CAP Reform: ECC Report

HL Deb 21 October 1985 vol 467 cc901-49

8.13 p.m.

Lord Plowden rose to move, That this House takes note of the Report of the European Communities Committee on the Reform of the Common Agricultural Policy (17th Report, 1984–85, H.L. 237).

The noble Lord said: My Lords, the common agricultural policy has been outstandingly successful in increasing agricultural productivity and with it agricultural production. Many farm products, including wheat, barley, sugar, milk, butter, beef, wine and olive oil, are greatly in surplus, in great contrast to the shortages of the 1940s and to the famine which exists in parts of Africa at the present time. But the price for those achievements has been high. A heavy cost has been borne by the Community as a whole and by consumers who have often had to pay more for their food than they would had the CAP not existed.

The CAP currently accounts for about 65 to 70 per cent. of the Community budget. Even with the increase in the VAT ceiling on the Community's own resources to 1.4 per cent., funds will be under pressure. The Commission's preliminary draft budget for 1986 contains the statement that the VAT rate it entails would be 1.35 per cent. even under the strict assumptions on which the draft budget is based. The Select Committee report states: Left unreformed the CAP could break down. If this were to happen, the committee fear that the existence of the EEC itself would be put in jeopardy. They therefore consider reform to be imperative".

The committee welcomed the initiative taken by the Commission in instigating a Community-wide debate on the future operation of the CAP. Although the Commission's debate centres on six topics for reform, the committee, partly because of the constraints of time, decided to concentrate on those aspects bearing most directly on the problems of surpluses and cost.

In several earlier reports the committee has argued that the CAP must move towards a greater reliance on the price mechanism. This is the chief message of the present report. But there are three new factors influencing the committee's recommendation. The first is the decision of the European Council at Fontainebleau to place specific constraints on the growth of CAP expenditure on agricultural price support. The second is the Commission's recently published Green Paper which is strongly in favour of greater reliance on the price mechanism. The third is that the committee, like the Commission, acknowledges that continued price restraint will adversely affect some farmers, chiefly those who farm in less favoured areas and on a small scale.

Because of widespread Community industrial unemployment the prospect of other employment for displaced agricultural workers in many areas is bleak indeed. The committee considers that provision of direct income aids, at least in the short term, is an essential complement to the successful use of the price mechanism. It recommends that arrangements for direct income aids should be at the discretion of member states and in accordance with detailed schemes made or administered by those individual states or delegated by them to appropriate regional authorities. But—and this is important—it should be within a policy framework drawn and approved on a Community footing and subject to Commission approval.

The committee is convinced that the CAP must change now. It must move towards restrictive pricing and realistic thresholds for all products which are in heavy surplus. In the view of the committee, consistently applied price restraints will reduce the overall level of output in the Community, and raise standards of efficiency, but it will take time to have an effect.

Price restraint broadly will have five main advantages. It will benefit consumers. To a limited extent it could stimulate demand for farm produce in the food industry and in the increasingly important industrial sector. It will reduce the cost of CAP and its economic distortions. It will facilitate agricultural trade and minimise any cause of legitimate criticism of its effect on international markets. Finally, restrictive pricing would lead to direct savings in support expenditure and so would release funds which might in part be used to finance structural measures.

The structural, or guidance, section of the Community's Agricultural Guarantee Fund was originally intended to receive 25 per cent of CAP funds. But so high has been the growth of agricultural support spending that the guidance section is currently only about 5 per cent of CAP spending. The committee repeatedly questioned witnesses whether they would prefer the CAP to be reformed by means of price restraint or by quantitive restraints such as quotas or quantums. With one possible exception, the witnesses, including the National Farmers' Union, representatives of food manufacturers and traders and the consumers in the European Community Group, said that they would prefer the use of price restraint. The committee consequently reject the extension of the quota system.

Quotas would not bring agricultural prices nearer to world levels, and they would tend to ossify agricultural structures. Furthermore, quotas are difficult to administer both consistently and uniformly, and undoubtedly would require the creation of a large bureaucracy. But I recognise that there are people of great experience who believe the objectives of the committee could be achieved by the use of quotas and quantums. Nonetheless, the committee, after the most careful consideration, were not of this view.

The committee strongly recommend that the CAP should be reformed on the basis of the prices policy. Such a policy can be both a measure of reform in itself and a precursor of further reform. It is essential that such a policy should operate with two main considerations in mind: that the farming community should be encouraged to cut production of commodities in massive surplus; and, second, that they should be protected from sudden sharp changes in policy. Farmers throughout the Community must be able to plan their businesses secure in the knowledge that politicians will not suddenly lose courage and change direction.

In evidence to the committee, the National Farmers' Union called on the Council of Agriculture Ministers to make long-term price projections, and to stick to their decisions. The Agriculture Mortgage Corporation told the committee that if regular price reductions are to be imposed, and a phased approach is adopted, it will be essential for a clear indication to be given at the start of the phasing period of the final target price figure. Therefore, the committee call on the Council of Agriculture Ministers to declare its commitment to a policy of restrictive pricing as the central element of the CAP for the future. Without such a declaration, the committee believe that the present initiative of the Commission, like all earlier attempts to reform the CAP, will fail.

The chief message of the report is the need for a consistently applied restrictive pricing policy tempered by direct income aids for those genuinely in need. The report makes a number of other recommendations. It recognises that the trend away from farming will continue. This trend is already marked. The number of people employed in agriculture fell from over 19 million in 1960 to 12 million in 1970 and 8.2 million in 1982. The trend is partly due to increased efficiency and technological advances, but the trend is also partly due to demographic change. The average age of farmers in the Community has increased in recent years. Fewer young people are entering farming and some young people, born in farming families, are opting for alternative employment.

The committee believe there is justification for speeding up the pace of such change. Large numbers of small, inefficient family farms cannot be supported in the long run by Community mechanisms. Therefore, the committee support the suggestion of the Commission that farmers be encouraged to leave production by means of a pre-pension scheme paid to older farmers who agree to abandon their agricultural activity. The pre-pension could be granted until the beneficiaries reach the age at which they would normally start to receive pensions under the national pension schemes.

The report also acknowledges that in the long-term environmental considerations will play a greater part in the formation of agricultural policy. Selective mechanisms should be used to regulate agricultural and environmental priorities. Agriculture, like other sectors of economic activity, should be subject to controls to protect the environment from pollution. In the majority of cases the Community's polluter pays principle should apply.

The report also approves the proposals of the Commission for policies designed to promote farming practices which conserve the rural environment. Management measures and a limited number of environmentally sensitive structural programmes, in which farmers would agree not to farm certain areas of land and might turn instead to forestry, tourism or craft industries, might be particularly suited to less favoured areas or marginal zones; but I think this should be considered in other regions as well as the Community.

On the subject of world food markets, the report calls for a new round of GATT talks to defuse the present atmosphere of mutual distrust which is growing between the Community and the United States of America on agricultural trade. The report states that the Community can best increase its share in world food markets by relying on an increased use of the price mechanism.

Finally, there is the question of food aid to developing countries. The Commission's Green Paper states that the, problem of food aid goes far beyond the confines of agricultural policy; it is the task of society as a whole to reflect on the matter and to find adequate solutions".

The committee believe that the ultimate goal must be to assist developing countries to achieve greater self-sufficiency on food as has happened in India over the last 20 years. Care must be taken to prevent gifts of food from hindering the development of indigenous agriculture.

These are the main conclusions of our report. Everything that I have said about the reform of the CAP, and indeed much of what was said in the debate on European Union earlier this afternoon, depend on one factor—political will. The penultimate sentence of the committee's report says: The reform of the CAP must not be allowed to fail through lack of courage and political will".

I hope that the House will support and encourage Her Majesty's Government, the European Parliament, the Commission and the Council of Agriculture Ministers to carry out the vitally needed reform of the CAP. I beg to move.

Moved, That this House takes note of the Report of the European Communities Committee on the Reform of the Common Agricultural Policy (17th Report, 1984–85, H.L. 237).—(Lord Plowden.)

8.31 p.m.

Lord John-Mackie

My Lords, I want, first, not only to congratulate the noble Lord, Lord Plowden, for putting this report before us but also to thank him for all the work that he did towards it. I do not think we realise how much he contributed behind the scenes. We had rather a short time to prepare the report. It had to go before the Select Committee on a particular day, seven days after our last meeting. I have the minutes before me, two long paragraphs showing what we asked the noble Lord to do at the last moment. It is to his great credit that he carried that out, working late into the night. I went along in the middle of the week, thinking that I would find the clerk there, to make a certain amendment. But there was the noble Lord beavering away in order to get the report to the Select Committee in time. We must thank him for all the work that he did behind the scenes as well as for his speech today.

Before examining the report, it is necessary to look at the introduction to the Commission's Green Paper. There are several points in that introduction that are worth mentioning. The first relates to the family farm. The Commission emphasises that it does not want vast spaces of land and few farmers. This is neither possible nor desirable in European conditions in which the basic concept remains the family farm. Most of us, I believe, would agree with that, although in our country and in Europe family farms are disappearing. In this country alone in the last 20 years the size of the farm has doubled. Admittedly in this country the average is not big. It is 170-odd acres. Nevertheless, this shows the trend. One hopes that we shall not so much try to reverse the trend but at least to keep it where it is.

The next point relates to price policy in the market. The Commission concluded that, there can be no alternative to pursuing a price policy more adapted to the realities of the internal and external markets but taking account"— I emphasise this— of the Community's obligations to the agricultural population". The noble Lord, Lord Plowden, mentioned this point.

Next, there is the question of the perspective for farmers in the long term. As your Lordships know, farming is a long-term job. There is no doubt that the Commission realises this. It recognises that farmers must have a long-term perspective to enable them to carry on. The paragraph at the bottom of page 43 states: There is no miracle solution". They can say that again! There is no miracle solution to this problem, as the noble Lord, Lord Plowden, has so adequately explained.

There is also the question of the farmers' role. I am intrigued by the point made that farmers must accept a role not only as technicians but as managers and entrepreneurs. I have always considered myself a manager and an entrepreneur. It is a little hard on farmers to suggest that they do not manage. The noble Lord mentioned retirement, which is recommended. I always feel a little guilty having progressed about eleven years beyond the time for farming. However, I see the point that early retirement helps the situation in many cases.

Emphasis is placed on cereals. This was the point that we took up in our report. The issue of farmers' incomes is put very clearly together with the impact of restrictive price policy on agricultural incomes. This must be examined carefully. Added to this is the depopulation of the countryside. There is emphasis on part-time farming, which of course applies much more to other parts of Europe than to this country. This has an important role in many parts of Italy and Germany and for that matter all over the continent, and will apply even more when the two new countries join next year.

There is emphasis on the question of the environment. This is, of course, very important. Finally, on the last page of the introduction, there is reference to the reduction of prices and the effect of reducing production. The two points with which I should like to deal are those of cereals and the reduction of prices and what effect this will have. Before dealing with those matters, I should like to refer to the environmental point that we make in paragraph 74.

If the environmentalists think that reducing agriculture to anywhere near its state in the late 1920s and the early 1930s is a help to the environment, they could not be more wrong. If farming is not profitable no amount of grants to plant trees and dig ponds will be taken up. The way to get farmers to do better is to consider the point made, I think, by the farmers' union on page 27 of the report, where it emphasises this point: It must be recognised, however, that farmers may be more inclined to farm in an environmentally sensitive manner during times of agricultural prosperity rather than when profits are slack". That is only too true. The way to get farmers to do better is through co-operation. Some remarks that I read recently about the malign influence of agriculture on the environment make me mad.

I should like now to consider the major recommendations in the report. To be brief, cut prices and you will cut the surpluses, with, of course, all the attendant savings in storage costs and restitution costs. Taking cereals as the Commission's first worry, I am nevertheless surprised by its attitude towards milk. It may be thought that the problem has been solved a little through quotas. However, when one considers that we have a million tonnes of butter stored at a cost of £6 a week per tonne—£6 million a week—one feels that something should be done. But it is the issue of cereals that the Commission has taken up. At present there is a stock of over 30 million tonnes. Unless something is done, that could rise to nearly 90 million tonnes by the end of the decade. Economists tell us that the price factor will control production; but very few, if any of them, will tell you how long that will take and what percentage of change will have to be made in the price to have an effect. This is what I fear. It took a long time in the 'twenties—and I am old enough to remember those times—before there was a serious reduction in agricultural production, although one has to admit that costs also came down at the same time.

That is not the case today. If anything, our costs are rising and our prices are coming down. But I cannot see a straight price reduction having a quick enough effect. In the last two years we have had a fairly savage cut in cereal prices—I think at least £20 a tonne, if not a little more—and there is little sign of any reduction in acreage so far. This last harvest may have some effect. There is no doubt that some farmers are looking for alternative crops, but the scope is very narrow indeed—protein peas for stock feed, linseed, lupins—and will be filled up very quickly indeed. I do not think one can stress alternative crops too hard.

A drastic cut could force out poorer land from cereal production, but what is the alternative—more sheep and trees? These two products are deficient in the EC. The two are not supposed to be compatible—when I was in the Forestry Commission I had a long battle with many farmers on the subject of planting trees on hill lands—but that is a theory with which I do not agree. There are many examples, and, generally speaking, well integrated forestry with farming can more often increase the farming production. But even if on all the poorer land—and this is an important point—cereal growing was stopped, this is not where the surplus comes from. The immediate reaction by the large cereal-growing areas to a cut in price would be to grow more per acre, and our plant breeders and agronomists tell us that we are nowhere near the maximum yet; so we should get an increase in production initially, however savage the cut might be. All this adds to what I said earlier, and not even a dramatic price reduction will have a quick enough effect to get the Commission out of the mess we have got into because of tardy action in the past to prevent it.

There is the question of other uses for surplus products. The noble Lord, Lord Plowden, mentioned this fact. Biotechnology is advancing in the use of cereals and sugar for industrial purposes, but it will be a long time before any appreciable help can be achieved.

