Farm Price Proposals: ECC Report

HL Deb 05 May 1987 vol 487 cc88-119

8.27 p.m.

Lord Gallacher rose to move, That this House takes note of the Report of the European Communities Committee on the 1987–88 Farm Price Proposals. (7th Report H.L. 121)

The noble Lord said: My Lords, the annual price review of the common agricultural policy invariably involves a very tight timetable. This year has been no exception. The actual proposals for 1987–88 were received extremely late and it is a source of some satisfaction to your Lordships' Select Committee that the deadlines which it was necessary to meet as regards these proposals have in all circumstances been met. This is due in no small measure to the speed with which various bodies have managed to produce written evidence for the Select Committee. We are grateful to those bodies and in particular to the witnesses who gave oral evidence.

We have before us tonight volume 1 of the report together with the memorandum prepared by the Ministry of Agriculture, Fisheries and Food on the proposals. Although the full evidence has yet to be circulated, I think we have sufficient before us tonight to say that all the essentials are with us to enable us to give some consideration to what is proposed for the forthcoming year.

Apart from any intrinsic merit the document may have—and that is for your Lordships to judge—I think it constitutes a valuable reference document and for that the Select Committee is grateful to its specialist adviser, Mr. Simon Harris, and to the Clerk to Sub-Committee D. I am looking forward, as I am sure other noble Lords are, to the maiden speech of my noble friend Lord Carter.

There are now no shortages of any commodities covered by the common agricultural policy. Indeed the converse is the case and the problem which shows through time and time again in our report is that of surpluses. Therefore it follows from this position that the test of an annual price review can be summarised as follows. First of all, are the proposals within the financial guidelines which were set for the CAP in 1984 and first complied with in 1986? Secondly, are they such as to stop creating new surpluses? Thirdly, what proposals are there for the disposal of existing surpluses? Lastly, if changes create problems for small farmers, are there ameliorative proposals by way of socio-structural measures?

I think it would be obvious to anyone reading the report that the proposals are not within the financial guidelines, and the detail of this is spelt out at paragraph 30 in our report. They are in fact 14.5 per cent. above the financial guidelines and details are given at page 12, table 1. The net overrun is of the order of 2.4 billion ecu. This is a remarkable figure in itself and is similar to the extra costs of the common agricultural policy due to external factors and therefore beyond the control of the Commission. Three of these external factors are, first, the depreciation of the United States dollar against the ecu which accounts for 1.2 billion ecu of the overrun. Next there were two European monetary system realignments during the past period accounting for 580 million ecu, and a drop in world prices accounts for the overrun of 600 million ecu.

We spend time in this House considering whether we should join as full members of the European monetary system. Looking at the effect of the depreciation of the United States dollar against the ecu, I sometimes think that we should be turning our minds to trying to persuade the United States to become a full member of the European monetary system.

The overrun is to be met to the tune of 2 billion ecu by not paying member states for the common agricultural policy spending until after the spending takes place. This is a fairly breathtaking proposition which I understand has been canvassed by the chairman of the Commission, and I wonder how serious such a situation would be for the United Kingdom if by some mischance it happened to become a fact of life.

Next we ask ourselves, are the review proposals such as to stop creating new surpluses? Here we are mainly discussing prices and their effect on commodities. We give details at paragraph 40 of the report of this position, and the Ministry of Agriculture view of the situation is that the overall effect of the price proposals is a reduction in common support prices of 0.5 per cent. in ecu terms and a slight increase of 0.2 per cent. in national terms. Green rate changes proposed to reduce monetary compensatory amounts are modest: for the United Kingdom, a 4 per cent. green rate depreciation is proposed. Both the National Farmers' Union and the Ministry of Agriculture, who gave evidence to us, will seek to improve this during the negotiations. If they are successful, undoubtedly other member states will try to emulate them in this respect.

On a commodity basis, milk and beef were dealt with in the 1986 United Kingdom Presidency; a significant achievement, we believe, by the United Kingdom during its Presidency, and details concerning these important changes in the milk and beef regimes are given in some detail in Part 3 of the report. The level of dairy quotas now fixed incorporates a six per cent. degree of over-supply. Your Lordships' Select Committee thinks this not unreasonable to allow for yield variations, but it ought to be kept under review.

Dairy quotas are producing hardship for smaller farmers, and the choice of 1981, according to the evidence given to us, as the base year for quotas was unfortunate for the United Kingdom because of exceptional weather conditions then prevailing. This alone makes the Select Committee recommendations for the transfer of quotas given at paragraph 53 of our report even more significant. Cheaper borrowing rates are essential for hard pressed farmers in the United Kingdom.

The disposal of old butter stocks constitutes a major problem for the Community, and the member states are to bear the costs of this disposal by an ingenious, if dubious, accounting procedure. There is, however, no justification in our opinion for the proposal to end intervention for salted butter from 1st April 1988. This blow is aimed specifically at the United Kingdom and the Republic of Ireland, with a side-swipe at New Zealand. The Select Committee was told by the Milk Marketing Board witnesses that the costs of converting United Kingdom creameries to produce unsalted lactic butter was around £½ million per creamery.

So far as the oils and fats tax proposals are concerned, we have almost universal condemnation of this proposition. But we ask ourselves, though not perhaps loudly enough in the document, where the alternative finance will be found if the proposed oils and fats tax, which is estimated to produce 2 billion ecu in a full year, is not proceeded with. Again, one is entitled to say that the Commission may not be serious about the proposal and is simply using it to force the Council to take some very unpopular decisions if it turns down the proposed oils and fats tax. Certainly, if it is turned down in its entirety there will need to be some major revisions of the price proposals affecting other commodities.

So far as beef is concerned, the reduction in dairy quotas to which I have already made reference may disrupt the market because of increases in culled dairy cows. This may pose particular problems for the United Kingdom producers and the Select Committee was grateful for the Minister's assurance that he will press for additional market support for beef should the need arise. The mere fact that it threatens is an indication of the knock-on effect of corrective measures under the common agricultural policy. This is a fact of life well known to your Lordships' Select Committee.

So far as sheepmeat is concerned, the Community is only 80 per cent. self-sufficient in it. This leads us without hesitation to believe that the proposed limitation on the number of ewes per holding on which the premium will be paid affects the United Kingdom directly. We have little hesitation in rejecting this.

Turning to cereals, production is still dangerously out of control despite the co-responsibility levy. The Select Committee has long favoured a rolling programme of phased price reduction for cereals. The present proposals are a disguised price cut. If open price cuts are politically unacceptable, then the policy of restricting the intervention system has to be accepted. The whole future of cereals needs speedy decision. There is now too much discussion about the problem involving set-aside, whether compulsory or voluntary, quotas and the rest. Discussion is becoming an end in itself. The Select Committee is still unhappy about the co-responsibility levy for cereals, its amount, the exemptions and the mode of collection, as well as the use of the proceeds. No changes in co-responsibility levy are proposed this time, but the Select Committee reserves the right to discuss it again if alterations are made in the future.

So far as protein crops are concerned, parity treatment is given with cereals. We do not regard this as being soundly based. The European Community is still a net importer of proteins and these are suitable crops for cereal growers to divert into. Even in adversity proposals must relate to market needs, actual or potential.

Although the United Kingdom is not guilty of adding to the wine surplus, it still represents a major problem for the Community. In fact Britain is the best market for other member states for wine, and to that extent we support the restrictive policies for wines which are rightly to continue so far as the 1987–88 year is concerned. I wonder whether the Minister in replying could expand on the proposed establishment of national control bodies for wine with Commission supervisors. One asks oneself whether this is a serious proposition and whether it constitutes a precedent for common agricultural policy control by Brussels. The overall proposals will not stop the creation of new surpluses.

Turning to the disposal of existing surpluses, this is still a dangerous exercise because of its effect on world markets. Sugar is almost a classical example of this. The cost of disposal to consumers and the unfavourable climate of opinion it creates for the Community and the CAP as such are together a grave indictment of the common agricultural policy and it is regrettable that the Commission appears insensitive to the effect of such transactions on the public perception of the CAP. We believe that the policy should be to give consumers in the Community first refusal of surplus stocks at reduced prices.

I turn now to agri-monetary changes. These are among the most sweeping yet made by the Commission. They are the most controversial of the proposals, although separate from prices. There is a difficult balance to be struck, even in the United Kingdom where current negative monetary compensation amounts are around 25 per cent. The evidence received by the Select Committee is summarised at paragraphs 74 to 80 of the report. We believe that West Germany holds the key to agri-monetary changes of the type proposed. Full United Kingdom membership of the EMS might give us more leverage for agri-monetary change, but, separate though the monetary changes are from price proposals, they are likely to be part of the prices package.

The proposals for small farmers are of considerable importance. We were told by the National Farmers Union of England and Wales that if price proposals for 1987–88 are adopted as they stand, the effect will be to reduce farm incomes in the United Kingdom by £250 million. A further estimate from the National Farmers Union is that 10 per cent. of farm businesses are at risk of being forced out of business. If this is the United Kingdom position, then the dimension for very small farmers in other member states is frightening. This gives added point to the urgency of considering an extension of socio-structural measures on a scale well beyond that already tried and contemplated. Some hope arises in the proposition that money spent on FEOGA guidance gives a better return than comparable spending from the guarantee section of FEOGA. This leads one to favour greater financial realism about price proposals than those for 1987–88.

