§ 3.52 p.m.
§ Viscount Hanworth rose to ask Her Majesty's Government how the policy of reducing EC surpluses may affect the United Kingdom's self-sufficiency in food.
§ The noble Viscount said: My Lords, I am not a farmer, and I do not know enough about the European Community problems of supporting agriculture to suggest how this successive drain on Community finances should be reduced. This Question is concerned only with the measures to be taken to reduce the surpluses of meat, butter, wine and other commodities, and in particular what should be done by Britain or what may be forced upon us.
§ Not so long ago almost everybody thought that Britain should try to become more self-supporting in the food it produced. Great progress has been made in this direction. It seems that we are now thinking of reversing this ideal and taking land out of agricultural production, in some cases permanently. During the last war we had to dig up every acre available to produce more food. I accept that if there was a nuclear war such a concept might be unimportant because of its limited duration. However, that is only one scenario and if a war were to be fought with conventional weapons it might not be a short one. We thought that both the last wars would be over quickly, and we were wrong.
§ Leaving aside the possible threat in time of war, much more important now is the fact that if agriculture is cut down we may be more dependent on our exports to balance our trade. Oil and gas are running out. Hopefully, exports will fill the gap, but they may not do so. And it is not so long ago that Labour and others talked about a siege economy. In such a situation, even if none of these possible scenarios applies, there is a clear advantage in remaining as self-supporting in food production as possible because it provides economic stability and history shows that sooner or later self-sufficiency may be important. It follows that although I support the EC in the reduction of surpluses, I deplore anything that irreversibly reduces our agricultural potential—which does not include the planting of trees.
§ In any case, surely it is not necessary to do so. Whatever we do—except perhaps giving agricultural land to developers—will cost money. We should consider alternative strategies. I suggest that one solution would be to reduce the excessive use of nitrogen fertilisers in areas where their present high levels are not essential. Already we have a problem in keeping within the EC's maximum limit of nitrogen 1548 in our water supplies. We only do so by pumping more water out of the wells, thus reducing the water table to a dangerous level, which sometimes affects the stability of ancient buildings and much else. It is a temporary expedient that cannot be maintained successfully in the future.
§ The noble Earl, Lord Ferrers, put forward the idea of a tax on nitrogen fertilisers, and I should be interested to learn why the Government think that idea impracticable. Hormone and antibiotic treatment of farm animals have greatly increased milk and meat yields but have unfortunate side effects. There is doubt about how far it is wise to use antibiotics in that way. There are inevitable resistance problems that may inhibit the effective use of similar antibiotics for the human population. Not only that—the poor cows are being forced to produce more milk than is good for their health. Moreover, one must wonder whether the forced increase in production of milk and eggs, for example, provides the same quality of food that otherwise would be the case. Most certainly, with or without adequate justification many people question that practice and select free-range eggs and similar natural products.
§ There are two other considerations, the first of which is that the world is short of food and people are dying from malnutrition. I accept the argument that just pouring in free food for the starving, if it is done indiscriminately, can delay their efforts toward self-sufficiency. However, "indiscriminately" is the criterion. If—and I repeat if—one takes a hard-nosed attitude and excludes the relief of real famine, most certainly one should not promote medical treatment of very young children who cannot be sustained on the existing or future capability of their land. The answer must be to employ some of our agricultural surpluses to relieve the problem.
§ As for the second consideration, I have already said that whatever we do will involve expenditure in compensation for reducing output unless land is sold off permanently for development, which I want to avoid. Therefore there is a case for considering biomass production for energy or other chemical needs. Alcohol for petrol is just one possible example but environmentalists will give many others. Unfortunately I think that just at this moment in the energy field all these equate to the situation of alternative and renewable sources of energy. We should continue to undertake research but at the present time there is no biomass process which is near enough economic or of sufficient size to provide a solution to the agricultural surpluses.
