§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Touhig.]
§ Mr. Deputy Speaker (Mr. Michael Lord)
Order. Will hon. Members leaving the Chamber please do so quickly and quietly? We must begin the Adjournment debate.
§ Mr. David Drew (Stroud)
It is fortuitous that this Adjournment debate should follow the statement on rural development regulation made earlier today by my right hon. Friend the Minister for Agriculture, Fisheries and Food.
As my hon. Friend the Parliamentary Secretary will know, this is the second debate—in as many years—that I have initiated on the subject of tenant farming. In November 1997, I focused predominantly on county council smallholdings. I want to broaden the debate today to discuss the plight of tenant farmers more generally, but I shall make some remarks about the county council smallholding sector, as we have not made as much progress as we might have done.
In my previous debate, I noted the grave circumstances of many county council tenants, with falling incomes and a declining asset base. It gives me no pleasure to say that today we face an even more difficult situation. The recent Deloitte and Touche report shows an industry in sharp decline, with almost all sectors in crisis. It is easy to focus on all the problems. I do not want to exaggerate them, but it is important to understand the problems of the tenanted sector. My hon. Friend the Minister will sympathise and will do what he can to get redress for those concerned.
I have drawn heavily on the experiences of my friend John Warfield of Welches farm, Standish—a dairy farmer on part of the Gloucestershire county council farm estate. John has regularly shared with me the problems of being a tenant farmer and told me how difficult it is to break out of the cycle of despondency and despair that affects farmers in general and tenants in particular. I have also drawn on the views of George Dunn, the chief executive of the Tenant Farmers Association, and Ken Oliver, the chairman of the National Farmers Union tenants committee, who are doubtless well known to my hon. Friend the Minister.
Although the tenant farming sector has been declining in importance until recently, it still represents about 30 per cent. of the productive land area. It relies on its stock and working capital for its assets base as the value of the land, including the house, and the fixed capital normally rest with the landlord. I do not have to remind my hon. Friend that the value of livestock and other working capital has greatly plummeted in the past couple of years in particular, whereas land and buildings have tended to maintain their value. Compared with their owner-occupier neighbours, tenants are more exposed to the current problems. It is also a worrying trend that many tenants are cashing in their investments early to see them through these difficult times. For many, the decision is between security for today and security for the future. I worry tremendously for them when they come to the end of their tenancy agreements.
Although the major clearing banks have been supportive of agriculture through these difficult times, they are looking carefully at the risk to which they are 801 exposed in lending to tenanted holdings or servicing existing debt. Once again, tenant farmers are at the forefront of the problems, because they have no capital other than that which they have invested in the farm buildings and stock. I spoke to the manager at one of the major clearing banks in my area. He explained how closely they were monitoring the situation. At least there is an understanding of the nature of the problems. I welcome the fact that bank managers have an opportunity that they did not have previously to use their local knowledge and understanding.
One way out of a difficult situation is to take on extra land. That should be possible through the operation of farm business tenancies, which allow tenants to spread fixed costs and make smaller units more viable. Tenants face major disadvantages, because they are unable to tender the rent levels that owner-occupiers pay for extra land offered by landlords. Although farm business tenancy rents are beginning to fall, they are still unrealistically high. That is due mainly to the fact that the number of farmers seeking to take on extra land exceeds the land available and the landlords willing to let it.
It is clear that new entrants have difficulty in getting started. One disappointing aspect of today's announcement is the lack of a retirement package. That does not help the situation. I understand what my right hon. Friend said and I am sure that he is interested in working on that, but we are talking about a difficult industry and many issues need to be dealt with to get it right.
On land prices, I have advanced the view before in this place that it is highly unlikely that agriculture land values will fall by much, if at all. This is because, in our small island, such values will be affected by their opportunity cost and what alternative uses land might be put to. Given that the main alternative use is development, it is therefore highly unlikely that the land price will fall unless we drastically toughen the planning system. Nevertheless, that brings opportunities, because it means that the land is available. What better use could be made of that land than to offer it to tenanted farmers? I would always advocate that point of view, and hopefully I would get support in so doing.
So far, I have painted a gloomy picture, and I cannot pretend otherwise. However, it is important to look at the opportunities—as well as the many threats—and the way in which the Government can help to develop these opportunities. We have had an important announcement today, and I think that everyone present would welcome the nature of it and the completely different direction in which we are now moving.
