§ 4.56 p.m.
§ Second Reading debate resumed.
§ Baroness O'Cathain
My Lords, I welcome the Bill and its three distinct objectives. The first is the freeing-up of the managed markets. Managed markets were almost certainly essential in the 1930s but they really have no place in the 1990s. The benefits of managed markets are considered to have been almost exclusively enjoyed by the primary producers—that is the farmers—but that is too simple a conclusion to reach. The freeing-up of managed markets will have far-reaching effects on groups of people other than farmers.
The second objective is the issue of grants for the marketing of agricultural, horticultural and other produce. That is fundamentally important if we are ever to get anywhere in attempting to tackle the serious balance of trade deficit in food. The third objective of the amendment concerning the extent of levy-raising powers draws interesting questions as to who is responsible for funding vital research, undertaking consumer education and providing a vital database to assist future policy formulation in the agriculture sector. I presume that there is also the unstated objective to comply with Brussels.
As I have said, I welcome the Bill but I have two concerns. The Bill is almost impossible to understand and that could result in a lack of interest in it in your Lordships' House. That would be a great pity. The Bill 828 is most important and the issues it raises have implications for farmers, the agricultural supply industry, other rural businesses, food processors, wholesalers, retailers and, most important of all, consumers. However, having heard the Minister today I believe that those present in your Lordships' House will have a much clearer idea of what the Bill contains. I congratulate him on his lucidity.
My second concern centres on the fact that since the Bill's publication almost all comment has been about milk and the future shape of the dairy industry. Many of its other provisions are also of great importance and I hope that they will receive serious consideration and not just go by through default. I have alerted the House to the danger that we might think that we are discussing the Milk Marketing Bill. As a result of my specific experience in milk marketing—incidentally, I am the first non-farmer to speak today—I guess that I could be accused of falling into that very trap. I intend majoring on Part I and making brief comments on Parts II, III and IV.
The proposal to remove the statutory powers of the Milk Marketing Board of England and Wales, the three boards in Scotland and by extension the Northern Ireland board, is to be welcomed. It is in the interest of everyone to have as free a market in milk as possible—and I emphasise the words "as possible". Increased competition will lead to better value for consumers and increased efficiencies within an industry which has been bedevilled by the stultifying effects of formulae pricing and cost-plus systems for far too long.
I recognise that the Bill establishes a framework for the assessment of a scheme to be put forward as an alternative to the current regime and is not intended to deal with the detail of any such scheme. But it is disappointing that there is such scant reference to the consumer. On a quick run-through of the words contained in Clauses 1 to 21 inclusive (which I estimate to contain approximately 4,000 words) I could see the word "consumer" mentioned only once!
The Bill puts the onus on the milk marketing boards to produce a proposed replacement scheme for the current position. I have to say that I feel that that is somewhat too "hands off" by the Government. Recent history, where more than two years of torturous negotiations between the boards and the dairy trades federations on a new pricing policy came to nothing, does nothing to encourage me to be optimistic that a scheme acceptable to everyone can be achieved in as short a timescale as is envisaged by this Bill. But I was relieved to hear the Minister say that time —I use his word—is not "immutable". I believe that the new scheme has to be acceptable to all the vested interests —not only to the primary producers, the farmers, and to the Government, but also to the dairy trade whose livelihood equally depends on the outcome.
In addition, the retail trade, which relies on a regular supply of high quality fresh milk and dairy products to satisfy the demand from its customers which it has built up and fostered over many years, has a very strong interest in the issue. I would hope that the Minister will be able to give an assurance to the 829 House that the Government will be more pro-active in assisting the achievement of the desired objective than the wording—or at least my interpretation of the wording—of this Bill indicates.
I would hope also that there would be early and frequent consultation and discussion with the dairy trade; otherwise, I fear that there will be endless disputes, calls for arbitration and general suspicion and animosity. Believe me, the history of relationships within the milk industry is not all sweetness and light and now that there is a positive move towards improving the market for all parties, particularly the consumer, it is in the interests of all that as much agreement as is possible should be reached before the new system is introduced.
Clause 3(2) (c) requires that practices contained in any scheme put forward take account of the interests of milk purchasers. The Bill does not define the purchasers, and f am left to wonder whether purchasers, for the purpose of this clause, include retailers and consumers as opposed to just the dairy trade. I am aware that that level of detail will be dealt with in Committee, but I make the point only to re-emphasise the fact that there seems to be a lack of recognition of the importance of the consumer in all this. I fear that the Government are mirroring a tendency, too prevalent for too long in this country, to put the needs of the consumer rather low down the list.
Freeing a market, which for so long has been protected to a very large extent, is going to be a painful exercise for many. I wish all parties well in the difficult days ahead. But just because it is likely to be difficult is no reason for not attempting it. More than that, it is no reason for not achieving it.
The benefits to the farmers, and the country as a whole, of the milk marketing scheme—now almost 60 years old—are well known. The certainty of a non-bouncing cheque each month, the amazingly reliable service of collection of even a few gallons of milk, no matter what the weather, the first-class testing facilities and the greatly valued on-farm advice service are all too often taken for granted. But in total they compensate in a large measure for the fact, as has already been pointed out this afternoon, that the milk price to farmers has not been as high as many would have wished. And it is not only the farmers who benefit. The dairy trade sometimes forgets that life has been made a lot less complicated for it by the very operation of the scheme which it loves to hate.
Consumers have also benefited. The daily "pinta" on the doorstep and the supply of calcium-rich products are well regarded. But today's consumers demand more than that and even the greatest supporters of the scheme must admit that it has militated against efficient new product development. It grieves me to see that innovations in the dairy product range on sale in the supermarkets are almost wholly from other countries—thus contributing to the shameful balance of trade deficit in food products. It will be an exceedingly difficult task to achieve the right balance. It will require the patience of Job, I fear. I wish all involved the best of luck; they will need it.
Before I leave Part I of the Bill, I should like to flag up the points that I believe will need to be taken into 830 account in the new circumstances, other than those that I have already mentioned. Very briefly, those are: funding of basic dairy herd research; funding of near-market research; management of quota. The milk marketing boards have done quite the best job in the EC in this area. That skill must not be lost. That point was highlighted by the noble Lord, Lord Carter, but it needs re-emphasis. As regards pensions of former staff and future pensions of current staff, the successor bodies to the boards must not be allowed to plunder the funds. There will be other points to he considered but I am sure that the Minister is well aware of all of them.
I make one further specific point. I am sure that the noble Earl does not need me to flag up the fact that there could be a particular problem in conforming to one aspect of EC legislation once the milk marketing boards are disbanded; namely, the requirement to provide statistical information on production and consumption of milk and dairy products within the UK. Most of that information has been generated by the milk marketing boards and it is essential that the database is maintained not only to conform with EC requirements, I hasten to add, but as a valuable marketing tool.
Turning to Part II, I am pleased to note that the consumers' interests are important as are the interests of:those who purchase potatoes otherwise than as consumers".Again, a managed market is going to be freed-up and I welcome that.
The market for potatoes has developed beyond recognition during the past 12 years or so. I remember the furore which greeted a statement by a Member of your Lordships' House (correction, he was not a Member of this House when he made the statement) to the effect that a certain type of potato was pretty awful. The potato producers had apoplexy. The consumers suddenly realised that there were more than two kinds of potato. During the ensuing years the supermarkets have carried out an excellent education job for the potato. There are many varieties readily available, varieties that are specific for different end uses. I am sure that with the final freeing-up of the market, the potato will become even more of a speciality purchase. That is what should happen.
My hope is that no longer shall we be importing significant numbers of potatoes, that UK growers will ensure that they produce what their customers want and that organisations like McDonald's will not have to import their potatoes from the Netherlands:in order to ensure consistency of quality".The third part of the Bill deals with grants for marketing and I welcome it wholeheartedly, without any caveats. In essence, the much greater flexibility, whereby grants can be made available not only for the primary product—the raw material—but also for the processed product, will greatly encourage groups of producers and processors to redouble their efforts to provide the market with what it actually wants.
The extension of the current scheme to food, at the Minister's discretion, should benefit all the interests I 831 have listed before and really lift the marketing of UK food and agricultural products. I hope that the Minister will be liberal in his discretion!
Finally, I turn to the fourth part of this extensive and complicated Bill. The section of this part which concerns me is the implication for research if agreement on levy collection cannot be reached. I have already made reference to this while speaking about milk. I hope that there is a universal acceptance that we must not skimp on research but I would not go so far as to say that it is imperative that there should be a levy for generic advertising. I remain to be convinced that generic advertising works. More than that, I fear that if it does work, the UK levy payers are supporting the marketing efforts of the importers of products competing with the product produced by the UK levy payers.
The Bill is to be welcomed and I hope that it will receive widespread support in this House and, eventually, in the other place. It is a significant development for the agriculture industry—one of this country's most important industries, but one whose contribution is taken so much for granted. For too long we have been less successful than many other EC countries in agricultural marketing. I feel confident that this Bill could prove to be the stimulus which the industry needs in order to show that not only can we produce the best agricultural produce in this country but we can also market it alongside the best.
§ 5.10 p.m.
My Lords, a number of noble Lords expressed surprise on seeing my name on the list of speakers for an Agriculture Bill. I am not a farmer. I am a consumer. I warmly congratulate the Government and the milk marketing boards on recognising the need for change, both for the sake of producers and consumers. Indeed, when I heard my noble friend the Minister articulate some of the defects of certain arrangements, I was not surprised that there had been a growing rumble of complaints against the long life of the milk marketing boards.
I must apologise to the House that a longstanding engagement involving other people requires me to leave before the end of the debate. I shall speak briefly and concentrate mostly on the milk aspects of the Bill.
I strongly agree with what was said by the noble Baroness, Lady O'Cathain. I recognise that the Bill seeks to improve the interests of both producers and consumers. There has been a long series of constructive complaints by people outside the House in regard to the present situation, which the Government intend to change. I refer specifically to the writings of Linda Whetstone which were published through the Institute of Economic Affairs, and to Richard Pool and Andrew Threipland, who recently published through the Centre for Policy Studies a pamphlet entitled, Set Food Markets Free.
We all recognise the history of the milk marketing boards, but their monolithic—I use the Minister's word—indeed their collectivist nature is certainly no longer optimising the scope of producers or the 832 interests of consumers. I look forward to arrangements being introduced which will serve both purposes.
