Dairy Produce Quotas Regulations 1984

HL Deb 20 July 1984 vol 454 cc1757-87

12.5 p.m.

Lord Belstead

My Lords, I beg to move that the Dairy Produce Quotas Regulations 1984 be approved, and to speak at the same time to the Dairy Produce Quotas (Definition of Base Year Revision Claims) Regulations 1984.

The House will recall the very valuable debate on the Common Agricultural Policy which the noble Lord, Lord Plowden, introduced some four months ago. It was very striking that on that occasion virtually every noble Lord who spoke placed the greatest possible emphasis on the need for urgent action to tackle the Community's surpluses. Undeniably, drastic action over the milk surplus has been taken. The regulations before your Lordship's House today are evidence of the radical nature of the decisions taken in Brussels on 30th and 31st March, only a few days after the debate on the report of Sub-Committee D in your Lordships' House.

Before I offer a brief description of the arrangements for the milk quota system in these two statutory instruments, your Lordships may wish for a brief word about the background against which the supplementary levy has been introduced. For a number of years there has been a steady growth in the milk surplus in Europe. Efforts have been made to find outlets both within the Community—for example, by the use of skimmed milk for livestock feeds—and on the world market, by the use of export refunds and by offering milk products as food aid. However, these measures have not matched the increases in production and they have involved massive expenditure.

Last year, we reached the point at which expenditure on the milk regime was about £3 billion, or one-third of all expenditure on the CAP, and the Community budget, as this House knows so well, could no longer absorb these growing costs. Although a guarantee threshold and a co-responsibility levy were introduced in 1982, it had become clear that if the same kind of regime were to continue, a cut of as much as 12 per cent. in the 1984–85 milk price—this year's milk price—would be needed to offset the additional expenditure arising just from the 1983 milk surplus. Some member states favoured the option of a much increased and graduated co-responsibility levy, but we opposed the idea strongly as it would have been a disastrous option for the United Kingdom, entailing a particularly high rate of levy on larger enterprises and a disproportionately high United Kingdom share in the burden of the levy because of the levels at which thresholds would have had to be set.

This left only two options: a quota system, or drastic price cuts. We urged the Commission and other member states most strongly last autumn to go down the road of price cuts as this would have avoided the complex and difficult arrangements needed to operate a quota system. However, by December it had become clear that the scale of price cuts needed to curtail production quickly enough to make the necessary savings would not gain the acceptance of other member states. We therefore had to work vigorously to ensure that the quota system being introduced would operate in such a way as to meet essential practical requirements.

We have been able to achieve two major improvements to the Commission's proposals. The first is that supplementary levy should be paid on direct sales as well as on wholesale deliveries. To have exempted direct sales would have led to a flood of producers taking advantage of the gap and selling directly on to an increasingly unstable market, and thus jeopardising existing business and undermining the levy system itself. The second change we achieved is the provision in the regulations to ensure that quotas can take account of the special circumstances of individual producers.

A quota is calculated for each holding on which milk production was taking place on 2nd April 1984. For wholesale producers, this will generally be their deliveries in our chosen base year (1983) less 9 per cent. Because of the way in which the Community legislation is drafted, direct sellers have a different base year of 1981 deliveries plus 1 per cent.

Because the Community had to introduce the system immediately, special rules are needed for producers who are not in production throughout their base year. These rules really are of some complication and they are to be found on pages 27 and 46 of the regulations. Later on, if your Lordships wish me to try to go into them further, I will certainly do so. All I would say now is that so far as producers who are not in production throughout the whole of their base year are concerned, I do feel that the rules which are on those two pages have achieved as fair a basis as possible on which to calculate their quotas.

The main complexity of the quota system comes in handling the special cases of producers who have, for example, suffered from exceptional events in their base year of production or who were engaged in expanding production before the quota system was introduced at all. As your Lordships know, the Community legislation provides for six exceptional events to be taken into account, including natural disasters, the illness of the producer or disease among his cattle, and therefore for such producers to have their quota calculated from a different base year.

In addition, producers who before 1st March 1984 had entered into a development plan under the Community structures directives, or who have otherwise committed themselves to making capital investments aimed at increasing their production, are able to obtain extra quota at the member state's discretion. It is clearly important that this "special case" treatment should be given only to producers who have been seriously affected in their base year by one of the six exceptional events, or who have committed themselves to a significant increase in their productive capacity.

In order to decide which special cases deserve extra quota and to ensure that justice is seen to be done to the individual producer, the draft regulations provide for the setting up of three Dairy Produce Quota Tribunals—for England and Wales, for Scotland and for Northern Ireland—and, except for Scotland, where the tribunal will sit as a number of panels to hear special case claims, in England and Wales these claims will initially be sent to divisional offices to establish whether they are, prima facie, eligible. If so, the claims will be forwarded for decision to the local panel, which will also consider appeals against rejection in the initial sift by the agricultural divisional offices. If a producer disagrees with a local panel's decision, he will be able to appeal finally to the tribunal.

If your Lordships approve these regulations, my right honourable friends will be appointing the noble Lord, Lord Grantchester, who has indicated that he will be willing to act as chairman of the tribunal for England and Wales. Indeed, in that event we shall be most grateful to the noble Lord, who has very distinguished experience of tribunal work.

We have also taken account of the argument that producers covered by the special case provisions are not the only ones who deserve some extra quota. We are well aware that small specialist dairy farmers on a restricted acreage could be particulary hard hit by the quota system, as they generally lack the possibilities open to larger dairy farmers to alter their method of milk production or to adopt an alternative farming enterprise. So my right honourable friend, together with his right honourable friends, has established the outgoers' scheme to buy up 2¼ per cent. of the total quota for Great Britain: that is, almost as much as the initial reserve for special cases. This will mean payments of about £650 per cow for those who now wish to quit dairying altogether. Of this, we intend to use about 1¼ per cent. to help small producers—that is to say, those who produce less than about 200,000 litres annually or, broadly speaking, those with fewer than 40 cows—by restoring their quota to their 1983 level of production. We also expect to have enough to give some more immediate help to producers who have suffered special hardship but who are not covered by any of the exceptional events set out in the Community legislation.

The draft regulations provide for a limited amount of quota to be allocated to help producers who had entered into transactions or made arrangements before 2nd April 1984 which would result in their now being unable to obtain as much quota as they need to sustain their businesses. I say quite openly to your Lordships that this extra element in the special cases was added after my right honourable friend had listened to the debate in another place some 10 days ago.

Although most of the quota surrendered by outgoers will not be available until later in the year, some will become available sooner and we propose to use this to deal first with these exceptional hardship cases which I have just described. It would be premature at this stage to decide which other categories of producer might benefit from the quota given up by outgoers. This is something we shall be considering very carefully in the coming months. I would add that the outgoers' scheme arrangements for Northern Ireland will be rather different, and of course my noble friend Lord Lyell has the responsibility within the Northern Ireland Office and in your Lordships' House for these matters.

Because of the larger proportion of small farmers in Northern Ireland, many of whom farm land on which alternatives to dairying are limited, and because of the more rapid rate at which production there had been expanding, the outgoers' scheme will aim at buying out 5 per cent. rather than 2¼ per cent. of quota, which may then be used in rather different ways than in the rest of the United Kingdom.

I have heard a number of comments before today's debate on the inflexibility of the quota system. We are, of course, severely limited in what we can do because of the way in which the Community legislation is framed. However, our regulations do include two provisions which will go some way towards making for a more flexible system. First, we recognise the problems facing the producer who supplies some of his milk to the Milk Marketing Board and sells the rest direct to consumers, and whose pattern of sales tends to change over time. We have therefore allowed for exchanges of quota between direct sales and wholesale deliveries by means of swaps between producers: so that if one has more wholesale quota than he needs he can exchange it for the direct sales quota of another producer who is in the opposite position. All these exchanges, of course, will have to be properly recorded with the Milk Marketing Board.

Secondly, we have tackled the problem of the producer who moves to a new farm and wishes to take his quota with him. What we have been able to do in the regulations is to allow such a producer to agree with the Milk Marketing Board, provided that all parties with an interest in his original holding agree, that the quota should go to his new holding.

If I may, I should like to conclude by emphasising that it was only with reluctance that the Government accepted quotas as the only effective means of Community action to deal with the ever-growing milk surplus. But I believe that for dairy farmers these draft regulations provide the most equitable solution that can be achieved in a difficult situation within the very real constraints of the Community legislation, and that we have done a great deal to ensure that the application of quotas is fair both to the majority of producers as a whole and to individuals. I therefore commend the draft regulations to your Lordships' House, and I beg to move.

Moved, That the draft regulations laid before the House on llth July be approved—(Lord Belstead.)

12.20 p.m.

Lord John-Mackie

My Lords, the noble Lord, Lord Belstead, has put these instruments before us and has done a tremendous lot to explain them to us. We are very grateful to him for that, because they are by no means simple in any shape or form and, as he knows, they have been altered quite often over the past couple of months. I am not sure that we yet have the final version. We had another one only this morning—the Milk (Supplementary Levy) Outgoers' Scheme, which the noble Lord mentioned. I have only managed to look at it, but it is not as clear as it might be.

