Cereals and Farm Price Policy: ECC Reports

HL Deb 21 April 1986 vol 473 cc1015-62

6.58 p.m.

Lord Gallacher rose to move, That this House takes note of the reports of the European Communities Committee on Reform of EEC Cereals Policy (6th Report, 1985–86, H.L. 83) and 1986–87 Farm Price Policy (10th Report, 1985–86, H.L. 107).

The noble Lord said: My Lords, in introducing the reports from your Lordships' Select Committee on cereals policy and on farm price policy for 1986–87, may I say first of all that hopes were high following the agreement about increased own resources for the European Community reached at Fontainebleau, and, equally, for the gearing of agricultural spending to that increase in resources in the basis that agricultural spending was not to increase at a more rapid rate than the increase in own resources itself. It is in the light of those agreements that your Lordships' Select Committee is reporting to this House tonight, and I think that even a casual reading of both reports will convice your Lordships that there is a fair measure of disappointment within your Lordships' Select Committee at the manner in which the Fontainebleau agreement has been translated so far as agricultural spending is concerned.

In July 1985, the Commission issued a Green Paper following Fontainebleau entitled Perspectives for the Common Agricultural Policy. This paper addressed the issues of surplus production and its budgetary costs. It also discussed trade aspects of the Common Agricultural Policy and the need to integrate agriculture within a viable rural economy. The key elements of the paper were in favour of sustained action on prices to balance supply and demand, various measures to tackle problems such as cereals, the possibility of direct income support for producers most affected by restrictive prices, and alternative production and uses for agricultural products as well as various environmental measures.

In December 1985 the Commission's conclusions on the White Paper were published in the form of a Green Paper. This covered similar ground but suggested new budgetary resources were needed to finance measures before savings were made. That stipulation had an ominous ring about it, and I think it confirms the situation in which we find ourselves in the two documents I am introducing this evening.

Throughout this period the position of the United Kingdom has been absolutely clear. Our Government have stressed the importance of price policy in relation to surplus and the need to observe agreed financial limits. I think the Minister of Agriculture in particular deserves credit for this. Cereals proposals in particular were profoundly disappointing. The suggested co-responsibility levy, with possible restrictions on the availability of intervention, considerably alarmed your Lordships' Select Committee, and so it decided to examine cereals in detail, and the report, H.L. 83, embodies our conclusions, our report and the evidence we received.

The Select Committee is grateful, as always, to those who gave evidence to it. We also hope that the Select Committee's findings in some measure reflect the evidence that was given to it. We do not see it as our primary task, as a Select Committee, to find "solutions" which, in EC jargon, are "politically acceptable". Neither can we undertake studies which belong within the competence and the resources of the Commission itself. It is impossible also for the Select Committee to anticipate in its reports agri-monetary measures, especially the realignment of currencies within the European monetary system which have taken place subsequent to the preparation of our report.

Our conclusions on cereals are that a sustained policy of price reductions over a period of years with the aim of reducing the gap between support prices and world market levels is essential. The proposals for co-responsibility levy and intervention standards will, in our opinion, have no main effect on production unless levies are set so high and quality standards so severe that their combined effect equals a drastic price cut.

A deterrent rate of co-responsibility levy would unduly discriminate against the United Kingdom if exemptions are granted as proposed on the first 25 tonnes of cereals. The Select Committee in these circumstances favours an area-sown basis for the levy, and, in particular, we feel that this would ease the daunting administrative problems which attach to a co-responsibility levy on cereals in the first place.

We believe that tighter policy standards for intervention should not be more severe than market conditions require. Avoidance of positive action to deal with the chronic surplus of cereals may force some form of quantitative restraint. Co-responsibility levies may be a prelude to quotas for cereals. This was so in the case of milk.

The Select Committee sees quotas as the remedy of last resort. The administrative difficulties attaching to quotas for cereals are horrendous. Therefore we suggest an urgent Commission study of the feasibility of quotas for cereals, to take account of some of the proposals made to the Select Committee, a few of which are mentioned in our report. In particular I would draw your Lordships' attention to flexi-quotas and set-aside put to us by the National Farmers' Union, and the eligibility for sales into intervention being restricted to a given small tonnage per producer.

Turning now to 1986–87 Farm Price Policy (HL. 107–1), I think we can generally describe these proposals as a standstill on prices for the ensuing year, plus a three-year stock disposal programme. The Commission shows all the signs of considerable worry about the size, storage costs and deterioration of intervention stocks which, if one consults Table 3 of our report, have increased five times in value during the last four years. Butter and beef especially have limited storage life, and substantial quantities of Community stocks are over two years old. Evidence to the Select Committee suggest that consumers will pay dear for intervention buying. Retailers have told us that higher intervention standards lead to better qualities being sold into intervention where, if held too long, stocks deteriorate, leading to even lower prices when sold on world markets.

Desperation at the level of intervention stocks has led to attempts at quantifying stocks held on the basis of weeks of supply. I find this a false analogy, because selling into intervention is basically its removal from the market and not some kind of strategic reserve. It may in practice be a strategic reserve, but that is not what intervention is about.

The Council of Ministers, at their meeting on 24th and 25th March, have already amended Regulation No. 1883 of 1978 to allow the Commission to depreciate stocks in intervention other than at the end of the intervention financial year, which is 30th November. This also removes the limit on the reduction in value which may be made. This decision was foreshadowed in proposals for 1986–87 but has been taken ahead of agreement about prices themselves. The estimated cost of stock depreciation for beef and butter alone is 423 million ecus.

Turning to prices, one may say that if a prices standstill cannot be agreed when inflation in the Community is falling and when input costs are likely to be further reduced—for example, oil prices—then certainly the Fontainebleau agreement is in danger. Agricultural expenditure will rise more quickly than the budget, instead of declining. Thus the 1.4 per cent. value added tax limit on own resources will not suffice, and that has special implications for the United Kingdom budget rebate. Therefore, if proposals for cereals or similar proposals discriminate unduly against the United Kingdom, we could find ourselves as a nation paying twice; that is, for the proposals themselves and later if the budget rebate mechanism is withdrawn or has to be renegotiated to our disadvantage.

Our conclusions about price control proposals may be summarised as follows. The Select Committee is convinced that agricultural spending is not under control. The gravity of the situation is made worse by possible confrontation in world markets with the United States of America in disposing of surpluses held by both nations. We may be in political accord with the United States of America but this is certainly not so as regards economics, and it could lead to action by the United States and the Community against each other in the world markets. We believe that the Fontainebleau agreement is at risk, and equally we are of the opinion that even holding prices will not deal with commodities in chronic structural surplus; and so we advocate a five-year rolling programme in order to deal with high prices and so that producers may know in advance and can adjust their agricultural policies accordingly as to what the price regime is likely to be over a period of years of that duration.

Although help for small or disadvantaged farmers may be necessary on social and political grounds, we do not believe that this should be achieved by mechanisms which discriminate against efficient production achieved by larger farms. Great Britain's farmers and taxpayers have jointly raised standards, and we would not wish to see these standards reduced as a result of mechanisms devised by the Community specifically aimed to help small farmers.

Equally, the Select Committee considers that economic and social objectives of the Common Agricultural Policy must be tackled separately. We argue in our report that socio-structural proposals are needed to deal with the social implications of a restrictive price policy. In this connection we look forward to specific proposals promised by the Commission concerning social structures. We would not wish to prejudge these proposals but would not necessarily rule out action by member states rather than make this a Community charge.

I think everyone can see that the common agricultural policy is basic to the European Economic Community. This is in no way to depreciate the value of the Coal and Steel Community, the Investment Bank, the Regional and Social Funds and endeavours of that kind; but it is the common agricultural policy which is at the heart of the Treaty of Rome, and not least because it absorbs and will continue to absorb so much of the resources of the Community. The European Community has been faring badly in the world recession. All member states have high unemployment in industry, and the conclusion in part at least must be that the cost of the common agricultural policy, as a factor in overall costs, cannot be sustained.

One criticism that I feel should be made of the Ministry of Agriculture, Fisheries and Food in that regard is that it is sometimes inclined to gloss over the fact that higher prices are a product of the common agricultural policy. It deceives itself because it sees the reduction of prices as achieving only a small reduction in retail prices; but that ignores the fact that the full benefits of the supermarket revolution in this country, which has taken place over the past 15 years, have not been passed on in full to consumers; because of course even the lower gross profit on which large supermarkets operate is not fully reflected in prices because of the high buying-in prices of supermarkets due to the incidence of the common agricultural policy.

Unless reform leads to lower prices and the reduction of chronic surpluses, the cost of the agricultural budget could force the Community into such a wrangle over funding that it might lead to the collapse of the Community itself. Some take the pessimistic view that only a financial crisis of that magnitude and scale will bring about the fundamental changes in the common agricultural policy which are necessary. The danger of that view, in my opinion, is that it could destroy the Community itself. There is thus more to reform than the mere question of the overproduction of certain foodstuffs, important and urgent as that is.

The whole situation is not without hope. Last week, the European Parliament voted for a farm price freeze. That is the first time on record that the agriculture lobby in the Parliament has been defeated in the annual price debate. I do not look upon that as a victory but as perhaps the dawn of the sober cold morning of the common agricultural policy. I beg to move the Motion standing in my name on the Order Paper.

Moved, That this House takes note of the reports of the European Communities Committee on Reform of EEC Cereals Policy (6th Report, 1985–86, H.L. 83) and 1986–87 Farm Price Policy (10th Report, 1985–86, H.L. 107).—(Lord Gallacher.)

7.12 p.m.

Lord Templeman

My Lords, the European Community's production of cereals exceeds the amount that the Community consumes or sells at economic prices by some 20 million tonnes annually. Its production of milk exceeds the amount which the Commission consumes or sells at an economic price by 13 million to 20 million tonnes. The report introduced by the noble lord, Lord Gallacher, deals with cereals. The report which I now bring to the attention of the House deals with milk.

There are five principal methods of reducing the burden of milk production on the Community budget. All five methods have been tried and it would appear that all five methods will need to be pursued in the future. The first method is a reduction in the prices paid to farmers for milk products. The second is the imposition of quotas which make it prohibitively expensive for farmers to produce milk beyond a certain quantity. The third is the encouragement of consumption. The fourth is the encouragement of exports. The fifth method, and that with which we are now dealing, is the payment of compensation to farmers who voluntarily agree to cease production of milk.

The Commission now proposes, in effect, to buy out 3 per cent. or 3 million tonnes of the Community's milk quota. Reducing that to its barest essentials, it is calculated to be, give or take a little, an offer to a farmer of just under £200 per cow for seven years, or 3.8p per litre of milk, provided that the farmer undertakes to cease milk production altogether.

While the Community proposals ostensibly only restrict the right of a farmer to produce milk, the effect of the proposals is to take his farm out of milk production and to keep it out of milk production for the foreseeable future, until the day dawns when quotas are abolished and the Community goes to sleep producing exactly enough milk to meet consumption.

Under the present quota system, the United Kingdom has a quota of some 13 million tonnes. That quota and the penalties for producing more than that quota are divided among the regions administered by the Milk Marketing Board. In each region the quota is again sub-divided among farmers producing milk on farms in that region. For example, a farmer who keeps a herd of 40 cows on Whitechapel Farm may have a quota of 200,000 litres, which is about 5,000 litres a cow and is I believe the average production. If he increases his herd his quota will remain the same. If by getting his cows out at three o'clock in the morning he increases his yield, or by feeding them on expensive foodstuffs he increases the quality, his quota will remain the same.

If that farmer accepts the Commission's present proposals, he must undertake to give up milk production altogether and in return he will receive about £8,000 a year for seven years. If he owns the farm, and so long as he continues to live on the farm, either growing wheat or some other production which has not yet been bought out, or while gazing with delight at his empty fields as he rattles his £8,000 a year in his pocket, there is no harm to anyone else. When he leaves the farm, whether as owner or anyone else, no one can start the production of milk on that farm again, because there will be no quota. A farmer who has an existing quota and takes over Whitechapel Farm can only, in effect, transfer his quota to Whitechapel Farm by giving up some part of the quota on the farm for which he originally had the quota.

It is that unavoidable link between farm and farmer which produces problems for the United Kingdom, having regard to its methods of land tenure. I should perhaps say England and Wales, because I believe that they order matters better in Scotland. In England, some 40 per cent. of farms are tenanted. At the moment, the quota of Whitechapel Farm is 200,000 litres per annum and it is at present held by the tenant. So far as one can see, under the Commission's proposals the Commission envisages that when the tenant gives up milk production on the farm he would receive £8,000 a year for seven years. No doubt he would then stay for seven years thumbing his nose at the landlord and jingling his £8,000 a year in his pocket. At the end of seven years, if he went, the farm would lie vacant and the landlord would not be able to let it for milk production because he would have no quota.

That of course has produced a great controversy about quotas and compensating. It is a matter of dispute between landlords and tenants. It is against that background that I introduce the recommendations of the Select Committee with regard to the Commission's proposals. Your Lordships will find the committee's opinions set out in paragraphs 58 to 72 of the report. Paragraph 58 is a general welcome for the Commission's proposals on the grounds that something needs to be done and that is a good way of doing it.

Paragraph 59 introduces a more controversial note. The committee acknowledges that the voluntary scheme is better than a compulsory reduction in quotas. The Commission has dangled the bait to the farmer of Whitechapel Farm, for example, and said, "We shall give you £8,000 a year if you stop producing milk." It thinks that sufficient farmers will accept that bait to reduce the quota by 3 per cent. over the United Kingdom.

The Commission could have said, "We think that our quota for everybody was much too high. You are all producing too much and therefore we will compulsorily cut everybody's quota by 3 per cent., and you will have to put up with a reduced income." In paragraph 59, the committee says that the painless method of paying compensation for voluntarily giving up milk production is better than a 3 per cent. quota cut across the board for everybody without any compensation.

