Dairy Industry

HC Deb 12 March 1997 vol 292 cc291-314

[Relevant documents: First report from the Agriculture Committee of Session 1995–96, on the UK dairy industry and the CAP dairy regime (HC 40), and the Government's response thereto (HC 708 of Session 1995–96).]

11 am

Sir Jerry Wiggin (Weston-super-Mare)

It has been the practice of the Select Committee on Agriculture, since I had the honour to become its Chairman in 1987, from time to time to examine major sectors of the agriculture industry. It had been clear for some years that we should undertake an inquiry into the dairy industry, but we felt it right to await the ending of the Milk Marketing Board's statutory monopoly before proceeding.

The most well-known, perhaps infamous, aspect of the common agricultural policy dairy regime is the milk quota system. Quotas were an afterthought that were added to the regime after its other mechanisms had encouraged the over-production of milk and dairy products, and resulted in over-expenditure on the CAP budget. Milk quotas were a crude means of capping production, and to that extent they have worked well. However, it is a fact that the United Kingdom has never been allocated enough milk quota to be self-sufficient in dairy produce, because quotas were implemented in 1984 on the basis of historic production levels.

The United Kingdom dairy industry as a whole and with one voice believes that it is being disadvantaged because of its quota allocation, and there can be no doubt about that. Many of the witnesses who came before us sought some relaxation in the quota system to permit increased production. We explored a number of ways in which to achieve that. The simplest of the proposals was the suggestion that the UK should press for a larger quota in the Agriculture Council. In their reply to our report, the Government said that they would continue to register with the Commission the dissatisfaction felt in the UK about this matter, and that they would oppose any moves to cut the national quota.

We also explored suggestions that milk quota could be traded across national boundaries—cross-border trading—or that over-production in one country could be balanced against under-production in another—cross-border balancing. We concluded that there was little prospect of cross-border trading, given the different ways in which quota is administered in different member states. Should quotas remain after 2000, we believe that systems of administration should be harmonised to facilitate trade.

The Government agreed with the first part of our argument, and restated that their ultimate objective was the complete abolition of the quota system. We propose that the Government suggest to the Agriculture Council that a cross-border balancing system should be introduced. Although they agreed to continue to argue for increased flexibility in the quota system, the Government did not believe that such a proposal would be palatable to other member states, given that most of them had, in recent years, achieved or exceeded their quota allocations, leaving little scope for balancing.

A further means by which the quota system could be relaxed is the introduction of a two-tier system. Milk produced under the first 'A' tier would be sold on the European Union market in the usual way. Secondary 'B' quota milk would be restricted to export markets, and would be subject to the prices prevailing on world markets. We were sceptical about the proposal for two reasons. First, it would be an additional administrative complication; and secondly, it would further entrench quotas into the structure of the EU dairy industry while increasing opportunities for fraud.

We viewed all those measures as no more than a short-term means by which the flexibility of the current dairy regime could be increased. For the longer term, we were convinced that radical reform of the dairy industry was inevitable and desirable. There is no doubt that the task of reform will be hindered by the fact that in several member states, including the United Kingdom, milk quota has achieved a significant monetary value.

Some have argued that reforms to the CAP that result in the abolition of quota should also compensate farmers for the loss of that asset. The Committee did not support that view, not least because when quotas were originally imposed they had no value. Indeed, in member states such as France, where quotas cannot be traded and transferred, they remain without value other than providing the holder with the right to produce milk.

We did, none the less, recommend that farmers should be given as much warning as possible of any changes that would result in the removal of quotas, or in a dramatic reduction in milk prices, and a consequent drop in the price of quota. For that reason, the removal overnight of import tariffs, export subsidies and quotas would, in the Committee's view, be highly problematical. In their reply to our report, the Government endorsed our analysis, and stated that that would not be a viable option. They favoured instead progressive cuts in support prices leading to the complete removal of price support, thus removing the need for any production controls. Even so, it was the Minister's view that, after 2000, when the current quota regulations expire, quotas will remain.

Our report was published in July 1996. At that time, we were told that the Commission intended to open debate on the possibilities for reforming the dairy regime this year, with concrete proposals unlikely to be introduced until spring 1998. The Committee was surprised to find that there was little sense of urgency on this matter among officials of the other member states that we visited, or in the Commission.

It is clearly vital that the Government push the Commission to bring forward its proposals as soon as possible. There are rumours that announcements will be made in the next few weeks, but that is not a minute too soon. By the time such proposals are agreed and implemented, farmers will have little time to adjust their businesses to the new circumstances that they will face.

In reality, nothing is likely to happen before 2000, so we suggested that, over a five-year period from 2000 onwards, support prices should be cut to world levels, import tariffs should be progressively reduced to zero, and milk quotas should be abolished at the end of the transition period in 2005. We also recommended that, to compensate for lower prices and not for the loss of the value of quota, farmers should be paid time-limited transitional payments via a dairy cow premium, which could be linked to requirements for environment and welfare-friendly farming techniques. On the whole, the Government endorsed our suggested approach, but it would be foolish to suggest that achieving those goals will be easy.

During our inquiry, we visited France, Italy and Ireland. The structure of the dairy industry in those countries is different from that of our industry. In France, we found strong support for the retention of milk quotas among farmers, Government officials and the Minister. Lower support prices and the removal of quotas were not appealing to their small farmers. Some dairy producers in France and Italy are very small indeed by UK standards. Our average herd size is 68 cows and rising, and almost half the national dairy herd is in herds of more than 100 cows.

In Italy, we visited a farmer who makes his living from 12 cows. He has stall spaces for 12 cows, has always had 12 cows and, as far as he is concerned, always will have 12 cows. United Kingdom dairy farmers may deride such a small enterprise, but there were aspects of that farmer's business and those of his neighbours from which our dairy industry could learn a great deal. He and his colleagues were part of a co-operative producing expensive Parmigiano-Reggiano cheese. They saw themselves not as milk producers but as cheese producers. For them, that meant being paid not when the milk went to the dairy, but when the cheese was marketed many months of maturation later.

The unified approach to milk production, cheese making and marketing in Italy, France and Ireland was in marked contrast to the conflicts that we have encountered in the UK dairy industry.

In 1994, the Committee held a very short hearing into the deregulation of the milk industry and the delays in negotiations. At that time, we suggested that Milk Marque had been guilty of "brinkmanship" in its negotiations. Once the revised scheme of deregulation had been approved by Ministers, the Dairy Industry Federation made its first priority, on the establishment of the deregulated market on 1 November 1994, a formal complaint to the Director General of Fair Trading. The DIF had maintained that Milk Marque was abusing its powerful position in the marketplace, accounting as it did for 65 per cent. of the market for raw milk in England and Wales, to push prices to artificially high levels.

We investigated the matter and found no firm basis for the DIF's claims. Through negotiations with Milk Marque, Mr. Bridgeman, the Director General of Fair Trading, secured a number of assurances on issues of concern in Milk Marque's trading practices. In particular, Milk Marque introduced more transparency into its selling process—a process that in any case results in lower prices to dairy farmers than many of the purchasing schemes operated by the dairy companies themselves. Indeed, given the prices being offered today, Milk Marque's price is at the bottom of the table.