The NFU were very pleased when the instrument came out last week, and they said that the regulations will resolve some of the difficulties which farmers have, but there are still a number of vital issues to be settled. The Minister has gone into quite a few of them, and I do not want to duplicate what he has said. I think we all agree with him, with the Government and with the Commission that we could not go on with the enormous surpluses of milk products that have built up over the years. The noble Lord mentioned some of the details, which I shall not go into, but the projected figure for this year is between 106 million and 108 million tonnes of milk. We all know that consumption is only 86 million tonnes, which gives us a 20 million tonnes surplus of milk this year. Over the years, stocks of over 1 million tonnes of butter and something like 1,200,000 tonnes of milk powder, etc., have built up, and, in spite of the efforts to get rid of some of these, the figures are still very high indeed.

There is no question that something had to be done, and we farmers (dare I declare my interest, though I am not a milk producer?) were well warned. I do not think anybody can complain about that. I think it is six years since the then president of the Commission, Roy Jenkins, opened the Royal Show and gave a very stern warning to farmers of what the situation was. He said that sooner rather than later, something would have to be done. I asked him what he meant by "sooner", and he said. "So far as I can see, it will have to be done next year". Other presidents have given the same warning since.

As the noble Lord, Lord Belstead, said, we in Sub-Committee D have consistently given warnings, and I have the latest three of them here. As he said, the noble Lord, Lord Plowden, reiterated the warnings in this House a few months ago, so I do not need to repeat them. I should just like to quote what we said on supply controls: Urgent action is required to reduce the mounting surpluses of key commodities and to contain the resulting expenditure". We said virtually the same thing on the last two price reviews; so I do not think we can complain that we were not warned, and we cannot criticise the Commission and the Government for taking what the noble Lord called drastic action.

Like the noble Lord, I am not in favour of quotas and levies, but that was the way chosen and we must go along with it. But what we can criticise is the method, the timing, etc. If the system of quotas and levies works on the basis of a 9 per cent. cut, that will still leave 13 million tonnes of milk to be dealt with for the next five years if production remains roughly the same. During those next five years, the surpluses that we are so worried about will be added to. Surely, it would have been much better to tackle the whole lot over nine or 10 years, starting at, perhaps, 2 or 3 per cent., and not 9 per cent., which is a very high figure indeed, and upping it by 2 million tonnes a year. The great advantage of that is that we would not have had the shock tactics of the major cut that has taken place and which has so upset—I emphasise the word "upset"—the dairy farming community.

My other criticism is that the Government did not think the scheme through. I believe the noble Lord said that they decided that they had to accept a quota scheme in December. That was seven months ago, and four months before the scheme came into operation in April. Therefore, they had time to think the scheme through better than they in fact have. There is no question that there are a lot of schemes that this Government have not thought through, and which have led them into difficulties, but this is not the time or the place to discuss those. Considering that the problem of the surpluses will not be solved overnight, it would have been better if the Minister had taken a month or two to get the scheme right, rather than, as I said to him the other day, have dairy farmers waking up on 2nd April and finding that nearly 10 per cent. of their milk would not be paid for.

Over the following three months the Minister, both in another place and in public places, catalogued events. On 3rd July in another place he started by saying: I wrote to all registered producers on 10th April explaining the arrangements… On 25th May I announced that I intended to make quotas available as quickly as practicable… On 12th June a letter was sent to all registered milk producers in England and Wales giving guidance on the types of special case which can be considered under the rules of the scheme… On 19th June a notice was issued to milk producers who sell direct to the public". [Official Report, Commons; cols. 162–3.] Then he said that the draft regulations were laid before the House on 27th June. In the middle of all this, he announced £50 million of help to hard cases. Then two days ago we had the regulation on going out of milk.

So it is no wonder that farmers were confused, and time should have been taken to get it together so as to satisfy them a little more than they have been. The Minister admitted later in his speech that there was a great deal to do, and he can say that again. A great deal of work is ahead of us, and farmers would like to be satisfied about the position.

All this has confused and angered farmers. I have never had so many letters from farmers. I had one this morning from a Somerset farmer's wife, who is very bitter about the whole situation. Also of course we have been lobbied by all the various bodies, and the agricultural press has been full of what has been happening, with stories about frustrated farmers pouring milk down the road, and so on. Because of this uncertainty many farmers sold their cows too quickly. Now that they see more clearly what is going to happen they regret it. It would have been much better it they had waited. I blame the Minister for not putting it all in one block for the farmers. They would very much have appreciated it.

There are great worries about hardship cases. The Minister said what is going to be done about them. The fact is that 40 per cent. of the dairy milk producers are below the 40 cow figure and produce about 13 per cent. of the milk. I do not know whether there will be sufficient cash from the sale of quotas to cover the enormous number of producers. I hope that there is and that the hopes of these farmers will not be dashed because there is insufficient money. Hardship cases will be settled by local panels. Farmers will be able to appeal to a tribunal. I believe that not hundreds but thousands of cases will be brought before the panels. Who will man these panels? The chairman of the tribunal has been appointed but what about the other members? How will they be appointed? I am sure that these questions are being asked.

The Minister mentioned direct sales. This is a very real problem. I do not know whether there is sufficient flexibility. The Minister also mentioned the transfer of quotas. There will be many difficulties, for tenant farmers in particular. I know of one farmer who is giving up his farm, but the landlord is unwilling to let him give it up because he wants to sell his cows and take a golden handshake. One can see the landlord's point of view. If he wants to sell the farm or re-let it, there will be no milk quota, although the farm is equipped for producing milk. Who is right? Is it right that that tenant should be able to sell his cows, or is it right that the farmer should be able to sell or let the farm to a neighbour?

There is also the question of whether these levies and quotas will be applied as rigidly elsewhere as it is obvious that they are going to be applied here. How will they be monitored? For some reason, we do not trust the French. A friend of mine has French cousins who are completely immoral about it: if they can "do" the Government, it is considered to be perfectly legitimate. Farmers will need to be satisfied about this.

The Welsh small farmers consider that they are in practically the same position as the Irish small farmers. They do not believe that they are receiving the same treatment as the Irish small farmers. It is no wonder that the Welsh small farmers have formed an organisation to fight this as hard as they can. Something should be done for them.

I could speak at length about the various difficulties and doubts which confront farmers today, but I am sure that many other noble Lords who are to speak will have cases to mention. I understand that the noble Lord, Lord Monk Bretton, has a very interesting case to put to your Lordships. We look forward to hearing what the noble Lord has to say.

My noble friend Lord Blease, who unfortunately had to leave the Chamber in order to catch a plane, asked me to put the case for Northern Ireland. He says that farmers in Northern Ireland believe that Northern Ireland is being badly treated. The Minister referred to what is happening in Northern Ireland and gave the reasons for it. However, I am not sure that his explanation will satisfy Northern Ireland farmers. I should like the Minister to take note of what they have said. They have written to the Minister on the subject. According to my noble friend Lord Blease, the reason given for deducting the 57.7 million litres does not satisfy the Irish farmers. The increase to 63.1 million litres results in an increase of only about 6 million. Again I look forward to hearing whether the Minister is satisfied that that is a fair solution of the Irish problem.

Turning to the other Irish problem, I have in my hand cuttings from the Northern Ireland press. One matter which is worrying many people is milk smuggling. Eire farmers have urged the EEC to clamp down on milk smuggling. This subject was mentioned when Irish representatives came before Select Committee D. It was said in evidence that there are informal routes across the border. It was a rather euphemistic way of putting it! Something must be done about this problem. I see in today's copy of The Times that something is being done about it.

Turning to the large farmer who goes out of dairying, there is the very real problem of staff redundancies. One hears of £50 million being paid out to farmers. Will anything be paid out to dairymen? They are skilled men. Will they be given any help at all? Something should be done for them because there will be many redundancies on the large farms—not on the small farms, because they do not employ labour—which will be going out of milk production.

There is no doubt that the small farmer is in a quandary. As the noble Lord said, many farms are of no use except for producing milk. That is particularly true of farms in the less favoured areas. They cannot get out of milk production. The farmer is equipped only for milk production. I have made some calculations which I believe will interest your Lordships. The small farmer, with 35 cows producing 1,150 gallons per cow, will lose an income of £2,000 a year. That is a very high figure. I have the figures of sales of cows in February. The difference between the price of milking cows in February and the price of milking cows last week was £160. I did not take only one market for comparison but a whole range of markets in the farming press. This means that the dairy farmer's collateral to the bank has probably dropped between £5,000 and £6,000.

Furthermore, the price of culled cows has gone down by anything up to 6p a kilo. This makes a difference of between £20 and £30, depending on the market. All this adds up to very hard times for those farmers with 35 cows.

Apart from anything else, there has been an increase in the sale of fatted cows. Again I have looked at the market. The considerable increase during the past few months in the sale of culled cows has affected the fatstock market. I must declare an interest. I am selling fatted cattle, and during the past few months the price has gone down for a 500 kilo bullock by nearly £30. Therefore everybody is being affected. The only bright spot is the price for calves. The dairyman is getting a very high figure—over £100—for his calves. There is therefore some compensation. but how long it will last I do not know.