§ However, the use of alcohol as a blender to petrol should be mentioned. Ethyl alcohol can easily be produced from sugar beet. It is easier to synthesise than methyl alcohol and is much less poisonous. It could be blended at up to 10 per cent. by volume without causing any problems or changes in existing engines. But it is estimated that it would be uneconomical unless the cost of crude oil rose to about three times its present value, which is up to 80 dollars a barrel.
§ It is sometimes thought that it could be used as an octane improver. It is true that it can somewhat increase the research octane number, RON, but not the motor octane number, MON. The latter 1549 represents the condition of an engine working at high speed under fairly heavy load. Under these conditions, what is referred to as high-speed knock may occur and it can wreck an engine almost instantaneously. It follows that small additions of alcohol would be no substitute for lead or for refineries producing, at extra cost, higher octane fuel.
§ In conclusion, I ask the Government how they propose to reply to the EC and what steps they are now considering to meet their wishes.
§ 4.1 p.m.
§ Lord GallacherMy Lords, we are indebted to the noble Viscount, Lord Hanworth, for raising this Question. Also we are particularly pleased to welcome the noble Baroness, Lady Trumpington, back to the House in a new capacity. I hope that she is enjoying the lusher pastures of Whitehall Place.
We must ask ourselves in the first instance, as the EC is inevitably involved in all this, whether the surpluses which are the result of the common agricultural policy are going to be reduced. We need to ask ourselves in all seriousness whether the other 11 member states see this problem in the same acute light as we do in Britain; and, having seen it, whether they will be willing to take the decisive action which the British Government feel is necessary if some changes are to be made in the present surplus situation.
Given that willingness, we then need to ask what form the reductions are likely to take. Are they going to he entirely EC measures or will it be a question of delegating authority to member states to undertake reductions, operating within a framework directive or something of that kind? Not inappropriately, too, we must ask ourselves how costly it would be to effect these reductions and who will meet the costs. Will it be a charge on the common agricultural policy or on the two funds, social and regional, or again will the bill be passed in the main back to member states?
In this connection I take as my starting point in referring to this matter the report of a speech made by the new Minister of Agriculture, Mr. MacGregor, which was carried in The Times on 18th July 1987. He was quoted as saying that the need is to take a substantial area of farmland out of production, possibly as much as 1,750,000 acres during the next few years, and he accepted that such a reduction carried with it considerable implications.
In addition, he also said in the same speech that even though these measures were necessary he,
pledged his support for the family farm, which he described as vital both for the environment and for the economic health of rural communities".I think that a reduction in agricultural cultivation of the order of 1,750,000 acres is such that it raises at once the whole question of the future of land use in this country. If time permits, I should like to say a word on that later.In addition, the United Kingdom is reported as having already sent a memorandum to the Community in anticipation of the December Summit setting out some specific proposals for reducing agricultural surpluses. These are said to be making the 5½ per cent. "temporary suspension" of dairy 1550 quotas permanent; setting the quota in line with domestic consumption needs and net exports; reducing beef intervention until it acts as no more than a safety net; cutting the cereals intervention period and lowering buying-in prices; introducing a cost-effective cereals land set-aside programme; setting a maximum cereals production ceiling, with a price reduction during the current season if output exceeds the threshold; strengthening the oilseeds guaranteed threshold system and replacing the current system of support for oilseeds with a flat rate of aid per hectare; increasing sugar production levies to ensure that they cover the cost of the market regime; and cutting the sheepmeat basic price. That is a pretty formidable list of measures and presumably it has been tabled seriously by the United Kingdom Government and may form the basis of discussion at the summit, if not indeed by agriculture Ministers before that time.
Turning to a consideration of these proposals one must say that even if the present dairy quotas were made permanent they may not be sufficient as they already provide a 6 per cent. surplus over current consumption. Milk is a slowly declining market in the United Kingdom. The sales for liquid consumption on rounds are estimated to fall by 10 per cent. over the next three years. There is also the current switch to skimmed milks, and the United Kingdom Intervention Board in its 1986 report mentioned the fact that 38 per cent. of United Kingdom butter production in 1986 was taken into intervention by the board. Skimmed milk powder is also going into intervention in substantial quantities and the cost of storing and the eventual disposal of those stocks is now not merely high but bordering on the horrendous. One asks oneself therefore how dairy farmers can diversify if further quota cuts are made. Many of them are farming on land which is less suited to arable cultivation and in any case it is in the area of arable cultivation that the UK overproduction problem is greatest.