In line with the Committee's recommendation, Mr. Bridgeman, having asked for our views, declined the DIF's request for Milk Marque to be referred to the Monopolies and Mergers Commission. We hope that, in line with another of our recommendations, the industry will be left in peace to adapt itself to its new circumstances. Indeed, it seems ironic that at least one industry commentator, Barry Wilson, suggested in February's edition of British Dairying that dairy companies have become so good at manipulating Milk Marque's selling system that milk producers might have a case to refer the dairy companies to the OFT—the other way around.

It became clear to us during our inquiry that the primary motivation of the DIF's main objection related not to Milk Marque's trading practices but to its very existence. Those who are acquainted with the history' of the UK dairy industry will know that the milk marketing boards and the milk marketing schemes were set up in the first place to help to redress the balance between small milk producers on the one hand and increasingly large dairy companies on the other. It was the Committee's view that the need for farmers to have a strong stake in the marketing of their milk continues.

It is reasonable to say that we had some understanding with Mr. Bridgeman of the OFT that, when the matter was resolved, he would allow Milk Marque—and the Dairy Industry Federation—to get on with its business. I however have a copy of a letter addressed to Andrew Dare, the director of Milk Marque, from the OFT on 22 January, which is headed: "Monitoring Milk Marque's Assurances". Part of the letter reads: We shall be seeking information from a range of participants in the market but will obviously look to Milk Marque itself as a key source. Apart from the obvious data on prices and volumes etc we will be asking you to provide information which will cover:

1. 1. How the starting prices were reached for the various contracts.
2. 2. How individual bids were dealt with.
3. 3. The criteria used for the allocation of supplies.
4. 4. How any further contract prices and supply allocations were arrived at during subsequent bidding rounds.

We will be looking for information down to individual customer level and would ask you to ensure that all information relating to the current selling process is retained by Milk Marque. Milk Marque does not feel that that is entirely leaving the matter alone. I endorse the comment that evidence is beginning to emerge that the dairy industry is learning to manipulate the Milk Marque selling system. I fully recognise, as does everyone else, that the recent drop of 2p a litre is not entirely due to the change in currency—although it is largely. I ask my hon. Friend the Minister to bear very closely in mind that it is not difficult for a handful of large companies, once they understand the system, to mutter to each other. I am not casting any direct aspersions, but I ask both him and the OFT to ensure that both sides of the industry, which have been at war for far too long, are not seen to be blameless. If he is going to look so closely at Milk Marque, he should look just as closely at some of the big purchasing dairies.

During the Committee's inquiry, the DIF claimed that the UK's dairy producers were among the most efficient in Europe yet the UK as a whole imports high value; added products such as speciality cheeses, fromage frais and yoghurt, and exports low value-added products such as butter and skimmed milk. We asked why UK dairy manufacturers, for the most part, were not able to match the performance of their continental competitors, despite the fact that prior to deregulation, UK farmers received some of the lowest prices in Europe for their milk.

Our report shared the views of the Ministry of Agriculture, Fisheries and Food and independent industry analysts that some restructuring of the processing industry was inevitable and that the root of the problem lay in the historic inefficiencies of the UK processing industry, which had been fostered by the milk marketing scheme, and the institutionalised and anachronistic system of end-use pricing. That system, in which milk prices were set by a formula depending on the intended use, protected inefficient processors and stifled innovation.

The effect of deregulation was to allow manufacturers to compete for milk according to their own needs and costs of production, with the result that inappropriate, inefficient or simply surplus processing capacity is being lost while more innovative processes are thriving, as we saw in my constituency when we visited Yeo Valley Dairies. It is imperative that, if the UK is to make the best use of any opportunities to increase production when quota restrictions are removed, our dairy industry continues to develop in a manner compatible with modern markets and consumer preferences.

We were nearing the end of our inquiry when the fateful statements on bovine spongiform encephalopathy and Creutzfelt-Jakob disease were made on 20 March. The Committee's members were determined to confine ourselves in the report on the dairy industry to covering issues directly affecting the dairy industry only. We considered other aspects of the BSE affair in other inquiries.

We noted that the selective or accelerated slaughter scheme, which the Government decided initially not to implement but then agreed to undertake, and which the National Farmers Union at first opposed and then supported, is not being undertaken for reasons of public health. We argued that compensation for cattle slaughtered under the scheme should therefore be closer to the replacement value of stock than to the market value, and that farmers who will lose a significant proportion of their herd should receive additional compensation. The legislation implementing the selective cull, which came into force on 24 January, sets compensation rates at 90 per cent. of the replacement value of cows or the market value, whichever is higher. In addition, farmers who lose more than 10 per cent. of their herds will receive additional payments. I certainly think that that is a fair balance.

Coming from the west country, I need hardly add that we looked at the contentious issue of bovine tuberculosis, which is accepted by many in farming and veterinary circles as being spread by the burgeoning badger population, especially in the south west and the midlands. In our report, we recommended that my hon. Friend the Minister should have farmers at the forefront of his mind when it came to any decision on future badger control strategies, and that, in addition, compensation for TB reactors should be raised to 100 per cent. of the animals' market value. As the House knows, the Government have established an independent scientific review to look into that matter.

This is definitely the last time that I shall present an Agriculture Committee report to the House. Perhaps I might take the opportunity of thanking all hon. Members on both sides of the House who have served on my Committee since 1987, when I was first elected as its Chairman. I hope that they have found the experience rewarding and feel that we have contributed in our small way to exercising the power of the House in monitoring the business of the Government. I should also like to thank the Clerks, their assistants, secretaries and advisers who have worked so hard to produce our end product, which is inevitably always in the form of a report. I am happy to say that I think that, with the wisdom of hindsight, we have been more often right than wrong—although clearly that is a matter for others to judge.

In the summer of 1969, I made my maiden speech on agriculture, and I am glad that I am addressing the same subject this morning. It remains our most important industry, and its prosperity is the strength of our countryside and our nation.

11.18 am

Mr. Paul Tyler (North Cornwall)

I did not expect to be called so soon in the debate. On behalf of my colleagues, may I thank the hon. Member for Weston—super—Mare (Sir J. Wiggin) for not only the report but his leadership of the Committee over a number of very difficult years for the industry, and the way in which his particular advocacy of the industry has informed debates in the House? I found the report so helpful that I shall confine my remarks to the points made in it. They will therefore follow the report's format.

In paragraph 37, the Select Committee says very firmly: we would expect Ministers to take a very robust stand before and during negotiations. Many hon. Members, I think on both sides of the House, believe that, because of the distractions of internal problems with which the industry and therefore the Ministry have been faced in recent years, far too little attention has been given to the United Kingdom's position in those crucial negotiations over the future of this sector of agriculture. I endorse the Select Committee's view that a much more robust attitude will be necessary in the new Parliament. When and if there is a new Government, a different attitude will no doubt be taken, but the importance of the negotiations cannot be underestimated.

