EEC: 23rd REPORT ON FARM PRICES

HL Deb 21 March 1977 vol 381 cc264-337

4.6 p.m.

Lord RAGLAN rose to move, That this House takes note of the Twenty-third Report from the European Communities Committee on the EEC Farm Prices Review. The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper. I should like to say, first, how appreciative I am that my noble friend the Leader of the House has managed to attend this debate. I know that he has had to tear himself away from a busy Committee and has had to hurry in order to be here, and I appreciate it very much. I should like to thank those who have helped to produce this report with such speed. I hope that the way that we had to cope with the review this year will not recur. I would remind your Lordships that the way in which the prices review is undertaken in the EEC, unlike with the old British system, gives Parliament and the public the opportunity to comment on the proposed level of prices before they are agreed. This is a great advance. Since we are given this opportunity, it is essential that we should be given enough time for study and comment. This year, because Commissioner Gundelach took over from Commissioner Lardinois only recently, in December, and Mr. Gundelach had but a short time to put forward the type of package to which he felt able to put his name, it has all been done in too much of a hurry. There seems to me to be a case at another time for transferring responsibility from one Commissioner to another much sooner before the beginning of the agricultural year in order to give the new incumbent time to settle down and produce his proposals in good time.

As it was, your Sub-Committee obtained a copy of the proposals, had them translated from French, considered them, drafted the report, commented on the draft, redrafted it, edited it and had it printed all in the space of a month—which is short for these things—just in time to get it debated today before the Agricultural Ministers' meeting at the week-end. We regret that this hurry has prevented us from doing as good a job as we think we should have done. My thanks, as always, go to my kind, tolerant and companionable Sub-Committee, and to our two specialist advisers, Mr. Simon Harris and Professor Josling, the Sub-Committee Clerk and the Select Committee Clerk. They have all worked hard, sometimes at great inconvenience to themselves.

It will not have escaped your Lordships' attention that there is much anxiety being displayed about the present agricultural surpluses. Much of this anxiety is genuine; that is, it is not motivated purely by opposition to our membership of the EEC. The Sub-Committee share that anxiety. We are making more fuss in this country than they are on the Continent about the surpluses, and that is because we in this country are strangers to surpluses of food. After devising very elaborate protections for our farmers in order for them to produce as much as seems politically feasible at home, we have been used to picking and choosing from abroad to make up our deficiency.

However, on the Continent they are used to surpluses, and their ingenuity has long been directed to trying to control them. Far from their consumers being used to grumbling about too much food being produced, their Governments are used to being blamed by the farmers for not buying all the produce. I remember that once when General de Gaulle had his way blocked by a heap of artichokes, or something similar, he is said to have exclaimed: They blame me, but they should blame le bon Dleu, who has given them such abundance

National Governments in the EEC, having gratefully ceded their responsibility for handling surpluses to the Commission, have now turned to playing the game of getting as much as they can out of the CAP cake; and the Commission, in endeavouring to get agreement among them, finds itself having to give away more than it should. It has been given the responsibility but not the necessary authority concomitant with it. In other words, it is not the fault of the Commission, as I see it, that there are surpluses which are becoming so embarrassing: it is the fault of a system which allows, if it does not encourage, national Governments to behave without a sense of overall responsibility. They can then use the Commission as a whipping boy at home, whereupon the Commission, goaded into trying extraordinary remedies to cure the surpluses, listens to extraordinary ideas from the various special interests concerned. Lately they have come up with the idea of a tax on margarine to encourage the eating of butter, a tax on isomerose to reduce its competitiveness with sugar and a tax on petro-chemical-derived alcohol to help drain the wine lake—although none of those measures would scarcely dent the existing surpluses.

All those surpluses are structural and, in my view, the Commission have to be encouraged and then allowed to set about reducing them, but naturally with as much humanity as possible. I say that because there is a very big social problem here, which has to be recognised and appreciated. I might say that my right honourable friend the Minister of Agriculture said as much when he referred to this matter in his speech in the other place last Wednesday. We do not have structural surpluses of food in this country but we have long had surpluses of industrial goods of one kind or another, and we have got nowhere near solving that one. Whether we are making too many telephone exchanges of the wrong sort, or steel that is too expensive to buy, or more people than necessary are engaged in making certain types of goods, we are familiar with that and we know only too well the traumas which are involved when people's jobs and ways of life are at stake.

In France, Italy and Germany there are just too many people on the land, producing just too much. Perhaps there are 25 million people in the EEC engaged in farm work. To resettle 10 per cent. of them means finding jobs for 2½ million people. It is a huge problem and it cannot be done quickly. We do not even know at the moment how to cope with our present unemployment. But the Commission have to start luring people from the land and, furthermore, they must be allowed to start doing that. The only way they can do it is by reducing the incentive to produce. To be fair to them, I think they are trying. In a period of high inflation—I do not know what the average is for the whole EEC—the overall 3 per cent. increase in price which is proposed is equivalent to a quite large reduction in real terms. The question is whether member countries, pleading their own special causes, will allow the Commission to hold this effective reduction in prices.

Where the Commission have not themselves been helpful to their own case—in fact they have done themselves a great disservice—is in publishing a list of what they call "world prices" on which they calculate their threshold prices. Their device is that in order to keep up the level of import levies they calculate them according to the price of whatever parcels of food may be on offer round the world at that moment. As those offers are usually for a relatively small amount of food which is having difficulty in finding a home, the price is frequently low. Some country just wants to get rid of a surplus, as the EEC wants to get rid of surplus butter, so it sells it at a cut rate, or tries to, to the Soviet Union—but nobody suggests that the rate at which butter has been sold to the Soviet Union is actually the world price of butter. What the Commission do not say, and what everybody who is familiar with the world market knows, is that should one go out to buy food on world markets in the quantities necessary to make up the deficiency in this country, that food would not be available at anything like the price at which it may be advertised at the moment. I will not now venture an opinion as to what basis the Commission should use to calculate threshold prices, but I would say that their present method is unrealistic and they know it; and if they go on with it they are deservedly going to invite very much more criticism from consumers than they have even at the moment.

Of all the surpluses, I suppose the most emotive is that of dairy products. I am greatly alarmed that, according to the latest news from Brussels, the Agricultural Ministers may be forced into relaxing the measures proposed by the Commission for reducing the dairy surplus which, in the view of your sub-committee, are in any event unlikely to be effective enough even if they are adopted as they are. Again, I hope that my right honourable friend the Minister will state in no uncertain way that the Commission must be encouraged, and then allowed, to do its job; otherwise the whole of the Common Agricultural Policy will be washed away in a sea of milk. The silliest thing to do, in view of all this surplus—a great deal of which, as our report suggests, is caused by inefficient marketing—would be to get us to abandon our Milk Marketing Boards. The combination of the boards, the Dairy Trade Federation and the Government has provided a stable foundation for an efficient and successful industry. The Commission should try to emulate what has been successful and not what has been shown to be unsuccessful.

The position with regard to cereals is not difficult, as it is with sugar and alcohol, and it is not prodigal, as it is with milk production. The Commission propose to abandon the intervention price for feed wheat. We are glad of that, but they are still insisting on introducing a reference price for wheat which is allegedly of bread-making quality—although nobody has yet discovered what that is, because it means different things in different areas and in any case there is no adequate test of quality except by baking it. We repeat our conclusions, to which we referred in a previous report, that by far the best way of dealing with the matter would be to let wheat which is judged to be of baking quality to command what premium it can in the market; otherwise we may have yet another surplus which nobody will quite know what to do with. Cereals have been discussed by the Ministers, but our sub-committee's intelligence service, on which we normally pride ourselves, has not yet told us what conclusions have been reached in the talks in Brussels so far. I wonder whether my noble friend, when he comes to reply, will be able to give us an indication of how things are going in the talks.

As for beef, we think it is essential that the slaughter premiums, which have for so long been such a tremendously successful feature of the United Kingdom Government's support, should continue and should be adopted by the Commission as a permanent part of the Common Agriculture Policy. I do not want to make much of the 37.8 million unit of account increase in FEOGA expenditure which, when one looks again, one finds is really 807 million units of account, because the 37.8 is really an increase over last year's forecast appropriation, and we already knew of that. But the Commission is naughty to present its figures in that way. It makes it look as if they have something to hide—which they have— and so we thought it well worth while drawing attention to what they wanted to hide.

Lastly, the implications for the United Kingdom of the package which is proposed are discussed in paragraph 28 onwards. The Ministry of Agriculture, Fisheries and Food estimate that the two transition steps, and the proposed adjustment in the rate for the Green Pound, would increase the gross receipts for agriculture by 9 per cent. and increase consumer prices by 4 per cent. Here, we left out an interesting figure for the good reason that we were not sure what it ought to be. The receipts for agriculture, 9 per cent., and the increases for consumers, 4 per cent., do not agree, because the food has to be transported, processed, packed and distributed, and the proportion of the cost of food which is taken by all these stages, which is known as the "food chain", is getting larger every year as people demand ever more sophisticated food products and better presentation of them. We think that the figure for the proportion taken by the food chain is between 35 per cent. and 50 per cent. overall, though it obviously varies, anyway, from product to product. But I hope that, if we have time, your subcommittee will be able to do some more investigation into this highly complicated subject, and that in due course we may be able to present a report on it.

Paragraph 31 warns that the effect of institutional price rises may be more real than apparent, and paragraph 33 states that these rises may take some time to work through. But, of course, nothing has such an effect on our food prices as the level of the Green Pound, without a discussion on which no discussion on EEC prices can possibly be complete, so intertwined are the Green Pound and prices. But my noble friend Lord Pritchard will have great pleasure in explaining to your Lordships in a moment all about the Green Pound, with his usual ease and lucidity. It must have been intuition which warned me off asking my sub-committee to deal with it. I made some excuse and later gave myself a hearty vote of congratulation for having done so, after I had attended one or two of my noble friend's committees.

I do not know whether it is quite proper for me to refer to a report to which your Lordships' attention has not been formally drawn, but I should like to make one point to finish up with. At the back of the Select Committee's Report on EEC Farm Prices and in its Green Money report are glossaries. There is necessarily some duplication between the two, but anyone, by just glancing at them, can see that the CAP is an amazingly involved and complicated creation, with a language of its own which has to be mastered before one can begin to understand it properly. Even after having been a member of the sub-committee for over two years, I still have not grasped it all and, indeed, our specialist advisers, who are steeped in it through day-to-day familiarity with it, sometimes disagree with each other over the meaning of something or other.

I only want to make the point that, just as I believe the noble Viscount, Lord Amory, will be able to tell us as a former Chancellor of the Exchequer, it is not possible to devise a taxation system which is at the same time both simple and fair, it may not by the same token be possible to devise a Common Agricultural Policy which is both simple and equitable to all Member States. But I suggest that it must be worth while, continually and consciously, trying to resist its increasing complication and, in fact, to make real efforts to simplify it. Otherwise, in a short while, nobody will be able to understand it at all. My Lords, I beg to move.

Moved, That this House takes note of the Twenty-third Report from the European Communities Committee on the EEC Farm Prices Review.—(Lord Raglan.)

4.24 p.m.

Lord PRITCHARD

My Lords, I beg to move that this House takes note of the Eighteenth Report of the Select Committee on the European Communities, which examined a number of EEC proposals relating to Green Money. The Committee recommended that the subject under scrutiny was of considerable importance and that it merited debate in your Lordships' House. However, they felt that, since the Green Money issue was inextricably bound up with the fixing of the level of EEC farm prices and since the farm price proposals for 1977/78 themselves contained proposals for Green Money changes, as my noble friend Lord Raglan has pointed out, which burden he has so generously laid upon my shoulders, then both reports should be debated together. That is not to say that noble Lords must address their minds to both, but merely that they may do so if they wish. At the end of the debate, I shall merely move my Motion formally, on the assumption that those wishing to speak to it will have already done so.

With the attendance of certain noble Lords and Sub-Committee D members, Sub-Committee A have held six meetings since December to consider and report on these proposals. We have had written and oral evidence from a number of sources—the Treasury, the Ministry of Agriculture, Fisheries and Food, the National Farmers' Union and the Consumers' Association. We had written evidence from the Dairy Trade Federation and, in addition, a number of other papers by the Federal Trust, the National Union of Agricultural and Allied Workers, the Labour Party and the Farmers Weekly were laid before the Committee. It was clear to us from the outset that this was a subject charged with political significance, on which it would be both undesirable as well as difficult for us to make any firm recommendations. Indeed, the attitude among those who gave evidence to us varied from strong support of the present Commission proposals to outright opposition. Your Committee therefore resolved to try to describe, in as dispassionate a way as possible, the Green Money system and the likely effects of the proposals under scrutiny. The result is the report which your Lordships now have before you.

Before I describe the Commission's proposals on Green Money and your Committee's reaction to them, perhaps it would be useful if I were to outline the Green Money system and what Green Money is. This is, of course, the nub of the remarks of my noble friend Lord Raglan, and the difficult part of what I have to say. I am deeply indebted to the noble Viscount, Lord Amory. At one of our Committee meetings, when I was battling with this problem as to how to express myself clearly, he suggested, "Well Chairman, if you really find it very difficult to explain something that you are not fully aware of, I suggest you begin with 'As every schoolboy knows'." I thought that that was a very good and helpful suggestion in that respect.

In fact, I do not think it would be helpful to the House if I tried to go too deeply into the technical wording of the system which, in any event, is already set out in Section A of our report with far greater clarity than I could show, and certainly at very much greater length. Put very briefly, the Green Money system involves a set of exchange rates relating only to the food and agricultural sections of Member States. When market rates of exchange of Member States' currencies either appreciate or depreciate, the Green Money system cushions the effect which these movements would otherwise have on prices for both producers and consumers. Monetary compensation amounts, known as MCAs, are then applied with the object of offsetting the effect of divergence between the Green and the market exchange rates. Of course, the wider the divergence the greater is the volume of MCAs.

Among the several effects of this system on the United Kingdom, which we outlined in our report, I feel that I should draw your Lordships' attention to one in particular: the difficulties caused to Border trade between Ireland and the United Kingdom owing to Ireland having twice devalued their Irish Green Pound without any equivalent movement having taken place in the British Green Pound. This has opened up a significant differential between the sterling intervention prices in Ulster and in the Republic. It has created an incentive for smuggling livestock from Ulster into the Republic, resulting in the United Kingdom Government having to spend over £1 million a week through its Northern Ireland Meat Employment Subsidy Scheme in an effort to protect the Ulster meat processing industry from the effects of such smuggling.

Speaking generally, the EEC Commission find the present system unsatisfactory for a number of reasons, especially because the cost of this MCA system has become embarrassingly large and renders the size of the budget increasingly unpredictable. As noble Lords know, originally the system was intended to cushion minor fluctuations in the currencies of Member countries for short periods only, but in the case of Great Britain, for example, it has now risen to an indirect subsidy on our food prices of around £600 million per year. This is the effect of the MCAs paid on Continental exports of food to the United Kingdom in consequence of the near 40 per cent. disparity between the market rate of sterling—which, as your Lordships know, today is around 1.71 US dollars—and the Green rate, in which intra-Community payments are made, which was last fixed in October 1975 and has never been altered, when the pound was 2.37 US dollars, or 1.75 agricultural units of account.

