HL Deb 17 December 1986 vol 483 cc209-20

5.26 p.m.

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

My Lords, with the leave of the House, I should like to repeat a Statement which is being made in another place. The Statement is as follows:

"With permission, I will make a Statement on the outcome of the meeting in Brussels of the Council of Agriculture Ministers which covered 90 hours of negotiations, including two all-night sessions, and ended yesterday afternoon. My right honourable friend the Minister chaired this meeting and I"—

that is, my Lords, my right honourable friend Mr. Gummer—

"represented the United Kingdom. Important decisions were taken which involved major reforms to the milk and beef sectors.

"On milk, the agreement will result in reduction in production of 94 per cent. over the next two years. This is to be achieved first by the permanent reductions in milk quotas of 2 per cent. for 1987 and a further 1 per cent. in 1988, as agreed last April; secondly by a temporary suspension of quota by 4 per cent. in 1987 and a further 1½ per cent. in 1988; and finally by a further 1 per cent. reduction which results from a tightening up in the operation of the quota system. I insisted throughout the negotiations that the necessary reductions in production had to apply in all member states, and this was agreed.

"Our aim will be to achieve as much of the permanent reduction as possible in the United Kingdom by the voluntary outgoers scheme. I am pleased to say that the maximum rate of Community compensation under this scheme will be increased by 50 per cent. from 2.6 pence per litre a year to 3.9 pence per litre a year over seven years. Compensation from FEOGA for the temporary suspensions of quota will be paid at 6.5 pence per litre per year, and this rate is guaranteed for two years.

"Changes are to be made next year in the arrangements for implementing the supplementary levy in order to make this more effective in discouraging production in excess of national quotas. We succeeded in our aim of retaining Formula B and Article 4a, which contribute to ensuring the flexible operation of the quota arrangements within the United Kingdom. As part of the agreement, changes are to be made in the intervention arrangements. These are designed to prevent excessive recourse to intervention, which has been noticeable in the Community particularly over the past year.

"The Council took note of a Commission paper which sets out its plans for a major disposal of existing intervention stock, designed to reduce these to more manageable levels by 1989. The cost of this programme of disposals will be financed over the four years beginning in 1989.

"On beef, the Council agreed substantial reforms in the intervention system. These are designed to reduce both the cost and the volume of intervention buying. They involve reduction in the price levels at which intervention buying will operate. It will take place only when the average price in the Community is below 91 per cent. of the intervention price and when at the same time the average price in a particular member state or region is below 87 per cent. of the intervention price.

"Alongside these changes in intervention, various premium arrangements were agreed. These include a new premium worth £16 per head payable on male animals only on specialised beef enterprises up to a limit of 50 heads per farm. This particular premium was totally unacceptable to the United Kingdom, and we shall not be applying it here. Instead, we succeeded in retaining our existing variable premium arrangement on its existing terms, which is much more favourable. The maximum rate payable averages at about £45 per head and covers heifers as well as steers and young bulls. Moreover, the 50-head limit does not apply to it. In addition, the rate of Community funding for the suckler cow premium is being increased. It will be possible in 1987 to pay up to a maximum of £33 per head. The decision on the actual rate will be taken later.

"These changes to the beef system represent a major shift away from dependence on intervention towards a more market-orientated policy. This is in line with the approach which we have followed in the UK under our variable premium system. The beef arrangements have moreover been agreed until the end of 1988. They will, therefore, provide an important element of stability for beef producers during a period when the adjustments to milk production, and the effects of this on the beef market, will be felt.

"In response to the request which we made last September, the Council agreed to devaluation in our green rate of 6 points for beef and 3.2 points for sheep. These changes, which take effect on 5th January, will result in support prices in these two sectors being increased by around 5 per cent. and 1½ per cent. respectively. This will be worth an additional £50 million to farmers in a full year. The devaluation will also help towards restoring our meat traders' position relative to Ireland. Other green rate devaluations were agreed at the same time: for France in the same two sectors; and for Greece, Portugal and Spain in the sheep sector only. The Council broadly approved in outline a package of socio-structural measures and agreed that detailed decisions on these would be reached by the end of February.