There will have to be a triple-track approach to the issues with which the Select Committee has been concerned. First, the hon. Member for Weston—super—Mare referred to the subject of the national quota. Clearly, it would be totally unsatisfactory if other countries bid for more quota in the coming years and Britain did not make its claim as well. It may be that the total pool of quota is not going to change, but it would be devastating to British agriculture and to the dairy sector in particular if the same pool were sliced up, if a pool can be sliced up, in a way that is unfair to British producers. That is one of the major concerns of the farmers unions throughout Britain. If other countries are going to bid, we must be in there too—that is track number one.

Secondly, if there is to be some transition towards a new quota regime—a much lighter regime, perhaps—after 31 March 2000, it follows that, during that transition, there will be an urgent need to harmonise the existing different regimes in different member states. Ours is perhaps the exception that proves the rule. Ours is exceptional in terms of the speculative value that is attached to quota here, which has had a devastating effect on new entrants in particular, but has also damaged those who are seeking to develop in this sector.

Other countries have managed to avoid that speculative element. Members will recall, because our postbags were full of it, that, just two years ago, we were told that football clubs, pop stars and redundant Cabinet Ministers were all investing in quota because it seemed to be the best product for a quick return. We know that they did not, but that is not the point. The very fact that there was speculation about speculation caused a speculative price. Unless we can get away from that position, it could return. It would be devastating if we were to find that we were the ones that were out of step in a transitional period that could otherwise benefit other competitive countries.

Mr. Ieuan Wyn Jones (Ynys Môn)

One of the reasons why those companies were not able to speculate was that the quota remained attached to the land. The difficulty that the hon. Gentleman mentions is that, if quota were detached from the land, that speculation could take place.

Mr. Tyler

I am grateful to the hon. Gentleman. There is a consensus that detaching quota from the land would be a backward step. The Select Committee made that point and the Government in their response made it too. No one is now suggesting that, but there must be some way in which the management of quota is more effectively undertaken in the public interest, not just in the industry's interest.

Mr. David Harris (St. Ives)

What exactly is the hon. Gentleman's party's policy on the future of quota? Is he in favour of abolishing it, phasing it out or keeping it?

Mr. Tyler

There is absolutely no question of quota being abolished. It would not be possible for Big Ben to strike midnight on 31 March 2000 and the quota to go completely. No one in Europe wants it to go like that, but, clearly, there will have to be a new regime. My point is that Britain must be in those negotiations to ensure that the transition is not to the disadvantage of our industry and to the advantage only of our competitors.

Thirdly, the Select Committee considered seriously and very well the issues of cross-border quota trading and cross-border balancing. That is the third track that we should be pursuing because, if there is to be a different regime after 2000, it will have to be on a much wider basis than the present national basis. There is room there for some horse trading to ensure that other countries recognise the value of that. If we run all three tracks at once, there is a chance of making progress. That is the view of many in the industry not just in Britain, but in some of the other member states, which share our view.

Here is an example. In the past, the British veto was perhaps necessary to preserve the position of British agriculture in common agricultural policy reform, but with the enlargement of the European Union, there may be more allies there and in future the Greek or Portuguese veto may hold us back from reform. That could be an area where majority voting may be to the advantage of Britain and its farmers.

On two-tier quotas, I have carefully considered the report and I have heard a great deal elsewhere too. Recently, I spoke at the conference of the Royal Association of British Dairy Farmers in Malvern. I heard some convincing arguments for reconsidering the issue of two tiers. It will not be easy—I do not think that anyone could deny that—but, after 2000, that may be the way in which we get some fluidity into the cross-Europe milk quota system. We should not discard it as readily as the Select Committee appeared to do and as the Minister did even more. I fear that farming unions are perhaps putting their heads in the sand in anticipating that it is a non-runner. It may be a runner for other EU states as well as ourselves.

On support prices and compensation, I notice that, in paragraph 66, the Select Committee says firmly: The NFU's position was in stark contrast to MAFF's. I hope that we will find that those positions come together, because it is critical to the future prosperity of this sector.

I want to move from quota to other wider issues that the Select Committee wisely felt it had to consider, but in passing I must make the comment that I think that this is the first time that anyone in the House on an official basis or indeed anyone outside has placed such a neat summary on the record of what happened with the 1992 CAP reforms. In paragraph 79, the Select Committee said: To avoid the problems of 'over-compensation' which have occurred in the arable sector following the 1992 CAP reforms, the level of compensation payable should be automatically adjustable to take account of fluctuations in world dairy prices. Hon. Members on both sides of the House must all accept now that the so-called Gummer reforms of 1992, which placed no cap or adjustment mechanism on the arable aid payments and which paid no attention to world cereal prices, were a disastrous mistake. They have drained away from the CAP budget huge sums of money, which both the taxpayer and the rest of the industry do not feel is justified.

On the way in which any compensation regime should be introduced, I take seriously the comment in paragraph 80 that any attempt to introduce some form of modulation that could result in distortion is dangerous. The Select Committee is absolutely right. I hope that today the Minister will tell us that, in approaching the issue of modulation in any future negotiations, it will be central to the British Government's position that modulation, if there is to be any, must be a matter for derogation, so that it can be appropriate to the particular circumstances of each member state. I suspect that it will come down the track sooner or later. It may not come in 2000, but sooner or later it will come, simply because of taxpayer resistance throughout the EU. If that is to happen, clearly subsidiarity must be the order of the day.

Before I leave the subject of the dairy sector and its marketing process, I have to say that the Chairman's remarks about the relationship between Milk Marque and the Dairy Industry Federation were apt, appropriate and extremely topical as a result of the cuts in pricing in the past few weeks. There is concern that the oligopoly among the dairy companies is just as likely to be a threat to competitive forces in the industry, and to the consumer's interest, as the position of Milk Marque, which after all does not have a complete monopoly—the situation is very competitive.

In the past few days, I have been disappointed that the Labour party—in a classic attempt to make post hoc propter hoc the basis of its policy—has started again to say that the creation of Milk Marque has destroyed the doorstep pinta. That is absolutely ludicrous, because we all know that the doorstep delivery of the pinta has gone for many social and economic reasons. I give the example of my own home. I am not there that often now, and my children are grown up. Our doorstep pinta eventually ceased when the milkman was no longer prepared to deliver a pint every other day, because it was not worth his while. Increasing numbers of women are going to work and realise that they do not want a pint sitting on the doorstep, going bad during the summer or demonstrating that the house is empty, and people inevitably have chosen other means.

The doorstep pinta did not suddenly disappear because the House passed a law; it was part of a general social trend. It is quite absurd—it is essentially taking a dinosaur approach to social trends—for the Labour party to pretend that the pinta disappeared because we introduced a new form of milk marketing. That is ridiculous, and it shows how out of touch the Labour party is with reality.

