ECC 7th Report: State Aids to Agriculture

HL Deb 06 May 1982 vol 429 cc1314-43

7.7 p.m.

Lord Cledwyn of Penrhos rose to move, That this House takes note of the report of the European Communities Committee on State Aids to Agriculture (7th Report, 1981–82, H.L. 90).

The noble Lord said: My Lords, the subject of state aids to agriculture is one of the most important our committee—that is, Sub-Committee D—have examined and, given the obvious limitations imposed on us, I think we have produced the useful report. It may also be thought that we have performed a practical service, if only in providing a readable guide which explains the way in which the system works, with its complexities and defects. That is discussed in the report under the heading "Evidence and Analysis" in paragraphs 17 to 95.

I must thank all those who have co-operated to produce the report. I refer to my colleagues on the sub-committee, who devoted a great deal of time to it and who are all expert in some aspect of agriculture. It is a splendid committee. We are grateful to our clerk and specialist adviser for their invaluable contribution and of course to all the witnesses on whose thoughtful evidence the report is based.

Some of us visited the Commission in Brussels and we much appreciated the help we received there from DG IV, DG VI, the United Kingdom delegation and COPA, as well as the legal division of the Commission. We had the impression that officials there were glad that we were undertaking the task. But why did we undertake it? At the start, we wondered whether we would be able to accumulate sufficient material to justify the exercise. There was an element of the unknown about the scene as we surveyed it. But we were encouraged to take the plunge not only because of the importance of the subject but also because we hoped to dissipate some of the mystery which surrounds it. We know of course that many farmers in our country harbour a deep suspicion that their counterparts in other countries are more favourably treated, and when we were examining fruit and vegetables in the last session we came to the conclusion that aids in that sector might confer a competitive advantage upon the countries concerned.

It was at that time also that we experienced some frustration when it was brought home to us that the register of national aids, which Article 93 of the treaty enjoins the Commission to prepare and keep up to date, is unavailable to all save Commission officials. Our concern became more acute when we were studying the common agricultural policy and discovered that member states were providing in the aggregate more funds for national aids than the whole cost of the CAP. That is something to be pondered. How, we asked ourselves, can people be satisfied that the system is equitable, that competition is fair, as laid down in the treaty, if the information about national aids is not made publicly available? It was in that spirit that we embarked upon our study.

Perhaps at this point I should deal with the Commission's inventory because we achieved some success in our efforts to penetrate this inner sanctum. This voyage of discovery is dealt with in paragraphs 43 to 52. In the course of our inquiries, during our visit in Brussels, we discussed the inventory. It was clear to senior officials there that it was of central importance to us, and it was agreed that it should be made available to the Committee. We felt that that was a significant breakthrough, and we are very grateful for that gesture. The inventory is available in a certain form in the Ministry of Agriculture here in London and it is, as may be imagined, a formidable document. It comprises nine volumes dated September 1977, and covers state aid to agriculture and fisheries granted in 1974.

The volumes in respect of Denmark, France, Germany, Ireland and Luxembourg are supplemented by the latest available updating, while four in respect of Belgium, Italy, the Netherlands and the United Kingdom have been superseded by more recent, self-contained "own language" inventories. I must refer the House to our criticisms in paragraph 50 and our comments in paragraphs 101 and 102. We strongly urge a policy of greater openness and the availability of the inventory for public scrutiny.

As the House will note in the report, state aids can be divided into different categories, but I want to look briefly at a fairly basic division—namely, and in the first instance, aids which are both legal and reasonable; secondly, aids which are legal, but which, for one reason or another, are distortive; and, thirdly, and lastly, aids which are illegal and in contravention of the treaty.

On the first point, there are allowable aids, some of which have continued since the Community came into existence; they meet special circumstances, conditions, or hardships. In an ideal world total harmonisation would be possible, but this is not an ideal world, and although there are some who point out that all aid is distortive, there is no practical possibility that all aid can be abolished. We state in our report that the formal position under the Treaty of Rome, whereby any aid granted to a member state which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods", is incompatible with the Common Market. This is why there are a range of exceptions to the rule. What we say, and what we believe, is that all steps must be taken to ensure that the exceptions are absolutely necessary and absolutely fair; that no country moves stealthily to give an aid which will place the farmers of another country at a disadvantage. We know that there are political pressures, but if the system is to work, then Governments must try to be fair.

The House will also note that in paragraph 97 the committee stresses that, even in the improbable position that total harmonisation were to be achieved, distortions to competition would still arise from, national differences in such matters as taxation, credit facilities, wage and other input costs and land ownership systems". Those are differences which can be expected to change only over a very long period.

The report further remarks that: an aura of suspicion, characterised by much emotive and uninformed comment, surrounds the whole area of state aids". It attributes this in part to the, ambiguity in the provisions of the Treaty of Rome relating to the rules of competition and their application to agriculture". Paragraph 98 poses the problem clearly, and ends by saying that, a balance has to be struck between the distortive effect of a particular aid on the one hand and its … furtherance of the objectives of the common agricultural policy on the other". We found this to be difficult territory to traverse.

I come to my second point; namely, that there are aids which are perfectly legal, but which are also distortive. The Guiscriff turkey plant case, referred to in paragraph 95, is relevant in this context. It raises issues of wide-ranging significance in that, while each individual aid to the plant is probably admissible under the treaty, taken together they could have a serious distortive effect on competition. If the Guiscriff case were to be copied in other sectors of agriculture, you would have an impossible situation. We urge the Commission most strongly to consider how this type of distortive effect can be contained and avoided.

The Ministry memorandum on page 125 of our report is very interesting, especially in its comparison between French aids and British aids, and I hope that if noble Lords have not studied this part of the report, they will do so. Although the Ministry states that it is difficult to make comparisons, it adds, on page 127, that French aids are, considerably higher than those normally likely to be available to turkey processors in the UK". When he replies, the Minister may wish to comment on that, and tell the House whether there has yet been a response from the Commission itself on the problem.

The other main national aids brought to our attention include the package of aid to farmers granted by the French Government at the end of 1980, a similar package of measures announced in December 1981 by the French Government, and the preferential tariff for heating fuel available to hot house growers in the Netherlands. Paragraphs 86 and 87 describe the action taken by the Commission and the reaction of the French Government to the action of the Commission. I am bound to say that one has to admire the ingenuity of the French from time to time.

As to the Dutch hothouse case—a highly contentious one—I understand that it is still sub judice, and perhaps when he replies, the Minister can inform us of the latest position.

At this point 1 should say to the House that notwithstanding the general concern at the alleged proliferation of national aids, the only cases brought to our attention were the four cases that I have dealt with, and there is dubiety about the alleged illegality of two of them. Of course, other cases may exist, and we should not overlook the aids given by regional Governments, which are rather more difficult to trace, as noble Lords may imagine.

In our judgment the disquiet is due in the main, however, to state aids which are not regarded as illegal, but which are nevertheless distortive in their effect. We are also aware that some Governments react more sensitively to the pressure of farming lobbies than do our own—or they certainly give the impression that they do. The French packages are illustrative of this.

All these things taken together, as well as the deficiencies of the common agricultural policy, create suspicion that matters are not as they should be. As paragraph 29 shows, it is a complex area. But the hard evidence of numerous illegal state aids is just not there, and we must accept this in all fairness; we have no alternative. I say again that more frankness and openness would go a very long way to allay the fears which do exist.

I must pass rapidly over several points of substance, and I apologise for doing so, but time is against me. For example, "aids through taxation and social security systems" as well as "interest rate subsidies and capital grants" are of particular interest and importance. I hope that my colleagues on the Committee and other noble Lords will fill the gaps in my speech.

What should be done? The House will note our recommendations. We welcome the upgrading of the unit in Brussels which deals with state aids but we also think that the Commission's manpower resources need to be strengthened to enable them to do their job properly. The monitoring investigation and en-enforcement of new or altered aids is a huge task, as we confirmed when we met the legal division during our visit to the Commission. During that visit I was greatly impressed with the Commission's legal service although one felt that these very able people were being stretched to the limit of their capacity. Again, we suggest that the possibility of establishing inspectorates in member states might be considered carefully. A great deal could be done fairly quickly and without undue expense to create a much better atmosphere.

The NFU have issued their observations on our report and I should like to thank them for their generous remarks that our "recommendations are valuable and constructive". There are also some criticisms—life would be very dull without them—but I do not propose to go into much detail at this stage. I understand that my noble friend Lord Sainsbury, a member of our committee, will be addressing himself to the question of marketing aid raised by the NFU. I have received a letter of apology from representatives of the Liberal Party who because of prior engagements are unable to be present at this debate but, certainly, the noble Lord, Lord Mackie of Benshie, and others are very distressed at their missing the opportunity to participate in the debate.