I want to make two pleas in welcoming today's proposals. I have touched on one, which is that we still need to make every effort to come up with a retirement package—not just for existing farmers, many of whom want to leave the land, but to allow new people to come on to the land. Apparently, it is difficult to achieve that at this time through rural development regulations, and my right hon. Friend the Minister was honest and open about the fact that he cannot pretend that he can achieve that within a foreseeable period. I have grown used to him pulling rabbits out of the hat, and would hope that some further prestidigitation is possible.
802 The Government rightly talk about the need for restructuring, and the rural development package will allow us to achieve that. However, there is another factor on which I wish to dwell—whether it is the Government's intention to modulate farm support to fund the different elements of the rural development regulation package.
The Minister will be aware that it is much more difficult for farm tenants to engage in some of these schemes because of the lack of economies of scale, and so on. I presume that the Minister will have some comments to make about the way in which we can help tenants—particularly in areas such as the movement to organic farming, or how they can make better use of countryside stewardships. It is not just up to the Government—it is also up to individual landlords to make those changes feasible.
I am sure that my hon. Friend the Minister will realise that concern has been expressed about some of the other changes that are taking place, particularly with regard to the integrated administration and control system renegotiations, which are coming in at short notice, and the change in subsidies for beef cattle. Concern has been expressed to me by tenants about the way in which we are apparently moving over to six counting days, as that will be difficult to manage. We have to be aware that that may do the opposite of what we want it to do—it may lead to even more intensification and short-termism.
I want to deal with the subject of less-favoured areas. Concern has been expressed by the tenanted sector over the switch from headage-based support to area-based support in hill areas. I know that the Tenant Farmers Association in particular is not pleased with the scheme, but sees it as inevitable and something that it will learn to live with. The main concern is that tenants will lose more of their capital base. As I understand it, the TFA scheme—proposed as a compromise following consultation—provides that producers should be able to take a capital payment at the beginning of the five-year period of the scheme, allowing them to look at possible avenues for restructuring or other activities to make their income base more viable for the future. I would welcome the Minister's views on those proposals.
Farm business tenancies have clearly offered more land for letting than was coming forward under the previous legislation on agricultural holdings. However, as I have indicated, there are problems which need to be addressed, and I understand that the Government are committed to a review of the operation of farm business tenancies in the autumn of next year—the fifth anniversary of the Agricultural Tenancies Act 1995. I hope that the review will include the imbalance in negotiating power between landlords and tenants, the unviably high rents, the restrictive clauses included by landlords in FBTs, which were meant to provide greater flexibility to tenants than the old legislation, and the relatively short average length of letting under FBTs.
There is a further major problem with the FBT legislation, which was intended to ensure that, under the 1986 Act, tenants would not be affected by the change in the law. I have become aware of situations in which tenants on 1986 Act tenancies may lose that status because of small changes or good estate management. I am informed that section 4 of the Agricultural Tenancies Act 1995 covers those situations in which a new tenancy falls to be regulated not by the 1995 Act, but by earlier legislation, including the Agricultural Holdings Act 1986.
803 When there is a change to a 1986 Act tenancy because new land is added, a joint tenancy is created, so the landlord is keen to provide the tenant with a bigger holding; but I gather that, under a case B notice to quit and other circumstances, the tenant can be disadvantaged. The loopholes must be closed in an amendment to section 4 of the 1995 Act.
Gloucestershire is very dependent on the dairy sector. Tenants are worried about the threat of the loss of milk quotas, which the official Opposition welcome, as I am sure the Government will in theory. The problem is that, in the short term, tenants will lose a source of collateral for the banks, and because, although land price rises compensate owner-occupiers, no such benefit accrues to them.
My hon. Friend the Minister will be aware that county council smallholdings are an important part of our farming economy, covering more than 300,000 acres.
§ Mr. David Heath (Somerton and Frome)
I agree with almost every word that the hon. Gentleman has said. Does he agree that the problem that has bedevilled the counties that are trying to maintain the smallholdings estate is the apparent mismatch between the policies of the Department of the Environment, Transport and the Regions—the DOE as was—and those of the Ministry of Agriculture, Fisheries and Food, and that we need a clear policy direction for local authorities on whether the county estate is to play a significant part in providing tenanted farming?
§ Mr. Drew
I do not disagree at all. The first thing that local authorities should do is make a clear statement that they want to hang on to that estate and manage it accordingly on a long-term asset basis, rather than viewing it as a quick return. I have always been worried about the 6 per cent. return, which is totally crazy for land.