If such farmers go into beef as a main activity they may find that the beef intervention system is reduced to a mere safety net. In any case beef consumption in this country has only marginally increased and then the increase is attributable to eating out rather than consumption in the home. Over the years the red meat industry has lost out significantly to white meat and that trend continues.
Cutting the sheepmeat basic price as proposed in the British memorandum is one possibilty. It may be that as we are now only 80 per cent self-sufficient in sheepmeat that is a reasonable proposition. But if lowland farmers unable to produce either cereals or milk decide to diversify into sheep we may find ourselves in the same postion with sheepmeat as regards surpluses as we are for red meat. In any case such diversification in the lowlands would have a disastrous effect on upland farmers and it may be that that consideration is very much in the mind of the Minister of Agriculture in the proposals that he is making.
The co-responsibility levy which was introduced for cereals about two years ago, plus the other devices to restrict intervention facility for cereals, have failed to halt or even stabilise production. Set-aside is now 1551 a favoured option but no one has yet said whether set-aside, if it becomes a reality, will be on a voluntary or on a compulsory basis. Neither do we know much about the cost of set-aside, what effect it will have on the environment and whether it can be supervised on a community-wide basis.
A maximum ceiling on cereals production with lower prices if output exceeds threshold is possible. Even in the United Kingdom such a proposal poses an administrative problem and this is undoubtedly greater elsewhere where farms are smaller and the number of farmers to be supervised much greater.
Higher sugar production levies to cover the cost of the present EC regime are undoubtedly justified, but will the Council of Agricultural Ministers agree to that? Past resistance to any suggestions of that kind has been considerable in the agriculture council.
It is true to say that where there is an EC commodity regime, whatever its form, structural surpluses exist. Such regimes are wine, olive oil, tobacco, oilseeds and fruit and vegetables, to name but a few. Yet with the humble potato, for which no regime exists and where growth is still supervised by a single statutory marketing board, we are able in the United Kingdom to keep a reasonable balance between supply and demand, even after imports, with only a minimum call upon the Government to intervene during periods of unusual weather.
So we are entitled to ask ourselves, looking at the surplus question, whether the mechanics of the common agricultural policy are not capable of improvement. Would repatriation of the problem of solving surpluses within a framework laid down by Brussels not be preferable and more workable? Of course contraction is an infinitely harder exercise in agriculture than expanding production. It is for that reason that one has the distinct feeling that some form of repatriation is probably justified and certainly deserves more study than it has had hitherto.
As I said at the outset, the scale of the problem raises the question of alternative land use. The other possibility is biotechnology in agriculture, the ALURE package, the creation of environmentally sensitive areas, farm forestry development and various other diversification schemes which are important. But in my view they are on the fringe of the problem as at present devised. If 1,750,000 acres of land are taken out, what will happen to that land? Where will it be? Is it to be taken out across the United Kingdom as a whole or on a selective basis?
Membership of the EC has contributed to the North-South divide in this country. It was an inevitable if unforeseen result of joining the Community. We now have a situation in which a three-bedroom, semi-detached house in the South-East is double the price of such a dwelling in other regions of the United Kingdom. As building material and labour costs are about the same throughout the nation, the price difference is entirely due to higher land values. The South-East is becoming a no-go area for many people not already resident there. I regard that as a dangerous situation for any government, especially when agricultural land is in surplus and 1552 there is the prospect of that land being disposed of or at least not used for cultivation.