I am not in any way sufficiently expert to go into the detail of the Bill. But I have one question. I understand that the scheme to be introduced and considered by Ministers, and perhaps by the House, will be required to make arrangements for the disposal of the assets of the present milk marketing boards. I understand that the producers as a whole contributed to the building up of those assets, and that arrangements are being made for shares in a privatised Dairy Crest to be distributed to all producers who contributed to the creation of that enterprise.
It would seem to be unfair that producers who will not, in the future, belong to some newly-formed body, will not receive something back in return for the assets to which they contributed when Dairy Crest is returned, in the form of shares, to all those who contributed to its creation. It is a point which will become important at a later stage of the Bill and I hope that Ministers will pay attention to it.
So far all the speakers except the noble Baroness, Lady O'Cathain, honourably declared interests as farmers. But the Minister referred several times to the interests of consumers and, if I may say so with respect, quite right too. The response of Her Majesty's Opposition was given most engagingly by the noble Lord, Lord Carter, to whom we listen with respect in this House. He told the House the sad news that had his party won the election he would not have introduced such a Bill. More is the pity that even in opposition he was not able fully to welcome the Bill.
Not surprisingly perhaps, the noble Lord focused on the interests of producers although he made reference here and there to consumers. Without going too far, I suggest that his references to consumers were fairly grudging. I believe that the Bill seeks to serve both producers and consumers and all the stages in between. I agree with the noble Baroness, Lady O'Cathain, that the rest of the Bill is also important, and I hope that before long the Government will end the wool subsidy and introduce some consumer voices into the potato monopoly. But I am glad to support the introduction of the Bill and congratulate both the Government and the milk marketing boards on introducing it.
§ 5.15 p.m.
§ Lord John-Mackie
My Lords, I was among those noble Lords who were surprised to see the name of the noble Lord, Lord Joseph, on the speaking list. I am pleased that he took a stand and spoke on behalf of consumers, because consumers are an important part of the whole situation.
Like others, I must declare an interest that I too am a farmer. Come Friday I shall have been farming for 65 years. During that time I hate to think how many thousand tonnes of potatoes and millions of gallons of milk I have produced, with the result that I have received great benefit from the two bodies that we are discussing today.
In the early 1930s my father was president of the Scottish Farmers' Union and took a large part in 833 pressing for the Aberdeen and District Board, as it was then—there were three boards in Scotland—and I was interested in what was happening. I am sorry that the noble Baroness, Lady Elliot, is not in her place. Her late husband was the man who piloted the Bill through Parliament and came to Aberdeen to put his point of view. I met him there at that time.
My father was a milk producer, as was my brother who had just started farming. I did not produce milk until around 1939. During that early period of 1930 my brother was pouring milk down the drain. I moved from a farm in Aberdeenshire to a farm in Kincardine, where I had to drive my predecessor's potatoes into a quarry hole because he could not sell them. At the same time I was going to Glasgow, to Merklands, where they sold the cattle from Canada and Ireland, to buy store cattle. On a bus on the way out, in a poorer part of Glasgow, I saw people queueing to receive the dole. They looked ill-clothed and ill-fed yet my brother was pouring milk down the drain and I was driving potatoes into a quarry hole. I felt that there was something seriously wrong and, quite frankly, that is when I joined the Labour Party.
I do not want to go into the details of the schemes of the MMB. The Minister did that extremely well, supplemented by others including the noble Baroness, Lady O'Cathain—I hope that that is the correct pronunciation; it is a little difficult. The MMB and the PMB had a great effect in those two important areas of agricultural production, particularly in milk. I do not want to deride the Potato Marketing Board, but there is no question but that the milk situation was helped tremendously over the past 60 years or so. It has been a particular boon, as has been emphasised by others, to the small farmer. His milk is collected every day and he receives his regular monthly payment. I hope that the new co-operative will ensure that that continues.
As your Lordships can see, I am in favour of the boards and hope, quite frankly, that some persuasion and will to make changes will help them continue. However, that is not to be, particularly as the Government have no will and there is also the so-called free and flexible market. Perhaps I may quote from a letter from the chairman of the board:In recent years, however, the Milk Marketing Scheme has come under ever-increasing tensions and strains".That is expanded on in the official pamphlet on the subject. There is no question but that a tremendous job has been done in looking into the matter. This morning I was invited to be briefed on the subject. I took up that opportunity. I was very impressed with the detailed way in which the plans for co-operative marketing have been put forward. I was so impressed that within an hour-and-a-half this morning I was converted. The main factor is that the smaller farmers will get fair play especially in collection and payment. That is essential. We do not wish to see small farmers having to give up maybe 10 or 12 cows in areas of Wales and Scotland and the North of England. I have been converted to the fact that the co-operative system may be good after all.
The chairman and staff this morning emphasised the number of co-operatives that they would like. 834 They would like them to deal with 80 per cent. of the farmers, but they are doubtful whether they can achieve that. I see no reason why the scheme should not be a success if that number can be achieved.
The noble Baroness, Lady O'Cathain, said that this a most difficult Bill to understand. I could not agree with her more. I read it and wondered why so much was included just to carry out what seemed to me to be the fairly simple operation of changing a statutory body like the Milk Marketing Board into a co-operative. I refer to page 10 of the Bill. It is extraordinary to me that instructions are given to people and that according to Clause 19(1) any document to be served on a person may be served,(a) by delivering it to him or by leaving it at his proper address"—or, bless my soul,—sending it by post to him at that address".It is ridiculous to put such a statement in the Bill telling people how to post a letter. I hope the Minister will see that that kind of thing is cut out of the Bill.
§ 5.23 p.m.
§ Lord Mackay of Ardbrecknish
My Lords, like my noble friend Lord Joseph, I do not need to declare an interest because I am a consumer and neither a farmer nor a producer. I was not in the least surprised to see my noble friend's name on the list of speakers. I thought that he had put down his name in order to tell us that the market is far better at organising these matters than statutory bodies. He did not disappoint me.
I am also delighted to follow the noble Lord, Lord John-Mackie, whose extended family in Aberdeenshire has a formidable record in agriculture. Perhaps he will not mind my saying that even inside that extended family there is, I believe, controversy and disagreement about the merits of the Bill and the continuation of the milk marketing boards.
Most noble Lords have concentrated on milk. I shall start with that subject, but I hope to say a few words about potatoes and even wool. All those products are vitally important as regards clothing and feeding us. Undoubtedly both north and south of the Border there has been a great deal of controversy inside the industry about the continuation of statutory bodies like the milk marketing boards. What we are experiencing today has come about largely because of a great deal of pressure both from the dairy trade and also from certain people in the farming industry. I have already alluded to certain members of the extended family of the noble Lord, Lord John-Mackie, who have perhaps contributed to that debate.
All the arguments inevitably lead one to believe that in 1992 we live in a different world. We have to look at the changes which are necessary to structures which were set up in the 1930s; even before I was born. The world has moved on; farming has moved on and the power of the consumer has also moved on. That is very important to remember when one looks at how we should allow farming to organise its markets. Earlier on, when we were talking about the GATT negotiations, reference was made to the distortions of the markets throughout the world which have been 835 caused by agricultural politics and the damage that that does not only to the world's trade patterns but also to the interests of customers and consumers.
The Scottish milk marketing area has three milk marketing boards. I am sure that noble Lords will not mind if I say something about the Scottish scene. I also wish to consider what is proposed for England and to ask why there should be a difference. One of the interesting ironies of the current situation—this was mentioned earlier—is that in some parts of the country we are putting milk into processing in order to process goods such as butter and skimmed milk. That is promptly put into intervention. In other parts of the country we are actually depriving creameries of milk that could be turned into cheese, which the market wants. That happens in Scotland and I am sure that it also happens in England and Wales. Nothing could be more daft. Consumers believe that as do the public. Taxpayers would also think so if only they knew how much of their taxes were going into fairly daft policies of that kind.
As regards the Scottish scene, I ask my noble friend to answer this question: when we envisage voluntary co-operatives after the milk marketing boards are wound up, is there to be a decision that there should be three voluntary co-operatives in Scotland reflecting the current three marketing boards, perhaps continuing the barrier that exists in moving milk from where it can only be produced into mountain-making products and preventing it from moving to those areas where it can be made into cheese, for which there is a market? In those circumstances the poor Community taxpayer would not have to take up the storage and intervention bills. I hope my noble friend can answer that question. Will it be left to the milk industry itself to decide on the co-operatives, just as it is in England and Wales?
I believe that there will be a large co-operative for England and Wales. I cannot see that there will be much competition when there is to be only one co-operative for the whole of England. It is inevitable that not all the farmers will join the co-operatives. In Scotland, in the farming pages of the Herald, for weeks now we have had blow-by-blow accounts by its agricultural correspondent, Mr. Ian Morrison, of the battles between the Scottish Milk Marketing Board and Mr. Wiseman of Wiseman Dairies. I believe that he is also president of the Scottish Dairy Trades Federation. That battle has gone on year after year rather than month after month. Mr. Wiseman is going to offer farmers contracts to provide him with milk at a higher price than the pool price which they are currently offered by the milk marketing boards and, presumably, could be offered by the co-operatives.
I try to live in the real world. Many farmers will take up that offer. Therefore, what concerns me is that the co-operatives may be left to pick up the milk produced by farmers away from the central belt. The noble Lord, Lord Carter, addressed that matter. It is a difficulty. I want to see a free market, but that could have certain damaging consequences especially in remote rural areas where the board has been obliged 836 —I believe that is the right word —to pick up the milk no matter how small the quantity or how high the expense of collection.
If we are going to go down the free-market road, we must go down it with our eyes open. The dairy trade, the supermarkets and the Wisemans of this world will dominate. That will not be a bad thing for most farmers because they will be paid reasonable prices directly for their products instead of having to go through the artificial pool market, but I hope also that the whole milk industry will be much more adventurous in selling the product. I believe that it was the noble Baroness, Lady O'Cathain, who mentioned the fact that most of the initiatives in milk products have been imported into this country. In the United States one sees terrific variety in the milk products that one can buy, especially in the supermarkets. We shall see a real and extended use of milk in this country only if we have a variety of products and not simply the ordinary pint of plain milk, if I may call it that. We must consider other products. I hope that my noble friend the Minister will be able to help me on that point.
I have mentioned the three milk marketing boards in Scotland. My recollection is that, as far as the movement of quota is concerned, the three boards are ring-fenced. One cannot move a quota from the area of one board into the area of another. That is also true of the English Milk Marketing Board. One cannot move a quota from England into Scotland, where we could do with the milk to produce the cheese that the market wants. I wonder what will be done in the new situation. I read the Bill but could not see anything in it about that particular difficulty. Nevertheless, I think that it is a very real difficulty which the Government will have to resolve before setting out down the road of an open market.