At the outset I said that timing had been extremely difficult for the Select Committee in considering this year's proposals. We therefore make the plea in our report for a better alignment of the annual price fixing proposals as regards time so that these affect the size of the crop for which they are meant to apply rather than the following crop. The decision to extend the last price year by two months this year indicates the need for such realism as regards timing. The May meeting of the Agriculture Council of Ministers will be decisive. The common agricultural policy has both faults and problems galore, but nevertheless remains at the heart of the European Communities. I beg to move.

Moved, That this House takes note of the Report of the European Communities Committee on the 1987–88 Farm Price Proposals. (7th Report H.L. 121).—(Lord Gallacher.)

8.42 p.m.

Lord Middleton

My Lords, may I first join the noble Lord, Lord Gallacher, in saying how much I look forward to hearing the noble Lord, Lord Carter. He is a very successful farmer and I know that what he has to say tonight and on future occasions will receive your Lordships' close attention. His knowledge and experience will be of much value to proceedings in this House.

At the top of the Select Committee's summary of conclusions we make the rather obvious statement that, The overriding need at present is to reduce the expense of the CAP arising out of surplus production". We follow that up by saying: A sustained policy of price reductions over a period of years is the best way of cutting agricultural surpluses". We might well have added, but such a sustained policy which we have consistently advocated has not been adopted". Now the brakes have been applied, but, in my view, too sharply and too late.

The Commission started the process last year. In regard to the support price proposals for 1987–88 which we are now debating, the net effect would be more drastic than the movement in intervention prices appears to imply because of the proposals for linked measures. This application of the brake is too late because the agricultural market support bus is now out of control. The Community budget was overspent last year by more than 1 biillion ecus. This year the current price proposals are designed to cope with an overrun of 4 billion ecus, including a carry-over from last year. The Commission, recognising the political impossibility of cutting support prices more drastically, has proposed to cover something like two-thirds of the deficiency by imposing, as the noble Lord, Lord Gallacher, has reminded us, an oil and fats tax. Such a tax, as the report points out, would create many more problems than it would solve. So we have reached the predictable situation where the Commission is groping around in a desperate search for means of slowing down the bus.

It has been said so often that I hesitate to repeat that farming is best managed by consistent policies and is damaged by expedient measures. Farmers are remarkably responsive to changes in technology and to business signals, but once they are geared up to a particular system, having made the necessary investment of capital, they cannot be expected hurriedly to switch without loss. Given that agriculture has to be allowed more time than most other industries to adjust to the market, it might be asked, why should it be politically impossible now to reduce support prices sufficiently so as to cut back the surpluses? Why are the Commission and the Council of Ministers so cautious? The popular conception, certainly in the United Kingdom, is of a spoilt and prosperous farming community, overloaded with subsidies and growing food that nobody wants at the taxpayers' expense. The reality is different. As we say in paragraph 9 of our report: The result of measures that have been taken and the distortions caused by the agri-monetary system, especially in the United Kingdom in recent years have led to a decline in farm incomes in real terms. A large number of farmers are experiencing financial difficulties and some may go out of business as a result". We go on to say in paragraph 74 of the report: In the past ten years there has been an average fall in the purchasing power of net farm income in the Community of 25.5 per cent.". In the United Kingdom the decline has been 39.8 per cent. We attribute this excessive United Kingdom decline mainly to the maintenance of large negative MCAs in the United Kingdom.

Whatever the cause, the downward trend is well illustrated in this year's Ministry of Agriculture, Fisheries and Food annual review. The vagaries of the weather are just as upsetting as current monetary policies. If anyone thinks that farming is anything but a very hazardous affair, then let him look at Table 26 of that document, which sets out the average net income per farm in the United Kingdom. If you take 1982–83 as a base year, you will find that the subsequent trend is downwards for all six of the different types of farming that are analysed. The only exceptions are pigs and poultry which fluctuated widely as they usually do. If you take 100 as the index figure for net farm incomes in real terms for the 1982–83 season, the figure for cereal farms went up to 118 in that very good season 1984–85. In 1985–86, the index figure went down to 12. In the same year dairy farms went from 100 to 63. In the same year, lowland cattle and sheep farms went from 100 to 26, and so on.

I hate quoting too many figures especially at this hour of night, but if you look at the table for net farm incomes for the year to February 1986, in Scotland you will see that cropping farms of medium size made a loss averaging £6,307 for each farm. Large cropping farms in Scotland in that year lost on average, £19,228 each. It is not just the lack of resolve on the part of EC Ministers that puts constraints on what the Commission can propose by way of price cuts. There is this consistent decline in farm incomes and all the statistics show it. My noble friend Lord Ferrers referred to it in a powerful speech when we debated the subject this time last year.

The situation in the Community now is worse than it was then. If the forecast that the Minister gave in his most helpful evidence to the Committee is correct, and these are his words: The Community will run out of money some time in the autumn of this year". The oil and fats tax will not do, so how does the Community find the money to plug the budgetary gap? Farmers do not have the financial reserves after a period of decline to solve the problem by submitting to more drastic cuts than those that are now being proposed. If I may give an example of the effect of what is now being proposed for cereals, what appears to be a price freeze now proposed for 1987–88 is something very different when you work out the full effect of the related measures. As we say in the report: the drop in support in ecu terms for bread wheat is in the order of 9 per cent. and for feed grains 12 per cent.". For oil seed the MAFF original estimate was that the effect of the measure proposed was equivalent to a 25 per cent. cut, though it has said that this estimate may need revision. There is an additional worry for United Kingdom farmers in that the oil seed rape proposals would discriminate against just those varieties that suit our climate.

These proposals, therefore, following last year's effective 7 per cent. price cut for these commodities amount, as I have said, to another sharp application of the brake. I find it extremely difficult to see how the problem of financing the CAP is going to be solved painlessly. The farm spending crisis might have been avoided by intelligent and consistent use of the price mechanism over the past 10 or 15 years. But that presupposes a wisdom and an awareness by the Commission and by European Ministers of advances in technology that can perhaps not with fairness have been demanded of them.

The problem of milk, as the noble Lord, Lord Gallacher, reminded us, is being tackled by means of the quota system, and that was tightened up last December. The next biggest surplus is in grain, and we say in our report that in this field the pricing and related measures will have to be supplemented by other means of control.

What other means can be adopted? Incidentally I have an idea—and perhaps my noble friend the Minister will confirm this—that this year's grain stocks in the United Kingdom are not nearly so large as had been predicted. Perhaps he will give us the figures when he replies.

The committee discussed in earlier reports the pros and cons of quotas and other methods of control of cereal stocks. I do not propose to rehearse those arguments again, but I believe that serious attention should be paid to the kind of set aside scheme that is now being considered by the Minister and his advisers. He referred to it in his evidence to the committee and I understand it to be not so much a blueprint at this stage as a stimulant to discussion on land diversion. I understand that the thought is that it should be Community wide, voluntary at the level of the individual, applicable for a number of years and with a range of possibilities for alternative land use.

The main diversion would be away from cereal growing and the aims would be, first, to achieve a much quicker removal of land from cereals than would be achieved by market policies alone, and, secondly, to reduce expenditure in supporting intervention stock. I believe that to succeed a diversion scheme must provide sufficient inducement to pull the less efficient growers out of cereal production. I am perfectly certain that whatever method is devised to cut down production it must apply across the board and not just in the United Kingdom.

As we say in our report: The Community's problems are aggravated by the conflict between the objectives of the Treaty of Rome in terms of maintaining farm income and the insupportable burden that would be placed on the budget were agricultural support to have remained open-ended". This is indeed the nub of the problem.

I believe that we face a very difficult situation indeed. This report described and recognises the financial problems facing the EC. We criticise such proposals as would in our opinion be damaging to the Community as a whole or to the United Kingdom in particular. We do not pretend to identify an easy solution. As a farmer I am preparing—and not for the first time in my agricultural career—for rough times ahead.

8.56 p.m.

Lord Mackie of Benshie

My Lords, as is usual, the noble Lord, Lord Middleton, has said all that I was going to say, said it rather better, and illustrated it enormously well. But I think I must follow along the same line. What has happened in the Commission this year—which is what we are reporting on—is that it has begun to think about how it will tackle first of all the money probem, financing the CAP, and it is now thinking in terms of reducing production by cutting prices.

As the noble Lord, Lord Middleton, said, the price cuts are going to be very savage indeed. Taking first the milk proposals, it is true that the Minister assured us that the cuts proposed might in two years remove the current milk surplus and bring the product into balance. This might well be true, but a whole lot of things are wrong with the quota system at the present time. One is that nothing can be more profitable than bribing people out of milk production on a voluntary basis, to let the others have the quotas which should be transferable and get on and produce milk efficiently and make a living out of it.