That is controversial, and I know that my noble friend Lord John-Mackie will urge your Lordships that the better course would be for everybody to suffer the 3 per cent. cut in silence rather than have some farmers tempted by £8,000 a year for their total production. All I would say to that is that, since the report was published, there has been a meeting of the Agricultural Council and not only would no member state look at another compulsory cut—because it has its farmers to consider, with the next election coming up in various countries at different times—but, even with this rather mild scheme of the Commission paying substantial sums of money for the reduction in quota, it was found that there were five member states that pleaded exemption.

They are not prepared even to take the Commission's money to reduce their milk quota. They are going to insist on producing a milk lake which will mingle with the wine lake and eventually run down to the sea. The five are Italy, Greece, Luxembourg, Ireland, Spain and Portugal. This is still at a negotiating stage and positions are being taken up from which retreats can be made, but I opine that ultimately we shall have some scheme of the sort that the Commission is proposing. But it will be difficult, if not impossible, to make member states substitute a scheme in which they have a compulsory cut of 3 per cent. and no farmer gets any money at all. However, I shall leave the noble Lord to make his own case on compulsory reduction.

In paragraph 60, the committee points out that the present scheme does not solve, although it contributes a solution to, the problem of surplus milk. It will cut 3 million tonnes, and the total surplus, including uneconomic exports, is something like 21 million tonnes. There is a long way to go and we express the hope that if this scheme is successful there will be another and wider scheme later on.

In paragraph 61, we draw the attention of the House to the fact that the Commission's proposal may have a lopsided effect on different countries according to how it is taken up. In England, for example, the compensation of £200 a year per cow is rather generous, because the United Kingdom Government managed to persuade a good many farmers a year or two ago to surrender part of their quota to the Government on much less favourable terms than those.

On the other hand, in Germany there was a government scheme that was far more generous to farmers and it may be that more of those farmers in Germany will not wish to take up the Commission's scheme. We could have a 3 per cent. reduction in the United Kingdom and little or no reduction in Germany. We think that that is undesirable and that, generally speaking, each nation should stick to production of its quota of milk in the same proportions.

We suggest that where in any member state the option is not taken up, where there are not enough farmers coming along eager to take their £8,000 a year, the Commission should insist that there are compulsory reductions in those countries where they have not taken up their full reduction. Again, so far as I can understand it, since the report of the Select Committee was published, the Commission has looked at this and is inclined to agree that there should be the same reduction in each member state pro rata.

Paragraph 62 mentions the peculiar problems of Scotland and Northern Ireland, which are fully documented in the evidence that is annexed to the report. In general, the complaint of Northern Ireland is that, for reasons I shall not go into, it was not fairly dealt with in the distribution of the original quota. No doubt there are noble Lords who will bring the attention of the House to those points.

Paragraph 63 raises another difficulty and it is the problem of the selection of farmers if the scheme is oversubscribed. The scheme goes only as far as 3 per cent. over the whole country, and if we have farmers queueing up for their £8,000 a year—which, if they were all accepted, would mean, say, a 6 per cent. cut—the Commission's scheme applies to only half of those, and therefore half the farmers who applied in those circumstances would be disappointed. They would just have to go away and keep their cows. It would be only the selected farmers who would be allowed to get rid of their cows and look out on their empty acres.

That is a problem to which the committee referred but which, of necessity, it could not solve. Even the agricultural members of Sub-Committee D were unable to assist the legal members of Sub-Committee E to solve that problem. All we suggest is that when the Government come to lay down criteria for selecting the sheep from the goats, to mix the milk metaphor, or for selecting the farmers who will be allowed to take compensation from those who are not, they should have regard to the efficiency of the industry and of dependent industries.

For example, it would be unwise to allow all the farmers in a region to surrender their milk if the result would be to stultify a very efficient dairy which was in the same area. The method of selection and how it is to be done is a matter which the Government and the industry will have to consider carefully.

Paragraph 64 refers to the fact that the present proposals of the Commission allow the government of a member state to pay compensation instead of the Community paying compensation. Up to one half of the scheme a member state government can pay. The advantage of that is flexibility, because what the government buy the government can give out. The Government could, for example, accept the surrender by one farmer in Wiltshire of his milk quota and use that to give the same amount of milk quota to a new entrant to the industry who did not have a quota and wanted to start milk farming. It gives a great flexibility which the Commission's scheme lacks.

On the other hand, to the extent that a government of a member state purchase a quota, there is no fall in milk production. The government will merely buy it in order to assign it out again. It is only when the Commission purchases a milk quota that the milk production in the Community will be reduced.

Paragraphs 65 and 66 refer to the vexed question of quota transfer. On the one hand, farmers are eager for quotas to be transferable so that they may set up a market rather like the Stock Exchange, in which the price of transfers of milk quota could go up and down in accordance with the national temperament. On the other hand, there are obviously disadvantages to the nation in having complete transferability of quota, because without any supervision from government or from industry itself you may get some areas producing far too much milk and other areas being denuded. We believe that transferability requires further study.

Paragraphs 67 and 68 refer to the problem of landlord and tenant which I have already mentioned. There are 37,000 milk producers in England and Wales and 40 per cent. of them are tenanted. The Select Committee is firmly of the opinion that the decision as to whether a tenant is to be allowed to surrender his quota, and, if so, how the compensation is to be divided between landlord and tenant, must be left to the governments of each member state because each member state has a different system of land tenure. We have a complicated one under which there is already compensation for improvements. We have a great code of conduct as between landlord and tenant and we think it should be left to the Government, having consulted the industry, to see how in England and Wales the compensation money should be divided.

We recommend that the landlord should have a right to object to a tenant surrendering a quota if, in the words of the recommendation, the result would be unjust to him or would defeat the purpose for which he owned the land". For example, if you had a farm and it was clear that nothing could be done with it except to use it for dairy farming, it would be quite wrong to allow the tenant to surrender the quota and thus to stultify the farm which would have no other method of useful production.

As to the apportionment of compensation, we have the two extremes: the tenant who says that he is responsible for the quota because he produced the cows, and the landlord who says that he is responsible for part of the quota because he produced the land. There is at the moment a Bill in the other place in which compensation is mooted for a tenant who leaves a farm on which there is a milk quota.

I understand that the Government's proposals envisage a kind of arbitration under which the tenant would not get less than 33 per cent. or more than 66 per cent. and the difference would be decided by a valuer and arbitrator. The proposals are so complicated that I may not have fully understood them, but this illustrates the problem and probably the solution. Some guidelines must be set down by the Government after consultation with the industry with the final pounds, shillings and pence being left to be decided by an arbitrator. It was neither the function nor within the competence of the committee on the evidence we had to make a decision. This will be a difficult decision and one which can be made by the Government only after more prolonged consultation with the industry.

Paragraph 71 refers to the Frankenstein on the horizon—to the possibility that this scheme in which the farmer is bought out of milk will be followed by that farmer going into cereals; followed by quota limitations for cereals; followed by the farmer being bought out with another £8,000 a year for ceasing to produce cereals; followed by the farmer going into sugar beet; followed by a quota for sugar beet, with another £8,000 a year for agreeing not to produce sugar beet, until eventually a farmer will be able to retire on the proceeds of agreeing not to do anything with his land.

There are other problems referred to in the report with which I have not time to deal. I just mention some developments since the report. As I said, there has been a meeting of the Agricultural Council in which five member states have sought exemption. The other development is that for the first time this year in the United Kingdom as a whole we exceeded the quota that was granted to us. We have exceeded the quota by 0.2 per cent. The result, I understand, is that the average farmer will have to pay a penalty of £125 for the quota having been exceeded. I am told in the mysterious way that these things happen that it is a very good thing that we have exceeded the quota for the first time because if we had undershot it somebody might have thought it politic to reduce the quota we had in the first place. Therefore it is desirable from time to time to show that, if you really try, you can exceed the quota, and as a nation we have succeeded in doing that this year.

7.33 p.m.

Viscount Brookeborough

My Lords, I should like to start by thanking what are called the proper channels for the privilege of allowing me to speak after the two noble Lords who have introduced this debate. It is the more strange that they have done so in that they know I shall not be painting the broad picture which the two noble Lords have painted so exquisitely. I shall be confining myself to the narrower problems of Northern Ireland.

I must also ask the House for its indulgence if I do not stay for the whole of the debate. Rashly I was of the opinion that there was to be little business in front of this debate and so I arranged an important meeting at eight o'clock. My guilt is made the greater because the meeting will include food and I shall feel that the food may poison me on the way down when I think of people being here. But I ask noble Lords to believe me when I say that it is important at this stage that I go to that meeting; and I apologise.

I congratulate both noble Lords on their introduction of the report. They were surely two of the best speeches that we have ever heard on the introduction of these detailed reports. I also congratulate the clerks and the specialist advisers on the way that they produce the reports. The specialist advisers and the clerk in Sub-Committee D always have a terrible time when it comes to the price proposals. They are under a time pressure to get the report out in order, we believe, to help our Minister of Agriculture in the negotiations. Perhaps I may also pay tribute—it is almost self-explanatory—to the noble Baroness, Lady Llewelyn-Davies of Hastoe, on her choice of chairmen. They have demonstrated how accurate has been her choice. I hope that the noble Lord, Lord Gallacher, has as much fun sitting on Sub-Committee D as I had sitting under him as chairman. Both noble Lords said that our reports are clear. In them we state, if we do not use these exact words, that the present price proposals will not stop overspending and the growth of surpluses. That is of great disappointment to us.

I know from looking down the list of distinguished speakers that other noble Lords will cover the broader canvas but I should like to deal with Northern Ireland. The Northern Ireland plight must be seen against a general decline of incomes in the United Kingdom of 43 per cent. In Northern Ireland the drop in net incomes is nearer 60 per cent. The report on the outgoers scheme emphasises the importance of dairying to Northern Ireland farmers. The scheme proposed by the Commission will have or could have a material benefit to the farmers of Northern Ireland. The noble and learned Lord, Lord Templeman, did not burden the House with the problems of the original quota allocation and I shall certainly not do that. They are well set out in paragraph 37.

In Northern Ireland there is no alternative to dairying on practically all farms. This was demonstrated adequately in the original outgoers scheme where the amount of quota that was willingly given up on the voluntary scheme was well below what was necessary to deal with cases of hardship and expansion and with small producers. Whereas in the United Kingdom the cases that applied for extra quota were fully satisfied, in Northern Ireland only 49 per cent. was available for re-allocation.

The Government recognised the problem by setting up a committee under my right honourable friend Sir Geoffrey Howe. By various devices which are set out on page 55 he tried to produce an extra 50 million litres for re-allocation. The object was merely to equalise the misery between dairy farmers within the United Kingdom. At the end of the day we are still 28 million litres short of the target to produce equality.

I should like an assurance from my noble friend Lord Belstead that the proposed scheme, or whatever else emerges, will retain the right for member states to buy and to re-allocate. That being so, the Government should re-allocate at once the first 28 million litres that are bought in in Great Britain. They should not wait until the scheme has been totally fulfilled. This is not an unusual request. It is in line with the commitment of the Howe Committee.

Let me now deal with beef. Beef is the second most important commodity in Northern Ireland. It gives me great pleasure to see that the Government intend to fight hard for the variable premium. We are all convinced of its importance and economic value. But over and beyond that, we must make sure that, come what may, the Government always retain sufficient intervention and ensure that it is available in case the equilibrium which the Commission believes will be established between supply and demand in 1987 does not occur and there is the start of a catastrophic fall in the price of beef which we have seen before. The calculation for intervention must be on a regional and not on a Community basis. That is of vital importance for the United Kingdom and of even more importance for Northern Ireland.

In supporting the reports I do not want to minimise the very serious consequences that the proposals will have on British agriculture and the rural areas.

7.40 p.m.

Earl Ferrers

My Lords, the House will be grateful for the three reports that are the subject of this evening's debate. I congratulate the committees on their endeavouring to wrangle over the problem, as I congratulate the two noble Lords who introduced in such a clear and simple way a very complicated subject. The noble Lord, Lord Gallacher, reminded the House that the common agricultural policy is at the heart of the European Community and that, if the policy were to be broken, the Community might be broken too. I believe that the noble Lord was absolutely right to reaffirm that point and to remind the House of it.

I start on a depressing note, because I have no hesitation in saying that I believe that the future of agriculture is black indeed. I therefore welcome the opportunity of debating the subject. There are so many massive pressures being applied to agriculture from all kinds of different sources that it is difficult to find the encouraging signs. I should declare an interest as I am a farmer. I feel sorry for my right honourable friend the Minister of Agriculture and for my noble friend Lord Belstead because they have the hideous task of trying to resolve the unresolvable.

The simple facts are that the Community's surpluses are growing, despite efforts to stop them doing so. that the cost is unacceptable and unaffordable, and that the corporate political will of European Ministers is not unified or strong enough, partly because they cannot individually, and certainly not collectively, see the way out; frankly, nor can we.

We all know that if matters go on as they are, there will be annual surpluses produced and increased surpluses stored. By 1991 there could be an intervention of some 80 million tonnes of cereals. Obviously that situation cannot continue; we are all agreed on that. But no one is agreed on how to solve that problem, except the sub-committees whose reports we are discussing this evening.

If I may say so without causing offence, I believe—and I say this with a fear of being verbally sat upon by every noble Lord who is a member of either committee and by many more noble Lords as well—that the conclusion that the way to resolve the problem is to cut prices is astonishingly naïve. It is a naïve conclusion because in making such a recommendation the committees have failed, if I may respectfully say so, to determine the results of the policy that they advocate.

