sets down the specific measures for their introduction into the various commodity regimes. I hope that it will be for the convenience of the House if I go through only the most important items, listing briefly the proposal and in each case the United Kingdom position. First I must say what our objectives are on stabilisers. It remains our firm objective in these negotiations that we should secure effective stabilisers. They are in the common interest of farmers, consumers and taxpayers. That means that they must be specific, workable and legally binding, they must apply to the full range of products, they must be fair and non-discriminatory, they must deal with the problems of surpluses and they must bring about greater budgetary discipline.

First, on cereals, despite a number of harvests of less than average size—we are all aware of the problems in many parts of the country on the harvest this year— Community stocks of cereals are still very substantial. About three quarters of the total support expenditure on cereals of about 3.7 billion ecu is spent on export refunds to enable sales on to the world market.

The proposals provide for the introduction of a maximum guaranteed quantity for cereals which, if exceeded, would trigger corrective measures. Under the Commission proposals—the presidency is suggesting some variations—these would involve one or a combination of a price reduction, an increase in co-responsibility levy and a reduction in the intervention period. In the first year, the adjustment to prices and co-responsibility levy would be limited to 5 per cent, and thereafter in second and third years to 7.5 per cent. Both the Commission and the presidency are proposing a figure of 155 million tonnes for the maximum guaranteed quantity for 1988–89.

We are concerned that the limits on the extent to which prices are to be cut when there is over-production are too restrictive, particularly in relation to the limit in the third year. I say clearly that we are also opposed to the use of the co-responsibility levy as one of the corrective measures, but the problem—I must be honest with the House—is that we are very much in a minority in our opposition.

I have already drawn the attention of the House to the fact that production of rapeseed is up 65 per cent, this year. The Commission is putting forward a formula that, if production goes on rising at anything like that extent, would involve significant cuts in price support. There is considerable opposition amongst some member states, but that formula, or something very like it, is essential to effective expenditure stabilisation in this sector, given the current dramatic explosion of production. Even if the new Commission proposal were to be accepted, the support expenditure—the taxpayers' contribution—to the total oilseed sector next year would be 1.9 billion ecu, which is a very substantial advance on where it has been in recent years.

Still on oilseeds, there has been much less discussion of the oils and fats tax in recent days. Our opposition to that proposal remains firm.

For sugar, the Commission proposes the retention of the present arrangements, in particular the continuation of the special elimination levy which is designed to recoup the cost of surplus disposal on an annual basis. There is still a major dispute about where the levy should fall, with a number of member states wishing to see much more of it on A-quota sugar. We believe that the additional levy for recouping the cost of surplus should fall on the B quota. That is right, because the levy should fall on the countries and producers that are responsible for the surpluses. By and large, that is reflected in the B quota. So we have been strongly opposed to those who argue that it should be put on the A quota. I am pleased that so far we have got the Commission and the presidency both in line with our point of view.

On sheep, the documents before the House include both stabiliser proposals and the Commission's review of the regime. We are discussing only the former—stabilisers— in the Council at the moment, so I shall confine myself to them. The proposal is for the establishment of maximum guaranteed levels with proportionate reductions in price support taking effect if the flock size of ewes exceeds the 1987 level. I have been strongly opposed to two aspects of the proposals in this sector. First, the Commission and the presidency are proposing one mechanism for Great Britain and a different one for the rest of the Community. That is clear discrimination and is the only example of it in all the stabiliser measures. I have made it clear on many occasions that it is intolerable.

Secondly, the Commission has again proposed to limit eligibility for premium to the first 500 ewes on each farm or a headage limit of 1,000 in the less-favoured areas. I have strongly opposed that, too. I am glad to say that, after many prolonged discussions we are now making headway in getting the Commission and presidency to accept that the proposal is not appropriate in a stabiliser mechanism. I was asked earlier what was causing some of the difficulties. There is a clear difficulty for us.

On milk, as everyone knows, we have had quotas since 1984, and the proposals include both stabiliser elements and a review of milk quotas. The Commission proposes the extension of quotas to 1991, the presidency to 1992, with continuing, but reducing, compensation. In common with the Netherlands, we believe that there should be further restrictions on the compensation measures beyond what the Commission and the presidency are proposing, not least because of the costs, and also because I think that it is a dangerous principle to suggest that farmers should be compensated regularly or continually for having to respond to the disciplines of the market that affect other economic activities.

There are two points not directly related to stabilisers on milk to which I should like to refer because, going round the country, I have found that there is a great deal of interest in them among farmers. The first is the proposal in the documents to have a change in the quota year for milk so that it would end in the August-September period. We have been very much opposed to that, because we think that it would have a very dangerous effect. It would mean that if people were running above their quotas in the trough there would be a further downward pressure on milk production. Therefore, at a time of the year when there is sometimes difficulty in milk supply and distribution, we would run the risk of reinforcing it. I am glad to say that it looks as though that is now coming out of the proposal.

Also, there was a proposal for compulsory national reserves of quota, which is also controversial among farmers and not really supported. Again, it looks as though that will disappear.

There are very major discussions going on on stabiliser proposals for wine and tobacco. In view of the time, I will not go into those in detail. They do not affect our producers; they are important to us as taxpayers, but not as consumers. We are talking about tobacco that nobody in this country smokes, and wine that nobody drinks, but they are important matters to us as taxpayers and therefore they are an important element of this discussion.

Finally, there are still a number of products, mainly Mediterranean products, where the proposals do not seem to us to be effective enough or where they lack precise figures or, indeed, where there are no proposals at all. I refer in particular to olive oil, cotton and rice. We remain of the view that there should be effective stabilisers across the board.

I have, of course, had to leave out a number of commodities because of the time factor, but I hope that I have covered the most essential ones. I would, of course, be happy to deal with any of the others if my hon. Friends or Opposition Members wish me to do so and if I am fortunate enough to catch your eye, Madam Deputy Speaker, towards the end of the debate.

I conclude with my remarks on stabilisers because they are at the heart of the debate. Everyone recognises that the current level of surpluses cannot be sustained, not least in the context of world surpluses. Everyone recognises the costs to the taxpayer—I remind the House of the figure. We are currently spending in the Community £12.5 billion a year simply on the storage and disposal of surpluses. That cost to the taxpayer is a gross misuse of resources and does not benefit the consumer.

Everyone subscribes to the view that we need now to make a reality of our rhetoric about stabilising agricultural subsidies. All Ministers know in their hearts that we must correct this continued weakness of the CAP to ensure its future health. The Agriculture Council was asked by the last European Council meeting to take the additional measures necessary to keep the level of agricultural expenditure within the budget framework. It also stated that these measures must ensure that budgetary discipline is fully observed. To settle for sham stabilisers now would help no one. They certainly would not turn the key to success at the Copenhagan summit, which is very much in the interest of the whole Community.

It is important for our farmers, above all, that the stabilisers that we agree to fulfil the mandate that the European Council gave us. I feel strongly that it is not in our farmers' interests for the present uncertainty to continue. It is not in our farmers' interests for us to run the risk of having to take much tougher and unpredictable decisions months and years from now, if the budget blows apart and the money is not there any more because we did not get greater budgetary disciplines into the CAP quickly enough. That is why I ask the House to support the motion and to endorse the Government's objective of securing more effective control now of agricultural expenditure. We do so because, in the concluding words of the motion, it "is in the interests of the farmer, the taxpayer and the consumer."

Madam Deputy Speaker (Miss Betty Boothroyd)

I should draw the attention of the House to the fact that Mr. Speaker has selected the amendment in the name of the Leader of the Opposition.

7.37 pm

Dr. David Clark (South Shields)

I beg to move, to leave out from 'aids' to the end of the Question and to add instead thereof: 'believes that the current expenditure on the Common Agricultural Policy which is currently costing the average household of four persons £ 11.50 per week is unsupportable; and accepts the concept of meaningful stabilisers as an interim measure to enable the Council of Ministers to work out a suitable means to reduce surpluses and to devise a lasting and rational agricultural policy for the European Community'. I speak for the whole House when I thank the Minister for taking the trouble to fly from Brussels to brief us on this important issue. I know that I also speak for the House when I say that we doubly appreciate the fact that the Minister has been up all night and has a lot of work still to do.

From his report this evening, it appears that the right hon. Gentleman stood firm, and certainly as long as he stands firm, he will have the support of Opposition Members. I hope that that will give him reassurance and support when he goes back to conclude negotiations on behalf of the farmers, the consumers and the taxpayers of Britain.

Even to the uninitiated, the common agricultural policy is a farce. To those of us who follow the detailed machinations of the CAP, it is a ludicrous and highly expensive farce, and what is more, it is grossly unfair. The documents that we are debating and that the Minister has discussed with his fellow Agriculture Ministers offer the best opportunity for the EEC to remove this farce once and for all and to replace it with a meaningful and sensible system of agriculture.

Before I go into the precise details of the documents that we are discussing, which are extremely wide-ranging, perhaps it would be helpful to remind ourselves of the cost of the agriculture policy, not only for the United Kingdom, but for Europe as a whole. Only when the true cost of the CAP is realised by the general public will demands for reform become unstoppable.

This year, the total cost of the CAP is a staggering £17.2 billion. I understand that it is proposed that that should be increased, unless we are successful in our reforms, to about £20 billion in the coming year. As we state in our amendment, the cost of the CAP to the average household of four persons in the United Kingdom is £11.50 per week. That is made up of £8.25 on the family food bill and £3.25 in tax. Calculated in another way, that means that, for every man, woman and child in the United Kingdom, we pay £149.50 per year in agricultural support.

Of course, the cost of the common agricultural policy is borne not only by this country but by other member countries, although not to the same extent because it must be remembered that we pay 40 per cent, of the net cost of the CAP. Indeed, it was recently pointed out in Germany that every dairy cow costs the Community £480 in subsidy.

Every person in the Community pays £34 per year for the disposal of surplus food. The overwhelming tragedy is that so much of what we produce is unwanted and unsold. As the Minister rightly said, we currently spend £12 billion on the storing and disposal of surplus food. That is two thirds of the total EEC agriculture budget and, staggeringly, half of the overall EEC budget. Those are not my figures, but the Government's and were put forward recently by the Foreign Secretary in a powerful address in Bonn. There is no dispute in the House about the cost of the CAP.

The fact that we spend so much on surpluses, storage and disposal means that nowadays farmers are not the sole beneficiaries of the CAP. The main gainers are those who run the intervention stores and arrange for the disposal of surpluses. We maintain that that is ridiculous. To make matters worse, we not only pay through the nose to produce the surpluses but then threaten to wreck the economies of many Third world agriculture producers by dumping our surpluses on the world market. We believe that that is unsustainable.