We suggest that we could share in the world food market. With the world surplus of grain, as I understand, at about 250 million tonnes, this will not be easy and certainly not short-term. It could bring us into conflict with the United States. But I shall not stress that point. I believe that the noble Lord, Lord Middleton, has ideas on this subject.

We have rejected quotas. However, in the Recess I spoke to many people interested in the subject, and they have been advocating quotas and prepared to accept them. There has been considerable discussion in the agricultural press on the subject. I am philosophically against them. As I think the noble Lord said, it would be very frustrating to good farmers to be tied down to quotas. He said that it would "ossify" some sectors of agriculture, and I should be against that. A national quota handled by our national Government could probably be made to work in this country, but the administrative difficulties which were pointed out for the rest of Europe, with the enormous numbers of farms and the size of them, would I think be insurmountable.

Quotas also conflict with my next point, which is the much wider question of the fact that it is estimated that 800 million people have a standard of nutrition barely sufficient for good health and that probably half of them are on virtually a starvation diet. This has been borne out by the situation in Africa and some other parts of the world today. The Commission states (and I should like to quote this; I know the noble Lord also quoted it): The problem of food aid goes far beyond the confines of agricultural policy; it is the task of society as a whole to reflect on the matter and to find adequate solutions". I agree with the last part, but I do not think that they can defend the first part, that, The problem of food aid goes far beyond the confines of agricultural policy". I would say agricultural policy is to feed people wherever they are, and I am afraid that I do not altogether agree with that point.

The Commission made the point that food aid should not distort local agricultural production. But on the same page the Commission suggest in the next paragraph the point that they make in the Green Paper, that, within the framework of national food strategies of the developing countries an intermediary facility should be set up to assist the purchase of foodstuffs commercially on concessionary terms without this being allowed to interfere with development policy priorities". I would agree with that. I should say that help with this should surely be pursued with all the vigour that we can muster, to help in getting food that way. In my opinion, and in that of most people, the production of foods in developing countries to the standard of nutrition that the rest of the world has is a very long-term job. Look how long it took us to become self-sufficient—and they are much further behind where we started. The world's population is estimated to reach 600 million in the next 20-odd years. Therefore, the food situation will not be solved overnight.

I can see the "price mechanism" ultimately reducing production, but I cannot see it getting rid of the surpluses and of those that will be built up during the time that this reduction takes place; because we have a graph showing what will happen if production is not slowed down very quickly. We could have 90 million tonnes of cereals by the end of the decade.

There is considerable criticism—and rightly so—that in the present world food situation surpluses should be lying in stores and in many cases deteriorating, if not actually rotting. A combination of price reduction and an orderly distribution of surpluses, either through the aid organisations or by commercial means, or both, with price concessions, as suggested by the Green Paper, is morally and commercially the correct way to solve this problem.

8.47 p.m.

Lord Mackie of Benshie

My Lords, my noble kinsman has said much that I was going to say and for that I thank him. I could not believe when I accepted a late invitation to dinner and said, "I shall come at 9.30" that I should not be able to see the end of the debate. With the time of night being what it is, I apologise to the House but I assure noble Lords that I shall read tomorrow what they say, and with much greater interest than listening to them today while waiting for my dinner.

Having dealt with the question of hunger, let me go on to the report and to the noble Lord, Lord Plowden. I have greatly enjoyed sitting under him (if that is the correct expression) in the committee because he is a man of much experience in committees. His recommendations vary somewhat. In the case of top people, he puts them up; in the case of the farmers, he cuts them down. But nevertheless his reasons for so doing are sound, I dare say, in both cases.

This is a very interesting committee. I think that the noble Lord, Lord Plowden, has found it interesting because we have 14 members—we had a very distinguished member who had served a long time and who retired last year, the noble Baroness Lady Elliot. Of these, eight—with the Lady Elliot, nine—were farmers directly interested in farming, and six were others. By "others" I do not mean anything derogatory.

However, it is interesting that the recommendations of this report have been against the short-term interests of farmers. When the usual anti-farming lobby produces its venom against the farming community, it might take a look at this small question of the membership of this committee, which has consistently advocated that the CAP behave in a sensible manner, that prices be cut according to the laws of supply and demand, and that forecasts be made of what the prices will be in order that farmers can plan. That appears to be common sense. If I may say so, that common sense has emanated from a majority of these short-term farmers about whom people speak badly.

On the whole question of agricultural production, other reports from this House have received a great deal of publicity. They have said that we shall be in queer street as soon as oil exports start to decline and that therefore a great deal needs to be done in other fields or we shall be extremely poor. It is worth pointing out that under the CAP in this country in relation to agriculture we have saved imports in the region of £2,000 million, which would have to be found from a manufacturing industry which, according to other distinguished committees of this House, does not appear to be doing too well. I dare say it might be said that that of course has nothing to do with the Government.

However, the whole problem of the surpluses stems from the fact that we have large numbers of primary producers who have no marketing organisation. When you manufacture on a large scale you organise your market and you organise your production to meet your market. The returns which even extraordinarily competent people farming good land are achieving are not extraordinary in relation to the capital employed. They are nothing compared to the returns achieved by other businesses; they are nothing compared to the reward achieved from selling newspapers, even when they are bought out against their will. However, these are the returns achieved by farming, an achievement which has done a great deal of good for this country.

Throughout the globe farmers are not doing very well. The competent people on the prairies of America are going bust by the score. Inside the EC we have a protective system. It is a protection which this country normally dislikes, but it is the system which has produced these enormous surpluses, and surpluses must be better than shortages. Therefore, we must deal with that.

However, in the EC we are not logical. My noble kinsman spoke about the third world. Under the CAP the community imports from the third world manioc;—or tapioca, call it what you will—which helps the balance of payments of third world countries. Manioc is a substitute for barley, which is in surplus, and it costs us a great deal of money to import it. We also import maize gluten from the mighty United States, with whom we are certainly at war if you bear in mind the subsidies which at present they are throwing about regarding the importation of wheat into Algeria. We import it without imposing the normal levies which we impose on other cereals. Therefore, the CAP is not enitrely logical or protective, and under GATT and in relation to the third world, it is doing its best to try to work a system of world trade.

There is no question in my mind about the alternatives posed by the Commission. They were, first, price cuts; secondly, season-to-season adjustment of prices, which is exactly the same and refers to the threshold; thirdly, intervention restrictions, which of course mean falsifying the standards of grain relating to intervention by raising the standard so much that it is forced on to the free market, thus lowering the price—a dishonest way of carrying on; fourthly, a co-responsibility levy; fifthly, quotas; and lastly, a set-aside policy, which certainly would not work in this country. The committee is absolutely right that price must be the right way to do it. Quotas are too complicated, too ossifying (to use that lovely phrase), and the argument for them will no doubt be put later by my noble friend Lord Walston. However, the committee as a whole thinks that they would be bad for agriculture.

Therefore, we are left with price restriction, and as we have said we do not want price restriction to be so savage that socially we destroy whole areas of the countryside which mainly depend on agriculture. If I may say so to my noble kinsman, that is the argument which I and others have heard put forward in third world countries: that if large quantities of food are imported, you not only destory agriculture, but you destroy the social system in the countryside and you drive the displaced Africans, or whichever peoples in the third world are involved, into the towns where they have nothing to do but take to crime and be unemployed. The same is true to a very large extent in the Community. If we agree that we cannot allow people to produce for evermore increasing surpluses and we have to cut the price to do it, we must look at variations of the system in order to make it effective.

As my noble kinsman said, it is perfectly true that we cannot do it quickly by moderate price cuts. We must look at co-responsibility payments. If, for example, one takes a premium per acre for growing cereals, it would concentrate the cereals on land that should be growing cereals; in other words, the land which is capable of growing 3 tonnes, 5 tonnes or even 6 tonnes of wheat an acre. I suppose that that would be the correct thing to do. However, we must do something with the land that is going out of production in the poorer areas. I think that we must look at this in a far more positive way than we have so far. We must say that, for example, in forestry not only will it be profitable for rich men to recoup tax and to plant trees and for their heirs to reap the profit in 50 years' time—in fact, at present people are advertising for land for just that purpose—but we should be spending that money, or the same sort of money, on making it profitable for the small farmer to plant the trees. I know that at present the grants are quite good, but they do not bring a positive cash flow.

That would be a very reasonable way in which to proceed because the shortage of wood is absolute. There is no question that, to take our continued use of paper and wood, for years and generations to come there will be a shortage of cellulose of one sort or another. We must also look at positive conservation measures. It is all very well saying that we will pay subsidies to build stone walls but not to dig ditches; that we will give subsidies for hedging but not for something else. That does not produce a positive cash flow. Therefore, if we are to encourage people to stay in the countryside, money must flow in positively—capital-wise for tourism and income-wise for forestry.

Other new techniques are being spoken of, including the biological techniques of production from sugar, and so on. Surely it is possible to go a lot further than has been achieved at the moment. We cut down thousands of acres of forest every day to provide the newspapers that we read. Surely in this country we could be growing crops and techniques could be produced to make paper—of which we use plenty here—out of straw. Certainly during the war we were using it. A lot of money might go into that sort of thing to provide alternative crops.

I come lastly to a simple point. The reason why the farmers, the agriculturists, on this committee have recommended what would appear to be cuts against their interests is simply that they are thinking in the long term. The primary producer is always at the mercy of the five per cent. surplus producing the 50 per cent. drop in price, and it mostly appears to go in that way and not in the other way, and therefore he deserves some protection against that sort of action of the market.

What has been wrong up until now is that for extraordinarily selfish and stupid reasons the agricultural ministers on the council have not recognised this fact so that we have reached a stage now where, as my noble kinsman said, at any moment we shall have not 30 million tonnes of surplus, but we could have 90 million tonnes of surplus in great bins all over the place and running out of every store in the country, and no money to pay for it. So in our long-term self-interest it is right that we should bring the spending under control, that we should produce alternatives and try to preserve the fabric of the countryside by other means. This report goes a long way towards pointing some of the ways in which this can be done, and our chairman is to be congratulated on his chairmanship of the committee and on his introduction of the report.

9.2 p.m.

Lord Stanley of Alderley

My Lords, I look on this report wearing two hats. The first is as a member of the Select Committee whose task it was, as I saw it on behalf of the taxpayer, to limit the cost of the CAP in order, among other things, to prevent it from going bankrupt and so causing ad hoc cuts—which the noble Lord, Lord Mackie of Benshie, referred to as totally unfair—and the real possibility of a complete collapse of the Community as a whole. Wearing that hat, I support the report, particularly the method of price restraint.

I have no time for quotas or quantums for commmodities such as grain, if only for the simple reason that they are impractical in so large and diverse a body as the EC. Indeed, the noble Lord, Lord John-Mackie, made this point. Those on whom they will work will not understand them because they are not as literate, as numerate, or perhaps indeed as articulate as some of your Lordships, in particular the noble Lord, Lord Walston, who I know likes quantums.

However, wearing my other hat as a farmer, and I think indeed as a citizen, I have to point out that such price restraint, unless carefully and gradually put into operation, will carry quite a lot of price tags. We never get anything in this world for nothing. Indeed, some of these points were forcefully brought out by the noble brothers—if I may call them so—Mackie.

The first tag that I see us picking up for price restraint is that if it is to work properly it will bankrupt—or, as perhaps the Minister would put it more kindly, put out of business—perhaps up to 20 per cent. of the farm workforce. Here I am afraid that I have to disagree slightly with my chairman; it will not just be in the West, it will also be in the South, and it may be the so-called efficient large farmers who may well suffer.

After many years of price restraint, farmers have little financial fat. Indeed the noble Lord, the Lord Mackie of Benshie, pointed this out. The price cuts that we have experienced—in this year in cereals in particular—have been substantial. I am supported in this view by looking at the rapid exodus of the financial institutions from the agricultural scene, over which I cry not one tear.

Secondly, the United Kingdom might want agricultural production again when North Sea oil runs out in, I believe, the 1990s. We might then be short of currency, and the report from your Lordships' House, which caused quite a storm, suggested this. The United Kingdom is not self-sufficient in temperate foods, even those commodities which are in structural surplus in the Community as a whole.

Thirdly, price restraint will increase the rate of drift from the land. The report, as my chairman, the noble Lord, Lord Plowden, pointed out, says this, and it says it in paragraph 69. I fear that this drift will go southwards into our cities, so perhaps aggravating the law and order problem, and that it will increase the social problems in the areas deserted by this labour force. There will be a further decline in services such as schools, post offices, village shops, and of course there will be no ladies for the Tory tea parties, if of course those ladies who remain are still of that political persuasion.

Fourthly, price restraint of any kind whatsoever will harm the environmental work. I have said this before, but the farmer's first duty is to his family and not to the birds and the bees, and there will certainly be more derelict farm buildings, larger fields, more smoke, and plenty of corner cutting, particularly in such things as safety.

I have mentioned only a few of the price tags which will have to be picked up by price restraint. It certainly is not, thank God, for me to decide whether the game is worth the candle. It is for the Council of Ministers to decide; but I hope that they, and my noble friend Lord Belstead, will consider these points before a final decision is made. Talking to our Continental partners, who in the past have suffered more unrest than we have in Great Britain, I suspect that they value the social stability of a rural population more than we do in this country.

So I ask my noble friend Lord Belstead to accept the principle of price restraint as the best way of controlling CAP expenditure and to recognise that it is essential that any price reduction is known well in advance by the farmers. This was put very forcefully by the noble Lord, Lord Plowden. Secondly, any price restraint must be introduced slowly to allow the industry to adjust, and, like the noble Lord, Lord Mackie of Benshie, I believe that this adjustment should have been started many years ago. Thirdly, I ask my noble friend to remember the social price tags.

If your Lordships asked me to stop sitting on my hedge (if I have not grubbed it out already) I would come down on the side of price restraint, or maybe price freeze, for those commodities in structural surplus. If this does not balance the budget I would suggest that the VAT contribution is made higher, despite the fact that it has already gone up 0.4 per cent. this year, to make sure that the CAP does not run into debt.