There has been a good return on county council smallholdings. In March 1997, the last year for which we have figures, there was an £8.4 million surplus—almost doubling the previous year's surplus. It will not be so good now. We must build on the opportunities that that provides.
There are difficulties with the law on smallholdings. Section 36 of the Agriculture Act 1970 gives a statutory duty to provide farms to those who want to be farmers in their own right, but there has always been some worry among farmers and representatives about how genuine that statute will prove when it is fully tested. There has always been a view that central Government may have a role to play in making it clear to local government that they are fully committed to that, even though they do not have a direct influence in the matter.
Will my hon. Friend the Minister conduct a strategic review of the national importance of these assets so that we can get a genuine understanding of their importance not only to agriculture, but to the whole rural economy?
I shall make two positive points to set beside the rather gloomy picture so far. People still want to become tenant farmers, and that is certainly true of the county council farm estate. We should do everything that we can to make that possible, which is why I have already mentioned the need for some sort of retirement scheme. Co-operation between tenants can also provide opportunities. They can 804 compete more effectively by joining together. I know that the idea of co-operation does not always have a true resonance among farmers, even though many of them are members of one or other form of co-operative. If we could encourage co-operative activity, the farmers would be the biggest gainers.
I have listened with interest in the past few months to the views of Ben Gill, the president of the NFU, who has advocated co-operation. In Gloucestershire, Charles Coats, the manager of the county farm estate, Martin Wright of the NFU and George Dunn of the TFA are shortly to meet to consider ways in which they can increase co-operation. They realise that there is no better way for farmers to improve their marketing skills than to be able to service the county council by providing produce for schools, homes and the work force in general.
We have a successful farmers market in Stroud, led by Clare Gerbrands. That provides many opportunities, but farmers need the wherewithal to develop them. I have also been impressed by the ideas of the Plunkett Foundation, which is able to advise farmers on the best ways to help each other. I look forward to my hon. Friend's response, because it is important to draw the plight of tenant farmers to the attention of the House and those outside. We must see tenant farmers as part of the rural fabric and anything any of us can do to help that is important.
§ The Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food (Mr. Elliot Morley)
I congratulate my hon. Friend the Member for Stroud (Mr. Drew) on obtaining this debate. No other hon. Member has taken such a close and detailed interest in the tenanted sector of the farming industry. He has raised several important points and I shall try to deal with them.
I assure my hon. Friend that the work undertaken by the Tenant Farmers Association in pursuing its members' interests is respected both by my ministerial colleagues and officials. We meet TFA representatives regularly and they are important consultees. We listen to their views carefully and they influence our policies.
The tenanted sector is important for the farming industry. Some 34 per cent. of farm land in England is tenanted in one form or another, but the sector is part of a broader picture—that of the agriculture industry as a whole. Although most of my remarks tonight will address particular issues for tenants, others will deal with matters of wider application to farmers generally, as my hon. Friend will be well aware.
I wish to make it clear that the Government recognise the real difficulties being faced by the agricultural sector and the wider rural economy. The dramatic fall in farm incomes over recent years has affected the whole industry. For that reason, the Government have introduced a variety of measures, including more support for hill farmers in the shape of an additional £60 million in hill livestock compensatory allowances for 1999 and 2000, and the securing of additional EU funds as compensation to farmers for the strength of the pound relative to the euro, with £227 million already paid and £293 million to come.
It is recognised that the measures taken as necessary safeguards in the wake of the BSE crisis entail potential costs for the industry. For that reason, the Government 805 are paying for cattle passports at a cost of £22 million per annum, and for specified risk material inspections at a further cost of £18 million per annum. Those measures will be of direct benefit to the livestock sector, especially in the hills and the less-favoured areas—the LFAs.
As my hon. Friend said, my right hon. Friend announced today a radical redirection of support for agriculture and a significant increase in expenditure on rural development measures, under the rural development regulations. I am very pleased about that. The second pillar of the common agricultural policy—as the rural development regulations have become known—is of the greatest importance to the future well being of rural areas in general. I assure my hon. Friend that input from farming organisations, including the Tenant Farmers Association, has been invaluable in refining the package.
We have listened carefully to the views of all parts of the farming industry, and other rural interests, in weighing the various options and determining how best to use the available funding. The rural development regulations mark an important new step towards supporting people rather than products, and a further move towards compensating farmers not only for their production but for their additional contribution to society, particularly as guardians of the rural landscape, to biodiversity and nature conservation. I think that that is the right way in which to reform the common agricultural policy—a reform that must come.
