§ 2.40 p.m.
THE JOINT PARLIAMENTARY SECRETARY, MINISTRY OF AGRICULTURE, FISHERIES AND FOOD (EARL WALDEGRAVE)My Lords, I beg to move that the Draft Fertilisers (United Kingdom) Scheme, 1962, a copy of which was laid before Parliament on May 3, be approved.
The purpose of this Scheme is to extend the fertiliser subsidy for a further year, from July 1 next to June 30, 1963. In accordance with this year's Annual Review determination, the rates of subsidy—which are set out in the schedules to the Scheme—have been reduced so as to effect a total subsidy reduction, based on current levels of consumption, of £2½ million. In general, the new rates will be about 8 per cent. below those currently being paid. The precise apportionment of the £2½ million cut between the different fertilisers eligible for subsidy has been agreed with the Farmers' Unions.
Apart from these changes in the rates, the only other change between this Scheme and the 1961 Scheme is that provision has been made for the rate of subsidy on sulphate of ammonia to be reduced proportionately in cases where the nitrogen content is less than the normal 21 per cent.
This is the fourth successive year in which it has fallen to me to move the approval of the Annual Fertiliser Subsidy Scheme. On each occasion I have been able to report an increase in total fertiliser usage over the previous year; and this year is no exception. For the twelve months ending June 30 this year, an increase of nearly 6 per cent. over the figure for the twelve months before that is forecast.
900 For many years consumption has been on a rising trend. Since the present subsidy arrangements were introduced, as far back as 1952, the usage of nitrogen has doubled, the usage of phosphate has increased by nearly 30 per cent., whilst the usage of potash has also doubled. While the Ministry's Advisory Service has some of the credit for this welcome state of affairs, as well as the salesmanship and advisory work of the fertiliser manufacturers and the merchants, there is no doubt in my mind that the biggest single factor behind the increase in usage has been the subsidy. Surely the figures of increased usage are the best justification it can have.
The reason why this increase in fertiliser usage is so much to be welcomed is the contribution which the right level of fertiliser application can make towards reducing unit costs of production. The experts will say, of course, that, taking the country as a whole, we are still not using enough fertiliser—particularly on grassland—and there is no doubt that there is scope for further improvement. But it remains true that the increased and better use of fertilisers has been a major factor in increasing agricultural efficiency. If one cavils at the cost—and subsidy payments totalled £33 million for the financial year, 1961–62—it is perhaps worth reflecting what the cost of agricultural support would be if unit costs had not been reduced in the way this subsidy scheme has made possible.
My Lords, since I first moved this Order in 1959 there have been significant developments in the fertiliser-manufacturing industry. Costs have tended to come down, and in fact there have been price reductions every year since 1959. This year already the two major manufacturers have announced lower prices. The new prices include delivery to the farm, and not just to the nearest railway station, as previously. The cuts in price amount to more than the subsidy cuts which will be made under this Order. Therefore the argument cannot be supported that it is only the manufacturers who benefit from this subsidy. The object of the subsidy is to help farmers by reducing the cost of one of their main raw materials. Of course the manufacturers benefit by the expansion of their market that this subsidy makes possible, 901 but do noble Lords wish to criticise that? It seems to me a perfectly reasonable state of affairs.
At each of the last three Annual Reviews, a cut has been made in the fertiliser subsidy. On each occasion, manufacturers have cut their prices, farmers have not had to pay more, and usage has continued to rise. It seems to me that this bears out the soundness of the policy the Government have followed. Payments under this subsidy for the year ended March 31 last amounted to £33 million, which is a considerable sum of money. But I believe that this sum is fully justified by the 65 per cent. increase in usage which this subsidy has stimulated since its introduction, and I hope therefore that your Lordships will approve this Scheme. I beg to move.
§ Moved, That the Fertilisers (United Kingdom) Scheme, 1962, be approved.—(Earl Walde grave.)
§ 2.45 p.m.
§ LORD STONHAMMy Lords, we are most grateful to the noble Earl for his careful explanation of this Fertiliser Scheme, which, as he said, has been in operation since 1952, although I think that he will agree that the original principle of a fertiliser subsidy was introduced by my noble friend Lord Williams of Barnburgh, when he was Minister of Agriculture. The noble Earl was at some pains to justify the subsidy, but so far as we on this side of the House are concerned there is no need to justify it, because we are wholly in favour of the principle of encouraging the use of fertilisers by means of a subsidy to farmers. There is no question that over the years it has played a great part in increasing food production, and, I believe, in decreasing the cost of production.
