EEC FARM PRICES, 1979/80: 19TH REPORT OF ECC

HL Deb 12 June 1979 vol 400 cc551-94

3.20 p.m.

Lord WALSTON rose to move, That this House takes note of the Nineteenth Report of last Session of the European Communities Committee on the Commission's agricultural price proposals for 1979–80 (4648/79) (H.L. 127, 1978–79). The noble Lord said: My Lords, this report was prepared by your Committee in a considerable hurry. I should like to pay tribute to our officials and specialist advisers for their very great help in enabling this to be done, because we felt that it was important for it to be produced in sufficient time to help both Her Majesty's Government and those concerned with these matters in Brussels, before a final decision was taken on the price policy for the current year.

Your Lordships may remember that we were scheduled to debate this report on 3rd April, but various events over which we had no control supervened, as a result of which the debate had to be postponed until today. The unfortunate results of that postponement are, first, that we have lost from the Committee the very valuable services of our noble colleague Lord Trenchard who is now doing other, and I hope equally valuable, work elsewhere, and is therefore unable to take part in this debate, as I know he would have wished to do. It also happens to coincide with a rival attraction in another place which has perhaps somewhat depleted your Lordships' House and reduced the number who would otherwise have spoken.

But the balance is not entirely on the debit side. On the credit side, no decision on the prices has yet been taken in Brussels or by the Council of Ministers, and this debate is therefore still very pertinent to this important problem. Secondly, we have the privilege which we should otherwise not have had of having my noble friend Lord Peart speak from the Opposition Benches; and, also, of having the noble Earl, Lord Ferrers, making his initial speech—if not his maiden speech—in his new position. While it would be premature for me to congratulate him on what he is to say, it would not be premature for me to congratulate him on holding this extremely important position, which I know all of us in this House are very glad to see him doing.

The general background to these proposals of the Commission is somewhat complex, but to summarise—perhaps at the risk of over-simplification—I would say, first, that in any assessment of prices for agricultural products there is an overriding need to contain inflation, not only in this country but in the Community as a whole; but particularly in this country where, alas, the rate of inflation is among the highest. That is the first consideration to be taken into account. The second is the fact that, as we all know only too well, surpluses of certain commodities are great and are still rising. Thirdly, for certain commodities, consumption is in fact falling, thus exacerbating still further the accumulation of surpluses. Fourthly, to contradict the general policy which might stem from those three factors, there is the other fact that the cost of agricultural imports, in company with all other costs throughout the whole of Western Europe, is rising also, with the result that the costs of farmers throughout the Community are rising too. It is a fairly delicate balancing feat to adjust a policy so as to take account of all those conflicting factors.

The main proposals of the Commission can be summarised as follows. There are many subsidiary ones but I shall not weary your Lordships with them, though I hope that some later speakers may perhaps develop some of these. First, the Commission propose that there shall be a complete freeze on prices; there shall be no increase whatsoever. Secondly, they propose what is described as a co-responsibility levy for milk and dairy products, by which is meant that those who produce the dairy products which are in surplus should to some extent share the burden of disposing of those surpluses. I shall return to this in due course.

Thirdly, in view of the very considerable surplus of sugar that there is at the present time within the Community, and indeed in the whole world, the Commission propose that there shall be a reduction in the "B" quota for sugar.

Again without going into the details of this, but very broadly for the benefit of those of your Lordships who may not understand entirely the complexities of the "A", "B" and "C" quotas for sugar, one can say that sugar producers are given a certain figure for the "A" quota, and any sugar produced under the "A" quota is paid for at the full guaranteed price; that there is a "B" quota where they can take a gamble and they will get some price which is intermediate between the world sugar price and the guaranteed price; and, finally, that there is the "C" quota, which very few people pay attention to or make use of, where the producers are simply gambling on the free market price. The proposal is that the "A" quota should remain as it is, but that the "B" quota should be reduced.

Fourthly, the Commission propose that there should be a devaluation of the green pound in the United Kingdom of 5 per cent., thereby, in effect, increasing the prices to the United Kingdom producer by a like amount; and thereby also, one must say, increasing to some extent—though not to a very high amount—the cost of food to the consumer.

Before dealing in more detail with these points, there is just one general point that I would make on behalf of the Committee. We felt very strongly that the price review lost a great deal in its value and in its efficacy by reason of the fact that it came out so late. It was, of course, originally supposed to influence patterns of production to some extent. But there is no need for me to remind your Lordships that today, in June, with the prices still not yet fixed, we in this country will within six weeks be harvesting many of our crops, and the plans laid for our livestock have been made many months, if not a year or more, ago. Indeed, in certain parts of the Community crops are already being harvested. It is therefore quite clear that by fixing these prices so late in the year any effect that the prices might have on the immediate production patterns is in fact nonexistent. So we urge in our report that there should be a speeding up of this process.

While the old idea of the February price review that we used to have in this country also had its faults, in that it did not come out soon enough, at least it gave some indication several months in advance of what kind of prices farmers would receive for their products. Every year this is slipping increasingly far behind, and we believe that it is a matter which the Commission and the Council of Ministers should look at with a great deal of seriousness. Again, let me remind your Lordships that while the Commission must bear some responsibility for the delays in arriving at these prices, the ultimate responsibility for the present delays rests squarely on the shoulders of the Council of Ministers. The ball is now in their court, where it has been for many months—since, indeed, the beginning of March—and still no decision has been taken.

Let me deal in a little more detail with some of the specific problems. With regard to sugar, our recommendation is not that the "B" quota should be reduced but that the "A" quota should be reduced. A great deal of argument has gone on for many years, and is still continuing, as to whether surpluses can best be controlled by the price mechanism, or by the introduction of quotas, or by some other means. There already exists a system of quotas for sugar, but it does not work because the Commission and the Council of Ministers are too cowardly. They are not prepared to jeopardise the support of a large number of farmers in many countries—a very small number in this country, less than 3 per cent., as your Lordships know, but a significant force in other countries—by reducing the amount of this profitable but not entirely needed crop that is creating a headache when it comes to the question of surpluses.

The Commission and the Council of Ministers have taken a little nibble at this problem by suggesting that the "B" quota should be reduced. We believe, however, that the "A" quota should be reduced because it is the most efficient producers who will grow on the "B" quota. They are low-cost producers who are prepared to take a gamble and who think that they can beat the market, whereas the "A" quota producers embrace all the marginal and less efficient producers—the ones who, on economic grounds, should be phased out of sugar production. We believe that it would be far more effective, in dealing with this very thorny problem, if the Commission and the Council of Ministers took their courage in both hands and reduced the "A" quota rather than the "B" quota.

When we come to milk and the co-responsibility levy, those of your Lordships who have studied this problem and read our previous report may think that we are reversing our policy in coming down against the co-responsibility levy as proposed by the Commission. Our earlier report was in favour of a co-responsibility levy, but I suggest to your Lordships that there is nothing illogical or inconsistent about this. A co-responsibility levy can be a very valuable mechanism if it is geared to the degree of surpluses, so that the more milk that is produced the higher is the co-responsibility levy, and if it falls evenly on all milk producers throughout the whole of the Community.

The proposal of the Commission does neither of these things. It is not geared to the degree of surplus. It is a fixed levy. In other words, it represents no more and no less than a reduction in the price of milk. In addition to that, for social and political as opposed to economic reasons, it exempts a very large number of milk producers throughout the Community —although, I may say, a small number of milk producers in this country—with the result that the levy would fall particularly heavily on the most efficient producers and most heavily on the dairy farmers of the United Kingdom, an area which, as your Lordships well know, is a deficiency area in terms of dairy products.

We have to import not liquid milk but a very large amount of our cheese and butter. Therefore it might be considered to be logical that we in this country should increase our milk production, whereas in the poorer areas of Southern Germany, parts of France and so on where they have a surplus of milk which they have great difficulty in disposing of, a very large number of those producers would be entirely exempt from this co-responsibility levy. It is for that reason—not because we are opposed to the principle but because we are opposed to the way in which this co-responsibility levy is proposed and the effects it would have on milk production—that we come down in this report against the co-responsibility levy.

Thirdly, we come to the thorny question of the price freeze. Is it right that the price should be frozen, as the Commission propose, or is it right, in view of the rising costs for producers, that there should be some increase in the price that the farmer gets? We come down very squarely on the side of a price freeze. We believe that it is right at present, when there are surpluses, when those surpluses are growing and when we must contain inflation at all costs, that this should be done. However, it is only fair and honest to point out that a price freeze, as proposed by the Commission and as supported by my committee in this report, is not in fact a price freeze to the British farmer because, if it is taken at the same time as a devaluation of the green pound of 5 per cent., as the Commission propose, it would mean an increase in price, albeit a modest one, to the British farmer.

We accept this price freeze, but we do so in the full knowledge that it is impossible to control the scale of agricultural production by the price mechanism alone. We had certain differences of opinion within the committee—which is only natural as there are differences of opinion among expert economists and many others—as to the efficacy of the price mechanism in controlling production. However, I would point out to your Lordships what happened in 1920. Some of your Lordships may remember that during the First World War the Corn Production Act was passed which fixed prices at a very remunerative level for the British farmer. It gave him security and encouraged production.