We have to remember in the middle of all the talk of surpluses and waste of money that in fact the agricultural industry in this country is still saving the balance of payments a great deal of money. The more the oil begins to run down, the more important it is that we supply as much as is reasonable and as we can of our own food. Certainly we cannot run down the milk industry to an extent where we are unable to make use of the factories and manufacturing capacity, and indeed the very good products that we make in this country.

That may be on the way to being tackled, but the cereal business is being tackled very brutally, if they agree. The Ministers are still to agree. Although the Commission has put forward proposals it is not yet agreed. What frightens me about the proposal to use intervention, or the lack of intervention, to keep the price down is that in the back end, the autumn, the people who will have to sell cereals at the lowest price will be those who are the hardest up. You might find in fact that with no intervention the price of cereals might fall to £50 or £60 a tonne.

It would not be the big man who would be hit. It would probably be the person who has equipped his farm to produce, is short of money and has to sell, and of course everybody in an open market will take advantage of it to the best of his ability. We have to watch that with great care. There needs to be some form of bottom. It would have been far better to have a fairly savage difference in the intervention price during that time rather than simply delaying it until the spring of the year.

There are all sorts of other dangers. Although in our committee and elsewhere we are beginning to tackle the problems of surplus, neither we nor the Commission are beginning to think seriously about the long-term problem of what we are to do with the agricultural land and the agricultural people of Europe. In this respect the MAFF scheme for a voluntary set-aside is extremely useful because the economics are straightforward. If somebody grows two tonnes of cereal at the present time it costs nearly £100 per tonne to store it and sell it for export. That is obviously ludicrous. If you have £200 to play with, and if you can save £100 and use £100 to promote the countryside in some other way you are doing something useful. That sort of figure is necessary before you can get people, perhaps the secondary landowner, out of cereals and into something else.

The Community and the Commission have to look at this matter, because European money must come into it. That is where we would be saving the money. The obvious way is to grow trees, and there are others, such as promoting a more extensive system of grazing, which would go along with lower rents, because the value of land is falling and is bound to fall even further. Certainly we have to look at the interest rates which many farmers have to pay.

Seven or eight years ago the committee said that a policy of a price freeze and a forecast of what was going to be in surplus was what was needed so that farmers would know what to grow and which way to direct their future plans. As the noble Lord, Lord Middleton, said, that might have worked then, but now we need more. The Minister, who is going to have a very tough time in Europe trying to put over any form of policy to some of our Continental partners, needs to go further in pushing for some form of voluntary set-aside and a replacement for the grain which would have been grown by a crop or a system that would leave the farmer a reasonable living and keep him on the land.

The policy for the hills, which we do not touch on in the Commission, is a fairly simple one. We have to keep up the straightforward subsidies to less-favoured areas if we are to keep both stock and people on the hills. We have to provide alternatives. We have to have a countryside policy, and the money saved has to go into that policy.

The report deals with all these things and covers the field extraordinarily well. I do not agree with all of it. There is a great vehemence about condemning the oils and fats tax. I agree. I do not think it is a good tax and I do not think we should have it, but the vehemence with which it is condemned is hypocritical, if I may say so, when you consider that what we did at the start of the CAP was tax people's food in the form of wheat from abroad in order to grow it at home. I suppose that is what they are proposing here. It is a very bad tax and is not really analogous; but this has happened in CAP before.

The report is good, but the problems are immense. I look forward to hearing the Minister go a little further than the price review this year.

9.4 P.m.

Lord Northbourne

My Lords, I should like to support the noble Lord, Lord Mackie of Benshie, in the view that the Committee has produced a very good report. I am not going to rehearse the problems of the CAP, as they are all well known to your Lordships—vast stocks overhanging the market and the prospect of continued overproduction due partly to technological advance and partly to farmers' desperate attempts to maintain their income.

I think we all agree that the present situation is unacceptably costly to the CAP. Furthermore, and perhaps even more importantly, it is tending to destabilise world trade and to have ramifications which go far beyond the shores of Europe. I think we all agree that we must restore the balance of markets and that that can only be done basically by reducing the quantity of production.

In that context, the present package which is being proposed—I think the report suggests this—is both too little and too late. We know that is because stronger action has proved to be politically unacceptable to our partners in the EC. The problem is that, if markets are to be brought into balance and production is to be reduced, whatever method is adopted is going to cause hardship to farmers.

I would say only this: if farmers are going to be forced to take nasty medicine it is important at least to ensure that that medicine is effective and also that the burden of suffering is fairly distributed. Whether we are looking at the reduction of output by physical controls such as quotas or acreage set-aside, or whether we are looking at achieving reduction by financial pressure on prices or, indeed, by the co-responsibility levies or the limitation of intervention, the effect on the farmer is going to be the same; it is going to reduce his margins. Since the effect is going to be the same, it is important to be sure that we employ systems which are to be effective.

There are two or three points which I should like to make. The first is that farmers' decisions about levels of production depend on what they perceive the medium-term economic climate of farming to be going to be not only this year but in the next two, three, five or more years. As the noble Lord, Lord Gallacher, pointed out, the Commission of the Council of Ministers is still arguing about the price of cereals for this year's harvest. We all know that this year's corn is planted and very shortly it will be coming into ear. There is nothing we can do about this year's harvest. Farmers will shortly be making their plans for the 1988 harvest. The Commission must take that on board. I suggest that the right response is to urge the Commission to develop a five-year plan—perhaps a rolling five-year plan—enabling farmers to see a little of what is ahead of them down the line. I believe that in that way one would obtain an effective response from farmers.

The response of farmers to economic signals now being sent out by the Commission can lead to reduced acreage. However, it can also be to say, "This is a short-term phenomena and perhaps the best thing that we can do is to increase our production per acre so that our narrowed margins will help to cover our overheads". That particular trend of thinking is encouraged by the concern of the farming community that quotas may be introduced; and that if quotas are introduced at a later date a base tonnage for the farm may be a valuable asset. That is an argument for keeping up the level of cereal production, for example, at the moment.

I urge that it is necessary for the Commission to develop a five-year plan designed to make it more economic for farmers on marginal land to reduce their cereal production, if we are talking about cereals, and to reduce the production of other crops in surplus. I argue that much quicker and more effective results will be achieved by sending out the right economic signals on a medium-term and long-term basis than by the present uncertain and vacillating policy.

Secondly, it seems to me that the Commission must set the right political climate if it is to have any hope of taking the action that it needs to take. There are two categories of farmers who are, more than any others, extremely vulnerable to the reduction in margins which must occur. They are those who are heavily in debt and those whose business is too small to provide a family income on reduced margins. Dealing first with debt, it is tough to be in debt when economic signals turn against one. I think that as a community and a nation we must decide how much, if at all, we feel that we have misled farmers with calls for yet more food production, and how far we must accept some measure of joint responsibility for having misled them into incurring that debt.

I shall say no more about debt, but as regards small farmers I think that we must look at them carefully because they fall into many different categories. Politically they must be the most important group, if for no other reason than that they are the most numerous and therefore represent the most votes. There are different categories of small farmers. There are those who are capable of helping themselves, and they should certainly be encouraged to do so. Some farmers can be helped to prosper through specialised activities or good marketing; for example, through farm-gate sales. Others, and I think that this is a very important group, will survive by simplifying their farming systems and taking on part-time work. I believe that to be an attractive and important alternative.

In Germany, already more than 50 per cent. of the farming population have some other part-time employment. This route can provide a reasonable standard of living, coupled with the way of life which many people seek when they enter farming and often, if their business is too small, fail to achieve. The provision of the opportunity for part-time employment must be a much more satisfactory way of providing for small farmers wherever possible than any kind of direct income subsidy.

There is a third category: those in environmentally sensitive areas. There are farmers on marginal land who can be retrained at public expense to maintain and manage the environment, or to maintain and manage systems of farming which the public wish to see maintained. In my view only the residue, who do not fall into any of the above categories, should be eligible for direct income support to minimise the hardship for existing occupiers until such time as they reach retirement age. By that time consideration will have to be given to the amalgamation of the holding or to its removal from agriculture.

Some of these proposals have already been referred to and are envisaged in a modest way in the Government's ALURE package. A much more vigorous pursuit of the proposals, on a community-wide basis, would go far to alleviate the hardship which will be caused to many farmers by the action that the Commission and the council must take, and they will make it politically more feasible to do what must be done.

9.14 p.m.

Lord Carter

My Lords, although I rise with some trepidation to make my first speech in your Lordships' House, I am pleased that it is on this very important topic of farm prices, agricultural policy and taking note of the excellent report of the European Communities Committee, presented to your Lordships' House by the noble Lord, Lord Gallacher.

I am very conscious of the great honour and privilege it is to be a Member of your Lordships' House and I am looking forward, together with my colleagues on these Benches, to playing a full part in the work of the House.

I am aware that I am speaking at the "connoisseurs' hour" of 9.15 and to an audience of experts. There are a number of your Lordships who wish to speak and so I shall be brief. I should like to take up just two themes. The first concerns the price proposals in the package—and we must remind ourselves that at this stage they are only proposals—and their effect on farming costs. Secondly, I should like to take perhaps a slightly broader view on the future direction of agricultural policy.

