EEC 2nd Report: Agricultural Trade Policy

HL Deb 30 June 1982 vol 432 cc238-62

3.55 p.m.

Lord Greenhill of Harrow rose to move, That this House takes note of the Report of the European Communities Committee on Agricultural Trade Policy (2nd Report, 1981–82, H.L. 29.)

The noble Lord said: The committee is most grateful to the House, my Lords, for making time available for this short debate. We have come up twice already to the starting post only to be turned aside, quite rightly, for more important business, and we realise that it is a great luxury to have a third chance, and we are most appreciative.

Before we enter on the discussion of the details of the report, it is perhaps as well to remind ourselves that the European Community is the world's largest food importer and the second largest food exporter, that exports have been growing faster than imports and that its deficit on agricultural trade exceeds 30 billion dollars. It is against that background that I ask your Lordships to consider our report. The subject is the Community agricultural trade policy; in other words, how the common agricultural policy and, to a lesser extent, the common commercial policy as at present implemented, affect the Community's agricultural and food trade with third countries, both developed and developing.

Sub-Committee B considered the matter at the end of last year and we were reinforced for the purpose by certain members of Sub-Committee D, to which we look as the source of wisdom on agricultural matters in this House. As the chairman of the sub-committee I pay tribute to the diligence of its members, to the wisdom of its adviser and to the skilful guidance of the clerk and the willing help of her staff. While we were preparing the report, we were very conscious that the Government were about to enter on discussions at the highest level for the reform of the CAP and the Community budget. Those discussions were intended to reach a climax in November last at the Council meeting in London.

As your Lordships know only too well, no agreement was reached and, since then, we have had the drama of the Luxembourg Compromise and a good deal of mutual recrimination among Community members. Without foreknowledge of those unhappy events, our committee had hesitated to bring our report to the House for debate and would have preferred to allow its observations to be available for reflection by the Commission and Governments during the period of those intense negotiations. Moreover, the report deals with very difficult areas of conflicting interests, not only between Community countries but within individual countries. The report tried to set them out fairly and dispassionately and, as a result, may be thought to be long on discussion and short on clear-cut practical recommendations.

When the report was published, it provoked rather a testy response from the President of the Commission. The gist was that we underestimated the just balance and careful co-ordination of agricultural trade policy by his branches in Brussels. We thought that a little complacent; and indeed, as the Duke of Wellington observed in another context, if you can believe that you can believe anything. Nevertheless, members of the committee are hopeful that the seeds of some of our opinions will fall on less stony ground both in Brussels and in the capitals.

I am grateful to noble Lords for putting their names down to speak. I am particularly glad that the noble Lord, Lord Soames, has done so. He has, so to speak, been on both sides of the barricades and his observations will therefore carry special authority. I am also very happy that the noble Lord, Lord Peart, a distinguished Minister of Agriculture, is taking part. But I should like to point out that these matters are not for the Minister of Agriculture alone. The Department of Trade is very much involved, and I am very glad indeed to see the noble Lord, Lord Cockfield, present this afternoon, and we look forward to deriving great benefit from his presence in this House.

In order to avoid at this stage going into too great detail, may I give a rather simplified view of the committee's main conclusions, as follows? The agriculture Ministers of the Community have traditionally had a very good run for their money. At their council they have, for the most part without serious challenge, decided the Community agricultural policy primarily on the basis of their own domestic needs. The spin-off effect on external trade has been given a very much lower priority, if not ignored. It is, I believe, now recognised that they have had in the past far too much rope. If they have not hanged themselves, they have come very near to choking many others. High Community farm prices have led to surpluses. Surpluses have led to subsidised exports. Subsidised exports have distorted traditional patterns of trade. Many of our friends and natural allies have suffered from this, and are now thinking how best to make the Community suffer in return.

Of course, no one has a monopoly of justice and the Community policy-makers have substantial argument to deploy on behalf of their existing policies. But the fact remains that damage is being done not only to developing countries, but to others, such as Australia and the United States, whose relationships, not only in trade, are of great moment to us.

At present the EEC agricultural trade practices are the subject of dispute in the United States International Trade Commission, and more importantly in the GATT. On sugar they are being attacked by 10 GATT members, including Australia, India, the Philippines, and Brazil. In addition, we have been in serious dispute with Thailand over cereal substitutes. Your Lordships may say that there is nothing very new in that kind of situation; it is the usual process of "pots calling kettles black", and the give and take in international trade between competitors finding their established positions under challenge. The special cause for concern is that in the current world trade situation these disputes are more likely to invite retaliation, inflame agricultural trade relations, and spill over into other important trade matters.

So far the United States have taken it all fairly patiently, perhaps because they are not themselves beyond reproach. But they are likely to become more hostile, and more hostilely vociferous and active, as their rural recession deepens. Moreover, the new United States Secretary of State is vastly more interested in economic affairs than were his predecessors. Those who heard him lecture in London a few months ago will recall that he put great emphasis on "playing the rules" in GATT, and it was perfectly clear that he took a critical view of the Community in some of these trade matters.

Therefore, in order to introduce a better balance between domestic and external needs, our sub-committee consider it desirable for an explicit agricultural and food trading policy to be formulated by the Community. This is the clearest and central recommendation of the report. Only such an exercise, involving, as it necessarily would, all the director-generals of the Commission concerned, will start clearly to identify and show the way to eliminate the contradiction in Community policies affecting its agricultural trade. I can well believe that the first attempts to formulate such a policy in a formal way would generate a strong debate and might achieve only very limited advances. It is easy to argue that there are more urgent tasks to be done, but we believe that the process of trying to get agreement would in the long run be useful. It would of course be touching on sensitive matters, and as such might well be asking too much in the present difficult circumstances.

The number of apparent contradictions between the external effects of the CAP and the other objectives of the Community's other external policies seem to us to justify a more rigorous examination. The contradictions are clearly set out in the report, and I shall not enumerate them all now. The situation was put very neatly some time ago—and this is quoted in the report—when the then Secretary of State at the Department of Trade remarked that the Community's external trading policy is founded on the principle that the interests of the world community are best served, agriculture aside, by an open world trading system. Consistency is not necessarily a virtue, but the Community should, not least for political reasons, as well as economic reasons, both short and long term, examine more closely the external consequences of its present agricultural policies. The Community is dependent on many third countries. developing and developed, for both raw material supplies and markets for its industrial exports. It can ill-afford to ignore these interests.

Furthermore, it is surely particularly important that by its agricultural trade policies, by subsidised exports of cereals, for example, the Community should not act in such a way that developing countries are discouraged from producing their own foodstuffs and in various ways deprived of legitimate export markets.

Members of our sub-committee will wish to develop points of special interest to themselves; for example, of the Community countries, the United Kingdom is probably the one most involved in food processing. It is far from clear that our manufacturers are getting a square deal in the Community where the impact of tariffs, import levies, and export refunds is detrimental to our manufacturers. There is also the interesting point on how far the desire for self-sufficiency should dominate Community agricultural policy. There is, of course, a different historical approach to this matter between the United Kingdom and the continental members of the community. As the report shows, views in our own Department of Agriculture appear to be changing. But the majority of our sub-committee thought that less emphasis should be given to it, and the views of noble Lords on this debatable point would be valuable.