To go further, many of us find it ironic that we in the West pay large sums of money to support the CAP to ensure that any territorial ambitions of Warsaw pact countries are dissuaded, but at the same time we sustain their populations by selling them our surplus agricultural produce at knockdown prices. Last year, the European Commission sold more than 7 million tonnes of cereals to the Soviet Union at subsidised prices of £30 to £40 per tonne, whereas the intervention price for wheat in the United Kingdom in 1986–87 was £112. Similarly, European consumers paid more than £1 per pound for butter but the Soviets ate the same butter for 38p per pound. Therefore, we are not only providing Soviet citizens with bread, but are giving them the butter to put on it. That is completely ridiculous.

The CAP has been a failure in another sense. One prime objective of the treaty of Rome was to retain employment in agriculture and in rural areas, but it has manifestly failed to do so. In the 25 years since 1960, agricultural employment in the nine longest-standing EEC member countries fell from 17 million to 7 million. In Britain alone, last year 13,000 jobs were lost in rural areas, mainly in agriculture. That is a terrible price to pay, but the position could be even more serious than that.

A recent study of the wider effects of the common agricultural policy by the Bureau of Agricultural Economics and the Centre of International Economics at Canberra suggested that 1 million jobs have been lost in other sectors of the European economy because of the common agricultural policy. In Britain alone, academics estimate that 450 jobs have been lost as a result of the CAP.

It is claimed that, overall, the CAP has reduced Britain's manufacturing output by 2.5 per cent., its services output by 3.1 per cent, and the total real income of the citizens of this country by 0.6 per cent. In essence, the experts are arguing that the removal of that £11.50 per week from each family budget reduces the opportunity cost of purchasing services and manufactured goods and, in turn, causes job losses. Furthermore, the £7 billion, which is the full cost to Britain of the CAP each year, has been diverted from more promising investment in manufacturing and servicing, thus adding to the job losses that I have already outlined.

I hope that the facts that I have given the House this evening show why the Labour party believes in the need for a fundamentally different approach to agriculture in the Common Market. It is reassuring that, at long last, our criticisms of the CAP have been recognised, not only by the Government but by increasing numbers of people in Europe. I only hope that those people, to whom the Minister rightly referred, are sincere in their realisation of what is achievable, because in Strasbourg last week I experienced fine rhetoric but little real determination to tackle the problems when national interests are at stake.

However, at least proposals are now before the Commission and the Council of Ministers which, however inadequate, state that something is fundamentally wrong and recognise that a change of direction is needed. As the Minister quite fairly elaborated, the chosen means that the Commission, and apparently the majority of member Governments, favour for tackling the problem is that of stabilisers. However, stabilisers are just another piece of European jargon which confuse the poor taxpayer. In essence, they are merely a mechanism that is designed automatically to reduce prices to farmers when production exceeds a certain level. In other words, they would in theory put a cap on agricultural expenditure.

It seems to us that that objective is correct. If stabilisers are not only a real mechanism to reduce the surpluses that are already in store, but also a meaningful way to reduce the production that has led to those surpluses, they have the support of the Labour party. However, many of us are still sceptical, and suspect that some of the Minister's European colleagues still regard stabilisers as merely cosmetic, to make the CAP more attractive to the consumer. There is a basic difference of approach, and we cannot accept the approach of those who argue for stabilisers as cosmetics. As the Minister stated, they must be real and effective.

I would be grateful if the Minister could give us some further information regarding the Government's position on stabilisers. On 13 November, in an article in Farmers Weekly, the Minister said that, although he had some particular difficulties with some aspects of stabilisers, he supported their approach and believed that they meant a better chance of stability. In essence, he has repeated that sentiment today. Such sentiments were expressed by the Foreign Secretary in Bonn when he said in praise of the new proposals: quotas have enabled milk producers to plan their production. Stabilisers for other commodities, adapted for each production regime will do the same. The Government appear to have faith in stabilisers.

However, we were all a little disconcerted—I was rather surprised that the Minister did not dwell on it— that the Prime Minister appears to have a novel idea. In the Financial Times on 23 November, she is reported as saying that she can support the system of stabilisers only if they are adopted in an enforceable way. Those sentiments have the support of the Labour Party. Her favoured scheme—we are led to believe that she put it to Mr. Chirac on 22 November—is what she calls the "clean slate approach". She described this approach very precisely: Each of you agrees on your national budget to take and accept the responsibility of a clean slate. Each of you writes down what we have got and takes responsibility for disposing of it without the writing down or costs of the disposal coming on to the CAP. When the Minister replies, I hope that he will mention that complementary approach—that is how I see it—to stabilisers. The general theoretical approach adopted by the Prime Minister has merit in that it is a step towards the repatriation of a certain amount of agricultural responsibility to member nations. That has long been argued by the Labour Party and repeatedly advocated by my hon. Friend the Member for Pontypridd (Mr. John), my predecessor as Labour's agricultural spokesman.

The Prime Minister's proposals raise many issues that need to be answered. I wonder whether the Minister can tell us how his fellow Agriculture Ministers have reacted. Were any nations prepared to support us and, if so, which ones? I wonder whether the Minister can advise us what the total cost of the clean slate scheme would be to the United Kingdom. I understand that, globally within the EEC, the cost would be something between £4 billion and £5 billion. I would be interested to know how the Prime Minister costed the clean slate approach for Britain. I am certain that, as a result of the thoroughness with which the Prime Minister goes into these schemes, she knows the precise cost to Britain. It would be extemely helpful to the House to know the details of that particular scheme.

How does the Prime Minister envisage each nation disposing of its surplus stocks? Does the Prime Minister appreciate there would be deep resentment on Opposition Benches and, I trust, on Conservative Benches, if stocks were simply dumped on the Third world. We have wreaked enough havoc in their economies. There are all sorts of difficulties and I would be grateful if the Minister could help by explaining some of the Prime Minister's novel approaches to solving some of the problems.

I am prepared to give conditional support to stabilisers as long as they are effective, but primarily we recognise them as a budgetary device. In practical farming terms, stabilisers have at least two major shortcomings. First, we know that farmers need to plan ahead. I believe that the present proposals for stabilisers would not persuade many farmers to cut production in the short term. Indeed, it would be nearly impossible for them to do so, because much of the seed for the coming year is already in the ground. Secondly, my fear is that the reaction of many farmers will simply be to increase production, to reduce their unit costs and to maximise their income. That is a particular problem in cereal farming—the Minister paid much attention to that problem.

Therefore, the Labour Party firmly believes that stabilisers are not the panacea for the CAP, but can only be part of an armoury of weapons to attack the problem of over-production and accompanying surpluses.

Mrs. Margaret Ewing (Moray)

It has been generally agreed by many farmers that the quota system has been beneficial. Does the hon. Gentleman agree that there is a third disadvantage with the stabiliser system regarding farmers in the less-favoured areas? The application of across-the-board stabilisers would be disadvantageous to those farmers' interests. Does he agree that there is a case for looking at a variable application of a quota system within the EEC?

Dr. Clark

The hon. Member has raised a pertinent issue regarding income support for farmers in the upland areas and I shall consider that important matter later in my speech.

Let us consider a number of the proposals. We appreciate that sugar is perhaps one of the most sensitive regimes in the EEC. The Community is a massive over-producer of sugar, and we have a major impact on the world market. Furthermore, the Opposition—I must get this on record—are extremely conscious of our commitment to the developing nations and our agreement with the African, Caribbean and Pacific countries. Therefore, the Labour Party broadly supports the proposals to retain the current sugarbeet quotas in the United Kingdom and trust that the Government will ensure that the margins for the sugar cane refiners are sufficient for them to handle the ACP production. We believe that that is extremely important for both branches of sugar production.

Milk is an agricultural regime in which there has already been a serious attempt to tackle over-production, and with some success. We were extremely critical—I believe rightly so—of the way in which quotas were initially administered, but basically we support the concept. The manner in which the quota system has been applied on a national basis makes sense in Britain, where the Milk Marketing Board has an effective distribution network. However, we are aware that serious difficulties have occurred in the uniform supply of milk, with the result that various creameries and cheese-making plants have been forced to close.

Only this week, the Dairy Crest creamery in the constituency of my hon. Friend the Member for Carlisle (Mr. Martlew) had to stop production temporarily. My hon. Friend the Member for Cunninghame, North (Mr. Wilson) has, on a number of occasions, drawn the attention of the House and myself to the position of the cheese-making plant on the Isle of Arran. I do not need to spell out the irony of the difficulties experienced in Caerphilly regarding cheese making. However, I understand that cheese production is now going ahead in Caerphilly.

I believe that it should be possible for the Milk Marketing Board, the National Farmers Union, the producers and the Ministry to get together to solve that particular problem. It is absolutely ludicrous that jobs are lost in areas where, often, there are no alternative jobs and milk is available. I urge the Minister to pay particular attention to the matter and try to do something to solve it—it may be solved even within the present regime. We support the present regime for milk quotas. We go further, because we believe that it should be extended for a further five years so that confidence can be built up in the dairy market and so that farmers can plan accordingly. We believe that that is a sensible approach.

Although we have endorsed milk quotas, we cannot, in any way, endorse the stabiliser proposal for sheepmeat. Indeed, the stabiliser proposal that causes us most concern is that for sheepmeat. We are conscious of the fact that sheep farming takes place on the lowlands as well as the uplands. We are also conscious that any set-aside scheme that would have the effect of moving sheep from the uplands to the lowlands would cause serious difficulties. I know that the Minister is aware of that and I hope he will take cognisance of it.

We are especially concerned about the upland areas, to which the hon. Member for Moray (Mrs. Ewing) rightly drew my attention. The upland farmers have benefited least from the common agricultural policy, and it is imperative that they are not penalised further. A recent letter in Farmers Weekly pointed out that some uplands farmers are on family income supplement, and that was confirmed in the answer to a parliamentary question that I tabled the other day.

We must ensure that the farmers who have done least well, and who often perform a very effective job for us, are not penalised. It should also be taken into account that many of the areas that they farm are greatly valued for their scenic and wildlife attractions, which they play a vital role in maintaining. I hope that the Minister will not completely rule out the notion of direct income support, although I note what he said, and I realise that he is in a negotiating position.

Let me return to the subject of sheepmeat, in which neither the United Kingdom nor the European Community is self-sufficient. We feel strongly that the attempt by British farmers, in particular, to meet the market requirements should not be penalised. The Minister has clearly said that there is straightforward, open discrimination against British sheep farmers in the stabiliser proposals. That discrimination must be resisted. I understand that, if stabilisers were applied, a reduction of roughly 7 per cent, in the income of sheep farmers would be required. The variable premium has allowed British farmers to produce lamb that has reached the market at high quality, and minimised the fluctuation of supply. That should be supported, rather than being phased out.