I should like to mention the Co-op. They have 5,000 cows, and are retailing an enormous quantity of milk over and above what they produce themselves. I have spoken to the Co-op farms manager and the dairy manager. They believe that they will be tied down to the quota because they are a corporate body and because their books are open to the public. They cannot see how the hundreds, if not thousands, of producer-retailers can be monitored in the same way. It is a very real problem.

I have said plenty to show that although we agree that something has to be done, we do not consider that the Government have handled this matter as well as they should have done. I have had details of two schemes sent to me. One was from a dairy farmer in Aberdeenshire, who devised it in co-operation with a dairy farmer in Yorkshire. Another scheme came from a dairy farmer in Suffolk. They both considered that their schemes would be better than this one and, frankly, I agree with them. I am sure that the Minister has received details of these schemes, but of course it is now too late. This shows how farmers are thinking and that they are unhappy with the present arrangement.

I shall close by saying that the Minister really must produce a plain farmer's guide to the whole scheme. The Minister said that justice would need to be seen to be done. If only the Government had made everything ready to put before the agricultural community, rather than present this scheme in a piecemeal fashion, as has been done, then justice would have been seen to have been done. Meantime, let us have a guide, and let justice be seen to be done.

12.41 p.m.

Lord Sainsbury

My Lords, I shall be brief. No one can have been taken by surprise by what has happened in the Community to supplies of milk and milk products. There have been countless warning signs that Community production would reach unmanageable proportions, and yet the Council of Ministers have refused to grasp the nettle, and they have chosen to ignore these clear warnings in past farm price fixings.

The Government can hardly claim to have followed a "prudent price policy" when, as recently as 1982, they agreed to milk prices being increased by 10.5 per cent., which was well over the United Kingdom inflation rate for that year of 8.6 per cent. As a result, we are in a situation in which production needs to be curtailed drastically and quickly.

This has meant, perhaps inevitably, the introduction of a quota system. In different circumstances we may have been able to adopt the, to my mind, infinitely more preferable solution of reducing target prices. Early action on prices would have avoided the complexities and costs of administering the quotas. As it is, quotas seem to be the only realistic means of curbing production immediately.

It is also to be deplored that farmers have had to accept a very major change in their circumstances in such a short time span. Foresight and courage combined would have enabled the Community to introduce a graduated policy to curb milk production over four or five years.

As I have said before in your Lordships' House, farmers must be given a more predictable environment in which to make their planning decisions. This also applies to all those ancillary industries whose businesses will be affected by milk producers' attempts to reduce output. The National Farmers' Union has stressed that the uncertainty surrounding milk production should be cleared up as soon as possible, so that farmers can make the necessary management and financial decisions.

It is hardly surprising that there are some very harsh feelings among dairy farmers when one considers that, until very recently, farmers were given grants to invest in dairy production and were being encouraged to do so. Under the draft regulations, farmers are entitled to claim for additional quota on the basis of capital investments, either made, or committed to be made, before 1st March 1984. This seems a poor substitute for a consistent Government policy, especially when, as the Minister stated in the Commons debate on 3rd July, only part of farmers' additional investment will be taken into account.

Some producers will certainly not be able to adapt to the quotas and survive. For example, those in many parts of the West of England and Wales have no alternative but to produce milk. It is to be welcomed that quotas released from the outgoers' scheme are to be transferred to a reserve pool to be redistributed to hardship cases. However, there is concern that this reserve is too small to meet the needs of the many small specialist dairy farmers. As to the outgoers' scheme, it is certainly not generous compared with, for example, the comparable scheme in Germany.

In conclusion, may I commend the amendments made to the draft regulations as a result of the Commons debate on 3rd July, especially regarding the interchangeability between direct sales and wholesale quotas. Lastly, may I press the Government to ensure that other member states implement. and strictly adhere to, the quotas.

12.48 p.m.

The Earl of Kinnoull

My Lords, the noble Lord, Lord John-Mackie, appealed to my noble friend to produce a plain farmer's guide. I only wish that such a guide was with us today because we are faced with a labyrinth of regulations on this new milk quota system, which must be, in my view, the most backward, old-fashioned legislative measure and the most complicated, not fully digested, set of regulations ever to have been inflicted upon the highly modern and efficient British farming industry.

The only two redeeming features on this rather gloomy Friday, as my noble friend has said, are, first, that this scheme was not the Government's first choice; and, secondly, that my noble friend moved this Motion in his usual skilful fashion. He presented these diabolical regulations with great aplomb, and I think that it takes the resourcefulness of a farmer to achieve that.

I do not think anybody has argued—at least, not in recent times—the seriousness of the decision that had to be taken on the over-supply of milk. As other noble Lords have said, it is an overwhelming case. But the criticism of the Community—I stress the Community rather than the Government—is that its reaction to this problem has been too slow. The noble Lord, Lord John-Mackie, said that we were being warned of it five years ago. It has now chosen the worst of all options to achieve a policing of the producers by a cumbersome bureaucratic machine with harsh inflexible rules. They will be harsh and they will be inflexible rules. It takes no great skill to forecast that these regulations will cause many wholly undeserved cases of hardship, financial anxiety and uncertainty to farmers. Worse still, there will be unavoidable cases of unfair treatment to the producer/retailers.

I feel completely hostile to these regulations; not so much as to their objectives but to the manner in which they have been presented to the dairy industry. I think it is an intolerable state of affairs that the dairy farmers were told summarily on 2nd April that agreement had been reached and, forthwith, their production had been slashed by 9 per cent. under the new quota system. That was four months ago and this system, which affects their livelihoods, is so clouded with uncertainty that no one, not even the Milk Marketing Board, can advise with any confidence about the effects of the regulations on their personal businesses.

The incompetence in planning by the Commission—and I am suprised that the noble Lord, Lord John-Mackie, never mentioned this—is a scandalous and appalling state of affairs. One learns that it took the Commission seven weeks to work out the basic ground rules of this scheme, even after the agreement was announced. It took a further four weeks to issue the final arrangements for direct sales because the Commission had got its sums wrong. To what was all this delay due? I cannot believe the Commission is understaffed. Certainly if one goes to Brussels one never gets that impression. I hope that my noble friend, along with other members of the Community and Ministers responsible for their industries, will insist on an inquiry into this incompetence and ineptitude. Indeed, they should publish the reasons for these long delays.

One of the disappointments that I feel today in discussing these regulations is that we can of course only in truth rubber-stamp these regulations. The House missed an opportunity to seek and support constructive amendments to the original draft regulations, which was achieved very effectively in another place last week. In fact, I think it is a great credit to my noble friend and his department that they reacted so swiftly to the comments that were made. I do not accuse the Opposition of not doing their job, but I think that when this House has such a multitude of experts in agriculture some provision should have been made to have a similar debate in this House, as in the other place, before these regulations have our approval.

When one tries to envisage which of this multitudinous pack of regulations in this 80-page document could have the most damaging effect on the industry, whether it be young farmers entering into milk production. tenant farmers who wish to leave the industry or the producer/retailer, it is, I think, the latter case which suffers far the most patently absurd arrangements. The producer/retailer will be allocated two quotas. He will be allocated a quota for production and a separate allocation for his retail trade. Both will have different periods. I ask my noble friend: why should there be different periods?

The Milk Marketing Board breathed reality into the plight of the producer/retailer when it forecast that the system will lead to many individuals being allocated direct sales that they do not want or need, yet fail to give sufficient wholesale quotas, and vice versa. I doubt whether the Government's well-intentioned amendment in new Regulation 8 will give much practical flexibility or relief to the difficulties faced by the producer/retailers. It seems a very punitively heavy-handed imposition to force a retailer to cut back on his hard-won competitive markets. It is patently unfair, and I hope that my noble friend, when he winds up this debate, will be able to say that he intends to keep this under review.

The regulations deal with the transfer of quotas in Schedule II and I suspect that that part of the regulations will be a minefield of argument. As the quotas are to go with the land, we now understand, I doubt whether any landlord—as the noble Lord, Lord John-Mackie, has already said—will willingly give up his quota on tenanted farms. It is a plus value to that investment, but to the tenant it might be a minus value, with seven days a week, production falling and costs rising. I ask my noble friend what happens if the tenant, for good economic reasons, decides to alter his sytem of farming from dairy to, say, arable and the landlord says no? Perhaps even the tenancy agreement forbids it. Is that a ground for notice to quit? If the landlord agrees verbally with the tenant, but not in writing, is the farm to lose its quota?

I turn briefly to the plight of the small farmers under these regulations and my noble friends' outgoers' scheme. This, I am sure, is a most helpful, encouraging and sensible scheme to provide compensation for those who wish to retire and, at the same time, to be able to redistribute their share of their quotas to those who wish to remain. I anticipate that this scheme, as the noble Lord, Lord John-Mackie, suggested, will receive a very active reaction. With £650 as compensation for each cow—the noble Lord, Lord John-Mackie, is getting less than that at present, and I suspect he might be looking to that scheme —my noble friend will be swamped with applications for retirements. One wonders whether the £50 million allocation will prove sufficient. I certainly hope that it will.