Alongside the problem of self-sufficiency is the future export policy of the Community. This is clearly the subject of debate within the Commission. There are those who favour what is described as a dynamic export policy—long-term contracts of large quantities of food. Others are suspicious of the intrusion of state trading. Our committee felt that this matter needs careful and cautious examination for both political and economic reasons. The constant failure of agriculture in Eastern Europe suggests that there is scope there for balancing the need for food against the supply of gas.

There is one particular plea that the committee makes; that is, that the agricultural trade problems of enlargement—the entry of Portugal and Spain—should be tackled energetically in advance of entry. In this way we shall not add to our internal conflicts by misunderstanding and half-promises, as we did at the time of our own entry.

This debate and, for example, the recent excellent debates on competition policy and state aids have, we hope, the effect of nudging the Community to more sensitive patterns of behaviour. We are growing more and more accustomed, and even resigned, to small steps forward. From time to time one is bound to wonder whether this is enough, and to ask whether a more radical reform of the Treaty of Rome is urgently needed to realise the high hopes many had of harnessing the political, economic and cultural strengths of Western Europe. What is happening now certainly does not measure up to the need.

Even more important is the question whether the world situation does not call for more dramatic and radical steps to ensure not only a unified European response but a wider Western response to present economic and political threats. I beg to move.

Moved, That this House takes note of the Report of the European Communities Committee on Agricultural Trade Policy (2nd Report, 1981–82, H.L. 29.) —(Lord Greenhill of Harrow.)

4.11 p.m.

Lord Peart

My Lords, we are debating the subject of agricultural trade policy on the report of the Select Committee on the European Communities, after some delays. I wish to pay tribute to the committee's chairman, the noble Lord, Lord Greenhill of Harrow, and its members. We thank them for the report and for the evidence of the detailed examination of witnesses whose expertise and views contributed to it.

Agriculture is one of the United Kingdom's most productive industries, whereby 2.7 per cent. of the labour force produces 60 per cent. or more of the food we need. We have excellent farmers, excellent technicians, and I believe we should be very proud of what our farming community have contributed over the years. They often get sniped at, but I think they play an important part in our economy. For obvious and climatic reasons we cannot produce all our food. For that reason it is often thought that we cannot therefore export food and drink. In fact, our agricultural exports are worth several billion pounds a year—a considerable help to our balance of payments. As the report states, agricultural trade policy derives from the CAP and the common commercial policy (CCP), and it is vital that in the review of the CAP which is taking place the aspects of agricultural trade policy and external relations are borne well in mind.

Agricultural trade among individual EEC member countries and between the EEC and the rest of the world is important. The United Kingdom makes a significant contribution to it. Important ingredients include support, as I said earlier, for the farming communities, promotion of agriculture in developing countries and the fostering of good relations with other major producers and, of course, with overseas consumers.

In my time as a Minister of Agriculture (like, I am certain, the noble Lord, Lord Soames, whom I succeeded; he was a distinguished Minister, and I am sure he will also remember that visits were paid by Ministers and that they were very important and welcome) I visited a number of countries on trade missions because other countries recognise that United Kingdom agriculture is so well organised and productive. They seek our products, and our know-how, too. The Community must do more to encourage trade with non-EEC countries. I have always urged a greater liberalisation of EEC trade especially, and of non-EEC trade. I note that the report states in paragraph 9 that the Treaty of Rome, Article 110, has the objective (if I may quote) of, the harmonious development of world trade", which does not appear to refer to agricultural trade. I think that is an important defect.

As the CAP is based, as the report points out in paragraph 13, on a system of prices which are distinct from world prices, the EEC has to apply a set of levies covering the difference between EEC and world prices. Although there is little possibility of imports undercutting EEC prices, the Community must do something soon to change and improve the CAP so that EEC prices are not generally higher than those outside the EEC, regardless of adjusting factors. However, I had better not stray on to this subject, which includes EEC pricing policies, the prevention of surpluses and so on.

Unjustified protection against non-EEC countries discourages competition, which could bring lower prices, and discriminates unfairly against EEC low-cost producers. Some of our former trading partners in the Commonwealth are most critical of EEC export trade inflexibility (paragraphs 20 and 21 of the report). I think the report's reference to recent Commission proposals (paragraph 48) and to the Mandate Report, with questions of principle for trade, is helpful. For example, two points of importance are as follows: that there should no longer be full support for products in structural surplus; and that the Community should adopt, a more active export policy designed to stabilise world prices by means of co-operation agreements with other major exporters. These could be supplemented by long-term export contracts". Paragraphs 66 and 67 of the report, detailing the opinion of the Select Committee, will find general agreement, although they must be considered not only in relation to EEC and non-EEC trade but in the wider area of international organisations, such as GATT, and the needs of the third world, with the Brandt recommendations kept very much in mind. I agree with the recommendations, including those which suggest that international commodity agreements are another effective way to stabilise world markets. I believe the Community should assume its responsibilities in the sugar market by joining the International Sugar Agreement.

Again, more attention should be given to the impact of tariffs, import levies and export refunds on food processing. Also, the enlargement of the Community to include Spain and Portugal may well lead to surpluses of new products which would distort world trade in Mediterranean products and adversely affect other associates. More determined efforts should be made to solve these problems before enlargement takes place.

As the CAP represents well over half the cost of the overall EEC budget, it follows that justified criticism of the CAP, including some of the aspects referred to in this report, reflect on the EEC as a whole. I believe that the Select Committee has added to our indebtedness for their painstaking work in assessing the evidence so helpfully given by so many with experience of the problems.

I do not know whether noble Lords have read an article in the Guardian today, but that says that there are likely to be grim figures indicating that there could be a new United States farm-led slump. Many of our people fail to realise that we in our own country play a very important part, and I am quite sure that if we are lax we might well suffer what happened in the early 'twenties. However, I believe that the report is a fine one, and I pay tribute again to all those who took part in its preparation.

4.20 p.m.

Lord Soames

My Lords, I should like to congratulate the noble Lord, Lord Greenhill, and other members of his committee on the report that they have produced. Sticking to his guns has always been a notable feature of Lord Greenhill's life in the past and this has been no exception. As he said, "Third time lucky!". He has twice been up to the starting post and he has persisted with bringing this matter before your Lordships and, as it turned out, what an extremely appropriate moment it is that this matter should be debated. The communiqué following the summit meeting in Brussels (as reported in the daily editions) refers to a dialogue being opened with the United States over potentially severe differences of trade between the European Community and the USA; and noble Lords will be aware that the USA, if they enter into this "constructive dialogue" are going to wish to put many matters of agricultural trade high on their agenda; so I think it is good that we should be discussing this subject today.

We are not discussing the common agricultural policy; it is the report on agricultural trade policy that we are discussing; but it is not possible to discuss Community agricultural trade policy without saying a word or two about the way in which the common agricultural policy, as at present conceived, calls for such large surpluses in so many commodities that they have to be put on the world markets. There are, I suppose, three major objections most often put forward to the CAP. One is the cost to the Community; and I often wonder whether this is right, other than the cost of the subsidisation of the exports of their surpluses to get what the farmers receive down to the world price. Other than that, I do not believe it is a fair attack on the CAP to carp at its cost; for the deficiency payments cost a great deal as well, and I wonder very much whether, if the Community were pursuing today a deficiency payments system, it would not cost as much.

