Beef and Veal Regime

HC Deb 18 January 1989 vol 145 cc435-45 10.14 pm

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

I beg to move,

That this House takes note of European Community Document No. 8903/88 + COR 1 on reform of the Community beef and veal regime and of the Government's intention to negotiate an outcome which takes account of United Kingdom producers and consumers and of the need to keep Common Agricultural Policy expenditure within the budgetary guideline.

This motion concerns the European Commission's proposals for the reform of the common agricultural policy regime and for the support of the internal market in beef. These proposals build on the temporary but important reforms agreed by the Agriculture Council in December 1986. These temporary arrangements were due to expire at the end of 1988. But the regime has been extended until 5 March 1989, pending decisions on the regime which should replace it. The current proposals are intended to provide a more permanent basis for the beef regime and management of the beef market.

As always with the common agricultural policy, these are complex issues, and I shall endeavour to explain this one as briefly as possible.

The internal support measures for beef can be categorised under two heads. On the one hand, there are intervention measures, affecting prices of beef on the market, and on the other there are direct payments to producers. The Commission's proposals affect both these types of measures and must be considered against the background of the current regime.

It may be helpful if I remind the House that intervention is currently available on the carcases of male animals which reach certain standards as regards conformation and fat-cover. In order for intervention to be open in respect of any quality or group of qualities, two conditions must simultaneously be met. First, the average price for that quality on the Community market must be less than 91 per cent. of the intervention price. Second, the average price for that quality on the market of the member state concerned must be below 87 per cent. of the intervention price. The buying-in price for beef bought into intervention under these conditions approximates to the average price on the markets open to intervention. One of the key points is that, for so long as these conditions are met, there is currently no limit on the volume of beef which may be offered to intervention agencies. For most of the 22 months during which the current regime has operated, intervention has been open on most of the eligible categories and qualities in the major beef-producing member states.

What the Commission now proposes is that there should be an annual ceiling on the quantities which may be offered into intervention and a tendering system to determine buying-in prices. It proposes that the ceiling should be set at 200,000 tonnes. The trigger points for intervention would each be reduced by three percentage points to 88 per cent. and 84 per cent. If the triggering conditions are met, the Commission, in consultation with the beef management committee, would have discretion—the key word—to open tenders for intervention in the member states concerned. The Commission would not be obliged to open intervention. Moreover, tenders once opened could be closed even if the triggering conditions were still met. In any event, they would be closed automatically if the conditions were no longer met, or if the ceiling on purchases was reached.

As a further refinement to the system, the Commission proposes that it should no longer be obliged to fix the same buying-in price for any one quality of beef in all those member states in which intervention in that quality is open. The aim of this measure is to try to ensure that buying-in prices are more closely geared to actual market prices in the country concerned, and that intervention should not become a market in its own right, as it has tended to be under the current system.

The Commission also states—this is in response to pressure from some member states—that in very weak market conditions, exceptional support measures may be necessary. The proposal therefore provides that, even if the ceiling is reached in any one year, tenders may be reopened. In this event, however, the trigger points for intervention would each be reduced by a further four percentage points to 84 per cent. and 80 per cent. respectively.

I recognise that these are complex technical matters, but it is important to set them on record. I now come to the important point relating to intervention. Taken as a whole, these proposals constitute radical reform of the intervention system, and in the direction in which I firmly believe it is right to go, namely reducing the role of intervention and changing it from what had become an alternative market outlet to a limited safety net.

There can be no doubt that reform is needed. The measures adopted, following the agreement reached in December 1986, involved a reduction in effective intervention prices of about 15 per cent. It was hoped then, and I see why, that this would make intervention less attractive and thus, in time, lead to a substantial reduction in stocks. However, in 1987, as in 1986, purchases into intervention exceeded 500,000 tonnes. For much of 1988, purchases ran at 10,000 tonnes a week, despite adjustments to the system agreed as part of the 1988 price-fixing which resulted in a further fall in buying-in prices.

The new temporary system has had some impact, but not enough. For many operators, intervention has simply proved too easy. Why bother about marketing when there is a ready client in the form of intervention able to take anything one cares to offer? The industry throughout the Community needs to recognise that the customer to whom it has to direct its product—and to whom it has to be acceptable—is the consumer, not the intervention store.

Dame Elaine Kellett-Bowman (Lancaster)

Will my right hon. Friend explain why it is that the other Community countries have never cottoned on to our excellent system, which is fair to the housewife and the farmer?