Some extremely important issues were not given quite so much room in the report. However, we should give them some attention now, because they have loomed large in our affairs since the report's publication. I noticed the comment on the over-30-month scheme, in paragraph 150, which states: it would be unduly harsh to he over-critical of the delays associated with getting the scheme up and running". Surely that is the understatement of the century. Being "over-critical" reflects the fact of life. Everyone in the dairy sector and in farming knows that the scheme was a shambles, and it was rightly categorised and castigated as such at the time.

Since then, at long last, the selective cull proposals have been presented to us, to the Commission and to other member states. In its report—which was published before the details of the proposals were known, although the rough parameters were—the Committee states: In our judgment, it lies at the boundaries of political acceptability. The Chairman did not refer to that paragraph—which is also an understatement—in opening this debate.

In the coming weeks, if the cull level in some of our prime, closed and most productive herds reaches a point at which milk production is severely damaged for some time—because replacement will not be easy, particularly if sourcing must be from equally well accredited herds—we will have a problem. I hope that the Minister will address that issue—although it may lie in the territory beyond 2 May, and perhaps in someone else's field. Nevertheless, I hope that the Ministry still has a bit of soothsaying ability.

Mr. David Nicholson (Taunton)

A few moment ago the hon. Gentleman vigorously castigated the Labour party for playing politics. I wonder if I can tempt him to say something about the consequences for the dairy industry, abattoirs and others—particularly in the south-west, where concerns have recently been expressed—of the Labour party playing politics over meat hygiene?

Mr. Tyler

I do not think that I should be diverted on to that matter, except to say that farmers are fed up with living with the consequences of the shambles, the mismanagement and the culture of secrecy that has take over in the Ministry of Agriculture, Fisheries and Food. That is the real complaint. The complaint is not about information coming to light—in many cases very properly so.

The Committee also dealt with the problem of the welfare of dairy cows. However, there is another problem which is very much connected to public concern and interest in genetic development, and about going down a one-way street in developing genetic improvements in dairy cows. The report contains a very interesting section on lameness in cows, which I discussed yesterday with the Farm Animal Welfare Council.

I notice that some hon. Members are indicating that I should not allow any more interventions to my speech and should bring it to a conclusion. Before I do so, 1 should say that the long delay in establishing the Krebs inquiry into the connection between tuberculosis and badgers has been a disaster for the industry, particularly in the south-west. Its chairman was appointed last summer, after a wait of many months. The other members were not appointed until last autumn, and the committee is only now starting. I can understand the Government trying to avoid embarrassment before polling day, but that delay was absurd.

The Ministry's credibility is at an all-time low at home and abroad, and it was not helped by last summer's counter-productive and ludicrous beef war, which delayed progress on eradicating BSE not only in the United Kingdom but across Europe and on introducing the certified herd scheme and effectively regulating meat processing in the single market. If we are able to persuade the Commission and other member states to accept our criteria and standards in certifying herds and controlling meat processing, those criteria should apply across the Union. I believe that that is critical. If there is a single market, it is absurd that our exports should be controlled in a manner different from that applying to German exports to this country, for example. The same rules should be applied.

Mr. William Cash (Stafford)

Will the hon. Gentleman give way?

Mr. Tyler

No, I will not give way; other hon. Members want to speak.

As a direct result of the way in which the Government played their cards last summer, we are now marginalised in some of the most important discussions and negotiations that will ever affect the agriculture industry, and particularly the dairy sector. I hope and pray that we will have a new start after May 1.

11.36 am

Sir Roger Moate (Faversham)

I shall try to make a few points very briefly, as this is such a short debate. I, too, compliment my hon. Friend the Member for Weston—super—Mare (Sir J. Wiggin) on his eight years as Chairman of the Agriculture Select Committee. I have had the privilege of being on it for two years, and have come to respect his great support for agriculture, knowledge of the industry and the way in which he has created a cohesive and happy Committee.

The only complaint that I would make of the Committee—it is a feature of all Select Committees—is that its very cohesion tends to produce reports containing conclusions that are designed to attract maximum support in the Committee. The reports are therefore less abrasive than they might be, which thereby enables Ministers always to respond by saying that they agree with the conclusions.

My hon. Friend the Member for Weston—super—Mare mentioned one of those conclusions, and said that, on a matter of fundamental importance, the Government agreed with the Committee's conclusion that the sudden removal of support prices and quotas in the dairy sector is not a viable option. However, we did not come to that conclusion, although the Minister agreed with it. Before that, we said: the 'Big Bang' solution of drastic cuts… and the abolition of quotas overnight… would appear to be highly problematic". "Problematic" was a carefully chosen word. If one goes back to our report, we said something that I think is more significant. We said: the 'Big Bang' solution should not be rejected. It could be that a rapid radical reform would be more advantageous to producers as well as consumers if accompanied by a well-engineered programme of compensation. The matter must be examined within the context of a much wider-ranging discussion about what should happen in 2000. The hon. Member for North Cornwall (Mr. Tyler) mentioned our earlier comments—which could have been interpreted as criticising the Government's position, and which the Government have sensibly chosen to ignore. The comments contain some criticism, although it is not a specific criticism of this Government. It is the expression of worry about a general lack of zeal, determination and robustness in ensuring that we have a proper solution by 2000 and that we tackle the problem soon.

According to paragraph 37 of the report: Mr. Hogg told us that MAFF's approach to the question of dairy regime reform would depend on the Commission coming forward with specific proposals. We could wait a long time for that. It continues: Mr. Hogg stated that 'the sensible man… decides what is attainable and then negotiates for that, otherwise you end up with egg on face'. This view contrasts with the strong statements of policy by MAFF. Given the vigorous and critical nature of the extended debate that will undoubtedly take place… we would expect Ministers to take a very robust stand… during negotiations. That robust approach had been reflected in Ministry documents that were extremely impressive. Page xxi of the report refers to a scathing critique of the dairy regime in which MAFF claimed that it was 'manifestly absurd to operate a support price system which encourages excessive production while at the same time imposing quotas to offset this'". That is the background to the issue. There is widespread concern that we shall end up with half-baked proposals from the European Community, a serious entrenchment in defence of the present position and only mild changes in 2000, so that the present regime, perhaps with some minor changes, may well continue for years.

Mr. Cash

Does my hon. Friend accept that one reason why he is almost certainly right is that there is absolutely no desire on the part of other member states to make the necessary adjustments to ensure that the British dairy farmer who is efficient gets reasonable treatment? The problem has been plagued by a determination to ensure that the British dairy farmer does not get the fair deal that he deserves.

Sir Roger Moate

I am sure that my hon. Friend is right. Ultimately, of course, there has to be agreement, unless, by some miracle, we can negotiate, or—to use the same phrase as my right hon. Friend the Secretary of State for Health—renegotiate ourselves out of the common agricultural policy and the common fisheries policy. We have to have agreement. Unless the British position is put robustly, it is unlikely that we shall secure the right deal for British agriculture.

There is no difference of view between us. The Government's position is clearly stated in their documentation, but will the British Government take a robust position in favour of significant reforms in 2000? I am worried about that. I have heard nothing from hon. Members on the Labour Front Bench to suggest that a Labour Government would take a more robust line. In fact, it is the reverse; they are determined that Britain should not be isolated in Europe or be a lone voice. We have to take a strong position, however, because the British consumer and the British dairy industry are seriously disadvantaged by the present regime.