In 1920, it was found that the cost of this legislation was becoming prohibitive, so the Corn Production Act was repealed in that year. If one looks at the figures, one sees that in 1923 the price of wheat and oats had just about halved, compared with the 1920 level. Nobody is talking at the present time about halving prices within the Common Agricultural Policy, yet it is interesting to see that, despite this halving of price, the acreage of oats—which in those days was a very important crop—dropped by a mere 7½ per cent. and the yield by slightly less, by 6 per cent. The acreage of wheat dropped by only 5 per cent., and in that particular year the yield of wheat went up by 4½ per cent.

I do not want to draw too many conclusions from this, but I think it is worth bearing these facts in mind. I believe that a more detailed study of the effects of the repeal of the Corn Production Act would be valuable. If they have not already done so, perhaps the Ministry of Agriculture would consider looking at these figures. All I am suggesting to your Lordships is that if we believe that purely by freezing prices—not halving them, as was done in 1920—we shall be able to do away with the surpluses, the mountains, we are very gravely misleading ourselves and other people. We must do other things besides that.

Quite apart from the freeze in prices, which we support, there is the question of the devaluation of the green pound: 5 per cent. as suggested by the Commission, 5 per cent. as supported, I believe, by the late Government, and 15 per cent. as asked for by the National Farmers' Union. We had long discussions in the committee and we did not reach full unanimity, although in the end no minority or dissenting report is contained in the report which is before your Lordships today. I hope that some of my colleagues who hold somewhat different views will express them later in this debate. However, we eventually came to the conclusion that 5 per cent. was insufficient and that 15 per cent. was unrealistic. Therefore, we went for the figure of 7½ per cent.

This is not solely in order to be kind to farmers, even though some of us on the committee happen to be farmers. It is because we feel that it is very important that this country should retain its competitive position vis-àvis our partners in the rest of the Community. If they are to enjoy prices significantly higher than those which the British farmer enjoys there is no doubt whatsoever that over the years their production will increase not only in quantity but in efficiency, because efficiency can only come from retained profits, whereas if our farmers were unduly starved our competitive position in this country would diminish. That would not be terribly happy for farmers but, far more important, in the long run it would not be very happy for the British consumer, it would not be very happy for the economy as a whole and it would not be very happy for our balance of payments. For that reason we believe that the Commission's proposal of 5 per cent. is somewhat on the low side and we should be happier to see a 7½ per cent. devaluation.

I am afraid that I have spoken for too long but this is a complex subject. All I will do now is to repeat, because I believe it to be of enormous importance, that a price policy alone cannot possibly remove surpluses. There are many other structural and other methods which are needed, and as we mentioned in our report they should be based not on the Common Agricultural Policy but on a common food policy. The Commission should direct its thoughts to the amount of food which is required from Community production within the whole Community and then evolve a system, using prices, possibly using quotas and indeed a whole variety of weapons in their armament, to achieve the amount of food that the consumer requires.

Of course, coupled with that there must be a social policy because inevitably there will be fewer people producing food, the margins of some of them will diminish; there will be social hardship in certain rural areas, and that is of concern to all of us. It is no better to have an underprivileged and poverty stricken rural population than it is to have urban slums, steel workers out of work and people on the dole. There is no easy and cheap answer. If we are to be assured of adequate food supplies for the generations ahead we must be prepared to pay an insurance premium so that we get that food, whether there are world surpluses or world famines; whether we are being competed with by the growing population of a world which is getting more money, or whether we can remain on our present relative economic levels. The insurance policy must be paid and also the social insurance policy must be paid. It is to those matters that all of us concerned with this problem must give increasing thought and I hope that in the months ahead your committee will be able to make a contribution in that direction. My Lords, I beg to move.

Moved, That this House takes note of the Nineteenth Report of last Session of the European Communities Committee on the Commission's agricultural price proposals for 1979–80 (4648/79) (H.L. 127, 1978–79).—(Lord Walston.)

3.46 p.m.

Baroness ELLIOT of HARWOOD

My Lords, I rise with very great pleasure to follow the noble Lord, Lord Walston, since I am a member of Committee D of your Lordships' House, over which he presides so efficiently and with such tremendous knowledge. When listening to him your Lordships will realise that you are listening to a real expert on agriculture, and that is something which we all admire very much indeed. As the noble Lord has said, this debate has been delayed for quite a long time since our report was made on 21st March and since then there have been tremendous events. The result of the General Election has given us a new Parliament, a new Minister and possibly some new policies, although I would say that in Committee D, where all Parties participate and our excellent chairman presides over us with great bonhomie, we seldom disagree in our discussions on the agricultural policy.

Nevertheless, as this is the first speech that I have made in an agricultural debate in this Parliament I should like to congratulate the noble Earl, Lord Ferrers, on his appointment and to wish him, and Mr. Peter Walker, the new Minister of Agriculture, Fisheries and Food, every good fortune in the future. I should also like to congratulate the noble Earl, Lord Mansfield, who represents Scottish agriculture. Being myself a farmer in Scotland I welcome his appointment very much indeed. I know that he is highly knowledgeable and is also engaged in the same occupation.

I think the CAP featured prominently in both the elections that have just taken place. There has been criticism from the Labour Party on the CAP, and also to some extent from the Conservative Party as well, but the returns in the European Elections were a disappointment to me. I thought it very disappointing that we only managed to get something like 31 per cent. of our population interested in this very important event. Personally, in casting my vote for a European MP I felt a thrill that I never expected to feel. It was something that I thought I should never do in my life, having lived through two wars in which Europe was involved. However although this may not be as influential and great an event as I had hoped it would be, I still think that we have begun something of enormous importance in European history.

I should like to make two other generalisations before I contribute to the debate on the hill and upland farming. There has been much talk and criticism of the surpluses, but how much worse would it be if they were shortages! At the present moment we are all anxious about the shortage of oil and petrol. How relieved we should be if there were a surplus of oil and petrol instead of a shortage! Once there was a shortage of sugar and we all became terribly agitated about that. We struggled to get more, and we did. I remember one year when there was a shortage of potatoes; that was perhaps not quite so important as sugar, but nevertheless everyone became agitated about it. I think the opposite is true of the commodities mentioned by the noble Lord, Lord Walston—milk, butter and wine—but surely, in spite of that, it is better that there should be surpluses rather than shortages. What I do not like is the way in which the CAP disposes of these surpluses, selling cheap to the consumer in the Communist world. I would much rather that the underdeveloped countries in the other parts of the world had a chance to obtain cheap supplies.

Your Lordships may know that once a year Committee D visits Brussels and we have the opportunity of meeting the Commissioner for Agriculture and many of his staff. I am tremendously interested because it is obviously a great opportunity to discuss matters. One of the things that strike me strongly whenever I go there is that in the Agricultural Commission no effort is made to increase the sales of the produce which is in surplus. As we know, we were highly criticised by the Commission on one occasion because our dairying industry is organised through our Milk Marketing Board. I am particularly interested in the Milk Marketing Board because it was in 1933 that my husband actually started it. Even then it was considered to be rather revolutionary and was much criticised. There could not have been a more remarkable referendum than that which took place among milk producers last year, when the Commission asked that before they approve of the British dairying industry continuing with the Milk Marketing Board, we should take a vote. That vote came out at something like 99.2 per cent. of producers of milk in the dairy industry in this country in favour. There could not be a more certain and important verdict than that.

One of the things the Milk Marketing Board does is to help to sell the produce of milk—not only the milk on the doorstep, which we all know is the key to selling milk, but cheese and butter and a whole mass of other things, and this is done by excellent propaganda through the Dairy Federation and so on. Nothing of that kind goes on in Europe; nobody tries to sell milk. I presume that they try to sell wine; they certainly do in France. Could they not do more in this direction? They do not try to sell things in the way in which we in this country organise the selling of milk and dairy produce. I should like to suggest—very humbly, because I am only a back-bench member of this Committee—that when our Minister of Agriculture goes to Brussels he should try to find out why no effort is made to try to sell the produce instead of waiting till the surpluses become so great that they are literally almost given away to the Communist countries.

That is my own personal view on this, and so far I have failed to find anybody in Brussels who is prepared to try this method. For some reason which I do not know, they all seem frightened of the idea of having marketing boards for some of these commodities. If we can make a great success of our Milk Marketing Board why cannot there be marketing boards for some of the other surpluses in Europe, or some method of trying to get propaganda out to make people consume more? Of course, I agree with the noble Lord, Lord Walston, when he says that we do not want to encourage production in areas where it is not necessary to have any more production of that particular kind, but I still think that much more could be done through selling agencies.