Equally, as the noble Lord, Lord Carter, said, we currently operate a very tight quota system in this country—obeying the Community's regulations—and that is entirely because we have the milk marketing boards. Are we to walk down the same road as Italy—which may not be a bad thing from the farmers' point of view—where I understand everybody goes on gaily and blithely ignoring the quotas without seeming to police or bother about them; or are we to be law abiding? I have no doubt that we shall try to obey the quotas, but how are we to do that if the milk marketing boards have been abolished?
I now turn to the Potato Marketing Board for a few minutes and ask a few questions about that. What bothers me when reading that part of the Bill is that I do not at present see clearly what triggers the abolition of the board. Unless my noble friend works quite hard on me, I must say that I have some sympathy with the view that a parliamentary mechanism should be inserted into the Bill so that Parliament has an opportunity to look at the trigger on the day that Ministers decide that it should be operated so that the arguments can be properly directed at that stage.
Potatoes are defined as being under a "light-weight regime" in the Community. For the non-farming community, that means that taxpayers do not pay very much for the potato regime. I am all for 837 light-weight regimes. The more commodities in the Community that have light-weight regimes, the better for the customer, the taxpayer and the Community as a whole. I earnestly hope that we shall not encourage the Community to create some complicated CAP regime for potatoes in order to allow us to abolish the Potato Marketing Board because, along with its abolition, will come the abolition of the acreage controls—perhaps one should now say the "hectarage" controls—which have existed for years with the Potato Marketing Board.
Perhaps I may now mention the subject of wool. In the area of Scotland from which I come sheep are very important and the wool clip is an important part of a farmer's income. I will not need to worry if my noble friend the Minister can help me with this, but I am just a little worried that, in offloading onto the market the rest of this year's clip and the remains of the previous year's clip in the time between now and the abolition of the control, the market will be severely distorted to the detriment of farmers at next year's clip. I hope that my noble friend will be able to tell me that my fears are groundless.
Having had to decide in a previous existence on the level of the guaranteed price for wool, I recall that it is pretty artificial. I am sure that my noble friend Lord Joseph will tell me that clearly we would be far better off with a free market. Perhaps we would, but I put this question to my noble friend. I gather that we take about 2.5 per cent. of the world's wool market, so if we are to have an open market are our major competitors also to have an open market? Perhaps I should have asked that about potatoes and milk as well. If we are trying to free our market in this country and to allow proper market forces and consumer demand to have full play it is desperately important to ensure that neither elsewhere in the Community nor in the other parts of the world which trade with us in agricultural products are there distortions which would prevent a proper, even playing field for the farmers and producers in this country.
Finally, I very much welcome the marketing developments that are contained in the Bill. Certainly there is one thing that farmers in this country have not done well: they have not taken advantage of co-operative marketing in the same way as has been done on the continent. I understand that in Denmark—or perhaps it is Holland—there are three major co-operative organisations for potatoes. They are absolutely dominant in the market. They are powerful and do a very good job, selling a lot of potatoes into our market. If my noble friend's Bill allows our farmers to move in that kind of direction, good, but I only hope that he can also motivate them to do so because our farmers have been singularly bad at doing so over many years. They need only look across the Channel to see the considerable successes that farmers there have had in forming marketing co-operatives.
In conclusion, I look forward to the Committee stage of the Bill. In general terms, but with some reservations, I shall be quite happy to support my noble friend.
§ 5.36 p.m.
§ Lord Geraint
My Lords, I am grateful for this opportunity to speak on a subject about which, as a farmer—I declare my interest—and as a consumer, I have some knowledge. I have to say that I am deeply uneasy about the Bill and its possible consequences.
Before we write off the statutory powers of the marketing boards of this country, let us remember—we who are farmers—that if it were not for the operations of the marketing boards during the past 50 years many of us would not be farming today. I should say that, if the truth was known, over half of all producers in the agricultural industry are in favour of statutory powers and marketing boards. I shall tell your Lordships the reason why: over the past 10 years the agricultural industry has been knocked about mercilessly by government polices. So farmers are very uneasy and, in some instances, too worried to express their views publicly.
I am old enough, as perhaps, with great respect, are many of your Lordships, to remember those days back in the 1930s when the free market reigned supreme in agriculture in this country. My memory is of farmers hardly being able to scrape a decent living, many of them giving up, and scores of farms lying empty with the land turning to scrub and wilderness. I still farm the farm that my father farmed in 1932. He told me many times that the gross takings of the farm in 1932 were £60—and he had to pay a farm worker out of that. Let us remember what our forefathers did for the industry in 1933. Many farmers from west Wales were keen to set up the Milk Marketing Board. If it were not for their initiative in those dark days of the 1930s, many family farms would have been ruined and many families who farm up to 50 acres in Wales would not be there today.
It was not until 1947 when we had a Labour Government and the late Tom Williams introduced the Agriculture Act that agriculture was turned around and the foundations laid for the highly efficient and productive industry that we have today. It was then that orderly marketing was introduced, offering a lifeline to farmers with regular payments for their produce and a reliable supply for consumers. We have lived happily with the marketing boards, formed then, over the past 40 or 50 years, and I cannot see how the British farmer—or the consumer—will benefit from the changes that are on offer today. Like many others, I have come to the conclusion that the Government did not fight sufficiently in Brussels for the interests of British farming to ensure the retention of these systems.
The Milk Marketing Board may say that it is generally supportive of the Bill, but even the board admits that over the past 60 years it has served the producer, the dairy trade and the consumer extremely well. It has guaranteed, day after day, year in year out, the availability of fresh supplies of milk of the highest quality throughout England and Wales and has made a very significant contribution to the rural economy. The board expresses anxiety that if the Government do not accept its particular replacement scheme —a dairy farmers' co-operative—then farmers and rural communities will be devastated, with the likelihood of 839 the breakdown of universal milk collection and distribution. What the board advocates apparently is that dairy farmers should be free to sell the milk to whomsoever they wish, to belong to whatever co-operative they wish, or to deal direct with buyers. That, to me, looks like a recipe for mayhem and the end to orderly marketing, which I feel is essential if the consumer is to get his milk and the farmer his reward.
Why could not the Commission in Brussels be persuaded to keep the Milk Marketing Board with its statutory powers? I suspect that the answer has more to do with the power of money and big business than with helping either the producer or the consumer. Can the Minister explain to the housewife what will happen to the daily "pinta" delivery, which is very important to many people in the rural areas?
Turning to the British Wool Marketing Board, I have to declare a particular interest as I was an elected member of the board for 21 years, representing my native Wales, and its vice-chairman for 11 of those years. I think I can testify, without undue bias, that in its 40 years of history the board has operated well. The Bill takes away the guaranteed price for wool. The effect, under current circumstances, is that from next year the income derived from wool production will be cut by 50 per cent. The average price paid to farmers at the moment is 117 pence per kilo. The current market price is just 60 pence per kilo. The arithmetic is simple. It means that wool producers in this country will lose £26 million next year. That is not a very good policy to pursue. There are 98,000 wool producers in this country at present, a large proportion of them farming the hills and the less favoured areas, barely making ends meet. The last thing they need is to lose the security of the guaranteed price.
From what I can gather, there is no obligation under Community rules to drop the guaranteed price system. If that is true, why are the Government so keen to penalise the sheep producers of this country? If my memory serves me right, wool is classified as an industrial product and not as an agricultural commodity. Why are the Government keeping the statutory powers of the Wool Marketing Board and doing away with the statutory powers of the Milk Marketing Board and the Potato Marketing Board? Why do they introduce quotas for some commodities in this country and not for others? There is something radically wrong somewhere.
It is ironic that while we are imposing quota systems in the sheep and milk sectors, we are doing away with the quota system for potatoes. That is against the wishes of the potato producers and shows some inconsistency, to say the least. I should be grateful if the Minister could give an assurance to Pembrokeshire farmers, who grow the best new potatoes in the country, that even though they are far away from large markets they will be able to compete on equal terms with producers in other parts of Europe.
I have just a few questions for the Minister. An article in Farming News last week reported a Mr. Olier, director of the Even dairy co-operative based in France, as saying: 840We believe the ending of the statutory monopoly of the Milk Marketing Board has given us a tremendous opportunity to expand business in Britain … We are looking at the quality end of the market".The article continued:The Even co-operative group is one of the largest in Northern France with 2,115 employees, 57 firms and a turnover of £430 million".If it is moving into the south west of England—I have been told that it is moving into South Wales as well—what will happen to the employees of our milk industry in Britain? There are many questions to be answered here. There will be an increase in unemployment in this country due to those factors. What will happen to the cheese factories if milk from the south of England and South Wales goes to this big firm in France? I am delighted to see the Minister shaking his head.
I should like to refer to the Potato Marketing Board for a few moments. Listening to the Minister, it seems that everything is rosy in the garden. But according to Farming News last week:John Gummer received a broadside from the potato industry this week by publishing an Agriculture Bill that would empower him to scrap the Potato Marketing Board. I'm bitterly disappointed. We'll fight this like hell,' was PMB chairman David Sinclair's first reaction to the Bill".I wonder whether there have been any consultations between the Potato Marketing Board and the Government.
Noble Lords on both sides of the House may not be aware of the marketing system for wool. Fifty per cent. is paid to us three months after we deliver the wool. Farmers have to wait for another 12 months before they receive the other half. That is not a very good marketing system.
I have before me a press release quoted by the Farmers' Union of Wales. It states:In an introductory description of hill farming in Wales, the Union says that according to official figures, general net farming income dropped by 25½ per cent. to £7,561 in the year to April 1991. Hill and upland farmers fared much worse however—45 per cent. made a loss on their holdings while 40 per cent. earned up to £10,000".The union states:For 85 per cent. of the LFA farmers to be deriving net incomes of £145 or less a week—56 per cent. below the average industrial wage—is not a sustainable position".Yet here we have the Government again introducing measures which will reduce farmers' incomes by £26 million. The Bill will go through the House, but British farming is at the crossroads. I make a plea once again that the Minister should reconsider many of his proposals. If reasonable amendments are tabled by noble Lords on all sides of the House, I hope he will heed what is said by experienced and long-toothed farmers. He is a very young man and a very good Minister. I hope that he will listen.
§ 5.51 p.m.
§ Lord Wade of Chorlton
My Lords, I have also to declare an interest. I am a registered milk producer and a director of a company that is a milk buyer. I have been involved with the milk industry in one way or another for most of my business life. I welcome the Bill. I congratulate the Government on bringing it 841 forward. I congratulate especially the new leadership of the MMB which has responded to marketing needs and had a positive approach to the Bill's proposals.
