Sheepmeat Regime: ECC Report

HL Deb 20 October 1988 vol 500 cc1325-50

7.53 p.m.

Lord Gallacher rose to move, That this House takes note of the report of the European Communities Committee on the Review of the Sheepmeat Regime (18th Report, 1987–88, HL Paper 98).

The noble Lord said: My Lords, the proposal now before us by the Commission to vary the sheepmeat regime is not in itself new. I recall that your Lordships' Select Committee reported on this subject in 1984 and, as a matter of interest, reached much the same conclusion then as does the present report now. The significant difference, if any, is that the reception of the proposals from interested parties by the Select Committee has been much more favourable than it was in 1984. So there has been a change of thought in the intervening four years.

I hope that I shall not be accused of wasting time at this late hour if I say a word about the regime as such. Sheepmeat has had a Community regime since 1980. It is not a major source of Community expenditure. In that respect it does not rank with cereals, milk, wine or meat. Nevertheless, it represents a growing source of expenditure by the Community and, although the Community is not yet self-sufficient in sheepmeat, undoubtedly under present pressures the Commission feels obliged to keep the cost of sheepmeat under review. That in part is one reason for the present proposals.

It is a significant proposition from the point of view of Britain because we have a regime for sheepmeat which differs from that of other member states. It differs because instead of a single ewe premium as a basis for remuneration, under the regime we have a smaller ewe premium and an additional premium known as the variable premium which is in the nature of a deficiency payment. Again, those familiar with the subject will know that under the variable premium there is a market price for sheep set week by week throughout the year, and if qualifying lambs fail to reach that market price then a variable premium is paid. In consequence that has, as I say, something of the character of the old deficiency payment scheme.

One difficulty about the variable premium from the point of view of the completion of the internal market by 1992 is that, given the fact that common producer prices are the basis of the CAP, there is of necessity a system of claw back when the lambs are exported. That system works at present but will not fit in so readily with the completion of the internal market by 1992. I think we should also state that in Britain we are the largest producers of sheepmeat in the Community and are also the largest consumers.

I should also say, although it is spelled out in the report, that in fact the production of sheep and sheep farming represents a very important industry, given the stratification which exists in Britain whereby in hill, upland and lowland areas we have a system which works in harmony. In consequence the industry is well integrated and has prospered since the introduction of the regime in 1980. Any disturbance of a severe character would present problems and your Lordships' Select Committee asked witnesses what upland and hill areas could do in the event of any serious deterioration as regards the production of sheep. We were assured that at the moment it represents the only viable kind of agricultural activity which those areas can undertake. Therefore, we have an industry which is important both economically and socially, and your Lordships' Select Committee is mindful of that fact.

The main proposition which the Commission makes under the present review is that the variable premium in Britain should be phased out by 1992. I am told that that has now been extended to 1993. After taking fairly wide evidence—and we express our appreciation to those organisations which gave evidence—your Lordships' Select Committee have reached the conclusion that the phasing out of the variable premium in this fashion is acceptable but on conditions. There are already a number of conditions in the proposals and I shall mention some of them as I go through the piece. We felt it prudent to attach additional conditions and I shall also mention those.

The first condition which we feel is necessary is that if there is to be a single annual ewe premium then it must be increased to compensate British sheep producers for the loss of the variable premium. In addition, under the stabiliser regime—and already the stabiliser has been activated as regards sheep—we feel that the calculation of the stabiliser in Great Britain should be based on the Community ewe flock and not simply on the Great Britain ewe flock alone. We feel that the voluntary restraint agreements which currently apply to sheepmeat need to be renegotiated.

I should mention that in addition to home produced sheep, the Community is a substantial importer of sheepmeat from a number of countries and in the case of Britain the New Zealand frozen lamb trade is a very important part of our diet. It is a traditional trade and one which has been well conducted over the years so that the British housewife not merely has a choice between home produced lamb but also imported New Zealand lamb. In addition she has the benefit, during the period when prices of home produced lamb are high because of scarcity, of a fall-back if she wishes in the form of New Zealand lamb.

Under the voluntary restraint agreements which have been negotiated by several countires and the Commission, they enjoy a reduction on the tariff which they would otherwise have to pay of 20 per cent. Under the VRAs that tariff has been fixed at 10 per cent. We took evidence from the New Zealand High Commissioner on this subject and we were very familiar with the problems confronting New Zealand not merely as regards its exports to Britain but worldwide in this regard. While we are very conscious of the necessity for renegotiation of the voluntary restraint agreements under the proposed review of the sheepmeat regime, we stressed in our report—and I do so again this evening—the importance of fairness and equity as regards the voluntary restraint agreements and, in particular, as regards the important imported trade from New Zealand.

We also feel that a new method for calculating the ewe premium must be achieved. At the moment the Commission is proposing that there should be only two regions for calculating the ewe premium and that in those two regions—roughly the north and south of the Community area—the co-efficients should be arrived at. These co-efficients are then applied to give the premium which will be payable under the proposed new arrangements.

That represents a reduction in the number of regions and a new method of calculating the premium. I understand that the two regions have now been increased to three, but that has been on the basis of dividing the southern region into two and we still think that it does not meet the problem for Britain. The system proposed by the Community is, in our view, both simplistic and unfair to Great Britain and we commend to the Government the suggestion that they should advocate, as part of the renegotiation of the regime, a region for the calculation of co-efficients based on Great Britain, Northern Ireland and the Republic of Ireland, which should constitute one region.

We do not accept—indeed, we reject categorically—the Commission's proposals that there should be a limitation on the number of eligible ewes per farm under the proposed new regime. We feel that that is designed to be specifically unfair to the United Kingdom, which conducts its farming on a much larger scale than many other member states, and any such limitation would bear harshly upon us. We feel that the ewe premium should be paid more frequently to farmers in the absence of a variable premium. I understand—no doubt the Minister will confirm this when she replies—that that has already been conceded and that two payments are contemplated. This will improve the cash flow position for farmers and ease the transition for them from the variable premium to the ewe premium.

We believe that the current definition of eligible ewes in the United Kingdom should continue so that yearling lambs qualify. We would not wish to see any change in the current definition of eligible ewes without good notice to take account of farming practice and breeding requirements.

we agree that intervention arrangements for sheepmeat should be abolished and although we feel that storage aids which currently exist should be preserved, we do so only in so far as these do not lead to stockpiles of frozen lamb. On past evidence that situation is not likely to arise, but if it does your Lordships' Select Committee would review its present belief that private aids for storage should continue.

There is the question of the volatility of sterling against other currencies of member states who are in full membership of the European monetary system. Noble Lords will be aware that there is not a monetary compensation system for sheepmeat. Consequently, the divergencies between green rates and actual currencies reflect at once in prices paid. In view of the emphasis which has been placed on the importance of exports for the United Kingdom after the elimination of the variable premium, we feel that any volatility as regards these exchange rates could reflect adversely on farmers. Therefore, we feel that this problem must be faced, although we are diplomatic and discreet enough not to suggest to Her Majesty's Government the manner in which it should be faced. However, it exists and we feel it right that it should be mentioned.

