ECC Reports: Supply Controls; Tax on Certain Oils and Fats; Farm Price Proposals

HL Deb 26 March 1984 vol 450 cc76-113

7.30 p.m.

Lord Plowden rose to move, That this House takes note of the following reports of the European Communities Committee: Supply Controls (8th Report, 1983–84, H.L. 55); Tax on Certain Oils and Fats (11th Report, 1983–84, H.L. 109); 1984–85 Farm Price Proposals (14th Report, 1983–84, H.L. 153).

The noble Lord said: My Lords, these three reports by the European Communities Committee form part of a common theme related to the operation of the common agricultural policy. All three reports have been prepared by Sub-Committee D of the committee, with outstanding support from staff and specialist advisers. We are most grateful to them and to those who gave to us evidence, both oral and written.

We are debating these reports in the aftermath of the collapse of the summit last week. Although the breakdown of the summit in Brussels was over the British contribution, the underlying cause is that the CAP is under threat of disintegration, I think one may say, because of excessive spending, It is, I think, worth examining the proposals and the committee's comments in some detail, because sooner or later they, or something like them, will have to be adopted if the CAP is not to remain in permanent crisis.

The common agricultural policy dominates Community affairs, accounting for some two-thirds of total Community expenditure. Under Article 39 of the Treaty of Rome, one of the objectives of the CAP is to ensure a fair standard of living for the agricultural community, and up till now price levels for agricultural products have been fixed with that consideration in view. But the maintenance of farm incomes has never been the sole objective of the agricultural policy. Agricultural productivity, the promotion of which is also a stated objective, has increased greatly and continues to do so.

That is much to the credit of the industry and to the policy that has promoted it. It has been brought about partly in response to the guarantee of markets and prices provided by the CAP, and of course partly by technological developments. The results are that the Community's needs of temperate foodstuffs—wheat, milk products, meat, and so on—are now largely ensured from within the Community, but of course production already exceeds the needs of the Community; there are large surpluses, and the surpluses are growing. In fact, the very success of the policy is in real danger of bringing about its own downfall. Consumers have to pay more for their food as a result of prices guaranteed by the CAP, thus frustrating the effectiveness of the policy in meeting one of its other objectives: that of ensuring supplies to consumers at reasonable prices.

Moreover, since the excess production encouraged by the price guarantees has to be sold on the world market with the aid of subsidies met from Community funds, a further charge falls on consumers as taxpayers. The rate of increase in expenditure on the CAP is currently outstripping the rate of increase in the resources available to the Community.

It was against that deteriorating financial background that towards the end of last year the Select Committee produced its report on supply controls—the eighth report in the current Session. That report examined the various mechanisms available for seeking to bring surplus agricultural production under control, and did so specifically by looking at three major products: cereals, milk and sugar. The report welcomed the system of guarantee thresholds, recently introduced for cereals and milk, but urged that the system needed to be applied with greater rigour and determination if it was to be effective. With regard to sugar, the report recommended the continuation of the existing self-financing arrangements based on quotas, provided that those arrangements were adapted to make them more responsive to market conditions.

The European Council, meeting in Stuttgart in June of last year, decided to undertake a major examination of existing Community policies, with particular attention to the CAP. On 28th July last year the Commission's proposals for the reform of the CAP were published. Your Lordships are of course familiar with the subsequent developments which led to the failure of the Athens summit last year. Following the abortive Athens discussions, the Commission produced its proposals on prices and related measures for the 1984–85 marketing year, and those proposals are examined in another of the committee's reports—the fourteenth report of the current Session.

The Commission's package includes not only proposals for the prices of individual products, but also the measures for changes in the working of the CAP that were presented in the document of last July, and those proposals are summarised in Annex II of the report. Because of the complexity of the package, the committee decided to concentrate attention on a limited number of what is regarded as central issues.

The report makes three main recommendations. The first relates to cereals, which the committee regards as the key to effective reform. Community cereal prices are now way out of alignment with Community livestock prices and with world prices. A cut in cereal prices would reduce production costs of livestock and would make possible both some improvement in incomes of livestock producers and some reduction in prices of livestock products to the consuming public. It would also reduce tensions with other grain-producing nations, especially the United States, and it would, too, help to resolve the problem of increasing imports of cereal substitutes. Finally, it would yield some direct budgetary savings in the cost of both support and surplus disposal. In coming to that conclusion, the committee attached great weight to the evidence on future financing given by the Court of Auditors to the sub-committee.

The second recommendation relates to milk, where action to reduce the increasing output is crucial in terms of time. The report expresses disquiet over the apparent abandonment of the threshold mechanism before an effective quota or super-levy system has been designed to take its place.

A clear signal must be given to producers that production has to be restrained. In the view of the committee, if the threshold is not to be allowed to work for that purpose, immediate direct action should be taken to reduce the basic price. Thirdly, the committee reaffirms its view, in the report on supply controls, that the guarantee threshold system can provide an effective restraint on production if it is associated with tight pricing policies. But the threshold levels need to be reviewed urgently and established at a realistic level.

The report notes that the Commission's package, if implemented at once and in its entirety, would just about enable CAP expenditure to be contained within the budget for 1984. This estimate does, however, assume that certain favourable circumstances remain unchanged. A renewed weakening of the dollar and a bumper cereals crop could undermine that assumption. Furthermore, the estimates allow for receipts from a proposed tax on oils and fats. This is the subject of the third report before the House today, the eleventh report of the current Session. Opposition to this tax was almost unanimous among those from whom Sub-Committee D took evidence.

The Committee regards the tax as objectionable in both principle and practice. Although its rejection would require even more drastic action on prices to bring the Community budget into balance, the committee considers it wrong that fundamental objections to the tax, reiterated by consumers and traders alike, should be overriden in an attempt to create a new source of revenue to pay for a long-standing failure to bring CAP expenditure under control.

As part of its package of measures, the Commission proposes the abolition of the so-called green rates, used to convert agricultural support prices into national currencies, and the consequent dismantling of monetary compensatory amounts. The committee accepts the Commission's arguments that the continuation of green rates as a permanent feature of the Commission's agricultural regime distorts the operation of the CAP. It considers that the present is an opportune time to seek to remove this impediment to the functioning of the free market. But it considers that the dismantling of MCAs should be carried out as a gradual process. In paragraph 46 of its report, it suggests a means whereby this might be achieved.

Little more than a week ago, the Council of Agriculture Ministers reached a provisional accord on milk, on MCAs and on a range of other issues that gave rise to hope that a finally agreed package would emerge from the subsequent meeting of the European Council. On milk, I would refer your Lordships to the Statement made in another place and repeated in this House by the noble Lord, Lord Belstead, on 14th March. While these measures are bound to impose hardship on some farmers, an agreement to impose strict quotas on milk with no exemptions and a penal levy on excess production is a positive and realistic step towards bringing the surplus of that commodity under control. But, having regard to a basic quota of 98.2 million tonnes agreed for 1984–85 and a basic quota of 97.2 million tonnes for 1985–86 and subsequent years, in addition to an agreed Community reserve of 0.6 million tonnes a year, all that is substantially in excess of current levels of consumption.

An agreement underpinned by further action on prices would have been preferable. No one should underestimate the political difficulties in taking the first step to cut back the overwhelming flood of milk and milk products far in excess of any possible consumption within the Community. This was shown by the attitude and the action of the Irish Prime Minister. But what does one do with over 900,000 tonnes of butter in public and private store and over a million tonnes of skim milk powder, with stocks still growing?

The agreement on MCAs is more complex. While the success of our negotiators in maintaining at least for the forthcoming year that the adjustment of MCAs will not of itself affect the existing level of farm prices when converted into sterling is welcome, the implications for additional expenditure from the Community budget give cause for concern. I am sure that noble Lords would welcome anything that the noble Lord the Minister can say today by way of clarification of the provisional agreement on MCAs and its implications for the United Kingdom and for the future level of Community expenditure.

The Council of Agriculture Ministers is, I believe, at this moment, meeting yet again in Brussels in an endeavour to reach agreement on a comprehensive package establishing support prices for the coming season and laying the foundations for the reform of the CAP. From what one hears, it seems likely that whatever agreed measures emerge from this session, they will fall short of the action recommended by the Select Committee. They will almost certainly give rise to expenditure at a level that is beyond the Community's present ability to finance.

The committee's report on farm price proposals may be regarded by some as hostile to the farming community. Such is not its intention. Indeed, it would be surprising if a sub-committee over half of whose members are practising farmers were to adopt such a policy. The committee recognises that agricultural incomes generally have turned down in real terms. But it does not believe that increased output at higher institutional prices for commodities already in surplus provides the solution. In the ultimate, the answer must lie in the application of really stringent price cuts, combined with direct income support in appropriate cases under common Community rules and possibly financed partly from Community funds. Fanners and the farming industry throughout the Community must adapt to the realities of the market place—the sooner, the less painful the transition.

The Commission's package fails to provide what is needed above all to secure that adaptation—a clear signal that the Community will apply a restrictive price policy associated with firm guarantee thresholds and will apply it consistently and with vigour, thus providing a firm basis on which farmers can plan ahead. There have been encouraging signs of a greater awareness by the Commission of the need for drastic action not least in its latest package, much of which is most commendable. But without the determination to translate this awareness into sustained action, I submit that the outlook for farming, for the common agricultural policy and, indeed, for the Community as a whole is grim indeed. I beg to move.

Moved, That this House takes note of the following reports of the European Communities Committee: Supply Controls (8th Report, 1983–84, H.L. 55); Tax on Certain Oils and Fats (11th Report, 1983–84, H.L. 109); 1984–85 Farm Price Proposals (14th Report, 1983–84, H.L. 153).—(Lord Plowden.)

7.50 p.m.

Lord Belstead

My Lords, I am sure that your Lordships are grateful to the noble Lord, Lord Plowden, for introducing these three reports, and to the Select Committee for their admirable work on the complex problems associated with the operation of the common agricultural policy. Your Lordships will be aware that this year's negotiations within the Community to agree farm prices have been particularly difficult in view of the fact that spending in the Community has now reached the budgetary ceiling. Indeed, at the beginning of his speech the noble Lord referred to the need to remove the climate of crisis in which the common agricultural policy is operating at the present time.

Your Lordships may wish to hear a word or two about progress to date, and then, with the leave of the House, I will try to answer questions and to respond to what has been said in the debate at the end. Let me first say a brief word about the two important reports on supply controls and the proposed tax on oils and fats.

The report on supply controls was produced in November last year, and examines the various means of controlling production, with particular attention, as the noble Lord, Lord Plowden, said, to the cereals, milk and sugar sectors. Speaking for myself, I found the analysis of the different systems of control very illuminating. The Government would particularly endorse the comment made in paragraph 27 of the report, that it is important to apply controls on production of all farm products in surplus. Indeed, the Government would go further. We consider that some form of restraint should also be imposed on those products which, while not in actual surplus, are nearing that point or are taking an increasing or disproportionate share of agricultural support. In saying that, I am thinking particular of certain Mediterranean products, such as olive oil and tobacco.