9.10 p.m.

Viscount Sidmouth

My Lords, when the shape of the CAP first became known in this country about 20 years ago many people, of whom I was one, viewed with some scepticism its apparent reliance almost exclusively on price mechanism to regulate both supplies of food for the Community and the well-being of the farming industry. There was provision for a common external tariff, which has limited the sources from which the food supplies of the Community could be expected to come, but even so the market to be regulated was large and, in many respects, complex. The accession since then of what will shortly be a further six states into the Community has greatly increased that complexity and also the political pressures.

In defending the policies which have resulted in the present financial problems, the Commission has taken the line that all would have been well if only the price recommendations made in recent years had been followed. It is true that over that period both the European Parliament and the Council of Ministers have consistently raised the price levels above those proposed by the Commission. But within the criteria laid down by the Treaty of Rome political decisions on these matters are inevitable. The objectives for the CAP set out in Article 39 of the Treaty are expressed in general terms, and in some cases can be seen as mutually conflicting. Furthermore, they are specifically set above the provisions of Article 43, which deals with the general rules of competition in the market.

It is clear, therefore, that in the CAP we do not have a free market, with the free flow of supply and demand making the market price. On the other hand, it is not a fully managed market, either. In the end, the only really finite control is the amount of finance which can be made available, and this appears to be running out.

Sooner or later it must become necessary to introduce a further parameter. I believe this should lie along the lines of determining levels of food from Community resources which are required from time to time to meet the needs of the internal market and any external markets that may present themselves. Recognition of such targets must surely be essential for shaping policy from year to year, whatever methods are finally adopted for working towards them.

It so happens that research and development can help in adding precision to such calculations. Much has been made of the increases in productivity brought about by agricultural research and development. They have even been used as a stick with which to beat the fanning community or the research council itself. But the measures can also be seen as helping to reduce the fluctuations in food supplies brought about by variations in weather and natural conditions from year to year. Indeed, much research has been directed specifically to this objective. For example, I believe this could justify a reduction in the expensive storage of reserves to cover a possible shortfall in any crop year, and that would also bring more conviction to forward projections of our future production requirements.

In making its recommendation that,

the principal tool for reform must be an increased use of the price mechanism, the committee was influenced by the immediate financial crisis in the European Community budget, and its possible consequence of a complete breakdown. Direct financial action under the price mechanism is no doubt the logical way to meet a short-term financial crisis because it would obviously reduce the cost to the Community of any particular crop year. However, I believe it is too blunt an instrument to resolve on its own all the long-term problems which have been thrown up. Indeed, like its forensic counterpart, it could, if wielded too violently, lead to grave injury and even murder. Foremost among the vicitims would be a myriad of small farmers and growers, and before I conclude, like previous speakers, I should like to draw attention to their plight.

It happens that the crop to which particular attention is paid in this report is cereals, where there is a minimal problem regarding small growers, mainly because there are very few of them—anyway in this country. However, other products which have been examined recently by the committee—for example, grapes for wine-making, olives for oil, or dairying in the animals sector—illustrate all too clearly the problems arising where there is a multiplicity of small producers and a product which is in surplus.

It is not that they are inefficient, necessarily. Very recently I visited an area in the centre part of Mallorca where the combination of a Mediterranean climate and ample supplies of subterranean water have created a prosperous community of small producers, mainly of fruit and vegetables. Very nice it looked, too, with immaculate buildings and miles of impeccable dry stone walls. No doubt this area will continue to thrive within the Community when it comes in. However, elsewhere there are millions of small producers, typically on marginal land, who are very vulnerable to any reduction in support prices.

In the days of the Community of Six, Commissioner Mansholt, I believe, brought in a plan to shake something like eight million of these people out of agriculture. That plan was not implemented as such, but we have heard earlier this evening from the noble Lord, Lord Plowden, of the vast efflux of people from agriculture that has taken place within the Community since that time. We have also heard this evening cogent reasons why we should not go down that road any further—reasons both social and environmental.

On this score, I believe that particular importance attaches to Nos. (ii) and (iii) of the topics selected for the great debate on agricultural policy proposed by Commissioner Andriessen. Some of the evidence submitted to the committee, for example by the AFRC, indicated the work being done on alternative crops. But, important though this is, there was little to suggest that it would have a significant effect in the short term.

As for new uses for agricultural products, previous inquiries have revealed possibilities; for example, ethanol from cereals and alcohol from wine. The problem in most cases appears to be more economic than technical, in that the price of these products as food makes them too expensive as feedstocks for the new uses, as compared with sources already available elsewhere.

Thus the outlook for the small grower remains bleak. Recognising this, the committee considers that direct income aids must be a corollary to the more rigorous application of restrictive prices. These views are set out in paragraphs 57 to 64 of the report. I believe that the problem of the small grower is at the root of the present difficulties within the CAP, and that it can be solved only by vigorously pursuing both the long-term and the short-term remedies which have been proposed.

9.24 p.m.

Baroness Elliot of Harwood

My Lords, perhaps I may add my thanks to the noble Lord, Lord Plowden, for the admirable way in which he conducted this report and this committee. It was fascinating to listen to and fascinating to read afterwards when it was printed. I think the evidence which was taken was extremely interesting and will be of value for a long time to come. Certainly it was a very well worthwhile exercise. We are much indebted to the noble Lord for the enormous amount of trouble he took and the great area of agricultural activities which is covered in this report. The enormous number of organisations we saw and the great numbers of people whom we interviewed were all of great importance.

Tonight I do not want to take long. I should like to pick out merely one or two vital matters arising from the report.

I think that one of the things the Commission perhaps does not realise strongly enough is that farmers want a clear indication of the policy of the CAP for at least three or five years. Decisions which are taken instantly cannot be implemented instantly. If you are a farmer who is engaged in production, you cannot change your policy instantly: it is quite impossible. I think it takes at least three years to change a policy, whether it is for stock rearing or for cereal growing. Too often the Commission has given pratically no notice of any change in policies, so I hope that whatever else happens in the future we may at least have sufficient notice to be able to reorganise our agricultural production.

Tonight everyone has spoken, quite rightly, of the problem of surpluses. I believe that is the key to much of the reform that we ought to engage in. How do we tackle these surpluses? I do not think we concentrate nearly enough on the all-important business of selling what we are producing. We do not give enough thought to it; producers do not give enough thought to it; the Commission does not give enough thought to it. No one on the production side gives enough thought to how we are going to sell the produce that we make.

I went to the opening of the Royal Agricultural Show this year, which was performed by the noble Lord, Lord Sieff. He made an excellent speech, I thought, and one of the things he stressed very strongly was the story of how—and after all he is involved in a great selling operation—the producers must produce what the consumers want to buy. I was very interested in his speech. He talked about one or two particular examples, and I remember that one of them concerned the Arctic lettuce, which Marks and Spencer have managed to get the producers to grow and which are selling in their thousands, whereas before that the kinds of lettuce being produced were not really those that the consumer wanted to buy.

I think more could be done if there had been closer liaison between the producer and the consumer. We have marvellous selling agencies here—businesses like that of the noble Lord, Lord Sainsbury, or of the noble Lord, Lord Sieff. There are many others such as Tesco and so on which are all wonderful selling agencies. I think that we are as good at selling as any country in the world but we do not have a close liaison between the consumers and the people who are providing the consumers with what they really want to buy. I should like to see much closer co-operation between those of us who are producing and those who are selling, because I believe that in that way we might avoid the surpluses we have today.

I know that the cost of the CAP is the biggest item of expenditure in the Community's budget and people are asking whether the Community gets good value for this expenditure. My answer is, "Yes". We have provided all the food, and more, that the people in the 10 nations of the Community want. Farming life is still of the greatest importance both to the Community and to the people who live in our countryside. Rural life must be supported. More people crowding into towns would certainly be quite intolerable: it is quite bad enough as it is now. I agree with all that the noble Lord, Lord Mackie of Benshie, said on this subject just now. We must see that the rural communities are preserved, but we must change those rural communities and rural life while recognising that agriculture is an essential part of the national life in all EC countries.

That is where it is so very important for people to study the question of over-production. I know that we have recommended in our report the idea of price control, and that is probably a very good way of doing what is needed. But more could be done in other ways if we studied this matter more closely. I also agree—and this is in our report—that if we are to have cutbacks in the rural areas the consequences to the community must be measured and looked after. That is where the question of direct grant aid comes in.

We have suggested in the report that other activities could be introduced into rural areas. Examples are tourism, craft industries and forestry, although, in my opinion, forestry does not increase employment. I am surrounded by forests in the area in which I farm and the number of people employed is far fewer than in agriculture until the moment when the forests are cut down. That is when a lot of people are employed, and then there has to be replanting, but it takes a great number of years to reach that point.

We shall have to go for direct aid for those areas which will be severely hit if and when there is a great reduction in production. At the end of the day, we must all agree that it is better to have more food than too little. We must all consider very carefully the problems by which we have been obsessed in the last few months in Ethiopia and in Africa generally. I shall not discuss them now, because they do not come into our report, but where you see a shortage of food there you see disaster. In a way, we are fortunate because we are dealing not with shortages but with surpluses.

I have one other suggestion, and I wonder whether the Commission would consider it. Many years ago, the United Nations started an organisation, which is now famous, called the Food and Agriculture Organisation—FAO. When it was first started, it was run by a very remarkable man named Lord Boyd-Orr, who was the chairman. As your Lordships know, he has been dead many years, but he then made a suggestion which nobody took up. It was that there should be a world food board to help with distribution and with the way in which production and distribution could be united. It was rather like the World Bank which we have today. I do not know whether that is at all a possibility; certainly it is something which has been discussed and rejected.

It would be a pity if ideas such as that could not be looked at again because we are now in a position that is quite different from our position immediately after the war, when agriculture was only beginning to be the enormous industry it is today. If there could be some liaison between areas of over-production and areas of starvation, we should be doing something of enormous value not only to the agricultural world but to the whole community. I do not know whether the Agriculture Commission would ever consider that suggestion because it goes outside Europe and would mean that Europe would simply be part of a much bigger world organisation. But it might be worth thinking of; indeed, there are many ideas which we must consider as well as those that we have recommended.

However, as a farmer, I support the EC. I do not think it impossible to find a way out of these problems and I hope that the Commission will take advice from us as well as from other people. I believe that this matter could be solved and I do not think that it is insoluble.

Lord John-Mackie

My Lords, before the noble Baroness sits down I think I should correct her on the question of labour for forestry and for agriculture. Statistics show that, on comparable land, forestry employs three times as many men as hill farming.

Baroness Elliot of Harwood

My Lords, I am very interested to hear that, because the noble Lord, Lord John-Mackie, was the chairman of the Forestry Commission. I can only tell him that in the area in which I live that does not happen, but it may happen in time.

9.30 p.m.

Lord Lever of Manchester

My Lords, it is with some diffidence that a mere townsman with little or no knowledge of the details of farmers' problems rises to speak briefly, not under the delusion, which could be readily brought about by reading the report of the noble Lord, Lord Plowden, and his colleagues, that I had acquired that expertise simply by studying the masterly report which they have presented to the House.

I want to make some general comments as briefly as I can. First, self-sufficiency in food as an aim can be defended on social and environmental grounds even by those who see that that modest aim is economically not necessarily the best path and certainly not to be pursued rigidly in food or in any other area of our activity. What we have achieved here is not self-sufficiency, but we have achieved a structure quite different that produces these surpluses. Within a self-sufficiency programme you can structure productivity gains so that these will be manageable in the Community, will bring down prices and will bring benefits and a reduction in the burden of the subsidy required. But when you go on to the field of surplus you are moving into a totally different and more dangerous and destructive area.

When you are subsidising self-sufficiency you are at least subsidising useful work. The moment you move into producing surpluses in goods which are already in surplus in the rest of the world, you are subsidising waste, and in circumstances which affront the common sense of most of your citizens. So we really have to worry that our political leadership in Europe has been so slack that it has allowed the situation to get into the grave and complicated condition which the noble Lord, Lord Plowden, outlined briefly today and which is fully outlined in the report. What is worse is that, with the best will in the world—that is to say, even if we handed over the problem of running Europe to the Select Committee—it would take many years and much heartache before it is put to rights.

The problem continually increases with productivity gains. This has another political aspect to which I draw your Lordships' attention. It means that our people who are bearing the burden of the cost of this system see that they are bearing the burden of tax and prices in order to supply foodstuffs to the world outside at prices massively lower than they themselves have to pay; or, alternatively, they are forced even more unattractively to witness the sacrifices they are making in subsidising food production thrown away as the food is allowed to rot or deteriorate. When we act in this way we force ourselves to try to get rid of some of the surpluses in ways which inevitably disrupt world markets and patterns of trade. In doing so we are openly challenging and undermining the basis for the liberalisation of world trade. This adds to the frictions between nations and gives an impetus to protectionist trends already at a dangerously high level.

In political terms, the majority of our citizens who have to finance the production of these surpluses will readily come to feel that they are financing a process which undermines their own legitimate and healthy trading opportunities. This is not a static situation but one that grows worse all the time. We make productivity gains in agriculture and, because the system is upside down, those gains are not of benefit to us but are a further menace. They do not lighten the burden on the Community but increase it and present the Community and its citizens with the almost insoluble problems which are now upon us.

We must be careful not be become a 20th century version of the Luddites. The original Luddites tried to strangle production at birth. The 20th century versions of them could be said to be allowing production to come into being using the most modern techniques available for producing food but they then destroy it, waste it, use it or otherwise attempt to get rid of it in ways which redound to our harm.

If I may now say a few words about the LDCs, I agree with the committee in the principle of one having to be very careful not to act, however generously, in giving away food when that action undermines the food production of other countries. I also wholeheartedly agree with my noble friend Lord John-Mackie when he says that there is quite a distance to travel in many parts of the world before people will be able to feed themselves. It is a real problem and the committee were right to draw attention to it.