In cereals, despite price cuts over the past three years, production has increased. That was not the intention of the price cuts, but that has been their effect. Those increases were a natural reaction, to overcome the financial impact of lower prices. That happens for a time and then, like a piece of elastic, it snaps and the trouble starts. Over the past two years wheat prices have dropped by some £20 per tonne. On a three-tonne-per-acre crop that is a reduction of some £60 per acre. Last year's appalling harvest saw yields down by half a tonne per acre on average throughout the country, which is a drop of another £50. Therefore, the drop in returns for wheat over the past two years has been more than £100 per acre. That applies in general to wherever wheat is grown throughout the country.

A farmer who grows 100 acres of wheat has seen his returns drop by £10,000. A farmer who growns 1,000 acres of wheat has seen his returns drop by £100,000 over two years. No industry can stick that kind of reduction without the effects being very serious. But now Sub-Committee D says, "Let it be cut further". I do not believe that the industry can afford to do so without very severe consequences.

That kind of cut is fine if one is considering only the effects on surpluses and the costs of the common agricultural policy. But such a policy, if carried out on its own, would have a massively harmful effect on agriculture and on rural communities, as well as on the industries that supply the inputs to agriculture. We shall see farmers go bankrupt, we shall see land values reduced, we shall see the collateral of land being inadequate where it was previously adequate and therefore more farmers will go out of business.

If the policy proposed is pursued, one of the dangers of reducing cereal prices will be that farmers will find that they will have an inadequate return from the market, and so they will look for another way of getting a return from that cheap food. They will turn to processing it through beef, through pigs, and through chickens. That will then flood the market with those commodities, which already have a sufficiently difficult time. The farmers will then make those growers lose money. The problem therefore compounds itself.

In the case of milk the sub-committee advocated, as the noble and learned Lord, Lord Templeman, explained a few minutes ago, paying dairy farmers to go out of dairying. That is fine for reducing surpluses, but what will the farmer do with the land so released? The noble and learned Lord referred to the conundrum at the end of his speech. What will happen to that land? Will it be used for growing wheat? Wheat is in surplus. Is it to be used for growing beef? Beef is in surplus. Or are the farmers merely to allow that land to become redundant? Nobody had answered the question of what happens to the land that is released as a result of dairy farmers giving up dairying.

The long-term effect of the committee's proposals taken on their own would in my mind be to bankrupt British agriculture and leave a derelict countryside. I am astonished that the committees have not addressed their minds to that thought. I may be that some would say. "Dereliction has taken place in the North of England, in the cities of Sheffield and Liverpool, and in places such as those, and now it is agriculture's turn". That is a perfectly reasonable comment to make, but we should take a less cavalier attitude to the matter of food production.

I am not saying that what the sub-committees advocate is necessarily wrong. I am saying that the effect of what they advocate would be devastating. I believe that that is beginning to be seen already. Farmers will go bankrupt, and there are signs that they are already doing so. One person told me the other day that in his view the 600,000 people engaged in agriculture would be reduced to 300,000 within two years. Agriculture is in for a rough time, and the knock-on effect for the supply industries will also be considerable.

When farmers batten down the hatches the first to be affected are the machinery suppliers and the manufacturers, who then have to look even more to exports to solve their companies' sales and cash flow problems. In the British Agricultural Export Council, of which I have the privilege of being chairman, companies are finding the going very harsh. From large tractor manufacturers to implement makers and to others who manufacture the inputs into agriculture they are struggling to keep afloat. Exporting, despite the opportunities, of which there are many, is expensive and it is long term. It has to be built on the back of a sound home market. If the home market goes, one imperils exports and the manufacturing industry and so creates further unemployment.

I remember that when I was privileged to be a Minister in the Government I took some businessmen to various countries to try to encourage new business. In one country we visited the Prime Minister said that what he wanted there were corn stores. One businessman said, "We make such corn stores". The Prime Minister said that he also wanted coffee grinding machines. The businessman said, "We also make coffee grinding machines". The Prime Minister said, "You must come and see me. When are you leaving?" The businessman said, "I am leaving tomorrow but I shall postpone my flight". He did so and saw the Prime Minister, and he told me afterwards, "If we get this business it will be worth £12 million". Think what that would mean to manufacturing and employment. In fact, the business was not forthcoming. The company did not get it. The sad part is that the company subsequently went "bust". Many of these companies depend on exports for their survival.

The problem of the common agricultural policy goes no further than this. We tend to look at the problem of the common agricultural policy from the point of view of surpluses, its funding and its effect on member states. I believe that we should look at the effect of the common agricultural policy on the world and especially the United States; and the effect of the United States on the common agricultural policy. In the United States, the farm Bill was passed last November. It may have severe effects upon the European Community. The Bill will not properly come into force until the autumn of this year. I do not profess to be an expert on this subject, but I put forward these views to your Lordships for what they are worth. I think they contain considerable cause for concern.

American farmers are already in great difficulties. They owe the banks 224,000 million dollars, and that is a substantial amount. In fact, it is more than the total owed to American banks by all the third world debtors put together. Some 25 per cent. of American farmers have gone out of business this year and banks are going bankrupt with astonishing rapidity—one a day. Therefore, American agriculture is having a pretty difficult time. Add to that the fact that America holds 40 per cent. of all the world's surplus stocks of grain and one sees why the United States intends to take some action.

America considers that the European Community, by its policy of subsidising exports on the world market, is taking markets which have been traditionally American and is upsetting stability in them, with the result that American agricultural exports have dropped from some 44 billion dollars in 1981 to 30 billion dollars in 1985, and are likely to drop to 27 billion dollars in 1986. Yet United States stocks of surpluses continue to increase.

As I understand it, America is determined to break the system by which the European Community disposes of its surpluses onto the world market to the disadvantage of the United States. It intends to ensure that world prices will be the prices which American farmers will receive and that America will subsidise her own exports, thereby in effect lowering the world price of wheat. If that comes about, it will have two effects. First, it will bankrupt more American farmers. Secondly, it will so lower world prices that the subsidies which the European Community will have to pay on the disposal of its surpluses will be massively increased. This will—and this is the intention—"bust" the CAP. America thinks it has the power to do this, and although America will be hurt in the short term it feels that it will gain in the long term.

In my view, the effect of that is quite frightening. Not only would the common agricultural policy be broken but, as the noble Lord, Lord Gallacher, reminded us, so too would the Community. Member states, intead of being in harmony with each other, may turn against each other in mutual recrimination. Such a scenario would have an immensely destabilising effect, not only in Europe but also on the relationship between Europe and America. It could even affect NATO itself. The international reverberations that resulted from the actions of last week have been bad enough. Solidity has quivered. But a conflict of this nature and on this scale between America and Europe could, in the long term, damage both the ties of friendship which are so vital and, in the end, Western defence.

There are plenty of people in America who are prepared to say, on whatever issue, "If Europe does not value America, let Europe go it alone". That would be a disastrous result, whatever caused it, and I hope that this problem of agricultural surpluses will not be a participant in such a problem. Your Lordships may say that this is alarmist. Perhaps it will never come about, and I hope that it will not. But that it could is certainly a possibility.

Your Lordships may ask what are my conclusions. I would be arrogant if I put forward any conclusion on a subject that has defeated almost everyone. I merely ask my noble friend whether he will be kind enough to think of three possibilities, all of which most certainly will have been previously considered. First, I think that the Community should consider more seriously paying farmers to take land out of cultivation, to set aside land—call it what you will. This seems a policy of despair but it is cheaper than paying to store and then to subsidise the sale of produce which is not wanted. Remove the land and you remove the produce. Of course, it would have to be fairly applied throught the Community. I do not disguise for one moment that there would be endless problems, not least the bureaucratic system to police it.

The second suggestion is to put a heavy tax on nitrogen throughout the Community, not just £3 or £4 a tonne but much higher—in the region of £30 to £40 per tonne. I do not know what figure would be correct and that is something that will have to be worked out. If that happened, gone would be the crops of wheat of three and four tonnes per acre. Gone would be the heavy yield in grass crops and more acres would be required to provide the same output. People may say that it will not work. However, we tax petrol and that works, and I do not see why it is not possible to tax nitrogen.

Thirdly, I urge my right honourable friend to talk to the Americans, if he has not done so already, to ascertain their views and try to get them to work with us and the Community to solve what is a problem of the Western world and seek to avoid America and Europe coming into international trading conflict, the long-term dangers of which could be catastrophic. I do not envy my noble friend Lord Belstead and his right honourable friend the Minister, who are blamed whatever they do, not least by the farming community. I fear a depressed and derelict agriculture not only from the point of view of the industry itself but the social and industrial effects it will have on others. In our endeavours to curtail expense and excess we must be wise enough to look at the broader and more far-reaching effects of any solution, and they may be infinitely greater than at present we contemplate.

For all the reasons I have given, I find the future of British agriculture immensely disturbing. I never thought that I should make such a speech. Your Lordships may disagree with what I have said, and that would not surprise me at all; but I felt so strongly about the matter that I felt obliged to cancel a long-standing engagement for dinner at the Mansion House this evening in order to take part in this debate. Your Lordships may say, "Your time would have been better spent and ours even better spent had you continued with your original engagement". But the future is bleak and there is only one consoling fact that I can see; that is, when you are quite certain that one course of events is bound to follow, that is the very course of events that never does follow.

8 p.m.

Lord Walston

My Lords, I share the gratitude of other noble Lords who have spoken, both for the work of the two sub-committees and also for the very clear way in which their reports have been presented by their respective chairmen. One would expect nothing less, and I must say to the noble Earl, Lord Ferrers, that I for one am delighted that he is not at the Mansion House. If I may say so, he has made the best speech I have ever heard from him, certainly far better than when he was on the Front Bench representing the Ministry of Agriculture. Alas, I cannot bring myself to disagree with his gloom and his pessimism! I believe that he has put the dangers extremely well.

I will start with two relatively minor points before going on to the wider issues which have been so ably raised by the noble Earl. As far as milk is concerned, and the compensation to those farmers who agree to give up, I am sure that the general proposals put forward by the noble Lord, Lord Templeman, which he says are being suggested by the Minister of Agriculture, are right in essence. We have a different situation in this country from that which obtains in most of the countries of our European partners. We still have the landlord/tenant system, and we have complex legislation to protect both landlord and tenant.

Undoubtedly, in giving up production in a tenanted farm the landlord stands to lose a very large part of his assets, and there must be some means by which he can be compensated. We are well versed in how these matters can be dealt with by arbitration and the correct proportions arrived at, but I would put forward a warning note here. It is true that on the last occasion when there was such a scheme there was a fairly satisfactory response to it. I do not think that there will be such a good response to it in this country in the next few years, for the reasons given by the noble Earl, Lord Ferrers. In those days—and I was one of those who took advantage of it—there were many other profitable opportunities a farmer with a reasonable amount of land could follow. Of course, if he was a specialist dairy farmer there was nothing else he could do, but if he was on a mixed farm he could very easily increase his profitable wheat acreage and not have the hassle of seven-days-a-week milking and all the rest of it. Today, there are very few farmers in milk production who would consider they could make a good living by moving on to something else, so I would not be too optimistic about the outcome of this scheme. It is certainly worth trying, but not at the expense of giving up all thought of other options or other possibilities.

I should also like to make a relatively minor point—one which I am very glad to see is mentioned in the Farm Price Policy report in paragraph 73—about the small farmer, the family farmer. On the Continent in particular there is a very strong emotional feeling that the family farm must be preserved no matter what happens to the larger commercial farms. I can declare a, I am sorry to say, now somewhat remote interest in what is normally called a large farm. Not only in my own farming area but also in East Anglia and many other areas too, the large farms are the main employers of labour. If they are hit hard they will not employ the labour and there will be increasing unemployment.

The noble Earl gave some figures and mentioned a reduction in the agricultural workforce from 600,000 to 300,000 in the next two or three years. I think that is an overestimate, but I am quite sure that as farming is squeezed the commercial labour-employing farms will dispose of labour. The result will not only be more unemployed, especially in areas where it is very hard to get alternative work, but also that opportunities to come into agriculture for young people who never could start on their own because they are short of capital and do not happen to have a father who has a farm of his own will be lacking. We must remember that a large farm employing labour has a very valuable social role to play in many areas of England, as it has also in many areas of Northern Europe, such as Northern Germany and France.

Let us now come to the problem which exercises all of us, the problem of surpluses. I know that accepted wisdom says we must deal with this by a price policy. There are several paragraphs in the report which I will not quote to your Lordships but which support that, although there are some which are slightly contradictory. We must remember that the Commission has been attempting to pursue, in so far as the Council of Ministers allows it, what it calls a prudent price policy for very many years. As we have been told, and as we know from all the statistics produced, production continues to rise. It may be that in theory a price policy could bring down production, but as political realists we know perfectly well that that sort of reduction in price cannot be achieved. Therefore, we cannot with any honesty rely on the price policy in order to solve our problems.

Then we come to quotas. Quotas have been roundly condemned by almost everybody, and almost roundly condemned in these reports. I am not a supporter of quotas as they are commonly understood. The milk quota was only brought in because the price policy had manifestly failed, and it was brought in with insufficient thought. In many ways it was very difficult to bring it in, though in some respects it was easier because of the Milk Marketing Board, farmers' cooperatives and dairy co-operatives, but it resulted in a continuing rise in the milk surplus. It is not rising as fast as in the past, but it is still rising, so the quota has not succeeded, and it has caused quite a lot of hardship and a great deal of discontent, and has led to a considerable amount of bureaucracy. So quotas as exemplified by milk quotas are, to my mind, something which we should not consider seriously for solving our problems.