In our view, there is a great need for an agreed rural land and employment policy to be devised between the Ministry of Agriculture and the Department of the Environment. Those two great departments of state, faced with this problem, need a common objective. If food surpluses are currently an expensive embarrassment, they are at the same time a tribute to the farmers of the United Kingdom, who by their skill in cultivation have fed the nation in war and peace and who now find themselves in the situation of perhaps facing stringent measures as a result of their efficiency. Reduction of surpluses will undoubtedly be a difficult exercise and in our view it may be a much more costly exercise than people contemplate at the present time.
§ 4.12 p.m.
§ Lord Mackie of BenshieMy Lords, I apologise to the House for not putting my name down in this debate. However, I should like to stress to the noble Baroness, Lady Trumpington, the urgency of the problem. By all accounts, we are going to have another record harvest all over Europe. Extraordinary measures have already been taken to provide enough money to run the policy. That appears to be a simple matter of not paying dues and making countries wait for the money that they are laying out.
I have been in contact today with a Russian delegation to the IPU. I asked a specific question (with tongue in cheek) about the dangers of increased agricultural production in Russia. The answer was that they were very hopeful that the measures they were taking in terms of the liberalisation or commonsense being applied by Mr. Gorbachev were going to improve the agricultural situation in Russia at long last.
The urgency is very great and I do not see anything being done. We have had a small package in the form of ALURE; but the Government seem to be unable to put over to the EC that that is a necessary step to take. I should have thought it was not only necessary but urgent. It cannot be done without EC money. I do not think it would be practicable to renationalise in these matters. We are in the EC and we have to stay there. I should like to know how the Government will deal with that.
Moreover, I should also like to hear from the noble Baroness how much she expects farm incomes to drop this year. All the signs and the NFU forecasts are that farm incomes will drop by at least 15 per cent. this year. It is a terribly serious situation, and I look forward to hearing what the noble Baroness has to say, but without much hope that it can solve the problem before it blows up.
§ 4.15 p.m.
§ The Parliamentary Under-Secretary of State, Ministry of Agriculture, Fisheries and Food (Baroness Trumpington)My Lords, may I first of all thank the noble Lord, Lord Gallacher, for his very nice welcome? I am tempted to tell him of my visit to the South Sheep Show where the president introduced 1553 me to the assembled crowd of mostly New Zealand sheep shearers by saying: "There are three things in life you must not have: an old dog, an old sheep and an old woman." I had great pleasure in saying to him and I say to you now, "This old ewe is very happy"!
May I begin by saying that I am very conscious of the excellence of my predecessor. I know that he was much loved and respected throughout the agricultural scene. I did not know that he was going to be here, but I am jolly well going to say it—this debate gives me the opportunity to wish my noble friend Lord Belstead very well in his new role in the Department of the Environment. MAFF's loss is my gain and I can only say that I shall try to do my best.
The noble Viscount, Lord Hanworth, has initiated a short debate on a very important subject. I agree with the noble Lord, Lord Mackie, and I wish I had known in advance that he was going to speak. Had we not been about to draw stumps I feel sure many other noble Lords would have wished to speak. I shall limit my remarks to the title of the debate.
The noble Viscount began his speech by saying that he was not a farmer. Neither am I. But the very words "give us this day our daily bread" show first, how we cannot (any of us) remain very far from the act of creating that bread; and secondly, that we are indeed fortunate in the UK to live in a land where the soil is, on the whole, extremely fertile, and where, on the whole, the climate favours growth in all things connected with agriculture. Add to that the fact that we are surrounded by the sea and all that is in it, we could be forgiven for taking a smug attitude to our particular situation.
However, there are other obvious factors which must be taken into account. The noble Viscount is absolutely right when he said that during the last war we had to dig up every acre available to produce more food. But I dispute his remarks (which I paraphrase) that if we take some land out of agricultural production we would do so permanently. There is no reason why a good deal of land could not be put back into agriculture in the sort of national emergency which he mentions.
Moreover, since 1945 vast improvements and scientific advances have been made resulting in great increases in productivity and the speed with which production can be expanded. Of course we are not—indeed cannot be—self-sufficient in food. Neither are our partners in the Community. We do not grow tea, coffee, cocoa, or bananas—to name but a few items. Some of us grow certain items better than others. So, we have to take this debate in the broad international context against the background of both the European Community and the world agricultural situation.