Finally, I come to the Ministry of Agriculture itself. The Minister, Mr. Peter Walker, has emphasised the need for greater effort to bring state aid under more effective control. We welcome and support his initiative and hope that the Minister can tell us what further steps are now proposed to make progress. The committee propose that our agricultural attaches in the Community might play a bigger role in identifying and publicising the emergence of aids in the Community. They are in a position to do so. My experience of them is that they are very able and competent officers. I think that they can play a bigger part than they do at present.

We rely on our Government to maintain constant pressure on the Commission to maintain its current concern with state aids. I believe that there is a lively interest and concern in this subject throughout the Community and now is the time to take action. The representatives of other countries whom we met were on the whole, interested and pleased that we had undertaken this task. I think they are ready to receive these recommendations and to co-operate with us. The members of the committee hope that this report will help bring about the changes that are necessary to this end. I beg to move.

Moved, That this House takes note of the Report of the European Communities Committee on State Aids to Agriculture (7th Report, 1981–82, H.L. 90).—(Lord Cledwyn of Penrhos.)

7.24 p.m.

Lord Mottistone

My Lords, I welcome this debate and wish to thank our chairman, the noble Lord, Lord Cledwyn, for leading us so well during the preparation of this report. It is a great honour to succeed him in the batting order in this debate. The only thing that worries me is that he sits on the Front Bench opposite and I cannot really tackle him because I am in agreement with everything that he has said. It is so disappointing! I must declare an interest, of which, I think, noble Lords will be aware, in my being employed within the food processing industry; and this will have a slight bearing on what I have to say. I hope to concentrate on a fairly narrow front because of the time factor.

We must start by saying that the report reveals that state aids are an entrenched and extensive feature of European agriculture. I think that, in accepting that, we must welcome it because if properly controlled—this is the key feature—state aids can be a useful way of supplementing the common agricultural policy financing methods to meet real local needs within the member states. I think it is most disappointing that, although adequately provided for in the Treaty of Rome (as is seen in the report), after all these years the Commission's information on this subject is so patchy and inadequate. It is quite remarkable. I think that they have got to admit to a grave dereliction of duty in this area. Every effort must be made to see that they make this good.

As our chairman has said, it is helpful to see the Commission setting up a more powerful unit to look after this particular function; but I think that they must give special thought to this for I believe that it needs to be one of their more important duties. Whether it needs always to be so is another matter. They have to make up for a lot of lost ground. The evidence that we got from them was three or four years out of date. There was a big gap there and there seems to be no meaningful way of accelerating the filling of the gap and taking us through to the future. I believe that they must analyse and categorise all the information they have, following the line suggested in paragraph 102 of the report. I have been giving a lot of thought to how we might get it more accelerated. It seems to me that one of the problems is in getting the member states to report. In some cases this may be because they are genuinely wicked; but, on the whole, I do not think they are. I think that the member states are dilatory and, because they do not get pressure from the Commission on this point, they do not bother to put high-priced bodies to collecting information and passing it on to the Commission.

I should like to suggest to the Government and to the House that, as a stopgap to supplement the old information, the Commission might give thought to having a press cuttings account in each of the member states to produce cuttings of all the press, and, in particular, the local press, which give announcements of financial aids of all sorts to farmers and processors. If there is a new aid—as, for instance, the turkey one—that probably will come to light first in some announcement in a local paper which it will be boasting about in order to keep the farmers in that part of the country happy, because they are usually grumbling about something. Although this would not be authoritative information, one could get a permanent pointer from such a press service which would enable one to provide incentives for member states' own Governments to accelerate the provision of what might be called the real information. It is a means of "putting a bomb" under the member states which should not cost the Commission very much money, particularly in view of the amount of money that it wastes on food surpluses which they are encouraging even more, day by day.

This would have the effect, I hope, of accelerating the official reports and, if it were successful, it could be discontinued after two or three years, but with a threat of reintroducing it, so that it need not be a tremendous burden. I would suggest that the cuttings when produced within the Commission should be circulated immediately to the national delegations of the EEC in Brussels so that they, too, have all the information. This is to meet the other main need, which is to allay the suspicion that is aroused because, as the report makes clear, the information is lacking. If we have the information there for all the countries, they need not have that suspicion.

Further—I suggest this particularly to my noble friend Lord Ferrers—if the Commission, having had this point suggested to them, are dilatory in setting up the press cuttings service, the United Kingdom Government are not as "broke" as all that, they can do it for themselves. Whether they then circulate that information to the other member states is another matter. But they would have a bargaining counter. The important aspect is that the Commission could be threatened with it. There it would have all this information as up-to-date as maybe as a background to get some type of circulatory details which can be used to solve this problem. To divert slightly on to a special point: in a brief, which I imagine has been circulated to most of those speaking by the NFU, they have called for more United Kingdom aids comparable with other member states. They criticise the Select Committee for not making this point in the report.

Although I do not always find myself sympathetic to the National Farmers' Union, on this occasion I do; but I suggest that if we are to have comparable aids in this country, they should be extended to food and drink processors as well as to the farmers. However, without the information to know what is being provided in the other countries, how can we possibly expect our own Government to dole out these aids even if they wanted to and had the money to do it? You cannot give comparable aids when you do not know with what you are comparing it. It comes back to the fact that what we must have is up-to-date information and we must find a trigger to make the Commission realise that this is important. Every effort should be made by our own Government to accelerate action by the Commission.

I should like to conclude as I found myself concluding in the debate on the price proposals and the guidance. There is a great danger that a cynicism is creeping in in relation to the CAP which spreads further into the Community because of the fact that there are so many difficulties that are not tackled or that things are tackled, rather as the price proposals seem to be, on a convenience basis rather than a practical one to help the Community forward. Because of this cynicism, of which the suspicion of state aids in other countries is but an example, the CAP—and indeed the Community—are at risk. I hope very much that our own Government can make this point most clearly to the Commission and to the Council of Ministers because if they do not start doing something soon we shall find that it will collapse about our ears and governments and countries—not just ours—will get out of the EEC as being "a no-good thing".

7.34 p.m.

Lord Walston

My Lords, I too join in the thanks and congratulations to the noble Lord, Lord Cledwyn of Penrhos, for his chairmanship of our sub-committee, for the able way in which he has always conducted our investigations and also for his introductory speech this evening.

I shall deal with only three points tonight. The first is to remind your Lordships of one of the main objectives of the common agricultural policy. We frequently hear about one of its objectives being to improve the lot of the farmers of the Community, to bring their living standards up to those equivalent to people working in industry, and also to ensure the food supplies of the Community. We also frequently hear criticisms of the surpluses.

We hear less frequently—and it is important to remember—that one of its objectives is to ensure that over the years agricultural production within the Community is directed to those areas where a particular product can most efficiently be produced, where the soil, climate and labour is most suitable for producing a particular commodity. That, to my mind, is the main reason why it is very important that we should not have an undue quantity of aids to agriculture, whether community aids or national aids, that distort the natural pattern of agriculture.

Undoubtedly, the national aids are more distortive than are those which come from the Community itself. But I suggest that ideally our aim should be for a CAP where there are no national aids of any kind whatsoever and, what is more, where there are no specific production aids designed to single out particularly disadvantaged areas. Of course we have to give help of one kind or another to disadvantaged areas. But, as has been said from time to time in the House and elsewhere, that is primarily a matter for social expenditure rather than for economic expenditure.

The ultimate aim must be for an agriculture where those areas which are most suited to a particular type of production produce that without being impeded in any way by artificial aids, whether they stem from the Community or from specific national aids. One has to admit that we in this country have a good many of such national aids for special areas such as, for instance, the hill farming subsidy, something admirable and necessary to have at the present time but which undoubtedly distorts the pattern of agriculture both in this country and throughout the Community. I suggest this should be our ultimate objective; to abolish all forms of artificial stimulation of agriculture in different areas. It will be a very long time before we get there. That is an ideal to be aimed at and certainly not to be forgotten.

At the present time we are dealing, quite rightly, with the narrower subject of national aids to agriculture, and particularly those which are not officially approved by the Community itself. During the course of our investigations we came across many examples. As is mentioned in the report, and as was touched upon by the noble Lords, Lord Cledwyn and Lord Mottistone, we also came across a lack of knowledge and misinformation about these aids. This is only natural, particularly when there is an aura of secrecy surrounding these aids. We have heard of the vast volume—some 3,000 pages—which the Community has in Brussels, which is not allowed to be seen by the public at large and is indeed very difficult for your sub-committee to see. Naturally, when there is this secrecy surrounding these aids there is a great deal of suspicion and misapprehension.