Mrs. Ann Winterton (Congleton)

Does my hon. Friend agree that, whatever new regime is introduced in the European Union, it should not repeat the experience of the imposition of quotas in 1984? They were introduced retrospectively and at great disadvantage to Britain. Does he further agree that our dairy industry needs time to introduce change so that it is not severely disadvantaged?

Sir Roger Moate

We have to move rapidly to a position where we are not restricted by present quotas, or prevented from producing as much milk as under the present regime. UK Ltd. is probably disadvantaged to the tune of £1 billion or £2 billion, and many individual dairy producers are seriously disadvantaged. Although there might be historical arguments for those quota levels, how long can we continue to base the system on historical factors that are no longer relevant?

Even if we had a rapid and radical solution, no one suggests that anything could be achieved overnight. However, our objectives and policies must be clear. Our objective must be to maintain a healthy dairy industry in Britain.

Finally let me point out one or two disadvantages. The table on page xxiii of the report sets out the disadvantages to Britain in direct expenditure on support to the dairy industry. It shows that the average support per cow in the Netherlands is £434. In Ireland, the figure is £193; in Denmark, it is £407; and in the United Kingdom, it is £81. That is pretty dreadful.

Most subsidies provide export support, and we cannot export because of quota restrictions. Many other subsidies provide price support, but that is uniform across the Community. The direct support discriminates against the British industry, and that is quite unacceptable. The biggest discrimination against the United Kingdom, as my hon. Friend the Member for Weston—super—Mare made absolutely clear, is that we are required to produce much less than our needs and are therefore obliged to import dairy products. We cannot allow that discrimination to continue, so we must present a strong and robust case at the Council of Ministers and the general negotiations that are likely to take place.

It is also worrying that dairy farming is not included in negotiations at the intergovernmental conference so negotiations will have to take their own slow and separate course. We have threatened to veto the IGC negotiations unless we get satisfaction on quota hoppers in fishing. How much more sensible it would be if we refused to allow progress at the IGC unless there were serious reforms of the common agricultural policy.

For how much longer will we be told that there will be reform, while year after year we have to tolerate certain unacceptable features of the CAP such as the high cost to the consumer of £20 per week per family? We spend £34 billion a year on supporting agriculture in Europe. The British taxpayer still subsidises the production of bad wine in France and of tobacco in Greece. It is universally agreed that the system is unacceptable and we really must make a determined attack on it and press for the reform of the dairy regime in 2000 and the rapid phasing out of the present system thereafter.

11.46 am

Mr. William Ross (East Londonderry)

I shall speak only briefly, as the report refers to Northern Ireland.

Many of us are sorry that the hon. Member for Weston—super—Mare (Sir J. Wiggin) is leaving the House. He has been a very robust Member and has always expressed his views clearly. Although I do not necessarily agree with everything he says, he puts his views firmly and I respect him for that. He will be a loss to the House and to his party.

The hon. Gentleman will be a loss, especially to the farming community, given the attitude of the Minister of Agriculture, who appears to negotiate on the basis of what might be attainable. The hon. Member for Weston-super—Mare would have said, "This is what my country needs and, regardless of what happens, I am going to get it." If the Minister took that approach to Europe, we might end up with what the country needs rather than what we will graciously be given. I do not think that the hon. Member for Weston—super—Mare would have been as soft in securing what the country needs.

One of my pet subjects is tuberculosis in badgers. In my opinion, the disease is a consequence of the British attitude to wild animals. Man is the supreme predator. As we got rid of all the other predators in Britain many years ago, we have a duty to manage the remaining wildlife and to maintain a balance. Unless we do so, some parts of the country will be overrun with badgers and foxes.

Folk will remember that some years ago there was a considerable trade in fox skins out of Northern Ireland. It faded because of all the hullabaloo about wearing furs. When it was over and done with, I tabled a parliamentary question on how many fox skins had been exported from Northern Ireland over five years. The average for each year was 23,000. If anyone had tried to tell me that 23,000 foxes a year could be killed in Northern Ireland—I suppose that some of the foxes probably came from the Irish Republic—I would have laughed them to scorn, but the figures are there. There are a lot more wild animals than most people think.

Mink have caused immense damage. We should have made a serious effort to wipe them out. All sorts of other animals also cause damage, such as magpies and raptors—an issue that will come back whether we like it or not. We had better start thinking straight about these matters rather than allowing ourselves to be ruled by emotion, as we have for far too many years. Some hard decisions will have to be made. Some of us will have to express and defend our attitudes more clearly against all those who look at little furry animals or nice little birds and shut their eyes to the consequences of the imbalances that have arisen among our wildlife.

That is a pet subject of mine that I shall not pursue too far, because I can see that you are becoming a little uneasy, Mr. Deputy Speaker. We have lots of badgers—I have some on my land. The foxes come round every year and stink them out, breed and then go away again and the poor old badger has to clean his house out. We shall return to TB in badgers when the scientific evidence is available. Whatever that evidence shows, my earlier remarks will still apply.

Northern Ireland is the only part of this country with a land boundary—with a nation that is a strong competitor for our milk and dairy products. The report refers to the fragmented nature of the Northern Ireland dairy processing industry. In another context, instead of lamenting that fragmentation, we would praise it as evidence of strong competition for the market, giving people choice.

We lament that fragmentation because the Republic has built up a strong, vertically integrated milk products industry. It has purchased far too much of Northern Ireland's processing capacity and is still buying far too much of our milk production. Too many decisions are being taken south of the border rather than in the United Kingdom. A dangerous situation for the Northern Ireland dairy industry in the long term has been created and is steadily expanding.

As well as noting and agreeing with the Committee's comments on the structure of the dairy industry, I hope that the Government note the concerns expressed by dairy farmers in Northern Ireland and my comments on the processing sector in Northern Ireland, the long-term dangers and the need for the Government to do something about it. If they do not, heaven only knows where we will end up. I fear that we shall end up entirely in the hands of processors outwith the United Kingdom. That should not be acceptable to the House or to the Government.

11.53 am

Mr. Richard Alexander (Newark)

This has been one of the last inquiries conducted under the chairmanship of my hon. Friend the Member for Weston—super—Mare (Sir J. Wiggin). This morning we have heard probably his last speech in the House. The debate may feature the last speeches from some others of us, but that is for the electors to decide.

I pay tribute to my hon. Friend for his chairmanship over the past 10 or 11 years. His professionalism and his dedication to agriculture have been admired by his colleagues throughout that time. He has been a firm and fair Chairman, running his Committee with authority and always with a sense of humour. He has shown great friendship to us all, regardless of party. I know that those sentiments will be shared by all members and former members of the Select Committee on Agriculture. We wish him well.

We have had quotas since 1984, and they are an established part of the dairy farmer's way of life. They were widely objected to at the outset, as I remember well from my constituency, but now they are widely accepted, as happens with most changes. The system was renewed in 1989 and 1992. It will expire in just over two years, unless it is extended again, which seems unlikely. Because of the uncertainty, farmers need to know what the situation will be after 2000.