It is widely recognised on both sides of the House that cereal farmers, especially those farming extensively in eastern England, have been the principal beneficiaries of the common agricultural policy. They have also been the main destroyers of our countryside. It is they who have grubbed up the hedgerows, and who are applying the nitrogenised fertilisers which are storing up an environmental time bomb for the future. We can support, as an interim measure, the Commission's proposal for a production ceiling of 155 million tonnes throughout Europe. However, we are sceptical about the effect of any stabilisers in that sphere.

It is all too easy for farmers simply to maximise production, and thus maintain their profits in spite of the lower overall unit support. We appreciate that the large cereal farmers have had to capitalise very heavily, and we realise the pressures on them to follow that course. But we feel that there should be additional limits in the regime, certainly positive set-aside and probably compulsory; indeed, quotas may be necessary. As the Minister has pointed out, rapeseed production this year has increased by about 70 per cent, throughout Europe, in spite of considerable price reductions offered to the growers. That emphasises, if not proves, my point.

Can the Minister tell the House whether the global sum of 155 million, 160 million or 165 million tonnes will be broken down into national allocations? If not, what account has been taken of the variations in weather conditions between different nations? Weather conditions are often critical to the harvesting, as well as the growing, of cereal. For example, in 1986 a drought caused considerable difficulties in Spain, while we in northern Europe were able to produce a fairly good harvest.

I was pleased to hear the Minister say that there has been no real suggestion that the oil and fats tax will be introduced, and that the Government are opposed to it. The Labour party is utterly opposed to such an approach, and will support the Government in their opposition. As I am sure the Minister appreciates, the tax would put up the price of some margarines by nearly 60 per cent., and penalise the less well off members of our society. It would also be an added deterrent to those who are attempting to follow a more healthy diet.

Mr. MacGregor

For the sake of clarity, let me explain that, while we are absolutely opposed to the oil and fats tax, I did not say that it was being permanently excluded from the discussions. I said that it had not featured much in them recently. The proposal is still firmly established in the case of many other member states, although we remain opposed to it.

Dr. Clark

I thank the Minister for clarifying that point. I hope that he will return to fight the battle in the knowledge that he has the full support of every Opposition Member in opposing this particularly pernicious proposal.

Another document that we are discussing this evening deals with income aids, pre-pensions and the cessation of farming. This is an important aspect of the proposals for tackling agricultural problems in the years ahead. While I appreciate that these proposals are at an early stage of negotiation within the Commission, I wonder whether the Minister could deal with one or two points that arise from them.

I question the very concept of the proposals for the cessation of farming, as applied to Britain. Surely the objective should be to remove land from cultivation, and thus reduce surpluses, rather than removing farmers and farm workers from the population. Those of us who appreciate the beauty of the British countryside realise that much of it is the result of the work of farmers over many generations. We do not believe in a denuded countryside; we believe in a living countryside.

In some of the most scenic areas, we need the farmer working the land to retain the beauty and character that we appreciate so much, as well as retaining the viable rural communities with their schools, public transport and cottage hospitals. We reject the idea of encouraging people to leave the land. That problem may have to be faced where there are very small units of production, but it is not a problem for us in the United Kingdom, and I hope that the Minister will not show much enthusiasm for such an approach.

If, however, an EC-wide scheme is agreed, will the Minister give the House a categorical assurance that not only farmers will be the beneficiaries, and that it will be remembered that agricultural workers may lose their jobs as well? They have been forgotten so often in the past. The Commission's proposals specifically mention that the cessation of farming is permissible, and I hope that the Minister will press the issue if he is forced to follow that route.

The Minister mentioned the environmentally sensitive areas scheme: indeed, he claimed that he was present when the notion was discussed here. I believe that it was originally discussed early in 1985, when we were discussing the Private Member's Bill that became the Wildlife and Countryside (Amendment) Act 1985, when we accepted the concept of paying farmers to farm in an environmentally sensitive manner, as is right and proper. We believe that there is considerable scope for not only increasing the number of ESAs, but also extending the concept to devise new and varied ways of supporting farmers who are prepared to follow low-imput farming practices. That would have the dual benefit of reducing production and making farming less harmful to the environment.

The idea can be extended further. Has the Minister considered the possibility of taking land out of production for longer than he is suggesting, to allow for the creation of new wildlife habitats and recreational areas? Bearing in mind the decimation that our countryside has suffered over the past 40 years from intensive agricultural practices, with a shift towards extensification, we now have a tremendous opportunity for redressing the balance between producing food on the one hand and farming in a more environmentally acceptable manner on the other.

The Agriculture Act 1986 requires the Minister of Agriculture, Fisheries and Food to…endeavour to achieve a reasonable balance between the …maintenance of a stable and efficient agricultural industry; the economic and social interests of rural areas; the conservation and enhancement of the …countryside…and the promotion of the enjoyment of the countryside by the public. That is enshrined in statute and I hope that the Minister will take all that into account when he is devising his set-aside scheme.

We note that the Commission is devising a set-aside scheme which, as I understand it, is rather separate from the specific Government proposal on cereal set-aside. Would that effect the Government's proposal under their farm woodlands scheme, which is currently in another place?

The key to a set-aside plan is rather different from the Government's view. The Government seem to be following the path of a voluntary scheme and the Opposition are sceptical about the effectiveness of that voluntary approach. We are more inclined to the NFU's view that, for the scheme to be effective, it must be compulsory.

As I have said, the Community now has a tremendous opportunity fundamentally to reform the CAP. For too long, the interests of the consumer have been ignored, although the consumer has paid heavily for the CAP. Michel Jacquot, the agricultural adviser to the President of the EC, recently said: European consumers must make their contribution to the support of the European producers. The Opposition believe that the reverse is the case and the European producers have now to make their contribution towards the European consumers.

8.11 pm

Mr. Alick Buchanan-Smith (Kincardine and Deeside)

It is with some diffidence that I re-enter agriculture debates in the House after a period of absence. None the less, I assure my hon. Friends that during that time I did not entirely lose interest in, or concern for, what has been happening in the industry.

I confess, perhaps somewhat wryly, that, when I hear the hon. Member for South Shields (Dr. Clark) rightly complimenting my right hon. Friend the Minister on his fortitude in coming to the House to speak at both ends of a debate in the middle of negotiations, I can probably express sympathy with more feeling from actual experience. I join in complimenting my right hon. Friend not only on coming to the House but also on speaking with clarity and pointing out to us where the priorities lie in the crucial few days ahead.

We must remember that we are debating the CAP's future—my right hon. Friend touched on this—in the context of the present negotiations in the summit, but also against the background of the serious economic situation of British agriculture. I know that my right hon. Friend recognises that, and the House must also do so and make sure that that is put on the record on an occasion such as this.

The industry faces a difficult time economically, and has done so for several years. In some parts of Scotland, and in other parts of the United Kingdom as well, there has been an extremely bad harvest and I hope that in his negotiations my right hon. Friend will keep in mind the impact of that on ordinary average farmers, particularly those in the more difficult parts of the United Kingdom who are facing real problems.

I do not want to burden my right hon. Friend with problems that he knows and understands, but, in my part of Scotland, the North-East of Scotland college of agriculture has shown from a recent survey that more than half the farmers in the Grampian region of Scotland will not make a profit this year. We must also remember that that is against the background of a bad harvest in 1985, when 40 per cent, of farmers in that region also failed to make a profit and when 14 per cent, failed to make a profit last year.

One of the significant points to emerge from that survey is that many farms are surviving only as a result of the injection of outside cash. Perhaps I may wryly describe that as forced diversification. Often a wife takes another job or a part-time job or money is brought in from elsewhere. Therefore, there has been diversification, often as a result of necessity.

Mrs. Margaret Ewing

The right hon. Gentleman and I share similar concerns about the Grampian region and I am sure that he was as concerned as I was to read the report in yesterday's Aberdeen Evening Express that the National Australia bank is refusing to accept many farmers' financial problems and to honour some of the debts involved. It reports that about five farmers in the north-east of Scotland have committed suicide because of their financial problems. I am sure that the right hon. Gentleman, like me, would ask the Minister, whom we greatly respect, to have discussions with those of his colleagues who deal with financial matters to ensure that appropriate steps are taken to enable our farmers to face their financial difficulties and to move forward with confidence.

Mr. Buchanan-Smith

The hon. Lady is drawing attention to a particular difficulty which has arisen because of the changes in banking groups. I hope that the Midland bank will deal sensitively with such matters, and that is a factor which needs to be taken into account. I rely not only on reports from colleges or anybody else, as my right hon. Friend knows, but on my first-hand experience and meetings with farmers and the NFU in the past 10 days.

I am grateful to my noble Friend Lord Sanderson for his visit to the north-east of Scotland, which shows the Government's understanding of the situation. I am also grateful to my right hon. Friend for his visit to Edinburgh on Friday, which the NFU of Scotland greatly appreciated.

We always come back, as my right hon. Friend did, to the fundamental problem of surplus. No one in the House or, indeed, in the industry—I compliment the industry on its responsible attitude towards the problem and its appreciation of the difficulties—would deny that we must tackle that problem. None the less, we must keep the matter in perspective.

It is always prudent, and it is in the interests of good housekeeping, to have some surplus for a rainy day. It is worth remembering that stocks are declining. As my right hon. Friend pointed out, if measures had not been taken, for example, on skimmed milk and butter since 1984, we would have been spending about £5 billion a year more. Therefore, progress has been made. The policy has not been a failure. The hon. Member for South Shields should talk to farmers in Europe to see how that has helped the standard of living in the countryside in Europe. There have been successes in that policy.

We must also remember that other countries, such as the United States, Japan and even Norway, to take one of the Scandinavian countries, support agriculture. Europe is not unique in supporting agriculture. I say that particularly to my hon. Friend the Member for Southend, East (Mr. Taylor), with whom I have debated this matter on many occasions. It is wrong to choose the CAP as an Aunt Sally to attack the concept of Europe, because as recent OECD and World bank studies have pointed out, many other areas support agriculture to an even greater extent than does Europe.

However, that does not help us to get away from the problems facing Europe in dealing with the surplus. We must make sure that other countries put their houses in order at the same time as us; otherwise we shall not achieve what we are seeking. I understand the policy that my right hon. Friend proposes to follow. Stabilisers relate the price to over-production. They bring home the message of what over-production means, and they influence farmers' decisions.

Turning to the point of the motion this evening, I hope that my right hon. Friend will keep the interests of farmers in mind. They will not put up with any sense of unfairness. We must ensure that anything that is applied to control the surplus is applied fairly. Some of what happened with the green pound last year—it is rising again a little now— left farmers with a genuine sense of unfairness.