What is to be done? I do not know whether it heartens the bucolic membership of the committee to know that a mere townsman utterly endorses their majority view in favour of a market solution. Almost every knowledgable and objective person who has examined this problem is driven to the conclusion that, basically, the market solution must play a part. There are undoubtedly occasions in the modern world when the brilliant insights of Adam Smith on the workings of the invisible hand on markets must be intelligently and humanely related by government action to 20th century conditions. However, such interventions by governments have a fundamental justification; they are interventions to correct market anomalies and not to create them. The interventions we have organised in Europe are calculated to create anomalies on a growing scale.

I support also the committee's recommendations concerning generous selective action to help farmers where difficulties will be created. I fully support the committee's judgment in favour of timing changes in a realistic and compassionate manner. However, the difficulties of some can no longer serve to justify subsidies on this scale to the rest. We have reached a point—as the noble Lord, Lord Plowden has made clear in his report and again today—where such arrangements do not merely threaten the solvency of the Community but will increasingly embitter relations between its members and threaten the existence, and certainly the fundamental purposes, of the EC. We have already seen that this system of agricultural support—uncorrected even after it became fairly obvious that correction was required—has already done great injury to the major European purposes, which have had my full support or many years and continue to do so. That system not only eats up a great part of the budget but has too often reduced the contribution of Ministers to tedious and destructive nationalistic budgetary squabbles. This is a lamentable dissent from the great European purpose.

I conclude by fully recognising that we must act with circumspection and compassion. I fully recognise also the complexity of the problem, as outlined in the report. However, complexity is not an excuse for taking no action. I very much favour market action because it is the neglect of that action which is in part responsible for the present situation. It has been said that the alternatives to the market are the state and prayer. Neither of those has a compellingly successful record so far in this area, so I have no difficulty in supporting the noble Lord in recommending the market solution. The future will belong to those nations which can respond most swiftly, intelligently and compassionately to change. It will very heavily penalise those who obstinately resist it. The mischiefs involved in the present system of agricultural support have gone on too long. They must be corrected.

Lord Sainsbury

My Lords, first, may I join with others in praise and appreciation of the wise and firm chairmanship of the noble Lord, Lord Plowden, during his three-year term as chairman of Sub-Committee D. He will be greatly missed.

The shortcomings of CAP have been its failure to adapt its policies to changing circumstances. At the end of the war memories of hunger were vivid in the minds of millions. In fact, shortages of food continued into the 1950s. So naturally all the emphasis was on expanding production and on higher productivity. In this, undoubtedly CAP policy was very successful. But in due course this ever-expanding production became both excessive and increasingly embarrassing.

In the United Kingdom, in the 10 years from 1973 to 1983 there was, in the case of wheat, an increase of 45 per cent. in yield per hectare. In the case of barley the figure was 17 per cent., and for milk it was 25 per cent. per cow. These increases in yield were, of course, not confined to the United Kingdom. As long ago as the 1960s far-sighted Sico Mansholt, the agriculture commissioner at that time, proposed in his well known memorandum a substantial long-term cut back on CAP price supports. But that and other of his proposals were rejected, showing then, as so often since, that the Commission and the Council were incapable of taking decisive action. Now, nearly 20 years later, growing surpluses and unacceptable costs have reached crisis proportions.

The Commission, in its Green Paper or discussion document on the future of the common agricultural policy, states that agriculture, like the rest of the economy, is subject to the law of supply and demand. It goes on to say: Unless the Community succeeds in giving to market prices a greater role in guiding supply and demand within the agricultural policy, it will be drawn more and more into a labyrinth of administrative measures for the quantitative regulation of production. I could not agree more.

In my opinion the importance of a restrictive price policy operated consistently over a period of time cannot be exaggerated. To date the Council of Agricultural Ministers has unanimously agreed that something needs to be done but disagreed as to what it should be. In the light of experience I am not surprised at this disagreement and its reluctance to accept a realistic restrictive price policy. So often in the past prices have been fixed as a result of political compromises acceptable to all member states, and generally well in excess of the prices ruling in international transactions or the domestic markets of countries with which the Community is in competition.

Of all the commodities in surplus it is probably cereals which present the greatest long-term problem; but that is not to say of course that there are no others. As has already been said, there are over 1 million tonnes of butter in store, in spite of the milk quotas, which are costing the EC taxpayer approximately £6 million per week. There are also over 800,000 tonnes of beef.

The Home Grown Cereals Authority has projected that end of season EC stocks of cereals may grow to the staggering total of 89 million tonnes by the year 1990–91. If the Home Grown Cereals Authority's projection is anywhere near right, then the number of intervention stores that will be needed is beyond belief. The Commission itself suggests that the very large harvest of 1984, which amounted to 155 million tonnes, could be a normal level of production in 1990 compared with the level of 125 million tonnes which was the average in the period 1980–83. It also goes on to say that even optimistic assumptions do not suggest that export markets can be relied on to absorb the future increases in Community production.

The Commission, as well as many others, has advocated for several years that European cereal prices should come more in line with those of our competitors in world markets. In 1982 the Council introduced a system of guaranteed thresholds which should result in the price being reduced if the threshold is exceeded. But the recent experience of the 1985–86 price negotiations shows how difficult it is for the Council to put such a policy into practice if it is not complemented by other measures concerning farm incomes.

Farmers particularly hard hit by a restrictive price policy should be helped; but the big questions are how and by whom? The committee considers provision for direct income aids to be an essential complement to the successful use of the price mechanism. But agriculture and rural conditons vary so greatly in different parts of the Community that the committee feels that it would be impossible to devise and administer centrally measures which can meet every case, where some form of direct income support is thought desirable on political or social grounds.

Detailed arrangements for income support, in the committee's view, must therefore be framed and administered nationally and in some member states regionally. Unfortunately both EC farm Ministers and farmers' organisations across Europe have shown practically no interest in the Commission's proposal for direct income aid to farmers. Mr Graham Avery, Agricultural Adviser to the European Farm Commissioner, said recently at a seminar in London that there was some enthusiasm for schemes designed to ease early retirement for farmers which, I should have thought, however valuable in themselves, are hardly an alternative to direct income aids.

I should now like to refer to something rather different. Agriculture is not just food production. The demands of consumers, their nutritional needs, their concern for quality and the requirements of the food industry have in the past, in my opinion, not been given the attention that they warrant. It is not always recognised that 80 per cent. of the food that we consume is processed or is manufactured. It is a very important industry. Its competitiveness has not always been helped by the common agricultural policy. I should therefore welcome a more integrated approach being taken and more attention paid to food policy.

I understand that the Commission anticipates six months of consultation and negotiations on its various proposals in the Green Paper. The great question at the end of the day is: will the Ministers of the member states have the political will and courage to take the necessary drastic steps, or will they jeopardise, by compromise and inadequate measures, the whole future of the European Community?

9.54 p.m.

Earl Ferrers

My Lords, I should like to declare an interest as one who has been involved in agriculture and farming throughout my life and also as chairman of the British Agricultural Export Council, whose purpose is to try to encourage exports from firms ancillary to agriculture which supply input to agriculture. I should also like to add my thanks to the noble Lord, Lord Plowden, and his committee for their remarkable report. It is clearly a result of a great deal of work and a thorough review of the whole problem.

It is interesting to note that out of 17 Members of your Lordships' House taking part in the debate I think that only the noble Lord the Minister and four others are not members of the committee. Therefore, there is a certain healthy whiff of unanimity of view expressed this evening. The committee have addressed their minds to the frantically difficult problem which has exercised Governments, the European Community, farmers, financiers and ordinary bemused individuals. I sympathise with anyone who tries to find the route out of the problem of the common agricultural policy.

Some of your Lordships may remember about two years ago a little word was coined called "TINA", which was supposed to mean "There Is No Alternative". Sometimes I think the word TINA can be applied to the common agricultural policy with a different translation, which is "There Is No Answer". It is difficult to find a solution, and even more difficult, having found it, then to get the other nine colleagues in the Community to agree. In the world of politics this is unlikely and, therefore, the most that could be expected is that we would get a watered-down version of the best and therefore the problem will continue.

The noble Lord, Lord Sainsbury, gave us some alarming figures of what the stocks might be in 1990 and later if rates of production continue at present levels. I do not dispute for a moment that those figures are correct. The only consoling thing is that when something seems perfectly obvious in this life it is the one thing that usually does not happen.

It is fashionable to lambast the CAP, which has in fact been a success. It set out to do two things: first to produce food for members of the Community at a reasonable price, and, secondly, to raise the standard of living of those in rural parts of the Community. This it has done; and it suffers from its success. I liked the definition of the noble Lord, Lord Lever of Manchester, when he said that it is justifiable to subsidise for self-sufficiency but not to subsidise for surpluses. That is correct. The difficulty is that one cannot actually bring the guillotine down at the moment one arrives at the point of success.

The committee's main plank was that there should be a reduction of price. They say that a continuation of existing policy will cause difficulty to paying members, and might end the European Economic Community if the CAP cannot be brought under control. I agree. I think there would not be many who would not agree. The suggestions of the committee are logical, intellectual and reasoned; indeed, so logical, so intellectual and so reasoned that it is very difficult to disagree with them. But I would venture to make one humble, modest criticism, if I might. It is almost an impertinence to do so, but my criticism is that possibly they have looked at the tactics of the solution as opposed to the strategy.

Agriculture, not only in the EEC but particularly in the United Kingdom, is undergoing very severe pressures, and has been for the past two years. Cereal prices—and this is the example taken by the report—in fact have dropped by £20 a tonne over two years which means that returns have dropped by about £60 an acre. Costs have increased at the same time, from the point of view of both inflation and technological improvements. This year has been a bad harvest, with a drop of about half a tonne per acre. I do not lay emphasis on this because in farming one has good years and bad years, but nevertheless it is a fact. As my noble friend Lord Stanley of Alderley said, there is not much fat left. Of course, there are some farmers who always do well and who are on good land. There are others who are not so fortunately placed. In general, the only point I wish to make is that agriculture is undergoing some pretty severe strains.

I therefore enter one word of caution, if I might. What happens if prices go on being lowered? It is not as if you say that 5 per cent. off one year will rectify the position. It will not. It is, as the noble Lord, Lord Plowden, I think, said, a policy of continuing price reductions. Two things will happen if prices are lowered. One is that by lowering profitability it will stimulate farmers, by every conceivable means, to increase their productivity in order to gain by extra production that which they have lost by price reductions. The result will be to add to the very problems we are trying to resolve. It is another example of what I once described to your Lordships, I hope with a degree of humility, as "Ferrers' law", which says that everything has the reverse effect of that intended.

The second thing is that if reducing prices works the way that it is intended, then farmers will be put out of business. That may be desirable. The noble Lord, Lord Mackie of Benshie, said that farmers in the vast prairies of North America were going bust by the score. I do not believe that this is a policy that we want to see pursued here. What happens if bankruptcies take place and businesses come to an end to any reasonable extent? One thing is that land prices will drop. That, in turn, will put in jeopardy other farms and other agricultural businesses for which security largely rests on the price of the agricultural land. That being so, that will put them in jeopardy, and land prices will drop still further. That is the effect of market forces. This may be perfectly justifiable, but I doubt whether it is something that we wish consciously to see happen.

The committee says that there will be a trend away from farming. That is perfectly true in numbers, but not necessarily in acreages. What do you do with land that is made uneconomic in that way? What happens to it? I do not think the committee addressed their minds to that. If the land that has become uneconomic is bought by a neighbouring farmer who is more economical, he can then farm that land more efficiently and so continue to produce that which the person who has gone out of production used to produce. And so the problem continues. What is the alternative? It cannot be put down to grass. Because there are beef mountains, butter mountains and milk lakes, it cannot be put down to rape. Although the committee suggest rural industries and tourism, I do not believe that this is a satisfactory alternative. It is a method of providing employment; it is a method of providing an additional income: it is not an alternative land use. The uplands will be particularly badly hit.

The committee say, as I think the noble Lord, Lord Sainsbury, said, that those people should be helped by some form of rural subsidy. That helps economically those who live there, but it is slightly akin to a rural dole. I do not believe that it is a satisfactory land use. It might be an aid in difficult circumstances, but it is not really a satisfactory strategy.

There are those who say—the committee did not say this—that land which came into a state of non-viability would be a wonderful opportunity for conservation. Conservation is good and should be encouraged; it is worthy. But as a policy, conservation is complementary to agriculture; it is not an alternative. To see large areas of land become derelict because of the financial inadequacies of agriculture and to consider that it provides environmental conditions for birds and insects to flourish is not an acceptable strategy. It would be tantamount to seeing a return to the depressed era of the 1930s. I do not say that this is what the committee wishes but I hoist one word of warning: if that particular policy of continued price decreases were to take place that would be the possibility.

Then one asks: what is agriculture? It is not just farmers and farm workers. It is all those whose work and livelihood brings them into contact with agriculture. It is the farm workers, the villages, the agricultural merchants, the corn merchants, the agricultural engineers, the machinery manufacturers from the small blacksmith up to the Fords and Massey Fergusons of this life. It is the agricultural chemical companies such as Shell and ICI and their purveyors. It is a whole range of country, industrial, chemical, manufacturing, and processing activity, all of whom depend upon agriculture in its widest sense. All those people, companies and industries will be affected if we have a decline in rural agriculture.

It is significant to remember that agriculture is the biggest industry in the United Kingdom other than oil exploration. I do not suggest that that is a reason for continuing to subsidise at uneconomic rates the production of food that at present has no particular home, but, if we followed the line of the committee of the noble Lord too far, it would have quite deleterious results. Paragraph 95 of the report says that the cereal problem could mount in almost geometric proportions. I agree entirely. However, decline can happen quickly and, if an avalanche begins, it is not easy to stop. What we have to try to do is to make adjustments without causing the avalanche.