In the milk sector, the report recommended the continuation of realistic guarantee thresholds, combined with a firm price policy and possibly reinforced by a supplementary levy on all production. Although the noble Lord, Lord Plowden, was not uncritical of the strategy of having just the quota and superlevy proposals, essentially that structure is the package that has now been provisionally agreed. In the cereals sector high support prices have stimulated increases in production and led to the accumulation of large and very expensive surpluses. Here the report quite rightly called for rigorous action on prices. On sugar, the report in effect endorsed the current quota system in principle although it concluded—in the Government's view quite rightly—that the decisions that have been taken in recent years, especially regarding the setting of quota levels, have led to serious problems.

The report on an oils and fats tax is certainly an admirable exposition of the purposes and effect of the proposal. The Government fully agree with the committee's opposition to it. As the report shows, the tax would be an extremely inefficient means of raising revenue and would be contrary to the spirit, if not the letter, of the Community's international commitments. The proposal would place a burden on the processing industry and on consumers. We have criticised the proposal on all these grounds and, indeed, on others, and we have been joined in doing so, as your Lordships will know, by a number of other member states. I should like to make it clear this evening that our views on this matter remain unchanged.

However, it is the committee's report on the 1984–85 price proposals around which most of the noble Lord's remarks concentrated, and around which I guess most of this debate will concentrate. This year the agriculture council has been considering, as well as normal price proposals, proposals for reform of the common agricultural policy stemming from the post-Stuttgart review agreed by heads of government. The council's consideration of all these proposals has been overshadowed by the financial problems of the common agricultural policy, which show no signs of abating.

Following intensive discussions in the agriculture council over the past weeks, three documents have been drawn up—one on milk, one on monetary compensatory amounts and one on other aspects. Each is still subject to important reserves, but nevertheless considerable progress has been made towards a consensus. At the agriculture council now in progress in Brussels, negotiations will show whether final agreement can be reached. The degree of agreement reached so far has been supported by the commission, which have amended their own proposals to bring them into line with what has been agreed in the council. The starting point for the United Kingdom in the discussions has been that the common agricultural policy must live within the budgetary limits, and that any package must treat the United Kingdom equitably with other member states. For example, in the Government's view temperate and Mediterranean products really must receive equality of treatment.

As to specific commodities, as the noble Lord identified milk is really the most important in that it absorbs 30 per cent. of the cost of the CAP; that is, over £3,000 million per annum. Substantial progress has been made towards agreeing that a quota/superlevy system should operate for the next marketing year. Since a substantial price cut, which was our preferred option, did not prove negotiable, it was absolutely vital to get restraint in some other form given the limited market outlets and the inexorable rise of production in recent years. Both of those aspects were brought out so clearly in the speech of the noble Lord, Lord Plowden. A scheme on the lines envisaged would, I am advised, save the Community over 1 billion ECUs—that is, over £600 million—of expenditure in a full year, and would prevent any increase in the surplus over the five years of the scheme.

The main outstanding issue on the superlevy still to be decided, as again the House will well know, is the Irish claim for exemption. As I have explained, the levy is vital, but its imposition will be a serious matter for many of our own producers, and in such circumstances we really could not accept the permanent exclusion of any member state from the system. This is particularly important for us given our proximity to Ireland and the effects on our milk products market of Irish exports.

On the other hand, milk represents 3.5 per cent. of GDP in the Republic, and nowhere else in the Community does it exceed 1.5 per cent. There seems to be a disposition among member states to make some special provision for the Republic in recognition of this position. However, my right honourable friend has explained that the Government's view is that all member states must be brought firmly within the system and that the claims of Northern Ireland must be given equal consideration with those of the Republic.

A quota system is not perfect, but it represents a very real step forward in controlling the huge surpluses for which, of course, the United Kingdom and the Federal Republic of Germany have been, in the main, financially responsible. The scheme envisaged would base national quotas on deliveries to dairies in 1981 plus 1 per cent., and includes the very important provision that sales off-farm bypassing dairies, which are proportionately greater in other member states, should also be covered. However, quotas can be split among producers in each member state on the basis of their share of production after 1981. A later year—for instance, 1983—would allow (so I am told) for the evolution of production since 1981 and help to avoid the creation of "hard cases". Member states are allowed the option of applying the quota at dairy or at individual producer level.

The Government are keeping in close touch with the principal interests in the milk industry before deciding which scheme should be applied in the United Kingdom. The committee's report pointed out—again, rightly in the Government's view—that reduction in cereals prices should be a first priority in the common agricultural policy to reduce the imbalance between support for the arable and livestock sectors. Indeed, the Ministry's 1984 Annual Review of Agriculture shows the effect of this imbalance on farm income in the United Kingdom. Over the last few years income in the intensive livestock sector has dropped significantly in real terms, while there has been a very considerable increase in income from cereals and other arable farms. It is part of our policy to seek to redress this balance.

It is now envisaged that for most cereals a small price reduction should be made for 1984–85 rather than a price freeze, which was originally proposed by the Commission. Slightly bigger price decreases are now envisaged for oilseeds than for cereals, and this is welcome given the very substantial cost of the oilseeds regime. A price freeze is now envisaged for sugar. Perhaps I may suggest that we must remember that a price freeze represents a significant reduction in real terms, especially in countries like France and Italy, with higher inflation rates than ours.

As to other livestock products, a 1 per cent. price decrease is now envisaged for beef compared to the increase of 1½ per cent. originally proposed by the Commision. The price of the beef regime has been mounting steadily, and over 400,000 tonnes are now in intervention storage. One highly unsatisfactory feature is that no provision has yet been made in the proposals from the presidency which are before the agriculture council again today for the continuation of the beef variable premium. We are convinced of the benefits of the premium, particularly in view of those statistics which I mentioned just now about the amount of beef in store. We believe that there are benefits for both producers and consumers. My right honourable friend will be pressing our case with firmness at the council, although it must be recognised that we are alone in this demand.

A 1 per cent. reduction is also envisaged for sheepmeat, rather than the increase previously proposed by the Commission. My right honourable friend will be seeking amendments to the proposals for changing the methods of calculating ewe premium, which as currently drafted could bear unfairly on our own producers.

The noble Lord, Lord Plowden, asked me whether I could say a few words about the complicated world of monetary compensation amounts, although I rather suspect that the noble Lord may be able to forget more about MCAs than I have yet learned. It is envisaged that, as your Lordships know, fixed positive MCAs should be eliminated over a three-year period, while the creation of new fixed positive MCAs would be avoided by basing prices on the strongest currency for this period. The position of floating currencies is to be fully protected, and we would be under no obligation to revalue the green pound—one of our objectives in this year's price fixing. Our reservation is that this new system could prove costly in budgetary terms, and we are seeking assurances on this aspect at the meeting which is taking place now.

The three reports which we are considering here today between them cover many of the issues which are vital for the future of the common agricultural policy and hence the European Community. The Government have made clear their determination that genuine reforms should be made to the common agricultural policy, and that the unrestrained growth in European Community agricultural expenditure really cannot continue unchecked. We stand on the verge of making major advances which will allow these important objectives to be in large part fulfilled, even though this will have serious effects on some of our producers. I was so glad that the noble Lord, Lord Plowden, mentioned that in his speech. I repeat the Government's gratitude to the Select Committee of your Lordships' House for the three very valuable reports which provide the occasion for this debate.

8.5 p.m.

Lord John-Mackie

My Lords, we are very grateful to the noble Lord, Lord Plowden, the Chairman of the Select Committee. In fact, he went through the report so fully that I think we may be wasting a great deal of time repeating what we want to say because the noble Lord has done a good job in putting the matter so quickly and so well before the House. We are equally grateful to the noble Lord, Lord Belstead, for bringing us up to date with the various fresh proposals which are being put forward, some of which make me shudder, as I am just starting a new beef project. I think he said that there is likely to be a 1½ per cent. cut. When he told us that 400,000 tonnes of beef is in store, one can see the reason for it.

As we all know, the problem of Ireland is a very difficult one, and I trust that it will be solved satisfactorily. However, the noble Lord emphasised that all countries must accept the situation almost equally. The noble Lord, Lord Plowden, dealt with the oils and fats tax report; all that the committee felt was needed was a one-word report saying that we were all against it. However, we thought that we should put it a little more fully than that. If one reads our objections in the report, one cannot but concur with them.

In a way the other two reports are complementary to each other, so let us take a look at what we have said about the price proposals. Our first conclusion is that the Commission's package: fails to match up to the requirements of the situation". I think that that can be said over and over again. Six years ago the president of the Commission, Mr. Roy Jenkins, opened the Royal Show and made a speech to a very large audience of agriculturalists, farmers and others. In his speech he gave a very stern warning when he said that sooner or later something would have to be done about the surpluses, et cetera. Afterwards I spoke to him and asked what he meant by "sooner". He said that if he had his way it would be next year, but that unless something was done within two years there would be a crisis affecting the whole situation. Here we are six years later and, quite frankly, we—and by "we" I mean the EEC as a whole—are taking only a faltering step in the right direction. I do not think that my fellow farmers can complain that they were not warned. They claim that they received no notice, and that they need longer notice. But, in view of what Mr. Roy Jenkins said six years ago, which has been repeated by various people since then, I doubt whether that objection can be sustained.

But in some ways one can hardly blame farmers for going ahead as they have. After all, our remit was to produce food, and, if you are a producer of anything, you produce as much as you can. Of course the argument is that they produce products that cannot be sold, which may be true. But it is still difficult to blame individual farmers for production having got out of hand, and today we are faced with a situation with which we seem only to be tinkering. I agree with the noble Lord, Lord Plowden, that the technical and scientific progress in the last 10 years has been quite fantastic when we look at the figures for the production of cereals, milk per cow, et cetera.

Let us take a look at milk. The projected production is 110 million tonnes a year. Over the next five years the quota, before penalties, is 98.2 million tonnes for the first year, dropping to 97.2 million tonnes for the next four years, a reduction of about 11.8 million tonnes. However, if I have read the figures correctly, consumption in the EEC is just under 90 million tonnes—about 88 million tonnes. So we still have 10.2 million tonnes to deal with as a surplus, and the noble Lord, Lord Belstead, pointed out that that will continue. This surplus comprises dried milk and butter—two commodities not easily sold on world markets—900,000 tonnes of butter and over a million tonnes of powdered milk and if, as we are likely to do, we carry on with that surplus of 10.2 million tonnes, these amounts will increase. Even if we succeed in getting a reduction of 11.2 million tonnes, we shall still have to cope with the 10.2 million tonnes. That, of course—as our EEC partners are not slow to point out to us—includes the 80-plus thousand tonnes of New Zealand butter which we import. You know, it is very difficult to understand New Zealand. Between 1981 and 1983 they themselves imported nearly 100,000 tonnes of butter, and this is something which I think requires some explanation. If they are going to import butter, it seems slightly ridiculous to export to us and put us in such bad grace with our EEC partners.