The result is that the Commission have put forward the proposals which are the subject of our report. These proposals are described in detail in the report, so I shall not dwell on them, save to say to your Lordships that they fall into two main categories. One of them seeks to provide a long-term solution to the problem of the divergence between the market and the Green Pound rates by means of an automatic formula which would come into operation whenever the MCA percentage reached a certain level. This would, in effect, remove from the Council of Ministers, and hence from individual Member States, their discretion to accept or reject proposals for changes in Green rates.

The other proposal is for an immediate change in the value of the United Kingdom and Irish Green Pounds. Incidentally, I should like to draw the attention of noble Lords to the fact that the proposal for a 4.5 per cent. devaluation in the United Kingdom Green Pound has now been superseded by a proposal in the Farm Price Review that this devaluation whould now be 5.9 per cent.

What conclusion can we therefore reach? There is no easy solution to the Green Pound problem because of the seemingly intractable conflict between the principle of common agricultural prices on the one hand and the differing domestic policies of Member States on the other. Your Committee therefore finally felt that in the long term the present divergence between the Green rate and the market rate is untenable and runs counter to the whole concept of the Common Market, but that the speed, extent and timing of any adjustment must remain under the control of individual Member States through the Council of Ministers and should, if possible, be considered in the context of further reconsideration of the whole Common Agricultural Policy price levels generally.

4.35 p.m.

Lord SANDYS

My Lords, the House will indeed be grateful to both the noble Lord, Lord Raglan, and the noble Lord, Lord Pritchard, for drawing our attention to these important documents. I think it is true to say that the speed with which the Scrutiny Committee have been able to take the wrappers off these documents from Brussels and examine and publish them with their own comments, so that we can have a debate in your Lordships' House, is quite remarkable. It is almost entirely thanks to the very hard work of the Scrutiny Committee that these very difficult documents are in any way intelligible in their present form, because they are accompanied by a sheaf of Press releases which came out almost simultaneously.

I should like in particular to address my remarks to the EEC Farm Prices document. I should also like to comment briefly on the Green Money document, although my noble friend Lady Elles will comment in much greater depth upon it. There are days when I understand Green Money, but there are very many more when I do not. Today, I am about half way between the two, so I welcome the fact that my noble friend, who has such a close acquaintance with this commodity, will be giving our views with much greater clarity. I think that the document is of particular importance because it sets out the history and background of Green Money. Further, Appendix 2 furnishes us with a very important glossary of all the terms in use, a point to which the noble Lord, Lord Pritchard, referred.

These documents come as part of a string of documents from Brussels, and I regret to say that I must refer to one which was published last autumn. The dairy proposals were published as a scrutiny document on 30th September of last year. If I may weary your Lordships with its number, it is R/1734/76 and R/1742/76. The dairy proposals document lays special emphasis on the situation in Europe over milk. I must refer to page v where we read: It is the milk surplus which is the most expensive and the most intractable of the many problems faced by the CAP. Further, in the Green Money document we read on page 9: Much the largest single element in the agricultural part of the Community budget at the moment is the cost of financing the milk surplus. It is quite evident that the milk situation, to which the noble Lord, Lord Raglan, referred in some detail, should come at the top of the list. Therefore I shall devote some of my remarks to this aspect of the price review.

In company with colleagues from another place, I felt that it was most timely to go to the headquarters of the Milk Marketing Board at Thames Ditton to find out precisely what that important body felt about the document to which I have just referred. It is quite evident from the background to the present proposals and, further, from the Press release from Brussels only last week when another place was debating these documents, that the Commission is very anxious to see the end of the Milk Marketing Board. If this occurred, nothing could be more unfortunate for this country in terms of food production and distribution. It is no small matter even to suggest that the board should be altered. We ought to remember very carefully the background to this, the oldest of the marketing boards, which was set up when I was quite a small boy, in 1933, when the dairy industry was on its last legs and the distribution system was in a similar situation.

The advent of the Milk Marketing Board, which has developed over the past 44 years, has been of the greatest significance for both the consumer and the producer. I do not think there is another country in the EEC, and as far as I know, certainly not in Western Europe, which has a daily doorstep delivery of milk. This is something which we should cherish in this country, not only for consumer reasons but also for social reasons. When I refer to the Milk Marketing Board I naturally include its counterparts in Scotland and those covering other parts of the United Kingdom. The Milk Marketing Boards fulfil a tremendously important role, and in the present circumstances we should do our utmost to support the Government's argument in regard to sustaining their continuance.

I should like to refer to the innovations which are suggested in the document and I think it is important that we should be chary of accepting yet further innovations, bearing in mind that over the past years we have had to take on board the metric system of weights and measures, coupled with substantial innovations in the system of taxation. I come to the prices review document which was published on the 12th February, to which the noble Lord, Lord Raglan, referred. Here the Commission has proposed that the EEC farm prices should rise by approximately 3 per cent. When one couples this with the revaluation of Green Money, it adds up in sum approximately to a 15 per cent. increase over commodities, which is at least 5 per cent. below the 20 per cent. costs increase in the last 12 months. So the British farmer will by no means recover his costs if the views of the Commission are accepted. I think it should be commented upon at this stage that COPA calculated that an average increase of at least 7.4 per cent. is needed on prices if income is to keep pace. But they are referring to Europe as a whole and the British farmer has been rather unfortunately placed.

I return to the question of the small dairy farmer, both in this country and in Europe, because I believe he deserves an important place in our thoughts this afternoon. An excellent product is economically produced in this country and one must remember that the number of dairy farmers in 1960 was 123,000, and that over the last 17 years the number has been reduced to 56,000. It is a great tribute to the dairy industry that over the 17 years the production of milk has not only been sustained but has risen, and it is remarkable that the efficiency has risen with the herd size.

It is interesting to look across the Channel and see what the herd sizes are there. I think it is worth pausing a moment to consider this, because in this country we have an average herd size of 41 cows. Of course there is a large number of herds which are substantially more than 41 and a large number which are below that figure. But in Holland the figure is about 16, in Germany it is eight and in Italy, five. If one takes the average as being five in Italy it means that there are some cow herd sizes of three and even I two. So one must remember that one is dealing with a substantial number of very small dairy farmers. On this side of the House, as indeed on the other side of the House to a greater or lesser extent, noble Lords will appreciate the woes of the small family farm, but I think noble Lords opposite are less seized of the problems.

Lord PEART

Oh!

Lord SANDYS

My Lords, if the noble Lord the Leader of the House takes exception to that, I am delighted to hear that the noble Lord is willing to accept the situation. But it is true that while the British dairy industry has passed through a considerable structural alteration in 17 years, a reduction to half its numbers, its European counterpart has by no means reduced in numbers in proportion.

What is going to happen, my Lords? One certainly wishes that the small farmer, and particularly the family farm, shall continue as an entity throughout the EEC, but what one wishes to see, coupled with its continuance, is an increase in efficiency, the amalgamation of holdings and the alteration of levels of regional support. If the aims of the Commission are carried out, then looking at the present proposals I do not think very much will be achieved in this particular field. One must at the same time remember the needs of those who at present live in cities such as Naples who do not demand a daily doorstep delivery of milk. Perhaps in coming years we may be able to persuade them that this admirable product should have wider application.

Referring to the butter mountain, which was also referred to by the noble Lord, Lord Raglan, standing as it does at 260,000 tons (and the skimmed milk powder mountain stands at over 1.1 million tons), it gives enormous offence to everyone that the sale of this butter mountain at a rate of 17p per lb. should take place in the circumstances at present arranged. It is a serious criticism of the Common Agricultural Policy that it should do so, but as the noble Lord, Lord Raglan, rightly pointed out, we are strangers to surpluses of food. We have recently joined in the Common Market and perhaps we may he able to suggest remedies whereby these enormous and totally unnecessary surpluses may be put to better use.

The noble Lord referred to the ingenuity which is brought to bear by the Commission. In my view, that is a scarce commodity in present circumstances. Nevertheless, the Commission must also be aware that, should a surplus of this magnitude arise again, there will be a total revulsion against a second sale of this nature to a third country. A sale to a country outside the EEC in the Third World is a different matter altogether, but the sale to Soviet Russia on such particularly favourable terms has given great offence.

I should like to refer to what my right honourable friend the Leader of the Opposition said on the subject in a speech in Zurich on 14th March. She said this: It is the West, not the East, which sells off surpluses of grain and other foodstuffs to the planned economies and also gives them to countries of the Third World. This is a highly political matter and one which we should bear in mind because the philosophy of surplus food has taxed the minds of the most skilful of your Lordships. I should refer to the work of the late Lord Boyd-Orr in this particular field, who spent many years examining the subject but reached no firm conclusion about a particular problem as intractable as this one.

I end with the matter of skimmed milk and this particular surplus. It is a matter which is a source of some pleasure that at least a positive suggestion has been made by the Commission for using this in a school milk programme; here at least is something which may be built upon. Nevertheless, I believe that 1.1 million tons of surplus milk is a matter of the greatest concern within the Community, and it must never be allowed to build up. The notion of using and recycling this milk for animal feeds appears to be one of the most uneconomical methods of using this important commodity. I had intended to quote the wise words of Lord Birkett, when he said he had never known a speech that was too short, but as I have been speaking for 16 minutes I feel this might be inappropriate.

4.52 p.m.

Lord MACKIE of BENSHIE

My Lords, I speak today as a member of Sub-Committee D, and I should like to start by saying that I have enjoyed greatly working under Lord Raglan's chairmanship, and greatly enjoyed working with the experts of the money committee, sub-Committee A on the occasions I was able to attend. I would say how very right it is that these two reports should be debated together, and how very right it was to split them; I think that Sub-Committee A did get a great deal of information about agriculture, and we certainly received a great deal of information about money and its workings with which we were not too familiar before. The two are wholly bound up together. There is no shadow of doubt that we are talking today about matters which affect the consumers in this country and the farmers and the producers of food, and the two are bound together, of course, by the prices received and paid by the two groups.

What I dislike about the present situation is that a great many people are getting mixed up. They are questioning the whole of the CAP; they are questioning its value. They are producing figures such as £600 million to £800 million which could be saved by buying our food in the free world market. I think this is a very unsophisticated and very dangerous approach in the present situation. We are also pointing out in this country the great advantages of deficiency payments as against intervention buying, but I wonder if we should do this entirely. We ourselves in the past have used both systems.

With potatoes, for example, we had a fall-back price which worked very well. Deficiency payments can lead to surpluses in exactly the same way, but when you get surpluses with deficiency payments you have a far greater problem, because you depress the price still further getting rid of them. I think it is very important, when we consider this, to look at intervention buying not as it is working now but as it should work, and consider where the real problem is. I will come to that at a later point, but I will say now that the real problem is that we are paying far too high prices to the farmers on the Continent. It sounds a selfish sort of thing to say, but I will explain it later.

Before going on to that I would remind the House of some figures of world production of food. In a debate in another place Mr. Jay, that well-known anti-Marketeer joke, said that world food production was rising at a faster rate than the population. This was true in the period of the decade from 1960 to 1970. It is not true in this decade. World food production is falling behind the increase in population, particularly in the developing countries, and the FAO are extremely worried about it. It is also true to say that, as was said in the debate in the House of Commons, there have been improved harvests in Russia, India and other places this last year. But in 1973 the world reserves of grain were in the region of 140 million tons, mostly held in the United States. In 1975, the last true figure I have, there were only 40 million tons. This is not a situation we can look upon as being a 19th century situation where we were mining the fertility of the prairies all over the world in order to feed Great Britain.

If I can weary the House a little with figures from the Annual Review of Agriculture, the contribution to the gross domestic product in this country is £2,760 million from our own production. We import food, feed, and I am happy to say alcoholic beverages to the tune of £500 million and set against that we have exports of about £1,500 million. But it still means that the vast amount of our food and drink is imported, and both are equally important. It is a situation that we in this country should never forget. If I may bore your Lordships with some more figures—I must produce them since I looked them up—in milk products there is an interesting situation. The total production of butter and cheese in the EEC—I should like the noble Lord, Lord Sainsbury, to listen to this with particular care—is 4,700,000 tons. These are the main products sold across the trade frontiers. The whole production of Australasia—Australia and New Zealand —is 614,000 tons. The total exports of butter and cheese from both Australia and New Zealand are 278,000 tons. It is a lot of butter and cheese, but it is only 6 per cent. of our production in the EEC. So let the people who say that we can buy cheaply in world markets drop the production in the EEC by 6 per cent. and then see how cheaply these products can be bought.

I make no apology for bringing out these figures because I think they are very important to our thinking in this country. With regard to cereals the position is even more serious. World production is 1,000 million tons. The United States produces a quarter of this amount, West Europe produces 122 million tons. The total world trade in cereals is 140 million tons, of which Western Europe takes 43 million tons, and Great Britain takes 10 million tons. Our own production is 13½ million tons. These are figures which cannot give rise to any form of complacency. The world production of grain needs to rise, to maintain the per capita production at its present level, by something in the region of 30 million tons a year, and that is the produce of a country twice the size of Scotland, all arable.

I think I must by now have made the case for the production of food by some efficient system in this country and in Europe. A number of people are at the present moment producing these figures of great savings by buying in world markets, but I do not think there is any doubt at all that if we were to put up by 10 per cent. our buying in the world market —not our whole production—we would put the prices up by very large amounts indeed, probably to just about, or even over, the EEC current prices. In this country we have a lot of experience in managing a controlled market in agriculture.

We have done it since the war, starting with Tom Williams, whose name has always blessed the Labour Party when it speaks to farmers. He began by keeping down the prices to farmers in return for giving them a guarantee. In order to produce farmers require a guaranteed market. They do not require high prices; they require stable prices. Over the past few years, if we had had stable milk prices in Europe and if that commodity had been properly promoted, we could certainly have sold a great deal more to the benefit of the public instead of selling so much sugar, as we do at present.

It is difficult to sell a great surplus of food by lowering the price. People can take only so much. It is silly to reduce the price of butter so that housewives buy it up and put it in their deep freezers. Long-term stability is of more value in the marketing of food than trying to dispose of surpluses and thus upsetting the whole market by dumping the particular commodity at a lower price. It is valuable to provide milk for schoolchildren and to allow the poorer sections of the community, for example, old-age pensioners, to buy it through a system of vouchers. In the main, a good deal is to be said for intervention buying. If we were selling just 1,000 tons of cheap butter to Russia in order to rid ourselves of an embarrassment no one would be crabbing quite so loudly as the noble Lord, Lord Sandys, says they are.