Like Lord Walston, I am not very happy about the milk levy. We discussed this at considerable length in our Committee. We felt that in our industry, which is well organised and efficiently run, which produces economically, where we do not import milk at all and where we are self-sufficient both in production and in selling, we do not want to have to be burdened with a co-responsibilty levy. We should like our Minister to oppose that. But I would entirely agree that production of milk should not be undertaken in unprofitable areas—for example, in hill areas or on non-productive land. We could switch over in some areas, particularly the hill and upland areas, from production of milk to production of beef cattle, where there is not the same surplus, leaving the dairy industry to the richer lowlands. I think there could be in this country, and possibly in Europe too, a change from dairying to beef cattle and sheep production.

Passing to another subject, consumer prices are discussed in our report in paragraphs 27 to 29. I recommend your Lordships to look at them. Of course, vast numbers of the population are concerned about prices. We are all concerned about prices, but it is no good having an agricultural industry which is running at a loss or cannot pay workers the wages to which they are entitled. That is no way of running a great industry. Furthermore, in my experience, there is no industry in this country which is such a gamble. Weather conditions govern all our production. The winter we have just had is the worst I can remember in some 40 years of farming. It will take as at least two or three years to recover from this. One year can be a disaster, and this one has been a disaster. It takes two or three years to recover. Dead lambs cannot be restored in a year; it takes at least two or three years to make up the numbers.

This is where the hill cattle and sheep subsidies come in. If your Lordships read the paper submitted to the Committee by the National Farmers Union—paragraphs 29 to 35 and the subsequent discussion—you will see how disturbing has been the decrease in beef cattle and sheep this winter, and the need to devalue the green pound in order that our produce can be sold at an economic price in the market is underlined. The NFU called for a 15 per cent, devaluation of the green pound. The CAP suggests only 5 per cent. We suggested 7½ per cent., and I doubt if that is enough. I should have preferred either 10 or 12 per cent., but under the persuasive influence of Lord Walston we all agreed to 7½ per cent. In making my speech here, I would like to say that I think we would have done better to have been a little more generous.

I should like to support the noble Lord, Lord Walston, very strongly in drawing attention to the need for long term policies for British agriculture. Farming is quite unlike other industries. You cannot change your policy overnight; it takes several years to change from dairying to beef. If you think you should change from one breed of sheep, like the black-faced sheep, to, let us say, Suffolk cross lambs or whatever you think would be more profitable or more worthwhile, it takes five years to do it. So it is quite impossible to run an industry like this unless we can have a longer-term policy both from our own Government and also from the Commission.

I am sure that those who control the agricultural policy here do appreciate this and will be prepared for us to plan ahead. But it is seldom done. Lord Walston stressed that very ably in his speech. I have no idea what the price of wool is going to be—although I produce thousands of sheep—until a quarter way through each year. Surely it should be possible for the producers of mutton and sheep to know a little beforehand, perhaps for two or three years, what the price of wool is going to be. All these things vitally affect the farm returns. This is one of the things which I hope very much that our Government, and particularly the Ministers we have here in your Lordships' House, will appreciate, because, as active farmers, they really must know what these delays and difficulties mean when you are laying out a tremendous amount.

Farming is not a cheap industry. We are having to spend huge sums of money in order to get any return at all. We do not mind doing it provided we get the return. But we always have this terrible gamble on the weather conditions. If you are working in a factory, it does not matter whether it rains or snows or what happens: you are not affected. If you are working on the land every day; if you have snow in May as we had this year; if you have the conditions under which we have all been working this year, it is a very hard business and it is very difficult to make two ends meet. So it is really extremely important that we should have a plan for prices in our farm policies which give some chance of bad conditions being accounted for, with, if you like, better opportunities when conditions are good. Certainly it will take a long time—the next three years—before our farming industry recovers.

My Lords, I have spoken long enough. Three are many very important proposals in this report. I hope that our representatives in Brussels will consider our comments carefully. I speak now as a member of the Committee; we are all concerned in agriculture as producers and as consumers. The Committee consulted a great many different bodies associated with our industry, such as the National Farmers' Union and the Milk Marketing Board, and everything is contained in the report. The Committee's recommendations were made with great care and by people who are deeply concerned and who are not anxious to enter farming and then to come out of it. Farming is our life and it is what we are all concerned about. We want the farming industry to be a greater success for the whole country. I hope, and have every confidence, that, when our new team goes to Brussels—knowing as it does the importance of agriculture to this country—it will ensure that we get the best possible deal for everyone.

4.1. p.m.

Lord SAINSBURY

My Lords, I should like to begin by offering your Lordships' House an apology as I may have to leave your Lordships' Chamber before the end of the debate, but no discourtesy is intended. It is difficult to talk about EEC farm prices for 1979–80 without making a brief comment on CAP generally or at least referring to the food surpluses which its policies cause. I hope that, with the usual kindly tolerance of your Lordships' House, that is permitted. As is well known, the bulk of those food surpluses have to be sold on world markets with the aid of subsidies paid for by the taxpayer. I need hardly add that Britain bears more than its fair share of that burden.

As an indication of the magnitude of the sums involved I point out that at the end of last year it was estimated that the subsidised disposal of food surpluses was likely to have cost the EEC budget £1,858 million in 1977. That would represent 52 per cent. of EEC expenditure on agriculture or 27 per cent. of the Community's total budget for that year. To take one commodity as an example, in 1977 the EEC paid a total of £400 million to dispose of more than 3 million tonnes of sugar outside its frontiers. To recast those huge figures in terms of the individual, it has been estimated that in 1978 surplus production was costing over £40 per year for every worker in the Community.

Also, it must not be overlooked that, in the interests of international goodwill and world trade, the dumping of these excessive surpluses must be eliminated. The low prices at which Community surpluses are exported are most damaging to world markets and to other nations. For example, the New Zealand Dairy Board claims that it is losing much of its butter market in the Caribbean because of aggressive cut-price selling by a member of the Community. To quote another example, the Australian Minister for Trade was reported in October last year of accusing the EEC of dumping sugar in Papua, New Guinea, right on Australia's doorstep, in a market which Australia regards as traditionally its own.

Nor can one ignore the effect of those surpluses on public opinion at home. Taxpayers and consumers are rightly displeased, for example, at butter being sold behind the Iron Curtain at a third of the price that they have to pay for it. They resent what they consider as subsidising consumers outside the Community with their money. In my view, such a system calls for urgent and radical reform.

I believe that the major cause of this over-production is the level of prices, and that this level should move much nearer to world prices. Instead, there is evidence that the gap is widening between Community and world market prices. For example, figures published in March 1979 by the Ministry of Agriculture show that the Community price is more than double the world price for barley, nearly four times the world price for butter, over four times for skimmed milk, and over two and a half times for sugar.

I hope that your Lordships will forgive me for repeating my long held view that large and long-term surpluses which result from permanent over-production will be finally removed only when farm prices are at a level as to force the less efficient farmers out of production. There are those who believe that short-term palliatives are a waste of time as well as being ineffective. As an example of such ineffectiveness, there have been many reports that the effects of grants to reduce dairy production have been circumvented. In my opinion, any hardship caused to very small farmers, especially those with small dairy herds, by a harsher price policy should be dealt with by aid under national schemes or grants from EEC Social or Regional Funds.

Turning at last to the bulky 19th Report of the last Session on Farm Prices, I should like to point out that the minutes of evidence and tables supplied by the Ministry take up most of the space, and the conclusions of the Committee consist of only eight paragraphs. It is only fair to say that the chairman, my noble friend Lord Walston, found it difficult to reconcile the varying views of the members of the Committee, and he is to be congratulated on his achievement. I personally would have liked much greater emphasis placed on the fact that the first and most forceful action must be on prices. We state in paragraph 36 of the report that The ultimate objective must remain price harmonization at price levels which do not engender permanent surpluses". I would have liked it brought out more strongly that a price freeze is the minimum action required, that it must last as long as structural surpluses exist, must involve a drop in real terms, and ideally should have the same impact on all member countries.

I am sure that your Lordships will all agree that this latter objective is very greatly complicated by the green currencies, and that is brought out in paragraph 34 of the report. If the Community's policy is to limit production through prices, countries with weaker currencies or negative MCAs, like Britain, could counteract an attempt to do so by further devaluing their green currencies and thereby increasing the price to their own producers. Although I fully accept the desirability of phasing out green currencies, as recommended in our report, the timing and the degree of devaluation should, in my opinion, be left to national Governments. As we point out, the National Farmers' Union suggested a devaluation of 15 per cent., and the decision of the last Government was 5 per cent. The Consumers' Association said in their evidence that they would like to see any change in the United Kingdom's green rate contingent upon a revaluation of the green mark and green currencies of the Benelux countries. They suggest that green rate movements should be used only as part of an overall strategy to realign prices around a reasonable 'common' level", and I have sumpathy with their view. The amount by which the green pound is devalued should, in my opinion, be related to what happens to the price of the various surplus products in terms of units of account at the annual review of the Commission's proposals.