We have basically the same picture—as was pointed out—with cereal production and sugar. Cereal production is 130 million tonnes, with consumption somewhere between 10 and 15 million tonnes below that. That is exacerbated by the import of cereal substitutes to the tune of an average of 15 million tonnes in the last three years. Sugar is at a surplus of two million tonnes per year, and this is again swollen by 1.3 million tonnes of imports. I know the reason for it but it does make the situation difficult. We know that the A, B and C quota pricing system did help the storage costs of sugar but has run into difficulties over the last two years.

Along with the EEC proposals, what would our recommendations do to correct the situation? To begin with, we scrap any suggestion of a system other than price control. Personally, I think that at some time sooner rather than later we will have to look at deficiency payments again in spite of the known difficulties. There are recognised difficulties and I know that the present Minister of Agriculture is, as he puts it, philosophically, against deficiency payments. I am convinced that this would give consumers—and I know the noble Lord, Lord Mottistone, might like to think that this would happen—raw materials supplies at much cheaper prices which would ultimately move down to the consumers in the market and reduce the cost of living. In the meantime, methods of price disincentives are the order of the day. I fear farmers' reactions. If they produce more to keep up the standard of living, up go the surpluses. That is the reaction of most farmers in the beginning anyway.

In the report on farm price proposals we say that farmers must have clear guidelines about what is to happen as far ahead as possible. I am glad that the noble Lord, Lord Plowden, emphasised this and we did, of course, look at the question of disadvantaged farmers who might need to be treated differently if there were savage cuts in prices. I would go further and give them some guidance as to what to do. I know the noble Lord, Lord Walston, has twitted me that is not our business: that you cut the prices and let the farmers decide for themselves, but I feel that some guidance would help. If you reduce your number of cows, you have surplus land to grow wheat or what have you, which is already in surplus, and so it goes on. I suggest—and I notice that this is becoming a more popular theory (I put it forward quite a long time ago)—lower input and output systems both in milk and arable production. I would take a look at the price we pay for protein from outside the EEC and produce more at home (peas and beans) and higher quality silage and hay. We are spending millions on nitrogen and sprays to grow more and more surplus cereals. More legumes as a break-crop would cut out quite a lot of both.

I could go on. If the recession goes and the standard of living increases, more meat should be eaten, although it might take us a while to move to that 400,000 tonnes the noble Lord, Lord Belstead mentioned. We should then be right in keeping our numbers of cows, producing less milk from them but producing beef calves for the arable men to fatten. But what we should be more interested in is what to do with the present surpluses, which will certainly go on, as both previous speakers have said, for a good few years to come.

Quite a while ago I suggested to the Milk Marketing Board that they ultra-heat treat milk into 20-litre containers and send it whole to places like Eritrea where children are starving. If anybody saw the pathetic pictures of starving children in Central America on television a few nights ago, they would know what I mean. This was laughed out of court of course: carting all that milk thousands of miles! I suppose it is a different priority but I understand we have been shipping fresh water from New Zealand to the Falklands. I just ask you to think along those lines.

I met a Northern Ireland food researcher who has perfected—and I spoke to him on the telephone today just to be sure—a system of reducing the water content of milk to a consistency of what I can only describe as very soft butter. I have tasted it. It has all the goodness of fresh milk and, of course, can be pasteurised. Why are we not doing something about this? I tried to interest the Milk Marketing Board, but they had other things on their minds at the time. We have an enormous surplus of grain. Why do we not step up our food aid and get it to the starving millions all over the world? I know the arguments that this distorts local farmers' prices, distorts international trade and so on.

The late Lord Boyd-Orr—who I always knew as Sir John Orr and before that Dr. Orr—in the middle twenties was asked by grain traders if he could produce a chemical to make wheat suitable only for cattle or animal food. He said: I suggest you get barges and take it down the Rhine to the starving Germans and East Europeans and it may save another war". I suggest we think now about what Sir John said. With enormous surpluses of food in the Western world and anything up to 80 million people elsewhere crying out for it, is it outwith the wit of man to get it to them? I hope not.

These two reports at least give a good picture of the situation. We come to conclusions but no hard and fast major recommendations. We hope the Commission will take note of these conclusions. I understand that they read our reports carefully and I am sure we have done a good job in that respect.

I am glad that the noble Lord, Lord Plowden, mentioned our efforts at a child's guide to the agri-monetary system. The noble Lord, Lord Belstead, presumed that Lord Plowden had forgotten more than he knew about it, but I have the feeling he knows more than most of us. I hope the dismantling process is a careful one because it will have a big effect on farm prices.

As I say, I hope our conclusions in this report will be looked at very carefully and I commend it to the House.

8.18 p.m.

Lord Walston

My Lords, we are, as the noble Lord, Lord Belstead rightly said, grateful to the noble Lord, Lord Plowden, for giving us the opportuntiy of debating these three reports, and also for the masterly way in which he introduced the debate. As a member of the sub-committee which produced them, may I also thank him for his chairmanship? It was a pleasure to sit under him, and such value as the reports have is in very large measure due to his work.

I say those polite words with complete sincerity. I now, unfortunately, cease to be polite but I continue to be just as sincere. I am horrified and appalled at the state of the common agricultural policy and—and I say this with regret—at the apparent complacency of the noble Lord, Lord Belstead, in the speech that we have listened to. The common agricultural policy, we all agree, is in a hell of a mess. That is bad in itself, it is bad for farmers, and it is bad for consumers. But it is even more serious for the Community as a whole, for its development and for its future; because hours, days and weeks are spent, have been spent and will be spent, trying to improve here and to block up a little leak there, when minds ought to be directed to far more important things. And even at the summit conferences, it is still the common agricultural policy and its costs which dominate the discussion, to the exclusion of far more important things.

This has been brought about—and I am sorry to have to say this—by stupidity, by cowardice and by obstinacy on the part of the Commission itself and of the officials there, and on the part of Ministers of Agriculture from all countries—stupidity at not recognising what the true factors are and (as the noble Lord, Lord John-Mackie, reminded us, and as Mr. Roy Jenkins said when he was President of the Commission) where that policy was leading. It was clear even before he said that in 1978 that it was leading us to this sort of situation. There was stupidity at not recognising that; obstinacy in not listening to proposals which were put both to the Commission and to Ministers in this country and (I have no doubt) elsewhere which would have overcome these difficulties before they reached extraordinary proportions; and cowardice in not facing up to the rather awkward, somewhat unpopular decisions that would have been necessary to prevent that from happening, and which now are far more awkward and far more politically impossible than they would have been had there been just a glimmer of statesmanship in the past six or eight years, or even longer. That is the cause of the trouble that we are discussing today.

We all know that the common agricultural policy stems from the Treaty of Rome, and it is worth remembering, for one sometimes forgets, that at the time of the Treaty of Rome Europe was emerging from the ravages of war and was suffering from, and fearful of, food shortage. Also, there was an industrial boom about to get under way: industry was being rehabil-itated; the damage of war was being put right; there was full employment—over-full employment—throughout the whole of Western Europe; wages in industry and in the cities were rising; divergences between agricultural wages and rewards for the farm workers and for the small and big farmers were very small compared with those of urban life; and the need for more food was very great indeed. That was how the common agricultural policy was born, and it is worth remembering that for it accounts for a lot of difficulties which are now being faced.

But we must face those difficulties, and we must also face the fact that the economic situation and the world food situation has changed very significantly in the last 25 to 30 years. Today, in spite of what the noble Lord, Lord John-Mackie, has said, there is in effect a world surplus of food. Of course, from a nutritional point of view, and from a humanitarian point of view there is still a serious world food shortage. Unfortunately however, we are not dealing with philanthropists but with selfish and greedy people who are not prepared to put their hands in their pockets in order to pay for that sterilised milk to be shipped to Eritrea.

We must accept the fact that there is today an excess of food and there is at the same time a very large degree (and we know this only too well) of unemployment. Therefore, the common agricultural policy must be, not scrapped and rebuilt but modified and altered in order to face the problems which exist today, which have existed for a good many years in the past and which will continue to exist for many years to come. In other words, what it must do is to revert, in a different way, to its original purpose. It must still provide the consumers of the Community with the food that they require, and it must still ensure that those who produce that food that is required are adequately recompensed. But the important thing is that it must be for that amount of food which is required. We cannot afford to go on giving blank cheques to anybody who wishes to come into farming and allow them, on those blank cheques, to write out their own dividend warrants. That is what has been happening over many years, and it must be brought to an end.

Farmers must be free to produce as much as they wish of any commodity that they wish, but they cannot expect the Community as a whole, the taxpayers of the Community, to foot the bill for disposing of those surpluses. If they produce excess, it must be at their own risk. The theoreticians—and I include some of my colleagues on the committee—feel that the answer to this problem of overproduction must lie with the price mechanism. Here, I say quite frankly that, while 1 do not disagree with the general attitude of the two main reports, one on supply control and the other on price proposals, I disagree quite strongly with the emphasis that is placed on the price mechanism. Of course we must have a price mechanism; we cannot turn our backs on it. In the long run the market must decide; but I would suggest to your Lordships that the price mechanism fails, in the first place, because, although it works in the longer term, the long run is far too long and it takes far too much time for it to have any effect.

As the noble Lord, Lord John-Mackie, has said—and I agree with him strongly—when you have a price reduction the immediate reaction of the farmer is to maintain his income and to produce more. Eventually, he will find that he cannot go on doing that, but in the meantime the difficulty has been accentuated. Secondly, it fails because it causes hardship not only to very many individuals but to whole areas of the rural countryside, so that, if the price policy alone is pursued, you get the situation of the creation of rural slums.

Thirdly, and most importantly, it fails because it is not feasible, for these very reasons it is politically impossible, to expect that the type of price reduction which would bring about the reduction in production sufficiently fast for our purposes, and the damage which would be done to individual farmers with their votes and to individual areas, is something that would not be supported by politicians. Therefore, I suggest, as I have suggested on many occasions to your Lordships and elsewhere, that the answer must lie in a long-term food production plan. The Community must state how much food it is going to require from its own farmers over the next five years on a rolling period and how much it wants produced at home—and for that amount it should pay good prices, but only for that amount. The noble Lord, Lord Belstead, said that this was something that they were moving towards, and I give them credit for that.

However, I give them very little credit, because the movement is so slight and the speed so snail-like that they cannot really expect very much credit for it. And such target quantities as have been laid down are all far too high, as has been pointed out—far in excess of the needs of the Community—and there is no indication that there will be any progressive reduction. And that is what there must be. I am prepared for this reduction to take place slowly—not like a snail but not like Concorde—but it must be sure; and we lack that sureness at the present time. No farmer is convinced that the amount of the standard quantity, or whatever you want to call it, of any given commodity is going to be reduced steadily year by year until we reach that amount which the consumer requires.