It is the size of the surplus that is wrong. We must tackle the reasons for that large surplus. We have heard a great deal about the small farmers in Europe. We have crofters in Scotland and small farmers in Wales. Many are very good farmers and are doing very well. There is no such thing as a small farmer. Many a small farmer can adapt his farming methods to the size of his farm and make a good job of it. This is mainly a social problem. In the debate in the House of Commons the Minister of Agriculture said that it should be regarded as a social problem by separate countries. That is right. It would be very much better if these matters were dealt with by the Governments concerned. If Brussels is to deal with the problems of the crofters in the Highlands, the small farmers in Wales and everything else, we shall receive even more paper than we are receiving at present. We must pitch prices at such a level as will control the surpluses. At the same time the prices must always follow the market—at the end of the day we cannot get past the market. In the long run we can only reduce the price if people produce too much. We in this country found that when the price was coming down and milk was not so profitable farmers kept an extra cow or two and production rose when the price fell.

The most important commodity in the price package is milk, and it is in that area that the Commission has some good and sensible ideas. I have no time for the co-responsibility levy. It is a method of reducing the price. If it is increased by 3 per cent. and decreased by 2.5 per cent., it is a piece of nonsense and a way to get round political opposition. I suppose that if it does that, there is a place for it, but it is not very sensible. It would not be fair to the farmers in this country, who are already paying for a great deal of promotion through the excellent efforts of the Milk Marketing Board.

The tax on vegetable oils is absolute nonsense and one that we should oppose by every means in our power. We should also look very carefully at the detail of banning investment aids. Anything that will make milk production more efficient in a number of countries should be examined closely and there should not be a total ban. The provision of school milk is good. I turn to the restriction on dairy names. I have long felt that there is a certain justice in not allowing anything made out of vegetable oils to be called ice-cream. I have no doubt that there will be much trouble over it. In fairness, this could well be examined. The non-delivery premia, and the proposal for limiting the support for skim milk are sensible.

All this boils down to giving farmers on the Continent some inducement to leave the production of milk as well as making it rather less profitable. In evidence Sir Henry Plumb agreed that the price of milk on the Continent was too high. The difference between the real value of the Green Pound and what the farmer is paid here is, in the case of Germany over 40 per cent., and in the EEC as a whole 35 per cent. It may be a curious thing for a farmer to say, but farmers in this country deserve more money and the farmers on the Continent deserve less. There is a certain logic in that when one takes into account the difference in the valuation. At present milk production is increasing in this country and at a lower price. The ultimate objective of the EEC is to have the goods produced wherever they can best be produced. There is little doubt therefore that milk should be produced in Denmark, Holland and Great Britain, and that our case for producing it is far stronger than those of the very inefficient producers in large parts of the Continent.

I make a plea as regards Green Money. I appreciate that it is a difficult problem and that any Government have to take into account the rate of inflation and the rise in the cost of living. However, we really cannot go on like this. As the Minister well knows, the situation in the pig market is ridiculous. We are paying our producers about £3.50 a pig to make up for a ridiculous calculation which allows the Danes, who pay more for their grain to feed their pigs, to sell to this country at a price which makes it impossible for our farmers to make a profit out of pig farming. We are just as good as the Danes; in many cases we are better. Our technology has improved. Yet it is impossible for a competent pig farmer in this country to make a profit without a subsidy because of the system of subsidising the Danes through MCAs. It may be ACAs, but no doubt noble Lords can refer to the glossary.

If we do not harmonise the Green Money, the values and prices over the whole of the EEC within a certain period, we would be better out of the EEC. If we do not take advantage of the system, it is no good having this enormously complicated paperwork which goes on all over the place and which takes up the time of a large number of civil servants. There must be harmony in prices, and eventually we must go for the original objectives of the EEC. I have spoken for seventeen minutes. I commend the report to the House.

5.10 p.m.

Lord COLLISON

My Lords, I too should like to thank the noble Lords, Lord Raglan and Lord Pritchard, for introducing their respective reports, and say once more that it is a delight to work under the noble Lord, Lord Raglan. It is a very enjoyable job to do and one that I greatly appreciate. I should also like to endorse what has been said about the work done by the people on the staff who produce these reports in difficult circumstances. I am sure your Lordships would agree that the reports, as they stand, are extremely well done, well written, and entirely comprehensible. That goes too for the specialists who advised us, again in a difficult and in a short-term situation.

Before I say what I want to say about the report—and I am going to concentrate on Committee D Report, the Twenty-third Report—I want to indicate that I thoroughly agree with the noble Lord, Lord Sandys, in his remarks about the Milk Marketing Board, and indeed about the other boards. It is frightening to learn that doubts are being cast upon the legality of the Milk Marketing Board. I do not know how far this has gone or how deeply one should be concerned, but certainly it is true that the Milk Marketing Board, and our other marketing boards, provide for both the producer and the consumer in this country a very efficient system indeed which leads to the stable prices which have just been referred to by the noble Lord, Lord Mackie. Here again I agree with him, and I agreed with much else that he said but not quite all.

As I say, I am going to concentrate on the Twenty-third Report and going to confess at the outset that I feel some unease about the situation as it has developed and is developing. I hate reading speeches, but I thought on this occasion that I ought to put some words down on paper. Having read what I put down I rather shocked myself in the sense that it appeared to me that I was being unduly critical. I do not intend that, and what I say is meant to be entirely constructive and not destructive. There are one or two suggestions that have been made of which I can heartily approve. For example, the school milk programme. This is a means whereby we could reduce the surplus. I have felt all along that when it comes to skimmed milk it would be a good and useful thing, and a humane thing, to supply this commodity where it is needed, particularly in times of famine and maybe as part of our aid to developing countries programme. On the other issues that have been proposed, I agreed with and welcomed the continuation of the brucellosis eradication proposal. On the others I have certain reservations which I shall mention as I go along.

It is important that one should realise what the overall packet means in terms of increased prices to the consumer. The Ministry of Agriculture and Food estimate that the effect of the Commission's package, including the two remaining additional steps which will have to be taken, will be to raise retail food prices by about 4 per cent. which is equivalent to about 1 per cent. on RPI or something less than 1 per cent. Here I agree with the noble Lord, Lord Raglan, that there are other considerations which have to be taken into account. There is the cost of packaging, transport and retailing. Therefore, we really do not know what the exact figure is. Here again I agree that it would be useful for an exercise to be done to indicate the degree of these additional costs.

That 4 per cent. increase relates to a 23 per cent. rise in food prices in the United Kingdom between 1976 and 1977. Seen in that light the results of the overall package on the consumer are not perhaps so terribly frightening. I emphasise this at the outset because I have a considerable concern about the growing public attitude which is being shown. We are hearing severe criticism, for instance, about the sale of surplus butter to Russia. Some people may base their reaction to this on the fact that it is Russia, and there is a political bias there. But I believe that if surplus butter, the butter mountain, is sought to be reduced by selling at reduced prices to any developed country you will get the same reaction.

It is a reaction which can be well understood. Here we have the butter mountain, we have the wine lake, we have the beef mountain, and people believe that all these commodities are there and should be issued to the consumer, maybe ignoring the effect that this would have on prices and the farmers' income. But there it is; these commodities are there and people feel that they should be made available to them. I do not believe that they would be so very much concerned about the price issue. It is the fact that they see this commodity, this butter, being sold abroad, and immediately there is this enormous emotive reaction, which can he easily understood. I understand it, and in a sense I do not blame them.

One also has to remember that inflation is still running at about 15 per cent., and it is doing this at a time when the situation of the lower paid people in this country and those on small fixed incomes when they retire, income-wise, is extremely strained. Again, it is important that the misunderstanding—and there have been misunderstandings; some of them unfortunately perpetrated by the Press, maybe out of a not complete understanding or knowledge of what the Common Market is all about or its procedures—be cleared up. We should try to give a very careful explanation but, more important than that, people have to see that the Government do not supinely accept the decisions or proposals which are put out, which emanate from Brussels, and the people must see that the Government consider these and are prepared to debate them, and maybe to fight them if necessary.

It is in this light that I should like to comment upon the proposals outlined in the Twenty-third Report. Because I have said what I have said, it means that I am looking at this in terms of policy issues. The proposals are a continuation of the overall CAP objectives; that is, to protect and encourage the producers, although one does see, and I think approves of the fact that this year more regard has been given to the need to contain inflationary pressures.

As an erstwhile representative of farm workers, who of course depend upon the success of agriculture in this country for their conditions, I obviously must approve of measures to see that the industry, and those in it, get a proper return for their contribution to the economy at large. I also recognise that we are now members of a wider Community, comprising nations which have different agricultural situations, and therefore different agricultural problems from our own. We have to recognise this and go along with some of the proposals which are made by the Commission, by the Common Market countries, which are sought to be resolved not only in the light of what we need but in the light of what these other countries need, too.

Here I am going to disagree with the noble Lord, Lord Mackie. For myself—and this is a sort of pipe-dream now, I suppose—I must say that it appears that the old support system, which we developed emanating from the Tom Williams proposals—and I do not say that because I sit on this side of the House—supporting agriculture in this country via the Annual Price Review and all the considerations that went into it, was a better method for us than the method of intervention used by the Common Market.

Possibly CAP is in danger of breaking down; for example, in paragraph 36 of our report we say: Measures to make processing, marketing and farm structure more efficient occupy far less attention than that given to the support of farm price levels. This shows up in the budgetary imbalance, where expenditure on guaranteeing institutional prices, particularly in the dairy sector, is already too high and is increasing further. In the view of the Committee, the renewed growth of the guarantee section of FEOGA threatens to swamp the whole EEC budget and to retard the development of other policies such as the social policy, the regional fund and joint expenditure on research. That means that if CAP is in danger of collapsing, that endangers Common Market policy overall. One understands what the intervention policy is aimed to achieve—to take produce off the market to maintain prices—but it has resulted in mountains of beef, butter and wine and methods are being sought to deal with and reduce those surpluses.

The dilemma becomes very apparent. It became clear to us in Committee through the evidence we took: on the one hand the consumers' representatives took the view that the increased prices resulting from the two remaining transitional steps were too much to bear anyway, notwithstanding what would happen if the Green Pound were revalued, and, on the other, we had evidence from the NFU who complained that the 5.9 per cent. to 6 per cent. increase in the Green Pound revaulation was not enough. This kind of dilemma arises because of the intervention policy, simply because we have these surpluses; in my view we must take very seriously the consequences of not modifying the policy in a way which will resolve the dilemmas in which we and everybody else find ourselves.

For example, there are those who take opposing views on the proposal to tax the production of isoglucose; the NFU welcomes it as a protection for the sugar producers while others feel that such a proposal is wrong. The final paragraph of the report on this subject indicates that while we understood the objective, there was something rather unhappy about a situation in which a tax is put on—as it is proposed in respect of vegetable oils and ethylalcohol made from other than natural oil products—and one must say to the public, "Here is a development which could produce a cheaper commodity either for direct or indirect use, but you cannot have it because we want to protect the industry concerned".

I am not making any comment about this, but I think it proper that there should be a reasonable balance between, as it were, isoglucose, on one hand, and sugar, on the other, so that if there is to be competition they should be able to compete on an equal basis, without simply just ruling one out altogether as apparently might happen as a result of this new proposal. We are therefore faced time and again with unfortunate dilemmas arising from these policies.

Lord DAVIES of LEEK

My Lords, may I ask my noble friend whether he has any figures on this subject? He will be aware that there is a £48 million investment in these subsidies, but I do not think there has been any discussion about the effect of all this on jobs. For example, what will be the result of dropping the pig subsidy? I believe there has been no discussion of that, although it will cost us £50 million a year and 3,000 jobs.

Lord COLLISON

My Lords, the only figure I can give my noble friend—this is in terms of isoglucose—is the estimate I have seen of it possibly amounting to between 4 per cent. and 8 per cent. of the total sugar requirement. I read in The Times last week—I think this is what my noble friend is referring to—of a proposition to create a new factory (indeed, a new industry) and while I have forgotten the name of the proprietor, I believe he said that if this latest proposal went through he would make a loss from the start.

I conclude as I began. I do not want to give the impression that I am being nothing but destructive. Noble Lords know me to be a keen supporter of the Common Market over the widest front. Some of the opponents of the Common Market—those who did not want us to go in, who have never accepted that we are in and who do not appreciate that, now that we are in, we must play ball—observe with glee the reaction of the housewife. Not only in England but on the Continent the Commissioners met representatives of housewives who complained about high prices. Opponents of the Common Market hail this with glee and I dislike that; it is a matter of sadness to me that the opportunity could exist for the Common Market to be criticised.

My remarks tonight have been made with the intention of being helpful, constructive and certainly not destructive, supporting, as I do, the Common Market and wishing it and the future of the CAP well. Nevertheless, I agree with the noble Lord, Lord Sandys, that we, with our experience and sophistication, have something to give and perhaps something to give towards the realignment of CAP policy. I appreciate that a return to the old Toni Williams system is a pipe-dream. We are in the Common Market and obviously we must have a different policy, a policy to suit not only us but the people on the Continent. However, let us, through our Government, use our influence there to streamline, improve and help to get away from the constant dilemmas with which we are being faced.

5.28 p.m.

Lord TRANMIRE

My Lords, I found myself in considerable sympathy with the noble Lord, Lord Collison, in expressing his unease at certain aspects of the present situation, but first I wish to congratulate my noble friend Lord Pritchard on not only his very able chairmanship of Sub-Committee A but also on his very clear explanation of the Green Money situation. With a Green Money system operating between such wide limits as at present, I feel that it is illusory to talk of a Common Agricultural Policy. When a German farmer is receiving for his product 49 per cent. more than his British counterpart is receiving for the same product, quite clearly the Common Market becomes a nonsense, and an unjust nonsense, in that the British farmer is paying for his taxed inputs just as much as the German farmer.

That leads me to look at the whole situation, where it is quite remarkable that in all the White Papers published by successive Governments on the Common Market, there was no mention of the Green Money problem, nor indeed was there any in the numerous documents brought out by the National Farmers' Union. Their policy can best be epitomised in paragraph 13 of British Agriculture and the Common Market, which the National Farmers' Union brought out in 1971. They said: Through the adoption of the common agricultural policy and in particular the application of community preference, imports from the Commonwealth and other non-member countries will tend to be reduced in favour of greater supplies from United Kingdom farmers and from other farmers inside the Ten. That was before the Ten became the Nine. Certainly, Commonwealth imports have declined very considerably within the period in question but, to compare the position in 1969 with that this year and taking cereals in general, cereals from the Commonwealth declined by 450,000 tonnes, from the United Kingdom by 200,000 tonnes and from the Common Market we brought in 2,500,000 tonnes more. Therefore, the British farmer has not been the gainer.

Taking the position in sugar, imports from the Commonwealth—the Caribbean and Mauritius—have declined by 800,000 tonnes. In Britain, sugar production went down in the period 1969–1976 by 160,000 tonnes; in the Common Market, it went up by some 322,000 tonnes. We have heard a lot of talk about the butter mountain and the wine lake, but something much bigger is coming up the great EEC alps; that is, the sugar mountain, which looks like being up to a surplus of 3 million tonnes in a very short time.