I understand that on 18th June the new Minister of Agriculture will be attending a Council meeting of his fellow Agricultural Ministers where there will be renewed consideration of farm prices for 1979–80. In my opinion, it would be a tactical mistake if Mr. Walker were to press for a further devaluation of the green pound because, as a result, we would be in danger of not achieving the Commission's hope for a freeze in farm prices. The recent silence on the part of the National Farmers' Union may be indicative of their expectations. We are told daily by the media and from the public platform of the need to reform the CAP, but the corporate will of the Community to take action to alter the CAP's imbalances seems to be lacking. In my view, action should not be long delayed because the effect may be disastrous to the European Community and harmful to the well-being of the vast majority of its people.

4.15 p.m.

Earl FORTESCUE

My Lords, I should like to add my thanks to the noble Lord, Lord Walston, for initiating this debate. When I spoke on this subject last year I complained that there was little or no reference to pigs. I am glad to say that that omission has now been rectified, although so far no speaker has specifically mentioned that commodity. However, I would hope to return to the subject of pigs later.

I should like to congratulate Sub-Committee D on absorbing so much evidence and for formulating such a good report. As to the Sub-Committee's conclusions, in so far as I am competent to speak on other commodities, I would very largely agree with the Committee's conclusions. I endorse the conclusion in paragraph 33 that the surplus problem in certain commodities cannot be solved by price reductions alone and that some special social measures are necessary. I endorse the conclusion in paragraph 34 that those countries which have an overvalued green currency should be allowed to devalue in accordance with their own circumstances. For this country the Sub-Committee recommends a devaluation of 7½ per cent. I doubt whether that is sufficient, even now; and particularly in view of the recent increase in the price of oil and its inevitable inflationary effects.

I strongly endorse the conclusion in paragraph 35 that the farming industry should be given longer-term guarantees, and in real terms if that is possible. It is certainly not good enough to have the price announced well after a crop has been planted or when the animal has not only been conceived and born but has been reared for several and maybe many months. I agree that the possibility of a special devaluation of the green pound for certain commodities only may well be worth examining—that is to be found in paragraph 38.

I confess that I found our post-war Deficiency Payments Scheme, with its guaranteed prices, infinitely preferable to the present scheme under the CAP. Under the latter scheme producers in different countries get widely differing prices, and some countries are subsidising other countries to an unacceptable extent. Our old Deficiency Payments Scheme had a number of advantages which are largely lacking at present. First, it was reasonably simple and easily understood. Secondly, it enabled this country to buy so-called cheap food at world market prices. Lastly—and of extreme importance—any additional payments to the British farmer were paid for by the British taxpayer; by that I mean that the money stayed in this country and it did not go to subsidise unwanted production on non-viable farms or smallholdings on the Continent of Europe. Our Deficiency Payments Scheme may be unacceptable to the EEC, but I would recommend that the basic thinking behind it be remembered when the present CAP scheme is reformed.

I should now like to revert to the commodity of which I have most experience, and that is pigs. Rather more than a year ago I informed your Lordships of the plight of the pig farmers in this country and of the effect on the ancillary industries. I urged the Government to take steps to rectify the situation. Little happened. The situation has now gone from bad to worse. When I last spoke pigs were fetching 80p or thereabouts per kilogramme; now they are worth rather less. Barley was then bought for about £80 per tonne; now it costs very nearly £100 per tonne, and barley is the main ingredient in a pig's diet. Pig breeders have gone out of business in considerable numbers. Nearly one-fifth have done so in the last four years. The June return for the pig breeding herd this year is likely to show it lower than it has been for the last 10 years, while there have been large increases in the numbers of pigs in most Continental countries. The number of breeding pigs indicates the number of pigs for slaughter in the coming months. It also reflects the recent profitability of the finished pig.

Your Lordships will understand that no pig farmer is inclined to get out of pigs unless the financial situation is serious. I suggest that this point has now been reached in very many cases. A devaluation of the green pound will, I think, not solve the pig problem, as the pig's feed costs will also rise as a result. A guaranteed pig price linked with a feed index would be enormously helpful. The pig problem is not confined to pig farmers alone; it also affects the processing factories. I know of at least five factories which are closing down their plants, and these range from Aberdeenshire to the London area and to Wiltshire, and several thousand jobs will be lost as a result. If the Government want a viable pig industry in this country (as I believe they must) then they should introduce some measure of encouragement before the industry loses all its confidence. I should add that, once the industry's confidence is lost, it will take some years to regain, and it will take even longer to regain our share of the market for pig products.

4.22 p.m.

Lord COLLISON

My Lords, it is a pleasure to follow the noble Earl, and to be able to say that, in comparing our old deficiency payments scheme and the scheme operated in the Common Market, I entirely agree with him. Unfortunately, we went in too late to influence things very much in that direction, and of course it is very difficult to overturn something which has now been operating for a number of years. I understand that there is also a problem about costs.

Our thanks, of course, are due to the noble Lord, Lord Walston, for introducing this important report and for doing it so ably and with such clarity. I do not wish to take up a great deal of your Lordships' time. Therefore, I propose to deal with only two aspects of the Commission's proposals and the Committee's response to them. First, the question of the freeze in relation to the green pound, and the other point I want to deal with is the question of the co-responsibility levy. Other noble Lords have taken up other issues. I was glad to hear what has been said about pigs and sugar, but obviously there is no time for any one of us to cover the whole ground.

Having listened to the evidence and read all the written evidence, it is clear that on this occasion there is pretty well unanimous agreement that there has to be a price freeze not only for this year but for several years to come. I think that this is due to the fact that a response is happening to the enormous groundswell of criticism about the way the support scheme is working. I expect your Lordships know—I most certainly do—what housewives have to say when they learn about butter being sold in Russia supported by money paid by the British taxpayer; when they hear so much about this mountain and that mountain, and the wine lake. They are fed up with it, and they want a change. This has resulted in the acceptance that prices have a good deal to do with this, and that there has to be some kind of freeze. But your Committee did not think that a price freeze alone would be sufficient to reduce these surpluses quickly enough.

We also recognise that, desirable as it might be—and I entirely agreed with the noble Lord, Lord Sainsbury, in this matter—price reductions large enough to be effective, particularly on the Continent, and thinking of Germany among others, are not politically possible. So the report states quite firmly that before the next Price Review thought should be given to structural and other methods designed to bring production and consumption into balance, and that means an overhaul and a revision of CAP itself. I believe that such an attack is urgently necessary not only because the revision of CAP is required in the interests of agriculture and the farming community—and when I talk about farmers I am talking about farm workers as well; most people think of farmers and farm workers in the same breath—but also to alleviate the criticism that I have just mentioned.

People get mixed up between the basic aims of the Community and the Common Agricultural Policy, and in feeling so strongly and in criticising so strongly the CAP people drag down their conception and respect for the Community itself. This saddens those of us who believe in the concept of a European Community and who want to see it succeed. So it is generally accepted that a price freeze is required, but to say to oneself, "Let's have a price freeze—full stop!", is not enough, for a freeze can only have a damaging effect on the farming industry by reducing farmers' incomes unless it can be offset by a revaluation of the green currency. I am quite sure of course that as import costs continue to rise, although offset to some extent by improving efficiency all the time—and in our industry the United Kingdom can take credit for continued improvements—nevertheless the farmers' real incomes are bound to fall, and this in the long run, as has been said, is going to be damaging to the industry and to our prospects of achieving what we have been asked to achieve in the White Paper.

Indeed, the National Farmers' Union maintain that it is already happening. In their written evidence on page 29 of the 19th Report they say: Farm costs rose appreciably faster than farm output prices last year and, in consequence, the industry's income position worsened. Aggregate net farm income declined by about 3 per cent. in money terms and by some 11 per cent. in real terms in 1978. In fact, real income was at its lowest level for a decade and some 12 per cent. below the average for the years 1970 to 1975. I know that that comes from the National Farmers' Union, but I see no reason why one should doubt the outcome of their very good and intensive research.

Whatever one may think about that, it is patently clear that the higher the rate of inflation the harder it will bear on net real incomes in a situation where you have prices frozen. As the report says in paragraph 34: It is evident that a price freeze, unless offset by green currency changes, will have most impact in those countries suffering relatively high rates of inflation. For this reason the Committee recommended a green pound devaluation of 7½ per cent., against the Commission's proposal of 5 per cent.

My Lords, your Committee studied the Commission's proposals and took evidence, as we have already heard, some time ago. That was in March. At that time inflation was running at considerably under 10 per cent.; as a result of a question from me to one of the witnesses, it was established that it was at that time something over 8 per cent. Sadly, we have seen the inflation rate beginning to rise again since then and most observers believe that it must continue to rise, and maybe what is happening in another place this afternoon will have some bearing on that. Experts estimate that by the autumn the inflation rate will reach between 14 and 15 per cent.

I am therefore suggesting—this is the point of my intervention on this subject—that the suggested 7½ per cent. devaluation should be looked at again. The report says the Committee believes the green currencies should be phased out within five years. This implies that is should be done year by year and step by step, and it is the size of the step to be taken now which I believe should be reviewed again. I should have thought that there need be no criticism of the Committee's finding in suggesting 7½ per cent., for a considerable amount of water has gone under the bridge since then and circumstances have changed considerably.