It goes without saying that quotas are a valuable asset for the farmer fortunate enough to have them. The change in 1984 was traumatic for farmers. Cutting off quotas and going for a completely free market after 2000 would be equally traumatic, resulting in a huge loss of asset value for dairy farmers through no fault of their own.

We cannot, however, ignore the fact that there must be some change in 2000, or at a reasonable time after that. The report and the debate are therefore timely, enabling both major parties to set out their thinking on how the situation should be resolved. When they do so, I hope that two factors in particular will be uppermost in their thinking.

First, we must make it clear that any return to the Commission's original idea of the early 1990s of limiting compensation according to a maximum number of cows would be unacceptable. The Commission was thinking of a maximum of 40. It called the idea modulation. British farmers, with their much larger herds, would call it something else, seeing it as another back-door way of harming a settled and prosperous part of our agricultural scene. I look forward to hearing from my hon. Friend the Minister and from the hon. Member for Newcastle—under—Lyme (Mrs. Golding) that the Commissioner will be told that the plan is a non-starter. We do not know what the Commission will propose. We are saying that we must not allow drift beyond 2000, which would result in uncertainty and quotas by default. If we are going to have quotas for the foreseeable future, we should be told.

Secondly, we should insist that there should be no reduction in this country's quota in the meantime. We are not self-sufficient in milk and we have a strong case for more quota rather than less. The impression hitherto has been that the Ministry is unlikely to press for additional quota. I regret that. Other countries, with records perhaps less authentic than ours, are robust in asking for extra quota in the price-fixing negotiations. We should do the same, and we should certainly argue against any suggestion of quota cuts. I would welcome assurances from those on the two Front Benches that that is their thinking.

It is tempting to say that we should not alter the quota system. It is not broke and does not need fixing. Farmers like the system, which protects them against cuts in support prices and is a capital asset in their hands. If we continue as we have done, comfortable though it may be, we must recognise that, according to the Commission's figures, in seven years there will be a surplus of 8.6 million tonnes of milk. To deal with that surplus, we are likely to have to end production controls.

That will mean a reduction in price for the producer, but that could be balanced over the years by greater access to world markets, perhaps coupled with suitable compensation for loss of a capital asset. Other countries are expanding and exporting their milk production, and we should do so too. We have the option of protecting the present regime for as long as we can or of getting into world markets. We cannot do both.

I am not too attracted by the idea of 'A and B' quotas; neither was the Select Committee. They have operated in the sugar regime for some time. They produce stability, but the price is uncertainty when each round of negotiations looms. We are in a minority—one country out of many—when it comes to those negotiations. Our competitors are not widely known for protecting Britain's interests in sugar or in anything else.

Another price of quotas is the inability to produce more for world markets. To produce more, British Sugar has to set up plant abroad, whereas it should be able to produce more in this country, in excess of quota, and sell abroad. Milk 'A and B' quotas would defeat the object of getting into world markets—markets that the United States of America, Australia and New Zealand are already getting into with some success, leaving us and our access to those markets behind. As my hon. Friend the Member for Weston—super—Mare said, while "A and B" quotas might tide the farmers over for a little while, the imposition of two-tier quotas would add an unnecessary administrative complication to the milk regime.

The uncertainty needs to be resolved soon. We should do so now, as farmers are fully aware that the quota system is likely to end. We received evidence from the National Farmers Union that it is advising its members that they must not budget for quotas being there after the year 2000". In addition, the president of the National Farmers Union told farmers: the time is getting nearer when the best interests of UK dairy farmers may be to seek an end to the milk quota system". Whatever new system is proposed, we shall have only a voice; decisions will be made by the European Commission. We must make it clear to the Commission that it must recognise the loss of value that would follow—perhaps time-limited over five years while support prices and import tariffs were reduced.

We must remember that the dairy industry is valuable and profitable to this country. If we destroy that value and profit overnight without a fair lead-in period, we shall hand the industry over to the expanding milk producers in the world. The object of the reform, whatever it may be, must be to be up there with them, competing in world markets, not to hand it over to them.

We must look after the industry, which has served the country and agriculture communities well for many years, particularly since 1984. Things will have to change but it is the task of my hon. Friend the Minister to ensure that that change comes about in a sensitive way with a firm eye to the industry's future prosperity and its future opportunities in the world.

12.3 pm

Mrs. Llin Golding (Newcastle-under-Lyme)

I should like to add my thanks to the hon. Member for Weston—super—Mare (Sir J. Wiggin) for the work that he has done on the Select Committee on Agriculture. I wish him well, badgers or no badgers.

Milk is one of the most important foods and, given the damage that the Government have inflicted on the dairy industry, this morning's debate is useful. It is unfortunate, however, that we cannot include the European Commission's Green Paper on the proposed reforms to the common agricultural policy dairy regime, because it is not expected until next month. The Labour party believes that the Council of Agriculture Ministers will have to take some hard decisions to reduce protectionism within the EU milk regime. I doubt whether the Minister will be too worried about that after 1 May, as it might no longer be his job.

I remind the hon. Member for Faversham (Sir R. Moate), before he starts complaining, that the Government have been in power for 18 years, and the Labour party has not had a chance to deal with the CAP in Europe.

A priority will be to get rid of the quota system, which keeps prices to the consumer up by preventing farmers from producing more milk. While I am grateful for the excellent briefing that I received from Consumers in Europe, Milk Marque, the National Farmers Union and others on quotas, it would be far better to await the Commission's Green Paper before entering into detailed discussions on that matter. Perhaps I should put it on the record that we share the Government's scepticism about the possibility of obtaining increases in quota, cross-border trading of quotas and other devices to reduce the damage done by the quota system. We believe that we must now concentrate on ensuring that quotas are phased out.

Mrs. Ann Winterton

Will the hon. Lady give way?

Mrs. Golding

I am sorry, but I am strapped for time and do not intend to give way.

As my hon. Friend the Member for Edinburgh, East (Dr. Strang) has made abundantly clear, it is imperative that the cost of the milk regime, which is now approaching £4 billion a year, is cut and the money spent more wisely. Much of the British and other European taxpayers' money spent on the EU dairy regime is wasted. For example, why should the EU spend more than £1,500 million on export refunds and £390 million on skimmed milk, to feed calves on the continent?

Our objective is to ensure that the CAP will take explicit account of its influence on food standards and diet. By linking agriculture policy to food policy in that way, we could ensure that the diet of our people, particularly our young people, improved. Anyone who doubts the great value of milk to young people should read the pack on milk and children prepared by the National Dairy Council. I do not intend to spend my time performing a commercial break by listing all the nutrients contained in milk, which are vital to our nation's health, but I must draw attention to the importance of providing calcium, for both young children and older people.