We felt that there was a view widely held among those who gave evidence that the DG6 directorate in Brussels did not have extensive experience of the sheepmeat industry in Britain. This, of course, is in marked contrast to our own Ministry of Agriculture where there is a clear and keen appreciation of all that the industry involves. Given the nature of this question and the importance of it, as I have already said, on both social and economic grounds we feel that it would be advantageous both now and in the future if experience of this kind existed by way of an addition to the staff in DG6.

We make the recommendation, again based on the evidence given to us, that United Kingdom producers, with an eye to export markets, need to improve the quality and marketing of lamb by 1992 if the full export potential of the industry is to be realised. For example, when we asked for evidence of the grading system which currently applies before the variable premium can be paid—specifically, whether this qualification had raised standards—there did not appear to be a view at all within the farming unions to which we spoke. That seems to be an indication of a complete lack of awareness by the producer of the ultimate market.

That contrasted sharply with the evidence given to us by the New Zealand High Commissioner, who, when questioned about this appreciation of the British market, was able not merely to tell us how much New Zealand had sent to us, how much was charged for it and what economic grouping in the British market he was seeking to supply, but also how much he spent on advertising, where he was advertising and how the division of the advertising budget was made. All in all, as chairman of the subcommittee I had the impression that the New Zealanders were much better organised vis-à-vis our market than we are vis-àvis, say, the French market. Therefore, we have made this recommendation in our report which we hope will be noted.

For example, in looking at who does what and who is responsible for what in this area in Britain, I find that the Meat and Livestock Commission has an interest and that the Food from Britain Organisation has an interest, both on its marketing side and its co-operative development board—though judging by recent replies to Written Questions in your Lordships' House the prospects for Food from Britain, in the long-term at least, seem to be somewhat less than rosy. Therefore, I believe it would be unwise to regard that organisation as being a natural source for an extension of the kind of activity that we should like to see in this area.

Finally, there is to be a lamb promotion council, funded from the bolt-on levy and thus I have the personal impresssion that this is everybody's responsibility and that, in the end, nobody in particular does anything about it. Certainly there is nothing comparable in my experience to the New Zealand Meat Producers' Board or even, come to that, the Irish Meat Producers' Board.

I hope that the report as it stands is a clear and concise document which will commend itself to your Lordships. I beg to move.

Moved, That this House takes note of the Report of the European Communities Committee on the Review of the Sheepmeat Regime (18th Report, 1987-88, HL Paper 98).—(Lord Gallacher.)

8.6 p.m.

Lord Stanley of Alderley

My Lords, I speak as a shepherd— or I try to be a shepherd—and I thank the Select Committee, and the noble Lord, Lord Gallacher, in particular, for bringing this very valuable report to the attention of the House and the sheep industry. I shall confine my remarks to just two aspects.

First, the report repeats the previous report made by your Lordships on the sheepmeat regime in the 1983–84 Session which stated that if our industry is to survive we must export and we must produce what the customer wants. To do that, it is of prime importance to remove any obstacles to our export trade. While we operate a system that is different from the rest of Europe it allows our European competitors—I repeat, competitors, because they most certainly are—to discriminate against us, which they delight in doing.

Therefore, I totally agree, as I did in 1983, that subject to the conditions laid down in the report and which have just been enumerated by the noble Lord, Lord Gallacher, the variable premium must go unless, of course, it is operated by the rest of Europe and that, as your Lordships report states so clearly, is tantamount to asking for the moon. It is the old story—if you cannot beat them, join them. I shall therefore be fascinated to hear what my noble friend Lady Trumpington says on this matter. When subcommittee D recommended such a change in 1983 —mentioned by the noble Lord, Lord Gallacher with a smile on his face; and there was a smile on my face, too—we had a discreet note back from the Ministry of Agriculture politely asking whether we were out of our crazy little minds. I hope that the department was referring to the report and not to your Lordships!

Having said that, I realise that at that time most sheep farmers preferred to keep the variable premium. Indeed, they still do today. Therefore, whose side are the Government on now? Secondly, on a rather less important point, although the report is remarkably consistent with the previous report produced in 1983–84, there is one matter that is not now emphasised to the same extent. I refer to recommendation 74(j) in that report. That states that all grading should be done on a deadweight basis. I presume that the reason is that it is assumed that once the variable premium is done away with there will be no need for any grading of livestock. I agree that liveweight grading should be done away with. I believe it has aided and abetted the industry in producing poor quality lamb as a similar system did after the war in the pig industry. That allowed the Danes to capture our bacon market. We, as sheep producers, should look back to the period from 1947 to 1950 to see what happened to the pig industry.

However, some system of deadweight grading should be preserved so that the producer and the retailer know what they are producing and buying. I ask my noble friend Lady Trumpington that should there be an end to the variable premium for sheepmeat and, for that matter, the premium for beef, the Government should ensure that there is an independent system of grading so that the producer knows what the trade wants. That was a point made by the noble Lord, Lord Gallacher, so forcefully. It is an important point; in many instances, I regret to say, there is little confidence or love between the farmer and the slaughterer. It may be that the Meat and Livestock Commission can continue to do this job, but it must prove beyond doubt that it is unbiased, incorruptible. And it must be given the powers to do the job fairly and properly.

There is of course the question of who will pay. However, as your Lordships are told not to discuss money, I do not intend to discuss that matter now. If the industry is to adjust to these changes and win the export battle, I implore the Government to continue to fund research on the scientific methods of grading carcasses now being so successfully developed.

8.12 p.m.

Lord Hooson

My Lords, unlike the noble Lord, Lord Stanley of Alderley, I cannot claim to be a shepherd, but I am a sheep farmer in a less favoured area. "Less favoured" in this context of course is within the terms of the agricultural policy of the EC. I congratulate the noble Lord, Lord Gallacher, and his committee upon the report. I apologise for the fact that my noble friend Lord Mackie of Benshie, who was a member of the committee and who would have liked to have spoken in the debate, is unable to be here. It must not be thought that my views and those of my noble friend Lord Mackie coincide on every point with regard to the report.

The report is one with which I largely agree, although I have some reservations. The committee has marshalled the evidence very well in its comments and the evidence itself is extremely interesting. When I was in the other place I represented an area which has probably more sheep per acre than any other part of the United Kingdom. I know how valuable the EC sheep regime has been for agriculture generally in the United Kingdom. I believe that it was getting into a fair state of chaos before the sheepmeat regime came about. We should not underestimate the enormous contribution it makes to the stability of the economy of country areas particularly the hill and upland districts.

From recollection I believe that the variable premium system was introduced when Mr. Peter Walker was Minister of Agriculture. It suited this country very well. It benefited not only the producer but also the consumer. I believe that there is a great deal to be said for it. We are by a long way the largest sheep producers within the EC. I was rather horrified to read in the report and in the evidence that few members, if any, in the office that deals with sheepmeat in Brussels are British or have any detailed knowledge of the British system. I wonder how correct is the bald statement which I quote from paragraph 37 at page 15 of the report. The committee says: However they feel bound to acknowledge that the likelihood of all other Member States being able to adopt the variable premium system as used in Great Britain is so low that it may be inevitable that British sheep producers will have to depend on the annual ewe premium as the instrument for income support in the sheep sector". That is a bald statement, but is it actually correct?