"One major aim of these arrangements is to help tackle the surplus problem. Member states will be required to offer aid for the extension of production and conversion to non-surplus output, and also to operate an early retirement scheme for farmers who want to abandon production on their farms. These schemes will be able to cover afforestation as well as fallowing. Member states will have a wide measure of discretion on how they will be applied.

"The measures will help the southern countries in the Community to restructure their farms. There is provision for Community-funded schemes for environmentally sensitive areas. This is of course an important concept which has been introduced into Community legislation as a result of the pressure from the United Kingdom", and in particular from my right honourable friend.

"The Commission originally proposed a limit on the financial contribution to compensatory allowances for livestock which would have severely discriminated against some farmers in this country. I succeeded in securing a form of words in the final document which is acceptable both to us and to them. The changes, particularly in the milk sector, will of course cause serious problems of adjustment for many individual farmers. But they will be sizeably compensated. The package agreed at the Council on milk and beef fits in well with the best interests of the UK industry. In particular, the cutback in milk production will be applied across the Community and we have retained flexibility in the system; we have kept the beef variable premium and an improved suckler cow premium; and we have secured the green rate changes which will greatly benefit our livestock sector.

"The Agriculture Council has, I believe, under the British Presidency taken an historic step forward in tackling the problems of surpluses which will bring substantial savings to the Community budget. Twelve nations have together found the way forward in agriculture, despite differences so big that once they could have caused wars. It is in the interests of all of us—farmers, consumers and taxpayers alike—that decisions have been taken which put the common agricultural policy on the right road for the future".

My Lords, that concludes the Statement.

Lord John-Mackie

My Lords, we are very grateful to the Minister for repeating this complicated, interesting and important Statement. I should like first to congratulate the Minister of Agriculture on the tremendous amount of work which he has put in on this subject. He has achieved what are in many ways very good results indeed. However, I think that the press have become rather euphoric about this matter. For the Daily Telegraph to say that, EEC conquers food mountain", in letters almost two inches high is going a bit too far.

The Financial Times is much more cautious in saying: Brussels reform package gets to grips with milk problem". The Times says: Farm Ministers agree on sweeping CAP reforms and it again asks what is a very big question: How soon will EEC mountains begin to fall? I think we must look at the situation in the light of the major problem which is tackled here on two fronts only—but they are indeed two important fronts. I will not go into the details of this very complicated Statement, which will require much more study and much more time than we have tonight. However, as we all know, there is a necessity to stop the building up of surpluses and this is only a start. Very little is said concerning how to deal with surpluses which are already there. There is, in the paragraph half-way down the first page, the statement: The Council took note of a Commission paper which sets out its plans for a major disposal of existing intervention stock". There has been some publicity on how this will be done, but I hope the Minister will be able to comment on this major item involving getting rid of the present surpluses as well as controlling those which may occur in the future.

As regards milk, we note that the United Kingdom is to rely mainly on a voluntary outgoers scheme for the next two years. After our debate at either the end of last year or the beginning of this year on this subject of whether an across the board cut in quota was the best plan for a voluntary scheme, I made it plain that I frankly did not think that scheme would work. We know that the response was very poor. I should like to ask the Minister whether, in spite of an increase in inducement, he really thinks this will give the 9½ per cent. over two years that the Government expect in this country, as distinct from other European countries. This is a very real problem indeed.

The other point I should like to have clarified concerns the paragraph in the middle of the first page of the Statement which says: As part of the agreement, changes are to be made in the intervention arrangements. These are designed to prevent excessive recourse to intervention, which has been noticeable in the Community particularly over the past year". We are not told how that will be carried out.

I said that I would not go into detail, but I am afraid that I have done so. However, as regards beef it is difficult to tell how much effect the scheme will have. As the noble Lord knows, there is a great deal of beef in the pipeline and one cannot shut it off like a tap. We are very grateful indeed for the retention of the variable premium and the increase in the suckler cow premium. Of course all this depends on whether the premium will be sufficient to compensate for a drastic drop in price. The devaluation of the green pound will certainly help; there is no question but that it will help all stock.

