HL Deb 28 April 1986 vol 474 cc35-44

5 p.m.

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

My Lords, with the leave of the House, I shall now repeat a Statement on the outcome of the meeting of the Council of Agriculture Ministers which is being made in another place by my right honourable friend the Minister of State, Mr. Gummer. The Statement is as follows:

"With permission, Mr. Speaker I will make a Statement about the meeting of the Council of Agriculture Ministers which took place in Luxembourg on 21st to 25th April 1986. I attended this meeting with my right honourable friend the Minister, who is unfortunately ill and not able to be present in the House.

"After negotiations which lasted throughout the week, the Council reached decisions on farm support prices and related measures for 1986–1987.

"The basis of the agreement is a freeze in common support prices, with substantial price reductions for certain Mediterranean products, in particular tomatoes and tobacco. Following recent currency developments, some changes in green rates were indicated. It was, however, important that these were not of such a size that they undermined the policy of price restraint. For this reason the United Kingdom supported devaluations of the green pound, the green franc and the green punt, which will increase support prices in national currencies by 2.75 per cent. in the livestock sector and by 1.35 per cent. in the arable sector.

"Turning to specific commodities, the United Kingdom has been particularly concerned about the growing surplus of cereals, and we made it clear at the beginning of these negotiations that we intended to press for effective changes to the existing regime on a fair basis. I am pleased to say that the changes we have agreed in the intervention arrangements and in quality standards, together with the introduction of a 3 per cent. co-responsibility levy, will have the effect of substantially reducing the effective level of support. The co-responsibility levy has been agreed for five years, with provision for a report by the Commission after two years on how the system is operating. As the House knows, we would have preferred a straight cut in the price for cereals. However, the co-responsibility mechanism as agreed is a substantial improvement on and simplification of the Commission's original unsatisfactory proposals. The levy will apply to cereals sold into intervention and act as a direct price cut, with a real effect on the market. The levy will be collected at the processing stage, but cereals processed on the farm will be excluded. We would expect to pay a proportion of the total levy which is close to our share of Community cereals production.

"An aid for small cereals producers will be introduced. The detailed arrangements for this remain to be decided.

"The Commission's original proposals included an unsatisfactory price structure for barley and a big increase in the average threshold price for maize. We secured changes in the Commission's proposals to remove the barley price distortion and to provide for a lower increase in the average maize threshold price.

"The support levels for rapeseed and sunflower seed will also be reduced if the crops in the Community exceed a prescribed maximum guaranteed quantity.

"The reduction in cereal prices will be of particular benefit to pig and poultry producers. The final form of the MCA reductions in this sector has yet to be decided, and the Commission will be submitting proposals on this in the near future. In the meantime, increases in negative MCAs for pigs, eggs, and poultry resulting from the recent realignment will be suspended until 1st June 1986.

"For milk, I am glad to say that we resisted considerable pressure for a price increase. In addition, the Commission's proposal to change the fat:skiin ratio was dropped. This will avoid adding to the costs of those food manufacturers who use skimmed milk.

"Despite the very real steps taken by the European Community to reduce the milk surplus, culminating in the introduction of quotas, the Community is still a substantial over-producer of milk. The United Kingdom was determined to secure a further reduction and so to cut this surplus. We were, however, insistent that the burden should fall equally on all member states. I am glad to say that, in the face of strong opposition from a number of countries, a further 3 per cent. cut in milk quotas was agreed. This will be effected over the next three years, initially through a Community buy-out scheme, but if this voluntary system is not effective in all member states, it will be underpinned by compulsory reductions. The maximum compensation chargeable to the Community budget for this scheme will be about 18p. per litre over seven years. But each member state will be able to set the rate of payment according to its own circumstances. There is also provision for national schemes to continue alongside the Community scheme. We secured a provision which allows larger dairy farmers to sell part of their quotas under this scheme.

"Additionally, the arrangements to off-set under-production of quota in one region against overproduction in another will continue for a third year. This has given useful flexibility in the United Kingdom in each of the first two years of quotas.

"For beef, we succeeded once again in securing an extension of the beef variable premium scheme unchanged. The maximum rate expressed in sterling will be increased as a result of the green rate devaluation. The Commission's proposals for reforming the regime for beef are to be further studied by the Council with a view to the decisions being taken by the end of this year.