My Lords, I suggest to you that what we must have is new thinking on this. We must really clear our minds of the past and decide what it is we want for the future in our agriculture policy. Unless we get new thinking and new action, we shall be faced with growing crises and a complete collapse of the financial backing for the common agricultural policy. All we shall be presented with is some hastily introduced, ill-thought-out, cobbled-together system which will not be able to work. What is it that we want for our agricultural policy? We still want, as we did originally, to ensure that the Community's food supply is still produced and we want to ensure a decent standard of living for those who produce that food.

Possibly later speakers will go into this matter in more detail, but I would remind your Lordships that the farming situation in this country, as well as in others, is declining after years of great prosperity. I make no bones about saying that. Yet I am told that the figures in the Government's White Paper show that United Kingdom farming income in 1985 was 43 per cent. lower than in 1984, and that in real terms it was 22 per cent. below the previous post-war low of 1980. So the decline is already in progress.

We want to see that those who produce the food that the Community wants are properly recompensed; we want to see prosperous rural communities; and at the moment, above all, we want to see that there is a limit to the cost of the common agricultural policy. This does not for a moment mean that farmers should have the right to produce as much as they want of whatever they want and receive high prices for it; nor does it mean that farmers should be prevented by bureaucratic means from producing as much as they want. The only proviso is that if they produce more than is wanted they produce it at their own risk.

We must do what we can—and I was very glad that the noble Earl, Lord Ferrers, mentioned this point—to make sure that international trade is not disrupted, with the consequent threat to GATT and the possibility of reprisals from our own partners and from the United States in particular. When I say "partners" I mean partners in the third world and also partners in the Commonwealth. I make no apology for repeating what the noble Earl has said, that we must realise the very real threat that exists to good relations with that economically and militarily powerful and friendly country the United States, and the threat to our good relations with Australia, the Commonwealth, the third world and so on.

The dumping of subsidised surpluses by the EC in ever-increasing quantities is a threat to the Atlantic Alliance and, unless this threat is removed now, it will sour relations between us long after the tensions which have been caused by the Libyan crisis have receded into the background.

We must also realise that there are many differences between the member states of the Community, particularly as regards social and economic standards. There are far more differences now than there were when the original Community was set up. For instance, maintenance of the standard of living of a Portuguese farmer at present would mean a standard of living which would be intolerable to his German counterpart. To raise the standard of living of a Greek farmer to that of a Danish farmer would be profoundly disturbing to the whole economic and social structure of Greece itself. We must understand that there are these differences, and not stick to the concept that everything that comes out of Brussels in the common agricultural policy must be absolutely uniform for all countries. These are the factors which must be foremost in our minds when we are discussing the revision of the common agricultural policy and how we should implement its provisions.

On many occasions, in one form or another, I have put forward to your Lordships what I believe to be a conceivable answer. I do so again, as briefly as I can. First of all, the Community must produce a long-term assessment of its food needs. For those particular needs—and let us take as one example cereals—the Community must offer farmers a good price and a fair price, whatever that may mean, for that amount. But I repeat that farmers must be left free to grow as much as they wish in excess of that amount and take their own risk in selling it at world prices. In this way the farmers will get a fair price and there will be no long haggles with the French and German Ministers of Agriculture, and so on. The farmers will get a fair price for produce that the Community wants, and there will be no dumping of subsidised surpluses on the world market.

So far, so good: but how is this to be implemented? Let me give your Lordships a brief recapitulation of what I have said on previous occasions. First of all, I suggest that all intervention buying should be abolished. As we are talking about cereals, let us say that all cereals will be sold on the open market at whatever prices prevail in that market. Secondly, I suggest that each member state is given a quantum (and I emphasise that word; not a quota, which has other connotations)—in other words, the quantity qualifying for the high guaranteed Community price—and that this quantum is based on past production over the previous five years so that there is no haggling between Ministers of Agriculture about what the national quanta should be. These will be worked out by the statisticians who sit in the back room, and the figures will be incontrovertible.

Thirdly, the difference between the estimated free-market price and the guaranteed price (known as the make-up payment)—I repeat, only for Community needs—should be provided from Community funds and divided between member states on the basis of the quantum to which each is entitled. Fourthly, each member government should be free to distribute this amount to growers in any way which that government wishes. It can be divided equally among all of them on an acreage basis; it can be divided on the basis of the tonnage that is sold; it can be weighted in favour of the small or the disadvantaged farms. It can be tailored to suit the social needs of each individual country; and it can be tailored to suit the ability of each country's own ministries and civil servants to administer it.

Fifthly, each government should be free to supplement these payments, not for increased production but for social or environmental reasons, thus allowing for the different conditions that I have already mentioned between the different member states.

I do not for a moment say that this is the only or even the best way of solving the problem. All I say is that it is a way, and a practical one, that achieves the desired results. There may be very many other ways which the clever people in our Ministry of Agriculture and in the Commission could think up if they stained with new, constructive thinking, and I hope that they will do so. My main criticism—I hope this will not be taken as discourteous, and I mean it seriously—is that all the reports are extremely good on analysis and there are especially good criticisms of the Commission and, to a lesser extent, of our own Ministry of Agriculture, but there is no serious attempt made to solve these problems. The price mechanism is relied on and co-responsibility levies are discussed, but in spite of the overwhelming evidence of their inefficacy, no alternative is put foward.

I urge that our own ministry and, above all, the Commission, perhaps led by our ministry—it would be a happy change if we could take the lead in these matters—should start, at this eleventh hour, to think urgently on fresh lines. There should be discussions, not in isolation within the Community, but with the United States and with other countries, especially of the third world, to attempt to solve this problem in a manner that still protects farmers and rural communities, that curtails rising Community expenditure, that removes national tensions and the threat to international trade that now exists, and that at the same time benefits all consumers by reducing prices to them. This is, I hope, an approach that all who have influence will urge upon our Government and the Commission.

8.20 p.m.

Baroness Elliot of Harwood

My Lords, I should like at the outset to thank the noble Lord, Lord Gallacher, for his speech and also for the manner in which he conducts the committee of which I am a member. We have before us today extremely interesting reports. I found it fascinating simply to listen—I was content to listen because I am no expert—to the proceedings in the committee of the noble and learned Lord, Lord Templeman. The noble Lord, Lord Walston, made an absolutely brilliant speech putting forward so many new ideas that, in my view, we should read his remarks, consider them and discuss them further in our committees. I should prefer to adopt that course rather than to make any comment at this time.

This is a difficult stage for agriculture. All of us engaged in the industry must consider the situation carefully. Having served for a long time on the committee and having spent a long time in agriculture, I am always struck by one factor when people, particularly on committees, are discussing agriculture. They do not realise that any decision that farmers have to take is a decision that cannot be taken within a short period. The Commission is continually saying that it will put out suggestions or new ideas for regulations. In putting them out, it thinks that we shall be able to undertake them swiftly. But that is not possible. Agriculture is not an industry that can be opened and closed like a factory or an industrial activity. A change of policy in agriculture takes at least two or three years, not two or three months. One of our recommendations is a rolling five-year programme of cuts announced in advance so that farmers can plan ahead. This is a policy that we should try to persuade the Commission to adopt.

One matter which has not been mentioned and which has a great effect on policy is the incredible influence of something over which we have no control. I refer to the weather. We do not yet know whether the appalling weather of last summer and last winter—it is, in fact, still going on—will reduce production willy-nilly so that no further cuts are required. This remains to be seen. However, according to the evidence that the committee heard, the surplus in cereals, wine and dairy produce was considered the most difficult and the most damaging. On the other hand, I was told the other day, whether rightly or wrongly, that our dairy produce today is slightly below—although the noble and learned Lord, Lord Templeman, I believe, said that it was slightly above—the quota that we are allowed and that present milk surpluses are being dealt with.

Milk quotas are not easy. I have no experience of dairy produce, but I have friends within the dairy industry. From my discussions with them, the fairest way, I believe, of assessing quota values between landlord and tenant would be to have guidelines laid down but each farm considered separately. If, for instance, a landlord has spent thousands on buildings and equipment for a tenant, the landlord should have the compensation. If the situation is reversed, the tenant should have the compensation. One has to bear in mind that the land belongs to the landlord and that if he wants to re-let it but cannot re-let it as dairy land, this places him in an extremely difficult position. The problem could be solved by dealing with it on a more individual basis than simply by pursuing general lines.

The noble Lord, Lord Walston, spoke of large farmers and small farmers. I believe that the small farmer should be dealt with on social rather than economic grounds. It is extremely important that help should be given to small farmers in areas of great natural beauty such as the Highlands and islands of Scotland. We do not want those areas or other hill lands in Northumberland, the Borders or the West Highlands to go derelict and become deserted.

I remember some years ago our committee made an expedition to the less favoured areas in Europe. I recall clearly that we visited Bavaria where the farms were small, the scenery beautiful and the farmer made more money out of the tourist trade than farming. On the other hand, if there had been no farmers there and the hill land had not been used, that land would not have attracted tourists. I believe that the same could happen over a considerable part of our country, particularly in Scotland and in Cumbria and Northumberland. There was an extremely interesting debate only last week in your Lordships' House on tourism.

I believe that we should think more of the social needs of small farmers and the social value of those farms rather than comparing their economic value with that of large farms which are—I agree here with the noble Lord, Lord Walston—a different proposition. We can produce on large farms much cheaper food and produce more employment than is possible on small farms. On the other hand, we do not want to see the small farms and those living in small farm communities left without help. It is therefore necessary to view the matter from two angles. That is what we have done in our committees.

Many of your Lordships have spoken, rightly, of the need to reduce production. The question that arises—it was discussed within our committee—is how to change certain types of production. We discussed the set-aside programme based on assessment of current needs. We discussed a programme for forestry. But this does not, of course, pay farmers. There would have to be an annual subsidy if a lot of land was devoted to trees. Forestry brings in very little until it is clear felled. And then the Government would no doubt want a proportion of the sale value if they had been handing out subsidies to farmers for forestry planting. That would obviously not be very lucrative.

We recommended feasibility studies. This is an area where insufficient has been done. We never thought, 15 year ago, of growing lupins, oilseed rape, peas, beans or indeed having "pick-your-own" parts of farms. Today, those things are all being carried out very successfully. It is possible that if more inquiries were made we might grow crops which will be wanted in a world which, as the noble Lord, Lord Walston, has said, is changing all the time.

This leads me to my annual plea for salesmanship and knowing what the ordinary public wants to buy and eat. This is vital for the production of food if the food we produce is to be economic. We are better on this aspect of agriculture than many other countries, but I think that more has yet to be done. The Food for Britain campaign has been particularly successful. We could have given more support for it from the industry, but perhaps we shall do so in the future.

These reports which we are discussing today are highly technical, but they affect the whole community. If we allow land to become derelict and do not support the rural communities, we increase the problems of cities with regard to unemployment and we do not help the visitors and the tourist industry of this country, which is growing every year.

Do not let us underestimate the variable conditions which we all have to face. Although there are many surpluses there are some agricultural products which have a small margin of surplus—and this is on the right side. Agriculture is the most varied industry in the world. It is extremely difficult to legislate to please everybody. But we all recognise immediate problems of surpluses. To take a gradual plan, giving the farmers time to find different uses for the land, is the fairest way to deal with the problems, recognising that we cannot continue permanently as we are.

Finally, I should say that I think the proposals made by the noble Lord, Lord Walston, are ones which I have not heard put forward before, and we should consider them. Tonight we are doing something important. We are not only discussing what has been said in these reports but we are making suggestions which I am sure we ought all to consider. I hope that the department will consider them and pass them on to the Commission.

8.34 p.m.

Lord Northbourne

My Lords, I should like to join in thanking the noble Lord, Lord Gallacher, for the way in which he has chaired our committee and for the skill with which he has presented our report this evening. Unlike the noble Earl, Lord Ferrers, and the noble Lord. Lord Walston, I am in broad agreement with the conclusions of the report. If I may say so, the noble Lord, Lord Walston, was a little unkind to us in saying that we suggested only price cuts or price restraint. Perhaps the most important point which the report of the committee stresses is the need for consistency in the policy with which the Commission applies whatever sanctions or rules it decides.

In this context I must perhaps declare an interest as a cereal farmer. I can assure your Lordships that none of us who are cereal farmers will reduce our production by an acre until we are convinced that a system of quotas based on historic acreage production will not be introduced. The scheme of the noble Lord, Lord Walston, I believe surfers from some disadvantages associated with the necessity to restrict trading in cereals across national frontiers were it to be introduced.

This evening I should like to touch on two aspects of the Commission's proposals which have been mentioned in our report. The first is the co-responsibility levy. This surely must be the worst of all evils. In the first place it will be ineffective in reducing over-production. It is bad for the farmer because it reduces prices. In the form in which it is proposed it also severely penalises the British farmer. It is bad for the consumer because it keeps retail prices up. It will be expensive and difficult to administer. Finally, and perhaps most importantly of all, it will infuriate our trading partners and particularly the United States because it makes no serious attempt to reduce production but provides a subsidy for the dumping of European grain on world markets.

In contrast, I would argue—and here I am in agreement with the noble Earl—that the Americans are making a serious effort to reduce production. I would urge the Government to consider seriously and to press upon the Commission the NFU scheme for flexiquotas or temporary voluntary set-aside. The NFU emphasise that this is a temporary solution to tackle a very grave immediate problem. The essential feature of the scheme is that a farmer who wants to qualify for a quota must undertake to set aside 10 per cent. of the quota acreage as fallow or green manure crop during the same year. It is proposed that the scheme should apply to wheat in the first instance, but could be extended.