English farmers—and, as your Lordships know, I am one of them—all believe that other countries have far more aids than we do. The French, I happen to know, and the Germans believe that in this country we have far more aids than they have. That suspicion does no good to anyone: it engenders distrust and engenders a form of competition and an increase of this form of pressure on Governments to give these national aids. I believe it is extremely important that these aids should be far more widely known, and 1 very strongly support the recommendation in the report that an abbreviated form of an updated list of aids should be published, and speedily every year there should be a supplement to that publication, showing the fresh national aids which have been adopted in each member state.

The noble Lord, Lord Cledwyn, referred to the role that our agricultural attaches should play. I am glad he did so because I believe there is a large and useful role for them in this respect. I have to say that my impression from the evidence that we listened to from the Ministry of Agriculture was that the forcefulness within the Ministry on this particular point was not all that I would like it to be. I will not read the evidence to your Lordships, but if you turn to pages 11 and 12 and read questions and answers Nos. 11, 12 and 13, 1 think you will receive confirmation of the general attitude within the Ministry. They do not give any overall directions to the agricultural attaches, saying, "We want you to tell us every month of every new national aid that has taken place in your country". They simply ask them specific ad hoc questions from time to time, and as long as there is that attitude at the centre you cannot expect the agricultural attachés to go out of their way in order to collect this information. I hope that is something which the noble Earl will look into in due course.

I turn now to the third point I want to make, which is a much more general one concerning the importance of national aids and the abolition of distortions to competition between the member countries of the Community. National aids are of some importance, although I suspect that if they were all added up in a completely accurate and objective fashion we would find that the distortion caused by them as between different member countries was not all that significant. That does not mean to say that they should persist. I do not believe that they should; and I support the recommendations of this report very strongly in that respect as in others.

But there are so many other factors which distort competition between the countries in a very much greater way than any of these we have been studying here. For instance, there have been considerable differences in the cost of inputs into agriculture. That is not a very big problem but it is still significant. At one time not so very long ago it was clear that the cost of agro-chemicals, for instance, in Belgium was over 30 per cent, cheaper than for identical chemicals in this country. The cost of tractors was 20 per cent. cheaper, the cost of combine harvesters 30 per cent. cheaper and so on. Nothing can be done about that. No governmental action can alter these prices. It is up to the farmers and, as they become conscious of this, they are beginning to buy these inputs, if they can, in other countries. Some farmers are better placed than others to do this, but I understand there is now quite a trade between Belgium and this country for tractors. They can be bought in Belgium cheaply and resold in this country. That is a factor of considerable importance which affects farmers' costs and distorts competition.

Secondly, there is the question of currencies—green currencies, fluctuations of currencies, rates of inflation and so on, which vary greatly from one country to another. In an ideal world, a country with a higher inflation rate than a neighbouring country would have a lowering of its currency, and eventually everything would equalise itself out. Because of the prevalencies of green currencies now, that does not exist at present and so we have a grave distortion of competition as a result of currency movements.

Then we have the question of land ownership, which even in our own country has a very considerable influence on distortions. Take three farmers: one of them will have bought his land or inherited it many years ago and such mortgages as there may have been have been paid off. He has no rent charges to pay. The second farmer is a tenant and he pays the going rate—£20, £30, £40 or £50 per acre maybe. The third farmer has fairly recently bought his land with a substantial mortgage, with the very high mortgage repayments that he has to pay, well over the normal rate, even on high rents. So in this country, because of the structure of our rents and rent charges, we have enormous variations in profitability. And when you look at the whole of the Community, with its different forms of land ownership, its peasant occupancy, sharecropping and so on, you have a very wide range of costs which inevitably distort competition.

Finally—and Governments eventually can do something about this—there is the very vexed question of taxation. Those of your Lordships who have read the report carefully will have noticed on pages 100 and 101 or 102 some very interesting evidence given to us by Mr. Ian Reid, who is the director of the Centre for European Agricultural Studies at Wye College.

I must make it perfectly clear that he very freely admitted that his calculations were open to a great deal of argument and discussion, and indeed subsequently in the report there is an assessment on them from the Inland Revenue, which casts a great deal of doubt on the detailed accuracy of the figures. But the differences that he puts forward are so great that I believe it is worth drawing attention to them. His calculations, inaccurate though they may be on his own admission, show that the Danish and British farmer may have to pay anything up to 70 per cent. of his total income in various forms of taxes—capital taxes, income taxes and other forms of taxes, direct and indirect—whereas on average the French farmer on the same-sized farm pays something of the order of 20 per cent.

Even if those figures are extremely inaccurate, I put it to your Lordships that there is still a very wide divergence in the actual cost of production, in the amount of retained profit, in the ability to invest and in the standard of living solely as a result of differences in taxation. We need to progress—and this also will take a very long time—to a far more unified system of taxation between all the countries of the Community. Regarding the relatively smaller differences which occur as a result of certain national aids, even if those were to disappear the problem would not be solved.

I do not want to give the impression that this report is not a useful one or that it does not deal with a very important problem. It does that very fairly and with a great deal of accuracy. My only reason for mentioning these final points is that we must not go away with the idea that if only we can solve the problem of national aids to agriculture there will be perfect competition as between all member states of the Community. That is far from the case, but it is still worth making every effort we can to ensure that these national aids are minimised. I believe that the recommendations contained in this document are a valuable contribution to that problem.

7.50 p.m.

Baroness Elliot of Harwood

My Lords, I must apologise to your Lordships for the fact that this is the third speech that I have made in two days in the House. I promise that I will be brief. But I could not possibly not take part in this debate, because I want to express my thanks to the noble Lord, Lord Cledwyn, for the splendid way in which he chairs this committee, for the enormously interesting subjects that we consider and for the way in which those subjects are handled by the chairman and the committee. This report is of great importance, and is one which nobody else could have produced as skilfully as he and our committee have produced it.

I must declare an interest, in that I am a recipient of state aid, because I farm in what is technically known as a less-favoured area. I do not find it in any way unfavourable, but the fact is that that is how the area is described in official documents. I shall say one word about something which the noble Lord, Lord Walston, said, but I will wait a minute or two before doing so.

I should like to quote from the governing text of the report. It states: State aids are an entrenched and extensive feature of European agriculture". As such, they will not be given up by any nation. We must accept that, and I am sure that it is true. But the point is that these aids should be known to other EEC countries—that point was stressed by the noble Lord, Lord Cledwyn—they should be restricted and governed by EEC agreement and kept to a minimum. I am sure that that is right, and that that is one of the recommendations which will be strongly pressed as a result of this debate.

I may be wrong, but I think that the main influence over the amount of state aid in European countries is the proportion of voting strength of the agriculture industry. Your Lordships may think that that is a little cynical, but I do not believe it is. We see pictures in the papers of tractors being driven down the Champs Elysées, in order to stop the traffic and to protest against the policy of the French Government. We have never reached that point here. I have been told that someone has seen a tractor in Trafalgar Square, although I never have. But that shows how powerful and strong the French agriculture industry is.

The many thousands of farmers, farmworkers, people employed on the manufacturing side of farming and people supplying machinery and other agricultural needs, such as fertilisers, seeds and so on, which go into agricultural production, all have votes and the Government of the country concerned is greatly influenced by their numbers. The voting strengths of the agriculture industries in other European countries is between 8 and 18 per cent. But, as we all know, the number of people engaged in the agriculture industry in the United Kingdom varies between 2½and 3 per cent. of the voting population. So our political influence—I am speaking now as a farmer—is much less in this country than in any other European country, but our efficiency in production and our trading powers put us very high in the membership of the EEC's farming industry.

If I remember rightly, nearly all the people and organisations whom we interviewed were in favour of state aids, so long as they were fair and above board and not used to destroy anyone else's agriculture industry. Our committee would press the Commission to publish the new regulations, which we believe they are drawing up, so that the EEC countries may have some guidelines as to what aids are considered appropriate and legal. At the same time, we thought it important that information about the aids being given in EEC countries should be made public, and that the Commission should publish a short report at the end of each year listing the new aids in each country. That would complement the fuller inventory which is known to the Commission, but which is not necessarily known to the other nations; hence our recommendation that there should be no secrecy about state aids.

The noble Lord, Lord Walston, made some suggestions about state aids in this country, and he thought that the state aids for hill farmers—of which, as your Lordships know all too well, I am one-could very easily be reduced. I can only tell your Lordships from long experience that, if state aids were refused on some parts of our agricultural production, the price of mutton and so on would instantly rise. It has been known for a great many years that state aids keep down the price of food in the shops of this country. That is one reason why I am in favour of state aids, although I agree that they should not be exaggerated. But I should like to put in a little protest—

Lord Walston

My Lords, may I interrupt the noble Baroness for one moment? I certainly did not say that the hill farming subsidy could very easily be reduced. I know that it would be extremely difficult to reduce it. I said that there should be substituted some other form of aid, to keep the noble Baroness and her friends in the style of life to which they have become accustomed.