"For sheep, we insisted on the removal of the proposed limit to the number of ewes per farm qualifying for the annual premium. We also secured the removal of the proposal to amalgamate Northern Ireland and the Irish Republic into a single region for the purpose of calculating ewe premium.

"Turning to the budgetary costs, the Commission indicated that the package as a whole will produce a total saving over 1986 and 1987 of 777 million ecu, a saving of 118 million ecu greater than would have been achieved under the Commission's original proposal. There remains, however, a serious problem about the substantial additional costs resulting from changes in the relationship between the ecu and the dollar and from the realignment of currencies. In supporting the settlement we made it clear that its budgetary implications would have to be referred, to the ECOFIN Council. They are being considered today by this council, which my right honourable friend the Chancellor of the Exchequer is attending. We will continue to seek a thorough examination of the scope for savings to minimise any supplementary budget this year.

"Overall, this price fixing has produced a highly satisfactory outcome and one that follows closely the approach endorsed by the House, without opposition, on 10th March. The pressure on support prices in the Community has been maintained. In particular, the effective reduction agreed for cereals marks an important step in the battle against surplus production. The outgoers scheme for milk is the next stage in bringing about a better balance between production and consumption.

"By devaluing the green pound, we have ensured that our farmers are treated fairly in relation to producers elsewhere in the Community, including particularly France and Ireland. We have removed from the original package those key elements of discrimination to which this House rightly took such exception—the 25-tonne exemption for cereals and the limits on headage payments for beef-cattle and sheep. Moreover, this settlement will have a negligible effect on food prices, which are, in any case, continuing to rise less than the rate of inflation. The package, therefore, represents a further significant step towards improving the common agricultural policy while safeguarding the competitive position of our own farmers. It is therefore good for Britain and good for Europe."

My Lords, that concludes the Statement.

Lord John-Mackie

My Lords, we are very grateful to the noble Lord for repeating the Statement. I am sorry to hear that the Minister is not too well and we hope that he will have a good recovery. He has had a very busy time indeed this last week because I think there have been six solid days of negotiation.

First and foremost, as regards the Statement itself I should just like to mention the euphoria—it is almost euphoria—in the last paragraph. It is perhaps a little too enthusiastic. However, we cannot begrudge the Government a little enthusiasm sometimes.

As regards paragraph 2, I wonder whether the Government have given any more thought to the question of the green pound and the continual adjustments that have to be made. I note that the Chancellor of the Exchequer and the Minister are both keen on joining the EMS, which would solve many of the problems in that respect.

I note that no details of the intervention arrangements have been decided. That is an arrangement which is very important to farmers and rumour has it that there will be no intervention buying from harvest until December. I wonder whether the Minister can enlighten us a little about this.

It is not quite clear exactly how the co-responsibility levy of 3 per cent will work. The Statement says in particular that, The levy will apply to cereals sold into intervention I presume that this means all cereals sold and not only those sold into intervention. The Statement goes on: The levy will be collected at the processing stage, but cereals processed on the farm will be excluded". Does that mean that they will be excluded if they are processed and sold? I think this is rather important, because if one can process cereals—for example, crush them—and then sell them for horsefeed and so on, there is a very big loophole. I think that is a loophole that needs to be explained. It is very good that the Minister has managed to get a fair spread of this levy. The first proposal of 25 tonnes was obviously going to be unfair.

The support levels for rapeseed and sunflower seed, if one reads the sentence carefully, amount to a quota, do they not? Although the word "quota" is avoided, there is no doubt that quite a few people are beginning to think along quota lines. I have no doubt that the poultry and pig production people will be pleased with some of the figures if the price of foodstuffs comes down.

On the important issue of the 3 per cent. cut in milk quotas under the outgoers scheme, I made my opinion known last Monday in the debate and I shall say no more today except to note that, again, it is stated that if this is not a success, it will be underpinned by compulsory reductions. Once more, this is going back to quotas; and it is happening repeatedly. We note that when originally mooted it was going to be nearly 27p a litre. It is now reduced, according to my original copy, to 17p, although the Minister said, I think, 18p. There are a fair number of corrections. I do not believe that this will be anything like the attraction that the EC considered it earlier for people to take the outgoers scheme, especially when it is now obvious that the landlord—this is where the tenants are concerned—will get a fairly large share of it.

The flexibility in the United Kingdom in the first two years of the quota is good. I must congratulate the Minister on the beef premium scheme and the ewes qualifying for annual premium. I note the misprint showing ewes spelt "yews". I wonder whether this relates to thoughts about woodlands that might be planted. I do not know. But that is a Freudian slip.