Many noble Lords have referred to the formation of the MMB, but they did not refer to the fact that at that time the milk supply was greater than the demand. The board was successful in marketing a product of which there was an over-supply. It showed how it could be marketed more effectively, opened up new opportunities for it and structured the industry to cope with the position.
In the late 1970s it was clear to me that the MMB could not adjust to the changing market and demands by consumers in this country and adapt to the changing needs of the European market where we were competing with products from France and Germany in a way that we had never done before. This country was traditionally a manufacturer of commodity products: liquid milk, Cheddar cheese and butter. We structured our business accordingly. With the changes in the EC during the 1980s it became clear that our consumers were to be given the opportunity of having a whole new range of products to which our industry was unable to adapt. The main reason we could not adapt—another point to which noble Lords have not referred—is that we had a joint pricing committee of the MMB and the dairy trade which fixed a range of prices based upon the end use of the product and not on the value of the milk. The result was that it did not matter what was done with the milk, the producer ended up with approximately the same profit. The milk pricing committee ensured that that was the case. There was no incentive to invest in new methods of production and new products and no enthusiasm to see the whole of our market and the European market as offering us an opportunity. For many years, especially during the late 1970s and the early 1980s, there was a preponderance of imported milk products, a point to which many noble Lords have referred.
We now have an opportunity to change that system and to open up the market in a way that has not been seen by the milk industry since 1933. Such a move will obviously make many people nervous. Farmers who have been in business for a long time have become used to a system, to which the noble Lord, Lord Geraint, referred, in which they receive a regular cheque. They have not been marketing people. Similarly, the trade itself has not been used to dealing with supply and demand in a free market; it has merely been used to dealing with the MMB scheme. All the main milk buyers were much more adept at dealing with the scheme than trading in milk and looking for new products.
The Bill proposes doing away with the boards' statutory powers and opening up the market. That will have an impact on all levels of the industry. The changes are all for the good, because supply is now much less than demand. We cannot adjust suddenly to the change in demand because the quota system ensures that that cannot happen. It will be some time before the supply and demand of milk in Europe will be in balance. The market may then find a level where there is no need to apply strong quota controls.
842 What changes will the Bill allow to take place? Perhaps my noble friend the Minister will be a little more explicit as to the criteria he is laying down for successor organisations. The industry has many views on that matter. My noble friend referred to Scotland where a different approach to the organisation of a voluntary board is needed. We must also take into account the fact that any voluntary board should be subject to the same rules and regulations as those imposed upon any other body. Voluntary boards should not have opportunities unavailable to existing companies which are potential milk purchasers. I should be grateful if my noble friend would tell us the Government's plans for ensuring equal opportunities for all milk purchasers when the statutory boards cease to exist.
One of the technical aspects of the Bill is that there will be one price for milk and that will be the price that the producer receives. It will be based on the price that each purchaser pays. The result will be that the industry will need to add value to milk in a way that we have not seen before. We shall probably see multi-range dairies or dairies with a multi-range of products so that they can maximise their return upon their milk. Those freedoms which will be necessary to obtain the full benefit of the market place are made possible by the Bill. The Bill must not restrict the new opportunities which the new market place will create.
The noble Lord, Lord Geraint, referred to the fact that overseas companies may set up and buy milk in this country. We are now in a European market. That decision has been made. People will have the opportunity to set up over here but we shall have an equal opportunity to set up in other European countries. We must ensure that we can create major milk companies in this country which will be able to compete in Europe. The companies that have the size and strength to be most competitive will be those which will be able to market their products in Europe. That is how our milk producers will be able to command the right price for their products in Europe.
That leads me to my next point—the efficiency of our industry. I was brought up in an industry which saw the buyer as the enemy. When I was young, I was taught to believe that the milk buyer was the enemy. If one reads the history of farming in Cheshire one sees that the buyer was always the enemy. Now we must realise that we have the opportunity of bringing all sides of the industry together and taking a one-industry view which is in the interests of the milk producer, the purchaser, the supplier, the middle man (if there is one), the manufacturer, the marketer and, at the end of the day, the consumer. In order to maximise on that opportunity, as one efficient industry, we must look at efficiency at every level. So there will be rationalisation throughout the industry from milk producers to manufacturers and those who handle the final product. That is an inevitable consequence, not necessarily just of the Bill but of the change in the market place throughout Europe.
Again—and I wish my noble friend to comment on this—nothing should be done in the Bill and more particularly nothing should happen in negotiations that take place between the Minister, the boards and 843 the successor board at a later stage, which prevents that market opportunity. It must not prevent us in Britain from being the most efficient industry in marketing our goods throughout Europe and the world as it becomes more competitive. We must not do anything at any stage to prevent that.
As regards the Potato Marketing Board, I agree with the changes. However, I also agree with my noble friend that at some stage it would be desirable that the matter should come back to this House or another place for confirmation of the changes which the Minister thinks are appropriate. Clearly, circumstances can change and it is right that we should have the opportunity to debate them.
I agree wholeheartedly with the marketing proposals and feel that they are a positive step to help many sectors of British agriculture to market their products more effectively, brand-name them and undertake further development in the European market.
We then come to the proposal for the milk development council. Before I refer to it specifically, I am one of those who have always been against generic advertising. The right people to advertise a product are those who manufacture it, put their name on it and put money behind it. It is the job of the person who produces the product to market it.
I do not necessarily want to see a body set up which takes more money from the farmer and puts it into a generic advertising scheme. It is important that within the successor boards the pricing structure is such that we do not expect the farmer to pay for matters which the manufacturer and the producer ought to be doing. I want the successor boards to keep their costs to an absolute minimum and to do only those things that are necessary for them to take milk from the producer and to give it to a buyer at whatever stage he wants it. There may be opportunities to change the products and for people to buy in milk from the farms and turn it into a whole range of different milk products—high protein, low protein; high fat, low fat—and to conform to the various demands on the industry.
However, I do not believe that there is a need to have a successor board which does all the things that the present boards find it necessary to do: for example, if a farmer wants a breeding programme, he pays for it; if he wants advice, he pays for it. Similarly, if a manufacturing company wants to advertise its products, it pays for that, not someone else. There again, it is important that the successor body should be able to keep costs to a minimum. People who want services should pay for them in a negotiated way, as in any other market.
I repeat that I welcome the Bill. It is something for which I personally have worked and argued for a long time. I am delighted that it has now arrived and that the Government have brought it forward. I wish them every success with it. There will no doubt be a number of issues which we shall debate as the Bill goes through the Committee stage, but I am sure that ultimately it will bring much greater confidence to the agricultural industry, much greater opportunity to our rural economy and it will strengthen many aspects because 844 the pricing structure will be more attuned to the market place. It will have one great asset: it will show to farmers and producers that at the end of the day we must have a customer. There will not be someone in the middle to look after us and protect us, because one day we will be faced with the responsibility of producing a product that someone wants to buy at a price at which it is worthwhile producing. For many years our farmers have been protected from that
Our market, and the world market have now moved on. We were talking about the influence of GATT a few minutes ago and its impact on involvement in markets that some of us have never even dreamt about in the past. It will bring tremendous fresh approaches to everything that we do. We must grasp the opportunities in a positive way and not keep looking back on what we might have done. We must now work together as a massive, wonderful industry with great talent and opportunity and one prime purpose—to make all sectors of that industry dominant in the European market so that at the end of the day there is a little more money in all our pockets.
§ 6.5 p.m.
§ Baroness Carnegy of Lour
My Lords, the noble Lord, Lord Carter, expressed the view that the Bill was rooted in political ideology. Having listened to my noble friend Lord Wade and most other speakers in the debate so far, I think that it is rooted in common sense.
The Milk Marketing Board was kind enough to invite me to a presentation, during which it was explained to me how the present system works. Those in the board gave their view of how the future may shape itself. Like most noble Lords who have spoken, they accept that change in the milk scene is inevitable. In any case, as I understand it—and my noble friend the Minister will put me right if I am wrong—the present system is permitted under European Community competition rules only because of a derogation, a let-out clause. That derogation can be revoked at any time, so it could become illegal to operate the system.
Noble Lords have said much about the fact that in a world where the producer needs to be as close as possible to the wants and needs of the consumer, able to assess and respond swiftly to what the consumer wishes to buy, the present milk system works against the whole concept of enterprise. My noble friend Lord Wade illustrated that very well. It works against farmers making their own judgment of the market and adjusting what they produce to it. It becomes difficult for people to produce specialist products, special local products. We have all read of manufacturers who wanted a ready, steady supply of milk in this country and who have had to go elsewhere because they could not rely upon it.
As a result of all this, consumers in the UK and abroad are not getting the choice they might at the price they might for UK dairy products. That is unquestionable. At the same time, as the frontiers come down and raw milk from other European states 845 becomes available daily in the United Kingdom, farmers will increasingly want and need much more flexibility as to what they sell and where they sell it.
Change has to come. I am sure that the Government are right not to impose any new system on dairy farmers but simply to propose, as they do in the Bill, enabling legislation. That legislation prescribes criteria that any new arrangements must meet, including the requirement that account be taken of consumer interests and producer interests.
Clearly, as we examine the Bill in Committee Members will have to pay particular attention to these aspects: whether the criteria for the approval of proposed new arrangements are right; whether the interests of the consumer and fairness to producers are properly catered for; and whether a totally unacceptable outcome of the Bill is precluded.
At this stage, may I ask my noble friend on the Front Bench two questions about milk? First, are the Government satisfied that it is in consumer and producer interests to allow such a large, new marketing organisation as seems likely to emerge in England and Wales? It seems likely that the milk marketing boards will be replaced by one single giant, referred to by Northern Foods and the noble Lord, Lord Carter, as a move from a statutory monopoly to a voluntary monopoly. It is, I believe, a rather good description.
My noble friend Lord Joseph mentioned the Milk Marketing Board's assets being transferred to the co-operative and the fact that farmers may well feel coerced into joining because of the possible loss of the benefit those assets represent. Are the Government satisfied that it is right to have that enormous co-operative? Would several smaller co-operatives, in competition one with another, not be more beneficial to consumers and more user friendly for farmers? It is obviously easier for the Milk Marketing Board to pass over its marketing side to one large organisation. But is that right? Is it right simply to wait to see if the new co-operative is taken to court because of competition rules? Should the organisation not be such that it is not taken to court? That is one question.