This makes one wonder what will be the effect on our policy—which I think we all agree—of getting greater agricultural expansion. This was embodied in the White Paper which the Government, to general acclaim, brought out last year, Food from our own Resources. That envisaged a 2½ per cent. increase in production per year in these years. This was slightly more than the average increase in production in the previous decade.

What has happened? The latest anunal review White Paper, published very recently, shows that there has been a decline in nearly all our crops and livestock products since the White Paper was published. Why has that happened? What has happened is that the Green Money system has prevented that expansion coming about in British agriculture. The object of that expansion was to improve our balance of payments. I read at the week end that Mr. Wynne Godley had worked out that the common agriculture policy and the green money system were costing this country £600 million a year in balance of payments. Whether or not that is right, I do not know but, after all, Mr. Wynne Godley is a fairly reputable economist who is not given to extravagant statements. All I know is that, if one looks at the visible trade balance of the country, one sees that, whereas in 1969 we had a £72 million deficit with the Common Market countries, in 1971 we had a £183 million deficit and in 1975 that deficit had grown to £2,352 million. In the last year which we have just completed, it was a deficit of £2,222 million.

I believe that a great part of our troubles comes from this very large deficit, bearing in mind that our food and drink bill from the Common Market in the year 1976 is just about £2,200 million—very nearly identical with the whole of the deficit.

Of course, this has in effect on the whole of our cost of living. One of the reasons for this large increase of 69½ per cent. in the cost of living in the past three years, has been the weakness of sterling. I am very glad that the noble Lord the Leader of the House is to reply to this debate and I ask him in that reply to try to give us a breakdown of that increase of 69½ per cent. in the cost of living. In the White Paper on entry to the Common Market we were told that the cost of living would increase as a result of the Common Agricultural Policy by a half penny in the pound each year. It does not seem quite to account for the 69½ per cent. increase over three years and I should therefore like a breakdown showing how much of the increase in the cost of living is due to the weakness of sterling which is caused by the adverse balance of payments and the public sector borrowing requirement and how much to the Common Agricultural Policy with the levies on imports for nonmember countries and the high level of the common agricultural policy prices.

I believe that these two reports lead us to a rethink on the whole of the Green Money situation and of the demand for a revision of the Common Agricultural Policy. In paragraph 30 of our report, we make a suggestion that the Government should look at a change in the agricultural unit of account and should base it instead on a basket of currencies, as the Select Committee previously recommended and just as it is with the European unit of account.

As I understand it—and I hope that the noble Lord the Leader of the House will correct me if I am wrong—the agricultural system is based on the system that is linked with the deutschemark and the "snake", so it does benefit West Germany, the Low Countries and Luxembourg and puts Britain, France, Italy and Ireland at a disadvantage. Denmark, of course, benefits with the "snake" countries. If this were changed to a basket of currencies as we suggest, one would find that there would be an advantage to Britain and to the British farmer and a disadvantage to the German farmer and that the level of prices throughout the community would be lower. This is a suggestion that comes from the Select Committee and I believe that it requires a considered reply from the Government.

When we come to the Common Agricultural Policy, I must say that I have great sympathy with the noble Lord, Lord Collison, and that I am in disagreement with the noble Lord, Lord Mackie. The noble Lord, Lord Mackie, did not appear to distinguish between a surplus that comes from over-production and one that comes from the fact that prices become so high that the consumer is not able to buy. I am quite ready to work a guarantee and efficiency system and occasionally run into surplus if I have too much enthusiasm in agricultural production, but what worries me under the Common Agricultural Policy is that the price level has been fixed so high that the low income groups cannot get the food they require at reasonable prices. In the dim past, when I was working in the agricultural field in the other place, I worked out the system of guaranteed prices and deficiency payments that was eventually adopted and successfully put into operation by Mr. Tom Williams (as he then was), and so I have the greatest sympathy for a system of guaranteed prices and deficiency payments—

Lord MACKIE of BENSHIE

My Lords, if I may intervene for a moment I should like to put my point of view. What I said was that if there was over-production the price paid to farmers was too high and that guaranteed prices, or intervention prices, must in some degree follow the market.

Lord TRANMIRE

My Lords, I took down what the noble Lord, Lord Mackie of Benshie, said, but I do not know whether the revised version was very much different from the authorised version. He said that he thought that one got a surplus in both cases and that it did not matter which way one had it. That is what I understood him to say, but I am perfectly happy if he wishes to retract that; and if I find that he is in agreement with me that the old guaranteed payment system is better, I hope that he will convert our partners in the EEC to that view.

It always seems to me that to prevent the consumer from being able to take the advantage of lower world prices is a very cruel policy for the lower income groups, and I would hope that at this stage Britain could strike a bargain with our partners in the EEC. After all, we could say that we would agree to the proposals they have made on Green Money provided that they would allow us to import, without the high levy, a sufficient quantity of food from non-Member countries at prices which would be low for the lower income groups. I cannot think that the system in the Common Market of building up huge surpluses because prices are too high, then trading them away to the Yugoslavs, the Russians and the Bulgars at cheap bargain prices is fair to people of this country. I believe that we must have a new policy on this matter.

If we were to have the policy that I am suggesting, of getting food cheaper for certain lower income groups on the world market, it would not alter world prices because there would not be a sufficient demand for it. But it would mean that the farmers would get an extra £300 million a year, and there could then be achieved the expansion under the agricultural expansion programme that all sides of this House desire. That programme could then become a meaningful possibility. But so long as there is a system of Green Money which is weighted against the British farmer, and so long as there is a system of making prices so high that the consumer cannot afford to buy the food, I am afraid that expansion of British agriculture becomes a very dim possibility.

5.44 p.m.

Lord GORDON-WALKER

My Lords, like the noble Lord, Lord Tranmire, I will also talk about the Green Pound. I will cover some of the ground that he has covered and then come to sonic of his points as we go along. The British consumers have certainly benefited from the Green Pound, though not, as the noble Lord, Lord Tranmire, pointed out, the British farmers; this is one of our problems. But be that as it may, we had nothing whatever to do with the setting up of the system of Green Money. It is not sufficiently recognised, as we talk so much about the Green Pound and so on, that the Green Money was introduced before we became a member of the Common Market, and it was due to the devaluation of the French franc and the up-valuation of the deutschemark. Its aim was exactly the same as it has always remained, though in this case to prevent the flow of agricultural production from France into Germany. It was a method of protecting the German farmer at that time. The purpose of the introduction of Green Money by the Commission was to save the Common Agricultural Policy, but I agree with the noble Lord, Lord Tranmire, that it undermined the Common Agricultural Policy or, perhaps, the whole Common Market. It is in grave danger of doing that.

The real purpose of the Economic Community is to provide for the free flow of goods of all kinds—agricultural, industrial—through the whole realm of the Community. But in fact the outcome of Green Money has been the creation of an elaborate structure of what are, in effect, frontier tariffs, and in some ways the new system is worse than it was before the Community was created, because at least in those days the customs officials worked normally with known tariffs that would be long-lasting. Nowadays, however, the poor customs officials may have been told every week that there has been some shift in the relative value of currencies and therefore a shift in the export levies and export subsidies. They have to cope, as they did not in the past, with an absolute mass of paper that is circulated from the Community. If people here and in the Community realised more fully how far Green Money has restored tariff barriers in the Community, after they were abolished, we should have a rather better understanding of all these related problems.

The Commission is very angry with us about the Green Pound. But one must remember that the Commission was wholly, solely responsible for the invention of Green Money. We were not responsible; it was the Commission that invented it. The Commission has now repented of its ways and has put forward proposals, which the noble Lord, Lord Pritchard, has told us about, to phase out Green Money. It seems to me very doubtful whether that can in fact be brought off whatever the Commission wants. Perhaps as part of a much bigger package it could be brought off, but as an isolated act I cannot see that the phasing out of Green Money will work. Too many vested interests have grown around it.

It is not only countries like Britain that have gained; a country such as Germany, for example, has gained a great deal from its point of view. Its politically very important farmers have got higher prices than they would otherwise have got, and these very same farmers get subsidies for exporting their food to us and other people. Germany does not want to get rid of the Green Pound; at least, Germany's farmers do not. Its farmers are politically very important and in the long run what the farmers in Germany feel very strongly about Governments, and indeed Oppositions, are very apt to agree with.

Most other countries in the Common Market benefit one way or another, although there is one (I have forgotten which) which is in the neutral position. As the noble Lord, Lord Pritchard, pointed out, the Commission has also proposed, in effect, that the Council of Ministers should be set aside in this field and that there should be automatic consequences from reports by the Commissioners. Here again I think it is extremely doubtful whether they can bring this off. It would take from Member Governments the final control of shifting the rates of Green Money one way or the other. Not only is it unlikely to happen, because Governments will not let it happen, but I think that Governments should not let it happen. It is not for people like the Commission to settle great political matters of this kind; it is for representatives of elected Governments to do so.

In any case, I think it would be an error, a mistake, to make a sharp reduction and abatement of Green Money as an isolated act, as the Commission proposes. I think there are two main reasons for this. The first is that, as my noble friend Lord Raglan and the noble Lord, Lord Pritchard, said, Green Money is inseparable from the CAP, and you therefore cannot deal with it in isolation from the CAP; it would upset the whole apple-cart. It was only because common agricultural prices were so high and consequent over-production so heavy that Green Money was in fact invented in the first place and has been sustained since. The second reason is a very different one, but I think it is the more important. It is that the maintenance of Green Money gives us the only effective lever to get a more sensible Common Agricultural Policy. Already because of the high cost of the Green Pound and other Green Money, there are some signs that a more favourable attitude is arising in the Commission towards lowering Common Agricultural Policy prices. Indeed, it has begun a bit, although it has a long way to go.

I agree with those who have said that what the European Community needs is a move towards our system of deficiency payments, which, as my noble friend Lord Collison said, had very great advantages, the chief of which was that it avoided the creation of great mountains, surpluses, lakes and so on—and that is, after all, the greatest need facing Europe. But I think that those who, like Lord Tranmire, advocate this system for Europe must recognise that it is much easier to work such a system if, like us, you import half your food than if, like other Common Market countries, you produce nearly all your own food. It is very much easier if you have a large import element, whether it is coming from the Community now or whether it is coming from overseas as before. Nevertheless, it seems to me that there is an obligation on people like the Commission, who want to get rid of Green Money, to work out some compromise plan for lowering agricultural prices by some form of subsidy or supplementary subsidy to producers —perhaps not to adopt our whole system of the past but to supplement their system by such a system as that.

I think, therefore, the best and the only tolerable way of getting rid of Green Money is as a part of the reform of the Common Agricultural Policy, not as an act by itself, in isolation. In the meanwhile, grave as are the effects of Green Money—there is no doubt about it— it still remains as the only effective lever to secure reform of the Common Agricultural Policy, and we should not let go of that lever until we have a real momentum, at any rate, towards reform of the Common Agricultural Policy. It is the only means to bring the Commission to propose ways of eliminating Green Money as part of a plan to eliminate some of the major dilemmas, as my noble friend called them—and some of them are major absurdities—of the Common Agricultural Policy,

5.54 p.m.

Lord COBBOLD

My Lords, a considerable number of member of the Committee have already spoken, and therefore I am afraid I am bound to be somewhat repetitive, but I shall try to concentrate a little on some of the rather longer-term issues which are mentioned in the report. If I may say so, I entirely agree with the noble Lord, Lord Mackie, who I think has now gone, that it was extremely useful having the members of Sub-Committee D sitting together with the members of Sub-Committee A.

So far as short-term decisions are concerned, the Committee felt that they could do little more than set out the very complicated problem as clearly as they could. Attention has already been drawn to the implications for agricultural producers and consumers, and also for the general pricing policies, both of the United Kingdom and of other Member States. Both the arguments put forward by agricultural interests and those put forward by consumer interests obviously have great weight, and there is the overriding importance of not adding to inflationary pressures at this moment. The noble Lord, Lord Tranmire, referred to the possible use of the "basket" in place of the joint float currencies as the basis for the unit of account. This is a highly technical matter which I shall not try to explain to the House at this moment, but we did try to explain it in some detail in paragraph 30 of the report, and it is a suggestion which seemed to us to deserve very serious consideration.

In forthcoming negotiations Her Majesty's Government have the choice between acceptance, in whole or in part, of the Commission's proposals or of striving to maintain, again in whole or in part, the flexibility given by the Green Money system and, more particularly, by the present level of the green pound. It became increasingly evident to the Committee, as has been said many times today, that to deal with the green money proposals in isolation from general discussions about CAP prices and domestic price policies would make no sense, so that beyond expressing a general feeling that some compromise should emerge on the Green Money proposals in the context of further discussions on CAP price levels generally our Committee did not feel able to suggest that the balance of advantage in these negotiations lay in one direction or another.

Turning, my Lords, to the longer term, the Committee felt it right to call attention to some broader implications. As the noble Lord, Lord Pritchard, said, the present system of green money and monetary compensation amounts was intended to deal with minor exchange fluctuations (as the noble Lord who preceded me said, it was invented before we came in, so it is a mistake to talk of the invention of the green pound; it is the invention of the green money) and to help to prevent such minor fluctuations over short periods from interfering with common price policies. In the event, the system has been overtaken by much wider exchange movements over much longer periods than was anticipated. It is obvious that, as things have developed, there is in fact no common price policy. One is bound to ask oneself whether, in these circumstances, the whole Common Agricultural Policy, together with the green money system, does not need a basic review.

My Lords, if continued indefinitely on anything like its present scale the divergence between green rates and market exchange rates could create quite unpredictable complications. In its present form, the Green Money system is inconsistent with the concept of the Common Market and also with the long-term aims of economic and monetary union; and it must be questionable whether the Community budget could for long bear the heavy burden of these MCA payments without curtailing Community expenditure in other areas. Again, the system highlights the problem of balancing national interests with those of the Community as a whole; there is a clear conflict between the principle of a common European price level for the major agricultural products and the different interests of Member States in their domestic policies. The Committee emphasise the importance of viewing the Green Money question in the light of these broader and longer-term issues.

The committee recognise, I repeat, that the Green Money question is inextricably tied up with CAP policy and general price policy in Member States. It therefore has political implications for each national Government. As your Lordships will have noted from the report, the Committee conclude that, while some formula of adjustment needs to be worked out in due course, the speed and extent of adjustment must be subject to the final control of Member States through the Council of Ministers. I am sure, my Lords, that the noble Lord, Lord Pritchard, will join with me in expressing the gratitude of Sub-Committee A to our special adviser, to the clerk and to his staff. This has been a rather complicated exercise which has involved a great deal of research and a great deal of checking and rechecking.

6 p.m.