The overall fixing has produced a highly satisfactory outcome, says the Statement. It goes on to say that this is an important step in a battle against surplus production. I wonder very much whether that is the case. There is nothing significant so far as one can see in what the EC has done compared with its original, not very significant proposals. Its slackening of them now will not do much good at all. I would welcome the Minister's remarks on the questions I have asked.

Lord Mackie of Benshie

My Lords, following, as usual, my noble kinsman, I find he has said much of what I was going to say, including pinching my crack about yew trees that I would have put rather better. I should like to thank the Minister for repeating the Statement. I must say, however, that it is all too late. The Minister has done well in regard to a freeze in common support prices. But we are are up against a curious and difficult situation. If there had been a freeze five years ago, with the farmers of the Continent clearly told what we were going to do and what prices were going to be, we would not be in the mess that we are today. However, it is still better late than never.

It is not, of course, a freeze. We are adjusting the green currency so that there will be a rise in prices in France and Germany, and I see, also here. The paper does not tell all—except to people like myself who know about these things. The intervention arrangements will hit the farmers who can least afford it extremely hard. I should like the Minister to say, broadly, what the intention is. I understand from newspaper reports that there will be no intervention until well after harvest. I should have thought that this would mean a drop in the price that the farmer selling off the combine will have to take, when he cannot afford to keep it until November and December, of anything up to £20 a tonne below the stated price.

5.15 p.m.

This sort of device is wrong. We should be fixing a bottom price so that people would know what they were to get. This should be sufficiently low to deter excess production, particularly from the bad lands—the land that should not be growing. It should be coupled with the proposal, which again comes far too late, to assist small producers. The Statement says that detailed arrangements remain to be decided. They will have to be decided fairly quickly before harvest if they are to be any help to the people who will be hit extremely hard by the lack, so far as I can see, of any intervention during the back end of this year. The Minister should, I feel, comment upon that.

I should also like the noble Lord to say whether he thinks that this will result in a drop in cereal production. Will the good lands produce so much more that, despite the fact that people drop out from the bad lands, there will be a further surplus this year? If he can say whether this is likely, it might be useful. I feel that there will still be a surplus.

Taken as a whole, the move is in the right direction. At least some of our Continental partners are beginning to see sense. The Minister should, however, say whether he considers that spending will be kept within the budget. I know that he has passed this matter on to the finance Ministers. But it does not look to me as though it can, particularly with the pending trade war with the United States over the export of cereals.

In short, the Statement goes some way towards correcting many of the acts of foolishness that have been perpetrated owing to the lack of courage shown by the agriculture Ministers, not so much by the Commission. I fear, however, that things are still on course for the production of more surplus food which may well bust the whole system.

Lord Belstead

My Lords, I am grateful to both noble Lords for their reception of my right honourable friend's Statement. The noble Lord, Lord John-Mackie, has kindly said a few words about my right honourable friend, who is not well, which I know he will appreciate. The noble Lord, Lord John-Mackie, put the question as to whether we should now join the EMS. All that I would say on the agro-monetary aspect is that the Community states, I believe, would feel that justice was done.

As the noble Lord will know, there was no scope under the present system for either Germany or, indeed, the Netherlands to have a devaluation of their green currencies. It was, however, open to other countries. When one looks across the board and sees what has been done in other countries, it was right that we should have some devaluation of the green pound and in particularly that the Community should have differentiated between the livestock sector where the devaluation is greater and the crops sector. I simply add that devaluation of the green pound is going to be worth about £160 million so far as British producers are concerned. Against that £160 million, however, must be put all the other reductions in prices in the package, so that in the end we have what is in effect a freeze in returns.

The noble Lord, Lord John-Mackie, asked me to say something about intervention, as did the noble Lord, Lord Mackie of Benshie. It has been agreed by the Ministers in the Agriculture Council that there will be no intervention for the months of July and August. Intervention will be available from 1st October, with harmonised periods for payment. It will be available also from 1st September but with longer payment delays which still have to be fixed.

The noble Lord asked me to say a word or two about the co-responsibility levy. We shall have to see the detailed rules which will be proposed by the Commission in due course. However, if I may answer a specific point which the noble Lord, Lord John-Mackie, put to me, the intention is to exclude cereals processed on the farm for use on that farm. It is not intended, as I understand it, to exclude cereals processed for sale, for instance, by farm co-operatives.