Baroness Elliot of Harwood

My Lords, I can tell your Lordships, quite honestly, that if, in Scotland, where 42 per cent. of our land is designated as less favoured, anything were done to reduce the assistance which goes to farming in those areas, it would be very unpopular. That land cannot be used for anything else and it would become derelict which, in itself, would be a disaster. Also, I take some pride in the fact that in Scotland we have a very efficient sheep and hill cattle industry. That is a great help to farmers who want to buy store animals and fatten them on rich land, which, as I know from my delightful experiences, the noble Lord, Lord Walston, farms in England. However, that is by the way and I hope that your Lordships will forgive me for making that slight digression.

In our report, we mentioned the French Government's enormous subsidies, particularly in connection with the production of turkeys. The concession is being inquired into at this moment, and it will be interesting to learn the result of that inquiry when the report is published. I should like to draw attention to the subsidies given in Holland to the suppliers of cheap gas for the glasshouse industry. If the Dutch Government are brought before a court on this matter, it will be very interesting to know whether they are cleared of giving this heavy subsidy or whether they are prosecuted. Our glasshouse industry has been badly affected by the increase in oil prices and in Scotland—in the Clyde Valley and elsewhere, where the glasshouse industry is extensive—enormous increases in heating costs have crippled the producers who do not, of course, get subsidies. I do not suppose that the position can be altered, but it has been a great blow to that part of Scotland.

I should like to say one word about the memorandum circulated by the NFU. There is a comment about the working party on competition in agriculture recommending that this should be revived and made more effective. We had many meetings and took much evidence, but I do not recollect that any witness spoke about this. Nobody had much enthusiasm for this particular committee, and we did not feel that it could play a very important part. Whether we were right or whether the National Farmers' Union were right, I do not know. However, I do not remember any particularly strong demand from the witnesses who gave evidence to us that this committee should be revived.

I have said enough. Once again I should like to thank our chairman for the way he conducts our investigations. I hope that this report will be considered favourably by the Agriculture Commission in Brussels and that the noble Earl, Lord Ferrers, will feel that we have done an adequate and, I hope, a good job.

8.1 p.m.

Lord Dunleath

My Lords, I must start by making an apology. I am already late for another engagement. I did not realise that the business of your Lordships' House today would extend to this length. Unfortunately, therefore, I shall be unable, with permission, to stay for the winding-up speeches.

Reference is made in this report to the less favoured areas. They have also been referred to by speakers in our debate. I would suggest that there are two types of less favoured area. I am now talking in the context of Northern Ireland, which is the boring context in which I tend to speak. The first type is the obvious one: the moorlands, the hillsides, the mountain sides, the wetlands which can only be grazed during the summer months. Though these are less productive than the arable lands, and less capital is invested in them, they provide a most useful source of supply for maintaining the Province-wide beef herd. I used to single suckle on my farm, but I cannot bend the arithmetic to make it a viable operation now.

The same applies to people in the non-arable areas. In 1973 there were 325,000 beef cows in Northern Ireland, but by 1981 this figure had gone down to 205,000—a reduction of 37 per cent. in a Province where unemployment is at a disastrous level. The people who were breeding beef in these less favoured areas are living in districts where virtually no job opportunity is available. Agriculture accounts for 13 per cent. of the total employment in Northern Ireland and is our biggest single industry. So it is a calamity that this is the case.

Turning to unemployment, I adhere to the rather simplistic view that it is better to pay people for doing something than to pay them for doing nothing. If more of these people are put out of work they will have to sell their land. If they cannot make their business viable, this is going to be a drain on national resources, quite apart from being a human tragedy.

The second category of less favoured area is, I would say, the intensive farm, whether it be arable or whether it relies on poultry and beef production. A considerable amount of capital is involved. For the most part, that capital can no longer be serviced. I must declare an indirect interest. I am a director of a bank and know that in almost every case either the farmer has to sell land, which makes his enterprise less viable, or, if the bank still has sufficient confidence in him, the interest accrued is added to the existing overdraft. As an example, the total indebtedness of farmers in Northern Ireland to the banks was £98 million in 1978. The interest paid was £13.5 million. In 1981, their indebtedness had gone up to £186 million and the interest had doubled to £26.5 million. Another indicator is that the number of new tractors registered in 1978 was 2,421. In 1981, that figure was down to 970. This shows the extent to which the industry has declined —this our biggest and most important industry.

With regard to the more intensive farms to which I referred where a considerable amount of capital is entailed, the fact that they are experiencing this difficulty is not due to inefficiency. Various indices show that particularly with grassland management and the utilisation of grass for livestock production and milk, we are as efficient as anybody. In fact, in many instances, we are more efficient. The indices to which I refer quote gross margins and the efficient utilisation of capital. Indeed, for the last two years running we in Northern Ireland have won the premier award for silage-making throughout the entire United Kingdom. This takes into account not only the quality of the silage as analysed but its utilisation, the efficiency of its handling and the deployment of the capital involved. Modesty precludes me from saying who was the winner this year, but as an innovative cook I can say that I am working on new recipes: silage au gratin, silage flambé au poivre and things like that.

In comparison with France, which the noble Baroness, Lady Elliot of Harwood, mentioned, we are very much more efficient. I went to France on a mineral water study tour—to the Lyon area. I could not help noticing the deplorable inefficiency of the farming. People were driving herds of goats along narrow roads, and there was one horse in a five-acre field which was growing more thistles than grass. I am very interested in horses, but I am interested in them for an entirely different reason from the noble Viscount, Lord Brooke-borough, who is not listening at the moment. I am interested in keeping out of the way of horses. They kick at one end and bite at the other, and they smell and are incontinent. But even I could recognise that these were the most loutish horses I had ever seen. When we inquired, in broken French, for what purpose they were being bred the answer was, looking at us as though we were stupid, "Pour l'abattoir". They were just being bred for meat. So I cannot help thinking that the common agricultural policy is subsidising inefficient farming at the expense of those of us who are more efficient. In my view, as the noble Lord, Lord Walston, said, the purpose of the CAP ought to be to encourage enterprises which can best be undertaken according to the climatic conditions, the attitude of the farmers in that particular area, and the nature of the soil—rather than subsidising the inefficient at the expense of the efficient.

In Northern Ireland, we have to run faster than anyone else to stay in the same place, because we have to pay more for our supplies and we receive less for our products. In the old days the remoteness which causes this imbalance was recognised because there was a "remoteness grant" but that is no longer the case. This is the sort of thing that the CAP ought to be doing. A promise was made that this problem would be looked at, and we shall welcome such help when it comes. Farmers in Northern Ireland are efficient and, unlike the subsidiaries of multinational corporations which can close down just like that because of a boardroom decision in America or Europe, they carry on. Farmers do not go on strike. They have a stake in the land. They are tenacious and will work a 15-hour day if necessary to tide themselves over a rough period. If the common agricultural policy is going to do any good at all, it must recognise where enterprises are efficient and then encourage those enterprises to flourish, rather than prop up inefficient operations elsewhere.

8.12 p.m.

Lord Stanley of Alderley

My Lords, of all the papers I have read emanating from Sub-Committee D I must say that I found this one on national aids by far the most interesting. May I thank the noble Lord, Lord Cledwyn of Penrhos, and his sub-committee for it and for trying to explain to me what an important problem national aids are and, worse still, what a difficult problem they are to solve. I am certainly no nearer to solving it—well, perhaps just a little nearer—than when I started reading the report.

In paragraph 96, the sub-committee accepted that state aids are entrenched, as my noble friend Lady Elliot of Harwood said earlier. This may be so and it may have to be accepted—I would accept it—but what really worries me is that state aids are inclined to undermine the principle of the CAP, which is that each area and country produces what is most economical for that particular country or area. That point was very ably brought out by the noble Lord, Lord Walston. In fact, I believe—and so does the report—that state aids are inclined to turn the common agricultural policy into a welfare policy.

At that point I step out of the argument except to ask the sub-committee and the Government to think very carefully about this problem and to consider the effect on the individual farmer of making him dependent on a social or welfare policy. You may find that you actually destroy the farmer and that, as a result, you destroy what you hoped to achieve with that particular state or national aid. Having said that, I must say to my noble friend Lady Elliot of Harwood that I, and I believe the noble Lord, Lord Cledwyn of Penrhos, have been trying to be less favoured for many years but have so far failed to achieve that. But we hope to be less favoured, like my noble friend Lady Elliot of Harwood.