To deal first with farm incomes, the noble Lord, Lord Middleton, has already referred to the paragraph in the report which I shall repeat: In the past ten years there has been an average fall in the purchasing power of net farm income in the Community of 25.5 per cent. The Committee are concerned that in the United Kingdom the decline in purchasing power has been 39.8 per cent., a greater decline than in any other Community country". The committee may well be concerned. Many farmers I know are desperate. The report says, correctly, that the worst effect on United Kingdom farm incomes results from the gross disparity in the value of the green pound. The Commission has proposed a devaluation for the United Kingdom of 4 per cent. The NFU has suggested a devaluation of 15 per cent. I see from the press reports last week that the Minister is perhaps thinking of a devaluation of 9 or 10 per cent., thereby demonstrating the supremely sophisticated ability of the arbitrator to divide by two.

The sub-committee's report refers to farmers' incomes throughout, but there is another and very important group in the farming community who are not mentioned in the report: those are the farm workers. Your Lordships will be aware that the number of people employed in United Kingdom agriculture declined by 70,000, or about 18 per cent., in the last 10 years. That statistic is worse than it appears. As we know, only 40 per cent., I think, of United Kingdom farms actually employ labour. The many farms that I know—and they are necessarily the larger farms—have reduced their labour force considerably and are considering reducing it still further.

There is a further effect of the squeeze on farming incomes, and it is an obvious one: that is, the reduction in capital investment. We are aware that the gross capital formation in the industry has declined in real terms by £300 million in the last 10 year or by 26 per cent. There is the effect, of which we are all aware, on the farm machinery industry and the workers in it.

This underlines the importance of the devaluation of the green pound to farmers' incomes. It would not be appropriate at this hour to make detailed technical comment on the price proposals, much as I should like to do so. But there is just one point in the report on which I should like to take the friendliest issue with the committee. Paragraph 55 refers to the suspension of milk quota and it says: For the 4 per cent. suspension in 1987–88 producers will receive compensation at a rate of 6.5 p/litre, which represents almost double the average profit per litre for milk production". I understand that the committee is relying for its figures on an Answer that was given in another place. If my arithmetic is correct, that implies that the average profit for a cow with a yield of 5,500 litres would be £192. That is far in excess of any figure that I see.

However, as a milk producer considering the reduction or suspension of 6 per cent. of my quota, it is not the average profit per litre that concerns me: it is the marginal profit. My labour remains the same, and all the rest of my fixed costs. I estimate that the marginal profit from milk production is of the order of 9p to 11p per litre, and, as a producer, I think I shall be losing about 3p per litre on all our suspended quota.

The second matter is the direction of agricultural policy. The price proposals are all about the reduction of the budgetary costs of the CAP. The securing of fair prices for consumers and reasonable incomes for producers are now secondary. We are in the middle of the battle of the Community budget. I also think that we can see a subtle but potentially far-reaching change in the CAP, with a gradual move away from supporting farm incomes through price policy and towards direct income support. This has already been touched on by other noble Lords.

Two things seem to me to flow from this. First, the UK farmer is bound to suffer relatively because of our better structure if the tendency is towards income support. If I may quote from a child's guide to the common agricultural policy produced by the Commission entitled The CAP and its Reform, referring to socio-structural measures it says: These could be implemented anywhere in the Community, but the Community would make a greater financial contribution to the Member States and regions with the worst structural problems. We must ask ourselves how we would fare compared with Portugal, Greece or Spain in that context.

The Commission is tinkering with the sociostructural problems through the price support policy—for example, the proposal to limit the ewe subsidy according to size of flock. In my view there is a great danger in attempting to solve the structural problems of European agriculture through tinkering with price support systems. That is a job for the guidance fund, the social fund and national budgets.

There is, I think, a further consequence of what I see as this gradual change in the direction of support policy. Repatriation and renationalisation are dirty words in Commission circles. I believe that the Commission will want a free market in agricultural products in Europe at prices closer to world prices. However, we are aware that the budget of the Community cannot afford this. Therefore why not have a price reduction to reduce the cost of market support but at the same time attempt to switch gradually to income support, which national governments can augment without apparently distorting the market? That seems to me repatriation of agricultural support policy.

It just happens that I have with me a document produced by Mr. Brynmor John, the Labour Party's agricultural spokesman in another place. It says: it is necessary to address what appears to be an essential precondition for any solution: the partial repatriation of agricultural policy". Only this week in Farming News Mr. David Curry, a Member of the European Parliament and chairman of an important committee in the European Parliament, writes: The Brussels proposals to pay direct income aid to farmers mark an important milestone in the political evolution in the CAP … The proposals for direct aid … mark yet another step in the renationalisation of the costs of the CAP". If the agricultural spokesman for the Labour Party, Mr. David Curry, and the European Commission all appear to be saying more or less the same thing, it is perhaps time to take heed.

To conclude, I do not have the time that I should like to deal with ALURE or the diversification proposals and so on, but I should like to put the discussion in a wider context. I refer to a lecture by Professor Kenneth Blaxter, formerly director of the Rowett Research Institute, which was reprinted in the Lancet of February this year. It was entitled "Future Hunger", and attempted to answer the question: are the resources of the world sufficient to provide the food necessary to ensure that future generations of all its peoples will be free from hunger"? In the lecture there were many statistics, but I shall quote only two: It is expected that the population of the world will grow to 2.2 times the present level and it is necessary to increase food intake per head by 30 per cent. if the world is to be properly fed.". That means world food supplies must be trebled. On the base line of 1985, world food production must increase by 75 per cent. by the year 2000—only 15 years away. In all our deliberations we should never lose sight of the simple fact that we live in a hungry world and that hunger will, I fear, be the lot of many millions in the years to come.

If we bear in mind the figures that I have just quoted, notwithstanding all the problems of European agriculture, it might help us to keep a sense of perspective if we remember the wise remark that I heard made many years ago by the late A. G. Street: The most important thing for farmers all over the world is not the decisions of politicians or bureaucrats—it is whether or not it is going to rain tomorrow".

9.26 p.m.

The Earl of Radnor

My Lords, it is my good fortune to be the first to speak after the noble Lord, Lord Carter, and to congratulate him on one of the best maiden speeches I have heard since I came into your Lordships' House. I have known the noble Lord for quite a long while. We have discussed farming matters in a non-political context on many occasions. I expected nothing less of him, and I certainly was not disappointed. I am sure that we all hope to benefit from his knowledge, even if on this side we may not always agree with his politics. I hope that we shall hear from him on many occasions.

At the same time, I should like to pay tribute to our chairman, who does a wonderful job and draws the best out of the various people whom we interview and talk to, which is an integral part of producing these good reports. This report is a particularly good one. I shall go so far as to say—I have often thought it and I expect many others have—that if only one could sweep away the Commission and the Council of Ministers and replace them with Sub-Committee D we should probably be in rather less of a pickle than we now are, because it is the endless putting off of decisions that has brought us to a serious situation. Although I appreciate the remarks made by the noble Lord, Lord Carter, that in a wider and longer context it is an ephemeral problem, I do not think that we can consider it as that here and now. It is a serious and practical problem.

I think that the noble Lord said early in his speech that we must remember that these are only proposals. I shall deal later in my speech with the timing. These are only proposals. I think that the Ministers meet again on 18th May. One hopes that they will produce something then. I shall not go into the detailed figures. That has already been done well by a number of noble Lords. I have an awful feeling that when it comes down to farms in this country and the rest of Europe, the worst of both worlds will be attained. I agree entirely with the noble Lord, Lord Middleton, that farmers and therefore farmworkers are in for a rough time. I have an awful feeling that the Council of Ministers will not solve the surpluses problem. I shall return to this point, but some other ingredients must be added to make things work.

The nub of the question, as the noble Lord, Lord Middleton, said, is encapsulated in the Treaty of Rome, which contains certain requirements for supporting agriculture and the agricultural economy, although there is just not the money to fulfil them. Where does that get us? These proposals are complicated, I suppose for political reasons. One must agree with the report that if only the price mechanism could be used in a strightforward and consistent manner from year to year, it would be no harsher on farmers than the immensely complicated packages which are produced at the moment, with the timing and quality of intervention being controlled.

That merely confuses, as the noble Lord, Lord Northbourne, says, the messages that come through to the farmers. Farmers will sit down and work out what it means in terms of reduction in net income. The message would get through a great deal quicker if they could see that they would get considerably less for their crops. Then they might think hard about whether to grow them on marginal land and perhaps the Government, the Commission or the Council of Ministers would think about what to do about the ensuing hardship.

It is important that something is done but I fear that we shall miss out and that nothing will be done. A number of measures should be taken even if they are not successful or perhaps not properly designed initially. One of them is the voluntary set-aside. A system of voluntary set-aside that is financially attractive enough to take a large lump of marginal land out of cultivation should be put into action as soon as possible.

Your Lordships know well that an immense amount of what I should call marginal land has crops grown on it that never should have been grown on it. Very often winter wheat is grown year after year on poor land.

The set-aside situation and the abandonment of land brings with it the troubles that the noble Lords, Lord Mackie of Benshie and Lord Carter, mentioned. It is very hard, except in one respect, to think of alternative crops for the land and there will be hardship for the people who work on it.