At the same time—and here I agree with the price mechanism—we must also go in for a policy of price reduction so that the prices, again slowly but very steadily and very surely, come down towards the projected world levels. It is a difficult exercise and one has to be fluid about it; but there must be an attempt to approach what it is expected that world prices will be in the years to come. I would not object to those prices for those given quantities being stabilised at something above the world prices.

The methods of doing this are complex and they vary from commodity to commodity. Certainly I will not weary your Lordships by describing the various ways which have been proposed. It is one of my complaints about our document on the supply control that we did not describe in some detail how, with certain commodities such as cereals, this could be done. All I would say to your Lordships is that it can be done: it is feasible administratively, politically and economically.

Of course, if this is carried out, as I am suggesting, undoubtedly there will be hardships. There will be hardships to individuals and in whole areas; but these are social problems and not agricultural or economic problems. They are the same sorts of problems that occur when coal mines are closed or when a steel industry or a shipbuilding industry goes under. Those are not problems to be dealt with by economic means: they must be dealt with by social means. Eire is a country which will undoubtedly be affected by this and it must be given help of a social nature. This help must come in some proportion—I would not specify what—from the Community's social funds, into which all members pay their contributions according to their ability and out of which all members take out according to their need. That is a good doctrine, which I am sure will appeal to the noble Lord, Lord Belstead, and his friends.

But each member country should be allowed freedom to top up their contribution, if they do not think it is sufficient, in any way they think fit, so long as it does not encourage any increased production of commodities which are already in surplus. We must realise that in order to maintain what the Treaty of Rome sets out to do—namely, that the farmworker will not be disadvantaged as compared with the industrial worker—the level of subsidy, or social payment, that is needed in a country like Denmark—shall we say?—is very much greater than it is in southern Italy or in Greece. Therefore there must be freedom for the individual country to top up such contributions as come from Brussels.

The methods by which these things should be done must be discussed in detail and with urgency by the officials in Brussels. That is their job. But there can be no doubt that it is feasible to do something on these lines. Let Ministers by all means argue about the level of the social payments and about the levels of the agricultural prices for all the quantities which are required; but let the level of the Community's needs be fixed on the actual consumption within the Community and on future projections. That is a statistical exercise about which there can be, and should be, no argument at all.

Above all, let us accept and let the Government from its strong position in these discussions accept and press for the principle of fair prices for such quantities as are needed. But let the farmers take the market risk for any surplus that they may happen to produce, and let the ensuing hardships be met by social and not by agricultural payments. If Her Majesty's Government, with their very strong position of having the right to veto any increase in the Community's own funds, had put forward constructive proposals of these kinds instead of haggling about minor details of how much should be repaid to us, if we had thought that out ourselves, had taken the initiative ourselves and had used our strong negotiating position to put this point across, I believe we would have gone much further towards success than the rather pathetic little progresses which the noble Lord has told us about.

8.38 p.m.

Lord Bancroft

My Lords, we have just heard an eloquent and informed contribution from the noble Lord, Lord Walston. Alas! I am not equipped to follow him, and my brief and prosaic remarks will be confined strictly to the report on the Commission's farm price proposals which really will not do. I think that pretty well everyone is agreed on that.

The Committee's report tries to comply with the plea of the Court of Auditors, the plea that reforms and retrenchment in the common agricultural policy should be the subject of an intellectual analysis and that such an analysis should replace—or at any rate march alongside—our leg-weary old friend, political will.

The CAP, as has been pointed out already, is devilishly complicated. It has been patched, stitched and darned—debauched almost—out of all recognition. But, as the noble Lord, Lord Plowden, has pointed out, a main objective of the CAP is simple: it is to ensure a fair standard of living for the agricultural population of the Community. But what we have got is a chaos, an old night, which produces huge annual surpluses; and the Community consumer has to pay the unnecessarily high prices which produce these surpluses. Then, turned into a taxpayer, he has to pay a second time to finance their disposal at knock-down prices outside the Community. So, slightly out of alignment with the noble Lord, Lord Walston, the first, if not the last conclusion to be drawn is that the institutional prices are generally too high and that they should be reduced, not just frozen.

Lord Walston

My Lords, I accept that entirely. I hope I made it clear that prices are too high and that they should be reduced. My point was that one must not rely upon the price mechanism to dispose of all the surpluses.

Lord Bancroft

My Lords, I am obliged to the noble Lord. Our non-alignment lies, perhaps, in the direction of passion rather than intellectual analysis. Again, I follow the noble Lord, Lord Plowden, in believing that this applies particularly to cereals, first because of the malign ripple effect of artificially high cereal prices right across the agriculture and food sectors; and, secondly, because of the equally powerful benign effect of a price reduction. The Commission's own cereal figures forecast a production excess of at least 20 per cent. over Community demand by 1990, and 20 per cent. represents 23 million tonnes. What has recently been proposed for milk is most welcome. I hope that that welcome will itself be welcomed amidst the uproarious calm on the Government Benches. But it is a short and hesitant step, as yet, in the right direction.

A second conclusion is that everything possible should be done to uncomplicate, to de-barnacle, to simplify the common agricultural policy and thus save wasted resources. It is a great happiness that one of the effects of stringent price reductions, especially in cereals, will achieve precisely that objective. A third conclusion of an analysis of the CAP problem is that, as has already been pointed out, certain arrangements should be made in relation to monetary compensatory amounts. I refer in particular to paragraphs 45 to 48 of the committee's report. These arrangements would be greatly eased if all Community countries were to become full members of the European Monetary System. I repeat that it is high time and, if I may say so, ripe time, as select committees earlier recommended, for the United Kingdom to join the exchange rate mechanism. This, at any rate, is a matter within the competence of Her Majesty's Government.

These are three conclusions of the committee which have particular force. We in this country benefit from, as well as contribute to, the Community, both tangibly and intangibly. It would be a great reassurance to consumers if the agricultural system was winched on to a simpler, sounder and more stable footing. This would, I believe, also be in the long term interests of United Kingdom agriculture—one of our biggest and one of our most efficient industries. And especially vulnerable sections should, as the report implies, get transitional direct income support. A further benefit would be the release of scarce and at present wastefully used Community resources. This would make it possible to consider devoting a bit more to other wealth-producing and job-creating investment for the future. Investment in the infrastructure and in the industrial development of the deprived regions comes all too readily to mind as a vivid and telling example.

8.45 p.m.

Lord Mottistone

My Lords, I, too, should like to thank very much the noble Lord, Lord Plowden, for so skilfully introducing this debate and for his even more skilful chairmanship of the rather disparate and differently opinionated members of Sub-Committee D. I shall be as brief as I can and speak about the main points, as I see them. First, I must declare an interest. I am employed by the Cake and Biscuit Alliance, which manufactures biscuits and packaged cakes. Therefore I speak from the point of view of food manufacturers, and my opening remarks relate to what the industry sees as the main points.

One which is perhaps slightly new relates to its belief that the common agricultural policy must be retained. That is a good move. Secondly (the Government, I believe, take this view, as the Select Committee certainly does in its future financing report) the industry believes that there must be no increase in the 1 per cent. VAT before the common agricultural controls are made effective. Thirdly, both we and, I believe, the committee agree that the open-ended nature of the common agricultural policy must be curtailed.

My next point is that a good way of partially disposing of the surpluses would be to redistribute them at reduced prices within the Community for food processors, as is the practice at the moment with the reduced price of butter for the manufacture of biscuits. In view of my declared interest, that may seem to be special pleading. However, the fact is that processed foods earn the Community more money outside it than do raw materials straight from the farms. It would be helpful to the Community in the broader sense if greater attention were paid to the encouragement of the export of processed foods, which in the case of this country are third in the league table of manufactures of all kinds and which have grown to that magnitude over the past 100 years. There are good reasons, therefore, why it would be helpful if the Commission in particular were to pay greater attention to factors which do not relate strictly to the responsibilities of DG VI.

I turn now to the MCAs. I was interested in what my noble friend had to say about the phasing out over three years of positive MCAs. I hope that negative MCAs will be similarly treated. I am not at all sure that they will disappear very quickly. It means that governments will have to relinquish, in the green currency, one of the weapons that they have in adjusting prices to suit the needs of their own countries. It would be helpful if the distortions in the market place, which apply in particular to manufactured foodstuffs—known in the jargon as non-annex II goods—could be removed. This applies in particular to the de minimis rule, which operates extremely unfairly against the manufacturers of processed goods with a positive MCA as opposed to those with a negative MCA. To be blunt, French biscuits can come into this country much more cheaply than British biscuits can get into France. This is contrary to the basic principles of the common agricultural policy. Indeed, I would say that it is probably against the competition rules of the Treaty of Rome.

My next point relates to the oils and fats tax, which I was delighted to hear my noble friend on the Front Bench say the Government, like the committee's report, are dead against. I hope that the Government will never find themselves in the position of having to trade that firm intention for something else and weaken on it. Perhaps my noble friend will find a little time to comment on that point when he comes to wind up.

I turn now to the basic points of these reports and my own unadvised views. The problem, which has been highlighted by other noble Lords, is specifically mentioned in paragraph 49(i) of our report on the price proposals. It is that the proposals do not measure up to the needs of the times. This is extremely sad because the Commission has tried over the years to do better. The noble Lord, Lord Walston, said that agricultural ministers lacked courage, and I would not disagree with him. For whatever reasons, they have spoilt what the Commission has put forward. Now, the Commission itself has not had the guts to put forward a proposal that makes a proper attempt to tackle the problem before it.

The proposals on prices are not stringent enough and the proposals on supply controls are too weak. If you look back to the report on the common agricultural policy which the Select Committee made in 1979—it was the thirty-second report of the 1979–80 Session—your Lordships will find that all the important recommendations in both the supply controls report (which is much more detailed) and the report on price proposals were made four years ago. If only the recommendations of our Select Committee had been taken up by the Commission and endorsed by the agriculture ministers then, we should perhaps have found that the common agricultural policy was under control by now. However, this was not done and the surpluses we are faced with now are even worse than the surpluses of four years ago.

In Britain itself we have done very well. At a recent private meeting, my honourable friend Mr. MacGregor—my noble friend Lord Belstead's colleague as a Minister of State at the ministry of food, agriculture and fisheries—said that five years ago the United Kingdom was only between 55 per cent. and 60 per cent. self-sufficient and that today, we are 76 per cent. self-sufficient. I suppose one could argue that, if our recommendations of 1979 had been put into effect, the British, too, would not have developed that self-sufficiency to the same extent. One might also argue that, as members of the Community, perhaps we should not have done so anyhow.