I hope that, in relation to the green pound or anything else, my right hon. Friend will ensure fairness throughout. I understand the frustrations that he must feel in the negotiations because he is seeking a solution that deals with some of the roots of the problem. Some countries, such as Germany and France, dwell far too much on the immediate political domestic issues, without dealing with the real problems that face the Community. They should pay tribute to my right hon. Friend for approaching the subject on a Communitywide basis, which is what Britain is trying to do in order to get to the root of the problems.

Equally, I say to my right hon. Friend that, despite our obsession with the budgetary problems—we are right to be obsessed with them domestically—for the sake of credibility we must keep in mind the longer-term problem of reducing the surplus. Merely solving the budget without dealing with surplus production will not properly and effectively reform the CAP.

I have three matters of concern. My first concern is that it is important to maintain a distinction, when attempting to reduce the surpluses, between price policy such as stabilisers, and other methods of policy such as production controls, extensification and so on. Here I refer to what my hon. Friend the Member for Norfolk, North (Mr. Howell) said earlier. Many farmers embraced milk quotas; they thought that, on the basis of the Canadian experience, there would be an improvement in price, but that has not happened. With the withdrawal of intervention from skimmed milk, and more restrictions on butter, a double policy has been applied—a production control in quotas, and price measures biting through changes in the intervention systems.

I agree with my right hon. Friend that stabilisers and all the other measures are complementary. He is right to use both types of measure, but it is important, when setting them out, to define which ones are for what purposes, so that farmers know what is happening and their expectations are not raised and then dashed. I know that my right hon. Friend will see to that, as he has done in the past.

Second, among a range of other measures, the hon. Member for South Shields (Dr. Clark) referred to income support. That is helpful and necessary in a period of adjustment. A number of suggestions have been made, such as alternative occupations and diversification grants of one sort or another for which, in Scotland, my noble Friend announced a £3 million injection. However, those grants provide only about 25 per cent, of what farmers may have to invest—they have to find the other 75 per cent.

Those farmers are in areas that are strapped for income anyway. Where will they find the 75 per cent, to take advantage of the diversification programmes that my right hon. Friend has mentioned? Do farmers have the necessary business skills or experience for other occupations? They must be careful about going into some of the schemes, because they could burn their fingers. Advice and help should be given as part of those schemes at a time when—to be slightly cynical—the Government are withdrawing a lot of free advice to farmers. If my right hon. Friend is serious about trying to help, there must be more positive financial and advisory support.

Third, the concept of alternative uses for land—extensification—is not an easy panacea. Forestry or other uses for land require new skills and forms of management that not every farmer will have. I question whether the level of grants is high enough. The cereal price must be below £95 a tonne to make the grants a worthwhile incentive to take good land into forestry.

As regards set-aside, I say: watch carefully the experience of the United States. Set-aside was not the success that many have claimed. Production did not fall in the same proportion. Fifty-five per cent, of the benefit went to about 10 per cent, of the farmers. At the end of the day, we come to the crucial problem of what I call reentry. We still have that problem for quotas on milk, and no one has tackled it yet. We keep putting off the day when quotas may come to an end, and what do we do then? Quotas were introduced with no thought for the problems of re-entry. Similarly, I urge my right hon. Friend to recognise the problem of re-entry if set-aside is adopted. What do we do when the policy ends, and what will happen to the land then?

It is important in a debate such as this to explain what direction I believe we should go in. Many of the proposed measures are good, but my right hon. Friend and the House will realise that I feel they should be better directed and co-ordinated. Ultimately, we must reduce surplus and simplify the whole matter. To reduce surplus we must take good—not just marginal—land wholly out of production. That is the only way in which to reduce surpluses and it is why set-aside is not the answer that many believe it to be.

We must seriously examine how to take more good land out of production. At the Oxford farming conference in January this year, Maitland Wackie from Aberdeenshire made a speech on those lines. Many people ridiculed it in the press and subsequently, which was wrong of them. I urge my right hon. Friend to take that speech and read it again. If we could take more good land out of production, particularly around our cities, where it can be used in an extensive way for recreational and other purposes, that would deal effectively with the heart of the problem rather than only its manifestations.

There are political objections—but what could be more Socialist or interventionist than the present quota system? On this point, I have some sympathy with the hon. Member for South Shields; if we are to have set-aside, we should seriously consider making it compulsory if it is to be effective, and not rely on a voluntary scheme.

To simplify: putting a capital sum into bringing land out of production could yield great savings in revenue in future years. If, for instance, across Europe we agreed to spend £5 billion a year for several years to take good land right out of production, which is roughly a third of the CAP budget now, and if that good land were valued at £l,000-plus an acre, each year we could take about 4 to 5 million acres of land out of production. Set against that the cereal surplus, which is equivalent to 5 million to 7 million acres, and we have the germ of an idea—although I admit the figures may be simplistic. Nevertheless, I believe that the idea should be examined.

My right hon. Friend is tackling these problems much nearer the source than we have done in the past. I wish him well in the negotiations, and I beg him not to lose sight of the ultimate objectives—reducing production, being fair to British farmers and, by not using a broad range of measures and firing a lot of shot in the hope that some will hit the target, dealing with the fundamentals and not only the manifestations of the problem. I wish him luck.

8.29 pm

Mr. Geraint Howells (Ceredigion and Pembroke, North)

We are well aware that the young Minister is sincere in his deliberations. He is convincing at times and very persuasive in his approach. I thank him for coming back from Brussels to open this debate and, I hope, to make the winding-up speech. I hope that he will be enlightened by the comments of hon. Members and I wish him the best in his negotiations on his arrival back in Brussels. I am sure that he will agree that British farmers cannot be blamed for feeling that their industry is under siege.

In its determination to reduce surpluses and bring spending under control, in the past few years the EC has taken measures that have had a tremendous effect on British farmers. Those measures have rocked the agricultural establishment to its foundations. Agriculture has always prided itself on its efficiency and has tried to respond to the Government's encouragement to produce sufficient food from our own resources. It is now faced with penalties and by now most farmers have had to come to terms with a seriously reduced income. For many farmers it is now more a matter of survival than of making any kind of decent living. For many small producers—I include many Welsh farmers in that category—continuing decline will mean the end of the road for many, not only in Wales but in other parts of Britain.

In my discussions with the farming unions, I have found agreement that the weakening of support for the livestock sector will have a serious effect in hill farming areas. As a Welshman, that matter is of special concern to me. It is right that there should be some rationalisation of the present situation where production far exceeds demand, but my worry is that solutions not suited to British needs will be hurried through without enough thought for the consequences to the industry and to the rural communities that it supports. For example, I wonder whether enough consideration has been given to marketing and to reducing stores in intervention by using them to help the Third world.

I hope that in his wisdom the Minister will persuade the Leader of the House and others to have a debate on the intervention system and on the marketing of surpluses in the Community. We have not debated those topics for at least 10 years. If we improved our marketing from within the Community, we would not have the surpluses in many commodities that we have today.

Hon. Members were talking about beef in intervention. The amount of beef in British intervention stores has remained at about 52,000 tonnes each month this year, and the level has varied only slightly from month to month. The intervention people at Reading told me that all the beef in British intervention stocks is home-produced and of good quality. If we had done away with some of the intervention schemes that we have in Britain, all that beef would have been eaten by British consumers. We have been hoarding beef and other commodities for far too long in the Community. I hope that we will have an opportunity to debate marketing, surpluses and the needs of the Third world in the near future.

I know that it is fashionable in a debate of this kind to criticise and deride the common agricultural policy. Hon. Members have made much of the excess expenditure on agriculture and have produced all kinds of statistics to underline their long-cherished prejudices. They give a distorted picture of the industry and of the effect of the common agricultural policy on our total national budget. Therefore, I feel perfectly justified in quoting some statistics that hon. Members may have read some time ago in the Farmers Weekly. Those statistics put the whole thing into the correct perspective.

One interesting quote says: The UK spends about £16 bn a year on education". There is nothing wrong with that. It goes on to say that we spend £18 bn on defence". That is debatable and arguable. It says that each year we spend "£44.5 bn on social security".

I wonder whether that is due to Government policies that have led to a high level of unemployment. The quote says that we spend just £2.2 bn on the CAP. For that amount, the whole of Britain is sure of being fed.

I agree that the common agricultural policy must be reformed, but it must not be abolished or destroyed in the near future. America spends £6,500 in support for each of its farmers, in Japan, the amount is £2,400 but in the United Kingdom it is only £1,366. To put it another way, the United States pays out on agriculture £72 for every man, woman and child in the population; Japan pays £79 per person and the EC stumps up only £45 a head. I agree with the conclusion of the Farmers' Weekly that £45 a head is a price worth paying for a stable supply of food, employment for 10.6 million farmers within the Community, and support for a way of life that protects the environment and gives support to the rural community.

Sir Richard Body (Holland with Boston)

There is a fallacy in those figures in the Farmers' Weekly. They take no account of the indirect support from import levies, and the European Commission says that that is worth £3,000 million.

Mr. Howells

I take heed of what the hon. Member for Holland with Boston (Sir R. Body) says. I know that he is an anti-Community man, but I admire the way in which he advances his point of view, and I respect what he has just said.

The Prime Minister is selling Britain's farming short when she attacks agricultural expenditure in the way she does. Her insistence on seeing a restriction placed on farm spending before any budget agreement could well lead to another crisis in British farming. I seriously question her intentions towards one of the most efficient industries in Britain. I fear that the imposition of the stabilisers, applied without efficient consideration, could easily disrupt the industry, without producing any beneficial effects. They are designed to drive farmers or producers out of business by drastic price cuts. No one can deny that that will inevitably lead to a depression in land values.

As the National Farmers Union correctly pointed out, this will encourage farmers still in business to purchase any land that becomes free and to continue to farm it at a lower level of fixed costs. Production will continue at the same level, the measures will not have the desired effect, and many farmers will have suffered in the process.

Mr. Teddy Taylor

The hon. Gentleman says that the proposals are for drastic price cuts. Can he tell me where in the papers that are before us there is any evidence whatever of drastic price cuts?

Mr. Howells

The hon. Member for Southend, East (Mr. Taylor) will have to wait for only a few months to find out what the cuts are. I hope that the set-aside scheme mentioned by the Minister will be sucessful. I wish him well in his negotiations. The only two ways in which we can improve matters, apart from marketing, are to pay farmers for what they produce or to pay them for not producing. The set-aside scheme could prove workable and I hope that that will be the case in the years to come.

I am a sheep producer and I know that many sheep producers in various parts of Britain are delighted to hear the Minister's news. Many sheep farmers are worried that, unless grain growers' land is set aside, many more sheep will rear lambs in the lowlands and on the east coast. I believe that that is a step in the right direction.