What are the efforts that have really been made to persuade the Common Market countries of the benefits of the variable premium system? I suggest that when the Minister of Agriculture next goes over to discuss matters with his fellow ministers, it might not be a bad thing to take with him the present Secretary of State for Wales, Mr. Peter Walker, who is responsible for the sheep industry in Wales, to try to persuade the Commission of the benefits of the variable premium system. I believe that there is a great deal to be said for that system. I am very glad that it is to be extended until at least 1993 which gives some longer period for adaptation than was originally feared.

I am a great supporter of Europe and a great believer that we must aim at common economic and agricultural policies as in regard to other products of the Common Market. So long as the money that is to come to the sheep producers of this country does not exceed pro rata what is to be allocated to other countries, I wonder whether it would be possible to negotiate within the EC to divide the money between the annual premium on ewes and the variable premium as we have done in the past. That would not do any harm to the EC sheep system because it would still leave the question of the clawback. Other than that I cannot see any great disadvantage in it.

One of the problems is that support has been based entirely on the annual ewe premium which is to be paid twice a year under the arrangements. It seems that one of the dangers of this is that it tends to encourage people to overstock. We have seen this happen in parts of Wales in the past where one simply has a payment on headage. There is also a tendency for more and more people to go in for sheep in order partially to get the benefit of the headage payments. Is it really meant to be a social payment or one made in order to bring about some kind of economic stability?

If it is intended that it should be a social payment to alleviate some of the effects of the market, then there is a great deal to be said for the recommendation of the Commission that it should be limited as regards numbers. I appreciate that it will adversely affect some producers in this country but if it is intended to be a social payment then I cannot see why there should not be a limit upon it. There should be a limit of 500 for lowland flocks and 1,000 for upland flocks. That seems to me to be about right. I believe that we should give further thought to that question.

Another point is our relationship with New Zealand and the agreement that we negotiated at the time of our entry into the Common Market. That agreement needs very careful review. I believe that we should not finally agree a new sheepmeat regime without the Common Market having first negotiated with New Zealand. It would be a very strange thing indeed if we agreed the sheepmeat regime with all its details and then negotiated with New Zealand. That would be putting the cart before the horse. This aspect needs to be looked into.

One of the greatest worries among farmers is the enormous increase in the national sheep flock. We have a structured sheep industry. The hardy sheep come down from the hill breeds and are then crossed to produce the Mule and other crossing ewes. They are then used with the terminal sire for the fat lamb. The evidence of the Ulster Farmers' Union showed that since the new premium has been paid in Ulster the flock has increased by 40 per cent. That is quite a large increase. Farmers did not have the variable premium because the sheep industry was a relatively small part of the Northern Ireland agricultural economy. It was not on the same scale as the industry in Scotland, Wales and certainly in the hill areas of England. From the evidence of the representative of the Ulster farmers it appeared that the flock had increased by 40 per cent. That seemed to flash a warning light and there are sudden fears in the agricultural community that, with the restriction on milk production and the attempted restriction on grain production, more and more farmers will rush into sheep production and add yet another headache to the Common Market of excessive lamb production. I do not know how far the committee went in addressing that problem.

The committee is to be congratulated on the report. It is helpful in setting down certain guidelines for this country to follow and in particular in marshalling the evidence.

8.22 p.m.

Lord Northbourne

My Lords, I should like to congratulate the noble Lord, Lord Gallacher, on his firm but tender chairmanship of our committee and on the excellent distillation of our discussions which constitute the report under discussion. I shall restrict my comments to one issue—fairness to the British producer and British consumer. In his evidence Henry Fell wrote: The British sheep industry has all the natural and structural advantages which should enable it to dominate the sheep market within the Community. A perfect example of a product which fits the commercial logic of the Common Market, whereby movement between member countries enables the best possible use to be made of resources. It has happened with fruit and vegetables, but not with sheep. It would he greatly to the advantage of the British sheep industry if this blockage could be cleared". This country has a natural and structural advantage in sheepmeat production. We have a relatively efficient industry. Are the Government going to allow these advantages to be neutralised by conditions imposed by our partners in the Community or by missing this opportunity to remove some of the current restrictions? I should like to refer in particular to the proposal that new premiums should be paid only on the first 500 ewes in lowland areas and on the first 1,000 ewes in the hills. I must respectfully disagree with the noble Lord, Lord Hooson. In its evidence the National Farmers' Union said: The Commission's proposal that the payment of the ewe premium should be limited to the first 500 ewes per holding (1,000 in less favoured areas) appears to be a deliberate attempt to penalise the United Kingdom. It should be rejected outright". The acceptance of a limit on the number of qualifying ewes would undoubtedly discriminate most damagingly against British producers. It would not even make a very substantial saving in the cost to the Community. The likely saving would be about £16 million out of a total expenditure of £700 million. It would also be a subsidy on inefficiency.

In this respect my experience is very much confirmed by the evidence to the committee of Mr. Gourlay, the president of the NFU. A lowland shepherd can comfortably manage 600, 700 or even 800 ewes. In the uplands 1,200 to 1,500 is not uncommon. To encourage any lower level of stocking per unit, or indeed per labour unit, is to penalise efficiency, or to penalise the specalist producer.

My second point is touched on in the report and has been referred to by the noble Lord, Lord Gallacher. I refer to the basis of calculation for the new premium. I shall not recite the proposals of the Commission as these have already been covered. The evidence received by the committee shows that the Commission proposals would result in a significant drop in the amount of new premium payable to British producers. The committee recommends—and I urge the Government to pay serious attention to the recommendation—that a list of Community regions distinguished by the characteristics of their sheepmeat production should be drawn up and that the United Kingdom, or the United Kingdom combined with Ireland, should constitute a separate unit. The Commission's proposals as they stand represent an unjustifiable penalty on United Kingdom producers. They must be resisted.

I should like also to refer to stabilisers. The so-called stabilisers are a device for penalising overproduction and came into operation last May. Increases in production over the base quantity are penalised by reductions in the headage payment. Because Britain is the only country in the Community to have variable premiums, it was originally agreed that the United Kingdom flock should be treated separately for the purpose of calculating the stabiliser penalty. It is clear—and it is recommended by the committee—that if the variable premium is to go, the separate national flock basis for calculating the stabiliser penalty for the United Kingdom must go too. Any other solution would be totally inequitable. The Commission's proposals do not address this point.

I should like to say a few words about the external aspects of the proposals. Paragraph 46 of the committee's report sets out clearly the difficult issues involved in the United Kingdom's close and traditional links with New Zealand as a source of supply. I have spoken to French sheepmeat producers who believe passionately that British imports of New Zealand lamb are responsible for British sheepmeat being available on the French market at prices lower than those to which they have been accustomed and to which the French consumer has been accustomed. It may well be that this is true in the short term. In the slightly longer term, if New Zeland supplies are cut back there is a considerable capacity for expansion of efficient sheepmeat production in this country, which will ensure that, in the slightly longer term, both the home market and the French market will be supplied with sheepmeat at reasonable prices. The problem with the French sheepmeat industry is that it is inefficient. Artificial protection will only perpetuate that inefficiency and seems to be contrary to the principles of the Common Market.