As the noble Earl, said, however, £33 million is a large sum for the taxpayer to find, though few, if any, of us would boggle at the price, if we could be quite certain that it all goes towards the reduction of farm costs. In fact, the noble Earl mentioned that there were some who were not quite sure on that point, and I must number myself among them. Certainly in recent times doubts have risen about whether that is the case. The noble Earl has pointed out that there have been several successive reductions in farm subsidies for fertilisers, and every 902 year these have been met by corresponding reductions in the prices charged by the manufacturers of fertilisers. If we were to follow that line of thought, of course, it would be logical to conclude that the thing to do would be to wipe out the subsidy altogether, for the manufacturers would then reduce their prices, we should save a lot of money and the farmers would pay less for their fertilisers. But I really cannot accept the noble Earl's premises.
The trouble is that the Order specifies the amount of Treasury subsidy per ton of fertiliser but does not specify the price per ton which the farmer should pay for it. The large manufacturers are not monopolists, but they are in a position virtually to monopolise the market and decide prices, and there is no Governmental control over fertiliser prices at all. It is reasonable to speculate what the price of fertilisers would be if there was no subsidy; or, to put it another way, how much of the subsidy we are now being asked to approve represents real benefit to the farmer and how much of it represents extra profit to the manufacturer.
On March 15 last, the noble Earl, replying to a Question of mine on this subject, admitted that whilst I.C.I., one of the largest suppliers, were charging English farmers £20 7s. 6d. per ton for sulphate of ammonia, they were selling this same material to Eire at £12 10s. a ton. The difference of £7 17s. 6d. a ton bears a remarkably close relation to the subsidy of £8 1s. per ton which we are asked to approve in this Order. Therefore, one is entitled to ask who really gets the subsidy—the farmer or the fertiliser manufacturer? I submit that it is no answer at ail to say that the export prices of many things are lower than the home prices. These are the goods that do not enjoy a large subsidy. If the manufacturer decides that low-priced exports are worth while because they make a contribution to factory overheads, that is his business. It is our business, before we part with (this Order, to ask the noble Earl to tell us what the fertilisers cost to produce, and how much profit sulphate of ammonia shows at £20 7s. 6d. a ton.
Some two or three years ago, the Monopolies Commission expressed themselves as satisfied. But they did not tell us what the fertiliser costs, and I hope 903 that we shall be told now. As the noble Earl has said, I.C.I. have just announced a reduction in next season's prices which they estimate, so far as they are concerned, at equal to some £1 million. I think the noble Earl indicated that the other manufacturers will fall into line. They have also, apparently, made the same remarkable economies in manufacturing costs, despite the increased cost of labour and so on. They are going to fall into line, so that the reductions in selling prices will cover the £2½ million cut in subsidy. I submit that we are kept far too much in the dark about this. The Government should give us the essential facts on which we could base a fair judgment.
There is one other point that I wish to put to the noble Earl on which I should like some information. This Order covers Northern Ireland. Farmers there receive £8 1s. per ton subsidy on sulphate of ammonia in exactly the same way as everyone else. But there is nothing at all to stop them buying this I.C.I. material from Eire at, say, £13 a ton, which includes an agency commission on top of the £12 a ton which is being paid in Eire for it now. The fertiliser would then cost them, after deduction of the £8 subsidy, only £5 a ton net. That is scarcely an injustice to Ireland, but it is a considerable injustice to the English taxpayer. The noble Earl cannot deny that this can, and probably will, happen. Maybe it has already happened because the Order does not lay down how much the farmer shall pay, or from whom he shall buy. We established that fact by question and answer the last time I raised it. I do not wish to deny farmers in Northern Ireland or anywhere else any support to which they are entitled, but it seems to me that a good deal of this subsidy money may well be finding its way into the wrong pockets.
I read in the newspapers to-day that Fisons' profits may be reduced by something like £1 million, but last year they made a net profit about £3½ million, which is a fairly sizeable sum. I ask the noble Earl, therefore, to answer these questions and, above all, to tell us what the fertilisers cost to produce. I submit, with all respect, that if the noble Earl says he does not know, and that 904 his Department do not know, then on the face of it they should find out before they ask us to approve the subsidy.
§ LORD WISEMy Lords, before the Minister replies, there is another point which I would put to him in passing. I apologise for not giving him notice of this point, which has nothing whatever to do with the matter raised by my noble friend. It is a question of the definition of "agricultural association". The noble Earl will not have with him the Bill to which I refer, but a few days ago we dealt with the Agricultural and Forestry Associations Bill in which there is a definition of "agricultural association". There is also a definition under this Order and the two definitions are different. The definition under the Agricultural and Forestry Associations Bill is more embracing than the definition in this Bill, and I am wondering whether, for the sake of clarity, at some future date the two definitions might be brought into line. As I have said, I cannot expect the noble Earl to give me an answer now, because the point arose only last night when I was looking at the Order and comparing it with the Bill which we had before us two or three days ago.