The noble Lord was good enough to say that he very much welcomed the removal of the 25-tonne exclusion clause which would indeed have ended up with the United Kingdom paying in co-responsibility some three-quarters of the amount which would be required from the whole of the Community. We now have a fair deal with regard to the the co-responsibility levy. We shall find ourselves paying in levy very much the same sort of percentage as our percentage of production of cereals in the Community.

The noble Lord said that the Statement with regard to rape and sunflower seeds is nothing more nor less than a quota in another name. With respect to the noble Lord, I do not think that I would agree with him. It is a more effective guarantee threshold system which is based on a United Kingdom suggestion and which will ensure that aid levels are reduced proportionately when production exceeds the prescribed threshold. Noble Lords may ask why we have to bring this forward. Did we not already have it? Yes, we did, but the Germans succeeded in removing it at the last price fixing. With regard to rape and sunflower seeds we have succeeded in putting it back in. If I may say so, it is a sensible move.

The noble Lord again on milk, said that he felt this was a move towards quotas. With respect to the noble Lord, whom I normally follow in what he says because of his great experience, what has been put forward is much more refined than that. We shall all want to look to see what the small print says on the Community outgoers scheme.

There are two points that I would make. First, there will be some opportunity for a certain amount of restructuring under the scheme. I shall not go further than that. I think that we shall want to see what the opportunities may be. Secondly, when the noble Lord asked whether the 18p will be enough. I think that with the new provision for part quotas we shall have a good response. I do not think we shall have to resort to compulsory cuts, but this will depend upon producers.

The noble Lord, Lord Mackie of Benshie, said that this comes too late. There was a great deal, understandably, in this Statement about another place, a very important debate in another place, and other matters. In your Lordships' House we have had three enormously important reports which were produced by the European sub-committees of your Lordships' House and which were debated about a week ago. I remember that one of the main matters which came out of the report on cereals and on the price fixing was the need for consistency. I therefore simply say to the noble Lord that his criticism has weight. As usual, he hits the nail on the head. But I very much hope that this price fixing will be the start of a more consistent policy.

The noble Lord said that he felt that intervention would hit hard the farmers who could least afford it. I hope that I have given the noble Lord the details of what the intervention arrangements are and he may now take a slightly more beneficent view.

The noble Lord asked two further questions. The first was whether cereal production would drop; and, finally, what was the effect from a financial point of view. With regard to production dropping, I must put on record that my right honourable friend the Minister, when he addressed the National Farmers' Union annual general meeting, for the first time put forward the thesis so far as the British Government are concerned that we needed to look for a package in which he believed there might be not only price restraint but also a voluntary set-aside scheme. We are all now anxiously awaiting proposals from the European Commission on structures, which, so we understand, will include some proposals for set-aside. But we must wait and see.

With regard to the financial effects, the noble Lord is absolutely right. There is a great problem regarding the level of the dollar and the movement of European currencies.

I finally make the point that the commissioner confirmed during the Council that the Commission recognises that both the 1986 and 1987 budgets must stay within the 1.4 per cent. ceiling for VAT.

Lord Boyd-Carpenter

My Lords, can my noble friend say whether the Community is still supplying certain foodstuffs at very low prices to Libya, and, if so, whether it has been decided to stop that?

Lord Belstead

My Lords, the Community, so I am advised, has taken on board in the Council of Agriculture Ministers the prevalent feeling about this point. If I may confine myself for a moment to milk products, the terms of any trade with Libya would depend upon offers made by traders. However, I am absolutely certain that the Commission will take account of the current trade relations with Libya, arid the Commission has said that the Community will not be offering any further special deals for Libya.

Lord Cledwyn of Penrhos

My Lords, I congratulate the noble Lord on the cheerful and optimistic way in which he read out the Statement. He has the right kind of temperament to be one of the Ministers of Agriculture.

I do not want to upset the noble Lord unduly, but may I put one short question to him about the budgetary implications of this agreement? It seems that the new package will add £1 billion to the farm budget. Does he agree that this will inevitably precipitate a fresh controversy on how to prevent the Community going bankrupt in the autumn? Where is the money to come from? As a result of this extra spending the countries of the EC will be forced either to raise the share of VAT—which is now 1.4 per cent., and that goes to Brussels—or to cut spending in other directions, for example, on the regional and social fund.