Mr. MacGregor

If my hon. Friend is referring to the variable premium scheme, I am coming to that. There are two aspects; the first and important one is the intervention system, and it is to that that I am addressing myself first.

The point that I was making, before my hon. Friend intervened, about the importance of recognising that the consumer is the customer, not the intervention store, is a point that I have constantly emphasised ever since I was appointed Minister.

The Government have therefore strongly welcomed the Commission's proposals on intervention. The operation of a tendering system in the beef sector will not be without difficulty. Inevitably, those wishing to sell into intervention will face less certainty than they do at present, but a tendering system is central to the reform we need.

In discussions in the Agriculture Council, attention has been focused on the safety net provisions which would operate in exceptional market conditions. The original Commission proposals are vague on how these might operate. During the protracted negotiations in December, the Commission suggested that, should the average price on the Community market fall to 78 per cent. of the intervention price, tenders would automatically be opened for that quality and all bids below 80 per cent. of the intervention price would be accepted. Purchases under such tenders would not count towards the ceiling.

This would represent a cut of 13 percentage points in the Community trigger, from 91 per cent. at present to 78 per cent. These ideas did not satisfy all member states, some feeling that a firmer safety net was needed. In negotiations next week, I shall be anxious to ensure that, whatever safety net is finally agreed, it does not run the risk of permitting continuing intervention when market conditions do not justify it.

I turn now to the other aspects of the Commission's proposals, those affecting premiums paid to producers. As in 1986, the Commission has proposed that cuts in intervention support should be offset by increased payments to producers. As the House knows, under current arrangements, there are four premium schemes in existence: the United Kingdom's beef variable premium scheme, the calf premium scheme which is operated in Northern Ireland, the Irish Republic and Italy, the special premium which is paid in all member states except the United Kingdom and Italy and at a reduced rate in the Irish Republic, and the suckler cow premium. The Commission's proposals envisage that the beef variable premium and the calf premium would lapse and be replaced by the special premium which would become a permanent part of the beef regime in all member states.

The special premium is a headage payment currently of 25 ecu, which is equal to £17.76. For reasons of brevity, I shall refer to ecu. That is the amount payable per head on male cattle up to a limit of 50 cattle per holding in any one year. The Commission proposes that the premium should be increased to 40 ecu and that the headage limit should be increased to 75 ecu. The suckler cow premium is partly funded by the agricultural guarantee section of the Community budget, and partly by national funds. The Commission proposes that the Community-funded element should be increased from 25 ecu to 40 ecu and that member states should be entitled to pay a further 25 ecu from national funds.

For us, this has certainly been one of the most difficult areas in discussions in the Agriculture Council. The United Kingdom's variable premium on beef has never had any friends outside the United Kingdom and we have always had to fight extremely hard to maintain it. But from the producers' point of view, it is important to bear in mind the fact that the variable premium is imposed as a clawback charge on exports and is paid out on imports from the Irish Republic. Both these factors result in extra supplies on the market, which push the market price below the level that it would otherwise reach. In these ways, therefore, the variable premium reduces the return that the producer receives from the market.

Mr. Charles Wardle (Bexhill and Battle)

Will my right hon. Friend explain why the Commission's proposals exclude heifers? Is it not the case that bull beef production is much more widespread in other EEC countries and that the proposals are therefore a disadvantage to United Kingdom beef producers because they exclude heifers?

Mr. MacGregor

I am coming to that point. Perhaps my hon. Friend could wait until I deal with it in a logical sequence.

It follows that it would be quite wrong simply to compare the size and coverage of the variable premium with the special premium now on offer, and conclude that producers will lose by the difference between the two. This would be to ignore the effects of the variable premium on market returns. Conversely, these effects have, of course, been to the benefit of consumers. From its inception, the variable premium was regarded as a way of keeping consumer prices down by discouraging intervention buying, while still providing adequate support to producers. But the weakening of the intervention system agreed in 1986 and the further moves in this direction currently under consideration mean that much more account is being taken of consumers' interests in keeping prices at reasonable levels.

The Commission is adamantly opposed to including the variable premium scheme as part of the current arrangements, and no one else in the Community is arguing for that. The problem that we have had in the negotiations is that the alternative arrangements are simply not satisfactory: the proposed headage limit for the special premium is a major problem. I can see no justifiable reason why the Community should seek to impose this brake on the creation of more efficient agriculture structures. Perversely, the limit would discriminate in favour of the mixed farmer, who can run other enterprises alongside his beef unit, and against the specialist producer who, for reasons of climate and terrain, may have little alternative but to produce beef, and must therefore seek to maximise his return from doing so. Moreover, the headage limit causes greater problems in the United Kingdom than in some other member states because of our generally larger farming units, although it has emerged in negotiations that Spain, Denmark and the Netherlands—expecially Spain—are rather more affected.