I must say that I agree with the noble Viscount, Lord Hanworth, that, in any national economy, self-sufficiency in major commodities is a desirable objective. However, the reality is that we are now part of Europe and we cannot look at ourselves as in former years in isolation. So far as concerns agriculture, the United Kingdom's position is one that has improved over recent years. When we joined the European Community in 1973 we produced about 60 per cent. of our needs in temperate 1554 foodstuffs: we now produce over 80 per cent. Over the same period the European Community's level of self sufficiency in the major commodities has also increased.
It should be remembered that there have been significant technological developments which have given production increases, for example, for cereals of about 3 per cent. per annum. This trend is likely to continue even if price policies do not in themselves stimulate production. The current levels of agricultural surpluses reflect the European Community's oversufficiency in many commodities.
The noble Lord also suggested that agricultural surpluses should be used to relieve the problems of the starving and of famine-hit countries. There are, alas, still areas of the world where food is in tragically short supply. We are doing a great deal to help. Last year we provided 110,000 tonnes of grain and we in the Community will continue to spend hundreds of millions of pounds on famine relief and longer-term aid. But there is a limit to the extent to which Community surpluses can be used to help such problems. Our food surpluses are not suitable for all climates and bulk food costs a great deal to transport and distribute. Then again, it is often better to provide cash to buy food from neighbouring countries than to supply it ourselves. Above all, the most valuable help we can provide is technical and financial aid to enable these countries better to provide for themselves.
The noble Lord, Lord Gallacher, pointed out that reducing agricultural production could have a significant effect on the use of land. We fully recognise that the rural areas of our country are facing a time of change, which should be seen, I hope, as a time of opportunity. With many agricultural products in surplus, the need now is to foster the diversification of the rural economy. Our policy is to smooth this path of change so that the vital and complementary objectives of a healthy rural economy and an attractive rural environment can be achieved. It was with this in mind that we published on 10th March a set of documents entitled Farming and Rural Enterprise explaining the Government's policies for the rural economy, and we have announced a number of new initiatives in this area over the past few months.
In seeking to reduce Community surpluses, we have in mind the need to achieve a reasonable balance between the agricultural, social and economic needs of rural areas. Integration of these elements is now of course given statutory backing by Section 17 of the 1986 Agriculture Act. I believe that ideas of this kind are increasingly being recognised in Europe. An example of this recognition is the approval given to the concept of environmentally sensitive areas, which we originated. A further six environmentally sensitive areas in England and two in Wales were announced on 15th May.
I have seen one in the South Downs, and it was a very heartening picture to find not only co-operation and the desire from farmers to participate but also very happy communication between the county council and other bodies. I found that a very heartening experience.
1555 We intend to introduce the necessary legislation for the farm woodland scheme during this Session. Further, the adaptation of the farm capital grants system to contribute to the protection of the environment and of course the free conservation advice which we offer to farmers also deserve a mention.
To take up one of the points made by the noble Lord, Lord Gallacher, we shall also be introducing a new diversification grants scheme. Details of our proposals are set out in a consultation document issued on 15th May 1987. They include capital and marketing grants for a wide range of on-farm activities including on-farm tourism, recreation and sporting facilities, value-added food processing and farm shops. The proposals have been widely welcomed.
I think it is important to take up a few minutes of your Lordships' time to speak about the excessive use of nitrogen fertilisers. The question of nitrate pollution of water has been reviewed by the nitrate co-ordination group, and government are now assessing its recommendations, as well as those contained in the more recent House of Commons Environment Committee report on the pollution of rivers and estuaries.
It would, of course, be possible to reduce cereal production and the production of other crops in surplus by restricting the application of nitrogen. Two methods have been suggested, as the noble Viscount mentioned: a tax or levy on fertilisers or a quota. Several studies have indicated that a levy would need to be pitched at a very high level indeed—several times the cost of the fertiliser—to have any effect on production. Clearly, that would have serious consequences for the viability of many farmers. It would be very difficult to ensure that crops not in surplus are not affected.