I wish next to draw attention to the Commission's proposals with regard to the co-responsibility levy. Our Committee made it perfectly clear that we could not support the proposals, for reasons which were clearly stated by the Milk Marketing Board in their written evidence. The Board confessed, as we confess, that originally we promoted the idea, but that was with the object of creating a fund for direct market management by producers to expand demand. The Milk Marketing Board made it clear to us—and we are making it clear to noble Lords today—that it was not their intention that the levy should be used as a tax with the prime purpose of reducing supply. Nor is it ours. There are other ways of doing that to help the small producer. We know about them and have reported on them before; we are well aware of how to help people out in the industry, how to give them aid and so on.

The proposition as it stands is inequitable in the extreme. In the first place, the levy would be collected only on milk delivered to dairies. Thus the "tax" would bear much more heavily on our own producers, since a very large proportion of our production is sent direct to dairies, whereas comparatively little milk is sent direct to dairies on the Continent.

Another, I believe insuperable, objection is the administrative problems which would arise. I described them in Committee as an administrative nightmare. The exemptions proposed for small farmers have to satisfy all of six conditions. Those are, first, those whose principal occupation is farming; secondly, those who are under 55 years of age; thirdly, those who deliver not less than 60,000 litres of milk a year; fourthly, those whose agricultural holding is not more than 25 hectares; fifthly, those who undertake not to increase their number of dairy cows; and sixthly, those who have not more than one dairy cow per hectare. The prospect of the amount of paper work in determining who is in and who is out is absolutely daunting.

Quite apart from those objections, there is the discrimination against United Kingdom producers, the administrative nightmare and the fact that the proposals promote uncertainties. In fact, we were told that every 1 per cent. of co-responsibility levy was equivalent to a drop of 5 per cent. in real income. Farmers would not know where they were with prices bobbing up and down like a cork in a rough sea. I therefore agree with those who say that what we want is a clear policy and I agree, too, with those who believe it is unfortunate that the proposals came late and therefore had to be dealt with late. What is most certainly required is a clear farming structure and a firm policy which will enable producers to plan ahead with confidence.

I repeat, it is urgently necessary that our people in Brussels should tackle this problem both on the agricultural side and in the new Parliament. I am very glad indeed that among those elected is Sir Henry Plumb, the ex-president of the National Farmers Union. Those who have heard him on the radio since his election will have heard him say that he recognises the urgency of the problem and will do all he can to get it sorted out. We should all be behind our colleagues there and I hope that in producing a report of this character we are providing just a little help in the right place.

4.37 p.m.

Viscount BROOK EBOROUGH

My Lords, it is a great pleasure indeed for me to speak following the noble Lord, Lord Collison, whose deep knowledge about agriculture is well recognised everywhere. I congratulate the noble Lord, Lord Walston, on the extremely able way in which he introduced the debate. I also congratulate the noble Earl, Lord Ferrers, on his present position and I look forward to representing to him the problems of agriculture in Northern Ireland.

Mention has already been made of the problems that are created by the differences of value of the green pound, enabling as it does various EEC countries to draw subsidies to enable them to export various products to other countries in the EEC. If that has caused distortion in the markets in Great Britain, noble Lords will easily understand that in Northern Ireland, where we have the only land frontier of the United Kingdom, the distortions are enormously greater. One of the results has been the flourishing industry of smuggling, and if I declare an interest in farming, I regret that I have none in smuggling, or no profitable ones. There was a time—I am sure the noble Lord, Lord Peart, knows about it—when the rumblings of the refrigerated lorries past our doors used to keep us awake at night as one phantom load after another went up and down across the Border.

The position about the EEC levies and MCAs is crazy, and perhaps I may give a personal example, though not of smuggling. I have to buy a certain amount of Canadian oats. A boat would come into Belfast—this is an actual case—to one of the silos and I would telephone the silo and ask, "What is the cost of the oats?" and the answer would be, "£120 per ton". I would then telephone the silo owned by the same people in Dublin and ask, "What is the price of the oats in Dublin?" and the answer would be, "£120"—but of course once the cargo lands in Dublin its country of origin changes and the oats become Irish oats, so I then buy the Irish oats which came from Canada having gone past Belfast, and draw back £21 out of MCAs and ACAs. That is how crazy the situation is. If people benefit from a crazy thing like that without it being illegal, how much easier it must be for the phantom loads to operate. And of course this kind of situation is operating in regard to MCAs and free movement of meat from East Germany to West Germany, for all of which we are paying with British taxpayers' money.

The noble Earl, Lord Fortescue, mentioned the problems of the bacon industry, and I should like to couple with that the problems of the meat industry. What applies to the United Kingdom applies even more forcefully to Northern Ireland. During his reign, the noble Lord, Lord Peart, introduced what was called the MIES (which was the meat industry employment scheme), which undoubtedly saved the meat and bacon industry of Northern Ireland from total extinction. I know that it will not surprise Members of the House to know that the noble Lord, Lord Peart, is held in very great affection in Northern Ireland, not only because of the MIES, but also due to his very kind handling of the problems of the farmers there. As the situation was, with the Border and the MCAs, beef would have gone to meat plants across the Border. MCAs would be collected once again, and so those involved would get the best of both worlds. We would have unemployment, and we as a country would be paying a subsidy on British cattle which had been merely slaughtered in the South. The pig industry, and indeed the meat industry, in Northern Ireland would have been extinguished, not because it is inefficient—it is a very efficient industry, and the processing is very efficient as well—but because of a monetary decision; namely, not to devalue the green pound.

Having dealt with that matter, I should like to raise with the Government one matter in a little more detail. I refer to the pricing of milk in Northern Ireland. I am a president of a small, local cooperative creamery, and so I have at least a small amount of experience of the subject. I have been in close touch with our Milk Marketing Board, for which I have the very highest respect. The dairy side of the farming industry in Northern Ireland provides 25 per cent. of the total gross product of what is the largest industry in Northern Ireland. Meat provides 25 per cent.—a quarter—of the raw material which comes to this country, mostly, for sale. The milk processing industry is a very valuable and a very efficient employer of labour, as well as a converter of milk products. It is a great contributor to a happy, well-employed countryside which I believe to be very important to our country.

At the moment, there is a considerable loss of confidence within the industry. This has been brought about by many causes. First, like everywhere else in the United Kingdom, we had a very bad winter. Indeed, I wonder whether we have had our one day of summer—yesterday. However, I hope that the weather will not continue to be as bad as it has been. At present we have 3 per cent. more cows than last year and we are producing 2 per cent. less milk. So there are 3 per cent. more cows, costing considerably more to keep, and 2 per cent. less milk. Secondly, our Milk Marketing Board is much more in the dark than are the Milk Marketing Boards here about what it will be able to pay to the producers, because once again we are in difficulty over the green pound. The price fixing for our milk products includes an element which varies slightly, but which is over 10 per cent., and it comes from what is called milk aid. This is an element which is paid for by the British Treasury, but it is subject to ministerial approval at Brussels. As I understand it, the milk year starts on 1st July, and if ministerial approval is not given to the continuation of the milk aid, we shall be faced with a disastrous situation. I hope that the Government can give us an assurance on this matter, about which I have given them notice. I hope that, irrespective of the final prices which are determined for the review, permission will be given at the next meeting for the United Kingdom Government to pay out what, after all, they want to pay out. We should like an assurance on that for our milk industry.

Lastly, so far as the milk industry in Northern Ireland is concerned, we are terribly worried about the escalating costs of milk distribution, which caused a rise of l½p per pint. So far as we are concerned, very little of that l½p rise will go to producers. So, faced with rising costs, the farming industry has no alternative but to look to the Government to give us a fairly substantial devaluation of the green pound. I should like to endorse the report.

4.46 p.m.

Lord PEART

My Lords, I am sorry that some speakers have dropped out of the debate; I expected that I would have been speaking rather later. I should like to thank the noble Viscount for what he said. I still feel affection for Northern Ireland—I always have done. It is probably because many years ago, when I was a young student, I carried out my first geological surveys there, in County Antrim, and I have kept up my connections with the Province. I cannot answer for the Government today. I must leave that to the noble Earl, Lord Ferrers. I should like to say to the noble Earl how delighted I was when I heard the news that he was again to be a Minister in the Ministry of Agriculture. He will be a key figure. He knows the industry so well. I regard him as a most competent and able parliamentarian, and I hope that on some occasions he will have the privilege of going to Europe. I am sure that his Minister will allow him to do that, as I was allowed to do on many occasions. I wish the noble Earl well in his new position. I also wish the Minister well. After all, it is essential that we succeed in Europe.

I wish to congratulate my noble friend Lord Walston upon the way he introduced the debate. He chaired a special subcommittee which examined the EEC farm prices. I have read through the report of the sub-committee. I know that it is easy to boast about this, but I found it fascinating, and I think that my noble friend should be well satisfied with the reception that it has had today. He has indicated the attitude of the members of the sub-committee. I have carefully read some of the evidence, particularly that of the Dairy Trade Federation and other bodies including, naturally, the National Farmers' Union, and I shall come to that later.