We are fortunate that we have had a deficiency payments system for sheep for the past 40 years. Whatever views we hold, it has been successful and has returned a reasonable income to both lowland and hill farmers. I hope that the Minister, in his wisdom, will ensure that we retain that system. The only advantage that the annual premium system would appear to have for British sheepmeat producers is that, in the absence of a variable premium, there could be no clawback on sheepmeat exports to the continent and that the export trade would flourish, given unhindered access to markets such as France. Will the Minister give an assurance that French farmers are willing to abolish the clawback at the negotiations? 1 doubt that very much. If they are not, I ask the Minister not to give in to French requests.

I am also concerned about the suggestions and proposals to limit the payment of the annual ewe premium for the first 500 ewes on lowland farms and for the first 1,000 ewes on holdings in less-favoured areas. I know that the Minister will stand up to his counterparts in Europe and ensure that that clause is not agreed.

It is accepted that the United Kingdom has been a major beneficiary of the regime and that until recently the vast proportion of expenditure under the sheepmeat regime has been paid to the United Kingdom. Rightly so, as there are many more sheep in Britain than in other parts of Europe. The United Kingdom has by large the largest national flock to support. The percentage of support expenditure to the United Kingdom is declining. It must be put in perspective. In 1981, 97 per cent, of the sheepmeat regime expenditure was to the United Kingdom. By 1985, that had declined to just over 70 per cent. With the entry of Spain and Portugal into the Community, it is estimated that the level of expenditure to the United Kingdom will continue to decrease to around 40 per cent. That is a step in the right direction.

Were it not for the sheep industry, vast tracts of the hill and upland areas would become further depopulated and seasonal employment opportunities would greatly diminish. I hope that the Minister will heed the views of the Secretary of State for Wales, who is responsible for Welsh agriculture and who is in favour of retaining the present sheepmeat regime. I hope that the Minister will be able to persuade others within the Community to continue with the present scheme. Is the Minister in favour of retaining the sheepmeat regime in its entirety?

After what we have heard tonight, I also hope that the Minister will give an assurance to farmers that their incomes will improve during the next 12 months. Finally, what are the Minister's views and plans to try to curb the intervention system?

8.43 pm

Mr. Robin Maxwell-Hyslop (Tiverton)

Madam Deputy Speaker, I only want to cover some aspects of what the Minister has drawn to the attention of the House in his speech tonight. I preface that by saying how grateful I am as well that he has come back to the House, after extremely arduous negotiations, to open, listen to and conclude this debate. May I also say how much I appreciate the fact that, shortly after taking office, he made time to see representatives of Devon NFU, the largest county branch in England. That was greatly appreciated too.

The warning that I want to share with the House and with my right hon. Friend is a serious warning against believing that one changes cause and effect by giving something a different name. I was elected in 1960, and in the early 1960s we saw the utter failure of the policy which was described as a "standard quantity" policy. I have been unable to discern, but I would be grateful if my right hon. Friend can illuminate, any essential difference between the "standard quantity" policy which was such a failure in the early 1960s, and the "stabiliser" policy which is now to save us all from financial destruction. The essential fallacy of the standard quantity system was this: it did not bite at the individual producer and it was still advantageous to the individual producer to beggar his neighbour by increasing his output.

Mr. David Curry (Skipton and Ripon)

There is no deficiency payment in a stabilised system. There was a deficiency payment in the central part of the old standard quantity.

Mr. Maxwell-Hyslop

No, the essential of the standard quantity system was not a deficiency payment. The essential ingredient of it was that the payments should decrease once a standard quantity had been exceeded. That was the essential. That there was a deficiency payment system is true whether or not one has standard quantities. Standard quantities were a quite separate item of policy, free-standing on their own. They did not depend for their existence on a deficiency payment system, nor does the stabiliser system, as it is now called, depend on the deficiency payment system, because it is not there. They are both, as I understand it, the same, and they do not depend on the deficiency payment system.

The problem is this: where one has a standard quantity system—and let us call it that because that is what it is—one is endeavouring to contain expenditure without containing output, because it still pays the individual producer to spread his costs over a greater number of units. That is the fallacy of it. It only reduces production at the moment when individual producers become insolvent and go out of business and nobody else takes over their productive resources and continues to produce the same commodity from them. That is the fallacy of the standard quantity system. Do we have to suffer the disaster of learning the same lesson over again? This country, and now the EEC, ought to be able to have a long enough memory to remember when systems have demonstrably failed and why they demonstrably failed.

The hon. Member for South Shields (Dr. Clark) finished his speech from the Opposition Dispatch Box almost with a throwaway line by saying that, of course, at the end of the day we may have to come to quotas. Well, if we are going to come to quotas, why leave it until the end of the day? There has been a considerable success with the milk quotas. But how much greater a success it would have been if they had been brought in when some of us, myself included, were recommending them in the late 1970s, when producers could have had a quota of more than 100 per cent., and when the introduction of quotas would not then have produced disaster for those who were in the middle of expansion schemes, having committed the capital but being unable to generate the output, because of the truncation of that expansion, to service the capital that had been invested in it.

No, if the logic of events and the message of experience is that only a quota system can contain budgetary costs—which is one objective—sustain producer incomes rather than the incomes of those who are storing excess products—that is the second one—and thirdly prevent gross disruption of the sole source of income of many Third-world countries—I think that that is a third objective which we ought to sustain—if the lesson of experience and the logic of events is that, why wait until we are into even grosser over-supply before introducing quotas? They do not become easier to introduce by postponing the moment. If we have learnt nothing else from milk quotas from the fact that they do achieve their objectives, it is surely the earlier the better, not the later the better.

The other lesson that we surely ought to have learned is that, once one has put quotas on one type of output, it will have a knock-on effect into others. First we saw it from milk into beef. Then, when the profitability of beef was virtually nothing, as far as possible a knock-on into lamb for those who could. Britain will soon be self-sufficient in sheepmeat.

What then? Where do we go from there? Is it not readily observable that the price for pig products and the price for chicken meat is the resultant of the prices for prime red meat? When those are depressed, there is depression in the chicken market and depression in the pig market. Unless when introducing one quota which is thoroughly justified by its results, as anticipated, one rapidly spreads that system before there are destructive knock-on effects, one will make it ever more difficult to introduce quotas— although to quote the hon. Member for South Shields (Dr. Clark), at the end of the day it may be necessary. I would say at the end of the day it will be necessary.

There is one final word I want to leave on this subject. When it is perceived by many, if not by all, that quotas are inevitable, what happens? We have a cascade of extra production to provide the most favourable possible base for the individual, and for each country, under the quota system. We saw the massive increase in milk production in France and in Eire, for instance, which I do not believe was unconnected with the fact that they saw quotas coming—just as we saw massive new fishing in the south-west by the Belgians and the Danes, who were not traditional fishermen in many cases. Why? Because they saw fish quotas coming, and they wanted to establish the best possible base years for themselves when quotas came in.

Mr. David Harris (St. Ives)

As my hon. Friend looks around Devon and Cornwall, will he accept that many fields are presently being turned over to corn precisely for the reasons he outlined? People wonder whether quotas are coming and they are putting those fields into corn. That is happening in counties which are not by any stretch of the imagination natural corn counties. That is happening precisely because, if quotas come in, the farmers will receive a good share.

Mr. Maxwell-Hyslop

That is so, and that is another reason for going ahead. That is why my right hon. Friend the Minister is rightly enthusiastic about set-aside. That is all the more reason for going for massive set-aside as quickly as possible, to prevent the establishment of false bases before quota systems come in.

Many other hon. Members wish to contribute to the debate, so I will confine my remarks to those. May I again say how grateful I am to my right hon. Friend the Minister. I cannot remember before in an agricultural debate a Minister personally opening and closing a debate. That does him great credit.

8.55 pm

Mr. Win Griffiths (Bridgend)

I suppose that the one thing that we can all agree on is that if we were trying to devise an agricultural policy for the European Community, we would not start from here. Unfortunately, we have to.

Perhaps the problem is illustrated by the way in which the cereal regime was devised in 1961. In effect, the price determined then had nothing to do with market conditions or world market prices. It was simply a compromise between the high prices in Germany and the low prices in France. In one fell swoop, that resulted in an average increase in cereal prices of 23 per cent. For the French farmer it meant an increase of 37 per cent, in one year. That is the kind of problem that we face.

The motion refers to the Government's objective of securing effective control of Community agricultural expenditure. It is a pity that the Government have not been pursuing that policy since 1979. If we compare expenditure on agriculture in the 1980s with expenditure in the 1970s we find that the average annual rate of increase in the 1980s is 50 per cent, higher than it was in the 1970s when we joined the Community.

Further to that, Britain's receipts from the agricultural funds have been growing twice as fast in the 1980s as in the 1970s. The Government's expenditure on agriculture has been increasing rapidly during the 1980s and in every year except 1981–82, according to the Government's gross figures, the amount of money that the Government spent on agriculture was more than they spent on regional industrial assistance.

I shall give an example. In 1979–80 the Government spent about £801 million on agriculture, whereas on regional policy they spent £628 million. In 1985–86 they spent £1,589 million on agriculture and on regional assistance they spent £732 million. There has been a grave and great divergence between what the Government are prepared to spend on agriculture and on trying to develop our industrial economy. Because of the different financial years of the Community and Britain, I had to make some calculations of my own, but I think that they are roughly right, and certainly the trend of increased expenditure is quite clear.

The Government have been unable to do anything to bring CAP expenditure under control. The hon. Member for Tiverton (Mr. Maxwell-Hyslop) said that in the late 1970s he predicted what would happen to the CAP and to the runaway expenditure. Many people in many parties have been predicting the same thing since the mid-1970s. What has surprised me is that neither the Government nor the farming community has been prepared to face up lo the challenge.

The objectives of the CAP were to achieve sufficient production, sufficient income for farmers and an attractive price for consumers. On one count, euphemistically speaking, we have been over-successful and we are plagued by the problems of that success. With regard to farmers' incomes, we must say that across the Community as a whole the policy has failed lamentably. Recently, The Economist quoted figures that three quarters of CAP spending goes to 25 per cent, of farmers living in the north and one quarter goes to 75 per cent, of farmers who live in the south. On average, farmers in the north receive 10 times as much income from the CAP as farmers in the south.

We have turned to agricultural stabilisers as a possible solution. One thing that we can say about them is that at least it is politically possible for them to be agreed in some form. As the Minister explained, a great deal of discussion must take place across the range of agricultural products. Nevertheless, the possibility of success must be there. Last week, the European Parliament passed a resolution that backed proposals in terms that would have been unthinkable about five years ago. There are still many preconditions in the resolution that might make it impossible for agricultural stabilisers to work properly.

The proposals consisted of 29 pages and 22 pages of tables of explanation in an abbreviated form, and the Commission published a press statement that was over 15 pages long summarising them. We must admit that, whatever system is introduced, it will be extremely complex. However, we have an example of where it has been done—milk quotas. There is some form of control covering half of CAP products and about two thirds of CAP expenditure.