Because the Labour party is convinced of the value of milk to young people, we continue strongly to oppose the decision to end taking up the European subsidy on secondary school milk and milk for school meals. CAP money should be used to subsidise milk in schools. It is an investment in people and an important element in improving the nation's health. We simply cannot understand the Conservative party's change of attitude towards milk. It was not long ago that a former Tory Agriculture Minister, the right hon. Member for Fylde (Mr. Jack), was telling us of the nutritional benefits that derive from establishing a milk drinking habit at an early age and maintaining it through the teenage years, when it is especially important for adolescent girls, for whom it may help osteoporosis in later life. In another context, the Government constantly tell us that they follow scientific evidence. On what scientific evidence have they gone from the positive attitude of the former Agriculture Minister to the negative, uncaring attitude towards the health of young people expressed by the current Agriculture Minister?

It is clear that the philosophy shown by Thatcher the milk snatcher has come to pervade the whole of the present Government. They remove milk from our schools and stand by and watch our doorstep delivery system disappear. The week before last, following a campaign waged by the Labour party and the National Dairyman's Association, my hon. Friend the Member for Edinburgh, East presented to the House a petition signed by thousands of people in support of the doorstep pinta. The signatories know how important the doorstep delivery service is to the whole community as well as to the dairy industry, and they are concerned about its rapid decline.

In 1982, 86 per cent. of households in England and Wales received doorstep deliveries; by 1996, the figure was only 39 per cent. The Minister of Agriculture, Fisheries and Food does not help by saying merely that that reflects the difference between supermarket and doorstep prices: what about those who cannot get to the supermarket—the elderly, the sick, the housebound and those with responsibility for others whom they cannot leave? They depend on the doorstep pinta.

Far from hitting the delivery services, as they did by taxing milk floats, the Government should be asking for CAP money to help such services. If £390 million can be spent on feeding calves, some can be spent on helping that useful service to the community.

The threat of applying value added tax to our pintas must be removed. The Chancellor said that a strong case could be made for putting VAT on food, children's clothes, transport, sewerage and newspapers and added that no amount of lobbying need put the Government off. Lobbying might not, but a general election certainly will, especially when people realise that the price of a doorstep pinta could be raised to 44p.

The Dairy Industry Federation has severely criticised the Select Committee report. It said: the section on the UK Dairy Industry, however, was based on inadequate research and was generally dismissed in the industry. It contained serious factual errors… In particular without seeing any of the economic evidence which has been evaluated by the Office of Fair Trading, the Committee expressed a view on how the OFT should exercise its powers in a competition investigation of Milk Marque Ltd. under the Fair Trading Act 1973. It is clear that relations between the Dairy Industry Federation and Milk Marque are still far from satisfactory. In particular, the federation is concerned about stories that Milk Marque, which controls about 60 per cent. of the supply of raw milk, is discussing with the City the possibility of its acquiring processing capacity. That could operate in ways that would be extremely unfair and detrimental to existing processors.

The Select Committee said: We would not wish to see Milk Marque attempt to develop its own processing capacity whilst it remains a strong force in the market for the supply of raw milk. The Dairy Industry Federation would like the Government to reaffirm the stance they took in response to the Select Committee, when they said: This is a matter for competition law and the competition authorities. It would be helpful if the Minister could reassure the Dairy Industry Federation that they have no intention of supporting any acquisition by Milk Marque of processing plant, until a thorough investigation has taken place.

Mr. Ian Davidson (Glasgow, Govan)

Does my hon. Friend agree that the competition authorities do not police the industry adequately in Scotland, where there is a danger of Wiseman Dairies acquiring the milk-producing side of Scottish Pride, which would give it about 80 per cent. of the milk market in Scotland? That has not been halted by the competition authorities, and there is no reason for us to have any faith in the ability of those authorities to safeguard the industry's future.

Mrs. Golding

My hon. Friend makes an interesting point. Perhaps the Labour Government who take office in a few weeks' time will take a much sterner attitude to competition in the industry.

I emphasise the importance that the Opposition attach to milk. In the few weeks that remain to them, we hope that the Government will in turn do all that they can to encourage this most important of our industries.

12.14 pm

The Minister of State, Ministry of Agriculture, Fisheries and Food (Mr. Tony Baldry)

This has been a most interesting debate. I hope that the House will forgive me if I make one or two preliminary points.

First, many issues can be raised in relation to the dairy industry and dairy farmers, and in recent days many of those issues have been raised in relation to meat hygiene. The House will be interested to know that, with Madam Speaker's permission, my right hon. and learned Friend the Minister of Agriculture, Fisheries and Food intends to make a further statement on meat hygiene later this afternoon; the House will understand if I do not anticipate his comments on such matters.

Secondly, I hope that the House will forgive me for pointing out that my responsibilities and those of the Select Committee include not only farming, but fisheries and food. I am the Minister with responsibility for fisheries, and today is undoubtedly the bleakest day for the fishing industry for a long time; I am sure that the whole House will join me in sending condolences to the families of the seven fishermen who lost their lives yesterday.

That is a sorry reminder to us all that fishing is probably still the most dangerous occupation, and I hope that that fact will always be remembered by conservationists and others, who sometimes attack the industry. I am sure that the marine accidents investigation branch will carry out the necessary inquiries, but nothing will take away from the fact that it is a dangerous industry.

I add my compliments to my hon. Friend the Member for Weston—super—Mare (Sir J. Wiggin), who has chaired the Select Committee so ably for nearly a decade. His excellent speech today was a model of the wisdom that he has brought to bear during his chairmanship. He has given sterling service on the Committee for many years and he has brought considerable knowledge and expertise to bear on all the proceedings on agriculture in the House. I know that I speak for all hon. Members when I offer him our thanks for his contribution over the years.

Other members of the Select Committee have made excellent speeches: in particular, my hon. Friends the Members for Faversham (Sir R. Moate) and for Newark (Mr. Alexander). Other Conservative members of the Select Committee, including my hon. Friend the Member for Congleton (Mrs. Winterton), have been here throughout the debate, as have my right hon. Friend the Member for Northavon (Sir J. Cope) and my hon. Friends the Members for St. Ives (Mr. Harris), for Stafford (Mr. Cash), for Taunton (Mr. Nicholson), for Cirencester and Tewkesbury (Mr. Clifton—Brown) and for Shoreham (Mr. Stephen).

It is interesting that, so far as I can see, not a single Labour member of the Select Committee has been present for any part of the debate. I am sure that the agricultural community and the dairy industry will recognise the fact that, despite whatever honeyed words come from the hon. Member for Newcastle—under—Lyme (Mrs. Golding), when it comes to it, the Labour party is not interested in farming, the countryside or, in truth, the food industry.

I shall endeavour to reply to the specific questions posed in the debate. The Select Committee's inquiry into the dairy industry and the common agricultural policy regime was both thorough and wide ranging. In its analysis and its conclusions, it revealed considerable common ground with the Government. In our response to the report, the Government were able to agree with most of its comments and recommendations.

With the current quota regime due to expire on 31 March 2000, farmers are understandably increasingly putting their minds to the question of what lies beyond. That is crucial for planning their businesses, and it impinges on decisions about expansion or whether to buy or lease quota. Hon. Members have only to listen to "The Archers" on Radio 4 or visit dairy farmers in their constituencies to get a flavour of the uncertainties facing the dairy industry.

