HL Deb 10 June 1993 vol 546 cc1103-8

7.21 p.m.

Earl Howe rose to move, That the order laid before the House on 30th April be approved [29th Report from the Joint Committee].

The noble Earl said: My Lords, your Lordships will recall that the Agriculture Bill, which received its Third Reading in this House on 2nd February, seeks to terminate the wool guarantee. When the Bill was being considered by noble Lords earlier this year, it was drafted on the assumption that it would be enacted by 30th April 1993, and that the provisions on wool would take effect from this date. This date is significant because it represents the last day of the 1992 wool clip year. The intention was therefore that the guarantee should come to an end at the most appropriate and convenient point in the year for the industry and for the British Wool Marketing Board, which is responsible for administering the guarantee. Ending the guarantee on 30th April would ensure that the 1992 guarantee applied in respect of all wool collected during that clip year, while providing a clean break in respect of wool collected thereafter—from the beginning of the 1993 clip year.

The pressure of business in another place meant that enactment of the Agriculture Bill by 30th April was not achieved. To avoid what would have become a retrospective provision within the Bill, the clause which repeals the legal basis for the wool guarantee was amended in Committee in another place so that it will now have effect from the date of enactment of the Bill, not 30th April. It would, however, have been neither prudent nor responsible to have left matters at that. To have done so would have meant that —in theory—Ministers would have been required to fix a wool guarantee for the interim period between 1st May and subsequent enactment of the Bill. Although this course may, on the face of it, have seemed desirable to some, its attractions would have been superficial. The lack of clarity in the run-up to 30th April as to whether a guarantee would need to operate would itself have created uncertainty. This would have been disruptive and disadvantageous to the industry precisely at a time when it is seeking to take important steps in response to the ending of the guarantee.

In addition, the task of operating a guarantee during this interim period would have risked creating confusion, as well as introducing inequity and imposing excessive bureaucracy on the industry. It would, in short, have been damaging to the orderly marketing of wool. Let me seek to illustrate this point. What would have been the result had Ministers been required to fix a guarantee for the period between 1st May and enactment of the Agriculture Bill? The first point to note is that any guarantee required to be fixed for the 1993 clip would have remained in force only during this interim period. Thus while wool delivered to the board during this period would have been subject to the guarantee, wool delivered subsequently would not. There would inevitably have been confusion as both producers and the British Wool Marketing Board sought to operate within a deadline which was not—and could not be—clearly fixed. Producers would undoubtedly have sought to deliver their wool to the board before the guarantee was likely to expire. Given that this expiry date could not have been known, this process could have disrupted the collection of wool.

There would, moreover, have been a risk that producers would be tempted to shear their sheep earlier than usual in order to ensure that the wool was delivered to the board in time to qualify for the guarantee. The prospect of producers adjusting the timing of their shearing simply on the basis of the likely progress of the Agriculture Bill through its various parliamentary stages is one which neither the Government nor the industry should have welcomed.

Of course, not all producers would have found it possible or desirable to bring forward their shearing in this way. And not all of those who did so could have been sure that they had acted in time to qualify for the guarantee. There is therefore a real risk that operating a guarantee in the interim period would have led to some inequity between producers. This would not only have resulted from the fact that those producers who delivered their wool before the deadline would have received the guarantee, while those who delivered their wool after would not. The risk of inequity would have extended further than that. To operate a guarantee for the interim period only, the board would almost certainly have been required to establish difficult and bureaucratic procedures to distinguish wool delivered before and after the deadline. Any such procedures would undoubtedly have been costly and these costs would have fallen on all producers. Thus those who delivered their wool after the deadline could have been doubly disadvantaged. While they might not themselves have been eligible for a 1993 guarantee, they—along with the industry as a whole—would have had to bear the additional costs incurred in administering this guarantee.

In addition to all of these difficulties, retention of the guarantee for merely part of a clip year would not in any case have been consistent with the objective of the mechanism. The wool guarantee was set up to stabilise—over time—the sheep producer's income from his wool. Deficits on the guarantee in some years have been balanced by surpluses in others. This has been achieved by ensuring that when the market price has fallen below the guarantee level, the Government have made cash advances to the board; and when market prices have been above the guarantee price the board has been required to make repayments to the Government. A guarantee applying only for a few weeks or months of the 1993 clip year could not in any way be said to operate as a stabilisation mechanism.