We are now faced with the fact that we need stronger measures. As paragraph 29 of the supply controls report shows, if stronger measures both in quality control and the guaranteed thresholds are applied, there is a serious risk that this could lead to undue hardship for many of the small or otherwise disadvantaged farmers. As the noble Lord, Lord Walston, said, we go on to observe that perhaps this point should be met by controlled national income aids. I may add that it might also be met from the Social Fund, if that were used more widely than it is at the moment, or from both.

It is sad that we have to say that, because in a report that we have made during the last three years we drew attention to the very high level of national income support and indicated that it should be less. But we are up against it; we have too much, we are not controlling it properly, and if we do control it properly the small farmer will not meet that part of Article 39 which requires him to have a comparable income to other people. There seems no other way through but to say that such farmers must be dealt with as a social case from a separate source. If they are dealt with wholly by the Social Fund, then that will be another charge on the budget, which will probably be just as bad as the extra charge that is made for supporting such farmers through the common agricultural policy.

One is forced to the conclusion that controlled national aids supplemented by more rigorous price controls and guaranteed thresholds must be the only way through. It is a sad picture but we have allowed the situation to get out of control and now we have to suffer for it.

8.56 p.m.

Lord Brimelow

My Lords, I was briefly a member of Sub-committee D. I was a member of that sub-committee when it was taking evidence on the problem of supply controls. I had ceased to be a member of it by the time the report was drafted; and I was not a member of that sub-committee when the two other reports we are debating tonight were prepared. As someone who was not concerned in the preparation of any of these three reports, perhaps I may express my respectful appreciation of their clarity and cogency; and also of the clarity and cogency with which the noble Lord, Lord Plowden, introduced them this evening.

Tonight's debate continues and develops the debate we had on 15th March on the future financing of the Community. In that debate, I said that the Select Committee report on the future financing of the Community would provide a yardstick for measuring the success of the then-impending meeting of the Community heads of government and of the follow-up action which would be needed if that meeting did not satisfy expectations. The meeting did not satisfy expectations. It did not place a firm limit on the growth of agricultural expenditure. It did not agree on an equitable basis for the long-term financing of the Community. It nearly agreed, but then did not agree, the increase in the Community's own resources. Perhaps expectations were excessive. We ought to have learned by now not to expect much of meetings of the European Council; it is not a good way of doing business.

The three reports which the noble Lord, Lord Plowden, has presented for debate today provide three additional yardsticks for measuring the performance of the Community. By the criteria which they lay down, it seems that the Commission and the Council of Ministers are at long last trying to improve on their past performance. They are having only limited and inadequate success. At this point, it should be emphasised that the criteria laid down in these reports are not based on the selfish interests of the United Kingdom. They stem from a question which relates to the interests and long-term welfare of the Community as a whole; namely, how can we get away from the present irrationalities of the common agricultural policy and move towards farm policies which, from the point of view of the Community as a whole, would be cost-effective and fair?

The Select Committee is not biased against the Community, but it would like to see the farm policies of the Community reformed in ways which would make better economic sense and which, in particular, would reduce and eventually stop the production of unwanted surpluses. I say "unwanted surpluses" for some surpluses will be needed, in part for food aid and in part as an insurance against annual fluctuations in output. The report on supply controls, together with the evidence appended to it, clearly demonstrates the difficulty which would attend a policy of adjusting production to need, even if the political will to make that adjustment were there, but it also demonstrates that the Community could do better in this respect than it has done hitherto.

I agree with the noble Lord, Lord Walston, that it is rather a pity that the report does not go into greater detail as to how quantity controls could be applied to various commodities. It is already clear that this year neither the Commission nor the Council of Agriculture Ministers are minded to go as far or as fast as the Select Committee would wish in the direction of stopping the production of surpluses. The Select Committee's report on the tax on certain oils and fats shows that in this field the Commission is minded to go in quite the wrong direction, and I was glad to hear from the noble Lord the Minister that Her Majesty's Government share the criticisms expressed by the Select Committee.

From the standpoint of economic rationality, the Commission's proposals on oils and fats are ill-conceived and should be resisted. I might add in passing that in my opinion the Commission's proposals, if adopted, would have an adverse effect on the interests of those African, Caribbean and Pacific countries associated with the Community under the second Lome Convention, which at present supply some of those oils and fats to the Community. I should deprecate that. The Community has treaty obligations towards those countries which should be respected both in letter and in spirit.

By the yardstick of the Select Committee's proposals on the 1984–85 price proposals, the readiness of the Commission and of the Council of Agriculture Ministers to tackle the problems of unwanted surpluses must be adjudged as totally inadequate. What follows from this? I think it unlikely that 1984 will see the adoption by the Community of reforms which satisfy the Select Committee's criteria of economic rationality or Her Majesty's Government's criteria of equity in contributions to the Community budget. We shall have to keep on pressing for the reform of policies which we regard as irrational and unfair. In doing so we shall no doubt continue to be accused of being anti-Community. The accusation will be unmerited. It is in the long-term interest of the Community that it should become both rational and fair. The yardsticks provided by the Select Committee's reports will enable the House to measure progress.

One point does need to be made. The restriction of farm incomes, as various noble Lords have pointed out, in some areas creates acute social problems. When Sub-committee D was considering the problem of supply controls, the noble Viscount, Lord Brookeborough, drew attention to the fact that in Northern Ireland small dairy farmers have no alternative source of livelihood. At the recent meeting of the European Council the Prime Minister of the Republic of Ireland did his utmost to obtain special treatment for the milk producers of his part of Ireland. A purely financial or economic approach to the problems of the Community is not enough, but the social problem of the marginal farmers and the problems of areas which are completely dependent on dairy herds should not be allowed, as hitherto, to lead to gross distortions of the Community budget. The reform of the common agricultural policy will raise problems of such complexity and difficulty that the process will evidently take many years, even with the most determined approach.

In conclusion, in the debate on the future financing of the Community the noble Lord, Lord Tranmire, who is not here this evening, drew attention to the importance of a very sharp reduction in grain prices. That is an approach which the Court of Auditors itself favours. I need not go over the ground again, but will only say that I agree with what the noble Lord, Lord Tranmire, said on 15th March; and I was encouraged to hear the Minister say this evening that Her Majesty's Government also favour a reduction in grain prices. There is a consumer interest in this as well as an interest by the producers of animals, but the noble Lord the Minister did not say whether Her Majesty's Government favour as sharp a reduction in grain prices as that suggested by the Court of Auditors and the noble Lord, Lord Tranmire.

On a final point, I agree with the noble Lord, Lord Mottistone, that MCAs were never intended originally to have the effect on the price of manufactured goods, such as biscuits, which we are now observing. It is a departure from the original intention which, if possible, should be put right without delay.

9.8 p.m.

Lord Mackie of Benshie

My Lords, I too should like to start by paying tribute to our chairman, the noble Lord, Lord Plowden. I have been much entertained and delighted by the way that he has handled the bucolic section of his Committee. I am sure, too, that the noble Lord has been much entertained by the behaviour of these strange animals which in his past career he may not have encountered.

I should like to take the reports one by one and say a little about each before attacking the general problem. On oils and fats, I agree entirely with the Committee's conclusion but I totally disagree with its reasons. For example, the Committee agreed with the consumers and stated: it is wrong in principle to tax a product solely because it competes in price with an EEC surplus product". The fact is that not to tax oils and fats is wholly and completely illogical if you accept that we are members of a protectionist society in the EEC. Butter from New Zealand comes here with an enormous levy on it, and it is surely logical to tax the competing product, such as oil for margarine.

I am not against the tax at all on principle but because it is impractical for two reasons. First, it is an example of the distortion caused by fiddling about. The Commission proposes that we tax every item of animal and vegetable fat produced in the Community in order to get around the General Agreement on Tariffs and Trade. That would mean that every little slaughterhouse and every small vegetable oil producer in the country would have to be taxed. That would be far too great an excise problem.

I never know how the word "margarine" is pronounced. I shall pronounce it as I always have done. The other practical reason for agreeing with the conclusion in the report is that without any doubt margarine is eaten much more by the less well-off sections of the community in our country, and it would be a tax on those people. On these practical grounds, I agree that the tax is wrong.

The Committee did an immense amount of work on supply controls. As the chairman said, the Committee contains a large proportion of practical farmers, and the farmers on the Committee were the first to point out that no policy which produced more than the market could bear can work. In other words, eventually the laws of supply and demand have to be taken into account, in spite of the fact that a definite part of the Treaty of Rome was that farmers' incomes should be kept in line with earnings elsewhere in the economy.

The Committee's advice was very much in line with the guidelines later produced by, but not adhered to by, the Commission, that we should have adopted a prudent pricing policy four or five years ago and that farmers should be given definite guidelines on what they should produce and how much they will be paid for it. I agree entirely with the noble Lord, Lord Walston, that if you do this over a period no one can complain if farmers are given a reasonable price for the amount of food which we require either for reasonable export or for consumption in the Community.

The report's conclusions are fair to farmers. At paragraph 64(iii) we say: A return to a situation in which full play would be given to market forces is rejected as unacceptable on economic, social and political grounds and as contrary to the concept of the CAP". That is entirely right and fair. Farmers agree that they deserve protection from the vagaries of the market which can hit a mass of small producers much more severely than a larger manufacturing industry.

I should like now to take a short time—I shall not keep the House long—on the general principle of the CAP. We must remember that the EEC was orginally formed of the six countries. We did not go in. We deliberately said we would not go in. My noble friend Lord Walston has already given the situation when they set up the common agricultural policy. But I think it is very necessary for us to realise that this has been one of the most dynamic of the policies set up under the European Economic Community. In our own case, since we joined the Community, in actual fact, the import saving amounts to something like 2½ billion a year at present day prices. That is a great deal of money, and it would take a great deal of exports of anything to make up for it. So I think that we want to watch that we do not throw out the baby with the bath water.

I do think also that we have to look at the question of world prices. Some 10 to 15 years ago Europe did not count in the world trade except as an importer in cereals. Now Europe, the Community, does about a quarter of that trade. You take away a quarter of any trade and you will see a very, very sharp rise in the prices available to the producers. We have to make certain that we remember that. Also, we have to think in terms not only of ourselves but of the French. I have often said that the French are the wiliest people on two feet; but in actual fact the French small farmer is suffering a great deal more than we are because of the much higher inflation and because of the status of their green currency. They are accepting prices which are a good deal lower than ours. It is also a fact our imports do rise and have risen as a result of the policy of unrestricted price increases in the CAP. We want to look at our conduct inside the EEC when we observe or complain about our lack of influence.

However, we have not been very good members of the Community. First, of all, the Labour Party actually rejected our joining until we had held a referendum in this country on whether or not we should remain in the EEC. No one can say that the present Government have been particularly tactful in dealing with our friends and neighbours in the Community. There has been an obsession with our particular position. I note in a lot of people a desire to go back to the happy days when people in this country imported food from starving peasants, such as the Revns from the Argentine and the Okies in Oklahoma, at low, low prices which induced a degree of poverty in those who produced the goods which was not equalled in our industrial cities here.