It is estimated that, in 1984, over 1,000 million ecu were saved, in 1985 nearly 3,000 million ecu were saved, and in 1986 over 4,000 million ecu were saved. Over the past: two years, that represents about a 10 per cent, reduction in the agricultural budget. There has been some success. In the short term, because we seem to be reasonably close to agreement, stabilisers offer us an answer, but they can never be answers in the medium or long terms.

One matter that has not been mentioned in the debate, and which has already contributed to the demise of the common agricultural policy, relates to the technological changes that have taken place in agriculture. For example, the industrialisation of dairy production brought about increases that were never envisaged when the CAP was first delivered. We are already reading about further technological changes that could multiply production by 10 or 20 times in many agricultural sectors. That is why it is essential that, gradually—I emphasise the word "gradually", because the farming community needs some protection—there must be a reduction of prices so that Community prices approximate to those that are obtainable on world markets. While that process is going on and while, undoubtedly, more quotas will be introduced, the quota system must have built into it a variable factor to take account of smaller farms and poorer land, particularly in peripheral regions and areas such as my own in west Wales.

Last week, the hon. Member for Esher (Mr. Taylor) said that the Milk Marketing Board told him that it had no problem in introducing quotas and achieving the necessary cuts. The Milk Marketing Board might not have had a problem, but farmers in west Wales, for example, have had an incredible problem because of the decision to make an across-the-board cut. More than anything else, that shows the need for a variable quota of, say, 2 or 3 per cent, for smaller farmers, rising to 18 or even 20 per cent, for farmers who number their herds in the hundreds. We need a variable system.

In the context of quotas, and the move towards a reduction in prices, I hope that the Minister will ensure that we have a system of income aids, whereby national Governments can make their contributions, with Community support going to those countries whose agricultural income might be below the Community's average.

The tax on oils and fats is still under discussion. I am glad that the Minister intends to fight the matter to the very end. I hope that he will give a further assurance that he will not accept it as a quid pro quo for other changes that may help to improve the common agricultural policy. It has not only price implications for oils and fats within the United Kingdom, but significant implications for world trade agreements and the current GATT discussions affecting agricultural prices.

Although Opposition Members broadly support what the Government are trying to do, it is a pity that they did not address the problem much earlier. They must bring their agricultural spending under control. I urge the Minister to consider the longer-term solutions that will be needed, because the complexities of introducing agricultural stabilisers and quotas will make it possible after a few years to find a means of getting round the system and will eventually lead to a breakdown in the system because it will be so difficult to administer.

9.11 pm

Mr. Teddy Taylor (Southend, East)

As someone who is not directly involved in these matters and who does not possess other hon. Members' knowledge of them, I should like to ask the Minister a few questions.

I listened carefully to every word that the Minister said. I should like to hear his opinion of how his speech relates to the reference in the motion to the effective control of Community agricultural expenditure. Quite honestly, I am not convinced that the proposals before us and the Government's additional proposals will reduce Community expenditure. Many of us will want to be convinced that all these measures, discussions and papers are not simply a ritual to be gone through before we increase the EEC's resources.

The Minister must bear in mind that we went through all this before. In 1984, we had non-stop discussions about the reform of the CAP and a lot of talk about the magic of quotas and how they would reduce expenditure. We also had a firm commitment that agricultural spending would be restrained. The Minister will be aware—he has admitted this—that since then spending on agriculture has rocketed. We are now spending £185 million every week simply to dump cheap food on the world market and damage the Third world. That compares with a figure of only £26 million a week in 1977.

The Minister must accept that quotas have not saved money. If he examines the figures he will find that that is the case. He can certainly say, like the apologists in the Liberal party, that under the system of milk quotas we are producing less milk than would otherwise be the case. However, he must face up to what has happened to land formerly used for milk and to the cost of buying out the farmers. In some cases, the land has been switched to use for beef production for a period and in Scotland it has sometimes been switched to cereals and other uses. When we add everything together, is there the slightest suggestion that real savings have been made?

The in word now is "stabilisers". It seems that stabilisers are the answer to all our problems. However, the Minister must give us some idea how they will save Community expenditure. Unlike the Liberals, whose policy appears to be to give a blank cheque signed by the Government to every farmer and to talk about the need for reform, the Government claim to be interested in saving cash.

However, we have had experience of a system of stabilisers in sugar production for many years. We have had A and B and C quotas. The C quotas simply fetch the price available in the world. The Community has operated the system for years, yet in spite of that policy the Common Market is now the largest exporter—or dumper—of food in the world. That is utterly shameful when one bears in mind the effect that that exporting activity is having on the poor Third-world countries. When the Minister says that stabilisers may be the answer to our problems, he should bear it in mind that we are not talking about a responsible Community seeking to contain spending or production but about a Community that has a blatant disregard for the poorest countries of the world, and is dumping massive quantities of sugar at crazy prices on the world markets, causing starvation, distress, misery and death in some of those countries.

What guarantee have we that, when we fix the levels for the so-called stabilisers, the same principle will not occur? The Minister has not given us the slightest indication that stabiliser levels or so-called production levels will be fixed at a figure that will not involve massive dumping on the world market. When we talk about the price of food, we must bear it in mind that the gap between our prices and those in the world market has been growing. Therefore, according to the Common Market's own consumer unit, the average family in Britain is paying an extra £13 per week—rather than the £11.50 referred to in the Opposition's amendment—because of the CAP.

I should like the Minister to say how one saves money on stabilisers if one still has to have export rebates available for food that is not taken into intervention. As I understand it, the principle of the stabiliser is that, when a certain level of production is reached, we will either not take extra supplies into intervention or we will reduce prices. The percentage mentioned in the papers, as the Minister well knows, is a maximum of 5 per cent. How will that cut production? How will it reduce expenditure?

When we look at the current balance sheet, we see that every week the Common Market spends £185 million on export rebates, but spends only £17 million a week on storage. Therefore, the main problem is not storage: the problem is the export rebates. If we are to take slightly less food into intervention stores owned by public authorities, where is the saving if the other food is simply sent to traders and agents and dumped on the Third world with export rebates? The Minister may find that if he closes the intervention stores less milk and beef will be produced because that has to go into cold stores. However, that would simply mean a shift to another area.

I hope that the Minister will give us some idea of how he thinks cash will be saved. That is the object of the exercise. I should like to say that I have confidence in the Government's desire to do so. However, we should bear in mind the devices that the Government have agreed to, simply in order to go beyond the spending limits. They adopted the metric year for expenditure by paying out one month late and taking the money one month early and they have ignored reports by the Court of Auditors saying that they are overspending illegally by transferring the cost of butter dumping to other Governments. That makes me wonder.

Will the Minister please tell us how on earth, on the basis of these proposals, he thinks that stabilisers will reduce Common Market agricultural expenditure? We have had promises and pledges before, but they were not fulfilled. I suggest that we should say no to increased expenditure and accept the fact that a sensible reform of the CAP cannot come out of the arrangement of the EEC where 12 countries sit round together. We should press the case for repatriation of agricultural policy, which would at least mean that we could offer some stability to our farmers, but not offer them a projection of expansion.

9.17 pm

Mr. Seamus Mallon (Newry and Armagh)

I realise that the North of Ireland has a separate Department to deal with agriculture, and I shall confine my remarks to the broad areas at which the Minister should take a close look.

The North of Ireland is in a unique position, because its agricultural economy bears no relation to that which we have been discussing today. A small percentage of the economy in England, Scotland and Wales is involved in agriculture, whereas it is 30 per cent, the North of Ireland. One is consumer-oriented and the other is producer-oriented. The agricultural economy in the North of Ireland is concerned with the needs of the producer. Those needs are heightened by the fact that we are talking about the sector of the economy with the highest unemployment rate in England, Scotland, Wales and Northern Ireland and the highest unemployment rate among EEC countries. In the past year, when unemployment was going down everywhere else, it was increasing in the North of Ireland. The agricultural economy in the North of Ireland has a serious built-in structural problem which cannot be put right simply by dealing with the edges. That problem will remain because of the curious way in which agriculture differs from that in other regions.

It was said earlier that there are no units in England, Scotland and Wales small enough to cause concern, but the average size of a farm in the North of Ireland is 42 acres, so we are dealing with a different situation. Problems in relation to milk quotas, stabilisation and subsidies may not be intensified here, but they represent a substantial factor in the depressed economy of Northern Ireland. We must consider the poor economic circumstances in Northern Ireland in the context of the economic situation in the United Kingdom. The circumstances in the North of Ireland are unique and will require unique treatment if we are to cater for the built-in structural defect. I hope that the Minister will be able to deal with the problem and translate words into action.

The economy in the North of Ireland is collapsing around our feet. A stable agricultural economy is being disadvantaged because it is categorised with the larger farm units in England, Scotland and Wales. Commendable efforts are being made to introduce other forms of employment and Government training schemes. I make a plea for a new approach towards the retraining of those who were involved in agriculture, but who cannot now make a living wage from it. I ask the Minister to proceed as quickly as possible with the integrated rural development programme for Northern Ireland, which has been considered favourably by the Council of Ministers and the European Parliament, but which has not yet been adopted by the Government. The genesis of the rejuvenation of the agribusiness lies in that integrated rural development programme.

9.23 pm

Ms. Joyce Quin (Gateshead, East)

Most British people welcome attempts to curb agricultural expenditure in the European Community and want to see a much greater impetus towards a far-reaching reform of agricultural policy. However, the road to reform has been long and stony. I am well aware of that, having had the not entirely enviable experience of being a member of the European Parliament's Agriculture Committee from 1979 to 1984. I remember the long, and unfortunately rather circular, discussions which took place there.

Stabilisers seem to be the latest in a series of Euro-words used to describe attempts to reform the system. I remember that quantum was discussed as a hope for the future, then co-responsibility levies, quotas and what was called, rather coyly, a prudent pricing policy. I hope that stabilisers will be more successful than what can best be described as the patchy effects of previous attempts, which have not cured the problem of surpluses. Unfortunately, that problem is still very much with us.

I am very much aware—I hope the Minister is too— just how powerful the farming lobby is in the European Community and how many of the measures that have been tried in the past have subsequently been nullified by other unfortunate decisions. Often, attempts to impose budgetary discipline in the agricultural sector have subsequently been nullified by foolish increases in the annual price review. I hope that that will not happen in future.

I also worry about the compensatory measures that farmers may call for which might create even further problems. The right hon. Member for Kincardine and Deeside (Mr. Buchanan-Smith) referred to forestry as one area where we are still in deficit. Much of our forestry is not viable without unjustified tax concessions and also can have the negative effect of spoiling the environment by insensitive conifer plantations in places which we hoped would remain areas of outstanding natural beauty. So that is not an easy answer to the problems of surpluses.