My hon. Friend raised a number of points. I understood his point about retirement. Like me, he will have heard the Minister make clear his support for the idea of applying the rural development regulations to retirement schemes. However, when the options were considered, making the scheme work proved enormously difficult. There was the issue of value for money and the problem of achieving the desired end; there was also the question of who would qualify, and the potential divisiveness of such a scheme in the farming sector. Given all those difficulties, it was hard to produce a workable scheme meeting the requirements that we would want, and bodies such as the Tenant Farmers Association would want. Given that people must think ahead, my right hon. Friend the Minister is right to say that it is not possible to include a retirement option. That is the fairest and most honest thing that can be said.
I understand my hon. Friend's point about potential restrictions in relation to tenancy agreements in both the Agricultural Tenancies Act 1995 and the Agricultural Holdings Act 1986. I have encountered the issue when I have spoken to representatives of the Tenants Farmers Association, particularly through the ministerial consultation panels that we have set up on a regional basis. I meet those panels regularly, and it seems to me that there are potential problems.
Issues relating to farm business tenancies must be negotiated between landlord and tenant. I am aware of concern that some of the tenancies are shorter than the five-year minimum that would apply to agri-environmental schemes. That makes sense to neither the tenant nor the landowner. We have discussed the matter 806 with landowners' representatives such as the Country Landowners Association, and they agree entirely. They think that it is in the landowners' interests to work with tenants, and to give them maximum flexibility in relation to what they can do within their tenancy agreements.
I genuinely believe that the CLA advocates that. When we last discussed the matter, we discussed the possibility of a joint approach to emphasise the desirability of securing flexibility within the terms of the 1995 Act. I am aware that there is some concern about the workings of the 1986 Act, and about the possibility of disadvantage to tenants who want the possibility of more diversity on their holdings. I am prepared to consider the matter, but, as I think that it should be considered in detail, I shall—following my hon. Friend's representations—discuss it with officials and write to my hon. Friend in detail telling him whether action needs to be taken and what action would be appropriate.
We recognise the particular needs of hill farmers. There has been a separate consultation exercise on successors to the hill livestock compensatory allowance. I know that the Tenant Farmers Association has concerns about that, but we must move towards an "area" basis for support under the HLCA successor schemes. We in the Ministry have presented a compromise to the various interest groups, bearing in mind the need for viable business, the concerns of environmental groups about upland management, and the question of how to make a workable scheme. Representations that we receive will be taken into account.
One of the great strengths of the package announced today by my right hon. Friend the Minister of Agriculture, Fisheries and Food is that a significant sum of money will go into article 33 measures on rural diversification. That can support measures of the type that my hon. Friend has mentioned, including co-operation, marketing and producer groups. I am glad that that opportunity is being significantly financed, and hope that progress can be made.
My hon. Friend referred to the role that county council smallholdings can play in making suitable opportunities available to new entrants. We recognise the importance of that role, and I congratulate those authorities that have adopted positive policies for the continuance of their estates.
The hon. Member for Somerton and Frome (Mr. Heath) mentioned a potential conflict in the Department of the Environment, Transport and the Regions. I may be wrong, but I believe that he was referring to policies introduced a few years ago that encouraged local authorities to dispose of their estates because they could keep more capital. That system has ended and the damaging inducement has been taken away.
I take the hon. Gentleman's point that we need opportunities for tenants to move on from their farms, and we should encourage county farm authorities to be more forward looking, offering progressive estate structures that make way at the bottom of the ladder for newcomers. I should be only too pleased to consider that idea, and to look into opportunities for farm diversification that can make businesses more viable.
My hon. Friend the Member for Stroud raised many important points. He rightly said that a review is due on the Agricultural Tenancies Act 1995, which will provide 807 an opportunity to reconsider those points and to hear what the tenants associations have to say. We shall see then whether we can meet tenants' requirements.
The farms business tenancy provides the flexibility that tenants need, but recognition is also required of changing trends in agriculture. Tenant farmers need to be able to diversify, and they should not be prevented from 808 becoming involved in a range of businesses important to their viability. We shall address that issue, and I shall write further to my hon. Friend on some of the points that he has made.
Question put and agreed to.
Adjourned accordingly at three minutes to Eleven o'clock.