A nitrogen quota system might have a less damaging effect on farm business but would suffer from other drawbacks. It would be costly to introduce and to implement equitably. It would peg back production of crops in areas where we might want to see an increase. If allocated on a hectarage basis it would act inequitably; for example, because of the different response rate of various types of soil. There is also a danger that the high production costs that would result would be passed on to the consumer, unless some form of price control was imposed.
Even if some workable arrangements could be found, which I doubt, they would have to be applied throughout the European Community if the competitive position of United Kingdom farmers is not to be eroded. Any form of nitrogen limitation on a Community-wide basis would be an administrative nightmare and would be extremely difficult, if not impossible, to police. There is also the danger that the Community would be competing in world markets with one arm tied behind its back.
It has been agreed that an integrated approach to the problem should be adopted involving blending and treatment of water supplies as well as a reduction in nitrate leaching resulting from agricultural 1556 activities. We must ensure that the right balance of measures is adopted in particular localities so that individual farmers are not unfairly penalised. We therefore need to make a very thorough study of the practicality of protection policies before making any proposals.
I realise only too well that I have touched on only a very few issues pertaining to this terribly important and complicated subject. The Government's approach to the common agricultural policy, as exemplified in this year's price fixing negotiations, is to bring a greater realism to that policy. The United Kingdom has pressed consistently for action to tackle the problems of over-production and the very considerable burden placed upon the Community's budget by the storage and disposal of surpluses.
I am sure the noble Lord, Lord Gallacher, will agree that there can be no economic sense, and no long-term security for our industry in maintaining a situation where about one-half of the entire budget of the European Community—some £12½ billion—goes on the storage and disposal of food for which there is no remotely economic market. Of course, in order to tackle the problem of surpluses it is on production that we must focus. That primarily means maintaining a restrictive price policy. That is bound to bear hard on some producers. Hence the need for complementary measures to help farmers adjust to the changing situation and secure the long term viability of our agriculture industry.
It is now widely recognised that there is an urgent need for concerted international action aimed at reforming world trade in agricultural products. The United Kingdom has been in the forefront of those seeking proper reform of the common agricultural policy. With our Community partners we shall be working hard to achieve a successful outcome to the Uruguay round of multilateral trade negotiations.
The principal objective of these negotiations must be to bring agricultural markets into better balance through genuine liberalisation of trade and a reduction in the levels of assistance to, and government involvement with, agriculture. Market forces must increasingly be brought to bear on producers if agriculture is to develop efficiently and dynamically and much-needed resources are to be freed for other sectors of our economies.
Important steps have already been taken to make the common agricultural policy more market orientated, with reduced price support and with intervention systems fulfilling better their proper role of providing a safety net and not an alternative market outlet. A number of noble Lords have expressed concern about the possible effects which reform and cuts in the level of support might have on British farmers. However, the Government are committed to reform of the common agricultural policy because we are not prepared to consider the alternative of waiting for it to collapse in chaos. We believe that would be far worse for our producers.
My right honourable friend the Minister in another place has pledged that he will resist any measures which would discriminate against the United Kingdom. In the short time that I have been associated with MAFF, I have had several 1557 opportunities to get out and about, to see what is going on and to listen to experts. I am very impressed by the realistic and positive opinions I have heard. You have only to go to such shows as the Lincoln, the Kent and the Royal to see proof of the excellence of British farming and farmers' readiness to adapt to the different needs of the future.
The subject of our debate this afternoon is clearly a difficult one. The cost of the common agricultural policy has increased by about 14 per cent. each year since 1983 and the problems of surpluses are well known. I am sure your Lordships will agree that the changes which are necessary to ensure the future of the CAP will not be easy and cannot be made overnight. However, the policies being pursued by this Government, some of which I have set out in reply to this debate, are aimed towards tackling these problems. I believe that the industry will respond to the challenges it faces and continue to play its important role in our national economy and towards the well-being of our rural economy.