The second objection is that the traditional exporters through the EEC have seen their exports decline and even disappear, and the USA has been the country that has taken the lead in this assault on the CAP. I want to put to your Lordships that neither is this a fair proposition for exporting countries to make; because here set out in Annexes 6 to 9 of the report are the EEC net imports of food products from 1973 to 1979. During those years, the imports from the world as a whole increased from £4,000 million to nearly £8,000 million. From the USA, they doubled from £900 million to £1,800 million, and although I agree that those imports are different foodstuffs, different commodities, in 1979 from what they were in 1973, this is not necessarily a bad thing and the customer must have a certain right in saying what it is he wishes to import. The hard fact is that in money terms the USA has been exporting double in terms of work, of value, to the Community in 1979 compared with 1973, and, indeed, all countries have, with two exceptions. One is Australia, whose figure has fallen unfortunately low from just over £200 million in 1973 to £80 million in 1979, and EFTA have been net importers from the Community of £197 million in 1973. They grew to over £400 million, nearly £500 million, in 1979.

Apart from Australia and the EFTA countries, it is not true that the Community has not been importing increasing amounts of foodstuffs from the world. Taken as a whole, by and large, grosso modo, I do not believe that this charge stands up; but there is a third charge. That is that the traditional exporters at world prices on to the world markets are having their markets interfered with and world prices forced down by subsidised exports in large quantities from the EEC on to what were traditionally their markets. I fear that this charge does stand up.

I would draw your Lordships' attention to Table 6 of the report, where you will see that, compared with during the later years of the decade of the 1970s, looking at sugar, the EEC exports as a proportion of total world exports grew from 7 per cent. to 21 per cent. In beef, they grew from 6 per cent. to 24 per cent. of total world exports; in wheat, from 6 per cent. to 14 per cent.; in butter from 15 per cent. to 62 per cent.; in skimmed milk powder from 30 per cent. to 60 per cent. There are some figures which I think tell quite a story and mean that we have really got to look again, when we realise that all these exports were highly subsidised, interfered with commercial producers' livings and also were very costly to all of us within the Community.

Take sugar, for instance: sugar production between 1973 and 1981 rose from 9 million tonnes to 15 million tonnes within the Community. That is 50 per cent. more. The exports from the Community—because consumption of sugar hardly rose at all—rose from under one million tonnes, (780,000 tonnes) in 1973 to 4 ½ million tonnes (5 ½ times more) in 1981. It is as a direct result of this that ten countries, varying from Australia, on the one hand, to the poorest of developing countries on the other are taking us to the GATT because we are ruining their living on the world markets. That is but one example that I would give your Lordships.

None of this was ever envisaged. This degree, this explosion of production and the proportion of our production that must be exported in a highly-subsidised manner was never envisaged. I remember that when I was taking part in the first negotiations in 1961 and the second negotiations in 1972, none of this was envisaged: that the CAP would call forth this sort of trade problem for the Community which has to live off its trade. It is the biggest trading entity in the world. We expect to behave well and we must look to our laurels to ensure that we behave as well as others.

Let us look, for instance, at the Japanese. We grumble a great deal—and rightly so—about how the Japanese are hesitant, to say the least, in encouraging exports from outside their country into Japan. We also grumble a good deal about how effectively they can swamp a market with their motorcars, hi-fi equipment or whatever it may be. But just think. We would be squealing like stuck pigs if that equipment and those motor cars were subsidised. Yet, do we think nothing of subsidising all our agricultral exports just because they happen to be agricultural? But other countries mind about agriculture to the same extent that we mind about motor cars.

What can we do about this? The noble Lord, Lord Greenhill, has rightly said that what we want is an agricultural trade policy. The Commission is making noises about bringing agricultural prices more into line with world prices. Are they hell!Barely was the ink dry on that piece of paper than they increased by nearly 10 per cent. the prices for this year regardless of what world prices were. Of course our farmers have to be properly treated; but equally they have to be made aware of the movement of world prices.

We had standard quantities. When the noble Lord, Lord Peart, was such an effective Minister of Agriculture following upon myself—he was almost as good as me, I thought!—in those days, when we had standard quantities, the objective was that once the farmers had produced what Government thought was in the national interest should be produced at home, any production over that was at world prices. Whether there is a deficiency payment system whereby the taxpayer pays a large proportion of the return to the farmer or whether there is the continental system whereby the consumer pays the lot and the taxpayer just pays for the subsidies on the exports, if you do not somehow bring in some control—call it standard quantities or what you will—if you have it totally open-ended, but never mind whether it is 1 million or 2 million tonnes of a particular commodity which is produced, the farmer will get the same price for every tonne he produces, then you are bound to be riding for trouble.

Although there is a great deal of good commonsense and soundness in the CAP, if you are going to have an agricultural trade policy—and certainly the Community needs to have one now because we have become big dealers in agricultural commodities—the first prerequisite is to have a common agricultural policy which is so managed as not to call forth vast surpluses which have to be put upon the market and therefore have to be subsidised and have to be got rid of somehow. If you do not have the right agricultural policy, you cannot have an agricultural trade policy.

So, how are we going to do it? I, and I am sure other noble Lords, were interested to see that the Commission proposed and the Council of Ministers agreed that where sugar is concerned—which has got well beyond a joke—the producer will pay the subsidies over a certain quantity. The subsidies are paid not by the taxpayer but by the producers. There is a levy on producers for sugar above a certain level of production. The effect of that has been to reduce by 81 per cent. in this year—because it has only just been brought in—the acreage under sugar.

I am not saying that this can fit exactly every commodity, but we have somehow got to work out a scheme whereby the Community can benefit from the farmers' efficiency and effectiveness and the production of their food within the Community. I am not going to argue what the level should be; whether it should be total self-sufficiency or marginally less. This is another argument in itself. However, we should agree what commodities should be produced by the farmers in the interests of the Community within the Community. Beyond that point there has to be some way of it being brought home to individual farmers through the price that they get for their products what the world market price is on the market on which they are putting such a high proportion of their production. It is as simple as that. However, it is one thing to say it; I know that it is another to get it.

Something is sure—until we get it do not let us fall into the trap of making long term contracts for the sale, for instance, of wheat to Egypt. When I was a commissioner responsible for external trade, those who were responsible—the agricultural lobby—tried like mad to get the agreement of the Commission—and I was determined that they should not—that a long-term contract should be made with a number of countries to buy wheat.

What does that mean? What was the objective? The objective was that not only should the farmers of the Community be feeding the Community, not only should they be providing our food aid to the poorer of the world, but that also built into this machinery should be a number of long-term contracts to Tom, Dick and Harry outside. Maybe in the long run this will be possible, but only after we have put our house in order first. Do not let us go for making any long term contracts until we know that in the short term we are going to be able to put our house in order. It is a good house and it is worth putting in order.

4.37 p.m.

Lord Gladwyn

My Lords, we would all agree that much water has passed under the bridges since this report was published last November. Farm prices have been fixed by a qualified majority over the—perhaps not entirely dissentient—head of the British Minister of Agriculture. Our contribution to the EEC budget has been agreed, if only provisionally, and the anti-Community feeling which undoubtedly was engendered by these events in the nation generally has, to some extent at any rate, been appeased by the way in which our Community partners sprang to our assistance in the Falklands affair by imposing sanctions against the Argentine when economically it was very greatly to their disadvantage. So we are perhaps now in a better position to consider the recommendations of Lord Greenhill's report objectively than we would have been had we discussed it some six months previously.