We have seen, of course, the problems now being created by too many farmers going into rapeseed production, which has also had an effect on the countryside. We need to consider carefully what the deficit sectors are and look cautiously at the possibilities of expansion in those sectors in future.

The Minister should strongly resist any attempts to make countries outside the EEC scapegoats for problems which are of our making. I do not want to see further penalties imposed on New Zealand, for example. Obviously, we do not want developing countries to suffer even more from the problems of dumping on the Third world, which has been mentioned several times in the debate. We need a positive discussion with Third-world countries about stabilising world markets. We should not take action which will harm those countries further when they are still suffering from irresponsible decisions taken by the European Community in the past.

The way that agricultural policy has operated up to the present has had detrimental effects on many groups. Consumers have had to pay dearly because of the common agricultural policy, despite the fact that, as my hon. Friend the Member for Bridgend (Mr. Griffiths) mentioned, under article 39 of the treaty of Rome, reasonable prices to consumers were supposed to be one of the cardinal principles on which the common agricultural policy was founded. We have also seen the negative regional effects of the common agricultural policy, whereby wealthy agricultural areas have become even better off and poorer agricultural areas have seen their problems become even more grave.

While stabilisers are helpful, they should not be seen as an end in themselves. That is the purpose of the amendment tabled by my hon. Friends. We do not want stabilisers simply to crystallise the position. We also believe that they may be complicated to administer. We wonder whether the Minister will deal with that problem.

As has been mentioned by my hon. Friends the Members for South Shields (Dr. Clark) and for Bridgend, (Mr. Griffiths), we want to make progress towards longer-term and more fundamental reform, moving away from the guaranteed price system towards direct income aids to those who need aid and working towards a system which will benefit the Community as a whole.

Those are the long-term aims that we want to work for. It is impossible to describe them in more detail, given the time restrictions. While stabilisers may help, the Minister should not lose sight of the long-term fundamental reform which we still believe is as necessary as ever.

9.30 pm

Mr. David Curry (Skipton and Ripon)

Tempting as it would be to meander through the mandarins, saunter through the satsumas or linger in the lemon groves to which my right hon. Friend the Minister referred at the beginning of his remarks, we must recognise that he has to go back to difficult negotiations. The terms of what he can do are defined by those negotiations. Reminiscences about the origins of the CAP will not help him. The House must give him a clear message about what he must take back to Brussels and what we hope he will bring from those negotiations.

Stabilisers may not be much, but to quote the cartoonist, they are the only hole we have at the moment, and we must exploit it to the best advantage. It is essential that stabilisers must first operate predominantly on price.

There is no point in suggesting that stabilisers are there directly to control production. If they were, I might be against them. I do not want yet more dirigiste measures to direct production introduced into the CAP. Hon. Members who laud quotas have forgotten the immense difficulties which brought quotas into existence and in making them work.

Those who talk about a compulsory set-aside must answer such questions as how the tenant-landlord relationship will work in that extremely difficult situation. We must first ensure that we are dealing predominantly with price and that any incidental effects upon the direct control of production are beneficial. They are not the essential purpose, because budgetary cost is the object of the exercise.

Secondly, the system must be designed to restore intervention to its role as a safety net, because the use of intervention as a market of first resort is at the root of many of the problems experienced in agricultural production. Thirdly, stabilisers must be nondiscriminatory against the United Kingdom, as I am sure that the Ministers from other countries will be equally determined that they are not discriminatory against their countries. That means that the policy is one of the lowest common denominator. My constituents and those of right hon. and hon. Members will not forgive us if we come back with a policy that is effective but deeply discriminatory.

Finally, stabilisers must avoid revenue-raising devices which bear upon the consumer or on our GATT obligations. That would be entirely wrong. The trouble is that, at the moment, there is no mechanism to control agricultural policy outside the annual farm prices review. Stabilisers must operate automatically and predictably. The farmers must be certain that they will apply. They must be applied by the Commission in the year in which the problem arises. If they operate in those circumstances, they will at least take us along the road to reform, as compared with the old policy of guaranteed thresholds in which the punishment applied a year after the event and was dependent upon the Minister's approval of the punishment—a measure which there was a singular lack of enthusiasm for accomplishing.

In regard to the cereal sector, the threshold is low; it is high compared to consumption because it includes £25 million-worth of exports, but it is probably the best we can do. It is essential that we reject co-responsibility levies and bear most hard upon prices. If we can get more out of the intervention system, we should try to restrict it further.

I notice that you, Mr. Deputy Speaker, have one eye on me and one on the clock. I appreciate that the debate is due to be wound up shortly. My last point closely affects my constituency. It is an upland area which depends heavily upon sheep. If sheep go from those hills, there will be very little left. We must look for a regime which continues to support sheep production. We must bear in mind that we do not want the wholesale migration to the lowlands of what is a vocation of the uplands in the United Kingdom, and consider the reforms in that light. I am grateful for your indulgence, Mr. Deputy Speaker, and look forward to listening to what my right hon. Friend has to say. I wish him luck in his negotiations.

9.34 pm

Dr. Norman A. Godman (Greenock and Port Glasgow)

First of all, may I say that I had a great deal of sympathy with the Minister's comments this afternoon, and especially with his observations about the complementar-ity of the set-aside scheme with that of the stabiliser scheme, although I have some doubt about the efficacy of stabilisers. I was also sympathetic to the reservations offered in his usual way by the hon. Member for Southend, East (Mr. Taylor). The set-aside scheme should be compulsory rather than voluntary, because if it were the former everyone would be treated in a similar fashion.

Every hon. Member who has spoken has expressed a compassionate and sincere concern about agriculture. The present circumstances, and indeed the future of the industry, are of considerable interest to us all. Our rural economy is tied tightly to the well-being of the industry, its farmers and, I hope, its farm workers. That relationship is plain to see, and can be seen elsewhere. For example, the well-being of our smaller maritime communities is, or in some regrettable cases was, determined by the vitality and success of the local fishermen. In terms of income aids and the documents on income aids, there are some parallels between the two indigenous industries, to which I shall refer later.

I have a great deal of sympathy for the Minister in his attempts to solve the severe problem of massive expenditure while seeking to defend the interests of the farming industry. It might be that the Commission, and the Danish, Dutch and United Kingdom Governments are willing to accept reality, but what about our other partners? Given that the Minister is in the middle of tough negotiations, unlike some hon. Members I shall not ask him to cast a single aspersion on any member state. However, I need not be so diplomatic.

In my view, there is ample evidence that the West Germans, with their less than efficient farming, will refuse to accept any proposals that might harm their farming constituents. It is almost inevitable that the Commission's proposals will be weakened because of that chauvinistic concern with domestic politics.

Bridget Bloom's article in today's Financial Times states: The West German Government…has the strongest objection to the latest proposals designed to curb the Community's spiralling farm budget, on which negotiations resume in Brussells today. Bonn finds politically unacceptable the reforms envisaged by the European Commission, which would inevitably result in lower prices for farmers. The family farm, from Bavaria in the south to Schleswig-Holstein in the north, has long been seen as the bastion of social stability in the rural areas. Politicians seem to fear that reform of the CAP would threaten that stability. I wonder how much financial support German farmers obtain from German contributions to the CAP, which would otherwise have to come through the budget of the federal republic. I suspect that that internal subsidy explains the German fondness for the status quo. That traditionalism and conservatism will diminish the effectiveness of the proposals.

Therefore, while the Community's agricultural system is a little more flexible and a little less monolithic than some would have us believe, it is still enormously difficult to bring about fundamental change, but change there must be. There can be no greater absurdity in the world today than massively subsidised food surpluses. If budgetary discipline and savings could be achieved, the money saved could be used to create jobs in rural areas and small market towns.

I should like to ask the Secretary of State what might be a simplistic question about the imbalance between CAP contributions and benefits. Am I correct in assuming that a reduction in the imbalance would reduce our net contribution and would, in turn, reduce our rebate?

Let us consider the more detailed elements and proposals of the negotiations. As my hon. Friend the Member for South Shields (Dr. Clark) pointed out, it is absolutely essential that, as regards sugar, the Minister continues to defend the interests of the cane sugar producers in the CAP countries. Such defence would be in line with two House of Commons resolutions passed by different Administrations. I must say that I have a constituency interest because the last remaining cane sugar refinery in Scotland is in my constituency and it is extremely important to the Scottish food industry.

It has already been noted that the implementation of milk quotas has diminished the production of milk throughout the Community—so much so that the Danes are now considering whether to import milk from other EEC states to meet their export market in cheese. Some compensation is provided in the circumstances to farmers, but not to their dairymen, some of whom are, unfortunately, made redundant. I believe that is a matter for deep regret and I shall return to it later in my speech.

The hon. Members for Dumfries (Sir H. Munro) and for Rutland and Melton (Mr. Latham) pointed out in last Thursday's agriculture and fisheries Question Time that, as regards milk production, we are moving from ridiculous surpluses to possible shortage. I make a plea for the cheese industry in Scotland and elsewhere, because that industry is experiencing severe problems because of the quota system. Is it possible for the Minister to ensure that that element of the dairy industry is given access to the Community's reserve, which I believe at the moment stands at 443,000 tonnes? It is vital that the cheese manufacturers are given access to an all-year-round supply of milk.

I believe that it is possible to introduce a flexible scheme —a scheme that is sensitive to demand throughout the year—and it would benefit cheese makers throughout the United Kingdom. I am sure that all hon. Members would agree with me that we do not want to see creameries closing down anywhere in the United Kingdom because, apart from anything else, they provide much-needed jobs in small towns and villages.

In conclusion I wish to consider the proposals regarding income aids and what I would call the "decommissioning grants" for farmers leaving the industry. The explanatory memorandum to document 6116/87 states: A community system for aids to farm incomes will provide a framework for national aids to farm incomes…a 'pre-pension' system". I believe that such considerations should include the interests and needs of farm workers. In that respect, Victor Robertson of he Scotsmanagreed with me when he said: It would seem logical that if farmers are to get pensions of one sort or another then their employees should be entitled to some parity of treatment". Surely no one in this House would challenge that parity of treatment. It is also the case that article 39 of the treaty of Rome says, inter alia, regarding farm workers that the objective is to ensure a first standard of living for the agriculture community, in particular by increasing the individual earnings of persons engaged in agriculture". That must surely mean employees as well as employers.

In relation to that document and with regard to the Agricultural Wages Act 1948 and the Agricultural Wages (Scotland) Act 1949, have the wages boards the power to order that, as part of the minimum wages conditions for the industry, there shall be paid a certain contribution towards the pensions for the workers in that industry? Will the Minister consider that question, and write to me about it? I am not concerned here with the traditional pensions scheme. At the very least, I am seeking a minimum standard of pension cover.