However, there have already been estimates that there will be a drop of £50 per head for fat cattle. I do not know how correct that estimate is. But when one thinks of the flood of dairy cows that will come on to the market if the Government get their outgoers scheme, with the number of cows that will come out of the scheme, one realises that it will create a big beef problem. If that happens, the demand for dairy calves will go down, which will be yet another disadvantage in terms of the income of the dairyman. I should like the Minister to look at this point. Everything that is done has a rolling effect on all facets of agriculture; then a major scheme like this comes forward to reduce the price. The devaluation of the green pound, as I have said, will help all stock, including sheep producers. The problem is what one does if one goes out of milk or out of beef. In many areas—indeed, in the bulk of areas—I think the decision is bound to be to go into sheep, which will create a surplus in the sheep regime.

The Statement refers to alternatives. Perhaps the Minister has some idea what these alternatives are likely to be. They are getting fewer as the years go on. Whether the socio-structural measures mentioned in the Statement will help by persuading farmers to retire and abandon their land is anyone's guess. No one denies that we have these enormous problems. We are grateful for the start that has been made in the conditions on which the Ministers of Agriculture have managed to agree. As I said earlier, it is such a detailed question to go into that I hope we may get a debate on the whole subject after the Recess.

I ask the Minister to remember that drastic cuts in farm income will hurt not only farmers and farm workers but the entire rural community. I hope that will be borne in mind as further plans for dealing with the problem are envisaged.

Lord Mackie of Benshie

My Lords, I thank the Minister for the Statement. As usual, I have to come after my noble kinsman, who has said many of the things that I wanted to say. However, it would do no harm to say them again.

The cuts are necessary, but I do not think that anyone should pretend that they will not hurt somebody. There is no need to declare an interest; my interest in agriculture is long term. The reason that I welcome the breakthrough—and it is a breakthrough that has been made—is that, if we do not do something about it, the whole of the CAP will go "bust", and we will be left without any support arrangements for farming except the national ones that may be made in this country—a country that is the least sympathetic to agriculture in Europe.

The Government have therefore done reasonably well in making a start. If they had been more European and more sympathetic and had not lectured quite so much, they might have made a start earlier. Nevertheless, they have made a start. On milk, which is the worst problem that we have, I wish to ask the Minister how much he intends to reduce the surplus. The previous target that we had resulted in an enormous surplus continuing to go into store, so ruining world markets. I should like to ask him, if we achieved 9.5 per cent. to 10 per cent., what state of balance this will give between production and consumption in Europe.

It is important to realise that the EC has had a severely deleterious effect on really competent and unsubsidised agricultural industries in New Zealand, which I think is the best example. I have just come back from there. The farmers are really being hit over the head. They are making every effort to cut. They are cutting production—they have to—but I should not like them to be bracketed with the United States, as I see they are in the press. It would be valuable to know the Minister's attitude on New Zealand production.

I should also like to ask the Minister what effect he thinks the cuts in milk quota—the release of cows for slaughter on to the beef market—will have on the good effects of the 5 per cent. revaluation on beef. If the intervention price is lowered to 87 per cent. before the premium is paid, I do not think that we can look forward to anything but a definite fall in the price of beef and a very difficult three or four years for the beef industry. I should like the Minister to comment on that. Can the Minister also say whether we are paying the maximum allowed under EC rules to the hill farmer for his hill cow and hill sheep? I think that he will need this protection. Without any doubt some people will go over to the rearing of sheep on the low ground.

The Statement mentions the other measures that will have to be taken, such as getting land into forestry. That, the Statement says, is a national matter. Will the Minister tell us what practical plans he is producing? It is very important that the farmers know there is some real alternative to creating a surplus in another area, which of course is what happens when one takes land out of production. If there is no substitute, that simply causes a surplus in another area. If he can tell us something on that, it would be helpful.

The final point that I wish to raise concerns cereals. I should like to ask the Minister what the Government are going to do about cereals, which are one of our biggest problems next to milk. Something must be done, or we will be floating up to our necks in cereals. We already have enormous surpluses costing large sums to store. It is extraordinary that no mention has been made of any plan to deal with the main factors now threatening the CAP.

5.45 p.m.