Although I received a measure of support for the headage limit's abolition and for the scheme's simplification in other respects, most member states accept the scheme as proposed. So far, the Commission takes the view that removing the limit will be contrary to its policy of focusing support away from the largest enterprises, and more costly than its own proposal—particularly because of the large extra numbers that will be brought into account in Spain. That has been one of the most difficult elements in the package we are currently discussing—which includes more than the beef regime's future. It is the main reason why I opposed the package last December. We and the Commission are firm in our determination that the 1989 budget provision and the budgetary guideline will be respected. That has been a significant constraint on the negotiations. In December, the Commission said it might allow member states that wished to do so to pay the special premium with no headage limit, provided that the payments so made are no greater in total than had the member states concerned paid them on-farm with a 75-head limit—the main option it is putting forward.

In calculating the appropriate rate of premium for such a slaughter scheme, the Commission took in all the member states that expressed an interest in operating in that way, rather than choose the other option, and lumped them together. The resulting rate of premium is only 25 ecu, which I was not prepared to agree. So far, the Commission has been unable to envisage a scheme in which differing rates applied in different member states. That negotiating problem remains, and was the main reason I could not accept the December package.

I have said nothing about heifers. I appreciate that the loss of variable premium will adversely affect those specialising in heifer beef production. However, no other member state has received Community support for heifer beef production through intervention or premia. We explored in the negotiations whether the special premium can be extended to heifers. That is a point we pushed. I always believe in being open with the House about negotiating problems, and I have to say that, in this respect, we shall have real difficulties in achieving what we first sought—one of them being cost, but there are others. The special premium, for example, is designed as an on-farm scheme with payments being made on live animals. How will those responsible for paying it know that a heifer will not be used as a replacement for a dairy cow?

The present Commission proposals will provide a benefit for producers, retaining heifers for suckler beef production as a result of the provision for a higher proposed rate for suckler cow premium.

The negotiations on this package have been long and difficult, and when we resume next week we shall have a hard battle ahead. Our approach must continue to be that reform is essential if we are to have a stable regime that does not give rise to disproportionate cost. The beef regime has no stabiliser mechanism to ensure that the budget guidelines are respected, and the Commission's proposed intervention ceiling is vital in that respect.

We need an effective intervention system, but one that does not provide a disproportionately high safety net. We also want premium arrangements that put us on an equitable basis compared with other member states, and avoid the beef trade penalties that have beset that particular premium. Within those constraints, I shall seek a deal giving our beef industry a firm and fair basis for the future.

Mr. Tony Banks (Newham, North-West)

On a point of order, Mr. Deputy Speaker. I apologise to both you and the House for interrupting the proceedings. I understand that one of the officials in the Box is blind, and that his guide dog is outside, behind the Chair, and is distressed because it has been parted from its owner. Will it be possible to allow the dog into the Box? Apparently, there is an order saying that it cannot—

Mr. Deputy Speaker (Mr. Harold Walker)

Order. The hon. Gentleman and the House know that what happens behind the Chair is not a matter for the occupant of the Chair. Doubtless there will be a response to the hon. Gentleman's remarks.

10.34 pm

Mr. John Home Robertson (East Lothian)

I sincerely hope, Mr. Deputy Speaker, that the valid point put by my hon. Friend the Member for Newham, North-West (Mr. Banks) will be taken into account, particularly among those of us who are worried about animal welfare. We are also a little worried about the welfare of the Minister of Agriculture, Fisheries and Food. He has been very candid with the House in talking about the difficulties that he is experiencing, and he may be aware that we intend to add to those difficulties during the course of next week—although not, of course, in relation to the negotiations to which he has referred. Broadly speaking, we hope that he will be successful in achieving the compromises that are required in the interests of the United Kingdom.

I am particularly grateful for this opportunity to debate the future of the beef industry, which is a matter of special significance in my own country of Scotland. Scotland produces no less than 40 per cent. of the United Kingdom's prime beef and contains 11,000 specialist beef breeding herds and 2,500 finishing herds, which produce 31 per cent. of our overall farm output—a cool £423 million in 1987. The industry is also important in Wales, Northern Ireland—to which the scheme relates rather differently; no doubt Northern Ireland Members will speak about it later—and much of the north and west of England. The wellbeing of the beef farming industry is of vital interest to the economy, and indeed the environment, and to vast expanses of the British countryside, and it is therefore important that we try to get these decisions right.