My other question is: should the Bill not actually require the flotation of Dairy Crest to ensure that this huge co-operative cannot also inherit an interest in processing? The Milk Marketing Board's so-called successor bodies in Scotland will have a far smaller impact on the market, albeit a fairly big impact in the Scottish domestic market. I am not sure that what I ask necessarily applies to those bodies but it seems to me that the new giant in England and Wales simply must not have its processing still within it. Therefore I wonder whether the Bill should not stipulate that Dairy Crest should be floated on the stock market. I shall be interested to hear what my noble friend says about that as it will affect my attitude to the Bill.
In discussing potatoes, I am on more familiar ground. I used to have a financial interest in growing seed potatoes; however, I no longer have that interest. It has been explained that the proposed arrangements are somewhat different to those for milk. That is to be welcomed because the United Kingdom Potato Marketing Board is a very different animal to the Milk 846 Marketing Board. My noble friend Lord Joseph, who alas has had to leave us, referred to the Potato Marketing Board as a monopoly. It is not and has never been a monopoly purchaser from producers. Farmers can sell their potatoes to whom they like. Further, any change in the potato marketing system will not happen immediately, or necessarily happen at all. However, as noble Lords have commented, there are pressures for change in the world of potato marketing too.
The support system to which potato farmers have contributed through the compulsory levy per hectare of potatoes grown has been much appreciated and still is. It smoothes out the effects of weather conditions year by year on the level of production and consequent price for which potatoes can be sold. That is important because a small excess or a small shortage of potatoes can make an enormous difference to the price. For that reason the Scottish National Farmers' Union is anxious that the system should continue for the time being. I rather think the union would like it to continue forever if that were possible, but it knows that that cannot be the case. I believe my noble friend told us that the potato scheme, like the milk scheme, may not be compatible with European Community rules.
As my noble friend also told us, although potatoes are not part of the CAP, it is possible that in due course the Commission may aspire to introducing a potato regime. I believe my noble friend said he thought that that might occur sooner rather than later. That might make change in our own system not only desirable but unavoidable. All that being the case, the Bill's enabling proposals for potatoes need careful scrutiny by your Lordships, just as careful a scrutiny as that which we give to the milk proposals. If potato farmers find it desirable to set up voluntary co-operative arrangements, it is important that the Bill ensures the right framework for that to make sure that there is fairness to farmers and closeness to consumers. Seed potato growers are important to the economy of Scotland. It is necessary to maintain closeness to customers at home and abroad.
I have two further questions for my noble friend as regards potatoes. The first was put earlier in another way. Under what circumstances do Ministers envisage that they might find it necessary to use the mechanism in the Bill to trigger any change regardless of what Parliament has to say on the matter subsequently? Secondly, should the Commission propose adding a potato regime to the CAP, would the Government, in view of the already enormous cost of the CAP, seek to resist that proposal? I shall listen carefully to my noble friend's replies to those questions as they are important and they are part of the context of the whole Bill. However, I certainly support the Second Reading of the Bill.
§ 6.16 p.m.
§ The Earl of Perth
My Lords, unfortunately I must declare an interest. I use the word "unfortunately" because I grow seed and ware potatoes and at the moment no one wants them. Be that as it may, in general I feel—in common with almost every other 847 speaker—that the Bill is both necessary and right. Having said that, I wish to concentrate on the potato angle. There I feel I am in unison with what the previous speaker has said. This matter raises various questions that we need to tackle carefully.
What will happen as things stand? This is an all important matter. The noble Baroness, Lady Robson, and the noble Lord, Lord Carter, have made the point, as did other noble Lords, that this is an enabling Bill. It proposes an important change to the present system. Clause 22 states that it enables:the Minister of Agriculture, Fisheries and Food, the Secretary of State for Scotland and the Secretary of State for Wales acting jointly certify by order that it appears to them that it is necessary or expedient that the Potato Marketing Scheme should be brought to an end".That leaves the matter up to them. Under this Bill at the moment Parliament has no redress. That aspect worries me greatly and I know it worries other noble Lords too. I do not understand why the present system is not effective and reliable. Under the present system it is perfectly possible to wind up the Potato Marketing Board but it is necessary to have the approval of both Houses. I hope that the Government will consider the whys and wherefores of that point and will reflect on the fact that every speaker who has mentioned that point has expressed the same opinion as my own.
I have one other small point to make. One noble Lord said that the Bill perhaps endangered the annual farming review. If that were true, it would be a distressing and serious matter. What are we talking about? We are talking about the largest industry in the country. It affects the country from an environmental point of view and the country depends upon it. I hope that the noble Earl can assure us that there will be an annual review. That would enable us in a general manner to assess what is happening in the CAP.
§ 6.20 p.m.
§ Lord Monk Bretton
My Lords, being a milk producer and one who believes in expanding producer co-operative marketing, I shall speak mainly about the England and Wales Milk Marketing Board.
I think that we should pass the Bill, provided that it is the intention of the Government to approve the milk board's proposals and provided that the noble Earl, Lord Howe, manages to pacify the potato growers.
I confess to only modified rapture about the milk situation because we are not about to follow a well tried path. The two well tried paths are either a statutory board or a system of vertically integrated co-operatives, which own substantial assets, on the European model. Those paths have protected the producer most successfully, and probably the European boards have done the best job for the consumer. The board here is not quite the same animal and perhaps not quite so successful. At the moment we have a quota situation and a shortage of milk.
I see the proposals as a compromise plan. I regret to state that opinion because the Milk Marketing Board should be congratulated on its untiring efforts for at least four years in putting forward its proposals. 848 However, the plan is a compromise because the new co-operative has to be big enough. It has to be an England and Wales co-operative. If that is the position, it will have to part with Dairy Crest and, with that, vertical integration in the future. I am not entirely happy about that matter.
I do not think that we should keep the board and try to reform it. There are political reasons for that view, the first one being that the European Community has never liked it and a large number of problems have flowed as a result. Most of those problems have already been mentioned.
There are also market reasons that nobody in politics can change in any event. The main market reason is that under the new proposals milk should flow more readily to the markets that want it most. That is a matter of very great importance. It follows that the innovative newcomer to the processing industry would be able to bid successfully for supplies, which at the moment he would have great difficulty in obtaining. It would get rid of the arrangement whereby since 1984 producers have had to compensate the dairy trade for loss of through-put due to quotas. That has been a principal reason why UK farm-gate prices have been lower than those in Europe, which seems to be the most remarkable and unsatisfactory distortion.
I do not think that the new England and Wales co-operatives should be divided, and I am sure that that would be the overwhelming view of producers. Memories of pre-1933 die very hard and producers rightly perceive a need for size.
In order to find the reason for that situation one must look at the UK scene where there are six multiple supermarket chains doing upwards of 70 per cent. of grocery business. (In Germany the first 70 per cent. of grocery business is carried on by over 100 firms.) There are then four main dairies which are obviously territorial. They compete on their fringes but not necessarily everywhere. There are 39,000 producers. The supermarkets will inevitably deal with large organisations and, if they are not big enough here, they will go to the Continent. That is an unfortunate tendency that has been felt in spheres other than the milk industry. Therefore, we should have a large co-operative to match the UK and European scene.
Looking at the turnover figures of the European concerns and thinking about how matters will work out with the Milk Marketing Board turnover figures, if there are three co-operatives instead of one, they would be on the small side and probably more expensive to run than one. One would be splitting it down. In Europe the opposite is going on: amalgamations in the dairy trade are legion.
I do not think that the new co-operative will constitute an uncontrolled monopoly. I should like to remind noble Lords that it starts in the same position as the average producer, except that his tank of milk is larger; but it still has to be marketed before the following morning. That is not a very good start for any monopoly.
If I may return to my state of modified rapture, I should like to talk about another aspect of the situation. MD Foods recently bought Alliance 849 Dairies. Alliance Dairies sell 10 per cent. of UK liquid milk. MD Foods is the trading and manufacturing end of the major Danish milk producers' co-op. It handles no less than 80 per cent. of production right through to manufacture, and it retails in some cases. It is a very large organisation. One might well ask how it gets by the European Commission competition rules. We have heard from the noble Lord, Lord Geraint, about similar approaches in the south west of England from France. I do not suppose that UK producers will be offered membership of either of those organisations. It is highly unlikely. It is no worse for the English producer than supplying a UK PLC dairy. However, the situation poses a very significant question. Should our English co-operative be allowed to own dairies because that is what the other co-operatives do?
If the UK disposes of its producer-owned dairy trade assets and Danish producers buy them, we will be losing ground. Frankly, I should like to see the new co-operative retain control of Dairy Crest. I know that it would amount to 25 per cent. of the dairy trade here, but that would be considerably less than the 80 per cent. of the dairy trade held by the company I referred to in Denmark. I know that the DTF will not like these things said at all. I am sorry about that, but it is a matter that the Government should bear in mind because it is a matter about which only the Government can do anything and the Government would really have to do some governing. I should prefer it if there were a period of delay before the shares in Dairy Crest are distributed and gone forever, because I have a great fear that farmers will not hold those shares. It took a long time to put that enterprise together, and when it has gone, it has gone.
I shall not say anything more beyond a few details. I might want to put down a probing amendment to Clause 3(5) regarding distribution of shares. It does not seem clear what will happen. There may also be a possible amendment to ensure that the prospective co-operative will be able to start negotiating conditional contracts prior to its actual formation—an administrative matter over which there is a little doubt. As regards the proposed development council that we have heard about, it is important that we watch costs. It may not be as objective an organisation as the board has been over this. We must be hard-nosed about generic advertising.
§ 6.32 p.m.
§ Lord Forbes
My Lords, I want to concentrate my few remarks on the Bill to the marketing of milk, particularly to the marketing of milk in Scotland. First, I believe that the three existing milk marketing boards in Scotland have served both milk producers and customers extremely well. However, I agree with the Government that the time has come for change, especially in view of our European Community membership. Accordingly, it is right that the present rigid monopoly system of milk marketing boards should be replaced by systems more attuned to the European Community systems.
Having sat on one of the Scottish milk marketing boards for 10 years—that was a long time ago—I believe that there has been considerable merit in 850 having three milk marketing boards in Scotland. A degree of competition among the boards has benefited both producers and consumers by keeping the boards on their toes. Furthermore, with the new systems envisaged I believe it most desirable that Scotland should continue to have three milk marketing organisations as competition, mentioned by my noble friend the Minister, will be a spur to the success of the future organisations. In fact, I venture to suggest, as have other noble Lords, that England and Wales might well benefit by having more than one milk marketing organisation. I am not going to create south of the Border and follow up that line today.