The main conclusion we arrived at in the subcommittee has already been referred to. It is surely incontestable. As has already been said, it is desirable that an explicit agricultural food trade policy be formulated involving all the Directorates-General of the Commission, an exercise that will start to identify and eliminate the contradictions of Community policies affecting agricultural trade. That is surely an incontestable conclusion which I am sure will be accepted by all interested in the matter.

Of course it involves consideration of the CAP, which cannot altogether be dissociated from this debate though it is not as such the subject under discussion. After all, we must admit that the CAP provided a common market for agricultural products, resulting in relative stability of prices and the broad safeguarding of the position of farmers, without raising the cost of living in the Community unduly. The latest increases in farm prices, which were referred to by the noble Lord, Lord Soames—10 per cent. or so—I believe only raised the cost of living in this country by an insignificant percentage, so I understand. And if it were not for the Common Agricultural Policy we should have to subsidise our own farmers to the extent of something like £1,500 million a year—more than twice as much, incidentally, as our contribution this year to the general EEC Budget.

I know that some argue, generally speaking, that we should be better off if we could buy all the extra food we need on the world market. These arguments are not to be ignored, but, as we all know, world prices tend to fluctuate greatly over the years and would anyhow tend to rise if we ever re-entered the market on a large scale. Therefore, surely it is not so much from the strictly internal point of view that the Common Agricultural Policy is open to criticism in this country as for the reason, in the first place, that it still accounts for an enormous proportion—some 67 per cent. I think—of the whole Community budget. Secondly, and above all, no doubt, is the fact that, as I think all previous speakers have agreed, it necessarily result in a number of surpluses which can only be disposed of at world prices on the world market, thus giving rise to complaints from "developed" nations that they are being ousted from some of their traditional markets by what they call "subsidised" EEC exports. I believe that the Commission objects to that phrase and says that they are not actually subsidised, though of course in practice they are. It is also complained of by some of the underdeveloped countries, who believe that they should be encouraged to produce more of their own food themselves, and who in some cases would like to export more of it, notably sugar, to the Community. I had intended to make some extended remarks about sugar but the noble Lord, Lord Soames, has said everything is necessary about that, and I entirely agree with his observations.

All this is duly noted in the report, which, as I have said, very rightly lays primary emphasis on the need to formulate an explicit agriculture and food trade policy. But it is rather difficult to see how this admirable objective can be obtained or successfully formulated in the absence of some rather radical reform of the Common Agricultural Policy—more particularly, as is suggested in paragraph 67(a), by somehow regulating production and hence reducing surpluses. Some such action no doubt will become imperative in the course of time owing to the prospective shortage of funds with which to finance the whole of the Common Agricultural Policy. But I must say I do sometimes wonder how exactly the apparent miracle w ill be accomplished in practice. All the nations concerned are out to protect their own farmers by one means or another and most are reluctant to do so by individual means involving deficiency payments, even if that were not contrary to the whole present philosophy of the Community. Perhaps we might consider some arrangement—this may be a contentious suggestion: I do not know—whereby the agricultural Ministers, when they meet, are occasionally flanked by Foreign Office officials or Department of Trade officials, or even by Ministers, who might possibly regard debates on, for example, dairy products from, shall we say?, a rather more general point of view. I do not see why this should not be considered if the situation got really out of hand.

Another possibility—and I only throw this out—might be for the Ministers to attach more importance than they seem to do at present to any resolutions on the Common Agricultural Policy passed by a suitable majority in the European Parliament. After all, members of the European Assembly, whatever their political affiliations, of necessity regard European problems, including agricultural problems, from a broader and less nationalistic point of view than national Ministers. It may thus well be that some kind of compromise solution of agricultural difficulties could best be formulated by the Assembly, in close co-operation, of course, with the European Commission.

Anyhow, unless the EEC is to break up or become completely stagnant (which would be much the same thing) and God forbid it should happen—it really must, and quite soon, arrive at some solution of the agricultural problem, even if this should involve some partial reversion to deficiency payments, which I think is what was suggested by the noble Lord, Lord Soames. When and if that happy moment comes, then it will also be necessary to increase the "own resources" of the Community to a considerable extent, notably by increasing by some percentage the VAT contribution of members, in order to finance a regional policy, to say nothing of a common transport and industrial policy. The advantages of so doing would be so enormous that even national politicians, I believe, will have to contemplate such possibilities within what is commonly known as "the foreseeable future".

Perhaps as a start in reforming the Common Agricultural Policy,—and here I entirely agree again with what was said by the noble Lord, Lord Soames—the Governments might agree on one thing: that is to say, some appreciable reduction in sugar production in the Community. If I heard him aright, I understand that some initiative has already been taken and a start has been made in that direction. I did not realise that when I drafted my remarks. As a contribution towards the development of the underdeveloped nations, such a gesture would be enormously welcomed and even if home farmers objected—as they would, of course, sugar beet being such a helpful and such a profitable crop the sacrifice would surely be toleraable if it were only moderate and general. This said, I hope the report will commend itself to this House and join the numbers of those reports which, increasingly, so we are told, or credibly informed, are consulted by experts all over the Community and notably in the European Parliament and in the Commission.

4.47 p.m.

Lord Sainsbury

My Lords, Committee B, under the very able and distinguished chairmanship of the noble Lord, Lord Greenhill, are to be congratulated on producing a most valuable report. It is an extraordinary fact, which the report brings out in its first paragraph, that the EEC treaty does not include provision for common agricultural trade policy in the way it does for common agricultural policy and common commercial policy. In my view, as I have said in previous speeches this is due to an obsession with production.

The disposal by the EEC of its surpluses on the world market at heavily subsidised prices has not only depressed world markets but has also displaced long-established exporters from markets they have served for many years. As the report states—and I quote— Issues of agricultural trade continue to irritate relations between the Community and some of its main trade partners. This has affected not only developing countries but the developed. The need to find markets outside the Community for its surpluses and its policy of protecting its home market has led to a distortion of trade, as is so well stated by the World Bank in its 1981 development report. I quote again: Agricultural trade is everywhere severely distorted by national price support and protection policies, epitomised by the EEC's Common Agricultural Policy. Article 110 of the Treaty of Rome includes the harmonious development of world trade, but this policy does not appear to have been followed in the case of agriculture.

One of the objectives of the treaty, as we all know, was to ensure the availability of supplies. This has led to the aim of self-sufficiency, though there was no explicit reference to self-sufficiency in the treaty. Increased production, encouraged by high support prices, and, in the case of some commodities, static consumption, has led inevitably to the creation of large surpluses. The EEC is now more than self-sufficient in many commodities; for example, dairy products, wheat, barley and sugar. But, as the Ministry of Agriculture pointed out in its evidence, Community self-sufficiency is to some extent illusory, in that it is dependent on imported fertilisers, fuel and feedingstuffs. Also, producing internally in the Community what can be more efficiently produced elsewhere leads to a serious waste of total world resources.

I have already referred to the way in which the common agricultural policy has led to serious difficulties in our relationships with the Commonwealth and other countries. May I now be more specific and deal with sugar? This is of particular concern to developing countries. As I said in a speech on the common agricultural policy on 17th April, 1980, at column 447 of Hansard: For certain developing countries, sugar is their only export crop. It is often their sole means of earning vital foreign currency. But it is not of concern only to developing countries. As the noble Lord, Lord Soames, said recently, Australia and nine other governments have filed a comprehensive complaint in the GATT against the export of Community sugar at heavily subsidised prices. The noble Lord, Lord Soames, also said that the Australian Government has estimated that the EEC's share of the world "free market" export trade in sugar increased from a 7-year average of 7.8 per cent. in 1975 to 22.4 per cent. in 1978. A few days ago, the London daily price for raw sugar was £95 per tonne. The last time it was this low was in 1972.