That attitude still pertains among a lot of people in this country and I think it has had a lot to do with both Tory and Labour attitudes to Europe and the bad light in which we are regarded inside Europe. If we had, a different attitude we might have had infinitely more influence and would have been able to produce a sensible pricing policy which would have saved an awful lot of aggravation which is about to strike the farming community here. There is no question at all that we have to have a severe cut in milk prices, and we have got to have a severe cut, one way or another, in cereal prices, otherwise the whole situation is going to blow up in the complete abandonment of any form of co-operation in agriculture in Europe.

1 feel that many logical things have been said by a number of people, including the Milk Marketing Board which thought that a drop in price was the logical thing and then they could go on to market properly and increase the sale of their product. Instead of which, politically, we have to accept that the only thing our partners want or will take will be a quota system and a system of a savage levy on any excess production. This is the only politically acceptable method of proceeding and we should back it. But we have to work out its effects on our own farmers. We have to consider the position of the Irish, both in Ulster and in the Republic and we have also to consider the position of not only the small farmers but many farmers throughout the community. I do not think that it is the small farmer who will suffer most. Perhaps the over-capitalised big farmer will suffer a great deal more than the small farmer who can contain his costs.

It is very important that we look at some of the arguments put forward. I must say that my heart does not bleed for the manufacturers as much as does the heart of the noble Lord, Lord Mottistone, because it is a curious fact that the manufacturing and distribution share of the costs to the consumer has gone up by more than the cost of the raw materials paid to the farmer.

Contrary to the view of my noble kinsman, I do not think that we can look much at deficiency payments all over Europe. Deficiency payments can work, and work well, in a country which imports half its food. But in Europe as a whole, where most of the food is grown at home, I do not think that deficiency payments are possible. I think that they would be far too expensive. However, I hope that the measures applying in this country—that is. the butter subsidy and the beef deficiency payment—will be continued in some form, and I wonder whether the Minister can elaborate a little on the progress in that regard. I appreciate that he earlier said something about it, but perhaps he will say a little more.

Finally, I believe that we must look at what will happen to the countryside. The countryside is enormously important. We have 11 million people unemployed in Europe today—no, I think that the figure is now more than 11 million, but let us take that figure—and 11 million people have left agriculture for the cities. The figures may not entirely coincide, but this is a significant factor, and I do not believe that we can "populate" the countryside with areas of special scientific interest. People are needed, and among them the most important section must be the farmers.

I feel that the cuts that we are envisaging may have a much greater effect than we at present think they will have, and like the noble Lord, Lord Walston, I should like the process to be reasonably firm, but I should not like it to be carried out all of a sudden, which might destroy a great many things that are of social and enonomic advantage to this country.

9.23 p.m.

Lord Seebohm

My Lords, since the noble Lord, Lord Plowden, has explained so clearly the extraordinary and drastic situation that we have now reached regarding the CAP. which is completely out of control, 1 do not think that there is any need for me to say anything more about that. But I feel that it is probably just worth pointing out that the CAP has done an enormous amount of good. We now have throughout the whole of the Community an agricultural industry that is highly efficient. We are no longer short of food; we can produce all that we need. Not only do we have a fine agricultural industry, but it has brought along with it prosperity in all the other industries at the same time.

I think that it is true to say that no country has really taken off industrially, or even recovered industrially, without a satisfactory agricultural background. That was certainly true of Japan after the war. The first thing they did was to get their agriculture right, and industrial growth followed it. Going back in history, it is certainly true to say that our Industrial Revolution would never have taken place had we not had an agricultural revolution at the same time. If it had not been for the innovations of such people as Coke of Norfolk and "Turnip" Townsend, I doubt whether our Industrial Revolution could have taken place.

There is no doubt that this is true, but it can be overdone. I think that probably the massive mechanisation that we now see in agriculture could be a little too much. I am surprised in my area of East Anglia to see the enormous quantity of new combines, tractors, and so forth, and to find that the Land Rover seems to have disappeared. Now it is the Range Rover that one sees everywhere. It may be right that the agricultural industry should have mechanised and should have become more efficient. Is it not just possible, however, that it has been overdone? Some farmers have complained to me that if the price of cereals is reduced, they will not be able to pay for the depreciation and maintenance renewals on their machinery. That is all very fine. Many of them have bought their tractors and other equipment on leases. They may not be able to pay their leases. But should they have bought so many in the first place? There is no doubt that much labour, perhaps too much, has left the agricultural industry. It seems to me that, if enough money was spent, it would be possible to produce all the food that is needed in this country. But at what price? Perhaps we should have been satisfied with 60 per cent. production and not gone to 75 per cent., when it becomes an extremely expensive operation.

The social problem of farmers was, I think, mentioned by the noble Lord, Lord Mackie of Benshie. There is no doubt that in the early days, 25 years ago. many millions of people were living in Europe as peasants and small farmers, hill farmers and so forth. It was a social problem that did not exist on the same scale in the United Kingdom. I am glad to say that increased prices have meant that their numbers have been reduced fairly painlessly. Some of your Lordships may know the exact figures. I understand something like 60,000 small farmers a month are leaving the industry. The next generation, I suppose, are not prepared to live the same sort of life as their parents and ancestors did. It is perhaps the case therefore that the social problem will not be quite so serious as in the past and that some form of reduced agricultural support will not be quite so painful as it might have been.

There has been much talk about high prices and the fact that they should be much nearer world prices. I should like to utter a word of warning. Few people know what a world price is. You know what it is today. You do not know what it will be, or why the price is what it is. It has nothing to do with the cost of production except over a long period. Take the case, for instance, of sugar, which I have studied for a long time in my financial world. About 60 per cent. of sugar is consumed in the countries where it is produced. The price of sugar in those countries is the affair of those countries alone. Out of the remaining 40 per cent., I believe that 20 per cent. is controlled by various world agreements. The world market for sugar is therefore a small 20 per cent. There has only to be slight over-production one year and the price simply flops. On the other hand, one has seen it treble or quadruple in about three months when there has been a shortage in any one year. When we talk of prices nearer to world prices, we have to be careful.

One result of the existence of the CAP is that surplus food grown in Europe has been put on the world market and has completely upset the American grain market, with the effect that the world price for grain is at times completely unrealistic. There are many difficulties attached to what is the right price. I agree, however, with the report of the sub-committee that at the moment prices are certainly too high.

Most of the other matters to which I wish to refer have already been dealt with. I hope, however, that people realise that price changes and alterations to quotas should be done fairly gradually. There is no such thing as instant farming. If you turn from cows to corn, it cannot be done overnight. You need new types of machinery. You need new skills and quite different programmes. Your capital requirements are different. It has to be done gradually. We have to accept the fact that if we act too briskly in the short term, say, to bring down the price of milk without some compensation, there will be a serious situation created among great numbers of farmers. This problem is possibly well recognised. That is why the programme for reducing the milk surplus by such a small amount compared with what is required could be the right system. In fact, we have to accept that the situation will become worse in the short term, although not worse at the same rate, in order that it may be right in what I believe the Minister stated would be a five-year period. I do not know whether, by that, he meant that for the next two years the situation would still be deteriorating but would improve in the last two or three years. Perhaps the noble Lord will say something about that when he comes to reply.

I do not think I need say any more except to repeat what I said last week in the debate on the future financing of the Community. We must not put the cost of the common agricultural policy out of all context as regards total expenditure. As the noble Lord. Lord Cockfield, said, in the context of the budget the expenditure on the CAP is considerable. But if we look at it in the context of the total GNP of the Community, it is not considerable. As I also pointed out, the delays at frontiers and the procedures which have to take place at frontiers cost the Community more than the whole of the CAP. So let us keep the matter in proportion.

If the people who will be negotiating tomorrow on this subject have a sense of proportion and take these points into account, it would be quite ridiculous if some acceptable compromise could not be reached. If they think purely of very short-term national interests, we shall see nothing happening. However, what happens tomorrow is probably so important that it might still, if it goes wrong, jeopardise the whole future of the Community. I just pray to God that tomorrow an agreement will be reached.

9.32 p.m.

Lord Sainsbury

My Lords, the three reports that are being debated are in my opinion a considerable achievement. I am sure that all members of the committee would agree that tributes should be paid to the clerk, to our specialist advisers and, last but not least, to our chairman, who guided so wisely our many discussions. It is inevitable in a debate of this kind, when the majority of the speakers are members of the committee that produced the report, that the tenth speaker on the list is faced with immediately sitting down or covering again in his own words all the points that have been covered by previous speakers. I am sorry to say that I am going to make my speech in spite of the fact that nearly all of the points 1 want to make have already been covered.

It is to be deplored that the Community has shown so little will to action that it has become trapped in a situation in which the agricultural policy has become so out of control that the Community is faced with imminent bankruptcy. This is in spite of repeated warnings from both our own Ministry of Agriculture and the Commission that very high institutional prices could only result in stimulating production to levels greatly in excess of demand. It is lamentable that the urgency of the situation now means that we have to make last-minute, rapid and drastic decisions to curb production. This is at a time when we should be implementing a long-term and well-planned policy.

It is hardly surprising that the farming community is up in arms at the prospect of changing the open-ended nature of price guarantees. Farmers have made (albeit, perhaps, unwisely) investment decisions on the assumption that institutional prices would continue to be as high, if not higher, than in the past. First and foremost, the Community must adopt a longer-term planning and pricing period. Farmers must be given a more predictable environment in which to make their planning decisions. Only then can we expect them to behave as other businesses and to adapt to changing circumstances.

I continue to advocate (as I have consistently done in the past) that the only effective and long-term means of controlling the supply is to decrease the level of institutional prices. I wholeheartedly agree with the conclusion of the 1984–85 price proposals report of Sub-Committee D that the Commission's proposals are not stringent enough. As the Grain and Feed Trade Association stated when submitting evidence to the committee: To lurch from expedient to expedient at the expense of traders, processors and consumers, in the search for savings, is not an acceptable substitute for a bold policy to reduce prices". Prior to the summit, the agriculture Ministers showed a little more recognition of the market situation. It is encouraging that they agreed to propose a 1 per cent. price reduction on a range of products. It is particularly vital—and I am aware that this has been said by practically every other speaker—that cereal support prices are brought down, over a period of, say, four years, nearer to the level of prices of cereals traded internationally. In my opinion, there is absolutely no justification for the Commission's proposal to increase the amount of the guarantee threshold from 120.56 million tonnes to 121.32 million tonnes. Cereals are central to all livestock production systems. Feedingstuffs amount to about 50 per cent. of the total input costs of livestock farmers. Cheaper cereal prices should enable them to improve their incomes.

Therefore, the Community must implement a policy to lower institutional prices. It must ensure that this policy is not only sustained, but believed to be sustained, by the farming communities. As yet the EEC has lacked credibility in the eyes of the agricultural population. For the price signals to work effectively, it is imperative that this should be rectified. In my opinion, one must distinguish between the long-term solution and what is feasible in the immediate future.