Lord Belstead

My Lords, I am grateful to the noble Lords, Lord John-Mackie and Lord Mackie of Benshie, for their reception of the Statement. The noble Lord, Lord John-Mackie, gave his congratulations to my right honourable friend for the negotiations that he has conducted through many long days and indeed nights over last week. The noble Lord, Lord Mackie of Benshie, was good enough to say that this is a breakthrough. Indeed, I believe it is. In these negotiations, the Government believe, we have moved from a position in which Europe has been for many years since the war, when we were protecting people from shortages, to trying now to do something about tackling the unacceptable surpluses.

The noble Lord, Lord John-Mackie, asked what the savings will be. At this stage, ahead of any debate that we may have, perhaps I may say that the milk package is designed to produce savings to the Community budget of £1,200 million over the next three years. The decisions on beef should produce savings, compared to the present beef arrangements, of some £138 million up to the end of 1988. There will also be savings on CAP market support resulting from the socio-structural measures. It is true that those savings will be offset to some extent by the costs of the green rate devaluations, but, as I know the noble Lord, Lord John-Mackie, will be the first to say, those are very necessary and welcome to the producers in the country. In brief, that is the scene on the financial savings.

Both noble Lords asked me to what extent this Statement and these negotiations are going to reduce the surpluses. In regard to milk, the intention is to reduce both butter and skimmed milk powder stocks to normal levels over the next two years. By that I know that the Community means trying to get the stocks down to levels of 200,000 tonnes in store for both butter and skimmed milk, compared with 1½ million tonnes of butter in stock and 1 million tonnes of skimmed milk powder in stock at the present time. It is intended that this should be done by deferring the reimbursement to member states of their purchase price for intervention butter until 1989 and then to spread the cost of the reimbursement to the member states over the next four years.

The noble Lord, Lord John-Mackie, asked whether we are really going to achieve the uptake of the outgoers scheme by farmers, even though, as he was good enough to recognise, there has been in the negotiations a massive increase of 50 per cent. for the outgoers scheme in the compensation that will be offered to farmers. Let me just put this on the record. The objective is to achieve a 3 per cent. reduction in production of milk by permanent quota cuts. We hope that with the 50 per cent. increase in the rate of payment to outgoers it will be possible to get the outgoers to come in and take up the whole lot.

I say that because we have gone from 18.3p per litre compensation to be offered up to 27½ per litre to be paid over seven years, an increase of 50 per cent. But if farmers do not come forward in sufficient numbers to take up the outgoers scheme, one of the great advantages of this negotiation is that we could then pay the enhanced rate of compensation across the board to farmers from whom we should then have to make the necessary resulting cuts in order to achieve the 3 per cent.

Then 5½ per cent. is to be achieved by temporary quota cuts over the next two years. These will be across-the-board cuts but the compensation will be at the generous rate of 6.5p per litre a year for at least two years, and the remaining 1 per cent. cut in production is to be achieved by changes in the calculation of the super-levy. This should eliminate production over quota, which amounts to about 1 per cent. at the present time.

The noble Lord talked about the income of farmers from beef. I simply say at this stage of the afternoon that it is reckoned that the beef variable premium scheme is going to add £120 million to the incomes of farmers for the forthcoming year. I am delighted that that is so. Perhaps I may take this opportunity to say that it gives me the very greatest pleasure to be able to stand at the Dispatch Box and say that we are continuing with the scheme which was started by the noble Lord, Lord Peart, in the 1970s. I also make the point that the green rate devaluation will lift the maximum rate of the variable premium in this country to 9.4p per kilogram. I think that the position for beef producers, although not easy, is nonetheless perhaps better than the noble Lord was indicating.

The noble Lord then asked what when all is said and done the alternatives are. This is where we come to the last part of the Statement, which talks about the agreement—what I would call heads of agreement, which have to he finalised by the end of February of next year—on the socio-structural measures. Embedded in those agreements on socio-structural measures, as the Statement says, is an agreement that there is to be a scheme for payments for more extensive or reduced production, including fallowing.

That is the answer to the noble Lord, Lord John-Mackie, who asked what the Government are going to do about cereals. This is the trailer for what could be, if our proposals are accepted by the Community, a cereals set-aside scheme, a cereals land diversion scheme. The words in my right honourable friend's Statement on socio-structures where they refer to fallowing are quite clearly an opportunity which could still be seized by Community countries early next year to go in for a cereals land diversion scheme. But we shall have to wait to see whether that will in fact happen.