My next point concerns Clause 3 of the Bill, which deals with the mechanism by which the existing milk marketing boards are wound up, and in particular with the transfer of assets under an approved scheme of reorganisation; that is, before the Minister makes an order for dissolution of the milk board. The winding up of the milk boards will lead to a distribution of surplus assets. That is what I, and my noble friend Lord Joseph, have considerable concern about. The mere mention of a distribution of assets so often opens up a minefield.
What exactly are the assets to be distributed? Assets at times are displayed for all to see, yet at other times they seem to get so easily tucked away. To make the question of assets even more complicated, the present Scottish milk boards are by no means similar. At least one board has a commercial enterprise while another board has no commercial adjunct. It is essential that the milk marketing boards should know now precisely what is required in their distribution proposals so that they know what will be acceptable to the Minister concerned. Equally, the Minister must be satisfied that each proposal is fair and reasonable, especially with regard to any distributions so that after the Minister has accepted the proposal it is unlikely that the ensuing scheme will lead to challenge in the courts.
This is especially important in Scotland with its three milk marketing boards, if one distribution scheme has more favourable or less favourable distribution terms than the others it is likely that this will lead to court cases on the grounds of unjustifiable deprivation of property. That in itself would be disastrous for the setting up of any alternative new organisations. I hope that the Minister will give an assurance that this important matter will be looked into before the Committee stage. Indeed I hope that the Minister can give an assurance that the Government are already considering amending, where necessary, Clause 3 to take into account the fears that I have raised.
§ 6.37 p.m.
§ Lord Gallacher
My Lords, this has been an interesting debate, as I anticipated it would be, because we are embarking on a course of action that could prove disastrous in certain respects for farmers, for producers, and certainly for consumers. As I listened to the speeches from both sides of the House my mind kept recalling the fate of the bakery trade in this country. In some ways we stand at a similar point as the bakery trade itself stood when the millers 851 decided that, big as they were, they needed to become even bigger, and so they acquired bakeries. Having integrated milling and baking they then thought they were able first of all to survive the loss of trade on rounds and to offer bread to retailers at prices that would safeguard themselves having regard to the totality of their operations.
If you read the financial columns these days you will find that bigness has not saved the integrated bakery trade organisations. Indeed, many are now under considerable pressure in takeover bids because of the poorness of their performance which they, in their defence, say is not attributable to their diversity but to the fact that the bakery trade is not what it was. The reason for that, hit upon by the noble Lord, Lord Monk Bretton, is that the retail multiple traders in this country wield a power without parallel anywhere else in the world, and it is growing. It is not diminishing. So far as I can see, given the nature of town and country planning regulations, there is nothing to stop its growth, not even the present restrictive trade practices legislation. They dictate to suppliers.
Turning specifically to milk and the future of the milk marketing board in England and Wales, we should first of all direct our attention to that lulu of a subsection at page 3 of the Bill, where the Minister's grounds for determining a scheme are set out in some detail. Under Clause 3(4) (e), regard shall be had to,whether the structure of the new arrangements contemplated by the scheme is such as to avoid the possibility of their being challenged in court on competition grounds, with any reasonable likelihood of success, as soon as they come into operation".I believe that that presages the possibility of legal action but that it also constitutes a washing of hands by the Minister. It would certainly make an all-time classical question for degree students of economics to comment upon in the light of its ambiguity and evasion of responsibility. Other noble Lords have spoken of the possibility of legal action. I believe it is fraught. One of its deficiencies is that,challenged in court on competition grounds, with any reasonable likelihood of successseems to discount the powers of advocacy of the legal profession. I believe that these days that is quite an assumption. Although we must live with it, I believe that the clause may give rise to trouble. If it appears in the Bill in unamended form litigation is almost certain to follow.
The legal form for milk marketing boards follows the lines that we expected. We on this side are not going to oppose the Bill. My noble friend Lord Carter has already said that we think it misguided and precipitate. Nevertheless, if it represents the wishes of producers, so be it. But we intend to take a close interest in the Bill's provisions during the Committee stage. It cannot be gainsaid that the Bill gives unfettered power of approval of schemes to the Minister. It is for him to say whether a scheme submitted by a marketing board is acceptable or not. But the schemes are supposed to take account of the interests of consumers. One immediately comes up against the following dilemma. Unless, for example, the co-operative in England and Wales handles a large 852 percentage of total supplies it will be unsuccessful. On the other hand, if it has too large a market share how will consumer interest be safeguarded under the Bill?
Schedule 1, paragraph 11(2), allows the new body to be an industrial and provident society under the 1965 Act, or a company under the Companies Act 1985 that has not previously carried on business, or a company which was a subsidiary of the board immediately before the day of the passing of the Bill into law. Three options are set out. It must be said with some certainty that the new body in England and Wales is likely to be a company because the Industrial and Provident Societies Act limitations now make it suitable only for small units or idealists. Co-operatives under that Act cannot pay dividends on capital; there is a limit of £10,000 on shareholdings; and they cannot raise loans. That leads us to believe that we will see the milk marketing boards as co-operative companies.
That raises a question that has not so far been touched upon this evening: why is it necessary in the Bill to give recognition to a subsidiary company as a legal form? Are companies going to be formed in anticipation? Will the Milk Marketing Board, having created the company, be allowed by the Minister to transfer assets to that company? I am bound to say that companies as such are not noted for consumer solicitude. Of course, they will argue that competition in the marketplace protects consumers. (How many times have I heard that?) However, that will hardly be the case if in England and Wales the company co-operative controls more than 50 per cent. of the supplies of milk.
Sometimes non-executive directors are invited to join company boards. That has become very fashionable. Non-executive directors so invited are not likely to be irksome persons beyond, say, asking for an independent performance assessment to check on the company's efficiency. We believe something more positive than that is required in this case.
At present the Milk Marketing Board in England and Wales has 18 members elected regionally, plus three independent members appointed by the Minister. In addition, all marketing boards report annually to Ministers in England, Wales, Scotland and Northern Ireland.
As has been said, the Milk Marketing Board in England and Wales is a very large undertaking and will certainly be a very large company co-operative. The existence of one member, one vote in a company co-operative should not wholly deceive us into ignoring the fact that at heart it will be a co-operative. Even one member, one vote leaves the remainder of the financial field wide open for the company to pursue policies that it regards as being in the best interests of its shareholders. There is already concern, and it has been expressed this evening, about the use of commercial power over suppliers—even more so in the case of financial power over the assets of the company which we now realise will have cost the co-operative company nothing. Consumers have contributed to the growth of these assets. For many years most milk supplied to consumers was charged at a standard price. After all, orderly marketing was the basis of the Milk Marketing Board's success.
853 Whatever legal form co-operatives take under the Bill, we believe that three directors should be appointed, perhaps from six names submitted by Ministers to the co-operatives, after consultation with representative consumer organisations. Similar pro-visions should be made for the co-operatives that are to merge in Scotland and Northern Ireland. At the Committee stage we will be seeking to give legal effect to that.
The Consumers' Committee of Great Britain was also appointed by Ministers. It performs a useful job. I recall in recent years worthwhile reports on milk and potatoes. The Consumers' Committee of Great Britain which overlooks the operation of marketing boards costs little to maintain. I should like to ask the Minister what is to become of it under the new regimes postulated in the Bill. Are the legal forms of the three milk marketing boards in Scotland likely to differ from those in England and Wales? For example, could each marketing board there opt for a different legal form? That point was touched upon by the noble Lord, Lord Forbes. Is there any prospect of mergers in Scotland before or coincidentally with the new status? The noble Lord, Lord Forbes, is against that concept, believing that three boards have operated well as statutory bodies and will do so equally well on a voluntary basis. My personal experience of merging co-operatives has been salutary. Usually it is only adversity that compels them to merge. It may be worthwhile looking at that aspect of the Scottish scene before we go too far in establishing three separate legal entities.
In Northern Ireland—which I understand is to follow mainland organisations—can we know whether the timetable for the changes is also likely to be in step with the timetable for mainland Britain?
I am glad that on both sides of the House the feeling has been expressed that the proposal for potatoes is premature, even though the Minister has been at pains to point out that these are merely enabling powers. In our view, the proposal gives the green light to the Commission of the EC to proceed with a light regime and exclude the Potato Marketing Board as an operator under it. We believe that the Commission has an inborn dislike of statutory marketing boards as a principle. We recall clearly the battle that the late John Silkin had as Minister of Agriculture to preserve the milk marketing boards in Britain. Do we need a potato regime in any case having managed for so long without one? What has happened to subsidiarity under the United Kingdom presidency? Most proposals from Brussels relating to food still seek to transfer power to the centre. The Commission appears to be wedded to Lenin's doctrine of democratic centralism. The EC system of indirect democracy is alien to the British way of life; indeed, many of our troubles with it stem from that particular fact.
Are the Ministers of Agriculture in the United Kingdom disenchanted with the marketing boards? I felt that some hint of that came through in the Minister's speech today. For example, is the Secretary of State for Scotland in favour of the Bill's proposals for potatoes? We believe that the potato proposals should not be on the statute book ahead of any 854 agreement that may be reached in Brussels about a light regime. In our opinion the current proposals put the Potato Marketing Board in some jeopardy. They put a blight, if that is an appropriate word, over the current operations of the board. It is certainly unhelpful when the future of the board is surrounded by a very high degree of uncertainty. That represents our comments on the Bill. As I said, we shall seek to amend it. We believe that it needs strengthening in a number of respects and that clarification is required in other respects. We are not opposing it. If it sees the light of day, we wish the statutory voluntary co-operatives all possible success. But we are not so sanguine after a lifetime in the co-operative movement to believe that that success is as certain as some claimants maintain both here and elsewhere.
§ 6.50 p.m.
My Lords, this has been an informed and constructive debate. I am grateful to all noble Lords who have taken part in it. I am particularly grateful to those noble Lords who have welcomed the Bill. I believe that there is a recognition on the part of all speakers that, leaving aside the provisions for the PMB which are purely enabling, the Bill addresses issues of fundamental importance for the dairy sector in particular and for the marketing of agricultural produce generally. I hope that by the time it completes its passage through your Lordships' House, it will have benefited from close scrutiny and that it will, in the process, gain a wide measure of approval. A number of noble Lords have expressed misgivings about certain aspects of the Bill, in particular the proposed ending of the milk marketing schemes, but also the provisions relating to the PMB. I propose to address each area in turn.
I am the first to agree with the noble Lord, Lord Carter, about the record of the milk marketing boards. Over the years since their inception the boards have many achievements of which they can be proud. They have given producers the security of a guaranteed monthly milk cheque; they organised an efficient milk collection and distribution service at a time when the nation's transport system was nothing like it is now; and they can take a great deal of the credit for the rise in milk hygiene standards which has put British milk at the top of the European league. Change is, however, both necessary and inevitable.