I had some sympathy with the noble Earl, Lord Fortescue, when he talked about our deficiency payments system of the past. I tried to get such a system in Europe, and I shall deal with that a little later. I think that the noble Earl was rather nostalgic; he made me feel a little nostalgic. It was a very good system, but it did not always work. I recall the time when the present noble Leader of the House, Lord Soames, faced great difficulties when the deficiency payments scheme got into trouble. That was a long time ago, but it must be remembered that the system was not always perfect. I believed that what we tried to do in Europe—to get a deficiency payments system which worked, and which was rather like the one in our own country—was right.

I must take up some of the points raised by my noble friend. I cannot answer every point that has been raised by noble Lords on this side of the House; that is a matter for the Minister. I agree very much with my noble friend in his analysis. I agree with him particularly when he talks about agriculture in a wider sense. I know that he travels widely and takes a great interest in agricultural production in various parts of the world, especially the Caribbean. He knows his industry; but he always keeps his sense of idealism, linked with a measure of realism. He recognises that the development of agriculture—the development of European agriculture, the development of world agriculture—is vital. That is why I myself take a great interest, and always have done, in FAO; but I am glad that he himself, as a practical farmer, raised this matter as he concluded. His recommendations have been endorsed, really, by this committee, and I think the Government will have to consider carefully what is their attitude; and no doubt this afternoon we shall hear from the Minister what is the Government's reaction. After all, it is for the Government to make the decision in relation to whether we have a change in the green pound by way of a 5 per cent. devaluation or whether it is to be halved, as the committee have recommended. It is really for the Government to make the decision.

I think we have to recognise that we are in Europe, and that we must play our part there. Unfortunately, a lot of people forget it. I am not as critical of the CAP as some people. I am critical when it produces surpluses which are not disposed of properly, and I blame the people who are responsible for that. I think this is where administration is very important. As to the selling of surplus products at cut-down prices to people behind the Iron Curtain, I am not averse to having trade with the Iron Curtain on a commercial basis. I believe that when we had a skimmed milk problem, which I had to face as a Minister in Europe, it was right to suggest that we should send it to Egypt, for example, who were prepared to buy some of it. I thought also that it would be good food aid in the world, although in some parts of the world to which it went there was a reaction against it. But I would agree with noble Lords that we want to have a pricing system which does not make for over-production and so make the whole system appear ridiculous. So I trust that Ministers will pursue this.

Again, when we talk about surpluses—forgive me for going off the committee report, but even in that report many of these matters have been discussed and examined very carefully—let us look at the CAP, and let us realise what it is trying to do. Let us recognise that there is a lot of agricultural produce in store. Of course there is. We hear talk of mountains of butter. Let us examine the latest figures in the case of some of the products. For barley, there are 200,000 tonnes. What does that represent? It is two days' consumption in the Community. Beef, 190,000 tonnes. What does that represent? It is 10 days' consumption. Butter, 293,000 tonnes, 63 days' consumption; rye, 630,000 tonnes, 76 days' consumption; skimmed milk powder, 488,000 tonnes, 92 days' consumption; wheat, 1 million tonnes, 11 days' consumption; wheat (durum), 160,000 tonnes, five days' consumption. I think this puts the matter in the right perspective.

I would rather have surpluses than shortages. I remember when I was a Minister and I had to face the dreadful foot and mouth outbreak, and the worries we had about the future of our cattle, our great dairy and beef industries. After all, most of the beef comes from the dairy herds. I was a very worried man, and I know that the farming community were worried as well. Again, I remember the difficulties we had not so very long ago, again when I was a Minister, when we had a terrific drought which caused shortages and affected our crops. I remember having to cancel (which I think I did quite rightly) a visit to Brazil, where I was going to examine some of Brazil's irrigation schemes. I thought it was right to be in Britain when our farmers were facing drought conditions. I say to those people who talk glibly about overproduction that there is often this terrible tragedy of under-production as well. So I hope critics of the CAP will be realistic sometimes. I do not condemn it entirely. Of course there are problems.

As a negotiating Minister I tried to do my best when I first went over for the Wilson Administration, and I think we achieved certain things. I know that during the election campaign much was said about the role of Ministers in Europe, and I have here the Conservative Manifesto. That says: What is more, the frequently obstructive and malevolent attitude of Labour Ministers has weakened the Community as a whole and Britain's bargaining power within it. I can speak only for myself, but I never tried to attack people in the Community. When I first went there I thought it was right to act in the Community reasonably, and to realise that you had to win the argument rather than rely on abuse; and I am sure I achieved something. I have here the White Paper, and I could go through it. We did get a deficiency payments system—the beef premium system, which at one period, I was flattered to know, was called the Peart premia. It is there. I should like to see that system operate throughout the Community. We tried to have a better pricing system altogether; a proper balance between production and distribution.

We also did other things which I thought were important. One was to continue to allow access into our own country to countries like New Zealand, who sent their dairy products to the United Kingdom. I see that even this week, today, this is now another issue which is going to have to be tackled by the Government. I read today in the Guardian that the New Zealand Conservative Prime Minister, Mr. Robert Muldoon, said after talks with Mrs. Thatcher yesterday that he was very concerned for the Queen's life, but then he went on to talk about other matters. It says that he: discussed with British ministers the problems of getting New Zealand dairy products through EEC barriers. He described the present Common Agricultural Policy as economic madness". I would not quite go with him there. On the other hand, I believe he is on good ground when he talks about changes in Brussels concerning low-cost farm products from New Zealand, which gained permanent access to the Common Market, rather than what we have—a temporary yearly concession. This, again, I know, has been dealt with in the Select Committee's report, and we have the evidence from the Dairy Federation, who feel very strongly about access of New Zealand products to this country.

Personally, I have always defended New Zealand. I am probably sentimental about this. After all, in a time of crisis, at a time of war, they did not have to be asked: they volunteered. I said this to farm audiences. I said it to a big dairy conference, even though the chairman, the president at that time, attacked my attitude. I believe they should have fair and reasonable access. Indeed, this was one of the main negotiating items of Prime Minister Wilson when he was at the summit in Dublin. We have had our good links through this. I have always argued that we should also try to have a greater access to the Community. Again, I read in a very responsible British farm journal, the Big Farm Weekly of 7th June, 1979, the headline: Australian cheddar returns to EEC next year". It says: Australian cheddar will start coming back into the EEC next year as a result of a final settlement between the Community and Australia of their differences over the GATT multilateral trade negotiation. The disagreements were patched up when the EEC Farm Commissioner, Mr. Finn Gundelach, visited Australia last week. He also offered Australia additional access for beef. The cheese quota is understood to be 3,000 tonnes. This means that, overall, the EEC has conceded access for 18,000 tonnes of cheddar—although some of it will be used for processing—during the GATT talks. Then he went on to say: The main beef concession is for high-grade meat and brings the total concession to 20,000 tonnes. Here is an example of something which I never thought would be achieved, leaving it just to a European Commissioner. Anyhow, there it is. In other words, it is what we always argued: that we must have liberal access given to countries whose products we feel can make a useful contribution. So there is an example of where there is a change, and we can see how that change is developing.

Again, I remember that I had the privilege of negotiating the details of the 1.4 million tonnes of cane sugar coming into this country from the Caribbean, the Pacific and other parts of the world. That was, I think, something which was right and proper. That was really something which helped considerably, although I believe that at this stage there are still difficulties in relation to approaches that have been made to the countries that have been affected. Nevertheless, I believe that that was right and proper. Here is where we can, through our approach in the agricultural field, offer so much aid to people elsewhere.

Again, it was a Labour Government which negotiated the famous Lomé Convention which helped to liberalise trade. I hope that there will be no attack on the principles of Lomé. I have seen reports that the Government are somewhat critical about what has happened. I hope that the noble Lord will see that his own Government stand by what a Labour Government did and that we shall see that our friends in the underdeveloped parts of the world can improve their agricultural trade by the help we give. So, I believe it is important that we should have a debate of this kind.

Naturally, it is right and proper that we should consider our home producers. I hope that I have not been discourteous to the National Farmers' Union which I think is a fine organisation. They have published their own evidence and no doubt noble Lords have read it. The NFU say: In the conclusions to their report the Select Committee recognise the need for a green pound devaluation in excess of 5 per cent. Whilst this is welcome, the NFU believes that in proposing a 7½ per cent. devaluation, the Committee may no have taken sufficient account of the decline of farm incomes, and the consequent severe difficulties for the industry which would still result from limiting the green rate adjustment to that level. The further rise in farm costs which have taken place since the Committee considered evidence underlines the need for an overall 15 per cent. devaluation, i.e. the need now for a further adjustment of about 10 per cent. to supplement the 5 per cent. move made, for most commodities, in April. They go on to mention sugar, which I know many noble Lords know about. They will have this document.