There are two other questions which I do not think I have answered. The noble Lord, Lord Mackie of Benshie, asked me whether we are paying up to the maximum in the less favoured areas. I think the noble Lord knows perfectly well that we are not quite up to the maximum. I say no more about that at the moment. The noble Lord asked me a very important question, which is a variant on the question of the noble Lord, Lord John-Mackie. He asked whether at the end of the day there will be quite a lot of trouble in the beef market because of the cow meat coming out as a result of milk cow slaughterings. I should just like to make the point, which was not in my right honourable friend's Statement, that I understand that the Commission is to put forward 435 mecus in order to meet market management costs in the future.

Lord Boyd-Carpenter

My Lords, will my noble friend also accept from this side of the House the congratulations which have been so generously offered from the other side to his right honourable friend on this first substantial attack on what most of us regard as the scandal of the common agricultural policy? Is he aware that I offer these congratulations with particular enthusiasm, having just returned from Australia, a country in which comment on the common agricultural policy is not such that I can repeat it within the confines of this House within the rules of order?

Will my noble friend also answer two specific questions? He gave us a good many figures on the savings resulting from these changes. But can he bring the figures, plus and minus, together so as to tell your Lordships the actual net annual savings that will result from next year onwards from these changes? Can he also confirm—I hope he can—that one effect of these changes will be to secure that the sale at a nominal price to the USSR of butter and other foodstuffs will be brought to an abrupt and final end?

Lord Belstead

My Lords, I am grateful to my noble friend for what he has said about the success of the negotiations and I shall draw his words to the attention of my right honourable friend.

The net savings are as follows. They include the savings for milk, including stock disposals, and the deferred reimbursement to which I referred for paying from 1989 onwards. The net savings for beef, for socio-structures but with offsettings for the green rate changes, would be for next year 1,020 mecus. (I am talking in mecus; not, I am afraid, in pounds.) For 1988 there would be a saving of 450 mecus and for 1989 there would be a saving of 300 mecus to the Community budget. At this stage I have to say that the question of stock disposals is a matter on which we must await further proposals from the Commission, but I have taken on board what my noble friend said about the public attitude to disposals abroad.

Lord Walston

My Lords, I am full of admiration for the stamina of the noble Lord's colleagues in Brussels. I have not such full admiration, but I have some admiration, for their achievements. However, I must confess—I hope this is not unduly grudging on my part—that I cannot see that this is a real breakthrough which helps towards the ultimate solution of the basic problems of the common agricultural policy.

In considering the actual figures for milk, my understanding is that our present surplus of milk production within the Community is around 12 per cent. These proposals appear to me to reduce milk production in 1987 by about 7 per cent., leaving a surplus of 4½ per cent. to 5 per cent. which will add still further to the butter mountain or the milk powder mountain. In the following year the total reduction will have amounted to 9½ per cent. Therefore according to my calculations, although the mountains will grow less fast they will still continue to grow. I hope that my calculations are wrong and that the noble Lord will be able to show that in fact the surplus will not only grow less fast but will disappear and become a minus quantity. I should be grateful if the noble Lord could inform the House further on that point.

I support my noble friend Lord Mackie of Benshie in his comments about cereals because, after all, milk and cereals between them are by far the greatest part of the cost of the common agricultural policy and present the largest problems with regard to storage. While I hope a breakthrough may have been made, there is nothing in the Statement which tells us anything about cereals; and although there are pious hopes from the noble Lord that in February something may be done we need rather more concrete action than that if the cereal mountain is to cease growing at the terrifying rate at which it is now growing. All that is quite apart from the question of the disposal of existing surpluses, but I do not think I would be in order to trespass on that subject now.

6 p.m.