Turning to dairy products, although the butter mountain has for the time being largely disappeared, its return may be imminent. As the Ministry of Agricuture, Fisheries and Food witness said in evidence: It has gone, but the shadow is still there. A series of reasons have done the butter mountain temporarily in. The butter foothill will be back with us in a year. In the early days of the United Kingdom's entry into the Community, quite naturally New Zealand was very concerned about its effect on its agricultural exports. They are now largely reconciled to a smaller share of, for example, the United Kingdom's butter market compared to their exports before our entry. But what they are still very concerned about is the Community's subsidised competition, which has impeded New Zealand's efforts to develop satisfactory alternative markets.

I now turn to grain and to one of its greatest producers—namely, the United States—where some ex-perts predict the worst farming crisis since the Great Depression. They fear that a large proportion of the millions of bushels of grain which American farmers will reap this year will have to be added to the heavy stocks that have been carried over from the previous harvest. In these circumstances, one can understand the increasing importance of foreign markets.

According to the United States Secretary of Agriculture, the United States provides 45 per cent, of the world's exports of wheat and 70 per cent. of the world's exports of feed grains. Key markets, such as Latin America and China, are now receiving large quantities of Community subsidised wheat, jeopardising traditional United States trade with these countries.

There therefore seems, in my opinion, a strong case for the Community to discourage increased production resulting in more subsidised exports. Their original aim, over a period of years, of bringing wheat prices nearer to the world level should not be forgotten. What is more, these prices should apply only to an agreed level of output or quota. The Economist, in a recent number, put the matter far more forcibly than I have: Raising prices to the producers of a glut that is harming your most powerful ally is bad politics and worse economics. Of course, we should not pretend that the United States are entirely blameless in their agricultural policies. They recently introduced a system of import quotas for sugar to protect their own producers against depressed world prices, although they claim that it is only a temporary measure. They have also, as a consequence of their support programme, developed large dairy surpluses, which will reach an estimated 200,000 tonnes of butter, 371,000 tonnes of cheese and 545,000 tonnes of skimmed milk powder by August. The US claim that they will not deal with these surpluses in the same way as the EEC, but it seems certain that they will eventually have to be unloaded on to the world market.

Other dangerous ideas have emanated from the Commission from time to time which would further harm our trade relations with other countries. One example is the proposal, shelved for the time being, to limit to 3 million tonnes a year the amount of corn gluten imported into the EEC from the USA without duty. The Americans view this idea with dismay. The possibility that they will take retaliatory action seems to be supported by their recent action over aids to the European steel industry. Another disturbing proposal in the EEC's efforts to limit its imports of cereal substitutes is further to restrict imports of manioc from Thailand and Indonesia. I have, on a previous occasion, spoken about the very serious potential consequences of such a measure for the economies of developing countries.

One further idea which is harmful to the interests of the third world countries is the imposition of a levy or tax on oil seeds and vegetable oils and fats. These are attempts to solve the surplus problem in one sector by increasing the price of competitive products—in other words, an attempt to increase the consumption of butter by making margarine dearer and, similarly, increasing the consumption of olive oil by making other vegetable oils dearer. Once again, consumer interests do not appear to be considered. These ideas seem to me to be the economics of the madhouse and must be resisted.

In conclusion, may I say that, as one who advocated and welcomed British entry into the Community and who believes it would be a major disaster, both on political and on economic grounds, for us to contemplate withdrawal, it gives me no pleasure to be a continuous critic either of the Commission or of the operations of the common agricultural policy. Nevertheless, we should not ignore the inadequacies of the present policies, and I thoroughly agree with the view of the Committee that it is desirable for an explicit agriculture and food trade policy to be formulated. More important is the need to limit the production of large surpluses, which are the root causes of the understandable complaints of our trading partners throughout the world.

Reform of the common agricultural policy has been discussed now for a long time but little progress seems to have been made. Is it too much to hope that member countries will concentrate less on their narrow self-interest and live up to the harmonious development of world trade which is laid down in the Treaty of Rome?

5.3 p.m.

Lord Oram

My Lords, those of us who serve on Sub-committee B of the European Communities Select Committee have very good reason to appreciate the way in which our chairman, Lord Greenhill of Harrow, guides us through a series of complex issues. This subject of agricultural trade policy is but one example, and by no means the most simple, of the subjects with which he has helped us to deal, and we appreciate his chairmanship.

In opening this debate he has explained that the question before us was—and is in this debate—how the common agricultural policy affects the agriculture and food trade of non-member countries. Those non-member countries are, of course, very numerous and very varied. They range from the great granaries and meat-producing lands of the world to tiny, sugar-producing tropical islands. Therefore any analysis of the effect of the common agricultural policy on their trade and on their economies must be complex. This means that to make, briefly, any useful comment on this subject one has to be selective.

For my purpose, I have selected the effect of the Community on the agricultural economies of developing countries. Throughout the report there are many references to this aspect of the problem—so much so that I have reflected, somewhat ruefully, that perhaps the committee, in organising the sessions for the oral examination of expert witnesses, did not give sufficient specific attention to the agricultural trade of the third world. Certainly I am not complaining about the submission of written evidence in this respect from Government departments, because the document which we received from them was most comprehensive and a very valuable compendium. I have it in mind, rather, that it was not until the second half of the last sitting that we had the benefit of an expert witness on developing countries. On reflection, I think that was a pity. I am not blaming anybody—except, perhaps, myself—for this. I could and perhaps should have asked for more information, but I failed to do so. However, I should like, as I have said, to comment to a degree on the problem of the third world over this matter.

My first reflection about the EEC's trade relations with developing countries is that the developing countries, too, are a very varied bunch. It is not easy to draw any general conclusions, because the overall category which we call "developing countries" contains several sub-groups, with varying and very often opposing interests within themselves. There are, for instance, those developing countries which benefit from the LoméConvention and those which do not. There are those which import food and those which export food. There are those which are very poor and those which are not so poor. And 10 of the countries which the United Nations lists as very poor do not benefit from the LoméConvention. Those countries include India and Bangladesh. So, as I say, it is very difficult to generalise.

In thinking of the effect of the common agricultural policy on the third world, it depends very much which particular commodity and which particular country one has in mind. Nevertheless, I do believe it is possible to discern three basic needs of almost all developing countries. It is perhaps useful to examine the effect of EEC policy in respect of each of these three. The first is access to the European market. The second is the need for stability of prices. The third concerns the sound development of third world economies, particularly their agricultural economies.

First, as to access, basically—as has been pointed out by the noble Lord, Lord Sainsbury, and others—the common agricultural policy is protectionist. It protects European producers against competition from producers, including those in the third world, who have some form of comparative advantage and who, but for the common agricultural policy, would be able to enter the European market much more fully and much more profitably than they are allowed to do. The report points out, moreover, that, even from the European point of view, this protectionist nature of the common agricultural policy is self-defeating, because, as the report says at the top of page xxvi: [Liberalisation] would be the surest way for most developing countries [to increase] their ability to afford to buy EEC exports both of agricultural and industrial goods". In addition to this general protectionist defect, there are other harmful effects of CAP protectionism against the Third World. For example, as I have suggested, the Lomé Convention sets one group of developing countries against another. With this in mind, the sub-committee in its earlier report on Community aid policy advocated extending the provision of the Lomé Convention to a much wider group of developing countries. Then, even when primary products from the Third World have reasonably free access to the Community, as indeed they do, there are undesirable barriers to the import of such products in a processed or semi-processed form. This must have the effect of preventing Third World countries from raising their economies to a higher level of development.