There is no doubt that it will take time for production levels to be decreased in response to lower institutional prices. This is no better shown than by the rather worrying findings of the December agricultural census. This census indicates that farmers in the United Kingdom have not let the Community crisis affect their plans for increasing output. Production will respond to a decrease in institutional prices, but it will take time and determination on the part of policy-makers. Because of the urgency of the situation, therefore, and the budget crisis, we shall be forced to adopt more immediate actions to curb production. As the committee said in its press release on its latest report, the recent proposal to impose quotas on milk production is certainly: A positive step to bringing the surplus under control". Although the ministers suggested imposing draconian penalties for exceeding the quotas, the basic quota is to be set at 12 million tonnes above current consumption. If and when these measures are imposed, the surpluses will still continue to accumulate. Though I advocate a severe price policy, that does not mean I am either unaware of the income needs of farmers or unsympathetic to their point of view; on the contrary, I am so aware. But we cannot reasonably expect the CAP to meet the needs of the less efficient, less viable farms without providing massive benefits and incentives to the more efficient farms. The social problems of communities in rural areas must be dealt with by a social policy. It is equally important that the Community's socio-structural policy should encourage the rationalisation of production structures and not. as at present, increased production. Bearing in mind the need for a social policy, it is fair to expect producers to adapt to changing circumstances given a reasonable amount of time.

In their report on supply controls the committee stated that they inclined to the view that the ability to survive depends less on the size than on the particular circumstances and efficiency of individual producers. The key word here is "efficiency". There are reasons to believe that some farmers—particularly specialist arable farmers working good land—could restrict their capital expenditure and lower production costs. For example, machinery could be made to last a great deal longer.

The Chancellor's decision to abolish 100 per cent. capital allowances is to be welcomed, as it could discourage farmers from making inessential investment. Given that the costs of certain inputs can be lowered, farmers, and essentially cereal farmers, should be able to accept lower prices for their output than at present, while still maintaining an adequate level of income. At whatever level the institutional prices are set, there will always be businesses operating at the margin. It is an unfortunate fact of life that farmers at the margin will inevitably be hurt.

If 1 may now turn briefly to considering the point of view of food manufacturers and consumers, it is high time that their interests were taken into account. These have been consistently neglected both at farm price reviews and in the Commission's general proposals for supporting the markets of agricultural products. You could not find a better illustration of this than in the particularly objectionable proposed tax on oil and fats. As the committee has outlined in its report on this proposed tax, it would not only place an unwarranted burden on industry and consumers but it would also totally fail to achieve its stated objective. Furthermore, it would be extremely aggravating, to say the least, to the international community and to the USA in particular.

The regrettable failure of the summit means, as I understand it, that proposals for changes in the CAP are now going into the melting pot. One can only hope that the Ministers and the heads of state will come to a quick decision so that at least the farming community know where they stand.

9.47 p.m.

Lord Gallacher

My Lords, may I first join in what has now become the heedless hymn of praise to the noble Lord, Lord Plowden. One of the minor compensations of being a member of Sub-Committee D. apart from a ringside seat when farmers disagree among themselves, is that even at a ripe old age there is still a great deal to learn about the art of chairmanship; and we are all indebted to the noble Lord. Lord Plowden, for that. The common agricultural policy is the most difficult aspect of all European Community affairs and yet, as has already been pointed out. it is basic to the European Community. Finn Gundelach, the late Commissioner for Agriculture, said that without the CAP there would not have been the free movement for manufactured goods throughout the Community and, without the free movement of manufactured goods, there would have been no European Community in the first place. For these reasons Mr. Gundelach said that he would fight to eliminate structural surpluses because they would destroy the CAP. This constituted a very succinct defence of the CAP as such, yet it is ironic that divergence of green rates and the use of monetary compensation amounts to correct these have resulted in impediments to the movements of foodstuffs throughout member states.

Common agricultural policy mechanisms are so complex that neither consumers nor farmers understand them. This itself is a recipe for mistrust. The common agricultural policy is at the heart of the Community and is enshrined in the Treaty of Rome. Britain had no part in drafting the treaty but is bound by it. A new Messina would, at least, have let Britain in on the ground floor. The basic objectives of the common agricultural policy are no different from those agricultural policies followed in Britain since state marketing boards were first established in the 1930s. Managed commodity markets give a fair deal to producers and consumers. Managing 10 markets, and maybe 12, is by any standards a daunting task.

Some arguments for the common agricultural policy are now less potent: for example, security of supply in the era of ballistic missiles. Even without the present Community financial crisis, the compelling need for change exists. Industrial recession, with widespread and continuing unemployment in all member states, make the cost of the CAP on present budget resources unjustifiable. The problem is how to change so that less is produced at lower prices, and especially in the atmosphere of haggling—which is a Community norm—and to do so without financial consequences for farmers which will undo what the common agricultural policy has undoubtedly achieved.

The Select Committee report on supply controls deals in depth with three problem commodities, but we must not forget wine, olive oil and tobacco. The Sub-Committee's conclusions are followed through in comments on 1984–85 farm price proposals. The Committee's view that prices and related measures for 1984–85, proposed by the Commission, fail to match the requirements of the situation is timely, but the agriculture Ministers have still to resolve most of the Commission's proposals.

I have no wish to traverse ground already covered by earlier speakers but I should like to make a few comments in the context of Britain's situation. The dangers of failing to deal with excessive and persistent surpluses is well illustrated by the revival of a proposal for introducing a tax on certain oils and fats. The Commission would disclaim that this is aimed at reducing the butter surpluses by making margarine and other oil-based foods more expensive. Yet that is the effect of the proposal, although the revenue will undoubtedly help the budget.

It is a measure of the failure to deal with surplus milk that oils and fats are to be made dearer. It is to be hoped that Britain will continue to reject this proposal throughout the course of the negotiations currently taking place. But more important would be to reject it because of the precedent-creating nature of the tax and the possibility of reprisals by other countries. When value added tax was first introduced in Britain before we joined the European Community, we did not levy value added tax on food. That was sensible: we are already at a disadvantage in the Community because of the distance many of our exporters are from main Community markets. Any needless increase in costs was to be avoided. The same goes for coal, gas and electricity. Also, in Britain it is traditional not to tax food.

It would be regressive in Britain if, having defeated the proposal for a tax on oils and fats, we were to make food generally or energy specifically subject to value added tax, even at a low rate, while seeking to justify this by reference to what happens in certain other member states. A further aspect of this matter is the beneficial effect on prices, and it is to be hoped on consumption, which would flow from the use of price mechanisms to reduce structural surpluses. The high cost of cereals is an obvious example of this.

Because Britain does not contribute to the Community milk surplus overall, we are inclined to disregard our slow but steady decline in liquid milk sales, particularly on the doorstep. In my view, United Kingdom consumers are right to query the present and proposed increased price of milk on the doorstep. Home delivery has been of enormous help to farmers and consumers alike; and the effect on overall consumption, if door-to-door deliveries became uneconomic because of falling sales, would be serious, especially for farmers.

Is it not time that the Milk Marketing Board and the processors looked at the distributive cost to consumers of what seems to be needless and unreal competition as regards doorstep delivery? Can the industry afford three milkmen in most urban streets, each trying to maintain his rounds by selling a range of unrelated goods—sometimes not even food—with milk just delivered rather than sold? Solutions are not easily discovered but a voluntary zoning scheme may produce economies to prevent the further decline in consumption and so preserve what is now a unique British system, to the benefit of consumers, fanners and processors.

There is now some strong criticism of the effects of certain farming methods in Britain, although these have resulted in good yields and reasonable prices. If, as a result of major reform of the CAP, pressure for yields is reduced, consumers must be consulted as to the effect on them of alternative policies for agriculture, and especially land use. If low output and low input is encouraged, as my noble friend Lord John-Mackie suggested, how will farmers' incomes be maintained? Consumers who advocate reform of the CAP do so in the belief that modest success will result in lower prices and enhanced consumption, yet still give a reasonable living to farmers. Consumers have not been asked about alternatives.

Your Lordships' Select Committee consults consumers on food prices and conservationists on farm methods. In the interests of the balanced view, both of these important groups should confer, and without too much delay, as decision time is at hand. The Select Committee has boldly attempted making the language and mechanics of operating the CAP easier to understand. This leads to a conclusion favouring the adaption of green rates and dismantling MCAs. provided the time scale is longer than the Commission proposes and within a banding arrangement to which member states would be asked to commit themselves. I note the progress report on this aspect which has been given by the noble Lord the Minister.

It is a personal view, but if Britain really wishes to see the end of green rates and the unfair distortions they create for the CAP, we would be in better overall control of this tricky exercise as a member of the European Monetary System rather than as at present. Your Lordships have recently debated the EMS, but it is germane to the Motion before us. Both the present and previous governments have sought to justify not joining EMS, on the basis that the time was not right. This applied when the Labour Administration practised exchange control, and still applies, under this Government, when these controls have long gone. Will the time ever be right?

As with metrication, we have half done the job. So, too, with membership of the European Community. The CAP would work better if surpluses were decisively reduced. It will never function well, or be seen to do so, if green rates persist and are used, as now, by member states like trump cards. Reform of the CAP is the key to the revitalisation of the European Community, and a revitalised Community is essential for us all.

9.58 p.m.

Baroness Seear

My Lords, at this time of the night, hemmed in as I am on all sides by working farmers. I do not intend to deal with any of the technical agricultural proposals in this report. Instead, I should like briefly to turn to some of the political aspects which are raised by the points made in the report. In the first place, it is extremely refreshing to see the emphasis placed upon the consumer point of view in relation to agriculture and food prices. The Treaty of Rome requires the CAP to operate so as to give a reasonable level of prices to consumers. And there are—though sometimes one would not think so—more consumers in the European Community than there are farmers. Therefore, reference to an adjustment in favour of consumers is long overdue.

It is also very valuable that the report distinguishes between the economic and social aspects of the CAP. As my noble friend Lord Mackie of Benshie has mentioned, we should not forget that the CAP has in many ways, particularly in social terms, been very successful. It has brought about a reorganisation of farming in the Community which, particularly in the poorer regions of the Community, has enabled agricul-ture to revive and therefore to provide a living for the many people in those areas who would otherwise have become part of the industrial proletariat, which is doing very badly indeed at the present time in the industrial cities.

In this respect it has been a great success, but, as the committee points out, it is high time that the social aspects were dealt with quite separately. It is worth stressing that if the social aspects—the relief of continuing hardship in sections of the agricultural community which would stand to suffer if the recommendations were adopted—are to receive more attention, we do need more money in the Social Fund. That money may have to come out of the money that at present goes into the CAP.