§ 2.56 p.m.
EARL WALDEGRAVEMy Lords, I am glad that your Lordships welcome this Order, and that the noble Lord, Lord Stonham, was wholly in favour of a Government subsidy on fertilisers. He seemed a little doubtful as to why I felt it right to justify the subsidy fairly fully to your Lordships, but the reason must surely be that any Department which is spending £30 million of the taxpayers' money has to show why it is being spent, and why the Department considers it to be a good object on which to spend it. That is what I was trying to do.
Last year, if I remember correctly, I had an exchange with the noble Lord, Lord Walston, about the illogicality, as he put it, of saying that if you reduce the subsidy to nothing at all then you will get the fertiliser cheaper and cheaper; this argument can be reduced to absurdity. I remember that he said that the usage of potash had gone up, that potash was not subsidised and that, therefore, I could not possibly argue that the subsidy on fertilisers was increasing 905 usage. The potash question, which has not been raised to-day, is an easy one, because potash is used in nearly all the compound fertilisers. Its usage goes up because we are subsidising the others. We really cannot follow this illogicality that the price of fertilisers is forced down for the farmer.
The truth is that it is fortunate that there have been such developments in the fertiliser industry. There have been new entrants. The big petrol firms are now making nitrogen. There is no doubt greater competition in efficiency and the manufacturers are able to make this economy. Although we have reduced the subsidy, the farmer is able to buy his fertiliser at the same or a lower price because the industry is becoming so well organised and because there is such strong competition in the industry. I have no objection to the fact that the manufacturers can reduce their prices.
I do not want—and I do not think it would be proper—to go into the accounts of individual firms. But many of your Lordships have seen in the newspapers or on the tape that the board of Fisons have issued a statement that they are going to reduce the cost of their fertilisers, although they have made a considerably lower profit this year than in the year before. This is a matter of business. They think that they must retain their market and they anticipate economies in production and distribution; therefore, they are lowering the price to the farmer.
The noble Lord, Lord Stonham, said that we can speculate about the profits of the fertiliser manufacturers. We do not have to speculate about their profits. They publish their accounts and they are there for all to see. But when the noble Lord comes to the question of the actual cost of manufacture of a unit of nitrogen, it is a very different matter. The noble Lord has clearly been refreshing his memory by reading the report of the Monopolies Commission. There was much discussion about this at the time. The discussions with I.C.I. and Fisons about assurances regarding their profit levels, arising from the report of the Monopolies Commission, have been going on since this Report came out. They are not yet concluded. When they are, as I understand it, Parliament will be told what the results of these discussions 906 have been. I really do not want to do anything now which might prejudice a satisfactory outcome to the difficult and delicate discussions which are conducted chiefly by the Board of Trade, although my Department is of course fully associated with them.
The noble Lord, Lord Stonham, also asked whether in the Irish Republic you could buy cheap fertiliser which is sold there as surplus from one of the big manufacturers—the Irish Republic has no manufacturing industry of its own at the moment, but I believe that it is going to have one shortly—at a price of about £13 a ton, export it across the border into Northern Ireland, draw a subsidy on it and thus have it for next to nothing. I really doubt whether that is a very practical business. The noble Lord, Lord Stonham, and I might go and see what we can do about it. But I rather suspect that when we went across the border from Northern Ireland into the Irish Republic to buy this fertiliser at £13 a ton, we should find that the cost quoted was the cost at port-side. By the time we had transferred the fertiliser to Northern Ireland we should find Chat we had paid very much more for it than the first cost of landing this material at the quay.
Secondly, I think it is material that if a firm in this country—Jet us take I.C.I., because that is the suggestion here—is sailing its fertiliser at a low price to Eire and is also selling it at a higher price in Northern Ireland, there may well be some perfectly legitimate arrangements between merchants. The noble Lord and I might find, when we went to do our business, that it was a rather difficult matter.
§ LORD STONHAMMy Lords, may I interrupt the noble Earl? There is no dispute on the question of fact. He himself has confirmed the fact that the price from I.C.I. to Eire is £12 10s. per ton c.i.f. The only additional cost to Northern Ireland are landing charges, which are small, and railway freight charges. That is the first point. The second point, which he has confirmed, is that I.C.I. sell in Northern Ireland at £20 7s. 6d., so there is nothing whatever to stop a third party from exporting from Eire to Northern Ireland at a very much lower price; and that fertiliser 907 exported from Eire to Northern Ireland will qualify for subsidy at £8 1s. per ton.