We are not alone in this. Other members of the European Community and the United States of America face the same problem. We are all suffering, curiously enough, from a technological success. I think that it was the noble Lord, Lord Wilson, who said when he was Prime Minister that if industry had the output that agriculture produced we should have no problems in this country. But, as in industry, in order to succeed one has to modernise. Modernising invariably creates the very unemployment that we all seek to alleviate. One sometimes thinks that life would be very much simpler if mankind had not thought of these innovations and technological advances. Everyone would be employed and the countryside and our cities would look nicer. But one cannot deal in fantasy. One has to deal in the realities of life. We are in a world with disadvantages as well as advantages.

I should like to draw this thought to your Lordships' attention. It was mentioned, I think, by the noble Lord, Lord Sainsbury, and certainly by the noble Lord, Lord John-Mackie. In 1960 there were 3,000 million people in the world. In the year 2000 there are likely to be 6,000 million; and we are only 15 years off that. All those people have to be fed, housed and clothed. What to us at the moment is a carbuncle of anxiety induced by over-production in the West is in the totality of the world no surplus at all. We ought to find a way to get what is a surplus in the West over to those who are not so fortunate. That does not mean that the provision of food to other countries is in itself necessarily a good thing. Somebody has to pay. Frequently the food does not get where it is needed; and there is a possibility that it may lull people into security as they wait for the next load of food as opposed to trying to find their own methods of production. But it is something which we ought to consider; and in some way to try to find an answer to. Without doubt there are those in this world who ought to be able conveniently and easily to deal with what at present is a surplus. One should remember that, despite their gross inconvenience, surpluses are very much better than deficits.

If the Government find the right answer to this and if the answer be that advocated by the noble Lord's committee, I wish them well. I asked them to be cautious for the reasons which I have given and I hope that they will not find the problem too intransigent because I rather doubt whether in the end they will be able to get their other colleagues in the Community to agree. That sounds a little depressing, but things do not always work out in quite the way we expect, and I have no doubt that in the end some solution will be found. However, I do not think that it will be an easy one and I do not think that it will be quite the one which the committee of the noble Lord, Lord Plowden, suggests.

10.11 p.m.

Lord Northbourne

My Lords, I, too, should very much like to thank and congratulate the noble Lord, Lord Plowden, on his sensitive and charming chairing of the committee. I should like to touch on one or two aspects of the report. The first is debt. I am very worried about the question of debt, which the noble Earl, Lord Ferrers, touched on a little. If the price restraint policy which we are advocating is indeed applied, there will be a very serious problem of debt for those farmers who in the last few years entered into financial commitments when land prices were high and everything looked good.

A few years ago the future of the CAP seemed buoyant. The question is: were people who entered into debts at that time misled by the CAP or did they just make a bad business judgment? How do we draw the line? The problem of debt will not get any easier as land prices fall away, as they undoubtedly will under the influence of lower prices.

In paragraph 71 the report stresses the wide variation in the levels of debt within countries of the EEC. For example, debt in the Netherlands and Denmark represents respectively 81 per cent. and 89 per cent. of operating capital. The level in this country is of course very much lower. I trust that the Government will look carefully at any element of concealed subsidy which is contained in these debt differentials, and make sure that Community funds are not spent relieving debts on loans which have been unfairly subsidising competition with British producers.

A particularly important point on the subject of debt in this country is made at page 87 of the evidence given by the Agricultural Mortgage Corporation. I quote Mr. De Salis, who said: In many instances people are over-borrowed because… they are farming more land than they now wish to … They find it difficult to sell off part of their land because of the incidence of capital gains tax. It is impossible to roll over capital gains into the paying off of an overdraft as it is into investment in other assets. It is rather extraordinary, in the current economic climate, that it is not possible to roll over capital gains tax into reducing the size of one's business … If that could be changed, I think that it would make it easier for farmers to solve their borrowing problems". What will happen to farmers who are put out of business by price restraint? Last Tuesday John Cherrington in an article in the Financial Times said: The political question of the day is, 'Whose land is to be sterilised, and how will farmers be compensated?' ". We cannot just shrug our shoulders and say, "Let them grow brioche!" We have to do something about it. I think that it is necessary very clearly to differentiate between help which is given to maintain existing farm structures and help which is given to compensate the farmer and his family against personal suffering. For the former category, the Council for the Preservation of Rural England has recommended annual management grants tied to agreed farming practices and urged hectarage payments rather than headage payments to avoid over-grazing and preserving the countryside.

I think that part-time farming can also help to maintain existing structures in areas of the countryside where small farms are important to the landscape or indeed to the structure of the rural community. More alternative part-time occupations are needed in these areas, and there is also the possibility of new part-time farmers. I remember a conversation with a Frenchman who asked me about my job. I said, perhaps a little sententiously, "I am a peasant". He said, "Me too", in a flash, "but not a practising one". I think there probably is some room for part-time peasants.

Finally, I should like to turn to the question on which many noble Lords have touched—European food surpluses in the context of world hunger. I agree with the report—and it is generally accepted—that, apart from emergencies, gifts of food to developing countries are counter-productive. Cheap food distorts markets, lowers food prices, and discourages local production. The aim of development aid must be to stimulate self-sufficiency, but this does not detract from the need for emergency food supplies.

Many developing countries do not have the regularity of rainfall which we enjoy, and, except under irrigation, production fluctuates widely from year to year and so do prices. The only solution to this problem which provides regular food supplies to the consumer and a more regular return to the farmer is strategic storage. Adequate storage is an essential ingredient of any policy against hunger. Strategic stores should ideally be replenished from domestic production in the good years. This holds up prices and encourages local producers. However, there are many countries today where bad year has followed bad year: no replenishment of strategic stocks has been possible. In cases of this kind, and in cases where strategic storage has not yet been established, there is a very real justification for donating some of Europe's surplus grain to refill the stores.

A brilliant Jewish politician flew over to Rome in 1974. Henry Kissinger in his keynote speech at the World Food Conference in that year suggested a policy of world food storage. The initiative unfortunately failed through lack of political will. I suggest that the recent response to the Live Aid appeal might indicate that there may now be more political mileage in support for the third world's starving people. It is disappointing, in this context, to note that the United Kingdom Finance Minister was among those who, in September of this year, supported the withdrawal of the 500,000 tonnes emergency food aid proposed by the European Commission for 1986. I would ask the Minister whether he can give an assurance that this question will be reopened. In Mali, Chad, and Ethiopia today the stores are empty.

I should like to read to your Lordships a sentence or two about another brilliant Jewish politician 3,200 years ago: Joseph said to Pharaoh, 'Let them take up the fifth part of all the food of those seven good years and lay up corn under the hand of Pharaoh, and that food shall be for store to the land against the seven years of famine which shall be in the land of Egypt, that the land perish not through the famine". That was 3,200 years ago. Surely it is time we learned the lesson!

10.20 p.m.

Lord Middleton

My Lords, I had the privilege of sitting on the committee of the noble Lord, Lord Plowden, having myself a direct interest in farming. It is getting late so I should like to make my brief contribution to this debate by concentrating on the cereals section of the report, where the problem is summed up in three short sentences, on which I should like to base my remarks: [grain] surpluses are heavy and still increasing. Productivity continues to rise. Disposal on the world market is costly and a cause of international friction". Noble Lords have referred tonight to an estimated build-up of surpluses by 1990–91 of 90 million tonnes.

The growth of EC grain surpluses is illustrated by Table IX in the report, and the production figure for this year's crop was a guess because our report was published at the end of July.

The Home Grown Cereals Authority has this month told me that its estimate for 1985–86 (that is the year's grain crop) for the EC should be revised upwards from the estimated figure in Table IX which is 133 million tonnes to 140 million tonnes. If this is right, it would generate a much larger surplus over the next seven years and it would generate significantly greater costs of disposal. The authority's new figures, which include a revised estimated annual increase, envisage a total liability in 1990–91 of 14.3 billion ecus in respect of cereals alone. That is not much less than last year's total appropriation for the whole of the EC's agricultural market support of 16 billion ecus.

This latest piece of information surely underlines and magnifies the problems of marketing grain surpluses which are described in the report, and as the report says they call into question the viability of an intervention system that is already very near to taking the Commission's expenditure well beyond the budgeting ceiling.

Even allowing for the vagaries of the weather, therefore, productivity continues to rise, so what is to be done about it? The Commission is quite clear what is to be done and that is to check the continuing rise in cereal support prices. For this 1985–86 season they proposed a 1.8 per cent. cut in intervention prices for grain, but the Council of Ministers failed to agree on this particular issue. Since the report was published, the Commission has said that in the absence of a Council decision it will implement its own recommendation.

The reasons Lord Plowden's sub-committee supports a policy of cutting back institutional prices have been given by the chairman and are set out in the report. The logic is inescapable. The noble Lord, Lord Plowden, has referred to the other options, the other possible control mechanisms, and the reason for preferring the use of the price mechanism. I was very interested to hear the views of the noble Lord, Lord Lever, on that.

The crucial question is: will such an apparently modest institutional price reduction have any effect upon the build-up of surplus grain stocks? The answer has been given by my noble friend Lord Ferrers. The answer has to be that it will not in itself reduce output by so much as a bushel. What it will do is to reduce to some extent the financial burden on the Community's funds, and that is the overriding necessity.

What kind of price reduction is needed to affect grain output? Any farmer will say—and it has been mentioned tonight—that the price he is actually receiving for his corn is dropping steeply. The National Farmers' Union has given me up-to-date figures, the figures are confirmed by what my noble friend Lord Ferrers has said and my experience confirms their accuracy. These figures illustrate quite clearly what is actually happening. The market price for feed wheat in September 1983 was £120 a tonne; in September 1984 it was £ 100 a tonne, and this September it was between £95 and £100 a tonne. That is a fall of up to 20 per cent. in two years. But this is not the end of the story because last year the Commission imposed a 120-day delay in the payment to farmers for grain sold into intervention and that in itself is equivalent to a £4 a tonne reduction. Finally, during the same two-year period input costs have risen by at least 10 per cent.

This sharp downward trend in grain prices should be considered in the light of paragraph 57 of the report, which quotes the evidence given to us by the Agricultural Mortgage Corporation. I think this has already been referred to tonight. The corporation estimated that a 15 per cent. reduction achieved by cutting prices would have eliminated the net farming income for 1984. Whether or not this is a reliable estimate, there can be little doubt, as is said in paragraph 58 of the report, that a significant reduction in support prices will cause genuine hardships to many individuals.

My noble friend Lord Stanley has referred to this fear within the agricultural industry and it is why the report recommends measures to mitigate the personal and social impact of lower prices. I was very interested to hear what my noble friend Lord Ferrers had to say on that. However, even with the present order of price reduction that has actually happened, and notwithstanding what the Commission may be putting on to the institutional prices, volume of output is unlikely to be affected. Here, I am in complete agreement with the noble Lord, Lord John-Mackie.

The normal reaction of a producer in this situation is to cut costs by increasing efficiency if possible and to produce more in order to compensate for lower prices. That would be my reaction and probably that of my fellow arable farmers. I cannot speak for European farmers, but I guess that their reaction would be similar. However, farmers on the continent would suffer much more quickly and more severely by reason of their relatively smaller average size of farm. The differential is very well illustrated on pages 119 and 120 of the report. There is a very interesting Home Grown Cereals Authority document which was published after our report and confirms this view that a much smaller support price reduction for cereals than is sometimes mooted would have a significant impact on a large number of European farmers

Those who are less keen on the operation of market forces than I am may argue that this reinforces the case for other measures such as quotas or quantums or co-responsibility levies. I would not agree with them; nor do I believe would the majority of the committee of the noble Lord, Lord Plowden. If it is true that, as my noble friend Lord Ferrers suggests, in a competitive world efficient producers will always step in where others cannot cope in a harsh economic climate, then there will remain the problem of surplus grain. I wish we could do more for the hungry people in the world. Emergency aid can do a little to alleviate desperate situations; but I find myself in complete agreement with the noble Lord, Lord Plowden, in saying that the hard truth is that the only practical way to prevent recurrence of famine is to ensure that people have the means to grow sufficient food or the means to purchase it. Can we expand home consumption of cereals? Table IX illustrates that home demand has changed very little. Increased total home consumption is likely only if domestic EC cereal prices move downwards.

With regard to the development both of new crops in place of those in surplus and to the development of new uses for agricultural products, the evidence that we heard was that little progress has been made. But here again high domestic prices discourage farmers from seeking alternative products and they discourage the search for new uses; so it remains to consider the disposal of grain on the world market.

The figures relating to world production and consumption of cereals are interesting. When we last had a general debate on agriculture two years ago on a Motion of the noble Lord, Lord Mackie of Benshie, I quoted some figures showing that the world level of production of grains over consumption was slim. Over a period of 20 years up to 1981 it averaged out each year at about one week's world supply. I found also that whereas world cereal production had doubled in those 20 years, world consumption had kept pace. And looking at more recent figures it is plain that such a trend continues. Furthermore, in eight of the last 13 years consumption has exceeded production; so the advice of which the noble Lord, Lord Northbourne, has reminded us just now—the advice of Joseph to the Egyptians—remains sound to this day.

Shortages, at any rate in the more developed countries, are overcome by means of the build-up of surpluses in the fat years, chiefly in the United States. And it is those stocks which are moved in response to the demands of world trade. The uncertain factors which make any guesses about the future volume of world trade difficult are the capacity of the Soviet Union to grow food more efficiently, the great fluctuations of output caused by the weather, which also causes huge swings in Russian grain output and which can cause (as it did recently) a 55 per cent. reduction of Australian output in one year of drought. Lastly, the great uncertainty is the question of how fast China can become self-sufficient in wheat, which her people are consuming in ever-increasing quantities, having relied so much in the past upon rice.