Another aspect of this retirement scheme is the reallocation of the quotas to those remaining in the industry. I hope that my noble friend will be able to devise patently fair rules as to how these quotas are redistributed. I have a small-producer friend and neighbour on the Isle of Wight who has worked for 25 years without any full-time help or a single holiday. He has built up a herd of 45 to 50 Jersey dairy cows, all home bred. He has been hit very hard by the quota system; not only by the production loss, as have other farmers, but also by the slump in the value of his stock and young followers, on top of this year's shortage of grass. My question to my noble friend regarding this friend and neighbour is this: if my friend has 45 or 50 cows, does he come into this scheme which, as I understand it, may be limited to only 40 cows? How rigid is this scheme? That is an important point which I hope my noble friend can answer today.

There are many other questions with which I should like to plague my noble friend; but I confine myself to two more. First, who pays for the Milk Marketing Board's costs of operating the levy scheme—will it be Brussels, the Government, or the producers? What is the estimated cost of this work? Secondly, how formal will be the tribunal hearings? Will producers require legal aid? What sort of people will make up the tribunals and the panels? Again, what is the anticipated cost of running these quasi courts?

My final plea to my noble friend concerns the milkman. Milkmen are one of the few unsung heroes who give a service to our communities. They offer a vital service. They are inevitably cheerful, helpful people, who work very unsocial hours, and they are often very kind to the elderly. Along with postmen, they have a very special place in our society. Any threat to the future of the milkman, whether from importing long-life milk or from some repercussion from these awful regulations, will, I hope, be strongly resisted. I hope that my noble friend, who has an above average quota of the milk of human kindness, will assure us that he equally values the place of the milkman and the great service that he gives to society.

1 p.m.

Lord Stanley of Alderley

My Lords, despite the comforting words of my noble friend Lord Belstead, it is not possible for me to congratulate the Government on the way that they have handled the problem of milk surpluses. The action that they have taken—or, to he charitable, that they have been forced to take by the Commission—is a disaster for the dairy industry and has undermined the confidence of the whole industry in the Government and, in particular, in my right honourable friend the Minister. In imposing this quota, one could say retrospectively, the Government (or perhaps they would prefer me to say the Commission) have broken the golden farming rule, which is to give time to adjust—a point repeatedly made by your Lordships' Sub-Committee D, and also made this morning by the noble Lords, Lord John-Mackie and Lord Sainsbury.

However, it is no good crying over spilt milk—if that is an apt phrase—and I shall therefore support the Motion before your Lordships' House. But I have the following questions to ask my noble friend. The outgoers' scheme, although generally acceptable, is totally unacceptable to tenants in England and Wales —perhaps less unacceptable to tenants in Scotland. Although the contract will be between the Minister and the producer, the terms of the contract state that the tenant must have his landlord's consent. I fully accept the interest that the landlord has over what happens on his farm, but this consent effectively means a veto on the tenant applying for the outgoers' scheme, for what responsible landlord would allow his farm to lose its quota?

Wearing another hat, as a trustee, I should consider that I was in breach of trust if I allowed a tenant to apply for the outgoers' scheme. I note with interest that the contract is different in Scotland, where I believe that the consent of the landlord is determined by the tenancy agreement. That is fairer, though not complete, but it gives my noble friend a place to start to make improvements. Tenants may very well need that outgoers' scheme more than owner-occupiers. There is a cash problem in our industry, and tenants have no collateral in the form of land. There is also, of course, the knock-on effect. If tenants do not release their quota, from where will the Minister get his spare quota to help special cases, particularly the small producer, who has rightly been mentioned by my noble friend Lord Belstead this morning?

My second question concerns ownership and transfer of quota as it applies to the tenant. That has been referred to briefly by my noble friend Lord Kinnoull and the noble Lord, Lord John-Mackie. I recognise, and welcome, the recent concession that quota belongs to the producer and may follow him from farm to farm, with, of course, the consent of the incomer. But, again, the Minister has given the landlord the right of veto; and, again, as a trustee, I say that I should be in breach of trust if I let the tenant take it with him. So again the tenant is ruled out. I implore my noble friend to look at that point very carefully.

Thirdly, I must ask my noble friend to look at the long-term effects of the quota, with a view to modifying them. There is the danger of locking quota onto particular farms ad infinitum with the creation of no new dairy farms, leading, I believe, to ossificaton of not only the dairy industry, but also the whole of agriculture. There is the danger of what is called the "sleeping" quota, which, although it could be temporarily released, could come alive again and cause chaos. Frankly, I do not know the answer to that third queston, but the idea of buying and selling quota should be examined. I hope that my noble friend will give an undertaking to discuss the long-term problems with the industry. I realise that my third question is a matter for negotiation with the Commission.

I shall say a few words, very quickly, about direct sales. It is a matter which has been touched on by my noble friend Lord Kinnoull, and I hope it will be expanded on by my noble friend Lord Monk Bretton. I fear that the concession does not go far enough, because quota cannot be exchanged between direct sales and board sales by the individual concerned. I believe that it will encourage direct sellers to break the law. How can a farmer say to a direct sales customer on his doorstep that he cannot have a bottle because that bottle, or portion of milk, is on his hoard quota and not on his direct sales quota? I implore my noble friend to look at that problem again. Of course I realise that we do not want fiddling (if I may use the word) by our European partners, but I am led to believe that, since they have examined that regulation, or part of the regulation, they have more sympathy with the British Government's view—which I believe it is—than they did originally.

I appreciate my noble friend's problem of giving due weight to the landlord's interest, but I think that on the first three points that I raised he has forgotten the tenant. Bearing in mind the extraordinarily good way that my noble friend handled the passage of the Agricultural Holdings Bill through your Lordships' House, I am sure that it is not beyond his powers to put those matters in perspective.

Finally, will the Government make sure that in future the industry is given more time to adjust to any cuts or new ideas controlling agriculture, and not just those applying to milk?

1.8 p.m.

Lord Graham of Edmonton

My Lords, perhaps I may begin, as have all other speakers, by thanking the Minister most sincerely for the care he has taken in preparing for the debate and for the lucid manner in which he has explained a matter which, frankly, as one who is not as attached to the farming industry as are many other noble Lords, I found baffling when I read through the regulations. Judging from my contacts, I believe that the Minister has fairly described what he has presented to us as drastic action of a radical nature.

The Minister took time to explain the background, which all of us fully understood. There is no dubiety about the need for action. I thought that it was particularly fair of him to point out the Government's dilemma in recent times in having the very difficult choice as to how to put forward a solution to the problem of milk surpluses—either a drastic reduction in the prices that farmers get for their milk, or a quota of this kind. I was glad to hear the Minister speak more than once about built-in flexibility, though I am bound to say that other noble Lords made the point that perhaps there was not so much flexibility.

The Minister concluded by saying that, regrettably, if there is a villain of the piece, it is the constraints of Community legislation. In other words, the Government may very well not have moved along those lines, but we are members of the Community, this is Community legislation, and we have to do this.

I was very pleased indeed to listen to my noble friend Lord John-Mackie who from his experience, which we all respect, and from the contacts that he has received, spoke of the bitterness of farmers. I was very impressed by the references that have been made by others. My noble friend Lord John-Mackie also told us about the farmers not being very happy. He gave us some illustrations of farmers who are suffering a great deal.

I want to declare a multiple co-operative interest in these matters. The co-operative interest in this situation straddles many aspects. The Co-operative Wholesale Society is the largest farmer in Britain. It ultimately farms on behalf of 10 million consumers. Those consumers are organised in businesses which take almost £5 billion across their counters. Of direct interest in this short debate is the fact that co-operative milkmen deliver more than 25 per cent. of the milk that is consumed in Britain. I have the privilege of being a director of the Enfield and St. Albans Cooperative Society. Co-operative societies employ more than 100,000 people. I ask the Minister to listen very carefully to the views of the Union of Shop, Distributive and Allied Workers, with whom I declare an association.

I cannot help questioning whether Britain has got a good deal from these quota arrangements. Quite frankly, I believe that they are a bad deal for Britain. I speak after having consulted the Dairy Trade Federation on this particular point. It is clear that these quota arrangements will put the availability of milk in jeopardy and are certain to affect the price of milk delivered to the doorstep. Bluntly, this is a bad deal for the British farmer, the British milkman and the British consumer.

In Britain for more than 40 years we have had a unique doorstep delivery. I was most grateful and appreciative of the kind words of the noble Earl, Lord Kinnoull, in respect of the value of the consistent service to the nation and the consumer which is given by milkmen employed by many distributors. With our doorstep delivery system the price of milk has been lower in this country than in most competitive Western countries. The consumer, the producer and the milk industry have all had a good deal from previous arrangements. They have not any more.

As has been so clearly demonstrated Britain's milk producers have never shirked a challenge but these orders will severely strain some producers' ability to survive. To be fair to the Minister, the base year order and provisions in the principal order ameliorate the worst effect of some of the provisions. However, it is still a poor deal. I hope the Minister will understand the strong feeling in many quarters on the issue of levy payments. I think he will have the support of the whole House for stating that he would find it wholly unjustifiable to enforce and collect a levy in this country while other countries took no action at all. It is a prime imperative of the milk industry to preserve investment and to protect jobs. I think we ought to be deeply concerned at the effect on jobs as a consequence of this quota. It is clear that as a result of a cut in production more British workers will be thrown on the dole.