Finally, I should like to ask the noble Baroness whether she can give an assurance that the British sheep industry will be given a fair opportunity to compete on equal terms with our European partners and to benefit from its relative efficiency and from those natural and structural advantages which it enjoys.

8.28 p.m.

Lord Middleton

My Lords, the noble Lord, Lord Gallacher, has given such a lucid account of our report that I wish merely to expand on the first of our conclusions set out on page 20. It is the one on which my noble friend Lord Stanley of Alderley has concentrated. I find myself in close accord with him in what he has said.

I am not at all surprised that the noble Lord, Lord Hooson, has expressed concern about the idea of phasing out the variable premium, because it was seen by all those who gave evidence to the committee as the proposal which would make the greatest difference to the way in which the sheep regime would operate in Great Britain.

The farmers' organisations expressed strong misgivings. The Farmers' Union of Wales was an unequivocal advocate of the variable premium, which it regarded as a safety net. The CLA said that the variable premium had proved itself and that its replacement by a single new premium would be harmful. The National Sheep Association said that it would be a disaster if it were to be removed. The Scottish Farmers' Union feared massive disruption and the National Farmers' Union was opposed to the proposal, giving as two of its reasons, first, that the variable premium encourages quality in lamb production, and, secondly, that it makes for efficiency.

As members of the sub-committee we were not convinced. We felt especially that the two reasons given by the National Farmers' Union which I have just mentioned should be looked at more closely. We believed that the achievement of a single market for sheepmeat in 1992 would require that change and therefore to expect all the other member states to adopt our system was unrealistic. Indeed, the National Farmers' Union admitted that fact in evidence.

With certain qualifications—to which the noble Lord, Lord Gallacher, has referred—we took the view that the removal of the variable premium would present an opportunity of which the British lamb producers were well capable of taking advantage. So far from encouraging quality, we believe that the present grading system on which the variable payments are made—here I found myself in agreement with my noble friend behind me— has the opposite effect.

Mr. Volans of the Edinburgh School of Agriculture, who has made a special study on the marketing of sheepmeat, told us that the present certification was, "a very crude quality mark". In answer to a question that I put to him, he said he thought that the present lamb grading system had been an obstacle to improvement in the market.

In his written evidence Mr. Volans said that the removal of the variable premium could lower the average market price because the range of quality would be greater but the spread of prices between high and low quality lambs would be larger. That opinion confirmed our view that the market would play a significant part in encouraging a better product. There would be increased opportunities for British exporters. We already have a thriving export trade in lamb, especially to France. We were told that freer trade between member states and the effect of the removal of clawback would be likely to result in increased exports from Great Britain.

However, because British consumption would be likely to fall as our lamb prices increased, there was a real need for development of the marketing of lamb in this country. This of course has already been stressed by the noble Lord, Lord Gallacher, who is an authority on the matter.

As we say in the report, there has been little adoption by producers of the Meat and Livestock Corporation lamb classification system; there has been little communication between producers and consumers; there has been little promotion of new lamb products, and presentation for consumption has been poor.

Here lies the challenge. If our farming organisations are hesitant to dive into the colder waters of market competition, then they should take heart from the Ulstermen. As the noble Lord, Lord Hooson, reminded us, in Ireland the annual ewe premium system now applies as in the rest of the Community—that is, apart from Great Britain. The Ulster Farmers' Union told us in evidence that if the chance to return to the variable premium system were offered it would not be taken. The ewe premium system gave money direct to hill and upland breeders in Ulster and their farmers' union suggested that the loss of the variable premium and the consequent focus on returns from the market was the key to improved breeding and marketing.

As regards exports, farmers in Great Britain already have certain advantages over both Southern and Northern Ireland. They have a classification system in being. They have a far larger stock of lambs from which to select a smaller proportion for the export trade. I think that that summarises the reasoning behind our recommendations that the variable premium be phased out and there should be a major drive, starting now, to improve and increase the quality of British lamb-marketing channels so that British sheep producers can gain the maximum benefit from the completion of the single market.

Perhaps I may echo the sentiments expressed by the noble Lord, Lord Gallacher, by saying that we were perturbed by features both in the stabiliser proposals and in the scheme for the reform of the sheepmeat regime which showed a great lack of understanding of the British sheep industry. As the National Sheep Association reminded us, ours is the largest and most important in Europe in terms of live numbers, volume of production and home consumption. Not only is there lack of understanding in the Commission but many proposals in both schemes—that is, the stabiliser scheme and the proposals for the new sheep regime—discriminate against British producers.

First, the sheepmeat stabiliser for Great Britain is calculated on an unfair base quantity of sheep. Secondly, the calculation in the new sheep regime proposals for the ewe premium would penalise our farmers. Thirdly, the proposal to limit the number of eligible ewes bears no relation to the reality of economic production in Great Britain and is quite unacceptable.

As we say in the report, bearing in mind the dominant position of the UK with regard to sheepmeat production and consumption, every effort should be made, if possible, to include more British nationals in that part of the Commission's directorate which deals with sheep.

Finally, while I am very bad at remembering figures and statistics, there is one which should always be borne in mind where British agriculture is concerned; that is, that only about 40 per cent. of Britain is capable of being ploughed. The rest, apart from urban land, is upland grassland and, in the Highlands, grass or heather moorland. A large proportion of those who farm some 50 per cent. of our land area depend on sheep for their livelihood. Therefore there are the strongest possible economic and social reasons for ensuring that the new sheep regime does not put them at a disadvantage. We believe that the recommendations which we have made in the report will ensure that that does not happen.

8.39 p.m.

Baroness Elliot of Harwood

My Lords, I should like to start by congratulating the noble Lord, Lord Gallacher, on the way in which he conducted the inquiry and the writing of the report. It was absolutely first class. Those of us who were members of the committee enjoyed the experience very much indeed and were deeply interested in the subject. I should also like to congratulate the noble Lord, Lord Middleton, who will now take the place of the noble Lord, Lord Gallacher, as our chairman. I am quite sure that we shall enjoy his skilful work equally as much. I also hope that he will enjoy working with us.

The report deals with one of the most important sections of British agriculture. If one looks at the map of England, Wales and Scotland, the hill land in Scotland includes the whole Border area, the Highlands and the islands. In England and Wales it is Northumberland, Cumberland and all the other areas there. It is the same in Wales. To date sheep production is one of the agricultural products not in surplus. It also provides some of our exports—although that, as I am sure your Lordships will know, depends on what the French do.

In 1972, our self-sufficiency was 42.2 per cent.; in 1987 it was 78.6 per cent., and the forecast for 1988 is that it will be 83.9 per cent. Therefore we are still within the 100 per cent. level. Further, the areas where sheep are raised are generally the so-called less favoured areas. That means that even in the hill country land can be used wisely and profitably, although subsidies are necessary on the breeding stock.

Sheep production keeps the hill land in good condition, and even the most enthusiastic preservation societies do not complain about us. The idea that all that land should grow trees would be disastrous for the conservationist and for the consumer. In this country we still consume more sheepmeat than any other European country. That is noted on page 8 (figure 4) of our report. We still consume a considerable amount of New Zealand lamb, but not so much as in the past. New Zealand now exports to countries in the Far East, which helps consumption. We import in the winter months when our production is hardly on the market, and we can sustain trade in that way.