It would be a switch of resources, although in fact some of the same people may benefit. They may benefit under a different heading, as it were, from that under which they benefit at the present time. This would mean that agriculturists in the poorer parts of the Community would have their standards maintained without having to boost to a quite unreasonable height the standards of the successful farmers. This has always been one of the basic problems: that in order to maintain a reasonable standard in central and south-west France, in certain parts of Germany and in Ireland, the richer farmers in the more prosperous areas have made a very substantial killing from the CAP. That distinction is most welcome and long overdue.

The reports are both valuable and timely—and they are as timely as they are valuable. They are valuable in particular because, at last, with great clarity and logic, and in a form that is very difficult to refute, the committee has made it quite clear that the difficult problems of the CAP will not go away. For far too long, people have run away from these problems. But Lord Plowden and his committee have recognised that problems of this kind do not deal with themselves but must be taken by the neck; that one has to do the drastic things that need to be done and say the unpalatable things which need to be said. That is what this report has done. It does not mince words; it says that prices must be reduced. That, surely, is the message. If one takes that message on board and acts on it, we shall begin to see the end of the most grievous abuses, as they are now, of the CAP.

Because of the clarity and irrefutable logic of this report, it has been long-awaited and is very acceptable. But it is also timely (and I cannot congratulate the committee on this, as it is a matter of luck) because it is published at a time when these problems can no longer be ducked. These reports are surely most useful to the Government. They will no doubt be read in Brussels with great attention, because their recommendations are so hard to deny. Today, at last, with bankruptcy, like hanging, greatly concentrating the mind, the difficulties we have ducked for so long have to be faced, and the problems have to be answered. Time is at last running out, and we all know it.

With the discussions going on at the present time the Government are surely in a strong position to press that the kind of action recommended in these reports be implemented. But because we are not in good standing in Europe, and because we have made ourselves so singularly unpopular (and this is not the moment to go into all that again), we are not as well placed as we ought to be to press for the logic of these recommendations. As the noble Lord, Lord Belstead, suggested, we are going part of the way; but part of the way is not enough. I should like very much to follow the previous speaker—the noble Lord, Lord Gallacher—in emphasising the importance of our attitude towards the MCAs and the EMS.

Our defence of the MCAs in the past has been seen as part of our determination to protect our own particular national interest regardless of how other members of the Community may see it. If, while these negotiations are going on, we make it clear that we recognise that the MCAs have to be phased out—it cannot be done overnight—that it is necessary to do it and that we are determined to go along that route, we shall be showing ourselves for once as being good Europeans, which so rarely do we show ourselves to be. That will strengthen our hand to argue for the reforms that this committee has recommended.

I also underline what the noble Lord, Lord Gallacher, said, and what is said in the report, that if we are to do this we will, again, strengthen our hands in the argument and establish ourselves as good Europeans, negotiating in good faith with a real belief in the important aspects of the Community, which get so overlooked in the discussion of detail. We should say that now, at last, we are prepared to take part in the exchange rate mechanism of the EMS and so to be full practising members of the Community. Only as such can we expect that our recommendations, however sound and however logical, will be taken notice of in the negotiations in Brussels.

10.7 p.m.

Lord Belstead

My Lords, as the noble Baroness, Lady Seear, said, these reports from the committee chaired by the noble Lord, Lord Plowden, are timely because they bring the reader face to face with reality; although whether some readers will find them any more palatable than the advice which has been given by the political leaders of this country that lasting solutions need to be found to the problems of Europe remains still to be seen.

However, it has also been a valuable debate. I very readily accept that. Indeed, with many very distinguished speakers in your Lordships' House this evening, the Government will do well to listen carefully to what has been said. If I may say so, I was very interested to hear the succinct speech of the noble Lord, Lord Bancroft. It was the first occasion I have had the pleasure of hearing the noble Lord and I respond to what he said about the EMS, and to what the noble Baroness, Lady Seear, said, by simply saying that both the noble Lord and the noble Baroness know the Government's view that we must be sure that conditions are right before we join. I am afraid that on that point I cannot be more forthcoming this evening.

I want to come immediately to the first important point. The noble Lord, Lord Walston. said that he felt that the Government and, indeed, myself in my speech, had been complacent about the problems which face us. I am sorry if I gave that impression and I should like to assure the noble Lord, and the House, that there is no complacency—and certainly none could derive from looking at the financial situation.

My advice is that the Community is faced on the actual proposals which are put forward now for the Agriculture Council with a potential overspend on the FEOGA guarantee budget of some 2 billion ECUs—that is to say, after the price fixing settlement, if it goes through, on the present proposals. Although no doubt some of this could be made up through management economies, or even to some extent by deferring some expenditure to a later year, I think that figure of 2,000 million ECUs is enough to show that there certainly should be, and can be, no complacency. Moreover, if I may say so to the noble Lord, who is always, I know, very fair, there is no complacency because there can be none on political grounds. Every year the Government of this country, of whatever party, has argued for lower prices in the Agriculture Council. In 1982, of course, we were even voted down on a scandalous 10 per cent. price rise despite our attempt to use the veto. The truth is that there will be little restraint in the Agriculture Council while two member states only are net contributors. It is an old saying that it is easy to spend other peoples' money. Unfortunately, it is all too true.

I wonder whether I might come from the general to the particular and just say a few brief words about our proportionate share of the total milk quota and about allocations to individual producers. When the Commission originally proposed the 1981 base year for quota allocation, we were concerned because it referred not just to the basis for splitting the total production quantity among member states but to the basis for passing national quota back to individual farmers as a result.

The noble Lords, Lord Plowden and Lord John-Mackie, both referred to what in shorthand I would call hard cases. We felt that this would result from the proposal as we had understood it because of the way in which individual producers' circumstances had changed, certainly in some cases, in recent years. It is agreed now, however, that where production conditions have changed substantially since 1981, allocation by the member state to individuals or dairies can be done on the basis of 1983 production or deliveries suitably adjusted to fit into the overall national quota.

If 1 may just say a word more about this, with this major objection to the 1981 base year removed, we were prepared to accept it for the limited basis of splitting the national quota. The effect of 1981 compared to 1983 on the total United Kingdom quantity for milk delivered to dairies is very small. Our share is changed by only 0.2 per cent. But, if I may say so, much more important is the fact that, as part of the general package, we have secured the coverage of direct sales off farms as well as deliveries to dairies. These account for 20 per cent. of deliveries in Italy, 16 per cent. in Belgium and nearly 5 per cent. in France, compared with less than 2 per cent. in the United Kingdom. That demonstrates how essential it is to see this milk package as a whole rather than fixing on particular aspects in isolation.

If I may just answer a question or two more about milk, as I understood him, the noble Lord. Lord Walston. rejected the price mechanism as a solution to the problems of the agricultural policy. I am bound to say that the Government do not go along with him on that thesis and nor, as I understood it, did the noble Lord. Lord Sainsbury. Although we quite take the point that there is the great difficulty about the thing working in time, we feel that none the less action on prices is the surest mechanism of giving producers the right signal.

However, the noble Lord, Lord Walston, commended quotas. It is very difficult to agree a fair quota scheme; but I accept that we have quotas now for sugar, and let us hope that we have one firmly for milk, too. What we need to do now is to gain experience of the milk quota before we go further in that direction. The noble Lord, Lord Seebohm, asked me about the small print of the agreement. As it stands, the agreement is for the milk quota and levy to last for five years but to be subject to review after three years and prices to continue to be set on an annual basis.

My noble friend Lord Mottistone and the noble Lord, Lord Brimelow, both talked about the rather complicated area of Non-Annex 2 MCAs. They both spoke about the de minimis rules in this area which, for example, apply to biscuits. The Government are actively pressing for a reduction in the level of these rules so as to benefit our exporters. Also, as I know your Lordships will be well aware, the United Kingdom's positive MCA has dropped from 7.6 per cent. to 3.7 per cent. in recent weeks. This will help exporters. Of course if our MCA continues to go down further, that will be a greater incentive.

The noble Lord, Lord Mackie of Benshie, asked a direct question about the butter subsidy. I think this is fairly familiar ground. It is simply that the reduction in the intervention price on butter within the general price fees applying to milk, together with the proposed reduction in the United Kingdom butter subsidy will broadly have an effect of offsetting the one against the other. As the noble Lord, Lord Sainsbury, will be delighted to hear—although the noble Lord knows it perfectly well—the consumer is protected so far as the price of butter is concerned. But when we come to butter for manufacture, which my noble friend Lord Mottistone asked me about, here the Commission is proposing, in the present price fixing, to extend to other foodstuffs the existing subsidy on pastry products and ice cream. We support the extension to specified products, in particular to sugar confectionery, where we believe there is scope for a significant recovery in the United Kingdom utilisation of butter.

May I make one last point on butter? The noble Lord, Lord John-Mackie, asked in effect why is it that New Zealand exports to us in butter when it has also been an importer? My information is that New Zealand, not surprisingly, is not a regular importer of butter. In 1982, New Zealand conducted an ad hoc transaction, buying a quantity of United States butter to stop it damaging the world market, and in fact only a small part of that was actually consumed in New Zealand.

The proposals now under discussion in Brussels represent, in some ways, a more realistic response to the problems of the CAP than the original proposals of the Commission. They will, however, present our own farmers with some very real difficulties. I was therefore heartened by the noble Lord, Lord Seebohm's recognition of the fundamental importance of agriculture to the economy and the well being of this country. I wonder whether I might end by just simply saying one thing. I think—and it is not a political point—that we should be thankful at the moment from a farming point of view, and the general stability of the rural areas, that we are going through quite a difficult period with a low and, at the moment, falling inflation rate. I think this will help United Kingdom farmers to be in a stronger position compared with many other member states of the Community, and I think that we may be thankful for this over the next year or two.

It is important, too, that the agricultural industry should know that it has got the support of the Government at the time when the Community must bring the excessive increases in the common agricultural policy to a halt. We are determined to play our part in this task.

10.18 p.m.

Lord Plowden

My Lords, may I begin by thanking noble Lords for the tribute they have paid to the reports which we have been debating this afternoon, and in particular to thank the members of Sub-Committee D for the undeserved but very nice things they have said about my chairmanship. I hope they will continue to treat me with the indulgence that they have done hitherto, and continue to educate me in the problems of the agricultural community.

As the Minister has said, we have had a good debate, and I think the most encouraging thing about it is that all of us, with different emphasis, are agreed on the direction in which we should go. That is, that the CAP must be reformed, and in doing that, a necessary part of that is lower prices. But again we recognise that this will throw up social problems. As paragraph 40 of the report on prices says, direct income support, partly paid for by the Community, is a necessary part of doing that. The social and regional funds are a mechanism through which that probably should be done, but owing to the voracious appetite of the CAP, there is insufficient money in those funds to carry out the kind of social amelioration that we should like. I think all of us are agreed that the increasing size of the surpluses must be brought to an end.

I would end by saying that I hope the noble Lord. Lord Belstead, will persuade his colleagues not to agree to an increase in own resources to the community until we have firm undertakings that there will be a reform of the CAP.