Lord MOTTISTONE

My Lords, I must start by declaring an interest as the Director of the Cake and Biscuit Alliance, a trade association which deals with the manufacture of cake and biscuits. I know that my noble friends on Sub-Committee D will be getting bored with my constant repetition of this. I must also say how grateful I have been to the noble Lord, Lord Raglan, our chairman, and to other members of the Sub-Committee for being such good colleagues to work with and for helping me to learn a great deal about this somewhat complex subject. I should also like to say what a pleasure it was to attend one or two meetings of Sub-Committee A with their great wisdom on these more detailed financial matters.

It seems to me that there is little that one can say additionally to what has already been said about the question of Green Money. I felt, if anything, that my sympathies lay more closely on this subject with the noble Lord, Lord Gordon-Walker; and I would endorse practically all that he said. An example of how the Green Money imbalance, whatever the reasons for it, can be troublesome to us, is that we have rumours at the moment which endorse the sort of things that the noble Lord, Lord Pritchard, was saying about the outcome of the present difference between our Green Pound value and that of Ireland. We hear from across the water that there is a threat for MCAs to be applied to biscuits and associated products. Whether it comes about or not, this has been suggested; and one hopes that the Government in their negotiations might be able to ward off its worst effects. The fact is that MCAs have not previously been applied to finished products. It is normally the raw materials to which they apply. The suggestion has been brought about by what seems to be the desperation of the Irish at finding out that they are worse off because their Green Pound has been devalued and ours has not. Presumably, one would say the answer to this problem is for us to follow the Irish; but I do not think that that is entirely fair or right, for our problems are different from theirs.

It seems to me that all the remarks made earlier about the need to make the system simpler so as to avoid these sort of situations arising are reinforced by this particular threat which seems to be hanging over us at the moment. I took the precaution of telling the office of the noble Lord the Leader of the House that I was going to talk about this, and it would be helpful if we could be given some reassurance on this particular issue when the noble Lord comes to reply.

The other outcome—and I am confining myself to the small matters which the more learned Members of these two Committees are not covering—is the result of a new draft regulation which was issued at the end of February this year (and would otherwise, I think, have been the subject of paragraph 14 of the report of Sub-Committee D) to the effect that the marketing of milk products, if the regulation comes in force, will not be able to be carried out for those products which use the title "cream" or "milk" or "butter" or anything similar which do not have this commodity within the product. Some noble Lords may have seen an article in The Times a couple of days ago called "Exit the cream cracker"—the cream cracker being a biscuit which has not got cream in it and which, in some respects, is not even a cracker. This sort of title may appear frivolous to noble Lords. I noted that the noble Lord, Lord Mackie of Benshie, with many of whose remarks I agreed, took a side swipe at ice-cream. I am sorry to hear that; but the number of people who take a side swipe at ice-cream is intriguing, although they are prepared to go along with the argument which I shall shortly develop for other products. This is something that I have heard outside the House as well as inside it; and perhaps it is rather like the disappointment of discovering that Father Christmas is not real. Some of us when small discovered that ice-cream was not really cream. This was a terrible disappointment from which many people never recovered.

The fact is that there are many products which use the word "cream" which are not made of cream. A linguistic expert who got in touch with me was able to give me examples of the 15th and 16th century use of the word "cream" when it was not meaning the product of a cow. He also quoted the word "mincemeat", which was referred to in the Middle Ages but which does not have meat in it. There are many other products where we use our language flexibly to convey some impression without either wishing to deceive or actually doing so; because people get to know that a creamy surface means what we understand it to mean, but when translated into French or German these more rigorous languages cannot accept the variation of the use of the word. It is therefore, in part, a linguistic problem. I was sorry to see that the writer of the third leader in The Times, whom one would have thought was fond of words, was not prepared to take that, and thought that it might he a good solution to the problem.

It so happens that this subject came up some 18 months ago, as many of my colleagues in Sub-Committee D pointed out to me. The 8th Report of the Select Committee, which was printed on 10th December 1975, at paragraph 13 says: The alleged purpose of the Commission's proposal is to reduce the skimmed milk powder mountain and to prevent its arising again. The Committee have heard no evidence to suggest that this proposal, of itself, would encourage the use of any skimmed milk powder already accumulated; nor do they believe it proven that the adoption of the proposal would achieve any significant gain in the consumption of milk products over their competitors. I suggest that this very sound opinion, reached some 18 months ago, sums up the whole matter and puts it in its right perspective. This particular effort on the part of what almost seems a rather desperate Commission to try to get out from under their enormous pile of skimmed milk seems to be quite unreasonable and something which should be resisted. It is the more frightening because it is a regulation. As your Lordships know, a regulation is not one that has to be reproduced at our own discretion in our own legislation, but one which must be enforced. Rumour has it that it is to come into force in September, which does not give much time for any changes. There are other factors such as cost; but I will not bore your Lordships more on the subject.

It seems to me that there are two points which perhaps might come out of this debate. One is the very (I thought) wise remark by the Minister in another place during the course of a debate the other day which was mentioned, I think by the noble Lord, Lord Mackie of Benshie—although it may have been raised by another noble Lord; and, if so, I hope he will forgive me —that the CAP is not suitable for dealing with the national problems of small farmers; that it should be dealt with under a national social policy. It seems to me that is a very wise statement and a very wise way in which the Common Agricultural Policy could direct itself. It is, I think, reflected in the concluding remarks of paragraph 36 of the 23rd Report of Sub-Committee D. I will not repeat the whole of it, but the middle paragraph says: Measures to make processing, marketing and farm structure more efficient occupy far less attention than that given to the support of farm price levels. That whole thought, it seems to me, is the one which needs to be encouraged; and the Commission themselves perhaps could be encouraged to be a little less rigid in their approach to problems and undertake to modify their views rather more strongly than at present appears to be the case. I commend the 23rd Report to your Lordships.

6.10 p.m.

Lord VERNON

My Lords, I speak in this debate as a farmer, as a member of Sub-Committee D, and as a member of Lord Pritchard's Committee, which he kindly invited me to join. When I say "as a farmer", it would be more accurate to say that I am a recent farmer. One of the reasons I decided to start a farm of my own was that I read the Government's White Paper Food From Our Own Resources, I agreed with the policy enunciated that we should as a nation tend to become more self-sufficient in foodstuffs, and I wanted to play some small part in putting that policy into effect. Of course, like all farmers I am also a consumer, and it is obvious to me that, in considering the question of Green Money and farm prices, a proper balance has to be struck between different interests.

It is very hard for the British consumer to accept conditions in the EEC. Unlike his European counterpart, he is not accustomed to spending such a high proportion of his income on the needs of his stomach and the adjustment for him is very painful. But anyone who thinks that the halcyon days of cheap food are going to return is living in Cloud-Cuckoo Land. World prices fluctuate notoriously, and although at the present time the advertised world prices for many foodstuffs are cheaper than the prices in the Common Market, they have not always been so, (as we know in the case of sugar) and they will not necessarily be so in the future. Moreover, it has been made clear to our Committee, as the noble Lord, Lord Raglan, pointed out, that if the United Kingdom was in the market as a buyer on a substantial scale, the prices at which we could obtain these foods on the world market would be very much higher than the so-called world prices advertised. I think that is a trap into which the Cambridge economists and others—and I think I must include my noble friend Lord Tranmire here—sometimes tend to fall.

I turn now to the specific proposals of the Commission regarding the Green Pound and farm prices for the present year. The Commission may have made mistakes in the past and they may still be making mistakes; I believe they are making a mistake as regards the butter sales which have been referred to in the debate. But, generally speaking, I welcome both these proposals as being realistic attempts to solve two intractable problems. One has to remember that the Commission has the daunting and well-nigh impossible task of satisfying not only the British farmer and the British consumer, but the farmers and consumers in eight other European countries with differing economies and differing standards of living. We may regard a 3 per cent. rise in institutional prices as too high in view of the need to reduce the surpluses, but that is certainly not what the Germans or the Benelux farmers think of it, since with the revaluation of their Green currencies they will be getting no price increase at all in real terms at a time of rapidly rising costs.

In considering the Green Money proposal, there is a tendency to emphasise the immediate effects of any devaluation on the consumer rather than the longer-term advantages of reducing the growing disparity between the Green and the market exchange rates, and the need to improve agricultural output in the United Kingdom on the lines proposed in the White Paper. The immediate effect of devaluation will, as we know, be to put up the price to the British farmer and to make the cost of food in the shops more expensive. But when we signed the Treaty we knew that the cost of food was going to rise, and that was one of the main points which was made so powerfully by the opponents of our being members of the Community.

We also knew that the Common Agricultural Policy was founded on the principle of fair competition between the farmers in the different countries. That is something which is totally lacking at the present time. The Green currencies were envisaged by the Commission before we actually joined, as a temporary expedient to even out distortions in the CAP at a time of rapid national currency fluctuations. It was never intended that they should become a permanent feature, and were they to become a permanent feature, certainly on the present scale, it would undoubtedly wreck the CAP. It would wreck it because there is no fair competition when a German farmer gets 45 per cent.—or whatever the percentage is—more for his produce than the British farmer, and also because the other EEC countries will not be prepared indefinitely to subsidise British food to the tune of some £500 million a year.

The demise of the CAP is what its opponents want and have always wanted. But it is not what I want. It is not what those who envisage a closer economic monetary and ultimate political union between the Nine want; nor, I venture to say, is it what the British people voted for in the referendum. No one is suggesting that the Green Pound should be devalued by the full 36 per cent. That would clearly not be practical. What is proposed is that the existing powers of national Governments to control the level of their Green rates should be surrendered to the Commission who would gradually reduce the disparity between the Green and the market rates by means of a semiautomatic formula which is set out in the report. The monetary compensation amounts will not be abolished, but they will be reduced to manageable proportions. Opinion in our committee was divided on the merits of this proposal.

There is of course a natural reluctance on the part of national Governments to surrender any powers, especially when such powers can act as a bargaining point in negotiations. But I am clear in my own mind that something on the lines proposed by the Commission is highly desirable if the CAP is to survive. So long as the Council of Ministers retains the power of veto on the level of Green rates, decisions will inevitably be taken on the grounds of short-term national and political expediency. That, in my view, is bad for the Community as a whole, and bad also in the long run for the individual country concerned. So I hope that the Government will give perhaps a little more sympathetic consideration to this proposal than they have done hitherto.

Where I think the Commission should do some fairly drastic fresh thinking—and here I agree with my noble friend Lord Tranmire—is not on the principle of automatic adjustment, because I think they are right about that, but on their apparent intention to continue the existing system under which the level of MCAs is determined in relation to the disparity of national currencies from those of the joint float or "snake" countries—that is, the wealthier countries. That matter is referred to in paragraph 30 of the report, and it would appear to me to be much fairer to those countries who are not in the "snake" if the agricultural unit of account could be devalued to a level based on a more representative basket of all the Community currencies, as with the European unit of account employed in the European Coal and Steel Community. That would no doubt create difficulties for the "snake" countries and would probably lead to counter demands; but it would make it easier for us and for some of the other less well-off countries to accept the principle of automatic adjustment, because the basket itself would float and the degree of adjustment would be correspondingly less.

I propose now to extricate myself from the thorny thicket of Green Money before I am tripped up by some noble Lord. That would not be a difficult thing to do, because I am not an economist and I find the whole subject incredibly complex.

A noble Lord

Hear, hear!

Lord VERNON

I will turn very briefly, my Lords, to the farm prices proposals, and especially the dairy package, which is really the crux of the surplus problem. I personally have doubts about various aspects of the package. I have doubts about the co-responsibility levy because, as the noble Lord, Lord Mackie, has said, we are already paying such a levy towards the cost of the Milk Marketing Board and under the proposal we should then have to pay twice. I have doubts about the ban on investment aids in the dairy sector, because I do not see how that is going to reduce the amount of milk which is produced. I have doubts about the non-delivery premia because of the social and economic consequences of pushing out of business the small farmer with 20 or 30 cows, who makes such a valuable contribution to rural life at the present time. Also, I am very doubtful about the Community's intention to abolish the Milk Marketing Board, although I realise that is not included in the package at present.

Nevertheless, when all is said and done, I think we should refrain from being too critical of the Commission. We spend our time castigating them for creating these huge surpluses, but here at last they have made what I believe to be a genuine attempt to reduce surpluses, and especially the milk surplus—an effort which, in the opinion of our expert advisers (and I would differ on this from the noble Lord, Lord Raglan), would have a considerable effect. I think they are right and that we shall see a fairly dramatic reduction. If we do not, then of course stronger measures will have to be taken and the larger milk farmer will have to be hit, not just the smaller one.

In this country the effect of the package is difficult to estimate. It depends so much on the Government's attitude towards Green Pound devaluation. Through the Commission's overall proposals, which the Minister regards as over generous, the British farmer is to receive a 15 per cent. increase in price, when it is admitted that his costs have gone up by 20 per cent. That, of course, includes the 6 per cent. Green Pound devaluation. In these circumstances, it is very difficult to see how the expansion envisaged in the White Paper can take place. Indeed, production may fall. Without expansion we shall continue to import huge quantities of food which could otherwise be grown at home. That will adversely affect the balance-of-payments, which in turn will hit the market value of the pound, which in turn will hit the British consumer; so I sometimes wonder whether those who so ardently oppose an increase in farm prices are not cutting off their noses to spite their faces. The Ministry evidence on that point was quite clear: all the experience to date has shown that only if the price was right would the farmer be prepared to take the risks involved in expanding production.

The British consumer has taken a frightful hammering in the past year and he is likely to suffer further blows in the coming year, not only because of Common Market prices but because of world prices. We have before us at this moment the examples of coffee and tea. One of the things that tends to be forgotten in the farm price tug-of-war is that the population of the world in the year 2000 will be not 3,700 million, as it is today, but 7,000 million. I am not talking of wild guesses made by demographers, who sometimes make mistakes; I am talking about facts, because the mothers who are going to give birth to those children have already been born. My Lords, when I reflect on the effect those 3,500 million additional mouths will have on world food prices, I never cease to think what a wise decision was taken by the British people when they endorsed so unequivocally the Government's signature of the Treaty of Rome. The EEC countries are largely self-sufficient in temperate foodstuffs. We may have to pay more in the short term but we are at least ensured of security of supply. To a major importing country such as ours, the value of that security is incalculable.

6.30 p.m.

Lord BRIMELOW

My Lords, the noble Lord, Lord Vernon, has spoken most persuasively and I am in agreement with most of what he said. If I do not follow him in detail, it is in part because I wish to avoid repetition, but also because I should like to follow up one remark made by the noble Lord, Lord Cobbold. He asked if these monetary compensation payments, made in the execution of the Green Money policy, are to continue to increase, will that not entail a reduction in expenditure from the Community budget for other purposes? We are on notice from the President of the Commission, Mr. Jenkins, that far from increasing the monetary compensation payments, he wishes to reduce them and to increase payments from the budget of the Community for other purposes, notably with a view to increasing the degree of economic union in the Community. I doubt, speaking purely personally, whether he will succeed in that, but he has given us, in his speech of 8th February in the European Parliament, formal notice of his intention.