The noble Lord, Lord Geraint, looked back to the early 1930s and expressed his fears for the future. I certainly do not believe that dairy producers have anything to fear from change. The situation is not as it was before the boards were set up in the 1930s. Producer prices are now underpinned by the mechanisms of the common agricultural policy, including milk quotas. Moreover the boards' proposals would allow for a continuation of strong producer bodies for those, no doubt many, producers who would wish to belong to a collective marketing organisation. My noble friend Lord Wade rightly stressed the need for strong producer bodies.
It is in fact the prospective marketing strength of the single voluntary successor co-operative proposed by the England and Wales board which has attracted 855 the most criticism from milk processors. A number of concerns on this point were also raised by consumer organisations which commented on the proposal. Noble Lords have also expressed their worries, not least my noble friend Lady Carnegy. But a number of the fears expressed rest on the misconception that a single co-operative would not be subject to effective regulation. Let us therefore look at the facts.
First, while it is impossible to predict how many producers would join a successor co-operative for England and Wales, it is sensible to assume that it would be in a dominant position in a substantial part of the market, whether this is defined for these purposes as the EC market or the British market. But a dominant position is not the same thing as a statutory monopoly. The proposed co-operative could not force anyone to join it, nor would it have the power to levy or fine non-members, as the board does.
A dominant position, however, has implications under competition law. The EC Commission has already considered the board's proposal in this light. While it has made known its preference for a multi-co-operative system, it has in effect approved the implementation of the board's proposal for an initial period of two years. Following the initial two-year period, the Commission would again review the effects of the reforms on competition in the British market.
But even during those two years it would also be closely monitoring the activities of the co-operative. Under Article 86 of the treaty a dominant body is prohibited from abusing its position. A dominant body may not, for example, apply dissimilar conditions to equivalent transactions with its trading partners so as to place any one of them at a competitive disadvantage. I have no doubt that the Commission would prove just as ready to investigate any allegations of abuse against a co-operative as it has been to challenge the boards over alleged infringements of the regulations relating to them.
If Ministers were to approve the board's proposal, a single co-operative would also be subject to the full rigour of UK competition law, involving scrutiny of its trading practices by the Office of Fair Trading. It has always been the Government's intention that, as soon as the milk marketing schemes were abolished, the same rules should apply to milk trading as those which operate in any other sector. As a logical part of this approach, the present restriction on the powers of the Director-General of Fair Trading to refer the marketing of milk in bulk for investigation by the Monopolies and Mergers Commission will be removed at the same time as the marketing schemes come to an end. Your Lordships will know that the Monopolies and Mergers Commission may recommend sweeping changes in the structure of an industry if it feels that it is operating against the public interest. For its part any dominant co-operative would know full well that it was in the spotlight and would have every incentive to trade fairly. It would need to work out a system for selling its milk which commanded the confidence of the trade.
856 I said when I opened this debate that I would have more to say about the Government's attitude to the boards' proposals. I must preface my remarks by reminding noble Lords of the duty of a Minister not to prejudge an issue on which he may later be required to reach a formal decision. Bearing in mind the very real powers which the EC and the UK competition authorities have at their disposal to deal with any abuse of a dominant position or other evidence of unfair trading practices, the Government decided that the Bill itself should be drafted so as to enable them to accept the establishment of a single successor co-operative in England and Wales, subject to the obvious proviso that any eventual decision must be based on the details of what is proposed and on the provisions of the Bill, once enacted. It is also germane that the Commission's approval of a single co-operative was based on the full separation and independence of Dairy Crest from a single co-operative, as envisaged in the board's present proposal and on liberal terms of leaving for members of the co-operative.
The position is different in Scotland where all three boards are proposing that the successor co-operative retain control of the respective processing arms. The Secretary of State for Scotland is aware of the extent of the concern felt by processors in Scotland about particular aspects of the Scottish boards' proposals. He could accept the principle of a single co-operative structure as proposed by the Scottish boards. He is, however, continuing his discussions with the boards about other aspects of their proposals in the light of the recent public consultation exercise in Scotland.
I shall deal briefly with a number of other implications of the ending of the statutory milk marketing schemes. First, there is the role which the milk marketing boards currently play, as agents of the agriculture departments, in the administration of milk quotas. That is a matter raised by the noble Lord, Lord Carter, and the noble Baroness, Lady O'Cathain. The transfer rules and other matters are for separate consideration and EC rules are being renegotiated. However, I can say that it would not be appropriate for a commercially trading co-operative to take over that role.
The Government are therefore considering other ways to ensure the continued effective administration of milk quotas in line with Community regulations and the maintenance of commercial confidentiality where appropriate. That means that it will not be appropriate for any successor body to the board to administer the quota register. One possibility would be for agricultural departments to do this; another would be for the intervention board to do it. I stress however that no decision has been taken. The noble Baroness, Lady O'Cathain, stressed the need for a continuing statistical database and I fully agree with her. The provision in the Bill for a development council could well provide the answer to that.
The noble Lord, Lord Carter, expressed the view that the Government wished to abolish the milk marketing boards for ideological reasons while at the same time congratulating the Government for their practical approach towards the principle of development councils. Our approach to the future of the milk 857 marketing boards is governed by equally practical considerations. The schemes are simply outmoded in the condition of a modern consumer market and in a Britain which forms part of a wider single market. They are unduly restrictive of personal and commercial freedom and the economic distortions of which they give rise are becoming increasingly apparent, as I mentioned in my opening remarks; for example, the excessive concentration on low-value products largely for bulk subsidised export. The noble Lord favours more limited change but I put it to him that limited change is not enough. A statutory monopoly is by its nature regulatory and bureaucratic. An attempt to introduce more market signals into the method of selling milk—an initiative known as "new ways"—failed. The boards jealously defended their monopoly against attempts by producers to secede over low fat milk and contract processing because they know that a crack in the edifice makes the existing structure untenable.
The noble Lord, Lord Geraint, suggested that the abolition of the MMB would not be in the producers' interests. However, in income terms the producers are not at the moment doing particularly well out of the scheme. The returns achieved by the board are well below those in countries with large surpluses such as Germany and Denmark. It would not be in the producers' interests to allow the scheme to collapse in disarray, which could be a real possibility. Most of the industry agrees that induced pricing and the allocation system is on its last legs. That point was well made by my noble friend Lord Wade.
There have been an increasing number of challenges from producers, many of whom want the right to act in accordance with normal commercial freedoms. It does not add up to say, as did the noble Lord, Lord Geraint, that large numbers of producers may go out of business. We have a shortage of milk in this country and CAP mechanisms are underpinning prices. There is every reason for producers to look to the future with confidence. By giving the boards the opportunity to present reorganisation schemes the Bill opens the way to the creation of successor bodies which will provide the security of collective action for those producers who want it. I agree that it would be utterly wrong to adopt the alternative of selling off the boards' assets and leaving producers to fend for themselves.
The noble Lord, Lord Geraint, also suggested that the abolition of the MMB is a golden opportunity for the French to move in. That is an alarmist view. The point of abolition is for market forces to work through properly into the UK industry. It will enable the UK industry to be more and not less competitive.
My noble friend Lord Wade and the noble Baroness, Lady O'Cathain, rightly drew our attention to the inefficiencies of the present system pointing out that not enough milk is going into value added products. I fully agree with that. The abolition of the scheme will enable us to get the best value out of British milk. The danger is that if we do nothing British milk will be exported because of the low price under the scheme and the guaranteed equal access to it for other member states. Once normal commercial 858 arrangements are in place our supplies will be less vulnerable. The import penetration of the product market is already at a high level and the scheme has done nothing to combat that.
The noble Lord, Lord Gallacher, suggested that the abolition of the MMB was not necessarily in the interests of consumers. At present the dairy companies are forced to pay much higher prices for milk for the liquid market than for milk for manufacturing. That is an artificial premium due solely to the existence of the milk marketing scheme, which can he expected to disappear once the schemes go. Many producers sell direct to consumers by operating their own delivery rounds. At present if they do so they must pay a levy to the board of nearly 2.4 pence per pint on sales of whole milk. Next year that levy will be extended to low fat milk if the European Court of Justice decides that low fat milk is within the boards' monopoly. The abolition of the boards and the removal of the levy will remove that disincentive and encourage doorstep sales. Lest there be any fear that product prices might in the process increase, I say merely that competition in the milk products market is already extremely fierce, including competition from imports. That is the best guarantee of fair and realistic prices.
The noble Lord, Lord Carter, asked why there is no provision for the MMB to poll producers to assess the support for submitting a reorganisation scheme. 'The milk marketing boards and the Potato Marketing Board would find themselves in different positions under the provisions of the Bill. Each milk marketing board will be faced with the definite end of its milk marketing scheme. They have already made such preparations for that as they can. In August the boards consulted their producers about the kind of non-statutory successor arrangements which they would like to see introduced. Each board would, therefore, be able to take account of the views expressed in drawing up a reorganisation scheme. However, I wish to point out that the milk marketing boards have their own procedures for consulting producers and they do not wish to have a special power for a formal poll.
The noble Lord, Lord Carter, called for consultation on reorganisation schemes. That matter was also raised by the noble Baroness, Lady Robson. The degree of consultation that will be necessary will depend on the nature of the reorganisation scheme being put forward. The Government have already consulted on the boards' existing proposals. If those are simply resubmitted in the form prescribed by the Bill a full-blown consultation exercise by the Government might be unnecessary. However, I wish to assure the House that the Government are not intending to act in secret. The Bill requires Ministers to be satisfied before approving a reorganisation scheme that the principles—that is to say, the main elements—have been brought to the attention of producers. They will therefore be in the public domain. Ministers also need to be satisfied that any statement of proposed trading practices by a successor body will take account of the interests of purchasers. The Bill also requires them to take account of consumer interests. It is difficult to see how Ministers 859 will establish those matters without undertaking consultations with the usual interests. That follows as a matter of course and it does not need to be laid down in the Bill. It follows from that, however, that if the boards' proposals were fundamentally different from the present ones a further formal round of consultation would be in order. Again, it is unnecessary to provide for that in the Bill.
The noble Lord, Lord Carter, expressed the view that Parliament should decide on eventual schemes. The problem with that approach is that it is not simply a matter of a "yes" or "no" vote. As the procedures in the Bill show, the process of decision-taking is ongoing. Therefore, we need a provision to deal with change and a developing situation. There may well be modifications to the details of the scheme after it is first submitted.