The largest exporter of wheat is the United States, with the EC catching up fast, having already overhauled all other exporting countries. The United States also exports over 60 per cent. of the world's trade in coarse grains. Therefore it is not surprising that she looks on the prospect of the growth of subsidised EC surpluses with unease. One's natural instinct is to say that the EC should endeavour by every means to capture a greater share of the world grain market and that the United Kingdom in its turn should fight to increase its share of the total EC exports. The report rightly spells out the difficulties in the way of such a course and, as the noble Lord, Lord Plowden, has told us, the report calls for a new round of GATT talks in order to thresh out some kind of understanding with the United States.

I myself believe that this will be an uphill task. How, for instance, do you interpret the condition laid down in Article 16 of GATT, which permits export subsidies providing they do not allow a country more than an equitable share of world trade? You can argue about what is an equitable share of world trade until the cows come home. Nevertheless, I believe firmly that the trading route is the most promising one that we should follow. There are immense difficulties along that road, not the least being the uncertainty about the future strength or weakness of the dollar; but I support fully and wholeheartedly the Committee's firmly stated view in paragraph 87 of the report that the Community can increase its share in world markets and that increased use of the price mechanism will help to achieve that object.

10.35 p.m.

Lord Walston

My Lords, this is for me a sad occasion. It is sad because it is the last time that I shall address your Lordships as a member of Sub-Committee D, having been a member of it, with a two-year break while I was in the European Parliament, since its inception 11 years ago, and having served as chairman for three years. But it is also sad for a far more serious reason, and that is because this is the first time that I find myself in very fundamental disagreement with the findings of the committee, and with the report.

The committee has always had a reputation for sound, thoughtful, constructive and helpful reports. I wish that I could say that I felt this report lived up to that reputation, but I am afraid that I cannot do so. That does not in any way lessen my respect and affection for my colleagues on the committee, and in particular for the noble Lord, Lord Plowden—and I share in the admiration which has been expressed by many other speakers. But in my view this report is inadequate, illogical, unimaginative and complacent. It does little more than endorse the Commission's green discussion paper, itself completely lacking in imagination and reality and emulating the ostrich in its desire to hide its head from unpalatable facts.

In essence, the report places reliance solely on the price mechanism, and we have heard a great deal from other speakers today about the price mechanism. It is, I agree, a very useful weapon, but it is only a subsidiary weapon in the fight to contain the cost of the CAP and to slow down the increase in these butter and grain mountains and in the mountains and lakes of the other commodities that we know so much about. I repeat that its role can be a supporting one only, and not the main weapon.

There are several reasons for this. First—and my noble friend Lord Sainsbury made this perfectly clear—experience has shown that Ministers simply do not have the guts to cut prices sufficiently to reduce production. Year after year, even when the Commission has gathered all its courage in its hands—and it does not have very much courage, or perhaps it has too much realism—the Council of Ministers has whittled away even those very modest suggestions about price reductions. Therefore, to produce a policy which is based solely on solving this problem by price reductions is simply unrealistic. Many noble Lords who have spoken today have said that it has not worked in the past, and our trouble is that because it has not worked in the past we have no reason for believing that it will work in the future. Will there be a stubborn change in the attitude of the Council of Ministers? I do not believe there will.

But, in a way, I must confess that I feel it is fortunate that Ministers have not had the guts to do what is necessary because if they relied solely on drastic cuts in prices we would, after five or 10 years, but not before then, have seen widespread bankruptcies—and bankruptcies not only of farmers, as the noble Earl, Lord Ferrers, pointed out, because before the farmers' bankruptcies there would have been bankruptcies of machinery makers, of dealers and of suppliers of fertilisers and all the other things which go into farming. This would have had a devastating effect upon our rural environment. If any noble Lord doubts that, let him look at the Middle West of the United States, where just this is happening. Obviously, the conditions there are very different, but they are nonetheless severe.

We would also have seen what those of us who are old enough saw in the late 'twenties and in the 'thirties. We would have seen derelict farm buildings; we would have seen overgrown hedges, waterlogged fields, no new planting of trees and a general run-down of the environment; and increasingly the urban public is concerned with these matters. They do not want to see that sort of thing and they must realise—those who understand it do realise full well; one noble Lord has already mentioned this in his speech although I do not remember who it was—that the best protection for the environment as we know it and like it is a prosperous agriculture.

But today it would be far worse than in the 'thirties because conditions are so different. In those days most farmers were tenants. They had as a buffer against economic pressure their landlords—bad luck on the landlord perhaps. But farmers would go along to him and say, "I'm very sorry sir, but I can't pay my rent", and he, rather than have the farm put back into his own hands in time of depression, would forgo the rent or would reduce it. Now there are relatively few tenant farmers. Most farmers are now owner occupiers; most of them have pretty heavy mortgage payments to meet; and, with the best will in the world, the mortgage companies and the banks cannot behave in the way the landlords did in those days.

There is another difference. There was very little farm capital, tenant capital, in those days—very little was needed because there was not the same intensive use of inputs. Today all farmers have substantial overdrafts with banks and that makes them yet more vulnerable to these pressures. It took years, and then only because of war, to recover from the 'thirties. By then we had lost our position as the leading agricultural country of western Europe. Today we still have not recovered it. Virtually all our farm machinery is imported; our leading dairy cows come from Dutch and Canadian stock; our leading beef cows come from France—we who had once been the stock farm of the whole world. These are some of the things that happened then; and to a far greater extent they would happen now if the price mechanism alone were pushed far enough to achieve the desired cut in production; and Unless it is applied so drastically that widespread bankruptcies would occur, it simply will not work.

Farmers' reaction, as we have heard, is to grow more. This is what has been done. We have been experiencing cuts in prices for several years now. The Home Grown Cereal Authority's prices show that over the past three years there has been a drop in the price of wheat of more than 20 per cent. That bears out some figures which the noble Lord, Lord Middleton, has given us. Professor Harvey of Reading University has written in a most helpful and interesting paper that, farming income is now more than 30 per cent. lower than it was in 1971–72. The industry is paying out more for bought-in labour, and especially capital, than it was and as a result has less left over for itself. Those who pin their faith on the price mechanism would surely say, "If this has happened, if farming income has been dropping even since 1971, if the price of grain has dropped by 20 per cent. in the past three years, surely less must be produced". But has the butter mountain declined? Has the cereal mountain become any smaller? It is still rising and it is rising fast. Surely that must be sufficient to convince even the most committed supporters of the price mechanism pure and simple that it is not enough to solve this problem.

I am not saying that it should not be used. It should be used—but it should be used as a back-up to other policies, and they should be based on quantitative restrictions. That is to say, not on the amount that farmers may produce (I am not advocating an individual quota for each farmer in any way) but on the amount for which they will receive a guaranteed price. This is very much in line with the suggestion made by the noble Lord, Lord Lever. He said that we should by all means pay subsidised prices for what we want but not for what we do not want. That is precisely what I am saying also.

There are various ways of doing that. I will make only two suggestions, and those as briefly as I can. But I must begin by making it clear that the ultimate target should be announced now but reached only after 5 years, thus putting farmers on notice as to what the future holds for them and giving them plenty of time to adjust. One cannot bring about rapid changes when one is dealing with farming.

One method would be adopting in a modified form a scheme that has enjoyed some success in the United States. I speak of the guaranteed loan scheme. Under that scheme, farmers are free to grow as much as they wish and sell at the best price they can get—but the Government undertake to lend them money interest-free on the security of a specified quantity of their crop. If the farmer has not sold that quantity by the end of the harvest year, the Government take the security—they take the wheat—and the loan is discharged.

There is one obvious drawback. It can be overcome but it is a serious drawback; the need for a fixed amount of this loan to be allocated to each farm. However, I believe that with some modifications this scheme would be workable in the Community, and it deserves a great deal of thought.

There is a second and, to my mind, preferable method. That is, for the Commission to agree on the amount (let us stick to wheat) that the Community consumes annually. That would constitute the Community quantum. This amount would receive a guaranteed price, gradually reducing—and here the price mechanism comes into play—until it comes closer to the world price. It is for the politicians and the Ministers to decide how close that should be.

This Community quantum would be divided among member states according to their average production over the past five years; a purely statistical and not political exercise. Each member state would then receive from the Community funds which would represent the difference between the world price and the guaranteed price for its national quantum. Each national government would be free to divide this amount among its own farmers in any way they wished.

A government could give every farmer exactly the same amount per acre. If they wished to favour those in the hard-hit areas or small farmers, then a government could give a larger proportion to them, and a smaller proportion to the bigger farmers. A government could also supplement these deficiency payments by national payments—I stress national payments—from a social fund in order to alleviate hardship in special cases. However, this would be done only in a way that does not encourage greater production.

Many people have said that quota systems or quantum systems—whatever you like to call them—cannot work. The noble Lord, Lord Stanley of Alderley, particularly said so. But I remind your Lordships that we have lived with them in one case for a long time and in another case for a short time. Sugar beet—the sugar régime—is based on a Community quantum allocated to each country. It was much too big and has been badly administered, but it has been done. It can be done—it works.' We also have the famous milk quota, which is in fact individual quotas, which I do not like, but which is working. So if people dismiss this argument of quantum on the ground that it cannot work, let them look at the facts and see what has in fact happened.

There are many advantages in such a scheme. In the first place, it puts a ceiling on the cost of the CAP, and that is one of the most important things that it is desired to do. Then, it lowers the price of cereals to the consumer, which includes livestock producers and thus, indirectly, the consumer of livestock products; it abolishes intervention buying, reducing bureaucracy, and allows farmers to grow as much as they wish and to take their chance on the open market; it does away with accusations of unfair competition from the United States of America; it gives freedom to member states to support their farmers on social grounds from their own resources; it entails the minimum of bureaucracy; and it cushions farmers from violent changes in world prices but renders them more liable to economic forces.

I believe that it is along such fines that we should be directing our thoughts and urging the Ministry, our own Government and, through them, the Council of Ministers and the Commission to tum their minds, and not of this blind adherence to the price mechanism which, as I have said, has been proved not to work. In my opinion this is a great opportunity which the committee has missed.

10.51p.m.

Lord Campbell of Croy

My Lords, I will be brief at this stage of the debate. I was not a member of the committee but I state categorically that I am convinced that reform of the CAP is essential and that nothing should be allowed to delay carrying it out.

The original agricultural policy of the Six which started nearly 30 years ago has achieved most, if not all, of its early aims. It is in more recent years that it has produced these massive surpluses demanding more and more granaries and stores. The system must be changed. The EC cannot afford paying the agriculture industry to produce quantities of food that cannot be consumed in Europe or apparently disposed of elsewhere. Farmers should not be encouraged to produce for public intervention: that is, for markets which do not exist.

The committee's main recommendation is that there should be more use of the price mechanism. I do not have time to pursue the points which the noble Lord, Lord Walston, so eloquently put, but I believe that that is one of the remedies that should be used, not necessarily entirely on its own. However, I draw your Lordships' attention to the part of that policy which has not been spelt out in either of the documents—either in the Commission's Green Paper or in the committee's report: namely, the direct income aid which would be a counterpart to the reduction of prices and aid to those who would be hard hit and indeed might have to go out of business. Money will have to be spent on schemes which it will be difficult to agree upon. Nonetheless, this must be done if the policy of price restraint is to be followed.

The noble Lord, Lord Northbourae, spoke on this part of the policy and I should like to say more on it. The debate so far has concentrated on the effects there would be in this country on the environment, on hill farming, and so on. I should like to refer also to other member countries. That is where more of the difficulty will be met.

To devise solutions which will accompany the reform of the CAP, we should have closely in mind two factors which have contributed to the situation in which we now find ourselves. First, there has always been an extra element in the CAP as it was originally introduced among the original six members of the EC which was not contained in British agricultural support policies at that time. That factor means that there has been a regional development subsidy within the CAP, which was always intended. It was intended to provide a form of assistance to Less Favoured Rural Areas, especially in France and in Germany. In Britain, on the other hand, regional aid programmes have been needed by and designed mainly for industrial areas in decline, and they have been quite separate from agricultural support measures.

There have been two different approaches, therefore, I believe that the recent German refusal to allow cereal support prices to be reduced should be regarded in the light of that fact. I have no doubt that the Germans had in mind rural communities where a large percentage of the population is still employed either full-time or part-time in agriculture.

The second factor to which I refer is that there are problems arising from the fact that most forms of agricultural support policy apply virtually across the board, so that large efficient farms on good land benefit more than most small units. This was always the problem in this country under the old deficiency payments system and others. Some of the smaller units will undoubtedly need special consideration as a price restraint policy is applied.

As the noble Lord, Lord Walston, has said, in Europe Ministers have not been prepared in recent years to reduce prices. I believe they will only do so in the future when they know that there are measures prepared for those who will be hard hit, for the environment and for disadvantaged areas. The crucial and difficult part in drawing up an effective price mechanism policy will therefore be the creation of schemes over the whole of the EC for areas, communities and individuals, in order to temper the harsh impact. of the policy upon them. The British Government must be ready to include elements of regional aid, special aid and aid for the environment. The agricultural policy of the EC is making it economically unbalanced and top heavy. Unless reform is embarked upon soon, the serious distortions which the CAP is causing will upset other parts of the EC's economic and financial policies. We must make sure that we do not reach that stage.

10.58 p.m.

The Earl of Radnor

My Lords, at this late hour I shall be as quick as I possibly can be. In point of fact, after the very good debate that we have had there is little left to be said; and I, myself, view the whole question in fairly simple terms. Before I say anything more I should like to compliment the noble Lord, Lord Plowden, and indeed the whole of his committee, on this report.

I agreed with their conclusions for the most part, though there were perhaps some unimportant details on which I might or might not touch. What I disagreed with was the degree of emphasis which I read into the whole report. I felt that it described the situation in a very calm manner and reached very sensible conclusions, but to me it did not transmit any of the urgency which the noble Lord, Lord Campbell of Croy, has brought out, and which I am sure is inherent in the situation as it now exists.