In the most recent programme sent to us from Brussels, the worst aspect for the United Kingdom sheep industry is the proposal to limit farms to 500 ewes and in the hill areas to 1,000. Speaking as a hill farmer in the heart of the Border country, that would be a disaster. The 1,000-ewe limitation means more blanket afforestation, which would be Sitka spruce, and a further depopulation of the Border lands, because in an area where one can run only two ewes to one acre a hill farm with 2,000 or 3,000 acres or more would have no alternative but to sell land for afforestation, thus reducing the employment of shepherds and farm workers, as trees do not provide nearly as good employment as sheep farming. That would be a disaster for all hill land in England, Scotland and Wales.

There is much controversy about doing away with the variable premium scheme; but our committee, after much inquiry and discussion, came to the conclusion that if the variable premium were done away with the ewe premium must go up and should be related to the demand for hill sheep and the consumption. That involves the arable areas which buy the store lambs, fatten them and put them on the market. It is a system which suits everyone and should be continued. Those recommendations are in paragraphs 61 and 62 of our report.

Paragraphs 63 and 64 suggest that ewe premiums should be paid more frequently. That would help farmers during the year when sheep are not ready for sale—until July, August and September. A further proposal that I support is that in the agricultural section of the EC in Brussels there should be more staff with direct experience of the sheepmeat regime. I have been to Brussels twice with committees from this place. Each time we have commented on the fact that few civil servants, or whatever they are called in Brussels, know anything about this type of hill farming.

With the permission of the chairman, I should like to mention a new suggestion as an alternative to sheep; that is, the production of cashmere fibres through the growing of cashmere goats. That is not in our report, but I mention it because the Nuffield Farming Trust gave a scholarship to my nephew Andrew Lubbock to go to New Zealand and Australia to investigate the proposal as a possible alternative to sheep.

The report is technical, but my nephew came to the conclusion that cashmere goats could graze happily with sheep, but the climate here would mean that they would have to be housed in winter. At present the greatest quantity of cashmere fibre comes from Mongolia and China. In New Zealand, Australia and India there are areas where cashmere goats are raised. Our hosiery industry could take more cashmere wool. The Chinese are beginning their own production, so there will be a shortage of cashmere fibre for the United Kingdom hosiery trade. The cashmere fibre is desperately wanted by companies such as the Dawson Company in the hosiery trade.

In the report there is an interesting analysis of the production of cashmere goats. There is a possibility of breeding cashmere goats for export to areas in southern Europe such as Spain, Italy and Greece where the climate would be more favourable. We could produce the breeding stock for export. That could be profitable. The report goes into interesting detail but it is rather outwith our debate tonight. If any of your Lordships are interested, I can obtain copies of the report for your information.

Finally, I hope that the Government will not agree to the limitation of sheep numbers in areas where sheep production is the one vital product and the best way to produce mutton and lamb, which are still in strong demand. I implore the Minister to see that that point of view is strongly put because it represents the opinion of the whole sheep industry.

8.45 p.m.

The Duke of Somerset

My Lords, perhaps I may add my thanks to the chairman, the noble Lord, Lord Gallacher, for his skill and expertise and the manner in which he organised the assimilation of the evidence in this report, as in past ones.

I fully agree with the committee's opinion as to the central feature of the proposals; that is, as we have heard, the phasing out by 1992, or 1993 now, of the present variable premium system. A number of qualifications, which are highlighted in the report, are needed to safeguard our farmers. They have also been mentioned by one or two of your Lordships tonight.

I should like to draw the attention of the House mainly to the social side of the debate. The most important aspect of that is discussed in paragraph 39, which notes that the proposed ewe premium system directs money directly to the hill and upland breeders in a way that the variable system cannot do. It goes along in hand with the social benefits of the hill livestock compensatory allowance headage payments. As that paragraph also notes, it is in those geographical areas that British farming is at its most difficult. The climate and topography preclude many alternative farming enterprises except for afforestation, as we have heard. It is surely essential to allow the chance of an economic existence to a sustainable industry in the hills. That ensures a viable rural population. Pressures from all sides threaten those communities. One of the worst of those is house prices brought about by outside money from those retiring from town properties and those seeking second homes in the countryside. No one on an agricultural wage can afford to get into that market and landlords naturally succumb to the temptation to sell, thus diminishing the letting market.

Weekenders rarely take part in village life and so there is no one to run the youth club, the village hall or the sports club. I feel that that type of social decline is happening in many of our rural counties. Here we have a wonderful way to help to reverse the trend—by putting the money where it will do most good. It will provide income support for farmers in the hills without also benefiting the more advantaged farms in the lowland areas—those that merely finish the animal.

Many of your Lordships have been interested in the evidence of the Ulster Farmers' Union and I too noted what they had to say, namely, that the annual premium now in force in Northern Ireland is favoured by their members although they had at first opposed it. Many witnesses indicated that payments under the sheepmeat regime were often the main source of income in the less favoured areas. Sheepmeat production is a very important sector of the UK agricultural scene and for the Community to start looking for financial savings in this marginal sector can be seen as a direct attack on this country. So I feel that both the proposal to limit eligible ewes per farm and the proposed new method of calculating the premium by the use of just two or possibly three north-south regions should be most strongly resisted.

Perhaps I may comment on one other aspect or issue raised in this report. It is that of certification or grading. As we have heard, this system is under threat from the new regime. The committee received opposing evidence as to whether or not this procedure produced better quality lamb and more uniform marketing. I believe that there is a need for a more vigorous and clever marketing of lamb and sheepmeat products.

One of the ways in which this can be achieved is an expansion into the fringe market for the specialist buyer. Not everybody believes in the modern trend for all lean and no fat on meat. It is fat that gives the flavour and as in beef this, together wth proper hanging, is much sought after by consumers who want to get away from the all-encroaching blandness of much of today's food. The abolition of certification would allow for a wider choice at a competitive price. Do the graders really know what the consumers want?

An additional bonus to the impetus of marketing would be given to the export trade by the removal of the clawback system. So I feel that all the advantages lie with the UK sheep farmers adopting these measures. They should be welcomed, subject to the caveat that has been mentioned already tonight. British farmers and their unions should look again at the implications and the possibilities.

8.52 p.m.

The Earl of Radnor

My Lords, speaking this late in the debate, I find it rather difficult to know quite what is left to say. It is certainly not easy to follow any preconceived ideas. However, I intended to say and would very much like to say that it has been a real pleasure and very instructive to work on Sub-Committee D under the chairmanship of the noble Lord, Lord Gallacher.

Having listened to the speakers, the only point that I have missed in this debate is any real emphasis on the fact that in Europe there is not self-sufficiency in sheepmeat. I am a very keen Marketeer and I am also a patriot. I am very keen to see Great Britain and nobody else filling that need in Europe over the coming years. It is for that reason that I am very keen that the variable premium should be phased out. I think that there are reasons, which I shall come to, within this country, most of which have been mentioned. But the abolition of the clawback would be an added advantage to the one that we already seem to have in this export market. I believe I am right in saying that there is an advantage in putting ourselves right in the marketplace and having to find out exactly what is wanted, rather than having animals graded. There may be an awkward period before we fall into that habit. It is very salutary to have to find out what the Frenchman wants to eat. If our livelihood depends on it we shall find out.