I will conclude by asking if the Government will take action for once (perhaps that is being unkind) on the recommendation in this report, as was suggested by my noble friend Lord Mottistone and by the noble Lord, Lord Cledwyn of Penrhos. The Government certainly should do that because the report is full of good, meaty stuff. In particular—and perhaps here I will not agree with my noble friend Lady Elliot of Harwood and the noble Lord, Lord Cledwyn of Penrhos—they should think very seriously about putting to work again (I do not think it has ever been to work) the working party on conditions of competition in agriculture. I noted very carefully what was said by the noble Lords, Lord Cledwyn of Penrhos and Lord Walston, about the agricultural attachés doing this monitoring job. They may be able to do it, but it seems to me that it wants a more organised situation or committee to look at it in greater detail. The only committee I could find in the book was this working party on conditions of competition in agriculture.

If they do that, and we get some idea of what is happening, which is most important because suspicion is the worst thing in life, we must then think about the punishment. As far as I can see, the punishment comes in paragraph 63 of the report. I know that the sub-committee was not particularly thrilled about this, but maybe it is a start that can be worked on. Certainly when the punishment is thought out it must be quick and must relate immediately, if possible, to the farmer in question.

8.16 p.m.

Lord Sainsbury

My Lords, once again we are indebted to the noble Lord, Lord Cledwyn of Penrhos, for his chairmanship of Sub-Committee D and for his usual thorough summary of the report. Owing to the lateness of the hour I will cut my speech and confine my brief remarks to one form of State aid—namely, aid to marketing, packing and processing, which seem to be free of restriction save that the Government concerned must submit product sector programmes to the commission. Sir Richard Butler, President of the National Farmer's Union, in evidence to the sub-committee expressed the view that—and I quote: our Government should take more advantage of the opportunity to give aid to British agriculture and horticulture for marketing". I agree most emphatically. Mr. Riley, a well-known agricultural economist, in most interesting evidence to the sub-committee, said that in other countries of the Community, but not in Britain, there is a concept of industrial unity between raw material, the consuming animal, processing industry, and customer sale. In other words, there is a relationship based on collaboration and co-operation rather than the idea, which certainly existed in the past in the United Kingdom, that the other fellow is trying to "do you down" and taking too big a share of the cake.

Producing crops and raising livestock is only the first link in the chain. That may be a very obvious remark, but it is not always fully realised. A lot happens before the primary product reaches the consumer in its final form. This is the point I wish to emphasise. Legally constituted bodies exist in Holland and France which represent all aspects of production, processing, marketing and selling. Mr. Riley gives us an example of aid to one part of the chain, the French egg industry, where grants have been made to modernise their packing stations. Though their production cost was not significantly different from our own, they were able to undersell us because they were able to pack and market more efficiently than our own packing stations. England's biggest egg packers, who incidentally are the biggest in Europe, told Mr. Riley that they would like to modernise their plant but could not afford to do so. There would have been no such problem, I suggest, in France. What this emphasises is how aid at one link in the chain can help all parts of the chain.

In conclusion, may I say that I agree with Mr. Riley that it is in practice impossible to harmonise those aids which affect agriculture which have already been mentioned by other speakers, such as taxation, credit facilities and energy costs. But that does not mean that more manpower resources should not be devoted to the unit of the Commission responsible for state aids. I believe the report serves a very useful and important purpose by its thorough investigation of state aids to agriculture. I hope it has a wide readership in Brussels and among the Members of the European Parliament, and I pay my tribute to those who drafted it.

8.22 p.m.

Viscount Brookeborough

My Lords, like other noble Lords, I would like to join in the congratulations to Lord Cledwyn of Penrhos. For those who have not served under his chairmanship it is a pleasure they will certainly look forward to, as his handling of this committee is really absolutely first class. I should like, also, at this point to pay tribute to our specialist advisers and the clerks for producing such a readable and sensible report out of such a very complex matter and from such very complex evidence as is produced. Those who read that evidence will understand their ability when they have managed to produce such a concise, readable and intelligent report. The noble Lord, Lord Stanley, said that he was not sure how much wiser he was on the direction he should go, but I am jolly sure he is a great deal wiser on the problems than he was before reading the report.

I think it an honour to follow the noble Lord, Lord Sainsbury, and I would endorse very much what he said about this question of the food industry starting at the farm and ending at the counter. I think in one or two cases in Northern Ireland we have had aid to the processing industry, in the pig processing industry, and in eggs, and in the meal processing industry. I would feel that a start has been made, and no doubt my noble friend Lord Ferrers will be able to tell us that, enthused by the success—and it is a success—of the areas where it has been used in Northern Ireland, his Ministry will go to it and bring all the threads together to make sure that the maximum aid is obtained.

The Treaty of Rome, under Article 39, sought to require the Community to provide, among other things, a fair standard of living for agriculture, and this to be achieved in free and genuine competitive trading not distorted by national aids. I start off by saying—because people may think at the end that I am not a supporter of the EEC—that I am a supporter of the EEC, though not of the CAP. I have said in this House before that, so far as Northern Ireland is concerned, the CAP is a disaster. I believe, after the last price review, that it is fast going to be a disaster for the EEC. I can see no sign of the real following of the guidelines, the mandate, and when we deal with the question of national aids and the suspicion that arises as a result of national aids, unless there is a very radical look at the whole CAP I believe we are going to disaster.

I feel it is a question of going right back to the drawing board. I do not disagree with the conclusions of the committee, except that I go further than they do and say that while all the recommendations we have made are being looked at and carried out we should go back much further and see whether the original concept of the EEC and the CAP is really being met.

Reference has been made to paragraph 98 on the question of the aura of suspicion. In all affairs of the EEC suspicion is what is going to break up the EEC, if anything does. The CAP at the present moment has favoured large arable farms. My heart bleeds for the noble Lord, Lord Walston, in his poor small farm in East Anglia. But there is an area, and everybody has said so, where national aids cannot be harmonised because it means giving up sovereignty, and that is on taxes, social services and everything like that. That is an area which can never be harmonised.

I think it was the noble Lord, Lord Walston, who spoke about the question of green currency. The aims of the Commission, in their recommendations on the price review, have been nullified by green currency fluctuations. This decision is a Government decision which sometimes is in opposition to the Commission and sometimes is with their agreement. As a result of all this the CAP has increased the disparity between regions in the EEC.

The noble Lord, Lord Dunleath, raised the question of agriculture in Northern Ireland, and your Lordships will know my views about the effect on the intensive industry, which is going to be further penalised with limitations on maize gluten and on manioc and duties on wheat feed. Agriculture in Northern Ireland is what it should he in the terms of the EEC; that is, it is efficient and it does use the best of its natural resources. But without state aids agriculture in Northern Ireland would cease to exist. There is no alternative employment in Northern Ireland; therefore, national aids are absolutely vital.

The problem of the national aids for Northern Ireland is that they are negotiated over a long time nationally, and sometimes the aid is not agreed until halfway through the season. It is for that reason that I would ask my noble friend the Minister why he has not referred the case for the extension of the less favoured areas in Northern Ireland to the Commission for separate decision, separate from the extension of the less favoured areas in the rest of the United Kingdom. I envy my noble friend Lady Elliot; I am not in a less favoured area, although the main road divides me from a less favoured area; it is as near as that. In one case the middle of the river becomes less favoured, but on my side it is supposed to be a better area.

I mentioned this question of MCAs and currency fluctuations. In 1978 the net income for farmers in Northern Ireland was judged to be £64 million and in 1979, £33 million. But in order to deal with the currency fluctuation at that time, the Government had to provide £34 million in 1978 and £42 million in 1979. This was a national decision on the part of the Government to change the valuation of the green pound. The aid was given—the Government must receive due credit for it because it was part of what the noble Lord, Lord Sainsbury, was talking about—to the processing part of the meat and pig industry.

While that was going on the consumer was, in fact, benefiting in the whole of the United Kingdom, but we, because we have a land frontier, would have lost our industry had it not been for that particular Government aid. I have a slight beef about that, in that when it comes to the accounts for Northern Ireland this is shown as being part of the aid that is given to Northern Ireland and comes out of our budget in a fight between it and maybe milk or some other part. But this is a United Kingdom decision and the rest of the United Kingdom is defended by the Channel from having the same problems which we have with our land frontier. I believe that it ought to be carried on the national budget.

The United Kingdom obeys the rules of national aids. But there is absolutely no doubt from having looked at the whole matter throughout this investigation that the French approach is quite different. The French are legalistic to the extreme. They go to the very end of the law, and we know that on many occasions they go beyond the law. They exploit every rule that they can. I think that we must face the fact that the French are going to go on doing that; they are determined to be the larder of Europe, and to that end there will be no stopping them.