EARL WALDEGRAVEMy Lords, I do not think this is a particularly profitable argument. If all the fertiliser is going from I.C.I., and if this deal were done by Messrs. Stonham and Walde-grave, I.C.I. would be likely to put their price up in the Irish Republic.
§ VISCOUNT ALEXANDER OF HILLSBOROUGHMy Lords, what we really want to know is whether the last facts mentioned by the noble Lord, Lord Stonham, are the truth? Is there any evidence that any such trade has gone on from Eire into Northern Ireland? Is there any Customs duty in Northern Ireland against this being done?
EARL WALDEGRAVEMy Lords, there is a Customs duty on sulphate of ammonia entering the United Kingdom of £4 per ton, which has been reduced to £3 4s. per ton, as announced by my right honourable friend the President of the Board of Trade on May 18. But I am not sure if this applies here. I am not denying this possibility, but I think that it is very unlikely to happen in practice. There are many ways of killing a cat other than drowning it.
The point that was made by the noble Lord, Lord Wise, was one of a technical nature, of which he had not given me notice. He asked about the definition of "association" in this scheme and in the Bill of the noble Earl, Lord Buckinghamshire, which was moved a day or two ago. I would ask him, if he would be good enough, to allow me to answer his question When I have studied the two definitions. May I write to him instead of replying across the Table?
§ VISCOUNT ALEXANDER OF HILLSBOROUGHMy Lords, I am much obliged for the trouble that the noble Earl has taken to reply to the discussion, but I must say that it leaves us a little undecided on this side of the House. There seems to be a special desire not to make things difficult for the manufacturers of fertilisers in these matters. 908 Certainly there have been very great profits made in the post-war years as a whole on these mutters, and I Chink we are entitled to rather more details than we have yet obtained. What is the real objection to stating the facts? The noble Earl said, of course, that these companies publish their accounts. What are the accounts which they publish? The profit and loss account and the balance sheet. Detailed information on how prices are arrived at, what they are, and what goods are sold at is not available for the general public, although the goods are so heavily subsidised. I think this wants looking at a little more closely. I do not want to embarrass the noble Earl to-day, but we shall have to take the matter up again in the House.
If the noble Earl's Government are going to take us into the Common Market, for example, we may not then have any real final control of what aids to agriculture may be in our own country. We do not really know and we ought to be given all the information so that we can examine all the facts quite fairly.
EARL WALDEGRAVEMy Lords, if I may say so, I am not withholding any facts. The Monopolies Commission when they reported on the fertiliser industry said that the profits being made were reasonable. Discussions have been going on between my right honourable friend the President of the Board of Trade and those who are running these companies. The discussions are still continuing both as to accountancy principles and as to what the unit rate profits are. As I said, we are not withholding any facts at all. When these discussions are completed Parliament will be told what has come out of them.
§ LORD WILLIAMS OF BARNBURGHMy Lords, before we pass on to the next Business, is it not correct to say that these annual interventions, such as the one to-day from my noble friend Lord Stonham, have been very effective in warning the fertiliser producers that they cannot go on for all time exploiting the subsidy provided by the Government? I think the fact, as the noble Earl has stated, that there has been a reduction in the price in four successive years clearly indicates that fertiliser producers have not done too badly out of 909 the business. But there is nothing that the noble Earl could do to prevent them if they wanted to to exploit the situation badly.
I could not argue whether that has been the case or whether they have been modest in their demands and the prices they fix, tout what we do know is that the Ministry of Agriculture should keep their eye on the target where the Government are paying a large subsidy for certain services to agriculture. The only other thing I would say to the noble Earl is that if one production grant is reduced or abolished then what happens to the money which is apparently, but not really, saved? For example, assuming we abolish this £33 million subsidy on fertilisers to-morrow, where would the money go?
EARL WALDEGRAVEMy Lords, I really should not speak again, but with regard to what the noble Lord, Lord Williams of Barntourgh, said, would he really like to go on record as saying that firms of this repute are exploiting? With what he said later I entirely agree. They may have done pretty well, and so may have the farmers and others. But to say that they are "exploiting" is a rather different thing. I just wonder if the noble Lord would wish to go on record as saying that.
§ LORD WILLIAMS OF BARNBURGHWould the noble Earl provide me with an appropriate word?
§ On Question, Motion agreed to.