Parochially, in England, I think it is good that the variable premium goes. The ewe premium, so long as it is at the right price and frequent enough, is directed straight to the person with the ewe flock and not to the perhaps richer fattener in the lowlands.

I take the point of the noble Lord, Lord Hooson, that a premium of that sort could lead to overstocking on the hills. It is possible that this is something we shall have to put up with. If we are to fill this export gap we want a bigger ewe flock. And we need that bigger ewe flock if cereals, as to a certain extent they are now doing, go down the drain. For those reasons primarily, I am very much in favour of getting rid of the variable premium. Like everybody else I found interesting the only example—from the Ulster Farmers' Union—of moving from one regime to another and never wanting to return.

I believe that there is a very serious thread running through all this argument. It is not entirely to do with the sheep regime. It has been seen over cereals, and it will be seen again when beef is discussed. To put it bluntly, in my opinion it is the discrimination against Britain by other EC countries, for whatever reason—presumably for political reasons. Clearly, it is present in the limitation of ewe numbers; it is present in the way that stabilisers have been drawn up; and it is present in the way that the ewe premium is calculated. Every single time, these forms of calculation and rules militate against the English farmer who is larger and better. There is no point in mincing words. Broadly speaking the English farmer is larger and better. And, again broadly speaking, as far as I can see, Europe is always protecting its own; that is, the smaller and not so efficient farmer.

Noble Lords may remember that it happened in respect of cereals over the co-responsibility levy and letting off farmers below a certain acreage which would have been disastrous to us. I am told, or I suspect, that when the beef regime comes before us we shall find that animal numbers will be limited again. I should like an assurance from my noble friend. I should like to be told what is happening to counter this very undesirable move within Europe, this feeling against us which is bad from our point of view and extremely bad from the point of view of Europe as a whole.

We must face up to the fact that Europe is a protectionist area: the Common Market is a protectionist area with a tariff harrier around it. One day, as a Community, we shall have to acknowledge the rest of the world. We might as well prepare ourselves, little by little, by becoming slightly more efficient in agriculture. Let Europe follow us, so that one day we shall be able to look the rest of the world in the face and possibly even compete. That is harsh. And, politically, it is unacceptable. Other countries have passed through that period, or they are in the middle of it. In the Cairns group, New Zealand and Australia farmers are allowed to go bankrupt. No one comes to their aid. I must ask my noble friend what steps we are going to take to have better official representation in Brussels so that these matters can he dealt with as efficiently as possible. That question is not disconnected with our present discussion.

Those are the salient points that I wished to mention. There is also a minor point about which I warned my noble friend. I know from my farming activities, particularly fish farming, that when a product from a certain area is thought to be bad in some way the market disappears for a period. The market disappears very severely. I am thinking of the case of a gentleman who ate a badly smoked trout and died of botulism. My fish farm manager visited a fishmonger's the next day. He heard someone in the queue in the fishmonger's say about some trout, "Don't have those. Those are the ones that kill you."

As my noble friend knows, there is a problem in Wales and Cumbria as yet unresolved. In 1986 the Chernobyl incident occurred and the pastures in those two areas were polluted. I have no doubt that all the right steps were taken to counteract the effects of the pollution. I shall not go into the details. But a relatively small number of farmers both in Wales and in Cumbria still have worries and face hardship as a result of that incident.

Would it not be better if that matter were tidied up—the expense is not that great—as soon as possible? When we start our exporting no one can then say, "Oh, don't have sheep from Wales. Those are the ones that kill you", or, "Those are the ones that are radioactive." We do not want such remarks to be made. That is a small but perfectly valid point from a commercial point of view.

Having said that, I support everything in the report. I have just two small further points to make. I hope that the voluntary agreement entered into with New Zealand will be maintained. I say that on purely emotional grounds. I do not see why one should not show a certain amount of emotion every now and again and put New Zealand above other countries. Further, I cannot for the life of me understand why we have to subsidise storage. That has not been explained to me satisfactorily, either in the report where it obviously should have been as I was a member of the committee, or this evening.

9.3 p.m.

Lord John-Mackie

My Lords, the noble Lords, Lord Stanley of Alderley and Lord Hooson, and myself are the three non-members of the committee who are speaking tonight. The three of us must congratulate the noble Lord, Lord Gallacher, and his committee. Fifty per cent. of the members of that committee have spoken here tonight on this report. I should like to congratulate them from a technical point of view. The report is less than 16 pages long, but it provides a tremendous amount of information. If a few more government reports were less than 16 pages long, it would save an awful lot of time. Therefore I congratulate the committee not only on the content of the report but also on its terseness.

I left this Chamber at about a quarter to midnight last night. I do not want another late night and I do not want to say too much as members of the committee and other speakers have gone over the main points of the report very well. Therefore, there is no point in my repeating them. The main bone of contention concerns the variable premium versus an increase in the ewe premium. It is the old story of where one puts one's money—on the source of production or on the product itself. The argument goes that if one puts one's money on the product itself, one obtains a better result because one produces more and therefore obtains more of the premium.

The Ulster Farmers' Union made a very interesting point. The committee took particular note of it and it came down in favour of putting the money on the source of production, which is the ewe. Although there are arguments on the other side, I think that that was the right decision. The noble Baroness, Lady Elliot of Harwood, and the noble Lord, Lord Middleton, mentioned the tremendous variation in sheep production. The difference in production between low ground sheep and sheep in the Highlands of Scotland is tremendous. Therefore, a ewe premium would be the fairer option. The committee was right to come down in favour of that.

Although I did not notice this point in the report, I was intrigued to discover that because of the variable ewe premium, the size of sheep flocks in Ulster had increased by 40 per cent. I do not know what flock size was like before. If a flock consisted of only a few hundred sheep, a 40 per cent. increase is not a lot; but if it was large, a 40 per cent. increase would make a big difference.

The matter of a high ewe premium and its effect on various matters was raised, as was the overstocking point. Overstocking is a very real concern. In the early days of ewe premiums there were all kinds of rumours about people who took the wool off them and the premium and never had a tup near the sheep. But there is something to be said for the premium. After all, we are paying arable farmers to set aside arable land, so why should we not pay a sheep farmer for setting aside his ewes? There may be a point in that. The premium helps farmers in less favoured areas to survive. The noble Duke, the Duke of Somerset, was very anxious that they should. He is right to be concerned about that.

There is the matter of the ewe lamb getting a premium in the case of low ground sheep. I believe there was some argument about the date that had to be proved for the ewe lambs in order to receive the premium. But hill farmers cannot put young ewes in lamb at the same age and at the same size as low ground farmers. There is an anomaly there which should be looked at. That matter is set out in paragraph 52 of the report. I believe it is important to look at that.

I turn now to the question of postponing the premium until 1993. I often think that it is a bad idea to postpone things. People say "Oh, I have another year" and do nothing. I have done that myself. The Government postponed set-aside registration for three weeks; I thought that I had plenty of time and found myself tearing around to get my registration in a day before it was due. I should have thought that the thing to do would have been simply to fix the date for 1992. However, that is perhaps something of a digression.