I cannot agree with the noble Earl, Lord Ferrers, with the noble Baroness, Lady Elliot, and with others that the CAP has done a particularly good job. Certainly it has a purpose, but it has got out of control. The noble Earl said that one cannot bring the guillotine down at just the right moment. As far as I am concerned, that guillotine needed lubricating a long time ago and has been stuck at the top for far too long. We are in Europe in the embarrassing predicament which has been described so well by so many noble Lords. We are spending a lot of money to produce products which we ourselves do not want, and then more money to store them. In spite of what your Lordships say, it is hard to see quite what the end of it all will be.

Having said that, let me now say that I agree entirely with the committee that the price mechanism must be the right mechanism to use. I am sorry in many ways that the quota cannot be used. I think the reasons have been covered perfectly well. However, I am sorry that it cannot be used. The small farmer has a very important part to play, certainly in English society, and I should imagine even more so on the continent, and I think the price mechanism bears heavily on him. It is not that the small farmer is suffering from lack of scale—there are extremely good and efficient small farmers—but his marketing is at a severe disadvantage. When this business eventually sorts itself out I hope that he will survive in our society, and I expect and hope that that will be through some form of co-operative movement which might emerge when he sees the danger which is portrayed in the report.

I cannot produce solutions any more than has any other noble Lord. At least two and probably more noble Lords suggested that in the world there was not a surplus and that, what is more, there could be a shortage coming. That is all very well, and it may be true; but, as I said at the beginning, the situation is more immediate. A future shortage could probably be met from land which had run derelict (I hope that that does not happen) in precisely the same way as the need was suddenly catered for in 1939 after the 1920s and 1930s, about which the noble Lord, Lord John-Mackie, spoke.

Where the emphasis of the report is completely wrong is in producing three solutions (as far as I read it) for this country and presumably for farmers in general. One is diversification into different crops, which is just not realistic. The table in the report that I read shows that in the case of those commodities in which we in Europe were not self-sufficient we nearly were, and so any swing into those products, as many noble Lords have said, would immediately produce the problem again in a different commodity. If the members of the committee were thinking of the stranger crops about which one reads, I do not think that that is practicable. We all know of people who grow anything from borage to evening primroses, for whatever purpose I cannot think. They may do it well and make some money, but it is not the answer to this question.

The next alternative is diversifying into the service, craft or tourist industries; in other words, farmers must do something different. I think that that is an equally impracticable suggestion. Farmers are farmers. Who is going to finance this sudden change into a new business? Who is going to teach them to be good with tourists? Who is going to teach them their new craft? Where are the craftsmen going to come from who are not going to drive a tractor but will do some fancy ironwork, pottery, or something of that sort? Again, this is where the emphasis is wrong. It is written in a paragraph as though it is a solution, but in my opinion it should be disregarded entirely.

That brings one back to the third matter, which is a solution, but a difficult one, and that is direct grant aid. There will be considerable hardship if the price mechanism is used with such force that it will have an effect on surpluses more quickly than the noble Lord, Lord John-Mackie, thinks it might. If there is hardship, money will be required in quite a large measure to alleviate that hardship and deal with the situation. How much money that is, I do not know. Presumably it will not equate with money that is used to support the present system. I hope not. This is where the emphasis must lie and where there must be a full realisation that the price mechanism will cause hardship if it is used in such a way that it is going to deal with this situation of surpluses past, present and future.

I would suggest—and these are peripheral matters—that research should be directed at alternative crops such as the ones which have to do with fuel in some way or other. Research should move away from those crops which are in surplus. Obviously thought should be given to alternative occupations, particularly the financing of people who might wish to do something altogether different from farming and yet stay on their farms.

My last point is the most important of all, because the report says that this will all need political will. Indeed this is so. It is not just will in this House; it is will in Brussels, with the commissioners, the heads of state and so on—particularly the heads of state. Looking round, I see that not many of your Lordships who are here now were present during the previous debate, but I sat through practically the whole of it. The previous debate was to do with European Union; it was very learned and interesting to listen to. I missed about two or three speeches. The common agricultural policy was mentioned with some emphasis once by the noble Lord, Lord Reay, and once by my noble friend Lady Young. If it was hardly mentioned in the previous debate, what sort of notice is going to be taken, and what sort of action is going to take place, in Brussels? I think it will be a very awkward situation that will dribble on.

The rules of the game here are the Treaty of Rome. This was spoken about frequently earlier in the day—the veto, the Luxembourg Compromise, where the veto can be brought up under spurious and unreal situations. I do not think anything very helpful will happen regarding these food mountains until a situation is created in Brussels whereby a majority, a two-thirds majority or something of that sort, deals with the possibility of one member nation stopping action for its own parochial reasons. That is where my noble friend must talk to his other friends and Ministers and try to persuade them to use every power in the world to influence the commissioners and the heads of state to behave in a sensible way. I feel it is they who have let us down and who have led us into the position we are now in.

11.10 p.m.

Lord Gallacher

My Lords, it is worth putting on record at the outset that support for agriculture, at least in Britain, pre-dates our entry into the Common Market. The milk marketing boards of the 1930s, the major agricultural Act of 1947 and subsequent legislation all show clearly that before Britain became a member of the EC, we accepted in principle the concept of support for farming. Consumers are sometimes inclined to overlook that fact, and I think that it needs to be stressed.

Furthermore, even the system that we had—a system of deficiency payments—was not without blemish. One can recall, for example, in the matter of world meat prices, and so on, that major additional sums of money were required by way of supplementary votes by Parliament causing great

upheavals in the country even though we had the shelter of what was thought to be a better system; namely, deficiency payments. Nevertheless, the common agricultural policy is basic to the Treaty of Rome. I belong among those people who believe that without the CAP there would never have been a Treaty of Rome. Certainly, there would not have been the free movement of manufactured goods throughout the Community which gave the EC its initial buoyancy and proved it to be a success resulting in Britain's decision to join.

The reform of the common agricultural policy is designed to benefit consumers. But, no less, it is designed to assist EC manufacturers to compete in world markets. Here, there is a fundamental distinction between the policy that applied when world trade was buoyant and manufacturers within the Community could afford to sustain the CAP at its then cost, and the present position whereby manufacturers are having to compete in a world recession and are finding that more often than not their prices are out of line with those of their main trade competitors.

It is fair to say that the price mechanism vis-à-vis the CAP has not yet been seriously tried. I know that the farmers' union and other bodies can show that there has been a reduction in price. But, certainly, the Council of Agricultural Ministers has so far not summoned up enough courage to make really radical reductions in prices. That is what the proposals in the Green Paper are all about. I believe that your Lordships' sub-committee would have been foolish, given an apparent willingness on the part of the Commission to make fundamental proposals as regards the price structure, to have followed the advice of the noble Lord, Lord Walston, and said, "We will set that on one side and opt instead for a system of quotas" when that was furthest from the mind of the Commission at the time the present proposals were made.

Furthermore, on his own admission, the noble Lord, Lord Walston, has been frank with the House, saying that, on the matter of sugar, it has not been a wild success. The price of sugar in the Community—sugar is supposed to be on a self-financing quota basis—is not appreciably less than the world price. In fact, it is considerably higher. So far as the quota itself is concerned, there is intense dissatisfaction in the United Kingdom with current proposals which show clearly that France, for example, is in a far more preferential position as regards its sugar quota than we, here in the United Kingdom, are. Although quotas may be a recipe for solving the problem, I foresee greater arguments in Brussels about national quotas than we get about prices under the present regime.

So far as milk is concerned, it is mildly ironic that without milk marketing boards in the United Kingdom, which are not much in favour with the Commission because of their statutory character, it would not have been possible, in my opinion, to have ensured such a smooth introduction of milk quotas as we have. Although they are related, as the noble Lord, Lord Walston, said, to the individual farmer, it is a fact that we are currently, as a nation, under quota, and to that extent it is not of itself an immediate answer to this problem.

The problem of consumption within the Community is not easily solved. Fashions are of course changing all the time. Socialist propagandists in the 1930s used to make our flesh creep—such flesh as we had in those days—by pointing out that children in lower income groups who were fed skimmed milk were pre-disposed to rickets. It now transpires in the light of current medical opinion that necessity was the mother of nutrition. Today, for example, the diet which used to suffice for manual workers—cheap, high energy food, fats, sugar, starch, which are not bad in themselves—is now bad because manual workers are not quite so heavily manual workers as they were in the days when those foods were part of the basic diet. We cannot divorce what is happening in the community from what people want to eat and are eating; a fact that my noble friend Lord Sainsbury quite rightly stressed and which the noble Baroness, Lady Elliot, also mentioned.

In this connection one would wish to congratulate the Government on having apparently found a permanent funding basis for the Food From Britain organisation. All I would say is that they should take considerable note of the advice which the noble Lord, Lord Sainsbury, gave and using the Food From Britain organisation try to bring together farmers and food manufacturers to make sure that what is being produced by farmers is what is asked for by food manufacturers and therefore what can be sold.

There is also a great deal of money being spent on generic advertising by organisations which preceded and predate the Food From Britain organisation. I would refer to milk products, meat, eggs, fruit, and bread. All of these product organisations—some statutory, some not—are spending substantial sums of money, often financed by the trade, and it seems to me that having found a breathing space for the organisation by reason of solving its funding problems, there should now be an attempt to extend Food From Britain's umbrella so that it is the comprehensive organisation which those who advocated it in the first instance wished to see.

The effect of reform, unless backed by supports as described in the Select Committee's Report, will undoubtedly have a serious effect on farm communities and the environment. Reform may not be a cheaper option, certainly in the short run. Indeed, I have fears myself—bearing in mind Lord Ferrer's law—that we could find ourselves paying more in order not to grow food than we are currently paying for growing it. Nevertheless, I think that the size of the problem has now reached such proportions that in fact we have very little alternative but to try.

Of course, if we are going to restrict prices and consequently change the pattern of farming, we need to ask ourselves: what kind of farming? Is it to be low input or low output? If that is thought to be the solution, then one would wish to see that farming conducted on a current cost-accounting basis because one has the feeling that many of the claims being made for it as a solution are based on artificial costings and would not be capable of implementation by those people who are entering farming for the first time.

If we are to reduce acreage, where are we to reduce it? As the sub-committee was told by the Agricultural Food and Research Council, anything can be grown in the eastern half of the country. On the other hand, the further west one goes, the less successful certain products are. Here I think that there is a dilemma for British agriculture; namely, do we farm less intensively in the east and move west in order to reduce production? Or do we in fact continue to farm productively in the east and allow farming to languish in the west of the country?

I think that land use comes into this in a very significant fashion. Planning, too, comes into it in a very significant fashion. I was very glad that the noble Earl, Lord Ferrers, touched on this. It seems to me that the east of England—and particularly the south-east of England—is inevitably that part of Britain which stands in closest proximity to the European Market. Indeed, when we were being urged to go into the Market, the triangles and quadrangles showed quite clearly that within a 150 or 200-mile radius of London there were in fact millions of consumers. I believe that we still have that problem with us today. Undoubtedly, if there are serious attempts being made to alter land use patterns then the Ministry of Agriculture and the Department of the Environment will have seriously to tackle the problem of where in effect changes in land use are to take place.

We are living through a second industrial revlution. Fortunately, in my opinion, it will not scar England as the first industrial revolution did. It is a fact already reflected in land prices that this is the area of greatest potential, if we regard membership of the EC as an opportunity to trade in a very large and enhanced market; and that was what joining was all about. But it would be foolish not to tackle this problem of where and when development is to be allowed to take place. Whichever Government grasps this nettle can expect to be thoroughly unpopular for the exercise because, apart from the joys of the weather, undoubtedly the people who are most articulate and who are best able to resist such alternative uses will oppose this strongly. Nevertheless, I think that the dilemma is there.

A rolling programme has been mentioned and I think that it is indispensable. It was rather disappointing for the sub-committee to find that the Minister of Agriculture appears to be frightened of planning ahead in agriculture. The Minister—not on this occasion but on a previous occasion when he met the committee—seemed to indicate that attempts to plan ahead had not been successful in the past. That may or may not be so. Nevertheless, I think that, given the nature of the problem and the importance of letting farmers know what the future holds for them, it is an inescapable fact that there must be rolling programmes of at least five years' duration. I think that these are possible within the context of what the Commission is seeking to do, and I sincerely hope that the Government, particularly the Minister of Agriculture, will modify their attitude to the whole concept of a rolling programme.

I began by saying that I think that the CAP was responsible for the success of the Common Market in the first instance. I believe that unless it is reformed, it is capable oí destroying the Common Market, and for that reason the sub-committee's report—an excellent one in my view—is worthy of every consideration. I hope that the Commission will take note of it and that we shall make a major attempt to grasp the nettle and to reform what has undoubtedly become a major embarrassment to the members of the European Economic Community.

11.21 p.m.

The Minister of State, Ministry of Agriculture, Fisheries and Food (Lord Belstead)

My Lords, this debate and the Report of the Select Committee on the European Communities come at a most opportune moment. I should like to congratulate the noble Lord, Lord Plowden, not only on a speech which I very much admired, but also on chairing the committee, which has undoubtedly made a most valuable contribution in its report to the search for a solution to the problems facing the common agricultural policy.

The particular relevance of the report is that it has been made when the European Community is engaged in a wide-ranging debate stimulated by the Commission's green paper, Perspectives for the CAP. The committee has been able to take this into account in the work which it wisely set in hand before the publication of the green paper.

There is a great deal in the noble Lord's committee's report with which the Government can find common cause. It is the Government's view that the committee is right to emphasise the fundamental role of a more market-orientated price policy in seeking reform of the CAP; right that action through the price mechanism is to be preferred to quotas; right that unlimited price guarantees are not an effective instrument for tackling the social issues raised by changes in our countryside.

All your Lordships' speeches this evening have identified the basic problems facing European agriculture—its rising budgetary costs and the problem of finding outlets for mounting surpluses. I must say that I was very glad that the noble Lord, Lord Plowden, spoke of the achievements of the common agricultural policy in the past. But we must face the fact that the problems stem directly from the failure of CAP market support to respond adequately over a long period to rises in agricultural productivity, so that the provision for all market support in the Community for agriculture in 1985 will apparently be equivalent to £11¾ billion, or 70 per cent. of the whole Community budget.