I understand the NFU's point of view. It may be that they are asking too much for the devaluation. On the other hand, they have a case. Farmers will face increased costs when we think of oil. No doubt, other sections of industry will have to face these costs as well; but the farming community will in many ways have to face a very heavy burden and I know that there will be considerable difficulties. This is a matter that I assume the Government and Ministers will be watching carefully. It does not affect just the farmers here but farmers throughout the Community and in other parts of the world. Oil prices could have a really terribly retarding influence and we regret it.

My Lords, I feel that I should not delay the House any longer with my point of view, I have been speaking for over a quarter of an hour. I try to keep to the Motion I moved in the last Session, that we should limit our speeches to a quarter of an hour. I have much more to say but I can leave it to a further occasion. I wish the noble Earl well. I hope that his Government realise that many of us on this side of the House consider that there is a need for reform of the Common Agricultural Policy but still believe it right that we are in Europe and feel that we can influence it if we provide the necessary leadership.

5.5 p.m.

The MINISTER of STATE, MINISTRY of AGRICULTURE, FISHERIES and FOOD (Earl Ferrers)

My Lords, the noble Lord, Lord Peart, ended on a happy and welcome note, one to which I shall come later. Our position in the European Community is absolutely vital and our membership of it is something which is going to be, I hope, a constructive one. I should like first to thank the noble Lord, Lord Walston, for having introduced the debate and for having given us the opportunity to discuss these matters. In fact, it is a very timely occasion. The Council of Ministers are to meet in Brussels next week and we have had the benefit of what must be, I suppose, one of the best informed Committees that there could be on this subject, one which has taken evidence, which has studied the problem, and made this report. I should merely like to say that the Government value greatly the Committee's work and the trouble to which they have gone. I should like also to thank the noble Lord, Lord Walston, and others for the welcome they were kind enough to give me. He said, he thought it was my maiden speech as a Minister. He is nearly but not quite right. Any generosity which your Lordships would give to a maiden speaker has been forfeited by me I am afraid because one of the charming idiosyncracies of this House is that when appointed to the Ministry of Agriculture, the first thing that one does is to answer a debate on the extended powers of the European Parliament. Therefore, although it is my first occasion to speak on agriculture, it is not the first occasion on which I have spoken as a Minister on other Government matters.

There is no doubt that agriculture, whether in the Community or our own, is presented with some pretty formidable problems. I would hope that one might be allowed to take this opportunity briefly to sketch the situation as we see it as a new Government and to try to explain to your Lordships the problems which we visualise and our attitude as a Government towards them. The first thing to remember is that, whatever Government took office, those problems were there to greet them on their arrival and that there is no quick, instant solution. They are, if not caused, certainly exacerbated, by many factors largely outside the control of Governments, certainly, outside the immediate action a Government can take; and yet they are certainly affected by the manner in which Governments take action. One thinks particularly of inflation, of surpluses in the Community, and of world food shortages which happen at the same time; the requirement for agriculture and the supporting industries to be given the proper remuneration for the work involved and yet the requirement not to add to increasing food prices.

This afternoon your Lordships have touched on almost all of these points. There are one or two things which I think are fundamental factors in this situation, some of which are directly opposed to others, yet which are parameters in the situation, and parameters within which we have to move. First, it is our desire and intention to ensure that, so far as possible, British agriculture is and remains successful and prosperous and is enabled to contribute to the food requirements of the nation. But the last Government's White Paper showed that during 1978 the real income of agriculture dropped by 11 per cent. I state here categorically that I intend to make no Party points. I merely record the fact. The noble Lord, Lord Collison, was right when he said that as conditions appear at present, due to the continued increase in costs, it looks as if real income during the current year will take a further drop. That is a very serious situation not only for the nation but for farmers and farm workers.

But we are members of the European Community and any action that we take must be taken in accord with our membership of the Community and in the context of our determination to add our full weight as constructive partners to the solution of the difficulties, many of which have been mentioned today, which confront the Common Agricultural Policy. There are, as we all know, some commodities which are in structural surplus, and to increase the price of these will merely encourage their production. I was interested when the noble Lord, Lord Walston, said that a freeze on prices itself would not reduce production. I was interested by the reference that he made to the 1920s. I shall certainly study that.

Lord WALSTON

My Lords, may I correct the noble Earl? My recollection is that I did not say a freeze on prices would not reduce production, but would not solve the problem of over-production.

Earl FERRERS

My Lords, I am not certain of the distinction that the noble Lord has made. I shall study that, too. I take his general point that in his view a freeze would not in itself be adequate.

At the same time—and this is in a way the absurdity—we in Britain produce only some 65 per cent. of the food which climatically we can produce. It may be considered as illogical—and indeed is—that our own agriculture, and the output from it, should be penalised by the surpluses to which we have not contributed, especially as the efficiency of our agriculture enables us to compete favourably with those of our colleagues in Europe on many occasions, and at lower prices.

Yet the overall problem is that in the United Kingdom we contribute the largest net amount of money of all member-States to the total Community budget, three quarters of which, as has been said this afternoon, goes to pay for the Common Agricultural Policy, and most of this goes for surpluses. Then of course we come to the problem that almost all noble Lords have touched on, that the green pound is some 12 per cent. out of alignment. This itself throws a judder through all normal and equitable trading arrangements and common prices. Those are the stakes within which somehow we have to try and steer a course. The Commission's price proposals; which were published on 31st January, were for a price freeze on virtually all commodities. The noble Lord, Lord Walston, said that he was appalled that it should have taken so long to come to a conclusion. I would agree with him. It is highly desirable that these prices should be resolved earlier; but on this particular occasion we have had sonic slight complexities with British elections, Italian elections and European elections. That has thrown the normal plan slightly off course. The Government strongly support the proposed standstill in the interests of both taxpayers and consumers in the United Kingdom, and the Community as a whole. We want to see a freeze in common prices for products which are in structural surplus, and we want this maintained until the surpluses are eliminated.

I was glad to hear the noble Lord, Lord Peart, say an encouraging word about surpluses, and indeed my noble friend Lady Elliot did too. Surpluses may provide difficulties; shortages frequently provide even greater difficulties. A small shortage can provide a terrible price increase. One only has to look at what happened to potatoes three years ago, when there was a common shortage.

While we must do all that we can to prevent these surpluses, we can take some slight comfort that, in a world predominated by shortages of many commodities, particularly in parts of the world other than Europe, at least we do not suffer from them. The production of some of these commodities is really enormous. I am bound to refer to the fact that according to the Commission, milk production exceeds consumption by about 17 per cent. Intervention stocks of skimmed milk powder, at nearly 450,000 tonnes, are equivalent to about two years' Community consumption at full market prices. These are very big figures.

Community butter stocks in intervention and aided private storage are nearly 400,000 tonnes; and in both cases large quantities are sold under schemes for special subsidised sales. When we come to sugar, the Community supplies in 1978–79 exceed demand by nearly 3¼ million tonnes, which is equivalent to over one-third of Community consumption. There is an imbalance between production and consumption in many other sectors as well. It is these surpluses which inflate the Community farm budget, and to which the noble Lord, Lord Sainsbury, in particular referred with great emphasis.

They are estimated to cost some £6,676 million in 1979. This represents about three-quarters of the total Community budget, and the cost is growing faster than ever. If the trend of recent years is anything to go by—and this is the frightening aspect—the cost of the agricultural budget will reach nearly £10,000 million in 1982. As many noble Lords have said, this expenditure imposes a severe and, we believe as a new Government, an unfair burden on the United Kingdom. On the basis of actual receipts and payments, we are by far the greatest net contributor. Even if one takes into account—which we do not think is fair—the monetary compensatory amounts paid by other countries, we are still the second largest net contributor. We want to see a fairer arrangement; but in any case, we need to hold down the prices of surplus products so as to restrain the total expenditure.

It is argued by some that a firm policy should be balanced by social and structural measures to alleviate hardship. The noble Lord, Lord Walston, said that price freezes were not enough and they should be accompanied by some form of social policy as well. The noble Lord, Lord Sainsbury, said the same thing. I agree. Where there is a structural problem of farms there should also be a social commitment and this should not be funded out of the normal farm budget.

My noble friend Lady Elliot referred to the fact that her husband started the Milk Marketing Board in 1933. And what an achievement that was! How pleased he would have been if he had seen the result of the referendum on that Milk Marketing Board, and what an extraordinary reflection on the success of it and the confidence it has given to milk producers that we should find ourselves in such a successful milk producing position as we are in today.

The sales of liquid milk are of course vital to this country. When my noble friend said what a pity it is that the French and other Community countries cannot do the same, I agree. However, the trouble is that is not part of their custom, nor part of their habit. If it were, a lot of the structural surpluses of milk would disappear. Whether or not we would be able to persuade them to do that is another matter. We have no doubt that milk production should be cut back in the Community as a whole, and we welcome the Commission's recognition that tough new measures are needed to restore the balance in the milk market.