Let me give your Lordships an illustration. At the Milk Marketing Board Dairy Crest butter and powdered milk creameries more than 400 redundancies have been declared. Additionally 40 drivers' jobs have gone. Those workers and their representatives will fight for their jobs. Mr. Garfield Davies, the Union of Shop, Distributive and Allied Workers' national officer has said: If there is less milk to move, any cuts needed only affect contract drivers, not Milk Marketing Board staff. When the British Government agreed to the EEC quota system it knew that the 10 per cent. cut in production would be a stab in the back for dairy farmers, farm workers and milk workers. Well"— said Mr. Garfield Davies— our members are determined to preserve their jobs now and in the future". This is not a matter which affects just farmers. I fear that there will be detrimental spin-offs, potentially damaging to workers and consumers.

I was pleased to hear the words of the noble Lord, Lord Sainsbury, who, from his wide experience in the retailing and distributing field, quite rightly pointed out some of the spin-offs which would affect not merely farmers but the distributive and retailing chain as well. Milk is not the only sphere in which Ministers have urged a course of action in one direction, only to leave trusting individuals to pick up the pieces. Earlier this week I had to remind the Minister for local government that the Prime Minister had urged councils to spend up to the hilt on capital projects in 1982, only to be told to stop it this very week.

Does the Minister recall that not many years ago Mr. Peter Walker, the then Minister for Agriculture, was urging the milk industry to produce more and more milk? Does the Minister fully understand what such exhortations led to? Would he have expected an increase in investment, plant and machinery at productive and processing levels? Of course he would, because the Minister was urging that course. The noble Lord, Lord Sainsbury, quite rightly alluded to that dilemma.

Let me give the House an illustration. The CWS has built a cheese producing factory at Llandirnog in Wales. It produces only cheese. It employs 220 people. There was an investment in excess of £5 million. That investment and those jobs are now at risk. That factory is required to work to capacity. Anything less is not only wasteful but inviable.

How does the Minister answer claims of being led up the wrong garden path by his ministerial colleagues? Will the Minister say more about his use of spare quota arising from special cases and from the Outgoers' Scheme? The Minister must be aware of the regional imbalance in connection with processing capacity. May we be assured that such reallocation of spare capacity will not be exercised with a regional bias, for instance favouring eastern areas over western? I hope that an even-handed approach will be exercised by the Minister.

In regard to milk and milk products for export, can the Minister be more helpful to the House and to the milk industry to say more on this crucial aspect of the orders? The overall national interest is involved here. We must have greater clarity from the Minister. The new quota arrangements, taken with the recent prohibition on export prices for milk sold by the Milk Marketing Board, have put this particular aspect of the trade at risk. What plans has the Minister to solve this particular problem? What is there in these regulations to inspire confidence among milk producers and processors to go for export? What special steps has he in mind to encourage export sales? I want to ask the Minister directly to widen his remit born out of this impost on the milk industry. I want to ask him to consider the changing and changed circumstances in the relationship between the Milk Marketing Board and the industry, which I believe has become much too uneven of late.

In conclusion, having raised what I consider are serious points affecting our producers, processors and consumers, and accepting that the Government and the country have to get on with it, I want to ask the Minister what consideration is being given by the Government to the consequences of these orders on the milk industry? Let me spell it out. Workers will be made redundant. Earlier I referred to the Milk Marketing Board workers. What special redundancy conditions, terms and arrangements have the Government in mind to help workers and companies grapple with these aspects of the quota—less milk; less capacity; fewer lorries and fewer workers? What are the Government going to do about easing this particular burden?

What plans do the Government have to help the industry on the liquid milk side, which will be left with spare capacity, which means unviable plant, as a direct result of Government action by means of these orders? Surely there is a very strong case for the establishment by the Government of a special compensation fund to meet these special problems. If the Minister could say something helpful and constructive on this matter, it would go some way towards creating a happier atmosphere than exists at the moment in the milk industry.

1.20 p.m.

Lord Wise

My Lords, we must all recognise that there is over-production of milk within the Community and that some form of limitation is necessary. It has been decided, I think regrettably, that this quota system is the way in which it has to be done, but it is inevitable that quotas will cause unemployment, not only in the industry but, as the noble Lord, Lord Graham, has said, in all other ancillary industries as well. The effect could be calamitous to small family farms in areas where milk production is the only possible means of livelihood. Interim cash payments must be made to small producers in order to keep them in business until their quotas can be made up. It is inevitable that considerable time must elapse before hardship cases can be assessed adequately.

One hears of so many cases of farmers who in the past have been encouraged to produce more, have invested heavily in stock and equipment and are now obviously greatly indebted to the banks. They have planned their projected cash flow on X number of cows producing a given quantity of milk, and, as such, their businesses were viable. Then, almost overnight, their quota became X minus Y number of cows producing a smaller quantity of milk, and obviously their businesses are no long viable, through no fault of their own. There is only one answer, unless they receive help.

I want to follow my noble friend Lord Stanley in speaking about the problems confronting tenant farmers and the question of the ownership of the quotas. I do not think that if a tenant gives up his quota and possibly takes the golden handshake. the landlord should necessarily be compensated. Obviously land with a quota will be worth more, but without the quota it will not be worth less than probably it is at the moment. It has the quota only by virtue of the decision of the tenant to produce milk on the holding during 1983. It seems unreasonable for the landlord to benefit from a management decision of the tenant.

For instance, what is the position on a large estate where perhaps some tenants have ceased producing milk? Are they going to he penalised for giving up milk and thereby now depriving the landlord of the quota? How can they be? They were able to sell their cows at their full value, whereas the poor unfortunate tenant who is still milking has seen the value of his stock, which he has to sell, decreased by maybe 30 per cent. Obviously the only interest the landlord has in the quota is if he has provided or improved buildings for dairying, without increasing the rent accordingly. Taking the golden handshake is the only way that tenants who wish to give up dairying can reinstate their financial position. I should like to see tenants being given priority, because owner-occupiers have at least the cushioning effect of the capital value of their land and assets.

Again following my noble friend Lord Stanley, I want to say that I understand the Ministry is against saleable quotas. I should like to see consideration given to the question of buying and selling. It is a difficult question, but, then, these regulations are pretty complex. There could well be tenants who would wish to retire but now are unable to do so because, almost overnight, their capital has been devalued by, again, up to 30 per cent. If they were able to sell their quotas, it might enable them so to do. Again, if the landlord has a claim on the value, surely it could be valued according to his capital input.

There are many things that could be said about these regulations, but a lot has been said already. I hope that we will approve them in order to clear up all the misunderstandings and in order to make the system work as fairly as possible for everyone concerned.

1.27 p.m.

Lord Monk Bretton

My Lords, I should like to congratulate my noble friend the Minister on his comprehensive introduction to the regulations; it helped to clarify matters. From the briefs I have seen, I gather that most of the questions that remain unanswered are not those that are dealt with by the regulations, but those yet to be dealt with. I regard this as a good sign—a sign that what the Government have done is to make a slow and perhaps somewhat piecemeal approach, rather than a hasty effort to be comprehensive, which might have got things wrong. I believe it is absolutely right to have proceeded in this way, given, all the time, that we had to acquiesce in accepting the quota system.

I believe, therefore, that it is right to pass these regulations. while asking the Minister to keep an open mind on both what has been done and what is yet to be done. After all, we cannot amend the regulations. They are, indeed, complicated—so complicated that it is a difficult matter declaring an interest. I shall do the best I can by saying that I am a partner in a mixed farming enterprise producing wholesale milk, with several landlords, including myself. I happen to own the bulk of the dairy buildings, but not so much of the dairying land. So for several reasons I have an interest in knowing whether a tenant can move his dairying around, to the detriment of one owner and the advantage of another—the problems to which my noble friend Lord Wise has been referring.

I fear that, in the end, someone may get an unlettable farm out of this, and that will lead to further problems. I refer particularly to those areas where land is not adaptable to other enterprises. In that connection, typically, I am thinking of our problems in the Sussex Weald, where I live. There is something which the regulations do not take directly into account, and I do not know what will happen about it; that is, the desirability of keeping dairying in areas where the land is less adaptable to other enterprises.

I gather that the question of whether or not producers should he able to lease out unused quota to other producers is still under consideration. This is something which might well have landlord and tenant support and which would at any rate be a palliative to some of the problems to which my noble friend Lord Wise referred.

I should like to talk particularly about special cases. I am very concerned about what is going to happen to those dairymen, usually pedigree dairymen very much in the van of dairy cattle breeding, who biennially, or perhaps triennially, have a draught sale or who sometimes have a "production sale", which means that they are going to sell a considerable portion of their milking stock. There are probably about 100 of these men who will have done that in 1982 with fairly calamitous effects upon the quota that they have been given. I am wondering how they will fare. It is most important that their position should be assured, because we must remember that they are not necessarily very large farmers, but that they are most important to our cattle export trade—in fact they are the leaders in this field, and they very often proceed by having draught sales biennially or triennially. They may be in a difficulty and I do not think that the National Farmers' Union is at all convinced that their position is satisfactory under the regulations.

I hope also that the Minister will bear in mind so far as hardship cases are concerned, that the NFU asked that where there was a drop of around 10 per cent. because of hardship. it should be taken into consideration. I think that my noble friend said that 15 per cent. is what is proposed. I hope that my noble friend has stretched as far as possible what we are allowed to do by Brussels as regards that particular matter.