The noble Lord, Lord Vernon, spoke of the thicket of Green Money. There was a time when people thought that the Community was set on a smooth and broad highway leading to economic union, and when, in 1969, the system of Green Money was invented it was regarded as an alleviation for a small, insignificant stumble which had occurred on that broad highway. But the highway has petered out, and we are indeed in a thicket and each individual government is trying to pick its way through that thicket in its own way. The paths which we are following are now divergent, and it is that divergence which is already threatening the unity of the Community, and the threat may be increased if the Community is enlarged.

It is perhaps worth recalling what Mr. Jenkins had to say on that subject on 8th February. He said that failure to make progress towards economic integration and the risk of slipping back were, in his opinion, … by far the gravest danger facing the Community at the present time. Making no mention whatsoever of monetary union, he asserted that to abandon the goal of economic union merely because the road towards it was difficult would be an abdication of responsibility. He warned that if we failed to move towards greater economic integration, we should sooner or later move back; and that if we moved back it would not be in the economic sphere alone.

Subsequently, on 17th March, Mr. Jenkins spoke to the Political Committee of the European Parliament and was questioned about the attitude of the Commission to the enlargement of the Community. The gist of his reply was that the Commission accepted the enlargement now being considered as a political imperative; but that it was essential to be clear about the consequences. He did not go into further detail on that subject, and the whole subject, being delicate, is handled with a certain reticence in all the Member countries of the Community. I will, none the less, venture to make a few personal comments, because I think that this question of divergence is of fundamental importance.

In any economy, the rate of growth depends upon the scale and efficiency of investment. The wealthier a country is, the greater the amount of resources available for investment for each percentage point of the national income allocated to growth. This means that if all the Member States of the EEC were to devote the same percentage of their national income to investment, and to do so with equal efficiency, the gap between the richer and the poorer members in absolute terms though not of course proportionately, would tend to widen. For the gap to be narrowed, the poorer Member States would have to pursue consistent long-term policies of investing a higher percentage of their national income than the richer States, and to do so with at least comparable efficiency. Yet it is in the poorer countries that the pressure to increase consumption tends to be strongest, and where the factors that bear adversely on the efficiency of investment tend to be the most numerous.

If these difficulties cannot be overcome, convergence within the EEC would presuppose a transfer of investment resources from the richer members to the poorer. But is it likely that such transfers of resources will be on the scale necessary to make convergence possible? And even if they were to be made, would they be used, and used efficiently, to that end? Hitherto, loans within the Community have chiefly been used to cope with balance of payments problems, rather than to bring about convergence. In his address of 8th February, Mr. Jenkins said that the Commission would devise a general policy to concentrate its present and future financial resources on the central problem of economic divergence, but he added that the funds currently available for this were "extremely small".

The conclusion I draw from this is that the difficulties which at present impede progress towards convergence will not be easily or quickly overcome; that they will be increased in the event of enlargement, and that for some time to come the prospect is one of increasing divergence. It is divergence, my Lords, which has led to the growth of the sums paid in monetary compensation under the system of Green currencies. The more these sums have grown, the greater the distortions which have been introduced into the pattern of agriculture within the Community, and the greater the departures from the concept of a common market in farm produce. These points have been well illustrated by previous speakers in this debate.

If economic divergence within the Community continues to increase, if it were to be still further increased by the enlargement of the Community, if the present rules governing the management of the Green currencies and the payment of monetary compensation amounts remain unchanged, then the distortions in the pattern of agriculture within the Community will grow and be consolidated, and the burden on the Community's budget will increase until at some point it becomes intolerable. The more determined the Commission is to switch funds to deal with the problem of divergence the sooner that point will be reached. From the point of view of the Community, the Commission has acted sensibly, and by no means prematurely, in proposing change.

From the point of view of this country, however, the Commission's proposals regarding the future management of the Green currencies are a mixed bag. As regards our balance of payments and the relief of inflationary pressures, this country is the principal beneficiary of the present state of affairs. Our farmers, on the other hand, as noble Lords have pointed out, have several legitimate causes of complaint. In these circumstances, I fully agree with the statement in paragraph 25 of the Select Committee's report that: … the striking of a national balance of advantage will be a fundamentally political decision for each member government". I hope that nothing said in this debate will make more difficult for Her Majesty's Government the playing of their hand in the negotiations which they now face.

It is against this background that one has to assess the specific arguments so far advanced in this debate in favour of higher incomes for United Kingdom farmers, or for protection against highly subsidised imports of Danish pigmeat, or in favour of keeping down the prices paid by consumers, or in favour of retaining the benefit to our balance of payments which we derive from the present rules. These and all the other aspects of the problem are matters on which balances have to be struck, first in this country by the Government and secondly in the Community by the process of negotiation. It is legitimate, of course, for the spokesmen of every interest to state their respective cases, but the final decision on the proposals for change now put forward by the Commission will be a bargain struck in inter-governmental negotiation. For better or for worse, the Community as we know it has been shaped by negotiation and the striking of bargains, and I have no wish to make any difficulties for Her Majesty's Government by anything I may say in this debate.

To those who have always had doubts about the concept of progress towards full economic and monetary union, the present trend towards divergence, and the prospect of still further divergence if the Community is enlarged, may be a source of satisfaction. To those who have subscribed to the concepts and aspirations which found expression in the Treaty of Rome, the anxiety expressed by Mr. Jenkins on 8th February may seem well founded. If it is accepted as a political imperative that the doors of the Community should be open to all democratic European States which may apply, the loosening of the economic structure of the Community which has already occurred as a result of economic divergence is likely to have far-reaching consequences. It may be that this loosening is already facilitating the expansion of the Community at the cost of a creeping and still unacknowledged change in its nature.

If this evolution in the nature of the Community which is, in fact, already taking place, although so little is said about it, has eventually to be publicly and officially acknowledged, we may find that the institutions of the Community have to modify some of the assumptions, aims and principles on which their activity has hitherto been based. It would certainly be no light task to amend the relevant provisions of the Treaty of Rome. It might be easier to reach a consensus on the modification of the aims and modes of operation of the institutions, including even the Common Agricultural Policy and the Green currencies which have been subject to much criticism but which have also received some defence in the debate today.

Palliatives in themselves are unlikely to prove satisfactory. The history of the Green currencies and of the monetary compensation amounts to which they have given rise shows how easily palliatives of this kind can create forces tending to deepen and perpetuate the divergencies which they were intended to alleviate and to undermine the principles which they were devised to sustain. These are, in my opinion, bigger issues than the outcome of the forthcoming negotiations on farm prices and the management of Green currencies and monetary compensation amounts. But the very size of the sums now being paid by way of compensation under the system of Green currencies points to the magnitude which the underlying problems of divergence have already acquired.

A debate on Green money is not the place to go into these problems, but I thought it only right that some mention should be made in this debate of their existence and of their importance for the future development of the Community, particularly if, as seems probable, its proposed enlargement comes about.

Lord O'HAGAN

My Lords, before the noble Lord sits down may I ask him a question. I respect enormously the noble Lord's expertise and I am not trying to play games with him. I do not wish to detain your Lordships for more than a second, but would not the noble Lord recognise that his speech could be easily described as "Powellite"—full of logic, gloom and despair?

Several noble Lords

No!

Lord O'HAGAN

My Lords, does not the noble Lord feel that as well as giving us an extended analysis of all the difficulties incumbent upon it, he should add a constructive suggestion about the way out of the thicket of Green money—not perhaps now but at some other time? Is it not a little negative merely to look at what is wrong?

Lord BRIMELOW

My Lords, I thank the noble Lord for his question. I think that the problems inherent in the enlargement of the Community are so complex that they will be clearly stated only in the process of negotiation. It is largely because of uncertainty as to the way these problems will emerge that nobody yet feels able to discuss them in detail. It is, however, clear that the problems as we know them today will be complex and numerous and that they will be hard to reconcile with the Common Agricultural Policy or with the Green currencies. I said at the end of my speech that I did not think that this was the occasion to go deeply into them, but that I did think it would be wrong to let this debate go by without pointing to the existence of these underlying and very deep and difficult problems. I was, in effect, following up a remark of the noble Lord, Lord Cobbold, who said that he wished to draw attention to the larger issues. I was not intendng in any way to prejudice the handling of those larger issues by Her Majesty's Government either in the immediate negotiations on farm prices and the Green currencies or in the longer-term negotiations on those subjects, or the handling of the issues which are bound to arise in connection with the enlargement of the Community. As for the suggestion that my speech was Powellite, may I just say that I am not a partisan of Mr. Enoch Powell.

6.50 p.m.

Viscount AMORY

My Lords, I hope the noble Lord, Lord Brimelow, will forgive me if I do not venture to follow him directly in the most interesting and thoughtful reflections he has given us. I will simply say that at the moment I cannot recall any similarity between his speech and those that I seem to remember having heard in past years from the right honourable gentleman, Mr. Enoch Powell.

I am sure your Lordships will agree that Green Money is a horribly complicated subject. The noble Lord, Lord Gordon-Walker, and I were recalling at lunch, today an observation made by Dr. Johnson when, unusually for him, he went to a concert. He hated music and at the end of an orchestral piece somebody turned to him and said, "A very difficult piece, Dr. Johnson, is it not?" He received the answer, "Very difficult indeed, sir; would God it had been impossible". Some of your Lordships may feel that is not irrelevant to what we are discussing.

The noble Lord, Lord Pritchard, and the noble Lord, Lord Cobbold, have given such able expositions that I should feel an imposter if I tried to persuade your Lordships that I could speak with anything approaching their knowledge and authority on this matter. My noble friend Lord Sandys spoke about milk, and I entirely agree with him that the record of improved productivity on the part of our milk producers over the past 17 years is enormously to be commended. I am sorry that he started with that particular year, because I think that that year when I gave up being Minister of Agriculture was the year when apparently this dramatic improvement appears to have started.

I entirely agree with him, too, in what he said about the Milk Marketing Board; it was one of the greatest triumphs of the agricultural instruments that were devised and it would be an absolute tragedy if anything were to happen there. Milk is a very difficult product. When I was at the Ministry of Agriculture I recall attending a farmers' meeting. I daresay the noble Lord the Leader of the House may recall something similar. At that time we had reduced the price of milk by a penny and a farmer most indignantly said to me, "Minister, you don't seem to realise what will happen now that you have reduced the price by a penny. I shall go out and buy more cows to keep up my turnover and I shall produce even more milk." I said, "I do realise how difficult these things are and that indeed might be the result. What would you have done if I had increased the milk by twopence a gallon?" "Oh, Minister, then by God, I should have gone out and shown you what I could produce." You get it either way!

In recapitulation I shall do no more than pose five simple questions and suggest answers to them with telegraphic brevity. I hope your Lordships will not feel that this approach savours too much of a simple guide to the Green Money for the common man or first year O-level students. The first question I should like to pose is: what is Green Money? I suggest the answer, as the noble Lord, Lord Pritchard, has mentioned, is in paragraph 2 of the Committee's report: … a set of exchange rates which relate only to the food and agriculture sectors… which is used for converting all community institutional prices… set in units of account into the national currency. That sums up that point.

The second question might be: why is a system such as Green Money required? I suggest that the answer to that is to be found in paragraph 3 of the Committee's report. It is to the effect that if there were no Green Money rates, since prices are fixed Community-wide, some nations' farmers would get more and some less, dependent upon whether their particular national currency had depreciated or appreciated. That would conflict with the Community's aim that trade should be conducted on an equal basis throughout the Community, as the noble Lord, Lord Cobbold, has said. When it was started—and here again this point was made by the noble Lord, Lord Pritchard—it was hoped that a special exchange rate might be a temporary necessity. Unfortunately, the differences between the Green Money rates have greatly increased and now in some cases are embarrassingly great.

I think the third question may be: what are monetary compensatory amounts? Here again the answer is in paragraph 2 of the report which says that MCAs are applied at national frontiers to offset the differences between market exchange rates and agricultural exchange rates; that is, Green Money rates. They may take the form of a subsidy on imports and a tax on exports, or vice versa, according to whether the Member State in question has a currency which has depreciated or appreciated, and the value of individual MCAs are revised frequently in the light of changes in market exchange rates. It is admittedly a very complicated system.

The fourth question might be: what, in a nutshell, are the current EEC proposals? I mentioned just now that the present differentials had become embarrassingly large in some cases, and because of that the total bill for MCAs in the EEC budget has become a heavy one, and its size for budgetary purposes unpredictable. The Commission is therefore anxious to see the scale of current arrangements come down so that Green Money rates are nearer to the market exchange rates.

It is an undoubted political embarrassment that, if the differences were extinguished, some nations' farmers would get large increases and others would get substantial decreases. So long as market exchange rates fluctuate violently, it is very difficult for the Community to realise its aims of common agricultural prices. The current Community proposals envisage formulae for adjustments which appear to be due, which could be applied automatically at an administrative level. The noble Lords, Lord Pritchard and Lord Cobbold, and my noble friend Lord Vernon referred to that. It seems to me that the attractions of automatic adjustments according to agreed formulae are obvious from the administrative point of view. As, however, adjustments are seldom likely to be free from political difficulties in Member States, it is difficult to believe that Finance Ministers will not insist on such decisions being subject to the positive agreement of the Council of Ministers. At the same time, one feels that the more adjustments that can be carried out by the Green formulae, the better for the system. I thought my noble friend Lord Vernon put that difficulty very clearly.

The last question might be: why are Green Money value adjustments apt to be embarrassing for individual national governments? I suggest two or three answers: first, because changes may increase the price of food and perhaps in some cases raise domestic farmers' prices excessively, thereby adding to EEC surpluses, or alternatively reduce farmers' returns, damaging them. Secondly, either way, changes may interfere with an individual nation's discretion to pursue domestic anti-inflation policies. In the case of the United Kingdom, any downward revision of the Green Pound will put up the price of food and increase the return to producers. While higher returns across the board will improve our balance of payments, it may of course add to the European surplus. Having admitted so much, I must declare my own view that a carefully worked out system of encouraging a higher aggregate of home food production would be very much to the benefit of our national economy.

I entirely understand Her Majesty's Government's reluctance to see food prices rise; they are in any case likely to rise because of the tapering off of the abatement concession given to us when we joined the Market, and the rise in CAP prices to cover inflation in the Annual Price Review. It is an embarrassing moment to be asked to accept a third rise. On the other hand, I cannot think that the maintenance of the present situation which is relatively very beneficial to the United Kingdom, can reasonably be sustained for ever. I believe that the direction in which we ought to be using our strongest endeavours with our European partners is in persuading them that some of the CAP prices are unreasonably high, leading to ridiculous surpluses, notably in butter and sugar. The current CAP system calls for a revision.