Thirdly, some developing countries with a climatic and cost advantage—such as Kenya—would be able to develop a European trade in, for example, vegetables but for the imposition of import levies under the CAP. On the question of commodity prices, it was on the basis of the opinion expressed by one of our witnesses, Dr. Christopher Stevens of the Overseas Development Institute, that our committee was able to include in its report what I believe to be a pertinent, critical comment on the attitude of the EEC to the question of international commodity agreements. This opinion of Dr. Stevens, which we endorsed, is set out in paragraphs 39 and 40 of the report. It is to the effect that the Community has been helpful in joining those commodity agreements which suits its own interests—that is, when the commodities are those which the Community needs to import, such as coffee, cocoa and rubber. But the EEC has been unhelpful in not joining the sugar agreement, the benficiaries of which are likely to be developing countries and not the sugar beet producers of Europe. That is perhaps a back-handed compliment to the Community but one which it deserves. I believe it is a criticism that is properly directed and I certainly support the report's firm recommendation in paragraph 67(d) that the Community should join the International Sugar Agreement.

Finally, there is the question of the development of agriculture within developing countries. In this connection I should like to call attention particularly to paragraphs 37, 38 and 60(e) of the report. These deal with that vexed question of cheap food exports from the Community to developing countries and the associated question of food aid. Opinions vary widely—and they did within the range of witnesses whom we saw—as to whether these policies are beneficial to developing countries or not. I believe the truth is contained in all three paragraphs to which I have referred. Obviously, both cheap food exports and food aid from the Community can in the short run be of benefit to developing countries, particularly those which need to import significant quantities of food. But there is the long-term danger that if they come to rely too much on such sources of food, they can, and here I am quoting from paragraph 37: …reduce the incentive for developing countries to invest in their own food and agricultural production for both domestic consumption and for export. That is where the dilemma lies. On the one hand there is the obvious short term benefit to developing countries from cheap food and food aid but on the other hand there is the disincentive to develop soundly their own agricultural policies. Surely it ought to be possible to escape from this dilemma. If we can ensure careful administration of food aid projects and if developing countries do pursue sound internal policies, we can get the best of both worlds; both the short-term advantage of cheap food and the long term advantage of greater food production in developing countries. I am not saying this is easy, but I do believe it to be possible, and certainly that should be the objective.

The Community's aid and trade policies should have this problem in mind and those policies should be adapted and pursued with that objective in view. That is the summary of the Committee's conclusions as I see them with regard to the effect of the Community's agricultural trade policies for the welfare and development of the developing countries.

5.16 p.m.

The Minister of State, Ministry of Agriculture Fisheries and Food (Earl Ferrers)

My Lords, when the noble Lord, Lord Oram, began his speech he paid tribute to the noble Lord, Lord Greenhill of Harrow, who, he said, guided the Committee through a series of most complicated subjects. I am quite certain that the noble Lord, Lord Greenhill of Harrow, did that. This evening, he has introduced a debate of vast complexity, and, if I may say so, I admire enormously the skill with which he managed to encompass such a wide range of matters in the opening speech with which he introduced this debate.

The debate is on agricultural trade policy. I am bound to say that I find this one of the most difficult debates to which to respond because, of course, there is no agricultural trade policy to start with. But as the report itself makes out, there are in reality very many different strains of policy at issue here, centering on the provisions of the common agricultural policy itself. The Select Committee on the European Communities have indeed done a great service to the House in producing this report. For the first time, to my knowledge, one of the Houses of Parliament has before it a report which focuses specifically on the external aspects of the common agricultural policy. Because there are so many different factors at work the Committee has had a very difficult task of analysis, but one which has enabled your Lordships today to look at agricultural policy from a different perspective to that from which it is normally surveyed; that is, its impact on world trade. I should like to pay my modest tribute to the Committee and its members for the way in which they have pursued their work in such a wide and complicated field. Of course, the common agricultural policy is a vast subject. It has implications which touch on a whole host of separate subjects. Perhaps one might think for a moment about just what these are. On the one hand, one has domestic considerations, such as securing a fair living for our farmers, increasing agricultural efficiency, providing food at reasonable prices for consumers, and producing a commonality of régime between member states.

Those are very difficult problems—but that is only one side of the coin. The other side is the international aspects, such as our trading relationships between the Community and the developed countries, our responsibilities towards developing countries, not only their needs but also their exports, and achieving some balance between the need not to upset or to distort international trade and the need to dispose of food which is surplus to the internal requirements of the Community; and also, of course, the moral problem of the least developed countries and the hungry. I am glad that the noble Lord, Lord Oram, referred, as he has on other occasions, to this aspect, because I think this is important. It is also important, as the noble Lord, Lord Oram, said, that one tends to lump together by description the under-developed countries, whereas in fact their needs and requirements are different; therefore, it is dangerous to consider them as just one group requiring similar attention.

The noble Lord, Lord Greenhill, said that agricultural Ministers had had it their own way. As a result, he said, agricultural Ministers in the Community had agreed to high prices which had created too great surpluses, which therefore had to subsidise exports and which thereby interfered with the trade of others. I think in a large measure I would have some sympathy with what the noble Lord has said. My noble friend Lord Soames said that the common agricultural policy is frequently criticised, and he said that two ways in which it has been criticised were unfair, but the one which was fair was that the charge of disrupting trade with other countries did stand up. My noble friend went on to suggest that if Japanese cars were exported with subsidies on them we would all squeal like stuck pigs. I think that applies at the moment whether the cars have subsidies on them or not. But I think there is a difference here. I do not wish to dwell too much upon it. The manufacture of cars is a totally commercial undertaking, maybe of economic significance, but the problem which we are discussing this afternoon is the problem of food, which is not only of national importance but human importance, and therefore the two are not wholly similar.

In the discussion of this problem I think we should not lose sight of one of the contradictory factors, which is that two-thirds of the world today is underdfed while the other one-third produces more than it can eat. And yet the countries of the two-thirds who are underfed cannot afford to purchase the surpluses from the one-third who produce them. This is a moral, economic, political and human problem of great size. I still find it astonishing to think, as I have said before to your Lordships, that there are now 50 per cent. more people in the world than there were at the end of the last war. And the plain fact is that they can only be fed by agriculture and by international agriculture. It is to me almost an obscenity and an absurdity that our surpluses should in fact be creating problems rather than solving them. It is this, I think, to which the Community in the fullness of time will have to direct its attention much more.

Your Lordships' report brings out very clearly that there are a number of apparent contradictions, and even conflicts, between the different interests which are affected by the common agricultural policy. It emphasises, quite correctly, that the Community's external trade policy in agricultural products is primarily a derivative of its internal agricultural policy. This is absolutely at the heart of the matter. The noble Lord, Lord Peart, said that European Community prices should not be too much above world prices. I think that is true, and it is something which this Government certainly have tried to impress upon the European Community in their negotiations. The common agricultural policy, in common with agricultural policies of many other countries, is formulated primarily with domestic considerations in mind. The fact that that was how the CAP started may be right or wrong, but that is the position in which we find ourselves. The Government continue to maintain their view that improvements in this are needed. We are indeed grateful for the contributions from your Lordships suggesting how this should come about.