If farmers set aside land and are given money for doing so they can either abandon the land, which will make the situation worse, or they can—to use an awful word—extensify farming. That is the course that would be favoured. However, my point is that someone should do something now in order to give it a run, so to speak, even if it is painful and does not work too well to start with. Then perhaps at the next set of price proposals the proposed solution can be polished up and something better will come about.

The next matter which is of considerable importance both in this country and in Europe and which should be considered very carefully is a subsidy to persuade people to grow trees on a commercial scale. It is no good having a subsidy for people to grow just a few trees, which are usually, although not necessarily, of the broadleaved variety. A subsidy should cover commercial forestry too. The people who may find themselves thrown out of work in that sector can find some kind of a job.

In that sector I see something being added to the gross national product. Ideas have been suggested, although they seem a little paltry on first sight. I should prefer to be subsidised at a slightly higher level along the lines which I believe were suggested by the Country Landowners' Association. The point I should like to make is that I think a start should be made now so that we can get going, see what the mistakes are and see if it can be proved another year.

There is another matter which I believe must be rammed home. It has already been brought out that the timing has become atrociously bad in Brussels. The report brings out that the proposals—I use that term advisedly—which are going to be rediscussed again on 18th May should really have been decided in August 1986 so that farmers could decide for themselves whether they would put in winter wheat and decide on spring crops, oilseed rape and so on. Farmers have been left guessing. That is no good as regards getting messages for restricting production through to them.

I shall end by saying again that the real horror that one contemplates must be rural unemployment. I suppose that that would lead to direct aid of some sort. But I think that the sooner firm decisions are made, the sooner the Ministers and the Council stop fudging the issue and get on and do something, the better.

9.37 p.m.

Baroness Elliot of Harwood

My Lords, I add my congratulations to the noble Lord, Lord Carter, on his maiden speech. It is a great pleasure to welcome to this House someone who is going to be an agricultural spokesman. It does not often happen. Peers have many interests but agriculture is an interest which not many Peers have and I congratulate the noble Lord on his speech and look forward to hearing him on many occasions. I should also like to pay tribute to the noble Lord, Lord Gallacher, our chairman. I think that this is perhaps the fourth report which he has chaired, and all of them have been excellent. I am most grateful to him for the way in which he handled the committee and the people who came to give evidence. We are all most grateful to him.

I believe that I have played a part in nearly all the reports made by the committee. I believe that this is the seventh such report and the same theme runs through most of them: surplus production, about which we have all been speaking; not enough enthusiasm in selling produce to encourage people to buy more (I do not think that we do nearly enough about that); and uncertainty as to what the Commission is proposing until it is too late to alter production to fit policy.

In paragraph 82, we draw attention to those matters. Many of your Lordships have mentioned the same matters. We have pointed out in several of our reports that in growing cereal crops or producing cattle it is necessary to have a minimum of nine months' notice or more. Agriculture is not like an industry where one turns the engines off and on at a moment's notice. It seems to me that some of the commissioners must have little idea of how nature differs from the power of oil, coal or electricity. The powers that be in Brussels seem to forget those differences, and that adds to the complications in EC policy. I should like to suggest to the noble Lord, Lord Northbourne, that we should have a five-year policy. It would be a great help if we could persuade the Commission to think as far ahead as that instead of thinking something like five months ahead.

I remember that before the war we produced only 30 per cent. of what we consumed. Today we produce over 80 per cent., which ought to spell success. However, in the Western world and in America we do not consume enough and we do not sell enough. We mention all those factors in our report, and in many ways they are rather depressing.

The set-aside which has been discussed tonight is one of the ways in which we may certainly help the situation. There is the question of using land for other purposes and for forestry, for those who are prepared to wait, because there is very little return on forestry. In that respect one is planting for the next generation. As regards all the proposed changes, some of which will definitely come about, farmers must receive some compensation. Farmers cannot live on nothing; they cannot live on trees. They must live on what they can earn and if they are to be prevented from receiving their returns from many crops, then undoubtedly it is necessary that there should be compensation. Such compensation would be considerably less than the amount spent on overproduction in the EC today. Therefore I do not see why it should not be agreed by the EC as well as by individual countries.

There must be careful monitoring of the changes which are being suggested. A very severe drought or very heavy rain at the wrong time could automatically throw out all our plans. One cannot just say "Stop producing". There must be a margin of production. I cannot imagine anything worse than not having enough production with people in a state of starvation as they are in many parts of the world today. I am always haunted by the knowledge of starvation in the third world and the disasters of war which seem to make it impossible for the Western world to help. I find the situation very disheartening. We all want to help the starving millions but it seems to be impossible. Surely some method can be found.

Milk quotas have been successful, certainly in some areas. I stayed recently with a dairy farmer who sells all his milk to the Milk Marketing Board. It is made into cheese. Sometimes he fails to produce even the amount of milk that the Milk Marketing Board requires. That in a way is an interesting fact. I know of other dairy farmers who are making and selling produce made from milk—not pure milk, but products such as yoghurt and cheese. They are making money, and are able to carry on with their dairy by finding another way of selling. I know of one or two dairy farmers living near towns who have started small summer restaurants. People can look around the gardens and then have a nice meal in a small teashop. That venture has also been successful but it is necessary to be near a town.

In the less favoured areas, particularly in the Highlands, the border hills and parts of Wales, there is no overproduction of sheep or of store cattle. To cut down on sheep production would be foolish since we can sell mutton and lamb successfully.

When the Select Committee interviewed the Minister he assured us that he would oppose the proposal that the present sheep subsidies and production should be changed. He told us that he would fight such a proposal. In paragraph 68 of our report we stress very strongly that we do not wish the EC policy to be carried out; we prefer the existing policy, which is favourable. I speak with authority and interest because as noble Lords know, I am a sheep farmer.

Other suggestions have been made, but whatever is agreed the farming community must play a big part in our national life. Our enormous urban population would be seriously deprived if the land went to ruin and nobody could go on holiday in the country. Only last weekend I stayed in Cumbria and on Sunday afternoon was taken all through the Lake District—to Buttermere, Windermere and many other places. The roads were crowded with people, all holidaymakers out for the day. The inns were full and the public were enjoying the lovely holiday. That applies to hundreds of different areas in the United Kingdom. Without farmers and farmworkers these lovely areas would be ruined.

Farming must continue and be assisted by the Government since the public reap many benefits. I believe that it is an investment. It is not a mad way of squandering money. It is an investment and it is not an unrewarding investment. The public gain, as do the farmers. I believe that must continue and I hope we shall always continue, in our reports and elsewhere, to back up the farming industry.

9.45 p.m.

Lord Walston

My Lords, first I offer my congratulations to the noble Lord—I think I can call him my noble friend—Lord Carter, for what has rightly been described as a first-class and truly remarkable maiden speech. Of course he speaks with enormous practical knowledge. There is a great deal of practical knowledge among your Lordships. We have a reputation for knowing what we are talking about. That is particularly so as regards agriculture. With the noble Lord now among us that fund of experience and knowledge will be very greatly enhanced.

In addition, it is not only that he has knowledge and experience but he has, if I may say so, very great wisdom, because the views he expressed are almost identical to mine. That is not always the case with other noble Lords who possibly have even more wisdom than I have but with whose views I do not always agree. Therefore, my sincere congratulations to the noble Lord. It is not purely convention which encourages me to say that I hope we shall hear him frequently on this and other subjects.

My congratulations also to the noble Lord, Lord Gallacher, who has once more guided his committee into producing a very valuable, wise and sensible report. It is a report with which I find myself in almost complete agreement. It is not 100 per cent. agreement and the noble Lord would not expect that. He probably would not believe me if I said it was. However, I certainly find myself in agreement with the gist and the bulk of the report. I pick out one or two paragraphs which I think are particularly apposite and need full, whole-hearted support. I hope that the noble Lord, Lord Belstead, in replying will give the report that whole-hearted support.

Turning purely to the summary of conclusions, which is quicker than going through the whole report, I refer to paragraph 92 on oils and fats. Even though there may be an element of hypocrisy in this, as my noble friend Lord Mackie of Benshie suggested, that does not in any way weaken the recommendation that the committee is vehemently opposed to an oils and fats tax. That is undoubtedly the right line to take.

An oils and fats tax would bring in some much needed money to Community coffers and might to a minor extent help the production of vegetable oils within the Community. However, against that it would raise the price of edible oils—cooking oils—to a large section of the population, particularly that section which is among the poorest and most vulnerable to price rises because they cannot afford the more expensive animal fats. It would also have a devastating effect on many areas of the third world which rely upon the importation into the Community of their vegetable oils, particularly palm oil. Therefore, I give my wholehearted support to that.

I now come to paragraph 97 on consumer prices. It is frequently forgotten in these debates that the price that the farmer receives has a major effect on the price that the consumer pays. Although one of the main objectives of the common agricultural policy has always been to ensure remunerative prices to farmers, it is also directed towards ensuring a good supply, at reasonable prices, of food, to the consumer. That is another area where it is helpful to be reminded of that.