This proposal seems to me to have the advantage that it would be effective in reducing production on a short-term basis. Furthermore, it is fair. It would certainly not be more expensive to administer than the co-reponsibility levy, and probably much cheaper. It is also less subject to abuse. It has been objected that it is a waste of resources to set aside 10 per cent. of good land on farms which are suitable for cereals. I am not entirely convinced of this argument myself. It is not so long ago that we all thought a bare fallow was a pretty useful tool for getting rid of perennial weeds and building up the nitrogen in the soil. I am inclined to think that a farmer who fallows 10 per cent. of his land, although he will certainly lose the profit on that crop, may, through the saving of chemicals and increased yields in the following year, recover at least part of the cost of keeping that land clean, and perhaps part of its rental value.

One used not to see erosion in the English countryside. Now, as I drive around, I see it quite often. I wonder whether perhaps the green crop or a one-year ley ploughed in might be quite a good thing for some of our cereal farmers today. I believe that in the context of set-aside one could also consider intervention linked to set-aside—some sort of quality or quota for the right to put grain into intervention, bought by setting land aside. But, as I said at the beginning, quotas of whatever kind are probably only a short-term solution because they fossilise the patterns of production. If we are going to look at any other kind of limitation of production it is in one way or another going to reduce the profits of the farmer. It is going to take effect at the margins, and some farmers will suffer.

I want for a moment to look at one category of such farmers. Those are the small farmers who have already been mentioned by one or two speakers this evening. I wonder if much of the enthusiasm for small farms does not come from those who are not small farmers. I believe that the main reason why small farmers are so keen on their farms is probably in many cases because they represent the totality of their investment and the only way they know to make a living. It would be interesting to take a Gallup poll of small farmers and to ask them what their choice would be if they were offered the alternative of a pleasant house in a comfortable suburb and a stable job with a pension. I believe that 50 per cent. of the men and about 80 per cent. of the women would probably take the option.

I do not think, therefore, that we should be too afraid of structural change provided we are prepared to cushion that change. I believe that the CAP has consistently misled farmers over the past years. Even when its rhetoric has been calling for lower levels of production the signals which it has been sending out to farmers through the price reviews, year after year, have been set to "full steam ahead". Now that a change of direction has become essential I believe that the CAP has a responsibility to cushion those farmers who will be worst hit by the change.

I believe that it is time not only for the Commission but also for the Council of Ministers to take the problems of the CAP seriously. It is abundantly clear that the present crisis cannot be solved without a politically unpopular squeeze on farm profits. Production must be reduced, and restructuring will come. The longer it is delayed, the more painful it will be.

8.40 p.m.

Lord Mottistone

My Lords, I, too, should like to add my thanks to the noble Lord, Lord Gallacher, for his introduction. I nearly called the noble Lord my noble friend, because he is such a splendid chairman of our sub-committee. I should also like to thank the noble and learned Lord, Lord Templeman, for his introduction to his outgoers scheme, which to me is much less easy to understand. I am grateful to the noble and learned Lord for explaining it so clearly.

Like other noble Lords, including the noble Lord, Lord Northbourne, on the whole I agree with all the proposals which Sub-Committee D has made in its report. I am talking particularly about the farm price review proposal. I thought that I might look a little beyond that and pose a few points to your Lordships which perhaps have not yet been covered.

Over many years the Select Committee has been proposing ordered solutions to the CAP problems and commenting on successive Commission attempts to grapple with the difficulties. I believe that the best basic idea which was first proposed by the Select Committee in 1979, when I believe the noble Lord, Lord Walston, was the chairman of Sub-Committee D, is the five-year rolling programme, which is briefly summarised in paragraph 77 of the report and to which my noble friend Lady Elliot also referred. I think that it is the best, both because it provides an ordered way of getting the CAP policy under control and because it can show the farmer the way forward in unambiguous terms.

The noble Lord, Lord Northbourne, said that he thought the CAP has misled the farmers, and I would agree with him. As it is presented, the CAP misleads the farmers because, on the one hand, they do not know what sort of an answer will come from the Council of Ministers and, on the other hand, there is no real forecast as to how this will look in two or three years' time. I believe that that is the most important single message which this House can go on thumping out.

Quite apart from the disastrous effect on surpluses and Community finances, which the continuing inadequate responses of the agriculture Ministers produce, it can also be unnecessarily disastrous for farmers. An unfortunate friend of mine was advised by my right honourable friend Peter Walker in the last Parliament, in the early 1980s, to expand his dairy farming. So he set matters in hand, had all sorts of construction done in his barns, and expanded his herd. It was all ready just in time for the introduction of quotas, for which my friend's extra capacity, with no track record, did not qualify. Therefore, to cut a long story short, after considering the matter my friend has had to leave dairying altogether. What is more, he did so before the milk outgoing scheme of the noble and learned Lord, Lord Templeman, came into effect, which might have given him some compensation. However, from the way I have heard the story, £8,000 a year for five years would not have compensated him anyhow.

Some people might say—I do not think that there are any such people in this House at the moment—that that is typical of the fate of someone in any industry which is over-heavily subsidised by central government. However, I would suggest that that is not the issue, because all countries, including the United States, have heavy state intervention in agriculture. In this country the principle of such intervention is not a political matter.

What is at fault is the unpredictability in guessing which of the Commission nostrums in a particular year will be acceptable collectively to the apparently cowardly agriculture Ministers. This appearance of cowardice is explained in part by a point recently put to me by a MEP. We now have in the EC 12 countries, all of which have roughtly four-year intervals for elections. Thus every year an average of three agriculture Ministers will be under electoral pressure. This factor, plus the special interests of individuals such as the German agriculture Minister last year and presumably the new French agriculture Minister this year, have at last convinced me that the solution to the CAP problems will never be found in exhorting the Council of Agricultural Ministers to be brave and resolute; collectively they just cannot be.

Another point, which it seems to me is less important than it is made out to be, is the: vast cost of the CAP to the Community". At 1.4 per cent. of VAT for all Community expenditure, with the CAP at 75 per cent. of that, the CAP's actual cost to individual member states must be under 0.5 per cent. of Community governments' income from taxes. When one compares that in the UK with the costs of, say, the National Health Service, with its very strong pressure groups for more, and education, also under pressure for more—to take but two of the current socially popular expenditure areas—the CAP must rate low in comparative expenditure. I may be wrong in this, in which case perhaps my noble friend the Minister may be able to correct me when he comes to reply. I did not have time to check those details after preparing this speech over the weekend when I was mainly engaged in cutting stinging nettles.

Turning to another much quoted point, which certain noble Lords have already mentioned, I do not believe that the common agricultural policy is in its death throes or that it will collapse; nor, incidentally, do I believe that the Community will collapse at a later stage. Because of what I pointed out earlier—that all governments have heavy state intervention in their agricultural policy—I think that the CAP is here to stay. Therefore, I do not think that we need to bother about whether the Ministers can be made to be strong, whether the finances matter very much, and whether the common agricultural policy will die. Those are points which I think we can disregard.

I believe that we are left with two particularly bad aspects about the present administration of the CAP, both of which are highlighted in the reports that we are debating. The first is a fact to which I have already referred. Without the guidance of a five-year rolling programme it is very difficult, if not impossible, for farmers to plan ahead, to balance their books year by year, and to make their contribution to providing just what the customer needs plus a prudent—and I emphasise the word "prudent"—reserve.

The second main administrative fault has been in allowing the surpluses to develop to such a level that they endanger our international trading position in agricultural goods and, at a more remote stage, the proper balanced development of agriculture in third world countries.

This leads me to a suggestion, which in particular expands on paragraph 71 of the report on the price proposals, which suggests that the funding of social needs should be tackled separately from the management of market mechanisms. On this point I am saying that we are driven into corners in the same way as all the expenditure on the common agricultural policy within the UK is parcelled into a particular corner, and therefore people do not compare it with the costs of the National Health Service, because that is national while the other aspects are international. There is too much parcelling of social items as opposed to agricultural items within the Commission. It is a great hampering of development if these items have to be parcelled into those corners because it suits administrators to do it that way.

I believe that we need to go back to the basic considerations of the Treaty of Rome. Article 39 of that treaty says that there are five objectives for the common agricultural policy:

1. "(a) to increase agricultural productivity by promoting technical progress;
2. (b) thus to ensure a fair standard of living for the agricultural community;
3. (c) to stabilise markets;
4. (d)to assure the availability of supplies;
5. (e) to ensure that supplies reach consumers at reasonable prices".

For some time now we have been saying in committee that many of those points are mutually exclusive, contradictory, or whatever. But in point of fact it is a good basis from which each year, and always, the Commission could look at the problem before it. It does so from time to time, and I give it credit for so doing. But I believe that it needs to tackle the whole thing with two objects in mind: first, to produce a policy which over five years on a rolling programme achieves those objectives, balancing them out so that they are all balanced and some of them are not more strong than others; and, secondly, how it can present these to the agriculture Ministers so that they do not have to make impossible decisions that their electorates will not consider.

I do not believe that the Commission ever gives thought to that latter point, but it is the body that takes decisions. The object of the exercise must be, if you have a good plan, to try to get the decision-makers to agree to it. It is no good just producing a whole bundle of figures and hoping that they will get this right and that they will not be diverted by this, that or the other pressure group within their own countries. What I suggest the Commission should do is that, having got its basic five-year rolling programme, it then identifies the effect of its proposals in any one year on each of the five basic principles I read out. It should also identify what effects alterations to the basic plan would have on the five basic programmes.

Members of the Commission may say that if such and such an action is taken the farmers will suffer, or if another action is taken the consumers will suffer, and so on, and they may identify all these points for each and every one of their main proposals. They may not only do it for the present year but they may also show that, if there are alterations in regard to the present year, that is going to affect subsequent years within the five-year rolling programme. Then they may perhaps get the agriculture Ministers into a position where they can see more clearly the effects of their particular hobby-horses on the common agricultural policy as a whole, and they may be more ready to agree to what I would call a rational, collective decision instead of one entirely biased by the elections just around the corner.

I do not believe that we shall get effective management of the common agricultural policy unless we have that sort of solution. Whatever happens, we must have it managed better. That will be achieved by the Commission putting it up in the right way and by the decision-makers making the right decisions. I think we shall go on year after year putting up jolly good ideas. If our ideas in 1979 had been listened to, we should not have the problem we have today, particularly so far as the farmers are concerned. If Sub-Committee D were allowed to run the CAP we should probably do it very well, but somehow the system does not permit that. Therefore, the Commission has to do a much better job and be clearer in its main aims. I plead that that will come about.

8.55 p.m.

The Earl of Radnor

My Lords, I too should like to congratulate the noble Lord, Lord Gallacher, on the report, and also thank the noble and learned Lord, Lord Templeman, for allowing members of Sub-Committee D to attend his committee and listen to the deliberations on the milk outgoers scheme. At the same time, my noble friend Lord Monk Brett on has asked me to apologise to your Lordships because he too, like another noble Lord, had to leave, not anticipating that the business before the House before this debate would go on for quite so long.

I myself shall not go on for very long. The hour is late. My view of this question, apart from the fact that I almost implicitly and exactly agree with the findings of Sub-Committee D, is that the whole matter is far too complicated. I take the point made by the noble Lord, Lord Mottistone, that there is no effective will in Brussels, and I take many of the points that the noble Earl, Lord Ferrers, has put across that this is an unpleasant situation that farmers are in; and presumably farmers throughout Europe are in the same position. We ourselves of course are bound to see it here.

I am sure, as he seems to be, that hard times are coming. But it seems to me that the solutions produced are merely postponing the fateful hour. Through no fault of themselves, so far as I am concerned, farmers have produced food far in excess of consumption. They have been efficient, and their back-up in the form of scientists and geneticists has been very efficient indeed; and they have, if you like, been lured on to their doom by the common agricultural policy and by subsidised products, and indeed by capital grants. It is a very short time ago—and I ought perhaps to have declared my interest as a farmer—that I was taking really massive grants out of Europe to improve my efficiency as a grain farmer and a milker of some 500 cows.

It is not the farmers' fault. I do not believe that the set-asides and the kind of solutions that the noble Lord, Lord Walston, produced—which I too shall be interested to read as soon as I get Hansard—and all the other solutions that are produced, including those at present produced by the Commission and the Council of Ministers themselves, will deal with the situation. What has come out of this debate and comes out in both reports is that the Commission, or the Council of Ministers—I suppose it is the Commission—is endlessly optimistic. That comes out in all the evidence. Therefore its figures are suspect, before we find out that its figures are not going to deal with the situation anyway.

We start with a completely impossible situation. I do not think that the sort of answers that the noble Lord, Lord Mottistone, produced in going back to Article 39 will get the Commission out of what I consider to be very bad habits indeed. I listened carefully when my noble friend read out the points that the common agricultural policy was meant to achieve, and I felt that it had not achieved very many of them except that it had produced food, and obviously too much of it.

What are the answers? As I said at the start, I think the answer must come through the price mechanism on a five-year rolling basis, as suggested by Sub-Committee D. I think that the five-year rolling basis has a lot of advantages. For one thing, it will show when the matter needs to be redressed one way or another. I think that it is simple and will work or at least has as much chance of working as all the other complicated mechanisms that have been suggested. If it does not work, the suggestion that quotas should be looked into and studied now in case they have to be brought into operation is of importance. It might come to that.

Those are the ways to go about it. I always believe that simplicity can help the Commission quite a lot. The same applies to the milk outgoers scheme. I am not going to pre-empt anything that the noble Lord, Lord John-Mackie, may say. He knows that I would favour a cut in quotas across the board rather than this voluntary scheme, with countries being obliged to take up what slack there was if people did not outgo.