Lord Belstead

My Lords, the noble Lord is more or less right in what he said at the beginning of his intervention. The figure I have is a 6 per cent. reduction in the production of milk products. The noble Lord put to me the logical conclusion that therefore the mountains will continue to grow. With respect to the noble Lord, he is neglecting that part of the Statement which makes clear that there will be a policy of stock disposal by the Commission, about which I said to my noble friend Lord Boyd-Carpenter that I did not think I could say more this evening. However, I said to the noble Lord, Lord John-Mackie, that the intention through the stock disposal policy is that over the next two years it will be possible to reduce the stocks of both butter and skimmed milk powder to normal proportions in store. There is therefore that additional factor which, with respect to the noble Lord, I think he omitted.

As regards cereals, again with respect to the noble Lord, who said that something needs to be done, I must say that two things have been done. We have put forward from this country—and we did this three months or so ago—definite proposals which we believe are workable and attractive for a cereals diversion scheme—a form of set-aside which we believe could work and which is being considered by the Community at present. What is important, as I have already said, is that embedded in my right honourable friend's Statement—in the reporting of what has got to be agreed by next February on socio-structures—it is clear there must be some agreement on the giving of aid by nations for the fallowing of land. This is an open door which could lead to a cereals diversion scheme.

Lord Stodart of Leaston

My Lords, this is an immensely complicated subject. I think I saw even on the face of the noble Lord, Lord Cledwyn, a slightly puzzled look, even with his tremendous experience of agricultural politics 10 years ago. It is much more complicated than it was 10 years ago.

Lord Cledwyn of Penrhos

My Lords, 16 years ago.

Lord Stodart of Leaston

My Lords, one thing is absolutely certain. It was a remarkable achievement at Brussels to secure a package which has been accepted by all the countries concerned. The complication is such that I believe it is quite impossible to give a balanced view of it, particularly off-the-cuff.

My noble friend on the Front Bench said (and I am sure he is right) that it is a very good deal for beef. However, I wonder whether he heard the figure that was quoted on early morning radio today—it was also mentioned by the noble Lord, Lord John-Mackie—to the effect that it means a drop in income to the country of, I believe, £50 to £60 per head for beef cows. If that is the case, what prospect does my noble friend think there is for the beef industry?

The beef industry is of particular importance to what have always been the most difficult areas in agriculture in this country. I refer to the uplands—the land that lies just below the high hills. Uplands are just outside what are often called the handicapped areas and they are vitally dependent on beef. If that figure is true, can my noble friend say what he thinks the prospects are for beef production?

Lord Belstead

My Lords, I am grateful to my noble friend for the kind words that he asked me to pass on to my right honourable friend. That I shall do.

My noble friend put the point that there are obviously concerns, as a result of these negotiations about the incomes of beef farmers. I think I should simply say that the retention of the beef variable premium scheme, the further devaluation of the green pound by some 6 per cent. so far as beef is concerned, and, incidentally, the harmonisation of arrangements for steers and bulls from which we will benefit to some extent in this country, will mean that the incomes of beef farmers will be down by only a small percentage. We must remember as I said earlier, that the target premium under the beef variable premium scheme, as a result of the green pound devaluation, is to be 9.4 pence per kilogramme. That is nicely up compared to previous years.

Lord Kimball

My Lords, does not my noble friend agree that he has made an encouraging start in the right direction with minimum hardship to the agricultural community?

Turning to the environmentally sensitive areas, when my noble friend negotiates the figure in February—I think it is still to be negotiated—will he please bear in mind that the figure of £6 million which was allocated to the environmentally sensitive areas for the last farming year was most welcome but in view of the number of areas put forward it was found to be inadequate? I think we have six areas agreed and a great many more areas put forward.

The set-aside policy, as my noble friend said, is still wide open. As regards the emphasis on fallowing, it would be a great advantage to the English countryside as a whole if we were allowed to return to permanent grass. Permanent grass need not necessarily be a crop. One can have permanent grass and provided it is mown out and not harvested or grazed, it will be far more useful and a greater advantage than having a lot of fallow land.

Lord Belstead

My Lords, I am grateful to my noble friend for saying that he feels that this important and difficult negotiation has resulted in a major and important change with as little hardship as possible. That more or less hits the nail on the head.

As regards environmentally sensitive areas, I am glad that my noble friend feels that the policy is right. I note that my noble friend suggests more money is necessary. On the final point that he made, I feel that there are both husbandry and sporting interests in that question and I shall look at them with interest.

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