I was glad to see that the Committee did not like the idea of a co-responsibility levy. The noble Lord, Lord Walston, my noble friend Lady Elliot and the noble Lord, Lord Collison, said that it was inequitable. 1 agree. The reason why it is inequitable is that it would reduce production by cutting returns directly. It would reduce the farm budget and it would cut consumer prices. But in fact of course all the other member-States prefer a levy and we have to recognise this fact. We feel that we cannot accept the way in which the proposed levy would discriminate against the larger and more efficient United Kingdom producers. The levy has to apply—if it does apply—fairly. The Commission's proposal does not provide for this since it exempts the small and less efficient producers, while penalising the efficient ones. If I could give your Lordships an example, it would be this: the original proposal the Commission put forward would exclude from the effect of the levy about 14 per cent. of the dairy herd in the Community as a whole and yet only about 1 per cent. of the United Kingdom herd. Later on the Commission put forward alternative ideas but these would still hit our producers with large herds and high yields more severely than producers in the other member-States.

My noble friend Lord Brookeborough expressed concern about the future of the Northern Ireland milk aid. He was of course quite right to refer to that. This aid was agreed by the Council last year for one year and it was extended temporarily in March when it became clear that progress on the year's price negotiations would be delayed. Any additional extension will have to be the subject of a decision in the Council, and this depends of course on the wider discussions which are at present going on there. I will certainly convey my noble friend's remarks to my right honourable friend, who will be bearing this in mind during the discussions in the Council next week.

The area which gave the noble Lord, Lord Walston, a lot of concern was the sugar sector, and quite rightly so because, apart from milk, this is the sector which causes the greatest problems. The current level of the Community's exports, of over 3 million tonnes, is having a damaging effect on the world market, and the cost of the export refunds to the Community budget is about £500 million. That is an excessive amount. In these circumstances, we strongly support the Commission's proposal for a price freeze and for a cut in the maximum quota, which together represent a significant reduction in the level of support for production. The proposed cut in the maximum quota to 20 per cent. of the basic quota would reduce production eligible for support by an estimated 459,000 tonnes and would save the Community farm budget an estimated £54 million. The noble Lord, Lord Walston, referred to the possibility of a cut in the "A" quota. Of course, this is a possibility but it was not part of the Commission's proposals and as such therefore it would not be something which could be considered for operation this year. However, it is certainly a point worthy of consideration.

My noble friend Lord Fortescue referred to pigs and the closures of pig factories. I have no hesitation in saying that this is an area of agriculture which is causing the Government a very great deal of concern. For a long time our pig meat processors and producers have suffered from the excessive subsidy which applies to imports. The result has been an overall decline in our pig herd of quite alarming proportions. The pig breeding herd of the United Kingdom has fallen by over 15 per cent. since 1973, which is in marked contrast to the herds of some of our Common Market partners, such as Germany, which has increased by 12 per cent., the Netherlands, which has increased by 23 per cent., and Denmark, which has increased by 36 per cent. I accept that the previous Government tried to tackle the problem of the incorrect basis for the calculation of the monetary compensatory amounts but, for one reason or another, they did not get success. In their price proposals the Commission made scarcely any mention at all of pigs. I can assure my noble friend Lord Fortescue that we shall take the problems which he has described very firmly into the reckoning in our approach to the negotiations. We shall not give up our efforts to try to secure fairer conditions for competition within the industry

I have tried to explain a little the Government's approach to the price fixing on the main commodities, but I should like to pass to one other matter which I think underlines almost all this; that is the green currencies. The Commission proposed a 5 per cent. devaluation of the green pound, and agreement was reached on that. Some other changes in green rates were also proposed at the end of March. Some noble Lords—indeed, most of them —have argued this evening that a bigger change is needed this year in order to help our producers, who have had a particularly difficult winter and who now face very significant cost increases. Frankly I have a great deal of sympathy with that view. My noble friend Lady Elliot said she wanted that. The noble Lord, Lord Collison, said he thought that should be done, and my noble friend Lord Fortescue said he thought it should be done; but the noble Lord, Lord Sainsbury, in a characteristically independent, though not controversial way, said he did not think it should be done. So there was not exactly a unanimity of view. But of course the basic philosophy of the Common Agricultural Policy is, and was, that it should be just that —a "common" agricultural policy, and one that enabled agricultural produce to be traded freely throughout the European Community —and a common pricing system is therefore a fundamental feature of that policy.

The green currency situation was devised in order to deal with temporary financial problems of member-States. It was never anticipated, nor intended, that in a Community of Nine there should be in effect nine different pricing systems, each of which would not only militate against the other eight countries but also bear in a different way and with differing effects on the different commodities within those countries. That being so, you soon have a problem not of arithmetic proportions but of geometric proportions and, rather like the ten digits of a telephone dial, you can get a colossal variety of different answers.

My noble friend Lord Brookeborough referred to one of those when he explained what happened to the Canadian oats and referred to it as an absurd situation: I think he called it "a crazy situation". That is one of the results of the particular position we are in, and until we get our green pound devalued to a more equitable level we shall continue to get examples of manifest unfairness over which nobody has any control and against which the system offers no redress. Even if we get the level of the green pound to a state which enables British farmers to trade on equal terms with their European counterparts there will still be difficulties; but the nature of the difficulty will be more readily ascertainable and the effect of remedial action will be more readily discernible. That is what we intend to do.

I would merely add this. It has become fashionable in all quarters to criticise the Common Agricultural Policy. That has become the whipping boy of politicians and public alike, as if there is nothing good in it. While I would be the first to admit that those parts of it which have been criticised today have been validly criticised and there are many inadequacies and injustices in it which we must seek to resolve, it is not all bad. The CAP is often considered to be the cause of high food prices; and yet if I might quote the previous Minister of Agriculture—not in any controversial way, I would add—he said that during the life of the previous Government food prices had gone up in this country by 110 per cent. but that of that only 10 per cent. was due to the Common Agricultural Policy. So in fact the Common Agricultural Policy has been responsible for a far smaller increase in food prices than is normally attributed to it.

I would stand up for the Common Agricultural Policy on one other ground. We want to remember that it was the complexities of the agricultures of the various member-States which at one time seemed almost impossible to resolve and to reconcile, and which might well have prevented the European Community from coming into existence. Without some form of Common Agricultural Policy, the European Community might easily not have come about. A form of Common Agricultural Policy was devised which could be accepted by all of the member-States and, despite all of its shortcomings, of which we are well aware, the EEC was therefore formed.

If one thinks back to the problems of Europe over the last thousand years, its history has been written not by co-operation but by disagreements. Even 35 years ago, these countries were locked in conflict against each other and, as my noble friend Lady Elliot quite rightly said, the present position would have been unthinkable then. Last week we saw the elections to the European Parliament, when nine countries were electing representatives to join a common Parliament in order to try to solve the problems corporately. It was the Common Agricultural Policy, with all its imperfections and idiosyncracies and apparent injustices, which I suggest has contributed to this coming about.

Therefore, I hope that some people—not your Lordships—instead of taking the convenient option and always decrying the faults and denigrating what exists, can rejoice in the achievements and be prepared to build on them, which is what we as a new Government certainly wish to do. We wish to be full and enthusiastic members of the European Community, to play our part with our partners in building on the successes which have already been achieved, recognising and determining the shortcomings which at present exist and doing our best to improve and strengthen both the Common Agricultural Policy and the European Economic Community.

The debate which we have had this afternoon has certainly helped us considerably as a new Government, and I should like to thank the noble Lord, Lord Walston, not only for his responsibilities with regard to the Sub-Committee, but also for the manner in which he has introduced this debate this afternoon. It has been of great assistance to us all.

5.32 p.m.

Lord WALSTON

My Lords, I am most grateful to the noble Earl for his final remarks, and indeed for all his speech. I am also grateful, as I know is the whole House, to all those who have taken part in this debate. It is always invidious to single out any individual speaker, but I shall do so. I am particularly glad that the noble Earl, Lord Fortescue, returned once more to the matter of pigs, which is of enormous importance to the agricultural industry and to the food processing industry. If it had not been for his intervention the subject, while not being neglected, might not have been stressed as much as it deserves. Also, the noble Viscount, Lord Brookeborough, made the long and difficult journey from his border country and gave us a great deal of wisdom of a very practical kind.

There has been a very great measure of agreement here. In fact, one could scarcely call this a debate, because all speakers, with the very minor exception of one point made by my noble friend Lord Sainsbury, agreed, complimented —with both an "i" and an "e"—and supplemented each other's points. I am very happy indeed that the noble Earl has made it clear to us that, in general, the Government's thinking is very close to the lines of the Committee's thinking. It now remains to be seen how far the Government are able to implement their hopes and their wishes, and what is in fact practical once one gets into the atmosphere of Brussels. All I can say on that score is that we—I hope that I can speak for the Committee—will give every support we can to the Government if they, as they say they will, proceed along these lines.

Perhaps the most encouraging part of the whole debate was the way in which my noble friend Lord Peart and the noble Earl, Lord Ferrers, both reiterated the overall support of both sides of the House for the concept of the Common Market, and also for the concept of the Common Agricultural Policy—faults and all. It was very valuable that that should be done and that, I am sure, will have a great impact in Brussels as well as in this country, too. I am grateful to those who have taken part in or have remained to listen to this debate.

On Question, Motion agreed to.