The Select Committee's detailed analysis of the way forward for the CAP dairy regime could not have come at a better time. As the report says, most of the hard policy choices lie in the future. However, I can tell my hon. Friend the Member for Faversham that, in taking those difficult decisions, the Government will, of course, bring to bear the zeal and determination that he, the House and our dairy industry expect of us.

Mr. Cash

Will my hon. Friend do everything possible to ensure that other member states do not get more quota unless we get more for our farmers? Will he ensure that the Italians cough up the fines that are due and that they obey the quota rules? Can he give the House an assurance, as I suspect he was about to, on modulation of compensation and ensure that farmers do not bear unreasonable income loss, but get proper compensation if the CAP dairy regime is reformed?

Mr. Baldry

It would be unacceptable for another member state to get more quota if the UK did not get more. As the House knows, we are deficient in quota. We have continuously made it clear that we do not believe that other member states should receive further quota.

Mr. Ieuan Wyn Jones (Ynys Môn)

Will the Minister give way?

Mr. Baldry

Let me deal with one intervention before I tackle another.

Spain, Greece and Italy are in deep financial difficulties with the Commission in respect of making payments, because they have failed to cough up last year's super-levy. The Commission is, at last, getting tough with member states that do not comply with the rules, and not before time. We must ensure that, when we are not self-sufficient in milk quota, other member states play by the rules, and that the Commission insists that they abide by the rules.

Mr. Jones

rose—

Mr. Baldry

I should like to make some progress before I take another intervention.

The debate on the hard choices has already started. Our views on reform of the dairy regime were published in our response to the Select Committee report. We tabled the response at the Council of Agriculture Ministers as a contribution to the discussion in Europe. We proposed progressive reductions in support prices over five years, to bring them into line with world prices. At that point, quotas would become meaningless and could be abolished. During the transition period, cross-border transfer of quotas should be introduced, with a time-limited income payment scheme to dairy farmers designed to help them to adjust to the removal of support prices and quotas.

It is clear from our discussions in the Council of Ministers that several member states and the Commission share our analysis of the pressures on the quota system. As the Select Committee states in its report, at some stage, the European dairy industry must come to terms with trading at world prices. As a way of preparing the ground, we have called on the Commission to propose cuts in support prices as part of this year's price fixing, along the lines advocated by the Select Committee.

Regrettably, negotiations on the future shape of the CAP regime will not be as clear between now and March 2000 as hon. Members would like. The message that should go from the House to the Commission and to Europe is that we all owe it to the dairy industry to take early decisions. We are determined to put pressure on the European Commission and the Council of Ministers to ensure that early decisions are taken, so that dairy farmers can plan sensibly for the future.

Quotas are not the only concern of dairy farmers; there is also the selective cull. Many farmers stand to lose a number of their cows in coming months. We fully understand that, and that is why we have made it clear that we shall be as flexible as possible in the operation of the cull. In our package of measures to compensate for animals slaughtered in the selective cull, we have sought to be fair. We recognise the difficulties of balancing production against quota towards the end of the quota year, and have secured an extension of the quota leasing deadline for this year for producers affected. Some 15,000 dairy farmers have registered their interest in using that facility, although I suspect that few will have cows taken before 1 April.

Farm visits under the selective cull are well under way. Slaughtering has started. In Great Britain, the first visits to natal herds—the herds where bovine spongiform encephalopathy cases were born—started in the last week of January. By the end of last week, 517 natal herds had been visited and 1,300 animals were subject to provisional slaughter notices. Slaughtering is expected to start this week, with the slaughter rate building up over the next few weeks.

In Northern Ireland, farm visits started a week earlier and all but one of its 124 natal herds have been visited. The first slaughter, of 206 animals, occurred on 28 February. We hope to be able to complete the selective cull in Northern Ireland in the near future.

The quota regime affects not only farms but dairy processing. The UK dairy processing industry is likewise held back by quotas. As we never tire of reminding colleagues in the Agriculture Council, the UK is seriously in deficit in milk, but we are one of the EU countries best suited to milk production. The quota system deters investment, inward or home grown, in dairy processing. In an ever more global marketplace, world markets are growing. Multinational companies will site their processing facilities where raw materials are readily available at world prices.

The constraints of our commitments under the general agreement on tariffs and trade Uruguay round, to reduce subsidised exports, mean that large-scale investment in dairy processing in the European Union, let alone the UK, is unlikely as long as quotas and high support prices remain. The GATT constraints are already starting to bite. Reform of the dairy regime is as crucial for our dairy processing industry as for farmers.

Another important issue in recent years, as the Select Committee made clear, has been the deregulation of the milk market. That, too, has impinged as much on the processing industry as on dairy farmers, and the Committee was right to devote as much time to the subject as it did. As we stated in our reply to the report, the Government welcome the Committee's endorsement of deregulation. To some extent, the industry is still adapting to its new freedom after the abolition the milk marketing boards. By industry, I mean both processors and farmers. Some farms chose to stay with Milk Marque, some have joined forces to form milk groups and some chose to deal directly with the dairy companies.

After sharp price increases, as buyers competed for supplies for the first time, milk prices returned to their previous levels. While other factors, notably the strength of the pound, have been at play, I think that that is evidence that the deregulated market is bedding down. Although dairy farmers remain as shackled as are farmers by the quota system, the abolition of the milk marketing scheme has removed one obstacle that hampered the development of an efficient, innovative dairy processing industry.

Mr. Davidson

Will the Minister give way?

Mr. Baldry

The hon. Gentleman wandered into the debate at about 12.20 pm, the only Labour Back Bencher to grace us with his presence. Perhaps he cannot tell the time. Ten minutes' attendance by one Labour Back Bencher is not much.

Mr. Davidson

On a point of order, Mr. Deputy Speaker. Is it in order for the Minister to make an outrageous slur without seeking to ascertain why I was elsewhere? I have a shipyard on the verge of closing today—

Mr. Deputy Speaker (Sir Geoffrey Lofthouse)

Order. I have got the hon. Member's message. The Minister is responsible for his own speech.

Mr. Baldry

The agriculture industry will regret that a false point of order has prevented me from responding to some of the points made in the debate. Again, that sums up the Labour party's attitude towards agriculture.

Deregulation has led inevitably to some restructuring and a loss of employment, but employment in the dairy processing industry has declined in recent years, and the best protection for jobs is an efficient and successful industry. We shall ensure that the competition authorities continue to determine competition policy.

The past 12 months have been difficult for dairy farmers, and that is why it was such welcome news that my right hon. and learned Friend the Minister of Agriculture, Fisheries and Food was able to announce last month that the residuary milk marketing board would shortly be making a cash repayment of some £15 million to dairy farmers, as a further step in winding up the old board's affairs. Dairy farmers are shortly to benefit from a share of that £15 million. It has also been a difficult year for the milk processing industry, but we must look forward—

Mr. Deputy Speaker

Order. We now come to the debate on the development of democracy in central and eastern Europe.