I agree with the noble Lord, Lord Collison, my noble friend Lord Tranmire, and the noble Lord, Lord Gordon-Walker, in saying that our own system of deficiency payments and other price supports is really sounder than the CAP method, though I equally agree that it would be a very difficult method for the Community to apply in their circumstances. Meanwhile, it looks as if we must learn to live with some kind of Green Money until something simpler and more efficient has been worked out. The Green Money system is running into trouble because of the wide differences which have been referred to; but I agree with those noble Lords who have asserted that the CAP is really getting into a mess in one or two cases and must be revised to eliminate some of the surpluses which have developed and which are earning it a poor reputation.

7.2 p.m.

Baroness ELLES

My Lords, we have been debating this evening a matter which is of immediate and practical concern to everybody in the country, but primarily the consumer: proposals which relate to the prices of food and methods of regulating these prices within the CAP. I very much share the concern of the noble Lord, Lord Collison, who I thought very movingly put the problem. He realises there is a problem, as we all do, and it is one which is undoubtedly being misunderstood by the consumer in this country. The problem, as we have heard today, is an extremely complex and difficult one. In fact every noble Lord who has spoken has contributed in some measure to advancing the debate a step further in trying to clarify an almost impossible position.

To begin with, I should certainly like to add my expression of gratitude to the noble Lord, Lord Raglan, and the noble Lord, Lord Pritchard, for having so clearly introduced this intricate subject, and would also add my gratitude to those who produced the report. The evidence contained in it, I thought, was of extreme value. Those civil servants who answered the questions at the Sub-Committees did so, I thought, with great skill and honesty, and clarity. Undoubtedly, in their expositions they helped us to understand some of the complexities, not only of the problems themselves but of the decisions which the Government have to take. I thought they took a very fair position and stated the case extremely fairly. May I also say how glad I am that so many members of the Sub-Committee have taken the trouble to be here in your Lordships' House today and to take part in this debate. It has undoubtedly, as I have said, helped us to understand the very many difficult questions which arise on the question of Green Money and the Farm Price Review.

My Lords, my noble friend Lord Sandys covered the question of farm prices with his usual clarity, knowledge and experience. I will try to stick to the problem of Green Money, though, of course, it cannot be taken entirely in isolation. I would at this stage declare an interest, as I have done before, in that I have a small farm, not in this country but in another Community country. When I hear of the small farm being attacked, I feel very strongly about the plight of my neighbours who might have to lose their two or three cows, on which, of course, they rely for a good many of the products and assets of their not just small farms but very small farms, of something like six hectares or 15 acres.

It is not just a question of cutting down milk production by eliminating cows, because, of course, the small farmers themselves benefit from the sale of veal; they benefit from organic fertiliser, which is now practically impossible to buy. They would not know what to do with their hay when they have cut it in their vineyards; they would have to burn it. They would have a very deep feeling of having to throw away something they have always found valuable. These sound very feeble reasons in your Lordships' House, and particularly in this country where we have very large farms; but you will understand the concern of the small farmer who has lived in this way for perhaps hundreds of years in these districts, for instance, in the hills where I happen to be, in Tuscany. They have a way of life and a psychology and a social structure which would be radically changed by the elimination of some part of their existing system. So, while seeing that it is perfectly logical and reasonable that milk production should be cut down, it is not something that can be done automatically and immediately, but something which must be faded out over at least a decade so that future generations will deal with the problem in a new way. I particularly make this plea to your Lordships because these are questions which we discuss daily on our farms, and they are of great worry and concern to the people involved.

With regard to the Green Money, the Community is having to manipulate a mechanism which was introduced in very different conditions—this point has been made by several noble Lords—and to deal with specific circumstances. The truth of the matter is that no one envisaged in 1973, when we joined the European Community, that three years later the United Kingdom would be in the position of having a failing economy, with a pound which has fallen by 30 per cent. over the last year, and inflation running at something like 21 per cent. as was said in another place the other day, food prices have increased by 81½ per cent. from 1974.

So, although I do not wish to make any political points, I wish to point out that we are considering the problem of Green Money in relation to what has happened in our own country, and this is one of the major difficulties that has arisen. Not only does the adjustment of the mechanism of Green Money and MCAs affect every Member State and take into account the conflict—which I do not think is irreconcilable—between the interests of the farmer and the consumer, but also it influences the special position of the United Kingdom, affecting as it does a sizeable percentage of the agricultural budget of the European Economic Community.

Whatever can be said against the CAP—and I think all Members of your Lordships' House will agree that there are very many things wrong with it and that it needs looking at very closely—to date the Green Pound has served as a shield to the consumer in this country, and particularly in certain products imported from other Member States. The Secretary of State for Prices and Consumer Affairs admitted on 14th March that food prices are determined by the value of the pound sterling, not the Green Pound. I think this is a point that perhaps has not been made enough of during this evening's debate. I know that one noble Lord pointed out the difference in price of some other commodities which are not covered by the CAP, such as coffee. While these have been affected by world shortages, the decline in the value of the pound has also been a major factor and one of our difficulties. To my mind, not only has the CAP provided a shield for certain food products; it has also provided security and stability of supply.

My noble friend Lord Tranmire is an expert in the agricultural field and I should hate to take issue with him when he said that Green Money was not mentioned as a problem when we joined the Community. He was of course quite right because it became a problem only because of the enormous differential in the market rate of the currency and the consequent divergence between the real value of the pound sterling and Green Money. If it had not been for Green Money we should be paying at least 30 per cent. more for our food imports from the European Community. Even if we did go to outside markets, we should have to contend with the results of the increasing rate of inflation.

I would add one question to those which my noble friend Lord Tranmire put to the noble Lord, Lord Peart. If there had not been Green Money over the past 18 months, could the noble Lord tell us what the increase in the price of food would have been from 1974 to date? Would it still have been only 81.5 per cent. or would it have been higher? I do not expect an immediate answer, but perhaps the noble Lord could send a written answer at some stage.

The other question which has been raised by many noble Lords is that of surpluses. I was particularly grateful to the noble Lord, Lord Mackie of Benshie, for the figures that he produced on production outside the EEC, and the effect there would be on world prices if suddenly the United Kingdom became a purchaser of certain commodities outside the European Community. It should be said that most people would prefer to live in an area where there is plenty rather than in an area of shortage. The figures show that there is a very narrow margin between a deficiency and a surplus. When we calculate a surplus spread over a quarter of a billion people, which is what the Community is doing, the butter surplus adds up to about 2 lb. to 3 lb. of butter per head. It can be called a mountain; it can be called anything. But the fact is that spread over 250 million people the butter surplus amounts to an absolutely derisory amount.

Perhaps we should also remember that of the 200,000 tons which are in store, 120,000 tons are imported from New Zealand. It is right that we should have done so; it was agreed on our accession to the Community. Like any other institution the Community has its faults, but rather than attack it the whole time we should recognise that no country in the Community has objected to our continuing to import butter from New Zealand and to our fulfilling obligations to our Commonwealth friends. That point should be emphasised rather more when we are discussing questions of surplus.

Apart from the fact that it is an advantage to live in an area of surplus rather than one of deficiency, let us remember what happens when there is a shortage. I do not know whether noble Lords will remember, but I certainly remember when I had to do my shopping during a sugar shortage—a shortage that was not due to imports or exports but to industrial difficulties in a particular firm. There was absolute panic throughout the supermarkets, which was no doubt unnecessary. However, the popular effect was one of drama and great worry; people rushing from store to store trying to accumulate as much sugar as they could for fear of not getting any more. One has only to draw attention to that kind of shortage to realise the benefits of living within a surplus area.

Frequently the same members of our country who attack the CAP and the European Community also say that we must do more for the Third World. No one in your Lordships' House would disagree that every possible assistance must be given in particular to developing countries and even more so to those developing countries where there is a shortage of food. If there were no food surplus in the Community, we should not be able to give those countries the enormous amount of food aid that we do. One has only to look at the figures in the report produced by the Commission to appreciate that over 450,000 tons of skimmed milk powder and over 200,000 tons of butter oil can be sent to developing countries which otherwise would be very undernourished. These quantities may not sound very important in the context of the overall problem of the CAP, but they are immensely important to those who receive them and they contribute to alleviating hardship and suffering. Therefore, when we consider surpluses we must consider them in these particular contexts.

Even if the Green Pound was devalued at the proposed rate, which I think is now 5.9 per cent., the increase in food prices would certainly be marginal in relation to price rises in other industries.

We have only to think of the increase of 10 per cent. in the price of gas to realise that everything is increasing in price. If the Green Pound was devalued, there might be the compensating factor that agricultural funds could be diverted from MCAs to assist in restructuring farms and other much-needed expenditure. The noble Lord, Lord Brimelow, even widened this particular argument—very wisely, if I may say so—when he referred to the determined hope of Mr. Jenkins that the Community's budget should be used for matters other than MCAs and that the amount spent on MCAs should be reduced.

What of the farmers who are producing? They certainly did not envisage a pegging of the Green Pound, thus affecting the return on production, while having to pay increasing costs for feeding stuffs, transport, insurance and so on, amounting to about a 20 per cent. increase in costs over the past year. If farmers do not receive a fair reward for their labours, production will not increase but will decline. Coupled with that decline one cannot but envisage a further increase in unemployment, this time affecting agricultural workers who, as we all know, are among the lowest paid workers of the working community in this country. They would certainly not benefit if farmers were not compensated for the increase in costs and were not encouraged to produce more.

Under the transitional arrangements it had been estimated that the price levels for agricultural products would reach parity by 1977, but the maintenance of an unrealistic Green Pound imposes restraints on farm prices which may well have the effect of depressing United Kingdom food production and so, in effect, worsen the balance-of-payments position of this country. In their White Paper, Food from our own Resources the Government had projected increased production but if there is no investment, incentive or, indeed, guarantee that what is produced will be bought, there will be no increase. As I understand the figures, the projection which was contemplated is about 30 per cent. down so far. As in any other major industry, productivity cannot be increased immediatily—it certainly takes time—and even in the agricultural community it would be about two or three years before this productivity could be increased. The Government must be prepared to take a more realistic view of their position and accept some measure of devaluation for the Green Pound, otherwise the food industry will be put in danger. Encouragement for the farmers would in the long run mean less dependence on imports, either from European community countries or from outside.

This evening we are also having to consider the position of Ireland, which cannot be overlooked as the Irish Government are about to devalue their Green Pound by about 8 per cent. The existing divergence between the currencies of the Irish Republic and the United Kingdom will be greater than ever if we do not follow suit at least to the amount that has been proposed by the Commission. All the dangers of across-the-Border activities between the Irish Republic and Northern Ireland will be enhanced rather than diminished. This, I am sure all not he Lords would agree, is very undesirable in the circumstances.

We also have to take into account that the Government are already providing something like £1 million per week to sustain the meat industry in Northern Ireland, and presumably if there was devaluation of the Green Pound this amount of assistance could be reduced, as well as the hope that the cross-Border activities would also decline. I wonder whether the noble Lord the Leader of the House could give some indication of what would have to be paid to Northern Ireland meat producers if devaluation of the Green Pound was implemented, and whether we would be able then to reduce this £1 million weekly payment.

However, the Commission's proposals of a devaluation by 5.9 per cent. would still leave a gap of about 26 per cent. between the Green Pound and the market rate. But it should be made quite clear that for countries where currencies have appreciated and reflect a strong economy, the effect of the proposed change would mean a reduction in price levels. So the basic concern of the Commission must be to balance the fair reward for farmers, as well as encouraging them to continue production, in the hope, expectation, and guarantee of a fair reward, and on the other hand to ensure that food prices remain as stable as possible for the consumer. We quite see that these two positions are extremely difficult to reconcile, taking into account the very wide divergencies of currencies that exist in the Community.

In fact, it would be true to say that the CAP would not be in such a mess if all our currencies were not in such a mess, but since they are it would be very much more realistic if we tried now to adapt CAP to the new circumstances rather than try to adapt our own circumstances to the CAP. In fact, this is no longer possible in the light of present events. The noble Lord, Lord Brimelow, touched on the very real problem of entry of third countries into the Community, when this problem will be even further increased. Without going into detail, it is certainly clear that countries with perhaps weaker economies than even our own will create even more problems in this regard.

The contemplation that the Green Pound rate should be left to the Commission is certainly, in our opinion, untenable at this stage of the development of the Community. This is something that could possibly be attained when we have economic and monetary union, when it is no longer a political decision that is needed but merely some regulatory adjustment. Certainly during the transition period and during the periods to come when we have not reached economic and monetary union, or at any rate a closer balance between the economies of the Community, we believe that this decision must be left to the Council of Ministers rather than to the Commission. I should like to thank all those on my side of the House who took part in this debate, and all those who have at least tried to help me understand the Green Pound slightly better. However, I know that when we go and do our shopping tomorrow the prices will not have been affected all that much.

7.23 p.m.

Lord PEART

My Lords, may I say, first, to the noble Baroness, Lady Elles, that I agree so much with what she said about the people who initiated this debate. I want to pay tribute to my noble friend Lord Raglan, and to the noble Lord, Lord Pritchard, for the work they have done on this Committee. The two documents constitute an excellent report. Anyone who does not know the complications of the Green Pound should take it home and read those documents. Even then, they may not get the answers. I agree with another former Minister who spoke, the noble Viscount, Lord Amory, that it is not an easy subject; it is very bewildering and difficult. The system existed before we joined the Community. It is not of our creation, and some day it will have to be modified. Many noble Lords who have spoken so well on this matter, including the noble Lord, Lord Gordon-Walker, support that line. Therefore, we are grateful to the two noble Lords for creating this debate and taking the initiative in it.

I must reply to a number of points, and for many of them I will not have time this evening, or I should be here for another hour. However, I shall write to all noble Lords on matters that have been raised if I have not answered their particular points. It is not a question of dodging; it is purely a question of time. This has been an extremely interesting debate. I always feel a little nostalgic when joining in in a debate of this kind. It is an important debate because major decisions have to be taken in Europe, and inevitably there are going to be changes. Mention was made of the new Commissioner Gundelach. I have once referred to him previously in this Chamber. I believe that he is a very competent commissioner, an honourable man, and I have every confidence in him. He succeeded Pierre Lardinois, who I respected, and who I think is to attend a luncheon tomorrow in this city. However, there are problems. I have listened very carefully, and I think I must deal with some of the major aspects of the Commission's price proposals. I thank everyone for what they have said, and for the tributes they have paid to our noble friends.

The Commission's package is inevitably a complex and detailed one. It always is, as anyone who has been involved in negotiations on price reviews in Europe will know. The Commission's package covers both prices and related measures. Noble Lords have commented on a large number of points in the proposals. We have also discussed the agri-monetary measures, and I shall do my best to answer some of these points quickly. Before I do so, however, I should like to make some general remarks about the timetable for negotiations, the proposals, and the Government's attitude towards them.