The noble Baroness, Lady O'Cathain, asked to what extent the Government would seek the involvement of the DTF in reaching a conclusion on reorganisation schemes. I stress that the Government are in close touch with all sides of the industry. The purpose of the formal consultation exercise was precisely to enable it to state its views. The processors' interests will certainly not be overlooked. The Government believe that some of the processors' present criticisms of the boards' proposals are wide of the mark but it is worth repeating that a single voluntary co-operative would not be an unregulated monopoly.
My noble friend Lord Monk Bretton suggested that the England and Wales board should set up a vertically integrated co-operative. The retention of Dairy Crest in a single England and Wales co-operative would create a very strong body. The board has had regard to the likely reaction of competition authorities, including the EC Commission, in framing the proposals. The Government have looked to the industry to produce its plans. I have no doubt that it is best placed to judge what is in the producers' interests. The MMB is an elected body. It would be open to the board to propose a structure of several vertically integrated co-ops if it wanted to, but it has judged it best to propose a single England and Wales co-operative. My noble friend Lord Monk Bretton appeared to endorse that choice.
My noble friend Lady Carnegy asked whether the Bill should not provide specifically for the separation and flotation of Dairy Crest. I believe that the answer is that it should not because the Bill provides a framework for each of the boards to bring forward its own proposals. It would be inconsistent with that to lay down conditions for one of them. Therefore, Clause 3 relates to competitiveness in general. It is deliberately geared to structure since the actions of the successors will be governed by general competition legislation. It is worth noting that the Commission's approval was on the understanding that Dairy Crest would be separated. The board would certainly need to take account of that.
My noble friend Lady Carnegy went on to ask further about Dairy Crest. The Milk Marketing Board would need to include in its reorganisation scheme 860 details of the basis of any allocation of shares in Dairy Crest to producers or any other distribution of assets. Ministers would need to assess those in line with the provisions in the Bill. In determining whether a scheme should be approved, Ministers must have particular regard to whether it makes reasonable provision for the distribution of assets to registered producers. Clearly, the basis for distribution must be practical. Therefore, the Bill specifies what basis for the distribution of assets to registered producers could not be taken to be unreasonable.
The noble Baroness, Lady O'Cathain, referred to pensions of MMB employees. We recognise the interest that members of the Milk Marketing Board's pension schemes have in their future pension arrangements. The MMB has said that it wishes to maintain its scheme members' expectations. I understand that it intends to provide them with full details of those intentions by way of future arrangements as soon as possible.
The noble Lord, Lord Carter, expressed his worries on the social effects of abolishing the milk marketing boards. It is worth reminding ourselves that there is a national shortage of milk—something that I stressed earlier. The existence of milk quotas virtually guarantees a good future for every efficient producer of milk. It may well be that producers in more remote areas will wish to co-operate for the benefit of local consumers. Of course, they will be able to do so free of the current levy.
The noble Lord, Lord Geraint, asked whether the abolition of the boards poses any threat to this country's unique system of doorstep delivery or to the continued availability of fresh pasteurised milk—
§ Lord Carter
My Lords, is the noble Earl suggesting that producers on Exmoor or in Carmarthen should set themselves up carrying out doorstep deliveries as their salvation?
My Lords, it is for them to decide whether or not they do so. I was merely making a general point.
As regards the doorstep "pinta" the answer is unequivocal. There is no such threat. Both doorstep delivery and the bottling and pasteurisation of milk are matters for the commercial dairy companies and not for the boards. I have no doubt that the companies will continue to be responsive to what the consumer wants and is prepared to pay for.
The noble Lord, Lord Carter, referred to competition policy as it relates to the MMBs. We are not proposing to change the Restrictive Trade Practices Act as the exemption in it relates to the relations of the co-operative with its own members. However, a statutory instrument will be used to extend the Fair Trading Act which deals more generally with competition to milk marketing. As I said, that will enable the Director-General of Fair Trading to refer bulk milk marketing arrangements for investigation by the Monopolies and Mergers Commission.
My noble friend Lord Mackay spoke about the proposals for the Scottish boards. The Government have pursued a voluntary approach to the reform of 861 milk marketing whereby the boards have submitted proposals for change. The Government have not imposed any particular solution on the boards. They are the boards' own proposals.
My noble friend also asked whether there will be three voluntary co-operatives in Scotland and questioned the effect of that on small producers. All three Scottish boards have produced proposals for converting themselves into voluntary co-operatives. Producers will be free to join the co-operatives and sell direct to dairy companies. It will be open to producers in one board area to sign up with any other co-operative. My noble friend Lord Forbes rightly drew attention to that kind of healthy competition. Currently, the Aberdeen board is supplying milk for the liquid market to Wiseman Dairies which is in the Scottish board area. Once again, remote producers could band together to market milk and supply their local market. Indeed, most creameries are in the more remote areas. The boards propose that the co-operatives must take all milk offered to them. At the same time, processors will be competing for that same supply of milk.
My noble friend Lord Forbes said that the three Scottish boards need to know now what will be acceptable to Ministers in terms of distribution of assets. He said that they will certainly need to know before Committee stage. Ministers are well aware of the anxieties of the boards as regards the different proposals for distribution of assets. My right honourable friend the Secretary of State for Scotland continues his discussions with the boards on a number of aspects of their proposals, including the distribution of assets. Ministers will need to ensure that any reorganisation scheme makes reasonable provision for distribution of assets before approving it.
The noble Lord, Lord John-Mackie, asked why the Bill is so complex in the language used; for example, in Clause 19. The reason for setting out matters in detail is the same here as with other Bills; namely, so that those affected know their exact rights and duties. The reason for specific provisions on the service of documents is that the procedure for the approval of schemes involves a number of provisions with time limits; for example, suggested modifications. A provision showing exactly how documents are to be served puts beyond doubt whether the time limits have or have not been observed.
I turn now to Part II. The noble Lord, Lord Carter, asked why we should have to wind up the PMB. I remind the noble Lord that the Bill contains enabling powers only, should Ministers decide it is necessary or desirable to end the scheme. The point is that the Bill would enable us to wind up the board constructively and provide for a successor to the PMB. We could not do that under the European Communities Act which is the only other route currently available.
The noble Baroness, Lady Robson, asked why we need to take those powers now. Presently Ministers have no power to revoke the scheme should they need to do so. The Bill merely provides a convenient opportunity to take such powers.
I should say to my noble friend Lady Carnegy that this is not exclusively linked with a possible EC 862 regime. However, the likelihood is that the central elements of the potato marketing scheme would be incompatible with any EC regime. In that situation those powers would allow us to comply with EC requirements but importantly provide that the PMB's assets are passed to a successor body of the PMB for such activities as research and development.
The noble Lord, Lord Geraint, questioned whether the PMB had been consulted about the Bill. It has been kept informed about the contents of the Bill in so far as it relates to it.
My noble friend Lord Wade suggested that the Government should come back to Parliament. We could undertake to consider that; for example, a triggering order could be made subject to the negative procedure. There is a strong possibility that the abolition of the board will become unavoidable because of an EC potato regime.
I am delighted that so many noble Lords welcome Part III of the Bill and the provisions for marketing grants. The noble Lord, Lord Carter, asked about the Government's plans for future marketing grants and the order of magnitude for expenditure. It is not yet possible to say what form a future scheme will take. Consideration will be given to that in the light of the operation of the group marketing grant as it develops; it has, of course, only been running for a few months. A future scheme is not expected to have new implications for public expenditure. Currently around £5.4 million is allocated to the group marketing grant over a three-year period.
The noble Baroness, Lady Robson, expressed the view that the group marketing grant had been less than efficient and that the new scheme needed to be properly regulated and funded. I am concerned about her comments. As I said, the scheme has only been running since April and should the noble Baroness or anyone else have any comments on its operation we shall be happy to look at those in detail.
The noble Lord, Lord Carter, asked about development councils and what might be the appropriate time for the industry to come forward with proposals. Perhaps I can say that as soon as the Bill receives Royal Assent, the Government will be favourably disposed to receive any proposals that the industry may choose to make. The noble Baroness, Lady Robson, wanted an assurance that a develop-ment council would indeed be set up. The procedures in the 1947 Act must be followed, but I repeat that the Government are favourably disposed.
My noble friend Lord Mackay of Ardbrecknish asked whether, after ending the wool guarantee, the UK wool industry would be able to compete freely with wool produced elsewhere in the world. UK wool represents around 2.5 per cent. of the world production and also competes with a significant volume of imported wool at free auction markets in the United Kingdom. The termination of the wool guarantee will not affect that arrangement.
My noble friend asked also whether the ending of the guarantee would lead to wool being off-loaded on to the market. The Bill provides that wool already collected by the British Wool Marketing Board in 1992 and previous clip years will continue to qualify 863 for the guarantee provided it is sold before 1st May 1995. That will assure the board of a sensible and workable timetable for the sale of the wool without disruption to its traditional marketing patterns. It will also provide a clear and precise end date for its exchequer liability.
The noble Lord, Lord Geraint, made the point that wool producers are also suffering delay in payments for their wool. Decisions on payment arrangements are a matter for the British Wool Marketing Board, which is an independent statutory body. The Government's decision to end the guarantee was announced in 1988. After the guarantee is ended the prices paid to producers will not be known until after the year end. In recent years the board has taken steps to prepare for post-guarantee conditions. Those include the introduction of a two-stage payment system.
The noble Lord feels also that the wool guarantee should not be ended, given the impact it will have on producer incomes, particularly in the hills. The total return from wool amounts to only around 5 per cent. of the total producer returns. Sheep farmers will continue to receive substantial government support through the new premium and hill livestock compensatory allowance. UK producers currently benefit from over £400 million in direct subsidies from those sources.
The noble Lord, Lord Carter, expressed regret that the annual review was coming to an end and asked whether the Government could give an assurance that they will continue to collect and publish statistics. I can assure him that they will do so. The noble Baroness, Lady Robson, felt that we should continue to have an annual debate on agriculture and that therefore the abolition of the annual review was inappropriate. Parliament no longer debates the annual review. However, the EC price proposals and eventual agreements are debated, and it is perfectly in order for any noble Lord to table a general debate on agriculture at any time.
Looking at the Bill as a whole there are many issues which I am sure noble Lords will wish to explore during the Committee and later stages. I trust that I shall be forgiven for not covering every point raised in the debate. It only remains for me once again to thank all noble Lords who have taken part. I beg to move.
§ On Question, Bill read a Second time, and committed to a Committee of the Whole House.