I was also very glad that the noble Lord, Lord Gallacher, in what I thought was a most interesting speech, reminded us, and said that we should remind others, that agricultural support certainly predates the European Community.

The appalling weather in some parts of the British Isles this summer, which in some areas has persisted right through the autumn, is a salutary reminder that there is still a need for an agricultural support system. However, I think that we should also do well to remember that in the last 10 years support prices in the Community have risen overall more slowly than rates of general inflation in the member states: consequently—and many of your Lordships have made this point this evening—many producers have suffered a decline in income in real terms. So the difficulty we face is not in identifying the problems, for there are plenty of those, but, as my noble friend Lord Ferrers said, in finding effective solutions that can be agreed by 12 member states and sustained over a sufficiently long period of time.

One point on which the committee were adamant, and I think your Lordships are all agreed, is that we need to get away from crisis management and to make longer-term decisions based on a realistic and objective analysis of the likely conditions in which European agriculture will have to operate in the future. The recent history of the milk sector provides a striking example of what can happen when decisions are put off and put off until drastic action is finally necessary and quotas are imposed—but quotas still with an inbuilt surplus and with the costs of disposal continuing to increase.

Therefore, I am sure that it is right that both the committee (with a distinguished dissentient voice, but nonetheless the committee) and the European Commission have stressed the need for a policy of sustained price restraint as the best means of tackling the basic problems of the CAP. Support prices more in line with market realities will not only contain directly the costs of the European budget by immediately reducing the costs of disposal of surplus produce, but in the longer term will bring a better market balance of supply and demand by reducing the incentive to overproduce and by encouraging greater consumption.

May I come closer to the difficult point? It is argued—and we have heard it in the debate this evening from some of your Lordships—that the response to reducing prices is going to be higher production. With respect, I think this is to ignore the recommendation of the committee, and indeed the policy of the Government, for action through the price mechanism sustained over a period of years, which will give a clear signal to producers and can, I argue, restrain production. This approach would avoid the practical difficulties that quantitative controls such as quotas can entail. Nor would it artificially freeze the structure of agriculture, as quotas may do—a consideration which I think accounts for the support for the price option, after a good deal of hesitation, from my noble friend Lord Stanley.

From all these viewpoints a more market-orientated price policy surely addresses many of the CAP's pressing problems. But, of course, as your Lordships well know, a sufficiently tough price policy has proved difficult to agree. We hear various alternatives suggested—co-responsibility levies, quotas, support based upon a quantum, and set-aside policies are the main mechanisms. Co-responsibility levies would be a false solution in the Government's view. They are attractive to those who advocate them because they represent an escape route from the budgetary controls which have been agreed for the CAP. Moreover, co-responsibility levies are likely to result in higher support prices to compensate producers, with the result that consumers end up bearing the burden which would otherwise fall on the Community budget.

Although the committee were clear that a policy based on quotas does not meet the needs of the present situation, the committee also referred to the concept of a price differentiation system based on a quantum—a matter to which the noble Lord, Lord Walston, devoted part of his speech. Under such a system production up to the level of the quantum would receive full price support, and the excess would have to be disposed of at much lower prices. What worries the Government is that in order to operate such a system surely it would be necessary to identify how much production was within the quantum, and to do this would seem to require quotas to be set, and indeed to be enforced, at some level in the production or supply chain, probably at farm level—and, of course, for cereals this would be far more complicated than it is even for milk and for sugar beet. The idea could, the committee suggests, also involve deficiency payments: not a concept, as I understand it, that the noble Lord, Lord Walston, was advocating. Unless the guaranteed prices were set at levels rather lower than those at the moment, deficiency payments would be likely to be extremely costly. Without dismissing these ideas out of hand, they are, I suggest, the realities which we should have to recognise if we were to consider this option.

Finally, thinking of the options, set aside was disposed of by the noble Lord, Lord Mackie of Benshie, as being, in his view, impracticable for this country. It would certainly be very expensive if we wanted to offer the financial inducements necessary to attract a significant amount of land out of surplus crops.

Cereals have quite rightly been selected for special attention by the committee in the report and by the Commission in its green paper, for the sector is pivotal to the agricultural economy. As my noble friend Lord Middleton said in his speech, the trend in cereal production is ever upward. The committee endorses the policy which the Government have long pressed the Community to adopt; a restrictive price policy. Particularly for cereals, a policy based on keeping market prices in check will be to the competitive advantage of the United Kingdom, because we have a highly efficient industry which is better placed to adapt to the challenges of the market than that in many other countries.

The Government are prepared to look carefully at additional measures to improve the way in which the existing system is managed, such as changes in quality standards. But most of the suggestions to be found in the Commission's green paper for new approaches outside the framework of the existing system cannot be said to represent solutions to the real problems of the cereals sector. In principle, cereals quotas could provide a solution, but I strongly agreed with the noble Lord, Lord John-Mackie, when he said that there would be massive problems of negotiation and administration; they would choke off demand by being inflationary and would introduce rigidities. Other noble Lords said very much the same thing. New uses for cereals, while being interesting in themselves, as mentioned by some of your Lordships, do not represent any real prospect for the use of large new quantities of grain at a reasonable cost and would, furthermore, only have a chance of viability if grain prices were very much lower.

The Commission has not, of course, restricted itself to analysing the cereals sector. It has suggested more broadly in the green paper that price policy could be accompanied by other measures: first, that the farmer might be offered some alternative and, secondly, that particular groups of producers could be offered some form of direct income support. Lord Plowden's committee expressed views on both those approaches and I shall say a brief word about them.

On behalf of the Government, I certainly agree that there is a place for alternative crops, but we must surely analyse the costs carefully. It is no use replacing cereals with an acre of a substantially more costly product. We can also expect, almost as surely as night follows day, that there will be demands from some in the Community for measures to offset the cost of supporting alternative crops, for example, by increasing the level of protection against imported substitutes, and thus we would expect renewed demands for a tax on vegetable fats and oils, to which we remain adamantly opposed.

One of the alternatives available to farmers is the possibility of expanding farm woodlands. The Government recognise that woodlands on farms have the potential to make a valuable contribution to farm income as well as having wider environmental benefits. In the presence of experts on this subject this evening, I think I must cut short my remarks on this particular subject, but I should just say that, as I think your Lordships know, we are considering what measures might usefully be taken to encourage farmers to bring existing farm woodlands under proper management and to plant woodlands. To assist in this process, the views of interested organisations are currently being sought on the basis of a report which the Ministry of Agriculture published a little while ago called Woodland as a Farm Crop, which we hope will be a contribution to this important subject.

In seeking alternatives, one other theme pursued by the committee and in the green paper is the role of agriculture in the economic structure of rural areas. Here I should simply say that I think we are trying to take some positive steps to try to deal with, and address ourselves to, the economic decline which occurs because of people being attracted away to urban areas. As your Lordships know, we have from the beginning of this month instituted a new grant scheme which incorporates grants for tourism and craft projects on farms in the less favoured areas. If I may say so, I am more optimistic than my noble friend Lord Radnor about this, because through ADAS farmers are put in touch with bodies such as the tourist boards, the Development Commission and the Council for Small Industries in Rural Areas, which are particularly well qualified to help.

Not all family farms in remote rural areas can, of course, turn to tourism or to craft works. We should remember, however, that expenditure on hill livestock compensatory allowances in the United Kingdom this year is likely to amount to about £100 million including payments for the first time to farmers in the new less favoured areas following the extension of the LFA agreed in the council last year. When I heard the noble Viscount, Lord Sidmouth, speaking of small farmers, I could not help but reflect that over half the farmers who claim HLCAs have holdings of less than 25 cows or 167 sheep.

We have also taken measures to mitigate, so far as is possible, the effects that the introduction of milk quotas has had on small producers. Using quota bought up under the outgoers' scheme we have been able to restore the small producers to their 1983 production levels. We also aim by the next financial year to remove the whole of the cutback on development awards to those with less than 200,000 litres of quota. Small milk producers are also benefiting from an abatement to the co-responsibility levies in the LFAs; and, in the beef sector, the suckler cow subsidy, which was raised last year to a ceiling of £24.75 per cow, will also have been of assistance to the smaller producer.

Whether additional measures might be considered by the Community in the area of additional support for particular groups of producers is, I realise, a central issue in the debate currently taking place on the Commission's Green Paper. The provision of direct income support has been recommended by the noble Lord, Lord Plowden, and the committee, and I give your Lordships the assurance that we approach the Community discussions on this with an open mind. But we have to recognise that there could be some very difficult problems associated with this. Of course, provided they act within the Treaty member states can and do operate income aids already in the context of their social policies. But if a Community measure were to extend much beyond general guidelines for national policies there would be numerous difficulties. How could this support be paid for, given the constraints on Community expenditure? What may be considered rural poverty in one member state does not necessarily mean the same thing in another. Agreement would have to be reached on who was eligible, and on what they should be paid and for how long.

If I may, I shall remain silent on overseas aid this evening and, if the noble Lord, Lord Northbourne, will allow me, I shall write to him on the direct question which he addressed to me.

Perhaps I may say a final word on one other area addressed by the committee; namely, agriculture and the environment. On this, I simply wanted to say that in many respects I think we can claim to be ahead of some of our Community partners in this whole area. Our recent extension of the less favoured areas and the changes in our farm capital grants—which, incidentally, address the problem of pollution more directly than it has been addressed before are, I think, examples of this. We were also, as your Lordships know, instrumental in securing new provisions in Community legislation: the Structures Regulation 797/85, which will enable us to introduce entirely new measures to help protect areas where the countryside is particularly sensitive to major agricultural changes.

We readily accept the need to encourage the farming industry to adopt high standards in such matters as animal welfare and the protection of wildlife and the countryside. But equally we must recognise, as the noble Lord, Lord John-Mackie, certainly did in his speech, that there is a need to maintain an efficient and competitive industry which is able to fulfil this role. In these circumstances it seems to us to make practical sense to attract the sympathy and the co-operation of those who derive their livelihood from the countryside.

Having said that, I would just make the point that we feel very strongly that individual member states are best placed to decide exactly what they should do within general Community policy so far as conservation and environmental protection is concerned. I hope that is the way in which the Community can continue to go forward.

May I finally answer just one question that my noble friend Lady Elliot asked me. My noble friend suggested that we should concentrate far more on selling agricultural produce. That was in tune with a great deal of what the noble Lord, Lord Sainsbury, said in the second part of his speech. In reply, I would just say that the agriculture and food industries in this country have, as your Lordships know, faced a significant change over the years since the second world war, and particularly since joining the Community. Our self-sufficiency, as your Lordships know, has gone up by leaps and bounds, particularly in recent years. This changes also our attitude to marketing and exports. The volume of agricultural exports has risen by 52 per cent. since 1973. May I also say that member companies of the British Agricultural Export Council, of which my noble friend Lord Ferrers is such an energetic chairman, have most certainly contributed. Incidentally, in connection with agricultural exports, I was most interested to hear that my noble friend Lord Middleton had reached the conclusion that, providing one was talking about realistic prices, there will continue to be opportunities for Community grain exports, of which we have claimed an increasing share in recent years.

Having said that, there is of course greater interest today in food quality and marketing. The development of food quality marks and the success of Food from Britain are further evidence of this; and I was grateful to the noble Lord, Lord Gallacher, who recorded the point that he was glad that the Government had now made a statement and would put Food from Britain on firm funding for the future, as we would hope.

Perhaps I may finish with just a word on the Commission's whole perspective exercise in more general terms. I would say to your Lordships that discussions in the Community are still in their early stages on that particular document, and that in their Green Paper the Commission have attempted to cover issues affecting the whole of agriculture. But they are suggesting at the moment options for debate—only options and not proposals. These do not pretend to form a complete policy. Necessarily these options reflect not just the needs of different sectors of agriculture but also the needs of different interests in different member states. What I am trying to say to your Lordships is that I think the position of the Commission's Green Paper represents complex issues with important implications, particularly for an enlarged Community. As in the annual Community price fixing, it is going to be a substantial task to pull together the various measures which will be needed to respond to the problems the Community faces.

Nevertheless, the prospect of finding improvements in the operation of the CAP which will benefit producers, taxpayers and consumers is one which the Government welcome, and we intend to work for effective measures which will enable agriculture to develop on a secure but rational basis in the years ahead.

11.45 p.m.

Lord Plowden

My Lords, I thank the noble Lord the Minister for his comprehensive reply to the debate and all those who have taken part in it. One thing on which everyone agrees is that the common agricultural policy is in a state of crisis and that something must be done in order to deal with it. Otherwise, as the committee said, it will run away and may jeopardise the whole working of the Common Market itself.

At this late hour it would be invidious to deal with points that were raised by many speakers, and I will only touch on what the noble Lord, Lord Walston, said. With his usual lucidity, he put forward the idea of quantums and quotas, with which the Minister dealt in his reply. The noble Lord, Lord Walston, mentioned sugar and milk quotas. Those happen to be two commodities that have to go through small sugar refineries or dairies, and therefore there is a much easier way of controlling them. Other speakers who are farmers will know much better than I the difficulties of dealing with quotas in the cereal field, and it is something we considered very carefully.

This is a debate that will take place right throughout the Community and the Green Paper, as the noble Lord, Lord Belstead, said, offers a series of suggestions. But inherent in all the suggestions is better use of the price mechanism, which was the majority view both of the witnesses who appeared before us and of the members of the committee. I feel that, however this problem is solved, it will require a great deal of willpower on the part of Ministers who do this, because it is bound to affect a great many farmers throughout the Community. But they will be far more affected if the common agricultural policy collapses because governments are unwilling to continue to vote increasing sums of money to produce commodities for which there is no use.

On Question, Motion agreed to.

House adjourned at thirteen minutes before midnight.