Like the noble Lord, Lord Sainsbury, I was most impressed by the evidence of Mr. Riley. In discussing his evidence I feel that we should go back to the drawing board and see what was the original intention of the CAP. First, it wanted to have a Community preference within Europe, and that I am quite sure we should retain. Secondly, it tried to have free and competitive trading. It is quite impossible for that to be undistorted in some way or other because as others have said, the control over taxation, social security, and interest rates is something that no country whatever will allow to go over to Brussels. Therefore, I feel that in the long run—it should not be too long a run because the suspicions as regards the behaviour of various countries in Europe is growing—we should eliminate any intention of controlling national aids; we should establish minimum internal trading prices on a rolling basis to prevent dumping from one country to another; we should then transfer the responsibility for the disposal of surpluses created in a country to that country and that could be done either by consumption subsidies or by export subsidies.

One of the problems that I see at present about these enormous surpluses which are building up, is that the cost is diffused and the taxpayer in the country which is producing those surpluses does not feel that they have hit his pocket. In fact we all know that Germany and ourselves are paying for the export of materials from France and no doubt the French would not enjoy that. But I believe that we should somehow or other bring home to those who produce the surplus exactly what it is costing. That would leave each country to decide the relative importance of its own industry and at what level it wishes to support agriculture. The transfer price mechanism which would operate from Brussels—there is already a mechanism by which it can be done—would prevent dumping within the EEC, and the problem of export rebates would be borne by the countries and not by the EEC. This is very important because I do not believe at the present moment that we understand the absolute hornet's nest that we are stirring up by proposals on the part of the EEC to limit maize gluten and other products coming in. Finally—and this is the most important point of all—this would free huge funds to the EEC to be used for proper social purposes. In my view this is a most important report and I should like to conclude by congratulating once more the noble Lord, Lord Cledwyn of Penrhos.

8.36 p.m.

Viscount Sidmouth

My Lords, at this hour and at this stage of the debate I have no intention of making a speech. However, I could not sit down without adding my tribute to the chairmanship of the noble Lord, Lord Cledwyn of Pen rhos. To my mind, there is an element of Welsh wizardry about the dexterity with which he handles a spirited but not always unanimous team. The drafting of the report is a model of its kind.

In my two minutes I wish to make two points. The first is that when the committee started on this inquiry there was a widespread feeling in this country—I think that there still is—that national aids were a very serious matter of suspicion and dispute between the various countries. That is undoubtedly true. But the result of our inquiries is certainly not to confirm what one o our witnesses said to us before starting out for Brussels —namely, that when we got there we would discover a can of worms. The report sets out what we did discover. Obviously, there are weaknesses which need putting right and fences which need to be mended in this particular field. But I do not think that the estimate of a can of worms was justified and I say that although, as a glasshouse grower, I am involved in one of the instances which have been highlighted in the report.

Secondly, I should like to support the noble Baroness, Lady Elliot of Harwood, who pointed out that state aids as such are not necessarily dirty words. They are common practice in agriculture in many states—not only in the EEC but worldwide—and, indeed, were common in this country before we joined the EEC. The Treaty of Rome makes it quite clear that a number of national aids are quite acceptable in principle, and when each country joins the Community its existing practices are very carefully vetted—that process is going on now with Greece—to see whether they are compatible with the principles set out in the treaty. Therefore, one starts out reasonably clean. Thus it would be a great pity if there were a dirty label attached to national aids which not only, as the noble Baroness, Lady Elliot, rightly said, keep down the price of food—indeed, that was the main purpose for which they were used in this country before membership of the Community—but also, for members of the Community, I think it right to point out that they contribute to keeping down the cost of the CAP itself, which is a very important point.

My Lords, those are all the comments that I wish to make, except to say that I commend the report to your Lordships' notice.

8.40 p.m.

The Earl of Selborne

My Lords, like others who have spoken, I should like to say how grateful I am to the committee for this very timely report, which draws attention to the concerns and suspicion, which is very widely held throughout the Community but particularly perhaps we are aware of it in this country, at the extent of national aids. Some two years ago I found myself chairing a committee made up of apple growers and others involved in the apple industry, at a time when we were particularly concerned about what appeared to be unfair competition from French production. Indeed, there is still grave concern in that respect and it is fuelled by a lack of ability to get hold of the relevant information—exactly the same problem as is quite apparent in other sectors of agriculture.

It was no surprise, therefore, that the first recommendation that the committee I chaired put forward to the Ministry of Agriculture some two years ago was to ask that the Ministry should commission a study: on relative degree of support available from all sources to French and U.K. growers respectively". Although this report was received most sympathetically by the Minister—and, indeed, some of the other recommendations were given very full support—that particular recommendation defeated them. I can appreciate that it is a great problem not just to list but to quantify the degree of support which growers get in a similar situation. But I still think that this is a problem which must be faced, if not by our own Minister, then by the Commission itself. It is a problem which must be faced very widely on a whole range of holdings; for example a typical sample of arable holdings, stock farms, dairy farms and horticultural holdings.

Agricultural economists will certainly point out the complications of getting a valid sample, bearing in mind the different structure of farming in different countries. That is quite true. It will not be an exact science; these exercises never are. But the result of it will certainly be much more effective than I think Table 60, referred to in the ECC's own report, which is really a travesty of the Commission's responsibilities, and demonstrates just how necessary it is for this exercise to be undertaken.

My noble friend Lord Mottistone has suggested that there should at least be press cuttings and lists drawn up of national aids, as reported in local papers. Although I would go along with him, I still think that that is no substitute for an attempt to quantify on an average holding the actual value of that support. It is quite easy to establish the value of a production grant or an input grant. It gets a little harder when you start to quantify the banking arrangements, the low interest rates or other such arrangements. It gets very much more complicated, and I am not even sure that it is possible, to quantify the fiscal arrangements—derating and the other exercises that come in this bracket. It is probably quite impossible to quantify the value of support on the holding to a commodity which is given beyond the farm gate: for instance, in marketing, processing and exporting.

But it must still be done, and I suggest to my noble friend the Minister that the Commission should be urged to undertake just such a wide-ranging review in all member states. I suggest that it should be undertaken by a firm of accountants who are already operating throughout the Community. There are plenty of such accountants and no doubt, although the exercise would be far from complete, it will be rewarding.

Having agreed, as we must all agree, with the report, that the main concern is the suspicion generated by national aids, nevertheless, unlike my noble friend Lord Stanley, I find that I derive at least one other lesson from this report. It is quite clearly that the French have the political will and probably the means to dominate agricultural production in Northern Europe. Here I think that I must part company with the noble Lord, Lord Walston, who, while most unhappy at national aids, nevertheless tended to feel that they were perhaps overstated in their influence. I cannot agree with him. I think that the French, in the case of eggs—and I go back to my own hobbyhorse of apples—have determined on sectors of production in which they are quite capable of monopolising the market over a 10-year period. It will be those areas where marketing will show a particular critical role, and I think that the committee's report, demonstrating the case of the turkey unit in Brittany, has just shown how easy it is by national aids to distort production in first one commodity and then another.

Make no mistake about it, the French have an extremely sophisticated and, I think, successful policy which does not always, by any means, transgress the rules of the CAP; and as they have—and they have demonstrated it so often—the political will to implement it. If we cannot stop it, then we must surely emulate it. Here I agree with the noble Lord, Lord Sainsbury, that we must hope that we can get further and highly specific support towards improving our marketing. I know that the Minister has had long discussions—they have been going on now for some months: in fact, I think that I could say for almost years—on the formation of a body, perhaps to be called a co-ordinating council. When eventually this organisation sees the light of day, I hope that the example of the French will be very carefully taken note of. Indeed, I hope that the figure which is quoted by the report as to the value of the subsidy will also be borne in mind when the case is taken to the Treasury.

Lastly, the report draws attention to yet another lesson. Almost in brackets it says in the same paragraph, paragraph No. 96, which has been quoted elsewhere, that: In the United Kingdom the improvements in productivity in recent years owe much to the effectiveness of the Government's research and advisory services". Here, as it happens, is a national aid which has not been questioned. It is a perfectly legitimate national aid and, indeed, one could say that research budgets transgress boundaries and are available to all in the Community who might wish to take advantage of them.

It is ironic, therefore, to realise that in the present climate of Government cuts both the advisory service and particularly the experimental husbandry and horticultural stations are at least at risk in some respects. The Agricultural Research Council, of which I am a member, has certainly found it necessary to reduce its research commitment. My noble friend will say—and he will be quite correct—that this is not something which is the responsibility of the Ministry of Agriculture, which it is not. It is the vote of the Department of Education and Science which is in danger of contracting as regards the Agricultural Research Council rather than at present the vote of the Ministry of Agriculture on research.

Nevertheless, my point is that as we are seeing these very far-reaching cuts in the offing—not just at the two research stations which have already faced them, but probably elsewhere in order that the Agricultural Research Council can live within its means—surely here is an example of a national aid which should not be so curtailed.