The noble Lord, Lord Sainsbury, and the noble Lord, Lord Peart, both referred to the prospect—one must put it no more than that, because I think it was a newspaper article—of a national slump in agriculture in America. This would be a frightening prospect and would affect many people and many industries. Clearly this is partly the effect of United States' interest rates and the general world recession. The United States traditionally produces about 60 per cent. of its agriculture for export. It has benefited from the large scale of its agriculture, which was established recently on virgin lands. The Community, though, is different, in that it has had to rid itself of the inheritance of the fragmentation of holdings and of inefficient farming practices which have been carried on over the centuries. Therefore, the conditions of over-supply on world markets are naturally a severe threat to the United States' agriculture and its exports. Perhaps it may be that all developed countries should examine their agricultural production policies and not just the European Community alone.

Of course, in a perfect world agricultural output, whether within the European Community or outside it, would be geared to meet the world's requirements. But the fact is that it is an impossiblity in agriculture to get supply and demand in equilibrium. Natural forces such as the weather and disease are unpredictable and uncontrollable. And a small shortage over requirements has a totally electric effect on price and on demand, an effect which extends much further than just to the commodity which is in shortage. Therefore, I suggest to your Lordship that in criticising the common agricultural policy—and heaven knows we are all entitled to do it and it is very much open to criticism in many spheres—for permitting surpluses, or even planning for surpluses, is not necessarily fair, because it can be regarded as a prudent insurance exercise. In times, and in commodities, of surplus this does affect others, and it does and can distort trade. I do not seek to excuse the Community's chronic surpluses, of which many of your Lordships have spoken, of some very important commodities. Indeed, it has been the policy of this Government to try to get the Community to reduce its surpluses and to lower the prices of those commodities which are in structural surplus.

Lord Soames

My Lords, would my noble friend permit me to intervene? I think it would be a pity if he left with us the view that Her Majesty's Government are of the opinion that, to take, for instance, the production of sugar having risen from 5 million to 9 million tonnes over a period of a few years, was, to use his own words, a sensible insurance policy.

Earl Ferrers

My Lords, I am coming to sugar in a few moments. I would not wish my noble friend, nor would my noble friend wish, to distort or put a wrong impression on what I have said. All I was trying to say was that to allow for, or even to plan for, a surplus in general is not necessarily a wrong thing, because shortages, which are the other side of the spectrum, can be even more of a problem. But I will come to the question of sugar later.

Against that background some kind of conflict of interest between domestic producers and those in other countries is, in fact, inescapable. It is clear—and the committee are right to emphasise this—that the Community cannot exist in isolation even behind the walls of the common agricultural policy. The Community is, if it is not the major world trader, certainly a major world trader, and it has a duty to act responsibly in the conduct of its affairs. I do not think that anyone would disagree with that as a general principle. The difficulty is interpreting this principle in day-to-day terms.

The noble Lord, Lord Greenhill of Harrow, emphasised that the committee recommended that the Commission and the Council of Ministers should be charged with the task of producing an explicit agricultural trade policy. While I appreciate the feeling behind that, I think that it is precisely because of the variety of responsibilities and the impacts which arise from the combination of agricultural and commercial policies, that the makings of an agricultural trade policy is an almost impossibly difficult thing to do.

Let me elaborate a little. It is wrong to suppose that there is a single world market in agricultural products generally, with a single set of trading relationships. In some commodities, for example, the Community is a net importer; as regards others it is a net exporter. In a few cases—for instance, in pork and bacon—most of the world trade takes place within the Community. Indeed, it is generally true that across the whole spectrum of trade, member states of the Community have their largest market within the Community. Therefore, while trade with third countries remains vitally important, in Community terms it is a relatively small proportion of total Community trade and it would not necessarily be right to subordinate all other policy considerations to that. Account obviously has to be taken of different interests in each case according to its merits. That is what the Community's frantically complicated tariff and levy systems, attempt to do. They may not always succeed.

The noble Lord, Lord Gladwyn, said that agricultural ministers should be flanked by foreign ministers and by ministers of trade. I would only assure him that agricultural ministers do not operate in a vaccum of their own; they consult with other members of their Government and they merely represent the Government as a whole. It will not have escaped the notice of the noble Lord, Lord Gladwyn, that there was an occasion only a few months ago when the United Kingdom took a line which was individualistic because there were other considerations to be borne in mind and which caused the drama that we had over the last price fixing. Therefore, he would be erroneous to think that agricultural ministers operated on their own.

Lord Gladwyn

My Lords, I am relieved and surprised to hear it.

Earl Ferrers

My Lords, we have achieved something by this debate and I am glad to be able to enlighten the noble Lord. I never thought in all my years that I would ever be able to do that.

The report rightly refers to the Community's relations with developing countries. Clearly special considerations must apply here and the noble Lord, Lord Oram, addressed his mind to that particulat fact. No other developed country—if one can consider the EEC as a country—operates a scheme which is comparable to the Lomé Convention under which virtually all agricultural exports of 61 African, Caribbean and Pacific countries enter the Community duty free. That is quite a concession and it is a recognition of the vital needs of these developing countries.

My noble friend Lord Soames and the noble Lord, Lord Sainsbury, referred to sugar. It is perfectly true that sugar exports from the Community have gone up 5.8 times since about 1973. The Community's sugar exports have gone up. it is perfectly true that sugar production in the Community has expanded. But under the Lomé Convention the Community now imports 1.7 million tonnes of sugar from the developing countries and part of the agreement, was that by taking this large amount from the developing countries' sugar production into an already tight market, the Community would be allowed to export a similar amount in addition to its traditional levels. So the Community does act, I hope, responsibly towards developing countries as regards sugar. No other developed country or group does as much. The Community is, indeed, at present holding nearly 2 million tonnes of sugar off the market in order to try and regulate it. My noble friend Lord Soames said that we ought to have production quotas on some other items.

Lord Soames

My Lords, I apologise for interrupting my noble friend again, but before he proceeds I should like to raise one matter. It would be a mistake to try and take too much credit for importing 1.7 million tonnes from the Lomé countries, of which 1.3 million tonnes come as a hangover from our own Common-wealth Sugar Agreement, as we are exporting 5.4 million tonnes. To import 1.7 million tonnes because we are committed so to do, and then to go on and produce so much more at home as to be exporting 5½ million tonnes is not really much of a dividend.

Earl Ferrers

My Lords, my noble friend is perfectly fair, as he always is, but he will be the first to recognise that there was an expected expansion in the sugar market.

Lord Gladwyn

My Lords, why?

Earl Ferrers

My Lords, the noble Lord says "why"? I am saying that there was an expected expansion in the sugar market which, for a variety of reasons, did not come about. It so happens that the Community's system has resulted in a surplus of sugar and that I entirely accept. It may be that one ought to try and reduce the surplus of sugar in the Community.

Lord Gladwyn

Hear, hear!

Earl Ferrers

My Lords, the noble Lord, Lord Gladwyn, who is so vociferous in saying, "Hear, hear", will, I know, repeat, "Hear, hear", when I tell him that there was an occasion when the Community exported sugar and made a profit on so doing of some considerable sums of money. Of course, it is not easy to get the balance right and we want to see the balance right. It may be that the imposition of quotas, not only on sugar but on other commodities as well, might be a possibility and it is an interesting example which we could try and follow. However, I would only draw the following distinction. It is easier with sugar because most Community countries did have some form of sugar quota because the sugar which was produced had to be processed and had to go through factories. That is not so with other commodities and it would be very difficult to get commodities, such as wheat, to go under a quota system. However, it is certainly a point worth looking at.