I have promised—indeed, I have already been in receipt of a trailer on it—to say something about direct sales. I agree that the Minister has tried to help over this matter. But I know that the NFU is still anxious that the Government should continue to press Brussels about our particular problems here in the United Kingdom. If we have a producer who is selling 30 per cent. of his milk direct and 70 per cent. wholesale to the board, he will receive two quotas. His direct quota will be cut by 6 per cent. and the other one will be cut by 9 per cent. So he starts off 6 per cent. short for his direct customers, anyway.

Let us suppose that this particular producer can see a very good chance of opening further direct sale outlets. What may he do? May he ask the board whether he may reduce his wholesale deliveries and increase his direct sales? The answer is, no—and this is what has been decreed by Brussels. One does, indeed, wonder whether he will necessarily find it very easy to be entirely honest about this. I can just imagine a customer saying, "Look, don't let me down this morning".

As I understand it, what he can do is ask a direct selling neighbour if he has some unused direct sale quota to spare. He can do that, but there is likely to he the problem that that particular neighbour is also 6 per cent. short in satisfying his customers, and he will find that he does not have milk available. In fact, it will not work quite like that, because what will happen is that there will be a direct sale quota pool and that pool will receive the quota of those who are giving up. It is hoped that it will then be available to those who wish to expand direct sales. It seems to me that it is likely to be an inadequate source of supply, certainly at the outset, and it may well be so thereafter.

I gather that the Commission is terrified that if we can do a direct swap between our wholesale and direct sale qutoas, there will be a fiddle. I am afraid that the result will he the usual one that we get from Brussels. It will be a most negative result for improving opportunities to increase the sale of the product. It has happened so often, and it is a very great pity. I believe that in the United Kingdom the chance of abuse is so much less. We have always had rigid rules and rigid policing of those who attempt to sell milk off contract. Because of that I believe—and, I wish that Brussels could be convinced—that the board really does have control. It may not be so in other countries, but it is in this one. If we could get Brussels to move on this matter, there would be less danger of abuse than there would be if we continue with the position as at present proposed.

I should like rapidly to conclude with a word of advice to the politicians about dairy farmers and also a word of comment about the future. I am sure that the one thing that we should not say to dairy farmers is that they have only themselves to blame for what has happened. Nothing is more enraging to them. They have known for a long time that quotas were on the cards. They have known that our milk production has not increased as rapidly as it has in the rest of the Community. They have known that if quotas came, then cutting hack beforehand on their own farm would simply be financial suicide from their point of view. They feel very hard done by indeed, and they are worried about the future.

So far the EEC has only halved its surplus. What next? Are there to be further cuts? Can dairy farmers look to our Government to defend their interests more successfully in the next round? The feeling among dairy farmers is that the large cut that we have now indicates that the next time round it should be the turn of others. But, above all, as has been said by other speakers, they need to know in time. Brussels, and everyone, needs reminding that the gestation period of a cow is nine months and that orderly planning of this business revolves around that fact, if waste is to be avoided. It hits hard financially to have to sell off plain cows heavy in calf and it is also an unpleasant trade. Can we, therefore, yet be enlightened any further? If not, how soon may we be enlightened?

1.40 p.m.

Lord Mackie of Benshie

My Lords, I must confess that, in ploughing through the 80 pages of the regulations. occasionally I fell asleep. I cannot claim to have a precise knowledge of every word, and I am indeed sorry for the Minister, who has obviously studied long into the night—and his pale looks come from the studies that he has had to undertake. One always has a great wish to be nice to the noble Lord the Minister because, even if he is cutting your throat, he is always nice to you. I shall endeavour to curb my feelings of being too nice to him, but we have had a quite extraordinary succession of, I shall not say mistakes, but failures, to get a sensible policy into Europe generally or into the Council of Ministers.

However, I agree with the previous speaker that the Commission are also to blame. It was quite extraordinary that, after five years of trying to get the Council to be sensible, in 1982 they actually proposed a very large rise in prices. It was quite against their previous policy, which mainly came from their desire to play politics and to forestall the politicians. They should not do it. The Commission should seek to do what is practical and give good advice, instead of trying to play politics, which they do so often. They must take account of practical political measures, of course, and what they can get through, but in 1982 they went far too far and, without doubt, did a great deal of longterm harm to farmers.

Several noble Lords, including the noble Lord, Lord Monk Bretton, in particular, stressed the fact that if you can see a quota system coming there is a strong practical reason for the policy of producing as much as you can in order to get a bigger quota when the blow falls. It is rather like drinking too much in order that you may feel more virtuous when you stop, although in practice it may not do you a lot of good. I am never very sure about these matters. However, instead of having what the Milk Marketing Board, with a great deal of common sense, wanted and what some of my younger relations wanted—that is, a pricing policy which, though hard, would at least be sensible and would at least enable the Milk Marketing Board and the other industrial concerns, which the noble Lord, Lord Graham, mentioned, to have enough milk in order to prosecute their affairs—we are landed with a quota system.

At this point, I should like to ask the Minister whether the allocated quota to the country as a whole will be enough to satisfy the aspirations of our export industry and the Milk Marketing Board, how much investment will be redundant and how many machines will be disposed of. In other words, what will be the decline in the industry because of the quota which we have had to accept? Bearing in mind the fact that we are the only country, apart from Italy, which is not yet self-sufficient in all milk products, I do not think that the quota which we have been allocated is perhaps as good as it should be.

Given all that, and given the criticisms which I think are just about the way in which the Government have gone about this, we are now into a system of quotas, with all the 80 pages of regulations necessary to amplify the other pages of regulations which the Commission is issuing, and I suppose that we have to make the best of it. I hope that this will not last for ever, because without doubt it will do harm to the industry, and other speakers have mentioned this. It will freeze the ability of farmers to shift; it will spoil relatonships between landlord and tenant. I hope that in the long-term we shall try to get out of this quota system and return to a system based on the sensible regulation of price in order to allow farmers to plan ahead, which is what we need to do.

I should like to talk a little about what help farmers will be allowed to give under the regulations. From the figures already quoted, it appears to me that we drink or eat 86 million tonnes, or whatever the figure is, and that we are producing 90-million-odd tonnes, so something positive must be done about reducing the amount of milk produced in the Community as a whole. We must ensure that it is fairly done, but we must bear our share. There appears to me to be only one fair way, and that is to buy out people. At the moment we are offering £650 a cow. I understand that the Germans are offering £1,600 a cow. There appears to be a fair disparity here.

However, it is bound to be profitable for the industry as a whole to get any reluctant or inefficient producer out of business. The scheme which my noble kinsman mentioned, which was put forward by another kinsman of ours and another kinsman of the noble Baroness, Lady Elliot, was a very simple one. It was to allow the Milk Marketing Board to set up among their own producers a scheme to levy the ones who wanted to stay in, and to buy out the ones who wanted to go out. I should like to ask the Minister whether this could be allied to the present scheme. Would it not be very sensible for farmers who go into this scheme to get as many reluctant or inefficient producers out, so that others could have a fair crack of the whip? If that was carried out to a sufficient extent, a situation could be reached where, if the quota was reduced to the required figure, there could be a much more efficient set-up in the manufacturing industry, particularly the manufacturing industry of the board. I should be very grateful if the Minister could tell me whether that is possible, or whether it could be made possible by negotiation within the Commission.

Like my noble kinsman, I was also impressed by what the noble Viscount, Lord Brookeborough, said, who asked me to mention Northern Ireland as he could not be present today. I have received a very good brief from the Ulster Farmers' Union, which appears to make a number of extremely good points. I do not quite understand why we let Eire get away with it. I congratulate Eire on their skill in getting an increased quota, but there is a very strong social case for Eire being allowed to keep the quota for the amount that they are now producing which is so important in their run-down economy, because a much greater proportion of their total GNP comes from agriculture as compared to that of any other country in Europe.

However, I cannot understand why on earth they received a 4.5 per cent. increase. It appears to me that we should not have let them get away with this, and it will he interesting to hear the Minister's comments on it. I understand that this is why, as my noble kinsman has already mentioned, certain sources are pouring milk into Eire at 40p a gallon along these informal channels, which, if it continues, I suspect will certainly be formalised into a sort of pipeline, so that the lorries do not need to cross the border at all. However, it is a ludicrous situtation and one which the Government must watch if farmers in this county are not to feel a great deal more aggrieved than they are now.

It is true that in Europe there is a suspicion that more skill is applied in getting round Commission and Common Market regulations than we apply here. In fact, there is suspicion that, while we are honest about it, the avoidance of the results of Common Market policy is actually encouraged by the Governments of these countries. We have seen it now institutionalised in the German Government's payments to farmers.

I should like the Minister also to try to explain to me what a producer/retailer is going to do. It is inconceivable that a producer/retailer is actually going to refuse to sell milk to his customers. It is not only inconceivable, it is impossible. Is he going to be levied if he fills his quota, but if, due to drought, which we have, the Milk Marketing Board in that area has not imposed a levy, does he then get away with it?