I am picking out only one or two of the points, but I agree completely with paragraph 101 on joining the European monetary system. That is something which has been delayed for far too long and where conceivably, but I do not have very much optimism, the Minister will give us a little hope. Paragraph 102—and other noble Lords have mentioned this—deals with the timing of announcements. It is ridiculous to think that there can be any effect on agricultural production by producing prices when harvesting is just about to start. I support strongly the suggestion of the noble Lord, Lord Northbourne, that if we are to have an orderly agricultural policy and a reasonable form of change we must have at least a five-year policy so that farmers know where they stand and what is wanted of them and can lay their plans accordingly.

There are one or two points which I must mention where I am not in complete agreement with the report; in fact where I am in disagreement with it. Paragraph 86 refers to a sustained policy of price reductions over a period of years as the best way of cutting agricultural surpluses. There I disagree. I am not specifically against price reduction but I think it is purely wishful thinking to believe that we can control the problem of over-production by the price mechanism. After all, over many years the prudent policy has been tried of not putting up prices sufficiently to cover inflation, extra costs and so on. What has happened? We continue producing more and more and the surpluses rise higher and higher. A price policy is therefore not the answer, although it may be of help if other steps are taken in order to solve this problem.

Quotas have also been tried and, although they have had some effect on milk production, we still have butter mountains. They are still growing. The quotas have not achieved what they should have done. We all know that they were introduced with insufficient thought and caused a great deal of difficulty, both bureaucratic and personal, to farmers. Unless very great changes are made in them, quotas are clearly not the answer.

We now come to the suggestion that there should be set-asides: that farmers should be paid to leave their land fallow or to grow some crops which are not in surplus—and there are precious few of them. I must confess that I am sceptical about the ability of the set-aside to solve this problem. The effect of it will not be in the main cereal growing areas, if one takes cereals specifically. There are very few cereal farmers who can afford to give up any of their land; and there are few other crops which can be grown on it. Some of the farmers in the less favoured areas will give up if the incentive is sufficiently high but the amount that they contribute to the surpluses of food—and I am not talking only of this country but of the Community as a whole—is very minor. We shall be deceiving ourselves if we think that set-aside will solve all our problems, just as we deceived ourselves when we thought that quotas would solve the problems of milk and that a prudent price policy would solve overproduction over the years. I agree very strongly with my noble friend Lord Mackie of Benshie when he mentioned the importance of rent and interest rates in achieving any results from set-aside.

Having been somewhat destructive, but I hope not unduly so, what is the answer? Some noble Lords will remember that I have put forward on more than one occasion what has been described as the quantum method. I shall not weary your Lordships by repeating that. That has so far been rejected by Her Majesty's Government and by Brussels, although I hope that they may not have thrown it completely out of the window.

However, assuming that that is not a starter, I agree very strongly with the noble Lord, Lord Carter. I do not use his exact words, but he said that we must decouple the economic from the social aspects of our agricultural policy. On the economic side, we must allow the price mechanism to play its part and run its course. That does not mean to say that we have a price mechanism which is fixed in Brussels, with intervention and all the complications of the cost of that. It simply means that world prices have their effect. Abolish intervention, my Lords, and leave farmers completely free and unprotected to weather the storms of world prices whether they be high or low. That is a pretty tough policy, but I believe that that is the only way in which one can control overproduction and the inordinate cost of the common agricultural policy unless one is going to go back to a quantum or some idea of that kind which has already been rejected.

Then one comes to the social effects. They will be devastating. The Community will step in with its social fund greatly enhanced because of its savings from the costs of the CAP, costs which are always escalating. From the social fund it should allocate to every member state as much money as it can afford. I should not like to quantify it. That member state can distribute it in any way it sees fit among its disadvantaged farmers. The member state should also be allowed the freedom to supplement the amount which comes from Community funds if there are special cases of hardship and—let us be frank about it—if there are special political reasons for doing so, or any other reasons influencing the way they wish to spend their own money.

I believe in the present situation, the most likely way in which overproduction can be brought under control is for economic forces to be left free to have their effect and that the hardship—not only to farmers and farm workers but to the ancillary industries and the rural economy as a whole—can be mitigated to the advantage of the general public as well as those living in rural areas.

Finally, we normally, and quite reasonably, look on discussions of the common agricultural policy as being concerned solely with production, farmers, farm workers and the agricultural industry as a whole. However, I would urge this fact upon your Lordships. The common agricultural policy is the most important aspect of the whole of the Community. It takes up far and away the greatest part of the Community's expenditure. It is its best known feature and has the greatest impact on individuals in all member states. If it fails—and we must not blind ourselves to the fact that it is today in a very critical condition—the whole existence of the European Economic Community will be put in jeopardy. Already much of the effort which should be devoted to new initiatives, to bringing Europe closer together, to making it a real force in world politics, is dissipated because of the detailed internal discussions on the common agricultural policy. We must put that behind us and allow the energies of those who are trying to build Europe to concentrate on the constructive aspects of Europe. Until the problems of the common agricultural policy are solved the prospects of being able to do that are as slim as they are at present.

I urge Her Majesty's Government to accept that a speedy solution to this is of really vital importance.

10.1p.m.

Lord John-Mackie

My Lords, I should like first to congratulate my noble friend Lord Gallacher and his committee for an excellent report that is factual, full of information and makes many useful suggestions, although some I am not too sure about. Nevertheless, we are grateful to my noble friend for guiding his committee towards producing this first class report.

My friend, now my noble friend, Lord Carter, I have known for many years. He made a speech which many of us will remember as a maiden speech to be copied. It was brief and full of first-class words. I liked the point he made about farm workers and the reduction in farm spending which helped to create unemployment. That is something to be examined in agriculture today.

Many noble Lords have said that a depression in agriculture goes much further than the farmers it affects. We were pleased to hear from my noble friend Lord Carter. He has a record in public work as well as his own work: he is a CA, an agricultural consultant and a farmer. These are qualifications second to none for helping us in our agriculture discussions in this House.

Speaking second last, as somebody put it, to a House that has only retained experts on agriculture left at this time of night, it is difficult to say much new about the report. Many of the points have been covered. However, I should like to mention the point made in the report where it says that the Community is now the world's largest importer of certain food and agriculture products while the export potential is also increased. I should have liked that to have been expanded with some figures. It seems extraordinary that in this era of surpluses we are still the largest importer of food.

The continual theme running through the report, which many of your Lordships have mentioned, is the effect on many farmers. Paragraph 9 says: A large number of farmers are experiencing financial difficulties and some may go out of business as a result. The NFU gave evidence that the figure may be as high as 10 per cent. going out of business. This is something which we would regret. There is no doubt that if a farmer goes out of business because of financial difficulties, that farm, generally speaking, will be linked with the next farm, and that will be another agricultural unit going by the board. The noble Lord, Lord Middleton, emphasised this point. It is one which we should examine. Whatever we do, whatever method we use, we must see that it does not happen.

A point that has not been mentioned by any noble Lord is the Australian Government's evidence—I hope that the noble Lord, Lord Plumb, is listening—that actions by the EC could have ramifications far wider than Europe. They were thinking in particular of themselves and New Zealand. We know that it looks ridiculous to be bringing 76,000 tonnes of butter into a country, or area, which already has 1 million tonnes in cold store. But we made a deal with New Zealand in 1972 or 1973 when we entered the Common Market, and I think we should maintain that agreement.

We must also be careful, in getting rid of these surpluses, not to send them into markets which have been built up with painstaking care over the years since the Common Market started. If they look like losing their market, we must not destroy the market by shoving surpluses at cheap prices into it. I know there are many ways of getting rid of milk surpluses. One that I should like to see—it is not, I believe, impossible, although the Milk Marketing Board, without exactly pooh-poohing it, did not think it practical—is that the milk going into butter at the moment should be converted into UHT milk in fairly large containers and sent to Mozambique and Somalia. That would give New Zealand the market for its butter.

Everybody has mentioned the sustained policy of price reduction. Like several noble Lords, including the noble Lord, Lord Walston, I do not agree with that at all. I happen to remember the sustained price reductions from 1924 to 1932 and it took a long, long time to reduce even at disastrous levels. My father had a low ground ewe flock which he valued at between £10 and £12 in 1923 and by 1924 it had dropped to a value of £3. Potato prices in 1927 and 1928 were as low as thirty shillings a ton and wheat dropped in 1929–1930 from 45 shillings a quarter—I am sorry to use the old measure but that is the figure I remember—to 18 shillings. Still production Went on. As the noble Lord, Lord Walston, said, it will take a long time to have any effect. The farmers, at any rate for the first few years, will simply do their best to increase production to make up for the sustained price reduction which we want. We must remember that before we go any further along the road.

I know that the committee mitigates the point in paragraphs 86 and 104. It says that long-term reform of the CAP will require consistent price restraint combined with new initiatives to ease the adaptation of the farming industry. I hope that the idea is maintained; otherwise, it would be as disaster for the farming industry.