I should like to take the noble Baroness, Lady Elliot, to task on the question of afforestation. She does not like blanket afforestation. But blanket afforestation was created because farmers would not co-operate in forestry. That is the long and the short of it. I can give any number of examples of individual farmers—and I could give the noble Baroness their names—who have co-operated in their forestry for many years and doubled their sheep production because of the shelter and of the accessibility by forest roads to areas which they could improve, to grazing and so on.

The noble Baroness's point about labour will not bear examination. Forestry takes three to one in labour as against agriculture. I know that it is argued that much of it is contract labour, which does not stay in the area. That could be got over if every hill farm had a forestry policy. I should just like to make that point.

The noble Baroness's point about goats is very interesting. However, they have to be on low ground under grazing control because if you let goats loose on land in the hills they will ruin the pasture before you know where you are. The greatest example of that is Yugoslavia where Tito was advised that he would need to get rid of the goats if he was to have a decent sheep policy. Unfortunately, being a dictator, he got rid of the goats and slaughtered them all before he bought his flock of sheep. It was slightly disastrous.

I believe that the noble Duke is looking for the ideal if he wants people to eat sheepmeat which is well covered with fat, well hung and of an age that would give the proper taste— in other words, a three year—old wether from the hills of Scotland, which of course is now extinct. Nevertheless I like to think that someone is thinking of the value of fat on any sort of meat. However, the price of doing that is very high indeed.

Perhaps I may finish on the subject of currency. There is no doubt that all the arguments that have gone before about the green pound have needled British farmers more than anything else. There are very great differences in prices because of the green pound. If we just joined the EMS, we could have fair competition and we could look forward to 1992. However, if the Government are going to dig in their toes on joining the European Monetary System that problem will continue.

Again I should like to congratulate the committee on an excellent report and I hope that we shall see some good results from it.

9.11 p.m.

The Parliamentary Under-Secretary of State, Ministry of Agriculture, Fisheries and Food (Baroness Trumpington)

My Lords, so far as I am aware, this is the first time—either awake or asleep that sheep—have crossed my path in a debate such as this. First, I should very much like to congratulate the noble Lord, Lord Gallacher, on his committee's valuable report on the sheepmeat regime. As others have said, they have tackled a complex subject and have produced a clear and well reasoned report which could not have been more helpfully timed both for this House and for my colleagues who will be negotiating on this subject in Brussels. I am also grateful for the many thoughtful and constructive interventions which your Lordships have made this evening.

I should like to add my best wishes to those of my noble friend Lady Elliot to my noble friend Lord Middleton —I think that this is the second time I have done so but it is always worth doing a good thing twice—and join in her tribute on his taking over the chairmanship of the committee.

The work of the committee is very important, since sheep farming is one of the major success stories of British agriculture. After listening to the noble Lord, Lord Hooson, and my noble friend Lord Middleton, I am mindful that sheep farming in the hills is particularly important. The committee's report reflects the determination—which I know we all share—that the review of the Community sheepmeat regime should result in arrangements which enable our industry to continue to capitalize on its natural advantages and superior efficiency.

Some noble Lords may not be aware of the fact that the EC Commission has just produced revised proposals for the review. They were presented to the Council of Agriculture Ministers in Brussels earlier this week. I hesitate to suggest that the Commission was trying to act in time for our debate today, but it is helpful to have proposals on the table at last, even if we do not yet have the legal text.

It may help your Lordships if I start by briefly outlining what is now proposed, since it differs in some respects from the Commission's earlier proposals which were considered by the committee.

Variable premium and clawback would be phased out over a four-year transitional period by progressively reducing the guide price which determines the rate of payments. From the 1993 marketing year, the variable premium would cease altogether. The Commission also proposes a progressive reduction in the frequency of payments. The reduction in the rate of variable premium would result in a progressively higher rate of annual ewe premium being payable in Great Britain. From the start of transition in 1989 two advances of annual premium would be payable during the marketing year to all eligible producers.

The Commission has also proposed some new arrangements for making the transition to a single ewe premium calculated on the basis of a Community-wide income loss. The existing seven regions would be reduced to four: Italy and Greece; Spain and Portugal; Great Britain; and the other northern member states. Each region would have a ewe premium calculated on the basis of the regional income loss and a regional lamb productivity coefficient. From 1993, Great Britain would be integrated into the larger northern region so that only three community regions remained. Each would have their own lamb productivity coefficients, but these would be applied to a Community-wide income loss to derive three separate rates of premium.

The other internal aspects of the Commission's proposals remain broadly as suggested by the Commission in 1987. These are principally the redefinition of "eligible ewe", the introduction of a limit on the number of ewes per flock which may receive annual premium, the phasing out of the intervention system in tandem with the variable premium, and retention of the possibility of private storage aid.

The Commission is also proposing for Council approval a mandate for negotiations with third country suppliers on the future arrangements for access to the Community. The Commission has illustrated its ideas by setting out what it has in mind following initial talks with New Zealand, the Community's principal third country supplier.

I hope that your Lordships have been able to follow me so far. The essence of what the Commission proposes is that most regional and local variations in the sheepmeat regime would be phased out by the end of a four-year period. The underlying assumption must be that this will result in a better alignment of market prices in the Community. This would then justify a single ewe premium on the basis of a Community-wide income loss; and permit the abolition of barriers to free trade. The only regional difference thereafter would be in the three separate lamb productivity coefficients. These would reflect the agricultural and practical differences in production patterns, and generate a different rate of ewe premium per head in each of the three separate regions.

It is evident from the committee's report and from your Lordships' comments on it—and indeed from the many public reactions to it—that the element of the Commission's ideas which is of most concern to British interests is the abolition of the variable premium. The noble Lord, Lord Gallacher, spoke in depth about the variable premium and for my part I would say that we have greatly valued this over the years. It enables market support to be paid to finishers of lambs as well as to breeders, a feature which is very well suited to the particular characteristics of our national system of sheep husbandry. It enables market support to be limited to lambs which meet particular quality standards. It provides an incentive to production out of the peak season while giving support to producers throughout the year. It gives confidence to the market, and so enables orderly disposal of our lamb production. These have all been very significant benefits for producers and consumers in Great Britain.

I listened with care to my noble friend Lord Radnor and indeed the committee has very correctly pointed out that there may be difficulties in retaining the variable premium. No other member state has chosen to operate it, and there is reluctance elsewhere in the Community to accept a situation in which one region of the Community has a different system of market support. There is also the difficulty that the Commission sees the export charge which is used to claw back variable premium as incompatible with the establishment of a single market.

I must reply to the challenge of my noble friend Lord Stanley of Alderley and say that I am not going today to anticipate the Government's position on the variable premium in the negotiations in Brussels. They are only at the very earliest stage. What I will say—and I think that this is really at one with the committee's recommendations—is that we must ensure that the future regime, whether through variable premium or by some other means, enables our industry, including the industry in Northern Ireland, to prosper and to gain the full advantage of its excellent structure, efficiency and expertise.

I can, however, however, be more categorical in responding to the committee's remarks about intervention. This is in theory available to other member states instead of variable premium. No one wants even modest foothills of frozen lamb, let alone mountains. We quite agree with the committee's conclusions on intervention and equally on the potential usefulness of private storage aid.