It is an extraordinarily complicated equation and I should like to know whether the Government see a way around this, because I certainly do not. It would be interesting to hear how they think all these individuals—and there are a large number—are going to try to cut the number of pints they sell to their hard-won customers. It is not possible. Therefore, I should like to hear what we are going to do and how we are going to look at that.

I have a lot of other points that I should like to make but I want us to get on. When we come to redundancies my noble kinsman mentioned the dairyman. Their position is strikingly different from the case of the steel workers, who apparently can get up to £25,000 without paying any tax. There are the farmers who go out and their workers who are put out, and I hope that, if the farmers get decent redundancy payments, they will make proper payments to the dairyman who loses his job. The concession made in another place that in fact the nice Government are going to make the farmers' compensation subject to whichever tax he wants to pay—capital gains tax or income tax—is perhaps less than generous, and they might well think again and simply make a payment for going out free of tax.

There are many other points, but I raise only one, and that is that the farmer has only five weeks immediately following the day the scheme comes into operation to give information on the application for payment. I should like to be assured that the forms will be ready for the application. It is a simple point but perhaps it is one that the Minister can answer.

The real lesson to learn out of this complicated situation is that quotas are absolute hell. In the other price cuts that are coming, and must come, in the surplus areas, I hope that the Government will fight against quotas and try to give us a simple price cutting scheme spread over a number of years, rather than having to come on all together as this quota scheme has done. Also, it is not only a quota scheme: there is going to be a heavy price cut as well. I sympathise with the Minister, but that will not stop us being as hard on him as we can be.

1.54 p.m.

Lord Belstead

My Lords, I should first like to say that I am genuinely grateful to all your Lordships who have spoken in this debate on these two statutory instruments for the constructive approach and the many suggestions which have been made. Of course your Lordships have been critical; I did not expect that your Lordships would be otherwise. But I think that in the last hour and a half there has been a recognition that this is a subject which affects the whole country —taxpayers, as well as producers. Having said that, I accept in the work that I do that it is the Government's and the Community's task to strike the right balance between the interest of producers, which are so enormously important, and the interests of taxpayers.

In beginning to reply I would say that after many years of urging by British Ministers, the European Community at last accepted in March of this year that the cost of the milk surplus really had to be tackled. I join with the noble Lord, Lord John-Mackie, who, at the beginning of this debate, expressed the wish that the realisation had been accepted a great deal sooner, and not least had been accepted within the Community a great deal sooner, for of course by that time the magnitude of the surplus was so enormous that any effective steps to deal with it would inevitably be painful.

In opening this debate I attempted to make clear that the Government agree with the noble Lord, Lord Sainsbury, that action on prices would have been much better than the complications of the quotas to which the noble Lord, Lord Mackie of Benshie, finally referred in his speech. But let us be clear: if we needed a 12 per cent. price cut just to deal with the surplus which had accrued during 1983, the level of price cuts which would have been needed, the level of action on prices which would have been needed, to try to deal with this situation and not just to stand still, would have been very great indeed. Although I believe that the British Government were right to press for action on prices, it did not come entirely as a surprise that our Community partners were not prepared to face that particular road and eventually went for the quota option.

Perhaps I may now turn to the matters under debate. Several of your Lordships—and I think my noble friend Lord Kinnoull in particular spent a few minutes on it—wanted to know whether the special case percentage would go round. This is not an easy decision. On balance, we decided that 2.5 per cent. of total quota ought to be enough for this purpose. Indeed, we fixed the 9 per cent. deduction with this in mind. Anything more would have had to have come from the generality of producers, so that instead of 9 per cent. we would have needed to have a 10 per cent. or 11 per cent. cut, or even more.

If the tribunals and the panels should wish to award much more, then I am afraid that all these special cases will have to have their extra quota scaled down, perhaps heavily. The same applies to the quota for exceptional hardship cases. But I very much hope that we have this as near to being right as possible.

I referred just now to special hardship cases. I wonder whether I may pick up a point which my noble friend Lord Wise made when he spoke in essence of a particular case he had in mind of someone who was committed to a particular level of production before quotas were imposed. I do not know whether what I am going to say will in fact fit that particular case. I must make that clear. But it is right to put on the record that the way in which the new exceptional hardship provision will work is that my right honourable friend will decide how much quota is to be set aside for exceptional hardship cases and the quota coming from the amounts given up by outgoers, and not from the 2.5 per cent. initial reserve for special cases. The tribunal will look at all the exceptional hardship claims and will decide a notional amount of extra quota for every applicant who meets the conditions.

If these notional extra allocations add up to more than the amount of quota set aside by the Minister, they will have to be reduced by a percentage to ensure that the ceiling is not exceeded. Anybody who wishes to be considered as an exceptional hardship case must be engaged in farming as his main occupation, and must have made some form of commitment before the 2nd April of this year as a result of which his quota, if any, is less than is required to sustain his business. He is eligible only if, when he made the commitment, he intended to continue in, or take up, dairy farming.

Your Lordships have been generous—although you have been critical—in recognising that my right honourable friend has genuinely tried to meet the points which were put forward in the debate in another place some 10 days ago. What I have just mentioned was indeed one of those points, and I repeat that I very much hope that we have it as right as we can have it.

I wonder whether I might refer to a matter to which I think only one of your Lordships referred; that is the question of the tax of payments to outgoers. I refer to it briefly. I believe it was Lord Mackie of Benshie who mentioned this. The noble Lord was good enough to refer to the option which has now been announced publicly by my right honourable friend that the payments under the outgoers' scheme can come to the farmer who has decided to go out either as a capital payment or as an income payment. This is a valuable facility. I hope that it will be widely recognised as such by milk producers in a scheme which, when all is said and done, is not a redundancy scheme, because some of the outgoers—indeed, many of them—may choose, while going out of milk, as they will be bound to do, to turn to some other form of operation on their holding: their quota released going, as we are determined, to the smaller farmers who are on holdings where it is so difficult to have an alternative operation.

I will, if I may, add one other thing about the tax treatment of milk producers in this whole area. I would remind your Lordships that the "herd basis", as it is called, of tax will be available for farmers who are selling their herds. That means that on 20 per cent. or more of the herd no tax will be payable on those sales. I understand that many producers are already on what is called the herd basis, but for those who are not there is now an opportunity to elect for such tax treatment under the special arrangements offered under Clause 48 of this year's Finance Bill which will allow farmers to elect for the herd basis and to apply for profits for a period of accounts straddling the budget. This should ensure that any disposal of a herd brought about by quotas will be tax free in the farmer's hands. I should say, therefore, before leaving the subject of tax, that I believe—indeed, I claim—that my right honourable friend has done the very best that he can to try to help the farmers who may, with the greatest regrets and in difficult circumstances, be deciding to go out of milk production at the present time.

Several noble Lords talked about the landlord/tenant situation. My noble friends Lord Kinnoull and Lord Stanley and my right honourable friend had exhaustive discussions with the interested organisations to see whether there were any circumstances in which an outgoer's application could go ahead without the landlord's consent. But it has not proved possible to get all sides to agree to any alternative arrangement in England and Wales. We therefore have no option but to require the consent of landlords in all cases. It is fair to say that the National Farmers' Union proposed that the sole obligation on the tenant ought to stem directly from his tenancy agreement, and that if the agreement does not mention quotas or staying in milk production the tenant should be free to enter the outgoers' scheme.

My Lords, if my noble friend Lord Kinnoull will forgive me, I do not think I can today go into whether or not notice to quit should come into this matter, but the crucial point is that giving up the quota may affect the earning capacity of the holding and hence the value of the land. The Government felt that it would be wrong to allow such a decision to be taken unilaterally, even though in many cases the landlord's position would be adequately protected.

May I add two rather more constructive things to that negative reply? Although it is not possible to find a solution which is completely fair to all, and we cannot cover all possibilities, I say to my noble friend Lord Stanley of Alderley that we continue to urge all concerned—landlord, tenant and farm worker—to consult together to try to recognise all the interests and to act accordingly. We have seen (dare I say it?) that as far as Scotland is concerned it has been possible to steer a way through this particular thicket, but the Scottish landlord-tenant situation is not quite on the same footing. I am simply expressing the hope that it still may be possible through agreement to try to find ways in which tenants can avail themselves of the scheme if they wish to do so.

My second point is that my noble friend Lord Monk Bretton raised the question of the leasing of unused quotas by producers. The Government agree with my noble friend that there would be considerable advantage in allowing the leasing of quotas, but Community legislation does not provide for this at present. I should like to express the hope that it may be possible at some time in the future to seek agreement in Brussels to a more flexible system. This is the first of a list of several things where I say to your Lordships, in answer to the question whether we shall try .to bring this to the notice of the Commission, which has been put to me again and again: yes, we shall; we shall certainly try to do our best.

Lord Stanley of Alderley

My Lords, I wonder whether my noble friend will give way while he is dealing with the question of the landlord and tenant problem. I am grateful for the remarks he has made, but the Minister put in the proviso that it has to have the landlord's consent. In these discussions, which he and I very much hope will continue, would he make himself or his ministry available to help in those discussions, as they are very much part and parcel of it?