For all these reasons, it would have been neither sensible nor appropriate for the Government to have fixed a guarantee for the period beginning on 1st May 1993. That is why in February and March of this year Ministers indicated their intention to lay an order to remove the requirement on Ministers to fix a guarantee for this interim period. This order was laid on 30th April and came into effect on 1st May. It may be helpful if I seek to explain its precise effect. Under the powers available to Ministers in the Agriculture Act 1957, it revokes the British Wool (Guaranteed Prices) Order 1955 (as amended). Article 4 of the 1955 order placed a requirement on agriculture Ministers—in each year while the order remained in force—to fix a guarantee price for wool. Revocation of this provision removed this requirement, and with it the basis for operating a guarantee in respect of the interim period between 1st May and enactment of the Agriculture Bill. I can assure noble Lords that the order does not seek to override the need for primary legislation to terminate definitively the operation of the wool guarantee. This remains the function of what is now Clause 50 of the Agriculture Bill. This, as I have already indicated, removes the legal basis for the guarantee in primary legislation.

To sum up, the Government were concerned to end any uncertainty in the run-up to 30th April as to whether a guarantee would need to be fixed, and how long it would apply. Neither that uncertainty nor the operation of the guarantee for that interim period would have been in the interests of producers or the board. The order ensures that termination of the guarantee takes place with the minimum disruption to and maximum certainty for the industry as a whole. I beg to move.

Moved, That the order laid before the House on 30th April be approved [29th Report from the Joint Committee].—(Earl Howe.)

Lord Gallacher

My Lords, as always, I am grateful to the noble Earl for explaining the background to the order and its purpose so lucidly. On this occasion I can say with truth that the explanation was quite unnecessary. He will recall our debates on the Agriculture Bill at Committee stage, Report stage and Third Reading on this very question. I had the pleasure and privilege of going three two-minute rounds with the noble Earl on those occasions. While I would not say that he did not manage to lay a glove on me, at least I am here this evening standing upright and ready yet again to oppose the thinking behind the order and its timing.

As the Minister rightly said, the present order was announced in another place on 30th April (at col. 595 of Hansard) by the then Minister of Agriculture. It was laid before the House the following day. The order was debated in that place on 25th May. The debate generated considerable heat even by the standards of that other place. At one minute to midnight on that day the House of Commons divided by 189 votes to 150 votes in support of the order.

That allows me to say that our opposition on these Benches to the principle of terminating the wool guarantee in present world conditions still holds good, although, in accordance with the conventions of this place, it is not our intention to divide the House tonight. We certainly could not guarantee a vote of 189 to 150.

As the noble Earl said, the Wool Marketing Board's duties are to continue even after the Agriculture Bill is enacted. We still wonder, in all seriousness, how it will fare as a hoard without the guaranteed price system. Present world market conditions are against it and reserves held by the board from past success—and, as the Minister said, it has had some substantial successes—are not unlimited.

The Government justify their withdrawal of the guarantee on the basis that United Kingdom sheep farmers are interested in meat not wool. They also argue that the common agricultural policy and support from the Government ensure a fair deal for sheep farmers.

Therefore, we are entitled to ask how wise it is for those farmers to regard wool as a by-product, which is what the Minister had to say in his defence in another place. Does that mean, for instance, that the United Kingdom will import more wool for Britain's textile needs? In any case, common agricultural policy assistance is variable, especially for sheepmeat. Rules change. In our opinion the United Kingdom is a potential loser from any change of rule regarding the sheepmeat regime. Already the variable premium has gone, ewe premia are subject to headage limits, and hill and livestock compensatory allowances have been reduced by Her Majesty's Government. In those circumstances can sheep farmers be assured of continued financial support?

In the United Kingdom market New Zealand competition is much with us, including chilled lamb which equals the home product in quality, while white meat represents a real price threat to all red meat. United Kingdom lamb is expensive. The gap in price between farm gate and consumer becomes even wider as supermarket dominance increases. Exports to France and elsewhere are subject to force majeure, as we well know. Noises are already being made to the effect that the newly proposed European Community cohesion fund should be financed from reductions in the cost of the common agricultural policy. If so, where will those economies be made?