The remedy is for the science vote, which is divided between the other research councils, to be given a specific instruction by the Government to protect, in this case, the Agricultural Research Council's budget on the science vote. I am quite clear that the other research councils would also make their own pleadings. That in no way invalidates the need tonight to ask my noble friend to assure us that he will put every pressure on his colleagues in the Government to make sure that the cuts which are anticipated in the Agricultural Research Council budget will be forestalled, and that this very valuable national aid, which the committee emphasises has been of such importance in increasing our productivity, is maintained.

8.49 p.m.

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

My Lords, the House will be grateful to the noble Lord, Lord Cledwyn, and to the whole of the European Community's Sub-Committee D for their report. It has been an interesting debate this evening. One of the remarkable things about it is that it has not been particularly contentious. It was one of my noble friends, Lord Mottistone, who said that he was so upset to see the noble Lord, Lord Cledwyn, sitting opposite him that he had to agree with every word the noble Lord said. That is a happy position to be in and, if I may say so, only reflects upon the natural stature of the noble Lord, Lord Cledwyn, for good common sense.

I think that the committee which he chairs with such distinction has undertaken a Herculean task in trying to take on such a complex matter as state aids, and trying to disentangle the intricacies of agricultural support as applied in 10 different countries—even if those countries have themselves a commonality as being member states of the Community. The task would have daunted many a less assiduous group of people. There are of course no easy answers, but the report identifies the major problems with astonishing clarity, and it makes a number of useful proposals for remedying the matter. My noble friend Lord Stanley, who is not here—

Lord Stanley of Alderley

Yes, he is.

Earl Ferrers

Yes, he has had the courtesy to return, and I am grateful to him for that. He said in a slightly derisory way, I thought, that he hoped that the Government would take action for once. Such charming support from behind one.

Lord Stanley of Alderley

I must interrupt my noble friend. I did correct myself on that.

Earl Ferrers

If my noble friend had had the patience to retain his seat a little longer I would have told him that the very mouthing of his words made himself choke, so that he corrected himself. But the responsi- bility for making any alteration to these state aids is essentially a Commission responsibility, but it is one in which of course the Government and the United Kingdom as a whole have a vital interest, and one in which we would like to see action taken. Indeed, my right honourable friend the Minister of Agriculture has frequently pressed for this.

My noble friend Lady Elliot said that she hoped that I would think that the committee had done an adequate and worthwhile job, which would have been unbelievably discourteous if I had used those words myself. It rather reminded me of the fact that it took me a long time to realise that when in your Lordships' House somebody was accused of making a moderate speech, that was a compliment. At school if one was told that one's essay was moderate, it usually implied disaffection on behalf of the reader, but of course in the terms of your Lordships' House it is the accolade of approval.

The committee have made a valuable contribution to an important subject which is of major concern to the Government, to the farming community, and to the whole of the United Kingdom. My noble friend Lady Elliot apologised for having made three speeches in two days. All I can say is that as one whose brother-in-law was Prime Minister in 1908 she learnt the game very young and has had much experience at it, and she need make no apology for making three speeches in two days.

The one thing that has emanated is that every noble Lord, and indeed noble Baroness, is concerned about national aids and the distortion which they can create. The noble Lord, Lord Walston, went a little wider when he referred to land ownership, taxation, and vehicles, tractors, coming into this country at different prices. I would not wish to go down that route this evening, other than to say that of course those are not national aids, but they are nevertheless an indication of the way that it is difficult to get pure commonality between all the countries. Much of that is due to the marketing policies, not of countries, but of individual companies. Of course, they all tend to distort, but they are not state aids.

The noble Lord, Lord Walston, and the noble Baroness, Lady Elliot, disagreed with each other on the abolition of state aids. The noble Lord, Lord Walston, said that he thought this would be a good thing. The noble Baroness said that she thought it would not be. All I can say is that if there was even that scintilla of discord in this House, with the courtesies of this House, just imagine what there would be in the Community and in the farming community were that particular action taken. There is nothing wrong with national aids as such; what is wrong is their not being cleared with the Commission, or if there is any form of subterfuge. In a perfect world there would be no national aids, but of course we do not live in a perfect world. The report indicates the reasons for this concern. The noble Lord, Lord Cledwyn, said that farmers were suspicious. The noble Lord, Lord Walston, did too, and I think my noble friend Lord Selborne did. I think that is perfectly true. People are suspicious. I should like to come to the reasons in a few minutes why that may be so.

I was a little disturbed that my noble friend Lord Brookeborough should refer to the fact of state aids possibly being the cause of the break-up of the common agricultural policy of the European Economic Community—not just state aids, but the contention that the common agricultural policy was not working as he felt that it should. I think that such talk is dangerous. Of course the Community is going through a difficult time, and of course we have to build on successes. It will not be easy. You cannot expect automatic success straight away, and particularly is this more dangerous when you go through a period of recession when each country tends to have a more nationalistic attitude than it might have had were conditions different. It is important that the Community should operate together, and this is what we seek to do.

Both my noble friend Lord Brookeborough and the noble Lord, Lord Dunleath, referred quite correctly to the problems of Northern Ireland, which I accept are peculiarly difficult. My noble friend Lord Brookeborough said that we ought to apply for the extension of the less favoured areas for Northern Ireland only. But I would remind him that in Europe we act as the United Kingdom, and it is correct that if we wish to seek an extension of the less favoured areas we should do it corporately and not piecemeal. Ministers are at present considering the best method of the presentation of our case.

The noble Lord, Lord Sainsbury, said that he thought that there should be greater collaboration between processors, producers, and retailers. I agree very much with that. Each is dependent upon the other, and as a country we could achieve much more for our industries both internally and for export if the various parts of the production and processing and retailing chain could work together and could be more co-operative in marketing together. My noble friend Lord Selborne agreed with that and referred to the initiatives which my right honourable friend is taking. My right honourable friend is particularly concerned over this aspect, and we want to see more moves in this direction, and he is working hard to achieve this.

Part of the reason for problems with regard to state aids is that people become suspicious that some other country is doing something which others do not know about. I think it can be summarised in three ways. Firstly, unregulated aids to agriculture distort competition between member states, and this not only causes resentment on the part of farmers and growers who are not receiving this assistance but brings the common agricultural policy itself, as my noble friend Lord Brookeborough said, into disrepute.

Secondly, these unregulated aids clearly undermine the decisions which are taken by Agriculture Ministers collectively, and thereby they threaten the whole operation of the common agricultural policy.

Thirdly, unregulated aids almost always, but not always, exacerbate the Community's existing surplus problems. The costs of disposal are then borne, not by the country which has given the additional aid, but by the Community as a whole, and often by the countries which have not given the aid.

It is no accident that the two countries who are the most concerned about the state aids are the United Kingdom and Germany, and they are, of course, the two who are most concerned about the Community budget because they are the two who pay. It is an insular and non-communitaire attitude for those coun- tries which are recipient countries from FEOGA to give additional aid to their own farmers, to stimulate the output from their own farmers and therefore the income to their own farmers and then let others pay the bill.

State aids should be, and are, agreed with the Commission, but the noble Lord, Lord Cledwyn, and my noble friend Lady Elliot, referred to the aid to the French turkey processors. Last year my right honourable friend referred that to the Commission. The estimated cost of the plant to which Lord Cledwyn referred is understood to be between £6 and £7 million, with an annual processing capacity of about 100,000 tonnes, which is not far short of the output for the United Kingdom's entire turkey processing industry. It is understood that the assistance included direct cash grants, subsidised loans, tax concessions and the provision of a site at a discount, worth in aggregate about one-third of the total capital cost of the project.

The price of 39p to 41p per pound at which French processors were offering turkeys in the United Kingdom last summer is estimated to be below the production cost and suggests that some further assistance towards operating costs might also be available. The matter was referred to the Commission, which took the view that none of the aids which we had referred to them was incompatible with the Common Market. But given the size of the plant, it underlines the danger that aids which individually may be technically legal can, because of their size, or when given in conjunction with other aids, have a very disruptive effect.

Then we had the problem of the state aids which France gave in 1980. In December 1980 they announced a measure worth about £380 million. That comprised a variety of measures but over half, about £210 million, consisted of direct income aid related to the turnover. The United Kingdom and other member states urged the Commission to investigate the package and take effective action to prevent the payment of the illegal aids. On 28th February 1981 the Commission instituted Article 93(2) action against the income element of the package, and by a formal decision dated 8th July 1981, they declared that aid to be incompatible with Article 92 of the treaty. The decision also instructed the French Government to abolish the measure. But by that time the money had been paid. That is another example of the distortion which can be created.

An issue of a similar nature which was raised by the noble Lord, Lord Cledwyn, was the aid package announced by the French Government in December of last year. That was not the same one; they had one in December 1980 and now we come to another in December 1981. That package consisted of some 30 individual measures with a total value of about £510 million. My right honourable friend the Minister of Agriculture has urged the Commission to investigate those aids promptly for legality and to take effective action to prevent the payment of any aids which are illegal.