The CAP price proposals have already been discussed in the Council, briefly on the 14th and 15th February, and more fully on the 14th and 15th March. A further Council has been arranged for the 25th to 27th March, and there will be a good deal to be discussed at that Council. My noble friend Lord Raglan asked me about progress in the negotiations. He was especially concerned about feed wheat, and matters affected by it. May I say to my noble friend that predictably there has been a divergence of views and there has been pressure from some Member States for increases higher than the 3.1 per cent, average proposed by the Commission.

Opinions also differ on the proposal to stand by last year's decision to give the main support for wheat at the level of other feed grains. My right honourable friend the Minister has made clear the Government's views on these issues. It is too soon to predict the outcome of the discussions, but I shall keep in touch with my noble friend. The Council will not be looking at the proposed changes in the monetary arrangements until after the price package is settled. It is convenient, however, for the House to consider these at the same time, since many of the principles which apply are also relevant to the changes in Green currencies which have been proposed by the Commission as part of the price package. The Commission's proposals are based on the combination of an overall common price increase of about 3 per cent. on average, plus Green currency changes for all countries except Denmark. The Commission estimate that for the Community the cumulative effect of the common price increases, Green rate changes and the remaining transitional steps would amount to a weighted average increase of roughly 5 per cent.

For the United Kingdom the proposed devaluation of the Green Pound is of the order of 5.9 per cent. The Government estimate that the effect of the package as it stands would be about 4 per cent. on retail food prices—or rather less than 1 per cent. on retail prices generally. As for the effect on producers, noble Lords will be aware that some market prices are already higher than institutional prices, and some products are scarcely affected by the package. The Government estimate that the effect of the proposals, plus the transitional steps on producers' gross receipts, would be to raise them by about 9 per cent.

I will now deal with the United Kingdom objectives towards the Common Agricultural Policy. The Government's approach to this year's price negotiations is consistent with our long-term objectives under the CAP. We want to make the CAP more responsive to the needs of the consumer. I agree here with those who have said that one should not go too far. After all, there is a producer interest. There must be a right balance and I am sure that the noble Viscount, Lord Amory, when he was Minister, argued that, as I did. In my view, that is the right approach. On the other hand, it is essential that we do not price commodities out of the market so that they are not consumed. That has happened on many occasions over many years; for example, when beef prices were too high the consumer resisted the price increase which occurred and there was a drop in consumption.

We must, therefore, strike a right balance. Therefore, as I have said, we want the CAP to be more responsive to the needs of the consumer. Naturally, at the same time we are dealing with the producers of food and they are an essential element in any package. We want to ensure a more efficient use of resources. At present, as the result of unduly high prices in some sectors, the EEC is diverting excesive resources into agriculture. This involves undue cost for the Community budget, particularly where there are surpluses. I agree with the noble Baroness, Lady Elles, in what she said about surpluses. I would be more worried if there were shortages. Lady Elles spoke about shortages of sugar. That happened when I had a responsibility. It occurred because of panic buying and it could have created problems.

However, I am thinking more of those parts of the world where people are affected by storms or catastrophes—Bangladesh is an example; parts of the world which are affected by war and other catastrophes. We must always recognise that we may have to help these people, as of course we have. I was glad that Lady Elles mentioned the considerable amount of aid that the Community has given to the developing world, because in this respect the Community has been very progressive. I was once a critic of the Community, but then I saw the reality of the situation and what was being done. For example, I think of the Lomé Convention, which helped the developing world in another way; I think of the access of the old Commonwealth countries into our own market—sugar and all the negotiations we had about that. Except in terms of sugar of course, which is produced for export, here is a Community, and a section of it, which has worked positively to help parts of the world which have suffered serious shortages of food and famine conditions. Let us not forget that.

A great problem will be how to use the surpluses sensibly. After all, America produces surpluses and sells them to the Soviet Union and other countries. Indeed, I cannot understand some of the squeals over certain countries in Europe buying food perfectly legitimately. It may be that the recent case of the disposal of butter at subsidised prices will have to be looked at. I find it somewhat ironical that we should be subsidising Soviet communism—that seems rather odd to me —but there may be good commercial reasons why we should sell to parts of Europe and other parts of the world. Why not? If Europe and the Common Market can be efficient and develop agriculture efficiently, why not do these things?

There is another problem here and the noble Lord, Lord Vernon, answered it clearly and sharply: we cannot go back to the halcyon days of cheap food. That is a fact and there is no question about it. We cannot go back and, in any event, why should we? Why should we exploit people in other parts of the world in various countries by paying low wages? Why should we exploit farmers and farm workers in this country? My noble friend Lord Collison would agree that we should not do that. They deserve proper remuneration, and that is what I say to those who talk so glibly about obtaining cheap food supplies from outside.

In this connection, I had to negotiate prices with New Zealand. They were quite realistic and when I was negotiating the question of New Zealand dairy products in Europe I wanted them to export their dairy products to this country. We got a good deal for them, which was praised by the New Zealand Government. Again, we must give the New Zealand farmer a fair and reasonable price. So all the talk about cheap food must go. The sooner many people in this country realise that the better. We tend to be rather too sensitive about food. We are sensitive of course because it is essential, but consider the other commodities; look at the price increases in other fields. Food compares very favourably in many ways. I admit it is a sensitive matter—it always will be in all our societies—and often it will inspire political crises, as it has done, in many parts of the world, but we cannot go back to the days of cheap food and the sooner we realise that the better.

Of course we want to ensure that surpluses do not put a heavy burden on both the consumer and the Community budget. Therefore, in my view, milk must be a priority target. The Commission has recognised the need for decisions on support prices to contribute to the fight against inflation and the Government agree with the thinking which has led the Commission to propose a low general increase in common prices. They also sympathise with the intention of taking firm action on milk, especially through the price mechanism.

The Government also support the proposals for a reduction of the B quota on sugar, which will help to discourage overproduction, as well as the implementation of the changed cereals intervention arrangements. However, the Government would have liked to see a generally tougher approach to the prices package in the interest of price restraint and to make progress in dealing with the problem of surplus production. My right honourable friend has insisted that the proposed increases are too great, and as noble Lords know, he was not prepared to move from that position in the recent Council meeting.

However, noble Lords must recognise that we are alone in this view; no country other than the United Kingdom is seeking smaller price increases than the Commission propose. The House will be aware that COPA, the EEC producer organisation, wants an average increase of 7.4 per cent. and some Governments think that even that is not enough. The Commission's proposals for revaluation of Green currencies also caused some problems to other Member States. We must therefore expect a difficult negotiation on the package as a whole.

Many noble Lords have mentioned the milk proposals. The Government have consistently argued that if surplus milk production is to be overcome, there is no substitute for action to contain producer prices. The Government have therefore argued for a real reduction in the Community's intervention prices. We are prepared in this context to consider the co-responsibility levy, but there would be no point in that if it were simply offset by a price increase. My right honourable friend has made clear that he is prepared to judge the Commission's milk action programme on its merits and he accepts the need for some specific action to help dispose of existing surpluses, but this must be cost effective and, wherever possible, give priority to Community consumers. It must not be achieved by arbitrary interference in trade, whether by prohibitions on competing products, by levies on those products or by compelling traders to use dairy products.

My right honourable friend has made quite clear that he regards the proposed tax on oils and fats as completely unacceptable. I did so when they were proposed last year. On this there was general agreement between Government and Opposition. The Government are also unwilling to accept the proposal on the exclusive use of milk fats and proteins, even though this has now been presented by the Commission in a different form. The proposed ban on investment aids has now been eased. This was mentioned by one noble Lord who, I hope, will forgive me if I do not refer to him specifically. However, there are still some points of difficulty. As for the proposal for non-marketing premiums, the upper limit is still too high and the Government hope that there can be modifications in this. I should also mention two proposals in. the milk action programme which are welcome to us. They have been mentioned by noble Lords and are, I believe, accepted. These are the suggestions for aid for quicker eradication of brucellosis and tuberculosis and for subsidisation of school milk programmes.

I should like to turn briefly to some commodities. As regards beef, the noble Lord, Lord Mackie, mentioned this and tempted me to come into the field of arguing about deficiency payments and intervention as a method of support. As the noble Lord knows, we negotiated —and I did this first—a system of fixed premia, later altered to a variable system, which, in many ways, is like the old deficiency payments system. At the same time, I agreed to a limited amount of intervention. I believe that intervention by itself was not a good method of support, although, for certain commodities, we have intervention. Potatoes are one example. Potatoes are taken off the market and dumped or put into clamps, as the noble Lord knows, but I believe that even the deficiency payments system had defects sometimes. I can remember a Minister of Agriculture, Sir Christoper Soames, who had great difficulties because of surpluses created from our own grasslands. The Treasury had a formidable bill to face and there was a great outcry in the country. In the end, this led to a major inquiry into the meat industry, as noble Lords know.

So it has not always worked well. However, I still think that it would be better for the Community if it adopts our premium system with limited intervention. I believe that, one day, we shall win. I had thought that we might do so in this price review, but perhaps at the next price review they will come to face the reality and accept what I was suggesting.

Lord MACKIE of BENSHIE

My Lords, I wonder whether I may try again to explain what I said. It was that we should not condemn intervention altogether for the many faults and surpluses that arise. What was wrong was the high prices paid in intervention for certain of our products.

Lord PEART

I accept that, my Lords, but the noble Lord mentioned deficiency payments in glowing terms. All I am trying to make clear to the Liberal Party spokesman is that there must be a little realism and a sense of pragmatism about this. We cannot be doctrinal about agricultural policy. If we are, we are fools.

The Commission's proposal for beef is for a 3 per cent. increase in the guide price. The Government are pressing for maximum restraint on the common price because the present market situation in the Community does not justify any significant increase. I gather that the date which the Commission have proposed for the extension of the premium scheme is 31st July, following which I assume that it will be examined and a report on the EEC's internal beef support mechanisms, including premiums, produced. So I welcome the review and am confident that it will focus attention on the advantages of the premium system.

I was asked about pigmeat. In the pigmeat sector, the proposal is for an increase of 4 per cent. in the common basic price. Noble Lords will be aware of the acute difficulties which pigmeat producers in this country face at the present time and also of the steps that the Government have taken in order to alleviate them. It is essential that we should find a permanent Community solution to the problem of the calculation of monetary compensatory amounts in this field. This has always been a difficult sector. I can remember the difficulties which we had at home even with our normal Price Review negotiations. It is not easy, but the pig is an animal which produces so much good food that it is important that we should get our sums right.

I do not want to go into too much detail. I have spoken for just over 20 minutes and I should like to finish by dealing with agri-monetary questions. To comment on the points made in that sector, the question of Green currencies arises in today's debate in two separate ways. First, the Commission's proposals for changes in all Green currencies except for Denmark are a central part of the current price proposals. It is, after all, the Green currencies which, as noble Lords know and have said, determine what the common prices really mean when they are applied to each individual country.

The Commission's proposal for a devaluation of the Green Pound by 5.94 per cent. would raise agricultural support prices here by 6.32 per cent. The Government do not take a doctrinaire attitude to the Green Pound changes. They cannot. I changed the Green Pound four times when I was Minister of Agriculture and there will inevitably have to be some changes. I do not think that it can stand still, whatever the arguments about long-term review or the whole system. However, the Government's view is that the need for a Green Pound change has to be judged on its merits in terms of the overall national interest. On this occasion, we must judge the proposal in the contest of the Commission's package as a whole, and it is too early to give a precise view as to what may emerge.

Lord MACKIE of BENSHIE

My Lords, I am sorry to interrupt the noble Lord again, but a very important statement was made by his right honourable friend the Minister when he said, in column 418 of Hansard: These two transitional steps would, in my view, give a reasonable return to producers in our own country.

Lord PEART

My Lords, I was saying that this is something which has as yet to be finalised. I have given an example an I do not think that we can be doctrinal about this. We have to decide the overall balance. The noble Lord quite rightly quoted that passage, and there is a reference in the documents before us to the sort of balance we must think of and what is in our national interest. All I am saying is that we cannot be too doctrinal and I gave an example where, in the short period during which I was responsible, I changed four times.

The question of Green currencies also arises in our debate today because of the thorough nature of the report prepared by the Select Committee. I shall not go into that, however, because I feel that I must now close. I have not answered every question but I shall reply to all noble Lords. I have gone beyond my time, but I would only say this to the noble Lord, Lord Vernon, who, quite rightly, talked about Food from our own Resources. I still believe that this represents a good strategy for our country in the field of agriculture. If we achieve what is set out in the broad conclusions in the summary, where it says that, the net product of the agricultural industry should be capable of a continuing expansion of about 2½ per cent. a year on average", I believe that this is the objective at which the Government and industry should aim, and that is why the industry must never be neglected. It is one of our most efficient industries, one of our greatest industries. It provides a great market for a great agricultural machinery industry and a great fertiliser industry. People must never forget that. This is not something which is peculiar to the farming community; it is a great interest and a national industry, and I believe that every noble Lord should support it. We must see that, out of whatever emerges, we enable our farmers and our farmworkers to produce food at reasonable prices for our consumers.

7.49 p.m.

Lord RAGLAN

My Lords, we have been here quite a long time and I should like just to make three broad points in summing-up. I thought I knew all about Green Money, having read our report, until my noble friend Lord Brimelow threw us with this matter of divergence of the economies. He posed a conundrum, because he pointed out the institutionalisation of divergences by the use of what are intended to be temporary palliatives which recognise the divergence and there fore make it easier to allow that divergence which otherwise might have been resisted. I think that is what he conveyed to me—that Green Money was a device which was invented to pretend that there had not been economic divergence. Now I cannot make up my mind whether it is a good or a bad thing. It seems to me that it is the exchange rates that have gone out of line. At least the Green Money is common to the Common Agricultural Policy; so I am back at square one.

The noble Lord, Lord Vernon, and the noble Baroness, Lady Elles, quite rightly spoke about shortages which I did not deal with in my speech. I thought of the Potato Marketing Board, which was created to prevent surpluses, and there has been a tremendous fuss almost every year about potatoes which have been dyed purple, and about how they are wasted and thrown away and so forth. Then whoever it is—perhaps the clerk of the weather—turns off the tap and there is a shortage of potatoes; and of course people criticise a shortage of potatoes much more than they criticise a surplus of potatoes. They say what a bad, mad thing the Potato Marketing Board is for allowing a shortage of such a simple thing as the common spud. So you cannot win. But I take the point of the noble Lord, Lord Vernon, that it is much safer to have a surplus than to risk a shortage.

I am sure that these reports are useful to your Lordships. I feel that one of the best things your Lordships' House does is to have these Scrutiny Committees. That point is reinforced by the fact that of the 14 speakers today, 10 have been members of the Select Committee or of the Sub-Committees, and but for their membership of these committees there is absolutely no doubt that noble Lords would not have been so well informed as they are. Furthermore, they are thoroughly well informed, and that must be good for everybody. It must be useful to the Government, it must be useful to Members of the European Parliament, and it must contribute to a better understanding of the Common Agricultural Policy. I thank my noble friend the Leader of the House for his comprehensive summing-up.

On Question, Motion agreed to.