On the question of cereals in particular, we are always reminded of the huge surpluses, the taking out of land and the setting aside of land. Like my noble friend Lord Carter, I have read Sir Kenneth Blaxter's article in The Lancet on the world food situation. If we are to take land out of production, it will have to be on a short-term basis. If we do it, we must take it out in such a way that it can go back into production if Sir Kenneth's predictions are correct, as I think they are.

I should like to see land taken out on a mandatory basis, right across the board, whatever percentage is considered necessary, but not allowing farmers to select bits and pieces of their worst land. It must be on a rotational basis and fallowed around the farm. I have seen this done in Minnesota in the USA where I spent a whole afternoon with a government agent. It is perfectly easy to police and, in my opinion, is the right way to do it.

There is a small point on the question of the levy on cereals. I had a discussion with the millers the other day. They pointed out that farmers could be better rewarded in the market price from merchants if the levy was paid directly by agriculture. There is a point in that. You get £100 a tonne and £3.37 has to come off it, whereas if you paid that, you could probably squeeze the miller up another couple of pounds. This point should be looked at.

Beef and sheep have been discussed. I am a beef producer and this year our beef returns will be way down compared with last year. Something will have to be done there. With regard to the green pound and whether it will be reduced, we may hear something from the noble Lord, Lord Belstead, about what the Government will press for; and whether they will stick to the 4, 10 or 15 per cent., I do not know. Certainly something will have to be done.

I turn to the question of small farmers and part-time work for them. I went to Italy and Germany a few years ago and especially in Bavaria I saw industrial factories right out in the countryside where farmers could go to work part-time. In Italy factories have been built on the new motorway from Naples to Brindisi where small farmers can get work. That is not the case in this country but there is the question of farmers diversifying and using their buildings for small industries and suchlike and probably taking part themselves. That might be a solution of the small farm problem. If prices come down, farmers will have a problem.

On the question of the green pound, which I have already mentioned, I find this a difficult matter to understand. I have bought treatises on it and have tried to read and understand, but I noticed the other day that I am in good company as the Governor of the Bank of England does not understand it either. What I do understand is that if we can get a 10 per cent. reduction it will help beef prices in particular in this country.

I do not want to say much more except that I had a look through the appendix. I do not know how many members of the public will read a report like this. On page 27 the target and intervention prices are shown. If these are compared with what we get, it must give a lay person a funny idea of the position. He will ask "If those are the prices farmers get, what are they complaining about?" But those are nothing like the prices we get. I feel that some explanation might have been better there.

I read the two or three pages of the report on commitment and action. The noble Earl, Lord Radnor, mentioned this. If your Lordships read through it you will see that every second one has not appeared. They are described as "under active discussion"; "referred back for further work"; "this has not yet been adopted"; "the Commission's proposals remain on the table"; "no proposal has yet been made"; "no decision taken because"; "no commission proposal tabled"; "no specific proposal made"; "we await formal Commission appraisal"; and so on. If they are the actions and commitments then there is an awful lot that needs to be done. Have the action and the commitment straight away, because we wait too long. As the noble Lord, Lord Gallacher, said, and as other noble Lords have emphasised, it is quite ridiculous to be facing a harvest where we do not know what our prices are to be.

10.15 p.m.

Lord Belstead

My Lords, I should first of all like to congratulate the noble Lord, Lord Carter, on the speech that he has made this evening. It was exactly the sort of speech which attracts the interest of the House, for the noble Lord has, as many of your Lordships have said, a detailed working knowledge of agriculture and gave us the benefit of his knowledge in a speech which was closely argued and very interesting. There was just a hint of politics without actually being political, and it was certainly uncontroversial and yet authoritative. The noble Lord ended attractively on a severely practical note which I would guess is typical of him. I certainly look forward to hearing the noble Lord again in the near future, and I know all noble Lords who heard the noble Lord speak this evening will agree.

I should also like to congratulate the noble Lord, Lord Gallacher, on the committee's report. There is little between us concerning the conclusions in it. The committee has reiterated that the best way of tackling common agricultural policy surpluses is a sustained restrictive price policy, and the Government endorse this conclusion. But I would add that the United Kingdom's consistent pressure for such a policy has already brought some significant results. In the last three price fixings we have seen reductions in support prices across the Community which the Commission estimates total 9 per cent. in real terms. That is after account is taken of any devaluations in the green rates of national currencies.

In this context I remember that earlier this year your Lordships debated the possible effect of the reforms of the common agricultural policy agreed so far, including the major agreement on milk and beef reached in the Agriculture Council last December. That debate understandably concentrated on the difficult adjustments that have to be made by some producers in the light of such measures. Once again this evening concern has been expressed by my noble friend Lord Middleton at the beginning of the debate, by the noble Lord, Lord John-Mackie, at the end of it, and by many other noble Lords about the decline in the purchasing power of farmers' incomes. Indeed, the noble Lord, Lord Carter, put his finger on the problems that this raises so far as concerns employment in the industry and so far as concerns investment.

However, the Government are committed to reform of the common agricultural policy because we are not prepared to consider the alternative of waiting for the CAP to collapse in chaos. We believe that that would be far worse for our producers. I agreed with my noble friend Lord Middleton when he said that a prudent price policy ought to have been pursued years ago, but finding the common agricultural policy as we have in the last few years we feel that we have no option but to try to provide producers with the long-term stability that they need by pursuing the policies we have been pursuing.

However, the Government have been concerned that a necessarily tough approach on prices must be accompanied by complementary measures to help the industry to find new opportunities, and on 10th March we published a number of documents dealing with our wider policy towards the rural economy in the years ahead as agriculture copes with these adjustments. In the publication Farming UK we set out our view of how the industry, we believe, needs to adapt. The level of production in Europe must, we believe, be brought back closer to consumption. We have to look at alternative uses for land. There must be more attention to the needs of the market and the legitimate demands of the environment.

In any negotiations we are also determined to ensure that the necessary measures must be fair between member states, between different regions of the United Kingdom and between farmers, traders, the food industry and consumers. It is these three principles, the need for reform of the common agricultural policy, the need for a package of measures to help our farmers adapt, and the need for measures between member states to be fair, that guide the Government in the price-fixing negotiations that continue in Brussels later this month.

With certain important exceptions, we have given a general welcome to the Commission's proposals. Broadly, we support the Commission in its four-pronged approach to a reform of the CAP by sustaining a tough price policy, by limiting intervention buying, by extending and strengthening guaranteed thresholds, and by reforming the green money system.

On the key commodities of milk and beef, as your Lordships well know, the Commission's proposals are relatively straightforward following the major agreements recently made. These proposals, which do not change support prices, are in line with our approach, but we are opposed to the proposal to end intervention for salted butter. I agree entirely with the noble Lord, Lord Gallacher, and others of your Lordships who said it would make no sense if producers in the United Kingdom and Ireland had to make a type of butter for which there is little market demand simply to put it into intervention.

Perhaps I may respond to some aspects of the committee's report on milk and comment briefly on the agreement on beef. I have to admit there is one suggestion which comes from the Committee with which the Government do not agree; that is, that the choice of 1981 as a base year for allocating milk quotas was unfair to the United Kingdom. It so happens that there were member states who received a greater cutback in milk production than the United Kingdom. Their combined share of the Community milk market was 42 per cent. There were member states who received a smaller cutback in milk production than the United Kingdom. Their combined share was also 42 per cent.; so that the United Kingdom was at half-way in the league table of cutbacks.

One understands that milk producers are anxious for greater flexibility in the quota system, but it is also difficult to see how this could be done by transferring quota between member states, which is the recommendation in paragraph 90 of the report. It would mean some member states giving up quota overall, and I do not see that as being negotiable at present.

We should not underestimate the value to the industry, of the agreement we have achieved. Producers will receive compensation for quota suspended at the rate of 61½p per litre, the average profit per litre of milk being 3p to 4p per litre. As the noble Lord, Lord Carter, pointed out, average profitability per litre is perhaps not the only relevant yardstick against which to measure the value of compensation. The noble Lord put it a little more trenchantly than that, but 6½p per litre is also roughly equivalent to the average level of fixed costs of milk production and about half of total costs. I therefore feel that the compensation can be considered as generous as it was reasonably possible to expect in a difficult situation for many producers.

It is worth adding that figures recently published show that milk producers' net margins rose by 45 per cent. in real terms in 1985 and 1986, and in each of the last two years dairy farm incomes have increased in real terms. Those figures lead me to believe what I have always guessed, that dairy producers in this country are resourceful in meeting what has been for them, I know, a very difficult situation.

On the question of beef, perhaps I may emphasise that the variable premium arrangements, so important to United Kingdom producers, were maintained in the December agreement and safeguarded for two years. That is the longest run for this system which has ever been negotiated. The Government are aware of concerns about the effect of cow cull beef, and my right honourable friend the Minister has said that he will watch this market very carefully.

The Commission has rightly chosen cereals as a sector requiring major changes. My noble friend Lord Middleton asked me what the stocks were now in this country. My information is that as of February this year there are in store 762,000 tonnes of feed wheat and 755,000 tonnes of barley, whereas in December 1985 there were some 2,000,112 tonnes of barley and 4,000,060 tonnes of wheat. That is a remarkable reduction which, as your Lordships know very well, was due to the strong market, particularly so far as concerns Spain because of the drought last summer.