I am therefore putting three possibilities to the noble Lord: VAT; a supplementary budget of some other kind; or a cut in this fund. If there is a cut, does he not agree with me that there will be considerable protests especially from the two new members of the Community? Will the noble Lord therefore agree with me that we should be very cautious in the way in which we present this agreement?

Lord Belstead

My Lords, I in no way disagree with the noble Lord, Lord Cledwyn, in his last words. He has every right to counsel caution and to warn me that there should be a becoming gravity in these matters. However, I ought to say to the noble Lord that the original proposals which were put forward by the Commission were estimated to produce savings, after taking account of revenue from the cereals co-responsibility levy of 659 million ecu, which is about £410 million. As a result of this Council the savings will be some 777 million ecu, which is the equivalent of about £485 million. Therefore as a result of the deliberations which ended on Friday the savings have been very much increased over and above what the Commission had intended.

In saying that, I take the point made by the noble Lord. It is an extension of what the noble Lord, Lord Mackie of Benshie, asked: "Are not the cards nonetheless stacked up against us?" There is the problem of the level of the dollar, and of the movement in the European currencies despite the fact that they are within the EMS. The noble Lord, Lord John-Mackie, was recommending that the moment may have come for Britain to join that. Perhaps I ought just to say that the commissioner indicated that the agreement reached is consistent with the budget discipline agreement. The Commission takes the view that the forecast overrun of expenditure is the result of extraneous factors related to changes in the ecu/dollar relationship and the realignment of currencies. The budget discipline text provides for such exceptional circumstances to be taken into account, but because this is a very grave matter it is being discussed today in ECOFIN.

I would only add what I said also to the noble Lord, Lord Mackie of Benshie: Namely, that the commissioner also gave an undertaking that he realised that the 1986 and the 1987 budgets had to stay within the 1.4 per cent. VAT ceiling.

Lord Walston

My Lords, I should like to ask the Minister two questions. I am confused about the saving of 700 million ecus. Is it a saving over last year's expenditure? Can we now look forward to the agricultural budget being 700 million ecus less than it was last year; or is it a saving over some earlier estimate which was a good deal higher? Can he tell us how much he expects the agricultural budget to be this year in comparison with last year?

Can he also tell us how much he expects the surplus of, for example, wheat, to diminish, if at all, this year as compared with last year? Given the fact that the Minister described it as a highly satisfactory outcome, are we entitled to think that there will be some savings of that nature and some diminution in surpluses?

Finally, on a purely technical point, I should like to know whether the 3 per cent. co-responsibility levy is to be paid only on grain cereals which are sold into intervention; or is it to be paid on all cereals? If the latter, is it 3 per cent. on quantity or 3 per cent. on price? How do you assess such crops as malting barley? Will they have to pay a higher co-responsibility levy than those which are simply sold for grinding?

Lord Belstead

My Lords, the savings to which I have been referring are savings over projected expenditure. Once again, I in no way try to hide the fact that this means that the cost of the Community, from the point of view of agriculture, will continue to rise and that that means that we shall need a consistent policy in order to bring it down.

Secondly, the noble Lord asks whether or not the surplus of wheat will diminish. As the noble Lord knows better than I, all the wheat is in the ground and that will be harvested anyway. However, it will mean about a 6 per cent. cut in returns to producers. I therefore repeat that if producers begin to know that this is the beginning of a consistent policy, they will start to take heed. Incidentally, it is interesting that the only commodities which have received an uplift so far as these negotiations are concerned are, I think, peas and beans for protein.

Finally, the noble Lord asked exactly what the 3 per cent. co-responsibility levy means. It will mean £3.39 a tonne, payable on sales for processing for human or industrial use into intervention or for export. That will be the effect of the levy.

Lord Cledwyn of Penrhos

My Lords, will the noble Lord ask his right honourable friend to find a better name than ECOFIN? It sounds like a ballistic missile!

Lord Belstead

My Lords, it is one of the many matters which I think we shall have to ask the Treasury to deal with, because it is not so much an agricultural as a financial council.

Lord John-Mackie

My Lords, I should like to raise a point for clarification. The Minister referred to 3 per cent. all over and then he said £3 per tonne. It does not seem to add up. Is it £3 per tonne or 3 per cent.?

Lord Belstead

My Lords, I am advised that it is 3 per cent. of the intervention price, and as things stand at the moment it will work out in cash terms at £3.39 per tonne.