Farmers do not voluntarily go out of dairying when there is nothing much to jump into. The optimism expressed in the report on the outgoers scheme that everybody will jump at this opportunity may not materialise. The hardship will be very bad indeed. The noble Lord, Lord Northbourne, mentioned the small farmer. He will be hit first, almost inevitably. I think that this problem (and I cannot quantify it in any way) will come up for discussion in Brussels and perhaps in committee. The social side of life in the country somewhere down the line must be divided in our minds from the purely agricultural side and direct aids will have to come into the equation that is being talked about.

However, I have one suggestion which I would just throw out. I do not suppose that it is possible, but I remember some time ago that smallish farmers got together and formed machinery syndicates to buy machines that each one as an individual could not purchase. It started quite close to me. I live in Wiltshire, and it started in Hampshire, I think. This was a splendid exhibition of people co-operating for the common good. It is just possible, I suppose, that small farmers could get together in some way or other, without losing their identities, to make themselves more effective in a harsh commercial climate. It would have to come from them. I am not talking about government direction or direction, or even suggestions, from the Commissions; it is a suggestion that I make myself.

The other point that depresses me in this debate is the assumption that every time prices are dropped farmers will immediately endeavour to grow more. I think that the price drop may be a little too severe for them to want to do that. I just throw out the thought to your Lordships that for a long time now, ever since Professor Lalov thought up the tramlines, and people started putting on more and more nitrogen and spraying on more and more fungicides, the whole idea of maximum production has reigned in agriculture.

When I started—perhaps you had to have a rather poor mentality and a poor soil—I said, and think that I still do so, "I am a low-production person". I have a poor soil but I have a lot of it. But I do not see why there should not be developed a move—and it could come into education and advice, if you like—not to concentrate on these huge crops which have been some small part of the trouble, but to have all the education directed against the margins that the farmers are going to make and the profits they are going to make. I am a low-cost farmer, and have been one all my life—I do not say on the very best soils—but a low cost farmer can do very well indeed. That is the way they should think and that is the way, if there is to be government advice, it should be directed.

I think there is little more that I can say except to reiterate that it is a difficult prospect for farming. I wanted to put in one small plug which I know that in a previous debate the noble Lord, Lord Northbourne, put in. It offended me a little in one of the cereal reports when I came to read it, although I was absolutely a party to the report, that the third world, the starving third world, was obviously—as indeed it is not—an answer to cereal surpluses. I think that perhaps we might think of them a little more strongly that we have in the past in times of dire emergency. It passed through my mind that if I was a Sudanese or Ethiopian and dying of starvation, it would be of little point to tell me that I should not have the food because it might prejudice my learning how to grow it myself.

I think it is a very difficult problem. It has to simplified along the lines suggested by the Select Committee.

9.7 p.m.

Lord Middleton

My Lords, the noble Earl, Lord Radnor, has referred to the price mechanism and has made it his first choice as a tool for the reform of the CAP, and the Select Committee has consistently recommended that the build-up of farm surpluses would best be controlled through the price mechanism. We say this again in each of the three reports that we are debating tonight. In the 1986 report on cereals we reiterate the advantages of a restrictive price policy, and they were identified in last year's report on the reform of the CAP. They are set out in paragraph 76, and I will not repeat them.

The fear has frequently been expressed that a too-rigorous implementation of a price solution would lead to contraction in the industry, leading to bankruptcies, to unemployment in the ancillary trades and to undesirable social consequences in the rural areas. That fear has been voiced again by my noble friend Lord Ferrers tonight and, if I may say so, voiced very eloquently. He has given his estimate of the drop in cereal prices that has taken place over the last two years.

The Home-Grown Cereals Authority, in its written evidence, thought that a reduction in prices of £10 a tonne would make EC cereals competitive in world trade but such an immediate reduction, it said, would have a severe effect on farm incomes. The Select Committee has therefore recommended that price reductions should be made gradually by means of a five-year programme, announced in advance and maintained on a consistent basis. The Home-Grown Cereals Authority also said in its evidence (and this I think was a key sentence) that to be successful a price solution must reduce the EC cereal surplus to one that can be marketed.

While I am in agreement with the Select Committee's consistent advocacy of a price policy which takes account of the realities of the marketplace, I am not convinced, at any rate in the case of cereals, that reduced production will follow. When we debated the CAP last October, I remember saying with other noble Lords that in a competitive world efficient producers will always step in where others cannot cope, and these producers will endeavour to grow more in order to compensate for lower prices. I believe that is true, but my noble friend Lord Radnor has his doubts.

Turning to the question of marketing—and again I refer to the trade in grain and to our debate of last October—I think I suggested then that a lowering of EC prices would create opportunities for increasing the EC's share of the world trade in cereals. My noble friend Lord Ferrers has reminded us that since then there has appeared the United States Farm Bill, and Part 3 of the Farm Prices Report assesses the likely impact of that measure. The object of the Bill is to underpin United States domestic prices in such a way as to enhance export competitiveness. My noble friend Lord Ferrers reminded us that the effect will also be to increase the funds available for export subsidies. The Farm Bill, and a dollar exchange rate more favourable to its implementation, will make it more difficult for the EC to increase its share of the world grain trade.

An interesting feature of the US Farm Bill is the set-aside scheme which it incorporates. In order to participate in the support programme, United States farmers will have to set aside a portion of their land that previously grew cereals. The Bill provides for a an acreage reduction of up to 30 per cent. for wheat and 20 per cent. for coarse grains for the next three years. That leads me, in view of the doubts I have expressed as to whether price restriction alone can succeed, to wonder whether we might perhaps be looking at something of this kind in order to solve the problem of European grain surpluses and the certainty of ever-rising productivity. I was very interested to hear that my noble friend Lord Ferrers had come to the same conclusion.

The National Farmers' Union told us in evidence that they had some such scheme in mind, and they refer to it in their recent briefing paper. The noble Lord, Lord Northbourne, has spoken in its favour. It seems to me that the disadvantages of the National Farmers' Union scheme, of which we were given only an outline, are that it is not to be accompanied by a price policy and that it is to apply right across the board to all wheat growers, irrespective of the productive capacity of the land to be cropped.

I believe that a set-aside scheme, to be successful, must, first, supplement a restrictive price policy of the kind advocated in our reports and, secondly, must encompass some kind of payment to farmers on a scale calculated to provide an incentive to take out of production land that is least suited to cereal growing and which would at the same time encourage grain to continue to be grown on the most productive land where economically efficient production is achieved.

I shall now turn briefly to the milk producers' outgoers scheme, which was proposed last November by the Commission. I should like to concentrate on one aspect of that scheme because it seems that the Commission's proposals did not take fully into account the United Kingdom's system of land tenure. The committee of the noble and learned Lord, Lord Templeman, examined with great care the legal aspect of the quota system already in operation. The noble and learned Lord has explained the conclusions at which his sub-committee arrived and its recommendations as to how the EC outgoers scheme should be worked in the case of let land in England and Wales.

He has also explained that where under the proposed EC scheme a farm tenant decides to go out of milk by surrendering the quota and accepting the generous compensation which is suggested, the practical effect will be that for the duration of the quota scheme, which may well be for many years, no milk production may take place on that farm. Not only during that tenancy, but after its termination, that land is in effect sterilised as regards any dairying operations.

In its evidence the Country Landowners' Association pointed out that that could not fail to have an impact on the value of a holding tenanted by a farmer participating in the outgoers scheme. The Tenant Farmers' Association agreed with that view. In its evidence it showed how any fall in value, by reason of the relinquishing of the milk quota, would vary according to what alternative system of production the holding was capable of sustaining.

The NFU, however, in giving its evidence could not agree that the capital value of the holding would be affected by the scheme. The CLA told the committee that in its view, since the landlords' reversionary interest was at risk, the proposed scheme was defective because, first, no requirement is made for a participating tenant to obtain his landlord's consent, and secondly, the proposal that member states could, if they wished, arrange that part of the compensation on the surrender of a quota could be paid to the landlord was unsatisfactory in that it did not take into account any diminution of the capital value.

As the noble and learned Lord, Lord Templeman, has explained, his sub-committee agrees with that view. It says so in paragraph 67. It agrees that insufficient regard is paid in the proposed regulations to the interest of the landlord and insufficient discretion is left to member states. The sub-committee recommends that in the case of let land the landlord must be notified before a tenant applies for the outgoers scheme and that the grounds on which the landlord may object to the application should be at the discretion of member states. It recommends that member states should be required to make provision for the compensation to be apportioned between landlord and tenant in accordance with such criteria as the member states may consider appropriate.

As to what method should be employed by the member states to apportion compensation between landlord and tenant, the sub-committee has not come up with a recommendation. While I agree wholeheartedly with the committee's recommendations, I feel that on reflection it might have gone a little further in recommending a solution to the compensation problem in the case of a tenanted farm.

A solution was suggested. It was put forward by the Tenant Farmers' Association. If the Government are given a discretion in this matter, I would draw the attention of my noble friend the Minister of State to the evidence given by Mr. Henry Fell for the TFA on pages 26 and 27 of the report. In discussing the apportionment of compensation in the case of a tenanted farm he suggested that a fair method would be to capitalise any loss in rental value and that that capital sum should be taken out of the total compensation due to a tenant going out of milk. When questioned by the sub-committee as to whether he would be content to see Article 4(2) of the regulation altered so that the landlord received part of the compensation, except in cases where the land remained as valuable without a quota as it had been with one, Mr. Fell replied, "That is our policy".

Such a basis of apportionment has the great merit that it is proposed by the tenants. I understand that something along those lines will be acceptable to the landlords. What would simplify matters greatly would be for the United Kingdom Government to be able to operate a quota scheme so that there was a pool of unused quota sufficient to allocate a quota where a tenant farm is relet. Such a scheme would of course need to be worked so as to keep within the national quota.

With those suggestions I should like to support all the recomendations of the sub-committee of the noble and learned Lord, Lord Templeman. Perhaps I may also join my noble friend Lord Radnor in offering him my thanks for allowing me and other members of the Agriculture Sub-Committee to attend his inquiry and deliberations.

9.20 p.m.

Lord Stanley of Alderley

My Lords, perhaps I may be allowed to congratulate Select Committees D and E on their reports, and, in particular, to thank the Deputy Chairman of Committees for getting parliamentary time to draw the attention of the House to the crisis that faces the agricultural industry, and indeed rural well-being today—a crisis that the Council of Ministers, the Commission and even my right honourable friend the Minister of Agriculture seem unable to grasp or to do anything about, as was so ably explained by my noble friend Lord Mottistone.

This crisis—and I do not intend to moderate my description of the situation—is the result of success: the success of the revolution in agricultural production since the war, for we all know that we are now producing too much at prices that the customer cannot, or will not, pay. So as a farmer I should like to congratulate the Select Committee on grasping the nettle in sticking, or almost sticking, to the solution of the problem of price restraint; and, despite my noble friend Lord Ferrers' remarks, not price restraint for one year but price restraint over a period of years, as was so well described at paragraph 61 of the Select Committee's 10th Report, which was referred to by my noble friend Lord Radnor.

The Select Committee spells out why it favours price restraint, but I should like to add, and to reinforce, some of my reasons for supporting such a policy of price restraint. First, it will work. If you drop the price paid you must save money, and that, sadly, is the name of the game today. Secondly, price restraint is simple and easy to operate. Any system of quota, set-aside, flexiquota, will involve bureaucracy, and although such systems might work in the highly organised United Kingdom agriculture, they will not work on the Continent. Indeed, they are more likely to result in the Continental take-away. Such systems will be abused, and as proof I suggest that a study of the olive oil regime would be worth while, let alone the chaos reigning today with milk quotas, about which my noble friend Lord Middleton has just spoken, causing untold harm and disharmony between landlords and tenants. This was brought out by the noble and learned Lord, Lord Templeman, in his report.

Thirdly, any mention of such a system of quotas will allow weak-kneed politicians and others to concentrate on this method as a rathole, rather than concentrate on the main issue, which I, and the Select Committee, believe is price restraint. For that reason, I find fault with the committee's paragraph 108 of the 6th Report, which suggests quotas—and the noble Lord, Lord Gallacher, brought this out—as a policy of last resort; and, of course, I object to the National Farmers' Union's flexiquotas. I ask my noble friend Lord Belstead not to be diverted by such diversionary tactics.

Fourthly—and to me of most importance—I believe in price restraint as the only way to preserve British agriculture's place as one of the greatest, if not the greatest, of our most efficient industries. I am proud to be a farmer and to be a member of a resilient, hardworking, independent society. Quotas will destroy such a spirit and will divert the farmers' inventiveness and hard work into quota avoidance and manipulation. Your Lordships may laugh, but I have already spent some happy evenings with my family on how we could legitimately fiddle such regulations. We do not see why we should always lose to the French, and we will not; but it will not help the system.

Finally, the option of doing nothing is not open to us, for that will result, as it has in the past, in ad hoc cuts, and that is certainly the worst possible situation. Such a system of price restraint will cause hardship but so will any other system. There is an element of the devil take the hindmost in my system of price restraint, but what is wrong with such a philosophy? Your Lordships know better than anyone that we were put into this life to strive to do better. There will be farmers who will go to the wall under such a system—perhaps one in 10—but the same numbers will go to the wall under any system and the remainder will be damaged.

Some areas will be under great pressure; but paragraph 71 of the 7th Report gives the answer or part of the answer to some of these problems. I must support such systems to alleviate the pain. Such areas may go for low cost systems, as suggested by my noble friend Lord Radnor; but of course his rents would have to fall drastically, and I hope he will appreciate that point.

A system of price restraint over the years will allow and encourage the fittest to survive and prosper and not to stagnate and ossify as any other system would. Provided the United States takes a similar line and does not continue to subsidise her farmers at twice the amount given to European farmers, which was a point referred to by my noble friend Lord Mottistone, we shall be able to compete in world markets, the over-supply problem will be solved and British agriculture and the rural economy will flourish. That is my answer to the worry of my noble friend Lord Middleton of farmers moving in to fill the gap. Yes, they will, but they will fill it by exports.