The committee suggested, but I do not think that your Lordships have suggested it so much this evening, that the degree of preference which the Lomé Convention allows, discriminates against those developing countries which are not in the scheme. This is, of course true, but those who are in the scheme are there precisely because of the Community's sense of responsibility towards those who are our former colonial and dependent territories. One obviously cannot have it both ways. If one recognises these historical responsibilities, then one has to make special provisions for them.

But there is for those who are not in the Lomé Convention, the Generalised Scheme of Preferences. It is true that this is less generous than the Lomé Convention, but the Generalised Scheme of Preferences does extend to a total of 146 developing countries, and the 36 which are classified as least developed benefit from entirely free access to virtually all the products under the scheme. The committee made some specific recommendations about it. The first of those referred to self-sufficiency—a matter to which I think others of your Lordships have referred this evening and I think that the noble Lord, Lord Sainsbury, certainly insinuated that we should give less emphasis to it

The Government do not support the pursuit of self-sufficiency—whether it is in the United Kingdom or in the Community—just for its own sake. But a certain amount of protection for home production must be justified, if only on strategic and economic grounds. One merely has to look back at the recent events in the South Atlantic to see that one of the countries which has been a traditional supplier—and an important one—of beef and other food to us is now caught up in a different set of circumstances. We cannot be too dependent, and it would be short-sighted to discount the strategic value of adequate home production.

I would emphasise that the price levels of the Community have to take factors of this kind into account. I do not wish to dwell on that unduly tonight, but I would just comment that the price levels, which are fixed, are, of course, one of the major factors behind the generation of surpluses, and this, in turn, lies at the root of many of the problems of external trade. I would remind almost every noble Lord—certainly the noble Lords, Lord Sainsbury, Lord Gladwyn, Lord Soames and Lord Greenhill (that is almost everyone, except perhaps the noble Lord, Lord Oram, and I might have missed him out inadvertently)—that the Government have a record of constantly badgering the Community not to increase prices over and above a reasonable limit and particularly those in structural surplus, because this creates the very surpluses to which this evening your Lordships have been addressing your minds and about which you have been so concerned. The percentage of the Community budget which is spent on agriculture is now about 65 per cent. as against 80 per cent. or so a few years ago. That is a reasonable and encouraging improvement.

The noble Lord, Lord Greenhill, referred to the introduction of supply agreements, and he referred to it with caution. This is also a matter which concerned the Committee. I can tell the noble Lord that the Government are not convinced that these are necessary. The Community already has a wide range of ways in which it can promote its agricultural exports—such as refunds, which can be prefixed some months ahead. I agree with my noble friend Lord Soames that there is a risk in introducing "supply" or "long-term" contracts in that these could increase, rather than reduce, the costs of the Community's exports. By making a commitment to supply certain agricultural goods, the Community might appear to be encouraging producers to increase their production yet further, and so to continue the production of surpluses. A further cause for concern is the fact that the introduction of such agreements could clearly upset some of the Community's major trading partners. In any further discussions of supply contracts there are a number of aspects which we shall want to watch very closely.

I know that there have been complaints—and your Lordships have mentioned them—in GATT against the Community's use of export refunds. Her Majesty's Government have always sought to ensure that the Community respects its international trading obligations, especially those under GATT. We must be careful not to prejudge the outcome of the current cases which are being considered by GATT, but I think I must point out that GATT does allow the use of export subsidies for agricultural products, subject to certain conditions.

The noble Lord, Lord Greenhill, referred to the complaint on sugar in GATT, as I believe did the noble Lord, Lord Sainsbury. Ten countries have made a new complaint under GATT rules on European sugar exports. The normal procedure for disputes under GATT is for them first to ask for consultations. The European Community has agreed to bilateral talks with these complainants and we shall have to await the outcome of those discussions. Your Lord-ships should also be aware that the United States, which had previously complained about European Community sugar and other matters this year, has, in fact, withdrawn that complaint.

As I have said, we have a number of imports from the Lomé countries. While on the point of GATT, I would disagree with one part of the report, where it says that the Community has not been ready to discuss in GATT the effects of the common agricultural policy, or to take action when it is ruled against. The fact is that apart from that to which I have just referred, the only recent GATT ruling on export subsidies was in 1979 in the case which was mounted by Australia and Brazil on sugar. This called only for discussions to take place, and they did so exhaustively up until a month or two ago when the cases were finally closed. The conclusion of the GATT panel which studied this was that there was a risk that Community policy did not conform with the rules of GATT, and the Community immediately changed that policy so as to conform. Therefore, I do not think that it is correct to state that the European Community will not discuss the effects of the CAP on GATT or change its policy. It has done so, it does do so, and it is doing so.

With regard to the international commodity agreements, these have to be considered on their merits in the light of the Community's position as an importer or an exporter and in relation to the other countries concerned. On the specific question of Community accession to the International Sugar Agreement, to which two noble Lords referred—and I think that, curiously enough, the noble Lord, Lord Sainsbury, was one of them—it is a fact that the United Kingsom has always been in favour of this, provided that equitable terms can he negotiated.

The noble Lord, Lord Sainsbury, also referred to maize gluten. In our view, maize gluten feed is not a straight substitute for cereals. It is high in protein, and the Community has a large deficit of protein for animal feed. Raising the levy on this would push up costs to our livestock industry while doing little for the cereals sector. Therefore, we do not favour the proposal on agricultural grounds. In addition, it is clear that if the Community restricted this trade, the United States would also take reprisals on some other lines of trade. In our view it makes no sense to start such a confrontation. I am glad to tell your Lordships that the latest news which we have from Brussels is that, in response to pressure from the United Kingdom and from other delegations, the proposal appears to have been shelved.

Both the noble Lords, Lord Greenhill and Lord Sainsbury, referred to Thailand and to manioc. The European Community has initialled an agreement with Thailand over manioc and this maintains the current trade levels. In return for restraining expansion of current Thai production levels, which in any case had been distorting their own trade, they will be able to be in receipt from the Community of some offers of help for future development of their own agriculture.

In this debate we have covered a very wide field over what is a very complex subject and over which the issues are conflicting. I believe that the committee's report has done a great deal to help and has done a great service in exposing these questions. It is quite clear from what has been said that the tentacles of the common agricultural policy extend far wider than just European farmers and European consumers. Their influence across world trade affects an enormous range of different interests. I think that your Lordships' debate this evening has highlighted some of the major areas of difficulty and, in that respect, it will have proved very helpful.

Lord Greenhill of Harrow

My Lords, I shall not detain the House for more than a moment. There are already two debates stacked up behind us and the participants in those debates have been very patient. I should like to thank the noble Earl, Lord Ferrers, for his comprehensive reply to the debate and I would thank the speakers who have participated. We have had two former Ministers of Agriculture, one former Minister of Overseas Development, an internationally acclaimed expert on European affairs and the most successful and admired food retailer. All these have added greatly to the authority of the report, and I acknowledge now to the noble Baroness, Lady White, that the committee was wrong in hesitating to bring this subject for debate on the Floor. I think that the debate has been extremely useful. Thank you very much.

On Question, Motion agreed to.