I do not believe that the Commission's proposals on income aid are anywhere near adequate for those who work on small family farms. The right hon. Member for Kincardine and Deeside (Mr. Buchanan-Smith) said that about 50 per cent, of the farmers in the Grampian region would not enjoy any profit this year. If that is the case, the proposals are even less adequate for the employees of the farms concerned. Family farms often cannot support the family, which may extend to three or four generations. What is the point of talking about pre-pension schemes without planning a system of adequate pension cover for the small farmer?

Let me say one last word about farm workers. I hope that, under the income aid scheme, they do not suffer the same fate as the fishermen employees of the trawler companies that received decommissioning grants to leave the fishing industry.

I wish the Minister well. He has a formidable task, but I believe that the overwhelming majority of right hon. and hon. Members also wish him well.

9.45 pm

Mr. MacGregor

By leave of the House, I shall reply to the debate. I am sure that the House will understand that I have left myself comparatively little time to cover all the points that have been raised, and that I therefore cannot cover them all. I think that that is right, because it was important that as many hon. Members as possible should be able to express their views at this stage of the negotiations, and I have listened very carefully to what they have said.

I am grateful to the hon. Member for South Shields (Dr. Clark) for his broad support on stabilisers. I was also extremely pleased to hear his recognition that it was, and is, most of all our farming community that keeps our countryside attractive and well maintained. It is important to keep making that point to all who criticise our farmers, most unfairly, on environmental grounds. It is also important to remember that farming subsidies, particularly in the hills and the less-favoured areas, make an environmental contribution. They mean that farmers and their wives are working, one might almost say, 24 hours a day for a small income, keeping the countryside attractive and, at the same time, a tourist attraction.

The hon. Gentleman described the common agricultural policy as a failure. Only recently has that been so, in that it has produced the surpluses and the subsidy costs that have accompanied them. However, I agree with my right hon. Friend the Member for Kincardine and Deeside (Mr. Buchanan-Smith) that we should also consider the important successes that the CAP has brought, and in particular the considerable contribution made to the nation by our farmers through their efficiency, their capacity to innovate and to take advantage of opportunities, and their consequent provision of food at a reasonable cost.

The hon. Gentleman criticised the CAP when he referred to the job losses in the agricultural and rural communities since the war, but I do not think that the CAP can be judged on that basis. First, as with every other aspect of economic activity, it is vital that our agricultural industry remains competitive and takes advantage of technological improvements. That has been very much in my mind in the negotiations. However, it will of course mean job losses. Secondly, the hon. Gentleman asked me to take firm action to deal with surpluses. He must realise that that would mean further job losses, especially in other member states whose farming structures are less efficient than ours. That is the other side of dealing with surpluses.

The hon. Member for South Shields also mentioned the problem of job losses in the dairy creameries, where supply had outstripped demand. That is due to a readjustment to market needs, which happens in the same way in other economic activities. If we are bringing pressure on the surpluses, we must accept that as a problem at the same time.

The hon. Gentleman referred to a separate problem in relation to dairy creameries—the problem of cheese manufacturers. He recognised that it was not a quota problem, but primarily one of pricing, marketing and distribution. It does not seem sensible to the general public, or to me, that where there is a market and a product that can be bought by the consumer, there should be a shortage of supply at a time when some of the same product is going into intervention and so being financed by the taxpayer. That is not a sensible system and I and my noble Friend Lord Sanderson are having talks with individual milk marketing boards to see whether we can find a solution to that problem.

The hon. Gentleman asked me to comment on the clean slate proposal. The Financial Times report was somewhat condensed and may have given a misleading impression in implying that my right hon. Friend the Prime Minister saw the clean slate proposal as an alternative to stabilisers. That is certainly not so. It was clear from the interview that she, as always, sees effective stabilisers as an important part of the CAP. The clean slate proposal was really in relation to the disposal and depreciation of stocks, which is different. That has not been discussed in the Agriculture Council as we have been concentrating on stabilisers, but I believe that a discussion did take place in today's Foreign Affairs Council.

I also want to stress that my right hon. Friend made it clear that that proposal is one possibility in relation to stocks. She acknowledged the fact that other member states may not be ready to accept it and she put forward other ways of dealing with the disposal and depreciation of stocks. We put that proposition on the table because we think that it should be explored.

Costs will depend on a variety of factors, depending on the type of scheme that we eventually come up with and the market situation in relation to the disposals. Therefore, I cannot give a clear figure on that point tonight.

The hon. Member for South Shields asked about the 155 million tonnes maximum guaranteed quantity for cereals. That is not a national figure; it is a Community figure for the total Community cereal production. It triggers off a Community mechanism and reaction. Therefore, it would apply Communitywide. It is important that that should be so, because we are efficient cereal producers. Where one is talking about a mechanism that bears down on price support, it is the efficient producers —here I take up a point made by my hon. Friend the Member for Skipton and Ripon (Mr. Curry) and I agree that stabilisers should deal with price support—which will benefit from such an application so long as they remain competitive.

I was not clear whether the hon. Gentleman wanted a national figure, but, for the reason that I have just given, it would have a disadvantage for us. That is one of the difficulties of proposals that some people put forward for national quotas. Such proposals do not benefit the most competitive and efficient.

My right hon. Friend the Member for Kincardine and Deeside made many salient points, as I would expect, given his knowledge and experience. I recognise his point about farm incomes and the impact of the painful adjustments on the ordinary average farmer—I think that those were his words—that we are having to make. It is salutary and important that all of us concerned with the farming community and its welfare should continue to stress that point.I sometimes get the feeling that there is a misguided impression—often on the Opposition Benches, if I may say so—that farmers are feather-bedded and well off. That may be because some members of the general public think that all subsidies go to farmers. I am conscious of my right hon. Friend's point. I constantly bear it in mind and I know precisely how farm incomes have dropped over recent years.

The hon. Member for Ceredigion and Pembroke, North (Mr. Howells), too, made the point that, in the less-favoured areas of the hills, incomes are modest, particularly when related to the hours that people work. That needs to be continually stressed. I am constantly trying to put over that fact to the public, in addition to the point that I made earlier about farmers' contribution to the environment.

My right hon. Friend the Member for Kincardine and Deeside also raised the issue of income support. One should distinguish between all the measures that we are pursuing, including set-aside and the extensification scheme, which are, in one sense, income support, and the direct income aid measures in the Commission proposals which have a number of disadvantages, to one of which I alluded at the beginning of the debate.

The hon. Member for Ceredigion and Pembroke, North also referred to farm incomes and the problems in the hills. I am sure that he will accept that we increased the suckler cow premium by 35 per cent, in the past year. He will also have heard of my anxiety to remove the discriminatory elements in the sheepmeat stabiliser proposals that are before us. There is a great deal to examine in the wider sheepmeat regime proposals, to which I have not yet been able 'to refer.

Our overriding aim is to achieve a balanced series of reforms. We must resist discrimination against United Kingdom interests and work for arrangements that yield freer competition as well as fair and affordable support for the sector, so enabling the United Kingdom to capitalise, as the hon. Gentleman said, on its natural advantages. There will be a most complex set of negotiations, because there are wide varieties of different systems in sheepmeat throughout the Community, but that is certainly my aim.

We are not likely to be able to negotiate clawback out if the variable premium remains. I am sure that the hon. Gentleman recognises that. Finally, I agree with him about the importance of marketing.

I always listen to what my hon. Friend the Member for Tiverton (Mr. Maxwell-Hyslop) says. I shall not have time to deal in as much length as I should like with his interesting points. He will recognise that one big difference between the early sixties and now is that we now have large surpluses, or ever-rising support costs—a problem which must be tackled. A stabiliser mechanism would significantly reduce the cost of supporting cereals production in excess of the maximum guaranteed quantity, including reducing the costs of export refunds which are such a large part today. I make that point especially to my hon. Friend the Member for Southend, East (Mr. Taylor). That would therefore tend to reduce the incentive to increase the production of cereals. I am also seeking complementary measures such as a set-aside scheme, and other options.

As I listened to my hon. Friend discussing the problem of quotas for cereals, I wanted to ask him what alternatives he would advance. The problem is that we have 4 million cereal producers in the Community, which includes member states that do not have quite the same administrative machinery to ensure that a quota system could operate as well, fairly and effectively as one that we might have to build up here. That would be difficult enough for us. For that, and a number of other reasons, a cereals quota is strongly resisted in the Commission and Council.

I must say to my hon. Friend the Member for Southend, East (Mr. Taylor) that the process of trying (o achieve effective stabilisers is not only a matter of papers and rituals. I recognise that stabilisers are not a panacea—nothing is. However, no one could be more aware than Agriculture Ministers that grappling with the issues that we face is a monumental task. We are seeking effective stabilisers that may not have an immediate impact, but, because they build up, I assure my hon. Friend that they would have one.

We do not yet have firm figures, because we do not have firm agreement on particular mechanisms, but the estimates that I have seen will build up substantially by the third year if we get what we want. I remind my hon. Friend that the reforms carried through in the past three years—mainly milk quotas, the co-responsibility levy and beef intervention price reductions—have produced overall savings compared with what would have happened without them of £4.2 billion, or 6 billion ecu. I think I said earlier—in haste—6.6 billion ecu, but I should have said 6 billion ecu.

I have listened carefully to all that was said by the hon. Members for South Shields and for Greenock and Port Glasgow (Dr. Godman). I have also noted the content of their amendment and have some reservations about it. I certainly dispute the figure of £11.50 a week, but do not have time to go into that. Stabilisers are much more fundamental than just an interim measure and I do not wish to accept all the prescriptions of the hon. Member for Greenock and Port Glasgow.

We have seen from the mood, tone and spirit of what the Opposition said that the House is very much in line with the Government recognition of the need for CAP reform and for what we are trying to do to achieve effective stabilisers. In recognising that, I am prepared to accept the Opposition amendment, but, as is clear from the debate, that acceptance is on the basis that the part of the Government motion endorsing our objectives outlined in the Order Paper is essential. Therefore, in moving towards effective stabilisers we are acting in the interests of the farmer, the taxpayer and the consumer. I am grateful for the support in all parts of the House for what we are doing and for the objectives that we are seeking to achieve.

Amendment agreed to.

Main Question, as amended, agreed to.

Resolved,

That this House takes note of European Community Documents Nos. 8250/87 on Common Agricultural Policy reform, 8761/87 and ADD 1 to ADD 4, and 9066/87, on implementation of agricultural stabilisers and 6116/1/87, on agricultural income aids; believes that the current expenditure on the Common Agricultural Policy which is currently costing the average household of four persons £11.50 per week is insupportable: and accepts the concept of meaningful stabilisers as an interim measure to enable the Council of Ministers to work out a suitable means to reduce surpluses and to devise a lasting and rational agricultural policy for the European Community.