Lord Belstead

My Lords, I do not think that my right honourable friend would ever wish it to be said that the ministry would not try to help when we are saying that we want to find our way through this difficult problem. My right honourable friend has taken up a definite position on this, that at the moment it is necessary for the tenant to have the landlord's consent; that is quite clear. But if there is any way to try to improve the situation for all concerned, I feel sure that the ministry would not wish simply to stand aside.

There is another question which was put to me by the noble Lords, Lord John-Mackie, Lord Sainsbury and Lord Graham of Edmonton. It was this. What about the situation in other member states who do not collect the levy? I think it is fair for me to say that my right honourable friend has made it clear in the Agricultural Council that we attach the highest importance to all member states applying the supplementary levy according to the agreed rules. My right honourable friend pressed the Commission at this week's Council meeting in Brussels to produce a report on progress being made in the different member states. I am glad to be able to tell your Lordships' House that the commissioner undertook to provide a comprehensive report for the Council meeting in September.

This will mean that we shall know what progress has been made before any payment of levy becomes due in this country; because payment of levy, as your Lordships will remember, comes 45 days after the end of September. I am sure that if it became clear that some member states would not be meeting their obligations within the timescale laid down, the Commission, either through disallowance or through an approach to the European Court, could take appropriate action. I repeat what has been said before by my honourable and right honourable friends in another place; that it would be unacceptable for producers to be required to pay the levy if arrangements were not applied elsewhere.

Your Lordships have asked a great number of further questions and if you will bear with me for a few more minutes I shall attempt to answer at any rate some of them. My noble friend Lord Monk Bretton put specifically the case of the pedigree breeders who sold stock hack in 1982, with a very marked effect on their quota. Somebody who carried out such a transaction as the sale of stock before 2nd April 1984 as a result of which his quota entitlement is less than it would otherwise have been and who needs a bigger quota to sustain his business may—and I have to underline that it is only "may"—he able to benefit from the revision for special hardship cases which we have introduced. If my noble friend thinks that this is the position in a particular case that he knows of, perhaps he will draw this to the attention of those concerned to see if they can consider an application for the tribunal to consider.

The noble Lord, Lord Mackie of Benshie, at the end of his speech asked in more general terms about cutbacks in the industry rather in the same way as did the noble Lord. Lord Graham, in his speech. I have to say straight away that, with less milk to process, plants producing milk products will not be needed on the same scale as in the past. Obviously, with less milk going into Community butter and skimmed milk stockpiles, the factories which were doing the processing of those particular things may find that they have less work. This means that those factories which were partly dependent upon intervention as a production outlet will probably find that they bear the brunt of any cutbacks.

It gives me no pleasure to say that. However, I have to remind the House that, with something in the region of, I believe—and I am speaking off the cuff—140 days' supply of butter in intervention stores in this country and with something between about 640 and 650 days' supply of skimmed milk powder in intervention stores in this country, this was almost an inevitable consequence of what has finally happened in the Community.

Lord Graham of Edmonton

My Lords. I believe that, regrettably, many outside this House will have to accept the logic of what the Minister has said. Would the Minister not also take on board that, as a consequence not least of exhortations from Ministers in all governments—and we are talking about the recent past—considerable sums of money have been invested? What I am asking the Minister to do—not, of course, from the Dispatch Box today—is to consider very carefully the idea that I put forward that. where capital has become unproductive and costly and where jobs are going to be lost, some special consideration should be given to those hardship cases in the same way as hardship cases among farmers are being looked at. I put up the suggestion of a special compensation fund because I believe that the distributive chain will look very carefully at any exhortations in the future if they have been left alone and unaided to meet the consequences of the quota.

Lord Belstead

My Lords, I will certainly draw what the noble Lord has said to the attention of my right honourable friend and of the Secretary of State for Trade and Industry. I think that today, in the context of this debate, that is as far as I wish to go; but I assure the noble Lord, Lord Graham that that is what I shall do.

My noble friend Lord Kinnoull, in speaking about the tribunals and panels, asked about the costs of the panels, the question of legal aid and whether the hearings will be oral or otherwise. The cost of the proceedings before tribunals and panels is inevitably uncertain until we know how many people are going to apply. The basic principle is that producers should bear their own costs but not be asked to contribute to the costs of the panels. Beyond that, the tribunal itself and the Council of Tribunals will be looking at the rules on procedure, and I expect that hearings on appeal will be oral hearings. As to whether or not they will be with legal representation, that will be a matter for the tribunal to decide.

I hope that your Lordships will forgive me because I am afraid I am taking these points somewhat at random although not, I hope, totally at random. My noble friend also asked about the position of producers with about 35 cows and whether they will be able to benefit from reallocation quotas. The critical point is not really the number of cows but the amount of milk produced. Perhaps I have been guilty of talking about numbers of cows because it is easy shorthand. We are looking at producers with 200,000 litres of milk which at a yield of 5,000 litres per cow is equivalent to roughly 40 cows. It is those producers who we believe are most at risk because of the introduction of quotas. It is those we had first of all in mind when we decided that what we needed was an Outgoer's Scheme.

My noble friend Lord Kinnoull, together with several other noble Lords including the noble Lords, Lord Stanley, Lord Monk Bretton and finally Lord Mackie of Benshie, spoke with varying degrees of warmth about the undoubted difficulty which has been presented by the regulations as they have come out of the Commission, with regard to the inflexibility of direct quotas and wholesale quotas. It is very important to remember that, if direct sales had not been covered by the supplementary levy, it would have provided a serious loophole—and I guess a very much greater loophole in other countries than in this country, but nonetheless a loophole here which would have been for the convenience of no one. The effectiveness of the whole scheme would have been undermined if that had happened. Recognising the problems for direct sellers in managing their businesses within the quota system, my right honourable friend the Minister discussed this with the agriculture commissioner earlier this week. The commissioner is studying the problem, and we shall be pressing for a solution to ease the constraints to which your Lordships have very understandably drawn attention.

My noble friend Lord Kinnoull also asked: what kind of people will serve on the tribunals? The tribunals will comprise people with a number of different backgrounds—legal, farming and land agency—so that a wide range of experience can be brought to bear in the deliberations of the tribunals.

I have one or two other questions to answer but I feel that perhaps your Lordships have had about enough—

Lord John-Mackie

My Lords, I thank the noble Lord the Minister for giving way. He laid stress at the beginning of his reply on the point that a 12 per cent. cut in price, which would be disastrous, would be required to reduce production. If he studies the figures very carefully, as I have just done with the aid of my calculator while he has been speaking, he will find that 12 per cent. cut in prices on 5,000 litres comes to £86. The drop in the quota is £65. The drop in the price of cows and the drop in the price of culled cows is difficult to quantify into price per litre, but the two figures are nearly the same. I do not think it is a very good argument for accepting quotas.

Lord Belstead

My Lords, I should like to look closely, as indeed I always do, at the remarks of the noble Lord, Lord John-Mackie. I mean that quite genuinely. But there is one misunderstanding here, and again I am speaking off the cuff without looking back at my notes. What I thought I said, and indeed meant to say, was that I have been advised that we would have been facing something in the region of a 12 per cent. cut in the price of milk in order to have made good the enormous surplus of milk which has been incurred during 1983. If we had wanted what is so often called "action on prices" to try to put right the surplus in Europe one would have been talking about a price cut way above 12 per cent. I do not know exactly where it would have gone to, but we would probably have been talking about a cut much nearer 20 per cent. If I may, I will look at the remarks of the noble Lord in that light.

I end as I began. Your Lordships have been critical, and I understand why. At the same time your Lordships have been constructive, and for that I am grateful. Perhaps I might try to end on a constructive note. I believe that the introduction of the Outgoers' Scheme and the special hardship cases taken together with the provision for special cases will go a considerable way to help producers. I accept, however, that there are still matters which need to be pursued in the Council and with the Commission. In particular—if I may repeat it—the one which sticks in my mind as a result of this debate is the need for greater flexibility than we have at present, especially between the wholesale and direct sales. In saying that, I am not forgetting that your Lordships have referred to transfer, leasing and indeed the marketing of quotas.

Perhaps I may just pick out the very last of the remarks made by your Lordships. The noble Lord, Lord Mackie of Benshie, referred to a suggestion which I believe comes from none other than Mr. Maitland Mackie, chairman of the Aberdeen and District Milk Marketing Board, that the boards would be able to buy out quotas from individuals wishing to give up dairying. I think that that very interesting suggestion would involve buying and selling, which, as things stand, is not allowed under the Community regulations. That point, too, falls within the tenor of the answers I am giving, in that we are looking at it closely, and if we can bring any pressure to bear upon the Community, I promise the noble Lord that we shall do so. Meanwhile, I believe that the moment has now come when producers want to get on with dealing with their own situation. I think that is one of the messages that has come to me this afternoon.

If your Lordships approve the regulations, full explanatory notes will be sent at the beginning of next week to all producers with applications for special case claims, for the Outgoers' Scheme and for direct sales. Perhaps I may say in answer to the noble Lord, Lord John-Mackie, that a guide to the regulations is also being prepared and detailed advice will also be available from the Ministry's divisional offices.

I ask for your Lordships' support to get on now with the arrangements which are ready to be put into effect, and for the agreement of your Lordships' House to the Statutory Instruments which are referred to on the Order Paper.

On Question, Motion agreed to.