It is also important to recognise that beef is a popular food, and—provided that it is handled and stored hygienically and properly—a healthy, useful and thoroughly enjoyable part of our national diet. We recognise the possible dangers arising from excessive consumption of animal fat, but it is relevant to point out that Britain's beef consumption in 1987, at 22.3 kilos per head, was below that of France, Italy, Belgium, Luxembourg, West Germany and even Greece. In turn, the average European Community consumption, at 23.5 kilos per head per year, is well below that of a number of other countries such as Australia, Canada and New Zealand, and less than half that of the United States.

The point that I am trying to make is that it would not do the great British public any harm at all if they had the opportunity to enjoy a little more prime beef as part of their weekly menu. I am sure that they would very much like to do so if the price were right, but I fear that the proposals being forced on the House by the European Commission could put up the retail price and make it more difficult to sell beef to consumers in Britain and elsewhere in the Community.

Other factors, of course, affect the consumer's attitude to beef. There are suspicions about contamination by hormones, and fears about bacterial contamination and bad hygiene standards. The Minister knows that he has connection. Our somewhat ill-considered ban on "safe" hormones has given rise to a thriving black market in potentially dangerous products in some parts of the Community, not to mention a trade war with the United States. Whatever the history of the ban, I think that it must now be maintained, effectively and fairly; and that must mean better enforcement in certain parts of the Community. I understand that not long ago, in Bavaria, no fewer than 150 veal calves were found to be contaminated with diethylstilboestrol, or DES, which is supposed to be banned. Such incidents simply aid the United States' interest in the suggested trade war.

Meat hygiene is a matter more of national than of European concern, and the shortcomings of Britain's slaughterhouses and meat inspection procedures have come in for some adverse comment recently. Far too few of our slaughterhouses come up to European Community standards. It is left to hard-pressed local authority environmental health officers to control all aspects of the market, and I fear that last month's events in Truro will have done nothing to improve consumer confidence in the product. On the contrary, they may have confirmed some people's worst fears about what is concealed in curry sauce —no double entendre is intended. The Ministry of Agriculture, Fisheries and Food must sharpen up its procedures on food quality and food hygiene control.

Mr. Andrew Hunter (Basingstoke)

The hon. Gentleman rightly stresses the importance of consumer interest, but does he accept the proposition that the consumer does not benefit if the producer is impoverished? Will he pay due attention to that proposition and comment on his attitude to a change in the regime, bearing in mind the importance of the beef sector of the market to Scotland?

Mr. Home Robertson

Most certainly. I intend to deal with that. If consumers are to have confidence in that product, the Minister must take certain measures. There are welcome signs that after recent pressure the Ministry is beginning to take action to sharpen up the procedures for maintaining food hygiene standards in the United Kingdom. However, the Minister knows that he will be hearing more about that subject as time goes by.

If the Minister could get these aspects of his responsibility for the meat trade in order, and if there were to be either a reduction in the retail price of beef or, better still, a reduction in poverty levels in Britain—which would make it possible for more people to include some beef in their weekly shopping budget—there could be scope for expanding the market for beef. Supply and demand in the beef market are more or less in equilibrium. If we could increase the demand for and the consumption of beef, there would be an almost unique potential for growth. That would be a treat for the consumers. It would also help to "diversify and extensify" the agriculture industry —to borrow a bit of MAFF-speak, just this once.

Has the Minister considered how much better it would be if land taken out of the surplus production of milk or cereals could be transferred to the extensive grazing of beef cattle, instead of the messy, short-term expediency of set-aside? It would help to retain employment on farms and it would be better for the management and appearance of the countryside. We are talking about a price-sensitive commodity. If action could be taken to control the price of beef, there would be potential for expanding the market.

This is a European Community proposal to scrap the beef variable premium which was negotiated by Labour Ministers. The fixed premium was negotiated by Fred Peart, whom many hon. Members fondly remember. The variable premium was negotiated by my hon. Friend the Member for Edinburgh, East (Mr. Strang) when he was working with the late John Silkin.

These mechanisms have been, literally, a uniquely-beneficial element in the common agricultural policy, in that they are market orientated. They are in the interest of both the producer and the consumer. That is a unique feature of the CAP. The beef variable premium in Britain has encouraged the production of quality beef to meet demand all the year round. It helped the industry through a period of glut when the dairy herd was cut and it has reduced the price of beef in butchers shops by a small but significant amount, which has helped to protect that aspect of the market.