The case against the order and the tidying up arrangement which the noble Earl described at this time is that world prices for wool are artificially depressed, it is hoped temporarily. Even the Australian Government recognise that. In their High Commission news published in London for the week ending 30th April 1993 a 50 million Australian dollar package (£22.5 million) was announced to assist their farmers hit by drought and the collapse of wool prices to be financed by the federal government. There is also to be a three-month review of the wool industry structure and operational arrangements chaired by a professor of economics at their national university.

Contrast that with what is proposed in the order now before us. The date of execution has been advanced in the interests of administrative tidiness, saving even more money in the process. The final paragraph of a Written Answer at col. 596 of Hansard for another place for 30th April, to which I have already referred, saw the decision to terminate the wool guarantee as the start of a new era for sheep farmers and the textile industry. We beg to differ. Even for an order made on 29th April which came into force on 1st May, we would urge early reconsideration of the whole question in the light of the impact of withdrawing the guarantee under present market conditions.

Earl Howe

My Lords, I should like to respond to the points made by the noble Lord, Lord Gallacher, in his speech. First, he raised the anxiety that the British Wool Marketing Board might be adversely affected by the ending of the guarantee. I believe that that claim is unduly pessimistic. Indeed, the decision to end the guarantee has produced benefits for the industry which should not be underestimated.

The board has been forced by the prospect of greater exposure to market forces to improve its effectiveness and to seize financial responsibility for its own affairs. The positive steps which the board has taken and which it seeks to take are in the interests of the industry as a whole. Those steps include: the current financial agreement between Government and board which has facilitated the creation of a substantial reserve fund to underpin the board's future operations; a reduction in marketing costs achieved by increasing the efficiency and effectiveness of wool collection; the development of a more effective organisational structure, the development of new financial and managerial information systems; and improvements in the quality of the clip, for example through the development of fleece assessment programmes, research into better breeding and producer education on clip care. It is those steps and not retention of the guarantee which are in the long-term interests of the board, producers and the industry.

The noble Lord also suggested that abolition of the guarantee will mean a shortage of low-value wools for the processing industry. The basis of his anxiety is not entirely clear to me. The British Wool Marketing Board has itself estimated that ending the guarantee will have only a minimal impact on the volume of wool collected. That implies that imports of wool should not automatically rise as a result of the ending of the guarantee, although I accept that imported wool is used predominantly for clothing as opposed to carpets and other purposes. If, however, the processing industry nevertheless genuinely believes that the supply of wool will be threatened by the ending of the guarantee and that that supply is crucial to the well-being of the industry, then it is surely for the industry itself to ensure that the market responds in such a way that the product continues to be collected and marketed. I do not believe that government subsidy is the solution.

The noble Lord, Lord Gallacher, also cast doubt upon the permanence or sustainability of sheep support under the CAP schemes. I can only say that total payments to UK sheep farmers in respect of the annual ewe premium, the less-favoured area supplement to that premium, hill livestock compensatory allowances and, prior to its termination at the end of 1991, the sheep variable premium, have increased from £156 million in respect of 1981 to £283 million in respect of 1987, and to £495 million in respect of 1992. This substantial increase, bringing total support to nearly £500 million in respect of 1992, I believe demonstrates the Government's clear and continuing commitment to the UK sheep industry.

Finally, the noble Lord referred to support arrangements provided by some of our major competitors in the southern hemisphere. Australia and New Zealand, which are the world's largest producers, accounting together for nearly 50 per cent. of world wool production, withdrew their own price support arrangements in 1991. I shall study the remarks made by the noble Lord, but I do not feel that his arguments affect the basic points that I sought to bring out in my original speech which I think validate the basis of the order. I again commend it to the House.

On Question, Motion agreed to.

The Earl of Strathmore and Kinghorne

My Lords, I beg to move that the House do now adjourn during pleasure until 8.20 p.m.

Moved accordingly, and, on Question, Motion agreed to.

[The Sitting was suspended from 7.42 to 8.20 p.m.]