I hope that my noble friend Lord Belstead will not shrink from a policy of price restraint. I believe that many, if not most, farmers in the sticks support such a system even though their voices are not always heard.

9.28 p.m.

Lord John-Mackie

My Lords, we have had a long and very interesting debate. The first thing I want to do is to congratulate our two chairmen on the way they have put forward their reports. They put them forward very clearly and concisely. The noble and learned Lord, Lord Templeman, put his forward so well that he almost made my case for me, but that will come out later in what I have to say.

I have taken copious notes and I think that most of what I have taken down will come out in the paper which I wrote yesterday—not being allowed to shop on Sunday now—except for the speech of the noble Earl, Lord Ferrers, on which I think we should do well to congratulate him very deeply and to read it again because, like the noble Lord, Lord Walston, I think it must be one of the best speeches he has ever made—certainly from the Front Bench which he used to occupy very well.

I should like to give the noble Earl a little comfort. He said that the future was black indeed. I always remember my old father at the age of 85 discussing some problem in agriculture. He made the remark to a few of us much younger than himself that he had come through so many crises that he now refused to believe in them. Perhaps that may be of some comfort to the noble Earl, and perhaps the crisis he paints as being very black is not so black as he thinks.

One other point that was made with which I very much agree, and which I mention in my paper, was that made by the noble Lord, Lord Northbourne, concerning fallowing. We have forgotten our old husbandry methods nowadays, and I am sure that taking land out of use to fallow it might be a good solution to some of our problems.

There are three reports before the House. The reports on cereals and on milk cessation reflect the efforts of the EC to curb over-production. In my opinion, the report on farm price policy is a demonstration of how little the EC is prepared to do about it. One has only to read the summary of conclusions to appreciate that. I will quote from the price policy report, where all through the summary of conclusions beginning on page 26 there are remarks such as: Agricultural spending is not under control", and, The gravity of the present situation is aggravated". and, Agricultural Financial Discipline will be seriously breached this year, and, Farm Price proposals are inadequate". and that there, cannot be a permanent solution to the problem". etc. Those are the kind of remarks that show that we are not satisfied that enough is being done.

The surpluses have arisen, as has been emphasised by one noble Lord, because of the speed at which farmers have made use of new technologies in all their aspects; plant breeding in particular, fertiliser use, chemicals, improvements in mechanisation, efficient use of buildings—and all that in the past 20 or 30 years.

In 1953 I had the temerity to suggest that we could produce up to nearly 80 per cent. of out own temperate foods. I based my calculations on the increase we had made since farming began to be properly supported, in about 1935 or 1936, up until 1953. Very few people would believe me. In fact, I was almost laughed out of court for making such a ridiculous suggestion then. Little did I think that in less than 30 years from then we should be producing 100 per cent. of our temperate food, and now well over that and creating surpluses. Nor did anyone else, I may add. Yet there are plenty of critics all basing their prognostications on hindsight.

A friend of mine had his golden wedding on 4th April and I thought that a nice present would be to give him a copy of The Times for that date in 1936. I sent for it and, being in a thrifty mood, I thought that I might have a look at it myself before posting it to him. One of the pages contained a report of what Mr. Walter Runciman had said about the worry of not having enough wheat in the country. There was only 214,000 tons and he thought that we should have 1 million tons or so in reserve. He pointed out that it cost four old pennies a week to store one ton, which he did not think was unreasonable.

On the same page there was a report on the work of German scientists on turning wood into food They had put forward various figures that showed that one could produce food from an acre of wood equal to the same volume of food from an acre of arable land. That is quite extraordinary, as here we are today being asked to grow more trees for the sake of the wood and appealing to our scientists to turn food into fuel. I am certain that if the noble Lord, Lord Broxbourne, had still been here, he would have a Latin quotation ready to deal with a turnround like that.

More seriously, we are recommending a programme of reducing prices over a period of years with the ultimate aim of reducing the gap between support prices and world market levels. In the early stages—and this has been pointed out by other noble Lords—if a reduction is big enough it will force farmers on lower grades of land to stop growing cereal, and frankly in some cases it may put them out of business. But that is not where the surpluses come from. It does not allow for the resilience of the farmers in the main cereal growing areas—all the way from Wiltshire, right along the south coast, up the east coast and all the way to a few miles north of Inverness in the Black Isle. They will sell their Land-Rovers, cut back on renewing machinery every year, pay off labour, unfortunately, and carry out a host of savings resulting in the neglect of fixed equipment, hedges and ditches, and so on. This will include, as the late Peter Smith said at an Oxford farming conference a few years ago, Stop using a JCB for burying a dead cat". There is quite a lot of that. I had reason to tick off my stockman a few years ago for using a 100 h.p. tractor to take one hundredweight of cake from the store round to the calf shed. I said, "Good gracious, Charlie, could you not have used a wheelbarrow?". He said, "Guvnor, we haven't got a barrow". We now have a barrow.

What will happen is that the new varieties of plants, fertilisers and sprays will not be cut. We know what that will do—it will expand production. Therefore, before there are meaningful reductions in production we shall have stocks in the region (I believe one noble Lord mentioned 80 million tonnes) of 90 million tonnes: the EC's figure, not mine. There are other calculations suggesting 100 million tonnes by 1991.

If we take a look at the proposals for the 1986–87 prices, what is there to indicate a willingness to carry out a price policy to reduce production, let alone get rid of stocks? In money terms the reduction is nil, although calculated in real terms there is a reduction of 3.4 per cent. It is all set out on pages 13 and 21 of the report. This is insignificant in relation to the problem. There is, of course, the co-responsibility levy of 3 per cent. which, as was pointed out, is likely to be most unfair to British farmers. There is intervention buying, which will be only from December to April, and there is to be, of course, the tightening up of standards.

The committee looked at all those proposals and is not too impressed with them; nor is it too happy that its own proposal will be accepted or applied in time to do any good at all. Therefore, it is appealing to the Commission to investigate the feasibility of alternative policy options. I think that shows that the committee is not too happy, in spite of the plea of the noble Lord, Lord Stanley, for price restraint, that it will work. It has asked the Commission to investigate the feasibility of alternative policy options, and although it is rejecting—I am almost quoting the words—the future of the CAP based on quotas, it includes these in the feasibility study. I have a feeling that sooner rather than later we shall have to take a close look at quotas, or the quantum scheme of the noble Lord, Lord Walston, which is basically the same principle, in spite of what I admit are many difficulties.

At this point I had a page of notes on what the noble Earl, Lord Radnor, said on the question of giving these surpluses to people who really need them. However, I think that at this time of night I shall leave that for another day. Therefore, let us consider the report on milk production and the outgoers scheme which starts on page 16. I thank the noble and learned Lord, Lord Templeman, for welcoming us on his committee. It was an education, if I may say so, to see how the legal mind works. On page 16, paragraph 59, the committee states: the … scheme will be more efficient, more flexible, and politically more acceptable". It is not very flexible in its actual operation. A farmer elects to go out. He is paid 26 pence plus, per litre and he cannot produce milk on that land as long as there is a quota system in operation.

If flexibility means it is voluntary and can be taken by any farmer in any part of the country, this does away with its efficiency. It could be over-subscribed or under-subscribed, and there are various estimates one way or the other. If it is over-subscribed, is more money to be produced, will there be a ballot, or, as somebody said, will there be committees all over the country to decide which farmers should be allowed to take it? If it is under-subscribed, what do we do? The committee suggested a compulsory cut to quotas across the board, confirming my point that it would be better to do that to begin with. That is on page 17, paragraph 61. It does not say whether that will be without payment. If the scheme is heavily subscribed in particular areas, as one noble Lord said, this would have the effect of closing down creameries, perhaps leading to a local scarcity of milk.

It has been suggested that it is politically more acceptable. Is it? There is the problem of who decides in the case of tenanted farms, the landlord or the tenant, as the noble Lord, Lord Middleton, said. Owner-occupiers, especially of farms in predominantly dairy areas, will have to think deeply about reducing the value of their farms by taking the outgoers scheme. On first appearances, it seemed financially attractive. There have been various calculations. The noble and learned Lord, Lord Templeman, had £8,000 rattling about in people's pockets for a while, and my calculation was that for a 60–cow herd they would be getting roughly £70,000 spread over seven years. However much it may be, it did look attractive; but along came the "wicked landlord"—and I may say to the landlords here that I have "wicked landlord" in inverted commas—and persuaded the Government that anything up to 70 per cent. of that could be his. That takes the gilt off the gingerbread with a vengeance, so I cannot help thinking that it cannot be politically attractive.

In order to deal with the same subject of quotas and normal outgoings, another place was inflicted (if I may use that word) with an amendment by the Ministry of Agriculture to carry this out, in no less than eight columns of Hansard. I do not know how many noble Lords have read it. The noble and learned Lord, Lord Templemean, told me it was fascinating reading, so I went and got the appropriate Hansard. It may be fascinating reading to a lawyer, but it certainly beat me in the short time that I had to look at it. That is just one of the problems which will arise if this scheme comes into effect and a decision has to be taken as between landlords and tenants.

This scheme bristles with difficulties. This is pointed out in almost every paragraph of the "Opinion of the Committee". The noble and learned Lord, Lord Templeman, when he was putting forward his report, seemed to be suggesting, if one listened to him carefully, that at every point there was a problem or a difficulty. Yet the Committee recommended it.

Sub-Committee E is the legal committee and is well stacked with legal luminaries apart from two, I think. I have great respect for the legal profession and the way in which they tackle complicated problems. Of course, if the problems were not complicated they would not earn a living, but I think this leads them subconsciously to presume that everything must be complicated and that anything simple must be avoided. I am sure that the noble Earl, Lord Radnor, will agree with me there.

I think that this has happened here. We have a quota scheme in operation. All the administration is there. The EC wanted to reduce milk production by 3 per cent. What could have been simpler than to do it by just cutting quotas by 3 per cent. and, I may add—and this is always missed out in the criticism of my scheme by the noble and learned Lord, Lord Templeman—pay for it? Give the 26-point (whatever it is) pence per litre for the 3 per cent. No, they would not accept that simple scheme but produced a scheme which is full of complications. This is the EC, and Sub-Committee E falls for it.

I must apologise for being so critical of this scheme but I think it will prove to be a headache if it ever comes to fruition. These three reports have been gone into very fully indeed by the members of the committee. They have been produced, and we hope that on the whole the Commission, Parliament or the Council of Ministers, whatever body it is, will look at them very carefully. We are much obliged to the chairman and all the members of the committee for the work which has been put in, and of course to all the people who gave evidence.

9.46 p.m.

Lord Belstead

My Lords, I should like to congratulate the noble Lord, Lord Gallacher, and the noble and learned Lord, Lord Templeman, on the production of the three valuable reports on problems in Community agriculture, which seem to grow even more complex. Of course we are now in a tough and complicated price-fixing negotiation. Indeed, the Community Ministers of Agriculture are meeting today in Luxembourg.

The noble Lord, Lord Gallacher, covered some of the background to this year's negotiations in his opening speech. As the noble Lord reminded us, last October we debated the sub-committee's report on the common agricultural policy which coincided with the Commission's Green Paper, Perspectives for the CAP. The Commission has now issued its price proposals for the coming year and is expected to tell the council this week of its ideas for what it terms socio-structural measures, which are intended to ameliorate some of the effects of its prices policy on certain rural structures.

However, the main features of the price proposals are a price freeze for the major commodities and substantial measures affecting intervention and other aspects of support. The overall effect of the proposals is tough, but against the background of massive surpluses and rising budgetary costs they are proposals which are very unlikely to solve the problems we face.

The noble Lord, Lord John-Mackie, when making his speech, read out one or two brief extracts from the farm prices report which show that that committee took a very serious view of the position as the committee found it and it sees the need for even more sustained action, which is a view with which the Government entirely agree. The fact of the matter is that impressive advances in agriculture in Europe and all round the world have brought us to the position where even China and India, with their teeming millions, are becoming exporters of cereals and the world market cannot buy an unlimited quantity of surplus produce.

The costs involved in disposing of Community surpluses continue to rise and tensions in world trade between exporters of agricultural produce are becoming increasingly evident. The costs of disposing of surpluses should really not be understated. As the Community has crossed the threshold of self-sufficiency in most European commodities, so CAP costs have almost doubled in the past eight years, and every 1 per cent. fall in the value of the United States dollar adds about £62 million to the overall costs.

My noble friend Lord Mottistone raised a question as to whether the expenditure of the CAP is really quite as high as perhaps we sometimes make it out to be. I would just say to my noble friend that of course the Community's budget consists not only of the 1.4 per cent. VAT contributions but also of revenue from import charges and various other charges, including co-responsibility levies. However you compute it, the brutal fact is that the cost of market support of the common agricultural policy today makes up some three-quarters of the total Community budget.

The report of your Lordships' Select Committee on cereals discusses not only the key issues of supply and demand in the cereals sector but also rightly draws attention to the implications of policy changes in the United States which will make it increasingly difficult for the Community to maintain its market share, let alone to expand it. We have to face this fact. As my noble friend Lord Ferrers urged, the Community has to talk to the United States about this and in particular to do so by negotiating through the GATT which, after all, is the machinery that we have for resolving disputes and liberalising trade. Meanwhile, unless effective new policies are adopted by the Community, even greater surpluses will follow in the future.

The main elements of the Commission's proposals, as your Lordships well know by now after our long debate, are a price freeze, tighter quality standards for sales into intervention, changes in the intervention arrangements themselves, including restricting access to intervention to five months of the year—this is all on cereals—and the introduction of a co-responsibility levy on first-hand sales, with the first 25 tonnes sold off a farm to be exempt.