One particular concern expressed by the committee, and this evening by the noble Lord, Lord Northbourne, was that the Commission made no provision for the future abolition of the separate stabiliser currently applied to Great Britain. We understand the committee's views on this. The separate stabiliser is certainly an undesirable feature of the present arrangements. But I can offer your Lordships some reassurance on this point. The council regulation introducing the stabiliser contains the provision that the separate stabiliser in Great Britain applies only as long as the variable premium is operated. If the variable premium were to end we would certainly insist that this corresponding termination of the separate stabiliser was adhered to.

Turning now to the proposals for the future of the annual ewe premium, the committee has drawn attention to the Commission's ideas for headage limits on the number of ewes per holding which may receive the ewe pemium. I listened with great care to the words of noble Lord, Lord Hooson, but I have to say that in our view this is a highly objectionable proposal. Because of our agricultural structure, UK producers would bear the brunt of the budgetary savings which resulted. Yet the fact is, as my noble friend Lady Elliot said, farmers with more than 500 ewes in the lowlands or with more than 1,000 ewes in the less favoured areas still need support. We are talking in particular in the LFAs about producers who are often making the only possible agricultural use of the resources at their disposal.

The proposals would result, very simply and directly, in a reduction in sheep flocks, a consequent reduction in jobs, and thus in further rural depopulation. I hope that what I have just said responds to the points made so eloquently by my noble friend Lady Elliot and the noble Duke, the Duke of Somerset. This is not consistent with other broad Commission policy objectives. We shall again be opposing this proposal which we have had to fight off in the Council of Ministers on various previous occasions.

The other annual premium issue on which the committee felt strongly was the Commission's proposal for premium to be based in future on a Community income loss rather than a regional one. We agree with the committee that the Commission's proposal for a single income loss would indeed be disadvantageous for the UK if it were introduced now. However, the Commission's revised proposals envisage that, during the four-year transitional period, regions would continue to have their rates of annual premium calculated on the basis of regional income losses. The single income loss would only be introduced in 1993 when Community market prices had aligned more closely. I do not think that we can be entirely confident that that will happen. We shall therefore have to look very carefully at the proposal for a Community income loss.

The committee drew attention also to some other points on the detailed operation of the annual ewe premium. It suggested that the imposition of just two regions for the purpose of setting productivity coefficients for ewes might be simplistic, inefficient and unfair. The Commission's new proposals in a way acknowledge the force of this in that they now propose three regions, the southern region now being split into two. We need to examine whether this goes far enough. However, we shall most certainly have to ensure that the arrangements for income loss and coefficients are fair and equitable from the British point of view.

As the noble Lord, Lord John-Mackie, will no doubt agree, the proposed redefinition of "eligible ewe" is a very technical issue but nonetheless an important one. As the committee pointed out, the present definition has the advantage to producers that in certain circumstances it includes ewe lambs put to the ram for the first time. Set against that are control problems that arise, which have led the Commission to propose a change. We shall seek to achieve a sensible definition that is fair to all producers within the Community and that enables them to secure the premium to which they are entitled without having to comply with requirements that constrain sensible husbandry practices.

We would agree with the committee, whose views were so ably expressed by the noble Lord, Lord Gallacher, on the cash flow benefits that would accrue to farmers as a result of the Commission's proposal for two advances of ewe premium to farmers during the marketing year.

I turn now to the question of access for third country sheepmeat. The committee was right to focus on the sensitivity of imports and the need to take account of producer and consumer concerns as well as those of the traditional suppliers of our market. We can welcome the way that the Commission is handling negotiations. It is seeking mutually acceptable arrangements with third country suppliers, starting with New Zealand, which is by far the most important. This shows proper respect for the Community's obligations under the general agreement on tariffs and trade. The emphasis on mutual agreement should achieve the fairest possible deal for consumers and suppliers alike. It is encouraging that by all accounts the Commission sees prospects of progress with the New Zealanders in this area. This is doubly so since the absence of progress on the third country element has been seen previously as an important obstacle to progress on the internal market review.

My noble friend Lord Radnor spoke of Chernobyl. We sympathise with the problems faced by farmers after Chernobyl. He will admit that the Government did a lot to help. We have paid out £5.5 million so far. Schemes are still operating to assist sheep farmers.

The committee—this point was taken up by the noble Lords, Lord Gallacher and Lord Hooson, and my noble friend Lord Radnor—regretted the lack of Britons in the services of the European Commission dealing with sheepmeat. I must stress that Commission officials do not serve in a representative capacity. It would be wrong to view their work in that light. Of course I quite agree that anyone who does work on sheepmeat cannot operate effectively without a thorough knowledge of the British sheep sector, which is after all the largest in the Community. I assure noble Lords that my officials are in close and regular contact with Commission officials to ensure that they are aware of what is happening on our market.

My noble friend Lady Elliot of Harwood mentioned a cashmere fibre report made by her nephew. She was kind enough to give me a copy of this useful document, which is now being studied by officials. Any new crop that is economic and profitable is always of interest to us. My noble friend's nephew should be congratulated on the excellent report.

I should like to close by stressing that the Government welcome the forthcoming Community review and the opportunity that it provides for all concerned to consider how the Community sheepmeat market can best be organised. It is understandable that on an occasion like today we should perhaps focus on the details of what is proposed and in particular on the aspects that concern the future of our industry. We should not forget that the review offers the opportunity to create a unified Community sheepmeat market and that progress in that direction should offer us the prospect of better access than we have at present to continental markets. For that reason I think that the stress placed by the committee on the importance of improving the marketing and the quality of British lamb is something that all of us who are concerned with the British sheepmeat sector should take to heart. This has been recognised in the Meat and Livestock Commission's strategic objectives and in the work of the MLC's Lamb Promotion Council, which has helped to increase British lamb's share of the domestic market and to boost our exports.

My noble friend Lord Stanley of Alderley will appreciate from what I have already said that the variable premium is still with us, as are the quality standards which certification gives us. One can always improve quality and grading, and I hope that the industry will do all that it can to move in that direction. I agree with the noble Lord, Lord Northbourne, that potentially no sheepmeat industry within the Community is better placed than ours to take advantage of a single market. We must make sure that that potential is fulfilled.

I should like to stress to the noble Lord, Lord Northbourne, that the Government for their part will be guided by three principles with which I believe your Lordships will agree. Here I should like to speak to all noble Lords. There must be free but fair competition. Market support must be provided, and at reasonable cost. Finally, and most important, the new regime must allow our sheep producers, whether in highland or lowland, to continue to capitalise on their natural advantages and their superior efficiency, as they have done so successfully in the past.

Lord Gallacher

My Lords, I thank all members of your Lordships' House who have taken part in this important and interesting debate. The speeches that have been made have filled out the details of the report before the House. I express my thanks to the Minister for the manner in which she has replied to the debate and for updating us so effectively on events subsequent to the drafting of our report. In the jargon of this place, I should like to say that I will study what she has said. Unfortunately I cannot promise to write to her because I have a lifelong rule never to put anything in writing to a lady, and particularly to one as attractive as the noble Baroness. I commend the report to your Lordships.

On Question, Motion agreed to.