The Commission's response has been hampered by a lack of information from the French Government. At one time the Commission were unable to obtain information from the French Government, despite the fact that details had been published in France, and French farmers had already been in receipt of forms inviting them to apply for aid within a specified date. So the information was available, but the Commission did not have it. However, the Commission have now initiated action under Article 93(2) of the treaty, which is the first step towards a reference to the European Court. The Government's comments have been invited and, in our reply, we have made clear our doubts about the legality of many elements of the package, and we have urged the Commission to take prompt and effective action against it.

We have also commented on the involvement of the Credit Agricole, an involvement which leads me to question the committee's view that its activities are not incompatible with the treaty. Certainly the existence of Credit Agricole is not incompatible with the treaty, but we question some of its activities. For instance, when the French Government provided those additional national aids last December, we understood that some of them were financed not by the French Government but, under direction from the French Government, by Credit Agricole. That blurs the distinction between the activities of a Government and those of a banking organisation, which thereby lays the workings of that organisation at least open to question—only, of course, in so far as the Community's state aid rules are concerned.

The other aid which is of major concern is the gas tariff which is paid to Dutch glasshouse growers. The Commission have for a long time declared that the tariff distorts competition and is therefore contrary to the Community's state aid rules. My noble friend Lady Elliot said the Dutch had been taken to the European Court for that. That is not in fact true. Rather than say it is not true I should say it is an inaccuracy. Last December the Commission issued a formal decision requiring the elimination of the preferential tariff. My right honourable friend has consistently and persistently urged the Commission to take action to remove this serious threat to growers which occurs throughout the Community, and in that he has been supported by every other member state. We expect the Commission to indicate very soon exactly what is to happen. Meanwhile, we are, of course, paying our growers the maximum aid which is permitted under the Commission guidelines towards their heating costs this year, as we did in 1981. It is much better if we can get these problems resolved within the Council of Ministers rather than taking various countries to court. We hope that there will be a resolution of this problem, which has distorted horticulture for far too long.

The Government have also been pressing for action on state aids generally. In his speech to the Council of Ministers at the beginning of the United Kingdom's Presidency, my right honourable friend drew attention to the difficulties and the inequities which are created by state aids and to the need to bring them under effective control. The noble Lord, Lord Cledwyn, asked, well, what is going to happen now, since my right honourable friend is no longer president? I think it fair to say that the Community as a whole is now much more aware of the problem than it was previously, and I think it equally fair to say that the United Kingdom can take much of the credit for this.

The Commission certainly recognise the need for more effective control, and in their recent Guidelines for European Agriculture they called for stricter discipline in the matter of national aids. They pointed to the importance of prior notification and they emphasised their determination to enforce the rules by requiring reimbursement of illegal aids or by refusing FEOGA cover for expenditure by member states. The Commission also proposed to clarify the rules on notification and to specify those aids which are prohibited and those which are authorised. I can assure your Lordships that we shall with great vigour continue to urge the elimination of unfairness, and this the noble Lords, Lord Walston, Lord Cledwyn, and my noble friend Lord Mottistone urged us to do. We shall do it.

The Ministry's attachés in the Community's capitals already have standing instructions to keep us informed of developments, especially in respect of aids which may have implications for United Kingdom farmers and growers, and these efforts will be maintained. I thought that the noble Lord, Lord Walston, was slightly unfair when he said that the attaches should have instructions to ferret out all of this information. The attachés are well aware of concern about state aids, not least because some of them have provided the information for the Committee, and I am sure that in the light of the Committee's report, they will increase their vigilance. But, my Lords, they have other duties to perform, and we must also bear in mind the fact that their effectiveness depends in large measure on official contacts. This means that excessive curiosity about state aids could prove to be counter-productive. But the Committee suggests that we should: continue to bring pressure on the Commission to maintain its current concern at the growth of state aids and to implement its expressed intention to bring them under more effective control". I can tell your Lordships that we shall do this. I am sure that this will be met with approval by the Commission and I am sure, too, that the recommendations in your Lordships' report will be welcome to them.

I should however sound a note of caution, because the Commission, like our own Civil Service, are subject to tight limits on staff numbers. This could influence their approach to the suggestion that manpower resources should be strengthened, and it could also affect their view of a possible "state aids inspectorate". In any event the Commission may believe, as indeed the Government believe, that the answer to the whole problem depends upon the political will of member states, rather than on changes in organisation and personnel.

The Government agree with the Committee that the Commission's inventory on state aids is unsatisfactory in several respects, and the same certainly applies to the discontinued summary table. A number of your Lordships referred to this and were concerned about it. There is of course an inventory, which the noble Lord. Lord Cledwyn, referred to as, I think, a voyage of discovery. That was a delicious phrase, I thought. The inventory extends to some 3,000 pages, and the imagination does not have to be greatly distended to realise the physical problems which would be involved if it were to be translated into seven different languages. The Committee have described the document as: lengthy, detailed, obscure and out of date". Frankly, I am not surprised at any of those adjectives. The difficulty is that if the document is truncated, then so is the information, and if the information is complete, then one may fall into the trap of the document becoming indecipherable.

I agree with the Committee and with many of your Lordships that it would be of immense help if there were some form of a more concise summary, but one which must nevertheless be accurate. I would not envy the Commission in this task, but I hope that they will consider the suggestions which have been made by the Committee. I think that it was my noble friend Lord Selborne who said that the Commission ought to set some outside body, some accountants, on to the problem.

The Commission have themselves announced the fact that they are aware of their shortcomings in the inventory, and they have recently commissioned a series of studies. They did not take my noble friend's advice and use accountants, but they have used management consultants. This is designed to establish whether the inventory is as comprehensive as it should be and to evaluate the effect of aids upon Community agriculture. We must not underestimate the practical difficulties of producing a comprehensive and up-to-date account of what is happening in 10 member countries. One must remember that the Commission's normal function is a regulatory one. We shall continue our efforts to achieve a situation in which British farmers can compete on fair terms with farmers in other member states of the Community. On the whole, that is all that British farmers have asked for. On the whole, that is all that they have the right to ask for. On the whole, that is the right which they have the right to expect.

In the longer term, our success depends on the recognition by all member states that unregulated aids are a disruptive force in the Community, and that the best long-term interests of each member state lie in observing both the rules and the spirit of the treaty. It is difficult enough to get it fair, when the whole variety of national aids which are available through the Community are legal, but if member states are going to play ducks and drakes with illegal national aids, then equity and commonality become a mirage and a source of disharmony and disunity.

An important factor is the attitude of the Commission, and they must demonstrate their determination to enforce the rules effectively and impartially. The Government, of course, will take up with the Commission any instances where any other member state is operating an aid which appears to be illegal, and which is to the detriment of United Kingdom interests, provided that we have sufficient evidence on which to base our representations.

I should like to conclude by saying that the committee chaired by the noble Lord, Lord Cledwyn, has done a valuable and monumental task in producing this report. I hope that the debate we have had this evening will galvanise and direct the Commission even more into realising the importance that we in this country attach to having fair, legal and just state aids for the benefit not just of the countries involved but also of the other countries upon which those national aids have an impact.

9.16 p.m.

Lord Cledwyn of Penrhos

My Lords, may I express my appreciation to all noble Lords who spoke in the debate, which has been helpful and comprehensive. As she is the only Baroness in our committee, may I refer specifically to the noble Baroness, Lady Elliot, and thank her for her contribution which was full of common sense and knowledge of the problems. The noble Baroness spoke of the working party on the conditions of competition in agriculture. She will recall that the working party was discussed by the subcommittee and we were told a little about its work by a senior Ministry official—perhaps noble Lords would refer to Questions Nos. 37 and 38—where the official quoted the Minister as saying that it might become more of an investigative body. I am not sure that the Commission share that view at present.

Every contribution to the debate was valuable and, I am sure, of assistance to the Government in their study of these problems. It is significant that two noble Lords from Northern Ireland, the noble Viscount, Lord Brookeborough, and the noble Lord, Lord Dunleath, contributed. Their speeches showed a deep concern about agriculture in the Province and we must share that concern. I am grateful to the noble Earl, Lord Ferrers, for his full reply and his characteristically courteous remarks about the report. It will encourage the sub-committee that the Minister is generally in support of their approach. The noble Earl's remarks about the Breton turkey plants and the other French packages were particulary interesting.

I am glad that the noble Earl believes that state aids are under better control at present. I hope that this is true. On his point about excessive curiosity, I would say that the committee's view is that it is only greater openness that will remove excessive curiosity. We have had a valuable session and no doubt we shall return to these matters in due course.

On Question, Motion agreed to.