Against that background, it is significant to note that Great Britain—which produces 11 per cent. of European Community beef—accounted for only 1.3 per cent of the intervention buying of beef during the last year. Out of 820,000 tonnes of production up to November 1988, just 5,000 tonnes of British production accounted for intervention buying. During the same period, 370,000 tonnes of beef went into the costly and wasteful intervention system in other parts of the European Community. That is the market in its own right, to which the Minister referred. He is right to be seeking ways to phase out that wasteful and useless scheme.

If there were need for any proof that the beef variable premium system works, those figures should be conclusive. That premium, and other factors in Great Britain, have helped to make the intervention system almost redundant in recent months. However, we understand that the Government are under pressure to scrap the well-proven variable premium mechanism and to replace it with, first, an enhanced suckler cow premium, secondly, with a new special rearing premium, to be paid only for male cattle up to a maximum of 75 per farm, and, thirdly, with the new system of restrictions on intervention buying that the Minister described. Presumably, in addition to that we shall still be left with the hill livestock compensatory allowance to support the less favoured areas, although even that allowance has been frozen this year.

We endorse the principle of the enhanced suckler cow premium, although there must be some question as to whether the level of payment that is being suggested will be enough to do the job required. We certainly support the targeting of support towards the hills and uplands, and we strongly support moves wherever possible to phase out and supersede the absurd and discredited system of intervention.

But the proposed special rearing premium as proposed by the Commission will be a lousy substitute for the beef variable premium. The proposed restrictions will discriminate outrageously against British interests, as some Conservative Members have pointed out in interventions. This change would reduce support for farmers, increase the price of beef in the shops and, by removing the system of quality grading at the time of slaughter, remove an important incentive to produce high quality stock. Also, incidentally, according to my information, it would destroy the jobs of about 200 Meat and Livestock Commission graders.

Meanwhile, the restrictions on numbers and different options for claiming the premium at different stages in the production cycle—by breeders, dealers or feeders—will give rise to bureaucratic problems and, I fear, some scope for fraud, something which we should always bear in mind in connection with European mechanisms.

I presume that to stop the duplication of payment of subsidy under the scheme, we shall have to return to the literally bloody ritual of punching holes in calves ears, a process which many of those involved in the agriculture industry were happy to get rid of.

The proposed maximum levels of support, when compared with the existing framework, would be 40 per cent. lower for the specialist beef units with 150 cows or less. For the large number of British herds which are bigger than 250 cows, the cut in support could be even more severe. Those farms provide vital jobs in very remote areas of the United Kingdom.

Specialist beef farms would also suffer discrimination because of the exclusion of heifers from the special rearing premium. I presume that this sex discrimination has been suggested because of the prevelance of dual purpose husbandry on the mainland of Europe, where heifers from the same herd are used for dairy production and bull calves are used for beef. The scheme should be adjusted to take account of the interests of the specialist beef production in the United Kingdom.

The Minister said that there would be no way of ensuring that a calf on which the premium had been paid might not be used for breeding. If the payment were made at the time of slaughter, breeding could not take place after that. So there are ways of overcoming that problem and the Minister should address them. This point has been made by the National Farmers Union and by hon.

Members in all parts of the House. My hon. Friends the Members for Durham, North-West (Ms. Armstrong) and for the City of Durham (Mr. Steinberg) were speaking to me earlier about concern expressed by their constituents on this issue.

Both the 75-calf cut-off point and the exclusion of heifers are intolerable from the British point of view, and given that this sector of the industry has suffered from falling returns in recent years, there must be a strong argument for maintaining something like the current net level of support to prevent more job losses and more business failures in the livestock producing areas of the United Kingdom.

Ideally, that should be done through something like the variable premium scheme, which would continue to provide support for producers with incentives for consumers. But the figures that have been proposed by the Commission would represent a net cut in support of about 40 per cent., which could do considerable damage to the fragile economy—and, indeed, the fragile ecology—of grassland areas, particularly in our hills and uplands.

I suspect that I am echoing some of the arguments that the Minister adduced at the December meeting of the Council of Agriculture Ministers. I strongly urge him and his colleagues to continue the fight on these vital British interests—on these vital factors for the British rural economy—and, above all, to demand the retention and development of the variable premium, which is good value both for the taxpayer and for the housewife in Britain.