It is also the case because over the last few years many people in the cereals sector have looked ahead and provided splendid grain handling facilities, not least in the ports around our coasts, almost always with private sector capital. That is something which I very much applaud from the point of view of forward planning and also the splendid husbandry which our cereal farmers have shown in this country. I rejoice that it was rewarded in that way in the last selling season.

Despite the sceptism of the noble Lord, Lord Walston—I have listened to him speak about cereals on many occasions and I am always interested in what he has to say—I am grateful to my noble friends Lord Middleton and Lord Radnor in particular for what they said in support of the idea of a cereals set-aside scheme, because the Government recognise that the surplus situation in this sector cannot be solved simply through the price mechanism.

In March the Agriculture Council agreed the outline of a scheme under which farmers would be compensated for reducing the production of cereals, beef, wine and possibly other products. This extensification scheme is to be implemented in every member state's nationally determined rules, though participation will be optional for the individual farmer. I think that this is a concrete result of our advocacy of a Community-wide cereals land diversion scheme, voluntary at the level of the individual, applicable for a number of years and with a range of possibilities for alternative use of the land. We are now working on the practical details of the United Kingdom scheme. Over the next few months we shall be consulting the interests concerned. We shall try to ensure that the scheme suits our particular farming circumstances.

In the oils and fats sector, where the regime is very expensive, reductions in support are needed and should be achieved by improving the guarantee threshold system, as the Commission proposes. However, I agree entirely with those of your Lordships who have spoken about this sector that the Commission is not justified in seeking to link this with its edible oil stabilisation scheme—its oils and fats tax, which is, if I may say so, repugnant both in its name and in the effect that it would have. We are opposed to the scheme because it is not CAP reform simply to raise extra money by taxing consumers, particularly the least prosperous consumers, because that is what would happen.

We are also opposed to an oils and fats tax because it would damage the Community's trading relations with a large number of countries including some of the poorest. We believe in particular that it would be folly for the Community to provoke a new quarrel with the United States over agriculture so soon after settling the last one. I am grateful to the committee for what it has put forward on this subject from an all-party point of view. The Government will continue to oppose this part of the Commission's proposals.

Lastly, as regards commodities, the Commission has again proposed to limit payment of the annual, ewe premium to 1,000 ewes in the less favoured areas and to 500 elsewhere. This is clearly discriminatory. I assure my noble friend Lady Elliot of Harwood that we shall, as last year, oppose it.

The Commission's proposals to reform the green money system concern the way in which the common price level itself is determined. Its proposal is designed to prevent the inflationary price increases which are the consequence of tying the common price level to the strongest currency—the deutschemark. And of course it is too early to say at the moment how the negotiation is going to go. But the Commission has made a number of proposals for devaluation of member states' green rates. For the green pound it proposes a 4 per cent. devaluation. I think the only way in which I can respond to the noble Lord, Lord John-Mackie, and the noble Lord, Lord Carter, is that given the situation in which we find ourselves and the problems of the industry, we have made it quite clear to the Commission that we want to improve on that figure of 4 per cent. and we shall certainly expect to secure a bigger change than France or the Republic of Ireland, who, as your Lordships will know, have smaller MCAs than we have.

The Commission's proposals are tough, but they need to be because the Community faces a serious budgetary situation. The price proposals would, the Commission says, save 1,300 million ecu in 1987 and 3,600 million ecu in 1988, with the oils and fats tax. However, as my noble friend Lord Middleton and the noble Lord, Lord Gallacher, brought out very clearly in their speeches, the forecasts for CAP expenditure in 1987 exceed the budget provision by almost 4,000 million ecu. Clearly the prices settlement, without the oils and fats tax, must be tough. Savings additional to those in the Commission's proposals will be needed, either during the price fixing or subsequently. The 1987 budget must be balanced.

In effect, my noble friend Lord Middleton asked in his speech: how is it going to be done? At this hour perhaps I may just say that the Commission has of course committed itself to bringing forward proposals for balancing the budget and it is expected to propose a number of measures, including a technical change whereby member states will be reimbursed for their CAP expenditure, after the event rather than in advance; and of course that will make a saving which will depend on the extent of the delay, and it will also improve budgetary management. But of course that goes only part of the way.

While the CAP is much the biggest influence on our farming industry, full weight must be given to the action which we are taking on a national basis, as outlined in Farming UK. This recognises that farming for food will remain agriculture's main task, but encourages farmers to look at the possibilities for diversification and to play their part in protecting and enhancing the countryside.

The initiatives in Farming UK are, first, the farm woodland scheme, offering annual payments as well as planting grants for farmers who establish woodlands on productive agricultural land. We are still considering the many constructive comments we have received from the wide range of interests involved on the consultation document which we put out as a prelude to legislation. The document makes clear that it is our intention to build in environmental safeguards and to give special encouragement to broadleaved trees. It is a scheme which we estimate will cost £10 million a year. Some of this will be new money for Forestry Commission planting grants not provided for in its programme at present. The expenditure on the annual payments will gradually build up as more and more land is planted under the scheme.

The second proposal is for some further expansion of traditional forestry, with more planting down the hill. The third proposal is the doubling of resources committed to environmentally sensitive areas. I am glad to report to your Lordships that these have got off to a promising start and I hope the noble Lord, Lord Northbourne, who made a very interesting speech, will agree with me that it is significant that as a result of the socio-structural package this scheme is now going to attract a Community contribution.

The fourth element of Farming UK is the new scheme to help farm diversification, including—and I hope my noble friend Lady Elliot will be pleased to hear this—assistance for feasibility and marketing studies. This scheme had its origins in an amendment made to last year's Agriculture Bill in your Lordships' House. I should like to report that we are now well advanced on the preparation of a consultation paper on the scope, encouragement and coverage of the new diversification scheme.

Finally, we are ensuring that in our R & D and advisory programme more emphasis is to be placed on novel crops and livestock, which could have considerable long-term potential, and on the socioeconomic and environmental implications of the changing farm scheme. These new initiatives are expected to cost about £25 million a year when fully operational. It is a substantial new investment, even in the context of a lower level of CAP support. To say that this is not enough, as some critics have done, is easy, but that criticism carries the implication that the policy is a good one, and I am sure the package is going to be very welcome to those who benefit in the farming community and in the countryside generally.

To pick up three points to which I have not been able to refer, the noble Lord, Lord Mackie of Benshie, and my noble friend Lady Elliot of Harwood mentioned the need to see that farming continues in the hills. The Government very much agree with this. It is for that reason that my right honourable friend the Minister of Agriculture successfully negotiated a major extension to the less favoured areas two years ago.

The noble Lord, Lord Walston, and the noble Lord, Lord Carter, spoke in slightly different ways about the Commission's ideas for income aids. The Commission has said that it will bring forward proposals. We expect those to be published imminently. From the Government's point of view we welcome the suggestion that nationally paid income aids should be brought under proper control, since some massive payments made have threatened to undermine CAP reform and to distort competition. We shall examine proposals for European Community funded income aids closely, but we are sceptical about using agricultural EC funds for purely social objectives.

We are also very aware of the point made by the noble Lord, Lord Carter, that United Kingdom farm structure is greatly superior to that elsewhere. We believe that we need to take particular care that such measures as the Commission proposes do not disadvantage us relative to others.

Finally, a particular point was put to me by the noble Lord, Lord Gallacher, about wine. We welcome in principle the Commission's proposals to strengthen the control arrangements in the wine sector. Along with many other member states we are seeking clarification of the Commission's intentions to ensure that the measures introduced will be the most effective means of improving regulation of this sector.

The Commission has indicated that it anticipates unquantifiable savings following improvement of controls, in particular a reduction in fraudulent claims for aid. If I may say so, that shows that the chairman of the committee asked a good question.

I have listened with considerable sympathy to your Lordships' criticisms of the timing—or perhaps I should say the lack of timing—of the price fixing negotiations. However, I cannot say when this year's price fixing negotiations will be finally completed. Some member states have already demonstrated their hostility to the proposals put forward. However, we are determined that the measures agreed must be effective in taking forward the battle against surpluses and their associated costs, and they must do so in a way that does not discriminate against the United Kingdom.

The issues have been described and discussed very clearly by the committee. I should like to repeat my thanks for a report which is particularly relevant at present.

Lord Gallacher

My Lords, I thank all noble Lords who have taken part in the discussion on the committee's report, including of course my noble friend Lady Elliot of Harwood. The level of the discussion has amplified many of the propositions contained in the report. It has been sustained at a high level, as I should expect, having regard to the participants.

I hope that the debate has been useful to the Minister, whom I should also like to thank for the very detailed reply that he has given us. I was almost grateful in a sense that he found two points of disagreement in the report, otherwise we may have been in too great accord; and that in the ultimate would have done no good to his Ministry or, indeed, to the committee.

I hope that the Minister will convey to his right honourable friend our best wishes for a successful negotiation at the Agriculture Council in May, and for a safe return to the United Kingdom. I commend the Motion to the House.

On Question, Motion agreed to.