In a speech which has rightly drawn favourable responses from many of your Lordships and which I very much enjoyed, my noble friend Lord Ferrers gave the view that the recommendations of the Select Committee are bound to lead to agricultural dereliction. I should like to put the committee's recommendations, and indeed the Government's views, in a wider context, for both go wider than simple recommendations for cutting prices, as indeed my noble friend's thoughts went wider as he developed his speech. The farm price policy report argues that growers cannot be immune from the basic forces of economics and that a sustained prices policy would lower production.

This is the first enormously important point that comes out of the sub-committee's report—the fact that price policy must be sustained if it is to be effective and if it is to be fair to the producers concerned, a point made by my noble friend Lady Elliot, in essence by my noble friend Lord Mottistone, and most robustly by my noble friend Lord Stanley of Alderley. The Government have consistently argued for this. We believe that the price policy must be the centrepiece—not just stand alone but be the centrepiece—of a package of measures.

Tighter quality standards, provided, as the committee says, that they genuinely reflect market requirements, and limitations on access to intervention, would help in this by stimulating sales on the free market and hence reducing stocks. In the United Kingdom alone, these stocks now total 6 million tonnes and have a value of more than £700 million.

I follow the noble Lord, Lord Northbourne, in saying that a co-responsibility levy, on the other hand, would have no similar beneficial effect. Indeed, the noble Lord, Lord John-Mackie, with all his experience, dismissed the idea of a co-responsibility levy in about half a sentence. It is an idea that would do nothing to stimulate consumption. It would create distortion in the livestock market as growers set up livestock units to consume their own produce. As the committee rightly noted, it would provide a way round the discipline of the budget guideline and it would be difficult and cumbersome to administer. More than that, it would discriminate fiercely against our country because of the structure of our cereals holdings.

Three-quarters of our production, under the present proposal for a co-responsibility levy, would be affected compared with about a half for the Community as a whole. We could not accept such a co-responsibility levy. The Government join with my noble friend Lord Stanley in being similarly opposed to the idea of quotas for cereals. We share the Commission's view that these would be inappropriate as an answer for the Community's present problems and would pose enormous problems of implementation. More importantly, they would be particularly against United Kingdom interests because they constrain the freedom of the most efficient producers.

The Government note that the committee has a view that a study into the operation of quotas should be launched as a contingency. As our national interest, we believe, clearly lies in avoiding quotas, we ought to be very cautious about advocating this at Community level. But I assure your Lordships this evening that we are very carefully examining all the policy options. That is one of the reasons why a debate of this kind is so enormously important.

One possibility of which many of your Lordships, with a great deal of experience, have spoken in favourable terms may be the adoption of a policy of set-aside. We have put this forward, as your Lordships know, and indeed we are pressing for this idea. Farmers could be offered incentives to take certain land out of production, we believe, on a voluntary basis. This would fit in with the thinking of the Commission and some of the other member states. Estimates of the effects that it would have on production suggest that this could be a better option than either a co-responsibility levy or quotas.

I was most interested that my noble friend Lady Elliot was the only one of your Lordships who spoke about giving careful and continuing thought to alternative crops and land uses. The Ministry sponsored a detailed report on this which was done by the centre for agricultural strategy. We had a conference last week based on this subject, which was enormously well attended. Like my noble friend, I believe that this is an area on which we need to keep a close but practical eye. Perhaps I may say to my noble friend, who spoke, with her experience of the hills, about the need to continue to look after the uplands: do not let us forget that headage rates for this year have gone up by 11 per cent. and that total expenditure on hill livestock compensatory allowances is running now at about £110 million being paid over a substantially expanded area compared with before.

The Community has already taken action on milk with the introduction of quotas. I make no secret of saying again to your Lordships that the Government did not favour the introduction of quotas. They have caused some very real problems for certain producers. Nonetheless, we have taken every opportunity to improve their operation. We have, for instance, recently introduced some measures of flexibility in the provisions for a limited reallocation of quota. In the most interesting report on the proposed Community milk outgoers scheme the sub-committee under the noble and learned Lord has described the seriousness of the situation facing the milk sector. Even with quotas, Community deliveries to dairies exceed demand by around 14 million tonnes, and while reducing this surplus must be a step in the right direction the proposed scheme will not be expected to eliminate it entirely.

I suggest that a step by step approach will continue to be needed to allow producers time to adjust But when the noble and learned Lord, Lord Templeman, reminded us of the five member states which were saying that they needed to stand aside from it, I should like to respond by saying that it is the government view that all member states must take their share of cuts in quota. The Government would agree that this could be achieved by the voluntary outgoers' scheme being followed by a compulsory cut in quota if any member state fails to reach its target. Indeed, my right honourable friend has been advocating this very solution in the agricultural council.

It was at this point in the debate that my noble friend Lord Brookeborough asked for an assurance about the buying up of quota in order to effect some re-distribution so far as Northern Ireland was concerned. I cannot give the specific assurance for which my noble friend asked, but I can say that we shall also be seeking to obtain sufficient flexibility in the Community outgoers' scheme to allow us to take account of the United Kingdom's regional needs.

I listened with great care to my noble friend Lord Middleton, and of course I shall draw the attention of my right honourable friend again (because we have already looked at it carefully) to the particular evidence of the Tenant Farmers' Association, at which my noble friend asked us to look very carefully.

Perhaps I may just follow my noble friend by saying this about the landlord-tenant situation. As the committee recognised, the current proposal in the scheme as it is put forward does not take sufficient account of the need for balance between tenants' and landlords' interests. The Government agree with the committee that the best solution here is to get more flexibility to enable each member state to reflect its own landlord-tenant system. We have already discussed with the representatives of landlords and tenants how we might proceed here if the regulations were to be agreed along these lines.

I am advised that there is a fair degree of consensus that we should require the landlord's consent to be obtained but with the condition that consent could not be unreasonably withheld.

We have also considered the apportionment of compensation payable under the scheme. All I can say this evening is that this could be based on the same principles of standard and excess quota which we have put forward in the exceedingly long amendment which has been made to the Agriculture Bill, which has now left another place and which comes to your Lordships' House. However, I do not think that I ought to say any more about that because this evening we are discussing a situation in which quota is purchased under an outgoers' scheme, which is rather different from the termination of a tenancy, which is the situation under the Agriculture Bill. The payment in the case which we are discussing this evening would be coming from outside rather than from within the industry, and milk production on the farm will cease causing a loss of revenue for both tenant and landlord. Therefore, these differences need to be taken into account, and I assure your Lordships that they are being taken into account, in our continuing consultation with the industry organisations on this point.

At this hour, dealing with the other main commodities, there is just one point that I should like to make on beef and sheep. I am looking at my noble friend Lady Elliot and I realise that sheep could be a subject in itself that we could debate for quite a long time this evening. However, the one thing I have to say to your Lordships' House and which you will expect and, I hope, wish me to say is that we are looking exceedingly critically in the negotiations at the proposals which have come forward on both beef and sheep in so far as we believe that they discriminate against the United Kingdom. Your Lordships will be familiar with what I am getting at.

There is the proposal for a specialist premium for beef, which is not satisfactory to us because it limits payment of the basic premium to 50 head in any eligible herd, which would not be consistent with the general CAP objective of ensuring the rational development of agricultural production as regards this country in particular.

When one looks at the sheepmeat sector, where our farmers have done so enormously well since 1980 in increasing our self-sufficiency as a country and our exports, once again we find the suggestion that payment of the annual ewe premium should be limited to a maximum of 500 ewes in a flock or 1,000 in the less favoured areas. This would discriminate unfairly against the comparatively larger flocks of British producers. It is important that I also say that we are opposed to the proposal that Northern Ireland and the Republic of Ireland should be merged into a single region for the purposes of the sheepmeat regime. This would work to the disadvantage of Northern Ireland producers, as the rate of annual premium calculated for the whole of Ireland would not give them the benefit that they should derive from their higher productivity.

In his speech the noble Lord, Lord Gallacher, made the point that the reports of his committee had been drafted before the changes in green rates for some countries had been agreed. On the whole agro-monetary scene, as your Lordships know, the Commission has not proposed at this stage an alteration to the green pound. Given the unsettled nature of the sterling exchange market, this is clearly a sensible approach. It would be premature to say now whether any change might be appropriate later when price fixing decisions are taken.

In relation to the budgetary costs of the Community I should like to stress on behalf of the Government the need for measures to be effective in containing costs. The Commission has already stated that a supplementary budget will be needed later this year to finance additional expenditure because of the fall in the value of the United States dollar and to provide for a special programme of disposal of stocks. Most of that expenditure would be above the financial guideline for agriculture agreed by the Community. The Commission's justification for additional expenditure is that the fall in the dollar constitutes exceptional circumstances. It is argued that the scope for saving money should be urgently examined before a supplementary budget can be considered.

Let me answer three questions that I have not been able to pick up in what I have been saying. The noble Lord, Lord Northbourne, made the point that access to intervention could be made conditional on participation in set-aside. It is an interesting idea. It is, as he said, similar to the way in which the Americans, for example, have supported their industry in the past. But there would be difficult administrative and political problems in allocating an intervention quota to every Community farmer and ensuring compliance. As the noble Lord is aware, we have to remember that many farmers never sell into intervention. The system would therefore require complex administration to decide which grain held by traders could qualify for intervention. I should like to look at the proposals, as I always do at all the things the noble Lord says on this subject.

On the same subject, there was the interesting speech by the noble Lord, Lord Walston, about a quantum system. The negotiation of national quantums would not be easy. There would be pressure to set figures at a high level and a great deal of argument over the base period. Experience with the milk quota negotiations was that these were substantial problems. The allocation of quantum to individual farmers would similarly be difficult. Most of the problems with milk quota allocations would once again arise.

Nonetheless, the noble Lord, I do not deny, makes a strong case. It is the second occasion on which I have heard him speak about this subject. The cost of making direct payments to individual producers could be high unless we were to accept a significant decline in returns, with the world price received by producers being made up by only limited payments. If that were to be the case, we should be moving towards a sharp reduction in the prices that farmers would be receiving, which caused so much apprehension so far as my noble friend Lord Ferrers was concerned.

The problems of the CAP cannot be solved, we all realise, at this year's price fixing alone, but for the United Kingdom's part we shall continue to press for measures that take us in the right direction and allow our consumers and taxpayers to benefit from the undoubted advances that agriculture has made under the CAP. We believe that our task is to make the CAP viable in the longer term and to promote a climate in which our producers can make the most of their enterprise, adaptability, and efficiency. I agree with my noble friend Lady Elliot that those qualities have to extend to our marketing techniques.

The measures that the Community take must be effective in tackling the problems of costly surpluses, and must also give flexibility to our producers to develop their own enterprises, in which my noble friend Lord Stanley believes so deeply; he thinks that it is the price mechanism to which we have to resort. At any rate, that is why we oppose quotas, and I believe that that is why my noble friend does so, too.

One last thing. We shall stand out against the elements in the negotiations which discriminate against the United Kingdom. We cannot accept measures which would penalise our industry simply because we have a more efficient agricultural structure. That approach is contrary to the whole philosophy of a common market. Rather, we shall be pressing for measures that are fair between partners and between member states. The CAP we are pressing for in the negotiations is one which the Community can afford and which provides realistic and fair support for our producers in the future.

10.11 p.m.

Lord Gallacher

My Lords, as I understand that the noble and learned Lord, Lord Templeman, is not to say anything more, perhaps I may on your behalf thank him for the very lucid exposition which he gave of his sub-committee's report on the milk outgoers' scheme and join my colleagues in thanking him for putting up with members of Sub-Committee D during the preparation of that important report. It has been a very useful debate—wide-ranging, as always, when farmers get together, and very realistic. I think some useful thoughts have emerged, even though perhaps the noble Earl, Lord Ferrers, in an outstanding speech, may have spread gloom and despondency a little too far, because in my own opinion there are solutions if member states are prepared to grasp them.

One of the difficulties as I see it is that, while Great Britain is realistic about the whole problem, one does not experience that same degree of realism in other member states, who seem to imagine that the situation can go on as now pretty well indefinitely. That leads me to repeat the point I made, perhaps inadequately, in my opening speech—that in any examination of socio-structural measures in view of the attitude of other member states it may be necessary to consider insisting on a fair measure of national initiative, particularly as regards cost.

I say that because I think that the problem can be contained by the United Kingdom, and in this regard I am very glad to hear from the Minister of the success of the conference which MAFF sponsored on investigating land use. Dereliction of land may be a possibility. Personally I do not see any dereliction in the value of agricultural buildings in the same light. When I see the price which oasthouses in Kent make on the market when they are converted my only regret in this life is that I do not happen to be the owner of one of them, because I could retire quite cheerfully on the proceeds of a single sale.

I say that as a measure of encouragement about the future of agriculture and, in particular, changes of land use. Planning regulations come into this and the Ministry of Agriculture may find that it has to fight for a more sensible attitude towards changes of use as far as agricultural buildings are concerned. The demand is there and I think it can go some way towards helping farmers, particularly those who are seriously disadvantaged. Although I recognise that there is a significant regional influence here, nevertheless the combination of regional influence and a measure of self help in such schemes could go some way towards solving the problem.

We must remember that we are dealing with the problem of too much success, even if this has been dearly bought. I believe that that is a more acceptable dilema than one in which we are struggling to emerge from failure; and I think that that is a consolation which we should take out of the CAP, its existence, and the part it has played, undoubtedly, in making the Treaty of Rome the success it has been. Once again I thank all participants in the debate this evening.

On Question, Motion agreed to.